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Docket Number

No. 3899.

Attorney(S)

Willcox Judson and Rupert B. Turnbull, all of Los Angeles, Cal., for bankrupt. Edmund Nelson and Hugo A. Steinmeyer, both of Los Angeles, Cal., for creditor.

Judges

YANKWICH, District Judge.

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In re CAMPBELL, No. 3899 (S.D. Cal. Oct. 14, 1940) — Summary

Factual and Procedural Background

This is an original petition filed September 18, 1940, by the Corporation of America (the creditor) in the bankruptcy proceeding of Barbara Campbell, seeking an order settling the creditor's account and authorizing foreclosure of a deed of trust. The accounting now before the court is subsequent to the accounting that had been reviewed by the Conciliation Commissioner and that review was the subject of an opinion filed concurrently (cited as 35 F. Supp. 97). The creditor's accounting contains a single item objected to by the debtor: $3,630.13 claimed as an expense of management. The reasonableness of that amount is not disputed. The debtor objects to the allowance of such item on the ground that a prior order of Judge George Cosgrave dated July 15, 1938, disallowed a similar management charge (specifically $3,281.24 designated as a charge for handling and superintending operation of the bankrupt's property) and stated that a ten percent charge for superintendence was excluded by the parties' agreement of June 28, 1934, which provided only for reimbursement of actual expenses.

Legal Issues Presented

Whether the creditor (Corporation of America) is entitled to have its account settled in accordance with its petition and the showing made in open court.
Whether the creditor should be granted leave to foreclose the deed of trust at this time.
Whether the claimed management expense of $3,630.13 is allowable in light of the prior ruling (Judge Cosgrave's order of July 15, 1938) that rejected a percentage charge for superintendence under the parties' June 28, 1934 agreement.

Arguments of the Parties

Creditors' Position

The creditor petitioned for settlement of its account and for leave to foreclose the deed of trust.
The creditor submitted an accounting that included $3,630.13 as an expense of management; the reasonableness of the amount was not disputed, and the creditor presented proof of expenditures and payment for management here that was not present in the earlier proceeding.

Debtor's Position

The debtor objected to allowance of the management charge on the ground that Judge Cosgrave's prior order of July 15, 1938, disallowed a similar item and that that ruling, grounded on the parties' June 28, 1934 agreement (which limits recovery to actual expenses), has become final and therefore should preclude a similar allowance now.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Mutual Life Ins. Co. v. Hill, 193 U.S. 551, 554, 24 S. Ct. 538, 539, 48 L. Ed. 788	States the law-of-the-case principle: "An actual decision of any question settles the law in respect thereto for future action in the case."	The court cites this to explain the general rule that a prior decision settles the law in the case, but then identifies the exception that the prior decision does not bind when the evidence at the subsequent hearing is different.
Balch v. Haas, 8 Cir., 1896, 73 F. 974	Federal-court recognition of the law-of-the-case principle and its limits.	Used as an example supporting the court's statement that the law-of-the-case principle applies only insofar as the facts are the same; cited with other federal cases to show the rule in federal courts.
Crotty v. Chicago Great Western Ry. Co., 8 Cir., 1909, 169 F. 593	Federal precedent on the law-of-the-case principle.	Appears with other federal decisions to support the proposition that prior rulings bind only if the facts are the same on subsequent consideration.
Patterson v. Stroecker, 9 Cir., 1917, 245 F. 732	Federal precedent on the application of the law-of-the-case doctrine.	Supports the court's view that a prior decision is controlling only when subsequent proceedings present the same facts.
Millsap v. Balfour, 158 Cal. 711, 720, 112 P. 450	California rule recognizing the law-of-the-case principle.	Provides state-law authority consistent with the federal rule that prior decisions control only if the facts remain the same.
Prefumo v. Russell, 10 Cal.App. 113, 101 P. 24	California authority on law-of-the-case.	Supports the court's statement that the California rule aligns with the federal rule regarding the law of the case.
United States v. Standard Oil Co. of California, D.C. 1937, 21 F. Supp. 645, 656	Cited for the proposition that modern business practice recognizes and takes into account the cost of superintendence in managing property.	The court invokes this prior opinion to justify considering and allowing actual expenditures for management and supervision incurred by a corporate creditor that must act through others.
35 F. Supp. 97 (opinion filed concurrently)	Prior opinion of the court reviewing the Conciliation Commissioner's order of February 27, 1940; provides fuller background.	The opinion is referenced as setting forth the background more fully; it is used to situate the present accounting as subsequent to the accounting covered by that earlier review.

Court's Reasoning and Analysis

The following recounts the court's step-by-step analysis as expressed in the opinion; no additional facts or inferences are introduced.

The court opened by noting the petition filed by the Corporation of America to settle its account and to obtain leave to foreclose a deed of trust, and that the accounting before it was subsequent to the accounting previously reviewed by the Conciliation Commissioner (and addressed in a concurrently filed opinion, 35 F. Supp. 97).
The court identified that the only contested item in the present accounting was a $3,630.13 charge claimed as an expense of management; the reasonableness of the amount was not disputed and the evidence showed the amount was less than the standard charge for managing such properties.
The debtor's objection was based on an earlier, final order by Judge Cosgrave (July 15, 1938) disallowing a similar management charge (here cited as $3,281.24) and a memorandum reasoned that a ten percent charge for superintendence was excluded by the parties' June 28, 1934 agreement, which provided only for reimbursement of actual expenses.
The court analyzed the law-of-the-case doctrine, citing Mutual Life Ins. Co. v. Hill and other federal and California authorities, and articulated the governing limitation: a prior decision is binding only insofar as the facts are the same; the doctrine does not preclude reconsideration when the evidence at the subsequent hearing is different.
Applying that limitation, the court distinguished the present claim from the earlier disallowed item: in the earlier proceeding there was apparently no proof of payment for management, and the charge rejected was a percentage (a ten percent charge for superintendence); in the present accounting the creditor claims actual money expended in management and has presented proof of payment.
The court further considered the corporate nature of the creditor and observed that a corporate manager must act through others, and modern business practice (as reflected in the court's prior opinion in United States v. Standard Oil Co. of California) takes into account the cost of superintendence; moreover, the parties' agreement put the creditor in possession with authority to operate and "do all things which in its absolute discretion it shall deem necessary," indicating the creditor should not be denied reimbursement for actual expenditures for management and supervision.
As to the creditor's application for leave to foreclose, the court balanced competing considerations: (a) the amounts in dispute were substantial and could affect the debtor's ability to redeem, and (b) making leave to foreclose dependent upon the finality of the accounting might work unfairly to the creditor; the court also recognized that if the creditor remained in possession further accountings and disputes might arise leading to further judicial determinations and that finality might never be reached.
Given those considerations, the court concluded that immediate leave to foreclose should be denied but that the creditor should be permitted to renew its application after a reasonable time.

Holding and Implications

Holding: The court held that the creditor is entitled to have its account settled in accordance with the petition and the showing made in open court, and that, for the present, the creditor's petition for leave to foreclose should be denied. The court allowed the management expenditure claim (the contested $3,630.13) on the basis that it represents money expended in management with proof of payment and is distinct from the previously disallowed percentage charge. The creditor may renew its application for leave to foreclose after sixty days from the date of the order; in the meantime the creditor is enjoined from instituting any foreclosure proceedings.

Implications: Direct effects on the parties are (1) the creditor's account is to be settled as prayed, including allowance of the $3,630.13 management expense; (2) the creditor is temporarily denied leave to foreclose but may renew after sixty days; and (3) foreclosure proceedings are enjoined during that sixty-day period. The opinion does not announce that it establishes any new controlling precedent beyond applying the existing law-of-the-case principle and its factual limitation; it applies established federal and state authorities and the court's prior practice to the particular factual circumstances (noting the presence here of proof of actual expenditures).

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In re CAMPBELL

Proceeding in the matter of Barbara Campbell, bankrupt, wherein original petition was filed by the Corporation of America for an order settling its account and authorizing foreclosure of trust deeds.

Judgment in accordance with opinion.

YANKWICH, District Judge.

Before me is an original petition filed on September 18, 1940, by the Corporation of America, creditor, for an order settling its account and authorizing foreclosure of a deed of trust.

The background of the litigation is more fully set forth in the opinion filed concurrently with this, 35 F. Supp. 97, on review of certain order of the Conciliation Commissioner, dated February 27, 1940.

The accounting submitted is subsequent to that covered by the accounting before the Conciliation Commissioner, the review of which I have just decided.

I am of the view that the creditor is entitled to have its account settled in accordance with the prayer of the petition and the showing made in open court on the hearing and that for the present, at least, its petition for leave to foreclose should be denied.

The only item objected to in this proceeding is the item of $3,630.13, which is claimed as an expense of management.

The reasonableness of the amount is not disputed.

The evidence before the Court shows clearly that the amount claimed is less than the standard charge made for management of properties of this character. The debtor objects to the allowance upon the ground that we are foreclosed from making an allowance of this character, because of the refusal of the Honorable George Cosgrave to make a similar allowance in his order of July 15, 1938, which has now become final. That order contains, among the items disallowed, the following: "(a) The total sum of $3,281.24, designated in said accounting as a charge for handling and superintending the operation of the property of the bankrupt".

In the memorandum decision which preceded the making of the formal order, Judge Cosgrave gave this as his ground for decision:

No opinion for publication.

"A further exception is made to the ruling of the Conciliation Commissioner rejecting a ten per cent charge for superintendence made by the creditor in farming the property. This exception is overruled for the respective rights of the parties are established by the agreement of June 28, 1934, which provides only for the reimbursement of actual expenses. Such charge is therefore necessarily excluded." (Italics added.)

It is insisted that this determination has become the law of the case and precludes the allowance of the sum now asked, which covers the period subsequent to that involved in that order. The principle of the law of the case aims to prevent relitigation of questions in the same action. It has been stated succinctly by the Supreme Court: "An actual decision of any question settles the law in respect thereto for future action in the case." Mutual Life Ins. Co. v. Hill, 1904, 193 U.S. 551, 554, 24 S.Ct. 538, 539, 48 L.Ed. 788.

The principle, harsh at times in its application, as it precludes judicial confession of error in previous rulings, — does not apply if the decision was made on the evidence and the evidence on the second hearing is different.

In other words, the prior decision is the law of the case only in so far as the facts are the same.

This is the rule in Federal courts. See Balch v. Haas, 8 Cir., 1896, 73 F. 974; Crotty v. Chicago Great Western Ry. Co., 8 Cir., 1909, 169 F. 593; Patterson v. Stroecker, 9 Cir., 1917, 245 F. 732.

It is also the California rule. See Millsap v. Balfour, 1910, 158 Cal. 711, 720, 112 P. 450; Prefumo v. Russell, 1909, 10 Cal.App. 113, 101 P. 24.

Here, there is no claim of a percentage for management. The claim here is for money expended in management. There was, evidently, no proof of payment there. There is such proof here.

In view of the corporate character of the creditor, we must bear in mind the fact that in managing properties of this character, it must act through others. Law today follows modern business practice in taking into account the cost of superintendence. See my opinion in United States v. Standard Oil Co. of California, D.C. 1937, 21 F. Supp. 645, 656. And certainly, where, as here, the debtor by agreement put the creditor in possession, with the right to operate and care for the property "and do all things which in its absolute discretion it shall deem necessary for the proper care, maintenance and protection thereof," the creditor should not be denied its actual expenditure for management and supervision.

As to the motion for leave to foreclose, the amounts in dispute, which the Court has settled by this order, are very substantial and may affect the ability of the debtor to redeem her property by tendering the amount due.

On the other hand, a decision which would make leave to foreclose dependent upon the finality of the accounting now ordered might, if made absolute, work unfairly for the creditor.

As I stated at the hearing, unless the creditor surrenders possession, this accounting will be followed by others, as to which disputes might arise, calling for a judicial determination. And finality might never be reached.

Under the circumstances, I feel that the matter should abide a reasonable time until the intention of the parties as to any further proceedings with respect to the orders made today is more readily ascertained.

The petitioning creditor may renew its application for leave to foreclose after the expiration of sixty days from date hereof. In the meantime, it shall stand enjoined from instituting any foreclosure proceedings.

IN RE CAMPBELL, (S.D.Cal. 1940)