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805 F.2d 1034
Unpublished DispositionNOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit.William C. HOLMES, Plaintiff-Appellant,v.MICHIGAN DEPARTMENT OF CORRECTIONS; City of Saginaw FireDepartment; Young Men's Christian Association,Defendants-Appellees.
No. 85-1464.
United States Court of Appeals, Sixth Circuit.
Oct. 1, 1986.
Before MERRITT, GUY and NORRIS, Circuit Judges.
ORDER
1
The plaintiff appeals pro se from the district court's order of May 31, 1985 which adopted the magistrate's report and recommendation granting the defendants' motions for summary judgment and dismissing plaintiff's complaint.
2
In his brief plaintiff presents the following three issues: 1) whether or not it was improper for the district court to dismiss his pro se complaint although it stated a claim for which relief can be granted; 2) whether or not the district court abused its discretion in denying plaintiff's motion to amend his complaint; and 3) whether or not pro se petitioners should be allowed to represent class action on behalf of prisoners.
3
The district court correctly decided to dismiss petitioner's complaint although it arguably stated a claim for which relief could be granted. It is well established that a complaint regarding conditions of prison confinement is rendered moot when the prisoner is released from custody. This is precisely the case with petitioner. Penland v. Warren County Jail, 759 F.2d 524, 526 n. 1 (6th Cir.1985). Moreover, federal jurisdiction under Art. III Sec. 2 of the United States Constitution extends only to actual cases and controversies, and therefore federal courts lack jurisdiction over moot issues. Preiser v. Newkirk, 422 U.S. 395 (1975); United States v. City of Detroit, 720 F.2d 443 (6th Cir.1983). A controversy is not moot if it is capable of repetition, but evades review. United States v. City of Detroit, supra. This doctrine applies when the alleged action is too short in duration to be fully litigated prior to its cessation and there is a reasonable expectation that the same complaining party would be subjected to the same action again. Id. at 449. However, petitioner's claim for damages has saved his claim from the bar of mootness. Banas v. Dempsey, 742 F.2d 277, 281 (6th Cir.1984). Thus petitioner's claims for equitable relief, declaratory judgment, preliminary and permanent injunction are moot but his claim for monetary damages is not moot. However, the district court found plaintiff did not state a claim for which relief could be granted under 42 U.S.C. Sec. 1983 with respect to the various defendants. The court's analysis for each defendant is as follows. Defendant Perry Johnson, the Director of the Michigan Department of Corrections, is being sued individually in his official capacity. The court correctly held that under Sec. 1983 public officials are not vicariously liable for the wrongdoing of their subordinates. Coffy v. Multi-County Narcotics Bureau, 600 F.2d 570, 580 (6th Cir.1979). There is no evidence that Johnson had a direct role in the events which led to this action.
4
Defendant City of Saginaw was correctly held not liable under Sec. 1983 because there was no evidence tendered that the alleged violation was a custom, practice or policy of the municipality. City of Oklahoma v. Tutle, 105 S.Ct. 2427, 2435 (1985).
5
Defendants Saginaw Y.M.C.A. and its Director, Max Fisher, were also correctly held not liable under Sec. 1983 because the allegations against them were too vague. Moreover, there was no allegation that these private citizens conspired with the governmental entity, thereby becoming a state actor, to deprive plaintiff of his constitutional rights. Lugar v. Edmondson Oil Co., 457 U.S. 922 (1982).
6
Defendants Esler, Bishop and Gipson, who are firemen and the fire chief of the Saginaw Fire Department, respectively, were also correctly not liable under Sec. 1983. In Jackson v. City of Joliet, 715 F.2d 1200 (7th Cir.1983), cert. denied, 465 U.S. 1049 (1984), the court held that mere failure to rescue is not actionable under Sec. 1983 just because the defendant is a public officer whose official duties include aiding people in distress. However, the court further stated that such acts by defendants would be actionable under Sec. 1983 if they constituted deliberate discrimination particularly against a vulnerable minority. Id. at 1202-1203.
7
Plaintiff's second claim is that the district court abused its discretion in denying his motion to amend the complaint. Federal Rule of Civil Procedure 15(a) provides that a party must seek leave of the court to amend his pleadings after a responsive pleading has been filed. Leave to amend must be freely given. Federal Rule of Civil Procedure 15(a); see Foman v. Davis, 371 U.S. 178 (1962). Leave should be granted unless there is some apparent or declared reason not to allow the amendment. Marx v. Centran Corp., 747 F.2d 1536 (6th Cir.1984), cert. denied, --- U.S. ----, 105 S.Ct. 2656 (1985). Some factors to be considered in evaluating a motion to amend are undue delay, prejudice to opposition parties and futility of the amendment. Cranberg v. Consumers Union of United States, Inc., 756 F.2d 382 (5th Cir.), cert. denied, --- U.S. ----, 106 S.Ct. 148 (1985); Adams v. Gould, Inc., 739 F.2d 858 (3d Cir.1984), cert. denied, --- U.S. ----, 105 S.Ct. 806 (1985). The standard of review is abuse of discretion. Marx v. Centran Corp., supra.
8
In the case at bar the district court reviewed plaintiff's proposed amendments to the complaint (Att. 6, p. 10). The court decided that the amendment would not serve the ends of justice particularly since there were no allegations that the present conditions were equally dangerous as plaintiff's experience or that there was any likelihood of repetition. In addition the court correctly found that the proposed amended complaint did not correct the defects of the original complaint, in that neither stated a claim under 42 U.S.C. Sec. 1983 for which relief can be granted. Therefore, the district court did not abuse its discretion in denying plaintiff's motion to amend the original complaint since the amendment would have been futile. Cranberg v. Consumers Union of the United States, Inc., supra.
9
Plaintiff's third and final claim is that the court erred in denying his motion for class certification with him as the class representative because of his pro se status. The prerequisites to maintenance of a class action are that the class is so numerous that joiner of all members is impracticable, there are common questions of law or fact, the representative party's claims or defenses are typical of the class claims or defenses, and the representative party will fairly and adequately protect the class interests. The scope of review for a class certification decision is abuse of discretion. Patterson v. General Motors Corp., 631 F.2d 476 (7th Cir.1980), cert. denied, 451 U.S. 914 (1981). Courts have held that pro se prisoners are not adequate class representatives able to fairly represent the class. See Oxendine v. Williams, 509 F.2d 1405 (4th Cir.1975); Hummer v. Dalton, 657 F.2d 621 (4th Cir.1981); Ethnic Awareness Organization v. Gagnon, 568 F.Supp. 1186 (E.D.Wis.1983); Inmates, Washington County Jail v. England, 516 F.Supp. 132 (E.D.Tenn.1980), affirmed, 659 F.2d 1081 (6th Cir.1981).
10
Accordingly, the district court did not abuse its discretion in denying class certification of this case.
11
For these reasons, it is ORDERED that the district court's judgment be affirmed. Sixth Circuit Rule 9(d)(3).
|
742 F.2d 1454
Big-Spielwarenfabrikv.Detroit Plastic Molding Co.
83-1360
United States Court of Appeals,Sixth Circuit.
8/7/84
1
E.D.Mich.
AFFIRMED
|
904 N.E.2d 1242 (2005)
359 Ill. App.3d 1199
WELLS FARGO BANK MINNESOTA, N.A.
v.
BUTLER.
No. 1-04-0617.
Appellate Court of Illinois, First District
August 25, 2005.
Dismissed.
|
944 F.2d 905
NOTICE: 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.Gerald M. MORGAN, Plaintiff-Appellant,v.SECRETARY OF HEALTH AND HUMAN SERVICES, Defendant-Appellee.
No. 91-1316.
United States Court of Appeals, Sixth Circuit.
Sept. 18, 1991.
Before KEITH and BOYCE F. MARTIN, Jr., Circuit Judges, and KRUPANSKY, Senior Circuit Judge.
ORDER
1
Gerald M. Morgan appeals the district court's decision affirming the Secretary's denial of social security disability benefits. This case has been referred to a panel of the court pursuant to Rule 9(a), Rules of the Sixth Circuit. Upon examination, this panel unanimously agrees that oral argument is not needed. Fed.R.App.P. 34(a). All counsel of record have waived oral argument.
2
Morgan filed an application for social security disability benefits with the Secretary, alleging that he suffered from headaches, back injury, high blood pressure and hardening of the arteries. Following a hearing, the Administrative Law Judge (ALJ) determined that Morgan was not disabled because he had the residual functional capacity to perform a significant number of jobs in the regional and national economy. The Appeals Council granted review and determined that Morgan retained the residual functional capacity to perform his past relevant work as a journeyman welder.
3
Morgan then filed a complaint seeking review of the Secretary's decision. Over Morgan's objections, the district court adopted the magistrate's recommendation and granted summary judgment for the defendant. Morgan has filed a timely appeal.
4
Upon review, we determine that substantial evidence does not exist to support the Secretary's decision. Brainard v. Secretary of Health and Human Services, 889 F.2d 679, 681 (6th Cir.1989) (per curiam).
5
While the Appeals Council's decision noted Morgan's obesity, hypertension, and a history of headaches, the decision does not consider the medical diagnosis of two of Morgan's treating physicians that he suffers from osteoarthritis (degenerative joint disease) in his lumbar spine and right knee. Further, it is not clear that the Appeals Council adequately considered Morgan's obesity or history of severe headaches when it determined that he could lift up to one-hundred pounds and frequently lift or carry objects weighing up to fifty pounds. From the evidence presented to us, we determine that Morgan is unable to perform his past relevant work as a journeyman welder.
6
Accordingly, we vacate the district court's judgment, and remand the case to the Secretary for a determination as to whether there exists a significant number of other jobs in the regional and national economy which Morgan can perform. Rule 9(b)(3), Rules of the Sixth Circuit.
|
24 Cal.App.2d 649 (1938)
In the Matter of the Estate of ISABELLA JACOBS, Deceased. R. N. CONN, Appellant,
v.
V. O. WALDECK et al., Respondents.
Civ. No. 2146.
California Court of Appeals. Fourth Appellate District.
February 1, 1938.
William H. Wylie and T. S. Hankey for Appellant.
Fred E. Lindley and J. L. Hofflund for Respondents.
Marks, J.
This is an appeal from a judgment refusing to revoke the probate of the will of Isabella Jacobs, deceased. Her only surviving heirs at law are two nephews, one of whom is the contestant R. N. Conn. V. O. Waldeck, Margarete K. Waldeck, his wife, and Pearl Gotham are the legatees named in a will of deceased executed on August 5, 1935, and the San Diego Trust and Savings Bank is the executor. None of the legatees was related by blood to Mrs. Jacobs.
Mrs. Jacobs was about eighty-three years of age at the time she executed the will. She had suffered a hemorrhage of the brain about five years before and another slight one on August 1, 1935. On August 5, 1935, she was ill in bed but seemed to be mentally alert and in possession of her mental faculties.
The second amended petition to revoke the probate of the will alleged three grounds of contest: (1) mental incapacity; (2) undue influence of V. O. Waldeck; (3) failure to observe the required formalities in the execution of the will.
The evidence of the mental testamentary capacity of Mrs. Jacobs was so complete and convincing that contestant abandoned *651 it as a ground of contest at the trial and does not raise it here.
[1] Evidence of undue influence on the part of V. O. Waldeck or any other person is entirely lacking. This is tacitly admitted by contestant, who is driven to rely upon the inference of undue influence which may be drawn from the following: An unnatural or unjust will, and a confidential relationship between the testatrix and a beneficiary who actively participated in the preparation of the will through which he unjustly benefited.
It does not necessarily appear from the evidence that the will was either unnatural or unjust. Nephews are not necessarily the natural objects of the bounty of an aunt. While the beneficiaries were not related by blood to Mrs. Jacobs, they were her friends. They were kind to her and assisted and cared for her at the close of her life. Mrs. Gotham voluntarily acted as one of her nurses during her last illness. There is no showing of any friendly relationship existing between either of the nephews and Mrs. Jacobs. As far as the record discloses she might never have known of their existence.
A similar question was before the court in Estate of Easton, 140 Cal.App. 367, where at page 376 [35 PaCal.2d 614], it was said:
"Contestants contend, however, that in any event the evidence is sufficient to establish a confidential relationship between Lucy Harnett and the testatrix, which gave rise to a presumption of undue influence legally sufficient to create a conflict in the evidence and thus sustain the verdict. We are unable to sustain this contention. The legal doctrine sought to be invoked is stated in the Estate of Lances, 216 Cal. 397 [14 PaCal.2d 768], as follows: 'Where one who unduly profits by a will sustains a confidential relationship to the testator and actively participates in procuring the execution of a will, the burden is upon him to show that the will was not induced by his undue influence. (Estate of Shay, 196 Cal. 355, 363 [237 P. 1079]; Estate of Gallo, 61 Cal.App. 163 [214 P. 496].)' But as indicated by the foregoing statement, such presumption is not generated alone by the existence of a confidential relationship. (Estate of Presho, 196 Cal. 639 [238 P. 944].) Such relationship 'assumes probative importance when disclosed in conjunction *652 with the facts that the provisions of the propounded instrument are unnatural or unjust, and that the alleged wrongdoer was active in procuring the writing to be executed. If the facts of injustice and activity on the part of the wrongdoer are not established, a denial of probate cannot be sustained.' (26 Cal.Jur. 652, citing authorities.) In other words, to use the language of the Supreme Court: 'There must in addition be proof that the one occupying such relationship displayed activity in the preparation of the will to his undue profit' (Estate of Presho, supra), meaning that there must be proof that the will is unnatural. Moreover, it is well settled that collateral heirs, such as brothers and sisters, are not 'natural objects of bounty' as that term is used in the interpretation of wills, and therefore, in cases such as this, where the next of kin are collaterals and one or more are unprovided for in the will, the pretermitted persons, in order to establish that the instrument is unnatural, must show affirmatively that they had peculiar or superior claims to the decedent's bounty; and if no such claim is adduced, the instrument cannot be held to be unnatural. (26 Cal.Jur. 695, 696.)"
[2] If we assume, without holding, that the beneficiaries under the will occupied a position of confidential relationship to Mrs. Jacobs, still, under the circumstances before us, contestant would not be relieved of the burden of proving undue influence by a preponderance of the evidence. (Estate of Presho, 196 Cal. 639 [238 P. 944]; Estate of Shay, 196 Cal. 355 [237 P. 1079]; Estate of Ross, 117 Cal.App. 574 [4 PaCal.2d 164].)
The will was not necessarily either unjust nor unnatural. None of the beneficiaries knew that Mrs. Jacobs was about to execute a will prior to the time she announced such an intention a few minutes before Dr. Crawford was called to write it. In calling Dr. Crawford, one of the proponents merely transmitted a message given by Mrs. Jacobs. The will was dictated by the testatrix to Dr. Crawford, who reduced the dictation to writing. Mrs. Jacobs fully understood the bequests which she made. She selected her beneficiaries. She was satisfied with the will she dictated. While the beneficiaries were in the room during the time the will was being dictated, written and executed, they were not there as actors but as passive observers. They were *653 present because Mrs. Jacobs wanted them there. Simply because they were present at the invitation of the testatrix at that time is not sufficient to establish undue influence. The evidence not only fails to show any undue influence on the part of Waldeck or any other person, it negatives any idea of undue influence. (Estate of Ross, supra.)
[3] Contestant maintains that the evidence fails to show due execution of the will in the following particulars: (1) that the testatrix did not subscribe the will or acknowledge its subscription in the presence of both attesting witnesses; (2) that the testatrix did not declare to the witnesses that it was her will; (3) that the subscribing witnesses did not sign the will at the request of testatrix and in her presence. (Subds. 2, 3, and 4, sec. 50, Probate Code.)
The evidence favorable to proponents, which is all we need consider here as it was adopted by the trial judge as true, may be summarized as follows: that on the evening of August 5, 1935, Pearl Gotham was caring for Mrs. Jacobs pending the arrival of the regular nurse; that Mrs. Jacobs said she wanted to make her will and asked that Dr. Crawford, her physician, be called to write the will; that she was told of the necessity for witnesses; that when witnesses were discussed one of the proponents said, "We might get Mr. Dixon, will that be all right?", to which Mrs. Jacobs replied, "Yes, that will be all right;" that Mr. Dixon, a neighbor, was called. Mr. Dixon described the events as follows:
"A short time after I stepped in Mrs. Jacobs' room, Dr. Crawford came; I was standing at the foot of her bed, about three feet back, I should say; Mrs. Jacobs was talking to the doctor about a will, and she asked him to make it out; I think that is the words she used; not too sure; but I think that is it; it is rather hazy; the doctor procured a piece of paper, and the doctor asked her what she wanted said, and the doctor wrote the will--a short document; after Dr. Crawford wrote the will, he read it to Mrs. Jacobs; Mrs. Jacobs then said, "That is all right; I will sign it;' she signed it; the doctor handed her the paper back and gave her his fountain pen and she signed it; I saw her; I moved a little further back towards the door that is mentioned here, but I saw her sign the will; after that Dr. Crawford reread the will, and then came to the foot of the bed and asked *654 me to go to the little table that was there, and we both signed the will; at this table; this table was just through a door in another room; it was a full size door, and the table was right in front of the door; very close to the door; I could see Mrs. Jacobs; she was then sitting up in bed; after the doctor signed the will we both got up from the table; I turned around in the doorway, and the doctor took the document to Mrs. Jacobs and read it; she said 'that is all right'; Doctor read it in full, with the names of the witnesses; Mrs. Jacobs said 'that is all right' or words to that effect, that is the best I can remember; when that occurred I was standing in the doorway ready to go; I left the house immediately; ...""
Contestant does not contend that Mrs. Jacobs signed the will out of the presence of Dr. Crawford, one of the subscribing witnesses. Dr. Crawford wrote the will and testified that she dictated it to him; that he read it over to her after it was reduced to writing; that she said, "Yes." "Thank you." Both subscribing witnesses testified the will was signed by Mrs. Jacobs in their presence.
Evidence weaker than that which we have here has been held to constitute (1) a sufficient publication of a will by the testatrix; (2) a sufficient request to the witnesses to subscribe their names to the will as witnesses, and (3) a sufficient subscription of the will by the witnesses in the presence of the testatrix. (Estate of Silva, 169 Cal. 116 [145 P. 1015]; Estate of Cullberg, 169 Cal. 365 [146 P. 888]; Estate of Dow, 181 Cal. 106 [183 P. 794]; Estate of Offill, 96 Cal.App. 640 [274 P. 623]; Estate of Miner, 105 Cal.App. 593 [288 P. 120].)
There is some conflict in the evidence caused by the testimony of the beneficiaries of the will who placed Mr. Dixon on a screen porch looking into the bedroom where Mrs. Jacobs lay while she was giving directions for the terms of her will, while Dr. Crawford was writing it and while he was reading it for the first time, and when it was subscribed. According to these witnesses the bedroom was small and Mr. Dixon was but a few feet from Mrs. Jacobs during this time and within sight and hearing of her. This does not create a substantial conflict in the evidence that could affect the results, as under the holding in Estate of Miner, supra, he was then in her presence. *655
Assuming that this evidence did create a substantial conflict, the trial judge was not bound to accept the testimony of the beneficiaries as true and disregard the evidence of Mr. Dixon, as the proponents were only giving a narrative account of the events as they remembered them. A similar contention was made in the case of Johnson v. Johnson, 137 Cal.App. 701 [31 PaCal.2d 237], where it was said:
"It is argued that the respondent is bound by his own testimony, that this testimony is essentially the same as that given in support of this appellant's theory, and that the respondent may not recover against this appellant regardless of any other evidence which appears."
"It may first be observed that while it has usually, if not always, been held that the rule contended for applies where a party to an action testifies to some fact peculiarly within his own knowledge or where he makes an admission, there is very good authority for refusing to apply the rule in a case where a party, instead of making an admission or testifying as to a fact peculiarly within his knowledge, is merely giving a narration of how something occurred as the same appeared to him. (Hill v. West End St. Ry. Co., 158 Mass. 458 [33 N.E. 582]; Whiteacre v. Boston Elevated Ry. Co., 241 Mass. 163 [134 N.E. 640]; Kanopka v. Kanopka, 113 Conn. 30 [154 Atl. 144, 80 A.L.R. 619].) ... Under any theory of the case, the question was one of fact for the jury."
The proponents of the will urge other reasons why the judgment must be affirmed. In view of what we have already said it is unneccessary to consider them.
The attempted appeal from the order denying the motion for a new trial is dismissed. The judgment is affirmed. Respondents will recover their costs of appeal.
Barnard, P. J., concurred.
|
219 N.W.2d 750 (1974)
192 Neb. 168
Raymond RUSKAMP and Margaret Ruskamp, Appellees,
v.
HOG BUILDERS, INC., a corporation and Nebraska Consolidated Mills Company, a corporation, Appellants.
No. 39317.
Supreme Court of Nebraska.
June 27, 1974.
*752 John R. Douglas, Cassem, Tierney, Adams & Henatsch, Omaha, for appellants.
Marks, Clare, Hopkins, Rauth & Garber, Omaha, for appellees.
Heard before WHITE, C. J., and SPENCER, BOSLAUGH, McCOWN, NEWTON, CLINTON and BRODKEY, JJ.
McCOWN, Justice.
This is an action for damages for breach of warranty in connection with the sale of 22 breeding gilts purchased by plaintiffs Ruskamp from one of the defendants, Hog Builders, Inc. The jury returned a verdict for the plaintiffs for $14,500. Defendants appeal.
The plaintiffs live on a farm near Dodge, Nebraska, and have raised hogs for 20 years. In January 1968, at the invitation of a representative of defendant, Hog Builders, Inc., Mr. Ruskamp attended a sales meeting sponsored by the defendant to familiarize potential customers with its product. The defendant made a slide presentation promoting the hybrid hogs the defendant was offering for sale, which showed the conditions under which the hogs were produced. A question and answer period followed, during which Ruskamp asked if the defendant's hogs were free of rhinitis. He was assured that they were. Copies of the defendant's printed warranties were available at the meeting. There were express warranties that the animals will have been vaccinated for erysipelas and leptospirosis and that they will have passed a negative test for brucellosis and/or originate from defendant's brucellosis-free herd. Defendant's purchase order form also contained a provision that the written certificate of vaccination would also cover hog cholera. Neither the guarantee form nor the purchase order contained any disclaimer of other warranties nor any language which would exclude or modify any implied warranties of fitness.
In January 1968, Ruskamps purchased 2 boars and 12 gilts. The plaintiffs were fully satisfied with these animals. The gilts produced about 9 pigs per litter. On September 20, 1968, based on his previous experience, Ruskamp ordered 22 gilts, "just like the 12 that I ordered before." The purchase price was $90 each, plus $3 delivery, a total of $2,046.
The written guarantee and the purchase order form were the same as those on the previous order except that the words "hog cholera" were crossed out on the purchase order form. The gilts for plaintiff's first order in January had come from defendant's *753 farm in Missouri. The gilts for the second order came from the Bobbie Larson farm in South Dakota, and were delivered at the Ruskamp farm on November 7, 1968. Ruskamp did not notice anything unusual about any of them while he was feeding the medicated feed during the 2 or 3 weeks before he turned them in with the boars. Then during December 1968, he noticed that two of the gilts were turning runty. A couple of the gilts had nose bleeds. The two runty gilts and four others did not get impregnated. The other 16 gilts did. The 16 gilts that farrowed averaged 6 pigs each.
After the pigs were 2 weeks old, they started sneezing. They would rub their noses on the cement floor, and by the time they were 8 or 10 weeks old, their noses started turning a little crooked. It took 7 months to a year to bring the pigs to market weight. Normal time is 5 1/2 to 6 months. In June of 1969, 96 young pigs had nose problems and on June 11, 1969, plaintiffs' veterinarian diagnosed the disease as atrophic rhinitis, a contagious, infectious disease peculiar to swine. No one is absolutely certain what causes the disease but it is caused by one or more organisms and viruses. It is primarily transmitted by contact, and/or droplets from the nose which could contaminate the feed and water. The symptoms are excessive sneezing, nasal discharge, watery eyes, some hemorrhaging from the nose, deviation of the snout and malocclusion of the jaws in young pigs, and gauntness and rough-hair coat. Because of lower resistance, the animals may contract pneumonia. It may take 30 to 60 days for the symptoms to manifest themselves. There is no way to vaccinate against the disease and no cure for it. It is not a killer. "It just makes poor pigs out of them." They can still be sold for human consumption.
Ruskamps' veterinarian recommended marketing all plaintiffs' herd of swine, disinfecting the premises and buildings and allowing them to remain empty for 3 to 6 months before restocking. The plaintiffs sold their herd and discontinued hog raising for approximately 1 year.
The defendant's veterinarian testified that there were no signs of atrophic rhinitis in the Larson herd in South Dakota when he examined the animals on October 31, 1968, about a week before the shipment of these gilts. He acknowledged that the disease could be characterized as a latent disease.
Larson was a bailee of the defendant and had been since July 1967. All his breeding stock was supplied by the defendant and belonged to the defendant. He received a fee from the defendant, partly payable when the gilts reached a certain weight and the balance when they were sold by the defendant. He testified that the gilts were sold and delivered for the purpose of breeding and improving the breeding stock of the farmers who purchased them. In his opinion the defendant's gilts were a better yielding, better meat-type hog with less back fat. He also testified that he never had atrophic rhinitis in his herd during his 20 years in business.
Delivery from the Larson farm was made by truck and the same truck delivered animals to three purchasers in addition to Ruskamp. Two of those purchasers testified that the animals they received in that shipment manifested the symptoms of atrophic rhinitis and that they had not had it in their herds before. One of the purchasers also testified that he visited the Larson farm in the spring or early summer of 1969, and, in his opinion, a large percentage of the hogs he saw there had atrophic rhinitis. They had crooked noses, lots of sneezing, and some had blood on their snouts.
The trial court withdrew any issue of express warranty from consideration by the jury, apparently upon an interpretation of the parol evidence rule. The matter was submitted to the jury on the issue of implied warranty of fitness for the particular purpose for which the goods were required, and no error has been assigned regarding *754 the instructions. The jury returned a verdict for the plaintiff in the sum of $14,500 and there is no dispute as to the amount of damages.
The defendants essentially contend that where animals are sold with an implied warranty of fitness for breeding purposes, the scope of the warranty is limited to breeding and producing offspring, and that no warranties as to disease may be implied where there are express warranties that the animals have been vaccinated or tested for certain specified diseases. Defendants also contend that under the usage of the trade, there is a particular designation for a hog that is guaranteed by the seller to be free of all disease. The argument is that there can be no implied warranty of soundness or freedom from a disease involving fitness for a particular purpose where the parties know they are not dealing with that kind of animal.
It should be noted here that defendant's written guarantee provided that if any gilt proved to be a nonbreeder within 90 days after receipt by the buyer, the buyer would receive full credit for the purchase price of the animal provided he had followed handling procedures required by the defendant. The defendant complied with that guarantee with respect to the six gilts that did not breed.
Section 2-315, U.C.C., provides: "Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose."
With exceptions not here material, section 2-316, U.C.C., provides in part: "* * * to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous. Language to exclude all implied warranties of fitness is sufficient if it states, for example, that `There are no warranties which extend beyond the description on the face hereof.' * * * (c) an implied warranty can also be excluded or modified by course of dealing or course of performance or usage of trade."
Section 2-317, U.C.C., provides that warranties, whether express or implied shall be construed as consistent with each other and as cumulative wherever such construction is reasonable and specifically provides that: "Expressed warranties displace inconsistent implied warranties other than an implied warranty of fitness for a particular purpose."
There is nothing in any of the printed or written warranties of the defendant which excludes any implied warranty of fitness. Neither do we find any inconsistency between the implied warranty of fitness here and any express warranties. Even if there were an inconsistency, section 2-317, U.C. C., specifically provides that any implied warranty of fitness for a particular purpose would not be displaced.
The evidence is substantially without contradiction that Ruskamp purchased the gilts from the defendant "for the purpose of breeding and raising pigs and improving the quality of his herd." The defendant was aware of Ruskamp's requirements and Ruskamp relied on the defendant to select and furnish suitable animals. The facts here clearly establish an implied warranty of fitness for a specific purpose, which the defendant did not exclude or modify as it might have done under the provisions of section 2-316, U.C.C.
The defendants contend that an implied warranty of fitness of an animal for breeding purposes is limited to breeding and producing offspring exactly as provided by the express warranty here, and that an implied warranty does not extend to the soundness of the animals nor the quality of offspring nor that they will not communicate a disease to other hogs. Defendants cite cases such as Barton v. Dowis, *755 315 Mo. 226, 285 S.W. 988 (1926), in support of that proposition. That case held that in the sale of animals the rule of caveat emptor applies and there is no implied warranty that the animals are free from disease. It also held that an implied warranty of fitness for breeding purposes was not a warranty that the hogs would not communicate a disease to other hogs. Obviously the case was long before the days of the Uniform Commercial Code.
We think the view expressed by the Idaho court in the case of Paullus v. Liedkie, 92 Idaho 323, 442 P.2d 733 (1968), reflects a far more realistic viewpoint on the subject. That court said: "When one sells hogs for breeding, with an implied warranty that they are fit for that purpose, and the hogs turn out to be infected with a disease that renders them useless as breeders, and in fact substantial numbers of [the] piglets die, then it would be ridiculous to say that the pigs were fit for the purpose intended." Where, as in this case, the gilts were infected with a disease which caused them to produce smaller litters of pigs than other gilts of the identical kind which were not diseased and where the pigs actually produced took a much longer time to bring to market condition because of the disease, and the disease adversely affected the entire herd, it seems equally illogical to say that the gilts were fit for the purpose intended.
It seems clear that at least with the advent of the Uniform Commercial Code, the old rule that there is no implied warranty of soundness in the sale of animals where the unsoundness is hidden, unknown to the seller, and difficult to discover, is no longer in effect where there is an implied warranty of fitness for a particular purpose under the provisions of the Uniform Commercial Code.
The Iowa case of Reed v. Bunger, 255 Iowa 322, 122 N.W.2d 290 (1963), makes it clear that the older decisions in that state applying the doctrine of caveat emptor to the purchase of animals are no longer in effect, and that there may be an implied warranty of reasonable fitness of an animal notwithstanding the seller's lack of knowledge that it does not comply with the warranty.
In Ver Steegh v. Flaugh, 251 Iowa 1011, 103 N.W.2d 718 (1960), a statement by the seller that boars were good breeders and clean was found not inconsistent with an implied warranty of fitness for a particular purpose and the court specifically held that where a seller sells an animal for breeding purposes, knowing that the buyer is buying the animal for that purpose there is an implied warranty of its reasonable fitness therefor and that it is not infected with any disease which destroys its value for such purpose. That court also held that there may be an implied warranty of fitness for a particular purpose notwithstanding the seller's lack of knowledge that the animal does not comply with the warranty and notwithstanding the difficulty of discovering the fact.
The clear implication of the cases involving animals is that soundness is an element of fitness for a particular purpose. In the case now before us, the jury was specifically instructed that the plaintiffs were required to prove, in addition to other things, "that the plaintiff relied upon the implied warranty of the defendants as to the soundness and fitness for their intended use." No error has been charged with respect to that instruction.
In Long v. Carpenter, 154 Neb. 862, 50 N.W.2d 67, this court dealt with an express warranty that a show animal was sound when at the time of purchase the animal was allegedly unsound and unfit for use as a show horse because of a latent, progressive, and incurable defect or disease. This court said: "`A warranty that an animal is sound implies the absence of any defect or disease which impairs or in its progress will impair the animal's natural usefulness for the purpose for which it is purchased, which defect must be existent at the time of sale, and is breached by any *756 defects which render it permanently less serviceable, as, for example, a disease, or malformation of the animal's body or the animal's disposition, although the defect may not be fully developed at the time of the sale, and although the defect was not known to the seller.'"
We hold that where a seller sells animals for the purpose of breeding and raising young and improving the quality of a herd, knowing that the buyer is buying the animals for such purposes and is relying on the seller's skill or judgment to select or furnish suitable animals, there is an implied warranty that the animals are reasonably fit for such purposes and that they are not infected with a disease which substantially destroys their value for such purposes.
Whether there has been a breach of warranty, express or implied, is largely a question of fact. There was evidence from which the jury could find that the breeding gilts here were infected with atrophic rhinitis at the time of sale and delivery of the animals to the plaintiffs. The jury was also entitled to find that because of that disease, the animals were unfit for the particular purposes of breeding and raising pigs and improving the quality of plaintiffs' herd. The fact that the animals produced smaller litters of pigs than identical gilts which were not diseased and that the pigs took longer to bring to market condition was clearly relevant on the issue of fitness for the particular purpose for which the gilts were sold and purchased. The liability of the defendant for a breach of the implied warranty of fitness for the particular purpose is not affected by the fact that the defendant was unaware of the existence of the disease at the time of the sale and delivery of the animals. To return to the doctrine of caveat emptor is wholly unacceptable. If the defendant desired to exclude implied warranties imposed by the Uniform Commercial Code, it could have done so.
The claim that a usage of the trade with respect to an SPF hog modifies the provisions of the Code with respect to implied warranties is not supported by the evidence. Defendants' contention, if correct, would eliminate any implied warranty of fitness for a particular purpose in the case of hogs, whenever the unfitness arose because of any disease. That position is untenable.
The judgment of the District Court was correct and is affirmed.
Affirmed.
|
41 B.R. 67 (1984)
In re Lillian E. ASHLEY, Debtor.
Bankruptcy No. 83-00624.
United States Bankruptcy Court, E.D. Michigan, N.D.
May 11, 1984.
*68 Terrence H. Bloomquist, Grayling, Mich., for debtor and secured creditor.
Ralph I. Selby, Bay City, Mich., for Trustee.
William Klintworth, Traverse City, Mich., for debtor.
OPINION
ARTHUR J. SPECTOR, Bankruptcy Judge.
This case comes before the Court as a motion by the trustee for turnover of funds held by a custodian under § 543(b)[1] and a cross-motion by an attorney who represented the debtor in litigation against an insurance company for an award of his attorney fees under a contingency-fee contract with the debtor, where the source of the custodian's funds is the settlement proceeds of the insurance litigation.
FACTS
On November 22, 1983, the debtor filed her petition for relief under Chapter 7 of the Bankruptcy Code together with a statement of affairs for debtor not engaged in business and her schedules in bankruptcy. Question number 10 of the statement of affairs, which requires the debtor to detail any litigation pending at the time of the filing of the petition in which the debtor is a party, was answered with a response which omitted any reference to the pendency of a lawsuit filed by her and pending in the Roscommon County Circuit Court entitled Ashley v. State Farm Mutual Automobile Insurance Company, No. 82-3075-CK. Schedule B-2(q) also omitted any reference to the existence or value of the cause of action. The debtor's bankruptcy attorney, William F. Klintworth, later explained that he had no knowledge of that lawsuit when the pleadings were being prepared, that the debtor was becoming senile, and that her friends had to assist in the preparation of the schedules and statement of affairs. In short, he explained that the omissions were inadvertent.
Meanwhile, Terrence H. Bloomquist, the attorney who was retained on June 10, 1981 by the debtor to pursue the litigation under a written contingency-fee agreement, did not know that his client had filed bankruptcy. He proceeded to settle the lawsuit for $27,000 on December 19, 1983-27 days post-petition. At the time that case was settled, Mr. Bloomquist was advised that his client was in bankruptcy. The settlement order allocated the $27,000 proceeds as follows:
*69 "Economic loss including medical expenses and wage loss pursuant to MCLA 500.3107 and MCLA 500.3107[a] . . . $1,000;
"All other claims including non-economic loss, pain and suffering, mental anguish and the like . . . $26,000."
Mr. Bloomquist and the attorney for the insurance company, Douglas J. Read, agreed that Mr. Read would hold the settlement funds pending direction from this Court.
That is when the trustee first learned of the existence of the insurance lawsuit. The trustee filed her motion to compel Mr. Read, the alleged custodian as defined in § 101(10), to turn over the settlement proceeds to her. Mr. Read answered the motion, admitting the essential facts, and stating his willingness to abide by the Court's directions respecting the disposition of the funds. He also reported the interest the funds had earned while in his custody and requested a flat $500 "fee" for the performance of his "duties", presumably under § 543(c).
On February 14, 1984, the state court entered an order in the insurance litigation "perfecting" Mr. Bloomquist's common-law attorney's charging lien on the settlement proceeds. Thereafter, on March 30, 1984, Mr. Bloomquist filed a motion in this Court requesting an award to him of his fees and the costs he expended on the debtor's behalf a total of $9,439.90from the settlement proceeds. He argued that he had a common-law attorney's charging lien on the proceeds derived from his efforts and that the trial judge's order of February 9, 1984, perfected that lien. He argued that § 546(b) permitted the post-petition perfection of this lien. His second theory bootstrapped from the first. Assuming the validity of his lien, he argued that he was therefore a "joint owner" of the fund with the debtor, and would be entitled to his part of the whole, much like a non-debtor spouse receiving her share of joint property sold by the trustee. In another pleading, Mr. Bloomquist alleged that the settlement funds were "not the property of the Estate . . ." ostensibly because the insurance company's draft was made payable jointly to the debtor and himself, and put into a special account which required their joint signatures to withdraw the funds.
Finally, on February 14, 1984, the debtor amended her claim of exemptions to claim the proceeds exempt under § 522(d)(11)(D) & (E). The trustee resists those exemptions.
The Trustee demands turnover from the custodian, resists the allocation of damages in the settlement order, and the debtor's claims of exemption to them; Mr. Bloomquist claims a lien on the settlement proceeds and requests payment thereof; and the custodian requests compensation therefrom.
ANALYSIS
In their rush to grab the brass ring, all of the parties ignored the issue of whether the settlement was validly entered into by Mr. Bloomquist. On November 22, 1983, when the bankruptcy petition was filed, the cause of action against State Farm became property of the estate. § 541; Tonry v. Hebert, 724 F.2d 467 (5th Cir.1984); In re Ward, 32 B.R. 318 (Bankr.E.D.Va.1983). Accordingly, the debtor ceased to be the real party in interest and was substituted in that role by the trustee. Notwithstanding his lack of knowledge, for all of this occurred by operation of law, Mr. Bloomquist's "client" was the trustee, and not the debtor. Mr. Bloomquist never asked the trustee whether the proposed settlement was acceptable to her, and to date, she has never indicated her approval or disapproval thereof.[2]
To complicate matters further, enter § 365. That section provides that a Chapter 7 trustee has 60 days to either assume or reject an executory contract, and that in *70 default of an express election within that period, the executory contract is deemed rejected. It is undisputed that the trustee did not expressly assume the contingency-fee contract with Mr. Bloomquist within 60 days of her appointment, nor even within 60 days of her receipt of notice of the litigation.
WAS THIS ATTORNEY-CLIENT CONTINGENCY-FEE CONTRACT AN EXECUTORY CONTRACT?
An executory contract has been defined as: "A contract under which the obligation of both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete performance would constitute a material breach excusing performance of the other." Countryman, Executory Contracts in Bankruptcy: Part I, 57 Minn.L.Rev. 439, 460 (1973). Tonry v. Hebert, supra, dealt with the question of whether an attorney's contingency-fee contract was an executory contract assumable by the trustee where the debtor was the attorney himself. That case held that such contracts are executory contracts as defined by § 365, but held that since the attorney's responsibilities were for "personal services", the contract was not assumable by the estate. Judge Schwartzberg in In re PDQ Copy Center, Inc., 27 B.R. 123 (Bankr.S.D.N.Y.1983) assumed without discussion that such a contract was executory and held that it was deemed rejected by the trustee's failure to timely assume it.
In this case, when the petition for relief was filed, the litigation was still pending: trial had not been held and settlement had not been made. Clearly, under Professor Countryman's definition, at the time of the filing of the bankruptcy petition, Mr. Bloomquist had further responsibilities not yet performed, while the debtor had the unperformed duty to pay the bargained-for fee. Under either Professor Countryman's definition or under Tonry v. Hebert, supra, and In re PDQ Copy Center, Inc., supra, the Court finds that Mr. Bloomquist's contingency-fee contract was an executory contract.
The logical consequence of this finding when combined with the earlier finding that the trustee did not expressly assume that contract within the 60 days allowed her for that purpose is that that contract is deemed rejected. § 365(d)(1); Alioto v. Official Creditor Committee, 654 F.2d 664 (9th Cir.1981); In re PDQ Copy Center, Inc., supra. That rejection relates back to the moment immediately before the filing of the petition for relief. § 365(g)(1); Alioto v. Official Creditor Committee, supra; In re PDQ Copy Center, Inc., supra; In re E.C. Ernst, Inc., 4 B.R. 317 (Bankr.S. D.N.Y.1980); In re Fitterer Engineering Associates, Inc., 27 B.R. 878 (Bankr.E.D. Mich. 1983); In re TLC of Lake Wales, Inc., 13 B.R. 593 (Bankr.M.D.Fla.1981). On that date, November 22, 1983, no settlement had yet been reached. As a result of the trustee's rejection of it, Mr. Bloomquist's contract was no longer in existence at the time he "settled" the litigation. He, therefore, lacked any contractual authority from his client, the trustee, to enter into the settlement. Accordingly, unless the settlement agreement is ratified by the trustee, it is not binding upon her and she may proceed to litigate the case to its conclusion.
At the hearing upon these various motions held on April 19, 1984, it was apparent that the trustee had never considered the ramifications of her failure to act. Accordingly, the Court directed that the trustee had two weeks to either ratify the settlement or to rescind it. If the trustee rescinds the settlement, she may then seek the appointment of her own attorneyeither Mr. Bloomquist or anotherto represent her in the litigation.
If the trustee decides to change attorneys, and the litigation is unsuccessful, Mr. Bloomquist may indeed wind up with nothing for his better than two years of effort for the debtor. But that is the same fate he would suffer if his client, the debtor, had refused the offer of settlement and required him to try the case to failure. Those are the risks which come with contingency-fee *71 contracts and why the pay-off for the attorney is so lucrative upon success.
DOES MR. BLOOMQUIST HAVE A CLAIM AGAINST THE PROCEEDS OF THE LITIGATION?
If the trustee ratifies this settlement obtained by Mr. Bloomquist, it would be tantamount to a retroactive assumption of his executory contingency-fee contract. The assumption of an executory contract requires the trustee to perform the debtor's obligation under that contract, as a contract is assumed "cum onere". In re Silver, 26 B.R. 526, 7 C.B.C.2d 1107 (Bankr.E.D.Pa.1983); cf., In re PDQ Copy Center, Inc., supra. In this case, performance would be due immediately. Accordingly, if the trustee ratifies the settlement, Mr. Bloomquist will be entitled to his bargained-for percentage of the proceeds, plus his costs, all pursuant to the terms of the contingency-fee contract.[3]
On the other hand, if the trustee disavows the settlement, and hires a new attorney who successfully litigates the cause of action, is Mr. Bloomquist entitled to any part of the proceeds?
When an executory contract is rejected, the obligee is entitled to a claim against the estate for a breach of the contract. § 502(g). Thus, Mr. Bloomquist would receive a claim against the estate. Mr. Bloomquist argues that his claim is a secured one by virtue of his common-law attorney's charging lien against the proceeds. If it is a secured claim, it would be paid out of the insurance proceeds before they are reduced by the estate's administrative expenses. If it is deemed an unsecured claim, then its payment would be subsequent to allowed administrative and priority claims and would await distribution to, and be pro-rated with, the claims of all other general creditors. § 507. Clearly, an unsecured claim would likely result in a later and much smaller payment to Mr. Bloomquist.
IS MR. BLOOMQUIST SECURED BY AN ATTORNEY'S CHARGING LIEN ON THE PROCEEDS OF THE SETTLEMENT?
Michigan has no statutory basis for the imposition of an attorney's charging lien. Such a lien, if it exists at all, is therefore of common-law origin. Bruce v. United States, 127 F.Supp. 858 (E.D.Mich. 1955); Fraam v. Kelley, 268 Mich. 573, 256 N.W. 552 (1934); Shank v. Lippman, 249 Mich. 22, 227 N.W. 710 (1929); Wipfler v. Warren, 163 Mich. 189, 128 N.W. 178 (1910). An attorney's charging lien is "an equitable right to have the fees and costs due to him for services in a suit secured to him out of the judgment or recovery in that particular suit." 3 Michigan Law and Practice, Attorneys and Counsellors, § 161; Jones v. O'Donnell, 292 Mich. 189, 290 N.W. 375 (1940), Fraam v. Kelley, supra; Bruce v. United States, supra. Mr. Bloomquist's claim fits within this definition. Under Michigan law, no specific procedure is devised for the "perfection" of the lien. Since there was no further act necessary to perfect this lien, it is invulnerable to attack by the trustee under § 544 or under § 547. In re Fitterer Engineering Associates, Inc., supra; In re Boots Builders, Inc., 11 B.R. 635 (Bankr.N.D.Tex.1981); In re Durkay, 9 B.R. 58, 3 C.B.C.2d 941 (N.D.Ohio 1981).
If the trustee elects to disavow the settlement and to thereby reject Mr. Bloomquist's contingency-fee executory contract with the debtor, this case would then fall squarely within the facts of In re PDQ Copy Center, Inc., supra. There, the court determined that the attorney's claim which resulted from the trustee's rejection of his contingency-fee contract with the debtor was a secured claim arising from New York State's statutory attorney charging lien law, which appears to be substantially similar to Michigan's common law provision. Also see In re Durkay, *72 supra. Although Act[4] cases, three recently decided cases are consistent with this view of the law. Alioto v. Official Creditor Committee, supra; In re E.C. Ernst, Inc., supra; In re TLC of Lake Wales, Inc., supra. There appears to be no material change effected by the adoption of the Bankruptcy Code[5] in this area of the law.
Although the holding in In re Yermakov, 718 F.2d 1465 (9th Cir.1983) appears to be contradictory to the cases cited above, they can be harmonized. The bankruptcy judge in Yermakov "found as a fact that the successful settlement primarily resulted from the efforts of the trustee . . . and not from those of [the debtor's attorney]." Id. at 1468. It is the essence of an attorney's charging lien, that "the fund out of which the attorney seeks to be paid must have been secured substantially by the attorney's services rendered in creating such fund." In re E.C. Ernst, Inc., supra at 319; Fraam v. Kelley, supra, 268 Mich. at 576, 256 N.W. 552; see 4B Collier on Bankruptcy § 70.87[2] (14th ed. 1898); Fannon v. LeBeau, 245 Mich. 162, 222 N.W. 115 (1928). Since the fund obtained in Yermakov was not created substantially by the services of the attorney, a charging lien never arose. Therefore, the court utilized the traditional § 330(a) standard in deciding the attorney's compensation. In the case at bar, it is undisputed that Mr. Bloomquist's efforts were solely responsible for the creation of the fund. As a result, the charging lien was established and its efficacy is hereby recognized. Therefore, the Court finds that if the trustee disavows the settlement, Mr. Bloomquist's resulting claim in this case shall be deemed to be secured by whatever fund develops from the continuation of the insurance litigation.
After disavowal and rejection of the contract, the trustee may re-hire Mr. Bloomquist or hire another attorney for the special purpose of the insurance litigation by applying under § 327(e). See 2 Collier on Bankruptcy, ¶ 327.03[6] (15th ed. 1979). The basis of the attorney's compensation can be set at that time. If the trustee selects someone other than Mr. Bloomquist, Mr. Bloomquist will still have a claim to some of the fund, as the Court has already held that his claim which results from the breach of his executory contract is secured by the fund resulting from the litigation. However, the valuing of that claim upon a recovery by his successor would be this Court's responsibility. Alioto v. Official Creditor Committee, supra; In re Ward, supra; In re PDQ Copy Center, Inc., supra. This court would adopt the fee review methods outlined in those cases; moreover, the technique utilized by the bankruptcy courts in cases where a discarded attorney seeks to recover from a fund obtained at least partially by his successor, (i.e., quantum meruit), appears to be consistent with state practice. Ambrose v. Detroit Edison Co., 65 Mich.App. 484, 237 N.W.2d 520 (1975), lv. den., 397 Mich. 888 (1976).
DEBTOR'S CLAIM OF EXEMPTIONS
When she amended Schedule B-4, the debtor claimed her exemption of $7,500 for bodily injury pursuant to 522(d)(11)(D) and an exemption of $20,000 for lost future earnings, pursuant to § 522(d)(11)(E). The trustee objects to these exemptions.
Although the debtor, in an obviously self-serving attempt to maximize her net recovery, stipulated with the insurance company in the circuit court action as to an allocation of the settlement proceeds, that allocation may not be binding upon the trustee. Of course, if the trustee disavows the settlement, the allocation which was merely a part thereof, becomes irrelevant.
However, if the trustee ratifies the settlement, must she accept the allocation? In essence, the question is whether the allocation term of the settlement is severable from the balance of the agreement. That question awaits further proofs, for if the allocation is found to have been an essential part of the agreement, it may not be jettisoned by the trustee. If it is not an *73 essential element of the agreement, then the Court will make its own apportionment of the settlement proceeds. Relevant to the decision on severability will be the issues in the state court litigation, the nature and amounts of the damages sought, the mediation positions of the parties and the negotiations which led to the settlement. Once the question of the allocation of damages is determined, the focus will shift to the application of the exemption statute to the damages awarded.
CUSTODIAN'S CLAIM FOR "FEES"
Section 543(c)(2) provides:
"The court, after notice and a hearing shallprovide for the payment of reasonable compensation for services rendered and costs and expenses incurred by such custodian."
A request for a custodian's fee must contain a sufficient itemization of effort expended and results accomplished to enable the Court to make a reasoned determination that the amount requested is "reasonable compensation for services rendered." In re Gomes, 19 B.R. 9; 8 B.C.D. 1401 (Bankr.D.R.I.1982); In re Left Guard of Madison, Inc., 11 B.R. 238; 7 B.C.D. 974 (Bankr.W.D.Wis.1981). In this case the custodian has requested $500 without the slightest justification for it. Indeed, the request seems more like an afterthought than a proper application. Based upon the total lack of documentation to support the allowance of any compensation whatsoever, the request for such compensation is hereby denied in toto.
Therefore, if the trustee ratifies the settlement, the custodian shall forthwith pay over the entire settlement fund, together with any interest earned, and without deduction for any "expenses", to the trustee, without further order of the Court. Of course, if the trustee disavows the settlement, the custodian is free to return the funds to his client, State Farm, if he wishes, or take whatever actions with respect to it as he deems appropriate, as the fund will not be in custodia legis.
RECAPITULATION
The Debtor's cause of action became property of the estate at the instant she filed her petition for relief on November 22, 1983. Thus, Mr. Bloomquist lacked authority to settle the case in December, 1983. The debtor's contingency-fee agreement with her attorney, Mr. Bloomquist, was an executory contract which was deemed rejected when the trustee failed to timely assume it. Merely as a matter of expediency, (for nobodynot the debtor, Mr. Bloomquist, nor the trusteewished to abrogate the settlement without further thought), the trustee is allowed 14 days from the date of this opinion, to decide whether she wishes to ratify the settlement or disavow it. If the trustee ratifies it, then Mr. Bloomquist will be entitled to his contractual fees and expenses. Furthermore, the Court will then take proofs on the question of the severability of the allocation of damages term of the agreement.
If the trustee disavows the settlement, then she shall appoint an attorney (Mr. Bloomquist or another) to continue the litigation. If she chooses someone other than Mr. Bloomquist, his claim for the rejection of his executory contract shall be deemed secured by a common-law attorney's charging lien on the proceeds of the litigation (if any), the valuation of which will follow the practice outlined in Alioto v. Official Creditor Committee, supra; In re Ward, supra and In re PDQ Copy Center, Inc., supra.
After all of the foregoing has been accomplished, the Court will decide, if necessary, whether the apportionment of damages contained in the state court order of dismissal is binding, and, if not, it will perform its own apportionment. Thereafter, the debtor's exemptions will be applied to the net recovery.
The custodian shall await the trustee's decision with regard to the state court settlement. If, but only if, she ratifies that settlement, he shall forthwith pay $9,439.90 of the funds he holds to Mr. Bloomquist and the balance thereof to the trustee. Finally, the custodian's "application" for *74 compensation is denied for lack of support or justification.
IT IS SO ORDERED.
NOTES
[1] Unless otherwise noted, all reference to sections will be to 11 U.S.C.
[2] Rule 2002(a)(3) requires that the trustee provide 20 days notice of such settlements to creditors.
[3] As explained infra, Mr. Bloomquist has an attorney's common-law charging lien on the fund resulting from his efforts, and therefore he would be entitled to receive the compensation per his contract under that theory as well.
[4] Bankruptcy Act of 1898, as amended.
[5] Bankruptcy Reform Act of 1978.
|
IN THE COURT OF APPEALS OF TENNESSEE
WESTERN SECTION AT JACKSON
FILED
MYRA JEAN McCORKLE, )
) April 6, 1998
Plaintiff/Appellant, ) Dyer Law No. 96-178
) Cecil Crowson, Jr.
vs. ) Appellate C ourt Clerk
) Appeal No. 02A01-9701-CV-00020
THE COUNTY OF DYER, TENNESSEE )
)
Defendant/Appellee. )
APPEAL FROM THE CIRCUIT COURT OF DYER COUNTY
AT DYERSBURG, TENNESSEE
THE HONORABLE J. STEVEN STAFFORD, JUDGE
For the Plaintiff/Appellant: For the Defendant/Appellee:
Charles M. Agee, Jr. Wesley Clayton
Dyersburg, Tennessee David W. Camp
Jackson, Tennessee
AFFIRMED
HOLLY KIRBY LILLARD, J.
CONCUR:
ALAN E. HIGHERS, J.
DAVID R. FARMER, J.
OPINION
This is a premises liability case under the Tennessee Governmental Tort Liability Act. The
trial court granted summary judgment to the defendant governmental entity. We affirm.
On September 22, 1994, plaintiff Myra McCorkle (“McCorkle”) went to the Dyer County
Commodity Supplemental Feeding Program building. While leaving the premises, she tripped on
the stairs, fell, and broke her leg. McCorkle alleges that the old and torn carpet covering the stairs
caused her fall. She subsequently filed this lawsuit against Dyer County (“the County”), seeking
damages for her injuries.
The County filed a motion for summary judgment, asserting that it had no knowledge of the
dangerous condition of the stairs at the time of McCorkle’s fall, and therefore was not liable for her
injuries. In support of its motion, the County filed the affidavits of county employees who worked
at the commodity exchange. In these affidavits, the employees stated that to their knowledge, “the
carpet on the steps and the surrounding area was not wrinkled, loose or torn in any way” at the time
of McCorkle’s fall.
In opposition to the County’s motion, McCorkle submitted only her own deposition.
McCorkle testified that, at the time of her fall, the carpet appeared old, ripped, and torn. Oral
argument on the County’s motion for summary judgment was heard on September 23, 1996. At the
hearing, the trial court made it clear to the parties that the central issue was the County’s actual or
constructive notice of the dangerous and defective condition, i.e., the tears in the carpet. On the
same date, after considering the affidavits in support of the County’s motion as well as McCorkle’s
deposition testimony, the trial court granted the motion. The trial court found that “the plaintiff has
failed to show that the defendant possessed either actual or constructive notice of the alleged defect.”
On October 7, 1996, McCorkle filed a Motion for Relief from Judgment, pursuant to Rules
59 and 60 of the Tennessee Rules of Civil Procedure, requesting that the trial court set aside the
judgment in the defendant’s favor. In support of her motion, McCorkle submitted an affidavit from
Opal Hastings, a witness to McCorkle’s accident. In her affidavit, Hastings stated that she was
familiar with the place where the accident occurred, and that the steps where McCorkle fell were
covered with old and worn carpet. She said that the carpet had been there since she began receiving
food at that location and “was severely worn, raged [sic] and had tear places in it for at least one year
prior” to the accident.
The trial court denied McCorkle’s motion. In a written order, the trial court noted that both
parties knew Hastings was a potential witness well prior to the hearing on the summary judgment
motion. Indeed, the trial court observed that McCorkle had identified Hastings as a witness in her
June 1996 deposition, and had even acknowledged she was distantly related to Hastings. The trial
court held that “[a] party is not entitled to relief from a judgment based on newly discovered
evidence where the moving party was aware of the information before trial and a tactical decision
was made not to use that information.” The trial court cited Spence v. Allstate Ins. Co., 883 S.W.2d
586 (Tenn. 1994). McCorkle now appeals the trial court’s grant of summary judgment in favor of
the County, as well as the denial of McCorkle’s motion to set aside the judgment.
McCorkle first alleges that the trial court erred in granting the County’s motion for summary
judgment. She maintains that a reasonable trier of fact could infer that the County should have
known about the dangerous condition on the stairs long before the accident because of the carpet’s
worn condition. McCorkle argues that her deposition is enough to raise a factual issue about whether
the County had knowledge of the dangerous condition.
Summary judgment may be granted when the movant demonstrates that there is no genuine
issue of material fact and that the moving party is entitled to a judgment as a matter of law. Tenn.
R. Civ. P. 56.03. The movant bears the burden of demonstrating that there is no genuine issue of
material fact. Byrd v. Hall, 847 S.W.2d 208, 211 (Tenn. 1993); Downen v. Allstate Ins. Co., 811
S.W.2d 523, 524 (Tenn. 1991). In considering a motion for summary judgment, “courts must view
the evidence in the light most favorable to the nonmoving party and must also draw all reasonable
inferences in the nonmoving party's favor.” Carvell v. Bottoms, 900 S.W.2d 23, 26 (Tenn. 1995)
(citing Byrd, 847 S.W.2d at 210-11). Summary judgment should be granted only when both the
facts and the conclusions to be drawn from the facts permit a reasonable person to reach only one
conclusion. Id. We review the trial court’s grant of summary judgment de novo, with no
presumption of correctness. Id.
McCorkle brought her lawsuit under the Tennessee Governmental Tort Liability Act. See
Tenn. Code Ann. § 29-20-101 to -407 (1980 & Supp. 1997). Governmental entities are generally
2
immune from suit; however, in some situations, immunity may be removed. See Williams v.
Memphis Light, Gas & Water Div., 773 S.W.2d 522, 523 (Tenn. App. 1988). Tennessee Code
Annotated § 29-20-204 provides:
(a) Immunity from suit of a governmental entity is removed for any injury
caused by the dangerous or defective condition of any public building, structure,
dam, reservoir or other public improvement owned and controlled by such
governmental entity.
(b) Immunity is not removed for latent defective conditions, nor shall this
section apply unless constructive and/or actual notice to the governmental entity of
such condition be alleged and proved. . . .
Therefore, to withstand the County’s summary judgment motion, McCorkle was required to
demonstrate that a genuine issue of fact existed as to the County’s constructive or actual notice of
the dangerous condition:
In order for an owner or operator of premises to be held liable for negligence
in allowing a dangerous or defective condition to exist on its premises, it must be
shown that the condition (1) was caused or created by the owner, operator, or his
agent, or (2) if the condition was created by someone other than the owner, operator,
or his agent, there must be actual or constructive notice on the part of the owner or
operator that the condition existed prior to the accident. Constructive knowledge can
be shown by proving the dangerous or defective condition existed for such a length
of time that the defendant, in the exercise of reasonable care, should have become
aware of such condition.
Martin v. Washmaster Auto Center, U.S.A., 946 S.W.2d 314, 318 (Tenn. App. 1996) (citations
omitted). Constructive notice has been defined as “‘information or knowledge of a fact imputed by
law to a person (although he may not actually have it), because he could have discovered the fact by
proper diligence, and his situation was such as to cast upon him the duty of inquiring into it.’” Kirby
v. Macon Co., 892 S.W.2d 403, 409 (Tenn. 1994) (citing Black’s Law Dictionary 1062 (6th ed.
1990)). McCorkle argues that the testimony in her deposition that the carpet was old, worn, and torn
would permit a reasonable fact finder to infer that the County had constructive knowledge of the
defect in the carpet. She contends that the age of the carpet indicated that “the dangerous or
defective condition existed for such a length of time that the defendant, in the exercise of reasonable
care, should have become aware of such condition.” Martin, 946 S.W.2d at 318.
It is undisputed that McCorkle’s fall was caused by the tear in the carpet, not by the fact that
the carpet was old. From McCorkle’s testimony, it may be inferred that carpet that is old and worn
may be more prone to tearing than newer carpet. However, based on McCorkle’s deposition
testimony alone, without considering the affidavit by Hastings, the record contains no indication of
3
how long the tears in the carpet had existed. Therefore, McCorkle’s deposition testimony does not
establish that any tears in the carpet had existed for such a length of time that the County should
have been aware of them. Consequently, McCorkle’s testimony is insufficient to withstand the
County’s motion for summary judgment and the supporting affidavits. The trial court did not err in
granting the County’s motion.
McCorkle also argues that the trial court erred in denying her motion for relief from
judgment. The motion states that it is brought “pursuant to Rules 59 and 60” of the Tennessee Rules
of Civil Procedure.
McCorkle’s motion, which requests “relief from judgment,” could fall under either Rule
60.02 or Rule 59.04 of the Tennessee Rules of Civil Procedure. A Rule 60.02 motion seeks relief
from final judgment because of, inter alia, mistake, surprise, inadvertence, excusable neglect, or
fraud. The trial court’s disposition of a Rule 60.02 motion is not reversed on appeal unless the
appellate court finds an abuse of discretion. Underwood v. Zurich Ins. Co., 854 S.W.2d 94, 97
(Tenn. 1993); Banks v. Dement Constr. Co., 817 S.W.2d 16, 18 (Tenn. 1991).
Rule 59.04 merely states the time period in which a motion to alter or amend a judgment
must be filed. The decision of whether to grant a Rule 59.04 motion based on newly discovered
evidence “is discretionary with the trial judge.” Collins v. Greene County Bank, 916 S.W.2d 941,
945 (Tenn. App. 1995). The movant must show that the new evidence was not known at the time
the summary judgment motion was heard “and that it could not have been ascertained by the exercise
of reasonable diligence.” Id.
In considering the denial of a Rule 59.04 motion, it is less clear whether the standard of
review is abuse of discretion or de novo. There is some authority that the standard is abuse of
discretion, even where the Rule 59.04 motion is filed following entry of summary judgment rather
than after a trial. See Tuck v. State, No. 03A01-9510-BC-00355, 1996 WL 310012, at *4 (Tenn.
App. June 11, 1996) (citing Esstman v. Boyd, 605 S.W.2d 237 (Tenn. App. 1979)). Because Rule
59.04 of the Tennessee Rules of Civil Procedure is similar to the corresponding federal rule, Rule
59(e) of the Federal Rules of Civil Procedure, decisions construing the federal rule are helpful. See
Parker v. Vanderbilt University, 767 S.W.2d 412, 421 (Tenn. App. 1988); Marlowe v. First State
Bank of Jacksboro, 52 Tenn. App. 99, 105, 371 S.W.2d 826, 828-29 (1962). Federal courts
interpreting Rule 59(e) have held that “where a Rule 59(e) motion seeks reconsideration of a grant
4
of summary judgment, . . . we conduct a de novo review.” National Leadburners Health and
Welfare Fund v. O. G. Kelley & Co., Inc., 129 F.3d 372, 374 (6th Cir. 1997).1
McCorkle submitted Hasting’s affidavit in support for her motion for relief from judgment.
McCorkle describes as “newly discovered evidence” Hastings’ testimony that the carpet on the stairs
had “had tear places” for at least a year. Although McCorkle acknowledges that she knew Hastings
was a witness to her fall, she asserts in her brief on appeal that she “did not know exactly the
substance of Hastings’ testimony in toto.”
McCorkle cites Schaefer v. Larsen, 688 S.W.2d 430 (Tenn. App. 1984), in support of her
argument. In Schaefer, the Court stated:
we are not at all satisfied that the strict requirement of rules regarding newly
discovered evidence should be applied to the matter of summary judgments. In
matters of newly discovered evidence, the parties have already had a trial. The
parties are entitled to one trial. The basic purpose of courts and judges is to afford
the citizenry a public forum to air disputes. . . . [I]n the matter of the reconsideration
of the granting of a summary judgment motion, the party is only seeking that which
he is basically entitled to--a first trial. We are of the opinion that when a summary
judgment has been granted because the case at that point presented no facts upon
which a plaintiff can recover, but prior to that judgment becoming final, the plaintiff
is able to produce by motion facts which are material and are in dispute, the motion
to alter or amend the judgment should be looked upon with favor, as the purpose of
the summary judgment procedure is not to abate the trial docket of the Trial Court,
but only to weed out cases for trial in which there is no genuine issue of fact.
Schaefer, 688 S.W.2d at 433-34 (citation omitted). Therefore, because Hastings’s testimony was
purportedly discovered after summary judgment, rather than after trial, McCorkle argues that the trial
court erred in not granting the motion for relief from judgment.
The County argues that relief from judgment on the basis of newly discovered evidence
requires a finding that the evidence could not have been discovered through the exercise of
reasonable diligence. In support of this position, the County cites Spence v. Allstate Ins. Co., 883
S.W.2d 586 (Tenn. 1994). In Spence, a divorced couple held title to a house as tenants by the
entirety. They sued their insurer for the proceeds under their fire insurance policy. The insurer
denied payment on the grounds the former wife was responsible for setting the fire that caused the
1
Under the Federal Rule, a motion to alter or amend the judgment “must rely on one of
three major grounds: ‘(1) an intervening change in controlling law; (2) the availability of new
evidence [not available previously]; [or] (3) the need to correct clear error [of law] or prevent
manifest injustice.’” North River Ins. Co. v. CIGNA Reinsurance Co., 52 F.3d 1194, 1218 (3d
Cir. 1995) (citations omitted). The motion should not “present evidence which was available but
not offered at the original motion or trial.” Natural Resources Defense Council, 705 F. Supp.
698, 702 (D.D.C. 1989) (citing cases).
5
damage. Id. at 589. Because the parties’ interests were not separate, the insurer asserted that the
former wife’s actions barred the former husband from recovering proceeds from the policy. After
trial, the insureds filed a motion under Rule 60.02 for relief from the judgment on grounds of newly
discovered evidence concerning the identity of the person responsible for setting the fire. Id. at 595.
In support of this motion, the former wife stated in an affidavit that, until June 1993, she was
unaware of another party who could have been responsible for setting the fire. The former wife’s
affidavit conflicted with her deposition, taken in October 1991, in which she indicated she had
suspicions concerning the person mentioned in the affidavit. The Court found that the new evidence
was not "newly-discovered," and opined that the former wife’s decision to not accuse another party
of setting the fire appeared to be a tactical decision. The Court further stated that “even if the
evidence was in some sense newly-discovered, relief from a judgment on the basis of such evidence
may only be granted where the evidence could not have been discovered through the exercise of
reasonable diligence.” Id. at 596.
In this situation, the Spence and Schaefer decisions can be reconciled. As noted by the trial
court, relief from the judgment is granted only where there is newly-discovered evidence which
could not have been discovered through the exercise of reasonable diligence. See Spence, 883
S.W.2d at 596; Collins, 916 S.W.2d at 945. However, the trial court’s determination of whether the
evidence constitutes “newly-discovered evidence” must be made in light of the fact that the
judgment from which relief is sought is summary judgment, rather than judgment following a trial.
Therefore, the motion for relief and the assertion of “newly-discovered evidence” must be “looked
upon with favor” by the trial court. See Schaefer, 688 S.W.2d at 433.
As a movant, McCorkle had the burden of demonstrating that the “new” evidence was not
known at the time the summary judgment motion was heard, and “that it could not have been
ascertained by the exercise of reasonable diligence.” Collins, 916 S.W.2d at 945. McCorkle’s
appellate brief states only that McCorkle “did not know exactly the substance of Hastings’
testimony, in toto.” The motion for relief from judgment submitted by McCorkle includes only
Hastings’ affidavit, with no indication in the record that McCorkle did not have actual knowledge
of the extent of Hastings’ knowledge. Even if we were to assume arguendo that McCorkle did not
have actual knowledge of Hastings’ knowledge of the length of time the tears had been in the carpet,
the record contains no indication that this information “could not have been ascertained by the
6
exercise of reasonable diligence.” Id. Looking upon McCorkle’s motion with favor, pursuant to
Schaefer, does not absolve McCorkle of the obligation to present evidence that the information
could not have been discovered with reasonable diligence.
In this case, well prior to summary judgment, McCorkle was aware that Hastings was a
witness, and indeed is even remotely related to Hastings. It was McCorkle’s responsibility to
discover the extent of Hastings’ knowledge before the entry of summary judgment. McCorkle failed
to carry the burden of demonstrating that she could not have discovered Hastings’ knowledge of the
age of the tears in the carpet “through the exercise of reasonable diligence.” Spence, 883 S.W.2d
at 596.
Therefore, regardless of whether the standard of review for the trial court’s denial of the
motion for relief from judgment is de novo or reversal only upon a finding of abuse of discretion,
McCorkle failed to proffer any reason why Hastings’ knowledge of the age of the tears in the carpet
could not, in the exercise of reasonable diligence, have been discovered prior to the entry of
summary judgment. Consequently, we find no error in the trial court’s denial of the motion for relief
from judgment.
The decision of the trial court is affirmed. Costs are assessed against the Appellant, for
which execution may issue if necessary.
HOLLY KIRBY LILLARD, J.
CONCUR:
ALAN E. HIGHERS, J.
DAVID R. FARMER, J.
7
|
962 F.2d 8
NOTICE: Fourth Circuit I.O.P. 36.6 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 Fourth Circuit.UNITED STATES of America, Plaintiff-Appellee,v.Horace OXENDINE, Defendant-Appellant.
No. 92-6142.
United States Court of Appeals,Fourth Circuit.
Submitted: May 4, 1992Decided: May 15, 1992
Appeal from the United States District Court for the Eastern District of North Carolina, at Fayetteville. W. Earl Britt, District Judge. (CR-89-16-3-BR, CA-91-95-3-CIV-BR)
Horace Oxendine, Appellant Pro Se.
Robert Daniel Boyce, Office of the United States Attorney, Raleigh, North Carolina, for Appellee.
E.D.N.C.
AFFIRMED.
Before HALL, WILKINS, and WILLIAMS, Circuit Judges.
OPINION
PER CURIAM:
1
Horace Oxendine appeals from the district court's order refusing relief under 28 U.S.C. § 2255 (1988). Our review of the record and the district court's opinion discloses that this appeal is without merit. Accordingly, we affirm on the reasoning of the district court.* United States v. Oxendine, Nos. CR-89-16-3-BR, CA-91-95-3-CIV-BR (E.D.N.C. Jan. 3, 1992). 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
*
We also note that this § 2255 motion, which is Oxendine's third, could have been properly dismissed as an abuse of the writ for Oxendine's failure to raise this claim in his previous § 2255 motions. See 28 U.S.C. foll. § 2255, Rule 9(a)
|
FILED
NOT FOR PUBLICATION FEB 23 2011
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
LODIR MIKAELI SIWAJIAN, No. 08-70845
Petitioner, Agency No. A078-440-629
v.
MEMORANDUM *
ERIC H. HOLDER, Jr., Attorney General,
Respondent.
On Petition for Review of an Order of the
Board of Immigration Appeals
Submitted September 13, 2010 **
Before: SILVERMAN, CALLAHAN, and N.R. SMITH, Circuit Judges.
Lodir Mikaeli Siwajian, a native and citizen of Lebanon, petitions pro se for
review of the Board of Immigration Appeals’ (“BIA”) order denying his motion to
remand and dismissing his appeal from an immigration judge’s (“IJ”) decision
denying his application for cancellation of removal. We have jurisdiction under
*
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).
8 U.S.C. § 1252. We review for abuse of discretion the denial of a motion to
remand, Romero-Ruiz v. Mukasey, 538 F.3d 1057, 1062 (9th Cir. 2008), and
review de novo claims of due process violations in immigration proceedings,
Martinez-Rosas v. Gonzales, 424 F.3d 926, 930 (9th Cir. 2005). We deny the
petition for review.
The BIA did not abuse its discretion in denying Siwajian’s motion to remand
because an immigrant visa was not immediately available to him. See 8 U.S.C.
§ 1255(a); Singh v. INS, 295 F.3d 1037, 1039 (9th Cir. 2002) (BIA’s denial of a
motion to remand shall be reversed only if it is arbitrary, irrational, or contrary to
law).
Siwajian’s contention that the IJ’s alleged bias violated due process fails
because he did not demonstrate prejudice. See Lata v. INS, 204 F.3d 1241, 1246
(9th Cir. 2000) (requiring prejudice for a petitioner to prevail on a due process
claim).
Pro bono counsel’s motion to withdraw from representing petitioner is
granted.
PETITION FOR REVIEW DENIED.
2 08-70845
|
94 N.Y.2d 577 (2000)
730 N.E.2d 920
709 N.Y.S.2d 122
CITY OF NEW YORK et al., Appellants,
v.
STATE OF NEW YORK, Respondent.
THOMAS J. IGOE, JR., et al., Individually and on Behalf of All Others Similarly Situated, Respondents-Appellants,
v.
GEORGE E. PATAKI, as Governor of the State of New York, et al., Appellants-Respondents.
LARY S. WOLF et al., Respondents-Appellants,
v.
STATE OF NEW YORK et al., Appellants-Respondents.
CHARLES QUINN et al., Individually and on Behalf of All Others Similarly Situated, Respondents-Appellants,
v.
GEORGE E. PATAKI, as Governor of the State of New York, et al., Appellants-Respondents.
STATE OF CONNECTICUT et al., Respondents,
v.
STATE OF NEW YORK et al., Appellants.
Court of Appeals of the State of New York.
Argued February 15, 2000.
Decided April 4, 2000.
*578 *579 *580 *581 *582 Michael D. Hess, Corporation Counsel of New York City (Elizabeth I. Freedman, Leonard Koerner, Gail Rubin and Spencer Fisher of counsel), and Richard M. Weinberg, for appellants in the first above-entitled action.
Eliot Spitzer, Attorney General, New York City (Edward D. Johnson, Preeta D. Bansal and Marion R. Buchbinder of counsel), for respondent in the first above-entitled action.
*583 Eliot Spitzer, Attorney General, New York City (Edward D. Johnson, Preeta D. Bansal and Deon J. Nossel of counsel), for appellants-respondents in the second, third and fourth above-entitled actions and appellants in the fifth above-entitled action.
*584 Thelen Reid & Priest, L. L. P., New York City (Richard P. Swanson and Consuelo Alden Vasquez of counsel), for respondents-appellants in the second above-entitled action.
Roberts & Holland, L. L. P., New York City (Carolyn Joy Lee, Glenn Newman, Lary S. Wolf and Ann Cochran-Becchina of counsel), for respondents-appellants in the third above-entitled action.
*585 John J. Farmer, Jr., Attorney General of New Jersey, Trenton (Patrick DeAlmeida and Jeffrey J. Miller of counsel), and McCarter & English, L. L. P., New York City (Michael A. Guariglia, William D. Wallach, Joseph R. Scholz and Margaret C. Wilson of counsel), for respondents-appellants in the fourth above-entitled action.
*586 Richard Blumenthal, Attorney General of the Connecticut Bar, admitted pro hac vice, and Paul, Hastings, Janofsky & Walker, L. L. P., New York City (Charles T. Lee and Kurt W. Hansson of counsel), for respondents in the fifth above-entitled action.
Chief Judge KAYE and Judges BELLACOSA, SMITH, LEVINE, CIPARICK and ROSENBLATT concur.
*587 OPINION OF THE COURT
WESLEY, J.
For over three decades, the City of New York has imposed a tax on nonresident commuters who work in the City. In 1999, however, the Legislature attempted to rescind the tax for State resident commuters while retaining the tax for out-of-State commuters. Anticipating challenges to the new statute, the Legislature added a poison pillif a court declares the new law void, the entire tax authorization statute is repealed.
The cases before us present two distinct challenges to the 1999 statute. One, brought by the City, seeks to undo the entire 1999 enactment and preserve the tax in its pre-1999 form on the ground that the statute was enacted in violation of the home rule provisions of the State Constitution. The other, brought by residents of New Jersey and Connecticut and by the State of Connecticut, seeks to terminate the tax on the grounds that the taxing scheme as amended in 1999 violates the Federal Constitution.
For the reasons that follow, we hold that chapter 5 of the Laws of 1999 does not violate the home rule provisions of the State Constitution. However, it fails to pass Federal constitutional muster under the Privileges and Immunities and Commerce Clauses. Thus, the provision of the statute that repeals the entire commuter tax takes effect.
I.
Factual Background
Cities in New York having a population of one million or more have been authorized to impose a personal income tax on their residents (Tax Law § 1301). In 1966, the Legislature further authorized New York City to adopt and amend local laws imposing a tax on the earnings of individuals who work, but do not live, in the City ("the commuter tax") (see, General City Law § 25-m et seq.). That same year, the City imposed the commuter tax on the wages and self-employment net earnings of every nonresident individual working in the City (Administrative Code of City of NY § 11-1902).[1] The term "nonresident" applied to both in-State and out-of-State residents who did not live in the City (Administrative Code § 11-1901 [i]).
*588 Chapter 5 of the Laws of 1999 amended the definition of "nonresident individual" in Tax Law § 1305 (b) and General City Law § 25-m (1) (h) respectively to exclude State residents. Thus, chapter 5 permits the imposition of the commuter tax on out-of-State residents who work in New York City, but prohibits taxing commuting residents who come to the City from other New York counties. Chapter 5 also provided that if the changes to the definition of "nonresident individual" were held to be invalid or unconstitutional, the commuter tax would be retroactively repealed in its entirety as of July 1, 1999.
This appeal is a consolidation of five separate lawsuits challenging the enactment of chapter 5. In the first action, the City of New York seeks a declaration that chapter 5 is unconstitutional primarily on the ground that it was passed without a home rule message from the City.[2] The remaining four actions are brought by, or on behalf of, residents of New Jersey and Connecticut who work in the City, and by the State of Connecticut. These plaintiffs argue that chapter 5 violates the Federal Constitution and seek an injunction enjoining further collection of the tax. Plaintiffs in Wolf also seek attorneys' fees.
Supreme Court, in a well-reasoned decision, declared the continued taxation of nonresident commuters unconstitutional.[3] The court declined to enjoin collection of the tax and also denied the Wolf plaintiffs' application for attorneys' fees. The Appellate Division unanimously affirmed. We agree with our colleagues in the courts below.
*589 II.
Home Rule Challenge by the City
Article IX of the Constitution provides that the Legislature has power to act "in relation to the property, affairs or government of any local government only by general law, or by special law only * * * on request of two-thirds of the total membership of [the locality's] legislative body or on request of its chief executive officer concurred in by a majority of such membership" (NY Const, art IX, § 2 [b] [2]). Thus, a special law that relates to the property, affairs or government of a local municipality requires a home rule message.
The path of home rule over the years has been controversial, reflecting the "difficult problem of furthering strong local government but leaving the [S]tate just as strong to meet the problems that transcend local boundaries, interests and motivations" (Wambat Realty Corp. v State of New York, 41 NY2d 490, 498; see, Matter of Town of Islip v Cuomo, 64 NY2d 50, 54-56, quoted in Kamhi v Town of Yorktown, 74 NY2d 423, 428).[4] Chief Judge Cardozo's concurrence in Adler v Deegan (251 NY 467, rearg denied 252 NY 574, remittitur amended by 252 NY 615) set the standard for balancing State and local interests in resolving the question of whether a home rule message is required:
"There are some affairs intimately connected with the exercise by the city of its corporate functions, which are city affairs only * * * There are other affairs exclusively those of the [S]tate * * * A zone, however, exists where [S]tate and city concerns overlap and intermingle * * * The question to be faced is this: Has the [S]tate surrendered the power to enact local laws by the usual forms of legislation where subjects of [S]tate concern are directly and substantially involved, though intermingled with these, and perhaps identical with them, are concerns proper to the city? * * * The test is * * * [t]hat if *590 the subject be in a substantial degree a matter of [S]tate concern, the Legislature may act, though intermingled with it are concerns of the locality" (id., at 489-491 [concurring opn; emphasis added; citations omitted]).
Thus, where State interests are involved "to a substantial degree, in depth or extent" the State may freely legislate without home rule approval, notwithstanding the legislation's impact on local concerns (Wambat Realty Corp. v State of New York, supra, at 494; see also, Matter of Kelley v McGee, 57 NY2d 522, 538). However, the special law must bear a reasonable relationship to the legitimate, accompanying substantial State concern (City of New York v Patrolmen's Benevolent Assn., 89 NY2d 380, 391).
We conclude that chapter 5, concededly a special law applying only to New York City, did not require a home rule message. Even assuming that chapter 5 relates to the "property, affairs or government" of New York City, the law is supported by substantial State interest.
In 1966 the Legislature authorized the City to impose the commuter tax; in 1999, it altered that authorization. The power to tax, of course, rests solely with the Legislature (NY Const, art III, § 1; art XVI, § 1; Castle Oil Corp. v City of New York, 89 NY2d 334, 338, supra; Greater Poughkeepsie Lib. Dist. v Town of Poughkeepsie, 81 NY2d 574, 579; Sonmax, Inc. v City of New York, 43 NY2d 253, 257). This power is inherent in our form of government and is premised on legislative accountability to the electorate (see, Greater Poughkeepsie Lib. Dist. v Town of Poughkeepsie, supra, at 579).
The stated justification for chapter 5 was tax relief to State residents who live in communities outside New York City (Sponsor's Mem, Senate Mem in Support, Rules Committee Mem, Bill Jacket, L 1999, ch 5). The Legislature was prompted by the belief that the statute would provide tax relief to more than 454,000 State residents who work, but do not live, in New York City (see, Sponsor's Mem, op. cit.). Clearly, a tax paid only by New York State residents who live outside New York City is a matter of substantial State concern. Moreover, another stated intention was to make the City more attractive for investment and growth, a goal with obvious implications for the State (see, Senate Mem, op. cit.). Thus, the legislative history reinforces the legitimate, substantial State interest in repealing the commuter tax.
*591 The City contends that the primary purpose behind passage of chapter 5 was to influence an election in a Senate district. The City argues that this negates any actual and substantial State interest in the matter. State electoral politics, hasty procedures used to pass the statute and retention of a similar commuter tax provision in Yonkers are offered by the City to demonstrate the "true" political motivations for passage of the statute.
The vortex of the legislative process is often the intersection of politics and policy. Speculation on the "political" motivation of the Legislature as a judicial construct for statutory analysis in an appropriate area of legislative activity would be a slippery and dangerous slope. "`If the Legislature might constitutionally pass such an act, if the act be clothed with all the requisite forms of law, a court sitting as a court of law cannot inquire into the motives by which law was produced'" (People v Devlin, 33 NY 269, 280, quoting Fletcher v Peck, 6 Cranch [10 US] 87, 130-131; see also, City of New York v Village of Lawrence, 250 NY 429, 436 [if the Legislature had the power to pass an act, the courts may not inquire into the reasons which moved the Legislature to exercise its power]). We have consistently relied upon the stated purpose and legislative history of the act in question to find, or reject, a substantial State concern, and do so here (see, City of New York v Patrolmen's Benevolent Assn., supra, at 391).
The City lastly contends that because the Legislature requested a home rule message when the enabling law was initially enacted in 1966 (and on several occasions extending the tax since), a home rule message was required prior to passage of chapter 5. Although the Legislature may have asked for home rule messages in the past, that is not determinative of the issue before uswhether such messages were constitutionally required (Whalen v Wagner, 4 NY2d 575, 581). The motivations of the Legislature in that regard do not reshape or preclude our constitutional analysis. Furthermore, the City's argument would require us to conclude that by initially enacting the commuter tax law in 1966 the State surrendered to the City its power to legislate further in this area. Although the State appropriately authorized the City to implement the commuter tax, it never ceded its taxing authority to the City. Indeed, article XVI, § 1 of our Constitution provides that "the [State's] power of taxation shall never be surrendered, suspended or contracted away."
A home rule message was not required. The statute meets the Adler test: it addresses a subject of substantial State *592 concern and it bears a reasonable relationship to that concern. It accomplishes the clearly expressed legislative objective of easing the burden on those State residents working in New York City, but living outside the City limits by repealing the commuter tax. We cannot think of a more direct way to ease the burden of a tax than to repeal it.
III.
Federal Constitutional Challenges Against the State
The remaining claims are brought by out-of-State commuters who work in New York City and by the State of Connecticut. They present Federal constitutional challenges under the Privileges and Immunities and Commerce Clauses.[5]
The Privileges and Immunities Clause
The Privileges and Immunities Clause of the United States Constitution (US Const, art IV, § 2) provides:
"[t]he Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States."
Like the Commerce Clause, the Privileges and Immunities Clause derives from the fourth article of the Articles of Confederation and was promulgated to create a national economic union, with one citizenry, by placing the citizens of each State on equal footing with citizens of other States, as far as the advantages resulting from citizenship in those States are concerned (see, Supreme Ct. v Piper, 470 US 274, 279-280). The goal was to insure that the union of States would provide an economic system that would work to benefit all citizens of the union (see, The Federalist No. 7, at 61 [Alexander Hamilton] [Rossiter ed 1961]).
In resolving constitutional challenges to State tax measures under this Clause, the Supreme Court has made clear that "in taxation, even more than in other fields, legislatures possess the greatest freedom in classification" (Madden v Kentucky, 309 US 83, 88). Review of taxation matters thus is narrow and *593 must balance the significant discretion of a State Legislature with Federal constitutional interests. When the controversy involves a State tax scheme that contravenes rights secured by the Federal Constitution, the decision depends not on a question of form, construction or definition of the tax, but upon its practical operation and effect (Shaffer v Carter, 252 US 37, 55).
The Privileges and Immunities Clause is not absolute (Toomer v Witsell, 334 US 385, 396), and affords no assurance of precise equality in taxation between residents and nonresidents of a particular State (Lunding v New York Tax Appeals Tribunal, 522 US 287, 297). Instead, the Clause requires a standard of "substantial equality of treatment" for the citizens of the taxing State and nonresident taxpayers (Austin v New Hampshire, 420 US 656, 665).
In addition to the "substantial equality" standard, the Court in Supreme Ct. v Piper (supra) identified a test to determine whether a State may sustain a tax that discriminates on the basis of State residence under the Privileges and Immunities Clause. The taxing State must demonstrate both that there is a substantial reason for the difference in treatment and that the discrimination practiced against nonresidents bears a substantial relationship to the taxing State's objective (id., at 284 [citations omitted]).
At the outset, the State argues that in assessing whether "substantial equality" exists between residents and nonresidents, this Court is obliged to take into account the State's tax system as a whole. The State would have us compare chapter 5 with a plethora of general revenue taxes paid by residents, such as sales, gasoline and liquor taxes, to determine whether there is "substantial equality" between in-State and out-of-State residents in the "general burden of taxation."
The Supreme Court's Privileges and Immunities Clause jurisprudence confirms that in assessing whether "substantial equality" exists between residents and nonresidents, the commuter tax may not be deemed an offset to an aggregation of general revenue taxes. The basis for comparing a "discriminatory tax" is narrower in scope (see, Travellers' Ins. Co. v Connecticut, 185 US 364, 367; Travis v Yale & Towne Mfg. Co., 252 US 60, 81). The "substantial equality" of the tax is measured by the impact of the tax in question on nonresident and residents and does not employ a determination of each group's relative tax burdens. To accept the State's position would relegate constitutional analysis to a difficult, if not impossible, *594 tax calculation that might vary between neighboring States and indeed the lifestyles of individual commuters.
Turning to the Piper test, the State argues that balancing the tax burden between in-State and out-of-State resident commuters is the "substantial reason" for enactment of chapter 5. According to the State, the tax on nonresident commuters under chapter 5 represents no more than a fraction of the other taxes paid by resident commuters for the benefit of New York City. The State contends, for example, that, unlike nonresidents, resident commuters pay taxes on general sales items, unearned income, liquor and gasoline, all of which support the public conveniences provided by New York City. The State argues that these taxes are either not imposed on nonresident commuters or are imposed to a lesser extent and therefore represent a significant tax burden on resident commuters when compared to their nonresident counterparts. Under this rationale, because New York State residents pay more to support City services than out-of-State residents, the discriminatory tax is justified. The State also argues that the lower courts ignored the economic benefits that nonresident out-of-State commuters receive from New York City in terms of fire, police, transportation and emergency health services.
We conclude that the reasons proffered by the State fail to satisfy the test of "substantiality." The legislative history of chapter 5 reveals no "tax equalization" rationale for in-State and out-of-State commuters at the statute's passage. To the contrary, the State was concerned with providing a tax break to New York State resident commuters who work in the City, as well as attracting business to New York City. Relieving the differential burden between State residents and nonresidents was not part of the legislative focus.
Even if relieving the differential tax burden had been a reason for passage of chapter 5, the courts below correctly determined that the State failed to establish an issue of fact that any such differential tax burden exists. Many of the "offsetting" taxes are paid by all New York residents whether or not they work in New York City, and are also paid by Connecticut and New Jersey commuters who purchase goods and services while in New York.
Moreover, the affidavit relied upon by the State contradicts its position. The affidavit notes that when New York City is viewed in isolation from its suburbs, City residents pay more to the State in revenue than they receive from the State in *595 expenditures. Thus, according to the affidavit, New York City is not a net drain on the financial strength of the rest of the State and, contrary to the State's argument, resident commuters are not supporting New York City through the numerous taxes. Nor is it of any consequence that nonresident commuters may, at times, benefit from City services. The tax on nonresident commuters is not a "fee" for those services; the tax is not predicated on a "cost" for the City services commuters use, nor is it correlated to State subsidies of those services.
The "substantiality" test also is not met with regard to the means chosen to tax nonresidents vis-à-vis the State's objectives. Here, the State has made no showing that nonresidents are a "peculiar source of the evil" at which chapter 5 is aimed (Toomer v Witsell, supra, at 398). Although there is no evidence that nonresident commuters pay less in taxes than their New York State counterparts, there is also no reasonable relationship between the "danger" of a disparate tax burden between New Yorkers and nonresident commuters as a class to justify the discrimination practiced against them (see, id., at 399). Commuting into the City is not a taxable event substantially equivalent to the events on which these other taxes are based. The language of the statute plainly and frankly discriminates against nonresidents. There is little doubt but that the discrimination is so great that both its purpose and effect are exclusionary.
This case is analogous to both Travis v Yale & Towne Mfg. Co. (supra) and Austin v New Hampshire (supra). In Travis, the Supreme Court struck down a New York law that permitted New York State residents an exemption on the first $1,000 of income (or $2,000 if filing jointly), but denied nonresidents the same exemption in calculating New York income subject to State income tax. The Court stated:
"This is not a case of occasional or accidental inequality due to circumstances personal to the taxpayer * * * but a general rule, operating to the disadvantage of all nonresidents including those who are citizens of the neighboring [S]tates, and favoring all residents including those who are citizens of the taxing [S]tate" (Travis v Yale & Towne Mfg. Co., supra, at 80-81 [citations omitted]).
Here, too, chapter 5 operates as a general rule and intentionally creates inequality between resident and nonresident commuters. The Privileges and Immunities Clause plainly and *596 unmistakably secures and protects the right of the citizens of one State to be exempt from any higher taxes or excises than those imposed by another State upon its own citizens (see, Ward v Maryland, 12 Wall [79 US] 418, 430).
In Austin, the Court determined that a New Hampshire statute violated the Privileges and Immunities Clause because it imposed an income tax on nonresident commuters who worked within the State, while imposing no income tax on New Hampshire residents. Pointing out that "nonresidents are not represented in the taxing State's legislative halls" (Austin v New Hampshire, supra, at 662), the Supreme Court concluded that the tax fell exclusively on the income of nonresidents and there was no substantial equality of taxation between the residents and nonresidents. Here, as in Travis and Austin, the tax at issue denies nonresidents one of the Privileges and Immunities of New York residents. Accordingly, the tax violates article IV, § 2 of the United States Constitution.
The Commerce Clause
The Commerce Clause provides that "[t]he Congress shall have Power * * * [t]o regulate Commerce * * * among the several States" (art I, § 8, cl [3]). Though phrased as a grant of regulatory power to Congress, the Commerce Clause has long been understood to have a "negative" or "dormant" power that prevents individual States from interfering with, or discriminating against, interstate trade (see, Oregon Waste Sys. v Department of Envtl. Quality, 511 US 93, 98; Fulton Corp. v Faulkner, 516 US 325, 330; see also, Matter of Tamagni v Tax Appeals Tribunal, 91 NY2d 530, 539, cert denied 525 US 931). In keeping with the original intent of the Commerce Clause to prevent the economic Balkanization that characterized the Confederation, the dormant Commerce Clause prohibits economic protectionism through regulatory measures designed to benefit in-State economic interests by burdening out-of-State competitors (see, New Energy Co. v Limbach, 486 US 269, 273-274; see also, Matter of Tamagni v Tax Appeals Tribunal, supra, at 539).
The first step in dormant Commerce Clause analysis is to determine whether the statute in question "`regulates evenhandedly with only "incidental" effects on interstate commerce, or discriminates against interstate commerce'" (Oregon Waste Sys. v Department of Envtl. Quality, supra, at 99 [citations omitted]). Discrimination means differential treatment on in-State and out-of-State economic interests that benefits the *597 former and burdens the latter (id.). State laws discriminating against interstate commerce on their face are "virtually per se invalid" (id. [citations omitted]).
The State contends that the statute does not "discriminate" within the meaning of the Commerce Clause jurisprudence. On its face, however, chapter 5 does just that: it imposes a tax on out-of-State commuters, but not on in-State commuters. A taxing scheme that taxes only nonresidents who work in New York City obviously favors resident commuters. It treats in-State and out-of-State economic interests differently and taxes nonresidents simply because they cross State lines. Thus, the tax scheme benefits residents of New York State and burdens residents of other States who commute to New York City on a daily basis. The law promotes economic protectionism and is incompatible with a single national economic unit. It therefore is facially invalid.
Because chapter 5 is facially discriminatory, the tax may survive Commerce Clause scrutiny only if the State can show that the tax advances a local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives (Oregon Waste Sys. v Department of Envtl. Quality, supra, at 100-101 [citations omitted]). The State, again, contends that the purposes for the tax are equalization of the tax burden and tax relief for residents of New York. Nonetheless, tax relief for residents does not justify a discriminatory tax on nonresident workers (see, Baldwin v G. A. F. Seelig, 294 US 511, 527 [Cardozo, J.] ["Neither the power to tax nor the police power may be used by the state of destination with the aim and effect of establishing an economic barrier against competition with the products of another state or the labor of its residents"]).
The State argues that Commerce Clause analysis is not implicated here because plaintiffs failed to show that chapter 5 has a demonstrable effect on any identifiable interstate market. It has long been recognized, however, that the movement of persons across State lines is a form of commerce (see, Camps Newfound/Owatonna v Town of Harrison, 520 US 564, 573, citing Edwards v California, 314 US 160, 172). In Camps, the Court found that nonresident campers who crossed State lines to attend a camp in Maine affect interstate commerce. Here, thousands of New Jersey and Connecticut residents commute into New York City on a daily basis, earning and spending part of their income in New York City, while paying the commuter tax. This clearly impacts interstate commerce.
*598 Moreover, we reject the State's argument that Matter of Tamagni v Tax Appeals Tribunal (supra) stands for the proposition that the Commerce Clause does not protect commuters. The taxpayers in Tamagni were statutory residents of New York State by virtue of maintaining a permanent place of residence in New York City in addition to a home in New Jersey. We noted that although the taxpayers were domiciliaries of New Jersey, they were subject to the New York State resident income tax in the same manner as were full-time New York State residents. In that case, the dormant Commerce Clause was inapplicable because the questioned New York income tax provisions were based solely on the Tamagnis' status as New York residents, "without regard to any specific commercial or economic transaction or activity" (id., at 538). Moreover, the intangible income at issue in Tamagni was not earned in any particular State and could not be traced to any jurisdiction outside New York. Here, the tax clearly is assessed against the interstate labor market per se (see, id., at 541) and favors intrastate economic activity over interstate activity by taxing only out-of-State workers.
In sum, chapter 5 of the Laws of 1999 violates the Commerce Clause of the Federal Constitution.
IV.
Finally, we address the Wolf plaintiffs' request for attorneys' fees pursuant to Tax Law § 3030 and the denial of injunctive relief from the State's continued collection of the tax.
Tax Law § 3030 was enacted to provide taxpayers with additional rights and equitable relief under the Taxpayer Bill of Rights Act of 1997 (Governor's Program Bill Mem, Bill Jacket, L 1997, ch 577). Section 3030 permits a discretionary award of attorneys' fees to the prevailing party in a proceeding in which the Commissioner is a party and which involves the determination, collection or refund of any tax (Tax Law § 3030 [a]). A prevailing party is not entitled to recover attorneys' fees if the Commissioner satisfies his burden of proving, by a preponderance of the evidence, that his position was substantially justified (Tax Law § 3030 [c] [5] [B]).
Here, the State has demonstrated that the Commissioner's position is substantially justified. This litigation represents the State's obligation to defend the constitutionality of a tax law that was passed by the State Legislature and signed by the Governor. An award of attorneys' fees is not appropriate in this circumstance.
*599 Lastly, plaintiffs argue that the courts below erred in not issuing a permanent injunction enjoining New York from enforcing the tax. However, the availability of a tax refund here renders injunctive relief inappropriate; the refund process provides an adequate remedy at law.
The parties' remaining arguments are without merit.
Accordingly, the order of the Appellate Division should be modified, without costs, by declaring that chapter 5 of the Laws of 1999 does not violate the home rule provisions of the State Constitution, and as so modified, affirmed.
Order modified, etc.
NOTES
[1] The tax is a flat rate of .45 of 1% on wages and .65 of 1% on net earnings from self-employment. Although administered by New York State, the tax is deposited into the City's general fund. Prior to passage of chapter 5, the City collected $360 million annually from the commuter tax. Of that amount, New York State residents paid approximately $210 million.
[2] The City raises two additional challenges in an attempt to preserve the tax. First, the City contends that, since the statute does not repeal the Administrative Code provisions that implement the tax, those provisions still have life. However, the statute repeals the authority on which the Code provisions are based; those provisions therefore are no longer effective (see, Castle Oil Corp. v City of New York, 89 NY2d 334). Second, the City argues that the statute unlawfully delegates the Legislature's power by allowing a court to effectuate a repeal of the tax. Legislative anticipation of judicial interpretation of a statute is nothing new. Although the anticipation is ordinarily reflected in severability clauses that call for a legislative act to continue if one section is stricken, the direction that the entire statute falls if sections 1 and 2 are invalidated was an appropriate legislative choice, and cannot be construed as delegating legislative power to the judiciary.
[3] Supreme Court also dismissed the City's action. It was error, however, to dismiss the complaint in this action for a declaratory judgment merely because plaintiffs were not entitled to the declaration they sought (see, Lanza v Wagner, 11 NY2d 317, 334).
[4] See, Cole, Constitutional Home Rule in New York: The Ghost of Home Rule, 59 St John's L Rev 713 (1985); Note, Home Rule and the New York Constitution, 66 Colum L Rev 1145 (1966); Hyman, Home Rule in New York 1941-1965: Retrospect and Prospect, 15 Buffalo L Rev 335 (1965); Comment, Home Rule: A Fresh Start, 14 Buffalo L Rev 484 (1965); Asch, Municipal Home Rule in New York, 20 Brooklyn L Rev 201 (1954); Richland, Constitutional City Home Rule in New York, 54 Colum L Rev 311 (1954).
[5] Although these plaintiffs also ask us to find the law unconstitutional on independent State grounds under the Equal Protection Clause of the State Constitution, they fail to demonstrate how in this case that provision provides greater protection than its Federal counterpart. Indeed, they offer only Federal decisions to support their argument (see, Golden v Clark, 76 NY2d 618, 623, n 2). Thus, we reject this argument.
|
275 P.3d 1017 (2012)
248 Or. App. 755
BLAY
v.
BOARD OF PSYCHOLOGIST EXAMINERS.
A149147.
Court of Appeals of Oregon.
March 14, 2012.
Affirmed without opinion.
|
Case: 20-1079 Document: 47 Page: 1 Filed: 07/14/2020
NOTE: This disposition is nonprecedential.
United States Court of Appeals
for the Federal Circuit
______________________
WESTERN EXPRESS BANCSHARES, LLC,
Plaintiff-Appellant
v.
GREEN DOT CORPORATION,
Defendant-Appellee
______________________
2020-1079
______________________
Appeal from the United States District Court for the
Southern District of New York in No. 1:19-cv-04465-DLC,
Senior Judge Denise Cote.
______________________
Decided: July 14, 2020
______________________
ANDREW SOL LANGSAM, Pryor Cashman LLP, New
York, NY, for plaintiff-appellant. Also represented by
SMITH S. PIYANAN.
ADAM R. BRAUSA, Durie Tangri LLP, San Francisco,
CA, for defendant-appellee. Also represented by ANDREW
LOUIS PERITO.
______________________
Before MOORE, LINN, and CHEN, Circuit Judges.
Case: 20-1079 Document: 47 Page: 2 Filed: 07/14/2020
2 WESTERN EXPRESS BANCSHARES v. GREEN DOT CORPORATION
PER CURIAM.
Western Express Bancshares, LLC (“Western Ex-
press”) appeals the dismissal on the pleadings of its com-
plaint alleging infringement of Western Express’s U.S.
Patent No. 8,498,932 (“’932 patent”) by Green Dot Corpo-
ration (“Green Dot”). Western Express Bancshares, LLC v.
Green Dot Corp., No. 19-cv-4465 (S.D.N.Y. Oct. 2, 2019)
(“District Court Op.”). Because the ’932 patent claims pa-
tent ineligible subject matter under 35 U.S.C. § 101, we af-
firm.1
Patent eligibility is ultimately a question of law, that
may contain underlying fact issues. Solutran, Inc. v. Ela-
von, Inc., 931 F.3d 1161, 1165 (Fed. Cir. 2019). Patent eli-
gibility may, however, be susceptible to judgment on the
pleadings. SAP Am., Inc. v. InvestPic, LLC, 898 F.3d 1161,
166 (Fed. Cir. 2018) (“Like other legal questions based on
underlying facts, this question may be, and frequently has
been, resolved on a Rule 12(b)(6) or (c) motion where the
undisputed facts, considered under the standards required
by that Rule, require a holding of ineligibility under the
substantive standards of law.”).
The Supreme Court and this court consistently hold
that “fundamental economic practice[s]” are not patent eli-
gible. Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. 208,
219 (2014) (invalidating as patent ineligible idea of inter-
mediated settlement); Bilski v. Kappos, 561 U.S. 593, 611
(2010) (financial risk hedging); Solutran, 931 F.3d at 1166
(crediting a merchant account as early as possible while
electronically processing a check); Mortgage Grader, Inc. v.
1 The district court granted summary judgment
based on both a failure to plead facts sufficient to state a
plausible claim of infringement and invalidity due to pa-
tent ineligibility. Because the validity issue resolves the
appeal, we need not and do not address infringement.
Case: 20-1079 Document: 47 Page: 3 Filed: 07/14/2020
WESTERN EXPRESS BANCSHARES v. GREEN DOT CORPORATION 3
First Choice Loan Servs. Inc., 811 F.3d 1314, 1324 (Fed.
Cir. 2016) (anonymous loan shopping); OIP Techs., Inc. v.
Amazon.com Inc., 788 F.3d 1359, 1360 (Fed. Cir. 2015) (au-
tomatic price optimization); Ultramercial, Inc. v. Hulu,
LLC, 772 F.3d 709, 715 (Fed. Cir. 2014) (using advertising
as a form of exchange). We have applied this rule even
where the financial transaction claimed includes physical
components. See Solutran, 931 F.3d at 1168 (“[T]he phys-
icality of the paper checks being processed and transported
is not by itself enough to exempt the claims from being di-
rected to an abstract idea.”); Content Extraction & Trans-
mission LLC v. Wells Fargo Bank, Nt. Ass’n, 776 F.3d
1343, 1347 (Fed. Cir. 2014) (rejecting contention that
claims directed to a method for scanning checks to collect
and store their data were non-abstract because of the phys-
icality of the scanner).
Claim 1 of the ’932 patent reads, in full:
A method of funds transfer comprising the steps of:
a. distributing at least one of a plurality of money
account cards having specified capabilities to a re-
tailer, each money account card having information
associated with a predetermined account with one or
more financial institutions, the retailer distributing
the money account card to a purchaser thereof;
b. receiving funds for allocation to the predeter-
mined account, said funds being received from the
purchaser of said money account card from the re-
tailer;
c. distributing at least a portion of the funds received
into said predetermined account to a holder of the at
least [sic] one money account card; and
d. permitting the customer to furnish personal infor-
mation of the holder other than a PIN, by communi-
cating with the holder through an ATM, Internet
connection or telephone call, and in response,
Case: 20-1079 Document: 47 Page: 4 Filed: 07/14/2020
4 WESTERN EXPRESS BANCSHARES v. GREEN DOT CORPORATION
activating or altering a previously dormant capabil-
ity of the at least [sic] one money account card apart
from withdrawal of funds. 2
’932 patent, col. 9, ll. 49–67.
The first three steps describe the basic concept of a pay-
ment card, and the last step merely describes the ability to
adjust the financial relationship between the purchaser
and the card provider from one conventional form to other
conventional forms through a communication providing
personal information. We agree with the district court that
under the first step of Alice, claim 1 is thus directed to a
“method of funds transfer” using a payment card.3 District
Court Op. at 12. Indeed, the ’932 patent itself repeatedly
characterizes the invention as “relat[ing] to a money trans-
fer method.” ’932 patent, col. 2, ll. 37; id. at col. 2, l. 10
(“funds transfer”); id. at col. 2, l. 19 (“funds transfer”); id.
at col. 1, ll. 55–58 (noting desirability of “a method and/or
system of providing and retrieving money transfers be-
tween a customer and recipient through an automated net-
worked method”); id., Abstract (“a method of funds
transfer”). This is a “fundamental economic practice long
2 Western Express does not separately argue the
other claims in the ’932 patent, nor contest the district
court’s determinations that independent Claims 17 and 29
are “substantially similar to Claim 1,” and the dependent
claims “do not add significant limitations to Claim 1.” Dis-
trict Court Op. at 17.
3 The district court also characterized the claims as
directed to “the receipt, storage, and distribution of money
by, in, and through existing technologies like stores, banks,
and ATMs, the internet or telephone.” See District Court
Op. at 15. We consider this as the same characterization
as the shorthand characterization noted above. Both char-
acterizations result in the same conclusion of patent ineli-
gibility.
Case: 20-1079 Document: 47 Page: 5 Filed: 07/14/2020
WESTERN EXPRESS BANCSHARES v. GREEN DOT CORPORATION 5
prevalent in our system of commerce” and, as such, is a pa-
tent ineligible abstract idea. Alice, 573 U.S. at 219.
Western Express first argues that the ’932 patent
claims solve several problems associated with prior art
money account cards: creating a bank account without an
approval process, allowing the immediate purchase of
goods, and allowing the purchaser to alter the functionality
of the card after the card is already connected to a bank
account. The first two of these “advantages” are just the
conventional benefits of a payment card. The ability to al-
ter a financial relationship through communication be-
tween the parties is a fundamental characteristic of
financial relationships.
Western Express’s contention that the district court, in
quoting from this court’s decision in Smart Systems, did not
understand the claimed invention has no merit. See Dis-
trict Court Op. at 14–15 (“Thus, the claim recites ‘the col-
lection of financial data from third parties, the storing of
that financial data, linking proffered credit cards to the fi-
nancial data, and allowing access . . . based on the financial
data’ to unspecified, altered features of traditional money
cards” (quoting Smart Sys. Innovations, LLC v. Chicago
Transit Auth., 873 F.3d 1364, 1372 (Fed. Cir. 2017)). Noth-
ing in the district court’s quotation from Smart Systems
can properly be read to suggest or imply that the steps of
the claimed invention were the same as those in Smart Sys-
tems. Id. To the contrary, the district court was simply
making the point that, just as in Smart Systems, “claims
that are directed to the collection, storage, and recognition
of data are directed to an abstract idea” and do not effect a
transformation. Id. at 15 (citing Smart Systems, 873 F.3d
at 1373). The only potential “transformation” claimed is a
transformation in the legal and financial obligations be-
tween the parties, which itself is abstract. See Ultramer-
cial, 772 F.3d at 717. We agree with the district court that
the capability of increasing the functionality of the card to
Case: 20-1079 Document: 47 Page: 6 Filed: 07/14/2020
6 WESTERN EXPRESS BANCSHARES v. GREEN DOT CORPORATION
allow for other financial transactions between the parties
does not effect a transformation.
Western Express argues that the fact that the claims
require a physical object—the payment card—renders the
claims directed to patent eligible matter. We disagree.
That position is precluded by this court’s holding in Smart
Systems, where we held that the use of a bank card to ac-
cess public transport was a patent ineligible abstract idea.
Smart Systems, 873 F.3d at 1373 (“[T]hat the steps recited
in the Asserted Claims are ‘necessarily’ performed ‘in the
physical, rather than purely conceptual, realm . . . is beside
the point’” (citing Alice, 573 U.S. at 224)). See also So-
lutran, 931 F.3d at 1168; Content Extraction, 776 F.3d at
1347.
Turning to the second step of Alice, nothing in the
claims provides the requisite inventive concept to save the
claim from ineligibility. The ’932 patent “simply instruct[s]
the practitioner to implement the abstract idea with rou-
tine, conventional activity.” See Solutran, 931 F.3d at 1169
(quoting Ultramercial, 772 F.3d at 715). Nothing in the
’932 patent, either in the claim limitations themselves or
in their ordered combination goes beyond routine, conven-
tional activity. The patent itself describes the recited com-
ponent parts as present in the prior art: credit cards with
preset credit limits, ’932 patent, col. 1, ll. 20–33; authoriza-
tion mechanisms, id. at col. 2, ll. 54–58; and communica-
tions mechanisms by which the relationship may be
changed, id. at col. 5, l. 65 – col. 6, l. 6. The ’932 patent
does not describe any new money transfer techniques, and
Western Express does not argue that by the May 2002 pri-
ority date, payment cards and or money transfers were in
any way unconventional. Indeed, Western Express does
not identify any components that were not conventional by
the priority date.
Nor does the ordered combination of limitations pro-
vide the inventive concept. As Green Dot notes, Western
Case: 20-1079 Document: 47 Page: 7 Filed: 07/14/2020
WESTERN EXPRESS BANCSHARES v. GREEN DOT CORPORATION 7
Express failed to make this argument below. Western Ex-
press does not contest this assertion in its Reply Brief. This
argument is therefore waived. See Fresenius USA, Inc. v.
Baxter Int’l, Inc., 582 F.3d 1288, 1295 (Fed. Cir. 2009) (ar-
guments not brought below are waived). In any event,
Western Express merely argues that its invention is “en-
tirely different from the steps for conventionally opening,
obtaining and using a traditional account at a bank.” West-
ern Express Br. at 57. But the absence of the exact inven-
tion in the prior art does not prove the existence of an
inventive concept. Here, Western Express has claimed a
fundamental economic practice of transferring money
through a payment card. This abstract idea is not patent
eligible.
AFFIRMED
|
114 Ill. App.3d 433 (1983)
451 N.E.2d 1
THE PEOPLE OF THE STATE OF ILLINOIS, Plaintiff-Appellee,
v.
KELVIN OSBORNE, Defendant-Appellant.
No. 4-82-0660.
Illinois Appellate Court Fourth District.
Opinion filed May 4, 1983.
*434 Daniel D. Yuhas and David Bergschneider, both of State Appellate Defender's Office, of Springfield, for appellant.
Anthony B. Cameron, State's Attorney, of Quincy (Robert J. Biderman and David E. Mannchen, both of State's Attorneys Appellate Service Commission, of counsel), for the People.
Reversed and remanded.
PRESIDING JUSTICE WEBBER delivered the opinion of the court:
Defendant was convicted by a jury in the circuit court of Adams County of two counts of forgery and one count of misdemeanor theft in violation of sections 17-3(a)(1) and 16-1(a)(1) of the Criminal Code of 1961. (Ill. Rev. Stat. 1981, ch. 38, pars. 17-3(a)(1), 16-1(a)(1).) He was sentenced to concurrent terms of imprisonment for four years on each forgery count and 364 days on the theft count.
On appeal the principal issue is the trial court's handling of defendant's alibi defense. As a derivative of that issue, some discussion is in order concerning obligations of the parties under the Supreme Court Rules governing discovery in criminal cases. 87 Ill.2d Rules 411 through 415.
The factual situation may be briefly summarized. The State's evidence showed that defendant and three confederates obtained checks belonging to Dennis Goodwin. Between April 24, 1982, and April 26, 1982, defendant signed Goodwin's name to two of the checks and one of the confederates, Bowen, cashed them; the proceeds were then divided among defendant, Bowen, and a third confederate, Hickman. Bowen was the principal witness against defendant and testified that she had pleaded guilty to attempt (theft) and had received probation for her part in the offenses. Forgery counts against her were dismissed.
Informations were filed against defendant on April 28, 1982; he made a first appearance on April 29 and filed his motion for discovery; a preliminary hearing was held on May 20, probable cause was *435 found and the case was set for later arraignment. On June 2, 1982, defendant was arraigned and entered a plea of not guilty; the cause was then set for jury trial. On June 4, 1982, the State filed its motion for discovery.
On July 16, 1982, defendant filed his answer to the State's motion for discovery and in it raised an alibi defense. The pertinent parts of his discovery answer are:
"2. Defendant did not commit the offenses as charged, and at the time of the alleged offenses, he was at Pierson Construction Company, Quincy, Illinois.
* * *
6. Defendant attaches a copy of his time sheet for employment at Pierson Construction and a copy of his W-4 form is not in possession of defense counsel at this time, but will be provided when that document is received.
7. Defendant intends to use an alibi defense, namely that he was, at the time of the alleged offense, at the location of Pierson Construction Company near Quincy, Illinois."
On August 16, 1982, defendant filed a supplement to his answer in which he stated that he intended to call as a witness Diane Dade Buckner.
The trial began on August 19, 1982, and at the conclusion of the State's evidence and after a motion for directed verdict had been denied, the prosecutor in chambers moved to exclude Buckner as a witness. He stated that she had been interviewed at 1:30 p.m. that date and would state that she had transported defendant to the Quincy Soybean location to make a job application on April 26, the date of the alleged offense. The time of the motion in chambers was fixed at 2:43 p.m.
Defense counsel answered that it was common knowledge in the area that Pierson Construction Company was engaged in a construction project for Quincy Soybean, near Quincy, Illinois. The argument then progressed over the question as to whether a "location" had been disclosed by defendant. The prosecutor made only a mild objection over the timing of the disclosure of the name of Buckner. His chief, if not only, emphasis was on the matter of location, claiming that the information given was not specific as required by Supreme Court Rule 413(d)(iii) (87 Ill.2d R. 413(d)(iii)).
The issue is carved in sharp relief by the trial court's ruling in which it said:
"Gentlemen, if the Pierson Construction Company had a permanent location in Quincy, then I would think the disclosure *436 would be adequate; but as I understand the situation, it's a Missouri company, and they're based in Missouri somewhere, Columbia, perhaps. They have no permanent basis in Quincy that has been disclosed to me; and accordingly, I don't believe that the response to the State's motion for discovery complies with the rule, because they don't give a specific place. They name an employer, but that is all.
Accordingly, I'm going to sustain Mr. Cameron's [State's Attorney] motion to exclude the testimony of Miss Buckner as it relates to accompanying the defendant to the Quincy Soybean Company on the day of April the 26th of 1982."
Defense counsel then moved for a continuance in order to obtain other witnesses to corroborate defendant's alibi; this motion was denied. He also moved for a continuance in order to present evidence that Pierson Construction Company's only jobsite near Quincy was at Quincy Soybean and that the construction project was well known throughout the community. This motion was likewise denied.
While the criminal discovery rules possess a much shorter history in this State than do the civil discovery rules, the underlying rationale is the same. They are intended as procedural tools whereby a prompt and just disposition of the case may be made by educating the parties in advance of trial as to the real value of claims and defenses. (People ex rel. Terry v. Fisher (1957), 12 Ill.2d 231, 145 N.E.2d 588.) It seems to us that in the instant case the State declined to be educated as to the validity of the alibi defense, but rather elected to use semantics in its efforts to thwart that defense. Information regarding alibi had been furnished to the State more than 30 days prior to trial and the name of a corroborating witness had been furnished three days prior to trial. Yet the record is barren of any indication that the State attempted to investigate the alibi. On the other hand, the record is clear that it did not interview the witness until it had concluded its case in chief and then complained that it was not furnished with a "specific location."
The disclosure of an alibi defense by a defendant is almost precisely analogous to answering an interrogatory in a civil case. The remedy for an incomplete or evasive answer is well known: an objection to the answer and a motion to make it more definite and certain. If, upon investigation, the State's Attorney was unable to find any location for Pierson Construction Company near Quincy, he had ample time in which to demand that the defendant point out to him exactly where it was; or alternatively, he could have earlier obtained from the witness Buckner the name of Quincy Soybean. However, he did neither. *437 The State's theory of "specific location," pressed to its logical extreme, would require a defendant to state his position in alibi by coordinates of latitude and longitude expressed in degrees, minutes and seconds.
1 In our opinion this was not the purpose of the rule. The purpose was to avoid vague generalities, e.g., "I was in Chicago," or "I was fishing on the lower Zambesi," which would be humanly impossible to investigate. In the instant case the information furnished delineated prima facie a specific location within the knowledge of the defendant and if the State's Attorney found it inadequate, it was his duty to seek clarification. Under Supreme Court Rule 415(b) (87 Ill.2d R. 415(b)) there is a continuing duty to disclose on both parties. We believe there is a corollary duty on both parties to seek clarification of disclosure which they deem inadequate or evasive. In this context the instant case is unlike People v. Braxton (1980), 81 Ill. App.3d 808, 401 N.E.2d 1062, and People v. Short (1978), 60 Ill. App.3d 640, 377 N.E.2d 389, both cited by the State for its position. In each of those cases the defendant completely failed to notify the State of any asserted alibi prior to trial.
2 It is elemental that sanctions for violation of discovery lie within the discretion of the trial court and its decision will not be lightly overturned. However, in this case we do find an abuse of discretion in barring the corroborating witness' testimony. Lesser sanctions were clearly indicated. It is a fundamental right of a defendant to present his theory of the case, no matter how overblown or specious it might appear. In the case at bar the defendant did testify as to his alibi, but he was barred from corroborating it. The situation is even more exacerbated by the prosecutor's final argument in which he commented on the lack of corroboration. Barring testimony as a sanction is an extremely harsh remedy, and its inappropriate use may constitute reversible error. (People v. Rayford (1976), 43 Ill. App.3d 283, 356 N.E.2d 1274.) We find such an inappropriate use and consequential error here.
In view of our disposition of this issue, we need not consider other issues raised by defendant: improper use of a prior inconsistent statement which had not been disclosed to him, and cumulative error.
The judgment and sentence of the circuit court of Adams County is reversed and the cause is remanded for a new trial.
Reversed and remanded.
TRAPP and MILLER, JJ., concur.
|
460 F.Supp.2d 571 (2006)
METROLOGIC INSTRUMENTS, INC., Plaintiff,
v.
SYMBOL TECHNOLOGIES, INC., Defendant.
Civil Action No. 03-2912 (HAA).
United States District Court, D. New Jersey.
September 29, 2006.
*572 *573 *574 *575 *576 *577 Edwin F. Chociey, Jr., Riker, Danzig, Scherer, Hyland & Perretti LLP, Lisa Marie Jarmicki, Riker, Danzig, Morristown, NJ, for Plaintiff.
William J. Heller, McCarter & English, LLP, Newark, NJ, for Defendant.
OPINION AND ORDER
ACKERMAN, Senior District Judge.
CONTENTS
I. Background ........................................................578
A. General Principles of the Relevant Technology .................578
B. History of Parties' Relationship ..............................579
C. General Description of the Relevant Patents....................580
1. The Parent Application of the Patents in Suit..............580
2. United States Patent 5,939,698 ............................581
3. United States Patent 5,340,971 ............................581
4. United States Patent 5,925,870 ............................581
II. Principles of Law .................................................582
A. The Markman Hearing............................................582
B. General Principles of Claim Construction ......................582
C. Construction of Means-Plus-Function Elements ..................585
III. Construction of the Disputed Claims ...............................587
A. The '698 Patent................................................587
1. Limitation 1(a)(2)(i) .....................................587
a. Function...............................................588
b. Corresponding Structure................................588
i. Normally-Off Visible Laser Diode...................588
ii. Mirror for Projecting..............................590
2. Limitation 1(a)(2)(iii) ...................................591
a. Function...............................................591
b. Corresponding Structure................................591
3. Limitation 1(a)(3) ........................................593
a. Function...............................................593
b. Corresponding Structure................................593
4. Limitation 1(a)(4) ........................................599
a. Function...............................................599
b. Corresponding Structure................................600
5. Limitation 1(b)(1) ........................................602
a. Function...............................................602
b. Corresponding Structure................................602
6. Limitation 1(b)(2) ........................................604
7. Claim 2....................................................605
a. Function...............................................606
b. Corresponding Structure................................608
B. The '971 Patent ...............................................608
1. Claim 44 Preamble .................................609
a. Definition of "Read" ..................................609
b. Decoding of Consecutive Bar Code Symbols ..............614
2. Claim 44 Laser Beam Producing Means ...............615
a. Function...............................................615
b. Corresponding Structure................................615
3. Claim 44 Laser Light Detecting Means...............618
a. Function...............................................618
*578
b. Corresponding Structure................................618
4. Claim 44 Scan Data Processing Means ...............619
a. Function...............................................619
b. Corresponding Structure................................621
5. Claim 44 Control Means.............................622
a. Function...............................................622
b. Corresponding Structure................................622
6. Claim 46...................................................624
a. Function...............................................625
b. Corresponding Structure................................625
C. The '870 Patent................................................625
1. Claim 10 System Activation Means ..................625
a. Function...............................................625
b. Corresponding Structure................................627
2. Claim 10 Scanning Mechanism .......................628
3. Claim 10 Light Detection Means ....................629
a. Function...............................................629
b. Corresponding Structure................................629
4. Claim 10 Scan Data Processing Means ...............630
a. Function...............................................630
b. Corresponding Structure................................630
5. Claim 10 Control Means.............................631
a. Function...............................................631
b. Corresponding Structure................................631
IV. Conclusion .........................................................632
This case presents one facet of a broader, multi-forum dispute between Metrologic Instruments, Inc. ("Metrologic") and Symbol Technologies, Inc. ("Symbol"), two close competitors in the design, development, manufacture, and sale of laser scanning bar code readers. Metrologic accuses Symbol of infringing three of its patents relating to automatically-operated laser bar code readers. With discovery completed, the Court must now determine the meanings of various disputed claims contained in the contested patents in accordance with the instruction of Markman v. Westview Instruments, Inc., 52 F.3d 967, 976-79 (Fed.Cir.1995) (en banc), aff'd, 517 U.S. 370, 116 S.Ct. 1384, 134 L.Ed.2d 577 (1996). The Court held a hearing for this purpose on March 27, 2006. Subsequently, and with the consent of counsel, the Court submitted seven supplemental questions to the parties, and the parties filed their respective responses on April 24, 2006. The Court has carefully considered all of the parties' written and oral arguments. In the Opinion that follows, the Court sets forth its constructions of the patent claims in dispute.
I. Background
A. General Principles of the Relevant Technology
The inventions described by the patents in suit are directed toward automatically-operated laser bar code readers, whose function is to scan and decode bar code symbols. Bar code symbols assume a variety of forms, but are most familiar to the lay public as the UPC bar code symbol commonly found on grocery items. These bar code symbols consist of a series of bars and spaces of contrasting darkness imprinted on a surface; the relative widths of the bars and spaces encode a numerical sequence. That numerical sequence, in turn, corresponds to a useful piece of information, such as the identity of the grocery item on which the bar code symbol is imprinted. Thus, an operator equipped with a laser bar code reader may quickly *579 retrieve detailed information encoded in the bar code symbol.
Laser bar code readers may be either hand held or fixed mounted. In some readers, the laser beam is off until a sensor detects the presence of an object in the vicinity of the reader. A signal from the sensor then causes the laser beam to turn on, or "initiate," automatically. This general process is known as "object detection" and is a common feature of "automatic" laser bar code readers. Object detection may take place before the laser bar code reader scans an object with the laser beam.
Most laser bar code readers today contain many of the same basic elements. A laser diode emits a laser beam that is directed to a mirror known generally as the "scanning mirror." The scanning mirror is moved by a motor, thereby projecting the beam in a pattern. When the laser beam crosses the bar code symbol, the laser light is reflected off the bar code symbol, with the white spaces reflecting more light than the black bars.
Some of the laser light reflected off of bar code symbols and other objects returns to the bar code reader, where it is detected by a component of the bar code reader known as a photoreceiver. A photoreceiver often consists of a photodiode, a device that converts light energy into an electrical signal. The electrical signal is an electronic representation of the object scanned by the laser beam. When the scanned object is a bar code symbol, the electrical signal represents the bar-and-space pattern.
A bar code reader must be able to differentiate between the laser light reflected by a bar code and the laser light reflected by other objects. The bar code reader accomplishes this task by performing one or more tests on the electrical signal generated by the photoreceiver. By analyzing the electrical signal in this manner, the bar code reader is able to detect electrical signals representing the bar-and-space pattern of a bar code symbol. This process is known generally as "bar code detection."
Once the bar code reader has determined that the electrical signal represents a bar code, the bar code reader will proceed to "decode" the bar code in order to recover the encoded information (known as "character data"). Upon a successful decoding, the bar code reader "outputs" the character data to an interface where the operator of the bar code reader may readily retrieve the encoded information. An example of such an interface might be a cash register that rings up the scanned item.
B. History of Parties' Relationship
Metrologic and Symbol have been two of the leading innovators in the field of laser scanning bar code readers. In the early 1980s, Symbol invented the first hand-held laser scanning bar code reader, the triggered scanner, for which Symbol received several patents. The triggered scanner requires the operator to trigger the device's operation manually.
In the late 1980s and early 1990s, Symbol brought lawsuits against several of its competitors, including Metrologic, for infringement of its triggered scanner patents. Consequently, Metrologic removed its triggered hand-held scanner from the market and developed a "triggerless," or automatic, hand-held laser scanning bar code reader, which initiated laser scanning without the use of a manual trigger.
On January 1, 1996, Metrologic and Symbol signed a patent cross-license agreement. The agreement purported to define the parties' respective rights in various technologies pertaining to bar code scanners. Although the parties' respective rights under this agreement comprise part *580 of the instant dispute, this issue does not affect the Court's analysis here.
Metrologic now contends that two of Symbol's bar code reader products, the M2000 and LS 1900 products, infringe three of Metrologic's patents under which Symbol does not hold licenses. Symbol insists that its products are non-infringing. The parties also dispute the meanings of numerous claims in the three patents in suit. In anticipation of a trial on the infringement issue, this Court has held a pretrial Markman hearing in order to ascertain the proper construction of the claims in dispute.
C. General Description of the Relevant Patents
1. The Parent Application of the Patents in Suit
Metrologic filed the first patent application (U.S. Patent App. No. 07/583,421, or the "'421 application") for an automatic laser scanning bar code reader on September 17, 1990. The application ultimately issued as U.S. Patent No. 5,260,553 on November 9, 1993. Metrologic subsequently obtained numerous additional patents, all based in part on the original '421 application. Three of these subsequent patents form the basis of the instant dispute.
All three patents in suit are either continuation[1] or continuation-in-part[2] patents originating from the same "parent" application, the '421 application. The '421 application suggests that the main technical obstacle for the automatic bar code reader was replacing the human operator, who controlled the hand-held reader by manually triggering the device's operation, with a system controller capable of operating the reader in a diverse set of operating conditions. In the '421 application, Metrologic identified various features that it wished to incorporate in its bar code readers to accomplish this goal, such as allowing for both short, and long-range detection of bar code symbols located in the vicinity of the reader, and managing the power consumption of the reader in certain configurations. The patents in *581 suit are representative of Metrologic's efforts in addressing the shortcomings and drawbacks of the prior art.
2. United States Patent 5,939,698
United States Patent No. 5,939,698 (the "'698 patent") originated from three continuation applications of the '421 application. The '698 patent describes an automatic laser bar code reader having both a hand-held and a stand-supported mode of operation. Of the claims in dispute, claim 1 is an independent claim[3] and claim 2 depends from claim 1.
Claim 1 sets forth an automatic hand-held bar code reader with a support stand. The device in claim 1 has five major components, including (1) a housing; (2) a means for producing scan data that consists of a laser beam producing means, a scanning means, and a laser light detecting means; (3) a bar code presence detection means; (4) a symbol decoding means; and (5) system control circuitry. Claim 1 further stipulates a scanner stand. Claim 2 adds a limitation concerning the manner by which the bar code presence detection means of claim 1 detects the presence of a bar code.
3. United States Patent 5,340,971
United States Patent No. 5,340,971 (the "'971 patent") issued from a continuation-in-part application of the '421 application and contains additional material in its patent specification. The '971 patent describes an automatic laser bar code reader having a mode of operation that allows it to read consecutively different bar code symbols automatically. Of the claims in dispute, claim 44 is an independent claim and claim 46 depends from claim 44.
Claim 44 sets forth a bar code reading device with six components, including (1) a housing, (2) a laser beam producing means, (3) a laser beam scanning means, (4) a laser light detecting means, (5) a scan data processing means, and (6) a control means. Claim 46 adds a limitation concerning the manner by which the scan data processing means of claim 44 detects the presence of a bar code.
4. United States Patent 5,925,870
United States Patent No. 5,925,870 (the "'870 patent") originated from a continuation application of two other continuation-in-part applications of U.S. Patent App. No. 07/761,123 (which itself issued as the '971 patent). The '870 patent describes an automatic laser bar code reader that flickers or blinks the reader's laser beam to increase the visibility of the laser scan line. The only claim in dispute from the '870 patent is independent claim 10.
Claim 10 outlines a bar code reader with eight components, including (1) a housing, (2) a system activation means, (3) a laser beam source, (4) a laser beam directing means, (5) a scanning mechanism, (6) a light detection means, (7) a scan data processing means, and (8) a control means.
*582 II. Principles of Law
A. The Markman Hearing
There are two steps in a patent infringement analysis. First, the court must determine the proper construction, or meaning, of the disputed claim or claims. Second, findings must be made as to whether the accused product or Method infringes the asserted claim as properly construed. See Markman, 517 U.S. at 377-90, 116 S.Ct. 1384. Under Markman, claim construction is a matter of law to be decided only by the court, whereas the issue of infringement is a question left to the factfinder. Id.
A Markman hearing may be held before, during, or after discovery, and even, in theory, during the infringement trial or on post-trial motions. See Elf Atochem N. Am., Inc. v. Libbey-Owens-Ford Co., 894 F.Supp. 844, 850 (D.Del. 1995). Although the Federal Circuit has not mandated a time for conducting Markman hearings, courts generally hold them before the infringement trial and after the parties have conducted discovery relating to their respective contentions as to claim construction. Within this District, for instance, it is a common practice for courts to conduct Markman hearings after discovery is completed. See, e.g., Conopco, Inc. v. Warner-Lambert Co. (In re Conopco, Inc.), No. Civ. A. 99-101, 2000 WL 342872, at *4 (D.N.J. Jan.26, 2000) ("[C]ourts have held that Markman hearings to determine proper claim construction are inappropriate prior to completion of discovery."); see also, e.g., ADC Telecomm., Inc. v. Siecor Corp., 954 F.Supp. 820, 821, 826-31 (D.Del.1997); S.S. White Burs, Inc. v. Neo-Flo, Inc., No. Civ. A. 02-3656, 2003 WL 21250553, at *3 (E.D.Pa. May 2, 2003).
A fundamental principle of claim construction is that patent claims must have the same meaning to all persons at all times, and that the meanings of the claims are determined and fixed at the time the Patent and Trademark Office ("PTO") issued the patent. See SmithKline Beecham Corp. v. Apotex Corp., 403 F.3d 1331, 1338 (Fed.Cir.2005) (en banc) ("Claim interpretation requires the court to ascertain the meaning of the claim to one of ordinary skill in the art at the time of invention."). The purpose of a Markman hearing is for the court and the parties to settle conclusively on the interpretation of disputed claims. See Elf Atochem, 894 F.Supp. at 850, 857-58. Indeed, the need for uniformity of claims' construction and concerns about fairness to competitors inform the policy of reserving the claim-construction function to the trial judge. See Markman, 52 F.3d at 987 ("The more appropriate analogy for interpreting patent claims is the statutory interpretation analogy. Statutory interpretation is a matter of law strictly for the court. There can be only one correct interpretation of a statute that applies to all persons.").
In some instances, claim construction may be dispositive of the entire case because the likelihood of success for one side is greater on the issue of infringement based on the court's construction. See Nystrom v. TREX Co., 424 F.3d 1136, 1140-41 (Fed.Cir.2005) ("Based on the district court's claim construction ruling, Nystrom conceded that he could not prove his infringement case against TREX."). In those cases, the court's and the litigants' resources may be saved by consenting to judgment. Even if the claim construction is not dispositive of the case, it will lay the groundwork for the ensuing infringement trial.
B. General Principles of Claim Construction
In interpreting a disputed claim, the court looks primarily to the intrinsic evidence in the record, "i.e., the patent *583 itself, including the claims, the specification and, if in evidence, the prosecution history." Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576, 1582 (Fed.Cir.1996) (citing Markman, 52 F.3d at 979). Intrinsic evidence is the "most significant source of the legally operative meaning of disputed claim language." Id. First, the court must look to the words of the claim itself to define the proper scope of the claimed invention. When interpreting the words of the claim, "a court must presume that the terms in the claim mean what they say, and, unless otherwise compelled, give full effect to the ordinary and accustomed meaning of claim terms." Johnson Worldwide Assocs., Inc. v. Zebco Corp., 175 F.3d 985, 989 (Fed.Cir.1999). However, the court will not accord a claim term its ordinary meaning in two situations. "The first arises if the patentee has chosen to be his or her own lexicographer by clearly setting forth an explicit definition for a claim term. The second is where the term or terms chosen by the patentee so deprive the claim of clarity that there is no means by which the scope of the claim may be ascertained from the language used." Id. at 990 (internal citations omitted). In either situation, the court must adopt the proffered definition of a term. Id.
Claims "are part of `a fully integrated written instrument,'" Phillips v. AWH Corp., 415 F.3d 1303, 1315 (Fed.Cir. 2005) (en banc) (citing Markman, 52 F.3d at 978), consisting principally of a written description of the invention, 35 U.S.C. § 112 para. 1, often referred to as the specification,[4] and concluding with the claims, id. para. 2. "For that reason, claims `must be read in view of the specification, of which they are a part.'" Phillips, 415 F.3d at 1315 (quoting Markman, 52 F.3d at 979). Thus, the second step in claim construction is for the court "to review the specification to determine whether the inventor has used any terms in a manner inconsistent with their ordinary meaning. The specification acts as a dictionary when it expressly defines terms used in the claims or when it defines terms by implication." Vitronics, 90 F.3d at 1582.
Next to the claim language itself, the specification is the most relevant evidence to any construction analysis. "Usually it is dispositive; it is the single best guide to the meaning of a disputed term." Id. In addition to defining terms, the specification "teaches about the problems solved by the claimed invention, the way the claimed invention solves those problems, and the prior art that relates to the invention. These teachings provide valuable context for the meaning of the claim language." Eastman Kodak Co. v. Goodyear Tire & Rubber Co., 114 F.3d 1547, 1554 (Fed.Cir.1997), abrogated on other grounds, Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1456 (Fed.Cir.1998) (en banc); see also Phillips, 415 F.3d at 1316 ("In light of the statutory directive that the inventor provide a `full' and `exact' description of the claimed invention, the specification necessarily informs the proper construction of the claims."); 5A-18 Donald S. Chisum, Chisum on Patents § 18.03(2)(c) (2006).
The third step in claim construction entails consideration of a patent's prosecution history. A patent's prosecution history consists of "the complete record of all the proceedings before the Patent and Trademark Office, including any express representations made by the applicant regarding the scope of the claims." Vitronics, 90 F.3d at 1582. For example, *584 during the application process, a patent examiner may require the applicant to limit the scope of his or her proposed claims so as not to include prior art within their ambit. An applicant may also limit the scope of his or her proposed claims in the process of distinguishing his or her invention over the prior art in order to obtain a patent. When an applicant surrenders or disclaims subject matter in this manner, the disclaimer becomes part of the prosecution history. If the application ultimately issues as a patent, the patent holder is bound by his or her prior disclaimers. Spectrum Int'l, Inc. v. Sterilite Corp., 164 F.3d 1372, 1378 (Fed.Cir.1998) ("[E]xplicit statements made by a patent applicant during prosecution to distinguish a claimed invention over prior art may serve to narrow the scope of a claim."). However, the Federal Circuit has said that "for prosecution disclaimer to attach, our precedent requires that the alleged disavowing actions or statements made during prosecution be both clear and unmistakable." Omega Eng'g, Inc. v. Raytek Corp., 334 F.3d 1314, 1325-26 (Fed.Cir.2003) (footnote omitted).
In the context of multiple continuation or continuation-in-part patents originating from the same parent patent, "the prosecution history regarding a claim limitation in any patent that has issued applies with equal force to subsequently issued patents that contain the same claim limitation." Elkay Mfg. Co. v. Ebco Mfg. Co., 192 F.3d 973, 980 (Fed.Cir.1999). Thus, a claim in a continuation or a continuation-in-part patent may, in addition to being limited by its own prosecution history, be limited because of (1) the prosecution history of its parent patent, and/or (2) the prosecution history of a continuation or continuation-in-part patent from the same parent patent that has issued prior to the patent in question, so long as the patents contain the same claim limitation.
Although a patent's prosecution history is relevant in construing the patent claims, there is a distinction between construing the claims in light of their prosecution history and applying the doctrine of prosecution history estoppel.[5] Courts consult the prosecution history of a patent during claim construction, while they apply the doctrine of prosecution history estoppel only during trial as a measure of preventing a patentee from improperly benefiting from the doctrine of equivalents.[6]Altech Controls Corp. v. *585 E.I.L. Instruments, Inc., 71 F.Supp.2d 677, 680 (S.D.Tex.1999) ("Prosecution history estoppel imposes a legal limitation on the application of the doctrine of equivalents in excluding from the range of equivalents any subject matter surrendered during the prosecution of the application for the patent. . . ."); see also Wenger Mfg., Inc. v. Coating Mach. Sys., Inc., 239 F.3d 1225, 1238 (Fed.Cir.2001) ("This court has previously stated that the doctrine of prosecution history estoppel is `irrelevant' to the determination of literal claim scope. . . . [W]e recognized a `clear line of distinction' between using prosecution history to construe disputed claim language, and applying the doctrine of prosecution history estoppel. . . ." (citing Biodex Corp. v. Loredan Biomedical, Inc., 946 F.2d 850, 862 (Fed.Cir.1991))). The Federal Circuit has cautioned district courts not to confuse "following the statements in the prosecution history in defining a claim term, [with] the doctrine of prosecution history estoppel, which limits expansion of the protection under the doctrine of equivalents." Spectrum, 164 F.3d at 1378 n. 2.
Lastly, although "Din most situations, an analysis of the intrinsic evidence alone will resolve any ambiguity in a disputed claim term," a court may rely on extrinsic evidence, such as expert and inventor testimony, dictionaries, and learned treatises, if an analysis of the intrinsic evidence does not give clarity to a disputed claim term. Vitronics, 90 F.3d at 1583. Nevertheless, a court should not rely on extrinsic evidence when the public record unambiguously defines the scope of the claimed invention. "The claims, specification, and file history, rather than extrinsic evidence, constitute the public record . . . on which the public is entitled to rely." Id.
Notwithstanding the disfavored treatment of extrinsic evidence, Vitronics instructs that judges may consult technical treatises and dictionaries to gain a better understanding of the underlying technology. Id. at 1584 n. 6. Judges may even adopt the dictionary definition of terms as long as the definition does not contradict the intrinsic evidence associated with related patent documents. Id.
C. Construction of Means-Plus-Function Elements
In addition to the general principles of claim construction, special rules of construction apply to claims that employ so-called means-plus-function language. A means-plus-function claim element describes an invention, or an aspect of an invention, as a general means or step for performing a specifically-defined function. By employing means-plus-function claim language, a patentee may "recite a function to be performed as a claim limitation rather than reciting structure or materials for performing that function." Omega Eng'g, 334 F.3d at 1321. Section 112, paragraph six of Title 35 of the United States Code authorizes the use of means-plus-function terminology in claim drafting.
An element in a claim for a combination may be expressed as a means or step for performing a specified function without the recital of structure, material, or acts in support thereof, *586 and such claim shall be construed to cover the corresponding structure, material, or acts described in the specification and equivalents thereof.
35 U.S.C. § 112 para. 6.
A court will construe claim limitations written in means-plus-function form by utilizing a two-step approach. The court must first identify the claimed function. Omega Eng'g, 334 F.3d at 1321. Ordinary principles of claim construction govern the identification of the claimed function and "[t]he court must construe the function of a means-plus-function limitation to include the limitations contained in the claim language, and only those limitations." Cardiac Pacemakers, Inc. v. St. Jude Med., Inc., 296 F.3d 1106, 1113 (Fed.Cir.2002). Under general principles of claim construction, there is "a `heavy presumption' that claim terms carry their accustomed meaning in the relevant community at the relevant time," and this presumption may be overcome only "by clearly using the words in the specification, prosecution history, or both `in a manner inconsistent with its ordinary meaning.'" Genzyme Corp. v. Transkaryotic Therapies, Inc., 346 F.3d 1094, 1098 (Fed.Cir.2003) (quoting CCS Fitness, Inc. v. Brunswick Corp., 288 F.3d 1359, 1366 (Fed.Cir.2002), and Boehringer Ingelheim Vetmedica, Inc. v. Schering-Plough Corp., 320 F.3d 1339, 1347 (Fed.Cir.2003)). Therefore, under general principles of claim construction, the function of a means-plus-function claim is construed according to its "ordinary and accustomed meaning[ ] unless the patentee demonstrated an intent [in the intrinsic record] to deviate from the ordinary and accustomed meaning of a claim term . . . using words or expressions of manifest exclusion or restriction, representing a clear disavowal of claim scope." Teleflex, Inc. v. Ficosa N. Am. Corp., 299 F.3d 1313, 1324, 1327 (Fed.Cir.2002).
Once the court identifies the function, it must then determine the corresponding structure or structures in the specification that perform the identified function. Omega Eng'g, 334 F.3d at 1321; Med. Instrumentation & Diagnostics Corp. v. Elekta AB, 344 F.3d 1205, 1210 (Fed.Cir.2003). A structure is corresponding "only if the specification or the prosecution history clearly links or associates that structure to the function recited in the claim." B. Braun Med., Inc. v. Abbott Labs., 124 F.3d 1419, 1424 (Fed.Cir.1997); see also Icon Health & Fitness, Inc. v. Sport craft, Ltd., 272 F.Supp.2d 384, 388 (D.N.J.2003) ("Claim construction of a means-plus-function element requires identification of the function recited in the claim and identification of the structure corresponding to that function as disclosed in the specification."). Because a means-plus-function claim by definition may not recite structure, the Court looks first to the language of the specification to identify the corresponding structure. See B. Braun Med., 124 F.3d at 1424; see also Atmel Corp. v. Info. Storage Devices, 198 F.3d 1374, 1381 (Fed.Cir.1999) ("[S]tructure supporting a means-plus-function claim under § 112, ¶ 6 must appear in the specification.").
If necessary, the Court may also consult the patent's prosecution history. See Cybor, 138 F.3d at 1457 ("Prosecution history is relevant to the construction of a claim written in means-plus-function form."). Just as a patentee may disavow the scope of his or her claims, in the case of claims involving means-plus-function language, he or she may disclaim a particular structure during prosecution. See Altiris Inc. v. Symantec Corp., 318 F.3d 1363, 1375 (Fed.Cir.2003); cf. Ballard Med. Prods. v. Allegiance Healthcare Corp., 268 F.3d 1352, 1359 (Fed.Cir.2001) ("When a patentee advises the examiner *587 . . . that a particular structure is not within his invention, the patentee is not permitted to assert in a subsequent infringement action that the same structure is equivalent . . . for purposes of section 112 paragraph 6."); Cybor, 138 F.3d at 1457 ("Clear assertions made in support of patentability may thus affect the range of equivalents under § 112, ¶ 6."). However, "[u]nless altering claim language to escape an examiner rejection, a patent applicant only limits claims during prosecution by clearly disavowing claim coverage." York Prods., Inc. v. Cent. Tractor Farm & Family Ctr., 99 F.3d 1568, 1575 (Fed.Cir.1996).
Although employment of means-plus-function language may seemingly grant the drafter all the means capable of performing the recited function, this is not the case. Within the framework for construing a means-plus-function clause, the statute limits a means-plus-function element to cover only "the corresponding structure, material or acts described in the specification and equivalents thereof." 35 U.S.C. § 112 para. 6; see also Kahn v. Gen. Motors Corp., 135 F.3d 1472, 1476 (Fed.Cir.1998) ("[I]n writing a claim in means-plus-function form, a party is limited to the corresponding structure disclosed in the specification and its equivalents."). "The duty of a patentee to clearly link or associate structure with the claimed function is the quid pro quo for allowing the patentee to express the claim in terms of function under section 112, paragraph 6." Med. Instrumentation, 344 F.3d at 1211; see also Bailey v. Dart Container Corp., 157 F.Supp.2d 110, 115 (D.Mass. 2001) ("[T]he `cost' of using means-plus-function language is that the scope of the claim is restricted to the particular structures disclosed in the specification and their equivalents.").
III. Construction of the Disputed Claims
A. The '698 Patent
The parties dispute the interpretation of several elements in claims 1 and 2 of the '698 patent. In claim 1, they dispute the construction of the following elements: the "laser beam producing means" of limitation 1(a)(2)(i); the "laser light detecting means" of limitation 1(a)(2)(iii); the "bar code symbol detection means" of limitation 1(a)(3); the "symbol decoding means" of limitation 1(a)(4); the "housing support means" of limitation 1(b)(1); and the "base portion" of limitation 1(b)(2).
1. Limitation 1(a)(2)(i)
"a laser beam producing means disposed in said hand-supportable housing for producing and projecting a laser beam through said light transmission aperture"
The Federal Circuit has delineated a framework for allowing courts to recognize when a claim drafter has properly invoked the strictures of 35 U.S.C. § 112 para. 6. See Al-Site Corp. v. VSI Int'l, Inc., 174 F.3d 1308, 1318 (Fed.Cir.1999). If the word "means" appears in the claim in combination with an intended function, a court will presume that the "means" clause is a means-plus-function element to which § 112, ¶ 6 applies. Id. However, the drafter may overcome this presumption by reciting sufficient structure or material for performing the claimed function in the "means" clause, because § 112, ¶ 6 governs only claim elements that do not recite structural or material limitations associated with the identified function. Id.
The parties agree that limitation 1(a)(2)(i) is a means-plus-function claim element. This Court has independently reviewed the claim language and concludes that, consistent with the foregoing principles, *588 limitation 1(a)(2)(i) utilizes means-plus-function language. Specifically, the claim element recites the term "means" in connection with a function, thus giving rise to the presumption of a means-plus-function claim element. Furthermore, the claim element does not recite structure for performing the recited function so as to rebut the means-plus-function presumption. Accordingly, the Court will construe limitation 1(a)(2)(i) according to the principles governing means-plus-function claim elements under 112, ¶ 6.
Having found that limitation 1(a)(2)(i) is a means-plus-function claim element, the Court conducts a two-step analysis to construe this claim element properly. As mentioned above, -the Court must first identify the function recited in the claim element. Omega Eng'g, 334 F.3d at 1321. Once the function is ascertained, the Court must determine the structure corresponding to that function as disclosed in the specification. Id.
a. Function
The parties appear substantially to agree that the claimed function is "producing and projecting a laser beam through said light transmission aperture." Although Symbol, unlike Metrologic, fails to set forth expressly its proposed construction of the disclosed function, Symbol appears not to contest Metrologic's straightforward reliance on the plain language of the claim. Under principles of claim construction for means-plus-function claims, "[t]he court must construe the function of a means-plus-function limitation to include the limitations contained in the claim language, and only those limitations." Cardiac Pacemakers, 296 F.3d at 1113. Here, limitation 1(a)(2)(i) expressly states that the laser beam producing means is for "producing and projecting a laser beam through said light transmission aperture." Accordingly, the Court finds that the recited function is "producing and projecting a laser beam through said light transmission aperture."
b. Corresponding Structure
i. Normally-Off Visible Laser Diode
The parties have two disputes concerning the corresponding structure. While they agree that the visible laser diode 36 is a corresponding structure, they vigorously contest whether that visible laser diode is normally off. Symbol urges the Court to construe limitation 1(a)(2)(i) so as to expressly acknowledge the limitation that the visible laser diode is normally off. According to Symbol, the patentees of the '698 patent distinguished their invention by claiming that the normally-off laser was an improvement over prior art that wasted power by blinking the laser during object detection or powering the laser continuously. See '698 Patent col. 2 ll. 10-16, 27-44. Metrologic responds that in distinguishing their own invention over the prior art, the patentees were merely describing one problem that the prior art exhibited when implemented as portable, batterypowered devices. Thus, Metrologic accuses Symbol of seeking to import a limitation from the specification into the claims.
Metrologic is correct that the plain language of limitation 1(a)(2)(i) does not explicitly require a "normally-off" laser. As the Federal Circuit has mandated, however, courts interpreting means-plus-function claims must consult the specification when identifying the structure that corresponds to a given function. Omega Eng'g, 334 F.3d at 1321. Here, the specification clearly discloses a normally-off visible laser diode. First, the patentees denigrate the prior art by indicating that prior art devices suffer from "several significant shortcomings and drawbacks," such as requiring the "continuous use of a pulsed laser beam" that "undesirably drains limited power reserves."`698 Patent col. 2 ll. *589 11, 13, 14-15. The claimed invention purports to "overcome[ ] the above shortcomings and drawbacks of prior art devices" in part by operating in a "power conserving manner." Id. col. 2 ll. 64-65, col. 3 ll 15-16; see also id. col. 5 ll. 27-29 (noting that the invention "provides a great degree of versatility in system capability and operation, as well as power conservation"). In conjunction with representations made elsewhere in the specification, these statements suggest that the patentees did not regard the difference between continuously-on and normally-off lasers as insubstantial. See Ballard Med. Prods., 268 F.3d at 1359 ("Statements detailing the shortcomings of the relevant prior art have often proved useful in construing means-plus-function claims."); cf. Vulcan Eng'g Co. v. Fata Aluminium, Inc., 278 F.3d 1366, 1374 (Fed.Cir.2002) (affirming district court's finding that differences between accused device and corresponding structure described in specification were insubstantial, and thus the devices were equivalent); cf. also 35 U.S.C. § 112 para. 6 (extending means-plus-function claim coverage to include structure described in specification "and equivalents thereof').
Second, a normally-off visible laser diode is the only embodiment of the claimed function that is disclosed in the specification. See Chiuminatta Concrete Concepts, Inc. v. Cardinal Indus., Inc., 145 F.3d 1303, 1308 (Fed.Cir.1998) (construing corresponding structure in reference to only disclosed preferred embodiment). The specification discloses that the scanning means includes the visible laser diode, '698 Patent col. 7 ll. 17-21, and that this scanning means is initially off, id. col. 5, ll. 52-57; col. 11 ll. 46-55. This disclosure finds confirmation in Figure 8A, block A, which indicates that during object detection, only the system activation means is on, while the "remainder of system components are off, i.e. scanning means. . . ." Id. Fig. 8A.
Third, the "Background" section of the specification indicates that one of the objects of the invention is to "determin[e] the presence of an object without enabling the scanning means of the device." Id. col. 3 ll. 26-29. Another object of the invention is to provide a system in which "a wide number of system control operations can be carried out in a power conserving manner, to permit automatic reading of bar code symbols in a variety of diverse applications." Id. col. 3 ll. 14-17. The "versatility" and "power conservation . . . advantages of this control system architecture" are reflected in the preferred embodiment. Id. col. 5 ll. 28-32. Together, these representations clearly indicate that the structure corresponding to the claimed function is a normally-off visible laser diode. See Honeywell Int'l, Inc. v. ITT Industries, Inc., 452 F.3d 1312, 1320 (Fed.Cir.2006) (holding that specification's repeated denigration of a particular embodiment was "the equivalent of a disavowal" of subject matter).
Metrologic contends that when the specification speaks of the shortcomings of prior art devices that drain limited power reserves, it refers specifically to batterypowered devices that are not relevant to the instant dispute. However, the desirability of power conservation is not limited to battery-powered devices. See '698 Patent col. 3 ll. 14-17 (listing desirability of power conservation without mentioning battery-powered applications). Nor does the patent confine its denigration of continuously-on prior art devices to the problem of power drain. For instance, in discussing the shortcomings inherent in the prior art, the patentees note that "the extensive use of a laser beam to perform object and bar code symbol detection functions implicates [the] necessity for laser emission control measures." Id. col. 2 ll. 43-46. Such statements belie Metrologic's contention that the patentees' denigration *590 of continuously-on prior art devices "is not even relevant to the claim at issue." (Metrologic's Rebuttal Br. 5.)
Metrologic points to nothing in the patent indicating that battery-powered applications are not relevant to the claimed invention. Moreover, simply because the accused infringing devices are not batterypowered should not affect the Court's construction of the disputed claims. It is axiomatic that a patent's claims should have the same meaning to all people at all times. See Markman, 52 F.3d at 987. A corollary to this principle is that the meaning of a patent's claims does not depend on the nature of the alleged infringing device. See id. ("[T]he subjective meaning that a patentee may ascribe to claim language is also not determinative."). Here, the patent clearly signals the importance of power conservation and laser emission control. Therefore, these qualities are relevant in this dispute.
Metrologic also argues, in supplemental briefing submitted to this Court, that Symbol's proposed construction impermissibly adds a functional limitation " normally off" in violation of the Federal Circuit's guidance in Wenger Manufacturing, 239 F.3d at 1233. Again, the Court disagrees with this characterization. The adjective "normally-off' modifies the noun "visible laser diode," which together represent a structural limitation on the visible laser diode, not a functional limitation. Construing the corresponding structure as requiring a "normally-off visible laser diode" in no way limits the function of "producing and projecting a laser beam through said light transmission aperture." Thus, for all of the reason discussed above, it is apparent that an important feature of the visible laser diode in the claimed invention is that it is normally off.
ii. Mirror for Projecting
The parties' second dispute concerns whether the corresponding structure includes a mirror, and if so, whether the mirror is the "scanning mirror." Metrologic argues that a mirror is necessary to perform the function of "projecting" the laser beam through the light transmission aperture. Symbol responds that, with respect to limitation 1(a)(2)(ii), which is not in dispute, the parties agree that the claimed "scanning means" includes "a scanning mirror." Thus, according to Symbol, Metrologic's insistence that a "mirror" be included in the structure corresponding to the laser beam producing means (limitation 1(a)(2)(i)) indicates that under Metrologic's proposed constructions, two mirrors could perform the functions of projecting and scanning the laser beam. Symbol contends that two mirrors are redundant, and that only one mirror corresponding to the agreed-upon scanning mirror of the scanning means (limitation 1(a)(2)(ii)) is necessary to perform the projecting and scanning functions.
There is no dispute that at least one mirror is necessary to perform the function of "projecting" the laser beam through the light transmission aperture. The parties further agree, with respect to limitation 1(a)(2)(ii), that "a scanning mirror" performs the function of "scanning a laser beam across a scan field." (App. of Exs. to Symbol's Br., Ex. 8 at 1.) Thus, the Court must determine whether this agreed-upon construction is inconsistent with Metrologic's proposed construction of limitation 1(a)(2)(i) as including a "mirror" for projecting the laser beam.
A structure is corresponding "only if the specification or the prosecution history clearly links or associates that structure to the function recited in the claim." B. Braun Med., 124 F.3d at 1424. Clearly, limitation 1(a)(2)(i) describes the function *591 of "projecting." This function cannot be performed without the aid of a mirror. Thus, the '698 patent discloses in its specification that while the visible laser diode 36 is the light source, a mirror is used to deflect the laser beam output from the laser diode. '698 Patent col. 7 ll. 17-26. Although Metrologic's proposed construction of limitation 1(a)(2)(i) refers to a "mirror" in generic terms, Metrologic indicates in its opening brief that this mirror is in fact the scanning mirror of limitation 1(a)(2)(ii). (Metrologic's Opening Br. at 19 (". . . the structure corresponding to the function of `projecting' is the mirror attached to the scanning motor (38).").) The '698 patent shows that item 38 is indeed the scanning mirror. '698 Patent col. 7 ll. 26; Fig. 1C. From these facts, the Court concludes that as between limitations 1(a)(2)(i) and 1(a)(2)(ii), there is one mirror that performs both the functions of "projecting" the laser beam (limitation 1(a)(2)(i)) and "scanning" it across a scan field (limitation 1(a)(2)(ii)).
As worded, Metrologic's proposed construction of limitation 1(a)(1)(i) as including a "mirror" is ambiguous and admits of the possibility of two mirrors performing the projecting and scanning functions. Because the parties agree that limitation 1(a)(2)(ii) includes "a scanning mirror," and because there is only one mirror that performs the functions of projecting and scanning, the Court will construe limitation 1(a)(2)(i) to include the additional corresponding structure of a "scanning mirror." In this way, the Court ensures the identity of the mirrors corresponding to limitations 1(a)(2)(i) and 1(a)(2)(ii).
For the foregoing reasons, the Court finds that the structure corresponding to the function described in limitation 1(a)(2)(i) is a normally-off visible laser diode and scanning mirror. The Court shall construe limitation 1(a)(2)(i) as follows: "a normally-off visible laser diode and scanning mirror and their structural equivalents for producing and projecting a laser beam through a light transmission aperture when activated."
2. Limitation 1(a)(2)(iii)
"laser light detecting means for detecting the intensity of laser light reflected off said scanned bar code symbol and passed through said light transmission aperture, and automatically producing scan data indicative of said detected light intensity;"
The parties agree that limitation 1(a)(2)(iii) is a means-plus-function claim element. Having independently reviewed the claim language, the Court finds that the language employs the term "means" and does not recite any structure for performing the claimed function. In accordance with Federal Circuit guidance, the Court concludes that limitation 1(a)(2)(iii) is a means-plus-function claim element.
a. Function
Both parties essentially agree that the function recited in limitation 1(a)(2)(iii) is "detecting the intensity of laser light reflected off of a bar code symbol and [] automatically producing scan data indicative of the detected light intensity." (Metrologic's Br. 20; see also Symbol's Br. 8 (characterizing the function as "detecting and producing").) This construction comports with the plain language of the claim. Therefore, the Court finds that the function recited by limitation 1(a)(2)(iii) is "detecting the intensity of laser light reflected off of a bar code symbol and automatically producing scan data indicative of the detected light intensity."
b. Corresponding Structure
Both parties agree that a photoreceiver is required to carry out the first part of the function of "detecting the intensity of *592 laser light reflected off of a bar code symbol." The only controversy here is whether an additional preamplifier is needed to perform the function of "automatically producing scan data indicative of the detected light intensity." Metrologic contends that one is needed. Symbol, by contrast, maintains that the function of "automatically producing scan data indicative of the detected light intensity" can be performed by the photoreceiver alone.
Photoreceiving Means of Figure 2
This dispute essentially centers on the proper meaning of the term "scan data indicative of the detected light intensity." Because the proper meaning is not apparent from the plain language of the claims, the Court must consult the specification for a definition. Vitronics, 90 F.3d at 1582. The specification clearly indicates that upon detecting reflected laser light, the "photo receiving means 4 produces an analog data signal D1." '698 Patent col. 7 ll. 47-48. Photoreceiving means 4 is defined to include, inter alia, a photoreceiver and a preamplifier. Id. col. 7 ll. 48-55; Fig. 2. Although the specification teaches that "an analog signal indicative of the intensity of the scan data signal" passes from the photoreceiver to the preamplifier, id. col. 7 ll. 52-54, the patent does not define this signal as itself being "scan data." Rather, the specification teaches only that this unnamed signal is "indicative of . . . the scan data signal." Id. (emphasis added).
The significance of this distinction is apparent. As noted above, limitation 1(a)(2)(iii) claims the function of producing "scan data indicative of the detected light intensity." Thus, to perform the given function, it is necessary that a signal properly defined by the patent as "scan data" be produced. The only signal produced by any component of photoreceiving means 4 that the specification expressly defines as "scan data" is "analog scan data signal D1." Id. col. 7 l. 55. As noted above, this signal is generated by photoreceiving means 4, which includes both the photoreceiver and the preamplifier. It therefore follows that the structure that corresponds to the function of "automatically producing scan data indicative of the detected light intensity" is a photoreceiver working in tandem with a preamplifier.[7]
*593 For the above reasons, the Court finds that the corresponding structure is a photoreceiver and a preamplifier. The Court also finds that limitation 1(a)(2)(iii) shall be construed as follows: "a photoreceiver and a preamplifier and their structural equivalents for detecting the intensity of laser light reflected off of a bar code symbol and automatically producing scan data indicative of the detected light intensity."
3. Limitation 1(a)(3)
"bar code symbol detection means in said hand-supportable housing, for processing produced scan data so as to detect said scanned bar code symbol and automatically generate activation control signal in response to the detection of said scanned bar code symbol;"
The parties agree that limitation 1(a)(3) is a means-plus-function claim element. Having independently reviewed the claim language, the Court finds that the language employs the term "means" and does not recite any structure. Thus, the Court concludes that limitation 1(a)(3) is a means-plus-function claim element.
a. Function
Metrologic suggests that the claim element discloses the functions of (1) "processing produced scan data so as to detect said scanned bar code symbol" and (2) "automatically generat[ing an] activation control signal in response to the detection of said scanned bar code symbol." (Metrologic's Br. 21 (alteration in original).) Symbol does not appear to contest this interpretation. The Court notes that Metrologic's proposed construction converts the verb "generate" into its present participle "generating," thereby altering the meaning of the claim to suggest that the "processing" function serves only to "detect said scanned bar code symbol." This distorted meaning, however, vanishes from Metrologic's proposed interpretation of the claim. (See id. (". . . so as to detect a scanned bar code symbol and automatically generate an activation control signal . . . ").) The Court will adhere to the plain language of the claim, and construe the claimed function as "processing produced scan data so as to detect said scanned bar code symbol and automatically generate an activation control signal in response to the detection of said scanned bar code symbol."
b. Corresponding Structure
The parties generally agree that the structure corresponding to the above function is represented by block 5 in Figure 2, which in turn represents the structure depicted in Figure 4. They also appear to agree that this structure produces an activation control signal in response to either analog or digital input, and that the activation control signal in turn serves as input to various "control means," which either start internal timers or perform logical operations. However, the parties disagree as to the precise nature of the structure depicted in Figure 4, and whether this structure may exist separate and apart from the "symbol decoding means" depicted in block 7 of Figure 2. Metrologic contends that Figure 4 is a block functional diagram for determining the presence of a bar code symbol, and that this diagram may be implemented as an electrical circuit that receives analog or digital input. In the case of digital input, Metrologic contends that the electrical circuit may be a programmable microprocessor.
*594 By contrast, Symbol characterizes Figure 4 as depicting a "discrete circuit" that must exist "separate and apart" from the symbol decoding means depicted as block 7 in Figure 2. To support its insistence that the bar code presence detection means 5 and the symbol decoding means 7 are separate structures, Symbol argues, first, that they are depicted as being separate in the patent's only disclosed embodiment, and second, that Metrologic assured the patent examiner of this separateness when prosecuting the '698 patent's great-grandparent patent, U.S. Patent No. 5,424,525 ("the '525 patent"). Symbol urges this Court to find, therefore, that Metrologic has disclaimed any embodiment in which the bar code presence detection means 5 and the symbol decoding means 7 are not separate.
*595
Turning first to Figure 4, the Court finds that this pictorial depicts "a block functional diagram of the bar code presence detection means,"`698 Patent col. 4 ll. 54-55, and not a "discrete circuit," as Symbol contends. Nevertheless, the parties appear to agree that this diagram could be implemented as an electrical circuit. The question remains whether such an electrical circuit could further be implemented as a programmable microprocessor, and whether it must exist separate and apart from the symbol decoding means.
*596 With respect to the question whether a programmable microprocessor is a structural equivalent of an electrical circuit, the Court need not decide this dispute at this time. Equivalence in the context of a means-plus-function claim is a question of fact, to be decided by the jury. Utah Med. Prods., Inc. v. Graphic Controls Corp., 350 F.3d 1376, 1383 (Fed.Cir. 2003). Therefore, the Court declines, in construing this claim element, to find that a programmable microprocessor is a structural equivalent to an electrical circuit implementing the block functional diagram of Figure 4.
With respect to Symbol's contention that the '698 patent's only disclosed embodiment depicts the bar code detection means and the symbol decoding means as separate components, and that this depiction in turn represents a structural limitation on the claimed invention, the Court disagrees. To be sure, Figure 2 does depict the symbol decoding means as residing within a larger, dotted box representing a "microprocessor with memory," while the bar code presence detection means 5 appears to exist outside of the microprocessor. However, there is no support in the language of the specification for the notion that the bar code presence detection means must exist separate and apart from the symbol decoding means, or that important objects of the invention are achieved only through such separateness. The diagram is merely an illustration of the embodiment disclosed in the specification, and does not represent the limits of the claimed invention. This Court will not import a limitation based solely on its interpretation of a diagram. See Liquid Dynamics Corp. v. Vaughan Co., 355 F.3d 1361, 1369 (Fed.Cir.2004) (reversing district court for relying on written descriptions of figures to import a limitation into claim); Johnson Worldwide, 175 F.3d at 992 ("[M]ere inferences drawn from the description of an embodiment of the invention cannot serve to limit claim terms. . . . ").[8]
Perhaps recognizing that the specification provides scant support for its proposed interpretation, Symbol finds refuge in the prosecution history of the '525 patent. Specifically, Symbol urges the Court, based on statements Metrologic made during the prosecution of the '525 patent, to apply the doctrines of estoppel by argument[9] and prosecution history estoppel to preclude Metrologic from now seeking a construction in which the programmed microprocessor of the symbol decoding means, see '698 Pat. Fig. 7A, may be utilized by the bar code presence detection means. As discussed above, the doctrine of prosecution history estoppel is relevant only during the second phase of the patent infringement analysis, i.e., the trial. See Biodex, 946 F.2d at 862. It follows that, being a subset of the doctrine of prosecution history estoppel, the doctrine of estoppel by argument is also relevant only during the trial. Therefore, the Court will not apply these doctrines at this *597 time. However, recognizing the relevance of a patent's prosecution history during claim construction, the Court will conduct a similar analysis as it would under the doctrine of prosecution history estoppel.
When considering a patent's prosecution history, the prosecution histories of other patents in that patent's family are relevant to the extent that all of the patents share the same disclosure and contain common subject matter. When construing similar claims from a family of patents, prosecution histories of related patents are relevant to claims with the same claim limitations. See Elkay Mfg., 192 F.3d at 980 ("When multiple patents derive from the same initial application, the prosecution history regarding a claim limitation in any patent that has issued applies with equal force to subsequently issued patents that contain the same claim limitation."). Thus, the prosecution history of a claim contained within an ancestor patent will not be relevant to the construction of a claim in a child patent when those claims have differing limitations. By comparison, differences in limitations among independent claims and their dependent claims in a single patent must exist under the doctrine of claim differentiation, which "requires each claim be distinct from the others such that the limitations of a dependent claim should not be read into an independent claim." Cleanox Envtl. Servs., Inc. v. Hudson Envtl. Servs., Inc., 14 F.Supp.2d 601, 616 (D.N.J.1998).
The relevant claims from the '525 great-grandparent patent are pending claim 69 and pending claim 96, which read as follows:
[Claim 69 ]bar code symbol detection means for processing produced scan data, when activated, so as to detect said bar code symbol on said detected object, and automatically generating a second activation control signal in response to the detection of said bar code symbol;
. . . .
[Claim 96 ]A bar code symbol detection circuit for processing produced scan data in response to the generation of said first activation signal, so as to detect said bar code symbol on said detected object and automatically generate a second activation signal in response to the detection of said bar code symbol.
(App. of Exs. to Symbol's Br., Ex. 12 at 2, 12.) Symbol cites correspondence between Metrologic and the patent examiner for the '525 patent in which Metrologic represented that the microprocessor used for "bar code symbol reading" need be activated "only when" the device had previously detected a bar code. (Id. at 19 (emphasis in original).) Metrologic also distinguished its invention over prior art (U.S. Patent Nos. 4,639,606 ("Boles") and 4,933,538 ("Heiman")), which, according to Metrologic, required their decoding microprocessors to be activated before bar code symbol detection. From these representations, Symbol concludes that Metrologic limited its invention to a device that can detect a bar code symbol while the decoding microprocessor is off, thus implying that bar code symbol detection and decoding cannot be performed by the same microprocessor. Because the '698 patent derives from the '525 patent, and the language of pending claims 69 and 96 are "virtually identical" to the language of claim 1 of the '698 patent, Symbol maintains that the bar code symbol detection means of the '698 patent is subject to the same limitation.
Pending claim 96 of the '525 patent claimed a bar code symbol detection circuit similar to dependent claim 3 of the '698 patent, which claims the bar code symbol detection means of independent claim limitation *598 1(a)(3) as a bar code detection circuit. Likewise, pending claim 69 of the '525 patent and independent claim limitation 1(a)(3) of the '698 patent both claim similar bar code symbol detection means. Under the doctrine of claim differentiation, independent claim limitation 1(a)(3) must be interpreted to have a broader scope than dependent claim 3. See Laitram Corp. v. Rexnord, Inc., 939 F.2d 1533, 1538 (Fed.Cir.1991). Thus, the bar code detection means cannot be narrowly construed to refer only to a bar code symbol detection circuit. Analogously, pending claim 96 of the '525 patent, which is similar to dependent claim 3 of the '698 parent, is narrower than independent claim limitation 1(a)(3) of the '698 patent.
In light of the foregoing, the relevant comparison is between pending claim 69 of the '525 patent and independent claim limitation 1(a)(3) of the '698 patent. While these claims appear superficially similar, they present several noteworthy differences. First, pending claim 69 contains a limitation requiring the bar code symbol detection means to be initially activated. (App. of Exs. to Symbol's Br., Ex. 12 at 2 (". . . bar code symbol detection means for processing produced scan data, when activated . . ." (emphasis added)).) This limitation does not appear in claim limitation 1(a)(3) of the '698 patent. Although it could be argued that the additional requirement of first being activated is implied in claim limitation 1(a)(3), the Court declines to draw such an inference without a clear mandate to do so. The law dictates that a claim should not be narrowed unless the prosecution history evidences a clear disavowal of the claim scope. York Prods., 99 F.3d at 1575.
Second, pending claim 69 and limitation 1(a)(3) contain different grammatical usages of the verb "generate." The result, as alluded to above, is to change the claimed function. Compare Pending Claim 69 ("bar code symbol detection means for processing . . . and automatically generating . . ."), with Limitation 1(a)(3) (means for processing "so as to detect . . . and automatically generate . . ."). In one claim, "processing" is grouped with "generating"; in the other, "detect" is grouped with "generate." Because this Court must maintain faithful adherence to the plain language of the claimed function, Cardiac Pacemakers, 296 F.3d at 1113, the Court must conclude that pending claim 69 and limitation 1(a)(3) have different claim scopes.
Thus, while Symbol advances a compelling argument, the Court ultimately finds that Symbol has failed to demonstrate that Metrologic's allegedly disavowing statements made during prosecution of the '525 patent constitute a clear disavowal of claim scope with respect to the bar code symbol detection means of the subsequently-issued '698 patent. York Prods., 99 F.3d at 1575.
Finally, Symbol urges this Court to construe limitation 1(a)(3) so as to require that the activation control signal is generated when the bar code symbol detection means determines that a bar code symbol may be present in the scan field, and not when a bar code symbol definitely is present. The Court has examined those portions of the specification to which Symbol has cited and finds little support for Symbol's argument. A fortiori, the Court remains unconvinced by the extrinsic evidence that Symbol cites, namely, the deposition testimony of Jay M. Eastman, Metrologic's general technology expert, in which Dr. Eastman opined that it was hypothetically possible for the claimed device to "detect" a partial or incomplete bar code symbol. Ultimately, the Court finds that Metrologic's proposed construction hews more closely to the plain language of the claim and the *599 specification than does Symbol's proposed construction. See Phillips, 415 F.3d at 1316 ("The construction that stays true to the claim language and most naturally aligns with the patent's description of the invention will be, in the end, the correct construction." (quoting Renishaw PLC v. Marposs Societa' per Azioni, 158 F.3d 1243, 1250 (Fed.Cir.1998))).
Accordingly, for all of the reasons discussed above, the Court finds that limitation 1(a)(3) shall be construed as follows: "an analog or digital circuit and structural equivalents, for processing produced analog or digital scan data so as to detect a scanned bar code symbol and automatically generate an activation control signal in response to the detection of said scanned bar code symbol."
4. Limitation 1(a)(4)
"symbol decoding means in said hand-supportable housing, and responsive to said activation control signal, for processing produced scan data so as to read said detected bar code symbol, and automatically produce symbol character data representative of said read bar code symbol;"
The parties agree that limitation 1(a)(4) is a means-plus-function claim element. Having independently reviewed the claim language, the Court finds that the language employs the term "means" and does not recite any structure. Accordingly, the Court concludes that limitation 1(a)(4) is a means-plus-function claim element.
a. Function
Metrologic suggests that limitation 1(a)(4) discloses the dual functions of "processing produced scan data so as to read the detected bar code symbol" and "automatically producing symbol character data representative of the read bar code symbol." (Metrologic's Br. 23.) According to Metrologic, the terms "scan data" and "activation control signal" should mean the same as they do for the bar code detection means, whereas the term "symbol character data" should mean a signal corresponding "`to the decoded bar code symbol.'" (Id. 24 (quoting '698 Patent col. 4 ll. 10-11).) Metrologic leaves the term "read" undefined, however, and simply imports that term into its proposed construction. By comparison, Symbol's proposed construction abandons the term "read" and instead interprets the symbol decoding means as serving to "receive scan data and decode the scan data." (Symbol's Br. 12.)
In the background section of the specification, the patentees equate reading with "recognition."`698 Patent col. 1 ll 18-19 ("The present invention relates generally to automatic bar code symbol reading (i.e. recognition) systems. . . ."). While the patent does not explicitly define the term "recognition," the summary of the invention suggests that reading (i.e., recognition) carries a comparatively broad meaning that encompasses multiple functions of the invention. See id. col. 3 ll. 55-58 ("In general, the automatic bar code reading device comprises system activation means, scanning means, photoreceiving means, analog-to-digital conversion means, bar code presence detection means, and symbol decoding means."). Within limitation 1(a)(4), however, reading appears to be a subset of decoding. See '698 Patent col. 15 ll. 35-40 (claiming function of the decoding means to be the "processing" of scan data, and claiming "processing" to entail "read[ing]" and "produc[ing]"). This apparent ambiguity and the absence of any clarifying definition in the specification suggest that the term "read" and its variations may have different meanings, depending on their context. Given that Symbol does not explicitly contest Metrologic's use of the term "read" in its proposed construction, the Court concludes that the *600 precise definition of the term "read" as used in limitation 1(a)(4) does not present a material dispute. Accordingly, the Court will adopt Metrologic's proposed interpretation of the function performed by the symbol decoding means. The symbol decoding means of limitation 1(a)(4) performs the function of "processing produced scan data so as to read the detected bar code symbol, and automatically produce symbol character data representative of the read bar code symbol."
b. Corresponding Structure
The parties agree that the corresponding structure for performing the recited function is a programmable microprocessor. (Metrologic's Br. 24; Symbol's Br. 12.) However, Symbol urges the Court to recognize three limitations on this structure. First, Symbol contends that for the reasons discussed in the context of limitation 1(a)(3), Metrologic, when prosecuting the '525 patent, surrendered any interpretation in which the decoding microprocessor was not "separate and apart" from the bar code symbol detection means. Second, Symbol argues that the activation control signal, to which the symbol decoding means is "responsive," must originate from the bar code symbol detection means. Finally, Symbol faults Metrologic for failing to address how the decoding microprocessor is "responsive" to the activation control signal.
The Court rejects Symbol's first argument for precisely the reasons it rejected this argument for limitation 1(a)(3). Specifically, the Court does not find a clear mandate in the claim or specification language for the notion that the bar code presence detection means must exist separate and apart from the symbol decoding means, or that important objects of the invention are achieved only through such separateness. Nor does the Court find within the prosecution history of the '525 patent a clear disavowal of all embodiments in which the bar code presence detection means and the symbol decoding means could be implemented by the same microprocessor. Accordingly, the Court rejects Symbol's proposed limitation that the decoding microprocessor is "not used during bar code detection." (Symbol's Br. 12.)
With respect to Symbol's second argument, Symbol objects to Metrologic's suggestion that the decoding microprocessor is responsive to "an activation control signal." (Metrologic's Br. 23 (emphasis added).) Symbol notes that the claim language requires the symbol decoding means to be "responsive to said activation control signal" (Symbol's Br. 13 (emphasis in original)), meaning the activation control signal generated by the bar code symbol detection means in response to the detection of a bar code symbol. Symbol is correct. The plain language of limitation 1(a)(4) states that the symbol decoding means is "responsive to said activation control signal." '698 Patent col. 15 ll. 36-37. "[S]aid activation control signal" clearly refers to the activation control signal generated by the bar code symbol detection means of limitation 1(a)(3) "in response to the detection of said bar code symbol." Id. col. 15 ll. 32-34. Thus, the particular activation control signal in question is the activation control signal that indicates that a bar code symbol is present.
Finally, Symbol urges the Court to define the term "responsive," as used in limitation 1(a)(4), to mean "turned on in response." Symbol bases this argument on Metrologic's only disclosed embodiment, in which Symbol contends that an initially-off decoding microprocessor is turned on in response to the pertinent activation control signal (labeled as A2). This signal serves as input to a component of the microprocessor known as the third control means, which, according to Metrologic, is always *601 "operating and waiting to receive" signal A2. Thus, Metrologic rejects Symbol's interpretation and maintains that because the third control means is "operating," the microprocessor is not initially off.
In numerous places, the specification describes an embodiment in which the microprocessor is initially off. For instance, Metrologic discloses a preferred embodiment in which, "[w]hen power switch is initially engaged to its ON position, power will only be provided to system activation means 2 to enable its operation, while, for example, only biasing voltages and the like are provided to all other system components so that they are each initially disabled from operation."`698 Patent col. 5 ll. 52-57. In response to the detection of a bar code in the scan field, activation control signal A2 "activates second control activation means 12, which, in turn, directly enables A/D conversion means 6 and symbol decoding means 7." Id. col. 9 ll. 26-28 (emphasis added). Likewise, Metrologic discloses that when the preferred embodiment is turned on and the system activation means enabled (i.e., turned on), "the remainder of the systems components (i.e., scanning means 3, photoreceiving means 4, A/D conversion means 6, bar code detection means 5, symbol decoding means 7, data format conversion means 8, data storage means 9 and data transmission means 10), [are] disabled (i.e., OFF)." Id. col. 11 ll. 50-54 (emphasis added); see also id. col. 13 ll. 13-17 ("[W]hen bar code symbol reading device is turned ON, only system activation means 2 is operative and all other system components are inoperative."). The symbol decoding means 7 is enabled in response to signal A2. Id. col. 11 l. 64-col. 12 l. 2. Figure 8A also clearly indicates that initially, "system activation means is on [and] remainder of system components are off, i.e. scanning means, photoreceiving means, A/D conversion means, barcode detection means, symbol decoding means, data format conversion and transmission means are off." Id. Fig. 8A (bold in original; italics added).
In the face of these repeated statements to the contrary, the Court finds no support for Metrologic's assertion that the third control means is always "operating." (Metrologic's Br. 14.) The only citation to the specification that Metrologic provides for this proposition simply describes how the third control means operates after it has been enabled. See '698 Patent col. 12 l. 49-col. 13 l. 4 (describing operations occurring after block G of Figure 8B, where symbol decoding means 7 has previously been enabled at block E of Systems-Control Operation No. 1, depicted in Figure 8A). Elsewhere in the specification, Metrologic discloses that all system components other than system activation means initially receive only "biasing voltages and the like" and are therefore "each initially disabled from operation." Id. col. 5 ll. 55-57. Thus, even if the third control means is always "operating and waiting" under the influence of a biasing voltage, the specification clearly indicates that the third control means is still "disabled from operation." Id.
As noted in the discussion of the laser beam producing means, one of the stated objects of this invention is power conservation. The specification makes clear that this object is served not only by employing an initially-off visible laser diode, but also by utilizing a system architecture in which "one or more of the control centers are capable of overriding certain of the other control centers so that a wide number of system-control operations can be carried out in a power conserving manner, to permit automatic reading of bar code symbols in a variety of diverse applications." Id. col. 3 ll. 12-17. This programmable control system "provides a great degree of versatility in system capability and operation, as well as power conservation." Id. *602 col. 5 ll. 28-29. In light of this stated objective, the Court finds that the disclosure of an initially-off microprocessor is not merely one possible embodiment, but an embodiment that serves an important objective of the invention. See Budde v. Harley-Davidson, Inc., 250 F.3d 1369, 1380 (Fed.Cir2001) ("The summary and objects of the invention . . . must be read, if possible, in a manner consistent with the rest of the written description.").
In summary, the specification clearly and unambiguously teaches, in its only disclosed embodiment, that the decoding microprocessor is initially off. This feature of the invention serves the important objective of power conservation. Because claims "must be read in view of the specification, of which they are a part," the Court will construe the symbol decoding means of limitation 1(a)(4) to reflect the patentees' clearly-expressed intention of an initially-off microprocessor. Markman, 52 F.3d at 979; see also Alloc, Inc. v. Int'l Trade Comm'n, 342 F.3d 1361, 1370 (Fed. Cir.2003) ("[W]here the specification makes clear at various points that the claimed invention is narrower than the claim language might imply, it is entirely permissible and proper to limit the claims."); Bailey, 157 F.Supp.2d at 115 ("[T]he `cost' of using means-plus-function language is that the scope of the claim is restricted to the particular structures disclosed in the specification and their equivalents.").
For the reasons discussed, the Court construes the symbol decoding means of limitation 1(a)(4) as follows: "a programmable microprocessor and structural equivalents and which is turned on in response to an activation control signal indicating that a bar code symbol is present, for processing produced scan data so as to read the detected bar code symbol, and automatically produce symbol character dam representative of the read bar code symbol."
5. Limitation 1(b)(1)
"(b) a scanner stand including
(1) housing support means for receiving and supporting at least a portion of said hand-supportable housing "
The parties agree that limitation 1(b)(1) is a means-plus-function claim element. This independent claim limitation employs the term "means," which creates the presumption of a means-plus-function claim. Furthermore, as used in this context, the term "housing support" serves as an adjective and does not recite structure. Hence, the Court concludes that limitation 1(b)(1) is a means-plus-function claim element.
a. Function
The parties do not genuinely dispute the interpretation of limitation (b), but do disagree as to the proper interpretation of sub-limitation (b)(1). Adhering closely to the plain language of the claim, Metrologic suggests that the function is "receiving and supporting at least a portion of the hand-supportable housing." Symbol recasts the function as "receiving the handle of the reader." Symbol's proposed interpretation is clearly wrong, as the claim language requires only that the housing support means receive and support "at least a portion" of the housing, and not "the handle of the reader." Because "[t]he construction that stays true to the claim language and most naturally aligns with the patent's description of the invention will be, in the end, the correct construction," Phillips, 415 F.3d at 1316, the Court finds that the function recited by limitation 1(b)(1) is "receiving and supporting at least a portion of the hand-supportable housing."
b. Corresponding Structure
The parties' chief dispute concerns the corresponding structure. Metrologic contends *603 that the corresponding structure is "a support structure," an example of which is the support stand shown in Figure 10 of the '698 patent. In that embodiment, the support stand contains a receptacle for holding the hand-held scanner device, and a person of ordinary skill in the art would understand that the support stand would support the hand-held scanner device so as to permit it to project its scan field over a portion of the countertop. (Metrologic's Br. 24.)
Symbol contends that the only structure disclosed in the patent is the receptacle 71, depicted in Figure 10, which (1) receives the handle of the hand-held scanner device and (2) prevents the laser beam from being downwardly directed. (Symbol's Br. 14.) These additional limitations, Symbol argues, flow from representations that Metrologic made during the prosecution of the '698 patent's grandparent patent, U.S. Patent No. 5,591,953 (the 953 patent). During that prosecution, Metrologic purportedly distinguished over downwardly-pointing prior art stands when it represented that its invention entailed a scan field that "is projected away from the scanner support stand and the hand-supportable housing, and extends above the countertop surface." (App. of Exs. to Symbol's Br., Ex. 15 at 8 (underline in original).) Metrologic also referred to an "outwardly projected scan field" (id.,) and represented that "said scan field is projected away from said scanner support stand and said hand-supportable housing, and extends above said countertop surface permitting the automatic reading of bar code symbols on objects passed by said scanner support stand" (id. at 3-4).
The Court first consults the claim language and specification. Vitronics, 90 F.3d at 1582. Limitation 1(b)(1) clearly states that the housing support means serves the function of receiving "at least a portion" of the hand-held scanner device. '698 Patent col. 15 l. 52. Symbol simply ignores this language in arguing that the receptacle may receive only the handle of the hand-held scanner device. This Court must "give full effect to the ordinary and accustomed meaning of claim terms." Johnson Worldwide, 175 F.3d at 989. Although Symbol is correct that the preferred embodiment depicted in Figure 10 and described in column 14 of the specification discloses a receptacle 71 that receives the handle of a hand-held scanner device, '698 Patent col. 14 ll. 51-52; Fig. 10, the Court may not import limitations from the preferred embodiment that are contradicted by the language of the claims. JVW Enters., Inc. v. Interact Accessories, Inc., 424 F.3d 1324, 1335 (Fed.Cir.2005). *604 Nor is this a case where Metrologic, through repeated statements in the specification, has clearly signaled that "the claimed invention is narrower than the claim language might imply," Alloc, 342 F.3d at 1370, or that "the patentee . . . intends for the claims and the embodiments in the specification to be strictly coextensive,'" JVW Enters., 424 F.3d at 1335 (quoting Phillips, 415 F.3d at 1323). Therefore, in the face of clear language in the patent itself refuting Symbol's proposed handle limitation, the Court need not consult the prosecution history of the '953 patent. See Comark Commc'ns, Inc. v. Harris Corp., 156 F.3d 1182, 1186 (Fed. Cir.1998) (advising courts to consult prosecution history "if relevant"); Vitronics, 90 F.3d at 1582 (noting that court "may" consider prosecution history); Markman, 52 F.3d at 980 (explaining that prosecution history may not be used to "enlarge, diminish, or vary the limitations in the claims" (internal quotation marks omitted)). The claimed housing support means shall not be limited to receiving only the handle of the hand-supportable housing.
With respect to Symbol's proposed limitation on downwardly-directed laser beams, the Court finds no basis in the claim or specification for concluding that the laser beam may or may not be downwardly-directed. The specification discloses an embodiment in which the receptacle 71 receives the housing handle portion of the hand-held scanner device so as to cast the scan field "over a counter top."`698 Patent col. 14 l. 53-54. This language, in the Court's view, does not suggest that the laser beam may not be downwardly-directed.[10] Moreover, both parties cite to Figure 10 in support of their competing constructions (see Metrologic's Rebuttal Br. 16-17; Symbol's Br. 14-15), thus making evident the ambiguity of that graphic. Even if Figure 10 were not ambiguous, the Court may not limit claim terms based on inferences drawn from a disclosed embodiment. See Johnson Worldwide, 175 F.3d at 992.
The statements that Symbol identifies in the prosecution history of '953 grandparent patent are similarly ambiguous and do not evince a clear disavowal of a downwardly-directed laser beam. See York Prods., 99 F.3d at 1575. Metrologic's representations to the patent examiner that the scan field "is projected away from said scanner support stand and said hand-supportable housing" (App. of Exs. to Symbol's Br., Ex. 15 at 3-4), and "extends above the countertop surface" (id. at 8), simply do not foreclose a downwardly-angled laser beam. As such, they do not represent a "clear and unmistakable" disavowal of claim scope. Omega Eng'g, 334 F.3d at 1325-26.
For the above reasons, the Court finds that the corresponding structure is a support structure. The Court also finds that limitation 1(b)(1) shall be construed as "a support structure for receiving and supporting at least a portion of the hand-supportable housing."
6. Limitation 1(b)(2)
"a base portion mountable relative to a countertop surface so that when said hand-supportable housing is *605 supported within said housing support means during said stand-supported mode of automatic operation, said scan field is projected away from said scanner support stand and said hand-supportable housing, and extends above said countertop surface permitting the automatic reading of bar code symbols on objects passed by said scanner support stand "
Limitation 1(b)(2) is not written in means-plus-function form. Accordingly, the Court will interpret this claim element in accordance with ordinary rules of construction.
The sole dispute here concerns Symbol's added limitation that the hand-supportable housing is supported in such a way that the laser beam is prevented from being pointed downwardly. For the reasons discussed above, the requirement in limitation 1(b)(2) that "said scan field is projected away from said scanner support stand and said hand-supportable housing, and extends above the countertop surface" does not foreclose a downwardly-directed laser beam. A laser beam may be "projected away" from the scanner support stand and still have a downward angle. Likewise, a field that "extends above the countertop surface" need not be strictly horizontal or upwardly-directed. Because the language of limitation 1(b)(2) admits of a downwardly-directed laser beam, and because nothing in the prosecution history of the '953 patent indicates that Metrologic clearly and unambiguously disavowed a downwardly-directed laser beam, the Court rejects Symbol's proposed limitation.
In its initial claim construction brief, Metrologic argued that this claim "should be construed in accordance with the plain meaning of the words therein." (Metrologic's Br. 25.) In response to supplemental questions posed to the parties by the Court, Metrologic submitted its proposed interpretation of the claim element. Having reviewed Metrologic's proposed interpretation, the Court finds that it comports with the plain language of limitation 1(b)(2). Therefore, the Court adopts Metrologic's proposed interpretation, as modified: "a base portion mountable on a countertop surface where the housing support means and the base portion cooperate to support the housing of the reader during a stand-supported mode of operation to project the scan field away from the scanner support stand and above the countertop surface to allow for the automatic reading of bar code symbols on objects passed by the stand."
7. Claim 2
"The automatic bar code symbol reading system of claim 1, wherein said bar code symbol has first and second envelope borders, and said bar code symbol detection means detects said bar code symbol by detecting said first and second envelope borders."
Claim 2 is not a means-plus-function claim. It does not employ the word "means," and it clearly recites structure. Because the recited structure is "[t]he automatic bar code symbol reading system of claim 1," claim 2 depends from independent claim 1. As a dependent claim, claim 2 must be construed to incorporate by reference all the limitations of claim 1. 35 U.S.C. § 112 para. 4; Honeywell Int'l Inc. v. Hamilton Sundstrand Corp., 370 F.3d 1131, 1146 (Fed.Cir.2004).
A dependent claim must add a further limitation on the within-referenced independent claim. 35 U.S.C. § 112 para. 4. Here, claim 2 adds the limitation that, with respect to a bar code symbol that has "first and second envelope borders," the bar code symbol detection means claimed in limitation 1(a)(3) "detects said bar code symbol by detecting said first and second envelope borders."`698 Patent col. 16 ll. *606 15-16, 17-18. Thus, claim 2 specifically incorporates by reference the bate code symbol detection means of limitation 1(a)(3), and thereby incorporates by reference all limitations of that claim element. It follows that to ascertain the scope of claim 2, it is necessary to employ a meansplus-function analysis to the bar code symbol detection means of limitation 1(a)(3). See, e.g., Mas-Hamilton Group v. LaGard, Inc., 21 F.Supp.2d 700, 727 (E.D.Ky.1997) (construing term "movable projecting element" of dependent non-means claim as a means-plus-function element because it referred to "movable element" of independent means-plus-function claim), aff'd, 156 F.3d 1206 (Fed.Cir.1998).
a. Function
Metrologic argues that the means-plus-function element of claim 2 performs the function of "processing produced scan data so as to detect a scanned bar code symbol by its first and second envelope borders and to automatically generate an activation control signal in response to the detection of the scanned bar code symbol." (Metrologic's Br. 26.) In its brief, Metrologic explains that a person of ordinary skill in the art would understand the term "envelope border" to mean the white space at either end of a bar code symbol, and that claim 2 (corresponding to the block functional diagram at Figure 4) describes circuitry that measures white space at both ends of a bar code symbol. Symbol rejects this definition, arguing that the disclosed structure detects only "one white space of minimum size adjacent to a minimum length of bars and spaces." (Symbol's Rebuttal Br. 20 (emphasis in original).) Accordingly, Symbol seeks an interpretation of claim 2 in which the system of claim 1 detects a bar code "by identifying two different characteristics, such as length and white border minimums, that distinguish scan data that may be from a bar code from other types of scan data." (Symbol's Br. 15.)
The Court first considers the term "envelope borders." See Baldwin Graphic Sys., Inc. v. Siebert, Inc., No. 03 C 7713, 2005 WL 1838451, at *3 (N.D.Ill. July 28, 2005) ("Claim construction analysis begins with the language of the claims."). Claim 2 expressly requires the detection of "first and second envelope borders."`698 Patent col. 16 ll. 15-16. Metrologic defines "envelope borders" as "the `white space' that is necessary on either end of the bar code symbol." (Metrologic's Br. 26.) By comparison, Symbol argues that "first and second envelope borders" should be defined to mean "two different characteristics, such as length and white border minimums." (Symbol's Br. 15.) In support of its argument, Symbol cites to Metrologic's preferred embodiment.
The '698 patent describes its preferred embodiment as "a bar code envelope detector" that produces a signal indicative of the "general envelope" of a bar code symbol. '698 Patent col. 8 ll. 14-15, 17. In this embodiment, the bar code symbol detection means optically measures a bar code symbol to ascertain that it satisfies "the minimum required `boarder [sic] width' of the bar code symbol" and "the minimum required bar code length." Id. col. 8 ll. 37-49; see also id. Fig. 4 (showing voltages for "border threshold" and "bar code threshold"). A bar code symbol meeting both of these minimum requirements causes the bar code presence detection means in the preferred embodiment to generate activation control signal A2, indicating "that a bar code is present in the scan field." Id col. 8 ll. 64-65. Thus, it is apparent that the embodiment that Metrologic labels a "bar code envelope detector" measures both the border width and the length of a bar code symbol.
*607 The parties' dispute with respect to claim 2 brings two foundational principles of patent law squarely into conflict. On one hand, "[c]ourts apply a heavy presumption that claim language means what it says. Thus, `unless compelled otherwise, a court will give a claim term the full range of its ordinary meaning as understood by persons skilled in the relevant art.'" Baldwin Graphic, 2005 WL 1838451, at *3 (citation omitted) (quoting Tex. Digital Sys., Inc. v. Telegenix, Inc., 308 F.3d 1193, 1202 (Fed.Cir.2002)); see also CCS Fitness, 288 F.3d at 1366 ("Generally speaking, we indulge a `heavy presumption' that a claim term carries its ordinary and customary meaning." (quoting Johnson Worldwide, 175 F.3d at 989)). Symbol's proposed interpretation would violate this principle by affording the term "first and second envelope borders" a definition that (1) is contrary to the ordinary usage of the words "envelope" and "border," as they appear in the language of the claim;[11] (2) is unsupported by the express language of the specification, which says nothing about undefined "characteristics" or "attributes" of a bar code symbol, see '698 Patent col. 8 ll. 13-49 (referring specifically to "boarder [sic] width" and "bar code length"); and (3) conflicts with the understanding of persons of ordinary skill in the art (see, e.g., Decl. of Peter Schuyler, Esq. ("Schuyler Decl.") in Supp. of Metrologic's Br., Ex. H (Dep. of Dr. David Allais) 254:16-21, June 17, 2005 (characterizing "envelope borders" as being "transitions indicating a bar code" and opining that this definition was consistent "with one or both of the required quiet zones"); Schuyler Decl. in Supp. of Metrologic's Rebuttal Br., Ex. G (Supplemental Expert Witness Report of Jay M. Eastman, Ph.D.) ¶¶ 23-24 (noting that Figure 4 describes a method for detecting borders or "envelopes" of bar code symbol, and discussing borders as "white space" next to a bar code symbol)). Furthermore, Symbol's proposed definition would impermissibly import a limitation from the preferred embodiment into the straightforward language of the claim. See Fuji Photo Film Co. v. Int'l Trade Comm'n, 386 F.3d 1095, 1106 (Fed.Cir. 2004).
On the other hand, while a court may not import limitations from a preferred embodiment into a claim, neither may a court interpret a claim to exclude a preferred embodiment. Primos, Inc. v. Hunter's Specialties, Inc., 451 F.3d 841, 848 (Fed.Cir.2006). Metrologic's proposed interpretation, which seemingly calls for the bar code presence detection means to measure only the white space at either end of a bar code symbol, would appear to exclude the '698 patent's own preferred embodiment. While poor claims drafting may be to blame for this quandary, the Court must nonetheless attempt to resolve this inconsistency by giving claim 2 a construction that does not frustrate the goal of providing the public with fair notice of a patent's claim scope. See London v. Carson Pine Scott & Co., 946 F.2d 1534, 1538 (Fed.Cir.1991).
The Court finds that Metrologic's proposed interpretation is the better construction. Claim 2 expressly presupposes that the bar code symbol being detected in fact has first and second envelope borders. See '698 Patent col. 16 ll. 15-16 (". . . *608 wherein said bar code symbol has first and second envelope borders . . ."). There is no indication in the specification that the bar code symbol being detected by the preferred embodiment has first and second envelope borders. Therefore, the Court cannot conclude that the preferred embodiment performs in a manner inconsistent with the bar code symbol detection means of claim 2.
In addition, the preferred embodiment simply states that it measures "minimum required `boarder [sic] width' of the bar code symbol." Id. col. 8 ll. 44-45. It does not state, however, that in measuring border width, only one envelope border is measured. The Court finds no basis to conclude that the preferred embodiment could not, in fact, measure the width of both first and second envelope borders. That it also measures the length of the bar code symbol is of no importance in construing claim 2 to detect first and second envelope borders; a preferred embodiment may be narrower than the claim or claims to which it corresponds. See Resonate Inc. v. Alteon Websystems, Inc., 338 F.3d 1360, 1367 (Fed.Cir.2003).
Accordingly, the Court finds that Metrologic's proposed interpretation of claim 2 more naturally accords with the plain meaning of its terms and the understanding of those skilled in the art, and need not exclude the preferred embodiment. For the reasons discussed in connection with limitation 1(a)(3), the Court also rejects Symbol's interpretation of the bar code symbol detection means as generating an activation control signal in response to scan data that may be from a bar code, as opposed to scan data that is from a bar code. The Court therefore construes the claimed function as "processing produced scan data so as to detect said scanned bar code symbol by its first and second envelope borders and to automatically generate an activation control signal in response to the detection of said scanned bar code symbol." The Court further defines "first and second envelope borders" to be the "white space" that is necessary on each end of the bar code symbol.
b. Corresponding Structure
Metrologic suggests that the corresponding structure is a "hard-wired circuit and structural equivalents, including a programmable microprocessor." (Metrologic's Br. 26.) The Court has already identified the structure corresponding to claim 1(a)(3), and finds no reason to deviate from that construction. Therefore, consistent with claim 1(a)(3), the Court finds that the structure corresponding to the means element of claim 2 is "an analog or digital circuit and structural equivalents."
Accordingly, the Court construes claim 2 as follows: "The system of claim 1, including an analog or digital circuit and structural equivalents for processing produced scan data so as to detect said scanned bar code symbol by its first and second envelope borders and to automatically generate an activation control signal in response to the detection of said scanned bar code symbol, where the first and second envelope borders are the white space that is necessary on either end of said bar code symbol."
B. The '971 Patent
The parties dispute the interpretation of several elements in claims 44 and 46 of the '971 patent. In claim 44, they dispute the interpretation of the following elements: the preamble, the "laser beam producing means," the "laser light detecting means," the "scan data processing means," and the "control means." They also generally dispute the construction of dependent claim 46.
*609 1. Claim 44 Preamble
"An automatic bar code symbol reading system having a selectable mode of operation in which only a plurality of consecutively different bar code symbols on one or more objects can be read, said system comprising: "
The Court finds that the preamble to claim 44 does not employ means-plus-function language and therefore should be construed in accordance with ordinary principles of claim construction.
The parties agree that the preamble to claim 44 is a limitation because during prosecution, Metrologic amended the proposed claim in response to a December 16, 1992 office action by the PTO. See In re Cruciferous Sprout Litig., 301 F.3d 1343, 1347-48 (Fed.Cir.2002). However, the parties dispute the reason for the amendment. Symbol vigorously contends that Metrologic amended its proposed claim to distinguish over prior art (particularly Heiman), and that statements that Metrologic made to the patent examiner during prosecution are inconsistent with Metrologic's proposed interpretation of the preamble. Metrologic proposes that the preamble be interpreted to mean that the claimed device has "a selectable mode of operation that allows it to read only a plurality of consecutively different bar code symbols." (Metrologic's Br. 30.) According to Metrologic, this mode of operation prevents a "re-read of the same bar code for a set time interval." (Id. 31.) Symbol responds that the preamble must be construed such that "only consecutively different bar code symbols are decoded and the same bar code symbol cannot be decoded consecutively even when the bar code symbol is removed from the scan field for a finite time." (Symbol's Br. 15.) Thus, Symbol interprets "read" to mean "decoded,"[12] and seeks to add the further limitation that the claimed invention cannot decode and output data for a bar code symbol scanned twice consecutively, even if that bar code symbol is removed from the scan field for a finite period of time.
a. Definition of "Read"
The Court first considers Symbol's contention that the term "read" should be construed as "decoded." This argument is the product of several inferences that Symbol draws from the specification in which the patentees appear to utilize the word "read" to describe functions described elsewhere as decoding. For instance, Symbol points out that the "patent teaches that bar code decoding occurs during the `bar code symbol reading' state." (Symbol's Rebuttal Br. 22.) While the occurrence of "decoding" during the "reading state" might superficially imply that reading means decoding, it could just as easily mean that decoding is a subset of reading, thus illustrating why the Federal Circuit has "consistently warned against" importing limitations from inferences drawn from the specification. Liquid Dynamics, 355 F.3d at 1361. Symbol argues that elsewhere, the specification "equates a bar code that is read with one that is `scanned and decoded.'" (Symbol's Rebuttal Br. 22.) See, e.g., '971 Patent col. 1 ll. 38-39 (". . . reading (i.e. scanning and decoding) . . ."); id. col. 7 ll. 18-19 (same); id. col. 16 ll. 53 (". . . successfully read (i.e. scanned and decoded) . . ."); id. col. 25 l. 55 (same). This argument actually seems to undercut Symbol's argument that the term "read" should be construed to mean only "decoded," and in any event does not imply that every use of the term "read" in the '971 patent means "scanned and decoded." It is more likely, in light of its differing usage elsewhere in the specification, that the patentees intended the term "read" to mean *610 "scanned and decoded" only where they expressly indicated. As such, Symbol's argument once again seeks impermissibly to add a limitation based on an inference drawn from selected portions of the specification. See Resonate Inc., 338 F.3d at 1364-65.
Symbol also notes that with respect to the state diagram of Figure 13, which schematically represents the operation of the preferred embodiments disclosed in the specification,[13] the "bar code symbol reading" state (State C or State F) is depicted as occurring after the "bar code symbol presence detection" state (State B or State E) but before the "symbol character data transmission/storage" state (State D). '971 Patent Fig. 13. The specification teaches that activation control signals trigger the transition between states, and that activation control signal A3, which causes the system to transition from State C or State F to State D, is produced "[w]hen the symbol decoding module successfully decodes a bar code symbol" within a predetermined time period. Id. col. 13 ll. 23-31; see also id. col. 17 ll. 16-19; col. 27 l. 68-col. 28 l. 13. Thus, the '971 patent discloses that in both preferred embodiments, the "bar code symbol reading" state ends when the system controller receives signal A3, signifying a successful decode. See id. col. 17 ll. 16-30; col. 26 ll. 21-35. From this disclosure, Symbol concludes that "reading" cannot mean more than "decoding."
*611
Once again, Symbol's argument proves too much, placing undue significance on the labels attached to State C and State F and drawing sweeping inferences from the figures and illustrative embodiments. This is not an instance in which the patent makes repeated and consistent limiting statements or represents that important objects of the invention are served by a bar code symbol reading state that is conterminous *612 with bar code symbol decoding. Cf Honeywell Int'l, 452 F.3d at 1320; Alloc, Inc., 342 F.3d at 1370. Nor is claim 44 a means-plus-function claim, which at least would require the Court to look to the structure disclosed in the specification to ascertain the limits of the claim. The preferred embodiments disclosed in the '971 patent do not represent limitations on the claimed invention, and therefore do not support Symbol's argument that reading and decoding are the same. See Laitram Corp. v. Cambridge Wire Cloth Co., 863 F.2d 855, 865 (Fed.Cir.1988) ("References to a preferred embodiment, such as those often present in a specification, are not claim limitations.").
If the '971 patent consistently used the term "read" to mean decode, as Symbol suggests, then the Court might have less difficulty in adopting Symbol's proposed construction. However, with respect to its use of the term "read" and variations on that word, the '971 patent is far from consistent. Throughout the patent, examples are legion of the terms "read" or "reading" being used to indicate more than simply "decoding." The very title of the claimed invention is "Automatic Bar Code Reading System Having Selectable Long Range and Short Range Modes of Operation," and even Symbol would concede that the claimed invention purports to do more than simply "decode" bar code symbols. Cf '971 Patent Abstract ("Method and apparatus for automatically reading bar code symbols is disclosed."). Elsewhere, the specification equates reading with "recognition." See id. col. 1 l. 16 (". . . symbol reading (i.e. recognition) systems . . ."). Most significantly, Claim 44 the instant claim claims "an automatic bar code symbol reading system" comprising, inter alia, a "scan data processing means" that "produc[es] . . . symbol character data," as well as a "control means" that both decodes and produces symbol character data. Id. col. 42 ll. 25, 53, 57, 60-68. These uses of the term "read" are inconsistent with Symbol's proposed construction.[14]
In a related argument, Symbol claims to find support for its interpretation of "read" in a June 23, 1993 Information Disclosure Statement ("IDS") that Metrologic submitted to the patent examiner during prosecution of the '971 patent. In that IDS, Metrologic purportedly distinguished over a prior art patent, No. 5,216,231 ("Ouchi"), on the grounds that the system claimed in Ouchi decodes every bar code symbol that it scans and compares successive decoded bar code data before outputting symbol character data only for consecutively different bar code symbols. Symbol claims that Metrologic distinguished its own system over Ouchi by representing that the Metrologic system would not decode the same bar code symbol consecutively, but would decode and produce symbol character data only for consecutively different bar code symbols. Thus, according to Symbol, where the '971 patent claims a system having a mode of operation in which "only a plurality of consecutively different bar code symbols on one or more objects can be read," id. col. 42 ll. 26-28 (emphasis added), the only interpretation that is consistent with Metrologic's IDS is *613 an interpretation in which "read" means "decoded."
Statements made in an IDS may be relevant in determining the proper scope of a claim. See Ekchian v. Home Depot, Inc., 104 F.3d 1299, 1304 (Fed.Cir. 1997). However, a court will not limit claim scope based on statements in an IDS that do not expressly distinguish over prior art. Id. (refusing to limit claim where IDS did not distinguish over prior art with respect to the relevant property); see also KX Indus. and Koslow Tech. Corp., 18 Fed.Appx. 871, 876 (Fed.Cir.2001) (requiring "express statements or arguments of limitation" to be made in IDS before IDS will limit claim scope). Metrolologic's IDS simply does not contain the express statements or arguments of limitation that Symbol urges the Court to find. In the IDS, Metrologic distinguished over Ouchi on the grounds that Ouchi
clearly does not disclose or even hint at an automatic bar code symbol reading system having, in combination, a hand-supportable laser scanner and scan data processor which sequentially detects and decodes a plurality of consecutively different bar code symbols and sequentially produces only symbol character data representative thereof, as the plurality of consecutively different bar code symbols are sequentially scanned by a visible laser beam produced from the hand-supportable laser scanner.
(Schuyler Decl. Supp. Metrologic's Br., Ex. K at 3 (underline in original).) As is readily apparent, Metrologic did not distinguish Ouchi for being unable to produce symbol character data only for consecutively different bar code symbols. Rather, Metrologic represented that Ouchi lacked the combination of qualities possessed by the Metrologic system, one of which being a processor that "sequentially detects and decodes a plurality of consecutively different bar code symbols "and sequentially produces only symbol character data representative thereof." (Id.) In essence, Metrologic was saying in its IDS that Ouchi may be capable of possessing some of the qualities of the Metrologic system, but not all. Therefore, the Court rejects Symbol's crabbed reading of the June 23, 1993 IDS as expressly distinguishing over prior art that decodes consecutively identical bar code symbols. By extension, the Court finds no basis in the IDS for defining "read" to mean "decoded."
Finally, the Court takes note of Metrologic's argument that defining "read" to mean "decoded" effectively would exclude the preferred embodiments. See SanDisk Corp. v. Memorex Prods., 415 F.3d 1278, 1285 ("A claim construction that excludes a preferred embodiment . . . `is rarely, if ever, correct.'" (quoting Vitronics, 90 F.3d at 1583)). One of the objects of the invention disclosed in the '971 patent is "to provide an automatic bar code symbol reading device which prevents multiple reading of the same bar code symbol due to dwelling of scanning beam upon a bar code symbol for an extended period of time."'971 Patent col. 3 ll. 36-40. The patent teaches that bar code symbol decoding occurs before the system controller compares consecutive bar code symbols to determine whether they are different. See id. col. 18 ll. 8-20; col. 27 ll. 18-29; Fig. 8E (Block Y and Block Z); Fig. 12E (Block Y and Block Z). Therefore, Metrologic reasons, the preferred embodiments must both decode and compare bar code symbols in order to carry out the object of preventing multiple "reading" of the same bar code symbol. While this argument is some evidence of the patentees' intention to define "read" as including both decoding and comparing, it arguably conflicts with the specification's disclosure elsewhere that activation control signal A3 indicates "that a bar code symbol has been successfully read." See, e.g., id. col. 26 ll. 22-23; *614 cf. id. Fig. 8E (Block Y); Fig. 12E (Block Y). Nevertheless, it appears that a certain amount of inconsistency is inevitable in this patent. (See Markman Hr'g Tr. 111:25-112:6 (conceding that the '971 patent sometimes uses "read" to be limited to functions occurring before the compare function).) The Court finds that even if the patent fails to signal uniformly and unambiguously the patentees' intention to define "read" to include decoding and comparing, it does clearly refute Symbol's argument that "read" is narrowly limited to mean "decoded."
For all of these reasons, it is evident that the term "read," as it appears in claim 44, cannot be construed narrowly to mean "decoded." Its use elsewhere in the '971 patent suggests a broader meaning, and its use within claim 44 suggests a meaning that includes decoding bar code symbols and producing symbol character data for consecutively different bar code symbols. When read in conjunction with the specification, see id. col. 18 ll. 8-20; col. 27 ll. 18-28; Fig. 8E; Fig. 12E, this broader meaning dictates that "reading" includes the function of comparing consecutive, decoded bar code symbols. (See Metrologic's Rebuttal Br. 22-23.) Nothing in the prosecution history of the '971 patent clearly and unmistakably refutes this conclusion. Accordingly, the Court rejects Symbol's argument that the '971 patent defines the term "read" to mean "decoded."
b. Decoding of Consecutive Bar Code Symbols
Symbol's second major argument with respect to the preamble of claim 44 is that it must be interpreted to contain the limitation that the same bar code symbol cannot be "decoded" consecutively "even when the bar code symbol is removed from the scan field for a finite time." (Symbol's Br. 15.) Symbol maintains that during a June 10, 1993 interview with the patent examiner and in a June 13, 1993 application amendment, Metrologic distinguished over the Heiman patent by arguing that Heiman claimed a system "wholly incapable of operating in a mode in which only a plurality of consecutively different bar code symbols can be read." (App. of Exs. to Symbol's Br., Ex. 17 at 16.) In fact, Symbol argues, the system of Heiman will decode and output symbol character data for consecutively identical bar code symbols if the bar code symbol is removed from the scan field for a finite period of time. By distinguishing over Heiman, Symbol insists, Metrologic disclaimed from the scope of claim 44 a system that will decode and output symbol character data for consecutively identical bar code symbols, even if that symbol is removed from the scan field for a finite time.
Symbol's added limitation is unavailing. First, the proposed limitation contradicts the teachings of the specification. See '971 Patent col. 18 ll. 5-40; col. 27 ll. 15-29. In the preferred embodiments, the '971 patent teaches that decoding occurs before any comparison is made of consecutive bar code symbols to determine whether they are the same. Id. col. 18 ll. 14-17 ("[T]he system controller determines at Block Z whether the decoded bar code symbol is different from the previously decoded bar code symbol." (emphasis added)); col. 27 ll. 24-27 (same). The specification goes on to teach that "[i]f . . . the decoded bar code symbol is not different than the previously decoded bar code symbol," id. col. 18 ll. 21-22 (emphasis added); col. 27 ll. 30-31 (emphasis added), then, upon the lapse of a predetermined period of time, the system controller deactivates, among other components, the laser and bar code decoding means so as to prevent further scanning and decoding of the same bar code symbol. See id. col. 18 ll. 21-40; col. 27 ll. 30-51. This description makes clear that in both preferred embodiments, the reading system can decode the same bar code symbol *615 consecutively, without regard to whether the bar code symbol is removed from the scan field for a finite time. See also id. Fig. 8E (depicting Block Z as the logical operation in which the system control program asks, "Is decoded bar code symbol different from the previously decoded bar code symbol?" (emphasis added)); id. Fig. 12E (same). Because "[a] claim construction that excludes a preferred embodiment . . . is `rarely, if ever, correct,'" SanDisk Corp., 415 F.3d at 1285 (quoting Vitronics, 90 F.3d at 1583), Symbol's proposed limitation is unavailing.
Second, the Court does not find that Metrologic's statements to the patent examiner in June 1993 were a clear and unmistakable disavowal of claim scope encompassing a reading system capable of decoding consecutively different bar code symbols. Symbol's argument in this regard rests on Metrologic's summary interpretation of Heiman as being "wholly incapable of operating in a mode in which only a plurality of consecutively different bar code symbols can be read" (App. of Exs. to Symbol's Br., Ex. 17 at 16), as well as the extrinsic deposition testimony of Metrologic's validity expert, Mr. Christopher Wiklof, concerning the scan data processing means element of claim 44. The Court finds neither of these sources persuasive of a clear and unmistakable disavowal with respect to the preamble of claim 44. See Free Motion Fitness, Inc. v. Cybex Int'l, Inc., 423 F.3d 1343, 1353 (Fed. Cir.2005) ("The presence of an undesirable prior art feature in addition to the elements recited in the claim, even when the undesirability of that feature formed the basis of an amendment and argument overcoming a rejection during prosecution, does not limit the claim unless there is a clear and unmistakable disclaimer of claim scope.").
For all of the reasons discussed above, the Court construes the preamble of claim 44 as follows: "An automatic bar code symbol reading system having a selectable mode of operation that allows it to read only a plurality of consecutively different bar code symbols." Furthermore, the Court defines the term "read" as used in the preamble of claim 44 to include decoding bar code symbols and comparing decoded bar code symbols so as to produce symbol character data only for consecutively different bar code symbols.
2. Claim 44 Laser Beam Producing Means
"laser beam producing means, disposed in said hand-supportable housing, for producing a visible laser beam within said hand-supportable housing; "
The parties agree that the laser beam producing means element of claim 44 employs means-plus-function language. Having independently reviewed the claim language, the Court finds that the language employs the term "means" and does not recite any structure for performing the claimed function. In accordance with Federal Circuit guidance, the Court concludes that means-plus-function principles govern the construction of the laser beam producing means element of claim 44.
a. Function
Both parties essentially agree that the claimed function is "producing a visible laser beam," and neither the specification nor the claim itself suggests otherwise. Thus, the Court finds that the recited function is "producing a visible laser beam."
b. Corresponding Structure
Both parties agree that the corresponding structure is the visible laser diode 47 depicted in Figure 4. As with claim 1(a)(2)(i) of the '698 patent, however, *616 Symbol urges the Court to recognize the additional limitation that the visible laser diode is "normally-off," and that it produces a visible laser beam "in response to an activation signal." (Symbol's Br. 19.) Symbol draws this limitation from the preferred embodiment depicted in Figure 4 and described in the specification, wherein visible laser diode 47 is activated by laser diode enable signal EL in response to a successful object detection. In addition, Symbol cites the Background section of the specification, where Metrologic disparages the continuously-on laser beams of Boles and Heiman that drain limited power reserves in battery-powered applications and necessitate laser emission control measures.
*617 The '971 patent omits several significant statements found in the '698 patent. In the '698 patent, in addition to disparaging the power consumption shortcomings of Boles and Heiman and describing a preferred embodiment in which the visible laser diode is normally off, see, e.g., '698 Patent col. 2 ll. 14-15, 43-47; col. 5 ll. 52-57, Fig. 8A (Block A), the specification lists as an "object" of the invention the ability to carry out "a wide number of system control operations" in a "power conserving manner" so as to "permit automatic reading of bar code symbols in a variety of diverse applications," id. col. 3 ll. 14-17. Another significant object of the '698 patent is to provide a device "which is capable of determining the presence of an object without enabling the scanning means of the device." Id. col. 3 ll. 28-29. The '698 patent further trumpets the "unique architecture" of the single preferred embodiment, "which provides a great degree of versatility in system capability and operation, as well as power conservation." Id. col. 5 ll. 27-31 (referring also to the "advantages of this control system architecture"). Together, these statements clearly signal the importance of power conservation and laser emission control to the invention claimed in the '698 patent, and render the normally-off visible laser diode of the preferred embodiment an essential feature of the invention.
By contrast, the '971 patent lacks any statements indicating the general desirability of a normally-off visible laser diode. It does not claim as an object of the invention the ability to operate in a "power conserving manner" or to detect an object "without enabling the scanning means of the device." Cf. '698 Patent col. 3 ll. 15, 29. Nor does it reiterate the "advantages" of the "power conservation" features of the preferred embodiments. Cf id col. 29, 30. Stripped of these statements, the '971 patent contains only two references arguably relevant to Symbol's proposed limitation. First, the Background section of the specification merely indicates that the Boles and Heiman systems drain "limited power reserves" in "battery power" applications. See '971 col. 2 ll. 15, 16, 43-44. But see id. col. 2 ll. 45-47 (noting also that the continuously-on laser of Heiman necessitates "laser emission control measures"). Second, the preferred embodiments appear to depict a visible laser diode that must be activated by laser diode enable signal EL in response to a successful object detection. Neither of these references, alone or in combination, is sufficient to warrant importing the limitation that the visible laser diode is normally off.
With respect to Boles and Heiman, the '971 patent simply identifies a problem that those systems exhibited in the limited context of battery-powered applications. Unlike the '698 patent, the '971 patent does not mention power drain apart from battery-powered applications. A patent specification that identifies a shortcoming of prior art devices in certain contexts does not, without more, limit its claim scope in all contexts. See ResQNet.com, Inc. v. Lansa, Inc., 346 F.3d 1374, 1380 (Fed.Cir.2003) (referring to the "general rule that limitations should not be imported from the specification based solely on overcoming problems in the prior art"). With respect to the preferred embodiments, it need hardly be repeated that a preferred embodiment may be narrower than the scope of the claims, and a court may not read limitations into a claim from the preferred embodiment. Resonate Inc., 338 F.3d at 1367. Each of these principles "is a corollary of the broader principle against importing limitations from the specification into the claims." ResQNet.com, Inc., 346 F.3d at 1380; see also Resonate Inc., 338 F.3d at 1367 (citing Electro Medical Systems, S.A. v. Cooper Life Sciences, Inc., 34 F.3d 1048, 1054 *618 (Fed.Cir.1994), which warns that "claims are not to be interpreted by adding limitations appearing only in the specification").
For the foregoing reasons, the Court finds that the corresponding structure is a visible laser diode. Accordingly, the Court construes the laser beam producing means element of claim 44 as follows: "a visible laser diode and its structural equivalents for producing a visible laser beam within said hand-supportable housing."
3. Claim 44 Laser Light Detecting Means
"laser light detecting means, disposed in said hand-supportable housing, for detecting the intensity of laser light reflected off each said consecutively different said [sic] bar code symbol as said visible laser beam is repeatedly scanned across said scan field and each said consecutively different bar code symbol, and for automatically producing scan data indicative of each said detected intensity; "
The parties agree that the laser light detecting means element of claim 44 employs means-plus-function language. The Court has independently reviewed the claim language and finds that it employs the term "means" and does not recite structure. Thus, the Court concludes that means-plus-function principles govern the construction of the laser light detecting means element of claim 44.
a. Function
There appears to be no dispute that the laser light detecting means element of claim 44 discloses the function of "detecting the intensity of laser light reflected off of a bar code symbol and . . . automatically producing scan data indicative of the detected light intensity." (Metrologic's Br. 32; Symbol's Br. 20 (describing function as "detecting and producing").) To maintain faithful adherence to the language of the claim, see Phillips, 415 F.3d at 1316, the Court construes the claimed function as follows: "detecting the intensity of laser light reflected off of a bar code symbol and automatically producing scan data indicative of the detected light intensity."
b. Corresponding Structure
While both parties agree that the photoreceiver 54 is required to carry out the first part of the function of "detecting the intensity of laser light reflected off of a bar code symbol," they disagree as to whether a preamplifier 55 is needed to perform the function of "automatically producing scan data indicative of the detected light intensity." Metrologic argues that a photoreceiver and a preamplifier, working in tandem, are necessary to produce scan data signal D1, as depicted in Figure 4. Symbol responds that the photoreceiver alone is capable of producing scan data indicative of the detected light intensity.
This dispute mirrors the parties' dispute with respect to limitation 1(a)(2)(iii) of the '698 patent. For precisely the reasons articulated with respect to that limitation, the Court finds that the structure that corresponds to the claimed function in the laser light detecting means element of claim 44 is a photoreceiver and a preamplifier. Specifically, the specification of the '971 patent teaches that photoreceiver 54 "produces an analog signal which is subsequently amplified by preamplifier 55 to produce analog scan data signal D1."'971 Patent col. 11 ll. 23-25. The claim element expressly requires the production of "scan data," id. col. 42 l. 51, and the only signal generated by any component of the laser light detecting means that is labeled "scan data" is "analog scan data signal D1," id. col. 11 ll. 24-25. The specification merely refers to the unlabeled signal shown in Figure 4 flowing from photoreceiver 54 to *619 preamplifier 55 as "an analog signal." Id. col. 11 l. 23.
Accordingly, the Court construes the laser light detecting means element of claim 44 as follows: "a photoreceiver and a preamplifier and their structural equivalents for detecting the intensity of laser light reflected off of a bar code symbol and automatically producing scan data indicative of the detected light intensity."
4. Claim 44 Scan Data Processing Means
"scan data processing means for processing produced scan data in order to sequentially detect and decode each one of said plurality of consecutively different bar code symbols, and for automatically producing only symbol character data representative of each one of said plurality of consecutively different bar code symbols; "
The parties agree that the scan data processing means element of claim 44 employs means-plus-function language. The Court independently finds that this element employs the term "means" and does not recite structure. Thus, the Court shall construe the scan data processing means element of claim 44 in accordance with mean-plus-function principles.
a. Function
Metrologic interprets the claimed function as "processing scan data in order to . . . sequentially detect and decode bar code symbols, and . . . automatically produce only symbol character data representative of each consecutively different bar code symbol." (Metrologic's Br. 33.) While conceding that this interpretation adheres to the language of the claim element, Symbol faults Metrologic for failing to explain what the function means. According to Symbol, the construction must include the functional limitation of producing symbol character data "only for consecutively different bar code symbols." (Symbol's Rebuttal Br. 27.) This limitation, Symbol contends, flows from Metrologic's disclaimer of certain embodiments during prosecution, as well as the prosecution history concerning Metrologic's addition of the word "only."
First, Symbol argues that while prosecuting the '971 patent, Metrologic distinguished the prior art reference of Ouchi by arguing to the patent examiner that Ouchi had to decode every bar code symbol scanned, whereas the system of claim 44 decoded and produced symbol character data only for consecutively different bar code symbols. In support of this argument, Symbol relies on that portion of the June 23, 1993 IDS cited in connection with its proposed construction of claim 44's preamble. The Court has already rejected this argument. In its IDS, Metrologic did not distinguish Ouchi for being unable to produce symbol character data only for consecutively different bar code symbols. Metrologic represented instead that Ouchi lacked the combination of qualities possessed by the Metrologic system, where one of those qualities was the inclusion of a processor that "sequentially detects and decodes a plurality of consecutively different bar code symbols and sequentially produces only symbol character data representative thereof." (App. of Exs. to Symbol's Br., Ex. 20 at 3.) Thus, in distinguishing over Ouchi, Metrologic did not disclaim an embodiment capable of decoding every bar code symbol and producing symbol character data only for consecutively different bar codes.
Symbol also cites to Metrologic's June 13, 1993 statement to the patent examiner that Heiman claimed a system "wholly incapable of operating in a mode in which only a plurality of consecutively different bar code symbols can be read." (App. of Exs. to Symbol's Br., Ex. 17 at 16.) For *620 reasons already discussed, the Court rejects this argument. Attributing to this statement the significance that Symbol urges would have the effect of excluding the preferred embodiments, which clearly show that decoding occurs before comparison. See, e.g., '971 Patent col. 18 ll. 14-17; col. 27 ll. 24-27; see also SanDisk Corp., 415 F.3d at 1285. In addition, Metrologic's summary statement regarding the Heiman system did not constitute a clear and unmistakable disavowal of claim scope. See Omega Eng'g, 334 F.3d at 1325-26.
Symbol further criticizes Metrologic's reliance on the preferred embodiments depicted in Figures 8A-E and 12A-E, which Symbol maintains were "effectively disclaimed" (Symbol's Rebuttal Br. 28), without also citing to Figure 13, which Symbol contends represents the true scope of claim 44. The Court has previously rejected Symbol's erroneous assertion that Figure 13 depicts a preferred embodiment. Figures 8A-E and 12A-E represent the only two embodiments taught in the '971 patent, see '971 Patent col. 4 l. 56 (referring to "the first illustrative embodiment"); col. 5 ll. 65-66 (referring to the "second illustrative embodiment"), and Figure 13 represents a "state diagram" applicable to both embodiments, see id. col. 5 l. 67-col. 6 1. 2. Without "highly persuasive evidentiary support," Vitronics, 90 F.3d at 1583, the Court declines to adopt a construction that would exclude both of Metrologic's preferred embodiments. Furthermore, even if the labeling of States C, D, and F in Figure 13 arguably suggests that "reading" is coextensive with "decoding," the Court will not use this inference as a basis for limiting the scan data processing means element of claim 44. See Applied Med. Res. Corp. v. U.S. Surgical Corp., 448 F.3d 1324, 1334 (Fed.Cir.2006) ("A court errs when it improperly imports unclaimed functions into a means-plus-function claim limitation.").
Symbol's sole remaining argument concerns the prosecution history relating to Metrologic's addition of the word "only." Symbol reads this word to "limit[ the function of the structure to producing character data (i.e., decoding) only for consecutively different bar code symbols in a mode of operation in which `only a plurality of consecutively different bar code symbols on one or more objects can be read', as understood from the preamble." (Symbol's Br. 21 (citing '971 Patent col. 27 l. 68-col. 28 l. 13) (emphasis in original).) Symbol's proposed interpretation is inconsistent with the Court's definition of "read" in the preamble to claim 44. There, the Court defined "read" so as to recognize that decoding occurs before the comparison of consecutively scanned and decoded bar code symbols. See '971 Patent col. 18 ll. 8-20; col. 27 ll. 18-29; Fig. 8E (Block Y and Block Z); Fig. 12E (Block Y and Block Z). Once consecutive decoded bar codes symbols are compared, the reading system produces symbol character data only for consecutively different bar code symbols. See, e.g., '971 Patent col. 34 ll. 52-57 (claiming a processing means that produces "symbol character data representative of a decoded symbol"). Thus, decoding is not synonymous with producing symbol character data. Symbol's interpretation of the scan data processing means turns the Court's definition of "read" on its head, requiring bar code comparison to occur before decoding and equating decoding with the production of symbol character data.
Symbol's construction also changes the grammatical structure of the scan data processing means element. In the claim, the word "only" modifies "symbol character data." Id. col. 42 ll. 56-59 (". . . for automatically producing only symbol character data representative of each one of said plurality of consecutively different bar code symbols . . ."). However, Symbol insists *621 that "only" actually modifies "consecutively different bar code symbols." (Symbol's Br. 21) (". . . producing character data (i.e. decoding) only for consecutively different bar code symbols. . . .") To overcome the plain language of the claim, Symbol contends that Metrologic added the word "only" during prosecution, following an interview with the patent examiner (App. of Exs. to Symbol's Br., Ex. 16 at 3 (depicting the handwritten insertion of the word "only" in pending claim 149, which ultimately issued as claim 44)), and speculates that the reason for this amendment was to distinguish over Boles and Heiman. Symbol's evidence is unpersuasive and falls well short of a clear and unmistakable disavowal of claim scope. Omega Eng'g, 334 F.3d at 1325-26. Similarly, it fails to overcome a plain reading of the claim element, in which "only" modifies "symbol character data." (See App. Exs. to Symbol's Rebuttal Br., Ex. 33 (Eastman Dep.) at 86:17-88:18 (interpreting the scan data processing means element of claim 44 as automatically producing only symbol character data).) Because the patent examiner who allowed this claim presumably understood basic rules of grammar, see In re Hyatt, 708 F.2d 712, 714 (Fed.Cir.1983) ("A claim must be read in accordance with the precepts of English grammar."), the Court will not rewrite the scan data processing means element of claim 44 so as to permit decoding only for consecutively different bar code symbols.
For the foregoing reasons, the Court rejects Symbol's proposed interpretation, and defines the function of the scan data processing means element of claim 44 as follows: "processing produced scan data in order to sequentially detect and decode bar code symbols, and automatically producing only symbol character data representative of each consecutively different bar code symbol."
b. Corresponding Structure
The parties further dispute the nature of the structures capable of performing the claimed function. Both parties agree that the corresponding structures are the bar, code presence detection module 14 and the bar code symbol decoding module 16. See '971 Patent Fig. 4. However, Symbol contends that the specification discloses only a "programmed microprocessor, and structural equivalents." (Symbol's Br. 20.) Metrologic, on the other hand, contends that the corresponding structure may be implemented "either in a programmable processor or in a hardwired circuit and structural equivalents." (Metrologic's Br. 33.)
The specification explicitly teaches that the bar code presence detection module 14 and the bar code symbol decoding module 16 may be "realized using a single programmable device, such as a microprocessor." '971 Patent col. 8 ll. 12-14. In addition, "[i]t is understood . . . that any of these elements can be realized using separate discrete components as will be apparent to those skilled in the art." Id. col. 8 ll. 15-18. Although the specification teaches that the bar code presence detection module 14 "[p]referably . . . is realized as a microcode program carried out by the microprocessor and associated program and buffer memory," id. col. 11 ll. 53-56, this preferred embodiment does not limit the claim scope, see Tex. Instruments, Inc. v. United States Int'l Trade Comm'n, 805 F.2d 1558, 1563 (Fed.Cir.1986) ("This court has cautioned against limiting the claimed invention to preferred embodiments or specific examples in the specification."). Symbol has produced no evidence showing that a person skilled in the art would not understand "separate discrete components" to include "a hard-wired circuit." Thus, finding confirmation in the language of the specification, the Court adopts Metrologic's *622 proposed definition of the corresponding structure.
For the reasons discussed, the Court construes the scan data processing means `of claim 44 as follows: "a bar code presence detection module and a bar code symbol decoding module, either in a programmable microprocessor or in a hardwired circuit, and structural equivalents, for processing produced scan data in order to sequentially detect and decode bar code symbols, and automatically producing only symbol character data representative of each consecutively different bar code symbol."
5. Claim 44 Control Means
"control means for automatically controlling the operation of said laser beam producing means and said scan data processing means so as to sequentially detect and decode each one of said plurality of consecutively different bar code symbols as said plurality of consecutively different bar code symbols are being sequentially scanned by said visible laser beam, and also to sequentially produce only symbol character data representative of each one of said plurality of consecutively different bar code symbols as said plurality of consecutively different bar code symbols are being sequentially detected and decoded by said scan data processing means."
The parties agree that the control means element of claim 44 employs means-plus-function language. Having independently found that the language employs the term "means" and does not recite structure, the Court concludes that means-plus-function principles govern the construction of the control means element of claim 44.
a. Function
Both parties agree as to the essential function claimed and offer little elaboration on the express claim language. Having reviewed the claim language and the parties' interpretations, the Court construes the claimed function as follows: "automatically controlling the operation of the laser beam producing means and scan data processing means to sequentially detect and decode each one of said plurality of consecutively different bar code symbols as said plurality of consecutively different bar code symbols are being sequentially scanned by the visible laser beam, and to sequentially produce only symbol character data representative of each one of said plurality of consecutively different bar code symbols as said plurality of consecutively different bar code symbols are being sequentially detected and decoded by the scan data processing means."
b. Corresponding Structure
Metrologic interprets the corresponding structure as the system controller 22 depicted in Figure 4, and argues that this structure may be realized as a microprocessor or a hard-wired circuit. Symbol agrees that the structure must include the system controller 22, which may be implemented in a programmable microprocessor. However, Symbol also contends that the control logic, or algorithm, of system controller 22 must be included in the corresponding structure. According to Symbol, "[t]he only structure disclosed in the patent for `automatically control[ling] the operation of said laser beam producing means', as recited in the claim, is [the] control logic of the system controller 22 that turns on the normally-off laser diode 54 in response to the presence of an object in the scan field." (Symbol's Br. 23 (footnote omitted).)
*623 In the leading decision of WMS Gaming Inc. v. International Game Technology, 184 F.3d 1339 (Fed.Cir.1999), the Federal Circuit examined the role of algorithms in means-plus-function claim construction. In that case, the alleged infringed patent (the "Telnaes patent") claimed a gaming apparatus (slot machine), one limitation of which claimed a "means for assigning" a plurality of numbers to the stop positions on a rotating reel, where the plurality of numbers exceeds the number of stop positions and some of the stop positions are represented by more than one number. Id. at 1346, 1347. The parties stipulated that the Telnaes patent disclosed a microprocessor as the structure corresponding to the "means for assigning" limitation. They further stipulated that the algorithm that controlled the assignment of numbers was an algorithm illustrated in Figure 6 of the patent. The district court broadly construed the "means for assigning" limitation to include "any table, formula, or algorithm for determining correspondence between the [randomly selected] numbers and rotational positions of the reel." Id. at 1348.
Federal Circuit reversed, finding that the district court's construction of the "means for assigning" claim was overly broad. Specifically, the Federal Circuit court found that the district court "erred by failing to limit the claim to the algorithm disclosed in the specification." Id. Such limitation is necessary, the Federal Circuit explained, because
[a] general purpose computer, or microprocessor, programmed to carry out an algorithm creates a new machine, because a general purpose computer in effect becomes a special purpose computer once it is programmed to perform particular functions pursuant to instructions from program software. The instructions of the software program that carry out the algorithm electrically change the general purpose computer by creating electrical paths within the device. These electrical paths create a special purpose machine for carrying out the particular algorithm.
Id. (internal quotation marks, citations, and footnote omitted). Thus, "[i]n a means-plus-function claim in which the disclosed structure is a computer, or microprocessor, programmed to carry out an algorithm, the disclosed structure is not the general purpose computer, but rather the special purpose computer programmed to perform the disclosed algorithm." Id. at 1349; see also Harris Corp. v. Ericsson Inc., 417 F.3d 1241, 1253 (Fed.Cir.2005) ("A computer-implemented means-plus-function term is limited to the corresponding structure disclosed in the specification and equivalents thereof, and the corresponding structure is the algorithm.").
Metrologic argues that WMS Gaming and Harris Corp. are inapplicable here because the flow charts depicted in the '971 patent are not algorithms, but are merely intended as a general guide for programming the microprocessor to implement the preferred embodiment. See, e.g., '971 Patent col. 5 ll. 21-26 (describing Figures 8A-E as "a high level flow chart of a system control program (i.e., Main System Control Routine No. 1), illustrating various courses of programmed system operation that the automatic bar code symbol reading device of the illustrative embodiment may undergo"). However, in attempting to distinguish between a flow chart and an algorithm, Metrologic draws a false dichotomy. Numerous courts have recognized that a flow chart may graphically depict an algorithm. See, e.g., Itron, Inc. v. Benghiat, 169 F.Supp.2d 1073, 1092 (D.Minn.2001) (finding that "the algorithms for performing the various functions described in each of the claims are explicitly disclosed in the patent's flow charts," and quoting David Bender, Computer Law *624 § 3.02(3) (2000), for the proposition that "the `logic' or `algorithm' of a computer program may involve the use of a flowchart `wherein the logic of the program is depicted graphically by a sequence of oddly shaped boxes connected by lines and arrows, means to show the various processing steps and flow of data'"). Indeed, the Federal Circuit has broadly defined "algorithm" to include any "`step-by-step procedure for solving a problem or accomplishing some end.'" In re Iwahashi, 888 F.2d 1370, 1374 (Fed.Cir.1989) (quoting Webster's New Collegiate Dictionary (1976)). It is therefore apparent that the "high level flow charts" disclosed in the '971 patent are indeed "algorithms."
Turning to the control means element in claim 44 of the '971 patent, there is no dispute that the structure corresponding to the claimed function is a programmable microprocessor. However, a programmable microprocessor cannot represent the extent of the structure because it "does not incorporate any disclosed algorithm." Harris Corp., 417 F.3d at 1254. Accordingly, the Court must construe the structure corresponding to the control means so as to include the algorithm corresponding to the claimed function, as construed above. This result accords with the claim constructions of several district courts that have held, in accordance with WMS Gaming, that when corresponding structure includes a "programmable microprocessor," it must also include an algorithm. See, e.g., Network Appliance, Inc. v. Bluearc Corp., No. C 03-5665 MHP, 2005 WL 1530222, at *10-11 (N.D.Cal. June 27, 2005); Mallinckrodt, Inc. v. Masimo Corp., 254 F.Supp.2d 1140, 1152-53 (C.D.Cal.2003).
Symbol reads several limitations into the operation of the programmed microprocessor that find little basis in the specification and contradict the Court's construction of other claim elements. For instance, Symbol contends that the microprocessor "turns on the laser beam producing means in response to the presence of an object in the scan field." (Symbol's Br. 22.) Because the Court has refused to limit the laser beam producing means of claim 44 to a normally-off visible laser diode, the Court declines to construe the control means as requiring the microprocessor to enable the laser beam producing means. Symbol also seeks to limit the microprocessor to controlling the scan data processing means "to only decode consecutively different bar code symbols even when the bar code symbol is removed from the scan field for a finite time." (Id.) For reasons discussed in construing the preamble to claim 44, the Court rejects this limitation as well. See '971 Patent col. 18 ll. 5-40; col. 27 ll. 15-29; see also Phillips, 415 F.3d at 1316.
Consequently, the Court construes the control means of claim 44 as follows: "a system controller, either in a hard-wired circuit or in a microprocessor programmed to carry out an algorithm in which the microprocessor automatically controls the operation of the laser beam producing means and scan data processing means to sequentially detect and decode each one of said plurality of consecutively different bar code symbols as said plurality of consecutively different bar code symbols are being sequentially scanned by the visible laser beam, and sequentially produces only symbol character data representative of each one of said plurality of consecutively different bar code symbols as said plurality of consecutively different bar code symbols are being sequentially detected and decoded by the scan data processing means."
6. Claim 46
"The system of claim 44, wherein said bar code symbol has first and second envelope borders, and wherein said scan data processing means detects *625 said bar code symbol by processing scan data so as to detect the first and second envelope borders of said bar code symbol."
For the reasons discussed in connection with dependent claim 2 of the '698 patent, the Court finds that dependent claim 46 of the '971 patent is not a means-plus-function claim, but will construe the scan data processing means element of claim 46 in accordance with means-plus-function principles.
a. Function
As they did for the bar code symbol detection means element of claim 2 of the '698 patent, the parties dispute whether the scan data processing means element of claim 46 of the '971 patent detects a bar code symbol by detecting the white space comprising the first and second envelope borders at each end of a bar code symbol, or whether it detects a bar code symbol by identifying two different characteristics of a bar code symbol, such as length and white border minimums. For precisely the reasons discussed in connection with claim 2 of the '698 patent, the Court fords that the scan data processing means element of claim 46 performs the function of "detecting bar codes by processing produced scan data so as to detect the first and second envelope borders of the scanned bar code." The Court likewise continues to define "first and second envelope borders" as the "white space" that is necessary on each end of the bar code symbol.
b. Corresponding Structure
The Court previously construed the structure corresponding to the scan data processing means of claim 44 as "a bar code presence detection module and a bar code symbol decoding module, either in a programmable microprocessor or in a hard-wired circuit, and structural equivalents." The Court adheres to that definition here.
Accordingly, the Court construes dependent claim 46 as follows: "The system of claim 44, including a bar code presence detection module and a bar code symbol decoding module, either in a programmable microprocessor or in a hard-wired circuit, and structural equivalents, for detecting bar codes by processing produced scan data so as to detect the first and second envelope borders of the scanned bar code."
C. The '870 Patent
The parties' disputes with respect to the '870 patent are confined to claim 10. They dispute the following limitations: "system activation means," "scanning mechanism," "light detection means," "scan data processing means," and "control means."
1. Claim 10 System Activation Means
"system activation means in said housing for producing an activation signal indicative of the presence of an object within at least a portion of a scan field definable external to said housing; "
The parties agree that the system activation means element of claim 10 is a means-plus-function element. This element employs the term "means" and does not recite structure. Thus, the Court will interpret this element in accordance with means-plus-function principles of construction.
a. Function
The parties propose widely divergent interpretations of the claimed function. Metrologic interprets the function as "producing an activation signal indicative of the presence of an object." (Metrologic's Br. 36.) According to Metrologic, the activation signal serves as an input to the *626 system controller, causing it to transition from an object detection state to a bar code detection state.
By contrast, Symbol contends that the activation signal must activate otherwise deactivated system components, namely, the laser beam source, the laser beam directing means, and the scanning mechanism. Symbol finds support for this interpretation in the specification, as well as in a January 6, 1998 Supplemental Preliminary Amendment that Metrologic made to its then-pending claim. Consequently, Symbol interprets the claimed function as "non-manually producing an activation signal which indicates the presence of an object in the scan field . . . such that the activation signal activates the laser beam source, laser beam directing means and scanning mechanism." (Symbol's Br. 25.)
Prior to the January 6, 1998 amendment, Metrologic's pending claim 6 claimed an "object detection means disposed in said housing for automatically detecting an object located within a portion of a scan field defined external to said housing." (App. of Exa. to Symbol's Br., Ex. 23 at 2.) On January 6, 1998, Metrologic amended its pending claim to recite a "system activation means in said housing for producing an activation signal indicative of the presence of an object within at least a portion of a scan field definable external to said housing." (Id. Ex. 24 at 6.) This amended claim language ultimately issued as the system activation means limitation of claim 10. Symbol argues that in order for this amendment to be meaningful, "the `system activation means' must be more than just the object detection means" originally claimed, i.e., it "must perform the additional function of activating otherwise deactivated system components." (Symbol's Br. 26.)
There is no dispute that the January 6, 1998 Supplemental Preliminary Amendment added an express limitation requiring the production of an "activation signal" indicative of a detected object in the scan field. The dispute concerns the function that the activation signal performs. As noted, Metrologic contends that the activation signal causes the system controller to transition from object detection state to bar code detection state. Symbol complains that Metrologic fails to explain what this transition means, and notes that the specification expressly teaches that this transition enables previously disabled system components, such as the laser diode.
The specification teaches that the IR sensing circuit and the system controller are initially enabled, while "the remainder of the activatable system components, e.g., laser diode 50, scanning motor 53, photoreceiving circuit 18, AID conversion circuit 15, bar code presence detection module 20, bar code scan data range detection module 21, symbol decoding module 22, data format conversion module 23, data storage unit 24, and data transmission circuit 25," are disabled. '870 Patent col. 18 ll. 40-51. Upon receiving control activation signal A1, "the system controller activates laser diode 50, scanning motor 53, photoreceiving circuit 18, A/D conversion circuit 19 and bar code presence detection module 20." Id. col. 18 l. 54-col. 19 l. 4; see also '870 Patent Fig. 7A (Block A Block D). The specification states that these steps describe the operation of the system controller "with reference to system block diagram shown in FIG. 4, the intensity versus time characteristic shown in FIG. 6, and Blocks A to CC shown in FIGS. 7A and 7B." Id. col. 18 ll. 33-39.
As will be explained later in the discussion pertaining to the control means, the "high level flow chart" of Figures 7A and 7B represents an algorithm that constitutes part of the structure corresponding to the control means. As such, it is more than a mere preferred embodiment; it is a *627 structural limitation of the claimed invention. WMS Gaming, 184 F.3d at 1349. Therefore, where the specification and Figure 7A teach that the activation signal causes the control means to activate (i.e., enable) the laser beam source, the laser beam directing means, and the scanning mechanism, this activation is a part of the claimed invention, and not merely one possible embodiment of the invention. By extension, the Court finds that Symbol's limitation "that the activation signal activates the laser beam source, laser beam directing means and scanning mechanism" does not represent the impermissible importation of a functional limitation from the preferred embodiment. Rather, Symbol's limitation on the system activation means is a necessary consequence of the disclosed algorithm comprising part of the structure corresponding to the control means. See Markman, 52 F.3d at 978 ("The patent is a fully integrated written instrument.").
Metrologic's proposed construction, while not incorrect, leaves the disputed term "activation signal" undefined. Because the "activation signal" limitation was added during prosecution, resolution of this dispute is imperative. Although Metrologic contends that the activation signal causes the system controller to transition from an object detection state to a bar code detection state, this functional limitation does not appear in Metrologic's proposed interpretation of the system activation means. Moreover, Metrologic cites to a portion of the specification referring to the transition between object detection state and bar code detection state. See '871 Patent col. 10 ll. 31-44. This portion of the specification expressly states that the transition "will be described in greater detail hereinafter," id. col. 10 ll. 39-40, thus incorporating by reference that portion of the specification on which Symbol relies to describe the activation of system components by control activation signal A1. To resolve the disputed function of the activation signal, the Court must therefore consult the portion of the specification describing the operation of the algorithm claimed in the control means.
For the foregoing reasons, the Court construes the claimed function as follows: "producing an activation signal which indicates the presence of an object in at least a portion of the scan field, such that the activation signal causes the control means to activate the laser beam source, the laser beam directing means, and the scanning mechanism."
b. Corresponding Structure
Metrologic identifies the corresponding structure as being "[a]n object detection circuit for detecting objects, through IR or other optical radiation or acoustical energy, in a hard-wired circuit or structural equivalents." (Metrologic's Br. 36.) Symbol proposes essentially the same structure, but urges the Court to recognize the structural limitation that the corresponding structure does not include the scanning laser.
Symbol derives its proposed limitations from two sources. First, Symbol cites to the prosecution history of two of the '870 patent's ancestor patents. Second, Symbol cites the specification of the '870 patent itself. The Court considers Symbol's second argument first, and finds no need to reach Symbol's first argument.
Symbol points to various places in the specification where Metrologic appears to indicate that the object detection means is separate from the visible laser diode. Some of Symbol's references are to preferred embodiments, see, e.g., '870 Patent col. 9, ll. 15-25; col. 11, ll. 10-15; Fig. 4, and some are to descriptions of the operation of the control means algorithm, see, e.g., id. col. 18 l. 40-col. 19 l. 5; col. 20 l. 42-col. 21 l. 2; Fig. 7A. Symbol urges the *628 Court to read these statements as a limitation on the system activation means.
As discussed above, the disclosed algorithm requires that the system activation means produce an activation signal that causes the system controller to activate, among other components, the laser beam source. Because both parties agree that the structure corresponding to the system activation means includes "an object detection circuit" (Metrologic) or "object detection circuitry" (Symbol), the system activation means limitation must be construed, at the very least, to include an object detection circuit that produces an activation signal, which causes the system controller to activate the laser beam source. The algorithm teaches that the object detection circuit and system controller are continuously enabled, id. col. 18 ll. 42-44, while the laser diode is initially disabled, id. col. 18 ll. 44-46. If the function of the laser beam source is to produce a visible laser beam, as the parties agree that it is (see App. of Exs. to Symbol's Br., Ex. 8 at 8), then the laser beam source cannot perform this function until activated by the system controller. See '870 Patent col. 19 l. 1-2. Because control activation signal A, causes the system controller to activate the laser beam source, generation of control activation signal A, must precede the production of the laser beam by the laser beam source. It follows, then, that the visible laser beam produced by the laser beam source can play no part in the generation of control activation signal A,. Where the parties agree that the object detection circuit produces an activation signal indicative of the presence of an object in the scan field, object detection cannot be performed by the laser beam produced by the laser beam source.
The Court is cognizant that the '870 patent broadly teaches that object detection can entail the detection of either "optical radiation or acoustical energy."'871 Patent col. 9 ll. 2-3. This would seemingly suggest that object detection may occur through the medium of reflected laser light. Inasmuch as the patent encompasses such embodiments, however, it does not claim any embodiment in which the object detection laser is also the scanning laser. The algorithm unequivocally teaches that the scanning laser is disabled during object detection, and is only enabled by the system controller in response to control activation signal A1. Id. col. 18 l. 40-col. 19 l. 6.
Therefore, the Court finds that Symbol's proposed limitation that the activation signal be produced "without the use of the scanning laser beam" is a necessary consequence of the structural limitation introduced by the disclosed algorithm. For the reasons discussed, the Court construes the system activation means of claim 10 as follows: "an object detection circuit for detecting objects through IR or other optical radiation or acoustical energy, and its structural equivalents, for producing an activation signal which indicates the presence of an object in at least a portion of the scan field without the use of the scanning laser beam, such that the activation signal causes the control means to activate the laser beam source, the laser beam directing means, and the scanning mechanism."
2. Claim 10 Scanning Mechanism
"a scanning mechanism in said housing for scanning said visible laser beam across said scan field and a bar code symbol on said object, during said bar code symbol detection mode and said bar code symbol reading mode, said scanned visible laser beam flickering in said scan field during said bar code symbol detection mode, at a rate below the critical flicker frequency of the user's human visual system so as to improve the visual *629 conspicuousness of said visible laser beam in said scan field during said bar code symbol detection mode of operation; "
In their opening claim construction briefs, both parties asserted that this claim should be construed according to its ordinary meaning. However, Symbol suggested the additional limitation that the phrase "critical flicker frequency" be defined as being between about 0.1 Hz and 16 Hz. Symbol also faulted Metrologic for failing to acknowledge the recited purpose of flickering the laser beam, namely, to improve the visual conspicuousness of the beam in the scan field during bar code symbol detection mode. In its rebuttal brief, Metrologic waived any objection to Symbol's limitation that the critical flicker frequency be between about 0.1 Hz and 16 Hz, calling this difference "not material." (Metrologic's Rebuttal Br. 33.) At the Markman hearing in this case, Metrologic's counsel clarified that it was withdrawing any objection to Symbol's proposed construction of the scanning mechanism element of claim 10.
Accordingly, the Court adopts Symbol's proposed interpretation. The Court construes the scanning mechanism element of claim 10 as follows: "a scanning mechanism in the housing for scanning the visible laser beam across the scan field and a bar code symbol on an object during the bar code symbol detection mode and bar code symbol reading mode, where the laser beam flickers at a rate of between about 0.1 Hz and 16 Hz during the bar code symbol detection mode such that the laser beam has improved visual conspicuousness to a user during the bar code symbol detection mode."
3. Claim 10 Light Detection Means
"light detection means in said housing, for detecting the intensity of laser light reflected off said scanned bar code symbol, and for automatically producing scan data indicative of the detected intensity of said reflected laser light; "
The parties agree that the light detection means element of claim 10 is a means-plus-function element. After independently reviewing the claim language, the Court finds that this element employs the term "means" and does not recite structure. Thus, the Court will construe the light detection means element of claim 10 according to principles governing mean-plusfunction claims.
a. Function
There is no dispute concerning the claimed function. Consistent with the plain language of the claim, see Phillips, 415 F.3d at 1316, as well as the constructions of the laser light detecting means elements of the '698 and '971 patents, the Court construes the light detection means element of the '870 patent as follows: "detecting the intensity of laser light reflected off of a scanned bar code symbol and automatically producing scan data indicative of the detected light intensity."
b. Corresponding Structure
As in the '698 patent and '971 patent, the parties dispute whether a photoreceiver is sufficient to carry out the claimed function of "automatically producing scan data indicative of the detected light intensity," or whether a preamplifier is also needed. The '870 patent teaches that upon receiving the laser light return signal reflected off of a bar code symbol, photoreceiver 56 generates "an analog signal which is subsequently amplified by preamplifier 58 to produce analog scan data signal D1." '870 Patent col. 12 ll. 32-51; Fig. 4. The plain language of the claim element requires the production of "scan data," and this function is unfulfilled by the photoreceiver *630 alone. Only the photoreceiver and the preamplifier, working in tandem, produce scan data (i.e., analog scan data signal D1).
Accordingly, the Court finds that the corresponding structure is' a photoreceiver and a preamplifier. The Court construes the light detection means element of claim 10 of the '870 patent as follows: "a photoreceiver and a preamplifier and their structural equivalents for detecting the intensity of laser light reflected off of a scanned bar code symbol and automatically producing scan data indicative of the detected light intensity."
4. Claim 10 Scan Data Processing Means
"scan data processing means for processing produced scan data during said bar code symbol detection mode and said bar code symbol reading mode, so as to detect and decode said scanned bar code symbol on said detected object, and upon detecting and decoding said scanned bar code symbol, automatically producing symbol character data representative of said detected and decoded bar code symbol"
The parties agree that the scan data processing means element of claim 10 is a means-plus-function element. The Court independently finds that the language of this element employs the term "means" and does not recite structure. Thus, the Court will construe the scan data processing means element of claim 10 under means-plus-function principles.
a. Function
Metrologic interprets the claimed function as "processing scan data in order to sequentially detect and decode said bar code symbol and . . . producing symbol character data representative of said detected and decoded bar code symbol." (Metrologic's Br. 38.) Symbol does not dispute this function, but insists that the construction must also specify that bar code detection be performed during the bar code symbol detection mode, and that bar code decoding be performed during bar code symbol reading mode.
There is no dispute that the limitation claims two primary functions: "processing" and "automatically producing." The function of "processing" in turn serves "to detect and decode" a scanned bar code symbol, and the claim language plainly teaches that processing occurs "during said bar code symbol detection mode and said bar code symbol reading mode."'870 Patent col. 32 ll. 41-42. It does not, however, expressly teach that bar code detection be performed during the bar code symbol detection mode, and bar code decoding be performed during the bar code symbol reading mode. Symbol's only support for this limitation, apart from its own flawed reading of the claim limitation, is its citation to unpersuasive language in the specification describing the operation of the preferred embodiment. Because a court may not infer claim limitations from a preferred embodiment, Tex. Instruments, 805 F.2d at 1563, the Court declines to adopt a construction in which decoding must occur in a mode separate from detection.
The Court construes the claimed function as follows: "processing scan data during the bar code symbol detection mode and the bar code symbol reading mode so as to detect and decode said scanned bar code symbol, and automatically producing symbol character data representative of said detected and decoded bar code symbol."
b. Corresponding Structure
Metrologic contends that the corresponding structure is a programmable microprocessor *631 or a hard-wired circuit and their structural equivalents. Symbol interprets the corresponding structure as a programmed microprocessor and structural equivalents. The specification teaches a programmable microprocessor implementing a number of modules, such as a symbol decoding module, and expressly contemplates that any of these modules "may be realized using separate discrete components as will be readily apparent to those with ordinary skill in the art."'870 Patent col. 10 ll. 1-10. Symbol does not suggest that a person skilled in the art would not understand that a "separate discrete component[]" could be a hard-wired circuit. Therefore, the Court adopts Metrologic's interpretation of the corresponding structure.
Accordingly, the Court construes the scan data processing means limitation of claim 10 as follows: "a programmable microprocessor or a hard-wired circuit, and their structural equivalents, for processing scan data during the bar code symbol detection mode and the bar code symbol reading mode so as to detect and decode said scanned bar code symbol, and for automatically producing symbol character data representative of said detected and decoded bar code symbol."
5. Claim 10 Control Means
"control means for controlling the operation of said bar code symbol reading system."
The control means element of claim 10 employs the term "means" and does not recite structure. Accordingly, the Court concludes that this element is a means-plus-function element, to be construed accordingly.
a. Function
The parties do not dispute the claimed function. Adhering to the plain language of the claim, the Court finds that the control means limitation of claim 10 claims the function of "controlling the operation of said bar code symbol reading system."
b. Corresponding Structure
Metrologic contends that the system controller 28 is the corresponding structure, and that it may be implemented in a programmable microprocessor or a separate hard-wired circuit. Symbol does not disagree with Metrologic on this point, but contends that the corresponding structure must also include the algorithm disclosed in the patent for controlling the system components.
As discussed in connection with the control means limitation of claim 44 of the '971 patent, the Court rejects Metrologic's argument that the "high level flow chart" of Figures 7A and 7B is not an algorithm. There is no practical distinction between an "algorithm," as the Federal Circuit has defined that term, see In re Iwahashi, 888 F.2d at 1374, and a "flow chart." See Itron, Inc., 169 F.Supp.2d at 1092. The Federal Circuit's instruction is clear: a district court errs when it construes the corresponding structure of a means-plus-function claim as a general purpose microprocessor without including the disclosed algorithm. Harris Corp., 417 F.3d at 1253; WMS Gaming, 184 F.3d at 1349. Therefore, the corresponding structure must include the algorithm disclosed in Figures 7A and 7B.
The Court finds that the control means of claim 10 shall be construed as follows: "a hardwired circuit or a microprocessor programmed to carry out an algorithm which controls the operation of said bar code symbol reading system." The operation of the bar code symbol reading system shall be defined with reference to the Court's constructions for the various disputed limitations of claim 10, as discussed above.
*632 IV. Conclusion
The Court renders the foregoing findings of law in anticipation of a jury trial on the question of infringement, scheduled to commence on November 28, 2006.
NOTES
[1] A continuation application is a second application for the same invention claimed in an earlier application (called the "parent" application) filed by the same inventor and containing the same disclosure as the parent application. If the continuation is filed before the parent application becomes abandoned or patented and makes a specific reference to the parent, the continuation is entitled to the benefit of the date the parent was filed. See Manual of Patent Examining Procedure § 201.07 (8th ed.2005); see also Applied Materials, Inc. v. Advanced Semiconductor Materials Am., Inc., 98 F.3d 1563, 1579 (Fed.Cir. 1996) ("Although there may be some variation in the scope of the claimed subject matter, a continuation application is based solely on the disclosure of a parent application."); Renishaw P.L.C. v. Marposs Societa' PerAzioni, 974 F.Supp. 1056, 1069 (E.D.Mich. 1997) ("Generally, a continuation application contains the exact same disclosure, specification, and figures of the original patent. The only thing that changes is the claims.").
[2] A continuation-in-part application contains a substantial portion of the disclosure as contained in the parent application and is filed before the parent becomes abandoned or patented; however, a continuation-in-part application also includes new subject matter not disclosed in the parent application. The continuation-in-part application is entitled to the benefit of the parent application's filing date to the extent that they contain common subject matter. See Manual of Patent Examining Procedure § 201.08 (8th ed.2005); see also Augustine Med., Inc. v. Gaymar Indus., Inc., 181 F.3d 1291, 1302 (Fed.Cir.1999) ("A [continuation-in-part application] contains subject matter from a prior application and may also contain additional matter not disclosed in the prior application. . . . Subject matter that arises for the first time in the [continuation-in-part] application does not receive the benefit of the filing date of the parent application.").
[3] Claims may be independent, dependent, or multiple dependent. An independent claim stands on its own and does not rely on any other claims to define its scope. A dependent claim refers back to an earlier claim and incorporates by reference any limitations (that its, express "boundaries" to the invention) described in that earlier claim. See Wahpeton Canvas Co. v. Frontier, Inc., 870 F.2d 1546, 1553 (Fed.Cir.1989). To avoid redundancy, the dependent claim must add further limitations over the earlier-referenced claim. Curtiss-Wright Flow Control Corp. v. Velan, Inc., 438 F.3d 1374, 1380 (Fed.Cir. 2006). Multiple dependent claims refer back in the alternative to two or more previous claims and include all limitations described in those claims. Manual of Patent Examining Procedure § 608.01(n) (8th ed.2005). See generally Jeneric/Pentron, Inc. v. Dillon Co., No. 3:98-CV-818, 1999 WL 66537, at *9 (D.Conn. 1999) (discussing the difference between dependent and independent claims), aff'd, 205 F.3d 1377 (Fed.Cir.2000).
[4] As defined by 35 U.S.C. § 112, the specification of a patent is technically the written description of the disclosed invention plus the claims. 35 U.S.C. § 112 para. 2. However, as used widely by courts and practitioners, the term "specification" herein refers only to the written description of the invention, excluding the claims.
[5] The doctrine of prosecution history estoppel "precludes a patent owner in an infringement suit from obtaining a construction of a claim that would in effect resurrect subject matter surrendered during the course of proceedings in the Patent and Trademark Office." 5A-18 Chisum, supra, § 18.05; see also Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 234 F.3d 558, 564-65 (Fed.Cir.2000) (en banc) ("The logic of prosecution history estoppel is that the patentee, during prosecution, has created a record that fairly notifies the public that the patentee has surrendered the right to claim particular matter as within the reach of the patent."), vacated & remanded on other grounds, 535 U.S. 722, 122 S.Ct. 1831, 152 L.Ed.2d 944 (2002), on remand, 344 F.3d 1359 (Fed.Cir.2003) (en banc), cert. denied, 541 U.S. 988, 124 S.Ct. 2018, 158 L.Ed.2d 492 (2004); Pharmacia & Upjohn Co. v. Mylan Pharms., Inc., 170 F.3d 1373, 1376 (Fed. Cir.1999) ("Prosecution history estoppel precludes a patentee from obtaining under the doctrine of equivalents coverage of subject matter that has been relinquished during the prosecution of its patent application."). The actions by the patentee that may give rise to prosecution history estoppel include claim amendments and arguments made before the Patent Office. Festo, 234 F.3d at 564.
[6] The doctrine of equivalents "allows a patent owner to hold as an infringement a product or process that does not [fall within] the literal terms of a patent's claim but performs substantially the same function in substantially the same way to obtain the same result as the claimed subject matter." 5A-18 Chisum, supra, § 18.04 (footnote omitted). The doctrine is a response to the difficulties in capturing an invention with words. For a court only to conduct literal infringement analysis and confine an invention strictly to its written application may, in some instances, be unfair to the inventor. The Supreme Court observed in Festo that "the nature of language makes it impossible to capture the essence of a thing in a patent application. . . . [It] may not capture every nuance of the invention or describe with complete precision the range of its novelty." Festo, 535 U.S. at 731, 122 S.Ct. 1831.
[7] As will be discussed below, all three patents-in-suit involve a similar dispute with regard to whether a preamplifier is needed in the laser light detecting means. Since all three patents-in-suit originated from the same parent application and share similar disclosures, particularly with respect to the laser light detecting means, the Court will accord a consistent construction of the laser light detecting means for all three patents-in-suit. The parties agree on this point. (See Metrologic's Answers to Supplemental Questions 5; Markman Hr'g Tr. 95:18-96:6.)
[8] That the patent discloses several embodiments in which the activation control signal generated by the bar code presence detection means 5 is used to turn on the decode microprocessor does not, without more, imply that separate bar code presence detection means and symbol decoding means are a sine qua non.
[9] The Federal Circuit in Festo used the doctrine of estoppel by argument to illustrate the circumstances under which the doctrine of prosecution history estoppel would apply. Festo, 234 F.3d at 568 ("Arguments made voluntarily during prosecution may give rise to prosecution history estoppel if they evidence a surrender of subject matter."). Thus, this Court regards the doctrine of estoppel by argument as merely a subset of the doctrine of prosecution history estoppel.
[10] For instance, the expression "the sun shines over the land" illustrates how the term "over" can be used to indicate an action that is downwardly-directed. See Webster's Third New International Dictionary 1605 (1993) (defining "over" to mean "4a(1): upon or down upon so as to rest, cover, or conceal from view"; "4a(2): upon or down upon so as to change or otherwise influence in a pervasive manner"); see also Webster's Ninth New Collegiate Dictionary 839 (1991) (defining "over" as "4a used as a function word to indicate position upon or movement down upon ").
[11] Webster's defines "border" as "1 a: an outer part or edge: the part that parallels the boundary or outline of something: margin." Webster's Third New International Dictionary 255 (1993). It defines "envelope" as "1: something that envelops." Id. 759. Thus, the reference in claim 2 to a bar code symbol's "envelope borders" would appear to indicate the margins that envelop a bar code symbol. Neither individually nor combined do the words "border" and "envelope," in common parlance, connote undefined "attributes," such as length, of the bar code symbol itself. (Cf. Symbol's Rebuttal Br. 20-21.)
[12] Symbol defines "decoding" as the retrieval of encoded information from scan data to produce character data. (See Symbol's Br. 3.)
[13] The Court disagrees with Symbol's contention that Figure 13 represents a separate embodiment of the claimed invention. Under the heading "Brief Description of the Drawings," the '971 patent describes Figure 13 as "a state diagram illustrating the various states that the automatic bar code symbol reading devices of the illustrative embodiments may undergo during the course of their operation." '971 Patent col. 5 l. 67-col. 6 l. 2 (emphasis added). It is therefore apparent that the state diagram of Figure 13 applies to both of the preferred embodiments disclosed in the specification, and is not itself a preferred embodiment.
[14] In addition, claim 44 uses the term "read" in the preamble, while using the term "decode" in other elements of claim 44. See '971 Patent col. 42 ll. 28, 54-55, 63. "A claim construction that gives meaning to all the terms of the claim is preferred over one that does not do so." Merck & Co. v. Teva Pharms. USA, Inc., 395 F.3d 1364, 1372 (Fed.Cir. 2005); see also Power Mosfet Techs., L.L.C. v. Siemens AG, 378 F.3d 1396, 1410 (Fed.Cir. 2004) (stating that an interpretation that renders claim terms superfluous is generally disfavored). Symbol's narrow definition of "read" to mean "decoded" effectively would render the term "read" superfluous.
|
588 F.2d 1355
Figv.Doggett*#
No. 78-1796
United States Court of Appeals, Fifth Circuit
1/16/79
1
S.D.Miss.
AFFIRMED
*
Summary Calendar case; Rule 18, 5 Cir.; see Isbell Enterprises, Inc. v. Citizens Casualty Co. of New York et al., 5 Cir., 1970, 431 F.2d 409
# Local Rule 21 case; see NLRB v. Amalgamated Clothing Workers of America, 5 Cir., 1970, 430 F.2d 966.
|
NO. 07-03-0037-CR
IN THE COURT OF APPEALS
FOR THE SEVENTH DISTRICT OF TEXAS
AT AMARILLO
PANEL A
MARCH 23, 2004
______________________________
HENRY PETE, JR., APPELLANT
V.
THE STATE OF TEXAS, APPELLEE
_________________________________
FROM THE CRIMINAL DISTRICT COURT OF JEFFERSON COUNTY;
NO. 85631; HONORABLE LARRY GIST, JUDGE
_______________________________
Before JOHNSON, C.J., and REAVIS and CAMPBELL, JJ.
A jury found appellant Henry Pete, Jr. guilty of possession of a controlled substance
following his plea of not guilty to that charge. Upon appellant’s true plea to the
enhancement paragraph included in the indictment, the trial court found him to be a repeat
felony offender and assessed as punishment ten years confinement. Asserting one issue,
appellant claims the evidence is legally and factually insufficient to support the conviction.
We affirm.
Shawna Lawrence had known appellant about two months when he picked her up
from school on September 13, 2001. He then picked up an individual, whom Shawna did
not know, named Clarence. After riding around town for a while, Clarence asked appellant
to “take [him] over here so [he] could handle something.” When they arrived at an
apartment complex, Clarence and appellant got out of the car and approached a number
of people congregated on the porch of one of the apartments. Although appellant and
Clarence remained outside on the porch, one of the other individuals “was going in and out
of the apartment.” After approximately ten minutes, Clarence and appellant returned to the
car. Clarence opened the back door, placed a white plastic grocery sack in the arm rest
between the two back seats, flipped the arm rest up, and got into the front passenger seat
next to Shawna. Though she did not look inside it, and neither Clarence nor appellant
volunteered the contents, Shawna believed, based upon its appearance and where
Clarence placed it in the car, that the sack contained drugs of some kind.
After the trio drove around town a little while longer, Clarence asked appellant to
make another stop. Appellant complied with the request, stopping this time at a house
where two individuals unknown to Shawna were standing. Clarence retrieved the grocery
sack from the back seat, and he, appellant, and the other two individuals gathered at the
back of appellant’s car. Shawna rolled down the window and asked appellant if she could
use the restroom. Appellant secured permission from one of the individuals for Shawna
to use the restroom in the house, and she went inside. Upon returning to the car, Shawna
observed that one of the individuals standing with Clarence and appellant was smoking a
2
cigarette that had the “one of a kind smell” of P.C.P. She also noticed the grocery sack
was sitting on top of the car trunk. It then occurred to Shawna that “there had to be some
type of form of exchanging drugs” because “they do what is called testing it which means
that if you have someone that’s selling it to you and 9 times out of 10 if they smoke it,
they’re going to let you test one to see if you want to buy one.” Shawna got back into the
car, waited a few minutes, then rolled the window down and asked appellant to take her
home. Clarence and appellant got back in the car, and Clarence began driving in the
direction of Shawna’s home.
Trish Molfino, a Jefferson County Deputy Sheriff, was on patrol on the night of
September 13, 2001, when she received a radio dispatch regarding a maroon four-door
Lincoln occupied by two black males. According to James Culbertson, the individual who
called police about the Lincoln, the two black males in the car had just sold drugs to his
son. Molfino, who was familiar with the car and its driver, located the Lincoln in the area
identified by Culbertson and initiated a traffic stop. Molfino explained to appellant,
Shawna, and Clarence the reason for the stop and asked appellant if he would consent to
have his car searched. When appellant agreed, Molfino asked the three to step out of the
car, and she handcuffed each of them for officer safety. Molfino then retrieved the drug
dog from her patrol car and had the dog search the interior of the car. According to
Molfino, the dog alerted on the passenger and driver sides of the front and back seats. In
particular, the dog “kept hitting” on the armrest in the backseat. When she pulled the
armrest down, she discovered a white plastic grocery sack. Inside the sack, Molfino
3
discovered a vanilla bottle containing some type of liquid and ten small clear vials. Molfino
detected a very strong odor “kind of like formaldehyde” emitting from the bottles. Based
upon her experience conducting drug interdiction, she immediately believed the liquid
inside the bottles was P.C.P. Molfino further concluded, from the sheer number of
individual vials she recovered from the car, that they were being held for “distribution
purposes.” Later, upon testing the liquid, chemists at the Jefferson County Regional Crime
Lab confirmed it contained phencyclidine, or P.C.P., and had a combined weight of 4.1
grams. After placing appellant, Clarence, and Shawna1 under arrest, Molfino and a back-
up officer, who arrived shortly after Molfino searched the car, transported them to the
police station for booking. At the station, officers discovered $396.16 in appellant’s
possession.
By his sole issue, appellant maintains the evidence is legally and factually
insufficient to support the conviction. Specifically, he asserts “there was absolutely no
evidence that [he] had actual care, custody, control, or management of or was aware of
the existence of the contraband.” We disagree. In conducting a legal sufficiency review,
we must determine 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, 318, 99 S.Ct. 2781, 2789,
1
Shawna was arrested for outstanding warrants, not for the drug offense. Rather,
Clarence and appellant were the only individuals charged with possessing the controlled
substances located in the car.
4
61 L.Ed.2d 560, 573 ( 1979). The standard is the same for both direct and circumstantial
evidence cases. King v. State, 895 S.W.2d 701, 703 (Tex.Cr.App. 1995). In our review,
we do not resolve any conflict of fact, weigh any evidence, or evaluate the credibility of the
witnesses, as this was the function of the trier of fact. See Adelman v. State, 828 S.W.2d
418, 421 (Tex.Cr.App. 1992). Rather, our duty is to determine whether both the explicit
and implicit findings of the trier of fact are rational by viewing all the evidence admitted at
trial in the light most favorable to the verdict. Id. at 422. In so doing, any inconsistencies
in the evidence are resolved in favor of the verdict. Matson v. State, 819 S.W.2d 839, 843
(Tex.Cr.App. 1991).
In reviewing a factual sufficiency challenge, we view all of the evidence in a neutral
light, both for and against the verdict, to determine whether it demonstrates that the proof
of guilt is so obviously weak as to undermine confidence in the jury's determination, or the
proof of guilt, although adequate if taken alone, is greatly outweighed by contrary proof.
Johnson v. State, 23 S.W.3d 1, 11 (Tex.Cr.App. 2000). We review the evidence
supporting a disputed fact and compare it to evidence tending to disprove that fact. Id. at
7. In conducting this analysis, we may disagree with the jury's determination, even if
probative evidence supports the verdict, but must avoid substituting our judgment for that
of the fact finder. See Santellan v. State, 939 S.W.2d 155, 164 (Tex.Cr.App. 1997). Thus,
we will set aside a verdict only where the evidence supporting guilt is so obviously weak
or the contrary evidence so overwhelmingly outweighs the supporting evidence as to
render the conviction clearly wrong and manifestly unjust. Ortiz v. State, 93 S.W.3d 79,
5
87 (Tex.Cr.App. 2002), cert. denied, ___ U.S. ___, 123 S.Ct. 1901, 155 L.Ed.2d 824
(2003).
Before applying the sufficiency standards discussed above, we must first discern
the elements of the offense the State was required to prove in this case beyond a
reasonable doubt. To that end, we note that a person commits the offense of possession
of phencyclidine if he intentionally or knowingly possesses the controlled substance. Tex.
Health & Safety Code Ann. § 481.115(a) (Vernon 2003). To support a conviction for
unlawful possession of a controlled substance, the State must prove that the accused: (1)
exercised actual care, custody, control, and management over the contraband; and (2)
knew the substance he possessed was contraband. See Brown v. State, 911 S.W.2d 744,
747 (Tex.Cr.App. 1995). By either direct or circumstantial evidence, the State must
establish, to the requisite level of confidence, that the accused’s connection with the drug
was more than just fortuitous. Id. When the accused is not in exclusive possession or
control of the place where the contraband is found, the State must prove independent facts
and circumstances affirmatively linking him to the contraband. Guiton v. State, 742 S.W.2d
5, 8 (Tex.Cr.App. 1987). An affirmative link generates a reasonable inference that the
accused knew of the contraband’s existence and exercised control over it. See Brown, 911
S.W.2d at 747. Affirmative links may include: (1) the accused's presence when the
contraband was found; (2) whether the contraband was in plain view; (3) the accused's
proximity to and the accessibility of the contraband; (4) whether the accused was under the
influence of narcotics when arrested; (5) whether the accused possessed other contraband
6
when arrested; (6) whether the accused made incriminating statements when arrested; (7)
whether the accused attempted to flee; (8) whether the accused made furtive gestures; (9)
whether there was an odor of the contraband; (10) whether other contraband or drug
paraphernalia was present; (11) whether the accused owned or had the right to possess
the place where the drugs were found; (12) whether the place the drugs were found was
enclosed; (13) the amount of contraband found; (14) whether the accused was the driver
of the automobile in which the contraband was found; and (15) whether the accused
possessed a large amount of cash. See Taylor v. State. 106 S.W.3d 827, 832
(Tex.App.–Dallas 2003, no pet.); see also Trejo v. State, 766 S.W.2d 381, 384
(Tex.App.-Austin 1989, no pet.). It is the logical force of the factors individually or
combined that determines whether the State's evidence links the accused to the
contraband. Trejo, 766 S.W.2d at 385.
The evidence in this case establishes affirmative links that raise reasonable
inferences of appellant’s knowledge and control of the P.C.P. First, appellant was present
when the drugs were found. Second, the drugs were located in close proximity and were
accessible to him. Third, the contraband emitted a strong, very distinctive odor. Fourth,
while appellant did not own the car he was driving, his father testified at trial that, on the
day of the offense, appellant was the only one who used it. Fifth, Molfino located the drugs
in an enclosed area–the armrest between the two back seats of the car. Sixth, the large
quantity of drugs made it unlikely that its presence was accidental. Seventh, appellant was
7
the driver of the car in which the drugs were found. Finally, appellant possessed a large
quantity of cash when he was arrested.
Notwithstanding the affirmative links establishing his possession of the contraband
as a principal actor, appellant maintains that the evidence establishes it was Clarence, not
he, who possessed the P.C.P. To that end, appellant suggests Shawna “never stated that
the contraband belonged to [him].” Neither did appellant touch the plastic sack nor look
inside to examine its contents. Furthermore, the record reveals Clarence pleaded guilty
to, and was convicted of, possession of the controlled substance in this case. However,
the fact that Clarence accepted responsibility for possessing the P.C.P. does not absolve
appellant of his culpability as a party to the offense. Indeed, a person is criminally
responsible for an offense committed by the conduct of another if acting with intent to
promote or assist the commission of the offense, he solicits, encourages, directs, aids or
attempts to aid the other person to commit the offense. Tex. Pen. Code Ann. § 7.02
(Vernon 2003). The evidence is sufficient to convict under the law of parties where the
defendant is physically present at the commission of the offense and encourages the
commission of the offense by words or other agreement. Burdine v. State, 719 S.W.2d
309, 315 (Tex.Cr.App. 1986), cert. denied, 480 U.S. 940, 107 S.Ct. 1590, 94 L.Ed.2d 779
(1987). In making that determination, the court may examine the events before, during,
and after the commission of the offense and rely on actions of the defendant, which show
an understanding and common design to commit the offense. Id. Participation in an
offense may be inferred from the circumstances. See Beardsley v. State, 738 S.W.2d 681,
8
684 (Tex.Cr.App. 1987). Finally, although mere presence at the scene of an offense is not
alone sufficient to support a conviction, it is a circumstance tending to prove guilt that may
be combined with other facts to show appellant was a participant. Id. at 685.
Here, a rational jury could have reasonably deduced that appellant was as
conscious as Shawna of the nature of Clarence’s activities. Cf. Trejo, 766 S.W.2d at 385
(the odor of freshly burnt marijuana, coupled with the presence of seeds and rolling papers
on the front seat must have apprized the accused of the existence of marijuana in the car,
even though none was in plain view). Indeed, the record reveals appellant, on the night
of the offense, came into frequent close contact with the plastic sack containing the
contraband. For instance, Shawna observed appellant standing at the back of the car with
Clarence and the other individuals when the sack was sitting on the trunk. At the same
time, she also noticed that appellant was standing near a person who was smoking a
cigarette that smelled strongly of P.C.P.–an odor that, by all accounts, is unlikely to be
ignored. Appellant’s willingness, then, not only to transport Clarence to the locations where
he first obtained and, later, delivered the P.C.P., but also, to accompany him during those
transactions lends credence to the State’s contention that, at a minimum, appellant acted
as a party to the offense. Thus, assuming arguendo, that the evidence was not sufficient
to establish appellant was a principal actor in the commission of the offense, a rational jury
reasonably could have inferred from the circumstances that his actions, in cooperation with
Clarence’s, showed that he knew of the P.C.P. and that he exercised care, control, and
9
management of it. See Vargas v. State, 883 S.W.3d 256, 263 (Tex.App.–Corpus Christi
1994, pet. ref’d).
Viewing the evidence in the light most favorable to the prosecution, we conclude a
rational trier of fact could have found beyond a reasonable doubt that appellant committed
the offense of possession of a controlled substance on September 13, 2001. We further
conclude that the evidence is not so weak that the jury’s verdict was clearly wrong and
unjust, nor is the verdict so against the overwhelming weight of the evidence as to be
clearly wrong and unjust. In short, the evidence is legally and factually sufficient to support
appellant’s conviction. Appellant’s sole issue is overruled.
Accordingly, the judgment of the trial court is affirmed.
Don H. Reavis
Justice
Do not publish.
10
|
900 F.2d 250Unpublished Disposition
NOTICE: Fourth Circuit I.O.P. 36.6 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 Fourth Circuit.Mary C. DANNER, Plaintiff-Appellant,v.DEFENSE NUCLEAR AGENCY; John T. Parker, Director, DefenseNuclear Agency; J.M. Flynn, Former Chief, JointAtomic Info. Exchange GP; Robert E.Nine, Former TechnicalDirector,Defendants-Appellees.
No. 90-3013.
United States Court of Appeals, Fourth Circuit.
Submitted March 5, 1990.Decided March 14, 1990.
Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Albert V. Bryan, Jr., Chief District Judge. (C/A No. 89-1517-A).
Mary C. Danner, appellant pro se.
Dennis Edward Szybala, Assistant United States Attorney, Alexandria, Va., for appellees.
E.D.Va.
AFFIRMED.
Before ERVIN, Chief Judge, and PHILLIPS and WILKINSON, Circuit Judges.
PER CURIAM:
1
Mary C. Danner appeals from the district court's entry of summary judgment in favor of defendants in Danner's action brought under Title VII, 42 U.S.C. Sec. 2000e-16(c). Danner alleged that defendants discriminated against her on the basis of her race by giving information which resulted in the downgrading of her position, by including incorrect information in her performance evaluations, by falsely accusing her of sending classified material through the mail, and by not promoting her. Review of Danner's arguments on appeal and the materials submitted in support of and in opposition to the summary judgment motion discloses that no material issues of fact were in dispute and that defendants were entitled to judgment as a matter of law on Danner's allegations.
2
Accordingly, the judgment of the district court is affirmed. We dispense with oral argument because the facts and legal contentions are adequately developed in the materials before the Court and argument would not aid the decisional process.
AFFIRMED
|
58 F.Supp.2d 34 (1999)
Harvey KATZOWITZ and Janice Katzowitz, Plaintiffs,
v.
LONG ISLAND RAILROAD, Defendant.
No. CV963996ADS.
United States District Court, E.D. New York.
August 3, 1999.
*35 Goldman & Rio, New York City, by Michael Goldman, of counsel, for plaintiffs Harvey Katzowitz and Janice Katzowitz.
Chesney, Murphy & Moran, Baldwin, NY, by Peter J. Verdirame, of counsel, for defendant Long Island Rail Road.
MEMORANDUM OF DECISION AND ORDER
SPATT, District Judge.
Harvey Katzowitz ("Katzowitz" or the "plaintiff") initiated this lawsuit against the defendant, the Long Island Rail Road ("LIRR"r the "defendant"), after he allegedly fell while exiting a train at the station located in Inwood, New York (the "Inwood Station"), resulting in a fracture of a bone in his leg. Katzowitz, who states that he was "blinded" in an unrelated car accident several years ago, seeks $5 million in damages based on two claims: (1) a New York common law negligence claim; and (2) a violation of the Americans with Disabilities Act ("ADA"), 42 U.S.C. § 12142. His wife, Janice Katzowitz, asserts a New York common law loss of consortium claim.
At issue is the LIRR's motion for partial summary judgment dismissing the ADA claim.
I. BACKGROUND
The following facts are not in dispute, except where indicated otherwise.
Katzowitz alleges that in August 1993, he was in an unrelated car accident, which left him visually impaired. He settled the personal injury case stemming from the accident for the sum of $650,000.00. At his deposition, Katzowitz described his condition as follows: "[the left eye] is not usable ... [and the] right eye has numerous areas in it that do not register visually, thereby, making it a little harder to see. It's as if there were holes in the vision." Based on his visual impairment, Katzowitz applied for Social Security disability benefits in October 1995, and began receiving benefits in November 1996.
Katzowitz has never sought any type of rehabilitation program for his visual impairment. He testified that he does not utilize a cane or seeing eye dog, and is able to walk around in public without assistance albeit with "extreme caution because I have a problem with distance." Despite this impairment, prior to his fall in this case, he was able to regularly ride a bicycle, go running, and perform household chores involving climbing ladders and electrical work.
In August 1995, Katzowitz was employed as a stockbroker in training in Manhattan. He worked five days a week, from approximately 8:00 a.m. to 8:00 p.m. He generally got to work by walking the 10 blocks from his home to the Inwood Station, and taking the LIRR train to either Brooklyn or Manhattan. To return home, he did the same in reverse. On August 3, 1995, the date of the incident, Katzowitz was a passenger on a LIRR train along his regular route. He boarded the 9:09 p.m. train headed for the Inwood Station. The plaintiff admits that when he boarded the train, he did not tell anyone about his visual impairment. Katzowitz further admits that the LIRR was not on notice that he suffered from any form of visual impairment.
According to the plaintiff, while he was getting off at the train at Inwood Station, his right foot slipped into a gap alleged to be 9½ inches wide between the train and station platform. He cut his hand during the accident. A conductor helped him get up after the fall. The plaintiff walked home a few minutes later, "in great *36 pain and difficulty," but without any assistance.
That night, he treated his injury with ice packs and over-the-counter pain relievers. He did not seek medical treatment that evening. The following day, the plaintiff went to work as usual, although he traveled "very slowly."
Katzowitz did not seek medical treatment until two weeks later, on August 16, 1995, at South Nassau Communities Hospital. At that time, the plaintiff was diagnosed with a broken ankle, and was put in a splint, or temporary cast. Prior to this treatment, the plaintiff had not missed a single day of work due to the injury.
The plaintiff testified as follows regarding the lasting injuries he sustained as a result of his fall: "on rainy days my foot hurts me .... [and] my biggest fear since this accident occurs when there's ice and snow on the ground, because I feel that if my foot should bend, it will break because of the previous break and I would be further incapacitated."
II. DISCUSSION
(A) Summary Judgment: The Standard
Summary judgment is appropriate if the record "show[s] that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Wilkinson v. Russell, 182 F.3d 89, 96 (2d Cir.1999); Turner v. General Motors Acceptance Corp., 180 F.3d 451, 453 (2d Cir.1999); In re Blackwood Associates, L.P., 153 F.3d 61, 67 (2d Cir.1998)(citing 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); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). In deciding a summary judgment motion, the district court must resolve all ambiguities and draw all reasonable inferences in the light most favorable to the opposing party. See Amato v. City of Saratoga Springs, 170 F.3d 311, 322 (2d Cir.1999) (citing Skubel v. Fuoroli, 113 F.3d 330, 334 (2d Cir. 1997); Castle Rock Entertainment, Inc. v. Carol Pub. Group, Inc., 150 F.3d 132, 137 (2d Cir.1998) (citing Garza v. Marine Transp. Lines, Inc., 861 F.2d 23, 26 (2d Cir.1988)).
(B) The ADA
In 1992, Congress enacted the ADA to address the problem of discrimination against persons with disabilities. The ADA prohibits discrimination in employment (Title I), in public services and public transportation (Title II), in public accommodations (Title III), and in telecommunications (Title IV). Title II, which is the subject of this dispute, provides in Section 12132:
no qualified individual with a disability shall, by reason of such disability, be excluded from participation in or be denied the benefits of the services, programs or activities of a public entity, or be subjected to discrimination by any such entity.
42 U.S.C. § 12132.
Under section 201 of the ADA, "public entity" means:
(A) any State or local government;
(B) any department, agency, special purpose district, or other instrumentality of the State or States or local government; and
(C) the National Railroad Passenger Corporation, and any commuter authority (as defined in section 502(8) of title 45).
42 U.S.C. § 12131 (1994).
Under the above criteria, the LIRR is subject to Title II of the ADA because it is a "commuter authority," as that term is defined in 45 U.S.C. § 502(8). See 45 U.S.C. § 502(8) (defining commuter authority as a "short haul rail passenger service operated in metropolitan and suburban areas....")
*37 1. Discrimination
To state a claim under the ADA, "a plaintiff is expected to show that: (1) he or she is a `qualified individual with a disability'; (2) he or she is being excluded from participation in, or being denied the benefits of some service, program, or activity by reason of a disability; and (3) the entity which provides the service, program or activity is a public entity." Burgess v. Goord, No. 98 Civ.2077, 1999 WL 33458, *6 (S.D.N.Y. Jan. 26, 1999) (citation omitted). "Public entities are prohibited under the ADA from affording to qualified individuals with disabilities opportunities to participate in or benefit from benefits or services that are not equal to the opportunities afforded to non-disabled individuals." Id. (citing 28 C.F.R. § 35.130[b]).
Here, the LIRR concedes that the third prong of an ADA claim is present, namely, that it is a public entity which provides transportation. Although the LIRR does not challenge the first prong that the plaintiff is a "qualified individual with a disability" the Court, sua sponte, questions whether this is so.
The ADA defines "disability" as: (A) a physical or mental impairment that substantially limits one or more of the major life activities of such individual; (B) a record of such an impairment; or (C) being regarded as having such impairment. 42 U.S.C. § 12102(2); see also Bragdon v. Abbott, 524 U.S. 624, 118 S.Ct. 2196, 141 L.Ed.2d 540 (1998). Indisputably, blindness is a physical impairment within the meaning of the Act, see 29 CFR § 1630.2(h)(1) (1998) (defining "physical impairment" as "[a]ny physiological disorder, or condition ... affecting one or more of the following body systems: ... special sense organs"), and seeing is one of Katzowitz's major life activities, see § 1630.2(i) (listing seeing as an example of a major life activity). "The question is whether his [Katzowitz's alleged impairment of] vision alone `substantially limits' [his] seeing." Albertsons, Inc. v. Kirkingburg, ___ U.S. ___, 119 S.Ct. 2162, 2167-2168, ___ L.Ed.2d ___ (1999). In this case, the evidence seemingly establishes that there is no such substantial limitation on Katzowitz's vision, given that he: (1) has never sought any type of rehabilitation program for his alleged visual impairment; (2) does not utilize a cane; (3) does not use a seeing eye dog; (4) is able to walk around in public without assistance; and (5) was able to regularly ride a bicycle, go running, and perform household chores involving climbing ladders and electrical work.
Regardless, the plaintiff's claim fails because, as the LIRR effectively argues, there is no genuine issue of material fact as to the second prong of an ADA claim, specifically, that he was denied the benefits of public transportation service by reason of a disability.
2. Key Stations
Failure of commuter authorities to make "key stations" "readily accessible to individuals with disabilities, including individuals who use wheelchairs," constitutes discrimination under Section 12132. See 42 U.S.C. § 12147(b)(1). Accordingly, Department of Transportation ADA regulations require that LIRR's Key Stations be made accessible to individuals with disabilities. 49 C.F.R. § 37.47(a), (c)(1). With regard to train stations constructed prior to enactment of the ADA, the ADA requires only that designated key stations be made accessible to individuals with disabilities, and not all train stations. See 42 U.S.C. § 12147(b).
According to the LIRR's Rule 56.1 Statement, "the Inwood Station is not a key station as that term is defined in the regulations for the Americans with Disabilities Act." Katzowitz does not deny this in his Rule 56.1 Counter-Statement. Instead, he states that "As the defendant's statement lacks specificity, plaintiffs do not have enough information to evaluate the accuracy of defendant's statement." He then offers nothing to indicate that the contrary is true, and does not argue otherwise *38 in his motion papers. In the Court's view, the plaintiffs' failure to dispute the LIRR's clear assertion that the Inwood Station is not a designated "key station" amounts to a tacit concession. At the very least, the "non-movant's `speculation, conclusory allegations and mere denials' are insufficient" to create a genuine issue of material fact with respect to the "key station" issue. See Sports Traveler, Inc. v. Advance Magazine Publishers, Inc., 25 F.Supp.2d 154, 160-61 (S.D.N.Y.1998) (quoting Greenblatt v. Prescription Plan Services Corp., 783 F.Supp. 814, 819-20 (S.D.N.Y.1992)).
3. Secretary of Transportation's Regulations Covering Commuter Railroad Platforms
The Secretary of Transportation has promulgated regulations governing the requirements for commuter railroad platforms, set forth in 49 C.F.R. § 38.93. The regulations state, in pertinent part, that
§ 38.93 Doorways.
(a) Clear width.
(1) At least one door on each side of the car from which passengers board opening onto station platforms and at least one adjacent doorway into the passenger coach compartment, if provided, shall have a minimum clear opening of 32 inches.
(2) If doorways connecting adjoining cars in a multi-car train are provided, and if such doorway is connected by an aisle with a minimum clear width of 30 inches to one or more spaces where wheelchair or mobility aid users can be accommodated, then such doorway shall have, to the maximum extent practicable in accordance with the regulations issued under the Federal Railroad Safety Act of 1970 (49 C.F.R. parts 229 and 231), a clear opening of 30 inches.
(b) Passageways. A route at least 32 inches wide shall be provided from doors required to be accessible by paragraph (a)(1) of this section to seating locations complying with S38.95(d) of this part. In cars where such doorways require passage through a vestibule, such vestibule shall have a minimum width of 42 inches. (See Fig. 3.)
(c) Signals. If doors to the platform close automatically or from a remote location, auditory and visual warning signals shall be provided to alert passengers or closing doors.
(d) Coordination with boarding platform
(1) Requirements. Cars operating in stations with high platforms, or mini-high platforms, shall be coordinated with the boarding platform design such that the horizontal gap between a car at rest and the platform shall be no greater than 3 inches and the height of the car floor shall be within plus or minus 5/8 inch of the platform height. Vertical alignment may be accomplished by car air suspension, platform lifts or other devices, or any combination.
(2) Exception. New vehicles operating in existing stations may have a floor height within plus or minus 1½ inches of the platform height. At key stations, the horizontal gap between at least one accessible door of each such vehicle and the platform shall be no greater than 3 inches.
(3) Exception. Where platform setbacks do not allow the horizontal gap or vertical alignment specified in paragraph (d)(1) or (d)(2) of this section, car, platform or portable lifts complying with § 38.95(b) of this part, or car or platform ramps or bridge plates, complying with S38.95(c) of this part, shall be provided.
(4) Exception. Retrofitted vehicles shall be coordinated with the platform in new and key stations such that the horizontal gap shall be no greater than 4 inches and the height of the vehicle floor, under 50% passenger *39 load, shall be within plus or minus 2 inches of the platform height.
49 C.F.R. § 38.93 (emphasis added).
As the LIRR correctly emphasizes, the regulations require a platform "gap" of three inches or less only at key stations, and not at all stations. Thus, the gap regulation did not apply to the Inwood Station, because it is not a key station. The LIRR also notes that even if the regulations were applicable, they would permit an exception where the structural configuration of the platform does not allow such a narrow gap, and would allow for the provision of ramps or bridge plates instead. The LIRR maintains that it was in complete compliance with these requirements, assuming they applied, in that the railroad car in which the plaintiff was a passenger was equipped with a bridge plate which is generally made available for those in need of them. Significantly, the plaintiffs do not dispute that the train involved in this case was so equipped. Rather, the plaintiffs assert that the LIRR should have announced that there was a several-inch gap at the Inwood Station, and the bridge plates were available for disabled individuals in need of it. This Court finds that such an announcement was not required under the ADA.
Although the plaintiff, as a disabled individual, may have had a right to have a bridge plate provided to him upon request, he did not do so. See Adiutori v. Sky Harbor Intern. Airport, 880 F.Supp. 696, 703 (D.Ariz.1995), affirmed, 103 F.3d 137 (9th Cir.1996). "The plaintiff simply has not established that there is anything in the [ADA] that provides that [commuter authorities] must guess what special services, or the extent of those services, a handicapped passenger requires." Adiutori v. Sky Harbor Intern. Airport, 880 F.Supp. at 703. Moreover, the plaintiff concedes that he did not tell anyone about his visual impairment when he boarded the train, and that the LIRR was not on notice that he suffered from any form of visual impairment. There also was nothing about the plaintiff's appearance which would have alerted LIRR observers that he was in need of assistance: Katzowitz does not utilize a cane, is not accompanied by a seeing eye dog, and is able to walk without assistance. He also was a fairly regular user of the Inwood Station. In view of these facts, the "plaintiff's failure to affirmatively communicate that he wanted or needed assistance in connection with [exiting the train] is sufficient to defeat his [ADA] claim." Id.
III. CONCLUSION
Having reviewed the parties' submissions, and for the reasons set forth above, it is hereby
ORDERED, that the motion of the defendant Long Island Rail Road for partial summary judgment dismissing the plaintiffs' Americans With Disabilities Act claim is granted; and it is further
ORDERED, that the attorneys and the parties are directed to be present at a pre-trial settlement conference to be held on September 9, 1999, at 9:00 a.m.; and it is further
ORDERED, that the case is set down for the selection of a jury on the remaining cause of action on September 27, 1999 at 9:00 a.m.
SO ORDERED.
|
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 11-6783
UNITED STATES OF AMERICA,
Plaintiff – Appellee,
v.
CARLOS WOODS,
Defendant – Appellant.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. William D. Quarles, Jr., District
Judge. (1:07-cr-00127-WDQ-1; 1:10-cv-01321-WDQ)
Submitted: September 13, 2011 Decided: September 16, 2011
Before AGEE, DAVIS, and DIAZ, Circuit Judges.
Dismissed by unpublished per curiam opinion.
Carlos Woods, Appellant Pro Se. John Walter Sippel, Jr.,
Assistant United States Attorney, Jason M. Weinstein, OFFICE OF
THE UNITED STATES ATTORNEY, Baltimore, Maryland, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Carlos Woods seeks to appeal the district court’s
order denying his Fed. R. Civ. P. 60(b) motion * for
reconsideration of the district court’s order denying relief on
his 28 U.S.C.A. § 2255 (West Supp. 2011) motion. The order is
not appealable unless a circuit justice or judge issues a
certificate of appealability. 28 U.S.C. § 2253(c)(1)(B) (2006).
A certificate of appealability will not issue absent “a
substantial showing of the denial of a constitutional right.”
28 U.S.C. § 2253(c)(2). When the district court denies relief
on the merits, a prisoner satisfies this standard by
demonstrating that reasonable jurists would find that the
district court’s assessment of the constitutional claims is
debatable or wrong. Slack v. McDaniel, 529 U.S. 473, 484
(2000); see Miller-El v. Cockrell, 537 U.S. 322, 336-38 (2003).
When the district court denies relief on procedural grounds, the
prisoner must demonstrate both that the dispositive procedural
ruling is debatable, and that the motion states a debatable
claim of the denial of a constitutional right. Slack, 529 U.S.
at 484-85. We have independently reviewed the record and
*
Because Woods’ motion sought a remedy for a perceived flaw
in the collateral review process, the motion was not a second or
successive § 2255 motion. See Gonzalez v. Crosby, 545 U.S. 524,
530-32 & n.4 (2005); United States v. Winestock, 340 F.3d 200,
206-08 (4th Cir. 2003).
2
conclude that Woods has not made the requisite showing.
Accordingly, we deny a certificate of appealability and dismiss
the appeal. 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.
DISMISSED
3
|
373 F.Supp. 1102 (1974)
GULF OIL CORPORATION, Plaintiff,
v.
William E. SIMON, Administrator of the Federal Energy Office, Defendant.
Civ. A. No. 74-286.
United States District Court, District of Columbia.
April 8, 1974.
Jesse P. Luton, Jr., and Catherine C. McCulley, Houston, Tex., Francis J. Walsh, Washington, D. C., for plaintiff.
Paul T. Michael, Dept. of Justice, Washington, D. C., for defendant.
Edward Jason Dryer, Washington, D. C., for Independent Refiners Ass'n of America.
*1103 MEMORANDUM OPINION
PARKER, District Judge.
Plaintiff, Gulf Oil Corporation (Gulf), has filed a First Amended Original Complaint for Declaratory Judgment, Injunction, and Equitable Relief (Amended Complaint) alleging that certain regulations promulgated by the defendant, William E. Simon, as administrator of the Federal Energy Office (FEO), pursuant to the Emergency Petroleum Allocation Act of 1973 (Allocation Act),[1] must be set aside on the grounds that they violate the provisions of the National Environmental Policy Act (NEPA).[2] Specifically, it is alleged that the defendant failed to prepare and consider an environmental impact statement in connection with the regulations.
Plaintiff has moved for summary judgment on this issue and defendant has countered with a motion to dismiss, or in the alternative, for summary judgment. For the reasons set forth below the Court denies the plaintiff's motion and grants summary judgment in favor of the defendant.
In its original complaint, filed on February 14, 1974, Gulf contended that regulations issued by the FEO[3] establishing mandatory crude oil allocation among refiners, and pursuant to which Gulf was required to sell crude oil to several of its competitors, were "unfair, inequitable, arbitrary, discriminatory" and therefore invalid.[4] Plaintiff also challenged in the original complaint a ruling of the FEO[5] relating to supplier-purchaser relationships for petroleum products, including motor gasoline, which allegedly resulted in improper interference with a dealer divestment program Gulf had undertaken. The ruling was claimed to be in excess of agency authority.
After full briefing and oral argument by counsel for the parties on plaintiff's motion for a preliminary injunction and cross motions for summary judgment a ruling was announced in open Court on March 14, 1974, denying plaintiff's motions and granting summary judgment for the defendant on the original complaint.[6] At that time plaintiff represented to the Court that it had filed an amended complaint introducing for the first time the NEPA issue. On March 19, 1974 the Court formally entered the Order of Partial Summary judgment denying relief to plaintiff which contained the findings, inter alia, that the challenged regulations were not in excess of agency authority and that Gulf had not exhausted its administrative remedies as to Ruling 1974-3.
In the amended Complaint the thrust of Gulf's claim is that the oil allocation program represents major federal action which will necessarily have a significant effect upon the quality of the human environment "by shifting the refining of crude oil from larger and more complex and efficient refineries having the capability of refining a wide range of petroleum products, such as motor gasoline, jet fuel, petrochemical feedstocks, and other petroleum products, required to meet environmental standards and needs, to smaller, less efficient refineries not capable of refining such petroleum products, and further discourage the importation in the United States of crude oil required by major refiners such as Gulf to refine such petroleum products required to meet and maintain these environmental standards."[7]
*1104 Simply stated the government's defense is that the urgent nature of the oil allocation system, as evidenced by the short time span within which the FEO was required to act, relieves the defendant from NEPA's procedural obligations.
While it is widely acknowledged that the "action forcing" requirements of NEPA (lying at the heart of which is the preparation, circulation and consideration of an impact statement) are generally mandatory in nature and are not easily avoided,[8] the Court is nonetheless unpersuaded by plaintiff's contentions.
Counsel for the parties have not furnished, and this Court has not found any case in which the precise question of NEPA applicability to emergency FEO action is specifically addressed. The case of Cohen v. Price Commission, 337 F.Supp. 1236 (S.D.N.Y.1972), however, offers considerable guidance. In that proceeding, NEPA was invoked to contest the validity of the authorization by the Price Commission, pursuant to the Economic Stabilization Act of 1970, of a fare increase on New York City subways and buses. The matter came before District Judge Weinfeld on plaintiffs' application for a preliminary injunction, and although carefully ruling only that the heavy burden required for the granting of such temporary relief had not been satisfied, the Court's analysis of one crucial criterionlikelihood of success on the meritsis extremely enlightening on the claim Gulf now pursues. Judge Weinfeld significantly acknowledged the urgent and pressing responsibilities fostered upon the Price Commission in its attempt to stabilize the economy:
"There can be no question that if the purposes of the Economic Stabilization Act are to be achieved, the President or his delegated representatives must be free to act with promptness and dispatch." 337 F.Supp. at 1240.
After then noting that the requirements of NEPA called for more deliberate and time consuming action the Cohen Court expressed doubt that Congress could have intended the Price Commission to be bound and potentially stymied by the mandates of NEPA. It was cautioned that such compliance might "render impossible the achievement of that program." 337 F.Supp. at 1242.
The Cohen case is sufficiently analogous to the matter sub judice and this Court adopts its reasoning as the basis for a final determination. Section 4(a) of the Allocation Act obligated the FEO to promulgate mandatory oil allocation *1105 regulations within 15 days after the emergency legislation's enactment. Fifteen days thereafter the regulations became effective. Establishment of such a deadline makes it abundantly clear that Congress had intended the FEO administrator to proceed expeditiously. Compliance with NEPA, on the other hand, would disarm the FEO of its ability and authority to take necessary action with the required degree of speed.[9] In light of the Congressional demand that immediate measures be adopted the Court feels that the inherent tension between NEPA and the Allocation Act, at least as it involves the specific regulations here in issue, must be resolved on balance with a finding that the FEO was not required to draft an environmental impact statement. Gulf has sought much comfort in certain guidelines issued by the Council on Environmental Quality (CEQ)[10] which require that when an agency finds it necessary to take action "without observing the provisions of these guidelines concerning minimum periods for agency review and advance availability of environmental statements, the Federal agency proposing to take the action should consult with the Council about alternative arrangements." 38 Fed.Reg. 20566. This provision, however, which pertains to the circulation of drafts, is apparently applicable to emergency action needed after an impact statement has been compiled. It does not affect time and effort expended in its actual preparation. In light of the exhaustive analytical content required of impact statements,[11] it would be illogical, indeed virtually impossible, to demand a statement in this instance.
The Court will enter an Order denying plaintiff's motion for summary judgment, granting the government's motion for summary judgment and dismissing the amended complaint.
NOTES
[1] Pub.L. 93-159.
[2] 42 U.S.C.A. § 4321 et seq.
[3] 39 Fed.Reg. 1924 et seq. (Jan. 14, 1974).
[4] Complaint ¶ 3.
[5] Ruling 1974-3.
[6] The Independent Refiners Association of America was granted leave to appear amicus curiae and filed a brief urging the Court to uphold the FEO regulations.
[7] Amended Complaint ¶ 1.
The Court feels compelled to touch upon an aspect of this matter which has not been raised by either litigant, namely Gulf's standing to raise the NEPA challenge. Section 5(a) of the Allocation Act incorporates the jurisdictional and judicial review provisions of the Economic Stabilization Act of 1970, as amended. Pub.L. 92-210. The latter Act, in § 210, provides that "[a]ny person suffering legal wrong because of any act or practice arising out of this title, or any order or regulation issued pursuant thereto, may bring an action in a district court of the United States . . . ." The following section, entitled Judicial Review, provides in subsection (d) (1) that a district court may set aside regulations which are found to be "in excess of the agency's authority, . . . arbitrary or capricious, or . . . otherwise unlawful under the criteria set forth in § 706(2) of Title 5, United States Code . . . ." It was upon this statutory jurisdictional grant that Gulf sought relief in its original complaint and the Court reviewed the claim in light of the criteria described therein. The Court had specifically ruled that the regulations were not in excess of agency authority. There could be no question that Gulf, as a directly affected producer and refiner, had standing to challenge the rational basis of the promulgations. As to the NEPA issue, however, the Court questions whether or not the traditional Administrative Procedure Act standing requirements must be independently established. See, e. g., Sierra Club v. Morton, 405 U.S. 727, 92 S.Ct. 1361, 31 L.Ed.2d 636 (1972); United States v. Students Challenging Regulatory Agency Procedure (SCRAP), 412 U.S. 669, 93 S.Ct. 2405, 37 L.Ed.2d 254 (1973). Assuming an affirmative answer, and on this no judgment is passed, it is doubtful that Gulf has plead sufficient facts to satisfy the tests established in the above cited Supreme Court rulings. However, in view of the important substantive issues raised by the amended complaint and the fact that the standing issue had not been briefed, the Court has merely noted this procedural question and has ruled on the merits.
[8] See Calvert Cliff's Coordinating Committee v. United States Atomic Energy Commission, 146 U.S.App.D.C. 33, 449 F.2d 1109 (1971).
[9] For example, NEPA guidelines, established by the Council on Environmental Quality, 38 Fed.Reg. 20556, provide for time lags of 90 and 30 days between the preparation and circulation of draft and final impact statements and the institution of administrative action subject thereto. This, of course, does not reflect the amount of time needed to actually prepare the drafts.
[10] The CEQ was established under NEPA to implement the Act's goals. Pursuant to authority found in 35 Fed.Reg. 4247 the CEQ has issued guidelines for the preparation of impact statements.
[11] See Calvert Cliffs' Coordinating Committee v. United States Atomic Energy Commission, 146 U.S.App.D.C. 33, 449 F.2d 1109 (1971).
|
682 F.2d 1149
Fed. Sec. L. Rep. P 98,777, 11 Fed. R. Evid. Serv. 781CHEMETRON CORPORATION, Plaintiff-Appellee Cross-Appellant,v.BUSINESS FUNDS, INC., et al., Defendants-Appellants Cross-Appellees.
No. 80-1658.
United States Court of Appeals,Fifth Circuit.
Aug. 16, 1982.
Sherman & Sterling, George J. Wade, New York City, Alan R. Bromberg, Dallas, Tex., for Business Funds, Inc.
Vinson & Elkins, Harry M. Reasoner, Morris, Campbell & Seikel, Kenneth M. Morris, Houston, Tex., Charles A. Wright, Austin, Tex., for David C. Bintliff.
Wood, Campbell, Moody & Gibbs, Gary C. Miller, Debora D. Ratliff, Robin C. Gibbs, Houston, Tex., for Estate of John F. Austin, Jr.
Reynolds, Allen & Cook, Joe H. Reynolds, Lloyd R. Cunningham, Jr., P. J. Murphey Harmon, Houston, Tex., Buchanan, Ingersoll, Rodewald, Kyle & Buerger, Carl E. Rothenberger, Jr., Vincent C. Deluzio, James G. Park, Pittsburgh, Pa., for Chemetron Corp.
Appeals from the United States District Court for the Southern District of Texas.
Before GEE, REAVLEY, and WILLIAMS, Circuit Judges.
GEE, Circuit Judge:
I. INTRODUCTION
1
We review the latest act in the long-running drama of the Western Equities, Inc. ("Westec") stock scandal. The characters include defendants-appellants, cross-appellees Business Funds, Inc. ("BFI"), a small business investment company, John Austin ("Austin"), chairman of BFI, and David Bintliff ("Bintliff"), a businessman and investor. The final character is plaintiff-appellee, cross-appellant Chemetron Corporation ("Chemetron"). The defendants appeal from a judgment of $18,413,160 in actual and exemplary damages for violations of the federal and Texas securities laws entered against them based on jury answers to special interrogatories.1 Despite an able job in a very complex case by the district court, we discern several errors requiring reversal and remand.II. FACTS AND DISPOSITION BELOW
2
This court is quite familiar with the Westec stock scandal.2 We sketch only those facts necessary for the disposition of this case.
3
BFI, a Maryland corporation, was a small business investment company formed prior to 1961 with Houston, Texas, as its principal place of business.3 BFI loaned venture capital to companies in exchange for stock warrants, often providing management expertise and placing representatives on the boards of directors of these companies as well. In order to encourage their growth and enhance its investment, BFI also helped arrange mergers and acquisitions for these companies.
4
In late 1961, BFI hired James Williams ("Williams") as a vice president to supervise some of its investments. The chairman of BFI at that time was defendant Austin. While he was not a full-time chairman, spending substantial time each week with his principal business, a mortgage-banking firm, he did meet with Williams and discuss his activities several times a week.
5
Through a series of mergers and acquisitions orchestrated by Williams, Geo-Space, a company in which BFI had invested and for which Williams had responsibility, grew and in 1963 began considering a merger with Westec, a company listed on the American Stock Exchange. A merger with a listed company would substantially enhance the value of BFI's investment in Geo-Space. Williams, assisted by Ernest Hall ("Hall") of Geo-Space, undertook to consummate the merger. They acquired a foothold in Westec with a private nonmarket purchase of Westec stock in August 1963 and elected Williams to the Westec board shortly thereafter. Negotiations on a merger concluded successfully in September 1964. BFI exchanged its Geo-Space stock warrants for stock in Westec, leaving BFI in control of Westec. Williams became chairman of the new company, Hall became president, and Austin was made a director.
6
From September 1964 until August 1966, Williams and Hall engaged in massive and complex stock operations designed to increase the value of Westec stock. These operations took many forms. For example, Hall repaid a debt to a business associate on the condition that the money be used to purchase Westec stock on the open market during 1964; Williams aided in the financing of this deal, although it is not clear whether BFI was the source of the funds. In another instance, defendant Austin guaranteed a loan in December 1964 from a third party to Hall that Hall used to purchase Westec stock. BFI portfolio companies and Westec subsidiaries also bought Westec shares. In addition, stock was purchased in the name of various relatives and associates of Hall and Williams. In most of these transactions, BFI money appears to have played a role.
7
In April 1965, Williams resigned from BFI, although his connections with it appear to have continued for a short time thereafter. His departure may have been on unfriendly terms, but this is not altogether clear. About this time, Austin also left the Westec board and BFI distributed its Westec shares to its shareholders. Despite these actions BFI may, however, have continued to influence and control Westec until December 1965.
8
September 1965 marked the appearance of defendant Bintliff with the acquisition by Westec of Camerina Petroleum Company, partially owned by Bintliff. Bintliff exchanged his Camerina shares for Westec shares. This transaction appears to have been unrelated to the stock price manipulation operation.
9
Chemetron, a Delaware corporation with its principal place of business in Chicago, began its involvement in 1965, when Williams and Hall sought to acquire a Chemetron subsidiary, Pan Geo Atlas Corporation ("PGAC"), for Westec. Lengthy negotiations led to an October 1965 tentative deal subject to approval by both parties' boards. On January 14, 1966, Chemetron received Westec stock for its PGAC stock and notes. The transaction was nonmarket, and a Chemetron official testified at trial that the market price of Westec shares played no role in Chemetron's evaluation of the deal. Chemetron claims it was never told of the stock manipulation scheme and would not have made the deal had it known.
10
The manipulative activities of Hall and Williams continued after the Chemetron transaction. They ordered Westec stock in the names of third parties, seeking loans to finance the purchases. One such loan was secured by defendant Bintliff, for which he received Westec stock as a fee. Bintliff also bought Westec stock from a third party in a sale arranged by Williams.
11
In August 1966, as part of the scheme, Williams and Hall placed a large stock order they could not finance. Bintliff declined to finance it. Chemetron was approached to finance it but declined and informed the Securities and Exchange Commission and the American Stock Exchange, which suspended trading in Westec stock. At that time Chemetron was the largest shareholder of Westec. Shortly after the suspension of trading, Westec went into Chapter X reorganization, emerging as a reorganized company in 1969. Chemetron exchanged its Westec shares with the bankruptcy trustee in 1969, receiving shares and notes in the reorganized company.
12
The failure of Westec spawned an avalanche of litigation. This suit began in 1967 when Chemetron sued 57 defendants seeking recovery of its losses under many provisions of the federal and Texas securities laws. Chemetron basically alleged a plan, scheme, or conspiracy to manipulate the price of Westec stock through actual or apparent trading, thereby inducing transactions by others, leading to its injury when Westec collapsed. After lengthy discovery and settlement with or voluntary dismissal of 53 of the defendants, the case against four defendants, BFI, Austin, Bintliff, and Brazos Valley Cotton Oil Company ("Brazos Valley"), came to trial in the Southern District of Texas before a jury in 1979. The legal claims had been narrowed to violations of three statutes: (1) section 9 of the Securities Exchange Act of 1934, 15 U.S.C. § 78i (1976); (2) section 10(b) of the 1934 Act, 15 U.S.C. § 78j(b) (1976), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5 (1981), thereunder; and (3) Tex.Rev.Civ.Stat.Ann. art. 4004 (Vernon 1966), the Texas anti-fraud statute.4
13
In response to 31 special interrogatories, the jury completely exonerated Brazos Valley and found no section 9 violation. However, the trial judge entered judgment for Chemetron under section 10(b), Rule 10b-5, and article 4004 based on the jury's remaining responses. The three defendants were held jointly and severally liable for actual damages of $4,726,128 under federal and state law, prejudgment interest of $4,817,276, and exemplary damages under art. 4004 of $9,452,256, less settlement of $582,500, for a total liability of $18,413,160. All defendants moved for judgment n. o. v. or a new trial, which were denied. All now appeal to this court. Chemetron lodges a cautionary cross-appeal.
III. ISSUES ON APPEAL
14
A. Federal Securities Law Claims.
15
Chemetron alleged that appellants illegally manipulated the national securities exchange market for Westec stock and failed to disclose or made misleading statements about that scheme in violation of two federal securities laws, section 9(a)5 of the Securities Exchange Act of 1934, 15 U.S.C. § 78i(a) (1976), and SEC Rule 10b-5,6 17 C.F.R. § 240.10b-5 (1981), enacted pursuant to section 10(b)7 of the 1934 Act, 15 U.S.C. § 78j(b) (1976). Section 9(e)8 of the 1934 Act, 15 U.S.C. § 78i(e) (1976), creates an express private remedy for violations of section 9(a), and an implied private cause of action has long been recognized under section 10(b) and Rule 10b-5, see Ernst & Ernst v. Hochfelder, 425 U.S. 185, 196, 96 S.Ct. 1375, 1382, 47 L.Ed.2d 668 (1976).
16
While Chemetron specifically alleged violations of subsections 9(a)(1), (2), (4), and (6), the trial judge submitted to the jury only the subsection 9(a)(2) allegation, directed at the manipulative stock scheme itself. However, all three subsections of Rule 10b-5 were submitted, permitting the jury to hold appellants liable under Rule 10b-5 for either the stock scheme (Rule 10b-5(a) and/or (c)), its misrepresentation/nondisclosure (Rule 10b-5(b)), or both.
17
In response to Special Interrogatory No. 6, the jury found that Chemetron had not proven that the stock scheme "affected" the price it paid for the Westec stock, a necessary element of a section 9 claim, see section 9(e), 15 U.S.C. § 78i(e). This finding foreclosed any relief under section 9. Nevertheless, the trial court entered judgment for Chemetron on its federal law claim based on Rule 10b-5. The judgment of the trial court does not specify which of Rule 10b-5's subsections or combination of subsections it relies on. However, since the jury found that there was a manipulative stock scheme and that the scheme was not disclosed to Chemetron, the trial court's judgment could have been based on Rule 10b-5(a) or (c) (banning fraudulent schemes in general), on Rule 10b-5(b) (prohibiting misrepresentation/nondisclosure), or on both. Thus the very jury findings that barred section 9 relief permitted, without any inconsistency, relief under Rule 10b-5.
18
Appellants assail this result, claiming that this overlap in private remedies impermissibly nullifies the express remedy and limitations of section 9. This question of whether an implied private remedy is available under Rule 10b-5 for activities covered by section 9's express private remedy is one of first impression in this circuit.9 Our task is to examine both of the possible bases for Rule 10b-5 liability, the existence of a stock scheme and its misrepresentation/nondisclosure, to determine whether they impermissibly nullify the express section 9 remedies. If both nullify section 9, the trial court's judgment based on Rule 10b-5 has no legal support and must be reversed.
19
For purposes of analysis, we will address two specific questions: (1) is subsection 9(a)(4), which prohibits misrepresentation/nondisclosure, nullified by the similar prohibition in Rule 10b-5(b), and (2) do the general bans on fraudulent schemes and courses of business in Rule 10b-5(a) and (c) nullify the bans on specific stock manipulation schemes found in subsections 9(a)(1), (2), or (6)?10
20
1. Supreme Court Guidance and Circuit Precedent.
21
Our analysis of these questions begins with the premise that "it is an elemental canon of statutory construction that where a statute expressly provides a particular remedy or remedies, a court must be chary of reading others into it." Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 19, 100 S.Ct. 242, 247, 62 L.Ed.2d 146 (1979).
22
Looking first to the Supreme Court for direction, we find that, although it has not yet addressed the question of maintaining an implied cause of action in the face of an express cause of action, see Ernst & Ernst, 425 U.S. at 211 n.31, 96 S.Ct. at 1389 n.31; Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 752 n.15, 95 S.Ct. 1917, 1933 n.15, 44 L.Ed.2d 539 (1975); infra note 11, its decisions provide some guidance. In Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979), the Court declined to imply a cause of action under section 17(a) of the 1934 Act, 15 U.S.C. § 78q(a) (1976), for customers of securities brokerage firms against accountants who audit section 17(a) reports. The Court found support in the statutory scheme created by Congress:
23
But we need not decide whether Congress expressly intended § 18(a) to provide the exclusive remedy for misstatements contained in § 17(a) reports. For where the principal express civil remedy for misstatements in reports created by Congress contemporaneously with the passage of § 17(a) is by its terms limited to purchasers and sellers of securities, we are extremely reluctant to imply a cause of action in § 17(a) that is significantly broader than the remedy that Congress chose to provide.
24
Id. at 574, 99 S.Ct. at 2488 (citations and footnotes omitted, emphasis added). It also noted evidence in legislative history that section 18(a) was intended to be the exclusive remedy, id. at 573 & n.15, 99 S.Ct. at 2487 & n.15 and warned that even the "remedial purposes" of the securities laws "will not justify reading a provision more broadly than its language and the statutory scheme reasonably permit," id. at 578, 99 S.Ct. at 2490.
25
Under Ernst & Ernst, proof of scienter is required in a private suit under Rule 10b-5. In reaching this conclusion, the Court found it significant that sections of the 1933 Act allowing recovery for mere negligence are subject to restrictions not applicable to section 10(b), 425 U.S. at 209, 96 S.Ct. at 1388, and observed:
26
We think these procedural limitations indicate that the judicially created private damages remedy under § 10(b)-which has no comparable restrictions-cannot be extended, consistently with the intent of Congress, to actions premised on negligent wrongdoing. Such extension would allow causes of action covered by §§ 11, 12(2), and 15 to be brought instead under § 10(b) and thereby nullify the effectiveness of the carefully drawn procedural restrictions on these express actions. We would be unwilling to bring about this result absent substantial support in the legislative history, and there is none.
27
Id. at 210-11, 96 S.Ct. at 1388-89 (footnotes and citations omitted, emphasis added).
28
Finally, in Blue Chip the Supreme Court considered whether stock offering offerees can maintain a Rule 10b-5 cause of action despite the fact that they were neither purchasers nor sellers of the offered shares as required by the express terms of Rule 10b-5 and section 10(b). In holding that such offerees have no Rule 10b-5 cause of action, it reviewed the various express remedies under the 1933 and 1934 Acts, including section 9, and declared that "(i)t would indeed be anomalous to impute to Congress an intention to expand the plaintiff class for a judicially implied cause of action beyond the bounds it delineated for comparable express causes of action." 421 U.S. at 736, 95 S.Ct. at 1925 (footnote omitted).
29
From these decisions, we conclude that our examination of these questions must focus on whether permitting a Rule 10b-5 action here will impermissibly broaden the section 9 remedy by nullifying its restrictions in defiance of the congressional mandate. In addressing that issue, this court in Huddleston v. Herman & MacLean, 640 F.2d 534 (5th Cir. 1981), modified on denial of rehearing and of rehearing en banc, 5th Cir. 650 F.2d 815, cert. granted, --- U.S. ----, 102 S.Ct. 1766, 72 L.Ed.2d 173 (1982) (Nos. 81-680, 81-1076),11 agreed with the approach used in the Second and District of Columbia Circuits. See Wachovia Bank & Trust Co. v. National Student Marketing Co., 650 F.2d 342 (D.C.Cir.1980), cert. denied sub nom. Peat, Marwick, Mitchell & Co. v. Wachovia Bank & Trust Co., White & Case v. Wachovia Bank & Trust Co., and Joy v. Wachovia Bank & Trust Co., 452 U.S. 954, 101 S.Ct. 3098, 69 L.Ed.2d 965 (1981); Ross v. A. H. Robins Co., 607 F.2d 545 (2d Cir. 1979), cert. denied, 446 U.S. 946, 100 S.Ct. 2175, 64 L.Ed.2d 802 (1980). The Huddleston analysis must be applied in this case, since we are bound by it until it is reversed by the Supreme Court or overruled by this circuit en banc. S & H Riggers & Erectors, Inc. v. OSHRC, 659 F.2d 1273, 1278-79 (5th Cir. 1981).12
30
In Huddleston, plaintiffs sought damages for alleged materially misleading statements in a prospectus. 640 F.2d at 539. There existed a conflict between sections 11 and 12(2) of the 1933 Act, 15 U.S.C. §§ 77k and 77l (2) (1976), each of which creates an express remedy for such misrepresentations, and Rule 10b-5.13 The court compared the competing causes of action to determine whether Rule 10b-5 requires proof of facts "not necessary to recovery" under the express causes of action, reasoning that if Rule 10b-5 requires additional facts creating a higher burden of proof, the Rule 10b-5 implied action is available. See 640 F.2d at 542. The court permitted the implied action because Rule 10b-5 requires deceit committed with scienter, elements not found in sections 11 and 12(2). See id.14
31
With these Supreme Court and Fifth Circuit cases to guide us, we turn now to the specific questions before us.
32
2. The Misrepresentation and Nondisclosure Remedies.
33
Our examination of this issue begins with a comparison of the texts of the statute and rule. Subsection 9(a)(4) contains a provision forbidding misrepresentation that is quite similar to that found in Rule 10b-5:
34
(a) It shall be unlawful for any person, directly or indirectly, by the use of the mails or any means or instrumentality of interstate commerce, or of any facility of any national securities exchange, or for any member of a national securities exchange-
35
....
36
(4) If a dealer or broker, or other person selling or offering for sale or purchasing or offering to purchase the security, to make, regarding any security registered on a national securities exchange, for the purpose of inducing the purchase or sale of such security, any statement which was at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, and which he knew or had reasonable ground to believe was so false or misleading.
37
15 U.S.C. § 78i(a)(4) (emphasis added).
38
It shall be unlawful for any person, directly or indirectly, by the use of any means of instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
39
....
40
(b) 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 ....
41
17 C.F.R. § 240.10b-5(b) (emphasis added). The prohibition in subsection 9(a) (4) is certainly intended to apply to misrepresentations made in the course of manipulative schemes banned by section 9. See H.R.Rep.No.1383, 73d Cong., 2d Sess. 10-11 (1934), reprinted in 5 J. S. Ellenberger & E. P. Mahar, Legislative History of the Securities Act of 1933 and Securities Exchange Act of 1934, Item 18 (1973) (hereinafter cited as Ellenberger & Mahar); S.Rep.No.792, 73d Cong., 2d Sess. 12-13 (1934), reprinted in 5 Ellenberger & Mahar, Item 17. Whether Rule 10b-5(b) can also be applied to misrepresentations in the course of a manipulative scheme banned by section 9 turns on the results of the Huddleston analysis.
As the Huddleston court stated:
42
The elements necessary to prove a Section 10(b) claim have been so often applied by the lower federal courts that they can be stated in black letter fashion. To make out a claim under Section 10(b), which is based on the common law action of deceit, the plaintiff must establish (1) a misstatement or an omission (2) of material fact (3) made with scienter15 (4) on which the plaintiff relied (5) that proximately caused his injury.
43
640 F.2d at 543 (footnote omitted). Subsection 9(a)(4), as privately enforced through subsection 9(e), requires a (1) misstatement or omission16 (2) of material fact17 (3) made with scienter18 (4) for the purpose of inducing a sale or purchase of a security19 (5) on which the plaintiff relied20 (6) that affected plaintiff's purchase or selling price.21
44
We thus perceive that the implied cause of action under Rule 10b-5(b) and the express remedy of subsection 9(a)(4) differ in at least three respects, scienter, intent to induce a purchase or sale, and causation. While Rule 10b-5 permits recklessness to fulfill its scienter requirement, see supra note 15, section 9(a)(4) and (e) and its legislative history do not permit us to loosen its scienter requirement by permitting recklessness to suffice. See S.Rep.No.792, 73d Cong., 2d Sess. 17 (1934), reprinted in 5 Ellenberger & Mahar, Item 17; H.R.Rep.No.1383, 73d Cong., 2d Sess. 20 (1934), reprinted in 5 Ellenberger & Mahar, Item 18. Therefore, section 9's scienter requirement is stricter than Rule 10b-5's.
45
Furthermore, the "intent to induce" requirement of subsection 9(a)(4) is distinct from the scienter requirement of Rule 10b-5(b). While one may intend to do a fraudulent act thereby fulfilling Rule 10b-5(b)'s scienter requirement, the intent that that act induce a purchase or sale is a distinct and more specific requirement. Thus the "intent to induce" requirement creates a higher burden of proof for the plaintiff under section 9(a)(4) than that borne under Rule 10b-5(b).
46
Finally, subsection 9(a)(4)'s causation standard is also tougher for a plaintiff-the plaintiff's purchase or sale price must be "affected," while "the causation requirement is satisfied in a Rule 10b-5 case only if the misrepresentation touches upon the reasons for the investment's decline in value." Huddleston, 640 F.2d at 549 (emphasis added). This case presents the classic example of the difference in liability under these causation standards. The jury found that the nondisclosure of the manipulative scheme did not "affect" the price that Chemetron negotiated in its nonmarket purchase of Westec stock-thus no subsection 9(a)(4) remedy. However, the nondisclosure obviously touched upon the reason for the decline in value of Chemetron's Westec stock because the nondisclosure hid the manipulative scheme.
47
Rule 10b-5(b) therefore requires no additional proof of facts creating a higher burden of proof when compared to subsection 9(a)(4). In fact, Rule 10b-5(b) creates a lower burden of proof than does subsection 9(a)(4)22 and contains no elements that compensate for this change. Lacking a trade-off for this easing of the burden of proof and concomitant enlargement of the plaintiff class,23 we hold that permitting a judgment for Chemetron under a Rule 10b-5(b) implied action for misrepresentation or nondisclosure of the stock scheme impermissibly nullifies Congress' deliberate and careful limitations on the express statutory remedy of subsection 9(a)(4).24
48
3. The Stock Manipulation Remedies.
49
Because there are some differences between subsections 9(a)(1), (2), and (6), we must compare each separately to Rule 10b-5(a) and (c) to fulfill the Huddleston analysis.
50
a. The Elements of Rule 10b-5(a) and (c).
51
To violate Rule 10b-5(a) and (c), a person must (1) employ a device, scheme, or artifice to defraud or engage in a course of business that operates as a fraud (2) with scienter25 (3) on which the plaintiff relied26 (4) that proximately caused his/her injury.
52
b. The Elements of Subsection 9(a)(1).
53
To make out a violation of subsection 9(a)(1) in a private action under subsection 9(e), a plaintiff must prove the existence of (1) a wash sale or matched orders in a security27 (2) done with scienter28 (3) for the purpose of creating a false or misleading appearance of active trading in that security29 (4) on which the plaintiff relied30 (5) that affected plaintiff's purchase or selling price.31
54
c. The Elements of Subsection 9(a)(2).
55
In order to show a violation of subsection 9(a)(2) in a private suit under subsection 9(e), a plaintiff must plead and prove that (1) a series of transactions in a security creating actual or apparent trading in that security or raising or depressing the price of that security,32 (2) carried out with scienter33 (3) for the purpose of inducing the security's sale or purchase by others,34 (4) was relied on by the plaintiff,35 (5) and affected plaintiff's purchase or selling price.36
56
d. The Elements of Subsection 9(a)(6).
57
To prove a violation of subsection 9(a)(6) in a private suit under subsection 9(e), a plaintiff is required to show (1) a series of transactions in a security37 (2) made for the purpose of pegging, fixing, or stabilizing the price of that security in violation of SEC rules38 (3) done with scienter39 (4) on which the plaintiff relied40 (5) that affected plaintiff's purchase or selling price.41
58
e. A Comparison of Rule 10b-5(a) and (c) and Subsections
59
9(a)(1), and (2), and (6).
60
We note several elements that make a violation of subsections 9(a)(1), (2), and (6) more difficult to prove than a violation of Rule 10b-5(a) and (c).
61
First, causation, as discussed previously, is much easier to prove under Rule 10b-5 than under section 9.42 Second, under Rule 10b-5, recklessness can fulfill the scienter requirement. However, recklessness may not be used to fulfill section 9's scienter requirement, as we noted in our discussion of subsection 9(a)(4).43 Third, while Rule 10b-5(a) and (c) create a presumption of reliance by the plaintiff that can be rebutted by the defendant, section 9 aids the plaintiff with no such presumption.44 Fourth, and only as to subsection 9(a)(2), there is an intent to induce requirement not found in Rule 10b-5(a) and (c).
62
Rule 10b-5(a) and (c) therefore require no additional proof of facts creating a higher burden of proof when compared to subsections 9(a)(1), (2), and (6). In fact, Rule 10b-5(a) and (c) create a lower burden of proof.45 Lacking a trade-off for this easing of the burden of proof and accompanying enlargement of the plaintiff class,46 we hold that permitting a verdict for Chemetron under a Rule 10b-5(a) and (c) implied action impermissibly nullifies Congress' deliberate and careful limitations on the express statutory remedy of subsections 9(a)(1), (2), and (6).47
63
4. Legislative History of the 1933 and 1934 Acts and the Proper Scope of Rule 10b-5.
64
Any doubts about the results reached under the Huddleston analysis are laid to rest by an analysis not undertaken in Huddleston, Wachovia, or Ross-the intent of Congress as revealed in the legislative history and structure of the 1933 and 1934 Acts. Reviewing that history and structure, we conclude that in the coherent and comprehensive scheme for controlling securities fraud that Congress established,48 section 9 is the only remedy for the fraud in this case.
65
Section 9 is considered "(t)he very heart of the Act." SEC, Report on Proposals for Amendments of the Securities Act of 1933 and the Securities Exchange Act of 1934, H.R. Comm. Print, 77th Cong., 1st Sess. 50 (1941). With its procedural and substantive limitations, it takes aim at several specific types of stock manipulation schemes,49 virtually all known and acknowledged to be harmful in 1934. In addition, section 9 gives the SEC rulemaking power to reach types of stock manipulation not known in 1934 or not proven harmful per se at that time. See § 9(a)(6), (b), and (c), 15 U.S.C. § 78i(a)(6), (b), and (c). However, Congress, in its legislative wisdom, laid down the limits on private liability under section 9. Neither private parties, the SEC, nor the courts may go around those limits, no matter how broad the rulemaking power appears, since the Supreme Court has made it clear that the "administration of a federal statute is not the power to make law." Ernst & Ernst, 425 U.S. at 213, 96 S.Ct. at 1391; see Aaron, 446 U.S. at 691, 100 S.Ct. at 1952; Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 41 n.27, 97 S.Ct. 926, 949 n.27, 51 L.Ed.2d 124 (1977). Equally obvious is that a rule promulgated under section 10(b) cannot be used to evade section 9. See Piper, 430 U.S. at 45-47, 97 S.Ct. at 951-952.
66
That Congress was very concerned about the scope of section 9 is evidenced by its meticulous drafting, legislative history, and the massive investigation that led to it. See, e.g., S.Rep.No.1455, 73d Cong., 2d Sess. 54-55 (1934), reprinted in 5 Ellenberger & Mahar, Item 21 (known as the Fletcher Report); H.R.Rep.No.1383, 73d Cong., 2d Sess. 10-11 (1934), reprinted in 5 Ellenberger & Mahar, Item 18. To nullify section 9 by implication would violate the "cardinal principle of construction that repeals by implication are not favored." Silver v. New York Stock Exchange, 373 U.S. 341, 357, 83 S.Ct. 1246, 1257, 10 L.Ed.2d 389 (1963). This principle and Congress' great care from investigation through final passage militates against nullification of section 9 by implication without an express desire by Congress to do so. See Ernst & Ernst, 425 U.S. at 210-11, 96 S.Ct. at 1389; Ruder, Civil Liability Under Rule 10b-5: Judicial Revision of Legislative Intent? 57 Nw.L.Rev. 627, 649 (1963).
67
Not only is such clear intent of nullification absent from section 10(b)'s legislative history, but that history demonstrates the opposite-that section 10(b) was never intended to supplant or traduce the remedies and limitations of section 9 or the other express remedies of the 1933 and 1934 Acts. From its inception through various amendments and into its final form, section 10(b) was always intended as a "catchall" provision to reach activities not covered or anticipated in other provisions of the Acts.
68
In House committee hearings, Thomas Corcoran, an official of the Roosevelt administration who assisted in the drafting of the Act, described the provisions of section 9(c), the forerunner of section 10(b), in these terms:
69
Subsection (c) says, "Thou shalt not devise any other cunning devices" .... Of course subsection (c) is a catch-all clause to prevent manipulative devices. I do not think there is any objection to that kind of a clause. The Commission should have the authority to deal with new manipulative devices.
70
Stock Exchange Regulation, Hearings Before the House Comm. on Interstate and Foreign Commerce, 73d Cong., 2d Sess. 115 (1934), reprinted in 8 Ellenberger & Mahar, Item 23 (emphasis added). J. M. Landis, FTC Commissioner and one of the Act's draftsmen, substantiated this interpretation of section 10(b): "(I)t gives the general power to the Commission to prescribe rules and regulations governing any other manipulative devices." Id. at 21, reprinted in 8 Ellenberger & Mahar, Item 23 (emphasis added).50
71
The report of the Senate committee which studied the proposed bill summarized section 10(b) as follows: "Subsection (b) authorizes the Commission by rules and regulations to prohibit or regulate the use of any other manipulative or deceptive practices which it finds detrimental to the interests of the investor." S.Rep.No.792, 73d Cong., 2d Sess. 18 (1934), reprinted in 5 Ellenberger & Mahar, Item 17 (emphasis added). Finally, Senator Fletcher, the Senate sponsor of the Act, declared in the floor debates that section 10(b) gave the SEC "power to forbid any other devices." 78 Cong.Rec. 2271 (1934) (emphasis added).
72
In line with the catchall purpose of section 10(b), the conference committee broadened the SEC's rulemaking power to include protection of the public interest, as well as protection of investors. H.R.Conf.Rep.No.1838, 73d Cong., 2d Sess. 32-33 (1934), reprinted in 5 Ellenberger & Mahar, Item 20. The Supreme Court and this circuit have consistently interpreted section 10(b) as a catchall. See, e.g., Aaron, 446 U.S. at 690, 100 S.Ct. at 1952; Ernst & Ernst, 425 U.S. at 203, 96 S.Ct. at 1385; Herpich v. Wallace, 430 F.2d 792, 801 (5th Cir. 1970).
73
From this power to enact catchall rules under section 10(b) came Rule 10b-5. Judge Ainsworth, in his thorough and scholarly opinion in Herpich, captured the precise origins and original purpose of the Rule:
74
The SEC adopted Rule 10b-5 in 1942 to close a "loophole in the protections against fraud administered by the Commission by prohibiting individuals or companies from buying securities if they engage in fraud in their purchase." SEC Sec.Exch.Act Rel.No.3230 (May 21, 1942). The purpose of the rule, it seems clear, was to afford sellers of securities the same protections already afforded purchasers by the federal scheme of securities regulation. Previously, fraud on sellers, as distinct from fraud on purchasers, see Securities Act of 1933, § 17(a), 15 U.S.C. § 77q(a), was not covered by the securities acts unless committed by an over-the-counter broker or dealer. 8 SEC Ann.Rep. 10 (1943); see Securities Exchange Act of 1934, § 15(c), 15 U.S.C. § 78o(c). Viewing the rule as an "additional protection to investors," 8 SEC Ann.Rep. 10 (1943), the Commission fashioned it to "make applicable to the purchase of securities, the same broad antifraud provisions which the Congress has imposed in Section 17(a) of the Securities Act of 1933, in connection with the sale of securities." Ward La France Truck Corp., 13 S.E.C. 373, n.8 (1943). To accomplish this end the Commission ... copied the language of section 17(a) of the Securities Act ... and applied it "in connection with the purchase or sale of any security," this being the reach of section 10(b). See also Birnbaum v. Newport Steel Corp., 2 Cir., 1952, 193 F.2d 461, 463; 3 and 6 Loss, Securities Regulation 1424-1427 (2d ed. 1961), 3617 (Supp. 2d ed. 1969).
75
430 F.2d at 801-02 (emphasis added); accord, Ernst & Ernst, 425 U.S. at 212 n.32, 96 S.Ct. at 1390 n.32.
76
In 1946, four years after the adoption of Rule 10b-5, came the landmark decision by Judge Kirkpatrick that there existed an implied private right of action under the Rule. Kardon v. National Gypsum Co., 69 F.Supp. 512 (E.D.Pa.1946). The Supreme Court subsequently acquiesced in this judicial implication. Touche Ross, 442 U.S. at 577 n.19, 99 S.Ct. at 2490 n.19.
77
Judge Kirkpatrick confronted a novel issue again in 1948, one apposite to our case. In Rosenberg v. Globe Aircraft Corp., 80 F.Supp. 123 (E.D.Pa.1948), plaintiffs asserted a Rule 10b-5 claim that duplicated the coverage of sections 11 and 12 of the 1933 Act, 15 U.S.C. §§ 77k, 77l. His resolution of this conflict between the express and implied remedies is worth quoting:
78
It cannot be supposed that Congress intended to abolish (the) regulations and limitations (of §§ 77k and 77l ) when it enacted Sec. 10 of the Act of 1934. By any reasonable rule of statutory interpretation, it would require either an express repeal or an implication of repeal so strong as to be inescapable. The two Acts are unquestionably in pari materia and must be construed together to make a consistent whole. Looking at them as one statute it is simply not possible that Congress, having prescribed in elaborate detail procedural requirements which must be fulfilled in order to enforce civil liability attaching to a carefully defined type of violation, would have casually nullified them all in a later section. Nor can an intention to do so be deduced from the general provisions of Sec. 29 of the Act of 1934, 15 U.S.C.A. § 78bb, which is, "The rights and remedies provided by this chapter shall be in addition to any and all other rights and remedies that may exist at law or in equity ...." As a matter of fact "this chapter" does not provide any remedies for the violation of Sec. 10(b). Those remedies arise by the general law of torts, which attaches civil liability to the violation of a criminal statute. The point in Kardon v. National Gypsum Co., D.C., 69 F.Supp. 512, was not that the Act itself provided a civil remedy, but that there was nothing in it to indicate that Congress intended to withhold from injured parties the right to recover damages which normally attends violations of a criminal statute. Undoubtedly "The rights and remedies provided by this chapter" referred to in Sec. 29 were intended to be the rights and remedies which the Act of 1934 did, in Sec. 9, 16 and 18, 15 U.S.C.A. §§ 78i, 78p and 78r, expressly provide for violations of those sections. No other interpretation can avoid making a completely incongruous piece of legislation out of the two statutes in question.
79
80 F.Supp. at 124-25; accord, Ernst & Ernst, 425 U.S. at 210-11, 96 S.Ct. at 1389. Judge Kirkpatrick thereupon held that the suit under Rule 10b-5 would be subject to the restrictions of the express remedies that applied. 80 F.Supp. at 124-25. Thus the plaintiffs could not evade the restrictions of the express remedies by pleading Rule 10b-5.51
80
The reasoning of Judge Kirkpatrick in Rosenberg has been applied by two recent Supreme Court opinions, Blue Chip and Piper. In Blue Chip, the Court held that to acquire standing under Rule 10b-5, private plaintiffs must be either purchasers or sellers of securities, the so-called Birnbaum rule.52 This holding relied in part on the principle that "(i)t would indeed be anomalous to impute to Congress an intention to expand the plaintiff class for a judicially implied cause of action beyond the bounds it delineated for comparable express causes of action." 421 U.S. at 736, 95 S.Ct. at 1925.
81
In Piper, the Supreme Court was confronted with a claim that the Birnbaum rule applies to plaintiffs pursuing private remedies under Rule 10b-6.53 The Court, however, decided the standing issue on a narrower ground, holding that a frustrated tender offeror has no Rule 10b-6 cause of action against the successful offeror based solely on a failure to gain control. 430 U.S. at 45, 97 S.Ct. at 951. Alternatively, the SEC as amicus curiae argued that a private plaintiff relying on Rule 10b-6 can avail itself of section 9(e)'s standing requirement (the purchase or sale of "any security") since Rule 10b-6 is grounded in part in section 9. If that is true, the Supreme Court reasoned, the plaintiff must also meet the other section 9(e) standing requirements.54 Since the plaintiff failed to meet section 9(e)'s "affected price" criterion, there was no section 9 standing. A party may not selectively pick and choose among the requirements, depending on whether they aid his case. See 430 U.S. at 45-46, 97 S.Ct. at 951.
82
From Piper, we conclude that a private plaintiff pursuing an implied remedy is bound by the congressional limits on the express remedy from which it is derived. From Blue Chip, we derive a similar principle: implied remedies are limited by the provisions of comparable express remedies.
83
Despite the legislative history of sections 9 and 10(b) that underlies the Rosenberg-Blue Chip-Piper principles limiting implied remedies, courts have permitted private plaintiffs to use rules promulgated under section 10(b) to reach section 9 activity without imposing section 9's restrictions. See, e.g., cases cited supra note 9.
84
This is such a case. Section 9 encompassed this scheme. Yet relief was granted under Rule 10b-5, defying the intent of Congress as revealed in the legislative history of the Acts. From that history, "we are compelled to conclude that Congress provided precisely the remed(y) it considered appropriate." Middlesex County Sewerage Authority v. National Sea Clammers Association, 453 U.S. 1, 15 (1981). Thus the correct response to attempts such as this to evade section 9 is that pioneered by Rosenberg and endorsed in Blue Chip and Piper : if the action is styled as one under Rule 10b-5, yet addresses section 9 activities, section 9's limitations should apply.55 Rule 10b-5 has been extended well beyond its gap-filling purpose as originally envisioned by Congress in section 10(b) and proposed by the SEC. In their eagerness to improve upon the statutory scheme, a practice condemned by the Supreme Court, the courts have created law that does not follow congressional intent, which is the "ultimate question" in these cases. See Touche Ross, 442 U.S. at 578, 99 S.Ct. at 2490; Ruder, supra note 55, at 628. In this case, Rule 10b-5 has been extended until it cuts out the heart of the 1934 Act, section 9, thereby crossing the line between administration of a congressional statute and making new law unauthorized by Congress.
5. Conclusion
85
Because we have found that permitting a Rule 10b-5 remedy here would impermissibly nullify the section 9 remedy and is "unnecessary to ensure the fulfillment of Congress' purposes" in enacting the 1934 Act, Santa Fe Industries, 430 U.S. at 477, 97 S.Ct. at 1302, we reverse the trial court's judgment insofar as it was based on Rule 10b-5 and remand for dismissal of the federal claims.56
86
B. Texas Securities Law Claims.
87
Chemetron alleged violations of article 4004, Tex.Rev.Civ.Stat. (Vernon 1966).57 On appeal, several claims of error are made against the trial court's judgment based on art. 4004.
88
1. Errors in the Submission of Special Interrogatories and Instructions.
89
a. Special Interrogatories.
90
Appellants assert that the trial court erroneously failed to submit or submitted faulty special interrogatories on three elements of an article 4004 claim: (1) duty to disclose, (2) intent to induce action, and (3) material inducement. Further, appellants claim that it was error not to submit a separate interrogatory requesting exemplary damages as to each appellant. Chemetron initially rejoins that appellants' failure to request or object to the special interrogatories submitted below waives a jury trial on those issues under Fed.R.Civ.P. 49(a),58 citing Fredonia Broadcasting Corp. v. RCA Corp., 481 F.2d 781, 796 (5th Cir. 1973); John R. Lewis, Inc. v. Newman, 446 F.2d 800, 804-05 (5th Cir. 1971); and First National Bank, Henrietta v. SBA, 429 F.2d 280, 285 (5th Cir. 1970).
91
We see no merit in this claim. In this circuit, a party preserves a claim of error either by proposing and being denied a special interrogatory or by objecting to a proposed special interrogatory before the jury has retired. See Huddleston, 640 F.2d at 550. John R. Lewis, Fredonia, and Henrietta are not to the contrary. Either method serves the ultimate purpose of directing the trial court's attention to the issue. The preferred method is to assist the trial court by proposing special interrogatories, but failure to do so is not fatal so long as a timely, comprehensible objection is made before submission to the jury. See id. A final requirement is that each party desiring to preserve the claim of error must object. See L'Urbaine et la Seine v. Rodriguez, 268 F.2d 1, 4 (5th Cir. 1959). Our examination of the record indicates that all appellants preserved their claims of error with timely objections.59
92
We turn now to the asserted errors.
93
Rule 49(a) allows special verdicts at the discretion of the trial court. The trial court also has discretion over the nature and scope of the issues submitted, a discretion reviewable only for abuse. Loffland Brothers Co. v. Roberts, 386 F.2d 540, 546 (5th Cir. 1967), cert. denied, 389 U.S. 1040, 88 S.Ct. 778, 19 L.Ed.2d 830 (1968). The criteria used in appellate evaluation of the adequacy of special interrogatories are:
94
(i) whether, when read as a whole and in conjunction with the general charge the interrogatories adequately presented the contested issues to the jury; (ii) whether the submission of the issues to the jury was "fair"; and (iii) whether the "ultimate questions of fact" were clearly submitted to the jury.
95
Dreiling v. General Electric Co., 511 F.2d 768, 774 (5th Cir. 1975) (citations omitted). We apply these criteria in light of several holdings that clarify their meaning. "(T)he judge must submit all material issues raised by the pleadings and the evidence," Simien v. S. S. Kresge Co., 566 F.2d 551, 555 (5th Cir. 1978),60 although none must be submitted twice through redundant special interrogatories, Angelina Casualty Co. v. Bluitt, 235 F.2d 764, 770 (5th Cir. 1956). The limits on the submission requirement were recently outlined:
96
There is no doubt that a judge must clearly and properly instruct the jury with regard to the resolution of key issues in a given case. However, there is no basis for (appellant's) apparent assumption that because an issue is important to the outcome of a case, the jury must be instructed to supply a specific answer informing the court how they resolved that one issue. No party is entitled to a special verdict on each of the multi-faceted, multitudinous issues essential to the resolution of a given case.
97
Miley v. Oppenheimer & Co., 637 F.2d 318, 334 (5th Cir. 1981).
98
Guided by these holdings, we turn to the law of fraud in Texas. Each of the following elements must be established in order to permit recovery: (1) the charged party made a false material representation that consisted of either a positive untrue statement of material fact, concealment of a material fact, or nondisclosure of a material fact that the charged party had a duty to disclose; (2) the charged party knew that the material representation was false or made it recklessly without any knowledge of its truth; (3) the charged party made the false material representation with the intent that it should be acted upon by the charging party; (4) the charging party acted in reliance thereon; and (5) the charging party thereby suffered an injury. See Custom Leasing, Inc. v. Texas Bank & Trust Co., 516 S.W.2d 138, 142-43 (Tex.1974); Roland v. McCullough, 561 S.W.2d 207, 210 (Tex.Civ.App.-San Antonio 1977, writ ref'd n. r. e.); Moore & Moore Drilling Co. v. White, 345 S.W.2d 550, 555 (Tex.Civ.App.-Dallas 1961, writ ref'd n. r. e.).
99
Appellants first assert that this was only a case of nondisclosure, and hence it was error not to submit a special interrogatory on the duty to disclose.61 Chemetron responds that this was a case involving only concealment or positive untrue statements, and therefore the duty to disclose does not apply. Our examination of the record indicates that while concealment or positive untrue statements may have been issues in this case, nondisclosure was the only type of misrepresentation under Texas law submitted to the jury.62 Since nondisclosure was the only basis for liability under Texas law, the existence of a duty to disclose was a material issue. However, a duty to disclose arises only in particular circumstances. This court has held that "Texas law is clear that if there is no confidential or fiduciary relation between the parties (creating a duty to disclose), mere silence does not amount to fraud or misrepresentation." Southwest E & T Suppliers, Inc. v. American Enka Corp., 463 F.2d 1165, 1166 (5th Cir. 1972).
100
Chemetron cites several Texas cases in which nonfiduciary relationships have been held to create a duty to disclose, see, e.g., Campbell v. Booth, 526 S.W.2d 167, 172 (Tex.Civ.App.-Dallas 1975, writ ref'd n. r. e.); Chandler v. Butler, 284 S.W.2d 388, 394 (Tex.Civ.App.-Texarkana 1955, no writ), or where "active" concealment was actionable without there being a duty to disclose, see, e.g., Campbell, 526 S.W.2d at 172; Crofford v. Bowden, 311 S.W.2d 954, 956-57 (Tex.Civ.App.-Fort Worth 1958, writ ref'd). The latter cases are inapposite since concealment was not submitted to the jury here. As to the former cases, Southwest E & T Suppliers held that the Texas law of fraud permitted no exceptions to the above-quoted rule. See 463 F.2d at 1166. "Once a panel of this Court has settled on the state law to be applied in a diversity case, the precedent should be followed by other panels ... absent a subsequent state court decision or statutory amendment which makes this Court's decision clearly wrong." Lee v. Frozen Food Express, Inc., 592 F.2d 271, 272 (5th Cir. 1979) (per curiam). Chemetron has cited to us only one Texas case-Campbell-decided since Southwest E & T Suppliers that broadens the rule it announced. Without more, this single intermediate appellate opinion, which rests on reasoning that the Texas Supreme Court refused to adopt, see Tex.R.Civ.P. 483 (West 1980), is insufficient to persuade us that Southwest E & T Suppliers is "clearly wrong."
101
Thus, silence alone by the defendants in this case does not create liability. Premising liability on the jury's affirmative answer to Special Interrogatory No. 20 was error without a jury finding that a confidential relationship existed.
102
The jury instructions on Texas law did not cure the failure to submit a special interrogatory that addressed some factual predicate of a duty to disclose. They simply stated that liability is created for "an omission or concealment of material fact by a person with a duty to disclose." There was no explanation of the duty, when it arises, how it is discharged, and so forth. The jury could not reasonably have made the required threshold finding of a factual basis for a duty to disclose before answering Special Interrogatory No. 20. It was not instructed to do so, nor was Special Interrogatory No. 20 cast in such form as to require one. Therefore, either a special interrogatory concerning the basis of the defendants' duty to disclose to Chemetron should have been submitted to the jury, or Special Interrogatory No. 20 should have addressed it, since it was a material issue. We need not and do not express any opinion on whether the defendants had such a duty here. We hold only that such an issue should have been submitted to the jury. On remand, if liability under Texas law is submitted to the jury based solely or in part on nondisclosure, Chemetron must prove the existence of a confidential relationship under the law of Texas as we interpreted it in Southwest E & T Suppliers.
103
Appellants also challenge the failure of the trial court to submit a special interrogatory on their intent to induce action by Chemetron. Chemetron argues that this element is established by taking the instructions and interrogatories as a whole. Hence it would have been needlessly redundant to submit a special interrogatory on this issue. In so arguing, Chemetron claims that this element is necessarily part of the alleged manipulative scheme directed at the investing public at large, which included Chemetron.
104
While Special Interrogatory No. 1 covered the issue of intent to induce action by the public at large,63 Texas law clearly requires an intent to induce action by the plaintiff for article 4004 liability. Oilwell Division, United States Steel Corp. v. Fryer, 493 S.W.2d 487, 491 (Tex.1973). Thus, the trial court failed to submit to the jury a material issue-the defendants' intent to induce action by Chemetron. Appellants' claim of error is well taken.64
105
Appellants' third attack on the special interrogatories complains of the burden of proof placed on them in Special Interrogatory No. 25 on material inducement, which stated in full:
DEFENDANTS' BURDEN
SPECIAL INTERROGATORY NO. 25
106
Do you find from a preponderance of the evidence that Chemetron's decision to purchase Westec securities in January, 1966 would have been the same decision if all transactions comprising the scheme, plan or conspiracy to manipulate had been disclosed to Chemetron prior to the purchase?
107
The jury answered "no."
108
Our review of this issue requires some explanation of the instructions and special interrogatories used by the trial court. The jury was correctly instructed that Chemetron had the burden of proving its contentions.65 However, since conspiracy was also alleged, the defendants could avail themselves of the defense of withdrawal from any such conspiracy. The jury was correctly instructed that the defendants had the burden of proof on this defense.66 As the burden moved back and forth throughout the 31 special interrogatories, the phrases "PLAINTIFF'S BURDEN" (abbreviated "PB" for our discussion here) or "DEFENDANTS' (or DEFENDANT'S) BURDEN" ("DB") were used to tell the jury when there was a change in the burden of proof. Thus, PB is found at the top of the first page of interrogatories. DB precedes Special Interrogatory No. 9 on Austin's withdrawal, but PB reasserts itself before Special Interrogatory No. 10. DB reappears before Special Interrogatory No. 15 on BFI's withdrawal but gives way to PB on Special Interrogatory No. 16. DB's next and final appearance before Special Interrogatory No. 25 is the one attacked here.67 PB appears again before Special Interrogatory No. 26.
109
Under Erie, burden of proof is a substantive issue governed by state law in a diversity case such as this. See 9 C. Wright & A. Miller, Federal Practice & Procedure §§ 2405 and 2409 (1971). Under Texas law the burden of proof for every element in an action for fraud is on the plaintiff. Brooks v. Parr, 507 S.W.2d 818, 819 (Tex.Civ.App.-Amarillo 1974, no writ). Thus, Special Interrogatory No. 25 erroneously placed the burden of proof on the defendant.
110
This court cannot assume that the jury realized that the burden of proof in Special Interrogatory No. 25 was erroneous and therefore ignored it. The trial court had established a clear written pattern for the jury to follow when deliberating, and it is reasonable to believe that they did so despite what their verbal instructions had been. See Cann v. Ford Motor Co., 658 F.2d 54, 59 (2d Cir. 1981), cert. denied, --- U.S. ----, 102 S.Ct. 2036, 72 L.Ed.2d 484 (1982). Thus, the jury instructions cannot cure this error.
111
However, it is clear from the record evidence of a massive manipulative scheme that the jury would have answered a special interrogatory stating the correct burden of proof the same way. Given the scale of this scheme, no reasonable corporate investor would have behaved as Chemetron did if it knew about the scheme, and no reasonable juror could have reached a different conclusion. Therefore, the improper placement of the burden of proof here is not reversible error. See Sheppard Federal Credit Union v. Palmer, 408 F.2d 1369, 1372 (5th Cir. 1969).68
112
Appellants' final complaint about the special interrogatories is the failure to submit one that required the jury to apportion exemplary damages among them.69 Since there is no Texas jurisprudence squarely on point, we are Erie-bound to make an "educated guess" as to how the Texas Supreme Court would rule. See Nobs Chemical, U.S.A., Inc. v. Koppers Co., 616 F.2d 212, 214-15 (5th Cir. 1980). Before making this "educated guess," we must explain this issue further so that it can be properly analyzed.
113
The purposes of exemplary damages are the punishment of an intentional act by a defendant and the deterrence of future misbehavior. See Pace v. McEwen, 574 S.W.2d 792, 801 (Tex.Civ.App.-El Paso 1978, writ ref'd n. r. e.); Collins v. Miller, 443 S.W.2d 298, 302 (Tex.Civ.App.-Austin 1969, writ ref'd n. r. e.). Therefore, art. 4004 requires willfulness or knowledge on the part of the defendants before exemplary damages are permitted.70
114
In Special Interrogatory No. 26, the jury applied article 4004's willfulness or knowledge requirement to each defendant:
115
If you have found that a scheme or plan to manipulate the stock of Western Equities existed in answer to Special Interrogatory No. 1, or if you have found that a conspiracy existed in answer to Special Interrogatory No. 7, and if you have found that the existence of that plan, scheme or conspiracy was a material fact which was not disclosed to Chemetron in answer to Special Interrogatories 20 and 22, do you find from a preponderance of the evidence that any of the defendants willfully concealed the existence of such material fact or knowingly took advantage of said activity?
116
Answer by naming said defendants, if any.
117
Business Funds, Inc. Yes ____ No ____
John F. Austin, Jr. Yes ____ No ____
David C. Bintliff Yes ____ No ____
Brazos Valley Cotton
Oil Company Yes ____ No ____
118
(emphasis added). In response, the jury held BFI, Austin, and Bintliff each to have willfully concealed or knowingly taken advantage of the scheme. Chemetron claims that this finding fulfills article 4004's requirement and justifies the joint and several liability for punitive damages imposed in Special Interrogatory No. 31.
119
We disagree for several reasons and hold that the affirmative answers to Special Interrogatory No. 26 were but a threshold to further consideration of exemplary damages by the jury. First, there is the language of the statute itself. Article 4004 expressly requires joint and several liability for actual damages but has no such express requirement for exemplary damages:
120
All persons making the false representations or promises and all persons deriving the benefit of said fraud, shall be jointly and severally liable in actual damages, and in addition thereto, all persons wilfully making such false representations or promises or knowingly taking the advantage of said fraud shall be liable in exemplary damages to the person defrauded in such amount as shall be assessed by the jury, not to exceed double the amount of the actual damages suffered.
121
(emphasis added).71 The parallel language of the actual and exemplary damage provisions is striking and renders the differences significant, particularly since the statute is penal in nature and must be strictly construed, Westcliff Co. v. Wall, 153 Tex. 271, 267 S.W.2d 544, 546 (1954). The elements of willfulness and knowledge were expressly added to the exemplary damage provision, while the joint and several liability requirement is conspicuously absent. Examination of art. 4004 leads us to conclude that the Texas Legislature chose not to impose joint and several liability for exemplary damages.72
122
There is ample support in the case law for this interpretation of the statute. Texas courts have long followed several criteria for the evaluation of exemplary damage awards made by a jury in its discretion. The first, that exemplary damages be reasonably proportional to actual damages, see Southwestern Investment Co. v. Neeley, 452 S.W.2d 705, 707 (Tex.1970), is governed primarily by statute in cases of fraud-art. 4004 permits exemplary damages to be no more than double the actual damages suffered. The remaining criteria are:
123
the nature of the wrong, the character of the conduct involved, the degree of culpability of the wrongdoer, the situation and sensibilities of the parties concerned, and the extent to which such conduct offends a public sense of justice and propriety.
124
Schutz v. Morris, 201 S.W.2d 144, 147 (Tex.Civ.App.-Austin 1947, no writ). Texas law imposes additional criteria for evaluating corporate liability for exemplary damages. See Ledisco Financial Services, Inc. v. Viracola, 533 S.W.2d 951, 957 (Tex.Civ.App.-Texarkana 1976, no writ); accord, Wooley v. Southwestern Portland Cement Co., 272 F.2d 906, 907 (5th Cir. 1959). These criteria demand individual consideration of each defendant's conduct, situation, sensibilities, and culpability by the jury, consideration that is denied by failing to apportion exemplary damages.
125
In a case like this with several conspirators (and many other conspirators not before the court) who may have had varying degrees of intent or knowledge, who participated in the scheme in different ways over a long period of time, and who performed in a variety of capacities (an investor, a corporation, and its chairman), the purposes of exemplary damages are ill served by rendering all defendants jointly and severally liable. Joint and several liability for exemplary damages in these circumstances enables coconspirators to shift the burden of those damages onto their less culpable confederates. This undermines their deterrent and punitive purposes. Cf. Northwestern National Casualty Co. v. McNulty, 307 F.2d 432, 440 (5th Cir. 1962) (insurance for punitive damages blunts punishment and deterrent purposes by shifting burden from wrongdoer to insurance company). Each defendant vigorously contested his own liability at trial and on appeal, and the evidence as to the liability of each varies considerably. The jury should have been permitted to assess exemplary damages against each defendant in accordance with its evaluation of that defendant.
126
Our conclusion is buttressed by the line of Texas cases that have either upheld separate consideration of exemplary damages for each defendant in a multi-defendant case or supported the principle of separate consideration. In Schutz, the court said:
127
Where two or more wrongdoers together take part in the wrong, it is entirely possible that one may be prompted by malice, while the other is not. Or it may be that though both be guilty, the culpability of one is much greater than that of the other, thus warranting a greater penalty.
128
201 S.W.2d at 147 (citations omitted); see Norton Refrigerated Express, Inc. v. Ritter Brothers Co., 552 S.W.2d 910, 913 (Tex.Civ.App.-Texarkana 1977, writ ref'd n. r. e.); Walker v. Kellar, 226 S.W. 796, 798 (Tex.Civ.App.-San Antonio 1920, writ ref'd). Schutz sustained separate consideration; Norton recognized that it may be necessary in some cases but held it unnecessary under the "unusual" facts of that case; and Walker required it for one late-joining conspirator against whom the evidence was weaker.
129
Chemetron cites Crisp v. Southwest Bancshares Leasing Co., 586 S.W.2d 610, 615 (Tex.Civ.App.-Amarillo 1979, writ ref'd n. r. e.), for the proposition that "(e)ach party to a fraudulent transaction is responsible for the acts of others done in furtherance of the scheme." However, Crisp is inapposite. It involved only joint and several liability for actual damages, since exemplary damages apparently were not awarded at trial. See id. at 612-13. Crisp does not create joint and several liability for punitive damages.
130
Statutory interpretation, Texas case law, and our evaluation of the facts in this case indicate that separate consideration of the amount of exemplary damages for each defendant is required.73
131
b. Jury Instructions.
132
The defendants claim that they were prejudiced because the jury was not correctly instructed, in Jury Instruction No. 32,74 on the purposes of exemplary damages or how they differ from compensatory damages. The standard of review on this issue was recently summarized:
133
"(T)he test is not whether the charge was faultless in every particular but whether the jury was misled in any way and whether it had understanding of the issues and its duty to determine those issues." Our jurisprudence mandates that we consider the charge as a whole, viewing it in the light of the allegations of the complaint, the evidence, and the arguments of counsel.
134
Smith v. Borg-Warner Corp., 626 F.2d 384, 386 (5th Cir. 1980) (citations omitted), quoting Borel v. Fibreboard Paper Products Corp., 493 F.2d 1076, 1100 (5th Cir. 1973), cert. denied, 419 U.S. 869, 95 S.Ct. 127, 42 L.Ed.2d 107 (1974). While the standards for evaluating jury instructions in a diversity case are federal, the substance of those instructions must adhere to state law. Reyes v. Wyeth Laboratories, 498 F.2d 1264, 1289 (5th Cir.), cert. denied, 419 U.S. 1096, 95 S.Ct. 687, 42 L.Ed.2d 688 (1974).
135
Looking at the contested instruction, we see the following: (1) the jury was never informed of the purposes of exemplary damages (deterrence and punishment of extraordinary misconduct); (2) the jury was correctly cautioned several times that an award was discretionary; and (3) it was properly told what criteria article 4004 required (intent or knowledge) for exemplary damages. In the arguments of Chemetron's counsel we find instances where counsel informed the jury of the nature of punitive damages. Next, we have the "entitled to" language of Special Interrogatory No. 31, which may be misleading on the purposes of exemplary damages but is not reversible error in and of itself. See supra note 69. Finally, Chemetron sought punitive damages in its complaint and, we note without intimating any view on the sufficiency of this evidence, did present evidence in support of its claim.
136
Against this backdrop, the defendants point to Texas and federal standard jury instructions on exemplary damages as proof of the trial court's error.75 However, it is scarcely error per se to decline to follow pattern or form book instructions. Nor does Erie compel the use of pattern state instructions, since the manner of giving jury instructions is controlled by federal law, Foster v. Ford Motor Co., 621 F.2d 715, 717 (5th Cir. 1980), and a pattern charge is but one procedure for instructing the jury-other procedures may be used so long as they correctly describe the applicable state law. See Platis v. Stockwell, 630 F.2d 1202, 1207 (7th Cir. 1980); Wright v. Albuquerque Auto-Truck Stop Plaza, 591 F.2d 585, 587 (10th Cir. 1979); Stafford v. Southern Farm Bureau Casualty Insurance Co., 457 F.2d 366, 367 (8th Cir. 1972) (per curiam). Pattern instructions are merely some evidence that an instruction is advisable.
137
Although it is a close question, we hold that these instructions and the language of Special Interrogatory No. 31 are not erroneous under Smith -they did not mislead the jury or create misunderstanding of the issues. The special interrogatory and the instructions made clear to the jury that an award of exemplary damages was discretionary. The special interrogatory and instructions did not erroneously tell the jury or even imply that exemplary damages were mandatory. Compare nn. 69, 74 with Crowell-Collier Publishing Co. v. Caldwell, 170 F.2d 941, 944-45 & n.9 (5th Cir. 1948). While the preferable course would be for the trial judge to instruct on the purposes of exemplary damages, in this case Chemetron consistently sought exemplary damages and presented its case through evidence and argument in a way that made the purposes of exemplary damages clear to the jury. Given the presentation of Chemetron's case, we hold that the jury was not misled or confused by the "entitled to" language of Special Interrogatory No. 31 or by the jury instructions.
138
While so holding, we reiterate that the issue is close and that a trial judge must be extremely careful to keep exemplary damages within their proper sphere to prevent a jury from assessing them for invalid or speculative reasons. See Lee v. Southern Home Sites Corp., 429 F.2d 290, 294 (5th Cir. 1970). In future trials and particularly if this cause is retried, the "entitled to" phrase should not be used. In addition, we suggest that an instruction on the purposes of exemplary damages will often be found helpful to the jury, enabling it better to distinguish their proper function from that of compensatory awards.
139
2. Article 4004 and Texas Common Law of Civil Conspiracy.
140
The defendants challenge their liability as conspirators for violating article 4004. Since we have already found reversible error in the Texas judgment, it is necessary to discuss only one of these challenges, that of Bintliff. Bintliff claims that even if he joined the alleged conspiracy, he joined it well after Chemetron's purchase of Westec stock, and therefore he cannot as a matter of law be held liable for any fraud in connection with that purchase under article 4004. We address this claim to resolve it and to clarify Texas law should this case be retried on the remand that we order.
141
The elements necessary for liability under article 4004 have already been outlined. See supra Slip op. p. 4219, p. ----. Bintliff correctly asserts that since he was not involved in the Chemetron transaction, his conduct does not fulfill those elements, particularly the requirement of having fraudulently induced Chemetron, not the public at large, to purchase Westec shares. See supra Slip op. 4221, p. ----; Oilwell Division, United States Steel, 493 S.W.2d at 491. However, the Texas common law of civil conspiracy does provide a legal mechanism that could render Bintliff liable to Chemetron for its purchase of Westec shares. We describe this mechanism but express no opinion on whether the evidence in this case renders Bintliff liable, leaving that to the finder of fact if there is a new trial.
142
Texas recognizes the ancient common-law doctrine that civil conspiracy consists of " 'a combination by two or more persons to accomplish an unlawful purpose or to accomplish a lawful purpose by unlawful means.' " Fenslage v. Dawkins, 629 F.2d 1107, 1110 (5th Cir. 1980), quoting Schlumberger Well Surveying Corp. v. Nortex Oil & Gas Corp., 435 S.W.2d 854, 856 (Tex.1968). Unlike criminal conspiracy, civil conspiracy itself does not create liability-the conspirators must pursue an independently unlawful purpose or use an independently unlawful means before they can be held liable. See, e.g., Markman v. Lachman, 602 S.W.2d 350, 352 (Tex.Civ.App.-Texarkana 1980, no writ).
143
In this case, Chemetron alleged and offered proof that the continuing conspiracy Bintliff joined had both an unlawful purpose-market manipulation-and was pursued via unlawful means, including inducing the public to buy or sell Westec stock in violation of article 4004. None of the conspirators had specific sellers or buyers in mind when the conspiracy began or as it progressed. As each transaction occurred, however, the conspirators could meet the criteria for violating article 4004 by defrauding that particular buyer or seller. This case deals with only one fraudulent act in this broad conspiracy and with only one member of the public defrauded, Chemetron.
144
This is where Bintliff misunderstands the interaction of article 4004 and Texas civil conspiracy law. He claims that he cannot be liable to Chemetron unless he personally fulfills all of article 4004's criteria. That is true in a nonconspiracy case. But if this court were to accept his argument in this conspiracy case, we would completely abolish civil conspiracy law in Texas. The purpose of civil conspiracy law is to hold conspirators who knowingly and jointly pursue an illegal purpose or use illegal means liable even though all the conspirators do not perform or even know of all the acts done in furtherance of the conspiracy. See, e.g., Bourland v. State, 528 S.W.2d 350, 354 (Tex.Civ.App.-Austin 1975, writ ref'd n. r. e.); Glenn H. McCarthy, Inc. v. Knox, 186 S.W.2d 832, 838 (Tex.Civ.App.-Galveston 1945, writ ref'd w. o. m.).
145
This principle also covers late-joining conspirators such as Bintliff. See, e.g., State v. Standard Oil Co., 130 Tex. 313, 107 S.W.2d 550, 560 (1937). Standard Oil cited Corpus Juris as authority for this proposition. Turning to Corpus Juris Secondum, we find this rule of law: "Persons having knowledge of a conspiracy who enter into it after its inception and before its consummation are liable for all acts previously or subsequently done in pursuance thereof." 15A C.J.S. Conspiracy § 19, at 659 (1967), citing, e.g., Standard Oil. Accord, 12 Tex.Jur.3d Civil Conspiracy § 4 (1981); 16 Am.Jur.2d, Conspiracy § 56 (1979); 1 Eddy on Combinations § 376 (1901). This immemorial common-law principle has been widely accepted, see, e.g., Industrial Building Materials, Inc. v. Interchemical Corp., 437 F.2d 1336, 1343 (9th Cir. 1970); Ratner v. Scientific Resources Corp., 53 F.R.D. 325, 329 (S.D.Fla.1971), appeal dism'd for want of juris., 462 F.2d 616 (5th Cir. 1972) (per curiam); Blackstone Industries, Inc. v. Andre, 232 Ga. 715, 208 S.E.2d 815, 816 (1974), and is simply a restatement of another well-settled principle of conspiracy law "that one who knowingly joins a conspiracy even at a later date takes the conspiracy as he finds it," Myzel v. Fields, 386 F.2d 718, 738 n.12 (8th Cir. 1967), cert. denied, 390 U.S. 951, 88 S.Ct. 1043, 19 L.Ed.2d 1143 (1968).
146
Bintliff satisfies the conditions imposed by section 19. He joined the conspiracy after its inception but before its consummation. "A conspiracy, especially one which contemplates a continuity of purpose and a continued performance of acts, is presumed to continue until there has been an affirmative showing that it has terminated ...." United States v. Etheridge, 424 F.2d 951, 964 (6th Cir. 1970). Consummation of the market manipulation scheme had not occurred before Bintliff's membership in the conspiracy because ample record evidence demonstrates that the purpose of the conspiracy, market manipulation, was still pursued by the conspirators well after his entrance. This continuing conspiracy involved many illegal acts, some occurring before and some after Bintliff's entrance. The defrauding of Chemetron was but one illegal act done in furtherance of the conspiracy, not its consummation.
147
Civil conspiracy principles do not require that Bintliff have intended to defraud a specific party, only that he knowingly have joined the conspiracy intending to defraud its general targets. See, e.g., Schlumberger, 435 S.W.2d at 855-57; Switzer v. Joseph, 442 S.W.2d 845, 849 (Tex.Civ.App.-Austin 1969, no writ). These principles do not render Bintliff liable without regard to his intent-Texas conspiracy law in fact substitutes two intent requirements for the article 4004 intent requirement. Chemetron must prove that (1) one of his coconspirators violated article 4004 and that (2) Bintliff knowingly joined the conspiracy intending to defraud the investing public. We need not repeat the elements of the former requirement, and the Texas Supreme Court has laid out the criteria for the latter:
148
"A 'conspiracy to defraud' on the part of two or more persons means a common purpose, supported by a concerted action to defraud, that each has the intent to do it, and that it is common to each of them, and that each has the understanding that the other has that purpose."Schlumberger, 435 S.W.2d at 857, quoting Brumley v. Chattanooga Speedway & Motordrome Co., 138 Tenn. 534, 198 S.W. 775, 776 (1917) (emphasis in Texas opinion).
149
If a jury accepts Chemetron's proof that Bintliff knowingly agreed to participate in the alleged conspiracy to defraud the public and the jury also finds that one of his coconspirators violated article 4004 by defrauding Chemetron, Bintliff must be held liable to Chemetron under a long-established rule in Texas: "(A person) having once entered the conspiracy, however late, becomes in law a party to every act previous or subsequently done by any of the others in pursuance of it." Standard Oil Co., 107 S.W.2d at 560 (cited in, e.g., Logan v. Barge, 568 S.W.2d 863, 868 (Tex.Civ.App.-Beaumont 1978, writ ref'd n. r. e.); Mims v. Bohn, 536 S.W.2d 568, 570 (Tex.Civ.App.-Dallas 1976, no writ)). Thus, Bintliff can be held jointly and severally liable for the actual damages resulting from the previous act of his fellow conspirators, the defrauding of Chemetron.76
150
Bintliff raises a final argument on this issue that we must address. He claims that while he may be liable for actual damages under article 4004 and Texas conspiracy law based on the acts of his coconspirators, he cannot be held liable for exemplary damages based on their acts.
151
Earlier in this opinion, we held that the wording of article 4004 and Texas case law require individual assessment of exemplary damages under article 4004. See supra Slip op. p. 4226, at ----. While civil conspiracy law can be used to render Bintliff liable for actual damages under article 4004, we agree with him that punitive damages can only be assessed against him based on his conduct. The purpose of punishment and deterrence would not be served by imposing exemplary damages without regard to Bintliff's individual conduct.77 No Texas case of which we are aware has ever ignored individual culpability and awarded exemplary damages against civil conspirators on a joint and several basis. See, e.g., Fenslage, 629 F.2d at 1109, 1111 (Texas diversity case apportioning exemplary damages among civil conspirators).
152
This is not to say that, as a matter of law, Bintliff cannot be liable for punitive damages here since he joined the conspiracy late. Article 4004 permits exemplary damages against persons who "knowingly tak(e) ... advantage" of fraud. Thus, if Chemetron can prove that Bintliff knowingly took advantage of the defrauding of Chemetron, he can be held liable for exemplary damages.
153
C. Other Issues on Appeal.
154
We address three other allegations in order to guide the trial court if there is a new trial on remand.
155
1. The In Pari Delicto Instruction.
156
Appellants claim that it was error to deny them an in pari delicto instruction as to Chemetron. The grant of this defense is within the discretion of the district court, Wolfson v. Baker, 623 F.2d 1074, 1082-83 (5th Cir. 1980), cert. denied, 450 U.S. 966, 101 S.Ct. 1483, 67 L.Ed.2d 615 (1981), and review of this discretion is limited to its abuse. Prior cases limit this discretion and hold that this defense is only available to defendants under the circumstances outlined in Woolf v. S. D. Cohn & Co., 515 F.2d 591, 601-05 (5th Cir.), on petition for rehearing, 521 F.2d 225, 226-28 (1975) (per curiam), vacated and remanded on other grounds, 426 U.S. 944, 96 S.Ct. 3161, 49 L.Ed.2d 1181 (1976).
157
One important circumstance is the effect of the dispute on the investing public. If the fraud is worked only between the parties to the lawsuit, the public is not affected. If, however, as here, the fraud affected the public, use of in pari delicto is disfavored because it will hinder bringing of securities fraud cases. See id. at 602-03; 521 F.2d at 227-28. This circumstance must be given "substantial weight" in determining whether to permit this defense. 515 F.2d at 604.
158
(E)ven in a case where the fault of plaintiff and defendant were relatively equal, simultaneous and mutual, the court might still reject the defense if it appeared that the defendant's unlawful activities were of a sort likely to have a substantial impact on the investing public, and the primary legal responsibility for and ability to control that impact is with defendant.
159
Id. In the Woolf opinion on petition for rehearing, the court likened this equal-simultaneous criterion to the "vital" cooperation of coconspirators required to accomplish the conspiratorial scheme. 521 F.2d at 228.
160
Given these standards, the evidence does not persuade us that, even if Chemetron was a party to the conspiracy, it was a "vital" party. The trial court could well have concluded that the "primary legal responsibility" for the conspiracy lay with the defendants. Therefore, he did not abuse his discretion in denying this defense.
161
2. Use of the Zero-Value Theory in Measuring Damages.
162
In Special Interrogatory Nos. 27 and 30, addressing federal and Texas law, respectively, the jury found that had there been disclosure of the manipulative scheme prior to Chemetron's receipt of Westec stock on January 14, 1966, "the real and actual value" of that stock would have been zero. Defendants appeal the use of the zero-value theory in Chemetron's presentation of its case, the theory upon which the answers to Special Interrogatory Nos. 27 and 30 are based. They also appeal other points on the measure of damages.
163
The briefs are directed almost exclusively to the validity of the zero-value theory and related points under federal law. We need not decide any federal law questions since we have held that Chemetron has no federal cause of action for this fraud. Therefore our analysis of this theory and the other points on appeal is performed according to Texas law to guide a trial on remand.
164
We first consider an issue other than the theory itself. Defendants allege that Chemetron's expert who advanced the zero-value theory improperly incorporated post-purchase events in his damage assessment. The text of article 4004 expressly describes what evidence is relevant to a damage calculation:
165
All persons guilty of such fraud shall be liable to the person defrauded for all actual damages suffered, the rule of damages being the difference between the value of the property as represented or as it would have been worth had the promise been fulfilled, and the actual value of the property in the condition it is delivered at the time of the contract.
166
(emphasis added).
167
It is clear from article 4004 that any events occurring after January 14, 1966, may not be considered in assessing actual damages. Thus, the experts on damages and the jury may not consider, for instance, manipulative transactions after that date, the revelation of the scheme to the SEC, the cessation of trading in Westec stock, or the bankruptcy of Westec. Other considerations, such as an assumption that prepurchase transactions were illegal, may be used if they meet the standard tests for the admission of evidence, adequate foundation and the like. We leave these issues to the discretion of the trial judge on remand.
168
As to the zero-value theory, Chemetron contends that "actual value" in article 4004 refers only to the market value of the Westec stock, and the market value of Westec stock would have been zero had the scheme been disclosed. Appellants argue that even if the Westec stock had no market value, it had an intrinsic value representing the assets, tangible and intangible, of Westec, and that article 4004 includes this intrinsic value in the term "actual value."
169
The resolution of this debate requires an initial inquiry into the nature of damages under article 4004. The seminal case on common law damages for fraud in Texas, George v. Hesse, 100 Tex. 44, 93 S.W. 107 (1906), clearly distinguished between the two remedies available to defrauded purchasers. The first is an action for cancellation and rescission of the contract induced by the fraud, one which restores both parties to the status quo. The second, a tort action for deceit, compensates the defrauded purchaser for the difference between the actual value of the property received and the amount paid for that property. This second cause of action, sounding in tort and using an out-of-pocket measure of damages, was expanded by article 4004 into a benefit-of-the-bargain measure of damages in stock and real estate fraud cases. See El Paso Development Co. v. Ravel, 339 S.W.2d 360, 363 (Tex.Civ.App.-El Paso 1960, writ ref'd n. r. e.), cited with approval in Stanfield v. O'Boyle, 462 S.W.2d at 272 (Tex.1971).
170
In assessing damages in stock fraud cases under either article 4004 or the common law, Texas courts have employed the standard of value used by the damaged party. Thus, if a damaged party used the market value in striking its bargain, that became the standard. See, e.g., Chandler v. Butler, 284 S.W.2d 388 (Tex.Civ.App.-Texarkana 1955, no writ); cf. Patterson v. Wizowaty, 505 S.W.2d 425 (Tex.Civ.App.-Houston 1974, no writ) (measure of damages in stock conversion suit based on market value of stock at time of conversion). However, where there is no market for the stock or where it is allegedly worthless, the intrinsic value of the assets, tangible and intangible, represented by the stock is used. See, e.g., K. W. S. Manufacturing Co. v. McMahon, 565 S.W.2d 368 (Tex.Civ.App.-Waco 1978, writ ref'd n. r. e.); Beckwith v. Powers, 157 S.W. 177, 180 (Tex.Civ.App.-El Paso 1913, no writ). And in those cases where a damaged party valued stock by reference to the value of underlying assets, damages are calculated by reference to the value of those assets. See, e.g., Reed v. Holloway, 127 S.W. 1189 (Tex.Civ.App.1910, no writ). Using the damaged party's standard of value is eminently sensible, since it awards that party its anticipated benefit of the bargain while avoiding speculative and conjectural damages based on unanticipated benefits of the bargain. Such speculative and conjectural damages are forbidden under both article 4004 and the Texas common law of fraud. George, 93 S.W. at 108; El Paso, 339 S.W.2d at 363-64.
171
Based on these principles of Texas law, the use of the zero-value theory here was erroneous. The parties established a trading value different from and below the market value of Westec stock on the date of the transaction. There is no evidence that Chemetron contemplated the higher market price as a benefit of its bargain. Chemetron was making an investment in Westec, which is why it used the company's assets in establishing a price for the transaction. Unless Chemetron expected to benefit from the market price, it is speculative and conjectural to award damages based on it.
172
Even if Chemetron did anticipate the market price as a benefit of the bargain, the damages here would still be speculative or conjectural. The zero-value theory posits that during the panic after the disclosure of a scheme the stock will have no value. Such a panic period is an unpredictable phenomenon-its duration, effect on stock prices, and so forth are highly speculative and conjectural. See Beecher v. Able, 435 F.Supp. 397, 402-06 (S.D.N.Y.1977). Aggravating these characteristics is the fact that Chemetron would be selling an unusually large amount of stock-ten percent of all Westec stock. Selecting a measure of damages based on such an unreliable and volatile market risks awarding the plaintiff a windfall rather than damages. We find that Texas law cannot countenance a zero-value theory of damages.
173
Therefore, on remand, the zero-value market theory may not be used. Indeed, no theory that uses market value to set damages can be used, since market value played no role in the striking of the bargain. Chemetron must prove that the value it placed on the Westec stock (which ignored market value) was reduced by the fraud. The difference between the amount Chemetron paid (representing the value it placed on the Westec stock) and this reduced value, if any, represents the damages "actually suffered" and recoverable by Chemetron.
174
3. The Admission of Williams' Securities Fraud Conviction.
175
Defendants argue that the probative value of admitting Williams' securities fraud conviction into evidence was outweighed by its prejudicial effect. The conviction came into evidence in a short, two-question colloquy at the conclusion of Williams' lengthy, complicated testimony on the scheme and was also mentioned in closing argument.
176
In assessing the relevance and prejudice of this evidence in a civil case under Fed.R.Evid. 403,78 the trial judge has broad discretion, reviewable only for abuse. Rozier v. Ford Motor Co., 573 F.2d 1332, 1347 (5th Cir. 1978). The threshold issue here is the relevance of the conviction. If it is irrelevant, we need not reach the question of whether its probative value is substantially outweighed by its prejudicial effect. We believe that the conviction is certainly relevant. Two crucial elements of Chemetron's case were (1) that the plan to manipulate the market was illegal and (2) that Williams' conduct was illegal. Williams' conviction is relevant to both elements. While Chemetron did explore at length with the jury the scope of the manipulation, its purposes, and its ultimate results, the defendants hotly contested the existence and the illegality of the scheme and the illegality of Williams' conduct. The probative value of his conviction rose when these issues were vigorously contested. See United States v. Beechum, 582 F.2d 898, 914-15 (5th Cir. 1978) (en banc), cert. denied, 440 U.S. 920, 99 S.Ct. 1244, 59 L.Ed.2d 472 (1979).
177
Having passed the relevancy threshold, we must now consider whether the trial judge abused his discretion when he decided that the "danger of unfair prejudice" posed by the conviction did not "substantially outweigh" its probative value. "The task for the court in its ascertainment of probative value and unfair prejudice under rule 403 calls for a commonsense assessment of all the circumstances surrounding the extrinsic offense." Id. at 914. We find this advice on the meaning of "unfair prejudice" in the Notes of the Advisory Committee on the federal evidence rules:
178
"Unfair prejudice" within its context means an undue tendency to suggest decision on an improper basis, commonly, though not necessarily, an emotional one.... In reaching a decision whether to exclude on grounds of unfair prejudice, consideration should be given to the probable effectiveness or lack of effectiveness of a limiting instruction. See Rule 106 (now 105) and Advisory Committee's Note thereunder. The availability of other means of proof may also be an appropriate factor.
179
28 U.S.C.A. Fed. Rule of Evidence 403 at 102-03 (1975).
180
The defendants could have requested, but apparently did not, a limiting instruction that is their right under Rule 105.79 Once evidence admissible for one purpose but inadmissible for another is admitted, the trial court cannot refuse a requested limiting instruction. Lubbock Feed Lots, Inc. v. Iowa Beef Processors, 630 F.2d 250, 266 (5th Cir. 1980). In all likelihood, a limiting instruction would have effectively alleviated the appellants' concerns in this case. We also note that defendants began, but abandoned, cross-examination of Williams on the issue of his conviction, another method they could have used to minimize any prejudicial effect.
181
The Notes also mention consideration of other means of proof. One aspect of such consideration must be whether Williams' conviction is redundant of other less prejudicial evidence. Rozier is instructive on this issue. In Rozier the issue was defendants' negligence in manufacturing the car in which plaintiff's decedent was killed when it ignited after being hit from behind by another car. The trial court admitted into evidence the guilty plea on charges of manslaughter of the driver of the other car. On appeal, this court held this to be an abuse of discretion. The court noted that the criminal conviction had limited probative value since it duplicated already ample evidence of the obvious cause of the auto accident in that case. See 573 F.2d at 1348. The court also held its relevance as evidence of legal cause "attenuated at best," since it had nothing to do with the issue in the case: the legal liability of the allegedly negligent defendant auto manufacturer for injuries in a car accident. Id. This limited relevance was held to outweigh the confusion it could cause the jury as it assessed the legal causes of the tort. Id. Therefore, the auto company's introduction of the conviction was barred.
182
This case is quite different from Rozier. While the cause of the accident was obvious in Rozier, here the legality of the alleged scheme was strongly disputed between the parties. The relevance of this conviction is not at all attenuated. In Rozier there was a danger that the two forms of causation, the obvious cause of the accident and the disputed proximate (legal) cause of the death, would be confused. The conviction was not at all relevant to the dispute over proximate cause. Here, however, Williams' activities were pivotal in proving the crucial issue in this case: proximate cause and legal liability. Unless he had done something illegal, his alleged superiors and coconspirators could not be held liable. Finally, there was little chance of jury confusion sufficient to outweigh the evidence's relevance. The jury was clearly and repeatedly told that defendants' liability was a separate issue from Williams' liability.
183
Undue prejudice could also have resulted had the conviction been repeatedly emphasized to the jury or had Chemetron introduced the conviction of other conspirators. See United States v. Fleetwood, 528 F.2d 528, 535 (5th Cir. 1976). However, neither of these events occurred. We therefore hold that the trial judge did not abuse his discretion in admitting evidence of Williams' securities fraud conviction.
IV. CROSS-APPEAL ISSUES
184
Chemetron lodges a cautionary cross-appeal on several issues. This appeal is triggered since we have reversed the judgment under section 10(b) and Rule 10b-5.
185
A. Denial of Directed Verdict and J. N. O. V. on Special Interrogatory No. 6.
186
In Special Interrogatory No. 6 the jury found that the price paid by Chemetron for its Westec stock was not "affected by" the fraudulent scheme. Therefore, the defendants could not be liable under section 9. See § 9(e), 15 U.S.C. § 78i(e). Chemetron appeals the denial of a directed verdict or judgment withstanding the verdict on this issue and advances an interpretation of "affected by" in support.
187
The gist of Chemetron's interpretation is that every price of a stock being manipulated is a false price until the manipulation is revealed and the market reacts. Therefore, all transactions, whether on or off the market, during a manipulation and before its relevation are at false prices, and all are "affected by" the manipulation as a matter of law. In support of this far-reaching interpretation, Chemetron cites no case law, only general passages from the legislative history of the 1934 Act on the importance of open and honest securities markets.
188
This interpretation of section 9(e) would obviate its causation requirement. Given Congress' numerous careful substantive and procedural restrictions on a section 9(e) private cause of action, we cannot countenance an interpretation of 9(e) that works at cross-purposes to Congress' intent by effectively reading section 9(e)'s causation requirement out of the statute. At a minimum, "affected by" plainly must mean that the manipulated price influenced or was responsible for the purchaser's or seller's price.80 See Crane Co. v. American Standard, Inc., 603 F.2d 244, 251-53 (2d Cir. 1979) (transaction before manipulation not actionable; transaction after manipulation not actionable absent allegation and proof of effect on sale price); Rosenberg v. Hano, 121 F.2d 818, 821 (3d Cir. 1941) (price of stock purchased before alleged manipulation occurred not "affected" under section 9); Kerrigan v. Merrill Lynch, Pierce, Fenner & Smith, 450 F.Supp. 639, 647 (S.D.N.Y.1978) (sale at predetermined net book value price cannot be "affected by" alleged manipulation under section 9(e)). The Supreme Court has characterized section 9 as designed to recover an "improper premium exacted for ... stock." Piper, 430 U.S. at 46, 97 S.Ct. at 951.
189
Under this minimum definition, the jury verdict was amply supported by the evidence. W. W. Whitnell, an officer of Chemetron, testified at trial that he was "the person primarily in charge of determining what would be a fair price for the (Westec) stock." He served as the "leading negotiator for Chemetron in connection with the Chemetron/Westec deal." In deposition testimony that he reaffirmed at trial, Whitnell said that the negotiators struck a bargain for the nonmarket transaction in October 1964. This bargain was approved by the parties and led to the January 1966 exchange of stock. For purposes of the bargain, Westec shares were to be valued at $14 per share, a price below its market trading price in both October and January. When asked how the $14 figure was arrived at, he responded: "(W)e felt that $14 was a fair price based on the fundamental value of the company. We were not influenced by the market. I have long ago learned that market prices have nothing to do with fundamental values."
190
Thus, just as in Crane, Rosenberg, and Kerrigan, it is clear that the allegedly manipulated market price of the Westec shares in no way influenced or was responsible for the nonmarket price Chemetron paid for its Westec stock. Chemetron did not base its price on the market price or even use it as a factor. Therefore, it paid no "improper premium" for the Westec stock it purchased. While Chemetron was apparently aware of the market price, it was completely ignored or totally discounted in its Westec negotiations. Mere awareness of the allegedly manipulated market price will not suffice under section 9(e).
191
B. Collateral Estoppel.
192
Chemetron argued in its proposed pretrial order that Bintliff be collaterally estopped from relitigating certain factual issues adjudicated adversely to him in Cosmos Bank v. Bintliff, Civ. Action No. 67-H-590 (S.D.Tex.1975). The trial court denied Chemetron's proposal, and it appeals.
193
It is necessary to detail the facts at some length in order to analyze this question correctly. Cosmos Bank was one of the many cases arising out of the Westec collapse. The instant case, Cosmos Bank, and many others were consolidated for the purposes of pretrial proceedings in 1970. Cosmos Bank came to trial before Judge Hannay without a jury from December 17, 1974, until February 12, 1975. On May 1, 1975, the trial judge filed and entered a lengthy "Memorandum and Order" detailing his findings of fact and conclusion of law. Based on those findings and conclusion, judgment for over $700,000 in damages and interest was to be awarded to the plaintiff. Plaintiff filed a motion for judgment on May 9, and on May 16 Bintliff filed his motion in opposition to entry of judgment.
194
On May 29, Bintliff's counsel wrote the United States District Clerk, saying that Bintliff and Cosmos Bank would settle only if the trial judge would sign an order preventing use as offensive collateral estoppel of the findings and conclusions.81 On May 30, Cosmos Bank and Bintliff filed their joint motion and proposed order. However, the trial judge refused to sign the order because it ordered a new trial for which, the trial judge said in a letter to counsel, "(t)here is, in my opinion, no basis." The trial judge proposed a different order and threatened to act on plaintiff's pending motion for judgment unless his proposed order was promptly agreed to.82 The parties accepted that order, and the judge signed and entered it on June 17, 1975, dismissing the case with prejudice and withdrawing and setting aside the findings of fact and conclusion of law.83 Chemetron's proposed pretrial order contained 158 findings of fact taken verbatim from the 221 findings of fact made by the court and then set aside in Cosmos Bank. However, the trial judge refused to estop Bintliff from relitigating those facts, a refusal Chemetron appeals.
195
As a preliminary issue we must decide which offensive collateral estoppel rules, Texas or federal, to apply. Because this case was brought in federal court based on federal question and pendent jurisdiction and the estoppel claim is based on a prior case in federal court, we will apply federal rules. See Stovall v. Price Waterhouse Co., 652 F.2d 537, 540 (5th Cir. 1981).
196
The Supreme Court's landmark case of Parklane Hosiery Co. v. Shore, 439 U.S. 322, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979), established the criteria for the use of offensive collateral estoppel. In Parklane the precise question was "whether a party who has had issues of fact adjudicated adversely to it in an equitable action may be collaterally estopped from relitigating the same issues before a jury in a subsequent legal action brought against it by a new party." 439 U.S. at 324, 99 S.Ct. at 648. The question in this case is nearly identical. The Court initially expressed its approval of the offensive use of the doctrine if it can be used to prevent relitigation of issues and to promote judicial economy. See id. at 326-31, 99 S.Ct. at 649-651. However, in order to avoid problems with the doctrine's use, the Court adopted a general rule to guide the lower courts:
197
The general rule should be that in cases where a plaintiff could easily have joined in the earlier action or where ... the application of offensive estoppel would be unfair to a defendant, a trial judge should not allow the use of offensive collateral estoppel.
198
Id. at 331, 99 S.Ct. at 651.
199
The first step in the application of this rule is to determine whether Chemetron could have joined the Cosmos Bank suit. We find that that was not possible. As the Westec cases were filed in Houston or transferred from New York, nearly all of them were placed on Judge Hannay's docket. See Wyndham Associates v. Bintliff, 398 F.2d 614, 619-20 (2d Cir.), cert. denied, 393 U.S. 977, 89 S.Ct. 444, 21 L.Ed.2d 438 (1968). He entertained motions to consolidate for various purposes. Some cases were consolidated for all purposes, including trial, but Judge Hannay expressly consolidated Cosmos Bank and Chemetron "for purposes of pretrial proceedings and none other." (emphasis added). This order, supported by the court's thorough familiarity with these cases, see id., demonstrates to us that consolidation was carefully considered and rejected. The reasons for rejection are obvious, since Chemetron began with far more defendants (57) than Cosmos Bank (4), involved far more transactions, and was in general much more complex. Basically, only Bintliff's participation was common to both cases. Thus, deference to the expertise of the trial court and our own analysis of the two cases convinces us that Chemetron could not have joined Cosmos Bank.
200
The second step in our analysis is possible unfairness to defendant Bintliff. The Court in Parklane gave several examples of possible unfairness to the defendant that should block the use of offensive collateral estoppel. The first was that if the defendant was sued in the first action "for small or nominal damages, he may have little incentive to defend vigorously, particularly if future suits are not foreseeable." 439 U.S. at 330, 99 S.Ct. at 651 (citations omitted). That is not true in this case. The damages in Cosmos Bank were over $400,000, plus interest, eventually totalling over $700,000, hardly "small or nominal damages" in absolute terms. In this case on remand, Bintliff does face the possibility of damages greater than those he faced in Cosmos Bank.84 However, he knew other cases such as this one bearing on the same issues and requesting larger damages were pending, as evidenced by the common discovery procedure and his eagerness to settle and avoid offensive collateral estoppel. He had every incentive to defend vigorously in Cosmos Bank.
201
Another unfair situation is where "the judgment relied upon as the basis for estoppel is itself inconsistent with one or more previous judgments in favor of the defendant." Id. (footnote omitted). There is no such inconsistency here because there are no previous judgments.
202
"Still another situation where it might be unfair to apply offensive collateral estoppel is where the second action affords the defendant procedural opportunities unavailable in the first action that could readily cause a different result." Id. at 630-31 (footnote omitted). The Court suggested that such procedural obstacles could be an inconvenient forum inhibiting full discovery or the availability of witnesses. Id. at 631 n.15. There are no such procedural problems here. Indeed, Cosmos Bank was originally filed in New York, and Bintliff had it transferred to Houston, where he lives, for convenience. See Wyndham Associates, 398 F.2d at 616-17; In re Westec Corp., 307 F.Supp. 559, 563 Sch. B. (J.P.M.D.L.1969) (per curiam). We perceive Bintliff to be at no disadvantage due to the Cosmos Bank procedures. If anything, in these cases Chemetron has been inconvenienced by the forum as an out-of-state corporation.
203
The Parklane Court did not consider its list of considerations exhaustive. See 439 U.S. at 331, 99 S.Ct. at 651. To seek others, we turn to our circuit's precedent. Even before Parklane, the circuit "had stressed the importance of fairness in the particular circumstances of a given case when a litigant sought to invoke offensive collateral estoppel." Hicks v. Quaker Oats Co., 662 F.2d 1158, 1171 (5th Cir. 1981). Canvassing our precedent, we discover these criteria, many repeated in Parklane : (1) party against whom estoppel is asserted must have had a "full and fair" opportunity to litigate the issue in the prior case; (2) application of the doctrine must not create "injustice"; (3) application of the doctrine must not contravene any "overriding public policy"; (4) parties who are defendants in both actions must be closely scrutinized to avoid unfairness; (5) the issue to be concluded must be identical to that involved in the prior action; (6) in the prior action the issue must have been "actually litigated"; and (7) the determination made of the issue in the prior action must have been necessary and essential to the resulting judgment. See Johnson v. United States, 576 F.2d 606, 614-15 (5th Cir. 1978).
204
Criteria 1, 2, 4, and 6 have been covered already. Criterion 3 requires us to consider our view that settlements are "highly favored in the law." Pearson v. Ecological Science Corp., 522 F.2d 171, 176 (5th Cir. 1975), cert. denied, 425 U.S. 912, 96 S.Ct. 1508, 47 L.Ed.2d 762 (1976). But the reason that settlements are favored is that they avoid litigation. Id. Here Bintliff settled only to avoid offensive collateral estoppel, not litigation, since the entire trial had run its course, and only the judicial act of signing a final, known adverse, judgment was left.85
205
As to criterion 5, there is no question that the factual issues are the same. Criterion 7, because it appears to require a "judgment," leads us to an evaluation of whether we should require the final ministerial act of entering final judgment before giving collateral estoppel effect to the findings of fact of the trial court.86
206
The general rule in this circuit is that there must be "judicial finality" before collateral estoppel can be invoked. Since judicial finality has been assumed without analysis to require entry of final judgment, a settlement with no final judgment on the merits has been said to bar collateral estoppel. See, e.g., Kaspar Wire Works, Inc. v. Leco Engineering & Machine, Inc., 575 F.2d 530, 538 (5th Cir. 1978); Associates Capital Services Corp. v. Loftin's Transfer & Storage Co., 554 F.2d 188, 189 (5th Cir. 1977) (summary calendar) (per curiam). However, none of our cases have fully considered the "judicial finality" requirement in an offensive collateral estoppel case such as this one. Loftin's summarily denied the defensive use of collateral estoppel on a jurisdictional issue by the defendant in that case. In Kaspar the issue was the res judicata or collateral estoppel effect of a prior consent judgment dismissing a suit between the same two parties. Particularly relevant to our case, the court expressly acknowledged that the "final judgment" requirement is relaxed in the case of collateral estoppel. See 575 F.2d at 538 n.11. Most important, Kaspar and Loftin's predated the watershed case on offensive collateral estoppel, Parklane, which, as we stated recently, created a "need to redefine the doctrine of collateral estoppel," Migues v. Fibreboard Corp., 662 F.2d 1182, 1187 (5th Cir. 1981). Given Kaspar 's reservation of the question of finality in the collateral estoppel context and the guidance of Parklane, the definition of "judicial finality" for purposes of offensive collateral estoppel is an open question in this circuit.
207
As the Second Circuit pointed out in Kurlan v. C. I. R., 343 F.2d 625, 628 n.1 (2d Cir. 1965), "general expressions that only final judgments can ever have collateral estoppel effect are considerably overstated." In Kurlan the court upheld giving collateral estoppel effect to the opinion of an appellate court even though the case had been settled on remand. The Kurlan court was acting based on sound precedent.
208
In Zdanok v. Glidden Co., Durkee Famous Food Division, 327 F.2d 944, 955 (2d Cir.) (Friendly, J.), cert. denied, 377 U.S. 934, 84 S.Ct. 1338, 12 L.Ed.2d 298 (1964), cited with approval in Johnson, 576 F.2d at 614, the court held:
209
Dealing with this very question of the kind of finality of judgment necessary to create an estoppel, we pointed out, quite recently, that collateral estoppel does not require a judgment "which ends the litigation ... and leaves nothing for the court to do but execute the judgment," Catlin v. United States, 324 U.S. 229, 233, 65 S.Ct. 631 (633), 89 L.Ed. 911 (1945), but includes many dispositions which, though not final in that sense, have nevertheless been fully litigated. Lummus Co. v. Commonwealth Oil Refining Co., 297 F.2d 80, 89 (2d Cir. 1961), cert. denied, 368 U.S. 986, 82 S.Ct. 601, 7 L.Ed.2d 524 (1962), and cases cited. As we there said, " 'Finality' in the context here relevant may mean little more than that the litigation of a particular issue has reached such a stage that a court sees no really good reason for permitting it to be litigated again.
210
The Second Circuit has reaffirmed these principles several times. See, e.g., United States ex rel. DiGiangiemo v. Regan, 528 F.2d 1262, 1265 (2d Cir. 1975), cert. denied, 426 U.S. 950, 96 S.Ct. 3172, 49 L.Ed.2d 1187 (1976). Other circuits agree with these principles as well. " 'Finality' in the sense of 28 U.S.C. § 1291 is not required" for collateral estoppel. Miller Brewing Co. v. Joseph Schlitz Brewing Co., 605 F.2d 990, 996 (7th Cir. 1979), cert. denied, 444 U.S. 1102, 100 S.Ct. 1067, 62 L.Ed.2d 787 (1980).
211
Thus, the finality requirement does not necessarily demand the ministerial act of executing a judgment. It does not elevate form over substance in that fashion-the accurate definition of "finality" in the offensive collateral estoppel context is "fully litigated." In this instance, the facts of Bintliff's activities found in Cosmos Bank have been found again by the jury in Chemetron. Thus, they have been twice fully litigated. That Judge Hannay felt he had rendered a fully litigated, fair, and correct adjudication on the merits in Cosmos Bank is evidenced by his refusal to sign an order granting a new trial because such an order had "no basis" and by his threat to enter judgment.
212
A recent opinion in the Ninth Circuit reinforces our conclusion here. In Aetna Casualty & Surety Co. v. Jeppesen & Co., 440 F.Supp. 394 (D.Nev.1977) (ruling on motion for summary judgment), 463 F.Supp. 94 (1978) (judgment), vacated on other grounds and remanded, 642 F.2d 339 (9th Cir. 1981), the district court confronted an issue very similar to the one we face: can a plaintiff not a party to a prior case invoke offensive collateral estoppel against the defendant when that case had been fully litigated as to liability but settled before trial on the issue of damages and entry of final judgment? In its ruling on the motion for summary judgment, the trial court carefully and thoroughly reviewed the need for "finality," discussing the concepts and cases we have cited, see 440 F.Supp. at 401-06, and held that both case law and equity compelled an affirmative answer to the question, id. at 405-06.87
213
In conclusion, we have held that "although the decision to apply offensive collateral estoppel rests in the discretion of the trial judge, ... this discretion is not unbounded and must be channeled through the considerations of fairness listed in Parklane, along with any other considerations of fairness which the trial judge deems appropriate." Hicks, 662 F.2d at 1172-73 (citation and footnote omitted). We have analyzed the Parklane considerations and this circuit's considerations, and Bintliff neither points out nor do we see any others that would render the use of offensive collateral estoppel against Bintliff in any way unfair "in the particular circumstances" of this case.88 Tactically he chose to litigate fully Cosmos Bank, risking an adverse decision. He lost on that risk, and only when he lost did he decide to settle, fearing offensive collateral estoppel. Yet now he seeks to avoid the consequences of that loss by elevating form over substance. He cannot have it both ways. The findings of fact against Bintliff in Cosmos Bank are sufficiently final to permit their use in this case. On remand, Bintliff should be collaterally estopped from relitigating those facts.
214
C. Federal Securities Law Claims Against Bintliff Based on Chemetron's Alleged 1969 "Forced Sale" of its Westec Shares to the Bankruptcy Trustee.
215
Chemetron claims that it should have been permitted to submit to the jury claims against Bintliff under sections 10(b) and 9, and Rule 10b-5, arising out of an alleged "forced sale" of its Westec stock to the Westec bankruptcy trustee in June 1969.
216
The scope of this issue on appeal can be quickly narrowed. Since we have held that the fraud at issue here gives rise only to a section 9 cause of action, the "forced seller" doctrine of Rule 10b-5 cannot be applied. That leaves the issue of whether the 1969 claim is cognizable under section 9. However, we need not reach the merits of this claim, since it is quite evident from the proceedings below that Chemetron has been less than diligent in pursuing this claim and gave the trial judge ample cause to deny its submission to the jury.
217
Chemetron's 1967 complaint asserted many causes of action and described the alleged manipulative scheme as well. However, that complaint could allege nothing about a 1969 transaction with the bankruptcy trustee. Its only reference to the bankruptcy was to say that "(Westec) is currently undergoing reorganization in a proceeding under Chapter X of the Bankruptcy Act" caused by the manipulative scheme. This was enough, Chemetron claims, to put the defendants on notice of a possible claim arising out of a possible bankruptcy "sale." Chemetron argues that further notice, if necessary, was provided by discovery in August 1974, when defendants were informed of the terms of the "sale."
218
As a result of the complaint and discovery, Chemetron asserts that there was adequate notice of this claim under Fed.R.Civ.P. 8's liberal pleading doctrine. However, Chemetron neglects the strictures of Fed.R.Civ.P. 9:
219
(b) Fraud, Mistake, Condition of the Mind. In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.
220
While Rules 8 and 9 must be read in conjunction, see Powell, Inc. v. Abney, 83 F.R.D. 482, 487 (S.D.Tex.1979), Rule 9(b) still requires that defendants be fairly apprised of the claims against them, including the "consequence(s) of the fraud," Gross v. Diversified Mortgage Investors, 431 F.Supp. 1080, 1088 (S.D.N.Y.1977), aff'd mem., 636 F.2d 1201, 1203, 1206 (2d Cir. 1980), and particularly of "the purchase or sale transactions ... effectuated by reason of the misrepresentations," Rich v. Touche Ross & Co., 68 F.R.D. 243, 247 (S.D.N.Y.1975). Therefore, the 1967 complaint in and of itself did not satisfy Rule 9(b) because it did not even mention the 1969 sale. Rules 8 and 9(b) required that Chemetron amend or supplement its complaint with a short, concise statement stating a claim based on the 1969 transaction.
221
Nor do we think discovery here afforded adequate notice of this claim to the defendants in the absence of a sufficient complaint. In 1974, the defendants apparently learned of the 1969 transaction through interrogatories. But merely learning of the "sale," without more, did not give them notice of a specific claim arising out of it for at least two reasons. First, the traditional use of evidence of such a transaction would be to prove damages arising out of Chemetron's original purchase of Westec stock, not to create another cause of action. In fact, that is precisely the use to which the trial judge put evidence of the 1969 transaction. In the judgment, he also set off the value Chemetron received in that transaction against the damages awarded, a setoff that Chemetron accepted.
222
Second, while the federal rules do not require statement of a legal theory in order to obtain relief, see Hostrop v. Board of Junior College District No. 15, 523 F.2d 569, 581 (7th Cir. 1975), cert. denied, 425 U.S. 963, 96 S.Ct. 1748, 48 L.Ed.2d 208 (1976), a section 9 "forced sale" claim is so novel that defendants' counsel would have had to be most prescient to be on notice of it from simply the original complaint and discovery. While the doctrine of "forced sale" appears to be well entrenched under Rule 10b-5, see Alley v. Miramon, 614 F.2d 1372 (5th Cir. 1980), its origin was in a Rule 10b-5 case, Vine v. Beneficial Finance Co., 374 F.2d 627 (2d Cir.), cert. denied, 389 U.S. 970, 88 S.Ct. 463, 19 L.Ed.2d 460 (1967), and Chemetron neither cites nor are we aware of the use of the doctrine outside of Rule 10b-5 cases. Chemetron thus makes the unprecedented argument that there is an analogous doctrine under section 9 and that an exchange of shares in a bankruptcy proceeding is such a "forced sale." Our initial reaction is that the differences between section 9 and Rule 10b-5, particularly Congress' strict limits on section 9, may preclude the development of such a doctrine.89 We need not decide this question in order to illustrate our point: even after discovery, defendants could not possibly have had any semblance of "fair notice" that Chemetron planned to present such an unusual section 9 theory to the jury.
223
Overall, then, we hold that defendants never had sufficient notice of this claim until the pretrial conference held shortly before trial in August and September of 1979, more than ten years after the 1969 "sale." When Chemetron submitted its proposed pretrial order containing this claim at the conference, defendants were naturally surprised and objected. In response to a subsequent motion by Chemetron, the trial judge, in October 1979, barred a claim based on the 1969 transaction and limited the use of evidence about the 1969 "sale" to one issue:
224
ORDERED that Chemetron Corporation will not be barred from submitting evidence regarding its sale of Westec stock on June 24, 1969, as that sale relates to establishing the measure of damages as an element of its cause of action for violations of § 9(e) asserted against Defendant Bintliff in Plaintiff's Complaint.
225
Chemetron never objected to this order and never pursued its fall 1979 motion for leave to file supplemental pleadings pursuant to Fed.R.Civ.P. 15(d), specifically alleging and seeking relief based on the 1969 "sale." Only now does Chemetron complain of the trial court's failure to grant the motion to supplement.
226
Granting such a motion is within the discretion of the trial court. Aladdin's Castle, Inc. v. City of Mesquite, 630 F.2d 1029, 1037 (5th Cir. 1980), rev'd in part and remanded on other grounds, --- U.S. ----, 102 S.Ct. 1070, 71 L.Ed.2d 152 (1982). Since there is virtually no precedent in our circuit on Rule 15(d), we rely on Rule 15(a) cases, since the two are treated alike in evaluating a trial judge's exercise of discretion, 6 C. Wright & A. Miller, § 1504 at 541 (1971). Those cases list several factors that justify denial of leave to amend: (1) undue delay, (2) bad faith or dilatory motive by the movant, (3) repeated failure to cure deficiencies by previous amendments, (4) undue prejudice to the opposing party, or (5) futility of amendment. See Dussouy v. Gulf Coast Investment Corp., 660 F.2d 594, 598 (5th Cir. 1981); Gregory v. Mitchell, 634 F.2d 199, 203 (5th Cir. 1981).
227
Given these factors, we hold that there were the "substantial reason(s)" required under Rule 15 to deny the motion to supplement. See Dussouy, 660 F.2d at 598. In Dunn v. Koehring Co., 546 F.2d 1193, 1198-99, clarified on reh'g and denial of reh'g en banc, 551 F.2d 73 (5th Cir. 1977), we upheld the court's discretion to deny an amendment offered on the morning of trial, five years after the filing of the case, and after over four years of "extensive pretrial preparation." Here, on the eve of trial, over twelve years after the complaint was filed, over ten years after the 1969 "sale," and after ten years of very extensive pretrial work, Chemetron moved to supplement. Given this undue delay and lack of diligence in moving to supplement, Chemetron had the burden of showing that the delay was due to oversight, inadvertence, or excusable neglect. Gregory, 634 F.2d at 203. It has not advanced, nor do we comprehend, any reasons meeting this burden. We detect undue prejudice as well. That Chemetron would add this claim immediately before trial may suggest a complaint in search of a wrong. See Rich, 68 F.R.D. at 247.
228
Balanced against these "substantial reasons" to deny is the possible prejudice to Chemetron of denial of leave to supplement. That prejudice is preclusion of a section 9 claim based on the 1969 transaction. Given the weakness of that legal theory and the fact that Chemetron's primary cause of action arose out of its original purchase of the Westec securities, this prejudice is slight. Finally, judicial economy gave the trial court further cause to bring this case to trial without additional delay twelve years after its filing. For these reasons, we deny Chemetron's cross-appeal on this issue.
V. CONCLUSION
229
To summarize, we hold and order the following: (1) Chemetron has no section 10(b) or Rule 10b-5 action in this case, and the judgment, insofar as it is based on them, is reversed; (2) the judgment for actual and exemplary damages based on Texas law is reversed due to the errors found; on remand the parties may retry the Texas claims in accordance with the rulings on Texas law and other issues found in this opinion; and (3) we find merit in only one of Chemetron's cross-appeal claims; in a new trial on remand, Bintliff may be collaterally estopped from relitigating facts found in Cosmos Bank.
230
REVERSED AND REMANDED.
231
JERRE S. WILLIAMS, Circuit Judge, concurring in part and dissenting in part.
232
I concur in all parts of Judge Gee's opinion except Part III, A, the Federal Securities Law claims. I particularly note my concurrence in those portions of the majority opinion to which Judge Reavley directs his dissenting views.
233
Judge Gee's opinion rules out any liability under federal law for the stock manipulations of James Williams and those who participated in or who are responsible for his activities. The opinion is meticulously reasoned. The difficulty I have with it is that it leads to a result which borders on the absurd. In spite of the reasoning, I cannot conclude that Congress intended any such result.
234
The defendants before the Court, Business Funds, Inc. (BFI) and David Bintliff are responsible for the manipulations of Williams and John Austin, Chairman of BFI, upon which this lawsuit is based. Williams was found to have engaged in a (1) scheme relating to the purchase or sale of stock, which included (2) misstatements or omissions (3) of material facts, (4) made with scienter, (5) upon which Chemetron relied, (6) causing Chemetron's injury, and (7) touching upon the loss in value of the stock. We have held that these are the elements required by Section 10(b) of the statute and Rule 10b-5. See, Huddleston v. Herman & MacLean, 640 F.2d 534, 543 (5th Cir. 1981). But because Williams' activities failed to "affect" the purchase or selling price of the stock, according to the finding of the jury, Williams and those responsible for his actions are found by this Court to have committed no federal securities offense at all.
235
In evaluating this case it is of significant aid to speculate what the result would have been if Chemetron had brought its suit only under Section 10(b) and not referred to Section 9(a) at all. I should think the result is clear. An offense was committed by the defendants under Section 10(b) and Rule 10b-5. All of the requisites were met. It is only because an additional element of an offense under Section 9(a) was not proven that the defendants are freed of all responsibility for having violated federal securities law. This is an overtly unrealistic view of the law, and I cannot conceive that Congress would contemplate such a result.
236
If it were true that this was some unusual kind of stock manipulation which could only be cognizable under Section 9(a), then the majority opinion's analysis would be correct. But such is not this case. The defendants through Williams engaged in a number of different kinds of manipulations and deceits designed to enhance the value of the stock. These manipulations and deceits were not unique nor unusual for such offenses. At least some of them were "manipulative or deceptive" devices or contrivances clearly at the core of a Section 10(b) violation as well as a Section 9(a) violation. The Section 9(a) violations charged in this case require a series of transactions. Section 10(b) requires only one. But surely it cannot be argued that someone who commits one violation under Section 10(b) must go free if he commits more than one unless additional and more stringent proofs are met. This would be an open invitation to commit more than one offense to make responsibility more difficult to prove.
237
It is quite true, as the opinion for the Court points out, that Section 10(b) was created as a "catch-all." It was intended to cover transgressions other than those covered by the specific requirements of Section 9(a) and a number of other sections of the statute. But I cannot see what is wrong with the use of a catch-all. As the jury found, Williams did not violate Section 9(a). But he was in complete and literal violation of Section 10(b). Hence the application of a "catch-all."
238
The opinion for the Court concedes that "Rule 10b-5 has been extended well beyond its gap-filling purpose as originally envisioned by Congress in Section 10(b) and proposed by the SEC." The major alteration of the scope of Section 10(b), of course, was the finding of an implied private right of action under Rule 10b-5 in Kardon v. National Gypsum Co., 69 F.Supp. 512 (E.D.Pa.1946). The private remedy is now well established, see Ernst & Ernst v. Hochfelder, 425 U.S. 185, 196, 96 S.Ct. 1375, 1382, 47 L.Ed.2d 668 (1976). The earlier pattern of the statute was found in the specific provision in Section 9(e) for a civil remedy for those damaged by stock manipulation schemes under Section 9, but with no comparable civil remedy provision in Section 10(b), thus leaving 10(b) violations to governmental enforcement. But the subsequent creation by judicial interpretation of a civil remedy under Section 10(b) must not be taken as narrowing the scope of Section 10(b). It was a broadening of Section 10(b), not a narrowing.
239
It is asserted, however, that we are bound by the analysis of this Court in Huddleston v. Herman & MacLean, 640 F.2d 534 (5th Cir. 1981), modified on denial of rehearing and of rehearing en banc, 5th Cir., 640 F.2d 815, cert. granted, --- U.S. ----, 102 S.Ct. 1766, 72 L.Ed.2d 173 (1982) (Nos. 81-680, 81-1076). In my view, the Court in the instant case is not bound by the Huddleston case for two reasons. In the first place, in that case the Court upheld as proper, private remedies, even with admitted overlap, under both Section 17(a) and the Section 10(b) "catch-all." The substantive provisions of Section 17(a) of the statute were found to be different from the substantive provisions of Section 10(b). The Court found that the Section 10(b) offense charged required different, and in some circumstances stronger, proof than that required by Section 17(a). Therefore, the analysis in Huddleston which the majority opinion urges is that if Section 10(b) does not make some additional requirements over offenses charged in the other section it cannot be used. But this analysis was not a part of the holding in that case because the Court upheld the overlapping remedy, nor was it necessary to the holding.
240
But the second, and more compelling reason, is that the Huddleston analysis did not focus at all upon or evaluate in detail a situation where, as in this case, a person engaged in deceitful stock manipulations would clearly be in violation of Section 10(b) while another person who did the same thing but was charged with his actions having a serious and harmful additional impact would go free.
241
Huddleston points out clearly in its footnote 7, 640 F.2d 542, that the authority in existence is overwhelmingly in favor of recognizing that conduct covered by the express liability provisions of the 1933 and 1934 acts may also be covered by Section 10(b). This view is confirmed in footnote 9 of the majority opinion. Fischman v. Raytheon Mfg. Co., 188 F.2d 783, 788 (2d Cir. 1951) established this rule. It was stated as the rule of law in 1 A. Bromberg, Securities Law: Fraud-SEC Rule 10b-5 § 2.4(1), at 27-28 (1967). Particularly noted should be the case of Schaeffer v. First National Bank of Lincolnwood, 509 F.2d 1287 (2d Cir. 1975), cert. denied, 425 U.S. 943, 96 S.Ct. 1682, 48 L.Ed.2d 186 (1976) holding that a plaintiff can file claims under both Section 9 and Rule 10b-5, the same situation as in the instant case.
242
But Huddleston argued that these cases and these authorities are now somewhat in doubt as a result of recent Supreme Court decisions "curtailing the broader sweep given the Securities Acts by lower federal courts....," 640 F.2d 534, 541. The majority opinion discusses these cases beginning at MSP 10 and also MSP 29. But these cases are not at all controlling in Chemetron's situation. Blue Chip Stamps, supra, held only that a person who was neither a purchaser nor a seller could not claim the benefits of Section 10(b). This had already been the law under the Birnbaum rule since 1952. Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d Cir.), cert. denied, 343 U.S. 956, 72 S.Ct. 1051, 96 L.Ed. 1386 (1952). Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976) held only that Section 10(b) requires scienter, that a mere claim of negligence is not cognizable. Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977) held that where the minority stockholders' option to purchase in a merger situation was fairly presented there was no 10(b) violation. Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 97 S.Ct. 926, 51 L.Ed.2d 124 (1977) held that there was no private cause of action under Section 14(e) relating to fraudulent practices in a tender offer situation. The Court held also that Section 10(b) did not apply to the specific tender offer situation because the only allegation was that the opportunity to gain control of the target company had been defeated. The Court interpreted Section 10(b) as being aimed only at maintaining an orderly market for the distribution of securities free from manipulative influences and was not aimed at tender offers as such.
243
Moving to claimed further restrictive interpretations, Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979) held only that the record keeping requirements of Section 17(a) do not create a private cause of action under that provision. Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979) held only that the Investor Advisor's Act of 1940, 15 U.S. § 80b-1, did not create a private cause of action. Middlesex County Sewerage Authority v. National Sea Clammers Assn., 453 U.S. 1, 101 S.Ct. 2615, 69 L.Ed.2d 435 (1981) held only that neither the Federal Water Pollution Control Act, 33 U.S.C. § 1251 nor the Marine Protection, Research and Sanctuaries Act of 1977, 33 U.S.C. § 1401 created a private cause of action for damages. It should be noted that these three cases in refusing to recognize private causes of action under the statutes have no relevance at all to Chemetron's situation because it is well established that there is a private cause of action under Section 10(b), and the majority opinion concedes this.
244
Finally, Chiarella v. United States, 445 U.S. 222, 100 S.Ct. 1108, 63 L.Ed.2d 348 (1980) held that the employee of a company printing materials related to takeover bids who on his own used the confidential information gained from such printing to buy stock and then sell it at a profit when the takeover bids became public did not violate Section 10(b) because he was under no duty to the purchasers of the stock which he sold since there was no relationship of trust and confidence.
245
None of the cases summarized above has any measurable impact upon the well established law as exemplified both by commentators and the lower federal courts that Section 10(b) violations can stand along side Section 9(a) violations and violations of other sections of the law. This conclusion is also confirmed by recent holdings of both the Second and the D.C. Circuits. In Ross v. A. H. Robins Co., 607 F.2d 545 (2d Cir. 1979), cert. denied, 446 U.S. 946, 100 S.Ct. 2175, 64 L.Ed.2d 802 (1980), the Court held that a Section 10(b) cause of action would lie for conduct which would also justify a private remedy suit under Section 18 of the 1934 act. In Wachovia Bank & Trust Co. v. National Student Marketing Corp., 650 F.2d 342 (D.C.Cir.1980), cert. denied, 452 U.S. 954, 101 S.Ct. 3098, 3099, 69 L.Ed.2d 965 (1981) the Court thoroughly considered the overlapping remedies problem. It held that the Section 10(b) remedy was available although Section 17(a) was an express remedy also applicable. Admittedly, in this case the Court again reiterated the differences between Section 10(b) and Section 17(a) as the Court had done in Huddleston, supra.
246
It is suggested that if we allow the Section 10(b) remedy in this case we have eliminated the provisions of Section 9(a). The same argument can be turned around the other way. If we do not allow the remedy under Section 10(b), we have eliminated Section 10(b) as it relates to manipulative and deceptive schemes in the purchase and sale of securities. And this is contrary to the exact and precise wording of the Section. There is no denying the expansion of Section 10(b) has weakened the impact of Section 9(a). But that expansion took place long before this case. This earlier expansion, of course, lessened the significance of legislative history of the 1930's relied upon so heavily in the majority opinion. It is not necessary in this case to decide what other kinds of improper and fraudulent stock transactions are forbidden in Section 9(a) which may not be covered by Section 10(b). Section 9(a) is a long and complicated section, and it cannot be concluded that to hold as I here suggest wipes out the entire Section 9(a).
247
The compelling irony in this case is that the majority view results in freeing the more serious offender but holding the lesser offender liable for engaging in exactly the same activities, manipulative and fraudulent devices in securities transactions. Such an interpretation does not ring true.
248
Defendants are responsible for the actions of Williams in his manipulative and deceitful wrongdoing under Section 10(b) of the statute but which fell short of violation of Section 9(a). This liability is not because of any particular activities or techniques which are any different under Section 9(a) or Section 10(b), but solely because the jury found the activities did not "affect" the value of the stock (Section 9(a)), although it is obvious, and the majority of the Court agrees, that the activities did "touch upon the reasons for the investment's decline in value" (Section 10(b)). By the same analysis a person engaged in these stock manipulations who was charged with acting intentionally (scienter under Section 9(a)) and also recklessly (scienter under Section 10(b)) but who is found to have acted not intentionally but recklessly would be free of guilt while the person charged only with reckless disregard of the rights of others and proved to have been in such a state of mind would be in violation of the law.
249
Posed as the issue is in the stark facts of this case, I cannot accept the cases which indicate that the Section 10(b) catch-all must be interpreted in such a way as to free from federal wrong-doing individuals who commit offenses which fall literally, specifically, and precisely within the scope of Section 10(b) when those same activities fall short of the offenses set out in Section 9(a). I therefore respectfully dissent from that portion of the majority opinion which rules out any liability on the part of defendants under the federal securities laws for these obviously forbidden securities manipulations.
REAVLEY, Circuit Judge, dissenting in part:
250
I join most of Judge Gee's fine opinion. I dissent, however, from the holdings (1) that Bintliff may be held liable to Chemetron as a civil conspirator and (2) that Bintliff is collaterally estopped by the findings in a case that was settled and dismissed by agreement of the parties.
I. Conspiracy
251
There is no allegation or proof in this case to justify the court's holding that Bintliff may be liable to Chemetron as a conspirator under Tex.Rev.Civ.Stat. § 4004. The evidence shows that Hall and Williams were engaged in a manipulative scheme to enhance the price of Westec stock from September 1964 until August 1966. The sale to Chemetron took place in January 1966. The only evidence against Bintliff is that he took part in three transactions-two in May 1966 and one in July 1966-none of which concerned Chemetron. There is no evidence that Bintliff benefitted in any way from the Chemetron sale.
252
The majority's holding confuses concepts of criminal and civil conspiracy. The gist of criminal conspiracy is the agreement itself: the defendant is guilty of the crime of conspiracy if he agrees to commit a substantive crime, regardless of whether he personally participates in or even knows of all the acts taken in furtherance of the conspiracy. That the defendant is guilty of conspiracy, however, does not make him guilty of the substantive crimes that his co-conspirators have committed as part of the conspiracy.
253
To hold a defendant liable in damages to a particular plaintiff as a civil conspirator, it is not enough to prove that, at some point, he became a member of the conspiracy. "(T)he gist of a civil conspiracy is the damage resulting from commission of a wrong which injures another, and not the conspiracy itself." Schlumberger Well Surveying Corp. v. Nortex Oil & Gas Corp., 435 S.W.2d 854, 856 (Tex.1969). To be liable in damages as a civil conspirator, the conspirator must agree "to injure another by the commission of a particular wrong." Id. at 857.
254
The majority concedes that Bintliff could not have agreed to the "particular wrong" to Chemetron. Nevertheless, the majority holds that Bintliff may be liable by invoking the principle that a late-joining conspirator "becomes in law a party to every act previously or subsequently done by any of the others in the pursuance of it." State v. Standard Oil Co., 130 Tex. 313, 107 S.W.2d 550, 560 (1937). While this broad principle is sound for many purposes, it is clearly too broad even for the law of criminal conspiracy where guilt as a conspirator does not itself make the defendant guilty of substantive offenses his co-conspirators have committed as part of the conspiracy.
255
I agree with the majority that a co-conspirator need not have directly participated in or even have known of all the details of the Chemetron transaction to be liable. But Schlumberger requires that, at a minimum, he must have agreed to injure Chemetron by the commission of a particular wrong. Such agreement could be proved by showing that the co-conspirator joined in the scheme to sell stock specifically to Chemetron, or that, prior to the sale to Chemetron, he joined in a fraudulent scheme to sell Westec stock to all comers. But Bintliff cannot, consistently with Schlumberger, be held liable in damages for a particular wrong that he could not have agreed, either directly or indirectly, to commit.
256
We hear of no Texas authority for the proposition that a conspirator may be held liable in damages for particular wrongs committed long before his involvement in the conspiracy.1
257
Furthermore, the evidence in this record is insufficient as a matter of law to prove that Bintliff joined in a scheme to create actual or apparent active trading in, or to raise the price of, Westec stock for the unlawful purpose of fraudulently inducing the purchase of Westec stock by the general public.
258
The evidence shows that Hall and Williams were engaged in a manipulative scheme to enhance the price of Westec stock from September 1964 until August 1966. As representatives of both Westec and Business Funds, which controlled Westec, they had many reasons to desire the long-term enhancement of the market price of Westec stock. The only evidence against Bintliff is that he took part in three transactions which occurred months after the January 1966 sale of stock to Chemetron. These three transactions are not sufficient circumstantial evidence to prove that Bintliff ever joined in the conspirators' broad purpose to induce the general public to buy Westec stock.
259
The first two Bintliff transactions took place in May 1966. Williams offered to sell Bintliff 60,000 shares of Westec stock at $40 a share when the market price was $50 a share. Bintliff made the deal and re-sold half the shares immediately. He expressed his intent to re-sell the remainder immediately, but then agreed not to sell it until November 1966.
260
Later in May, Williams and Hall were in need of funds to continue financing the conspiratorial scheme. Bintliff agreed to guarantee a $3,000,000 loan for 30 days. His fee was 3,000 shares of Westec, worth $150,000 on the market.
261
Finally, in July 1966 Bintliff guaranteed a 3 day, $3,000,000 loan for Hall. He received a guarantee fee of $216,000 and permission to sell immediately half of his remaining shares from the first transaction.
262
When Bintliff discovered in August 1966 that Williams and Hall could no longer get financing for their Westec purchases, he realized that the Westec market was about to crash, and he sold his remaining shares.
263
This evidence does not tend to prove that Bintliff ever joined in the conspirators' purpose to induce the purchase of Westec stock by the general public through manipulation of the market. Rather, the evidence shows that Bintliff engaged in three arm's-length transactions with the conspirators in which he exacted a high price for his services. It was irrelevant to him whether the conspirators' long-range manipulation scheme was successful-if, indeed, he was even aware of its scope. Bintliff was acting for his own purposes, not to advance the conspirators' purpose. In purchasing the Westec stock, he was attempting to make a quick profit on the difference between the sale price and the market price; in guaranteeing the loan, he was taking advantage of the conspirators' desperate need for financing.
264
It is not enough to show that Bintliff knew of the conspiracy, concealed it, and profited from it. See Schlumberger, supra. To hold Bintliff liable in damages as a civil conspirator, the evidence must show that Bintliff intended "to injure another by the commission of a particular wrong." Schlumberger, 435 S.W.2d at 857. The evidence does not show that Bintliff ever shared the unlawful purpose that caused the conspirators to sell Westec stock to Chemetron.
II. Collateral Estoppel
265
The majority holds that Bintliff is collaterally estopped by withdrawn findings in a prior case that was settled and dismissed by agreement of the parties. This holding ignores settled principles of preclusion, overrules Fifth Circuit precedent, and undermines the strong public interest in the settlement of law suits. Its application to this case is especially unfortunate, for it deprives Bintliff of the primary benefit of his agreement to settle while resulting in almost no saving in time or resources to the litigants or the courts.
266
The most basic prerequisite to the use of preclusion is "a judgment that is valid, final, and on the merits." 18 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 4427, at 269 (1981) (hereinafter Wright & Miller). An issue is precluded (or subject to collateral estoppel) only when it is "determined by a valid and final judgment, and the determination is essential to the judgment." Restatement (Second) of Judgments § 27 (1982); accord, Ashe v. Swenson, 397 U.S. 436, 443, 90 S.Ct. 1189, 1194, 25 L.Ed.2d 469 (1970); Hicks v. Quaker Oats Co., 662 F.2d 1158, 1166 (5th Cir. 1981); Kaspar Wire Works, Inc. v. Leco Eng'r & Mach., Inc., 575 F.2d 530, 535-36 (5th Cir. 1978).
267
The "judgment" on which the majority bases its holding was neither final nor on the merits. Nothing was determined by the order of dismissal in the Cosmos Bank case but that the court approved the parties' settlement and withdrew the findings of fact that the majority today finds preclusive.
268
The majority reasons that the findings of fact in Cosmos Bank meet the requirement of a final judgment because "only the judicial act of signing a final, known adverse, judgment was left." But findings of fact in themselves have no operative effect, and certainly these withdrawn findings cannot be considered "essential to the judgment" that was in fact rendered: a judgment of dismissal.
269
The disposition of Cosmos Bank the majority uses was not "final." It is the general rule that a decision is not "final" for collateral estoppel purposes if it cannot be tested by appellate review. 18 Wright & Miller, supra, § 4433, at 315-21.2 Bintliff could not appeal a judgment that was never entered.3 If he had allowed the entry of judgment and then appealed, and this court had reversed and remanded for further proceedings-as it does in this case today-then the findings in the Cosmos Bank case could have no preclusive effect. Id. § 4432, at 303. And even if this court had affirmed, no finding would be entitled to preclusive effect unless that finding was necessary to the specific grounds on which the court's affirmance was based. Hicks, 662 F.2d at 1168 & n.6 (collecting cases); 18 Wright & Miller, supra, § 4421, at 205, § 4432, at 302. Thus, if the Cosmos Bank plaintiff prevailed in the district court on many legal theories but this court found it necessary to pass on only one, all of the findings that were not essential to the ground of affirmance would have no collateral estoppel effect.
270
Nor was the disposition of Cosmos Bank "on the merits." It is well-settled that when litigation is terminated by a consent decree, the judgment may only preclude "the issues actually intended to be precluded by the parties." Kaspar Wire Works, 575 F.2d at 539; accord, 18 Wright & Miller, supra, § 4443, at 382. In this case, both the parties and the trial court made express their intent that the settlement and dismissal have no collateral estoppel effect.
271
Recognizing these basic principles of the law of preclusion, this court held in Associates Capital Servs. Corp. v. Loftin's Transfer & Storage Co., 554 F.2d 188, 189 (5th Cir. 1977), that the findings in a case that is dismissed pursuant to a settlement can have no collateral estoppel effect, even after judgment has been entered and the case is pending on appeal. Today the majority not only overrules Loftin's but goes further to give preclusive effect to findings on which a court has never entered judgment. The majority "distinguishes" Loftin's on the ground that Loftin's involved "defensive" collateral estoppel, but it fails to explain how this distinction has anything to do with the requirement of a final judgment. The majority then attempts to prop up this distinction by terming Parklane Hosiery Co. v. Shore, 439 U.S. 322, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979), a "watershed case on offensive collateral estoppel" which "create(s) a 'need to redefine the doctrine of collateral estoppel.' " But the Parklane decision has absolutely nothing to do with the requirement of a final judgment.4 Parklane is a landmark only because it abandons the requirement of mutuality; offensive collateral estoppel is itself nothing new. See, e.g., Mason Lumber Co. v. Buchtel, 101 U.S. 638, 25 L.Ed. 1073 (1880); 18 Wright & Miller, supra, § 4416, at 138 n.13. The majority fails to point to one word in Parklane that justifies its departure from the firm rule of this circuit that a panel cannot overrule a decision of another panel.
272
Apparently, the majority believes that it need not adhere to our precedent because Bintliff voluntarily chose to avoid judgment and forgo appeal. In essence, what the majority holds today is that once a trial court is prepared to enter judgment against a litigant, that litigant may not settle his case for the purpose of avoiding the collateral estoppel effect of the district court's findings. I think that is bad law and bad policy. Society maintains a strong interest in settlements at every stage of litigation. The majority claims that this interest is not served here because "the reason that settlements are favored is that they avoid litigation," and that "the savings of legal resources by settling after a full trial (a)re nominal." Even assuming, without agreeing, that "the" only reason settlements are favored is that they conserve legal resources,5 I do not agree with the majority's estimation of the potential savings.
273
Certainly the majority is wrong in its estimation of the savings in this case.6 But more importantly, today's decision will deter post-trial settlements and force all defendants facing multi-plaintiff litigation to appeal every adverse finding of fact made by every trial court. Even if the defendant believes that his appeal is unmeritorious-because, for example, the particular plaintiff is entitled to prevail on one of many legal theories-the defendant will be forced to challenge all of the findings and alternative bases of recovery on which he believes the trial court erroneously relied. "(F)orcing a losing litigant to take an appeal he knows he will lose on the basis of one alternative ground is a waste of the resources of both litigants and courts, and is contrary to the principles of judicial economy which motivated the doctrine of collateral estoppel in the first place." Hicks, 662 F.2d at 1169. And while these unnecessary appeals are pending, the preclusive effects of the trial courts' findings will remain uncertain, since a reversal or an affirmance on an alternative ground will prevent the application of collateral estoppel. See generally 18 Wright & Miller, supra, § 4433, at 311-13.
274
The sole authority the majority finds for its decision today is Aetna Cas. & Surety Co. v. Jeppesen & Co., 440 F.Supp. 394 (D.Nev.1977), vacated on other grounds, 642 F.2d 339 (9th Cir. 1981). That district court decision has not met with favor elsewhere.
275
(T)he result (in Aetna) is questionable at best. The terms of settlement and dismissal would make it impossible to apply issue preclusion between the parties to the original action. The prospect of applying preclusion in favor of a non-party is little more attractive. Not only did the settlement sacrifice the possibility of appeal from the findings of liability, but the subsequent use of preclusion may make it more difficult to settle cases in this posture.
276
18 Wright & Miller, supra, § 4433, at 318 (footnote omitted).
277
Finally, the majority's holding is unfair to Bintliff. As the majority acknowledges, the primary reason that Bintliff settled Cosmos Bank was to avoid the application of collateral estoppel. He relied on well-settled rules of law in deciding to settle. He gave up his right to appeal, the exercise of which would either have delayed the trial in this case or prevented, for all practical purposes, the use of collateral estoppel in this case. He saved the judicial system a certain appeal and a possible retrial and second appeal, and saved his adversary additional time and expense in collecting damages. Nevertheless, today the majority disregards his justifiable reliance interests and deprives him of the primary benefit of his bargain. The majority says that the rules of collateral estoppel are based on "fairness," but I see nothing fair about the majority's decision.
1
Austin died after the filing of this appeal, and his estate is prosecuting it
2
See, e.g., Williams v. Commissioner, 584 F.2d 90 (5th Cir. 1978); United States v. Hall, 457 F.2d 1324 (5th Cir. 1972); United States v. Williams, 447 F.2d 1285 (5th Cir. 1971) (en banc), cert. denied, 405 U.S. 954, 92 S.Ct. 1168, 31 L.Ed.2d 231 (1972)
3
Since initiation of this suit, BFI has become part of the Penn Central Corp
4
Art. 4004 was repealed effective September 1, 1967, shortly after Chemetron's complaint was filed on August 21, 1967, by ch. 785, § 4, 1967 Tex.Gen. Laws, and reenacted as Tex.Bus. & Comm.Code § 27.01 (Vernon 1968). There was no change in the statute relevant to our disposition. For consistency with prior proceedings in this case, we refer to the Texas claim as arising under art. 4004 throughout
5
Section 9(a) provides:
(a) It shall be unlawful for any person, directly or indirectly, by the use of the mails or any means or instrumentality of interstate commerce, or of any facility of any national securities exchange, or for any member of a national securities exchange-
(1) For the purpose of creating a false or misleading appearance of active trading in any security registered on a national securities exchange, or a false or misleading appearance with respect to the market for any such security, (A) to effect any transaction in such security which involves no change in the beneficial ownership thereof, or (B) to enter an order or orders for the purchase of such security with the knowledge that an order or orders of substantially the same size, at substantially the same time, and at substantially the same price, for the sale of any such security, has been or will be entered by or for the same or different parties, or (C) to enter any order or orders for the sale of any security with the knowledge that an order or orders of substantially the same size, at substantially the same time, and at substantially the same price, for the purchase of such security, has been or will be entered by or for the same or different parties.
(2) To effect, alone or with one or more other persons, a series of transactions in any security registered on a national securities exchange creating actual or apparent active trading in such security or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others.
(3) If a dealer or broker, or other person selling or offering for sale or purchasing or offering to purchase the security, to induce the purchase or sale of any security registered on a national securities exchange by the circulation or dissemination in the ordinary course of business of information to the effect that the price of any such security will or is likely to rise or fall because of market operations of any one or more persons conducted for the purpose of raising or depressing the prices of such security.
(4) If a dealer or broker, or other person selling or offering for sale or purchasing or offering to purchase the security, to make, regarding any security registered on a national securities exchange, for the purpose of inducing the purchase or sale of such security, any statement which was at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, and which he knew or had reasonable ground to believe was so false or misleading.
(5) For a consideration, received directly or indirectly from a dealer or broker, or other person selling or offering for sale or purchasing or offering to purchase the security, to induce the purchase or sale of any security registered on a national securities exchange by the circulation or dissemination of information to the effect that the price of any such security will or is likely to rise or fall because of the market operations of any one or more persons conducted for the purpose of raising or depressing the price of such security.
(6) To effect either alone or with one or more other persons any series of transactions for the purchase and/or sale of any security registered on a national securities exchange for the purpose of pegging, fixing, or stabilizing the price of such security in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
6
Rule 10b-5 states:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) 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, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.
7
Section 10(b) declares:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange-
(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
8
Section 9(e) reads:
(e) Any person who willfully participates in any act or transaction in violation of subsection (a), (b), or (c) of this section, shall be liable to any person who shall purchase or sell any security at a price which was affected by such act or transaction, and the person so injured may sue in law or in equity in any court of competent jurisdiction to recover the damages sustained as a result of any such act or transaction. In any such suit the court may, in its discretion, require an undertaking for the payment of the costs of such suit, and assess reasonable costs, including reasonable attorneys' fees, against either party litigant. Every person who becomes liable to make any payment under this subsection may recover contribution as in cases of contract from any person who, if joined in the original suit, would have been liable to make the same payment. No action shall be maintained to enforce any liability created under this section, unless brought within one year after the discovery of the facts constituting the violation and within three years after such violation.
9
Few courts have confronted this precise question, and we are the first to do so primed with the benefits of several recent and significant Supreme Court securities law cases
In United States v. Charnay, 537 F.2d 341 (9th Cir.), cert. denied, 429 U.S. 1000, 97 S.Ct. 528, 50 L.Ed.2d 610 (1976), the court, though not directly confronted with this claim, dismissed it without analysis in a footnote. See id. at 351 & n.14. In 1975, the Seventh Circuit in Schaefer v. First National Bank of Lincolnwood, 509 F.2d 1287, 1291-93 (7th Cir. 1975), cert. denied, 425 U.S. 943, 96 S.Ct. 1682, 48 L.Ed.2d 186 (1976), held that a plaintiff could file claims under both Rule 10b-5 and § 9. In Fischman v. Raytheon Mfg. Co., 188 F.2d 783, 788 (2d Cir. 1951), the court suggested in dicta that the plaintiffs could, on remand, amend their complaint to state both claims. But see, e.g., Amdur v. Lizars, 39 F.R.D. 29, 36 n.13 (D.Md.1965), aff'd, 372 F.2d 103 (4th Cir. 1967), where the court declared that, despite dicta in Fischman, it was "not prepared ... to hold the express remedies, such as ... Section 9(a) ..., made available by the (1934) Act ... can be ignored or by-passed in favor of an implied remedy derived from a rule passed by the Commission under the same Act."
More recently, Wolgin v. Magic Marker Corp., 82 F.R.D. 168, 179-81 (E.D.Pa.1979), interlocutory appeal denied, 472 F.Supp. 436, 438 (E.D.Pa.1979), permitted plaintiffs to plead both causes of action but acknowledged that the question was a close and difficult one.
10
Because there were no specific allegations of violations of § 9(a)(3) and (5), which prohibit dissemination of information on predicted stock values or trading, commonly known as "prophecies," the question of their nullification by Rule 10b-5 is not before us. However, our entire analysis applies to them with equal force and would yield the same conclusions
11
The grant of certiorari was limited to two questions. In No. 81-680, the question is:
Does implied remedy exist under either § 10(b) of 1934 Securities Exchange Act or § 17(a) of 1933 Securities Act for purchasers of securities who have express remedy under § 11 of 1933 Act by virtue of fact that securities purchased were issued pursuant to registration statement filed as required by § 5 of 1933 Act?
50 U.S.L.W. at 3796 (1982). The question in No. 81-1076, which is irrelevant in this case due to our disposition, is: "Is clear and convincing standard appropriate burden of proof in private Rule 10b-5 actions?" Id. at 3797.
12
Prior cases in this circuit do not permit us to forego the Huddleston analysis
In Alabama Farm Bur. Mut. Cas. Co. v. American Fidelity Life Ins. Co., 606 F.2d 602 (5th Cir. 1979), cert. denied, 449 U.S. 820, 101 S.Ct. 77, 66 L.Ed.2d 22 (1980), plaintiffs brought a derivative action under Rules 10b-5 and 14a-9 against defendant directors and officers for their stock repurchase program. Under Rule 10b-5, plaintiffs alleged that the repurchase program was an undisclosed "manipulative device" to boost the price of corporate stock and thereby protect incumbent management's control of the corporation. Id. at 605. The court reversed the district court's grant of summary judgment for the defendants on this issue, id. at 617, holding that the program and nondisclosure of material facts concerning it could violate Rule 10b-5, id. at 611-13. The court in Alabama Farm Bureau was not presented with a § 9 cause of action since the stock was apparently not registered on a national securities exchange as § 9 requires, and therefore did not consider the conflict we face here. Judge Rubin, the author of Huddleston, did not consider his opinion in Alabama Farm Bureau dispositive of the conflict presented in Huddleston, nor do we believe it resolves the conflict presented here.
We also note that some Fifth Circuit cases have been cited as holding that "remedies of the two (1933 and 1934) Acts are cumulative and that plaintiffs have a choice in the event of overlap." Wachovia, 650 F.2d at 357 n.33, citing Wolf v. Frank, 477 F.2d 467, 475 (5th Cir.), cert. denied, 414 U.S. 975, 94 S.Ct. 287, 38 L.Ed.2d 218 (1973), and Rekant v. Desser, 425 F.2d 872, 882 (5th Cir. 1970).
However, in Wolf the district court held and this court affirmed that (1) plaintiffs had no individual claim under Rule 10b-5 but that derivative relief under Rule 10b-5 was available and that (2) plaintiffs had an individual claim under § 12 of the 1933 Act, 15 U.S.C. § 77l (1976), but no derivative claim. See 477 F.2d at 471-73, 475-76, 478-79. Thus, Wolf held those remedies cumulative only insofar as it permitted plaintiffs to maintain different causes of action, one implied and one express, in different capacities, as individuals and derivatively.
In Rekant, although this court cited the Second Circuit dicta in Fischman v. Raytheon Mfg. Co., 188 F.2d 783, 787 (2d Cir. 1951), which underlies Ross, Wachovia, and Huddleston, the court held it "unnecessary to determine" whether an implied cause of action exists under Rule 15d-1, promulgated pursuant to § 15(d) of the 1934 Act, 15 U.S.C. § 78o(d) (1976). Since the court failed to cross that threshold, it did not reach the question analogous to the one presented here of whether two implied remedies that overlap may be pursued simultaneously. See 425 F.2d at 882.
Neither Wolf nor Rekant requires us to recognize a § 9 remedy here and forego the Huddleston analysis.
13
The opinion does not mention a § 9 claim, and there probably was no basis for one since the misleading statements were not alleged to be part of a stock manipulation scheme, and the stock at issue was apparently not registered on a national securities exchange as § 9 requires
14
In Ross, the claims involved stock price manipulation and artificial price inflation through dissemination of false and misleading information in annual reports, press releases, a prospectus, and 10-K forms, some of which were filed with the SEC. See 607 F.2d at 547. There was apparently no § 9 claim, despite the fact that some of the statements may have violated § 9, and the stock was registered on a national securities market as § 9 requires. The court permitted a Rule 10b-5 action despite a conflict with the express remedy in § 18 of the 1934 Act, 15 U.S.C. § 78r (1976), for false statements in SEC-filed documents because Rule 10b-5 required the "far more difficult task" of proving fraud and scienter that justified dispensing with § 18's reliance requirement. See 607 F.2d at 555-56
Wachovia dealt with allegations of artificial stock price inflation through numerous oral and written misrepresentations, including press releases, SEC-filed reports, and unfiled reports. See 650 F.2d at 345. Absent, however, was a § 9 claim, and there probably was no basis for one, since it appears that the stock at issue was traded over the counter and not on a national securities exchange. See SEC v. National Student Marketing Corp., 457 F.Supp. 682, 687 (D.D.C.1978). The court held that Rule 10b-5's fraud requirement, which imposes a "higher burden of proof," was a "trade-off" for the restrictions of §§ 11 and 12(2) of the 1933 Act and § 18 of the 1934 Act, 15 U.S.C. §§ 77k, 77l(2), and 78r (1976). See 650 F.2d at 355-58.
Huddleston, Wachovia, and Ross posited another reason, not present here, for permitting an implied cause of action. If those courts had permitted only express remedies, the availability of those remedies would have depended in part on whether the documents containing the misrepresentations were filed with the SEC. However, all three opinions concluded that basing liability on such a vagary would be irrational and therefore permitted an implied cause of action under Rule 10b-5 free of the filing requirements of the express remedies. See 640 F.2d at 542-43; 650 F.2d at 357; 607 F.2d at 556. Since § 9 does not require documents to be filed with the SEC, this rationale for permitting a Rule 10b-5 action in the instant case is inapplicable.
15
The definition of scienter in this circuit follows that of the Supreme Court in Ernst & Ernst : "A mental state embracing intent to deceive, manipulate, or defraud," 425 U.S. at 193 n.12, 96 S.Ct. at 1381 n.12. Broad v. Rockwell Internat'l Corp., 642 F.2d 929, 961 (5th Cir.) (en banc), cert. denied, --- U.S. ----, 102 S.Ct. 506, 70 L.Ed.2d 380 (1981). However, this circuit, like others, permits the Rule 10b-5 scienter requirement to be fulfilled by recklessness, which is
limited to those highly unreasonable omissions or misrepresentations that involve not merely simple or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and that present a danger of misleading buyers or sellers which is either known to the defendant or is so obvious that the defendant must have been aware of it.
Id. at 961-62. The Supreme Court has reserved the question of whether scienter under Rule 10b-5 includes recklessness. See Aaron v. SEC, 446 U.S. 680, 686 n.5, 100 S.Ct. 1945, 1950 n.5, 64 L.Ed.2d 611 (1980); Ernst & Ernst, 425 U.S. at 193 n.12, 96 S.Ct. at 1381 n.12.
16
Although the express language of § 9(a)(4) addresses only "false or misleading" statements and not omissions, Congress intended it to cover omissions as well. See H.R.Conf.Rep.No. 1838, 73d Cong., 2d Sess. 32 (1934), reprinted in 5 Ellenberger & Mahar, Item 20 ("The Senate amendment ... expressly provides that a statement shall be construed to include any omission to state a material fact. The latter provision is omitted from the substitute as surplusage, in view of the fact that a statement obviously may be misleading because of a material omission."); cf. In re Penn Central Securities Litigation, 357 F.Supp. 869, 876-77 (E.D.Pa.1973), aff'd, 494 F.2d 528 (3d Cir. 1974) (identical phrase in § 18(a) of the 1934 Act, 15 U.S.C. § 78r(a) (1976), construed to include omissions)
17
Subsection 9(a)(4) addresses statements or omissions that are "false or misleading with respect to any material fact."
18
Subsection 9(a)(4) covers statements or omissions made if the speaker "knew or had reasonable ground to believe" that they were false or misleading. (emphasis added). Subsection 9(e) applies to "(a)ny person who willfully participates in any act or transaction in violation of subsection (a) ...." (emphasis added)
The interplay of § 9(a)(4) and (e) yields at most two standards for actionable behavior. The first, a statement or omission known to be false or misleading and willfully made, clearly constitutes scienter. The second, a statement or omission believed to be false or misleading at the time and under the circumstances made, yet willfully made, also constitutes scienter. See Prosser, Torts § 105 at 685-86, § 107 at 700-01 (4th ed. 1971).
19
Subsection 9(a)(4) applies to statements or omissions made "for the purpose of inducing the purchase or sale" of a security. (Emphasis added). Subsection 9(e) applies to "(a)ny person who willfully participates in any act or transaction in violation of subsection (a) ...." (emphasis added)
20
As Judge Rubin stated in Huddleston, reliance and causation are related but distinct concepts. See 640 F.2d at 549. Under § 9, causation is established by the "affecting price" requirement. See infra n.21
We hold that § 9(a)(4) also requires reliance on the omissions or misstatements. The legislative history of § 9 makes clear that Congress desired that reliance be established. "(T)he burden is on the plaintiff to show ... the fact that the statement was false or misleading, and that he relied thereon to his detriment." S.Rep.No. 792, 73d Cong., 2d Sess. 13 (1934), reprinted in 5 Ellenberger & Mahar, Item 17. This is in accord with the observation that the securities law remedies for misrepresentation are rooted in the common law tort cause of action for deceit, see, e.g., Huddleston, 640 F.2d at 547 n.21 (Rule 10b-5 derived from deceit action), a basic element of which was reliance by the plaintiff. Prosser, Torts § 105 at 685-86, § 108 at 714-18 (4th ed. 1971); Restatement (Second) of Torts § 537 (1977); cf. Rosenberg v. Hano, 121 F.2d 818, 821 (3d Cir. 1941) (§ 9 implements common law doctrine of time limitation).
21
Subsection 9(e) extends liability "to any person who shall purchase or sell any security at a price which was affected by (an) act or transaction (in violation of subsection (a))." (emphasis added)
22
Accord 1 A. Bromberg & L. Lowenfels, Securities Fraud & Commodities Fraud § 2.5(4) (1968) ("Proof requirements appear much easier under 10b-5 than under express civil-liability provisions for market manipulation.") (emphasis added, footnote citing § 9 omitted)
23
This concern over "inexorable broadening of the class of plaintiffs" under Rule 10b-5, Blue Chip, 421 U.S. at 748, 95 S.Ct. at 1931, has consistently been expressed by the Supreme Court, see, e.g., Ernst & Ernst, 425 U.S. at 214 n.33, 96 S.Ct. at 1391 n.33; Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 478-79, 97 S.Ct. 1292, 1303-1304, 51 L.Ed.2d 480 (1977), and by this circuit, see, e.g., Herpich v. Wallace, 430 F.2d 792, 804-05 (5th Cir. 1970)
24
While we have reached our conclusion by focusing solely on the burden of proof, there are also procedural limitations on § 9 remedies not present in Rule 10b-5 actions. See § 9(e) (discretionary security costs and fees, right of contribution, uniform federal statute of limitations). The Supreme Court has emphasized that courts must respect both the substantive and procedural limitations imposed by Congress. See, e.g., Ernst & Ernst, 425 U.S. at 210-11 & nn. 29, 30, 96 S.Ct. at 1389 & nn.29, 30. Consideration of these procedural limits reinforces our conclusion
Finally, we also note the presence of an "additional consideration( ) that weigh(s) heavily against permitting a cause of action under Rule 10b-5," Santa Fe Industries, 430 U.S. at 477, 97 S.Ct. at 1302, the existence of a state law remedy, discussed infra, see Blue Chip, 421 U.S. at 738 n.9, 95 S.Ct. at 1927 n.9. The Texas remedies offer several advantages over the federal remedies. See Bateman, Securities Litigation: The 1977 Modernization of Section 33 of the Texas Securities Act, 15 Houston L.Rev. 839 (1978); Bordwine, Civil Remedies Under the Texas Securities Laws, 8 Houston L.Rev. 657 (1971); Comment, Section 27:01: Alternative to Federal Securities Fraud Remedies, 33 Sw.L.J. 703 (1979).
25
See Ernst & Ernst, 425 U.S. at 199, 212-14 & n.20, 96 S.Ct. at 1383, 1390-1391 & n.20; supra n.15
26
See Huddleston, 640 F.2d at 547-48. Under Huddleston, conduct invoking Rule 10b-5(a) and (c) creates a presumption of reliance by the plaintiff, leaving to the defendant proof of nonreliance as an affirmative defense
27
Wash sales are banned by § 9(a)(1)(A), matched orders by § 9(a)(1)(B) and (C)
28
The very language of § 9(a)(1) requires scienter (e.g., "effect any transaction," "enter any order ... with the knowledge"). In addition, subsection 9(e) applies to any person who "willfully participates" in an act or transaction violating § 9(a). See S.Rep.No. 792, 73d Cong., 2d Sess. 17 (1934), reprinted in 5 Ellenberger & Mahar, Item 17; H.R.Rep.No. 1383, 73d Cong., 2d Sess. 20 (1934), reprinted in 5 Ellenberger & Mahar, Item 18; United States v. Minuse, 114 F.2d 36, 39 (2d Cir. 1940)
29
§ 9(a)
30
The legislative history of § 9 erects a reliance requirement:
(T)he bill provides that any person who unlawfully manipulates the price of a security, or who induces transactions in a security by means of fraud or misleading statements ... shall be liable in damages to those who have bought or sold the security at prices affected by such violation or statement. In such case the burden is on the plaintiff to show the violation or the fact that the statement was false or misleading, and that he relied thereon to his detriment.
S.Rep.No. 792, 73d Cong., 2d Sess. 12-13 (1934), reprinted in 5 Ellenberger & Mahar, Item 17.
31
§ 9(e)
32
§ 9(a)(2). It should be noted that § 9(a)(2)'s reach may be limited by SEC rules permitting manipulative activities for legitimate stabilizing purposes. See, e.g., SEC Rule 10b-7, 17 C.F.R. § 240.10b-7 (1981). Prior to Rule 10b-7's adoption in 1955, courts had held that legitimate stabilizing activity during a stock distribution otherwise violative of § 9(a)(2) is not actionable. See, e.g., Pergament v. Frazer, 93 F.Supp. 13 (E.D.Mich.1950), aff'd, 203 F.2d 315 (6th Cir. 1953), cert. denied, 346 U.S. 832, 74 S.Ct. 33, 98 L.Ed. 355 (1953); Stella v. Kaiser, 82 F.Supp. 301 (S.D.N.Y.1948)
33
See, e.g., Crane Co. v. Westinghouse Air Brake Co., 419 F.2d 787, 794 (2d Cir. 1969), cert. denied, 400 U.S. 822, 91 S.Ct. 41, 27 L.Ed.2d 50 (1970), on remand on other grounds, 326 F.Supp. 766 (S.D.N.Y.1971), rev'd on other grounds, 490 F.2d 332 (2d Cir. 1973); supra n.28
34
§ 9(a)(2)
35
See supra n.30
36
§ 9(e)
37
§ 9(a)(6)
38
Id. The SEC does not currently have any rules published exclusively under § 9, although several § 10(b) rules are promulgated either pursuant to both §§ 9 and 10(b) or pursuant to § 10 but covering § 9 activities. See, e.g., Rules 10b-6, -7, -8, -13, 17 C.F.R. § 240.10b-6, -7, -8, -13 (1981). Thus, reference must be had to those rules and any conditions they impose if a plaintiff is pursuing a § 9(a)(6) claim. However, none of those rules may be used to circumvent Congress' statutorily-imposed requirements as found in § 9(a)(6) and (e). See infra n.39
39
The SEC has maintained that it can enact prophylactic rules, such as Rule 10b-6, which brand particular practices illegal per se without the necessity of proving scienter. See Brief of the SEC as Amicus Curiae in Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 97 S.Ct. 926, 51 L.Ed.2d 124 (1977), at 33 & n.*. However, Ernst & Ernst and Aaron have sharply circumscribed the SEC's power to enact such rules, since both held that the SEC cannot discard statutorily defined elements of a cause of action under Rule 10b-5. That the SEC's power is limited is particularly clear from Aaron where the Court would not allow negligence to suffice for injunctive relief under Rule 10b-5 when the statute required scienter
Whatever the current status of SEC rules in SEC enforcement actions, to the extent that an SEC rule is the basis for an express private cause of action under § 9, that rule may not be used to defy the will of Congress as expressed in § 9(e) by discarding elements of that cause of action. An SEC rule cannot be used to make an end-run around the language and intent of a statute. See Ernst & Ernst, 425 U.S. at 213-14, 96 S.Ct. at 1391; Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 41, 45-46, 97 S.Ct. 926, 951, 51 L.Ed.2d 124 & n.27 (1977); infra text accompanying nn. 52-55. That Congress has created a scienter requirement for a private cause of action for violation of an SEC rule under § 9(a)(6) and (e) is clear beyond peradventure. See supra n.28. Indeed, the words "pegging, fixing, or stabilizing" are terms of art in the context of securities markets and their commonsense meaning connotes intentional or willful conduct. Cf. Ernst & Ernst, 425 U.S. at 197-99, 96 S.Ct. at 1382-1383 (word "manipulative" in § 10(b) held a term of art in securities market context connoting intentional or willful behavior).
Our conclusion is buttressed by the observation that Congress intended activities banned by, for instance, § 9(a)(1) (wash sales and matched orders) to be illegal in all situations, yet the very language of § 9(a)(1) requires scienter and any doubt about Congress' intent is removed by the scienter requirement in § 9(e) for private actions. See S.Rep.No. 792, 73d Cong., 2d Sess. 17 (1934), reprinted in 5 Ellenberger & Mahar, Item 18. To have it otherwise could, as Chief Judge Cardozo said long ago, render defendants liable "in an indeterminate amount for an indeterminate time to an indeterminate class." Ultramares Corp. v. Touche, 255 N.Y. 170, 179-80, 174 N.E. 441, 444 (1931), quoted in Ernst & Ernst, 425 U.S. at 215 n.33, 96 S.Ct. at 1391 n.33.
40
See supra n.30
41
§ 9(e)
42
In the wake of Shores v. Sklar, 647 F.2d 462, 471-72 (5th Cir. 1981) (en banc), petition for cert. docketed, --- U.S. ----, 102 S.Ct. 1424, 71 L.Ed.2d 646 (1981), (No. 81-839), proof of causation under Rule 10b-5(a) and (c) may be easier than it is under Rule 10b-5(b). If Shores so holds, and we express no opinion on this issue since we need not, our conclusion as to the relative burdens of proof under Rule 10b-5(a) and (c), and § 9(a)(1), (2), and (6) is reinforced
43
See supra nn.15, 18
44
Shores may also further reduce the plaintiff's burden of proof of reliance under Rule 10b-5(a) and (c) insofar as it permits reliance on the "integrity of the marketplace." See 647 F.2d at 471. If Shores is so interpreted, and we forbear from interpreting it thusly, our conclusion as to the relative burden of proof is reinforced
45
Accord, 1 A. Bromberg & L. Lowenfels, supra n.22
46
See supra n.23
47
See supra n.24
48
Judging by the comments of its own members, the Securities Exchange Act of 1934 is probably one of the better statutes in terms of coherence and thoroughness ever to emerge from Congress. See, e.g., 78 Cong.Rec. 8164 (1934) (remarks of Sen. Fletcher)
49
"Wash sales" are banned by § 9(a)(1)(A), "matched orders" by § 9(a) (1)(B) and (C), market operations by § 9(a)(2), "prophecies" by § 9(a)(3) and (5), false and misleading statements by § 9(a)(4), pegging, fixing, or stabilizing securities prices by § 9(a)(6), and "puts," "calls," "straddles," "options," and "privileges" by § 9(a)(6), (b), (c), and (d)
50
As comments made by "persons responsible for the preparation or the drafting of (the) bill," Ernst & Ernst, 425 U.S. at 203 n.24, 96 S.Ct. at 1386 n.24, during cross-examination by and comment from a congressional committee, see Piper, 430 U.S. at 31 & n.20, 97 S.Ct. at 944 & n.20, the views of Messrs. Corcoran and Landis are of considerable weight. See 2A C. D. Sands, Sutherland Statutory Construction § 48.06, at 203 (4th ed. 1973)
51
To like effect is another early case, Montague v. Electronic Corp. of America, 76 F.Supp. 933, 936 (S.D.N.Y.1948), where the court concluded that "Section 10(b) ... and Rule X-10B-5 were clearly not intended to supplant Section 11 of the 1933 Act." In so holding, the court observed:
The settled rule of statutory construction is that, where there is a special statutory provision affording a remedy for particular specific cases and where there is also a general provision which is comprehensive enough to include what is embraced in the former, the special provision will prevail over the general provision, and the latter will be held to apply only to such cases as are not within the former.
Id. (citations omitted); see In re Bache & Co., (1972-73 Transfer Binder) Fed.Sec.L.Rptr. (CCH) P 93,571 (§ 9 exclusive remedy for activities it covers, no Rule 10b-5 coverage) (N.Y.Sup.Ct.1972).
52
The rule is named after the case in which it originated, Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d Cir.), cert. denied, 343 U.S. 956, 72 S.Ct. 1051, 96 L.Ed. 1356 (1952)
53
SEC Rule 10b-6, 17 C.F.R. § 240.10b-6 (1981)
54
The SEC urged this position on the Court. See Brief of the SEC as Amicus Curiae, supra note 39, at 191-94
55
Accord, Ruder, Civil Liability Under Rule 10b-5: Judicial Revision of Legislative Intent?, 57 Nw.L.Rev. 627, 660, 685 (1963)
We recognize that Rule 10b-5 was not expressly promulgated pursuant to § 9 as was Rule 10b-6 in Piper. Compare Rule 10b-5, SEC Exch.Act Rel. No. 3230 (1942), reprinted in A. Bromberg & L. Lowenfels, supra n.21, at app. B (Rule promulgated "pursuant to authority conferred upon (SEC) by the Securities Exchange Act of 1934, particularly Sections 10(b) and 23(a) thereof") with Rule 10b-6, SEC Exch.Act Rel. No. 5194 (1955), reprinted in (1952-56 Transfer Binder) Fed.Sec.L.Rep. (CCH) P 76,350 (Rules 10b-6, -7, and -8 promulgated "pursuant to the provisions of the Securities Exchange Act of 1934, particularly Sections 3(b), 9(a)(6), 10(b) and 23(a) thereof").
However, since the SEC may administer the securities laws only in conformance with congressional intent, see Aaron, 446 U.S. at 691, 100 S.Ct. at 1952; Piper, 430 U.S. at 41 n.27, 97 S.Ct. at 949 n.27; Ernst & Ernst, 425 U.S. at 213-14, 96 S.Ct. at 1391, it may not "make law" by promulgating rules that avoid the limitations of comparable express private remedies, see Blue Chip, 421 U.S. at 736, 95 S.Ct. at 1925. Thus, the mere fact that 40-year-old Rule 10b-5 was not expressly promulgated pursuant to § 9 while more recent rules such as 10b-6, -7, and -8 were, does not alter the logic of Rosenberg, Blue Chip, and Piper. Nor does it prevent us from attaching § 9 limits to Rule 10b-5 when it is stretched far beyond its "modest aims and origins" ("closing an unforeseen loophole") to "extend a private right of action ... to those whom Congress excluded from the express civil remedies ... to cover such a violation," Blue Chip, 421 U.S. at 736 n.8, 95 S.Ct. at 1926 n.8.
56
Because we deny Chemetron's cross-appeal of the trial judge's (1) denial of a directed verdict and judgment notwithstanding the verdict regarding Special Interrogatory No. 6 (the answer to which foreclosed § 9 relief because the jury found that the scheme had not "affected" the price it paid for its Westec stock) and (2) denial of a federal securities law claim arising out of its 1969 sale of its Westec stock to the bankruptcy trustee, see infra section IV, we pretermit discussion of numerous other issues raised on appeal insofar as they are directed at the federal securities law claims
57
Former Tex.Rev.Civ.Stat.Ann. art. 4004 (Vernon 1966) (reenacted as Tex.Bus. & Comm.Code § 27.01 (Vernon 1968), see supra n.4, declared:
Actionable fraud in this State with regard to transactions in real estate or in stock in corporations or joint stock companies shall consist of either a false representation of a past or existing material fact, or false promise to do some act in the future which is made as a material inducement to another party to enter into a contract and but for which promise said party would not have entered into said contract. Whenever a promise thus made has not been complied with by the party making it within a reasonable time, it shall be presumed that it was falsely and fraudulently made, and the burden shall be on the party making it to show that it was made in good faith but was prevented from complying therewith by the act of God, the public enemy or by some equitable reason. All persons guilty of such fraud shall be liable to the person defrauded for all actual damages suffered, the rule of damages being the difference between the value of the property as represented or as it would have been worth had the promise been fulfilled, and the actual value of the property in the condition it is delivered at the time of the contract. All persons making the false representations or promises and all persons deriving the benefit of said fraud, shall be jointly and severally liable in actual damages, and in addition thereto, all persons wilfully making such false representations or promises or knowingly taking the advantage of said fraud shall be liable in exemplary damages to the person defrauded in such amount as shall be assessed by the jury, not to exceed double the amount of the actual damages suffered.
58
Rule 49(a) provides:
Special Verdicts. The court may require a jury to return only a special verdict in the form of a special written finding upon each issue of fact. In that event the court may submit to the jury written questions susceptible of categorical or other brief answer or may submit written forms of the several special findings which might properly be made under the pleadings and evidence; or it may use such other method of submitting the issues and requiring the written findings thereon as it deems most appropriate. The court shall give to the jury such explanation and instruction concerning the matter thus submitted as may be necessary to enable the jury to make its findings upon each issue. If in so doing the court omits any issue of fact raised by the pleadings or by the evidence, each party waives his right to a trial by jury of the issues so omitted unless before the jury retires he demands its submission to the jury. As to an issue omitted without such demand the court may make a finding; or, if it fails to do so, it shall be deemed to have made a finding in accord with the judgment on the special verdict.
(emphasis added).
59
After the reading of the instructions to the jury and its retirement, the trial judge entertained objections on the record to the instructions. Counsel for Chemetron proposed that all counsel file objections at a later time. The trial court agreed, as did counsel for BFI on behalf of all defendants
All defendants subsequently filed timely objections to the instructions and interrogatories that covered all of their points on appeal. These objections repeated those made at an off-the-record charge conference in chambers before submission to the jury.
60
Thus the Huddleston court, for instance, found that reliance and causation were contested material issues in a Rule 10b-5 case and required their submission. 640 F.2d at 549-50
61
The premise underlying this assertion is that the existence of a duty to disclose is always a jury issue. This premise is not valid in all cases. The existence of such a duty depends on whether there is a fiduciary or confidential relationship between the parties, which is usually a question of fact for the jury. See, e.g., Schiller v. Elick, 240 S.W.2d 997, 999 (Tex.1951). But see Keeton, Fraud-Concealment and Non-Disclosure, 15 Tex.L.Rev. 1, 39-40 (1936) (arguing that duty to disclose should always be a question for the judge). However, certain relationships have been held to be fiduciary or confidential as a matter of law and can be withdrawn from jury consideration: attorney-client, trustee-cestui que trust, and so forth. See Trevino v. Sample, 565 S.W.2d 93, 96 (Tex.Civ.App.-El Paso 1978, writ ref'd n.r.e.). The existence of other kinds of fiduciary or confidential relationships is apparently still a question of fact, but Texas law may be in flux and may be moving in the direction urged by Dean Keeton. Compare Schiller, 240 S.W.2d at 999 (fiduciary relationship a question of fact), with Texas Bank & Trust Co. v. Moore, 595 S.W.2d 502, 507-09 (Tex.1980) (four-justice plurality opinion arguably creating fiduciary relationship between family members as a matter of law). Despite the state of the law in Texas, Chemetron cites no authority creating a fiduciary or confidential relationship and its concomitant duty to disclose here as a matter of law. Therefore, we accept appellants' premise
62
Special Interrogatory No. 20, upon which liability under Texas law is premised, asked: "Do you find from a preponderance of the evidence that at the time and the occasion of Chemetron's purchase of Western Equities stock on January 14, 1966, that there was no disclosure to Chemetron of said plan, scheme or conspiracy?" (emphasis added)
63
Special Interrogatory No. 1 asked:
Do you find from a preponderance of the evidence that during the period September 2, 1964 through August 25, 1966, James W. Williams, directly or indirectly, alone or with others, participated in a plan or scheme to manipulate the stock of Western Equities by effecting a series of transactions in the stock of Western Equities, creating actual or apparent active trading in or raising the price of Western Equities stock for the purpose of inducing the purchase or sale of such stock by others ?
(emphasis added).
64
Special Interrogatory No. 1 is not defective in what it does-ask the jury whether there was a scheme or conspiracy. But as our discussion of Texas law infra reveals, the existence of a civil conspiracy alone does not create liability under art. 4004: at least one of the conspirators must specifically defraud the plaintiff
65
Burden of Proof
Plaintiff has the burden of proving its contentions by a preponderance of the evidence taking into account the evidence, both direct and circumstantial, and the testimony of witnesses that you have heard.
It is important now that you understand what preponderance of the evidence means. It means to prove that something is more likely so than not so. It is the greater weight of the believable evidence. If upon any question submitted to you, you should find that the evidence is equally balanced, then the plaintiff has not sustained its burden of proof by a preponderance of the evidence on that question. It does not mean that you have to believe the side with the most witnesses, but it means that you should weigh all the testimony which, when considered and compared with the testimony opposed to it, has the most convincing force and produces in your minds a belief that what is sought to be proved is more likely true than not true.
Jury Instruction No. 11.
66
The court's instruction on this issue declared:
Withdraw
In connection with the term "withdraw" or "withdrew" or "withdrawal" from a conspiracy as used in this case, you are instructed that a person withdraws from a conspiracy if he engages in affirmative acts inconsistent with the object of the conspiracy, that is to say acts which disavow or defeat the purpose of the conspiracy, and by communicating the abandonment in a manner reasonably calculated to reach co-conspirators. Because withdrawal is a defense, the burden of proving "withdrawal from a conspiracy" is on the defendants.
Jury Instruction No. 27.
67
There is no special interrogatory on Bintliff's withdrawal
68
We stress that this holding relies on the record in this case. The evidence as to the extent of the transactions comprising the scheme is clear, and that is the sole issue in Special Interrogatory No. 25. We intuit no view here on the sufficiency of the evidence on liability for the scheme
In the vast majority of cases, the evidence will not be as clear as it was here, and an incorrect placement of the burden of proof will mandate reversal. See Connecticut General Life Ins. Co. v. Breslin, 332 F.2d 928, 934 (5th Cir. 1964).
69
Special Interrogatory No. 31 on exemplary damages lumped all the defendants together: "What sum of money, if any, if now paid in cash, do you find from a preponderance of the evidence that plaintiff Chemetron is entitled to as exemplary damages?" Appellants complain of the use of the phrase "entitled to" because it may improperly imply that the purpose of exemplary damages is compensation for the plaintiff instead of punishment for the defendants. See Courtesy Pontiac, Inc. v. Ragsdale, 532 S.W.2d 118, 122 (Tex.Civ.App.-Tyler 1975, writ ref'd n.r.e.). However, the use of this phrase, in and of itself, is not reversible error so long as "whether, when read as a whole and in conjunction with the general charge the interrogator(y) adequately present(s) the contested issue( ) to the jury." Dreiling, 511 F.2d at 774. We review the use of this phrase in conjunction with the instructions on exemplary damages infra and note here only that while the phrase should not be used because of its possible misleading implications, its use does not constitute reversible error per se, since Texas appellate opinions have often held persons "entitled to" exemplary damages. See, e.g., Wise v. Pena, 552 S.W.2d 196, 202 (Tex.Civ.App.-Corpus Christi 1977, writ dism'd); Irwin v. Whirley, 538 S.W.2d 150, 152 (Tex.Civ.App.-Waco 1976, no writ); Briggs v. Rodriguez, 236 S.W.2d 510, 516 (Tex.Civ.App.-San Antonio 1951, writ ref'd n.r.e.)
70
Art. 4004 declares:
(A)ll persons wilfully making such false representations or promises or knowingly taking advantage of said fraud shall be liable in exemplary damages to the person defrauded in such amount as shall be assessed by the jury, not to exceed double the amount of the actual damages suffered.
(emphasis added). As reenacted in Tex.Bus. & Comm.Code § 27.01(c) (Vernon 1968), these requirements are maintained:
A person who willfully makes a false representation or false promise, and a person who knowingly benefits from a false representation or false promise, commit the fraud described in Subsection (a) of this section and are liable to the person defrauded for exemplary damages not to exceed twice the amount of actual damages.
(emphasis added).
71
Tex.Bus. & Comm.Code § 27.01 retains the difference:
(b) A person who makes a false representation or false promise, and a person who benefits from that false representation or false promise, commit the fraud described in Subsection (a) of this section and are jointly and severally liable to the person defrauded for actual damages....
(c) A person who willfully makes a false representation or false promise, and a person who knowingly benefits from a false representation or false promise, commit the fraud described in Subsection (a) of this section and are liable to the person defrauded for exemplary damages not to exceed twice the amount of actual damages.
(emphasis added).
72
This conclusion is reinforced by the Legislature's reenactment of art. 4004 in § 27.01 where the same parallel structure was retained. See supra nn. 70, 71
73
In a recent civil conspiracy case by a parent seeking damages for emotional distress due to the abduction of a child, a federal district court applying Texas law apportioned exemplary damages among the conspirators. Although apportionment was not challenged on appeal, this disposition is in accord with our interpretation of Texas law. See Fenslage v. Dawkins, 629 F.2d 1107, 1109, 1111 (5th Cir. 1980)
74
Jury Instruction No. 32 said in full:
Exemplary Damages Under Texas Law
If you find that the plaintiff is entitled to actual damages as a result of having proved against any defendant or defendants all of the required elements of the Texas actionable fraud statute, Texas law permits the jury to award the plaintiff exemplary damages in addition to actual damages under certain circumstances. To be entitled to exemplary damages, the plaintiff must prove that such defendant or defendants willfully failed to disclose a material fact or that such defendant or defendants knowingly took advantage of the failure to disclose a material fact. In such instances a jury is permitted to award exemplary damages not to exceed twice the amount of actual damages.
If you, the jury, should find from a preponderance of the evidence in this case that the plaintiff is entitled to a verdict for actual or compensatory damages, and should you further find that the act or omission of the defendants or defendant which caused the actual injury or damage to the plaintiff was willfully done or with an intention to knowingly benefit from such, you, the jury, may in the exercise of your discretion, add to the award of actual damages such amount as you shall agree to be proper as exemplary. In any event, that amount may not exceed twice the amount of actual damages.
Whether to make any award of exemplary damages in addition to the actual damages is a matter exclusively within the province of the jury.
75
The Texas pattern instructions suggest the following instruction on exemplary damages: " 'Exemplary damages' means an amount which you may in your discretion award as an example to others and as a penalty or by way of punishment." 1 State Bar of Texas, Texas Pattern Jury Charges § 11.10 (1969)
Federal judges are advised to tell the jury:
(T)he law permits the jury, under certain circumstances, ... to award the injured person punitive and exemplary damages, in order to punish the wrongdoer for some extraordinary misconduct and to serve as an example or warning to others not to engage in such conduct.
3
Devitt & Blackmar, Federal Jury Practice & Instructions § 85.11 (3d ed. 1977)
76
We note that the interaction of art. 4004 and Texas civil conspiracy law to render Bintliff liable here arguably may raise due process problems. We think not
Although art. 4004 and the conspiracy law applied here are civil, not criminal, in nature, they can be labelled penal or quasi-criminal because they address fraud and permit punitive damages for violation. In order to err on the side of caution, we will apply criminal law standards in our due process analysis.
The possible due process problem is one of vagueness. Under a criminal statute, a person cannot be held "criminally responsible for conduct which he could not reasonably understand to be proscribed." Rose v. Locke, 423 U.S. 48, 49, 96 S.Ct. 243, 244, 46 L.Ed.2d 185 (1975) (per curiam). The due process clause requires that the law give sufficient warning of forbidden conduct. Id. at 50, 96 S.Ct. at 244. This right to fair warning can be violated in two ways: (1) vague statutory language or (2) unforeseeable and retroactive judicial expansion of narrow and precise statutory language. Bouie v. City of Columbia, 378 U.S. 347, 352, 84 S.Ct. 1697, 1701, 12 L.Ed.2d 894 (1964). Since art. 4004 is an old statute based on the common law quite precise in its terms and the doctrine of civil conspiracy is well-defined in the common law of Texas, the former possibility is not presented here. It is the latter possibility that is brought about by our meshing of art. 4004 and civil conspiracy law. However, we perceive no due process problems, because our holding today is certainly a foreseeable result.
In Texas, even before the enactment of art. 4004, the common law provided a remedy for actual damages for stock fraud, see Bordwine, Civil Remedies Under the Texas Securities Laws, 8 Houston L.Rev. 657, 658 & n.6 (1971); exemplary damages were also available in Texas at common law without statutory authorization, Briggs v. Rodriguez, 236 S.W.2d 510, 515 (Tex.Civ.App.-San Antonio 1951, writ ref'd n.r.e.); civil conspirators have been jointly and severally liable for actual damages since the 19th century, see State v. Racine Sattley Co., 63 Tex.Civ.App. 663, 134 S.W. 400, 404 (1911, no writ); and exemplary damages have been available for civil conspiracy in Texas since at least 1908, see St. Louis & Southwestern Ry. Co. v. Thompson, 102 Tex. 89, 113 S.W. 144, 147 (1908).
Art. 4004 codified the common law of fraud and concomitant exemplary damages, see Bordwine, supra, at 658 & n.7, changing (enlarging) only the measure of actual damages, see El Paso Development Co. v. Ravel, 339 S.W.2d 360, 363-64 (Tex.Civ.App.-El Paso 1960, writ ref'd n.r.e.), cited with approval in Stanfield v. O'Boyle, 462 S.W.2d 270, 272 (Tex.1971), but the common law of civil conspiracy in Texas has never been displaced by statute or altered by a Texas court. Given this precedent, our decision today is not an unforeseeable judicial expansion of a narrow statute; it is merely the application of time-honored principles of Texas law that Texas courts have used to the present day. See, e.g., Fenslage, 629 F.2d at 1110 (1980 diversity case applying Texas law); Bourland, 528 S.W.2d at 354 (1975 case holding that civil conspirators are liable despite failure to perform or know of all acts done in furtherance of conspiracy); Glenn H. McCarthy, Inc., 186 S.W.2d at 838 (1945 case with holding identical to Bourland ).
77
This result also avoids the possible due process problems of imposing exemplary damages, which are punitive in nature, on Bintliff without regard to his intent to commit the act for which he is punished. See Marshall v. Isthmian Lines, Inc., 334 F.2d 131, 135 (5th Cir. 1964) (criminal penalties require intentional conduct); Prosser, Torts § 2 at 9-10 (4th ed. 1971) (punitive damages a criminal law concept)
78
"Although relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence."
79
Limited Admissibility
When evidence which is admissible as to one party or for one purpose but not admissible as to another party or for another purpose is admitted, the court, upon request, shall restrict the evidence to its proper scope and instruct the jury accordingly.
(emphasis added).
80
Since this minimum definition cannot be satisfied in this case, we express no opinions on the degree of responsibility or influence required by § 9(e) or the existence of other restrictions on the § 9(e) causation requirement
81
This is the text of the letter:
Since I talked to you last, Mr. Bintliff has offered to settle this matter for a sum which Cosmos has agreed to accept. The settlement is, however, contingent on the Judge's entering a form of order which will protect Mr. Bintliff against the use of the Judge's findings and conclusions in other litigation. Accordingly, (the attorney for Cosmos) and I will be filing promptly a joint motion for relief designed to meet Mr. Bintliff's problems and I would appreciate it if the Judge would consider our previously filed motion for judgment only in the event that he decides to deny the joint motion which is about to be filed.
(emphasis added).
82
The letter to counsel read, in pertinent part:
I have studied your Joint Motion for dismissal of the above matter. While I favor your agreement to settle and am willing to sign an order of dismissal that provides for withdrawal of my previous findings and conclusions, the proposed form of order granting a new trial is unacceptable. There is, in my opinion, no basis for a new trial.
I am enclosing an order that is acceptable to me. If you want me to enter this order as a part of your agreed settlement each of you should approve it at the place indicated and return it to (the district clerk) promptly. Otherwise, I will take up for consideration Plaintiffs' pending motion for judgment on my findings and conclusions.
(emphasis added).
83
The order stated:
The joint Motion of Plaintiff, Cosmos Bank, and Defendant, David C. Bintliff, having been heard by the Court; and it appearing to the Court that Plaintiff, Cosmos Bank and Defendant, David C. Bintliff, have agreed upon a compromise settlement of all claims and causes of action which were, or could have been asserted by and between them in the above-styled cause, and as a part of such compromise settlement agreement, have jointly moved the Court that this Order be entered, and the Court being of the opinion that the compromise settlement agreement which fully disposes of the claims of Plaintiff against all parties, should be approved;
THEREFORE, it appearing to the Court that pursuant to the Compromise Settlement Agreement of Plaintiff, Cosmos Bank, and Defendant, David C. Bintliff, all claims and causes of action which were, or could have been asserted, by and between them in this cause, have been compromised and settled and the consideration therefore paid in full;
IT IS ORDERED, ADJUDGED AND DECREED that the above styled cause be and it is hereby DISMISSED with prejudice as to Defendants, David C. Bintliff, Lester L. Lilley, Ernest M. Hall, Jr., and James W. Williams, and the Findings of Fact and Conclusion of Law heretofore entered by the Court in this cause be and the same is hereby withdrawn and set aside.
IT IS FURTHER ORDERED that costs of court be and they are hereby taxed against the Defendants, jointly and severally including the sum of $1,500 as a part of the Special Master's Fee who supervised a portion of the consolidated discovery of which this case was a part.
84
On remand in this case Bintliff faces only state law liability, since this opinion has eliminated any federal liability. He may not even face state liability, since we have held that Chemetron must prove some additional elements of an art. 4004 claim not proven in the original trial. If Bintliff is held liable under art. 4004, his actual damage liability will be joint and several, while any punitive damages will be individual. Actual damages will probably be reduced on remand, since this court has rejected the zero-value theory. Finally, as a late-joining conspirator, Bintliff's punitive damages could be considerably less than his fellow defendants
All in all, Bintliff's exposure to higher damages in this case is not severe enough to prevent the use of offensive collateral estoppel.
85
It may have been arguable in the first Chemetron trial that the Cosmos Bank settlement avoided litigation by avoiding an appeal. There are two problems with this argument. First, the amount of work necessary to pursue an appeal in Cosmos Bank seems relatively small compared to the judicial and adversary effort required to undertake years of discovery and several weeks of trial. Therefore, the savings of legal resources by settling after a full trial were nominal. Second, that argument has no force now, since this issue has come before an appellate court
86
The only significant difference between this case and Parklane is that in Parklane judgment was entered in the underlying case and was affirmed on appeal, see 439 U.S. at 325, 99 S.Ct. at 648, thus satisfying even the toughest judicial finality requirement. In this instance, while the case was fully litigated, entering judgment on the findings and conclusion was prevented by a last-minute settlement made with other cases, including this one, and the threat of offensive collateral estoppel looming
87
On appeal, the court did not reach the merits of the ruling on offensive collateral estoppel. Because of this, we cite the district court's opinion in Aetna only for the persuasive value of its reasoning
88
One last contention that Bintliff may raise but has not is the denial of his seventh amendment right to a jury trial on the facts at issue here, since Cosmos Bank was a bench trial. However, Parklane addressed this seventh amendment problem and found this use of offensive collateral estoppel constitutional. See 439 U.S. at 333-37 & n.24, 99 S.Ct. at 652-655 & n.24
89
It is far from clear that the Rule 10b-5 forced sale doctrine even covers the 1969 transaction. Our prior cases have held only that "substantial" liquidations of a shareholders' interest qualify under this doctrine. See Alley, 614 F.2d at 1384-87, and cases discussed therein. Chemetron's interest in Westec may not have been "substantially liquidated" in the 1969 transaction, since Chemetron exchanged 411,866 shares of "old" common stock and 30,000 shares of "old" preferred stock for 41,866 shares of reorganized Westec common stock, 100,000 shares of reorganized Westec preferred stock, cash, a note, and cancellation of indebtedness. Thus, even if this was a "liquidation," it does not appear to be "substantial," since Chemetron retained a sizable interest in Westec. Our doubts about this cause of action under § 9 are enhanced by this question of its existence under Rule 10b-5. In view of the remand that we order, we pretermit further discussion of the point and expressly leave it unresolved, so that the trial court may first consider and address it should it arise
1
Standard Oil was an action by the State of Texas to recover statutory penalties and obtain injunctive relief against the members of an agreement that violated the state antitrust laws; it was not an attempt to recover damages for particular anti-competitive acts. See 107 S.W.2d at 552. Thus, the only thing the state needed to prove in Standard Oil was membership in the conspiracy itself
Bourland v. State, 528 S.W.2d 350 (Tex.Civ.App.-Austin 1975, writ ref'd n. r. e.), was an action by the state under the Texas Deceptive Trade Practices Act seeking, inter alia, restitution for the victims of a land development fraud. The developers' attorney was held liable for the full amount of restitution, despite his claim that he first became aware of the fraud well after the inception of the scheme. The evidence showed, however, that the attorney had profited from the scheme from its inception, and that after he learned of its fraudulent nature he joined in it, intending to perpetuate the fraud against the investors and to retain his prior, ill-gotten gains. By contrast, there is no proof in this case that Bintliff knew of or benefitted in any way from the Chemetron sale.
2
An exception exists if the decision "is surrounded by alternative protections or special policies that support preclusion," id. at 316-for example, findings adopted by the Supreme Court in cases under its original jurisdiction are given preclusive effect, see id. at 320-21. But the exception would swallow the rule if the requisite "alternative protections or special policies" could be found in the nonappealable findings of any district court
3
The unavailability of an appeal distinguishes this case from all of the appellate court decisions on which the majority relies in finding a "final judgment." Not only was an appeal available in the prior action in each of these cases, but in all but one the appeal had in fact been taken and the appellate court had rendered its judgment. Compare Miller Brewing Co. v. Jos. Schlitz Brewing Co., 605 F.2d 990, 991-92, 995-96 (7th Cir. 1979) (in prior action, court of appeals had determined as a matter of law that plaintiffs' brand name was not entitled to trademark protection), cert. denied, 444 U.S. 1102, 100 S.Ct. 1067, 62 L.Ed.2d 787 (1980); Kurlan v. Commissioner, 343 F.2d 625 (2d Cir. 1965) (preclusive effect given to judgment of state supreme court despite settlement after remand on a single issue); Zdanok v. Glidden Co., Durkee Famous Foods Div., 327 F.2d 944, 947 (2d Cir.) (in prior action, court of appeals had reversed a district court dismissal on the merits, had authoritatively determined the issue of liability, and remanded only for an assessment of damages), cert. denied, 377 U.S. 934, 84 S.Ct. 1338, 12 L.Ed.2d 298 (1964), with United States ex rel. DiGiangiemo v. Regan, 528 F.2d 1262, 1265 & n.1 (2d Cir. 1975) (government had right to appeal trial court's suppression order in earlier, aborted prosecution), cert. denied, 426 U.S. 950, 96 S.Ct. 3172, 49 L.Ed.2d 1187 (1976). These decisions provide little support for the majority's holding in this case, where the court in the prior action never reached a legally operative determination of any rights of the parties, and where no appeal was ever available
4
Migues v. Fibreboard Corp., 662 F.2d 1182, 1187 (5th Cir. 1981), which the majority also cites in its effort to disregard Loftin's, involved no collateral estoppel issue at all. The dictum quoted by the majority came in the course of a discussion concerning the "latent" question whether the abandonment of mutuality in Parklane could be extended to allow offensive collateral estoppel against a defendant who was not a party to the earlier litigation. Thus, not even the dictum in Migues concerned the requirement of a final judgment
5
Settlements are favored for many reasons besides the conservation of judicial and other legal resources
In addition to ending the uncertainty and anxiety of the litigants concerning the results of further litigation, settlements also resolve any doubts concerning the correctness of the court's fact findings and the justness of the remedy it devises. Because " '(t)here are "two sides" to most disputes,' " Howard v. Commissioner, 447 F.2d 152, 158 (5th Cir. 1971) (quoting Corbin on Contracts § 620 (1960)), "(o)ne of the fundamental principles of judicial administration is that, in most cases, the absolute result of a trial is not as high a quality of justice as is the freely negotiated, give a little, take a little settlement." Will, Merhige & Rubin, The Role of the Judge in the Settlement Process, 75 F.R.D. 203, 203 (1976) (remarks of Judge Will). See generally J. Frank, Facts are Guesses, in Courts on Trial 14 (1949).
Settlements also protect the litigants' interest in autonomy, allowing them to reach their own solution to their dispute rather than having a remedy imposed on them by a legal system that may not necessarily share the litigants' own shared norms. See generally Eisenberg, Private Ordering Through Negotiation: Dispute-Settlement and Rulemaking, 89 Harv.L.Rev. 637, 656-57 (1976).
Moreover, it has long been recognized that the restoration of amicable and socially useful relationships is more likely to result after a negotiated settlement than after a litigated fight to the finish. See Howard v. Commissioner, 447 F.2d at 158; Eisenberg, supra, at 646.
6
Despite the majority's hyperbole about "years of discovery" and "several weeks of trial," it is obvious that the only savings in this case will be the time and expense of retrying issues that the parties have already tried once. In my estimation, it is this savings that is "nominal" when compared to the savings that resulted when Bintliff agreed to settle the Cosmos Bank case. There is no reason to believe that an appeal in Cosmos Bank -which involved smaller stakes but issues similar to those in this case-would have consumed significantly less time than the over two-and-one-half years that have elapsed since the district court entered judgment in this case. During the pendency of that appeal, the preclusive effects of the Cosmos Bank findings would have remained uncertain. See 18 Wright & Miller, supra, § 4433, at 311-13. Since a reversal in Cosmos Bank would have nullified any reliance on the Cosmos Bank findings in this case, see id. § 4432, at 303, as a practical matter the parties would have been forced to relitigate the issues, await the court of appeals' decision in Cosmos Bank, or risk retrial of this complex case when and if Cosmos Bank was reversed
The majority makes the mathematically indefensible claim that the Cosmos Bank settlement has resulted in "no" savings to the judicial system, because "this issue has now come before an appellate court." What issue? No appellate court has even considered whether possible trial errors, incorrect interpretations of law, or insufficiency of evidence would require reversal of all or part of the judgment that was never entered in Cosmos Bank.
|
595 F.Supp. 452 (1984)
GETTY REFINING AND MARKETING CO.
v.
M/T FADI B, her engines, tackle, apparel, furniture, equipment, and all other necessaries thereunto appertaining and belonging, In Rem
and
Fadi Shipping Corporation In Personam.
Civ. A. No. 81-759.
United States District Court, E.D. Pennsylvania.
August 29, 1984.
*453 E. Michael Keating, Philadelphia, Pa., for plaintiff.
Richard W. Palmer, Palmer, Biezup & Henderson, Philadelphia, Pa., for defendant.
MEMORANDUM OPINION AND ORDER
VANARTSDALEN, District Judge.
Plaintiff Getty Refining and Marketing Co. (Getty) operates a marine terminal at Delaware City, Delaware. This terminal is used primarily for the loading and unloading of crude oil and oil products at Getty's refinery. The M/T Fadi B is an oil tanker owned by defendant Fadi Shipping Corporation (Fadi). On January 12, 1981, the Fadi B sustained a crack in her deck and side hull plating while discharging a cargo of crude oil at Pier 1 of Getty's Delaware City terminal. The source of the crack was a defective weld in the ship's main deck plating. The weld had been put in place in early 1980 during shipyard repairs in Piraeus, Greece. The crack caused neither physical damage to Getty's facilities nor pollution damage to the waters surrounding Getty's terminal. The United States Coast Guard, however, ordered the Fadi B to cease discharging her cargo and to remain at her berth until a safe plan for discharging the balance of the cargo could be developed and implemented. As a result, the Fadi B's cargo operations ceased for over two and one-half days, and the ship was forced to remain moored at Getty's pier until January 17, 1981.
Getty brought the present action to recover damages for the loss of use of its pier during the extra time used by the Fadi B following the cracking of her hull. Getty contends that the defendants are liable for the consequences of the Fadi B's cracking, because the defendants were negligent in failing to inspect the defective weld at the time of the ship's repair in Greece, and later in mooring the Fadi B at Getty's terminal under conditions that foreseeably would result in the cracking of the ship. The damages that Getty seeks to recover as a result of the defendants' negligence consist of the demurrage paid by Getty to several vessels that were scheduled to dock at Getty's terminal, but were delayed in doing so while the Fadi B remained at Getty's pier.
A nonjury trial was held earlier this year. At the close of Getty's evidence, the defendants moved for dismissal of the action pursuant to Federal Rule of Civil Procedure 41(b). The basis for the defendants' motion was that Getty had offered evidence only as to economic injury, and that recovery for purely economic loss is barred as a matter of law by Robins Dry Dock & Repair Co. v. Flint, 275 U.S. 303, 48 S.Ct. 134, 72 L.Ed. 290 (1927). At the time, I declined to render a judgment, but took the defendants' motion under advisement until the close of all the evidence. At the close *454 of all the evidence, the defendants renewed their motion. I heard arguments of counsel on the Robins issue, and requested additional briefing by the parties. Because the Robins issue is dispositive, judgment will be entered in favor of the defendants.[1]
In Robins, the operators of a shipyard negligently damaged a ship's propeller while performing repair work on the ship. The damage to the propeller required the ship to remain in drydock for several additional days. A party that had contracted with the owner to charter the ship sued the shipyard for the damages arising from the loss of use of the ship during the time needed to replace the damaged propeller. The Supreme Court held that the time charterer could not recover from the shipyard. Justice Holmes, writing for the court, stated:
[the time charterer's] loss arose only through [its] contract with the owners and while intentionally to bring about a breach of contract may give rise to a cause of action, no authority need be cited to show that, as a general rule, at least, a tort to the person or property of one man does not make the tort-feasor liable to another merely because the injured person was under a contract with that other, unknown to the doer of the wrong. The law does not spread its protection so far.
275 U.S. at 308-09, 48 S.Ct. at 135 (citations omitted).
Although the Robins court did not articulate a rationale for the rule denying the charterer's claim for the negligent interference with contractual relations, it is generally accepted that the rule reflects a concern for limiting the scope of a defendant's potential economic liability. See generally, Restatement (Second) of Torts § 766C, comment a (1979); Prosser and Keeton on the Law of Torts, § 129 at 1001 (W.P. Keeton 5th ed. 1984); James, Tort Liability for Economic Loss, 25 Vand.L.Rev. 43 (1972). Without such a limitation, a defendant may be exposed to potentially limitless liability, because a single negligent act may affect a multitude of contractual relationships. Prosser and Keeton note:
The policy against recovery based on [negligent interference with contractual relations] is rooted at least in part on what Professor James has called the "pragmatic objection" that while physical harm generally has limited effects, a chain reaction occurs when economic harm is done and may produce an unending sequence of financial effects best dealt with by insurance, or by contract, or by other business planning devices.
Prosser and Keeton, § 129 at 1001. By limiting a defendant's exposure for economic losses that arise solely by reason of a contractual relation, the rule against recovery for the negligent interference with the performance of a contract cuts off the chain reaction of financial effects at the first link.
Some courts have extended this policy analysis, and apply Robins as authority for a per se rule barring recovery for all negligently inflicted economic losses, where such losses are unaccompanied by physical damage to the plaintiff's person or property. In particular, the Fifth and Eleventh Circuits routinely apply Robins to deny recovery where a defendant negligently obstructs the use of a navigable waterway and causes vessel owners, terminal operators, or various other commercial enterprises to lose profits or incur additional expenses. See, e.g., Louisiana v. M/T Testbank, 728 F.2d 748 (5th Cir.1984); Hercules Carriers, Inc. v. Florida, 720 F.2d 1201 (11th Cir.1983); Akron Corp. v. M/T Cantigny, 706 F.2d 151 (5th Cir.1983); Kingston Shipping Co. v. Roberts, 667 F.2d 34 (11th Cir.), cert. denied, 458 U.S. 1108, 102 S.Ct. 3487, 73 L.Ed.2d 1369 (1982); Dick Meyers Towing Service, Inc. v. United States, 577 F.2d 1023 (5th Cir.1978), cert. denied, 440 U.S. 908, 99 S.Ct. 1215, 59 *455 L.Ed.2d 455 (1979). In Testbank, for example, the court stated:
Building on the Supreme Court's decision in [Robins], the Fifth Circuit Court of Appeals has developed a doctrine of maritime law that controls the outcome of this case: in a suit based upon the alleged negligence of a defendant, a plaintiff cannot recover consequential economic losses if the alleged negligence has not caused any physical damage to the person or property of the plaintiff.
728 F.2d at 749-50. Needless to say, application of such a per se rule in the present case would bar Getty from recovering from the defendants, because Getty admittedly has not suffered any physical damage to its facilities.
On the other hand, some courts, led by the Second Circuit's opinion in In re Kinsman Transit Co., 388 F.2d 821 (2d Cir. 1968) (Kinsman II), have expressed dissatisfaction with the negligent breach of contract analysis of Robins, and with the per se rule denying recovery for purely economic losses. See Federal Commerce & Navigation Co. v. M/V Marathonian, 392 F.Supp. 908 (S.D.N.Y.), aff'd, 528 F.2d 907 (1975). See also Testbank, 728 F.2d at 750-51 (Wisdom, J., concurring); Hercules Carriers, 720 F.2d at 1202-05 (Clark, J., concurring). Although the Kinsman II approach recognizes the practical necessity of curtailing unlimited liability, it views the bright line limitations imposed by Robins and the per se rule as artificial, and as unreasonably restricting a plaintiff's ability to obtain redress for the consequences of a defendant's negligent conduct. Kinsman II, 388 F.2d at 823-24. See Testbank, 728 F.2d at 750-51 & n. 1 (Wisdom, J., concurring). This approach advocates the use of traditional tort principles rather than bright line rules. Under this approach, a defendant is held to be liable for all of the economic losses that are proximately caused by his negligent conduct. A court applying the Kinsman II approach substitutes principles such as remoteness, foreseeability, and proximate cause to provide the necessary limitation of liability. Kinsman II, 388 F.2d at 824-25. See Venore Transportation Co. v. M/V Struma, 583 F.2d 708, 710 (4th Cir.1978) (Robins "is essentially a principle of disallowing damages because of remoteness...."). But see, Marathonian, 392 F.Supp. at 913-16 (although preferring the Kinsman II approach, the court applies the Robins analysis because bound by precedent).
In the present case, it is neither necessary to rely on the per se rule against recovery of purely economic losses, nor appropriate to apply the Kinsman II approach, because the Robins analysis directly governs the disposition of Getty's claim. Assuming for purposes of the present motion that the defendants acted negligently,[2] the only injury that Getty has established was its payment of demurrage to several vessels that were delayed while the Fadi B was forced to remain at Getty's pier. Getty's obligation to pay these demurrage claims arose, if at all,[3] from Getty's contracts with each of the delayed vessels.[4] Getty's claim thus essentially is one for interfering with its contracts by requiring it to undertake contractual obligations that made its performance more expensive. Getty admits this much in its brief:
Getty was under a contractual obligation to pay demurrage to vessels it had under hire. The damages that Getty is seeking consist principally of the excess demurrage *456 payments that it was required to make as a result of the FADI B's tortious conduct in blocking Getty's main pier. The FADI B did not interfere with Getty's contractual relationships. Rather, the tortious conduct of the FADI B caused Getty to incur extra expenses which were based upon contact obligations and were of a nature that are well known to any shipowner.[5]
Plaintiff's Memorandum of Law at 6.
Getty seeks to distinguish the present case from Robins because the defendants' interference did not result in a breach of contract. This distinction is irrelevant. As the Restatement (Second) of Torts illustrates, the interference with contractual relations can take several forms. See Restatement, §§ 766-766B. In Robins, the shipyard interfered with the contract between the shipowner and the charterer by preventing the shipowner from performing. The charterer's claim thus corresponds to what the Restatement labels "interference with the performance of a contract by a third person." Id. at § 766. In the present case, the defendants interfered with Getty's contracts by making the performance of those contracts more burdensome (i.e., incurring demurrage charges to delayed vessels). Getty's claim thus corresponds to what the Restatement labels "interference with another's performance of his own contract." Id. at 766A. As the Restatement recognizes, an interference under either circumstance is not actionable if it was done negligently. Id. at 766C. Because Getty seeks only to recover economic losses resulting from the negligent interference with its own contracts, Getty's claim is barred as a matter of law by the holding of Robins.
Applying Robins in the context of this case not only is consistent with precedent, it is also consistent with the pragmatic policy of limiting the scope of liability for economic losses. In fact, the case exemplifies the "chain reaction" of economic effects to which Prosser and Keeton refer. Because of an apparent shortage of crude oil at its refinery, Getty scheduled several ships to arrive at the Delaware City anchorage within a relatively short time span. These incoming ships were prevented from mooring at Getty's terminal for a time by the circumstances surrounding the cracking of the Fadi B. Each succeeding ship that arrived at the breakwater was delayed from proceeding to Getty's terminal. Getty added together the economic consequences of this chain reaction of delays, and presented them to the defendants as a claim for damages. The evidence at trial extended to at least eight different vessels. The liability to the defendants conceivably could have been endless, and was dependent upon Getty's own scheduling decisions. The testimony of the various scheduling witnesses, and the charts each prepared, proved, if anything, that to isolate accurately the delays that are fairly attributable to the Fadi B is a nearly impossible task. Robins sensibly avoids the uncertainties inherent in such an undertaking.
NOTES
[1] Rule 41(b) states that "[i]f the court renders judgment on the merits against the plaintiff, the court shall make findings as provided in Rule 52(a)." Fed.R.Civ.P. 41(b). This memorandum represents my findings of fact and conclusions of law in accordance with Rule 52(a).
[2] Although I have not reviewed all of the evidence, the record contains much evidence tending to establish that Fadi had no duty to inspect the particular weld that caused the crack in the Fadi B, and that a reasonable inspection would not have uncovered the defect in the weld.
[3] Fadi strenuously maintains that the various provisions in Getty's contracts did not require Getty to pay demurrage under the circumstances of this case.
[4] Getty had entered into several different types of contractual arrangements with the delayed vessels. Getty chartered the Alabama Getty, Pennsylvania Getty, and Texas Getty under contracts of affreightment with its parent company, Getty Oil Co. Getty hired the Interstate 140 directly from a barge operator, and Getty entered into exchange agreements with the owners and charterers of the Ogden Champion and the Solveig.
[5] Getty asserts that Robins does not apply because Getty had a proprietary interest in the blocked pier. See Vicksburg Towing Co. v. Mississippi Marine Transport Co., 609 F.2d 176 (5th Cir.1980). As the quoted passage demonstrates, however, Getty's claim for damages does not arise by reason of its ownership of the pier as such, but rather because Getty entered into contractual arrangements whereby it hired vessels to deliver crude oil to its refining facility. The interference, therefore, was with Getty's contractual rights and interests, not with proprietary rights and interests.
|
MEMORANDUM DECISION
FILED
Pursuant to Ind. Appellate Rule 65(D), Nov 29 2017, 9:29 am
this Memorandum Decision shall not be CLERK
Indiana Supreme Court
regarded as precedent or cited before any Court of Appeals
and Tax Court
court except for the purpose of establishing
the defense of res judicata, collateral
estoppel, or the law of the case.
ATTORNEY FOR APPELLANT ATTORNEYS FOR APPELLEE
Donald E.C. Leicht Curtis T. Hill, Jr.
Kokomo, Indiana Attorney General of Indiana
Tyler Banks
Deputy Attorney General
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Franklin Allen, November 29, 2017
Appellant-Defendant, Court of Appeals Case No.
34A02-1706-CR-1289
v. Appeal from the Howard Superior
Court
State of Indiana, The Honorable William C.
Appellee-Plaintiff. Menges, Jr., Judge
Trial Court Cause No.
34D01-1105-FA-417
Robb, Judge.
Court of Appeals of Indiana | Memorandum Decision 34A02-1706-CR-1289 | November 29, 2017 Page 1 of 8
Case Summary and Issue
[1] In 2012, Franklin Allen was sentenced to twenty years in the Indiana
Department of Correction (“DOC”) for possession of cocaine, a Class B felony.
His sentence was suspended and he was released to probation in 2014. The
State thereafter filed a petition to revoke Allen’s probation alleging Allen failed
to submit to required urine screens on several occasions and tested positive for
the presence of alcohol or controlled substances on several other occasions.
Following a hearing, the trial court revoked Allen’s probation and ordered him
to serve the balance of his previously suspended sentence. Allen appeals,
raising one issue for our review, which we restate as whether the trial court
abused its discretion in determining the sanction for his violation. Concluding
the trial court did not abuse its discretion, we affirm.
Facts and Procedural History
[2] In 2011, the State charged Allen with one count of Class A felony dealing in
cocaine, two counts of Class B felony dealing in cocaine, and one count of
Class D felony intimidation. In 2012, Allen pleaded guilty to possession of
cocaine as a Class B felony pursuant to a Drug Court Participation Agreement
that provided judgment and sentencing would be deferred while Allen
participated in a drug court program. If Allen successfully completed the
program, the case would be dismissed. If he failed to complete the program,
the trial court would enter judgment of conviction and Allen would be
sentenced at the trial court’s discretion. Allen violated the agreement twice
Court of Appeals of Indiana | Memorandum Decision 34A02-1706-CR-1289 | November 29, 2017 Page 2 of 8
within the first month and the drug court filed a notice of intent to terminate
him from the drug court program. Following a hearing, the trial court
terminated Allen’s participation in drug court and sentenced him to twenty
years of incarceration at the DOC. However, the court indicated its willingness
to modify Allen’s sentence if he successfully completed a therapeutic
community program at the DOC. After Allen successfully completed a DOC
purposeful incarceration program in 2013, the trial court suspended his sentence
and released him to supervised probation. Allen then successfully completed a
local re-entry program in 2015, and the trial court further modified his sentence
to require only three years of his suspended sentence be served on supervised
probation.
[3] The terms of Allen’s probation provided that he was not to consume or possess
any controlled substance except those prescribed by a physician and that he was
to submit to alcohol and drug testing as requested. On June 6, 2016, the State
filed a petition to revoke Allen’s probation, alleging a series of failed (five times)
and missed (four times) drug screens since January 16, 2016. A warrant was
issued for Allen’s arrest. On June 23, 2016, the parties agreed that Allen would
be released from custody on the condition he immediately report to and
successfully complete an inpatient treatment program. Allen was taken into
custody at some point after that date and released again on August 5, 2016,
with the condition he immediately report to and successfully complete a VA
inpatient treatment program. A second petition to revoke was filed on April 12,
2017, alleging an additional failed drug screen.
Court of Appeals of Indiana | Memorandum Decision 34A02-1706-CR-1289 | November 29, 2017 Page 3 of 8
[4] Following a fact-finding hearing on May 18, 2017, the trial court revoked
Allen’s probation and ordered that he execute the balance of his sentence.
Allen now appeals.
Discussion and Decision
I. Standard of Review
[5] Probation revocation is a two-step process: first, the court must make a factual
determination that a violation of a condition of probation occurred; then, if a
violation is proven, the court must determine if the violation warrants
revocation of probation. Johnson v. State, 62 N.E.3d 1224, 1229 (Ind. Ct. App.
2016). The State need only prove the alleged violations by a preponderance of
the evidence. Ind. Code § 35-38-2-3(f). Once the trial court has determined that
probation should be revoked, imposing a sanction for the probation violation
lies within the sound discretion of the trial court, and we will reverse only for an
abuse of that discretion. Hickman v. State, 81 N.E.3d 1083, 1085 (Ind. Ct. App.
2017). A trial court abuses its discretion by ruling in a manner that is clearly
against the logic and effect of the facts and circumstances before it, or by
misinterpreting the law. Id. If the court finds that a person has violated even a
single condition of probation, the court may impose one or more sanctions,
including ordering execution of all or part of a suspended sentence. Ind. Code §
35-38-2-3(h).
Court of Appeals of Indiana | Memorandum Decision 34A02-1706-CR-1289 | November 29, 2017 Page 4 of 8
II. Sanction
[6] At Allen’s probation revocation hearing, Megan Enright, Allen’s probation
officer, testified. The allegations of the notice of probation violation were that
Allen had missed or failed several drug tests. Enright testified that she had
received the results of several drug tests showing Allen had used cocaine and/or
alcohol. On cross-examination, Enright was asked if Allen had performed
reasonably well for almost a year in probation until the urine screen issue at the
beginning of 2016. Enright disagreed, noting Allen completed the re-entry
program sometime between April and July 2015 and had a positive drug screen
at the end of August. Allen was also instructed to call about an intensive
outpatient program (“IOP”) in August 2015:
Q: Did he do the IOP assessment?
A: Yes.
Q: Did he go through IOP treatment?
A: I do not think he completed that. March 24th, 2016 we
agreed that IOP was not working for him and that he needed to
go to the VA for in-patient substance abuse treatment.
Id. at 9-10. Ultimately, Enright did not believe that continued probation would
be appropriate because of Allen’s habitual relapses even after completing a
given course of treatment. Allen also testified and when asked if he completed
the IOP program Enright referenced, stated that he did. He acknowledged his
relapses, including a relapse in 2016 when he was using cocaine. The trial court
found the State had established by a preponderance of the evidence that Allen
had violated the terms of his probation and heard evidence regarding an
Court of Appeals of Indiana | Memorandum Decision 34A02-1706-CR-1289 | November 29, 2017 Page 5 of 8
appropriate sanction. Allen again testified, revealing several health issues,
acknowledging he was a longtime drug user, and stating that although he
“keep[s] trying to overcome this . . . I just keep falling short . . . .” Transcript at
15. Allen’s counsel conceded some length of punishment was in order but
argued that the full fourteen years remaining on his sentence was not
appropriate, asking instead for three years executed. The trial court stated the
court had “done literally everything that’s available to give Mr. Allen the
structure and support to meet his various and sundry . . . needs and nothing
we’ve tried has been successful.” Id. at 16. Accordingly, the court agreed with
Enright that probation was no longer a viable option and sentenced Allen to
serve the remainder of his sentence in DOC.
[7] Allen does not contest the revocation of his probation, acknowledging he had
consumed illegal substances in violation of the rules of his probation. See Brief
of Appellant at 9. Instead, Allen argues that he should not have been ordered
to serve the entirety of his original sentence in the DOC for two reasons: 1)
Enright “lied” when she testified he had not completed the IOP program, Br. of
Appellant at 9, and 2) after Allen completed the re-entry program, the trial
court modified his sentence to require that only three years of his suspended
sentence be served on supervised probation; therefore, his executed sentence
should be no longer than those three years.
[8] As for Enright’s testimony, she did not testify that Allen did not complete the
IOP program; she testified that she did not “think” Allen completed the
program. Tr. at 9. Even if Enright was mistaken, her statement is not a “lie,”
Court of Appeals of Indiana | Memorandum Decision 34A02-1706-CR-1289 | November 29, 2017 Page 6 of 8
as Allen tries to color it. Further, even if the trial court had been unequivocally
informed that Allen had completed the program, we cannot agree with Allen’s
assertion that the trial court “would have exercised its discretion . . . to sentence
him to a lesser sentence[.]” Br. of Appellant at 9. Allen was allegedly involved
in the IOP in March of 2016, and yet he also started testing positive for drugs
and alcohol in March of 2016 and tested positive several times thereafter.
Finally, Allen’s completion of an IOP program was not at issue in the probation
revocation proceeding, as the only allegations concerned missed or failed drug
screens. Given all of Allen’s violations during and after any such program, we
cannot say the trial court would have or should have imposed a lesser sanction.
[9] As for Allen’s argument that because he only had three years of supervised
probation, he should only be ordered to serve three years executed for violation
of his probation, he offers no authority supporting such a proposition. Allen
was given a twenty-year executed sentence, after first being given the
opportunity to avoid a criminal conviction and sentence altogether. The trial
court suspended Allen’s sentence after less than two years of incarceration to
supervised probation, then modified his sentence to require that he “serve three
(3) years of the suspended sentence” on supervised probation. Appendix of
Appellant, Volume 3 at 26. To the extent Allen argues he believed his sentence
as a whole had been modified to three years, the record does not support this
assertion. Allen was always subject to a twenty-year sentence and the trial
court had the discretion to order him to serve any or all of the remainder of that
Court of Appeals of Indiana | Memorandum Decision 34A02-1706-CR-1289 | November 29, 2017 Page 7 of 8
twenty-year sentence upon finding a violation and revoking his probation. Ind.
Code § 35-38-2-3(h)(3).
[10] Finally, in general, we note the sanction imposed by the trial court was not an
abuse of discretion. In the five years this case was before the trial court, Allen
had failed to successfully complete a drug court program. He began using drugs
again almost immediately after successfully completing purposeful
incarceration and a re-entry program in July 2015 as evidenced by Enright’s
testimony that he failed a drug screen on August 27, 2015. He was ordered to
complete two different inpatient treatment programs and was unable to
successfully complete either program. In sum, Allen was offered many
opportunities to avoid re-incarceration and failed to avail himself of any of
them. The trial court’s order that Allen serve the entirety of his previously
suspended sentence was not against the logic and effect of the facts and
circumstances presented here.
Conclusion
[11] The sanction imposed by the trial court upon finding that Allen had violated his
probation was not an abuse of discretion. The judgment of the trial court is
affirmed.
[12] Affirmed.
Riley, J., and Pyle J., concur.
Court of Appeals of Indiana | Memorandum Decision 34A02-1706-CR-1289 | November 29, 2017 Page 8 of 8
|
116 N.H. 616 (1976)
FOSTER JENKINS
v.
CANAAN MUNICIPAL COURT.
No. 7230.
Supreme Court of New Hampshire.
October 29, 1976.
*617 Baker & Page and Eugene C. Struckhoff III and New Hampshire Legal Assistance, Martha M. Davis (Mr. Struckhoff orally) for the plaintiff.
David H. Souter, attorney general, and Robert V. Johnson II, assistant attorney general (Mr. Johnson orally), for the defendant.
Allan Ashman and Karen Knabb (of Illinois), by brief, for The American Judicature Society, as amicus curiae.
LAMPRON, J.
Petition for a writ of prohibition to prevent Daniel W. Fleetham, Judge of the Canaan District Court, from presiding over plaintiff's pending trial in that court on a charge of driving while intoxicated second offense, a misdemeanor. (RSA 262-A:62 (Supp. 1975)). Judge Fleetham is the sole justice of that court and is not an attorney. If convicted the plaintiff could be sentenced to a maximum fine of $1,000, one year in the house of correction, three years loss of license, or a combination thereof.
The following question was reserved and transferred, in advance of trial and without ruling, by Perkins, J.: "May a nonattorney judge constitutionally preside over criminal trials of offenses punishable by jail sentences in the District or Municipal Courts of the State of New Hampshire?"
Since the parties have argued and submitted this matter to this court, the United States Supreme Court in North v. Russell, 96 S. Ct. 2709 (1976), has considered and passed on most of the arguments advanced by the plaintiff and amicus curiae in support of a negative answer to the transferred question.
They argue that, since the enactment in 1915 of RSA ch. 502 establishing municipal courts to be presided by a "learned, able, and discreet person," the complexity of a criminal trial has increased immeasurably. A new body of constitutional law has been created with which prosecutors, defense counsel, and judges in municipal and district courts (RSA ch. 502-A) must develop knowledge and expertise. To compel a defendant to be tried for an offense punishable by a jail sentence before a nonattorney judge, they maintain is a violation of the defendant's right to a fair trial by failing to provide him with a tribunal adequately trained in the law which is essential to defendant's right to the effective aid of counsel. Wolf v. Colorado, 338 U.S. 25, 27 (1949); In re Murchison, 349 U.S. 133, 136 (1955); Argersinger v. Hamlin, 407 U.S. 25 (1972); see State v. Clough, 115 N.H. 7, 332 A.2d 386 *618 (1975); N.H. CONST. pt. I, art. 15. Plaintiff and amicus argue further that the right to appeal to the superior court with a trial de novo under our two-tier system does not cure these constitutional infirmities.
The United States Supreme Court considered these contentions in North v. Russell, 96 S. Ct. 2709, 2712 (1976), and stated that in the context of the two-tier system of courts in Kentucky "it is unnecessary to reach the question whether a defendant could be convicted and imprisoned after a proceeding ... conducted by a lay judge. In all instances, a defendant in Kentucky facing a criminal sentence is afforded an opportunity to be tried de novo in a court presided over by a lawyer-judge since an appeal automatically vacates the conviction in police court.... The trial de novo is available after either a trial or a plea of guilty in the police court. . . ." The court held that, under such a system, an accused who is charged with a misdemeanor for which he is subject to possible imprisonment is not denied due process of law when tried before a nonlawyer judge in a lower court. North v. Russell supra; see Colten v. Kentucky, 407 U.S. 104 (1972).
New Hampshire has a comparable two-tier court system which operates in a similar manner. "In this state the statutory scheme for the trial of misdemeanors is a trial in the first instance in a municipal or district court with an absolute right of appeal to the Superior Court where the trial is de novo before a jury." State v. Despres, 107 N.H. 297, 298, 220 A.2d 758, 759 (1966). The effect of such an appeal is to vacate the municipal or district court judgment. State v. Hennessey, 110 N.H. 447, 270 A.2d 613, 614 (1970). The right of appeal is not barred by a plea of guilty in the absence of a waiver of such right. State v. Belmestieri, 93 N.H. 262, 263, 40 A.2d 836 (1945).
We have held that our two-tier system is constitutional and does not violate a defendant's constitutional right to a jury trial. State v. Handfield, 115 N.H. 628, 348 A.2d 352 (1975); State v. Dickson, 116 N.H. 175, 355 A.2d 822 (1976); see Ludwig v. Massachusetts, 96 S. Ct. 2781 (1976). We hold that our two-tier system comes within the ruling in North v. Russell, 96 S. Ct. 2709 (1976), that a defendant tried before a municipal or district court presided by a nonlawyer judge is not deprived under our system of his right to a fair trial and to the effective aid of counsel. Colten v. Kentucky, 407 U.S. 104 (1972); see Whitmarsh v. Commonwealth, 74 Mass. Ad. Sh. 1403, 316 N.E.2d 610 (1974).
The answer to the transferred question is "Yes", a nonattorney *619 judge may constitutionally preside over criminal trials of offenses punishable by jail sentences in the district or municipal courts of our State.
The American Judicature Society, as amicus curiae, argues that permitting nonlawyer judges to preside over trials of criminal offenses punishable by a jail sentence is adverse to the public interest. The Society maintains that such a system impairs the quality of judicial administration and is contrary to the present trend. This practice was probably justified when modes of travel were not as available as they are today and lawyers could not be obtained for each court. These conditions, it maintains, do not exist presently. See National Advisory Commission on Criminal Justice Standards and Goals, Task Force Report: Courts 161 (1973); The Institute of Judicial Administration, A District Court for New Hampshire, Report To The Administrative Committee Of The District and Municipal Courts (1973). These arguments have considerable merit in our opinion, but they do not resolve the constitutional issue presented by the transferred question.
Remanded.
BOIS, J., did not sit; the others concurred.
|
COURT OF APPEALS
EIGHTH DISTRICT OF TEXAS
EL PASO, TEXAS
JOSE JUAN SANDOVAL, §
No. 08-11-00283-CR
Appellant, §
Appeal from the
v. §
346th District Court
THE STATE OF TEXAS, §
of El Paso County, Texas
Appellee. §
(TC# 20100D02656)
O R D E R
The Court has reviewed the appellate record in the above-styled and numbered cause and
has determined that multiples issues are presented by the judgment. These issues have not been
identified by the parties or addressed in the briefs. At the top of the first page, the judgment
states the cause number and refers to “Counts I - IV of V.” A jury found Appellant guilty of
Counts I, II, and III, but the judgment does not reflect each of those convictions, and it does not
reflect that he was acquitted of Count IV. The judgment also does not reflect that the trial court
assessed a sentence for each conviction (Counts I, II, and III) or whether those three sentences
are to run concurrently or consecutively. See TEX.PENAL CODE ANN. § 3.03 (West Supp. 2012).
The Court has determined it is necessary for the parties to provide additional briefing on these
issues. We therefore abate the appeal and direct Appellant and the State to file letter briefs
addressing these issues. The letter briefs are due to be filed no later than 30 days from the date
of this order. The appeal will be reinstated upon the filing of the letter briefs.
IT IS SO ORDERED THIS 27TH DAY OF SEPTEMBER, 2013.
PER CURIAM
Before McClure, C.J., Rivera, and Rodriguez, JJ.
|
13-1472-ag
Li v. Holder
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 TO A SUMMARY
ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held
at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
York, on the 4th day of December, two thousand fourteen.
PRESENT:
REENA RAGGI,
PETER W. HALL,
GERARD E. LYNCH,
Circuit Judges.
_____________________________________
ZONGHAN LI
Petitioner,
v. 13-1472-ag
ERIC H. HOLDER, JR., United States Attorney
General,
Respondent.
_____________________________________
FOR PETITIONER: GUANG JUN GAO, Law Offices of Guang Jun Gao,
Esq., Flushing, NY.
FOR RESPONDENT: KILEY L. KANE, Trial Attorney (Stuart F. Delery,
Assistant Attorney General, and Jennifer L. Lightbody,
Senior Litigation Counsel, on the brief), Office of
Immigration Litigation, Civil Division, United States
Department of Justice, Washington, DC.
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 GRANTED, the BIA’s decision is
VACATED and the case is REMANDED for further proceedings.
Zonghan Li, a citizen of the People’s Republic of China, seeks review of a March
26, 2013 decision of the BIA affirming the December 23, 2010 decision of an
Immigration Judge (“IJ”) denying Li’s applications for asylum, withholding of removal,
and relief under the Convention Against Torture (“CAT”). See In re Zonghan Li, No.
A088 777 170 (B.I.A. Mar. 26, 2013), aff’g No. A088 777 170 (Immig. Ct. N.Y.C. Dec.
23, 2010). Li sought such relief based on past persecution, as well as a claimed fear of
future persecution based on his conversion to Christianity while in the United States.
Under the circumstances of this case, we review the IJ’s decision as modified by the BIA,
see Xue Hong Yang v. U.S. Dep’t of Justice, 426 F.3d 520, 522 (2d Cir. 2005), applying
well established standards of review, see 8 U.S.C. § 1252(b)(4)(B); Yanqin Weng v.
Holder, 562 F.3d 510, 513 (2d Cir. 2009). We presume the parties’ familiarity with the
facts and procedural history of this case, and reference them only as necessary to explain
our decision.
The agency’s denial of relief rested on an adverse credibility determination. We
generally accord such findings considerable deference. See Xiu Xia Lin v. Mukasey, 534
F.3d 162, 167 (2d Cir. 2008). We need not do so, however, when the credibility findings
2
are rooted in misstatements of the record. Li Zu Guan v. INS, 453 F.3d 129, 139-40 (2d
Cir. 2006).
Here, the IJ found Li to be incredible based on asserted inconsistencies within his
testimony at an immigration hearing and between his testimony and his original
application for asylum. Some of these findings of inconsistency or omission, regarding
the date that Li was baptized, the frequency with which Li was required to report to police
after his release from detention, and whether Li knew that police were soliciting his
testimony against a Falun Gong-practicing neighbor for an upcoming trial are clearly or at
least arguably supported by the record. The government concedes that another alleged
inconsistency, regarding the length of Li’s detention by Chinese authorities, is not in fact
inconsistent. Our review of the record persuades us that several of the remaining disputed
findings are not supported by the record.
First, the IJ found that a letter from Li’s co-worker about the reasons for his firing
from a paper factory in China was inconsistent with Li’s testimony that he was fired for
engaging in anti-Communist agitation. But this finding is mistaken; Li never testified that
he was fired for any reason relating to anti-Communism. He consistently testified that he
was fired for protesting his lack of pay.1
1
The government tacitly concedes that the record did not support this finding by
attempting to recast the inconsistency as being about whether Li was fired for protesting
about his pay or because the company went bankrupt. But to adopt the government’s
argument would be to make our own factfinding, not to defer to the IJ’s. We note that if
Li was complaining merely about poor pay and was not fired based on any protected
ground, his firing from the paper company would not, in and of itself, establish
persecution. See Ivanishvili v. U.S. Dep’t of Justice, 433 F.3d 332, 341 (2d Cir. 2006).
3
Second, the IJ found Li inconsistent because he stated in his affidavit that he was
arrested for distributing Falun Gong-propagated anti-Communist materials on behalf of
his neighbor, a Falun Gong practitioner named Yoon who also distributed Falun Gong
materials, but he did not mention Falun Gong in his testimony. Li’s asylum application
stated that he was arrested for distributing Yoon’s copies of “Nine Commentaries on the
Communist Party,” an anti-Communist tract, and that the police also seized Falun Gong
materials belonging to Yoon at the time of Li’s arrest. Li testified, consistent with his
application, that he distributed anti-Communist materials on behalf of Yoon. That Li
never identified himself as a member of Falun Gong is not inconsistent because he never
alleged that he was. Similarly, the IJ found Li’s failure to identify himself as a member of
Falun Gong inconsistent with a letter from Li’s father, submitted with his affidavit. But
there is no inconsistency. Li’s father wrote that the police had accused his son of being
affiliated with Falun Gong – an unsurprising inference given that Li was arrested for
distributing literature on behalf of a Falun Gong member – but never stated that Li was in
fact a member of Falun Gong.2
The issue here, however, is not whether Li’s firing would support an asylum claim, but
rather is whether his testimony was inconsistent with his co-worker’s affidavit.
2
To the extent that Li’s claim for asylum is based on imputed membership in
Falun Gong, see Vumi v. Gonzalez, 502 F.3d 150, 156 (2d Cir. 2007), the absence of any
testimony about Falun Gong might be meaningful. But it is not clear from the record that
either Li or the IJ characterized his claim that way, and it is for the agency, not this Court,
to consider in the first instance whether Li made such a claim and whether such imputed
membership supports a claim of persecution. See Chun Gao v. Gonzales, 424 F.3d 122,
129-30 (2d Cir. 2005) (remanding to consider claim of fear of persecution for petitioner
who had sold Falun Gong-related books but was not himself an adherent of Falun Gong).
4
Third, the IJ found problematic Li’s testimony that before he fled China, he hid in
a Korean church in Beijing, because there “was no mention of this incident in [Li’s]
written application.” (Admin. R. 38.) Li’s affidavit, however, stated that before he fled
China, he hid in Beijing. The fact that in his testimony Li was more specific about the
Beijing location where he hid does not necessarily present a discrepancy with the earlier
affidavit. See Tu Lin v. Gonzales, 446 F.3d 395, 401 (2d Cir. 2006) (no discrepancy
where petitioner’s affidavit stated that his wife hid in “other people’s houses” and his
subsequent testimony was “more specific as to the houses in which his wife hid”).3
Despite these errors, we may affirm an adverse credibility finding if “we can state
with confidence that the IJ would adhere to his decision if we were to remand.” Xiao Ji
Chen v. U.S. Dep’t of Justice, 434 F.3d 144, 158 (2d Cir. 2006). We have no such
confidence here, however, given that “the erroneous aspects of the IJ’s reasoning are not
tangential to the findings she made and that the evidence supporting her findings is not so
overwhelming that it is clear she would reach the same results on remand.” Cao He Lin
v. U.S. Dep’t of Justice, 428 F.3d 391, 406 (2d Cir. 2005). Under the Real ID Act, the IJ
3
While an inconsistency or omission need not directly relate to an applicant’s
claims in order for an IJ to rely on it in her credibility determination, see Xiu Xia Lin, 534
F.3d at 167, if Li were claiming past persecution based on religion, the omission of the
fact that he hid in a church might well be a “lacuna[]” that could be “deemed
consequential by the fact-finder.” Id., quoting Tu Lin, 446 F.3d at 402. While Li claimed
that he did not become a Christian until he had come to the United States, he did testify
that it was in the church where he hid that he first learned “how to believe Jesus.”
(Admin R. 131-32.) We do not foreclose further record development or explication by
the IJ on remand as to the reasons why Li’s omission of the fact that he hid in a church
may be relevant to a credibility determination.
5
may rely on any inconsistency or omission in making an adverse credibility determination
“as long as the ‘totality of the circumstances’ establishes that an asylum applicant is not
credible.” Xiu Xia Lin, 534 F.3d at 167, quoting 8 U.S.C. § 1158(b)(1)(B)(iii). Because
so many of the inconsistencies found by the IJ were not rooted in the record, we cannot be
confident that the IJ would reach the same adverse conclusion if the errors were
corrected. Ultimately, the factfinding is for the agency, so when we find an IJ’s
factfinding deficient, we will ordinarily “remand to the agency for additional explanation
or investigation” rather than substitute our own judgment. Twum v. INS, 411 F.3d 54, 61
(2d Cir. 2005). Accordingly, the BIA’s decision is vacated and the case is remanded to
allow the agency to reassess its findings, including its credibility determination, based on
an accurate reading of the record.4
4
We need not address the IJ’s finding that Li was unable to corroborate his
testimony because he failed to produce particular documents from China. However, we
repeat our prior holding that where a petitioner has been found to be otherwise credible,
“an IJ may not deny relief for failure to produce corroborative evidence, unless the IJ has
(a) identified the particular pieces of missing, relevant documentation, and (b) showed
that the documentation at issue was reasonably available to the petitioner.” Xiao Ji Chen
v. U.S. Dep’t of Justice, 471 F.3d 315, 341 (2d Cir. 2006) (emphasis added) (internal
quotation marks and alterations omitted).
6
For the foregoing reasons, the petition for review is GRANTED, the BIA’s
decision is VACATED, and the case is REMANDED for further proceedings consistent
with this summary order. Li’s motion for a stay of removal is DISMISSED as moot.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
7
|
J-A16021-16
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
ELIZABETH GARSTECKI, AS IN THE SUPERIOR COURT OF
ADMINISTRATRIX OF THE ESTATE OF PENNSYLVANIA
RHODA BALDWIN, DECEASED
Appellant
v.
ASTER ASSEFA, M.D.; ASTER ASSEFA,
M.D., P.C.; AND MEDICAL LABORATORY
SERVICES, INC., D/B/A DIAMOND
PHARMACY
Appellees No. 1222 WDA 2015
Appeal from the Judgment Entered August 3, 2015
In the Court of Common Pleas of Westmoreland County
Civil Division at No(s): 4251 of 2012
BEFORE: SHOGAN, OLSON and STRASSBURGER,* JJ.
MEMORANDUM BY OLSON, J.: FILED NOVEMBER 17, 2016
Appellant, Elizabeth Garstecki, as administratrix of the estate of Rhoda
Baldwin, deceased, appeals from the judgment entered on August 3, 2015.
We affirm.
On July 11, 2012, Appellant filed a complaint naming, as defendants,
Aster Assefa, M.D., Aster Assefa, M.D., P.C., and Medical Laboratory Service,
Inc., d/b/a Diamond Pharmacy (hereinafter collectively “Defendants”). The
complaint raised wrongful death and survival claims and, in the complaint,
Appellant averred the following.
In 2001, defendant Dr. Aster Assefa (hereinafter “Dr. Assefa”) became
the primary care physician of Rhoda Baldwin (hereinafter “Ms. Baldwin”). At
*Retired Senior Judge assigned to the Superior Court.
J-A16021-16
the time, Ms. Baldwin “was in a general state of good health with mild
mental retardation.” Appellant’s Complaint, 7/11/12, at ¶¶ 7-8.
In 2009, Ms. Baldwin “was diagnosed with dilated cardiomyopathy, a
condition that required [her] to be treated with [warfarin], also known as
Coumadin, to decrease the risk of developing ischemic stroke.” Id. at ¶ 9.
As Appellant averred, following the diagnosis, Dr. Assefa prescribed Ms.
Baldwin Coumadin and managed the international normalized ratio (“INR”)
levels of Ms. Baldwin’s blood, in an attempt to safely provide Ms. Baldwin
with a therapeutic level of the drug. See id. at ¶¶ 10-11. Appellant
averred:
13. On August 12, 2010, [Ms. Baldwin’s prothrombin time
(“PT”) and INR] were still below the therapeutic level.
14. In response, [Dr. Assefa] changed [Ms. Baldwin’s]
Coumadin dosing to 10 mg on Monday, Tuesday,
Wednesday and Friday and 7.5 mg on all other days of the
week. The total weekly dose of Coumadin intended was
62.5 mg.
15. This prescription change, if communicated to [Ms.
Baldwin,] took place by means of a telephone conversation.
16. On August 17, 2010, [Dr. Assefa] wrote a prescription
as: “Warfarin Sodium 7.5 mg tablet. Take one tablet by
mouth as directed. Refills 5. Quantity 30.”
17. On August 17, 2010, [Dr. Assefa] wrote a second
prescription as: “Warfarin Sodium 10 mg tablet. Take one
tablet every day as directed. Refills 5. Quantity 30.”
18. [Ms. Baldwin] presented these prescriptions to
[defendant Diamond Pharmacy,] which filled the
prescriptions and labeled the bottles as:
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a) “Warfarin Sodium 7.5 mg tablets. Take one tablet by
mouth as directed[]”; and
b) “Warfarin Sodium 10 mg tablets. Take one tablet
every day as directed.”
19. [Ms. Baldwin] followed the instructions on the pill
bottles and took 7.5 mg tablets on Thursday, Saturday and
Sunday and 10 mg tablets every day.
20. The total weekly Coumadin dose taken by [Ms.
Baldwin,] who was following the pill bottle instructions[,]
was 92.5 mg.
Id. at ¶¶ 13-20.
Appellant averred that, on August 26, 2010, Ms. Baldwin visited with
Dr. Assefa “in order to obtain pre-operative clearance for cataract surgery.”
Id. at ¶ 21. During this visit, Dr. Assefa “did not address [or] discuss [Ms.
Baldwin’s] anticoagulation” and Dr. Assefa did not order an INR test. Id. at
¶¶ 22-23.
As Appellant averred, on September 1, 2010, Ms. Baldwin “awoke
screaming in pain and speaking incoherently.” Id. at ¶ 24. Ms. Baldwin was
then taken to the hospital, where she was diagnosed with a “diffuse
hemorrhage throughout the midbrain, anterior pons and right cerebellar
peduncle” and with an INR that was “extremely elevated at 7.3.” Id. at
¶¶ 25-26. That day, Ms. Baldwin died from “an intracranial hemorrhage
caused by excessive Coumadin overdose.” Id. at ¶ 27.
Within Appellant’s complaint, Appellant claimed (among other things)
that Dr. Assefa was negligent in “writing a prescription order that was
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wrong, confusing and misleading” and “writing a prescription order that
prescribed and caused an overdose of medication.” Id. at ¶ 33(j) and (k).
Prior to trial, Appellant filed two motions in limine, wherein Appellant
sought to preclude evidence that, prior to August 17, 2010, Ms. Baldwin had
been non-compliant with her prescription medication instructions. See
Appellant’s Motion in Limine to Exclude Character Evidence of Rhonda
Baldwin’s Past Failure to Follow Prescription Instructions, 2/20/15, at 1-3;
Appellant’s Motion in Limine to Exclude Expert Reports of Dr. Chris T.
O’Donnell and Dr. Anthony F. Pizon, 2/20/15, at 1-5. According to
Appellant, such evidence was inadmissible under Pennsylvania Rule of
Evidence 404(a)(1), as the evidence was only relevant to prove that Ms.
Baldwin’s “past failure to follow prescription instructions [demonstrated that]
she would have acted in the same manner when being prescribed
[Coumadin] during this incident.” Appellant’s Motion in Limine to Exclude
Character Evidence of Rhonda Baldwin’s Past Failure to Follow Prescription
Instructions, 2/20/15, at 2. Thus, Appellant claimed, “any evidence of Ms.
Baldwin’s past failure to follow prescription instructions is inadmissible to
prove she would have acted in accordance with this character trait during
the time at issue, which includes proving her comparative negligence.” Id.
at 3.
On May 11, 2015, the trial court denied Appellant’s motions in limine
and the parties proceeded to trial. During trial, Appellant put forth evidence
that “Dr. Assefa and her office fell below th[e] standard of care in issuing the
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wrong [Coumadin] prescription, in not clarifying for [Ms. Baldwin] exactly
what she wanted [Ms. Baldwin] to take when she changed [Ms. Baldwin’s]
prescription and then in not following up with [Ms. Baldwin] when [Ms.
Baldwin] came back in when she had the chance to find her mistake and see
what was going on with the patient and monitor her correctly.” See N.T.
Trial, 5/12/15, at 20.1 With respect to these issues, Appellant presented the
testimony of Dr. Robert L. Perkel, whom the trial court accepted as an
expert in the field of family practice medicine. Id. at 99. Initially, Dr. Perkel
testified regarding: the effects of Coumadin; Ms. Baldwin’s atrial fibrillation
and her need for Coumadin; the proper therapeutic level of the drug; and,
the dangers inherent in taking Coumadin. As Dr. Perkel testified:
Coumadin or warfarin is, simply put, a blood thinner. If you
cut yourself [on] your arm, [] the higher the dose of
Coumadin you’re taking and the higher the INR, the more
difficult it is to stop the bleeding. In simple parlance, it is a
blood thinner.
...
It’s a blood thinner. It stops the blood from clotting at
some level. And while if you don’t have an underlying
medical problem, it’s not a good idea to have your blood too
thin. If you do happen to have a particular type of medical
problem, you reduce the chances of that underlying medical
____________________________________________
1
During Appellant’s case in chief, Appellant presented no evidence that
defendant Diamond Pharmacy was negligent. Further, after the evidentiary
portion of the trial concluded (and over the objections of defendants Dr.
Assefa and Aster Assefa, M.D., P.C.), the trial court granted a directed
verdict in favor of defendant Diamond Pharmacy. N.T. Trial, 5/14/15, at
578-582.
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problem causing major league trouble if you take Coumadin
at an appropriate dose and have your blood thinned to the
appropriate level.
...
. . . [Ms. Baldwin] had atrial fibrillation and irregular
heartbeat. . . . [T]here’s no rhyme or reason for an
irregular heartbeat. So, why is that bad? Because if you
have an irregular heartbeat and it’s not regularly irregular .
. . [i]t sets up currents in the heart.
The heart, after all, is a cavity that has blood, liquid, and
you’re supposed to have smooth laminar flow through the
heart. But when you set up funny currents, called eddy
currents, it’s like looking in a stream of a whirlpool. [It]
gets pooled and that can cause the blood to clot.
When the blood clots on the valves on the inside wall of the
heart, it forms a clot. And with the disordered regulation of
the heartbeat, it can flop off the thrombus or clot that
travels up to the brain through the carotid circulation and
becomes a sudden stroke. . . .
So we use blood thinners in order to cut down on the clot or
the thrombus on the valves and wall in the heart. . . .
In a nutshell, that’s anticoagulation. The art of using
Coumadin is science and art. You have to be careful. You
have to be precise. You have to be exact.
. . . You and I, if we’re not taking Coumadin, have an INR
[of] 1.0, 1.1[,] something like that. For each milligram of
Coumadin you go up, the INR goes up. . . . [W]ith . . .
atrial fibrillation of the heart, we’re aiming for a thinning
amount of 2.0 to 3.0.
...
[K]eep in mind that 2.0 to 3.0 is our goal. Below 2.0
there’s an increase[d] chance of the patient forming clots.
Clots are not good. Greater than 3.0 there is an increase[d]
chance of bleeding. Bleeding is not good.
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So it’s a balancing act between giving enough Coumadin to
get them over 2.0 but yet not too much Coumadin to get
them up above 3.0.
And I guess the last piece I would say here in an
introduction to blood clotting is that it’s clear, the scientific
evidence is clear that bleeding risk goes up as the INR goes
up. And the magic number to keep in mind is about an INR
of 4.5. . . . 4.5 [is] a kind of magic number where serious
and severe bleeding starts to increase dramatically, keep in
mind that at the time of her hospitalization with the stroke
on September 1st, [Ms.] Baldwin [had] a measured INR of
7.3. That is dangerous territory for bleeding.
Id. at 101-106.
Dr. Perkel also testified regarding the “art and science” of prescribing
Coumadin and achieving, in the patient, a therapeutic and safe INR of
between 2.0 and 3.0:
So, in this case, the correct diagnosis was offered of atrial
fibrillation and cardiomyopathy. And cardiologists in the
hospitalization assumed the INR monitoring, appropriately
started the patient on Coumadin to achieve an INR of 2.0 to
3.0.
. . . Now the hard part is actually how do you dose [the
Coumadin], how do you do it?
You start at low Coumadin doses like was done in this case,
3 milligrams a day, 5 milligrams a day[,] whatever. Then
you bring the patient back at frequent intervals. Usually
when you start Coumadin, twice a week. You measure the
INR. You get the INR back. You adjust the Coumadin dose.
You bring – if you’re therapeutic at 2.0 to 3.0, if you’re
subtherapeutic, below 2.0 as was the case here early on,
1.0, 1.1, you bring the patient back. You increase the
Coumadin dose. We usually start by increasing about 10 to
15 percent the weekly dose.
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You add up all the doses over seven days, you get a
number. You take ten percent of that number and you
increase one or two of the daily doses in order to get a ten
percent rise in the weekly dose. You measure the INR once
or twice a week or once a week until you reach a
therapeutic INR of 2.0 to 3.0.
So you keep doing that, you keep responding, going up and
up slowly and carefully because you don’t want to get them
too much Coumadin. Because remember, you’re on the
bleeding end of the problem. And if you don’t give enough
Coumadin, you’re on the clotting end of the problem.
So it is an art based in science on that magic number of
about ten percent. As long as the INR isn’t too low or if the
INR isn’t too high, you can decrease by ten percent if you’re
a bit over. You keep doing that until you reach a
therapeutic level of between 2.0 and 3.0.
And then what most people like to do is get about weekly or
every other week INR for the next couple of blood draws
until you see that the patient is kind of in a steady state
with keeping that INR therapeutic, between 2.0 and 3.0,
and then you can drop down to safely doing INRs once a
month.
Id. at 106-109.
As Dr. Perkel testified, Ms. Baldwin began taking Coumadin in January
2010 and, from January 2010 until August 2010, Dr. Assefa managed Ms.
Baldwin’s Coumadin dose and INR appropriately. Id. at 118. Specifically,
Dr. Perkel testified, since Ms. Baldwin’s INR was subtherapeutic during the
period from January to August 2010, Dr. Assefa properly (and gradually)
increased Ms. Baldwin’s Coumadin dose from 21 milligrams per week to,
eventually, 57.5 milligrams per week. Id. at 116-121.
Dr. Perkel testified that, on August 9, 2010, Ms. Baldwin came in to
Dr. Assefa’s office for another appointment and Dr. Assefa ordered that Ms.
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Baldwin take another blood test to discern her INR level. Ms. Baldwin did so
and, on August 12, 2010, it was revealed that Ms. Baldwin’s INR was 1.6 –
and, thus, still subtherapeutic. Id. at 127. Therefore, Dr. Perkel testified, a
medical assistant at Dr. Assefa’s office telephoned either Ms. Baldwin or Ms.
Baldwin’s husband and told the person, over the telephone, that Dr. Assefa
was prescribing an increase in Ms. Baldwin’s Coumadin dose, from 57.5
milligrams weekly to 60 milligrams weekly. Id. at 128-129. Dr. Perkel
testified that this four percent increase in Ms. Baldwin’s Coumadin dose was
“conservative” and within the standard of care. Id. at 128 and 130.
However, Dr. Perkel testified, Dr. Assefa violated her standard of care
on August 17, 2010. As Dr. Perkel testified, on this date, Dr. Assefa gave a
written Coumadin prescription to Ms. Baldwin’s husband – with the apparent
intention of repeating the “dose adjustment that was made by telephone on
August 12th.” Id. at 130. Although Dr. Perkel acknowledged that he “never
[saw] those written prescriptions,” Dr. Perkel testified:
the way [the prescription] was written by the pharmacist,
interpreted by the pharmacist, taking it from the written
prescription from Dr. Assefa, was now written as 7.5
milligram [Coumadin] tablets . . . taken by mouth as
directed. And the second prescription was [Coumadin] 10
milligram tablets, one tablet taken every day as directed.
...
Does that mean the same 7.5 that she had been taking
Tuesday, Thursday, Friday, Saturday, Sunday, in the form
of one and a half five milligram tablets? That’s the way I
would interpret it. And the way I would interpret 10
milligram tablet size, it’s written one tablet taken every day
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as directed means you now take a 10 milligram tablet every
day.
If you look at that prescription, the way it was written and
the way I think it’s fair to interpret it, the math is going
from 60 milligrams a week, which is what the telephone
instructions were [on August 12, 2010], to a whopping 100
milligrams per week based on a fair interpretation of the
way those labels read.
This is a lady who has an INR of 1.6. Not quite therapeutic.
That represents a 67 percent increase in the weekly
Coumadin dosing if you give it the most conservative
interpretation of how that label was to be read.
If, on the other hand, the patient reads the label as 7.5
milligrams taken as directed to mean that you’re also
supposed to take 7.5 milligrams every day, in addition to 10
milligrams every day, . . . that gets us to 122.5 milligrams
per week up from 60. That represents a 104 percent
increase in Coumadin.
I know that’s not what Dr. Assefa intended. No doctor in
their right mind would write for either a 67 percent increase
per week or a 104 percent increase per week when you
have a patient already taking Coumadin who got an INR of
1.6. No right thinking doctor would do that. . . . But sadly,
in my estimate, that is a fair reading of the way the label
got produced taken from the written prescription, because I
don’t think it’s likely that the written prescription was as
precise as it needed to be about stating . . . one 10
milligram tablet Monday, Wednesday and Friday and one
7.5 milligram tablet Tuesday, Thursday, Saturday and
Sunday.
Id. at 131-133.
Moreover, Dr. Perkel testified that Dr. Assefa violated the standard of
care on August 18, 2010. On that date, pharmacist Andrea Billey, of
Diamond Pharmacy, telephoned Dr. Assefa’s office to ensure that Ms.
Baldwin’s written prescription was correct. Id. at 58. After speaking to a
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“Lisa” at Dr. Assefa’s office, Ms. Billey testified that she “clarified” that the
written prescription was correct – and Ms. Billey then dispensed the
Coumadin to the Baldwins, with the written instructions: “Warfarin Sodium
7.5 mg tablets. Take one tablet by mouth as directed[]” and “Warfarin
Sodium 10 mg tablets. Take one tablet every day as directed.” Id. 58-59
and 72.
Finally, Dr. Perkel testified that Dr. Assefa violated the standard of
care on August 26, 2010 – when Dr. Assefa provided Ms. Baldwin with
medical clearance to receive cataract surgery. According to Dr. Perkel, Dr.
Assefa should not have medically cleared Ms. Baldwin for this elective
surgery without first testing for and knowing Ms. Baldwin’s current INR. Id.
at 142-145.
During Defendants’ case in chief, Defendants presented evidence that
Ms. Baldwin had a history of poor compliance with taking her prescription
medications, including her prior Coumadin prescriptions. Defendants used
this history of poor compliance to first demonstrate that, even if Dr. Assefa
was negligent in writing the August 17, 2010 prescription and in
communicating with the pharmacy on August 18, 2010, the negligence did
not cause Ms. Baldwin’s harm because a variety of things could have caused
Ms. Baldwin’s INR level to spike and Ms. Baldwin’s “poor medical compliance
makes predicting the exact warfarin dose prior to her death virtually
impossible.” N.T. Trial, 5/13/15, at 361-362 and 368. Indeed, Defendants
presented the expert medical testimony of Dr. Anthony Pizon and Dr. Pizon
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testified that, because of Ms. Baldwin’s history of poor compliance with
taking her prescribed Coumadin doses, Ms. Baldwin’s INR could have spiked
to 7.3, even if Ms. Baldwin was taking the 60 milligrams of Coumadin per
week that Dr. Assefa orally prescribed on August 12, 2010 – and that
Appellant’s own expert testified was a dosage that fell within the standard of
care. Id. at 348-349; N.T. Trial, 5/12/15, at 128 and 130.
Further, Defendants used Ms. Baldwin’s history of non-compliance to
demonstrate that Ms. Baldwin was contributorily negligent in causing her
harm. With respect to this point, Defendants presented the expert
testimony of Dr. Christopher O’Donnell. Dr. O’Donnell testified that Ms.
Baldwin’s history of failing to take her prescribed doses of Coumadin placed
her “at risk of complications either from undertreatment or overtreatment,”
which, Dr. O’Donnell testified, is especially dangerous when dealing with
Coumadin because it “is so important to [achieve] a proper dose” of the
drug. N.T. Trial, 5/14/15, at 453-454.
In addition, Dr. O’Donnell specifically testified that, in his opinion:
“Dr. Assefa managed the Coumadin therapy to the best of her ability given
the circumstances of the case;” Dr. Assefa was not negligent “in any aspect
of her treatment;” and, Dr. Assefa could not have done anything that would
have prevented Ms. Baldwin’s death. Id. at 448 and 468.
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After the evidence was presented, the parties proceeded to a charging
conference where Dr. Assefa and Aster Assefa, M.D., P.C. requested a
comparative negligence instruction.2 Id. at 589. The trial court granted the
request over Appellant’s objection and, during the jury charge, the trial court
instructed the jury on comparative negligence. Id. at 589-591 and 648.
The trial court then submitted to the jury a general verdict slip with
special findings. The verdict slip read:
VERDICT SLIP
Question 1:
Was Dr. Assefa/Aster Assefa, M.D., P.C., negligent?
Yes ____ No ____
If you answered Question 1 “Yes”, proceed to
Question 2.
If you answered Question 1 “No”, Plaintiff cannot
recover and you should not answer any further questions.
Tell the court officer you have reached a verdict.
Question 2:
Was the negligence of Dr. Assefa/Aster Assefa, M.D.,
P.C., a factual cause of any harm to the Plaintiff?
Yes ____ No ____
If you answered Question 2 “Yes”, proceed to
Question 3.
____________________________________________
2
Again, after the evidentiary portion of the trial concluded, the trial court
granted a directed verdict in favor of defendant Diamond Pharmacy. N.T.
Trial, 5/14/15, at 578-582.
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If you answered Question 2 “No”, Plaintiff cannot
recover and you should not answer any further questions.
Tell the court officer you have reached a verdict.
Question 3:
Was Rhoda Baldwin negligent?
Yes ____ No ____
If you answer Question 3 “Yes,” go to Question 4.
If you answer Question 3 “No,” go to Question 6.
Question 4:
Was Rhoda Baldwin’s [sic] a factual cause of any harm
to her?
Yes ____ No ____
If you answered Question 4 “YES,”[] proceed to
Question 5[.]
If you answered Question 4[] “NO,” proceed to
Question 6[.]
Question 5:
Taking the combined negligence that was a factual
cause of any harm to Rhoda Baldwin as 100 percent, what
percentage of that negligence do you attribute to each
party?
Dr. Assefa/Aster Assefa, M.D., P.C. ______%
Rhoda Baldwin ______%
Question 6:
State the amount of damages sustained by the plaintiff
for:
Survival Action: $_______
Wrongful Death Action: $_______
Verdict Slip, dated 5/14/15, at 1-2.
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On May 14, 2015, the jury arrived at its verdict. In open court, the
jury announced “no” to “Question number [one], was Dr. Assefa slash Aster
Assefa, M.D., P.C. negligent?” N.T. Trial, 5/14/15, at 673. Moreover, the
jury’s signed verdict slip reflects the announced verdict: the jury checked
“No” to “Question 1” and, in accordance with the instructions, did not
proceed further. See Verdict Slip, dated 5/14/15, at 1-2.
Appellant filed a timely post-trial motion3 and, within the motion,
Appellant claimed that the trial court erred in denying the motions in limine
she filed, wherein she sought to preclude evidence that, prior to August 17,
2010, Ms. Baldwin had been non-compliant with taking her Coumadin
medications. Appellant’s Post-Trial Motion, 5/26/15, at 1-3. Specifically,
Appellant’s post-trial motion declares that the trial court committed error
because:
The defense was overwhelmingly based upon “character
evidence” of [Ms. Baldwin]; specifically, that during the
period from January 1, 2010 until August 17, 2010[, Ms.
Baldwin] had been noncompliant with taking the exact
prescribed dose of Coumadin during said period. The
[d]efense argument was that because [Ms. Baldwin] had
been non-compliant with earlier Coumadin prescriptions, a
determination of how much Coumadin was taken
subsequently was impossible to make. [Appellant] filed a
motion in limine arguing that said evidence was improperly
based on character evidence of [Ms. Baldwin] and was
entirely irrelevant and prejudicial to the issue of whether
[Ms. Baldwin] was prescribed an excessive dose of
____________________________________________
3
Appellant filed her post-trial motion on Tuesday, May 26, 2015. The
motion was timely because Monday, May 25, 2015 was Memorial Day.
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Coumadin on August 17, 2010, and whether [Ms. Baldwin]
had an excessive amount of Coumadin in her blood at the
time of her stroke on September 1, 2010. Said motion was
denied and substantial evidence was offered based upon
[Ms. Baldwin’s] character of failing to take the prescribed
dose during periods of time before the erroneous
prescription was made.
The defense experts including Dr. Pizon, a toxicologist,
based his entire opinion on character evidence of [Ms.
Baldwin]. Specifically[,] Dr. Pizon testified that it was
impossible to know how much Coumadin was in [Ms.
Baldwin’s] system despite an INR reading that was critically
high, because [Ms. Baldwin] had shown a pattern of
noncompliance prior to August 17, 2010. The same
opinions were offered by [Appellant’s] other expert Dr.
O’Donnell who claimed that [Ms. Baldwin’s] noncompliance
with earlier prescription medications made it impossible to
determine the amount of Coumadin in her system at the
time of her fatal hemorrhagic stroke. [Appellant] filed
motions in limine asking that the testimony of said experts
be excluded since it was based upon the improper character
evidence and said motion was denied.
Id. at ¶¶ 5-6.
On May 28, 2015, the trial court issued a scheduling order, declaring
that Appellant’s brief in support of her post-trial motion must be filed by
June 16, 2015. Trial Court Order, 5/28/15, at 1. Appellant filed her brief in
support of her post-trial motion on June 16, 2015. Within Appellant’s brief
in support, Appellant attempted to raise a claim of error that was not
contained in her post-trial motion. The new claim of error concerned the
trial court’s comparative negligence jury charge and declared: “the trial
court erred in admitting character evidence of Rhoda Baldwin’s
noncompliance with taking her medications, specifically from January 1,
2010 through August 17, 2010, and therefore also erred in charging the jury
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on Rhoda Baldwin’s comparative negligence.” Appellant’s Brief in Support of
Post-Trial Motion, 6/16/15, at 5.
The trial court denied Appellant’s motion by order entered July 29,
2015 and, following the August 3, 2015 entry of judgment, Appellant filed a
timely notice of appeal.
On appeal, Appellant raises one claim:
Whether the trial court erred in denying [Appellant’s] post-
trial motion for a new trial after the trial court admitted
character evidence of Rhoda Baldwin’s past noncompliance
with taking her medications, and therefore, erred in
charging the jury on Rhoda Baldwin’s comparative
negligence[?]
Appellant’s Brief at 7.4
At the outset, Appellant waived any claim that the trial court “erred in
charging the jury on Rhoda Baldwin’s comparative negligence,” as Appellant
failed to include the claim in her post-trial motion. See Pa.R.C.P. 227.1(b)
____________________________________________
4
Within the argument section of Appellant’s brief, Appellant lists a second
claim. The second claim declares: “the evidence of Rhoda Baldwin’s past
noncompliance does not rise to the level of admissible habit evidence, and it
cannot be used to show a ‘lack of habit’ in taking medication because a lack
of habit is equivalent to a character for not taking medication.” Appellant’s
Brief at 22. Although this specific claim was not contained in Appellant’s
statement of questions involved on appeal, the claim is essentially subsumed
within Appellant’s first claim – that the trial court erred in “admit[ting]
character evidence of Rhoda Baldwin’s past noncompliance with taking her
medications.” Appellant’s Brief at 7. Therefore, even though we will not
separately discuss Appellant’s second claim on appeal, the claim is not
technically waived. See Pa.R.A.P. 2116(a) (“[n]o question will be
considered unless it is stated in the statement of questions involved or is
fairly suggested thereby”).
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(“post-trial relief may not be granted unless the grounds therefor . . . are
specified in the motion. Grounds not specified are deemed waived unless
leave is granted upon cause shown to specify additional grounds”);
Diamond Reo Truck Co. v. Mid-Pacific Indus., Inc., 806 A.2d 423, 428
(Pa. Super. 2002) (“[i]f an issue has not been raised in a post-trial motion, it
is waived for appeal purposes”) (internal quotations and citations omitted).
Moreover, even though Appellant included the claim in her “brief in support
of post-trial motion,” a brief is not a motion. Thus, Appellant’s inclusion of
the claim in her brief did not preserve the claim of error. 5 Commonwealth
v. Gravely, 404 A.2d 1296, 1297 (Pa. 1979) (declaring: issues that were
omitted from the post-verdict motion are waived, even if they were
contained in the supporting brief and considered by the trial court); Cherry
v. Willer, 463 A.2d 1082, 1084 (Pa. Super. 1983) (“only issues specifically
raised in post-verdict motions can be considered and will be preserved for
appeal, and issues raised only in briefs in support of those motions may not
be considered”); In re Trust of Bachman, 488 A.2d 27, 29 (Pa. Super.
1985) (“issues not included in exceptions or petitions will not be preserved
by virtue of their having been argued in the supporting brief or at oral
argument”); Siculietano v. K & B Amusements Corp., 915 A.2d 130,
____________________________________________
5
Further, Appellant filed her brief over one month after the verdict in this
case. See Pa.R.C.P. 227.1(c)(1) (“[p]ost-trial motions shall be filed within
ten days after . . . verdict”).
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132-133 (Pa. Super. 2006) (even though appellants raised their claim in
their brief in support of post-trial motion, the claim was waived on appeal
because appellants failed to specifically raise the claim in their post-trial
motion). Therefore, the claim is waived.
The only claim that Appellant properly preserved for appeal is her
claim that the trial court erred in denying her motions in limine and
“admit[ting] character evidence of Rhoda Baldwin’s past noncompliance with
taking her medications.” Appellant’s Brief at 7. This claim fails.
“When reviewing a ruling on a motion in limine, we apply an
evidentiary abuse of discretion standard of review.” Commonwealth v.
Parker, 104 A.3d 17, 21 (Pa. Super. 2014) (citation omitted).
Admission of evidence is within the sound discretion of the
trial court and a trial court’s rulings on the admission of
evidence will not be overturned absent an abuse of
discretion or misapplication of law. An abuse of discretion is
not merely an error of judgment, but if in reaching a
conclusion the law is overridden or misapplied, or the
judgment exercised is manifestly unreasonable, or the
result of partiality, prejudice, bias or ill-will, as shown by
the evidence or the record, discretion is abused.
To constitute reversible error, an evidentiary ruling must
not only be erroneous, but also harmful or prejudicial to the
complaining party. . . . A party suffers prejudice when the
trial court's error could have affected the verdict.
Schuenemann v. Dreemz, LLC, 34 A.3d 94, 100-101 (Pa. Super. 2011)
(internal quotations and citations omitted); see also B & L Asphalt Indus.
v. Fusco, 753 A.2d 264, (Pa. Super. 2000) (“[a]n evidentiary ruling which
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[does] not affect the verdict will not provide a basis for disturbing the fact-
finder’s judgment”) (internal quotations, citations, and corrections omitted).
In the case at bar, Appellant’s claim immediately fails because – even
assuming, arguendo, that the trial court erred in admitting evidence of Ms.
Baldwin’s past noncompliance with taking her medication – the asserted
error was harmless.
Here, “evidence of Rhoda Baldwin’s past noncompliance with taking
her medications” could only have affected the issues of causation and
comparative negligence. Yet, the jury in this case specifically found that Dr.
Assefa and Aster Assefa, M.D., P.C. were not negligent. Thus, as to the
effect of the challenged evidence on Ms. Baldwin’s comparative negligence,
the admission of the evidence could not have affected the verdict because,
under Pennsylvania law, “where a jury finds no negligence on the part of a
defendant, purported error regarding questions of comparative and/or
contributory negligence are not prejudicial and cannot serve as a basis for
the award of a new trial.” Boyle v. Indep. Lift Truck, Inc., 6 A.3d 492,
496 (Pa. 2010) (citations omitted); Whitton v. H.A. Gable Co., 200 A. 644,
646 (Pa. 1938) (“as the jury found no negligence on the part of appellee the
question of contributory negligence passes out of the case, and any error in
the charge in this respect would not have been prejudicial”).
Further, as to the effect of the challenged evidence on the issue of
causation, again, the jury found that Dr. Assefa and Aster Assefa, M.D., P.C.
were not negligent. Therefore, as a matter of law, the evidence could not
- 20 -
J-A16021-16
have impacted the jury’s determination regarding whether Dr. Assefa and
Aster Assefa, M.D., P.C. deviated from the standard of care in the treatment
of Ms. Baldwin. The asserted error is, thus, harmless. See Parr v. Ford
Motor Co., 109 A.3d 682, 697 (Pa. Super. 2014) (en banc) (error in
admission of causation evidence was harmless as the jury did not reach the
issue of causation).
Accordingly, the admission of evidence regarding Ms. Baldwin’s past
noncompliance with taking her medications did not contribute to the jury’s
verdict. As any error in admitting the challenged evidence was harmless,
Appellant is not entitled to relief.
Judgment affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/17/2016
- 21 -
|
Fourth Court of Appeals
San Antonio, Texas
October 25, 2016
No. 04-16-00664-CR
IN RE Stephen RICHARDSON
Original Mandamus Proceeding1
ORDER
Sitting: Sandee Bryan Marion, Chief Justice
Karen Angelini, Justice
Luz Elena D. Chapa, Justice
On October 11, 2016, Relator filed a petition for writ of mandamus. The court has
considered the petition and is of the opinion that Relator is not entitled to the relief sought.
Accordingly, the petition for writ of mandamus is DENIED. See TEX. R. APP. P. 52.8(a). The
court’s opinion will issue at a later date.
It is so ORDERED on October 25, 2016.
_________________________________
Sandee Bryan Marion, Chief Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 25th day of October, 2016.
___________________________________
Keith E. Hottle, Clerk
1
This proceeding arises out of Cause No. 2010CR10629, styled State of Texas v. Stephen Richardson, pending in
the 399th Judicial District Court, Bexar County, Texas, the Honorable Ray Olivarri presiding.
|
537 F.2d 341
Fed. Sec. L. Rep. P 95,560UNITED STATES of America, Appellant,v.David B. CHARNAY et al., Appellees.
No. 75-1222.
United States Court of Appeals,Ninth Circuit.
May 7, 1976.Rehearing and Rehearing En Banc Denied July 8, 1976.
1
David Ferber, Sol. (argued), Securities and Exchange Commission, Washington, D. C., for appellant.
2
Moses Lasky (argued), of Brobeck, Phleger & Harrison, San Francisco, Cal., for appellees.
OPINION
3
Before BROWNING and SNEED, Circuit Judges, and JAMESON,* District Judge.
JAMESON, District Judge:
4
This appeal from an order dismissing the indictment presents the question of whether the indictment, alleging a market manipulation artificially depressing the market price of a security on a national securities exchange, was sufficient to charge the defendants-appellees with a conspiracy to violate, and the violation of, the antifraud provisions of Section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78ff, Rule 10-b promulgated thereunder, and the wire fraud statute, 18 U.S.C. § 1343. We conclude that the indictment was sufficient to allege a criminal offense and reverse.
Charges against Defendants-Appellees
5
Two indictments were returned against defendants-appellees. The first, filed December 27, 1973, alleged that conduct of Howard Hughes and his associates in taking over Air West, especially certain guarantees against trading losses given by Hughes, violated 15 U.S.C. §§ 78i(a)(2), 78j(b), 78ff and Securities and Exchange Commission (SEC) Rule 10b-5 (manipulation of security prices, employment of manipulative devices), and 18 U.S.C. §§ 2, 3, 4, 371 and 1343 (aiding and abetting, accessory after the fact, misprision of a felony, conspiracy, and wire fraud). This indictment was dismissed on January 30, 1974, for failure to state an offense. The Government did not appeal the dismissal. A second indictment was returned on July 30, 1974 charging that the appellees' conduct in the Air West acquisition was in violation of 15 U.S.C. §§ 78j(b), 78ff and Rule 10b-5 and 18 U.S.C. §§ 2, 371, and 1343, thus omitting reference to 15 U.S.C. § 78i(a)(2) (manipulation of security prices) and 18 U.S.C. §§ 3 and 4 (accessory after the fact, misprision of a felony). The second indictment was dismissed on November 13, 1974 and is the subject of this appeal.
6
The defendants were identified in the indictment, for the period in question, as follows: Hughes was the sole stockholder and managing agent of Hughes Tool, a Delaware corporation. Davis was legal counsel for Hughes Tool. Maheu was chief executive officer of Hughes/Nevada Operations. Charnay was a principal stockholder of a private corporation authorized to purchase and sell stocks. Two unindicted co-conspirators were also identified: Herman Greenspun, a newspaper publisher and owner of stock in Air West, and George Crockett, an owner of Air West stock. Air West is a Delaware corporation whose stock was listed and traded on the American Stock Exchange (the AMEX).
7
Both indictments detailed essentially the same facts as a basis for the charges against appellees. These facts were well summarized by the district court:
8
"The background facts alleged in the Indictment are that in August of 1968, defendants made an offer on behalf of Hughes Tool Company to acquire all the assets of Air West at a price which would yield to the stockholders approximately $22 per share; that on December 28, 1968, a majority of the stockholders voted to accept the offer; that on the same day a majority of the directors voted to reject the offer; that in order to coerce the directors to change their vote, defendants would threaten the opposition directors with lawsuits, would file such lawsuits and would artificially depress the price of Air West stock on the American Stock Exchange by causing Charnay to sell 59,100 shares of Air West stock 'short,' by causing Herman Greenspun to sell 15,000 shares of Air West stock and by causing Crockett to sell 12,000 shares of Air West stock on the American Securities Exchange, and at the same time, guaranteeing to these sellers by secret understanding a recovery of $22 per share irrespective of the price obtained on the Exchange. It is alleged that these activities caused a decline in the market price of Air West stock on December 31, 1968 from $18 per share to $15.75 per share."
9
The Government contends that the "aftermath" of these activities was a reversal by Air West's directors of their earlier position and a decision on December 31 to sell Air West's assets to Hughes Tool.
The Indictment
Count I
10
The July 30, 1974 indictment contains four counts. The first ten paragraphs of Count I identify the parties and describe their roles in the corporate takeover. Paragraphs 11 through 13 allege that (1) the defendants and the unindicted co-conspirators willfully and knowingly conspired and agreed to violate the securities laws, 15 U.S.C. §§ 78j(b), 78ff and Rule 10b-5; (2) the defendants and co-conspirators used the instrumentalities of interstate commerce, the mails, and the facilities of a securities exchange to conduct a manipulative scheme in contravention of the securities laws; and (3) the conspirators transmitted by wire interstate communications to induce the directors who had voted against the Hughes Tool Company proposal of Air West to change their votes, thus depriving the directors and shareholders of the right to conduct their corporation free from undue influence, deceit, and fraud, in violation of 18 U.S.C. § 1343.
11
Paragraph 14 describes the means by which the conspirators would carry out their plan, i. e., that the defendants Hughes, Davis and Maheu would represent that unless the Hughes Tool offer was accepted, the price of Air West stock would decline substantially; that the defendants and co-conspirators would manipulate and cause a decline in the market of Air West stock, and cause the Air West stockholders who sold their stock to receive artificially depressed prices;1 and that the defendants Hughes, Davis and Maheu would cause telegrams to be sent to the directors of Air West threatening lawsuits if they did not change their votes. Paragraph 14 also lists ten overt acts committed in furtherance of the conspiracy, including three interstate conversations and an unspecified number of interstate telegrams, all in violation of 18 U.S.C. § 371.
Count II
12
The second count incorporates by reference the first ten paragraphs of Count I and alleges that the conduct described in Count I constituted violations of 15 U.S.C. §§ 78j(b), 78ff, 18 U.S.C. § 2 and Rule 10b-5, in that the defendants wilfully and knowingly employed a scheme to defraud, made untrue statements of material facts and omitted material facts necessary to make the statements made not misleading, and used instruments of interstate commerce to accomplish their scheme by placing a telephone call on December 31, 1968 to carry out their plan, all of which operated as a fraud and deceit upon purchasers and sellers of Air West stock.
Counts III and IV
13
Count III alleges that for the purpose of executing the scheme to defraud described in Count I, the defendants caused to be transmitted in interstate commerce telephone conversations between Charnay in Las Vegas, Nevada, and a securities salesman in New York City, and Count IV alleges telephone conversations between a brokerage firm in Las Vegas and the AMEX in New York City, all in violation of the wire fraud statute, 18 U.S.C. § 1343 and § 2, aiding and abetting.
Order Dismissing Indictment
14
In its order dismissing the indictment the district court noted that "the gravamen of the Indictment is that unlawful means were employed by agreement as part of the conspiracy to accomplish the ultimate objective . . ." of acquiring the assets of Air West, an obviously lawful purpose. The court recognized that "the conduct alleged, if true, is . . . reprehensible and an abuse of the power of great wealth" but felt forced to conclude that the indictment had not properly alleged a public offense. In reaching this conclusion the order reviewed each of the statutes alleged to have been violated in the various counts of the indictment.
15
Discussing 15 U.S.C. § 78j(b), which makes it illegal to use a manipulative or deceptive device in contravention of the SEC rules, the court considered the several 10b rules promulgated under the statute to determine whether the conduct described in the indictment could be said to be within their prohibitions. The court characterized Rule 10b-1 as the "basic section of the regulation", which it noted incorporates 15 U.S.C. § 78i(a), making illegal manipulation "for the purpose of inducing the purchase or sale of . . . securit(ies) by others." The court concluded that the indictment did not properly allege a § 78i(a)(2) violation (and thereby a Rule 10b-1 violation) since there was no allegation of a purpose to induce the purchase or sale of securities.2
16
The court found other 10b rules defined more specific manipulative activities, none of which described the defendants, alleged conduct.3 The court noted that Rule 10b-5 "is basically the antifraud provision of the regulations. It does not purport to define manipulative activity". A review of the regulations led the court to conclude:
17
"Nowhere in the regulations has the commission said that it is an unlawful manipulative or deceptive device to cause substantial blocks of a security to be sold on a national securities exchange for the purpose of artificially depressing the market price of the security and to secretly guarantee to sellers a profit or favorable return from the sales. That, in essence, is what this Indictment charges."
18
Noting the Government's concession that unless the alleged conduct was proscribed by the securities law, the other statutory violations could not stand,4 the district court held that the Government had not met its burden to properly allege the defendants' criminal misconduct in any of the counts of the indictment.
Contentions of Parties
19
In contending that the indictment alleges a violation of, and conspiracy to violate, Rule 10b-5 under 15 U.S.C. § 78j(b), and the wire fraud statute, 18 U.S.C. § 1343, the Government argues that (1) "a manipulation of the market which interferes with the free and open interplay of supply and demand constitutes fraud within the meaning of both Rule 10b-5 and the wire fraud statute"; and (2) the allegations in the indictment of a market manipulation were sufficient to charge an offense.
20
Appellees contend that the district court properly dismissed the indictment for failure to state an offense under either Rule 10b-5 or § 1343 because the "indictment does not allege facts which show any false statement or half-truth, any failure to disclose anything to anyone, any facts essential to a charge of manipulation, or any intent to deceive anyone, and the indictment does not otherwise allege facts which show how or in what manner conduct which is lawful in itself was false or fraudulent or intended to be so."5 Appellees contend further that the indictment shows on its face that the conduct occurred beyond the five-year statute of limitations prescribed by 18 U.S.C. § 3282 and fails to plead facts which invoke 18 U.S.C. § 3288, which provides for reindictment within six months after an indictment has been dismissed.
Rule 10b-5 and Market Manipulation
21
Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), provides that it is:
22
"unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or any facility of any national securities exchange . . .
23
(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the (SEC) may prescribe as necessary or appropriate in the public interest or for the protection of investors."
24
Rule 10b-5, 17 C.F.R. § 240.10b-5, adopted by the SEC in 1942, states:
25
"Employment of manipulative and deceptive devices. It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of any facility of any national securities exchange,
26
(a) To employ any device, scheme, or artifice to defraud,
27
(b) To make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or
28
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
29
in connection with the purchase or sale of any security."
30
In the first Supreme Court decision involving Rule 10b-5 and 15 U.S.C. § 78j(b), SEC v. National Securities, Inc., 393 U.S. 453, 89 S.Ct. 564, 21 L.Ed.2d 668 (1969), the Court observed that "s 10(b) and Rule 10b-5 may well be the most litigated provisions in the federal securities laws . . .". 390 U.S. at 465. The Court concluded that "Section 10(b) and Rule 10b-5 together constitute one of the several broad antifraud provisions contained in the securities laws".6 Id. at 466, 89 S.Ct. at 572, 21 L.Ed.2d at 680. Unfortunately for purposes of this case, there has been very little litigation concerning the application of the Rule to market manipulations in corporate takeovers, and no cases at all involving the specific conduct in which the appellees are alleged to have engaged. We therefore turn to the legislative, administrative and judicial history of the Securities Exchange Act and Rule 10b-5 in determining whether the appellees' alleged conduct, if true, constitutes an indictable offense.7
31
In Section 2 of the Securities Exchange Act, 15 U.S.C. § 78b, Congress explained that one of its primary objectives in formulating the Act was "to insure the maintenance of fair and honest markets" in transactions conducted on the securities exchanges. The House Report on the Act, H.R.Rep. No. 1383, 73d Cong., 2d Sess., p. 10 (1934) gives further evidence of Congress' concern:
32
"To insure to the multitude of investors the maintenance of fair and honest markets, manipulative practices of all kinds on national exchanges are banned. The bill seeks to give investors markets where prices may be established by the free and honest balancing of investment demand with investment supply."8
33
Senate Report No. 1455, 73d Cong., 2d Sess., p. 81 (1934), similarly states:
34
"The purpose of the Act is . . . to purge the securities exchanges of those practices which have prevented them from fulfilling their primary function of furnishing open markets for securities where supply and demand may freely meet at prices uninfluenced by manipulation or control."
35
The language of the section and its legislative history leave little doubt that Congress intended § 78j(b) to operate, after rule making by the SEC, as a broad prohibition against deceptive devices.9 This manifestation of Congressional intent was recognized in Supt. of Insurance v. Bankers Life & Cas. Co., 404 U.S. 6, 12, 92 S.Ct. 165, 169, 30 L.Ed.2d 128, 134 (1971), where the Court quoting from H.R.Rep. No. 1383, 73d Cong., 2d Sess., 7, said in part: "Since practices 'constantly vary and where practices legitimate for some purposes may be turned to illegitimate and fraudulent means, broad discretionary powers' in the regulatory agency 'have been found practically essential.' . . . Section 10(b) must be read flexibly, not technically and restrictively". In light of this background it is not surprising that the broad language of Rule 10b-5 has been applied by the courts and the SEC as the principal Rule under § 78j(b) for prohibiting the multitude of deceptive and manipulative devices which continually appear in the securities markets, including activities directed, as the conduct of the appellees is alleged to have been designed, toward the manipulation of securities prices for personal gain.
36
The utilization of Rule 10b-5 to reach a wide range of deceitful securities trading practices was given impetus by early cases holding that the Act and the Rule provide an implied right of private action in favor of an injured party to enforce the Rule's sanctions. See, e. g., Kardon v. National Gypsum Co., 69 F.Supp. 512 (E.D.Pa.1946). This principle was affirmed by the Supreme Court in Bankers Life & Cas. Co., supra, 404 U.S. at 10, 92 S.Ct. at 167, 30 L.Ed.2d at 132. Much of the case law on Rule 10b-5 has, therefore, developed in civil rather than criminal litigation. In SEC v. Joiner Corp., 320 U.S. 344, 355, 64 S.Ct. 121, 125, 88 L.Ed. 88, 95 (1943), the Court indicated that the primary difference between criminal and civil prosecutions under the securities laws is the burden of proof required for a verdict. As noted in United States v. Clark, 359 F.Supp. 128, 130 (S.D.N.Y.1973), "there is no reasonable basis for holding that some different interpretation (of Rule 10b-5) should apply to a criminal action" than in a civil action. We agree that precedents established in civil cases interpreting Rule 10b-5 are applicable in criminal prosecutions under the Rule, as here.
37
Civil cases holding manipulative and deceitful devices violative of § 78j(b) and Rule 10b-5 include Mutual Shares Corp. v. Genesco, Inc., 384 F.2d 540, 546-547 (2 Cir. 1967), where the court found that the statute and rule made unlawful a majority stockholder scheme to reduce dividends in order to force down the market price of stock and cause minority shareholders to sell out at depressed values. In reaching its conclusion the court observed that "(d) eceitful manipulation of the market price of publicly-owned stock is precisely one of the types of injury to investors at which the Act and Rule were aimed". 384 F.2d at 547. In Crane Co. v. Westinghouse Air Brake Co., 419 F.2d 787, 792-798 (2 Cir. 1969), the court was presented with a factual situation somewhat resembling the case before us. The court held that Rule 10b-5 was violated by the scheme of one corporation seeking a merger and attempting to block a tender offer by another corporation in which it bought large blocks of shares of the target corporation in the open market, thus driving the market price up while at the same time financing these purchases by disposing of the newly acquired stock at a loss in secret and unreported sales. The court found that these activities operated as a deceit on those in the investing public who were misled by the trading activities as well as on the other corporation whose tender offer was blocked by the scheme. Recently in Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374, 378-381 (2 Cir. 1974), the court found a market manipulation in which one party to a corporate merger allegedly caused the market price of the other corporation to increase in order to obtain a more favorable exchange ratio to be prohibited by the provisions of Rule 10b-5.
38
These cases are illustrative of the extent to which § 78j(b) and Rule 10b-5 have been applied to a broad range of manipulative practices.10 As stated in Herpich v. Wallace, 430 F.2d 792, 801-802 (5 Cir. 1970):
39
"(T)he section (78j(b)) reflects the design of the Exchange Act as a means for preventing inequitable and unfair practices on securities exchanges and over-the-counter markets and for insuring fairness and honesty in securities transactions generally . . . Congress sought to protect persons 'who would be engaged in buying and selling and trading in * * * securities as broadly defined in the Act.' . . . It did not make section (78j(b)) self-executing, nor did it limit the section's application to the manipulative and deceptive devices or contrivances known in 1934. Instead, it wrote the section as a 'catchall' meant to reach practices employed in connection with the purchase or sale of securities which were contrary to the public interest or the interest of investors.
40
"Together the section and the rule aim at reaching 'misleading or deceptive activities, whether or not they are precisely and technically sufficient to sustain a common law action for fraud and deceit,' . . . carried on 'in connection with' the purchase or sale of securities. They are not intended as a specification of particular acts or practices that constitute 'manipulative or deceptive devices or contrivances,' but are instead designed to encompass the infinite variety of devices that are alien to the 'climate of fair dealing,' . . ."11
41
Appellees argue that the cases applying Rule 10b-5 to market manipulations are distinguishable because the courts found either insiders with an affirmative duty to disclose due to their relationship with corporate management or defendants with a purpose to induce the purchase or sale of securities by deceit. While we recognize that none of the factual situations in the cases discussed supra are identical to that present here, we do not believe that the cases interpreting Rule 10b-5, or the Rule itself may be read as restrictively as appellees suggest. It is true that much of the Rule 10b-5 litigation dwells on the special duty of insiders to disclose information. However, the language of the Rule provides no basis for concluding that only "insiders" are subject to its requirements.12 As noted in SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 858-862 (2 Cir. 1968), cert. denied sub nom. Coates v. SEC, 394 U.S. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756 (1969), the duty to disclose material information is based upon a potential manipulator's duty to the investing public as a whole as well as to particular shareholders. Moreover, it should be noted that clauses (a) and (c) of Rule 10b-5 are not aimed at failures to disclose. Rather they are flat prohibitions of deceitful practices and market manipulations.
42
Concerning the necessity of alleging and proving a purpose to induce others to trade in securities under Rule 10b-5, there is simply no requirement under the Rule, as there is under § 78i(a), for such pleading or proof. Neither § 78j(b) nor the Rule make any reference to a specific intent to induce trading by others.
43
As the court noted in Landy v. F.D.I.C., 486 F.2d 139, 161 (3 Cir. 1973), "A scheme deliberately calculated to manipulate the market value of a stock would be covered under the rule." Here the Government has alleged that the appellees in selling their Air West stock purposely sought to depress the market for the stock, and in fact achieved this result, with the object and effect of deceiving the shareholders and directors of Air West in Hughes' takeover attempt. Such conduct falls within the type of activity which Congress sought to prohibit in enacting the Securities Act and which Rule 10b-5 explicitly prohibits. It constitutes an indictable offense.
Validity of the Indictment
44
Appellees contend that even if the conduct in which they are alleged to have engaged is proscribed by the securities laws, the indictment must nevertheless fail due to numerous fatal defects in pleading. We turn now to appellees' specific challenges to the various counts.
Count I
45
The first count of the indictment charged the appellees with conspiring to violate the securities laws, specifically Rule 10b-5, and the wire fraud statute, 18 U.S.C. § 1343. Under 18 U.S.C. § 371, the conspiracy statute which is the basis for Count I, it is necessary to allege those three elements which are said to be the gist of the offense: the agreement, the unlawful object towards which the agreement is directed, and an overt act in furtherance of the conspiracy. United States v. Falcone, 311 U.S. 205, 210, 61 S.Ct. 204, 206, 85 L.Ed. 128, 132 (1940); United States v. Offutt, 75 U.S.App.D.C. 344, 127 F.2d 336, 338 (1942); United States v. Wilson, 356 F.Supp. 463, 464 (D.Md.1973). Count I meets these requirements. It is alleged that appellees and their unindicted co-conspirators agreed to a scheme whereby they would coerce and defraud the directors and shareholders of Air West; that the object of the conspiracy was in violation of both the securities laws and the wire fraud law; and that the appellees and their co-conspirators undertook ten overt acts in furtherance of their scheme. It is apparently appellees' position, however, that any defect in Count I occurs not in failing to properly allege a conspiracy, but in the underlying assumption that the substantive offenses charged in the remaining counts of the indictment are in fact illegal. We believe that Count I is adequate to charge a conspiracy and, as explained below, the substantive counts, upon which Count I is based, are sufficient to state an offense.
Count II
46
Appellees direct their attack primarily at Count II, which alleges that the conduct described in Count I violated the securities laws and the aiding and abetting statute. They contend that the count fails because it (1) does not allege that "stock was sold (by appellees) for the purpose of inducing the sale of such stock by others and in a deceitful manner designed to achieve such a purpose";13 (2) fails to allege any failure by the appellees to disclose material facts; and (3) does not allege that appellees acted with an intent to defraud.
47
With respect to the argument that a market manipulation charged under Rule 10b-5 requires an allegation of the defendants' purpose to induce the sale of securities by others, as noted supra, we find nothing in the language of either § 78j(b), § 78ff, or Rule 10b-5 which implies this requirement. Had the Government charged appellees under § 78i(a) an allegation of a purpose to induce would have been essential. However, § 78i(a) is not a basis for any of the charges here and cannot be read as a limitation on Rule 10b-5. The legislative and judicial history of § 78j(b) make it clear that the statute and rules promulgated thereunder are to operate independently of other securities laws provisions.14 As the court noted in Texas Gulf Sulphur,401 F.2d at 859, "from its very inception, Section 10(b) (§ 78j(b)), and the proposed sections . . . from which it was derived, have always been acknowledged as catchalls" for manipulative activities which the SEC finds detrimental to the interests of investors and which are not covered by other provisions of the securities laws. Had Congress or the SEC intended that a specific purpose to induce others to trade was a requirement under § 78j(b), this requirement would have been specified, as it was in § 78i(a).15
48
Appellees' argument that Count II must fail because it does not allege any omission by appellees to disclose material facts we reject for two reasons: First, Rule 10b-5 prohibits manipulative activities per se and not only those activities resembling common law fraud. As we note above, clauses (a) and (c) of the Rule make no reference to a requirement that defendants charged under the rule must fail to disclose material facts for their conduct to be proscribed. That conduct is covered by clause (b). Second, our reading of Counts I and II persuade us that the indictment does adequately allege material misrepresentations and omissions. The description of appellees' activities in representing to Air West stockholders and directors that the market would decline if the Hughes tender offer were rejected and their subsequent conduct in driving down the market price without revealing that the decline was not due to the free operation of market forces constitutes a sufficient allegation of a misrepresentation and omission.16 As the court observed in O'Neill v. Maytag, 339 F.2d 764, 768 (2 Cir. 1964) (quoted with approval in Mutual Shares Corp. v. Genesco, Inc., supra, 384 F.2d at 546), " deception may take the place of nonverbal acts."17 Failure to disclose that market prices are being artificially depressed operates as a deceit on the market place and is an omission of a material fact.
49
Nor do we find merit in appellees' contention that the indictment is fatally defective because it fails to allege specific intent to defraud. In construing §§ 78j(b) and 78ff in United States v. Pelz, 433 F.2d 48, 54 (2 Cir. 1970), Judge Friendly says in part: "The language makes one point entirely clear. A person can willfully violate an SEC rule even if he does not know of its existence. This conclusion follows from the difference between the standard for violation of the statute or a rule or regulation, to wit, 'willfully,' and that for false or misleading statements, namely 'willfully and knowingly'." In considering "what mental state" must be proved Judge Friendly refers to an article by Judge Herlands in 21 Va.L.Rev., and continues at 433 F.2d at 55:
50
"The Herlands article concluded it was necessary only that 'the prosecution establishes a realization on the defendant's part that he was doing a wrongful act,' 21 Va.L.Rev. at 149. We accept this with the qualifications, doubtless intended by the author, that the act be wrongful under the securities laws and that the knowingly wrongful act involve a significant risk of effecting the violation that has occurred."18
51
The indictment was sufficient to meet these tests. It alleges a knowing participation by all of the defendants in the perpetration of the manipulation which created the artificially depressed market price and consequent fraud and deceit. It was sufficient to allege a violation of § 78j(b) and Rule 10-b.19
Counts III and IV
52
With respect to Counts III and IV charging violation of the wire fraud statute, 18 U.S.C. § 1343,20 appellees contend that the Government has failed to allege adequate facts to show the nature of the fraud and how it was to be accomplished. We agree with the general principle relied on by appellees that an indictment under the wire fraud statute must "set out clearly what the artifice was wherein the fraud consisted, and how it was to be accomplished". Etheredge v. United States, 186 F. 434, 437 (5 Cir. 1911). We conclude, however, that the facts alleged in the indictment were sufficient to meet this requirement.
53
Count I, which is incorporated by reference into Counts III and IV, describes in some detail the operation of the allegedly manipulative scheme and its purpose. Counts III and IV state that the object of this activity was to defraud the shareholders and directors of Air West. Count I gives the approximate dates during which the scheme was in effect. Counts III and IV give the specific dates on which appellees are alleged to have used interstate wire facilities to accomplish their objective. The counts charging appellees with wire fraud appear to be sufficiently specific under the standards cited by appellees.
54
In Hagner v. United States, 285 U.S. 427, 431, 52 S.Ct. 417, 419, 76 L.Ed. 861, 865 (1932), the Supreme Court stated:
55
"The true test of the sufficiency of an indictment is not whether it could have been made more definite and certain, but whether it contains the elements of the offense intended to be charged, 'and sufficiently apprises the defendant of what he must be prepared to meet, and, in case any other proceedings are taken against him for a similar offense, whether the record shows with accuracy to what extent he may plead a former acquittal or conviction.' (citations omitted)"21
56
We conclude that each count of the indictment meets this test. If the defendants desire more definite information, they may obtain it through a bill of particulars.
Statute of Limitations
57
18 U.S.C. § 3282 provides that no person shall be prosecuted for any offense, not capital, "unless the indictment is found or the information is instituted within five years next after such offense shall have been committed". The first indictment against appellees was returned on December 27, 1973, within five years after December 31, 1968, the final date of the manipulation alleged in the indictment. The first indictment was dismissed on January 30, 1974, and the second indictment was returned on July 30, 1974, after the five year period had elapsed. Obviously the action would be barred, except for 18 U.S.C. § 3288, which provides that "a new indictment may be returned . . . within six calendar months of the date of the dismissal of the indictment or information . . "22
58
Appellees contend, however, that § 3288 is inapplicable for four reasons: (1) the second indictment attempts to charge different offenses than those charged in the first, in contravention to judicial interpretations of § 3288; (2) § 3288 cannot apply to the conspiracy count of the first indictment because that count was dismissed before the statute of limitations had run and not after the period, as provided in § 3288; (3) the second indictment must recite the existence and dismissal of the first indictment for "jurisdictional" purposes; and (4) § 3288 applies only where the dismissal of the original indictment was defective due to some grand jury defect or irregularity and not where the indictment is dismissed for failure to state an offense.
59
Section 3288 in its present form was enacted in 1964. Prior thereto a very similar statute, passed in 1934, was in effect.23 In United States v. Durkee Famous Foods, 306 U.S. 68, 71, 59 S.Ct. 456, 458, 83 L.Ed. 492, 495 (1939), the Supreme Court found that Congressional intent concerning the section was best summarized by the following letter written by the United States Attorney General:
60
" . . . legislation is recommended providing that in any case in which an indictment is found defective or insufficient for any cause, after the period prescribed by the statute of limitations has run . . . a new indictment may be returned at any time during the first succeeding term of court at which a grand jury is in session."
61
Congress's primary purpose in changing the language of the statute in 1964 was to correct a "loophole" in the law which occurred when it became possible to charge by information as well as indictment. As Senate Report No. 1414, 2 U.S.Code Cong. and Admin.News pp. 3257-3258 (1964) explained:
62
"The purpose of the proposed legislation is to amend sections 3288 and 3289 of title 18, United States Code, so as to provide that the provisions of those sections will extend to felony proceedings instituted by information as well as by indictment. The sections concern cases where a new indictment is returned after a prior indictment has been dismissed, because of an error, defect, or irregularity with respect to the grand jury, or because it has been found otherwise defective. The amendments would therefore permit reindictment in similar cases where an information was filed after the defendant waived in open court prosecution by indictment."
63
There is nothing in the legislative history of § 3288 to indicate that Congress had any intention of otherwise altering the meaning or application of the section. Applying this legislative history and the judicial interpretations of the pre-1964 version of the statute we conclude that appellees' contentions must be rejected.
64
Concerning appellees' contention that the second indictment should be dismissed because it charges different offenses, we find nothing in the cases cited by appellees or the language of § 3288 to require this conclusion. The correct interpretation of § 3288 was stated by this court in Mende v. United States, 282 F.2d 881, 883-884 (9 Cir. 1960): "(the) underlying concept of § 3288 is that if the defendant was indicted within time, then approximately the same facts may be used for the basis of any new indictment within the next term, if the earlier indictment runs into legal pitfalls." Here, a reading of the two indictments shows that essentially the same facts were used to charge almost identical offenses. The indictments differ primarily in the omission in the second indictment of the charge that 18 U.S.C. § 78i(a) was also violated by appellees' activities. Allowing a second indictment to remedy legal deficiencies present in the first is the very purpose for which § 3288 was enacted.
65
Under § 3288 the dismissal of the first indictment must occur "after the period prescribed by the applicable statute of limitations has expired". Appellees argue that § 3288 cannot be applied to the conspiracy count because the statute of limitations had not run on that count until April, 1974 while the dismissal occurred on January 30, 1974 before the statute had run. This argument appears to be based on a misunderstanding of the prevailing rule used in computing periods of limitation in conspiracy cases. As this court stated in Bergschneider v. Denver, 446 F.2d 569 (1971), "(the) statute of limitations starts to run on the date of the last overt act alleged to have caused the complainant injury". The last overt act alleged in the first indictment was alleged to have occurred on December 31, 1968 almost a month before the first indictment was dismissed.24
66
Appellees next contend that the second indictment should have contained an allegation with respect to the first indictment and its disposition. We find no support for this argument in the cases cited by appellees. While it is true that criminal statutes of limitation have been characterized as jurisdictional (Walters v. United States, 328 F.2d 739, 743 (10 Cir. 1964)), nothing would be gained by requiring a second indictment to allege the dispositional history of the first. The fact that the first indictment was dismissed is part of the record of the case before the court. As was recognized in Sanseverino v. United States, 321 F.2d 714, 715 (10 Cir. 1963), "The government had no burden to offer formal proof of that which appears in the case record of the court for such is the cornerstone of judicial notice . . . "25Similarly, we see no need to plead information which is obviously a part of the case record.
67
In their final challenge to the applicability of § 3288, appellees cite two district court cases, United States v. Moriarty, 327 F.Supp. 1045, 1047-1048 (E.D.Wis.1971), and United States v. Distefano, 347 F.Supp. 442, 444-445 (S.D.N.Y.1972), holding that where an indictment is dismissed for failure to prosecute, reindictment is not possible once the statute of limitations expires. In each case the court recognized that when an indictment is dismissed because of technical defects or irregularity in the grand jury, a new indictment may be returned. In neither case did the court consider the precise situation here presented, i. e., where the court found the first indictment legally defective.
68
While the first clause of § 3288 appears to be aimed at dismissal resulting from irregularities in the grand jury, the second clause is much more general. It states that a new indictment or information may be refiled where the second "indictment or information filed after the defendant waives in open court prosecution by indictment is found otherwise defective or insufficient for any cause." The same language (in italics), absent the words inserted in the 1964 amendment providing for proceedings commenced by information (in regular face type), was interpreted in United States v. Main, 28 F.Supp. 550 (S.D.Tex.1939). There the court rejected an argument identical to that raised by appellees. Quoting from United States v. Strewl, 99 F.2d 474, 476 (2 Cir. 1938), the court observed that the purpose of the statute was "to prevent the escape of those who had been seasonably indicted, but whose indictment was bad because of some corrigible mistake." 28 F.Supp. at 553.
69
Main and the dicta from Strewl were the prevailing law for almost thirty years until the 1964 amendment to § 3288. As noted previously, the purpose of Congress in modifying the statute was to expand its provisions to cover proceedings initiated by informations and not to change existing law in any other manner. We conclude from the language of § 3288, as well as from the section's history, that a second indictment may properly be returned within the prescribed six-months period where the dismissal of the first indictment is due to a legal defect, as well as in those cases where the dismissal results from defects or irregularities in the grand jury.
Conclusion
70
In summary, we conclude that (1) the market manipulation artificially depressing the market price of a security on a national securities exchange was an indictable offense under 15 U.S.C. 78j(b) and SEC Rule 10-b; (2) while the indictment was by no means a model pleading it was sufficient to charge the elements of the offense, and further information may be obtained through a bill of particulars; and (3) the statute of limitations prescribed by 18 U.S.C. § 3282 was tolled by the provisions of § 3288.
71
Reversed and remanded for further proceedings consistent with this opinion.
SNEED, Circuit Judge (concurring):
72
I concur in Judge Jameson's opinion which is written with his usual clarity and thoroughness. The law, as I read it, supports his conclusions.
73
However, I cannot let pass this opportunity to draw attention to the fact that so-called "public welfare offenses"1 do not generally, and clearly not in this case, encounter the same demanding constitutional and interpretive standards applicable to other criminal offenses.
74
As Judge Jameson's opinion makes clear, neither section 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b), nor Rule 10b-5, 17 C.F.R. § 240.10b-5, are interpreted narrowly when employed as a basis for criminal prosecution, even though a narrow interpretation is ordinarily considered proper with respect to statutes defining crimes. United States v. Campos-Serrano, 404 U.S. 293, 297, 92 S.Ct. 471, 474, 30 L.Ed.2d 457, 461 (1971); United States v. Braverman, 373 U.S. 405, 408, 83 S.Ct. 1370, 1372, 10 L.Ed.2d 444, 447 (1963). In this case, for example, we find an indictable offense charged in the indictment despite the fact that there exists no case, not even one imposing civil liability, in which substantially similar facts have been treated as a violation of section 10(b) and Rule 10b-5. These provisions have been applied herein to the conduct of the defendants no differently than they would have been in a civil action. The expansive interpretation necessary "to insure the maintenance of fair and honest exchanges," section 2 of the Securities Exchange Act, 15 U.S.C. § 78b, employed in civil actions is employed by us in this criminal case. Majority opinion, supra at 10-11. This is done even though Professor Bromberg cites only eight cases in which violations of section 10(b) and Rule 10b-5 have served as the basis of criminal prosecution. 3 A. Bromberg, Securities Law: Fraud, § 10.3 at 241 (1975). Professor Loss cites only a handful more. 3 Loss, Securities Regulation, at 1449 n.15 (1961). Also it is done even though the Supreme Court, speaking through Mr. Justice Rehnquist, recently observed:
75
"When we deal with private actions under Rule 10b-5 we deal with a judicial oak which has grown from little more than a legislative acorn. Such growth may be quite consistent with the congressional enactment and with the role of the federal judiciary in interpreting it, see J. I. Case v. Borak, supra, but it would be disingenuous to suggest that either Congress in 1934 or the Securities and Exchange Commission in 1942 foreordained the present state of the law with respect to Rule 10b-5." Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 737, 95 S.Ct. 1917, 1926, 44 L.Ed.2d 539, 550 (1975).
76
"Employment of manipulative and devious devices" has a breadth, we assert, which permits us to find an indictable offense when it is necessary to do so "to insure the maintenance of fair and honest markets." The resemblance from an analytic viewpoint between our approach and that employed in Shaw v. Director of Public Prosecutions, 2 A.E.R. 452 (1961), where the House of Lords recognized that the common law crime of corrupting public morals requires a residual power to proscribe unanticipated wickedness contra bonos mores, strikes me as disturbingly close.2 To protect and preserve honest markets we assert the residual power derived from a broad statute and rule to proscribe conduct surrounding a corporate takeover never heretofore branded improper by judicial decision, Commission rule or determination, or explicit Congressional act. And yet I am convinced that our assertion of this authority is in keeping with existing law.
77
The concern to avoid the taint of ex post facto application of a statute, a concern evidenced by the Supreme Court in Bouie v. City of Columbia, 378 U.S. 347, 84 S.Ct. 1697, 12 L.Ed.2d 894 (1964), where the Court refused to permit the application of a new and unusual interpretation of a state criminal statute to conduct taking place prior to the new interpretation, only feebly survives in the area of section 10(b) criminal prosecution. In this case, we are untroubled by the fact that never before has the section and rule been applied to a similar situation. Furthermore, in fixing criminal liability under section 10(b) and Rule 10b-5, we attach reduced importance to assertions of vagueness. The fact that men of common intelligence or lawyers and judges for that matter "must necessarily guess at its meaning and differ as to its application,"3 does not require that we declare this section 10(b) void for vagueness. Cf. Coplin v. United States, 88 F.2d 652 (9th Cir. 1937), cert. denied, 301 U.S. 703, 57 S.Ct. 929, 81 L.Ed. 1357 (1937) (very similar language of section 17(a) of the Securities Act of 1933 held not vague); Hughes v. SEC, 139 F.2d 434 (2d Cir. 1943) (section 17(a) not vague). We heed not the command:
78
"No one may be required at peril of life, liberty or property to speculate as to the meaning of penal statutes. All are entitled to be informed as to what the State commands or forbids."
79
Lanzetta v. New Jersey, 306 U.S. 451, 453, 59 S.Ct. 618, 619, 83 L.Ed. 888, 890 (1939).
80
Rather we respond to stern and demanding fatalism reflected in this passage appearing in Nash v. United States, 229 U.S. 373, 377, 33 S.Ct. 780, 781, 57 L.Ed. 1232, 1235 (1913):
81
"(T)he law is full of instances where a man's fate depends on his estimating rightly, that is, as the jury subsequently estimates it, some matter of degree. If his judgment is wrong, not only may he incur a fine or a short imprisonment . . . ; he may incur the penalty of death."
82
Finally, all these things we do while fully aware that under section 32(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78ff(a), the intent necessary to support a conviction is merely that of intending to do the acts prohibited, rather than intent to violate the statute. United States v. Schwartz, 464 F.2d 499, 509 (2d Cir. 1972). Proof of an "evil motive" appears unnecessary. Id. at 510, citing Loss, Securities Regulation. Moreover, it has been held that to avoid imprisonment on the ground of "no knowledge of such rule or regulation" requires more than the defendant merely asserting that he did not know that his manipulative activity was fraudulent under Rule 10b-5. See United States v. Lilley, 291 F.Supp. 989 (S.D.Tex.1968). The propriety of eliminating scienter or mens rea in statutes designed to serve a regulatory purpose has again been recognized by the Supreme Court in a recent decision. See United States v. Park, 421 U.S. 658, 95 S.Ct. 1903, 44 L.Ed.2d 489 (1975).
83
An expansive statute under which the prosecution encounters such reduced obstacles imposes a heavy responsibility upon the prosecutor. Many are his potential targets and few are the standards by which the exercise of his discretion can be measured. See Grayned v. City of Rockford, 408 U.S. 104, 108-9, 92 S.Ct. 2294, 2298-2299, 33 L.Ed.2d 222, 227-228 (1972). His decision to prosecute, no less than his failure to prosecute, may subject him to legitimate criticism. Whatever his decision, it is likely to be one in keeping with the political realities within which he functions. This is a part of the price that this type of statute compels us to pay.
84
Thus, although I have no choice but to join my brothers, I find no satisfaction or pleasure in doing so.
ON PETITION FOR REHEARING
85
Appellees Charnay, Davis and Maheu have petitioned for a rehearing, contending, inter alia, that the decision of this court entered May 7, 1976, is in direct conflict with the decision of the Supreme Court in Ernst & Ernst v. Hochfelder, --- U.S. ----, 96 S.Ct. 1375, 47 L.Ed.2d 668, entered March 30, 1976. Prior to filing its opinion this court considered the effect of Ernst & Ernst and concluded that our opinion was not in conflict with the holding in that case. After re-examination of the opinion in Ernst & Ernst in the light of the petition for rehearing, we reach the same result, but deem it advisable to enter this supplemental order explaining and clarifying the reasons for our conclusion.
86
Ernst & Ernst v. Hochfelder was a civil action for damages for alleged negligent conduct. The issues before the Court and its conclusions are summarized in the following excerpts from the Court's opinion:
87
"We granted certiorari to resolve the question whether a private cause of action for damages will lie under § 10(b) and Rule 10b-5 in the absence of any allegation of 'scienter' intent to deceive, manipulate, or defraud. 421 U.S. 909, 95 S.Ct. 1557, 43 L.Ed.2d 773 (1975). We conclude that it will not and therefore we reverse. (96 S.Ct. 1381)
88
"Use of the word 'manipulative' is especially significant. It is and was virtually a term of art when used in connection with securities markets. It connotes intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities. (96 S.Ct. 1384)
89
"When a statute speaks so specifically in terms of manipulation and deception, and of implementing devices and contrivances the commonly understood terminology of intentional wrongdoing and when its history reflects no more expansive intent, we are quite unwilling to extend the scope of the statute to negligent conduct.
90
Recognizing that § 10(b) and Rule 10b-5 might be held to require proof of more than negligent nonfeasance by Ernst & Ernst as a precondition to the imposition of civil liability, respondents further contend that the case should be remanded for trial under whatever standard is adopted. Throughout the lengthy history of this case respondents have proceeded on a theory of liability premised on negligence, specifically disclaiming that Ernst & Ernst had engaged in fraud or intentional misconduct. In these circumstances, we think it inappropriate to remand the action for further proceedings." (96 S.Ct. 1391)
91
This case obviously involves more than negligent conduct. Appellees argue, however, that in holding that the indictment was not fatally defective by reason of its purported failure to allege a specific intent to defraud our decision is contrary to the holding in Ernst & Ernst. Appellees misconstrue the basis of our disposition of this issue.
92
Although we did state that the cases have held that there is no requirement of proof that a defendant knew he was violating a particular S.E.C. rule, we did not hold that scienter per se was not a required element of the offense. Rather we noted that it was necessary for the prosecution to show an intentional act with "a realization on the defendant's part that he was doing a wrongful act." Similarly, Judge Sneed in his concurring opinion noted that "the intent necessary . . . is merely that of intending to do the acts prohibited, rather than intent to violate the statute." These statements are consistent with the holding in Ernst & Ernst.
93
Specific allegations in the indictment charging the requisite mental state and scienter include the following:
94
Count II charges that the defendants and their co-conspirators "did unlawfully, wilfully and knowingly, in connection with the purchase and sale of securities, to wit, the common stock of Air West, directly and indirectly, by the use of the means and instrumentalities of interstate commerce and the mails and the facilities of a national securities exchange, (a) employ a device, scheme, and artifice to defraud, (b) make untrue statements of material facts and omit to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, and (c) engage in acts, practices and courses of business which operated as a fraud and deceit upon purchasers and sellers of Air West securities."
95
Count III charges that the defendants and their co-conspirators "did devise and intend to devise a scheme and artifice to defraud the directors and stockholders of Air West, which said scheme and artifice to defraud is set forth more fully in paragraphs 13 and 14a through 14e of Count I of this indictment."Paragraph 13 of Count I describes the means by which the conspiracy would be carried out. Paragraph 14 lists overt acts committed in furtherance of the conspiracy.
96
We conclude that these and other similar allegations in the indictment are sufficient to charge the requisite intent and scienter under Ernst & Ernst.
97
The panel as constituted in this case has voted to deny the petition for rehearing and to reject the suggestion for a rehearing in banc.
98
The full court has been advised of the suggestion for in banc rehearing, and no judge of the court has requested a vote on the suggestion for rehearing in banc. Fed.R.App.P. 35(b).
99
The petition for rehearing is denied and the suggestion for a rehearing in banc is rejected.
*
Honorable W. J. Jameson, United States Senior District Judge for the District of Montana, sitting by designation
1
The indictment does not list the stockholders who sold at the depressed prices
2
15 U.S.C. § 78i(a) provides in pertinent part:
"(a) It shall be unlawful for any person, directly or indirectly, by the use of the mails or any means or instrumentality of interstate commerce, or of any facility of any national securities exchange, or for any member of a national securities exchange
" * * *ang
"(2) To effect, alone or with one or more other persons, a series of transactions in any security registered on a national securities exchange creating actual or apparent active trading in such security or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others."
SEC Rule 10b-1, 17 C.F.R. § 240.10b-1 states:
"The term 'manipulative or deceptive device or contrivance,' as used in section 10(b) (48 Stat. 891; 15 U.S.C. 78j(b)), is hereby defined to include any act or omission to act with respect to any security exempted from the operation of section 12(a) 48 Stat. 892; 15 U.S.C. 78l(a)) pursuant to any section in this part which specifically provides that this section shall be applicable to such security, if such act or omission to act would have been unlawful under section 9(a) (48 Stat. 889; 15 U.S.C. 78i(a)), or any rule or regulation heretofore or hereafter prescribed thereunder, if done or omitted to be done with respect to a security registered on a national securities exchange, and the use of any means or instrumentality of interstate commerce or of the mails or of any facility of any national securities exchange to use or employ any such device or contrivance in connection with the purchase or sale of any such security is hereby prohibited."
3
The court noted that Rule 10b-4 proscribes the short tendering of a security by a non-owner, Rule 10b-6 proscribes fraudulent trading activities by an issuer or underwriter, and Rule 10b-7 makes illegal bidding to peg or manipulate the market. The court found, and we agree, that none of the activities alleged to have been committed by appellees come within the conduct forbidden by these rules
4
The Government admits that its counsel made this concession, but contends that it was erroneous and "ignored the practice of the Government to prosecute manipulative conduct even prior to enactment of the Federal securities laws and regardless of whether a securities violation is charged", (opening Brief, p. 14, n. 3)
5
As noted supra, the district court held in effect that Rule 10-b and the wire fraud statute proscribing fraudulent conduct did not purport to include manipulative or deceptive activity. On this appeal the appellees "do not contend that a manipulation cannot be a fraud or a part of a fraud" but contend that the indictment fails to allege facts which "state a crime of manipulation or fraud". (Appellees' Brief, p. 4)
6
The Court held that in light of the broad antifraud purposes of Section and Rule, which "(apply) in connection with the purchase or sale of any security", exchanges by shareholders of a corporation of their old stock for shares in a new company were "purchases" within the meaning of the statutory language. 393 U.S. 466-468, 89 S.Ct. 572, 21 L.Ed.2d 680
7
For the purposes of ascertaining the validity of an indictment the facts alleged by the Government are assumed to be true. United States v. Howard, 352 U.S. 212, 214-215, 77 S.Ct. 303, 304-305, 1 L.Ed.2d 261, 263 (1957)
8
The same report also states on p. 11 that:
"The idea of a free and open public market is built upon the theory that competing judgments of buyers and sellers as to the fair price of the security brings about a situation where the market price reflects as nearly as possible a just price."
9
Even before the enactment of the Securities Exchange Act market manipulations seeking to create artificial prices were considered to be unlawful and contrary to public policy. See, e. g., Harper v. Crenshaw, 65 App.D.C. 239, 82 F.2d 845 (1936) citing early English and American cases which held that contracts for the purpose of creating fictitious securities prices were unenforceable
10
The SEC has utilized Rule 10b-5 to halt market manipulations in cases which have not reached the courts. In Delafield & Delafield, CCH Fed.Sec.L.Rep. P 77,648 (1968), for example, the Commission issued a consent order finding a broker in violation of Rule 10b-5 for his activities in manipulating stock prices downward in order to induce a shareholder to sell his substantial holdings at a reduced price to the broker's customers
11
Recent cases concerning frauds in corporate take overs have concentrated on deceitful tender offers and have utilized § 78n(e), enacted by Congress in 1968, to deal specifically with such problems after some courts had found difficulty in finding standing for individual plaintiffs to bring actions under Rule 10b-5 in tender offer cases. See, e. g., Mutual Shares Corp. v. Genesco, Inc., supra, 384 F.2d at 545. It is doubtful that the facts here come under § 78n(e), especially where the acts complained of commenced before the statute became effective. In a criminal prosecution, the standing problem is, of course, not present and Rule 10b-5 is applicable if the conduct charged falls within the Rule's prohibitions. We note, however, that Rule 10b-5 has been held to cover tender offer frauds despite the more specific provision of § 78n(e). See, e. g., Smallwood v. Pearl Brewing Co., 489 F.2d 579, 589-595 (5 Cir. 1974); but see contra, H. K. Porter Co., Inc. v. Nicholson File Co., 482 F.2d 421, 425 (1 Cir. 1973). See generally, Securities Exchange Act-Tender Offers, 6 A.L.R. Fed. 906 (1971)
12
3 Loss, Securities Regulations 1445 (2d Ed. 1961) observes that "Rule 10b-5, like § 17(a) of the Securities Act, is not limited to corporate insiders however that term may be defined. The rule may be invoked whenever any person, insider or outsider, indulges in fraudulent practices, misstatements or half-truths in connection with the purchase of securities."
13
Appellees' brief, p. 13
14
Appellees' argument implies that § 78i(a) rather than Rule 10b-5 is the section under which market manipulations should be charged. The language of Rule 10b-5 and its history, however, undercut the validity of this argument
15
Appellees, quoting from a 1941 opinion of the Commission's General Counsel, 2 CCH Fed.Sec.L.Rep. P 22,565, point out that the SEC has indicated that the Exchange Act does not prohibit trading activity which may advance or depress the market. It may be noted first that this opinion was issued before the adoption of Rule 10b-5. In any event, the appellees are not charged with trading activities which had the effect of changing market prices (as might any large scale transactions). Rather, appellees are charged with deliberately depressing market prices a different matter entirely from incidentally depressing prices through trading activities
16
The indictment states in Count I, para. 14:
"(a) Defendants Howard R. Hughes, Chester C. Davis, and Robert A. Maheu would represent to stockholders of Air West and others that if the Hughes Tool proposal was not accepted by Air West, the price of the common stock of Air West would decline substantially,
"(b) Defendants Howard R. Hughes, Chester C. Davis, Robert A. Maheu, and David B. Charnay, aided by co-conspirators Greenspun and Crockett, would manipulate and cause a decline in the market price of Air West common stock on the AMEX in the following manner: . . ."
17
The court continued: "And it need not be deception in any restricted common law sense; one of the central purposes of federal securities legislation would otherwise be seriously vitiated". The court recognized, however, that "there must be allegation of facts amounting to deception in one form or another; conclusory allegations of deception or fraud will not suffice". 339 F.2d at 768
18
See also United States v. Dardi, 330 F.2d 316, 331 (2 Cir. 1964) and Securities Laws Scienter, 20 A.L.R. Fed. 227 (1974). The ALR article notes one case, United States v. Van de Carr, 343 F.Supp. 993 (C.D.Cal.1972), which appears to reach a contrary result. The authority of Van de Carr, however, is questionable since it was concerned with violations of Federal Reserve Board regulations rather than SEC rules
19
United States v. Piepgrass, 425 F.2d 194 (9 Cir. 1970) cited by appellees is distinguishable. It did not specifically consider the question presented in this case and involved a prosecution under 15 U.S.C. § 77q(a). The court did recognize that, "Intent to defraud may be inferred from one's knowledge that the scheme operated in a deceitful manner", but held that "the latter knowledge must be possessed by each individual". 425 F.2d at 199. It was so alleged in this case
20
§ 1343 provides in pertinent part:
"Fraud by wire, radio, or television
Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire . . . communication in interstate . . . commerce, any writings, signs, signals, . . . or sounds for the purpose of executing such scheme or artifice, shall be fined not more than $1,000 or imprisoned not more than five years, or both."
21
Accord, United States v. Debrow, 346 U.S. 374, 376, 74 S.Ct. 113, 114, 98 L.Ed. 92, 96 (1953)
22
18 U.S.C. § 3288 reads:
"Whenever an indictment is dismissed for any error, defect, or irregularity with respect to the grand jury, or an indictment or information filed after the defendant waives in open court prosecution by indictment is found otherwise defective or insufficient for any cause, after the period prescribed by the applicable statute of limitations has expired, a new indictment may be returned in the appropriate jurisdiction within six calendar months of the date of the dismissal of the indictment or information, or, if no regular grand jury is in session in the appropriate jurisdiction when the indictment or information is dismissed, within six calendar months of the date when the next regular grand jury is convened, which new indictment shall not be barred by any statute of limitations."
23
This statute, 18 U.S.C. § 587, reads:
"Whenever an indictment is found defective or insufficient for any cause, after the period prescribed by the applicable statute of limitations has expired, a new indictment may be returned at any time during the next succeeding term of court following such finding, during which a grand jury thereof shall be in session."
24
In any case, 18 U.S.C. § 3289 provides that a new indictment may be returned within six calendar months where the defect is found before the expiration of the period of limitations
25
In Sanseverino, an indictment filed May 17, 1962 charged the filing of a false return on April 9, 1956. The Government offered no formal proof that the six-year statute of limitations had been tolled, but the court records showed that a complaint had been filed on March 30, 1962
1
See Morrissette v. United States, 342 U.S. 246, 255, 72 S.Ct. 240, 245, 96 L.Ed. 288, 296 (1951); Sayre, Public Welfare Offenses, 33 Col.L.Rev. 55 (1933)
2
Hart, Law, Liberty, and Morality (1963) contains a discussion of Shaw and related problems
3
See Connally v. General Construction Co., 269 U.S. 385, 391, 46 S.Ct. 126, 127, 70 L.Ed. 322, 328 (1926)
|
466 So.2d 203 (1985)
Felicia M. TRONCONI, Petitioner,
v.
Francis Joseph TRONCONI, Respondent.
No. 63368.
Supreme Court of Florida.
January 24, 1985.
Rehearing Denied April 25, 1985.
Ira Marcus, Fort Lauderdale, for petitioner.
Philip Michael Cullen III, Fort Lauderdale, for respondent.
Marsha B. Elser, Chairman, Miami, Brenda M. Abrams, Chairman-elect, Miami, Miriam E. Mason, Tampa, Cynthia L. Greene, Miami, Stephen W. Sessums, Tampa, and Melvyn B. Frumkes, Miami, amicus curiae for The Family Law Section of The Florida Bar.
EHRLICH, Justice.
We review a decision of a district court affirming a property distribution in a marital *204 dissolution proceeding. Tronconi v. Tronconi, 425 So.2d 547 (Fla. 4th DCA 1982). The decision conflicts with Leonard v. Leonard, 414 So.2d 554 (Fla. 2d DCA 1982), and Powers v. Powers, 409 So.2d 177 (Fla. 2d DCA 1982). We have jurisdiction pursuant to article V, section 3(b)(3), of the Florida Constitution.
Felicia and Francis Tronconi wed in 1955 in Connecticut. In 1981, their marriage was dissolved in a Florida court. During the course of the marriage, the couple at various times lived in Connecticut and Florida. Both worked as teachers and contributed financially to the acquisition of assets, although Mr. Tronconi was unemployed at the time of this divorce. At the time of the final hearing both parties were sixty years old. Although a variety of issues were raised by Mrs. Tronconi in her appeal to the Fourth District Court of Appeal, the appellate court addressed only one the trial court's distribution of jointly held properties.
In the pleadings, both parties petitioned for temporary, permanent, and lump-sum alimony. Each party also asked to be awarded all jointly held real property, claiming special equities. In the alternative, each party asked that the property be partitioned and sold. The disputed joint properties consisted of the marital home in Broward County, a second house and land in Lake Placid, Florida, and some investment property on Great Abaco Island in the Bahamas.
At trial, Mr. Tronconi testified he wanted the house and one acre of land at Lake Placid where he was living after separating from his wife. He acquiesced to partition and sale of the rest of the Lake Placid property but did not testify regarding his wishes for disposition of the other properties. Mrs. Tronconi testified she wanted: partition of the entire Lake Placid property; title to the Great Abaco Island property (however, she also testified she would acquiesce to partition); and title to the marital home, where she continued to live.
The trial judge found no special equities and that partition "would not be in the best interests of either party." Instead, he awarded the marital home to Mrs. Tronconi and the Lake Placid and Great Abaco properties to Mr. Tronconi. The resulting distribution did not achieve a precisely equal division of value. However, the amount of debt owed on the properties and other factors were disputed by the parties, and the distribution may be found to be equitable by virtue of the trial judge's inherent findings of facts on those issues. The final order also disposed of other real and personal property appropriately. No alimony was awarded for the support of either party. The final order thus achieved a clean break from the bonds of matrimony and joint ownership.
Mrs. Tronconi, in her petition to this Court, challenges the district court's decision that, in the distribution of jointly held assets, a trial court may order the parties to convey their interests in the joint assets as part of a property distribution scheme. Mrs. Tronconi argues that, in the absence of any special claims on jointly held property, the court has no choice but either to partition the property upon application of either party, or to do nothing, which, upon dissolution, results in a tenancy in common. Ch. 64, Fla. Stat. (1981) (partition); § 689.15, Fla. Stat. (1981) (tenancy by entirety becomes tenancy in common upon dissolution).
We hold that, as a natural extension of the rule we adopted in Canakaris v. Canakaris, 382 So.2d 1197 (Fla. 1980), the trial judge, upon a request by either party for disposition of jointly held assets, may order the conveyance of such assets as will achieve an equitable distribution.
In Canakaris, this Court held that a trial court could properly order a husband to convey his interest in the jointly held marital residence to his spouse as part of an equitable distribution of property. The Canakaris Court was concerned with the award of property in recognition of a wife's "special contributions" to a financially successful marriage. The "special claim" of such a spouse is not founded on the doctrine of special equity, a vested property *205 right. Nor is this special claim grounded in the doctrine of support-type lump-sum alimony.
The Canakaris Court thus recognized a new justification for awarding lump-sum alimony to achieve an equitable distribution of assets. The focus was on the justification rather than on the means by which the trial court achieved the equitable distribution. The means was, of course, the trial court's award of the husband's interest in the marital home to the wife. In the instant case, the goal of a property disposition, an equitable distribution of the property, has been confused with the justification recognized in Canakaris, the award of an interest in property in the absence of a support obligation.
A judge may award lump sum alimony to ensure an equitable distribution of property acquired during the marriage, provided the evidence reflects (1) a justification for such lump sum payment and (2) financial ability of the other spouse to make such payment without substantially endangering his or her economic status... .
... .
Dissolution proceedings present a trial judge with the difficult problem of apportioning assets acquired by the parties and providing necessary support. The judge possesses broad discretionary authority to do equity between the parties and has available various remedies to accomplish this purpose, including lump sum alimony, permanent periodic alimony, rehabilitative alimony, child support, a vested special equity in property, and an award of exclusive possession of property. As considered by the trial court, these remedies are interrelated; to the extent of their eventual use, the remedies are part of one overall scheme. It is extremely important that they also be reviewed by appellate courts as a whole, rather than independently.
Canakaris, 382 So.2d at 1201-02.
"Justification" is a key operative word in awarding lump-sum alimony. The Canakaris Court recognized the traditional justification of support needs, and the new justification of a special claim. We are called on here to recognize another justification, the equitable disposition of interests in jointly held properties. We find that such a justification is proper and equitable.
In determining a party's need for support, the trial judge must anticipate the post-dissolution financial status of each party. If jointly held property is to remain untouched and subject to partition at the whim of either party subsequent to his final order, the trial judge is unable to ensure that the delicate balancing of equities achieved in his final order will not be thwarted. Likewise, where one or both parties have requested partition in the dissolution proceeding, partition may create inequities which the trial judge is unable to correct through the other remedies available to him. By allowing the trial judge also to utilize cross-awards of jointly held property, the goals of achieving an equitable distribution of assets and ensuring the support needs of the parties is furthered, and the chance of inequities arising as a result of a partition demand during the dissolution or afterwards is lessened.
The district court chose to base its affirmance of the trial court order by finding that Canakaris created a totally new vehicle for the division of property, a vehicle it chose to call "equitable distribution." The district court based its conclusion on the change in the lump-sum alimony criterion from a need for the alimony, to a justification for the lump-sum award. While the change in criterion represents a departure from the earlier needs analysis, the vehicle remains the same, lump-sum alimony. The goal is an equitable distribution, and we have merely expanded the capability of the vehicle to achieve that goal. Whether the expanded vehicle looks like a new car or merely a refurbished but reliable older model is an exercise in semantics we decline to undertake.
We emphasize that we adhere to the preexisting vehicle, lump-sum alimony, and find a new justification for the award of *206 same. The justification is limited to those situations where it is possible to equitably distribute the jointly held property through cross-awards of the property. We also note that other considerations, such as a finding of a special equity in one of the joint properties, will interrelate with the considerations attendant to the cross-award justification we adopt here.
Mrs. Tronconi asserts that, even if the trial judge could properly cross-award the property, the award in this case produced an inequitable result. However, we find that the assignment of interests and obligations at issue here produces a result about which, at the worst, reasonable persons could differ. There therefore was no abuse of discretion. Canakaris.
We accepted jurisdiction in this case because of conflict with Leonard v. Leonard, 414 So.2d 554 (Fla. 2d DCA 1982), and Powers v. Powers, 409 So.2d 177 (Fla. 2d DCA 1982). In both those cases, the Second District reversed the trial courts' cross-award of jointly held properties. We disapprove of those opinions to the extent that they bar cross-awards under the circumstances outlined in this decision.
Accordingly, the decision of the district court is approved.
It is so ordered.
ADKINS, OVERTON, ALDERMAN, McDONALD and SHAW, JJ., concur.
BOYD, C.J., dissents with an opinion.
BOYD, Chief Judge, dissenting.
Although I find most of what is said in the majority opinion unexceptionable, I find I must dissent from the conclusion reached insofar as it applies to the facts of this case. While I have no objection in principle to the proposition that a court may order reciprocal conveyances of two separate residences jointly owned by the parties to a dissolution proceeding, I note the total absence of any discussion in the majority opinion of the most important question, under the Canakaris doctrine, presented by the petition for review in this case. That question is: what was the justification for the property disposition ordered by the trial court?
The court awarded the jointly owned marital residence to the former wife, the house having a net equity value to the parties of about $51,250. The other jointly owned parcel, with a residential improvement, and having a net equity value of about $42,850, was awarded to the husband. The court awarded a jointly owned unimproved parcel on Grand Abaco island, having a net value of about $3,500, to the husband. As to the other two lots in the Bahamas owned separately by the husband, the court did not award them to the husband but merely confirmed his separate title to them.
In terms of providing the parties with the means for continued occupancy of their present residences, the trial court's disposition seems effective and fair. In terms of monetary value the order achieves a kind of rough equality, with the Grand Abaco lot tending to help equalize the value inherent in the respective awards to husband and wife. On the other hand, it is not clear from the trial court's order what was the specific justification for the court-ordered property disposition or the inequality of monetary value inherent in it.
The trial court found that "neither party has established a special equity in any of the real property." Moreover, the trial court's order contains no findings pertaining to any special support needs of either of the parties. As the majority opinion expresses it, the final order approved a "clean break" from the marriage for both parties. In the absence of specific discussion of the circumstances of the parties, it is difficult to discern what was the justification for the trial court's novel property disposition.
Upon dissolution of a marriage, property held by the parties as an estate by the entirety is transformed automatically into a tenancy in common. § 689.15, Fla. Stat. (1983). Tenants in common are entitled under the law to partition, or public sale and partition of proceeds, of jointly owned *207 property. Strauss v. Strauss, 3 So.2d 727, 148 Fla. 23 (1941); §§ 64.031, 64.071, Fla. Stat. (1983). The trial court found that "physical partition of the realty would not be in the best interests of either party," but did not mention the alternate remedy of public sale with partition of proceeds. In any event, no underlying factual findings or reasoning is provided in support or explanation of the bare conclusion that partition would not well serve the parties' interests. The disparity in monetary value of the properties awarded to the respective parties is in need of justification.
In the absence of special equities, special support needs and duties, or other special circumstances, there is no justification for the court's making a property settlement for the parties. Presumably, both of the parties are rational, competent adults. In the absence of special justification, there is no reason not to simply let the law take its course, leaving the properties titled as determined by the record title and the operation of law. If physical partition is not in their best interests, presumably they will resort to other ways to resolve the property questions. Whether tenants in common seek physical partition, or public sale and partition of proceeds is a matter for those persons to settle between themselves through negotiation and agreement. If they cannot reach an agreement, the remedies provided by the law are available to them. For a court to force a property settlement on the parties to a dissolution proceeding without some specific justification goes beyond the proper authority of the court in such a situation.
The several opinions authored by the judges of the district court of appeal and the majority opinion of this Court, treating the question of whether under Canakaris "equitable distribution" is a new "vehicle" or merely the same old goal appear to me to be largely exercises in semantics. The important question to be answered in this case is whether the trial court's order was specifically justified; the majority fails to address that question.
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F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
August 8, 2006
TENTH CIRCUIT Elisabeth A. Shumaker
Clerk of Court
UNITED STATES OF AMERICA,
Plaintiff - Appellee, No. 05-3275
v. (D.C. No. 05-CR-10027-01-WEB)
(District of Kansas)
DANNY M. GRIFFIN,
Defendant - Appellant.
ORDER AND JUDGMENT *
Before MURPHY, HOLLOWAY and McKAY, Circuit Judges.
Defendant-Appellant, Danny M. Griffin, challenges the denial of his motions to
withdraw his guilty plea by the United States District Court for the District of Kansas.
The court denied his original motion to withdraw the guilty plea because he failed to
demonstrate a fair and just reason for withdrawal of his plea of guilty. Moreover, the
court found that Griffin did not assert his innocence. After Griffin renewed the motion
and asserted his innocence, however, the court again denied his motion, finding that his
assertion of innocence was conclusory and not supported by evidence.
We have jurisdiction pursuant to 28 U.S.C. § 1291 and AFFIRM.
*
This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. This 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.
BACKGROUND
On February 8, 2005, defendant Danny Griffin was indicted on one count of
unlawful possession with intent to distribute approximately 200 grams of a mixture
containing crack cocaine. An Assistant Federal Public Defender was appointed to
represent him. The trial was scheduled for April 12, 2005.
On April 8, the court was notified by defense counsel that the defendant wanted to
enter a plea of guilty and a change-of-plea hearing was therefore scheduled for April 11,
2005. When the defendant appeared at the hearing, his counsel informed the court that
the defendant had decided he did not want to plead guilty, but wanted to go to trial. The
court informed the parties that the matter would proceed to trial the next day as
scheduled. The court denied a request by the defense for a continuance of the trial,
finding that the defendant had time to obtain any necessary witnesses and that the court
could consider granting a continuance at a later time if it proved necessary.
Later in the afternoon of April 11, defense counsel informed the court that the
defendant again wanted to plead guilty. Accordingly, the court conducted a Rule 11
hearing late in the afternoon of April 11 at which time the defendant entered a plea of
guilty. The court determined that the defendant’s plea was made knowingly and
voluntarily, with a full understanding of its consequences. The court scheduled the
sentencing hearing for June 27, 2005.
On April 19, 2005, the defendant filed a motion to withdraw his plea of guilty. At
a subsequent hearing the court denied the motion, finding the plea had been made
-2-
knowingly and voluntarily and that the defendant had not demonstrated a fair and just
reason for withdrawal of his plea of guilty. The court also denied defendant’s request for
appointment of new counsel.
On June 22, 2005, defense counsel filed a renewed motion to withdraw the plea of
guilty and renewed his request for appointment of new counsel and made a motion for a
continuance. In his renewed motion to withdraw his plea of guilty, the defendant again
argued that he did not understand the consequences of pleading guilty. He further argued
(for the first time) that he was innocent of the offense because he did not know there was
cocaine in the car he was driving.
Finding that his assertion of innocence was directly contrary to his sworn
statements and answers to the court at the plea hearing, the court again denied defendant’s
motion. The court specifically noted that at the change-of-plea hearing, the Government
outlined its evidence against the defendant, and the defendant represented to the court that
the Government’s statement was true. In the court’s opinion, the Petition to Plead Guilty
executed by the defendant and his other statements to the court under oath confirm that he
had knowingly and intentionally possessed the cocaine in the car. Therefore, the court
held that defendant’s assertion of innocence was not sufficient to establish a fair and just
reason for withdrawal of the plea of guilty. Defendant was sentenced to 235 months’
imprisonment, inter alia.
DISCUSSION
On appeal, defendant claims that the district court erred in denying his motion to
-3-
withdraw his guilty plea. He contends that his plea of guilty was not knowing and
voluntary because he was under stress, surprised by incriminating testimony from his
girlfriend, under a tight deadline to make a decision, and confused during the plea
hearing. We are not persuaded.
A defendant may withdraw a plea of guilty before sentencing if the defendant can
show a fair and just reason for requesting the withdrawal. Fed. R. Crim. P. 11(d).
However, a defendant does not have an absolute right to withdraw a guilty plea. United
States v. Siedlik, 231 F.3d 744, 748 (10th Cir. 2000). The defendant bears the burden of
demonstrating a “fair and just reason” for his withdrawal of the plea. Siedlik, 231 F.3d at
748. It is within the sound discretion of the trial court to determine what circumstances
justify granting a motion to withdraw a guilty plea. United States v. Wade, 940 F.2d
1375, 1377 (10th Cir. 1991). Such motions to withdraw guilty pleas should be “freely
allowed and treated with liberality . . .” Id.
This Court considers seven factors in determining whether the defendant has
satisfied his burden of showing that the district court acted unjustly or unfairly in denying
his motion to withdraw his plea:
(1) whether the defendant has asserted his innocence; (2) whether withdrawal
would prejudice the government; (3) whether the defendant delayed in filing
his motion, and if so, the reason for the delay; (4) whether withdrawal would
substantially inconvenience the court; (5) whether close assistance of counsel
was available to the defendant; (6) whether the plea was knowing and
voluntary; and (7) whether the withdrawal would waste judicial resources.
United States v. Yazzie, 407 F.3d 1139, 1142 (10th Cir. 2005) (quoting United States
-4-
v. Sandoval, 390 F.3d 1294, 1298 (10th Cir. 2004)). It is undisputed here that the
defendant did not assert his innocence in his first motion to withdraw guilty plea. It is
also undisputed that the district court considered each of the seven Sandoval factors
before denying defendant’s motion.1 In view of this record, we cannot conclude that the
district court acted unjustly or unfairly in denying that motion.
Nevertheless, the defendant asserted his innocence when he renewed his motion to
withdraw his guilty plea and we must therefore decide whether the court abused its
discretion in denying the renewed motion. Defendant’s renewed motion rested on the
claim that he did not know there was cocaine in the car he was driving. But he failed to
provide any evidence to support the claim. The claim also is directly contrary to his
sworn statements and answers to the court at the plea hearing and the petition to plead
guilty executed by him. This court has held that conclusory statements made by the
defendant are, “absent any other evidence, insufficient to show that his plea was
involuntary.” United States v. Kramer, 168 F.3d 1196, 1200 (10th Cir. 1999).
Accordingly, we cannot conclude that the district court erred in finding that defendant’s
claim was insufficient to establish a just and fair reason to withdraw his guilty plea.
The defendant asserts that he was under stress, surprise at his girlfriend’s
1
The court weighed each of these factors during consideration of defendant’s
motion and found that: (1) the defendant had not asserted his innocence; (2) there was no
evidence of significant prejudice to the government; (3) there was no significant delay in
filing the defendant’s motion; (4) inconvenience to the court would be minor; (5) the
defendant had received effective assistance of counsel throughout the proceedings; (6) the
defendant’s plea was knowing and voluntary; and (7) there would be a waste of some
judicial resources. (Vol. I, Doc. 28 at 5).
-5-
incriminating testimony, a tight deadline, or confused during the change of plea hearing.
The record, however, does not support his assertion. The defendant was indicted on
February 8, 2005, and the case was set for trial on April 12, 2005, in a general order of
discovery and scheduling issued on February 15, 2005. On April 4, 2005, the district
court held a status conference. (Vol. I, Doc. 14). On April 8, 2005, the court received
notice from defense counsel that the defendant intended to enter a guilty plea and a
hearing was scheduled for April 11, 2005. (Vol. II, at 4). On April 11, 2005, the
defendant announced to the district court that he did not want to plead guilty but wanted
to go to trial. (Vol. IV, at 2). The defendant personally requested a two week
continuance stating that he needed to get his witnesses together. (Vol. IV, at 2-3). The
district court denied the motion for a continuance, finding that the defendant would have
time to obtain his witnesses while the government presented its case. (Id. at 4). Later in
the day on April 11, 2005, the defendant notified the district court that he had
reconsidered the matter and wanted to plead guilty. (Vol. III, at 2). Thus, the defendant
knew in February that his trial was scheduled on April 12, 2005. Therefore, he had ample
time to decide whether to plead guilty and to prepare for trial.
During the plea hearing, the district court entered into an exhaustive colloquy with
the defendant, explaining the plea and petition and the defendant continually assured the
court that he understood the proceedings. (Vol. III). When the defendant had a question
or did not understand, he asked the court and conferred with his counsel for clarification.
(Vol. III, at 5, 12). The district court instructed the defendant at the commencement of
-6-
the hearing: “Anytime you don’t understand what I’m asking you, you ask me again or
talk to Mr. Henderson [defense counsel] about it. . . .” (Id. at 3). At the conclusion of the
change of plea hearing the district court asked the defendant “Are you offering your plea
of guilty with a full understanding of all the matters set forth in this petition and in the
certificate of your attorney?” The defendant responded, “Yes.” The court then asked, “Is
there anything about it that you don’t understand and want to ask me?” The defendant
answered, “No, sir.” (Vol. III, at 19). This record directly contradicts defendant’s claim
that he lacked understanding when he entered the plea of guilty. Defendant was
represented by counsel and he fully conferred with counsel during the proceedings. We,
therefore, conclude that the district court properly found that the defendant’s plea was
made with a full understanding of the consequences of the plea and that the plea was
voluntary.
Accordingly, the district court’s judgment is
AFFIRMED.
Entered for the Court
William J. Holloway, Jr.
Circuit Judge
-7-
|
995 So.2d 971 (2008)
STATE
v.
WYATT.
No. 2D07-5624.
District Court of Appeal of Florida, Second District.
November 21, 2008.
Decision without published opinion. Affirmed.
|
490 F.2d 1057
Alexis I. duPONT de-BIE, Appellee,v.John F. VREDENBURGH and Faith S. Vredenburgh, Appellants.
No. 72-2404.
United States Court of Appeals, Fourth Circuit.
Argued Oct. 3, 1973.Decided Jan. 9, 1974, As Amended Feb. 4, 1974.
Robert M. Wright, Baltimore, Md. (Whiteford, Taylor, Preston, Trimble & Johnston, Baltimore, Md., on brief), for appellants.
J. Frederick Motz, Baltimore, Md. (Banjamin R. Civiletti and Venable, Baetjer & Howard, Baltimore, Md., on brief), for appellee.
Before HAYNSWORTH, Chief Judge BOREMAN, Senior Circuit Judge, and RUSSELL, Circuit Judge.
PER CURIAM:
1
In this intra-family dispute,1 appellee Alexis I. duPont de-Bie filed suit against appellants John F. Vredenburgh and his wife Faith S. Vredenburgh on six promissory notes in the total face amount of Two Hundred, Sixty Five Thousand ($265,000) Dollars. Appellant John F. Vredenburgh counterclaimed on the basis of a promissory note in the face amount of One Hundred, Fifty Thousand $150,000) Dollars, executed by appellee in favor of John F. Vredenburgh; and both appellants filed a supplemental counterclaim for sums due under a 'separation agreement' between appellee and his former wife, the right to collect which had been assigned the appellant John F. Vredenburgh.2
2
After trial without a jury, the District Court entered judgment in favor of appellee on the six promissory notes and dismissed the counterclaim of the appellant John F. Vredenburgh based on the alleged $150,000 note given the appellant Vredenburgh by the appellee. However, the District Court rendered judgment in favor of appellant John F. Vredenburgh on the rights assigned to him by appellee's former wife, but only for such sums as had accrued under the separation agreement on the date of the assignment.3 The court further concluded that pre-judgment interest on these sums was recoverable only to the extent of those unpaid installments due under the separation agreement which had previously been reduced to judgment by the wife in a Delaware proceeding. In accordance with these findings and conclusions, the District Court entered final judgment in favor of appellee in the amount of Three Hundred, Seventy Five Thousand, Eight Hundred, Twenty Seven and 50/100 ($375,827.50) Dollars, and in favor of John F. Vredenburgh on the counterclaim in the amount of Eighty Five Thousand, Eight Hundred, One and 23/100 ($85,801.23) Dollars. The Vredenburghs appealed. We affirm in part and reverse in part.
I.
3
Appellants' defense to appellee's cause of action based on the first of the six promissory notes, in the face amount of Fifty Thousand ($50,000) Dollars, rested on the statute of limitations. The District Court found that appellants had acknowledged their liability under such note at a meeting with appellee prior to the running of the statute and thus removed the bar of the statute.4 We conclude that such finding was not clearly erroneous and affirm on this issue.
II.
4
As a defense to appellants' counterclaim based on the $150,000 promissory note, appellee claimed lack of consideration, non-performance of a condition precedent, non-delivery, and delivery for a special purpose. The District Court found that the note had never been delivered to the appellant and, alternatively, if it had been delivered such delivery was for a special purpose.5 This finding is not clearly erroneous and must stand.
III.
5
In regard to the assignment by appellee's former wife of her rights under the separation agreement, the District Court held that such assignment conveyed rights to only those sums which had accrued at the date of the assignment. The Court suggested, as a basis for such finding, (a) that since the obligations of appellee's wife under the separation agreement were personal in nature, installments to become due in the future under such agreement could not be assigned, and (b) that since installments under the separation agreement were payable to appellee's wife only as long as she remained alive, appellant failed to meet his burden of proving that the wife was still alive as of the date of the judgment. We find unpersuasive these reasons for denial of appellant's right to judgment for all sums accruing under the separation agreement up to the date of the judgment. The general rule, of course, is that executory contracts for personal services or involving a relationship of confidence are not assignable.6 It is equally well established, though, that the right to receive money due or to become due under an existing contract may be assigned, even though the contract, itself, may not be assignable because it involves personal services.7 The fact that an assignor has obligations as well as rights under a bilateral contract, and that the obligations cannot be assigned, does not prevent him from assigning his rights.8 Of course, if appellee's former wife had failed to perform her obligations under the agreement, the proof of such failure would have been a valid defense to this part of appellant's counterclaim.
6
The appellee contends, however, that the burden rested on the appellant to establish that the former wife met the conditions on which the continuance of payments rested, i.e., that the former wife was alive at the time the sums to be paid by the appellee accrued. The separation agreement did provide, in the relevant part, that payments to the wife 'shall cease and terminate immediately upon the death of either Husband or Wife'.9 This, of course, did condition the continuation of the payments to the ex-wife on the latter's continued existence. But the vice in appellee's argument is with reference to the burden of proof in this connection. It is well settled in the great majority of jurisdictions, including Maryland, that there is a presumption of the continuation of life.10 Under this presumption, a person shown to have been alive at a given time is presumed to remain alive until the contrary is shown by some sufficient proof or, in the absence of such proof, until a different presumption arises.11 The existence of such presumption shifts the burden of proving a person's death to the party who relies on such death.12 In this case, appellee's former wife was shown to be alive as recently as 1971 when she executed the amendment to the assignment, and thus must be presumed to be alive in the absence of any contrary showing by the appellee.13 Appellant is entitled to judgment on the assignment for all sums which had accrued at the date of the District Court's final order.
IV.
7
Finally, we conclude the appellant was entitled to recover interest on the total amount of the accrued but unpaid installments under the separation agreement up to the date of the District Court's final order. Appellee concedes that prejudgment interest is recoverable, as a matter of legal right, as part of the damages for nonpayment of a liquidated claim.14 Nevertheless, appellee argues such interest should not be recoverable in this case because it was not specifically mentioned in the assignment. We disagree. It is arguable that if the separation agreement itself had specifically stipulated the payment of interest as separate from and in addition to the principal amount of such installment, and the assignment omitted any such stipulation of interest, then appellant may not have been entitled to recover such interest since the assignment contained a specific limitation that only the rights set forth in the assignment were intended to be transferred. In this case, however, interest is not recoverable pursuant to any express provision in the separation agreement but pursuant to operation of law. The principle is well settled that a valid assignment operates to pass the whole right of the assignor, and that thereafter the assignee stands in the place of the assignor, possessing all rights or remedies available to the assignor.15 Appellee's former wife would have been awarded interest up to the date of judgment on the accrued but unpaid installments due under the separation agreement.16 It is clear to us that it was her intention to assign all of her rights under such agreement.
8
Accordingly, the judgment of the district court is affirmed in part, and reversed in part, and the case is remanded with instructions to the district court for the entry of judgment in accordance with, the foregoing opinion.
1
Appellee is the brother of Mrs. Vredenburgh. Jurisdiction is based upon diversity of citizenship
2
It is alleged in the supplemental counterclaim that John F. Vredenburgh conveyed to Faith S. Vredenburgh a joint interest in the assignment agreement, but the District Court did not find in favor of Faith S. Vredenburgh on the supplemental counterclaim since no evidence was offered to support this contention
3
The separation agreement was executed on December 15, 1965 and assigned to appellant John F. Vredenburgh on January 22, 1970 (the assignment was subsequently clarified by amendment on August 16, 1971). Under the terms of the agreement, appellee was to pay his wife $2,500 a month from February 1, 1966 to January 1, 1967, $2,000 a month from February 1, 1967 to January 1, 1976, and $1,000 a month from February 1, 1976 to January 1, 1981, except that if the wife remarried, appellee was to pay her $1,000 a month from the date of her remarriage to January 1, 1981
4
Brosius Dev. Corp. v. City of Hagerstown (1965), 237 Md. 374, 206 A.2d 571
The first note became due on April 1, 1967. This suit was filed by appellee on June 25, 1970. The applicable statute of limitations is three years. The meeting at which appellants acknowledged their debt occurred in 1968.
5
More specifically, the Court found that the note had been placed in the files of a corporation owned by appellee but managed by appellant and had never been delivered directly to appellant; furthermore, the Court found that the $150,000 specified in the note was to be paid out of, and only in the event of, corporate profits, which were never realized
6
6 Am.Jur.2d 11, pp. 196-7; 6 C.J.S. Assignments 26, pp. 1074-1076; 4 Corbin on Contracts, 865, pp. 434-451
7
6 Am.Jur.2d, 15, p. 200; 6 C.J.S. Assignments 15, pp. 1060-1061; Industrial Trust Co. v. Stidham (1942), 3 Terry 339, 33 A.2d 159; Florance v. Kresge (1938, 4th Cir.), 93 F.2d 784
8
4 Corbin in Contracts, 867, pp. 459-64; Logan Planing Mill Co. v. Fidelity and Casualty Co. of N.Y. (S.D.W.Va.1962), 212 F.Supp. 906, 912
It is clear in this case that appellee's former wife did not attempt to assign the separation agreement itself to appellant, nor did she attempt to assign her obligation of continued performance.
9
Paragraph 7(e), Separation Agreement
10
Lachowicz Death v. Lechowicz (1943), 181 Md. 478, 30 A.2d 793; 25A C.J.S. 5, pp. 547-550; Fid. Mut. Life Assn. v. Mettler (1902), 185 U.S. 308, 316, 22 S.Ct. 662, 46 L.Ed. 922; English v. United States (D.Md.1928), 25 F.2d 335, 336-337
11
Howard v. Equitable Life Assur. Soc. (1938), 197 Wash. 230, 85 P.2d 253, 119 A.L.R. 1302; Re Estate of Holmlund (1962), 232 Or. 49, 374 P.2d 393, 99 A.L.R.2d 296
12
McCormick on Evidence (1954 ed.) p. 642; Allen v. Mazurowski (1944), 317 Mass. 218, 57 N.E.2d 544, 545-546
13
Appellee argues that the presumption of the continuation of life is inapplicable in this case, since appellant's counterclaim is not based upon contract rights which were his originally but rather is derived through the rights of the 'missing' person (i.e. appellee's former wife) as to whom the presumption is to be applied. The suggested distinction is without merit. Acosta v. United States (1963), 320 F.2d 382, 384-385, 162 Ct.Cl. 631; Tobin v. United States Railroad Retirement Board (6th Cir. 1961), 286 F.2d 480, 483-484
14
Lichtenburg v. Joyce (1944), 183 Md. 689, 39 A.2d 789
15
6 Am.Jur.2d 102, pp. 282-4; 6 C.J.S. Assignments 82, pp. 1137-1138
16
In fact, appellee's wife was awarded interest in the judgment which she obtained in a Delaware Court in 1969
|
142 B.R. 449 (1992)
THOMAS AMERICAN STONE & BUILDING, INC., Plaintiff,
v.
Richard W. WHITE and Symcol Enterprises Limited, Defendants.
Civ. No. 89-C-752B.
United States District Court, D. Utah, C.D.
July 6, 1992.
*450 Thomas R. King, Scott E. Isaacson, Joyce Maughan, Salt Lake City, Utah, for plaintiff.
Jeffrey N. Walker, Salt Lake City, Utah, Richard W. White, Santee, Cal., William J. Ward, San Diego, Cal., Robert Eylar, Santee, Cal., for defendants.
MEMORANDUM DECISION AND ORDER
DEE V. BENSON, District Judge.
On June 24, 1992, a hearing was held before the Honorable Dee Benson on Defendant's Opposition to the Report and Recommendation of the Magistrate to Grant Plaintiff's Renewed Motion for Partial Summary Judgment. Scott Isaacson represented the plaintiff, Thomas American Stone & Building, Inc. Jeffrey Walker represented the defendant, Richard W. White, et. al.
Having reviewed the memoranda submitted by the parties, having heard oral argument from counsel, being fully appraised, and for good cause appearing, the Court makes the following findings and enters the following ORDER:
BACKGROUND
This matter is before the Court on Defendant's motion in opposition to the Magistrates Report and Recommendation. Thomas American Stone filed suit against Richard W. White, et al. alleging, inter alia, a breach of contract in connection with the sale of certain property.
On April 1, 1988, Thomas American Stone entered into an agreement with *451 White and Bryan Oldfield, in which Thomas American Stone agreed to sell certain mining property, buildings, fixtures, and mining equipment. Under the Sale Agreement, Thomas American Stone retained a security interest in the equipment and a lien on the mining property through a trust deed from April of 1988.
On December 11, 1990, following a petition by defendant to proceed in forma pauperis in order to avoid sanctions, Thomas American Stone filed a motion for partial summary judgment against White for breach of the Sale Agreement by reason of insolvency. Article 9 of the agreement titled "Seller's Remedy on Default" states:
Upon default of the buyer to any of the terms, conditions or promises contained in this Agreement, Seller shall be entitled to all remedies afforded by law pursuant to their security interest in the personal property and their trust deed interest in the real property. It shall also be default of the Buyer if he allows any of the following circumstances to happen:
(1) Insolvency in the Buyer.
The motion was stayed by two bankruptcy proceedings initiated by White. The first, filed in Utah, was dismissed because of White's failure to file schedules and appear at the first meeting of creditors. The second filing occurred in the Southern District of California, the bankruptcy court there terminated the automatic stay so Thomas American Stone could proceed with this litigation.
After relief from the automatic stay, plaintiff filed a renewal of its motion for partial summary judgment. White then filed a petition for removal of this case to the United States Bankruptcy Court for the District of Utah. The bankruptcy court then remanded the case to this Court for decision. The case was then referred to Magistrate Judge Boyce.
Without opposition to the motion by defendant, the Magistrate recommended that plaintiff be granted partial summary judgment on the issue of breach of the Sale Agreement by reason of insolvency and that plaintiff's trust deed securing White's obligation be foreclosed. White then filed a memorandum in opposition to the Magistrates Report and Recommendation concurrently with a memorandum in opposition to plaintiff's motion for partial summary judgment.
DISCUSSION
Summary Judgment under Rule 56(c) of the Federal Rules of Civil Procedure should be granted when,
the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(c). The party moving for summary judgment always bears the initial responsibility demonstrating to the district court why there is no genuine issue of material fact. The non moving party is then required to rebut this by designating the specific facts which show there is a genuine issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). Inevitably the parties will have different versions of the facts, however such differences do not preclude summary judgment unless they are material to the outcome. Singer v. Wadman, 745 F.2d 606, 609 (10th Cir.1984) (quoting Kiess v. Eason, 442 F.2d 712, 713 (7th Cir.1971)). If whatever is before the district court, material to the outcome of this narrow issue of insolvency, meets the standard for summary judgement as set forth in rule 56(c), it should be granted. Celotex 477 U.S. at 323, 106 S.Ct. at 2552.
A. The Court need only review those arguments present before the magistrate.
Due to the failure of defendant in filing an opposition to plaintiff's motion for partial summary judgment, the Magistrate was without the benefit of rebuttal arguments in making his decision. The Magistrate's decision was based upon the brief of plaintiff which set forth the motion to proceed in forma pauperis and the two bankruptcy *452 petitions as clear admissions of insolvency. The Magistrate decided that without rebuttal it was undeniable defendant was insolvent and in default under the agreement, therefore partial summary judgment was recommended.
De novo review of a magistrate's decision is compelled when a timely objection is filed. Summers v. State of Utah, 927 F.2d 1165, 1167 (10th Cir.1991). However, courts are not required to reward a lack of diligence by reviewing arguments not seasonably raised before the magistrate. The First Circuit has held:
[Rule 72(b)] does not permit a litigant to present new initiatives to the district judge. We hold categorically that an unsuccessful party is not entitled as of right to De novo review of an argument never seasonably raised before the magistrate.
Paterson-Leitch Co. Inc. v. Mass. Mun. Wholesale Elec. Co., 840 F.2d 985, 990-91 (1st Cir.1988).
The reasoning of the First Circuit is sound and the Court is unaware of a 10th Circuit case to the contrary. The magistrates exist to relieve some of the burden on the court, this would be frustrated if a party were allowed to see if they received an unfavorable recommendation then shift gears before the district judge. Paterson at 991. Based upon the record as it existed when the Magistrate made his recommendation, the Court finds it undisputed that White was insolvent as a matter of law. Therefore, no genuine issue of material fact exists as to whether default had occurred and partial summary judgment is proper.
However, in light of the fact that White was without counsel at this time the Court feels obliged to review the arguments raised following the Magistrate's Report and Recommendation.
B. Defendant's arguments in opposition to the report and recommendation.
1. The Bankruptcy Code.
Defendant argues that the Court should deny Thomas American Stone's motion for partial summary judgment because § 365(e) the Bankruptcy Code prohibits such action. 11 U.S.C.A. § 365(e)(1) (1990) provides:
Notwithstanding a provision in an executory or unexpired lease, or in applicable law, an executory contract or unexpired lease of the debtor may not be terminated or modified, and any right or obligation under such contract or lease may not be terminated or modified, at any time after the commencement of the case solely because of a provision in such contract or lease that is conditioned on
(A) the insolvency or financial condition of the debtor at any time before the closing of the case.
The purpose of this statute is to invalidate bankruptcy clauses that hamper rehabilitation efforts. 11 U.S.C.A. § 365(e)(1) (1990) (Judiciary Committee Notes).
Plaintiff gives four reasons why this proceeding is not afforded the protection of § 365, the non-executory nature of the agreement, termination of the agreement occurred prior to the initiation of bankruptcy proceedings, insolvency was not the sole reason for termination of the agreement, and the granting of relief from the automatic stay provision. The Court agrees with the plaintiff on two of these reasons, the non-executory nature of the contract and the relief from stay.
The contract in question is not an executory contract as mandated by the bankruptcy code. According to the legislative history of § 365, "an executory contract is a contract on which performance remains due to some extent on both sides." In re Streets & Beard Farm Partnership, 882 F.2d 233, 235 (7th Cir.1989) (quoting S.Rep. No. 989, 95th Cong., Sess. 58 and H.Rep. No. 595, 95th Cong., 1st Sess. 347, reprinted in 1978 U.S.C.C.A.N. 5787, 5844). Because only the rare agreement is without any unperformed obligation on either side courts have construed Congress' intent to be in accord with Professor Countryman's definition of executory contracts. In re Jerry Garland Evatt, 112 B.R. 417, 419 (W.D.Okla.1990). Countryman states, "the obligation of both the bankrupt and the *453 other party are so far unperformed that the failure of either to complete performance would constitute a material breach excusing performance of the other." V. Countryman, Executory Contracts in Bankruptcy: Part 1, 57 Minn.L.Rev. 439, 460 (1974).
Utah has continuously held, "[T]he vendors interest is similar to the security interest of a purchase money mortgagee." Cannefax v. Clement, 786 P.2d 1377, 1380 (Utah App.1990), aff'd 818 P.2d 546 (Utah 1991) (quoting Butler v. Wilkinson, 740 P.2d 1244, 1254-55 (Utah 1987)). The court in Cannefax further holds, "[T]he rights of the parties are evaluated as if the conveyance had been made." Cannefax at 1379. Thomas American Stone fully performed its obligations under the contract when it deeded the property to White and Oldfield on April 1, 1988, all that was retained was a security interest. Thomas American Stone could only retake the property if White defaulted, this would be based solely upon the acts and conduct of the buyer. Cannefax v. Clement, 818 P.2d 546, 552 (Utah 1991). The Court therefore finds the retention of a security interest was not enough to make this an executory contract deserving protection under the Bankruptcy Code.[1]
Relief from the automatic stay also removes this case from the shelter of § 365(e)(1). The order of the bankruptcy court states:
It is hereby ordered that the motion of Thomas American Stone is granted. The automatic stay provided by 11 U.S.C. § 362 is immediately terminated to permit Thomas American Stone to proceed with the District Court litigation to judgment, and to take whatever other steps are necessary and proper in the course of that litigation to protect its rights and property, including but not limited to entry of judgment in the Movant's favor, perfection of that judgment, and foreclosure of their deed of trust, if appropriate.
Once an asset is taken from the bankruptcy estate the prohibition against bankruptcy termination clauses is no longer operative. In re Schweitzer, 19 B.R. 860, 867 (Bankr.E.D.N.Y.1982). Judge Malugen's order removed this asset from the bankruptcy estate and therefore from the protection of § 365. After relief from the automatic stay provision the parties resumed the positions they occupied prior to the debtor being placed in bankruptcy. In re Drislor Assoc., 110 B.R. 937, 940 (D.Colo.1990).
The Court is not convinced by the other two arguments raised by plaintiff. However, the non-executory nature of the contract and the bankruptcy court's relief from stay, together and on their own, are enough to make § 365(e) inapplicable.
2. Covenant of Good Faith.
Defendant's second argument is that the motion should be denied because Thomas American Stone breached its covenant to act in good faith and deal fairly with White. Under Utah law each party impliedly promises not to intentionally harm the other party's right to receive the benefits of a contract. St. Benedict's Dev. Co. v. St. Benedict's Hosp., 811 P.2d 194, 199 (Utah 1991). White asserts that Thomas American Stone's failure to properly maintain the Aragonite Mine and its equipment and to properly mine rock product from the mine is the proximate and substantial cause of his financial difficulties. While the Court must view the record in a light most favorable to the non moving party, conclusory allegations do not establish issues of fact under rule 56. R-G Denver, LTD. v. First City Holdings of Colorado, Inc., 789 F.2d 1469, 1471 (10th Cir.1986). The 10th Circuit has stated:
*454 The mere possibility that a factual dispute may exist, without more, is not sufficient to overcome convincing presentation by the moving party. The litigant must bring to the district court's attention some affirmative indication that his version of the relevant events is not fanciful.
Conaway v. Smith, 853 F.2d 789, 794 (10th Cir.1988). White has given no evidence that his version is anything more than fanciful.
The Supreme Court has said, "if the evidence is merely colorable or is not significant or probative, summary judgment may be granted." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S.Ct. 2505, 2510-11, 91 L.Ed.2d 202 (1986). White's unsubstantiated allegations do not even offer the Court colorable evidence, let alone anything significant or probative.
Not only are White's allegations conclusory they contradict his motion to proceed in forma pauperis. In that motion he states, "aside from the subject action, I, or my companies, have certain disputed or presently uncollectible receivables from my various business activities." He then lists six different accounts from which he is owed $3,626,000.00 and that he also owes nearly $2,000,000.00 none of which are related to Thomas American Stone. Based upon these contradictions and the lack of anything more than conclusory allegations from White, the Court finds no genuine issue of material fact as to whether a lack of good faith was the proximate and substantial cause of White's financial troubles.
3. Insolvency.
Finally, White contends that he is not insolvent for the purposes of this action. White again offers no evidence to support this argument. Nor does he offer anything to rebut the evidence of plaintiff, or the findings of the magistrate which show clearly defendant was insolvent by his own admission.
When White petitioned for in forma pauperis status he was claiming to be so poor that he must be supported at public expense, and that he was in fact so impoverished he was unable to pay for counsel, court fees, or other services. Black's Law Dictionary 1128 (6th ed. 1990). The Uniform Commercial Code defines insolvency as follows,
A person is insolvent who either has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due or if he is insolvent within the meaning of federal law.
Utah Code Ann. § 70A-1-201(23) (1990). The inability to pay these debts would mean White is insolvent under the Utah Code. When this is considered along with the bankruptcy filings and without evidence from White showing how a jury could decide otherwise the Court finds White was insolvent as a matter of law.
For the foregoing reasons, IT IS HEREBY ORDERED that defendants opposition to the Report and Recommendation of the Magistrate Judge is DENIED. The Court adopts the Report and Recommendation of the Magistrate Judge. Partial summary judgment against White is granted on the issue of breach of the Sale Agreement by reason of insolvency, The Court further ORDERS the foreclosure of the plaintiff's trust deed securing Mr. White's obligations.
NOTES
[1] Within the bankruptcy courts of this circuit there is disagreement whether this type of agreement is executory. In In re Booth, 19 B.R. 53, 62 (Bankr.D.Utah 1982), the court stated mortgages are not executory contracts. In contrast, the court in Shaw v. Dawson, 48 B.R. 857, 860-61 (D.N.M.1985) found this to be a question decided by the law of each state. In the present case it makes no difference which theory is applied, the answer is the same, the agreement between Thomas American Stone and Richard White is not executory.
|
390 F.Supp.2d 587 (2005)
Kevin EVANS, Plaintiff(s)
v.
PEMEX a/k/a Petroleos Mexicanos S.A., et al., Defendant(s)
No. H-04-1510.
United States District Court, S.D. Texas, Houston Division.
May 11, 2005.
*588 Newton Boris Schwartz, Sr., Attorney at Law, Houston, TX, for Plaintiff.
David R. Walker, Royston Rayzor et al., Houston, TX, for Defendant.
MEMORANDUM OPINION & ORDER GRANTING MOTION TO DISMISS
HARMON, District Judge.
Pending before the Court is Defendants Petroleos Mexicanos ("PEMEX") and PEMEX Exploracion y Production's ("PEP") motion to dismiss for lack of subject matter and personal jurisdiction (Doc. 21). For the reasons set forth below, the Court ORDERS that the motion is GRANTED.
*589 I. BACKGROUND AND RELEVANT FACTS
This action arises from an injury suffered by Plaintiff Kevin Evans ("Evans"), a U.S. citizen, while working on an oil platform in the territorial waters of Mexico in October 2003. The platform was owned by PEP. PEP is a decentralized public entity of the Mexican government with its headquarters in Mexico City, and is organized and exists under the laws of the Sovereign State of Mexico. PEP is a subsidiary of PEMEX, which is likewise a decentralized public entity of the Mexican government. There is no dispute in this case that Defendants are agencies of the Mexican government within the meaning of the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602 et seq. ("FSIA").[1] At the time of his injury Evans was working for Cia. Tesco Corporation ("Tesco"), a Mexican corporation headquartered in Mexico City that had contracted with PEP to refurbish the oil platform. Evans filed suit in this Court in January 2004.[2] Plaintiff asserts claims for negligence, gross negligence, and strict liability, and seeks "in excess of a sum $1 million actual damages" and "punitive damages, not exceeding nine (9X) times his actual damages."[3] Defendants have filed their motion to dismiss and Plaintiff has responded. The motion is ripe for ruling.
II. ANALYSIS
The threshold issue in this action is whether or not Defendants are entitled to immunity under the FSIA. "The general rule under the FSIA is that foreign states are immune from the jurisdiction of the United States Courts."[4] Specifically, section 1604 of the FSIA states:
Subject to existing international agreements to which the United States is a party at the time of enactment of this Act a foreign state shall be immune from the jurisdiction of the courts of the United States and of the States except as provided in sections 1605 to 1607 of this chapter.[5]
Both subject matter jurisdiction and personal jurisdiction exist in an action against a foreign state "only when one of the exceptions to foreign sovereign immunity in §§ 1605-07 applies."[6] Although "a party claiming FSIA immunity retains the ultimate burden of persuasion on immunity, it need only present a prima facie case that it is a foreign state; and, if it does, the burden shifts to the party opposing immunity to present evidence that one of *590 the exceptions to immunity applies."[7] The only exceptions alleged by Plaintiff to be applicable here are those found in 28 U.S.C. § 1605(a)(2). That section states:
(a) A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case
* * * * * *
(2) in which the action is based upon a commercial activity carried on in the United States by the foreign state; or upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States;[8]
For any of the three types of acts identified in Section 1605(a)(2) to apply, the Fifth Circuit requires that there be a "nexus" between the underlying claim and the commercial activity in (or having a direct effect in) the United States.[9] Furthermore, "[i]n order to satisfy the commercial activities exception to sovereign immunity, the commercial activity that provides the jurisdictional nexus with the United States must also be the activity on which the lawsuit is based."[10]
Plaintiff has failed to establish any nexus between his claim and any commercial activity by Defendants. Although Plaintiff asserts that he is entitled to discovery on the issue of whether § 1605(a)(2) applies, and that the motion to dismiss should be held in abeyance until such discovery is completed, the Court finds that in this particular case that argument lacks merit. Plaintiff has failed to allege or otherwise explain to this Court how § 1605(a)(2) might even conceivably apply in this action. Plaintiff has done nothing more than allege in his complaint that "the `commercial activity' exceptions [of] 28 U.S.C. § 1605(a)(2)" apply.[11] Plaintiff has not specified which specific exception under § 1605(a)(2) he believes applies. Furthermore, the only relevant factual allegation of any sort offered by Plaintiff to establish a nexus between his claim and Defendants' commercial activities is that, presumably in connection with Plaintiff's work on the oil platform, an "iron rough neck" that had been manufactured in the United States was to be removed from the platform and another "iron rough neck" which was also manufactured in the United States was to be installed in its place.[12] The Court finds this factual allegation inadequate to support an exception under § 1605(a)(2). In the same vein, the Court finds that Plaintiff is not entitled to burden a foreign sovereign with discovery requests unless he can at least first allege an adequate basis for an applicable exception under the FSIA.[13] Accordingly, Plaintiff's assertion *591 that he is entitled to discovery lacks merit, and Defendants' motion to dismiss should be granted. Both Defendants are entitled to sovereign immunity and both subject matter jurisdiction and personal jurisdiction are lacking in this action.
III. CONCLUSION
Plaintiff has failed to come forward with sufficiently specific allegations or, consequently, with any evidence to establish that any exception to Defendants' claims of sovereign immunity under the FSIA are applicable in this action. Accordingly, the Court ORDERS that Defendants' motion to dismiss is GRANTED. All other pending motions are DENIED as moot.
NOTES
[1] See United States v. Moats, 961 F.2d 1198, 1204, n. 7 (5th Cir.1992) ("It is undisputed that PEMEX, the nationalized petroleum company of Mexico, falls within the definition of foreign state for purposes of sovereign immunity."); Stena Rederi AB v. Comision de Contratos del Comite Ejecutivo General, 923 F.2d 380, 382, n. 2 (5th Cir.1991) ("Petroleos Mexicanos is an agency of the United Mexican States charged with the obligation to preserve, explore and produce Mexico's hydrocarbon resources.").
[2] This case was originally filed in the Galveston Division of this Court. Judge Kent subsequently sua sponte transferred this action to the Houston division.
[3] First Amended Complaint (Doc. 13) at 2-4.
[4] Moran v. The Kingdom of Saudi Arabia, 27 F.3d 169, 172 (5th Cir.1994).
[5] 28 U.S.C. § 1604.
[6] Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434 n. 3, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989); see also Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 485 n. 5, 103 S.Ct. 1962, 76 L.Ed.2d 81 (1983) ("Under the [FSIA], ... both statutory subject-matter jurisdiction... and personal jurisdiction turn on application of the substantive provisions of the [FSIA]").
[7] Kelly v. Syria Shell Petroleum Dev. B. V., 213 F.3d 841, 847 (5th Cir.), cert. denied, 531 U.S. 979, 121 S.Ct. 426, 148 L.Ed.2d 435 (2000). As noted above, there is no dispute that Defendants have made out a prima facie case that they qualify as foreign states.
[8] 28 U.S.C. § 1605(a)(2).
[9] See Tubular Inspectors, Inc. v. Petroleos Mexicanos, 977 F.2d 180, 184 (5th Cir.1992); Stena Rederi AB v. Comision de Contratos del Comite, 923 F.2d 380, 386-87 (5th Cir.1991); Vencedora Oceanica Navigacion v. Compagnie Nationale Algerienne De Navigation, 730 F.2d 195, 202-204 (5th Cir.1984).
[10] Stena Rederi, 923 F.2d at 387.
[11] First Amended Complaint (Doc. 13) at 2.
[12] Plaintiff's Reply to Defendants' Motion to Dismiss (Doc. 35) at 2.
[13] See Kelly v. Syria Shell Petroleum Dev. B.V., 213 F.3d 841, 849 (5th Cir.), cert. denied, 531 U.S. 979, 121 S.Ct. 426, 148 L.Ed.2d 435 (2000) ("when FSIA immunity has been claimed, unlimited jurisdictional discovery is not permitted as a matter of course.") (emphasis in original); Arriba Ltd. v. Petroleos Mexicanos, 962 F.2d 528, 534 (5th Cir.1992) ("The court was enticed into its discovery order prematurely, however. Several courts have observed the tension between permitting discovery to substantiate exceptions to statutory foreign sovereign immunity and protecting a sovereign's or sovereign agency's legitimate claim to immunity from discovery. The potential conflict is not unlike that attendant to claims that challenge domestic government officials' qualified immunity from suit. At the very least, discovery should be ordered circumspectly and only to verify allegations of specific facts crucial to an immunity determination.") (emphasis added and internal citations omitted).
|
In The
Court of Appeals
Ninth District of Texas at Beaumont
____________________
NO. 09-04-538 CV
____________________
ROSE L. CASON, Appellant
V.
CHARLES B. CASON, Appellee
On Appeal from the 75th District Court
Liberty County, Texas
Trial Cause No. CV63636
MEMORANDUM OPINION
This is an appeal from a division of property incident to divorce. Rose Cason brings
three points of error: (1) whether the division of community property was "just and right"
under Tex. Fam. Code Ann. § 7.001 (Vernon 1998); (2) whether the lower court abused its
discretion in awarding Rose fifty percent of Charles's pension benefits contingent upon her
losing disability status; and (3) whether the lower court abused its discretion and harmed
Rose by failing to file findings of facts and conclusions of law.
Rose and Charles Cason were married on or about December 31, 1972, and they
ceased living together on or about December 31, 2001. Charles filed for divorce citing
insupportability and Rose cross petitioned citing adultery as well as insupportability. Trial
was to the court without a jury. Charles and Rose requested that the trial court approve their
agreements regarding the division of portions of their community property. The division of
the property not apportioned by agreement was heavily contested and resulted in the case
being heard in four separate hearings. The Final Divorce Decree was ultimately issued and
a request for findings of fact and conclusions of law was timely filed. A subsequent Notice
of Past Due Findings of Fact and Conclusions of Law was also filed; however, although both
requests were acknowledged by the trial court, no findings of fact and conclusions of law
were ever issued. (1)
We begin with the second point of error. (2) The Texas Family Code requires the court
to "determine the rights of both spouses in a pension, retirement plan, annuity, individual
retirement account . . . , or other employer plan or financial plan of an employee or a
participant, regardless of whether the person is self-employed, in the nature of compensation
or savings." See Tex. Fam. Code Ann. §7.003 (Vernon 1998). A trial court has broad
discretion in dividing the marital estate, and its decision will not be disturbed absent a clear
abuse of that discretion. See Schlueter v. Schlueter, 975 S.W.2d 584, 589 (Tex.1998); Bell
v. Bell, 513 S.W.2d 20, 22 (Tex. 1974); Phillips v. Phillips, 75 S.W.3d 564, 567 (Tex. App.--Beaumont 2002, no pet.)(citing Stafford v. Stafford, 726 S.W.2d 14, 16 (Tex. 1987)). An
abuse of discretion occurs when a court acts arbitrarily or unreasonably without reference to
any guiding rules or principles. Phillips, 75 S.W.3d at 567 (citing Worford v. Stamper, 801
S.W.2d 108, 109 (Tex.1990)).
Rose complains of the "contingent" nature of the trial court's award of Charles'
retirement benefits. Here, the divorce decree awarded Rose all of her IRA, retirement funds,
and disability benefits as her sole and separate property, and awarded Charles all of his
monthly pension benefits as his sole and separate property. However, in yet another
provision, the decree also purported to award Rose, as her sole and separate property, fifty
percent of Charles' pension benefits should she ever lose her disability benefits at any time
in the future. (3) "While there are exceptions, it is a general rule that judgments must not be in
the alternative, conditional, or contingent." Hill v. Hill, 404 S.W.2d 641, 643 (Tex. Civ.
App.--Houston 1966, no writ); see also Tackett v. Proffitt, 695 S.W.2d 55, 56 (Tex. App.--Corpus Christi 1985, no writ). "[A] judgment must be certain and definite. The validity and
binding force of a judgment must depend upon facts existing at the time of its rendition. A
judgment may not rest upon what may or may not occur after its rendition, and must take its
validity from the action of the court and not from what persons may or may not do after the
court has rendered the judgment." Tully v. Tully, 595 S.W.2d 887, 888 (Tex. Civ. App.--Austin 1980, no writ). The Texas Supreme Court in Shanks v. Treadway has recognized that
"'nonvested' pension rights are . . . a contingent interest in property," and "to the extent that
such rights derive from employment during coverture, they comprise a community asset
subject to division in a dissolution proceeding." Shanks v. Treadway, 110 S.W.3d 444, 446
(Tex. 2003) (citing Cearley v. Cearley, 544 S.W.2d 661, 663-664 (Tex. 1976)(quoting Brown
v. Brown, 15 Cal.3d 838, 126 Cal. Rptr. 633, 544 P.2d 561, 562 (1976)). The Court
recognized certain allowable contingent awards when it acknowledged that "it may be
necessary in many instances for the judgment to make the apportionment to the nonretiring
spouse effective if, as, and when the benefits are received by the [employee] spouse."
Shanks, 110 S.W.3d at 446 (quoting Cearley, 544 S.W.2d at 666). The judgment before us
does not involve such an apportionment of retirement benefits between the spouses. In the
present case, under the section entitled "Property to Husband," the Final Divorce Decree
awarded Charles one hundred percent of his monthly pension benefits. (4) However, the decree
under the section entitled "Property to Wife" also awarded Rose a fifty percent interest in
Charles' pension plan that is subject to an event that may never occur, the loss by Rose of
her disability benefits. Thus, Rose has no interest (possessory or future) in Charles' pension
benefits unless she loses her disability status, at which time she will receive a fifty percent
interest. As losing her disability status is neither certain nor definite, this is not a certain and
definite award. "[W]e interpret a divorce decree like any other judgment, reading the decree
as a whole and 'effectuat[ing] the order in light of the literal language used' if that language
is unambiguous." Reiss v. Reiss, 118 S.W.3d 439, 441 (Tex. 2003) (quoting Wilde v.
Murchie, 949 S.W.2d 331, 332 (Tex. 1997)). Here, however, the conflicting and conditional
awards create an ambiguity that cannot be resolved through literal interpretation, resulting
in an unreasonable judgment. Thus, we find that the trial court clearly abused its discretion
in the making of these awards. Point of error two is sustained.
The judgment in this case is reversed and remanded to the trial court for proceedings
consistent with this opinion. (5)
REVERSED AND REMANDED.
CHARLES KREGER
Justice
Submitted on July 14, 2005
Opinion Delivered August 31, 2005
Before McKeithen, C.J., Kreger, and Horton, JJ.
1. Tex. R. Civ. P. 296, 297. See also, Cherne Indus. v. Magallanes, 763 S.W.2d 768,
772 (Tex. 1989)(When properly requested, the trial court has a mandatory duty to file
findings of fact.)
2. Because our resolution of point of error two is dispositive of this case, we need not
address points of error one and three; however, under point of error one, Rose requests that
we render a "just and right" property division. We are prohibited from this by McKnight v.
McKnight, which prohibits courts of appeals from rendering specific awards of property in
a divorce action, as the courts' only role is to determine if there is an abuse of discretion.
McKnight v. McKnight, 543 S.W.2d 863, 866-67 (Tex. 1976).
3. "In the event, and only in the event, the monthly disability payments presently being
paid to Rose L. Cason as a result of her disability should be terminated, then Rose L. Cason
is awarded an undivided fifty (50%) percent of the monthly pension benefits presently being
paid to Charles B. Cason."
4. In the divorce decree Charles is awarded "One Hundred (100%) percent of Charles
B. Cason's pension benefits received as a result of his employment with the City of Houston
Fire Department."
5. Although not raised in this appeal, we note there was a second conditional "award"
to Rose; that of Charles's real property.
|
610 F.2d 1
In the Matter of the Application of LAFAYETTE ACADEMY, INC.,et al, Appellees,Appeal of UNITED STATES of America, Appellant.
No. 79-1123.
United States Court of Appeals,First Circuit.
Argued Sept. 10, 1979.Decided Oct. 29, 1979.
Everett C. Sammartino, Asst. U.S. Atty., Providence, R.I., with whom Paul F. Murray, U.S. Atty., Providence, R.I., and Franklin C. Phifer, Jr., Atty., Dept. of Justice, Washington, D.C., were on brief, for appellant.
Peter J. Mansbach, New York City, with whom Kronish, Lieb, Shainswit, Weiner & Hellman, New York City, Herbert F. DeSimone, and DeSimone, Del Sesto & Del Sesto, Providence, R.I., were on brief, for appellees.
Before KUNZIG,* Judge U.S. Court of Claims, CAMPBELL, Circuit Judge, and DOOLING,** District Judge.
LEVIN H. CAMPBELL, Circuit Judge.
1
The government appeals from the district court's allowance of appellees' motions, filed pursuant to Fed.R.Crim.P. 41(e),1 for return of property. We affirm the judgment of the district court.
2
Appellee Lafayette Academy, Inc. owns and operates a vocational home-study school which participated in the Federal Insured Student Loan Program (FISLP). Lafayette Academy and its two subsidiaries2 came under investigation for possible fraudulent practices in connection with their participation in FISLP. The investigating officer by affidavit set forth the observations, information, and conclusions of various officials of the Department of Health, Education and Welfare, the Office of Education, and former employees of Lafayette Academy as well as his own with respect to Lafayette's irregular practices in recordkeeping and violations of federal regulations respecting the student loan program. Based upon his affidavit, a warrant issued authorizing the seizure of
3
"books, papers, rosters of students, letters, correspondence, documents, memoranda, contracts, agreements, ledgers, worksheets, books of account, student files, file jackets and contents, computer tapes/discs, computer operation manuals, computer tape logs, computer tape layouts, computer tape printouts, Office of Education (HEW) documents and forms, cancellation reports and directives, reinstatement reports or forms, Government loan registers, refund ledgers, reports and notes, administrative reports, financial data cards, lesson and grading cards and registers, registration (corporations) documents, student collection reports, financial documents (corporations), journals of accounts and student survey data, which are and constitute evidence of the commission of violations of the laws of the United States, that is violations of 18 U.S.C., Sections 286, 287, 371, 1001 and 1014; . . ."
4
from appellees' place of business. The warrant was executed the next day by approximately thirty government agents who seized a substantial percentage of the records on the searched premises, employing four or five trucks to remove the seized material.
5
We hold with the district court that the warrant does not describe the "things to be seized" with the particularity required by the fourth amendment.3 The warrant is framed to allow seizure of most every sort of book or paper at the described premises, limited only by the qualification that the seized item be evidence of violations of "the laws of the United States, that is violations of 18 U.S.C. Sections 286, 287, 371, 1001, and 1014." The cited statutes, however, penalize a very wide range of frauds and conspiracies. They are not limited to frauds pertaining to FISLP, and there is no indication from the warrant that the violations of federal law as to which evidence is being sought stem only or indeed at all from Lafayette's participation in FISLP. Thus, the warrant purports to authorize not just a search and seizure of FISLP-related records as the government contends but a general rummaging for evidence of any type of federal conspiracy or fraud. Here, at a minimum, the precise nature of the fraud and conspiracy offenses for evidence of which the search was authorized fraud and conspiracy in the FISLP needed to be stated in order to delimit the broad categories of documentary material and thus to meet the particularity requirement of the fourth amendment.4 Compare In Re Search Warrant, 187 U.S.App.D.C. 297, 572 F.2d 321 (D.C.Cir. 1977), Cert. denied, 435 U.S. 925, 98 S.Ct. 1491, 55 L.Ed.2d 519 (1978) (conspiracy described in affidavit incorporated into the warrant).
6
The government argues, however, that the requisite specificity is supplied by the affidavit. "The traditional rule is that the generality of a warrant cannot be cured by the specificity of the affidavit which supports it . . . Specificity is required in the warrant itself in order to limit the discretion of the executing officers as well as to give notice to the party searched." United States v. Johnson, 541 F.2d 1311, 1315 (8th Cir. 1976). Under some circumstances, however, an affidavit may cure deficiencies which would exist were the warrant to stand alone. In United States v. Klein, 565 F.2d 183 (1st Cir. 1977), this court stated,
7
"An affidavit may be referred to for purposes of providing particularity if the affidavit accompanies the warrant, And the warrant uses suitable words of reference which incorporate the affidavit." (Emphasis in original.)
8
Id. at 186 n.3. See also United States v. Johnson, 541 F.2d at 1315; United States v. Womack, 166 U.S.App.D.C. 35, 49, 509 F.2d 368, 382 (D.C.Cir. 1974), Cert. denied, 422 U.S. 1022, 95 S.Ct. 2644, 45 L.Ed.2d 681 (1975); Huffman v. United States, 152 U.S.App.D.C. 238, 245 n.7, 470 F.2d 386, 393 n.7 (D.C.Cir. 1971), Reversed on rehearing on another ground, 502 F.2d 419 (1974); Moore v. United States, 149 U.S.App.D.C. 150, 152, 461 F.2d 1236, 1238 (D.C.Cir. 1972). Here the district court found and the government has not disputed that the affidavit was not served with the warrant. Nor does the warrant language incorporate the affidavit. Hence, the above standard was not satisfied.
9
The government argues that where, as here, the executing officers have proceeded as if the inadvertently broad warrant language were limited by the affidavit, the omission of the formal requisites words of incorporation and stapling the affidavit to the warrant should not invalidate the search and seizure.5 The government points out that the affiant, who was knowledgeable in the FISLP and its operation, directed and supervised the search and seizure and took steps to insure that only FISLP-related records were seized. Furthermore, HEW Office of Education program compliance officers and auditors, specialists in FISLP, assisted during the search to identify FISLP records. Thus, the executing officers never had any doubt that only FISLP-related records, not records of other types of fraud or conspiracy, were to be searched and seized and consequently there was no danger of the officers exceeding the scope of their authority as contemplated by the affidavit, the government maintains.
10
Even if the government were to prove that the executing officers all understood only FISLP-related documents were the subject of the search and seizure, and that they acted as if the warrant had explicitly so stated, we would be compelled to reject the government's attempt to cure the overbreadth of the warrant language by the specificity of the affidavit. This is because the requirement that the warrant itself particularly describe the material to be seized is not only to circumscribe the discretion of the executing officers but also to inform the person subject to the search and seizure what the officers are entitled to take. United States v. Marti, 421 F.2d 1263, 1268 (2d Cir. 1970), Cert. denied, 404 U.S. 947, 92 S.Ct. 287, 30 L.Ed.2d 264 (1971). Even assuming the government is able to prove the first purpose was otherwise served, the second was not. Moreover, self-restraint on the part of the instant executing officers does not erase the fact that under the broadly worded warrant appellees were subject to a greater exercise of power than that which may have actually transpired and for which probable cause had been established.6 Id. at 1269. The particularity requirement is a check to just this sort of risk.
11
We have said that a principle deficiency here is the lack of particularity in the phrase which purports to qualify and delineate the generic categories of items: the description "books, papers . . . letters, correspondence, documents, . . . which are and constitute evidence of the commission of violations of the (federal conspiracy and fraud statutes)" provides insufficient guidance to the executing officer as to what items from among many he should seize. The qualifying phrase in effect does nothing to limit the broad warrant description. If, of course, the generic descriptions were sufficiently specific and particular standing alone, the defect in the qualifying phrase would be of no effect. For the most part, though, the categories listed here are too broad. Certainly the description "books, papers . . . letters, correspondence, documents, memoranda, contracts, agreements, ledgers, worksheets, books of account, . . . computer tape/discs, . . . computer tape logs, computer tape layouts, computer tape printouts, . . . reports and notes, administrative reports, financial data cards . . . financial documents (corporations), journals of accounts" does not, standing alone in the circumstances of this case, satisfy the fourth amendment. True, it could be argued that as the above description authorizes in effect the search and seizure of All books, papers, etc., the warrant does not suffer from a lack of particularity. The directions to the executing officer are straightforward he is to cart away all documents. But while, so interpreted, the description would be particular enough, it would also be too broad to satisfy the probable cause requirements of the fourth amendment. The affidavit does not establish probable cause to search and seize all of those items.7
12
In contrast to the broad categories of items set forth above, certain of the warrant items may be sufficiently particularized standing alone, for example, "rosters of students," "student files, file jackets and contents," "lesson and grading cards and registers," "student collection reports," and "student survey data." However, while these documentary descriptions may be sufficiently specific, they cover documents antedating Lafayette Academy's participation in FISLP. According to the affidavit in support of the warrant, Lafayette Academy was organized as a correspondence school in 1969 but did not participate in FISLP until 1972. While the affidavit establishes the relevance of post-1972 student documents,8 it does not indicate any nexus between the earlier student documents and alleged criminal behavior. The warrant thus improperly authorizes the seizure of documents that are apparently irrelevant to the fraud.9
13
Two categories remain: "computer operation manuals" and "Office of Education (HEW) documents and forms." The relevance of the first is not apparent from the affidavit. Perhaps the manuals were to assist the agents in procuring and interpreting computer tape printouts, but as the printouts must now be returned, the manuals no longer appear to serve any purpose. The second is too general. The Office of Education operates many programs in addition to FISLP. See 45 C.F.R. part 101 Et seq. It is quite conceivable that Lafayette participated in other OE programs and filled out documents and forms in conjunction therewith. The affidavit does not establish probable cause for the seizure of non-FISLP documents and forms, and therefore the description is insufficient.
14
Since we determine that the description of no item is free from fourth amendment difficulties, we do not reach the issue of severability. Because the warrant does not satisfy fourth amendment requirements we affirm the judgment of the district court granting appellees' Rule 41(e) motions. We express no opinion whether the government may reobtain part or all of the seized material by subpoena, properly limited warrant, or other means. Compare Lord v. Kelley, 223 F.Supp. 684, 691 (D.Mass.1963), Appeal dismissed, 334 F.2d 742 (1st Cir. 1964), Cert. denied, 379 U.S. 961, 85 S.Ct. 650, 13 L.Ed.2d 556 (1965).
15
Affirmed.
16
KUNZIG, Judge (concurring).
17
I am forced to concur with Judge Campbell's able decision in this case, but only because of the excessively broad and generalized wording of the warrant as drawn.
18
I would want to caution attorneys and prospective litigants that technical errors will not necessarily always prove the "easy out" that this decision seemingly portends. In this era of expending white collar fraud, it may be that future court decisions will tend toward narrower interpretations of Fourth Amendment protections in this type of situation. I would hope so.
19
In the case at bar, however, too many errors (such as failure to incorporate the affidavit in the warrant) make such a decision impossible.
20
Therefore, with great reluctance, given the factual situation in this close and difficult case, I feel compelled to concur.
*
Sitting by designation
**
Of the Eastern District of New York, sitting by designation
1
Fed.R.Crim.P. 41(e) provides:
"(e) Motion For Return Of Property.
A person aggrieved by an unlawful search and seizure may move the district court for the district in which the property was seized for the return of the property on the ground that he is entitled to lawful possession of the property which was illegally seized. The judge shall receive evidence on any issue of fact necessary to the decision of the motion. If the motion is granted the property shall be restored and it shall not be admissible in evidence at any hearing or trial. If a motion for return of property is made or comes on for hearing in the district of trial after an indictment or information is filed, it shall be treated also as a motion to suppress under Rule 12."
2
Appellee Lafayette Motivation Media, Inc., which engages in sales, marketing, and related services for Lafayette Academy's vocational home-study program, and appellee Educational Lending Corp., which finances tuition loans, are wholly owned subsidiaries of Lafayette Academy. Other appellees are Lafayette United Corporation, Glick Enterprises, Inc., and Jewelry By St. Tropez, Inc., which shared office space with the other appellees at the site of the search and seizure
3
The fourth amendment states, in material part:
"(N)o Warrants shall issue, but upon probable cause . . . and particularly describing . . . the . . . things to be seized."
4
This is not to suggest that a description of those documents which are to be seized from among a large number solely in terms of their relevancy to a particular fraud or other crime I. e., "all documents evidencing fraud in connection with FISLP" would necessarily suffice. In many instances of warrants authorizing the seizure of documents from a general file efforts may also be required to narrow the documents by category, time periods, and the like
It is interesting (although of no help to the government in view of the failure to incorporate see discussion Infra ) that the listing of documents in the affidavit reflects an attempt at narrowing along the foregoing lines. Unlike the warrant description, the listing in the affidavit did not commence with the all-inclusive words "books, papers." Rather, more prudently, it listed the following subcategories of records:
"1. Records of student financial accounts
2
Student applications
3
Student account cards
4
Student grade cards
5
Student correspondence files
6
General student files
7
Correspondence files to OE and HEW; to FISL lender banks; to NHSC
8
Student roster 1969 to present
9
Financial statements of Lafayette
10
General books of account, including cash receipts, disbursements, general journals, corporate ledgers
11
Notes receivable and notes payable
12
Instructors' grade books
13
Savings accounts of Lafayette
14
Printouts on FISL transactions
15
List of refunds to students
16
FISL student financial cards
17
Contracts with FISL lender banks
18
Copies of reports to OE and HEW
19
FISL student extension of graduation date forms, 1970 to present
20
FISL loans paid off by Lafayette
21
Student complaint memos
22
Computer tapes and microfilms
23
Computer tape layouts and computer tape printouts
24
Cancellation reports and directives
25
Refund ledgers"
and then concluded with the tailored catchall
"26. Books, papers, memoranda, which may relate to the above requested documents."
While we need not now determine whether this more particularized approach, had it been followed in the warrant listing, was either essential or, by itself, would have saved the day, we do say without hesitation that it is better practice, and sometimes may be absolutely essential, for prosecutors whenever possible to frame documentary descriptions in particularized terms. Compare the warrant listing in Andresen v. Maryland, 427 U.S. 463, 480-81, 96 S.Ct. 2737, 49 L.Ed.2d 627 (1976).
5
A similar argument was rejected in United States v. Marti, 421 F.2d 1263, 1268-69 (2d Cir. 1970), Cert. denied, 404 U.S. 947, 92 S.Ct. 287, 30 L.Ed.2d 264 (1971)
6
We may assume without so deciding that the affidavit established probable cause for the search and seizure of all FISLP-related documents evidencing fraud in connection with Lafayette's participation in the program; the warrant, however, did not limit the items to be seized to those connected with FISLP
7
A second group of items, in which we include "cancellation reports and directives," "reinstatement reports or forms," "Government loan registers," "refund ledgers," "registration (corporation) documents," may be slightly more specific but still too amorphous in the context of this warrant and affidavit. We admit of the possibility that "reinstatement report," for example, may have a definite meaning to participants in and those familiar with FISLP. If that were so, knowledgeable executing officers as well as the subjects of the search and seizure would be informed of the item authorized to be seized. But the warrant does not read "FISLP reinstatement reports" or otherwise indicate that such is a FISLP document, if indeed it is
8
As explained in the affidavit, the above categories of student documents would enable HEW to determine the dates of actual student enrollment. From the enrollment dates, HEW could then determine, among other things, whether Lafayette had collected excessive interest payments. If a student who has actually dropped out (which may be evidenced by his grade card, for example) is represented to HEW as being enrolled, HEW continues to pay interest presumably due Lafayette on the student's loan
9
The government's brief states that in order for HEW to review Lafayette's eligibility for FISLP as well as to "make other evaluation," pre-1972 records are essential. While this may be true, it is not supported by anything said in the affidavit
|
544 So.2d 145 (1989)
William T. CREEL
v.
JoAnne C. DAVIS.
87-579.
Supreme Court of Alabama.
April 7, 1989.
*146 Charles W. Woodham, Abbeville, for appellant.
Douglas M. Bates, Dothan, for appellee.
PER CURIAM.
This appeal is from a judgment on a verdict awarding the plaintiff $75,000 on her claim based on interference with business or contractual relations. JoAnne C. Davis brought this action against Dr. William T. Creel, alleging that Creel wrongfully interfered with her employment as a respiratory therapist with Rehabilitative Health Services, Inc. Creel argues that the judgment should be reversed because he was not a stranger to the contract and because there was no evidence that he acted with malice.
This Court reviewed the law of intentional interference with contractual relations and the law of intentional interference with business relations in Gross v. Lowder Realty Better Homes & Gardens, 494 So.2d 590 (Ala.1986), and adopted a single rule to encompass both causes of action:
"We hold that this tort of intentional interference with business or contractual relations, to be actionable, requires:
"(1) The existence of a contract or business relation;
"(2) Defendant's knowledge of the contract or business relation;
"(3) Intentional interference by the defendant with the contract or business relation;
"(4) Absence of justification for the defendant's interference;3 and
"(5) Damage to the plaintiff as a result of defendant's interference.
"[n.] 3. We retain the principle that justification is an affirmative defense to be pleaded and proved by the defendant."
Id., at 597. See also Lowder Realty, Inc. v. Odom, 495 So.2d 23 (Ala.1986).
This Court has held that "a party to a contract cannot, as a matter of law, be liable for tortious interference with the contract," Lolley v. Howell, 504 So.2d 253, 255 (Ala.1987), and that "a principal's agent or employee, who acts for or on behalf of the principal, is a `party' to that principal's contractual and business relations and not a [stranger] thereto," Harrell v. Reynolds Metals Co., 495 So.2d 1381, 1388 (Ala.1986). Creel argues that he and Davis were ultimately employed by the same corporation and that, thus, he was not a stranger as to her employment contract and therefore cannot be liable for tortious interference with it unless it is shown that he acted outside the scope of his authority and with malice, citing Hickman *147 v. Winston County Hospital Board, 508 So.2d 237 (Ala.1987).
The following facts existed at the time of the actions made the basis of this suit. Creel was chief of staff at Henry County Hospital, in Abbeville, Alabama. Davis worked at Clay County Hospital in Fort Gaines, Georgia, which is just across the Georgia line from Henry County, Alabama. Rehabilitative Health Services, Inc. ("RHS"), Davis's employer, operated the cardiopulmonary department at Clay County Hospital under a contract to perform those services, and Davis worked as director of that department. Health Care Management Corporation ("HCMC"), a Georgia corporation, owned Clay County Hospital and operated Henry County Hospital under a lease from the Henry County Hospital Authority. Both RHS and HCMC were owned by Basic American Medical, Inc. ("BAMI"), an Illinois corporation.
RHS provided respiratory therapy services to both Henry County and Clay County Hospitals. William E. Daniel, an employee of HCMC, served as administrator of both hospitals. Davis's termination arose from conversations between Creel and Daniel that resulted in Daniel's telephoning Ralph Shokey, who was RHS's district manager and Davis's immediate supervisor. Shokey then told Davis she had a choice between termination and transfer to another location; she said she was unable to take a transfer, so she was terminated.[1] She testified that Shokey told her she was being terminated at Creel's request.
Creel argues that, because both RHS and HCMC were owned by BAMI, or because both hospitals were operated by HCMC, he and Davis were parties to a single contractual or business relation and, as a result, that she could not sue him for interference with that relation. Aside from the question of whether Dr. Creel, as chief of staff of Henry County Hospital, is an agent or employee of HCMC, cf. Stewart v. Bay Minette Infirmary, 501 So.2d 441 (Ala.1986), this argument overlooks the function of the separate corporate entities. Certainly, if BAMI were sued for the negligence of either Creel or Davis, it would deny any respondeat superior liability. Daniel testified that he did not have authority to fire Davis; although his conveyance to Shokey of Creel's concerns about Davis obviously carried great weight, it remains a fact that Davis's employment with RHS was not a contract to which Creel was a party.
Nor was HCMC a party to Davis's contract of employment with RHS, so Creel could not have been acting as a party to such a contract within the meaning of the rule quoted above from Harrell v. Reynolds Metals Co. Creel based much of his defense and much of his argument here on the possibility that Davis would have come to work at Henry County Hospital under reorganization and consolidation efforts being made at the time, and on his statements to Daniel that he would not be comfortable working professionally with Davis. This, at most, would have justified Creel in telling Daniel to tell Shokey not to send Davis to Henry County Hospital. Daniel testified that the decision on whether Davis came to work at Henry County Hospital would have been Shokey's. Because Creel's instructions to Daniel went beyond what was called for by any business relation to which he and Davis were parties, the trial court did not err in submitting the claim to the jury.
Creel argues the alleged absence of proof of malice[2] on two asserted issues. First, he says that agents or employees of a single employer can be liable to their fellow agents or employees for tortious *148 interference with the plaintiff's employment relation only if the defendant acted outside the scope of his authority and with malice, citing Hickman, Lolley, and Harrell, supra. Because of our holding that Creel was not a party to Davis's employment relation with RHS, this argument presents nothing to be addressed.
Second, Creel argues that the malice element of Hickman should be incorporated into the third element set out in Gross for cases brought against strangers to the business or contractual relation. Under such a redefinition of the tort, it would be "malicious interference" instead of "intentional interference." This argument amounts to an attempt to place the burden of proving lack of justification on the plaintiff. The Court in Gross made the decision to leave the burden of justification on the defendant, and we see no reason to change that decision.
Thus, Creel's arguments that he was not a stranger as to the contract and that a malice element should be incorporated into the tort present no reversible error. Outside of those arguments, Creel does not argue that there was insufficient evidence to submit the claim to the jury, and we do not see any basis for such an argument. Therefore, the judgment of the trial court is due to be, and it hereby is, affirmed.
AFFIRMED.
HORNSBY, C.J., and ALMON, SHORES and KENNEDY, JJ., concur.
MADDOX, J., concurs specially.
JONES, ADAMS, HOUSTON and STEAGALL, JJ., dissent.
MADDOX, Justice (concurring specially).
The only possible theory upon which a reversal of the judgment could rest would be that Dr. Creel was justified, as a matter of law, in doing what he did in this case. In order to determine whether Dr. Creel was justified, as a matter of law, in doing what he did, we must examine the underlying facts.
Dr. Creel was the chief of staff of the Henry County Hospital. Sometime during the fall of 1984 the hospital received a letter from an attorney for the grandmother of Ms. Davis concerning an incident that had occurred while the grandmother was a patient in the Henry County Hospital under the care of Dr. Creel. The administrator of the Henry County Hospital, William Daniel, had a conversation with Dr. Creel at approximately the same time that the letter was received. The administrator could not recall whether that conversation occurred before or after receipt of the letter. At that time, Ms. Davis was not on the staff of the Henry County Hospital, but was employed by RHS and was physically stationed at Clay County Hospital in Ft. Gaines, Georgia. The administrator was aware of the incident involving the grandmother of Ms. Davis after he came as administrator to the Henry County Hospital, even before he received the letter from the grand-mother's attorney. In any event, the administrator testified that he "understood there was a problem, and it had not been resolved."
Daniel described his first conversation with Dr. Creel as follows: "The conversation, as I understand it, was that Dr. Creel did not feel thatdid not feel comfortable, professionally, working with JoAnne, and that was the crux of what I got from the conversation." He testified that "[Dr. Creel] felt that something should be done about it, and he wanted something done about it; so [Dr. Creel] said ... `There should be someone that you can contact to do something about it.'"
At the time of this conversation, Dr. Creel admitted more patients to Henry County Hospital than any other doctor on the staff.
Daniel also testified that he talked with Dr. Creel about JoAnne "on more than one occasion." Daniel testified that he contacted his superiors about the matter, because "I would have to say that the conversations that we had was an indication that we needed to do something." Daniel stated it this way: "Dr. Creel stated that he had tried to cooperate with the hospitalthe *149 HCMCand he felt that we should be able to reciprocate and cooperate."
Daniel, even though he was also administrator of the Clay County Hospital, where Ms. Davis worked as an employee of RHS, did not have authority to fire Ms. Davis, but he contacted her employer. Ms. Davis was given an option of being transferred or being terminated. She refused to be transferred and was terminated.
The critical legal question presented by this factual setting is whether Dr. Creel proved, as a matter of law, that he was justified in doing what he did. In Gross v. Lowder Realty Better Homes and Gardens, 494 So.2d 590 (Ala.1986), this Court, in a footnote, set out the applicable principles of law that must be applied in answering this legal question:
"We retain the principle that justification is an affirmative defense to be pleaded and proved by the defendant. Whether the defendant is justified in his interference is generally a question to be resolved by the trier of fact. Polytec, Inc. v. Utah Foam Products, Inc., 439 So.2d 683 (Ala.1983). Whether a defendant's interference is justified depends upon a balancing of the importance of the objective of the interference against the importance of the interest interfered with, taking into account the surrounding circumstances. Restatement (Second) of Torts § 767 (1979), and Comments. The restatement utilizes the term `improper' to describe actionable conduct by a defendant. Non-justification is synonymous with `improper'. If a defendant's interference is unjustified under the circumstances of the case, it is improper. The converse is also true. Section 767 of the Restatement lists, and the Comments explain, several items that we consider to be among the important factors to consider in determining whether a defendant's interference is justified:
"(a) the nature of the actor's conduct,
"(b) the actor's motive,
"(c) the interests of the other with which the actor's conduct interferes,
"(d) the interests sought to be advanced by the actor,
"(e) the social interests in protecting the freedom of action of the actor and the contractual interests of the other,
"(f) the proximity or remoteness of the actor's conduct to the interference, and
"(g) the relations between the parties.
"Restatement (Second) of Torts § 767 (1979)."
494 So.2d at 597.
I now consider each of these factors in determining whether Dr. Creel proved, as a matter of law, that he was justified in doing what he did in this case.
The Nature of the Actor's Conduct
On cross-examination by counsel representing Dr. Creel, Daniel admitted that during one of his conversations with Dr. Creel the possibility came up of combining the respiratory therapy departments of the two hospitals. The following then occurred:
"Q. That is when Dr. Creel expressed some reservations about professionally working with Mrs. Davis, was it not?
"A. During that point in time, yes.
"Q. So his concern was at that time that JoAnne Davis and he not be put together in the same situation at the Henry County Hospital?
"A. (No response.)
"Q. Is that not true?
"A. He definitely had that concern.
"Q. So, when he said that you should do something about it on that occasion, he could just as easily have been saying: `Don't put us together in a situation where I can't work professionally with someone,' rather than your interpretation: `Get rid of JoAnne.'
"A. (No response.)
"Q. That came up in the same conversation that
"The Court (Interposing): Wait just a minute. Which question do you want him to answer?
"(No response.)
"Mr. Woodham: Go ahead.
"The Witness: The gist of the conversation was that he did not feel professionally *150 comfortable working with JoAnne.
"Q. He never told you to fire JoAnne, did he?
"A. Never said specifically, `I want you to fire JoAnne.'
"Q. That was your interpretation of what he meant, wasn't it?
"A. That was very much my understanding."
The Actor's Motive
While there was evidence that Dr. Creel's motive was to preserve the professional integrity of the hospital, he does not contend that Ms. Davis was professionally incompetent. On the other hand, there is evidence from which a factfinder could infer that his motive may have been based on factors other than her professional competence. In any event, a jury question was presented on this point.
The Interests Sought to be Advanced by the Actor
Again, there was evidence that, if believed, would show that Dr. Creel admitted many of the patients at Henry County Hospital. As chief of staff, he had a right to bring any concerns he might have about the professionalism of any employee of the hospital or of an employee who might furnish professional services pursuant to a contract. He had a right to advise the hospital about Ms. Davis. On the other hand, there was evidence that Dr. Creel wanted Ms. Davis fired for reasons not connected with her ability to perform her services in a professional manner at Henry County Hospital; consequently, a jury question was presented on this issue.
The Social Interests in Protecting the Freedom of Action of the Actor and the Contractual Interests of the Other
This calls for us to make a policy choice. The question is whether the societal interest in protecting the right of a chief of staff of a hospital to consult with the hospital administrator concerning the professional services furnished in that hospital outweighs the right of another professional, like Ms. Davis, to perform her services in that hospital. We are not without guidance. In Byars v. Baptist Medical Centers, Inc., 361 So.2d 350 (Ala.1978), a nurse who had successfully prosecuted a personal injury action against the hospital brought an action against the hospital to recover for its refusal to permit a nurses' registry to refer her as a nurse for patients in the hospital who desired a private duty nurse. This Court, in overturning a summary judgment in favor of the hospital, held:
"In this case, the plaintiff has alleged that the defendant's conduct against her was prompted by her recovery of a money judgment against it. The defendant maintains that its refusal to allow her to serve patients in its hospitals was due to her physical inability to serve patients.
"* * * *
"... If it is true that the defendant's conduct was based upon a negative assessment of the plaintiff's physical ability to perform her nursing duties, the defendant's conduct would not be actionable, for the hospital would have a legal right to establish, publish and apply reasonable standards of fitness, including physical fitness, for private duty nurses. If, on the other hand, the defendant's conduct was based upon the successful exercise by the plaintiff of her legal right to seek redress in the courts for injury due to the defendant's negligence, that conduct would not justify the interference with plaintiff's future employment opportunities with defendant's patients, but would violate her right as one qualified under the Nurses Registry to be referred to patients seeking her services. Under the pleadings and the evidence, whether or not the defendant's conduct was legal in itself and violated no right of the plaintiff was a genuine issue of material fact, therefore summary judgment was inappropriate."
361 So.2d at 355-56.
In Finley v. Beverly Enterprises, Inc., 499 So.2d 1366 (Ala.1986), a discharged nursing home employee who was informed that she could no longer work as a private duty *151 sitter for a nursing home patient brought an action against the nursing home for intentional interference with her business. This Court held that the nursing home was justified, as a matter of law, in establishing a policy that did not permit discharged employees to be employed as private duty sitters for patients in the nursing home. The facts in this case are obviously more like those in Byars, than like those in Finley.
The Proximity or Remoteness of the Actor's Conduct to the Interference
The evidence is overwhelming that Dr. Creel's conduct was directly related to Ms. Davis's firing. Dr. Creel cannot claim, therefore, that his conduct was too remote.
The Relations Between the Parties
While Dr. Creel contends that he and Ms. Davis worked for the same employer and that the principle of Hickman v. Winston County Hospital Board, 508 So.2d 237 (Ala.1987), should apply, we cannot agree. The status of the parties in this case is more akin to the status of the private duty nurse and the hospital in the Byars case. It is clear that Dr. Creel did not have the power as chief of staff to determine whether Ms. Davis worked in Henry County Hospital. In fact, the evidence shows that Dr. Creel said that if she were his employee, he would fire her.
Based on our application of the foregoing factors, we conclude that Dr. Creel did not prove that he was justified, as a matter of law, in interfering with plaintiff's contract.[3]
JONES, Justice (dissenting).
I believe the majority's treatment of the defense of justification is misguided under the facts of this case. The facts relating to the employer/employee relationship of the parties is somewhat complicated because of the "middle management" structure of the involved health care providers. On the one hand, Ms. Davis is an employee of Rehabilitative Health Services, which, in turn, contracts with several hospitals to provide certain therapy services. Ultimately, on the other hand, Ms. Davis, in her performance of such services, worked under the direct supervision of a physician (in this case, Dr. Creel). Under the law of agency, Dr. Creel could be held liable for Ms. Davis's culpable professional conduct. It seems to me that Dr. Creel is charged with interfering with his own professional relationship with Ms. Davisa relationship between him as the principal and her as his agent. Until this opinion, I was unaware that Alabama recognized such a cause of action.
HOUSTON, Justice (dissenting).
This case is not the classical case of tortious interference with an employment contract where an intermeddling third-party prevails upon another party to cause that party to fire, without cause, its employee. At all times that Dr. Creel allegedly interfered with Ms. Davis's contract with Rehabilitative Health Services, Dr. Creel was chief of staff of Henry County Hospital and he was discussing only with the administrator of that hospital the possibility of bringing in staff persons to that hospital. Dr. Creel was not an intermeddling third party; he was a party to the relationship and was acting within the line and scope of his employment or agency as chief of staff at Henry County Hospital. In Buckner v. Lower Florida Keys Hospital District, 403 So.2d 1025 (Fla.Dist.Ct. App.1981), cert. denied, 412 So.2d 463 (Fla. 1982), the Florida District Court of Appeals recognized that a cause of action for wrongful interference with a business relationship is allowed only when the interference *152 is by one who is not a party to that relationship. That court concluded that the doctors and the medical staff of the hospital were "parties" to the relationship between the hospital and the aggrieved medical doctor on the staff who attempted to show that the medical staff had interfered with his staff privileges. Therefore, no third-party interference existed. I am persuaded that the relationship between Dr. Creel and Henry County Hospital is factually similar to the relationship between the medical staff and the hospital in Buckner, supra; and that the relationship between Ms. Davis and Henry County Hospital, which was a leased facility of Health Care, is factually similar to the relationship between the hospital and the aggrieved physician in Buckner. I find from the undisputed evidence that Dr. Creel was a party to the relationship between Henry County Hospital and Ms. Davis; Dr. Creel was an essential entity (chief of the medical staff) of that hospital and was fulfilling the function of that hospital, i.e., delivery of competent medical services to patients at that hospital. As such a "party" to the relationship, Dr. Creel cannot, as a matter of law, be liable for tortious interference with the contract, Lolley v. Howell, 504 So.2d 253 (Ala.1987), without a showing that he acted outside the scope of his authority as chief of staff and did so maliciously, Hickman v. Winston County Hospital Board, 508 So. 2d 237 (Ala.1987).
Certainly, the chief of staff of a hospital, unless he acts with actual malice, should have the freedom to discuss with the administrator of that hospital the medical service personnel who are employed by that hospital or are considered for employment by that hospital, or are to perform medical services at that hospital even though technically not employed by that hospital, without having to defend an intentional interference with business or contractual relations action if the person performing the medical service is discharged by that hospital or is not permitted to perform medical services at that hospital. If a chief of staff, or for that matter, any member of the medical staff, of a hospital talks with the administrator of that hospital about the employment of a person who he thinks is not competent to perform medical services, he could face an intentional interference with business or contractual relations action. On the other hand, if he fails to challenge a person who he thinks is not competent to perform medical services, and his belief is substantiated by bad medical service to a patient, the chief of staff or medical staff member could face a medical malpractice action by the injured patient. To me, it seems that the majority opinion puts the chief of staff, and perhaps the entire medical staff of a hospital, on the horns of that dilemma. I do not believe that there is any precedent or authority for encouraging perfidy of the medical staff of a hospital that could lead to a deterioration of medical services to the patients of that hospital and its medical staff. Does this promote the proudest objective of tort law: making life safer? I think not. If our newly articulated tort imposes liability upon a chief of staff or member of the medical staff of a hospital, for discussing medical service personnel at that hospital or persons considered for employment by, or to work at, that hospital, with the administrator of that hospital, without proof that the chief of staff or member of the medical staff acted with actual malice, then this new tort needs to be revisited. The following are the concluding sentences of Peter W. Huber's book, "Liability": The Legal Revolution and its Consequences, at 232 (1988) (paraphrasing Grant Gilmore, The Ages of American Law, at 110-11 (1977)):
"Law reflects but in no sense determines the moral worth of a society. The better the society, the less law there will be. In heaven there will be no law, and the lion will lie down with the lamb. The worse the society, the more law there will be. In hell there will be nothing but law, and due process will be meticulously observed."
I would have Ms. Davis bear the burden of proving actual malice in order to recover from Dr. Creel under the facts in this case. "Actual malice" is defined in its common acceptance as "ill-will against a person," Boulden v. State, 102 Ala. 78, 83, 15 So. *153 341, 342 (1893); in its legal sense, "actual malice" is defined as "any unlawful act, wilfully done without just cause or legal excuse" and "that mental state or condition which prompts the doing of an unlawful act without legal justification or extenuation," Patterson v. State, 156 Ala. 62, 67, 47 So. 52, 54 (1908), either with an intent to do injury to another, United States Fidelity & Guaranty Co. v. Miller, 235 Ala. 340, 179 So. 239 (1938), or under such circumstances that the law will imply an evil intent. S.S. Kresge Co. v. Ruby, 348 So.2d 484 (Ala. 1977); Gulsby v. Louisville & N.R.R., 167 Ala. 122, 52 So. 392 (1910); Lunsford v. Dietrich, 93 Ala. 565, 9 So. 308 (1890).
This Court in Kenney v. Gurley, 208 Ala. 623, 626, 95 So. 34, 37 (1923), stated that actual malice "may be shown by evidence of previous ill-will, hostility, threats, rivalry, other actions, former libels or slanders, and the like, emanating from the defendant." See, Kirby v. Williamson Oil Co., 510 So.2d 176, 179 (Ala.1987); Wilson v. Birmingham Post Co., 482 So.2d 1209 (Ala.1986); Willis v. Demopolis Nursing Home, Inc., 336 So.2d 1117, 1120 (Ala. 1976). Consistent with this, Justice Adams, in his special concurrence in Hickman, supra, wrote:
"[I]n order to show malice the plaintiff must make a strong showing of a pattern of interference."
508 So.2d 237 at 241.
I have sifted and resifted the evidence in the record, and I do not find that slightest trace, that scintilla, of actual malice. Therefore, Dr. Creel's motion for a directed verdict and his motion for a judgment notwithstanding the verdict should have been granted. I would reverse and remand.
ADAMS and STEAGALL, JJ., concur.
NOTES
[1] Shokey's offer of a transfer does not defeat Davis's right of action. If RHS would not have forced Davis to choose between transfer or termination in the absence of Creel's wrongful interference, the situation is conceptually no different from one in which an employer would not have discharged an employee at will in the absence of wrongful interference from a third party. See Gross, supra.
[2] We do not concede Creel's point that there was no proof of malice, but we see no need for purposes of this opinion to discuss Davis's argument to the contrary or the evidence in support thereof.
[3] We reiterate that justification for interference with another's contract is an affirmative defense to be pleaded and proved by the defendant. Gross, supra. In an article entitled "Interference with Business Relations: the Unified Tort since Gross v. Lowder Realty," Andrew P. Campbell states that "[i]n subsequent decisions after Gross, the Alabama Courts have tended to place the burden on the plaintiff to prove absence of justification," citing this Court's case of Finley and the Court of Civil Appeals' case of Birmingham Television Corp. v. Deramus, 502 So.2d 761 (Ala.Civ.App.1986). Those decisions should not be read as shifting the burden of proof to the plaintiff, but should be read as holding that the defendant proved, as a matter of law, justification.
|
NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FILED
FOR THE NINTH CIRCUIT
AUG 07 2015
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
DANNY MCDOWELL, No. 13-55159
Petitioner - Appellant, D.C. No. 5:12-cv-01271-JAK-AN
v.
MEMORANDUM*
DOMINGO URIBE, Jr., Warden,
Respondent - Appellee.
Appeal from the United States District Court
for the Central District of California
John A. Kronstadt, District Judge, Presiding
Argued and Submitted June 3, 2015
Pasadena, California
Before: MELLOY,** BYBEE, and IKUTA, Circuit Judges.
State prisoner Danny McDowell filed a federal habeas petition in 2012. A
district court dismissed the petition as successive, finding McDowell knew about the
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
**
The Honorable Michael J. Melloy, Senior Circuit Judge for the U.S.
Court of Appeals for the Eighth Circuit, sitting by designation.
factual predicate underlying his petition at the time he filed his initial habeas petition.
For the reasons stated below, we affirm.
I
McDowell was the victim of a gang-related assault in 1989 or 1990, suffering
a fractured skull and head trauma. He experienced constant headaches, memory loss,
and cognitive issues. Ultimately, he had two brain surgeries over the span of four
years.
On June 14, 1995, McDowell and his wife, Aretha, burglarized an Allstate
Insurance office. McDowell was subsequently found guilty of burglary. Because this
was McDowell's "third strike," he was sentenced to prison for 26 years to life.1
In February 2000, McDowell filed his first habeas petition. McDowell alleged
trial counsel was ineffective because counsel failed to investigate his medical and
mental infirmities and failed to present evidence at trial relating to the infirmities. The
district court determined that the habeas petition was filed outside of AEDPA's
one-year statute of limitations.
1
McDowell has since been paroled under California Proposition 36 and is now
off parole.
-2-
In August 2009, McDowell filed various motions and attached another habeas
petition in the district court. He asked the district court to reopen his case, grant him
an exemption from AEDPA's one-year statute of limitations, and allow him to file
another habeas petition. The court found that McDowell was not entitled to relief
because his new habeas petition would be successive.
In January 2012, McDowell filed an application with this Court, requesting
leave to file yet another habeas petition. After our Court granted his request,
McDowell filed another habeas petition in August 2012. The district court again
dismissed McDowell's petition as successive, finding McDowell failed to show the
factual predicate for any of his claims could not have been discovered previously
through the exercise of due diligence. McDowell appeals.
II
We review a district court's dismissal of a petition for a writ of habeas corpus
for lack of jurisdiction de novo. Hasan v. Galaza, 254 F.3d 1150, 1153 (9th Cir.
2001).
-3-
AEDPA applies to McDowell's successive habeas petition. Relevant to this
appeal, a petitioner may file a successive petition raising a claim that was not
presented in a prior application if:
(i) the factual predicate for the claim could not have been discovered
previously through the exercise of due diligence; and (ii) the facts
underlying the claim, if proven and viewed in light of the evidence as a
whole, would be sufficient to establish by clear and convincing evidence
that, but for constitutional error, no reasonable factfinder would have
found the applicant guilty of the underlying offense.
28 U.S.C. § 2244(b)(2)(B). Claims presented in a successive petition that were
presented in a prior application must be dismissed. Id. § 2244(b)(1).
McDowell's claims in his initial habeas petition related to his mental capacity.
The initial petition stated he "suffered from mental diminished capacity" and "counsel
failed to present evidence . . . [to show McDowell] is a registered mentally disabled
person by the state of California for a prior history of brain surgery." McDowell’s
current claim that his trial counsel was ineffective because counsel failed to
adequately investigate McDowell’s competence was presented in his initial habeas
petition. We therefore lack jurisdiction over this claim. See id. Because McDowell’s
other claims, like the claims in his initial petition, are derived from his diminished
-4-
mental capacity, he could have discovered, and in fact did discover prior to his initial
habeas petition, the factual predicate underlying those claims—diminished mental
capacity. It is undisputed that McDowell suffers from forgetfulness, a lack of
memory, and an inability to complete simple tasks. These characteristics, standing
alone, do not warrant the conclusion that he was unable to discover the factual
predicate underlying his present claims. And McDowell presents no evidence to
demonstrate he did not know of or could not have discovered these infirmities prior
to his initial habeas petition. Therefore, by failing to include the present claims in his
initial petition, McDowell failed to show due diligence. See 28 U.S.C.
§ 2244(b)(2)(B)(i); Gage v. Chappell, No. 13-73438, 2015 WL 4394008, at *5 (9th
Cir. July 20, 2015).
Further, we have described the standard within § 2244(b)(2)(B) as
"demanding." Bible v. Schriro, 651 F.3d 1060, 1063 (9th Cir. 2011). And we
generally have been skeptical of assertions that the underlying factual predicate could
not have been discovered earlier through the exercise of due diligence when a
significant amount of time has passed between the first petition and the successive
petition. Id. at 1064; see also Landrigan v. Trujillo, 623 F.3d 1253, 1256–57 (9th Cir.
2010) (doubting that the applicant was diligent when he waited six years to request
-5-
DNA testing after the state adopted a statute permitting DNA testing). Here,
McDowell waited a significant amount of time before filing either of his successive
habeas petitions (more than nine years), and his claims do not satisfy the demanding
standard within § 2244(b)(2)(B)(i).
III
Because McDowell's current ineffective assistance of counsel claim based on
his trial counsel’s failure to investigate his mental and medical conditions was
presented in his initial petition, and his other claims are founded upon the same factual
predicate of the claims raised in his initial habeas petition—diminished mental
capacity—the district court properly dismissed his successive petition.
AFFIRMED.
-6-
|
406 F.2d 288
AMBASSADOR APARTMENTS, INC., Appellant,v.COMMISSIONER OF INTERNAL REVENUE, Appellee.Louis LITOFF and Rose Litoff, Appellants,v.COMMISSIONER OF INTERNAL REVENUE, Appellee.
No. 227-229.
Dockets 32699-32701.
United States Court of Appeals Second Circuit.
Argued December 19, 1968.
Decided January 9, 1969.
Hillel J. Auerbach, Winnick & Winnick, New Haven, Conn., for appellants.
Jonathan S. Cohen, Dept. of Justice, Washington, D. C. (Mitchell Rogovin, Asst. Atty. Gen., Lee A. Jackson, and Gerald G. Fain, Dept. of Justice, Washington, D. C., on the brief), for appellee.
Before KAUFMAN and ANDERSON, Circuit Judges and MacMAHON, District Judge.*
PER CURIAM:
1
In September 1958, Louis and Rose Litoff purchased an apartment building for $642,669.61. They took the property subject to two mortgages totaling $319,095.97, gave a third mortgage for $125,000 and paid $198,573.64 in cash. A year later the Litoffs organized Ambassador Apartments, Inc., to which they transferred the apartment building in exchange for Ambassador stock and a note in the amount of $193,511.56 secured by a fourth mortgage. After the transfer Ambassador listed assets of $648,187.27, liabilities of $643,187.27 and stockholders equity of only $5,000.
2
The fourth mortgage note provided for monthly payments of $1,000 principal, plus interest. Only nine principal payments, with interest of $11,205, were made in 1960, however, and in 1961, only the January principal payment and interest for the year of $10,805 were paid. On its income tax returns for 1960 and 1961, Ambassador deducted the "interest" paid on that note. The Litoffs, in turn, included those sums as income, but omitted the "principal" payments which they regarded as return of capital.
3
The Commissioner, on the other hand, determined that the property transferred to Ambassador for the fourth mortgage note was a contribution to capital rather than a loan. Accordingly all payments were, to the extent of the earnings and profits of Ambassador, dividends taxable to the Litoffs and not deductible by Ambassador. The Tax Court concurred, holding that the transaction lacked the substance of a debt. It based its decision on several objective considerations, including the extremely high debt-to-equity ratio (123 to 1), but it did not discuss the taxpayers' motives. Appellants now contend that such a recharacterization may not stand, in the absence of a specific finding of tax avoidance motivation.
4
That issue, however, is well settled in this Circuit. In Gilbert v. Commissioner of Internal Revenue, 262 F.2d 512 (2 Cir. 1959), this court disposed of the taxpayers' charge that the Tax Court had failed to consider their tax avoidance motives by stating that:
5
"The term `substantial economic reality' is merely a way of expressing the fact that the determination whether the funds advanced are to be regarded as a `capital contribution' or `loan' must be made in the light of all the facts of the particular case. * * * Nor does the answer depend upon the taxpayer's motive."
6
262 F.2d at 514. See also Motel Co. v. Commissioner of Internal Revenue, 340 F.2d 445 (2 Cir. 1965), where the court affirmed, without discussion of the taxpayers' motives, the Tax Court's determination that a transfer was a contribution to capital and not a loan.
7
Appellants, however, place undue emphasis on language in Nassau Lens Co. v. Commissioner of Internal Revenue, 308 F.2d 39 (2 Cir. 1962), where the same issue was under consideration:
8
"In short, a departure from normal business patterns combined with a tax avoidance motive usually will be sufficient to justify treating the `loan' as equity. Either factor alone, however, is not enough."
9
Id. at 47. That language is best understood, however, in the context of the sentences immediately preceding it:
10
"Tax savings motives are, of course, not irrelevant and may be considered by the Tax Court. They may not, however, be given conclusive effect but should be given weight commensurate with the extent to which `they contribute to an understanding of the external facts of the situation.' Gilbert v. Commissioner of Internal Revenue, supra, [2 Cir.] 248 F.2d [399] at 407."
11
Clearly the holding is not authority for the proposition that a tax avoidance motive is an indispensable element.
12
Appellants' reliance on Goldstein v. Commissioner of Internal Revenue, 364 F.2d 734 (2 Cir. 1966) is also misplaced, as the question now before this court was not treated there. Finally, to the extent that J. S. Biritz Construction Co. v. Commissioner of Internal Revenue, 387 F.2d 451 (8 Cir. 1967), applies to a clear-cut "thin capitalization" case such as this, we decline to follow it.
13
Accordingly, the judgment of the Tax Court is affirmed.
Notes:
*
Of the Southern District of New York, sitting by designation
|
796 F.2d 473
Hagermanv.Beatrice Pocohontas Coal Corp.
85-2354
United States Court of Appeals,Fourth Circuit.
6/23/86
1
Ben.Rev.Bd.
REMANDED
|
567 F.2d 391
U. S.v.Robinson
No. 77-1097
United States Court of Appeals, Seventh Circuit
11/3/77
1
N.D.Ill.
REVERSED AND REMANDED
|
IN THE CASE OF
UNITED STATES, Appellee
v.
Michael D. BAIER, Private First Class (E-2)
U.S. Marine Corps, Appellant
No. 04-0340
Crim. App. No. 200200476
United States Court of Appeals for the Armed Forces
Argued October 26, 2004
Decided January 3, 2005
GIERKE, C.J., delivered the opinion of the Court, in which
CRAWFORD, EFFRON, BAKER and ERDMANN, JJ., joined.
Counsel
For Appellant: Lieutenant Commander Eric J. McDonald, JAGC, USN
(argued); Lieutenant Jason S. Grover, JAGC, USN (on brief).
For Appellee: Captain Wilbur Lee, USMC (argued); Lieutenant
Colonel William K. Lietzau, USMC (on brief); Lieutenant Frank
Gatto, JAGC, USNR, Commander Robert P. Taishoff, JAGC, USN.
Military Judge: R.K. Fricke
This opinion is subject to editorial correction before final publication.
United States v. Baier, No. 04-0340/MC
Chief Judge GIERKE delivered the opinion of the Court.
This case concerns the legal standard that the Courts of
Criminal Appeals use when carrying out their responsibility
under Article 66(c) of the Uniform Code of Military Justice1
(UCMJ) to ensure that a sentence is appropriate. The lower
court’s opinion quotes an incorrect standard for determining
sentence appropriateness. In using that language, however, the
lower court cited a 19-year-old summary disposition of this
Court that was marred by a mistaken and misleading citation.
That mistake is a weed in the garden of our jurisprudence. We
will now pull it up by the roots. More importantly, we will
also discuss the appropriate standard of review that the Courts
of Criminal Appeals must apply in fulfilling their statutory
obligation to ensure sentence appropriateness.
Background
In a trial before a military judge alone, Appellant pleaded
guilty to and was found guilty of conspiracy to wrongfully
distribute LSD, ecstasy, and cocaine; wrongful use of LSD;
wrongful distribution of LSD, ecstasy, and cocaine; and breaking
restriction in violation of Articles 81, 112a, and 134 of the
Uniform Code of Military Justice.2 The military judge sentenced
Appellant to confinement for 30 months, forfeiture of all pay
1
10 U.S.C. § 866(c) (2000).
2
10 U.S.C. §§ 881, 912a, 934 (2000).
2
United States v. Baier, No. 04-0340/MC
and allowances, reduction to pay grade E-1, and a dishonorable
discharge. The convening authority approved the sentence as
adjudged and, in accordance with the pretrial agreement,
suspended confinement in excess of 24 months for 12 months from
the date of trial.
When his case was before the Navy-Marine Corps Court of
Criminal Appeals, Appellant raised an assignment of error
asserting that a dishonorable discharge was inappropriately
severe for his offenses. Appellant urged the lower court to
affirm a bad-conduct discharge in its place. In an unpublished
per curiam opinion, the lower court rejected Appellant’s request
and affirmed the sentence as adjudged. We granted Appellant’s
petition to determine whether the lower court used the correct
legal standard when determining the appropriateness of
Appellant’s sentence.3
Discussion
In its opinion affirming Appellant’s sentence, the lower
court quoted Article 66(c) and noted that its task was to
determine “whether the accused received the punishment he
deserved.” Citing our opinion in United States v. Healy,4 the
lower court properly distinguished its sentence appropriateness
role from the convening authority’s power to grant clemency.
3
60 M.J. 119 (C.A.A.F. 2004).
4
26 M.J. 394 (C.M.A. 1988).
3
United States v. Baier, No. 04-0340/MC
The lower court then cited our decision in United States v.
Lanford5 for the proposition that it had the authority to
“disapprove any portion of a sentence that it deems
inappropriately severe.”
The issue in this case arises from the next passage in the
lower court’s opinion:
An appropriate sentence results from an
“individualized consideration of the particular
accused on the basis of the nature and seriousness of
the offense and the character of the offender.”
United States v. Rojas, 15 M.J. 902, 919 (N.M.C.M.R.
1983) (citing United States v. Snelling, 14 M.J. 267
(C.M.A. 1982)), aff’d, 20 M.J. 330 (C.M.A. 1985).
When reviewing a sentence it is important to consider
the sense of justice of the community where the crime
was committed which should not be disturbed unless
“the harshness of the sentence is so disproportionate
to the crime as to cry out for equalization.” Rojas,
15 M.J. at 919.
After discussing the facts of Appellant’s case, the lower
court concluded its sentence appropriateness analysis with
another citation to Rojas: “The appellant received the
individual consideration required based on the seriousness of
his offenses and his own character, which is all the law
requires. Rojas, 15 M.J. at 919. As such, we decline to grant
relief.”
Based on that language, it is impossible for us to
determine whether the lower court conducted an independent
assessment of the appropriateness of Appellant’s sentence or
5
6 C.M.A. 371, 376, 20 C.M.R. 87, 92 (1955).
4
United States v. Baier, No. 04-0340/MC
merely deferred to the “individual consideration” Appellant had
previously received from the military judge and the convening
authority. Nor can we determine whether the lower court
independently assessed the sentence’s appropriateness for this
particular offender or merely determined that the sentence was
not “so disproportionate to the crime as to cry out for
equalization.”
The lower court’s reliance on its 1983 Rojas decision leads
to this confusion. In 1981, Lance Corporal Armando Rojas was
sentenced to death for the premeditated murder of another
Marine.6 The Navy-Marine Corps Court affirmed the findings and
death sentence in February 1983.7 Eight months later, this Court
issued its opinion in United States v. Matthews,8 which
invalidated the death penalty system under which Rojas had been
tried and condemned. In January 1984, we set aside the Navy-
Marine Corps Court’s Rojas decision and remanded the case “for a
de novo review by a new panel containing no members of the panel
which originally reviewed the case.”9 This disposition was
designed not only to allow the lower court to apply Matthews to
the case, but also to moot an issue concerning alleged judicial
impropriety when the Navy-Marine Corps Court originally
6
15 M.J. at 905.
7
Id. at 932.
8
16 M.J. 354 (1983).
9
United States v. Rojas, 17 M.J. 154, 155 (C.M.A. 1984).
5
United States v. Baier, No. 04-0340/MC
considered the Rojas case.10 The lower court’s opinion in this
case failed to note that Rojas decision.
In August 1984, consistent with our decision in Rojas, a
new three-judge panel of the Navy-Marine Corps Court set aside
Rojas’s death sentence and instead affirmed a sentence including
confinement for life.11 In June 1985, we issued an order that
simply affirmed “the decision of the United States Navy-Marine
Corps Court of Military Review.”12 Unfortunately, the published
version of this order contained something that the original
order did not: a citation to “15 M.J. 902.”13 That is the
citation for the Navy-Marine Corps Court’s original February
1983 decision that we set aside in January 1984. This citation
was obviously incorrect because we were affirming the Navy-
Marine Corps Court’s August 23, 1984 opinion issued by the new
panel. We were not affirming that court’s earlier opinion,
which had affirmed a death sentence imposed under
unconstitutional procedures, which we had expressly set aside,
and which the lower court had superseded with a more recent
opinion.
The error in our published Rojas order may have contributed
to the lower court’s confusion in this case. The Navy-Marine
10
Id.
11
United States v. Rojas, NMCM 81 2019, 1984 CMR LEXIS 3773, at
*6 (N-M.C.M.R. Aug. 23, 1984) (footnote omitted).
12
20 M.J. 330 (C.M.A. 1985) (summary disposition).
13
Id.
6
United States v. Baier, No. 04-0340/MC
Corps Court’s opinion followed the quotation from its superseded
1983 Rojas opinion with a citation to that decision accompanied
by the erroneous subsequent history, “aff’d, 20 M.J. 330 (C.M.A.
1985).” Let there be no further confusion: we did not affirm
the Navy-Marine Corps Court’s February 1983 Rojas decision, but
rather “set [it] aside.”14
More importantly, the language that the lower court quoted
in this case from its superseded Rojas opinion15 is legally
incorrect. A Court of Criminal Appeals must determine whether
it finds the sentence to be appropriate. It may not affirm a
sentence that the court finds inappropriate, but not “so
disproportionate as to cry out” for reduction. As the Army
Court has recognized, Article 66(c)’s sentence appropriateness
provision is “a sweeping Congressional mandate to ensure ‘a fair
and just punishment for every accused.’”16 Article 66(c)
“requires that the members of [the Courts of Criminal Appeals]
independently determine, in every case within [their] limited
Article 66, UCMJ, jurisdiction, the sentence appropriateness of
each case [they] affirm.”17
14
Rojas, 17 M.J. at 155.
15
The language that the lower court quoted originated in United
States v. Usry, 9 M.J. 701, 704-05 (N.C.M.R. 1980).
16
United States v. Bauerbach, 55 M.J. 501, 504 (A. Ct. Crim.
App. 2001) (quoting Lanford, 6 C.M.A. at 378, 20 C.M.R. at 94).
17
Id. at 506.
7
United States v. Baier, No. 04-0340/MC
It is possible that in this case, the lower court
“independently determined” the sentence’s appropriateness. But
the lower court’s recitation of an incorrect standard from its
superseded Rojas opinion suggests that it may have relied on an
improperly circumscribed standard. To ensure that Appellant was
not prejudiced by the lower court’s erroneous view of the law,
we set aside the lower court’s opinion as to the sentence and
remand the case for a new Article 66(c) sentence appropriateness
determination using the correct standard. Of course, we express
no opinion as to how that new sentence appropriateness review
should be resolved. That is a matter committed to the sound
discretion of the lower court, using proper legal standards.
Conclusion
The decision of the Navy-Marine Corps Court of Criminal Appeals
is affirmed as to findings and set aside as to sentence. The
record is returned to the Judge Advocate General of the Navy for
remand to the Navy-Marine Corps Court for a new sentence
appropriateness review. Thereafter, Article 67 will apply.
8
|
11-4445-cv (L)
CARCO GROUP, Inc., et al. v. Maconachy
1
2 UNITED STATES COURT OF APPEALS
3 FOR THE SECOND CIRCUIT
4 _______________
5 August Term, 2012
6 (Argued: November 14, 2012 Decided: May 21, 2013)
7 Docket No. 11-4445-cv(L), 11-5174-cv(CON), 12-792(XAP)
8 _______________
9 CARCO GROUP, INC. AND PONJEB V, L.L.C.,
10 Plaintiffs-Counter-Defendants-Appellees-Cross-Appellants,
11 – v. –
12 DREW MACONACHY,
13 Defendant-Counter-Claimant-Appellant-Cross-Appellee.
14 _______________
15 Before: KEARSE, STRAUB, and POOLER, Circuit Judges.
16 _______________
17 Cross-appeals from a post-remand judgment in favor of, and award of attorneys’ fees,
18 costs, and interest to, Plaintiffs-Counter-Defendants-Appellees-Cross-Appellants.
19 We VACATE the District Court’s judgment and awards with respect to Plaintiffs’ breach
20 of contract claim and REMAND for further findings as to proximate causation. We VACATE
21 the award of attorneys’ fees and REMAND for recalculation of those fees following the District
22 Court’s determination as to whether Plaintiffs proved proximately-caused damages on the
23 contract claim. We REVERSE the District Court’s decision that attorneys’ fees should be
24 reduced by twenty percent across-the-board, and the denial of interest on the attorneys’ fees
25 awards. In all other respects, we AFFIRM.
26
27 _______________
28 JAMES M. WICKS, (Franklin C. McRoberts, on the brief) Farrell Fritz, P.C.,
29 Uniondale, NY, Edward F. Cunningham, Garden City, NY, for Plaintiffs-
30 Counter-Defendants-Appellees-Cross-Appellants.
31
1
1 GARY A. AHRENS, (Miriam S. Fleming, on the brief) Michael Best & Friedrich
2 LLP, Milwaukee, WI, for Defendant-Counter-Claimant-Appellant-Cross-
3 Appellee.
4 _______________
5
6 PER CURIAM:
7 This suit involving breach of contract and related claims and counterclaims returns to us
8 on cross-appeals. Following remand from the prior appeal, the District Court (Arlene R.
9 Lindsay, Magistrate Judge) determined that Defendant-Counter-Claimant-Appellant-Cross-
10 Appellee Drew Maconachy’s (“Maconachy”) breaches of two contracts proximately caused
11 injury to Plaintiffs-Counter-Defendants-Appellees-Cross-Appellants CARCO GROUP, Inc. and
12 PONJEB V, L.L.C. (collectively, “Carco”), and entered judgment accordingly, awarding
13 damages, attorneys’ fees, costs, and interest. The parties now cross-appeal.
14 Maconachy argues principally that the District Court’s findings below were erroneous
15 because proximate causation did not exist, and that various determinations as to damages, fees,
16 costs, and interest were derivatively, as well as independently, in error. Carco challenges certain
17 aspects of the District Court’s calculation of the attorneys’ fees awarded to Carco and the denial
18 of prejudgment interest on that award. For the reasons that follow, we VACATE the breach of
19 contract judgment, including any resulting damages, attorneys’ fees, costs, and interest awards,
20 and REMAND for further proceedings consistent with this opinion. To the extent any costs and
21 interest awards were based on the faithless servant cause of action, we AFFIRM. We
22 REVERSE the District Court’s twenty-percent attorneys’ fees reduction and its denial of
23 prejudgment interest on attorneys’ fees. We REMAND for recalculation of the award of
24 attorneys’ fees in light of our reversal of the twenty-percent reduction and in light of findings to
25 be made by the District Court with respect to proximate cause on the contract claim.
2
1 BACKGROUND
2 This is the second appeal in what is essentially a contractual dispute. Some of the
3 background of this litigation is set forth in our prior ruling in Carco Group, Inc. v. Maconachy,
4 383 F. App’x 73 (2d Cir. 2010) (“Carco I”). In 2008, Magistrate Judge Lindsay, by mutual
5 consent of the parties, pursuant to 28 U.S.C. § 636(c), presided over a bench trial on Carco’s
6 breach of contract, warranty, and faithless servant claims, as well as on Maconachy’s breach of
7 contract counterclaims. In Carco I, we affirmed in part the District Court’s judgment in favor of
8 Carco and against Maconachy, vacated the judgment in part, and remanded the case for further
9 proceedings.
10 Specifically, we affirmed entirely the District Court’s judgment as to the faithless servant
11 cause of action. We also affirmed the District Court’s findings that Maconachy breached both
12 the Employment Agreement (“EA”), which governed his employment by Carco, and the Asset
13 Purchase Agreement (“APA”), which governed Carco’s acquisition of the private investigation
14 business, Murphy & Maconachy, Inc. (“MMI”). We found error, however, in the District
15 Court’s conclusions that all of MMI’s net operating losses constituted general (as opposed to
16 consequential) damages, and in its failure to articulate the causal link between Maconachy’s
17 breaches of the contracts and the damages awarded therefor.
18 Thus, the case was remanded so that the District Court could “determine what damages,
19 if any, were directly and proximately caused by Maconachy’s breach[es].” Carco I, 383 F.
20 App’x at 76. Although the District Court had stated that MMI’s lack of profitability was “due
21 almost exclusively to Maconachy’s breach[es]” of the relevant agreements, we indicated that the
22 District Court should have “engaged in a proximate cause analysis to show that the breaches
23 caused some loss,” and “then discussed potential intervening causes that might have broken the
3
1 link between Maconachy’s breach[es] and any damages suffered.” Id. at 77 (internal quotation
2 marks omitted). We further instructed that the District Court must “determine which damages
3 were general and which consequential. It may award consequential damages only where the
4 amount of loss can be ascertained with reasonable certainty. To award general damages, the
5 court need only be certain that some damage resulted from the breach; certainty as to the exact
6 dollar amount is not required.” Id. at 76.
7 In its post-remand filings in the District Court, Carco advanced three alternative measures
8 of its damages resulting from Maconachy’s breaches: “(1) damages for its total lost capital
9 investment in MMI West (or in the alternative damages for the loss of salary paid to a
10 disobedient employee); (2) damages for the total loss of the value of the goodwill attributed to
11 MMI West; and (3) damages for the loss of MMI West’s business opportunities from 2000
12 through 2005.”1 SPA-98.
13 In considering the parties’ post-remand submissions on the issue of damages, the District
14 Court stated that it had undertaken a proximate cause analysis, considered potential intervening
15 causes that might have broken the causal link between Maconachy’s breaches and the damages
16 Carco suffered, and determined which damages were general and which were consequential.
17 With respect to proximate causation, the District Court stated that the trial record
18 supported the finding (affirmed in Carco I) that Maconachy breached the EA and APA, and that
19 Maconachy’s refusal to comply with Carco’s directives to, inter alia, implement sales
20 programs—a key aspect of the valuation report Carco relied upon in its decision to acquire
21 MMI—led directly to MMI West incurring losses.
22
1
MMI West refers to MMI’s California office, of which Maconachy was President.
4
1 Next, the District Court examined potential intervening factors that may have broken the
2 causal connection between Maconachy’s breaches and Carco’s losses, as identified by
3 Maconachy. The District Court rejected the notion that Carco’s failure to provide introductions
4 to new business prospects was an intervening cause, because such a conclusion lacked
5 foundation in, and indeed was inconsistent with, evidence adduced at trial. Certain of Carco’s
6 accounting decisions regarding MMI were also deemed not to be an intervening cause because
7 the damages sought had already been reduced to exclude the acquisition costs of MMI. With
8 respect to external market factors, the District Court (1) rejected them as an intervening cause
9 between Maconachy’s breaches and Carco’s lost capital investment damages because the
10 declining market had been explicitly factored into Carco’s acquisition costs and expectations, but
11 (2) accepted them as an intervening cause that broke the causal chain between Maconachy’s
12 breaches and lost business opportunities and future profit damages, and (3) accepted them as an
13 intervening cause between Maconachy’s breaches and loss of goodwill and return on Carco’s
14 capital investment damages.2
15 Having determined that external market factors intervened so as to preclude the use of
16 two of Carco’s measures of damages, the District Court “stated that it ‘w[ould] not consider . . .
17 Carco’s capital investment in MMI West [] except to the extent that it included salary paid to a
18 disobedient employee[].’” SPA-106 (emphasis added). The District Court concluded, following
19 our instruction that “[g]eneral damages seek to compensate the plaintiff for the value of the very
20 performance promised, often determined by the market value of the good or service to be
21 provided,” Carco I, 383 F. App’x at 75 (internal quotation marks omitted), that “[b]ecause
2
The District Court went on to reject three additional intervening causes—the loss of Carco’s
president, Carco’s alleged lack of experience, and Carco’s allegedly inadequate due diligence—
which had been offered by Maconachy in the first appeal, but abandoned on remand.
Accordingly, we do not consider these potential intervening causes on this appeal.
5
1 awarding Carco the lost salary it paid Maconachy would compensate Carco for the value of the
2 very performance promised by Maconachy but which Maconachy failed to deliver, such an
3 award would constitute general damages.” SPA-109.
4 The District Court found that Maconachy was in breach of the relevant agreements from
5 November 17, 2000 until his termination on December 28, 2005. However, the District Court
6 noted that “as a form of disgorgement under its faithless servant claim, Carco already recovered
7 Maconachy’s salary from September 26, 2003 to December 28, 2005.” Id. Thus, in order to
8 avoid double recovery, the District Court determined that, on its breach of contract claim, Carco
9 was “entitled to an award of the salary it paid to Maconachy and which Carco lost due to
10 Maconachy’s breach from November 17, 2000 to September 25, 2003.” Id. Prorating
11 Maconachy’s $200,000 annual salary for this period yielded an award of $571,506.85, plus
12 mandatory statutory nine percent per annum prejudgment interest pursuant to CPLR §§ 5001,
13 5004.3
14 The District Court directed the parties to make further submissions regarding Carco’s
15 recovery of attorneys’ fees that earlier findings of fact and conclusions of law had deemed
16 mandatory under the EA and APA. Carco incorporated by reference its 2009 submission on
17 attorneys’ fees and costs, and submitted new documentation regarding the appeal in Carco I and
18 briefing on remand. In total, Carco requested over $4 million in legal fees, costs, and
19 disbursement, as well as prejudgment interest thereon, bringing the total to $5,198,890.07.
20 Following the submission of opposition papers, the District Court conducted a thorough review
21
3
On October 14, 2011, the District Court issued an order amending the damages judgment to
reflect parties’ prior deposits into escrow and access to funds so that prejudgment interest was
calculated from April 22, 2002 through September 16, 2009. This third amended damages
judgment, including the revised prejudgment interest figure, was in the amount of $952,553.17.
6
1 of the documentation supporting Carco’s request, and awarded attorneys’ fees in the amount of
2 $1,499,613.41 and costs in the amount of $327,044.76, for a total award of $1,826,658.17.
3 In arriving at this figure, the District Court modified the components of the fees sought
4 by Carco in numerous ways. For example, the District Court found certain fee requests vague,
5 insufficiently connected to the instant action, or too remote in time to meet Carco’s burden, as
6 the moving party, of showing the reasonableness of the requested fees. Other requests were
7 reduced so as to bring the hourly fees sought in line with prevailing rates in the district for
8 substantively similar cases. Still other requests were modified or denied because the background
9 and experience of attorneys, support staff, and consultants were inadequately documented, or the
10 rates sought for these individuals were insufficiently justified. While the District Court found
11 the fees request’s overall level of detail, including contemporaneous time records, to be
12 sufficient, it also found that the number of hours spent by Carco’s counsel and its support staff to
13 be “excessive and in certain instances duplicative,” and therefore reduced the number of overall
14 hours by twenty-five percent. SPA-168–69. The District Court declined also to award costs for
15 pre-trial expenses of Carco’s consultants.
16 Finally, because it found that “the benefit of th[e] litigation d[id] not reach far beyond the
17 immediate action” and there were no “transcending principles involved,” the District Court
18 further reduced the total fees and costs award by twenty percent to “bring the fee award within
19 the contours of the [] amount of damages awarded in this action.” SPA-172–73.
20 The District Court declined to award prejudgment interest on fees and costs, interpreting
21 the language of the relevant APA provision to provide for interest on damages alone.
22 Maconachy appealed the District Court’s damages determination on October 19, 2011.
23 Maconachy appealed the District Court’s judgment as to attorneys’ fees and costs on December
7
1 14, 2011. After the relevant bankruptcy stay was lifted, Carco cross-appealed the attorneys’ fees
2 and costs judgment on February 24, 2012.
3 On appeal, Maconachy argues that Carco failed to show that his breaches proximately
4 caused any damage; that the District Court’s damages award on remand did not properly take
5 into account the value of the work he performed for Carco; that the District Court failed to
6 consider the monies Carco would have had to pay him under the APA were it not for his
7 breaches; and that even if Carco had proven damages, their disproportion to the fees and costs
8 awarded made the latter improper.
9 Generally, Carco argues that the judgment below should be affirmed because: the myriad
10 breaches identified by the District Court support its finding that Maconachy proximately caused
11 Carco damages as measured by the salary paid him during the period of his breaches;
12 Maconachy’s material breaches entitled Carco to suspend its performance under the EA and
13 APA and therefore the monies Carco would have paid Maconachy if he had not breached should
14 not be offset from the damages award;4 and no rule prohibits the disproportionality that exists
15 between the fees it was awarded and the damages it recovered. Carco also argues for a limited
16 reversal, and contends that the District Court erred in three ways: by denying Carco interest on
17 its attorneys’ fees award; by reducing Carco’s attorneys’ fees by twenty percent to somewhat
18 align the award with the amount of damages recovered; and by failing to consider Carco’s
19 prompt payment of its legal fees as presumptive evidence of their reasonableness.
20
4
Carco argues that Maconachy’s offset claim is foreclosed because it was raised in the prior
appeal, the Summary Order in which stated: “[w]e have examined the remainder of plaintiffs’
arguments and find them to be without merit.” Carco I, 383 F. App’x at 77. Since only
Maconachy, the Defendant, had appealed, Carco argues that “plaintiffs” should have read
“Defendant,” i.e., Maconachy. As discussed below, Maconachy’s offset argument is properly
part of this appeal.
8
1 DISCUSSION
2 I. Legal Standards
3 Following a bench trial, we review a district court’s findings of fact for clear error, and its
4 conclusions of law de novo. The District Court’s finding of proximate causation in this case is a
5 finding of fact that is subject to the clear error standard of review. See Cont’l Ins. Co. v. Lone
6 Eagle Shipping Ltd. (Liberia), 134 F.3d 103, 104 (2d Cir. 1998) (per curiam).
7 We review a district court’s award of attorneys’ fees for abuse of discretion. McDaniel v.
8 Cnty. of Schenectady, 595 F.3d 411, 416 (2d Cir. 2010). An abuse of discretion occurs “when
9 (1) the court’s decision rests on an error of law (such as application of the wrong legal principle)
10 or clearly erroneous factual finding, or (2) its decision—though not necessarily the product of a
11 legal error or a clearly erroneous factual finding—cannot be located within the range of
12 permissible decisions.” Id. (alterations and internal quotation marks omitted). The deference
13 exercised in an abuse of discretion review “takes on special significance when reviewing fee
14 decisions because the district court, which is intimately familiar with the nuances of the case, is
15 in a far better position to make such decisions than is an appellate court, which must work from a
16 cold record.” Id. (internal quotation marks and alterations omitted).
17 Where a fee award turns on the interpretation of a contract, the District Court’s
18 determination, as with all contract interpretation, is subject to de novo review. Oscar Gruss &
19 Son, Inc. v. Hollander, 337 F.3d 186, 198 (2d Cir. 2003). Thus, where an appellant’s challenge
20 regarding an award of attorneys’ fees is that the District Court made an error of law in granting
21 or denying such an award, the District Court’s ruling is reviewed de novo. Baker v. Health
22 Mgmt. Sys., Inc., 264 F.3d 144, 149 (2d Cir. 2001).
23
9
1 II. Proximate Causation
2 Maconachy argues that the District Court erred in finding that his breaches proximately
3 caused Carco any damages. Specifically, Maconachy argues that the District Court “failed to
4 follow” our direction in Carco I to “‘articulate the causal link between Maconachy’s breaches
5 and the damages awarded’ and to ‘provide . . . evidence that Maconachy’s disobedience caused
6 any losses.’” Appellant’s Br. at 30.
7 We agree, to an extent. The District Court’s findings with respect to proximate causation
8 are insufficiently grounded in trial or post-trial evidence to support its judgment and damages
9 award. Although we review the District Court’s causation determination only for clear error, we
10 are unable to locate the particular bases in the trial record that would support the Court’s
11 conclusion that Maconachy’s material breaches of the EA proximately caused Carco to suffer
12 damages. The District Court’s findings that “Maconachy’s refusal to comply with Carco’s
13 directives to implement his sales programs proximately caused MMI West to incur losses,” SPA-
14 98, and that “at the time Maconachy was terminated in December 2005, MMI West was a failed
15 venture and a total loss to Carco,” SPA 100–01, are inadequately linked to the evidentiary
16 record, and in one respect are clearly erroneous in light of a conflicting factual finding by the
17 Court that is amply supported by the evidence. Indeed, the District Court’s finding that “MMI
18 West was . . . a total loss to Carco,” SPA-100–01, is contradicted by the Court’s own factual
19 finding that “MMI West had a total cumulative net profit for the six years of Maconachy’s
20 employment of $288,513,” SPA-94. This finding of MMI West’s net profit is supported by
21 Carco’s own exhibit for that six-year period, which was cited by the Court, see id. (citing
22 Plaintiffs’ Trial Exhibit 441; see also E-1599–1602, 1763, 1765, 1628, 1630, 1655, 1657, 1684).
23 Given that MMI West, during Maconachy’s tenure after the company was purchased by Carco,
10
1 made a cumulative net profit, the Court’s finding that MMI West was a “total” loss to Carco is
2 clearly erroneous.
3 There may, however, be some evidence in this lengthy and complex record that could
4 support a finding that Carco suffered some loss, even if not a total loss, as a result of
5 Maconachy’s nonperformance of tasks assigned to him, see, e.g., Trial Tr. at 1477 (testimony
6 supporting Maconachy’s partial responsibility for Carco’s financial loss). The Order before us
7 made no attempt to quantify that loss—other than to state erroneously that the loss was “total.”
8 Given the potential for a properly supported finding that Maconachy’s performance caused
9 Carco some loss, we vacate and remand the judgment on Carco’s contract claim to permit the
10 District Court to provide findings as to proximate cause and analysis as to a permissible
11 quantification of Carco’s loss, together with citations to the evidentiary record in order to
12 facilitate appropriate appellate review.
13 Because one or both of the parties dispute numerous of the District Court’s further
14 determinations as to the measure and calculation of damages, attorneys’ fees, costs, and interest,
15 we reach these issues so as to provide guidance regarding the appropriateness of reinstating these
16 determinations other than that with regard to attorneys’ fees if the logically prior proximate
17 causation and damages findings are confirmed on remand. To the extent any of these
18 determinations are based on the faithless servant claim, our vacatur does not disturb them.
19 III. Damages
20 The District Court held that one alleged intervening cause—the declining market for the
21 services MMI provided—broke the causal link between Maconachy’s breaches and Carco’s
22 injury, as measured by lost business opportunities and future profits or loss of goodwill and
23 return on capital. However, the District Court found that one component of Carco’s lost capital
11
1 investment—the salary it paid Maconachy during the period of his breach of the relevant
2 agreements—was unaffected by any intervening market forces. These determinations are
3 reviewed for clear error.
4 Salary as Measure of General Damages
5 The District Court accurately noted our observation that “[g]eneral damages seek to
6 compensate the plaintiff for the value of the very performance promised, often determined by the
7 market value of the good or service to be provided,” Carco I, 383 F. App’x at 75 (internal
8 quotation marks omitted), when it held that the salary Carco paid Maconachy constituted
9 general, out-of-pocket loss.
10 Maconachy now contends that the District Court “failed to take into account or even
11 address the various other tasks, duties and work CARCO assigned Maconachy that he
12 completed, [or] the benefit and profits CARCO sustained as a result.” Appellant’s Br. at 31.
13 The District Court found that “Maconachy’s promised performance [was] worthless to Carco and
14 the compensation Carco paid to Maconachy was a total loss,” SPA-109 (emphases added), and it
15 found that Carco’s profitability was not due to “any actions attributable to Maconachy,” SPA-
16 106 (emphasis added). These broad-brush conclusory findings were not accompanied by
17 citations to the record and other, more detailed, factual findings by the Court leave us with the
18 definite and firm conviction that a mistake has been committed.
19 Although Carco’s main grievance against Maconachy was that he did not develop
20 business for MMI West from new clients, and the record supports the District Court’s finding
21 that he resisted Carco’s instructions to solicit such business, the Court did not find that
22 Maconachy in fact performed no work on behalf of MMI West. To the contrary, while faulting
23 Maconachy for not following Carco’s instructions to develop new clients and to travel alone, the
12
1 District Court found that in the five-plus years during which he failed to follow those instructions
2 Maconachy continued to have sales meetings with former and existing clients, see SPA-9, took at
3 least 38 business trips on behalf of MMI West, see SPA-14, and visited 33 prospects identified in
4 Carco’s sales plans, see id. Moreover, evidence as to Maconachy’s weekly travel schedules
5 indicated that he traveled several times every month for activities including field investigations,
6 see, e.g., E-996, 1010, meetings, and other assignments. See, e.g., E-995–1225. Carco officials
7 also testified that, in addition to making sales calls—the responsibility he was found to have
8 failed to perform—Maconachy had various other administrative responsibilities with MMI West,
9 Trial Tr. at 1369–70, his performance of which (except for the unpermitted hiring of his
10 relatives) was largely unchallenged.
11 The District Court did not make any findings quantifying the business that MMI West
12 obtained during the relevant period from new clients rather than from former or existing clients.
13 And the Court did not make any findings as to who, other than Maconachy, should be credited
14 with the business that MMI West was getting from former or existing clients. Given (a) the fact
15 that MMI West during Maconachy’s tenure made a profit, (b) the absence of any finding that any
16 of MMI West’s income came from new clients, (c) the Court’s findings as to Maconachy’s
17 scores of business solicitations from former or existing MMI West clients, and (d) the absence of
18 any finding that business from MMI West’s former or existing clients should be credited to
19 anyone other than Maconachy, we are left with the firm and definite impression that the Court’s
20 finding that Maconachy’s performance was worthless was a mistake.
21 The finding that Carco did not enjoy as great a profit as it had hoped is, of course, not
22 clearly erroneous. But lost profits are consequential damages that must be proven with
23 reasonable certainty, see, e.g., Tractebel Energy Marketing, Inc. v. AEP Power Marketing, Inc.,
13
1 487 F.3d 89, 111 (2d Cir. 2007) (“[A] party claiming consequential damages must . . . prove the
2 amount of damage with ‘reasonable certainty.’” (quoting Kenford Co. v. County of Erie, 67
3 N.Y.2d 257, 261 (1986) (emphasis in original))), and a court must make appropriate findings as
4 to proximate cause. Carco was not entitled to a substitute measure of damages—Maconachy’s
5 entire salary—on the basis, unsustainable in the evidence, that his performance was entirely
6 worthless.
7 On remand, the District Court must account for the value of the services provided by
8 Maconachy to Carco in determining what amount of damages, if any, should be awarded
9 (although the exact value of those damages, being general damages, need not be “reasonably
10 certain,” see Tractebel Energy Marketing, Inc., 487 F.3d at 111). Although on a faithless servant
11 claim such as we upheld in Carco I, an “employer is entitled to the return of compensation paid
12 [to an] employee during [a] period of disloyalty,” regardless of whether his “services were
13 beneficial to the principal,” Phansalkar v. Andersen Weinroth & Co., 344 F.3d 184, 200 (2d Cir.
14 2003) (internal quotation marks omitted), a total forfeiture of compensation is not the remedy for
15 a normal breach of contract. Rather, the benefit enjoyed by Carco must be deducted from its
16 losses in order to put Carco “in the same economic position [it] would have been in had
17 [Maconachy] fulfilled his contract,” Adams v. Lindblad Travel, Inc., 730 F.2d 89, 92 (2d Cir.
18 1984). Because the District Court failed to conduct this analysis, and instead awarded Carco the
19 entirety of Maconachy’s salary despite substantial evidence that he provided some amount of
20 value to Carco, the District Court’s calculation of damages was clearly erroneous.
21 A. Applicability of an Offset
22 Even if the damage measure employed by the District Court was proper, Maconachy
23 argues that the failure to reduce these damages by the payments his breaches relieved Carco from
14
1 making under the APA, see Carco Group, Inc. v. Maconachy, 644 F. Supp. 2d 218, 247
2 (E.D.N.Y. 2009); SPA-31–32, was error. “A party who is privileged to suspend performance
3 because of a material breach can recover damages, but those damages,” according to Maconachy,
4 must be “reduced by the value of any performance that the non-breaching party has not
5 performed.” Appellant’s Br. at 50. Thus, to award Carco damages in the full amount of his
6 salary without first subtracting the money Carco has saved in not paying its obligations under the
7 APA would, it is argued, be an impermissible windfall.
8 Carco responds that, as an initial matter, the prior appeal forecloses Maconachy’s offset
9 contention, since it was raised on his first appeal and Carco I indicated that we had considered
10 and rejected all other arguments. The contention that we decided the offset issue by stating that
11 we had “examined the remainder of” a party’s “arguments and f[ou]nd them to be without merit”
12 but that we inadvertently stated that we rejected as meritless the arguments of “plaintiffs[],”
13 rather than of defendant Maconachy, is no impediment to further consideration of Maconachy’s
14 offset contention. Even if we intended to indicate that we had considered and rejected the
15 remainder of Defendant-Appellant Maconachy’s arguments, Carco I also vacated and remanded
16 as to all contract damages determinations (“We therefore VACATE the breach of contract
17 damages award, and REMAND to the district court to recalculate damages, if any, in a manner
18 consistent with this summary order.” Id. at 76.). Therefore, even assuming arguendo that Carco
19 I’s concluding sentence is best understood as having reached the offset issue, that issue is not
20 foreclosed by the prior appeal because our vacatur language provides a carve-out preventing any
21 such preclusive effect of the disputed catch-all sentence.
22 With respect to the merits of Maconachy’s offset argument, Carco argues that the District
23 Court faithfully applied a damages measure we endorsed in the prior appeal, and that, contrary to
15
1 Maconachy’s claims, Carco received no windfall from the damages awarded. Carco contends
2 that Maconachy’s breach excused it from performance, and that the authority cited by
3 Maconachy pertains only to lost profits in the context of the traditional contract measure of
4 damages (meaning expectation damages).
5 Indeed, the measure employed by the District Court to assess general damages—benefit
6 of the bargain—is not inconsistent with the authority Maconachy cites. See, e.g., Reply Br. at 47
7 (citing Dan B. Dobbs, Law of Remedies § 12.2(1) (2d ed. 1993) (noting that the goal of contract
8 damages is “to put plaintiff as nonbreaching party in as good a position as he would have been in
9 had the contract been performed, and no better”)). Had Maconachy performed under the EA,
10 Carco would have gotten what it bargained for. But, because of what the District Court
11 characterized as Maconachy’s thoroughgoing breaches, the damages measure applied by the
12 District Court awarded to Carco the market value of the services for which it contracted, but did
13 not receive.
14 Although Carco itself has argued that the EA and APA were “mutually dependent” such
15 that Maconachy’s breaches excused Carco’s payment obligations under the APA (and, the
16 District Court found that to hold otherwise “would essentially reward Maconachy for his
17 subterfuge and false promises,” see SPA-32), it remains the case that there were two distinct
18 contracts, breaches of each, and the terms of each applied to discrete pools of money. None of
19 the authority Maconachy cites stands for the proposition that merely because the same conduct
20 breached two contracts, the financial value of being excused from performing one contract must
21 necessarily be offset against damages sustained (and recovered) under the other. See Appellant’s
22 Br. at 50–53 (citing, inter alia, Indu Craft, Inc. v. Bank of Baroda, 47 F.3d 490, 495 (2d Cir.
23 1995) (noting only that if a “benefit appears to have accrued to the plaintiff because of the
16
1 breach” of a single contract, “the defendant is only chargeable with net loss.” (internal quotation
2 marks omitted)).
3 We thus conclude the District Court did not exceed its allowable discretion when it made
4 its decision not to offset the excused, remaining payments under the APA from the damages
5 awarded to Carco. But because we vacate and remand for a renewed proximate causation
6 determination, we invite the District Court to reexamine the offset question to the extent it finds
7 there are grounds for so doing, in light of its superior knowledge of the parties’ shifting positions
8 and concessions on this issue, as well as the factual relationship between the two contracts.
9 IV. Attorneys’ Fees and Costs
10 While we are generally very deferential to the calculation of fee awards, the District
11 Court exceeds its allowable discretion in granting such an award where its determination “rests
12 on an error of law (such as application of the wrong legal principle).” McDaniel, 595 F.3d at
13 416. Leaving aside the potential need to recalculate attorneys’ fees if the Court determines that
14 Carco did not prove proximate cause on its contract claim and hence did not prevail on that
15 claim, we conclude for the reasons that follow, with respect to attorneys’ fees, costs, and interest,
16 that the District Court’s only errors were its across-the-board, twenty-percent reduction of the
17 fees award, and its denial of prejudgment interest on the same.
18 As an initial matter, Maconachy argues that because Carco has not proven essential
19 elements of its breach of contract cause of action—namely, causation and damages—no
20 attorneys’ fees can be awarded. This derivative argument is, of course, true, but only to the
21 extent that the District Court does not find on remand that Carco proved its contract claim by
22 establishing that Maconachy’s performance proximately caused Carco appropriately quantifiable
23 loss.
17
1 A. The Basis for Awarding Attorneys’ Fees and Costs
2 The District Court awarded Carco fees and costs pursuant to APA § 9.1, which provides,
3 in relevant part:
4 [Maconachy] . . . shall indemnify . . . CARCO . . . against any and
5 all losses, liabilities, damages, deficiencies, costs, or expenses
6 (including interest, penalties and reasonable attorney’s fees and
7 disbursements) (“Losses”) based upon, arising out of, or otherwise
8 due to any inaccuracy in or any breach of . . . this Agreement or []
9 any document or other writing delivered pursuant hereto or
10 otherwise based upon, arising out of, or in any other way relating
11 to or concerning [Maconachy].
12
13 E-422.
14
15 Maconachy argues that this provision only covers the breach of contract cause of action,
16 and not Carco’s other, successful cause of action—faithless servant, which he appears to
17 characterize as a claim sounding in tort. Because the District Court did not distinguish these two
18 causes of action in its award, Maconachy says that the award is flawed. We reject Maconachy’s
19 premise that a faithless servant claim is not a contract claim.
20 The faithless servant doctrine arises out of an agency or employment relationship, and
21 New York courts have repeatedly and consistently used the rules and terminology of contract law
22 in evaluating faithless servant claims. See Western Electric Co. v. Brenner, 41 N.Y.2d 291, 293–
23 94 (1977) (where defendant saw to it that his employer awarded a contract to a certain third party
24 in exchange for a $50,000 kickback, “[c]ontract, not tort, form[ed] the basis of plaintiff’s causes
25 of action”); Turner v. Kouwenhoven, 100 N.Y. 115, 120 (1885) (faithless servant doctrine applies
26 where the defendant “substantially violates the contract of service” (emphasis added)).
27 “Bearing in mind that the contract is one of employment and that the claims are that this
28 defendant transgressed against the duties of loyalty inherent in the employer-employee
29 relationship, it is clear that the controversy arises out of and relates to the contract which is the
18
1 genesis of the relationship and the consequent duty.” Bravo Knits, Inc. v. De Young, 35 A.D.2d
2 932, 932–33 (1st Dep’t 1970) (emphases added). Similarly, this Court has described such claims
3 as “grounded in the law of agency,” Phansalkar, 344 F.3d at 200, a body of law in which
4 “[c]ontract law . . . defines many of the rights . . . and provides the remedies available for
5 breach,” Restatement (Third) of Agency, Introductory Note to Chapter 2, Topic 4.
6 Because § 9.1 of the APA allows for recovery of attorneys’ fees for “any breach” of the
7 APA itself or “any document or other writing delivered pursuant hereto,” it was proper to award
8 attorneys’ fees on the faithless servant claim because it arose from Maconachy’s employment
9 agreement, which the District Court determined to be mutually dependent on the APA. See
10 SPA-29. We thus reject Maconachy’s contention that it was error to award attorneys’ fees to
11 Carco based on its successful faithless servant claim.
12 B. The Overall Calculation
13 Maconachy next argues that the District Court calculated the fee and cost award
14 improperly, erroneously crediting various ambiguous and/or unreasonable entries. Carco argues
15 that the District Court carefully scrutinized the individual, itemized fees and costs for which it
16 sought reimbursement, and none of the Court’s many determinations (except for the Court’s
17 twenty-percent, across-the-board reduction of those fees and costs) exceeded the District Court’s
18 allowable discretion.
19 As noted above, we give wide latitude to district courts to assess the propriety of
20 attorneys’ fees and costs requests. Here, the specifics of the award were based on a detailed,
21 thorough assessment of the extensive submissions. Numerous deductions were made in relation
22 to the specifics of the work performed and the circumstances of what adequate prosecution of the
23 case required. The District Court grounded its award in fact-specific determinations based on its
19
1 superior position, having overseen the case for several years, and having conducted a lengthy
2 bench trial. As indicated by our vacatur of any attorneys’ fee award with respect to Carco’s
3 contract claim, such an award will be inappropriate if, on remand, the District Court finds that
4 Carco failed to establish that Maconachy’s failure to follow instructions proximately caused
5 Carco properly quantifiable damage. Except with respect to that possibility, we conclude that the
6 District Court’s well-documented, discretionary determinations regarding attorneys’ fees and
7 costs—including all reductions and modifications other than the twenty-percent reduction
8 discussed below—were not in excess of its allowable discretion.
9 C. The Relation of Fees to the Damage Award
10 Maconachy argues that the District Court’s fee award must be vacated on the independent
11 ground that it was not reduced so as to be aligned with Carco’s “[l]imited [d]egree [o]f
12 [s]uccess” in bringing its claims against him. Appellant’s Br. at 71. While the District Court did
13 reduce Carco’s ultimate fees award (see Part IV.E, infra), Maconachy argues that the reduction
14 was insufficient. Maconachy notes that the ultimate fee and cost award, even after the District
15 Court’s reductions, far exceeded Carco’s damages, and that the ratio of damages to fees is
16 impermissible as a matter of law. Carco argues that no such rule of proportionality exists, and
17 that the only general ceiling on a fees and costs award—which itself can be exceeded based on
18 the circumstances of particular cases—is the amount reasonably in controversy, not the ultimate
19 damages actually recovered after trial.
20 It is true, as Carco argues, that under New York law the amount recovered in a lawsuit
21 does not automatically serve as a ceiling on an award of contractual attorneys’ fees; rather, it is
22 only an award “in excess of the amount involved in a litigation [that] would normally appear to
23 be unreasonable.” F.H. Krear & Co. v. Nineteen Named Trustees, 810 F.2d 1250, 1264 (2d Cir.
20
1 1987) (internal quotation marks omitted) (emphasis added). However, even that general ceiling
2 “is only a rule of thumb . . . . It is a starting point in the process of ultimately determining
3 whether a fee award is reasonable.” Diamond D Enterprises USA, Inc. v. Steinsvaag, 979 F.2d
4 14, 20 (2d Cir. 1992). Regardless of the relationship to the amount in controversy, a court must
5 determine whether the fee arrangement between the prevailing party and counsel was reasonable,
6 “or whether it was grossly disproportionate to the arrangement the plaintiff would have been
7 expected to make with counsel in the absence of a fee-shifting agreement.” Krear, 810 F.2d at
8 1263; see also Equitable Lumber Corp. v. IPA Land Development Corp., 38 N.Y.2d 516, 521
9 (1976) (“Plaintiff may not manipulate the actual amount of damages by entering into any
10 exorbitant fee arrangement with its attorney and, thus, it may be necessary to look beyond the
11 actual fee arrangement between plaintiff and counsel to determine whether that arrangement was
12 reasonable and proportionate to the normal fee chargeable by attorneys in the context of this
13 case.”); Solow Management Corp. v. Tanger, 19 A.D.3d 225, 226 (1st Dep’t 2005) (“Before
14 ordering one party to pay another party’s attorneys’ fees, the court always has the authority and
15 responsibility to determine that the claim for fees is reasonable.”).
16 Thus, the touchstone for an award of attorneys’ fees pursuant to a contract is
17 reasonableness. Here, the District Court initially calculated total nonexcludable fees of
18 $1,874,515.51, but then reduced that sum by twenty percent “to bring the fee award within the
19 contours of the amount of damages awarded in this action.” SPA-173. As there is no rule
20 requiring a fee award to be proportionate to the damages awarded, the District Court erred in
21 imposing the twenty-percent reduction for this reason. Moreover, the original fee calculation—
22 $1,874,515.51 before the twenty-percent reduction—was well below the total “amount involved”
23 in this litigation, Krear, 810 F.2d at 1264, which included Carco’s request, in its post-trial
21
1 submissions, for damages of $4,368,972. Indeed, the $1,874,515.51 was below even the smaller
2 amount that Carco actually gained, which was $2,077,006.85, comprising $571,506.85 in
3 contract damages, $889,711 in damages on the faithless servant claim, and $615,789 in future
4 quarterly payments Carco was excused from making under the APA. In addition, the case
5 involved Maconachy’s assertion of counterclaims for more than $1.1 million, see A-74–75,
6 against which Carco successfully defended. Although the $1,874,515.51 fee award would be
7 subject to reduction if the District Court finds on remand that Carco failed to prove damages
8 proximately caused by Maconachy’s breach of the EA, that fee amount was not excessive based
9 on the District Court’s damages award at the time it awarded the fee.
10 Nothing otherwise indicates that the total fee awarded was anything other than
11 reasonable. The District Court carefully scrutinized the fees submitted, “asking what a
12 reasonable, paying client would do,” SPA-157 (internal quotation marks omitted), and reduced
13 the requested rates when, inter alia, it determined that the rate was not what “a reasonable client
14 would be willing to pay in a competitive market under all of the relevant circumstances,” SPA-
15 162. Thus, the District Court adequately executed its duty to make certain that the fees reflected
16 that which Carco would have been willing to pay absent a fee-shifting agreement; and we cannot
17 say that the District Court abused its discretion in failing to reduce the fees further, based on the
18 claims it had upheld.
19 D. Interest On Attorneys’ Fees and Costs
20 Carco contends that the District Court erred in denying interest on its attorneys’ fees
21 award since such interest is permitted by the APA. The APA, according to Carco, is not required
22 to explicitly authorize prejudgment interest on attorneys’ fees, in part because CPLR § 5001
23 authorizes prejudgment interest on damages. See N.Y. C.P.L.R. § 5001(a) (“Interest shall be
22
1 recovered upon a sum awarded because of a breach of performance of a contract.”). That is, to
2 interpret a provision providing for (unmodified) “interest” as applying only to damages, as
3 Maconachy urges and the District Court held, would be redundant with the New York statute.
4 Carco argues that the relevant language5 authorizes with sufficient clarity interest on attorneys’
5 fees and costs.
6 Maconachy argues that interest on attorneys’ fees and costs is not awarded absent an
7 express provision in the parties’ agreement. The District Court, according to Maconachy,
8 properly construed the APA because “attorneys’ fees and disbursements” follows “interest” in
9 the contract’s language and therefore “interest” cannot modify or apply to these subsequent
10 terms.
11 As noted, a de novo standard of review applies to the District Court’s refusal to award
12 prejudgment interest on attorneys’ fees because this determination turns on the interpretation of a
13 contract. See Hollander, 337 F.3d at 198. We conclude that the APA satisfies our clear intent
14 requirement for an award of interest. See Krear, 810 F.2d at 1267.6
15 Krear dealt with a situation in which the contract awarding attorneys’ fees contained no
16 provision for interest and held that retroactive application of a higher hourly rate for past services
5
As quoted above, the APA provides that Maconachy “shall indemnify, defend, and hold
[CARCO] harmless [against] any and all losses, liabilities, damages, deficiencies, costs, or
expenses (including interest, penalties, and reasonable attorney’s fees and disbursements) . . .
based upon, arising out of, or otherwise due to any” breach of the APA or EA. E-422.
6
See also In Time Products, Ltd. v. Toy Biz, Inc., 38 F.3d 660, 668 (2d Cir. 1994) (awarding
attorneys’ fees, “with prejudgment interest calculated on that sum” where the relevant agreement
made no mention of interest, but rather stated simply that “[i]n any action brought with respect to
the alleged breach of this settlement agreement, the prevailing party shall be paid its reasonable
attorney’s fees by the non-prevailing party.”). The quoted contract language is drawn from the
relevant Settlement Agreement provision at issue on appeal, as quoted by the District Court on
remand. See In Time Products, Ltd. v. Toy Biz, Inc., Nos. 92 Civ. 5810 (RPP), 92 Civ. 8965
(RPP), 1995 WL 417072, at *1 (S.D.N.Y. July 13, 1995).
23
1 could not be justified as interest because the relevant contracts “did not provide that the
2 prevailing party would be entitled to interest.” Id. at 1267. This easily distinguishes the APA
3 from the facts which drove Krear, where no provision for interest existed. The rule announced
4 in Krear does not go so far as to forbid interest on attorneys’ fees in an instance where, as here,
5 “interest” and “attorneys’ fees” are both explicitly authorized. Maconachy is incorrect to assert
6 that Krear requires explicit, separate, additional, precise authorization of every context for
7 interest, such as prejudgment interest or interest on attorneys’ fees.
8 Moreover, even if the APA was not properly read as providing for prejudgment interest
9 on attorneys’ fees, an award of such interest may be mandatory under New York law. CPLR
10 § 5001 provides that “[i]nterest shall be recovered upon a sum awarded because of a breach of
11 performance of a contract.” N.Y. C.P.L.R. § 5001(a). Although § 5001 does not explicitly
12 mention attorneys’ fees, Appellate Division courts have cited to § 5001 in approving or
13 otherwise discussing an award of interest on contract-based attorneys’ fees. See Centennial
14 Contractors Enterprises v. East New York Renovation Corp., 79 A.D.3d 690, 693 (2d Dep’t
15 2010) (citing § 5001(a) for the proposition that “the Supreme Court did not err in awarding the
16 plaintiff prejudgment interest on the . . . attorney’s fee award”); Miller Realty Associates v.
17 Amendola, 51 A.D.3d 987, 990 (2d Dep’t 2008) (citing § 5001(b) in modifying the date from
18 which interest on attorneys’ fees was awarded); Solow Management Corp., 19 A.D.3d at 226–27
19 (citing § 5001 in analyzing the date from which interest on attorneys’ fees should begin running).
20 Because we conclude, upon de novo review of the APA, that it provides for an award of
21 interest of attorneys’ fees, and because such an award may be mandatory under New York law,
22 the District Court’s denial of interest on the attorneys’ fees award was error. On remand, after
23 the District Court redetermines the contract damages, it should award interest on any attorneys’
24
1 fees awarded. Such interest should be calculated from the date on which Carco was found to be
2 the prevailing party. See Solow Management Corp., 19 A.D.3d at 226 (“[T]he date on which the
3 right to interest on the fees accrues is that on which the party seeking fees was determined to be
4 the prevailing party.”).
5 E. The District Court’s Twenty-Percent Reduction
6 Carco contends that after its line-by-line reductions, reductions in the hourly rates, and a
7 twenty-five percent overall reduction in the number of hours, the District Court made one
8 additional, overall twenty-percent reduction to the fees and costs award that constituted error as a
9 matter of law. This twenty-percent reduction was imposed to align the fee award with the
10 amount of damages awarded. Carco argues that the relevant figure with which to compare the
11 fee award is the amount reasonably in controversy—here, a figure which dramatically exceeded
12 the fee award—not the actual damages recovery. Maconachy responds, as described above, that
13 the District Court erred only in not reducing the award sufficiently.
14 The District Court appears to have reduced the fee award by twenty percent based on an
15 erroneous belief that a legal principle so required. See SPA 172–73. As discussed in Part IV.C.
16 above, however, case law establishes that the standard for an award of attorneys’ fees authorized
17 by contract is the reasonableness of the award, generally gauged by the amount involved in the
18 litigation, and that no legal rule requires proportionality between the amount of fees requested
19 and the damages recovered. See Diamond D, 979 F.2d at 19–20; cf. Millea v. Metro-North R.R.
20 Co., 658 F.3d 154, 169 (2d Cir. 2011); Kassim v. City of Schenectady, 415 F.3d 246, 252 (2d Cir.
21 2005). To hold otherwise was in excess of the District Court’s allowable discretion.
22 Because the District Court applied an incorrect standard in its twenty-percent, across-the-
23 board reduction, it erred as a matter of law and this reduction is reversed.
25
1 F. The Significance of Prompt Payment
2 Carco’s final argument—that it was error for the District Court not to consider the prompt
3 payment of legal fees as presumptive evidence of their reasonableness—is baseless. The
4 promptness of payments may, in certain instances, be evidence of a reasonable hourly rate. But
5 regardless of what prompt payment might be evidence of, it would not have been in excess of its
6 allowable discretion for the District Court to find that the hourly rate or number of hours (or any
7 other aspect of the fee request) was not conclusively established by prompt payment in light of
8 the shortcomings of the fee requests when subject to the Court’s extensive review and holistic
9 determination. Thus, we find no excess of allowable discretion in the District Court’s
10 consideration (or lack thereof) of the promptness with which Carco’s legal fees were paid.
11 CONCLUSION
12 For the foregoing reasons, the District Court’s judgment as to Carco’s breach of contract
13 claim is VACTED and REMANDED for further determinations regarding proximate causation
14 and quantification of Carco’s damages on its contract claim, and, if appropriate, the related
15 question of the applicability of an offset to any resulting damages award. To the extent any
16 damages, fees, costs, and interest awards were based on the breach of contract cause of action
17 they are also VACATED. All damages, costs, and interest awards based on Carco’s faithless
18 servant claim are AFFIRMED. The twenty-percent reduction and denial of interest on
19 attorneys’ fees are REVERSED. The District Court is instructed to recalculate the award of
20 attorneys’ fees in light of those reversals and in light of its findings with respect to proximate
21 cause on Carco’s contract claim.
26
|
Order entered January 13, 2017
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-16-01413-CV
LAKEPOINTE PHARMACY #2, LLC, RAYMOND AMAECHI, AND VALERIE
AMAECHI, Appellants
V.
PM FORNEY MOB, LP, PM REALTY GROUP LP, WRAM INVESTMENTS, RICHARD
ALLEN, AND RICHARD SPIRES, Appellees
On Appeal from the 422nd Judicial District Court
Kaufman County, Texas
Trial Court Cause No. 96367-422
ORDER
Before the Court are appellants’ motion to extend time to file notice of appeal and
appellees PM Forney Mob, LP and PM Realty Group, LP’s response and motion to dismiss. We
GRANT the motion to extend and DENY the motion to dismiss. The notice of appeal filed
December 5, 2016 is deemed timely filed for jurisdictional purposes.
Having suspended the deadline for filing the reporter’s record while we determined our
jurisdiction, we reset the deadline and ORDER court reporter Donna R. Gehl to file the
reporter’s record no later than February 2, 2017.
/s/ CRAIG STODDART
JUSTICE
|
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
FEBRUARY 1, 2007
No. 05-17226 THOMAS K. KAHN
Non-Argument Calendar CLERK
________________________
D. C. Docket No. 02-20938-CR-PAS
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
JAMAL BROWN,
a.k.a. Pookalotta,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(February 1, 2007)
Before ANDERSON, BIRCH and WILSON, Circuit Judges.
PER CURIAM:
Jamal Brown appeals his 260-month sentence, imposed upon re-sentencing
after remand, for conspiracy to distribute cocaine and cocaine base, in violation of
21 U.S.C. §§ 841(b)(1)(A)(ii) and (iii), and 846. On appeal, Brown argues that his
260-month sentence is greater than necessary to achieve the purposes of sentencing
set forth in 18 U.S.C. § 3553(a)(2). Specifically, Brown argues that the
catastrophic nature of his medical condition, namely, his quadriplegia, outweighed
the § 3553(a) factors. In addition, Brown maintains that there was an unwarranted
disparity between his sentence and the sentence of his co-conspirator who was the
leader of the drug trafficking organization.
I.
We have held that “[i]n reviewing the ultimate sentence imposed by the
district court for reasonableness, we consider the final sentence, in its entirety, in
light of the § 3553(a) factors.” United States v. Martin, 455 F.3d 1227, 1237 (11th
Cir. 2006) (brackets in original) (citation omitted). In determining whether a
sentence is reasonable, the district court should be guided by the § 3553(a) factors.
United States v. Booker, 543 U.S. 220, 261, 125 S.Ct. 738, 765-66, 160 L.Ed.2d
621 (2005); United States v. Winingear, 422 F.3d 1241, 1246 (11th Cir. 2005).
Section 3553(a) provides that district courts must consider, among other things:
(1) the applicable guideline range; (2) the nature and circumstances of the offense;
2
(3) the history and characteristics of the defendant; (4) the need for the sentence
imposed to reflect the seriousness of the offense, to promote respect for the law,
and to provide just punishment for the offense; (5) the need for adequate
deterrence; (6) protection of the public; and (7) the need to avoid unwarranted
sentencing disparities. 18 U.S.C. § 3553(a)(1)-(6).
Although the district court must be guided by these factors, we have held
that “nothing in Booker or elsewhere requires the district court to state on the
record that it has explicitly considered each of the § 3553(a) factors or to discuss
each of the § 3553(a) factors.” United States v. Scott, 426 F.3d 1324, 1329 (11th
Cir. 2005). “[A]n acknowledgment by the district court that it has considered the
defendant’s arguments and the factors in section 3553(a) is sufficient under
Booker.” United States v. Talley, 431 F.3d 784, 786 (11th Cir. 2005). “The
weight to be accorded any given § 3553(a) factor is a matter committed to the
sound discretion of the district court.” United States v. Williams, 456 F.3d 1353,
1363 (11th Cir. 2006). We will not substitute the district court’s judgment in
weighing the factors unless “the district court committed a clear error of judgment
in weighing the § 3553(a) factors by arriving at a sentence that lies outside the
range of reasonable sentences dictated by the facts of the case.” Id. The burden of
establishing that the sentence is unreasonable in light of the record and the
3
§ 3553(a) factors lies with the party challenging the sentence. Talley, 431 F.3d at
788.
II.
The record before us amply demonstrates that the district court adequately
and properly considered the § 3553(a) sentencing factors and that the sentence it
imposed was sufficient, but not greater than necessary, to comply with the statutory
purposes of sentencing. The 260-month sentence was reasonable for several
reasons. First, the court explicitly considered and evaluated many of the § 3553(a)
factors, including (1) Brown’s history and characteristics; (2) the nature and
circumstances of the offense; (3) the need for the sentence imposed to reflect the
seriousness of the offense, to promote respect for the law, and to provide just
punishment for the offense; (4) the need for the sentence to afford adequate
deterrence of criminal conduct; and (5) the need to protect the public from future
crimes of the defendant.
Second, although Brown suggests that the district court did not properly
weigh the sentencing factors, we have no trouble concluding that the district court
did not commit a clear error of judgment in applying the factors. We note that the
court granted a substantial downward variance after weighing the mitigating
factors, including the seriousness of Brown’s medical condition, against the
4
aggravating factors, such as the seriousness of Brown’s offense, his criminal
record, and his commission of another drug crime after he was injured.
Finally, Brown’s assertion that his sentence created an unwarranted
sentencing disparity is without merit because the district court explained that the
disparity between Brown’s and his co-conspirator’s sentences resulted from
Brown’s more serious prior criminal history. Moreover, Brown’s 260-month
sentence was significantly less than the statutory maximum sentence of life
imprisonment.
III.
For the reasons stated above, we conclude that Brown has failed to carry his
burden of showing that his sentence was unreasonable. His 260-month sentence is
therefore affirmed.
AFFIRMED.
5
|
673 F.Supp.2d 1167 (2009)
Orma L. McPHERSON, Plaintiff,
v.
The UNITED STATES of America, Defendants.
No. CV 08-47-M-DWM.
United States District Court, D. Montana, Missoula Division.
September 29, 2009.
*1168 Danielle Ann Rand Coffman, John B. Dudis, Crowley, Haughey, Hanson, Toole *1169 & Dietrich, Kalispell, MT, Thomas C. Morrison, Morrison & Balukas Law Firm, Helena, MT, for Plaintiff.
Adam F. Hulbig, Rickey Watson, U.S. Department of Justice, Washington, DC, for Defendants.
ORDER
DONALD W. MOLLOY, District Judge.
I. Introduction
Robert and Orma McPherson, Canadian citizens residing in Calgary, Alberta, have a vacation property on Flathead Lake in Poison, Montana, hereinafter called the "vacation property."[1] The Government of Canada contends that Robert failed to pay taxes on income earned during years 1995-1998. The United States Internal Revenue Service ("IRS"), acting on behalf of the Canadian government pursuant to Article XXVI A of the United StatesCanada Income Tax Convention, issued a levy against Robert reflecting back taxes and penalties in the amount of $9,879,503.35.[2] On January 4, 2008, the IRS issued a Notice of Seizure of the vacation property to satisfy Robert's tax debt, and later arranged for the property to be sold at a public auction held on April 9, 2009. Orma filed this action for wrongful levy and sought a temporary restraining order enjoining the IRS from auctioning the property, alleging that she is the sole owner of the vacation property. The Court issued a temporary restraining order and the parties later stipulated that the IRS will take no further action with respect to the vacation property until the Court has settled the question of ownership in a final judgment on the merits. The parties' cross-motions for summary judgment are now fully briefed, the material facts are not in dispute, and the case is ripe for summary disposition.
II. Factual Background
Robert and Orma McPherson were married in Canada in 1966. Deposition of Orma McPherson (Doc. No. 18-2) at 9. Orma was employed as a nurse from 1965 until 2006, working continuously during that span with the exception of two periods of maternity leave. Orma Dep. at 5-6. After finishing his studies, Robert started his own company in 1972 and has been in business for himself since that time.[3] Deposition of Robert McPherson (Doc. No. 22-3) at 6-7. Robert estimates that he earned $12,000 CAN in the first year of his business, and his earnings steadily increased from there to a peak earning year of around $275,000 CAN sometime in the 1990s. Robert Dep. at 11-12. Throughout their marriage Robert and Orma have held all of their earnings and other cash assets together in joint accounts. Orma Dep. at 9; Robert Dep. at 14-18.
In 1977, Robert and Orma visited the Flathead Lake area and decided to purchase property there. The couple chose to purchase the vacation property around the same time that they moved their primary residence from Edmonton to Calgary. To facilitate the purchases the McPhersons sold two properties in Edmonton: an acreage titled in Orma's name and purchased with $40,000 CAN given to Orma by her mother; and their residence, which was jointly titled in both names. Orma Dep. at 14-15; Robert Dep. at 25. Funds from *1170 Orma's employment as a nurse paid the down payment on the jointly-titled Edmonton house when the couple acquired it in the early 1970s, and subsequent mortgage payments had been made out of joint accounts to which both contributed. Orma Dep. at 12, 14. The sale of Orma's acreage yielded $40,000 CAN, which was deposited into joint accounts and commingled with other funds. Orma Dep. at 14-15. The couple made a profit from the sale of their Edmonton home in the amount of $50,000 CAN, which was also deposited in joint accounts and commingled with other funds. Orma Dep. at 15-17.
In 1978 the McPhersons purchased a primary residence in Calgary and Robert purchased the vacation property at Flathead Lake. Orma Dep. at 15. The couple bought the Calgary house for $278,000 CAN and furnished a down payment drawn from joint accounts. Orma Dep. at 23. The purchase of the vacation property was negotiated entirely by Robert. Robert Dep. at 21. On January 4, 1978, Robert executed a contract for deed with the seller, Thelma G. Hann, whereby Robert agreed to pay $63,000 U.S. for the vacation property, consisting of a down payment of $18,270.00 U.S., and monthly payments to the seller of $554.59 U.S. for a period of ten years. Contract for Deed, Doc. No. 22-7 at 3. The seller contemporaneously executed a warranty deed conveying her beneficial interest in the property to Robert. Warranty Deed, Doc. No. 22-7 at 2. The warranty deed conveying title to Robert was recorded in Lake County on July 22, 1987. Id. Orma's name does not appear on any of the documents related to the purchase of the vacation property from Thelma G. Hann in 1978.
On the same day Robert purchased the vacation property, he and Orma executed a document called a Declaration of Trust. Doc. No. 22-4. Both Robert and Orma state that the Declaration of Trust was intended to ensure that ownership of the vacation property be vested entirely and exclusively with Orma. Orma Dep. at 17, 20-21; Robert Dep. at 25. Robert drafted the Declaration of Trust without legal assistance. Robert Dep. at 26. The Declaration of Trust states that Robert shall convey to Orma his entire beneficial interest in the vacation property, contingent upon Orma's performance of the following obligations:
Payment of the down payment of $18,270 U.S.
Payment of the remaining balance through monthly installments of $554.59 U.S., to continue until the balance is paid off in full.
Agreement to pay all future property taxes, assessments and other impositions on the vacation property.
Doc. No. 22-4 at 2-3.
Paragraph 2 of the Declaration of Trust provides that Orma "will pay all costs associated with the property from `Orma's' funds in `Robert's' and `Orma's' joint bank account or accounts and/or `Orma's' personal bank accounts (at her option)." Doc. No. 22-4 at 3. In paragraph 4, the agreement states:
[I]t is understood that interests of "Orma" shall be held in trust by "Robert" until such time as the entire purchase price for the property has been paid by "Orma" to Thelma G. Hann. Upon completion of all payments to Thelma G. Hann, "Robert" hereby agrees that title to [the vacation property] shall be registered in the name of Orma L. McPherson and the trust agreement will no longer be applicable.
Doc. No. 22-4 at 3.
Paragraph 7 of the Declaration of Trust provides, "The parties hereto from time to time and at all times shall execute all further deeds and documents as shall reasonably *1171 be required in order fully to perform and carry out the intent of this agreement." Doc. No. 22-4 at 3.
The down payment of $18,270 U.S. came from the couple's commingled funds in joint accounts, as did all subsequent monthly payments of $554.59 U.S. Orma Dep. at 23-24. Although it is not possible to trace the precise origin of the funds used to pay for the vacation property, Orma maintains that the $40,000 CAN derived from the sale of her acreage and deposited in joint accounts was "earmarked" for the down payment on the vacation property.[4] Orma Dep. at 23. Orma also says that after the down payment the leftover proceeds from her acreage were put toward the monthly mortgage payments on the vacation property, though she concedes that some of the money may have been used for the down payment on the Calgary residence. Id.
During a tumultuous period in the McPhersons' marriage, Orma had the Declaration of Trust recorded in Lake County on July 23, 1987, before the vacation property had been paid off. Orma Dep. at 40; Doc. No. 22-4. The vacation property was paid off in full after ten years, sometime in 1988. Orma Dep. at 25; Robert Dep. at 29. Robert and Orma did not execute a document conveying title to Orma at that time, and they have not executed any documents related to title to the vacation property since they executed the Declaration of Trust in 1978. Robert Dep. at 29-30; Orma Dep. at 26-29.
III. Analysis
A. Legal Standards
1. Summary Judgment
A party moving for summary judgment is entitled to such if the party can demonstrate "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). A party is entitled to summary judgment where the documentary evidence produced by the parties permits only one conclusion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). On a motion for summary judgment, this Court must determine whether a fair-minded jury could return a verdict for the nonmoving party. Id. at 252, 106 S.Ct. 2505.
The party seeking summary judgment bears the initial burden of informing the Court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
Where the moving party has met his initial burden with a properly supported motion, the party opposing the motion "may not rest upon the mere allegations or denials of his pleading, but . . . must set forth specific facts showing that there is a genuine issue for trial." Anderson, at 248, 106 S.Ct. 2505 The nonmoving party may do this by use of affidavits (including his own), depositions, answers to interrogatories, and admissions. Id.
In evaluating the appropriateness of summary judgment the Court must first determine whether a fact is material; and if so, it must then determine whether there is a genuine issue for the trier of fact, as determined by the documents submitted to the Court. The applicable substantive law will identify which facts are material. *1172 Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude entry of summary judgment. Factual disputes which are irrelevant or unnecessary to the outcome are not considered. Anderson, at 248, 106 S.Ct. 2505
2. Wrongful Levy
Upon notice and demand by the IRS, a person who fails to pay any tax within ten days is statutorily subject to collection "by levy upon all property and rights to property (except such property as is exempt under [26 U.S.C. § 6334]) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax." 26 U.S.C. § 6331(a). Section 6335 of the Internal Revenue Code authorizes the public sale of seized property to collect unpaid taxes. 26 U.S.C. § 6335.
The Congress has created a statutory cause of action to allow a non-taxpayer claiming an ownership interest in the levied property to challenge the levy as wrongful. The statute provides:
If a levy has been made on property or property has been sold pursuant to a levy, any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest in or lien on such property and that such property was wrongfully levied upon may bring a civil action against the United States in a district court of the United States. Such action may be brought without regard to whether such property has been surrendered to or sold by the Secretary.
26 U.S.C. § 7426.
"Property is wrongfully levied if it does not, in whole or in part, belong to the taxpayer against whom the levy originated." Arth v. United States, 735 F.2d 1190, 1193 (9th Cir.1984). The burden of proof shifts back and forth between the plaintiff and the IRS, beginning with the requirement that the plaintiff demonstrate by a preponderance of the evidence that she has an interest in the subject property that is senior to the government's interest. Turk v. I.R.S., 127 F.Supp.2d 1165, 1166 (D.Mont.2000); 26 C.F.R. § 301.74261(a)(1)(i)(A). Once the plaintiff has established an interest in the property, the burden shifts to the IRS to prove by "substantial evidence" a nexus between the taxpayer and the property levied on. Id. Substantial evidence is "such relevant evidence as a reasonable mind might accept as adequate to form a conclusion." Id. (quoting Meanel v. Apfel, 172 F.3d 1111, 1113 (9th Cir.1999)). If the IRS is able to prove a nexus between the taxpayer and the property, the burden shifts back to the plaintiff to prove that the levy is wrongful. Id.
The relevant section of the Code of Federal Regulations sets forth four scenarios under which an IRS levy is wrongful. 26 C.F.R. § 301.7426-1(b)(1). The theory of wrongful levy advanced by the Plaintiff in this case is contained in subparagraph (d) and provides that a levy is wrongful if "the levy or sale pursuant to levy will or does effectively destroy or otherwise irreparably injure [the Plaintiffs] interest in the property which is senior to the Federal tax lien." Id.
B. Discussion
1. The Plaintiff's Interest in the Property
In a federal tax case, the nature of a party's legal interest in property is governed by state law, in this case the law of Montana, while, the consequences of ownership are controlled by federal law. United States v. National Bank of Commerce, 472 U.S. 713, 722, 105 S.Ct. 2919, 86 L.Ed.2d 565 (1985).
Orma claims to hold title in the vacation property pursuant to the Declaration of *1173 Trust executed by Robert and Orma in 1978, and argues that Robert's status as the holder of bare legal title under the recorded warranty deed executed by Thelma G. Hann is irrelevant. As support for her contention that Robert's status as named title holder is not controlling, Orma cites In re Marriage of Engen, 1998 MT 153, ¶ 31, 289 Mont. 299, 961 P.2d 738. Orma's reliance on Engen is misplaced, as the Montana Supreme Court in that case held that the question of title is not controlling under Montana's statutory scheme for distribution of property associated with marital dissolution. Id. The Court in Engen was applying the state's statute governing division of property, Mont.Code Ann. § 40-4-202(1), which requires a court to equitably apportion property between spouses "however and whenever acquired and whether the title is in the name of the husband or wife or both." (Emphasis added.)
Outside of the martial dissolution context, Montana law preserves the separate nature of individual property and provides that a married person has full rights to his or her property and may convey or transfer such property without the consent or agreement of the spouse. Mont.Code Ann. § 40-2-202. In re Marriage of Dalley (1988), 232 Mont. 235, 240, 756 P.2d 1131. Because section 40-2-202 preserves exclusive ownership of a nature that is sufficient to allow transfer property without spousal approval, such ownership is presumably also sufficient to allow for the imposition of a lien or levy over a competing claim of interest by the non-owner spouse. The question remains, however, what is the effect of Robert's status as the named title holder coupled with the operation of the Declaration of Trust executed by Robert and Orma?
To meet her initial burden, Orma must demonstrate an ownership interest in the property that is senior to the tax levy. She can meet the seniority requirement without difficulty, as any equitable interest vested in Orma would have matured, at the very latest, upon completion of payments to Thelma G. Hann in 1988, long before Robert's alleged failure to pay income tax occurred in 1995.[5] But the nature of her ownership interest, if any, is another question.
Orma contends she holds equitable title to the entire vacation property by operation of the Declaration of Trust, while Robert holds bare legal title due to the couple's failure to execute and record a deed conveying legal title to Orma. The United States argues that Orma cannot meet her burden to show an ownership interest in the property because (1) Orma failed to comply with the terms of the Declaration of Trust; and (2) Robert and Orma never executed and recorded a deed granting title to Orma.
a. Compliance With the Terms of the Declaration of Trust
The parties agree that the Declaration of Trust is a contract for deed under Montana law. A contract for deed is "a contract with the record owner of real property in which it was agreed that the record owner will deliver the deed to the property to the purchaser when certain conditions have been met, such as completion of payments by the purchaser." *1174 Mont.Code Ann. § 70-20-115(1)(a)(i). The parties further agree that the Declaration of Trust did not, simply by virtue of its execution in 1978, operate to vest fee simple title with Orma. On the question of whether Orma performed her obligations under the Declaration of Truist, the parties offer divergent interpretations of the factual record.
The United States argues that Orma failed to fulfill her responsibilities under the Declaration of Trust because she did not earn enough income at the time of the purchase to make the monthly payments and cover expenses related to the property as contemplated by Paragraph 1 of the Declaration of Trust. Orma estimates that she earned around $500 CAN per month at the time the vacation property was acquired in 1978, which was the equivalent of $458.00 U.S. at that time. Doc. No. 23 at 2 n. 1.[6] The government argues that Orma could not possibly have covered the monthly payment on the property and paid the property taxes on her nursing wages.
The record does not support the government's position. Assuming that Orma's monthly income in 1978 was $458 U.S., she would have been short about $100 U.S. on the monthly payment. The property tax on a $63,000 vacation property in Lake County in 1978 is unknown, but can be assumed not to have exceeded $1,200 per year. Based on those assumptions, Orma would have had a deficiency of $200 per month in 1978, which she could have made up by drawing from the proceeds from the sale of her acreage that were left over after she made the down payment on the vacation property. Those proceeds would have been roughly $20,000 U.S., although Orma did allow that some of that money could have gone toward the down payment on the couple's home in Calgary. However, even if Orma only retained $10,000 U.S. after making both down payments, she could have covered the monthly deficiency for four years or more before depleting her remaining money from the sale of her acreage. Moreover, Orma testified that he income increased regularly meaning her monthly deficiency would have decreased each year. On these facts, Orma possessed the assets necessary to fulfill her obligations under the Declaration of Trust.
The United States next argues that Orma cannot meet her burden to establish an interest in the property because all of the monthly payments and tax payments on the vacation property came from the couple's commingled assets in joint accounts. This argument fails because the terms of the Declaration of Trust make clear that the couple's contract for deed allows Orma to meet her payment obligations by drawing on assets held in the couple's joint bank accounts. The document reflects the couple's agreement that Orma "will pay all costs associated with the property from `Orma's' funds in `Robert's' and `Orma's' joint bank account or accounts and/or `Orma's' personal bank accounts (at her option)." Doc. No. 22-4 at 3. The United States argues in essence that the document's reference to "Orma's" funds in the couple's joint accounts is a legal fiction, and the point in true as far as it goes. But there is nothing to prevent two parties to a contract for deed from agreeing to indulge in a legal fiction as part of the terms of their agreement. Orma did not violate the terms of the *1175 contract for deed when payments on the vacation property came from the couple's joint accounts.
Last, the United States argues that Orma failed to comply with the Declaration of Trust because she failed to pay property taxes in the years 2003 and 2004, thereby violating her obligation under Paragraph 1(a)(iii) of the Declaration of Trust. See Doc. No. 22-6. The argument is unpersuasive for two reasons. First, the argument is predicated on the mistaken conclusion that the payment of all future property taxes, in perpetuity, is a condition subsequent to the grant of title from Robert to Orma. "A condition subsequent is one referring to a future event upon the happening of which the obligation becomes no longer binding upon the other party if he chooses to avail himself of the condition." Mont.Code Ann. § 28-1-405. When a grant of property is made upon condition subsequent and the grant is subsequently defeated by nonperformance of the condition, the grantee is obligated to reconvey the property to the grantor. Mont.Code Ann. § 70-20-311.
The United States finds a condition subsequent in Robert's conveyance of his interest to Orma "subject to `Orma' fulfilling her 100% share of all obligations on [the vacation property] including costs to date and all future costs (as outlined in Schedule A)." Doc. No. 22-4 at 2. "Schedule A," as referred to in the Declaration of Trust, is the Contract for Deed between the seller, Thelma G. Hann, and Robert. Id. Both the Contract for Deed between Hann and Robert and the Declaration of Trust between Robert and Orma contain language stating that the purchaser pursuant to contract for deed shall pay all future property taxes. Such a provision should be expected to be present in any contract for deed and should not, by itself, be read to impose a condition subsequent the nonperformance of which would void the grant even after all other conditions have been satisfied. The fact that Robert and Orma did not intend to establish a condition subsequent is evident from Paragraph 4 of the Declaration of Trust, which states,
[I]t is understood that interests of "Orma" shall be held in trust by "Robert" until such time as the entire purchase price for the property has been paid by "Orma" to Thelma G. Hann. Upon completion of all payments to Thelma G. Hann, "Robert" hereby agrees that title to [the vacation property] shall be registered in the name of Orma L. McPherson and the trust agreement will no longer be applicable.
Doc. No. 22-4 at 3 (emphasis added).
A fair reading of the Declaration of Trust compels the conclusion that Robert and Orma did not establish a condition subsequent consisting of payment of property taxes in perpetuity under penalty of forfeiture, but rather that they established a condition precedent consisting of completion of all payments to Thelma G. Hann and payment of all property taxes until the debt to Ms. Hann was paid off.[7] Thus, Orma was not obligated by the' operation of a condition subsequent to reconvey the property to Robert upon non-payment of property taxes.
Moreover, if it is assumed that such a condition subsequent continues in effect, it would not compel reconveyance to Robert in this instance because the property taxes were paid, albeit not on the original date due, and because Robert did not choose to avail himself of the condition. See Robert Dep. at 36, in which he states that the *1176 vacation property was not seized and put up for auction because "the taxes were paid in the nick of time." The operation of a condition subsequent is not automatic. It requires that the condition occur and that the other party choose to avail himself of the condition by, in the case of a transfer of real property, compelling reconveyance. Mont.Code Ann. §§ 28-1-405, 70-20-311. Orma's rights under the Declaration of Trust are not diminished by the delinquent payment of property taxes.
b. Operation of the Declaration of Trust
Orma has established that she complied with the terms of the Declaration of Trust by making all necessary payments in accordance with the conditions imposed by the document, completing those obligations in 1988. However, Paragraph 7 of the Declaration of Trust stated the couple's agreement to "execute all further deeds and documents as shall reasonably be required in order to fully perform and carry out the intent of this agreement," Doc. No. 22-4 at 3, and this they failed to do. Orma concedes that "Robert should have, under the plain terms of the Declaration of Trust, executed a Deed to Orma McPherson," and that he did not do so. Doc. No. 26 at 5. Based on the couple's failure to execute a deed transferring title from Robert to Orma upon fulfillment of Orma's obligations under their contract for deed, the United States argues that Orma has no interest in the property, or that her interest is only a partial equitable interest. To determine whether Orma has met her initial burden to demonstrate an interest in the vacation property, it is necessary to decide whether Orma's compliance with the terms of the Declaration of Trust is alone sufficient for an interest in the property to vest with Orma.
Montana law favors Orma on this question. A purchaser of property pursuant to a contract for deed holds an equitable title in the property, while legal title "remains vested in the vendor until such time as the contractual provisions are fully performed." Hannah v. Martinson (1988), 232 Mont. 469, 471, 758 P.2d 276 (citing Estate of Wooten (1982), 198 Mont. 132, 643 P.2d 1196; Kern v. Robertson (1932), 92 Mont. 283, 12 P.2d 565).[8] In Wooten, a decedent who was the selling party to a contract for deed left an interest in all of his land holdings to several charities. The Montana Supreme Court determined that the decedent's property interest as a seller pursuant to a contract for deed was not an interest in the real property, but rather personalty as the result of the doctrine of equitable conversion. 198 Mont. at 137-139, 643 P.2d 1196. The Court quoted the following passage from its decision in Kern:
"The authorities are in accord that an enforceable contract for the purchase and sale of real property passes to the purchaser the equitable and beneficial ownership thereof, leaving only the naked legal title in the seller, as trustee for the purchaser, and as security for the unpaid purchase price. If the purchaser *1177 dies while the contract is in force and effect, his interest passes to his heirs as real property. If the seller dies while the contract is in force and effect, his interest passes to his personal representative as personal property, and not to his heirs."
198 Mont. at 138, 643 P.2d 1196 (quoting Kern, 92 Mont. at 288, 12 P.2d 565).
Thus, upon execution of a contract for deed, the seller's interest is converted to personal property, while the entire interest in, the real property that is the subject of the transaction is conveyed as equitable title to the purchaser. Id.; In Re Estate of Rickner (1974), 164 Mont 51, 55, 518 P.2d 1160. Such were the prevailing interests during the first ten years after acquisition of the vacation property, before Orma had fulfilled all of the conditions precedent to transfer.
After Orma performed all of her obligations under the Declaration of Trust, including the final payment to Thelma G. Hann in 1988, Robert became obligated to execute a deed transferring legal title to Orma. Liddle v. Petty (1991), 249 Mont. 442, 446, 816 P.2d 1066. The couple's failure to execute and record a deed is not explained, although it is clear that Orma's subjective understanding was that she had fully protected her interest by recording the Declaration of Trust in July of 1987. Orma Dep. at 40.
Orma's belief that she had protected herself explains why she took no further action to secure legal title. Nonetheless, she is entitled to specific performance of Robert's obligation to transfer title pursuant to the Declaration of Trust. A party seeking specific performance of a contract must have offered to perform, Pond v. Lindell (1981), 194 Mont. 240, 245, 632 P.2d 1107, and "it is to be presumed that the breach of an agreement to transfer real property cannot be adequately relieved by pecuniary compensation." Baker v. Berger (1994), 265 Mont. 21, 29, 873 P.2d 940 (quoting Mont.Code Ann. § 27-1-419).
Orma fulfilled her obligations under the Declaration of Trust and is the equitable holder of title to the vacation property. Had she sought specific performance transferring to her legal title to the vacation property, the record before the Court in this case suggests that she would have obtained the remedy. She has met her burden to establish an interest in the vacation property, and the burden now shifts to the United States to prove a nexus between Robert and the vacation property.
2. Nexus Between the Taxpayer and the Property
The United States must prove a nexus between Robert and vacation property by substantial evidence. It first attempts to do so by emphasizing Robert's negotiation of the purchase from Thelma G. Hann, his continuous access to and enjoyment of the property since 1978, and his financial contribution to significant improvements to the property in the 1990s.
The argument is unpersuasive. The fact that Robert negotiated the purchase from Ms. Hann is of no consequence; the relevant transaction is not the one by which Robert acquired an interest in the property, but rather the one by which he assigned the entirety of that interest to his wife. Because his wife was the purchaser pursuant to contract for deed and has been the equitable owner of the property since 1978, it is unsurprising that Robert has had access to and enjoyed the property throughout that time. With regard to improvements on the property, all such improvements occurred after Orma became the equitable owner of the vacation property and performed fully under the Declaration of Trust. Given Orma's status as equitable owner of the property, her husband's contribution to a new building on *1178 the property is presumed to be a gift, and does not result in the forfeiture of any part of Orma's interest. Detra v. Bartoletti (1967), 150 Mont. 210, 217, 433 P.2d 485.
The United States next argues that Robert maintains an interest in the property as Orma's nominee. This Court discussed the nominee theory in the context of a wrongful levy action in Turk, stating that in such cases, "a nominee is essentially a proxy, or even a decoy, for someone else." 127 F.Supp.2d at 1167. The test for nominee status was established in Towe Antique Ford Found v. I.R.S., 791 F.Supp. 1450 (D.Mont.1992), and requires consideration of the following factors:
(a) No consideration or inadequate consideration paid by the nominee;
(b) Property placed in the name of the nominee in anticipation of a suit or occurrence of liabilities while the transferor continues to exercise control over the property;
(c) Close relationship between transferor and the nominee;
(d) Failure to record the conveyance;
(e) Retention of possession by the transferor; and
(f) Continued enjoyment by the transferor of benefits of the transferred property.
Turk, 127 F.Supp.2d at 1167 (citing Towe, 791 F.Supp. at 1454).
The United States' nominee argument fails for a fundamental reason, which is exemplified by consideration of factor (b). It is Robert, not Orma, who would have the incentive to establish a nominee as a "decoy" in this case, because Robert is the taxpayer whose property is subject to levy. In Turk and Towe, it was not the taxpayer who was the alleged nominee or alter ego but rather another person or entity not subject to tax liabilities. In arguing that Robert is Orma's nominee, the United States gets the nominee theory backwards; it makes no sense for Orma, who has no tax liability, to make Robert, who is subject to a revenue collection action, her nominee.
Consideration of the remaining factors confirms that Robert is not Orma's nominee. Factors (c), (e), and (f) might tend to suggest an illegitimate transfer, but carry little weight in light of factors (a) and (d), as Orma gave adequate consideration in the form of payment of all costs associated with the acquisition and maintenance of the property as contemplated by the Declaration of Trust, and recorded the document to protect her interest.
The best evidence of a nexus between Robert and the vacation property is his status as the holder of bare legal title. But Montana law is clear that Robert's interest in legal title is personalty, and does not constitute any interest in the real property at issue. The United States faults Orma for her failure to articulate "the extent to which an equitable ownership interest impacts on the legal title maintained by the vendor of the contract for deed (here, Mr. McPherson)." Doc. No. 24 at 6. The precise impact of Orma's interest is established by Kern, Wooten and Rickner, none of which are addressed by the United States and all of which stand for the proposition that "a contract for the sale of property converts the seller's interest from an owner of real property to that of an owner of personalty, this being the doctrine of equitable conversion." Rickner, 164 Mont. at 55, 518 P.2d 1160.
Notwithstanding the severe limitations on Robert's remaining interest in the property, bare legal title is probably enough to establish the requisite nexus between Robert and the vacation property. The United States having met its burden, the burden now shifts back to Orma to show that the levy is wrongful. This she can do without difficulty.
*1179 3. Is the Levy Wrongful?
The relevant section of the Code of Federal Regulations sets forth four scenarios under which an IRS levy is wrongful. 26 C.F.R. § 301.7426-1(b)(1). The theory of wrongful levy advanced by the Plaintiff in this case is contained in subparagraph (d) and provides that a levy is wrongful if "the levy or sale pursuant to levy will or does effectively destroy or otherwise irreparably injure [the Plaintiff's] interest in the property which is senior to the. Federal tax lien." Id. The more applicable theory is set forth in subparagraph (b), stating that a levy is wrongful if "the levy is upon property in which the taxpayer had no interest at the time the lien arose or thereafter."
Such is the case here. Robert's interest at the time of his failure to pay income tax in 1995 was an interest in personal property; his interest in the vacation property was non-existent. Moreover, Orma had long since performed her obligations under the Declaration of Trust and was entitled to a deed granting her full legal title as well. The levy is similarly wrongful under this Court's opinion in Turk, in which the Court explained that a plaintiff might show a levy was wrongful by "showing that his interest is senior to the IRS's or that he was a bona-fide purchaser." 127 F.Supp.2d at 1167. In Orma's case, both examples apply; she is a bona-fide purchaser pursuant to a contract for deed and her interest is senior to the IRS's.
Equitable considerations also favor finding that levy wrongful. While it is true that Robert and Orma, as a matter of fact, have jointly contributed to the purchase and upkeep of the vacation property, the Declaration of Trust is a valid contract for deed by which Robert agreed to convey his interest to Orma for something more than straw consideration. The transaction occurred in 1978, long before Robert and Orma could have anticipated Robert's tax liabilities in the 1990s, and the Declaration of Trust evidences a contemporaneous intent on the part of both Robert and Orma to see that the ownership interest in the vacation property would ultimately rest entirely with Orma. The effect of that transfer at present is to allow Robert to preserve his use and enjoyment of a very desirable vacation property despite his massive tax debt and despite the fact that he is the legal title holder. These facts, while seeming to suggest that Robert has escaped responsibility for his tax obligations based on legalisms and technicalities, are trumped by the 17-year interval between the execution of the Declaration of Trust and the genesis of Robert's tax trouble, which constitutes compelling proof that the transfer to Orma, however imperfectly executed and however unseemly the present effects, was genuine.
Orma has succeeded in demonstrating that she has an interest in the vacation property and that the IRS levy is wrongful, and she is entitled to judgment as a matter of law. Under 26 U.S.C. § 7426(b)(1) and 26 C.F.R. § 301.74261(b)(1)(i), the appropriate remedy here to issue an injunction prohibiting the enforcement of the levy or to prohibit the forced sale of the property.
IV. Order
Based on the foregoing, Orma's motion for summary judgment (Doc. No. 16) is GRANTED, and the United States' motion for summary judgment (Doc. No. 19) is DENIED. The United States is permanently enjoined and prohibited from enforcing the levy and the forced sale of the vacation property. The Clerk shall enter judgment in favor of Orma and against the United States.
NOTES
[1] The vacation property is located at 32046 North Finley Point Road, Polson, Montana.
[2] Where possible, this Order will distinguish between Canadian dollars (CAN) and United States dollars (U.S.). It is not clear whether the amount owing under the levy is expressed in Canadian or United States currency, and the difference is not determinative of any issue of consequence in this action.
[3] Robert started a second company sometime in the early 1990s. Deposition of Robert McPherson (Doc. No. 22-3) at 9-10.
[4] Given the exchange rate at the time, the value of the proceeds in U.S. dollars from the sale of Orma's acreage was slightly less than $40,000 U.S. Doc. No. 23 at 3 n. 3.
[5] For this reason, subsequent events relative to the vacation property, including Robert and Orma's jointly-funded construction of a new home on the property in 1990s, are not relevant to the resolution of that matters before the Court. Robert's and Orma's respective interests in the vacation property, whatever they may be, exist as a result of events and circumstances the last of which took place in 1988 upon completion of the payments on the property. The intervening years have seen no subsequent events legally sufficient to alter those interests.
[6] Orma makes clear in her deposition that her estimate as to her nursing income in 1978 was a guess, stating, "I'm sorry, I have no understanding of what I received at that time." Orma Dep. at 7. In fact, Orma also estimated that she earned $15 CAN per hour at that time, which is almost surely in conflict with her guess that she earned $500 CAN per month. If Orma earned $15 CAN per hour and worked only 20 hours per week in 1978, her pre-tax monthly income would have been $1,300 CAN.
[7] "A condition precedent is one which is to be performed before some right dependant thereon accrues of some act dependent thereon is performed." Mont.Code Ann. 28-1-403.
[8] The United States argues that Hannah works against Orma because it stands for the proposition that the equitable interest held by a purchaser pursuant to contract for deed is considered a real property interest subject to the attachment of a judgment lien. Doc. No. 24 at 5-6. "Therefore," the United States argues, "even if the Declaration of Trust established some sort of equitable title in [Orma], that fact would not prevent the seizure and sale of the subject property." Id. The argument misses a crucial point: an equitable title is an interest subject to the attachment of a judgment lien provided that the holder of the interest is the judgment debtor, as was the case in Hannah, 232 Mont. at 471, 758 P.2d 276. Here, Orma is not the delinquent taxpayer, and her property is not the target of the revenue collection efforts at issue in this case.
|
6 Ariz. App. 590 (1967)
435 P.2d 719
Jerry CAMACHO, a minor by his mother and best friend Helen Camacho, Appellant,
v.
Henry M. GARDNER and Jane Doe Gardner, husband and wife, and Ralph T. Badilla, Appellees.
No. 2 CA-CIV 403.
Court of Appeals of Arizona.
December 29, 1967.
*591 William Messing, Tucson, for appellant.
Chandler, Tullar, Udall & Richmond, by D.B. Udall, Tucson, for appellees.
MOLLOY, Judge.
This appeal questions the propriety of the trial court's setting aside an entry of the defendants' default and the $50,000 judgment for the plaintiff which had been entered on the default.
Since the trial court granted the defendants' motion, our function on appeal is to examine the affidavits submitted in support of and in opposition to the motion to set aside default and default judgment in the strongest light possible in favor of the defendants, prevailing parties below. Thomas v. Goettl Bros. Metal Products, 76 Ariz. 54, 57, 258 P.2d 816 (1953). Accordingly, the facts as stated here are those undisputed in the record and those supplied by the affidavits of the defendants and defendants' counsel.
On December 21, 1966, an action to recover for personal injuries to the minor-plaintiff was instituted on his behalf. The Gardners, husband and wife, were served with a copy of the summons and complaint on December 22, 1966. Previous to this date, the Gardners had been represented by counsel, a Mr. David Pakula, in connection with their claim for injuries sustained in the same accident which gives rise to the minor-plaintiff's action.
The Gardners had received a letter from the plaintiff's counsel informing them that a civil action was contemplated against them and suggesting they forward the letter to their insurance company. The Gardners had contacted their attorney, Mr. Pakula, about this letter and he advised them that as soon as the suit papers were received by them, they should be forwarded "immediately" to their insurance company. Additionally, Mr. Pakula advised the Gardners that he would notify the appropriate insurance adjuster of the letter threatening suit, and Mr. Pakula forthwith did this.
At the time the complaint and summons were served upon the defendants, the process server informed the defendants they should turn the papers over to their insurance company. After service on December 22, 1966, the Gardners "forgot" about the service and did nothing about notifying either the insurance company or their attorney until they were informed of the default judgment on January 13, 1967. At this time, they found the suit papers in a cupboard in their home.
The grounds advanced below for the setting aside of the default and the default judgment were: * * * on the grounds of "mistake, inadvertence, surprise, and excusable neglect." These are the words of subparagraph (1) of Rule 60(c), R.Civ.P., 16 A.R.S. By its terms, this rule applies only to the setting aside of the default judgment. The test as to whether a default should be set aside is as stated in Rule 55 (c), R.Civ.P., 16 A.R.S. "* * * for good cause shown." 6 Moore's Federal Practice § 55.10 [1], at 1827 (2d ed. 1953), see also § 55.10 [2], at 1830.
Though these two rules use different language as to the test for granting relief, in the many decisions in this state pertaining to the setting aside of a default and default judgment, no distinction has ever been made which would suggest that the trial court has any discretion in separating the default from the default judgment *592 on such a motion, i.e., Marquez v. Rapid Harvest Co., 99 Ariz. 363, 409 P.2d 285 (1965); Bateman v. McDonald, 94 Ariz. 327, 385 P.2d 208 (1963); Hendrie Buick Co. v. Mack, 88 Ariz. 248, 253, 355 P.2d 892 (1960); Marsh v. Riskas, 73 Ariz. 7, 9, 236 P.2d 746 (1951); Rogers v. Tapo, 72 Ariz. 53, 57, 230 P.2d 522 (1951); Burbage v. Jedlicka, 27 Ariz. 426, 431-432, 234 P. 32 (1925); Mann v. Hennessey, 2 Ariz. App. 438, 440, 409 P.2d 597 (1966).
The decisions in this jurisdiction indicate that the granting of relief from default and/or default judgment is a matter lying within the "discretion" of the trial court, i.e., see citations supra. However, this discretion is not unlimited and can be abused by the granting of a motion to set aside, Overson v. Martin, 90 Ariz. 9, 363 P.2d 604 (1961), as well as by the denial of a motion to set aside. Coconino Pulp & Paper Co. v. Marvin, 83 Ariz. 117, 317 P.2d 550 (1957).
The decision of Overson v. Martin, supra, is the closest of our Supreme Court decisions to being in point. That case reversed a trial court's setting aside of a default, when the excuses presented were that the wife had been ill for two weeks of the one-month period during which the defendants failed to answer after becoming aware of service, and the husband had been busy "with the gathering of data" during this time. For all that appeared in Overson, the defendants were completely unlearned in the law. On the basis of Overson, this court said in Prell v. Amado, 2 Ariz. App. 35 at 36, 406 P.2d 237, at 238 (1965):
"Carelessness is not synonymous with `excusable neglect' as a basis for setting aside a default judgment."
The only arguments made as to why this setting aside could be affirmed on appeal are that the Gardners were "inexperienced" in being served with process and that all doubts should be resolved in favor of securing a trial on the merits. Reliance is taken upon decisions such as Marquez v. Rapid Harvest Co., 99 Ariz. 363, 409 P.2d 285 (1965); and Gray v. Dillon, 97 Ariz. 16, 396 P.2d 251 (1964).
That "doubt" should be resolved in favor of a trial on the merits is unquestionably the law of this jurisdiction, Marquez v. Rapid Harvest Co., supra, but it is our view that before a "doubt" arises, there must be a showing of unusual circumstance excusing in some degree the failure to answer so as to invoke a power of "discretion" in the trial judge. There is no suggestion in this record that the Gardners were illiterate, or mentally or physically ill, or disturbed, or incapacitated or affected by any unusual circumstance at any time involved in this case.
The decision of Gray v. Dillon, supra, is perhaps the farthest our Supreme Court has gone in upholding the setting aside of a default for excusable neglect. The defendant, Dillon, in that case, at the time of service, was on active duty with the Arizona Air National Guard. He discovered his regular counsel was out of town and that it was necessary for him to secure new counsel. New counsel employed by the defendant filed a motion to set the judgment aside, two days after the taking of default.[1]
There are circumstances in Gray that are absent here. These defendants, rather than being deprived of their regular counsel, were advised by their regular counsel as to the appropriate action to be taken after the service of process. There is no showing of any temporary special activity such as military service or otherwise in the picture here. Most defendants are not experienced in receiving service of process. If this default can be set aside, then any default when the defendant "forgot" to answer can be so set aside, depending only upon drawing a trial judge whose "discretion" so inclines him. We cannot affirm the setting aside of this default under what *593 we consider to be the well-established law in this jurisdiction.
However, we do not regard the default and the default judgment to be inextricably attached one to the other. Under our practice, these two concepts are not only separate procedures, governed by separate rules, but they perform different functions. A default is a judicial admission of the plaintiff's right to recover, Postal Ben. Ins. Co. v. Johnson, 64 Ariz. 25, 165 P.2d 173 (1946), but in an unliquidated damage case not of the amount of recovery. 3 Barron & Holtzoff Federal Practice and Procedure § 1216, at 86 (1958); 6 Moore's Federal Practice § 55.07, at 1822 (2d ed. 1953); 49 C.J.S. Judgments § 201c, at p. 358. A default judgment is the judicial pronouncement which puts an end to controversy, makes available to the prevailing party the coercive processes of the court, and is as efficacious as any other judgment. Wheeling v. Financial Indem. Co., 201 Cal. App.2d 36, 19 Cal. Rptr. 879 (1962); King v. Musch, 26 Ill. App.2d 290, 167 N.E. 2d 698 (1960); 30A Am.Jur. Judgments § 222, at 295-96; 49 C.J.S. Judgments § 200, at pp. 355-356.
In separately regarding the default judgment, we see there is cause to set aside, arising out of the amount of this judgment, which does not pertain to the default itself. Though this matter has not been specifically advanced by the defendant as a legal cause to set aside the judgment, it is appropriate to uphold an action taken by a lower court on appeal for any reason disclosed by the record, even though the grounds for affirmance have not been advanced by the litigant either below or on appeal, 5 Am.Jur.2d Appeal and Error § 931, at 359-60; 5B C.J.S. Appeal and Error § 1849, at pp. 287-288; cf. Odom v. First Nat. Bank of Arizona, 85 Ariz. 238, 336 P.2d 141 (1959). In this case, the size of this judgment was an implied argument for relief advanced by the defendants[2] and we conceive that this may very well have been the deciding factor in causing the trial court to set aside both default and default judgment.
After the entry of any default, pertinent rule provides as to the determination of the amount of damage as follows:
"2. If, in order to enable the court to enter judgment or to carry it into effect, it is necessary to take an account or to determine the amount of damages or to establish the truth of any averment by evidence or to make an investigation of any other matter, the court may conduct such hearings or order such references as it deems necessary and proper and shall accord a right of trial by jury to the parties when required by law." Rule 55(b) (2), R.Civ.P., 16 A.R.S.
This is a rule adopted from the Federal Rules of Civil Procedure, Rule 55(b) (2). In federal courts, when unliquidated damages are sought, as in this tort action, it is necessary for the trial court to conduct a hearing to determine the amount of the damage before entering judgment. Davis v. National Mortgage Corp., 320 F.2d 90 (2d Cir.1963); and see 3 Barron & Holtzoff, Federal Practice and Procedure § 1216, at 86 (1958); and 6 Moore's Federal Practice § 55.07, at 1822 (2d ed. 1953). This is in accord with the common law that when unliquidated damages are sought, the court must, after the entry of an interlocutory judgment of default (corresponding to the entry of "default" in our practice), conduct a hearing to satisfy its conscience as to the amount of plaintiff's damage before entering judgment.[3] Becker v. Roothe, 184 *594 Kan. 830, 339 P.2d 292, 296 (1959); and see 30A Am.Jur. Judgments § 218, at 292; and 49 C.J.S. Judgments § 216, at p. 382.
The judgment rendered here is in the amount specified in the prayer of plaintiff's complaint.[4] We are favored with a transcript of the hearing conducted by the trial court on the issue of damage. The plaintiff is a 15-year old boy. His injuries consisted principally of fractures of the left femur, left thumb and right collarbone. The medical doctor treating the plaintiff was produced as a witness. At the time of the hearing, the plaintiff had been in the hospital for approximately ten weeks and the doctor opined that he "might" remain in the hospital for "another four weeks." The doctor's testimony indicates no permanent injury or incapacity to the plaintiff nor is there any testimony indicating for what period of time in the future the plaintiff might continue to suffer from his injuries. There is no evidence of any medical expense incurred nor of any special damage in the form of lost wages or otherwise.
Before the court commits its coercive power to a judgment of $50,000 on a claim as to which the amount of damage is inherently uncertain there should be more proof than this. A judgment of this size on such testimony is sufficient "to shock the conscience" of this court so as to merit relief under the doctrine of Stallcup. Stallcup v. Rathbun, 76 Ariz. 63, 66, 258 P.2d 821, 824 (1953).
Subsection (6) of Rule 60(c), R.Civ.P., as amended, 16 A.R.S., permits the setting aside of a default judgment for "* * * any other reason justifying relief from the operation of the judgment." This subsection, added by an amendment adopted by our Supreme Court in 1961, is, again, from the Federal Rules of Procedure. See Rule 60(b) (6), Fed.R.Civ.P. This subsection is said to be adopted as a "residual clause embracing matters that do not fall within the preceding five clauses and are of such character that, in equity and good conscience, they warrant relief from the judgment." 6 Moore's Federal Practice § 55.10 [2], at 1836 (2d ed. 1953). In view of the size of this judgment, which appears on the state of this record to be far in excess of that merited by the actual facts pertaining to damage, we hold the trial court was justified, in equity and good conscience, in setting aside this default judgment.
The decision of Becker v. Roothe, 184 Kan. 830, 339 P.2d 292 (1959), is supportive of the result reached here. In Becker, a default judgment in an intersection collision case had been entered for the full amount of damage requested in the complaint, without a hearing on damage. The following rule, substantially the same as our Rule 55(c), was held to be applicable:
"If the taking of an account, or the proof of a fact, or the assessment of damages be necessary to enable the court to pronounce judgment upon a failure to answer, or after a decision of an issue of law, the court may, [1] with the assent of the party not in default, take the account, hear the proof, or assess the damages; or [2] may with the like assent refer the same to a referee or master commissioner, or [3] may direct the same to be ascertained or assessed by a jury. If a jury be ordered, it shall be on or *595 after the day on which the action is set for trial." (Emphasis as in Becker opinion.)
G.S. 1949, 60-3109.
The court held:
"It is mandatory under the foregoing statute that the plaintiff prove the amount of his damages."
339 P.2d at 295
And, under a rule permitting the vacation of a judgment "[f]or mistake, neglect or omission of the clerk, or irregularity in obtaining a judgment or order," the court held that failure of such proof was an "irregularity" which required a setting aside of the judgment for the limited purpose of a trial on the issue of damage only. (339 P.2d at 300.)
In Becker, there was no proof of damage; here there was some proof which was grossly inadequate to justify the amount of judgment rendered. This distinction we do not believe to be critical in view of the essentially non-adversary nature of this hearing. It is with the conscience of the court we are concerned not an obeisance to a formality.
In Elfman v. Evanston Bus Co., 27 Ill.2d 609, 190 N.E.2d 348 (1963), the court was considering a motion to set aside a default judgment under a statutory provision which adopted the common law pertaining to writs of coram nobis, coram vobis, audita querela and review as the standard for setting aside judgments on motion. The applicable statute pertaining to proof of damage for default judgment is similar to our Rule 55(c).[5] A hearing on damage had been conducted, but proof presented included damage which appeared to the court, upon an examination prompted by a motion to set aside, to have been unconnected with the plaintiff's cause of action against the defendant. The Illinois Supreme Court held that "fairness and justice" (190 N.E. 2d at 351) required a limited opening of the judgment, to permit a trial on the issue of damage only.
At least one other court has directed there be such a limited setting aside of a default judgment when there has been no proof of damage in an unliquidated damage case. Ferri v. Braun, 236 Ark. 329, 366 S.W.2d 286 (1963).
In Washington, a default and a default judgment appear to be identical twins insofar as the legal grounds for setting them aside are concerned, but nevertheless they are not Siamese twins, so that they cannot be separated. Johanson v. United Truck Lines, 62 Wash.2d 437, 383 P.2d 512 (1963). In Johanson, the trial court conditionally granted the defendant's motion to set aside a default judgment, providing the defendant accept the default itself, so that the defendant would be allowed a trial only on the issue of damage. The defendant rejected such limited relief and appealed. On appeal, the Washington Supreme Court held there had not been a sufficient showing of "unavoidable casualty or misfortune" so as to justify the setting aside of either the default or the default judgment (383 P.2d 516), but nevertheless held that the appealing defendant would still have the election of proceeding to a trial on the issue of damage alone (383 P.2d 517). Interestingly, the court gives no reason for permitting the defendant a trial on the issue of damage.
*596 Reason and authority lead us to conclude this is an appropriate case to separate what may heretofore have been unseparated in this state. We hold that when proof of damage after a default in an unliquidated damage case is as scanty as that presented to the court here, an order setting aside a default judgment, but not the default itself, is justified. The order of the trial court setting aside the default in this action is reversed, the order setting aside the default judgment is affirmed, and the case is remanded to the lower court for a trial on the issue of damage alone.
JOHN A. McGUIRE, Superior Court Judge, concurs.
NOTE: Judge HERBERT F. KRUCKER having requested that he be relieved from consideration of this matter, Judge JOHN A. McGUIRE was called to sit in his stead and participate in the determination of this decision. HATHAWAY, Chief Judge (dissenting):
Perhaps I strain too hard to affirm the superior court judge's conclusion sweeping aside all debris and restoring the status quo ante and the right of both parties to a new start. It would seem that justice is better served in following this course.
Our Supreme Court has indicated that in any determination of whether a default judgment should be set aside the court is guided by equitable principles:
"These principles require that a defendant be given a fair opportunity to litigate a disputed obligation and also require that a plaintiff, who has, according to regular and legal proceedings, secured a judgment be protected against a violation of the rule which requires the sanctity and security of a valid judgment." Coconino Pulp and Paper Company v. Marvin, 83 Ariz. 117, 120, 317 P.2d 550, 552 (1957).
When the circumstances are such, however, that it would be extremely unjust to enforce a default judgment, the equitable principle that a defendant should be allowed to defend on the merits may govern. Bateman v. McDonald, 94 Ariz. 327, 385 P.2d 208 (1963); Wellton-Mohawk Irr. and Drain. Dist. v. McDonald, 1 Ariz. App. 508, 509, 405 P.2d 299 (1965).
The trial court may have concluded that the defendants' conduct in failing to appear or answer, was induced through the repeated admonitions "to get in touch with his insurance company" and to turn any papers over to the insurance company. The mistaken belief that everything was in the hands of the insurance company, coupled with the defendants' lack of experience in litigation, may have led him to believe that he had no further obligation in the matter. Another factor which the trial court may have considered is the haste with which the default was entered.
In view of the strong public policy favoring trials on their merits, we, as an appellate court, should uphold the trial court's ruling when the record discloses sufficient foundation in support thereof and the plaintiff has shown no detriment from the delay. The following language in Boyle v. Veterans Hauling Line, 29 Ill. App.2d 235, 172 N.E.2d 512, 87 A.L.R.2d 861 (1961) is pertinent:
"The question of whether or not a court should set aside a default should be so resolved as to do substantial justice between the parties and with the idea in mind of carrying out, insofar as it is possible, the determination of matters upon their merits. In resolving this problem, a court may well consider whether or not a defendant has a meritorious defense, and whether or not defendant's delay in responding to the court's command actually jeopardizes plaintiff's basic position. But this should not be the only, nor necessarily, the determining factors. It seems to us that *597 the overriding reason should be whether or not justice is being done. Justice will not be done if hurried defaults are allowed any more than if continuing delays are permitted. But justice might, at times, require a default or a delay. What is just and proper must be determined by the facts of each case, not by a hard and fast rule applicable to all situations regardless of the outcome."
The trial court resolved all doubts in favor of the defendants' application, to accomplish a trial on the merits. I cannot say it abused its discretion. Gray v. Dillon, 97 Ariz. 16, 396 P.2d 251 (1964).
To establish that he had a meritorious defense, the husband stated in his affidavit that he was on a through street when the other vehicle involved in the collision, driven without headlights, ran a stop sign. The intersection was obstructed by a hedge and the defendant could not see the other vehicle until it entered the intersection. Since he did not see the other vehicle in time, he had no opportunity to avoid the collision. I believe this to be a sufficient showing to support granting of the motion. The defendants were required to show no more than that the defense may be held to be meritorious on the final disposition by the case. Wilshire Mortgage Corporation v. Elmer Shelton Concrete Con., 97 Ariz. 65, 397 P.2d 50 (1964); Gray v. Dillon, supra.
The procedure designated by my colleagues may be of value, but I do not believe it should be followed here. In setting aside the default judgment, but not the default, responsibility, the first principle of tort law, is eliminated. In effect the parties are placed in a vehicle where the steering wheel has been disconnected and they are left to wrestle for the throttle and the brake. How such a trial by ordeal emulates justice, I cannot fathom. We should affirm the trial court's order setting aside the default and the default judgment.
NOTES
[1] Motion to set aside default and default judgment was filed in the instant action on January 20, 1967, seven days after learning of the entry of judgment.
[2] I. e., in the defendants' memorandum in support of the motion to set aside, at p. 2, is the following: "It is contrary to all concepts of justice that awards of huge sums of money be made against a person without the person having an opportunity to defend."
[3] There is a diversity of authority as to whether there is a right of jury trial as to the issue of damage after default. A leading case holding there is such a right is Thorpe v. National City Bank, 274 F. 200 (5th Cir.1921). There is considerable authority to the contrary, though the granting of a jury trial to the defaulting defendant is usually held to be discretionary with the trial court. Johanson v. United Truck Lines, 62 Wash.2d 437, 383 P.2d 512 (1963); 3 Barron & Holtzoff Federal Practice and Procedure § 1216, at 86-87 (1958); and 6 Moore's Federal Practice § 55.07, at 1822 (2d ed. 1953). Statutory provision existing in this state from 1866 until the adoption of the Rule of Federal Procedure in 1939 provided for a jury trial after default on the issue of damage, in the discretion of the trial judge. See Compiled Laws of 1877, § 152 (2d sub-section), at 432; R.S. 1887 § 808, at 182; R.S. 1901 § 1441, at 455; R.S. 1913 § 564, at 362; R.C. 1928 § 3846, at 900.
[4] The complainant's prayer for relief requested "* * * a sum of money that is fair and just compensation and in no event less than the sum of $50,000."
[5] Section 71 of the Civil Practice Act of Illinois, Ill.Stat. ch. 110 (Smith-Hurd 1956) reads:
"Upon default, when the damages are to be assessed, the court may hear the evidence and assess the damages without a jury for that purpose. If interlocutory judgment is given in an action brought upon a penal bond, or upon any instrument in writing, for the payment of money only, and the damages rest in computation, the court may refer the matter to the clerk, to assess and report the damages, and may enter judgment therefor: Provided, that either party may have the damages assessed by a jury."
|
541 U.S. 1009
ZELINSKY ET UX.v.TAX APPEALS TRIBUNAL OF NEW YORK ET AL.
No. 03-1177.
Supreme Court of United States.
April 26, 2004.
1
Ct. App. N. Y. Certiorari denied. Reported below: 1 N. Y. 3d 85, 801 N. E. 2d 840.
|
479 F.2d 820
YUEN SANG LOW et al., Plaintiffs-Appellees,v.The ATTORNEY GENERAL OF the UNITED STATES, and Cecil W.Fullilove, District Director, San FranciscoDistrict, Immigration and NaturalizationService, Defendants-Appellants.
No. 26741.
United States Court of Appeals,Ninth Circuit.
May 30, 1973.
David R. Urdan, Chief Asst. U. S. Atty. (argued), James L. Browning, Jr., U. S. Atty., Stephen M. Suffin, Trial Atty., I&NS, San Francisco, Cal., for defendants-appellants.
Joseph S. Hertogs (argued), of Jackson & Hertogs, San Francisco, Cal., for plaintiffs-appellees.
Before DUNIWAY and ELY, Circuit Judges, and BYRNE, Jr., District Judge.*
DUNIWAY, Circuit Judge:
OPINION
1
The three appellees in this case are aliens who sought admission into the United States more than twenty years ago. They claimed to be citizens, but those claims were rejected, and each of them was ordered excluded by the Board of Immigration Appeals. While those proceedings were pending, each of them was paroled into the United States, pursuant to 8 U.S.C. Sec. 1182(d)(5). For reasons which are not explained in the record, they have been in the United States on parole status ever since.
2
Each alien submitted an application for a suspension of deportation and adjustment of status to that of an alien lawfully admitted for permanent residence under section 244(a)(1) of the Immigration and Nationality Act, 8 U.S.C. Sec. 1254(a)(1). The District Director of the Immigration and Naturalization Service refused to accept the applications on the ground that these aliens are not eligible for the relief afforded by that section. The aliens then sought review in the district court under 5 U.S. C. Sec. 701, et seq. The court granted their motion for summary judgment. It found that they had been "physically present" in the United States in excess of seven years, as required by section 244(a)(1), and that they were therefore entitled to file an application for suspension of deportation. We reverse.
3
Section 244(a) of the Act provides in pertinent part:
4
". . . [T]he Attorney General may, in his discretion, suspend deportation and adjust the status to that of an alien lawfully admitted for permanent residence, in the case of an alien who applies to the Attorney General for suspension of deportation and-
5
(1) is deportable under any law of the United States . . . ; has been physically present in the United States for a continuous period of not less than seven years immediately preceding the date of such application. . . ."
6
To bring themselves within this section, the aliens must satisfy two requirements: (1) They must have been "physically present in the United States" for the required period and, (2) they must be "deportable." In this case the aliens do not meet either requirement.
7
1. If the words "physically present" are to be taken literally, it is obvious that the aliens meet this requirement. However, we are in the never-never land of the Immigration and Nationality Act, where plain words do not always mean what they say.
8
In Leng May Ma v. Barber, 1958, 357 U.S. 185, 78 S.Ct. 1072, 2 L.Ed.2d 1246, the Court had before it the question whether an alien who, like the aliens in this case, was considered excludable but had been paroled into the United States, was "within" the United States under section 243(h) of the Act, 8 U.S.C. Sec. 1253(h), and so entitled to seek withholding of deportation under that section. Surely, under the literal meaning of "within" the alien was "within" the United States. But the Court held that legally she was not.
9
The Court pointed to the long standing distinction "between those aliens who have come to our shores seeking admission . . . and those who are within the United States after an entry, irrespective of its legality." (P. 187, 78 S.Ct. p. 1073.) It further said:
10
"In the latter instance the Court has recognized additional rights and privileges not extended to those in the former category who are merely 'on the threshold of initial entry'. Shaughnessy v. United States ex rel. Mezei, 1953, 345 U.S. 206, 212, 73 S.Ct. 625, 629, 97 L.Ed. 956. See Kwong Hai Chew v. Colding, 1953, 344 U.S. 590, 596, 73 S.Ct. 472, 477, 97 L.Ed. 576. The distinction was carefully preserved in Title II of the Immigration and Nationality Act. Chapter 4 subjects those seeking admission to 'exclusion proceedings' to determine whether they 'shall be allowed to enter or shall be excluded and deported.' 66 Stat. 200, 8 U.S.C. Sec. 1226(a). On the other hand, Chapter 5 concerns itself with aliens who have already entered the United States and are subject to 'expulsion,' as distinguished from 'exclusion,' if they fall within certain 'general classes of deportable aliens.' 66 Stat. 204, 8 U.S.C. Sec. 1251. Proceedings for expulsion under Chapter 5 are commonly referred to as 'deportation proceedings.' Parenthetically, the word 'deportation' appears also in Chapter 4 to refer to the return of excluded aliens from the country, but its use there reflects none of the technical gloss accompanying its use as a word of art in Chapter 5."
11
The Court then cited (p. 188, 78 S.Ct. p. 1074) a list of cases holding that aliens held in custody pending determination of their admissibility have not made "an entry though the alien is physically within the United States." "It seems quite clear that an alien so confined would not be 'within the United States' for purposes of Sec. 243(h)." (P. 188, 78 S.Ct. p. 1074.) The Court went on to hold that parole, as a substitute for custody, did not change the result; the parolee still was not "within" the United States. It relied in part on section 212(d)(5) of the Act, (8 U.S.C. Sec. 1182(d)(5)), which states that parole "shall not be regarded as an admission of the alien," and that, after return to custody, the alien's case "shall continue to be dealt with in the same manner as that of any other applicant for admission to the United States."
12
Leng May Ma requires the same result here. Section 244, like section 243, is a part of Chapter 5, not Chapter 4. The use of different language in section 244 does not change the result. It is true that in Leng May Ma the court said that detained aliens are "physically within" the United States, and the aliens seek to distinguish the case on that ground. But the distinction will not wash.
13
Before the adoption of the Act in 1952, the statute provided that an alien who had "resided continuously in the United States for seven years or more" was eligible to apply for suspension of deportation. (Act of July 1, 1948, 62 Stat. 1206.) It is clear that if residence were still the criterion, the aliens could not meet it. In Kaplan v. Tod, 1925, 267 U.S. 228, 45 S.Ct. 257, 69 L.Ed. 585 (cited with approval in Leng May Ma, supra, 357 U.S. at p. 189, 78 S.Ct. at p. 1074), which involved a paroled alien, Mr. Justice Holmes said:
14
"The appellant could not lawfully have landed in the United States . . ., and until she legally landed 'could not have dwelt within the United States'. . . . When her prison bounds were enlarged by committing her to the custody of the Hebrew Society, the nature of her stay within the territory was not changed. She was still in theory at the boundary line and had gained no foothold in the United States." (P. 230, 45 S.Ct. p. 257.)
15
The seven years' residence language of the statute was criticized on the ground that an alien could enter the United States and establish residence and then go abroad for an extended period while technically maintaining residence here and thus remain eligible for suspension of deportation. It was in response to that criticism that the Congress in 1952 modified the statute by including the "physically present . . . for a continuous period" requirement. See S. Rep.No.1515, 81st Cong.2d Sess., 595-604 (1950). Thus the purpose of Congress was to tighten the statute insofar as it applied to aliens who had "entered" the United States, not to extend the application of the statute to those who had been excluded but paroled into the United States pending final determination of their excludability. The decision in Leng May Ma is, we think, just as applicable to the "physically present in the United States" language of section 244 as it is to the "within the United States" language of section 243.
16
2. Assuming, however, that we are in error in this respect, Leng May Ma would nevertheless require a reversal in this case. This is because the aliens are not "deportable" within the meaning of section 244(a). This position at first blush seems as anomalous as our holding that these aliens are not technically physically present in the United States. The law, however, is that aliens paroled into the United States have not been admitted into the United States. See 8 U.S.C. Sec. 1182 (d)(5). They are persons subject to "exclusion" which, as is pointed out in Leng May Ma, supra, 357 U.S. p. 187, 78 S.Ct. 1072, is to be distinguished from "expulsion" or "deportation." It is true that, as persons subject to exclusion, under Chapter 4 of Title II of the Act, 8 U.S.C. Secs. 1221-1230, these aliens are subject to "immediate deportation." See 8 U.S.C. Sec. 1227. Nevertheless, they are not "deportable under any law of the United States" within the meaning of section 244(a).
17
In Leng May Ma, supra, as we have seen, the Court held that one of the rights and privileges unavailable to excludees was application for withholding of deportation under section 243(h). The rationale is equally applicable to section 244(a). The Court held that the fact that Chapter 4 provides for the "deportation" of excludees does not render such excludees "deportable" as that term is used in Chapter 5. The Court found it significant that the provision for withholding of deportation, (Sec. 243(h)), was found in Chapter 5. So is the provision of section 244(a) in question here. Under the compulsion of Leng May Ma, supra, we hold that the appealing aliens are not deportable within the meaning of section 244(a). That term, as Leng May Ma holds, is a word of art and does not cover excludable aliens who have been paroled into the country.
18
We can find nothing in the law that would permit us to hold that section 244(a) becomes applicable if parole continues for an inordinate length of time. We are regretfully constrained to hold that suspension of deportation under section 244(a) is not a right or privilege extended to those paroled into the United States and who are therefore legally merely on the threshold of initial entry.
19
The judgment is reversed with directions to enter summary judgment in favor of the appellants.
ELY, Circuit Judge (dissenting):
20
I respectfully dissent. Whenever there is a reasonable doubt as to the proper interpretation of statutes granting discretionary power to the Attorney General in respect to the deportation of aliens, the doubt should be resolved in favor of the aliens. See Barber v. Gonzales, 347 U.S. 637, 74 S.Ct. 822, 98 L.Ed. 1009 (1954); Fong Haw Tan v. Phelan, 333 U.S. 6, 68 S.Ct. 374, 92 L.Ed. 433 (1948). See also Errico v. I&NS, 349 F.2d 541 (9th Cir. 1965), 385 U.S. 214, 87 S.Ct. 473, 17 L.Ed.2d 318 (1966); Garcia-Gonzales v. I&NS, 344 F.2d 804 (9th Cir. 1965).
21
My Brother Duniway's opinion is, typically, written with the utmost care; nevertheless, I cannot subscribe to the technicality of its reasoning. In granting relief to the aliens here involved, District Judge Zirpoli wrote, in part:
22
"The statute under which petitioners seek relief from the Immigration and Naturalization Service in this case is Section 1254(a) of Title 8, United States Code Annotated. Within the meaning of that section the petitioners, in the instant cases, have been physically present in the United States in excess of the prescribed number of years and are therefore entitled to seek the relief prayed for and are entitled to a hearing thereon from the Attorney General of the United States.
23
"The case of Leng May Ma v. Barber, 1958, 357 U.S. 185, 78 S.Ct. 1072, 2 L.Ed.2d 1246, applies to Section 1253 (h) of Title 8, United States Code, and is not, in this Court's view, controlling in its interpretation of Section 1254(a)." (emphasis in original)
24
Agreeing with Judge Zirpoli, I would affirm his "Order and Judgment" remanding the cause for the Attorney General's consideration of the appellees' applications for suspension of deportation.
*
Honorable Wm. Matthew Byrne, Jr., United States District Judge, Central District of California, sitting by designation
|
976 A.2d 383 (2009)
200 N.J. 206
STATE
v.
CHESTER.
C-1087 September Term 2008, 64,171
Supreme Court of New Jersey.
July 10, 2009.
Petition for certification. Denied.
|
Order entered May 6, 2019
In The
Court of Appeals
Fifth District of Texas at Dallas
No. 05-18-01140-CV
ZACHARIAH C. MANNING, Appellant
V.
PENFED REALTY, LLC, ET AL., Appellees
On Appeal from the 301st Judicial District Court
Dallas County, Texas
Trial Court Cause No. DF-17-15897
ORDER
Before the Court is appellant’s May 1, 2019 motion for an extension of time to file his
reply brief. We GRANT the motion and extend the time to June 3, 2019.
/s/ ERIN A. NOWELL
JUSTICE
|
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 06-4539
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
versus
STANLEY LEON WADDELL,
Defendant - Appellant.
Appeal from the United States District Court for the Middle
District of North Carolina, at Durham. N. Carlton Tilley, Jr.,
District Judge. (1:05-cr-00347-NCT)
Submitted: January 18, 2007 Decided: January 22, 2007
Before WILKINSON, TRAXLER, and GREGORY, Circuit Judges.
Affirmed by unpublished per curiam opinion.
James E. Quander, Jr., QUANDER & RUBAIN, P.A., Winston-Salem, North
Carolina, for Appellant. Sandra Jane Hairston, Assistant United
States Attorney, Greensboro, North Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Stanley Leon Waddell appeals his conviction and sentence
for possession with intent to distribute cocaine base. Waddell
pled guilty to the charge and was sentenced as a career offender to
190 months’ imprisonment. On appeal, Waddell’s counsel has filed
a brief pursuant to Anders v. California, 386 U.S. 738 (1967),
stating that in counsel’s opinion, there are no meritorious issues
for appeal. Waddell has filed a pro se supplemental brief
challenging his sentence and arguing that: (1) the court should
have granted a downward departure from the calculated sentencing
range on the basis of mental and emotional conditions caused by his
drug addiction; and (2) his sentence was unconstitutional because
the prior convictions used to enhance his sentence were not charged
in the indictment, admitted, or proved to a jury beyond a
reasonable doubt.
Waddell’s claim that he was entitled to a downward
departure from the advisory Sentencing Guidelines range based on
mental and emotional conditions is not supported by the record.
Moreover, even if counsel had sought a departure, the court’s
decision whether to grant it would have been entirely
discretionary. United States v. Moreland, 437 F.3d 424, 434 (4th
Cir.), cert. denied, 126 S. Ct. 2054 (2006). The court’s
statements at sentencing indicate that it would not have
entertained such a request. In addition, Waddell’s assertion that
- 2 -
his sentence was unconstitutionally enhanced is foreclosed by this
circuit’s precedent. See United States v. Cheek, 415 F.3d 349,
352-54 (4th Cir.), cert. denied, 126 S. Ct. 640 (2005)(prior
convictions need not be charged in the indictment, admitted by the
defendant or proved to a jury).
In accordance with Anders, we have reviewed the record in
this case and have found no meritorious issues for appeal. We
therefore affirm Waddell’s conviction and sentence. This court
requires that counsel inform his client, in writing of the right to
petition the Supreme Court of the United States for further review.
If Waddell requests that a petition be filed, but counsel believes
such a petition would be frivolous, then counsel may move in this
court for leave to withdraw from representation. Counsel’s motion
must state that a copy thereof was served on Waddell.
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
- 3 -
|
712 F.Supp.2d 1007 (2010)
Johnnie PAXTON, et al.
v.
CITY OF MONTEBELLO.
Case No. CV 09-3691-RC.
United States District Court, C.D. California.
March 18, 2010.
Carolina Veronica Diaz, for Plaintiff.
Kevin R. Dale, for Defendant.
PROCEEDINGS: (1) ORDER GRANTING, IN PART, AND DENYING, IN PART, PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT; AND (2) ORDER GRANTING, IN PART, AND DENYING, IN PART, DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT
ROSALYN M. CHAPMAN, United States Magistrate Judge.
On February 17, 2010, plaintiffs filed a notice of motion and motion for summary judgment or, in the alternative, partial summary judgment, a supporting memorandum of points and authorities, a separate statement of uncontroverted facts, and several supporting declarations, and defendant City of Montebello ("City") filed a notice of motion and motion for summary judgment or, in the alternative, partial summary judgment, a supporting *1008 memorandum of points and authorities, a separate statement of uncontroverted facts, and supporting declarations. On February 24, 2010, defendant City filed an opposition to plaintiffs' summary judgment motion and evidentiary objections to the declarations of plaintiffs and their counsel, and plaintiffs filed an opposition to defendant City's summary judgment motion and opposing declarations. On March 3, 2010, the parties filed their replies, both sides filed supplemental declarations, and defendant City filed additional evidentiary objections to plaintiffs' declarations.[1] Oral argument was held on March 17, 2010.
BACKGROUND
I
On May 28, 2009, plaintiffs Johnnie Paxton and Brandon Contreras filed a complaint against defendant City claiming violations of the Uniformed Services Employment and Reemployment Rights Act, 38 U.S.C. § 4301 et seq., and seeking damages, interest, penalties, attorney's fees, costs, and other relief. On July 8, 2009, City answered the complaint and raised seven affirmative defenses.
II
The parties' declarations establish the following uncontroverted facts: Plaintiffs Johnnie Paxton and Brandon Contreras are members of the California Army National Guard who enlisted in 1999 and are subject to being activated for military service. Declaration of Johnnie Paxton ("Paxton Decl.") ¶¶ 1-2; Declaration of Brandon Contreras ("Contreras Decl.") ¶¶ 1-2. On July 20, 2006, City hired plaintiffs as police trainees, and on August 25, 2006, plaintiffs became probationary police officers.[2] Paxton Decl. ¶¶ 3-4; Contreras Decl. ¶¶ 3-4; Mooshagian Decl. ¶¶ 3-4, Exhs. A-B; Declaration of Elizabeth Ortega ("Ortega Decl.") ¶ 4. On February 25, 2007, six months after being hired as probationary police officers, plaintiffs advanced to Step Two.[3] Paxton Decl. ¶ 5; *1009 Contreras Decl. ¶ 5; Mooshagian Decl. ¶ 8, Exh. E; Ortega Decl. ¶ 6.
On or about February 2007, plaintiffs learned they were being activated for military service, and they gave notice to City of their activation. Paxton Decl. ¶ 6; Contreras Decl. ¶ 6. On or about May 13, 2007, plaintiffs were deployed to Iraq for about one year, or until May 10, 2008. Paxton Decl. ¶ 12; Contreras Decl. ¶ 11. City awarded plaintiffs: paid military leave from May 13 to June 12, 2007, and from July 1 to July 30, 2007;[4] military leave without pay from June 13 to June 30, 2007, and from August 1, 2007, to January 23, 2008; and differential pay with military leave from January 23 to May 10, 2008.[5] Mooshagian Decl. ¶¶ 11-12, Exhs. G-H; Ortega Decl. ¶¶ 7, 9, 10-12, 16-20. City also awarded plaintiffs annual leave for their two months of paid military leave, but not for the remaining ten months of military leave. Ortega Decl. ¶¶ 7, 9, 12-13, 21.
When plaintiffs returned from military leave on May 11, 2008, City reinstated them to their probationary status and credited them with having completed eight months of probation, pursuant to Rule IX, Section 194, of City's civil service rules and regulations.[6] Mooshagian Decl. ¶¶ 5, 13, Exh. C. On January 25, 2009, plaintiff Paxton *1010 successfully completed probation and was awarded Step Three pay, and on February 25, 2009, plaintiff Contreras successfully completed probation and was awarded Step Three pay. Mooshagian Decl. ¶ 15, Exhs. J; Ortega Decl. ¶¶ 23-24.
DISCUSSION
III
Federal Rule of Civil Procedure 56(c) provides for the granting of summary judgment "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c)(2). Judgment must be entered "if ... there can be but one reasonable conclusion as to the verdict .... [However, i]f reasonable minds could differ," judgment should not be entered in favor of the moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-51, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986).
The moving party bears the initial burden of identifying the elements of the claim in the pleadings, or other evidence which the moving party "believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986); Adickes v. S.H. Kress and Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970); MetroPCS, Inc. v. City & County of San Francisco, 400 F.3d 715, 720 (9th Cir.2005). "Material facts are those which may affect the outcome of the case." Long v. County of Los Angeles, 442 F.3d 1178, 1185 (9th Cir. 2006); Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); Scribner v. Worldcom, Inc., 249 F.3d 902, 907 (9th Cir.2001). "A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for the non-moving party." Long, 442 F.3d at 1185; Galen v. County of Los Angeles, 477 F.3d 652, 658 (9th Cir.2007). The burden then shifts to the nonmoving party to establish, beyond the pleadings, that there is a genuine issue for trial. Celotex Corp., 477 U.S. at 324, 106 S.Ct. at 2553; Porter v. Cal. Dep't of Corr., 419 F.3d 885, 891 (9th Cir.2005).
Finally, the parties bear the same substantive burden of proof as would apply at a trial on the merits, including plaintiffs burden to establish any element essential to his case. Celotex Corp., 477 U.S. at 322-23, 106 S.Ct. at 2552-53; Anderson, 477 U.S. at 252, 106 S.Ct. at 2512. Thus, "[s]ummary judgment for a defendant is appropriate when the plaintiff `fails to make a showing sufficient to establish the existence of an element essential to [his] case, and on which [he] will bear the burden of proof at trial.'" Cleveland v. Policy Management Sys. Corp., 526 U.S. 795, 805-06, 119 S.Ct. 1597, 1603, 143 L.Ed.2d 966 (1999) (quoting Celotex Corp., 477 U.S. at 322, 106 S.Ct. at 2552).
IV
Congress enacted the Uniformed Services Employment and Reemployment Rights Act ("USERRA") in 1994 "to protect the employment and reemployment rights of veterans."[7]Francis v. Booz, *1011 Allen & Hamilton, Inc., 452 F.3d 299, 300 (4th Cir.2006). More specifically, USERA prohibits employers from discriminating against individuals based on their membership in the military. 38 U.S.C. § 4311; see also Townsend v. Univ. of Alaska, 543 F.3d 478, 482 (9th Cir.2008) (USERRA "forbids employment discrimination on the basis of membership in the armed forces."), cert. denied, ___ U.S. ___, 129 S.Ct. 1907, 173 L.Ed.2d 1058 (2009); Leisek v. Brightwood Corp., 278 F.3d 895, 898 (9th Cir.2002) (same). In certain circumstances, USERRA requires employers to reemploy service members upon their return from duty, 38 U.S.C. § 4312; Wallace v. City of San Diego, 479 F.3d 616, 625 (9th Cir.2007), and after reemployment has occurred, USERRA "`prohibits discrimination with respect to any benefit of employment against persons who serve in the armed services after they return from a deployment and are reemployed.'" Clegg v. Ark. Dept. of Corr., 496 F.3d 922, 930 (8th Cir.2007) (citation omitted); Petty v. Metro. Gov't of Nashville-Davidson County, 538 F.3d 431, 440 (6th Cir.2008), cert. denied, ___ U.S. ___, 129 S.Ct. 1933, 173 L.Ed.2d 1057 (2009). "Because USERRA was enacted to protect the rights of veterans and members of the uniformed services, it must be broadly construed in favor of its military beneficiaries." Francis, 452 F.3d at 303; Petty, 538 F.3d at 439.
The plaintiffs claim City violated USERA regarding the terms of their reemployment, i.e., reinstatement, seniority, rate of pay (step) and annual leave, and by retaliating against them for taking military leave.[8] The plaintiffs are correct, as discussed below.
A. Reinstatement, Seniority and Rate of Pay (Step):
"Any person whose absence from a position of employment is necessitated by reason of service in the uniformed services is entitled to the reemployment rights and benefits of USERRA."[9]Rogers v. City of *1012 San Antonio, 392 F.3d 758, 763 (5th Cir. 2004), cert. denied, 545 U.S. 1129, 125 S.Ct. 2945, 162 L.Ed.2d 868 (2005); 38 U.S.C. § 4312(a). Here, there is no dispute that plaintiffs are eligible services members within the meaning of USERRA. "Section 4312 of USERRA provides a right to reemployment for members of the armed services who (1) properly notify their employers of the need for a service-related absence, (2) take cumulative absence of no more than five years and (3) properly report to work or reapply for employment, depending upon the length of the absence." Wallace, 479 F.3d at 625; see also Clegg, 496 F.3d at 930 ("Section 4312 protects service members at the instant of seeking reemployment, entitling the service member to reemployment in either the position she would have been in had she not left for military service `or a position of like seniority, status and pay, the duties of which the person is qualified to perform.'" (citation omitted)); Petty, 538 F.3d at 439-40 (same). More specifically, USERRA requires employers to "promptly reemploy[]" eligible service members who have been absent from work for more than ninety days due to military service in "the position of employment in which the person would have been employed if the continuous employment of such person with the employer had not been interrupted by such service, or a position of like seniority, status and pay, the duties of which the person is qualified to perform[.]" 38 U.S.C. § 4313(a)(2)(A). This obligation, known as the "escalator principle," is explained as follows:
The principle behind the escalator position is that, if not for the period of uniformed service, the employee could have been promoted (or, alternatively, demoted, transferred, or laid off) due to intervening events. The escalator principle requires that the employee be reemployed in a position that reflects with reasonable certainty the pay, benefits, seniority, and other job perquisites, that he or she would have attained if not for the period of service. Depending upon the specific circumstances, the employer may have the option, or be required, to reemploy the employee in a position other than the escalator position.
20 C.F.R. § 1002.191; see also 20 C.F.R. § 1002.192 ("In all cases, the starting point for determining the proper reemployment position is the escalator position, which is the job position that the employee would have attained if his or her continuous employment had not been interrupted due to uniformed service."). "[T]he escalator principle applies to the employment position, and rate of pay, as well as the seniority rights to which the returning service member is entitled." Rogers, 392 F.3d at 763; see also 20 C.F.R. § 1002.193(a) ("The reemployment position includes the seniority, status, and rate of pay that an employee would ordinarily have attained in that position given his or her job history, including prospects for future earnings and advancement. The employer must determine the seniority rights, status, and rate of pay as though the employee had been continuously employed during the period of service."). Thus, "[a] person who is reemployed under USERRA is entitled to the seniority and other rights and benefits determined by seniority that the person had on the date of the beginning of service plus the additional seniority and rights and benefits that he or she would have attained if the person had remained continuously employed." Rogers, 392 F.3d at *1013 763 (emphasis added); 20 C.F.R. § 1002.193(a).
As an initial matter, the parties disagree about whether City violated USERRA when it reinstated plaintiffs as probationary police officers and placed them in Step Two. Plaintiffs' Memo. at 10:5-11:13. On the one hand, plaintiffs argue their probation should have ended while they were on military leave, and they rely on Rule IX, Section 194, of City's civil service rules to support their claim.[10] On the other hand, City contends it complied with USERRA when it reinstated plaintiffs as probationary police officers and placed them in Step Two, and then, after probation was completed, advanced plaintiffs to Step Three. Defendant City's Memorandum of Points and Authorities in Support of Motion for Summary Judgment ("Defendant's Memo.") at 7:1-11:26. Neither side is totally correct.
As a general matter, a probationary employee can be required to complete his probationary period following his return from military leave. Tilton v. Mo. Pac. R.R. Co., 376 U.S. 169, 180-81, 84 S.Ct. 595, 602, 11 L.Ed.2d 590 (1964).[11] Thus, "[a] returning veteran cannot claim a promotion that depends solely upon satisfactory completion of a prerequisite period of employment training unless he first works that period." Id., 84 S.Ct. at 602; see also 70 Fed.Reg. 75246, 75272 (Dec. 19, 2005) (Department of Labor "has long held that if a probationary period is a bona fide period of observation and evaluation, the returning service member must complete the remaining period of probation upon reemployment. Therefore, ... if an employee who left employment for military service was in the midst of a bona fide ... probationary period that required actual training and/or observation in the position[],... the employee should be allowed to complete the ... probationary period following reemployment.")Thus, City properly reinstated plaintiffs as probationary employees, and properly required them to successfully complete probation, and plaintiffs' motion for summary judgment is denied to the extent they contend City wrongfully returned them to probationary status following their return from military leave and, conversely, City's cross-motion for summary judgment is granted on this claim.
This is not the end of the matter, however. Rather, "Congress intended a reemployed veteran who, upon returning from military service, satisfactorily completes his interrupted training, to enjoy the seniority status which he would have acquired by virtue of continued employment but for his absence in military service. This requirement is met if, as a matter of foresight, it was reasonably certain that advancement would have occurred, and if, as a matter of hindsight, it did in fact *1014 occur."[12]Tilton, 376 U.S. at 181, 84 S.Ct. at 602 (emphasis added). In other words, "upon satisfactorily completing that [probationary] period, ... [the employee] can insist upon a seniority date reflecting the delay caused by military service." Tilton, 376 U.S. at 181, 84 S.Ct. at 602; see also 70 Fed.Reg. at 75272 ("Once the employee completes the ... probationary period, the employee's pay and seniority should reflect both the pre- and post-service time in the... probationary period, plus the time served in the military.").
Here, plaintiffs successfully completed their probation after reinstatement as probationary police officers, and upon such successful completion of probation, plaintiffs were entitled to have their seniority and pay changed to reflect their twelve months of military service. Although City's civil service policy generally requires an employee to serve at least twelve months at Step Two and each subsequent step, this policy cannot deny plaintiffs the benefits they are entitled to under USERA. See 38 U.S.C. § 4302(b) ("This chapter supersedes any State law (including any local law or ordinance), contract, agreement, policy, plan, practice, or other matter that reduces, limits, or eliminates in any manner any right or benefit provided by this chapter, including the establishment *1015 of additional prerequisites to the exercise of any such right or the receipt of any such benefit."). This means that, upon successfully completing probation. City should have awarded plaintiffs the seniority they would have had if they had not gone on military leave for twelve months and placed them in the Step Four pay category. Thus, plaintiffs' motion for summary judgment on their seniority and pay claims should be granted, and City's cross-motion for summary judgment on these claims must be denied.
B. Annual Leave:
At the time plaintiffs were placed on military leave, they were accruing 9.23 prorated hours of annual leave for each two-week pay period or 240 hours (30 days) of annual leave yearly.[13] Ortega Decl. ¶ 8, Exh. K. For the two months plaintiffs were on paid military leave, City allowed them to accrue annual leave; however. City did not allow plaintiffs to accrue annual leave for the remaining ten months of military leave. Ortega Decl. ¶¶ 12-13. Plaintiffs contend City's refusal to allow them to accrue annual leave for their whole twelve months of military leave violated their rights under USERRA. On the other hand, City claims USERRA was not violated because City "does not provide Annual Leave accruals to other similarly situated employees on furlough or leave of absence."[14] Defendant's Memo. at 12:13-15; see also Ortega Decl. ¶ 13, Exh. K, Rule 227 ("Absence without pay shall cause ... accrual of [annual] leave to be reduced on a prorated bases."). The plaintiffs are correct.
USERRA provides that an employee who is absent from work to perform military service is generally "deemed to be on furlough or leave of absence while performing such service[,]" 38 U.S.C. § 4316(b)(1)(A); 20 C.F.R. § 1002.149, and is "entitled to such other rights and benefits not determined by seniority as are generally provided by the employer of the person to employees having similar seniority, status, and pay who are on furlough or leave of absence under a contract, agreement, policy, practice, or plan in effect at the commencement of such service or established while such person performs such service." 38 U.S.C. § 4316(b)(1)(B);[15] 20 *1016 C.F.R. § 1002.149. "As a general matter, [however,] accrual of vacation leave is considered to be a non-seniority benefit that must be provided by an employer to an employee on a military leave of absence only if the employer provides that benefit to similarly situated employees on comparable leaves of absence." 20 C.F.R. § 1002.150(c).
Initially, the Court is at a loss to understand City's application of Rule 227 to the period of military leave during which plaintiffs received differential pay under Resolution 08-05. Clearly, plaintiffs were being paid by City during this four-month period. Thus, for the four months plaintiffs were on military leave with differential pay, their situation was just like being on paid leavenot unpaid leave. Yet, City argues they were on unpaid leave during this time and, thus, could not accrue annual leave. This is clearly wrong, and under Section 1002.150(c), plaintiffs were entitled to accrue annual leave while receiving differential pay since other individuals on paid leave accrue annual leave. See Ortega Depo. at 31:5-13.
More importantly, however, City has a written policy specifically affording rights and benefits to employees on military leave, and that policy, Military Leave Policy V-B-15,[16] provides that employees who are reinstated following "ordered military leave," such as plaintiffs, are entitled to "receive the same vacation, sick leave and holiday or annual leave privileges as [they] would have enjoyed had [they] not been absent." Ortega Decl. ¶ 10, Exh. L (emphasis added); see also Ortega Depo. at 30:21-24 (Plaintiffs' annual leave would have accrued as normal had plaintiffs not taken military leave). Yet, despite this policy, City claims Rule 227 of its general civil service rules precludes plaintiffs from accruing annual leave while on "unpaid" military leave. City is in error in treating the six months plaintiffs were on military leave without pay like being absent without pay for the purpose of accruing annual leave. "[T]he fundamental rules of statutory construction apply in interpreting municipal enactments." McGraw v. City of Huntington Beach, 882 F.2d 384, 388 (9th Cir.1989). Under fundamental statutory construction rules, "[a] specific provision controls over one of more general application." Gozlon-Peretz v. United States, 498 U.S. 395, 407, 111 S.Ct. 840, 848, 112 L.Ed.2d 919 (1991). This means that, here, Military Leave Policy V-B-15 controls over Rule 227 of the civil service rules. Since it is undisputed that plaintiffs would have accrued annual leave if they had not been on military leave, Mooshagian Depo. at 71:7-24, plaintiffs are entitled under USERRA to accrue annual leave while on military leaveeven unpaid military leave.[17] Thus, plaintiffs' motion for summary judgment on their annual leave claim should be granted, and City's cross-motion for summary judgment on this claim must be denied.
ORDER
Plaintiffs' motion for summary judgment IS GRANTED, in part, and DENIED, in part, and defendant City's cross-motion for summary judgment IS GRANTED, in part, and DENIED, in part, as set forth *1017 herein. Judgment shall be entered in favor of plaintiffs, and such Judgment shall reflect the amount of damages, annual leave, accrued interest (if any), liquidated damages or penalties (if any), attorney's fees (if any) and costs to which plaintiffs are entitled, as determined by this Court at a later date.
1. For purposes of the Judgment, plaintiffs shall, no later than 30 days from the date of this Order, after complying with Local Rule 7-3, file either a stipulation setting forth the amount of damages, annual leave, accrued interest (if any), and liquidated damages or penalties (if any) to be awarded plaintiffs or, in the alternative, a motion for the award to plaintiffs of damages, annual leave, accrued interest (if any), and liquidated damages or penalties (if any), with supporting evidence, and setting a hearing on that motion.
2. For purposes of the Judgment, plaintiffs shall, no later than 30 days from the date of this Order, after complying with Local Rule 7-3, file either a stipulation setting forth the amount of attorney's fees and costs to be awarded plaintiffs or, in the alternative, a motion for the award of attorney's fees and costs, with supporting evidence, and setting a hearing on that motion.
NOTES
[1] The Court, having reviewed defendant City's evidentiary objections, denies the objections to the declaration of Carolina Veronica Diaz; however, the Court finds some of defendant City's objections to the declarations of plaintiffs Johnnie Paxton and Brandon Contreras to have merit, and the Court has not considered the objected-to portions of those declarations in reaching its rulings.
[2] City's police officers must serve a twelve-month probationary period, Declaration of Nicole Mooshagian ("Mooshagian Decl.") ¶ 5, Exh. C, which may be extended for another six months, as City routinely does for probationary police officers like plaintiffs hired directly from the police academy. Mooshagian Decl. ¶ 6, Exh. D; see also City of Montebello Municipal Code § 2.60.170.4 ("All initial appointments to public safety positions shall have a probationary period of twelve months; provided, however, that such probationary period may be extended for not more than a six-month period as determined by the appointing authority."). The probationary period is "part of the testing process" that allows City to observe "the employee's work, to secure effective adjustment of a new employee to his position" and "[t]o determine whether such probationary employee's performance meets the required standards." Mooshagian Decl. ¶ 5, Exh. C. On the average, City hires seven probationary police officers a year and three do not pass probation. Mooshagian Decl. ¶ 7; see also Supplemental Declaration of Brandon Contreras ¶ 1 (since 2006, approximately two police officers fail probation each year).
[3] City's civil service rules establish the salary steps for City employees, which provide a salary increase of 5% at each step. Mooshagian Decl. ¶ 9, Exh. F. Generally, City employees must serve at least twelve months at Step Two and each subsequent step, and they advance to Step Two after completing six months of probation and are eligible for advancement to Step Three "at any time after [they have] proven [themselves] satisfactory in the second step for a period of at least twelve (12) months." Id. As a practical matter, this means probationary police officers hired directly from the police academy are not eligible for Step Three until they pass probation. Mooshagian Decl. ¶ 10.
[4] The paid military leave was awarded under City's Military Leave Policy V-B-15, which provides:
Any employee who is participating in annual military training under orders or ordered military duty[] shall receive his/her salary for the first 30 calendar days. Compensation for such purposes shall not exceed 30 accumulated calendar days in any one fiscal year.
Ortega Decl. ¶ 7, 10, Exh. L. City's fiscal year runs July 1st through June 30th. Deposition of Elizabeth Ortega at 16:10-17:5.
[5] Differential pay is "the difference between the employee's current base monthly salary and the base military pay received by the employee." Ortega Decl. ¶ 14, Exh. M. The differential pay was awarded plaintiffs under Resolution 08-05, which the City Council of Montebello passed on January 23, 2008, for employees ordered to military service. Id.
[6] Rule IX, Section 194, provides:
[A]n employee on probationary status who enters active military service with the Armed Forces of the United States shall be entitled to all of the provisions of Section 395.3 of the Military and Veteran's [sic] Code of the State of California. If such probationary employee has served one-half or more of his probationary period, he shall be credited with such time toward completion of his probationary period. If such employee has served less than one-half of his probationary period, he shall serve the full probationary period beginning on the date of return to his position with the City.
Mooshagian Decl. ¶¶ 5, 13, Exh. C (emphasis added). Section 395.3 provides:
In the event that any public officer or employee has resigned or resigns his or her office or employment to serve or to continue to serve in the Armed Forces of the United States or in the militia of this state, he or she shall have a right to return to and reenter the office or employment prior to the time at which his or her term of office or his or her employment would have ended if he or she had not resigned, on serving a written notice to that effect upon the authorized appointing power, or if there is no authorized appointing power, upon the officer or agency having power to fill a vacancy in the office or employment, within six months of the termination of his or her active service with the Armed Forces; provided, that the right to return and reenter upon the office or position shall not extend to or be granted to any public officer or employee, who shall fail to return to and reenter upon his or her office or position within 12 months after the first date upon which he or she could terminate or could cause to have terminated his or her active service with the Armed Forces of the United States or of the militia of this state.... The right of reentry into public office or employment provided for in this section shall include the right to be restored to the civil service status as the officer or employee would have if he or she had not so resigned; and no other person shall acquire civil service status in the same position so as to deprive the officer or employee of his or her right to restoration as provided for hereton in.... This section does not apply to any public officer or employee to whom the right to reenter public office or employment after service in the Armed Forces has been granted by any other provision of law.
Cal. Mil. & Vet.Code § 395.3. "[P]ublic officers and employees" include "[a]ll officers and employees of any county, city and county, city, township, district, political subdivision, authority, commission, board, or other public agency within [California]." Id.
[7] The purposes of USERRA are:
(1) to encourage noncareer service in the uniformed services by eliminating or minimizing the disadvantages to civilian careers and employment which can result from such service;
(2) to minimize the disruption to the lives of persons performing service in the uniformed services as well as to their employers, their fellow employees, and their communities, by providing for the prompt reemployment of such persons upon their completion of such service; and
(3) to prohibit discrimination against persons because of their service in the uniformed services.
38 U.S.C. § 4301(a).
[8] In their opposition to City's summary judgment motion, and elsewhere, plaintiffs state "Defendant City would not allow Plaintiffs to come back to work `immediately', as required under USERRAbut instead, made Plaintiffs wait two months before working again," Plaintiffs' Memorandum of Points and Authorities in Opposition to Defendant's Motion for Summary Judgment at 2:12-14; see also id. at 19:11-14; Plaintiffs' Memorandum of Points and Authorities in Support of Plaintiffs' Motion for Summary Judgment ("Plaintiffs' Memo.") at 18:8-17; Contreras Decl. ¶ 13; Paxton Decl. ¶ 13. However, to the extent plaintiffs seek or contest summary judgment on the ground City did not promptly reemploy them in violation of USERRA, see 38 U.S.C. § 4313(a) (requiring prompt reemployment of returning veterans); 20 C.F.R. § 1002.181 ("`prompt reemployment' means as soon as practicable under the circumstances of each case. Absent unusual circumstances, reemployment must occur within two weeks of the employee's application for reemployment."), they cannot do so since they do not raise this issue in their complaint. Pickern v. Pier 1 Imports (U.S.), Inc., 457 F.3d 963, 968-69 (9th Cir.2006); Coleman v. Quaker Oats Co., 232 F.3d 1271, 1292-93 (9th Cir.2000), cert. denied, 533 U.S. 950, 121 S.Ct. 2592, 150 L.Ed.2d 751 (2001); see also Torres v. City of Madera, 655 F.Supp.2d 1109, 1128 (E.D.Cal. 2009) ("If the complaint focuses on one theory of liability, the plaintiff cannot turn around and surprise the defendant at the summary judgment stage with a new theory of liability.").
[9] "The USERRA construes the term `reemployment' broadly to include persons technically on leave of absence who maintain some elements of the employee/employer relationship." Jordan v. Air Prods. & Chem., Inc., 225 F.Supp.2d 1206, 1207 n. 1 (C.D.Cal.2002).
[10] See footnote 6 supra. The plaintiffs' reliance on the highlighted portion of Rule IX in arguing they should be awarded double credit for the probation period they completed before military service is mistaken. Here, plaintiffs received credit for the time they spent on probation prior to their military leave, and were only required to complete the portion of their probation they had not completed prior to military service. Mooshagian Decl. ¶ 13.
[11] Although Tilton pre-dates the enactment of USERRA, it is clear that "[r]elevant pre-UERRA case law is properly considered as a guide to interpreting USERRA." Petty, 538 F.3d at 439; Francis, 452 F.3d at 303; see also 20 C.F.R. § 1002.2 ("USERRA is the latest in a series of laws protecting veterans' employment and reemployment rights going back to the Selective Training and Service Act of 1940.... In enacting USERRA, ... Congress... emphasized that Federal laws protecting veterans' employment and reemployment rights for the past fifty years had been successful and that the large body of case law that had developed under those statutes remained in full force and effect, to the extent it is consistent with USERRA.").
[12] City contends "it was not `reasonably certain' that Plaintiffs would have passed probation but for their military service" because "the City retain[ed] the discretion as to whether a probationary police officer has performed successfully to advance beyond probationary status." Defendant's Memo. at 8:16-19. In making this argument, City relies, in large part, on McKinney v. Mo.-Kan.-Tex.R.R. Co., 357 U.S. 265, 272, 78 S.Ct. 1222, 1227, 2 L.Ed.2d 1305 (1958). Such reliance is misplaced, however, since subsequent Supreme Court cases have limited McKinney, as the Seventh Circuit explained:
Given ... subsequent [Supreme Court] decisions..., it would appear that the "employer discretion" found critical in McKinney is the employer's discretionary choice to select some employees for advancement, promotion or transfer while passing over others .... However, where the discretion is of the type inherent in virtually every training program, the reemployed veteran is, upon qualification, entitled to claim the seniority status which he would have acquired, but for his military service, by the earlier completion of the training program. Such discretion would include, as a minimum, an employer's discretion to determine whether an individual employee is performing sufficiently well to warrant his advancement in the normal course to a position or status awarded to all those who continue their employment and successfully complete a probationary or training period.
Pomrening v. United Air Lines, Inc., 448 F.2d 609, 613 (7th Cir.1971) (citation omitted); see also Montgomery v. S. Elec. Steel Co., 410 F.2d 611, 614-15 (5th Cir.1969) ("The unilateral right to discharge probationary employees, even though `regularly' exercised ..., was never an affirmative discretionary factor in management's advancement selection criteria. McKinney is, therefore, inapposite."). Here, there is no serious dispute that plaintiffs, if they successfully completed probationwhich they didwould have been retained as police officers, as they were. See Deposition of Nicole Mooshagian ("Mooshagian Depo.") at 69:18-71:6.
Moreover, if the Court were to adopt City's position, USERRA's protections would be rendered largely illusory, as the Supreme Court has noted:
It would be virtually impossible for a veteran to show ... that it was absolutely certain, `as a matter of foresight' when he entered military service, that all circumstances essential to obtaining an advancement in status would later occur. To exact such certainty as a condition for insuring a veteran's seniority rights would render those statutorily protected rights without real meaning .... In every veteran seniority case the possibility exists that ... the veteran would not have worked satisfactorily during the period of his absence.... In light of the purpose and history of this statute, however, we cannot assume that Congress intended possibilities of this sort to defeat the veteran's seniority rights.
Tilton, 376 U.S. at 180-81, 84 S.Ct. at 602.
[13] Annual leave includes holidays, vacations, illness, injury and disability. Ortega Decl. ¶ 8, Exh. K.
[14] At oral argument, City also cited California Labor Code § 227.3 (requiring payment of vested vacation wages upon termination) and California Military & Veterans Code § 395.03 to support this argument. However, Section 395.03 provides:
No more than the pay for a period of 30 calendar days shall be allowed under the provisions of Section 395.01 or 395.02 for any one military leave of absence or during any one fiscal year, except as otherwise authorized by resolution of the legislative body of a public agency or as provided in a memorandum of understanding reached with an employee organization pursuant to Chapter 10 (commencing with Section 3500) of Division 4 of Title 1 of the Government Code.
Cal. Mil. & Vet.Code § 395.03 (emphasis added). Here, City has "otherwise authorized" in Military Leave Policy V-B-15, as discussed below; thus, the statutory provisions cited by City do not support its position.
[15] "Rights and benefits" under USERRA means:
any advantage, profit, privilege, gain, status, account, or interest (other than wages or salary for work performed) that accrues by reason of an employment contract or agreement or an employer policy, plan, or practice and includes rights and benefits under a pension plan, a health plan, an employee stock ownership plan, insurance coverage and awards, bonuses, severance pay, supplemental unemployment benefits, vacations, and the opportunity to select work hours or location of employment.
38 U.S.C. § 4303(2).
[16] This Court, thus, is not faced with the situation under Section 1002.150(c), wherein the non-seniority rights provided to employees on military leave must be compared with the non-seniority rights provided to employees on comparable leave of absence. See Tully v. Dep't of Justice, 481 F.3d 1367, 1369-70 (Fed.Cir.2007).
[17] Having found plaintiffs are entitled to summary judgment on their seniority, pay and annual leave claims, the Court need not address plaintiffs' alternate theory of retaliation, 38 U.S.C. § 4311(b), as plaintiffs would obtain no further benefit from this Court addressing those claims. Petty, 538 F.3d at 445-46.
|
In the United States Court of Federal Claims
No. 13-390
(Filed: January 9, 2018)
**********************
VIRGIN ISLANDS PORT AUTHORITY,
Plaintiff, U.S. Const. amend. V; illegal
exaction; constitutional
takings; 48 U.S.C. § 1469c
v. (2012); V.I. Code Ann. tit.
29, § 543(12) (2017).
THE UNITED STATES,
Defendant.
**********************
Nycole Alicia Thompson, St. Thomas, U.S. Virgin Islands, for
plaintiff, with whom was Geoffrey Eaton, Washington, DC.
Elizabeth Anne Speck, United States Department of Justice, Civil
Division, Commercial Litigation Branch, Washington, DC, for defendant.
OPINION
BRUGGINK, Judge.
This is a claim by the Virgin Islands Port Authority for return of
wharfage and tonnage fees. Plaintiff contends that United States Customs
and Border Protection effected an illegal exaction or a Fifth Amendment
taking by collecting such fees without remitting them to it as rightful owner.
Pending is the government’s motion for summary judgment and plaintiff’s
partial cross-motion for summary judgment. The matter is fully briefed, and
oral argument was held on December 5, 2017. For the reasons set out
herein, we grant the government’s motion for summary judgment and deny
plaintiff’s cross-motion.
BACKGROUND
The United States Virgin Islands (“Virgin Islands”) is a collection of
islands that the United States acquired from Denmark in 1917. They are
administered as a single territory and share a common government. The
Virgin Islands had customs law in place at the time of acquisition by the
United States to govern its maritime ports. This conflict has its genesis in a
determination of who rightfully collects wharfage and tonnage fees levied at
the Virgin Islands ports and what must be done with those fees once
collected.
Three entities are involved in the dispute: the Virgin Islands Port
Authority (“VIPA”), the United States Customs and Border Protection
(“CBP”), and the government of the Virgin Islands. The Virgin Islands
government created VIPA in 1968 to own and manage “any and all types of
air and marine terminals” and “to control the harbors of the Virgin Islands.”
V.I. Code Ann. tit. 29, §§ 541(a), 543 (2017). The Virgin Islands
established VIPA as “a public corporation and autonomous governmental
instrumentality” of the Virgin Islands government. Id. § 541(a). Moreover,
the Virgin Islands code provides that VIPA’s “receipts, expenditures,
accounts, funds, facilities, and property” are owned by VIPA, not the Virgin
Islands government. Id. § 541(e). The Virgin Islands authorized VIPA “to
determine, fix, alter, charge, and collect reasonable rates, fees, rentals,
ship’s dues and other charges.” Id. § 543(12). VIPA began by collecting the
fees and ship dues levied by Virgin Islands law prior to VIPA’s creation
and then VIPA changed rates and levied new fees. Id. The fees VIPA
collects contribute to paying its expenses. Id.
Pursuant to this statutory authority, VIPA sets the rates of wharfage
and tonnage fees at the Virgin Islands ports, although, until 2011, it did not
collect those fees. That task was performed by CBP. CBP, although
originally a unit of the Treasury Department, is now governed by both the
Treasury Department and the Department of Homeland Security, depending
on the function CBP performs. 19 C.F.R. § 0.1(a)(1) (2017). As a part of the
Treasury Department, CBP’s authority to administer customs law in the
Virgin Islands derives from the 1936 Revised Organic Act which
designated the Secretary of Treasury as administrator of Virgin Islands
customs law. Virgin Islands Organic Act of 1936, ch. 699, § 36, 49 Stat.
1816 (1936) (current version at 48 U.S.C. § 1406i (2012)); 19 C.F.R. § 7.2
2
(2017).
A 1993 Customs Directive regarding operations in the Virgin Islands
explained that the “U.S. Customs Service has been providing services to the
Virgin Islands (VI) on a reimbursable basis since the 1960’s.” Def.’s App.
73. The parties do not dispute that CBP has in fact collected the wharfage
and tonnage fees set by VIPA since 1969. The current claim is for return of
fees collected by CBP between 2008 and 2011. The following background
traces the authority to set and collect wharfage and tonnage fees at Virgin
Islands ports.
After acquiring the Virgin Islands, Congress enacted the 1917
Organic Act to govern the relationship between the United States and the
Virgin Islands. The Organic Act stated that, until Congress provided
otherwise, the customs law and regulation currently in effect in the Virgin
Islands would continue in force and effect to the extent that it was not
inconsistent with United States law. Virgin Islands Organic Act of 1917, ch.
171, § 4, 39 Stat. 1133 (1917) (current version at 48 U.S.C § 1395 (2012)).
The customs law and regulation in effect at the time of the 1917
Organic Act was prescribed by Danish Law No. 64 of April 1, 1914, and
the Ordinance Col. St. T. and St. J. of August 6, 1914, which amended
Danish Law No. 64. The Danish customs law imposed import duties and
ship dues. Danish law defined “ship dues” as the “[t]he dues to be paid by
ships entering and clearing” according to the registered tons of the ship.
Ord. Col. St. T. & St. J., Aug. 6, 1914 (Denmark). Denmark appointed the
Custom House as the administrator of the import duties and ship dues. Read
together, the 1917 Organic Act and the Danish customs law and regulation
provided that the import duties and ship dues imposed under Danish
customs law continued in effect as the “customs law and regulation” of the
United States Virgin Islands. The term “ship dues” has appeared
consistently from the time of Danish law, through the Virgin Islands code,
to the present in VIPA’s Marine Tariff. The Danish law did not refer to
wharfage by name or to a second port fee for the use or service of the port.
Congress revised the Organic Act in 1936, continuing in effect “all
laws concerning import duties and customs,” but providing that the
Secretary of the Treasury would designate the ports and administer the
Virgin Islands customs law. 48 U.S.C. § 1406i (2012). The Treasury
Secretary would also collect duties, fees, and taxes imposed by the customs
law and provide for the expenses of such collection from the collection
3
itself. Id. The 1936 Revised Organic Act also provided that all taxes, duties,
fees, and public revenues collected had to be covered into the treasury of
the Virgin Islands, less the cost of collection of the customs duties. Virgin
Islands Organic Act of 1936, ch. 699, § 35, 49 Stat. 1816 (1936) (current
version at 48 U.S.C. § 1406h (2012)). Sections 1406i and 1406h, read in
tandem, provide that the Secretary of the Treasury administers the customs
law and regulations, which included the Danish customs law in effect at the
time of acquisition, and collects taxes, duties, fees, and public revenues.
In 1954, Congress once again revised the Organic Act. Congress
provided that the proceeds of customs duties, taxes, and fees, less the cost
of collection, had to be covered into the treasury of the Virgin Islands.
Virgin Islands Organic Act of 1954, ch. 558, § 28(a), 68 Stat. 508 (1954)
(current version at 48 U.S.C. § 1642 (2012)). Furthermore, the 1954
Revised Organic Act included a savings clause, which stated that laws
previously applicable to the Virgin Islands, “including laws made
applicable to the Virgin Islands by or pursuant to the provisions of the Act
of June 22, 1936 (49 Stat. 1807)” shall continue in force and effect. Id. §
8© (current version at 48 U.S.C. § 1574© (2012)). Thus, the Danish
customs law carried forward by the 1936 Revised Organic Act remained in
effect. The Secretary of the Treasury continued administering customs law
in the Virgin Islands.
In the 1980s, Congress amended United States law relating to Virgin
Islands customs law once again. Congress authorized the Secretary of the
Treasury to collect customs duties, reimburse itself for the cost of
collection, and then remit any excess to the Treasury of the Virgin Islands.
48 U.S.C. § 1642a (2012). Congress also enacted a reimbursable services
statute in 1980, authorizing federal agencies to provide services to
territories and insular possessions of the United States. Pursuant to the
reimbursable services statute,
To the extent practicable, services, facilities, and
equipment of agencies and instrumentalities of the United
States Government may be made available, on a reimbursable
basis, to the governments of the territories and possessions of
the United States . . . If otherwise authorized by law, such
services, facilities, and equipment may be made available
without reimbursement.
48 U.S.C. § 1469c (2012).
4
The 1954 Revised Organic Act continued all laws applicable at the
time of the revision, but it also authorized the Virgin Islands legislature to
enact new laws and to amend local law. Id. In the intervening years between
the 1954 Revised Organic Act and the creation of VIPA, the Virgin Islands
legislature ended the force and effect of all local and colonial law in effect
prior to 1957. V.I. Code Ann. tit. 1, §§ 6(a) (2017). The legislature made
two exceptions, one of which was to expressly continue in effect the Danish
customs law preserved by the 1936 Revised Organic Act. Id. § 6(b).
The Virgin Islands legislature also created Title 25, Navigation,
which included Chapter 13, Ship Dues. Chapter 13 carries through the same
ship dues provisions found in the Danish customs law, using United States
currency and the United States flag instead of the Franc and the Danish flag.
V.I. Code Ann. tit. 25, §§ 241-45 (2017). The Virgin Islands code does not
refer to wharfage.
Since its creation in 1968, VIPA has set wharfage and tonnage fees,
along with a variety of other port fees. VIPA publishes the rates in its
Marine Tariff. Until 2006, in its Marine Tariff, VIPA directed that CBP
would collect wharfage and tonnage fees. With respect to collection of
wharfage, for example, in its 1969 Marine Tariff VIPA defined wharfage as
“the charge assessed for the service or use of the wharf” and stated that
“[a]ll vessels using the facilities of the Virgin Islands Port Authority shall
pay to the District Director, U.S. Customs, the unloading charge of $1.25
per ton . . . .” Def.’s App. 245. The 1969 Marine Tariff also directed ship
dues be paid to “District Director of U.S. Customs.” Id. VIPA stated, “Ship
Dues (tonnage or harbor dues) shall mean the fee charged a vessel for
entering and using a port of the U.S. Virgin Islands.”1 Id.
In the 1976 Marine Tariff, VIPA once again directed port users to
pay wharfage and ship dues to U.S. Customs. It directed wharfage be paid
to “District Director, U.S. Customs.” Id. at 252-53. VIPA divided ship dues
into four categories: cargo, “[i]mported bauxite, coal and alcohol for fuel
1
Here, VIPA listed “tonnage” as a synonym for “ship dues.” Otherwise, VIPA
Marine Tariffs refer to the fee as “ship dues,” not as “tonnage,” consistent with
the Virgin Islands code and Danish customs law. The memorandum of
agreement, on the other hand, uses the term “tonnage.” The parties used the
two terms interchangeably when referring to the port user fee assessed in terms
of tons.
5
manufactures,” cruise ships, and other. Def.’s App. 251. The ship dues per
ton of “[i]mported bauxite, coal and alcohol for fuel manufacturers” should
be “paid to District Director, U.S. Customs.” Id. Users paid the other ship
dues “directly to the Port Authority,” except cargo for which VIPA did not
specify a collector. Id. The 1996 amended Marine Tariff continued the same
collection structure as the 1976 Marine Tariff, directing collection of
wharfage and ship dues by CBP. Id. at 260-62.
Although VIPA’s Marine Tariff has published the rates for wharfage
and tonnage fees from 1969 through the present, the Marine Tariffs do not
address under what authority VIPA directed collection by U.S. Customs.
The Marine Tariff also do not address how the amount collected was to be
remitted to VIPA or whether CBP was permitted to reimburse itself for the
cost of collection.
In 1992 the governor of the Virgin Islands wrote to CBP to advise it
of two “policy decisions of the Virgin Islands government”:
1) Collections of wharfage and tonnage fees by the U.S.
Customs Service on behalf of the Government of the Virgin
Islands should be treated in the same manner as the collection
of customs duties.
2) The U.S. Customs Service is hereby authorized to
apply the cost of making wharfage and tonnage fees
collections on behalf of the Government of the Virgin Islands
to all other collections made on its behalf and thereby
eliminate the need to establish any reserves.
Def.’s App. 315.
VIPA was not a signatory to this letter nor was it referenced in the
letter or copied on receipt. The letter did not indicate by what statutory
authority the governor directed that wharfage and tonnage fees should be
treated in the same manner as customs duties, but the parties do not dispute
that CBP collected wharfage and tonnage fees both prior to and after the
governor’s letter.
Two years after the governor’s letter, the Virgin Islands entered into
a memorandum of agreement with CBP to govern the “costs chargeable to
the Virgin Islands Deposit Fund 20X6157” for CBP expenses (“1994
6
MOA”). Def.’s App. 318. The parties do not dispute that the 1994 MOA
reduced to writing the existing arrangement between CBP and the Virgin
Islands government under which CBP collected duties, taxes, wharfage and
tonnage, and other fees and then remitted the amounts collected, less CBP’s
cost of collection, to the Virgin Islands Deposit Fund. Furthermore, the
parties do not dispute that the Virgin Islands government controls the
Virgin Islands Deposit Fund.
The 1994 MOA governed how CBP would track and report
collections and other activities, reimburse itself from collections “for the
full cost of operating the USVI district,” and remit the remaining sum to the
Virgin Islands Deposit Fund. Id. at 325. It provided the basis for identifying
which activities are reimbursable from the collections and for computing
reimbursable costs. Id. at 318. It also provided that, should the collections
fail to cover CBP’s costs, the Virgin Islands government would reimburse
CBP for its costs in excess of collections. Id. at 325. “Tonnage and
wharfage” were included in the list of permissible CBP collections in the
1994 MOA. Id. VIPA was not a signatory to the 1994 MOA and it was not
referred to within the 1994 MOA.
Although CBP made reports on individual categories of collections,
its reimbursements were not calibrated to reimburse CBP for solely the cost
of collecting wharfage and tonnage fees from the wharfage and tonnage
fees collection. Id. at 320-21. Instead, wharfage and tonnage fees were
treated as a part of the broader pool of line and support activities eligible for
expense reimbursement. Id.
Article XIV of the 1994 MOA prescribed an amendment process,
stating,
Any change required by the USVI Government or Customs in
the provisions of this MOA shall be initiated by the requesting
party in a written statement setting forth the exact nature and
reason for the change. Both parties agree that the attachments
to this MOA are not static representations of organizational
groups, data sources, cost drivers, etc., and that should
Customs determine a change is merited and justified (e.g., the
change would provide better representation of a particular
activity, internal reorganizations have occurred, etc.), this
change will be acceptable to the USVI and become effective
subject to written notification of the change.
7
Id. at 326-27.
The Virgin Islands and CBP listed the following sources of authority
for the 1994 MOA:
48 USC § 1406h “Taxes, duties and fees as funds for
benefit of municipalities; appropriations”
48 USC § 1406i “Taxes and fees; power to assess and
collect; ports of entry; export duties”
48 USC § 1469c “Availability of services, facilities, and
equipment of agencies and
instrumentalities of the United States;
reimbursement requirements”
19 USC § 58c “Fees for certain customs services”
19 USC § 267 “Compensation for overtime services;
fixing work hours”
P.L. 103-66 § 13811“Overtime and premium pay for Customs
officers”
E.O. 2620 Executive Order 2620, dated May 15,
1917, signed by President Woodrow
Wilson
Id. at 326.
The 1994 MOA did not identify the recipient of any wharfage and
tonnage fees transmitted to the Virgin Islands Deposit Fund after
reimbursement. No oral or written agreements have been alleged to
demonstrate that CBP had a separate agreement with VIPA regarding
wharfage and tonnage fees, and the depositions of the executive and
assistant executive directors of VIPA for the relevant period confirm that no
other oral or written agreement other than the 1994 MOA governed the fee
collection process. E.g., Def.’s App. 5, 6, 28, 31. Moreover, VIPA officials
testified that the Marine Tariff itself was not considered a separate
authorization for CBP to collect the wharfage and tonnage fees. E.g., Def.’s
App. 5, 6, 28.
8
The parties do not dispute that VIPA and the Virgin Islands
government had a separate process for transferring the wharfage and
tonnage fees to VIPA after the amounts collected, less CBP’s expenses, had
been placed in the Virgin Islands Deposit Fund by CBP. E.g., Def.’s App. 5,
6, 23, 46. VIPA does not contend that it had control over or even access to
the Virgin Islands Deposit Fund. A spreadsheet attached to a 2009 letter
from the Virgin Islands governor to the Secretary of the Department of
Homeland Security reflects the process of CBP collection, remission to the
Virgin Islands Deposit Fund after reimbursement for expenses, and then the
Virgin Islands government’s deduction of another five percent fee before
remitting any remaining wharfage and tonnage fees to VIPA. Id. at 151-52.
The parties have not been able to locate a copy of this purported agreement
between VIPA and the Virgin Islands government, however.
As the years passed, CBP’s cost of operating in the Virgin Islands
grew and ultimately exceeded total collections. VIPA contends that it
struggled to fulfill its statutory responsibilities without sufficient residue
from wharfage and tonnage fees collected by CBP. Thus, from 2006 to
2010, VIPA undertook a series of actions and commenced correspondence
with CBP and with the Virgin Islands government in an effort to persuade
CBP to permit VIPA to take over collection of wharfage and tonnage fees.
VIPA began by removing directions to pay wharfage and tonnage
fees to CBP from the 2006 Marine Tariff, which was in effect between 2008
and 2011, the period in dispute. Consistent with the prior Marine Tariffs,
VIPA’s 2006 Marine Tariff notified port users of a variety of fees,
including wharfage and tonnage fees. Def.’s App. 277-94. It defined
wharfage as a charge assessed for the service or use of a wharf that was
assessed per passenger on a cruise vessel or in terms of tons of cargo
unloaded. Id. at 282-84. “Ship dues” are “a fee charged against all vessels,
except cruise vessels, entering a harbor or port under the control of the
Virgin Islands Port Authority which shall be applied to cargo and
passengers.” Id. at 282. The 2006 Marine Tariff assessed ship dues in terms
of tons. The 2006 Marine Tariff gave no direction as to who was to collect
wharfage and tonnage fees.
On September 22, 2006, VIPA wrote to the governor of the Virgin
Islands “formally request[ing] your approval of a proposed change in the
procedure utilized to collect customs fees.” Def.’s App. 115. VIPA wrote
that it “proposes to collect customs fees directly.” Id. at 115. It argued that
doing so would “eliminate the disputes caused by the Department of
9
Finance’s persistent failure to promptly or timely transfer said customs fees
to VIPA.” Id. at 115. The governor’s signature appears on the “approved”
blank at the end of the letter. Id. at 116. VIPA contended at oral argument
that this letter with signature approval by the governor meant that CBP was
legally required to cease collecting wharfage and tonnage fees.
On April 11, 2007, VIPA wrote to CBP advising it that VIPA did not
understand wharfage and tonnage fees to be within the grant from Congress
to administer customs law. Def.’s App. 113-14. It was “appealing to [CBP]
so that it can start to collect port fees and charges as listed in its tariff.” Id.
at 113. Plaintiff attached the 2006 letter bearing the governor’s signature.
The 2007 letter did not reference any agreement between VIPA and CBP. It
only discussed United States law and the 1994 MOA. VIPA offered to
submit additional materials and hold discussions with CBP. VIPA
contended at oral argument that this letter was a demand letter to CBP
effectively ending CBP’s authority to collect wharfage and tonnage fees.
CBP denied VIPA’s request in a August 24, 2007 reply letter. Pl.’s
Ex. Am. Compl. 27-29. In its reply letter, CBP stated that, pursuant to the
Revised Organic Act, 48 U.S.C. §§ 1406h, 1406i, 1642a, and the related
Danish customs law, wharfage and tonnage fees were within CBP’s
mandate from Congress to collect in the Virgin Islands, even without the
1994 MOA or VIPA’s approval. CBP further stated that its reimbursement
for the full cost of its collection activities was authorized by statute and the
1994 MOA. The government conceded at oral argument that, contrary to
the position taken in this letter, the United States no longer contends that
wharfage and tonnage fees were included in CBP’s authorization to
administer Virgin Islands customs law pursuant to 48 U.S.C. §§ 1406h,
1406i, 1642a.
Until December 2011, the parties continued to discuss via letters and
meetings who would collect wharfage and tonnage fees and how the
collection would be remitted to VIPA. After negotiations among the three
parties, VIPA adopted Resolution No. 002-2011 on December 22, 2010,
which stated VIPA was authorized to “take such action as it deems just and
legal to permit VIPA to collect its own fees currently collected by CBP, in
the event negotiations as outlined above fail to resolve the issue of VIPA’s
removal from the MOA . . . on or before February 28, 2011.” Def.’s App.
158-59. On February 23, 2011, VIPA wrote to CBP to inform it that on
March 1, 2011, VIPA would begin collecting the wharfage and tonnage
fees. Id. at 154.
10
VIPA began collecting wharfage and tonnage fees for itself on
March 1, 2011. CBP ceased collecting wharfage and tonnage fees at that
time. CBP and the Virgin Islands amended the 1994 MOA in 2014 to reflect
the changes in collection of the wharfage and tonnage fees.
In its briefing, the United States persisted in arguing that its authority
to collect wharfage and tonnage fees was based on 48 U.S.C. §§ 1406h,
1406i, 1642a. At oral argument, however, the government dropped that
assertion and contended that it was authorized to collect wharfage and
tonnage fees pursuant to the federal reimbursable services statute, 48 U.S.C.
§ 1469c, and the 1994 MOA. VIPA responds that, even if collections were
authorized at some point in time pursuant to the reimbursable services
statute and the 1994 MOA, VIPA revoked such authority in its 2007 letter
to CBP.
DISCUSSION
The novel issue before the court is whether plaintiff states a cause of
action for either an illegal exaction or a constitutional taking.2 We deal with
the illegal exaction claims first.
I. The Illegal Exaction Claims
Defendant moves for summary judgment on counts three and four of
plaintiff’s amended complaint for illegal exaction. Plaintiff moves for
summary judgment on count III(A) for illegal exaction, but merely opposes
summary judgment on count III(B) and IV for illegal exaction.
VIPA advances three illegal exaction arguments. Plaintiff first
2
Defendant also moves for summary judgment on counts one and two of
plaintiff’s amended complaint, which allege a breach of contract based on a
theory of implied in fact contract with CBP or based on its being a third party
beneficiary to the 1994 MOA. Plaintiff dropped these contract counts in its
principle brief on the motion for summary judgment. Pl.’s Cross Mot. Summ.
J. 1, 3. Plaintiff concedes that VIPA did not have an implied in fact contract
with CBP to collect wharfage and tonnage fees and that it was not an intended
beneficiary of the 1994 MOA. Therefore, we grant summary judgment to
defendant on counts one and two of the amended complaint.
11
argues that CBP illegally exacted its port fees when CBP continued to
collect VIPA’s wharfage and tonnage fees after plaintiff tendered its 2007
letter requesting that CBP cease collecting those fees. The government
responds that VIPA has not established an illegal exaction because VIPA
did not pay money to the government directly or in effect and because the
statutory basis for its claim does not expressly or impliedly provide for
money as the remedy in the event the government misapplies the statute.
We begin with Eastport S.S. Corp. v. United States, 178 Ct. Cl. 599,
605 (1967), in which the Court of Claims described two classes of non-
contractual claims over which Tucker Act jurisdiction can be asserted. First,
a plaintiff may bring a claim for illegal exaction when “plaintiff has paid
money over to the Government, directly or in effect, and seeks return of all
or part of that sum” that “was improperly paid, exacted, or taken from the
claimant in contravention of the Constitution, a statute, or a regulation.” Id.
The second class of claims are those in which plaintiff has not, directly or in
effect, made a payment to the government, but instead claims that a
provision of federal law “grants the claimant, expressly or by implication, a
right to be paid a certain sum” by the government. Id. An example of such a
money-mandating statute is the Fair Labor Standards Act of 1938, 29
U.S.C. §§ 201–219 (1994). “One is the flip side of the other”: the first class
of claims is founded on “the absence of statutory authorization” while the
other “is founded on statutory authorization.” Aerolineas Argentinas v.
United States, 77 F.3d 1564, 1579 (Fed. Cir. 1996) (Nies, J., concurring).
Plaintiff’s claims fall within the first class the court described in
Eastport: plaintiff argues that the government’s interception of the
wharfage and tonnage fees that VIPA would otherwise receive from port
customers constitutes a direct or in effect payment to the government. It
further argues that there was no authority for CBP to direct such payments
to itself after receiving VIPA’s 2007 letter. The suit amounts to a plea of
quo warranto: by what right do you, the government, presume to act? We
see no further obligation, under this first class of illegal exaction claims, for
a plaintiff to point to anything in the statute or regulation on which the
government relies that anticipates an abuse of the statute and authorizes the
plaintiff to sue for return of the monies. Plaintiff need not point to a money-
mandating provision, because the necessary remedy to the government
improperly using its authority to place “a citizen’s money in its pocket” is a
return of that sum. See Aerolineas Argentinas, 77 F.3d at 1572-74
(discussing Tucker Act jurisdiction over illegal exaction claims in which the
government misapplied statutory or regulatory authority to exact or direct
12
payment of a sum).
Thus, we turn to whether the government had plaintiff’s money in its
pocket: VIPA must demonstrate that the government has required payment,
directly or in effect. Eastport S.S. Corp., 178 Ct. Cl. at 605. Plaintiff
contends that CBP collecting its fees after the 2007 letter constituted a
direct payment of VIPA fees to CBP, because CBP had possession of fees
that VIPA asserted it alone had the right to collect. Because CBP was at
best acting as a collection agent of VIPA’s fees, rather than requiring VIPA
itself pay a sum to CBP, the government did not directly exact funds from
plaintiff. Plaintiff also contends, however, that CBP’s collection constituted
an in effect payment.
Defendant argues that CBP’s collection of the fees cannot constitute
an “in effect” payment, because they are limited to cases in which the
government directed plaintiff to pay a third party, as in Aerolineas
Argentinas, 77 F.3d at 1568, or seized plaintiff’s property, sold it, and
retained the proceeds, as in Bowman v. United States, 35 Fed. Cl. 397, 399-
400 (1996). We disagree. Here, CBP stepped in between port users and
plaintiff and redirected payment to itself. If CBP had ceased collection as
requested, the same fees would have been collected and retained by VIPA
pursuant to its authority under local law. Ultimately CBP intercepting the
collection had the same result as CBP instructing VIPA to turn the fees over
to the government immediately after collection. The category of “in effect”
payments is broad enough to embrace a circumstance in which the
government directs payment of funds to itself that VIPA asserts it had the
statutory right to collect. See Fireman v. United States, 44 Fed. Cl. 528, 536
(1999) (noting that illegal exaction is not strictly construed after Aerolineas
Argentinas). Thus, CBP’s interception of the fees amounts to an “in effect”
payment.
The question remains, however, whether CBP acted in contravention
of the law when it intercepted VIPA’s wharfage and tonnage fees. The
difficulty for plaintiff lies in its inability to demonstrate that anything the
government has done was a violation of federal law. To prove an illegal
exaction has occurred, plaintiff must demonstrate not only that it has in
effect paid money to the government but also that “the authorization on
which the [government] relies was misinterpreted, misapplied, or invalid.”
Aerolineas Argentinas, 77 F.3d at 1574. Admittedly the government has
confused the issue here repeatedly by asserting and then abandoning a right
under the Revised Organic Act sections 1406h, 1406i, and 1642a, now
13
contending that its authority to collect wharfage and tonnage fees and
reimburse itself for the cost of its operations arises under the reimbursable
services statute, 48 U.S.C. § 1469c, as well as the 1994 MOA. Plaintiff
responds that neither the Revised Organic Act provisions, the reimbursable
services statute, nor the 1994 MOA confer authority on CBP to collect the
wharfage and tonnage fees.
We begin with the federal law on which CBP relies: the
reimbursable services statute.3 Plaintiff does not question that Congress
validly enacted the statute and that it was in effect at the time of the 1994
MOA and thereafter. That statute provides that an agency of the federal
government may make “services, facilities, and equipment” available to
“the governments of the territories . . . .” 48 U.S.C. § 1469c. Nor does
Plaintiff question that this statute allows a territory, such as the Virgin
Islands government, to request services from CBP, which CBP is authorized
to provide on a reimbursable basis. Id.
Moreover, plaintiff has not challenged the authority of the Virgin
Islands government to enter into the 1994 MOA, which expressly
incorporated the reimbursable services statute as part of the authority for
CBP’s collection operations and for self-reimbursement. Given plaintiff
was neither a party to nor an intended beneficiary of the agreement, it
would be awkward indeed for VIPA, a creature of the Virgin Islands
government, to challenge as a third party an agreement between two
sovereign entities. And it would be even more awkward for the court to
collaterally question the bona fides of that agreement. On the face of it, the
reimbursable services statute coupled with the 1994 MOA authorized CBP
to collect wharfage and tonnage fees on behalf of VIPA until the agreement
was formally amended in 2014. CBP was asked to provide services on a
reimbursable basis by the Virgin Islands government and provided that
service pursuant to that statutory authority, not in the absence of it.
Plaintiff did not object to the arrangement entered into between the
Virgin Islands government and CBP for many years prior to or after the
3
Although the government has since abandoned that source of authority, the
Revised Organic Acts did incorporate the Danish customs law and regulation
as the custom law and regulation of the United States Virgin Islands. That
custom law and regulation, which Congress directed the Secretary of the
Treasury to administer, included ship dues. Those ship dues were the same
type of port user fee assessed as those that are currently collected.
14
1994 MOA. It was not until 2007 that it wrote a letter to CBP requesting
that CBP cease wharfage and tonnage fees collection. The record of VIPA’s
communications with CBP, some of which were admittedly endorsed by the
governor of the Virgin Islands, is set out above. VIPA waited until
December 2010, however, to adopt a formal resolution that asserted its
statutory authorization to both set and collect the fees. Plaintiff’s current
argument therefore devolves to this: at some point between 2006 and 2011,
CBP lost the authority to implement the 1994 MOA with respect to
wharfage and tonnage fees. The question is whether a dispute over who had
the authority to direct the collection of fees is what case law construing the
Tucker Act contemplate as a type one illegal exaction claim. We think not.
Looking to case law in which an “in effect” payment was alleged, we
do not find a circumstance in which local law and a local governing body’s
authority are caught up in the issue of the federal agency’s authority to act.
Plaintiff’s case citations are distinguishable. It relies, for example, on
Fireman, in which plaintiff made illegal donations to a political campaign.
44 Fed. Cl. at 530-31. The campaign committee turned the donations over
to the United States Treasurer, following a Federal Election Commission
Advisory Opinion interpreting federal law. Id. The FEC had issued advisory
opinions that allowed campaign committees to turn money over to the
government rather than return it to the contributor. Id. at 536-37. When
plaintiff sued for the return of the donation from the Treasurer, the Court of
Federal Claims held that plaintiff had stated a claim for illegal exaction due
to the likely misapplication of federal law by the FEC. Id. Similarly, the “in
effect” payment at issue in Aerolineas Argentinas required the court to
determine whether the Immigration and Naturalization Service had properly
interpreted federal law to permit it to require the airlines to pay expenses of
detained aliens. 77 F.3d at 1570-72. In both instances, a plaintiff alleged
that an agency acted beyond its authority or failed to perform a requirement
that resulted in an exaction of money, in contravention of federal law. See
also eVideo Owners v. United States, 126 Fed. Cl. 95 (2016); Eastport S.S.
Corp. v. United States, 372 F.2d 1002 (Ct. Cl. 1967).
Here, on the other hand, plaintiff argues that CBP acted in
contravention of a local statute and VIPA’s demand letter. In any event,
VIPA’s 2007 letter was not effective to revoke the 1994 MOA according to
the terms of the MOA itself. At best, the 2006 letter signed by the governor
initiated the amendment process, which was not complete until 2014.
The focus of an illegal exaction claim brought in this court is
15
whether the United States government has the citizen’s money in
contravention of United States law. CBP provided services that it was
authorized to provide pursuant to federal statute. 48 U.S.C. § 1469c (2012).
It provided those services to a territory’s government, at that government’s
request, as CBP was authorized to do. Id. Moreover, the collection of
wharfage and ship dues was closely related to the very nature of services
that Secretary of the Treasury had been instructed by Congress to provide
since 1936. The collection of wharfage and tonnage fees had followed this
collection arrangement since at least the 1960s. CBP relied, without dispute
from VIPA, on the representation of the government of the Virgin Islands
that it had the authority to request such services and enter an agreement to
govern those services. CBP did not contravene United States statutes or
regulations regarding its authority to collect fees in the Virgin Islands. We
thus decline to extend the theory of illegal exaction to circumstances in
which the asserted illegality does not arise under federal law. We grant
defendant’s motion for summary judgment on count III(A) and deny
plaintiff’s cross-motion.
The real dispute lies between a creature of statute, the independent
government agency VIPA, and its creator, the government of the Virgin
Islands, regarding how local government authority could be exercised to
request or direct CBP to collect the fees in the first instance and then
continue to do so pursuant to the 1994 MOA. If VIPA is correct that CBP
did not have the authority to collect the fees, it is correct because Virgin
Islands law—not United States law—did not grant the Virgin Islands
government authority to direct the collection of those fees by CBP.
Plaintiff also offers two other theories of illegal exaction based on
CBP’s asserted excessive reimbursement for its collection activities. First,
plaintiff contends that CBP reimbursed itself for expenses in excess of those
permitted by the Revised Organic Acts or the reimbursable services statute.
Additionally, plaintiff alleges that CBP reimbursed itself from the Virgin
Island Deposit Fund for expenses ineligible for reimbursement, such as
COBRA user fee services and immigration and agricultural inspections. The
illegal exaction analysis remains the same, however: did the government
exact payment from VIPA, directly or in effect, and was that exaction in
contravention of statute or regulation?
Plaintiff’s excessive reimbursement theories assume that CBP
properly collected the wharfage and tonnage fees. These two claims posit
that the exaction occurred after collection at the moment when CBP
16
reimbursed itself for expense of collections. Plaintiff’s arguments thus
assume that CBP was authorized by statute and the 1994 MOA to reimburse
itself for some expenses, but it in fact retained too much of the Virgin
Islands collections and included ineligible expenses in its reimbursements.
The following undisputed facts are relevant to whether CBP exacted
payment from plaintiff through excessive reimbursement: CBP collected
more than simply wharfage and tonnage fees and reimbursed itself using the
methodology prescribed in the 1994 MOA, which permitted
reimbursements from the gross amount of collections for enumerated
activities. CBP did not remit wharfage and tonnage fees collection to VIPA,
but rather remitted any excess collection over expenses to the Virgin Islands
government, pursuant to the Revised Organic Act provisions and the 1994
MOA. VIPA was not a party to the agreement under which CBP reimbursed
itself and neither did it own or operate the fund into which collections were
deposited. After CBP’s deposit, the Virgin Islands government would remit
wharfage and tonnage fees to VIPA after deducting its own five percent
administrative fee. What these facts make clear, as defendant points out, is
that, when CBP reimbursed itself, CBP exacted payment from the Virgin
Islands Deposit Fund and the Virgin Islands government which maintained
the fund, not from VIPA.
But there is a more fundamental problem with this line of argument.
Setting aside the question of the entity from whom the government exacted
a payment, CBP did not misapply, misinterpret, or misconstrue its authority
to reimburse its expenses. The Revised Organic Act provisions authorized
reimbursement for the costs of collecting customs duties, which the 1994
MOA reflects CBP collected in the Virgin Islands. The reimbursable
services statute permit an agency to reimburse itself for the “services,
equipment, and facilities” provided to a territory. And the 1994 MOA
contemplated reimbursement for the “full cost of operating in the district,”
based on statutory and regulatory authority underlying the agreement.
Plaintiff’s real argument is not the absence of any authority for CBP
to reimburse itself, but rather the way in which it calculated reimbursement.
The facts in dispute here are the individual line items of reimbursements
that CBP made for particular operations in the Virgin Islands. Plaintiff
contends that these excessive reimbursements included expenses that
properly should have been paid, for example, by COBRA user fees.
Plaintiff also argues that some operations, such as agricultural and
immigration inspections, were improperly charged to the Virgin Islands
17
Deposit Fund. Such a challenge is not to the authority to act but to the
details of how the calculation was done. Such disputes are not within this
court’s Tucker Act jurisdiction.
VIPA’s excessive reimbursement theories would draw the court into
a dispute construing the language of an agreement, one party to which, the
Virgin Islands government, is not before this court. Furthermore, the
excessive reimbursement theories would pull a thread on a tangle of
accounting questions that reach beyond whether CBP had proper authority
under the law to reimburse itself. A disagreement over the mechanics of
how CBP reimbursed itself is well beyond the court’s role in determining an
illegal exaction vel non under federal law. Thus, we also grant defendant’s
motion for summary judgment on counts III(B) and IV, illegal exaction
based on excessive reimbursement.
II. The Takings Claim
Defendant finally moves for summary judgment on count five of the
amended complaint, in which plaintiff argues that CBP’s allegedly
excessive reimbursement constitutes a taking under the Fifth Amendment
Takings Clause. The Fifth Amendment to the United States Constitution
guarantees that private property shall not “be taken for public use, without
just compensation.” U.S. Const. amend. V. Defendant argues that plaintiff
does not have a property right in the fees that it expected to collect or
receive from the Virgin Islands government. Alternatively, defendant
argues that CBP’s collection and reimbursement under the 1994 MOA did
not constitute a taking.
We are not persuaded by the government’s argument that VIPA does
not have a property right to assert in a Fifth Amendment takings claim:
Virgin Islands law granted VIPA the right to set and collect port fees. V.I.
Code Ann. tit. 29, § 543(12) (2017). Nevertheless, plaintiff’s takings claim
requires us to assume that CBP lawfully collected VIPA’s port fees
pursuant to statutory authority and the 1994 MOA. Rith Energy v. United
States, 270 F.3d 1347, 1352 (Fed. Cir. 2001) (“[T]his court assume[s] that
the underlying governmental action was lawful, and . . . decide[s] only
whether the governmental action in question constituted a taking for which
compensation must be paid.”); Tabb Lakes Ltd. v. United States, 10 F.3d
796, 802 (Fed. Cir. 1993) (To bring a takings claim under the Tucker Act,
28 U.S.C. § 1491, the “claimant must concede the validity of the
government action which is the basis of the taking claim.”). It follows that
18
we must also assume that CBP is lawfully permitted to reimburse itself
from the total collections. On those assumptions, plaintiff’s claim is merely
that CBP miscalculated how much it was permitted to deduct to reimburse
itself from the Virgin Islands Deposit Fund pursuant to federal law.
Plaintiff argues that, although some reimbursement was appropriate,
the amount permitted by United States law differed from the amount CBP
actually reimbursed itself. Plaintiff’s contention boils down not to a taking
in which CBP physically or by regulation deprived a plaintiff of its property
right, but rather a dispute over enforcement of statutory, regulatory, or
contractual provisions. Such disputes belong in a forum authorized to
enforce administrative procedures, such as the district courts, or,
particularly insofar as the dispute concerns plaintiff’s argument that CBP
has improperly reimbursed itself based on the COBRA user fees statute, the
Court of International Trade. See, e.g., Princess Cruises Inc. v. United
States, 217 F. Supp. 2d 1361 (Ct. Int’l Trade 2002); Norfolk & Western Ry.
Co. v. United States, 869 F. Supp. 974 (Ct. Int’l Trade 1994). Therefore, we
grant defendant’s motion for summary judgment on count five of the
amended complaint.
CONCLUSION
We grant defendant’s motion for summary judgment and deny
plaintiff’s cross-motion for partial summary judgment. The Clerk is directed
to enter judgment for defendant. No costs.
s/Eric G. Bruggink
Eric G. Bruggink
Senior Judge
19
|
40 N.J. 227 (1963)
191 A.2d 169
THE BROADWAY NATIONAL BANK OF BAYONNE, A NATIONAL BANKING INSTITUTION, PLAINTIFF-RESPONDENT,
v.
THE PARKING AUTHORITY OF THE CITY OF BAYONNE, AND VINCENT BURKE, FRANK CARPENTER, SR., JACOB DROGIN, WALTER P. PAGUREK, ALAN F. PAUL AND JAMES GARITO, ALAN KONIECZKO, SAMUEL LEVIS AND CHESTER ZEBROWSKI, DEFENDANTS-APPELLANTS.
VINCENT BURKE, FRANK CARPENTER, SR., JACOB DROGIN AND WALTER PAGUREK, PLAINTIFFS-RESPONDENTS,
v.
JAMES GARITO, ALAN KONIECZKO, SAMUEL LEVIS, CHESTER ZEBROWSKI, ALLEGED COMMISSIONERS OF THE PARKING AUTHORITY OF THE CITY OF BAYONNE; FRANCIS G. FITZPATRICK, ALFRED DWORZANSKI, WILLIAM MARTIN, JOSEPH LEFANTE, DENNIS COLLINS AND JOSEPH MAKOWSKI, MEMBERS OF THE GOVERNING BODY OF THE CITY OF BAYONNE, DEFENDANTS-APPELLANTS.
The Supreme Court of New Jersey.
Argued February 19, 1963.
Decided May 20, 1963.
*229 Mr. Frank J. Ziobro argued the cause for the defendants-appellants, Francis G. Fitzpatrick, Alfred Dworzanski, William Martin, Joseph LeFante, Dennis Collins and Joseph Makowski, members of the Governing Body of the City of Bayonne.
Mr. James P. Dugan argued the cause for the defendants-appellants, James Garito, Alan F. Paul, Alan Konieczko, Samuel Levis and Chester Zebrowski.
Mr. Roy G. Simmons argued the cause for the plaintiffs-respondents, Vincent Burke, Frank Carpenter, Sr., Jacob Drogin and Walter Pagurek. (Messrs. Camp & Simmons, attorneys).
*230 The opinion of the court was delivered by PROCTOR, J.
The sole issue presented on this appeal is whether the terms of office of commissioners of a municipal parking authority, created by a municipality pursuant to the Parking Authority Law, L. 1948, c. 198, N.J.S.A. 40:11A-1 et seq., terminate on the effective date of a new plan of government adopted by the municipality under the Optional Municipal Charter Law, L. 1950, c. 210, N.J.S.A. 40:69A-1 et seq. (Faulkner Act).
The facts are not in dispute. On December 17, 1958 the City of Bayonne, which was then governed by a board of commissioners under the Walsh Act, R.S. 40:70-1 et seq., enacted an ordinance creating the Parking Authority of the City of Bayonne pursuant to the Parking Authority Law, supra. Messrs. Burke, Carpenter, Pagurek, Drogin and Paul were appointed as commissioners for staggered terms ranging from one to five years, respectively. Burke, Carpenter and Pagurek were subsequently reappointed for five-year terms pursuant to N.J.S.A. 40:11A-4, when their original terms expired.
On July 1, 1962 Mayor-Council Plan C, one of the optional plans of government under the Faulkner Act (N.J.S.A. 40:69A-55 to 60), became effective in the city pursuant to a referendum previously adopted. The new municipal council appointed Messrs. Garito, Konieczko, Paul, Levis and Zebrowski as commissioners of the Parking Authority on July 16, 1962. (Paul is thus a commissioner of the Parking Authority by appointment of both the former city administration and the present governing body.)
Burke, Carpenter, Pagurek and Drogin claimed that they had valid continuing terms as commissioners of the Parking Authority, notwithstanding the change in the form of government. On the other hand, Garito, Konieczko, Levis and Zebrowski contended that the terms of the previous commissioners ceased and determined by operation of N.J.S.A. 40:69A-207 on July 1, 1962, the effective date of the Faulkner Act in the city, and that they were the legal holders of the offices involved. Because of this dispute, the Broadway National *231 Bank of Bayonne was faced with opposing claims to funds deposited with it in the name of the Parking Authority. In order to protect itself against double liability, the bank brought an action in interpleader, joining the Parking Authority and all those claiming to be commissioners. Thereafter, Burke, Carpenter, Drogin and Pagurek brought an action in lieu of prerogative writs against Garito, Konieczko, Levis and Zebrowski and the Mayor and Council of the City of Bayonne, seeking a judgment enjoining those defendants from interfering with the plaintiffs' terms of office and determining who are the legal and authorized commissioners of the Parking Authority. At the time these actions were instituted, the Parking Authority had outstanding contractual obligations in the amount of $75,000.
The actions were consolidated with the consent of the parties, all of whom moved for judgment on the uncontroverted facts.
The trial court held that a parking authority is "a separate public entity operating independently of the municipality in which it is formed," and that N.J.S.A. 40:69A-207 "does not encompass offices in other political subdivisions or the officers filling them, even if their duties and functions are exclusively within such municipality." Broadway Nat. etc., Bayonne v. Parking Auth. Bayonne, 76 N.J. Super. 139, 147 (Ch. Div. 1962). The court therefore concluded:
"* * * that the offices of commissioners of the Parking Authority of the City of Bayonne were not abolished and the terms of the incumbent officers did not cease and determine upon the taking effect of the Faulkner Act on July 1, 1962 at noon. Vincent Burke, Frank Carpenter, Sr., Jacob Drogin, Walter Pagurek and Alan Paul continue to hold office as lawful commissioners of the Parking Authority of the City of Bayonne, and the Broadway National Bank of Bayonne is directed to honor their right and title to control the bank account standing to the credit of the Parking Authority of the City of Bayonne." Id., at p. 148.
A judgment incorporating the above holding and granting the injunctive relief sought was thereafter entered.
*232 The Mayor and Council of the city and Garito, Paul, Konieczko, Levis and Zebrowski appealed and we certified the matter while it was pending in the Appellate Division. Since no stay of the trial court's judgment was granted, the Broadway National Bank has elected not to file a brief on this appeal. Effectively, therefore, the only respondents are those parking authority commissioners who were appointed prior to the effective date of the Faulkner Act in the city.
Upon the taking effect of one of the optional plans of government under the Faulkner Act, the transition from the old form of government to the new is accomplished by N.J.S.A. 40:69A-207. That section provides:
"At 12 o'clock noon on the effective date of an optional plan adopted pursuant to this act, all offices then existing in such municipality shall be abolished and the terms of all elected and appointed officers shall immediately cease and determine; provided, that nothing in this section shall be construed to abolish the office or terminate the term of office of any member of the board of education, trustees of the free public library, commissioners of a local housing authority, municipal magistrates or of any official or employee now protected by any tenure of office law, or of any policeman, fireman, teacher, principal or school superintendent whether or not protected by a tenure of office law. If the municipality is operating under the provisions of Title 11 of the Revised Statutes (Civil Service) at the time of the adoption of an optional plan under this act, nothing herein contained shall affect the tenure of office of any person holding any position or office coming within the provisions of said Title 11 as it applies to said officers and employees. If the municipal clerk has, prior to the effective date of the optional plan, acquired a protected tenure of office pursuant to law, he shall become the first municipal clerk under the optional plan.
Provision for officers and for the organization and administration of the municipal government under the optional plan may be made by resolution pending the adoption of ordinances, but any such resolution shall expire not later than 30 days after the effective date of the optional plan."
On this appeal, the defendants-appellants (the "new" commissioners) contend that the part of section 207 which provides that upon the advent of the new government, "the terms of all elected and appointed officers shall immediately cease *233 and determine," includes the terms of commissioners of the Parking Authority. On the other hand, the plaintiffs-respondents (the "old" commissioners) contend that a parking authority is an autonomous body whose existence cannot be terminated except in accordance with the Parking Authority Law; that if it were to be determined that section 207 terminates the terms of office of parking authority commissioners, then the Authority itself "was ipso facto abolished, thus impairing and obliterating the rights of those who had previously contracted with said authority." They further contend that the above-quoted part of section 207 does not apply to parking authority commissioners, because certain amendments to the Parking Authority Law impliedly repealed the Faulkner Act with respect to parking authorities.
Section 207 provides in part that "all offices then existing in such municipality" shall be abolished upon the taking effect of a Faulkner Act plan of government in a municipality. (Emphasis added) Though a parking authority is an "agency and instrumentality" of the municipality creating it (N.J.S.A. 40:11A-4), and is engaged in a municipal function, it is nevertheless a "public body corporate and politic and a political subdivision of the State." N.J.S.A. 40:11A-4, 6(1). Such authority is an independent entity distinct and separate from the municipality. DeLorenzo v. City of Hackensack, 9 N.J. 379, 389 (1952); State v. Parking Authority of the City of Trenton, 29 N.J. Super. 335, 338-339 (App. Div. 1954). It has broad powers derived from its enabling legislation, including the power to issue its own bonds and incur other obligations, to deal with the problem of alleviating traffic congestion by providing off-street parking facilities within its own territorial boundaries, which are co-terminous with those of the municipality. N.J.S.A. 40:11A-6, 8. Indeed, an authority has broader powers in some respects than the municipality which created it, e.g., it is not bound by Chapter 50 of Title 40, which imposes restrictions upon the power of municipalities to enter into contracts. N.J.S.A. 40:11A-23(4). The autonomous nature of a *234 parking authority, as shown by the above, makes it clear that the Legislature, in enacting section 207 of the Faulkner Act, did not regard the offices of parking authority commissioners, which constitute the authority (see Myers v. Cedar Grove Tp., 36 N.J. 51, 60 (1961)), as offices "then existing in such municipality" subject to being abolished upon the effective date of a new plan of government. Any other result would raise serious constitutional questions respecting the impairment of the authority's obligations to its bondholders and other creditors. See also, N.J.S.A. 40:11A-20, whereby the provisions of the Parking Authority Law constitute a part of all contracts entered into by an authority "for the benefit and security of the creditors of such authority," and the State has pledged to all bondholders that it "will not limit or alter the rights hereby vested in the authority and in the holders of such bonds" until those obligations are fully discharged.
However, the question remains whether the terms of officers (commissioners) of a parking authority come to an end upon the taking effect of the new plan of government, notwithstanding that the offices constituting the authority are not within section 207. That section does not stop with the abolishment of "all offices then existing in such municipality," but provides further that "the terms of all elected and appointed officers shall immediately cease and determine." The trial court held that the offices of parking authority commissioners could not be abolished, and that the effect of section 207 "cannot be split"; that "the term `all officers' is and can be no broader than the term `all offices'"; and that therefore the section does not encompass the ending of the terms of officers who filled offices which could not be abolished. 76 N.J. Super., at p. 147. We think this construction of section 207 makes superfluous the clause, "and the terms of all elected and appointed officers shall immediately cease and determine." (Emphasis added) Whenever an office is abolished, the term of the holder of that office necessarily comes to an end, since there cannot be an officeholder without an office to fill. If the only legislative objective were to end the terms of those office-holders *235 who held an office which was abolished, it would have been unnecessary to add the last-quoted clause. Moreover, the proviso in section 207 states that nothing in the first part of the section "shall be construed to abolish the office or terminate the term of office" of specified bodies or persons. (Emphasis added) Thus, a reading of the statute shows a clear legislative intent that each of the clauses should have a distinct and separate meaning and that each was to achieve an independent goal in the transition to a new form of government.
One of the objectives of the Faulkner Act is to centralize maximum powers in the new government, giving it "the widest possible authority to determine the organization of departments." Myers v. Cedar Grove Tp., supra, at p. 57. To this end, section 207 provides that "all offices" existing in the municipality shall be abolished, in order that the newly formed government "should not be hampered in its organization by a variety of holdover boards, bodies and departments." Ibid. Another objective envisioned by section 207 of the Faulkner Act is to provide a "clean slate" of elected and appointed personnel (with specific exceptions) with whom the new government must work in close harmony in order to efficiently perform municipal functions. Id., at p. 56.
The Parking Authority Law contemplates a close relationship between an authority and the municipality which creates it. State v. Parking Authority of the City of Trenton, supra, at p. 337; cf. Kohler v. Cobb, 31 N.J. 369, 374 (1960). Although an authority is a separate and independent entity, it is nevertheless an instrumentality of the municipality for the fulfillment of a local municipal function in the important field of traffic control. Cf. DeVita v. Housing Authority of City of Paterson, 17 N.J. 350, 360 (1955); Camden County v. Pennsauken Sewerage Auth., 15 N.J. 456, 464-465 (1954). The Law authorizes the municipality to cooperate with the authority by donating or lending funds and granting or conveying real or personal property to it; by issuing municipal bonds and paying the proceeds to the authority; by unconditionally *236 guaranteeing the payment of the authority's bonds; and by assisting the authority in many other ways to accomplish the purposes of the Law. N.J.S.A. 40:11A-21 to 23. And as further indication of the rapport intended by the Law to exist between an authority and the municipality, the authority is empowered, with the consent of the municipality, "to acquire, take over or lease, or manage, any parking project or undertaking constructed or owned by such * * * municipality or any meters, equipment or other facilities of such * * * municipality devoted to the parking or storage of vehicles * * * or necessary or useful and convenient in connection therewith or with the promotion of the free movement of traffic * * *." N.J.S.A. 40:11A-18. From the above it is clear the Legislature intended that the municipality and the commissioners of a parking authority would cooperate with each other in the fulfillment of the statutory aim of alleviating the serious problem of traffic congestion on the streets of the community. Therefore, even though the parking authority is an independent entity, it would hardly be conducive to good government or to the welfare of the municipality to have parking authority commissioners who are unfriendly toward, and in political opposition with, the newly-formed government. Cf. Downey v. Bd. of Education of Jersey City, 74 N.J. Super. 548, 554 (App. Div. 1962).
In order that the newly-created government have an opportunity to achieve a harmonious relationship among those who are to be charged with the fulfillment of local municipal functions upon the establishment of the new government, section 207 provides that "the terms of all elected and appointed officers" (without restriction to those whose offices are "existing in such municipality") immediately cease and determine. (Emphasis added) The commissioners of a parking authority fit the above description since they are appointed by the governing body of the municipality under the Parking Authority Law. N.J.S.A. 40:11A-4. In view of the above, we think that this clause in section 207 was intended to terminate the terms of office of parking authority commissioners upon the *237 effective date of a new plan of government, notwithstanding that the offices constituting the authority are not abolished.
In cases construing the transitional provision of the Walsh Act, N.J.S.A. 40:71-9, which is substantially the same as N.J.S.A. 40:69A-207 of the Faulkner Act, a similar result was reached. Keffer v. Gaskill, 88 N.J.L. 77 (Sup. Ct. 1915); Perry v. Bianchi, 96 N.J.L. 113 (Sup. Ct. 1921); Stark v. Fell, 124 N.J.L. 475 (Sup. Ct. 1940). In Keffer, it was held that although the Legislature did not intend that the office of municipal recorder should be abolished by the above section of the Walsh Act, nevertheless the term of office of the recorder was terminated upon the organization of the commission, and that the commission's subsequent appointment of a recorder for a new term was valid. The court said, "[I]t seems plain that the Legislature intended to do away with all questions of unexpired terms and let the commission start afresh." Id., at p. 80. The same result was reached in Perry upon similar facts. In Stark, the court upheld the appointment of new commissioners of a local housing authority on the ground that the terms of office of the old commissioners had terminated upon the effective date of the Walsh Act in the municipality, notwithstanding that the housing authority itself was not abolished. We think these cases manifest a legislative intent under the Walsh Act to end all terms of office, even though certain offices may not be destroyed. It seems clear that the Legislature wished to continue this policy in enacting the Faulkner Act. Compare N.J.S.A. 40:71-9 with N.J.S.A. 40:69A-207.
Our conclusion is buttressed by the language of the proviso in section 207, wherein the Legislature deemed it necessary to expressly except both the offices and the terms of office of the members of specific boards, bodies and classes of employees which it desired should remain unaffected by a change in the form of government. For example, section 207 would not abolish the offices of commissioners of a local housing authority for the same reasons set forth earlier in this opinion with respect to parking authorities, since it, too, is a separate and *238 independent corporate entity with power to issue its own bonds. N.J.S.A. 55:14A-7, 12. Hence, the legislative purpose in amending section 207 in 1954 (L. 1954, c. 69) to include the commissioners of a local housing authority in the proviso could not have been to save their offices from abolishment. Rather, the Legislature must have considered that, without the proviso, the commissioners of a housing authority would fall within the clause, "all elected and appointed officers," whose terms would come to an end upon the advent of a new form of government. On the other hand, the offices of trustees of the free public library, which are clearly part of the municipal government, Glick v. Trustees of Free Public Library, 2 N.J. 579, 583-584 (1949), would fall within the scope of "all offices then existing in such municipality" and would therefore be abolished. However, by the proviso to section 207, the Legislature saved both the offices and the terms of office of such trustees. There would be no need to expressly preserve the terms of office of such trustees if preservation of the offices were sufficient in itself to exempt those terms from the operation of section 207. Moreover, the preservation of the terms of office of commissioners of parking authorities is not within the listed exceptions in the proviso. If the Legislature had wished to save those commissioners' terms, it could readily have done so in the same manner as it saved the terms of housing authority commissioners. The failure to include the terms of parking authority commissioners indicates an intent that they should come to an end upon the effective date of a change in the form of government. See Myers v. Cedar Grove Tp., supra, at p. 59; Stark v. Fell, supra, at p. 478.
The plaintiffs contend that section 207 has been impliedly repealed with respect to parking authorities by N.J.S.A. 40:11A-23(4) and N.J.S.A. 40:11A-26, both of which were adopted subsequent to the last amendment of section 207. Even aside from the doctrine that repeals by implication are not favored, Ruckman v. Ransom, 35 N.J.L. 565, 567 (E. & A. 1871), we see no merit in these contentions. N.J.S.A. 40:11A-23(4) provides:
*239 "A parking authority shall not be subject to, or constitute a municipality or agency or component of a municipality subject to, the provisions of chapter 50 or any other provisions of Title 40 of the Revised Statutes."
N.J.S.A. 40:11A-26 provides:
"All general or special laws, or parts thereof, inconsistent herewith are hereby declared to be inapplicable to the exercise of the powers, duties and obligations authorized under the provisions of this act."
As to N.J.S.A. 40:11A-23(4), it is obvious that the Legislature did not intend to exempt parking authorities from all provisions of Title 40, since the Parking Authority Law itself is a part of Title 40. The above section was enacted in 1958 (L. 1958, c. 22) as part of an amendment to the Parking Authority Law. An examination of the entire amendment, and of the introductory statement accompanying the bill which was ultimately enacted, leads to the conclusion that this section was intended only to free the authority from those restrictions in Title 40 which would be imposed upon a municipality acting by itself in the construction and financing of parking projects. We find nothing in the amendment or in the statement which intimates in the slightest degree an intent to repeal section 207 of the Faulkner Act.
As to N.J.S.A. 40:11A-26, which was enacted as a supplement to the Parking Authority Law in 1954 (L. 1954, c. 138), it is clear from an examination of that section, in the context of the other amendments and supplements contained in the same bill which was ultimately enacted, that section 26 was primarily intended to provide additional security for parking authority bond issues. The introductory statement concludes that the proposed enactment "in no way deprives the political subdivisions of any of their home rule attributes without their consent." We find no inconsistency between this section and the termination of the terms of office of parking authority commissioners pursuant to section 207 of the Faulkner Act.
*240 For the foregoing reasons, we hold that upon the taking effect of the new plan of government in the city on July 1, 1962, the terms of the plaintiff-commissioners of the Parking Authority of the City of Bayonne immediately ceased and determined, and that upon appointment by the new governing body, the defendants, Messrs. Garito, Konieczko, Paul, Levis and Zebrowski, became the lawful commissioners of the Authority. It follows that the Broadway National Bank of Bayonne must honor the defendants-commissioners' right and title to control the bank account standing to the credit of the Parking Authority of the City of Bayonne.
The judgments of the trial court are reversed and the matters are remanded to it for the entry of judgments consistent with the above holding.
WEINTRAUB, C.J., and HANEMAN, J. (dissenting).
The majority opinion holds that although the offices of commissioners of a municipal parking authority were not abolished by the adoption of a plan of government under the Optional Municipal Charter Law (Faulkner Act), N.J.S.A. 40:69A-1 et seq., nonetheless the terms of the commissioners did come to end. We agree the offices were not abolished, but cannot agree the incumbencies were terminated.
The critical provision of the Faulkner Act is N.J.S.A. 40:69A-207 which reads:
"At 12 o'clock noon on the effective date of an optional plan adopted pursuant to this act, all offices then existing in such municipality shall be abolished and the terms of all elected and appointed officers shall immediately cease and determine; provided, that nothing in this section shall be construed to abolish the office or terminate the term of office of any member of the board of education, trustees of the free public library, commissioners of a local housing authority, municipal magistrates or of any official or employee now protected by any tenure of office law, or of any policeman, fireman, teacher, principal or school superintendent whether or not protected by a tenure of office law. If the municipality is operating under the provisions of Title 11 of the Revised Statutes (Civil Service) at the time of the adoption of an optional plan under this act, nothing herein contained shall affect the tenure of office of any person holding *241 any position or office coming within the provisions of said Title 11 as it applies to said officers and employees. If the municipal clerk has, prior to the effective date of the optional plan, acquired a protected tenure of office pursuant to law, he shall become the first municipal clerk under the optional plan." (Emphasis added)
We find nothing there to suggest that a term of office shall end notwithstanding the office itself survives. In the first italicized portion we find the phrase "all offices then existing in such municipality shall be abolished and the terms of all elected and appointed officers shall immediately cease and determine." We do not know why, after providing for the abolition of an office, the Legislature went to the trouble of adding that the term of the incumbent shall cease. We would think that if an office is abolished, the term of the holder necessarily ends. Perhaps for fear that a dislodged incumbent might claim the new office if it were the same as or very similar to the office the statute abolished, the draftsman spelled out the consequence of the abolition of the office, i.e., the termination of the holder's incumbency. Whatever the reason, there is no evidence of an intent to end the term as to an office that is not destroyed.
In the proviso which follows the portion to which we just referred, we have the language that "nothing in this section shall be construed to abolish the office or terminate the term" of offices which are then enumerated. The use of "or" rather than "and" does not indicate an intent that as to some offices the term of the incumbent shall end while the office continues unscathed. We must remember that this is only a proviso and that in the enacting part from which the proviso carves out certain exclusions there is nothing which affirmatively states a purpose to end a term rather than both office and term, and nothing which intimates a test whereby it may be discovered in what instances the term shall go and the office remain. Nor does the proviso provide such a result with respect to any office to which it applies.
Since neither the enacting portion nor the proviso would thus separate term from office, it strikes us as strange to infer *242 the Legislature intended a severance merely because "or" rather than "and" was used in the proviso. It seems to us that the disjunctive was used merely because it is the usual mode of expression when the enacting part speaks of two things and the proviso wishes to protect against both. Here an awkwardness arises because the enacting part does not really deal with two distinct things. As we have said, the term of the incumbent necessarily ends with the abolition of the office, and hence the language relating to the termination of the incumbent's term was added, not to create a second consequence, but probably to avoid a dispute as to the full impact of the abolition of the office. But whatever a grammarian may think of the use of "or" in this setting, we cannot see how it can be a springboard for a thought nowhere expressed, i.e., that a term shall end even though the office is unaffected.
The argument seems to be that the Faulkner Act contemplates a "clean sweep" which can be furthered only by the result reached by the majority. The trouble is that the Faulkner Act does not elsewhere reveal a guiding concept as to what is swept away. The act of course envisions change. But change of what? We believe the change intended relates to the structure of government and that while faces may be changed in the process, the change of faces is only incidental. Indeed the Preliminary Statement (1948) of the Commission on Municipal Government which proposed the statute is replete with statements of a purpose to improve the structure of local government. The appropriate medium for a change of faces as such would be a recall election coupled with the abolition of tenure laws. It would be quite devious and expensive as well to seek a change in government, not to achieve a better mechanism, but to effect a change of faces prior to the next scheduled election. We cannot attribute any such purpose to the Faulkner Act.[1]
*243 Since we cannot detect anywhere an intent to change faces to that end alone, we cannot find by implication that a term of office shall end notwithstanding the office continues. Nor can we find that intent by laying the Parking Authority Law, N.J.S.A. 40:11A-1 et seq., alongside the Faulkner Act. On the contrary the clear policy of the parking statute runs the other way, for it contemplates a large measure of independence. So the commissioners of the Authority are given staggered five-year terms of office which are not correlated with the terms in the governing body of the municipality itself, N.J.S.A. 40:11A-4, and a commissioner of an Authority may not be an officer or employee of the municipality, N.J.S.A. 40:11A-5. If the Legislature intended the Parking Authority to be amenable to the will of the governing body of the municipality, it would have provided that the commissioners of the Parking Authority shall hold office at the pleasure of the appointing authority or at least that their terms shall coincide with the terms of the appointing authority. That a high degree of independence was intended of course does not mean that a Parking Authority should be hostile to its creator, but it does mean that in the process of cooperation the commissioners shall be able to disagree and to prevail within the ambit of their allotted responsibility until such time as faces are changed in the only way the statute *244 permits them to be changed, i.e., by the appointment of others at the end of the staggered terms of the incumbents.
We would therefore affirm the judgment.
For reversal and remandment Justices JACOBS, FRANCIS, PROCTOR, HALL and SCHETTINO 5.
For affirmance Chief Justice WEINTRAUB, and Justice HANEMAN 2.
NOTES
[1] We find no support for the majority's view that the Faulkner Act adopted the approach of the Walsh Act. The Walsh Act expressly abolishes terms of office while leaving offices themselves intact. So it provides in N.J.S.A. 40:71-9 that upon the adoption of the act and the organization of the commissioners first elected:
"* * * the governing body or bodies and all other boards and bodies whether state or local municipal agencies then existing in the municipality, except the board of education and the district court or courts, shall be ipso facto abolished and the terms of all councilmen, aldermen and all other officers, whether elective or appointive, shall immediately cease and determine * * *." (Emphasis added)
Thus the Walsh Act abolishes only the offices within the governing body and other boards and bodies. As to other offices, the statute ends the term of the incumbent notwithstanding the office itself is not abolished. If the Walsh Act intends by this provision to authorize a change of faces to that end alone, the fact remains that the Faulkner Act is differently worded.
|
430 F.Supp.2d 87 (2006)
UNITED STATES of America,
v.
Vincent BASCIANO and Patrick Defilippo, Defendants.
No. 03-CR-929 (NGG).
United States District Court, E.D. New York.
April 16, 2006.
*88 Thomas J. Lee, Bronx, NY, John L. Pollok Hoffman & Pollok LLP New York City, for Defendants.
*89 Amy Busa, Mitra Hormozi, Nicolas Bourtin, United States Attorneys Office, Greg D. Andres, United States Attorneys Office, Criminal Division, Winston Y. Chan, United States Attorney, Eastern District of New York, Brooklyn, NY, for Plaintiff.
MEMORANDUM & ORDER
GARAUFIS, United States District Judge.
This Memorandum and Order (M & 0) addresses a number of recent requests and motions raised by the United States ("Government"). and defendants Vincent Basciano ("Basciano") and Patrick DeFilippo ("DeFilippo") (together "Defendants"). Familiarity with the facts of this case and all prior rulings is assumed.
I. Admissibility of David Nunez's 1985 Lineup Identification of Basciano
A. Factual Background:
The Government has charged that on or around November 14, 1985, Basciano attempted to murder David Nunez. On November 15, 1985, at approximately 6:15 p.m., Basciano was placed in a lineup and was identified by Nunez. (Basciano Nunez Ltr., dated Apr. 13, 2006, at 1; see also 1987 Wade Tr. at 33 (testimony of Police Officer Keith Garley).) Nunez has since given contradictory accounts of his recollection of his assailant, including (1) in December 1985, when he spoke with Basciano's then-attorneys Elias Martinez and Gary Friedman, and stated that all he remembered was a "man with a moustache" (M & 0, dated Jan. 27, 2006, at 6); (2) in May 1986 he informed FBI Special Agents Howard Mette and Randolph Biddle that he made a mistake about the lineup because the person he identified (Basciano) did not have a moustache, and the person who shot him did (id.); and (3) he recently reportedly spoke with an investigator working for Basciano, and said that detectives came to his home on November 14, 1985 and showed him photographs of Basciano, which assisted him in identifying Basciano at the line-up. (Id. at 6-7.) In the M & O, dated January 27, 2006, in which this court denied Basciano's motion to exclude Nunez's identification of Basciano in the line up, this court rejected Nunez's last account, finding that this account is impossible to reconcile with the fact that hospital records show that he could not have gone home after being discharged and before the line up. (Id.)
Basciano now moves in limine to exclude the testimony of Officer Keith Garley on Nunez's identification of Basciano in the 1985 line-up as a violation of Basciano's Sixth Amendment Confrontation Clause rights as articulated in Crawford v. Washington, 541 U.S. 36, 124 S.Ct. 1354, 158 L.Ed.2d 177 (2004).
B. Discussion
The Confrontation Clause of the Sixth Amendment provides that "In all criminal prosecutions, the accused shall enjoy the right . . . to be confronted with the witnesses against him. . . ." U.S. Const. amend. VI. The Supreme Court in Crawford v. Washington, 541 U.S. 36, 124 S.Ct. 1354, 158 L.Ed.2d 177 (2004) "announced a per se bar on the admission of a class of out-of-court statements, denominated `testimonial,' against an accused who had no prior opportunity to cross-examine the declarant." United States v. Stewart, 433 F.3d 273, 290 (2d Cir.2006).
First, it is clear that the testimony sought, i.e. a police officer's account of Nunez's identification of Basciano in the line-up, is testimonial. "The types of statements cited by the Court as testimonial share certain characteristics; all involve a declarant's knowing responses to *90 structured questioning in an investigative environment or a courtroom setting where the declarant would reasonably expect that his or her responses might be used in future judicial proceedings." United States v. Stewart, 433 F.3d 273, 290 (quoting United States v. Saget, 377 F.3d 223, 228 (2d Cir.2004)). Generally, statements made to a law enforcement agent that were not subject to cross-examination are testimonial where, as here, they are offered for their truth. Id.
The Government in opposing this motion explains that it is entitled to admit Officer Garley's testimony on the ground that Basciano forfeited his Confrontation Clause rights by tampering with Nunez after the line-up. The Supreme Court in Craw-Tord made clear that "the rule of forfeiture by wrongdoing (which we accept) extinguishes confrontation claims on essentially equitable grounds; it does not purport to be an alternative means of determining reliability." Crawford, 124 S.Ct. at 1368. The `rule of forfeiture' has been articulated by the Supreme Court as follows:
The Constitution gives the accused the right to a trial at which he should be confronted with the witness against him; but if a witness is absent by his own wrongful procurement, he cannot complain if competent evidence is admitted to supply the place of that which he has kept away. The Constitution does not guarantee an accused person against the legitimate consequences of his own wrongful acts.
Reynolds v. United States, 98 U.S. 145, 158, 25 L.Ed. 244 (1878). "Where a defendant has procured the declarant's unavailability 'by chicanery, . . . by threats, . . . or by actual violence or murder,' the defendant is deemed to have `waived his sixth amendment rights and, a fortiori, his hearsay objection' to the admission of the declarant's statements.'" United States v. Williams, 443 F.3d 35, 45 (2d Cir.2006) (quoting United States v. Mastrangelo, 693 F.2d 269, 272-73 (2d Cir.1982), cert. denied, 467 U.S. 1204, 104 S.Ct. 2385, 81 L.Ed.2d 343 (1984)). This rule was codified in Fed.R.Evid. 804(b)(6), which provides that evidence of an out-of-court statement by an unavailable declarant is "not excluded by the hearsay rule" when "offered against a party that has engaged or acquiesced in wrongdoing that was intended to, and did, procure the unavailability of the declarant as a witness." Fed. R.Evid. 804(b)(6). "[A]n evidentiary hearing in the absence of the jury is necessary before a finding of a waiver may be made." Mastrangelo, 693 F.2d at 273. The Government has the burden to show a waiver by the preponderance of the evidence. Id.
The Government must therefore show (1) that Basciano tampered with Nunez, and that (2) as a result, Nunez is unavailable. On the first prong, the Government in opposition to Basciano's motion presents to this court evidence in the form of testimony by Tommy Lee, Anthony Bottone, and proffers that it would seek to admit other testimony showing that Basciano intimidated Nunez into denying his original identification of Basciano as the attempted murderer. (See Gov't Nunez Ltr., dated Apr. 14, 2006, at 3-6.) Although there are few post-Crawford cases analyzing the sufficiency of evidence necessary to find that defendant forfeited his Confrontation Clause rights, it is fair to conclude from this evidence that the Government has met its burden to show by a preponderance of the evidence that Basciano threatened Nunez in order to prevent him from testifying truthfully. See Francis v. Duncan, No. 03-Civ.-4959, 2004 WL 1878796, at *17, 2004 U.S. Dist. LEXIS 16670, at *52-53 (S.D.N.Y. Aug. 23, 2004) (District court sitting in habeas review of New York state conviction held that Government's obligation *91 to show causal link between misconduct and witness's refusal to testify can be met by circumstantial evidence, and judges may use common sense in drawing inference to determine the reasons for the witness's unavailability.); State v. Hand, 107 Ohio St.3d 378, 390, 840 N.E.2d 151 (2006) (considering applicability of analogous Ohio waiver rule, judge found that government's production of witnesses who testified that defendant killed declarant in order to eliminate him as possible witness met prosecution's burden).
However, to properly invoke the forfeiture rule exception to Basciano's Confrontation Clause rights, the Government must show that Nunez is unavailable as a result of Basciano's tampering, the second prong of the forfeiture rule. The Government has not yet offered any evidence that Nunez, if called to testify, would not do so. Clearly, if the Government were to call Nunez to the stand, and he refused to testify, e.g. because of fear of retribution, that would satisfy the Government's burden to show that Nunez is unavailable. Similarly, this court could make a determination after an in camera interview of Nunez that he is unavailable.
However, until the Government makes the requisite showing that Nunez is unavailable, it has not met its burden under the second prong of the forfeiture rule test and, hence, Officer Garley's testimony would violate Basciano's Confrontation Clause rights under Crawford. I hereby reserve judgment on Basciano's motion, subject to any evidence of unavailability presented by the Government on Monday, April 17, 2006.
II. Admissibility of evidence of Massino's cooperation
On April 10, 2006, DeFilippo submitted a letter of the defense's intention to introduce evidence of Joseph Massino's ("Massino's") cooperation agreement with the government. (DeFilippo Ltr. of Apr. 10, 2006 ("Defense Ltr. on Massino") at 1.) The defense also seeks to admit the fact that the Government has debriefed Massino on several occasions and the fact that defense requests to interview Massino have been refused. (Id.) Finally, the defense requests a missing witness charge for Massino. (Id.) The defense argues that Massino has given contradictory statements in the past by writing on his 3500 material that the Government's allegations were false and later substantiating those allegations in Massino's own 302s. (See id. at 4 n. 2.) The defense argues that it should be allowed to present evidence that would allow the jury to infer that the Government did not call Massino, despite its ability to do so, because Massino would have hurt the Government's case. (Id. at 1.)
The Government responded to this request with a brief submitted on April 14, 2006. (Gov't Opp. Mot Admit Evid. of Apr. 14, 2006 ("Gov't Massino Opp.").) The Government argues that the evidence the defense seeks to admit is irrelevant, and therefore foreclosed by Federal Rules of Evidence ("Rules") 401, 402. (Id.) Any relevance would be far outweighed by the unfair prejudice suffered by the government through confusion and misleading of the jury. (Id.) The Government further argues that a missing witness charge is inappropriate because Massino is not "unavailable" to the defense. I consider the questions of admissibility in the present M & 0 and reserve on the question of the jury charge.
"All relevant evidence is admissible, except as otherwise provided . . . Evidence which is not relevant is not admissible." Rule 402. Relevant evidence is defined as "evidence having any tendency to make the existence of any fact that is of consequence *92 to the determination of the action more probable or less probable than it would be without the evidence." Rule 401. This is a very expansive definition. "Evidence need not be conclusive in order to be relevant." Contemporary Mission v. Famous Music Corp., 557 F.2d 918, 927 (2d Cir.1977). "Nonconclusive evidence should still be admitted if it makes a proposition more probable than not; factors which make evidence less than conclusive affect only weight, not admissibility." United States v. Schultz, 333 F.3d 393, 416 (2d Cir.2003) (internal citation and quotation omitted).
The Government argues that the cooperation agreement is not admissible because Second Circuit precedent does not allow the prosecution to introduce a cooperation agreement until a cooperating witness has been attacked by the defense. (Gov't Massino Opp. at 16.) Nonetheless, the measure for here is whether it would be relevant to the defense's case, not the Government's. The Government goes on to state that because the cooperation agreement does not prove guilt or innocence, it is not relevant. (Id. at 17-19.) Rule 401's definition of relevance is not so restricted. Although Massino's cooperation agreement has low relevance, I find that it is nonetheless relevant under Rules 401 and 402.
The Government argues that Massino's cooperation agreement is more confusing and misleading than probative under Rule 403. Joseph Massino has certainly not been absent from this trial. Both defense attorneys spoke of Massino in their opening statements, witnesses have identified and testified about Massino (on both direct and cross-examination), the organized crime family alleged in the indictment has been referred to both as the "Bonanno" family and the "Massino" family, and statements from the 2004 Massino trial have been read into evidence as past inconsistent statements. It is unclear how the fact that Massino cooperated with the Government would be at all confusing or misleading to the jury. Furthermore, the Second Circuit has generally ruled that cooperation agreements prejudice the Defendant's case (see, e.g., United States v. Cosentino, 844 F.2d 30, 33 (2d Cir.1988)), suggesting there is little chance the introduction of Massino's agreement would unfairly prejudice the Government. I find that the proffered testimony poses no realistic threat of confusing the issues before the jury, let alone one which presented a danger of "substantially outweigh[ing]" the evidence's probative value. Rule 403.
There is no dispute as to the fact that Massino cooperated, or as to the authenticity of the cooperation agreement. Massino signed the cooperation agreement before this court. I find that the agreement is admissible.
The Defendants also seek to introduce evidence of Massino's discussions with the Government and DeFilippo's futile efforts to interview Joseph Massino. It is not explained by the Defendants, nor is it clear to the court, what the relevance of such evidence is, what form it would take, or how it could be introduced without calling Massino as a witness. Short of this evidence being offered in admissible form, it will not be considered.
III. Admissibility of Joseph Filippone's Grand Jury Testimony
On April 13, 2006 Basciano submitted a letter brief in support of a motion filed pursuant to Federal Rule of Evidence ("Rule") 804(b)(1). (Basciano Filippone Ltr. of Apr. 13, 2006 ("Basciano Filippone Ltr.") at 1.) Basciano seeks to introduce the grand jury testimony of Joseph Filippone ("Filippone") from December 29, 2005, when Filippone testified before a grand jury of the Eastern District of New *93 York pursuant to a subpoena.[1] (Id.) Basciano apparently first sought to have Filippone testify at his trial. In apparent response, Filippone's attorney informed Basciano's counsel, that if called to testify, Filippone intends to invoke his Fifth Amendment right against incrimination and will refuse to testify.[2] (Basciano Filippone Ltr. at 3; Ex. A.) Basciano has filed this motion seeking to introduce Filippone's grand jury testimony pursuant to Rule 804(b)(1).
Federal Rule of Evidence 804 provides that subject to the unavailability of the declarant, the following is excluded by the hearsay rule: "[t]estimony given as a witness at another hearing of the same or a different proceeding, . . . if the party against whom the testimony is now offered . . . had an opportunity and similar motive to develop the testimony by direct, cross, or redirect examination." Fed.R.Evid. ("Rule") 804(b)(1). A declarant is unavailable for the purposes of this rule if he or she:
(1) is exempted by ruling of the court on the ground of privilege from testifying concerning the subject matter of the declarant's statement; or
(2) persists in refusing to testify concerning the subject matter of the declarant's statement despite an order of the court to do so; . . .
Rule 804(a). A declarant becomes unavailable when he or she successfully invokes the Fifth Amendment privilege against self incrimination. United States v. Salerno, 505 U.S. 317, 321, 112 S.Ct. 2503, 120 L.Ed.2d 255 (1992). See also United States v. Matthews, 20 F.3d 538, 545 (2d Cir.1994); United States v. Bakhtiar, 994 F.2d 970, 977 (2d Cir.1993). A witness need not be physically brought into court to assert the privilege, although it is preferred that the declarant appear before the court to claim the privilege. See, United States v. Williams, 927 F.2d 95, 98-99 (2d Cir.1991).
The Supreme Court has noted that "it is the duty of a court to determine the legitimacy of a witness's reliance upon the Fifth Amendment. A witness may not employ the privilege to avoid giving testimony that he simply would prefer not to give." Roberts v. United States, 445 U.S. 552, 560 n. 7, 100 S.Ct. 1358, 63 L.Ed.2d 622 (1980) (citations omitted). Furthermore, "[a]s to each question to which a claim of privilege is directed, the court must determine whether the answer to that particular question would subject the witness to a `real danger' of further crimination." Rogers v. United States, 340 U.S. 367, 374, 71 S.Ct. 438, 95 L.Ed. 344 (1951); see also *94 United States v. Zappola, 646 F.2d 48, 53 (2d Cir.1981) ("district court simply accepted [] [declarant's] blanket assertion of the fifth amendment privilege . . . and did not undertake a particularized inquiry to determine whether the assertion was founded on a reasonable fear of prosecution as to each of the posed questions. This was error.").
Even though witnesses are legally bound to give testimony when called by the grand jury, United States v. Calandra, 414 U.S. 338, 343, 94 S.Ct. 613, 38 L.Ed.2d 561 (1974), the grand jury's authority to compel testimony is conditional on the witness's Fifth- Amendment right against self incrimination. United States v. Mandujano, 425 U.S. 564, 575, 96 S.Ct. 1768, 48 L.Ed.2d 212 (1976). If granted immunity to the witness, the witness can be compelled to answer even incriminating questions "on pain of contempt." Id. at 575, 96 S.Ct. 1768. Basciano's assertion that Filippone was granted immunity is not supported by any evidence. (See Basciano Filippone Ltr. at 3). The grand jury record makes no mention of immunity and the Government proffers that Filippone was not granted such. (See Gov't Filippone Ltr. at 1.) Furthermore, it is clear from the grand jury record that Filippone knowingly waived his Fifth Amendment privilege against self-incrimination about certain matters when he voluntarily testified before the grand jury.[3] Under the facts presented, I find that Filippone was not granted immunity for his grand jury testimony of December 29, 2005.
A witness's waiver of privilege may be inferred from his or her course of conduct or prior statements concerning the subject matter of the case, without inquiring into whether or not the witness was aware of the privilege and chose to waive it consciously. Klein v. Harris, 667 F.2d 274, 287 (2d Cir.1981). The privilege against self-incrimination is waived if it is not invoked. Rogers v. United States, 340 U.S. 367, 371, 71 S.Ct. 438, 95 L.Ed. 344 (1951) (citations omitted). Furthermore, "[a] witness who fails to invoke the Fifth Amendment against questions as to which he could have claimed it is deemed to have waived his privilege respecting all questions on the same subject matter." United States v. O'Henry's Film Works, Inc., 598 F.2d 313, 317 (2d Cir.1979). A waiver is found if the witness' prior statements have created a significant likelihood that the finder of fact will be left with and prone to rely on a distorted view of the truth, and the witness had reason to know that his *95 prior statements would be interpreted as a waiver of the fifth amendment's privilege against self-incrimination. Klein v. Harris, 667 F.2d 274, 287 (2d Cir.1981). The second prong requires that the prior statement be testimonial and incriminating. Id. at 288.
I find that Filippone cannot find shelter in the Fifth Amendment's privilege against self incrimination and refuse to testify in Basciano's trial. I first find that Filippone knowingly and voluntarily waived his Fifth Amendment privilege when he testified before the grand jury. He was specifically told about his Fifth Amendment-privilege against self incrimination. He was also told that he had a right to have his attorney available at the time Of the grand jury proceedings, and that the proceedings could be adjourned until he was provided with his own attorney. I next find that his testimony in reference to these matters does not appear to incriminate him and so he would likely be unable to claim a Fifth Amendment right even if he had not waived the right previously.
Filippone is therefore available for the purposes of Rule 804(a), and his grand jury testimony does not fit the hearsay exception provided by Rule 804(b)(1). Filippone cannot use the Fifth Amendment's privilege against self incrimination to avoid testifying at Basciano's trial. Basciano could subpoena Filippone and compel him to testify to those matters which he testified to at the grand jury. However, if Basciano seeks to question Filippone about a matter outside the scope of the grand jury testimony and Filippone refuses to answer on the basis of his Fifth Amendment right against self-incrimination, I will conduct an in camera review to determine Filippone's availability. Basciano's motion to admit Filippone's grand jury testimony under Rule 804(b)(1) is denied.
CONCLUSION
Unless the Government makes the requisite showing that Nunez is unavailable, it has not met its burden under the second prong of the forfeiture rule test and, hence, Officer Garley's testimony would violate Basciano's Confrontation Clause rights under Crawford. I hereby RESERVE judgment on Basciano's motion, subject to any evidence of unavailability presented by the Government on Monday, April 17, 2006.
The Defendants' request to introduce Massino's cooperation agreement into evidence is GRANTED. Defendants' request to introduce evidence of Massino's discussions with the Government and DeFilippo's attempts to interview Joseph Massino is DENIED, unless defendants are able to establish admissibility and relevance of the evidence. Basciano's motion to introduce Joseph Filippone's grand jury testimony is DENIED.
SO ORDERED.
NOTES
[1] The relevant portion of the transcript is:
Q: Do you have any knowledge, indirect or direct, about the circumstances of Frank Santoro's murder?
A: No, sir.
Q: Has any other person ever told you about anything involving that murder?
A: Right, my brother.
. . . . .
Q: Did you ever tell anyone besides the police that Frank was a kidnapper?
A: No.
Q: Did you attempt to warn Vincent Basciano that Frank was a kidnapper?
A: No.
Q: Did you pass a message to anyone that Frank perhaps was considering kidnapping Vincent Basciano's children?
A: Not at all.
Q: Were you ever in the drug business with Frank Santoro?
A: No.
(Grand Jury Transcript at 60-62; Basciano Filippone Ltr. at 1-2.)
[2] Filippone is awaiting trial in the Southern District of New York as a defendant in a multi-defendant heroin trafficking prosecution. He has been held in detention since his January 12, 2006 arrest. (Gov't Ltr. of Apr. 14, 2006 ("Gov't Filippone Ltr.") at 2.)
[3] The relevant testimony is:
Q: You are being called as a witness, and like all witnesses, you have the right under the Fifth Amendment of the Constitution to refuse to testify about any information that might implicate you in a crime of your own. Do you understand that?
A: Yes.
Q: You also have the right to have an attorney, and if you can't afford an attorney, one could be appointed for you. I note for the record that you have an attorney for you; is that correct?
A: Yes.
Q: What's his name?
A: I don't even know.
Q: Bennet Epstein?
A: Yes.
Q: And have you spoken with him about today?
A: Yes.
Q: Is he here today?
A: No.
Q: But do you want to continue, anyway?
A: Yes.
Q: But should at any point in this that [sic] you want to talk to an attorney, we can arrange for you to speak to an attorney, another attorney, and make him available today, or otherwise adjourn the proceeding, and have you come back another time with "that Mr. Epstein, if you want to. Do you understand?
A: Right, Yes.
Grand Jury Transcript at 56-57.
|
Filed 7/26/13 P. v. Webb CA4/1
NOT TO BE PUBLISHED IN 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.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
THE PEOPLE, D061399
Plaintiff and Respondent,
v. (Super. Ct. No. SCD230595)
MICKAEL DEANDRE WEBB,
Defendant and Appellant.
APPEAL from a judgment of the Superior Court of San Diego County, Kerry
Wells, Judge. Affirmed.
Thomas Owen, under appointment by the Court of Appeal, for Defendant and
Appellant.
Kamala D. Harris, Attorney General, Julie L. Garland, Assistant Attorney General,
A. Natasha Cortina, Ronald A. Jakob and Kelley Johnson, Deputy Attorneys General, for
Plaintiff and Respondent.
A jury convicted Mickael Deandre Webb on two counts—counts 3 and 4—of
forcible anal or genital penetration (Pen. Code,1 § 289, subd. (a)), and one count—count
5—of assault by means of force likely to produce great bodily injury (§ 245 subd. (a)(1)).
It found true allegations that Webb personally inflicted great bodily injury in committing
the crimes (§ 12022.8 [counts 3 and 4]; § 12022.7 subd. (a), 1192.7 subd. (c)(8) [count
5]). The trial court found Webb had suffered a prior prison conviction. (§ 667.5 subd.
(b).) It sentenced Webb to prison for 31 years to life—one indeterminate term of 15
years to life (§ 667.1 subds. (b), (c) & (e) [count 3]), one consecutive indeterminate term
of 15 years to life (§ 667.1 subds. (b), (c) & (e) [count 4]), and one consecutive one-year
term for the prison prior. The court also imposed and stayed under section 654 the three-
year term for count 5 and the corresponding enhancement.
Webb contends there is insufficient evidence of sexual penetration under section
289 subdivision (a) as to counts 3 and 4. We affirm.
FACTS
On or about October 23, 2010, Webb and Angelique M. communicated via the
Internet, arranged to meet at a mall, and, after talking there, decided to relocate to
Angelique's apartment. When they arrived, Webb followed Angelique into her bedroom,
immediately pushed her onto the bed, began to undo her pants and, when she resisted,
strangled her until she blacked out. Angelique briefly awoke, but passed out again after
Webb—then on top of her—choked her again. Angelique later found herself unclothed
1 All statutory references are to the Penal Code unless otherwise specified.
2
on the bed, her phone and wallet were missing and Webb was gone.2 Angelique went to
a neighbor's apartment and waited there while the neighbor called the police, who
escorted Angelique to a hospital.
Sexual assault nurse examiner Claire Nelli observed injuries to Angelique's
hymen, posterior fourtchette, and fossa navicularis. The injuries were fresh and
"consistent with something being inserted into the vagina." According to Nelli, the
injuries' severity indicated the penetrating object lacked a "helper," such as lubricant,
"wanting to have sex, [or] be[ing] in the right position that [so] everything goes as
smoothly as possible." She testified it was not likely that the injuries to Angelique's
hymen and vagina were caused by something other than a penetrating object. Nelli also
found abrasions, bruises, and swelling consistent with insertion of an object, penis, or
fingers in the rectal opening, as well as "far in[to]" and "almost out" of Angelique's anal
canal. A criminalist testified that he found no male DNA on swabs of Angelique's vagina
or anus.
During the exam, Angelique stated that she had not had anal or vaginal intercourse
within the month prior to the incident, nor had she experienced injury or medical
problems in either region. At trial, Angelique testified that she felt no soreness or pain in
her anal or vaginal regions in the five days after the attack.
2 Webb agreed the two met at the mall and went to Angelique's apartment, but
testified that after Angelique attempted to prostitute herself to him, he left while an
unidentified man remained in the apartment.
3
DISCUSSION
Unlawful penetration with a foreign object under section 289 is "an act of sexual
penetration when the act is accomplished against the victim's will by means of force,
violence, duress, menace, or fear of immediate and unlawful bodily injury on the victim."
(§ 289, subd. (a)(1)(A).) "Sexual penetration" is defined to include "the act of causing
the penetration, however slight, of the genital or anal opening of any person . . . for the
purpose of sexual arousal, gratification, or abuse by any foreign object, substance,
instrument, or device, or by any unknown object." (§ 289 subd. (k)(1).) Any " '[f]oreign
object,' . . . include[s] any part of the body . . . ." (§ 289, subd. (k)(2).)
Webb contends there is insufficient evidence to prove sexual penetration to
support his convictions of rape by a foreign object. He characterizes Nelli's findings as
inconclusive and claims Nelli "could not determine that something had been inserted or
touched Angelique's vaginal area, but only that she found injury there, and there were no
findings as to the anal area." He also points out that the crime laboratory technician
identified no male DNA inside Angelique, Angelique experienced no vaginal or anal
discomfort, and she could not recall what had happened while she was unconscious.
Webb argues reversal is compelled by People v. Karsai (1982) 131 Cal.App.3d 224, 231-
235 (Karsai) (overruled on other grounds by People v. Jones (1988) 46 Cal.3d 585, 600)
because unlike that case, Angelique could not testify that Webb penetrated her, and the
People presented only weak physical evidence.
4
When determining the sufficiency of the evidence, an appellate court reviews the
whole record in favor of the judgment and affirm unless no rational factfinder could have
found guilt beyond a reasonable doubt from evidence that "is reasonable, credible, and of
solid value," even if the factfinder relied solely on inconsistent or circumstantial
evidence, or evidence indicative of a contrary conclusion. (People v. Johnson (1980) 26
Cal.3d 557, 578; see People v. Gammage (1992) 2 Cal.4th 693, 700 [uncorroborated
testimony of prosecutrix sufficient]; People v. Leigh (1985) 168 Cal.App.3d 217, 221.)
We do not reweigh the evidence or resolve conflicts in it. (People v. Young (2005)
34 Cal.4th 1149, 1181.) " 'Conflicts and even testimony which is subject to justifiable
suspicion do not justify the reversal of a judgment, for it is the exclusive province of the
trial judge or jury to determine the credibility of a witness and the truth or falsity of the
facts upon which a determination depends.' [Citation.] Unless it describes facts or events
that are physically impossible or inherently improbable, the testimony of a single witness
is sufficient to support a conviction." (People v. Elliott (2012) 53 Cal.4th 535, 585.)
Webb's focus on evidence favorable to him in the record contravenes these
standards. And he mischaracterizes Nelli's conclusions, ignoring her testimony that she
found Angelique's injuries to the vaginal and anal areas consistent with forced
penetration by some object. The jury could reasonably deduce that penetration occurred
based on Angelique's and Nelli's testimony: Angelique recounted that Webb began to
undress her before he strangled her, she recalled Webb on top of her and later awoke
undressed, and Nelli detailed injuries that were likely from insertion of a foreign object.
The criminalist agreed that use of a condom would eliminate the presence of sperm, and
5
the jury could conclude that this would explain the absence of male DNA. Although
Webb points to facts he claims could lead to acquittal, it is for the jury to conclude on
which side of the fence any wavering evidence falls. (See Johnson, supra, 26 Cal.3d at p.
578.) The evidence amply supports the jury's determination that Webb sexually
penetrated Angelique under section 289.
We are unpersuaded by Webb's claim that we should apply Karsai to reverse the
convictions based on Angelique's inability to testify to penetration and the absence of
male DNA. We analyze each case's "unique facts and inferences," and thus "comparisons
between cases [offer] . . . little value." (People v. Rundle (2008) 43 Cal.4th 76, 137-138,
disapproved on other grounds in People v. Doolin (2009) 45 Cal.4th 390, 421.) Even if
we looked to Karsai to assess the sufficiency of the evidence in this case, it would not
require reversal. Karsai upheld a conviction for rape by means of force or violence based
on physical evidence (redness at the victim's vaginal opening), and the victim's
recollection of the event. (Karsai, supra, 131 Cal.App.3d at pp. 232-233.) We decline to
reverse convictions of this sort for the absence of direct testimony of penetration by the
victim. It is well settled that "the substantial evidence rule does not require that the
evidence supporting defendant's conviction be direct evidence." (People v. Lopez (2013)
56 Cal.4th 1028, 1069.) And reversing on this ground would encourage defendants to
avoid convictions by rendering their victim unconscious, as Webb did here. Finally,
Karsai, a case in which the evidence was sufficient to support penetration, provides no
guidance as to the sort of evidence that is insufficient to support such a jury finding.
For the foregoing reasons, we reject Webb's sufficiency of the evidence challenge.
6
DISPOSITION
The judgment is affirmed.
O'ROURKE, J.
WE CONCUR:
BENKE, Acting P. J.
McINTYRE, J.
7
|
473 F.2d 740
Joanne BAIR, Appellant,v.AMERICAN MOTORS CORPORATION.
No. 71-1718.
United States Court of Appeals,Third Circuit.
Submitted Under Third Circuit Rule 12(6) Oct. 19, 1972.Decided Jan. 22, 1973.
George O'Neill, Philadelphia, Pa., for appellant.
Glenn C. Equi, Harvey, Pennington, Herting & Renneisen, Philadelphia, Pa., for appellee.
Before STALEY, GIBBONS and JAMES ROSEN,* Circuit Judges.
OPINION OF THE COURT
GIBBONS, Circuit Judge.
1
This is an appeal from a judgment on a jury verdict in favor of the defendant American Motors Corporation. The plaintiff-appellant, Bair, was injured on October 26, 1966, when, in an automobile accident, she was ejected from an American Motors Rambler which she had purchased in August, 1966, from an American Motors' dealer. She sued American Motors on both negligence and strict liability theories, alleging that the defective design of the door latch on the Rambler failed to prevent the door from opening when the car was subjected to upward and longitudinal stresses in the accident, thus permitting her ejection and increasing her injuries.1 Pennsylvania law governs liability.
2
The case was submitted to the jury on three interrogatories:
3
"1. Was plaintiff guilty of negligence which contributed to the happening of the collision between her Rambler and the Mustang?
4
2. Was defendant guilty of negligence in the design of the door latch on the 1966 Rambler?
5
3. Did defendant sell a product in a defective condition unreasonably dangerous to the user when it sold the 1966 Rambler equipped with the door latch described in this case?"
6
To each interrogatory the jury answered no.
7
Bair contends on appeal that the negative answer to the second and third interrogatories are the product of trial errors, and that a new trial should be granted. The errors alleged consist (1) of a ruling as to the admissibility of the results of statistical studies conducted by Cornell Aeronautical Laboratory, Inc., Automotive Crash Injury Research, offered during the testimony of the plaintiff's expert witness, Walter V. H. Pruyn; and (2) of allegedly disparaging treatment by the trial court of that witness.
8
Mr. Pruyn, an expert who gave opinion evidence, was the only liability witness for Bair, and American Motors did not put in any liability evidence. The district court held that plaintiff's liability case was sufficient to go to the jury. The jury, apparently, did not accept Pruyn's opinion. The excluded evidence was not cumulative of any other evidence in the case. Thus, if it was improperly excluded, and if it tended to support Pruyn's opinion, the error cannot be regarded as harmless.
9
The event was an intersection accident in which Bair's vehicle was struck on the left front fender by a vehicle travelling at 50 to 60 m. p. h. Pruyn's theory of the accident was that after the initial impact there was a second impact, as the two cars swerved from a right angle to a parallel alignment, in which the right rear of the striking vehicle struck the Rambler, and that following this impact the left front (driver's) door of the Rambler opened. As the Rambler continued to rotate Bair was ejected. Pruyn claimed that had the Rambler been equipped with door latches then used by other automobile manufacturers to prevent opening when the vehicle was subjected to upward and longitudinal stress such as occurred in the accident, Bair would not have been ejected.
10
The door latch of the Rambler was designed so that the bottom portion of the latch's ratchet wheel teeth, mounted on the door, was, when the door was closed, enclosed by a steel retaining plate affixed to the left door striker pillar. The upper portion and sides of the ratchet wheel were not so enclosed. Thus, when the door was subjected to upward and longitudinal stress which lifted the teeth of the ratchet wheel above and out from behind the steel retaining plate the door was free to open. To prevent this occurrence some manufacturers had as early as the 1961-62 model year equipped their doors with a T-head type bolt assembly in which, when the door was closed, the bolt was totally enclosed at the top, bottom and sides. Bair's claims, advanced through Pruyn's opinion testimony, was that American Motors' failure to adopt such a design by 1966 was negligent, and that the absence of such a latch mechanism made its product inherently defective.
11
The district court ruled that Pruyn was qualified to express such opinions; appellant claims unenthusiastically. During his direct testimony Bair sought to prove through him the findings of the three statistical surveys by Automotive Crash Injury Research of Cornell University as a basis for his opinion that the absence of the T-head type bolt assembly was a negligent design and produced an inherently unsafe vehicle. The surveys were objected to as hearsay, and the objection was sustained on the specific ground that since they were not made by Mr. Pruyn he could not testify to them. (N.T. 89).
12
Each of the surveys was made by Automotive Crash Injury Research of Cornell Aeronautical Laboratory, Inc., Cornell University. That organization is engaged in the study of injury causes among occupants in automobile accidents. Its research has been supported by grants from the National Institute of Health and the Division of Accident Prevention of the United States Public Health Service, the Automobile Manufacturers Association, Inc., and the United States Department of Transportation, National Highway Safety Bureau. The research methods pursued by that organization, as described in the exhibits, is, with the cooperation of police and medical authorities around the country, the analysis after the event of large numbers of actual injury-producing accidents to determine the safety performance of various components having injury causative or preventive potential. The studies here in issue are:
13
1. "An Evaluation of Door Lock Effectiveness: Pre-1956 vs. Post-1955 Automobiles", published in July, 1961. (Exhibit P-12)2
14
2. "The Safety Performance of 1962-63 Automobile Door Latches and Comparison with Earlier Latch Designs", published in November, 1964.
15
3. "Comparison of Door Opening Frequency in 1967-1968 cars with Earlier Model U.S. Cars", published as a final report in May, 1969.
16
These reports tend to support Pruyn's opinion that the T-head type bolt assembly was significantly more likely to prevent ejection. The first report referred to the pioneering 1954 Automotive Crash Injury Research report which established that, contrary to a widely held pre-1954 general belief, passenger car occupants ejected during an accident had a lower chance of avoiding serious injury or death than those not ejected. The 1961 report studied 14,135 automobiles from injury-producing accidents involving 31,855 occupants. It compared ejection rates for pre- and post-1956 automobiles, since in that model year American manufacturers for the first time introduced a modified safety door latch designed to reduce door opening on impact. It found a significant lowering of the incidence of ejectment. The 1964 report studied 24,342 cars from injury-producing accidents. It compared ejection rates for pre- and post-1963 automobiles, since in the 1962 and 1963 model years some manufacturers made further improvements in the door latch mechanism. It found a further significant lowering of the incidence of ejectment. Essentially, according to Pruyn, the 1966 Rambler had the type latch adopted by all manufacturers in 1956, while he contended it should have had the type latch adopted by other manufacturers in 1962-1963. Had Pruyn been permitted to support his opinion by reference to these studies, his contention that American Motors had neglected to incorporate in its 1966 door latch design the current state of the art in safe design would undoubtedly have been reenforced.
17
Bair refers to that part of Rule 43(a), Fed.R.Civ.P. which provides:
18
"All evidence shall be admitted which is admissible under the statutes of the United States, or under the rules of evidence heretofore applied in the courts of the United States on the hearing of suits in equity, or under the rules of evidence applied in the courts of general jurisdiction of the state in which the United States court is held."
19
She urges that the excluded evidence, though hearsay, was admissible on all three grounds.
20
She contends, first, that the reports in issue were admissible under 28 U.S.C. Sec. 1732, as business records of Cornell Aeronautical Laboratory, Inc. made in the regular course of its business. No objection was made to the authenticity of the reports, and their regular method of compilation is set forth on their face. Possibly a case can be made out for their admissibility under 28 U.S.C. Sec. 1732. That statute as a ground for admissibility was not urged upon the district court. The defendant had no opportunity to develop possible grounds for objection to admissibility as business records. A ruling that the studies were admissible under 28 U.S.C. Sec. 1732 would make them admissible for all purposes. We are not prepared to go so far on this record.
21
Bair contends, next, that the contents of the reports were admissible under "the rules of evidence heretofore applied in the courts of the United States . . . [in] suits in equity." She refers to a rule that there may be introduced in evidence in the direct examination of an expert statements contained in so-called learned treatises relied upon by him in the formation of his opinion.3 This exception to the hearsay rule has been urged by commentators. VI J. Wigmore, Evidence, Secs. 1690-92 (3d ed. 1940); C. McCormick, Handbook of the Law of Evidence, Sec. 321 (2d ed. 1972). There is some federal authority which strongly supports the commentators' position. In Western Assurance Co. v. J. H. Mohlman Co., 83 F. 811, 821 (2d Cir.), cert. denied, 168 U.S. 710, 18 S.Ct. 949, 42 L.Ed. 1213 (1897), the Second Circuit recognized that an expert could read from excerpts from reports prepared by the United States Department of Agriculture under the direction of the Division of Forestry, containing tables which comprised the results of 2,000 tests by the Government on the crushing strength of different kinds of timber, and from two other standard reference books listing such crushing strengths. The books and report were identified as recognized authorities among builders and engineers. The Second Circuit relied as authority for admissibility upon Vicksburg & Meridian R. R. Co. v. Putnam, 118 U.S. 545, 7 S.Ct. 1, 30 L.Ed. 257 (1886), in which the Supreme Court recognized that standard life and annuity tables showing at any age the probable duration of life, are competent evidence; ". . . and yet these tables show merely the deductions from records of past transactions, when neither the record of the transactions nor the individual who has worked out the deductions is called to testify to the accuracy of his work, or to the conditions under which it was performed." Western Assurance Co., supra, at 820-821. The Second Circuit opinion observes that the learned treatises most commonly dealt with in the cases are medical works, but that there are many other such works, including, besides annuity tables, almanacs, astronomical calculations, tables of longarithms, interest tables, weather reports, and tables of the rise and fall of the tide, all of which have been admitted in evidence. See also Woelfle v. Connecticut Mutual Life Insurance Co., 103 F.2d 417 (8th Cir. 1939).
22
The information in the Cornell Aeronautical Laboratory reports, though not statistical tabulations of experiments conducted by that organization, and hence in one sense distinguishable from at least one of the three texts referred to in Western Assurance Co., is closely analogous. Timber can be subjected to crushing stresses in laboratory conditions, while people may not be. The compilation of data from the unfortunately all-too-frequent actual injury-producing accidents is the best substitute available. That courts must, on hearsay grounds, be deprived of the use of the collected data on which other departments of government, industry, and the engineering profession obviously rely, makes no more sense now than in 1897, when that notion was rejected by the Second Circuit.
23
Neither Western Assurance Co. v. J. H. Mohlman Co., supra, nor Vicksburg & Meridian R. R. Co. v. Putnam, supra, are literally authority as to the rules of evidence applied in the United States courts in suits in equity. Rule 43(a). This would present no insurmountable objection to our reliance upon them, for it is now clear that we will assume, in the absence of an equity precedent, that the equity courts would have followed evidentiary rulings from the law side. Treharne v. Callahan, 426 F.2d 58, 63 (3d Cir. 1970); United States v. 60.14 Acres of Land, 362 F.2d 660, 666 (3d Cir. 1966). Cf. Grossman v. U. S. Slicing Machine Co., 365 F.2d 687, 689 (3d Cir. 1966).4 In this instance, however, we have what is usually not available, an equity precedent expressly approving the rule of Western Assurance Co. v. Mohlman Co., supra, for in G. & C. Merriam Co. v. Syndicate Publishing Co., 207 F. 515, 518 (2d Cir. 1913), appeal dismissed, 237 U.S. 618, 35 S.Ct. 708, 59 L.Ed. 1148 (1915), the Second Circuit approved the district court equity decree and opinion to that effect. Thus, under Rule 43(a) Bair's expert should have been permitted to refer to the Cornell Aeronautical Laboratory, Inc. reports.5
24
Since it is possible that a retrial of this case might not be completed until after July 1, 1973, the effective date6 of the new Rules of Evidence for United States Courts and Magistrates, 56 F.R.D. 183 (1972), it is appropriate to comment that under those rules the new federal rule would be the same. Rule 803 governs hearsay exceptions. Rule 803(18) provides:
25
"Learned treatises.-To the extent called to the attention of an expert witness upon cross-examination or relied upon by him in direct examination, statements contained in published treatises, periodicals, or pamphlets on a subject of history, medicine, or other science or art, established as a reliable authority by the testimony or admission of the witness or by other expert testimony or by judicial notice. If admitted, the statements may be read into evidence but may not be received as exhibits."
26
As originally proposed this rule would have permitted the treatises to go to the jury. See Rule 8-03(b)(18) Preliminary Draft of Proposed Rules of Evidence for the United States District Courts and Magistrates, Committee on Rules of Practice and Procedure of the Judicial Conference of the United States, March, 1969, 46 F.R.D. 161, 349. The last sentence was added with the explanation:
27
"The rule avoids the danger of misunderstanding and misapplication by limiting the use of treatises as substantive evidence to situations in which an expert is on the stand and available to explain and assist in the application of the treatise if desired. The limitation upon receiving the publication itself physically in evidence, contained in the last sentence, is designed to further this policy." Revised Draft of Proposed Rules of Evidence for the United States Courts and Magistrates, Committee on Rules of Practice and Procedure of the Judicial Conference of the United States, March 1971, at 120. [51 F.R.D. 315, at 434].
28
The permitted use is precisely that approved in Western Assurance Co. v. J. H. Mohlman Co., supra, and Woelfle v. Connecticut Mutual Life Insurance Co., supra.
29
Finally Bair contends that Pennsylvania law also recognizes a learned treatise exception to the hearsay rule. Clearly it recognizes such a general exception with respect to mortality tables. E. g., Rosche v. McCoy, 397 Pa. 615, 156 A.2d 307 (1959). Bair contends that in Commonwealth v. Thomas, 444 Pa. 436, 282 A.2d 693 (1971), the Pennsylvania Supreme Court adopted a rule as to what matters an expert could refer to at least as broad as that announced in Western Assurance Co. v. J. H. Mohlman Co., supra. We do not find the statement of the Pennsylvania Supreme Court in Thomas to be as clear an adoption of this position as Bair suggests. Closer in point, perhaps, is Grantham v. Goetz, 401 Pa. 349, 164 A.2d 225 (1960), in which the Pennsylvania Supreme Court upheld a trial court's ruling which permitted use of literature prepared to accompany a prescription drug only for the limited purpose of reading and comment by an expert witness.7 Neither case gives as clear guidance as the federal authority to which we have referred, and since until July 1, 1973, under Rule 43(a) we must follow the rule favoring admissibility, we need not here decide the full scope of the learned treatise exception in Pennsylvania.
30
Since the erroneous exclusion of evidence requires a new trial, there is no occasion to rule upon Bair's additional contention that the court unfairly disparaged her expert.
31
The judgment of the district court will be reversed, and the case remanded for a new trial.
*
Judge Rosen participated but died before the opinion was filed
1
She sustained multiple fractures of the pelvis, with displacement of the pelvic wall, a fracture of the right clavicle, fracture of the left third, fourth and fifth ribs, a fracture of the left nasal bone, and multiple abrasions and lacerations, all of which, according to her medical expert, would not have been sustained had she not been ejected
2
Only the first exhibit was marked for identification at the trial, but the plural references in the colloquy (e. g. N.T. 87-89, 112-128, 146-147) indicate that the hearsay ruling applied to the entire subject matter,
3
This case does not involve independent use of learned treatises as evidence of the truth therein asserted, rather than as a basis of opinion of an expert. See Union Pacific Ry. Co. v. Yates, 79 F. 584 (8th Cir. 1897). Nor does it involve use of learned treatises in cross-examination of an expert. See Davis v. United States, 165 U.S. 373, 17 S.Ct. 360, 41 L.Ed. 750 (1897)
4
Other circuits do the same, e. g. Kershaw v. Sterling Drug, Inc., 415 F.2d 1009, 1012 (5th Cir. 1969); Carlson v. Chisholm-Moore Hoist Corp., 281 F.2d 766, 772 (2d Cir.), cert. denied, 364 U.S. 883, 81 S.Ct. 172, 5 L.Ed.2d 104 (1960)
5
Bogacki v. American Machine Foundry Co., 417 F.2d 400 (3d Cir. 1969), is not contrary. It held only that the materials there in issue did not qualify for treatment as learned treatises on the causation of fires because they amounted to no more than a summary of isolated instances. The reports here in issue, involving investigations of thousands of injury-causing accidents, draw conclusions from statistically relevant data
6
Assuming Congressional approval
7
Bogacki v. American Machine Foundry Company, 417 F.2d at 408, assumes that in Grantham v. Goetz Pennsylvania recognized a limited learned treatise exception to the hearsay rule. Cf. Hassan v. Stafford, 472 F.2d 88 (3d Cir., 1973) which discussed a line of Delaware cases which permit the admission of safety codes as learned treatises for the purposes of direct examination and cross-examination of an expert witness
|
Filed 5/1/13 Turner v. Centaurus Financial CA2/2
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 TWO
CAROLYN TURNER, B237582
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BS132847)
v.
CENTAURUS FINANCIAL, INC., et al.,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of Los Angeles County.
James Dunn, Judge. Reversed and remanded with directions.
Nancy Kay Undem for Plaintiff and Appellant.
Edgerton & Weaver, Elizabeth A. Lowery, K. Adam Bloom for Defendants and
Respondents.
___________________________________________________
Carolyn Turner appeals from an order denying her petition to vacate an arbitration
award. (Code Civ. Proc., § 1285.)1 Following de novo review, we reverse. The
arbitration panel exceeded its jurisdiction and acted in a biased manner by reporting both
of Turner’s chosen representatives—an attorney and a securities consultant—to the State
Bar, purportedly for the unauthorized practice of law. The panel’s State Bar complaint,
which was instigated by defense counsel, turned out to be baseless. Despite two
disqualification requests from Turner, the arbitrators dismissed her claim. The
arbitrators’ conduct was not authorized by contract or by the controlling arbitration rules,
and would cause an objective, reasonable person to doubt their impartiality.
FACTS
Appellant Turner is an 81-year-old widow who had an investment account
managed by respondent Robert Osur, a broker for respondent Centaurus Financial. When
she opened the account, Turner told Osur that she needed to withdraw $3,000 per month
for living expenses. Osur allegedly invested Turner’s money in a variable annuity that
earned him a high commission, but which failed to earn enough income, fluctuated in
value, and penalized Turner every time she withdrew money.
Turner filed a statement of claim and demand for arbitration against respondents
with the National Association of Securities Dealers (NASD) in June 2009.2 She was
represented by attorney Nancy Undem. Respondents answered the claim, denied the
allegations of wrongdoing, and asked that Turner’s claim be dismissed.
In July 2010, Undem associated securities consultant Jules Leo Federman to assist
in the representation. Federman is not a lawyer. At respondents’ instigation, the
arbitration panel issued an order to show cause (OSC) why Federman should not be
1 Statutory references in this opinion are to the Code of Civil Procedure, unless
otherwise indicated.
2 The NASD is now known as the Financial Industry Regulatory Authority
(FINRA). (Valentine Capital Asset Management, Inc. v. Agahi (2009) 174 Cal.App.4th
606, 608.)
2
reported to the California State Bar for engaging in the unauthorized practice of law. In
response to the arbitration panel’s OSC, Undem withdrew, on the advice of State Bar
counsel. Undem maintained that the FINRA Code of Arbitration Procedure for Customer
Disputes (the FINRA Code) and state law allow parties in arbitration to be represented by
non-lawyers. Undem asserted that “The panel’s order deprives Mrs. Turner of her right
to representation and is also grounds to vacate any subsequent award.”
Federman responded to the OSC on Turner’s behalf. He advised the panel that
state law and FINRA rules permit parties to an arbitration to be represented by a non-
attorney, and contested the panel’s jurisdiction to decide the OSC. Turner asked
FINRA’s director of arbitration to disqualify the arbitration panel on the grounds of bias
and lack of impartiality. Her request was denied.
The arbitration panel issued an order in August 2010 regarding Turner’s
representation. The panel rejected Undem’s withdrawal as Turner’s counsel because she
failed to comply with State Bar rules for withdrawing from representation. It ordered
Undem to attend a hearing in September to determine whether Federman could continue
to represent Turner at the arbitration.
At a September hearing, the panel (with one member dissenting) decided to
complain to the State Bar about Federman and Attorney Undem. The panel’s letter to the
State Bar reads, “We are members of the Bar and Arbitrators in the FINRA case [Turner
v. Centaurus]. We are of the opinion that Jules L. Federman . . . may be engaged in the
unauthorized practice of law in this case by representing the claimant. In addition, State
Bar member Nancy Kay Undem may be in violation of the Rules of Professional Conduct
by ‘co-representing’ the claimant with Mr. Federman.” Turner again asked the FINRA
director to disqualify the arbitration panel for exceeding their jurisdiction and displaying
bias against Turner’s chosen representatives. Her request was denied.
The arbitration hearing was conducted in April 2011. When the arbitrators
inquired about Attorney Undem, Federman informed them that Undem was absent on the
advice of State Bar counsel, because the arbitrators’ misconduct complaint against her
was pending. None of the arbitrators volunteered that Undem was at liberty to participate
3
because the bar had notified them that their complaint against Undem and Federman was
rejected.
The panel granted respondents’ motion to dismiss Turner’s claim, finding that she
“failed to meet her burden of proof. Respondents did not violate any FINRA (or NASD)
Rule. [Turner] did not suffer any loss or damage because of Respondents’ conduct. In
fact, [Turner] made a substantial profit on the investment at issue.” Turner, Undem and
Federman were required to pay arbitration fees of $9,000, though FINRA does not
authorize the arbitrators to assess session fees against party representatives. (FINRA
Code, rule 12902.)
Turner filed a motion in superior court to vacate the arbitration award, citing three
grounds for vacating the award: (1) the arbitrators engaged in misconduct that
substantially prejudiced her rights; (2) the arbitrators were biased or prejudiced against
her representatives; and (3) she was denied the right to be represented by her attorney
during the hearing.
In support of the motion, Attorney Undem declared that the arbitration panel
complained to the State Bar in September 2010 that Undem aided and abetted the
unauthorized practice of law. This created a conflict between Undem and her client,
forcing Undem to withdraw from representing Turner. After Turner’s arbitration claim
was dismissed, Undem learned that the arbitrators’ State Bar complaint had been
dismissed. (Undem was never contacted by the bar.) Although the arbitrators knew that
the bar closed the case on November 3, 2010, they did not notify Undem about this
development. If Undem had known that the State Bar refused to pursue the case, she
would have resumed her representation of Turner.
Respondents opposed Turner’s petition to vacate the award, and cross-petitioned
to confirm the award. They argued that the arbitrators were accepted by Turner at the
outset; Undem should have appeared at the arbitration; and Turner profited from her
investment with respondents so she was not damaged. Respondents maintained that there
are no grounds for vacating the award because the arbitrators engaged in no misconduct
and were not subject to disqualification. They claimed that Turner expressly submitted
4
the issue of the unauthorized practice of law to the arbitration panel for resolution and,
even if the arbitrators’ State Bar complaint was wrongful, it did not substantially
prejudice Turner’s rights. Finally, respondents asserted that the arbitrators displayed no
bias or prejudice against Turner’s chosen representatives.
On September 28, 2011, the trial court denied Turner’s petition to vacate the
arbitration award. It granted respondents’ cross-petition to confirm the award, but
assessed the $9,000 arbitration fee solely against Turner, and not her representatives.
Turner appeals from the denial of her petition.
DISCUSSION
1. Request to Dismiss
Respondents ask that the appeal be summarily dismissed because Turner filed an
untimely opening brief. As respondents observe, Turner was granted four extensions of
time, the last of which directed her to file an opening brief by July 11, 2012, and stated
that no further extensions would be granted. A fifth request for an extension was denied.
On July 27, 2012, the court clerk notified counsel that if an opening brief was not filed
within 15 days, the appeal would be dismissed, unless good cause was shown for relief
from default. Attorney Undem applied for permission to file a late opening brief,
explaining that she suffers from a medical disability. Permission was granted and the
opening brief was filed on August 16, 2012.
An appellate court may relieve a party from default for failure to comply with
court rules regarding the filing of briefs, upon a showing of good cause. (Cal. Rules of
Court, rule 8.60(d).) “‘There is [ ] a strong public policy in favor of hearing appeals on
their merits and of not depriving a party of his right of appeal because of technical
noncompliance where he is attempting to perfect his appeal in good faith.’” (Brown v.
Guy (1959) 167 Cal.App.2d 211, 215.) While respondents are entitled to have the appeal
proceed expeditiously, their right to have the appeal dismissed is not absolute, unless the
notice of appeal is untimely. (Ibid.) The circumstances surrounding a default—including
a medical disability—are germane when granting relief from default. (Ibid.) Here,
Undem gave medical reasons for the delay that were accepted by this Court when it ruled
5
upon her request for permission to file a late opening brief. We will not revisit that ruling
now. Respondents’ request for dismissal is denied.
2. Turner’s Petition to Vacate the Arbitration Award
Appeal may be taken from an order dismissing a petition to vacate an arbitration
award. (§ 1294, subd. (b).) While the merits of an award are not subject to judicial
review, the Legislature permits judicial oversight where there are problems with “the
fairness of the arbitration process.” (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 12;
Haworth v. Superior Court (2010) 50 Cal.4th 372, 380 (Haworth).) Review is limited to
the reasons listed by statute for vacating an award. (SWAB Financial, LLC v. E*Trade
Securities, LLC (2007) 150 Cal.App.4th 1181, 1201.) An award may be vacated if (1) it
was procured by corruption, fraud or undue means; (2) the arbitrators were corrupt; (3)
the rights of a party were substantially prejudiced by arbitrator misconduct; (4) the
arbitrators exceeded their powers and the award cannot be corrected without affecting the
merits of the decision; (5) a party was prejudiced by the arbitrators’ refusal of a
continuance or to hear material evidence “or by other conduct of the arbitrators contrary
to the provisions of this title”; or (6) an arbitrator failed to disclose a ground for
disqualification or was subject to disqualification but failed to do so after receiving a
timely demand. (§ 1286.2.)
A claim that the arbitrators exceeded their powers is subject to de novo review.
(Haworth, supra, 50 Cal.4th at p. 383.) The same is true of a claim that the arbitrators
were biased. (Id. at pp. 384-386.) The material fact in this case—the panel’s State Bar
complaint against Turner’s representatives—is not in dispute.
a. Jurisdiction
Arbitrators are confined to interpretation and application of the parties’ agreement:
they do not sit to dispense their own brand of justice. If the arbitrators’ words manifest
an infidelity to their obligation to interpret and apply the agreement, “courts have no
choice but to refuse enforcement of the award.” (Steelworkers v. Enterprise Corp. (1960)
363 U.S. 593, 597.) “The powers of an arbitrator derive from, and are limited by, the
6
agreement to arbitrate.” (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th
362, 375.)
The arbitrator has “the power to decide any question of contract interpretation,
historical fact or general law necessary . . . to reach a decision.” (Gueyffier v. Ann
Summers, Ltd. (2008) 43 Cal.4th 1179, 1184.) Arbitrators exceed their powers if they act
without statutory or contractual authority by straying beyond the scope of the parties’
agreement. (Hoso Foods, Inc. v. Columbus Club, Inc. (2010) 190 Cal.App.4th 881, 890
(Hoso); City of Richmond v. Service Employees Internat. Union, Local 1021 (2010) 189
Cal.App.4th 663, 669-670.) In respondents’ words, the only issue presented to the
arbitrators by this claim was whether “respondents engaged in wrongdoing in connection
with an investment and [whether Turner could] recover her investment losses and other
damages.”
Respondents do not cite any provision of the parties’ arbitration agreement giving
the panel authority to report attorneys or other investor representatives to the State Bar, in
an attempt to disqualify them while the arbitration proceeding is pending. Nor do
respondents cite a FINRA rule allowing an arbitration panel to intermeddle in attorney
disciplinary matters. On the contrary, the FINRA Code provides that “the qualifications
of a person to represent a party in arbitration are governed by applicable law and may be
determined by an appropriate court or other regulatory agency. In the absence of a court
order, the arbitration proceeding shall not be stayed or otherwise delayed pending
resolution of such issues.” (FINRA Code, rule 12208(d).) The arbitration panel here did,
in fact, delay proceedings while demanding briefing on Federman’s and Undem’s
representation, without a court order. While respondents may have been entitled to
complain to the State Bar about Undem and Federman, the arbitration panel lacked
jurisdiction to complain on behalf of respondents.
In an apparent concession that neither the law nor the parties’ arbitration
agreement confer jurisdiction on the arbitrators to intermeddle in attorney disciplinary
matters, respondents claim that “the unauthorized practice of law issue was expressly
presented by the Parties to the Arbitrators for determination.” For this proposition, they
7
cite Turner’s response to the panel’s OSC. Contrary to respondents’ claim, Turner’s
response says, “the panel does not have jurisdiction to decide an order to show cause”
regarding the unauthorized practice of law. (Italics added.) Further, Undem advised the
panel that if it persisted with its OSC, it would constitute “grounds to vacate any
subsequent award.” It is a mystery why respondents interpret Turner’s unequivocal
denial of arbitrator jurisdiction to mean that the parties “expressly presented” the issue
for resolution. If Turner briefed her right to be represented by Undem and Federman—
after first challenging the panel’s jurisdiction—this is a justifiable attempt to defend
herself and convince the arbitrators that they were wrong, not a consent to jurisdiction.
In Hoso, this court addressed the fairness of an arbitrator’s decision to limit a
party’s ability to have its chosen representatives appear at the arbitration. We wrote that
nothing in state law or the arbitration rules suggests that an arbitrator can preclude a party
from designating its own representatives. (Hoso, supra, 190 Cal.App.4th at pp. 889-890.)
“By precluding appellant from having its own representative attend the arbitration, the
arbitrator exceeded the authority accorded him.” (Id. at p. 890.) Further, “[t]he
arbitrator’s conduct prejudiced appellant, as limiting appellant to [one] representative
operated to deny appellant a fair hearing.” (Id. at p. 891.) As in Hoso, the arbitration
panel in this case exceeded its authority by actively working to prevent Turner’s
representatives from appearing on her behalf. As we discuss below, this conduct
demonstrated bias, prejudiced Turner, and prevented a fair hearing.
b. Lack of Impartiality
Turner argues that the arbitration panel was disqualified for lack of impartiality.
When the panel issued an OSC threatening to make a complaint to the State Bar, Turner
contested its jurisdiction to decide the OSC and demanded that the panel be disqualified
for bias and lack of impartiality. The request was denied. After the panel notified the bar
that Federman was engaged in the unauthorized practice of law and that Undem was
participating in this violation of state law, Turner renewed her request to disqualify the
panel for bias and for acting beyond its jurisdiction. Her second request was denied. The
8
panel ultimately ruled on the merits of Turner’s claim, without the participation of
Turner’s attorney.
Arbitrators must recuse themselves if “‘[f]or any reason . . . [a] person aware of
the facts might reasonably entertain a doubt that [they] would be able to be impartial.’”
(Haworth, supra, 50 Cal.4th at pp. 388-389.) “‘Impartiality’ entails the ‘absence of bias
or prejudice in favor of, or against, particular parties or classes of parties, as well as
maintenance of an open mind.’” (Id. at p. 389.) In the context of recusal, “‘[p]otential
bias and prejudice must clearly be established by an objective standard.’” (Ibid.) “‘An
impression of possible bias in the arbitration context means that one could reasonably
form a belief that an arbitrator was biased for or against a party for a particular
reason.’” (Ibid.)
Apart from exceeding the powers accorded to it under the arbitration agreement
and the FINRA rules, the arbitration panel created doubts of its impartiality. In their
letter to the State Bar, two of the three arbitrators expressed their low opinion of Turner’s
representatives. They wrote, “We are of the opinion that” Federman and Undem should
be investigated or prosecuted by the State Bar. (Italics added.) The panel’s opinion
turned out to be baseless: the State Bar dismissed the ethics complaint. As the
arbitration hearing began, the panel had the opportunity to inform Turner that its ethics
complaint was rejected by the State Bar. The panel let this opportunity pass, sitting
silently when it was informed that Undem had absented herself from the hearing on the
advice of State Bar counsel, due to the pending bar investigation. At the time, the panel
members already knew that their complaint to the bar was rejected. The panel displayed
bias in favor of respondents (by pursuing a State Bar inquiry at respondents’ behest) and
against Turner (by failing to disclose that its State Bar complaint was rejected when it
learned that Turner’s attorney was absent on the advice of State Bar counsel).
The panel’s conduct created an untenable conflict between Attorney Undem and
her client: the attorney could not continue to act while facing the threat of suspension or
9
disbarment (not to mention criminal prosecution) as a result of representing Turner.3 By
endangering an attorney’s career and livelihood—then failing to notify the attorney that
the danger had passed—the panel acted in a manner that evidenced bias against a party.
In effect, the panel told Undem, “We are reporting you to the State Bar because we are of
the opinion that you are aiding and abetting a crime”; at the same time, the panel
unreasonably demanded that Undem appear at hearings despite the obvious risk of
incurring additional sanctions for continuing a purportedly illegal representation during a
State Bar ethics investigation.
The panel compromised Turner’s right to attorney representation at all stages of
the proceedings. (§ 1282.4; FINRA Code, rule 10316.) Prejudice to Turner may be
presumed from the panel’s openly expressed antipathy to her chosen representatives and
from its punitive assessment of $9,000 against Turner’s representatives, which is not
permitted by the FINRA Code.
Respondents argue that Turner cannot have the award vacated for arbitrator bias
because she failed to make a recusal request to the arbitrators themselves. As a result,
respondents reason, Turner’s disqualification requests were procedurally defective.
Under FINRA rules, a party may request that the director of FINRA “remove an
arbitrator for conflict of interest or bias.” (FINRA Code, rule 12407(a).) A party may
also ask the arbitrators directly to recuse themselves for good cause. (FINRA Code, rule
12406.) Turner elected to follow rule 12407 by twice asking the director to disqualify the
panel for bias. Her disqualification request was also served on the arbitrators themselves.
There is no procedural defect.
DISPOSITION
The judgment is reversed. The matter is remanded to the trial court with
directions to vacate the order confirming the arbitration award, to grant Turner’s motion
3 The unlawful practice of law is a crime, punishable by one year in jail or a fine.
(Bus. & Prof. Code, § 6126.) The arbitrators accused Undem of aiding the commission
of this crime.
10
to vacate the award, and to consider any request by the parties to take further action.
Appellant is awarded her costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
BOREN, P.J.
We concur:
CHAVEZ, J.
FERNS, J.*
_______________________________________________________________
* Judge of the Los Angeles Superior Court, assigned by the Chief Justice
pursuant to article VI, section 6 of the California Constitution.
11
|
873 F.2d 1401
RICO Bus.Disp.Guide 7212
ROBERT SURIS GENERAL CONTRACTOR CORP.,Plaintiff-Counter-Defendant-Appellant,v.NEW METROPOLITAN FEDERAL SAVINGS & LOAN ASSOCIATION,Defendant-Counter-Plaintiff-Appellee,Metropolitan Federal Savings & Loan Association, TropicalFederal Savings & Loan Association and Mario de laCuevas, Defendants-Third-partyPlaintiffs-Appellees,Jose Luis Pujol, Defendant-Appellee,Roberto Suris, Sr., Third-party Defendant-Appellee.
No. 88-5343.
United States Court of Appeals,Eleventh Circuit.
May 24, 1989.
Michael Zelman, Miami, Fla., for Robert Suris General Contractor corp.
Gary Brookmyer, Broad & Cassel, Miami, Fla., for Tropical Federal Sav. & Loan Ass'n and Mario De Las Cuevas.
Theodore Klein, Fine, Jacobson, Schwartz, Nash, Block & England, Miami, Fla., for Mario De La Cuevas.
Joe N. Unger, Law Offices of Joe N. Unger, P.A., R. Hugh Lumpkin, Keith, Mack, Lewis, Allison & Cohen, Miami, Fla., for New Metropolitan Federal Sav. & Loan Ass'n.
Gregory J. Borgognoni, Tew Jorden Schulte & Beasley, Miami, Fla., for Pujol.
Appeal from the United States District Court for the Southern District of Florida.
Before KRAVITCH and HATCHETT, Circuit Judges, and MARKEY*, Chief Circuit Judge.
MARKEY, Chief Circuit Judge:
1
Robert Suris General Contractor Corp. (Suris) appeals from the United States District Court for the Southern District of Florida's (Scott, J.) (No. 87-0113-CIV) grant of summary judgment for defendants New Metropolitan Savings & Loan Association (New Metropolitan), Tropical Federal Savings & Loan Association (Tropical), Jose Luis Pujol (Pujol) and Mario de la Cuevas (Cuevas) [collectively defendants] on Suris' allegations of RICO, 18 U.S.C. Sec. 1964(c), violations.1 Suris also appeals the denial of motions to compel discovery of certain financial transactions. We affirm in all respects.BACKGROUND
2
Suris asserts, as predicate acts required to support its RICO claims, that New Metropolitan, Tropical, Pujol, or Cuevas violated or conspired to violate 18 U.S.C. Secs. 891-894 (the Extortionate Credit Transaction Act), 18 U.S.C. Sec. 1951 (the Hobbs Act), or 18 U.S.C. Sec. 1341 (the Mail Fraud Act). Suris' allegations arise out of its construction work on the Hidden Bay Project at Key Largo, Florida in the fall of 1985 and spring of 1986.
3
The statement of facts in Suris' brief begins with Superior Mortgage & Investment Inc.'s 1984 purchase of Hidden Bay Development, Inc. (Hidden Bay). Suris alleged that the purchase, financed by Metropolitan Federal Savings & Loan (predecessor of New Metropolitan) with Pujol as President, was a sham, Superior never actually having funds at Metropolitan and eventually accumulating a negative balance of nearly one million dollars. Suris also alleges that Hidden Bay had an account of a similar nature with Tropical.
4
Suris entered the picture in August of 1985 when Mr. Suris and his son (the sole owners and officers of Suris) signed a contract taking over general construction of the Hidden Bay Project. The contract provided that Suris was to be "paid by Hidden Bay for work on the project as the construction progressed."
5
Hidden Bay's difficulties in paying Suris for completed work led to two meetings and transactions out of which Suris draws its allegations of predicate acts needed to support its RICO claims. One meeting and transaction took place in September of 1985 (Metropolitan transaction), the other in January of 1986 (Tropical transaction). Referring to those events, the district court commented: "The circumstances of the meeting[s] and transactions generated are contested and constitute the inception of the tangled web of controversy among these litigants."
6
About the Metropolitan transaction, Mr. Suris says: he met in September of 1985 with Pujol to discuss payment by Hidden Bay to Suris for its work; at that meeting, Pujol agreed to extend Suris a $50,000 line of credit and said he was the owner of Hidden Bay and he and Metropolitan would stand behind it; Pujol told him he need not repay the $50,000 but "required him to sign his name on blank loan forms"; Pujol instructed Mr. Suris' son to sign his mother's name, Mirta Suris, on the blank forms; suffering a shortage of funds and "believ[ing] that if he did not take the money [he] would be ruined financially," Mr. Suris agreed to the transaction; Suris resumed work on the project, and soon began receiving Metropolitan bank statements reflecting $50,000 indebtedness and requesting repayment.
7
About the Tropical transaction, Mr. Suris says: needing additional funds to complete the project in January of 1986, he approached Pujol who told him no additional money was available, but that Suris could obtain $50,000 from Tropical on the same terms as the Metropolitan transaction, except that Suris would have to pay about $25,000 to subcontractors; he accepted those terms because he feared financial ruin and "that the defendants would commit perjury to collect upon the signed blank Metropolitan documents or the Tropical transaction itself"; he received a Tropical check for $49,875.80 and paid $22,854.63 to subcontractors; he never signed anything to obtain the money; soon after completing its work on the Hidden Bay Project, Suris began receiving requests from Tropical for repayment; his signature on the promissory note in Tropical's "loan" file was a forgery.
The District Court's Opinion
8
After reviewing the accusations and evidence submitted by the parties, Judge Scott granted defendants' motions for summary judgment, stating that Suris presented no evidence "of a scheme that rises to the level contemplated by the [RICO] statute and the United States Supreme Court in Sedima, S.P.L.R. v. Imrex Co., [473 U.S. 479, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985) ] and its progeny." Carefully analyzing each of the predicate acts required for RICO liability, Judge Scott concluded that Suris failed to state a claim, that no genuine issue of material fact existed on Suris' RICO claims, and that defendants were entitled to judgment as a matter of law.
9
Citing United States v. Pacione, 738 F.2d 567 (2d Cir.1984), the court adjudged Suris' claim of extortion by threatened perjury insufficient in fact and law, the record being "devoid" of any indication that any defendant threatened to commit perjury or physical harm, and a threat of perjury being in any event insufficient to satisfy the "other criminal means" language of the Extortionate Credit Transaction Act, 18 U.S.C. Sec. 891(7).2
10
The court rejected the charge that defendants violated the Hobbs Act because Suris' own evidence showed each transaction was directed to payment to Suris for already completed work. Thus Suris' alleged fear of loss was indistinguishable from that which accompanies any party to a contract and could not be construed as in any way inducing Suris to part with property.
11
Finally, the court rejected Suris' allegation of Mail Fraud because Suris presented "no evidence that [the bank statements] were sent other than in the ordinary course of business" and because Suris "failed to prove that any communication whatsoever took place between the Defendants, and if so, that these communications rose to the level of a 'scheme' necessary under the statute."
12
No genuine dispute of material fact relating to any predicate act having been shown, the court found that Suris could not establish the required pattern of racketeering activity and therefore granted defendants' motion for summary judgment.3 In the court's words, "Plaintiff has taken a simple breach of contract or garden-variety fraud claim and attempted to boot-strap it into a 'federal case' by couching the allegations in [RICO] statutory language. This is not the purpose for which RICO was enacted."
ISSUES
13
I. Whether the district court erred in granting summary judgment.4
14
II. Whether the district court abused its discretion in denying Suris' motions to compel discovery.
OPINION
I. Summary Judgment5
15
Suris' brief characterizes the issue as whether reasonable inferences from undisputed evidence created an issue of fact. See, e.g., Jeter v. Credit Bureau, Inc., 760 F.2d 1168, 1176 (11th Cir.1985). We disagree. Our study of the record, the district court's opinion, and Suris' arguments convinces us that the issue is not whether there are disputes but whether any dispute raises or turns on an issue of fact that is material. Though disputes may exist on the permissable inferences to be drawn from undisputed facts, there is no genuine dispute here about material facts or inferences. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).
16
Because neither the facts nor reasonable inferences drawn from those facts would support the existence of any of the predicate acts Suris alleges,6 no RICO liability may lie, and summary judgment for defendants was proper. See United States v. Weinstein, 762 F.2d 1522, 1536-37 (11th Cir.), modified, 778 F.2d 673 (1985), cert. denied, 475 U.S. 1110, 106 S.Ct. 1519, 89 L.Ed.2d 917 (1986) (to state claim under RICO plaintiff must prove defendant committed at least two predicate acts constituting pattern of racketeering activity).
A. Extortionate Credit Transaction Act
17
Suris does not contend that defendants committed or threatened to commit perjury to enforce the Metropolitan and Tropical transaction notes. Rather, Suris contends that an implied threat of perjury could be inferred from Mr. Suris' testimony (that he feared perjury and that Pujol had Suris Sr. and his son sign the Metropolitan note in blank) and other evidence (including loan documentation). We agree with the district court that such testimonial and documentary evidence, accepted and given the benefit of all reasonable inferences, shows at most contractual facts that cannot be reasonably construed as a threat of perjury. Suris' "extortion" assertion rests on a dual speculation (that defendants would sue on the notes and would then commit perjury in court).7
18
Suris' reliance on United States v. Roberts, 546 F.2d 596 (5th Cir.), cert. denied sub nom. Mancini v. United States, 431 U.S. 968, 97 S.Ct. 2927, 53 L.Ed.2d 1064 (1977), binding precedent in this circuit, is of no avail. That case construed the "any loan" or "any debt" language of 18 U.S.C. Sec. 891(1) (defining "extension of credit" as used in Sec. 894(a)), not the "other criminal means" language of section 891(7) (defining "extortionate means" of Sec. 894(a)) at issue here. Equally meritless is Suris' further argument that the conduct here alleged, creation of loan documents, is more serious than filing a real document containing false information, the conduct in Pacione. Because neither the conduct here alleged nor that in Pacione involved anything akin to violent collection means, neither falls within the ambit of the Extortionate Credit Transaction Act.
B. The Hobbs Act
19
Suris challenges the rejection of its Hobbs Act claim only by arguing that its evidence is the same as that present in Battlefield Builders, Inc. v. Swango, 743 F.2d 1060 (4th Cir.1984). Suris' attempted comparison fails because fear of economic loss in Battlefield was separate and distinct from performance on the contract; here the fear was correctly described by the district court as: "The only fear of economic loss is that which accompanies any party to a contract when he suspects that compliance and compensation may not be forthcoming." Cf. United States v. Sander, 615 F.2d 215, 219 (5th Cir.), cert. denied, 449 U.S. 835, 101 S.Ct. 108, 66 L.Ed.2d 41 (1980).
20
Our review of the record as a whole leads us to agreement with the district court's view that Suris failed to create a genuine issue of material fact on its allegation that defendants violated the Hobbs Act.
C. Mail Fraud Act
21
As recently stated by the Supreme Court in Schmuck v. United States, --- U.S. ----, ----, 109 S.Ct. 1443, 1447, 103 L.Ed.2d 734 (1989):
22
"The federal mail fraud statute does not purport to reach all frauds, but only those limited instances in which the use of the mails is part of the execution of the fraud, leaving all other cases to be dealt with by state law." Kann v. United States, 323 U.S. 88, 95 [65 S.Ct. 148, 151, 89 L.Ed. 88] (1944). To be part of the execution of the fraud, however, the use of the mails need not be an essential element of the scheme. Pereira v. United States, 347 U.S. 1, 8 [74 S.Ct. 358, 362, 98 L.Ed. 435] (1954). It is sufficient for the mailing to be "incident to an essential part of the scheme," ibid., or a step in [the] plot," Badders v. United States, 240 U.S. 391, 394 [36 S.Ct. 367, 368, 60 L.Ed. 706] (1916). [Footnote omitted].
23
"The relevant question at all times is whether the mailing is part of the execution of the scheme as conceived by the perpetrator at the time...." Id. at ----, 109 S.Ct. at 1449.
24
The district court correctly found here that mailing collection statements to Suris could not support mail fraud charges.8 In this case there is no evidence or reasonable inference from evidence that the mailings were in any way incident to or part of the execution of some particular nefarious scheme. Suris nowhere describes the goal of any such scheme. Presumably, the scheme Suris would ascribe to the defendants had the goal of obtaining work on the Hidden Bay Project. Any such scheme, however, would have reached fruition when Suris completed work on the project segments which occurred before the mailings. Compare United States v. Maze, 414 U.S. 395, 94 S.Ct. 645, 38 L.Ed.2d 603 (1974) (no mail fraud despite foreseeable sending of bills to credit card owner because fraudulent scheme complete when user of stolen credit card received object of the fraud) with Schmuck, --- U.S. at ---- - ----, 109 S.Ct. at 1446-50 (later mailings essential to continuation of the fraud).
II. Denied Discovery
25
Suris complains that Judge Scott abused his discretion in denying its motion to compel production of documents that would show "true ownership and control of Hidden Bay, the nature of the conspiratorial enterprise, and the motive for racketeering acts yet to come." If there were an abuse in denying discovery of enterprise and motive, it became clearly harmless when Suris failed to show predicate acts forming a pattern of racketeering activity. Enterprise and motive without predicate acts do not a RICO violation make.
CONCLUSION
26
The district court's grant of summary judgment for defendants on Suris' RICO claims is affirmed.
27
AFFIRMED.
*
Honorable Howard T. Markey, Chief U.S. Circuit Judge for the Federal Circuit, sitting by designation
1
The court also granted summary judgment for Suris on defendants' counter-claim and third party claims that Suris violated RICO. Having dismissed with prejudice all the RICO claims of the parties, the court found it lacked jurisdiction over Suris' pendent claims and dismissed them without prejudice. Defendants filed no cross-appeal and Suris does not challenge here the dismissal of his pendent claims
2
Section 891(7) defines "extortionate means" as used in section 894(a) and reads:
An extortionate means is any means which involves the use, or an express or implicit threat of use, of violence or other criminal means to cause harm to the person, reputation, or property of any person.
3
The court also found that Suris had failed to show the existence of an enterprise, another fatal flaw in its RICO claims. Suris points to evidence showing, in its view, a genuine dispute on that issue. We need not and do not discuss the issue because we affirm on the absence of a pattern of racketeering activity
4
We emphasize, as did the district court, that only Suris' RICO claims are involved here. Nothing here said should be taken as deciding any other claim that Suris may be entitled to make
5
In reviewing a grant of summary judgment we independently review the record, Tackitt v. Prudential Insurance Co., 758 F.2d 1572, 1574 (11th Cir.1985), and apply the same legal standards (movant bears the burden of demonstrating absence of genuine dispute of material fact; all reasonable inferences drawn in favor of nonmovant). See Clemons v. Dougherty County, Ga., 684 F.2d 1365, 1368 (11th Cir.1982)
6
Suris did not allege that the asserted forgery of Mr. Suris' signature constituted in itself a predicate act
7
In its Reply brief, responding to appellee's argument respecting the Hobbs Act, Suris said "Defendants incorrectly state that RSGC [Suris] claimed it feared economic loss from suit based upon the false and forged notes. RSGC [Suris] never made such claim." (Citations to the record omitted.)
8
Despite the apparent logic of its reasoning, we cannot agree with the district court that summary judgment was appropriate here because "there is simply no evidence that these documents were sent other than in the ordinary course of business." As the Supreme Court made clear in Schmuck: "To the extent [appellant] would draw from ... previous cases a general rule that routine mailings that are innocent in themselves cannot supply the mailing element of the mail fraud offense, he misapprehends this Court's precedent." Id
The grant of summary judgment in this case, however, can be and is affirmed here on other grounds. See Jaffke v. Dunham, 352 U.S. 280, 281, 77 S.Ct. 307, 308, 1 L.Ed.2d 314 (1957); Railway Labor Executives' Ass'n v. Southern Ry. Co., 860 F.2d 1038, 1040 n. 2. (11th Cir.1988).
|
889 F.Supp. 804 (1995)
SECURITIES AND EXCHANGE COMMISSION
v.
John G. BENNETT, Jr., and the Foundation for New Era Philanthropy.
No. 95-3005.
United States District Court, E.D. Pennsylvania.
June 12, 1995.
*805 *806 David S. Horowitz, S.E.C., Philadelphia, PA, Richard H. Walker, Ellen N. Hersh, Jacqueline Abramson Zucker, Petra T. Tasheff, Alexander M. Vasilescu, S.E.C. New York City, for plaintiff.
Gregory P. Miller, Miller, Alfano & Raspanti, P.C., Odell Guyton, Gino J. Benedetti, Philadelphia, PA, for defendant.
MEMORANDUM ORDER
ANITA B. BRODY, District Judge.
Pursuant to the authority granted it under section 20(b) of the Securities Act of 1933 (the "Securities Act"), 15 U.S.C. § 77t(b), and section 21(d)(1) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78u(d)(1), plaintiff Securities and Exchange Commission ("SEC") seeks the entry of a negotiated consent order granting a preliminary injunction against defendant John G. Bennett, Jr. The principal question before me is whether I have subject matter jurisdiction over this action. For the reasons set forth below, I conclude that I do. Accordingly, because Mr. Bennett has consented to the terms of the proposed preliminary injunction and because I defer to the SEC's judgment in negotiating those terms, I now enter that injunction as an order.
I. BACKGROUND
On May 18, 1995, the SEC filed its complaint in this action, alleging that defendants had engaged in a massive Ponzi scheme to defraud various individuals and nonprofit organizations by means of a sham "matching" gift program financed by fictitious "anonymous benefactors." The same day, the SEC petitioned for entry of the proposed consent injunction under consideration now.[1] I held a conference on the record in open court that evening to discuss my concerns with the proposed injunction. Those concerns centered on the issue of my subject matter jurisdiction, specifically, whether the instruments involved here were "securities" within the meaning of those laws. I made a provisional finding of jurisdiction and directed that the jurisdictional issue be briefed by May 31, 1995. Then, after setting a date for a preliminary injunction hearing, I entered the proposed consent injunction as a temporary restraining order. In issuing these rulings, I acted pursuant to the long line of authority originating with United States v. United Mine Workers of Am., 330 U.S. 258, 293, 67 S.Ct. 677, 696, 91 L.Ed. 884 (1947), which recognizes the traditional power of a court to "exercise jurisdiction to determine its jurisdiction" and to make related rulings necessary to preserve the status quo until a final determination of jurisdiction.
The SEC has now responded to my jurisdictional concerns with a thorough brief and with substantial factual affidavits that are supported by extensive exhibits. The SEC's submissions, together with the allegations in its complaint, allay any doubts about my jurisdiction in this case. Accordingly, I find *807 that I have subject matter jurisdiction over this action. That finding empowers me to proceed to the proposed preliminary injunction, which I now enter as an order because Mr. Bennett has consented to its terms and because the injunction is not unfair or otherwise unreasonable.[2]
II. DISCUSSION
A. Subject Matter Jurisdiction
Both the Securities Act and the Exchange Act confer upon a district court subject matter jurisdiction over actions to enforce liabilities or duties created by those statutes or by rules and regulations promulgated under those statutes. 15 U.S.C. § 77v(a); 15 U.S.C. § 78aa. Because these statutes govern not general business fraud but only the issuance and trading of "securities," jurisdiction under the securities laws will not lie unless the transactions at issue involve an instrument that qualifies for the label "security." Whether the interest at issue meets the definition of "security," then, "is both a question of subject matter jurisdiction and an element of" the substantive claim under the securities laws. Rivanna Trawlers Unlimited v. Thompson Trawlers, Inc., 840 F.2d 236, 239 (4th Cir.1988) (Powell, J.).
Where, as here, an element of the substantive federal claim goes also to the court's subject matter jurisdiction, the jurisdictional inquiry is distinguished from the counterpart merits determination by application of a more deferential standard. Unlike a merits determination, the jurisdictional inquiry in a federal question case asks not whether the "legal theory alleged is probably false," but only whether "the right claimed is so insubstantial, implausible, foreclosed by prior [court decisions] or otherwise completely devoid of merit as not to involve a federal controversy." Kulick v. Pocono Downs Racing Ass'n, Inc., 816 F.2d 895, 899 (3d Cir. 1987) (internal quotations omitted) (citing Oneida Indian Nation v. County of Oneida, 414 U.S. 661, 666, 94 S.Ct. 772, 777, 39 L.Ed.2d 73 (1974) and Bell v. Hood, 327 U.S. 678, 682-83, 66 S.Ct. 773, 776, 90 L.Ed. 939 (1946)).
But the degree of judicial deference envisioned in Kulick's "wholly insubstantial" jurisdictional standard is premised upon the assumption that at some point before the court is called upon to adjudicate substantial rights or responsibilities, the parties will contest the merits of the claims alleged. See Bell, 327 U.S. at 682, 66 S.Ct. at 776; Kulick, 816 F.2d at 898. See also Growth Horizons, Inc. v. Delaware County, Pa., 983 F.2d 1277, 1281 n. 5 (3d Cir.1993) (observing that court retains ability to "examine facts in determining jurisdiction" so long as it does not disregard deferential jurisdictional standard of cases such as Bell and Kulick). In the usual preliminary injunction scenario, for example, a district court confronted with a dual jurisdictional-substantive allegation can, at the jurisdictional stage, brush aside all but the most glaring questions about the viability of that allegation, confident that the point will be debated by motivated adversaries when the propriety of the injunction's issuance is taken up.
Here, the adversary machinery is not functioning, for Mr. Bennett, advised by counsel, has consented to the terms of the proposed injunction. As a result, I find myself being asked to approve equitable relief without ever being given the comfort of a contested (if preliminary) exchange on the merits of the *808 SEC's threshold jurisdictional allegation: that Mr. Bennett and co-defendant Foundation for New Era Philanthropy ("New Era") engaged in transactions involving a "security." I therefore deem it appropriate to subject the bare jurisdictional allegations in the complaint to slightly more rigorous scrutiny than would otherwise be appropriate, and to require that they be corroborated by affidavit testimony or exhibits submitted by the SEC. After reviewing the SEC's affidavits and exhibits, I conclude that the SEC's characterization of the interests at issue here as "securities" surpasses the "wholly insubstantial" standard set forth above.[3]
B. Preliminary Injunction
Having found subject matter jurisdiction here, I turn to the proposed consent *809 injunction. Federal policy strongly favors the use of consent injunctions as a means of achieving efficiency in securities law enforcement. See, e.g., X Louis Loss & Joel Seligman, Securities Regulation 4681 & n. 52 (3d ed. 1993) (noting wide use of consent injunctions); Thomas L. Hazen, Administrative Enforcement: An Evaluation of the Securities and Exchange Commission's Use of Injunctions and Other Enforcement Methods, 31 Hastings L.J. 427, 450-51 (discussing potential efficiencies to be derived from use of consent injunctions). The Supreme Court, moreover, "has long endorsed the propriety of the use and entry of consent judgments." Securities & Exchange Comm'n v. Randolph, 736 F.2d 525, 527 (9th Cir.1984) (collecting Supreme Court cases). In reviewing this proposed consent injunction, I am to pay substantial deference to the SEC's judgment in negotiating it, Randolph, 736 F.2d at 529, and I am to reject it only if it is "unfair, inadequate, or unreasonable." Id.
The proposed consent injunction should be approved. It is not unfair or unreasonable on its face, and it is evidently the product of substantial negotiation between Mr. Bennett and the SEC. Moreover, Mr. Bennett's counsel represented at the May 18, 1995, conference that they had reviewed it carefully with Mr. Bennett and had advised him to sign it. Accordingly, I approve and adopt the proposed consent injunction, and I enter it as a preliminary injunction ordered by the Court.
III. CONCLUSION
Based on the SEC's complaint and supporting submissions, I find that the characterization of the interests at issue here as "securities" surpasses Kulick's "wholly insubstantial" standard, and I therefore find that I have subject matter jurisdiction over this action. Furthermore, I approve and enter as an order of the Court the proposed consent preliminary injunction.
IT IS SO ORDERED.
NOTES
[1] The terms of the proposed preliminary injunction would: (i) freeze the assets Mr. Bennett owns or controls (other than those assets of co-defendant Foundation for New Era Philanthropy); (ii) require Mr. Bennett to update by September 5, 1995, the previously ordered accounting of his assets so as to enable the SEC to effect such a freeze; and (iii) restrain future violations by Mr. Bennett of sections 5(a), 5(c) and 17(a) of the Securities Act, 15 U.S.C. §§ 77e(a), 77e(c), and 77q(a), and section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b) and rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.
As originally submitted, the proposed consent injunction also provided for an agreed amount for Mr. Bennett's living expenses and for Mr. Bennett's reasonable attorney's fees, both of which were exempted from the asset freeze. But during a June 6, 1995, telephone conference held on the record with counsel, I indicated that I might not approve as reasonable the agreed sum for living expenses, and asked if Mr. Bennett's consent to the injunction would be affected by such a ruling. Tr. of June 6, 1995, Conference at 3-5. In response, counsel for both the SEC and Mr. Bennett agreed to sever from the proposed injunction the living expense and attorney's fee provisions and to petition the Court separately on those matters. Additionally, Mr. Bennett's counsel reiterated their consent to the injunction's remaining terms. Id. at 14. Accordingly, I treat the proposed consent injunction before me as devoid of living expenses and attorney's fee provisions, and I address in this Memorandum Order only the balance of that proposal.
[2] Of course, the jurisdictional analysis is not affected by the nonprofit character of the organization issuing the instruments involved in this case. While the securities of a nonprofit organization may be exempted from registration under the Securities Act and the Exchange Act, see 15 U.S.C. §§ 77c(a)(4) & 78l (g)(2)(D), the antifraud provisions of both statutes remain fully applicable. See 15 U.S.C. § 77q(c) (§ 17 of the Securities Act applicable to securities exempt from registration); Forman v. Community Servs., Inc., 366 F.Supp. 1117, 1132 n. 44 (S.D.N.Y.1973) (anti-fraud provisions of both Securities Act and Exchange Act applicable to securities exempt from registration), rev'd on other grounds, 500 F.2d 1246 (2d Cir.1974), rev'd sub nom. United Housing Found., Inc. v. Forman, 421 U.S. 837, 95 S.Ct. 2051, 44 L.Ed.2d 621 (1975). See generally III Louis Loss & Joel Seligman, Securities Regulation 1144 (3d ed. 1989) (discussing application of fraud provisions in cases involving exempt securities). Moreover, even the registration exemption itself will not be assumed; it must be affirmatively pleaded and proved by the defendant. III Louis Loss & Joel Seligman, Securities Regulation 1145-49 (3d ed. 1989). Consequently, both the antifraud and registration provisions invoked in the SEC's complaint are, at this point, fully in play.
[3] The term "security" includes "notes," "investment contracts," and "other evidence of indebtedness." 15 U.S.C. § 77b(1); 15 U.S.C. § 78c(a)(10). The SEC contends that the interests issued here by Mr. Bennett and New Era qualify for each of these categories. While I of course intimate no view on this contention for substantive merits purposes, I agree with the SEC that it is more than adequate as a basis for jurisdiction here.
a. "Notes"
To be a "note" within the meaning of the securities laws, an instrument must meet both the legal definition of a "note" and that of a "security." The record here discloses several types of instruments executed by New Era that might credibly be described as "notes" in the generic legal sense, in that they contain a promise to pay a specific payee a sum certain on a date certain. See Black's Law Dictionary 956 (5th ed. 1979) (defining "note"). These include a form letter agreement attached to New Era's offering memoranda (Compl. ¶¶ 8, 13-16; Shaffran Aff. ¶ 12; Ex. 1 to Shaffran Aff.) and items of initial and confirming correspondence sent to various institutions in anticipation or upon receipt of the institution's funds (Compl. ¶¶ 8, 13-16; Shaffran Aff. ¶¶ 18-20, 21-23; Exs. 3-7, 10-14 to Shaffran Aff.).
Because all "notes" do not necessarily qualify for the narrower label "securities," however, a further showing that these instruments meet the "securities" standard is necessary. Thus, the SEC asserts that these instruments also satisfy the criteria to be considered "securities" under the framework set out in Reves v. Ernst & Young, 494 U.S. 56, 63-67, 110 S.Ct. 945, 950-52, 108 L.Ed.2d 47 (1990). In this regard, the SEC observes that these notes do not appear on Reves's list of previously determined "non-securities." Moreover, the SEC submits support for its claim that these instruments bear no "family resemblance" to any such "non-security" when tested against the four relevant factors articulated in Reves. First, the SEC submits that New Era's purpose in issuing the "notes" was to finance itself and that the various participants' purpose was to profit from the 100% return assured by the notes. (Compl. ¶ 14; Shaffran Aff. ¶ 16; Exs. 1, 2, 4 to Shaffran Aff.; Exs. B, D to Newman Aff.). Second, the SEC submits that the plan of distribution here was like that of a "security" because hundreds of individuals and institutions in the United States were solicited by New Era and because over three hundred investors actually participated in New Era's "matching" program. (Compl. ¶¶ 7, 13; Shaffran Aff. ¶¶ 31, 38; Exs. 21-22, 25 to Shaffran Aff.). Third, the SEC submits that the public could reasonably expect that these notes were "securities" because New Era described them as an "investment" and because participants were told their funds were being placed at the well-known brokerage firm of Prudential Securities, Inc. (Compl. ¶¶ 20-23; Shaffran Aff. ¶¶ 10, 11, 21, 24-29; Exs. 1-2, 7-8, 15-19 to Shaffran Aff.). Finally, the SEC points out that there is no alternative regulatory regime that significantly reduces the risk of New Era's "matching" program and that renders application of the securities laws unnecessary here.
These supported allegations are more than sufficient to assert a colorable claim that the instruments offered here were "notes" within the meaning of the securities laws.
b. "Investment Contracts"
The interests here might also qualify as "investment contracts" under the three-pronged test of Securities & Exchange Comm'n v. W.J. Howey Co., 328 U.S. 293, 301, 66 S.Ct. 1100, 1104, 90 L.Ed. 1244 (1946). In support of this claim, the SEC submits the following: participating institutions and individuals placed funds or securities with New Era and thus "invested" money (Compl. ¶¶ 13, 19; Shaffran Aff. ¶¶ 19-21; Exs. 4, 5, 7 to Shaffran Aff.); the invested funds or securities were pooled for a common purpose, which would satisfy the "common enterprise" prong (Compl. ¶¶ 8, 27; Shaffran Aff. ¶¶ 8-15; Exs. 1, 2 to Shaffran Aff.); and the "matching" gift representing the profit was procured through "the efforts of others," namely, the brokering skills and fund-raising efforts of Mr. Bennett and New Era (Compl. ¶¶ 14, 16, 19; Shaffran Aff. ¶¶ 12-13; Exs. 1, 2 to Shaffran Aff.).
c. "Other Evidence of Indebtedness"
Finally, the note-like instruments mentioned above may also constitute "other evidence of indebtedness" under the securities laws when judged by the criteria developed in the "notes" context. See II Louis Loss & Joel Seligman, Securities Regulation 900 (3d ed. 1989) (applying criteria for determining whether notes are "securities" to "other evidence of indebtedness"). Thus, the SEC could conceivably bring these instruments within the scope of "other evidence of indebtedness" even if it were determined that they did not meet the narrow definition of notes.
|
131 Ariz. 133 (1982)
639 P.2d 323
STATE of Arizona, Appellee,
v.
Alexander Macnab DALGLISH, Appellant.
No. 5172.
Supreme Court of Arizona, In Banc.
January 7, 1982.
*134 Robert K. Corbin, Atty. Gen. by William J. Schafer, III, and Barbara A. Jarrett, Asst. Attys. Gen., Phoenix, for appellee.
Ross P. Lee, Maricopa County Public Defender by James R. Hart, II, Deputy Public Defender, Phoenix, for appellant.
Alexander Macnab Dalglish, in pro. per.
CAMERON, Justice.
This is an appeal from a jury verdict and judgment of guilt to the crime of first degree murder, A.R.S. § 13-1105, and a sentence of life imprisonment without possibility of parole for 25 years. A.R.S. § 13-703. We have jurisdiction pursuant to A.R.S. §§ 13-4031 and -4035.
We must answer the following questions on appeal:
*135 1. Was the defendant prejudiced by the granting and then the denying of the motion to suppress?
2. Did the trial court err in failing to suppress defendant's statements as being involuntary?
3. Was defendant's prior conviction admissible for impeachment purposes?
4. Did the trial court err in refusing to allow the defendant to introduce specific instances of conduct and character traits of the victim?
5. Did the trial court incorrectly and inadequately instruct the jury regarding the lesser included offense of murder in the second degree?
In addition, defendant, in his supplemental brief filed in propria persona, claims error because:
6. a key prosecution witness committed perjury, and
7. he was denied effective assistance of counsel because his attorney did not call a particular witness.
The facts necessary for a determination of this matter are as follows. The defendant was one of a group that pooled their money, totaling a little over $1,000.00, to make a purchase of drugs (Dilaudid). The money was given to the victim who was to go to his source and return with the drugs. When the victim did not return, the group assumed that they had been "ripped off" and that the victim was not going to provide the drugs or return the money. The next day, defendant went to the victim's house trailer in Phoenix, Arizona. Defendant had a .45 caliber semi-automatic pistol which he pointed at the victim. The defendant testified that he was afraid of the victim, that the victim had blackened one of his eyes a few days before, and that he believed the victim carried a gun. The defendant also testified that he did not intend to shoot the victim but only to scare him. The defendant stated that after some discussion, he shot into the ground as he chased the victim around his trailer, and that it was only after he perceived that the victim was reaching into his pocket for a gun that he shot at the victim. Witnesses at the trailer court testified as to the events, and there is no question defendant shot the victim. Shortly after the crime, the defendant was arrested and gave statements concerning the shooting in which he claimed self-defense.
The jury returned a verdict of guilty of first degree murder, and the court sentenced the defendant to life imprisonment. The defendant appeals.
RECONSIDERATION OF THE MOTION TO SUPPRESS
Defendant contends that he was prejudiced by the manner in which the motion to suppress was handled by the trial court. Prior to trial, defendant made a motion to suppress statements made after his arrest. The court, after a hearing, granted the motion to suppress based upon lack of probable cause to arrest. The State then moved to reconsider, and the trial court deferred ruling on the motion. In the interim, the jury was sworn, opening statements were made, and witnesses were called and testified. The court eventually heard the State's motion to reconsider at which time Officer Oviedo testified that he had been mistaken in his previous testimony which had been the basis of the trial court's decision to grant the motion to suppress. Based upon Officer Oviedo's new testimony, the trial court denied the motion to suppress. The court, in changing its ruling, stated, however:
"Frankly, I am concerned that an experienced police officer like Oviedo could take the stand and testify as he did with respect to a pertinent and material issue in the case, as it might deal with probable cause, and then later under the guise of a Motion to Reconsider, change that testimony. His testimony became diametrically opposed to what he testified to before, at least in the court, on a very material issue in this case, that dealing specifically with probable cause."
The defendant then moved for a mistrial, or in the alternative, a motion for continuance, stating:
*136 "* * * I have prepared for trial, and it is my recollection that the Court ruled back in September that the statement was not admissible in this matter. I have prepared for trial on the basis that that was the ruling that we would abide by during the trial of this matter.
"We come to the second day of trial and the opening statements, and after testimony began, and most importantly, after I have given an opening statement based upon the Court's previous ruling at that time, the Court under the circumstances changed its mind and reversed itself. * * *"
When pressed by the court to specifically state wherein he was prejudiced, the defendant was unable to do so:
"THE COURT: I am trying to determine whether or not you have been prejudiced by the Court's ruling.
"MR. TIDWELL: Well, I can't answer that question at this point. I am asking for time to consider my position."
We do not view with favor the procedure followed by the trial court in this case. To change a ruling on a motion to suppress in the middle of the trial can be prejudicial to one or both parties. It is only because the defendant was unable both in the trial court and in this court on appeal to show prejudice that our hand is stayed. Had the defendant been able to show prejudice, we would be persuaded to consider favorably the relief requested. Based upon the facts in this case, we find no reversible error.
MOTION TO SUPPRESS
The defendant further contends, however, that the court erred in denying the motion to suppress. Although the basis for the trial court's ruling which originally granted the motion to suppress was lack of probable cause to arrest, the defendant does not raise this question on appeal, and we do not consider it in this opinion. We do consider, however, defendant's allegation that the statements were given in return for a promise by the police that they would release defendant's girl friend, Michelle Pifer, and not charge her with any crime. Defendant relies on the language of this court that such statement may not be obtained by a direct or implied promise, however slight. State v. Smith, 123 Ariz. 243, 599 P.2d 199 (1979). We agree with defendant's statement of the law, but we do not agree that the facts support defendant's position that his statements were made in return for a promise of favorable treatment for his girl friend. There were two officers who interrogated the defendant. As to Officer Hawkins, defendant admits that the officer did not make any promise in return for defendant's statement. As to Officer Oviedo, however, defendant testified:
"Q * * * Can you tell us the conversation immediately before you made the statement?
"A Oviedo was back in there and Hawkins was still there, and I think I said that `Do you mean if I don't make a statement that she is not you are not until I make a statement you are not going to let Chelle go?
And Oviedo replied, `When you give us a statement and we see that she has no involvement, we will let her go.'
* * * * * *
"Q Did you respond to that?
"A Yes, I did.
"Q What did you say?
"A I said I will give the statement."
The officers, on the other hand, denied making any promises in return for defendant's statements. Officer Hawkins, for example, testified:
"A I asked if he could tell me where the where a weapon was at, a .45 caliber weapon. And he asked me whether or not that I would if Michelle, his girlfriend, Michelle Pifer was to be held to answer for this particular crime.
"Q Up to this time was Gus Oviedo still in the room?
"A I believe so.
"Q What happened next?
"A I asked him point blank if she had been involved in this crime, and he *137 assured me she had not. I advised him then that I personally had no other knowledge of any evidence in order to hold her in the crime, and that if the police department did not have any evidence to involve her in the crime, that we could not hold her.
"Q Then what happened?
"A I believe about this time Officer Oviedo left the room shortly, and I asked him again if he would assist me in getting to the bottom of that. And he asked again the same question reference Michelle, and my response was the same.
At that point he indicated that he would go ahead and make a statement. And I said, `Go ahead, and I will bring Officer Oviedo back in the room'."
Even though the State must show "`by a preponderance of the evidence' that the confession was freely and voluntarily made," State v. Arnett, 119 Ariz. 38, 42, 579 P.2d 542, 546 (1978); State v. Knapp, 114 Ariz. 531, 562 P.2d 704 (1977); State v. Arredondo, 111 Ariz. 141, 526 P.2d 163 (1974), and the trial court must look to the totality of the circumstances to determine if the State has met its burden, Arnett and Knapp, supra, we will not overturn the trial court's determination absent clear and manifest error. State v. Arnett, supra; State v. Jordan, 114 Ariz. 452, 561 P.2d 1224 (1976), vacated on other grounds, 438 U.S. 911, 98 S.Ct. 3138, 57 L.Ed.2d 1157 (1978). We believe there was sufficient evidence from which the trial court could find that the State, by a preponderance of the evidence, carried its burden of showing the statements voluntary.
Defendant contends, however, that the trial court never made a finding of voluntariness. We have stated on numerous occasions that the trial court must make a specific determination of voluntariness before the statements may be considered by the jury. Thus we have held that a trial judge's statement that the State had made a prima facie showing of voluntariness was inadequate. State v. Costello, 97 Ariz. 220, 399 P.2d 119 (1965); State v. Marovich, 109 Ariz. 45, 504 P.2d 1268 (1973), and that a statement that the "objection is overruled" is insufficient, State v. Mileham, 100 Ariz. 402, 407, 415 P.2d 104, 107 (1966); State v. Ramos, 108 Ariz. 36, 492 P.2d 697 (1972).
The purpose of these rulings is to assure that the trial court makes a separate and definite threshold determination of admissibility before allowing the jury to consider the evidence. In the instant case, the matter is confused by the fact that prior to trial, the court granted the defendant's motion to suppress. Although the court did not make it clear in denying the motion to suppress that it was also ruling the confession voluntary, the court later clearly indicated that it was doing so, stating:
"Now I have previously determined in this matter, Mike, that the statements made were voluntary."
What we have criticized in prior cases was the practice of allowing statements to go to the jury without a threshold ruling of admissibility by the trial judge. In the instant case, even though not contemporaneous with the denial of the motion to suppress, there is no question that the court did make such a finding prior to consideration of the evidence by the jury. We find no error.
DEFENDANT'S PRIOR CONVICTION
Defendant had a prior (1975) conviction for conspiracy to distribute heroin. The conviction was five years old. As to convictions less than 10 years old, our statute reads:
"(a) General rule. For the purpose of attacking the credibility of a witness, evidence that he has been convicted of a crime shall be admitted if elicited from him or established by public record, if the court determines that the probative value of admitting this evidence outweighs its prejudicial effect, and if the crime (1) was punishable by death or imprisonment in excess of one year under the law under which he was convicted or (2) involved dishonesty or false statement, regardless of the punishment." Rule 609(a), Arizona Rules of Evidence, 17A A.R.S.
*138 In the instant case, the prior conviction was punishable by imprisonment for more than one year.
The trial court, in denying defendant's motion in limine, conceded the prejudicial effect of the prior conviction, but held that the probative value of the prior conviction outweighed the prejudice. We agree. The prior felony conviction for the crime of conspiracy to distribute heroin is five years old. While certainly prejudicial, we believe it had a direct bearing on defendant's credibility. Our Court of Appeals has stated:
"* * * we, as do the federal courts, recognize that any felony even if it does not involve false statement or dishonesty, has probative value on the issue of the credibility of the defendant.
"Under Rule 609(a) the trial court has wide discretion in deciding whether to exclude evidence of prior convictions because its prejudicial effect is greater than its probativeness on lack of credibility. (citations omitted) The exercise of this discretion should not be disturbed absent a clear showing of abuse. (citation omitted). * * *" State v. Dixon, 126 Ariz. 613, 618, 617 P.2d 779, 784 (App. 1980).
We do not believe the trial court abused its discretion in admitting the prior conviction. We find no error.
FAILURE TO ALLOW INTRODUCTION OF SPECIFIC INSTANCES OF CONDUCT AND CHARACTER TRAITS OF THE VICTIM
Defendant next contends that it was error to deny defendant the right to introduce specific instances of conduct and character traits of the victim. The defendant contends that because the defense was self-defense, the victim's conduct was critical to that defense.
Rule 404(a)(2) of the Arizona Rules of Evidence, 17A A.R.S., provides:
"(a) Character evidence generally. Evidence of a person's character or a trait of his character is not admissible for the purpose of proving that he acted in conformity therewith on a particular occasion, except:
* * * * * *
"(2) Character of victim. Evidence of a pertinent trait of character of the victim of the crime offered by an accused, or by the prosecution to rebut the same, or evidence of a character trait of peacefulness of the victim offered by the prosecution in a homicide case to rebut evidence that the victim was the first aggressor;"
The court allowed the defendant to present evidence of the victim's character. Defendant was allowed to show he had a fight with the victim, that he was hit and suffered a black eye, that the victim tried to borrow a gun to commit a robbery, that the victim robbed a defense witness with a gun and slapped him on the side of the head with a gun to the extent that his ear bled, and that the defendant knew of the victim's activities.
Defendant contends, however, that on several occasions the court limited the questioning regarding the prior conduct and character of the victim which evidence was important to the defendant's claim of self-defense. Defendant, in his brief, cites as an example:
"Q Did you ever make inquiry of Alex, how he got the blackeye?
"A Yes.
"Q Do you recall what he told you?
"A Yes.
"Q Tell the jury.
"MR. PATCHELL: Objection, hearsay.
"THE COURT: Sustained."
We believe that, without more, the hearsay objection was properly sustained. While the defendant is entitled to elicit evidence of the victim's prior bad acts in order to show his character, a defendant is still required to abide by the rules of evidence when presenting those bad acts. We find no error.
LESSER INCLUDED OFFENSE
The court gave the standard instructions concerning first degree murder and second degree murder, and the differences between first degree murder and second degree murder. *139 The defendant contends it was error not to give the following additional instruction:
"A. A person commits second degree murder if without premeditation:
* * * * * *
"(3) Under circumstances manifesting extreme indifference to human life, such person recklessly engages in conduct which creates a grave risk of death and thereby causes the death of another person."
We have stated that in a death penalty case, the court has the duty to instruct on every degree of homicide embraced in the information and supported by the evidence, regardless of whether or not it is requested by the parties. State v. Vickers, 129 Ariz. 506, 633 P.2d 315 (1981). In the instant case, we do not believe the requested instruction is supported by the evidence. As the defendant testified:
"Q With that shot you intended to hit him?
"A Yes, I did aim at him for fear that he was coming up with a gun.
"Q I understand that you intended to hit him?
"A Well, yes, I guess I would have intended to hit him for fear that he was coming up with a gun to stop it."
It is clear from defendant's own testimony that as to the bullet which killed the victim, the shot was deliberate and intentional and not indifferent or reckless. An instruction on reckless conduct or indifference was not mandated or supported by the facts. We find no error.
PERJURY OF KEY WITNESS
Defendant contends in his "brief pro per" that a key prosecution witness committed perjury. Defendant contends that Bob Judd committed perjury while testifying and that the State prosecutor collaborated with Judd in the perjury.
Bob Judd was about 200 feet from the defendant and the victim and he immediately called the police to report the matter. Detective Butler took a statement from Judd at the scene which was contained in a departmental report. During trial, Judd was called by the State to testify and was cross-examined by defendant's counsel concerning inconsistencies between his trial testimony and the contents of the report.
Defendant's allegations appear to be based upon the fact that Judd's trial testimony was not identical to the statements he made to the police officers immediately after the homicide. A review of the record indicates there were inconsistencies in Judd's testimony. For example, the departmental report indicated Judd had stated the defendant and the victim were approximately 12 feet apart at the time of the shooting; at trial he stated they were 25 feet apart. We believe this and other inconsistencies can be expected as the time between the crime and the trial lengthens. These inconsistencies were examined and developed by defendant's counsel and do not appear to be vital or prejudicial. None of the inconsistencies indicate that the witness was perjuring himself. The record does not support defendant's conclusion in this regard. We find no error.
INEFFECTIVE ASSISTANCE OF COUNSEL
Defendant next contends that the failure of his attorney to call Steven Davis, a "crucial" witness, "especially in discrediting Bob Judd's testimony," was a denial of assistance of counsel. Steven Davis lived in a school bus that had been converted to a mobile home. Davis had parked his bus near the place where the shooting occurred and was inside the bus when the shooting occurred. Davis gave a statement to Officer Butler. Davis's testimony conflicted with that of Judd and the defendant in that he indicated that the victim was chasing the defendant before the defendant shot the victim. Davis had given the California address of his mother-in-law as a place where he could be reached. Defendant's attorney did not contact Davis and according to defendant stated, "I didn't try to contact him that way and I don't think we will need him anyway." Defendant's attorney's decision *140 not to call Davis appears to have been a deliberate tactical decision on the part of the defendant's attorney.
We have discussed two standards for ineffective assistance of counsel: the farce, sham or mockery test, see State v. Williams, 122 Ariz. 146, 593 P.2d 896 (1979), or the reasonably competent and effective "diligent conscientious advocate," Cooper v. Fitzharris, 586 F.2d 1325 (9th Cir.1978), cert. denied 440 U.S. 974, 99 S.Ct. 1542, 59 L.Ed.2d 793 (1979), see also State v. Ortiz, 131 Ariz. 195, 639 P.2d 1020 (1981). We have also stated that "matters of judgment or tactics will not be reviewed in the harsh light of hindsight." State v. Pacheco, 121 Ariz. 88, 91, 588 P.2d 830, 833 (1978).
We do not find that the tactical decision by the defendant's attorney not to call Davis was a denial of assistance of counsel or indicated ineffective assistance of counsel. We find no error.
Affirmed.
HOLOHAN, C.J., GORDON, V.C.J., and STRUCKMEYER and HAYS, JJ., concur.
|
4 F.3d 995
NOTICE: 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.UNITED STATES of America, Plaintiff-Appellee,v.Donald G. PERKINS, John P. Dunn and Mark A. PerkinsDefendants-Appellants.
Nos. 92-1227, 92-1273, 92-1228.
United States Court of Appeals, Sixth Circuit.
Sept. 9, 1993.
Before: KEITH and NELSON, Circuit Judges; CELEBREZZE, Senior Circuit Judge.
PER CURIAM:
1
Defendants-Appellants, Donald G. Perkins, Mark Perkins and John Paul Dunn, appeal their convictions and sentences imposed pursuant to their pleas of guilty to conspiracy to distribute cocaine and marihuana, in violation of 21 U.S.C. Sec. 846. For the reasons stated below, we AFFIRM the judgment of the district court.
I.
2
On November 28, 1990, Appellants Donald Perkins, Mark Perkins and John Dunn were named with four others in a one count indictment for being members of a conspiracy to possess with intent to distribute cocaine and marihuana. On May 2, 1991, Mark Perkins and John Dunn pled guilty, along with three other co-defendants. Donald Perkins and the remaining co-defendant pled guilty on May 8, 1991, the day their trial was scheduled to begin.
3
Pursuant to their plea agreements, Mark Perkins and John Dunn agreed to cooperate with the government in exchange for the government's promise to seek a downward departure of their sentences. The government made no promises in its plea agreement with Donald Perkins, nor did Perkins agree to cooperate with the government.
4
The Presentence Report for Donald Perkins recommended that he be given a two-level enhancement for possession of a firearm during the commission of the conspiracy and denied a reduction for acceptance of responsibility. Donald Perkins objected to several aspects of his Presentence Report, including the suggested enhancement for possession of a firearm.
5
A sentencing hearing on Donald and Mark Perkins' objections to their Presentence Reports was held on January 10, 1992. At this hearing, the government presented the testimony of Fred Wollard, an unindicted co-conspirator, and Detective Ronald Nightingale of the Michigan State Police. Wollard testified that on various occasions he gave firearms to Donald Perkins as partial payment for drugs. Wollard stated that he informed Mark Perkins of these transactions and that Mark Perkins responded by attempting to discourage him from further trading of firearms. Detective Nightingale testified that 1,278 marihuana plants were seized during the investigation of the conspiracy. Nightingale also testified to admissions by various co-defendants as to the quantity of drugs involved in the conspiracy.
6
Appellant John Dunn entered into a stipulation with the government that the amount of drugs which he knew, or reasonably should have known to be involved in the conspiracy was 392 grams of cocaine and 800 marihuana plants. Based on this stipulation, Dunn's offense level was set at 30.
7
Mark Perkins was sentenced on February 7, 1992. The court found that there were at least 2,080 kilograms of marihuana and slightly more than eight kilograms of cocaine involved in the conspiracy. The court gave Mark Perkins an enhancement for the firearms transactions between Wollard and Donald Perkins and for being a leader of the conspiracy. The court calculated Perkins' sentence at 292-365 months, but gave Perkins a downward departure for his cooperation with the government.
8
Donald Perkins was also sentenced on February 7, 1992. The court determined that his base offense level was 34. The court applied a two-level increase for the firearms trading and a four-level enhancement for his role in the conspiracy. The court also found that Perkins was either a career offender under U.S.S.G. Sec. 4B1.1 or had a Criminal History Category of III--either of which would result in a sentencing range of 360 months to life imprisonment. Before the court formally rendered Perkins' sentence, but after the judge had indicated what he thought to be the appropriate sentencing range, Perkins moved to withdraw his guilty plea. No specific grounds were given in support of the motion to withdraw the guilty plea, although Perkins' counsel stated that he was surprised by the sentencing range. The court denied Perkins' motion and sentenced him to 500 months imprisonment.
9
John Dunn was sentenced on February 19, 1992. The court determined that his offense level was 28, which resulted in a minimum term of 78 months imprisonment. After granting the government's motion for a downward departure, the court sentenced Dunn to 60 months imprisonment.
10
All three Appellants filed timely notices of appeal raising several challenges to their sentences. Each of these challenges are discussed below seriatim.
II.
11
We first address Donald Perkins' contention that the district court erred in denying his motion to withdraw his guilty plea made at his sentencing hearing on February 7, 1992.
12
Rule 32(d) of the Federal Rules of Criminal Procedure provides that a court may permit the withdrawal of a plea of guilty "upon a showing by the defendant of any fair and just reason." Fed.R.Crim.P. 32(d). A defendant has no right to withdraw a guilty plea; the ultimate decision rests within the court's discretion. See United States v. Stephens, 906 F.2d 251, 252 (6th Cir.1990). In United States v. Goldberg, 862 F.2d 101 (6th Cir.1988), this Court adopted several standards for courts to consider when deciding whether to allow the withdrawal of a plea. The Goldberg Court listed those standards as follows:
13
(1) whether the movant asserted a defense or whether he has consistently maintained his innocence; (2) the length of time between the entry of the plea and the motion to withdraw; (3) why the grounds for withdrawal were not presented to the court at an earlier time; (4) the circumstances underlying the entry of the plea of guilty, the nature and the background of a defendant and whether he has admitted his guilt; and (5) potential prejudice to the government if the motion to withdraw is granted.
14
862 F.2d at 103-04. The factors stated in Goldberg support the court's denial of Perkins' motion to withdraw his guilty plea.
15
The record reflects that Perkins did not assert a defense to the charge of drug conspiracy nor did he consistently maintain his innocence. In fact, the first notice given to the court that Perkins wanted to withdraw his guilty plea was at his sentencing. Approximately 8 months passed between the time Perkins entered his plea and requested a withdrawal of his plea. Furthermore, Perkins presented no grounds in support of his motion to withdraw his plea. Although there is no evidence of potential prejudice to the Government if Perkins' motion were granted, we believe the other factors sufficiently justify the court's decision. Accordingly, we find no error in the court's refusal to allow Perkins to withdraw his plea.
III.
16
According to the Presentence Reports for Donald Perkins and Mark Perkins, the conspiracy involved an estimated 21.4 kilograms of cocaine, 121 pounds of processed marihuana and 3,020 marihuana plants. Both Mark and Donald Perkins objected to these estimated drug quantities. Donald Perkins contends that he only distributed 23 ounces of cocaine, no processed marihuana and only 200 marihuana plants. Donald Perkins contends that he should be held accountable for only 4-5 kilograms of cocaine, but made no estimates as to the quantity of marihuana plants and processed marihuana that were involved in the conspiracy.
17
This Court must accept the district court's findings of fact regarding the amount of drugs for which Donald and Mark Perkins should be held accountable, unless the findings are clearly erroneous. United States v. Walton, 908 F.2d 1289 (6th Cir.), cert. denied, 498 U.S. 990 (1990).
18
At a sentencing hearing on January 10, 1992, the government submitted evidence regarding the quantity of drugs involved in the conspiracy. Wollard, the unindicted co-conspirator, informed the court of the amount of drugs that were involved in his drug transactions with Donald and Mark Perkins. Detective Nightingale gave testimony of statements made to him by members of the conspiracy regarding the quantity of drugs they obtained from Donald and Mark Perkins.
19
The Appellants contend that the court's reliance on Wollard's testimony regarding the quantity of drugs is inconsistent with this Court's decision in United States v. Holmes, 961 F.2d 599 (6th Cir.), cert. denied, 113 S.Ct. 232 (1992). In Holmes, we held that a district court "may consider hearsay information contained in a pre-sentence report" if the defendant has "an opportunity to refute the hearsay information" and if the information contains a "sufficient indicia of reliability." 961 F.2d at 603. The Appellants' reliance on Holmes is misplaced because Wollard's statements were not hearsay. Furthermore, Appellants' were given an opportunity to refute Wollard's testimony through cross-examination.
20
The government concedes that the testimony it presented on the quantity of drugs involved in the conspiracy were estimates. The government submits that the evidence from the sentencing hearing revealed that there was between 8.04 and 14.06 kilograms of cocaine, between 67 and 74 kilograms of processed marihuana, and between 2,217 and 2,290 marihuana plants involved in the conspiracy.
21
The court's findings regarding the quantity of drugs was based on the testimony of Wollard and Nightingale and was supported by a preponderance of the evidence. The court erred on the side of caution by accepting the lowest estimate of the quantity of drugs involved in the conspiracy. Donald and Mark Perkins have presented no evidence that the court's findings of fact were clearly erroneous. Accordingly, we find no error in the court's determination of the quantity of drugs involved in the conspiracy.
IV.
22
Donald and Mark Perkins challenge the court's enhancement of their sentences pursuant to U.S.S.G. Sec. 2D1.1(b)(1), for possession of a firearm during the commission of the conspiracy. Section 2D1.1(b)(1) requires a two point enhancement if a "dangerous weapon (including a firearm) was possessed" during the commission of offenses involving drugs. The Appellants' enhancement was based on Wollard's testimony that on several occasions he gave Donald Perkins weapons in exchange for drugs. We review the court's enhancement of the Appellants' sentences for clear error. See United States v. Hodges, 935 F.2d 766 (6th Cir.), cert. denied, 112 S.Ct. 251 (1991).
23
Both Mark and Donald Perkins argue that Sec. 2D1.1(b)(1) does not apply to the bartering of weapons for drugs. Additionally, Mark Perkins argues that the enhancement was improper with respect to his sentence because the court failed to give adequate notice of its intention to enhance, and because he lacked the reasonable foreseeability of the weapons transactions between Wollard and Donald Perkins.
24
We first address the issue of whether Sec. 2D1.1(b)(1) applies to the bartering transactions between Wollard and Donald Perkins. We note that this Circuit has not ruled on the applicability of Sec. 2D1.1(b)(1) to situations where weapons are merely used as a medium of bartering. Even the district court judge observed that such an enhancement was "novel." In determining whether Sec. 2D1.1(b)(1) contemplates an enhancement under these circumstances we are guided by the Supreme Court's recent decision in Smith v. United States, 1993 U.S.LEXIS 3740, 61 U.S.L.W. 4503 (U.S. June 1, 1993), addressing 18 U.S.C. Sec. 924(c)(1).
25
Section 924(c)(1) imposes an enhanced sentence for a defendant who "during and in relation to any crime of violence or drug trafficking crime ... uses or carries a firearm." In Smith, the Court specifically held that bartering firearms for drugs constitutes "use" of a firearm within the meaning 18 U.S.C. Sec. 924(c)(1):
26
When a word is not defined by statute, we normally construe it in accord with its ordinary or natural meaning.... Surely petitioner's treatment of his MAC-10 can be described as "use" within the every day meaning of that term. Petitioner "used" his MAC-10 in an attempt to obtain drugs by offering to trade it for cocaine. Webster's defines "to use" as "to convert to one's service" or "to employ." ... Petitioner's handling of the MAC-10 in this case falls squarely within those definitions. By attempting to trade his MAC-10 for the drugs, he "used" or "employed" it as an item of barter to obtain cocaine; he "derived service" from it because it was going to bring him the very drugs he sought.
27
Id. at * 11-12.
28
We find that the Supreme Court's rationale in Smith is equally applicable to the situation in the instant case. Section 2D1.1(b)(1) provides for a 2 level enhancement where the defendant has been convicted of a drug offense and "a dangerous weapon (including a firearm) was possessed." The commentary to this provision states that an "adjustment should be applied if the weapon was present, unless it is clearly improbable that the weapon was connected with the offense." U.S.S.G. Sec. 2D1.1(b)(1), Commentary, Application Note 3. As an example of what is contemplated by this provision, the commentary states that "the enhancement would not be applied if the defendant, arrested at his residence, had an unloaded hunting rifle in the closet." Id. We rule that Section 2D1.1(b)(1)'s requirement of "possession" of a dangerous weapon is satisfied where weapons are traded in exchange for drugs.
29
Mark Perkins asserts that a remand of his sentence is necessary because the court erred by failing to give adequate notice of its intent to apply Section 2D1.1(b)(1), relying on Burns v. United States, 111 S.Ct. 2182 (1991), as support. We reject this argument because the Burns rule regarding adequate notice pertains to upward departures, whereas the application of Section 2D1.1(b)(1) is not a departure under the Guidelines.
30
We also reject Mark Perkins' argument that his sentence should not have been enhanced pursuant to Section 2D1.1(b)(1) because he lacked foreseeability of the weapons transactions between Wollard and Donald Perkins. The evidence shows that Mark Perkins was specifically told of these transactions. In United States v. Williams, 894 F.2d 208 (6th Cir.1990), this Court held that a defendant could be convicted of conspiracy where "the defendant's conduct or the conduct of co-conspirators in furtherance of the conspiracy was known to defendant or was reasonably foreseeable." Id. at 211-212. (Emphasis added).
31
We find no error in the district court's enhancement of Donald and Mark Perkins' sentence pursuant to Section 2D1.1(b)(1).
V.
32
Appellant Dunn argues that the court erred in calculating his guideline range by applying an improper conversion ratio for marihuana plants. Dunn claims that the equivalency ratio used by the court did not become effective until November 1, 1990, after the termination of the conspiracy. He also alleges that the equivalency ratio used by the court for the marihuana plants violates his due process rights under the Fifth Amendment to the United States Constitution. We disagree.
33
On January 31, 1992, Dunn entered into a stipulation with the government that the total amount of drugs that he should be held accountable for was 800 marihuana plants and 392 grams of cocaine. The court accepted this stipulation and sentenced Dunn based on the following equivalencies: 1 marihuana plant = 1 kilogram of marihuana = 1 gram of heroin; and 1 gram of cocaine = .2 grams of heroin.
34
Effective November 1, 1989, the equivalency between marihuana plants and marihuana, as stated in U.S.S.G. Sec. 2D1.1(c)(n*), provides as follows:
35
In the case of an offense involving marihuana plants, if the offense involved (A) 50 or more marihuana plants, treat each plant as equivalent to 1 KG of marihuana; (B) fewer than 50 marihuana plants, treat each plant as equivalent to 100 G of marihuana.
36
In the instant case, the district court held Dunn accountable for 800 marihuana plants and used the above formula in calculating the equivalency between marihuana plants and marihuana. We find no error in this calculation.
37
In United States v. Holmes, 961 F.2d 599, 601-602 (6th Cir.1992), this Court held that Sec. 2D1.1's equivalency formulas for marihuana plants does not violate due process. Therefore, we also reject Dunn's due process challenge.
VI.
38
Finally, we address Dunn's argument that the court erred by not giving him a downward departure so that his sentence would be uniform with his co-defendants' sentences.
39
In United States v. Rutana, 932 F.2d 1155 (6th Cir.1991), this Court held that "departure in order to achieve conformity among co-defendants is not appropriate where there is a basis for disparity." Id. at 1159. In the instant case, the record reflects that the district court sentenced the defendants based on the amount of drugs for which they were individually responsible. Accordingly, we find no error in the disparity between Dunn's sentence and that of his co-defendants.
VII.
40
For the reasons stated above, we AFFIRM the judgment of the Honorable Robert C. Cleland, United States District Judge for the Eastern District of Michigan.
|
49 Cal.3d 39 (1989)
775 P.2d 508
260 Cal. Rptr. 183
DOCTORS' COMPANY et al., Petitioners,
v.
THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; JOSE ANTONIO VALENCIA, Real Party in Interest.
Docket Nos. S003148, S003588.
Supreme Court of California.
July 17, 1989.
*41 COUNSEL
H. Gilbert Jones, Bonne, Jones, Bridges, Mueller & O'Keefe, Alan G. Martin, Greines, Martin, Stein & Richland, Roxanne L. Holmes, James C. Krieg, Elliot L. Bien and Bronson, Bronson & McKinnon for Petitioners.
James S. Link, Spray, Gould & Bowers, Michael J. Brady, James P. Wagoner, Ellis J. Horvitz, Peter Abrahams, Lisa Perrochet, Loren Homer Kraus and Horvitz, Levy & Amerian as Amici Curiae on behalf of Petitioners.
No appearance for Respondent.
Bruce G. Fagel and Richard Akemon for Real Party in Interest.
OPINION
KAUFMAN, J.
(1a) The question presented is whether an insurer, its attorney retained to assist in the defense of an insured against a third party claim, and an expert witness, also retained by the insurer for that purpose, can be held liable for damages to the claimant for a conspiracy to violate Insurance Code section 790.03, subdivision (h)(5) (section 790.03(h)(5)), which makes it an unfair practice under certain circumstances for an insurer to refrain from attempting to effectuate a prompt and fair settlement of a *42 claim after liability has become reasonably clear.[1] A petition for a writ of mandate, directing the respondent superior court to sustain a demurrer to a complaint's allegations of such a conspiracy, was summarily denied by the Court of Appeal with a citation to Wolfrich Corp. v. United Services Automobile Assn. (1983) 149 Cal. App.3d 1206 [197 Cal. Rptr. 446]. We granted review and shall conclude that the conspiracy claim is barred by this court's decision in Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 576 [108 Cal. Rptr. 480, 510 P.2d 1032], and that Wolfrich must be disapproved insofar as it holds otherwise.
The complaint, filed by real party in interest Jose Antonio Valencia (hereafter plaintiff), alleges two causes of action. Though the first cause of action is not challenged here, it is essentially incorporated into, and lays the foundation for, the disputed conspiracy claim of the second cause of action.
The first cause of action is directed against The Doctors' Company and The Doctors' Management Company (collectively insurer). It alleges substantially as follows: The insurer issued a policy covering the liability of M.F. Osman, M.D., for acts of medical malpractice in connection with plaintiff's birth, complained of in a prior action brought by plaintiff against Dr. Osman and others. Plaintiff offered to settle with Osman for the policy limits of $500,000. The insurer intentionally withheld from its "designated expert," Keith Russell, M.D., the deposition of Dr. Osman which revealed the latter's negligence. Without the deposition and without any records prepared by Osman, Russell rendered an opinion that Osman was not negligent, thus giving the insurer a plausible excuse for refusing plaintiff's settlement offer. After that refusal, the action against Osman was tried before a jury, which returned a verdict of $2 million on which judgment was entered and has become final. The insurer's conduct is alleged to have violated its statutory duty to attempt settlement, imposed by section 790.03(h)(5) (fn. 1, ante).
The second cause of action is directed not only against the insurer, but also against Dr. Russell (the insurer's expert) and against a law firm, Rigg, Dean & Mower, and certain of the firm's partners (firm and partners being hereafter referred to as the attorneys). After incorporating all the allegations of the first cause of action by reference, the second cause of action *43 alleges substantially as follows: The insurer hired the attorneys to represent Dr. Osman, who was also represented by separate personal counsel. Despite the demands by Osman and his personal counsel that the insurer settle the case for the policy limit of $500,000, the insurer and its attorneys refused to do so. Defendants, i.e., the insurer, the attorneys, and Dr. Russell, "entered into an agreement, scheme and plan to deprive [plaintiff] of the benefits" of section 790.03(h)(5), "which would have been provided by a prompt, fair and equitable settlement." The insurer "conspired with" the attorneys "to locate a local doctor who would agree to only partially review the facts and records and subsequent depositions surrounding the birth of [plaintiff] who [sic] would then give a false medical opinion which provided [insurer] and [attorneys] a plausible sounding excuse to deny [plaintiff's] request for a prompt, fair and equitable settlement of his claims." Dr. Russell "conspired with" the insurer and the attorneys and agreed with them not to review Dr. Osman's deposition before giving his own opinion under oath at his own deposition.
The insurer, the attorneys, and Dr. Russell all filed general demurrers to the complaint. The demurrers were overruled.[2] The demurring defendants then petitioned the Court of Appeal for a writ of mandate to compel the trial court to sustain their demurrers. The Court of Appeal summarily denied issuance of the writ, and both the insurer and the attorneys sought review by this court. We granted review, consolidated the petition of the attorneys (S003588) with that of the insurer (S003148), and issued alternative writs requiring a showing of cause why the trial court should not be ordered to sustain petitioners' demurrers to the second cause of action without leave to amend.[3] We also stayed trial of the underlying action pending completion of this writ proceeding.
Plaintiff's complaint is based on this court's holding in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880 [153 Cal. Rptr. 842, 592 P.2d 329], that a plaintiff who has obtained judgment on a tort claim against an insured defendant may sue the insurer for violating section 790.03(h)(5), which specifies failure to attempt settlements of claims as an unfair practice in the business of insurance as set forth in footnote 1, ante. In Moradi-Shalal v. Fireman's Fund Ins. Companies (1988) 46 Cal.3d 287, 305 [250 Cal. Rptr. 116, 758 P.2d 58], that holding was overruled prospectively, thus permitting actions filed before the finality of Moradi-Shalal, such as the one before us, to continue in reliance on Royal Globe.
*44 The duty to refrain from violating section 790.03(h)(5) is imposed only on "persons engaged in the business of insurance" (§ 790.01). (See also § 790.02.) There is no allegation in the complaint that either the attorneys or Dr. Russell are or were engaged in the insurance business, and plaintiff does not so contend. Accordingly, those defendants, unlike the insurer, are not bound by section 790.03(h)(5). The gravamen of the complaint against those defendants is that they and the insurer conspired to "deprive [plaintiff] of the benefits of [section 790.03] and to deny [plaintiff] any sums of money for [his] injuries which would have been provided by a prompt, fair and equitable settlement." Because the complaint does not purport to rely on any duty to settle claims other than that imposed by section 790.03(h)(5) on insurers and persons in the insurance business, the issue before us is whether the insurer, the attorneys and Dr. Russell can be held liable for a conspiracy to violate a duty peculiar to the insurer.
(2) "A civil conspiracy however atrocious, does not per se give rise to a cause of action unless a civil wrong has been committed resulting in damage. [Citations]." (Unruh v. Truck Insurance Exchange (1972) 7 Cal.3d 616, 631 [102 Cal. Rptr. 815, 498 P.2d 1063].) (3) "The elements of an action for civil conspiracy are the formation and operation of the conspiracy and damage resulting to plaintiff from an act or acts done in furtherance of the common design.... In such an action the major significance of the conspiracy lies in the fact that it renders each participant in the wrongful act responsible as a joint tortfeasor for all damages ensuing from the wrong, irrespective of whether or not he was a direct actor and regardless of the degree of his activity. [Citations.]" (Mox Incorporated v. Woods (1927) 202 Cal. 675, 677-678 [262 P. 302]; accord Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 784 [157 Cal. Rptr. 392, 598 P.2d 45].)
(4a) A cause of action for civil conspiracy may not arise, however, if the alleged conspirator, though a participant in the agreement underlying the injury, was not personally bound by the duty violated by the wrongdoing and was acting only as the agent or employee of the party who did have that duty. Thus, in Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d 566, the plaintiff alleged that his insurers and their adjusters and attorneys had conspired to deny him benefits for an insured fire loss and in furtherance of the conspiracy had (1) encouraged criminal charges by falsely implying to an official investigator and at a preliminary hearing that the plaintiff had a motive to commit arson, (2) used the plaintiff's failure to appear for examination under oath before the insurers' representative (see §§ 2070, 2071) as a pretext for denying liability under the policies even though they knew the plaintiff would not appear during the pendency of the criminal charges, and (3) refused to accept the plaintiff's offer to appear for examination after the charges were dropped. We held that these allegations stated a cause of *45 action against the defendant insurers for breach of their implied covenant of good faith and fair dealing by refusing, without proper cause, to compensate the plaintiff for a fire loss covered by their insurance policies. (9 Cal.3d at pp. 570-575.)
We further held, however, that the insurers' adjusters and attorneys were not liable for the alleged conspiracy. We first pointed out that the "plaintiff [Gruenberg] contends that these non-insurer defendants breached only the duty of good faith and fair dealing; therefore, we need not consider the possibility that they may have committed another tort in their respective capacities as total strangers to the contracts of insurance. Obviously, the non-insurer defendants were not parties to the agreements for insurance; therefore, they are not, as such, subject to an implied duty of good faith and fair dealing." (9 Cal.3d at p. 576, italics added.)
We then invoked the rule that "[a]gents and employees of a corporation cannot conspire with their corporate principal or employer where they act in their official capacities on behalf of the corporation and not as individuals for their individual advantage. [Citations.]" (Wise v. Southern Pacific Co. (1963) 223 Cal. App.2d 50, 72 [35 Cal. Rptr. 652].) "This rule, as was explained in Wise (at pp. 72-73) `derives from the principle that ordinarily corporate agents and employees acting for and on behalf of the corporation cannot be held liable for inducing a breach of the corporation's contract since being in a confidential relationship to the corporation their action in this respect is privileged.'" (Gruenberg, supra, 9 Cal.3d at p. 576.)
(1b) In the present case, the only duty toward plaintiff claimed to have been breached as a result of the defendants' alleged conspiracy is the statutory duty to attempt "in good faith to effectuate prompt, fair, and equitable settlement of claims in which liability has become reasonably clear" (§ 790.03(h)(5)). That duty is imposed by statute solely upon persons engaged in the business of insurance. (§ 790.01.) Because the noninsurer defendants are not subject to that duty and were acting merely as agents of the insurer "and not as individuals for their individual advantage" (Wise, supra, 223 Cal. App.2d at p. 72), "they cannot be held accountable on a theory of conspiracy." (Gruenberg, supra, 9 Cal.3d at p. 576.)
In Wolfrich Corp. v. United Services Automobile Assn., supra, 149 Cal. App.3d 1206, however, a complaint was held to have stated a cause of action against attorneys for conspiring with an insurer, whom they represented, to violate section 790.03(h)(5). The court held that the foregoing holding in Gruenberg did not relieve the attorneys of liability; it reasoned as follows: "The Gruenberg-Wise line of authority provides immunity for attorneys against charges of conspiracy based upon advice rendered to clients *46 accused of breach of contract a situation not present in the instant case. Attorneys may be liable for participation in tortious acts with their clients, and such liability may rest on a conspiracy. [Citations.]" (149 Cal. App.3d at p. 1211.)
That purported distinction misses Gruenberg's point. The attorneys in Gruenberg were relieved from liability for helping their insurer-clients to violate the latter's duty of good faith and fair dealing not because the duty was contractual but because it was a duty peculiar to the insurers, not shared by their attorneys. The duty invoked here (and in Wolfrich) is likewise peculiar to the insured because the duty is created by a statute which imposes it only on persons in the insurance business (§§ 790.01, 790.02, 790.03(h)(5)). (5) (See fn. 4.) Accordingly, Gruenberg precludes holding persons acting solely as the insurer's agents or employees liable for a conspiracy to violate that duty or cause its violation by the insurer.[4]
It remains true, of course, that under other sets of circumstances "[a]ttorneys may be liable for participation in tortious acts with their clients, and such liability may rest on a conspiracy" (Wolfrich, supra, 149 Cal. App.3d at p. 1211; see Civ. Code, § 1714.10 [setting forth procedural prerequisites for suit on such claims]). For example, an attorney who conspires to cause a client to violate a statutory duty peculiar to the client may be acting not only in the performance of a professional duty to serve the client but also in furtherance of the attorney's own financial gain. Thus, in Black v. Sullivan (1975) 48 Cal. App.3d 557 [122 Cal. Rptr. 119], the trustors under a deed of trust sued the trust beneficiaries for failing to provide a statement of balance due, as required by Civil Code section 2943, thereby destroying the trustors' opportunity to complete an escrow contract for a profitable sale of the property. Also joined as defendants were the beneficiaries' attorneys, who had taken assignments of the beneficiaries' *47 interests as security for loans and for past and future attorney's fees. The attorneys therefore had a personal interest, apart from that of their clients, in regaining the property (which had increased in value) by preventing its sale by the plaintiffs. On these facts, it was held that the attorneys were not personally obligated to provide the statement required by Civil Code section 2943, because their assignments were for security only, but that this lack of individual obligation "[did] not prevent their liability for a failure to comply with that section under a theory that they aided, cooperated and assisted in [the beneficiaries'] noncompliance or conspired to interfere with the escrow contract by preventing the closing of the escrow. [Citations]." (48 Cal. App.3d at p. 567.)
(4b) As this holding illustrates, the Gruenberg-Wise rule does not preclude the subjection of agents to conspiracy liability for conduct which the agents carry out "as individuals for their individual advantage" and not solely on behalf of the principal (Wise, supra, 223 Cal. App.2d at p. 72). The limited nature of that rule is also consistent with the two cases cited by the Black court in support of its holding: Rosenthal v. Gould (1969) 273 Cal. App.2d 239, 243-244 [78 Cal. Rptr. 244] and Anderson v. Thacher (1946) 76 Cal. App.2d 50, 72 [172 P.2d 533]. In each of those cases a plaintiff, defrauded by means of one defendant's violation of a fiduciary duty, was allowed to recover against another defendant who, though not subject to the fiduciary duty, had conspired in the fraud. Since the nonfiduciary defendants had acted not simply as agents or employees of the fiduciary defendants but rather in furtherance of their own financial gain, they could not have been relieved from liability under the Gruenberg-Wise rule.
Also to be distinguished from the present case are claims against an attorney for conspiring with his or her client to cause injury by violating the attorney's own duty to the plaintiff. Such a claim was upheld in Barney v. Aetna Casualty & Surety Co. (1986) 185 Cal. App.3d 966 [230 Cal. Rptr. 215]. There, the car driven by the plaintiff insured had collided with another car. The insurer retained attorneys to defend the insured against a municipal court action by the driver of the other car, and the insured, through separate counsel, sued the other driver in superior court. Without notice to the insured, the insurer-retained attorneys settled the other driver's claim and filed a dismissal with prejudice of the municipal court action; the dismissal operated as a retraxit barring the insured's superior court action. The insured's conspiracy cause of action against the insurer and the attorneys who had arranged the settlement was upheld since the settlement clearly violated the attorneys' own fiduciary duty to the insured plaintiff (Ivy v. Pacific Automobile Ins. Co. (1958) 156 Cal. App.2d 652, 663 [320 P.2d 140]).
*48 The same principles apply not only to attorneys but to other persons employed or retained by an insurer to discharge its duties under an insurance policy. Thus, in Younan v. Equifax Inc. (1980) 111 Cal. App.3d 498 [169 Cal. Rptr. 478], the plaintiff alleged a conspiracy among his insurer and two of the insurer's agents to deprive plaintiff of disability insurance benefits by falsely representing that plaintiff would be examined by a medical doctor who would objectively consider plaintiff's claim for benefits when in fact the examination was to be conducted by a psychiatrist who had agreed, by prearrangement with the insurer, to render a false report to provide a plausible excuse for denying the benefits. (Id. at pp. 504-505.) The agents were held subject to liability for conspiracy to commit actual fraud since they had a duty to abstain from injuring the plaintiff through express misrepresentation, independent of the insurer's implied covenant of good faith and fair dealing. (Id. at p. 511.) But they were held not liable for constructive fraud since that charge rested on a fiduciary duty of disclosure which was owed plaintiff only by the insurer itself. (Id. at pp. 516-517; see Gibson v. Government Employees Ins. Co. (1984) 162 Cal. App.3d 441, 449-450 [208 Cal. Rptr. 511] ["any fiduciary duty existing between an insurer and its insured is governed by the terms of the insurance contract in effect between them"].)
Also outside the Gruenberg-Wise rule is the liability of corporate directors and officers who directly order, authorize or participate in the corporation's tortious conduct. Such persons may be held liable, as conspirators or otherwise, for violation of their own duties towards persons injured by the corporate tort. (See Wyatt v. Union Mortgage Co., supra, 24 Cal.3d 773, 785.) The Gruenberg-Wise rule, in contrast, precludes only claims against the principal's subordinate employees and against agents retained by the principal to act as independent contractors (see fn. 4, ante) for conspiring to violate a duty peculiar to the principal.
Finally, we anticipate that the impact of our holding, barring liability of employees or agents for conspiracy to cause their principal to violate a duty that is binding on the principal alone, will be relatively narrow where the violated duty is other than contractual. The duties imposed by section 790.03 are somewhat unusual in that their application is expressly restricted to "persons engaged in the business of insurance" (§ 790.01). The binding effect of many other statutory duties is not subject to such restriction. (See, e.g., Gov. Code, §§ 12940, subd. (f), 12955, subd. (g) [making it unlawful "[f]or any person to aid, abet, incite, compel, or coerce the doing of any of the acts" forbidden by the Fair Employment and Housing Act]; Health & Saf. Code, §§ 25189, 25189.2 [imposing civil penalties on any person who "disposes or causes the disposal of any hazardous or extremely hazardous waste"].)
*49 (1c) Accordingly, we conclude that the second count of the complaint, alleging a conspiracy between the insurer and the attorneys, as well as a conspiracy among the insurer, the attorneys, and Dr. Russell, to deprive plaintiff of the benefits of section 790.03(h)(5), fails to state a cause of action because the attorneys and Russell acted solely as the insurer's agents and did not personally share the statutory duty alleged to have been violated. (Gruenberg v. Aetna Ins. Co., supra, 9 Cal.3d 566, 576; Wise v. Southern Pacific Co., supra, 223 Cal. App.2d 50, 72.) The contrary holding of Wolfrich Corp. v. United Services Automobile Assn., supra, 149 Cal. App.3d 1206, is disapproved.
Let a peremptory writ of mandate issue, directing the respondent superior court to vacate its order overruling petitioners' demurrers to the second cause of action of the complaint, and to enter a new order sustaining the demurrers, consistent with this opinion.
Lucas, C.J., Mosk, J., Broussard, J., Panelli, J., Eagleson, J., and Kennard, J., concurred.
NOTES
[1] All section references are to the Insurance Code unless otherwise indicated. Section 790.03 provides: "The following are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance.... [¶] (h) Knowingly committing or performing with such frequency as to indicate a general business practice any of the following unfair claims settlement practices: ... [¶] (5) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear." Section 790.03 applies only to various kinds of insurers and to "other persons engaged in the business of insurance" (§ 790.01).
[2] The action was commenced in the Riverside County Superior Court but was transferred on motion to the Los Angeles County Superior Court where the demurrers were filed. In addition to overruling the demurrers, the trial court granted motions to strike two paragraphs which we accordingly treat as deleted from the complaint.
[3] Though Dr. Russell did not seek relief in this court, the demurrers of the insurer and the attorneys challenge his alleged status as their coconspirator.
[4] Plaintiff argues that the noninsurer defendants here cannot be deemed agents or employees within the meaning of Gruenberg because the complaint alleges they were independent contractors of the insured. It is settled, however, that an independent contractor may or may not be an agent, and that if a person contracts to act on behalf of another (the principal) and subject to the principal's control except with respect to physical conduct, that person is both an agent and an independent contractor. (City of Los Angeles v. Meyers Bros. Parking System, Inc. (1975) 54 Cal. App.3d 135, 138 [126 Cal. Rptr. 545]; see Rest.2d Agency (1958) §§ 2, subd. (3), 14N.) Conversely, the agent is not an independent contractor if the principal's control is extended to the physical details of the agent's performance, so as to subject the principal to liability for the agent's negligence. (See Rest.2d Agency, supra, §§ 220, com. (e), 250.) The persons held immune from the conspiracy charge in Gruenberg were an insurance adjusting firm, a law firm, and their respective employees. (9 Cal.3d at p. 576.) The two firms were "engaged" or "retained" by the defendant insurer (id., at p. 570). From these facts and the absence of any contrary indication, it can be fairly inferred that the insurer did not control the details of the firms' manner of performance and that they therefore were independent contractors, as well as agents, of the insurer.
|
774 F.2d 1104
7 ITRD 1405, 227 U.S.P.Q. 428, 4 Fed.Cir. (T) 8
MASSACHUSETTS INSTITUTE OF TECHNOLOGY, Petitioner,v.AB FORTIA, Pharmacia AB, Pharmacia Fine Chemicals AB,Pharmacia, Inc. and U.S. International TradeCommission, Respondents.
Appeal No. 84-1766.
United States Court of Appeals,Federal Circuit.
Oct. 7, 1985.
David E. Brook, Hamilton, Brook, Smith & Reynolds, of Lexington, Md., and Harvey Kaye, Lalos, Leeds, Keegan, Lett, Marsh, Bentzen & Kaye, Washington, D.C., argued for petitioner. With them on brief were James M. Smith and Leo R. Reynolds, of Hamilton, Brook, Smith & Reynolds, Lexington, Md., and David S. Klontz, of Lalos, Leeds, Keegan, Lett, Marsh, Bentzen & Kaye, Washington, D.C.
Maurice B. Stiefel, Stiefel, Gross, Kurland & Pavane, P.C., New York City, argued for respondent AB. With him on brief were Marc S. Gross, Thomas C. Pontani and James A. Quinton, New York City.
Wayne W. Herrington, Office of Gen. Counsel, U.S. Intern. Trade Com'n, Washington, D.C., argued for respondent Intern. Trade Com'n. With him on brief were Lyn M. Schlitt, Gen. Counsel and Michael P. Mabile, Asst. Gen. Counsel, Washington, D.C.
Before MARKEY, Chief Judge, and FRIEDMAN, and RICH, Circuit Judges.
RICH, Circuit Judge.
1
This appeal is from the final decision of the United States International Trade Commission (Commission or ITC) in Certain Limited-Charge Cell Culture Microcarriers, Investigation No. 337-TA-129, an investigation under section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. Sec. 1337 (section 337), determining that there was no violation of section 337 by the importation of certain biological cell culture products by respondents AB Fortia, Pharmacia AB, et al. We affirm.
Background
2
Cell culture technology is concerned with the development of the most efficient and safe or hygienic means of growing different types of cells, which are important for the production of cell growth by-products, including viral agents for vaccines, interferon, and hormones. Mammalian cells in particular are used to synthesize many valuable proteins. In many cases, the best or only source of these proteins is culturing the mammalian cells known to produce them. Interferon, for example, is a glyco-protein product of certain mammalian cells such as fibroblasts (connective tissue) or lymphocytes (white blood cells).
3
Culturing mammalian cells on a large scale requires strict nutritional and environmental controls. Among these environmental requirements is the need for a solid surface or substrate on which the cells can grow. The majority of mammalian cells are thus said to be "anchorage-dependent." One technique for culturing anchorage-dependent cells on a large scale involves the use of cell culture "microcarriers," which are microscopic beads suitable for cell attachment and growth.
4
The earliest microcarrier culture system was developed in the Netherlands by Dr. Anton L. van Wezel, conceded to be the "father" of microcarriers, and was reported in the journal Nature in 1967. In this research, Dr. van Wezel employed commercially available anion exchange resin beads, specifically respondent Pharmacia's DEAE-Sephadex A-50 (A-50) beads, which he called "microcarriers." As a result of the positively charged amino (diethylaminoethyl, or DEAE) groups attached to the beads, these A-50 beads have a positive ionic charge on their surfaces. The amount of positive charge is known as the "total charge capacity." Mammalian cells, which are negatively charged, attach and grow on the A-50 beads because of the positive charge groups.
5
When Dr. van Wezel attempted to increase the concentration of A-50 beads in his cell cultures, he encountered problems that he characterized as the "toxicity phenomenon," and reported these in a 1969 article in the journal Biotechnology and Bioengineering. Although van Wezel experimented with beads having a lower total charge capacity than the A-50 beads in an attempt to overcome the toxicity phenomenon, he reported in a 1973 article that the toxicity problem could best be overcome by coating the beads with a negatively charged polyanion, nitrocellulose.
The MIT Patents
6
Research at Massachusetts Institute of Technology (MIT) in the microcarrier field was initiated as a result of a National Science Foundation grant in 1974. In September, 1975, David Levine of the MIT research team delivered an oral presentation in Birmingham, Alabama, printed copies of which were distributed to a number of scientists (the "Birmingham paper"), which indicated that optimal cell adhesion and growth could be obtained by reducing the total charge capacity of microcarriers such as the A-50 beads.
7
In December, 1975, the MIT group observed that significantly improved cell growth was occurring on synthesized microcarriers that had total charge capacities1 considerably lower than the A-50 beads. Further experiments by the MIT group indicated that the appropriate charge capacity range was 0.1 to 4.5 microcarrier charge milliequivalents (meq) per gram. Microcarriers having charge capacities within this limited range were termed "limited-charge cell culture microcarriers."
8
The MIT group filed a patent application covering the development of limited-charge cell culture microcarriers on November 11, 1976, and on October 19, 1977, filed a continuation in-part (C-I-P) application that included experimental results obtained subsequent to the filing of the parent application. The claims in the C-I-P application pertained to the use of limited-charge (0.1 to 4.5 meq/gram, measured on the MIT basis) cell culture microcarriers to grow anchorage-dependent cells and to produce cell-growth by-products. The C-I-P application issued as U.S. Patent No. 4,189,534 ('534 patent) on February 19, 1980. The parent application was restricted to claims directed to the microcarriers per se, and a divisional application with those claims issued as U.S. Patent No. 4,293,654 ('654 patent) on October 6, 1981.
9
To commercially develop its microcarrier technology, MIT licensed Flow General, Inc., under the '534 and '654 patents. Flow General and its subsidiary Flow Laboratories (collectively, "Flow") are located in McLean, Virginia, and manufacture and sell products for cell culturing, including media and sera required for cell growth. The microcarriers involved in the process at issue here were actually manufactured in Scotland. Flow Laboratories, Ltd., Flow's subsidiary in Scotland, purchased the commercially available uncharged Sephadex G-50 beads from Pharmacia, to which the positively charged DEAE groups were attached. The microcarriers were bottled in Scotland, then shipped to the United States for final quality control testing.
10
MIT later agreed to a modification of its original agreement with Flow, effective January 1, 1981, that appointed Flow as the exclusive licensing agent for MIT in regard to limited-charge cell culture microcarrier technology, in return for which Flow guaranteed minimum annual royalties to MIT of $400,000.
The Section 337 Investigation
11
The ITC investigation under review here was initiated on July 19, 1982, based on a complaint filed under section 337 by MIT and Flow. Pharmacia AB (formerly known as AB Fortia), Pharmacia Fine Chemicals AB, all of Upsala, Sweden, and Pharmacia, Inc., of Piscataway, New Jersey (collectively, "Pharmacia"), were named as respondents.
12
Pharmacia imports three microcarrier products into the United States. Their "Cytodex" microcarriers admittedly have a total charge capacity of 0.1 to 1.5 meq/gram, measured on the conventional basis. MIT's complaint alleged that Pharmacia's microcarriers infringed MIT's '534 and '654 patents and that their importation from Sweden constituted unauthorized manufacture abroad. As a result of MIT's complaint, the Commission initiated this investigation, made its final determination on November 18, 1983, and issued a written opinion on November 22, 1983.
The Commission Decision
13
The Commission determined there was no violation of section 337 because the '534 and '654 patents were invalid and because, to the extent there was "an industry ... in the United States" within the meaning of section 337, the importation and sale of Pharmacia's Cytodex microcarriers did not substantially injure that industry.
14
Based upon an examination of the scope and content of the prior art and the patent claims, the Commission concluded that the inventions claimed in the '534 and '654 patents would have been obvious. The Commission noted that the prior art A-50 ion exchange beads were "well-known to be useful as cell culture microcarriers," and that the only difference between the A-50 beads and the claimed microcarriers "is the lower charge capacity of the latter." The "toxicity phenomenon" noted by van Wezel with respect to high concentrations of A-50 beads was known to have been overcome by pretreatment with serum or a polyanion, such as nitrocellulose. The Birmingham paper expressly stated that to reduce the total charge capacity of the A-50 beads would have the same effect as the pretreatment. Finally, the Commission noted that the prior art clearly showed how to achieve this reduced charge capacity, and also indicated that anion exchange beads with such a reduced charge capacity were already commercially available. On this basis, the Commission concluded that the claimed inventions would have been obvious.
15
The Commission also found that there were two separate industries under the two MIT patents because microcarriers (covered by the '654 patent) and cell growth by-products (covered by the '534 patent) were distinct commercial products. Specifically, the Commission found that operations under the '654 patent were not "an industry ... in the United States" because all of Flow's microcarriers were manufactured in Scotland and the nature and significance of Flow's activities in the United States with respect to them did not justify treatment as "an industry in the United States." The second industry, defined in terms of operations under the '534 patent (covering the process of using the '654 microcarriers to grow mammalian cells and recover cell growth by-products), was found to be "an industry" within the meaning of section 337, because Flow manufactured the cell growth by-product interferon in the United States using the '534 patent. However, because Pharmacia did not import cell growth by-products made by the '534 process, the Commission found there could be no injury to the industry.OPINION
Section 337
16
Section 337 of the Tariff Act of 1930, 19 U.S.C. Sec. 1337, provides in relevant part:
17
(a) Unfair methods of competition and unfair acts in the importation of articles into the United States, or in their sale by the owner, importer, consignee, or agent of either, the effect of which is to destroy or substantially injure an industry, efficiently and economically operated in the United States, or to prevent the establishment of such an industry ... are declared unlawful....
18
Patent infringement and unauthorized importation of a product manufactured abroad by means of a process covered by the claims of an unexpired, valid United States patent are unfair acts or methods of competition under section 337. Defenses to a charge of unfair competition under section 337 thus include both non-infringement and invalidity of the patent(s) at issue, as well as proof that the acts involved do not "substantially injure an industry ... in the United States." See 19 U.S.C. Sec. 1337(a).
Patent Invalidity
19
The Commission's determination that the patents involved in this investigation are invalid was based on a legal conclusion that the inventions claimed in both the '534 and '654 patents were "obvious." 35 U.S.C. Sec. 103 states that "[a] patent may not be obtained ... if the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art...." Here, the Commission correctly stated that under Graham v. John Deere, 383 U.S. 1, 17, 86 S.Ct. 684, 693, 15 L.Ed.2d 545 (1966), obviousness is determined by examining the scope and content of the prior art and ascertaining the differences between the prior art and the claims at issue. In the proceedings before the Commission as well as before this court, MIT premised its assertions of nonobviousness largely on claim 1 of the '654 patent, permitting the validity of the '534 patent to stand or fall with the '654 patent.
Claim 1 of the '654 patent reads:
20
Cell culture microcarriers having a degree of substitution thereon with positively-charged chemical moieties sufficient to provide a charge capacity of from about 0.1 to about 4.5 meq/gram of dry, untreated microcarriers.
21
In examining the scope of the prior art, the Commission identified several references as "most pertinent" in concluding that the claimed inventions were obvious. The Commission first noted that the claimed microcarriers were essentially identical to the prior art DEAE-Sephadex A-50 ion exchange beads, which were well-known to be useful as cell culture microcarriers. The only difference between the prior art A-50 beads and the claimed microcarriers is the lower charge capacity of the latter.
22
The Commission then examined the work of Dr. van Wezel, noting that the "toxicity phenomenon" he disclosed in 1969 was known to have been overcome by pretreating or coating the A-50 beads with serum or a negatively-charged polyanion, such as nitrocellulose or carboxymethylcellulose. This coating procedure was described in detail in a 1973 article by van Wezel.
23
The Commission also considered the Birmingham paper as prior art. The Birmingham paper teaches that a reduction in the total charge capacity, specifically that reducing the total charge capacity of the A-50 beads, "would have the same effect" as the pretreatments described by Dr. van Wezel and others.
24
The Birmingham paper was orally presented by Dr. Levine of the MIT group to the First International Cell Culture Congress in Birmingham, Alabama, September 21-25, 1975. The conference was attended by 50 to 500 cell culturists. Prior to the conference Dr. Levine gave a copy of the paper to the head of the conference. Afterward, copies were distributed on request, without any restrictions, to as many as six persons, more than one year before the filing date of the '534 and '654 patents.
25
MIT argues that the Birmingham paper is not prior art because it is not a "printed publication" within the meaning of 35 U.S.C. Sec. 102(b). The Commission, however, concluded that it was a "printed publication," relying on two cases decided by each of our predecessor courts, Garrett Corp. v. United States, 422 F.2d 874, 190 Cl.Ct. 858, 164 USPQ 521 (Ct.Cl.1970), and In re Wyer, 655 F.2d 221, 210 USPQ 790 (CCPA 1981).
26
In Garrett, the reference involved was a report of a British government agency. As in this case, there was no question that the reference was "printed," only whether it was a "publication." Copies of the reference in question were distributed without restriction to various British and American government agencies, as well as to six commercial companies. The Court of Claims held that "[w]hile distribution to government agencies alone may not constitute publication, distribution to commercial companies without restriction on use clearly does." 422 F.2d at 878, 190 Cl.Ct. at 865, 164 USPQ at 524.
27
In Wyer, appellant's application for an Australian patent resulted in copies of that application being classified and laid open to public inspection at the Australian Patent Office and its five "sub-offices" over one year before appellant filed his application in the United States. The Court of Customs and Patent Appeals held that what occurred in the Australian Patent Office resulted in the production of a "printed publication" within the meaning of Sec. 102(b), basing its conclusion on the principle that a document may be deemed a printed publication
28
upon a satisfactory showing that it has been disseminated or otherwise made available to the extent that persons interested and of ordinary skill in the subject matter or art, exercising reasonable diligence can locate it and recognize and comprehend therefrom the essentials of the claimed invention without need of further research or experimentation.
29
655 F.2d at 226, 210 USPQ at 794.
30
We agree with the ITC's conclusion that the Birmingham paper is prior art. As the Commission noted, between 50 and 500 persons interested and of ordinary skill in the subject matter were actually told of the existence of the paper and informed of its contents by the oral presentation, and the document itself was actually disseminated without restriction to at least six persons.
31
In addition to the work of Dr. van Wezel and the Birmingham paper, the Commission also considered another patent, issued on July 19, 1977, to three members of the MIT group, entitled "Treatment of Cell Culture Microcarriers," U.S. Patent No. 4,036,093 ('093 patent). The patent discloses a method of treating positively charged microcarriers, in particular the prior art A-50 beads, by coating them with negatively-charged anions, thereby "overcoming deleterious effects which prevent good cell growth." The '093 patent thus teaches that treating the A-50 beads results in better cell growth than using untreated A-50 beads. By implication, the '093 patent thus necessarily teaches that lower actual charge capacity A-50 beads will result in better cell growth.
32
Finally, the Commission looked at Canadian Patent No. 651,507, issued October 30, 1962, to respondent Pharmacia, and at two commercially available prior art products, Whatman DE-52 and Servacel DEAE-32 ion exchange beads, to show that the process of producing ion exchange beads having a total charge capacity in MIT's claimed range was known at the time MIT's claimed inventions were made. These beads are identical in all essential respects to the claimed invention except that there is no evidence that anyone attempted to grow cells on them prior to the date of the MIT patents.
33
We agree with the Commission's determinations that the '534 and '654 patents are invalid for obviousness.
34
Our conclusion of patent invalidity is dispositive of all other issues in this case. We therefore do not reach the other portions of the Commission decision appealed from, namely, whether Pharmacia's Cytodex microcarriers infringe the '654 patent and whether there was substantial injury to "an industry ... in the United States."
CONCLUSION
35
The Commission's determination that there was no violation of section 337 is affirmed.
36
AFFIRMED.
1
The term "charge capacity" is borrowed from ion exchange bead technology. The capacity of an ion exchanger is a quantitative measure of its ability to take up (bind with) exchangeable counter ions and is determined by (1) the total number of charged groups attached to the bead and (2) the accessibility of the charged groups to the counter ions. Capacity may be expressed as "total capacity" or "available capacity." The "total capacity" is the amount of charged or potentially charged groups per gram throughout the matrix of dry ion exchange beads, regardless of whether they are actually available for binding. The "available capacity" is the actual charge capacity obtainable under specified experimental conditions; it is a measure of the number of charged groups actually available for taking up counter ions. The "available capacity" is thus actually less than the theoretical "total capacity."
The MIT group expresses "charge capacity" in the claims of its patents in terms of milliequivalents (meq) per gram of dry, untreated microcarriers (the "MIT basis"). This method of expressing charge capacity is unique to MIT's patents. The conventional method of expressing the charge capacity of ion exchange beads is in terms of meq per gram of polymer beads after treatment (the "conventional basis"). Both methods of measuring refer to "total capacity." The difference is that in the context of the MIT patents, the "untreated" microcarrier is the entire microcarrier minus the charge-supplying groups, while the conventional basis of measuring includes the weight of the charge-supplying moieties in its denominator. The conventional basis of measuring charge capacity thus results in a slightly lower value than the MIT basis.
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953 N.E.2d 1279 (2011)
LYNN
v.
GREER.
No. 45A05-1102-PL-83.
Court of Appeals of Indiana.
September 15, 2011.
SULLIVAN, Sr.J.
Disposition of Case by Unpublished Memorandum Decision Affirmed.
NAJAM, J., concurs.
RILEY, J., concurs.
|
131 Ill. App.3d 351 (1985)
475 N.E.2d 1077
In re MARRIAGE OF BERTRAM R. SCHWARTZ, Petitioner-Appellee, and JEANNE W. SCHWARTZ, Respondent-Appellant.
No. 84-2142.
Illinois Appellate Court First District (5th Division).
Opinion filed March 8, 1985.
*352 George B. Collins and Christopher Bargione, both of Collins, Amos & Uscian, of Chicago, for appellant.
Arthur M. Solomon, of Solomon & Behrendt, of Chicago (Herbert A. Glieberman, of counsel), for appellee.
Order reversed.
JUSTICE LORENZ delivered the opinion of the court:
This is an interlocutory appeal by respondent, Jeanne W. Schwartz, from an order granting a preliminary injunction restraining her from interfering with petitioner, Bertram Schwartz' use, occupancy and enjoyment of a condominium in the State of Florida. Respondent contends that (1) the trial court's granting of the preliminary injunction was improper, and (2) the petitioner's conduct barred him from seeking injunctive relief.
We reverse.
Pertinent to our disposition are the following.
The parties were married on December 17, 1949. In June of 1984, Bertram Schwartz, a builder/developer doing business in Illinois and Florida, filed a petition for dissolution of his 34-year marriage to his wife, Jeanne. In his petition for dissolution, he alleged that respondent had been guilty of mental cruelty towards him; that most of the property acquired by the parties during their marriage had been accumulated through his actual financial contributions; and that this acquired property had been put into respondent's name solely for business purposes. On the same day, the court issued a temporary restraining order against respondent which enjoined her from the withdrawal, transfer, destruction, etc., of any or all of the parties' property. The trial court later extended this order so that it applied mutually to both parties.
In her answer to the petition, respondent denied committing any wrongful acts, and she alleged that petitioner had given her many gifts of property over the term of the marriage gifts which she alleged were now in her name and not marital property. An agreed order restraining and enjoining both parties from interfering with each other or disposing, damaging, etc., any mutual property was entered on July 26, 1984.
In August of 1984, petitioner filed an emergency petition for injunctive relief against respondent. In his petition, he alleged that respondent was prohibiting his use of the parties' condominium located *353 in Boca Raton, Florida; that although the title to this condominium was in her name alone, it was marital property; and that he needed to reside in the condominium while in Florida on business. His petition further alleged that although respondent had not used the Florida premises for the past 18 months, petitioner himself had consistently used the condominium up until 1 1/2 weeks prior to his filing of this petition, when he received notice from the building's management personnel that he would be denied access to the premises upon order of respondent. Finally, petitioner alleged that his use of the condominium would result in no prejudice to respondent because of the restraining order still in effect, and he prayed that the court enjoin respondent from prohibiting his use and access to the condominium.
After hearing the parties' testimony regarding the origins of ownership of the condominium, the trial court granted petitioner's request for relief on the basis that the Florida property was likely to be found marital property, and ordered that respondent should be restrained from interfering in any way with the "petitioner's use, occupancy and enjoyment of the parties' condominium in the state of Florida during the pendency of the above cause of action."
Respondent appeals from this order.
OPINION
1 Respondent initially contends that the trial court abused its discretion in granting the petition for injunctive relief because petitioner failed to prove that respondent had interfered with petitioner's access, use and enjoyment of the condominium. Conversely, petitioner argues that his verified petition, together with his testimony at the hearing on the petition, provided sufficient evidence for the trial court to have properly inferred that respondent's actions interfered with his rights to enter and use the Florida premises. At oral argument, counsel for respondent admitted that the condominium management had acted pursuant to respondent's directive, therefore the argument on these facts has been resolved. However, we believe that these admitted facts fail to justify the injunction in issue.
An injunction is an equitable remedy to be used sparingly, with judicial restraint and due continence, and only in a clear and plain case. (O'Brien, Chancery Practice: Injunctions and Emergency Relief, 54 Chi. B. Rec. 21 (1972).) An institutional reluctance to undertake the supervision of specific relief, a social bias against interference with private ordering and a fear of encouraging unscrupulous litigants to institute unfounded actions are all constants that militate against preliminary injunctive relief. (Note, Developments in the Law; Injunctions, *354 78 Harv. L. Rev. 993, 1056 (1965).) It is not the purpose of the preliminary injunction to determine controverted rights or decide the merits of the case. (Baal v. McDonald's Corp. (1981), 97 Ill. App.3d 495, 500, 422 N.E.2d 1166.) A preliminary injunction is merely provisional in nature, its office being merely to preserve the status quo until a final hearing on the merits. Spunar v. Clark Oil & Refining Corp. (1977), 53 Ill. App.3d 477, 481, 368 N.E.2d 990.
To warrant the issuance of a preliminary injunction, "a party must clearly show a need to preserve the status quo in that he will be susceptible to irreparable damage if the injunction does not issue." (Baal v. McDonald's Corp. (1981), 97 Ill. App.3d 495, 501, 422 N.E.2d 1166.) "The status quo to be preserved by a preliminary injunction is the last actual, peaceable, uncontested status which preceded the pending controversy." (Edgewater Construction Co. v. Percy Wilson Mortgage & Finance Corp. (1976), 44 Ill. App.3d 220, 228, 357 N.E.2d 1307.) A preliminary injunction, therefore, is not proper where it tends to change the status quo of the parties rather than preserve it. Rock Island Bank v. Paul (1977), 48 Ill. App.3d 874, 879, 362 N.E.2d 815.
In order for a preliminary injunction to issue, the party seeking the injunction must carry the burden of persuasion on four issues: (1) that he possesses a clearly ascertained right which needs protection; (2) that he will suffer irreparable harm without the injunction; (3) that there is no adequate remedy at law for his injury; and (4) that he is likely to be successful on the merits of his action. (Lawter International, Inc. v. Carroll (1983), 116 Ill. App.3d 717, 729, 451 N.E. 2d 1338.) In addition, the trial court must balance the equities or relative inconvenience to the parties and determine thereby whether a greater burden will be imposed on the defendant by granting the injunction than on the plaintiff by denying it. (ABC Trans National Transport, Inc. v. Aeronautics Forwarders, Inc. (1978), 62 Ill. App.3d 671, 379 N.E.2d 1228.) The sole question on review is whether the trial court abused its discretion in granting or denying the injunction. Sports Unlimited, Inc. v. Scotch & Sirloin of Woodfield, Inc. (1978), 58 Ill. App.3d 579, 584, 374 N.E. 2d 916.
In the case at bar, the trial court based its findings on the likelihood of the success of petitioner's argument that he had the right to enter and use the Florida condominium because it would eventually be found to be "marital property." After careful review of the record in this case, we believe that the trial court was premature in its determination that petitioner had a right to enter the condominium and that the injunction should therefore issue.
*355 A court looking forward to the likelihood of success that property would eventually be found to be "marital property" misconceives the difference between the nature of dissolution of marriage proceedings and "marital property." The nature of dissolution proceedings is to determine the status of the parties and to terminate the legal relationship between husband and wife by an act of law. "The term `marital property' is a nomenclature devised to realize an equitable distribution of property upon termination of the marriage." (Emphasis added.) (Kujawinski v. Kujawinski (1978), 71 Ill.2d 563, 573, 376 N.E. 2d 1382.) Section 503 of the Illinois Marriage and Dissolution of Marriage Act (Ill. Rev. Stat. 1983, ch. 40, par. 503) directs the court to divide the couple's property into marital and nonmarital portions and to assign each spouse his or her nonmarital share. However, under the Act, operation of the term "marital property" does not trigger until the time of dissolution. (Kujawinski v. Kujawinski (1978), 71 Ill.2d 563, 376 N.E. 2d 1382.) It is only property owned at the time of the judgment of dissolution that the court may classify as "marital property," and property owned separately by the spouse before dissolution may be disposed of as he/she deems fit, absent any contrary order of the court. (In re Marriage of Olson (1983), 96 Ill.2d 432, 441, 451 N.E.2d 825.) The court has power to adjust and determine the rights of one party in the property of the other only where a divorce has been granted. In re Marriage of Pahlke (1983), 120 Ill. App.3d 1009, 1014, 458 N.E.2d 1141.
In the present case, we believe that the trial court failed to do justice to the parties in its focus on the issue of the likelihood of success as to the "marital property." Rather, the trial court should have focused on the preservation of the status quo among the parties so as to determine whether it was proper to grant petitioner's petition for injunctive relief. The last actual, peaceable, uncontested status in existence here was one where respondent had title to the condominium which she permitted petitioner to use. The trial court's order altered that status quo by taking away her right to exclude whomever she wished from possession of her property.
2 Although we can envision cases whereby the preservation of the status quo of the parties would require the issuance of an injunction of this nature, we believe that the trial court's improper focus on the likelihood of success in a "no win" situation, such as the dissolution proceeding we are presented with here, instead of a focus on the preservation of the status quo of the parties, was an abuse of its discretion.
Because of our determination that the trial court abused its discretion *356 in granting injunctive relief where that relief did not preserve the status quo of the parties, we need not reach respondent's argument that petitioner's "unclean hands" barred him from seeking injunctive relief.
For the foregoing reasons, we reverse the order of the trial court granting injunctive relief.
Reversed.
SULLIVAN and PINCHAM, JJ., concur.
|
910 N.E.2d 118 (2009)
The PEOPLE of the State of Illinois, Plaintiff-Appellant,
v.
Donnie CREAL, Defendant-Appellee.
No. 3-08-0606.
Appellate Court of Illinois, Third District.
May 19, 2009.
*120 Terry A. Mertel, Deputy Director State's Attorneys Appellate Prosecutor, Ottawa, IL, James Glasgow, State's Atty., Domenica A. Osterberger, Assistant State's Atty., Joliet, IL, for Appellant.
Charles E. Thomas, Joliet, IL, for Appellee.
Justice CARTER delivered the opinion of the court:
The defendant, Donnie Creal, was arrested for unlawful possession of a controlled substance with intent to deliver (720 ILCS 570/401(a)(2)(C) (West 2006)) and unlawful possession of cannabis with intent to deliver (720 ILCS 550/5(e) (West 2006)). Prior to trial, he filed a motion pursuant to Franks v. Delaware, 438 U.S. 154, 98 S.Ct. 2674, 57 L.Ed.2d 667 (1978), challenging the veracity of confidential informant Pat Doe and a motion seeking discovery of the date and time that Doe claimed to be present at the defendant's residence. The court ordered the State to disclose the date and a three-hour time frame in which Doe was present at the residence. The State refused to comply with the order, and the court dismissed the charges against the defendant. The State appeals, claiming that the court erred by ordering the disclosure. We reverse and remand for further proceedings.
FACTS
On February 20, 2008, Officer Mark Lauer of the Joliet police department appeared before a circuit court judge and presented a complaint for a search warrant. In that complaint, Lauer stated that, within seven days prior to signing the complaint, he had spoken to a confidential informant, Pat Doe. Doe informed Lauer that within the past seven days he or she had been inside the residence of 707 Nicholson Street in Joliet, which Doe described as a brown and brick, single-story, single-family residence. Doe also informed Lauer that he or she knew the defendant by name and physical description. Doe described the defendant and identified him from a photograph.
While at this residence, Doe saw cocaine packaged in a clear plastic bag. The defendant told Doe that the cocaine belonged to the defendant and that he was selling cocaine. Doe also informed Lauer that he or she had seen the defendant sell cocaine for money in the past. Lauer also stated that he viewed the residence at 707 Nicholson Street in Joliet and observed that it was a brown and brick, single-story, single-family residence. From police records, Lauer verified that the defendant lived at that residence.
The complaint also stated that Lauer and Doe appeared before a judge and swore under oath that all statements in the complaint are true. The complaint was signed by Lauer before a circuit judge. Pat Doe also signed an affidavit before the judge. In this affidavit, Doe stated that he *121 or she wishes to conceal his or her identity because of fear of reprisal from the defendant. Doe also stated that the representations in Lauer's warrant complaint were true. Finally, the affidavit provided that Doe appeared personally before the judge and identified himself or herself. The judge granted the search warrant.
The search warrant was executed on February 21, 2008. Numerous articles were seized, including cocaine and cannabis. Subsequently, the defendant was charged with unlawful possession of a controlled substance with intent to deliver and unlawful possession of cannabis with intent to deliver.
The defendant moved for a hearing pursuant to Franks, 438 U.S. 154, 98 S.Ct. 2674, 57 L.Ed.2d 667, to quash the search warrant and suppress the evidence seized during the execution of the warrant. In that motion, the defendant claimed that there was not anyone at his home, other than the inhabitants, during the seven days preceding February 21, 2008, and that he did not show anyone cocaine during that time. Based upon these assertions, the defendant alleged that Lauer made false statements either knowingly or in reckless disregard for the truth in the search warrant complaint.
Supporting this motion, the defendant provided three affidavits. In his own affidavit the defendant stated that he lived at 707 Nicholson Street in Joliet with his girlfriend, Quiana Cochran; her four minor children; and Anton Moore. On February 13, 2008, Cochran telephoned the defendant to inform him that she had read a newspaper article regarding the arrest of numerous members of a local narcotics distribution network the previous day. The defendant stated that he recognized the names of several of those who had been arrested. The defendant suspected that some of the arrestees would choose to cooperate with law enforcement, and he was concerned that one of them would provide the defendant's name to law enforcement officials. Thus, the defendant decided on February 13, 2008, to prevent anyone other than the previously named inhabitants from entering his residence. The defendant did not allow any other adult into the home from February 12, 2008, through February 21, 2008, nor did he show anyone cocaine or any other illegal substance at his home during that period.
In addition, the defendant provided his weekday schedule during February 2008. He awoke at 10 a.m. and then played video games and watched television until approximately 1:50 p.m. From 1:50 p.m. until 3:30 p.m., he picked up the children from school and helped them with their homework. At 3:30 p.m. to 4 p.m., he fed the children a snack. After that, he and the children performed household chores until 5 p.m. From 5 p.m. to 6 p.m., he made arrangements for dinner.
On February 14, 2008, the defendant and Cochran went to a concert together in Chicago and returned after midnight. On February 17, 2008, the defendant, Cochran and the children went to a family birthday party from 4:30 p.m. until 9 p.m. On Sunday, February 18, 2008, the defendant spent the day at home with Cochran and the children.
Quiana Cochran stated in her affidavit that she and her children lived at the residence with the defendant and Anton Moore. During February 2008, Cochran was employed as an insurance salesperson. Cochran had a fax machine, computer and printer at the residence to use while working out of her home. She worked from home from February 12, 2008, through February 21, 2008. Cochran also stated that her cell phone records show that she made or received dozens of phone calls *122 each day during that period, beginning in the morning and ending late in the evening. Cochran stated that she would not have made the personal calls on her cell phone if she had been at her office in Orland Park. She also stated that many of these calls were the use of the phone as an intercom to call the defendant within the residence.
On February 13, 2008, at approximately 10:24 a.m., Cochran telephoned the defendant from a gas station. She told him that she had read a newspaper article regarding the arrest of local drug dealers. She recognized several names as former friends of the defendant. The defendant informed her that he was forbidding any visitors to their home. From February 13, 2008, through February 20, 2008, Cochran did not see or hear anyone in the residence other than its inhabitants. Finally, Cochran stated that she was not the confidential informant.
Anton Moore stated that from February 12, 2008, through February 21, 2008, he lived at the defendant's residence, and he was unemployed. During this period, he spent most of his time at the residence. He seldom left the home, and if he did, it was for a short time. Moore did not see or hear anyone in the residence during this time period, except for the regular inhabitants. Moore also stated that he was not the confidential informant.
The State filed a response to the defendant's motion, arguing that the defendant had failed to make a substantial showing that Lauer knowingly or recklessly included a false statement in his warrant affidavit. The State maintained that the defendant was not entitled to a hearing under Franks. The defendant then filed a motion entitled "Bill of Particulars," which the parties later agreed was a motion for discovery. The defendant requested that the State provide him with the date and time the informant asserts he or she was at the defendant's residence. The defendant requested this information to "further verify" his assertion that no one other than the residents were inside his home during the relevant seven-day period. On June 24, 2008, the defendant filed an amended motion for a Franks hearing, adding a claim that Pat Doe knew the information that he or she provided to Lauer was false when Doe provided the affidavit swearing that the information was true.
The court held a hearing on the defendant's request for discovery on June 20, 2008. The court heard argument from both parties and took the matter under advisement. On June 25, 2008, the court granted the defendant's discovery request and ordered the State to provide the defendant with the date and three-hour time span when Pat Doe claimed to have been inside the defendant's residence.
The State subsequently filed a motion to reconsider, arguing that the ordered discovery was irrelevant to the defendant's challenge to the search warrant under Franks. The court denied the motion to reconsider.
On July 22, 2008, the parties appeared before the court for a status hearing on the discovery order. At that hearing, the State informed the court that it believed that turning over the information would probably lead to the identification of the informant and that it was not going to comply with the order. The court then instructed defense counsel to prepare a rule to show cause to hold the assistant State's Attorney in contempt for failing to comply with the discovery order. In addition, the defendant filed a motion to dismiss based on the State's refusal to comply with the discovery order.
The court held a hearing on the petition for a rule to show cause on July 25, 2008. *123 The State reiterated its position that it would not provide the time frame in which Pat Doe claimed to have been in the defendant's residence. The parties also informed the court that the defendant had filed a motion to dismiss approximately two days before the hearing. The court scheduled a hearing on the motion to dismiss. At that hearing, the court reviewed case law and concluded that it was proper to dismiss the charges against the defendant. The State appealed.
ANALYSIS
On appeal, the State claims that the trial court erred by awarding to the defendant discovery of the date and three-hour time frame in which Pat Doe was present in the defendant's home. The State argues that Franks does not apply to the facts of this case because the defendant is attacking only Doe's veracity, not that of Lauer, and Doe appeared before the judge who granted the search warrant and swore to the truth of the statements contained in the warrant complaint. In addition, the State contends that the defendant has failed to make a sufficient showing that the affidavits contained a falsehood, as required to support his discovery request. The State also maintains that the ordered disclosure of the three-hour time period in this case would be akin to disclosing the informant's identity, to which the defendant is not entitled. Finally, the State argues that an in camera review of the ordered disclosure would have been meaningless.
The defendant argues that he made a sufficient showing that Doe lied and that he was entitled to the ordered discovery. In addition, the defendant contends that he may challenge Doe's veracity because Doe also supplied an affidavit supporting the warrant complaint, and that the warrant should be quashed due to Doe's false statements. Further, the defendant maintains that the court could have considered in camera the information that it ordered disclosed.
A trial court's discovery order is reviewed for an abuse of discretion. Wisniewski v. Kownacki, 221 Ill.2d 453, 457, 303 Ill.Dec. 818, 851 N.E.2d 1243, 1245-46 (2006); People v. O'Toole, 164 Ill.App.3d 23, 28, 115 Ill.Dec. 131, 517 N.E.2d 333, 335 (1987). A defendant is not entitled to discovery related to a search warrant affidavit simply because it appears relevant. People v. Torres, 200 Ill.App.3d 253, 261, 146 Ill.Dec. 682, 558 N.E.2d 645, 650-51 (1990). When requesting discovery related to a search warrant affidavit, a defendant "must offer some showing that there is reason to believe the affiant made a deliberate or reckless falsehood." Torres, 200 Ill.App.3d at 261, 146 Ill.Dec. 682, 558 N.E.2d at 651.
The defendant in this case sought the ordered discovery in order to advance his attack on the search warrant pursuant to Franks v. Delaware, 438 U.S. 154, 98 S.Ct. 2674, 57 L.Ed.2d 667. In Franks, the United States Supreme Court considered whether a defendant could challenge the truthfulness of statements made in an affidavit supporting a search warrant. Franks, 438 U.S. at 155, 98 S.Ct. at 2676, 57 L.Ed.2d at 672. The Court concluded that such challenges were permissible in certain, limited circumstances. Franks, 438 U.S. at 171-72, 98 S.Ct. at 2684-85, 57 L.Ed.2d at 682. The Court held:
"[W]here the defendant makes a substantial preliminary showing that a false statement knowingly and intentionally, or with reckless disregard for the truth, was included by the affiant in the warrant affidavit, and if the allegedly false statement is necessary to the finding of probable cause, the Fourth Amendment requires that a hearing be held at the defendant's request." Franks, 438 U.S. *124 at 155-56, 98 S.Ct. at 2676, 57 L.Ed.2d at 672.
If the defendant establishes perjury or reckless disregard for the truth at the hearing, that false material must be excised from the warrant affidavit. Franks, 438 U.S. at 156, 98 S.Ct. at 2676, 57 L.Ed.2d at 672. If the remaining contents of the affidavit are insufficient to establish probable cause, "the search warrant must be voided and the fruits of the search excluded to the same extent as if probable cause was lacking on the face of the affidavit." Franks, 438 U.S. at 156, 98 S.Ct. at 2676, 57 L.Ed.2d at 672.
The defendant's attack on the affidavit "must be more than conclusory and must be supported by more than a mere desire to cross-examine." Franks, 438 U.S. at 171, 98 S.Ct. at 2684, 57 L.Ed.2d at 682. Furthermore, Franks only permits a challenge to the deliberate falsity or reckless disregard for the truth by the affiant, not by a nongovernmental informant. Franks, 438 U.S. at 171, 98 S.Ct. at 2684, 57 L.Ed.2d at 682.
In People v. Lucente, 116 Ill.2d 133, 148, 107 Ill.Dec. 214, 506 N.E.2d 1269, 1275 (1987), unlike Franks, the information in the officer's warrant affidavit was based entirely on information from a confidential informant. Concerned that in such a case a defendant could not interview the informant to determine whether an officer lied in his affidavit, the Illinois Supreme Court concluded that in some circumstances a claim that someone lied, either informant or officer, may establish a preliminary showing under Franks. Lucente, 116 Ill.2d at 148-50, 107 Ill.Dec. 214, 506 N.E.2d at 1275-76. A determination as to whether there has been a substantial preliminary showing in a given case "must be based upon a careful balancing of the statements in the warrant affidavit versus those in support of the defendant's challenge to the warrant." Lucente, 116 Ill.2d at 152, 107 Ill.Dec. 214, 506 N.E.2d at 1277. At the hearing stage, however, the defendant must prove that the officer intentionally lied or acted with reckless disregard for the truth. Lucente, 116 Ill.2d at 150, 107 Ill.Dec. 214, 506 N.E.2d at 1276.
The State contends that the defendant failed to establish that discovery was warranted here because the defendant did not make a sufficient showing of a Franks challenge. See Torres, 200 Ill.App.3d at 261, 146 Ill.Dec. 682, 558 N.E.2d at 651. In his motion and its accompanying affidavits, the defendant claims that Doe was lying when he or she stated that he or she was present in the defendant's home in the seven days preceding the date of the search warrant. The defendant challenges solely the veracity of Doe's statements, not those of Officer Lauer. Unlike Lucente, the defendant's alibi claim does not raise a question that Lauer intentionally lied in the warrant complaint regarding Doe's statements or as to Doe's existence. Lucente, 116 Ill.2d at 148-49, 107 Ill.Dec. 214, 506 N.E.2d at 1275. In the instant case, Doe personally appeared before the circuit judge and signed an affidavit swearing to the truth of Lauer's complaint. The defendant has not made any showing that Lauer intentionally included a false statement in his warrant complaint and, thus, was not entitled to the requested discovery on this basis. See People v. Gorosteata, 374 Ill.App.3d 203, 212-13, 312 Ill.Dec. 492, 870 N.E.2d 936, 945 (2007) (finding that defendant failed to make substantial preliminary showing in part because the affidavits accompanying his request for Franks hearing did not show that officer deliberately included false statements in his warrant affidavit); see also United States v. Jones, 208 F.3d 603, 607 (7th Cir.2000) (finding that motion for Franks hearing was properly *125 denied where the motion challenged only the veracity of the confidential informant's statements, not those of officer).
In addition, the defendant has not made any showing that Lauer exhibited a reckless disregard for the truth by relying upon Doe's statement. "Reckless disregard for the truth" has been defined as requiring proof (1) that the affiant entertained serious doubts as to the truth of the allegations in the affidavit, or (2) of circumstances evincing obvious reasons to doubt the veracity of the allegations. United States v. Williams, 737 F.2d 594, 602 (7th Cir.1984). It has also been said that the greater the showing that the informant blatantly lied to the officer, "the greater the probability that the affiant, in putting forth such information, exhibited a reckless disregard for the truth." Lucente, 116 Ill.2d at 152, 107 Ill.Dec. 214, 506 N.E.2d at 1277.
In this case, the defendant's motion and accompanying affidavits do not indicate that Lauer had any reason to believe that Doe was being untruthful. The defendant argues that Lauer failed to sufficiently corroborate Doe's statements and that this failure amounts to a reckless disregard for the truth of those statements. We disagree. Lauer took steps to corroborate the information provided by Doe. Lauer viewed the residence and confirmed the description provided by Doe. Lauer also confirmed that the defendant lived at that residence and had Doe identify the defendant from a photograph. While the defendant can point to other steps that Lauer could have possibly taken, he has not shown that Lauer recklessly disregarded the truth by failing to do so. See Jones, 208 F.3d at 607.
Further, the affidavits supplied by the defendant do not show that Doe blatantly lied or any obvious reasons to doubt Doe's veracity. In addition to his own affidavit, the affidavits were those of the defendant's girlfriend and another member of their household. Neither Cochran nor Moore make any showing that it was impossible for Doe to have been in the residence during the applicable time period. Moore stated that he left the residence on occasion for at least short time periods. While Cochran stated that she worked at home during the applicable timer period, she did not state that she never left the house or the defendant's side. In fact, she admitted that she used her cell phone as an intercom to contact the defendant at times. Thus, the defendant has failed to make any showing that Lauer's affidavit contained a reckless falsehood. See Torres, 200 Ill. App.3d at 263-64, 146 Ill.Dec. 682, 558 N.E.2d at 652-53; People v. Tovar, 169 Ill.App.3d 986, 992, 120 Ill.Dec. 267, 523 N.E.2d 1178, 1182 (1988).
The defendant, citing People v. Hoye, 311 Ill.App.3d 843, 244 Ill.Dec. 584, 726 N.E.2d 180 (2000), invites us to hold that a challenge to Doe's affidavit alone is sufficient to support a request for a Franks hearing where the police officer's sworn statements incorporated the information provided to him by Doe. Hoye does not stand for this proposition. The Hoye court held that a defendant may challenge the veracity of a private informant's affidavit in the absence of a governmental affidavit sufficient to support the warrant application. Hoye, 311 Ill.App.3d at 846-47, 244 Ill.Dec. 584, 726 N.E.2d at 182-83. That is not the factual scenario before us.
The State also argues that this case does not present a Franks scenario because Doe appeared before the judge who issued the warrant and swore to the truth of the statements in the warrant complaint. The State relies upon Gorosteata, 374 Ill. App.3d at 213, 312 Ill.Dec. 492, 870 N.E.2d at 945, in which the First District concluded that the informant's testimony before *126 the magistrate who issued the search warrant, "rather than the officer merely presenting and vouching for his informant's claims in the officer's complaint, without presenting the informant to the court for interrogation, removed this case from the ambit of Franks." The defendant relies upon People v. Caro, 381 Ill.App.3d 1056, 321 Ill.Dec. 804, 890 N.E.2d 526 (2008), in support of his argument that Franks still may be applied in this case. In Caro, another division of the First District rejected the reasoning of Gorosteata and affirmed the trial court's decision to grant a Franks hearing where the nongovernmental informant testified before the magistrate during the hearing on the State's complaint for a search warrant. Caro, 381 Ill.App.3d at 1065-67, 321 Ill.Dec. 804, 890 N.E.2d at 534-35. However, we need not reach this issue as we have already found that the defendant failed to make any showing that Lauer intentionally or recklessly included a falsehood in the warrant complaint.
Finally, an in camera review of the requested information by the trial court would not have been helpful in this situation where the defendant has not made any showing of a Franks issue. Although we recognize that in some circumstances a defendant is entitled to some discovery in order to prove that he is entitled to a hearing under Franks, the defendant still must offer some showing the affiant included deliberate or reckless falsehoods in his affidavit. Torres, 200 Ill.App.3d at 261, 146 Ill.Dec. 682, 558 N.E.2d at 651. In this case, the defendant has failed to meet his burden, however insubstantial, to show he is entitled to the disclosure of the requested information even in camera. There is simply no showing that Lauer made any false statements. Thus, an in camera review of a three-hour window compared to phone records and the affidavits provided would not have established that Lauer made any false statements or recklessly disregarded the truth. In addition, for the same reason, this is not a case that an in camera review would have established that the defendant was entitled to the requested discovery.
CONCLUSION
The defendant's motion and the accompanying affidavits fail to make any showing that Lauer lied or recklessly disregarded the truth. As such, the defendant did not establish that he was entitled to the requested discovery. Therefore, the trial court abused its discretion by ordering the State to disclose the date and time span when Doe claimed to be present in the defendant's home. Accordingly, the judgment of the Will County circuit court is reversed and the matter is remanded for further proceedings
Reversed and remanded for further proceedings.
O'BRIEN, P.J. and SCHMIDT, J. concurring.
|
540 U.S. 1069
HOLBROOKv.ALLIED VAN LINES, INC., ante, p. 813.
No. 02-1613.
Supreme Court of United States.
December 1, 2003.
1
Petition for rehearing denied.
|
[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as
Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, Slip Opinion No. 2015-
Ohio-4304.]
NOTICE
This slip opinion is subject to formal revision before it is published in an
advance sheet of the Ohio Official Reports. Readers are requested to
promptly notify the Reporter of Decisions, Supreme Court of Ohio, 65
South Front Street, Columbus, Ohio 43215, of any typographical or other
formal errors in the opinion, in order that corrections may be made before
the opinion is published.
SLIP OPINION NO. 2015-OHIO-4304
COLUMBUS CITY SCHOOLS BOARD OF EDUCATION, APPELLEE, v. FRANKLIN
COUNTY BOARD OF REVISION ET AL., APPELLEES; PLATINUM LODGING, L.L.C.,
APPELLANT.
[Until this opinion appears in the Ohio Official Reports advance sheets, it
may be cited as Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of
Revision, Slip Opinion No. 2015-Ohio-4304.]
Taxation—Real-property valuation—When enforcing the statutory requirements
for perfecting tax appeals, we avoid being hypertechnical—R.C. 5717.05’s
“first-filed rule” trumps the “subsequent-appeal rule”—Board of revision
was bound by the decision of the common pleas court—Board of tax
appeals’ decision reversed, and cause remanded to the board of revision.
(No. 2013-0514—Submitted July 7, 2015—Decided October 20, 2015.)
APPEAL from the Board of Tax Appeals, Nos. 2012-A-2823 and 2012-A-3289.
____________________
SUPREME COURT OF OHIO
Per Curiam.
{¶ 1} This appeal concerns a real-property-valuation complaint pertaining
to tax year 2008 that was originally filed by Platinum Lodging, L.L.C.’s court-
appointed receiver on March 31, 2009. Appellant, Platinum Lodging, is the former
owner of the property at issue and was a party throughout the proceedings below.
The Franklin County Board of Revision (“BOR”) substantially reduced the
valuation, but Platinum Lodging and the current property owners filed an appeal in
the Franklin County Court of Common Pleas, which remanded the cause to the
BOR. On remand, the BOR dismissed the complaint on the grounds that the
complainant lacked standing. Thereafter, appellee Columbus City Schools Board
of Education (“school board”) and then Platinum Lodging perfected appeals from
the BOR’s dismissal order to the Board of Tax Appeals (“BTA”).
{¶ 2} The BTA dismissed the appeals on the grounds that because the first
appeal had been filed in the common pleas court, the BTA lacked jurisdiction to
entertain an appeal from the BOR’s dismissal order on remand. Platinum Lodging
has appealed, and we now reverse the BTA’s order of dismissal as to Platinum
Lodging.1 We also remand this matter to the BOR with instructions that it
determine the value of the property in accordance with the earlier remand order
issued by the common pleas court.
FACTUAL BACKGROUND
{¶ 3} The March 31, 2009 complaint that initiated these proceedings
proposed a true value of $8,000,000 for tax year 2008 instead of the auditor’s
valuation of $24,500,000. The complaint identified Platinum Lodging as the owner
and “ARM (Receiver)”2 as the “complainant if not owner.” The complaint states
1
Because the school board did not appeal its dismissal to this court, we leave the BTA’s dismissal
order in place with respect to the school board’s appeal.
2
“ARM” stands for American Resort Management, which was appointed receiver for Platinum
Lodging when Wells Fargo sought foreclosure in 2008.
2
January Term, 2015
that the complainant’s relationship to the property was “Court Appointed
Receiver.” On May 27, 2009, a countercomplaint was filed by the school board.
The countercomplaint sought retention of the auditor’s valuation for tax year 2008.
{¶ 4} The complaint identified the complainant’s agent to be attorney
Clarence Mingo, and Mingo’s verified signature is on the complaint. Mingo was
subsequently named auditor of Franklin County later that same year, 2009.
{¶ 5} The property at issue is a 16.592-acre site improved with a high-rise
hotel and a water park. It is located southeast of the point where I-70 intersects
Hamilton Road in eastern Franklin County. The auditor allocated $1,991,000 to
land value and $22,509,000 to the buildings.
{¶ 6} The BOR held a hearing on September 20, 2010. At that hearing, a
case for decrease of value was presented by attorney Charles Bluestone, who
identified himself as “substituting in this case on behalf of Clarence Mingo who
was the attorney representing the property owner who owned the property as of
January 1st, 2008 [i.e., Platinum Lodging], which is the first past year at issue in
this case.” Bluestone advised that he was also appearing on behalf of Brownlee
Reagan and Jamal Lewis who were the property owners at the time of the hearing.
{¶ 7} Platinum Lodging presented the testimony of three witnesses: Lance
Lehr, a vice president of ARM, the receiver; (2) Jamal Lewis, one of the new
owners who had recently purchased the property, and (3) Charlotte Kang, an
appraiser. When Platinum Lodging purchased the property, it was improved with
only the hotel. Platinum Lodging added additional rooms and the water park, which
was completed by 2006. But financial expectations were not met, and investors
brought in ARM to manage the property beginning in August 2007. The property
was put into receivership in March 2008, with ARM as receiver to manage the
property and an entity called HREC to attempt to sell it for the benefit of the
creditors. Over a two-year period, the property was marketed, and it was finally
sold to the entity of which Jamal Lewis was a principal, in July 2010, shortly before
3
SUPREME COURT OF OHIO
the BOR hearing. According to testimony regarding the conveyance-fee statement,
the 2010 purchase price was $5,510,518.
{¶ 8} Platinum Lodging additionally presented an appraisal report, which
Kang explained in her testimony. Relying on the income and sales-comparison
approaches, she opined that the value of the property for 2010 was $6,800,000.
{¶ 9} Also at the BOR hearing, the auditor’s delegate indicated that because
Clarence Mingo had been counsel for the property owner and later was named
auditor, the delegate would “abstain from the vote but remain on the panel for
administrative purposes.” On October 22, 2010, the delegates constituting the BOR
met and determined the value of the property based on the evidence presented. The
auditor’s delegate took the lead, proposing a new value of $5,510,500 for 2008, to
be carried forward according to law.
{¶ 10} Despite his statement at the hearing that he would not vote, the
auditor’s delegate both proposed the new valuation and voted for it. The BOR
decision adopting the new value was issued on November 3, 2010.
{¶ 11} Dissatisfied, Platinum Lodging and the new owners appealed to the
Franklin County Court of Common Pleas pursuant to R.C. 5717.05.3 Two events
of importance occurred at the common pleas court. First, the common pleas court
considered a motion filed by the school board that argued that the complaint had
been invalid because the receiver lacked written authority to file the complaint at
the time it was filed. Platinum Lodging responded with evidence of authorization
to file, and the common pleas court denied the motion on March 8, 2011, finding
that the school board’s arguments lacked merit.
3
Separately, the school board prosecuted its own appeal from the reduction order to the BTA, but
the BTA dismissed that appeal on the grounds that the owners had filed first in the common pleas
court. See Columbus City Schools Bd. of Edn. v. Franklin Cty. Bd. of Revision, BTA No. 2010-M-
3420, 2011 WL 857880 (Mar. 4, 2011).
4
January Term, 2015
{¶ 12} Specifically, the common pleas court stated that it disagreed with the
contention that the receiver, ARM, which had been appointed after foreclosure
proceedings were initiated, lacked written authority as required by the receivership
order, and therefore had no standing to file the BOR complaint. The common pleas
court set forth the following grounds for its decision:
An e-mail and affidavit from the asset manager of the property at the
bank indicated that she had given authority to file, first orally and then
by e-mail, and the receivership order states that “written consent” of the
bank was required, without specifying the form or timing of that
consent;
The bank itself, Wells Fargo, had made no objection to the filing;
The school board, as a nonparty to the receivership case, was “in no
position to dictate what approval is sufficient under the receivership
order”;
The school board waived the standing argument by not asserting it at
the BOR.
The common pleas court specifically held that “approval is sufficient under the
receivership order. ARM acted with the written consent of Wells-Fargo, through
its agent, and therefore had standing to file the BOR Complaint.”
{¶ 13} The second important event before the common pleas court was its
decision granting a motion to remand filed by the BOR and the auditor based on
the auditor’s delegate having failed to actually recuse himself from the vote. The
remand order was entered on April 6, 2012:
The Court finds the Franklin County Auditor and Franklin
County Board of Revision’s Motion to Remand to have merit and
hereby GRANTS the same. It is undisputed that, when this matter
5
SUPREME COURT OF OHIO
was at the Board of Revision level, the Auditor’s representative on
the board recognized a conflict of interest and indicated that he
would abstain from voting. It is also undisputed that, despite the
above, the Auditor’s representative nonetheless did vote on the
matter. Given the above, the Court finds that remanding this matter
to the Board of Revision is appropriate in order to resolve the
conflict of interest recognized by the Auditor’s representative.
Given the above, the Court hereby REMANDS this matter
to the Franklin County Board of Revision. It is so ORDERED.
(Capitalization sic.)
{¶ 14} The record concerning the proceedings on remand is sparse, but it
does show an August 24, 2012 order dismissing the complaint for the receiver’s
alleged lack of standing—the very issue previously determined to the contrary by
the common pleas court.
{¶ 15} The school board prosecuted an appeal from the dismissal order to
the BTA on August 27, 2012, and Platinum Lodging, L.L.C., filed its appeal with
the BTA on September 20, 2012. The BTA consolidated the appeals and ordered
the parties to brief whether the BOR’s dismissal order should be affirmed. The
parties did so. Subsequently, on February 27, 2013, the BTA issued its decision
sua sponte dismissing the appeals on the grounds that the earlier appeal had been
prosecuted to the common pleas court.
{¶ 16} Platinum Lodging has appealed.
MOTION TO DISMISS
{¶ 17} We first address, as a threshold issue, the school board’s motion to
dismiss Platinum Lodging’s appeal to this court. The school board contends that
the appeal failed to vest jurisdiction in this court because Platinum Lodging failed
6
January Term, 2015
to serve the subsequent owners as appellees, as required by the seventh paragraph
of R.C. 5717.04.
{¶ 18} The school board relies on Columbus City School Dist. Bd. of Edn.
v. Franklin Cty. Bd. of Revision, 114 Ohio St.3d 1224, 2007-Ohio-4007, 871 N.E.2d
602 (“Maple Canyon,” after the taxpayer), to support this contention. And Maple
Canyon relied on the reasoning of Olympic Steel, Inc. v. Cuyahoga Cty. Bd. of
Revision, 110 Ohio St.3d 1242, 2006-Ohio-4091, 852 N.E.2d 178. These cases
held that the service requirement in the seventh paragraph4 of R.C. 5717.04 is
mandatory and jurisdictional and that failure to comply requires dismissal of the
appeal. We will refer to this holding as “the Maple Canyon rule.”
{¶ 19} The seventh paragraph of R.C. 5717.04 requires that service be
effected on all those persons to whom the BTA is required to send its decision under
R.C. 5717.03. R.C. 5717.03(B) requires the BTA to send a copy of its decision to
“the person in whose name the property is listed, or sought to be listed,” i.e., the
owner, if that person is not a party to the BTA appeal.
{¶ 20} Here, Platinum Lodging is a former owner of the property and the
new owners are indicated on the record at the BTA. Thus, the BTA had a duty to
send its decision to the new owners and Platinum Lodging had to serve the new
owners as appellees in order to proceed with the appeal under the general rule. The
school board’s motion to dismiss states an entirely valid point, and Platinum
Lodging did not respond to the school board’s motion. Nor does the certificate of
service reflect service on the new owners. We must therefore assume that Platinum
Lodging did not in fact effect timely service on the subsequent owners.
{¶ 21} When enforcing the statutory requirements for perfecting tax
appeals, we avoid being “hypertechnical” and refrain from “deny[ing] the right of
4
R.C. 5717.04 was amended in 2013 and a new first paragraph was added. Thus, what Maple
Canyon and Olympic Steel refer to as the sixth paragraph of R.C. 5717.04 is now the seventh
paragraph. 2013 Sub.H.B. No. 138.
7
SUPREME COURT OF OHIO
appeal on captious grounds.” Queen City Valves, Inc. v Peck, 161 Ohio St. 579,
583-584, 120 N.E.2d 310 (1954). Accord Buckeye Internatl., Inc. v. Limbach, 64
Ohio St.3d 264, 268, 595 N.E.2d 347 (1992) (“we are not disposed to deny review
by a hypertechnical reading of the notice”). Our review of the record before the
BTA reveals a factor not present in Maple Canyon: counsel for Platinum Lodging
also appeared on behalf of the subsequent owners in these proceedings. Indeed, not
only did Bluestone appear on behalf of the former and the new owners at the BOR
hearing; Bluestone also pursued the initial appeal to the court of common pleas on
behalf of both the old and the new owners.
{¶ 22} Ohio courts have held that when two parties in a case are represented
by the same counsel, one party’s having received notice or knowledge in the case
imputes constructive notice or knowledge to the other. See Krieger v. Cleveland
Indians Baseball Co., 176 Ohio App.3d 410, 2008-Ohio-2183, 892 N.E.2d 461,
¶ 43 (8th Dist.) (because the same lawyer from the city’s law department
represented the original defendant named in the lawsuit [the police department] and
the later substituted proper defendant [the city of Cleveland], the city was on notice
of the suit within the statute of limitations even though it was not named until later),
rev’d on other grounds, Oliver v. Cleveland Indians Baseball Co. Ltd. Partnership,
123 Ohio St.3d 278, 2009-Ohio-5030, 915 N.E.2d 1205; Bainter v. P.P.G.
Industries, Inc., 4th Dist. Pickaway No. 80 CA 11, 1981 WL 5920 (May 7, 1981),
*2 (fact that same attorney represented the original defendant named in the lawsuit
and the substituted defendant meant that the substituted defendant was on notice of
the suit before the statute of limitations ran); State Dept. of Pub. Safety v. Freedom
Concepts, Inc., 10th Dist. Franklin No. 02AP-1289, 2003-Ohio-3748, ¶ 20 (in
forfeiture action, Department of Public Safety should have known the identity of
the actual owners of seized devices because that information was germane and
available in another lawsuit involving the department and the same devices and the
8
January Term, 2015
department was represented in that case by the same assistant attorney general as
in the forfeiture case).
{¶ 23} We conclude that the principle of these cases extends to the present
situation. Here, counsel for the appellant, Platinum Lodging, has also been serving
throughout this litigation as counsel for the subsequent owners, with the result that
the notice of Platinum Lodging’s appeal may be imputed to those subsequent
owners under the doctrine of constructive notice.
{¶ 24} Under these circumstances, we hold that the actual formality of
serving the new owners with the notice of appeal, though required by the statute,
does not run to the core of procedural efficiency, with the result that the defect does
not divest us of jurisdiction over this appeal. The motion to dismiss is therefore
denied.
R.C. 5717.05’S “FIRST-FILED RULE” TRUMPS THE “SUBSEQUENT-APPEAL RULE”
{¶ 25} We will now review the BTA’s ruling dismissing Platinum
Lodging’s appeal. Relying on the reasoning of Columbus Bd. of Edn. v. Franklin
Cty. Bd. of Revision, 70 Ohio St.3d 344, 639 N.E.2d 25 (1994), the BTA noted that
pursuant to R.C. 5717.01 and 5717.05, “in the context of appeals from decisions of
county boards of revision, county courts of common pleas and [the BTA] have
concurrent jurisdiction.” BTA Nos. 2012-A-2823 and 2012-A-3289, 2013 WL
906961, *2 (Feb. 27, 2013). The BTA held that “in order to avoid potentially
conflicting determinations involving the same matter, once either a common pleas
court or [the BTA] has exercised jurisdiction over a matter, the other cannot
interfere with that tribunal’s authority.” Id. On that basis, the BTA dismissed both
the school board’s appeal and the property owner’s appeal.
{¶ 26} In Columbus Bd. of Edn., we relied in part on what might be called
a “subsequent-appeal rule”: when a statute provides two avenues of appeal from
an administrative decision and an appeal is first prosecuted to one of the two
alternative tribunals, a later appeal from an administrative decision issued after
9
SUPREME COURT OF OHIO
remand must be prosecuted to the same tribunal that exercised jurisdiction over the
first appeal. In Columbus Bd. of Edn., the first appeal had been prosecuted by the
property owner and the board of revision from a decision of the BTA to the Franklin
County Court of Appeals, which made a ruling and remanded to the BTA. After
the BTA issued its order on remand, the board of education appealed directly to this
court.
{¶ 27} Noting that “a twist” in the case was that R.C. 5717.04 created two
avenues of appeal, one to the court of appeals and one directly to the Supreme
Court, we invoked the specific language of R.C. 5717.04 along with the general
“first-filed rule,” under which the first of two courts of concurrent jurisdiction to
take jurisdiction exercises it to the exclusion of the other tribunal. 70 Ohio St.3d at
345-346, 639 N.E.2d 25. We concluded that the BTA’s order on remand “could
not be appealed to this court.” Id. at 346.
{¶ 28} As the BTA noted, it is evident that both the school board and
Platinum Lodging acted in a manner contrary to the subsequent-appeal rule in this
case. But a reading of R.C. 5717.05 makes it equally clear that the subsequent-
appeal rule did not apply to either appellant under these circumstances. Unlike R.C.
5717.04, which was at issue in Columbus Bd. of Edn., R.C. 5717.05 gives an owner
two options for appeal but gives a board of education only one option. It follows
that the subsequent-appeal rule, however salutary within its proper scope of
application, cannot be applied here, because it would deprive the school board of
the statutory right of appeal to the BTA that it would otherwise enjoy under R.C.
5717.01.
{¶ 29} The subsequent-appeal rule is not mandated by statute, but is a
judge-made rule that is a logical extension of the first-filed rule. We cannot permit
a judge-made rule limiting subsequent appeals to interfere with a right of appeal
that is conferred by statute.
10
January Term, 2015
{¶ 30} Moreover, once the school board had appealed the BOR’s dismissal
order to the BTA, R.C. 5717.05 left Platinum Lodging with no alternative but to
pursue its own appeal to the BTA rather than to the common pleas court.5 Namely,
R.C. 5717.05 states a “first-filed rule” in no uncertain terms as follows:
When the appeal has been perfected by the filing of notice
of appeal as required by this section, and an appeal from the same
decision of the county board of revision is filed under section
5717.01 of the Revised Code with the board of tax appeals, the
forum in which the first notice of appeal is filed shall have exclusive
jurisdiction over the appeal.
Because the school board filed an appeal of the second BOR decision with the BTA,
the BTA possessed sole jurisdiction over appeals from the second BOR decision.
{¶ 31} Moreover, the BTA’s dismissal cannot be justified as an application
of the first-filed rule of R.C. 5717.05. When the common pleas court remanded the
case to the BOR, it retained no jurisdiction. As a result, the parties, to use Platinum
Lodging’s phrase, “returned to the starting blocks” as far as litigating before the
BOR—with the proviso that the proceedings had to be conducted consistently with
the orders issued by the common pleas court during the pendency of the first appeal.
When an appellate court remands a case without retaining jurisdiction, it
5
Because the effect of the BOR’s dismissal was to restore the $24,500,000 valuation by the auditor,
it is difficult to see how the school board was aggrieved by the order that it appealed to the BTA.
But the question of the school board’s standing as an aggrieved party before the BTA, if contested,
would probably be held irrelevant to the propriety of Platinum Lodging’s having filed its appeal at
the BTA, because R.C. 5717.05 ties the exclusivity of forum to the filing, not to the proper exercise
of jurisdiction by the first-filed forum. See Elkem Metals Co. Ltd. Partnership v. Washington Cty.
Bd. of Revision, 81 Ohio St.3d 683, 687-688, 693 N.E.2d 276 (1998) (when taxpayer filed a
complaint for one year of a triennial period, its complaint for another year of the same triennium
had to be dismissed because the taxpayer “filed” the earlier complaint under R.C. 5715.19(A)(2)
despite the fact that that earlier complaint was dismissed on account of a jurisdictional defect).
11
SUPREME COURT OF OHIO
relinquishes jurisdiction over the case, and that is true whether the case is remanded
to carry into execution a straightforward mandate or to conduct further proceedings
leading to new findings and conclusions. See Roberts v. Montgomery, 117 Ohio St.
400, 159 N.E. 475 (1927) (“when this court remands a cause for execution it
relinquishes its jurisdiction in that respect to the court of remand, and thus
confusion of jurisdiction and duplication of effort is obviated”).
{¶ 32} It follows that Platinum Lodging acted properly in filing its own
notice of appeal at the BTA instead of in the common pleas court. The BTA’s
decision to dismiss that appeal must therefore be reversed.
UNDER THE LAW-OF-THE-CASE DOCTRINE, THE COMMON PLEAS COURT’S
RULING ON STANDING BARRED THE BOR’S DISMISSAL ORDER
{¶ 33} Platinum Lodging seeks reversal of the BTA’s dismissal of its
appeal, and we grant that relief. With regard to the merits of its appeal to the BTA,
it advances no proposition of law before this court. We would therefore be justified
in remanding the cause to the BTA for further proceedings.
{¶ 34} But the issue on appeal at the BTA was whether the BOR properly
dismissed the complaint for lack of standing when the common pleas court had
already ruled that there was standing. Because that question involves a
jurisdictional issue, we have authority to address it, and we do so in the interest of
efficiency and for the purpose of vindicating the authority of the common pleas
court as a reviewing court. See Crown Communication, Inc. v. Testa, 136 Ohio
St.3d 209, 2013-Ohio-3126, 992 N.E.2d 1135, ¶ 27 (failure of appellant to articulate
argument did not bar the court from determining the issue, since the issue related
to the jurisdiction of the tax tribunals and hence derivatively to the court’s own
eventual jurisdiction of a tax issue on its merits), and cases cited therein.
{¶ 35} It is true that Platinum Lodging conceded at oral argument that the
law of the case did not bind the BOR, but counsel’s concession does not change the
fact that the BOR lacked the authority to dismiss the case for lack of standing after
12
January Term, 2015
the common pleas court ruled that there was standing. Nor does it matter that the
common pleas court allegedly declined counsel’s invitation to explicitly make its
ruling the law of the case: the law-of-the-case doctrine applies without the need for
any explicit invocation.
{¶ 36} Beyond that, it is prudent and proper for us to invoke the law-of-the-
case doctrine under these circumstances. In HealthSouth Corp. v. Testa, 132 Ohio
St.3d 55, 2012-Ohio-1871, 969 N.E.2d 232, we held that an argument raised by the
tax commissioner was barred by the law-of-the-case doctrine, even though the
taxpayer did not assert the defense:
We are justified in raising the doctrine sua sponte because
we have held that the law-of-the-case doctrine reflects a strong
public policy to “ ‘ensure consistency of results in a case, to avoid
endless litigation by settling the issues, and to preserve the structure
of superior and inferior courts.’ ” Brothers v. Morrone-O’Keefe
Dev. Co., 10th Dist. No. 06AP-713, 2007-Ohio-1942, 2007 WL
1196578, ¶ 35, quoting Hubbard ex rel. Creed v. Sauline, 74 Ohio
St.3d 402, 404, 659 N.E.2d 781 (1996).
Id. at ¶ 31, fn. 2. The circumstances of this case are particularly disturbing with
respect to the BOR’s disregard of its duty to abide by the orders issued by a
reviewing court.
{¶ 37} That the law-of-the-case doctrine dispositively applies, there can be
no doubt. “Absent extraordinary circumstances, such as an intervening decision by
the Supreme Court, an inferior court has no discretion to disregard the mandate of
a superior court in a prior appeal in the same case.” Nolan v. Nolan, 11 Ohio St.3d
1, 462 N.E.2d 410 (1984), syllabus. See State ex rel. Potain v. Mathews, 59 Ohio
St.2d 29, 32, 391 N.E.2d 343 (1979) (“The Constitution does not grant to a court
13
SUPREME COURT OF OHIO
of common pleas jurisdiction to review a prior mandate of a court of appeals”);
State ex rel. Cordray v. Marshall, 123 Ohio St.3d 229, 2009-Ohio-4986, 915
N.E.2d 633 (affirming grant of prohibition against trial judge’s action that
contradicted rulings of the appeals court during an earlier appeal in the same case);
State ex rel. Crandall, Pheils & Wisniewski v. DeCessna, 73 Ohio St.3d 180, 652
N.E.2d 742 (1995) (granting writs of prohibition and procedendo ordering trial
judge to conduct proceedings consistent with remand order and not act contrary to
it).
{¶ 38} Here, the law of the case at issue is the common pleas court’s
decision on whether the complainant had standing and, consequently, whether the
BOR had jurisdiction. As the “inferior court,” the BOR was bound by the standing
decision of the common pleas court, and it lacked authority to act contrary to it. To
find an example of an entity’s limited authority on remand in the administrative-
appeal context, we need look no further than Columbus Bd. of Edn., 70 Ohio St.3d
344, 639 N.E.2d 25. In that case, our primary ground for dismissing the appeal was
that the BTA had correctly carried into execution the mandate of the court of
appeals issued in the earlier appeal. Id. at 345. This court cited and relied on Potain
in so holding.
{¶ 39} For the above reasons, we exercise our plenary authority over issues
concerning the jurisdiction of the tax tribunals to reverse the BOR’s dismissal order,
and we remand the cause to the BOR with instructions that it determine the value
of the property in accordance with the common pleas court’s remand order.
CONCLUSION
{¶ 40} We reverse the decision of the BTA, and we remand the cause to the
BOR with the instruction that it vacate its previous dismissal order and proceed to
determine the value of the property in accordance with the common pleas court’s
order.
Judgment accordingly.
14
January Term, 2015
O’CONNOR, C.J., and PFEIFER, O’DONNELL, LANZINGER, KENNEDY, and
O’NEILL, JJ., concur.
FRENCH, J., concurs in judgment only.
_________________
Rich & Gillis Law Group, L.L.C., and Mark H. Gillis, for appellee
Columbus City Schools Board of Education.
Bluestone Law Group, L.L.C., and Charles L. Bluestone, for appellant.
_________________
15
|
52 F.2d 931 (1931)
HENRIETTA MILLS, Inc.,
v.
COMMISSIONER OF INTERNAL REVENUE.
No. 3165.
Circuit Court of Appeals, Fourth Circuit.
October 12, 1931.
Leon F. Cooper and Glessner, Neuland & Cooper, all of Washington, D. C., for petitioner.
Randolph C. Shaw, Sp. Asst. to Atty. Gen. (G. A. Youngquist, Asst. Atty. Gen., Sewall Key and John G. Remey, Sp. Assts. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and William E. Davis, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for respondent.
Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.
NORTHCOTT, Circuit Judge.
This case involves income taxes for the fiscal year ending March 31, 1923, in the sum of $35,112.53. The appeal is taken from decision (order of redetermination) of the United States Board of Tax Appeals entered September 13, 1930, reported in 20 B. T. A. 651.
The facts were stipulated and are as follows:
Petitioner is a corporation organized under the laws of North Carolina, with its principal office at Caroleen. It kept its books of account and rendered its federal income-tax returns on the accrual basis of accounting.
On March 16, 1920, J. C. Plonk, R. P. Roberts, J. A. Carroll, and petitioner, as parties of the first part; together with W. S. Forbes and E. B. Springs, parties of the second part; and John M. Miller, Jr., as party of the third part, entered into a written contract, the material parts of which read:
"The parties of the first part on behalf of themselves and others, for and in consideration of the sum of Ten ($10) Dollars, cash in hand to them paid by the parties of the second part, receipt whereof is hereby acknowledged, agree to sell to the parties of the second part, who hereby agree to buy, subject to the terms and conditions hereinafter set forth, Twenty-Five (25%) per cent. of a majority of all of the outstanding stock of the Cherokee Falls Manufacturing Company, of Cherokee Falls, South Carolina, together with an option to purchase the remaining Seventy-Five (75%) per cent. of said majority of said stock as follows:
"1. The parties of the first part agree to deposit with the said party of the third part, on or before the 1st day of April, 1920, Fifty-One (51%) per cent. or more of the entire outstanding Capital Stock of the said Cherokee Falls Manufacturing Company, with the privilege of depositing for their own *932 account, or for the account of others, with the said party of the third part, on or before the 1st day of July, 1920, any or all of the remaining outstanding Capital Stock of the said Cherokee Falls Manufacturing Company, and the said parties of the second part agree to buy outright Twenty-Five (25%) per cent. of all of the stock of the said Company so deposited with the said party of the third part together with an option to buy the remaining Seventy-Five (75%) per cent. of said stock, and to pay for said option and said Twenty-Five (25%) per cent. of said stock an amount equal to Six Hundred and Fifty ($650) Dollars per share, to be paid to the party of the third part not later than April 10, 1920, for each share of said Twenty-Five (25%) per cent. of the majority of said stock deposited with the said party of the third part on or before April 1, 1920, and with respect to said additional stock deposited with the said party of the third part after April 1st, 1920, and on or before July 1st, 1920, the payment of Six Hundred and Fifty ($650) Dollars a share therefor shall be made to the said party of the third part within Ten (10) days from the date that he shall tender to the parties of the second part any part of said additional stock but settlement for the full Twenty-Five (25%) per cent. of such additional stock shall be made by the parties of the second part not later than July 10th, 1920; and the said option purchased being as follows:
"(a) An option to purchase on January 15th, 1921, an additional Twenty-Five (25%) per cent. of all of said stock deposited with the party of the third part up to and including July 1st, 1920, upon paying therefor to the party of the third part on the said 15th day of January, 1921, the sum of Six Hundred and Eighty and 87½/100 ($680.87½) Dollars, per share; (b) An option to purchase on January 15th, 1922, an additional Twenty-Five (25%) per cent. of all of said stock so deposited, upon paying therefor to the party of the third part on said 15th day of January, 1922, the sum of Seven Hundred and Nineteen and 87½ ($719.87½) Dollars, per share; and (c) An option to purchase on January 15th, 1923, the remaining Twenty-Five (25%) per cent. of all of said stock so deposited, upon paying therefor to the said party of the third part on said 15th day of January, 1923, the sum of Seven Hundred and Fifty-Eight & 87½ ($758.87½) Dollars, per share.
"2. It is understood and agreed that the parties of the first part will have all of the stock deposited with the party of the third part under this agreement, indorsed, assigned, and transferred on the books of the Cherokee Falls Manufacturing Company in such manner as the party of the third part shall direct; that the entire Twenty-Five (25%) per cent. of said stock first purchased by the parties of the second part as hereinbefore set forth, shall within a reasonable time after the date of such purchase, be properly transferred on the books of the Cherokee Falls Manufacturing Company to the parties of the second part, who shall at once assign the same in blank and deliver the same to the party of the third part, who shall hold the same until all provisions of this contract shall have been carried out, or the contract otherwise terminated; and likewise as each option is taken up by the parties of the second part, and the stock optioned thereunder is paid for in full as herein provided, such stock shall be promptly transferred on the books of the Cherokee Falls Manufacturing Company to the parties of the second part, who shall at once assign the same in blank, and deliver the same to the said party of the third part, to be by him held until all the provisions of this contract shall have been carried out, or the contract otherwise terminated; and when all of the provisions of this contract shall have been carried out, the said party of the third part shall then deliver all of said stock to the parties of the second part.
"But in event the parties of the second part shall fail to take up any part of the said option as hereinbefore provided, or shall fail to pay to the said party of the third part within thirty (30) days from the date such option should have been taken up, the full amount of purchase money required to be paid for the stock optioned to be purchased on such date, the said party of the third part is hereby authorized, empowered, and directed, at the expiration of said Thirty (30) days, without further notice to any party, to transfer on the books of the said Cherokee Falls Manufacturing Company, and deliver to the sellers as their interests may appear, all of said stock transferred under this contract to the said parties of the second part, and held by the party of the third part as hereinbefore provided; and the entire amount of money paid by the parties of the second part to the party of the third part for the account of the parties of the first part as consideration for the said stock and the said option, shall be deemed and considered to have been paid for that portion of said option which was not exercised and carried out, *933 and the parties of the second part shall have no right, claim or demand, upon or against the parties of the first part, or against the party of the third part, or the First National Bank of Richmond, Virginia, for any part of said money, or of said stock. And when the said stock shall have been transferred and delivered to the sellers, the said party of the third part shall thereupon make final settlement under this contract, returning to the various parties of the first part any balance of money or stock due to them, as their interests may appear, and all rights and obligations between the parties of the first part and the parties of the second part under this contract shall thereupon cease, and this contract shall thereupon be terminated.
"3. It is understood and agreed that promptly after April 1st, 1920, all payments then required from the parties of the second part having been made, the parties of the first part will furnish to the parties of the second part the voting control of the stock of the said Cherokee Falls Manufacturing Company, by means of proper proxies for not less than Fifty-One (51%) per cent. thereof, to the said parties of the second part, which proxies, so long as the parties of the second part shall comply with all of the provisions of this contract, and until the stock represented by said proxies shall have been purchased by and transferred on the books of the Company to the parties of the second part, shall be irrevocable; that the present officers and Directors of the Company will promptly resign when and as requested by the parties of the second part, and that full management and control of the Company shall be vested in the parties of the second part from the time that all payments required to be made on April 1st, 1920, shall have been made. But it is distinctly understood and agreed that no dividends are to be paid by the said Company after April 1st, 1920, until all the provisions of this contract required of the parties of the second part shall have been by them fully complied with, and that no lien or encumbrance shall be placed on any of the property belonging to the Company until the provisions of this contract shall have all been complied with by the parties of the second part, and should the parties of the second part issue any additional stock, all of such additional stock indorsed in blank shall be deposited with the party of the third part, and be subject to all of the provisions of this contract in event of any failure of the parties of the second part to comply with the provisions thereof required of them."
The agreement was carried out according to its provisions, and petitioner acquired thereunder 2,000 shares of stock of Cherokee Falls Manufacturing Company; payments being made as follows:
April 1, 1920, 500 shares at $650, $325,000.
January 15, 1921, 500 shares at $680.87½, $340,437.50.
January 15, 1922, 500 shares at $719.87½, $359,937.50.
January 15, 1923, 500 shares at $758.87½, $379,437.50.
Respondent treated the full amounts of $359,937.50 and $379,437.50, paid January 15, 1922, and January 15, 1923, respectively, as a part of the cost of the stock.
On March 15, 1923, petitioner filed its income-tax return for the calendar year 1922 and with the permission of the Commissioner, it changed the basis of its return to a fiscal year ending on March 31, and in September, 1924, it filed its income-tax return for the fiscal year beginning April 1, 1922, and ending March 31, 1923.
Net income for the fiscal year ended March 31, 1923, was reported by petitioner, and has been computed by respondent, by taking nine-twelfths of the income for the calendar year 1922 and the entire income for the three months' period, January 1 to March 31, 1923.
The Board sustained the Commissioner's determination that no part of the amount paid for the stock represented interest paid or incurred. The petitioner seeks a review of this determination.
The pertinent provision of the Revenue Act of 1921, c. 136, 42 Stat. 227, 254, is as follows:
"Sec. 234. (a) That in computing the net income of a corporation subject to the tax imposed by section 230 there shall be allowed as deductions: * * *
"(2) All interest paid or accrued within the taxable year on its indebtedness, except on indebtedness incurred or continued to purchase or carry obligations or securities (other than obligations of the United States issued after September 24, 1917, and originally subscribed for by the taxpayer) the interest upon which is wholly exempt from taxation under this title. * * *"
It is contended by the petitioner that the purchase price of all the stock was $650 per share as of April 1, 1920, that the total purchase price was to be paid in four installments, *934 and that the excess of the later over the first price amounted to what would have been 6 per cent. interest and was in fact interest. It is further contended on behalf of the petitioner that to give the contract any other interpretation would be illogical and utterly ridiculous from a business standpoint.
We cannot agree with petitioner's contention. The courts will not disregard the plain language of a contract or interpolate something not contained in it. Here the language used by the parties is clear and unambiguous, and cannot be ignored however plausible the reasons advanced. The courts will not write contracts for the parties to them nor construe them other than in accordance with the plain and literal meaning of the language used. Van Ness v. City of Washington, 4 Pet. 232, 7 L. Ed. 842; Harrison v. Fortlage, 161 U. S. 57, 16 S. Ct. 488, 40 L. Ed. 616; Robbins v. Rollins, 127 U. S. 622, 8 S. Ct. 1339, 32 L. Ed. 292; Gavinzel v. Crump, 22 Wall. 308, 22 L. Ed. 783; Sheets v. Selden, 7 Wall. 416, 19 L. Ed. 166; Graham v. Business Men's Assur. Co. of America (C. C. A. 10th) 43 F.(2d) 673; Calderon v. Atlas Steamship Co., 170 U. S. 272, 18 S. Ct. 588, 42 L. Ed. 1033; Hammon Consol. Gold Fields v. Powell (C. C. A. 9th) 32 F.(2d) 855.
The fact that the later installments exceeded the first by amounts that equaled 6 per cent. does not of itself prove that the excess was interest. In this transaction there was no element of lending or borrowing, and the excess price paid for the stock later purchased is not to be considered interest but all principal. In re Bibbey (D. C.) 9 F. (2d) 944, and cases there cited.
Nor could usury have been pleaded had the amount of the excess paid for the later purchased stocks exceeded the legal rate of interest. 27 R. C. L. p. 214, and authorities cited under note 11.
It is a significant fact that while the purchasers took over control of the company on the making of the first payments it was agreed that no dividends should be paid until all the provisions of the contract were fully complied with. The record is silent as to the amount of the dividends that would have been expected in due course. The excess of the price of the later over the first stock purchased may have been fixed to care for the dividends that would otherwise have been paid.
Tax liabilities must be determined by what in fact was done. Remington Rand, Inc., v. Commissioner of Internal Revenue, 33 F.(2d) 77; United States of America v. C. W. Phellis, 257 U. S. 156, 42 S. Ct. 63, 66 L. Ed. 180.
The action of the Board of Tax Appeals is accordingly affirmed.
|
510 U.S. 937
Stairv.United States.
No. 93-6011.
Supreme Court of United States.
October 18, 1993.
1
Appeal from the C. A. 11th Cir.
2
Certiorari denied. Reported below: 972 F. 2d 1349.
|
19 Ariz. App. 371 (1973)
507 P.2d 983
ASHTON COMPANY, INC., Petitioner,
v.
The Honorable Joe JACOBSON, Judge, Pima County Superior Court, Respondent; STATE of Arizona ex rel. Dennis DeCONCINI, Pima County Attorney, Real Party In Interest.
No. 2 CA-CIV 1384.
Court of Appeals of Arizona, Division 2.
March 28, 1973.
Rehearing Denied May 2, 1973.
Review Denied June 5, 1973.
*372 Robertson, Molloy, Fickett & Jones, P.C., by Michael J. Meehan, Tucson, for petitioner.
Dennis DeConcini, Pima County Atty., by A. Bates Butler, III, Deputy County Atty., Tucson, for real party in interest.
HOWARD, Judge.
Does the County Attorney of Pima County have authority to institute a criminal prosecution for alleged violations of provisions of the Air Pollution Control Act concerning portable machinery without prior authorization or direction by the State Division of Air Pollution Control? That is the question raised in this special action by petitioner Ashton, defendant in a criminal proceeding below. Since appellate intervention is appropriate to prevent a lower court from proceeding without jurisdiction, and no appeal lies from a denial of a motion to quash, we assume jurisdiction.
On February 7, 1972, petitioner applied to the Arizona State Department of Health, Pollution Control Division, for installation and operating permits for two hot plants to be used in processing materials for repaving the main runway at Tucson International Airport. It received installation permits for the two plants on February 18, 1972, and after inspection thereof, the State Department, on March 23rd and 24th, notified petitioner of denial of the operating permits because of dust emission observed during inspection. A few days later, petitioner notified the Department that the deficiencies had been corrected and requested re-inspection and issuance of operating permits. Notwithstanding this request, no inspection was conducted and on April 6, 1972, a cease and desist order was issued. On receipt of the order, petitioner filed a request for public hearing pursuant to A.R.S. § 36-1707.03.
On June 2, 1972, the Pima County Attorney filed a direct information in superior court, which was subsequently amended, charging petitioner with ten violations under Title 36, Chapter 14, Arizona Revised *373 Statutes. Petitioner filed a motion to quash the information alleging as grounds therefor that the subject matter of the alleged offenses was portable equipment under the exclusive control and jurisdiction of the State Division of Air Pollution Control and that such Division had not directed or authorized criminal prosecution. The lower court did not agree with petitioner's construction of the Air Pollution Control Act and denied the motion to quash.
The County Attorney concedes that no complaint was filed by the State Division and that the criminal charges were based on air pollution by portable machinery capable of being operated in more than one county. His position, however, is that under A.R.S. § 11-532, as amended, he is charged with the duty to institute criminal proceedings when he has information that state laws have been violated and that it is his decision alone whether or not to prosecute, regardless of who complains of a violation of state law. Therefore, according to him, and apparently the lower court agreed, his prosecutorial discretion is not limited by the provisions of the Air Pollution Control Act. Our analysis of the Act leads us to a contrary conclusion.
A.R.S. § 36-1700 expresses the legislative intention in part:
"The legislature further intends to place primary responsibility for air pollution control and abatement in the state department of health and the hearing board created thereunder. However, counties shall have the right to control local air pollution problems as specifically provided herein."
A.R.S. § 36-1706 delineates the respective state and county authority. As to air pollution by mobile machinery and equipment capable of being operated in more than one county, the division of Air Pollution Control in the Department of Health and the state hearing board are vested with "original jurisdiction and control" over air pollution matters, permits, and violations pertaining to such machinery and equipment. It further provides for additional assertion of state jurisdiction and control when ordered by the state director and that such "state authority shall then be the sole and exclusive jurisdiction and control to the extent asserted" until relinquished.
A.R.S. § 36-1709 provides:
"When the director has reasonable cause to believe that any person is violating any provision of this chapter or any rule or regulation adopted pursuant to this chapter or any requirement of an operating or conditional permit issued pursuant to this chapter, he may forthwith serve upon such person by registered or certified mail or in person an order of abatement or may file a complaint alleging violation pursuant to § 36-1720, or both. The order shall state with particularity the act being done that constitutes the violation, shall state in its entirety the certain requirement, provision or rule or regulation being violated, and that the alleged violator is entitled to a hearing, if such hearing is requested in writing within twenty days after the date of issuance of the order. The order may be conditional and require a person to refrain from the particular acts unless certain conditions are met...." (Emphasis added)
A.R.S. § 36-1720 provides:
"A. Any person who violates any provision of this article or any rule or regulation adopted pursuant to this article or any effective order of abatement issued pursuant to the article is guilty of a misdemeanor punishable by imposition of a fine of not less than fifty dollars or more than one thousand dollars per day for each day the violation continues. Each day of violation shall constitute a separate offense.
B. Any person who violates any provision of article 8, chapter 6, of this title or any rule or regulation adopted pursuant to such article or any effective order of abatement issued pursuant to such *374 article is subject to penalties prescribed in § 36-789.01, notwithstanding the fact that such provisions, rules, regulations or orders of abatement are being enforced by the division pursuant to § 36-1706...."
A.R.S. § 36-1718.01 recites that the purpose of Article 1 is to provide additional and cumulative remedies and it is not intended "to abridge or alter rights of action or remedies in equity under the common law or statutory law, criminal or civil".
Generally speaking, any person who has reasonable grounds for believing that another has committed a crime may complain against the offender. Erdman v. Superior Court of Maricopa County, 102 Ariz. 524, 433 P.2d 972 (1967). However, where a statute restricts the making of a complaint to certain persons, only such persons may do so. City of Alamogordo v. Harris, 65 N.M. 238, 335 P.2d 565 (1959); 22 C.J.S. Criminal Law § 305 (1961). A.R.S. § 36-1709, supra, authorizes the director of the Division of Air Pollution Control to file a complaint and A.R.S. § 36-1706 vests original jurisdiction and control in the State Division over violations pertaining to mobile machinery and equipment such as is involved in the instant case. We believe, construing the Act as a whole, that it evinces a legislative purpose that enforcement of matters confined to the original jurisdiction of the State Division be left to that administrative body. In other words, in order to ensure the accomplishment of the Act's avowed purpose, i.e., regulation of air polluting activities "in a manner that insures the health, safety and general welfare of all of the citizens of the state", the state director should be the sole arbiter of whether or not to impose criminal sanctions. That the legislature did not intend for this decision to be made by the county attorney is further borne out by the fact that A.R.S. § 36-1718.01 permits him to prosecute for violations of other criminal statutes.
Chapter 6, Article 8 of Title 36, contains the legislative scheme for county control of local air pollution problems. However, as noted above, A.R.S. § 36-1720, subsec. B permits local enforcement of penalties for violation of Article 8, Chapter 6 or any rule or regulation adopted pursuant to such article or any effective order of abatement issued pursuant thereto notwithstanding the fact that such provisions, rules, regulations or orders are being enforced by the state division. In contrast, subsection A of the same statute is silent as to local enforcement for violations as to matters within the jurisdiction of the state division. Additionally, A.R.S. § 36-789.01 specifically authorizes peace officers, the county control officer and deputy control officer to issue citations for violations. Article 1, Chapter 14, of Title 36 contains no analogous authority.
When an administrative board is charged with the duty of enforcing certain laws, the county attorney cannot enforce violation thereof without authorization from such board. 27 C.J.S. District and Prosecuting Attorneys § 12(5). We believe this principle applies to the facts presented here. Since the county attorney had no authority to file the information, petitioner's motion to quash should have been granted. Rule 169, subd. A, par. 3(c), Rules of Criminal Procedure, 17 A.R.S.
The lower court is directed to enter an appropriate order not inconsistent herewith.
HATHAWAY, C.J., and KRUCKER, J., concur.
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42 F.3d 644
U.S.v.Zuberer***
NO. 93-9095
United States Court of Appeals,Eleventh Circuit.
Nov 30, 1994
Appeal From: N.D.Ga.No. 93-00015-3-CR
1
AFFIRMED.
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760 So.2d 790 (2000)
Quancidine GRIBBLE a/k/a Quancidine Hinson Gribble, Appellant,
v.
STATE of Mississippi, Appellee.
No. 1999-KM-00621-COA.
Court of Appeals of Mississippi.
February 22, 2000.
Rehearing Denied May 2, 2000.
*791 Jack R. Jones, III, Southaven, Attorney for Appellant.
Office of the Attorney General by John R. Henry Jr., Attorney for Appellee.
BEFORE KING, P.J., DIAZ, IRVING, AND THOMAS, JJ.
THOMAS, J., for the Court:
¶ 1. Quancidine Gribble was convicted of simple assault and sentenced to six months in the Desoto County Jail. Gribble appeals on the following issues of error
I. THAT THE TRIAL COURT ERRED IN DENYING THE REQUEST OF APPELLANT TO INTRODUCE EVIDENCE DURING CROSS-EXAMINATION OF THE ALLEGED VICTIM.
II. THAT THE TRIAL COURT ERRED IN OVERRULING THE MOTION FOR MISTRIAL MADE DURING THE PROSECUTOR'S CLOSING ARGUMENT.
¶ 2. Finding no reversible error, we affirm.
FACTS
¶ 3. On December 19, 1997, Robert Gribble and Quancidine Gribble got into an altercation. Quancidine came home from work to find all of her belongings packed into her vehicle. Robert testified that he wanted Quancidine to move out because she had used some of his credit cards without his permission or knowledge and he thought she was having an affair. Quancidine did not want to leave at that time and a fight ensued. Quancidine hit Robert over the head and about the chest and arm with a statue. Quancidine testified that Robert was in a drunken rage and had come at her with a shotgun and hit her in the back with a large vase, and that she defended herself by taking the shotgun away from Robert and beating him off of her with a statue. Robert, however, testified that he never hit her or attempted to hit her. They finally stopped fighting, because both of them were too *792 tired to continue, and eventually went to sleep. The next afternoon Quancidine took Robert to the emergency room. Robert claims that he convinced Quancidine to take him to the hospital by promising her he would tell the emergency room staff that he had injured himself while working on a lawn mower. Quancidine testified that Robert came up with the lawn mower story and promised her to not tell the police. Robert received numerous stitches in his head from being hit with the statue, was severely bruised about the chest and right arm, and had a torn rotator cup. After they went to the hospital they went to Wendy's to get something to eat, and Quancidine testified that they made up and even had sexual relations later that evening.
¶ 4. Several days after the incident, on December 24, Robert went to the police and reported the incident. Quancidine was arrested that day and maintained that the lawn mower story was the truth. Several months later Robert filed for divorce, but the divorce was never ordered because Robert's lawyer was disbarred and Robert was unable to find his file. The defense tried to admit the divorce complaint into evidence to show that Robert was claiming cruel and inhumane treatment. However, the judge would not admit the actual complaint since the jury heard that a divorce was pending and that the grounds were cruel and inhumane treatment. Robert denies having asked for a divorce on these grounds.
ANALYSIS
I. THAT THE TRIAL COURT ERRED IN DENYING THE REQUEST OF APPELLANT TO INTRODUCE EVIDENCE DURING CROSS-EXAMINATION OF THE ALLEGED VICTIM.
¶ 5. The appellant maintains that it was error for the trial judge to not admit the complaint for divorce into evidence. The appellant attempted to use the divorce complaint, which alleged cruel and inhumane treatment as the grounds for divorce, to show a motive for Mr. Gribble to lie about the assault.
¶ 6. We must first be reminded of our standard of review. Although relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence. M.R.E. 403. The trial court is afforded great discretion in determining whether or not to admit evidence under Rule 403. Foster v. State, 508 So.2d 1111, 1118 (Miss.1987). The Mississippi Supreme Court has long held that evidentiary rulings are within the trial judge's broad discretion and will only be reversed if the reviewing court perceives an abuse of that discretion. Hentz v. State, 542 So.2d 914, 917 (Miss.1989).
¶ 7. The Mississippi Rules of Evidence sets the standard for admitting evidence. First, the evidence must be relevant. Evidence is relevant if it would suggest to the jury that a fact of consequence is more probable or less probable than it would be without the evidence. See Kolb v. State, 542 So.2d 265, 269 (Miss.1989); Edlin v. State, 533 So.2d 403, 410 (Miss.1988); Jenkins v. State, 507 So.2d 89, 91-92 (Miss.1987). Second, and most pertinent in the case at hand, is Rule 403 which states that "[a]lthough relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence." M.R.E. 403
¶ 8. The applicable standard of review of this issue was set forth in Foster, 508 So.2d at 1117-18, wherein the court instructed as follows:
When the trial court determines that a 403 factor substantially outweighs probative *793 value, it is still within its discretion to determine whether to exclude the evidence, since 403 states not that the evidence must be excluded in such cases, but rather that it may be excluded. Because of this discretion vested in the trial court, our task as an appellate court reviewing a 403 determination is not to engage anew in the 403 balancing process. Rather, we simply determine whether the trial court abused its discretion in weighing the factors and admitting or excluding the evidence.
¶ 9. In the case sub judice, the divorce complaint claiming cruel and inhumane treatment on the part of the defendant as the grounds for divorce was not admitted into evidence. The defense attempted to admit the evidence to show that the victim had a reason to manufacture the assault claim. Robert Gribble denied having claimed cruel and inhumane treatment as the grounds for his divorce complaint. The trial judge refused to admit the actual divorce complaint since there were problems with Mr. Gribble's attorney and the information regarding the alleged grounds for divorce was already before the jury. We hold that admitting the actual divorce complaint in conjunction with the testimony about the grounds for divorce would unnecessarily confuse the jury as to the issue in question in the pending case rather than benefit the jury. We hold that the trial court did not erroneously refuse to admit the divorce complaint. Furthermore, we find that, since the jury was aware of the grounds for the divorce, had it been error to exclude the complaint it would have been a harmless one.
II. THAT THE TRIAL COURT ERRED IN OVERRULING THE MOTION FOR MISTRIAL MADE DURING THE PROSECUTOR'S CLOSING ARGUMENT.
¶ 10. The Supreme Court has repeatedly held that the granting of a motion for a mistrial is within the sound discretion of the trial judge. Hoops v. State, 681 So.2d 521, 528 (Miss.1996); Bass v. State, 597 So.2d 182, 191 (Miss.1992). We are reminded that the trial judge is in the best position to determine whether an objectionable remark has had any prejudicial effect and for that reason the trial court is allowed considerable discretion in determining whether a remark was so prejudicial as to warrant a mistrial. Roundtree v. State, 568 So.2d 1173, 1177 (Miss.1990). The question is whether the court, by instructing the jury to disregard the prosecutor's statement, repaired the damage caused by the statement so that the motion for a mistrial was correctly denied. "The failure of the court to grant a motion for mistrial will not be overturned on appeal unless the trial court abused its discretion." Bass, 597 So.2d at 191. In addition, the Mississippi Supreme Court has stated:
Elementary to all trial proceedings is the proposition that the occurrence of any prejudicially incompetent matter or misconduct before a jury, the damaging effect of which cannot be removed by admonition or instructions, necessitates a mistrial. However, it is the well established rule in Mississippi that where a trial judge sustains an objection to testimony interposed by the defense in a criminal case and instructs the jury to disregard it, the remedial acts of the court are usually deemed sufficient to remove any prejudicial effect from the minds of the jurors. The jury is presumed to have followed the directions of the trial judge.
Walker v. State, 671 So.2d 581, 621 (Miss. 1995) (citations omitted).
¶ 11. This state's Supreme Court has repeatedly and consistently held that such action is sufficient to remove any prejudice resulting from the improper testimony. See Dennis v. State, 555 So.2d 679, 682-83 (Miss.1989) (finding improper speculative testimony non-prejudicial when trial court sustained objection and instructed jury to disregard it); Wright v. State, 540 So.2d 1, 4 (Miss.1989) ("Absent unusual circumstances, where objection is sustained to *794 improper questioning or testimony, and the jury is admonished to disregard the question or testimony, we will not find error"); Marks v. State, 532 So.2d 976, 982 (Miss.1988) (finding refusal to grant mistrial was proper where trial court sustained objection and instructed jury to disregard improper testimony).
¶ 12. Furthermore, only if the inadmissible testimony is so damaging that its effect upon the jury could not be adequately cured by admonition or instruction, the trial court should grant a mistrial. Reynolds v. State, 585 So.2d 753, 755 (Miss.1991); Davis v. State, 530 So.2d 694, 697 (Miss.1988). Each case must be decided individually in determining whether particular error constitutes reversible error. Henderson v. State, 403 So.2d 139, 140 (Miss.1981). A violation of a rule of evidence should not result in the costly and time-consuming penalty of a new trial unless it affirmatively appears from the whole record that a miscarriage of justice has resulted.
¶ 13. In examining the case at bar, the defense claims that a statement made by the prosecutor during closing arguments was improper and a mistrial should be granted. The pertinent statement by the prosecutor and the admonition by the judge follows:
BY MR. HORAN: ... And then we just look at how they testify, their demeanor and whether what they're saying is making any sense. And then we put all these things together, and this is what y'all have got to do. You're going to have to put all that together and you've got to decide whether Mr. Gribble is telling the truth or whether the Defendant is telling the truth. I submit to you that she has every reason to be lying to you. They're going to get a divorce regardless of what happens here today if Mr. Gribble can ever find his file from his lawyer. We're going to try to find it. The Judge has already ordered it. We're going to get that file for him because he deserves a divorce.
Now, you know, you see this
BY MR. JONES: Judge, for the record, we object to that remark about the Court getting the file for him. I don't what [sic] that has to do with this case. That's an improper comment by the prosecutor.
BY THE COURT: All right. The jury will disregard that. That doesn't have anything to do with this case.
BY MR. JONES: For the record, we
BY THE COURT: Can everybody set that aside and not let that affect them? Anybody going to let that affect them?
BY MR. JONES: For the record, we move for a mistrial.
BY THE COURT: Okay. Go ahead, Mr. Horan.
¶ 14. We agree with the trial judge that the statement by the prosecutor was objectionable. However, since the trial judge effectively sustained the objection by instructing the jury to disregard the statement, the judge clearly cured any prejudice which may have arisen due to the comment. Furthermore, the judge asked the jury if they could proceed without letting that comment affect them, and the jury is presumed to have followed his instruction. After close scrutiny of this case we find that any prejudicial effect caused by the reference to the judge assisting the victim in receiving a divorce was cured by the trial judge's instruction to the jury to disregard the prosecutor's statement. Therefore, the trial court did not err in refusing to grant the motion for mistrial. This assignment of error is without merit.
¶ 15. THE JUDGMENT OF THE CIRCUIT COURT OF DESOTO COUNTY OF CONVICTION OF SIMPLE ASSAULT AND SENTENCE OF SIX MONTHS IN THE CUSTODY OF THE DESOTO COUNTY JAIL IS AFFIRMED. ALL COSTS OF THIS APPEAL ARE TAXED TO DESOTO COUNTY.
*795 McMILLIN, C.J., KING AND SOUTHWICK, P.JJ., BRIDGES, DIAZ, IRVING, LEE, MOORE, AND PAYNE, JJ., CONCUR.
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Digitally signed by
Reporter of Decisions
Reason: I attest to the
Illinois Official Reports accuracy and
integrity of this
document
Appellate Court Date: 2018.10.22
16:36:05 -05'00'
People v. Trajano, 2018 IL App (2d) 160322
Appellate Court THE PEOPLE OF THE STATE OF ILLINOIS, Plaintiff-Appellee, v.
Caption TITA G. TRAJANO, Defendant-Appellant.
District & No. Second District
Docket No. 2-16-0322
Filed August 22, 2018
Decision Under Appeal from the Circuit Court of Boone County, No. 11-CF-364; the
Review Hon. C. Robert Tobin III, Judge, presiding.
Judgment Affirmed.
Counsel on James E. Chadd, Thomas A. Lilien, and Yasemin Eken, of State
Appeal Appellate Defender’s Office, of Elgin, for appellant.
Tricia L. Smith, State’s Attorney, of Belvidere (Patrick Delfino, David
J. Robinson, and Adam Trejo, of State’s Attorneys Appellate
Prosecutor’s Office, of counsel), for the People.
Panel JUSTICE BURKE delivered the judgment of the court, with opinion.
Presiding Justice Hudson and Justice Hutchinson concurred in the
judgment and opinion.
OPINION
¶1 Following a jury trial in the Boone County circuit court, defendant, Tita G. Trajano, was
convicted of criminal neglect of an elderly person (720 ILCS 5/12-21(a)(2) (West 2008) (now
720 ILCS 5/12-4.4a(b)(1)(B))) and sentenced to 18 months of conditional discharge. On
appeal, she argues that the State failed to prove beyond a reasonable doubt that she
(1) knowingly failed to perform acts that she knew or reasonably should have known were
necessary to maintain the health of the victim, Richard Brown, and (2) did not make a
“good[-]faith effort” to care for Richard. Id. § 12-21(a)(2), (d). We affirm.
¶2 I. BACKGROUND
¶3 Evidence presented at trial revealed that, in February 2009, Dan Brown, Richard’s son,
contracted with BrightStar Healthcare (BrightStar) to provide live-in home health care for his
mother, Eileen Brown, who lived with Richard in an apartment attached to Katherine and Chris
Landgraff’s home. Katherine is Dan’s sister. Although the family primarily sought care for
Eileen, who had severe Alzheimer’s disease, they also sought care for Richard, who, at 85, was
blind in one eye, deaf in one ear, and had difficulty moving around without a cane or walker.
Additionally, the family believed that Richard had dementia, although Richard was never
formally diagnosed with this. Care for Richard included preparing his meals; doing his
laundry; helping him bathe, dress, and use the bathroom if he wanted help; and generally
keeping him safe.
¶4 BrightStar contracted with Joyful Hearts Home Health Support, Inc. (Joyful Hearts), to
provide the necessary services. Joyful Hearts, which was owned at least in part by Esmeralda
Roxas, placed Kaye Jensen in the Browns’ home. Defendant substituted for Jensen.
¶5 Defendant is a small Filipino woman in her seventies. In the Philippines, she took premed
classes, which consisted of psychology, physiology, and biochemistry, and later switched her
major to nutrition. Just prior to graduating, defendant got married, and she never received her
degree. Defendant and her husband had five children and moved to the United States in 1979.
In 2008, defendant began working for Joyful Hearts. Defendant testified that she had “a lot” of
clients, and she described herself as an “experienced caregiver.”
¶6 Between February and May 2009, defendant provided services three times to the Browns,
who defendant indicated were physically combative and walked around all night shouting. The
last time defendant provided services for the Browns, she reported to their home on Thursday,
May 14, 2009, at around 5 p.m. Although the Landgraffs met with defendant at that time, they
did not discuss with her anything having to do with caring for the Browns.
¶7 Katherine testified that, in the Browns’ apartment, there was a list on a desk in the kitchen
that contained contact information. Katherine indicated that “[e]verything was on there.”
Katherine theorized that Jensen showed the list to defendant, because “[t]hat was her job” and
Jensen was “really thorough.” Jensen testified that there was contact information for the
family, Joyful Hearts, and BrightStar on a sticker on the Browns’ refrigerator, and she believed
that she pointed those out to defendant. Defendant testified that she did not know the phone
numbers of Katherine or BrightStar.
¶8 On May 15, 2009, the Landgraffs left for work early in the morning. While defendant was
caring for Eileen, she heard Richard call out to her from the bedroom. Defendant went to the
-2-
bedroom and saw that Richard had fallen out of bed and was on the hardwood floor. Defendant
tried to help Richard, who was skinny but over six feet tall, stand up. She could not do it. While
she was attempting to help Richard, Eileen called out to her. Eileen had soiled herself while
sitting on the couch, so defendant left Richard and tended to Eileen. Defendant testified that
this took around one hour.
¶9 At around 10:30 or 11 a.m., defendant called Jensen, who she knew was away for the
weekend. Jensen did not answer the phone, and according to Jensen, defendant did not leave a
voicemail. Defendant asserted that she did leave a voicemail for Jensen. Although defendant
testified that she tried to call Jensen numerous times, Jensen stated that defendant called her
only once. Defendant also tried to contact Roxas, but she, too, was unavailable, and defendant
did not leave her a voicemail. Defendant acknowledged that Roxas was far away from the
Browns’ home.
¶ 10 At 1:30 p.m., Jensen saw that defendant had called her earlier. She called defendant, and
defendant told her that Richard was on the floor. Defendant did not tell Jensen how long
Richard had been on the floor or if Richard was injured. Defendant told Jensen that she called
Roxas and that she tried to get Richard up but could not do so, as she was too little. Jensen
testified that she told defendant to call Chris, who would be home soon and could help her.
Defendant testified that Jensen told her that she should wait for Chris, and she did not recall
Jensen telling her to call Chris. Defendant stated that she checked on Richard a number of
times throughout the day and that he was fine.
¶ 11 When Chris returned home at around 3:30 p.m., he received a phone call from defendant.
Defendant asked him to come over to the Browns’ apartment, but she did not say why. Chris
immediately went over to the home, and defendant told him that Richard had fallen. Chris went
into the bedroom and saw Richard on the floor. Chris elaborated that Richard was on his hands
and knees, with all of his weight on his legs, and that “it was obvious [Richard] couldn’t get up
on his own.” Chris helped Richard get into a chair, Richard told Chris that he was tired, and
Chris helped Richard get into bed. In doing so, Chris cleaned up blood from abrasions he
noticed on Richard’s ankles. Chris testified that defendant tried to help him move Richard, told
Chris that she had given Richard cookies and a glass of water, and said that Richard had been
on the floor for “[j]ust a little while.” Nothing defendant told Chris in her “[l]imited” account
of what had happened raised Chris’s concerns.
¶ 12 When Katherine returned home from work at about 5:30 or 6 p.m., Chris told her that
Richard had fallen out of bed. Katherine went to the Browns’ apartment and saw that Richard
was in bed. Richard did not tell Katherine anything about falling out of bed. When asked how
he felt, he responded that he was tired. Katherine spoke to defendant, and defendant did not
describe how Richard fell out of bed or what she did after he fell. Defendant told Katherine that
Richard remained on the floor for “[a] little while.”
¶ 13 The next morning, May 16, 2009, the Landgraffs went to the Browns’ apartment and spoke
to Richard. He again said that he was tired. Katherine and Chris changed Richard and noticed
that his knees and shins were banged up quite a bit. Katherine phoned Dan, as Katherine and
Chris believed that Richard “just wasn’t right.”
¶ 14 When Dan arrived, he tried to help Richard out of bed. Richard screamed that it hurt, so the
family decided to call an ambulance. When the paramedics arrived, Richard could not get out
of bed and onto the gurney, as he was in great pain. David Triplett, one of the paramedics,
-3-
described Richard’s pain as “obvious.” He noticed that Richard’s legs were bruised and he had
abrasions on his arms and legs.
¶ 15 In the emergency room, Dr. Aren Jimenez examined Richard. Jimenez noticed that Richard
had a number of bruises on his forearms and abrasions on his knees. After running various
tests, Jimenez diagnosed Richard as having rhabdomyolysis, which can result from the release
of protein into the blood due to the failure to move one’s muscles. Dr. Azra Ali, who also
examined Richard, observed that Richard had fresh bruises on his legs, which were consistent
with having fallen out of bed. Ali confirmed that Richard was suffering from rhabdomyolysis.
Dr. Mitchell Scott King, an expert retained by the State, agreed with the diagnosis and opined
that Richard was on the ground for at least 2 hours but more likely 4½ hours. King theorized
that Richard’s health deteriorated because he was on the floor for so long.
¶ 16 Later in the evening of May 16, 2009, defendant told Chris that Richard had been on the
floor for 1 to 1½ hours. Defendant then said that Richard was on the floor for two hours.
Defendant later told Katherine that Richard had been on the floor since noon.
¶ 17 Based on this evidence, the jury found defendant guilty, and defendant filed a posttrial
motion, arguing that she was not proved guilty beyond a reasonable doubt. The court denied
the motion, finding that there was enough evidence for a reasonable jury to find defendant
guilty beyond a reasonable doubt. This timely appeal followed.
¶ 18 II. ANALYSIS
¶ 19 On appeal, defendant argues that she was not proved guilty beyond a reasonable doubt of
criminal neglect of an elderly person. To prove defendant guilty of that offense as charged
here, the State had to establish that (1) defendant knowingly failed to call for assistance when
she knew or reasonably should have known that this was necessary to maintain Richard’s
health and (2) such failure caused Richard’s health to suffer. See 720 ILCS 5/12-21(a)(2)
(West 2008). However, liability may not be imposed on a defendant “who has made a
good[-]faith effort to provide for the health and personal care of an elderly person *** but
through no fault of h[er] own has been unable to provide such care.” Id. § 12-21(d).
¶ 20 When reviewing whether the State presented sufficient evidence to sustain a conviction,
we must decide whether, viewing the evidence in the light most favorable to the State, a
rational trier of fact could have found the elements of the offense beyond a reasonable doubt.
People v. Cunningham, 212 Ill. 2d 274, 278 (2004). A reviewing court will not retry a
defendant (id. at 279), and it will greatly defer to the credibility determinations of the trier of
fact (People v. Ortiz, 196 Ill. 2d 236, 259 (2001)). A guilty finding may be supported not only
by the evidence but also by any reasonable inferences that may be drawn from the evidence.
Cunningham, 212 Ill. 2d at 279-80.
¶ 21 Defendant claims that the State failed to establish beyond a reasonable doubt that (1) she
knowingly failed to call for assistance when she knew or reasonably should have known that
doing so was necessary to maintain Richard’s health and (2) she did not make a “good[-]faith
effort” to care for Richard. 720 ILCS 5/12-21(a)(2), (d) (West 2008). We consider each
contention in turn.
-4-
¶ 22 A. Mental State
¶ 23 We first consider whether defendant knowingly failed to call for assistance when she knew
or reasonably should have known that doing so was necessary to maintain Richard’s health. Id.
§ 12-21(a)(2). A defendant acts with “knowledge” when she is “consciously aware” that her
conduct is “practically certain” to cause the result. Id. § 4-5(b). Whether a defendant acted with
knowledge is a question of fact. See People v. Schmalz, 194 Ill. 2d 75, 81 (2000).
¶ 24 Knowledge is usually proved by circumstantial, rather than direct, evidence. Ortiz, 196 Ill.
2d at 260. Thus, knowledge may be established by evidence of the defendant’s acts,
statements, or conduct, as well as the surrounding circumstances, that supports a reasonable
inference that the defendant was consciously aware that the result was practically certain to be
caused. See People v. Fleming, 2013 IL App (1st) 120386, ¶ 75; People v. Herr, 87 Ill. App. 3d
819, 822 (1980).
¶ 25 Knowledge is different from what a defendant “should have known.” People v. Nash, 282
Ill. App. 3d 982, 986 (1996). “ ‘[S]hould have known’ implicates ‘the standard of care which a
reasonable person would exercise’ and therefore pertains to the lesser mental states of
‘recklessness’ and ‘negligence.’ ” Id. (quoting 720 ILCS 5/4-6, 4-7 (West 1992)). A person
acts recklessly when she consciously disregards a substantial risk that a result will occur. 720
ILCS 5/4-6 (West 2008). A person acts negligently when she fails to be aware of a substantial
risk that a result will occur. Id. § 4-7.
¶ 26 With the above principles in mind, we turn to the facts presented here. Viewed in the light
most favorable to the State, the evidence revealed that Richard, an 85-year-old man with many
health issues, fell out of bed and onto a hardwood floor. He remained on the floor for
approximately 4½ hours. During that time, defendant, who had taken premed courses and who
described herself as an “experienced caregiver,” made only two phone calls, despite the fact
that a detailed list of contact numbers was left in the Browns’ home. The two people defendant
called were Roxas, her employer, and Jensen, the regular caregiver. Neither answered when
defendant called, defendant left no voicemail for either, and defendant acknowledged that
neither would have been be able to provide immediate assistance. Several hours after
defendant called Jensen, Jensen returned defendant’s call. Although Jensen told defendant
during that call that Chris would be home soon, she also told defendant to call Chris. Defendant
did not promptly call Chris, 911, or anyone else who could help her with Richard. Although
defendant fed Richard, gave him water, and checked on him, a rational jury could find that
defendant knowingly failed to call for immediate assistance when she knew or reasonably
should have known that calling for immediate assistance was necessary to maintain Richard’s
health.
¶ 27 Defendant argues that the State failed to meet its burden because it did not “show how
[defendant] would have known that despite her efforts to care for Richard, his immobility was
‘practically certain’ to cause a condition that has no physical manifestations and can only be
diagnosed through laboratory tests.” Defendant’s argument assumes too much. As the State
notes, the statute does not require that the caregiver know the type of affliction that could
manifest itself because of the caregiver’s inaction. Rather, the statute requires only that the
caregiver act as necessary to maintain the elderly person’s health. Id. § 12-21(a)(2). Given that
defendant attempted to move Richard, continually checked on him, and made two phone calls
about what to do, it was reasonable to infer that she knew (or reasonably should have known)
that leaving Richard on the floor for several hours would not maintain his health.
-5-
¶ 28 Also unavailing is defendant’s claim that she cannot be held liable when no one else was
concerned enough about Richard to call 911. Only defendant’s conduct is at issue here. In any
event, defendant gave Jensen, Chris, and Katherine only a “[l]imited” version of what had
happened and kept changing her account of how long Richard had remained on the floor,
lengthening that time as the weekend went on. A rational jury could have determined that this
showed defendant’s consciousness of guilt, which supports our holding that defendant was
proved guilty beyond a reasonable doubt. See People v. Seiber, 76 Ill. App. 3d 9, 13-14 (1979).
¶ 29 B. Good-Faith Effort
¶ 30 Defendant also argues that the State failed to prove beyond a reasonable doubt that she did
not act in good faith in attempting to care for Richard. The statute provides:
“Nothing in this Section shall be construed to impose criminal liability on a person who
has made a good[-]faith effort to provide for the health and personal care of an elderly
person *** but through no fault of h[er] own has been unable to provide such care.”
720 ILCS 5/12-21(d) (West 2008).
¶ 31 In construing this provision, we are guided by the well-settled rules of statutory
construction. The primary objective in construing a statute is to ascertain and give effect to the
legislature’s intent. People v. Martino, 2012 IL App (2d) 101244, ¶ 25. The surest and most
reliable indicator of that intent is the statutory language. Id. We must construe the statute as a
whole, giving the language its plain and ordinary meaning. Id. When the language is clear and
unambiguous, we must apply the statute without resorting to any extrinsic aids of construction.
Id. We review the construction of a statute de novo. People v. Manning, 2018 IL 122081, ¶ 16.
¶ 32 Two issues arise when construing this provision. First, the statute does not indicate who
has the burden of proving the exemption. As defendant notes, “[w]here a criminal statute
contains an exemption and the legislature has not set forth a provision within the statute
allocating the burden of persuasion as to the exemption, we presume that the burden is on the
State, not the defendant.” People v. Cannon, 2015 IL App (3d) 130672, ¶ 21. Here, the State
concedes that it had the burden of proving a lack of good faith.
¶ 33 Second, the statute does not define “good faith,” so we may use a dictionary. People v.
Beachem, 229 Ill. 2d 237, 244-45 (2008); see also People v. Kucharski, 2013 IL App (2d)
120270, ¶ 41. “Good faith” means “honesty” (Merriam-Webster’s Collegiate Dictionary 502
(10th ed. 2000)) or “a state of mind consisting in *** faithfulness to one’s duty or obligation”
(Black’s Law Dictionary 808 (10th ed. 2014)). Thus, the statute required the State to prove that
defendant did not make an honest and faithful effort to provide for Richard’s health. Viewing
the evidence in the light most favorable to the State, we hold that the State met its burden.
¶ 34 The evidence established that defendant was an “experienced caregiver.” After Richard fell
onto the floor, she tried to get him up, but she was unable to move him. She then made only two
phone calls, to people who she knew could not provide immediate assistance. Hours later, she
received a call from Jensen, who told her to call Chris. Defendant did not make that call until
Chris returned home, and she told him that Richard had been on the floor for “[j]ust a little
while.” Although defendant checked on Richard and gave him food and water, the jury could
find that this was insufficient to constitute a good-faith effort to care for Richard, an elderly
man with many ailments who was stranded on a hardwood floor for several hours.
-6-
¶ 35 Defendant argues that the State failed to meet its burden because “she honestly did the best
she could under the circumstances.” Supporting her position, defendant notes that she, too, was
elderly, was much smaller than Richard, and also had to care for Eileen. We believe that such
evidence actually strengthens the conclusion that defendant did not act in good faith. That is,
given that defendant clearly could not provide Richard with needed care, an honest and faithful
effort required her to seek immediate help from someone else.
¶ 36 We also find unpersuasive defendant’s contention that the State failed to establish that she
acted with “malice.” We do not find that an absence of “good faith” requires the presence of
malice. Rather, as noted above, it is merely the absence of an honest and faithful effort to
provide needed care.
¶ 37 III. CONCLUSION
¶ 38 For the reasons stated, we affirm the judgment of the circuit court of Boone County. As
part of our judgment, we grant the State’s request that defendant be assessed $50 as costs for
this appeal. 55 ILCS 5/4-2002(a) (West 2016); see also People v. Nicholls, 71 Ill. 2d 166, 178
(1978).
¶ 39 Affirmed.
-7-
|
25 Cal.App.4th 1205 (1994)
31 Cal. Rptr. 75
In re DANIEL G., a Person Coming Under the Juvenile Court Law.
LOS ANGELES COUNTY DEPARTMENT OF CHILDREN'S SERVICES, Plaintiff and Respondent,
v.
WILLETA W., Defendant and Appellant.
Docket No. B076977.
Court of Appeals of California, Second District, Division Seven.
June 13, 1994.
*1207 COUNSEL
Jane Winer for Defendant and Appellant.
De Witt W. Clinton, County Counsel, Mitchell Beckloff and Jeanette Malouf for Plaintiff and Respondent.
OPINION
JOHNSON, J.
Willeta W. appeals from a judgment permanently severing her parental rights as to Daniel and ordering Daniel be placed for adoption. We conclude the juvenile court erred in holding it had no discretion to order continued reunification services beyond the 18-month review under Welfare and Institutions Code section 366.22, subdivision (a) and that such error was prejudicial. Therefore, the judgment is reversed and the matter remanded to the juvenile court for further proceedings consistent with the views expressed below.
FACTS AND PROCEEDINGS BELOW
Daniel was born on April 6, 1991. At that time his mother, Ms. W., was living in a board-and-care home under a conservatorship of her person and estate. The record shows Ms. W. is mildly mentally retarded and has been *1208 diagnosed as suffering from schizophrenia and poor impulse control. The Los Angeles County Department of Children's Services (DCS) filed a petition to make Daniel a dependent of the court four days after his birth. The petition alleged that due to her mental condition Ms. W. was incapable of providing for Daniel's needs. It further alleged Daniel was at risk of suffering serious physical harm as a result of his mother's inability to provide for her own care much less those of an infant.
In June of 1991 Daniel was declared a dependent child of the juvenile court and placed in foster care. The court ordered DCS to provide family reunification services to Daniel and his mother.
Ms. W.'s conservatorship was terminated in August 1991 but she continued to live in monitored surroundings at a board-and-care home.
The court conducted a six-month review of the case under Welfare and Institutions Code section 366.21, subdivision (e)[1] on January 13, 1992. At that hearing the court continued Daniel's foster placement and ordered DCS to continue to provide family reunification services. The court made a finding reasonable reunification services had been provided up to that point.
The next review did not occur until nine months later, in September 1992. Again, the court continued its placement order for Daniel. This time, however, the court specifically ordered Ms. W. have weekly visitations with Daniel and found DCS had not made reasonable efforts to reunite Daniel and his mother since the previous hearing in January 1992.
A final 18-month review under section 366.22 took place on December 30, 1992. The failure of DCS to provide family reunification services was a major issue at this hearing.
The court received in evidence a written report by Charles Brown, Daniel's social worker at DCS. In this report, Brown stated the family reunification services since the last review consisted of monitoring Daniel's placement through home visits and telephone calls to the foster parent; monitoring Ms. W.'s progress in board and care; and providing referrals as needed to the foster mother. The foster mother, the report stated, "is gracious enough to facilitate visits between minor and mother by bringing minor to see mother ... when scheduling allows." Ms. W. had satisfactorily cooperated with the visitation plan.
At the hearing Brown testified he had been the social worker on the case throughout 1992. He did not know if Ms. W. was in an independent living *1209 skills program and had never attempted to find out or to place her in one. He did not know if there were board and care facilities which would accept a mother and child and had not attempted to find out. He had spoken with Ms. W.'s psychiatrist but could not remember whether he asked the psychiatrist if Ms. W. would ever be able to care for Daniel and, if so, when. Brown admitted that during the entire time he had been on the case he had never once spoken to Ms. W. However, at this point Brown changed his earlier testimony and stated he had only been on the case since May or June of 1992. No other testimony was offered at the hearing.
Following Brown's testimony and arguments by counsel for DCS, Daniel and Ms. W., the court made a finding DCS had not provided reasonable reunification services to Daniel and his mother from the time of the six-month review to the end of the eighteen-month review period. The court noted the social worker "didn't even talk to her once" and "Department has relied on old reports, hearsay, and has done nothing...."
Despite its view that DCS's reunification efforts on behalf of Daniel and his mother had been "a disgrace," the court stated it felt constrained to order a hearing on a permanent plan for Daniel because "[t]his is the 18-month hearing date" and because DCS had made reasonable reunification efforts in the first six months after Daniel's placement. Thus, the court terminated further reunification efforts and set the matter for hearing on the selection and implementation of a permanent plan for Daniel.
At the hearing on the permanent plan, the court made the requisite findings under section 366.26, subdivisions (b) and (c) and ordered termination of Ms. W.'s parental rights with respect to Daniel. Ms. W. filed a timely appeal from this judgment.
(1a) For the reasons set forth below, we hold the juvenile court erred in concluding that despite the fact the reunification services provided this family were a "disgrace" it had no discretion to continue efforts at reunification beyond the 18-month review period. Therefore, we reverse the judgment and remand the matter to the juvenile court for a proper exercise of its discretion as to continued reunification services.
DISCUSSION
To orient the issue in this appeal it is necessary to understand the four stages in a dependency proceeding leading up to the termination of parental rights. Those four stages are: jurisdiction, disposition, reunification and implementation of a permanent plan, which may include termination of *1210 parental rights. (In re Matthew C. (1993) 6 Cal.4th 386, 391 [24 Cal. Rptr.2d 765, 862 P.2d 765].)
Promptly after a child is removed from a parent, a jurisdiction hearing is held to determine if there were adequate grounds for removal. If so, a disposition hearing is held to determine whether the child should be returned to the parents or must be removed pending further review. If the child is removed from the parent's custody, the court, in most cases, must make orders regarding reunification services. (§ 361.5, subd. (a).) This begins the reunification stage. During the reunification stage, the court must review the case at least once every six months to determine whether the child may be returned to the parents and whether reasonable reunification services have been afforded the family. (§§ 366.21, subds. (e), (f), (g)(1); 366.22, subd. (a).) Normally, if the child cannot safely be returned to the parents after 18 months from the detention (3 review periods), the court must terminate reunification efforts and set the matter for hearing to determine a permanent placement plan for the child. This leads to the final stage, implementation of a permanent plan which may include termination of parental rights and adoption of the child. (§ 366.26.)
The appeal in this case focuses on the reunification stage of the proceeding. Ms. W. does not challenge the sufficiency of the evidence to support termination of parental rights under section 366.26. Rather, her contention is the case only got to that stage because the juvenile court erred in terminating reunification services at the 18-month review. (2) An order terminating reunification services and setting a hearing under section 366.26 is reviewable on appeal from the final judgment terminating parental rights. (In re Matthew C., supra, 6 Cal.4th at p. 388.)
(3) The purpose of California's child welfare law is threefold. First, "to provide maximum protection for children who are currently being physically, sexually, or emotionally abused, being neglected, or being exploited, and to protect children who are at risk of that harm." (§ 300, text foll. subd. (j).) Second, to "focus on the preservation of the family whenever possible." (Ibid.) And, third, to reach a final disposition in each case as expeditiously as possible. (Cynthia D. v. Superior Court (1993) 5 Cal.4th 242, 247 [19 Cal. Rptr.2d 698, 851 P.2d 1307].)
Recognizing these goals might often conflict, the Legislature adopted procedures to balance the interest of the child in being free from physical or emotional harm and in a permanent relationship with nurturing adults, the interest of the parent in raising the child without inappropriate intrusion into family life and the interest of the public in traditional family values including the preservation of parental bonds. Thus, the legislative scheme allows *1211 the ultimate termination of parental rights only after multiple findings of parental unfitness, ongoing reunification efforts and clear and convincing evidence it is likely the child will be adopted. (§ 366.26, subds. (b), (c); Cynthia D. v. Superior Court, supra, 5 Cal.4th at p. 253.) As a general rule, the court has 18 months from the original order of detention to determine if the child should be returned to the parent or placed elsewhere with or without termination of parental rights. (§§ 366.22, subd. (a); 366.26, subds. (b), (c).)
To achieve the goal of preserving the family whenever possible, the Legislature required the county child welfare departments to develop and implement family reunification plans and required the courts to monitor those plans through periodic review. Family reunification efforts are required to begin with the first determination the child will be detained in juvenile court custody. (§§ 319; 361.5, subd. (a).) Thereafter the court must review the case at intervals of no less than six months and determine, among other things, whether reasonable reunification services have been offered. (§§ 366.21, subds. (e), (f), (g)(1); 366.22, subd. (a).)
Unfortunately the Legislature did not specify what the court should do if, as in the present case, the court finds reasonable reunification services were not offered. The only guidance is provided in section 366.26, subdivision (c)(2) which states that even if all other requisites for termination of parental rights are present, "The court shall not terminate parental rights if at each and every hearing at which the court was required to consider reasonable efforts or services, the court has found that reasonable efforts were not made or that reasonable services were not offered or provided." The present case does not come within this proscription because the court found in the first six-month review that reasonable reunification services had been provided. It was in the subsequent 12 months DCS failed to provide the required services.
(1b) DCS argues 18 months is the outer limit for family reunification efforts. At the end of this time, if the child cannot be returned to the parent, the court must order a permanent placement hearing under section 366.26 regardless of whether reasonable reunification services have been provided.
In support of this argument DCS points out that while the Legislature was concerned with preserving the family unit whenever possible, it was also concerned with providing an expeditious final resolution of the case. (See Cynthia D. v. Superior Court, supra, 5 Cal.4th at pp. 246-247.) Therefore the Legislature provided for "services to the minor and the minor's parents or guardians for the purpose of facilitating reunification of the family within a *1212 maximum time period not to exceed 12 months" except that "[s]ervices may be extended up to an additional six months if it can be shown that the objectives of the service plan can be achieved within the extended time period." (§ 361.5, subd. (a).) At the 12-month review, the court must extend the time for reunification services for up to an additional 6 months if it finds "reasonable services have not been provided to the parent or guardian." (§ 366.21, subd. (g)(1).) Relying on this latter provision, DCS argues the court cannot extend the next review period beyond 18 months from the date the child was originally taken from the parent's custody. When a case is continued pursuant to section 366.21, subdivision (g)(1), the court at the 18-month hearing must either order the child returned to the parent or order a permanent placement hearing to be held within 120 days. (§ 366.22, subd. (a).) The Legislature made no provision for any further continuances to provide family reunification services. Indeed, the statute provides if a permanent placement hearing is ordered, "The court shall also order termination of reunification services to the parent." (Ibid.)[2]
Similar arguments were made and rejected in In re Dino E. (1992) 6 Cal. App.4th 1768 [8 Cal. Rptr.2d 416]. In Dino, no reunification plan was ever developed for the father. The juvenile court nonetheless concluded it was compelled to terminate reunification services and order a permanent placement hearing. (Id. at p. 1777.) The court denied the father's request to extend reunification services beyond 18 months because the court believed "`[t]he law doesn't permit it.'" (Id. at p. 1775.) The Court of Appeal disagreed with the juvenile court's interpretation of the statutory scheme and issued a writ of mandate ordering the court to vacate the permanent placement hearing and to exercise its discretion in determining whether an additional period of family reunification services should be required.
In determining the juvenile court had discretion to extend family reunification services beyond the 18-month review, the court noted at the time of the 18-month review in Dino section 366.22, subdivision (a) provided, "If the minor is not returned to a parent or guardian at the 18-month hearing and the court determines that reasonable services have been offered or provided to the parent or guardian, the court shall develop a permanent plan." The court interpreted this language to mean the trial court "must find that reasonable services have been offered to the parent before ordering that a permanent plan be developed for the minor." (6 Cal. App.4th at p. 1776.) The *1213 court recognized, "The statutes and rules governing dependency actions clearly require that a family reunification plan be developed as a part of any dispositional order removing a child from its home" and that "... no reunification plan was ever developed for appellant." (Id. at pp. 1776-1777.) The court rejected a "`mechanical approach'" to reunification. (Id. at p. 1777.) Instead, the court held, "[w]here no reunification plan is in place, ... a strict enforcement of the time line does not provide the opportunity to reunite the family. We do not believe that such a result was intended by the Legislature.... We conclude that under the circumstances of this case, where the court was faced with the prospect that the 18 months had elapsed and no reunification plan had been developed for the parent, the court was entitled to weigh the various interests involved and exercise its discretion." (Id. at p. 1778, fn. omitted.)
We find the reasoning in Dino applicable to the present case.
At the time of the 18-month review in the present case, the language requiring the court to determine whether reasonable services have been offered or provided to the family had been moved from the opening sentence of section 366.22, subdivision (a) and made a separate sentence: "The court shall determine whether reasonable services have been offered or provided to the parent or guardian." (Stats. 1991, ch. 820, § 4.) According to the Legislative Counsel's Digest, the purpose of this rearrangement "would require a court to determine whether reasonable services have been offered or provided to the parent or guardian but would delete that requirement as a precondition for developing a permanent plan." (Legis. Counsel's Dig., Sen. Bill No. 475 (1991 Reg. Sess.) Summary Dig., p. 352, italics added.) This amendment to the statute supports our conclusion the juvenile court has discretion not to move on to the permanent plan stage of the case until it is satisfied reasonable reunification services have been provided to the family.
While it is true in the present case some reunification services were provided to Ms. W. and Daniel this does not alter our conclusion the court had discretion to extend reunification services. Rather, it is a factor the court should consider in exercising its discretion whether to order a permanent placement hearing. We see no meaningful distinction between a case such as Dino, in which no reunification plan was ever developed, and a case such as the one before us where a reunification plan was developed but not implemented during most of the reunification stage. To draw such a distinction would be to take a "mechanical approach" to reunification inconsistent with the legislative intent in requiring reunification services discussed above.
We find nothing in the legislative intent or the specific language of section 366.22 or 366.26 which prohibits the court from extending the period for *1214 reunification services beyond 18 months from the child's detention where the agency responsible for providing these services has, in the court's opinion, failed to make a reasonable effort to provide those services.
While the Legislature was concerned with reducing delays in arriving at a permanent resolution of the child's placement, we do not believe the Legislature intended a speedy resolution of the case to override all other concerns including "the preservation of the family whenever possible" especially given the lengths to which the Legislature went to try to assure adequate reunification services were provided to the family. In upholding the parent's right to challenge on appeal an order terminating reunification services and setting a permanent placement hearing, the Supreme Court, in Matthew C., stated: "Although delay in a child's permanent placement is a legitimate policy concern, it alone in the absence of any other evidence does not warrant a finding of legislative intent to eliminate appellate review of these orders." (6 Cal.4th at p. 400.)
The provision in section 366.22, subdivision (a) mandating a termination of reunification services if the child is not returned at the 18-month hearing only applies if the court at that hearing orders a permanent placement hearing. As we hold in this case, the court has discretion not to order such a hearing if it determines reasonable reunification services have not been provided. Any other interpretation of that section would render meaningless the mandate "[t]he court shall determine whether reasonable services have been offered or provided to the parent or guardian."
The provision in section 366.26, subdivision (c)(2) prohibiting termination of parental rights if "at each and every hearing" the court has found "reasonable efforts were not made or that reasonable services were not offered or provided" affords the parent some protection against the total misfeasance of the child welfare agency. This protection, however, is not a substitute for the requirement to provide family reunification services which, under the legislative scheme, "the petitioning agency must have satisfied before it can propose termination." (Cynthia D. v. Superior Court, supra, 5 Cal.4th at p. 256, italics added.) Furthermore, even where this statute applies it does not result in the child being returned to the parent but only provides parental rights shall not be terminated. The child will still remain out of the home in placement with a guardian or in long-term foster care. (§ 366.26, subd. (b).) The "critical decision regarding parental rights" is made at the review hearing under section 366.22 where the court makes a final determination the child cannot be returned home and that a permanent placement outside the home must be ordered. (5 Cal.4th at p. 250.)
Thus, as shown above, interpreting the statutes to provide the juvenile court with discretion to order continued family reunification services at the *1215 18-month review is consistent with the legislative intent to preserve the family unit whenever possible and with the specific statutory provisions addressing the requirements for family reunification services. As the facts in this case illustrate, without this discretion the Legislature's expectation the family will receive reasonable reunification services is reduced to a mere hope. But this is not the sole ground for our holding. (4) As we explain below, due process requires Ms. W. be offered reasonable reunification services before her parental rights can be terminated.
In Cynthia D., supra, a parent whose parental rights had been terminated under section 366.26 challenged the termination on the ground it was based on a finding by a mere preponderance of the evidence return of the child to parental custody would create a substantial risk of detriment to the child. The parent argued due process required such a finding be made by "clear and convincing evidence," citing Santosky v. Kramer (1982) 455 U.S. 745 [71 L.Ed.2d 599, 102 S.Ct. 1388] and In re Angelia P. (1981) 28 Cal.3d 908 [171 Cal. Rptr. 637, 623 P.2d 198]. The California Supreme Court rejected the parent's argument finding the substantive and procedural requirements leading up to a termination order under section 366.26 were distinguishable from those involved in Santosky and Angelia P.: "Considered in the context of the entire process for terminating rights under the dependency statutes, the procedure specified in section 366.26 for terminating parental rights comports with the due process clause of the Fourteenth Amendment because the precise and demanding substantive and procedural requirements the petitioning agency must have satisfied before it can propose termination are carefully calculated to constrain judicial discretion, diminish the risk of erroneous findings of parental inadequacy and detriment to the child, and otherwise protect the legitimate interests of the parents." (5 Cal.4th at p. 256.)
Referring to the risk of erroneous factfinding, the court found this risk was substantially diminished under the statutory scheme "which emphasizes `preservation of the family whenever possible'" (5 Cal.4th at p. 254) and requires "a series of hearings involving ongoing reunification efforts.... Only if, over this entire period of time, the state continually has established that a return of custody to the parent would be detrimental to the child is the [parental termination] stage even reached." (Id. at p. 253, italics added.)
Clearly, one of the "precise and demanding" substantive requirements DCS must meet to satisfy due process is affording reasonable reunification services. Where reasonable services are not afforded there is a substantial risk the court's finding the child cannot be returned to the parent will be erroneous. (Cynthia D. v. Superior Court, supra, 5 Cal.4th at p. 256.) To put it another way: in order to meet due process requirements at the termination *1216 stage, the court must be satisfied reasonable services have been offered during the reunification stage.
In the present case, the reunification services DCS provided in the last 12 months of the reunification stage were virtually nil a "disgrace" as the trial court put it. The social worker assigned to the case did not even contact the mother during this period but put all his time into working with Daniel and the foster mother who wished to adopt him. The worker did not investigate the possibility Ms. W. and Daniel could be housed together in a facility which would meet both their needs and had no idea whether Ms. W. was progressing toward an independent living situation. He never asked Ms. W.'s psychiatrist whether he believed Ms. W. would ever reach the point where she could care for Daniel and, if so, when. Despite the fact the court ordered weekly visits between Ms. W. and Daniel, the record shows visits were only arranged monthly the social worker taking the view that even these visits were through the "grace" of the foster parent.
We recognize Ms. W. appears to have serious emotional problems and realistically she may never be able to properly care for her son. On the other hand, it appears from the record DCS gave up on this case without really trying. This it cannot do. (In re John B. (1984) 159 Cal. App.3d 268, 273 [205 Cal. Rptr. 321].) If DCS believed reunification services should not be provided for one of the reasons contained in section 361.5, subdivision (b), which includes a parent's mental disability, it should have brought this to the court's attention at the disposition hearing. It did not do so and the court ordered reunification services be provided. Therefore, DCS had a duty to make a good faith effort to provide those services.
As our Supreme Court has recognized, the 18-month review under section 366.22 "is generally a party's final opportunity to litigate the issue of parental fitness as it relates to any subsequent termination of parental rights, or to seek the child's return to the parent's custody." (Matthew C., supra, 6 Cal.4th at p. 395.) Once the case reaches the permanent placement stage, "`the decision to terminate parental rights will be relatively automatic if the minor is going to be adopted....'" (Cynthia D. v. Superior Court, supra, 5 Cal.4th at p. 250, citation omitted.) Thus, "given the magnitude of the challenged order in the overall dependency scheme" (In re Matthew C., supra, 6 Cal.4th at p. 395), we conclude the juvenile court had discretion to continue reunification services beyond the 18-month review hearing and its failure to exercise that discretion requires reversal of the judgment terminating Ms. W.'s parental rights as to Daniel.
(1c) On remand the juvenile court should determine whether to exercise its discretion to order further reunification services. In making this determination, the court should consider the services already provided Ms. W. and *1217 Daniel, the likelihood of success of any further reunification efforts, whether Daniel's need for a prompt resolution of his status outweighs any benefit from further reunification services and such other factors as the parties may bring to the court's attention.
DISPOSITION
The judgment is reversed and the matter remanded to the trial court for further proceedings consistent with the views expressed herein. Appellant is awarded costs on appeal.
Lillie, P.J., and Woods (Fred), J., concurred.
NOTES
[1] All statutory references are to the Welfare and Institutions Code.
[2] DCS contends the 18-month limit on family reunification services does not mean the child welfare agency can sit idly by for 18 months and allow the parent to lose parental rights for lack of reunification services. Section 366.26, subdivision (c)(2) prevents this result by providing parental rights cannot be terminated if the court finds "at each and every hearing" reasonable services were not offered or provided the family.
|
203 Va. 551 (1962)
ROBERT A. FENON, AN INFANT, ETC.
v.
CITY OF NORFOLK.
Record No. 5421.
Supreme Court of Virginia.
June 11, 1962.
Bernard Levin and Jay M. Ball, for the plaintiff in error.
Leonard H. Davis, City Attorney (Virgil S. Gore, Jr., Assistant City Attorney, on brief), for the defendant in error.
Present, All the Justices.
When the city of Norfolk was struck by Hurricane Donna on September 12, 1960, some 800 trees were blown into the streets, most of which blocked vehicular traffic and thus seriously interfered with efforts of the utility companies to restore electric and telephone services. In this emergency the city put all available personnel to work clearing the streets. One such crew left a large tree trunk extending into a street. Plaintiff was injured when the automobile in which he was riding struck this tree. But since in the circumstances the city was not in the exercise of its proprietary function of maintaining its streets but was operating in a governmental capacity to care for the public in an emergency situation, plaintiff had no enforceable claim against it.
Error to a judgment of the Circuit Court of the city of Norfolk. Hon. Clyde H. Jacob, judge presiding. The opinion states the case.
WHITTLE
WHITTLE, J., delivered the opinion of the court.
Robert A. Fenon, an infant, filed a motion for judgment through Beverly Wiggins, his next friend, against the City of Norfolk, in which he sought to recover damages for personal injuries sustained when the automobile in which he was riding as a guest passenger struck a tree which had fallen into a street during a storm.
Fenon alleged that the City "was under obligation to use reasonable care to maintain and keep its streets at all times in reasonably safe conditions for travelling," and that the City negligently failed *552 to keep the street in question "in a reasonably safe condition for travel in the usual mode," in that it placed a barricade therein at the fallen tree and left the same without lights or proper warning to approaching traffic, by reason whereof he, while riding as a guest passenger, collided with the barricade and was injured.
In response to the motion for judgment the City filed its answer and grounds of defense, and in addition filed a special plea in bar. The plea in bar asserted that the court should not take further cognizance of the plaintiff's motion and should dismiss the action for the reasons:
"1. That, on the 12th day of September, 1960, the day of the plaintiff's alleged accident and injury, there occurred in the City of Norfolk a certain act of God which was a violent hurricane, with winds of very high velocity and a great amount of precipitation, said hurricane being known as 'Hurricane Donna'."
"2. That said Hurricane Donna did cause such great damage and destruction as to constitute a public disaster and create an emergency situation."
"3. That the policemen and other officers, agents and employees of the City of Norfolk were caused to expend great effort and to work over a long period of time in an attempt to alleviate the damage and destruction caused by Hurricane Donna."
"4. That, while the City denies all acts of negligence charged against it in plaintiff's motion for judgment, even if said acts should be shown, they were included among the acts of the officers, agents and employees of the City of Norfolk performed in an attempt to alleviate the public disaster caused by Hurricane Donna and they, as well as the other acts performed by the officers, agents and employees of the City of Norfolk for the purpose of alleviating the damage and destruction resulting from the public disaster caused by Hurricane Donna, were performed for a public and governmental purpose, in the emergency situation resulting from the public disaster, and the City of Norfolk is not liable therefor, the City being immune from liability for negligence in the performance of a governmental function."
At the conclusion of plaintiff's evidence concerning the happening of the accident the City moved to strike on the grounds (1) that no negligence on the part of the City had been shown; (2) that even if it might be said that the plaintiff's evidence showed negligence on the part of the City, such negligence was remote and was not a proximate cause of the accident; (3) that at the time of the accident the City *553 was performing a governmental function and was immune from liability even if it might be said that the City was guilty of negligence in the performance of that function; and (4) that the evidence of the plaintiff showed that he was guilty of contributory negligence which barred his recovery.
After hearing argument on the motion the court stated: "I don't think that there is enough evidence in the record right now to show the severity of the storm. * * * We have here three things that absolutely tie in together which it would seem to the court would be the proximate cause of this accident: drinking; a broken-down car with lights that did not comply with the law -- otherwise he could have seen more than 15 feet; and that if the City hadn't worked at all, hadn't gotten around to this tree, this accident would still have happened. The Court of Appeals has said that 'proximate cause' means that cause without which the accident would not have happened. I will defer any ruling on the motion until the court is satisfied of the emergency."
Whereupon the City introduced evidence as to the severity of the storm and the damage wrought by it, renewing its motion to strike plaintiff's evidence on the grounds previously stated, at which time the court inquired of the plaintiff whether or not he wished to rebut the evidence which the City had introduced regarding the severity of the hurricane, and it was stipulated that if the plaintiff's rebuttal witness were to testify he would say that he was a taxicab operator and during the hurricane he was able to operate as a cab driver. Thereupon the court sustained the City's motion to strike plaintiff's evidence and, on motion of the City and over the objection of the plaintiff, entered summary judgment.
We granted Fenon a writ of error.
There is only one question here involved, i.e.: Was the City performing a governmental function or a proprietary function in an effort to clear its streets on this occasion?
The evidence shows that on September 12, 1960, the City was struck by Hurricane Donna. Around 5:00 a.m. on that day the winds were well up in the hurricane force range, and gusts up to 120 miles an hour were recorded by the Army Base located near the scene of the accident. The winds came during the night of September 11 and the early morning of September 12. They were strongest in the City at about 7:14 a.m. on the morning of the 12th, and began to diminish at about 8:00 a.m. *554
The hurricane was preceded and accompanied by heavy rainfall. On the 12th of September 3.59 inches of rain fell in the area.
More than 1,000 trees owned by the City were blown down by the hurricane, approximately 800 of which, ranging in size from 5 to 36 inches in diameter, were thrown into the streets. This figure did not include trees which were damaged but remained standing. At least 75 per cent of the fallen trees were impeding vehicular traffic. It required two weeks to completely clear the streets of trees and debris.
The hurricane put out of commission the electric service to approximately 80,000 of the Virginia Electric and Power Company's 150,000 customers in the area, and this company, after supplementing its local repair crews with crews from all over the State of Virginia and from Baltimore, Maryland, which worked all the daylight hours, had not been able to restore service to between 500 and 1,000 of its customers in the City five days after the hurricane.
There were approximately 15,000 telephones knocked out, taking 48 additional line crews and 40 one-man installation crews to restore telephone service, which was accomplished by temporary repairs on September 16. Motorbus transportation was completely stopped in the City.
The employees and equipment of four divisions of the City were put to work clearing the streets of trees and debris. Many of these employees did not normally perform work in connection with the streets but because of the gigantic clean-up job with which the City was confronted they were used to supplement the regular employees in the street cleaning division.
After the center of the hurricane had passed on the morning of September 12, approximately 400 employees of the City, with all available equipment, were assigned to clearing the streets of the trees and debris.
At about 10:00 a.m. on September 12, two City laborers arrived at Jamestown Crescent and Carroll Place, the scene of the accident. Their assignment was to clear the street. There were 25 to 35 trees down in Jamestown Crescent, a short street.
At this intersection the men found a large tree uprooted and lying in Jamestown Crescent so that it blocked the westbound half or both of the lanes on the northern side of the street. They trimmed off the limbs so that the westbound lane next to the center of the street was clear for traffic. They piled the limbs near the curb but *555 the trunk of the tree remained projecting into Jamestown Crescent as it was too large for them to handle.
The trunk was left projecting approximately "a car's width" into Jamestown Crescent. A wooden sawhorse was placed about 15 feet from the trunk of the tree before they left it that morning. They had no lights with them and left no lights there. This location was the scene of the accident which occurred at approximately 7:00 p.m. on September 12, when the car in which plaintiff was riding as a guest passenger struck the barricade and tree trunk, causing the injuries complained of.
In Virginia a municipal corporation is clothed with a two-fold function -- one governmental and the other proprietary. A municipality is immune from liability for failure to exercise or for negligence in the exercise of its governmental functions. It may be liable, just as a private individual or corporation, for the failure to exercise or for negligence in the exercise of its proprietary functions. Hoggard City of Richmond, 172 Va. 145, 200 S.E. 610.
Therefore, if the operations of the City of Norfolk, during the course of which the plaintiff was injured, were being performed by the City in the exercise of a governmental function, the City is immune from liability and the plaintiff cannot recover. The plaintiff does not deny this but asserts that the City was operating in a proprietary capacity at the time. Plaintiff argues that the City was maintaining its streets, specifically Jamestown Crescent at Carroll Place. It is not contended that the street itself was defective but that the tree which the hurricane had uprooted and thrown into the street so that it blocked both the westbound traffic lanes was an obstruction with which the City had to cope on the street maintenance, proprietary basis.
A study of the authorities relied on by plaintiff, including Burson City of Bristol, 176 Va. 53, 10 S.E.2d 541; 63 C.J.S., Municipal Corporations, | 807, page 127; 25 Am. Jur., Highways, | 420, page 714; and 19 McQuillan, Municipal Corporations, | 54.94, will reveal that all contain abstract statements not relevant to the issue here.
In the instant case the damage wrought by the hurricane involved the entire City of Norfolk. The City, in the midst of the emergency and before there was time for survey and appraisal of the situation, was engaged in removing from its streets the wreckage and debris thrown there by the hurricane. The streets were being made reasonably passable in order that electric equipment could get through and service could be restored to the thousands who were without it; *556 so that lights, stoves, refrigerators, water pumps, and sewerage facilities which were dependent upon electricity could again function; so that telephone wires could be repaired and communication restored; so that transportation could again flow. The work was being done for the purpose of protecting the general public health and safety from the damage produced by the hurricane.
We adhere to our ruling in Ashbury Norfolk, 152 Va. 278, 288, 147 S.E. 223, where the removal of garbage by the City was determined to be a public governmental function. There we quoted with approval from Bolster City of Lawrence, 225 Mass. 387, 114 N.E. 722, L.R.A. 1917B 1285: "The difficulty [in cases of this kind] lies not in the statement of the governing principles of law, but in their application to particular facts. The underlying test is whether the act is for the common good of all without the element of special corporate benefit, or pecuniary profit. If it is, there is no liability, if it is not, there may be liability. That it may be undertaken voluntarily not under compulsion of statute is not of consequence."
It is unnecessary to prolong this opinion. Chief Justice Prentis, in his opinion in Ashbury Norfolk, supra, with the authorities there cited, has fully dealt with the subject of governmental functions of a city as contrasted with proprietary functions, and we adhere to the logical reasoning contained therein.
It is difficult to envision an activity of a city which would be more for the common good of all -- more in the interest of public health and safety -- than is here presented; and it is equally difficult to conceive of an activity of a city which is farther removed from the elements of special corporate benefit or pecuniary gain, or from a duty enjoined upon it in consideration of privileges granted to and accepted by it.
With the cleaning of streets and the removal therefrom of garbage and rubbish having been held to be a governmental function when performed in normal, everyday living, the cleaning of streets and the removal therefrom of tree wreckage and other debris resulting from such a disaster as here disclosed must with all the greater force of logic be held a governmental function.
The trial court's decision that the City was here engaged in a public governmental function is well supported by facts, reason, and authority, and the judgment is
Affirmed.
|
T.C. Summary Opinion 2007-149
UNITED STATES TAX COURT
EDWARD ATLEE HOWES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 262-04S. Filed August 29, 2007.
Edward Atlee Howes, pro se.
Julia L. Wahl, for respondent.
ARMEN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect when the petition was filed.1 Pursuant to section
7463(b), the decision to be entered is not reviewable by any
1
Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
taxable years in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
- 2 -
other court, and this opinion shall not be treated as precedent
for any other case.
Respondent determined deficiencies in petitioner’s Federal
income taxes for 1999, 2000, and 2001 of $5,154, $3,356, and
$3,252, respectively. The deficiencies stem generally from the
disallowance of depreciation deductions under section 167 and the
disallowance of disabled access credits under section 44. On
June 21, 2007, after the parties had filed a comprehensive
stipulation of facts, this Court issued an Order to Show Cause
why respondent’s determination as to the denial of the
depreciation deductions and the disabled access credits should
not be sustained. For the reasons discussed below, we now make
that Order absolute.
Background
A. Procedural History
This case, commenced in January 2004, has been continued for
trial on three separate occasions because of the pendency of
related litigation (sometimes referred to herein as the Alpha
Telcom cases). The related litigation has now been concluded,
and the decisions entered in those cases have become final. In
every instance, the Court has sustained the Commissioner’s
deficiency determination, and in each of the cases in which the
taxpayer appealed, a U.S. Court of Appeals has affirmed the
decision of this Court. See Arevalo v. Commissioner, 124 T.C.
- 3 -
244 (2005), affd. 469 F.3d 436 (5th Cir. 2006); Crooks v.
Commissioner, 453 F.3d 653 (6th Cir. 2006). No court has held to
the contrary. In short, this Court and the Courts of Appeals
have consistently held that a taxpayer’s investment in an
arrangement involving pay telephones marketed by Alpha Telcom,
Inc. (Alpha Telcom) and its wholly owned subsidiary American
Telecommunications Co., Inc. (ATC) did not support either (1) a
deduction for depreciation, because the taxpayer did not have the
requisite benefits and burdens of ownership to support a
depreciable interest in the pay telephones, or (2) a disabled
access credit under section 44, because such investment was not
an eligible access expenditure.
On September 20, 2004, the parties in the instant case filed
a comprehensive Stipulation Of Facts consisting of 33 numbered
paragraphs and 31 exhibits. The Stipulation Of Facts and
accompanying exhibits provide an evidentiary record for this
case, discussed more fully below, that does not materially differ
from the facts presented in the Alpha Telcom cases already
decided by this Court and the Courts of Appeal. Therefore, on
June 21, 2007, we ordered the parties to show cause in writing
why the Court should not enter a decision sustaining respondent’s
determination as to (1) the denial of deductions for depreciation
on the telephones, and (2) the denial of disabled access credits
- 4 -
under section 44, both pursuant to Arevalo v. Commissioner,
supra, and other relevant case law.
Petitioner submitted a response to our Order completely
devoid of any factual analysis; it contained only irrelevant
statements and naked, unsupported assertions that his case is
somehow different from all of the other Alpha Telcom cases. Such
a response is insufficient to persuade us that the Order should
not be made absolute. See Rule 121(d) (requiring that a party
must present specific facts showing that there is a genuine issue
for trial in the summary judgment context).
B. The Stipulated Facts
The following facts have been stipulated, and they are so
found; we incorporate by reference the parties’ stipulation of
facts and accompanying exhibits.
At the time the petition was filed, Edward Atlee Howes
(petitioner) resided in Naples, Florida.
On March 2, 1999, petitioner entered into a contract with
ATC, a wholly owned subsidiary of Alpha Telcom, entitled
“Telephone Equipment Purchase Agreement” (ATC pay telephone
agreement).2 Under the terms of the ATC pay telephone agreement,
petitioner paid $10,000 to ATC, and ATC provided petitioner with
2
In the exhibits attached to the Stipulation Of Facts, ATC
sometimes refers to American Telecommunications, Inc., and
sometimes to Alpha Telcom.
- 5 -
legal title to two pay telephones. The ATC pay telephone
agreement also included the following provision:
1. Bill of Sale and Delivery
a. Delivery by Seller shall be considered complete
upon delivery of the Equipment to such place designated by
Owner.
b. Owner agrees to take delivery of installed
Equipment and location on site.
c. Upon delivery, Owner shall acquire all rights,
title and interest in and to the Equipment purchased.
d. Owner authorizes ATC to enter into such site
agreement as may be deemed necessary to secure site.
e. Phones have approved installation under The
American [sic] with Disabilities Act. (ADA)
On the same day, petitioner entered into a Telephone
Services Agreement (Alpha Telcom service agreement) under which
petitioner agreed that Alpha Telcom would manage the two pay
telephones. Because petitioner did not feel able to maintain the
telephones himself, he elected “Level IIII” [sic] service. This
election meant that Alpha Telcom agreed to service and maintain
the pay telephones for an initial term of 3 years in exchange for
70 percent of the pay telephones’ monthly adjusted gross revenue.
In the event that a pay telephone’s adjusted gross revenue was
less than $58.34 for the month, Alpha Telcom would waive or
reduce the 70-percent fee and pay petitioner at least $58.34, so
long as the equipment generated at least that amount. In the
event that a pay telephone’s adjusted gross revenue was less than
- 6 -
$58.34 for the month, petitioner would receive 100 percent of the
revenue. Notwithstanding this formula, Alpha Telcom made it a
practice to pay $58.34 per telephone, regardless of the income
actually produced.
Additionally, Alpha Telcom agreed to be bound by the “Buy
Back Election” to the Alpha Telcom service agreement. The “Buy
Back Election” stated:
1.0. Buy Back Election: Owner shall have the right to sell
to Alpha Telcom, Inc. each payphone upon the following terms
and conditions: in the first six months between the
equipment delivery date and the exercise date for the buy
back election, the sale price shall be the Owner’s original
purchase price less $625; in months 7 through 12, it shall
be the purchase price less $375; in months 13 through 24, it
shall be the purchase price less $250[;] in months 25
through 36, it shall be the purchase price less $125; and
after 36 months, it shall be the full purchase price.
Under the Alpha Telcom service agreement, Alpha Telcom
negotiated the site agreement with the owner or leaseholder of
the premises where the pay telephones were to be installed.3
Alpha Telcom installed the telephones, paid the insurance
premiums on them, collected and accounted for the revenues
generated by the telephones, paid vendor commissions and fees,
3
At some point, ATC sent petitioner an undated letter,
informing him that one of the telephones assigned to him and
located at a business called Art’s Cafe had been replaced with
one located at a Black Angus restaurant. Petitioner had no
affiliation with either Art’s Café or Black Angus. Petitioner
did not initiate this change, and it was made without his prior
knowledge or assent.
- 7 -
obtained all licenses needed to operate the telephones, and took
all actions necessary to keep the telephones in working order.
On December 29, 2000, petitioner entered into a second
“Telephone Equipment Purchase Agreement” contract with ATC,
ostensibly purchasing two more telephones for $5,000 each.4 He
again signed a services agreement and selected the “Level 4”
service. Again, Alpha Telcom was responsible for all
maintenance, and petitioner was to receive $58.34 per month, per
telephone. Petitioner was later informed that these two pay
telephones were placed at an amateur baseball field in West
Warwick, Rhode Island. As was true with all of the pay
telephones assigned to petitioner under this scheme, Alpha Telcom
negotiated for the placement of the telephones, and petitioner
was not involved in any way with those negotiations.
Alpha Telcom modified the pay telephones to be accessible to
the disabled: (1) By adjusting the cord length so that the
telephones would be accessible to the wheelchair bound, and/or
(2) by installing volume controls to make them more useful to the
hearing impaired, and/or (3) by reducing the height at which the
telephones were installed. Alpha Telcom represented to investors
4
The Telephone Equipment Bill of Sale and Purchase
Agreement was left blank; it did not actually identify in any way
the telephones that would be assigned to petitioner.
Additionally, though the Buy Back Election was slightly modified
from its earlier form, it still provided for a repurchase price
of $5,000 per telephone.
- 8 -
that the modifications made to the pay telephones complied with
the requirements of the Americans with Disabilities Act of 1990
(ADA), Pub. L. 101-336, 104 Stat. 327.5 Petitioner was not
provided with a list of the modifications that were made to the
pay telephones assigned to him, and he did not know the cost of
these modifications.
Petitioner received monthly payments of $58.34 per telephone
in 1999 and 2000 from Alpha Telcom.6
Alpha Telcom grew rapidly through its pay telephone program
but was poorly managed and ultimately operated at a loss. On
August 24, 2001, Alpha Telcom filed for bankruptcy under chapter
11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the
Southern District of Florida. The matter was later transferred
to the U.S. Bankruptcy Court for the District of Oregon on
September 17, 2001. On February 25, 2002, petitioner filed a
proof of claim with the bankruptcy court.7
5
Aside from Alpha Telcom’s own representations, petitioner
received a flyer from an entity named Tax Audit Protection, Inc.
The flyer provided information about Alpha Telcom pay telephones.
It stated that owners of Alpha Telcom pay telephones qualified
for tax credits for compliance with the ADA. The flyer
identified a person named George Mariscal as the president of the
company.
6
The payments in 1999 were prorated according to when
Alpha Telcom installed the telephones.
7
The bankruptcy matter was dismissed on Sept. 10, 2003, by
motion of Alpha Telcom. The bankruptcy court held that it was in
the best interest of creditors and the estate to dismiss the
(continued...)
- 9 -
The Securities and Exchange Commission brought a civil suit
against Alpha Telcom in 2001, alleging that the pay telephone
scheme was a security and that the company was in violation of
Federal securities law; the decision was affirmed by the U.S.
Court of Appeals for the Ninth Circuit in 2003. See SEC v.
Rubera, 350 F.3d 1084, 1087 (9th Cir. 2003).
In the notice of deficiency that gave rise to the instant
case, respondent disallowed the depreciation deductions
petitioner claimed because petitioner did not have a depreciable
interest in the telephones. Respondent also disallowed the
disabled access credits petitioner claimed because petitioner had
not demonstrated that he was in a trade or business, that the
expenses were reasonable, or that the expenses were enabling a
business to comply with the ADA.
Discussion
A. Depreciation Deductions
Section 167(a) allows as a depreciation deduction a
reasonable allowance for the “exhaustion, wear and tear” of
property (1) used in a trade or business or (2) held for the
production of income. Sec. 167(a)(1) and (2).
7
(...continued)
bankruptcy matter so that proceedings could continue in Federal
District Court, where there was a pending receivership involving
debtors.
- 10 -
Depreciation deductions are based on an investment in and
actual ownership of property rather than the possession of bare
legal title. See Arevalo v. Commissioner, 124 T.C. at 251; Grant
Creek Water Works, Ltd. v. Commissioner, 91 T.C. 322, 326 (1988);
Narver v. Commissioner, 75 T.C. 53, 98 (1980), affd. 670 F.2d 855
(9th Cir. 1982). “The Supreme Court has repeatedly stressed
that, in examining transactions for the purpose of determining
their tax consequences, substance governs over form.” Arevalo v.
Commissioner, 469 F.3d at 439; see also Frank Lyon Co. v. United
States, 435 U.S. 561, 572-573 (1978); Grodt & McKay Realty, Inc.
v. Commissioner, 77 T.C. 1221, 1236 (1981).
If the benefits and burdens reflecting ownership have not
passed from “seller” to “purchaser”, we disregard the transfer of
formal legal title when determining ownership of an asset for tax
purposes. See Arevalo v. Commissioner, 469 F.3d at 439. In
other words, when a taxpayer never actually owns the property in
question, the taxpayer is not allowed to claim a deduction for
depreciation. See Arevalo v. Commissioner, 124 T.C. at 251;
Grodt & McKay Realty, Inc. v. Commissioner, supra at 1236-1238;
see also Schwartz v. Commissioner, T.C. Memo. 1994-320, affd.
without published opinion 80 F.3d 558 (D.C. Cir. 1996). Whether
the benefits and burdens of ownership with respect to property
have passed to the taxpayer is a question of fact that must be
ascertained from the intention of the parties as established by
the written agreements read in light of the attending facts and
- 11 -
circumstances. See Arevalo v. Commissioner, 124 T.C. at 251-252;
Grodt & McKay Realty, Inc. v. Commissioner, supra at 1237.
The denial of depreciation deductions in the other Alpha
Telcom cases has routinely been supported by the examination of
eight factors: (1) Whether legal title passes; (2) the manner in
which the parties treat the transaction; (3) whether the
purchaser acquired any equity in the property; (4) whether the
purchaser has any control over the property, and, if so, the
extent of such control; (5) whether the purchaser bears the risk
of loss or damage to the property; and (6) whether the purchaser
will receive any benefit from the operation and disposition of
the property. See, e.g., Arevalo v. Commissioner, 469 F.3d at
439-440; Crooks v. Commissioner, 453 F.3d at 656. Just as we
concluded in Arevalo and Crooks, we conclude here that the
factors clearly work against petitioner and no depreciation
deduction is warranted.
The stipulation of facts and accompanying documents reveal
that here, as in the related litigation, Alpha Telcom was
responsible for the installation, location selection, site
negotiation, and maintenance of the pay telephones. Alpha Telcom
bore the risk of loss if the telephones did not generate
sufficient revenue because petitioner was guaranteed to be paid
at least $58.34 per month per pay telephone, regardless of the
revenues actually generated, and it was Alpha Telcom who received
the majority of any profit from the telephones. Further limiting
- 12 -
petitioner’s risk of loss was the combination of the ATC pay
telephone agreement and the Alpha Telcom service agreement,
allowing petitioner to sell legal title to the telephones back to
ATC for a fixed formula price.
Because petitioner never owned a depreciable interest in the
pay telephones, he is not entitled to claim depreciation
deductions under section 167 with respect to them. See Crooks v.
Commissioner, supra; Arevalo v. Commissioner, supra.
B. ADA Tax Credits
For purposes of the general business credit under section
38, section 44(a) provides a disabled access credit for certain
small businesses. The amount of this credit is equal to 50
percent of the “eligible access expenditures” of an “eligible
small business” that exceed $250 but that do not exceed $10,250
for the year. Sec. 44(a).
In order to claim the disabled access credit, a taxpayer
must demonstrate: (1) the taxpayer is an “eligible small
business” for the year in which the credit is claimed and, (2)
the taxpayer has made “eligible access expenditures” during that
year. If the taxpayer cannot fulfill both of these requirements,
the taxpayer is not eligible to claim the credit for that year.
For purposes of section 44, the term “eligible small
business” is defined as any person who: (1) had gross receipts
of no more than $1 million for the preceding year or not more
than 30 full-time employees during the preceding year and (2)
- 13 -
elects the application of section 44 for the year. Sec. 44(b).
The term “eligible access expenditure” is defined as an amount
paid or incurred by an eligible small business for the purpose of
enabling the eligible small business to comply with the
applicable requirements under the ADA. Sec. 44(c)(1). Such
expenditures include amounts paid or incurred (1) for the purpose
of removing architectural, communication, physical, or
transportation barriers that prevent a business from being
accessible to, or usable by, individuals with disabilities; (2)
to provide qualified interpreters or other effective methods of
making aurally delivered materials available to individuals with
hearing impairments; (3) to acquire or modify equipment or
devices for individuals with disabilities; or (4) to provide
other similar services, modifications, materials, or equipment.
See sec. 44(c)(2). However, eligible access expenditures do not
include expenditures that are unnecessary to accomplish such
purposes. See sec. 44(c)(3). Additionally, eligible access
expenditures do not include amounts that are paid or incurred for
the purpose of removing architectural, communication, physical,
or transportation barriers that prevent a business from being
accessible to, or usable by, individuals with disabilities with
respect to any facility first placed in service after November 5,
1990. See sec. 44(c)(4).
In order for an expenditure to qualify as an eligible access
expenditure within the meaning given that term by section 44(c),
- 14 -
it must have been made to enable an eligible small business to
comply with the applicable requirements under the ADA. See
Arevalo v. Commissioner, 124 T.C. at 255; Fan v. Commissioner,
117 T.C. 32, 38-39 (2001). Consequently, a person who does not
have an obligation to become compliant with the requirements set
forth in the ADA could never make an eligible access expenditure.
Petitioner, like the taxpayers in the other Alpha Telcom cases,
had no obligation to become compliant with the ADA.
As relevant here, the requirements set forth in the ADA
apply only to (1) persons who own, lease, lease to, or operate
certain “public accommodations” and (2) “common carriers” of
telephone voice transmission services. See 42 U.S.C. sec.
12182(a) (2000); see also 47 U.S.C. sec. 225(c) (2000).
Petitioner did not own, lease, lease to, or operate a public
accommodation during the taxable years at issue, nor was he a
“common carrier” of telephone voice transmission services during
those years. Accordingly, petitioner was under no obligation to
become compliant with the requirements set forth in the ADA. See
42 U.S.C. sec. 12182(b)(2)(A)(ii) and (iii); 47 U.S.C. sec.
153(10); 47 U.S.C. sec. 225(a)(1) and (c). Because petitioner
did not own the pay telephones in which he invested and had no
involvement in their operation, petitioner was not actively
engaged in the provision of services to anyone as a result of his
investment in the pay telephones. Therefore, petitioner’s
investments in the telephones were not eligible access
- 15 -
expenditures, and petitioner is not entitled to claim the
disabled access credit under section 44 for his investments in
the telephones.
To reflect our disposition of the disputed issues and to
make our Order to Show Cause absolute, as well as for such other
proceedings as may be necessary,
An appropriate order
will be issued.
|
Unable to extract the content from this file. Please try reading the original. |
24 S.W.3d 228 (2000)
Elvis D. KELLEY, Jr., Appellant,
v.
STATE of Missouri, Respondent.
No. 23106.
Missouri Court of Appeals, Southern District, Division Two.
May 15, 2000.
Motion for Rehearing or Transfer Denied June 6, 2000.
Application for Transfer Denied August 29, 2000.
*231 Andrew A. Schroeder, Asst. Public Defender, Kansas City, for appellant.
Jeremiah W. (Jay) Nixon, Atty. Gen., Adrian D. Crouse, Asst. Atty. Gen., Jefferson City, for respondent.
KERRY L. MONTGOMERY, Presiding Judge.
A jury found Elvis D. Kelley, Jr., (Movant) guilty of the class B felony of rape in violation of § 566.030. The trial court sentenced Movant to a 30-year term of imprisonment. Movant appealed his conviction. This court affirmed the judgment and sentence in State v. Kelley, 945 S.W.2d 611 (Mo.App.1997). Thereafter, Movant filed a motion for postconviction relief pursuant to Rule 29.15. The motion court denied Movant's request for relief after an evidentiary hearing. Movant appeals the motion court's ruling.
The evidence in support of Movant's underlying conviction is set forth exhaustively in Kelley, 945 S.W.2d at 613-14. Those facts are not set forth herein except as required to address Movant's allegations of motion court error.
After his conviction, Movant filed his pro se Rule 29.15 motion on August 18, 1997. He filed an Amended Motion to Vacate, Set Aside or Correct Judgment or Sentence on November 17, 1997. After an evidentiary hearing on the matter, the motion court entered its Findings of Fact, Conclusions of Law and Order denying Movant's request for relief on February 19, 1998. Movant appeals that decision.
On March 8, 1999, this Court reversed the motion court's decision in Kelley v. State, 988 S.W.2d 563 (Mo.App.1999). The cause was remanded with instructions that the motion court must enter "`proper findings of fact and conclusions of law which are sufficiently specific to allow meaningful review.'" Id. at 565 (quoting Barry v. State, 850 S.W.2d 348, 350 (Mo. banc 1993)). On June 11, 1999, the motion court filed an amended judgment denying Movant's 29.15 motion, this time issuing detailed findings of fact and conclusions of law. The motion court's amended judgment is the subject of this appeal.
Movant raises seven allegations of motion court error on appeal. Our review of the denial of a Rule 29.15 motion for postconviction relief is limited to a determination whether the findings of fact and conclusions of law are clearly erroneous. Rule 29.15(k); Hatcher v. State, 4 S.W.3d 145, 147 (Mo.App.1999). "The motion court's determination is clearly erroneous only if, after reviewing the entire record, the appellate court has a definite and firm impression that a mistake has been made." State v. Weston, 926 S.W.2d 920, 923 (Mo. App.1996).
In each point, Movant contends the motion court erred in failing to find that he received ineffective assistance of *232 either trial or appellate counsel.[1] In order to show that counsel's assistance was so ineffective as to require reversal of a conviction, a movant must establish that counsel's performance was deficient and that the deficiency prejudiced the defense. State v. Phillips, 940 S.W.2d 512, 522 (Mo. banc 1997). "In order to prevail on a claim of ineffective assistance of counsel, the movant must satisfy both the performance prong and the prejudice prong; if the movant fails to satisfy either prong, the reviewing court need not consider the other." Id.
This court strongly presumes counsel rendered adequate assistance and made all significant decisions in the exercise of reasonable professional judgment. Id. Furthermore, the movant must also overcome the presumption that any challenged action was sound trial strategy. Id. "To prove prejudice, the movant must show a reasonable probability that, but for counsel's unprofessional errors, the result of the proceeding would have been different." Id.
I. INEFFECTIVE ASSISTANCE OF TRIAL COUNSEL
A. Failure to Impeach
In Point I on appeal, Movant argues the motion court erred in failing to find he received ineffective assistance of counsel because trial counsel failed to impeach the victim with her prior inconsistent statements concerning sexual contact with two other men. Prior to trial, the victim claimed that Movant and two other men had placed their penises in her vagina. At trial, the victim stated that Movant had placed his penis in her vagina but that the other men had only used their fingers. Movant contends that the victim's in-court testimony left the jury to conclude he was the only person who could have caused the physical damage to the victim's hymen. He then argues that counsel's failure to ask the victim to reconcile her inconsistent statements was "inexcuseable."
The mere failure to impeach a witness does not entitle a movant to postconviction relief. Phillips, 940 S.W.2d at 524. The movant has the burden of establishing that the impeachment would have provided a defense or would have changed the outcome of the trial. Id. The movant must also overcome the presumption that counsel's decision not to impeach was a matter of trial strategy. Id.
Movant fails to show that impeaching the victim's statement as to alleged sexual contact by two other men would have provided him a viable defense or changed the outcome of the trial. While the victim's statements about sexual abuse by other men were inconsistent, her allegations against Movant were unwaivering. She consistently stated that Movant had penetrated her vagina with his penis, the crime for which he was convicted.
Movant also fails to overcome the presumption that counsel's decision not to further impeach the victim was a matter of trial strategy. "Counsel must be allowed wide latitude in defending the client and may use his or her best judgment in matters regarding trial strategy." Weston, 926 S.W.2d at 923. When reviewing postconviction relief claims relating to "trial strategy", courts should keep in mind that they have the benefit of hindsight and should not be hypercritical when reviewing counsel's conduct at trial. Id.
At the postconviction hearing, trial counsel testified that he felt he "had laid it out there" that the victim had changed her story and that the jury "can't believe" her testimony against Movant. Trial counsel also stated he felt that he "had gotten on that particular point with [the victim] as much as [he] was probably going to get *233 from her." We cannot say the motion court erred in failing to grant postconviction relief based upon counsel's failure to impeach the victim's testimony. Point I is denied.
In Point VI on appeal, Movant argues the motion court erred in denying his Rule 29.15 motion because trial counsel was ineffective in failing to impeach prosecution witness Linda Bates, the victim's mother, concerning the date she took custody of the victim. Movant claims that "even a cursory examination" of Ms. Bates would have established that Movant could not have committed the crime because the victim was in Ms. Bates' custody on the date for which the crime was charged.
As already noted in our analysis under Point I, the mere failure to impeach a witness does not entitle a movant to postconviction relief. Phillips, 940 S.W.2d at 524. Movant must show that the impeachment would have provided a viable defense and overcome the presumption that the decision not to impeach was a matter of counsel's trial strategy. Id. "`The extent of cross-examination is almost always a matter of trial strategy.'" Weston, 926 S.W.2d at 924 (quoting Cole v. State, 573 S.W.2d 397, 403 (Mo.App.1978)).
While Movant suggests the exact date was crucial to his conviction, we cannot agree. Although Ms. Bates mistakenly identified the date upon which she took custody of the victim, Ms. Bates gave a detailed description of the circumstances surrounding the exchange. She testified to the time and place of the custody exchange. She recalled that this occurred on a Friday evening. These recollections were consistent with the testimony of the victim and other witnesses.
Trial counsel testified at the evidentiary hearing that he did not question Ms. Bates concerning her confusion about the exact date of the crime because he did not feel that the "specific date was that crucial to convey to the jury." He recalled that the information and jury instructions referred to the crime as having occurred "on or about" the specific date. The motion court found that trial counsel's decision to not impeach the witness as to the exact date was a matter of trial strategy. Movant fails to show otherwise. Point VI is denied.
B. Child Witness
In Point II, Movant maintains the motion court erred in denying his request for postconviction relief based upon trial counsel's failure to object to the modified seating arrangement implemented by the trial court while the victim was testifying. During the victim's testimony, Movant was seated on the opposite side of the courtroom out of the victim's line of vision. Movant claims counsel was ineffective in failing to object to this arrangement because it left the jury with the impression that the trial court was "taking sides" with the victim and that the victim was understandably "scared" of Movant.
The motion court denied Movant's claim, noting that such seating arrangements are "not unusual in a case where the defendant is accused of a crime against a child." The motion court concluded that Movant failed to show counsel was deficient in failing to object to the seating arrangement or that it had any impact on the jury's verdict.
Trial courts are vested with considerable discretion in regulating the manner of witness examination. State v. Gollaher, 905 S.W.2d 542, 546 (Mo.App.1995). Appellate courts should not disturb the exercise of that discretion unless it has been abused or substantial harm had been improperly done to the complaining party. Id. at 546-47.
Young children, who are victims of sexual abuse, have great difficulty in recounting to juries the sordid details of their painful experience. Wide latitude should be granted to trial courts so that such victims can recount their experiences without being overwhelmed by crippling emotional strain. Their testimony *234 is often of critical importance since they are often the only occurrence witness.
State v. Pollard, 719 S.W.2d 38, 42 (Mo. App.1986).
Because such matters are left to the discretion of the trial court, it is highly unlikely that any objection raised by counsel to the modified seating arrangement would have been sustained. Counsel will not be deemed ineffective for failing to make a non-meritorious objection. See State v. Clemons, 946 S.W.2d 206, 227 (Mo. banc 1997). Point II is denied.
C. Failure to Investigate and Call Witness
In Point IV on appeal, Movant claims the motion court erred in failing to grant his motion for postconviction relief because trial counsel was ineffective for failing to interview and call James Ball to testify at trial. Movant claims Mr. Ball's testimony would have impeached testimony suggesting that Mr. Ball had observed blood on the victim's bed sheets while she was living with Movant.
To prevail upon a claim of ineffective assistance of counsel based upon the failure to interview and call a witness, the movant must show that the witness was available to testify, would have testified if called, and that the witness would have provided a viable defense through his testimony. State v. Whitfield, 939 S.W.2d 361, 371 (Mo. banc 1997); Hatcher, 4 S.W.3d at 150.
Although the parties stipulated at the 29.15 hearing that Mr. Ball would have testified that he never saw blood on the victim's sheets, the motion court found that such testimony would have "dubious impeachment value" and would not have provided a viable defense. We agree. There was expert testimony that the victim bore the physical and emotional scars of rape. The victim identified Movant as the man who had raped her. Mr. Ball's testimony that he had not seen blood on the victim's sheet on an earlier date in no way disproves that Movant raped the victim on the date charged. We find no motion court error in failing to grant relief on the basis of counsel's failure to interview and call Mr. Ball. Point IV is denied.
In Point V, Movant maintains the motion court erred in denying Rule 29.15 relief because trial counsel was ineffective in failing to call his wife, Lydia Kelley, to testify on his behalf. Movant argues that Mrs. Kelley's testimony would have established that he did not have the opportunity to rape the victim on the date alleged.
This claim is governed by the same rules discussed in Point IV. In order to prevail on such a claim of ineffective assistance of counsel the movant must not merely show that the witness was available and willing to testify, but also that the witness's testimony would provide a viable defense to the crime. See Whitfield, 939 S.W.2d at 371. In addition, we note that counsel's decision not to call a witness is presumptively a matter of trial strategy and will not support a claim of ineffective assistance of counsel unless the movant clearly shows otherwise. State v. Clay, 975 S.W.2d 121, 143 (Mo. banc 1998).
Movant maintains that Mrs. Kelley's testimony would have given him an alibi because she would have testified that she was with Movant constantly on the date of the rape. He contends this testimony would have established his innocence by showing that he did not have the opportunity to commit the crime because he was never alone with the victim.
Movant testified at the Rule 29.15 hearing. Although he maintains that Mrs. Kelley's testimony would have exonerated him by showing he was never alone with the victim on the date in question, Movant admitted that his wife was not with him continuously and that he was with the victim alone on that date. The motion court determined that Movant's own testimony *235 contravened his wife's alibi testimony.
Trial counsel also testified at the hearing that he interviewed Mrs. Kelley but decided not to call her as a witness because he felt her demeanor and appearance might be damaging to Movant's case. Furthermore, he felt it "would have been hard on the case" if the State elicited her testimony that she sent her child, who had been living in the home with Movant, to live with her parents after Movant was arrested. The motion court found that it was a matter of trial strategy and within the discretion of trial counsel not to call the witness.
We conclude that the decision not to call Mrs. Kelley to testify on Movant's behalf was a determination trial counsel made after evaluating all of the potential consequences of such testimony. As such it was a matter of trial strategy. Point V is denied.
II. INEFFECTIVE ASSISTANCE OF APPELLATE COUNSEL
A. Batson Challenge
In Point III on appeal, Movant claims the motion court erroneously denied his Rule 29.15 claim because he received ineffective assistance from appellate counsel. Movant claims appellate counsel was ineffective in failing to raise the claim that the trial court erred in overruling trial counsel's gender-based Batson objection to the State's removal of juror Number 11, a male, from the jury panel.
To show ineffective assistance of appellate counsel, "`strong grounds must exist showing that counsel failed to assert a claim of error which would have required reversal had it been asserted and which was so obvious from the record that a competent and effective appellate lawyer would have recognized it and asserted it.'" Moss v. State, 10 S.W.3d 508, 514 (Mo. banc 2000) (quoting Reuscher v. State, 887 S.W.2d 588, 591 (Mo. banc 1994)). See State v. Edwards, 983 S.W.2d 520, 522 (Mo. banc 1999). The right to relief due to ineffective assistance of appellate counsel tracks the plain error rule; movant must show that the error not raised on appeal was so substantial as to amount to a manifest injustice or miscarriage of justice. Moss, 10 S.W.3d at 514-15.
The equal protection clause prohibits the use of a peremptory challenge in a criminal case as a means of discriminating on the basis of race or gender. See Batson v. Kentucky, 476 U.S. 79, 106 S.Ct. 1712, 90 L.Ed.2d 69 (1986); State v. Brown, 966 S.W.2d 332, 335 (Mo.App. 1998). The first step in a Batson based challenge is a timely objection to the peremptory strike on the grounds that the party has engaged in gender or race discrimination in connection with the use of its strike. Brown, 966 S.W.2d at 335. The striking party must then offer a valid race or gender-neutral explanation for the strike. Id. The burden then shifts to the objecting party to show that the explanation was pretextual and that the strike was actually motivated by the venireperson's race or gender. State v. Smith, 5 S.W.3d 595, 597 (Mo.App.1999).
Ultimately, the "burden of persuasion regarding the racial or gender motivation exists with, and never shifts from, the opponent of the strike." Brown, 966 S.W.2d at 335. Unless an inherently discriminatory intent is found, the strike will be upheld. State v. Sage, 977 S.W.2d 65, 68 (Mo.App.1998). Trial courts are vested with considerable discretion when evaluating the reasons for a strike and determining whether the party intentionally discriminated when making the peremptory strike. Brown, 966 S.W.2d at 335.
At trial, the prosecutor used five of his peremptory strikes to remove male venirepersons. Trial counsel then made a gender-based Batson challenge. The prosecutor explained he spoke with local law enforcement and inquired about each potential juror. He averred that he then removed juror Number 11 because he "was *236 advised by a person pursuant to [his] investigation, [his] work product, that [Number 11] may not be favorable to the state..." Trial counsel's Batson objection was then denied.
At the hearing on the Rule 29.15 motion, appellate counsel maintained that he did not raise the issue on appeal because he believed the State's explanation was specific, clear, and legitimate, rather than gender-based. In its findings of fact, the motion court noted that Movant failed to present anything that would indicate his claim would have been upheld on appeal. Furthermore, the motion court found "persuasive" appellate counsel's testimony that he evaluated the claim and determined it unlikely it would prevail on appeal. We cannot say the motion court erred in this determination. Point III is denied.
B. Improper Bolstering of Testimony
In Point VII, Movant challenges the motion court's ruling regarding ineffective assistance of appellate counsel when counsel failed to raise the claim that the trial court erred in overruling trial counsel's timely objection to the admission of videotaped interviews of the victim. Movant argues that the admission of such interviews improperly bolstered the victim's testimony and led to his conviction. At trial, the court allowed the State to play a videotaped interview of the victim to the jury in addition to offering her live testimony. Trial counsel objected on the basis that the videotaped recording improperly bolstered the victim's testimony.[2] The trial court overruled this objection on the basis of § 492.304.3, which specifically allows the admission of such a recording in addition to the child's live testimony even if the recording "repeats or duplicates the child's testimony."
At the evidentiary hearing, Movant's appellate counsel testified that he did not raise the claim that the videotaped recordings improperly bolstered the victim's testimony because he believed the recordings were properly admitted pursuant to § 492.304.3 and the claim would not be successful. The motion court found that appellate counsel's strategy in not presenting the issue on appeal was sound because it "was unlikely to be successful."
To be successful on this issue, Movant must show that appellate counsel's failure to raise the improper bolstering claim on appeal amounted to manifest injustice or a miscarriage of justice. We are not so convinced. We cannot say the motion court erred in failing to grant Movant's request for postconviction relief on this basis. Point VII is denied.
The judgment of the motion court is affirmed.
GARRISON, C.J., and BARNEY, J., concur.
NOTES
[1] Although Movant's points are consecutively numbered, for the sake of efficiency and logical disposition, we address similar issues together rather than following the numerical order of Movant's points.
[2] Movant points out that the videotape was played for the jury four times and suggests that cumulative effect was improper bolstering. Movant fails to note that the videotaped recording was rewound and replayed at least once at his request.
|
T.C. Memo. 2012-274
UNITED STATES TAX COURT
A. DEEWAYNE JONES AND SHIRLEY JONES, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 312-10L. Filed September 26, 2012.
A. DeeWayne Jones and Shirley Jones, pro sese.
Nathan C. Johnston, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
MARVEL, Judge: Pursuant to sections 6320 and 6330(d),1 petitioners seek
review of respondent’s determination to sustain the filing of a notice of Federal tax
1
Unless otherwise indicated, all section references are to the Internal Revenue
Code for the relevant period, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
-2-
[*2] lien (NFTL) with respect to their unpaid Federal income tax liabilities for 2002-
05. The issue for decision is whether respondent’s determination was an abuse of
discretion.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The stipulation of
facts and facts drawn from stipulated exhibits are incorporated herein by this
reference. Petitioners resided in California when they filed their petition.
At the time of respondent’s determination A. DeeWayne Jones (Dr. Jones)
was a 74-year-old semiretired dentist, and his wife, Shirley Jones, was a 74-year-old
retired secretary.
Petitioners’ tax troubles began in 2007 when respondent examined
petitioners’ 2002-05 tax returns. As a result of the examinations petitioners agreed
to adjustments to the income tax liabilities shown on their 2002-05 tax returns, and
respondent assessed the resulting deficiencies. As of September 28, 2009,
petitioners had balances outstanding of $16,259, $17,171, $8,059, and $9,976 for
the 2002, 2003, 2004, and 2005 tax years, respectively, totaling $51,465.
On January 27, 2009, respondent mailed to petitioners a Notice of Federal
Tax Lien Filing and Your Right to a Hearing Under IRC 6320 for the 2002-05 tax
years. Petitioners timely submitted a Form 12153, Request for a Collection Due
-3-
[*3] Process or Equivalent Hearing (section 6320 hearing request), seeking
withdrawal of the NFTL and acceptance of an offer-in-compromise (OIC) as a
collection alternative. Respondent received petitioners’ section 6320 hearing
request on February 7, 2009.2 On February 23, 2009, respondent levied on
petitioners’ Bank of America checking accounts, collecting $923.62.3 Respondent
later posted this amount as a payment to petitioners’ 2002 tax year account.
On or around February 25, 2009, petitioners submitted a Form 656, Offer in
Compromise, dated February 24, 2009. At the same time, petitioners submitted a
Form 433-A, Collection Information Statement for Wage Earners and Self-
Employed Individuals (first Form 433-A), in support of their OIC. Petitioners’
2
The parties stipulated that respondent received petitioners’ section 6320
hearing request on February 25, 2009. However, this stipulation is contradicted by
a stipulated exhibit titled “Collection Due Process Case History Record”, which
states that respondent received petitioners’ section 6320 hearing request on
February 7, 2009. We disregard the stipulation as inconsistent with the stipulated
exhibit in the record. See Cal-Maine Foods, Inc. v. Commissioner, 93 T.C. 181,
195 (1989).
3
At some point before levying on petitioners’ bank accounts, respondent
apparently issued a notice of intent to levy under sec. 6330. Upon receiving that
notice, petitioners timely requested a sec. 6330 hearing, on a Form 12153 dated
February 21, 2008, proposing an installment agreement as a collection alternative
for tax years 2002-05. Sometime before December 1, 2008, petitioners’ authorized
representative withdrew petitioners’ sec. 6330 hearing request for tax years 2002-
03. There is nothing in the record before us as to the status of petitioners’ sec. 6330
hearing request for tax years 2004-05.
-4-
[*4] OIC was $5,500, with a $1,100 downpayment and the remainder due within
three months. Petitioners’ first Form 433-A listed only one property as real estate
they owned. The address petitioners provided for that property was 722 East Main
Street, Santa Paula, California (Santa Paula property).
Respondent subsequently mailed to petitioners two letters, both dated April
14, 2009. The first was from the Appeals Office in Fresno, California,
acknowledging receipt of petitioners’ section 6320 hearing request. The second
was from Offer Specialist P. Pfeiffer, writing from an office in Glendale, California.
In his letter Offer Specialist Pfeiffer requested, among other items, (1) an
updated Form 433-A and a completed Form 433-B, Collection Information
Statement for Businesses, with proof of payment of all expenses listed on the Form
433-B; (2) a copy of petitioners’ 2008 Federal income tax return; (3) copies of all
books and records relating to petitioners’ 2008 tax year; (4) a list of all real property
owned by petitioners within the last five years; (5) copies of residential rental
agreements, including proof of payment for three months; (6) completed
personal questionnaires; (7) an explanation of how petitioners meet their monthly
expenses; and (8) written explanations with respect to several items flagged by
respondent. The written explanations requested included the following: (1) an
-5-
[*5] explanation of what had happened to various properties that respondent had on
record as belonging to petitioners, or the inclusion of the properties on petitioners’
updated Form 433-A; and (2) an explanation of petitioners’ affiliation with “Canyon
Crest Ranch Partners - Moorpark” (Canyon Crest). In particular, respondent
inquired about the following properties: 652 Zurich Drive, Lake Arrowhead,
California (Lake Arrowhead property), and 1035 and 1055 Marine View Drive,
Moorpark, California (Moorpark properties).
Through their authorized representative, Robert D. Heinrich, C.P.A.,
petitioners timely responded to respondent’s information request. In a letter dated
April 22, 2009, and addressed to Offer Specialist Pfeiffer, Mr. Heinrich stated,
among other things, (1) that Dr. Jones works for the county prison system and has
no assets for his business; (2) that petitioners meet their expenses by borrowing
from their children and by using credit cards; (3) that petitioners own two
properties, the Santa Paula property and the Lake Arrowhead property; (4) that
petitioners omitted the Lake Arrowhead property from their first Form 433-A
because “the property was upside down” and in severe disrepair, with needed
repairs totaling almost $75,000; (5) that the Moorpark properties are owned by
Canyon Crest; and (6) that petitioners own 67% of Canyon Crest. Mr. Heinrich
also enclosed, among other documents, (1) an updated Form 433-A and a
-6-
[*6] completed Form 433-B for petitioners; (2) petitioners’ 2008 joint Federal
income tax return; (3) a copy of Dr. Jones’ 2008 Form 1099-MISC, Miscellaneous
Income; (4) copies of a check register supporting expenses petitioners reported on
Dr. Jones’ Schedule C, Profit or Loss From Business, for 2008; (5) a copy of a
residential rental agreement for a residence at 12317 Willow Hill Drive, Moorpark,
California (Moorpark residence); (6) copies of recent rent checks to the landlord of
the Moorpark residence (paid by Jodi Jones Proud, petitioners’ daughter); (7)
completed questionnaires for petitioners; (8) copies of an insurance cancellation
notice for the Lake Arrowhead property; and (9) copies of a bid to reroof the home
on the Lake Arrowhead property and of an estimate of the cost to repair severe
water damage and leakage to the Lake Arrowhead property.
On their updated Form 433-A, petitioners reported, under penalty of perjury,
that they had monthly gross income of $6,626 and monthly living expenses of
$7,079. Petitioners also reported the following assets: (1) two Bank of America
checking accounts with balances of $1,250 and $300, respectively;4 (2) a 1997
Ford Explorer with a current value of $1,000; (3) a 2002 Ford Explorer with a
current value of $2,500; (4) the Santa Paula property with a current value of
4
Petitioners erroneously calculated their total checking account balances to be
$5,550.
-7-
[*7] $450,000 and a loan balance of $460,000; (5) the Lake Arrowhead property
with a current value of $155,000 and a loan balance of $155,468; and (6) furniture
and personal effects with a current value of $3,400.
On the completed questionnaires that petitioners submitted to respondent, Dr.
Jones stated that his health was fair, that he was currently employed as a dentist for
the Ventura County Sheriff’s Department, and that he planned on retiring within five
years; and Mrs. Jones stated that her health was poor and that she was retired. As
requested, petitioners described the serious, chronic medical conditions that led
them to describe their health as fair and poor, respectively.
In late June or early July respondent informed petitioners that their OIC
would be handled by Appeals because they filed their OIC after filing their section
6320 hearing request. In a letter dated July 10, 2009, respondent notified petitioners
and Mr. Heinrich that petitioners’ “[OIC] had been accepted as processable and will
be worked in Appeals.”
In a letter dated September 29, 2009, Settlement Officer Lisanti notified
petitioners and Mr. Heinrich of a scheduled conference call for October 20, 2009,
with respect to petitioners’ section 6320 hearing request.
Petitioners and Mr. Heinrich did not call into the October 20, 2009,
conference call, and in a letter to petitioners and Mr. Heinrich dated that same day,
-8-
[*8] Settlement Officer Lisanti noted petitioners’ failure to call and advised
petitioners that they had until November 3, 2009, to submit materials for
consideration in the section 6320 hearing.
On November 5, 2009, Mr. Heinrich left a voicemail for Settlement Officer
Lisanti, requesting a return phone call. Settlement Officer Lisanti then left a
message on Mr. Heinrich’s voicemail, requesting a call back by the close of
business that day. Hearing nothing, Settlement Officer Lisanti left a message on Mr.
Heinrich’s voicemail on November 6, 2009, noting that several deadlines had
passed and informing him that he would have to confer with her soon. Settlement
Officer Lisanti further informed Mr. Heinrich that she would not be
recommending the OIC because petitioners had sufficient income and assets
to pay their full account. Settlement Officer Lisanti then gave Mr. Heinrich a
deadline of November 14, 2009, to contact her regarding any installment
agreement that petitioners might be interested in pursuing and stated that otherwise
the case would be closed and a notice of determination would be issued, sustaining
the filing of the NFTL. On November 10, 2009, Settlement Officer Lisanti left
another voicemail for Mr. Heinrich, asking him to return her phone call by
November 13, 2009, and also inquiring whether petitioners were interested in
alternatives to an OIC. Also on November 10, 2009, Settlement Officer Lisanti
-9-
[*9] faxed a copy of her reasonable collection potential analysis (worksheet) to Mr.
Heinrich. This was the first time that Settlement Officer Lisanti provided to
petitioners any information regarding the details of her analysis.
Settlement Officer Lisanti’s worksheet showed that petitioners had gross
monthly income of $8,941, monthly expenses of $4,917, and net monthly income of
$4,024.5 Accordingly, the worksheet showed that the present value of
5
Specifically, Settlement Officer Lisanti made the following adjustments to
petitioners’ claimed income and expenses:
Gross monthly income Taxpayers Appeals
Interest--dividends -0- $331
Net business income $4,600 4,600
Pension/SSA (taxpayer) 1,351 2,334
Pension/SSA (spouse) 675 -0-
Other -0- 1,676
Total income 6,626 8,941
Monthly expenses
Allowable national standard expense--2 people $550 $961
Local housing and utilities (Los Angeles) 3,473 2,236
Local transportation:
Ownership costs--vehicle 1 700 -0-
Operating costs--vehicle 1 -0- 100
Operating costs--vehicle 2 -0- 261
Other allowable expenses:
Health insurance premiums 1,058 656
Life insurance 798 200
Taxes (income & FICA) 500 503
(continued...)
- 10 -
[*10] petitioners’ future income and expenses was $193,152. Additionally, the
worksheet showed that petitioners had net realizable equity in assets of $193,239.
In calculating petitioners’ net realizable equity in assets, Settlement Officer Lisanti
included $5,550 for petitioners’ Bank of America checking accounts, $800 for
petitioners’ 1997 Ford Explorer, $2,000 for petitioners’ 2002 Ford Explorer,
$164,932 for the Lake Arrowhead property, and $19,957 for the total amount of
petitioners’ 2007 and 2008 charitable contributions as dissipated assets.6
On November 12, 2009, Mr. Heinrich left a voicemail for Settlement Officer
Lisanti in which he stated that he disagreed with the value that Settlement Officer
Lisanti attributed to the Lake Arrowhead property and with her adjustments to
petitioners’ allowable living expenses on the worksheet. Mr. Heinrich also
5
(...continued)
Total expenses 7,079 4,917
Net monthly income (453) 4,024
6
Dr. Jones offered into evidence a document dated November 11, 2009, that
Mr. Heinrich claimed he had faxed to Settlement Officer Lisanti, detailing his
disagreements with the adjustments on Settlement Officer Lisanti’s worksheet. We
did not admit the document into evidence because Dr. Jones lacked personal
knowledge that the document had been faxed to Settlement Officer Lisanti, see Fed.
R. Evid. 802; Rule 143, and Mr. Heinrich was unavailable to authenticate the
document as having been faxed to Settlement Officer Lisanti.
- 11 -
[*11] indicated that he would supply further documentation by a date that is unclear
from the record, but possibly as late as November 20, 2009.7
On November 19, 2009, Settlement Officer Lisanti left a voicemail for Mr.
Heinrich, informing him that she would be closing the case and reminding him that
petitioners had the right to seek judicial review of the determination. On December
3, 2009, Settlement Officer Lisanti terminated the section 6320 hearing.
On December 9, 2009, respondent mailed to petitioners the notice of
determination, sustaining the filing of the NFTL. The Appeals Office attached a
statement prepared by Settlement Officer Lisanti and a copy of her worksheet. In
the statement Settlement Officer Lisanti stated that Dr. Jones is “in apparent good
health” and that Mrs. Jones has “no known health problems.” In explaining why
the Appeals Office rejected petitioners’ OIC, Settlement Officer Lisanti explained
that a taxpayer’s reasonable collection potential is calculated by adding the
taxpayer’s net realizable equity in assets to the present value of the taxpayer’s
future income and expenses. Settlement Officer Lisanti then stated that
7
The parties stipulated, and a document in evidence titled “Case Activity
Record Print” shows, that Mr. Heinrich promised to provide the supporting
documentation to Settlement Officer Lisanti by the end of the next day, November
13, 2009. However, in a statement attached to the Notice of Determination
Concerning Collection Action(s) under Section 6320 and/or 6330 (notice of
determination), Settlement Officer Lisanti stated that Mr. Heinrich agreed to provide
the supporting documentation via fax by November 20, 2009.
- 12 -
[*12] petitioners’ net realizable equity in assets was $193,239 and that “[n]o further
analysis is required to determine that an OIC based on * * * [doubt as to
collectibility] is not an acceptable resolution to the taxpayers’ account.” Settlement
Officer Lisanti stated that she determined the value of petitioners’ Lake Arrowhead
property by using Zillow.com. 8 Settlement Officer Lisanti also noted that
petitioners’ net realizable equity in assets, as determined by petitioners’ own
financial statements, was $9,050, nearly twice the amount petitioners offered.
According to Settlement Officer Lisanti, this indicated that the offer was
“unacceptable on its face”.
As an additional consideration, Settlement Officer Lisanti noted that
petitioners had reported $3,968 of interest income on their 2008 Federal income
tax return from accounts that petitioners did not include on the financial
statements they provided.9 According to Settlement Officer Lisanti, this indicated
that “there may be additional * * * assets that should be part of the * * *
[reasonable collection potential] calculation that are not included on my
8
The “Zestimate” for the Lake Arrowhead property was $355,500, and the
“Value Range” was $245,295-$369,720.
9
On their 2008 Schedule B, Interest and Ordinary Dividends, petitioners
reported interest income from three accounts: $49 from a Community West Bank
account; $670 from a Washington Mutual account; and $3,249 from a JP Morgan
Chase Bank account.
- 13 -
[*13] worksheet.” In fact, respondent conceded at trial that Settlement Officer
Lisanti was aware that these accounts contained insurance proceeds from a fire that
destroyed petitioners’ home on the Moorpark properties in 2006. Finally,
Settlement Officer Lisanti stated that there were no special circumstances that
would warrant consideration on any other basis.
Upon receiving the notice of determination, petitioners timely filed their
petition with this Court, contesting respondent’s determination to sustain the filing
of the NFTL.
OPINION
I. Section 6320 Hearings
Section 6321 imposes a lien on all property and property rights of a
taxpayer liable for taxes where a demand for the payment of the taxes has been
made and the taxpayer fails to pay. The Internal Revenue Service (IRS) is
authorized to file an NFTL with respect to taxpayers that have outstanding tax
liabilities and fail to pay after notice and demand. Sec. 6323. Section 6320(a)
requires the Secretary10 to send written notice to the taxpayer of the filing of an
NFTL and of the taxpayer’s right to an administrative hearing on the matter. The
10
The term “Secretary” means the Secretary of the Treasury or his delegate.
Sec. 7701(a)(11)(B).
- 14 -
[*14] conduct and scope of section 6320 hearings are governed by section 6330(c),
(d) (other than paragraph (2)(B)), and (e). Sec. 6320(c). At the hearing, a taxpayer
may raise any relevant issue, including appropriate spousal defenses, challenges to
the appropriateness of the collection action, and collection alternatives, such as an
OIC or an installment agreement. Sec. 6330(c)(2)(A).
Following the hearing, the Appeals Office must issue a notice of
determination regarding the validity of the filed NFTL. The Appeals Office is
required to take into consideration: (1) verification presented by the Secretary that
the requirements of applicable law and administrative procedure have been met, (2)
relevant issues raised by the taxpayer, and (3) whether the proposed collection
action appropriately balances the need for efficient collection of taxes with a
taxpayer’s concerns regarding the intrusiveness of the proposed collection action.
Sec. 6330(c)(3); Wadleigh v. Commissioner, 134 T.C. 280, 287-288 (2010).
We have jurisdiction to review the Appeals Office’s determination. Sec.
6330(d)(1); see Murphy v. Commissioner, 125 T.C. 301, 308 (2005), aff’d, 469
F.3d 27 (1st Cir. 2006). Where the underlying tax liability is properly at issue, we
review any determination regarding the underlying tax liability de novo. Sego v.
Commissioner, 114 T.C. 604, 610 (2000). Where, as here, the underlying tax
liability is not properly at issue, we review the administrative determination of the
- 15 -
[*15] Appeals Office for abuse of discretion. Lunsford v. Commissioner, 117 T.C.
183, 185 (2001); Sego v. Commissioner, 114 T.C. at 610; Goza v. Commissioner,
114 T.C. 176, 182 (2000). In reviewing for abuse of discretion, we do not conduct
an independent review of whether an OIC submitted by a taxpayer was acceptable
or substitute our judgment for that of the Appeals Office. Rather, we must uphold
the Appeals Office’s determination unless it is arbitrary, capricious, or without
sound basis in fact or law. See, e.g., Murphy v. Commissioner, 125 T.C. at 320;
Taylor v. Commissioner, T.C. Memo. 2009-27, 97 T.C.M. (CCH) 1109, 1116
(2009); see also Fargo v. Commissioner, 447 F.3d 706, 709 (9th Cir. 2006)
(“Abuse of discretion occurs when a decision is based ‘on an erroneous view of the
law or a clearly erroneous assessment of the facts.’” (quoting United States v.
Morales, 108 F.3d 1031, 1035 (9th Cir. 1997))), aff’g T.C. Memo. 2004-13.
However, we can uphold the Appeals Office’s determination only on grounds
actually relied upon by the Appeals officer in the notice of determination. See
Salahuddin v. Commissioner, T.C. Memo. 2012-141, slip op. at 16 (citing SEC v.
Chenery Corp., 318 U.S. 80, 93-95 (1943)); Rosenbloom v. Commissioner, T.C.
Memo. 2011-140, 101 T.C.M. (CCH) 1669, 1674 n.17 (2011); see also Safe Air
For Everyone v. EPA, 488 F.3d 1088, 1091 (9th Cir. 2007); Carpenter Family
- 16 -
[*16] Invs., LLC v. Commissioner, 136 T.C. 373, 380 (2011) (citing SEC v.
Chenery Corp., 332 U.S. 194, 196 (1947)).
II. Parties’ Arguments
A. Petitioners’ Arguments
Petitioners contend that respondent abused his discretion in determining to
sustain the filing of the NFTL for several reasons:
First, petitioners contend that it was their impression that Settlement Officer
Lisanti only denied their OIC because she determined that they had sufficient equity
in the Lake Arrowhead property to satisfy their tax liabilities. In that regard,
petitioners contend that Settlement Officer Lisanti erred by using Zillow.com to
value the property and by ignoring the documented disrepair of the property and the
copies of bids to repair the property that they submitted.
Second, petitioners contend that Settlement Officer Lisanti failed to consider
their advanced age, their poor health, Dr. Jones’ stated intention to retire, and the
trauma relating to the 2006 fire that destroyed their home on the Moorpark
properties.
Third, petitioners contend that Settlement Officer Lisanti erroneously
included checking account balances of $5,550 in their net realizable equity in assets.
- 17 -
[*17] Fourth, petitioners contend that Settlement Officer Lisanti erroneously
included the amount of their 2007-08 charitable contributions in calculating their net
realizable equity in assets.
Fifth, petitioners contend that Settlement Officer Lisanti made several
erroneous adjustments to the present value of their future income and expenses on
her worksheet.
Finally, petitioners assert that their financial condition has worsened
considerably since respondent issued the notice of determination and that Dr. Jones
would like to retire immediately and continues working only because of his severe
debts.
B. Respondent’s Arguments
Respondent contends that Settlement Officer Lisanti did not abuse her
discretion in determining that petitioners’ reasonable collection potential was
sufficient to pay their tax liability in full. As an initial matter, respondent contends
that petitioners were afforded ample opportunity to submit materials supporting their
OIC and to participate in a conference with Settlement Officer Lisanti but failed to
do so.
With respect to petitioners’ net realizable equity in assets, respondent
contends that Settlement Officer Lisanti properly relied on the Zillow.com
- 18 -
[*18] estimate of value for the Lake Arrowhead property, rounded up to the nearest
thousand to $356,000, reduced by 10% for a quick sale value (QSV) of $320,400,
and reduced further by the outstanding mortgage balance on the property of
$155,468, leaving equity of $164,932. Moreover, respondent contends that even if
the estimate of $74,240 for the allegedly required repairs on the property is
deducted dollar for dollar, petitioners would still have $90,692 of equity in the
property, which is more than sufficient to satisfy their outstanding tax liabilities.
Respondent also contends that petitioners have $5,550 deposited in checking
accounts, a Ford Explorer worth $1,000, and a Ford Explorer worth $2,500, the
values of the vehicles being discounted to QSVs of $800 and $2,000, respectively.
With respect to the 2007-08 charitable contributions, respondent contends that
settlement officers are instructed to consider including dissipated assets in the
reasonable collection potential calculation. See Internal Revenue Manual (IRM) pt.
5.8.5.5 (Sept. 23, 2008).
With respect to petitioners’ future income and expenses, respondent
contends that Settlement Officer Lisanti properly determined that the present value
of their future income and expenses was $193,152. According to respondent, part
of this amount is attributable to Settlement Officer Lisanti’s determination that
petitioners understated their monthly income, and part of this amount is
- 19 -
[*19] attributable to Settlement Officer Lisanti’s disallowance of certain of
petitioners’ claimed expenses. Moreover, respondent contends that, even accepting
all of petitioners’ claimed expenses, the present value of petitioners’ future income
and expenses would still be $69,504.
Finally, respondent contends that Settlement Officer Lisanti did not abuse her
discretion by failing to take into account the loss of petitioners’ home in the 2006
fire and petitioners’ continued expense in making payments on that property
because petitioners failed to disclose the property and the payments on their Form
433-A.
III. Petitioners’ Section 6320 Hearing
A. Offers-in-Compromise
Section 7122(a) authorizes the Secretary to compromise any civil or criminal
case arising under the internal revenue laws before its referral to the Department of
Justice. Section 7122(d) authorizes the Secretary to prescribe guidelines for officers
and employees of the IRS to determine whether an OIC is adequate and should be
accepted. Accordingly, we generally uphold the rejection of an OIC when the
Appeals Office has followed the IRM. See, e.g., Churchill v. Commissioner, T.C.
Memo. 2011-182, 102 T.C.M. (CCH) 116, 117 (2011);
- 20 -
[*20] Atchison v. Commissioner, T.C. Memo. 2009-8, 97 T.C.M. (CCH) 1034,
1036 (2009).
The regulations under section 7122 provide that an OIC is appropriate where
there is doubt as to collectibility. Sec. 301.7122-1(b)(2), Proced. & Admin. Regs.
“Doubt as to collectibility exists in any case where the taxpayer’s assets and income
are less than the full amount of the liability.” Id. “A determination of doubt as to
collectibility will include a determination of ability to pay. In determining ability to
pay, the Secretary will permit taxpayers to retain sufficient funds to pay basic living
expenses.” Sec. 301.7122-1(c)(2)(i), Proced. & Admin. Regs.; see also sec.
7122(d)(2)(A) and (B). Rev. Proc. 2003-71, sec. 4.02(2), 2003-2 C.B. 517, 517,
states that
[d]oubt as to collectibility exists in any case where the taxpayer’s
assets and income cannot satisfy the full amount of the liability.
An offer to compromise based on doubt as to collectibility
generally will be considered acceptable if it is unlikely that the tax can
be collected in full and the offer reasonably reflects the amount the
Service could collect through other means, including administrative and
judicial collection remedies. * * * This amount is the reasonable
collection potential of a case. In determining the reasonable collection
potential of a case, the Service will take into account the taxpayer’s
reasonable basic living expenses. In some cases, the Service may
accept an offer of less than the total reasonable collection potential of a
case if there are special circumstances.
- 21 -
[*21] Pursuant to the IRM, “[i]n determining the taxpayer’s future ability to pay, full
consideration must be given to the taxpayer’s overall general situation including
such factors as age, health, marital status, number and age of dependents, education
or occupational training and work experience.” IRM pt. 5.8.4.4 (Sept. 23, 2008).
B. Petitioners’ Reasonable Collection Potential
Although Settlement Officer Lisanti attached a copy of her worksheet to the
notice of determination, she also stated in the attached statement that because
petitioners’ net realizable equity in assets was $193,239, “[n]o further analysis is
required”. Settlement Officer Lisanti further stated that the OIC was “unacceptable
on its face” because petitioners’ net realizable equity in assets would have been
$9,050 according to the financial statements that petitioners submitted with their
OIC. Settlement Officer Lisanti then explained some of her reasoning in
determining petitioners’ net realizable equity in assets, but she did not explain any
of her reasoning regarding the adjustments she made to petitioners’ income and
expenses. From this we conclude that Settlement Officer Lisanti did not rely on her
adjustments to petitioners’ income and expenses in determining that petitioners’
reasonable collection potential was greater than their OIC.
- 22 -
[*22] Respondent goes to great length to explain the adjustments on Settlement
Officer Lisanti’s income and expense worksheet and contends that any abuse of
discretion with respect to the net realizable equity in assets calculation was harmless
because of the adjustments to petitioners’ future income and expenses. But “our
role under section 6330(d) is to review actions that the IRS took, not actions that it
could have taken.” Salahuddin v. Commissioner, slip op. at 16 (citing Chenery, 318
U.S. at 93-95); see also Rosenbloom v. Commissioner, 101 T.C.M. (CCH) at 1674
n.17.
In Chenery, 318 U.S. at 93-94, the Supreme Court explained that
[the agency’s] action must be measured by what the * * * [agency] did,
not by what it might have done. * * * The * * * [agency’s] action
cannot be upheld merely because findings might have been made and
considerations disclosed which would justify its order as an appropriate
safeguard for the interests protected by the Act. There must be such a
responsible finding. * * *
See also Safe Air For Everyone, 488 F.3d at 1091 (“[O]ur review of an
administrative agency’s decision begins and ends with the reasoning that the agency
relied upon in making that decision”.). We have found that Settlement Officer
Lisanti did not rely on her adjustments to petitioners’ income and expenses and that
she failed to explain any of her reasoning regarding those adjustments.
Accordingly, we decline to consider respondent’s post hoc explanations of the
- 23 -
[*23] adjustments on Settlement Officer Lisanti’s income and expense worksheet as
a valid basis for sustaining respondent’s determination.
Additionally, the notice of determination does not disclose that Settlement
Officer Lisanti gave any consideration to the impact petitioners’ advanced age and
asserted poor health might have on petitioners’ ability to pay, as required by IRM
pt. 5.8.4.4. In fact, the statement attached to the notice of determination appears to
confirm that Settlement Officer Lisanti gave no consideration to petitioners’ age or
claims of poor health. There is no documentation in the administrative record
showing that Settlement Officer Lisanti ever asked for documentation of or disputed
petitioners’ asserted poor health, and respondent has offered no explanation for
Settlement Officer Lisanti’s statement that Dr. Jones is “in apparent good health”
and that Mrs. Jones has “no known health problems.” Although the Appeals
Office does not have to list “every single fact that it considered in arriving at * * *
[its] determination”, Barnes v. Commissioner, T.C. Memo. 2006-150, 92
T.C.M. (CCH) 31, 35 (2006), aff’d in part, vacated in part sub nom. Keller v.
Commissioner, 568 F.3d 710 (9th Cir. 2009), it cannot misstate or fail to
address significant and obviously relevant facts.11 Because we cannot
11
Significantly, most of petitioners’ income is Schedule C income from Dr.
Jones’ dental practice. Accordingly, Dr. Jones’ advanced age and asserted health
(continued...)
- 24 -
[*24] ascertain from the administrative record how Settlement Officer Lisanti
arrived at her conclusion that petitioners were in good health in the face of
information supplied by petitioners during the section 6320 hearing that they were
not, we cannot evaluate whether Settlement Officer Lisanti abused her discretion in
rejecting petitioners’ OIC.
C. Petitioners’ Net Realizable Equity in Assets
Pursuant to the IRM, a taxpayer’s ability to pay for OIC purposes is
determined in part by calculating the net realizable equity in the taxpayer’s assets.
IRM pt. 5.8.5.4.1(1) (Sept. 23, 2008). “Net realizable equity is defined as * * *
(QSV) less amounts owed to secured lien holders with priority over the federal tax
lien.” Id. “QSV is defined as an estimate of the price a seller could get for the
asset in a situation where financial pressures motivate the owner to sell in a short
period of time, usually 90 calendar days or less.” Id. pt. 5.8.5.4.1(2). “Normally,
QSV is calculated at 80% of * * * [fair market value (FMV)]. A higher or lower
11
(...continued)
problems clearly have the potential to significantly affect petitioners’ future income.
By contrast, in cases such as Johnson v. Commissioner, T.C. Memo. 2007-29, 93
T.C.M. (CCH) 885, 889 (2007), aff’d in part, vacated in part sub nom. Keller v.
Commissioner, 568 F.3d 710 (9th Cir. 2009), the failure to address the taxpayers’
age and health was deemed insignificant because the taxpayers relied principally on
income that was not contingent upon employment.
- 25 -
[*25] percentage may be applied in determining QSV when appropriate, depending
on the type of asset and current market conditions.” Id. pt. 5.8.5.4.1(3).
Petitioners contend that Settlement Officer Lisanti erred in her determination
of the FMV of the Lake Arrowhead property, in her calculation of petitioners’
checking account balances, and in her inclusion of the total amount of petitioners’
2007-08 charitable contributions, as dissipated assets, in her calculation of
petitioners’ net realizable equity in assets. We address each of these contentions in
turn.
1. Lake Arrowhead Property Valuation
a. Evidentiary Issues
Before we decide whether Settlement Officer Lisanti erred in determining
that petitioners had realizable equity of $164,932 in the Lake Arrowhead property,
we must first resolve an evidentiary dispute regarding two documents that
petitioners sought to introduce into evidence to support their contention that they
had no equity in the Lake Arrowhead property. The first of these documents is a
letter from a loan officer at Mountain West Financial, Inc., dated September 7,
2010, and the second is an appraisal of the Lake Arrowhead property dated
September 17, 2010. Respondent objected to the introduction of these documents
because both postdate the administrative record and are thus irrelevant in
- 26 -
[*26] determining whether Settlement Officer Lisanti abused her discretion in
sustaining the filing of the NFTL.
Respondent contends, and we agree, that the U.S. Court of Appeals for the
Ninth Circuit, to which an appeal in this case would lie absent a stipulation to the
contrary, see sec. 7482(b)(1)(A), has adopted the administrative record rule in
section 6320 cases where the underlying liability is not at issue, see Keller, 568 F.3d
at 718; Jordan v. Commissioner, 134 T.C. 1, 9 (2010); see also Robinette v.
Commissioner, 439 F.3d 455 (8th Cir. 2006), rev’g 123 T.C. 85 (2004).
Accordingly, under Golsen v. Commissioner, 54 T.C. 742 (1970), aff’d, 445 F.2d
985 (10th Cir. 1971), we must sustain respondent’s objections.
b. Respondent’s Valuation of the Lake Arrowhead Property
The IRM in effect during 2009 provided the following methods for
determining the FMV of real estate for OIC purposes: a recent purchase price or an
existing contract to sell; recent appraisals; a real estate tax assessment; a market
comparable; and a homeowner’s insurance replacement cost.12 IRM pt.
5.8.5.4.11(2) (Sept. 23, 2008).
12
The current version of the Internal Revenue Manual (IRM) provides that
internal sources, such as Accurint, can also be used to determine the FMV of real
property. IRM pt. 5.8.5.12 (Oct. 22, 2010).
- 27 -
[*27] In their Form 433-A petitioners stated under penalty of perjury that the Lake
Arrowhead property had a current value of $155,000. However, in the statement
attached to the notice of determination, Settlement Officer Lisanti determined, on
the basis of a valuation obtained using Zillow.com, that the Lake Arrowhead
property had a fair market value of $356,000, apparently rounded up to the nearest
thousand. In so doing, Settlement Officer Lisanti used the “Zestimate” provided by
Zillow.com, which was near the higher end of the “Value Range” of $245,295 to
$369,720 that accompanied that estimate. Settlement Officer Lisanti then reduced
that amount by 10% for a QSV of $320,400, but she did not explain why she used a
10% reduction as opposed to the standard 20% reduction used to calculate QSV.
Settlement Officer Lisanti then subtracted the outstanding mortgage balance on the
property of $155,468, for net realizable equity of $164,932.
Settlement Officer Lisanti never asked petitioners to provide an appraisal or
to otherwise substantiate the value they placed on the Lake Arrowhead property.
Moreover, petitioners submitted several documents on or around April 22, 2009,
to substantiate their assertion that the Lake Arrowhead property required
significant repairs, but Settlement Officer Lisanti never considered those
documents. Only after Settlement Officer Lisanti faxed Mr. Heinrich a copy of her
- 28 -
[*28] worksheet on November 10, 2009, were petitioners or Mr. Heinrich aware
that Settlement Officer Lisanti disputed their position that they had no equity in the
Lake Arrowhead property. On November 12, 2009, Mr. Heinrich purportedly
promised Settlement Officer Lisanti additional documents supporting petitioners’
valuation of the Lake Arrowhead property by as late as November 20, 2009. Yet on
November 19, 2009, Settlement Officer Lisanti left a voicemail for Mr. Heinrich,
informing him that she would be closing the case. It is also unclear what new
documents Settlement Officer Lisanti expected Mr. Heinrich to provide on such
short notice.
In this context, Settlement Officer Lisanti’s reliance on the “Zestimate”
provided by Zillow.com to determine the FMV of the Lake Arrowhead property,
despite petitioners’ sworn statement that the Lake Arrowhead property had a
significantly lower value, without additional investigation, was clearly erroneous.
Zillow.com itself states that its “Zestimate” “is not an appraisal. It is a starting
point in determining a home’s value.”13 What is a Zestimate?, Zillow.com,
http://www.zillow.com/wikipages/What-is-a-Zestimate/ (last visited June 18,
13
We note that respondent’s counsel also objected to the appraisal that
petitioners were trying to introduce into evidence on the grounds that the appraisal
specifically stated that “This appraisal report is intended for use by the owner and
subject for personal reasons only. This report is not intended for any other use.”
- 29 -
[*29] 2012). Moreover, Settlement Officer Lisanti did not consider the “Value
Range” provided in the Zillow.com report. Significantly, had Settlement Officer
Lisanti considered that range and the documented disrepair of the Lake Arrowhead
property, she might have agreed with petitioners’ position that they had no equity in
the Lake Arrowhead property.14 At a minimum, Settlement Officer Lisanti should
have provided petitioners a meaningful opportunity to substantiate their position.
Settlement Officer Lisanti first notified petitioners that she disagreed with
their valuation of the Lake Arrowhead property on November 10, 2009, when she
faxed Mr. Heinrich her worksheet. On November 19, 2009, she left a voicemail for
Mr. Heinrich, informing him that she would be closing the case. We do not think
that this constituted a meaningful opportunity for petitioners to substantiate their
position.
Because we find that Settlement Officer Lisanti erred by failing to consider
the documented disrepair of the property and by failing to provide petitioners a
14
For example, if Settlement Officer Lisanti had assumed that the FMV of the
Lake Arrowhead property, without factoring in the required repairs, was $245,295,
which is at the low end of the Zillow.com “Value Range”, the QSV of the property,
as calculated by Settlement Officer Lisanti, would have been $220,766. After
subtracting the $74,240 in work estimates that petitioners provided, the QSV would
be $146,526, which is less than the outstanding mortgage balance on the property of
$155,468.
- 30 -
[*30] meaningful opportunity to substantiate their position, we need not decide at
this time whether Zillow.com, or similar Web sites, are appropriate tools for
determining the FMV of real property in the context of section 6320 hearings or
otherwise. Cf. In re Darosa, 442 B.R. 173, 177 (Bankr. D. Mass. 2010) (suggesting
that Zillow.com’s “Zestimates” are unreliable and can be manipulated by users).
2. Checking Account Balances
In calculating petitioners’ net realizable equity in assets, Settlement Officer
Lisanti included $5,550 for amounts in petitioners’ checking accounts. However,
petitioners listed two checking accounts on their Form 433-A, one with a balance of
$1,250 and the other with a balance of $300. Settlement Officer Lisanti should have
realized that petitioners made a typographical error in entering the total as $5,550,
rather than $1,550.
3. 2007 and 2008 Charitable Contributions as Dissipated Assets
Dissipation of assets is “[t]he use of an asset for an illegal or inequitable
purpose”. Black’s Law Dictionary 541 (9th ed. 2009) (defining “dissipation”).
Pursuant to IRM pt. 5.8.5.5(1), an asset is dissipated if it has “been sold, gifted,
transferred, or spent on non-priority items or debts and are no longer available to
pay the tax liability.” Dissipated assets could be included in a taxpayer’s
- 31 -
[*31] reasonable collection potential either because the tax collector is
understandably concerned that the assets may only appear to have dissipated, see
Tucker v. Commissioner, T.C. Memo. 2011-67, 101 T.C.M. (CCH) 1307, 1314
(2011), aff’d, 676 F.3d 1129 (D.C. Cir. 2012), or “to deter delinquent taxpayers
from wasting money that they owe and should pay as taxes”, id. Accordingly, for a
dissipated asset to be added to a taxpayer’s reasonable collection potential, an asset
that should otherwise have been available to satisfy the taxpayer’s tax liability must
be identified as having been dissipated. See IRM pt. 5.8.5.5(1).
The IRM has specific guidelines for how dissipated assets should be treated
in the context of an OIC: (1) It must be determined that assets were dissipated and
are no longer available to pay the tax liability. Id. (2) The investigation should
determine whether the dissipated assets should be included in the taxpayer’s
reasonable collection potential. Id. pt. 5.8.5.5(2). (3) Inclusion of dissipated assets
in the reasonable collection potential calculation should be documented in the
administrative record. Id. pt. 5.8.5.5(3). (4) The determination that assets were
dissipated should consider: the timing of such dissipation in relation to when the
taxpayer submitted the offer and to when the liability arose; how the assets were
transferred; whether the taxpayer realized funds from the transfer and how the
funds were used; the value of the transferred assets; and the taxpayer’s interest
- 32 -
[*32] in those assets. Id. (5) Where the taxpayer can show that dissipated assets
were spent on necessary living expenses, the dissipated assets should not be
included in the taxpayer’s reasonable collection potential. Id. pt. 5.8.5.5(4).
In her worksheet Settlement Officer Lisanti added $19,957 to petitioners’ net
realizable equity in assets on account of petitioners’ 2007 and 2008 charitable
contributions.15 The stated reason for this inclusion was that these contributions
constituted dissipated assets. However, Settlement Officer Lisanti did not explain
her reasoning for characterizing charitable contributions as dissipated assets, nor did
she describe her analysis in the notice of determination or in any part of the
administrative record. Without such an explanation, we cannot properly review
Settlement Officer Lisanti’s conclusion and evaluate its impact on the Appeals
Office’s determination. See Safe Air For Everyone, 488 F.3d at 1091; Salahuddin
v. Commissioner, slip op. at 16; Rosenbloom v. Commissioner, 101 T.C.M. (CCH)
at 1674 n.17.
15
Petitioners claimed charitable contribution deductions of $17,487 and
$2,470 for 2007 and 2008, respectively. We infer that Settlement Officer Lisanti
based her conclusion that assets were dissipated solely on the fact that petitioners
claimed charitable contribution deductions for 2007 and 2008.
- 33 -
[*33] D. Petitioners’ Failure To Disclose the Washington Mutual Account
The Appeals Office can deny a taxpayer’s OIC based on doubt as to
collectibility if it reasonably determines that the taxpayer failed to disclose assets.
See Schropp v. Commissioner, T.C. Memo. 2010-71, 99 T.C.M. (CCH) 1298, 1304
(2010), aff’d, 405 Fed. Appx. 800 (4th Cir. 2010).
In the statement attached to the notice of determination, Settlement Officer
Lisanti stated that petitioners had reported $3,968 of interest income from accounts
that petitioners did not include on the financial statements they provided. According
to Settlement Officer Lisanti, this indicated that “there may be additional * * *
assets that should be part of the * * * [reasonable collection potential] calculation
that are not included on my worksheet.”
At trial, however, respondent conceded that Settlement Officer Lisanti knew
that these accounts contained insurance proceeds from the fire that destroyed
petitioners’ home on the Moorpark properties in 2006. Despite her knowledge of
the fire and the insurance proceeds, Settlement Officer Lisanti never requested
documents relating to these accounts, and there is no indication in the record that
she was concerned about these accounts before issuing the notice of
determination. We infer that Settlement Officer Lisanti was either satisfied that
these funds should not be included in petitioners’ net realizable equity in assets or
- 34 -
[*34] knew that the funds in the accounts had been depleted. This is consistent with
petitioners’ testimony at trial that they could not spend the insurance proceeds
without approval from the banks and that the funds were all used to pay various
necessary expenses. Considering that Settlement Officer Lisanti knew about the
source of the funds in the accounts, we also question her assertion that she did not
know whether any funds remained in the accounts. In any event, Settlement Officer
Lisanti’s knowledge of the fire that destroyed petitioners’ home and of the source of
the funds in the accounts and her apparent failure to inquire further about the
existence and use of the insurance proceeds render her conclusion that the accounts
were undisclosed unreasonable.
IV. Propriety of Remand
We may under certain circumstances remand a case to the Commissioner’s
Appeals Office while retaining jurisdiction. See Lunsford v. Commissioner, 117
T.C. at 189. The resulting section 6320 hearing on remand provides the parties with
an opportunity to complete the initial section 6320 hearing while preserving the
taxpayer’s right to receive judicial review of the ultimate administrative
determination. Drake v. Commissioner, T.C. Memo. 2006-151, 92 T.C.M. (CCH)
37, 44 (2006), aff’d, 511 F.3d 65 (1st Cir. 2007). It is well settled that we may
remand in section 6320 cases where the Appeals Office has abused its discretion
- 35 -
[*35] in some way. See, e.g., Churchill v. Commissioner, 102 T.C.M. (CCH) at
118; Med. Practice Solutions, LLC v. Commissioner, T.C. Memo. 2009-214, 98
T.C.M. (CCH) 242, 247 (2009). Because the administrative record does not
adequately disclose the analysis of the Appeals Office in determining that the OIC
was not acceptable and that the filing of the NFTL should be sustained and because
petitioners were not afforded a meaningful opportunity to substantiate their position
with respect to the valuation of the Lake Arrowhead property, remand is appropriate
in this case.16
V. Conclusion
We have considered the parties’ remaining arguments and, to the extent not
discussed above, conclude that those arguments are irrelevant, moot, or without
merit. For the reasons identified above, we will remand this case to the Appeals
Office for further proceedings consistent with this opinion.
To reflect the foregoing,
An appropriate order will be issued.
16
Upon remand the Appeals Office shall consider any additional information
or evidence that petitioners may wish to submit, any new collection alternative that
petitioners may wish to propose, and any asserted change in circumstances. See
Leago v. Commissioner, T.C. Memo. 2012-39, slip op. at 24.
|
225 N.W.2d 815 (1975)
BOARD OF SUPERVISORS OF BENTON TOWNSHIP, et al., Appellants,
v.
CARVER COUNTY BOARD OF COMMISSIONERS, Respondent,
Carver Creek Country Club, Inc., Respondent.
No. 44694.
Supreme Court of Minnesota.
January 17, 1975.
*816 Nicklaus & Leatham and Robert A. Nicklaus and Dwight J. Leatham, Chaska, for appellants.
W. R. Glaeser, County Atty., Scott Ballou, Asst. County Atty., Chaska, for Carver Co. Bd. of Comm.
Wurst, Bundlie, Carroll & Crouch, and Gerald T. Carroll, Jr., Minneapolis, for Carver Creek Country Club, Inc.
Heard before ROGOSHESKE, TODD, and YETKA, JJ., and considered and decided by the court en banc.
YETKA, Justice.
Appeal from an order of the District Court of Carver County, entered July 25, 1973, denying plaintiffs' motion for a new trial, and from the judgment entered. We affirm.
On June 1, 1971, defendant Carver Creek Country Club, Inc., (hereinafter referred to as Carver Creek) filed an application with the Carver County Office of Planning and Zoning requesting a conditional-use permit for the purpose of constructing a golf *817 course on a 180-acre tract of real estate[1] located in Benton Township, Carver County. This application was referred to the Carver County Planning Commission (hereinafter referred to as the planning commission) for consideration at its July 14, 1971, meeting. The Carver County Interim Zoning Ordinance No. 3 was in effect at the time. Section 4(88) defined conditional uses as follows:
"Those occupations, vocations, skills, arts businesses, professions, or uses specifically designated in each Zoning Use District, which for their respective conduct, exercise or performance in such designated use districts may require reasonable but special, peculiar, unusual or extraordinary limitations, facilities, plans, structures, thoroughfares, conditions, modification, or regulations in such use district for the promotion or preservation of the general public welfare, health, convenience, or safety therein and in the County, and therefore, may be permitted in such use district only by a Conditional Use Permit."
Section 6, subsection 7, details the procedure to be used in obtaining a conditional-use permit:
"7.1APPLICATION: Whenever this Ordinance requires a Conditional Use Permit, an application therefor in writing may be filed with the Zoning Administrator together with such filing fee as may be established by the County Board and shall be accompanied with a site plan and such information and showing as may be necessary or desirable, including but not limited to the following:
"a. Site plan drawn at scale showing dimensions.
* * * * * *
"h. Sanitary sewer and water plan with estimated use per day.
* * * * * *
"7.2REFERRAL TO COMMISSION: The application and related file shall be referred to the Commission for study concerning the effect of the proposed use on the Comprehensive Plan and on the character and development of the neighborhood. The Commission shall place the application on its agenda for its next regular meeting after seven (7) days from the date of filing. The Commission shall transmit its findings and recommendations to the County Board within seventy (70) days from the date of filing the application.
"7.3COUNTY BOARD ACTION: The County Board shall consider the advice and recommendation of the Commission and the effects of the proposed use upon the health, safety and welfare of Carver County and of the occupants of the immediate neighborhood. Should the County Board find that the proposed use when conducted under the specified conditions will not be detrimental to the health, safety, or general welfare, they may grant a Conditional Use Permit specifying the conditions for location and use requested."
Section 8 provides for the uses in agricultural districts:
"(1)PERMITTED PRINCIPAL USES: Within any `A' District no structure or land shall be used except for one or more of the following uses:
* * * * * *
"1.3Agriculture subject to two (2) animal units per acre.
"(2)CONDITIONAL USES: Within any `A' District no structure or land shall be used for the following uses except by Conditional Use Permit:
* * * * * *
*818 "2.4Recreational uses or facilities designed therefore to serve more than one family, including, but not limited to, golf courses, country clubs, tennis courts, swimming pools, archery ranges and rifle or trap shooting ranges."
The Carver Creek application was considered by the planning commission at public meetings held July 14 and August 11, 1971, at which time the proponents and opponents, including the parties and their counsel, expressed their views on the matter. At the conclusion of the second meeting, the planning commission voted to deny the Carver Creek application. Both meetings were recorded on tape and later transcribed into typed summaries.
These summaries (or minutes) did not recite the reasons for the planning commission's denial of the application. Aside from the minutes of the August 11 meeting, record of the commission's denial is found only in a notation on the application form.
The planning commission did not forward recommendations to the board of county commissioners (hereinafter referred to as the board), other than a bare notation of its negative vote on defendant's application.[2] However, there is testimony from which the trial court could find that the minutes and other documents compiled by the planning commission were forwarded to the board. The board considered the application at four separate meetings, held on September 14, October 12, October 26, and November 9, 1971.
Final action was taken by the board on November 9 after considering a report by a committee consisting of the county attorney and two county commissioners appointed at the October 26 meeting. The application was approved by a 3 to 2 vote of the county board.
Thereafter, plaintiffs, including the Board of Supervisors of Benton Township and several interested property owners, brought an action in district court against Carver Creek and the county board to determine the validity of the conditional-use permit.
The trial court, sitting without a jury, upheld the board's approval of the Carver Creek application and found:
"That the Carver County Board of Commissioners, after hearings, determined that a golf course was not detrimental to the health, safety or welfare of the residents of Carver County, or of the immediate neighborhood in which the golf course was to be located, and approved the issuance of a conditional use permit to Carver Creek Country Club, Inc., and prescribed the conditions to apply to such permit."
Appeal was then taken to this court. Plaintiffs raise the following issues:
(1) Whether the board's decision was arbitrary as a matter of law because it was neither based on a sufficient record nor accompanied by findings or reasons in support thereof.
(2) Whether the board acted arbitrarily by failing to consider the recommendation of the planning commission.
(3) Whether the board arbitrarily delegated its authority by forming a subcommittee composed of two board members and the county attorney to investigate the Carver Creek application and report the results to the board.
(4) Whether the board acted arbitrarily by failing to consider the impact of the proposed use on the comprehensive plan of the county.
1. It is clear that the board neither accompanied its decision by findings of *819 fact, nor did the board preserve a record of its deliberations vis a vis the application at issue. Thus, under Zylka v. City of Crystal, 283 Minn. 192, 167 N.W.2d 45 (1969), a prima facie case of arbitrariness was established. However, the record shows that the board had before it ample evidence that Carver Creek's proposed use would not endanger the health, safety, or welfare of the community.[3] This evidence was more than sufficient to rebut the prima facie case of arbitrariness, thereby allowing the trial court to uphold the board's decision.
Moreover, since zoning laws are a restriction on the use of private property, we hold that there is a heavier burden required on the part of those who challenge the approval of a conditional-use permit, as compared to the degree of proof required of a landowner whose application is denied.
Plaintiffs rely on Chandler v. Kroiss, 291 Minn. 196, 190 N.W.2d 472 (1971), which is the only case in which this court has previously considered a challenge to the approval of a conditional-use permit. That case, however, did not hold that failure of a local unit of government to make contemporaneous findings or to preserve a record does not render the decision of that body per se invalid. Rather, as in the instant case, a reviewing court may look to the evidence in the record, and, absent a showing that the proposed use would be detrimental to public health, safety, or welfare, then the governmental decision must be upheld.
2. Plaintiffs suggest a dangerous precedent in urging this court to hold that it is arbitrary for the board to fail to consider the recommendation of the planning commission. In Zylka, we stated:
"Under the ordinance, the counsel of defendant city retained the power to issue special-use permits. Although an application was required to be passed upon initially by the city planning commission, its decision was a mere recommendation to the city council. * * *" (Italics supplied.) 283 Minn. 197, 167 N.W.2d 50.
*820 The relevant ordinance provision, § 6, subsection 7.3, clearly vests the final authority to reject or to approve applications with the board, not the planning commission.
The record does not show that the board did not consider the evidence compiled by the planning commission. Rather, the minutes of the planning commission and evidence gathered in those proceedings were placed before the board. There is testimony that the board was made aware of certain objections to the application which had been presented to the planning commission. As in Chandler, a board member was present at the planning commission hearings. Although not reflected in the board minutes, there was testimony presented at trial that the board had discussed the planning commission minutes and received evidence considered by the planning commission. There is also a letter in evidence to the board from the county attorney, dated October 15, 1971, in which the board was advised to review the entire planning commission file.
The issue at hand arises from the board's failure to acknowledge in its minutes due consideration of the planning commission file. However, this error of omission, in light of the above evidence, does not appear to constitute grounds for reversal by this court.
3. The fatal flaw in plaintiffs' third assignment of error is simply thisthe board, at its October 26, 1971, meeting, appointed a subcommittee to review potential conditions and to report to the board. There was no delegation of the power to make the final determination of the application. Rather, the appointment of the subcommittee was to provide information.
4. Plaintiffs urge this court to strike down the decision of the board on grounds that it failed to consider the effects of the application upon the comprehensive development plan.[4]
Plaintiffs cite Chandler v. Kroiss, supra, in support of their contention that this court should refuse to allow government bodies to ignore comprehensive plans. This reliance on Chandler is misplaced. In that case the granting of the special-use permit, which was contra to the comprehensive plan, automatically amended the plan under the relevant ordinances. In short, Chandler did not hold that failure to act in conformity with a comprehensive plan is arbitrary per se.
Plaintiffs proceed on the erroneous assumption that the board's decision was contra to, and reached without consideration of, the comprehensive plan. The board had in its files a memorandum written by a planning expert, Mr. James W. Hawks, hired by Carver County to assist in the formulation of land use plans and zoning provisions. In this memorandum, Mr. Hawks made specific reference to the comprehensive plan, and stated his opinion that the Carver Creek application was not necessarily contra to the goals espoused therein.
While we are persuaded the record is sufficient to affirm the decision of the lower court upholding the board's approval of defendant's application, we once again urge our local governments to follow the guidelines set forth in Zylka. Not only does such adherence simplify the process of judicial review, but also, and most importantly, the quality of decisions regarding conditional-use permits will thereby be improved.
Affirmed.
NOTES
[1] The SW ¼ and the S ½ of SE ¼ of NW ¼, Sec. 1, T. 115, R. 25 W., Carver County. This land was devoted to agricultural use prior to acquisition by Carver Creek Country Club, Inc.
[2] Carver County Interim Ordinance No. 3, § 6, subsection 7.2, required the planning commission to transmit its findings and recommendations to the county board within 70 days from the date of the filing of the application. A fair reading of this provision prompts the conclusion that it was not followed.
[3] Plaintiffs have listed a number of factors in their brief which allegedly show that approval of the Carver Creek application will be detrimental to their health, safety, and welfare. These factors are not persuasive when compared to the conditions attached to the granting of the conditional-use permit by the board.
The board's conditions are as follows:
"1. That the driveway to T.H. # 284 be placed at the high location indicated by applicant at the Board meeting on November 9, 1971 and that the driveway be built up to the highway level.
"2. That the drains to and from said tract of land remain at least as effective as they now are, and that nothing be done on said land to adversely affect the flow of surface water from adjoining land.
"3. That the 16 inch capacity well proposed for the irrigation system on the golf course be finished to the Mt. Simon Sedimentary Rock as proposed in the report of Bergerson-Caswell, Inc. dated July 6, 1971.
"4. That no license be applied for or issued to sell intoxicating liquor on the premises.
"5. That the proposed lagoon on the East side of the golf course be maintained as a wildlife habitat area.
"6. That the applicant submit a plan for fencing the area and have said plan approved by the County Board before construction commences.
"7. That all necessary building permits required by local authority be obtained prior to commencing construction.
"8. That no construction commence until:
a. Applicant has filed with the County Board detailed plans and specifications for all of the work to be performed on said land.
b. Applicant has also filed copies of valid contracts with capable contractors for the performance of all such work, said contracts to be accompanied by standard performance bonds.
c. Applicant has filed a budget showing the method of financing the costs of said contracts.
d. At least 50% of the total costs of said contracts has been deposited in an escrow account to be verified by the bank.
"9. That no substantial change shall be made in any plan, specification or contract without prior approval of the County Board.
"10. That no buildings be erected or dimensions altered if the cost thereof exceeds $5,000.00 until the golf course is complete and operating."
[4] This plan was adopted by the board on May 25, 1971, less than one week prior to the date of the Carver Creek application.
|
117 F.Supp.2d 658 (2000)
CABLEVISION OF THE MIDWEST, INC., Plaintiff,
v.
CITY OF BRUNSWICK, OHIO, et al., Defendants.
No. 1:99CV1442.
United States District Court, N.D. Ohio, Eastern Division.
October 13, 2000.
*659 Dale Howard Markowitz, Thrasher, Dinsmore & Dolan, Chardon, Philip J. Kantor, Terry S. Bienstock, Jeffrey A. Jacobs, Bienstock & Associates, Miami, FL, Eric E. Breisach, Christopher C. Cinnamon, Bienstock & Clark, Kalamazoo, MI, for Cablevision of the Midwest, Inc., plaintiffs.
Timothy T. Reid, Reid, Berry, Marshall & Wargo, Cleveland, OH, Peter J. Hopkins, James N. Horwood, for Brunswick, City of, Ohio, defendants.
MEMORANDUM AND ORDER
ALDRICH, District Judge.
This is an action for review of the defendants' ("Brunswick's") denial of the plaintiff's ("Cablevision's") cable franchise renewal. Cablevision seeks relief under 47 U.S.C. § 546(e)(2)(A) and § 546(e)(2)(B), which are part of the Cable Communications Policy Act of 1984 (the "Act"). *660 Brunswick has moved that this Court dismiss the claim under § 546(e)(2)(A) for lack of subject matter jurisdiction. For the reasons that follow, this Court denies Brunswick's motion (docket no. 20).
1. Background
Cablevision is a cable operator that had a franchise to provide cable service in the City of Brunswick and the Township of Brunswick Hills. It negotiated for several years with Brunswick to secure the renewal of its franchise. When the negotiations did not bear fruit, Cablevision invoked the procedures of 47 U.S.C. § 546(a), which requires the franchising authority (here, Brunswick) to hold a formal proceeding to determine whether to renew the franchise. Brunswick appointed the Honorable Clark Weaver, a retired judge, to conduct the proceedings. Judge Weaver held an evidentiary hearing and made findings of fact and conclusions of law. His report recommended that the franchise renewal proposal be granted. Brunswick rejected Judge Weaver's recommendation and issued an order denying the renewal. This action followed. Cablevision alleges jurisdiction under 47 U.S.C. §§ 546 and 555 and under the general federal question statute, 28 U.S.C. § 1331.
2. Discussion
The parties argue the issue of jurisdiction on two grounds: (1) they disagree about the correct interpretation of the language of the Act; and (2) they disagree about the import of existing precedents, which both sides acknowledge are few in number.[1] The Court will address both of these disagreements.
Section 546(e)(1) provides: "Any cable operator whose proposal for renewal has been denied ... or has been adversely affected by a failure of the franchising authority to act in accordance with the procedural requirements of this section, may appeal such final decision ... pursuant to the provisions of [47 U.S.C. § 555]" (emphasis added). Section 555(a), in turn provides: "Any cable operator adversely affected by any final determination ... under section ... 546 of this title may commence an action within 120 days after receiving notice of such determination ..." (emphasis added).
According to Brunswick, the word appeal in § 546(e)(1) indicates Congress's intent that this Court has only appellate jurisdiction over claims that the franchising authority failed to act in accordance with the procedural requirements of § 546. According to Cablevision, the words commence an action in § 555(a) refer to Fed. R.Civ.P. 3, which provides: "A civil action is commenced by filing a complaint with the court." In Cablevision's view, an action *661 is the usual civil action, complete with the evidentiary hearings that Brunswick seeks to avoid.
Neither party's argument is wholly convincing. Brunswick is not persuasive in arguing that when Congress assigns appellate jurisdiction to review an administrative decision, there is invariably no original jurisdiction in the district court. Even when Congress has given jurisdiction to review an administrative decision to the courts of appeals, the district courts are not necessarily forbidden to exercise original jurisdiction over claims of procedural errors. See, e.g., McNary v. Haitian Refugee Center, Inc., 498 U.S. 479, 497, 111 S.Ct. 888, 112 L.Ed.2d 1005 (1991) (holding that jurisdiction existed under 28 U.S.C. § 1331). The rationale for the Supreme Court's decision in Haitian Refugee Center was that "to establish the unfairness" of the procedures followed at the administrative level, the aggrieved parties "adduced a substantial amount of evidence, most of which would have been irrelevant in the [administrative proceedings below]. Not only would a court of appeals reviewing [the administrative proceeding] therefore most likely not have an adequate record as to the [administrative tribunal's procedural errors], but it also would lack the fact finding and record-developing capabilities of a federal district court." Id.
Likewise, Cablevision's argument concerning the meaning of the term "civil action" is not persuasive. Rule 2 of the Rules of Civil Procedure provides that "[t]here shall be one form of action to be known as `civil action.'" The purpose of Rule 2 was to abolish the distinction between actions at law and suits in equity, and thereby to simplify procedure in the federal courts. See Hughes, C.J., Address Before the American Law Institute, 55 S.Ct. xxxv, xxxvii (1935). The term "civil action" was meant to obviate the need for magic words in pleadings; it was not meant to be a magic word. Certainly there are cases in which the district courts must conduct their proceedings under the Federal Rules of Appellate Procedure. See, e.g., Olenhouse v. Commodity Credit Corp., 42 F.3d 1560, 1580 (10th Cir.1994). Nevertheless, such matters are still denominated civil actions. See Olenhouse v. Commodity Credit Corp., 136 F.R.D. 672 (D.Kan.1991) ("Civil Action No. 89-1029-T"). So the linguistic debateis this case an "appeal" or a "civil action"is ultimately inconclusive.
This Court is more persuaded by another textual detail in the statute. As noted above, Cablevision is seeking relief under both 47 U.S.C. § 546(e)(2)(A) and § 546(e)(2)(B). The first of these requires this Court to grant relief if it finds that "any action of the franchising authority ... is not in compliance with the procedural requirements of [§ 546]." 47 U.S.C. § 546(e)(2)(A). The second of these requires this Court to grant relief if it finds that the franchising authority's findings, with respect to certain statutorily prescribed factors, is "not supported by a preponderance of the evidence, based on the record of the proceeding conducted under ... this section." 47 U.S.C. § 546(e)(2)(B). Only the second, substantive, theory of relief has language requiring this Court's decision to be based on the administrative record. The first, procedural, theory of relief contains no such language.
Inclusio unius est exclusio alterius. It is a canon of statutory construction that the inclusion of one thing implies the exclusion of another. See, e.g., United States v. Wilson, 168 F.3d 916, 928 (6th Cir.1999). Here, the language appears in one provision of the statute but not the other, and it is plain that the two provisions are in pari materia. The omission of the language from § 546(e)(2)(A) thus compels the conclusion that Congress did not intend for review under that provision to be limited to the administrative record.
The cases cited by the parties do not require this Court to depart from this conclusion. Union CATV, Inc. v. City of *662 Sturgis, Kentucky, 107 F.3d 434 (6th Cir. 1997), was a case in which the cable operator only sought relief under § 546(e)(2)(B), not § 546(e)(2)(A). See Union CATV, 107 F.3d at 438. The case makes no mention of § 546(e)(2)(A). Thus it is irrelevant to a determination of the proper scope of review under § 546(e)(2)(A), despite the parties' arguments to the contrary.
The parties also direct the Court's attention to Rolla Cable Sys., Inc. v. City of Rolla, 745 F.Supp. 574 (E.D.Mo.1990) [Rolla I] and a later opinion from the same case, Rolla Cable Sys., Inc. v. City of Rolla, 761 F.Supp. 1398 (E.D.Mo.1991) [Rolla II]. Brunswick points to the holding of Rolla I:
Basically, Congress intended to restrict the scope of review in Section 546(e)(2)(A) to matters considered on the record. Ordinarily, a review of whether the procedural requirements of the [Cable Communications Policy] Act were met will not require de novo review; however, in limited circumstances, where fundamental due process concerns are implicated, the Court may go outside the record.
Rolla I, 745 F.Supp. at 577.[2]
This Court does not agree with the interpretation of Congress's intent taken by the Rolla I court. There, the court looked to the legislative history of the Act to reach its finding. But as already noted, the canons of statutory interpretation, when applied to the plain text of the Act, compel the conclusion that Congress did not intend review under § 546(e)(2)(A) to be limited to the administrative record; recourse to the legislative history is therefore unnecessary.
Moreover, this Court finds that Cablevision's amended pleading raises the kind of fundamental due process concerns mentioned in Rolla I. In Rolla I, one of the cable operator's due process concerns was that some of the council members were biased against it. The court, on the merits, ultimately found that the bias was insufficient to require reversal of the administrative determination. See Rolla II, 761 F.Supp. at 1407-8. But the court noted that the council members accused of bias had been present at the evidentiary hearings, see id. at 1404, and that some bias on the part of the franchising authority was permissible because "Congress relegated the renewal decision to itnot a neutral third party." Id. at 1408.
In this case, the record does not reveal that any of the members of the city council,[3] which was the body acting as the franchising authority, attended the hearings held before Judge Weaver. (Tr. of Formal Proceedings of Administrative Hr'g, Apr. 14, 1998 at 2; Tr. of Proceedings, Jun. 29, 1998 at 2). Likewise, in this case, the franchising authority did *663 delegate the renewal decision to a neutral third party, Judge Weaver. The parties have not (yet) briefed the question of the extent to which Brunswick was bound by the decision of its appointed fact-finder. Nevertheless, the fact that Brunswick, unlike the City of Rolla, did delegate its fact-finding authority to a third party is a sufficient distinction, in this Court's estimation, to suggest that Rolla I should not govern. Even if it appears, after briefing and argument, that Brunswick did not violate Cablevision's due process rights, the difference between this Court's understanding of Congress's intent and the Rolla I court's understanding is itself sufficient to justify the conclusion that Brunswick's motion must be denied.
3. Conclusion
For the forgoing reasons, Brunswick's motion to dismiss Cablevision's claim under § 546(e)(2)(A) for lack of subject matter jurisdiction (docket no. 20) is denied. Having found that jurisdiction exists under §§ 546 and 555 of the Act, this Court finds it is unnecessary to address the parties' arguments about the existence of jurisdiction under 28 U.S.C. § 1331.
The Court's disposition of Brunswick's motion makes it necessary to establish a schedule for discovery, amendment, dispositive motions, and trial. Within 20 days of the entry of this order, the parties shall submit to the Court a joint position statement setting forth each party's position on appropriate deadlines. To the extent the parties cannot reach an agreement, the Court will resolve their disagreements, ordering a status conference if necessary.
IT IS SO ORDERED.
NOTES
[1] Brunswick also argues that Cablevision waived its procedural objections by failing to raise them below. The usual rule is that procedural objections are waived if not raised during the administrative proceeding. See Cellnet Communications, Inc. v. Federal Communications Comm'n, 149 F.3d 429, 442-3 (6th Cir.1998). It appears from Cablevision's pleading that its fundamental procedural complaint is that Brunswick impermissibly ignored the findings of fact made by its own administrative hearing officer. Obviously, Cablevision could not have made such an objection during the hearing before Judge Weaver, before Brunswick decided to overrule him. Nor does it appear from the record that the city council of Brunswick held further proceedings before it issued its order denying renewal of the franchise. Thus there was no proceeding, after the hearing before Judge Weaver, at which Cablevision would have had the opportunity to make its procedural claims and adduce whatever facts it believed would prove those claims. In any case, Cablevision's allegationsbias and predetermination of the issuessuggest that Cablevision would have been excused in any case from the requirement that it present its arguments to Brunswick. Cf. McCarthy v. Madigan, 503 U.S. 140, 148, 112 S.Ct. 1081, 117 L.Ed.2d 291 (1992) (holding that bias and predetermination of the issues justify an exception to the exhaustion doctrine). It is still unclear to this Court whether Brunswick was biased or had predetermined the issue, but this Court cannot decide that issue without permitting Cablevision to present its evidence. Therefore, the Court does not find that Cablevision has waived the procedural issues.
[2] The passage quoted indicates that, at least in the context of the Cable Act, material from outside the record may sometimes be brought before the district court. Thus this Court does not accept Brunswick's interpretation of Southwest Center for Biological Diversity v. United States Forest Serv., 100 F.3d 1443 (9th Cir.1996), a case that arose under an unrelated statute and that Brunswick claims stands for the proposition that district courts reviewing administrative determinations should never go beyond the record. This Court also notes that in a passage not mentioned by Brunswick in its brief, the Southwest Center court agreed that "[e]xtra-record documents may also be admitted when plaintiffs make a showing of agency bad faith." Id. at 1450 (citation and internal quotation marks omitted).
[3] It does not appear to the Court that the names of the council members are found anywhere in the record; in order to determine that the council members were, or were not present at Judge Weaver's hearings, the Court found it necessary to request the aid of Brunswick's counsel, whom the Court thanks for his assistance. If the names of the council members do not appear in the record, it appears entirely reasonable to the Court that facts concerning their bias might not appear in the record. It is precisely such limitations of the record that were behind the Supreme Court's reasoning in Haitian Refugee Center, quoted supra at p. 661.
|
917 So.2d 1116 (2005)
Robert G. WESTERFIELD, Sr.
v.
LANE MEMORIAL HOSPITAL, Rodney Cook, Christine Heath & Jeff Haydel.
No. 2005-C-1526.
Supreme Court of Louisiana.
December 16, 2005.
In re Westerfield, Robert G. Sr.; Plaintiff; Applying for Writ of Certiorari and/or Review, Parish of E. Baton Rouge, 19th Judicial District Court Div. A, No. 476,300; to the Court of Appeal, First Circuit, No. 2004 CA 1009.
Denied.
CALOGERO, C.J., would grant.
|
United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 98-2445
___________
John Byron Newman, *
*
Appellant, *
* Appeal from the United States
v. * District Court for the
* District of Nebraska.
Frank X. Hopkins, *
*
Appellee. *
___________
Submitted: April 22, 1999
Filed: September 29, 1999
___________
Before RICHARD S. ARNOLD and WOLLMAN,1 Circuit Judges, and
WOLLE,2 District Judge.
___________
WOLLMAN, Chief Judge.
John Byron Newman appeals from the district court’s denial of his petition for
a writ of habeas corpus filed under 28 U.S.C. § 2254. We reverse.
1
Roger L. Wollman became Chief Judge of the United States Court of Appeals
for the Eighth Circuit on April 24, 1999.
2
The Honorable Charles R. Wolle, United States District Judge for the Southern
District of Iowa, sitting by designation.
I.
During the early morning hours of March 22, 1993, police officers in Lincoln,
Nebraska, responded to an emergency call from the victim of a sexual assault. The
victim provided the police with a description of her attacker, including the facts that he
was wearing a black leather jacket and that he spoke with a Hispanic accent. A few
days later, the victim identified Newman as her attacker from a photographic array
arranged by the police. Newman was subsequently arrested in Las Vegas, Nevada, and
extradited to Nebraska to face criminal charges.
Newman’s first trial ended in a mistrial when the jury was unable to reach a
verdict, but his second trial resulted in a conviction for first-degree sexual assault. See
Neb. Rev. Stat. § 28-319(1). The state trial court sentenced him to twenty-five to fifty
years’ imprisonment without parole.
Newman’s conviction was affirmed on appeal by the Nebraska Court of
Appeals, see State v. Newman, 541 N.W.2d 662 (Neb. Ct. App. 1995), and the
Nebraska Supreme Court, see State v. Newman, 548 N.W.2d 739 (Neb. 1996). He
then filed this petition for a writ of habeas corpus.
II.
We granted a certificate of appealability on two issues: (1) whether evidence
admitted at Newman’s trial was seized in violation of the Fourth Amendment, and (2)
whether Newman was denied due process of law when the trial court ruled that he
would waive his privilege against self-incrimination and subject himself to cross-
examination if he presented a voice exemplar to the jury. In reviewing these issues, we
apply a presumption of correctness to the state court findings of fact. See 28 U.S.C.
§ 2254(e)(1). In the circumstances of this case, we may grant the writ only if the state
court’s adjudication of the federal constitutional claim “resulted in a decision that was
-2-
contrary to, or involved an unreasonable application of, clearly established Federal law,
as determined by the Supreme Court of the United States.” Id. § 2254(d)(1).
A.
On appeal following his conviction, Newman argued that evidence introduced
at his trial -- a black leather jacket that Las Vegas police officers had taken from one
of Newman’s suitcases -- was seized in violation of the Fourth Amendment. Although
the Nebraska Court of Appeals and the Nebraska Supreme Court agreed with Newman
that the state trial court had erred in denying his motion to suppress the evidence, both
courts held that because the victim gave a detailed description of her attacker’s physical
characteristics and had identified Newman from a photo in which he was not wearing
a black leather jacket, as had two other witnesses, the error in admitting the jacket into
evidence was harmless beyond a reasonable doubt. See Newman, 541 N.W.2d at 672-
73; Newman, 548 N.W.2d at 749.
The district court held that Newman’s Fourth Amendment claim was barred by
Stone v. Powell, 428 U.S. 465 (1976), in which the Supreme Court held that a state
prisoner may not be granted federal habeas relief on a Fourth Amendment claim if the
state has provided for “full and fair litigation” of that claim. See id. at 494. We have
held that such a claim is cognizable under section 2254 only if “the state provided no
procedure by which the prisoner could raise his Fourth Amendment claim, or the
prisoner was foreclosed from using that procedure because of an unconscionable
breakdown in the system.” Willett v. Lockhart, 37 F.3d 1265, 1273 (8th Cir. 1994) (en
banc), cert. denied, 514 U.S. 1052 (1995). Accordingly, because it is undisputed that
Newman was afforded a full and fair opportunity to litigate his Fourth Amendment
claim in the state courts, the State argues that Stone bars the reassertion of that claim
in this action.
-3-
Newman counters by contending that Stone does not bar federal court review of
a state court’s harmless error analysis of a Fourth Amendment violation. This argument
presents a nice question, but one which we need not address because, as will be seen,
we are holding that Newman is entitled to a new trial, at which the challenged evidence
will of course be inadmissible in light of the Nebraska Supreme Court’s holding that
it was error to deny the motion to suppress.
B.
Newman challenges his conviction on the ground that he was denied due process
by the trial court’s refusal to allow him to present a voice exemplar to the jury without
waiving his right against self-incrimination. He argues that because the State can
compel him to produce a voice exemplar without violating the Fifth Amendment, due
process principles of reciprocity allow him to present a voice exemplar to the jury
without waiving his constitutional protections.
The primary issue at trial was whether Newman fit the description of the
attacker. An important component of that determination was whether Newman has a
Hispanic accent. Newman asked the trial court for permission to present a voice
exemplar, consisting of the reading of a neutral statement, to prove that he does not
have a Hispanic accent. The trial court sustained the State’s objection to the proffered
exemplar, ruling that Newman could testify in any voice he wished, so long as he
testified under oath and subjected himself to cross-examination. Given this choice,
Newman chose not to present a voice exemplar.
The Due Process Clause of the Fourteenth Amendment includes the right of an
accused to “a fair opportunity to defend against the State’s accusations.” Chambers
v. Mississippi, 410 U.S. 284, 294 (1973). This right includes the right to present his
own witnesses. Washington v. Texas, 388 U.S. 14, 19 (1967). In Wardius v. Oregon,
412 U.S. 470 (1973), the Supreme Court held that the Due Process Clause barred
-4-
enforcement of a state notice-of-alibi rule that did not provide the defendant reciprocal
discovery rights against the government. Id. at 472. The Court noted that although the
Due Process Clause says little about the amount of discovery a defendant must be
afforded, it does “speak to the balance of forces between the accused and his accuser.”
Id. at 474.
A defendant may be compelled to provide a voice exemplar over his assertion
of a claim of Fifth Amendment privilege. See United States v. Dionisio, 410 U.S. 1,
6-7 (1973); United States v. Wade, 388 U.S. 218, 222-23 (1967); United States v.
Leone, 823 F.2d 246, 250 (8th Cir. 1987). Accordingly, we conclude that the Court’s
recognition in Wardius of a defendant’s reciprocal right of discovery, when read in light
of the Court’s reference to Washington v. Texas, see 412 U.S. at 474 n.6, reflects an
expression of clearly established federal law that a defendant is entitled to introduce a
voice exemplar without waiving his Fifth Amendment privilege against self-
incrimination.
The Nebraska Supreme Court recognized as much when, after discussing Wade,
Dionisio, and Schmerber v. California, 384 U.S. 757 (1966), it held that “if relevant
and reliable, a voice exemplar may be offered into evidence by a criminal defendant
without waiving his or her Fifth Amendment privilege against self-incrimination.”
Newman, 548 N.W.2d at 752. The court went on to hold that the trial court “erred in
effectively ruling that Newman’s offer of a voice exemplar would waive his Fifth
Amendment privilege and subject him to cross-examination.” Id. Addressing the
relevancy component of the test of admissibility, the court found that in view of the
conflicting testimony with respect to whether Newman spoke with a Hispanic accent,
“the presentation of a voice exemplar would have been relevant evidence going to the
issue of identity.” Id.
The court then addressed the question of the reliability of the proffered exemplar,
referring to decisions which have noted the fact that by its very nature voice exemplar
-5-
evidence is different from other common types of exemplar or demonstrative evidence.
See, e.g., People v. Scarola, 741 N.Y.2d 769, 525 N.E.2d 728, 530 N.Y.S.2d 83
(1988); United States v. Esdaille, 769 F.2d 104 (2d Cir. 1985). See Newman, 548
N.W.2d at 752. Contrasting voice exemplar evidence with physical evidence such as
scars and tattoos, the court said, “In contrast, voice exemplar evidence is relatively
easy to feign. An accent can be exaggerated or muted through a person’s conscious
efforts, such as avoiding particular words that one cannot pronounce without an
accent.” Id. The court concluded that “[s]ince Newman made no offer to establish the
genuineness of the exemplar, it would have been properly excluded as irrelevant. That
is to say, in the words of the State’s objection, the conditions under which Newman
spoke to the victim could not be reproduced.”3 Id. Thus, reasoned the court, because
the proffered exemplar would have been properly excluded on other grounds, Newman
suffered no prejudice as a result of the trial court’s erroneous ruling on the Fifth
Amendment issue.
The question, then, is whether the Nebraska Supreme Court’s failure to remedy
the denial of Newman’s right to present the voice exemplar without waiving his Fifth
Amendment right against self-incrimination resulted in an outcome that cannot
reasonably be justified under existing Supreme Court precedent. See Long v.
Humphrey, No. 98-3409, slip op. at 4 (8th Cir. July 14, 1999). We conclude that it did,
for the effect of the court’s decision was to forever foreclose Newman from proffering
a voice exemplar that might satisfy the court’s standard of reliability.
3
With all due respect, we do not read the State’s objection as having been based
upon the ground stated by the court. Rather, as we read the record, the State argued
that, contrary to the position taken by Newman’s counsel, the Supreme Court’s
decision in Wade was not on point in that that case involved words spoken by a
defendant during a lineup and not during trial.
-6-
The State argues that the state court’s decision constituted a ruling on a matter
of state evidentiary law, a question that is ordinarily not cognizable in a section 2254
action. See, e.g., Turner v. Armontrout, 845 F.2d 165, 169 (8th Cir. 1988). We
disagree. We do not view the Nebraska Supreme Court’s holding as constituting a
ruling on the evidentiary insufficiency of Newman’s proffered exemplar, for Newman
was never given an opportunity to make a showing of reliability. Once the trial court
ruled that Newman would be required to waive his Fifth Amendment privilege against
self-incrimination, the issue was closed, for there would have been no point in
Newman’s attempting to make such a showing in the face of that ruling. Rather, we
read the Nebraska Supreme Court’s statement that “the conditions under which
Newman spoke to the victim could not be reproduced” as a per se rule of exclusion
akin to that which the United States Supreme Court has held infringes impermissibly
upon a defendant’s right to testify on his own behalf. See Rock v. Arkansas, 483 U.S.
44, 56-62 (1987). In any event, even if the Nebraska Supreme Court’s ruling is viewed
as one touching solely upon an evidentiary matter, we conclude that by in effect
precluding Newman from attempting to make a showing of the voice exemplar’s
reliability, it infringed upon Newman’s constitutional right to present a defense and thus
is reviewable in an action for federal habeas relief. See Wallace v. Lockhart, 701 F.2d
719, 724 (8th Cir. 1983).
There remains the question whether the error in requiring Newman to waive his
Fifth Amendment privilege as a condition of introducing a voice exemplar was
harmless. See Olesen v. Class, 164 F.3d 1096, 1100 (8th Cir. 1999). Because the state
courts did not review the claim for harmless constitutional error, we apply the stricter
standard set forth in Chapman v. California, 386 U.S. 18 (1967), rather than the more
deferential standard enunciated in Brecht v. Abrahamson, 507 U.S. 619 (1993). See
Harrington v. Iowa, 109 F.3d 1275, 1279 (8th Cir. 1997); Orndorff v. Lockhart, 998
F.2d 1426, 1430 (8th Cir. 1993). Under Chapman, “before a federal constitutional
error can be held harmless, the court must be able to declare a belief that it was
harmless beyond a reasonable doubt.” 386 U.S. at 24.
-7-
As the Nebraska Supreme Court stated, “The central issue at trial was the
identity of the perpetrator of the crime.” Newman, 548 N.W.2d at 752. Whether
Newman has a Hispanic accent was an important factor in determining whether he fit
the description of the attacker. It is of more than passing significance that Newman’s
first trial ended in a mistrial because the jury could not reach a unanimous verdict. Had
Newman been afforded his due-process right to introduce the voice exemplar, the jury
might well have reached a different conclusion in the second trial. Therefore, we
cannot say that the trial court’s erroneous ruling was harmless beyond a reasonable
doubt. In so ruling, we recognize, as noted above, that the Nebraska Supreme Court
held that what it considered to be overwhelming evidence rendered harmless beyond
a reasonable doubt the erroneous receipt into evidence of the black leather jacket,
which the court viewed as merely cumulative physical evidence. We conclude that in
the circumstances of this case the denial of the right to present what would have been
exculpatory evidence had consequences far more serious than the erroneous receipt of
inculpatory evidence of only marginal probative force. Newman’s claimed lack of a
Hispanic accent was apparently the only defense he had to offer. There may be cases
in which the wrongful exclusion of such evidence might be considered harmless, but
we conclude that this is not one of them.
Although on retrial Newman will be entitled to offer a voice exemplar without
waiving his privilege against self-incrimination, he will of course be required to
establish its reliability. See Esdaille, 769 F.2d at 107 (holding that proposed voice
exemplar was properly excluded as unreliable). Whether he is able to do so will be a
matter for the state courts to decide.
The judgment denying the petition for writ of habeas corpus is reversed, and the
case is remanded to the district court with instructions to enter a writ discharging
Newman from custody unless the state, within a reasonable period of time, grants him
a new trial.
-8-
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
-9-
|
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 15-1669
In Re: PROVINCE GRANDE OLDE LIBERTY, LLC, a/k/a Silver
Deer Olde Liberty AA Lots, LLC,
Debtor.
------------------------------
PEM ENTITIES LLC,
Appellant,
v.
PROVINCE GRANDE OLDE LIBERTY, LLC,
Defendant,
and
ERIC M. LEVIN; HOWARD SHAREFF,
Creditors - Appellees.
Appeal from the United States District Court for the Eastern
District of North Carolina, at Raleigh. James C. Dever III,
Chief District Judge. (5:14-cv-00889-D; 8:13-01563; 8:13-00122)
Argued: May 10, 2016 Decided: August 12, 2016
Before GREGORY, Chief Judge, TRAXLER, Circuit Judge, and Joseph
F. ANDERSON, Jr., Senior United States District Judge for the
District of South Carolina, sitting by designation.
Affirmed by unpublished per curiam opinion.
ARGUED: John Arlington Northen, NORTHEN BLUE, LLP, Chapel Hill,
North Carolina, for Appellant. James C. White, LAW OFFICE OF
JAMES C. WHITE, P.C., Chapel Hill, North Carolina, for
Appellees. ON BRIEF: Vicki L. Parrott, John Paul H. Cournoyer,
NORTHEN BLUE, LLP, Chapel Hill, North Carolina, for Appellant.
Michelle M. Walker, LAW OFFICE OF JAMES C. WHITE, P.C., Chapel
Hill, North Carolina, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
PEM Entities, LLC (“PEM”) appeals the district court’s
order affirming the bankruptcy court’s grant of summary judgment
in favor of Eric M. Levin and Howard Shareff (“Appellees”).
Specifically, PEM contests the bankruptcy court’s
recharacterization of certain debt into equity. For the
following reasons, we affirm the decision of the district court.
I.
This case arises out of several North Carolina real estate
investments involving Howard Jacobsen (“Howard”). Lakebound
Fixed Return Fund, LLC (“Lakebound”) is a company formed to
invest in real estate and provide a fixed, high-yield return to
its investors. Lakebound is managed by Howard. Appellees
invested $500,000.00 each into Lakebound. Province Grande Olde
Liberty, LLC (“Debtor”) is an entity formed by Howard for the
purpose of acquiring the Olde Liberty Golf and Country Club
(“Golf Club”), a golf and residential real estate development in
Franklin County, North Carolina. Debtor’s membership included
Howard, his parents—Stanley and Rhonda Jacobsen—and Robert B.
Conaty.
To finance the acquisition of the Golf Club, Debtor
obtained $188,000.00 from Lakebound and borrowed $6,465,000.00
from Paragon Commercial Bank (“Paragon”). The transfer of
$188,000.00 from Lakebound to Debtor is the subject of ongoing
3
litigation in North Carolina state court and provides a basis
for Appellees claims in the underlying bankruptcy proceeding.
Specifically, Appellees contend that this transfer was a
misappropriation of Lakebound’s funds. The $6,465,000.00 loan
from Paragon was an arms-length transaction evidenced by a
promissory note and secured by a deed of trust on the Golf Club
property.
In 2010, Debtor defaulted on the Paragon loan. The
following year, Paragon initiated foreclosure proceedings on the
real estate security. In an effort to resolve the loans to
Debtor and other entities, Howard, Debtor, and several other
related entities entered into a settlement agreement with
Paragon. Under that agreement, Paragon agreed to sell its
$6,465,000.00 loan to a new company, PEM, for the discounted
price of $1,242,000.00. PEM is a Delaware company, owned by
Stanley Jacobsen – Howard’s father, Robert B. Conaty, and an
entity owned by trusts established by Stanley Jacobsen for the
benefit of his grandchildren (“the Trust”).
Importantly, PEM’s members did not negotiate the settlement
agreement. Rather, Debtor’s principals, including Howard
Jacobsen, negotiated the agreement that purported to be “in
settlement of the Loan.” Paragon understood that Debtor’s
principals had the authority to bind PEM. Further, the
settlement agreement bound Paragon to sell the loan to PEM for a
4
fixed price and even included an outline of the financing of the
loan’s purchase. PEM, however, was not a signor of the
settlement agreement.
To fund the loan purchase provision of the settlement
agreement, PEM used both equity contributions from its members
as well as outside debt. Stanley Jacobsen contributed
$130,000.00, Conaty contributed $100,000.00, and the Trust
contributed $70,000.00. Together, these three contributions
totaled $300,000.00.
PEM relied on financing to assemble the remainder of
purchase price. Two individuals, Joseph Deglomini and Joseph
Simone (collectively “D&S”), loaned PEM $650,000.00.
Additionally, Paragon agreed to loan PEM the final $292,000.00,
interest free, needed to complete the settlement. Both loans
were secured by Golf Club real estate owned not by PEM, but by
Debtor. Finally, PEM agreed to subordinate its position in the
security to the loans from both D&S and Paragon.
After the completion of the settlement agreement, Debtor
sold some of its property for $462,146.15. From those funds,
Debtor paid $240,120.00 directly to Paragon and D&S in partial
payment of the loans those entities made to PEM. Debtor
transferred $202,087.71 to PEM. Shortly thereafter, PEM “re-
advanced” $50,000.00 to Debtor for miscellaneous operating
expenses. At no time did PEM or Debtor maintain any ledger or
5
account of the Paragon loan. Several other cash transfers went
between Debtor and PEM and Howard sometimes called “loans” and
other times “readvances.”
Debtor filed its bankruptcy petition on March 11, 2013. In
that filing, it listed PEM’s claim at $7,000,000, including the
principal from the Paragon loan and accrued interest.
Additionally, it listed Appellees as creditors with unknown and
disputed claims. Appellees filed claims in the Debtor’s
bankruptcy proceeding in the amount of $500,000.00 each. They
made claims for equitable subordination and recharacterization
and also statutory claims for avoidance and recovery of
allegedly fraudulent transfers. The parties moved for summary
judgment on all claims.
The bankruptcy court granted summary judgment in favor of
Appellees on their equitable claim of recharacterization.
Specifically, the bankruptcy court concluded that the PEM’s loan
purchase was, in effect, a settlement and satisfaction of the
Paragon loan. The court recharacterized the $300,000.00 portion
of the $1,242,000.00 paid by PEM pursuant to the settlement
agreement from a debt owed it by Debtor into an equity
investment in Debtor. Thus, the court rendered PEM’s
$7,000,000.00 claim void.
PEM appealed the bankruptcy court’s order to the United
States District Court for the Eastern District of North
6
Carolina. In its de novo review, the district court found the
bankruptcy court correctly applied the law and affirmed its
judgment. PEM timely filed its Notice of Appeal to this Court.
II.
A.
Recharacterization is well within the broad powers afforded
a bankruptcy court. In re: Official Committee of Unsecured
Creditors for Dornier Aviation (North America), Inc., 453 F.3d
225 (2006). The Bankruptcy Code establishes a scheme in which
contributions to capital receive a lower priority than loans
because their nature is that of a fund contributed to meet the
obligations of a business and which should be repaid only after
all other obligations have been satisfied. Id. at 231. Thus,
adjudication under the Bankruptcy Code often requires a
determination of whether a particular obligation is debt or
equity. Id. When that question is in dispute, the bankruptcy
court must make this determination in order to effectuate the
priority scheme. Id.
In determining whether or not to recharacterize a claim, a
bankruptcy court should apply the eleven factors adopted by this
Court in Dornier:
(1) the names given to the instruments, if any,
evidencing the indebtedness; (2) the presence or
absence of a fixed maturity date and schedule of
payments; (3) the presence or absence of a fixed rate
of interest and interest payments; (4) the source of
7
repayments; (5) the adequacy or inadequacy of
capitalization; (6) the identity of interest between
the creditor and the stockholder; (7) the security, if
any, for the advances; (8) the corporation’s ability
to obtain financing from outside lending institutions;
(9) the extent to which the advances were subordinated
to the claims of outside creditors; (10) the extent to
which the advances were used to acquire capital
assets; and (11) the presence or absence of a sinking
fund to provide repayments.
Id. at 233 (quoting Bayer Corp. v. Masco Tech, Inc. (In re
AutoStyle Plastics, Inc.), 269 F.3d 726, 747-48 (6th Cir.
2001)). None of these eleven factors are themselves dipositive.
Id. at 234. Rather, their significance varies depending upon the
circumstance. Id.
B.
In this case, the bankruptcy court weighed each of the
Dornier factors in analyzing the settlement agreement. The court
found that all of them weighed in favor of recharacterization.
The court emphasized several facts in drawing its conclusion:
(1) the naming of the settlement agreement and the fact that it
was entered into “in settlement of the loan”; (2) the fact that
Debtor’s principals negotiated the settlement agreement and note
purchase on behalf of PEM; (3) the failure of both Debtor and
PEM to observe any formalities such as payment schedules, actual
interest payments or even a ledger; (4) Debtor’s total reliance
on money from PEM to meet expenses and its inability to obtain
any other financing; (5) the identity of interests between
8
Debtor and PEM; and (6) that approximately $900,000.00 of the
$1,242,000.00 was funded by the pledge of security owned by
Debtor. These facts adequately support the bankruptcy court’s
decision.
PEM contends that the bankruptcy court misapplied the
Dornier factors by applying them to the wrong transaction. PEM
argues that the bankruptcy court should have limited its
analysis to the inception of the Paragon debt rather than to the
later settlement agreement. Thus, according to PEM, we should
apply the Dornier factors to the situation at the time Paragon
made the loan to Debtor. We find this argument unpersuasive.
The bankruptcy court’s broad recharacterization power is
“integral to the consistent application of the Bankruptcy Code.”
Dornier, 453 F.3d at 233. “A bankruptcy court’s equitable powers
have long included the ability to look beyond form to
substance.” Id. at 233. The recharacterization decision itself
rests on the “substance of the transaction” involved. Id. at 232
(emphasis in original).
Here, the settlement agreement is the “substance of the
transaction” because it was the basis of the note purchase and
gave rise the PEM’s claims. The settlement agreement was
negotiated and executed by Paragon and Debtor’s principals.
While PEM notes that it was neither a party to nor a signor of
the settlement agreement, Paragon believed Debtor’s principals
9
had the authority to bind PEM. Further, the settlement agreement
specifically obligated Paragon to sell the loan to PEM. Indeed,
the settlement agreement specifically outlined the sources of
PEM’s funding. It even obligated Paragon to loan PEM
$292,000.00. Clearly, PEM knew of, participated in, and
consented to those terms. While PEM itself may not have been
obligated by the settlement agreement, the settlement agreement
certainly obligated Paragon towards PEM.
Thus, the bankruptcy court properly “looked beyond form” to
determine that the “substance of the transaction” was in fact
the settlement agreement in which Debtor used PEM as an
extension of itself to complete what was, in effect, a
satisfaction of the Paragon loan. Moreover, the bankruptcy
court’s application of the Dornier factors adequately supported
its recharacterization decision.
C.
PEM challenges several of the bankruptcy court’s factual
findings. Findings of fact by a bankruptcy court in proceedings
within its full jurisdiction are reviewable only for clear
error. In re Johnson, 960 F.2d 396, 399 (4th Cir. 1992). Under
this standard, we will not reverse a bankruptcy court’s factual
finding that is supported by the evidence unless that finding is
clearly wrong. In re ESA Envtl. Specialists, Inc., 709 F.3d 388,
399 (4th Cir. 2013). We will conclude that a finding is clearly
10
erroneous only if, after reviewing the record, we are left with
“a firm and definite conviction that a mistake has been
committed.” Klein v. PepsiCo, Inc., 845 F.2d 76, 79 (4th Cir.
1988) (citation omitted).
Of the six errors claimed by PEM, none rise to the level of
clear error. First, PEM challenges the court’s alleged
mischaracterization of both the $300,000.00 contribution by the
members of PEM and the relief requested by Appellees. The
bankruptcy court recharacterized the $300,000.00 portion of the
$1,242,000.00 settlement of the $7,000,000.00 claim or in other
words, exactly the relief sought by Appellees. The court made a
detailed explanation of all the intricate moving parts of this
complex dispute. To the extent the court failed to clearly
explain each moving piece, it was not due to any mistaken fact,
but rather to the unwieldy jargon associated with this type of
litigation.
Next, PEM contends the court was in error by stating that
Stanley Jacobsen was the sole member of PEM at the time of the
settlement agreement. This fact appears to be incorrect as the
evidence, discussed above, is that the members of PEM were
Stanley Jacobsen, Robert B. Conaty, and the Trust. However, this
minor mistake does not rise to the level of clear error. First,
the court made this mistake in its recitation of undisputed
facts. Secondly, the court obviously understood that PEM’s
11
membership included all three members at all relevant times. In
its analysis of the first Dornier factor, the court specifically
noted that these three members were responsible for the
$300,000.00.
PEM’s four other claims of errors merely reargue the proper
application of the Dornier factors. None constitute clear error.
III.
For the foregoing reasons, the judgment of the district
court is AFFIRMED.
AFFIRMED
12
|
FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS April 28, 2014
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
__________________________________
CAROLYN BAYLESS,
Plaintiff - Appellant,
v. No. 12-4120
UNITED STATES OF AMERICA,
Defendant – Appellee,
and
UNITED STATES ARMY; KAROL
RIPLEY, Lt. Col. Commander Tooele
Army Depot; DESERET CHEMICAL
DEPOT, Commander, Attn: AMSSB-
ODC; FORT MYER MILITARY
COMMUNITY, Office of the Claims
Judge Advocate; UNITED STATES
ARMY LEGAL SERVICES AGENCY;
DEREK SHOUP, Office of the Staff Judge
Advocate,
Defendants.
__________________________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
(D.C. NO. 2:09-cv-00495-DAK)
__________________________________
Kimberly M. Hult of Hutchinson Black and Cook, LLC, Boulder, Colorado (Keith M.
Edwards of Hutchinson Black and Cook, LLC, Boulder, Colorado; and Steve Russell,
Grand County Law & Justice Center, P.C., Moab, Utah, with her on the briefs), for
Appellant.
Jeffrey E. Nelson, Assistant United States Attorney (David B. Barlow, United States
Attorney, with him on the brief), Salt Lake City, Utah, for Appellee.
__________________________________
Before HARTZ and TYMKOVICH, Circuit Judges, and JACKSON, District Judge.
__________________________________
JACKSON, District Judge.
__________________________________
Sixteen years ago Carolyn Bayless began to suffer from a mysterious debilitating
illness. As her condition deteriorated over the years that followed, she doggedly sought
to learn what caused (and how to treat) her illness. Finally, in 2008, convinced that she
was the victim of exposure to nerve gas emitted by an Army testing facility, she filed a
claim under the Federal Tort Claims Act. When this lawsuit followed in 2009, the Army
responded that she knew of her claim by at least 2005 and had waited too long to assert it.
The district court agreed and granted summary judgment dismissing the case. We
conclude that under the unusual circumstances presented here, the period of limitation did
not accrue until February 2007. Therefore, exercising jurisdiction pursuant to 28 U.S.C.
§ 1291, we reverse.
I. BACKGROUND
A. Factual Background
In 1997, after graduating from college with a conservation biology degree, Ms.
Bayless began a seasonal position as a range technician with the Utah Division of
Wildlife Resources. As a result, she traveled to remote locations around the state to
The Honorable R. Brooke Jackson, United States District Judge for the District of
Colorado, sitting by designation.
2
conduct various wildlife studies, including one location less than ten miles away from the
Dugway Proving Grounds (“Dugway”) and another location within two miles of Tooele
Chemical Agent Disposal Facility (“Tooele”). Unbeknownst to Ms. Bayless during the
time in which she worked near them, both Dugway and Tooele were United States Army
sites then conducting chemical and biological weapons testing.
In October 1997, about a month after completing her seasonal position with the
Utah Division of Wildlife Resources, Ms. Bayless began to experience episodic lip
numbness and blurred vision, which she attributed at that time to sitting in front of the
computer for numerous hours a day. After the symptoms failed to dissipate, however,
Ms. Bayless sought medical evaluation. In February 1998 she saw an ear, nose, and
throat specialist who performed an MRI, which returned normal results. Shortly
afterwards and notwithstanding those normal results, Ms. Bayless experienced numbness
through her entire left side following cleaning her house with chemicals. Ms. Bayless
thus began a long and arduous search for an answer to her worsening medical condition.
In May 1998, Ms. Bayless sought evaluation from a neurologist, Dr. Christopher
Reynolds, whose tests likewise revealed normal results. The numbness meanwhile
spread to Ms. Bayless’ right foot and right arm. After severe vertigo sent Ms. Bayless to
the emergency room in July 1998, she discontinued her birth control pills upon her
doctor’s advisement that she suffered a transient ischemic attack.1 Later in the same
1
Ischemia is a “deficient supply of blood to a body part (as the heart or brain) that is due
to obstruction of the inflow of arterial blood.” MERRIAM-WEBSTER ONLINE
DICTIONARY, available at https://www.merriam-webster.com/medical/ischemia.
3
month, Ms. Bayless sought out a second neurologist, Dr. Dennis Thoen, whose tests
again showed normal results.
In January 1999, however, Dr. Thoen began to suspect that Ms. Bayless’
symptoms were caused by multiple sclerosis (“MS”). After a series of referrals, in
February 1999 a neurologist and MS specialist, Dr. John Rose, formally diagnosed Ms.
Bayless with MS and prescribed medication accordingly. Ms. Bayless’ condition,
however, only continued to worsen, and she discontinued the MS medication in August
1999.
Ms. Bayless’ condition thereafter seemed to improve, and she became pregnant in
January 2000. Unfortunately, her improvement proved to be temporary. In March 2000
Ms. Bayless’ health took a dramatic turn for the worse when she suffered a miscarriage
and underwent an emergency dilation and curettage. Two days later she began to
experience severe difficulty walking, and she lost control of her fine motor skills. She
became unable to care for, even to feed, herself. Ms. Bayless described it as going from
functional to nonfunctional.
Still under the theory that this sudden deterioration was related to MS, Dr. Rose
prescribed oral steroids on March 24, 2000. The steroids only worsened Ms. Bayless’
condition. Despite what was happening, however, another MRI performed on July 3,
2000 yet again showed normal readings.
In July and August 2000, Ms. Bayless traveled to Chicago to another MS
specialist, Gastone Celesia, M.D., who determined that she had been improperly
4
diagnosed with MS. Instead, Dr. Celesia and another specialist, Dr. Tony Fletcher, both
suspected Ms. Bayless’ symptoms were psychosomatic.
Veering Ms. Bayless in another direction in October 2000, Utah physician Judith
Moore, D.O., diagnosed Ms. Bayless with a chronic Epstein-Barr viral infection. Dr.
Moore prescribed vitamins and supplements to treat the infection. But a month later Dr.
Dean Wingerchuk, a neurologist at the Mayo Clinic in Arizona, seconded Drs. Celesia’s
and Fletcher’s conclusion that Ms. Bayless did not suffer from MS and advised her that
the psychosomatic symptoms would disappear without medical treatment. Hoping that
her symptoms would dissipate as these doctors had counseled her, Ms. Bayless stopped
seeking medical treatment. In August 2001 she gave birth to a daughter in Colorado.
Although Ms. Bayless continued to suffer from the same neurological problems, she did
not seek treatment for another year after her daughter’s birth.
In October 2002, Ms. Bayless, now having discarded the MS theory and
suspecting that her symptoms might be related to neck issues, began treatment with a
series of chiropractors. On her intake forms with one of the chiropractors, Dr. Beau
Maudlin, Ms. Bayless mentioned her work in southern Utah and raised concerns over
nuclear testing and mining tailings in the area. Dr. Maudlin referred Ms. Bayless to
another chiropractor, Susan Rector, at the end of March 2003. Dr. Rector raised her
suspicion that Ms. Bayless’ symptoms might be caused by heavy metal or mercury
poisoning. Ms. Bayless was then referred to a dentist to remove her mercury dental
fillings, but these detoxification treatments were again unfruitful in resolving her
symptoms.
5
Subsequently, still in 2003, Ms. Bayless was referred by her dentist to a clinical
nutritionist, Sam Queen. On the “Possible Exposure” portion of her patient intake form,
Ms. Bayless wrote, “I think I may have been exposed to uranium in the soil in southern
Utah when I worked for the Division of Wildlife for 6 months collecting plant and soil
samples.” App. to Appellant Br. 64. Mr. Queen performed blood work analysis and
informed her that he suspected her symptoms were caused by “organophosphate pesticide
poisoning.” Id. Ms. Bayless assumed this meant she had been exposed to lawn
pesticides and, while she did not pursue an additional investigation into the diagnosis, she
began Mr. Queen’s detoxification regimen. However, Ms. Bayless stopped that regimen
in December 2004 on the recommendation of her physician at the time, Dr. Dennis
Remington, who noted that she suffered from an apparent chronic renal failure.
In early 2005, Ms. Bayless read a magazine article by a woman named Pauly who
had experienced similar symptoms. When Ms. Bayless spoke with Pauly on the
telephone, she learned that Pauly developed her neurological symptoms after visiting an
Army base. Pauly suspected her own symptoms were caused by biological weapons
testing at the base, and she referred Ms. Bayless to Dr. Garth Nicolson, a research
professor at the Institute of Molecular Medicine in San Diego who studies biological
weapons.
Dr. Nicolson suggested to Ms. Bayless various methods of detecting exposure to
biological weapons, including a polymerase chain reaction (“PCR”) test. Ms. Bayless did
not obtain a PCR test at that time due to “debates on whether the PCR is accurate or not.”
Id. at 73. Notably, Ms. Bayless did not discuss nerve agents with Dr. Nicolson, only
6
biological agents and the related conditions caused by mycoplasma fermentans and
mycoplasma incognitus.
In early 2005, after speaking again with Pauly, Ms. Bayless began to research
biological and chemical weapons testing. Upon discovering the existence of the Army
sites at Dugway and Tooele, Ms. Bayless again consulted Mr. Queen regarding any
possible exposure to biological and chemical weapons. On February 1, 2005, Mr. Queen
wrote to Ms. Bayless that normally her lack of improvement from pesticide detoxification
“may be because of exposure to various toxins.” Id. at 66, 107. Mr. Queen suggested
that a “secondary toxin . . . due to nerve agents, etc.,” might be causing the lack of
improvement in her case. Id. Mr. Queen wrote that “the Institute of Orthomolecular
Medicine . . . would probably have a way to test for this,” and that “the information may
be very useful.” Id.
Ms. Bayless did not follow up with this Institute. Instead, on February 9, 2005
Ms. Bayless raised the issue with Dr. Remington who recorded that he discussed “new
ideas” with Ms. Bayless about her work history adjacent to Dugway and Tooele. Id. at
68, 97. Dr. Remington’s notes do not record—and Ms. Bayless does not remember—
whether he recommended any treatment or follow-up after this discussion.
Ms. Bayless also began seeing Dr. Robert Moody, another physician in Utah, in
early 2005. Among other things Ms. Bayless provided contact information for Major
Craig Lynch at Dugway, who was a contact provided by Dr. Nicolson from the Institute
of Molecular Medicine, to Dr. Moody. Id. at 111. In her note to Dr. Moody, Ms. Bayless
mentioned that Dr. Nicolson had purportedly helped Major Lynch with his Gulf War
7
Illness. However, neither Ms. Bayless nor Dr. Moody followed up by contacting Major
Lynch.
In an undated letter from early 2005 to Mr. Queen, Ms. Bayless commented on her
mother’s medical history while she was pregnant with Ms. Bayless. Ms. Bayless
remembered that her mother took two anticonvulsant drugs during the pregnancy, and she
also remembered some neurological problems in her childhood. She wrote, “My hunch is
that these two drugs caused a weakness in my central nervous system/brain so that when I
was exposed to a neurotoxin near Dugway it explains why it affected me so badly.” Id. at
109.
Ms. Bayless also wrote that she had found a doctor2 who believes that she “was
exposed to a neurotoxin out at Dugway and is willing to pursue it and call out there.”
This doctor, she claimed, also believed that the amount of acetylcholine in Ms. Bayless’
muscles was deficient. Ms. Bayless noted that she had read “that organophosphate
toxicity (like what they believe may be affecting some Gulf War vets) damages the
acetylcholinesterase enzyme so there is a buildup of acetylcholine in the nerve endings
which causes neuromuscular problems.” Id. at 68–69. Mr. Queen wrote in his reply—
also undated—that this is “possible,” and that treatment with huperzine would eliminate
any acetylcholinesterase inhibitors.3
2
Although the letter is unclear, Ms. Bayless believes that this doctor she mentioned was
referring to Dr. Moody, who later performed an acetylcholine test in May 2005.
3
As discussed below, Ms. Bayless was treated unsuccessfully with huperzine later in the
summer or fall of 2005.
8
On March 15, 2005, Dr. Moody recorded in Ms. Bayless’ history that “[a]ll [signs
and symptoms] preceded by working at forestry service near Dugway [with] exposure to
Seran [sic], Brucelloses [sic], multiple infectious disease.” Id. at 74, 114. On April 12,
2005, Dr. Moody also recorded that Ms. Bayless “[m]ay have been exposed to nerve gas
being destroyed [at] Toela [sic] Army.” Id. at 73, 113.
Meanwhile, also around April 2005, Ms. Bayless met with Dr. Rebecca Levine, a
family practitioner, on yet another theory that her symptoms might be related to seizure
activity. After hospital testing revealing negative results, Ms. Bayless crossed off seizure
activity as a potential cause.
At some point in early 2005 during her own research, Ms. Bayless had learned of a
man named Gary Harris who had worked at Dugway in 1996 and who had suspicions that
he had been exposed to nerve agents. Mr. Harris shared similar symptoms to those
experienced by Ms. Bayless, including “brain fog, numbness, muscle weakness, and
chronic fatigue.” Id. at 71, 116. Mr. Harris informed Ms. Bayless that “the government
was shooting munitions filled with VX and GB nerve agents into the southwest corner of
Dugway and lost a lot of them outside the borders.” Id. at 116. He also informed Ms.
Bayless that she could have been exposed if she had been downwind from the open burns
and detonations that the government performed during that time.
On May 3, 2005, Ms. Bayless saw Dr. Moody again, who recorded in his notes:
“Exposure to possible Seran/VX [sic]. [1996–1997] shot munitions into SW corner.” Id.
at 113. On the same day, Ms. Bayless asked Dr. Moody to test her acetylcholine levels.
9
On May 4, 2005, Ms. Bayless, citing her own research and the information she
learned from Mr. Harris about Dugway, wrote in an email to Mr. Queen: “I now am
pretty sure that my symptoms were caused by low-level exposure to nerve agents,
probably VX and GB (sarin nerve gas).” Id. at 116. Ms. Bayless also wrote that she
found out that employees in the Tooele facility, which operated “the largest nerve gas
incinerator in the world,” have also suffered neurological problems. Id.
Nevertheless, around the same time in early May 2005,4 Ms. Bayless received
negative results from Dr. Moody’s acetylcholine test. Later between July and October of
2005, Ms. Bayless was also treated by Mr. Queen with huperzine, a Spanish club moss
that he believed should have neutralized effects of sarin nerve gas by targeting inhibitors
of acetylcholinesterase enzymes and thereby restored Ms. Bayless’ acetylcholine levels.
After three days of treatment, however, Ms. Bayless’ condition not only failed to improve
but it actually worsened. Mr. Queen therefore discontinued any theory that an
organophosphate toxicity would be linked to sarin, and Ms. Bayless ended her search for
a chemical weapons link.
In early 2006, Ms. Bayless began seeing another nutritionist in Utah, Pat
Montague. Ms. Bayless, having abandoned the possibility that her condition was related
to Dugway or Tooele, worked with Ms. Montague’s suspicion that a candida infection in
4
It is unclear from the record when Ms. Bayless received the results of her acetylcholine
blood test performed on May 3—whether the results were returned alongside the test
being performed or following her email on May 4 to Mr. Queen. Appellant states in
briefing that the results came after the email had been sent, see Appellant Br. 13, but the
Court cannot discern anything in the record indicating the date Ms. Bayless knew the
results.
10
Ms. Bayless’ intestinal tract was to blame. Ms. Bayless adhered to a strict diet to treat
this until October 2006—but again to no avail.
Returning again to biological weapons, Ms. Bayless visited another Utah family
medicine specialist, Dr. Todd Mangum, in October or November 2006. Dr. Mangum
administered the PCR test for biological weapons, the test previously recommended by
Nicolson in 2005. The test results for mycoplasma fermentans and mycoplasma
incognitus returned negative in December 2006.
Finally, Ms. Bayless sought out Dr. William Rea, a specialist in neurotoxicity at
the Environmental Health Center in Dallas, Texas. During her first visit with Dr. Rea on
February 5, 2007, Ms. Bayless told him about her work in Utah near a nerve gas
incinerator. Dr. Rea recorded in his notes that Ms. Bayless “strongly suspects that she
was exposed to sarin nerve gas at the Dugway Proving Ground.” Id. at 118. Dr. Rea then
administered, among many other scans and tests, a cholinesterase test. For the first time,
Ms. Bayless received positive test results showing low cholinesterase levels—an opposite
result from the acetylcholine test performed by Dr. Moody in May 2005—now indicating
that she suffered from what Dr. Rea called an “organophosphate pesticide toxicity.” Id.
at 76; see also id. at 120.
Dr. Rea diagnosed Ms. Bayless in a June 21, 2007 report with toxic
encephalopathy, toxic effect of molds, toxic effect of pesticides, toxic effect of metals,
chronic fatigue, fibromyalgia, autonomic nervous system dysfunction, vasculitis, and
immune deregulations. Id. at 124. He concluded that Ms. Bayless suffered from
moderate neurotoxicity while noting that her “visual and respiratory symptoms . . . are
11
delayed sequelae in Sarin exposure.” Id. at 126. Dr. Rea wrote that he “firmly believe[d]
that in all medical probability this patient’s incapacitation is a result of her exposure to
pesticides, heavy metals, molds, and mycotoxins in the workplace.” Id. at 127.
B. Procedural History
Ms. Bayless filed an administrative claim on January 31, 2008, alleging that the
activities of United States Army on its Dugway facility caused her to sustain permanent
neurological and other injuries. Id. at 129–34. On May 29, 2009, Ms. Bayless filed a
complaint under the FTCA in the United States District Court for the District of Utah.
On December 2, 2011, the government moved for summary judgment to dismiss
Ms. Bayless’ complaint for lack of subject-matter jurisdiction. The government argued
that Ms. Bayless failed to present her administrative claim within two years of the accrual
of that claim pursuant to 28 U.S.C. § 2401(b). After hearing argument on April 19, 2012,
the district court granted the motion on May 17, 2012. The district court concluded that
Ms. Bayless acquired enough knowledge by May 2005 for her claim to begin to accrue
and also that her claim was not protected by the doctrine of equitable tolling. Ms.
Bayless appealed.
II. DISCUSSION
“Absent a waiver, sovereign immunity shields the Federal Government and its
agencies from suit.” Dahl v. United States, 319 F.3d 1226, 1228 (10th Cir. 2003)
(quoting Fed. Deposit Ins. Corp. v. Meyer, 510 U.S. 471, 475 (1994)). The FTCA waives
the United States’ sovereign immunity from tort claims and makes it liable “in the same
12
manner and to the same extent as a private individual under like circumstances.” 28
U.S.C. § 2674. A tort claim against the government, however, is “forever barred unless it
is presented to the appropriate Federal agency within two years after such claim accrues.”
28 U.S.C. § 2401(b). Thus as a threshold matter, timeliness “is one of the conditions of
the government’s waiver of sovereign immunity under the FTCA, and [a federal] court
lacks subject matter jurisdiction to proceed under the FTCA if a plaintiff fails to satisfy
the FTCA’s timing requirements set forth in § 2401(b).” Harvey v. United States, 685
F.3d 939, 947 (10th Cir. 2012) (quoting Franklin Sav. Corp. v. United States, 385 F.3d
1279, 1287 (10th Cir. 2004)).
Whether a plaintiff has “file[d] an FTCA claim within the two-year statute of
limitations period is a matter we review de novo.” Plaza Speedway Inc. v. United States,
311 F.3d 1262, 1266 (10th Cir. 2002). In construing when a claim accrues within the
meaning of § 2401(b), we seek to interpret the section consistent with congressional
intent. Cannon v. United States, 338 F.3d 1183, 1190 (10th Cir. 2003) (citing United
States v. Kubrick, 444 U.S. 111, 117–18 (1979)).
“Both § 2401(b) and its legislative history are silent as to the meaning of
‘accrues.’” Plaza Speedway, 311 F.3d at 1267 (quoting Arvayo v. United States, 766
F.2d 1416, 1419 (10th Cir. 1985)). Section 2401(b) serves “to require the reasonably
diligent presentation of tort claims against the government,” and like other statutes of
limitations, it reflects the “legislative judgment that it is unjust to fail to put the adversary
on notice to defend within a specified period of time, and that the right to be free of stale
13
claims in time comes to prevail over the right to prosecute them.” Arvayo, 766 F.2d at
1418–19 (quoting Kubrick, 444 U.S. at 123) (internal quotation marks omitted).
The general accrual rule for FTCA claims is the “injury-occurrence rule,” where
the tort claim accrues on the date of injury. Plaza Speedway, 311 F.3d at 1167. In
exceptional cases, however, the “discovery rule” applies to “protect plaintiffs who are
blamelessly unaware of their claim because the injury has not yet manifested itself or
because the facts establishing a causal link between the injury and the medical
malpractice are in the control of the tortfeasor or otherwise not evident.” Plaza
Speedway, 311 F.3d at 1167 (quoting Diaz v. United States, 165 F.3d 1337, 1339 (11th
Cir. 1999)) (internal quotation marks omitted). In these cases, the date of accrual is when
that reasonably diligent plaintiff knows or should have known of both the existence of
and cause of the injury. Id.; Cannon, 338 F.3d at 1190.
We hardly question that this is an exceptional case where the discovery rule
applies. Ms. Bayless’ injury occurred in 1997 when she worked as a range technician
near the Dugway and Tooele Army bases in Utah, whose apparently undisclosed
weapons testing exposed her to sarin or other nerve agents. At the time of that
occurrence, Ms. Bayless had no reason to suspect the nature of the injury about to befall
her, let alone its cause. As such, “contrary to Congressional intent, strict application of
the occurrence rule here would deny [Ms. Bayless her] right to compensation under the
FTCA.” Plaza Speedway, 311 F.3d at 1268.
Starting with the episodic numbness and blurred vision in October 1997, and as
each symptom of her injury revealed itself, Ms. Bayless would develop knowledge of an
14
ever-worsening injury. But, at least initially, Ms. Bayless had no knowledge of Dugway
or Tooele to connect her time spent near them to her injury. From the time she first saw a
doctor in February 1998 after her initial symptoms did not dissipate, however, Ms.
Bayless persevered in her search for an answer despite dead end after dead end.
The question before us then is at what point during this long search did Ms.
Bayless know or should she have known of the causal link between her condition and the
Army’s activities. Ms. Bayless contends on appeal that the two-year limitations period
began to run no earlier than February 2007 when she received the positive cholinesterase
test results from Dr. Rea. That theory, says the government, ignores the teaching of
Plaza Speedway.
In Plaza Speedway we applied the discovery rule to an FTCA toxic tort case where
the Army’s activities at an airfield adjacent to the claimants’ racetrack contaminated the
property’s groundwater and soil. Speedway’s owners purchased the property in 1989
with knowledge of the Army’s chemical operations but, despite this knowledge, did not
test its wells or seek any environmental assessment. In April 1993, the Kansas
Department of Health and Environment (“KDHE”) tested the well water following an
application from the owners for public use of the property’s water. Four months later an
environmental geologist from the remedial section of KDHE telephoned the property
owners and discussed potential chemical contamination on the Speedway premises. Id.
That geologist followed up with an October 18, 1993 letter indicating that hazardous
substances were present in the groundwater and soil. The owners filed their
administrative claim on October 13, 1995.
15
We held there that the geologist’s phone call in August 1993 started the clock for
the statute of limitations. 311 F.3d at 1271. In doing so we emphasized three antecedent
facts that, when combined with that telephone call, should have given the owners “reason
to suspect the source might have been the neighboring property” and then to initiate
inquiry into “any possible harm”: (1) the owners knew that contamination testing by the
KDHE occurred in April 1993; (2) the owners knew at the time of purchase of the
property that the Army had been testing various chemicals on the adjacent airfield; and
(3) the property had no other neighbors than the Army airfield. Id. at 1270–71.
The facts in Ms. Bayless’ case are rather different. Unlike the owners in Plaza
Speedway whose options for suspicion could have pointed only to its sole neighbor, Ms.
Bayless had more than a handful of potential “suspects” wreaking havoc on her body.
And unlike the owners in Plaza Speedway, Ms. Bayless did not sit back idly, with
knowledge of the government’s activities and without taking any action to inquire into
the source of her injury.
The government stresses that Ms. Bayless failed to pursue certain leads, including
Dr. Nicolson’s suggestion to take a PCR test, Dr. Nicolson’s reference to Gulf War
Illness and Major Lynch, and Mr. Queen’s mention of the Institute of Orthomolecular
Medicine.5 Ms. Bayless, however, made a conscious choice at the time against taking the
5
Ms. Bayless suggests in her briefing—for the first time—that this Institute of
Orthomolecular Medicine does not even exist, while noting that Ms. Bayless had by that
time sought out Dr. Nicolson from the Institute of Molecular Medicine. The government
suggests on the other hand that this lead, had Ms. Bayless pursued it, might have led her
to Dr. Rea’s sarin toxicity diagnosis earlier because his title is Director of Orthomolecular
Health-Medicine. Compare Appellant Br. 12 n.3 with Appellee Br. 9 n.3. Unfortunately
16
PCR test because its accuracy was debated—indeed, a PCR test administered in 2006 by
Dr. Mangum returned no fruitful results.
As for the other references, the test for accrual does not require that a plaintiff
pursue every possible clue to its end in order to be deemed a reasonably diligent plaintiff.
See Arvayo, 766 F.2d at 1422 (question of reasonable diligence is an objective one). In
fact, within a decade Ms. Bayless had seen as many medical professionals as others might
see in a lifetime, and she traveled throughout the country to do so. On advice from those
physicians, neurologists, chiropractors, nutritionists, and other professionals, Ms. Bayless
passed through theories on ischemic attacks, multiple sclerosis, an Epstein-Barr infection,
a neck-related condition, heavy metal poisoning, uranium exposure, a seizure-related
condition, a systemic yeast infection, and was even told by more than one doctor that her
symptoms were entirely psychosomatic. To hold that Ms. Bayless must have followed
every word of advice from every professional to be deemed reasonably diligent would
change her legal duty into an absurd herculean task.
Despite her diligence, Ms. Bayless remained unaware of even the existence of the
Army sites at Dugway and Tooele until early 2005. According to the government, upon
this discovery in 2005, Ms. Bayless became not only armed with the critical facts
regarding the activity that occurred Dugway and Tooele, but she had already received
direction from her doctors that should have connected the cause and injury. The
for Ms. Bayless, her failure to raise the issue below means that the Court now has nothing
in the record that speaks to the existence or nonexistence of the Institute of
Orthomolecular Medicine—nor for that matter anything that speaks to a connection
between such an Institute and Dr. Nicolson or Dr. Rea.
17
government relies on the following pieces of evidence that Ms. Bayless had by that time:
first, Ms. Bayless’ research on Dugway and Tooele; second, Ms. Bayless’ conversations
with “Pauly” and Mr. Harris about suspicions of their own exposure to biological or
chemical weapons; third, Mr. Queen’s prior “organophosphate pesticide toxicity”
diagnosis in 20036 as well as his intimations at a “secondary toxin . . . due to nerve
agents, etc.” in his February 1, 2005 email; and finally, most significantly, Ms. Bayless’
own statement in her May 4 letter to Mr. Queen that she was “pretty sure” sarin
poisoning was to blame for her condition.
The crux of this case, however, lies in whether a legal distinction exists between
one’s own suspicion that something is a cause and the requisite objective knowledge that
begins the accrual clock. An example from the Seventh Circuit makes the point that
subjective suspicion is not necessarily enough.
In Stoleson v. United States, 629 F.2d 1265(7th Cir. 1980), the plaintiff, an
employee in an Army munitions plant, suffered a heart attack in 1968 and suspected that
it was related to her workplace exposure to nitroglycerin. Her condition was diagnosed,
however, as a myocardial infarction caused by vascular spasm triggered by temporary
withdrawal from nitroglycerin; and her treating physician told her that exposure to
6
According to the government, this is the same diagnosis that Dr. Rea later gave in 2007.
Nevertheless, not only did Ms. Bayless have no reason to tie that to activities at Dugway
or Tooele in 2003 when she had no knowledge of their existence, but she also testified, to
the contrary, that she understood Mr. Queen’s diagnosis in 2003 to mean that she had
been exposed to some sort of lawn pesticide. In any event, Ms. Bayless had followed Mr.
Queen’s detoxification regimen for this exposure to no avail and only stopped when she
discovered from Dr. Remington that she had begun to suffer from chronic renal failure.
18
nitroglycerin was not the cause. She nevertheless requested (unsuccessfully) a transfer to
a work area free from nitroglycerin, and she continued to experience periodic angina
attacks until her employment was terminated in 1971.
Meanwhile, her suspicion of a nitroglycerin connection continued. In the spring of
1969 she read an article suggesting that sudden withdrawal from nitroglycerin can cause
angina chest pains. Later that year an occupation safety inspector told her that he
believed her heart problems were caused by exposure to nitroglycerin, though he was
unaware of any medically recognized causal relation. But her personal physicians
confirmed the previous assessment, and the facility continued to assure her that her
suspicions were groundless.
In April 1971, a cardiologist examined her and concluded that her cardiovascular
problems were related to nitroglycerin exposure. Later he went further and, based on the
plaintiff’s case and other case histories, published an article documenting for the first
time the relationship between angina and chronic exposure to nitroglycerin.
Notwithstanding the cardiologist’s opinion, however, the facility’s doctor was
unconvinced, and the plaintiff ultimately was discharged as unable to work.
The plaintiff filed her administrative claim on August 16, 1972, and after striking
out there, filed suit under the FTCA. In granting the government’s motion to dismiss the
district court found, among other things, that if the discovery rule applied, her claim
accrued in November 1969—more than two years before she filed her administrative
claim—when she read the article and spoke to the safety inspector.
19
The Seventh Circuit reversed. “A layman’s subjective belief, regardless of its
sincerity or ultimate vindication, is patently inadequate to go to the trier of fact.”
Stoleson, 629 F.2d at 1270. Because medical science did not at that time recognize the
causal connection, “[t]o fix the time of accrual at this time would provide [plaintiff] with
nothing more than a delusive remedy.” Id. Only in 1971, when the cardiologist
documented the relationship between occupational exposure to nitroglycerin and angina,
informed the plaintiff of his findings, and also informed her of their relevance to her
medical problems did her suspicion ripen into knowledge sufficient to trigger the running
of the two-year limitations period. Id. at 1270–71; see also Rosales v. United States, 824
F.2d 799, 805 (9th Cir. 1987) (“Ordinarily, a plaintiff cannot be expected to discover the
general medical cause of his injury even before the doctors themselves are able to do
so.”); Nicolazzo v. United States, 786 F.2d 454, 456 (1st Cir. 1986) (“It was only when
[the plaintiff] received a correct diagnosis . . . that the factual predicate of his injury . . .
became known to him.”); Osborn v. United States, 918 F.2d 724, 733 (8th Cir. 1990)
(rejecting the government’s argument that the plaintiff’s mother should have known the
cause of plaintiff’s seizure “when the doctors, including specialists . . . had not yet
reached a conclusion”); Harrison v. United States, 708 F.2d 1023, 1028 (5th Cir. 1983)
(statute tolled because “[i]t would be unreasonable to hold [a plaintiff] to a higher degree
of medical competence and understanding than the many medical experts she
consulted”).
Stoleson is distinguishable. There is no indication in the facts here that medical
science did not recognize a connection between exposure to nerve agents and symptoms
20
such as those of Ms. Bayless before she saw Dr. Rea in 2007. The point, however, is that
what Ms. Bayless had before that time was a lay person’s suspicion. While in some
circumstances that might be sufficient to trigger the statute, it cannot do so here when the
context is considered.
In early 2005, Ms. Bayless did, of course, know of the existence of the Army
bases. She suspected, at times, that their activities caused her injuries. But when she
followed up on her suspicions with various professionals she received, if anything,
objective medical results to the contrary. And it was not just one doctor who turned Ms.
Bayless away. She received three empirical results from three different doctors, all
evincing what appeared to be the objective truth that Dugway and Tooele were not to
blame. First there was a negative acetylcholine test in early May 2005 by Dr. Moody,
notably administered around the same time that she wrote she was “pretty sure” that sarin
gas exposure was the cause of her condition. Next, Ms. Bayless was treated with
huperzine between July and October 2005, but to no avail despite Mr. Queen’s assurance
that it would neutralize the effects of sarin nerve gas. Last there was the negative PCR
test for biological weapons exposure conducted by Dr. Mangum in December 2006.
The objective indicia seemed to point to a conclusive “no” for chemical and
biological weapons exposure, and Ms. Bayless wholly dropped the idea of biological or
chemical agent exposure.7 Instead she pursued treatment with Dr. Montague throughout
7
In Kubrick the Court held that the two year statute of limitations was triggered by the
plaintiff’s knowledge (based on medical opinion) of his injury (hearing loss) and its cause
(neomycin administered in a prior surgery), not when he later was informed by another
doctor that the administration of the drug was malpractice. 444 U.S. at 118–22. Armed
21
2006 on a theory that she suffered from a candida infection. Once again, the new theory
failed, and her evidence is that it was not until her consultation with Dr. Rea and the
ensuing cholinesterase test8 in February 2007 that she knew that her suspicions were
valid.
The government posits that if we were to conclude that Ms. Bayless’ claim did not
accrue until she found Dr. Rea, it could lead the statute of limitations in many cases to
“be deferred indefinitely while the prospective claimant searched for some physician
willing to connect her condition with government activity.” Thus, “the weaker the
plaintiff’s claim, the longer the accrual of the claim would likely be deferred.” Appellee
Br. 34. But merely because a cause is more difficult to determine medically does not
make that claim legally weaker. The purpose of the discovery rule inquiry is to
recompense the reasonable diligence of an enduring plaintiff despite a scientifically or
with knowledge of the injury and its cause, a diligent plaintiff could protect himself by
seeking medical and legal advice, and if appropriate, pursuing a claim. Id. at 123–24.
The Court found that Mr. Kubrick was not diligent in pursuing his legal rights after he
knew the cause of his hearing loss. But contrary to the Kubrick facts, Ms. Bayless did not
unreasonably delay seeking medical or legal advice. On the contrary, she sought
professional opinions time and again. Also unlike in Kubrick, she did not know the cause
of her injury by May 2005. Whereas Mr. Kubrick had been told by a physician that the
cause of his condition was the administration of neomycin, Ms. Bayless had only a lay
suspicion, and her suspicion was in fact contradicted by contemporaneous tests and
professional advice. As the Court recognized in Kubrick, there is a difference between “a
plaintiff’s ignorance of his legal rights and his ignorance of the fact of his injury or its
cause.” Id. at 122.
8
The District Court opinion stated that “Dr. Rea administered a test for acetylcholine,
which had been negative when Dr. Moody tested it in 2005.” App. 193–94. This,
however, is incorrect. Dr. Rea’s June 2007 report indicates that her February 5, 2007
results for a “Cholinesterase Panel” showed results of “low Cholinesterase Serum and
Plasma.” Id. at 120. The report does not show that a separate test for acetylcholine was
performed.
22
medically challenging claim. One might equally worry that under the government’s
view, conspiracy theorists would run to the nearest courthouse to file futile suits for every
injury they suspect had been caused by the government’s activities—even where that
suspicion is based on anecdotes from strangers and Internet gossip, even where that
suspicion is repeatedly refuted by objective, medical documentation to the contrary. The
discovery rule for accrual should not serve to reward those who tilt at windmills yet snub
reasonable and diligent plaintiffs.
To be clear, our holding today does not upend precedent in this Circuit or others
that “compelling” or “certain” proof of a cause is not a requirement before accrual may
begin. See, e.g., Kronisch v. United States, 150 F.3d 112, 123 (2d Cir. 1998); Nemmers
v. United States, 795 F.2d 628, 631 (7th Cir. 1986). Nor does a plaintiff in every case
need medical or scientific confirmation of a cause before the statute of limitation begins.
We only opine with respect to the facts of Ms. Bayless’ case that, after confronting
demonstrable evidence debunking her own suspicions, she cannot be charged as a matter
of law with knowledge under the discovery rule. We hold only that, in the circumstances
presented by the parties’ respective summary judgment filings, that Ms. Bayless’
administrative claim was timely filed.
Alternatively, Ms. Bayless argues that the district court erred as a matter of law in
holding that the doctrine of equitable tolling did not apply to FTCA claims. Because we
reverse on grounds that Ms. Bayless’ claims accrued in 2007 less than two years before
she filed her administrative claim, we need not reach whether the district court erred in
holding that the doctrine of equitable estoppel did not apply. Accordingly, we REVERSE
23
the district court’s dismissal for lack of subject-matter jurisdiction and REMAND for
further proceedings consistent with this opinion.9
.
9
Contrary to the dissent, we are not granting “summary judgment” on an issue where
none was requested. Ms. Bayless vigorously argued in the district court and on appeal
that her claim did not accrue until February 2007, just as the government with equal vigor
argued that it accrued at least by May of 2005. Nor are we willing to engage in
speculation that the government might have additional cards in its hand that it has yet to
play but which might turn the tide in its favor at trial. The parties had a full opportunity
to engage in discovery and to present such facts as they had in support of their respective
positions. The district court recited those facts in a thoughtful order, but we respectfully
disagree with the legal conclusion that the facts support an affirmative defense based
upon the statute of limitations. The unusual facts of this case lead us to the conclusion
that, as a matter of law, Ms. Bayless’ claim accrued in February 2007.
24
12-4120 – Bayless v. United States
HARTZ, Circuit Judge, concurring and dissenting:
I agree that the summary judgment in favor of the government must be set aside.
Reading the evidence in the record before us in the light most favorable to Ms. Bayless,
one could say that a person in her situation acting with reasonable diligence would not
have discovered the cause of her ailments more than two years before she filed her FTCA
claim.
But the majority opinion does more than set aside the government’s summary
judgment. It grants a (partial) summary judgment to Ms. Bayless on the limitations-
period issue. It holds as a matter of law that she filed her claim in a timely manner. It so
holds even though Ms. Bayless did not seek such a ruling in district court1 and did not
argue in support of such a ruling in this court.2 The 2010 amendments to Fed. R. Civ.
1
The pertinent heading in Ms. Bayless’s response to the government’s summary-
judgment motion was “Plaintiff’s Initiation of this Action Against the United States on
January 31, 2008, was Timely under the Facts and Circumstances Presented.” Pl.’s
Resp. to Defs.’ Mot. for Summ. J. at 7 (Bayless v. United States, No. 2:09cv00495 DAK
(D. Utah Jan. 11, 2012) (emphasis added)). It is one thing to argue that her complaint
was timely if the evidence conceded to be true for purposes of the government’s motion
is viewed in the light most favorable to Ms. Bayless; it is quite another to argue that her
complaint was timely if that same evidence, supplemented by any other (at this point
unknown) contrary evidence that the government may offer, is viewed in the light most
favorable to the government. Only the first argument was made by Ms. Bayless in
district court. And the district court, correctly believing that Ms. Bayless had not sought
any affirmative relief on the issue, began its Memorandum Decision and Order by saying,
“This matter is before the court on Defendant the United States of America’s Motion for
Summary Judgment.” Mem. Decision & Order at 1 (Bayless, No. 2:09cv00495 DAK (D.
Utah May 17, 2012)).
2
Although Ms. Bayless’s briefs on appeal argue vigorously (and, in my view, correctly)
that her claim was timely if we accept the facts submitted by the government as
P. 56 now prohibit the district court from sua sponte granting summary judgment (and
presumably partial summary judgment as well) without “giving notice and a reasonable
time to respond.” Id. Rule 56(f). The majority apparently do not believe that a similar
principle should apply on appeal. But why not give the government the same opportunity
it would have in district court? Indeed, why not follow our customary practice of
deciding only the issues presented to us and remanding further matters to the district
court? Because I think the relief granted by the majority opinion is inappropriate in the
circumstances of this case, I dissent from the majority opinion insofar as it holds that
Ms. Bayless’s claim was timely.
The majority opinion states that it is not “willing to engage in speculation” that the
government could successfully contest its decision. Majority Op. at 24 n.9. It assumes
that there is nothing that the government could have presented or argued that could
change the result. But not only does such an assumption run contrary to our tradition of
providing notice and an opportunity to respond before rendering a ruling, it suffers from
the sin of speculation attributed to my view. I would rather speculate in favor of
affording due process than speculate to support its denial.
So let me suggest how the government might have grounds to oppose a motion for
partial summary judgment by Ms. Bayless. For one thing, the majority opinion assumes
the accuracy of all of Ms. Bayless’s testimony. How can we be certain that the
government does not have evidence that would challenge that accuracy? There would
undisputed, they nowhere argue that this court should grant relief she did not seek in
district court—that is, that we should rule her claims timely as a matter of law without
giving the government an opportunity to present further evidence or argument.
2
have been no reason for the government to put on such evidence in support of its motion
for summary judgment. After all, it needed to base its motion on undisputed facts.
Impeaching Ms. Bayless’s testimony would have accomplished nothing, because the
court would nevertheless have to credit her veracity and the reliability of her memory.
Accordingly, the government set forth a summary of her deposition testimony as stating
undisputed facts. Those undisputed facts, however, were undisputed “only for the
purpose of presenting a legal theory, which, if accepted by the court, would entitle the
government to a judgment.” United States v. Mills, 372 F.2d 693, 697 (10th Cir. 1966);
see 10A Charles A. Wright et al., Federal Practice and Procedure §2720 (3d ed. 1998)
(“[A] party moving for summary judgment concedes the absence of a factual issue and
the truth of the nonmoving party’s allegations only for purposes of his own motion.”
(emphasis added)). On the other hand, if Ms. Bayless had moved for partial summary
judgment, perhaps the government could have defeated the motion by presenting
evidence contrary to hers on the facts essential to her motion.
The approach of the majority opinion will work a sea change in summary-
judgment practice. A party seeking summary judgment will now have to protect itself by
presenting all evidence that could impeach evidence favoring the opposing party. Such
evidence, of course, is irrelevant to the summary-judgment motion because the court
reviewing the motion must view the evidence in the light most favorable to the
nonmovant. But if the moving party does not include impeaching evidence, it could face
a court that follows the precedent established by the majority opinion and (1) construes
the nonmovant’s opposition to the summary-judgment motion as a request for a judicial
3
determination that the nonmovant is entitled to summary judgment (or at least partial
summary judgment on the issue) and (2) refuses “to engage in speculation that the
[movant] might have additional cards in its hand . . . which might turn the tide in its favor
at trial.” Majority Op. at 24 n.9.
The only advantage I can see to such an unfair procedure is that it will save paper
otherwise used in litigating cross-motions for summary judgment. Why file a cross-
motion when you have a better chance of a favorable ruling by just opposing the other
party’s motion? If Ms. Bayless had moved for a partial summary judgment that her
complaint was timely, the government would then have been alerted to the need to put on
any evidence it had that would cast doubt on Ms. Bayless’s assertions relevant to the
limitations issue. By not so moving, Ms. Bayless would avoid alerting the government
that it needed to respond. How much better simply to oppose the government’s motion
and not take a chance that her account could be impeached? If there is any precedent for
the approach of the majority opinion, I am not aware of it.
Moreover, even on the limited evidence now before us, the government could
marshal arguments that Ms. Bayless’s rendition of facts (which had to be accepted as true
for purposes of the government’s motion) is actually unlikely and that a reasonably
diligent person in Ms. Bayless’s situation would have discovered the cause of her
ailments significantly sooner than she did. It is important to keep in mind the legal
standard. The discovery-rule analysis depends on what the plaintiff knew as time
progressed. “The exercise of reasonable diligence is an ongoing process. What is
required at any particular time depends on what one has notice of at that time. When
4
additional information is obtained, the standard of reasonable diligence may demand
action that would not have been demanded without receipt of the information.” United
States v. Denny, 694 F.3d 1185, 1190 (10th Cir. 2012). One could argue from the record
evidence that in early 2005 Ms. Bayless had acquired information mandating that she
obtain scientific testing of whether she had been exposed to sarin gas but that she had
delayed an unreasonably long time before doing so.
If we examine the evidence at hand in the light most favorable to the United States
rather than, as in the majority opinion, the light most favorable to Ms. Bayless, we get the
following picture. By early 2005 Ms. Bayless had learned (1) that where she had been
working shortly before her ailments first arose was near a military facility where sarin gas
was present and (2) that her ailments were similar to those of a man who had been
exposed to sarin at that facility. On May 4, 2005, she wrote to Mr. Queen, a clinical
nutritionist who had been treating her, that she was “pretty sure” that her problems had
been caused by exposure to nerve agents, probably sarin gas. App. to Aplt. Br. at 116. I
do not think that the majority would disagree that a reasonably diligent person would
promptly follow up on that belief. So what did she do?
On February 1, 2005, Mr. Queen had told her that the Institute of Orthomolecular
Medicine “would probably have a way to test for [nerve agents]” and that “the
information may be very useful.” She admits, however, that she did not follow up on this
advice.
Also, in July, August, or September of 2005, Mr. Queen had her take huperzine,
saying that it would relieve her symptoms if they were caused by sarin. After a few days,
5
however, her symptoms only got worse, so she quit using it. If that were the only reason
that Ms. Bayless quit investigating whether sarin had caused her problems, I would not
agree that she was acting as a reasonable person in that regard. Mr. Queen was not a
doctor. And huperzine is a Spanish club moss, not a prescription medication. A
reasonable person would not have relied on the huperzine trial as reason not to pursue
sarin as a cause.
The majority opinion suggests that a negative PCR test in December 2006 also
deterred Ms. Bayless from investigating sarin gas as the cause of her condition. But the
PCR test was for exposure to biological weapons. Sarin is not a biological weapon.
What about the acetylcholine test? Ms. Bayless testified that she had learned from
Internet research by February 2005 that such a test could help decide whether she was
suffering from exposure to nerve gas. And a test of that nature (the record before us
leaves unclear whether it was an identical test) is ultimately what she bases her present
claim on. To act with reasonable diligence she would have needed to pursue scientific
testing for exposure to nerve gas in early 2005. Contrary to the majority opinion,
however, there is a reasonable question whether she did. Ms. Bayless testified that
because of the importance of the test, she had it performed in 2005. But her recollection
may have been mistaken. At her deposition she, quite understandably, expressed
uncertainty about a number of matters in her medical history, including events in 2005.
Turning specifically to the acetylcholine test, the record before us contains no report of
such a test in 2005 or any mention of such a test in the medical records for that year. (Of
course, the parties may have documentation of such a test. But, in light of Ms. Bayless’s
6
testimony, it would have been irrelevant to any issue on appeal, so there would have been
no reason to include it in the appendix. Guessing about what evidence there may be is a
hazard in addressing an issue never addressed by the parties on appeal.) Although
Ms. Bayless testified that the test was performed by Dr. Moody, his office notes clearly
show that her last visit with him was on May 3, 2005, the day before she wrote the
message to Mr. Queen that she was “pretty sure” that sarin was the culprit. Dr. Moody’s
notes for May 3 do include the notation “test results,” but we do not know what the tests
were. Id. at 113. If Dr. Moody gave her the (negative) result of the acetylcholine test on
that date, it would be strange for her to write her message to Mr. Queen the next day.
And if the notation was to indicate that Dr. Moody should call her with the results, it
would be strange for her to write her “pretty sure” message without awaiting the results
or even mentioning that she was awaiting results. In addition, Ms. Bayless testified that
sometime between July and September of 2005 she tried huperzine for a few days. But
why was she still being tested for sarin if she had earlier received test results (the
acetylcholine test) that convinced her that sarin was not the cause of her ailments?
Thus, a reasonable factfinder could find that Ms. Bayless’s decision in 2005 not to
pursue sarin was the result of the huperzine trial, not a nonexistent acetylcholine test.
And if that were the case, I would say that Ms. Bayless had not acted with reasonable
diligence and that a reasonably diligent person in her situation would have discovered the
sarin connection substantially before she actually did.
For these reasons, I dissent from the decision of the majority that as a matter of
law Ms. Bayless’s claim was timely.
7
|
772 F.Supp. 962 (1991)
The UNION NATIONAL BANK OF TEXAS, Plaintiff,
v.
Maria de Jesus ORNELAS-GUTIERREZ, et al., Defendants.
Civ. A. No. L-90-129.
United States District Court, S.D. Texas, Laredo Division.
July 5, 1991.
*963 Franciso R. Canseco, Laredo, Tex., for plaintiff Union Nat. Bank of Texas.
Horace C. Hall, III, Laredo, Tex., for defendant Maria de Jesus Ornelas-Gutierrez.
Richard E. Sames, Laredo, Tex., for defendant Maria Aurora Tenorio-Ornelas.
Richard N. Hansen, Laredo, Tex., for defendant Enrique R. Cuellar.
MEMORANDUM AND ORDER
KAZEN, District Judge.
Pending are the Joint Motion for Summary Judgement of Defendants Maria de Jesus Ornelas-Gutierrez and Maria Aurora Tenorio-Ornelas (Joint Claimants) and the Motion for Summary Judgment of Defendant Enrique R. Cuellar, temporary administrator of the estate of Joaquin Felipe Gutierrez Gonzalez, deceased (Cuellar). This action arose when Plaintiff Union National Bank of Texas (UNB) deposited the disputed res with this Court and interpled the above parties who possess conflicting claims to it. The Court has reviewed the motions, all supplements and briefs, and the supporting affidavits and deposition transcripts filed by the parties.[1]
Factual background. There is fairly broad agreement among the parties as to the facts of this case. In late 1984, Joaquin Felipe Gutierrez Gonzalez (Don Joaquin), a Mexican national, opened a "money market" account (# 96-760-2) with UNB. Later, in January, 1985, through the services of UNB, Don Joaquin invested approximately $5 million (U.S.) in certificates of deposit from Allied Bank of Texas. This investment was given the identification number 100-155 in the records of UNB. In August, 1985, Don Joaquin reinvested these funds in "book-entry" United States Treasury Bills (T-bills), using UNB as his broker in the purchase. The book-entry T-bills were purchased by Don Joaquin in the following manner. Don Joaquin gave UNB *964 the funds for purchasing the T-bills. UNB in turn purchased the T-bills from the Federal Reserve Bank in San Antonio, and the T-bills were held for Don Joaquin in UNB's T-bill account at the Federal Reserve Bank. To keep track of these uncertificated T-bills, UNB continued to use identification number 100-155 for the T-bills held in San Antonio for Don Joaquin. For this service, UNB charged Don Joaquin its standard $50.00 brokerage and custodial fee. UNB gave Don Joaquin a receipt, signed by a UNB officer, that identified the number and denomination of T-bills held for him, the maturity date, his identification number, and other relevant data, including a CUSIP number specifically identifying the bills held on his behalf. On the back of the receipt, UNB stated the terms and conditions of its custodial agreement with the customer. Don Joaquin was not required to and did not sign the receipt.
Don Joaquin instructed UNB that the funds held in the T-bills should be automatically reinvested on his behalf when they reached maturity. He also directed UNB to sell off a portion of the T-bills, approximating the increase in their value, as they neared their maturity date. These proceeds were deposited in his money market account # XX-XXX-X.
This pattern of activity in his account continued until early 1988. On May 5, 1988, Don Joaquin came to the Laredo office of UNB and requested that the T-bill custodial agreement be altered to designate Maria Ornelas Gutierrez as a "pay on death" (P.O.D.) beneficiary of the T-bill investment. UNB officer Jorge Garza explained the significance of this change to Don Joaquin, wrote out and signed an altered safekeeping receipt reflecting the arrangement, and delivered it to Don Joaquin. Later in the year, Don Joaquin again came to UNB's office and requested that Maria Tenorio Ornelas be added as a second P.O.D. beneficiary of the investment. The same process was followed, and the November 3, 1988 reinvestment receipt reflected this alteration.
On April 18, 1989, Don Joaquin died. UNB continued to reinvest the T-bill funds, delivering the receipts to Maria Ornelas Gutierrez and depositing the proceeds of the partial sales to the money market account. On December 6, 1989, Ornelas Gutierrez presented legal proof of Don Joaquin's death to UNB and directed that the T-bills be sold and the proceeds invested in United States Government securities under a repurchase agreement with UNB. UNB complied. The repurchase agreement is the disputed res held in the registry of this Court.
The Issue. Cuellar claims that the P.O.D. designation was inadequate as a matter of law and that the T-bills are the property of the decedent's estate. The Joint Claimants assert that they are entitled to the T-bills, exclusive of the estate, by reason of the P.O.D. designation. Defendant Cuellar argues that the T-bills were in a "P.O.D. account" with UNB, designated # 100-155, and that the validity of the P.O.D. designation is therefore governed by § 439 of Chapter XI of the Texas Probate Code, which regulates non-testamentary transfers of property. Tex.Prob. Code Ann. §§ 436-462 (Vernon 1980). More precisely, Cuellar contends that creation of a "P.O.D. account" under § 439(b) is controlled by the provisions of § 439(a) and thus, like the creation of a survivorship right in a "joint account," requires a writing and the signature of the deceased. See Stauffer v. Henderson, 801 S.W.2d 858, 862-63 (Tex.1990). This position is not entirely sound. Only subsection (a) of § 439 speaks of a writing signed by the decedent, and that subsection only applies to a "joint account." Under the definition in § 436(4) of the Code, # 100-155 was never a "joint account." It was never payable "on request to one or more of two or more parties." During the life of Don Joaquin, he was the sole owner of the T-bills. The Court concludes that # 100-155 was not directly controlled by § 439(a) of the Code. Nevertheless, if # 100-155 was an "account" under § 436(1), then it could not be changed to a P.O.D. account without a written order signed by Don Joaquin, because of the provisions of § 440 of the Code. The Joint Claimants assert that # 100-155 was not an "account" but rather *965 the identification number of a brokerage-custodial contract with a P.O.D. designation. Such an agreement would fall within the ambit of § 450 of the Code, governing nontestamentary transfers outside of "multiple-party accounts." Section 450, unlike § 439(a) and § 440, does not expressly require that a P.O.D. designation be signed by the party who dies.
Definition of "Account". The application of § 440 or § 450, therefore, depends on whether # 100-155 is an "account" under Chapter XI of the Probate Code. Section 436(1) of the Code states that:
`Account' means a contract of deposit of funds between a depositor and a financial institution, and includes a checking account, savings account, certificate of deposit, share account, and other like arrangement.
There is scarce guidance as to the precise scope of this definition. It is identical to the language of § 6-101 of the Uniform Probate Code; unfortunately, that code provides no notes or historical data elaborating on the textual definition of "account." Similar language is used to define "account" in Article 4 of the Uniform Commercial Code, U.C.C. § 4-104(1)(a) (1978), and the Texas Business and Commerce Code, Tex.Bus. & Com.Code Ann. § 4.104(a)(1) (Vernon 1968). Again, neither code provides further assistance in analyzing the definition.
The language of the definition suggests that the legislature intended to describe the typical debtor-creditor relationships established between banks and their customers when customers' funds are deposited, becoming an asset of the bank and creating a debt in favor of the customer. See 9 TEX. JUR.3d Banks and Other Financial Institutions § 153 (1980); 10 AM.JUR.2d Banks § 339 (1963).
Cuellar notes the existence of a signature card signed by Don Joaquin and suggests that it evidences a potential agreement between Don Joaquin and UNB for account # 100-155. That signature card has no P.O.D. designation. The summary judgment evidence refutes the contention that the T-bill arrangement was controlled by this signature card. The signature card in question is, save for Don Joaquin's signatures, completely blank no date, no account number, no notations. The affidavits and deposition testimony of three UNB officers, who either worked directly on Don Joaquin's account or were employed at UNB at the relevant times, indicate that the blank signature card was unknown to them and unrelated to "account # 100-155." Deposition of Rafael Gutierrez, pp. 40-42, Joint Motion for Summary Judgment (Joint Motion), Exhibit A; Affidavit of Jorge Garza, p. 4, Joint Motion, Exhibit B; Affidavit of Gerardo Gonzalez, p. 2, Joint Motion, Exhibit C. They testify that a signature card was not used at that time in performing "investment" services for bank customers, such as purchasing and acting as custodian for T-bills; instead, the receipt for such a transaction was sufficient and was the sole evidence of the transaction and nature of the holding. See, e.g., Affidavit of Gerardo Gonzalez, p. 7, Joint Motion, Exhibit C; see also Affidavit of George Berry, Joint Motion, Exhibit D (use of receipt as record of book-entry T-bill transactions, without signature card, is a common banking practice in Texas). The only summary judgment evidence that possibly ties the blank signature card to "account # 100-155" comes from Albert Cavazos, an employee of UNB and custodian of files relevant to this case. Cavazos refers to the investment transactions in T-bills as occurring in "account # 100-155" and first opined that the blank signature card applied to that "account." Deposition of Albert Cavazos, pp. 13, 17, Response to Joint Motion, Exhibit A. However, Cavazos is only the custodian of the file and was not employed at UNB at the time of the disputed transactions. Moreover, later in his deposition, Cavazos stated that he was "unsure" what account the card refers to and that it would be impossible to ascertain that information from the face of the card. Id. at 20. On this record, no reasonable fact-finder could conclude that the uncompleted signature card applied to the T-bill arrangement.
*966 In typical debtor-creditor relations between a bank and its depositors, deposited funds become assets of the bank and are carried on its books. See supra. The funds invested on Don Joaquin's behalf and the T-bills purchased for him did not become part of the assets and liabilities of UNB. Affidavit of Gerardo Gonzalez, p. 2, Joint Motion, Exhibit C.
The Joint Claimants' characterization of the investment transactions gains force when one considers the federal regulations governing the purchase of book-entry T-bills by banks on behalf of their customers. Part 350 of Title 31 of the Code of Federal Regulations regulates the issuance of and transactions in book-entry T-bills. 31 C.F.R. § 350.0-.18 (1990). Subpart B specifically governs book-entry T-bills handled by individual Reserve Banks of the Federal Reserve System. 31 C.F.R. § 350.2-.6 (1990). Under § 350.6, Reserve Banks, such as the Federal Reserve Bank of San Antonio, are "authorized to maintain book-entry Treasury bills for member banks [such as UNB] for bills the member banks hold ... for the account of their customers...." 31 C.F.R. § 350.6(a)(1) (1990). Section 350.6 suggests that such book-entry accounts at Reserve Banks
... may be established in such form or forms as customarily permitted by the [member bank] maintaining them. The recommended identification for each such account would include data to permit both customer identification by name, address and taxpayer identifying number, as well as a determination of the Treasury bills being held in such account by amount, maturity date and CUSIP number, and of transactions relating thereto.
31 C.F.R. § 350.6(a)(2) (1990). In addition, Part 450 of Title 17 of the Code of Federal Regulations sets the requirements to be met by "depository institutions," such as UNB, acting as custodians of government securities held on behalf of customers. 17 C.F.R. § 450.1-.5 (1990). Under § 450.4(b), a bank acting as custodian for a customer's securities "shall issue a confirmation or a safekeeping receipt for each security held ... [which] shall identify the issuer, maturity date, par amount and coupon rate of the security being confirmed. The confirmation may be supplied to the customer in any manner that complies with applicable Federal banking regulations." 17 C.F.R. § 450.4(b)(1) (1990). This regulatory scheme, examined along with the testimony of the UNB officers, points to the conclusion that the investment by UNB in book-entry T-bills on behalf of Don Joaquin was not an "account" as defined under § 436(1) of the Texas Probate Code, but rather was a brokerage-custodial agreement between UNB and Don Joaquin.
Applicability of § 450. Under § 450(a)(3) of the Probate Code, a provision in certain instruments to the effect that the property which is the subject of the instrument shall pass to a person designated by a decedent in the instrument shall be deemed non-testamentary and not be considered invalid under the Code. Several types of instruments are specifically mentioned, including insurance policies, employment contracts, bonds, mortgages, and promissory notes. That section also specifies a "deposit agreement," a "custodial agreement," and "any other written instrument effective as a contract." None of the listed categories are defined. The Court concludes that the several receipts issued by UNB to Don Joaquin as evidence of his purchased T-bills would fairly fit within the category of either a "deposit agreement" or a "custodial agreement." Moreover, under Texas law, the receipt would also constitute a "written instrument effective as a contract."
It is well settled in Texas law that, where a writing is signed by one party and the other party, though not signing the writing, acts upon, acquiesces in, or accepts the benefits of the agreement, a written contract binding on both parties is formed. See, e.g., Augusta Dev. Co. v. Fish Oil Well Serv., 761 S.W.2d 538, 544 (Tex. App. Corpus Christi, 1988, no writ); Rubin v. Polunsky, 366 S.W.2d 234, 236 (Tex.Civ.App. San Antonio, 1963, writ ref'd n.r.e.); Dowdell v. Ginsberg, 244 S.W.2d 265, 266 (Tex.Civ.App. Fort Worth, 1951, no writ); see also Dickerson v. Brooks, 727 S.W.2d 652, 654 (Tex.App. *967 Houston [1st Dist., 1987], writ ref'd n.r.e.). This same principle has been declared applicable to an ex parte receipt. See, Cox v. Jasper, 97 S.W.2d 530, 531 (Tex.Civ.App. Amarillo, 1936, no writ); 14 TEX.JUR.3d, Contracts, § 44 (1981). While Don Joaquin did not sign the receipts forming the basis of the brokerage and custodial agreement with UNB, he did acquiesce in and accept the benefits of them.
A closer question is whether the receipts named a person "designated by the decedent" to receive property upon his death. The undisputed summary judgment evidence is that the P.O.D. designation was added at the specific request of Don Joaquin, witnessed by several persons. Cuellar does not contest this evidence. Instead he points to the strong Texas policy of requiring a signature by the decedent in § 439(a) and suggests that it would be contrary to that policy to allow transfer of a large sum of money on a decedent's "oral instructions." The fact is, however, that §§ 439(a) and 440 explicitly require the signature of the decedent while § 450 does not. This indicates, at least, that the Texas Legislature knows how to require the signature of the decedent if it wishes to do so. Moreover, as stated in Stauffer v. Henderson, supra, there could be policy reasons why the legislature might require stricter standards for creating survivorship rights in a joint account. Persons have "very different reasons ... for opening joint accounts. It is not at all unusual for a person to deposit his or her funds into an account upon which another person is authorized to draw merely for the convenience of the depositor. The owner of the money intends only to facilitate disbursement of the funds for his or her own purposes, not to transfer title to the co-signator on the account." Stauffer, 801 S.W.2d at 861. Moreover, this Court is not writing on a clean slate. In a diversity case, this Court is required to follow Texas law as best as it can be ascertained from state legislation or court opinions. There is almost none of either such authority on this point. However, in Dickerson v. Brooks, 727 S.W.2d 652, 654 (Tex.App. Houston [1st Dist.], 1987, writ ref'd n.r.e.), the court applied § 450 to a promissory note payable to the decedent but not signed by her. The note provided, among other things, that in the event of the payee's death, the note was payable to two of her named heirs. The court observed that § 450 of the Texas Probate Code was "almost identical" to § 6-201 of the Uniform Probate Code (1969). It then held:
"The language of section 450(a) and the comment to section 6-201 indicate that such transactions are to be considered non-testamentary and that a signature of the decedent on the note indicating a testamentary intent is not necessary."
Id. at 654. Absent any contrary indication of Texas law, the Court must accept that proposition as binding. So doing, the Court observes that the result is not nearly as ominous as Cuellar suggests. Section 450 certainly does not prohibit the signature of the decedent and obviously a well-advised person would want to sign a § 450 provision simply to avoid this type of litigation. Further if there were any legitimate doubt that the decedent had actually designated a certain person to receive property upon his death, the issue would be tried like any other. In this case, however, there appears to be no legitimate doubt as to what Don Joaquin intended. That has been established through the uncontroverted testimony of bank employees who presumably have no reason to favor one claimant over the other. Cuellar is instead proposing a rule that would negate Don Joaquin's intent as a matter of law. The Court concludes that such a rule is not applicable in this case.
Cuellar also makes the curious argument that the receipt itself precludes a P.O.D. disposition. Printed near the top of each receipt was this phrase: "Not transferable by negotiation, assignment or otherwise." Cuellar contends that this language somehow supersedes an explicit P.O.D. designation typed on the face of the receipt. The Court must attempt to read any instrument in a manner which would avoid a nonsensical result. It would surely be nonsensical for UNB to create a document that in almost the same physical *968 location provides for a payment on death but then cancels that designation by providing for non-transferability. The court must conclude that the receipt was non-transferable only beyond the terms contained on its face.
Cuellar contends that the federal regulations governing Treasury bills invalidate the P.O.D. designation on the T-bills in question. Cuellar relies upon § 350.7(b)(1) of Title 31 of the Code of Federal Regulations which limits the "recordation" of book-entry T-bills to two forms, in one name or in two names. 31 C.F.R. § 350.7(b)(1) (1990). He argues that the designation of two P.O.D. beneficiaries along with Don Joaquin violates this regulation. Cuellar's position is without merit. Section 350.7 is included in Subpart C of Part 350. Subpart C specifically regulates book-entry T-bills issued directly by the U.S. Department of the Treasury. The T-bills here were purchased by a member bank of the Federal Reserve System, UNB, for one of its customers, from a Federal Reserve Branch Bank. Such a transaction is clearly governed by Subpart B of Part 350. Under § 350.6 of Subpart B, the identification of T-bill accounts held on behalf of the member bank's customers is expressly left up to the member bank and "may be established in such form ... as customarily permitted by the [member bank]." 31 C.F.R. § 350.6(a)(2) (1990).[2]
Conclusion. The P.O.D. designation on the last receipt issued to Don Joaquin by UNB is valid under § 450 of the Probate Code. Joint Claimants are GRANTED summary judgment. Cuellar's motion is DENIED. All parties are DIRECTED to confer forthwith to agree on the form of a judgment which should be filed no later than July 19, 1991. If agreement cannot be reached, the parties shall advise Court room Deputy Clerk Rosaura Rodriguez and a hearing shall be set.
NOTES
[1] A recent skirmish has developed over Cuellar's tendering the affidavits of Thelma L. Wells and Stanley M. Johanson as summary judgment evidence. The Joint Claimants urge that the affidavits be stricken as merely stating legal conclusions. That contention is probably correct. However, these documents basically just restate arguments made in several briefs filed by Cuellar and no useful purpose would be accomplished by purporting to strike them after they have been read by the Court.
[2] Joint Claimants cite various federal regulations which they argue would uphold their P.O.D. designation under federal law. Extensive treatment of these arguments is unwarranted in view of the Court's holding under § 450 of the Probate Code. It suffices to note that these regulations are a hodge-podge of contradictory directives that alternatively allow and forbid P.O.D. designations depending on the type of federal security instrument involved. None of them could be cogently read to override the treatment of uncertificated book-entry T-bills issued by Federal Reserve Branch Banks under 31 C.F.R. § 350.6.
|
394 F.Supp. 910 (1974)
Neil A. HOLMGREN, Individually and as Trustee for the North Dakota Workmen's Compensation Bureau, Plaintiff,
v.
MASSEY-FERGUSON, INC., a corporation, Defendant.
Civ. No. 4734.
United States District Court, D. North Dakota, Southeastern Division.
July 26, 1974.
*911 Odell M. Astrup, Fargo, N. D., Robert B. Ingram, Belli, Ashe, Ellison, Choulos & Lieff, San Francisco, Cal., Thomas William Malone, Albany, Ga., for plaintiff.
J. Gerald Nilles, Nilles, Hansen, Selbo, Magill & Davies, Ltd., Fargo, N. D., Ronald R. Pawlak, Southfield, Mich., for defendant.
MEMORANDUM AND ORDER
BENSON, Chief Judge.
This action involved an accident wherein Plaintiff, Neil A. Holmgren, became entangled in the auger of a Model #44 Massey Ferguson 4 row cornhead, which resulted in serious injuries to Plaintiff. Plaintiff brought this action for damages against defendant, Massey-Ferguson, Inc. Trial was to a jury and after plaintiff had rested, this Court granted the defendant's motion for a directed verdict of dismissal. Plaintiff has filed a timely motion for a new trial, pursuant to Rule 59(a), Federal Rules of Civil Procedure.
The Eighth Circuit has frequently noted that a motion for a new trial is addressed to the trial court's *912 sound discretion, within which the court is given wide latitude in determining whether such a motion should be granted. Sanden v. Mayo Clinic, 495 F.2d 221 (8th Cir. filed April 17, 1974); Fireman's Fund Insurance Co. v. Aalco Wrecking Co., Inc., 466 F.2d 179 (8th Cir. 1972), cert. den. 410 U.S. 930, 93 S.Ct. 1371, 35 L.Ed.2d 592 (1973); Farmers' Cooperative Elevator Association v. Strand, 382 F.2d 224 (8th Cir. 1967), cert. den. 389 U.S. 1014, 88 S.Ct. 589, 19 L.Ed.2d 659.
"Notwithstanding this broad latitude . . . there exist some boundaries to the exercise of the trial court's discretion in granting a new trial. . . ." Fireman's Fund Insurance Co., 466 F.2d at 186.
". . . Thus, it has been held that a trial judge should not grant a new trial merely because he believes another result would be more reasonable. Nor should a new trial be granted where there is no valid or useful purpose for submitting the case to another jury. . . .
"Regardless of the rhetoric used the true standard for granting a new trial on the basis of the weight of the evidence is simply one which measures the result in terms of whether a miscarriage of justice has occurred. When through judicial balancing the trial court determines that the first trial results in a miscarriage of justice, the court may order a new trial, otherwise not." Fireman's Fund Insurance Co., at 187 (Citations omitted).
A re-examination of the basis of plaintiff's case, the evidence presented by plaintiff, and the reasons for the directed verdict of dismissal, persuades this court that no useful purpose would be served in submitting plaintiff's action to another jury, and no miscarriage of justice has resulted in dismissal, for plaintiff, at the time he rested, had failed to establish a prima facie case of negligence or breach of warranty by defendant.
Briefly, plaintiff's evidence produced the following: On October 2, 1970, plaintiff was harvesting corn with the subject cornhead which was attached to a Model #510 Massey-Ferguson combine. At about 4:00 P.M. on that day, a corn stalk became lodged in one of the cornhead's right snapping rolls. Plaintiff stopped the combine, placing the transmission in neutral, and stepped from the combine's cab onto a railing on the rear of the cornhead and manually removed the offending cornstalk from the snapping roll without disengaging the power. Plaintiff testified that he had intended to disengage the power. Either he failed to do so or he did not pull the lever provided for disengaging the mechanism far enough, for when he ventured onto the cornhead rail, the table auger continued to turn. This was readily apparent to the plaintiff. In returning to the cab, the plaintiff's foot slipped when he attempted to step from the rail to the cab ladder, a distance of about four feet. His boot became caught in the auger mechanism and he was dragged into the auger causing injuries which resulted in the amputation of his right leg at the hip and his left leg at the knee. Plaintiff tried his action on the theories of negligence and breach of warranty.
The theories of negligence and implied warranty place the same duty upon the manufacturer of the cornhead, Massey Ferguson; namely, that the manufacturer design and manufacture the cornhead so as to make it reasonably safe for the purpose for which it was intended. Larsen v. General Motors Corporation, 391 F.2d 495 (8th Cir. 1968); Schneider v. Chrysler Motors Corporation, 401 F.2d 549 (8th Cir. 1968); Olson v. Artic Enterprises, Inc., 349 F.Supp. 761 (D.N.D.1972); Stromsodt v. Parke-Davis & Co., 257 F.Supp. 991 (D.N.D.1966); Lindenberg v. Folson, 138 N.W.2d 573 (N.D.1965). Plaintiff contended that defendant was negligent in designing and building a defective machine and placing it in the stream of commerce. Plaintiff alleged, particularly, *913 that defendant had breached the duty placed on it in producing a cornhead where (1) the slip clutch did not function, (2) the table auger was not shielded, and (3) the rear of the cornhead was not shielded.
Plaintiff called his expert witness, Dr. Robert N. McDougal, a mechanical engineer with a PHD, a professor in mechanical engineering at North Dakota State University, and a one time farmer. Dr. McDougal testified that the machine was defective in the three respects set forth above. On the matter of the slip clutch, he admitted he made no inquiry relative to the purpose of the slip clutch, but assumed the purpose was for the safety of the operator.[1] The Court will assume that the purpose of the slip clutch was for the safety of the operator. Those who had operated the combine cornhead from the time of its purchase testified that they had never seen the table auger slip clutch function. If it is assumed that it had never slipped to the time of the accident, no inference of defect could arise from that fact because there was no evidence that it had been subjected to a load sufficient to offset the torque setting. It is not possible to determine from the evidence what happened when Neil Holmgren fell into the auger. The evidence established that it was at least equally probable that a belt slipped before the load on either of the slip clutches on the cornhead reached the limit of the torque setting.
The cornhead had always been stored outside. Seventeen months after the accident, Dr. McDougal had the slip clutch removed and tested it. Out of the presence of the jury, he advised the Court that his testimony would be that the slip clutch failed to function, or seized, for either one of two equally probable reasons: (1) the design for tolerance was insufficient, or (2) atmospheric contamination rusting had caused the clutch to seize. There was no contention that atmospheric contamination could be charged to negligence of the defendant. Where either one of two equally probable causes, one of which is not the responsibility of the defendant, resulted in the injury and damages of which plaintiff complains, a prima facie case has not been established.
"In other words, if from the plaintiffs' evidence it is as probable that the injury and damage of which the plaintiff complains resulted from a cause for which the defendant is not responsible as it is that such injury and damages resulted from a cause for which the defendant would be responsible, a prima facie case of proximate cause has not been made and the plaintiff cannot recover, since plaintiff's recovery must be based upon more than mere speculation." Bismarck Baptist Church v. Wiedemann Industries, Inc., 201 N.W.2d 434 (N.D. 1972). See also United States Rubber Company v. Bauer, 319 F.2d 463 (8th Cir. 1963); Olson v. Artic Enterprises, Inc., 349 F.Supp. 761 (D.N.D. 1972); Ternes v. Farmers Union Central Exchange, 144 N.W.2d 386 (N.D. 1966).
The plaintiff did not offer any testimony on the results of Dr. McDougal's tests of the slip clutch, but Dr. McDougal expressed an opinion that the cornhead should have been equipped with a ratchet type clutch instead of a disc clutch, because the tolerance would not be nearly so critical and therefore not so subject to seizing.
The evidence was clear that the art of both types of clutches has been known for a long time. Dr. McDougal testified he has never designed either a ratchet or disc type clutch nor has he field tested either of them, nor has he read any technical journals or publications comparing cornheads equipped with ratchet type clutches with those equipped with disc clutches.
Dr. McDougal testified that the fact that the table auger and the back of the *914 cornhead were not shielded was the basis for his opinion that the cornhead was not reasonably safe. He admitted this was also unsupported by any experience, study, or tests, and he did not offer a suggested design. No evidence was offered that other manufacturers in the industry shielded the back of the cornhead, and no evidence was offered that a shield could feasibly be provided and still retain the function of the machine. Dr. McDougal testified that his opinion on the closed auger was based on his comparative studies. The evidence established that the comparative studies consisted of physical observation of other machines, examination of sales brochures where they could be obtained, and conversations with operators. Dr. McDougal admitted he was aware that the design of the John Deere cornhead was changed from a closed auger to an open auger design, but he didn't know why the change had been made.
This Court held as a matter of law that the jury could attach no credence to the opinion of Dr. McDougal as his testimony as an expert had no probative value, and the defendant was entitled to have the testimony stricken. No other evidence was offered to show that the cornhead was defective. Defendant argues that the Court erred in striking the testimony of plaintiff's expert, particularly in finding Dr. McDougal unqualified to express the expert opinions tendered, and in excluding certain tests performed by him. These tests involved thrusting a boot, with a stick inserted in the boot, into a moving auger.
The plaintiff contends the court erred, "in holding that the only expert which could offer an opinion entitled to consideration by the jury would be an agricultural design engineer." This Court did not so hold, and in referring to the absence of an agricultural design engineer, was merely indicating the type of expert that "could offer evidence that the cornhead was not reasonably safe for the purpose for which it was intended." It was deemed noteworthy by this Court that no qualified expert had been obtained in the two years of trial preparation. This court recognizes that simply because a particular expert is not a specialist in a particular field upon which his opinion encroaches does not bar him from expressing an opinion upon a subject commonly thought to be indigenous to that field. Moran v. Ford Motor Company, 476 F.2d 289 (8th Cir. 1973); Hill v. Gonzales, 454 F.2d 1201 (8th Cir. 1972); White v. United States, 399 F.2d 813 (8th Cir. 1968); Harris v. Smith, 372 F.2d 806 (8th Cir. 1967).
Generally, whether a witness is qualified to testify as an expert is within the sound discretion of the trial court. Moran v. Ford Motor Company, 476 F. 2d 289 (8th Cir. 1973); White v. United States, 399 F.2d 813 (8th Cir. 1968). However, a trial court should not be unduly restrictive in ruling upon the qualifications of experts, for as stated in Hoppe v. Midwest Conveyor Co., Inc., 485 F.2d 1196, 1202 (8th Cir. 1973):
"(a)n expert witness is called primarily to aid the trier of fact in understanding evidence which is of a highly technical nature. His testimony is appropriate when his unusual knowledge, by reason of skill, experience or education may lend meaningful insights and better comprehension of technical evidence. Here plaintiff's theory was based on dangerous design of a highly complicated piece of machinery. Liability alleged from defective design encompasses many factors not generally relevant to ordinary negligence in tort cases. The comparative design with similar and competitive machinery in the field, alternate designs and post accident modification of the machine, the frequency or infrequency of use of the same product without mishap, and the relative cost and feasibility in adopting other design, are all relevant to proof of defective design."
*915 As stated in Moran v. Ford Motor Company, 476 F.2d 289 (8th Cir. 1973),
"(t)he test is whether the witness' training and experience demonstrate a knowledge of the subject matter. And practical experience as well as academic training and credentials may be the basis of qualification." at 291. (citations omitted). See also Hoppe, Hill, White, and Harris.
Only when an expert is qualified does the trier of fact have the discretion to weigh his testimony as an expert.
In this case, under any criteria, Dr. McDougal was not qualified to express an opinion on the defective design of the cornhead concerning shielding or slip clutches. He had no peculiar expertise in the operational or safety design of farm machinery through experience, training or education. This is exemplified by his deficiencies concerning farm machinery design. He was not an agricultural engineer and he was not a member of the National Society of Agricultural Engineers.[2] He is not a member of the National Safety Council, and he testified that he was not familiar with its publications. While the Mechanical Engineering Department teaches machine design, he does not teach machine design although he may teach design concepts, and any knowledge of machine design was gained from courses he took as a student. He is not a design engineer in any field and has had no meaningful design experience as related to agricultural machines, particularly cornheads. He has never operated a cornhead, nor designed a cornhead on any agricultural machine. He has never run any tests on the safety functions of a cornhead. Dr. McDougal testified that he has never patented an invention, admitting he would not recognize a patent if he saw one. He is not familiar with any publication relating to cornhead design, and he testified that he is not specifically familiar with any of the standards of the industry, or the state of the art, as they existed in 1969 when the cornhead was manufactured.
In Hoppe, a strict liability case, the Eighth Circuit reversed a directed verdict for the defendant, stating that the court was unduly restrictive in excluding the plaintiff's expert testimony. A conveyor-hoist had been installed in the plant where Hoppe was employed. The hoist arms of the machine became locked due to a breakage of an electrical wire. Hoppe was directed to open the manual control valve in order to raise the arms such that an assembly line blocked by the hoist could be cleared. The manual control valve was located directly above the arms, about ten to twelve feet from the floor. Hoppe had to crawl over a girder extending above the machine to gain access to the valve. He had no prior experience with the machine and was not familiar with its movements. When Hoppe inserted a screwdriver into a slot marked "manual override" and turned the valve, his foot was crushed in the moving parts of the machine. Plaintiff's expert opined that the location of the manual control valve was unsafe because it was located near moving parts of the machine. The court reversed, noting that the expert was an "experienced design engineer". Dr. McDougal is not a design engineer, nor experienced in design.
In Moran, plaintiff was injured in a car accident. Plaintiff contended that the upper ball joint of the suspension system was defective, and that its separation caused his car to veer out of control. The trial court excluded plaintiff's expert from testifying as to certain matters. The Eighth Circuit reversed the trial court's directed verdict of dismissal.
"Plaintiff called as an expert witness Robert Stungis, an owner and operator of a body and fender shop. Stungis *916 had been in the auto repair business for eighteen years and had frequently examined wrecked cars. In doing so he had on many occasions inspected suspension systems to discover what parts were broken or worn, what had caused the damages and what pressures were exerted that might cause damage. He stated that he was familiar with the function and operation of a ball joint and that from his experience in the auto repair business he was able to recognize visible wear patterns on most automobile metal parts. Although the trial court allowed Stungis to point out wear that was readily observable, the trial judge did not permit him to testify whether the lower ball joint post was worn, whether the ball was set in the socket straight, whether the wear patterns were uniform, whether he could distinguish between a wear produced condition and one that was produced by an accident, or whether he had an opinion on how the wear occurred. The trial judge believed Stungis was `unquestionably qualified to do repair work' but he was not `qualified metalurgicallywise, or to demonstrate cause.'"
"In the instant case we believe Stungis possessed sufficient knowledge and practical experience to make him well qualified as an expert witness. The failure to permit his testimony resulted in prejudicial damage to plaintiff's attempt to prove causation." 476 F. 2d at 290-291.
Moran is distinguishable for it is well recognized that practicable experience is a good teacher. In Moran, the expert had frequently examined the allegedly defective part on the type of machine in question to determine whether the part had broken and the cause of the breakage. Here, the record is devoid of any evidence that Dr. McDougal has had any experience in the function of cornhead and its operational features, or safety and operational design relative to agricultural machinery, generally.
In Hill, plaintiff was injured when a doctor, in order to replace plaintiff's middle fingertips on her right hand with implanted prosthetic fingers, decided to make an impression of the fingers on her left hand as a guide, using a dental stone called Coecal to make the impressions. When immersing the plaintiff's fingers in the Coecal, they were burned, resulting in amputation of the middle fingers on her left hand. Plaintiff's expert, a dentist, testified that Coecal would not be suitable as an impression material on the human body because it would be too hard to remove and too dangerous. On appeal, the Eighth Circuit affirmed a jury verdict in favor of plaintiff, rejecting defendant's contention that the trial court abused its discretion in permitting a dentist to testify as to the effect of a substance in extraoral prosthetics. The court noted that plaintiff's expert had considerable experience as a prosthetic dentist, and had worked with Coecal and knew its characteristics. Again, Dr. McDougal has had no experience in designing agricultural machinery, has not worked with cornheads, and has shown no knowledge of the relevant characteristics thereof.
Finally, the following comment of Harris is relevant:
"In spite of this curative attempt to place the exclusion of Dr. Harris' expert testimony within an area where the trial court may exercise its discretion on admissibility whether an expert is qualified to express an opinion on a particular subject a careful reading of the record compels the conclusion that when Dr. Harris' testimony was offered it was not excluded because there was a failure to show that he had sufficient experience with the treatment of compound fractures, as is contended by the appellee but, rather, his testimony was excluded because, although he was a medical doctor, he was not an orthopedic specialist." 372 F.2d at 814.
*917 This Court has found that Dr. McDougal was not qualified to express an opinion on the particular subject germane to this case for he has had no experience with the design of machinery particularly cornheads, or any other machines or farm implements. His total design experience was the design of a implement tooth for Alloway Manufacturing Company.
Another point raised in plaintiff's motion merits comment, namely that this Court failed to apply the doctrine of Larsen v. General Motors Corporation, 391 F.2d 495 (8th Cir. 1968). Presumably, this refers to the question of foreseeability as to the use of the allegedly defective machine. Larsen stands for the proposition that certain misuses of a product are so frequent as to be foreseeable, and that manufacturers should anticipate such misuse in designing their machines. Such frequent misuses can be labeled an "intended misuse" of the product, and where a manufacturer does not build his product in view of such "intended misuse" it may be unreasonably dangerous, or unfit, for the purpose for which the product was intended. Thus, in Larsen automobile accidents were so frequent as to be foreseeable, and the manufacturer was under a duty to manufacture an automobile which was not unreasonably dangerous in such circumstances. An affirmative duty is placed on manufacturers. It is undisputed that the operator's manual and a decal on the cornhead directed that the cornhead be turned off while unclogging or repairing it. Plaintiff strongly urges that defendant should have foreseen that an operator would not follow the operating instructions, and that defendant should have reasonably anticipated that an operator would disregard the manual and the warnings on the machine and would attempt to clear a clogged machine without disengaging it or turning off the engine, and do so by walking across the top of the railing on back of the cornhead. The Larsen rule of foreseeable misuse is not in point here. There must be evidence that such misusage of the machine in question is so frequent as to be foreseeable, as in Larsen where statistical and expert data was produced to show that better than half of all automobiles manufactured are involved in accidents. Here, there was no evidence in the record from which the jury could find an operator customarily unclogs a machine in the manner plaintiff did; or while the machine was operating. Plaintiff's own testimony refutes his theory of foreseeability in that plaintiff testified he intended to turn off the power before attempting to unclog the machine and thought he had done so before leaving the combine cab. Plaintiff's father testified he had told plaintiff personally to turn off the machine and plaintiff testified he was aware of his father's warning and the reasons therefor.
In conclusion, there is no evidence that defendant negligently failed to design and manufacture a cornhead that met the standards of the industry and the state of the art that existed when the cornhead was placed in the stream of commerce. There is no evidence that the machine was defective in design or that there was any defect in material or workmanship. On the other hand, there is substantial evidence of contributory negligence, assumption of risk, and misuse of the product. The defendant was entitled to a directed verdict of dismissal.
It is ordered that plaintiff's motion for a new trial is denied.
NOTES
[1] The defendant's engineer testified its purpose was to protect the machinery from damage resulting from overload.
[2] A post trial affidavit of Dr. McDougal aserts that he has become a member of this society, but this does not qualify him as an expert in and of itself, nor does it overcome his lack of qualification to express an opinion in this case.
|
51 F.3d 284
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.Arthur S. WEST, Plaintiff-Appellant,v.Kenneth O. EIKENBERRY; Graham Johnson; Christine Gregoire;Patrick Sutherland; Patricia Firman, et al.,Defendants-Appellees.
No. 94-35412.
United States Court of Appeals, Ninth Circuit.
Submitted March 21, 1995.*Decided April 4, 1995.
Before: SNEED, POOLE and BRUNETTI, Circuit Judges.
1
MEMORANDUM**
2
Arthur S. West appeals pro se the district court's dismissal of his 42 U.S.C. Sec. 1983 civil rights action. He contends defendants engaged in official misconduct and failed to discharge their duties regarding allegations of unlawful campaign activities and misuse of public funds. We have jurisdiction under 28 U.S.C. Sec. 1291, and we affirm for the reasons stated in the district court's order granting the defendants' motions for summary judgment.
3
West raises numerous issues on appeal which were neither raised in his complaint nor considered by the district court. We decline to address these issues for the first time on appeal. See Green v. Christiansen, 732 F.2d 1397, 1400 n. 1 (9th Cir.1984).
4
Kenneth Eikenberry and the other state defendants request sanctions against West for bringing a frivolous appeal. Although we have the discretion to impose sanctions against litigants, even pro se, for bringing a frivolous appeal, Fed.R.App.P. 38; 28 U.S.C. Sec. 1912; Wilcox v. Commissioner, 848 F.2d 1007, 1008-09 (9th Cir.1988), we decline to do so in this instance.
5
AFFIRMED.
*
The panel unanimously finds this case suitable for decision without oral argument. 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
|
276 S.E.2d 313 (1981)
STATE of West Virginia
v.
Ricky REED.
No. 14271.
Supreme Court of Appeals of West Virginia.
March 17, 1981.
*315 Frankovitch & Anetakis and Carl N. Frankovitch, Weirton, for plaintiff in error.
Chauncey H. Browning, Atty. Gen., S. Clark Woodroe, Asst. Atty. Gen., Charleston, for defendant in error.
*314 NEELY, Justice:
In 1977 the defendant was indicted in Brooke County on one count of sexual assault in the second degree and two counts of sexual abuse in the first degree. After trial in the circuit court, the jury found the defendant not guilty of sexual assault in the second degree under the first count, but guilty of the lesser offense of sexual misconduct; guilty of sexual abuse in the first degree under the second count; and, not guilty of sexual abuse in the first degree under the third count. The defendant was sentenced to an indeterminate term of one to five years in the penitentiary for sexual abuse in the first degree and sentenced to one year in the Brooke County jail for sexual misconduct, the two sentences to run concurrently.
There is one event which is the gravamen of both convictions. On 26 November 1976 the victim, D. T., along with two friends, met at the victim's house at approximately *316 9:00 p. m. and then went to several clubs in the vicinity of Weirton. The victim first met the defendant at approximately 10:00 p. m. at the Starlite Club in Weirton. The defendant and the original trio then voluntarily spent the night until early in the morning in each other's company and after everyone had consumed substantial alcohol all voluntarily retired to the defendant's apartment sometime after 3:00 a. m. on the morning of 27 November.
Approximately half an hour after arrival at the defendant's apartment the victim asked the defendant to show her where the bathroom was. The bathroom was located off the bedroom and the defendant led the way to the bathroom. The victim's testimony was to the effect that when she came out of the bathroom the defendant was in the bedroom and grabbed her arm and initially asked her to stay in the bedroom to talk for awhile. When she declined the defendant threw her on the bed, forcibly removed her clothes, and had sexual intercourse with her.
The victim testified that she lost consciousness or "fainted" while she was in the bedroom and that when she awoke she had blood on her. Upon gaining consciousness she called for her companion, Debbie Sweat, who came into the bedroom, helped her dress, and then took her to the Weirton General Hospital. She was admitted to the hospital and was confined for approximately two weeks for a traumatic hematoma. The medical testimony confirms that the victim suffered a large hematoma to the outer vulva which was traumatic in origin.
I
The defendant assigns numerous errors which we shall address seriatim. First, the defendant asserts that the statutory offense of sexual abuse is void for vagueness. W.Va.Code, 61-8B-1 [1976] defines the term "sexual contact" as follows:
... any touching of the anus or any part of the sex organs of another person, or the breasts of a female eleven years old or older, where the victim is not married to the actor and the touching is done for the purpose of gratifying the sexual desire of either party.
The defendant asserts that the language "done for the purpose of gratifying the sexual desire of either party" is unconstitutionally vague because there is no definition of "sexual gratification" or "sexual desire". The Court finds this assignment of error entirely without merit since the terms "sexual gratification" and "sexual desire" are both plain and unambiguous on their face. We believe the words give any person of ordinary intelligence fair notice that his contemplated conduct is forbidden by statute. United States v. Harriss, 347 U.S. 612, 74 S.Ct. 808, 98 L.Ed. 989 (1954); State v. Flinn, W.Va., 208 S.E.2d 538 (1974).[1]
II
The defendant's second assignment of error is that the offenses of sexual assault in the second degree and sexual misconduct are indistinguishable since both require the same elements of proof. We must concede that the distinguishing element, namely the level of resistance, is tenuous at best; however, since there is a difference which a jury can understand under proper instruction we do not find the statute constitutionally *317 infirm on that ground. W.Va.Code, 61-8B-9 [1976], defines "sexual misconduct," a misdemeanor, as follows:
A person is guilty of sexual misconduct when he engages in sexual intercourse with another person without the latter's consent ...
The statute Code, 61-8B-4 [1976], defines the crime of sexual assault in second degree, a felony, in part as follows:
(a) A person is guilty of sexual assault in the second degree when: (1) He engages in sexual intercourse with another person by forcible compulsion.
The defendant asserts that the definition of "lack of consent" as applied to sexual misconduct is provided by Code, 61-8B-2 [1976] which says:
(b) Lack of consent results from:
(1) Forcible compulsion; or
(2) Incapacity to consent; or
(3) If the offense charged is sexual abuse, any circumstances in addition to the forcible compulsion or incapacity to consent in which the victim does not expressly or impliedly acquiesce in the actor's conduct.
(c) A person is deemed incapable of consent when he is:
(1) Less than sixteen years old; or
(2) Mentally defective; or
(3) Mentally incapacitated; or
(4) Physically helpless.
and that in the case before us there could have been no lack of consent without the use of force since the victim was over age, mentally competent, and fully conscious, at least at the outset. While the Court finds that the sexual offenses statute, Code, 61-8B-1 et seq. [1976] is not exactly a triumph of draftmanship, nonetheless, there is sufficient distinction between sexual assault in the second degree and sexual misconduct that they do, indeed, constitute separate offenses, although sexual misconduct can be a lesser included offense of sexual assault in the second degree.
Sexual misconduct excludes the possibility of forcible compulsion, but it does require a lack of consent. In this regard it is important to read W.Va.Code, 61-8B-1 [1976] which defines "forcible compulsion" as:
(a) Physical force that overcomes such earnest resistance as might reasonably be expected under the circumstances; or
(b) Threat or intimidation, expressed or implied, placing a person in fear of immediate death or bodily injury to himself or another person or in fear that he or another person will be kidnapped.
For the purposes of this definition "resistance" includes physical resistance or any clear communication of the victim's lack of consent.
The defendant asserts that the guilty verdict of sexual misconduct was inconsistent with the not guilty verdict of sexual assault in the second degree since the acquittal on the second degree sexual assault count constituted a finding that there was no forcible compulsion. However, the jury's finding can be interpreted as a determination that on the night of the incident the victim did not consent to have intercoursehence the verdict of "guilty of sexual misconduct," but did not resist strenuously enough to have been a victim of forcible compulsion hence not guilty of sexual assault in second degree and assault and battery.
It was apparently the intention of the Legislature to provide a statutory scheme by which a jury will have an opportunity to assess differing levels of culpability in the highly subjective area of sexual offenses, and punish each accordingly. Thus it created two separate crimes, the first, sexual assault in the second degree where the victim uses all reasonable means available to her to discourage her assailant, and second, sexual misconduct, where the victim does not, in fact, consent, but fails to avail herself of all the resources available to her to overcome the attack. While it may appear to the Court that this is a distinction without a difference, nonetheless, we are compelled to exhaust every reasonable interpretation of the statute before concluding that the statute is unconstitutional. State ex rel. Kanawha County v. Paterno, W.Va., 233 S.E.2d 332 (1977); Herold v. McQueen, 71 W.Va. 43, 75 S.E. 313 (1912).
*318 In fact, all the Legislature has done, albeit inartfully, is to recognize the historic reluctance on the part of juries to acquiesce in convictions involving very long prison terms for sexual offenses committed in the course of voluntary companionship. The lesser included offense of sexual misconduct almost constitutes a finding of sexual assault with something akin to a recommendation of mercy. While it can be argued that this scheme accords a jury an impermissible degree of latitude in applying subjective standards, it hardly differs in effect from the historically legitimized definitions of varying degrees of homicide. Certainly the concept of "malice" as it relates to the difference between second degree murder and voluntary manslaughter is nothing more than a linguistic shorthand to invite a jury to assess differing levels of culpability and punish accordingly. Some latitude in the assessment of punishment is inherently part of the jury system and it will inevitably be accomplished by some explicit or implicit device.
III
The defendant next asserts that the court erred in permitting the State to inquire into the physical appearance of the defendant at or near the time of the alleged offense. Apparently the defendant had long hair and a generally unkempt appearance at the time of the alleged offense while he appeared in court in an entirely different guise. Since there was no issue of identification raised during the trial and since the introduction of the photograph of the defendant was exclusively for the purpose of adding credence to the testimony regarding the generally bizarre nature of the defendant's apartment and his conduct, we find the introduction of the photograph irrelevant and prejudicial since it was calculated to exacerbate the prejudices of the jury.
We have always held that the admission of photographs rests in the sound discretion of the trial court and that its rulings will be upheld unless there is a clear showing of abuse of discretion. State v. Woolridge, 129 W.Va. 448, 40 S.E.2d 899 (1946). However, to be admissible photographs must be offered for some relevant purpose and must have probative value which outweighs any prejudicial effect. Mindful of our rule that the introduction of photographs is controlled very largely by the discretion of the trial judge, particularly when objection to the admission rests solely upon undue prejudice, State v. Sette, W.Va., 242 S.E.2d 464 (1978); State v. Whitt, 129 W.Va. 187, 40 S.E.2d 319 (1946), we would not find this error alone to be reversible.[2] Were we considering admission of a "mug shot" for example, which had little relevance and little probative value, our decision would be different.
IV
Next the defendant contends that he was entitled to an instruction that the victim's prior sexual activities could not be admitted into evidence and that the jury should draw no conclusions from the defendant's failure to elicit testimony on this subject. However, the defendant was accorded an in camera hearing as suggested by State v. Green, W.Va., 260 S.E.2d 257 (1979) and the trial court determined that the victim's past sexual history would bear no relevance to the question of guilt in the prosecution of this case. Since the guidelines of State v. Green, supra were met, the subject of the victim's past sexual history had no bearing on the outcome of the case and the defendant was not entitled to any instruction on the subject.
V
The defendant asserts that his conviction for two separate crimes, namely sexual *319 abuse in the first degree and sexual misconduct, as the result of one single criminal transaction is unconstitutional under the double jeopardy clauses of both Federal and State constitutions. We agree with the defendant since there is no evidence of two distinct acts of intercourse separated by even a few minutes; it is clear from the evidence that the defendant's sexual contact under the sexual abuse in the first degree count of the indictment was entirely ancillary to the consummation of the alleged sexual intercourse for which he was convicted of sexual misconduct.[3] Double jeopardy clearly bars conviction for a lesser offense when the accused has been convicted of the greater offense. Jeffers v. United States, 432 U.S. 137, 97 S.Ct. 2207, 53 L.Ed.2d 168 (1977).
With the enactment of the Sexual Offenses Act, the Legislature replaced a variety of obsolete statutory provisions[4] relating to sex crimes with a unified statute which faithfully reflected more contemporary understanding of criminal sexual conduct. The new statute represents an effort to refine differing levels of culpability in criminal sexual conduct. Recognizing that some forms of criminal sexual conduct are more heinous than others, the Legislature established two categories, namely sexual assault which includes three degrees of illegal sexual intercourse and sexual abuse which includes three degrees of sexual contact. Each degree is differentiated by the nature of the conduct and the nature of the victim. A final category, sexual misconduct, covers sexual assaults without the victim's consent, but under circumstances where the victim has not earnestly resisted.
A careful reading of the sexual offenses statute indicates that some offenses, like sexual abuse in the second degree, an offense applicable only to sexual contact with a person who is mentally defective or mentally incapacitated, are quite specific and, therefore, are not lesser included offenses to any of the other enumerated offenses. Some sections of the article, however, are obviously lesser offenses included within greater crimes created by other sections of the article. The defendant was indicted for sexual assault in the second degree, the second highest crime for which the article provides, and under the evidence admitted in the trial before us he could have been convicted of several lesser included offenses. There is no issue in the case before us of the victim being under age, mentally defective, or incapacitated; therefore, offenses which would require those elements are obviously not among the lesser included offenses in this case.
To find otherwise, we must conclude that when the Legislature sought to strengthen the laws against sexual violence, they intended that a single act of sexual intercourse might result in multiple convictions. Since many statutory crimes are duplicative, it is well established that separate statutory crimes may be the "same offense" *320 under the double jeopardy clause, even though they are not identical in either constituent elements or actual proof. Brown v. Ohio, 432 U.S. 161, 97 S.Ct. 2221, 53 L.Ed.2d 187 (1977). Each case ultimately turns upon whether the Legislature intended an act to be punished by only one or by more than one statutory provision. Gore v. United States, 357 U.S. 386, 78 S.Ct. 1280, 2 L.Ed.2d 1405 (1958). Unfortunately, it is rarely possible to divine legislative intent from explicit provisions on the subject of multiple crimes since the Legislature rarely addresses the issue directly. Gore v. United States, supra at 394, 78 S.Ct. at 1285 (Warren, C. J. dissenting). As a consequence, courts are required to construct elaborate tests to determine whether separate statutory crimes are the "same offense." Blockburger v. United States, 284 U.S. 299, 52 S.Ct. 180, 76 L.Ed. 306 (1932).[5] Where, however, we do not perceive any legislative intent that proof of one or more circumstances of sexual assault should transform one crime into many, it is unnecessary to apply the double jeopardy tests. Although the statute is not phrased in the alternative, we are of the opinion that the Legislature intended merely that there be various gradations in criminal sexual conduct. Certainly the rule of lenity, Bell v. United States, 349 U.S. 81, 83, 75 S.Ct. 620, 99 L.Ed. 905 (1955), requires this result in the absence of a clear legislative intent to the contrary.
Under the indictment for sexual assault in the second degree the defendant could have been convicted of: (1) sexual assault in the second degree if the jury believed that he engaged in sexual intercourse by forcible compulsion; (2) sexual abuse in the first degree if the jury believed that he engaged in sexual contact by forcible compulsion, but never consummated the sexual intercourse; and, finally, sexual misconduct if the jury believed that he did engage in sexual intercourse without the consent of the victim but without using such forcible compulsion as would have overcome "earnest resistance as might reasonably be expected under the circumstances."
Since the evidence before the trial court indicated but one continuing sexual offense transpiring over the course of approximately fifteen minutes and culminating in sexual intercourse, we find that it was reversible error for the court to have provided a verdict form which permitted the following guilty verdicts: guilty of sexual assault in the second degree or guilty of sexual misconduct or guilty of assault and battery under count one; guilty of sexual abuse under count two; and, guilty of sexual abuse under count three. The jury should have been instructed that they could find the defendant guilty of any one of the following in descending order of severity as follows: guilty of sexual assault in the second degree; guilty of sexual abuse in the first degree; guilty of sexual misconduct; or, guilty of assault and battery. It is important to explain that this holding is limited to the facts of this case. Here the sexual contact demonstrated at trial was ancillary to one act of sexual intercourse. We are not confronted with two acts of sexual intercourse, nor are we confronted with an act of sexual intercourse and then an act of sexual contact separated by some period of time.[6] It would appear to the court that unlawful sexual intercourse could not possibly occur without a certain amount of unlawful sexual contact and it seems unreasonable to us that the Legislature contemplated the division of one act of rape into its component elements for the purposes of punishment.
*321 Accordingly, for the reasons set forth above the judgment of the Circuit Court of Brooke County is reversed and the case is remanded for a new trial.
Reversed and remanded.
NOTES
[1] The United States Supreme Court has sustained at least two state statutes covering criminal sexual conduct against charges that they were unconstitutionally vague. In Rose v. Locke, 423 U.S. 48, 96 S.Ct. 243, 46 L.Ed.2d 185 (1975), a Tennessee statute proscribing "crimes against nature" was held not unconstitutionally vague as applied to cunnilingus and in Wainwright v. Stone, 414 U.S. 21, 94 S.Ct. 190, 38 L.Ed.2d 179 (1973) the Court upheld a Florida statute proscribing "the abominable and detestable crime against nature" as applied to copulation per os and per anum, despite the fact that the Florida State Supreme Court had recently changed its mind about the statute's permissible scope. Numerous state courts have recently sustained vagueness challenges against their state criminal sexual conduct statutes. See, e. g. State v. Larson, 94 N.M. 795, 617 P.2d 1310 (1980); Weddle v. Wyoming, 621 P.2d 231 (Wyo.1980); State v. Kennedy, 616 P.2d 594 (Utah 1980); Gates v. State, 91 Wis.2d 512, 283 N.W.2d 474 (1979); People v. Clark, 85 Mich.App. 96, 270 N.W.2d 717 (1978).
[2] Our research revealed no other state court that found a photograph depicting the accused with long hair, in contrast to clean-cut appearance in court, to be reversible error. See, e. g. State v. Ostrand, 219 N.W.2d 509 (Iowa 1974) (photograph showing defendant with long hair at time of sale of marijuana was held not reversible error); State v. Lippi, 108 Ariz. 342, 498 P.2d 209 (1972) (admission of photograph of defendant with long hair had little probative value but held not reversible error); and Dozier v. State, 257 So.2d 857 (Miss.1972) (admission of photograph showing accused with long hair not improper).
[3] Our research revealed that over the past decade states that have considered similar charges of double jeopardy under the applicable sexual offense statute have generally concluded that the defendant cannot be convicted of lesser offenses along with the greater offense. See People v. Johnson, 406 Mich. 320, 279 N.W.2d 534 (1979) (single sexual penetration cannot result in multiple convictions); David v. Commonwealth, 561 S.W.2d 91 (Ky.1978) (acquittal on charge of detaining woman against her will precludes subsequent conviction for rape); State v. Anonymous, 31 Conn.Sup. 292, 396 A.2d 136 (1974) (conviction for sexual contact in third degree barred subsequent prosecution for rape and risk of injury to minor child); State v. Lamb, 251 Ark. 999, 476 S.W.2d 7 (1972) (acquittal on one degree of rape barred subsequent prosecution for rape of another degree); People v. Moran, 33 Cal.App.3d 724, 109 Cal.Rptr. 287 (1973) (defendant could not be convicted both of rape and of lesser included offense of assault with intent to commit rape). But see State v. Gilchrest, 25 Wash.App. 427, 607 P.2d 1243 (1980) (indecent liberties held not to be a lesser included offense of rape); and People v. Nelson, 79 Mich.App. 303, 261 N.W.2d 299 (1977) (defendant convicted on four counts of criminal sexual conduct for single act, but this holding virtually overruled in People v. Johnson, supra).
[4] W.Va.Code, 61-8B-1 [1976] replaced the following sections of the W.Va.Code: 61-2-15 [1965] and 61-2-15a [1969] (rape; age of consent; carnal knowledge of male person); 61-8-13 [1923] (crimes against nature); and, 61-8-28 (indecent exposure).
[5] Under Blockburger, supra "the applicable rule is that where the same act or transaction constitutes a violation of two distinct provisions, the test to be applied to determine whether there are two offenses or only one, is whether each provision requires proof of a fact which the other does not." 284 U.S. at 304, 52 S.Ct. at 182.
[6] See, e. g. Hamill v. State, 602 P.2d 1212 (Wyo.1979) (defendant convicted for multiple counts of sexual assault when a number of acts were committed); Commonwealth v. Romanoff, 258 Pa.Super. 452, 392 A.2d 881 (1978) (not double jeopardy when one act resulted in conviction for involuntary deviate sexual intercourse and another act resulted in conviction for rape.)
|
746 F.2d 1480
U.S.v.Clark (Marvin)
NO. 84-1091
United States Court of Appeals,sixth Circuit.
SEP 11, 1984
1
Appeal From: E.D.Mich.
2
AFFIRMED.
|
712 S.W.2d 499 (1986)
Dennis Michael McCAMBRIDGE, Appellant,
v.
The STATE of Texas, Appellee.
No. 1086-85.
Court of Criminal Appeals of Texas, En Banc.
May 14, 1986.
*500 J. Gary Trichter, Houston, for appellant.
John B. Holmes, Jr., Dist. Atty. and James C. Brough and Jon Munier, Asst. Dist. Attys., Houston, Robert Huttash, State's Atty., Austin, for the State.
Before the court en banc.
OPINION ON APPELLANT'S PETITION FOR DISCRETIONARY REVIEW
CAMPBELL, Judge.
Appellant was convicted on a plea of guilty of the offense of driving while intoxicated. Punishment was assessed at six months confinement in jail and a $200.00 fine, probated for two years. The First Court of Appeals affirmed the conviction, holding that the trial court properly denied appellant's motion to suppress the results of his intoxilyzer test. McCambridge v. State, 698 S.W.2d 390, (Tex.App.Houston [1st] 1985). We granted appellant's petition for discretionary review to decide 1) whether appellant had a right to counsel[1] before deciding to provide a breath sample for an intoxilyzer test, and 2) whether the State's use of appellant's breath sample, obtained after appellant responded to Miranda warnings with a request for counsel, violated the prophylactic safeguards established by Miranda v. Arizona, 384 U.S. 436, 86 S.Ct. 1602, 16 L.Ed.2d 694 (1966), and Edwards v. Arizona, 451 U.S. 477, 101 S.Ct. 1880, 68 L.Ed.2d 378 (1981).[2] We remand.
Appellant was arrested on May 21, 1984, at approximately 11 p.m., by two Houston police officers for suspicion of driving while intoxicated. At the scene of his arrest, appellant requested an attorney. The arresting officers told appellant he would have to wait until he was downtown before receiving the aid of an attorney. Appellant was then transported to the Houston Police Department and taken to a videotaping room. See V.A.C.S., art. 6701l-1 note, (Supp.1986). Videotaping began, and appellant was given Miranda warnings in the presence of three police officers. Appellant responded by stating that he wanted to consult with his attorney. Appellant was given an opportunity to contact an attorney by telephone. However, his attempt was unsuccessful.[3]
After appellant completed his phone call, the police officers resumed questioning appellant. Appellant again requested that an attorney be present. The officers granted appellant another opportunity to contact an attorney. Appellant attempted to re-call *501 his wife, but the line was busy. An officer then resumed questioning appellant. Appellant again asked for an attorney, but the questioning continued. Appellant requested counsel seven more times, but questioning continued.[4]
Upon appellant's eleventh request for an attorney, the officers abruptly concluded the videotaping of appellant and took appellant outside the videotaping room and into the hallway. While in the hallway, appellant was asked repeatedly whether he would provide a breath sample to determine alcohol concentration. See V.A.C.S., art. 670l-5, § 1 (Supp.1986). Appellant continued to request an attorney. After five to ten minutes, appellant agreed to provide a breath sample for use in an intoxilyzer test.
Prior to taking a breath sample from appellant, an intoxilyzer operator advised appellant of the required statutory breath test warnings.[5] Appellant again agreed to provide a breath sample, stating to the intoxilyzer operator that "he would then take the test because of the [concern over losing his] driver's license."[6] On May 22, 1984, at 2:24 a.m., a complaint and an information were filed against appellant, charging him with driving while intoxicated. See Arts. 2.04 & 2.05, V.A.C.C.P.
Before trial, appellant sought to suppress the videotape of his arrest and the results of the breath test. At the conclusion of the hearing on appellant's motion to suppress, the trial court suppressed the audio portion of the videotape. The trial court overruled appellant's motion to suppress as it applied to the remainder of the videotape and the results of the intoxilyzer test. Appellant then pled guilty with the agreement that he could appeal the trial court's order.[7] See Art. 44.02, V.A.C.C.P.; Morgan v. State, 688 S.W.2d 504 (Tex.Cr. App.1985).
I. Right to Counsel
Relying upon three Supreme Court cases,[8] the Court of Appeals overruled appellant's first ground of error, in which appellant argued that he had a right to counsel before deciding whether to provide a breath sample for an intoxilyzer test. McCambridge, supra, at 394.[9] Although *502 the Court of Appeals did not explicitly state that it was only addressing a particular federal constitutional provision, given the court's reliance on the above Supreme Court opinions, it is clear that the decision to affirm was grounded upon appellant's argument that he had a Sixth Amendment right to counsel.[10] Appellant's remaining federal and state constitutional arguments claiming a right to counsel were left unaddressed.
This Court recently held that the right to counsel under the Sixth Amendment attaches only upon or after formal initiation of judicial proceedings. Forte v. State, 707 S.W.2d 89, 91 (Tex.Cr.App.1986). Therefore, our determination in the instant case whether the Court of Appeals correctly decided that appellant was not denied his Sixth Amendment right to counsel only depends upon when formal adversary proceedings were initiated. Id.[11]
Appellant was arrested at approximately 11 p.m. on May 21, 1984. Appellant then provided the police with a breath sample prior to a complaint and an information being filed at 2:42 a.m. on May 22, 1984, thus charging appellant with driving while intoxicated. Appellant's Sixth Amendment right to counsel did not attach until the complaint and information were filed. See Forte, supra, at 92. Therefore, we find no denial of appellant's Sixth Amendment right to counsel.
As we noted earlier, appellant also argued to the Court of Appeals that his right to counsel was denied under the "right to counsel" provision of the state constitution, Tex. Const. art. I, § 10, the Due Process Clause, U.S. Const. amend. XIV, and the Due Course of Law Clause, Tex. Const. art. I, § 19.[12] In his supplemental brief, appellant requests that we decide the instant case on the basis of independent state constitutional *503 authority. We decline to do so at this point because the Court of Appeals affirmed appellant's conviction only on the basis that his Sixth Amendment right to counsel was not denied. Therefore, in order to give the Court of Appeals an opportunity to address all of appellant's constitutional arguments before this Court decides such an important question of state law, we will remand the case for consideration of appellant's remaining state and federal constitutional arguments in his first ground of error. See generally Eisenhauer v. State, 678 S.W.2d 947 (Tex.Cr. App.1984). However, we must first determine whether appellant's remaining ground of review, based on a Miranda violation, has merit.
II. Violation of Miranda and Edwards.
The Court of Appeals overruled appellant's third ground of error, which claimed that police officers violated the prophylactic safeguards of Miranda v. Arizona, supra, and Edwards v. Arizona, supra, by continuing to ask appellant for a breath sample despite his request for counsel. In holding that no violation had occurred, the Court of Appeals relied upon, inter alia, Schmerber v. California, supra, and South Dakota v. Neville, 459 U.S. 553, 103 S.Ct. 916, 74 L.Ed.2d 748 (1983).
In Schmerber v. California, supra, a blood sample was extracted from a defendant by a physician without the defendant's consent. The defendant claimed that his Fifth Amendment privilege against self-incrimination was violated.[13] The Supreme Court first noted that, generally, "the privilege is a bar against compelling `communications' or `testimony,' but ... compulsion which makes a suspect or accused the source of `real or physical evidence' does not violate it." Id., 384 U.S. at 764, 86 S.Ct. at 1832. The Court then held that neither the extraction of blood nor the subsequent chemical analysis of the blood for alcohol concentration required appellant to testimonially incriminate himself in violation of the Fifth Amendment. 384 U.S. at 765, 86 S.Ct. at 1833. In its holding, the Court acknowledged that the defendant was compelled to provide a sample of his blood. Id. However, the Court held that the Fifth Amendment privilege against self-incrimination does not protect all types of compulsiononly compulsion directed at producing evidence from a defendant's own mouth. Id. That Court did not address whether the Miranda warning requirement was affected by the absence of a Fifth Amendment privilege against self-incrimination.
This Court has subsequently analogized the extraction of blood in Schmerber v. California, supra, to the collection of a breath sample. Rodriguez v. State, 631 S.W.2d 515, 517 (Tex.Cr.App.1982). In doing so, we held that providing a breath sample for chemical analysis of alcohol concentration is not a testimonial communication protected by the privilege against self-incrimination under the Fifth Amendment. Id. In the absence of any need to protect a defendant's privilege against self-incrimination, we further held that police officers are not required to give a suspect Miranda warnings prior to asking him to provide a breath sample. Id.
In South Dakota v. Neville, supra, a defendant's refusal to participate in a blood-alcohol test was used as substantive evidence against him at his trial. The defendant argued, inter alia, that the use of the refusal against him at his trial violated his Fifth Amendment privilege against self-incrimination. The Supreme Court avoided the notion that Neville's refusal was a physical act rather than a testimonial act, id., 459 U.S. at 561-62, 103 S.Ct. at 921-22, relying instead on the freedom of the defendant to refuse the test,[14] and held that his choice of refusal was "not an act coerced by the officer, and thus is not protected by the privilege against self-incrimination." *504 Id., 459 U.S. at 564, 103 S.Ct. at 923.
In South Dakota v. Neville, the Court also decided whether Miranda protections extended to a defendant's decision whether to provide a blood sample for chemical analysis. The Court stated:
In the context of an arrest for driving while intoxicated, a police inquiry of whether the suspect will take a blood-alcohol test is not an interrogation within the meaning of Miranda. As we stated in Rhode Island v. Innis, 446 U.S. 291, 301, 100 S.Ct. 1682, 1689, 64 L.Ed.2d 297 (1980), police words or actions "normally attendant to arrest and custody" do not constitute interrogation. The police inquiry here is highly regulated by state law, and is presented in virtually the same words to all suspects.[[15]] It is similar to a police request to submit to fingerprinting or photography. Respondent's choice of refusal thus enjoys no prophylactic Miranda protection outside the basic Fifth Amendment protection. See generally Arenella, Schmerber and the Privilege Against Self-Incrimination: A Reappraisal, 20 Am.Crim.L.Rev. 31, 56-58 (1982).
South Dakota v. Neville, 459 U.S., at 564, n. 15, 103 S.Ct., at 923, n. 15. Thus, a defendant, when faced with a decision whether to provide a breath or blood sample for chemical analysis of alcohol concentration, see V.A.C.S., art. 6701l-5, § 1, may not avoid making a decision by invoking the protection of the Fifth Amendment privilege against self-incrimination or the prophylactic safeguards of Miranda.[16]
Appellant, in his petition for discretionary review, acknowledges that Miranda warnings are not required before police may ask a suspect to provide a breath sample. In fact, appellant concedes that he never intended to argue to the Court of Appeals that Miranda warnings were required. Instead, appellant argues that the right to counsel under Miranda, though not initially required, must be applied in the instant case because the police did inform appellant that he had a right to have counsel present during "questioning." In appellant's words, "[i]t is one thing to not require the warnings be given by police because the chemical test does not equate to testimonial communication, but it is an entirely different matter where the warnings are given by police, then invoked by a defendant and thereafter deliberately ignored by police" (emphasis supplied by appellant). We disagree.
The Supreme Court recently reviewed the basis for its decision in Miranda v. Arizona:
In Miranda v. Arizona, the Court recognized that custodial interrogations, by their very nature, generate "compelling pressures which work to undermine the individual's will to resist and to compel him to speak where he would not otherwise do so freely." 384 U.S., at 467 [86 S.Ct. at 1624]. To combat this inherent compulsion, and thereby protect the Fifth Amendment privilege against self incrimination, Miranda imposed on the police an obligation to follow certain procedures in their dealing with the accused. In particular, prior to the initiation of questioning, they must fully apprise the *505 suspect of the state's intention to use his statements to secure a conviction, and must inform him of his rights to remain silent and to "have counsel present ... if [he] so desires." Id., at 468-470 [86 S.Ct. at 1624-1626]. Beyond this duty to inform, Miranda requires that the police respect the accused's decision to exercise the rights outlined in the warnings. "If the individual indicates in any manner, at any time prior to or during questioning, that he wishes to remain silent, [or if he] states that he wants an attorney, the interrogation must cease." Miranda, 384 U.S., at 473-474 [86 S.Ct. at 1627]. See also Edwards v. Arizona, 451 U.S. 477, 101 S.Ct. 1880, 68 L.Ed.2d 378 (1981).
Moran v. Burbine, ___ U.S. ___, ___, 106 S.Ct. 1135, 1140-1141, 89 L.Ed.2d 410 (1986).
The Supreme Court also recently reviewed the basis for its decision in Edwards v. Arizona:
In Edwards v. Arizona, 451 U.S. 477 [101 S.Ct. 1880, 68 L.Ed.2d 378] (1981), we held that an accused person in custody who has "expressed his desire to deal with police only through counsel, is not subject to further interrogation by the authorities until counsel has been made available to him, unless the accused himself initiates further communication, exchanges, or conversations with the police." Id., at 484-485 [101 S.Ct. at 1884-1885]. In Solem v. Stumes, 465 U.S. 638 [104 S.Ct. 1338, 79 L.Ed.2d 579] (1984), we reiterated that "Edwards established a bright-line rule to safeguard pre-existing rights," id., at 646 [104 S.Ct. at 1343][;] "once a suspect has invoked the right to counsel, any subsequent conversation must be initiated by him." Id., at 641 [104 S.Ct. at 1340].
Michigan v. Jackson, ___ U.S. ___, 106 S.Ct. 1404, 89 L.Ed.2d 631 (1986).
In summarizing the rationales of Miranda v. Arizona, supra, and Edwards v. Arizona, supra, the Supreme Court has continued to emphasize that Miranda protections are aimed at dissipating the inherently coercive atmosphere associated with custodial interrogations. Miranda warnings inform a suspect of the procedural tools available to him in the face of coercive interrogation. One of those tools is the right to request a lawyer, thus allowing a defendant to end the interrogation or guarantee the assistance of a third party. Therefore, "[t]he Fifth Amendment right identified in Miranda is the right to have counsel present at any custodial interrogation." Edwards v. Arizona, 451 U.S., at 486, 101 S.Ct., at 1885.
In the instant case, police officers complied with the requirements of Miranda v. Arizona, supra, and Edwards v. Arizona, supra. The trial court did suppress the audio portion of the videotape, finding that the police officers continued to "question" appellant after he invoked his right to counsel. However, there is nothing in the record to indicate that the continued questioning of appellant constituted "interrogation" within the meaning of Miranda or that the questions resulted in any incriminating response by appellant. The only evidence of the content of that questioning came from appellant during the hearing on his motion to suppress. Appellant testified, "They continued to question me." Although the videotape of police officers questioning appellant might provide more revealing evidence of the nature of the questioning, it has not been included in the record on appeal. We are bound by the record on appeal as presented to us. Evans v. State, 622 S.W.2d 866 (Tex.Cr.App. 1981). Given the record presented to this Court, appellant has not shown that he was ever interrogated within the meaning of Miranda. Questioning "normally attendant to arrest and custody" is not interrogation. Rhode Island v. Innis, supra. Therefore, there is no evidence in the record to support the conclusion that the police officers ignored appellant's right to have counsel present for custodial interrogation.
We acknowledge that the legal distinction between questioning that amounts to interrogation and questioning that is "normally *506 attendant to arrest and custody" may not always be readily apparent. See Rhode Island v. Innis, supra; Paez v. State, 681 S.W.2d 34, 36 (Tex.Cr.App.1984). In an arrest for driving while intoxicated, police may create some additional confusion by giving Miranda warnings without informing a defendant that those warnings do not apply to his decision whether to provide a breath sample. However, given the instant facts, the remedy for such confusion cannot be found in Miranda or Edwards.[17]
Appellant argues that, even if Miranda warnings do not presently provide protection under the instant circumstances, the prophylactic safeguards of Miranda and Edwards should be extended to prevent a suspect's confusion in a breath test situation. Specifically, appellant argues that Edwards v. Arizona, supra, should be extended to require that police cease questioning a suspect on any subject, whether such questioning constitutes "technical" interrogation or not, once the suspect has requested counsel following Miranda warnings. We disagree.
The Supreme Court was recently asked to extend Miranda protections to require police to inform a suspect of an attorney's efforts to reach him during custodial interrogation. The Court, in rejecting an extension, struck at the very heart of appellant's instant contention:
... [R]eading Miranda to forbid police deception of an attorney "would cut [the decision] completely loose from its own explicitly stated rationale." Beckwith v. United States, 425 U.S. 341, 345 [96 S.Ct. 1612, 1615, 48 L.Ed.2d 1] (1976). As is now well established, "[t]he ... Miranda warnings are `not themselves rights protected by the Constitution but [are] instead measures to insure that the [suspect's] right against compulsory self-incrimination [is] protected.'" New York v. Quarles, 467 U.S. 649, 654 [104 S.Ct. 2626, 2631, 81 L.Ed.2d 550] (1984), quoting Michigan v. Tucker, 417 U.S. 433, 444 [94 S.Ct. 2357, 2364, 41 L.Ed.2d 182] (1974). Their objective is not to mold police conduct for its own sake. Nothing in the Constitution vests in us the authority to mandate a code of behavior for state officials wholly unconnected to any federal right or privilege. The purpose of the Miranda warnings instead is to dissipate the compulsion inherent in custodial interrogation and, in doing so, guard against abridgement of the suspect's Fifth Amendment rights. Clearly, a rule that focuses on how the police treat an attorneyconduct that has no relevance at all to the degree of compulsion experienced by the defendant during interrogationwould ignore both Miranda's mission and its only source of legitimacy.
Moran v. Burbine, ___ U.S., at ___, 106 S.Ct. at 1143.
In the instant case, reading Edwards v. Arizona, supra, to forbid police from seeking a suspect's breath sample, once the suspect has invoked his right to counsel under Miranda, would similarly divorce Miranda from its "only source of legitimacy." Not only does the breath testing decision not involve custodial interrogation, it also does not involve the privilege against self-incrimination. A rule that focuses on preventing collection of a breath sample, merely because a defendant has been informed of his right to have counsel present if he is interrogated, would severely restrict police officers in the pursuit of lawfully collecting evidence of intoxication and, more significantly, do nothing to further protect the privilege against self-incrimination. Therefore, we find that appellant, under the instant facts, has no remedy *507 under Miranda v. Arizona, supra, or Edwards v. Arizona, supra.[18]
The judgment of the Court of Appeals is vacated and the cause is remanded to the Court of Appeals for further consideration of appellant's ground of error claiming a right to counsel under the Fourteenth Amendment to the United States Constitution and Article I, §§ 10 and 19 of the Texas Constitution.
ONION, P.J., and CLINTON, J., concur in result.
TEAGUE, Judge, dissenting.
This Court granted the appellant's petition for discretionary review to review two of the three grounds of review he presented therein, namely: "(1) The trial court and the First Court of Appeals erred in not suppressing appellant's intoxilyzer breath test result as it was derived in violation of his right to assistance of counsel," and "(2) The trial court and the First Court of Appeals erred in not suppressing appellant's intoxilyzer breath test result as it was derived after appellant requested counsel and in violation of the prophylactic safeguard established by Miranda v. Arizona, [384 U.S. 436, 86 S.Ct. 1602, 16 L.Ed.2d 694 (1966)], and Edwards v. Arizona, [451 U.S. 477, 101 S.Ct. 1880, 68 L.Ed.2d 378 (1981)], requiring police to cease all interrogation where a person in custody requests counsel." (My emphasis.)
I dissent first to footnote 2 of the majority opinion, which states the following: "Our grant of review was strictly limited to the application of Miranda v. Arizona, supra, and Edwards v. Arizona, supra, to the instant case." (My emphasis.) Our grant of review did no such thing.
After reading the majority opinion, it appears to me that the new rule is that after this Court has granted a petition for discretionary review, it is now necessary for the appealing party to prepare for this Court a proposed opinion, and this Court will be bound by the four corners doctrine in deciding whether to approve or disapprove the opinion. I must confess: I am unfamiliar with any such doctrine. In light of what this Court has been doing of late, see post, it would appear that after granting a petition for discretionary review, we should now take a vote on whether a majority of this Court believes that the opinion by the court of appeals could be better written and, if a majority of this Court decides it could, then we simply remand the cause back to the court of appeals for it to rewrite its opinion. That is basically what is happening today.
Today, as members of law enforcement, the Bench and Bar of this State anxiously await our decision on whether an accused, who has been arrested for driving while intoxicated, has a limited statutory or constitutional right to counsel before deciding whether to submit to an intoxilyzer test, but as we erroneously did on April 9, 1986, when we remanded the cause of Forte v. State, 707 S.W. 89 (Tex.Cr.App., 1986), to the Fort Worth Court of Appeals, we once again pussyfoot around by remanding this cause to the Houston First Court of Appeals, in order for it to do what it has already done, implicitly if not expressly. This is neither judicial efficiency nor judicial economy at its best.
Come on Brethren, let's quit beating around the bush and decide the issue, whether a person arrested for driving while intoxicated has either a constitutional or statutory limited right to counsel. Just because this Court goofed just a couple of *508 days ago in Forte v. State, supra, by remanding that cause to the Fort Worth Court of Appeals for that court to perform a useless task, is no justification why this Court should continue to goof.
The record reflects that Dennis Michael McCambridge, hereinafter referred to as the appellant, appealed the misdemeanor driving while intoxicated conviction he had sustained in the trial court to the Houston First Court of Appeals, which court affirmed his conviction. See McCambridge v. State, 698 S.W.2d 390 (Tex.App.Houston [1st] 1985).
On direct appeal to the Houston First Court of Appeals, the appellant, relying primarily upon Forte v. State, supra, as case authority, contended that after he had invoked his right to counsel, and after he had received the Miranda warnings, he had the limited right to the assistance of counsel before deciding whether or not to take the intoxilyzer test. He also argued that because he was denied his right to the assistance of counsel the trial judge should have suppressed not only the audio portion of the video tape, which he did, but should have also suppressed the result of the breath test that he took, which he didn't.
The Houston First Court of Appeals, notwithstanding that the appellant relied primarily upon Forte, supra, as authority for his contentions, but without discussing Forte, supra, totally rejected what the Fort Worth Court of Appeals had held in Forte, supra, that an accused arrested for driving while intoxicated has the limited right to the assistance of counsel before deciding whether to take the intoxilyzer test. The Houston Court of Appeals held: "Because the appellant's refusal to take the breath test was not constitutionally protected (under the Sixth Amendment to the Federal Constitution), and because this was not a critical stage of the prosecution against the appellant, we hold that he was not entitled to consult an attorney before deciding whether to refuse to take the breath test." (My emphasis.)
I will first address what both this Court and the Fort Worth Court of Appeals stated in Forte v. State, supra.
In our Forte, supra, this Court stated the following: "Although the opinion of the Court of Appeals does not specifically mention a particular federal or state constitutional provision, given its reliance upon United States v. Wade, supra, it is clear that the decision was upon the Sixth Amendment." This is truly a misreading of that court's opinion.
On motion for rehearing, the Fort Worth Court of Appeals, see Forte v. State, 686 S.W.2d 744 (Tex.App.Ft. Worth 1985), clearly pointed out that it was relying upon Prideaux v. State of Minnesota, Department of Public Safety, 310 Minn. 405, 247 N.W.2d 385 (Minn.1976), not only for guidance but also for authority. Prideaux, supra, had interpreted a statute similar to the one in existence in Texas at the time that the appellant was arrested, but which was no longer in existence in Minnesota at the time the Fort Worth Court of Appeals handed down its opinion on rehearing. See Nyflot v. Commissioner of Public Safety, 369 N.W.2d 512 (Minn.1985). Note what the court of appeals expressly stated in its opinion on rehearing: "Adopting the language of that opinion (Prideaux, supra) we hold that any person who is required to submit to a chemical test of the alcohol content of his blood, breath, or urine shall have the right to consult with a lawyer of his own choosing before making that decision, provided that such consultation does not unreasonably delay the administration of the test." (754). Thus, the opinion by the court of appeals, just like Prideaux, supra, was not even decided on Federal or State constitutional grounds, but, instead, was decided upon State statutory grounds. The court used for guidance and authority an opinion from the Minnesota Supreme Court that had been expressly overruled by that court because of a tremendous change that had been made in the interval by the Minnesota Legislature. However, Prideaux, supra, was in point because of the way the Minnesota laws were then worded and the way Texas laws were worded at *509 the time the defendant Forte had been arrested.
This Court, in Forte, supra, erroneously stated the following: "Although the Court of Appeals did not explicitly state that it was only addressing a particular federal constitutional provision, given the court's reliance on the above Supreme Court opinions, it is clear that the decision to affirm was grounded upon appellant's argument that he had a Sixth Amendment right to counsel."
In Michigan v. Long, 463 U.S. 1032, 103 S.Ct. 3469, 77 L.Ed.2d 1201 (1983), the Supreme Court expressly stated the following: "When ... the adequacy and independence of any possible state law grounds is... clear from the face of the opinion, we will accept as the most reasonable explanation that the state court decided the case the way it did ..." We should adhere to this statement in interpreting opinions by courts of appeals.
Therefore, the Fort Worth Court of Appeals' opinion of Forte v. State, supra, should be clear to even the most myopic reader on what basis that court decided the limited right to counsel issue. Likewise, the only thing that the Houston First Court of Appeals forgot to do in its opinion was to put therein, in big, bold letters, the fact that it was relying upon decisions of the Supreme Court of the United Statesnot only for guidance but for authority, in stating and holding what it did. It either forgot to do that or it simply forgot to turn on the lights, so that some members of this Court could see what it had stated and held.
By taking the action that a majority of this Court votes to take today, to remand this cause to the Houston Court of Appeals, just as it took just a few days ago, to remand Forte, supra, to the Fort Worth Court of Appeals, we give meaning, not to the fact that criminal convictions must eventually become final, but to the fact that in Texas appeals of criminal convictions can sometimes closely resemble a ping pong game.
The Houston First Court of Appeals expressly stated in its opinion the following: "In support of this contention (that his motion to suppress should have been granted, because he was deprived of his right to assistance of counsel), appellant cites the recent decision of Forte v. State, 686 S.W.2d 744 (Tex.App.Fort Worth 1985)..." (P. 392 of opinion.) Thereafter, it stated and held the following: "We decline to follow the majority holding in Forte v. State ..."
Therefore, our decision today should be, not to remand this cause to the Houston Court of Appeals, but, instead, to withdraw our opinion in Forte, supra, and decide the issue, whether the appellant had the limited right to counsel before deciding whether or not to take the breath test.
The facts of this cause reflect that after being arrested for driving while intoxicated, in response to the appellant's request for counsel, the arresting officers told him that he would have to wait until after he got downtown to the station house before he could receive the aid of an attorney. At the station house, contrary to the express provisions of Art. 15.17, V.A.C.C.P., the appellant was not taken to a magistrate, but, instead, was taken to the videotaping room of the police department. The appellant was then administered the Miranda warnings, and was permitted to use a telephone. Because he did not know his Dallas civil attorney's telephone number, he telephoned his wife and told her to call not only his Dallas attorney but also to telephone a friend of his who was an Assistant District Attorney of Harris County, for the purpose of being referred to a local criminal defense attorney. Thereafter, the appellant again tried to telephone his wife, but this time the line was busy. The appellant was never successful in making contact with an attorney while he was at the station house.
The record clearly reflects that at least nine times while in the videotaping room the appellant requested the assistance of counsel, but his request fell on deaf ears. After his tenth request for the assistance *510 of counsel, the appellant was removed from the videotaping room to the hallway outside of the room, where police officers continued to ask him to submit to a breath test. Eight more times he refused. Finally, after his eighteenth request for the assistance of counsel was not honored, and probably out of desperation and believing that continued refusals would not deter the police officers from their continuing harassment to get him to take the test, as well as by now believing what the officers were telling him, i.e., that an attorney was going to screw up everything that might be done, that he would automatically be found guilty, that he would lose his driver's license, that he would go to jail, and that possibly he would lose his job, he discontinued making demands for counsel and took the intoxilyzer test.
Under our statutory law, the mere refusal to take the breath test carries both civil and criminal penalties. For example, on the criminal side, a defendant's refusal to take the test is now admissible as evidence against him as an inference of guilt in a subsequent criminal prosecution; on the civil side, a refusal to take the test results in an automatic suspension of that person's driver's license for ninety days. See Art. 6701l-5, Sections 2(f) and 3(g). Thus, we are not dealing with a simple driver's license revocation case.
What the court of appeals and the parties have overlooked is the fact that the arrested person is guaranteed by the provisions of Art. 15.17, V.A.C.C.P., and Art. 38.22, Section 3, V.A.C.C.P., to be warned of his right to counsel, and if he requests counsel, under this Court's decisions, that request must be honored. Furthermore, the Texas Constitution guarantees that an accused shall not be compelled to give evidence against himself, see Art. I, Section 10, Texas Constitution. Also see Sanchez v. State, 707 S.W.2d 575 (Tex.Cr.App., 1986) (Clinton, J., concurring opinion).
This case, like Forte, supra, truly exemplifies the continuing difficulties encountered by the police in seeking to satisfy at the same time the requirements of a Miranda warning and the provisions of the implied consent statute. Simply stated, for law enforcement officials, the two make a bad marriage because they represent contradictory polar interests.
It is unnecessary to decide this case on constitutional grounds. The question really boils down to whether the Legislature of this State intended a blanket denial of the right to counsel under the implied consent statute.
As previously noted, in this State, any person in police custody accused of wrongdoing is entitled to be told that he has the right to consult with an attorney, and, if he requests counsel, his request must be honored. Cf. Dunn v. State, 696 S.W.2d 561 (Tex.Cr.App.1985). However, under the implied consent statute, there is no such right.
Thus, under our law, the State is required to both advise the accused of his right to counsel and at the same time tell him he does not have the right to counsel. How confusing this must be to the accused. ("Didn't you tell me earlier I could call my lawyer and I don't have to answer any questions?" "And now you're saying I can't have a lawyer and I gotta take the test?" See Latzer, "The High Court vs. High Drivers: A Short Course in Logic," Vol. 21, No. 1, Criminal Law Bulletin, Jan.Feb., 1985).
In United States v. Wade, 388 U.S. 218, 87 S.Ct. 1926, 18 L.Ed.2d 1149 (1967), the Supreme Court held that when the pretrial investigation reaches a "critical" stage, the right to counsel attaches, and "[T]he accused is guaranteed that he need not stand alone against the State at any stage of the prosecution, formal or informal, in court or out, where counsel's absence might derogate from the accused's right to a fair trial." (My emphasis.)
The majority opinion, as it did in Forte, supra, interprets United States v. Gouveia, 467 U.S. 180, 104 S.Ct. 2292, 81 L.Ed.2d 146 (1984), as holding that the "critical" stage can never exist unless and until formal charges have been filed against the accused. The facts in Gouveia, *511 supra, reflect that the defendants in that cause, already serving prison sentences, were placed in administrative segregation or detention after a hearing because they were suspected of killing other inmates. They were subsequently formally charged with those killings. They claimed that they had the right to the assistance of counsel while they were in administrative "lock up." The Supreme Court held that they were not entitled to counsel while they were in administrative segregation and before any adversarial judicial proceedings had been initiated against them, but expressly pointed out that "The narrow issue before the Court of Appeals and before us today is whether the Sixth Amendment requires the appointment of counsel for indigent inmates in respondents' situation." 104 S.Ct., at 2296, fn. 1. In so holding, the Court, however, was quick to point out that the defendants had visitation privileges and the opportunity to make unmonitored phone calls to attorneys while in administrative segregation, and that in a pretrial situation where the results of the confrontation "might well settle the accused's fate and reduce the trial itself to a mere formality," United States v. Wade, supra, 388 U.S., at 224, 87 S.Ct., at 1930, the right to counsel may exist. 104 S.Ct., at 2298.
Thus, the unqualified statement that this Court made in Forte, supra, that "the Supreme Court concluded (in Gouveia, supra,) that the Sixth Amendment right to counsel attaches only upon or after formal initiation of judicial proceedings", given the facts and circumstances of Gouveia, supra, is a statement that is a far cry from being one without any qualification, restriction, or limitation. Unquestionably, the majority opinion tries to paint a big wall with a little brush that has little paint in it.
In the majority opinion's meandering type discussion of Miranda and Edwards, supra, it has overlooked the Supreme Court decision of Berkemer v. Mc Carty, 468 U.S. 420, 104 S.Ct. 3138, 82 L.Ed.2d 317 (1984), in which the Court held that "a person subjected to custodial interrogation is entitled to the benefit of the procedural safeguards enunciated in Miranda, regardless of the nature or severity of the offense of which he is suspected or for which he is arrested." 104 S.Ct., at 3148. The Court further held that "There can be no question that respondent was `in custody' at least as of the moment he was formally placed under arrest and instructed to get into the police car. Because he was not informed of his constitutional rights at that juncture, respondent's subsequent admissions should not have been used against him." 104 S.Ct., at 3148. Also see People v. Davie, 96 Misc.2d 890, 410 N.Y.S.2d 222 (1978); Annot., 31 A.L.R.3rd 565 (1970).
In Texas, a defendant's silence or refusal to submit to a requested chemical test is a tacit or overt expression and communication of the defendant's thoughts, and thus protected by the self-incrimination clause of the Texas Constitution. Dudley v. State, 548 S.W.2d 706 (Tex.Cr.App.1977).
In this instance, after the appellant, who was then in custody, was informed of his Miranda rights he invoked his right to counsel, but the police refused to honor his request to have counsel assist him. The refusal to comply with his request violated the appellant's right to counsel under the Texas statutes. All evidence secured thereafter should have been suppressed. Juckett v. Evergreen District Court, 100 Wash.2d 824, 675 P.2d 599 (1984).
It is time for this Court to come to grips with all of the above, and to decide the issues that are now before this Court. Other than to do as was done in this cause, to harass the appellant until he finally agreed to submit to taking the test, police officers who arrest persons for driving while intoxicated are at a loss of just what they should do.
There is a great deal of interplay between the arresting officer giving the accused the Miranda warnings and also giving the accused the implied consent warnings. The two are truly paradoxical. Today, unfortunately, a majority of this Court refuses to decide the important issues that are before us. We do a disservice to our *512 men in blue by not today deciding these issues.
I dissent to remanding this cause to the court of appeals. This only reflects dilly dallying around at its best.
NOTES
[1] Mirroring his first ground of error before the Court of Appeals, appellant relies upon the following sources for his right to counsel: 1) the right to counsel clauses of federal and state constitutions, U.S. Const. amend VI, Tex.Const. art. I, § 10, 2) the Due Process Clause, U.S. Const. amend XIV, and 3) the Due Course of Law Clause, Tex.Const. art. I, § 19.
[2] Appellant, in a footnote to his brief, also argues in passing that Texas statutory law codifies Miranda warning requirements and provides greater protection than Miranda v. Arizona, supra. Appellant cites Articles 1.02, 1.05, & 15.17, V.A.C.C.P. See also Art. 38.22, V.A.C.C.P. However, we did not grant review on the basis of statutory Miranda warning requirements. Our grant of review was strictly limited to the application of Miranda v. Arizona, supra, and Edwards v. Arizona, supra, to the instant case.
[3] Houston police officers were present throughout appellant's telephone conversation. Appellant contacted his wife and named two attorneys for her to contact, hoping that one of the attorneys could refer her to a local criminal attorney in Houston who could be retained by appellant. However, appellant was not allowed to provide his wife with a callback number.
[4] During the hearing on his motion to suppress, appellant testified repeatedly, "They continued to question me." Nothing in the record indicates the content of that questioning. The record does not include the videotape of appellant being questioned.
[5] Article 6701l-5, § 2(b), supra, in pertinent part, provides:
Before requesting a person to give a specimen, the officer shall inform the person orally and in writing that if the person refuses to give the specimen, that refusal may be admissible in a subsequent prosecution, and that the person's license, permit, or privilege to operate a motor vehicle will be automatically suspended for 90 days after the date of adjournment of the hearing provided for in Subsection (f) of this section, whether or not the person is subsequently prosecuted as a result of the arrest.... The officer shall inform the person that the person has a right to a hearing on suspension ... if, not later than the 20th day after the date on which the notice of suspension ... is received, the department receives a written demand that the hearing be held.
[6] Appellant, in his brief, argues that he eventually agreed to provide a breath sample only because of continuous pressure applied by police officers. The trial court denied appellant's motion to suppress the test on that basis. The Court of Appeals overruled appellant's ground of error on the voluntariness of his consent. McCambridge, supra, at 394-95. We denied review on that same issue.
[7] Although the record does not reflect what evidence could have been used to convict appellant, appellant agreed to plead guilty only if the results of the intoxilyzer test were not suppressed. Presumably, the result of the test was sufficient to convict appellant of driving while intoxicated. See V.A.C.S., art. 6701l-1(a)(2)(B) (Supp.1986). Nothing in the record indicates that the videotape contained evidence of appellant's guilt. See n. 4, ante, at 2.
[8] Schmerber v. California, 384 U.S. 757, 86 S.Ct. 1826, 16 L.Ed.2d 908 (1966), Kirby v. Illinois, 406 U.S. 682, 92 S.Ct. 1877, 32 L.Ed.2d 411 (1972), and United States v. Wade, 388 U.S. 218, 87 S.Ct. 1926, 18 L.Ed.2d 1149 (1967).
[9] In its opinion, the Court of Appeals discussed and overruled grounds of error one and three together, id., despite the distinctly separate constitutional theories argued in each ground of error. See grounds of review one and two, respectively, ante, at 500 & n. 1. Although such a consolidated discussion makes it difficult to determine the exact reason for affirmance, the opinion is sufficiently clear for this Court to rely upon.
In the future, for issues relying upon disjunctive federal and state authority, appellate courts should be careful to address each ground of error separately and clearly indicate the reason for the outcome. This practice has become even more necessary in light of the recent focus upon state, rather than federal, constitutional authority. See S. Abrahamson, Criminal Law and State Constitutions: The Emergence of State Constitutional Law, 63 Tex.L.Rev. 1141 (1985); Comment, Individual Rights and State Constitutional Interpretations: Putting First Things First, 37 Baylor L.Rev. 493 (1985). See also Michigan v. Long, 463 U.S. 1032, 1041, 103 S.Ct. 3469, 3476, 77 L.Ed.2d 1201, 1214 (1983) (Supreme Court will undertake review of state court decision unless "state court decision indicates clearly and expressly that it is alternatively based on bona fide separate, adequate, and independent [state] grounds....").
In his brief before the Court of Appeals and this Court, appellant provided several constitutional bases for each ground of error and review. Attorneys, when briefing constitutional questions, should carefully separate federal and state issues into separate grounds and provide substantive analysis or argument on each separate ground. If sufficient distinction between state and federal constitutional grounds is not provided by counsel, this Court may overrule the ground as multifarious. Art. 40.09(9), V.A. C.C.P.; Brooks v. State, 642 S.W.2d 791, 793 (Tex.Cr.App.1982) ("By combining more than one contention in a single ground an appellant risks rejection on the ground for presenting nothing for review.") But see art. 44.33, r. 306(d), V.A.C.C.P., and cf. State v. Jewett, 500 A.2d 233 (Vt.1985) (appellate courts may require supplemental briefs if state constitutional issue not sufficiently developed).
[10] "In all criminal prosecutions, the accused shall enjoy the right ... to have the Assistance of Counsel for his defense." U.S.Const. amend VI.
[11] The Court of Appeals held that appellant's decision to provide a breath sample did not constitute a "critical" stage, thus not triggering a right to counsel. McCambridge, supra, at 394. We disagree with that holding insofar as it implies that a "critical" stage may arise prior to initiation of formal adversary proceedings. See Forte, supra, at 92 ("critical" stage analysis only arises after formal initiation of adversary proceedings), and cases cited therein.
(All emphasis is supplied by the author of this opinion unless otherwise indicated.)
[12] In an amicus brief to this Court, the National Association of Criminal Defense Attorneys also argues that state and federal law give a defendant the right to counsel "at a time no later than when the arresting officers requests the DWI suspect to submit to a chemical test of his blood, breath, or urine." In a second amicus brief to this Court, the Texas Trial Lawyers Association argues that due process requires that a defendant be given access to counsel prior to sobriety testing.
[13] "No person ... shall be compelled in any criminal case to be a witness against himself...." U.S. Const. amend V.
[14] Texas law gives a suspect a similar choice. V.A.C.S., arts. 6701l-5, §§ 1-2 (Supp.1986). See Forte, supra, at 91, n. 2.
[15] Texas law requires that police give specific warnings. V.A.C.S., art. 6701l-5, § 2(b)-(e).
[16] We do not imply that the breath testing decision is free from all constitutional or statutory protection.
"... [D]ue process concerns could be involved if the police initiated physical violence while administering the test, refused to respect a reasonable request to undergo a different form of testing, or responded to resistance with inappropriate force." South Dakota v. Neville, 459 U.S., at 559, n. 9, 103 S.Ct., at 920, n. 9, citing Schmerber v. California, 384 U.S. 757, 761, n. 4, 86 S.Ct. 1826, 1830, n. 4, 16 L.Ed.2d 908, 914, n. 4 (1966). However, appellant has not argued that his submission to an intoxilyzer test raised due process concerns of this nature. Nor have we accepted review on that issue.
State law also requires that a suspect's refusal to provide a breath sample be strictly honored. V.A.C.S., art. 6701l-5, § 2(a), (Supp.1986); Turpin v. State, 606 S.W.2d 907, 913-914 (Tex.Cr. App.1980). However, the issue of the voluntariness of appellant's consent also is not before us in the instant case. See n. 7, ante, at 501.
[17] A different question might be presented if the police officer, in ignoring appellant's request for counsel under Miranda, had mixed his request for a breath sample with questions that amounted to interrogation. In the absence of such a probable Miranda violation, we need not decide under what circumstances a suspect's consent to provide a breath sample is the fruit of an illegal interrogation.
[18] In finding appellant has no remedy under Miranda v. Arizona, supra, or Edwards v. Arizona, supra, we do not imply that a remedy will never be available to a suspect who is confused when faced with Miranda warnings and a breath testing decision without the benefit of requested counsel. We are simply limiting our decision in the instant case to the issues and remedy requested by appellant in his petition for review.
The legislature is free to enlarge upon the statutory warnings required at present, thus requiring a police officer to inform a suspect that Miranda warnings do not apply to the breath testing decision. See art. 6701l-5, § 2(b), supra. However, we believe it would be inappropriate for this Court to make such an expansion of statutory warnings absent legislative authority.
|
COURT OF APPEALS FOR THE
FIRST DISTRICT OF TEXAS AT HOUSTON
ORDER AND NOTICE OF INTENT TO DISMISS
Appellate case name: Larry Parker, Sr. v. Demetria S. Parker
Appellate case number: 01-13-00774-CV
Trial court case number: 73564
Trial court: 412th Judicial District Court of Brazoria County
This appeal was stayed pursuant to a Suggestion of Bankruptcy filed on May 2,
2014. See TEX. R. APP. P. 8.2. The Suggestion of Bankruptcy reflected that appellant,
Larry Parker, Sr., had filed a petition for relief under Chapter 13 of Title 11, United
States Code, in Case No. 14-80164, in the United States Bankruptcy Court for the
Southern District of Texas. Court records reflect that the bankruptcy court has dismissed
and closed the case.
On April 11, 2017, the Clerk of this Court notified that the parties that, unless any
party filed a motion to reinstate and dismiss the appeal by May 11, 2017, the Court might
reinstate and proceed with the appeal. Neither the appellant nor the appellee has
responded.
Accordingly, we direct appellant, Larry Parker, Sr., to file a motion to reinstate
and dismiss the appeal, a motion to reinstate and proceed with the appeal, or a report
advising the Court of the status of the proceedings within 30 days of the date of this
order. If appellant does not respond as directed, the Court will reinstate the case on
the Court’s active docket and dismiss the appeal for want of prosecution or failure
to respond to a court order or notice from the Clerk of this Court. See TEX. R. APP.
P. 42.3(b), (c).
It is so ORDERED.
Judge’s signature: _/s/ Terry Jennings
Acting individually
Date: October 19, 2017
|
791 F.2d 918
Harev.Princeton Management Group, Inc.
85-5562
United States Court of Appeals,Third Circuit.
5/9/86
D.N.J.,
Barry, J.
AFFIRMED
|
COURT OF APPEALS
SECOND
DISTRICT OF TEXAS
FORT
WORTH
NO.
2-07-189-CV
TONNA BROOKS APPELLANT
V.
BANK OF NEW YORK TRUST APPELLEE
COMPANY, N.A. AS SUCCESSOR
TO JPMORGAN CHASE BANK,
AS TRUSTEE
------------
FROM
COUNTY COURT AT LAW NO. 1 OF TARRANT COUNTY
------------
MEMORANDUM OPINION[1]
------------
I. Introduction
Appellant Tonna Brooks seeks
a restricted appeal from an agreed judgment granting Appellee Bank of New York
Trust Company (Bank of New York) possession of Tonna=s home premises and the right to obtain a writ of possession. In her first two issues, Tonna contends that
because of her absence at the hearing, the agreed judgment is interlocutory and
cannot support the issuance of a writ of possession. In her third issue, Tonna contends that the
agreed judgment is not a default judgment because no evidence was offered or
received by the trial court. Because the
trial court rendered judgment without Tonna=s participation and consent, we reverse the judgment as void and
remand the case for a new trial.
II. Factual and Procedural Background
Bank of New York filed its
original petition for forcible detainer against Tonna and Aall other occupants@ on February 27, 2007, in the justice of the peace court. On March 9, 2007, the justice of the peace
court rendered judgment in favor of Bank of New York. On that same day, Tonna perfected her and her
husband, Gordon=s, appeal by
filing an appeal bond with the justice of the peace court. On March 28, 2007, Tonna and Gordon filed a AWritten Statement@ with the county court, stating that they were appealing the case
because they were not given proper notice of the foreclosure and that they were
seeking counsel. Bank of New York filed
an amended petition, and the county court set trial for April 25, 2007.
On the date of trial, Bank of New York
appeared through its attorney and Gordon appeared in person. Nothing in the record shows that Tonna ever
appeared before the county court on April 25, 2007. Before trial began, Bank of New York=s attorney told the county court that Awe just came to an agreement.@ Accordingly, the county court,
Gordon, and Bank of New York signed an agreed judgment, which gave Bank of New
York the right to possess the premises at issue and the right to obtain a writ
of possession if the occupants failed to vacate by May 11, 2007. On May 25, 2007, the county court issued the
writ of possession, which eventually was returned as Aunserved,@ and Tonna
then filed this restricted appeal.[2]
III. Restricted Appeal
To be entitled to a
restricted appeal, an appellant must show that she (1) filed a notice of
restricted appeal within six months after the trial court signed the judgment
or order; (2) is a party to the suit; (3) did not participate in the hearing
that resulted in the judgment complained of; and (4) did not timely file any
postjudgment motion, request for findings of fact and conclusions of law, or a
notice of appeal within the time permitted by rule 26.1(a). Tex.
R. App. P. 26.1(a), (c), 30; Aviation Composite Techs., Inc. v. CLB
Corp., 131 S.W.3d 181, 184 (Tex. App.CFort Worth 2004, no pet.).
These requirements are jurisdictional and will cut off a party=s right to seek relief by way of a restricted appeal if they are not
met. Id. Once an appellant establishes that she has
met these requirements, she must then establish error apparent from the face of
the record before she will be entitled to relief from the adverse
judgment. Id.
Tonna is a party to the suit
and properly filed her notice of restricted appeal within six months from the
date the trial court signed the agreed judgment. Tonna also did not file a postjudgment
motion, request for findings of fact and conclusions of law, or a notice of
appeal within the time permitted by rule 26.1(a). Bank of New York, however, asserts that we do
not have jurisdiction over this restricted appeal because Tonna participated in
the trial that resulted in the agreed judgment.
Thus, our analysis is limited to whether Tonna participated in the trial
that resulted in the agreed judgment and, if she did not, whether there is
error apparent on the face of the record.
A. Participation
In determining whether the
nonparticipation requirement of rule 30 is met, the question is whether the
appellant participated in the Adecision-making event@ that resulted in the order adjudicating the appellant=s rights. Id. at 185.
The extent of participation in the actual trial
of the case which would preclude a party from obtaining appellate review by
writ of error, now known as restricted appeal, is one of degree. Tramco Enters., Inc. v. Indep. Am. Sav. Ass=n, 739 S.W.2d 944, 946 (Tex. App.CFort Worth 1987, no writ) (interpreting former Texas Rule of Appellate
Procedure 45, governing writ of errors).
The decision-making event in
this case is the signing of the agreed judgment by the county court, Gordon,
and Bank of New York on the date of trial.
Bank of New York cites Clopton v. Pak for the proposition that an
appellant can still participate in the decision-making event even though she
did not physically attend the hearing that resulted in the adverse
judgment. See 66 S.W.3d 513, 516
(Tex. App.CFort Worth
2001, pet. denied). In Clopton,
we held that attendance at a dismissal hearing was unnecessary when the
attorneys for the appellants and appellees agreed on, signed, and filed a joint
motion to sever and dismiss the case. Id. We stated that Aneither appellants= nor their attorney=s attendance at the hearing was necessary once the joint motion was
filed.@ Id.
Bank of New York attempts to
analogize Clopton to the facts of this case by stating that like Clopton, Aprior to a trial, the parties agreed to a judgment that disposed of
all parties and issues.@ Bank of New York goes on further to state
that A[t]he evidence in the record demonstrates that the judgment was agreed
to by all the parties prior to the case being called to trial, at which point,
the attendees were addressed by the [c]ourt.@ Ultimately, Bank of New York
argues that the language of the agreed judgment and the signature by Gordon,
Tonna=s husband and fellow occupant, demonstrate that Tonna participated in
the decision-making event.
Even though the facts here
are similar, we decline to extend our holding in Clopton to the facts in
this case. Important to the decision in Clopton
was the fact that the appellants participated through their attorney. See id. at 516B17. The attorney had the
authority to act on their behalf, and the motion signed by their attorney was
proof on the record of the appellants= participation. See id. at
517. Here, there is no evidence that
Tonna agreed to anything through an attorney; in fact, the record shows that
neither Tonna nor Gordon ever retained counsel prior to filing this appeal. We further note that nothing on the record
supports the proposition that Gordon had the authority to sign on behalf of
Tonna. See Wilkinson v.
Stevison, 514 S.W.2d 895, 898 (Tex. 1974) (stating that the marital
relationship does not in itself make one spouse the agent of the other). But see Taylor v. Gilbert Gertner Enters.,
466 S.W.2d 337, 339 (Tex. Civ. App.CHouston [1st Dist.] 1971, writ ref=d n.r.e.) (AA husband
may be shown to be the agent of his wife. Facts and circumstances might be
produced which would require a finding that the wife is bound by the agreement
of her husband.@); Mercer
v. McCasland, No. 01-95-01232-CV, 1996 WL 532061, at *1B2 (Tex. App.CHouston [1st
Dist.] Sept. 19, 1996, no writ) (not designated for publication) (holding that
the record demonstrated that the wife consented to the agreed order even though
she did not appear at the hearing because the husband Aspecifically stated@ that he had the authority to act on his wife=s behalf). Likewise, we
disagree with Bank of New York=s assertion that because the record does not evidence a Alack of authority@ for Gordon to enter into the agreed judgment for both himself and
Tonna that Tonna Acannot now
attempt to deny the validity of the agreed judgment.@ Bank of New York has not
established that Gordon had the authority to enter into the agreement for
Tonna, and so the absence of evidence showing a Alack of authority@ is irrelevant.
We hold that even though
Tonna filed a written statement in the county court, she did not participate in
the decision-making event because she was not present at the trial and did not
sign the agreed judgment. See Ramirez
v. Lyford Consol. Indep. Sch. Dist., 900 S.W.2d 902, 906 (Tex. App.CCorpus Christi 1995, no writ) (holding that the appellant, who filed a
petition and participated in pretrial discovery, did not participate in the Aactual trial@ because he
did not participate in the proceedings leading up to the rendition of the
judgment).
B. Error Apparent on the Face of the Record
Because Tonna satisfied the
requirements of rule 30, she must now show error apparent on the face of the
record. Tonna argues first that it was
error for the county court to issue the writ of possession on an interlocutory
judgment that did not dispose of her as a party. She states, in the alternative, that because
the county court did not receive any evidence at the hearing when it entered
the agreed judgment that we should vacate and set aside the agreed judgment.
Although Tonna does not use
the word Aconsent,@ she repeatedly states that she did not take part in the decision
making process leading up to the agreed judgment. She states that A[t]he record . . . shows that Mrs. Brooks had no part in the [a]greed
[j]udgment.@ She also asserts that Gordon was not
authorized to Acommit her@ to an agreed judgment merely because he lived with her. We liberally construe Tonna=s argument as including a claim that she did not participate in or consent
to the agreed judgment. See Tex. R. App. P. 38.1(e), 38.9; Sheikh v. Sheikh, 248
S.W.3d 381, 392 (Tex. App.CHouston [1st Dist.] 2007, no pet.) (stating that even though the
appellant argued that the trial court lacked subject-matter jurisdiction to
enter an order, Aat the heart@ of the issue was a complaint that the trial court erred in drafting
an overly broad order).
In Texas, a valid consent
judgment cannot be rendered by a court when consent of one of the parties is
wanting. Quintero v. Jim Walter
Homes, Inc., 654 S.W.2d 442, 444 (Tex. 1983); Williams v. Hollingsworth,
568 S.W.2d 130, 131 (Tex. 1978); Burnaman v. Heaton, 240 S.W.2d 288, 291
(Tex. 1951). Consent must exist at the
very moment the court undertakes to make the agreement the judgment of the
court. Burnaman, 240 S.W.2d at
291. When consent has either been
withdrawn or is lacking at the time the agreed judgment is rendered, the
judgment is void. Sohocki v. Sohocki,
897 S.W.2d 422, 424 (Tex. App.CCorpus Christi 1995, no writ); see also Samples Exterminators v.
Samples, 640 S.W.2d 873, 874B75 (Tex. 1982).
The supreme court has held
that absent a rule 11 agreement, a court
cannot render an agreed judgment when a party to the suit did not attend and
was not represented at the hearing where the judgment was rendered. Williams, 568 S.W.2d at 131B32. In Williams, the
appellant was involved in a will contest in which the contestants sought, among
other things, a portion of the residuary estate, to which the appellant was
entitled to one-half as one of the decedent=s sons. Id. at 131. On the day of trial, the will contestants and
the independent executor appeared and announced to the trial court that they
had settled the controversy. Id. Each contestant would receive $8,000 from the
residuary estate, and the will would otherwise stand as probated. Id.
Because neither the appellant nor his attorney was present at the trial,
the Court stated that the appellant had not consented to the agreed judgment
and that the judgment was thus properly set aside for lack of consent. Id. at 131B32.
The agreed judgment in this
case grants possession of the premises at issue to Bank of New York. It also orders that if Adefendants fail to vacate by May 11, 2007, then [Bank of New York]
shall be entitled to obtain a writ of possession ordering any Constable to
remove defendants . . . .@ Thus, like in Williams,
the judgment attempts to adjudicate Tonna=s rights even though she did not participate in or agree to the
judgment.
Tonna did not sign the agreed
judgment, and in fact, her name was crossed out of the introductory paragraph
of the judgment; in its place, someone handwrote AGordon.@[3] Bank of New York contends that
Athe judgment was agreed to by all the parties,@ but there is nothing in the record to suggest that Tonna ever agreed
to the judgment. The transcript of the
trialCin its entiretyCis as
follows:
THE COURT: Bank of New York
versus Brooks. What=s up?
[BANK]: Morning, Your
Honor, we just came to an agreement.
THE COURT: Okay.
THE COURT: You=re Mr. Brooks?
MR. BROOKS: I=m Mr. Brooks.
THE COURT: You live there
with Tonna, your wife?
MR. BROOKS: Yes, sir.
As shown by the transcript,
neither party discussed with the trial court the issue of Tonna=s consent to the judgment.
Moreover, Bank of New York=s attorney stated that Awe just came to an agreement,@ indicating that the agreement was between only those parties present
at the trial. [Emphasis added.] Because
nothing on the record suggests that Tonna appeared before the court, we
conclude that the agreement was between Bank of New York and Gordon. See Williams, 568 S.W.2d at 131B32. Accordingly, we sustain
Tonna=s first issue to the extent that we construe it as arguing that the
court improperly rendered judgment absent her participation and consent. Because the county court signed the agreed
judgment absent Tonna=s consent,
the judgment is void. See Sohocki, 897
S.W.2d at 424; see also Williams, 568 S.W.2d at 132 (holding that
because the court rendered a judgment absent the consent of one of the parties,
the judgment was properly set aside); Cook v. Cook, 243 S.W.3d 800, 801,
803 (Tex. App.CFort Worth
2007, no pet.) (holding that the trial court=s judgment on an Aagreed divorce decree@ was void when one party withdrew his consent to the agreement before
the trial court granted the divorce and rendered judgment).
IV. Conclusion
Having sustained Tonna=s first issue as construed above, we reverse and remand the cause to
the trial court for further proceedings.[4]
See Cook, 243 S.W.3d at 803; Sohocki,
897 S.W.2d at 424.
PER CURIAM
PANEL
B: HOLMAN, DAUPHINOT, and WALKER, JJ.
DELIVERED: July 3, 2008
[1]See Tex. R.
App. P. 47.4.
[2]The initial notice of appeal filed
on June 4, 2007, stated that ATONNA BROOKS and ALL OCCUPANTS@ desired to appeal the case. On August, 8, 2007, Tonna amended the notice
of appeal and took out AALL OCCUPANTS@ to reflect that she was the only
person appealing the agreed judgment.
[3]This portion of the judgment reads,
APlaintiff appeared by and through
its designated representative or counsel of record. Defendant(s), Tonna Gordon Brooks
appeared in person.@
[4]Because we have held that the
judgment is void, we need not address Tonna=s argument regarding the issuance of the writ of possession
or the argument concerning default judgment.
|
741 P.2d 800 (1987)
Arthur CONNER, Stanley Ebner, and Stanley A. Mallin, individually and d/b/a Ebcon Construction Co., Appellants,
v.
SOUTHERN NEVADA PAVING, INC., Respondent.
No. 17030.
Supreme Court of Nevada.
August 27, 1987.
Rogers, Moore, Mahoney & Cook, Las Vegas, for appellants.
Mills, Gibson & Carter, Las Vegas, for respondent.
OPINION
PER CURIAM:
On March 31, 1978, Southern Nevada Paving (SNP) entered into a contract with Ebcon Construction (Ebcon) to grade and pave a 340-unit apartment complex being built by Ebcon. The contract provided that SNP was to have enough men working so as not to delay the progress of the job. If SNP failed to employ sufficient help to complete the work in the given time, Ebcon could give 48 hours notice and employ help to complete the work. SNP agreed to reimburse Ebcon for any sum over the contract price. SNP also agreed that if Ebcon was assessed late penalties or liquidated damages, SNP would pay the portion attributable to its failure to complete work on time.
Between March 1978 and June 1979, SNP graded and paved approximately 130,000 sq. ft. Paving was done in sections as certain phases of construction were completed. From June 1979 through November 16, 1979, SNP had some men on the job but no paving was done. Beginning from September 15, 1979 through November 16, 1979, Ebcon made several requests for SNP to finish the job. SNP admitted that there were times when it said it would have someone on the job but no one showed up. SNP claimed it was waiting so it could pave a large area instead of doing it piecemeal. In mid-October, Ebcon decided to hire somebody else and began calling around. On November 14, Ebcon sent a mailgram to SNP, terminating it for failure to maintain adequate personnel on the job. Two days later, Ebcon signed a contract with Las Vegas Paving which finished paving the remaining 102,000 sq. ft. on December 1, 1979.
In March 1980, SNP filed a complaint contending Ebcon owed $34,428.87 for labor and goods. Ebcon counterclaimed, *801 alleging that as a result of SNP's breach, Ebcon had incurred debts $52,571.00 over the contract price. At trial, however, Ebcon testified that as a result of SNP's two month delay, it had to pay $100,000.00 in late penalties and $134,000.00 in additional interest on the construction loan.
Final judgment was entered on August 28, 1985. The court found that SNP had breached the contract, but that Ebcon owed SNP $31,767.00 for work completed by SNP. The court found that Ebcon was entitled to an offset of $.19 per square foot, or $19,380.00, for the additional cost of the paving done by Las Vegas Paving. SNP was awarded $12,387.00. The court dismissed Ebcon's counterclaim with prejudice, finding that Ebcon had failed to mitigate damages by giving SNP a more timely notice of termination and promptly hiring another contractor, and that the damages sought by Ebcon in its counterclaim were not foreseeable to SNP when it breached the contract. We hold that the district court erroneously dismissed Ebcon's counterclaim and remand for a new trial on the issue of damages.[1]
As a general rule, a party cannot recover damages for loss that he could have avoided by reasonable efforts. See First Nat. Bank v. Milford, 239 Kan. 151, 718 P.2d 1291, 1297 (1986). The rule of mitigation of damages begins when the breach is discovered. See Holland v. Green Mountain Swim Club Inc., 470 P.2d 61, 63 (Colo. App. 1970). It is difficult to determine whether Ebcon attempted to mitigate its damages because the district court failed to pinpoint the time of breach. The breach occurred sometime between June and November 14, when the contract was terminated. It is impossible to determine which damages could have been mitigated without knowing when the breach occurred. However, the burden of proving failure to mitigate is on the breaching party. Cobb v. Osman, 83 Nev. 415, 422, 433 P.2d 259, 263 (1967). We hold that SNP did not meet its burden of proving that Ebcon failed to take reasonable measures to alleviate its damages.
Ebcon contends that the district court erred in finding that the damages sought in the counterclaim were not foreseeable to SNP when it breached the contract. Damages from a breach of contract should be such as may fairly and reasonably be considered as arising naturally, or were reasonably contemplated by both parties at the time they made the contract. Hadley v. Baxendale, 156 Eng.Rep. 145 (Ex. 1854). Ebcon claims that SNP's breach caused it to pay additional interest on its construction loan, and a $100,000.00 late penalty for failing to complete construction on time. Based on the facts of this case, we hold that the interest on the construction loan was a damage neither contemplated nor foreseeable at the time Ebcon and SNP entered into the contract.
However, the contract clearly contemplates that SNP would be liable for the portion of liquidated damages assessed to Ebcon that was attributable to SNP's failure to complete its work on time. Paragraph 3 of the contract provides, in relevant part, "any penalties to us due to the impromptness of the completion of your work will be deducted from your final payment." Paragraph 10 provides, in relevant part:
If the Contractor is assessed liquidated damages by the owner for failure to complete the work on time, and if the delay has been caused by the Sub-Contractor [SNP] herein, the Sub-Contractor agrees to pay the portion of the liquidated damages caused by or attributed to his failure to complete his work on time and in accordance with the working schedule.
While we agree that Ebcon may be entitled to additional damages, Ebcon's argument that SNP is liable for the entire $100,000 late penalty is tenuous at best. The record shows that there were buildings in various stages of construction at the time Las Vegas Paving began working. Although it is reasonable to assume that *802 SNP's breach may have caused some delay, it is unlikely that it is solely responsible for Ebcon's failure to finish construction on time. It is unclear from the record what portion, if any, of the liquidated damage assessed to Ebcon can reasonably be attributed to SNP's breach. Therefore, it is necessary to remand the case to the district court for such a determination. Accordingly, this case is remanded for proceedings consistent with this opinion.
NOTES
[1] Because we remand for a new trial, we do not decide whether the district court correctly provided for judgment interest to run from January 3, 1985, the date of its initial decision, rather than August 29, 1985, the date the Judgment was filed.
|
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