Court Opinion

ID: 194653
Source: CourtListenerOpinion
Date Created: 2011-02-07 02:22:01+00
Date Added: 2024-06-11T13:14:46.612210
License: Public Domain

April 1, 1993

               UNITED STATES COURT OF APPEALS
                   FOR THE FIRST CIRCUIT
                                        

No. 92-1844

          DANA MURPHY, in his Individual Capacity
                and d/b/a as BENEVEST, INC.,

                   Plaintiff, Appellant,

                             v.

                 ANGEL F. GINORIO, ET AL.,

                   Defendants, Appellees.

                                        

        APPEAL FROM THE UNITED STATES DISTRICT COURT

              FOR THE DISTRICT OF PUERTO RICO

        [Hon. Carmen C. Cerezo, U.S. District Judge]
                                                   

                                        

                           Before

            Torruella and Stahl, Circuit Judges,
                                               
            and Skinner,* Senior District Judge.
                                               

                                        

Maria Soledad  Ramirez Becerra  with whom  Mercado &  Soto was  on
                                                         
brief for appellant.
Maria Luisa  Martinez with whom Lasa,  Escalera &  Reichard was on
                                                          
brief for appellees.

                                        

                       March 30, 1993
                                        

                
*Of the District of Massachusetts, sitting by designation.

SKINNER, Senior District Judge.
                               

  This  appeal arises  from an  order  of the  United States

District Court  for the  District of Puerto  Rico, Honorable

Carmen  Consuelo Cerezo,  dismissing plaintiff's  action for

his failure  to post a  $75,000 non-resident surety  bond as

ordered by  the court pursuant  to District  of Puerto  Rico

Local Rule 304.  

BACKGROUND
          

  The  plaintiff   Dana  Murphy,   d/b/a  Benevest,   Inc.,1

brought suit against defendant AFG  Broadcasting Corporation

and fifteen of its officers, directors, and agents, alleging

that they conspired to defraud Murphy in connection with  an

investment in AFG Broadcasting.  Murphy contends that he was

duped into  investing more than  $200,000 in  AFG under  the

false  belief that AFG was  licensed to operate a television

station  in Arecibo,  Puerto  Rico.   Plaintiff's  complaint

asserted  claims  for  compensatory and  treble  damages  in

                    

1  The legal  relationship  between Murphy  and Benevest  is
unclear.    Benevest is  identified  in the  complaint  as a
corporation  incorporated under  the  laws of  Massachusetts
and, yet, the briefs filed with this  court strongly suggest
that Benevest is  not an  entity separate from  Murphy.   On
appeal Murphy  and Benevest have been treated as one entity;
this  conclusion, however,  does not  affect the  outcome of
this appeal.  

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excess  of  $5,000,000 under  the  Racketeer Influenced  and

Corrupt Organizations Act, 18 U.S.C.   1961 et. seq. and the

Civil  Code  of Puerto  Rico.    The complaint  also  sought

$300,000 for costs, expenses, and attorneys' fees.  

  On November  21, 1991, defendants sought  an order of  the

court pursuant  to Rule 304  requiring plaintiff  to post  a

non-resident bond in  the amount of  $500,000 to secure  any

award to defendants of costs, expenses, and attorneys' fees.

Defendants also informed the court that they planned to move

to dismiss the action as res judicata.  The motion, however,
                                     

was  never filed or decided.   Rule 304  states, in relevant

part:

  When the plaintiff is  domiciled outside of Puerto Rico
  or is a foreign  corporation, a bond shall be  required
  to secure the costs,  expenses and attorneys' fees that
  may be awarded.   All proceedings in the action  may be
  stayed until  bond is posted,  which shall not  be less
  than $250.00.  The Court may require an additional bond
  upon a showing that the original bond is not sufficient
  security,  and may  stay the  proceeding in  the action
  until such additional bond is given.

  After  the lapse of sixty (60) days from the service of
  the  order requiring  bond or additional  bond, without
  bond  having been  posted,  the Court  may dismiss  the
  action.

  This rule  shall be  liberally interpreted in  favor of
                                                         
  the  plaintiff so as not  to preclude his  right to sue
                                                         
  through  excessive bond  requirement.   Consistent with
                                       
  this,  the Court,  for good  cause shown,  may dispense
  with this requirement.

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D.P.R.L.R. 304 (emphasis added).  Murphy opposed the motion,

arguing  that  the  bond  request was  excessive  and  would

preclude  him from  pursuing this  action given  his limited

financial resources.  

  On December 20, 1991, the district court issued a  summary

order  requiring  Murphy to  post a  bond  in the  amount of

$75,000 within  90 days;  failure to  comply with the  order

would  result in the  action being dismissed.   Murphy filed

two motions for reconsideration  in which he complained that

he had been unable  to obtain the requisite bond  because he

had neither  sufficient income  nor valuable  property; that

the  $75,000 security  bond  was excessive;  that the  court

failed to evaluate his ability to post the bond; and that as

a result of the court's  order he was "economically helpless

to  pursue  a bonafide  [sic]  claim  before this  Honorable

Court."    The  district   court  denied  both  motions  for

reconsideration   and   ultimately  dismissed   the  action,

reasoning:

  We  note,  at the  onset that  plaintiff is  suing over
  sixteen  defendants, raising  complex claims  under the
  RICO  statute,  breach  of  contract  and tort  claims.
  Inasmuch as  plaintiff is asking $300,000  to cover his
  own costs, expenses, and attorney's fees, it should not
  be  out of line  to consider  that defendants  would be
  expected to incur in [sic] similar expenses.  Plaintiff
  does not deny that he was a party to the Superior court
  cases  upon which  defendants  will  move  for  summary
  judgment; rather,  he asks that we  order defendants to

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  provide  him  with   certified  transcripts  of   those
  proceedings, as if they were never there.

Murphy timely filed a notice of appeal from the dismissal.

ANALYSIS
        

  The  purpose of Rule  304 is  to ensure  that a prevailing

party will be  able to  collect a judicial  award of  costs,

expenses, and attorneys' fees  from a non-resident litigant,

who probably  has no  assets in and  few ties to  the forum.

Santa Molina v.  Urban Renewal and Hous.  Corp., 14 Official
                                               

Translations  of the Supreme Court of  Puerto Rico 382, 385,

114 P.R.  Dec. 382, 385 (P.R.  1983) (finding constitutional

the  parallel rule of  the state court).   While recognizing

the  legitimate interest  served  by the  rule, courts  have

emphasized  that  it  must  be carefully  applied  to  avoid

depriving a plaintiff, who  may have few financial resources

but a legitimate claim,  of the opportunity to have  a court

decide his claim on the merits.   See Aggarwal v. Ponce Sch.
                                                            

of Medicine, 745 F.2d 723, 728 (1st Cir. 1984) ("The rule is
           

a scalpel, to be used with  surgical precision as an aid  to

the even-handed administration of justice, not a bludgeon to

be employed as an instrument of oppression."); Santa Molina,
                                                           

114  P.R.R. at  385 (inferring  the lawmaker's  intention to

open the doors of  courthouses to poor litigants).   A trial

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court  enjoys  wide discretion  in  administering procedural

matters, including the question of security costs.  Thus, we

review the court's decision only for an abuse of discretion.

Aggarwal, 745 F.2d at 726-27.
        

  This  appeal  falls comfortably  within Aggarwal  v. Ponce
                                                            

School of Medicine where  we vacated an order of  a district
                  

court that  dismissed an  action for plaintiff's  failure to

post  a $5,000 non-resident bond.  Id. at 729.  In Aggarwal,
                                                           

as  in this  case,  the district  court  failed to  consider

plaintiff's ability to post bond.  Id. at 727-28.   Rule 304
                                      

demands  that a court consider at least three factors before

imposing  a  non-resident   bond:     (1)  the   plaintiff's

probability of success on the merits, and the background and

purpose  of  the suit;  (2)  the  reasonable extent  of  the

security  to be posted, if any,  viewed from the defendant's

perspective; and  (3) the reasonable extent  of the security

to  be  posted,  if  any,  viewed  from  the  nondomiciliary

plaintiff's perspective.   Id.  Moreover, whenever a bond is
                              

set in excess of the statutory $250 minimum, the trial court

should evidence  on the record its  careful consideration of

each of these factors.  See id. at 727 n.1, 728-29.
                               

  In  this case, it  appears that  the district court failed

to consider  Murphy's economic circumstances, his ability to

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post the $75,000 bond, and the potentially preclusive effect

of the bond requirement on his ability to pursue litigation.

Certainly,  no such  findings  were made  in  either of  the

judge's   opinions  that  addressed  the  bond  requirement.

Though the court  below expressly considered several  highly

relevant  factors,  including  the  large  number  of  named

defendants,  the complex  nature of  the suit,  and  its low

probability  for  success on  the  merits,  the court  never

addressed plaintiff's  oft repeated  contention that he  was

incapable  of posting  a $75,000  bond.   Appellees' contend

that though the trial court did not specifically address the

reasonableness of the bond requirement  from the plaintiff's

perspective, it did consider some of the factors relevant to
                                  

Rule 304.  This  argument, however, is plainly at  odds with

our holding in Aggarwal.  Id. at 727 (absent a trial court's
                             

consideration of the plaintiff's ability to post a bond, the

court's  findings  "comprise,  at best,  two-thirds  of  the

equation").

  Appellees  also  complain  that  Murphy  has  relied  upon

conclusory    and   sometimes    contradictory   allegations

concerning  his financial  condition,  and that  he has  not

proven  his  inability  to  post  the  bond.    Murphy   has
      

identified himself  at various  times as self-employed,  the

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president and  sole shareholder of Benevest,  and an officer

of Scanner International.  Moreover, there is no information

before the court concerning the financial resources, if any,

of Benevest.  Indeed,  as previously noted, it is  not clear

whether  Benevest is a separate  entity.  In  spite of these

shortcomings, plaintiff, however, has done what he must.  He

raised  the  issue  before  the trial  court  and  submitted

affidavits  identifying his  annual salary, stating  that he

has no substantial assets,  and describing his  unsuccessful

attempts  to secure  a  bond.   The error  lies not  in what

plaintiff has  offered as  evidence, but in  that the  court

failed  even  to  consider   the  evidence  offered  by  the
                          

plaintiff.   Nevertheless, the  district court will  need to

resolve  these  issues  on  remand  before  it  can  set  an

appropriate bond requirement, if one is imposed at all. 

  We vacate  the district court's  order not simply  because

the court below failed to follow a formalistic three-pronged

evaluation, but  rather because  the trial  court's approach

comes  dangerously  close   to  making  judicial  access   a

privilege for only  the most financially secure.   "While it

is neither  unjust nor unreasonable  to expect a  suitor `to

put 

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his money where his mouth is,'  toll-booths cannot be placed

across the courthouse doors in a haphazard fashion."  Id. at
                                                         

728 (citation omitted).

  The judgment  of the  district  court is  vacated and  the
                                                            

case  is   remanded  to  the  district   court  for  further
                                                            

consideration of the criteria  for imposing a bond described
                                                            

above.
      

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