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.

 

Affirmed.  

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.

 

Affirmed.

How cited

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.

Affirmed.

How cited