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.
-2- 2
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.
-3- 3
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
-4- 4
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
-5- 5
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
Free access — add to your briefcase to read the full text and ask questions with AI
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.
-2- 2
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.
-3- 3
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
-4- 4
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
-5- 5
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
-6- 6
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
-7- 7
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
-8- 8
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.
-9- 9