KING v. FEDERAL DEPOSIT INS. CORP., (D.Vt. 1992)

Citation Codes

Equivalent Citations

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Docket Number

Civ. A. No. 90-55.

Motions

Motion for summary judgment : Denied

Attorney(S)

Richard Foote, Conley Foote, Middlebury, Vt., for plaintiff. Mary Miles Teachout, Teachout, Brooks, Moore McNally, Norwich, Vt., and Michael McGaughran, Assistance Transaction Branch, The Federal Deposit Ins. Corp., Boston, Mass., for defendant The Federal Deposit Ins. Corp. John L. Kellner, Langrock Sperry Wool, Middlebury, Vt., for defendant Sanders Mock Associates, Inc.

Judges

Albert Wheeler Coffrin

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Smart Summary

Factual and Procedural Background

On March 1, 1990, Thomas M. King, a New Jersey citizen, filed a Complaint in the United States District Court for the District of Vermont against Dartmouth Banking Co. ("Dartmouth") and Sanders Mock Associates, Inc. ("Sanders Mock"), both citizens of New Hampshire, seeking damages in excess of $50,000. King alleged that on April 18, 1989, Sanders Mock conducted an auction of properties owned by Dartmouth in Rutland, Vermont, and that the auction was conducted fraudulently. King's allegations included that the Sanders Mock auctioneer engaged in by-bidding (recognizing phantom bidders), that Dartmouth and Sanders Mock withheld information that tenants had filed a lawsuit against the Property prior to the auction, and that Dartmouth later refused to finance King's purchase as previously agreed. Sanders Mock filed an amended answer (March 22, 1991) and moved to dismiss and/or for summary judgment (April 3, 1991), asserting the action was time-barred by the statute of limitations. On December 11, 1991, the court granted a motion substituting the FDIC as defendant in place of Dartmouth (as liquidating agent). For the reasons stated in the opinion, the court denied Sanders Mock's motion to dismiss on statute of limitations grounds.

Legal Issues Presented

Whether 32 V.S.A. § 7606 (a thirty-day limitations provision concerning "All claims against an auctioneer ... and final settlement of accounts between consignors ...") governs King's claims against Sanders Mock arising from the April 18, 1989 auction.
If 32 V.S.A. § 7606 does not apply, whether the general six-year statute of limitations, 12 V.S.A. § 511, governs King's claims and thus renders the March 1, 1990 complaint timely.

Arguments of the Parties

Sanders Mock's Arguments

Sanders Mock contends the relevant statute of limitations is 32 V.S.A. § 7606, which requires all claims against an auctioneer and final settlement of accounts between consignors and auctioneers to be made within thirty days of the auction sale from which the claim arose.
Based on the timing (auction April 18, 1989; complaint filed March 1, 1990), Sanders Mock argues King's action is time-barred under that thirty-day provision.

King's Arguments

King argues that 32 V.S.A. § 7606 "obviously" does not apply to his claims and that instead 12 V.S.A. § 511 (the six-year general statute of limitations) applies.
King also argued (as discussed in the opinion) that section 7606 applies only to claims against surety bonds required by former 32 V.S.A. § 7605; the court considered and rejected this particular argument.
The opinion notes King did not brief equitable tolling despite alleging fraud as to one claim.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Burlington Electric Dept. v. Vermont Dept. of Taxes, 154 Vt. 332, 335, 576 A.2d 450 (1990)	States the primary goal in statutory interpretation is to effectuate legislative intent.	The court invoked this principle as the starting point for interpreting 32 V.S.A. § 7606.
State v. Baldwin, 140 Vt. 501, 510, 438 A.2d 1135	Explains that plain meaning rules are starting points and that legislative intent is the objective of interpretation.	The court used this citation to support its methodology in construing ambiguous statutory language.
In re J.R., 153 Vt. 85, 97, 570 A.2d 154 (1989)	States the presumption that a legislature does not intend irrational consequences.	The court relied on this presumption to reject a broad reading of § 7606 that would produce irrational results (e.g., cutting off many claims that necessarily arise later).
In re Judy Ann's Inc., 143 Vt. 228, 232-33, 464 A.2d 752 (1983)	Also cited for the rule that legislatures are presumed not to intend irrational consequences.	Supported the court's conclusion that § 7606 should not be read to bar all possible claims arising in the context of an auction sale.
Swanton Village v. Town of Highgate, 131 Vt. 318, 305 A.2d 586 (1973)	Permits resort to legislative history when a statute is unclear on its face.	The court relied on legislative history to determine the original purpose and scope of § 7606.
DeGoesbriand Memorial Hospital, Inc. v. Town of Alburg, 122 Vt. 275, 169 A.2d 360 (1961)	Also supports using legislative history to interpret unclear statutes.	Used to justify examining the drafting and committee records for § 7606's meaning.
Cerbone v. Int'l Ladies' Garment Workers' Union, 768 F.2d 45, 48 (2d Cir. 1985)	States that equitable tolling is normally appropriate when the complained-of action is fraudulent or fraudulently concealed, and lasts until discovery.	The court cited Cerbone to explain the doctrine of equitable tolling and noted it could not decide tolling because King had not briefed when the alleged fraud was discovered.

Court's Reasoning and Analysis

The court began by noting the relevant facts were apparent from the Complaint: the auction occurred April 18, 1989; the claims arose from that auction; an auctioneer employed by Sanders Mock conducted the sale; and the Complaint was filed March 1, 1990. Sanders Mock relied on 32 V.S.A. § 7606 (thirty-day requirement) while King relied on the general six-year statute, 12 V.S.A. § 511.

The court examined the text of § 7606 and considered whether the drafters intended it to apply to all claims arising in the context of an auction. The court observed that certain causes of action (for example, breaches of warranty) may not arise within thirty days of an auction, making it unlikely the legislature intended § 7606 to cut off "entirely all of the different claims against auctioneers" that do not arise within thirty days. Therefore, a narrower reading was required.

Because the statute's text was unclear, the court consulted legislative history. The court described the original Senate version of the statute, which contained subsection (b) creating a thirty-day escrow for gross receipts, and explained that subsection (a)'s reference to "claims" made sense in that context as claims by consignors against an escrow holding net proceeds. The Committee of Conference removed subsection (b) but retained subsection (a). The court reasoned it was unlikely the Committee intended to broaden the subsection's scope dramatically when reconciling the two houses, and therefore concluded "claims" in the present § 7606 should be read to mean claims by consignors against auctioneers for net proceeds from auction sales.

The court further supported this construction by analogizing to other Vermont statutes that use "claim" for demands for money under a contractual relationship (e.g., claims against decedent's estates, banking institution creditors, workers' compensation), and noted that claims for net proceeds necessarily arise at the time of sale or consignment—making the thirty-day trigger rational for such claims. Applying this statutory construction, the court determined King's three claims—fraudulent by-bidding, failure to disclose information, and improper refusal to finance the purchase—were not claims by consignors for net proceeds and therefore did not fall within § 7606.

Finally, the court noted King's first claim alleged fraud but that King had not argued equitable tolling; because the timing of discovery of the alleged fraud had not been briefed, the court could not determine whether equitable tolling would apply.

Holding and Implications

Holding: Sanders Mock's Motion for Summary Judgment on the issue of statute of limitations is DENIED.

Implications: The court held that 32 V.S.A. § 7606 does not apply to King's claims (which are not claims by consignors for net proceeds), and that the applicable statute of limitations is 12 V.S.A. § 511. As a direct consequence, King's action against Sanders Mock was timely filed and may proceed. The opinion does not announce or identify any newly established precedent beyond its statutory interpretation in this case.

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Thomas M. KING v. The FEDERAL DEPOSIT INSURANCE CORPORATION and Sanders Mock Associates, Inc. The FEDERAL DEPOSIT INSURANCE CORPORATION

OPINION AND ORDER

COFFRIN, Senior District Judge.

Thomas M. King filed a Complaint against Dartmouth Banking Co. ("Dartmouth") and Sanders Mock Associates, Inc., ("Sanders Mock") on March 1, 1990 Sanders Mock filed an amended answer on March 22, 1991, and a Motion to Dismiss and/or for Summary Judgment on April 3, 1991, arguing that the statute of limitations period for actions against it had expired. King opposes this motion. For the following reasons, Sanders Mock's motion to dismiss is denied.

On December 11, 1991, this court granted a motion by the Federal Deposit Insurance Corporation (the "FDIC") to substitute the FDIC as a party defendant as liquidating agent for Dartmouth.

BACKGROUND

On March 1, 1990, King, a citizen of New Jersey, filed a Complaint with this Court against Dartmouth and Sanders Mock, both citizens of New Hampshire, requesting damages in excess of $50,000. In the Complaint, King alleged that on April 18, 1989, Sanders Mock held an auction of certain properties owned by Dartmouth and located at 37 and 41 North Main Street in Rutland, Vermont (the "Property"). According to King, the auction was conducted fraudulently. In particular, King alleges that the Sanders Mock auctioneer (Emory Sanders) engaged in by-bidding, or the practice of fraudulently recognizing phantom bidders to raise the price offered by a legitimate bidder. King also asserts that Dartmouth and Sanders Mock improperly withheld certain information about the Property before the auction, namely that a lawsuit had recently been filed against it by the Property's tenants. Finally, King asserts that after the auction Dartmouth improperly refused to finance King's purchase of the Property in the manner agreed to by King and Dartmouth before the auction.

DISCUSSION

Sanders Mock here presents a Motion to Dismiss and/or for Summary Judgment. A defendant may bring a Motion to Dismiss under Fed.R.Civ.P. 12(b)(6) for violation of a statute of limitations if the violation is evident from the Complaint. See 2A Moore and Lucas, Moore's Federal Practice ¶ 12.10 (2d ed. 1991). Here, the relevant facts for the motion to dismiss are evident from the Complaint, namely: (1) the auction took place on April 18, 1989; (2) the claims against Sanders Mock arose out of King's purchase of the Property at the April 18, 1989 auction, and are each specified in the Complaint; (3) the auction was conducted by a licensed auctioneer working in the employ of Sanders Mock; and (4) the Complaint was filed March 1, 1990.

Sanders Mock, defendant here, asserts that the relevant statute of limitations for this action is 32 V.S.A. § 7606 which states:

All claims against an auctioneer licensed or recognized under this chapter, and final settlement of accounts between consignors of auctioned goods and any auctioneer licensed or recognized under this chapter shall be made within thirty days of the auction sale from which the claim arose or consignment was made.

King argues that 32 V.S.A. § 7606 "obviously" does not apply to this lawsuit, and the relevant statute of limitations is 12 V.S.A. § 511 which states:

A civil action, except one brought upon the judgment or decree of a court of record of the United States or of this or some other state, and except as otherwise provided, shall be commenced within six years after the cause of action accrues and not thereafter.

King filed the Complaint ten and a half months after the auction sale took place. If the thirty day statute ( 32 V.S.A. § 7606) applies, the action is barred and the motion to dismiss will be granted. However, if the six year statute ( 12 V.S.A. § 511) applies, the action can proceed and the motion to dismiss must be denied.

The language of 32 V.S.A. § 7606 on which Sanders Mock relies appears, at first glance, to apply. The present lawsuit concerns claims against an auctioneer. The claims against Sanders Mock arose out of an auction sale. However, it is questionable whether the drafters intend section 7606 to apply to the kinds of claims King brings against Sanders Mock.

King argues that section 7606 applies only to claims against the surety bonds which 32 V.S.A. § 7605 required all licensed auctioneers to file with the Vermont Secretary of State. This argument is without merit. The legislature repealed Section 7605 in 1985 without changing section 7606, leaving no doubt that it did not intend that the term "claims" in section 7606 apply only to claims on the surety bonds required by section 7605. Act of June 4, 1986, No. 257 (Adj.Sess.), § 3. Further, the committee member proposing the repeal of section 7605 did not even mention the effect the repeal would have on section 7606. Hearing on H. 438 Before the Senate Committee on Government Operations, 1971 (Adj.Sess.), Tape of April 23, 1986.

The primary goal in statutory interpretation is to effectuate the intent of the legislature. Burlington Electric Dept. v. Vermont Dept. of Taxes, 154 Vt. 332, 335, 576 A.2d 450 (1990). "The rules relating to plain and ordinary meanings are, of course, legal truisms invoked in the first instance . . . [b]ut these rules are only starting points on the path to the objective of legislative intent. . . ." State v. Baldwin, 140 Vt. 501, 510, 438 A.2d 1135. A useful rule is that a legislature is presumed not to intend irrational consequences. In re J.R., 153 Vt. 85, 97, 570 A.2d 154 (1989), In re Judy Ann's Inc., 143 Vt. 228, 232-33, 464 A.2d 752 (1983).

Section 7606 requires all claims, and final settlement of accounts, be brought " within thirty days of the auction sale or consignment" 32 V.S.A. § 7606 (emphasis added). However, an example of one of the kinds of causes of action which can be brought against auctioneers is claims based on warranties given by auctioneers at auction sales. 7 Am.Jur.2d Auctions and Auctioneers § 66 (1980). Yet claims for breaches of warranty do not necessarily arise within thirty days of an auction sale. It is unlikely that the legislature intended to cut off entirely all of the different claims against auctioneers which simply do not arise within the first thirty days after the auction. Therefore, section 7606 cannot logically refer to all possible causes of actions against auctioneers which somehow arise in the context of an auction sale, but must be read more narrowly.

When a statute is unclear on its face, a court may resort to legislative history to look for aid in its interpretation. Swanton Village v. Town of Highgate, 131 Vt. 318, 305 A.2d 586 (1973); DeGoesbriand Memorial Hospital, Inc. v. Town of Alburg, 122 Vt. 275, 169 A.2d 360 (1961). The statutes which would eventually become sections 7605 and 7606 were drafted by the Senate General and Military Committee and added to a bill concerning auctions originally proposed by the House in early 1972. 1971 Adj.Session H. 152. The text of section 7606 as proposed to and passed by the Senate was as follows:

§ 7606. Claims, escrow

(a) [identical to the present text of § 7606]

(b) All gross receipts from an auction sale shall not be taken from the state for a period of thirty days following the sale, but shall be placed in escrow within the state with an escrow determined by the secretary of state in the name of the auctioneer and consignor of the goods auctioned.

1971 Adj.Session Journal of the Vermont Senate p. 249, March 23, 1972. The concern addressed by section (b) is that auctioneers might leave the state without paying Vermont consignors the net proceeds due them from the auction sales. To solve this concern, the Vermont Senate proposed creation of a thirty day escrow account to hold the net proceeds of all auctions. Claims by consignors for their net proceeds naturally had to be brought within thirty days, as that was the statutory duration of the escrow account. Thus, the term "claims" in that version's § 7606(a) referred to claims against the escrow account. The language of then § 7606(a) requiring that "claims against auctioneers . . . and final settlement of accounts between consignors . . . and any auctioneer" had to be brought within thirty days made perfect sense in the context of a thirty day escrow account holding the net proceeds from sales.

The Committee of Conference ended up dropping § 7606(b), but retaining § 7606(a). 1971 Adj.Session Journal of the Vermont House of Representatives, p. 703, April 3, 1972. The term "claims" could no longer mean "claims against the escrow account." However, it is unlikely that the Committee of Conference intended to greatly extend the breadth of the statute § 7606 when simply trying to reach a compromise bill between two houses of the legislature. Therefore, the "claims" referred to in present day § 7606 must still mean claims by consignors against auctioneers for net proceeds from auction sales.

There is further support to the idea that the term "claim" in this context refers only to a demand for a sum of money under a formally existing arrangement, in the present case, a demand for net proceeds due under a contract to auction. Other Vermont statutes use the term "claim" when limiting the time for running of an action for a specific demand for money due under a contractual relationship. See e.g., claims against decedent's estates, 14 V.S.A. § 1202; claims of creditors against banking institutions, 8 V.S.A. § 1659; claims for worker's compensation, 21 V.S.A. § 656.

Furthermore, it is not irrational for the statutory time period for the bringing of such claims to commence with the time of the auction sale or consignment, since such claims necessarily arise at the time of the auction sale or consignment. Finally, this reading of 32 V.S.A. § 7606 requires auctioneers and consignors to sort out expeditiously the various obligations between them, which facilitates high volume auction sales in Vermont, and appears to be rational. For these reasons we hold that the Vermont Supreme Court would interpret the term "claim" in the context of 32 V.S.A. § 7606 to mean claims by consignors against auctioneers for the net proceeds from the auctioned sale of their consigned goods.

King brings three claims against Dartmouth (now the FDIC) and Sanders Mock. The first is that Sanders Mock fraudulently raised the auction price by recognizing phantom bidders. the second and third claims are that Sanders Mock and Dartmouth failed to disclose relevant information at the time of the auction, and that Dartmouth refused to finance King's purchase in the manner agreed on between the parties. These are not claims by a consignor against an auctioneer for proceeds of an auction sale. Therefore, none are covered by 32 V.S.A. § 7606. Because section 7606 is not applicable to any of the claims here under consideration, the court finds that the applicable statute of limitations is 12 V.S.A. § 511. Therefore, the instant action by King against Sanders Mock was timely filed.

Although the first claim is based on fraud, King has not raised the argument that equitable tolling is appropriate. Equitable tolling is normally appropriate when the complained of action is either fraudulent or fraudulently concealed, and lasts only until such time as the injured party discovers or should have discovered the fraud. Cerbone v. Int'l Ladies' Garment Workers' Union, 768 F.2d 45, 48 (2d Cir. 1985). Since the question of when the alleged fraud was discovered has not been briefed, we are unable to determine whether equitable tolling would be appropriate in this case.

ACCORDINGLY, IT IS ORDERED that Sanders Mock's Motion for Summary Judgment on the issue of statute of limitations is DENIED.