Wednesday, August 2, 2023

SCOVT affirms summary judgment in favor of defendant who pledged investment account as security, holding plaintiff did not have a valid security interest in account that was never subject to the control of the plaintiff as required by terms of the security agreement .

Berkshire Bank v.  Kelly, 2023 VT 2 

WAPLES, J. Plaintiff Berkshire Bank filed this action seeking possession of funds in an investment account owned by defendant Thomas Kelly, which defendant purportedly pledged as security for a business loan to his sister Dorothea Kelly. The civil division granted summary judgment in favor of defendant, concluding that plaintiff did not have a valid security interest in the account. We agree and affirm.


The trial court ruled a a security interest never attached under 9A V.S.A. § 9-203(b) and granted defendant's motion for summary judgment because plaintiff never possessed or controlled the Merrill Lynch account as required by the language of the pledge agreement.  

Article 9 provides that a creditor has a secured interest in collateral when the interest attaches, meaning "when it becomes enforceable against the debtor with respect to the collateral." 9A V.S.A. § 9-203(a). In turn, a security interest becomes enforceable against the debtor when one of four specified evidentiary conditions is satisfied. Id. § 9-203(b)


The parties agree that prior to the commencement of this litigation the Merrill Lynch account was never in plaintiff's possession or control, ruling out three of the methods of satisfying the evidentiary requirement. See 9A V.S.A. § 9-203(b)(3)(B)-(D) (providing for possession, delivery, or control pursuant to security agreement as alternative evidentiary tests of enforceability).


Accordingly, the security interest only attached if the evidentiary condition set forth in § 9-203(b)(3)(A) was met; that is, if defendant "authenticated a security agreement that provides a description of the collateral.".

Here, the agreement between the parties defined the collateral as "all of [defendant's] property . . . in the possession of, or subject to the control of, [plaintiff] . . . whether existing now or later and whether tangible or intangible in character, including" defendant's Merrill Lynch account.

On appeal, plaintiff argues that the security agreement describes  the collateral as the Merrill Lynch account, and that the  possession-or-control language is not a precondition to the creation of the security interest.

The language of the clause does not support plaintiff's interpretation, since it refers to the account already being in plaintiff's control. Under the plain meaning of this language, collateralization was dependent on transfer of possession or control of the Merrill Lynch account to plaintiff. Because that event never occurred, the security interest never attached.


 Plaintiff argues "a security agreement may create or provide for a security interest in after-acquired collateral." 9A V.S.A. § 9-204(a), and that the pledge agreement described the collateral as property within plaintiff's possession or control "whether existing now or later."  We are not persuaded by this argument. The account never met the description of the collateral because plaintiff never took control of it as the agreement contemplated. Section 9-204 applies to property in which the debtor does not have any rights at the time the security agreement is executed. The rule on after-acquired property does not assist plaintiff.


Finally, plaintiff argues that its security interest eventually did attach when defendant complied with the court's order directing him to set aside $208,000 "as security for the asserted debt in this matter" by placing that amount in escrow with his attorney, claiming that  plaintiff took possession of the collateral under 9A V.S.A. § 9-313(c)(1) at that point. We disagree. 

Section 9-313(c)(1) provides that a secured party takes possession of collateral held by a person other than the debtor when "the person in possession authenticates a record acknowledging that it holds possession of the collateral for the secured party's benefit." Id. cmt. 3. However, "a court may determine that a person in possession is so closely connected to or controlled by the debtor that the debtor has retained effective possession, even though the person may have agreed to take possession on behalf of the secured party." Id.


We conclude that such is the case here. We see nothing in the record indicating that defendant's counsel was acting as an agent of plaintiff. Under these circumstances, we conclude that plaintiff did not take possession of the collateral when the funds were placed in escrow by court order.

Because defendant's Merrill Lynch account was never within plaintiff's control, it did not fall within the description of collateral contained in the parties' pledge agreement, and no security interest ever attached to the account. The civil division therefore correctly granted summary judgment in favor of defendant.



Tuesday, August 1, 2023

SCOVT reverses suspension of driver’s license, holding blood -alcohol test inadmissible for lack of foundation showing compliance with performance standards in DPS rules.

State v.  White, 2023 VT 38 

COHEN, J. Defendant appeals from the civil division’s final judgment suspending his driver’s license. He argues that the trial court abused its discretion in admitting the results of an evidentiary blood-alcohol test because the State did not offer sufficient evidence to demonstrate that defendant’s blood sample was collected and analyzed in compliance with Department of Public Safety (DPS) rules. We conclude that there was an insufficient foundation to allow admission of the test result and therefore reverse and remand for entry of judgment for defendant.

The trial court overruled the defense objection, reasoning that the plain terms of 23 V.S.A. § 1203(d) do not require anything more than a “conclusory” statement of compliance with DPS rules.

To provide a proper foundation for admission of blood-test results, the State must show that the sample was analyzed by gas chromatography according to the performance standards established in the DPS rules. The State submitted no foundational evidence to demonstrate compliance with any of these performance standards.  It would serve no purpose to remand  because the record is devoid of foundational evidence regarding performance standards.

We emphasize the narrowness of our decision today. We are not deciding the level of detail necessary in the State’s foundational evidence for admitting blood-test results. The trial court may, or may not, be correct as a general matter that a conclusory statement of compliance with 23 V.S.A. § 1203(d) will suffice.

We need not reach that inquiry because the State did not meet the minimal burden to present an adequate foundation to admit the results of defendant’s blood-alcohol test into evidence.

The court erred by admitting and relying on that evidence. The State therefore could not prove an essential element, 23 V.S.A. § 1205(h)(1)(D), and the judgment in the State’s favor cannot stand.

Reversed and remanded for entry of judgment for defendant.

How cited

SCOVT reverses in part environmental division enforcement order based on clearly erroneous finding of knowledge of terms of prior owners agreement found to have been violated.


City of Burlington v. Sisters & Brothers Investment Group, LLP, 2023 VT 24

CARROLL, J. Defendant-landowner Sisters & Brothers Investment Group, LLP (SBIG) appeals an environmental-division enforcement order enjoining it from using real property in the City of Burlington, ordering it to address site-improvement deficiencies as required by an agreement executed by a prior owner and the City, and imposing $66,759.22 in fines. We reverse and remand.


The trial court “independently” concluded that SBIG had “failed to ever comply with a  2004 agreement,” and substantially relied on that finding in assessing a fine of $50 per day for a zoning violation.


SBIG’s arguments challenging the DRB decision fail under our long line of precedent forbidding collateral attacks on unappealed DRB orders.


SBIG next contends that the trial court abused its discretion by finding that SBIG was liable for 892 days of continuing violations, each subject to penalty. We disagree. We have held that municipalities “need not produce evidence of a continuing violation for each and every day.”


Finally, we agree with SBIG’s argument that t the $66,759.22 fine was an abuse of discretion because the court found that it knowingly breached the 2004 agreement without any evidence demonstrating that SBIG knew or should have known of the agreement’s existence. The mere fact of SBIG’s purchase one day following the agreement’s execution does not reasonably lead to the conclusion that it knew or should have known of its existence, even when viewed in the light most favorable to the City. More evidence was needed for the court to conclude SBIG was aware of and intentionally disregarded the agreement from the time it purchased the property for the purpose of calculating fines.


Because the trial court erroneously found that SBIG knew or should have known about the 2004 agreement, we reverse the judgment order, direct the trial court to strike the condition requiring SBIG to address the site-improvement deficiencies in the agreement, and remand for the court to recalculate fines without considering whether SBIG violated the agreement’s terms.


Considering this disposition, we need not address SBIG’s remaining arguments that the fine was punitive rather than remedial or that the 2004 agreement is moot.


Reversed and remanded to strike the condition requiring SBIG to address site-improvement deficiencies in the 2004 agreement and to recalculate fines without considering the 2004 agreement.

How cited

SCOVT affirms Rule 12(b)(6) dismissal of a challenge, under the Education Clause and Common Benefits Clause of the Vermont Constitution, to statutes that allow school districts to refuse to permit children to attend an out-of-district public school or an independent school at the state’s expense.

Vitalev. Bellows Falls Union High School, 2023 VT 15 

EATON, J. Plaintiffs are three sets of parents of schoolchildren who reside in school districts which maintain a public school for at least some grades and do not provide the opportunity for children to attend the public or independent school of their parents’ choice for all grades at the state’s expense. They raise a facial constitutional challenge to Vermont statutes that allow school districts to choose whether to maintain a public school, permit children to attend an out-of-district public school or an independent school at the state’s expense, or some combination of both. The civil division dismissed parents’ complaint for failure to state a claim upon which relief could be granted. We affirm.


Plaintiffs seek total school choice for parents at the state’s expense for all elementary and high school education. They claim that they are being denied school choice merely because they live in a district that has a public school, resulting in an inability to tuition their children at the state’s expense to the schools of their choice while parents living in districts that do not have a public school have school choice through tuitioning. Parents assert that their lack of school choice, while parents in tuitioning districts have school choice, violates the Education and Common Benefits Clauses of the Vermont Constitution. See Vt. Const. ch. II, § 68; id. ch. I, art. 7.


Under the Education Clause and Common Benefits Clause of the Vermont Constitution, “the state must ensure substantial equality of educational opportunity throughout Vermont.” Brigham v. State (Brigham I), 166 Vt. 246(1997) (per curiam). at 268. However, the Education Clause “states in general terms the state’s responsibility to provide for education, but is silent on the means to carry it out.” 166 Vt. at 264. School choice is permitted but not required by the Education Clause; there is no entitlement to school tuitioning at the state’s expense derived from the Education Clause itself. “[T]here is no constitutional right to be reimbursed by a public school district to attend a school chosen by a parent.” Mason v. Thetford Sch. Bd., 142 Vt. 495, 499(1983)


Differences in the availability of school choice alone do not constitute a substantial inequality of educational opportunity. Parents must show that school choice results in substantially different educational opportunities. To state a claim for a Common Benefits Clause violation under Baker,, it is insufficient to assert that there is a law that results in some people having a benefit and others not, accompanied by the legal conclusion that this difference in treatment violates the Vermont Constitution. A complaint must demonstrate, on its face, that the challenged law excluding some part of the community from a government benefit does not bear a reasonable and just relation to a governmental purpose.


Parents’ failure to allege facts to connect school choice with better educational opportunities is fatal to their claim.  A statement that the statutes are “inherently unequal” and “patently unfair” does not suffice. We are not required to accept conclusory allegations as true. The complaint does not explain how the statute is unreasonable or unjust or unfair in light of the government’s stated purpose to provide quality education while adapting to local needs and desires.


 What parents have alleged here is not enough to state a claim for a violation of the Education Clause or Common Benefits Clause of the Vermont Constitution.



SCOVT affirms summary judgment that 21 V.S.A. § 640(c) did not require prior employer to reimburse claimant for lost wages, holding claimant had no standing to assert constitutional rights of new employer.

Mahmutovic v. Washington County Mental Health Services, Inc.2023 VT 37

COHEN, J. Claimant Semir Mahmutovic appeals a decision of the Commissioner of the Vermont Department of Labor concluding that claimant’s prior employer was not obligated to reimburse claimant for lost wages under 21 V.S.A. § 640(c), and that the statute was not unconstitutional as applied to claimant. We determine that claimant has conceded that the Commissioner properly interpreted § 640(c), and further conclude that claimant does not have standing to challenge the constitutionality of § 640(c). Therefore, we affirm the Commissioner’s decision granting summary judgment to prior employer.


Claimant submitted a reimbursement request to prior employer for $152.72 of lost wages. Prior employer denied payment on the ground that 21 V.S.A. § 640(c), which governs workers' compensation payments for medical benefits, shifts the financial burden of covering wages to current employer.

Claimant argued below that requiring a subsequent employer to cover lost wages is unconstitutional. Prior employer argued that claimant did not have standing to bring the constitutional claim.

This Court has adopted a three-part test for standing originally articulated for federal courts: (1) injury in fact; (2) causation; and (3) redressability.  Ferry v. City of Montpelier, 2023 VT 4, ¶ 12, In other words, standing requires a litigant to demonstrate they "have suffered a particular injury that is attributable to the defendant and that can be redressed by a court of law." Parker v. Town of Milton, 169 Vt. 74, 77 (1998).

The Commissioner concluded that claimant has standing because he suffered an injury in fact when he requested lost wages and prior employer declined to pay them.

We disagree.  Even assuming that claimant's $152.72 in lost wages due under § 640(c) is an injury in fact, claimant has not demonstrated that this injury is "fairly traceable to [prior employer]'s allegedly unlawful conduct." Id. at 78, 726 A.2d at 480. Claimant has essentially accepted that the Commissioner's interpretation of the statute does not obligate prior employer to compensate him for lost wages. Therefore, his injury—his alleged loss of the property interest created by § 640(c)—is not a result of prior employer's actions. We therefore conclude that claimant does not have standing to bring this as-applied constitutional challenge.

In his briefing, claimant additionally asks us to consider his standing as a third-party beneficiary to pursue a constitutional challenge on behalf of current employer. However, "[l]ike the federal courts, we generally do not allow third-party standing." Baird v. City of Burlington, 2016 VT 6, ¶ 15, 201 Vt. 112, 136 A.3d 223 (finding no exception to general rule against third-party standing because litigants failed to show those potentially harmed in future would likely not be able to assert their own constitutional claims). Claimant provides no basis to allow him to present this constitutional claim on behalf of current employer, and we therefore conclude that he does not have third-party standing in this matter.


How cited

Sunday, July 16, 2023

Divided Court affirms confirmation of arbitration award against employer without deciding whether “manifest disregard" of the law is an appropriate standard of review. The law did not manifestly require employer to discipline employee for HIPAA violation in this case.


Howard Center v. AFSCME Local 1674,  2023 VT 6 


REIBER, C.J. . Employer Howard Center appeals from a trial court order that confirmed an arbitration award in favor of grievant Daniel Peyser and AFSCME Local 1674. Employer asks this Court to adopt "manifest disregard" of the law" as a basis for setting aside an arbitration award and to conclude that the arbitrator violated that standard here. We do not decide whether to adopt the manifest-disregard standard because, assuming arguendo it applies, employer fails to show that its requirements are satisfied. We therefore affirm.

Employer issued a written reprimand to grievant for sharing client records with his union representative without redacting confidential information. The arbitrator concluded employer should have instead used informal counseling and directives rather than formal discipline, and that employer thus lacked just cause to reprimand grievant. Employer argues the arbitrator manifestly disregarded HIPAA, which it contends required it  to discipline grievant by imposing an "appropriate sanction[]" and it therefore had just cause to reprimand him.

"Vermont has a long history of upholding arbitration awards whenever possible." Shahi v. Ascend Fin. Servs., Inc. , 2006 VT 29, ¶ 10,  Review is limited to "whether there exist statutory grounds for vacating or modifying the arbitration award" and "whether the parties were afforded due process." Id. See 12 V.S.A. § 5677(a)(1)-(5). We have not yet decided whether to recognize "manifest disregard of the law" as an additional basis for vacating an arbitration award, although other courts have done so. See Masseau v. Luck, 2021 VT 9, ¶ 30  (recognizing that this "remains an open question" under VAA and under Federal Arbitration Act (FAA)

 We review de novo whether the arbitrator manifestly disregarded the law in this case. The HIPAA Privacy Rule mandates that covered entities "must . . . [e]nsure the confidentiality, integrity, and availability of all electronic protected health information" and "[e]nsure compliance with this subpart by its workforce." 45 C.F.R. § 164.306(a)(1), (4). In accordance with § 164.306, a covered entity "must" implement a sanction policy and "[a]pply appropriate sanctions" against employees who fail to comply with patient-confidentiality policies and procedures. Id. § 164.308(a)(1)(ii)(C)

 Neither the HIPAA statute nor regulation define the term "appropriate sanction" and there is no case law interpreting the term. The arbitrator found that grievant did not engage in "intentional misconduct" and, at worst, he "made an error in judgment." Because  the HIPAA Privacy Rule does not clearly require a certain type of sanction for violations, Employer fails to show that this case presents an "exceedingly rare instance[]" of "egregious impropriety," Masseau, 2021 VT 9, ¶ 31  that rises to the level of manifest disregard,

We conclude, as in Masseau, that "even assuming that courts are empowered to vacate an arbitrator's decision based on manifest disregard of the law -- which we do not decide -- the asserted legal error in the arbitrator's decision here does not rise to the level of manifest disregard." 2021 VT 9, ¶ 32.

EATON  J. dissenting. The majority's decision essentially transforms our limited review of arbitration decisions into no review. The arbitrator here recognized that the law required employer to sanction grievant for disclosing confidential patient information but the arbitrator chose to disregard that law and reverse employer's decision. The majority's refusal to adopt the manifest-disregard standard is harmful generally because it erodes confidence in arbitration awards and provides an incentive for arbitrators to avoid explaining the bases for their decisions. It is also detrimental under the circumstances of this case because it punishes employer for carrying out its obligations under federal law and ignores the harm to patients whose information was improperly disclosed. Because employer's decision to sanction grievant was supported and required by law and the arbitrator disregarded the law in overturning it, I would reverse and remand for the trial court to vacate the arbitration order. Therefore, I dissent.

I agree with Employer that the arbitrator manifestly ignored the law in concluding that employer lacked just cause to discipline grievant for violating patient confidentiality. I would adopt the manifest-disregard standard and allow courts to vacate an arbitration award when they find that (1) the arbitrator knew the governing law but refused to follow it or ignored it, and (2) the applicable law was well defined, explicit, and clearly applicable to the case.  Although mere legal error will not suffice to vacate an award, this Court should not turn a blind eye to intentional disregard of the law.

Here the arbitrator purposely ignored applicable law to excuse an unnecessary and unlawful breach of patient confidentiality by grievant who deliberately accessed and shared private health information of his patients solely for his own purposes. While the arbitrator did not find any malicious intent, there is no question grievant acted deliberately. The majority's failure to adopt the manifest-disregard doctrine in this case is essentially a rejection of it.

How cited

Saturday, July 15, 2023

SCOVT affirms murder conviction, holding warrantless ping search for cell phone location did not under exigent circumstances violate Article 11 of the Vermont Constitution.

State v. Murphy, 2023 VT 8 

CARROLL, J. Defendant appeals from his conviction for second-degree murder following a jury trial. He argues that the trial court erred by: (1) denying his motion for judgment of acquittal; (2) denying his motion to suppress evidence obtained as a result of a warrantless “ping” of his cell phone; (3) failing to sua sponte give a limiting instruction on evidence of flight; and (4) denying his motion for new trial. We conclude that defendant was not entitled to a judgment of acquittal. We further hold that, while defendant had a legitimate privacy interest in his realtime cell site location information under Article 11 of the Vermont Constitution, the warrantless ping was justified by exigent circumstances, and defendant’s motion to suppress was therefore properly denied. We reject defendant’s remaining arguments as well. We therefore affirm.

Neither the U.S. Supreme Court nor this Court has yet addressed whether individuals have a legitimate privacy interest in their real-time cell site location information (CSLI). We decide this case under Chapter I, Article 11 of the Vermont Constitution, which provides that “the people have a right to hold themselves, their houses, papers, and possessions, free from search or seizure.”

Cellphone providers do not routinely collect the information that the police sought here. Real time CSLI is not a passive location record but data generated by an affirmative action—a ‘ping’— taken by the cell-service provider at the behest of a law enforcement officer. We agree that individuals do not reasonably expect that by using their phone, they will be sharing their real-time location information with police. They do not expect their cellphone to act as “a hidden tracking device that can be activated by law enforcement at any moment." We hold that individuals have a reasonable expectation of privacy in their real-time CSLI and that the acquisition of this information by police is a search that requires a warrant unless an exception to the warrant requirement applies.

Exigent circumstances may justify an exception to the warrant requirement if the facts, as they appeared at the time, would lead a reasonable, experienced officer to believe that there was an urgent need to take action. Police requested the ping on the day after the murder after, among other things, searching unsuccessfully for defendant at his known locations and interviewing an eyewitness who identified defendant as having probably shot the victim. Given the violent offense and an ongoing danger posed to the police and the public by a fleeing, armed, suspect accused of murdering a stranger on the street we conclude that the totality of the circumstances in this case shows that exigent circumstances justified the warrantless ping. We therefore affirm the trial court’s denial of defendant’s motion to suppress.