Court Opinion

ID: 2961497
Source: CourtListenerOpinion
Date Created: 2015-09-21 20:44:02.074015+00
Date Added: 2024-06-11T11:42:20.357166
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USCA1 Opinion

	

        September 4, 1992   UNITED STATES COURT OF APPEALS        September 4, 1992   UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                FOR THE FIRST CIRCUIT                                 ____________________                                 ____________________        No. 91-2317        No. 91-2317                                A. GREER EDWARDS, JR.,                                A. GREER EDWARDS, JR.,                                Plaintiff, Appellant,                                Plaintiff, Appellant,                                          v.                                          v.                               JOHN HANCOCK MUTUAL LIFE                               JOHN HANCOCK MUTUAL LIFE                                  INSURANCE COMPANY,                                  INSURANCE COMPANY,                                 Defendant, Appellee.                                 Defendant, Appellee.                                 ____________________                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                          FOR THE DISTRICT OF MASSACHUSETTS                     [Hon. Robert E. Keeton, U.S. District Judge]                     [Hon. Robert E. Keeton, U.S. District Judge]                                             ___________________                                 ____________________                                 ____________________                                        Before                                        Before                             Breyer, Chief Circuit Judge,                             Breyer, Chief Circuit Judge,                                     ___________________                                 Cyr, Circuit Judge,                                 Cyr, Circuit Judge,                                      _____________                             and Fust ,* District Judge.                             and Fust ,* District Judge.                                         ______________                                 ____________________                                 ____________________            Maria L. Sveikauskas for appellant.            Maria L. Sveikauskas for appellant.            ____________________            Edward S. Rooney,  Jr., with whom Lyne,  Woodworth & Evarts was on            Edward S. Rooney,  Jr., with whom Lyne,  Woodworth & Evarts was on            _______________________           _________________________        brief, for appellee.        brief, for appellee.                                 ____________________                                 ____________________                                 ____________________                                 ____________________        *Of the District of Puerto Rico, sitting by designation.        *Of the District of Puerto Rico, sitting by designation.                    CYR, Circuit  Judge.  Plaintiff A.  Greer Edwards, Jr.,                    CYR, Circuit  Judge.                         ______________          appeals a  district court judgment dismissing  his action against          John   Hancock   Mutual  Life   Insurance   Company  [hereinafter          "Hancock"]   to   recover   damages   allegedly   caused   by  an          underinclusive property description in the notices of foreclosure          sale relating to certain Nevada ranch properties.  Count I of the          complaint, a negligence claim, was dismissed as time-barred.  The          breach of contract claim in count II was dismissed on the grounds          that Hancock  had assumed no contractual  obligation with respect          to  the foreclosure sale and  that the trustees  under the Nevada          deeds of trust were not Hancock's agents.                                          I                                          I                                      BACKGROUND                                      BACKGROUND                                      __________                    As these claims were dismissed pursuant to Fed. R. Civ.          P. 12(b)(6), we  review the  order of dismissal  de novo,  Garita                                                           __ ____   ______          Hotel  Ltd., Partnership v. Ponce  Federal Bank, 958  F.2d 15, 17          ________________________    ___________________          (1st Cir. 1992); McCoy  v. Massachusetts Institute of Technology,                           _____     _____________________________________          950  F.2d  13, 15  (1st  Cir. 1991),  accepting  all well-pleaded          allegations   in  the  complaint   and  drawing   all  reasonable          inferences in  favor of  the plaintiff,  see Dartmouth  Review v.                                                   ___ _________________          Dartmouth College, 889 F.2d 13, 16 (1st Cir. 1989).  According to          _________________          the complaint, during 1975  and 1976 Hancock loaned approximately          $1,000,000 to a general partnership in which Edwards  remains the          only interested partner.  The Hancock loans were secured by first                                          2          deeds  of trust  on  two Nevada  ranch  properties owned  by  the          partnership.   Farmers Home  Administration later  extended loans          secured by second deeds of trust on the same properties.                    The  partnership defaulted on  its loan  obligations to          Hancock, which  instituted foreclosure proceedings  in July 1985.          The   notices  of  the  foreclosure  sale  specifically  excluded          mineral, oil and  gas rights  from the property  interests to  be          sold at public auction.  At the auction, Farmers Home Administra-          tion,  the  only  bidder,  acquired  both  ranch  properties  for          approximately  $1,232,000.   Freeport-McMoran  Gold  Company  had          "expressed great interest" in acquiring the properties and was in          attendance  at the auction, but refrained from bidding due to the          mineral rights exclusion.                    After  paying  Hancock   approximately  $1,250,000   to          release  its  interest  in  the ranch  properties,  Farmers  Home          Administration instituted an action against Edwards in the United          States District Court  for the  District of Nevada  to recover  a          deficiency  approximating  $600,000.    On  January 5, 1988,  the          Nevada federal district court  ruled the foreclosure sale invalid          on  the ground  that  the notices  of  sale violated  the  Nevada          foreclosure  statutes  by  excluding  the mineral,  oil  and  gas          rights.  Farmers Home Administration subsequently transferred its          interest in the ranch properties to Edwards for $400,000.                    The present action was instituted by Edwards in Suffolk          Superior  Court  on  January 2,  1991, and  promptly  removed  by          Hancock to the United  States District Court for the  District of                                          3          Massachusetts.  The district court dismissed the negligence claim          as  time-barred under  the  three-year  Massachusetts statute  of          limitations.   It dismissed the breach of contract claim as well,          but with leave to  amend.  Later, the amended  breach of contract          claim was dismissed, with prejudice, and this appeal followed.                                          II                                          II                                      DISCUSSION                                      DISCUSSION                                      __________          A.  Negligence Claim          A.  Negligence Claim              ________________                    Edwards does not contest the district court ruling that          count  I  alleged a  negligence claim  subject to  the three-year          limitations period in  Mass. Gen. Laws ch. 260,    2A, commencing          at the time of the discovery of the injury to the plaintiff.  See                                                                        ___          Joseph A.  Fortin Constr.  Inc. v. Massachusetts  Housing Finance          _______________________________    ______________________________          Agency, 392 Mass.  440, 442, 466 N.E.2d 514, 515 (1984) (cause of          ______          action  in tort  accrues upon  happening of  event likely  to put          plaintiff  on notice  that it  has been  injured).   The district          court ruled that the  cause of action for negligence  accrued not          later than the foreclosure  sale in July 1985.   Edwards counters          on  appeal that the cause  of action accrued  on January 5, 1988,          when  the  Nevada federal  district  court  ruled  the notice  of          foreclosure sale invalid under  Nevada law.  Prior to  that time,          Edwards contends, his cause of action was "inherently unknowable"          within  the   meaning  of   the  Massachusetts  discovery   rule.                                          4          Hendrickson v.Sears, 365 Mass. 83,85, 310 N.E. 2d131, 132 (1974).          ___________   _____                    A cause  of action  for an inherently  unknowable wrong          does not accrue under the Massachusetts discovery rule  until the          facts  which gave rise to  the cause of  action, as distinguished          from  the legal theory, either became known or should have become          known  to  the  injured  party  in  the  exercise  of  reasonable          diligence.  Catrone v.  Thoroughbred Racing Asso., 929  F.2d 881,                      _______     _________________________          885 (1st Cir.  1991) (citing cases).  Edwards admits  that he was          aware, at  the time of the foreclosure  sale, that the notices of          sale "except[ed] therefrom all mineral, oil and gas rights on the          property hereinabove  described, said  rights forming no  part of          this guarantee."  He contends, however, that the  quoted language          is  ambiguous as to whether mineral rights were excluded from the          foreclosure  sale  or  simply  excepted from  the  disclaimer  of          coverage under the title guarantee.  If the latter interpretation          were  intended, Edwards  argues, he  would have  had no  cause of          action  until the Nevada federal district court ruled the notices          of sale underinclusive.                    We cannot agree that  any ambiguity in the exclusionary          language in the notices of sale affected the accrual of the cause          of action for purposes of the Massachusetts discovery rule.  Even          assuming the notices of  sale were ambiguous, Edwards nonetheless          was aware of sufficient facts to alert a reasonable person to the          potential  negligence  claim  no  later  than  the  time  of  the          foreclosure sale.   Under Massachusetts  law, a  cause of  action          accrues  when  a  reasonable  person,  in  the  exercise  of  due                                          5          diligence,  "would  have  discovered   the  damage."    Riley  v.                                                                  _____          Presnell, 409 Mass.  239, 245,  565 N.E.2d 780,  786 (1991);  see          ________                                                      ___          also Malapanis v. Shirazi, 21 Mass. App. Ct. 378, 383, 487 N.E.2d          ____ _________    _______          533,  537  (1986)  (limitations  period  begins  when  reasonably          prudent person "reacting to any suspicious circumstances of which          he might have been aware . . . should have discovered that he had                                         ______ ____ __________          been harmed") (emphasis added); Fidler v.  Eastman Kodak Co., 714                                          ______     _________________          F.2d  192,  199  (1st Cir.  1983)  ("notice  of  likely cause  is          ordinarily  enough  to  start  the  statute  running")  (applying          Massachusetts  law).   "The  controlling  question  is whether  a          plaintiff's  knowledge, actual  or  attributed, of  both harm  to          [him]  and the  likely  cause of  such  harm, was  sufficient  to          stimulate  further inquiry which was  likely to alert  [him] to a          cause  of action against a  defendant."  Hanson  Housing Auth. v.                                                   _____________________          Dryvit System, Inc., 29 Mass. App. Ct. 440, 446, 560 N.E.2d 1290,          ___________________          1294 (1990), review den., 409 Mass. 1101, 565 N.E.2d 792 (1991).                       ______ ____                    Edwards does  not deny notice of  the foreclosure sale.          Moreover,  during the  Nevada  federal district  court action  in          1986, Edwards apparently raised the invalidity of the notices  of          sale under the  Nevada statute as  a defense to the  Farmers Home          Administration deficiency claim.  Thus, long before January 1988,          Edwards  plainly  was on  notice of  facts  sufficient to  lead a          reasonable person to believe that the exclusion of mineral rights          in the notices of sale may have harmed him.1                                    ____________________          1The deeds of trust  and the opinion of  the Nevada federal district        court were attached to  the complaint.  The consideration  given these        documents in the  court below did not convert the Rule 12(b)(6) motion                                          6                    Without  rendering  the  limitations  period  nugatory,          accrual  of   a  cause   of  action   cannot  await   a  judicial          determination  that a  legal basis  exists for  the action.   See                                                                        ___          Whitcomb v. Pension Dev.  Co., 808 F.2d 167, 170  (1st Cir. 1986)          ________    _________________          (claims  against insurer,  stemming  from erroneous  tax  advice,          accrued no  later than receipt  of notification of  IRS position,          rather than  receipt of notice of  tax deficiency or  date of Tax          Court decision)  (applying Massachusetts  law); White  v. Peabody                                                          _____     _______          Constr.  Co., 386 Mass. 121, 129-30, 434 N.E.2d 1015, 1022 (1982)          ____________          (cause  of  action  accrued   when  claimants  learned  they  had          sustained harm  from leaky  roof, not when  administrative agency          determined cause of leak);  Salin v. Shalgian, 18 Mass.  App. Ct.                                      _____    ________          467,  469,   467  N.E.2d   475,  477  (1984)   (negligent  title-          certification  claim accrued  when real  estate  purchasers filed          answer in action brought by neighbors alleging misrepresentations          in  certificate of title, not when Land Court entered judgment in          favor of neighbors).  The negligence claim is time-barred.          B.  Breach of Contract Claim          B.  Breach of Contract Claim              ________________________                    The  breach  of contract  claim  was  dismissed on  the          ground that  Edwards did not  allege sufficient facts  to support          reasonable  inferences that  Hancock breached  an agreement  with                                    ____________________        into a  motion for summary judgment.   See Sullivan  v. United States,                                               ___ ________     _____________        788 F.2d 813,  815 n.3 (1st Cir. 1986) (material  submitted as part of        the  complaint properly  considered on  motion to  dismiss); see  also                                                                     ___  ____        James  W. Moore, 2A Moore's  Federal Practice   12.07  [2.-5] at 12-68                            _________________________        (on motion to  dismiss, "material which  is submitted as  part of  the        complaint, as  well as  certain items  in  the record  and the  public        record, may be considered by the court") (footnotes omitted).                                          7          Edwards or that the trustees under the deeds of trust were acting          as Hancock's  agents in  providing the underinclusive  notices of          sale.  On appeal, Edwards challenges the agency ruling alone.                    In Nevada, real  estate mortgage deeds take the form of          deeds of trust.  Essentially, the encumbered property is conveyed          by  the mortgagor (variously referred to  in the deed of trust as          the  trustor,  grantor  or  borrower)  to the  trustee,  a  title          company, as security for repayment of the loan from the mortgagee          (the beneficiary or lender).  See Nev. Rev. Stat.   107 (deeds of                                        ___          trust).   The  default and  sale provisions  in a Nevada  deed of          trust are  regulated by  statute.   See id.    107.080 (trustee's                                              ___ ___          power of sale; required notices);   107.090 (filing of  notice of          default and  sale);   21.130  (notice of sale  must "particularly          describe   the  property"  to  be  sold).    The  deed  of  trust          establishes the  rights and  responsibilities of the  parties and          prescribes certain duties to be performed by the trustees.                    The complaint sufficiently alleges that  the notices of          sale were underinclusive  due to their exception  of mineral, oil          and  gas rights in violation  of Nevada law,  which requires that          the  notice of  sale of  the foreclosed  properties "particularly          describ[e] the property" to  be sold.  Nev. Rev.  Stat.   21.130;          see Turner v. Dewco Services, Inc., 87 Nev. 14, 479 P.2d 462, 465          ___ ______    ____________________          (1971) (intent of statute is  "to give notice of the sale  of the          premises to possible third-party buyers").  The complaint further          alleges that Edwards  sustained damages as  a consequence of  the          underinclusive  notices  of  sale,  particularly  since Freeport-                                          8          McMoran  Gold  Company,  which   "expressed  great  interest"  in          acquiring the mineral  rights, did  not bid at  the auction  sale          upon learning that the mineral rights were excluded.                    The  deeds  of trust  required  that  the trustee  give          notice of sale  "as then required by law."  See infra note 2 & p.                                                      ___ _____          12.   Nevada  law,  see Nev.  Rev.  Stat.   107.080(4),  requires                              ___          notice of  sale to be given "in the manner  . . . required by law          for the sale . . . . of real property upon execution."  See infra                                                                  ___ _____          note 3.  Under Nev.  Rev. Stat.   21.130(1)(c)(2), governing real          estate  execution sales,  the notice  of sale  must "particularly          describ[e] the property" to be sold.                    The  second  amended  complaint,  on  the  other  hand,          expressly alleges that,  "[i]n its notice  of sale, the  trustee,          acting  under  the  direction of  Hancock,  specifically excepted          ______  _____  ___  _________ __  _______          the[] [mineral] rights."  (Emphasis added.)  Additionally, as the          complaint further  alleges, Hancock is empowered  under the deeds          of trust  (apparently in its unrestricted  discretion) to appoint          replacement trustees.  See infra note 4.                                 ___ _____                    Under  the Restatement  (Second)  of Agency,  a trustee          will be considered  the agent  of the beneficiary  under a  trust          agreement  if  the  trustee is  subject  to  the  control of  the          beneficiary,  rather  than the  terms  of  the  agreement.    See                                                                        ___          Restatement (Second) of Agency   14B (comment f.) ("An agent acts          for and on behalf of his  principal and subject to his control; a          trustee who is not an agent is not subject to  the control of the          beneficiaries  . . .  The agent owes  a duty of  obedience to his                                          9          principal;  a trustee is under a duty  to conform to the terms of          the  trust.");  see  also  Hunter Mining  Laboratories,  Inc.  v.                          ___  ____  __________________________________          Management  Assistance, Inc.,  104  Nev. 568,  763 P.2d  350, 351          ____________________________          (1988) (citing Restatement (Second) of Agency    14); Restatement          (Second) of Trusts   8 (comment b.) (same).  Whether a trustee is          an  agent  depends  also on  the  quantum  of  control the  trust          agreement places in the party for whose benefit the trustee is to          act and, in  doubtful cases,  on the control  in fact  exercised.          Hunter  Mining  Laboratories, 763  P.2d  at  351 ("In  an  agency          ____________________________          relationship, the  principal possesses  the right to  control the          agent's conduct.") (citing Restatement (Second) of Agency   14).                    The  district   court  dismissed  the   second  amended          complaint  on the ground that  Edwards relied "solely on specific          paragraphs" of the deeds of  trust as support for the claim  that          the  trustees   acted  as  Hancock's  agents   in  providing  the          underinclusive  notices  of  sale.     The  court  considered  it          especially  significant  that  paragraph 8  of   the  1975  deed2          "describes  the trustee, not [Hancock],  as the party  that is to          conform the notice of sale to the requirements of law."3                                    ____________________          2The deed  of trust provision quoted  in the text,  see infra p. 12,                                                              ___ _____        is contained in   8 of the 1975 deed of trust.  Covenant No. 6  in the        1976  deed  of trust  is similar.   As  concerns  the notice  of sale,        Covenant No. 6 provides:          The  trustees shall first  give notice of  the time and  place of          such  sale, in the manner provided by  the laws of this state for          the sale of real property under execution . . . .          3Although  Nevada  law  makes it  the duty  of  the trustee  to give        notice of the time and place of sale, see Nev. Rev. Stat.   107.080(4)                                              ___        ("The trustee . .  . shall . . .  before the making of the  sale, give        notice of the time and place thereof  in the manner and for a time not                                              __ ___ ______                                          10                    Significantly,  it does  not appear  that the  district          court  considered   15  of  the second  amended complaint,  which          explicitly  alleges that, "[i]n its notice  of sale, the trustee,          acting under  the  direction of  Hancock,  specifically  excepted          the[]  [mineral]  rights"  from  the  property  to   be  sold  at          foreclosure.   Nor did the court  advert to the allegation in the          second amended complaint  that the deeds  of trust grant  Hancock          unlimited power to replace the trustees.                                    ____________________        less than that required by law for the sale or sales  of real property                       ________ __ ___ ___ ___ ____ __ _____  __ ____ ________        upon  execution") (emphasis  added),  the statute  does not  expressly        ____  _________        place  with the  trustee the  duty or  power to  prepare the  property        description or to determine its content.          In  pertinent  part, the  Nevada  statute  governing the  manner  of        giving  notice of the time and  place of a sale  of real property upon        execution merely states:               Before the sale of property on execution, notice of the sale          . . . must be given as follows:          . . . .               (c) in case of real property, by:                    (1) Personal  service upon  each judgment debtor  or by          registered mail  to  the  last known  address  of  each  judgment          debtor;                    (2)  Posting a  similar notice  particularly describing                                                    ____________ __________          the property . . . .          ___ ________        Nev. Rev. Stat.   21.130(1)(c) (emphasis added).          The silence  of the  execution statute as  to the  placement of  the        duty to describe the property to be sold appears in  sharp contrast to        the  context of    8  of the  1975 deed  of trust.    In the  event of        Edwards's  default,   8  plainly  vests in  Hancock the  discretionary        power to deliver "written notice  of default and of election  to cause        said  property [i.e., the property described in  the deed of trust] to        ____  ________  ____        be  sold, which  notice Trustee  shall cause  to be  filed for  record        . . . ."  It seems a  reasonable inference from   8 that the  property        description  contained in the "election  to cause said  property to be                                                          ____  ________        sold,"  as given  by Hancock,  normally  would determine  the property        description included in the notice of sale.                                          11                    Paragraph 8 of the 1975 Deed of Trust provides:                    Trustor [Edwards] promises and agrees:                    8.   That upon default by  Trustor in payment                    of any indebtedness secured hereby or in per-                    formance of any agreement  hereunder, Benefi-                    ciary [Hancock] may deliver a  written notice                    of  default and  of  election  to cause  said                    property  to be  sold,  which notice  Trustee                    shall cause to be filed for record, and Bene-                    ficiary [Hancock] may  also declare all  sums                    secured hereby immediately due and payable by                    delivery to Trustee of written declaration of                    default.  After the lapse of such time as may                              _____                    then  be   required  by  law   following  the                    recordation  of said  Notice of  Default, and                    ___________  __ ____  ______ __  _______  ___                    notice  of  sale having  been  given  as then                    ______  __  ____ ______  ____  _____  __ ____                    required by  law, Trustee, without  demand on                    ________ __  ___  _______                    Trustor, shall sell said property at time and                             _____ ____ ____ ________                    place  fixed by  it in  said Notice  of Sale,                    either as a whole or in separate parcels, and                    in  such order  as Beneficiary  [Hancock] may                    determine,  subject  to  any statutory  right                    which Trustor may have to  direct such order,                    at public auction to  the highest bidder  for                    cash  in lawful money  of the  United States,                    payable at time of sale.  (Emphasis added.)          Thus, while the  deeds of trust  require that  notice of sale  be          given as  required  under  Nevada law,  the  power  to  determine          whether  to  declare  a  default  and  to  elect  to  sell  "said          property,"  as well as the "order of sale," is expressly reserved          to  Hancock.   Second, as  our attention has  been invited  to no          provision, either in the deeds of  trust4 or in Nevada law, which                                    ____________________          4The 1975 deed provides:               That  the  Beneficiary hereunder  may,  from  time to  time,          appoint another trustee or trustees  to execute the trusts hereby          created.          The 1976 deed provides:                                          12          would inhibit  the beneficiary's  power to replace  the incumbent          trustees,  we  must assume  there  were  no such  limitations  on          Hancock's  power.5  Third, as we have said, the complaint alleges          not only that the  deeds of trust entitled Hancock  to direct and          control  the trustees but  that Hancock  "did direct  and control          [them] in all [their] actions," most pertinently by excepting the          mineral rights from the property to be sold.                    Crediting these allegations in the light most favorable          to  Edwards,  as  we must  for  present  purposes,6  we can  only          conclude that the trustees acted as Hancock's agents in providing          potential purchasers    notably Freeport-McMoran Gold  Company             underinclusive  notices  of  sale  which  did  not   particularly          describe the property covered  by the deeds of trust  as required          under Nevada law and the  deeds of trust.  Thus, the  allegations          in the  second amended complaint presently  compel the conclusion          not only that the trustees did not owe allegiance to the terms of          the deeds of trust,  see Hunter Mining Laboratories, 763  P.2d at                               ___ __________________________          351 (citing  Restatement  (Second) of  Agency    14;  Restatement                                    ____________________               That the beneficiary or his assigns, may, from time to time,          appoint  another  trustee,  or  trustees, to  execute  the  trust          created by the deed of trust or other conveyance in trust.          5Hancock's unrestricted power  to replace the trustees would  appear        to be  a significant factor  in determining its  right to  control the        trustees.   See Hunter  Mining Laboratories, 763  P.2d at 351  ("In an                    ___ ___________________________        agency relationship, the principal possesses the right to control  the        agent's conduct.") (citing Restatement (Second) of Agency   14).          6Feinstein v.  Resolution Trust  Corp., 942  F.2d 34,  37 (1st  Cir.           _________     _______________________        1991)  (under Rule 12(b)(6) jurisprudence, complaint  must be given "a        highly deferential reading");  Correa-Martinez v.  Arrillaga-Belendez,                                       _______________     __________________        903 F.2d 49, 52 (1st Cir. 1990) (same).                                          13          (Second)  of Trusts   8 (comment b.)), but that they acted "under          the direction of Hancock," see  id., which possessed the ultimate                                     ___  ___          power  to replace them.  See Restatement (Second) of Agency   14B                                   ___          (comment f.) (an  agency relationship may be established not only          by  the  "amount  of control  agreed  to  be  exercised" but  "in          doubtful  situations, upon  the amount  of control in  fact exer-          cised.").    In sum,  Hancock's  unlimited power  to  replace the          trustees,  combined  with  its   direction  of  the  trustees  in          "specifically  except[ing]  the[]   [mineral]  rights"  from  the          property descriptions included in  the notices of sale, precluded          summary judgment on appellant's  agency claim.  See, e.g.,  In re                                                          ___  ____   _____          Lane, 937 F.2d 694, 699 (1st Cir. 1991) (vacating dismissal order          ____          on ground complaint "distinctly state[d] a minimally sufficient .          . . claim").                    The district  court judgment dismissing  the negligence                    _______________________________________________________          claim is affirmed; the  dismissal of the contract claim  based on          _________________________________________________________________          agency  is  vacated   and  the  case  is  remanded   for  further          _________________________________________________________________          proceedings.  The parties shall bear their own costs.          ____________________________________________________                                          14