Periodical
Collection
jndiana
law
Review
' ^
Volume 22 No. 4 1989
,1»»r'*»
t'5/fJJ«y
ARTICLES
The Right to a Lawyer at a Lineup: Support From
State Courts and Experimental Psychology
Neil C. McCabe
NOTES
Partial Settlement of Multiple Tortfeasor Cases Under
the Indiana Comparative Fault Act
Retroactive Application of Legislatively Enlarged
Statutes of Limitations for Child Abuse:
Time's No Bar to Revival
"A Modest Proposal"— The Prohibition of All-Adult
Communities by the Fair Housing
Amendments Act of 1988
The Fraud on the Market Theory: A **Basic''aUy Good
Idea Whose Time Has Arrived,
Basic Inc. v. Levinson
Institutional Arrangements for Governing the
Construction of Electric Generating Units:
A Transaction Cost Analysis
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Indiana Laiv Revieir
Volume 22 1989 Number 4
Copyright © 1989 by the Trustees of Indiana University
TABLE OF CONTENTS
Articles
The Right to a Lawyer at a Lineup: Support From State Courts and
Experimental Psychology Neil C. McCabe 905
Notes
Partial Settlement of Multiple Tortfeasor Cases Under the Indiana
Comparative Fault Act 939
Retroactive Application of Legislatively Enlarged Statutes of
Limitations for Child Abuse: Time's No Bar to Revival 989
*'A Modest Proposal"— The Prohibition of Ail-Adult Communities
by the Fair Housing Amendments Act of 1988 1021
The Fraud on the Market Theory: A "Basic"ally Good Idea Whose
Time Has Arrived, Basic Inc. v. Levinson 1061
Institutional Arrangements for Governing the Construction of Electric
Generating Units: A Transaction Cost Analysis 1085
Volume 22 1989 Number 4
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Volume 22 1989
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1989-1990 ADMINISTRATIVE OFFICERS AND FACULTY
Administrative Officers
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Indiana Laiv Revieir
Volume 22 1989 Number 4
The Right to a Lawyer at a Lineup: Support From State
Courts and Experimental Psychology
Neil Colman McCabe*
I. Introduction
The tales of two Texas bank robbery cases, twenty years apart, tell
how the right to have counsel present at a lineup ' started well but ran
afoul of an aberrant interpretation of the sixth amendment. The two
cases also provide a backdrop for a demonstration of how state courts,
armed with a better understanding of the dangers inherent in eyewitness
identifications, are struggling to free themselves from the constraints of
United States Supreme Court doctrine.
In both cases the robbers wore disguises of dubious value. In 1964,
a man with a small strip of tape on each side of his face robbed a
bank in Eustace, Texas. In 1985, another holdup man, sporting a shower
cap and sunglasses, struck several banks in Houston. Lineups provided
the key identification testimony in both cases.
In the first case. United States v. Wade,^ the United States Supreme
Court declared that a criminal suspect has a sixth amendment right to
a lawyer at a lineup. By the time of the later case of Foster v. State, ^
however, state and federal courts were deciding that no such right exists
* Professor of Law, South Texas College of Law. The author of this article
serves as court-appointed counsel for the appellant in Foster v. State, 713 S.W.2d 789
(Tex. Ct. App. 1986).
1. In a lineup identification proceeding a crime witness views several persons
standing in a line and is asked whether any of them is the perpetrator of the offense.
2. 388 U.S. 218 (1967). The companion case of Gilbert v. California, 388 U.S.
263 (1967), also involved a Hneup. The holdings in the two cases became known as the
Wade-Gilbert rule. R. LaFave & J. Israel, Criminal Procedure (1985).
3. 713 S.W.2d 789 (Tex. Ct. App. 1986) (The Foster case actually involved a
series of bank robberies.)
905
906 INDIANA LAW REVIEW [Vol. 22:905
in the typical lineup. That is true because in Kirby v. Illinois,'^ only
five years after Wade, the United States Supreme Court held that, unless
** adversary judicial proceedings"^ have been initiated against him, an
arrested suspect is not entitled to have his lawyer attend a Uneup,^ Shortly
afterward, in United States v. Ash,'^ the Court held that there is no
sixth amendment right to counsel at a photographic display,^ even after
indictment.
With Ash it became clear that even the initiation of adversarial
criminal proceedings did not mean that defense counsel was to be allowed
to attend every phase of the prosecution after that point. The actual
proceeding in question must be examined to determine whether it is a
confrontation that can be considered a "critical stage"^ of the prose-
cution, at which counsel's presence is required. The suspect's counsel
need not be permitted to attend a photographic display, reasoned the
Ash Court, because the suspect is not physically present at such an
identification proceeding. ^° The photo array witness interview is not a
confrontation. Neither is the array proceeding a critical stage of the
prosecution. Because the defendant's attorney could examine the photo
array in preparing for trial, the Court believed that such a proceeding
did not involve the same dangers of suggestiveness as the lineup and
was more easily reconstructed for the purpose of cross-examination at
trial. '^
Given the Kirby and Ash decisions, it can be expected the police
will not wait until after the initiation of formal adversarial proceedings
to hold a lineup or photo array, '^ thereby precluding any sixth amendment
claim that counsel must be present. In the typical case, they conduct
the lineup within twenty-four hours after arrest.*^ The Wade case was
4. 406 U.S. 682 (1972),
5. Id. at 688.
6. Id. at 691.
7. 413 U.S. 300 (1973).
8. In a photographic display or photo array proceeding a witness is shown a
group of photographs and is asked whether the suspect is depicted therein.
9. Ash, 4i3 U.S. at 303.
10. Id. at 317.
11. Id. at 318-19.
12. People V. Fowler, 1 Cal. 2d 335, 82 Cal. Rptr. 363, 461 P.2d 643 (1969); J.
Israel, Y. Kamisar, W. LaFave, Criminal Procedure and the Constitution 350 (Rev.
ed. 1989) (lineup before formal proceedings "common practice" after Kirby).
13. Whitten & Robertson, Post-Custody, Pre-Indictment Problems of Fundamental
Fairness and Access to Counsel: Mississippi's Opportunity, 13 Vt. L. Rev. 247, 249
(1988); Alschuler, Failed Pragmatism: Reflections on the Burger Court, 100 Harv. L.
Rev. 1436, 1442 (1987). See also United States v. Wade, 388 U.S. 218, 255 (1967) (White,
J., dissenting) ("Identifications frequently take place after arrest but before an indictment
is returned or an information is filed.").
1989] RIGHT TO A LAWYER 907
unusual in that the suspect had been indicted before the lineup.''* At
the time of Foster's lineup he had not been arrested, let alone formally
charged or indicted for the bank robberies; he was already in jail serving
a sentence on other offenses.'^ For those reasons the Texas intermediate
appellate court accorded him no sixth amendment right to counsel at
the lineup, and the court saw no reason to recognize such a right under
state lawJ^
Of the state courts that have addressed the issue of the right to
counsel at a lineup under state constitutions and statutes, most have
simply followed Kirby?^ This article will argue that merely adopting
formalistic federal precedent is not the proper way to interpret state
constitutional guarantees of counsel, especially in light of psychological
research into the dangers of eyewitness and lineup identification conducted
since the Wade and Kirby decisions. Although state right-to-counsel
provisions sometimes may be comparable in scope to the federal sixth
amendment, "an independent examination of the history, policy, and
precedent surrounding relevant state law is necessary before that con-
clusion can be reached."'^ This article will demonstrate how a conclusion
contrary to Kirby can be justified in light of (1) new research into the
dangers inherent in eyewitness identification in general and in lineups
particularly, (2) the nature of the Kirby line of cases as an aberration
to the sixth amendment's rationale, and (3) precedents from state courts.
The main goal is to show how a significant expansion of the right to
counsel can rest on a truly independent and adequate state constitutional
ground'^ — on a principled basis and not merely as a result-oriented
reaction to undesirable federal precedent. ^^
II. Dangers Inherent in Eyewitness Identification
Both jurists and social scientists have observed that the inaccuracy
of many eyewitness identifications and the resulting injustices are well-
14. Wade, 338 U.S. at 219.
15. Foster, 713 S.W.2cl at 790.
16. Id. at 791.
17. 406 U.S. 682 (1972); see, e.g.. State v. Boyd, 294 A.2d 459 (Me. 1972); People
V. Hawkins, 55 N.Y.2d 474, 450 N,Y.S.2d 159, 435 N.E.2d 376 (1982); People v. Delahunt,
121 R.I. 565, 401 A. 2d 1261 (1979); State v. Taylor, 60 Wis. 2d 506, 210 N.W.2d 873
(1973).
18. Thomas v. State, 723 S.W.2d 696, 702 (Tex. Crim. App. 1986) (citing State
V. Jewett, 146 Vt. 221, 500 A.2d 233 (1985)).
19. Michigan v. Long, 463 U.S. 1032 (1983).
20. See State v. Jewett, 146 Vt. 221, 224, 500 A.2d 233, 235 (1985) (recognizing
the need for principled bases for independent state constitutional analysis); See also
Abrahamson, Criminal Law and State Constitutions: The Emergence of State Constitutional
Law, 63 Tex. L. Rev. 1141, 1179-80 (1985).
908 INDIANA LAW REVIEW [Vol. 22:905
known.2' *'Nor are such statements vague speculations; the documentation
is exhaustive, explicit and vast."^^ Even a person who eventually is
acquitted of the erroneous criminal charge can be victimized by the
resulting trauma to his mind, emotions, reputation, job, and family. ^^
The United States v. Wade^'^ opinion, which recognized a right to counsel
at a Hneup, but which involved a postindictment proceeding, emphasized
the dangers inherent in eyewitness identification. At the time of the
Wade and Kirby decisions, *'[t]he unreliability of human perception and
memory and their susceptibility to suggestive influence [were] well doc-
umented in psychological and legal literature," but there were no scientific
studies of the behavior of the eyewitness in the context of the lineup. ^^
Not until the end of the 1970's did scientists hold the first conference
concentrating solely on the psychology of testimony by eyewitnesses. ^^
Since that time, much more study has been applied specifically to the
lineup problem, and a better understanding of eyewitness memory has
developed. ^^
The results of experimental psychology suggest that many of the
common-sense assumptions that guide decisions of the participants in a
criminal trial may be erroneous. Professor Yarmey has identified some
of those questionable assumptions:^^ (1) Subtle differences in the wording
of questions (e.g., asking if the witness saw the knife instead of asking
if she saw a knife) have a great effect on the responses of witnesses,^^
21. A, Yarmey, The Psychology of Eyewitness Testimony 7-10 (1979).
22. People v. Hawkins, 55 N.Y.2d 474, 491, 450 N.Y.S.2d 159, 168, 435 N.E.2d
376, 385 (Meyer, J., dissenting) (citing fourteen sources).
23. J. Israel, Y. Kamisar, W. LaFave, Criminal Procedure and the Consti-
tution 450 (Rev. ed. 1989); Twining, Identification and Misidentification in Legal Processes:
Redefining the Problem, in Evaluating Witness Evidence, 255, 275-77 (S. Lloyd-Bostock
& B. Clifford eds. 1983) (hereinafter Lloyd-Bostock); see also Wells & Loftus, Eyewitness
Research: Then and Now, in Eyewqtness Testimony (G. Wells & E. Loftus eds. 1984)
(citing P. Hain, Mistaken Identity (1976)).
24. 388 U.S. 218 (1967).
25. Levine & Tapp, The Psychology of Criminal Identification: The Gap from
Wade to Kirby, 121 U. Pa. L. Rev. 1079, 1087-88 (1973).
26. Wells & Lindsay, How Do People Infer the Accuracy of Eyewitness Memory?
Studies of Performance and a Metamemory Analysis, in Lloyd-Bostock, supra note 23,
at 41 (citing Wells, Eyewitness Testimony: The Alberta Conference, 4 Law & Hum. Behav.
237 (1980)).
27. See Wells & Loftus, Eyewitness Research: Then and Now, in Eyewitness
Testimony: Psychological Perspectives (G. Wells & E. Loftus eds. 1984) (hereinafter
Perspectives) (85% of all published writings on eyewitness identification research have
emerged since 1978. Id. at 3.).
28. A. Yarmey, supra note 20, at 7-10 (citing examples and authorities).
29. Loftus & Zanni, Eyewitness Testimony: The Influence of the Wording of a
Question, 5 Bull. Psychonomic Soc. 86 (1975).
1989] RIGHT TO A LAWYER 909
but many potential jurors fail to recognize the distinction. ^° (2) Testimony
given with an air of certainty is treated by the courts as accurate,^' but
studies do not support such an assumption. ^^ (3) Courts do not appear
to realize how quickly one forgets what has occurred and how complicated
the process of forgetting is." (4) Judges who believe that the mind
retains more readily the memory of an unusual, startling, or stressful
scene than it does the impression of an ordinary occurrence are in error
if they think that memory works by simply passively recording, rather
than actively reconstructing, events.^"* The human memory is not a
smoothly operating mechanical device, **Uke a videotape recorder. "^^ In
the pages that follow, this article will deal with the results of experiments
illustrating these and other misconceptions.
A. Power of Suggestion
Exposure to new and false information about an event through
means of questions containing presuppositions can supplements^ or even
transforms"^ memory. "Memory, it appears, is extremely fragile and can
be supplemented, altered, or even restructured by as simple an instrument
as a strong verb, embedded unnoticed in a question about the event
concerned. "S8 Experiments show that, if misleading information or
suggestions are given to a witness a week or more after the event and
just before testing, the accuracy of the witness' memory is drastically
reduced. S9 Subjects tend to recall the erroneous information, 80% of
30. Yarmey & Jones, Is the Psychology of Eyewitness Identification a Matter of
Common Sense?, in Lloyd-Bostock, supra note 22, at 13, 29.
31. Gardner, The Perception and Memory of Witnesses, 18 Cornell L. Q. 391
(1933).
32. See infra text accompanying notes 45-50.
33. Gardner, supra note 31; Hutchins & Slesinger, Some Observations on the Law
of Evidence-Memory, 41 Harv. L. Rev. 860 (1928).
34. U. Neisser, Cognitive Psychology, 279-305 (1967).
35. Sanders, Expert Witnesses in Eyewitness Facial Identification Cases, 17 Tex.
Tech. L. Rev. 1409, 1427 n.62 (1986) (quoting testimony by Professor Loftus in W. Loh,
SocL^ Research in the Judicl\l Process: Cases, Readings and Text at 583 (1984)).
36. Loftus & Ketcham, The Malleability of Eyewitness Accounts, in Lloyd-Bostock,
supra note 23, at 159, 160-63.
37. Id. at 163, 168-69; see also Loftus, Miller, & Burns, Semantic Integration of
Verbal Information into a Visual Memory, 4 J. Exp. Psychology: Hum. Learning &
Memory 19, 29 (1978).
38. Loftus & Ketcham, supra note 36, at 159. See also Loftus, Miller & Burns,
supra note 36, at 160 (citing Loftus & Palmer, Reconstruction of Automobile Destruction:
An Example of the Interaction Between Language and Memory, 13 J. Verbal Learning
& Verbal Behav. 585 (1974)).
39. Loftus, Miller, & Burns, supra note 36, at 163.
910 INDIANA LAW REVIEW [Vol. 22:905
them performing incorrectly when tested .'^^ Memory for faces, like other
memory, is affected by later misleading information/* Such studies
suggest that in criminal cases, when expected testimony is being reviewed
(typically long after a crime has been committed and immediately before
trial), witnesses are extremely vulnerable to inadvertent or intentional
suggestion by prosecutors.
The Wade opinion stressed that eyewitness accuracy can be adversely
affected not only by the purposeful scheming of police investigators but
also by suggestions given unintentionally: *'We do not assume that these
risks are the result of police procedures intentionally designed to prejudice
an accused. Rather we assume they derive from the dangers inherent in
eyewitness identification and the suggestibility inherent in the context of
the pretrial identification."'*^ The studies suggest that courts have over-
simplified the issue of Hneup fairness and accuracy. Instead of being a
passive viewer, '*the victim or witness at a lineup is one 'actor' in a
complex social situation.""*^
B. Confidence
The most revealing findings that Professors Wells and Lindsay drew
from a series of experiments which they and others performed over
several years were that a person's tendency to believe an eyewitness's
testimony is strongly related to the confidence of the witness in his
identification, as one would expect, but that, contrary to what most
people ''intuitively believe, ""^^ the confidence of an eyewitness is prac-
tically worthless as a cue to the witness's accuracy."*^ The latter finding
directly contradicts the Supreme Court's notion that the degree of con-
40. Id.
41. Id. at 167 (citing Loftus & Greene, Warning: Even Memory for Faces May
be Contagious, 4 Law & Hum. Behav. 323 (1980). Recognition of voices will almost
always be less reliable than memory for faces. Clifford, Memory for Voices: The Feasibility
and Quality of Earwitness Evidence, in Lloyd-Bostock, supra note 22, at 189.
42. United States v. Wade, 388 U.S. 218, 235 (1967).
43. Levine & Tapp, supra note 25, at 1110.
44. Wells & Murray, Eyewitness Confidence, in Perspectives, supra note 27, at
159 (citing Brigham & Wolfskiel, Opinions of Attorneys and Law Enforcement Personnel
on the Accuracy of Eyewitness Identifications (unpublished manuscript, 1982); Deffenbacher
6 Loftus, Do Jurors Share a Common Understanding Concerning Eyewitness Behavior?,
7 Law & Hum. Behav. 15 (1982); Rahaim & Brodsky, Empirical Evidence vs. Common
Sense: Juror and Lawyer Knowledge of Eyewitness Accuracy (unpublished manuscript,
1981); Wells, Lindsay, & Ferguson, Accuracy, Confidence, and Juror Perceptions in
Eyewitness Identification, 64 J. Applied Psychology 440 (1979)); Yarmey & Jones, supra
note 30.
45. Wells & Lindsay, supra note 26, at 51; Wells & Murray, supra note 40, at
163 ("No applicable value" adheres to knowledge of eyewitness confidence).
1989] RIGHT TO A LAWYER 911
fidence the witness shows in his identification is an important factor to
consider when deciding whether the identification is rehable.'*^ Never-
theless, the expression of confidence or certainty on the part of an
eyewitness greatly affects how jurors gauge the accuracy of the witness's
identification/^ In one study of mock jury deliberations following a
reenactment of a trial, some jurors spontaneously pointed to the con-
fidence of an eyewitness as an indicator of the witness's accuracy/^
Jurors and trial judges have no way of learning that a confident
witness can be wrong. If, despite a confident eyewitness, the defendant
has a truly solid alibi, the government typically has the case dismissed.
In this and other ways, jurors and judges are * 'neatly protected from
learning that the confidence of an eyewitness bears no useful relationship
to the accuracy of an eyewitness."'*^ In light of the experimental studies,
the common but erroneous notion that there is a close relationship
between the certainty of a witness and the accuracy of the identification
should be expunged from our jurisprudence.^^
C. Passage of Time
The passage of weeks or months may greatly reduce the accuracy
of the identification.^* In one study, the rate of false identification of
supposed armed robbers increased from 48% at 2 days, to 62 <% at 21
days, and to 93% at 56 days.^^ Yet some jurors think that an eyewitness's
46. See, e.g., Manson v. Brathwaite, 432 U.S. 98 (1977) (confidence of witness a
key factor); Neil v. Biggers, 409 U.S. 188 (1972).
47. Wells & Murray, supra note 44, at 155 (citing Wells, Ferguson, & Lindsay,
The Tract ability of Eyewitness Confidence and Its Implications for Triers of Fact, 66 J.
Applied Psychology 688 (1981)); Wells, Lindsay, & Ferguson, supra note 44.
48. Wells, How Adequate is Human Intuition for Judging Eyewitness Testimony?,
in Perspectives, supra note 27, at 256, 266 (citing Hastie, From Eyewitness Testimony
to Beyond Reasonable Doubt (unpublished manuscript, 1980)).
49. Wells & Murray, supra note 44, at 169.
50. Deffenbacher, Eyewitness Accuracy and Confidence: Can We Infer Anything
About Their Relationship?, 4 Law & Hum Behav. 243 (1980); Wells & Murray, supra
note 44 (citing Leippe, Effects of Integrative Memorial and Cognitive Processes on the
Correspondence of Eyewitness Accuracy and Confidence, 4 Law & Hum. Behav. 261
(1980)).
51. Shepherd, Identification After Long Delays, in Lloyd-Bostock, supra note 23,
at 173.
52. Egan, Pittner & Goldstein, Eyewitness Identification: Photographs vs. Live
Models, 1 Law and Hum, Behav. 199 (1977). Accord, Malpass & Devine, Eyewitness
Identification: Line Up Instructions and the Absence of the Offender, 66 J. Applied
Psychology 482 (1981); Malpass & Devine, Guided Memory in Eyewitness Identification,
66 J. Applied Psychology 343 (1981).
912 INDIANA LAW REVIEW [Vol. 22:905
memory remains accurate over long periods, ^^ and others believe that
accuracy may increase as time passes. ^^
D. Stress
One classic work described twenty-nine convictions of innocent per-
sons, each conviction resulting from the positive identification of the
accused by the victim of a violent crime." One explanation for such
mistakes is that, because of the extreme psychological and emotional
arousal caused by an armed robbery, the victim/witness of a violent
crime may block out stimuli or focus on the weapon, rather than on
the face of the culprit. ^^ Tests involving potential jurors in Canada and
the United States indicated that they had some knowledge of the '* weapon
focus problem," but their responses also suggested that they believed
inaccurate explanations of the phenomenon. ^^
Contrary to common-sense beUefs about the accuracy of eyewitnesses
to violent crimes, "there is no empirical support for the notion that
relatively high levels of arousal facilitate eyewitness testimony. "^^ Jurors,
however, have expressed the erroneous opinion that stress enhances the
accuracy of an eyewitness. ^^ Lay persons apparently widely hold such
beliefs, unaware of studies demonstrating that the anxiety that witnesses
feel, when they think that their identification will have serious results,
serves to destroy any accuracy-confidence relationship. ^°
E. Overbelief
Police officers, judges, and jurors often overestimate the accuracy
of persons who claim to have made eyewitness identifications.^' **Ov-
erbehef" of eyewitnesses by judges and jurors is a well-recognized prob-
53. Wells, supra note 48, at 259 (15Vo erroneously thought eyewitness's memory
for faces would be 90-95 <7o accurate several months after first seeing the face).
54. Hastie, supra note 48.
55. E. BoRCHARD, Convicting the Innocent (1932) (describing total of sixty-five
wrong convictions). See also Cunningham & Tyrrell, Eyewitness Credibility: Adjusting the
Sights of the Judiciary, 37 Ala. Law. 563, 564-65 n.2 & n.4 (1976) (citing other sources
and examples).
56. E. Loftus, Eyewitness Testimony § 2.15 (1987).
57. Yarmey & Jones, supra note 30, at 21.
58. Deffenbacher, The Influence of Arousal on Reliability of Testimony, in Lloyd-
BosTOCK, supra note 23, at 247.
59. Hastie, supra note 48.
60. Wells & Murray, supra note 44,
61 . See Cunningham & Tyrrell, supra note 55 at 575-85; K. Ellison & R. Buckhout,
Psychology and Criminal Justice 80-82 (1981); Wells, Lindsay, & Ferguson, supra note
44, at 441-45 (1979).
1989] RIGHT TO A LAWYER 913
lem, established by many researchers.^^ ''[M]ost of us do not have
experience in trying to remember faces in very stressful situations such
as being a robbery victim.'*" Likewise, jurors have no experience in
trying to judge the accuracy of another's identification.^ Nevertheless,
* Visual identification of the defendant by the victim or the witness often
provides the most persuasive evidence, which cannot be overcome by
contrary evidence supporting the accused. "^^ Even after it has been
proven false, eyewitness testimony can continue to persuade a jury.^
The question of how adequately the juror can assess the credibiHty
of eyewitness testimony is an important one since it is the juror
or some other intuitive trier-of-fact who runs the risk of the
ultimate error, namely believing an inaccurate eyewitness account
or disbelieving an accurate eyewitness account. Does the lay
person understand the problems of eyewitness memory? Many
judges seem to think so as it is common for expert testimony
on eyewitness matters to be prohibited by a judge on grounds
that the problem of eyewitness memory is something that is
intuitively appreciated by the jurors. Data . . . call this as-
sumption into question. ^^
The great degree of trust that police, jurors, and judges place in hneups
and eyewitnesses is not supported by the psychological experiments on
the subject.^^
F. Police Officers as Witnesses
In a pair of studies two-thirds of the lay persons, ^^ as well as most
of the legal professionals and law students, ''^ thought that police officers
62. See Lindsay, Wells & Rumpel, Can People Detect Eyewitness-Identification
Accuracy Within and Across Situations?, 66 J. Applied Psychology 79, 83-85 (1981);
Deffenbacher, supra note 50, at 250-52; Yarmey & Jones, supra note 30, at 13.
63. Sanders, supra note 35, at 1439.
64. Id. at 1440 (citing Saks & Kidd, Human Information Processing and Adju-
dication: Trial by Hueristics, 15 Law & Soc'y Rev. 123, 126-27 (1980-81)).
65. Note, Did Your Eyes Deceive You? Expert Psychological Testimony on the
Unreliability of Eyewitness Identification, 29 Stan. L. Rev. 969, 970 (1977).
66. Loftus & Ketcham, supra note 36, at 170, (citing Cavoukian, Eyewitness
Testimony: The Ineffectiveness of Discrediting Information (paper presented at the Amer.
Psychological Assoc, annual meeting, 1980)).
67. Wells «& Lindsay, supra note 26, at 41.
68. A. Yarmey, supra note 21, at 159 (citing Goldstein, The Fallibility of the
Eyewitness: Psychological Evidence, in Psychology in the Legal Process (B. Sales ed.
1977)).
69. Wells, supra note 48 (citing Tickner & Poulton, Watching for People Actions,
18 Ergonomics 35 (1975)).
70. Yarmey & Jones, supra note 30.
914 INDIANA LAW REVIEW [Vol. 22:905
make better eyewitnesses than lay persons. Most officers themselves
believe that their training and experience make them superior at observing
and remembering details, but the psychological studies fail to confirm
their assumptions.^' To the contrary, "experiments suggest that policemen
are more prone to committing interpretive errors in their perceptions of
people and activities. "^^
G. Race
The usual difficulties inherent in eyewitness identification may be
compounded when race becomes a f actor. ^^ Several reviews of the lit-
erature on eyewitnesses have concluded that cross-race identifications are
less reliable than when the witness and suspect are members of the same
race.^"* In a well-known study, ^^ subjects viewed a picture of a white
man holding a razor while arguing with a black man. Half of the
observers later remembered the black man as holding the razor. Some
said he was brandishing it wildly, and others remembered him as threat-
ening the white man.
At least ten studies demonstrate that white Americans are significantly
less able to recognize black faces than they are white faces.^^ The cross-
race phenomenon may not be Hmited to white observers. Four studies
have indicated that American black observers are significantly less able
to recognize white faces than black ones.^^ Similar results have been
71. A, Yarmey, supra note 21 (citing Clifford, Police As Eyewitness y 22 New
Sec. 176 (1976)).
72. Id. (citing Verinis & Walker, Policemen and the Recall of Criminal Details,
81 J. OF Soc. Psychology 217 (1970)).
73. Luce, Blacks, Whites, and Yellows: They All Look Alike to Me, Psychology
Today 105 (Nov. 1974); Galper, 'Functional Race Membership' and Recognition of Faces,
37 Perceptual & Motor Skills 455 (1973).
74. E. LoFTUS, supra note 66, at § 4.11; A. Yarmey, supra note 20, at 130-31;
B. Clifford & R. Bull, The Psychology of Person Identification (1978); Wells, Applied
Eyewitness-Testimony Research: System Variables and Estimator Variables, 36 J. Per-
sonality & Soc. Psychology 1545 (1978); Ellis, Recognizing Faces, 66 Brit. J. Psychology
409 (1975). But cf Lindsay & Wells, What do We Really Know About Cross-Race
Eyewitness Identification?, in Lloyd-Bostock, supra note 23 (arguing that such conclusion
is premature).
75. K. Ellison and R. Buckhout, Psychology and Criminal Justice 101 (1981)
(citing Allport & Postman, The Basic Psychology of Rumor, 8 Trans. N.Y. Acad, of
Sci., Series 11, 147-49 (1945)).
76. Johnson, Cross-Racial Identification Errors in Criminal Cases, 69 Cornell L.
Rev. 934, 938-39 n.l8 (1984) (citing studies).
77. Johnson, supra note 76, at 939 n.23, 938-39 n.l8 (citing Brigham & Williamson,
Cross-Racial Recognition and Age: When You're Over 60, Do They Still "All Look
Alike?", 5 Personality & Soc. Psychology Bull. 218 (1979); Galper, supra note 73;
Luce, The Role of Experience in Inter-Racial Recognition, 1 Personality & Soc. Psy-
chology Bull. 39 (1974); Malpass, Lavigneur, & Weldon, Verbal and Visual Training in
Face Recognition, 14 Perception & Psychophysics 285 (1973)).
1989] RIGHT TO A LAWYER 915
obtained with African blacks viewing African and European faces.^^
Results have not been uniform, however, as four studies failed to show
significant differences in accuracy for black observers of white versus
black faces.^^
Such experiments suggest that ''the differential recognition of black
faces by white and black observers is a highly probable event, and more
likely to result in error if the observer is white. "^^ At present, however,
the studies do not establish whether or to what extent jurors believe
cross-race identifications.^*
H. Other Physical Characteristics
Characteristics other than race may affect attitudes of observers.
Two studies have indicated that, upon conviction for a crime, an un-
attractive person is likely to receive a longer prison sentence than an
attractive person receives.*^ Men with dark complexions are more likely
to be suspected as villains, ^^ to be regarded as dishonest or hostile.^"*
/. Other Misconceptions
Research has exposed other misconceptions about eyewitness testi-
mony.^^ The opportunity the witness had to view the criminal is considered
78. Shepherd, Deregowski, & ElUs, A Cross-Cultural Study of Recognition Memory
for Faces, 9 Int'l J. Psychology 205 (1974).
79. Johnson, supra note 76, at 938-39 n.l8 (citing Barkowitz & Brigham, Recognition
of Faces: Own Race Bias, Incentive, and Time Delay, 12 J. Applied Soc. Psychology
255 (1982); Cross, Cross, & Daly, Sex, Race, Age, and Beauty as Factors in Recognition
of Faces, 10 Perception & Psychophysics 393 (1971); Malpass & Kravitz, Recognition
for Faces of Own and Other Race, 13 J. Personality & Soc. Psychology 330 (1969);
Chance, Goldstein, and McBride, Differential Experience and Recognition Memory for
Faces, 97 J. Soc. Psychology 243 (1975)).
80. A. Yarmey, supra note 21, at 130 (citing Malpass, Racial Bias in Eyewitness
Identification, 1 Personality & Soc. Psychology 42-44 (1974)).
81. Sanders, supra note 35, at 1454 n.l64 (citing Lindsay & Wells, supra note 74).
See also Brigham & Barkowitz, Do 'They All Look Alike'? The Effect of Race, Sex,
Experience and Attitudes on the Ability to Recognize Faces, 8 J. Applied Soc. Psychology
306 (1978).
82. A. Yarmey, supra note 21 (citing Landy & Aronson, The Influence of the
Character of the Criminal and His Victim on the Decisions of Simulated Jurors, 5 J.
Experimental Soc. Psychology 141 (1969); Efran, The Effect of Physical Appearance
on the Judgment of Guilt, Interpersonal Attraction, and Severity of Recommended Pun-
ishment in a Simulated Jury Task, 8 J, of Res. in Personality 45 (1974)).
83. A. Yarmey, supra note 21 (citing Berelson & Salter, Majority and Minority
Americans: An Analysis of Magazine Fiction, 10 Pub. Opinion Q. 168 (1946)).
84. A. Yarmey, supra note 21 (citing Secord, The Role of Facial Features in
Interpersonal Perception, in Person Perception and Interpersonal Behavior 3(X) (R.
Tagiuri & L. PetruUo eds. 1958)).
85. See generally Perspectives, supra note 27 (citing other studies).
916 INDIANA LAW REVIEW [Vol. 22:905
by courts to be an important factor in judging the accuracy of an
identification.^^ Yet, two-thirds of the persons studied were not aware
that an eyewitness is prone to overestimate the time involved in a crime
sequence.^'' Such overestimation of time should undermine judicial con-
fidence in the witness's depiction of the opportunity he had to view the
crime and, in turn, reduce the value of * 'opportunity to view'' as a
factor in judging eyewitness reliability.
A witness's identification of a person's face in a photographic array
is likely to produce an identification of the same person in a lineup,
even if the suspect is not guilty,^^ but many people appear not to know
that.^^ Some jurors seem to believe that photographic identifications
increase the accuracy of later lineup identifications. ^°
The consequences of mistaken identification are most harmful in
cases in which the conviction rested heavily on the eyewitness identifi-
cation. The danger of erroneous identification is made even more acute
in cases like Wade^^ and Foster, ^^ in which the perpetrators were disguised,
however clumsily, and the lineup participants were asked to don similar
disguises. As indicated by the research conducted in the United States,
as well as abroad, ^^ since the Wade and Kir by decisions, such an iden-
tification procedure presents many possibilities for intentional or inad-
vertent suggestion and for misidentification.^"* In general '*[i]t may be
concluded on the basis of experimental evidence that mistaken identity
from lineups is often the rule and not the exception. "^^
86. Neil V. Biggers, 409 U.S. 188 (1972).
87. Wells, supra note 48, at 259 (citing Shiffman & Bobko, Effects of Stimulus
Complexity on Brief Temporal Events, 103 J. Exp, Psychology 156 (1974)).
88. Brown, Deffenbacher, & Sturgill, Memory for Faces and the Circumstances of
Encounter, 62 J. Applied Psychology 311 (1977).
89. Yarmey & Jones, supra note 30, at 22; Wells, supra note 48, at 259 (citing
Gorenstein & Ellsworth, Effect of Choosing an Incorrect Photograph on a Later Iden-
tification by an Eyewitness, 65 J. Applied Psychology 616 (1980)).
90. Hastie, supra note 48.
91. United States v. Wade, 388 U.S. 218 (1967).
92. Foster v. State, 713 S.W.2d 789 (Tex. Ct. App. (1986)).
93. Shepherd, supra note 51, at 173 ("the fallibility of eyewitnesses has been
acknowledged for many years by legal authorities both in the UK and in the USA") See
also Watson, The Trlal of Adolf Beck (1924) (citing 1904 English committee of inquiry
as observing that "evidence as to identity based on personal impressions, however bona
fide, is perhaps of all classes of evidence the least to be relied upon, and therefore, unless
supported by other facts, an unsafe basis for the verdict of a jury"); P. Devlin, Report
to the Secretary of State for the Home Department of the Departmental Committee on
Evidence of Identification in Criminal Cases (1976); B. Clifford & R. Bull, The Psy-
chology OF Person Identification (1978).
94. E. LoFTUS, supra note 66.
95. A. Yarmey, supra note 21, at 159. Accord, Frankfurter, The Case of Sacco
1989] RIGHT TO A LAWYER 917
III. Aberrant Nature of Kirby
As noted above, in United States v. Wade^^ the United States Supreme
Court first recognized a sixth amendment right to council at a lineup.
Two bank employees identified Wade in a lineup conducted after in-
dictment but before trial. At trial they again pointed out Wade. On
cross-examination, in an attempt to counter the in-court identification,
defense counsel asked the witnesses about the pretrial lineup. Wade's
counsel unsuccessfully asked the trial judge to strike the courtroom
identifications on the ground that the lineup without counsel violated
the defendant's sixth amendment right. ^^
The court of appeals reversed the conviction and ordered a new
trial at which the in-court identification was to be excluded. ^^ The
Supreme Court granted review and agreed that Wade had a sixth amend-
ment right to the presence of counsel at the Uneup.^^ The Court realized
that criminal procedure had changed dramatically since the adoption of
the federal Bill of Rights. A pretrial confession or lineup can "settle
the accused's fate and reduce the trial itself to a mere formality."'^
Recognizing that the sixth amendment spoke of the right of the
accused to the '*[a]ssistance of counsel for his defence,''^^^ the Court
regarded the plain meaning of the provision as guaranteeing the right
to counsel * 'whenever necessary to assure a meaningful 'defence.' "^°^
Continuing in that vein, the Court emphasized that a central meaning
of the right to counsel is that an accused "need not stand alone against
the State at any stage of the prosecution, formal or informal, in court
or out, where counsel's absence might derogate from the accused's right
to a fair trial. "^^^ The Wade Court saw the accused's right to a fair
trial "as affected by his right meaningfully to cross-examine the witnesses
AND Vanzetti 30 (1927) ("The identification of strangers is proverbially untrustworthy");
Frank & Frank, Not Guilty 61 (1957) ("[P]erhaps erroneous identification of the accused
constitutes the major cause of the known wrongful convictions").
96. 388 U.S. 218 (1967).
97. Id. at 220. Wade also made a fifth amendment self-incrimination claim, but
a majority of the Supreme Court rejected it.
98. United States v. Wade, 358 F.2d 557 (5th Cir. 1966).
99. The Supreme Court held, however, that the violation of the right to counsel
at the lineup did not make the in-court identification automatically inadmissible. On
remand the trial court was to determine whether (1) the in-court identification was
independent of the tainted lineup or whether, in any event, (2) the admission of the in-
court identification was harmless error. 388 U.S. at 242.
100. 388 U.S. at 224.
101. Id. Bi 225 (quoting the sixth amendment) (emphasis by the Court).
102. Id.
103. Id. at 226.
918 INDIANA LAW REVIEW [Vol. 22:905
against him and to have effective assistance of counsel at the trial
itself. "'^^
In analyzing the dangers inherent in pretrial identifications, the
Supreme Court in Wade cited considerable authority for the proposition
that "the annals of criminal law are rife with instances of mistaken
identification. "^°^ The Court observed that, once the witness has com-
mitted himself to an identification, he is unlikely to change his mind.^^^
Because the defense lawyer is not present at the lineup, counsel cannot
reconstruct the lineup at trial. That is true because neither witnesses nor
lineup participants, including the suspect, are likely to be aware of
prejudicial conditions surrounding the lineup. '^"^ The resulting 'Mnability
to effectively reconstruct at trial any unfairness that occurred at the
lineup may deprive [the accused] of his only opportunity meaningfully
to attack the credibility of the witness' courtroom identification. "'°^
Thus, the Court in Wade saw the presence of counsel at a pretrial lineup
as essential to insure the right to a fair trial, the right to meaningful
cross-examination at trial, and the right to effective assistance of counsel
at trial.
A. Kirby As a Break from Wade
Only five years after Wade, however, in Kirby v. Illinois, ^^ a plurality
reinterpreted the Wade opinion, basing its decision on the literal wording
of the sixth amendment. The police arrested Kirby for a robbery, and
they took him to the police station. The victim entered the station and
identified Kirby, who was seated at a table. '^° At trial the victim described
the station confrontation and again identified Kirby. The Court declined
to apply Wade to a pre-indictment identification. '''
The plurality in Kirby read the sixth amendment right to counsel
recognized in Wade as being limited to postindictment Hneups, because
104. Id. at 227.
105. Id. at 228 (citing E. Borchard, supra note 55; Frank & Frank, supra note
95; and other authorities).
106. Id. at 229 (quoting WiUiams & Hammelman, Identification Parades, Part I,
Crim. L. Rev. 479, 482 (1963)).
107. Id. at 230.
108. Id. at 232.
109. 406 U.S. 682 (1972).
110. Such one-on-one identification proceedings are called "showups" and generally
are disfavored but are not per se unconstitutional. See Neil v, Diggers, 409 U.S. 188
(1972) (showup suggestive but identification reliable).
111. Justice Powell supplied the crucial fifth vote without explanation of his rationale,
except to say that he would not extend Wade. 406 U.S. at 691 (Powell, J., concurring).
The Kirby analysis later was adopted by a majority. Brewer v. Williams, 430 U.S. 387
(1977).
1989] RIGHT TO A LAWYER 919
the sixth amendment begins with the words "[i]n all criminal prose-
cutions."'^^ Taking those words literally, Justice Stewart's brief and
matter-of-fact opinion for the plurality concluded that the sixth amend-
ment's guarantee of the right to counsel applies only at or after **the
initiation of adversary judicial criminal proceedings, "^'^ or '*the onset
of formal prosecutorial proceedings."*'"* As examples of such starting
points for a "criminal prosecution," the plurality opinion Usted "formal
charge, preliminary hearing, indictment, information, or arraignment.'"'^
The Kirby plurality attempted to distinguish Wade on the basis of
procedural posture. The confrontation in Kirby was arranged before the
commencement of formal criminal proceedings, but the Hneup in Wade
was conducted after indictment. Justice Stewart, while declaring that
"[t]he initiation of judicial criminal proceedings is far from a mere
formalism,""^ however, gave no practical reason for concluding that
the sixth amendment did not require counsel at Kirby' s showup, to
protect his rights later at trial, but did require counsel at Wade's lineup,
to protect those same trial rights.
In direct contradiction to the Kirby plurality, Justice Brennan, the
author of the Wade opinion, denied that the postindictment wording in
Wade was anything but descriptive. ''Wade and Gilbert, ^^'^ of course,
happened to involve post-indictment confrontations. Yet even a cursory
perusal of the opinions in those cases reveals that nothing at all turned
upon that particular circumstance.""^ Brennan further noted that even
the dissenting justices in Wade read his opinion in that case as extending
to pre-indictment confrontations."^ For example. Justice White, dissenting
in Wade, had described Brennan 's opinion for the majority as
[C]reating a new per se rule of constitutional law: a criminal
suspect cannot be subjected to a pretrial identification process
in the absence of his counsel without violating the Sixth Amend-
ment. . . . The rule appUes to any lineup, . . . regardless of
when the identification occurs, in time or place, and whether
before or after indictment or information.'^^
Brennan also observed in his Kirby dissent that several state and federal
courts had read Wade as applying to pre-indictment lineups. '2' Academic
112. Id. at 689-90.
113. Id. at 689.
114. Id. at 690.
115. Id. at 689.
116. Id.
117. Gilbert v. California, 388 U.S. 263 (1967).
118. Kirby, 406 U.S. at 704 (Brennan, J., dissenting).
119. Id. n.l3.
120. 388 U.S. at 250-51 (White, J., dissenting in part and concurring in part).
121. 406 U.S. at 704 n.l4. See also People v. Hawkins, 55 N.Y.2d 474, 490 n.3.
920 INDIANA LAW REVIEW [Vol. 22:905
commentators had done the same.'^^ Many commentators have been
"critical of the Kirby decision and have sided with the four dissenters
who pointed out that the decision did not square with the rationale of
Wade.''^^^ Judicial and academic comments on the Kirby opinion have
demonstrated the lack of logic in its attempt to distinguish the holding
in Wade}^^ Perhaps the most stinging academic criticism of the Kirby
decision was made by Professor Grano, who thoroughly demonstrated
that the Kirby decision was not faithful to Wade, which Kirby purported
to follow. ^^^ Grano concluded that **the plurality opinion in Kirby seems
wrong from every perspective. The opinion misreads precedent so badly
that it appears intellectually dishonest. ''^^^ Other critics have been only
slightly more kind to the Kirby opinion. '^^ The Wade majority
understood that, when an eyewitness identifies a suspect, for all practical
purposes the case is over. Just as Escobedo v. Illinois^^^ and Miranda
V. Arizona^^^ recognized that a confession made to a poUce officer is
an event that really terminates the accused's chances for acquittal. Wade
made it clear that '*[t]he trial which might determine the accused's fate
may well not be that in the courtroom but that at the pretrial con-
frontation . . . with little or no effective appeal from the judgment there
rendered by the witness — 'that's the man.' "'^° The witnesses and the
suspect are not likely to be alert to the presence of any suggestiveness
in the Uneup. Unless he is present at the lineup, defense counsel will
find it impossible to reconstruct the conditions by means of questioning
in court. The inability to estabHsh suggestiveness through questioning
450 N.Y.S.2d 159, 167 n.3, 435 N.E.2d 376, 384 n.3 (1982) (Meyer, J., dissenting) (''prior
to Kirby a substantial majority of courts had applied Wade to preindictment identification
proceedings and required counsel at all lineups.") Id.
122. People v. Hawkins, 55 N.Y.2d at 489 n.2, 450 N.Y.S.2d at 167 n.2, 435
N.E.2d at 384 n.2 (1982).
123. W. LaFave, Criminal Procedure 329 (1985).
124. Hawkins, 55 N.Y.2d at 488, 450 N.Y.S.2d 166, 435 N.E.2d 383 (Meyer, J.,
dissenting).
125. Grano, Kirby, Biggers, and Ash: Do Any Constitutional Safeguards Remain
Against the Danger of Convicting the Innocent?, 72 Mich. L. Rev. 717, 725-30 (1974),
126. Id. at 730 {''Kirby created a new, and previously unsupported limitation on
the right to counsel.").
127. See, e.g., R. Young, Supreme Court Report, 58 A.B.A.J. 1092 (1972) ("perhaps
the least defensible, from a technical point of view, of the court's criminal law holdings
during the term"); Note, Criminal Law — The Lineup's Lament, Kirby v. Illinois, 22 De
Paul L. Rev. 660 (1972-73) (exaltation of form over substance); Woocher, supra note
65, at 996 ("removes the protective effects of counsel's presence precisely when the danger
of convicting an innocent defendant upon a mistaken identification is greatest").
128. 378 U.S. 478 (1964).
129. 384 U.S. 436 (1966).
130. 388 U.S. at 235-36.
1989] RIGHT TO A LAWYER 921
results in the denial of effective confrontation of the witnesses at trial,
denial of effective assistance of counsel at trial, and denial of a fair
trial. The literal-language approach to the interpretation of the sixth
amendment right to counsel, highlighted in Kirby,^^^ ignores the practical
difficulties of recreating the lineup through cross examination, as well
as the policies that the counsel guarantee exists to serve.
B. Federal * 'Literal Language** Rationale
As discussed above, in Kirby, the Supreme Court employed a ''literal
language," "explicit wording," or "plain language" approach to the
interpretation of the scope of the sixth amendment right to counsel.
The opinion relied on the fact that the sixth amendment begins with
the phrase "[i]n all criminal prosecutions." Interpreting that phrase, the
Kirby plurality announced the following doctrine: "The initiation of
judicial criminal proceedings is far from a mere formalism. ... It is
this point . . . that marks the commencement of the 'criminal prose-
cutions' to which alone the expHcit guarantees of the Sixth Amendment
are applicable. "'^^
The Kirby opinion thus began to reinterpret the Wade and Gilbert^^^
decisions, while emphasizing that it was relying on the explicit wording
of the sixth amendment: "The rationale of those cases was that an
accused is entitled to counsel at any 'critical stage of iht prosecution.' "'^'^
The opinion of Chief Justice Burger, concurring in Kirby, reiterated the
express- wording rationale: "I agree that the right to counsel attaches as
soon as criminal charges are formally made against an accused and he
becomes the subject of a 'criminal prosecution.' "'^^
Thus, it can be seen that Kirby articulated and relied upon a literal
reading of the phrase "criminal prosecution" as restricting the scope of
the Wade sixth amendment right to counsel. The Kirby plurality took
the simplistic explicit-wording approach over the objection of Justice
Brennan, the author of Wade, who observed in dissent as follows:
While it should go without saying, it appears necessary, in view
of the plurality opinion today, to re-emphasize that Wade did
not require the presence of counsel at pretrial confrontations
131. Actually Wade also relied on the "plain wording" of the sixth amendment
when stressing that the provision guarantees "counsel's assistance whenever necessary to
assure a meaningful 'defence.'" Id. at 225.
132. 406 U.S. at 689-90.
133. Gilbert v. CaUfornia, 388 U.S. 263 (1967).
134. 406 U.S. at 690 (emphasis added by Justice Stewart for Kirby plurality) (quoting
Simmons v. United States, 390 U.S. 377, 382-83 (1968)).
135. A/, at 691 (Burger, C.J., concurring).
922 INDIANA LAW REVIEW [Vol. 22:905
for identification purposes simply on the basis of an abstract
consideration of the words ''criminal prosecutions" in the Sixth
Amendment. ^^^
Only much later, when the literal-language approach created logical
and doctrinal difficulties regarding the other rights in the sixth amend-
ment, did the Court begin to look seriously for an alternative rational,
examining the purposes of the sixth amendment guarantees as clues to
their scope. Such difficulties appeared in United States v. Gouveia,^^''
in which case the defendant was a prisoner at a federal prison when a
murder of another prisoner occurred. Gouveia was placed in adminis-
trative detention for a considerable period before he was indicted for
the murder. The court of appeals held that he had a right to appointment
of an attorney during administrative detention and before indictment. '^^
Noting that Kirby did not involve a prison context, the court analogized
to the sixth amendment speedy trial right. *^^ The Ninth Circuit reasoned
that, if an arrest starts a ''criminal prosecution" for speedy trial cal-
culations, then administrative detention must serve the same purpose for
the attachment of the right to counsel in the prison context.'"*^ The court
of appeals held that, even before indictment, an administratively detained
prisoner must either be given counsel within a specified period or be
released into the general prison population, so that the prisoner or the
lawyer can conduct the pretrial investigation necessary to acquire and
preserve evidence for presentation of a defense at trial. ^'^^
The Supreme Court reversed the Ninth Circuit, holding the circuit
court's analogy to the speedy trial right to be inapt. '"^^ While recognizing
that the sixth amendment speedy trial right attaches at the time of arrest,
the Supreme Court in Gouveia reaffirmed the Kirby analysis, holding
that the sixth amendment right to counsel does not attach until adversarial
judicial proceedings have begun. The Court reviewed the Kirby line of
cases and pronounced it to be "consistent not only with the literal
language of the Amendment, which requires the existence of both a
'criminal prosecutio[n]' and an 'accused,' but also with the purposes
which we have recognized that the right to counsel serves. "•'^^ The Court
also reHed again on the "plain language of the Amendment and its
purpose.
"144
136.
Id. at 696 (Brennan, J., dissenting).
137.
467 U.S. 180 (1984).
138.
704 F.2d 1116 (9th Cir. 1983).
139.
Id. at 1120.
140.
Id. at 1124.
141.
Id.
142.
United States v. Gouveia, 467 U.S. 180 (1984)
143.
467 U.S. at 188.
144.
Id. at 189.
1989] RIGHT TO A LAWYER 923
While reiterating reliance on the literal language or plain wording
of the sixth amendment, the Gouveia Court shifted the focus to the
different purposes served by the speedy trial right and the counsel right
in order to justify the difference in results between speedy-trial cases
and right-to-counsel cases. '"^^ The Kirby plurality had rested its opinion
solely on the first few words of the sixth amendment, '*[i]n all criminal
prosecutions.'''"^^ Justice Stewart's opinion in that case had not referred
to the purposes underlying the sixth amendment right to counsel.
The change to reliance on the underlying purposes of the various
guarantees of the sixth amendment was made necessary by the fact that
the literal-language rationale of Kirby, if applied in any way but selectively
and arbitrarily throughout the sixth amendment, would be destructive
of well-established doctrine regarding the right to a speedy trial. Brennan,
dissenting in Kirby, had pointed out that, for speedy-trial doctrinal
reasons, the phrase "criminal prosecutions" in the sixth amendment
could not have the restrictive effect that the Kirby plurality proposed. '"^^
The phrase directly applied to the speedy trial right, but doctrine regarding
that guarantee held that the speedy trial right attached at the time of
indictment or arrest, whichever came first. '"^^ The Kirby plurality, how-
ever, chose to ignore the logical and doctrinal problems resulting from
its plain-language approach.
In Gouveia, the Court had to face these shortcomings of Kirby and
address them, because the Ninth Circuit had analogized to the speedy
trial guarantee of the sixth amendment, which, like the right to counsel,
is preceded by the words *'[i]n all criminal prosecutions." However,
rather than employing sound analysis the Court resorted to sleight of
hand, directing attention away from the literal-language rationale. The
Court recognized the doctrine that the right to a speedy trial attaches
at the time of arrest, but the Court announced that the difference
between the attachment points of the speedy trial right and the right
to counsel is "readily explainable given the fact that the speedy trial
right and the right to counsel protect different interests. "'"^^ The former
protects a "liberty interest," while the latter protects the accused "during
trial-type confrontations with the prosecutor. "'^^
What the Court failed to recognize is that, once one begins to rely
on the purposes underlying the several guarantees in the sixth amendment.
145. Id. at 190.
146. 406 U.S. at 689-90.
147. 406 U.S. at 698 n. 7 (Brennan, J., dissenting).
148. Id.; see also United States v. Marion, 404 U.S. 307 (1971); Dillingham v.
United States, 423 U.S. 64 (1975) (arrest activates speedy trial right).
149. 467 U.S. at 190.
150. Id.
924 INDIANA LAW REVIEW [Vol. 22:905
in order to justify distinctions among the points in time at which those
rights attach, then the literal language, '* criminal prosecutions," is no
longer relevant in determining the scope of a right. That same phrase
applies to every one of the rights in the sixth amendment, but it cannot
have a * 'literal" meaning that is the same for each. If the literal meaning
is not the same for each right in the amendment, then there is no literal
meaning. Once this is recognized, the Kirby rationale is lost, and the
courts, freed from the bankrupt **plain language" approach, are called
upon to examine the purposes of the right to counsel in order to determine
the scope of the right.
According to Wade, the right to counsel at a lineup before trial is
essential for the protection of rights that come into play later at trial:
the rights to meaningful cross-examination and confrontation, to effective
assistance of counsel, and to a fair trial. ^^^ Those same purposes exist
for the right to counsel at a pretrial lineup whether or not formal
adversarial judicial proceedings have commenced.'" As Justice Brennan
made clear in his Kirby dissent, "the initiation of adversarial judicial
proceedings is completely irrelevant to whether counsel is necessary at
a pretrial confrontation for identification in order to safeguard the
accused's constitutional rights to confrontation and the effective assistance
of counsel at his trial."'" Kirby is an aberration from Wade, and state
courts have struggled for years to reconcile the two cases.
IV. State Court Decisions
In 1974, only two years after the Kirby decision, some state courts
began to define a broader scope for the right to counsel because of the
interposition of state law. Others are addressing the issue for the first
time only now. The state courts follow two approaches. First, Penn-
sylvania and Mississippi, Hke the Kirby Court, restrict the right to counsel
to critical confrontations occurring after the initiation of judicial criminal
proceedings, but they refer to state law for the definition of the initiation
151. 388 U.S. at 227.
152. See, e.g.. People v. Bustamante, 30 Cal. 3d 88, 95, 177 Cal. Rptr. 576, 580,
634 P.2d 927, 931 (1981) (quoting People v. Fowler, 1 Cal. 3d 335, 342, 82 Cal. Rptr.
363, 368-69, 461 P.2d 643, 648-49 (1962)):
[T]he presence or absence of those conditions attendant upon lineups which
induced the high court to term such proceedings 'a critical stage of the pros-
ecution' at which the right to counsel attaches ... is certainly not dependent
upon the occurrence or nonoccurrence of proceedings formally binding a de-
fendant over for trial. A Hneup which occurs prior to the point in question
may be fraught with the same risks of suggestion as one occurring after that
point, and may result in the same far-reaching consequences for the defendant.
153. 406 U.S. at 697.
1989] RIGHT TO A LAWYER 925
point. Because those courts retain to some extent the Kirby requirement
of judicial criminal proceedings and see the federal doctrine and state
constitutions or statutes as interacting to determine the attachment of
counsel, they may be referred to as the "interactive states." Second,
Michigan, Alaska, and California, on the other hand, regard the at-
tachment of the counsel right as independent of the initiation of judicial
criminal proceedings. Because they completely reject Kirby and inde-
pendently determine the attachment point of the right to counsel, as
guaranteed by the state constitution, those states may be called the
* 'independent states."
A. Interactive States
1. Pennsylvania. — In 1974, the Pennsylvania Supreme Court held
that the interplay of federal and state law required the presence of
counsel at a pre-indictment lineup. In Commonwealth v. Richman,^^^
several days after the offense the police arrested a suspect and placed
him in a Uneup at the poHce station, where the victim identified him.
The Pennsylvania court reviewed the Wade and Kirby opinions and
decided that the later decision left to state law the question of when
adversary judicial proceedings began for sixth amendment purposes. The
Richman court reasoned that the Kirby plurality did not intend to supply
an exhaustive Hst of possibilities when it held that the sixth amendment
right to counsel attached to confrontations conducted "at or after the
initiation of adversary judicial criminal proceedings — whether by way of
formal charge, preUminary hearing, indictment, information or arraign-
ment. "^^^
Relying on an earlier decision interpreting state law,^^^ the Penn-
sylvania court held that an arrest initiates judicial proceedings. The court
noted that in Pennsylvania judicial approval of a complaint takes place
at the issuance of an arrest warrant, '^^ or at the preliminary arraignment
in the case of a warrantless arrest. The Richman court regarded mag-
isterial approval of a complaint as equal in significance to an indictment
for determining the commencement of adversarial judicial proceedings.
A person arrested pursuant to a warrant, therefore, was entitled to
counsel at a resulting lineup. The same was true for a person placed
in a lineup after arraignment following a warrantless arrest.
In Richman, however, the Hneup was conducted after a warrantless
arrest but before arraignment. The Court gave two reasons for not
154. 458 Pa. 167, 320 A.2d 351 (Pa. 1974).
155. Id. at 171, 320 A.2d at 353 (quoting Kirby, 406 U.S. at 689).
156. Id. (citing Commonwealth v. Whiting, 439 Pa. 205, 266 A.2d 738 (1970)).
157. See United States ex rel. Robinson v. Zelker, 468 F.2d 159 (2d Cir. 1972)
(arrest warrant commenced formal criminal proceedings requiring counsel at showup).
926 INDIANA LAW REVIEW [Vol. 22:905
distinguishing Richman's case from one involving a lineup after arraign-
ment or after arrest on a warrant. First, allowing uncounseled lineups
would undermine the Pennsylvania Court's ''strong policy requiring
warrants whenever feasible. "^^^ Second, the distinction would encourage
police to evade a state law requirement that the suspect be brought
before a magistrate for the fiUng of a complaint "without unnecessary
delay. "^59
The Pennsylvania approach was to require counsel at practically all
pre-indictment Hneups, as a result of the interaction of the sixth amend-
ment and state law. The court did not recognize a right to counsel
under state law broader in scope than the guarantee in the sixth amend-
ment.
2. Mississippi. — The Mississippi Supreme Court's approach changed
over the years from an embrace of the Kirby rule, to purported outright
rejection, and later to interaction. Immediately after the Kirby decision
the Mississippi Supreme Court adopted the federal rule that "the right
to counsel did not apply to a pre-indictment Hneup."^^^ By 1984, however,
Mississippi had begun to recognize the interplay between state law and
the Kirby reasoning. Later the Mississippi court flirted with the idea of
an independent standard, only to shift the focus again to state law as
the determinative component of an interactive approach.
In Cannaday v. State, ^^^ looking to state procedure for the deter-
mination of when formal adversarial proceedings have begun, as Penn-
sylvania had done ten years earlier, '^^ the Mississippi court held that
the right to counsel may attach as early as the time when a warrant is
issued. Two years later in Page v. State,^^^ the court reasoned that "[f]or
purposes of our state constitutional right to counsel, we define the advent
of the accusatory stage by reference to state law."^^ Recognizing that
state law defined commencement of prosecution as the point when a
warrant was issued, or when the person was "bound over" to wait for
a grand jury to decide whether to indict, '^^ the Page court concluded
158. 458 Pa. at 173, 320 A.2d at 354. (As support for that policy the Richman
court cited Wong Sun v. United States, 371 U.S. 471 (1963) for the proposition that "a
warrantless arrest is justified only in the face of compelling exigent circumstances which
preclude the police from going before a detached magistrate." 458 Pa. at 172-3, 320 A. 2d
at 354. Richman was decided before United States v. Watson, 423 U.S. 411 (1976)
(warrantless public arrest may be made in public on probable cause without exigent
circumstances)).
159. Id. (quoting Pa. R. Crim. P. 130).
160. See Livingston v. State, 519 So. 2d 1218, 1220 (Miss. 1988) (citing cases).
161. 455 So. 2d 713 (Miss. 1984) cert, denied, 469 U.S. 122 (1985).
162. Commonwealth v. Richman, 458 Pa. 167, 320 A.2d 351 (1974).
163. 495 So. 2d 436 (Miss. 1986).
164. Id. at 439.
165. Miss. Code Ann. § 99-1-7 (1972).
1989] RIGHT TO A LAWYER 927
that it would be '^totally irrational" not to consider such a person to
be an accused. '^^ In light of state law requiring speedy appearance before
a magistrate after arrest, '^^ which would constitute the commencement
of judicial criminal proceedings, the Page decision recognized a right to
counsel for a person who has been arrested and released on bond and
who has obtained the services of an attorney.'^*
In a footnote the court expressly stated that it relied '^exclusively
upon state law" and rejected Kirby as "wholly unworkable. "^^^ Because
in rural counties the meetings of grand juries to consider indictments
were held infrequently, the Mississippi court thought that the Kirby
approach "would have the right to counsel available to the accused only
after many months had passed following arrest. "^^^ Later the Mississippi
court took an approach like the one taken by Pennsylvania in Richman,
holding that the attachment point of both the federal and state right
to counsel is determined by reference to state law. Relying on Page,
which involved not a lineup but incriminatory statements, the Mississippi
Supreme Court decided in Livingston v. State, ^''^ that, given state law
defining the commencement of prosecution,'^^ a person has a right to
counsel at a lineup conducted after he has been arrested on a warrant. '^^
166. 495 So. 2d at 439.
167. Rule 1.04, Miss. Unif. Crim. R. Cm. Ct. Prac; Miss. Code Ann. § 99-3-
17 (Supp. 1985).
168. 495 So. 2d at 439-40.
169. Id. at 440 n.5. The court noted:
We are very much aware of the fact that a number of recent federal cases have
held that the right to counsel secured by the Sixth Amendment to the Constitution
of the United States is available only after the initiation of judicial criminal
proceeding[s], i.e., indictment and arraignment. Application of this approach to
our state constitutional right would be wholly unworkable. . . . [Wle reject the
federal approach and for purposes of today's decision rely exclusively upon state
law.
(citations omitted).
170. Id. At the time it appeared Mississippi was rejecting the Kirby judicial-pro-
ceedings formulation of the attachment point for the state constitutional right to counsel.
The Page Court actually disavowed something that Kirby had not held — that the right to
counsel attached only at or after indictment and arraignment. When the Kirby Court
spoke of arraignment, however, it did not mean only a hearing before a magistrate
occurring after indictment but also earlier proceedings, like the initial appearance before
a magistrate after arrest. See, e.g., Michigan v. Jackson, 475 U.S. 625 (1986) (initial
appearance or "arraignment" after being arrested and formally charged); Brewer v.
Williams, 430 U.S. 387 (1977) (arrest on warrant, arraignment, judicial commitment to
jail).
171. 519 So. 2d 1218 (Miss. 1988).
172. Miss. Code Ann. § 99-1-77 (Supp. 1986).
173. 519 So. 2d at 1221. (The Court affirmed the conviction because of several
procedural problems concerning the preservation of error. Some of the problems were
that (1) the record did not show that counsel was not present at the Hneup and (2) at
trial no objection was made to the admission of testimony about the lineup.)
928 INDIANA LAW REVIEW [Vol. 22:905
The Livingston case involved counsel claims under both the federal and
state constitutions, but the Mississippi court did not employ a different
test for the state provision.
The latest refinement of the Mississippi test, however, regards state
law, without reference to or reUance on the federal sixth amendment,
as dictating attachment of the right to counsel at the point after arrest
when the initial appearance before a magistrate '* ought to have been
held."'"''^ That rule prevents the police from postponing the attachment
of the right to counsel by delaying the arrestee's appearance in court.
Although earher Mississippi case law displayed **a trend toward rigid
restriction of the access to counsel to post-indictment line-ups, that view
has clearly been supplanted by a more recent case espousing an approach
based squarely on state law and the initiation of judicial proceedings
as defined by statute. "^^^ The Mississippi approach now resembles that
of Pennsylvania, the other interactive state, in that it accepts the Kirby
judicial-proceedings concept regarding the attachment point for the right
to counsel but defines that point by reference to state law.^"^^ In one
context or another those two state courts have held that the right to
counsel at a Hneup attaches when, as a matter of statute, court rule,
or policy, a judicial officer should have become involved in the case,
despite the fact that no magistrate had yet been consulted. The result
is that in Mississippi and Pennsylvania, the right to counsel at a Hneup
attaches at a point earlier in the criminal process than any United States
Supreme Court opinion has yet recognized. Mississippi has gone beyond
Pennsylvania in recognizing such an early counsel right without reliance
on the sixth amendment, but Mississippi has not expressly declared that
the right under state law is greater in scope. '^^
174. Magee v. State, 542 So. 2d 228 (Miss. 1989).
175. Whitten & Robertson, supra note 13, at 293 n.l82 (citing statutory and case
authority).
176. Some federal courts have recognized the interactive nature of the Kirby approach
to the question of when the right to counsel attaches. See, e.g.. United States v. Muzychka,
725 F.2d 1061 (3d Cir.), cert, denied, 467 U.S. 1206 (1984); Clark v. Jago, 676 F.2d
1099 (6th Cir. 1982), cert, denied, 466 U.S. 977 (1984); Lomax v. Alabama, 629 F.2d
413 (5th Cir. 1980), cert, denied, 450 U.S. 1002 (1981); United States ex rel. Robinson
V. Zelker, 468 F.2d 159 (2d Cir. 1972), cert, denied, 411 U.S. 939 (1973); United States
ex rel. Sanders v. Rowe, 460 F. Supp. 1128 (N.D. 111. 1978); United States ex rel. Burton
V. Cuyler, 439 F. Supp. 1173 (E.D. Pa. 1977), aff'd without opinion, 582 F.2d 1278 (3d
Cir. 1978) (all cases following interactive approach).
177. Two other states have moved close to independence on the lineup issue without
quite crossing the line. See State v. Smith, 547 So. 2d 131 (Fla. 1989) {ex parte order
compelling accused already in police custody to participate in lineup violates due process
under state constitution); People v. Coates, 74 N.Y.2d 244, 544 N.Y.S.2d 992, 543 N.E.2d
440 (1989) (suspect incarcerated and represented by attorney on other charge had right
to counsel at lineup ordered by court).
1989] RIGHT TO A LAWYER 929
B. Independent States
1. Michigan. — The first state high court to reject Kirby completely
on state law grounds was the Supreme Court of Michigan in People v.
Jackson, ^''^ which involved photographic arrays and a Uneup apparently
conducted without the presence of counsel. At the time of the identi-
fication proceedings Jackson, a suspect in an assault case, was in jail
under a sentence for a related offense. For practical purposes he was
regarded as under arrest for the assault in question. '^^ In Jackson, the
Michigan court exercised its * 'constitutional power to establish rules of
evidence appUcable to judicial proceedings in Michigan courts and to
preserve best evidence eyewitness testimony from unnecessary alteration
by unfair identification procedures. "'^° The Jackson decision relied on
an earlier opinion by the same court in People v. Anderson, ^^^ involving
photographic identifications.
Anderson was decided after Kirby but before United States v. Ash,^^^
the photographic display case discussed above. In Anderson, the Michigan
Supreme Court came to conclusions contrary to Kirby and Ash. The
Michigan court surveyed the legal and scientific writings on eyewitness
identification,'^^ extensively analyzed the competing interests of the state
and the suspect, and concluded that, independent of federal constitutional
doctrine, a suspect is entitled to counsel at a live or photographic
identification without regard to whether the ''judicial phase of a pros-
ecution" has begun. '^"^ In Jackson, after reviewing Kirby and Ash, the
Michigan Supreme Court expressly rejected those two opinions and re-
affirmed the Anderson holding on the basis of its supervisory powers,
independent of federal constitutional analysis.'*^ The Jackson court thus
178. 391 Mich. 323, 217 N.W.2d 22 (1974).
179. Id. Accord, People v. Anderson, 391 Mich. 419, 216 N.W.2d 780 (1974) (fact
that suspect in custody for different crime did not diminish right to counsel at photo
lineup). But cf. Foster v. State, 713 S.W.2d 789 (Tex. Ct. App. 1986) ("The fact that
the appellant was incarcerated on an unrelated matter at the time of the lineup was not
relevant to a determination of his sixth amendment right to counsel for the robbery, the
offense for which he was identified at the lineup.") Id. at 790.
180. 391 Mich, at 338-39, 217 N.W.2d at 27.
181. 389 Mich. 155, 205 N.W.2d 461 (1973).
182. 413 U.S. 300 (1973).
183. The court attached an appendix to the Anderson opinion displaying thorough
research. See 389 Mich, at 192-220, 205 N.W.2d at 479-95.
184. Jackson, 391 Mich, at 339, 217 N.W.2d at 27 (The Jackson court defined the
"judicial phase of a prosecution" as "[f]iling of a complaint/issuance of an arrest warrant/
preliminary examination/filing of an information or indictment.") Id. n.ll.
185. Id. 391 Mich at 338, 217 N.W.2d at 27-28. The court stated:
[T]he principles developed in and following the announcement of Wade, as to
corporeal identifications, and Anderson, as to photo showings, shall govern the
930 INDIANA LAW REVIEW [Vol. 22:905
mandated that counsel be present at pretrial lineups unless exigent cir-
cumstances justified proceeding without counsel.
2. Alaska. — The Supreme Court of Alaska in Blue v. State^^^ was
the first state court to ground the rule requiring counsel at a pre-
indictment lineup squarely on the state constitutional right to counsel.
In that case police conducted an impromptu lineup in a bar shortly
after an armed robbery had occurred in another bar nearby. A victim
identified Blue in the Hneup. While recognizing that Kirby had rejected
a sixth amendment claim to a right to counsel at pre-indictment lineups,
and that the "pre- and post-indictment distinction ha[d] been widely
applied by federal and state courts,"'^'' the Alaska Supreme Court stated
that it "is not limited by decisions of the United States Supreme Court
or by the United States Constitution when interpreting its state consti-
tution. "^^^ The Alaska court noted that the right to counsel under the
state constitution already had been given a broader scope than its sixth
amendment analogue. ^^^
Balancing the need of the state for prompt and efficient investigation
of crimes against the right of the suspect to meaningful cross-examination
at a later trial, and relying on Justice Brennan's dissent in Kirby, ^'^ as
well as California cases interpreting Wade,^^^ the Blue court held that
"a suspect who is in custody is entitled to have counsel present at a
pre-indictment lineup unless exigent circumstances exist so that providing
counsel would unduly interfere with a prompt and purposeful investi-
gation. "'^^ The Alaska court found exigent circumstances to be present
in Blue, so that providing counsel would not have been "practical,
reasonable or mandated by [the Alaska] constitution. '*^^^
3. California. — In People v. Bustamante,^^"^ the California Supreme
Court followed Alaska's example and rested its decision on an inde-
receipt in evidence of identification testimony where the witness has viewed or
seen photographs of the suspect without regard to when the judicial phase of
the prosecution is commenced,
(footnotes omitted).
186. 558 P.2d 636 (Alaska 1977).
187. Id. at 640 n.5.
188. Id. at 641.
189. Id. (citing Roberts v. State, 458 P.2d 340 (Alaska 1969)).
190. Id. at 641-42 n.8 (quoting Kirby v. Illinois, 406 U.S. 682, 696 (1982) (Brennan,
J., dissenting)).
191. Id. at 642 n.lO.
192. Id. at 642 (footnotes omitted). The court noted that, although Blue had not
been placed under formal arrest, he was in custody. Id. n.9.
193. Id. at 642 n.ll (The court reversed the conviction on a different ground.) Id.
at 646.
194. 30 Cal. '3d 88, 177 Cal. Rptr. 576, 634 P.2d 927 (1981). The decision in
1989] RIGHT TO A LAWYER 931
pendent state constitutional right to counsel. In reaching that decision
the California court re-affirmed its decision in People v. Fowler, ^"^^ which
was decided after Wade but before Kirby. In the Fowler case, the
California court, like some federal courts before Kirby, ^^^ had held that
the Wade right to counsel extended to pre-indictment lineups. In Bus-
tamante, the court revisited Fowler and noted the intervening decisions
in Alaska, Michigan, and Pennsylvania discussed above. '^"^
The Bustamante court recognized the unreliability of eyewitness iden-
tification and the way the witness becomes '^unshakable" once the lineup
identification removes his doubts and commits him to the proposition
that the defendant is the criminal in question. '^^ The California court
also noted the extreme difficulty of reproducing the lineup procedure
at trial with sufficient precision to reveal improper suggestion. ^^^ Further
examining the role of counsel at a lineup, the Bustamante court decided
that the counsel requirement would encourage police to adopt and to
follow fair procedures. ^^ By attending the lineup, the attorney could
detect intentionally or inadvertently suggestive aspects of the lineup and
could better prepare for cross-examination of the eyewitnesses and for
argument at trial. ^^^ In rejecting Kirby, however, the California Court
again followed the lead of Michigan and Alaska and held that exigent
circumstances could justify proceeding without counsel. ^^^
C Retreat from Independence
Texas. — Texas, the scene of the bank robbery in Wade, which was
the starting point for the right to counsel at a lineup, recently announced
a new rule rejecting the Kirby rationale and according counsel at any
critical pretrial confrontation, before or after the initiation of formal
judicial proceedings, as a matter of state law. Within a year, however,
Bustamante remains valid, despite Proposition 8, which narrowed the California exclusionary
rule to a scope identical to the federal rule, because the conduct in Bustamante occurred
before passage of the initiative. People v, Houston, 42 Cal, 3d 595, 600 n.3, 230 Cal.
Rptr. 141, 142 n.3, 724 P.2d 1166, 1167 n.3 (1986).
195. 1 Cal. 3d 335, 461 P.2d 643, 82 Cal. Rptr. 363 (1969).
196. Bustamante at 30 Cal. 3d at 95, 634 P.2d at 931, 177 Cal. Rptr. at 580 (citing
Wilson v. Gaffney, 454 F.2d 142 (10th Cir. 1972); United States v. Greene, 429 F.2d 193
(D.C. Cir. 1970)).
197. Id. at 96 n.5, 177 Cal. Rptr. at 581 n.5, 634 P.2d at 932 n.5.
198. Id. at 98, 177 Cal. Rptr. at 582, 634 P.2d at 933.
199. Id. at 99, 177 Cal. Rptr. at 583, 634 P.2d at 934.
200. Id.
201. Id.
202. Id. at 100, 177 Cal. Rptr. at 584, 634 P.2d at 935. See also Blue v. State,
558 P. 2d 636 (Alaska 1977) (state constitution requires presence of counsel at in-custody
lineup).
932 INDIANA LAW REVIEW [Vol. 22:905
the Texas court reversed itself and retreated to the Kirby rule. Until
Kirby came along, the Texas Court of Criminal Appeals, ^°^ like the
California Supreme Court, ^^'^ regarded Wade as applying the sixth amend-
ment right to counsel to pre-indictment Uneups, as well as post-indictment
confrontations. In Martinez v. State^^^ in 1969, the Texas court concluded
that Wade clearly held *'that a criminal suspect cannot be subjected to
a pretrial identification process in the absence of counsel without violating
the Sixth Amendment. "^o^
Since Kirby re-interpreted the Wade decision, however, the Texas
Court of Criminal Appeals has not directly re-addressed the pre-indict-
ment lineup issue as a matter of state law. In the 1986 case of Foster
V. State^^'' discussed above,^^® an intermediate court of appeals in Texas
tersely rejected the appellant's claim of a right to counsel, saying that
it was "unable to find any basis upon which to interpret our state
constitution's right-to-counsel provision as giving a criminal defendant
any greater protection than is given by the United States Constitution. "^09
The Texas Court of Criminal Appeals currently is reviewing Foster to
decide the question of whether the Texas Constitution guarantees the
right to counsel at a Uneup before indictment.
Meanwhile, in Forte v. State,^^^ the Texas Court of Criminal Appeals
appeared to open the door to recognition of a state constitutional right
to have counsel present at a lineup before formal judicial proceedings
begin. Forte claimed that he had a right to counsel at a breath test
administered after his arrest for driving while intoxicated. In 1986, the
Court of Criminal Appeals, following Kirby, rejected his sixth amendment
claim and remanded for consideration of the state constitutional law
issue. ^'^ On remand the intermediate court of appeals held against the
state constitutional contention, ^^^ and the Court of Criminal Appeals
agreed. ^^^ In rejecting the state law claim, however, the Court of Criminal
Appeals also unanimously rejected the Kirby rationale as a ' 'fiction. "^^'^
The court stated:
203. The Texas Court of Criminal Appeals is the court of last resort for state
criminal cases. The Texas Supreme Court handles civil cases. Tex. R. App. P. 15, 9,
respectively.
204. People v. Fowler, 1 Cal. 2d 335, 82 Cal. Rtpr. 363, 461 P.2d 643 (1969).
205. 437 S.W.2d 842 (Tex. Crim. App. 1969).
206. Id. at 846.
207. 713 S.W.2d 789 (Tex. Ct. App. 1986).
208. See supra text accompanying notes 1-3.
209. 713 S.W.2d at 790.
210. 759 S.W.2d 128 (Tex. Crim. App. 1988).
211. 707 S.W.2d 89 (Tex. Crim. App. 1986).
212. Forte v. State, 722 S.W.2d 219 (Tex. Ct. App. 1986).
213. Forte v. State, 759 S.W.2d 128 (Tex. Crim. App. 1988).
214. Id. at 131 (Two judges dissented but obviously agreed with the majority in
rejecting Kirby. See 759 S.W.2d at 139-40 (Chnton, J. and Teague, J., dissenting)).
1989] RIGHT TO A LAWYER 933
We believe that the basis and rationale of the Wade-Gilbert rule
and the Kirby line of cases become difficult if not impossible
to reconcile, especially when one considers the realities of the
criminal investigatory procedures utilized by most law enforce-
ment agencies. That is, the same dangers of prejudice which
Wade and Gilbert claimed concern will invariably exist at many
stages of a criminal prosecution prior to the onset of formal
charges; therefore, the demarcation of formal charges before the
right to counsel is triggered is probably arbitrary and capricious.^' ^
The court surveyed the decisions of other states and recognized a
sharp division on the issue of counsel at breath tests. Concentrating on
the opinions of the Supreme Court of Oregon,^*^ the Texas court con-
curred with the Oregon court's ''repudiation" of Kirby but declined to
follow the Oregon reasoning that arrest automatically triggers the right
to counsel in breath test cases. ^•^
The Texas Court did not believe that the Kirby fiction (i.e., the
right to counsel begins at the time when adversarial judicial proceedings
commence) should be replaced with another fiction that the right to
counsel automatically attaches at the time of formal arrest. Eschewing
any "artificially created time designation, "^'^ the Court of Criminal
Appeals insisted on a "more flexible standard. "^'^ Holding that the right
to counsel arises at "critical stage [s]"^^^ of the criminal process, the
court directed that "each case must be judged on whether the pretrial
confrontation presented necessitates counsel's presence so as to protect
a known right or safeguard, "^^^ such as later rights to a fair trial, to
meaningful cross-examination, and to effective assistance of counsel at
trial. ^^2 The Forte court thus accepted the Wade definition of "critical
stages" but rejected the Kirby designation of formal adversarial judicial
proceedings as the starting point. A critical stage, under the Forte
reasoning, can occur before judicial criminal proceedings begin. Nev-
ertheless, the court reasoned that, under the Texas Implied Consent
Statute,^^^ which provides that a driver impliedly consents to a breath
test by the act of driving on a public road, Forte had no legal right
to revoke his implied consent and to refuse a breath test. For that
215. Id. at 134.
216. See, e.g., State v. Spencer, 305 Or. 59, 750 P.2d 147 (1988).
217. Forte, 759 S.W.2d at 137.
218. Id. at 138.
219. Id.
220. Id.
221. Id.
111. Id. at 137-38 (quoting United States v. Wade, 388 U.S. 218 (1967)).
223. Tex. Rev. Civ. Stat. Ann. §§ 67011-15 (Vernon Supp. 1984).
934 INDIANA LAW REVIEW [Vol. 22:905
reason the suspect had no right that needed protection at the time of
the breath test or at a later trial. Consequently, the Court held that the
time at which a driver is faced with the decision whether to take a test
is not a ''critical stage" of the criminal process at which counsel's
presence is required. Forte's right to counsel under the Texas constitution,
just Uke the sixth amendment right, "did not attach until the time the
complaint was filed. "^^"^
The analysis employed by the Forte court seemed to allow the
attachment of the right to counsel at lineups Hke the one in Foster.
While it is true that Foster, who was in jail serving a sentence for other
offenses, was not formally under arrest for the robberies under inves-
tigation, ^^^ nothing in the Forte rationale suggested that the suspect must
be the subject of an arrest, let alone a judicial warrant, formal complaint,
arraignment, preliminary hearing, information or indictment. The only
question is whether the pretrial confrontation itself is a critical stage,
in that counsel's presence is needed to protect a known right existing
at the confrontation or later in the process. Wade clearly regarded all
such pretrial lineups to be critical stages. The Forte opinion's heavy
reliance on Wade's, rationale, while rejecting Kirby, appeared to make
it difficult for the Texas Court of Criminal Appeals to deny the claim
made in Foster that the right to counsel attaches at a lineup for a person
serving a sentence in jail for other offenses.
During the next legislative session, however, in reaction to Forte
and other decisions, opponents of independent state constitutionalism
proposed a sweeping amendment to the Texas Constitution that would
have stripped the courts of the authority to construe state constitutional
provisions more favorably to criminal defendants than the federal courts
have construed the federal Bill of Rights. ^^^ Although the amendment
224. 759 S.W.2d at 139 (quoting Forte v. State, 707 S.W.2d 89, 92 (Tex. Crim.
App. 1986)). Presumably the Texas Court of Criminal Appeals in Forte merely meant
that the state counsel right did not theoretically attach before the sixth amendment right
in that case. The court adopted the federal critical stage analysis, which requires that,
for the right to counsel to come into play, the proceeding at which counsel's presence is
requested must be a "confrontation" between the accused and the state. Id. at 133 (quoting
Wade, 388 U.S. at 226-27). Unless the filing of the complaint involved a confrontation
that is not mentioned in any of the Forte opinions, however, it is difficult to see how
the Texas counsel right actually became operative when the complaint was filed. See R.
Dawson & R. Dix, Texas Criminal Procedure 112 (1984) (complaint may be filed before
defendant's first appearance in court). See also Lara v. State, 740 S.W.2d 823, 834 (Tex.
Ct. App. 1987, pet. ref'd, cert, denied, Lara v. Texas, 110 S. Ct. 92 (1989) (right to
counsel can fail to "come into play" even though theoretically it has "attached" by way
of indictment).
225. Compare People v. Jackson, 391 Mich. 323, 217 N.W.2d 22 (1974).
226. See generally Dix, Judicial Independence in Defining Criminal Defendants'
Texas Constitutional Rights, 68 Tex. L. Rev. (1990) (origin and consequences of
proposed amendment) (draft of forthcoming article).
1989] RIGHT TO A LAWYER 935
died in committee, the Texas Court of Criminal Appeals soon disavowed
the Forte test in McCambridge v. State, ^^"^ another case involving the
right to counsel before taking a breath test after arrest for driving while
intoxicated. In McCambridge the court decided that the Forte case-by-
case approach was * 'ambiguous, vague, and thus unworkable. "^^* Al-
though remaining critical of Kirby as irreconcilable with Wade and
Gilbert, ^^^ the court retreated to the Kirby "bright-line rule," merely in
the interest of consistency, because, as the court simply put it,
*'[c]onsistency is the objective of any legal standard. "^^^ The Mc-
Cambridge opinion was so lacking in rationale as "to strongly suggest
that the court was almost panicstricken in its haste to disavow what
had become a politically-damaging pronouncement. "^^^ The repudiation
of the Forte approach made no practical difference in McCambridge
(the result being that, just as in Forte, the right to counsel did not
attach until the filing of formal charges), ^^^ but the overall direction of
the McCambridge opinion appeared to militate against Foster's claim
of the right to counsel at a precharging lineup (although the McCambridge
holding was limited to "the context of this case").^^^ The Foster case
remains undecided.
V. Conclusion
In finding a state law basis for counsel at a lineup, the state court
decisions discussed above relied on the poUcies underlying the right to
counsel and the requirements of state statutes. Two of the courts gave
considerable attention to recent psychological and legal writings on eye-
witness identification in general and lineups in particular. ^^"^ Recent re-
227. 778 S.W.2d 70 (Tex. Crim. App. 1989).
228. Id. at 75.
229. Id. at 75-76.
230. Id. at 75.
231. Dix, supra note 226.
232. McCambridge v. State, 778 S.W.2d 70, 76 (Tex. Crim. App. 1989).
233. Id.
234. People v. Anderson, 389 Mich. 155, 205 N.W.2d 461 (1973); People v. Bus-
tamante, 30 Cal. 3d 88, 177 Cal. Rptr. 216, 634 P.2d 927 (1981); People v. Hawkins,
55 N.Y.2d 474, 450 N.Y.S.2d 159, 435 N.E.2d 376 (1982) (Meyer, J., dissenting). But
see the majority opinion in Hawkins, at 487 n.7, 450 N.Y.S.2d at 166 n.7, 435 N.E,2d
383 n.7:
I further comment on the multiple nonjudicial sources employed in the dissent.
While I, in no measure, intend disrespect to my dissenting colleagues, to the
view they express, nor to academic sources generally, I am constrained to note
that some of these proffered authorities do not realistically or legally justify
the result for which they are advanced. Thus, no item by item response is
warranted. Rather, I find confirmation and support for the majority viewpoint
in the judicial decisions and analyses of our court and the Supreme Court of
the United States.
936 INDIANA LAW REVIEW [Vol. 22:905
search continues to cast doubt on the fairness of lineups, even when
the subjects of the lineup appear to match the general description of
the suspect. 2^^ State courts should not follow the United States Supreme
Court in turning a '*deaf ear*' to the scientific studies, ^^^ because they
indicate that the courts operate under many misconceptions about eye-
witness identification and lineups in particular. ^^"^
Several states have gone beyond discussion of policy or psychology
in analyzing the right to counsel. Courts and commentators in several
states have taken the historical approach in interpreting state constitu-
tional rights. ^^^ Despite the difficulties inherent in the search for original
intent,^^^ the Texas Court of Criminal Appeals resorted to an examination
of the history of the state, as well as its many successive constitutions, ^"^^
as a clue to the intended scope of the present state constitutional
provision.^"*^ Where appropriate sources are available, ^'^^ state courts can
235. See, e.g., Buckhout, Rabinowitz, Alfonso, Kanellis, & Anderson, Empirical
Assessment of Lineups: Getting Down to Cases, 12 Law & Hum. Behav. 323 (1988)
(using real case photo array of six men, and relying on eyewitness description, 58% of
mock witnesses picked photo of defendant, whom they had never seen before, although
only one in six should pick same photo if procedure unbiased).
236. See Sherwood, The Erosion of Constitutional Safeguards in the Area of Eye-
witness Identification, 30 Howard L.J. 731, 771 (1987) (U.S. Supreme Court's eagerness
to ignore empirical and other scholarly authorities).
237. See supra text accompanying notes 28-95.
238. See, e.g.. State v. Henry, 302 Or. 510, 732 P.2d 9 (1987) (obscenity prosecution
precluded by state provision protecting free expression); Harris v. State, 645 S.W.2d 447
(Tex. Crim. App. 1983) (state doctrine of separation of church and state overrides
ecclesiastically-based rule against judicial proceedings on Sunday); Utter & Larson, Church
and State on the Frontier: The History of the Establishment Clauses in the Washington
State Constitution, 15 Hastings Const. L.Q. 451 (1988); Ponton, Sources of Liberty in
the Texas Bill of Rights, 20 St. Mary's L.J. 93 (1988).
239. See, e.g., McCabe, State Constitutions and the "Open Fields" Doctrine: A
Historical-Definitional Analysis of the Scope of Protection Against Warrantless Searches
of "Possessions,'' 13 Vt. L. Rev. 179 (1988) (discussing Hmitations and citing criticism
of quest for original intent). See also Brest, The Misconceived Quest for the Original
Understanding, 60 B.U.L. Rev. 204, 229 (1980) (relegating original intent to factor not
of "determinative" weight).
240. See generally Eisenhauer v. State, 754 S.W.2d 159, 166-76 (Tex. Crim. App.
1988) (Clinton, J., dissenting) (early Texas constitutional history).
241. Forte v. State, 759 S.W.2d, 134 (Tex. Crim. App. 1988). In Forte, a majority
of the court appeared to recognize for the first time that the Texans who proposed and
ratified the present state constitution in 1875-76 may have been more sensitive to police
abuses than were the framers and ratifiers of the federal Bill of Rights in an earlier era.
The court noted that Texans had been subjected to an "extremely repressive" Reconstruction
government. Id. During that period, the governor made "despotic" use of a state police
force that he had created and into which he incorporated all local constabularies. Id.
n.ll (quoting Thomas, The Texas Constitution of 1876, 35 Tex. L. Rev. 907, 912-13
(1951)). See generally S. McKay, Making the Texas Constitution of 1876, 424-26 (1968).
1989] RIGHT TO A LAWYER 937
profitably follow the historical approach to the interpretation of the
right to counsel at a lineup.
Michigan, Alaska, and CaUfornia, on the other hand, recognized
the exigent circumstances exception as a necessary practical limitation
on the scope of the counsel right, designed to safeguard the efficiency
and effectiveness of police investigations.^"*^ Other courts may be expected
to take the same cautious approach, although it has been observed that
over the last twenty years little or no evidence has been developed to
suggest that law enforcement has been seriously impeded by state court
decisions recognizing rights greater in scope than those guaranteed by
the federal Constitution. ^"^
The interactive states, while retaining the federal "formal adversarial
judicial proceedings" formula for the attachment of the right to counsel,
have ameliorated the Procrustean nature of that prerequisite by identifying
the initiation of such proceedings at ever-earUer points in the criminal
process, as a matter of state law. Such an approach can, but does not
necessarily, result in independent examination of the state constitution
or in recognition of rights under state law that are greater in scope than
rights secured by the sixth amendment.
The independent states have rejected the federal judicial proceedings
prerequisite, while retaining critical stage analysis. They have regarded
a pretrial lineup as such a stage, at which counsel's presence is required,
as a matter of the court's supervisory powers, state statute, or consti-
tutional provision. That approach can culminate in recognition of a
In contrast, "[w]hen the [federal Bill of Rights was adopted, there were no organized
police forces as we know them today." United States v. Wade, 388 U.S. 218, 224 (1967)
(citing authorities).
242. Historical sources for interpreting state constitutions can be scarce for a variety
of reasons. For example, in a typical fit of fiscal conservatism, the delegates to the Texas
Constitutional Convention of 1875 voted (53-31) against efforts to authorize payment to
have a public record made of the debates during the proceedings. S. McKay, supra note
218, at 77.
243. See, e.g., P. Bobbitt, Constitutional Fate (1982) (explaining alternative ap-
proaches to constitutional interpretation), cited with approval in State v. Ramseur, 106
N.J. 123, 524 A.2d 188 (1987); State v. Jewett, 146 Vt. 221, 500 A.2d 233 (1985). See
also Utter & Pitler, Presenting State Constitutional Arguments: Comment on Theory and
Technique, 20 Ind. L. Rev. 635 (1987).
244. Marcus, State Constitutional Protection for Defendants in Criminal Prosecu-
tions, 20 Ariz. St. L.J. 151, 169 (1988) (citing Galie, State Constitutional Guarantees
and the Alaska Court: Criminal Procedure Rights and the New Federalism, 1960-81, 18
GoNZ. L. Rev. 221, 259 (1983)); People v. Hawkins, 55 N.Y.2d 474, 495, 450 N.Y.S.2d
159, 171, 435 N.E.2d 376, 388 (1982) (Meyer, J., dissenting) (until real problems for law
enforcement have been shown to stem from presence of counsel at prearraignment lineups
in Alaska, California, Michigan, and Pennsylvania, nothing except speculation weighs in
constitutional balance against requiring counsel).
938 INDIANA LAW REVIEW [Vol. 22:905
broader scope for the right to counsel under state law than that provided
under the sixth amendment.
In light of the psychological studies showing the dangers of lineup
identifications, and the widespread legal criticism of the federal formula,
it is time for more state courts to examine the interplay between state
and federal provisions, or to analyze state constitutions independently,
and to ' terminate the guardianship "^"^^ that the federal courts have
exercised over the rights of criminal suspects, especially the right to
counsel at Uneups,
245. Duncan, Terminating the Guardianship: A New Role for State Courts, 19 St.
Mary's L.J. 809 (1988).
PARTIAL SETTLEMENT OF MULTIPLE
TORTFEASOR CASES UNDER THE INDIANA
COMPARATIVE FAULT ACT
I. Introduction
Indiana adopted statutory comparative fault in 1983, effective Jan.
1, 1985.* Although Indiana courts have stated that settlement and com-
promise are encouraged by the law^, the Indiana Comparative Fault Act
makes no provision for settlement. The Uniform Comparative Fault Act^
and the legislation"* or judicial decisions of several other States^ ac-
1. IND. Code §§ 34-4-33-1 to 34-4-33-14, effective Jan. 1, 1985. Section 2 of
P.L. 317-1983, which enacted this statute, provided that the statute would not apply to
any action accruing before its effective date. See Bayliff, Drafting and Legislative History
of the Comparative Fault Act, 17 Ind. L. Rev. 863, 873 (1984) for an overview of the
amendments to the Act made before its effective date.
2. See, e.g. Kavanaugh v. Butorac, 140 Ind. App. 139, 221 N.E.2d 824, 829
(1966) (evidence of unsuccessful settlement negotiations excluded so as not to penalize one
who has made an effort to compromise a claim out of court); Indiana Insurance Co. v.
Handlon, 216 Ind. 442, 447, 24 N.E.2d 1(X)3, 1005 (1939) (same issue as above, stating:
"Since it is the policy of the law to favor and encourage the compromise of differences,
one who makes an unsuccessful effort toward that end should not be penahzed.") The
courts of other jurisdictions agree, one going so far as to state: "Compromises are favored
by the Court. This is such a universal rule as to require no citation of authority." State
Highway Comm'n v. Arms, 163 Mont. 487, 490, 518 P.2d 35, 37 (1974).
3. Unif. Comparative Fault Act § 6, 12 U.L.A. 37 (Supp, 1988), and Comment
thereto. See also Unif. Contribution Among Tortfeasors Act § 4, 12 U.L.A. 57 (1975
& Supp. 1988). The Uniform Contribution Among Tortfeasors Act has been adopted by
eighteen states, but the Prefatory Note to the Uniform Comparative Fault Act states:
Both of [the Uniform Contribution Acts (1939 and 1955)] provide for pro rata
contribution, which may be suitable in a state not applying the principle of
comparative fault, but is inappropriate in a comparative-fault state apportioning
ultimate responsibility on the basis of the proportionate fault of all the parties
involved. ...
It has . . . been decided not to amend the separate Uniform Contribution Among
Tortfeasors Act, 1955, but to leave the act for possible use by states not adopting
the principle of comparative fault.
Unif. Comparative Fault Act, Prefatory Note, 12 U.L.A. 37, 38 (Supp. 1988). For an
analysis of the Uniform Contribution Among Tortfeasors Act, see Note, Settlement in
Joint Tort Cases, 18 Stan. L. Rev. 486 (1966).
4. See, e.g. N.H. Rev. Stat. Ann. § 507:7h (Supp. 1988), (makes provision for
effect of release or covenant not to sue, settlement to reduce claim of plaintiff by amount
of consideration given); Alaska Stat. § 09.17.090 (1986) (provides that a release or
covenant not to sue releases only the agreeing tortfeasor, credits the remaining defendants
with the amount given, and discharges the tortfeasor from any responsibility for contri-
bution); Ariz. Rev. Stat. Ann. §§ 12-2501(D), 12-2504(1) and (2) (1984).
5. See, e.g. American Motorcycle Ass'n v. Superior Court, 20 Cal. 3d 578, 146
Cal. Rptr. 182, 578 P. 2d 899 (1978) (providing for reduction of award by amount of
settlement); Giem v. Williams, 215 Ark. 705, 222 S.W.2d 800 (1949).
939
940 INDIANA LAW REVIEW [Vol. 22:939
knowledge the importance of compromise and settlement by providing
for it specifically.
The purpose of this Note is to examine some of the possibilities
and problems of the Indiana Act in the context of settlement by one
of multiple tortfeasors under the statute. Since settlement does not take
place in a vacuum, consideration of several corollary or threshold ques-
tions is necessary. Therefore, the analysis will focus not only on settlement
itself, but on the threshold issues to settlement, including joint and
several hability and contribution, and the decision as to whose fault will
be considered in any allocation. This will be accomplished by posing
questions which will inevitably arise under the Act in the multiple
tortfeasor-settlement context, and then undertaking an examination of
the caselaw and legislation of selected other states with an eye toward
comparing and contrasting them to Indiana's new Act and its existing
caselaw. This comparison will highlight the questions which Indiana
courts will be called upon to answer, and will show the potential problems
caused by omission of definite guidelines for the consequences of set-
tlement in a multiple tortfeasor context.
The primary states used for comparison will be Kansas and Min-
nesota, with other states illustrating specific points. Kansas enacted its
comparative fault act in 1974.^ The Kansas Act abolishes joint and
several liability,'' making each tortfeasor responsible only for her^ own
percentage of the total award. Kansas defendants may bring in ** ad-
ditional parties" or * 'phantom tortfeasors," the rough equivalent of
Indiana's nonparties, and have their fault considered along with the
fault of parties to the action.^ Kansas courts have not allowed contribution
among tortfeasors. '° These factors tend to make Kansas' comparative
fault the most analogous to Indiana's at this time, affording a wealth
of case law upon which to predict how Indiana courts might react to
the new Comparative Fault Act.
Minnesota's Comparative Fault Act'^ resembles the Uniform Com-
parative Fault Act.^^ However, the Minnesota legislature has never of-
6. Kan. Stat. Ann. § 60-25 8a (Supp. 1987).
7. Kan. Stat. Ann. § 60-25 8a(cl), as interpreted in Brown v. Kiell, 224 Kan.
195, 580 P. 2d 867 (1978). There is still some question regarding whether or not the Indiana
Act has had the effect of abrogating the common law doctrine of joint and several
liability. See infra y notes 46-49 and accompanying text.
8. The feminine pronoun is used throughout to represent both genders, except
when referring to parties whose gender is specified by facts.
9. Hardin v. Manitowoc-Forsythe Corp., 691 F.2d 449 (10th Cir. 1982).
10. See, e.g. Kennedy v. Sawyer, 228 Kan 439, 447, 618 P.2d 788, 797 (1980).
11. Minn. Stat. Ann. §§ 604.01 to 604.08 (West 1988).
12. Unif. Comparative Fault Act, 12 U.L.A. 37 (Supp. 1988). The Uniform Act
has been adopted by Iowa (Iowa Code §§ 668.1 to 668.14, adopted 1984) and Washington
(Wash. Rev. Code §§ 4.22.005 to 4.22.925, adopted 1981).
1989] COMPARATIVE FAULT 941
ficially adopted the Uniform Act. Instead, it modeled its original statute
on the Wisconsin Contributory Negligence Act and surrounding caselaw
in 1969.^^ Later amendments brought it closer to the Uniform Act. The
Minnesota statute provides for joint and several liability, ^"^ and the case
law surrounding it allows contribution.'^ The Minnesota Act does not
provide for joinder of nonparties. These factors make the Minnesota
comparative fault system almost diametrically opposed to that of Kansas
(and perhaps Indiana) in the settlement context. Finally, the Minnesota
statute specifically provides for partial settlement of claims.'^
II. Indiana Law Before and After the Enactment of
Comparative Fault
A. Background: Settlement in Indiana Prior to the Act
Prior to the enactment of comparative fault, Indiana courts endorsed
and allowed several different types of settlement agreements between
plaintiffs and one or more joint tortfeasors. The intent behind the
agreement decided the form, which then dictated its legal effect.'^ Set-
tlement agreements could take a number of different forms, including
13. The Wisconsin Act, enacted in 1931, Wis. Stat. Ann. § 895.045 (West 1983),
is one of the oldest in the country. It provides:
"Contributory negUgence shall not bar recovery in an action ... to recover
damages for neghgence resulting in death or injury ... if such negligence was
not greater than the negligence of the person against whom recovery is sought,
but any damages allowed shall be diminished in proportion to the amount of
negligence attributable to the person recovering."
Id. While the statute itself is simple and sparse, it is supported by a large amount of
caselaw. The Minnesota Supreme Court acknowledged the Wisconsin statute as the source
of the Minnesota Comparative Fault Act in Busch v. Busch Const., Inc., 262 N.W.2d
377, 393 (Minn. 1977) and Marier v. Memorial Rescue Service, Inc. 296 Minn. 242, 207
N.W.2d 706 (1973), which held that the Minnesota statute's basis in Wisconsin law included
the caselaw and interpretation of the Wisconsin statute up until the time of adoption.
See also 1969 Committee Comment, Minn. Stat. Ann. § 604.01 (West 1988).
14. Minn. Stat. Ann. § 604.02(1) (West Supp. 1989). See generally Steenson,
Recent Legislative Responses to the Rule of Joint and Several Liability, 23 Tort and
Insurance Law Journal 482 (1988).
15. Minn. Stat. Ann. § 604.02(2) (West 1988). See also supra note 13.
16. Minn. Stat. Ann. § 604.01, subparts (2), (3), (4), and (5) (West 1988).
Wisconsin's comparative negligence scheme provides for the consequences of settlement
in the Wisconsin evidence code. Wis. Stat. Ann. § 885.285(3) (West Supp. 1988).
17. Fetz V. E & L Truck Rental Co., 670 F. Supp. 261, 263 (S.D. Ind. 1987);
Sanders v. Cole Mun. Fin., 489 N.E.2d 117, 120 (Ind. Ct. App. 1986) (Hsts settlement
options open to plaintiff and states that intent of the parties is relevant to the charac-
terization of the settlement); Northern Indiana Public Service Co. v. Otis, 145 Ind. App.
159, 250 N.E.2d 378, 392 (1969).
942 INDIANA LAW REVIEW [Vol. 22:939
loan receipt agreements, ^^ covenants not to sue,*^ and covenants not to
execute^^. These devices were not considered releases per se.^^
The danger in any settlement agreement for the plaintiff was in the
common law maxim that the release of one joint tortfeasors^ served as
18. In a loan receipt agreement, a potentially liable defendant advances funds to
a plaintiff in the form of a no-interest loan. In exchange, defendant receives a promise
not to pursue a cause of action against that defendant. Fullenkamp v. Newcomer, 508
N.E.2d 37 (Ind. Ct. App. 1987) (decided under contributory fault because the cause accrued
prior to the effective date of the Comparative Fault Act). Often, the loan is paid back
out of recovery from the defendants remaining in the case. American Transp. Co. v.
Central Indiana Ry. 255 Ind. 319, 323, 264 N.E.2d 64, 66 (1970). Courts approved of
these transactions because they compensated plaintiffs without the usual protracted wait
for a trial, and because they allowed plaintiffs to acquire funds to pursue claims against
other defendants. Ohio Valley Gas, Inc. v. Blackburn, 445 N.E.2d 1378, 1382 (Ind. Ct.
App. 1983). See also American Transp. Co., 255 Ind. at Zll-li, 264 N.E.2d at 67;
Northern Ind. Pub. Serv. Co., 145 Ind. App. at 179-80, 250 N.E.2d at 392. The amount
given for a loan receipt agreement does not diminish the ultimate award to plaintiff
because it is not considered to be in partial satisfaction, but is looked at as subject to
repayment. Sanders, 489 N.E.2d at 120; Barker v. Cole, 396 N.E.2d 964 (Ind. Ct. App.
1980). See also Strohmeyer, Loan Receipt Agreements Revisited: Recognizing Substance
Over Form, 21 Ind. L. Rev. 439 (1988).
19. Plaintiff agreed in exchange for consideration not to pursue her claim against
a settling tortfeasor. Plaintiff did not release or waive her claim against that tortfeasor,
retaining the claim in order to pursue it if the settling tortfeasor reneged, and reserving
her claim against any other tortfeasors. National Mut. Ins. Co. v. Fincher, 428 N.E.2d
1386, 1388, nn.4-5 (Ind. Ct. App. 1981). The consideration paid under a covenant not
to sue was in partial satisfaction of the claim, and therefore diminished any award the
plaintiff ultimately received. Sanders, 489 N.E.2d at 120 (citing cases).
20. Plaintiff, in exchange for consideration, would agree not to execute any judg-
ment received against the tortfeasor, retaining her cause of action against that tortfeasor
and any other potentially liable persons. Barker v. Sumney, 185 F. Supp. 298 (N.D. Ind.
1960). The covenant not to execute was not dispositive of the issue of the settling tortfeasor's
negligence, and the plaintiff could pursue her suit to its conclusion, as the covenant would
not be effective until a judgment was obtained, at which point the settling tortfeasor
could raise it as a defense if plaintiff sought to enforce the judgment. Barker, 185 F.
Supp. 298; Sanders, 489 N.E.2d at 120. Amounts obtained by plaintiff under such a
covenant were in partial satisfaction of her claim and so reduced her ultimate award pro
tanto. Sanders, 489 N.E.2d at 120.
21. Fetz, 670 F. Supp. at 262-63 (1986)(citing cases).
22. Joint liability may be incurred when the acts of wrongdoers, through cooperation
or concert, injure a plaintiff. Also, independent acts of several tortfeasors which combine
to produce a single injury may subject them to joint liability. Young v. Hoke, 493 N.E.2d
1279, 1280 (Ind. Ct. App. 1986). Independent successive acts, e.g. an auto accident followed
by medical malpractice in the emergency room, may not lead to joint responsibility between
the tortfeasors. Wecker v. Kilmer, 260 Ind. 198, 294 N.E.2d 132 (1973). This Note will
not deal with determination of the jointness of responsibility of tortfeasors, assuming that
aspect in dealing with settlement questions.
1989] COMPARATIVE FAULT 943
a release of all.^^ In Cooper v. Robert Hall Clothes, ^'^ the Supreme Court
of Indiana vacated a Court of Appeals judgment^^ dealing with a doc-
ument which was entitled "Release," but which had reserved certain
parts of plaintiff's cause of action against another defendant in the
action. 2^ The Court of Appeals had attempted to abandon the common
law rule and institute instead the Restatement rule,^'' which would allow
a plaintiff to give a release to one joint tortfeasor without releasing all.
The Indiana Supreme Court expressly rejected the Restatement,^^ stressing
the difference between transactions such as covenants not to sue and
releases. A release entirely waived a claim, rendering a reservation of
part of a claim inconsistent and void.^^ The court stated that the purpose
of this rule was to prevent a plaintiff from recovering in excess of her
actual damages by piecemeal settlements with various defendants. ^° Ad-
ditionally, the court stressed that because joint tortfeasors constitute one
jointly and severally liable entity, a release of part of that entity ac-
knowledged that none of the components of the entity were liable.^' A
plaintiff also ran the risk of having a covenant not to sue or execute
held to be a release as to all tortfeasors if the consideration which a
settUng tortfeasor paid equaled all of plaintiff's damages. ^^
This settlement and release regime inevitably worked injustices on
various parties. Plaintiffs were disadvantaged if they executed a contract
23. Cooper v. Robert Hall Clothes, Inc., 390 N.E.2d 155 (Ind. 1979); Bedwell v.
DeBolt, 221 Ind. 600, 609, 50 N.E. 875, 878 (1943); Cleveland, C, C. & St. L. Ry. v.
Hilligoss, 171 Ind. 417, 422-23, 86 N.E. 485, 487 (1908). "Release" is defined in Standard
Auto Ins. Ass'n v. Reese, 83 Ind. App. 500, 149 N.E. 137 (1925): "A release is the act
or writing by which some claim or, interest is surrendered to another person .... It is
a species of contract, and like any other contract, it must have a consideration." Id. at
503, 149 N.E. at 138 (quoting Jaqua v. Shewalter, 10 Ind. App. 234, 36 N.E. 173 (1893),
reh'g denied, 37 N.E. 1072 (1894)). See also Prosser, Handbook of the Law of Torts
§ 49 (1971).
24. 390 N.E.2d 155 (Ind. 1979).
25. Cooper v. Robert Hall Clothes, Inc., 375 N.E.2d 1142 (Ind. Ct. App. 1978).
26. Parts of the release document are reproduced in Cooper, 390 N.E. 2d at 156-
57.
27. Restatement (Second) of Torts § 885(1) (1965) provides: "A valid release
of one tortfeasor from liability for a harm, given by the injured person, does not discharge
others liable for the same harm, unless it is agreed that it will discharge them."
28. Cooper, 390 N.E.2d at 157.
29. Id.
30. Id.
31. Id.
32. Bedwell v. Debolt, 221 Ind. 600, 609, 50 N.E.2d 875, 879; Moffett v. Gene
B. Click Co., Inc., 621 F. Supp. 244, 289 (N.D. Ind. 1985). In Scott v. Krueger, 151
Ind. App. 479, 514, 280 N.E.2d 336, 357 (1972), the court stated that the amount paid
could be brought before the jury, who would then decide whether it had served to satisfy
all plaintiff's damages and would therefore be a release. Id.
944 INDIANA LAW REVIEW [Vol. 22:939
believing it to be a covenant and the court found it to be a release,"
thereby denying plaintiffs a full recovery. Inequities to settling defendants
also resulted because the settUng joint tortfeasor had no right of con-
tribution against the other tortfeasors who benefitted when the contract
was found to be a release, or when a covenant not to sue was found
to fully satisfy plaintiff's damages. ^"^ This meant that the settUng de-
fendant was released, but other, perhaps more blameworthy, defendants
paid nothing at all. The settling defendant could not get any repayment
from other defendants for procuring their release because contribution
was not allowed.
When a covenant not to sue or not to execute was held to be valid,
that is, it did not release all the tortfeasors, only the one who executed
the settlement, the remaining defendants suffered. Joint and several
liability, ^^ combined with the fact that plaintiff's award was diminished
only by the dollar amount of the settlement, ^^ meant that the remaining
defendants would pay the entire balance of any award, regardless of
how faulty they were. The remaining defendants would have no right
to seek contribution from the settHng tortfeasor. Indeed, they had no
right to seek contribution against any of their fellow joint tortfeasors.^''
33. See Cooper, 390 N.E.2d 155. Although both the appellate court and supreme
court clearly found the Cooper settlement to be a release, it is logical to assume that
since the plaintiff included a reservation of rights against the remaining defendants she
thought that she could do so and have the release operate as a covenant not to sue. This
becomes even more obvious when the amounts given in exchange for the release are
considered: plaintiff originally stated her claim at Seventy-Five Thousand Dollars, and
settled with one defendant for One Thousand Nine Hundred and Ninety Nine Dollars
and the other defendant for Ten Dollars. Id. at 156.
34. Sanders v. Cole Mun. Fin., 489 N.E.2d 117, 121. See Recent Decisions, Release
of Joint Tortfeasors — Document Styled "Covenant Not To Sue" Held to Amount to
Release, 36 Notre Dame Lawyer 443 (1960).
35. Indiana followed the common law doctrine of joint and several liability which
allowed a plaintiff to recover all her damages from any one of the named defendants
against whom she received a judgment. Barker v. Cole, 396 N.E.2d 964, 971 (Ind. Ct.
App. 1979)
36. Sanders, 489 N.E.2d 117, 120. Amounts received by a plaintiff under a loan
receipt agreement did not diminish the final award at all. Id. See supra note 18.
37. Contribution is a system by which a tortfeasor who has paid plaintiff's full
damages or more than that defendant's equal share is entitled to seek repayment from
the other joint tortfeasors. The shares were calculated on a pro rata basis, that is, the
full amount of the judgment was divided by the number of tortfeasors liable, each defendant
being responsible for her equal share. This is a traditional common law doctrine. See
Prosser, Handbook of the Law of Torts 50. There has never been a right to contribution
among joint tortfeasors in Indiana. Barker v. Cole, 396 N.E.2d 964, 971; The American
Express Co. v. Patterson, 73 Ind. 430, 436 (1881); Hunt v. Lane, 9 Ind. 248 (1857). See
also Recent Decisions, Torts-Joint Tortfeasors-Contribution-Exceptions, 6 Notre Dame
Lawyer 267 (1930-1931).
1989] COMPARATIVE FAULT 945
A loan receipt agreement did not diminish plaintiffs award at all and
left the remaining nonprevailing defendants to pay the whole amount,
with any sort of repayment of the loan being a contractual matter
between plaintiff and settHng tortfeasor. ^^ These features combined to
make settlement relatively predictable, despite the technical risks to un-
wary settlers (especially the release rule) characterized as '*boobytraps"
by the drafters of the Restatement rule.^^
B. The Indiana Comparative Fault Act
In 1985, Indiana joined the numerous states which have adopted
some form of comparative fault. '^'^ The Indiana Act strongly emphasizes
the procedural aspects of comparative fault."*' The basic change in the
law made by this statute is, of course, that contributory fault no longer
bars a plaintiff's recovery against a tortfeasor unless the plaintiff's fault
is "greater than the fault of all persons whose fault proximately con-
tributed to the claimant's damages.'"*^
1. Joint and Several Liability and Contribution. — Section 34-4-3-5(b)
of the Indiana Act gives the jury explicit instructions on how to apportion
the fault of multiple parties.'*^ It makes no provision, however, for how
38. In Northern Indiana Public Service Co. v. Otis, the court noted that "authorities
from Indiana and other jurisdictions certainly provide for the use of a loan receipt
agreement and use of the same is neither contribution among joint tortfeasors or [sic]
an assignment of a cause of action sounding in tort." 145 Ind. App. 159, 180, 250 N.E.2d
378, 392-93. (citing cases collected in 1 A.L.R. 1528, 132 A.L.R. 607, and 157 A.L.R.
1261), A loan receipt agreement could be considered an "end run" on the prohibition
against contribution insofar as the loaning party was paid back out of the proceeds of
judgments against other parties. See Strohmeyer, supra note 18.
39. Restatment (Second) of Torts § 885, Comment (d) (1965).
40. Ind. Pub. L. 317-1983 (which enacted most of the provisions of Ind. Code
§§ 34-4-33-1 to -14 in 1983); Ind. Pub. L. 174-1984 (which amended various sections of
the Act). Each provided that its effective date was to be January 1, 1985. For a list of
the states which had judicially or legislatively adopted comparative fault or comparative
negligence before Indiana, see Smith and Wade, Fairness: A Comparative Analysis of the
Indiana and Uniform Comparative Fault Acts, 17 Ind. L, Rev. 969, n.3 (1984).
41. See, e.g. Ind. Code § 34-4-33-5 (1988) (providing the procedure by which a
jury arrives at the ultimate allocation of fault and recovery); Ind. Code § 34-4-33-6 (1988)
(providing for special verdict forms); and Ind. Code § 34-4-33-10 (1988) (providing for
nonparty defense, including time for pleading and burden of proof).
42. Ind. Code § 34-4-33-4(b) (1988). Ind. Code § 34-4-33-3 (1988) provides: "In
an action based on fault, any contributory fault chargeable to the claimant diminishes
proportionally the amount awarded as compensatory damages for an injury attributable
to the claimant's contributory fault, but does not bar recovery except as provided in
section 4 of this chapter."
43. Ind. Code § 34-4-33-5(b) (1988) provides:
In an action based on fault that is brought against two (2) or more defendants.
946 INDIANA LAW REVIEW [Vol. 22:939
a settlement might affect the apportionment of fault or how any award
of damages might be diminished by a settlement between a plaintiff and
one of several defendants.'^ The Act is also silent on the topic of joint
and several Kability, which has sparked a debate among the legal scholars
of Indiana as to whether the joint and several Hability doctrine survived
the enactment of the Comparative Fault Act/^ Some of these scholars
and writers have assumed the abrogation of joint and several liability/^
while others have assumed its continued existence or argued in favor
of retention of the doctrine/^
and that is tried to a jury, the court, unless all the parties agree otherwise,
shall instruct the jury to determine its verdict in the following manner:
(1) The jury shall determine the percentage of fault of the claimant, of the
defendants, and of any person who is a nonparty. The percentage of fault
figures of parties to the action may total less than one hundred percent (100%)
if the jury finds that fault contributing to cause the claimant's loss has also
come from a nonparty or nonparties.
(2) If the percentage of fault of the claimant is greater than fifty percent
(50%) of the total fault involved in the incident which caused the claimant's
death, injury, or property damage, the jury shall return a verdict for the
defendants and no further deliberation of the jury is required.
(3) If the percentage of fault of the claimant is not greater than fifty percent
(50%) of the total fault, the jury shall then determine the total amount of
damages the claimant would be entitled to recover if contributory fault were
disregarded.
(4) The jury next shall multiply the percentage of fault of each defendant by
the amount of damages determined under subdivision (3) and shall enter a
verdict against each such defendant (and such other defendants as are liable
with the defendant by reason of their relationship to such defendant) in the
amount of the product of the multiplication of each defendant's percentage
of fault times the amount of damages as determined under subdivision (3).
Ind. Code § 34-4-33-5(b) (1988). See also suggested jury verdict forms in Indianapolis
Bar Association Young Lawyer's Division Handbook, Super Saturday in Court - Com-
parative Fault (April 9, 1988).
44. Mr. BayUff, one of the drafters of the Act, states, "Jurors will simply diminish
the claimant's recovery by the percentage of fault (not by the amount paid) of the
tortfeasors who have settled." Bayliff, Drafting and Legislative History of the Indiana
Comparative Fault Act, 17 Ind. L. Rev. 863, 869 (1984). This assumes the abrogation
of joint and several liability.
45. See generally. Symposium on Indiana's Comparative Fault Act, 17 Ind. L.
Rev. (1984). This has been an issue in other states when comparative systems are adopted
legislatively and judicially. See H. Woods, Comparative Fault § 13:4 (1987).
46. See Bayliff, supra note 44, at 867, stating that the Act "implicitly abrogates
the traditional rule of joint and several liability for concurrent wrongs"; Easterday and
Easterday, The Indiana Comparative Fault Act: How Does It Compare With Other
Jurisdictions?, 17 Ind. L. Rev. 883, 899 (1984); Eilbacher, Nonparty Tortfeasors in Indiana:
The Early Cases, 21 Ind. L. Rev. 413, 417. (1988) (assuming the abolition of joint and
several liability). Other non-Indiana authors have also assumed the abrogation of joint
and several liability by the Indiana statute. See, e.g. 2 Matthew Bender, Comparative
Negligence § 13.20(31 (1984); H. Woods, Comparative Fault, app., at 587 (1987).
47. See Pardieck, The Impact of Comparative Fault in Indiana, 17 Ind. L. Rev.
1989] COMPARATIVE FAULT 947
The importance of joint and several liability to settlement lies in its
effect on the ultimate award to a plaintiff, who will recover fully if
she can arrive at the full award by a combination of the settlement
amount and recovery from the tortfeasors remaining in the action. For
defendants, the effect of joint and several liability can be that one
defendant ends up paying the entire judgment (because of insolvency
or unavailability of co-tortfeasors) without being able to resort to con-
tribution to recoup some of the amount paid. This is problematic in
that the purpose of the allocation of proportional fault is defeated if
a plaintiff may recover more than a defendant's allocated share of the
damages from that defendant. As Lawrence Wilkins points out in his
article analyzing the Indiana Act:
Adoption of comparative fault signals the embrace of a policy
of refining the compensation function of tort law in order that
injured parties' needs may be more widely and accurately served.
Abolition of joint and several liability operates against that
policy. At the same time, the fairness element inherent in the
comparative fault system powerfully favors the interests of tort-
feasors who rightfully claim that liability apportioned to fault
is meaningless if they are made to bear more than their assessed
percentage of fault. '^^
In Gray v. Chacon, "^^ Judge Barker of the Southern District of
Indiana cited the abrogation of joint and several liability as one of the
reasons for the demise of the release rule under Indiana's Comparative
Fault Act.^^ Referring to the Indiana Supreme Court's justifications for
925, 936-938 (1984) (arguing that the policies of tort law and the availability of insurance
militate in favor of the retention of joint and several liability, especially in cases where
the plaintiff is fault-free); Schwartz, Comparative Negligence in Indiana: A Unique Statute
That Will Reshape the Law, 17 Ind. L. Rev. 957, 967 (1984) (assuming that the statute
has preserved joint and several liability). One author notes the arguments of both sides
and recommends solutions that neither entirely abrogate joint and several liability nor
keep it intact. Wilkins, The Indiana Comparative Fault Act at First (Lingering) Glance,
17 iND. L. Rev. 687, 717 (1984).
48. Wilkins, supra note 47 at 717. The polar policies mentioned by Professor
Wilkins are in this Note termed "allocation oriented" (favoring the precise allocation of
fault and the idea that each should be responsible only for her own share of fault) and
"compensation oriented" (favoring full compensation of injured parties, even at the expense
of defendants). Professor Wilkins points out that the abrogation of joint and several
liability will curtail the use of such devices as the loan receipt agreement, because if the
plaintiff must repay the loan from her proportional recovery from remaining defendants,
she has not only lost the proportional recovery from the settling defendant, but has her
remaining recovery from the other defendants diminished by the amount of repayment.
Id. at 719, n.l56.
49. 684 F. Supp. 1481 (S.D. Ind. 1988).
50. Id. at 1485.
948 INDIANA LAW REVIEW [Vol. 22:939
the release rule set forth in Cooper v. Robert Hall Clothes,^^ Judge
Barker concluded that the Comparative Fault Act removed any danger
of a plaintiff receiving more than her proven damages by piecemeal
successive settlement." This is because no defendant or nonparty would
ever be required to pay more than her own share of fault, and no
incentive exists under the Act for a tortfeasor to settle and be released
for more than her estimated proportion of fault." Judge Barker further
stated: '*[D]ue to the Act's abolition of joint and several liability multiple
tortfeasors can no longer be properly considered as 'one entity' in
Indiana. . . . [F]ar from being 'one entity,' joint defendants in Indiana
are now as separate and independent from each other as they are from
the plaintiff herself. "^"^ Acknowledging that "it is possible to create a
'law professor's' argument in favor of the notion that the Act retained
joint and several liability, . . . such an interpretation lacks persuasive
force and is at odds with the legislative motivation otherwise evidenced
throughout the Act."^^ It is unclear what the effect of this dicta will
be because no Indiana state court has made a pronouncement on whether
joint and several liability has survived, whether intact or modified.
One result effected by the Gray decision with regard to settlement
under the Comparative Fault Act is that the court made it abundantly
clear that the common law release rule^^ has no place in a comparative
fault system which does not incorporate joint and several liability." The
court recommended, instead, adoption of the Restatement Section 885
rule: release of one tortfeasor does not serve to release all unless intended
to do so.^^ This position is in keeping with that expressed in Young v.
Hoke,^^ a case decided by the Indiana Court of Appeals. Young was
decided under the old contributory negligence scheme because the cause
of action accrued before the 1985 effective date of the Comparative
Fault Act.^° Although the result in the case was that the release rule
was applied,^* concurring and dissenting opinions questioned its continued
vitality.
51. 271 Ind. 63, 390 N.E.2d 155 (1979).
52. Gray, 684 F. Supp. at 1484. See supra notes 23-32 and accompanying text.
53. Gray, 684 F. Supp. at 1484.
54. Id. at 1485 (footnote omitted).
55. Id. at n.6.
56. See supra text accompanying notes 24 -36.
57. Gray, 684 F. Supp. at 1485.
58. Restatement (Second) of Torts § 885 (1965): See supra note 27.
59. 493 N.E.2d 1279 (Ind. Ct. App. 1986).
60. Id. The Young's cause of action arose out of an automobile accident which
took place on December 18, 1981. Id.
61. Id. at 1280.
1989] COMPARATIVE FAULT 949
The concurring opinion compared the Indiana Act to that of Kansas
and noted that Kansas courts reasoned that the release rule no longer
applied under the Kansas comparative fault system. ^^ The concurrence
agreed that the release rule should apply in cases not within the ambit
of the Comparative Fault Act, declining to join the dissent in advocating
an abrogation of the release rule in that particular case," but stated
clearly that the release rule should not apply to cases where fault is
proportioned. This reasoning, like that in Gray, was based on an as-
sumption that Indiana, like Kansas, left joint and several liability behind
in enacting comparative fault. ^"^ The effect of the Gray opinion and the
Young concurrence regarding the release rule will depend on the decisions
Indiana courts eventually make on the issue of joint and several liability
and how they interact with proportioned fault.
These decisions will be affected by the fact that the Act unambig-
uously continues Indiana's common law bar against contribution between
tortfeasors: '*In an action under this chapter, there is no right of
contribution among tortfeasors."^^ Contribution has been looked upon
as balancing joint and several liability, ameliorating its harsh effect on
defendants forced to pay plaintiff's entire damages despite the presence
of other defendants who should rightfully pay a share. ^^ With contribution
statutorily circumscribed, courts might feel constrained to abrogate joint
and several liability in order to avoid the unbalanced, harsh effect on
defendants which would result with joint and several liability only.^^
2. The Nonparty Provisions of the Act. — The Indiana Act makes
specific provision for consideration of the fault of tortfeasors not parties
to the action. ^^ According to Section 34-4-33-5(b)(l) of the Act, the jury
is to be instructed to * 'determine the percentage of fault of the claimant,
62. Id.
63. The dissent, written by Judge Garrard, attacked the release rule on the basis
of pohcy, stating that the rule is outdated and an anachronism which fails to give effect
to the clear intent of the parties. Id. at 1281-1283.
64. Id. at 1280-81.
65. IND. Code § 34-4-33-7 (1988).
66. See Prosser, Handbook of the Law of Torts § 50 (1971).
67. See Wilkins, supra note 47, at 718. Wilkins notes: "Why the Indiana legislature
considered it necessary to include the ban is open to question, given the Act's purported
abolition of joint and several liability, and the fact that contribution is presently unavailable
in Indiana." Id. (footnotes omitted), Wilkins states: "When joint and several liability is
abolished, the rule against contribution is redundant; no detriment is imposed against
defendant's interests which needs to be counterbalanced. All of the detrimental effects
are borne on the plaintiff's side of the bar." Id. at 720. See generally Comment, Tort
Law: Joint and Several Liability Under Comparative Negligence-Forcing Old Doctrines on
New Concepts, 40 U, Fla. L. Rev. 469 (1988) (disapproving of Florida judicial retention
of joint and several liability because detrimental to defendants).
68. iND. Code §§ 34-4-33-5(b)(l), 34-4-33-10 (1988).
950 INDIANA LAW REVIEW [Vol. 22:939
of the defendants, and of any person who is a nonparty. "^^ Nonparty
is defined as "a person who is, or may be, Hable to the claimant in
part or in whole for the damages claimed but who has not been joined
in the action as a defendant by the claimant. "^'^
Another section provides for a "nonparty defense," made by a
defendant in order to have the fault of a tortfeasor not joined as a
defendant considered. ^^ The defense must be affirmatively asserted in
order to have the nonparty's fault considered.''^ Finally, in providing
69. IND. Code § 34-4-33-5(b)(l) (1988). See supra note 44 for the full text of Ind.
Code § 34-4-33-5(b). The section provides that "[tjhe percentage of fault figures of parties
to the action may total less than one hundred percent (100%) if the jury finds that fault
contributing to cause the claimant's loss has also come from a nonparty or nonparties."
Id. While Ind. Code § 34-4-33-5(b)(l) may seem to imply that juries may consider the
fault of nonparties spontaneously, without having the issue introduced by the court or a
party, Ind. Code § 34-4-33-10 (1988) provides specific procedural provisions for the
introduction of the issue, and juries are apparently not allowed to consider nonparty fault
unless it is introduced into the case. See Wilkins, supra note 47, at 739.
70. Ind. Code § 34-4-33-2(a) (1988). The statute specifies that an employer may
not be a nonparty. Id. This Note does not deal with the ramifications of the exclusion
of employers from nonparty status.
71. Ind. Code § 34-4-33-10 (1988).
72. Ind. Code § 34-4-33-10 (1988) provides in pertinent part:
(a) In an action based on fault, a defendant may assert as a defense that the
damages of the claimant were caused in full or in part by a nonparty. Such a
defense is referred to in this section as a nonparty defense.
(b) The burden of proof of a nonparty defense is upon the defendant, who
must affirmatively plead the defense. However, nothing in this chapter relieves
the claimant of the burden of proving that fault on the part of the defendant
or defendants caused, in whole or in part, the damages of the claimant.
(c) A nonparty defense that is known by the defendant when he files his first
answer shall be pleaded as part of the first answer. A defendant who gains
actual knowledge of a nonparty defense after the filing of an answer may plead
the defense with reasonable promptness. However, if the defendant was served
with a complaint and summons more than one hundred fifty (150) days before
the expiration of the limitation of action applicable to the claimant's claim
against the nonparty, the defendant shall plead the nonparty defense not later
than forty five (45) days before the expiration of that limitation of action. The
trial court may alter these time limitations or make other suitable time limitations
in any manner that is consistent with:
(1) giving the defendant a reasonable opportunity to discover the existence of
a nonparty defense; and
(2) giving the claimant a reasonable opportunity to add the nonparty as an
additional defendant to the action before the expiration of the period of limitation
appUcable to the claim. . .
Ind. Code § 34-4-33-10 (1988). The first case to interpret the statutory nonparty defense
was Walters v. Dean, 497 N.E.2d 247 (Ind. Ct. App. 1986) (a single defendant case in
which the defendant pleaded a nonparty defense in his answer to plaintiff's complaint).
After reviewing some of the case law of other jurisdictions, the court concluded that the
allocation of nonparty fault is to be made "only in those cases where the non-party
defense is specially pleaded by a named defendant." Id. at 253.
1989] COMPARATIVE FAULT 951
for the forms of the verdicts, the legislature has required that *'[i]f the
evidence in the action is sufficient to support the charging of fault to
a nonparty, the form of verdict also shall require a disclosure of the
name of the nonparty and the percentage of fault charged to the
nonparty. "^^ This effectively precludes the consideration of the fault of
unidentified tortfeasors. These provisions of the Act are unique in com-
parative fault jurisdictions, with other states answering the questions
brought up by nonparty inclusion by means of case law.^"^
The status of nonparties has an impact in the area of settlement
with regards to what happens to the fault of a settling tortfeasor. If
the settling tortfeasor is considered a nonparty, her fault will be allocated
under the nonparty provisions of the Act. This result has been assumed
by several Indiana authors, one of whom states that "[t]he nonparty
likely to be encountered by the jury most frequently is that tortfeasor
with whom the plaintiff has reached a settlement. "^^ If so, Indiana courts
will be called upon to make decisions regarding whether juries should
be told that a tortfeasor is a nonparty rather than a defendant because
she has settled with the plaintiff. This creates a potential problem if
unsophisticated juries view settlement as evidence of admitted liability,
allocating undue amounts of fault to nonparty settling tortfeasors. The
problem created if juries are not told of a settlement is the confusion
engendered when a clearly faulty tortfeasor is a nonparty who does not
defend herself. Besides being told of the mere fact of a settlement, there
will be questions as to whether juries should be told the amount of a
settlement. ^^
Situations will also arise where nonsettling defendants bring settling
tortfeasors back in as nonparties and attempt to heap fault on them.
This would, in effect, force the plaintiff to defend the settling wrongdoer.
73. IND. Code § 34-4-33-6 (1988).
74. Eilbacher, Comparative Fault and the Nonparty Tortfeasor, 17 Ind. L. Rev.
903, 905, n.2 (1984). See also C. Heft & C.J. Heft, Comparative Negligence Manual
§ 8.100 (1986); 2 Matthew Bender Comparative Fault § 13.20[2] (1989).
75. Eilbacher, supra note 74, at 908.
76. This would also be an evidentiary question. Evidence of offers to compromise
or evidence of settlements made is, as a rule, inadmissible. 12 R. Miller, Indlana Practice
§ 408.101 (1984). This rule does not apply if the evidence of settlement is offered for
some other purpose than to prove liability. Id. Also, "[e]vidence that a party made an
offer to settle a related claim with a non-party is not admissible to show the party's
behef in the weakness of his case. If the non-party is called as a witness, however, evidence
of the offer may be admissible to show the witness' bias or prejudice." Id. at § 408.103.
See also Note, Knowledge by the Jury of a Settlement Where a Plaintiff has Settled With
One or More Defendants Who Are Jointly and Severally Liable, 32 Vill. L. Rev. 541
(1987), which looks at the problems involved in this issue in a number of jurisdictions,
including those which control the exposure of the jury to settlement agreements statutorily.
952 INDIANA LAW REVIEW [Vol. 22:939
who has no incentive to defend herself because she has been released.
On the other side of this is the unfairness to defendants if plaintiffs
are allowed to keep settling tortfeasors out of the fault allocation equation
entirely, which would force the trier of fact to allocate the fault between
plaintiff and the nonsettling defendant, causing the nonsettling defendant
to pay more than her fair share of the damages. ^^ The case law involving
the Indiana Act has focused primarily on the nonparty provisions of
the Act.^^ Several cases deal with the question of whether a tortfeasor
may be a nonparty under the provision of the statute defining a nonparty
as one who "is or may be liable" to the claimant.''^ In Hill v. Metropolitan
Trucking,^^ the Northern Federal District Court of Indiana held that
fellow employees of the plaintiff's decedent could not be nonparties
because the plaintiff had no right of recovery against them.^^ Since the
would-be nonparties were state employees and no Tort Claims notice
had been filed, they were immune to suit; therefore they could not be
liable, and further, could not be named as nonparties. ^^ A different
result was reached several months later in the Southern District of Indiana
in Huber v. Henley, ^^ in which the court found that the State could
have been liable if a Tort Claims notice had been filed, and as a result
could be named as a nonparty even though plaintiff had waived his
right to recover from the State by not filing the notice.®'^
In the settlement context, these cases bring up the issue of whether
a setthng defendant can be considered a party who is or may be Hable
to the claimant. In the larger sense, a setthng tortfeasor is still one who
is liable, but that liability has been dealt with by contract between the
parties. This controls not necessarily the right, but the recovery (as in
a covenant not to sue). In the narrow sense, if a release has been given,
the settling party is freed. The plaintiff in this situation has contracted
away her right to pursue that tortfeasor any further, thereby precluding
the naming of that tortfeasor as a nonparty who is or may be liable
to the plaintiff.
77. See Wilkins, supra note 47, at 732. See also 2 Matthew Bender Comparative
Negligence § 13.20 (breaks down the advantages and disadvantages to parties when
nonparty tortfeasors are brought in or kept out in joint and several liability or several
liability only jurisdictions).
78. Supra notes 69-77 and accompanying text.
79. IND. Code § 34-4-33-2 (1988).
80. 659 F. Supp. 430 (N.D. Ind. 1987).
81. Id. at 434-35.
82. Id.
83. 669 F. Supp. 1474 (S.D. Ind, 1987), This case had been in the same court
earlier on the same issue. Huber v. Henley, 656 F, Supp. 508 (S.D. Ind. 1987).
84. Huber, 669 F, Supp, at 1479.
1989] COMPARATIVE FAULT 953
The federal court in Moore v. General Motors Corp.^^ ruled that
the conduct of plaintiffs employer (who could not be brought in as a
nonparty because the statute specifically precludes an employer from
being a nonparty)^^ could be brought in and considered under the prox-
imate cause provisions of the Act.^^ The court issued a warning in the
opinion that the defendants must not try to do indirectly what they
could not do directly, that is, to have the employer's fault considered
by the jury, but stated that evidence of the employer's conduct could
be presented to defend against plaintiffs claim of negligence on the
causation level only.^* The court's admonition made it clear that the
employer was not to be allocated any fault. However, consideration of
a wrongdoer's fault without allocation is bound to be confusing to juries,
and begins to resemble the '^phantom tortfeasor" concept (dealt with
later in this Note), which also involves bending the nonparty provisions
of a statute. ^^
Bowles V. Tatom,^ decided in June 1988 by the Indiana Court of
Appeals, refined the interpretation of the nonparty defense further in
terms of how and whether the defense is pleaded. In Bowles, plaintiff
was injured when he was hit broadside in an intersection by the defendant,
who had run a stopsign obscured by foliage. ^^ Plaintiff Tatom originally
named as defendants Bowles, the city, the mayor, and the adjacent
property owners whose trees had obscured the stopsign. ^^ When Plaintiff
had finished presenting his evidence and rested, the defendants city,
mayor, and landowners moved to have the claims against them dismissed.
The court granted the motion without objection by defendant Bowles.^^
85. 684 F. Supp. 220 (N.D. Ind. 1988).
86. iND. Code § 34-4-33-2(a) (1988).
87. iND. Code § 34-4-33-l(b)(l) and (2) (1988).
88. Moore, 684 F. Supp. at 222:
Defendants are cautioned, however, that in presenting evidence to refute the
elements of plaintiff's negligence claim, they must be very careful to structure
their arguments so as to avoid confusing the jury. . . . The defendant's arguments
cannot be used to indirectly accomplish an allocation of fault to unnamed
defendants by the jury, a result inconsistent with the express provisions of the
Indiana Comparative Fault Act.
Id. The court based its decision in part on the portion of the Act that states: "[N]othing
in this chapter relieves the claimant of the burden of proving that fault on the part of
the defendant or defendants caused, in whole or in part, the damages of the claimant."
Ind. Code § 34-4-33- 10(b) (1988). This stricture appears in the nonparty defense portion
of the statute. Id. at 221.
89. See infra notes 151-55 and accompanying text.
90. 523 N.E.2d 458 (Ind. Ct. App. 1988).
91. Id. at 460.
92. Id.
93. Id.
954 INDIANA LAW REVIEW [Vol. 22:939
This left Bowles as the only defendant, and the trial judge assessed one
hundred percent Uability against her.^"^
The appellate court found this one hundred percent fault allocation
inappropriate, stating that while the evidence of the obstruction of the
stopsign did not show that Bowles was not at fault, it did estabUsh that
she could not be one hundred percent at fault. The court also held:
Although the City, the Mayor, and the [landowners] were dis-
missed from the lawsuit, fault percentage could be allocated to
them even though Bowles did not plead the empty chair defense.
In the present case, the City, the Mayor, and the [landowners]
were parties up until the close of Tatom's case-in-chief. As such,
Bowles was entitled to rely on the fault allocation provisions of
the Comparative Fault Act without specific pleading, and could
continue to rely on the fault allocation after the other named
defendants were dismissed. . . . [T]he dismissal did not amount
to a zero percent (0%) fault allocation. ^^
This appears to indicate that a defendant need not plead a nonparty
defense to assert it if the nonparties were defendants in the action and
were dismissed. If a court determines that the principles in Bowles apply
equally when the dismissal is by agreement between the plaintiff and a
settling defendant, rather than by the court, then a defendant who settled
during trial and was released and dismissed would automatically have
her fault allocated as though she had remained in the action. The
nonsettling defendants would not have to plead any nonparty issues in
order to have the settling defendant's fault allocated.
The Bowles dissent took a different view, focusing on the statutory
definition of nonparty, which requires that the nonparty be one *'who
is or may be liable to the claimant . . . but who has not been joined
in the action as a defendant by the claimant. "^^ The dissenting judge
stated: *'By statutory definition, parties in a comparative fault action
can never revert to nonparty status, "^^ and thus the dismissal of the
city, the mayor and the landowners functioned as an allocation of zero
percent of the fault to them. Under this view, a defendant who settles
cannot be brought back in to the action as a nonparty for fault allocation.
However, the dissent also focused on the fact that the dismissal was by
the court under T.R. 50(A) motion, ^^ which would distinguish the Bowles
94. Id.
95. Id. at 461.
96. Id. at 462 (Conover, J. dissenting) (emphasis in original).
97. Id. at 462.
98. Ind. Trial R. 50 provides for Judgment on the Evidence (Directed Verdict).
The trial court in Bowles dismissed the City, the Mayor, and the adjacent landowners
because it determined that there was no evidence of liability on the part of those defendants.
523 N.E.2d at 460.
1989] COMPARATIVE FAULT 955
case from a case where the dismissal is by agreement between a defendant
and the plaintiff.
It is clear that Indiana courts will be called upon to further interpret
the nonparty provisions of the Indiana Act. Because the comparative
fault statute is unique in its precise, procedural nonparty provisions,
courts will face the interpretation without much help from the case law
of other jurisdictions such as Kansas, which has a vague nonparty
provision its courts have found very malleable. ^^ While it is simple to
dismiss settlement issues under the nonparty provisions by stating that
settUng parties will become nonparties for the allocation of fault, this
does not necessarily solve the practical and policy-oriented consequences
of doing so. The questions raised above can and will be brought up by
parties, and the courts will have to balance the policies of full com-
pensation for claimants with fairness to defendants and the ideal of
completely proportional liability.
III. Comparison With the Kansas Act
A. Background
Prior to the enactment of the Kansas comparative fault statute,
settlement in Kansas was much the same as in Indiana. Tortfeasors were
jointly and severally liable for the injuries they caused concurrently or
in concert. ^^ The effect of a settlement document was determined by
examining the intent of the parties to the agreement as manifested by
the agreement. ^°^ As in Indiana, a covenant not to sue or a loan receipt
agreement was distinguished from a release and did not release all joint
tortfeasors, only those who were parties to the agreement. '^^ The amount
received under such a covenant or loan receipt reduced the recovery of
the plaintiff by the dollar amount received. '^^ If the amount received
99. See supra notes 113-16, 154-59 and accompanying text.
100. Note, Multiple Party Litigation Under Comparative Negligence in Kansas —
Damage Apportionment as a Replacement for Joint and Several Liability, 16 Washburn
L.J. 672 (1977).
101. Harvest Queen Mill & Elevator Co. v. Newman, 387 F.2d 1 (10th Cir. 1967);
Reynard v. Bradshaw, 196 Kan. 97, 409 P.2d 1011 (1966).
102. Cullen v. Atchison, Topeka & Santa Fe Ry. Co., 211 Kan. 368, 507 P.2d 353
(1973) (loan receipt agreement found to be valid, and in context of rule that release of
one tortfeasor releases all joint tortfeasors was found to constitute a covenant rather than
a release) Sade v. Hemstrom, 205 Kan. 514, 471 P. 2d 340 (1970) (language indicating
that parties intended the settlement amount to be full satisfaction for the injuries suffered
by plaintiff caused agreement to be interpreted as release rather than covenant not to
sue); Jacobsen v. Woerner, 149 Kan. 598, 601, 89 P.2d 24, 27 (1939).
103. Cullen, 211 Kan. at 220, 507 P.2d at 362; Jacobsen, 149 Kan. at 602, 89 P.2d
at 28 (judgment reduced by amount received under covenant not to sue even though
settling defendant was not in fact liable).
956 INDIANA LAW REVIEW [Vol. 22:939
fully satisfied plaintiff's claim the settlement, regardless of the form,
served as a release because plaintiff was entitled to only one satisfaction.
An unconditional release still served to release all joint tortfeasors.^^
Technically, a defendant in Kansas had no right to contribution. ^^^
It was plaintiff's prerogative to decide who to sue and against whom
she would collect any judgment. ^^ This meant that defendants had no
option to bring in other defendants who might be involved in the incident
unless they were persons who had a responsibility to indemnify the
defendant. Thus plaintiff could effectively foreclose any chance of a
defendant receiving a joint judgment. However, if there were multiple
defendants, once a joint judgment was entered and paid in full by one
of them under joint and several liability, that defendant then had a
statutory right to pursue contribution from other jointly liable defendants
and recover a pro rata amount of the judgment paid.^^"' This gave
'MmpUcit expression to the common law rule that in the absence of a
judgment against them there is no right of contribution between joint
tortfeasors."^08
B. Kansas Comparative Fault
Kansas enacted statutory comparative fault in 1974.*^ At the time.
104. Cullen, 111 Kan. at 219, 507 P.2d at 361; Jacobsen, 149 Kan. 598, 89 P.2d
24. Kansas' release rule was interpreted much less strictly than the Indiana release rule.
Plaintiffs were allowed to give a release to one joint tortfeasor which reserved a right
against another joint tortfeasor, and have the agreement found to be valid. Edens v.
Fletcher, 79 Kan. 139, 98 P. 784 (1908). This was because the release rule was combined
with the rule that the intent behind the release determined its effect, and a reservation
of rights evidenced an intent not to release all joint tortfeasors. Id. See also Sade v.
Hemstrom, 205 Kan. 514, 521, 471 P.2d 340, 347 (1970). The reservation could be oral.
Scott V. Kansas State Fair Ass'n, 102 Kan. 653, 171 P. 634 (1918). A general background
on the release rule and the exceptions made to avoid its Procrustean effect is found in
Stueve V. American Honda Motors Co., Inc., 457 F. Supp. 740 (D. Kan. 1978).
105. Alseike v. Miller, 196 Kan 547, 551, 412 P.2d 1007, 1011 (1966); Rucker v.
Allendorph, 102 Kan. 771, 172 P. 524 (1918). In Alseike, defendant was not allowed to
join a third party defendant who she claimed was responsible for plaintiff's injuries because
the third party defendant was not liable to indemnify the defendant. The court decided
that allowing her to join the third party would amount to contribution. Alseike, 196 Kan.
at 551, 412 P.2d at 1011-12.
106. Alseike, 196 Kan. at 552, 412 P.2d at 1012.
107. McKinney v. Miller, 204 Kan. 436, 464 P.2d 276 (1970). The statute was Kan.
Stat. Ann. § 60-2413(b) (1983), which provides: "Contribution between joint obligors. . .
(b) Judgment debtors. A right of contribution or indemnity among judgment debtors,
arising out of the payment of the judgment by one or more of them, may be enforced
by execution against the property of the judgment debtor from whom contribution or
indemnity is sought."
108. McKinney, 204 Kan. 436, 439, 464 P.2d 276, 279. But see dissent, 204 Kan.
at 440, 464 P.2d at 280. See also Comment, Civil Procedure - Tort-feasor's Right to
Contribution, 10 Washburn L.J. 135 (1970) (casenote on McKinney).
109. Kan. Stat. Ann. § 60-258a (Supp. 1987). See Comment, Comparative Neg-
1989] COMPARATIVE FAULT 957
the Kansas Act was described in much the same terms that the Indiana
Act is presently being described:
In this instance the pains and strains of abrupt change may
prove particularly acute, for the Kansas statute is of mixed
ancestry and its effect is more uncertain than if the legislature
had chosen as a model an existing statute with a history of
judicial construction. While the Kansas act borrows from the
laws of other jurisdictions, it is identical with none. The result
is a truly unique version of comparative negligence. Nothing can
be more certain to breed uncertainty. ^'°
The Kansas Act, Uke Indiana's, does not provide specifically for settling
tortfeasors. It does provide that in multiple tortfeasor cases,
[w]here the comparative negligence of the parties in any action
is an issue and recovery is allowed against more than one party,
each such party shall be liable for that portion of the total
dollar amount awarded as damages to any claimant in the pro-
portion that the amount of such party's causal negligence bears
to the amount of the causal negligence attributed to all parties
against whom such recovery is allowed.^''
This provision has been interpreted by the Kansas Supreme Court to
eliminate the common-law concept of joint and several hability in neg-
ligence actions. ^'^
The Kansas Act provides for the joinder of causally negligent in-
dividuals who have not been made defendants. Section (c) states: '*On
ligence - A Look at The New Kansas Statute, 23 U. Kan. L. Rev. 113 (1974) for a basic
overview of the Kansas Act at the time of enactment.
110. Kelly, Comparative Negligence - Kansas, 43 J. Kan. Bar Ass'n 151, 151 (1974).
Cf. Schwartz, Comparative Negligence in Indiana: A Unique Statute That Will Reshape
the Law, 17 Ind. L. Rev. 957 (1984).
111. Kan. Stat. Ann. § 60-258a(d) (Supp. 1987).
112. Brown v. Keill, 224 Kan. 195, 580 P.2d 867 (1978). The abrogation of joint
and several liability in Kansas was subject to the same criticisms that are being leveled
at that interpretation of the Indiana Act. Compare Kelly, Comparative Negligence - -
Kansas, 43 J. Kan. Bar Ass'n 151, 189-90 (1974) (suggesting that the Kansas statute had
not abolished joint and several liability but had instead created a system of comparative
contribution, which would include a retention of joint and several liability) with Wilkins,
supra note 48. See also Vasos, Comparative Negligence Update - A Discussion of Selected
Issues, 44 J. Kan Bar Ass'n 13, 16-17 (1975) (suggesting that the abrogation of joint
and several liability, throwing the risk of nonrecovery totally on the plaintiff, is inconsistent
with the aim of comparative fault to expand the ability of injured persons to recover
fully). In Oklahoma, joint and several liability was judicially abrogated only to have it
immediately reinstated by the legislature. See McNichoIs, Judicial Elimination of Joint
and Several Liability Because of Comparative Negligence - A Puzzling Choice, 32 Okla.
L. Rev. 1, (1979).
958 INDIANA LAW REVIEW , [Vol. 22:939
motion of any party against whom a claim is asserted for negligence
. . . any other person whose causal negligence is claimed to have con-
tributed to such death, personal injury, property damage, or economic
loss, shall be joined as an additional party to the action. ''^^^ Clearly,
Kansas' * 'additional part[ies]" are not nearly so well defined and reg-
imented as Indiana's nonparties.^''* The procedural section of the Kansas
statute directs the trier of fact to allocate percentages of fault among
the ''parties,"''^ but the Kansas Supreme Court has recognized that the
comparative neghgence statute is "silent as to what position the added
party occupies once that party is joined.""^
/. The Demise of Joint and Several Liability and Interpretation of
the Kansas Additional Party Provisions. — The Kansas Act, like its Indiana
counterpart, was first interpreted by federal courts. ''"^ In Nagunst v.
Western Union Tel. Co.,^^^ the Kansas District Court looked at the
effect of the Kansas "forced joinder" provisions on settlement. The
plaintiff-passenger in Nagunst settled with the driver of the vehicle in
which she had been injured, and then sued Western Union, lessee of
the other car involved."^ Defendant Western Union attempted to join
the released party under Kansas Statute Section 60-25 8a(c), which would
have destroyed the court's diversity jurisdiction. '^^ The court also saw
the covenant not to sue given to the settHng party by the plaintiff as
a potential bar to the joinder, because Kansas law held that a covenant
not to sue barred a subsequent action although it did not extinguish
the right. '^' The court denied the joinder on the basis that the covenant
113. Kan. Stat. Ann. § 60-258a(c) (Supp. 1987). See also Comment, Comparative
Negligence— A Look At the New Kansas Statute, 23 U. Kan L. Rev. 113, 123 (1974).
114. IND. Code § 34-4-33-10 (1988).
115. Kan. Stat. Ann. § 60-258a(b) (1983). This section of the act provides:
(b) Where the comparative negligence of the parties in any such action is an
issue, the jury shall return special verdicts, or in the absence of a jury, the
court shall make special findings, determining the percentage of negligence
attributable to each of the parties, and determining the total amount of damages
sustained by each of the claimants, and the entry of judgment shall be made
by the court. No general verdict shall be returned by the jury.
Id.
116. Kennedy v. City of Sawyer, 228 Kan. 439, 454, 618 P.2d 788, 803 (1980);
Brown v. Keill, 224 Kan. 195, 580 P.2d 867 (1978).
117. Beach v. M & N Modern HydrauHc Press Co., 428 F. Supp. 956 (D. Kan.
1977); Greenwood v. McDonough Power Equip,, Inc., 437 F. Supp. 707 (D. Kan 1977);
Nagunst v. Western Union Tel. Co., 76 F.R.D. 631 (D. Kan. 1977). See Comment, Torts:
Damage Apportionment Under the Kansas Comparative Negligence Statute - the Unjoined
Tortfeasor, 17 Washburn L.J. 698 (1978) (analyzing Beach, Greenwood, and Nagunst).
118. 76 F.R.D. 631 (D. Kan. 1977).
119. Id. at 632.
120. Id.
121. Id. at 633.
1989] COMPARATIVE FAULT 959
precluded it, stating that *'[d]efendants' right to have their proportionate
habiUty reduced by that attributable to others should not be defeated
by plaintiff's voluntary decision to settle with other potential defen-
dants. "^^^ The court explained this conclusion as follows:
If a plaintiff voluntarily chooses not to sue such a person, as
by execution of a covenant not to sue, he simply loses his right
to recover against that person the percentage of the total award
which corresponds to the percentage of negligence attributable
to the party not sued. . . . While such a percentage-crediting
procedure may introduce an element of risk into plaintiff's set-
tlement negotiations with the non-party (that is, the plaintiff is
not guaranteed of recovery of lOO^o of the jury's award), the
risk is certainly no greater than that which would inure were
the named defendant(s) to join the party as an additional de-
fendant under K.S.A. 60-258a(c).'23
The court also noted that allowing joinder of the nonparty under Section
60-258a(c) would serve to nullify part of the consideration given for
entering the covenant not to sue, which included freeing the released
party from the expense and inconvenience of defending herself in the
action.'^'* Preventing the joinder was seen as encouraging settlement and
122. Id. at 634. The court viewed this as carrying over to the comparative fault
system the traditional common law principle that mandated that the amount given in a
covenant not to sue diminished the plaintiff's recovery accordingly. However, to continue
the dollar for dollar credit given to the nonsettling defendant would be to continue joint
and several liability, which would defeat the allocation ideal behind comparative fault.
Id.
123. Id. at 634-35. The court also cited Pierringer v. Hoger, 21 Wis. 2d 182, 124
N.W.2d 106 (1963), which involved an innovative (at that time) settlement and release
whereby plaintiff released a defendant from his ultimate proportion of fault by agreement,
regardless of what that proportion was determined to be by the trier of fact. The Nagunst
conclusion was consistent with the one arrived at in Greenwood v. McDonough Power
Equip., Inc., 437 F. Supp. 707 (D. Kan. 1977), an earlier federal case in products Hability,
where the court refused to allow formal joinder by defendant of parties whose joinder
would destroy diversity jurisdiction, but stated that the negligence of those parties must
be considered in allocating fault. The Greenwood court achieved this by allowing the
negligence of the nonparties to be considered under the provisions of Kan. Stat. Ann.
§ 60-258a(d), which was characterized as substantive because it granted the defendant the
right to have the causal negligence of all involved parties considered. At the same time,
the court refused to allow the Greenwood defendants to destroy its diversity jurisdiction
by joining the nonparties under Kan. Stat. Ann. § 60-258a(c), which it characterized as
procedural. This allowed the court to retain its jurisdiction while preventing plaintiff from
getting unfair advantage by strategic choice of defendants, who would otherwise end up
paying for the fault of the nonparties.
124. Nagunst, 76 F.R.D. at 634. However, the court specifically rejected the result
in Mihoy v. Proulx, 113 N.H. 698, 313 A.2d 723 (1973), where the New Hampshire
960 INDIANA LAW REVIEW [Vol. 22:939
release. However, in holding that fairness required the consideration of
the released party's fault, the court failed to acknowledge the practical
aspects of who would plead and prove or disprove the fault of the
released party and what her actual involvement would amount to.
This case is comparable to the initial cases interpreting the Indiana
nonparty provisions. Courts in both jurisdictions are concerned with
ensuring that all fault is allocated properly. The Kansas statute, being
rather inexact, allowed the courts to consider the fault of the nonparty
without formal joinder, foreshadowing the **phantom tortfeasor" con-
cept. The procedural exactitude of the Indiana statute would prevent
such a result because it requires that the defendant raise and plead the
nonparty defense within a specific timeframe, ^^^ and that the nonparty
be named in the verdict form.^^^ In Moore v. General Motors, ^^'^ the
Indiana court could not allow plaintiff's employer to be joined because
the employer was statutorily excluded from nonparty status. In Nagunst,
the potential destruction of the court's diversity jurisdiction and the fact
that the covenant was considered a bar prevented joinder as an additional
party. ^^^
The respective courts arrived at the same solution: ignore the statutory
nonparty joinder provisions and allow the fault of the nonparty to be
considered without formal joinder. This is a much greater bending of
the Indiana Act than the Kansas Act, because the Indiana Act is much
more precise in its requirements. The restraints of the Indiana Act show
in that the Indiana federal court felt constrained to reinforce the idea
that fault would not and could not be allocated to the employer as a
nonparty, ^^^ although it is not clear how this was to be communicated
to a jury. The Kansas federal court allowed the fault of the released
individual to be considered and allocated along with the fault of the
defendants.
Nagunst presaged the interpretation that the Kansas Supreme Court
would adopt in Brown v. Keill,^^^ the first major state case interpreting
the Kansas Act. In Brown, the plaintiff sued for property damage to
his Jaguar, caused when plaintiff's son was driving the car and had a
Supreme Court decided that the apportionment of fault would be only among named
defendants and would not include tortfeasors not sued because of the prior execution of
a covenant not to sue. See also Unef. Comparative Fault Act § 6, 12 U.L.A. 52, § 6
Comment (Supp. 1989); infra note 224.
125. IND. Code § 34-4-33-10 (1988).
126. iND. Code § 34-4-33-6 (1988).
127. 684 F. Supp. 220 (1988). See also supra notes 85 - 89 and accompanying text.
128. Nagunst, 76 F.R.D. at 634-35.
129. Moore, 684 F. Supp. at 222.
130. 224 Kan. 195, 580 P.2d 867 (1978).
1989] COMPARATIVE FAULT 961
collision with the defendant. '^* Prior to the filing of this suit, the
defendant driver had settled with the driver of the Jaguar. '^^ The trial
court found the defendant responsible for ten percent of the fault
involved, and the driver of the Jaguar, who had not been joined by
either plaintiff or defendant, responsible for ninety percent of the fault
involved, and the plaintiff free of fault. •"
The Kansas Supreme Court saw the issues as being 1) whether the
doctrine of joint and several Hability had been retained under comparative
fault and 2) whether the fault of all individuals involved in the collision
was to be considered even though one of the negligent parties was not
joined or served with process. ^^"^ The court perceived the legislative intent
in enacting the comparative negligence statute as being to * 'equate re-
covery and duty to pay to degree of fault" '^^ and noted:
Of necessity, this involved a change of both the doctrine of
contributory negligence and of joint and several liability. There
is nothing inherently fair about a defendant who is 10% at fault
paying 100% of the loss, and there is no social policy that
should compel defendants to pay more than their fair share of
the loss. Plaintiffs now take the parties as they find them. . . .
Any other interpretation of K.S.A. 60-258a(d) destroys the fun-
damental conceptual basis for the abandonment of the contrib-
utory negligence rule and makes meaningless the enactment of
subsection (d).^^^
The court held that joint and several liability no longer applied in Kansas
comparative negligence actions and that as a result, defendant's liability
was to be based on her proportional fault alone, obviating the need for
contribution between joint judgment debtors. '^"^
The court's emphasis in this analysis was on allocation of fault
rather than compensation of injured parties. ^^^ It appears that the intent
131. Id. at 197, 580 P.2d at 869.
132. Id.
133. Id. The plaintiff was free of fault because the negligence of his son, the driver
of the Jaguar, could not be imputed to him as bailor. Id.
134. Id. at 198, 580 P.2d at 870.
135. Id. at 201, 580 P. 2d at 873-74.
136. Id. at 202, 580 P.2d at 874.
137. Id. See supra, notes 107 - 108 and accompanying text.
138. In Brown, this was probably an equitable question as well, because in reading
the case it becomes clear that the owner of the Jaguar, the plaintiff, was attempting to
manipulate the system by recovering for the damage to his car when it must have been
clear to him, as it apparently was to the jury, that his son the driver was more faulty
than the defendant. Brown, 224 Kan. 195, 580 P.2d 867. Knowing that the driver's fault
would not be imputed to him as bailor, and that as a result he would be fault free, the
962 INDIANA LAW REVIEW [Vol. 22:939
of the legislature was perceived to encompass only the policy of ensuring
that every party, whether plaintiff or defendant, be responsible only for
her own fault. While this is a valid policy stance, the policies inherent
in abolishing the bar of contributory fault in the first place involved
not only a more precise allocation of fault, but also an expanded
compensation function. ^^^ The court merely stated:
The law governing tort liability will never be a panacea. There
have been occasions in the past when the bar of contributory
negUgence and the concept of joint and several liability resulted
in inequities. There will continue to be occasions under the present
comparative negligence statute where unfairness will result. ^"^^
While it is clear that the court is correct in stating that no system of
compensation can be perfectly and without exception fair, the court did
not follow through with an analysis of who would suffer most of the
inequities caused, and why it would be best that those parties be the
ones to bear that burden.
The result in Brown was clearly fair to the parties involved, but
the ultimate result, the abrogation of joint and several liability, left the
comparative fault system in Kansas less flexible and more hostile to
plaintiffs. Defendants under the Kansas system pay only the determined
percentage of their own fault or any settlement amount they may negotiate
with the plaintiff. Plaintiffs, on the other hand, absorb their own
percentage of fault, the percentages of any tortfeasor they have settled
with, joined or unjoined, the percentage of any judgment-proof defen-
dant, and the percentage of any faulty nonparty. The Kansas Supreme
Court acknowledged that ''[t]he ill fortune of being injured by an immune
or judgment-proof person now falls upon plaintiffs rather than upon
the other defendants, "^'^^ and stated that this risk was in exchange for
the risk of total bar to a plaintiff's recovery under the contributory
fault system. '"'^ The only ameliorating factor is that plaintiffs are allowed
to keep any windfall resulting when a settlement amount represents more
than the ultimate percentage of fault of the settling tortfeasor would
dictate. 1^3
plaintiff apparently wanted to force the defendant, only ten percent at fault, to pay for
all the damage to the car. The court could hardly do else than consider the fault of the
driver, in fairness. It is possible that the case was carried as far as it was specifically to
have the questions of joint and several liability and additional parties answered.
139. Wilkins, supra notes 47-48 and accompanying text.
140. Brown, 224 Kan. 195, 202, 580 P.2d 867, 874.
141. Miles V. West, 224 Kan. 284, 288, 580 P.2d 876, 880 (1978).
142. Id. See generally Comment, Brown and Miles: At Last An End To Ambiguity
In The Kansas Law of Comparative Negligence, 27 Kan. L. Rev. Ill (1978) (critical
analysis of the two cases).
143. Geier v. Wikel, 4 Kan. App. 2d 188, 190, 603 P.2d 1028, 1030 (1979).
1989] COMPARATIVE FAULT 963
The Indiana cases intimating that joint and several liability has been
abrogated are thus far all federal, and no state court has yet made a
binding determination regarding joint and several liability. Hopefully
when Indiana state courts are called upon to answer this question, they
will consider both sides of the policy question involved, considering who
is to bear the most risk and why.
The second issue presented in Brown was that of allocation of fault
to actors not joined as parties, either by the plaintiff or as "additional
parties.'*'*^ The Kansas federal court examined a similar question in
Beach v. M & N Modern Hydraulic Press,, ^'^^ where the defendant tried
to join the plaintiff's employer to have the employer's fault determined
even though plaintiff had no right of recovery against the employer. '"^^
The Beach court focused on the language of Section 60-25 8a(d)
which specifies that a defendant is liable for her fault in proportion to
the fault of negligent parties "against whom . . . recovery is allowed. ""^^
The court decided that the immunity of the employer did not prevent
allocation of fault to it,^'^^ but that the employer could not be found
liable for that fault, its liability instead falling on the defendant.''*^ This
was because the plaintiff had not voluntarily left out the employer when
naming defendants, but was involuntarily prevented by the employer's
immunity from joining it as a named defendant. '^^ The harshness of
this result, which appears to impose a type of joint and several liability
on the named defendant, was, according to the court, ameliorated if
the defendant could prove negligence on the part of both the plaintiff
and the employer in order to reduce the plaintiff's award. ^^' These
144. Kan. Stat. Ann. § 60-258a(c) (1983).
145. 428 F. Supp. 956 (D. Kan. 1977).
146. Worker's Compensation is an exclusive remedy for injured employees in Kansas.
Id. at 958-59, 963.
147. Kan. Stat. Ann. § 60-258a(d): See supra text accompanying note 111.
148. Beach, 428 F. Supp. at 966. Apparently this was to be done under the "phantom
tortfeasor" method later elaborated on by the Greenwood and Nagunst courts: that is,
the fault was to be allocated, but the employer was not to be formally joined either by
the plaintiff or under Kan. Stat. Ann. § 60-25 8a(c).
149. Id.
150. Id.
151. Id. 2ii 966. The Beach court stated:
Under our interpretation of this section, plaintiff's award of damages is reduced
by the ratio which his percentage of negligence bears to the total amount of
negligence allocated among the plaintiff and any third parties against whom the
plaintiff may recover. Thus in this case the plaintiff's award of damages is
reduced by a fraction: the numerator of which is the plaintiff's percentage or
negligence; the denominator of which is the combined percentages of negligence
of the plaintiff and the (allegedly negligent) third parties, M & N and Monroe.
Id. The reasoning used was later elaborated on in Greenwood v. McDonough Power
964 INDIANA LAW REVIEW [Vol. 22:939
ponderings were on issues similar to the Indiana cases of /////'" and
Huber.^^^ In Kansas, the issue of whether an ** additional party'' or
''phantom tortfeasor" had to have actual or potential liability to plaintiff
was rendered moot by the Brown opinion. The Brown court stated:
[W]ill proportionate liability be defeated when a party joined
under subsection (c) has a vahd defense such as interspousal
immunity, covenant not to sue and so forth? The added party
in such case would not be a party ''against whom such recovery
is allowed" and if subsection (d) is taken literally such a party's
percentage of fault should not be considered in determining the
judgment to be rendered. It appears after considering the intent
and purposes of the entire statute that such a party's fault should
be considered in each case to determine the other defendant's
percentage of fault and liability, if any. . . . [W]e conclude the
intent and purpose of the legislature in adopting K.S.A. 60-258a
was to impose individual liability for damages based on the
proportionate fault of all parties to the occurrence . . . even
though one or more parties cannot be joined formally as a
litigant or be held legally responsible for his or her proportionate
fault. '5^
Although the nonparty in question had not been joined under Section
60-25 8a(c), the court found that the pleadings and evidence were sufficient
to have his fault considered, thus initiating the "phantom tortfeasor"
concept. '^^ This encompasses tortfeasors not joined for whatever reason,
Equip., 437 F. Supp. 707 (D. Kan. 1977), where the court distinguished between plaintiff's
voluntary choice not to sue an involved entity or individual (as when plaintiff settles with
a potential defendant) and an involuntary non joinder by plaintiff. See Nagunst v. Western
Union, 76 F.R.D. 631 (D. Kan. 1977). The Greenwood court stated that plaintiff should
not be able to use a voluntary choice not to sue in order to avoid a damaging allocation
of fault to immune or insolvent tortfeasors, but notes that a different result obtains in
a situation such as in Beach, where the plaintiff's inabihty to sue the employer was
involuntary. Greenwood, 437 F. Supp. at 713.
152. Hill v. Metro. Trucking, 659 F. Supp. 430 (N.D. Ind. 1987).
153. Huber v. Henley, 669 F. Supp. 1474 (S.D. Ind. 1987). See supra notes 79 -
84 and accompanying text.
154. Brown v. Kiell, 224 Kan. 195, 204, 580 P.2d 867, 876 (1978).
155. Id. The Kansas District Judges Association Committee on Pattern Jury In-
structions has provided an instruction to be used in directing the jury in the consideration
of the fault of a nonparty or phantom:
In this case it is claimed that [namel was at fault in the (collision) (occurrence)
in question. Even though (he) (she) has (they have) not appeared or offered
evidence, it is necessary that you determine whether [namel was at fault in the
(collision) (occurrence) and determine the percentage of fault, if any, attributable
1989] COMPARATIVE FAULT 965
whose fault is still presented to and allocated by the jury: "Under
[Section] 60-258a all tortfeasors may be made parties to a lawsuit and
even if they are not made parties their percentage of fault may be
determined. "'^^
With Brown, the Kansas Supreme Court summarily disposed of
common law joint and several liability in favor of totally proportionate
liability, which then paved the way for an interpretation of the Kansas
"additional party" provisions of section 60-258a(c) designed to prevent
plaintiff from circumventing proportional allocation. ^^^ The interpretation
of the additional party portion of the statute apparently included en-
dowing courts with a discretionary power to create "phantom parties,"
whose fault was evaluated without their being joined by a named de-
fendant, as was done in Brown. The feasibility of such a solution to
allocation questions is questionable in Indiana because the nonparty
defense must specifically be asserted by a named defendant, and ap-
parently may not be raised sua sponte by the court. '^^ If defendants
desire to spread the fault among nonparties, they must plan ahead and
to (him) (her) (them).
Pattern Instructions for Kansas, Civil, PIK 20.05 (Supp. 1975). The Comment to PIK
20.05 states:
Where the evidence warrants it, the court must add that person as a party solely
for the purpose of determining and allocating fault on a one hundred percent
basis. . . . This situation may exist where a contributing tortfeasor was given a
release with reservations, a covenant not to sue, or may be unavailable as a
party for lack of jurisdiction or unidentif lability, such as a phantom driver. A
settling tortfeasor or absent tortfeasor is a party only for the purpose of allocation
of percentage of fault.
Id., Comment to PIK 20.05. The Comment then cites Pierringer v. Hoger, 21 Wis. 2d
182, 124 N.W.2d 106 (1963) for the "reason and procedure in accounting for the fault
of a setthng tortfeasor who was not joined as a party." Id.
156. Miles v. West, 224 Kan. 284, 287, 580 P.2d 876, 879 (1978). Miles was decided
four days after Brown, and served to reaffirm the conclusions reached in Brown. Cf. V.
Schwartz, Comparative Negligence § 16.5 (1986), stating: "A result . . . compatible
with the goals of comparative negligence is reached by determining the negligence of all
concurrent tortfeasors irrespective of whether they are parties to the suit." Id.
157. Plaintiff was not allowed to circumvent proportional allocation by carefully
choosing whom to name as defendant. This hearkens back to the concerns aired by the
federal court in Beach v. M & N Modern Hydraulic Press, 428 F. Supp. 956 (D. Kan.
1977) and Greenwood v. McDonough Power Equip., 437 F. Supp. 707 (D. Kan. 1977),
both of which refused to allow plaintiff to circumvent total allocation, whether the
circumvention was purposeful on plaintiff's part (not joining a settled party) or involuntary
(due to immunity on the part of a tortfeasor). See supra notes 117 - 124 and accompanying
text; Wilkins, supra note 47, at 732-33.
158. IND. Code § 34-4-33-10(b) (1988). See Walters v. Dean, 497 N.E.2d 247 (Ind.
Ct. App. 1986); supra notes 70-80 and accompanying text.
966 INDIANA LAW REVIEW [Vol. 22:939
carefully follow the Act, and may name only identified or identifiable
nonparties. '^^
The Kansas cases evidence a strong orientation toward the fair
allocation poHcies of tort systems, which tend to favor defendants,
without consideration of the compensation oriented policies. The Indiana
Act, with its emphasis on precise allocation, has the potential to be very
similar to the Kansas system as interpreted in Brown if the state courts
decide, as the Kansas court did, that joint and several liability has been
displaced by comparative fault.
2. Kansas Settlement Cases. — As contemplated in Indiana's Gray v.
Chacon,^^^ the abolition of joint and several liability in Kansas resulted
in the concomitant abolition of the release rule. Again, the issue first
came up in federal court. In Stueve v. American Honda Motors Co.,^^^
the plaintiff settled with the other party involved in a coUision, and
then pressed suit against the manufacturer of plaintiffs decedent's mo-
torcycle. ^^^ Predicated on the Brown opinion, the court decided that the
abolition of joint and several liability made any release irrelevant as far
as the manufacturer was concerned, because each defendant could be
held Uable '*only for that percentage of injury attributable to his fault,
[and] a release of [one] defendant cannot inure to the benefit of potential
co-defendants."'"
A state court decided this question in Geier v. Wikel,^^ where plaintiff
gave a release to a railroad company, whose train had been involved
in an accident which injured plaintiff, and then sued the driver of the
car involved.'" The court of appeals decided that because all the fault
was to be allocated to the persons involved regardless of immunity or
whether they had been joined, and because the abrogation of joint and
several liability prevented the plaintiff from collecting anything but a
defendant's assigned portion of liability from that defendant, the release
rule was no longer appHcable.'^^ The court stated:
159. Ind. Code § 34-4-33-6 (1988) requires that the name of the nonparty appear
on the verdict form.
160. 684 F. Supp. 1481 (S.D. Ind. 1988). See supra notes 50-59 and accompanying
text.
161. 457 F. Supp. 740 (D. Kan. 1978).
162. Id. at 745. The court established that it believed that Kansas state courts would
find the comparative fault act apphcable to products Uability cases. Id. at 750-56. See
also 3 Kan. Stat. Ann. § 167 (Vernon Supp. 1988).
163. Stueve, 457 F. Supp. at 748-49. The court also decreed the effect that the
covenant not to sue should have on the overall award: "(DJefendant should receive a pro
rata credit against any award calculated with reference to the percentage of fault attributed
to [the releasee]." Id.
164. 4 Kan. App. 2d 188, 603 P.2d 1028 (1979).
165. Id. at 1030.
166. Id.
1989] COMPARATIVE FAULT 967
An injured party whose claim is exclusively subject to the Kansas
comparative negligence statute may now settle with any person
or entity whose fault may have contributed to the injuries without
that settlement in any way affecting his or her right to recover
from any other party liable under the act. The injured party is
entitled to keep the advantage of his or her bargaining, just as
he or she must Uve with an inadequate settlement should the
jury determine larger damages or a larger proportion of fault
than the injured party anticipated when the settlement was
reached. ^^"^
This decision clearly shows the effect of Brown and the federal decisions
on partial settlements under the Kansas comparative negligence scheme.
The fault of the settHng tortfeasor will be considered with the fault of
named defendants, regardless of whether the settUng party was joined
as an "additional party" or had her fault considered in the "phantom"
mode. Plaintiff is free to settle with any party she chooses, but her
award will be diminished by the settHng tortfeasor's proportion of fault.
Geier made it clear that plaintiffs must accurately estimate the
defendant's proportion of fault and get the absolute best bargain they
can, in order to offset the potential loss of large percentages of their
damages. Defendants must estimate accurately in order to avoid a set-
tlement which would allow plaintiff a windfall. However, under this
system, a defendant who does not settle need not worry about paying
more than her proportion of fault, and need not worry that she will
be responsible for the fault of unjoined tortfeasors. Plaintiff, on the
other hand, knows that she will have to be concerned with the pro-
portionate fault of all involved tortfeasors, and may not control from
whom she will recover. This means that the flexibility of the Kansas
system is minimal and that it does not particularly encourage partial
settlement unless the defendant is convinced that she is settling for much
less than her proportionate fault and unless the plaintiff is sure she is
settling for more than the settling defendant's proportion of fault.
3. '^Comparative Implied Indemnity'*. — Settling tortfeasors had no
right of contribution in Kansas under contributory fault, ^^^ and it ap-
peared that the same finality would be true of settlement under com-
167. Id.
168. Settlements were final, contractual matters between plaintiff and the settling
defendant. Statutory contribution was reserved for joint judgment debtors, and had to
be triggered by the payment of the entire judgment by one of the jointly Uable defendants,
who could then pursue other defendants for contribution. See supra notes 106-09 and
accompanying text.
968 INDIANA LAW REVIEW [Vol. 22:939
parative negligence until the case of Kennedy v. City of Sawyer .^^^ In
Kennedy, plaintiff sued the city, which had had weedkiller sprayed near
plaintiff's land, killing plaintiff's cattle. '^° The city filed a third party
complaint against the chemical company that had sold the weedkiller to
the city; the chemical company in turn filed a third party petition against
the manufacturer of the weedkiller. '^^ The trial court found against the
city and dismissed both third party complaints. ^^^ While the city's appeal
was pending, plaintiff and the city settled, using a document which
released the entire claim. ^"^^
The City of Sawyer persisted in its appeal, objecting to the dismissal
of the third party defendants against whom it sought indemnification. ^^^
The Kansas Supreme Court decided that although the chemical company
and manufacturer had not been brought in as additional parties under
Section 60-25 8a(c), the pleadings were complete enough to consider them
in that light. '^^
The court determined that traditional indemnity shifted one hundred
percent of the loss from the indemnitee to the indemnitor, ^"'^ where
contribution shifted only a portion of the responsibility. Finding that
the release given to the City of Sawyer had reheved the third party
defendants of any possible liability to the plaintiff, ^'^'^ the court held:
[I]n comparative negligence cases when full settlement of all
liability to an injured party has been accomplished and a release
obtained, proportionate causal responsibility among the tortfea-
169. 228 Kan. 439, 618 P.2d 788 (1980). See Note, Torts - Indemnification, Set-
tlement, and Release in Strict Products Liability in the Wake of Kennedy v. City of
Sawyer, 30 Univ. Kan. L. Rev. 131 (1981) for an exploration of some of the issues
brought up in Kennedy, which was procedurally both awkward and complex.
170. Kennedy, 228 Kan. at 442, 618 P.2d at 791.
171. Id. at 793-94, (The third party joinder provisions appear at Kan. Stat. Ann.
§ 60-214 (1983)).
172. Id. at 792. The trial court had not considered comparative fault in this decision.
Id.
173. Id. at 791-93.
174. Id.
175. Id. at 794-95. This included a determination that the comparative negligence
act was applicable in strict products liability cases. Id. at 797-98.
176. The court distinguished between express indemnity (by contract) and implied
indemnity, where one is made to pay a loss that, by rights, another was responsible for,
e.g., respondeat superior. The indemnity claimed in Kennedy was implied indemnity. Id.
at 801-2.
177. The court distinguished the release from the one used in Geier v. Wikel, 4
Kan. App. 2d 188, 603 P. 2d 1028, because the Geier release had indicated an intent to
pursue the claim further against other tortfeasors, whereas the Kennedy release had indicated
an intent to completely release all parties involved. Kennedy, 228 Kan. at 450, 618 P. 2d
at 799.
1989] COMPARATIVE FAULT 969
sors should be determined and indemnity should be decreed
based on degree of causation of the respective tortfeasors. ^^^
This scheme was christened ^'comparative implied indemnity," and was
triggered when one party with actual legal liability obtained a full release
in exchange for a reasonable amount, and then continued the action
against the nonsettHng defendants under an indemnity theory. •'^^ While
the court called this solution indemnity, it is clear that the proportionate
nature of the repayment, and the overtones of joint and several liability
evident in one tortfeasor's paying the entire obligation (albeit voluntarily),
have more the flavor of contribution than indemnity. The court itself
described indemnity as a one hundred percent reallocation, proportional
reallocation being the mark of contribution. '^° Judge Woods of the
Eastern District of Arkansas stated: "This form of 'comparative implied
indemnity' is nothing more than contribution according to proportionate
fault. "'81
The Kansas Supreme Court appeared to regret this broad holding,
and narrowed and explained itself in Ellis v. Union Pacific Railroad
Co. '8^ Following a car-train collision, plaintiffs sued the railroad company
which then joined certain governmental entities for a determination of
their proportion of fault pursuant to Section 60-258a(c).i8^ Plaintiffs did
178. Kennedy, 228 Kan. at 455, 618 P.2d at 804.
179. Id. at 803. The court was very specific on the procedures to be used: plaintiff's
fault was to be determined only insofar as to establish that actual legal liability had
existed (i.e., that plaintiff was not forty-nine percent or more at fault); defendant had
the responsibility to bring in all parties it considered causally negligent; the apportionment
was to be made in the pending action, or a separate action if suit had not been filed;
the court would determine a reasonable settlement figure if the action had not progressed
as far as the jury for determination of damages; and the maximum amount to be
redistributed was to be the amount of the settlement. Id.
180. In Note, supra note 169, the author describes this innovation in his conclusion
as comparative contribution. The dissenting opinion took issue with the majority's cavalier
treatment of the fact that the chemical company and the manufacturer were in the action
as third-party defendants under Kan. Stat. Ann. § 60-214 (1983) for indemnity rather
than being in the action as joint tortfeasors, and preferred that the action be treated as
one for one hundred percent indemnity on a contractual theory. Id. at 805-07. The
comparative implied indemnity concept not only differed from traditional indemnity (which
could be sued for post-settlement, Cason v. Geis Irrigation Co., 211 Kan. 406, 507 P. 2d
295 (1973), if the proposed indemnitee could prove that she was legally liable) but also
from Kansas' limited statutory contribution under contributory fault, which was not allowed
for mere settlement, but required that one defendant pay an entire joint judgment. See
supra notes 107-08.
181. H. Woods, Comparative Fault § 13:20, at 293 (1987).
182. 231 Kan. 182, 643 P.2d 158, affd on rehearing, 232 Kan. 194, 653 P.2d 816
(1982) (with dissenters also affirming their dissents).
183. Id. The governmental entities were the county, township, and city in which
the accident occurred.
970 INDIANA LAW REVIEW [Vol. 22:939
not amend their complaint to assert any claims against the governmental
entities, and the governmental entities specifically forbade the defendants
to settle the case on their behalf. The railroad defendants then settled
with the plaintiffs in a form which specifically released the governmental
entities and pledged the plaintiffs' assistance to the railroad in obtaining
indemnity for the settlement. The trial court dismissed the indemnity
claims and the railroad appealed. ^^"^
The Kansas Supreme Court analyzed Ellis in terms of its decision
in the Kennedy case.^^^ Comparative impHed indemnity was seen as a
method to encourage complete settlements: for plaintiffs because they
could achieve full compensation in one transaction, for defendants be-
cause they could get proportional repayment for settling the entire claim
if the consideration given was reasonable. ^^^
The pivotal point in distinguishing Ellis from Kennedy was the
position occupied by and the liability of the additional parties.'®^ The
court perceived the purposes of Section 60-258a(c) to be to reduce the
defendant's potential liability by allocating fault to other causally re-
sponsible persons and to prevent the plaintiff from circumventing the
allocation procedures by strategic choice of defendants. '^^ The provision
benefitted defendants only, not affecting plaintiff's case by the possibility
of greater recovery from the additional parties. ^^^ This led to the con-
clusion that although defendant had followed the procedures laid down
in Kennedy, its joinder of the governmental entities by use of Section
60-25 8a(c) had not asserted a claim against those entities that would
subject them to monetary liability, and plaintiff had not asserted any
claim against them.'^^
The upshot of this was that the Kennedy decision was strictly limited:
if the proposed indemnitor could not have had any actual Uability to
184. Id. The dismissal was because plaintiffs had never asserted a valid claim against
the governmental entities, although they had had the opportunity to do so before the
statute of limitations ran. Id.
185. Id. at 186, 643 P. 2d at 162. The court noted that the new comparative implied
indemnity concept, which it compared to the "partial indemnity" concept of American
Motorcycle Ass'n v. Superior Court, 20 Cal. 3d 578, 146 Cal. Rptr. 182, 578 P.2d 899
(1978), had the potential to be confused with the traditional concept of contribution. The
court stated that this confusion should be avoided, and that the concept was a modernization
to bring the traditional all or nothing indemnity concept into accord with the principles
of comparative negligence. Id.
186. Ellis, 231 Kan. at 186, 643 P.2d at 162.
187. Id. at 188, 643 P.2d at 164.
188. Id.
189. Id.
190. In contrast, the court found that the settling defendant in Kennedy had asserted
a third party claim against the additional parties which would have subjected them to
monetary Uability. Id. at 189, 643 P.2d at 165.
1989] COMPARATIVE FAULT 971
plaintiff, then the proposed indemnitee could not call for comparative
implied indemnity. The court would not allow the settling defendant to
''broaden another defendant's liability beyond what it would have been
had the case gone to trial. "^^^
Two dissents to the Ellis majority opinion vociferously contested the
analysis leading to this holding. The first stated that a joinder under
Section 60-258a(c) should be a joinder for all purposes. ^^^ The other
stated that not treating Section 60-258a(c) as a joinder for all purposes
also had the effect of rendering it useless, as the apportionment of fault
to parties not named by plaintiff could just as easily be accomplished
by defendant's naming the nonparties in her answer, the "phantom
tortfeasor" concept, as was approved in Brown. ^^^
Indiana has always forbidden contribution, ^^"^ and the Comparative
Fault Act perpetuates this in Section 34-4-33-7: "In an action under this
chapter, there is no right of contribution among tortfeasors. However,
this section does not affect any rights of indemnity. "'^^ Proportional
repayment between joint tortfeasors is usually a remedy aimed at evening
out the effects of joint and several liability, and so is not considered
necessary in the absence of joint and several Hability. The Kansas court
found this to be untrue in a context where one defendant settles on
behalf of all, and in Kennedy attempted to make this settlement situation
more fair to the defendant who has settled.
However, questions arose out of Kennedy relating to the finality of
settlements and releases in the one defendant-full settlement context. The
Kennedy decision muddied the water on the issue of whether contribution
was or was not allowed after a full settlement, who would have to
contribute, and what their liability to plaintiff had to be. Ellis, in
attempting to refine "comparative impHed indemnity," further confused
191. Id. "The plaintiff may choose to forgo any recovery from other tort-feasors.
In that event, a settUng defendant has no claim to settle but his own." Id. at 190, 643
P.2d at 166. See also Teepak, Inc. v. Learned, 237 Kan. 320, 699 P.2d 35 (1985) (later
case in which Ellis was followed).
192. Ellis, 231 Kan. at 190, 643 P.2d at 166. (Herd, J., dissenting) Justice Herd
noted that a distinction had been made in Brown between parties formally joined and
those who were not formally joined but had their fault allocated anyway, stating: "This
distinction indicates formal joinder with service of process can impose Habihty independant
of a formal assertion of a claim." Id.
193. Id. at 192, 643 P. 2d at 168 (Fromme, J., dissenting). Fromme, J., who had
authored the Brown and Kennedy opinions, joined in Herd's dissent and elaborated further
in his own, stating that he saw "no vaUd reason for the court to set up a different rule
in cases based on ordinary negligence," Id. at 167, and that he felt that the majority
had limited the Kennedy opinion to products hability cases, thus discouraging settlement
of plaintiff's entire claim by defendants. Id.
194. See supra note 38 and accompanying text.
195. IND. Code § 34-4-33-7 (1988).
972 INDIANA LAW REVIEW [Vol. 22:939
the issue, and the court's distinction between indemnity and contribution
(made with the intent of assuring that comparative impUed indemnity
was not to be confiised with contribution) remains unclear.
Despite the fact that indemnity is specifically permitted by the Indiana
Act, given Indiana's tradition of barring contribution between tortfeasors,
even if Indiana follows the case law of Kansas in interpreting its own
Act, it is unlikely that Indiana courts will take the path that Kansas
courts took in this settlement situation. This is so regardless of the fact
that Indiana encourages full settlement by defendants early in the pro-
ceedings. The cases illustrate, however, the awkwardness of the solutions
to the problems caused by the inflexibility of the Kansas system, which
should warn Indiana courts to avoid the pitfalls of interpreting the Act
in a haphazard fashion.
Apparently the Kansas court felt the need to reinstate some sort of
allocation between wrongdoers in the full settlement context. In doing
so, it hit upon * 'comparative implied indemnity," which is remarkably
similar to the joint judgment obligor statutory system of contribution
which had been used under contributory fault in Kansas. '^^ The difference
between the two is that the reallocation is proportional (which means
that the fault must be allocated in court) rather than in equal shares,
and that * 'comparative implied indemnity" apparently applies only in
the full settlement context, whereas statutory contribution applied only
if a joint tortfeasor paid an entire judgment.
The Kennedy and Ellis cases continue the emphasis of the Kansas
system on proper allocation of fault so that no defendant pays more
than her fair share of a plaintiff's damages. The Kansas Act has as its
main focus the proper proportional allocation of fault between tortfea-
sors, leaving plaintiff to bear the possibility of insolvent or immune
tortfeasors and the risks involved in settlement. Other states, specifically
Minnesota, demonstrate that a system which has the opposite emphasis,
that is, a compensation-oriented system, can achieve the fairness sought
by the Kansas courts.
IV. Minnesota Comparative Fault
A. Background: Prior to Comparative Fault
Under contributory fault, Minnesota differentiated between covenants
not to sue and releases. ^^"^ Prior to the enactment of Minnesota's com-
parative fault act in 1969, the courts had arrived at a system whereby
196. See supra notes 107-08 and accompanying text.
197. See, e.g., Gronquist v. Olson, 242 Minn. 119, 123, 64 N.W.2d 159, 163-64
(1954).
1989] COMPARATIVE FAULT 973
the intent behind a settlement determined whether it constituted a cov-
enant not to sue or a release, regardless of what the document was
called. ^^^ While a release of one joint tortfeasor released all,'^^ several
factors were considered in determining whether a compromise was a
release or merely a covenant not to sue, the first being the intent of
the parties to the agreement. ^^ If by its terms the release only appHed
to some of the joint tortfeasors, it was not a release unless it plainly
said so, a reservation of rights being unnecessary to retain those rights,
but indicative of the intent behind the settlement. ^^^
The second determinative factor was whether or not the plaintiff
had received full compensation under the agreement. ^^^ Plaintiff was
entitled to only one recovery, and a full satisfaction amounted to a
release. ^°^ However, if plaintiff received a partial satisfaction not intended
to be a release of the entire claim, she was free to pursue her claim
among the other tortfeasors and was not barred on her claim until she
received full satisfaction.^^ Any partial satisfaction served to diminish
plaintiff's ultimate award pro tanto.^^^
Joint and several Uability balanced by contribution among tortfeasors
was the rule in Minnesota. ^°^ The courts imposed a strict requirement
that in order to garner contribution from codefendants after having paid
more than her equal share of a joint judgment, the proposed contributee
must show that there was common Uability, not merely common neg-
ligence, between herself and the co-defendants. ^°^
B. Comparative Fault
Minnesota initially adopted comparative negligence based on the
Wisconsin statute in 1969.^°^ The system was refined over the years and
198. Id. at 163 (citing Musolf v. Duluth Edison Elect. Co., 108 Minn. 369, 122
N.W. 499 (1909); Joyce v. Massachusetts Real Estate Co., 173 Minn. 310, 217 N.W. 337
(1928)).
199. Joyce, 173 Minn, at 311, 217 N.W. at 338.
200. Gronquist, 242 Minn, at 124, 64 N.W.2d at 165.
201. Joyce, 173 Minn, at 311, 217 N.W. at 338.
202. Gronquist, 242 Minn, at 124, 64 N.W.2d at 165.
203. Philips V. Aretz, 215 Minn 325, 10 N.W.2d 226 (1943).
204. Gronquist, 242 Minn, at 124, 64 N.W.2d at 164-65 (citing Musolf v. Duluth
Edison Elect. Co., 108 Minn. 369, 122 N.W. 499).
205. Id.
206. See Underwriters at Lloyd's of Minneapolis v. Smith, 166 Minn. 388, 208
N.W. 13 (1926); American Auto Ins. Co. v. Moiling, 239 Minn. 74, 57 N.W.2d 843
(1953). See also Note, Contribution and Indemnity -An Examination of the Upheaval
in Minnesota Tort Loss Allocation Concepts, 5 Wm. Mitchell L. Rev. 109, 118 (1979).
207. American Auto Ins., 239 Minn. 74, 57 N.W. 2d 847; Lunderberg v. Bierman,
241 Minn. 349, 63 N.W.2d 355 (1954).
208. See supra notes 11-16 and accompanying text.
974 INDIANA LAW REVIEW [Vol. 22:939
in 1978 was revised to resemble the Uniform Comparative Fault Act.^^^
Section 604.01 of the Minnesota Act provides for the abolition of
contributory fault and its replacement with comparative fault, ^'° defines
fault, ^^^ and specifically makes provision for the effects of settlement in
subdivisions (2), (3), (4), and (5).^'^
Section 604.04(5) of the Minnesota Act requires that settlements
made "shall be credited against any final settlement or judgment,"
provided only that if the settlement is for more than the settling party's
liability, if any, the plaintiff is not required to refund any part of it.^'^
The subdivision further provides that the plaintiff's proportion of fault
shall first be measured against the defendant's and if the defendant's
is greater, the plaintiff's proportion of fault shall be subtracted (pursuant
209. See supra notes 11-16 and accompanying text.
210. Contributory fault shall not bar recovery in an action by any
person ... to recover for fault resulting in death or injury to person or property,
if the contributory fault was not greater than the fault of the person against
whom recovery is sought, but any damages allowed shall be diminished in
proportion to the amount of fault attributable to the person recovering.
Minn. Stat. Ann. § 604.01(1) (West 1988). It should be noticed that this statute requires
that the plaintiff's fault be measured against that of each defendant individually, as
opposed to the fault of all the defendants in aggregate as is done in Kansas and apparently
Indiana. See H. Woods, Comparative Fault, Appendix (1987). This became an issue in
several cases involving settlement and contribution issues because a defendant with less
fault than the plaintiff is considered not liable to the plaintiff, and hence has no common
liability with the defendant seeking contribution. See Hosley v. Armstrong Cork Co., 364
N.W.2d 813, 817 (Minn. App. 1985), rev'd on other grounds, 383 N.W.2d 289 (Minn.
1986).
211. Minn. Stat. Ann. § 604.01(l)(a) (West 1988).
212. Minn. Stat. Ann. § 604.01(2), (3), (4), and (5). Subdivisions (2) and (3) provide
that any settlement or payment for personal injury, death or damage to property shall
not be considered admissions of liability. Subdivision (4) states: "Except in an action in
which settlement and release has been pleaded as a defense, any settlement or payment
referred to in subdivisions 2 and 3 shall be inadmissible in evidence on the trial of any
legal action." Subdivision (5):
All settlements or payments made under subdivisions 2 and 3 shall be credited
against any final settlement or judgment; provided however that in the event
that judgment is entered against the person seeking recovery or if a verdict is
rendered for an amount less than the total of any such advance payments in
favor of the recipient thereof, such person shall not be required to refund any
portion of such advance payment voluntarily made. Upon motion to the court
in the absence of a jury and upon proper proof thereof, prior to entry of
judgment on a verdict, the court shall first apply the provisions of subdivision
1 and then shall reduce the amount of the damages so determined by the amount
of the payments previously made to or on the behalf of the person entitled to
such damages.
Minn. Stat. Ann. § 604.01(5) (West 1988).
213. Minn. Stat. Ann. § 604.04(5) (West 1988).
1989] COMPARATIVE FAULT 975
to section 604.04(1)) before the award is diminished by the settlement
amount. ^•'^
Despite the fact that the Minnesota statute provides for the effect
of a settlement on the allocation process and result, elaboration was
required and was forthcoming from the Minnesota courts. The statute
does not, for example, specify whether the amount subtracted from the
overall award is proportionate to the settling party's fault, or is a straight
subtraction of the amount given in settlement. Logically, under joint
and several hability, with its compensation orientation, only the dollar
amount would be subtracted, thus guaranteeing plaintiff a full recovery
under joint and several liability but no more.^'^ However, the appor-
tionment orientation of modern comparative fault statutes would dictate
that the subtraction be based on the proportional amount.
In Rambaum v. Swisher,^^^ the Minnesota Court of Appeals plainly
endorsed the proportional credit in the settlement context, diminishing
the award to plaintiff not by the settlement amount but by the settling
party's percentage of fault. ^'^ Other methods discouraged settlements by
plaintiff because she would gain no benefit from a good bargain if the
settlement amount were subtracted regardless of proportion, but would
still be disadvantaged by a bad bargain. ^^^ Defendants would be dis-
214. Minn. Stat. Ann. § 604.04(5). The order in which the plaintiff's fault and
the settlement amount are subtracted from the total award can make a difference in the
amount of plaintiff's ultimate recovery. See examples given and analysis made in Note,
A Dollars and Sense Approach to Partial Settlements: Judicial Application of the Gross
Damages Method, 72 Iowa L. Rev. 1147 (1987).
215. See Lanning, Settlement and Liability in Montana: State Ex Rel Deere & Co.
V. District Court, 48 Mont. L. Rev. 401, 408-13 (1987), for a concise description of the
"dollar credit rule" (nonsetthng defendant credited with the dollar amount of the settlement)
and the "percent credit approach" (nonsettling defendant credited with the settling party's
percentage of the judgment based on her percentage of the fault). Mr. Lanning states:
"[T]he percent credit rule merely places the plaintiff in a multiple-defendant action on
an equal basis with the plaintiff in a single-defendant action. In the latter, the plaintiff
takes a chance when setthng: he may receive more through settlement than through trial,
or he may receive less." Id. at 410. See also Scwartz, Comparative Negligence § 16.5
(1986).
216. 423 N.W.2d 68 (Minn. App. 1988) (citing Anunti v. Payette, 268 N.W.2d 52
(Minn. 1978)). In Anunti, the settlement was effected during the trial, after the jury had
begun deliberating but before the verdict was returned. The court interpreted the word
"settlement" in Minn. Stat. Ann. § 604.01(2) and (5) to refer to payments made "prior
to the determination of the case," and found that since the settlement between plaintiff
and a third party defendant had been effected during trial and the settling defendant was
found to be without fault, the nonsettling tortfeasor should not benefit by the agreement.
The court refused to reduce the judgment against the nonsettling defendant at all. Anunti,
268 N.W.2d at 56.
217. Rambaum, 423 N.W.2d at 77.
218. Id. The settlement agreement released the settling defendant's proportion of
976 INDIANA LAW REVIEW [Vol. 22:939
couraged from settling if they received a credit in the dollar amount of
the settlement because as soon as one tortfeasor settled, defendants
would know that they would get the benefit of plaintiffs bargain if she
settled for more than the settling party's proportion of fault. Also, if
plaintiff settled for less than the settling party's proportion of fault, the
nonsettling defendant would still be Uable for only her own percentage
of fault.^'^ The parties in Rambaum had used a Pierringer release,
designed to have the effect of giving the nonsettling party a credit based
on the settling party's proportion of fault.
The Minnesota legislature wisely avoided a furor over how the statute
affected joint and several hability by specifically providing in Section
604.02(1) that joint and several liability was retained, with certain Hmits
added in 1988.^^° The caselaw interpreting this section of the statute has
fault and indemnified him against contribution claims by the nonsettling defendant. This
means that plaintiff could get no more than the settlement amount from the settling party
and if the settlement amount were much less than the settling party's percentage of liability,
she could apply joint liability to collect the rest from the nonsettling defendant, but if
the nonsettling defendant pressed a contribution action against the settling party, plaintiff
would have to pay that proportional contribution under the agreement. See infra notes
225-35 and text accompanying for further explanation of this particular type of release,
widely used in Minnesota.
219. Id. 2X 16. The nonsettling defendant would be liable only for her percentage
of fault despite joint and several liability because a Pierringer release was used. This
released the settling party's percentage of fault and indemnified the settling party for any
contribution claims. This means that even if plaintiff pressed for the payment of any
shortfall between the settlement amount and the settUng party's percentage of fault under
joint and several liability, the nonsettling defendant could still sue the settling party for
contribution of the amount paid over her proportional liability, and plaintiff would be
required to pay that contribution amount. The effect of this rather convoluted path is
that the nonsettling defendant ends up paying no more than her proportional liability
dictates.
220. Minn. Stat. Ann. § 604.02 (West 1988 and Supp. 1989):
When two or more persons are jointly liable, contributions to awards shall be
in proportion to the percentage of fault attributable to each, except that each
is jointly and severally liable for the whole award. Except in cases where liabihty
arises under [naming certain environmental and pollution statutes] . . . envi-
ronmental or public health law, ... a person whose fault is 15 percent or less
is liable for a percentage of the whole award no greater than four times the
percentage of fault.
Minn. Stat. Ann. § 604.02(1) (West Supp. 1989). This Note will not deal with the
limitation "a person whose fault is 15 percent or less" because it has been added very
recently and impinges on settlement issues only in a peripheral way.
Minn. Stat. Ann. § 604.02(2) also provides a procedure whereby uncollectible portions
of a judgment are reallocated among all faulty parties, including plaintiff, in proportion
to their fault. See Hosley v. Pittsburg Corning Corp., 401 N.W.2d 136 (Minn. App. 1987)
for a discussion of the reallocation statute. Subdivision (3) of the same Section provides
for reallocation in products hability actions and also that in a products action "a person
1989] COMPARATIVE FAULT 977
balanced the retention of joint and several liability with the retention
of Minnesota's common law right to contribution between joint tort-
feasors. ^^^
The effect of the retention of joint and several liability and con-
tribution has occupied much of the caselaw interpreting the settlement
provisions of the Minnesota Act. Part of this preoccupation stems from
the problem of finality of settlements. A settling party wishes to be
freed entirely of any worry of having to pay further and enters a
settlement agreement to achieve this. However in Minnesota, a settlement
does not necessarily offer this finality. Nonsettling defendants subject
to a joint judgment (that is, one which includes the settling party's fault)
may pursue contribution from the settling party if the nonsettling party
has paid more than her percentage share of the judgment under joint
and several liability. ^^^ This means that a settlement and release under
Minnesota's Comparative Fault Act does not truly release the settling
tortfeasor, which can be a disincentive to settlement since the settling
tortfeasor will end up responsible for her percentage of any judgment
whose fault is less than that of the claimant is liable to the claimant only for that portion
of the judgment which represents the percentage of fault attributable to the person whose
fault is less." Minn. Stat. Ann. § 604.02(3) (West 1988). This seems to change, for
products liability purposes, the provision of Minn. Stat. Ann. § 604.01(1) (West 1988)
which mandates the comparison of plaintiff's fault with each defendant individually,
barring plaintiff if her fault is more. The products provision makes a defendant whose
fault is less than plaintiffs pay, but only to the extent of their proportion. Cases commenting
on the retention of joint and several Hability are Maday v. Yellow Taxi Co., 311 N.W,2d
849 (Minn. 1981) (when acts concur to cause injury or when injury is indivisible, joint
liability results); Ruberg v. Skelly Oil Co., 297 N.W.2d 746 (Minn. 1980) (if the injury
is indivisible and the defendant against whom joint and several liability is asserted is
indeed liable to the plaintiff, that defendant is liable for the whole award).
221. See, e.g. Lange v. Schweitzer, 295 N.W.2d 387 (Minn. 1980). The court specified
that the contribution was to be only for those amounts the nonsettling defendant paid
that exceeded his proportional liability. This was regardless of the dimunition of plaintiff's
award due to the execution of a settlement agreement in which plaintiff agreed to indemnify
the settling defendant for all contribution claims, as that dimunition was forseeable at
the time of execution of the agreement. Id. at 390. The Uniform Act also retains both
joint and several liability and contribution:
The common law rule of joint and several liability continues to apply under
this Act. . . . The plaintiff can recover the total amount of his judgment against
any defendant who is liable. The judgment for each claimant also sets forth,
however, the equitable share of the total obligation to the claimant for each
party, based on his established percentage of fault. This indicates the amount
that each party should eventually be responsible for as a result of the rules of
contribution. Stated in the judgment itself, it makes the information available
to the parties and will normally be a basis for contribution without the need
for a court order arising from motion or separate action.
Unif. Comparative Fault Act, Comment to § 2, 12 U.L.A. 37, 44 (Supp. 1988).
222. See, e.g. Lange, 295 N.W.2d 387.
978 INDIANA LAW REVIEW [Vol. 22:939
and will not get the benefit of any bargain she may strike. ^^^ The plaintiffs
and defendants of Minnesota have reached a middle ground regarding
joint and several liability, contribution, and finality of settlement through
the use of a ''Pierringer release. "^^^ This is a settlement device whereby
plaintiff releases the settling joint tortfeasor's proportion of fault and
agrees to indemnify her for any contribution, plaintiff retaining her right
to pursue the remainder of her recovery from the other tortfeasors
involved. ^^^ The setthng party is included in the allocation of fault, but
is not required to remain a party to the action. ^^^
The Minnesota Supreme Court pronounced Pierringer releases ac-
ceptable in Minnesota and laid down guideUnes for their use in Frey
V. SnelgroveP'' Frey involved a car accident in which plaintiff, a pas-
senger, was injured due to the alleged neghgence of the driver and the
manufacturer of the tires on the car.^^^ On the sixth day of trial, the
plaintiff settled and executed a Pierringer release with the driver and
the owner of the car, informed the court of the settlement, and continued
against the manufacturer. ^^^ The settling co-defendants were not dismissed
and the jury was not informed of the settlement. ^^^ The tire manufacturer
appealed the trial court's ruling permitting the settled co-defendants to
continue as parties. ^^^
223. This is in contrast to the Uniform Act, which provides:
A release, covenant not to sue, or similar agreement entered into by a claimant
and a person liable discharges that person from all liability for contribution,
but it does not discharge any other persons liable on the same claim unless it
so provides. However, the claim of the releasing person against other persons
is reduced by the amount of the released person's equitable share of the obligation.
Unif, Comparative Fault Act § 6 12 U.L.A. 37, 50 (Supp. 1988). The Comment to
§ 6 of the Uniform Act explains why this configuration was chosen: if a release does not
free the released person from Uability for contribution, then there exists no incentive for
tortfeasors to settle, as they will end up paying their percentage of fault anyway. This
is the problem that Minnesota defendants, plaintiffs, and courts faced under their statute
and the existing caselaw. Unif. Comparative Fault Act Comment to § 6, 12 U.L.A.
37, 50 (Supp. 1988).
224. Based on Pierringer v. Hoger, 21 Wis. 2d 182, 124 N.W.2d 106 (1963). See
V. Schwartz, Comparative Negligence § 16.5 (2d ed. 1986); C. Heft & C.J. Heft,
Comparative Negligence Manual § 4.140 (1987).
225. Pierringer, 21 Wis. 2d at , 124 N.W.2d at 108. The Wisconsin Supreme
Court upheld and enforced the agreement.
226. Id. at , 124 N.W.2d at 111-12.
227. 269 N.W.2d 918 (Minn. 1978). "The use of a so-called Pierringer release is
in accord with Minnesota practice and our law of comparative negligence in tort actions."
Id. at 921.
228. Id. at 920.
229. Id.
230. Id. at 920-21.
231. Id. at 920.
1989] COMPARATIVE FAULT 979
.The court listed the elements of a Pierringer release:
(1) The release of the settling defendants from the action and
the discharge of a part of the cause of action equal to the part
attributable to the settling defendant's causal negligence; (2) the
reservation of the remainder of plaintiff's causes of action against
the nonsettUng defendants; and (3) plaintiff's agreement to in-
demnify the settling defendants from any claims of contribution
made by the nonsettling defendants to the extent the settling
defendants have been released. ^^^
Mr. John Simonett, in his article on Pierringer releases in Minnesota,^"
notes that the Pierringer release is ''designed to operate in a jurisdiction
which has comparative negligence to apportion liability between defen-
dants, uses the special verdict form.^^"* and allows contribution between
joint tortfeasors, "^^^ making it the ideal form of settlement for Minnesota.
The Frey court held that defendants settling under a Pierringer release
should usually be dismissed from the action, "but their negligence should
nevertheless be submitted to the jury."^^^ Nonparties and phantom parties
232. Id., n.l. The court notes that the release in Frey contained two unusual
provisions: "The indemnity clause covered cross-claims for indemnity as well as contribution
and the amount paid for the settlement was contingent upon the amount recovered from
the nonagreeing party at trial rather than a sum certain," Id.
233. Simonett, Release of Joint Tortfeasors: Use of the Pierringer Release in Min-
nesota, 3 Wm. Mitchell L. Rev. 1 (1977).
234. That is, each defendant is assigned a specific percentage of fault, rather than
having an overall percentage assigned to all the defendants together. Special verdict forms
are necessary to the comparison contemplated in Minn. Stat. Ann. § 604.01(1) (West
1988). Ind. Code § 34-4-33-6 (1988) provides for special verdict forms.
235. Simonett, supra note 233, at 11.
236. Frey, 269 N.W.2d at 922. The Uniform Act would have the percentage of
fault of released parties considered:
In all actions involving fault of more than one party to the action, including
third-party defendants and persons who have been released . . . the court . . .
shall instruct the jury to answer special interrogatories . . . indicating:
(1) the amount of damages each claimant would be entitled to recover if
contributory fault is disregarded; and
(2) the percentage of the total fault of all the parties to each claim that is
allocated to each claimant, defendant, third-party defendant, and person who
has been released from liability under Section 6.
(emphasis added) Unif. Comparative Fault Act § 2, 12 U.L.A. 43, (Supp. 1988). The
Comment to § 2 goes on to explain why causally negligent but unjoined tortfeasors are
not considered:
The limitation to parties to the action means ignoring other persons who may
have been at fault with regard to the particular injury but who have not been
joined as parties. This is a deliberate decision. It cannot be told with certainty
whether that person was actually at fault or what amount of fault should be
980 INDIANA LAW REVIEW [Vol. 22:939
are not dealt with in the Minnesota Act, but Frey^^'' and Lines v. RyarP-^^
make it clear that the settling party's fault is to be considered in the
allocation process. The Minnesota District Judges Association, citing
Lines y supplies a jury instruction directing the jury to consider the fault
of all causally involved persons, whether parties or not.^^^ This puts
Minnesota in Hne with Kansas on the nonparty issue, with the crucial
difference being that the plaintiff has the incentive to join all tortfeasors
because under joint and several liability she will not be penalized for
doing so by having fault allocated to one who cannot pay, which fault
is absorbed by plaintiffs under the Kansas regime. This is, however,
hard on defendants because they absorb the fault of such persons under
joint and several Hability and must seek contribution, which is costly
and time consuming. For this reason, defendants are encouraged to settle
by means of a Pierringer release, thereby freeing themselves of this
possibility.
attributed to him, or whether he will ever be sued, or whether the statute of
limitations will run on him, etc. An attempt to settle these matters in a suit to
which he is not a party would not be binding on him.
Id., Comment to § 2. This Comment acknowledges the practical problems of a the inclusion
of nonparties in the allocation process, but the Kansas courts would rightly note that this
allows plaintiffs to circumvent the allocation procedure by strategic choice of which
tortfeasors to sue and which to let go.
237. Frey, 269 N.W.2d at 922-23.
238. 272 N.W.2d 896 (Minn. 1978).
It is established without doubt that, when apportioning negligence, a jury must
have the opportunity to consider the negligence of all parties to the transaction,
whether or not they be parties to the lawsuit and whether or not they can be
liable to the plaintiff or to the other tort-feasors either by operation of law or
because of a prior release.
Connar v. West Shore Equip., 68 Wis. 2d 42, 45, 227 N.W.2d 660, 662 (1975). See also
Hosley v. Armstrong Cork Co., 383 N.W.2d 289 (Minn. 1986), where the fault of fourteen
asbestos manufacturers was allocated even though twelve had settled prior to trial.
239. JIG 149 instructs:
During the trial evidence has been presented concerning the involvement in the
(accident) (injury) (collision) (occurrence) of persons who are not parties, that
is, not plaintiffs or defendants, to this lawsuit. Even though [name of person]
is not a party, you will still be asked to determine whether [name of person]
was (negligent) (at fault) and whether [name of person] (negligence) (fault) was
a direct cause of the (accident) (injury) (collision) (occurrence). That is to ensure
that the apportionment of (negligence) (fault) you make in answering question
[number] is fair and accurate.
4 Minn. Prac. Jury Instruction Guides Civil 127, JIG 149 (1986). The Comment to the
instruction advises that "[i]f the fault of an absent person is considered, it may be desirable
to explain to the jury why the fault of an absent person is being considered." Id.
1989] COMPARATIVE FAULT 981
C. Practical Matters: Informing the Jury and the
Problem of Secret Settlements
The Frey court also addressed the practical point of what the jury
is to be told when a party has settled but her fault must still be allocated. ^^^^
In this situation the settled party, if she has executed a Pierringer release,
has no incentive to further defend herself because she will not have to
pay any more, due to the plaintiff's indemnification in case of contri-
bution claims. However, a settlement may give the impression of admitted
liability to the jury, causing them to put undue amounts of fault on
the settling defendant, which would be absorbed by plaintiff under a
Pierringer release. If the settling party is dismissed, as is recommended
in Frey,^"^^ the jury may be puzzled by her absence and possibly attribute
undue fault to the remaining parties.
The Frey court suggests guidelines which include a notification of
the court and the other parties and making the settlement agreement
part of the record. ^"^^ ''Where the settlement and release agreement is
executed during trial, the court should usually inform the jury that 'there
has been a settlement and release if for no other reason than to explain
the settling tortfeasor's conspicuous absence from the courtroom.' "^'^^
The court notes that a settlement agreement would be admissible to
prove bias or prejudice of a witness, and leaves the admissibility of the
actual agreement to the trial court's discretion.^^ The court last specifies
that "as a general rule the amount paid in settlement should never be
submitted. "2^5
/. *'Mary Carter'* Agreements, — The question of who should be
informed of a settlement is most fiercely argued in relation to secret
settlements, also referred to as ''Mary Carter agreements "^"^^ or ''Gal-
lagher agreements. "^'^'^ These agreements typically have the following
features: the guarantee of a certain amount of recovery for plaintiff if
she does not prevail or recovers less than expected from the remaining
240. Frey, 269 N.W.2d at 923-24.
241. Id. at 923.
242. Id.
243. Id. (quoting Simonett, supra note 233, at 30). See generally Note, Knowledge
by the Jury of a Settlement Where a Plaintiff Has Settled With One or More Defendants
Who Are Jointly and Severally Liable, 32 Vill. L. Rev. 541 (1987).
244. Frey, 269 N.W.2cl at 923.
245. Id. This is because the settlement amount is arrived at through the use of
factors not appropriately put before the jury, such as estimations of liability and com-
promise. Also, the settlement figure may have little relation to the plaintiff's actual damages.
Id.
246. Named after Booth v. Mary Carter Paint Co. 202 So. 2d 8 (Fla. Dist. Ct.
App. 1967). See generally H. Woods, Comparative Fault § 13:21 (1987).
247. Named for City of Tucson v. Gallagher, 108 Ariz. 140, 493 P.2d 1197 (1972).
982 INDIANA LAW REVIEW [Vol. 22:939
defendants; a limit on the settling defendant's liability to that amount; a
requirement that the settling defendant stay in the case as a defendant;
and finally, they are secret from the court, the opposing parties, and
the jury.^*^ This is obviously unfair to defendants who remain in the
action unaware that such an agreement has been made. It also does
nothing to encourage true settlement because if plaintiff is aware that
one or more defendants will, sub rosa, be ''on her side," giving her
the advantage over the remaining defendant(s), she need not be vitally
interested in compromising with those remaining defendants.
Ethical considerations aside, these features make such agreements
very appealing in jurisdictions which have aboUshed joint and several
liabihty and contribution. ^"^^ This is because plaintiff has a guaranteed
minimum recovery and assistance from the settling defendant in putting
maximum blame on the nonsettling defendants, with the result that
plaintiff's and settling defendant's fault is small and nonsettling defen-
dant's proportional fault is large. This lessens the need on plaintiff's
part for joint and several liability to attain full recovery, and the settling
defendant need not worry about contribution. ^^^
The courts which have dealt with such agreements have objected
not to the agreements themselves but to the secrecy which is one of
their main elements. ^^^ The agreement itself, without the secrecy and
cooperation between the plaintiff and the settling defendant, somewhat
resembles a Pierringer release. In Johnson v. Moberg,^^^ the Minnesota
Supreme Court dealt with a secret settlement made minutes before final
248. Mullins and Morrison, Who is Mary Carter and Why is She Saying All Those
Nasty Things About My Pre-trial Settlements?, 23 For the Defense 14, 15 (1981). The
Mary Carter agreement was described as "basically a contract by which one co-defendant
secretly agrees with the plaintiff that, if such defendant will proceed to defend himself
in court, his own maximum liability will be diminished proportionately by increasing the
liabihty of the other co-defendants." Ward v. Ochoa, 284 So. 2d 385, 387 (Fla. 1973).
249. Entman, Mary Carter Agreements: An Assessment of Attempted Solutions, 38
Univ. Fla. L. Rev. 521, 557 (1986). The author notes that the commentary on these
agreements arises mostly from non-contribution jurisdictions, but that they are unfair in
all jurisdictions. Id. at 524. See also Eubanks and Cocchiarella, In Defense of Mary
Carter, 26 For the Defense 14 (February 1984), stating that when the nonsetthng defendant
is not making a realistic attempt, commensurate with her share of fault, to settle plaintiff's
case, a Mary Carter agreement is fair to the parties and may encourage settlement. The
authors recommend disclosure to minimize any adverse effects. Id. at 21.
250. Eubanks and Cocchiarella, supra n.249, at 19.
251. See, e.g. Johnson v. Moberg, 334 N.W.2d 411, 415 (Minn. 1983), citing cases
which have required disclosure of Mary Carter agreements. However, one court has held
that such agreements are void as a matter of public policy, finding that they are unethical
and encourage champerty and maintenance, as well as make it impossible for the nonsettling
defendant to get a fair trial. Lum v. Stinnett, 87 Nev. 402, 488 P.2d 347 (1971).
252. 334 N.W.2d 411 (Minn. 1983).
1989] COMPARATIVE FAULT 983
arguments in a ** dram-shop" case, where the settling defendant continued
and made a closing argument.^"
The court held that Mary Carter agreements must be disclosed to
the court and the other litigants immediately when made, stating: "This
kind of settlement can affect the motivation of the parties, and, indeed,
the credibility of witnesses, and only by bringing these settlements into
the open can a trial proceed in a fair and proper adversarial setting. ''^^'^
The court recommended that on remand the guidelines laid down in
Frey regarding revelation of settlement agreements be followed. ^^^
Disclosure of settlements does not afford a final solution to the
problem of Mary Carter settlements, because revealing a self-serving
agreement containing protestations of innocence and condemnation of
the nonsettling defendant can be just as damaging to the nonsettling
defendant as secret cooperation between the plaintiff and the settling
defendant to achieve the same end.^^^ Prejudice results also if the dis-
closure leads the jury to think that the nonsettling defendant did not
settle because she was more at fault or that plaintiff has received a
recovery through settlement and does not deserve any more.^^^ Further,
if the agreement is entirely secret, nonsettling defendants will not even
know to ask for revelation of the agreement. ^^^
It is probable that Indiana courts will face this problem as com-
parative fault is refined with the passage of time. This is because if a
plaintiff is faced with the prospect of no joint and several liability and
the knowledge that the fault of a settUng party will be considered and
allocated, then she will join as many defendants as possible and enlist
as many as possible to her cause. This may be done through the use
of agreements which require defendants to stay in the case post-settlement
and defend themselves rather than leave plaintiff to defend an absent
nonparty tortfeasor. ^^^
253. Id. at 414.
254. Id. at 415.
255. Id. See supra notes 240-45 and accompanying text for the Frey guidelines.
256. Entman, supra note 249, at 559.
257. Note, Appellate Decisions - Evidence - Disclosing Gallagher Agreements to The
Jury, 22 Ariz. L. Rev. 1135, 1141 (1980)
258. Entman, supra note 249, at 561-62. Mullins and Morrison, supra note 248, at
18, refer to Mary Carter agreements as "Typhoid Mary" and recommend using discovery
requests to discover agreements when they seem Ukely.
259. Professor Wilkins, in his article describes the "empty chair" defense as a
weapon in the plaintiff's arsenal, which it was when plaintiff had control over whose
fault was to be considered. This was because the trier of fact had no choice but allocate
one hundred percent of the involved fault, and if the "empty chair" tortfeasor was not
in court, the only place to put that fault was on the defendants in court. Under a
comparative fault regime where the fault of all parties is considered, the "empty chair"
becomes a tool of use to the defense, in that fault may be allocated to the "empty chair"
tortfeasor. Wilkins, supra note 47, at 732-33.
984 INDIANA LAW REVIEW [Vol. 22:939
Although ethical considerations will hopefully prevent most attorneys
from entering secret agr cements, ^^° Indiana courts and legislators will
have to consider the temptations that will arise under the comparative
fault system. This consideration will lead to putting in place a requirement
that settlement agreements be timely revealed to the court and the other
litigants, as has been done in other jurisdictions. ^^^ Such a requirement
would serve to keep honest lawyers honest.
To counterbalance the possible bad effects of revealing and admitting
an agreement condemning a nonsettling defendant, the trial court should
be given the discretion to decide which parts can be revealed without
prejudice to any party. This is recommended in Frey}^^ Minnesota courts
also have Jury Instruction Guides tailored to the settlement situation
described above, telling the jury that a defendant has settled and that
the jury is not to concern itself with why the settlement occurred, warning
them not to draw conclusions from the settlement, and telUng them that
they will be required to allocate the settling party's fault. ^^^
2. Reasonableness Hearings. — The Washington comparative fault
statute includes a provision requiring that the court and other parties
to the action be informed of any contemplated settlement agreement
and that the agreement be subject to approval by the court. ^^ This
260. Eubanks and Cocchiarella, supra note 249, at 22, stress that such agreements
are doubtful ethically.
261. See, e.g. Johnson v. Moberg, 334 N.W.2d 411 (Minn. 1983), and cases cited
Id. at 415. Frey v. Snelgrove, 269 N.W.2d 918, 923-24 makes it clear that the court is
to be informed of Pierringer releases.
262. Frey, 269 N.W.2d at 923-24.
263. Jury Instruction Guide 148:
[Defendant] is no longer a party to this lawsuit, because [defendant] and [plaintiff]
have entered into a settlement agreement. You are not to concern yourselves
with the reasons for the settlement agreement. You are not to draw any con-
clusions from the fact of settlement or from the fact that other defendants
remain in the lawsuit. The settlement agreement between [plaintiff] and [defen-
dant] should in no way influence your judgment about the (negligence)(fault)
of [defendant], the remaining defendant(s) or the plaintiff(s). Even though
[defendant] is no longer a party to this lawsuit, you will still be asked to
determine whether [defendant] is (negligent) (at fault) and whether that (neg-
ligence) (fault) was a direct cause of the(accident) (injury) (collision) (occurrence).
This is to ensure that the apportionment of (negligence) (fault) you make in
answering question [number] is fair and accurate.
4 Minn. Prac. Jury Instruction Guides Civil 125, JIG 148, (1986).
264. Wash. Rev. Code. § 4.22.060(1) (1987). The section provides:
(1) A party prior to entering into a release, covenant not to sue, covenant not
to enforce judgment, or similar agreement with a claimant shall give five days'
written notice of such intent to all other parties and the court. The court may
for good cause authorize a shorter notice period. The notice shall contain a
copy of the proposed agreement. A hearing shall be held on the issue of the
1989] COMPARATIVE FAULT 985
section provides for a hearing on the proposed settlement, including
evidentiary presentations, and also that settlements entered into before
the action was filed may be subject to hearing upon motion by a party. ^^^
This portion of the Washington statute serves several purposes. First,
it guarantees that any settlement is brought to the attention of the court,
thereby avoiding the collusion and prejudice of a Mary Carter agreement.
Second, it assures both parties of a fair settlement, as judged by the
court. Third, it assists the parties in realistically assessing the amount
of fault for which each is responsible. ^^^
The reasonableness hearing requirement was examined in Glover v.
Tacoma General Hosp.,^^^ where the court was attempting to determine
how much credit a remaining defendant should receive for settlements
with other defendants. ^^* The court noted that the legislature had not
set out factors or guidelines for courts to use in determining reasona-
bleness.^^^ The factors which the court decided upon included a balance
of plaintiff's damages, the merits of the party's cases, ability to pay,
reasonableness of the amount to be paid with all parties afforded an opportunity
to present evidence. A determination by the court that the amount to be paid
is reasonable must be secured. If an agreement was entered into prior to the
filing of the action, a hearing on the issue of the reasonableness of the amount
paid at the time it was entered into may be held at any time prior to final
judgment upon motion of a party. The burden of proof as to the reasonableness
of the settlement offer shall be on the party requesting the settlement.
Id. Washington has adopted the Uniform Act, Unif. Comparative Fault Act, 12 U.L.A.
37 (Supp. 1988), but the reasonableness requirement for settlements is a variation on the
Uniform Act's § 6, Cahfornia has a similar "good faith" requirement for settlements.
See River Garden Farms, Inc. v. Superior Court, 26 Cal. App. 3d 986, 103 Cal. Rptr.
498 (1972).
265. Wash. Rev. Code § 4.22.060(1) (1987).
266. Accurately assessing the percentages of fault attributable to the various parties
will always be a major practical headache. See Handbook for Indianapolis Bar Ass'n,
Super Saturday in Court - - Comparative Fault, 6 (April 9, 1988); Heft & Heft,
CoMPARATFVE NEGLIGENCE MANUAL §§ 4.40 - 4.110 (1987), Suggesting various percentages
of fault to be used in settlement negotiations, according to the type of accident involved.
267. 98 Wash. 2d 708, 658 P.2d 1230 (1983).
268. Id. at 713, 658 P.2d at 1235.
269. Id. at 714, 658 P. 2d at 1236. The court quoted the Senate Select Committee
on Tort and Product Liabihty Reform Final Report at 54: "The bill does not establish
any standards for determining whether the amount paid for the release was reasonable
or not. It is felt that the courts can rule on this issue without specific guidance from
the Senate." Stating that "sweetheart deals" (Mary Carter agreements) were one of the
concerns of the legislature in enacting the provision, the court refused to allow total
discretion in the lower court. Id. at 713, 658 P. 2d at 1235. The court also refused a test
which strictly reflected the remaining defendant's relative liabihty, on the basis that
determining the liability would entail a mini-trial or waiting until the jury had allocated
all the fault. Id.
986 INDIANA LAW REVIEW [Vol. 22:939
collusion or fraud, good faith, the cost and timeframe of the litigation,
and the interests of the parties not being released. ^^^
This system would not be as efficient as allowing the parties to
work out their settlements under comparative fault without the inter-
ference of the court, but would encourage fair settlement. It would also
serve the purpose of discouraging unfair Mary Carter agreements and
assist the parties in their negotiations.
The Minnesota system embodies a concern for the compensation
aspects of the tort system which tend to favor plaintiffs. It is interesting
to note that given a system with joint and several liability which guar-
antees plaintiff a full recovery, and contribution to assure that no
defendant pays more than her full share, the bar and courts of Minnesota
have favored Pierringer settlements which approximate a completely
allocation-oriented system. ^^' The difference lies in that it is plaintiff's
choice to bear the risks associated with Pierringer releases, and if she
chooses not to, she can pursue a judgment and have any of the jointly
and severally liable defendants pay. In such a case, it is the defendant
who bears the risk of insolvency or immunity of one of the other
defendants. In Kansas this is impossible, and the plaintiff bears all the
risks, both of an unwise settlement and of the immunity or insolvency
of a defendant.
Clearly the Minnesota legislature and courts considered carefully
both policy and practicality in enacting the Minnesota statute. The statute
created is detailed enough that courts could interpret it in a logical and
consistent fashion, giving litigants some certainty, yet flexible enough
that parties are given the most room possible to negotiate and arrive
at creative, final, and fair settlements.
V. Summary and Conclusion
The systems of both Kansas and Minnesota have features which
recommend them in the settlement context, Kansas' being the precise
allocation of fault to parties, which makes it fairest for those accused
of negligence, Minnesota's being the joint and several liability doctrine
270. Id.
271. The effect of a Pierringer release is that plaintiff receives the settlement amount
and any remaining judgment amount less the settling defendant's proportion of fault. The
settling defendant is freed of any threat of a contribution suit by an agreement whereby
plaintiff will indemnify that defendant in case a codefendant presses a contribution suit.
The nonsettling defendant pays only her own proportion of fault, or, if forced to pay
part of a settling defendant's fault can go against the settling defendant for contribution.
This circuitous route leads to each defendant being responsible for her own fault and no
more, as under a system such as Kansas'. See supra notes 218, 219 and 225-35, and
accompanying text.
1989] COMPARATIVE FAULT 987
balanced by contribution, which emphasizes the compensation of injured
persons. For ease of administation, the Kansas Act, by not allowing
contribution, makes for more efficiency.^'^^ The Minnesota system, which
requires further action on the part of a defendant in order to get
contribution, is less efficient, but gives the parties more flexibility to
craft fair and effective settlements, and in combination with Pierringer
releases provides a strong incentive to settlement.
Which state Indiana follows will depend in part upon how her courts
answer the threshold questions of whether joint and several liability has
been retained and the position of settling parties in the case post-
settlement. The fact that the Act has foreclosed contribution and the
federal court's decision in Gray^^^ indicate that Indiana will probably
follow Kansas in abrogating joint and several liability. The position of
settled tortfeasors will be a harder question for Indiana courts and
lawyers, dealing with nonparty provisions which are more detailed than
any other state's and with no indication yet as to whether settled parties
will be nonparties or sui generis. The courts must decide what role a
settling defendant or tortfeasor will play in the consideration and al-
location of fault.
The practical aspects of trying a case in which one of multiple
tortfeasors has settled will center around the position the settling parties
will occupy vis a vis the plaintiff and remaining defendants. The courts
must state whether or not the settling tortfeasor will become an automatic
nonparty and give guidelines for settlement under the Act and the
allocation of fault to the settling tortfeasors, providing jury instructions
and procedures designed to protect both the plaintiff and defendant.
By referring to the caselaw and statute interpretation of other states,
as well as the policies represented by the fault allocation systems involved,
Indiana courts will be equipped to provide cogent answers to the threshold
questions and provide the certainty which lawyers and parties need in
order to effect the most advantageous settlements possible.
Elizabeth Moran Behnke
272, Except in a comparative implied indemnity case such as Kennedy, which en-
compasses a further action by settling defendants in order to get proportional contribution.
273. 684 F. Supp. 1481 (S.D. Ind. 1988)
Retroactive Application of Legislatively Enlarged Statutes
of Limitations for Child Abuse: Time's No Bar to
Revival
I. Introduction
In the United States, child sexual abuse and neglect have reached
major, if not epic, proportions.* An estimated 200,000 to 400,000 children
are sexually abused each year.^ A recent study suggests that perhaps one
third of the female population experienced some form of sexual abuse
as a child. ^ Increased societal recognition of child sexual abuse, attrib-
utable in part to increased reporting requirements, has reignited an age-
old debate over the relative scope of such abuse and society's role in
curbing it."*
The problem has received legislative and executive attention. For
example, numerous state legislatures enacted legislation enlarging the
criminal statute of limitations for child sex abuse offenses in an effort
to facilitate criminal prosecution.^ Additionally, the United States At-
torney General's Office recently advocated the extension of such statutes
of limitations.^ These actions, although well-intentioned, frequently create
agonizing dilemmas for the judiciary in applying the revised limitations
period, especially where the legislature fails to expressly dictate its in-
tentions as to the revised statute's application. Moreover, the legislation
may run afoul of constitutional ex post facto prohibitions when applied
in accordance with legislative dictates.
Preliminarily, this Note will illuminate the magnitude of the child
sexual abuse problem, and the impact of the statute of limitations on
1. ten Bensel, Child Abuse and Neglect: The Scope of the Problem, 35 Juv. and
Fam. Ct. J. 1 (Winter 1984) [hereinafter Child Abuse and Neglect].
2. Middleton, Plight of the Victim: A Plea for Action, 66 A.B.A.J. 1190, 1192
(1980).
3. Landis, Experiences of 500 Children with Adult Sexual Deviation, 30 Psy-
chology Q. Supp. 91 (1956).
4. See Myers, Protecting Children from Sexual Abuse: What Does the Future
Hold?, 15 J. CoNTEMP. L. 31, 32 (1989) [hereinafter Protecting Children].
5. See, e.g., Alaska Stat. 12.10.020(c) (Supp. 1988); Ariz. Rev. Stat. Ann.
13-107(B)(1) (Supp. 1988); Cal. Penal Code 801 (West 1985); Colo. Rev. Stat. 18-3-
411 (1986); Tex. Crim. Proc. Code Ann. 12.01 (Supp. 1988).
6. Attorney General's Task Force on Family Violence, Federal Executive and
Legislative and State Legislative Action, Recommendations, U.S. Atty. Gen., Final Report
103 (Sept. 1984) [hereinafter Task Force on Family Violence]. The task force recommended
extending the statute of limitations to five years, such period commencing at the time
the victim attains majority, or the age of sixteen, whichever first occurs.
989
990 INDIANA LAW REVIEW [Vol. 22:989
the states' ability to prosecute child sexual abusers. The Note will then
analyze the constitutional ramification of retroactive apphcation of the
revised statute. The Note will further address the various judicial ap-
proaches to the interpretation and apphcation of a revised statute of
limitations for child sexual abuse, especially where the legislature failed
to expressly dictate the revised statute's application. Finally, the Note
will suggest a uniform approach to interpretation and application of the
revised statute, and propose that the states' compelling interest in pros-
ecuting child sex abusers permits the revival of "time-barred" prose-
cutions.
II. Child Sexual Abuse - The Problem's Parameters
A. The Scope of The Problem
The painful reality of child sexual abuse has emerged from secrecy
at least three times previously, only to retreat under threat to the dark
chasms and inner recesses of society's consciousness.^ Each time, however,
society ignored, suppressed and condemned the enlightened few who
dared suggest the existence of widespread child sexual abuse. ^ Most
recently, beginning in 1978,^ child sexual abuse recaptured the public
spothght, inducing an avalanche of media and scholarly works. '^ Mass
child sexual abuse cases blanket the evening news: McMartin in Los
Angeles, the Jordan case in Minnesota, Country Walk in Florida, and
others.^' Increased societal cognizance of child sexual abuse is in large
part attributable to the implementation of mandatory reporting require-
ments.^^ Various statutory reporting schemes require medical personnel,
educators, relatives, social workers and even attorneys to report abuse. '^
However, even the increased reporting requirements fail to reveal the
true scope of the problem. Incest, the most intimate form of child sexual
abuse, is commonly unreported. '"^ Often, the perpetrator, if not a family
7. Protecting Children, supra note 4, at 32.
8. Id. at 31-36.
9. Id. at 32.
10. Id. Mass child sexual abuse cases blanket the evening news: McMartin in Los
Angeles, the Jordan case in Minnesota, Country Walk in Florida, and others.
11. Id. The McMartin case is reported as McMartin v. County of Los Angeles,
202 Cal. App. 3d 848, 249 Cal. Rptr. 53 (1988).
12. Besharov, Child Protection: Past Progress, Present Problems, and Future Di-
rections, 17 Fam. L.Q. 151, 153-55 (Summer 1983).
13. Note, Sexually 4bused Children: The Best Kept Legal Secret, 3 Hum. Rts.
Ann. 441, 443-44 (1986) [hereinafter Sexually Abused Children].
14. Id. at 445.
1989] STATUTE OF LIMITATIONS 991
member, is a relative or an adult known to the victim.'^ An estimated
90% of all cases involving female victims under the age of 12 are not
reported to the police. ^^ Although estimates of the extent of child sexual
abuse vary widely, the problem is unquestionably of major magnitude.
Child sexual abuse inflicts staggering economic, psychological and
social costs on society and its victims. These costs are "taken out of
[the victims'] current and future health, happiness, and . . . produc-
tivity. ... In effect, a large mortgage on their future life is taken out
when children's legal interests are not satisfied. . . ."^^ The abused child
often becomes the abuser.'^ Other long-term effects may include a pro-
pensity for promiscuity and prostitution as well as a predisposition to
engage in sexually abusive relationships.^^ Various studies indicate other
long-term effects including anxiety, pseudo-seductive behavior, substance
abuse, sexual dysfunction, homosexuality and various forms of psychosis
such as depression and suicidal obsession. ^^
In response to public outcries over the scope and treatment of the
child sexual abuse problem, the criminal justice system initiated numerous
15. Lloyd, Corroboration of Sexual Victimization of Children, Child Sexual
Abuse and the Law 122, n.88 (A.BA. Nat'l Legal Resource Ctr. For Child Advoc. And
Prot. (5th ed. 1984)).
16. Libai, Protection of the Child Victim, 15 Wayne L. Rev. 977, 1016, n.l34
(1969) [hereinafter Protection of the Child Victim].
17. Miller & Miller, Protecting the Rights of Abused and Neglected Children, 19
Trlal 68, 72 (June 1983) [hereinafter Protecting the Rights] (quoting Bross & Munson,
Alternative Models of Legal Representation for Children, 5 Okla. City U.L. Rev. 561
(1980)). Child Abuse & Neglect; supra note 1, at 2. The author notes that the initial
costs for child protective services is $10,000 per case, exclusive of legal costs. Psychological
care may run as high as $24,(XX) per year. Thus, a conservative estimate of $50,000 a
year per case is given. Id.
18. DeRose, Adult Incest Survivors and the Statute of Limitations: The Delayed
Discovery Rule and Long Term Damages, 25 Santa Clara L. Rev. 191 (1985) [hereinafter
Adult Incest Survivors.] The well-documented fact that abused children frequently become
child abusers is noted as follows;
In nearly all of the studies of male sexual offenders that have been done to
date, well over half or in some cases nearly three-quarters of the men studied
who are serving time in prison were found to have been sexually abused as
young boys. . . . Therefore . . . from generation to generation, emotional, phys-
ical and sexual abuse are behaviors exhibited by men who most likely experienced
such abuse in their own childhoods. Sadly, what these men learned from their
parents, they learned too well.
Id. at 218, n.l39 (quoting S. Butler, Conspiracy of Silence: The Trauma of Incest
67 (1978)).
19. Note, Sexually Abused Children, supra note 13, at 452.
20. Id. See also J. Herman, Father-Daughter Incest 105 (1981); B. Justice &
R. Justice, The Broken Taboo: Sex in the Family 184-5 (1979); S. Butler, Conspiracy
of Silence: The Trauma of Incest 121 (1978); Adult Incest Survivors, supra note 18,
at 194; Child Abuse and Neglect, supra note 1, at 4-5.
992 INDIANA LAW REVIEW [Vol. 22:989
reforms in an effort to address the needs of child abuse victims. ^^ For
example, commentators and critics propose that child abuse victims testify
on videotaped recordings, thus reducing the trauma experienced by child
abuse victims in testifying. ^^ Additionally, numerous jurisdictions prom-
ulgated mandatory reporting requirements to increase the likelihood that
child sexual abuse will be discovered. ^^ Thus, increased societal cognizance
has encouraged the judiciary and legislature to adopt meaningful measures
to assist the child abuse victim.
B. Barriers to Prosecution of Abusers
As a preliminary barrier to prosecution, one must recognize the
gross disparity between victim and offender in terms of power, knowledge
and resources.^"* Adults and older children utilize this disparity to psy-
chologically manipulate the victim. ^^ In the case of incest, the victim is
even more vulnerable, for the differences in power, knowledge and
resources are multiplied by the victim's dependence upon the offender
for Hfe's basic necessities.^^
Very limited force is required to molest a child. The child victim
is seldom able to understand the significance or wrongfulness of the
perpetrator's conduct. ^^ Over 75^o of reported incest cases involve father-
daughter relations. ^^ The father's position as an authority figure may
be utilized to persuade the child to acquiesce. Although the request may
seem unpleasant, distasteful, or even frightening, the child may be
motivated by a strong desire not to displease the offender.^^ In other
cases, the child may be assured that the activity is perfectly normal.
21. See Comment, Child Sexual Abuse in California: Legislative and Judicial
Responses, 15 Golden Gate U.L. Rev. 437 (1985). The article deals with proposed and
adopted alterations to California's system. Many of the procedures have been adopted by
other states, for example, the revision of reporting requirements.
22. See Note, Sexually Abused Children, supra note 13, at 478-80.
23. See, e.g., Cal. Penal Code §§ 11165-11166 (West Supp. 1985). California's
bill requires teachers, social workers, probation officers, psychologists, coroners, police,
physicians, surgeons, dentists and numerous others to report suspected cases of child
abuse. Id.
24. ten Bensel, Child Abuse and Neglect: Definitions of Child Neglect and Abuse,
35 Juv. & Fam. Ct. J. 23, 29 (Winter 1984) [hereinafter Definitions of Child Neglect].
25. Id.
26. Id.
27. Note, Balancing The Statute Of Limitations And The Discovery Rule: Some
Victims Of Incestuous Abuse Are Denied Access To Washington Courts - Tyson v. Tyson,
10 U. PuGET Sound L. Rev. 721, 727 (1987) [hereinafter Balancing The Statute Of
Limitations].
28. Note, Sexually Abused Children, supra note 13, at 445 n.l8.
29. Note, The Crime of Incest Against the Minor Child and the State's Statutory
Responses, 17 J. Fam. L. 93, 96 (1978-79) [hereinafter Incest Against the Minor Child].
1989] STATUTE OF LIMITATIONS 993
given the relationship between the adult and child. ^° Whether the cause
of the offense is a disparity in power, knowledge or resources, the
common result is an unwillingness or inability on the part of the child
to report the offense.
Most children never tell anyone about the sexual encounter.^' An
estimated 75% to 90<^o of incest victims reach adulthood without revealing
the incident(s).^^ The failure or inability of the child to report the offense
may be motivated by one of several factors. First, incest victims may
be ashamed or embarrassed, believing themselves to be the cause of the
attack." Other incest victims, frightened by the offender's threats, fear
that the innocent parent will break-up the family. ^"^ Other children fear
that revealing the relationship will encourage the father's anger, rejection
or physical harm.^^ The child may fear her father will be imprisoned, ^^
or at a minimum, that her mother will blame her.^^
Another major cause of unreported offenses stems from the child's
mental defense mechanisms. To cope with undisclosed victimization,
children frequently mentally block-out the abuse. ^^ As a result, the child
may not remember or divulge the abuse for years. ^^ Compounding the
problem of non-reporting by child victims is the fact that incest occurs
30. Id.
31. Definitions Of Child Neglect, supra note 24, at 31.
32. Adult Incest Survivors, supra note 18, at 194.
33. Definitions Of Child Neglect, supra note 24, at 30.
34. Balancing the Statute of Limitations, supra note 27, at 727.
35. Id.
36. Id.
37. Id. Dr. Judith Herman, a noted expert in father-daughter incest at Harvard
Medical School summarizes such incest as follows:
Incestuous abuse usually begins when the child is between the ages of six and
twelve, though cases involving younger children, including infants, have been
reported. The sexual contact typically begins with fondling and gradually proceeds
to masturbation and oral-genital contact. Vaginal intercourse is not usually
attempted until the child reaches puberty. Physical violence is not often employed,
since the overwhelming authority of the parent is usually sufficient to gain the
child's compliance. The sexual contact becomes a compulsive behavior for the
father, whose need to preserve sexual access to his daughter becomes the or-
ganizing principle of family life. The sexual contact is usually repeated in secrecy
for years, ending only when the child finds the resources to escape. The child
victim keeps the secret, fearing that if she tells she will not be believed, she
will be punished, or she will destroy the family.
Note, Civil Claims of Adults Molested as Children: Maturation of Harm and the Statute
of Limitations Hurdle, 15 Fordham Urb. L.J. 709, 716 (1987) (quoting Herman, Rec-
ognition And Treatment Of Incestuous Families, 5 Int'l J. Fam. Therapy 81, 82 (C.
Barnard Ed. 1983)).
38. Task Force On Family Violence, supra note 6, at 103.
39. Id.
994 INDIANA LAW REVIEW [Vol. 22:989
in secrecy and exhibits few outwardly detectable signs. "^^ Thus, if the
child does not report, the abuse may continue unnoticed.
Once abuse is reported, the chance of prosecuting the abuser is low.
A mere 24% of all child sexual abuse cases result in criminal action."*^
Once reported, familial indecision"*^ or prosecutorial discretion"*^ may
preclude criminal prosecution. Thus, the vast majority of child sexual
abuse incidents go unreported or unprosecuted.
A final impediment to prosecution is the tolling of the statute of
limitations. Most criminal statutes of limitations accrue from the date
of the offense."*"* Thus, by the time the child becomes emotionally or
psychologically capable of confronting the experience and seeks legal
redress, the statutory period for prosecution may have expired."*^ Fre-
quently, disclosure may not occur for one to three years subsequent to
the offense."*^
C Changing Statutes of Limitations to Increase the Likelihood of
Prosecution
The emotional and psychological barriers to reporting child sex abuse
frequently foreclose the victim's opportunity for legal redress and preclude
societal intervention."*^ Obviously, the opportunity for legal redress varies
40. Note, Incest Against The Minor Child, supra note 29, at 96.
41. Sexually Abused Children, supra note 13, at 446. Even after detection, pros-
ecution is impeded by (1) social skepticism about the reliability of the child's accusations;
(2) classification of pedophilia as a mental disorder rather than a criminal offense; (3)
procedural systems which traumatize the victim; and (4) reluctance of prosecutors to pursue
prosecutions where the case rests primarily upon the content and stability of the child's
testimony. Id.
42. Id. at 448-49.
43. See supra note 41,
44. Task Force on Family Violence, supra note 6, at 103. Of the jurisdictions
addressing the issue of retroactive application of the enlarged limitations period within
the context of child sexual abuse offenses, the following states have statutes of limitations
accruing from the commission of the offense: CaUfornia, Cal. Penal Code §§ 800, 801
(West 1985); Colorado, Colo. Rev. Stat. § 18-3-411(2) (1986); Texas, Tex. Crim. Proc.
Code Ann. § 12.01 (Vernon 1977, 1988 Supp.); Washington, Wash. Rev. Code Ann.
§ 9A.04.070 (1988). In the remaining two jurisdictions, the limitations period accrues from
the time the minor reaches the age of 16: Alaska, Alaska Stat. § 12.10.030(c) (1984)
(The period runs from the earlier of the victim attaining the age of 16, or the report to
a peace officer. The section does not extend the limitations period by more than five
years.); Massachusetts, Mass. Gen. Laws Ann. ch. 277, § 63 (West 1972, Supp. 1988)
(The limitations period commences at the earlier of the victim attaining the age of 16,
or the report to a law enforcement agency.
45. Task Force on Family Violence, supra note 6, at 103.
46. Definitions of Child Neglect, supra note 24, at 30.
47. Task Force on Family Violence, supra note 6, at 103.
1989] STATUTE OF LIMITATIONS 995
in direct proportion to the length and accrual date of the limitations
period. Limitations periods commencing at the date of the offense and
expiring within five years are currently the norm/^ However, lesser
limitations periods still exist /^ The statute of limitations in these juris-
dictions remains a major impediment to legal redress.
In recognition of the delays common in the reporting of child sex
abuse, the United States Attorney General recommended that the states
enlarge the statutes of limitations so as to commence from the date of
the victim's disclosure. ^°
Where legislatures respond to these concerns by extending the lim-
itations period,^' retroactive application may become an issue in imple-
menting the revised statute. Several policy considerations support a
presumption for retroactive application. First, retroactive application
furthers the goal of reducing barriers to the prosecution of offenders
and of permitting victims an opportunity for legal redress. ^^ Abused
children must recognize that society is concerned with their plight and
that children's rights are being actively protected. Retroactive application
of enlarged Hmitations periods channels the benefits of increased societal
and legislative awareness to those children who have been abused, rather
than merely protecting the abused children of tomorrow. Early societal
intervention diminishes the psychological costs children pay by permitting
prompt psychological care, and also by preventing additional abuse at
the hands of the offender. Children, not adults, are the judges of our
present civilization."
A second policy consideration supporting retroactive application is
the need to permit child abuse victims a day in court. The American
legal system is designed to channel conflict resolution from the streets
into the court system. ^"^ Fundamental to the operation of the legal system
is the requirement that each litigant have his or her '*day in court."
Although in the criminal context it is the prosecution, not the victim.
48. See, e.g., Idaho Code § 19-40 (1987) (prosecution must be commenced within
5 years after offense committed); Kan. Crim. Code Ann. § 21-3106 (1971, Supp. 1988)
(prosecution must be commenced within 5 years after offense committed).
49. See, e.g.. Ark. Stat. Ann. § 5-1-109 (1987) (prosecution must be commenced
with 3 years after commission; first degree child sexual abuse is a class C felony per 5-
14-108).
50. Task Force on Family Violence, supra note 6, at 103.
51. See, e.g.. Commonwealth v. Bargeron, 402 Mass. 589, 593, 524 N.E.2d 829,
831-32 (1988); State v. Hodgson, 108 Wash. 2d 662, 666, 740 P.2d 848, 850 (1987).
52. As well, society obtains an opportunity to deter, rehabilitate or incarcerate the
offender.
53. Protecting the Rights, supra note 17, at 72.
54. See, e.g., H. Grilliot, Introduction to Law and the Legal System 3 (2d
ed. 1979); 1 C. Torcia, Wharton's Criminal Law 1 (14th Ed. 1978).
996 INDIANA LAW REVIEW [Vol. 22:989
who has his *'day in court," the victim may experience reUef and
satisfaction from the defendant's prosecution, and thus indirectly, have
his own day in court. The statute of limitations limits this right by
forcing the party to bring his or her action in a timely manner or be
forever barred. In the civil context, the use of exceptions to the limitations
period's accrual such as the ** discovery rule," limits the harshness im-
posed by stringent apphcation of the limitations period. ^^
Retroactive apphcation of revised statutes of limitations can serve
a similar function in the context of child sexual abuse.
In the criminal context, the state and not the injured party prosecutes
the action. In the civil context, the prospective plaintiff is generally
cognizant of the injury when it occurs, and as a result, may bring an
action in a timely manner. In the context of child sexual abuse the state
is powerless to prosecute the child sex abuse offender until the state is
informed of the offense. As discussed above, a variety of physical,
emotional and psychological factors prevent the victim from reporting
the offense. ^^ As a result of this delay in reporting the offense, the
hmitations period and the state's right to prosecute may expire prior to
the time a child reports the offense.
A final poUcy consideration compelling retroactive application of
the enlarged limitations period is the need to punish the offender. One
of the principal functions of criminal law is to deter the offender and
all aspiring offenders.^^ The deterrence theory is predicated upon the
belief that individuals are rational, hedonistic beings. ^^ The unpleasantness
of punishment, coupled with its certainty, deter the offender from re-
peating his lawless conduct. ^^ A secondary benefit of the deterrence
theory is the intimidation of potential offenders.^ Thus, both the offender
and the potential offender, faced with the certainty of severe punishment,
will Hkely refrain from committing a contemplated crime.^'
55. See, e.g., N.Y. Civ. Prac. L. & R. 214-c (McKinney Supp. 1987). This statute
provides in pertinent part:
*'[W]here the discovery of the cause of the injury is alleged to have occurred
less than five years after discovery of the injury or when with reasonable diligence
such injury should have been discovered, whichever is earlier, an action may
be commenced . . . within one year of such discovery of the cause of the injury."
Id.
56. See supra notes 24-39 and accompanying text.
57. 1 C. ToRCiA, supra note 54, § 3. Criminal law may be premised upon any of
three theories; deterrence, retribution or reformation. The deterrence theory is particularly
appropriate for child sexual abuse offenses because of its focus upon the individual
offender. Id.
58. Id.
59. Id.
60. Id.
61. Id.
1989] STATUTE OF LIMITATIONS 997
Studies reveal that child sex abusers are extremely likely to continue
their nefarious conduct, absent societal intervention. ^^ Documentation of
unreported sexual assaults against children dramatize the magnitude of
the problem. ^^ A study of first offenders^'* demonstrated that many
offenders commit numerous offenses prior to prosecution or conviction. ^^
Additionally, sexual offenders avoid detection approximately twice as
often as they are apprehended.^^ These figures are conservative estimates,
given the fact that the majority of offenses go unreported, while numerous
others go unrecognized by the criminal justice system.^'' Therefore, absent
societal intervention, most offenders will continue their activities un-
impeded.
The typical pedophile commits his first offense as an adolescent. ^^
Pedophiles are likely to continue their illicit activities once commenced. ^^
Thus, from a societal perspective, the opportunity for societal intervention
at the earliest possible juncture is imperative so as to maximize deterrence.
To be an effective deterrent, the punishment must be certain and severe. ^^
Retroactive application of the revised statute of limitations maximizes
society's opportunities for intervention, and therefore, increases the de-
terrent effect of criminal punishment. Furthermore, early intervention
extirpates the offender from his criminal habitat, protects the child from
continued victimization, and terminates the offender's reign of terror.
Critics contend that society has overreacted to the perceived demon,
child sexual abuse. ''^ Conceivably, this position has merit. However, at
either extreme, either over or under reporting, truth seldom resides. ^^
Legislatures mandate longer prison sentences for convicted child sexual
offenders, while reducing judicial sentencing discretion.^^ Despite these
62. See Groth, Longo, & McFadin, Undetected Recidivism Among Rapists and
Child Molesters, 28 Crime and Delinq. 450, 451 [hereinafter Undetected Recidivism]; but
see B. Karpan, The Sexual Offender and His Offenses 276-78 (New York 1954).
63. Undetected Recidivism, supra note 62, at 453.
64. Here, meaning those who experienced a first conviction, and not necessarily
their first offense.
65. Undetected Recidivism, supra note 62, at 453-54. The study's authors interviewed
offenders at correctional facilities in Connecticut and Florida. The number of undetected
sexual assaults reported by the subjects ranged from 0 through 250. Undetected assaults
averaged 4.7, representing the number of different victims molested, rather than the number
of sexual contacts. Id. Additionally, sexual offenders avoid detection approximately twice
as often as they are apprehended.
66. Id. at 456.
67. Id. at 457.
68. Id. at 450.
69. Id. at 451.
70. 1 C. ToRciA, supra note 54, § 3.
71. Protecting Children, supra note 4 at 39.
72. Id.
73. Id.
998 INDIANA LAW REVIEW [Vol. 22:989
perceived overreactions, increased societal cognizance has resulted in the
correction of at least one glaring impediment to criminal prosecution
of the child sexual abuser, that is, the short statute of limitations period.
III. State Court Approaches To the Interpretation and
Application of Legislatively Enlarged Statutes of Limitations
FOR THE Criminal Prosecution of Child Sexual Abuse Offenses
Within the criminal context, '''* the courts of six'^^ jurisdictions have
addressed the issue of the interpretation and application of legislatively
enlarged statutes of limitations for child sexual abuse offenses. In in-
terpreting and applying these statutes, the courts have appUed a variety
of procedures. ^^ However, a two-step analysis predominates. First, the
court must determine whether the revised statute survives ex post facto
analysis; then, the court must determine how to interpret and apply the
statute.
A. Ex Post Facto Analysis
The United States Constitution expressly prohibits the states from
enacting ex post facto laws.^^ An ex post facto law, to be considered
impermissible in the criminal context, "must be retrospective; that is,
it must apply to events occurring before its enactment and must dis-
advantage the offender affected by it."^^ The classic exposition of ex
14. This note is expressly limited to criminal prosecutions for child sex abuse. The
statute of limitations is characterized differently within the civil context such that factors
including minority or incapacity may apply so as to prevent the running of the statute
of limitations until the child attains majority.
75. Those jurisdictions are: Alaska, California, Colorado, Massachusetts, Texas
and Washington. A majority of the states have addressed the same issue within the general
criminal statute of Hmitations context. As explained within this note, the state courts have
reached diverse results using varied analysis. See, e.g., State v. Paradise, 189 Conn. 356,
456 A. 2d 305 (1983) (absent clear legislative intent requiring retroactive application, criminal
statute of limitations applied prospectively; court did not determine whether the statute
of limitations is procedural or substantive); Rubin v. State, 390 So. 2d 322, 324 (Fla.
1980) (statute of limitations is a substantive right, and so statute of limitations in effect
at time of offense is controlling).
76. Cf. State v. Creekpaum, 732 P.2d 557 (Alaska Ct. App. 1987), rev'd, 753
P. 2d 1139 (Alaska 1988) (statute of hmitations vests a substantive right; therefore, retroactive
application of enlarged period prohibited); Archer v. State, 557 S.W.2d 244 (Tex. Crim.
App. 1979) (statute may be applied to all offenses not time-barred); State v. Hodgson,
108 Wash. 2d 662, 740 P. 2d 848 (1987) (statute of limitations is procedural; thus, judicial
presumption of retroactivity requires retrospective application of revised statute).
77. U.S. Const, art. I, § 10, cl. 1.
78. Weaver v. Graham, 450 U.S. 24, 29 (1981).
1989] STATUTE OF LIMITATIONS 999
post facto laws is found in the seminal case of Calder v. Bull,'^^ which
states:
1st. Every law that makes an action done before the passing of
the law, and which was innocent when done, criminal; and
punishes such action. 2d. Every law that aggravates a crime, or
makes it greater than it was, when committed. 3d. Every law
that changes the punishment, and inflicts a greater punishment
than the law annexed to the crime, when committed. 4th. Every
law that alters the legal rules of evidence, and receives less, or
different testimony, than the law required at the time of the
commission of the offence, in order to convict the offender.^°
The ex post facto prohibition was intended "to secure substantial
personal rights against arbitrary and oppressive legislation, but not to
Hmit legislative control of remedies and modes of procedure which do
not affect matters of substance. "^^ Thus, although the category of
retroactive changes forbidden by the ex post facto clause includes more
than just the elements and punishment for a crime, the prohibition, as
defined in Calder v. Bull,^^ arguably does not extend to a retroactive
appHcation of the statute of limitations because extension of the statute
of limitations performs none of the impermissibles forbidden by the
Calder decision.
A fundamental issue in determining whether or not retroactive ap-
plication of an enlarged statute of limitations is barred by the ex post
facto prohibition is whether the statute of limitations vests substantive
rights in the accused, or is merely a procedural barrier. If the statute
vests substantive rights, then retroactive application of the statute of
Hmitations should be prohibited by the ex post facto clause. If the statute
is merely procedural, and vests no substantive rights, the enlarged statute
of limitations survives ex post facto scrutiny.
In the context of child sexual abuse, few states have determined
that statute of Hmitations vests substative rights in the accused. ^^ However,
the "substantive vested rights" analysis is important to understanding
the "time-barred" approach, and the argument for more expansive
retroactive application of enlarged statutes of limitations. One case which
illustrates the substantive versus procedural rights analysis, and the vague-
79. 3 U.S. (1 Dall.) 386 (1798).
80. Id. at 390.
81. Beazell v. Ohio, 269 U.S. 167, 170-71 (1925).
82. 3 U.S.(1 Dall.) 386 (1798).
83. See, e.g., People v. Sweet, 207 Cal. App. 3d 78, 84, 254 Cal. Rptr. 567, 571
(1989). Additionally, both Florida and Alabama have held that the statute of limitations
is substantive within the general eriminal context.
1000 INDIANA LAW REVIEW [Vol. 22:989
ness and uncertainty involved in the definition of an ex post facto law,
is State v. Creekpaum.^'^ In Creekpaum the Alaska Court of Appeals
held that a criminal statute of limitations vests a substantive right in
the defendant;^^ the Alaska Supreme Court, in overturning the decision,
held that the statute of limitations is procedural, and as such, extension
prior to the original period's expiration does not violate either the United
States or the Alaska Constitution.^^
The Alaska Court of Appeals determined that to be classified as
substantive for purposes of ex post facto analysis, a change in the law
must merely adversely affect the defendant, and operate so as to place
the defendant "at a disadvantage in relation to the substance of the
offense charged or the penalties prescribed for that offense.''^'' The
Alaska Court of Appeals found Weaver v. Graham^^ dispositive. In
Weaver, the United States Supreme Court stated that although the
** substantive vested rights" theory^^ is useful for due process analysis,
the theory is irrelevant to the question of whether a change is substantive
or procedural for ex post facto purposes. ^° Critical to ex post facto
analysis is
the lack of fair notice and governmental restraint when the
legislature increases punishment beyond what is prescribed when
the crime was consummated. Thus, even if a statute merely alters
penal provisions accorded by grace of the legislature, it violates
the Clause if it is both retrospective and more onerous than the
law in effect on the date of the offense.^^
The court of appeals found that retrospective application of the enlarged
limitations period disadvantaged the offender affected by the change and
was more onerous than the law in effect at the time of the offense.
Thus, the Alaska Court of Appeals held that the ex post facto clauses
of the federal and Alaska Constitutions prohibit retrospective change in
a criminal statute of Hmitations.^^
84. 732 P.2d 557 (Alaska Ct. App. 1987), rev'd 753 P.2d 1139 (Alaska 1988).
85. 732 P.2d at 569.
86. 753 P.2d at 1144.
87. Id. at 560. See Thompson v. Utah, 170 U.S. 343 (1898) ("[A] statute is ex
post facto which ... in its relation to the offense or its consequences, alters the situation
of the accused to his disadvantage.").
88. 450 U.S. 24 (1981).
89. See Falter v. United States, 23 F.2d 420, 425 (2d Cir.), cert, denied, 277 U.S.
590 (1928).
90. Weaver, 450 U.S. at 29-30.
91. Id. at 30-31.
92. State v. Creekpaum, 732 P.2d 557, 568 (Alaska Ct. App. 1987).
1989] STATUTE OF LIMITATIONS 1001
After determining that the constitutional prohibition was not limited
to retroactive changes in the elements of or punishment for a crime, ^^
the court of appeals addressed the issue of whether the criminal statute
of limitations vests a substantive right upon the accused. ^"^ Preliminarily,
the court opined that the legislature may not revive an expired statute
of limitations.^^ The court then reviewed historical precedents, noting
that Alaskan courts had previously held that a civil statute of limitations
was substantive, not procedural. ^^ Additionally, criminal statutes of lim-
itations had been held to be substantive, but only within other decisional
contexts and not for purposes of ex post facto analysis.^'' The Hne
dividing ''substance and procedure shifts as the context changes . . .
[and] implies different variables depending upon the particular problem
for which it is used."^^ The Creekpaum court recognized that the dis-
tinction between a procedural and substantive change "cannot be reduced
to a simple formula," but must be determined on a "case-by-case basis. "^^
The Creekpaum court rejected the argument that the statute of Umitations
is a mere limitation upon the remedy, ^^ instead finding that because
the statute of Umitations Umits the circumstances under which guilt can
be found and is intended to preserve the accuracy and basic integrity
of the adjudicatory process in criminal procedure, the statute operates
as a substantive right for purposes of ex post facto analysis. ^^* Thus,
without directly addressing the issue of legislative intent, the court forbade
retroactive application of legislatively enlarged criminal statutes of lim-
itations. ^^^
93. Creekpaum, 732 P. 2d at 563-64.
94. Id. at 564.
95. Id. at 560-61. See also Falter v. United States, 23 F.2d 420 (2d Cir.), cert,
denied. 111 U.S. 590 (1928).
Certainly it is one thing to revive a prosecution already dead, and another to
give it a longer lease of life. The question turns upon how much violence is
done to our instinctive feelings of justice and fair play. For the state to assure
a man that he has become safe from its pursuit, and thereafter to withdraw
assurance, seems to most of us unfair and dishonest. But, while the chase is
on, it does not shock us to have it extended beyond the time first set, or if it
does, the stake forgives it.
Id. at 425-26.
96. Creekpaum, 732 P. 2d at 566. See Nolan v. Sea Airmotive, Inc., 627 P. 2d 1035
(Alaska 1981).
97. See State v. Freeh Funeral Home, 185 N.J. Super 385, 448 A.2d 1037 (1982).
98. Hanna v. Plumer, 380 U.S. 460, 471 (1965). A court may seek to ascertain
the differences between substance and procedure in the following contexts: conflict of
laws, retrospective application of statutes and law-making. Busik v. Levine, 63 N.J. 351,
364-65, 307 A.2d 571, 578-79 (1973).
99. Creekpaum, 132 P. 2d at 562.
100. Id. at 567.
101. Id. at 568.
102. Id.
1002 INDIANA LAW REVIEW [Vol. 22:989
The appellate court premised its decision to classify the statute of
Hmitations as substantive largely upon the belief that, because the en-
actment of the statute serves notice to the accused of the period for
which he must be prepared to defend his act, "basic fairness militates
against requiring the accused to defend his acts once the period . . .
has expired. "^°^ Although the decision is laudable for its effort to preserve
the rights of the criminally accused, the court failed to consider or
address the legislature's intent or the child victim's right to legal redress.
On appeal, the Alaska Supreme Court reversed, holding that criminal
statutes of limitations are procedural'^"* and as such, extension of the
statute prior to the original period's expiration does not violate the
United States or Alaska Constitutions. '°^ Like both lower courts, the
Alaska Supreme Court found Weaver v. Graham^^^ dispositive. '^^ In
Weaver, the petitioner challenged, on ex post facto grounds, a change
in Florida's statutory formula for the accrual of good time reductions
in prisoners' sentences. The change made accrual of good time reductions
more difficult, thus increasing the quantum of punishment suffered by
each inmate. The Supreme Court held that the statute violated the ex
post facto prohibition because it ''makes more onerous the punishment
for crimes committed before its enactment. "'^^
Creekpaum argued that the Weaver decision introduced a new analytic
approach to ex post facto analysis. '^^ In place of the vested rights
approach, ''° the court should focus upon only two criteria: (1) whether
the law was retrospective, and (2) whether the change disadvantaged the
offender affected by the change. *'• The Alaska Supreme Court rejected
Creekpaum 's argument, noting that the Weaver decision did not nuUify
existing ex post facto precedent.''^ Instead, the Creekpaum court found
that the holding in Weaver fell within the traditional prohibition an-
nounced in Calder v. BuW^^ because ''it focused on the change in the
103. Id. The court further stated that the statute of limitations defines "the outer
limit of delay, beyond which prosecution will not be tolerated, even where the government
has exercised good faith in attempting to file . . . and when the accused is incapable of
identifying prejudice . . . from the delay." Id.
104. State v. Creekpaum, 753 P.2d 1139, 1144 n.l3.
105. Id. at 1144.
106. 450 U.S. 24 (1981).
107. Creekpaum, 753 P.2d at 1140.
108. 450 U.S. at 36.
109. 753 P.2d at 1141.
110. See Falter v. United States, 23 F.2d 420, 425 (2d Cir.), cert, denied, 277 U.S.
590 (1928).
111. Creekpaum, 753 P.2d at 1141.
112. Id.
113. 3 U.S. (1 Dall.) 386, 390 (1798).
1989] STATUTE OF LIMITATIONS 1003
quantum of punishment Weaver suffered as a result of the new law."^'"^
The Creekpaum court then applied a two-step test. First the court
noted that the revised statute of limitations was explicitly retroactive.'^^
Second, the court rejected Creekpaum's argument that the new law was
more onerous simply because Creekpaum remained liable for prosecution
when he would have been immune under the old statute.''^ The court
determined that the extension of the statute of limitations was a mere
procedural change' '^ and, applying the Calder v. Bull test,''^ found that
retroactive application did not violate the ex post facto clause because
the change neither made conduct criminal which was innocent when
undertaken, aggravated a crime, permitted more severe punishment than
permissible when the crime was committed, nor altered the rules of
evidence to permit conviction on different or lesser testimony than
permissible when the crime was committed.''^
B. Analysis of Court's Interpretation and Retroactive Application of
Enlarged Statues of Limitation
If the enlarged statute of limitations survives a facial ex post facto
analysis (i.e., the statute does not vest the defendant with a substantive
right), the issue becomes whether the enlarged statute of limitations
should be retroactively applied, and if so, whether the application is
limited solely to offenses not time-barred as of the statute's effective
date. The determinative question is whether prosecution is legally per-
missible as of the new statute's effective date.
Typically, courts' analysis rests upon what has become a fundamental
precept of criminal law, that is, the legislature may not extend the statute
of limitations so as to revive an offense already time-barred. '^° However,
unless prospective appHcation is expressly mandated, a statute which
extends the limitations period applies to all offenses not time-barred as
of the statute's effective date, "so that a prosecution may be commenced
at any time within the newly established period, although the old period
of Hmitations has then expired.'"^' Thus, the principal consideration is
114. Creekpaum, 753 P.2d at 1142.
115. Id,
116. Id.
117. Id. at 1144, n.l3.
118. 3 U.S. (1 Dall.) 386, 390 (1798).
119. Creekpaum, 753 P.2d at 1143.
120. See Falter v. United States, 23 F.2d 420, 425-26 (2d Cir.) cert, denied 111
U.S. 590 (1928) Sobiek v. Superior Ct., 28 Cal. App. 3d 846, 850, 106 Cal. Rptr. 516,
519 (1972).
121. Archer v. State, 577 S.W.2d 244. See Hill v. State, 146 Tex. Crim. 333, 171
S.W.2d 880 (1943). Thus, the principal consideration is whether the accused had acquired
a vested right to avoid prosecution as of the new statute's effective date.
1004 INDIANA LAW REVIEW [Vol. 22:989
whether the accused had acquired a vested right to avoid prosecution
as of the new statute's effective date.^^^ Traditionally, the new statute
will be applied only where the accused does not own a vested right to
avoid prosecution. ^^^ However, legislative intent, the doctrine of strict
construction, and judicial presumptions may limit the statute's appH-
cation. Generally, courts refuse to apply the statute to those defendants
against whom the right to prosecute has expired prior to legislative
extension, regardless of legislative intent. ^^"^
In discerning legislative intent as to the statute's retroactive appli-
cation, courts use three different approaches. In the first approach, the
revised statute applies prospectively in the absence of manifest legislative
intent to the contrary. ^^^ In the second approach, the revised statute
applies retrospectively in the absence of manifest legislative intent to the
contrary. '^^ Finally, where legislative intent is unclear, the courts apply
the statute either prospectively or retrospectively, depending upon judicial
presumptions and the judiciary's perception of legislative intent. '^^
In the first approach, the revised statute applies prospectively in the
absence of manifest legislative intent to the contrary. The bare deter-
mination that there is no ex post facto barrier to retroactive application
does not, without clear legislative intent, permit retroactive application.'^*
Clear legislative intent is necessary because, as a general rule, changes
122. See, e.g.. Archer v. State, 577 S.W.2d 244 (Tex. Crim. App. 1979); Hill v.
State, 146 Tex. Crim. 333, 171 S.W.2d 880 (1943).
123. Sobiek, 28 Cal. App. 3d at 850, 106 Cal. Rptr. at 519.
124. The majority opinion did not address Legislative intent in either Texas case.
In People v. Smith, 171 Cal. App. 3d 997, 217 Cal. Rptr. 634 (1985), the court addressed
the issue of legislative intent, citing People v. Smith, 161 Cal. App. 3d 1053, 208 Cal.
Rptr. 318 (1984) for the proposition that the revised statute may be retroactively applied
without express legislative intent. This proposition is premised on the existence of established
precedents permitting application of extended limitations periods to crimes committed
before the enactments and a legislative awareness of the court's existing judicial precedents.
Thus, the judiciary may infer that the legislature enacted the statute with the knowledge
and purpose that the revised statute would apply to all cases not time-barred. A presumption
of prospectivity "is to be applied only after, considering all pertinent factors, it is determined
that it is impossible to ascertain the legislative intent." Smith, 171 Cal. App. 3d at 1003,
217 Cal. Rptr. at 637.
125. See, e.g.. People v. Whitesell, 729 P.2d 985 (Colo. 1986); People v. Midgley,
714 P.2d 902 (Colo. 1986); People v. Holland, 708 P.2d 119 (Colo. 1985).
126. See, e.g.. State v. Hodgson, 44 Wash. App. 592, 722 P.2d 1336 (1986), affd
in part, rev'd in part, remanded in part, 108 Wash. 2d 662, 740 P.2d 848 (1987).
127. See, e.g.. Commonwealth v. Pellegrino, 402 Mass. 1003, 524 N.E.2d 835 (1988);
Tigges V. Commonwealth, 402 Mass. 1003, 524 N.E.2d 834 (1988); Commonwealth v.
Bargeron, 402 Mass. 589, 524 N.E.2d 829 (1988).
128. Holland, 708 P.2d at 120. See also United States v. Richardson, 512 F.2d 105
(3d Cir, 1975); State v. Paradise, 189 Conn. 346, 456 A.2d 305 (Conn. 1983).
1989] STATUTE OF LIMITATIONS 1005
in criminal statutes operate prospectively. ^^^ This presumption of pros-
pectivity is premised upon several maxims fundamental to criminal law.
A cardinal rule of statutory interpretation requires criminal statutes to
be strictly construed in favor of the accused'^^ and against the gov-
ernment.'^^ Second, criminal Hmitations statutes are interpreted liberally
in favor of repose. '^^ However, despite the existence of these two maxims,
it is commonly held that the words of a statute should be given their
fair meaning,'" and the statute interpreted in relation to the entire
enactment purpose.'^"*
A desire to protect the rights of the accused against disadvantageous
procedural changes which could result in abuse or attainder may underlie
the presumption for prospectivity.'^^ Today, however, statutes of limi-
tations are more likely to be liberally rather than strictly construed, '^^
and as a result, the presumption for prospectivity should carry less
weight. Where there is a presumption of prospective application, the
court may apply the presumption in the absence of clear legislative intent
to the contrary.
By rotely applying a presumption for prospective application, this
approach fails to address the victim's right of legal redress. Although
the presumption for prospectivity may have vahd application where both
129. See State v. Jones, 132 Conn. 682, 685, 47 A.2d 185, 187 (1946); Yates v.
General Motors Acceptance Corp., 356 Mass. 529, 531, 254 N.E.2d 785, 786 (1969).
130. Holland, 708 P.2d at 120. See also United States v. Wiltberger, 18 U.S. (5
Wheat.) 76, 94-95 (1820)
The rule that penal laws are to be construed strictly, is perhaps not much less
old than construction itself. . . . The case must be a strong one, indeed, which
would justify a court in departing from the plain meaning of words, especially,
in a penal act, in search of an intention which the words themselves did not
suggest. To determine that a case is within the intention of a statute, its language
must authorize us to say so. It would be dangerous, indeed, to carry the principle,
that a case which is within the reason or mischief of a statute, is within its
provisions, so far as to punish a crime not enumerated in the statute, because
it is of equal atrocity, or of kindred character, with those which are enumerated.
See 1 C. ToRciA, supra note 54, § 12.
131. United States v. Emmons, 410 U.S. 396, 411 (1973) ("this being a criminal
statute, it must be strictly construd, and any abiguity must be resolved in favor of lenity.").
132. United States v. Scharton, 285 U.S. 518, 522 (1932); Waters v. United States,
328 F.2d 729, 742 (10th Cir. 1965).
133. Singer v. United States, 323 U.S. 338 (1945).
134. 1 C. ToRCiA, supra note 54, § 12.
135. See Munzer, A Theory of Retroactive Legislation, 61 Tex. L. Rev. 425, 464-
65 (1982). The author suggests that retroactive changes in the statute of limitations are
impermissible because the changes carry a risk of abuse and attainder and also because
the changes are "unlikely to meet the special burden of justification applicable to all
retroactive laws affecting personal liberties." Id.
136. E. Crawford, The Construction of Statutes § 349 (1940).
1006 INDIANA LAW REVIEW [Vol. 22:989
victim and accused are of majority, and are equally competent to protect
their own rights, this presumption overcompensates for the accused's
perceived disadvantages within the criminal justice system and awards
the accused a decided advantage at the expense of the minor victim.
This is because prospective application guards against disadvantageous
procedural changes which operate to the detriment of the accused, but
prevents the victim, an individual who is often unaware of his rights
or powerless to protect them, from exercising his right to redress. '^"^
The second approach mandates retroactive application of the revised
statute in the absence of manifest legislative intent to the contrary. ^^*
In State v. Hodgson,^^^ the Washington Court of Appeals, although
recognizing that penal statutes are to be strictly construed in favor of
the accused, stated that the strict construction doctrine should not be
rotely appHed, but instead, the judiciary should examine the rationale
behind the doctrine to determine proper classification and application
of the revised limitations statute. ''^^ The strict construction doctrine applies
to penal statutes because *'it is unjust to convict a person without clear
notice to him that (1) his contemplated conduct is unlawful, and (2)
certain penalties will attach to that conduct. "''*• The effect of strict
construction is to raise a judicial presumption of prospectivity.^"^^ How-
ever, where a statute relates to practice, procedures or remedies and
does not affect a substantive or vested right, Washington courts reverse
the presumption, and apply a general rule whereby procedural statutes
are presumed to apply retroactively.^'*^ Therefore, to determine which
presumption is applicable, a court must determine whether the statute
of limitations operates as a substantive right or merely performs a
procedural function. ^"^ The Hodgson court, however, rejected a strict
substantive-procedural classification, finding that labeling the statute of
limitations as one or the other tends to obscure rather than clarify the
law.^'*^ The court therefore undertook to classify the statute of limitations
based upon definition and function rather than mere label. '"^^
137. See supra notes 24-56 and accompanying text.
138. See, e.g., State v. Hodgson, 44 Wash. App. 592, 722 P.2d 1336 (1986), aff'd
in part, rev'd in part, and remanded in part, 108 Wash. 2d 662, 740 P. 2d 848 (1987).
139. Id.
140. Hodgson, 44 Wash. App. at 602, 722 P.2d at 1342.
141. Id. See Commonwealth v. Broughton, 257 Pa. Super. 369, 377, 390 A.2d 1282,
1286 (1978).
142. Hodgson, 44 Wash. App. at 602, 722 P.2d at 1342.
143. Id. See Johnston v. Beneficial Management Corp., 85 Wash. 2d 637, 641, 538
P.2d 510, 514 (1975).
144. Hodgson, 44 Wash. App. at 602, 722 P.2d at 1342.
145. Id.
146. Id.
1989] STATUTE OF LIMITATIONS 1007
Emphasizing the fact that statutes of limitations are subject to the
will of the legislature,^'*^ the Hodgson court found that retroactive ap-
plication did not impair vested or substantial rights, provided however,
that the offense was not time-barred as of the statute's effective date.*'*^
This is so because "the statute is a mere regulation of the remedy,
subject to legislative control, and does not become a vested right until
the offense becomes time-barred. "^"^^
Because the statute of limitations approximates a procedural remedy
rather than a substantive right, the Hodgson court determined that
retroactive application did not violate the ex post facto clause. Applying
the equivalent of the Calder v. Bull test,^^^ the court permitted retroactive
application because increasing the limitation period neither aggravated
the crime, increased the punishment nor permitted the accused to be
convicted under rules permitting "lesser" testimony.'^' In the absence
of contrary legislative intent, the presumption of retroactivity applies to
the revised limitations statute.^" Thus, because the statute of limitations
is not substantive, the ex post facto clause permits retroactive application
of the enlarged limitations period in accordance with the judicial pre-
sumption of retroactive application.
The Hodgson court recognized the policy considerations underlying
the legislature's extension of the limitations period. '^^ Although failing
to cite the policy considerations as a factor in the decision permitting
retroactive appHcation, the court at least recognized the legislature's
intentions in extending the statute. '^"^ Thus, although not premising a
decision for retroactive application upon policy considerations, the court
147. Id. The court characterized statutes of limitations as ''matters of legislative
grace . . . [and] a surrendering by the sovereign of its right to prosecute." Id.
148. Id. Therefore, until the right to a dismissal is absolutely vested, the legislature
may change or repeal the limitations period. Id. See also Waters v. United States, 328
F.2d 739, 743 (10th Cir. 1964); Clements v. United States, 266 F.2d 397, 399 (9th Cir.),
cert, denied, 359 U.S. 985 (1959); Falter v. United States, 23 F.2d 420, 425 (2d Cir.),
cert, denied. 111 U.S. 590 (1928).
149. Hodgson, 108 Wash. 2d at 668, 740 P.2d at 851.
150. See supra text accompanying note 80; Calder v. Bull, 3 U.S. (1 Dall.) 386,
390 (1798).
151. Hodgson, 108 Wash. 2d at 669, 740 P.2d at 852.
152. Id.
153. Id. at 665, 740 P. 2d at 850. The court, citing the legislature's final reports,
noted that the limitations period was extended based upon experience showing that victims
of child abuse, due to fear, lack of understanding or manipulation by the offender, often
fail to report the abuse within the shorter limitations period. Although failing to cite the
policy considerations as a factor in the decision permitting retroactive application, the
court at least recognized the legislature's intentions in extending the statute.
154. Id. at 666, 740 P. 2d at 850.
1008 INDIANA LAW REVIEW [Vol. 22:989
nonetheless adopted a position which maximizes the protection of the
child abuse victim.
In the final approach, the legislature's intent is not manifestly ex-
pressed, and as a result, the court resorts to judicial presumptions and
the judiciary's perception of legislative intent to determine the revised
statute's application.
The mere fact that the legislature extends the statute of limitations
may support a presumption for retroactive application. ^^^ Where the
legislature fails to clearly express an intention as to the application of
the revised statute, a court may look to the various steps in the enactment
process to resolve any ambiguity. ^^^ In Commonwealth v. Bargeron, the
Massachusetts Supreme Court applied a two-step test to determine whether
the revised Umitations statute could be retroactively applied. '^^ Noting
that retroactive statutes are not per se unconstitutional,^^^ the court
applied the Calder v. Bull test,*^^ determining that extension of the statute
merely extends the time in which the government may prosecute, and
as such, extension did not violate the ex post facto prohibition.^^ The
court noted the absence of any express language evidencing the legis-
lature's intent for retroactive application.^^' The court noted however,
that the omission did not foreclose retrospective appUcation.'^^ Retroactive
statutes are unconstitutional only when, on a balancing of opposing
considerations, the statute is unreasonable.'^^ A court may consider '*the
precise evil which is targeted in legislation under review."'^ The intent
of the legislature, ascertained "from all the words construed by the
ordinary and approved usage of the language, considered in connection
with the cause of its enactment, the mischief or imperfection to be
remedied and the main object to be accompHshed, to the end that the
155. See, e.g.. Commonwealth v. Bargeron, 402 Mass. 589, 524 N.E.2d 829 (1988).
156. Commonwealth v. Collett, 387 Mass. 424, 433, 439 N.E.2d 1223, 1229 (1982).
157. Bargeron, 402 Mass. at 590, 524 N.E.2d at 830. Although the defendant was
not charged with sexual abuse of a minor, the court's reasoning was applied to two other
cases decided on the same date, both of which involved child sex abuse charges and
appUcation of the revised Umitations period.
158. League v. Texas, 184 U.S. 156, 161 (1902).
159. See supra text accompanying note 80; Calder v. Bull, 3 U.S. (1 Dall.) 386,
390 (1798).
160. Bargeron, 402 Mass. at 591, 524 N.E.2d at 830.
161. Id. at 592-93, 524 N.B.2d at 831.
162. Id. at 592, 524 N.E.2d at 831. See Commonwealth v. Greenberg, 339 Mass.
557, 578-79, 160 N.E.2d 181, 195 (1959).
163. See Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 14-20 (1976); American
Mfrs. Mut. Ins. Co. v. Commissioner of Ins., 374 Mass. 181, 189-90, 372 N.E.2d 520,
525 (1978).
164. Bargeron, 402 Mass. at 593, 524 N.E.2d at 832. See Commonwealth v. Collett,
387 Mass. 424, 432, 439 N.E.2d 1223, 1228-29 (1982).
1989] STATUTE OF LIMITATIONS 1009
purpose of its framers may be effectuated, "^^^ determines the reason-
ableness of retroactive application and the legislature's intent. Thus, the
court in Bargeron held there was no constitutional or statutory barrier
to retroactive application of the revised statute. '^^
The court in Bargeron concluded that the mere extension of the
limitations period for child sex abuse offenses furnished adequate in-
dication of the legislature's intention to permit retroactive application
of the revised statute. ^^"^ The court reasoned that the Massachusetts
legislature, recognizing the delays associated with a child's report of
sexual abuse, may have sought to accommodate such delays by extending
the Hmitations period. ^^^ The court, lauding the legislature for addressing
the child sexual abuse issue, determined that ''it is not reasonable to
assume that the Legislature intended to delay the application of the new
. . . statute of hmitations which would eventuate if the amendment
appUed only to crimes occurring after its enactment. "'^^ Thus, the court
reasoned that retroactive apphcation best reflected the legislature's in-
tentions in passing the revised statute. Moreover, the court buttressed
the decision in favor of retroactive application by noting that the statute
of hmitations is procedural, and as such, the judicial presumption of
retroactivity which apphes to non-substantive rights permits retroactive
application. *^° Thus, although the legislature omitted language requiring
retroactive application, the court found sufficient basis to permit ret-
rospective application through the use of a judicial presumption for
retroactivity, and the mere act of the legislature extending the limitations
period.
IV. The Proposal: A Uniform Approach to the Interpretation
AND Application of a Revised Limitations Statute
Where the legislature acts to extend the criminal statute of limitations
for child sex abuse offenses, strong pohcy considerations compel a
presumption of retroactivity, absent manifest legislative intent to the
contrary. This Note proposes that courts adopt an approach which
realistically balances the needs of both offender and victim in light of
the victim's inability to effectively protect his or her legal rights. Further,
this Note suggests that retroactive apphcation of an enlarged statute of
Hmitations does not violate the ex post facto prohibition, even if applied
165. Hanlon v. Rollins, 286 Mass. 444, 447, 190 N.E. 606, 608 (1934).
166. Bargeron, 402 Mass. at 594, 524 N.E.2d at 832.
167. Id. at 591-94, 524 N.E.2d at 831-32.
168. Id. at 593, 524 N.E.2d at 831-32.
169. Id. at 594, 524 N.E.2d at 832.
170. Id.
1010 INDIANA LAW REVIEW [Vol. 22:989
to offenses "time-barred" at the extension date. The difficulty of child
victims in obtaining legal redress, the need to afford the child victim
a day in court, and the need to prevent offenders from escaping pros-
ecution, collectively compel the application of a judicial presumption of
retroactivity. Moreover, the mere fact that the legislature has addressed
the issue by extending the statute of limitations may be construed as
intending retroactive application.^^'
A. Uniform Approach: A Presumption of Retroactivity
Retroactive application of a legislatively enlarged criminal limitations
period does not violate the constitutional prohibition against ex post
facto laws. The majority of jurisdictions addressing the issue held that,
for purposes of ex post facto analysis, the statute of limitations is
procedural. '^^ The statute of Umitations, in criminal contexts, is an act
of legislative grace'^^ and a surrendering of the sovereign's right to
prosecute. '^^ At common law, criminal limitations periods were nonex-
istent.'^^ The statute of limitations is clearly a reflection of pubHc will
and a matter of grace at least until such time as the limitations period
expires. '^^ In Chase Securities Corp. v. Donaldson, ^'^^ the Supreme Court
expounded upon the origin and application of statutes of limitations,
stating that:
[s]tatutes of limitation find their justification in necessity and
convenience rather than in logic. They represent expedients, rather
than principles. They are practical and pragmatic devices to spare
the courts from litigation of stale claims, and the citizen from
171. See Bargeron, 402 Mass. 589, 524 N.E.2d 829 (1988). "[I]t is not reasonable
to assume that the Legislature intended to delay the application of the new ten-year statute
of limitations which would eventuate if the amendment applied only to crimes occurring
after its enactment." Id. at 593, 524 N.E.2d at 832.
172. See, e.g.. United States ex rel. Massarella v. Elrod, 682 F.2d 688, 689 (7th
Cir.), cert, denied, 460 U.S. 1037 (1982); Clements v. United States, 266 F.2d 397, 399
(9th Cir.), cert, denied, 359 U.S. 985 (1959); Falter v. United States, 23 F.2d 420, 425-
26 (2d Cir.), cert, denied, 277 U.S. 590 (1928); State v. Ferrie, 243 La. 416, 144 So. 2d
380 (1962); State v. Merolla, 686 P.2d 244 (Nev. 1984); Rose v. State, 716 S.W.2d 162,
163 (Tex.App. 1986). But see, e.g., Stoner v. State, 418 So. 2d 171, 178 (Ala. Crim.
App. 1982) (statute of limitations in criminal context vests substantive right); Rubin v.
State, 390 So. 2d 322 (Fla. 1980) (statute of limitations vests substantive right in criminal
context).
173. State v. Hodgson, 108 Wash. 2d 662, 667, 740 P.2d 848, 851 (1987).
174. Id.
175. 1 C. ToRCiA, supra note 54, § 90.
176. See Falter v. United States, 23 F.2d 420, 425 (2d Cir.), cert, denied. 111 U.S.
590 (1928).
177. 325 U.S. 304 (1945).
1989] STATUTE OF LIMITATIONS 1011
being put to his defense after memories have faded, witnesses
have died or disappeared, and evidence has been lost. They are
by definition arbitrary, and their operation does not discriminate
between the just and the unjust claim, or the [a]voidable and
unavoidable delay. They have come into the law not through
the judicial process but through legislation. They represent a
public pohcy about the privilege to litigate. Their shelter has
never been regarded as what now is called a "fundamental" right
or what used to be called a "natural" right of the individual.
He may, of course, have the protection of the policy while it
exists, but the history of pleas of limitation shows them to be
good only by legislative grace and to be subject to a relatively
large degree of legislative control. '^^
However, mere categorization of the statute of limitations as sub-
stantive or procedural sidesteps the central question of the enlarged
limitations period's effect. '^^ Instead, courts should look to the nature
and function of criminal statutes of limitations.'^*^ Ex post facto laws,
as pronounced in Calder v. Bull,^^^ are those laws which (1) make an
act criminal which was innocent when done; (2) aggravate a crime or
make it greater than when committed; (3) increase the punishment; or
(4) alter the rules of evidence and require lesser or different evidence
to convict than that required at the time of the offense. '^^ The statute
of limitations' extension performs none of these impermissibles. The
statute's extension merely extends the time in which prosecution is per-
missible. As such, the legislature presumably could free an offense of
any limitations period or could provide for successive extensions of finite
periods. '^^ However, statutes should not be given a construction which
destroys or impairs a vested right. '^"^ Obviously, when the legislature
extends the statutory period prior to the expiration of the original period,
the accused has not obtained a vested right to be free from prosecution.
If expressly directed, the legislature may even apply the extended Hm-
178. M at 314 (citation omitted).
179. Hodgson, 108 Wash. 2d 662, 667, 740 P.2d 848, 851 (1987). See also State
V. Freeh Funeral Home, 185 N.J. Super 385, 389-90, 448 A.2d 1037, 1039 (quoting Busik
V. Levine, 63 N.J. 351, 364, 307 A. 2d 571, 578 (1973) ("it is simplistic to assume that
all law is divided neatly between 'substance' and 'procedure.' A rule of procedure may
have an impact upon the substantive result and be no less a rule of procedure on that
account. . . .").
180. Hodgson, 108 Wash. 2d at 667, 740 P.2d at 851.
181. 3 U.S. (1 Dall.) 386 (1798).
182. Id. at 390.
183. People v. Smith, 171 Cal. App. 3d 997, 1003, 217 Cal. Rptr. 634, 637 (1985).
184. E. Crawford, supra note 136, § 278.
1012 INDIANA LAW REVIEW [Vol. 22:989
itations period to revive "time-barred" claims. ^^^ The extension therefore,
does not divest the accused of a vested right. Thus, neither the Calder
ex post facto test, nor the vested rights theory prohibit retroactive
application of the enlarged period.
The strict construction doctrine is frequently utilized as a judicial
procedure, limiting retroactive application unless clearly required by
express language or necessary implication. ^^^ Strict construction of penal
statutes is favored because the legislature owes the citizenry a duty to
clearly state those acts for the commission of which a citizen may lose
his life or liberty. ^^"^ Although the citizenry may rely upon existing
elemental definitions or proof requirements, ^^^ the accused cannot rea-
sonably develop a reliance or expectation as to the time limit for pros-
ecution. Even if developed, is there any societal interest to be served
by protecting the reliance? When the accused has committed all of the
elements of an offense, the statute of limitations functions only to restrain
prosecution within legislatively prescribed temporal limits. Logic rejects
the argument that altering the statute of limitations affects the expec-
tations of the citizenry as to the lawfulness of their conduct. At most,
only the perpetrator develops a reliance upon the statute of limitations,
purposefully evading detection until the legislatively prescribed period
expires. Numerous jurisdictions recognize this phenomena and by statute,
prevent the tolling of the Hmitations period during the period when the
accused is out of state or beyond the sovereign's jurisdiction.'^^
The statute of limitations serves as a buffer, preventing the expen-
diture of judicial resources where logically, evidentiary items such as
testimony and documents, have disappeared, grown stale, or been de-
stroyed, and can no longer perform the necessary evidentiary function.'^
Thus, at worst, extension or elimination of the limitations bar results
in reduced judicial efficiency by forcing the court to determine the
validity of a prosecution, rather than rotely applying the limitations
period to bar the same. Granted, the accused must be protected from
the retroactive application of a definitional alteration of the criminal
185. See infra notes 195-246 and accompanying text.
186. Kopczynski v. County of Camden, 2 N.J. 419, 424, 66 A.2d 882, 884 (1949)
"[wjords in a statute ought not to have a retrospective operation unless they are so clear,
strong and imperative that no other meaning can be annexed to them, or unless the intent
of the Legislature cannot otherwise be satisfied."); N. Singer, Sutherland Stat. Con-
struction § 41.04 (4th Ed. 1986).
187. N. Singer, supra note 186, § 59.03.
188. For a discussion of the citizen's reliance interest and the need to protect such
interests, see Note, Retroactive Application Of Statutes: Protection Of Reliance Interests,
40 Me. L. Rev. 183 (1988).
189. 1 C. ToRCiA, supra note 54, § 94.
190. See United States v. Kubrick, 444 U.S. Ill, 117 (1979).
1989] STATUTE OF LIMITATIONS 1013
elements. ^^' However, retroactive application of the enlarged statutory
period does not prevent the citizenry from making everyday decisions
with reasonable certainty, and does not alter the definition of unlawful
conduct.
The strict construction doctrine provides that penal statutes should
not apply retroactively without clear notice that one's contemplated
conduct is unlawful and that certain penalties will attach. '^^ The strict
construction doctrine is not an impediment to retroactive application of
a legislatively enlarged statute of limitations because retroactive appli-
cation of the enlarged period neither affects the definition nor the penalty
for the crime. '^^ Moreover, retroactive application does not breach ex
post facto prohibitions because extending the period prior to prosecution
neither aggravates the crime, increases the punishment nor alters the
rules of legal testimony necessary for conviction. ^^"^ Thus, there are no
constitutional or doctrinal barriers to retroactive application of a leg-
islatively-enlarged limitations period.
B. Reviving Time-Barred Claims
Courts which permit retroactive application of an enlarged criminal
limitations period deny application to offenses "time-barred" at the
extension. '^^ However, revival of a time-barred offense does not offend
ex post facto prohibitions. The ex post facto prohibition has long been
confined to the criminal context'^^ but has never been defined with great
clarity. Instead, vague notions of "justice and fair play"^^^ are used to
support judicial restraints on perceived ex post facto legislation. Courts
suggest that a right, if either "substantial" or "vested," may not be
altered after the fact.*^^
Nineteenth century treatise writers like Judge Cooley first coined the
notion of "substantial rights. "^^^ Cooley opined that legislatures may
191. Alteration of the definitional elements of the crime is a classic example of ex
post facto legislation and would be prohibited.
192. Commonwealth v. Broughton, 257 Pa. Super. 369, 377, 390 A.2d 1282, 1286
(1978).
193. State v. Hodgson, 44 Wash. App. 592, 603, 722 P.2d 1336, 1342 (1986) aff'd
in part, rev'd in part, and remanded in part, 108 Wash. 2d 662, 740 P. 2d 848 (1987).
194. See United States ex rel. Massarella v. Elrod, 682 F.2d 688 (7th Cir. 1982),
cert, denied, 460 U.S. 1037 (1983).
195. See, e.g.. People v. Smith, 171 Cal. App. 3d 997, 217 Cal. Rptr. 634 (1985);
State V. Hodgson, 108 Wash. 2d 662, 740 P.2d 848 (1987).
196. See Note Ex Post Facto Limitations on Legislative Power, 73 Mich. L. Rev.
1491, 1492 n.4 (1975) [hereinafter Ex Post Facto Limitations].
197. See Falter v. United States, 23 F.2d 420, 425-26 (2d. Cir.), cert, denied. 111
U.S. 590 (1928).
198. See, e.g., Kring v. Missouri, 107 U.S. 221, 232 (1882).
199. See T. Cooley, Constitutional Limitations 272 (1868).
1014 INDIANA LAW REVIEW [Vol. 22:989
prescribe different forms of criminal procedure but may not dispense
with any substantial protections which existing criminal law affords the
accused. ^^ This vague notion of a substantial right "vested" in the
defendant, unlawfully taken away by legislative change, formed the
foundation for the Supreme Court's decision in Kring v. Missouri .^^^ Ex
post facto analysis and the propriety of retroactive application require
consideration of three factors: reliance, legislative function, and potential
for legislative abuse. ^°^ Ex post facto legislation is objectionable because
purportedly, citizens rely upon the law currently in effect to shape their
conduct. Certainly, this premise is supportable with respect to the elements
of a crime. However, few alleged criminals know the law, much less
rely on it.^^^ Certainly, ignorance of the law will not excuse conduct in
violation of current statutes. ^^ Reliance should be protected only if
reasonable. If an individual commits a crime, the mere passage of time
should not endow the individual with a vested right to escape punishment
for the alleged wrong. An alleged defendant can not reasonably rely
upon the statute of limitations to shelter his wrongful conduct, and
society owes him no such guarantee.
Ex post facto laws are also undesirable because they fail to serve
their primary purpose, deterrence. ^^^ This concept of ex post facto laws
assumes that criminal legislation is promulgated primarily for deterrent
effect. However, statutes of limitations are mere procedural limitations
and purport to serve no deterrent purpose. The statute of limitations
has no measurable impact on allegedly criminal behavior, neither en-
couraging nor deterring such conduct.
Finally, ex post facto laws are objectionable because they represent
a potential for legislative abuse. ^^^ No legislative vindictiveness exists
where the legislature extends the statute of limitations, unless directed
principally to one individual. Unlike the enactment of legislation directed
specifically toward a single individual or group, extension of child sexual
abuse limitation periods neither suggests nor represents an abuse of
legislative process.
In the civil context, courts have upheld the legislature's power to
revive time-barred actions. ^^^ In Chase Securities Corp. v. Donaldson, ^^^
200. Id.
201. 107 U.S. 221, 232 (1882).
202. Ex Post Facto Limitations, supra note 196, at 1497-1501.
203. Id. at 1497.
204. See, e.g.. United States v. Casson, 434 F.2d 415, 422 (D.C. Cir. 1970).
205. Ex Post Facto Limitations, supra note 196, at 1498.
206. Id. at 1500-01.
207. See. e.g.. Chase Sec. Corp. v. Donaldson, 325 U.S. 304 (1945); Campbell v.
Holt, 115 U.S. 620 (1885); Liebig v. Superior Court, 209 Cal. App. 3d 828, 257 Cal.
Rptr. 574 (1989).
208. 325 U.S. 304 (1945).
1989] STATUTE OF LIMITATIONS 1015
the Supreme Court ruled that revival of a personal cause of action,
where the lapse of time did not vest the party with title to real or
personal property, did not offend the fourteenth amendment. ^°^ Statutes
of limitations are arbitrary, and their shelter has never been recognized
as a fundamental right. ^'° Furthermore, statutes of limitations are meas-
ures of legislative grace, subject to legislative control.^'^ "[S]tatutes of
Hmitation go to matters of remedy, not to destruction of fundamental
rights. "212
In Campbell v. Holt,^^^ the progeny of Chase Securities, the Supreme
Court found that the right to defeat a debt by the statute of limitations
was not a vested right, and the legislature's determination that time
shall be no bar did not violate any right. ^'"^ Man has no ''property in
the bar of the statute as a defense to his promise to pay."^^^ '*It is no
natural right, . . . but the creation of conventional law."^^^ No right is
destroyed when the law restores a remedy which has been lost.^^^
Similarly, logic suggests that revival of the statute of limitations in
the criminal context violates no constitutional barriers. The majority of
jurisdictions have found the statute of limitations to be procedural, not
substantive. 2^^ However, courts have suggested that the defendant acquires
a right not to be prosecuted when the statute expires. ^^^ Supposedly, the
defendant's full liberty has been restored in a manner analogous to the
acquisition of property through adverse possession. ^^^ The distinction
between extension and revival in the criminal context can only be justified
on the premise that only when a right to prosecute is revived does an
act which could not have been punished without the statute become
punishable. 22^ Such reasoning begs the question and only tortures an
initially weak definition of the ex post facto prohibition. ^^^
If the statute of limitations were classified as substantive, a pro-
hibition against revival would mold a consistent, though improper, train
209. Id. at 311-12.
210. Id. at 314.
1\\. Id.
212. Id.
213. 115 U.S. 620 (1885).
214. Id. at 628.
215. Id. at 629.
216. Id. The court noted that the phrase "vested rights" is not found in the
Constitution. Id. at 628. The Court's opinion suggests that the ex post facto prohibition
was designed principally to protect constitutionally guaranteed rights. Id. at 629.
217. Id.
218. See supra note 172.
219. See supra notes 120 through 170 and accompanying text.
220. See Ex Post Facto Limitations, supra note 196, at 1512 n.78.
221. Id.
111. Id.
1016 INDIANA LAW REVIEW [Vol. 22:989
of logic. If the statute of limitations is initially substantive, then the ex
post facto prohibition should prevent retroactive appHcation, and revival
is impossible from the onset. However, as noted, classification of the
statute of limitations as substantive is arbitrary and decidedly improper.
The majority of jurisdictions classify the statute of limitations as
procedural. ^^^ However, magically, courts hold that, upon expiration of
the right to prosecute, the statute of limitations vests the defendant with
a substantive right. How can a purely procedural device suddenly bestow
upon the defendant a substantive right? An example will expose the
inconsistent and illogical nature of the reasoning. Assume the existence
of a two year statute of limitations. X commits a crime on December
30, 1984. Y commits a crime on January 1, 1985. On December 31,
1986, the legislature aboUshes the statute of limitations and decrees
retroactive application. The time-barred theory would hold that X could
not be prosecuted while Y could. ^^"^ Why should X have a substantive
right to avoid prosecution while Y does not, when within a two day
time span, both committed the same offense? Either the statute of
limitations is procedural or substantive, but it is no chameleon! Weak
justifications couched in terms of offending '*our instinctive feelings of
justice and fair play"^^^ explain little and do not justify the transfor-
mation.
If the courts are attempting to protect the defendant's reliance on
the statute of limitations which existed at the time the crime was com-
mitted, then the ex post facto prohibition should prohibit not only
revival, but extension as well. In Kring v. Missouri ^^^^ the Supreme Court
concluded that the ex post facto prohibition should apply to all changes
enhancing the position of the state in criminal trials at the expense of
the defendant. ^^^ However, in Thompson v. Utah,^^^ the Supreme Court
narrowed the application of the Kring, concluding that changes in criminal
procedure could be, but are not necessarily, ex post facto. ^^^ The Court
held that the defendant had a right to a twelve person jury trial at the
time of his offense and that right could not be taken from him at a
second trial. ^^° The logical implication of the decision is that rights vest
223. See supra note 172.
224. The substantive rights theory would hold that the revised statute could not
apply retroactively.
225. See Falter v. United States, 23 F.2d 420, 426 (2d Cir.), cert, denied, 277 U.S.
590 (1928).
226. 107 U.S. 221 (1882).
227. Id. at 232.
228. 170 U.S. 343 (1898).
229. Id. at 352.
230. Id.
1989] STATUTE OF LIMITATIONS 1017
in the defendant upon the commission of the offense. However, sub-
sequent Supreme Court decisions suggest that the decision in Thompson
did not limit the power of the legislature to make changes in "non-
constitutionaF' procedural rights. ^^' The determination whether a non-
constitutional right could be a "substantial right" was left unresolved. ^^^
If, as suggested by the Thompson decision, the ex post facto pro-
hibition is designed to protect constitutional rights and not non-consti-
tutional rights,^" then clearly the defendant's right to avoid prosecution
cannot rise to the level of a constitutionally guaranteed right. Assuming
the ex post facto prohibition is designed to protect the defendant's
reliance interest, the defendant is in effect alleging he acted on the
premise that the prosecution would face certain obstacles which were
subsequently removed. Thus, the interest the defendant wants elevated
to the level of a constitutionally guaranteed right is a dubious interest
in avoiding prosecution after committing a criminal offense.^^"*
Revival of a cause of action is an extreme exercise of legislative
power^^^ and should be done only in rare circumstances. Some procedural
rules should not be applied retroactively. ^^^ Ideally, a court should balance
the state's public policy and interest in prosecution against the defendant's
right to a technical defense. Rather than a prophylactic rule against
retroactive application, revival should be permitted unless the rule was
widely relied upon, the revised rule cannot serve its purpose if retroactively
appHed, or a vindictive legislative motive pervades. ^^^
In Liebig v. Superior Court of Napa County ^^^^ the California Court
of Appeals permitted the revival of plaintiff's time-barred tort action
for sexual molestation against her grandfather. ^^^ Holding that "vested
231. See, e.g., Beazell v. Ohio, 269 U.S. 167 (1925) (upholding change permitting
judicial discretion in granting separate trials); Mallett v. North CaroUna, 181 U.S. 589
(1901) (upheld statute permitting state to appeal grant of new trial); Thompson v. Missouri,
171 U.S. 380 (1898) (defendant had no vested right in rule of evidence prior to passage
of Missouri statute).
232. Beazell, 269 U.S. at 171. The court noted that "[j]ust what alterations of
procedure will be held to be of sufficient moment to transgress the constitutional prohibition
cannot be embraced within a formula or stated in a general proposition. The distinction
is one of degree." Id.
233. For example, the prohibition may protect constitutionally guaranteed rights
such as the right to a jury trial in a criminal proceeding.
234. Ex Post Facto Limitations, supra note 149, at 1513.
235. People v. Robinson, 140 111. App. 3d 29, , 487 N.E.2d 1264, 1266
(1986); Hopkins v. Lincoln Trust Co., 233 N.Y. 213, 213, 135 N.E. 267, 267 (1922).
236. For example, those rules upon which the defendant may reasonably rely, and
which directly shape his conduct. For example, the interspousal testimonial privilege.
237. See Ex Post Facto Limitations, supra note 149, at 1513-16.
238. 208 Cal. App. 3d 828, 257 Cal. Rptr. 574 (1989).
239. Id. at , 257 Cal. Rptr. at 578.
1018 INDIANA LAW REVIEW [Vol. 22:989
rights" are not immune from retroactive laws where an important state
interest is at stake, the court found that maximizing, for as expansive
a period of time as possible, the sexual abuse claims of minor plaintiffs
was an overriding state interest. ^"^^ Similarly, in the criminal context, the
state's interest in prosecuting and punishing child sexual abusers overrides
defendant's interest in freedom from prosecution and permits the revival
of time-barred actions. In Chase Securities Corp. v. Donaldson, ^^ the
Supreme Court noted that a multitude of cases have recognized the
power of the legislature to call a liability into being where there was
none before, if the circumstances were such as to appeal with some
strength to the prevailing views of justice and if the obstacle in the way
of the creation seemed small. ^'^^ Thus, where the state interest is great,
the legislature may revive a time-barred action. However, revival should
not be presumed and should only be permitted where the legislature
expressly prescribes such application.
Courts frequently rely on the Fourteenth Amendment of the United
States Constitution^"^^ to forbid revival of a time barred claim. ^"^ However,
the Supreme Court in both Campbell v. Holt,^'^^ and Chase Securities
Corp. V. Donaldson^'^ determined that revival of an action not vesting
a real or personal property right does not offend the fourteenth amend-
ment. How can an alleged defendant obtain a vested right to be free
from prosecution when he commits an act criminal at the time of
performance? To justify this conclusion for the reason that the defen-
dant's act could not have been punished but for the statute ignores
logic, escapes reason and is but an exercise in semantic circumlocution.
The state's interest in prosecuting child sex abusers overrides any "vested
substantial right" the defendant may have acquired.
240. Id.
241. 325 U.S. 304 (1945).
242. Id. at 315.
243. The amendment provides in pertinent part that, "nor shall any State deprive
any person of Hfe, Uberty, or property, without due process of law. . ." U.S. Const.
amend. XIV, § 1.
244. See, e.g.. Board of Education v. Blodgett, 155 111. 441, 40 N.E. 1025 (1895);
Sanchez v. Access. Associates, 179 111. App. 3d 961, 535 N.E.2d 27 (1989); Markley v.
Kavanagh, 140 111. App. 3d 737, 489 N.E.2d 384 (1986).
245. 115 U.S. 620 (1885).
246. 325 U.S. 304 (1945).
1989] STATUTE OF LIMITATIONS 1019
V. Conclusion
Children have been described as the largest indigent class on earth. ^"^^
Children are uniquely unable to protect their own rights. ^"^^ Given this
inability to protect their own rights, it is imperative that we, as a society,
endeavor to protect those who are unable to protect themselves. It is
the mark of a civiHzed society. Statutes of limitations safeguard the
accused against stale claims by discouraging victims from sleeping on
their rights. Although child sex abuse victims may have a moral obligation
to report the offense in a timely manner, the public derives no benefit
by shielding the offender from prosecution while simultaneously penal-
izing the victim for his or her inability to report the offense. The
offender should not be permitted to control his destiny by allowing him
to manipulate the victim, impeding reporting and preventing prosecution.
Certainly, neither logic nor public policy require that society maintain
a helpless, silent vigil, permitting the child sexual abuser to avoid pros-
ecution by unlawfully detaining his victim, thus preventing the victim's
report and the state's prosecution of the offense. Yet, stringent application
of the statute of limitations inflicts a similar injustice upon the child
sex abuse victim.
The child victim, subject to unique reporting impediments, deserves
an opportunity for legal redress. Child sexual abusers must be deterred
and punished. Retroactive application of legislatively enlarged statutes
of limitations accomplishes each of these desirable objectives. The mere
extension of the limitations period, when mated with legislative purpose,
supports a presumption for retroactive application. Given the minor's
decided disadvantage in knowledge, power and resources, fairness de-
mands that the child victim be given every opportunity for legal redress.
Thus, absent manifest legislative intent to the contrary, the needs of
society and the child sexual abuse victim are best served by retroactive
application of the enlarged limitations period, and where expressly de-
creed, the revised limitations period may be applied to revive a time-
barred claim.
Thomas G. Burroughs
247. Bross & Munson, Alternative Models of Legal Representation for Children, 5
Okla. City U.L. Rev. 561, 565 (1989).
248. For example, many states provide that children under the age of ten are
presumptively incompetent to testify. States also vary as to the threshold below which a
child is deemed automatically incompetent to testify. See e.g., Kellum v. State, 396 A. 2d
166 (Del. 1978) (3 years old); State v. Thrasher, 223 Kan. 1016, 666 P.2d 772 (1983) (4
years old).
ii
A Modest Proposal"— The Prohibition of All-Adult
Communities by the Fair Housing Amendments Act of
1988
I. Introduction
The traditional American dream of owning a home is slowly fading.
Zoning regulations and other local ordinances complicate new housing
construction and convey an '*anti-growth" attitude which discourages
building. • This trend, combined with an increase in two-career families
and a decrease in the number of famihes having children or having
children later in life,^ increases the demand for the available rental
housing.^ As the demand for rental housing intensifies, new legal issues
emerge. One issue which has received a great amount of attention in
recent years is familial discrimination. This discrimination occurs when
apartment complex owners entirely exclude children (the '* all-adult"
apartment communities) or they only accept children with limitations.'^
Familial discrimination appeals to apartment complex owners for
many reasons. Many adults who choose not to have children, or wait
longer to have children, wish to live in a chiid-free environment. There-
fore, apartment complex owners can charge higher prices for all-adult
communities. Lower insurance and maintenance costs for all-adult com-
munities also induce owners to exclude children.^
Severe rental housing shortages faced by families with children in
some areas of the country^ have prompted judicial decisions^ or legislation®
1. R. GoETZE, Rescuing the American Dream 41 (1983). In many of the older
urban areas, the occupants of two out of three households reside in rental housing.
2. Id.
3. See generally A. Downs, Rental Housing in the 1980's 1-4 (1983).
4. R. Marans & M. Colten, Measuring Restrictive Rental Practices Af-
fecting Families with Children: A National Survey 22 (1980). Restrictions on children
include limits on the age of children allowed in rental units (e.g., excluding children under
the age of 12), and on the number or location of children (e.g., only one child per
apartment or children restricted to specific buildings). Id.
5. Id. at 54-67.
6. See D. Ashford & P. Eston, The Extent and Effects of Discrimination
Against Children in Rental Housing: A Study of Five Californl\ Cities 6 (1979)
(This study showed 53 percent of the apartment complexes in Fresno, California, 65
percent in San Diego, California, and 70 percent in San Jose, California excluded children.
Note these statistics were compiled before California passed legislation prohibiting familial
discrimination); Landlord Discrimination Against Children: Possible Solutions to a Housing
Crisis, 11 LoY. L.A.L. Rev. 609, 612 (1978) (Statistics indicate 60-80 percent of the
apartment units in Los Angeles, California exclude children while the vacancy rate was
1021
1022 INDIANA LAW REVIEW [Vol. 22:1021
prohibiting familial discrimination as the basis for denying rental housing
occupancy. However, familial rights advocates criticize the various state
nondiscrimination provisions for allowing limited familial discrimination,
for being poorly drafted, and for providing only limited administrative
remedies.^ Familial rights advocates assert judicial decisions are inade-
quate due to the time and expense required to maintain a private cause
of action. ^^
A few plaintiffs have sought federal protection from child-exclu-
sionary poUcies under the Fair Housing Act'' or under constitutional
protection of the right to privacy or equal protection. '^ However, it is
difficult for a plaintiff to maintain a cause of action under the Fair
Housing Act'^ because the plaintiff must show the child-exclusionary
poHcies have a * 'racially-disparate impact"''* or that there has been state
action, a prerequisite for litigation alleging violations of the constitutional
2.5 to 3.5 percent); Sixty Minutes (CBS television broadcast, January 22, 1978) (Dan
Rather stated that famihes with children in southern California experienced the greatest
hardship locating rental housing. Dora Ashford reported only 20 percent of the apartment
complexes in Santa Monica, Cahfornia did not exclude children).
7. See generally Marina Point, Ltd. v. Wolfson, 30 Cal. 3d 721, 640 P.2d 115,
180 Cal. Rptr. 496 (1982) (Richardson, J., dissenting), cert, denied, 459 U.S. 858 (1982).
8. See generally N.J. Stat. Ann. § 2A: 42-101 (West 1952 & Supp. 1987). This
section provides:
No person, firm or corporation or any agent, officer or employee thereof shall
refuse to rent or lease any house or apartment to another person because his
family includes children under 14 years of age or shall make an agreement,
rental or lease of any house or apartment which provides that the agreement,
rental or lease shall be rendered null and void upon the birth of a child. This
section shall not apply to any State or Federally financed or assisted housing
project constructed for occupancy by senior citizens or to any property located
in a retirement subdivision as defined in the "Retirement Community Full
Disclosure Act" (P.L. 1969, c.215; C.45:22A-1) or to any owner-occupied house
containing not more than two dwelling units.
9. Fair Housing Amendments Act, 1987: Hearings on H.R. 1158 Before the
Subcomm. on Civil and Constitutional Rights of the House of Representatives Comm.
on the Judiciary, 100th Cong., 1st Sess. 398-99 (1987) [hereinafter Hearings] (statement
of James B, Morales, Staff Atty., Nat'l Center for Youth Law). Some statutes allow
discrimination against children over the age of 14. Id. Others are poorly drafted because
they may allow subtle forms of discrimination by charging high security deposits for
families with children or by placing familial discrimination statutes in sections apart from
the civil rights areas, and not providing victims with all the remedies available for civil
rights violations. Id.
10. Walsh, The Necessity for Shelter: States Must Prohibit Discrimination Against
Children in Housing, 15 Fordham Urb. L. J. 481, 518 (1987).
11. Betsey v. Turtle Creek Assoc, 736 F.2d 983 (4th Cir. 1984).
12. Halet v. Wend Inv. Co., 672 F.2d 1305 (9th Cir. 1982).
13. 42 U.S.C. § 3608 (1982).
14. Betsey, at 986.
1989] FAIR HOUSING AMENDMENTS 1023
rights to privacy or Equal Protection.'^ These contentions are difficult
to prove because they require statistics reflecting a greater impact on
minorities or that the action was performed under color of state law.'^
In response to the assertion that *'[f]amihes with children are facing
a housing crisis,"'^ President Reagan signed the Fair Housing Amend-
ments Act of 1988'^ into law on September 13 of that year. This Act
amends the Civil Rights Act of 1968'^ by expanding the classes receiving
protections^ and revising the procedures for enforcement of fair housing
practices. s' The 1988 Amendments'^ prohibit discrimination in the sale
15. Hearings, supra note 9, at 402 (testimony of James B. Morales, Staff Atty.,
Nat'l Center for Youth Law).
16. Id.
17. Hearings, supra note 9, at 680 (testimony of Hon. Don Edwards, Chairman,
Subcomm. on Civil and Constitutional Rights, Comm. on the Judiciary).
18. Pub. L. No. 100-430, 102 Stat. 1619-1636 (1988).
19. 42 U.S.C. §§ 3601-3619 (1982).
20. 42 U.S.C. § 3604 (1982) provides protection for persons discriminated against
on the basis of race, color, rehgion, sex or national origin. The Fair Housing Act as
amended by Pub. L. No. 100-430, 102 Stat. 1622 (1988) now provides in pertinent part:
It shall be unlawful-
(a) To refuse to sell or rent, after the making of a bona fide offer, or
to refuse to negotiate for the sale or rental of, or otherwise make
unavailable or deny, a dwelling to any person because of race, color,
religion, sex, handicap, familial status, or national origin.
(b) To discriminate against any person in the terms, conditions, or privileges
of sale or rental of a dwelling, or in the provision of services or
facilities in connection therewith, because of race, color, religion, sex,
handicap, famiUal status, or national origin.
(c) To make, print, or publish or cause to be made, printed, or published
any notice, statement, or advertisement, with respect to the sale or
rental of a dwelling that indicates any preference, limitation, or dis-
crimination based on race, color, religion, sex, handicap, familial status,
or national origin, or an intention to make any such preference,
limitation, or discrimination.
(d) To represent to any person because of race, color, religion, sex,
handicap, familial status, or national origin that any dwelling is not
available for inspection, sale, or rental when such dwelling is in fact
so available.
(e) For profit, to induce or attempt to induce any person to sell or rent
any dwelling by representations regarding the entry or prospective entry
into the neighborhood of a person or persons of a particular race,
color, religion, sex, handicap, familial status or national origin.
21. Fair Housing Amendments Act of 1988, Pub. L. No. 100-430, 102 Stat. 1625-
35 (1988). This amends the enforcement procedure by allowing hearings before admin-
istrative law judges, or for a cause of action to be filed by the Attorney General or by
a private person.
22. Fair Housing Amendments Act of 1988, Pub. L. No. 100-430, 102 Stat. 1622
(1988).
1024 INDIANA LAW REVIEW [Vol. 22:1021
or rental of a dwelling based on familial status^^ unless the dwelling is
located in a retirement community.^'* The retirement community exception
recognizes the fact that elderly persons have a greater need to live in
a child-free environment. ^^
23. Fair Housing Amendments Act of 1988, Pub. L. No. 100-430, 102 Stat. 1622
(1988) provides in pertinent part:
"Familial Status" means one or more individuals (who have not attained the
age of 18 years) being domiciled with -
(1) a parent or another person having legal custody of such individual or
individuals; or
(2) the designee of such parent or other person having such custody, with the
written permission of such parent or other person.
The protections afforded against discrimination on the basis of famiUal status
shall apply to any person who is pregnant or is in the process of securing legal
custody of any individual who has not attained the age of 18 years.
24. Fair Housing Amendments Act of 1988, Pub. L. 100-430, 102 Stat. 1623 (1988)
provides:
(b)(1) Nothing in this title limits the applicability of any reasonable local. State,
or Federal restrictions regarding the maximum number of occupants permitted
to occupy a dwelling. Nor does any provision in this title regarding familial
status apply with respect to housing for older persons.
(2) As used in this section, "housing for older persons" means housing -
(A) provided under any State or Federal program that the Secretary determines
is specifically designed and operated to assist elderly persons (as defined in the
State or Federal program); or
(B) intended for, and solely occupied by, persons 62 years of age or older; or
(C) intended and operated for occupancy by at least one person 55 years of
age or older per unit. In determining whether housing qualifies as housing for
older persons under this subsection, the Secretary shall develop regulations which
require at least the following factors:
(i) the existence of significant facilities and services specifically designed to meet
the physical or social needs of older persons, or if the provision of such facilities
and services is not practicable, that such housing is necessary to provide important
housing opportunities for older persons; and
(ii) that at least 80 percent of the units are occupied by at least one person 55
years of age or older per unit; and
(iii) the publication of, and adherence to, policies and procedures which dem-
onstrate an intent by the owner or manager to provide housing for persons 55
years of age or older.
(3) Housing shall not fail to meet the requirements for housing for older persons
by reason of:
(A) persons residing in such housing as of the date of enactment of this Act
who do not meet the age requirements of subsection 2(B) or (C): Provided,
That new occupants of such housing meet the age requirements of subsections
2(B) or (C); or
(B) unoccupied units: Provided, That such units are reserved for occupancy by
persons who meet the age requirements of subsections (2)(B) or (C).
25. Fair Housing Amendments Act: Hearings on H.R. 4119 Before the Subcomm.
on Civil and Constitutional Rights of the House of Representatives Comm. on the Judiciary,
99th Cong., 2nd Sess. 62 (1986) (testimony of Hon. Hamilton Fish, Jr.).
1989] FAIR HOUSING AMENDMENTS 1025
Familial discrimination has not been limited to apartment complexes.
It has also surfaced in mobile home parks^^ and condominiums.^^ How-
ever, this Note will focus on familial discrimination in apartment com-
plexes because this constitutes the majority of familial discrimination
occurrences.^^ The Note will examine the scope of the problems resulting
from familial discrimination through available statistics, state legislation,
and judicial decisions. Further, this Note will discuss the impact of the
1988 Act and address valid arguments against such broad sweeping
legislation and the rehef, or lack thereof, the Act will provide to families
with children.
Finally, this Note will suggest alternatives to the broad sweeping
policies of the Act. These alternatives would provide relief from extensive
child-exclusionary policies which plague some areas of the country without
totally prohibiting all-adult apartment communities.
II. Background
Familial rights advocates have denounced child-exclusionary policies
as causing rental housing shortages for families with children. ^^ These
policies generated such a controversy that President Reagan signed leg-
islation prohibiting all-adult apartment communities, unless they are
designated as retirement communities, on September 13, 1988.^^ However,
no statistics demonstrating the actual number of families with children
affected by exclusionary poHcies exist to support this drastic measure.^'
A, Changes in Rental Housing
The 1980's witnessed an increased inability to purchase homes. ^^ This
is due to higher real capital costs," higher interest rates, ^"^ and a decrease
in the construction of new homes due to high financing costs, ^^ labor
26. See Schmidt v. Superior Court, 43 Cal. 3d 1060, 742 P.2d 209, 240 Cal. Rptr.
160 (1987).
27. See Ritchey v. Villa Neuva Condo. Ass'n, 81 Cal. App. 3d 688, 146 Cal.
Rptr. 695 (1978); White Egret Condo, Inc. v. Franklin, 379 So. 2d 346 (Fla. 1980).
28. Exclusion of Families With Children From Housing, 18 J.L. Reform 1121,
1122 (1985).
29. See Hearings, supra note 9.
30. Fair Housing Amendments Act of 1988, Pub. L. No. 100-430, 102 Stat. 1619-
36 (1988).
3 1 . The study completed by the University of Michigan Institute for Social Research
is the only comprehensive study available.
32. A. Downs, supra note 3, at 60-61.
33. Id.
34. Id.
35. R. GoETZE, supra note 1, at 36.
1026 INDIANA LAW REVIEW [Vol. 22:1021
regulations,^^ zoning constraints,^^ and complex permit requirements.^^
Therefore, a greater number of people will be residing in rental housing. ^^
Yet, the supply of available rental units will not be able to meet
this demand. The 1988 Statistical Abstract of the United States reported
an overall vacancy rate of 5.0 percent for 1981; this rate increased
gradually to 6.5 percent in 1985 and 7.2 percent in 1986."^ However,
in certain areas of the country, the problem is more intense. For example,
there are serious housing shortages in some urban areas (e.g., Chicago
and Manhattan)"^^ and in the nation's sunbelt areas. "^^ Part of this problem
results from the fact that California, Texas and Florida (the sunbelt
areas) together accounted for 53 percent of the population growth between
1980 and 1986.^^
The inability of the supply of rental housing to meet the demand
is attributable to many factors. Rental receipts are inadequate to meet
construction and operating costs, making new apartment construction
economically impractical. "^ Between 1970 and 1973 construction began
on 871,000 multifamily units; this number decreased to 458,000 units
annually from 1974 to 1980.^^^ Additionally, many apartments are con-
verted to condominiums each year so the owner can escape continued
operating costs and receive a more immediate return on his investment."*^
The proportion of households consisting of a married couple with
children under the age of eighteen has decreased by thirteen percent
since 1970."*^ Many of the adults who choose not to have children wish
to live in a child-free environment and willingly pay extra for this luxury."*^
36. Id.
37. Id.
38. Id.
39. Between 1970 and 1979 the number of persons occupying rental housing in-
creased by approximately 3.5 million persons. A. Downs, supra note 3, at 73 n.l. It is
noted that the 1980's will see an increase of 4.2 million rental households. This translates
to an increase of 424,000 rental households per year. Id. at 7.
40. U.S. Dept. of Commerce, Bureau of the Census, Statistical Abstract of
THE United States, 165 (108 ed. 1988).
41. A. Downs, supra note 3, at 42 n.34.
42. See D, Ashford & P. Eston, supra note 6; R. Goetze, supra note 1, at ix.
43. U.S. Dept. of Commerce, Bureau of the Census, State Population and
Household Estimates, With Age, Sex, and Components of Change 1981-86 1 (Series
P. 25, No. 1010, 1987).
44. A. Downs, supra note 3, at 40.
45. Id.
46. Id. at 40-41, n.30. The conversion of rental housing into condominiums has
a lesser effect on rental supply and demand because many persons purchasing condominium
units are former tenants.
47. U.S. Dept. of Commerce, Bureau of the Census, Household and Family
Characteristics: March 1987 1 (Series P-20, No. 424. 1988).
48. See generally R. Marans & M. Colten, supra note 4.
1989] FAIR HOUSING AMENDMENTS 1027
Families without children are generally two-career couples who, because
they do not have to bear the expense of raising a family, can afford
to spend a greater portion of their income on rent. Landlords who saw
a way to exclude children (whom they perceive as costlier tenants), and
possibly to charge a premium for such rental housing, introduced
the concept of all-adult or restricted apartment communities/^ All-adult
apartment communities totally prohibit anyone under the age of eighteen
from living in the rental units. ^° Restricted communities accept children
with Hmitations on possibly one of the following: age, the number of
children, or the location of children within the complex.^' Recent public
outcry from familial rights advocates concerning child-exclusionary pol-
icies resulted in the passage of the Fair Housing Amendments Act of
1988," which prohibits famiUal discrimination in the rental housing
market."
B. Problems Generated by Child-Exclusionary Policies
No comprehensive statistics exist which reflect the actual number of
families affected nationwide by familial discrimination. The University
of Michigan Institute for Social Research (the ISR Study) completed the
most comprehensive study on the subject. ^'^ However, the authors of the
study noted that it did not constitute a complete measure of the problem:
These studies were prepared in growing communities where the
rental housing market was tight and the problems for families
with children particularly noticeable and salient. While the data
strongly suggest that exclusionary policies may be an obstacle
for many families with children in specific locations, no data
are available on the extent to which this is a nationwide phe-
nomenon.^^
Thus, one needs to examine available statistics, case law, and leg-
islative actions to put child-exclusionary policies into perspective.
1. Statistical Analysis of Familial Discrimination Practices. — The 1980
Census reported that 68 miUion people reside in rental housing. ^^ Of
49. Id.
50. Id.
51. Id.
52. Pub. L. No. 100-430, 102 Stat. 1619-1636 (1988).
53. Id.
54. R. Marans & M. Colten, supra note 4.
55. Id. at 3.
56. U.S. Dept. of Commerce, Bureau of THfe Census, 1980 Census of Housing,
Characteristics of Housing Units, General Housing Characteristics, Part A 1-59
(1983).
1028 INDIANA LAW REVIEW [Vol. 22:1021
the rental units, over two-thirds, 67.6 percent, have no residents under
the age of eighteen;" over one-half of these renters are under age thirty-
five.^^
The study conducted by the Institute for Social Research found that
approximately one in four rental units nationwide are located in all-
adult communities.^^ However, when the figures are adjusted to reflect
exceptions made by apartment managers, the number of apartments
excluding children falls to one in five.^° The study further found that
50 percent of the units analyzed accepted children with Umitations.^'
These limitations included policies limiting the number of children allowed
depending on the size of the unit, policies limiting the children over or
under a specific age, restrictions on children of the opposite sex sharing
bedrooms, and policies separating families with children from those
without children, either by floor or by building. ^^
At first glance, 75 percent of apartment units nationwide appear to
either totally exclude children or accept them with limitations." However,
the figures must be put into perspective. First, some managers of apart-
ment complexes reported exclusionary policies, but stated they had ex-
ceptions;^'* therefore, the proportion of exclusionary or restrictive policies
is actually lower. Additionally, efficiencies which do not have a separate
bedroom and one-bedroom apartments comprise the largest percentage
of units which have exclusionary policies. ^^ Alternatively, only 2.1 percent
of three or more bedroom units have poHcies excluding children. ^^
2. Effect of Familial Discrimination on Minorities and Low Income
Families. — If familial discriminatory policies are merely a smoke screen
to enforce what is truly a racial discrimination policy, the excluded
tenants have a cause of action under the Fair Housing Act of 1968.^^
A 1980 study suggests child-exclusionary policies are actually racially
discriminatory policies reporting:
57. R. Marans & M. Colten, supra note 4, at 12, Table III-l.
58. /(i. at 5. This statistic shows that these renters do not quaUfy for residence
in retirement communities. Id.
59. Id. at ES-2.
60. Id.
61. Id. at 27, Table IV-3.
62. Id. at nn.3-6.
63. Id. at Table IV-3.
64. Id. at 70.
65. Id. at 27, Table IV-5. 35.5 percent of efficiencies have exclusionary pohcies;
41.5 percent of one-bedroom apartments exclude children. Id.
66. Id. Tv/o bedroom apartments do comprise the largest percentage of the various
sized units which place restrictions on the children who are accepted. These restrictions
usually limit the number of children allowed (56 percent) or do not allow children of the
opposite sex to occupy the same bedroom (24.9 percent). Id.
67. 42 U.S.C. § 3604(a), (b) (1982).
1989] FAIR HOUSING AMENDMENTS 1029
Even when controlling for income, there is a statistically sig-
nificant difference between the percentage of minorities, who
experienced serious housing problems due to no-children poHcies,
and the percentage among their white counterparts. Undoubtedly
this difference is due in part to racial discrimination, which
housing studies have found to exist in the rental market. What
is not known is the extent to which no-children poHcies are used
as a smoke screen for racial discrimination.^^
Alternatively, the ISR study states: "Among those who rent, female-
headed households and minority groups are no more likely to suffer
from no-children poHcies in the rental market than other groups. "^^ The
discrepancies between the two surveys can be explained in part by differing
methodology. ^° Additionally, the ISR study reflected that the higher
percentage of minorities reporting problems relating to child-exclusionary
policies can be explained in part by the fact that minority group tenants
are more Hkely to have children in the household than their white
counterparts.^' This study further suggested that the problems experienced
by minority tenants correlate to the price of housing which is available
in the various units to which they normally have access. ^^
Further, both studies discovered lower income families feel the effect
of child-exclusionary policies to a much greater extent than do middle
to higher income families. ^^ The ISR study reports low income families
with children experience more frustration when attempting to locate
68. J. Greene & G. Blake, How Restrictive Rental Practices Affect Families
With Children 30-31 (1980).
69. R. Marans & M. Colten, supra note 4, at ES-2.
70. The Greene study and the ISR study utilized very different methods of obtaining
their respective sampling groups. The Greene Study aired public service announcements
on television and radio stations in six metropohtan areas. These announcements invited
persons who had experienced or were experiencing difficulties in finding rental housing
to call and tell of their experiences. The study reached only those persons who had
experienced difficulties and was concentrated in urban areas where the problems are more
intense. Nor did the Greene Study survey people who had not experienced difficulties to
have an unbiased comparison group. J. Greene & G. Blake, supra note 68, at 1. On
the other hand, the ISR study was conducted by the use of randomly generated telephone
numbers to gather a sample of tenants, the sample of managers was obtained by questioning
the tenants who were part of the survey. R. Marans <& M. Colten, supra note 4, at 5.
71. R. Marans & M. Colten, supra note 4, at 12, Table II-l.
72. Id. at 5.
73. J. Greene & G. Blake, supra note 68, at 10, Table II. The study found 65.4
percent of the respondents reporting income fell below the $15,000 annual income level.
The number of respondents above the $30,000 annual income level was 4 percent. The
highest percentage group (26.2 percent) fell between an annual income level of $5,000
and $9,999. Id.
1030 INDIANA LAW REVIEW [Vol. 22:1021
rental housing and were more likely to settle for housing below their
expected standard.'''* This study further stated:
While there is no discernible relationship between monthly rents
and the presence or absence of no-children policies, the higher
rent units are more Hkely to be found in buildings or complexes
which limit children by age and location. . . . The likelihood of
age and location limitations occurring increases as the monthly
rent increases. Moreover, the likelihood that two bedroom rentals
in apartment buildings or complexes renting for more than $200
prohibit families with children is roughly twice as great as com-
parably-sized units renting for $200 or less.''^
Part of the reason low income families cannot find rental housing
can be attributed to rent escalation rather than child-exclusionary policies.
Although rental prices did not rise as quickly as the consumer price
index from 1960 to 1981,^^ this trend has reversed and from July 1981 to
December 1982, the consumer price index showed that the component
for residential rent rose faster than the overall index. ^^ Rental prices
reportedly are now increasing at a faster rate than tenant income.^*
Therefore, the majority of nonsubsidized housing is merely beyond the
reach of low income families with children.
In summary, no one has undertaken a comprehensive study which
presents an accurate portrayal of the problems caused by familial dis-
74. R. Marans & M. Colten, supra note 4, at 72. The group experiencing the
most difficult problems were those famiUes who have at least three children and fall into
the lower income range. Id.
75. Id. at 40.
76. A. Downs, supra note 3, at 3-4 (1983).
[Rlesidential rents did not increase as fast as consumer income, operating costs,
or construction costs. This was true even after correction for substantial un-
derestimation of rental costs by the consumer price index. The best available
estimate is that real rent levels fell about 8,4 percent from 1960 to 1981, or
roughly 4.2 percent each decade.
Id.
11 . Id. at 133 n.3. In addition, beginning in about 1961 the Federal Government
instituted programs designed to attract private developers into the low income housing
market. The private developers were required to make a twenty or forty year commitment
to the project. The developers are able to take low income housing off the market or
convert it into high rental housing if they defaulted or prepaid their mortgage after their
commitment period expired. Many developers have either defaulted or have prepaid their
mortgage and, therefore, have removed their property from the low income market. The
number of low income units removed from the low income housing market is projected
to peak in the 1990's. National Low^ Income Housing Preservation Commission, Pre-
venting THE Disappearance of Low Income Housing, 1-6 (1988).
78. Why Johnny Can't Rent- An Examination of Laws Prohibiting Discrimination
Against Families in Rental Housing, 94 Harv, L. Rev, 1829, 1832 n,7 (1981),
1989] FAIR HOUSING AMENDMENTS 1031
crimination. The statistics which are available show that serious problems
exist in the urban and sunbelt areas of the nation where there is a need
for antidiscrimination measures. ^^ There is no comprehensive data avail-
able for the less densely populated areas of the nation. Data shows that
lower income families with children are more adversely affected by
exclusionary poHcies. However, this can only be due to the unavailability
of low income housing, and raising of rental rates which put many
rental units beyond the reach of low income families with children regardless
of child-exclusionary poUcies. However, when the national picture of
problems arising from famihal discriminatory policies is put into per-
spective, the Fair Housing Amendments Act of 1988^^ is much too broad
and will not provide relief for those who need it most: lower income
families with children.
3. Judicial Decisions. — Tenants denied rental housing or evicted from
rental housing because of their race, color, religion, sex, or national
origin have been provided protection under the Fair Housing Act^^ since
1968. Prior to the 1988 Amendments, tenants showing denial or eviction
premised on familial discrimination, but related to a protected class,
had a cause of action under the Fair Housing Act.
This was accomplished in Betsey v. Turtle Creek Assoc. ^^ In Betsey,
the apartment owner instituted an all-adult policy in a complex which
housed mainly black families with children. ^^ The tenants filed suit
alleging violation of the Fair Housing Act^'* and presented statistics
showing the conversion would have an immediate "disproportionate
impact on the black tenants. '*^^ The Fourth Circuit held that a plaintiff
presents a. prima facie case of racial discrimination under the Fair Housing
Amendments Act of 1968 if he can show that the denial of or eviction
from rental housing '*was motivated by a racially discriminating purpose
or because it is shown to have a disproportionate adverse impact on
minorities. "^^ The court found both elements present and stated a ''con-
tinuing disproportionate impact" on blacks was not required. ^^
Betsey represents the first case striking down racial discrimination
disguised as familial discrimination and was the first case of its type
decided under the Fair Housing Act. Although this case sets favorable
79. See supra note 6 and accompanying text.
80. Pub. L. No. 100-430, 102 Stat. 1619-36 (1988).
81. 42 U.S.C. § 3604 (1982).
82. 736 F.2d 983 (4th Cir. 1984).
83. Id.
84. 42 U.S.C. § 3604 (1982).
85. Betsey, 736 F.2d at 986.
86. Id. at 987.
87. Id. at 986.
1032 INDIANA LAW REVIEW [Vol. 22:1021
precedent for minority families with children who can show a disparate
impact against them as minorities, it offers little or no reUef for Caucasian
families with children who experience discrimination in the rental housing
market.
Another case in which the plaintiff sought relief from child-exclu-
sionary poHcies under the Fair Housing Act is the 1982 case of Halet
V. Wend Investment Co.^^ The Caucasian plaintiff in Halet was denied
rental housing because he had a child who would be living in the unit.
Although the district court dismissed the case on other grounds, the
Ninth Circuit held the plaintiff had standing to challenge racial dis-
crimination under the Fair Housing Act. The court stated:
The Supreme Court . . . held that a plaintiff who has suffered
an actual injury is permitted to prove that the rights of another
are infringed. Here, Halet claims that he was denied an apartment
because of a policy that allegedly infringes on the rights of
Blacks and Hispanics. Under Gladstone this is sufficient to
support Halet 's standing under the Act.^^
Although the Fair Housing Act may provide relief to victims of
familial discrimination, plaintiffs often have difficulty proving the req-
uisite discriminatory intent. In Metropolitan Housing Development Corp,
V. Village of Arlington Heights,^ the Seventh Circuit stated:
[A] requirement that the plaintiff prove discriminatory intent
before relief can be granted under the statute is often a burden
that is impossible to satisfy. ... [A] strict focus on intent permits
racial discrimination to go unpunished in the absence of evidence
of overt bigotry.^*
In addition to invoking the Fair Housing Act, plaintiffs have sought
protection under the fourteenth amendment which provides that every
United States citizen is entitled to equal protection and due process of
the laws^^ or under Section 1983 of the Civil Rights Act.^^ Only recently
88. 672 F.2d 1305 (9th Cir. 1982).
89. Id. at 1309 (citation omitted).
90. 558 F.2d 1283 (7th Cir. 1977), cert, denied, 434 U.S. 1025 (1978).
91. Id. at 1285.
92. U.S. Const, amend. XIV, § 1, The Due Process Clause states:
All persons born or naturalized in the United States, and subject to the jurisdiction
thereof, are citizens of the United States and of the State wherein they reside.
No State shall make or enforce any law which shall abridge the privileges or
immunities of citizens of the United States; nor shall any State deprive any
1989] FAIR HOUSING AMENDMENTS 1033
have cases alleging familial discrimination met with any success under
the latter of these two federal provisions.^"*
The fourteenth amendment of the Constitution sets forth that no
person shall be denied equal protection of the law by any state. ^^ The
Equal Protection Clause '^governs all governmental actions which classify
individuals for different benefits or burdens under the law,"^^ and requires
that 'individuals be treated in a manner similar to others as an inde-
pendent constitutional guarantee."^'' The Equal Protection Clause does
not invalidate the government's ability to classify people, **but it does
guarantee that those classifications will not be based upon impermissible
criteria or arbitrarily used to burden a group of individuals."^^
There are three standards of review which the Court may utilize
when analyzing equal protection issues. ^^ If the class involved is one
that the Supreme Court has termed an ''insular minority" or a "suspect
class," the case is subject to strict scrutiny. '°^ If a case involves a suspect
class, the practice involved will be invalidated unless it can be shown
"that it is pursuing a 'compelling' or 'overriding' end — one whose value
is so great that it justifies the limitations of fundamental constitutional
person of life, liberty, or property, without due process of law; nor deny to
any person within its jurisdiction the equal protection of the laws.
93. 42 U.S.C. § 1983 (1982). Section 1983 provides:
Every person who, under color of any statute, ordinance, regulation, custom,
or usage, of any State or Territory, subjects, or causes to be subjected, any
citizen of the United States or other person within the jurisdiction thereof to
the deprivation of any rights, privileges, or immunities secured by the Constitution
and laws, shall be liable to the party injured in an action at law, suit in equity,
or other proper proceeding for redress.
94. See Halet v. Wend Inv. Co., 672 F.2d 1305 (9th Cir. 1982).
95. U.S. Const, amend. XIV, § 1.
96. J. NowAK, R. Rotunda & J. Young, Constitutional Law § 14.1 (3d ed.
1986). See also Lehr v. Robertson, 463 U.S. 250 (1983); Harris v. McRae, 448 U.S. 297,
reh'g denied, 448 U.S. 917 (1980).
97. J. NowAK, R. Rotunda & J. Young, supra note 96, at § 14.1.
98. Id.
99. Id. at § 14.3.
100. Id. See also United States v. Carolene Products Co., 304 U.S. 144 (1938);
Yick Wo V. Hopkins, 118 U.S. 356 (1886). The other types of review are the rational
relationship test and the intermediate test. Under the rational relationship test, the court
only looks to determine if the classification involved "bears a rational relationship to an
end of government which is not prohibited by the Constitution." J. Nowak, R. Rotunda
& J. Young, supra note 96, at § 14.3. The intermediate test falls between the strict
scrutiny and the rational relationship test. The intermediate test does not invoke the strong
presumption of constitutionality present under the rational relationship test but allows the
government to utilize the classification if it is a reasonable way to achieve a substantial
government end and not an arbitrary classification. The intermediate test has been used
with gender-based classes and illegitimacy cases. Id.
1034 INDIANA LAW REVIEW [Vol. 22:1021
values. "'°' To date, the suspect classes do not include one based on
familial status.'"^ Since families with children are not a suspect class, a
familial discrimination cause of action will not be successful under the
Equal Protection Clause of the fourteenth amendment^"^ unless it can
be shown the discriminatory practice involved is racial discrimination
disguised as familial discrimination. A plaintiff may be better able
to assert a cause of action under the Due Process Clause of the fourteenth
amendment. In Moore v. City of East Cleveland, ^^"^ the Supreme Court
struck down an ordinance prohibiting extended family members from
living together. '°^ The Court, quoting Cleveland Board of Education v,
Lafleur,^^^ stated "freedom of personal choice in matters of marriage
and family life is one of the liberties protected by the Due Process
Clause of the Fourteenth Amendment. "^^^ The Moore case can be dis-
tinguished from familial discrimination cases because the ordinance in-
volved did not merely ban the family in question from the rental unit,
it completely prohibited the family from Hving together and subjected
them to criminal penalties if they did.'^^ However, the Halet court adopted
this view and held:
Family life, in particular the right of family members to live
together, is part of the fundamental right of privacy. . . . The
ordinance in Moore prohibited a household from including certain
extended family members. The policy in this case prohibits a
household from including immediate family members — that is
children. A fundamental right is even more clearly involved here
because the rental policy infringes the choice of parents to live
with their children rather than the choice of more distant re-
lations. ... A fundamental right to be free from state intrusion
in decisions concerning family relationships in the nuclear family
has been clearly recognized. '^^
Under this theory, the court reversed the dismissal of Halet's claim
and remanded it to the district court to determine whether a "genuinely
101. J. NowAK, R. Rotunda & J. Young, supra note 96, § 14.3.
102. See, e.g., Graham v. Richardson, 403 U.S. 365 (1971) (alienage is a suspect
class); Loving v. Virginia, 388 U.S. 1 (1967) (race is a protected class); Hernandez v.
State, 347 U.S. 475 (1954) (national origin is a suspect class).
103. Halet v. Wend Inv. Co., 672 F.2d 1305, 1309 (1982).
104. 431 U.S. 494 (1987).
105. Id.
106. 414 U.S. 632 (1974).
107. Moore v. City of E. Cleveland, 431 U.S. at 499 (quoting Cleveland Bd. of
Educ. V. Lafleur, 414 U.S. 632, 639-40 (1974)).
108. Id.
109. Halet v. Wend Inv. Co., 672 F.2d 1305, 1311 (1982).
1989] FAIR HOUSING AMENDMENTS 1035
significant deprivation" ''° of a fundamental right had taken place, and
if so whether the child-exclusionary policy could stand up to the strict
scrutiny test.'^^ These same arguments sustained Halet's claim of dep-
rivation of rights under Section 1983 of the Civil Rights Act.'^^
Although a plaintiff alleging familial discrimination may show a
Section 1983 or fourteenth amendment deprivation of rights, there is
yet another obstacle to overcome. To maintain a Section 1983 action,
the plaintiff must show the injury was rendered under color of state
lawJ'^ A plaintiff must show state involvement to have a successful
fourteenth amendment due process cause of action. '^^ Essentially, an
action under color of state law and state action are the same.^^^ Halet
alleged he could present evidence of sufficient state action in his particular
case and, therefore, the court directed the district court to grant Halet
leave to amend his complaint to include such allegations.'*^ On remand
the district court found for Halet, awarding him attorney fees and costs. "^
However, many plaintiffs will not be able to show such state in-
volvement because most apartment complex owners have little contact
with the state. This was the result in Langley v. Monumental Corp.,^^^
where the district court held that there was not sufficient state action
when a county ordinance permits familial discrimination. ''^ The court
110. Id. (quoting Hawaii Boating Ass'n v. Water Transp. Facilities Div., 651 F.2d
661, 664-65 (9th Cir. 1981)).
111. Halet, 672 F.2d at 1311.
112. Id. at 1309.
113. Id.
114. Id.
115. Id.
116. Id. at 1310. Specifically, Mr. Halet alleged the following state involvement:
(1) the County owns the land leased to Wend [landlord] for the apartment
complex;
(2) the County acquired and prepared the land using federal and state funds
and used federal services in dredging the harbor in the redevelopment area;
(3) the purchase of land was part of a large redevelopment program;
(4) the County leased the land to Wend for the benefit of the public in providing
housing;
(5) the lease prohibits race or religious discrimination;
(6) the County oversees the development of the area and the design of the
buildings and had final approval of all plans;
(7) the County controls the use and purpose of the apartment and the rent
charged;
(8) Wend pays a percentage of the rentals to the County; and
(9) Wend must abide by all the conditions of the lease.
Id.
117. Familial Discrimination in Rental Housing: The Halet Decision, 28 St. Louis
U.L.J. 1085, 1090 n,36 (1984).
118. 496 F. Supp. 1144 (D. Md. 1980).
119. Id. at 1150.
1036 INDIANA LAW REVIEW [Vol. 22:1021
further stated that invocation of judicial eviction proceedings by the
apartment owner would be sufficient to sustain the state action require-
ment. ^^° Thus, the Halet decision offers only a small portion of familial
discrimination victims relief under the fourteenth amendment Due Process
Clause'21 or under Section 1983 of the Civil Rights Act.'^z
Many plaintiffs seeking relief from child-exclusionary polices have
pursued a cause of action at the state level. ^^^ One of the earliest state
cases involving familial discrimination is the 1946 case of Lamont Building
Co. V. Court .^^"^ In Lamont, the tenants rented an apartment with full
knowledge of the adults-only poHcy and with full knowledge that the
wife was pregnant. When the child was born and began residing in the
apartment, the apartment owner advised the tenants the child must be
removed from the apartment or the family would have to vacate the
premises. Upon the tenants* refusal to leave, the owner filed an action
in forcible entry and detainer. ^^^ The Ohio Supreme Court enforced the
adults-only provision stating the owner of the realty may impose con-
ditions on its occupancy so long as the conditions do not contravene
public policy. '^^ The court further held the child-exclusionary policy was
not injurious to the public. '^^
A California Court of Appeals reached a similar result in Flowers
V. John Burnham & Co.^^^ In Flowers, the court upheld the validity of
a landlord's policy Umiting child tenants to girls of all ages and boys
under five, finding the policy was not unconstitutionally discriminatory
and, therefore, it did not violate California's Unruh Act which guarantees
equal protection. '^^ The Court found the Unruh Act prevents arbitrary
discrimination; however, the court held the poUcy in question was not
120. Id. at 1150-51.
121. U.S. Const, amend. XIV, § 1.
122. 42 U.S.C. § 3604 (1982).
123. See generally Marina Point, Ltd. v. Wolfson, 30 Cal. 3d 721, 640 P.2d 115,
180 Cal. Rptr. 496 (Richardson, J., dissenting), cert, denied, 459 U.S. 858 (1982); Flowers
V. John Burnham & Co., 21 Cal. App. 3d 700, 98 Cal. Rptr. 644 (1972).
124. 147 Ohio St. 183, 70 N.E.2d 447 (1946) (Bell, J., dissenting).
125. Id.
126. Id. at 183, 70 N.E.2d at 448.
127. Id.
128. 21 Cal. App. 3d 700, 98 Cal. Rptr. 644 (1972).
129. Cal. Civ. Code §§ 51, 52 (West 1970). Section 51 provided in part:
All persons within the jurisdiction of this State are free and equal, and no
matter what their race, color, religion, ancestry, or national origin are entitled
to the full and equal accommodations, advantages, facilities, privileges, or services
in business establishments of every kind whatsoever.
Section 52 specified the damages for violation of § 51. Flowers, 21 Cal. App. 3d at 702,
98 Cal. Rptr. at 644-45.
1989] FAIR HOUSING AMENDMENTS 1037
arbitrary "[bjecause the independence, mischievousness, boisterousness,
and rowdyism of children vary by age and sex."^^°
Approximately ten years after the Flowers decision, the California
Supreme Court decided the landmark case of Marina Point, Ltd. v.
Wolfson,^^^ which effectively overruled Flowers. In Marina Point, an
apartment complex owner altered his policy to ultimately exclude children
after plaintiffs had assumed residency. The owner allowed the children
who were present when the policy took effect to remain there. Plaintiffs
had their first child after the policy was instituted. The owner sought
to evict plaintiffs who asserted the no-children policy violated the Cal-
ifornia Unruh Act.'^^ The court invalidated the policy stating 'Hhe Unruh
Act does not permit a business enterprise to exclude an entire class of
individuals on the basis of a generalized prediction that the class *as a
whole' is more likely to commit misconduct than some other class of
the public. "•"
In its discussion, the court stated that if owners could exclude children
from rental housing under the Unruh Act, then all business owners
could technically exclude children from their enterprises. ^^"^ The court
distinguished familial discrimination from the validity of age discrimi-
nation retirement communities noting housing for the elderly meets a
specialized social need. In its conclusion, the court made a very strong
statement against familial discrimination:
A society that sanctions wholesale discrimination against its chil-
dren in obtaining housing engages in suspect activity. Even the
most primitive society fosters the protection of its young; such
a society would hardly discriminate against children in their need
for shelter. ... To permit such discrimination is to approve of
widespread, and potentially universal, exclusion of children from
housing. Neither statute nor interpretation of statute, however,
sanctions the sacrifice of the well-being of children on the alter
[sic] of a landlord's profit, or possibly some tenant's conven-
ience. ^^^
The dissent, however, noted the poUcy was not designed to provide
** wholesale discrimination against children" but to recognize there are
two conflicting interests involved. '^^ Children should be protected from
130. Flowers at 703, 98 Cal. Rptr. at 645.
131. 30 Cal. 3d 721, 640 P.2d 115, 180 Cal. Rptr. 496 (Richardson, J., dissenting),
cert, denied, 459 U.S. 858 (1982).
132. Id. at 724, 640 P.2d at 118. 180 Cal. Rptr. at 499-500.
133. Id. at 744, 640 P.2d at 125, 180 Cal. Rptr. at 507.
134. Id. at 739, 640 P.2d at 126, 180 Cal. Rptr. at 508.
135. Id. at 744, 640 P. 2d at 129, 180 Cal. Rptr. at 510.
136. Id. at 745, 640 P.2d at 130, 180 Cal. Rptr. at 511.
1038 INDIANA LAW REVIEW [Vol. 22:1021
widespread housing discrimination, yet adults may have a legitimate
desire to live in a child-free environment. ^^^ The dissent stated that a
"just society and its law courts" should attempt to accommodate both
groups. ^^^ However, the Marina Point decision effectively prohibited
famiUal discrimination poHcies in all apartment complexes in California. '^^
Although some plaintiffs alleging familial discrimination have re-
ceived reUef through judicial decisions, there are many who will be
unable to obtain such relief. It is very expensive and time consuming
to initiate legal action. Many victims of famihal discrimination will not
be able to finance a lawsuit and, therefore, cannot receive judicial relief.
The Fair Housing Act'"^^ provides that the Secretary of Housing and
Urban Development (HUD) will investigate allegations of housing dis-
crimination, and also provides proper enforcement mechanisms. ^"^^ How-
ever, HUD receives complaints concerning less than one percent of the
instances of discrimination and of those presented, HUD attempts to
resolve only one-third. ^'*^
4. State Legislative Action. — At the present time, seventeen states
and the District of Columbia have legislation prohibiting or limiting
familial discriminatory practices.'"*^ These statutes vary in the classes they
protect and the exceptions they allow. They do not provide adequate
relief in the areas of the country where famiUes with children face a
serious plight.
Many of the statutes prohibit familial discrimination, but provide
many exceptions.*"^ For example, the Virginia statute provides in part:
"It shall be an unlawful discriminatory housing practice because of . . .
137. Id.
138. Id.
139. See San Jose Country Club Apartments v. County, 137 Cal. App. 3d 951,
187 Cal. Rptr. 493 (1982).
140. 42 U.S.C. §§ 3610-3611 (1982).
141. Id. at §§ 3608, 3610.
142. The Necessity for Shelter, supra note 10, at 510 n.l79. The remaining two-
thirds of the complaints received are diverted to local agencies.
143. Alaska Stat. § 18.80.240 (1986); Ariz. Rev. Stat. Ann. § 33-1315 (1974);
Cal. Crv. Code § 51.2 (West 1982 & Supp. 1988); Conn. Gen. Stat. Ann. § 46a-64
(West 1958 & Supp. 1988); Del. Code Ann. tit. 25, § 6503 (1974 & Supp. 1986); D.C.
Code Ann. § 1-2511 (1987); III. Ann. Stat. ch. 68, para. 3-104 (Smith-Hurd 1959 &
Supp. 1988); Me. Rev. Stat. Ann. tit. 14, § 6027 (1964 & Supp. 1987); Mass. Gen.
Laws Ann. ch. 151B, § 4 (West 1982 & Supp. 1988); Mich. Comp. Laws Ann. § 37.2502
(West 1985); Minn. Stat. Ann. § 363.03 (West 1982 & Supp. 1988); Mont. Code Ann.
§ 49-2-305 (1987); N.H. Rev. Stat. Ann. § 354-A:8 (1984); N.J. Stat. Ann. § 2A:42-
101 (West 1952 & Supp. '1987-88); N.Y. Exec. Law § 296 (McKinney 1982 & Supp.
1988); R.I. Gen. Laws § 34-27.4 (1984 & Supp. 1988); Vt. Stat. Ann. tit. 9 § 4505
(1984 & Supp. 1987); Va. Code Ann. § 36-88 (1984 & Supp. 1988).
144. Alaska Stat. § 18.80.240 (1986); Va. Code § 36-88 (1984 & Supp. 1988).
1989] FAIR HOUSING AMENDMENTS 1039
parenthood ... [t]o refuse to sell or rent after the making of a bona
fide offer, or to refuse to negotiate for the sale or rental of, or otherwise
make unavailable or deny, a dwelling. "^"^^ At first glance, it appears the
statute totally prohibits familial discrimination. However, the statute
continues and states: ''Notwithstanding the foregoing provisions, it shall
not be an unlawful discriminatory housing practice to operate an all-
adult or all-elderly community. . . ."^"^^ In effect, a landlord may establish
an all-adult community if it is specified as such. If, however, the
community is not classified as an all-adult or all-elderly community, it
is unlawful to practice familial discrimination.''*^
Some of the state statutes do not place the prohibition of familial
discrimination within their fair housing law section. '"^^ This limits the
remedies which are available to victims of child-exclusionary policies. '^^
Other statutes place familial discrimination within the civil rights section,
but in sections separate from the main text where other protected classes
{e.g., race, religion, sex) are located. '^° The Illinois statute dealing with
familial discrimination provides protection only for children under the
age of fourteen; '^' New Hampshire exempts communities where all re-
sidents are at least forty-five while Michigan sets the age at fifty.'"
A few of these statutes allow familial discriminatory policies in a
portion of the buildings of a large community.'" For example, in Mas-
sachusetts, if the complex contains one hundred or more buildings,
145. Va. Code Ann. § 36-88 (1984 & Supp. 1988).
146. Id.
147. Alaska Stat. § 18.80.240 (1986); Va. Code Ann. § 36-88 (1984 & Supp.
1988).
148. Alaska Stat. § 18.80.240 (1986); Ariz. Rev. Stat. Ann. § 33-1315 (1974);
Cal. Civ. Code § 51.2 (West 1982 & Supp. 1988); Del. Code Ann. tit. 25 § 6503 (1974
& Supp. 1986); Me. Rev. Stat. Ann. tit. 14 § 6027 (1964 & Supp. 1987); N.J. Stat.
Ann. § 2A:42-101 (West 1952 & Supp. 1987-88); N.Y. Exec. Law § 296 (McKinney 1982
& Supp. 1987).
149. Hearings, supra note 9, at 398 stimony of James B. Morales, Staff Atty.,
Nat'l Center for Youth Law].
150. Ariz. Rev. Stat. Ann. § 33-1315 (1974); Cal. Civ. Code § 51.2 (West 1982
& Supp. 1988); Del. Code Ann. tit. 25 § 6503 (1974 & Supp. 1986); III. Ann. Stat.
ch. 68, para. 3-104 (Smith-Hurd 1959 & Supp. 1988); Me. Rev, Stat. Ann. tit. 14, §
6027 (1964 & Supp. 1987); Mass. Gen. Laws Ann. ch. 15 IB § 4 (West 1982 & Supp.
1987).
151. III. Ann. Stat. ch. 68, para. 3-104 (Smith-Hurd 1959 & Supp. 1988).
152. Mich. Comp. Laws Ann. § 37-2502 (West 1985); N.H. Rev. Stat. Ann. §
354-A:8 (1984).
153. Mass. Gen. Laws Ann. ch. 15 IB, § 4 (West 1982 & Supp. 1988). See also
Minn. Stat. Ann. § 363.03 (West 1966 & Supp. 1988) (which permits familial discrimination
pohcies in one-third of a complex's buildings); Me. Rev. Stat. Ann. tit. 14 § 6027 (1964
& Supp. 1987) (which permits discriminatory practices in 25 percent of the units within
a complex).
1040 INDIANA LAW REVIEW [Vol. 22:1021
children may be excluded from one-half. ^^"^ While allowing a portion of
the complex to restrict children attempts to recognize the needs and
desires of families with children and those adults who wish to live in
a child-free environment, these methods are criticized as providing a
**major loophole" which promotes familial discrimination.^"
Some familial rights advocates criticize the state statutes alleging the
statutes provide weak enforcement procedures. *^^ The majority of these
laws provide a private cause of action which may be too expensive and
time-consuming for the injured party to pursue. '^^ The rehef available
to the plaintiff is inadequate and often allows the discriminatory policies
to continue, and worse, the plaintiff and family may still be without
housing. Many states have established administrative agencies to handle
the complaints and enforcement of their fair housing statutes. '^^ This
alleviates the necessity of the plaintiff financing a lawsuit, but it may
not be effective. For example, California passed its statute prohibiting
familial discrimination in 1982, but the administrative agency directed
to handle these matters refused to take action for over two years. ^^^
In addition to the civil penalties, some state statutes impose criminal
penalties for violations. ^^° These may be the least effective way of
achieving enforcement as the prosecuting attorneys may be reluctant to
prosecute a landlord, and this type of case will not demand their time
when compared to more serious crimes.'^'
To summarize, state legislative schemes provide haphazard protection
for families with children who face discrimination in rental housing.
Some allow apartment complexes to be registered as all-adult commu-
nities, and state it is only discrimination if communities not registered
as such exclude children. ^^^ Others only prohibit discrimination against
children under a certain age, provide exemptions down to the age of
forty-five, or allow a certain percentage of buildings within a complex
154. Mass. Gen. Laws Ann. ch. 151B § 4 (West 1982 & Supp. 1988).
155. Hearings, supra note 9, at 396-97.
156. Id.
157. See, e.g., Cal. Civ. Code § 51.2 (West 1982 & Supp. 1988); Mich. Comp.
Laws Ann. § 37:2502 (West 1985); N.Y. Exec. Law § 296 (McKinney 1982 & Supp.
1987); Va. Code Ann. § 36-88 (1984 & Supp. 1988).
158. See generally Cal. Civ. Code § 51.2 (West 1982 & Supp. 1988); Conn. Gen.
Stat. Ann. § 46a-64 (West 1958 & Supp. 1988); Mont. Code Ann. § 49-2-305 (1987).
159. Hearings, supra note 9, at 400-01 n.57. The administrative agency claimed they
did not have adequate resources or lacked legal authority to handle familial discrimination
complaints. They began handling such complaints after receiving political pressure and
familial discrimination complaints constituted 30 percent of the housing complaints received.
160. Id. at 396-97.
161. Id.
162. See supra note 147 and accompanying text.
1989] FAIR HOUSING AMENDMENTS 1041
to be designated as adults-only. Often, the enforcement procedures do
not provide adequate relief.
III. The Fair Housing Amendments Act of 1988
The Amendments to the Fair Housing Act which was passed on
September 13, 1988, added families with children to the hst of protected
groups.^" The Amendments also modified enforcement procedures to
make them more effective. The purpose of the Amendments was to
alleviate the problems families with children face in finding adequate
rental housing.'^ However, the problems faced by low income families
with children will not be alleviated by the Amendments.
A. Modified Procedures
Prior to the 1988 Amendments, all discriminatory housing complaints
referred to HUD or private civil actions had to commence within 180
days.'^^ Under the terms of the Amendments, a complaint about an
apartment owner may be filed with HUD within one year of the alleged
discriminatory act.'^^ This allows the aggrieved person to take care of
the immediate problem of locating housing before proceeding with the
complaint, and alleviates the problems associated with a short statute
of limitations. The new Act shortens the amount of time HUD has to
investigate a complaint after its receipt from thirty to ten days. The
Act still provides the accused apartment owner an opportunity to file
an answer, but the owner must now file an answer within ten days of
receiving notification of the complaint. '^^ The Amendments further pro-
vide HUD must complete all investigations within 100 days.^^^
Under both the prior law and the Amendments, HUD officials may
engage in conciliatory actions to the extent feasible. ^^^ The conciliation
agreement may provide for binding arbitration of the dispute. '^° If HUD
or the aggrieved person can show that the owner has breached the
conciliation agreement, the Attorney General may commence a civil action
163. Fair Housing Amendments Act of 1988, Pub. L. No. 101-430, 102 Stat. 1622
(1988).
164. See Hearings, supra note 9.
165. 42 U.S.C. §§ 3610, 3612 (1982).
166. Fair Housing Amendments Act of 1988, Pub. L. No. 101-430, 102 Stat. 1624-
25 (1988).
167. Id.
168. Id. If HUD cannot complete the investigation within the requisite 100 days,
the appropriate HUD official must notify both parties in writing. Id.
169. Id. at 1626.
170. Id.
1042 INDIANA LAW REVIEW [Vol. 22:1021
within 90 days of the alleged breach. '^^ The Amendments further provide
in emergency situations HUD may initiate a civil action seeking temporary
relief for the aggrieved person immediately after the filing of the com-
plaint.'*^^ If HUD believes no conciUatory agreement will be reached,
and HUD finds reasonable cause to believe the owner has discriminated,
HUD officials are to turn their investigate results over to the Attorney
General who will commence civil action against the owner. '^^ These
modifications take the burden of financing a lawsuit off of the tenant
and provide immediate remedial measures if the aggrieved person is
unable to locate rental housing.
In addition, unless an election otherwise is made, an administrative
law judge appointed pursuant to federal regulations presides over the
hearing. '"^"^ This hearing must be held within 120 days of the filing of
the charge. '^^ The judge must report a decision within 60 days of
completion of the hearing. '^^ If the administrative law judge finds an
apartment owner has or is about to engage in discriminatory activity,
the judge * 'shall promptly issue an order for such relief as may be
appropriate, which may include actual damages suffered by the aggrieved
person and injunctive or equitable relief. Such order may, to vindicate
the public interest, assess a civil penalty against the respondent. . . ."'"'^
If no discriminatory action took place or was about to take place, the
action will be dismissed. However, the lawsuit will injure the owner to
the extent he had to finance his defense. This will provide a deterrent
against the temptation of engaging in discriminatory practices.
Any party to the final order of the administrative law judge may
obtain judicial review of the order pursuant to the federal regulations
governing the appellate process. '^^ Jurisdiction for judicial review is in
the judicial circuit where the alleged discriminatory activity occurred. '^^
If HUD officials do not enforce the administrative law judge's findings,
nor seek judicial review of the findings, the party entitled to rehef may
seek a decree enforcing the order from the Court of Appeals in the
171. Id.
111. Id.
173. Id.
174. 5 U.S.C. § 3105 (1982).
175. Fair Housing Amendments Act of 1988, Pub. L. No. 101-430, 102 Stat. 1625,
1630 (1988).
176. Id.
111. Id. The civil penalties begin at $10,000 and range to $50,000, the amount
assessed increasing if the owner has been adjudicated as having practiced discriminatory
housing policies within the recent past. Id.
178. 28 U.S.C. § 158 (1982).
179. Fair Housing Amendments Act of 1988, Pub. L. No. 100-430, 102 Stat. 1625,
1631 (1988).
1989] FAIR HOUSING AMENDMENTS 1043
circuit where the violation occurred. '^° Again, the court from which
judicial review is sought may issue temporary orders to alleviate any
pressing problems faced by the aggrieved party. ^^^ The Amendments
further provide that an aggrieved person may commence a civil action
in a district court without utilizing HUD services or they may initiate
such an action on their own for the breach of a conciliation agreement. '^^
The tenant must finance the lawsuit when he initiates it. The aggrieved
party must initiate the action within two years of the occurrence of
either the discriminatory practice or the breach of the conciliation agree-
ment.'^^ However, if HUD obtained a conciUation agreement or an
administrative law hearing has begun, the tenant cannot commence a
civil action in a court of law.'^'* Under both the Fair Housing Act and
the Amendments, there is a provision that a private person may have
the court appoint an attorney for him if the requisite need can be
shown. '^^ The same relief is available to a private person who commences
a civil action as there is for a person who proceeds through HUD.'^^
There are advantages and disadvantages with a tenant utilizing HUD's
services and with a tenant filing a private action. Allowing HUD to
investigate, attempt conciUation, or the Attorney General to file an action
against the apartment owner removes the expense of financing a lawsuit
from a tenant's shoulders. This provides a way for many low income
persons to be heard. The advantage of filing a private action is that
the plaintiff is able to maintain more control over the suit. For most
tenants, the decision will rest on the amount of money necessary to
maintain a cause of action.
The Amendments provide that the Attorney General may commence
a civil action in district court when he believes discriminatory practices
prohibited by the Fair Housing Act are taking place or have taken
place. '^^ The Attorney General may also intervene in an action initiated
by a private person if "the case is of general pubhc importance. "'^^ In
a civil action maintained privately or by the Attorney General, the court
may order injunctive or other preventive reHef, award monetary damages
and access civil penalties. '^^
180. Id. at 1632.
181. Id.
182. Id. at 1633. In all matters commenced under the Fair Housing Act, the amount
in controversy requirement is waived. Id.
183. Id.
184. Id.
185. Id.
186. Id.
187. Id. at 1626.
188. Id. at 1633.
189. Id. at 1636. The Amendments provide that the Court:
1044 INDIANA LAW REVIEW [Vol. 22:1021
The overall purpose behind the 1988 Amendments is to include
families with children in the list of classes protected from housing
discrimination and to increase the ease and effectiveness of the enforce-
ment measures. '^^ This has been accomplished by lengthening the time
in which to file the action and decreasing the time in which HUD has
to respond. Under the terms of the Amendments, the parties may agree
to submit to binding arbitration or the matters may be heard by ad-
ministrative law judges with a provision for judicial review. Civil action
may be commenced upon the breach of a concihation agreement, by a
private person who chooses to proceed without HUD's services, or by the
Attorney General if there is reasonable cause to beheve discriminatory
practices are taking place. The Amendments provide for immediate relief,
when necessary, injunctive relief, equitable relief, monetary damages and
civil penalties, the amount of which may increase if the owner has
violated the Fair Housing Act in recent years.
B. Shortcomings of the Fair Housing Amendments Act of 1988
As has been estabhshed previously, there are areas of the country
where families with children face serious problems in locating adequate
rental housing. '^^ The 1988 Amendments'^^ to the Fair Housing Act'^^
totally prohibit child-exclusionary policies nationwide.'^"* However, such
broad-sweeping legislation is not necessary nor is it appropriate. Initially,
one must realize that child-exclusionary policies have not arisen out of
hatred. FamiUal rights advocates have placed famihal discrimination on
the same level as racial discrimination. For example, the majority in
Marina Point stated, ''[t]o permit such discrimination is to approve of
widespread, and potentially universal, exclusion of children from housing.
Neither statute nor interpretation of statute, however, sanctions the
(A) may award such preventive relief, including a permanent or temporary
injunction, restraining order, or other order against the person responsible for
a violation of this title as is necessary to assure the full enjoyment of the rights
granted by this title,
(B) may award such other relief as the court deems appropriate, including
monetary damages to persons aggrieved, and
(C) may to vindicate the public interest, assess a civil penalty against the
respondent -
(i) in an amount not exceeding $50,000 for a first violation; and
(ii) in an amount not exceeding $100,000 for any subsequent violation.
190. Id. at 1624-36.
191. See supra note 6 and accompanying text.
192. Fair Housing Amendments Act of 1988, Pub. L. No. 100-430, 102 Stat. 1619-
1636 (1988).
193. 42 U.S.C. § 3601-3631 (1982).
194. Pub. L. No. 100-340, 102 Stat. 1625 (1988).
1989] FAIR HOUSING AMENDMENTS 1045
sacrifice of the well-being of children on the alter [sic] of a landlord's
profit, or possibly some tenants' convenience."'^^
Alternatively, the Marina Point dissenting opinion recognizes there
are two sides to every issue, and that if the question were phrased
differently, the response would not be the same.'^^ Additionally, the
dissent states there should be an attempt to accommodate both families
with children and those wanting to live in an all-adult community. The
dissent in Marina Point notes that rather than asking if we should
approve ''whole sale discrimination against children,"'^ the question
could be phrased "do our middle aged or older citizens, having worked
long and hard, having raised their own children, having paid both their
taxes and their dues to society retain a right to spend their remaining
years in a relatively quiet, peaceful and tranquil environment of their
own choice? '"^^ The dissent indicates a compromise between the two
extremes would be more appropriate.
Under the Amendments, retirement communities may continue to
exclude children. '^^ However, the Amendments ignore the rights and
needs of young and middle-aged adults without children. Statistics show
that adults without children occupy over two-thirds of the rental units^°^
and that persons under age thirty-five occupy over one-half of these
households. ^°' This Note does not dispute the necessity for legislation
limiting the number of apartment units which exclude children; what
the Note disputes is its total prohibition of all-adult apartment com-
munities. This total prohibition is too broad when adults without children
occupy 67.6 percent of the rental units and there is no substantial data
measuring the extent of familial discrimination nationwide. ^'^^
Studies have documented that the families with children facing the
greatest problem in locating rental housing are low income families. ^°^
The California Supreme Court stated that landlords have instituted fa-
milial discriminatory policies so that they may charge a premium for
their rental units. ^^ However, the latter proposition is not an accurate
assessment. The ISR study completed in 1980 stated:
195. Marina Point, Ltd. v. Wolfson, 30 Cal. 3d 745, 745, 640 P.2d 115, 129, 180
Cal. Rptr. 496, 511 (Richardson, J., dissenting), cert, denied, 459 U.S. 858 (1982).
196. Id. at 745, 640 P.2d at 130, 180 Cal. Rptr. at 511 (Richardson, J., dissenting).
197. Id.
198. Id.
199. Fair Housing Amendments Act of 1988, Pub. L. No. 100-430, 102 Stat. 1619-
1636 (1988).
2(K). See supra note 57 and accompanying text.
201. See supra note 58 and accompanying text.
202. See supra note 55 and accompanying text.
203. See supra notes 73-75 and accompanying text. See also Hearings, supra note
9, at 373 stimony of James B. Morales, Staff Atty, Nat'l Center for Youth Law].
204. Marina Point, Ltd. v. Wolfson, 30 Cal. 3d 271, 744, 640 P.2d 115, 129, 180
Cal. Rptr. 496, 511 (Richardson, J., dissenting), cert, denied, 459 U.S. 858 (1982).
1046 INDIANA LAW REVIEW [Vol. 22:1021
Families with children pay a significantly higher monthly rent
than families without children, primarily because they tend to
occupy larger units. When the number of bedrooms and the
occupancy per unit are held constant no significant differences
are found between the monthly rents of the two groups. The
higher cost of rental housing for families with children is at-
tributable to the greater number of persons in the household
and the size of the unit rented. ^^^
The all-adult units which command such high prices often offer
extra facilities. Adult communities are often equipped with attractive
nuisances such as saunas, whirlpools, exercise facilities and swimming
pools, which account for the increased rental price. ^°^ Even when these
apartments can no longer exclude children, the rental price will not
decrease enough to be within the affordable price range for low income
families. Until owners build more low and moderately priced rental
housing, low income families will be unable to locate adequate housing.
Additionally, at least one study stated that minority groups and
households headed by women feel the greatest impact of exclusionary
policies. ^^^ However, the ISR study concluded this is not the case.^^^
Logic explains the differing results. Minorities and female head of house-
hold families tend to fall within the lower income brackets, and when
the study accounts for those variables, the disparities between minorities,
women and the general rental population come close to disappearing. ^°^
The drafters of the Amendments failed to reaUze that many apartment
complexes have been designed and built for adults-only and, therefore,
are inherently dangerous to children. The dissent in Marina recognized
this danger stating:
The evidence before the trial court established, in substance, that
Marina Point was designed and constructed for the purpose of
providing all-adult rental housing, and that as such its facilities
were ill-adapted for use by children. . . . [T]he use of existing
facilities at Marina Point by children when playing results in
substantial danger both to themselves and to adult tenants alike. ^'°
205. R. Marans & M. Colten, supra note 4, at 72.
206. Marina Point, Ltd., at 744, 640 P. 2d at 130, 180 Cal. Rptr. at 511 (Richardson,
J., dissenting).
207. J. Greene & G. Blake, supra note 68, at 72.
208. R. Marans & M. Colten, supra note 4, at 72.
209. See id.
210. Marina Point, Ltd., at 746, 640 P. 2d at 130-31, 180 Cal. Rptr. at 512 (Ri-
chardson, J., dissenting).
1989] FAIR HOUSING AMENDMENTS 1047
Although all the dangers faced by children can never be eliminated,
those apartment complexes designed exclusively for adults should remain
just that, all-adult communities.
The 1988 Amendments could be the impetus for apartment owners
to withdraw or remain out of the rental market. From 1970 to 1976,
owners removed approximately 250,000 rental units which were con-
structed before 1965 from the market each year.^'* This phenomenon,
combined with the decreased number of multifamily units on which
construction has begun, ^'^ causes increased problems for potential tenants.
If developers and landlords perceive children as a problem to avoid,
and they realize they cannot avoid children, they will remove their units
from the rental market or forego construction.
In parts of the country, there is a severe problem confronting families
with children who are attempting to locate rental housing. ^'^ However,
no statistics measure the extent of the problem nationwide. Lower income
families face the gravest difficulty in locating adequate rental housing.
The 1988 Amendments to the Fair Housing Act in part eliminate familial
discrimination.^''* They will not, however, eliminate the problems faced by
low income families since it will not significantly lower rental costs. In
addition, the drafters of the Amendments failed to recognize the needs
and desires of the greatest portion of the rental population — adults
without children. Finally, the drafters of the Amendments did not con-
sider the inherent dangers children may face when they occupy apartments
which have been designed and built for an all-adult clientele.
IV. Shortcomings of Total Prohibition of All Adult Apartment
Communities
Familial discrimination, unlike racial discrimination, is not based on
hatred. There are legitimate reasons why adults desire to live in a child-
free environment and why apartment owners want to restrict their rental
units to adults-only. Rather than assuming such desires are based on
hatred or greed. Congress and the courts should look at both sides of
the issue.
A. The Rights of Adults to Live in a Child-Free Environment
The New Jersey Supreme Court stated that '*[t]here cannot be the
slightest doubt that shelter, along with food, are the most basic human
211. A. Downs, supra note 3, at 40.
212. See supra notes 44-45 and accompanying text.
213. See supra note 6 and accompanying text.
214. Fair Housing Amendments of 1988, Pub. L. No. 100-430, 102 Stat. 1619-36
(1988).
1048 INDIANA LAW REVIEW [Vol. 22:1021
needs. ... It is plain beyond dispute the proper provision for adequate
housing of all categories of people is certainly an absolute essential in
promotion of the general welfare. . . .*'^^^ The supporters of all-adult
communities are not attempting to deny families with children a place
to live, but are asserting that they also have rights, one of which is to
live in a child-free environment if they so desire.
Over two-thirds of the occupied rental units have no residents under
the age of eighteen,^^^ yet the majority of the rental population are not
allowed to choose their living environment under terms of the 1988
Amendments. In 1972, the California Supreme Court stated that children
are more independent, boisterous, and rowdy.^'^ This is only one reason
adults without children choose to live in an all-adult community.
In addition, it may be much easier to find amenities such as saunas,
whirlpools, swimming pools, and exercise facilities in all-adult com-
munities. These amenities become attractive nuisances when children are
present. If children are allowed to become residents of apartment com-
plexes with such facilities, owners may limit the hours of availability
or eliminate such facihties.
Furthermore, the Department of Commerce has documented that
certain crimes associated with residences are highly likely to be committed
by minors.^'^ Specifically, 1988 statistics show that 32 percent of all
thefts, 35.9 percent of all burglaries, 40.4 percent of all arsons, and
42.8 percent of all vandalism is committed by persons under the age
of eighteen. ^'^
In Halet v. Wend Investment Co.,^^^ the Ninth Circuit held that
"the right of family members to live together is part of the fundamental
right to privacy. "^^' However, adults without children have a similar
right to privacy when deciding where to live their lives and a similar
right to equal protection under the fourteenth amendment of the Con-
stitution. The Supreme Court in Eisenstadt v. Baird^^^ held that single
people cannot be treated differently than married people as far as the
distribution of contraceptives is concerned. ^^^ The Court held:
215. Southern Burlington County NAACP v. Mount Laurel, 336 A.2d 713, 727
(N.J.), cert, denied, 423 U.S. 808 (1975).
216. See supra note 57 and accompanying text.
217. Flowers v. John Burnham & Co., 21 Cal. App. 3d 700, 98 Cal. Rptr. 644
(1972).
218. U.S. Dept. of Commerce, Bureau of the Census. Statistical Abstract of
THE United States, 165, 278 (108 ed. 1988).
219. Id.
220. 672 F.2d 1305 (9th Cir. 1982).
221. Id. at 1311.
222. 405 U.S. 438 (1972).
223. Id.
1989] FAIR HOUSING AMENDMENTS 1049
If under Griswold the distribution of contraceptives to married
persons cannot be prohibited, a ban on distribution to unmarried
persons would be equally impermissible. ... [I]f the right of
privacy means anything, it is the right of the individual, married
or single, to be free from unwanted governmental intrusion into
matters so fundamentally affecting a person as the decision
whether to bear or beget a child. ^^"^
Similarly, single people should not be treated differently than families
with children and should be granted the fundamental right to privacy
and, therefore, the ability to decide where and in what manner they
will live.
Tenants raised the right to privacy and equal protection arguments
in San Jose Country Club Apartments v. County of Santa ClaraP^ The
court rejected both arguments stating the cause of action involved no
fundamental right.^^^ However, in Halet,^^^ the Ninth Circuit held that
*'[f]amily life, in particular the right of family members to live together,
is part of the fundamental right of privacy. "^^^ Therefore, the right to
privacy and the equal protection argument of adults without children
merit discussion.
The Court of Appeals for the District of Columbia stated '*[l]iberty
under law extends to the full range of conduct which the individual is
free to pursue. "^^^ Thus, liberty extends to one's right to decide how
and where he will live. In Shelton v. Tucker,^^^ the Supreme Court held:
[E]ven though the governmental purpose be legitimate and sub-
stantial, that purpose cannot be pursued by means that broadly
stifle fundamental personal liberties when the end can be more
narrowly achieved. The breadth of legislative abridgement must
be viewed in the light of less drastic means for achieving the
same basic purpose. ^^*
The 1988 Amendments constitute a total ban on all-adult apartment
communities with an exception for retirement communities. ^^^ Studies
224. Id. at 453.
225. 137 Cal. App. 3d 948, 198 Cal. Rptr. 493 (1982). This case was decided shortly
after Marina Point, Ltd.
226. Id. at 954, 198 Cal. Rptr. at 496.
227. 672 F.2d 1305 (1982).
228. Id. at 1311.
229. Ricks v. District of Columbia, 414 F.2d 1097, 1101 (D.C. Cir. 1968) (quoting
Boiling V. Sharpe, 347 U.S. 497 (1954)).
230. Shelton v. Tucker, 364 U.S. 479 (1960).
231. Id. at 488 (footnotes omitted).
232. Fair Housing Amendment of 1988, Pub. L. No. 100-340, 102 Stat. 1619-36
(1988).
1050 INDIANA LAW REVIEW [Vol. 22:1021
have not documented that families with children face serious problems
finding adequate rental housing nationwide.^" However, studies have
documented that 67.6 percent of all rental households have no residents
under the age of eighteen^^"^ and low income families with children face
a serious problem locating adequate rental housing. ^^^ Therefore, the
Fair Housing Amendments Act of 1988 stifles liberty, a fundamental
right.
The one exception to the ban on child-exclusionary policies is re-
tirement communities. ^^^ In Taxpayers Association of Weymouth Town-
ship, Inc. V. Weymouth Township, ^^'^ the New Jersey Supreme Court
recognized that the elderly were a class deserving special treatment. ^^^
The court noted that the elderly have specialized housing needs because
they have fixed and limited incomes. ^^^ Although familial rights advocates
state that child-exclusionary policies are the reason so many families
cannot locate adequate housing, the real cause of the problem is limited
income. ^"^^ Rather than prohibiting all-adult apartment communities and
adversely affecting the rights of over two-thirds of the rental households,
the legislation should turn its efforts toward providing adequate rental
housing within the economic means of low income families.
B. Apartment Owners and the Free Enterprise System
In America's capitalistic society, supply increases to meet demand. ^^'
Therefore, if all-adult communities eventually become too widespread,
and families with children cannot locate housing due to exclusionary
policies, apartment owners will invest in apartment complexes which
welcome children. The supply will fit itself to the needs of the demand.
However, it will take time to achieve the balance. In some areas of the
country, families with children face severe problems and the requisite
time is not available. Thus, some form of legislation is necessary, but
it need not be as prohibitive as the 1988 Amendments.
The court in Marina Point characterized landlords who exclude
children as being greedy, ^'^^ and the connotation was that these landlords
233. See R. Marans & M. Colten, supra' noiQ 4.
234. See supra note 57 and accompanying text.
235. See supra note 203 and accompanying text.
236. Fair Housing Amendment of 1988, Pub. L. No. 100-430, 102 Stat. 1619-36
(1988).
237. 71 N.J. 249, 364 A.2d 1016 (1976), cert, denied, 430 U.S. 977 (1977).
238. Id.
239. Id. at 267-68, 364 A.2d at 1026.
240. See supra notes 56-61 and accompanying text.
241. R. McKenzie, Economics 44-66 (1986).
242. Marina Point, Ltd. v. Wolfson, 30 Cal. 3d 721, 745, 640 P.2d 115, 129, 180
Cal. Rptr. 496, 511 (Richardson, J., dissenting), cert, denied, 459 U.S. 858 (1982).
1989] FAIR HOUSING AMENDMENTS 1051
are evil.^'*^ However, there are legitimate reasons why landlords want to
restrict their apartments to all adults. Initially, familial rights advocates
must recognize that landlords are first and foremost business persons
who provide rental housing to make a profit, a reasonable endeavor.
With the decline in the number of women who have children, and
the increase in the number of two-career families, ^'*^ landlords saw an
increased demand for all-adult communities. Landlords and land de-
velopers responded by providing apartment communities which restricted
or excluded children. ^''^ The owners designed and developed many of
these complexes for adults-only.^"^^ Apartment owners realize that they
are held to a higher standard of care in negligence actions when children
are present because accidents concerning children are foreseeable and,
therefore, have a legitimate interest in excluding or restricting children. ^'^^
Thus, a landlord's interest in excluding children from rental units is a
legitimate economic one not solely motivated by greed.
There are no statistics reflecting whether or not the presence of
children leads to increased maintenance costs and increased insurance
costs. However, the ISR study reflects that 81 percent of the landlords
surveyed felt that higher maintenance costs were a problem associated
with child tenants and 38 percent felt higher insurance costs were a
similar problem, ^"^^ When one combines these factors with rents which
are inadequate to meet construction and operating costs, ^"^^ landlords
face an economically infeasible situation. If their operating costs increase.
243. Id.
244. See supra note 49 and accompanying text.
245. See id.
246. See supra note 206 and accompanying text.
247. See generally D. Dobbs, R. Keeton & D. Owen, Prosser and Keeton on
Torts 200-01 (5th ed. 1984) ("The question comes down essentially to one of whether
the foreseeable risk outweighs the utihty of the actor's conduct.") Id. Kopera v. Moschella,
400 F. Supp. 131 (S.D. Miss. 1975) (complex owners were negligent in faiUng to have a
lifeguard on duty at the pool, to fence the area and secure it with a gate, to cover the
pool during time when the weather was not conducive to its use and to maintain rescue
equipment in the area of the pool; their negligence was the proximate cause of death);
Lidster v. Jones, 176 Ga. App. 392, 336 S.E.2d 287 (1985) (landlord held liable for dog
biting tenant when he knew of dog's vicious propensities but did nothing to keep dog
out of complex's common areas); Acosta v. Irdank Realty Corp., 38 Misc. 2d 859, 238
N.Y.S.2d 713 (1963) (landlord held liable for child eating lead paint chips).
248. R. Marans & M. Colten, supra note 4 at 64-65, Table VI-I. Additionally,
this author conducted a telephone survey of insurance agencies in Indianapolis, Indiana,
who provide liability insurance for apartment complex owners. Of the 18 who stated they
take the presence of children into account, the policy price was an average of 14 percent
less expensive when children were excluded. Six other companies reported they turned the
information over to their underwriters who determine the policy price. The underwriters
take into consideration the presence of children and attractive nuisances.
249. See supra note 44 and accompanying text.
1052 INDIANA LAW REVIEW [Vol. 22:1021
and they are held to a higher standard of care due to the presence of
children, they will convert the units into condominiums or remove them
from the rental market. The trend has been toward an increase in the
number of units being removed from the rental market in recent years. ^^°
Further, it is unrealistic to believe that the prohibition of child-
exclusionary policies will increase the number of rental units which are
within the economic means of low income families. Landlords and
developers must be able to charge prices which will meet their operating
costs and generate a profit. Studies have shown that when occupancy
per unit and the number of bedrooms per unit are held constant, there
is no significant difference in the monthly rent charged for families with
children and those without children.^^' Thus, prohibiting familial dis-
crimination will not change the composition of the rental market, rental
prices will not decrease significantly, and low income families will still
experience problems locating adequate rental housing.
To summarize, the free enterprise system would eventually solve the
problem as apartment owners would change the nature of their supply
to meet the current demand. However, in some areas of the country,
this process would be too time consuming. Genuine economic interest,
not greed, generates the increased instances of familial discrimination.
Increased restrictions on landlords and higher prices associated with child
tenants will prompt some landlords to take their rental units off the
market and may discourage developers from entering the market. In
addition, the Amendments will not result in lowering rental prices to a
level within the economic means of low income families.
V. Alternatives to the 1988 Amendments
Rather than a total prohibition of familial discrimination, the gov-
ernment should institute a less restrictive provision which would recognize
both factors. An alternative is to allow a percentage of all-adult com-
munities based on the population of a given area. Alcoholic beverage
commissions work on this type of quota system. This Note will utilize
the Indiana Alcoholic Beverage Laws.^" The Indiana Code provides for
issuance of five types of alcoholic beverage permits. ^^^ The number of
each type of permit issued is based on the population figures of the
county, city, or town in question. ^^^^ For example, '*the commission may
issue only one [1] package Hquor store dealer's permit in an incorporated
250. See supra note 211 and accompanying text.
251. See supra note 205 and accompanying text.
252. IND. Code § 7.1-3-22 (1988).
253. iND. Code §§ 7.1-3-22-1 to -5 (1988).
254. Id.
1989] FAIR HOUSING AMENDMENTS 1053
city or town for each five thousand [5,000] persons, or fraction thereof,
within the incorporated city or town."^^^ The commission bases the
population figures on reports issued by the federal government. ^^^
There have been few suits filed in this area,^^"^ suggesting the quota
method is an effective means of limiting permits. In Smock v. Coots, ^^^
the Indiana Court of Appeals upheld the commission's denial of a package
store permit recognizing that the quota statute set the upper, not the
lower limits, on the number of permits which could be issued. ^^^ This
allows for flexibility in the system so that area-specific problems can
be addressed.
The legislature could establish a system similar to Indiana's alcoholic
beverage permit quota system to regulate the number of all-adult apart-
ment complexes allowed. The statute would require an applicant receiving
a permit to pay fees established by the statute. ^^° Those obtaining such
a permit could redeem the cost through lower maintenance costs, lower
insurance costs, or they could pass the cost on to tenants willing to pay
more to live in a child-free environment. In those areas where the number
of apartment owners desiring such a permit would exceed the number
of authorized permits, HUD could hold an auction,^^' or the apartment
255. IND. Code § 7.1-3-22-5 (1988).
256. iND. Code § 7.1-3-22-1.5 (1988) (approved March 5, 1988). The decennial
census is reported by the federal government and is adjusted by corrected population
counts which may be issued periodically after the decennial census.
257. Research uncovered two cases challenging the denial of an alcoholic beverage
permit since the quota system took effect in 1973. See Indiana Alcoholic Beverage Comm'n
V. State ex rel. Harmon, 269 Ind. 48, 379 N.E.2d 140 (1978); Smock v. Coots, 165 Ind.
App. 474, 333 N.E.2d 119, reh'g denied (1975).
Research uncovered four cases dealing with the renewal of a liquor permit. See Pettit
V. Indiana Alcoholic Beverage Comm'n, 511 N.E.2d 312 (Ind. App. 1989); Indiana Alcoholic
Beverage Comm'n v. Johnson, 158 Ind. App. 467, 303 N.E.2d 64 (1973); Indiana Alcoholic
Beverage Comm'n v. Lake Superior Court, 259 Ind. 123, 284 N.E.2d 746 (1972); Indiana
Alcoholic Beverage Comm'n v. Lamb, 256 Ind. 65, 267 N.E.2d 161 (1971). In O'Banion
V. State ex rel. Shively, 146 Ind. App. 223, 253 N.E.2d 739 (1969), plaintiff sought to
enjoin defendant from selling alcoholic beverages until the defendant received authority
from the Zoning Board to carry on the business at its particular location.
258. 165 Ind. App. 474, 333 N.E.2d 119, reh'g denied (1975).
259. Id.
260. See generally Ind. Code § 7.1-3-24-10 (1988).
261. See generally Ind. Code § 7.1-3-22-9 (1988). This section provides in pertinent
part:
(a) This section applies to any permit that is subject to the quota provisions
of this chapter unless that permit is obtained by sale, assignment or transfer
under I.C. 7.1-3.2-4.
(b) Whenever a permit to which this chapter applies becomes available, the
commission shall offer an opportunity to bid for that permit to all persons who
are qualified to receive that permit and who have indicated a desire to obtain
1054 INDIANA LAW REVIEW [Vol. 22:1021
complexes having the policy in existence longer could be given the first
option of a permit.
Opponents may argue that such a permit system would be difficult
and expensive to administer. However, the alcoholic beverage permit
quota systems have been operational for some time.^^^ In addition, part
of HUD's duties is to investigate the effectiveness of the blanket ban
on exclusionary policies.^" These investigations are time consuming and
expensive. If these resources are applied to the administration of a quota
system which accounts for the needs of both groups, the cost may well
even out. In addition, the all-adult permits would generate fees which
could be applied toward the cost of providing subsidized housing, or
to provide incentives for developers to build famihal units or low income
housing.
Providing incentives for the construction of low income housing may
be more effective than a ban on all-adult communities because it will
lure future building into the precise area where it is needed. ^^ Direct
subsidies may not be seen as desirable, because there are other more
pressing needs for those federal funds. ^^^ Other options are available
and are discussed below.
One incentive to promote the development of low income housing
is tax exempt bonds. If developers perceive the rental market as a losing
proposition, they will not invest their capital. However, tax exempt bonds
may provide the necessary incentive to promote building. Further, tax
exempt bonds could be offered only to those whose rental units will be
offered at a price within the range of low income families.
In addition, incentives could be offered to the owners of existing
units so they will not be removed from the market. Grants, low interest
loans, ^^^ or tax exempt bonds could be offered for the rehabilitation of
rental units targeted to be removed from the market. A condition
that permit. The commission shall receive bids at an auction that it conducts.
The highest bidder at the commission's auction who is qualified to receive the
permit in all respects (including a determination by the local board that the
person is of good moral character and good repute in the community in which
that person resides) is entitled to receive the permit. This bidder shall pay the
amount of the bid at the time the permit is issued as a special fee for initial
issuance of the permit.
262. The Indiana Alcoholic Beverage System has been operational since 1973. 1973
Ind. Acts 55.
263. 42 U.S. C. § 3604 (1982). Some of this investigation is accompUshed through
the use of testers. A person or couple with and without a child would be sent to inquire
about the availability of rental housing to see if patterns of discrimination can be detected.
264. See supra note 78, at 1846-47.
265. A. Downs, supra note 3, at 9.
266. Id.
1989] FAIR HOUSING AMENDMENTS 1055
precedent for the receipt of such funds could be the provision of low
income rental housing for families.
There are also tax advantages which may be offered to developers
willing to invest in low income housing. ^^"^ First, the federal government
could allow those people willing to invest in such rental housing the
opportunity to write off the interest and property taxes during construc-
tion rather than capitalizing them.^^® This program would need established
guidelines and limitations to avoid allowing only wealthy investors to
take advantage of the incentives. ^^^
There is one disadvantage with the tax incentives discussed above.
The Tax Reform Act of 1986^^° repealed these incentives, and it is
unlikely they will be reinstated. However, the reform enacted section 42
which provides a tax credit for qualified low income housing. ^^^ Section
42(h) Hmits the amount of new low income housing credits issued annually
per state. ^''^ Owners of qualified low income housing are entitled to a
credit in each of ten years. ^"^^ The income tax credit equals the applicable
percentage for the building multiplied by the qualified basis allocable
to low income rental units in each qualified building. ^^'^ The existence
267. Id. at 10.
268. Id. at 165.
269. Id.
270. Pub. L. No. 99-514, 100 Stat. 2189 (1986).
271. I.R.C. § 42 (1986). This section provides in pertinent part:
I.R.C. § 42(g)(1) defines a qualified low-income housing project as any residential
rental project where either 20% or more of the residential units in such property
are both rent restricted and occupied by individuals whose income is 50*^o or
less of the area's median gross income, or 40% or more of the residential units
in such projects are both rent restricted and occupied by individuals whose
income is 60% or less of the area's median gross income. The owner must
irrevocably elect to comply with either of the minimum set-aside requirements
at the time the project is placed in service.
R. Madden, Taxation of Real Estate Transactions- An Overview, 480-2nd Tax Mgmt.
(BNA) A-66-68 (1987) (footnotes omitted).
272. I.R.C. § 42 (1986). This section provides in pertinent part:
A taxpayer who is otherwise ehgible to take the low-income housing credit must
still obtain an allocation of credit authority from the state or local credit agency
in whose jurisdiction the qualifying low-income housing project is located, unless
the taxpayer finances it with the proceeds of a tax-exempt bond which received
an allocation pursuant to the private activity bond limitation added by the 1986
TRA. There is no state volume limitation for projects financed by such tax
exempt bonds and the taxpayer does not need to obtain any credit authority. . . .
Each state is allocated an annual credit authority equal to $1.25 for every resident
of the state.
R. Madden, supra note 271 (footnotes omitted).
273. I.R.C. § 42(0(1) (1986).
274. I.R.C. § 42(a)(b) (1986). This section provides in pertinent part:
1056 INDIANA LAW REVIEW [Vol. 22:1021
of the low income housing tax credit indicates the legislature's awareness
of the need for low income housing and wiUingness to provide a tax
incentive for apartment owners and developers. Because the current credits
allowed are not sufficient to provide an adequate supply of low income
housing, the logical way to promote further development of low income
housing is to increase the present 4 and 9 percent credit amounts and
increase the number of credits allowed by the Code.
In response to the problem Congress has estabUshed Housing Voucher
and Certificate Programs which provide tenant-based assistance (assis-
tance that follows the family if it moves) so that the eligible family can
afford standard housing. ^''^ Under the terms of both programs, the
families receiving certificates or vouchers are responsible for finding
suitable housing which meets eligibility requirements established by HUD.^^^
The two programs share a common waiting Ust,^^"^ and both programs
require that a family contribute the greater of 30 percent of their adjusted
monthly income or 10 percent of their monthly income toward the rental
payment, with HUD paying the balance directly to the apartment owner. ^^^
The credit is equal to the applicable credit percentage for the project, multiplied
by the qualified basis allocable to low-income units in each qualified low-income
building. § 42(a).
For projects placed in service in 1987, the apphcable credit percentage is 9%
for non-federally subsidized newly constructed or rehabilitated low-income units
(provided that rehabilitation expenditures average $2, (XX) or more per low-income
unit), 4% for newly constructed or rehabiUtated low-income units where the
construction or rehabilitation is financed with tax-exempt bonds or similar sub-
sidies (provided that rehabilitation expenditures average $2,(X)0 or more per low-
income unit), and 4% for the acquisition of existing low-income units provided
that the property is acquired at least 10 years after the latter of the date the
property was last placed in service or the date of the most recent unqualified
substantial improvement. . . . For projects placed in service after 1987, credit
rates are to be issued by the IRS on a monthly basis. . . . For newly constructed
or rehabilitated units without federal subsidies, the credit rates are to be computed
so that the present value of the 10 annual credit amounts at the beginning of
the 10-year period equals 70% of the qualified basis on the low-income units.
R. Madden, supra note 271 (footnotes omitted).
275. Section 8 Housing Vouchers, 53 Fed. Reg. 34,371, 34,374-75 (1988) (to be
codified at 24 C.F.R. § 511).
276. Id. at 34,398; 24 C.F.R. § 882.103 (1988). In general, the housing must be
sanitary, it must contain adequate toilet facilities, kitchen facilities, hot and cold running
water, a living room, bedroom, safe heating and/or cooling system, and adequate lighting.
Although this Hst is not exhaustive, it does cover the basic requirements. Id.
277. Id. at 34,393. The family may refuse the offer of a housing voucher if they
prefer to wait for the availability of a certificate and vice versa. If, however, a family
refuses the offer of both, they may be removed from the waiting list. Id.
278. Id. at 34,403, 24 C.F.R. §§ 813.107, 882.102. HUD provides the following
simple example for the computation of the requisite tenant payment:
1989] FAIR HOUSING AMENDMENTS 1057
The main difference between the programs is that with a certificate, the
rent charged by the owner cannot exceed ceilings set by HUD,^^^ while
the voucher program allows the rent to exceed HUD's ceilings, but the
family is required to make up the difference.^^^ The primary shortcomings
of the housing voucher and the certificate programs are the long waiting
Hsts, and the fact elderly and handicapped persons are granted preference
for the receipt of a voucher or certificate over low income families. ^^'
Hence, there are many less restrictive programs the legislature could
implement. The best approach is a quota system combined with an
increase in the low income housing credit. ^^^ This would account for
the needs and desires of both famihes with children and those who wish
to live in a child-free environment. It would generate revenues which
could be used to finance programs designed to provide incentives to
developers to enter the low income rental market and for existing owners
to remain in the market.
VI. Conclusion
There are areas of the country facing a severe rental housing shortage
with an inordinate number of all-adult apartment communities. However,
the areas of the country reflecting the most serious problems account
for 53 percent of the population increase nation wide. ^^^ The supply of
[I]f a family qualifies for a four-bedroom housing voucher under the PHA
occupancy standards and has monthly adjusted income of $500, and the payment
standard amount for a four-bedroom housing voucher is $600, the housing
assistance payment for the family is the payment standard amount ($600) minus
30 percent of the family's monthly adjusted income ($150) which is $450.
Id. at 34,403. Monthly adjusted income is 1/2 of a family's annual income less allowances
for each dependent, elderly family members, handicapped assistance expenses, and child
care expenses. 24 C.F.R. § 813.102 (1988).
279. 24 C.F.R. § 882.104 (1988). Under the certificate program a certificate will
not be issued if the fair market rent for the apartment exceeds HUD's set ceilings. Id.
280. 53 Fed. Reg. § 887.209 (1988). The voucher program allows the rent charged
to exceed the fair market rent by approximately $20 to $50, but the participating family
must account for the difference. Telephone interview with Pat Beeler, Clerk for Program
Manager of the Indiana Department of Human Services (March 1, 1989).
281. As of March 1989, the pubUc housing authority for Marion County, Indiana
ceased accepting apphcations. There are approximately 5, (XX) famihes currently on the
waiting list, and a family has to wait approximately three years before receiving a voucher
or certificate. Elderly and handicapped persons are granted preference and may receive
a voucher or certificate in about six months. Additionally, the landlord may not decide
to rent the apartment in compliance with the program requirements. Therefore, the unit
is not devoted to low-income housing for a long period of time. Telephone interview with
Pat Beeler, Clerk for Program Manager of the Indiana Department of Human Services
(March 1, 1989).
282. l.R.C. § 42 (1986).
283. See supra note 43 and accompanying text.
1058 INDIANA LAW REVIEW [Vol. 22:1021
rental housing is not meeting the demand as there is an increase in the
number of rental units removed from the market annually, and a decrease
in the construction of new units. ^^^
HUD's previous enforcement policies under the Fair Housing Act
were not effective.^^^ The 1988 Amendments provide much more effective
enforcement procedures. The Amendments put the burden of preparing
and financing a legal action on the government, allowing more victims
to take advantage of the protection provided. It further provides for
conciliation agreements and binding arbitration which may alleviate the
necessity of going to court.
Remedial legislation is definitely needed, but it should not consist
of a complete prohibition of child-exclusionary policies. The statistics
do not call for such broad-sweeping legislation. Adults without children
occupy the great majority of rental units. ^^^ The segment of the population
facing the greatest housing problems is low income families with children,
but statistics suggest inadequate income, not familial discrimination
prompts this problem. ^^"^ Obviously, the legislature must place a limit
on the amount of famiUal discriminatory poUcies allowed in a given
case, but statistics do not call for a total prohibition of such policies.
Families with children have a fundamental right to privacy to live
as a nuclear family. ^^^ However, the other 67.6 percent^*^ of the rental
market has a corresponding right to privacy which should be recognized
and respected. This right to privacy includes the right to live in an
environment of their choice. ^^°
Apartment owners also have legitimate reasons to exclude or restrict
children. The legislature must remember that apartment complex owners
entered the rental market to generate a profit. Apartment owners face
increasing difficulties in receiving rental receipts which exceed operating
costs. ^^* Furthermore, many developers designed and built complexes with
added features specifically for adults. These amenities become attractive
nuisances to children and, therefore, apartment owners may be held to
a higher standard of care in negligence actions when children are present. ^^^
These costs may appear insurmountable and may prompt landlords to
get out of the rental market. Furthermore, these costs are a barrier to
284. See supra note 45 and accompanying text.
285. See supra note 142 and accompanying text.
286. See supra note 57 and accompanying text.
287. See supra note 73 and accompanying text.
288. See supra notes 221-31 and accompanying text.
289. See supra note 57 and accompanying text.
290. See supra notes 221-31 and accompanying text.
291. See supra note 44 and accompanying text.
292. See supra notes 246-48 and accompanying text.
1989] FAIR HOUSING AMENDMENTS 1059
developers who are considering investments in the rental market.
There are less restrictive measures to control familial discrimination
than total prohibition. These consist of a quota system which would
allow a certain number of all-adult apartment communities in each town
or city. This system has the advantage of flexibility lacking in the Fair
Housing Amendments Act of 1988.^^^ The quota system would generate
revenue which the government could use to offset revenue lost through
an increased percentage for the low income housing tax credit. This
program has the advantage of directly targeting the problem areas and
increasing the availability of adequate rental housing for low income
famihes with children. The same cannot be said of the 1988 Amendments
to the Fair Housing Act,^^"^ which are far too sweeping and which will
hinder provision of adequate rental housing to the low income rental
market.
Mary Kay Fleming
293. Pub. L. No. 100-430, 102 Stat. 1619-36 (1988).
294. Id.
The Fraud-on-the-Market Theory: A **Basic"ally Good
Idea Whose Time Has Arrived, Basic, Inc. v. Levinson
I. Introduction
The stock market has been shaken once again. Black Monday,
October 19, 1987 has replaced Black Tuesday of October 1929.^ Wall
Street stories of mergers and acquisitions,^ high yield junk bonds, insider
trading,^ market manipulations,"* the Drexel Burnham Lambert settle-
ment,^ and leveraged buyouts of a proportion, magnitude, and number
never dreamed of just five years ago^ have filled the newspapers and
news magazines.
For many years the stock market was stable in the sense that prices
rose and fell with the conditions of the day. The underlying assumptions
of investment risk were not seriously questioned even though efforts
were made to maintain quality control.^ The nation was confident that
nothing like the Great Depression and the market crash of 1929 would
ever be repeated.^ Congress enacted the Securities Act of 1933^ and the
Securities Exchange Act of 1934'^ in an effort to ensure the safety of
1. The Crash of '87, Wall Street Journal, December 11, 1987, at 1, col. 6.
2. N.Y. Times, October 21, 1988, at 1, col. 3 (A partnership led by the Wall
Street firm of Shearson Lehman Hutton Inc. is reportedly planning to offer about $17
billion for RJR Nabisco, Inc).
3. N.Y. Times, December 19, 1987, at 1, col. 1 (Ivan F. Boesky is sentenced to
three years in prison in insider trading scandal).
4. Wall Street Journal, October 14, 1987, § A, at 6, col. 1 (At least two
investigations are under way into possible illegal self-dealing involving private charitable
foundations funded and controlled by Drexel Burnham's junk bond chief, Michael Milken,
his brother Lowell and others).
5. The National Law Journal, Oct. 31, 1988, at 9, col. 1 (Drexel waits for next
shoe to drop: criminal charges anticipated).
6. N.Y. Times, October 21, 1988, at 1, col. 3.
7. See Securities and Exchange Commission Authorization Act of 1987 , Securities
Laws and Corporate Disclosure Regulations: Hearing Before the Subcommittee on Oversight
and Investigations of the Committee on Energy and Commerce, House of Representatives,
97th Cong., 2nd Sess. (1982) The Securities Acts Amendments of 1975. (Congress enacted
the 1975 Amendments after the crisis of 1969 and 1970 which caused the failure of many
broker-dealers, including several of the oldest and largest Wall Street firms).
8. N.Y. Times, October 21, 1987, §IV at 15, col. 3 (Old jokes, that were formed
during Great Depression, are being revived and updated during current stock market crisis).
It is not suggested that the causal factors of the market decUne in 1987 are the same as
those present in 1929. See, The October 1987 Market Break, Fed. Sec. L. Rep. (CCH)
No. 1271 (Feb. 9, 1988).
9. 15 U.S.C. §§ 77a - 77aa (1982).
10. 15 U.S.C. §§ 78a - 78kk (1982).
1061
1062 INDIANA LAW REVIEW [Vol. 22:1061
the American economy.'' Individuals bought and sold securities and
made or lost money feeling secure that illegality or fraud had not affected
the risk. Attorneys advised their clients candidly and responsibly of the
cHent's obHgations to disclose information as required by the SEC laws.
If fraud was involved in the market prices or conditions, laws were
available with which to prosecute the perpetrators.'^ In particular, Rule
lOb-5'^ provided broad language with which to carry out the purpose
of protecting market investors from the types of activities, namely fraud
and manipulation, that nearly brought the country to the brink of
economic disaster during the last years of the 1920's.
Until 1975, the Supreme Court applied broadly the SEC regulations
in finding a lOb-5 fraud action.'"* With the Blue Chip Stamps v. Manor
Drug Stores case,'^ however, the Court began to interpret more narrowly
aspects of the fraud action.'^ Justice Rehnquist, writing the majority
11. See infra notes 12-13, 24-27 and accompanying text.
12. Sections 11 and 12(2) of the Securities Act of 1933, 15 U.S.C. 77k, 771(2)
(1982), provide express causes of action by defrauded or misled buyers of securities, but
the remedies are limited. Section 11 of the Securities Act prohibits material misstatements
and omissions in registration statements. Section 12(2) imposes liability on a seller of
registered or unregistered securities for material misstatements or omissions in any com-
munication through which the securities are offered or sold. The Securities Exchange Act
of 1934 provides antifraud provisions in sections 10(b) and 16(b), 15 U.S.C. 78j(b), 78p(b)
(1982). An imphed cause of action for violation of section 10(b) was accepted in Kardon
V. National Gypsum Co., 69 F. Supp. 512 (E.D. Pa. 1946). Section 10(b) appHes to all
securities but section 16(b) applies to equity securities of registered companies and only
to directors, officers, and ten percent or more shareholders.
13. 15 U.S.C. § 78J05), and the Rule promulgated thereunder, 17 C.F.R. 240.10b-
5 states:
It shall be unlawful for any person, directly or indirectly, by use of any
means or instrumentality or interstate commerce, or of the mails or of any
facility of any nation securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state
a material fact necessary in order to make the statements made, in the Ught of
the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon any person, in connection with the
purchase or sale of any security.
14. Phillips, An Essay: The Competing Currents of Rule lOb-5 Jurisprudence y 21
iND. L. Rev. 625 (1988).
15. 421 U.S, 723 (1975). The Court limited lOb-5 actions to actual purchasers or
sellers of securities. Id. at 725.
16. See Santa Fe Indus., Inc. v. Green, 430 U.S. 462 (1977) (manipulative or
deceptive conduct is required for lOb-5 actions); Dirks v, SEC, 463 U.S. 646 (1983) (a
tippee is not under a duty to disclose or refrain from trading unless the tip is a breach
of her fiduciary duty); Chiarella v. United States, 445 U.S. 222 (1980) (no duty to disclose
mere possession of nonpublic insider information); Ernst & Ernst v. Hochfelder, 425 U.S.
185 (1976) (scienter, i.e., intent to deceive, manipulate, or defraud, on the part of the
defendant is necessary).
1989] FRAUD-ON-THE-MARKET 1063
Opinion in Blue Chip, argued that there was "widespread recognition"
that the problem of vexatious litigation under Rule lOb-5 cases needed
to be circumscribed J "^
If, indeed, the Court has sought to refine the scope of securities
fraud actions during the past 14 years, it has made a major shift toward
a broader interpretation with Basic Inc. v. Levinson^^. In the Basic
case, the Court supported the fraud-on-the-market theory.'^ Fraud-
on-the-market is a theory which recognizes that a materially false state-
ment or omission, made available to the general public, may be relied
upon by stock market professionals in the process of valuing shares. ^^
This process of valuing the shares, affected by false statements or
omissions, causes the price of the stock to deviate from what its intrinsic
value should be. As a result, investors are hurt by false statements or
omissions even if they do not personally value the stock on the mis-
statements or omissions. Additionally, the fraud-on-the-market theory
serves as an entree for plaintiff class actions because individual direct
reliance need not be proven.^' The theory is used to support a presumption
of reHance in Rule lOb-5 securities fraud actions. ^^
The Supreme Court, with the Basic decision, has renewed interest
in the fraud-on-the-market theory. ^^ This Note examines the background
and application of the fraud-on-the-market theory. An analysis of the
Basic majority and dissenting opinions follows. Finally, it will be shown
that the positive aspects of the Basic decision for investors, namely a
presumption of reliance which functions to remove a difficult evidentiary
burden and which provides for easier class action certification, should
be weighed against the uncertainty that corporations and their counsel
now face because of the Court's unrestricted announcement that the
fraud-on-the-market theory is acceptable in Rule lOb-5 actions. The
favoring of the investor by the United States Supreme Court will be
17. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 739 (1975). The Court
was concerned with strike suits, that is, those cases without merit but which have a
settlement value because the defendant can be forced to engage in costly discovery. Id.
at 740-41.
18. 108 S. Ct. 978 (1988).
19. See generally Black, Fraud-on-the-Market: A Criticism of Dispensing With
Reliance Requirements in Certain Open Market Transactions, 62 N.C.L. Rev, 435 (1984);
Note, The Fraud-on-the-Market Theory, 95 Harv. L. Rev. 1143 (1982).
20. See supra n.l9.
21. Basic, 108 S. Ct. 978, 990-91 (1988).
22. See Black, supra note 19; Note, supra note 19.
23. Basic, 108 S. Ct. at 998. The Basic court determined the materiality standard
for violation of § 10(b) of the Securities Exchange Act of 1934 in the context of corporate
preliminary merger negotiations statements in addition to approving the fraud-on-the-
market theory. Id. at 983.
1064 INDIANA LAW REVIEW [Vol. 22:1061
seen by many as welcome and long overdue. However, it is not without
a cost. With the Basic decision, the Court may have given investors the
impression that they no longer must act with caution and care when
dealing with stock market risk. At the same time, the Court seems ready
to impose a greater burden on those who make the disclosure to those
who are careless.
II. Background
The purpose of the Securities Act of 1933 and the Securities Exchange
Act of 1934, and specifically Rule lOb-5, was to protect investors against
manipulation of stock prices, ^"^ to promote fair equitable practices, ^^ and
to insure fairness in securities transactions.^^ Principles of basic tort law
were incorporated into the 1933 and 1934 Acts as means of accompHshing
the Acts' ends.^^
The lOb-5 cause of action has been based on traditional common
law fraud.^^ Misrepresentations, as the basis of a fraud action, had to
be relied upon in order to be actionable. ^^ If appUed to securities fraud
cases, the plaintiffs would be required to show that they had relied on
the prospectus or other pubHcly disclosed information, in addition to
the other elements of fraud, in order to recover damages. ^° The Second,^'
Third, ^^ Fifth," Ninth^"^, Tenth^^ and Eleventh^^ Circuits now recognize
24. S. Rep. No. 792, 73d Cong., 2d Sess. 1-5 (1934). Rule lOb-5 was adopted in
1942.
25. 3 L. Loss, Securities Regulation 1455-56 (2d ed. 1961). See also, Santa Fe
Industries, Inc. v. Green, 430 U.S. 462, 476-77 (1977) {quoting SEC v. Capital Gains
Research Bureau, Inc., 375 U.S. 180, 186 (1963)).
26. Scott, Insider Trading: Rule lOb-5, Disclosure and Corporate Privacy, 9 J.
Legal Stud. 801, 804 (1980).
27. See Restatement (Second) of Torts §§ 525-530 (1977); W. Prosser, Handbook
OF THE Law of Torts § 108 (4th ed. 1971).
28. The elements for common law fraud include: a misrepresentation of a material
fact, reliance, causation and intent or scienter. Restatement (Second) of Torts §§ 525-
530 (1977).
29. See W, Prosser, supra note 27.
30. Id.
31. Panzirer v. Wolf, 663 F.2d 365 (2d Cir. 1981), vacated as moot sub nom.
Price Waterhouse v. Panzirer, 459 U.S. 1027 (1982).
32. Peil V. Speiser, 806 F.2d 1154 (3d Cir. 1986).
33. Shores v. Sklar, 647 F.2d 462 (5th Cir. 1981) (en banc), cert, denied, 103 S.
Ct. 772 (1983).
34. Blackie V. Barrack, 524 F.2d 891 (9th Cir. 1975), cert, denied, 429 U.S. 816
(1976).
35. T.J. Raney & Sons v. Fort Cobb, Okla. Irr. Fuel Auth., 717 F.2d 1330 (10th
Cir.), cert, denied, 104 S. Ct. 1285 (1983).
36. Lipton v. Documation, Inc., 734 F.2d 740 (11th Cir. 1984).
1989] FRAUD-ON-THE-MARKET 1065
that the securities market functions in response to all information fed
into it whether or not investors read and use the information.^^ The
reliance element is demonstrated by showing both that the misstatements
or omissions affected the market and that the purchase or sale of a
security caused the plaintiff's injury. A misrepresentation is *' impounded
in the market price, and the person who buys without knowledge of
the prospectus is acting on false information to the same extent as those
who buy with knowledge. "^^
Some courts have distinguished between omissions and false and
misleading statements, ^^ noting that proof of reliance for omissions is
a particularly difficult problem because of the need to show how the
plaintiff would have acted had the information been disclosed. "^^ However,
a presumption of reliance is now employed in both misstatement and
omission cases. "^^
The primary purpose of the reliance presumption in a Rule lOb-5
cause of action is to allow the investor to rely on the expectation that
the securities markets are fraud-free,'^^ prices are set validly,"^^ and the
market has not been manipulated.'^ In an open market the investor is
able to assume that a security is priced accurately, that is, that the
market price is in fact the equivalent of the intrinsic value. "^^
A secondary, but no less important, purpose for allowing a pre-
sumption of reliance is to maintain a class action."^^ The procedural
concerns of class actions under the Federal Rules of Civil Procedure,"^^
namely, the need for each plaintiff to show individual reliance, are
eHminated; therefore, the potential for more plaintiffs and larger re-
coveries exists.'*^ Additionally, as the majority in Basic pointed out, the
37. The Fifth Circuit pointed out in Shores that the Supreme Court "did not
eliminate reliance as an element of a lOb-5 omission case; it merely estabHshed a presumption
that made it possible for the plaintiffs to meet their burden." Id. 6A1 F.2d at 468.
38. R. PosNER, Economic Analysis of Law 423 (3d ed. 1986).
39. See cases cited infra note 71.
40. Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972). The
Supreme Court held that in a face-to-face transaction where the defendant failed to state
material facts, the plaintiff's reliance could be presumed from the materiality of the facts.
The defendant would then have an opportunity to prove that the plaintiff had not relied
on the material omissions. Id. at 153-54.
41. See cases cited infra note 71.
42. Blackie v. Barrack, 524 F.2d 891, 907 (9th Cir. 1975), cert, denied, 429 U.S.
816 (1976).
43. Id.
44. Id.
45. Note, The Fraud-on-the-Market Theory, 95 Harv. L. Rev. 1143 (1982).
46. Mills V. Electric Auto-Lite Co., 396 U.S. 375 (1970).
47. Fed. R. Civ. P. 23.
48. See generally Comment, Class Actions, Typicality, and Rule lOb-5: Will the
1066 INDIANA LAW REVIEW [Vol. 22:1061
fraud-on-the-market theory removes an unrealistic evidentiary burden
from the plaintiff/^
III. The Efficient Capital Market Hypothesis and The Fraud-
On-The-Market Theory
The notion that the investor expects the market to provide an accurate
reflection of the value of a stock is based on the efficient capital market
hypothesis. ^° The premise of the efficient capital market hypothesis is
that in pricing a stock the market anticipates events and, consequently,
a stock's price is the best estimate of its intrinsic value. ^^ The hypothesis
developed from the random walk model, ^^ that is, that market prices
will fluctuate randomly and be independent of prior changes. ^^ The
efficient market hypothesis, as it has evolved, suggests that the market
reacts, completely and immediately, to information about the shares
being traded.^'* As such, the market, using all publicly available infor-
mation, sets a price which reflects the actual value of the stock. ^^
There are three forms of the efficient capital market hypothesis: the
weak form which measures whether historical price data is fully reflected;
the semi-strong which measures whether all publicly available information
is reflected; and the strong form which measures whether all information,
including information not publicly available, is fully reflected. ^^ The
semi-strong form of the efficient market hypothesis is the recognized
basis of the fraud-on-the-market theory. ^^
Typical Representative Please Stand Up?, 36 Emory L.J. 649 (1987); Note, The Fraud-
on-the-Market Theory, 95 Harv. L. Rev. 1143, 1159 (1982).
49. Basic, 108 S. Ct. at 990.
50. See generally, Fischel, Use of Modern Finance Theory in Securities Fraud Cases
Involving Actively Traded Securities, 38 Bus. Law. 1 (1982); Pickholz & Horahan, The
SEC's Version of the Efficient Market Theory and its Impact on Securities Law Liabilities,
39 Wash. & Lee L. Rev. 943 (1982); Note, Broker Investment Recommendations and
the Efficient Capital Market Hypothesis: A Proposed Cautionary Legend, 29 Stan. L.
Rev. 1077 (1977).
51. See 8 Economics of Corporation Law and Securities Regulation 438 (R.
Posner & K. Scott, eds. 1980). See also, A. Bromberg & L. Lowenfels, Security Fraud
AND Commodities Fraud, (1982).
52. J. LoRiE, P. DoDD & M. Kimpton, The Stock Market: Theories and
Evidence 55 (1985) [hereinafter cited as J. Lorie].
53. Id. at 77.
54. Id. at 76.
55. Id. at 77. See also Black, Fraud-on-the-Market: A Criticism of Dispensing with
Reliance Requirements in Certain Open Market Transactions, 62 N.C.L. Rev. 435, 449.
56. Fama, Efficient Capital Markets: A Review of Theory and Empirical Work,
25 J. Fin. 383 (1970).
57. See J. Lorie, supra note 52, at 77.
1989] FRAUD-ON-THE-MARKET 1067
The efficient market hypothesis has been problematic because ran-
domness would seem to imply a lack of meaning to stock pricing. ^^ Also
there is the obvious paradox of investor activity. ^^ In an efficient market
when information is available, the share price will approach its intrinsic
value because of investor competition. At the same time, investors trade
stock because they believe stocks are under- or overvalued, that is, that
the market prices do not reflect their true value. Many investors purchase
or sell stocks because they believe the price reflects the corporation's
worth inaccurately.^^ However, *'[u]nder conditions of efficiency, no
investor, using only information also generally available to other inves-
tors, can systematically identify and acquire undervalued (or overvalued)
securities."^' It has been pointed out by economists'^ and courts " that
the efficient market theory has some difficulties beyond this paradox.
The stock market is not only to receive information but to interpret the
information and transform the information into a price. The information
is supposedly factual. However, projections, conjectures, and specula-
tions, which are of questionable sufficent factual basis, are incorporated
into the mix of information to be interpreted and such "information"
is filtered regularly into the market place. ^
The fraud-on-the-market theory, based on the efficient market hy-
pothesis, is used to say that a buyer or seller of securities can presume
an efficient market. The Third Circuit Court in Peil v. Speiser^^ stated
that '*in an open and developed securities market, the price of a com-
pany's stock is determined by the available material information regarding
the company and its business. "'' An investor may rely on the "sup-
position that the market price is validly set and that no unsuspected
manipulation has artificially inflated the price. "'^ It is the investor's
58. See Wang, Some Arguments That the Stock Market Is Not Efficient, 19 U.C.D.
L. Rev. 341 (1986). Wang has stated that if the "semi-strong [form of the efficient
market] hypothesis were correct, one would have to conclude that the market for investment
research was extremely inefficent." Id. at 375. See also, Tobin, On the Efficiency of the
Financial System, 153 Lloyds Bank Rev. 1 (1984).
59. See J. Lorie, supra note 52, at 77.
60. See Black, supra note 19, at 455.
61. Note, The Efficient Capital Market Hypothesis, Economic Theory and the
Regulation of the Securities Industry, 29 Stan. L. Rev. 1031, 1035 (1977).
62. See generally supra notes 50-52.
63. Basic, 108 S. Ct. at 998 (White, J., dissenting).
64. See Hiler, The SEC and the Courts' Approach to Disclosure of Earnings
Projections, Asset Appraisals, and Other Soft Information: Old Problems, Changing View,
46 Md. L. Rev. 1114 (1987).
65. 806 F.2d 1154 (3d Cir. 1986).
66. Id. at 1160.
67. Blackie v. Barrack, 524 F.2d 891, 907 (9th Cir. 1975), cert, denied, 429 U.S.
816 (1976).
1068 INDIANA LAW REVIEW [Vol. 22:1061
reliance on the market and not on the information disclosed by the
corporation that is presumed. Therefore, reliance is still a vital part of
the lOb-5 cause of action, even though the focus of the investor's reliance
has shifted to the market. Consequently, misleading statements could
defraud traders in securities even if the investors did not rely directly
on the misstatements. The misstatements or omissions can affect the
price by either inflating or deflating it artificially, which could defraud
investors who rely on the price as a reflection of the value of the share. ^^
A potential problem with the fraud-on-the-market theory is the
conflict between the national poHcy of full and fair disclosure of material
information to the investing public and the public's failure to rely on
that information because the market is supposedly efficient. As the
district court in In re LTV Securities Litigation^^ stated in 1980:
[t]he market is performing a substantial part of the valuation
process performed by the investor in a face-to-face transaction.
The market is acting as the unpaid agent of the investor, in-
forming him that given all the information available to it, the
value of the stock is worth the market price. ''^
If indeed the market is functioning as an informer/agent of the investor,
full disclosure to investors is not necessary and is, in fact, superfluous.
IV. Fraud-On-The-Market Theory Applied
The various federal circuit courts have applied the fraud-on-the-
market theory in securities fraud actions brought under Rule lOb-5.'''
The Second, Ninth, and Eleventh Circuits have applied the presumption
of reliance only to existing securities on developed markets, ^^ but the
Fifth and Tenth Circuits have applied the theory to newly issued shares
on undeveloped markets."^^
The first Supreme Court case to dispense with proof of actual reliance
in establishing causation in non-disclosure cases was Affiliated Ute Cit-
es. Note, The Fraud-on-the-Market Theory, 95 Harv. L. Rev. 1143, 1154-56 (1982).
69. 88 F.R.D. 134 (N.D. Tex. 1980).
70. Id. at 143 (cited with approval in Basic, 108 S. Ct. at 990).
71. See, Peil v. Speiser, 806 F.2d 1154 (3d Cir. 1986), Lipton v. Documation,
Inc., 734 F.2d 740 (11th Cir. 1984), cert, denied, 105 S. Ct. 814 (1985); T.J. Raney &
Sons V. Fort Cobb, Okla. Irr. Fuel Auth., 717 F.2d 1330 (10th Cir. 1983), cert, denied
104 S. Ct. 1285 (1983); Panzirer v. Wolf, 663 F.2d 365 (2d Cir. 1981), vacated as moot
sub nom. Price Waterhouse v. Panzirer, 459 U.S. 1027 (1982); Shores v. Sklar, 647 F.2d
462 (5th Cir. 1981) (en banc), cert, denied, 103 S. Ct. 772 (1983); Blackie v. Barrack,
524 F.2d 891 (9th Cir. 1975), cert, denied, 429 U.S. 816 (1976).
72. Blackie, 524 F.2d at 895; Panzirer, 663 F.2d at 367-68; Documation, 734 F.2d
at 745.
73. Shores, 647 F.2d at 468; T.J. Raney, 111 F.2d at 1333.
1989] FRAUD-ON-THE-MARKET 1069
izens v. United States.'"^ In Affiliated Ute, members of a large class of
shareholders alleged that they had relied, in the context of a face-to-
face transaction, on the advice of two bank employees in selling their
stock. ^^ The bank employees failed to disclose the stock's true value and
that they were market makers in the stock. ^^ The Supreme Court held:
Under the circumstances of this case, involving primarily a failure
to disclose, positive proof of rehance is not a prerequisite to
recovery. All that is necessary is that the facts withheld be
material in the sense that a reasonable investor might have
considered them important in the making of this decision. This
obligation to disclose and this withholding of a material fact
establish the requisite element of causation in fact.^^
Since 1972 and the Affiliated Ute decision, the circuits have ap-
proached the fraud-on-the-market theory with inconsistent results. ^^ In
Blackie v. Barrack, ^^ the Ninth Circuit expanded the Affiliated Ute
decision by extending the reliance presumption to a material misrepre-
sentation case.^^ As the court noted:
Here, we eliminate the requirement that plaintiffs prove reliance
directly in this context because the requirement imposes an un-
reasonable and irrelevant evidentiary burden. . . . Requiring di-
rect proof from each purchaser that he relied on a particular
representation when purchasing would defeat recovery by those
whose reliance was indirect, despite the fact that the causational
chain is broken only if the purchaser would have purchased the
stock even had he known of the misrepresentation. We decline
to leave such open market purchasers unprotected.^^
74. 406 U.S. 128 (1972). With Affiliated Ute the Supreme Court established a
rebuttable presumption of reliance in non-disclosure cases but did not discuss whether
reliance could be presumed in affirmative misrepresentation cases. Id. at 153.
75. Id.
76. Id.
11. Id. at 153-54 (citations omitted).
78. See cases cited infra notes 79-95.
79. 524 F.2d 891 (9th Cir. 1975), cert, denied, 429 U.S. 816 (1976).
80. The Blackie plaintiffs claimed that they purchased shares of Ampex Corporation
stock between the release of two annual reports which contained misrepresentations of
the corporation's financial position. The court found that the misrepresentations had
influenced the stock's price in the market. Causation in the market place was established
by proof of purchase and proof of the materiality of the misrepresentation even though
there was no proof of direct reliance. Blackie, 524 F.2d at 906.
81. Id. at 907.
1070 INDIANA LAW REVIEW [Vol. 22:1061
Consequently, the plaintiff need only establish that the fraud adversely
affected the market price in order for the presumption to apply.
Defendants can prove that the misstatements are immaterial. De-
fendants may disprove causation by showing that an insufficient number
of shares were purchased or sold on the misrepresentation to affect the
price or that the plaintiff knew of the misrepresentation or would have
purchased the shares even though she knew of the misrepresentation. ^^
The court in Blackie did not address the problem that the defendant's
proof is the functional equivalent of the plaintiff's proof, that is, proof
of a speculative negative. ^^ Blackie also suggests that the purpose of a
reliance element is to show causation. ^"^ If reliance is equated with
causation, the presumption is nonrebuttable. If the material misrepre-
sentation caused the plaintiff's injury, the defendant has violated Rule
lOb-5. The Ninth Circuit Court did not go this far; however, other
courts have.^^
In Panzirer v. Wolf,^^ the plaintiff did not rely on the market price
to decide to purchase shares of a corporation. Rather, she reUed on a
newspaper article which was favorable to the corporation. The plaintiff's
reliance was not on the integrity of the market price as it had been in
Blackie. ^'^ Instead, reliance was eliminated as an element of the Rule
lOb-5 action because the plaintiff could show a causal connection between
the material misrepresentation in the corporation's annual report and
her financial loss.^^ Consequently, in the Panzirer case, the presumption
of reliance is nonrebuttable.
The fraud-on-the-market theory was extended to new securities on
an undeveloped market in Shores v. Sklar.^^ The plaintiff had purchased
municipal bonds but not in reliance on the offering circular. The bonds
82. Id. at 906. See Black, Fraud on the Market: A Criticism of Dispensing with
Reliance Requirements in Certain Open Market Transactions, 62 N.C.L. Rev. 435, 448
(1984).
83. Blackie, 524 F.2cl at 908. The court in Blackie stated that '*[d]irect proof
would inevitably be somewhat proforma, and impose a difficult evidentiary burden, because
addressed to a speculative possibility in an area where motivations are complex and difficult
to determine." Id.
84. Id. at 906.
85. See Fausett v. American Resources Management Corp., 542 F. Supp. 1234 (D.
Utah 1982); Pellman v. Cinerama, Inc., 89 F.R.D. 386 (S.D.N. Y. 1981); In re LTV Sec.
Litig., 88 F.R.D. 134, 143 n.4 (N.D. Tex. 1980); Arthur Young & Co. v. United States
Dist. Ct., 549 F.2d 686, 694-95 (9th Cir. 1977), cert, denied, 434 U.S. 829 (1977).
86. 663 F.2d 365 (1981), cert, denied, 458 U.S. 1107 (1982).
87. Blackie, 524 F.2d at 906.
88. Panzirer, 663 F.2d at 366.
89. 647 F.2d 462 (5th Cir. 1981) {en banc), cert, denied, 459 U.S. 1102 (1983),
rev'd sub nom. (in part) Fed. Sec. L. Rep. (CCH) f 92,874, appeal dismissed, 844 F.2d
1485, vacated, reh'g granted, 855 F.2d 722 (11th Cir. 1988) {en banc).
1989] FRAUD-ON-THE-MARKET 1071
soon lost their value. ^^ The bonds were new securities issued on an
undeveloped market,^' in contrast to both Blackie^^ and Panzirer.^^ In
Shores, the Fifth Circuit found that the newly issued securities were
unmarketable.^"^ The plaintiff, by proving that he was willing to take a
marketable risk, demonstrated that he relied on the '^integrity of the
offerings of the securities market. "^^ This showing of reUance suggests
that causation was shown by offering bonds which were not marketable.
The broad application of the fraud-on-the-market theory by many
of the circuit courts may represent a growing consideration for investors'
vulnerabilities. As early as 1975 with the Blue Chip case,*^^ the Supreme
Court recognized that reliance, an essential element in common law tort
misrepresentation cases, was perhaps not as critical in Rule lOb-5 actions
even though this was the case that began the circumscription of the
scope of the fraud action. As the Blue Chip court stated: *'[T]he typical
fact situation in which the classic tort of misrepresentation and deceit
evolved was light years away from the world of commercial transactions
to which Rule lOb-5 is applicable. "^^ Investors willing to accept the
usual risks of trading on the securities market should not be subject to
schemes that are not only meant to defraud individual investors but the
market in general. Material misstatements cause the market to react in
a manner that causes, in turn, investors a financial harm. The courts
should not neglect investors' indirect reliance on the integrity of the
market place without providing an alternative solution which would
redress the injury suffered.
The availability of class action certification is greatly enlarged when
the burden of showing individual reliance is relaxed. ^^ Investors with
relatively small losses would not go forward with their claims unless a
class action could be maintained. Where individual reliance on the
misstatements was required, class actions could be denied. The Advisory
90. Shores, 647 F.2d at 463-64.
91. Id.
92. Blackie, 524 F.2d at 908.
93. Panzirer, 663 F.2d at 366.
94. Shores, 647 F.2d at 467.
95. Id. at 469.
96. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975).
97. Id. at 744-45.
98. Fed. R. Civ. P. 23. Prerequisites for a class action include: numerosity, common
questions of law or fact, typicality of claims, and fair and adequate protection of the
interests of the class. In addition, one of the three subdivisions of Rule 23(b) must apply.
Usually securities fraud class actions attempt to meet Rule 23(b)(3): "that the questions
of law or fact common to the members of the class predominate over any questions
affecting only individual members, and that a class action is superior to other available
methods for the fair and efficient adjudication of the controversy," Id.
1072 INDIANA LAW REVIEW [Vol. 22:1061
Committee on Rule 23 suggests that class actions could be an appropriate
vehicle for fraud actions:
Subdivision (b)(3) encompasses those cases in which a class action
would achieve economies of time, effort, and expense, and pro-
mote uniformity of decision as to persons similarly situated,
without sacrificing procedural fairness or bringing about other
undesirable results. ... [A] fraud perpetrated on numerous per-
sons by the use of similar misrepresentations may be an appeahng
situation for a class action, and it may remain so despite the
need, if Hability is found, for separate determination of the
damages suffered by individuals within the class. On the other
hand ... a fraud case may be unsuited for treatment as a class
action if there was [sic] material variations in the representations
made or in the kinds or degrees of reliance by the persons to
whom they were addressed. ^^
In applying the fraud-on-the-market theory, misrepresentations are
not made to or relied upon by individuals but rather to and by the
market place. Therefore, it is appropriate to say that the market par-
ticipants are an ideal class '^ because there is no variation in representation
and yet defendants may rebut the presumption where the plaintiff placed
no reliance on the market in those courts where reliance is not equated
with causation and is still a necessary element of Rule lOb-5 actions.
V. The Basic Case
Basic, Inc. merged with Combustion Engineering after 14 months
of merger negotiations. ^°^ Basic expressly made three pubHc statements
denying that merger negotiations were taking place or that it knew of
corporate developments that would account for heavy trading activity
in its stock. ^°2 A class action was instituted against Basic and some of
the directors on behalf of former Basic stockholders who sold their stock
between Basic's first denial of merger activity in October, 1977 and the
suspension of trading in Basic stock just prior to the merger announce-
ment. ^^^ The former shareholders claimed that Basic's statements had
been misleading or false in violation of the Securities Exchange Act of
1934 section 10(b) and Rule lOb-5,'^ and that they were injured by
99. Fed. R. Civ. P. 23(b)(3) advisory committee note.
100. See supra note 31.
101. Basic, 108 S. Ct. at 981.
102. Id.
103. Id.
104. See supra note 13.
1989] FRAUD-ON-THE-MARKET 1073
selling their shares at prices artificially depressed by those statements. ^°^
The United States District Court for the Northern District of Ohio
certified a class action but granted a summary judgment on the merits
for Basic. ^^ The district court determined that the misstatements were
immaterial as a matter of law.'^^ The United States Court of Appeals
for the Sixth Circuit affirmed the class certification by agreeing that
under a fraud-on-the-market theory, the former shareholders' reliance
on the company's misrepresentations could be presumed. However, the
appellate court reversed the summary judgment and remanded. '°^ The
Court of Appeals held that discussions that might not otherwise be
material can become so **by virtue of the statement denying their ex-
istence. "'^
The United States Supreme Court granted certiorari' ^° in order to
** resolve the split" among the Courts of Appeal as to the materiality
standard applicable to preliminary merger negotiations' '' and to determine
whether the presumption of reliance used to certify the class was properly
applied. ''2
The materiality standard of TSC Industries, Inc. v. Northway, Inc.^^^
was expressly adopted for merger negotiations under Section 10(b) and
Rule lOb-S.''"* Additionally, the Court in Basic accepted the application
of the fraud-on-the-market theory as proper, not only in the fact pattern
of the Basic case but seemingly in all lOb-5 class actions.''^
105. Basic, 108 S. Ct. at 981.
106. Levinson v Basic, Inc., Fed. Sec. L. Rep. (CCH) f 91,801 (Aug. 3, 1984).
107. The district court found that there were no negotiations at the time of the
first statement. Negotiations were being conducted when the second and third statements
were made; however, the district court applied an agreement-in-principle test and found
that the negotiations were not "destined, with reasonable certainty, to become a merger
agreement in principle." App. to Pet. for Cert. 103a.
108. 786 F.2d 741, 751 (1986). The Sixth Circuit rejected the agreement-in-principie
test of materiality in merger and acquisition negotiations and held that "once a statement
is made denying the existence of any discussions, even discussions that might not have
been material in absence of the denial are material because they make the statement made
untrue." Id. at 749. The court stated that statements become material "by virtue of the
statement denying their existence." Id. at 748.
109. Id. at 748.
110. 479 U.S. 1083 (1987).
111. Basic, 108 S. Ct. at 982.
112. Id.
113. 426 U.S. 438 (1976). "An omitted fact is material if there is a substantial
likelihood that a reasonable shareholder would consider it important in deciding how to
vote." Id. at 449. The TSC Court went on to state that "there must be a substantial
likelihood that the disclosure of the omitted fact would have been viewed by the reasonable
investor as having significantly altered the 'total mix' of information made available."
Id.
114. Basic, 108 S. Ct. at 983.
115. M at 989.
1074 INDIANA LAW REVIEW [Vol. 22:1061
The majority opinion, written by Justice Blackmun, asserted that
the Court was not assessing the validity of an economic theory, ^^^ namely,
the fraud-on-the-market theory. Rather, the majority said that the Court
was attempting to ascertain whether it was, and is, proper to apply a
rebuttable presumption of reliance based on the fraud-on-the-market
theory. ^^^
The Court in Basic stated that reliance continues to be an element
of a Rule lOb-5 cause of action. ^^^ Moreover, the Court reasoned that
a presumption of reliance is proper in Rule lOb-5 class actions based
on practical considerations consistent with the 1934 Act's full disclosure
policy and '^considerations of fairness, pubhc policy, and probability,
as well as judicial economy ... for allocating the burdens of proof
between parties.""^ The majority noted that the Congressional policy
expressed in the 1934 Act is supported by the presumption device. *^^
Referring to the district court's finding, that the presumption of
reliance provided '*a practical resolution to the problem of balancing
the substantive requirement of proof of reliance in securities cases against
the procedural requisites of [Fed. Rule Civ. Proc] 23,"^^' the Supreme
Court concluded that a presumption of reliance removes an unrealistic
evidentiary burden from the plaintiff in securities fraud cases. ^^^
Modern securities markets differ significantly from face-to-face trans-
actions. Where the market is performing a valuation of shares, a function
ordinarily performed by the investor in private transactions, to say that
the worth of the stock is equivalent to the market price, the investor
looks to the securities market with the confidence usually reserved for
expert appraisal, be it her own or that of other professionals based on
knowledge and experience. ^^^ The fraud-on-the-market theory is clearly
reflected in this idea.^^"^
The Court in Basic found no inconsistency with the 1934 Act's
purpose of promoting full and fair disclosure of information and the
fraud-on-the-market theory even though many commentators ^^^ and the
116. Id.
117. Id.
118. Id.
119. Id. at 990.
120. Id. at 990-91.
121. Id. at '989.
122. Id. at 990.
123. In re LTV Securities Litigation, 88 F.R.D. 134, 143 (N.D. Tex. 1980).
124. See supra text accompanying notes 50-55, 64-66.
125. See, R. Karmel, Regulation by Prosecution: The Securities and Exchange
Commission vs. Corporate America (1982); H. Krdpke, The SEC and Corporate Dis-
closure: Regulation in Search of a Purpose (1979); S. Phillips & J. Zecher, The
SEC AND the Public Interest (1981); Jarrell, The Economic Effects of Federal Regulation
1989] FRAUD-ON-THE-MARKET 1075
dissenters in Basic have disagreed. •^^ The Basic majority's underlying
rationale is that even though an individual investor has not chosen to
rely on the disclosed information, the market has relied on the infor-
mation. The information is necessary for the market to react. It is the
market which must receive material information in order to perform the
task of valuation that gives rise to the buying and selling of a security
at a given time.
Since 1975/^^ the Supreme Court has taken care to limit the scope
of lOb-5 actions. ^^^ However, the decision in Basic will faciUtate investors
bringing class actions for securities fraud. What has prompted the Court
to relax the plaintiff class burden and to place an equally unrealistic
evidentiary burden on the defendant? Perhaps the conduct of the Basic
defendants was so egregious that no other solution was plausible. Perhaps,
given the shaken faith of investors in the wake of the October 1987
crash, the Court wanted to act quickly and confidently to calm the fears
of investors and return to a more idealistic approach. ^^^
The facts of the Basic case are atypical. '^° The plaintiffs were sellers
rather than purchasers of shares, the time between the misstatements
and the decision to sell the shares was eleven months, and the plaintiffs
all made money on their sale of Basic stock. '^' As such, this case should
not have been the basis of a potentially far reaching decision and one
that is tantamount to the Court's endorsement of a complex economic
theory. There is no evidence to date that the decision has had an impact
of the Market for New Securities Issues, 24 J. Law & Econ. 613 ()981); Scott, Insider
Trading: Rule lOb-5, Disclosure and Corporate Privacy, 9 J. Legal Stud. 801 (1980);
Wolf son, A Critique of the Securities and Exchange Commission, 30 Emory L.J. 119
(1981).
126. Basic, 108 S. Ct. at 997-98. See also, Black, supra note 19.
127. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975).
128. See cases cited supra note 16.
129. See Phillips, supra note 14, at 662-665.
130. Justice White in his dissent states:
None of the Court of Appeals cases the Court cites as endorsing the fraud-
on-the-market theory, ante, at 991 n. 24, 99 L.Ed. 2d 218, involved seller-
plaintiffs. Rather, all of these cases were brought by purchasers who bought
securities in a short period following some material misstatement (or similar act)
by an issuer, which was alleged to have falsely inflated a stock's price.
Even if the fraud-on-the-market theory provides a permissible link between
such a misstatement and a decision to purchase a security shortly thereafter,
surely that link is far more attenuated between misstatements made in October
1977, and a decision to sell a stock the following September, 11 months later.
The fact that the plaintiff-class is one of sellers, and that the class period so
long, distinguish this case from any other cited in the Court's opinion, and
make it an even poorer candidate for the fraud-on-the-market presumption.
Basic, 108 S. Ct. at 998 n.9 (White, J., dissenting) (citation omitted).
131. Id. dii 998-99 (White, J., dissenting).
1076 INDIANA LAW REVIEW [Vol. 22:1061
on corporate behavior. Likewise, its effect on plaintiff class actions has
yet to be observed.
VI. The Basic Dissent
Justice White, writing for the dissent in Basic, ^^^ was most concerned
with the the majority's uncritical acceptance of the fraud-on-the-market
theory.^" The dissent focused on the role of Congress in shaping economic
policy^^"^ and on the problem of assessing damages in this type of action. '^^
The fraud-on-the-market theory is a recent economic theory although
the economic community and the legal system have accepted it with
vigor. ^^^ However, as the dissent pointed out, it is a theory, neither fact
nor a "mature legal doctrine: "^^^
[WJhile the economists' theories which underpin the fraud-on-
the-market presumption may have the appeal of mathematical
exactitude and scientific certainty, they are — in the end — nothing
more than theories which may or may not prove accurate upon
further consideration. Even the most earnest advocates of ec-
onomic analysis of the law recognize this.'^^
132. Justice O'Connor joined in the dissent to Part IV of the Basic decision. Both
Justices White and O'Connor concurred with the materiality standard set forth in TSC
Industries, Inc. v. Northway, Inc., 426 U.S. 438, (1976) and specifically adopted in Basic.
108 S. Ct. at 993.
133. Id.
134. Basic, 108 S. Ct. at 996, 997. For an interesting analysis of the competing
currents (idealism, traditionalism, economic behaviorism, paradigm case analysis, literalism,
and textual structuralism) evident in recent Supreme Court decisions on securities actions,
see Phillips, supra note 14.
135. Basic, 108 S. Ct. at 998.
136. See Gilson & Kraakman, The Mechanisms of Market Efficiency, 70 Va. L.
Rev. 549 (1984).
Of all recent developments in financial economics, the efficient market hypothesis
. . . has achieved the widest acceptance by the legal culture. It now commonly
informs the academic literature on a variety of topics; it is addressed by major
law school casebooks and textbooks on business law; it structures debate over
the future of securities regulation both within and without the Securities and
Exchange Commission; it has served as the intellectual premise for a major
revision of the disclosure system administered by the Commission; and it has
even begun to influence judicial decisions and the actual practice of law. In
short, the [efficient capital market hypothesis] is now the context in which serious
discussion of the regulation of financial markets takes place.
Id. at 549-550.
137. Basic, 108 S. Ct. at 993 (White, J., dissenting).
138. Id. at 995. See, e.g., Easterbrook, Afterword: Knowledge and Answers, 85
CoLUM. L. Rev. 1117, 1118 (1985).
1989] FRAUD-ON-THE-MARKET 1077
Pointing out the problems associated with supplanting "traditional legal
analysis . . . with economic theorization,"'^^ the dissent looked to the
legislative history of the Securities Exchange Act of 1934 and prudential
judicial constraint in assessing the impact of the majority opinion.
As the dissent in Basic pointed out, if current economic theory
concerning financial markets requires that established legal ideas of fraud
be considered anew, it is Congress' role to do so.^'^^ The superior resources
and expertise of the Congress in enacting legislation should be given
great deference by the courts. Even though there is a paucity of legislative
history concerning Rule lOb-5, there is sufficient history surrounding
other portions of the Securities Exchange Act to glean the intent of
Congress in proposing and passing legislation which would protect inves-
tors and stabilize the economy. '"^^
The Seventy-Third Congress, passing Section 18 of the 1934 Act,''*^
imposed an express rehance requirement.'"^^ Congress specifically rejected
the notion that plaintiffs could have a cause of action based '^solely
on the fact that the price of the securities they bought or sold was
affected by a misrepresentation [without reliance]: a theory closely akin
to the [Basic] Court's holding . . . ."''*^ Analyzing the majority opinion,
the dissent viewed the acceptance of the fraud-on-the-market theory as
'*eviscerat[ing] the rehance rule in actions brought under Rule lOb-5,
and negat[ing] congressional intent to the contrary expressed during
adoption of the 1934 Act."'^^
The distinction between causation and reliance is blurred in the
majority opinion. Causation "involves an analysis of the relationships
139. Basic, 108 S. Ct. at 994.
140. Id. at 996-98.
141. Id. at 997. See S. 2693, 73d Cong, 2d Sess, § 17(a) (1934); 78 Cong Rec.
7701 (1934).
142. Section 18(a) of the Act provides for civil liability for misleading statements
concerning securities:
Any person who shall make or cause to be made any statement in any appHcation,
report, or document filed pursuant to this title or any rule or regulation there-
under, which statement was at the time and in the light of the circumstances
under which it was made false or misleading with respect to any material fact,
shall be liable to any person (not knowing that such statement was false or
misleading) who, in reliance upon such statement, shall have purchased or sold
a security at a price which was affected by such statement, for damages cause
by such reliance, unless the person sued shall prove that he acted in good faith
and had no knowledge that statement was false or misleading. A person seeking
to enforce such liability may sue at law or in equity in any court of competent
jurisdiction. (Emphasis added).
73d Congress, Session 2, Ch. 404 June 6, 1934 at 897,898.
143. Id.
144. Basic, 108 S. Ct. at 997 (White, J., dissenting).
145. Id.
1078 INDIANA LAW REVIEW [Vol. 22:1061
between individuals and the impact of their actions on each other and
third parties. "'"^^ The defendant's conduct was a "cause in fact" of the
injury, and thus it should be recognized as a legal cause on policy
grounds. ^"^^ Reliance is determined by whether the misrepresentation was
a substantial factor in determining the course of conduct which resulted
in the plaintiff's loss.^"^^ A plaintiff must do more than show that the
defendant violated the rule; she must estabhsh causation, and, according
to the dissent, should also be required to show reliance in estabUshing
causation. However, materiaUty can estabhsh causation, at least in certain
circumstances.^'*^
Additionally, Congress' policy of full and fair disclosure is com-
promised when the disclosure is not directed to the purchaser or seller
of a security. In 1981, the dissent of Shores v. Sklar^^^ stated:
[DJisclosure ... is crucial to the way in which the federal
securities laws function. . . . [TJhe federal securities laws are
intended to put investors into a position from which they can
help themselves by relying upon disclosures that others are ob-
Hgated to make. This system is not furthered by allowing mon-
etary recovery to those who refuse to look out for themselves.
If we say that a plaintiff may recover in some circumstances
even though he did not read and rely on the defendants' pubhc
disclosures, then no one need pay attention to those disclosures
and the method employed by Congress to achieve the objective
of the 1934 Act is defeated. ^^^
As the dissent in Basic noted, by removing individual reliance as
an element in Rule lOb-5 actions, the Court is approaching an "investor
146. Crane, An Analysis of Causation Under Rule lOb-5, 9 Sec. Reg. L.J. 99, 100
(1981).
147. Restatement (Second) of Torts §§ 546 (causation in fact), 548 A (legal cause)
(1977). Causation in common law fraud actions required that the plaintiff had actually
rehed on the defendant's misrepresentation and was injured by the reliance. W. Prosser,
Handbook of the Law of Torts § 108, at 774-75 (4th ed. 1971).
148. Restatement (Second) of Torts § 546. See generally A. Bromberg, Securities
Fraud § 8.6(1), at 209 (Supp. 1970); L. Loss, supra note 25, at 1430-44; Note, The
Reliance Requirement in Private Actions Under SEC Rule lOb-5, 88 Harv. L. Rev. 584
(1975); Note, Reasonable Reliance Under lOb-5: Is the "Reasonable Investor" Reasonable?,
72 CoLUM. L. Rev. 562 (1972).
149. Mills V. Electric Auto-Lite Co., 396 U.S. 375 (1970); Affihated Ute Citizens
V. United States, 406 U.S. 128 (1970).
150. 647 F.2d 462 (5th Cir. 1981) {en banc), cert, denied, 103 S. Ct. 772 (1983).
151. Id. at 483 (Randall, J., dissenting) {quoted in Basic, 108 S. Ct. at 997-98
(White, J., dissenting)).
1989] FRAUD-ON-THE-MARKET 1079
insurance scheme. "^^^ The Court should not overprotect investors from
the ordinary risks involved in market transactions.'"
It would be a mischaracterization of the majority opinion to say
that it was providing investor insurance. Rather, the majority wanted
to accompHsh its goal of facilitating Rule lOb-5 litigation '^"^ in marked
contrast with the post- 1975 Suprenie Court decisions in this area.'^^ The
Court in Basic did so with its acceptance of the idea of investor access
to all information even when not relied upon directly, with its recognition
that the pubHc should be protected from material misrepresentations and
with its appreciation for the deterrence factor in prosecution.
According to Justice White's dissent in Basic, the common law
elements of fraud and deceit should remain in Rule lOb-5 actions: **[T]he
case law developed in this Court with respect to § 10(b) and Rule 10b-
5 has been based on doctrines which we, as judges, are famiHar: common-
law doctrines of fraud and deceit. ''^^^ In approaching the Rule lOb-5
action from this perspective, the dissent is attempting to restrain the
scope of the action much as the Court had done in 1975 with the Blue
Chip case and subsequent cases until the Basic decision. '^^
VII. Effects of the Basic Case
Prior to the Basic decision, the circuit courts were divided in their
appUcation of the fraud-on-the-market theory'^^ to secondary markets
and/or to newly issued securities on undeveloped markets. '^^ This situation
has not been remedied by the decision in Basic.
152. Basic, 108 S. Ct. at 996.
153. See Easterbrook & Fischel, Mandatory Disclosure and the Protection of Inves-
tors, 70 Va. L. Rev. 669 (1984); Note, Causation in Fraud-on-the-Market Actions —
Investors' Insurance in the Second Circuit?, 49 Brooklyn L. Rev. 1291 (1983).
154. Basic, 108 S. Ct. at 990.
155. Justice Blackmun has written several dissents expressing his view on the Court's
post 1975 decisions. In Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975)
(Blackmun, J., dissenting), Justice Blackmun stated: "[T]he Court exhibits a preternatural
solicitousness for corporate well-being and a seeming callousness toward the investing
public quite out of keeping, it seems to me, with our own traditions and the intent of
the securities laws." Id. In his dissent to Dirks v. SEC, 463 U.S. 646 (1983), Justice
Blackmun remarked that '*[t]he Court today takes still another step to limit the protections
provided investors by § 10(b) of the Securities Exchange Act of 1934." Id.
156. Basic, 108 S. Ct. at 994. See, Sachs, The Relevance of Tort Law Doctrines
to Rule lOb-5: Should Careless Plaintiffs Be Denied Recovery?, 71 Cornell L. Rev. 96
(1985).
157. Blue Chip Stamps, 421 U.S. 723 (1975). See supra notes 15-17 and accompanying
text.
158. See supra note 72.
159. See supra note 73.
1080 INDIANA LAW REVIEW [Vol. 22:1061
The majority opinion has not limited specifically application of the
theory to secondary markets. ^^° Lower courts have noted that the fraud-
on-the-market theory is based on the idea that there is a ''nearly perfect
market in information" ^^^ and that the price of a security is a reflection
of its intrinsic value. ^^^ This assumption of a "perfect market in in-
formation" may not be applicable to newly issued stock on undeveloped
markets. The "efficiency" of these markets must be determined before
the fraud-on-the-market presumption is applied.'" Therefore, the fraud-
on-the-market theory should be limited to secondary market transactions
or those cases where the undeveloped market has been proven to be
efficient.'^ Where the market is inefficent, the plaintiff should have to
prove reliance on material misrepresentations. However, at least one
court has applied the fraud-on-the-market theory to newly issued securities
since the Basic opinion. '^^
Additionally, once a material misrepresentation is proven, the reliance
issue can be viewed in at least two ways, either as a complete elimination
of the reliance element or as a reduction in the plaintiff's burden of
estabhshing direct reliance by providing a presumption of indirect reliance.
The Court in Basic specifically did not eliminate the reliance element. '^^
However, because the Basic Court did not distinguished the fraud-on-
the-market theory of reliance from a causation theory, the dissent is
correct when it states that the majority has moved dangerously close to
removing the reUance element altogether.'^'' Under a causation approach,
the only question is whether the material misstatement or omission caused
the plaintiff's injury. '^^ Once a causation approach is adopted, the
presumption becomes nonrebuttable.'^^
160. Basic, 108 S. Ct. at 991. "Indeed, nearly every court that has considered the
proposition has concluded that where materially misleading statements have been dissem-
inated into an impersonal, well-developed market for securities, the reliance of individual
plaintiffs of the integrity of the market price may be presumed." Id.
161. Peil, 806 F.2d 1154, 1161 n.lO.
162. Id.
163. Wemple & Westover, Rule lOb-5 Securities Fraud: Regulating the Application
of the Fraud-on-the-Market Theory of Liability, 18 J. Mar. L. Rev. 733, 745-748 (1985).
164. See id.; Black, Fraud-on-the-Market: A Criticism of Dispensing with Reliance
Requirements in Certain Open Market Transactions, 62 N.C.L. Rev. 435 (1984).
165. Shores v. Sklar, 647 F.2d 462 (5th Cir. 1981) {en banc), cert, denied, 459 U.S.
1102 (1983), rev 'd sub nom. (in part) Fed. Sec. L. Rep. (CCH) 1 92,874, appeal dismissed,
844 F.2d 1485, vacated, reh'g granted, 855 F.2d 722 (11th Cir. 1988) {en banc).
166. Basic, 108 S. Ct. at 989.
167. Id. at 997 (White, J., dissenting).
168. See Panzirer v. Wolf, 663 F.2d 365 (2d Cir. 1981), vacated as moot, 463 U.S.
646 (1982).
169. Blackie v. Barrack, 524 F.2d 891, 906-07, n.22. Justice White notes:
[II n practice the Court must realize, as other courts applying the fraud-on-the-
1989] FRAUD-ON-THE-MARKET 1081
The Court in Basic did not address the computation of damages in
a Rule lOb-5 cause of action, ^''^ but as Justice White noted, "the proper
measure of damages in a fraud-on-the-market case [is] essential for
proper implementation of the fraud-on-the-market presumption. "•^' The
measure of damages under Rule lOb-5 is beyond the scope of this Note;'^^
however, until the Court or Congress speaks to this issue, uncertainty
and a diversity of decisions will continue.
One implication of the Basic case is that an investor might be well
advised not to read disclosure documents corporations provide. This is
an interesting turn of events because providing disclosures to the public
to enable investors to make reasonable and informed decisions concerning
the risk they are undertaking is at the heart of the securities regulations.
As a result of no longer requiring proof of direct reliance, the protection
of the securities regulations is afforded to those who have acted irre-
sponsibly for failing to inform themselves with readily available infor-
mation. However, it must be noted that because of their complexity,
few investors, even those with a relatively high level of sophistication,
read disclosure statements. '"^^ In addition, if the efficient market hy-
pothesis is correct, anything that has been disclosed publicly will have
affected the market place fully and instantaneously thereby precluding
the individual investor from outperforming the market. '^"^ An investor
should not have to rely directly on disclosure documents that are not
useful. The investor has relied on the disclosure, albeit indirectly, by
looking to the market to perform the function of interpreting and
accurately pricing the securities based on the disclosures. Therefore, the
appparent inconsistency between the policy of full disclosure and investor
market theory have, that such rebuttal is virtually impossible in all but the most
extraordinary case. . . . [Tjhe majority's implicit rejection of the 'pure causation'
fraud-on-the-market theory rings hollow. In most cases, the Court's theory will
operate just as the causation theory would, creating a non-rebuttable presumption
of 'reliance' in future lOb-5 actions.
Basic, 108 S. Ct. at 996 n.7 (White, J., dissenting).
170. Basic, 108 S. Ct. at 995 n.5 (White, J., dissenting). Justice White quotes R.
PosNER, Economic Analysis of Law §15.8, 423-24 (3d ed. 1986).
171. Basic, 108 S. Ct. at 995 n.5.
172. Note, The Measure of Damages Under Section 10(b) and Rule lOb-5, 46 Md.
L. Rev. 1266 (1987). See generally D. Dobbs, Handbook on the Law of Remedies §
9.3 (1973); A. Jacobs, Litigation and Practice Under Rule 10b-5 § 260.03 (2d ed.
1983); Thompson, The Measure of Recovery Under Rule lOb-5: A Restitution Alternative
to Tort Damages, 37 Vand. L. Rev. 349 (1984); Recent Development, Damages for Insider
Trading in the Open Market: A New Limitation on Recovery Under Rule IOb-5, 34 Vand.
L. Rev. 797 (1981).
173. Kripke, The Myth of the Informed Layman, 28 Bus. Law. 631 (1973).
174. H. Kripke, The SEC and Corporate Disclosure 86-87 (1979). See Black,
supra note 19, at 458.
1082 INDIANA LAW REVIEW [Vol. 22:1061
failure to read investment information is not as great as it may at first
appear.
The decision in Basic will have a great impact potentially on cor-
porations and their counsel. The issue of corporate disclosure of in-
formation is perceived to be fraught with difficulties. ^^^ Corporations
must provide sufficient disclosure so that the market can set a value to
the corporate securities, that is, price shares at their intrinsic worth, and
yet not jeopardize shareholders' best interests. '^^ Until recently, the Se-
curities Exchange Commission prohibited the inclusion in fiUngs of most
"soft information" such as earnings projections and asset appraisals. *^^
As the SEC broadens its poHcy to include this type of information as
part of disclosure requirements and as the courts renew efforts to protect
investors and deter corporate behavior characterized as unethical, if not
fraudulent, counsel must consider carefully the ramifications of any
corporate statement. Attorneys in the corporate legal community will
perceive this responsibility as beyond the traditional prudent standard
of care required of them.
VIII. Conclusion
The Supreme Court, with the Basic case, had the opportunity to
establish the limits of the fraud-on-the-market theory. For example, the
175. See Bagby & Ruhnka, The Predictability of Materiality in Merger Negotiations
Following Basic, 16 Sec. Reg. L.J. 245 (1988) [hereinafter cited as Predictability]. In
addition to the fraud-on-the-market theory, the Basic Court determined the materiality
standard to be applied to preliminary merger or acquisition negotiations.
Th[e] disclosure dilemma is complicated by several conflicting public policy and
private policy interests. On the one hand, the SEC usually urges 'prompt'
disclosure ... to enhance the market's efficiency. ... By contrast, corporate
managers have long argued that 'premature' announcement of merger or ac-
quisition negotiations will cause a run up in the target company's stock price,
possibly jeopardizing negotiations to the detriment of shareholders. . . . This
duty and the regulatory trend in disclosure toward 'stopwatch jurisprudence'
can present conflicting legal obligations that produce a 'damned if you do —
damned if you don't' potential for liability. Predictability, at 246.
See Ruhnka & Bagby, Disclosure: Dammed If You Do, Dammed If You Don't, 64 Harv.
Bus. Rev. 34 (September-October 1986).
176. See Predictability, supra note 176, at 246.
177. Hiller, The SEC and the Courts' Approach to Disclosure of Earnings Projec-
tions, Asset Appraisals, and Other Soft Information: Old Problems, Changing View, 46
Md. L. Rev. 1114 (1987). The SEC's policy on soft information disclosure has undergone
significant revision during the past ten years. Neither outdated policy concerns which
prohibited disclosure of soft information nor concern for corporate liability can excuse
misleading disclosure. Investors must receive full disclosure in order to assess risk com-
petently. Id. at 1195-96. See generally Symposium: Affirmative Disclosure Obligations
Under the Securities Laws, 46 Md. L. Rev. 907 (1987).
1989] FRAUD-ON-THE-MARKET 1083
fraud-on-the-market theory, dependent as it is on the efficient market
hypothesis, should be applied only to those situations where the market
is developed or proven to be efficient. Instead, the Court approved the
fraud-on-the-market theory without Umitation.
Furthermore, the Court in Basic had the opportunity to analyze the
distinction between reliance and causation. Even though the Court states
that reliance is not ehminated as an element in a Rule lOb-5 action, ^^^
the practical effect of the Court's decision is to create a reUance-
causation equivalency. In doing so, the presumption becomes non-re-
buttable. Although the Court gives examples of how the presumption
of reliance can be rebutted, '^^ the defendant is put in the position of
proving a speculative negative, for instance that the plaintiff disbelieved
corporate misstatements or would have traded despite knowing the state-
ments were untrue. The Court has shifted the "unnecessarily unrealistic
evidentiary burden" '^^ from plaintiff to defendant. However, this al-
location of the burden of proof between the parties may be reasonable
in light of the plaintiff's required showing of a material misrepresentation
by the defendant.
Because of inroads on the requirement of disclosure of seemingly
"soft information,"'*^ a fluid standard on the question of materiality,'*^
and the suggestion that class action plaintiffs will not be dismissed
easily,'*^ corporate counsel may want to devise new strategies for advising
disclosure practices among clients.
There is general discontent mixed with great interest in the "greed
is good - greed works" '^"^ philosophy portrayed in the recent film Wall
Street. ^^^ The local newspapers, as well as the national business journals,
will continue to cover the various million and biUion dollar insider
trading, leveraged buyout, and junk bond stories. The investing public
may feel some measure of vindication in knowing that they may suc-
cessfully bring a Rule lOb-5 class action more easily after Basic even if
their dollar figure is significantly smaller than the stories making the
headlines. Perhaps that is all the Court wanted to accompUsh.
Rosemary J. Thomas
178. Basic, 108 S. Ct. at 989.
179. Id. at 990.
180. Id. at 989.
181. See supra text accompanying note 177.
182. See supra text accompanying note 74,
183. Basic, 108 S. Ct. at 990-91.
184. Wall Street, Twentieth-Century Fox Film Corp. (1987).
185. Id.
Institutional Arrangements for Governing the Construction
of Electric Generating Units: A Transaction Cost Analysis
I. Introduction
The total cost of providing this nation's electric utility service is in
excess of $150 billion per year.' During the past decade, an increasing
portion of that cost has resulted from the construction of generating
plants which ultimately are either canceled or redundant.^ Recent estimates
indicate that some $50 biUion have been spent on plants which were
canceled before ever going into service, while biUions more have been
spent on plants which are redundant due to excess capacity in the system.^
In most cases, the canceled or redundant plant was planned and con-
structed by utility investors in a good faith effort to provide ample
electric power resources for robust economic growth/
As electricity prices have spiraled ever higher, regulatory commissions
have begun to disallow complete recovery of costs which are attributable
to canceled or redundant plants.^ For consumers, the immediate effect
of these cost disallowances has been a significant reduction in utility
bills relative to full-recovery levels.^ For the utilities concerned, the most
immediate effect has been financial hardship or bankruptcy.^ The long
term consequences to both consumers and investors may be less readily
observable, but they are equally important. For example, some analysts
1. Standard & Poor's, Utility Compustat II (1988).
2. Depending on jurisdiction, estimates go as high as 20*^0. See e.g., Komanoff,
Assessing the High Costs of New Nuclear Power Plants, Pub. Util. Fort., Oct. 11, 1984.
3. Id. at 33.
4. No cases have been found in which a utility was charged with intentionally
constructing excess electric capacity.
5. States which have disallowed construction costs include Maine, New Hampshire,
Vermont, Delaware, New Yoric, Pennsylvania, Connecticut, Massachusetts, Ohio, Indiana,
Michigan, Kentucky, Georgia, Illinois, Missouri, California, Washington, South Carolina,
Alabama, Mississippi, Texas, Oregon and Idaho. The Salomon Brothers 100 Electric Utilities
- Company Summaries (1987).
6. For example, in the recent case of Public Service Co. of Indiana, a 27% rate
reduction was urged by intervenors based on the difference between emergency and cost-
based rates. Indiana Utility Regulatory Commission, Cause No. 37414. In the case of
Northern Indiana Public Service Co., the regulatory agency ultimately disallowed some
$200 miUion in utility costs - resulting in an annual levenue reduction of approximately
$40 miUion. Public Service Commission of Indiana, Cause No. 37023.
7. Among the investor-owned utilities which have faced threats of bankruptcy
due to construction cost disallowances are Long Island Lighting Co., Middle South Utilities,
Consumers Power Co., Gulf States Utihties, Public Service Co. of Indiana and Public
Service Co. of New Hampshire.
1085
1086 INDIANA LAW REVIEW [Vol. 22:1085
have predicted that significant shortages in electricity supply will occur
in the 1990's as investors become increasingly concerned that the con-
struction of new generating facilities does not provide the opportunity
for reward commensurate with the investment risk.^ Even if shortages
do not occur, it is anticipated that the increasing risk will manifest itself
in higher costs of capital for utilities engaged in construction — and,
ultimately, in higher rates for the consumers of electric power. ^
In response to this and other problems, a variety of regulatory
reforms have been proposed. ^° Those reforms are widely disparate and
may be mutually exclusive. ^^ While most of the reform proposals advocate
introducing competition to utility markets, there is significant disagree-
ment as to the appropriate nature or extent of that competition.^^ Due
to the significant financial impact of any reform alternative, it is im-
perative that any alteration in current policy be a well-reasoned response
aimed at minimizing total costs. ^^
This discussion evaluates potential institutional structures for gov-
erning transactions between utility investors and consumers by applying
the theories of transaction cost analysis. Transaction cost analysis is a
framework for evaluating contractual relations with an increased emphasis
8. See, e.g., Power Supply Forecasts Grow Pessimistic, Wall St, J., October 12,
1988 at A2, col. 2; P. Navarro, The Dimming of America (1985); Studness, Why a
Shortage of Electric Generating Capacity is All But Inescapable, Pub. Util. Fort., August
22, 1985, at p. 44.
9. Estimates by financial professionals included a 200 basis point risk premium
in cost of equity calculations performed for Public Service Company of Indiana in a 1986
rate case following Indiana's disallowance of some $2.8 million of construction costs.
Testimonies of Prof. Eugene Brigham, Ph.D., and John Curley, Morgan Stanley & Co.,
in Public Service Company of Indiana's rate case before the Indiana Utility Regulatory
Commission, Cause No. 37414 (1985).
10. A good overview of specific proposals can be found in P. Joskow & R.
Schmalensee, Markets For Power: An Analysis of Electric Utility Deregulation
(1983). Other proposals can be found in Plummer, A Different Approach to Electricity
Deregulation, Pub. Util. Fort., July 7, 1983, at 16; Meyer, A Modest Proposal for the
Partial Deregulation of Electric Utilities, Pub. Util. Fort., April 14, 1983, at 23; Dowd
& Burton, Deregulation is Not an Answer for Electric Utilities, Pub. Util. Fort., September
16, 1982, at 21; Killian & Trout, Alternatives for Electric Utility Deregulation, Pub. Util.
Fort., September 16, 1982, at 34; Butler, A Social Compact to be Restored, Pub. Util.
Fort., December 26, 1985, at 17; Scranton, Reforming and Improving Electric Utility
Regulation, Pub. Uttl. Fort., August 4, 1983, at 19; and the proposals discussed in Re
Pricing and Rate-making Treatment for New Electric Generating Facilities Which Are Not
Qualifying Facilities, 93 PUR 4th 313 (Mass. Dept. Pub. Util. 1988).
1 1 . For example, the deregulation proposals are mutually exclusive with the approach
taken in Massachusetts. See infra notes 105-07 and 133-43 and accompanying text.
12. This debate is articulated in the articles cited in note 10, above.
13. Total costs are defined to include the costs of producing electricity and the
costs of negotiating, monitoring and enforcing the transaction.
1989] INSTITUTIONAL ARRANGEMENTS 1087
on the economic and behavioral characteristics of the transaction and
the actors involved.''* It recognizes that a determination of the most
efficient institutional arrangement for governing transactions must take
into account the costs of negotiating, monitoring and enforcing the
contract.'^ It also recognizes that characteristics such as the uncertainty,
complexity and frequency of the transaction are central in predicting
those costs, and that the potential for opportunistic behavior is an
important factor in determining least-cost institutional structures.'^
II. An Overview of the Industry
The electric utility industry encompasses the generation, transmission
and distribution of electric power. '^ Generation is the production of
electric power, typically from fossil fuels; transmission is the bulk transfer
of power at high voltages from the generating unit to the local distribution
grid; and distribution is the disbursement of low voltage power to end-
users.'^ Although the physics of electricity require that the generation,
transmission and distribution systems operate together as a coordinated
whole, '^ there is no legal requirement that all of those services must be
provided by a single company. ^° Economies of scale, however, have led
to a large amount of vertical integration within the industry so that, in
most cases, the generation, transmission and distribution functions are
all accomplished by one corporate structure.^'
Most companies in the electric utility industry are privately owned
and operated. ^^ There are, however, a large number of co-operative
utilities, as well as some utilities which are governmentally owned. ^^ All
utilities are granted a legally enforceable monopoly franchise to provide
service to some particular geographical area.^"^ This monopoly franchise
is granted in recognition of the economies of scale which can be realized
by constructing only one transmission/distribution system. ^^ The mo-
14. Williamson, Assessing Contract, 1 J. Law, Econ. and Organ. 177, at 179
(1985).
15. P. JosKOw & R, Schmalensee, supra note 10, at 109.
16. Id. at 111.
17. A good overview of the electric utility industry can be found in C. Phillips,
The Regulation of Public Utilities (1985).
18. See, e.g., P. Joskow & R. Schmalensee, supra note 10, at 25.
19. L. Hyman, Americans Electric Utilities: Past, Present, and Future (1983).
20. P. JosKOW & R. Schmalensee, supra note 10, at 11.
21. Id. at 11.
22. Id. at 12.
23. Id.
24. P. JosKow & R. Schmalensee, supra note 10, at 29-32. See also C. Phillips,
supra note 17, at 38-41.
25. Id.
1088 INDIANA LAW REVIEW [Vol. 22:1085
nopoly franchise is granted subject to limitations imposed by regulatory
authorities who determine utility rates calculated to preclude monopoly
prof its. ^^
The sale of electricity is regulated by both state and federal regulatory
agencies.^^ The Federal Energy Regulatory Commission (FERC) has ju-
risdiction over wholesale transactions between electric utilities based on
the federal commerce power, ^^ while state regulatory agencies generally
have jurisdiction over sales between the utility and its retail customer s.^^
State authority over utility rates and charges is limited when a state
decision is inconsistent with some federal determination. ^°
The decisions of both state and federal regulatory agencies are framed
within the parameters of statutes and case law.^^ Although the admin-
istrative agency ultimately determines the absolute level of rates and
charges, the parameters of that decision are determined by statutes as
interpreted by the courts. For example, in Citizens Action Coalition of
Indiana v. Northern Indiana Public Service Co,,^^ the Indiana Supreme
Court interpreted Indiana statutes to preclude a particular state com-
mission determination. In the general rate case which spawned that
litigation, the Indiana commission had determined the legal level of rates
and charges based on the commission's determination of the value of
NIPSCO's utility plant." That net plant value included costs incurred
during the partial construction of an electric generating unit which had
ultimately been cancelled. The commission's decision was overturned by
the Indiana Supreme Court which held that the commission's determi-
nation was contrary to Indiana law which allows only '*used and useful"
plants to be included in the calculation of utility rates and charges.^"*
On remand, the regulatory commission recalculated plant value in ac-
cordance with the guidelines of the state court. ^^
III. The Construction of Electric Generating Capacity
Before evaluating the effect of institutional structure on the gov-
ernance of any transaction, the characteristic features of that transaction
26. C. Phillips, supra note 17, at 75-77.
27. P. JosKOw & R. ScHMALENSEE, supra note 10, at 117, 127.
28. Id. at 69-72.
29. Id. at 117.
30. See, e.g., Mississippi Power & Light Co. v. Mississippi, 108 S. Ct. 2428 (1988);
Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953 (1986).
31. Utility regulatory agencies, like all administrative agencies, must operate within
the confines of law. Due to the significant public interest in public utilities, there is a
significant amount of both statutory and judicial law on most issues. The development
of public utility law can be found in C. Phillips, supra note 17, at 67-108.
32. 485 N.E.2d 610 (Ind. 1985), affg All N.E.2d 938 (Ind. Ct. App. 1984).
33. Pubhc Service Commission of Indiana, Cause No. 37023.
34. Citizens Action Coalition of Indiana, 485 N.E,2d 610.
35. Public Service Commission of Indiana, Cause No. 37023.
1989] INSTITUTIONAL ARRANGEMENTS 1089
must be clearly understood. This Note focuses on the transaction between
utility investors and consumers in which investors agree to provide electric
generating capacity while consumers agree to pay for that service. Among
the distinguishing features of the transaction are the length of time
required to complete the exchange and the high degree of idiosyncrasy
of the physical asset.
The length of time required to construct a utility power plant ranges
from five to ten years depending on such factors as size, type, location. ^^
In addition, full recovery of the plant's value is not achieved until the
completion of its useful life if the transaction is governed by traditional
regulatory structures. ^^ This pay-back period is longer than that of most
other investments and subjects the transaction to a greater degree of
uncertainty.^^ During construction, a variety of factors are subject to
change, including: the cost of borrowed money, the cost of materials
and supplies, the design standards for the unit, and the demand for the
final output. ^^ Because all of those factors can have a significant impact
on costs and/or profits, the length of the construction period directly
impacts the uncertainty of the transaction."^^
The "idiosyncratic" characteristics of a utility plant are also sig-
nificant."*^ Idiosyncratic investments are investments which are of value
primarily to the original parties to the transaction; they cannot be
marketed to third parties if the original transaction cannot be completed. '^^
The presence of idiosyncratic investments creates the potential for op-
portunistic behavior by a party poised to take advantage of differences
in ex post versus ex ante valuation."*^ An investment in electric generating
36. Estimate of A. Chang. Ph.D., Assistant Chief-Technical Analysis, Indiana
Utility Regulatory Commission.
37. Full recovery is accomplished by the collection of depreciation expense as an
element of authorized rates and charges. Because depreciation expense is calculated and
collected according to the useful life of the plant, full recovery is not complete until that
period of time has expired. See Federal Regulatory Energy Commission, Uniform
System of Accounts (1983).
38. Teisberg, Investment Cost Recovery and Incentive for Power Plant Construction,
Pub. Util. Fort. March 3, 1988, at 9.
39. Changes in design standards during construction have been cited as a primary
reason for the high cost of nuclear power plant construction. See, e.g., Komanoff, supra
note 2.
40. Uncertainty here is defined to mean that probabilities cannot be assigned for
potential outcomes. This is distinguished from risk which recognized that unfavorable
outcomes may occur, but that they can be identified and quantified as to probability.
41. A more complete discussion of idiosyncrasy and its effects on transaction costs
can be found in Williamson, infra note 49. See also infra notes 76-79.
42. Id. at 239-41.
43. Ex ante means before the transaction, ex post means after the transaction.
Discussions of idiosyncrasy and opportunistic behavior can be found in WiUiamson, supra
note 14, Williamson, infra note 49, and Pierce, A Proposal to Deregulate the Market for
Bulk Power, 11 Va. L. R. 1183 (1986).
1090 INDIANA LAW REVIEW [Vol. 22:1085
capacity is highly idiosyncratic for both physical and institutional rea-
sons."^ Physically, electric generating units cannot be moved and the
power they produce cannot be ** wheeled" long distances due to a variety
of engineering constraints/^ Institutionally, the unified ownership of
generation and distribution facilities creates incentives for each utility
to purchase power only from its own generating units so that full recovery
of those construction costs can be realized/^
IV. Transaction Cost Analysis: A Lav^ and Economics Approach
A variety of economic theories may be, and have been, applied to
evaluate which institutional arrangements are most likely to lead to the
efficient governance of contractual relationships/^ This analysis applies
* transaction cost" theories to determine which institutional arrangements
are most likely to lead to the efficient governance of the contractual
relationship between utility investors and consumers/^ Although trans-
action cost theories were first described by Coase some 50 years ago,
they have only recently been developed by a new school of institutional
economists including WilHamson, Klein, Joskow, Goldberg and others/^
In his 1937 paper 'The Nature of the Firm," Ronald Coase argued
that governance structures emerge to minimize the costs of making
transactions/^ The governance structures Coase considered included both
internal (corporate) and external (market) structures. He recognized that
the determination of whether an internal (intracorporate) or external
(market exchange) framework governed an exchange between two or
more parties depended on which institutional arrangement could most
44. The institutional reasons for generating asset idiosyncrasy are described in
Pierce, supra note 43.
45. Wheeling is moving electric power from one company's service territory to
another's. See, e.g., Casazza, Understanding the Transmission Access and Wheeling Prob-
lem, Pub. Util. Fort. October 31, 1985, at 35.
46. So long as the generation and distribution functions are owned by the same
entity, joint profit maximization will require that the distributor purchase power from
affiliated generating unit unless the difference in operating costs is unreasonable large.
47. Among the economic theories which have been applied to problems in contract
are price theory and the theory of property rights. See, e.g., Posner, The Chicago School
of Antitrust Analysis, 111 Univ. Pa. L.R. 925-48 (1979).
48. Institutional arrangements to be discussed herein include free markets, regulatory
control, binding arbitration and vertical integration.
49. Williamson, Transaction-Cost Economics: The Governance of Contractual Re-
lations, 22 J. Law Econ. Organ. 233 (1979); Goldberg, Regulation and Administered
Contract, 7 Bell J. Econ. 426 (1976); Klein, Transaction Cost Determinants of "Unfair"
Contractual Relations, 70 Am. Econ, Rev. 356 (1980); Joskow, Vertical Integration and
Long-Term Contracts, 1 J. Law Econ. & Organ. 33 (1985).
50. Coase, The Nature of the Firm, 4 Economica 386 (1937).
1989] INSTITUTIONAL ARRANGEMENTS 1091
efficiently govern that transaction.^^ He further recognized that the total
costs of a transaction include not only the cost of the goods or service
to be exchanged, but also certain transaction costs associated with es-
tablishing and administering a business relationship."
The transaction costs applicable to contracts in general, and to utility
construction contracts in particular, include the costs of negotiating
contractual terms, the costs of monitoring contractual performance, the
costs of enforcing contractual provisions and the costs of breach of the
agreement. ^^ All of these costs are real economic costs which must be
taken into account along with the traditional costs of production in
determining the cost-minimizing structure of any legal/economic rela-
tionship.^'* Before evaluating transaction costs, however, we must un-
derstand not only their general nature, but also the specific characteristics
which allow them to be used in a predictive way.^^
Williamson in particular has focused on identifying the critical di-
mensions of transaction costs which indicate how and why transactions
can be matched with governance structures in an efficient manner. ^^ To
date, he has identified three characteristics of transactions that affect
the nature and magnitude of transaction costs, and thus the efficient
governance structure." Those characteristics are: (1) The complexity and
uncertainty of the contemplated transaction; (2) The frequency with
which the transaction is likely to recur; and (3) The extent to which
one party must make transaction-specific (idiosyncratic) investment of
time, money and labor. ^* These characteristics have subsequently been
used by other authors in their applications of transaction cost theory. ^^
The complexity of the transaction is important because it increases
the costs of bargaining, monitoring and enforcing the contract. ^^ Com-
plexity increases transaction costs directly by increasing the number of
terms which must be negotiated, monitored and enforced.^* Complexity
may also increase transaction costs indirectly by making information
51. Id.
52. Id.
53. Joskow, supra note 49, at 36.
54. Id. at 35.
55. Specific transaction characteristics are described in Williamson, supra note 49.
56. Id.
57. Id.
58. Id. at 239.
59. See, e.g., P. Joskow & R. Schmalensee, supra note 10; Joskow, supra note
49, and Klein, supra note 49.
60. Williamson, supra note 14.
61. Complex transactions are defined here to include transactions which have a
large number of terms, typically involving technical or specialized knowledge.
1092 INDIANA LAW REVIEW [Vol. 22:1085
more costly and/or less reliable. ^^ Finally, complexity generally increases
uncertainty due to the constraints of imperfect information and increased
transaction terms."
The uncertainty of the transaction is also an important determinant
of transaction costs. ^"^ When the future course of performance is un-
certain, contractual gaps are apt to be larger and occasions for adaptation
will increase in number and importance. ^^ A more elaborate and costly
governance structure is typically required, including provisions for ar-
bitration when unanticipated contingencies arise. ^^ Uncertainty also lowers
the economic '^utility" of any outcome for risk-adverse parties since all
outcomes must be discounted by the Ukelihood of success. ^^
Another factor that has been shown to impact transaction costs is
the frequency of the transaction.^^ When a transaction is frequently
repeated, standard terms and conditions may become defined by past
performance, reducing the costs of negotiating those terms independently
for each transaction.^^ The frequency may also impact transaction costs
by affecting the uncertainty of the transaction.^^ Transactions which are
frequently repeated are apt to have a more certain set of potential
outcomes since information is available concerning the outcomes of past
transactions executed under similar circumstances.'^ Frequency of trans-
actions may also impact transaction costs by affecting the behavior of
the parties. ^^ Parties who must deal frequently with each other are less
apt to engage in opportunistic behavior that may adversely affect future
transactions.^^ Personal ethical standards may also be higher when the
same individuals must frequently interact, and those personal standards
may replace the more opportunistic corporate ethic which operates when
personal relationships have not developed between the contracting parties.'''^
62. The relationship between information and transaction costs is described in
Heckathorn & Masur, Bargaining and the Sources of Transaction Costs: The Case of
Government Regulation, 3 J. Law, Econ. & Organ, 69 (1981).
63. Id.
64. Wilhamson, supra note 49, at 254.
65. Id. at 253-54.
66. Williamson, supra note 49, at 246-54.
67. Discussions of the effect of uncertainty on utility maximization can be found
in many advanced texts in economics. See, e.g., E. Malinvaud, Lectures on Microe-
coNOMic Theory (1972).
68. Williamson, supra note 49, at 248-54.
69. Heckathorn & Masur, supra note 62.
70. Id.
71. Id.
11. Williamson, supra note 14.
73. Id.
74. Id.
1989] INSTITUTIONAL ARRANGEMENTS 1093
The idiosyncrasy of the investment impacts transaction costs by
allowing one party to behave in an opportunistic manner. ^^ Idiosyncratic
goods are goods in which transaction-specific investments in either human
or physical capital have been made.^^ Transaction-specific investments
are those investments which are of value primarily to the intended
purchaser under the contract. ^^ These investments pose nonmarketability
problems because the investor cannot readily recover costs by selling the
investment to alternative buyers. ^^ When idiosyncratic investments must
be made, the relationship between buyer and seller is quickly transformed
into one of bilateral monopoly, and transaction costs increase in direct
proportion to the ability of one party to exploit that monopoly power. ^^
Opportunistic behavior is behavior that involves the appropriation of
wealth from one party to the other due to an unanticipated changes in
circumstances.^^ As a general rule, opportunistic behavior does not max-
imize joint profits.** The potential for opportunistic behavior has been
cited as a primary source of transaction costs due to its impact on
transaction risk.*^ The recognition of idiosyncratic investment and its
impact on opportunistic behavior is a distinguishing feature of transaction
cost analysis.
V. Transaction Cost Analysis of the Traditional Structure
Transaction cost analysis is especially useful in evaluating transactions
which involve high degrees of uncertainty and idiosyncrasy, and which
occur only infrequently for any two contracting parties because it places
greater emphasis on the behavioral characteristics of the parties. The
transaction for the construction and cost-recovery of an electric generating
unit is subject to a great degree of uncertainty due to the long time
required to complete construction and recover costs. *^ The transaction
is also highly complex due to the technical nature of the exchange and
the long time period required to complete the project.*"* Due to the
economies of scale in the construction and operation of generating units,
75. Williamson, supra note 49, at 238-42,
76. Id. at 241.
77. Id. at 239-40.
78. Id. at 238-42.
79. Id. at 241. A bilateral monopoly occurs when both the buyer and the seller
face a monopoly market; i.e., when there is only one buyer and one seller.
80. Joskow, supra note 49, at 37.
81. Id.
82. See Pierce, supra note 43, at 1199-1202.
83. Construction times range from five to ten years for most generating units. See
supra note 35 and accompanying text.
84. Pierce, supra note 43.
1094 INDIANA LAW REVIEW [Vol. 22:1085
construction transactions also take place infrequently for any one utility. ^^
On average, a new unit is added every seven to ten years in most service
territories.^^ Finally, the investment in electric generating plants may be
highly idiosyncratic if the power cannot be sold to an alternative buyer
once construction is complete. ^^
The institutional structure traditionally governing utility-consumer
transactions is a command-and-control regulatory structure. ^^ That struc-
ture imposes terms and conditions on the parties to the construction
transaction by application of law.^^ With respect to the contract in
question, statutes typically provide for rates which are "fair and rea-
sonable."^ Recovery of the costs of a generating unit are allowed if,
and only if, the generating unit becomes "used and useful."^' The used
and useful standard evaluates the "price" term after the investment
decision has been made.^^
The traditional institutional structure allows for an ex post revision
of the value of the generating plant since the used and useful deter-
mination cannot be made prior to project completion. ^^ Because the
investment is highly idiosyncratic, this presents an ideal environment for
opportunistic behavior on the part of consumers acting through the state
regulatory agency.^"* Thus, the ex ante expectations of the parties are
frustrated and the seller is placed in the position of being forced to
accept terms which have not been bargained for.^^ Ultimately, the op-
portunistic behavior increases transaction costs and, therefore, the costs
of future transactions.^^
As was noted earher, one example of ex post revision of the parties'
ex ante expectations can be found in the case of Northern Indiana Public
85. Due to significant differences in demand growth across local jurisdictions, there
is a wide variation in capacity plans for local generating companies. The economies of
scale indicate that the optimal size for new generating capacity is approximately 1200
megawatts, so if demand grows at 200 megawatts per year, a six year interval between
transactions would be implied.
86. Recent and forecast additions to generating capacity indicate that an average
electric utility might be expected to add new generating capacity once every 5 to 7 years.
See Northeast Area Reliability Council Report on Electric Power Capacity (1986).
87. See supra notes 44-46 and accompanying text.
88. Pierce, supra note 43, at 1191-97.
89. Id.
90. See, e.g., Ind. Code § 8-1-2-4 (1988).
91. See, e.g.. Citizens Action Coalition v. Northern Indiana Pubhc Service Co.,
485 N.E.2d 610 (Ind. 1985), aff'g All N.E.2d 938 (Ind. Ct. App. 1984).
92. Pierce, supra note 43, at 1199-1202.
93. Id.
94. Id.
95. Id.
96. Id.
1989] INSTITUTIONAL ARRANGEMENTS 1095
Service Company (NIPSCO).^^ In that case, NIPSCO determined that
the future electricity needs of its service territory would require the
addition of significant new generating capacity. After construction was
begun, the economic climate of the service territory changed and the
capacity additions were no longer necessary.^^ In Citizens Action Coalition
of Indiana v. Northern Indiana Pub. Serv. Co.,^^ the Indiana court
refused to allow recovery of construction costs, regardless of their pru-
dency, based on the statutory requirement that utility property must be
used and useful before recovery is warranted. ^^ That disallowance was
later cited as a significant factor which had increased NIPSCO 's cost
of capital when construction was subsequently begun on additional NIP-
SCO capacity. 'o»
VI. Alternative Institutional Arrangements
If the traditional institutional structure does not efficiently govern
the utility construction transaction, it is important to determine what
institutional structure would accomplish that goal. A variety of regulatory
reforms have been proposed in response to this problem, although no
alternative structure has been proposed as a transaction cost minimizing
solution per se.^^^ Many of those proposals have, however, explicitly
recognized their economic consequences, normally characterizing them-
selves as efforts to either maximize "economic efficiency" or minimize
* 'economic costs. '*'°^
This discussion addresses two general types of reforms- "deregu-
lation" alternatives, and preapproved contract approaches. The dereg-
ulation reforms at issue here are those proposals which incorporate
competitive bidding structures as alternatives to state and federal reg-
97. See supra notes 33-35 and accompanying text.
98. Testimony of J. Neiting, representing Petitioner NIPSCO before the Public
Service Commission of Indiana, Cause No. 37023.
99. 485 N.E.2d 610 (Ind. 1985), affg All N.E.2d 938 (Ind. Ct. App. 1984).
100. Citizens Action Coalition of Indiana v. Northern Indiana PubHc Service Co.,
485 N.E.2d 610 (Ind. 1985), aff'd. All N.E.2d 938 (Ind. Ct. App. 1984).
101. Testimony of J. Langum in NIPSCO case before the Indiana Utility Regulatory
Commission, Cause No. 38045.
102. Transaction cost analysis has been applied to utility regulatory problems in P.
JosKOw & R. ScHMALENSEE, supra note 10, and Pierce, supra note 43.
103. See, e.g., S. Breyer, Regulation and Its Reform (1982); Essay, Efficiency
and Competition in the Electric-Power Industry, 88 Yale L.J. 1511 (1979); Fairman,
Transmission, Power Pools, and Competition in the Electric Utility Industry, 28 Hastings
L.J. 1159 (1977); Miller, A Needed Reform of the Organization and Regulation of the
Interstate Electric Power Industry, 38 Fordham L.R. 635 (1970); and the articles cited
in notes 10 and 42.
1096 INDIANA LAW REVIEW [Vol. 22:1085
ulation.^^'* The preapproved contract reforms take an alternative approach,
requiring an increase in the amount of regulatory oversight. *^^ Because
the competitive bidding proposals rely on market-based governance, while
the preapproved contract proposals rely on a regulatory structure to
govern the contractual relationship, consideration of these two proposal
types will provide a good comparison of institutional arrangements which
are reasonably "opposite" in structure.
A. Competitive Bidding Proposals
Competitive bidding proposals typically involve the separation of
ownership of generation and distribution facilities, the assurance of equal
access to transmission facilities, and the deregulation of wholesale (bulk)
power prices. *^^ After bulk power prices are deregulated, the institutional
structure governing transactions would be the competitive market rather
than the regulatory governance structure which has traditionally con-
trolled. ^^^ Because the deregulation of bulk power prices is the central
focus of competitive bidding proposals, those proposals are also com-
monly referred to as "deregulation" proposals. ^^^ Although there are a
variety of specific competitive bidding proposals, each of which is unique
in one or more aspects, it is practical to consider them collectively as
a proposal type which incorporates the essential characteristics described
below.
The first characteristic of a competitive bidding proposal is the
separation of ownership of generation and distribution facilities. ^^^ The
traditional institutional structure reflects the transaction cost economies
of vertical integration through the common ownership of generation and
distribution facilities. One result of this diversified corporate structure
is an economic incentive for the local distribution grid to utilize affihated
generating capacity regardless of whether there is an alternative, lower
cost provider.''^ Competitive bidding alternatives, on the other hand,
typically require that generating and distribution facilities be owned by
104. Competitive bidding is accomplished in a free-market structure, as opposed to
the traditional command-and-control regulatory structure.
105. See, e.g.. Re Pricing and Rate-making Treatment for New Electric Generating
Facilities Which Are Note Qualifying Facilities, 93 PUR 4th 313 (Mass. Dept. Pub. Util.
1988).
106. One comprehensive example of a competitive bidding proposal is found in
Pierce, supra note 43. See also Plummer, supra note 10; Meyer, supra note 10; and the
articles hsted in note 101.
107. See, e.g.. Pierce, supra note 43.
108. P. JOSKOW & R. SCHMALENSEE, SUprO UOtC 10.
109. See, e.g.. Pierce, supra note 43, at 1211.
110. P. JoSKOW AND R. SCHMALENSEE, SUpra UOtC 10.
1989] INSTITUTIONAL ARRANGEMENTS 1097
separate entities, thus eliminating any financial incentive for the distri-
bution portion of the company to favor any particular generator.^''
Competitive bidding will lead to efficient market transactions only when
there is no unity of interest between the buyer and the seller; otherwise
there is an incentive for the purchaser to contract only with the related
supplier.''^ When the local distributor has no financial interest in the
success of particular generating facilities, the distributor will have no
incentive to purchase from an inefficient supplier and will seek a com-
petitive market-based transaction instead. ^'^
Equal access to transmission facilities is the second characteristic of
a successful competitive bidding program. ^^"^ Equal access to transmission
facilities involves assuring that any buyer and any seller of electricity
may transport power over the transmission grid at a non-discriminatory
price. *^^ Because transmission facilities are required by the transaction
as a physical means of exchange, equal access to transmission facilities
is required by a competitive market so that buyers and sellers may be
efficiently matched. ^'^ If equal access is not assured, purchasers (distri-
bution companies) may face a monopoly market. Regardless of the
number of potential suppliers, the generation market realistically includes
only those suppliers who could actually deliver power.
Deregulation of bulk power sales is the final component of com-
petitive bidding proposals.''^ The deregulation of bulk power sales is
appropriate when a competitive market for those sales exists, because the
competitive market, rather than the regulatory system, will provide the
necessary governance structure. ^'^ If open access to transmission facilities
is assured for both suppliers and end-users, a free market may be
maintained and prices for generating capacity are determined on the
basis of competitive bidding. '^^ Competitive prices are driven toward cost
and inefficient suppliers are driven from the market. ^^°
Competitive bidding proposals would not affect the complexity or
uncertainty of the transaction to build and pay for generating facilities.
111. Pierce, supra note 10.
112. Id.
113. Id.
114. See, e.g.. Pierce, supra note 43, at 1215-18.
115. Id.
116. Id.
117. See, e.g.. Pierce, supra note 42, at 1218-21.
118. Id.
1 19. Id.
120. Inefficient suppliers are those suppliers who are unable to provide service at
competitive market prices. See, e.g., M. Crew & P. Kleindorfer, Public Utelity Ec-
onomics (1979); R. MiLLWARD, Public Sector Economics (1983); F. Scherer, Industrial
Market Structure and Economic Performance (1980).
1098 INDIANA LAW REVIEW [Vol. 22:1085
Construction times would not be shortened, nor would costs be more
accurately estimated or controlled. •^^ Estimating future demand would
not be any more precise. '^^
The frequency of transactions would also not be affected by com-
petitive bidding alternatives. The frequency of construction transactions
is a function of the size of the generating units which are constructed,
while the size of the units is a function of non-institutional factors such
as the rate of anticipated demand growth and the construction and
operating costs of the units. ^^^ There is no reason to believe that the
frequency of electric generating plant construction would be affected by
a competitive bidding governance structure.
The most important implication of competitive bidding proposals is
their impact on the idiosyncrasy of the generating plants. Under the
existing regulatory scheme each electric plant is * 'marketed*' primarily
to one distribution company. '^"^ Under competitive bidding proposals,
each generating unit could be marketed to any distributor. ^^^ The con-
ditions of bilateral monopoly would never arise and the potential for
opportunistic behavior would be correspondingly reduced. ^^^ The elim-
ination of opportunistic behavior would lower the costs of the transaction
because investors will not bear the risk of having their investment
appropriated by consumers. '^^ The risk of opportunistic behavior has
been cited as a primary source of transaction cost, so any governance
structure which reduced that risk could more efficiently govern the
transaction. '2^
Negotiation costs would, however, be significantly increased under
a competitive bidding approach. The present regulatory structure requires
only minimal negotiation and bargaining costs because the terms of the
121. Dowd & Burton, supra note 10.
122. Id.
123. For a discussion of the determinants of optimal generating unit size, see Edison
Power Research Institute, Moving Toward Integrated Value-Based Planning (1988)
(hereinafter EPRI).
124. The output from any generating station is used primarily to serve the generating
company's own service territory. Sales are made to other territories, however, on both a
short-term (economy power) and long-term (unit power) basis. The regulatory scheme does
not specifically preclude extensive inter-jurisdictional, unit power sales; however, those
sales remain the exception rather than the rule.
125. The output from each unit could be marketed on either a short-term or a
long-term basis.
126. Pierce, supra note 43. Bilateral monopoly was defined in note 79.
127. Id.
128. See, e.g.. Pierce, supra note 43; Williamson, supra note 48; and Joskow, supra
note 49.
1989] INSTITUTIONAL ARRANGEMENTS 1099
transaction are largely defined by law.'^^ Market transactions of this
complexity would require extensive bargaining and contracting proce-
dures— procedures which would raise transaction costs. '^^ Monitoring and
enforcement costs would be decreased, though, as market governance
replaced much of the existing regulatory structure.'^'
The net impact of the competitive bidding proposals would be a
more efficiently governed utility construction transaction if a competitive
market can truly be established. Unfortunately, the engineering constraints
on wheeling power long distances, as well as the institutional constraints
of disintegrating the generation and distribution functions, may be too
great to allow a market to form and survive. ^^^ If those difficulties can
be overcome, the elimination of opportunistic behavior would reduce
transaction costs making the governance of the transaction more efficient.
B. Preapproved Contract Approaches
As an alternative to competitive bidding proposals, some states have
adopted a preapproved contract approach to governing the utility con-
struction transaction. ^^3 Preapproved contract approaches typically require
pre-construction (ex ante) approval of all construction plans, followed
by a continuing re-evaluation of the need and cost of those capacity
additions. '^"^ If the need or cost of construction changes, the approval
for construction may be terminated at any time.^^^ All costs incurred
prior to the termination of regulatory approval are recoverable — re-
gardless of whether the plant is ultimately completed. ^^^
One benefit of this alternative is that it requires minimal change in
the current structure of the industry and in the regulatory framework.
Generating divisions would not have to be separated from the transmission
and distribution functions — thus economies of scale could be main-
129. The negotiation and bargaining costs are already "sunk" costs, having been
expended as the statutes were written and the judicial cases were litigated. Little if any
negotiation is now performed, due to the existence of legal requirements which may not
be bargained away.
130. Dowd & Burton, supra note 10.
131. See, e.g.. Pierce, supra note 43; Miller, supra note 100; and Weiss, Antitrust
in the Electric Power Industry, in Phillips & Almarin, Promoting Competition in
Regulated Markets (1975).
132. See supra notes 45-46 and accompanying text.
133. States which have adopted some form of preapproved contract approach include
California, Connecticut, Maine, Indiana, Massachusetts and Wisconsin,
134. See, e.g., Ind. Code § 8-1-8.5-1 et seq. (1988).
135. See, e.g., Ind. Code § 8-1-8.5-6 (1988).
136. Id.
1100 ^_^ INDIANA LAW REVIEW [Vol. 22:1085
tained.^^^ Many, if not most, states currently have deemed forecasting
components which are increasingly able to adequately review construction
proposals. ^^^
The frequency and uncertainty of the transaction would not be
affected significantly by the preapproved contract approach. Non-insti-
tutional factors would continue to define optimal unit size and the
uncertainties of cost and demand would not be affected. ^^^ The complexity
of the transaction would be increased, however, as the parties are forced
to evaluate and re-evaluate the prudency of the construction. ^'^'^
Negotiation, monitoring and enforcement costs are high under a
preapproved contract structure. The regulatory agency would acquire
responsibility to approve the construction expenditures prior to construc-
tion, thereby increasing the costs of negotiation. '"^^ The regulatory agency
would also be required to re-evaluate the construction program on an
ongoing basis, increasing the costs of monitoring the transaction. ^"^^
Although the regulatory structure required to perform these negotiation
and monitoring functions is currently in place in many jurisdictions, the
increase in workload that would accompany implementation of a preap-
proved contract alternative would most certainly increase negotiation and
monitoring costs as construction programs are begun. '"^^
The primary benefit of the preapproved contract approach is its
powerful limit on opportunistic behavior. A preapproved contract creates
a legal obligation on the part of the regulatory commission to allow
137. Economies of scale are economic savings which are reaUzed solely due to the
size of the transaction. For example, many goods can be purchased at a lower price when
many units are bought at once. Some economies of scale in management, purchasing,
etc., would be present regardless of whether generation and distribution are separated or
not. The magnitude of those economies, of course, would be greatest with a larger,
integrated corporate structure.
138. States with some demand forecasting ability include California, Connecticut,
Delaware, Florida, Indiana, Iowa, Maine, Maryland, Michigan, Nevada, New York, Ohio,
Oklahoma, Pennsylvania, Texas, Virginia, Washington and Wisconsin. Berry, Least-Cost
Planning and Utility Regulation, Pub. Util. Fort. March 17, 1988 at 9.
139. See EPRI, supra note 123.
140. The preapproved contract approach includes a continual re-evaluation of con-
struction needs and costs. See, e.g., Ind. Code § 8-1-8.5-1 to 8-1-8.5-7 (1988); and Re
Pricing and Rate-making Treatment for New Electric Generating Facilities Which Are Not
Qualifying Facilities, 93 PUR 4th 313 (Mass. Dept. Pub. Util. 1988).
141. Id.
142. Id.
143. Although several states have initiated preapproved contract provisions, or have
created demand forecasting components within their utility regulatory agencies, no state
has yet constructed a generating unit following that approach. The regulatory effort
necessary to evaluate and monitor construction programs is significant indeed, and because
the utihties must duplicate those efforts, the total negotiation and monitoring costs of
the transaction would doubtless increase when compared to historical levels.
1989] INSTITUTIONAL ARRANGEMENTS 1101
full recovery of all approved costs; there can be no ex post re-evaluation
of the contract price. '"^ Although the idiosyncrasy of the asset would
remain high under this alternative, the statutory controls over the recovery
of costs provide the necessary balance to avoid opportunistic behavior. '"^^
Total transaction costs should be reduced from present levels under
a preapproved contract approach. ^"^^ Although the costs of negotiating
and monitoring are high, reducing the potential for opportunistic behavior
would more than compensate for that increase. ^'^^ The preclusion of
opportunistic behavior allows investment decisions to be based on ec-
onomic value, and significantly reduces unnecessary transaction costs. '"^^
VII. Development of Alternative Governance Structures
An understanding of transaction costs makes it possible not only to
evaluate existing proposals, but also to devise additional institutional
alternatives that might more efficiently govern the construction trans-
action.^"*^ This section will suggest two alternative governance structures
and will discuss how those structures could lead to a more efficient
utility construction transaction.
A. Binding Arbitration
In 'Transaction-Cost Economics: The Governance of Contractual
Relations," Oliver Williamson suggests efficient governance structures
for a variety of transaction types. '^° Among those transaction types are
"occasional" transactions which involve a high degree of uncertainty
and idiosyncratic investment. ^^' The governance structure identified by
Williamson as most efficient for that transaction type is a ''trilateral"
governance structure whereby third party assistance (arbitration) is em-
144. See, e.g., Ind. Code § 8-1-8.5-6 (1988); and Re Pricing and Rate-making
Treatment for New Electric Generating Facilities Which Are Not Qualifying Facilities, 98
PUR 4th 313 (Mass. Dept. Pub. Util. 1988).
145. Opportunistic behavior cannot occur when ex post revision is precluded by
statute,
146. Recall that total transaction costs include the costs of production, plus the
costs of negotiation, monitoring and enforcement.
147. There is no empirical data supporting this conclusion. The conclusion is based
on the opinions of the commentators in Re Pricing and Rate-making Treatment for New
Electric Generating Facilities Which Are Not Qualifying Facilities, 93 PUR 4th 313 (Mass.
Dept. Pub. Util. 1988).
148. Pierce, supra note 43.
149. Efficient transaction governance is that governance which minimizes total trans-
action costs.
150. Williamson, supra note 49.
151. Id. at 249.
1102 INDIANA LAW REVIEW [Vol. 22:1085
ployed to evaluate performance and resolve disputes. '^^ One gov-
ernance structure consistent with Prof. Williamson's suggestion could be
achieved by providing for federal arbitration of state decisions concerning
whether construction costs should be fully recovered. '^^ For example,
the Federal Energy Regulatory Commission could be given binding ar-
bitration power over any state disallowances of construction costs, and,
in addition, the freedom to apply federal prudency rules to that arbi-
tration. The freedom to apply federal prudency rules is an important
component of this proposal since the success of arbitration depends
largely on the ability to allocate costs fairly. '^"^ An alternative that
provided for federal arbitration yet required the arbitrator to use state
*'used and useful" rules would deprive the arbitrator of the flexibility
necessary to achieve an efficient allocation.
Federal arbitration should have the effect of reducing opportunistic
behavior. Although the federal commission is also theoretically subject
to opportunistic pressures, the fact is that the FERC has never disallowed
any utility investment as being imprudent or excessive. ^^^ The potential
for federal disallowance of imprudent construction expense would pre-
clude the utilities from constructing unnecessary plants except when the
reasonable expectations of the parties are that the capacity will be
required. '^^ On the other hand, federal arbitration would preclude the
states from appropriating the utility investment by eliminating ex post
review of the transaction based on results which could not have been
reasonably anticipated.^" This elimination of opportunistic behavior re-
duces transaction costs by allowing the investment to be valued eco-
nomically in a predictable manner. '^^
Negotiation and monitoring costs would be unaffected by binding
arbitration alternatives since the existing regulatory framework would
continue to operate unless disagreement as to cost recovery is encoun-
152. Id. at 249-50.
153. Federal arbitration of state decision-making is an example of the trilateral
governance structures described by Williamson.
154. Arbitration without flexibility is no more than administrative review of the
application of set rules and procedures. Flexibility is typically necessary to find efficient
solutions which are distinct from the proposals of the parties.
155. Teisberg, supra note 38.
156. No profit-maximizing firm will knowingly construct imprudent generating fa-
cilities if a procedure exists for regulatory disallowance of those imprudent costs. If there
is a good faith expectation that the facilities will be needed, generating plants that are
eventually unnecessary may be constructed.
157. The appropriation of utility investment occurs by the ex post revision of the
mutual expectations of the parties. See, e.g.. Pierce, supra note 43.
158. Id.
1989] INSTITUTIONAL ARRANGEMENTS 1103
tered.'^^ The cost of enforcement would, however, be increased due to
the inevitable cost of the arbitration structure J^° This increase in en-
forcement costs would be minimal when compared with the reduction
in transaction costs which accompanies the reduction in opportunistic
behavior. ^^^
A consideration of transaction costs implies that an institutional
structure incorporating binding arbitration would more efficiently govern
the utility construction transaction. '^^ Although enforcement costs would
increase, the potential for opportunistic behavior that pervades the ex-
isting institutional structure would be reduced significantly.
B. Public Ownership of Generating Facilities
Another alternative governance structure is suggested by Williamson's
analysis if the utility construction transaction is determined to be re-
current, rather than infrequent. '^^ When the frequency of the transaction
is recurrent, a unified (vertically integrated) governance structure is im-
plied. ^^"^ Vertical integration exists when one firm both supplies and
utiUzes some factor of production such that the output from one portion
of the company is the input for another portion. '^^ For example, the
current electric utility industry is vertically integrated since each utility
company generates, transmits and distributes electric power. ^^^ The output
from the generation portion of the company is the input of the trans-
mission portion, and the output of the transmission portion is the input
for the distribution function. The advantage of vertical integration is
that adaptations can be made sequentially without the need to consult.
159. Binding arbitration would not affect negotiation and monitoring costs in this
case because those costs are determined by the existing regulatory structure. In some cases,
binding arbitration would affect negotiating and monitoring costs depending on the con-
fidence the parties have in the arbitration process. The less confidence the parties have
in arbitration, the more likely they are to address all terms and conditions in the negotiation
process.
160. A federal arbitration structure would be relatively inexpensive to establish and
maintain because the federal institutional structure is already in place. It can be reasonably
assumed that the FERC would seldom have to arbitrate specific disagreements since it is
the threat of arbitration, rather than the arbitration itself, that will modify the parties'
behavior,
161. Again, the costs of opportunistic behavior are beUeved to be significant in
most jurisdictions. See Pierce, supra note 43.
162. Efficiency is achieved by minimizing transaction costs.
163. Williamson, supra note 49.
164. Id. at 253.
165. M. Crew & P. Kleindorfer, The Economics of Public Utility Regulation
(1986).
166. P. JosKow & R. ScHMALENSEE, supra note 10, at 11,
1104 INDIANA LAW REVIEW [Vol. 22:1085
complete or revise interfirm agreements. ^^^ When a single ownership
spans both sides of the transaction, joint profit maximization exists and
price and quantity adjustments can be made with the frequency necessary
to maximize joint profits. ^^^
One example of an institutional structure which incorporates the
principals of unified governance is the public ownership of generating
facilities. ^^^ Although public ownership of generating facilities is not
vertical integration per se, public ownership does provide for unified
ownership on both sides of the transaction, thereby creating a unity of
interest similar to vertical integration schemes. *^° With public ownership,
the same party would be both buyer and seller, and opportunistic behavior
would not occur since it has no ability to maximize joint profits. ^^'
The complexity, uncertainty and frequency of the transaction is not
affected by public ownership of generating capacity. As was the case
with the competitive bidding scenario, construction times would remain
long, while predicting costs and demand would remain highly complex
and subject to error. '^^ The frequency of the transactions should not be
impacted so long as the optimal unit size is determined by non-insti-
tutional factors. '^^ The significant cost of financing utility construction
might, however, be an incentive for constructing smaller units. ^^"^
The idiosyncrasy of the investment may not be affected by a pubhc
ownership scenario since neither the asset nor Jts output need be trans-
ferable for public ownership to be in force. '^^ If generating units are
financed and owned by local consumers, and are to be used solely for
their benefit, the physical and institutional constraints may continue to
exist. ^''^ If the ownership of generating facilities is accomplished at the
state or federal level the idiosyncrasy of the investment may be reduced
as the output from any unit may be used to serve a variety of service
167. Williamson, supra note 49, at 253.
168. Id.
169. Public ownership of generating facilities incorporates the principles of vertical
integration, but it is not truly a vertical integration structure.
170. Public ownership is distinct from true vertical integration since individual
consumers would still purchase the electricity. With true vertical integration assets are
transferred intrafirm, without a market transaction.
171. Joint profits are the sum of the buyer's profits and the seller's profits. Joint
profits are not necessarily achieved by maximizing the profits of each party separately.
172. Dowd & Burton, supra note 10.
173. Id.
174. If the economies of scale tending to make large units more economic are not
significant it may be more efficient to build smaller units more frequently.
175. Public ownership per se does not require that a generating unit serve more
than one service territory.
176. The physical and institutional constraints are described in notes 45-46 and
accompanying text.
1989] INSTITUTIONAL ARRANGEMENTS 1105
territories. ^^"^ The impact of the idiosyncrasy would be eliminated because
the unification of financial interest precludes opportunistic behavior. '^^
Idiosyncrasy is only important due to its opportunistic impact so the
idiosyncrasy of the investment is not of great concern when public
ownership is accompHshed.^''^ Under pubHc ownership, the consumers
are at interest on both sides of the transaction so there is no potential
for opportunistic gain by ex post revision of the contract.
The most persuasive factors against the public ownership proposal
are political and financial. On the political level, there is a national
aversion to public ownership. '^° The American economy is based on free
enterprise and any proposal to eliminate private ownership of utility
assets would undoubtedly meet substantial resistance. The significant
cost of generating capacity would also create financial constraints.*^'
While utility investors may voluntarily commit millions of dollars to a
construction project, a public ownership scenario would make those
investments mandatory for all consumers. '^^ Many people do not have
sufficient resources to prospectively pay for generating facilities which
may not be used for several years. '^^
A transaction cost analysis of public ownership of generating facilities
indicates that transaction costs could be significantly reduced through
that alternative. The potential for opportunistic behavior would be ehm-
inated, although bargaining and monitoring costs may be increased.
Political and financial constraints may, however, preclude this alternative
from extensive consideration.
VIII. Conclusion
Governance structures — the institutional framework within which
transactions are negotiated and executed — vary with the nature of the
177. When the output from a generating unit can be sold to a competitive market
of potential purchasers the investment is no longer idiosyncratic. Idiosyncrasy requires
that the asset be transaction-specific.
178. Opportunistic behavior is precluded since joint profit maximization is not
achieved by uncooperative behavior for a unified firm.
179. WiUiamson, supra note 49, at 241.
180. The trend in the United States has been toward more private ownership rather
than more public ownership.
181. Costs of new generating facilities range from $100 million to $5 billion. See
Dept. of Energy, Projected Costs of Electricity^ from Nuclear and Coal-Fired
Power Plants (1986).
182. It can be assumed that all taxpayers would participate in any public ownership
of electric generating facilities since any plan involving optional participation would en-
counter "free-rider" problems.
183. The cost to consumers over time would remain the same as it currently is
since the existing regulatory scheme provides for the "purchase" of generating facilities
through the collection of depreciation expense. There would be an upfront cost, though,
as existing plant were transferred from private to public ownership.
1106 INDIANA LAW REVIEW [Vol. 22:1085
transaction. Transaction cost analysis evaluates the characteristics of a
transaction to determine what institutional structure can most efficiently
govern. In particular, the characteristics of complexity, uncertainty, fre-
quency and idiosyncrasy are emphasized by transaction cost analysis.
Transaction cost analysis recognizes that these characteristics affect the
costs of negotiating, monitoring and enforcing the contract, and that
these transaction costs are real costs which must be accounted for in
determining the least-cost institutional structure.
The transaction at issue here is the transaction whereby utility inves-
tors finance and build an electric utility plant for consumers who sub-
sequently compensate the investors for their costs. That transaction may
be characterized as an infrequent transaction requiring significant amounts
of transaction-specific investment to be made under conditions of great
uncertainty. The transaction is infrequent because economies of scale
dictate the addition of large generating units which are added every five
to ten years. The transaction requires a large amount of transaction-
specific (idiosyncratic) investment so long as physical and institutional
factors preclude the wheeling of bulk power. The transaction is uncertain
since the long time necessary to build the plant and complete the
transaction makes the ultimate economic value of the plant difficult to
predict.
The traditional regulatory governance structure is not an efficient
way to govern the utility construction transaction because it allows the
amount of construction expense which can be recovered through rates
to be determined after the investment has been made. Because the
investment is idiosyncratic (involves a high level of sunk costs), this ex
post determination of asset value allows opportunistic behavior by con-
sumers acting through the regulatory agency. The potential for oppor-
tunism is especially troublesome under this governance structure because
of the great uncertainty caused by the long time necessary to build the
plant and complete the transaction. The potential for opportunistic be-
havior by regulators increases the cost of the transaction by imposing
significant risks on investors who may have their investment "appro-
priated" by an ex post determination of the asset's value.
Competitive bargaining proposals may reduce transaction costs by
ehminating the generating asset's idiosyncrasy. Once the investment is
not transaction-specific, the potential for opportunistic behavior is sig-
nificantly lowered and the total cost of the transaction is correspondingly
reduced. The risks and uncertainties of opportunistic behavior present
significant costs to the transaction, and any institutional arrangement
which reduces those costs should more efficiently govern. The costs of
regulation (monitoring and enforcement) are also decreased significantly
as a market governance structure accomphshes those duties at a lower
cost. Competitive bidding proposals do require an increase in bargaining
1989] INSTITUTIONAL ARRANGEMENTS 1107
costs, although the reduction in other transaction costs should more than
compensate for that increase.
Preapproved contract approaches may also reduce transaction costs
by limiting the potential for opportunistic behavior. In contrast to com-
petitive bidding proposals, preapproved contract alternatives do not limit
opportunistic behavior by reducing the investment's idiosyncrasy; instead,
they utilize extensive regulatory monitoring coupled with the statutory
preclusion of opportunistic behavior. Preapproved contract approaches
will increase negotiation and monitoring costs, but the reduction in
opportunistic behavior makes the total transaction cost low.
Institutional arrangements incorporating binding arbitration might
also be a more efficient means of governance. Binding arbitration is a
form of the trilateral governance structure that is especially efficient
when investments are idiosyncratic and transactions are infrequent. Bind-
ing arbitration increases enforcement costs, but decreases the risk of
asset appropriation and thereby lowers the cost of the construction
transaction. Like preapproved contract alternatives, binding arbitration
would require minimal change in the existing institutional structure.
The public ownership of generating facilities is another institutional
structure which would decrease total transaction costs. When one party
is both '^seller" and "buyer" there is no incentive to shift costs onto
another party by behaving in an opportunistic manner. Negotiation,
monitoring and enforcement costs would also be reduced as those proc-
esses are internalized through vertical integration. In spite of the potential
benefits, however, the political and financial constraints arising from
the public ownership of private property would appear to preclude this
option from gaining widespread acceptance.
The transaction cost literature has identified opportunistic behavior
as a primary determinant of transaction costs, and of the efficiency of
institutional structures which govern transactions. All of the proposals
discussed reduce transaction costs by limiting opportunistic behavior when
compared with traditional regulatory governance. Serious consideration
of alternative institutional structures for governing the utility construction
transaction is required if transaction costs are to be reduced and utility
construction is to proceed at the levels necessary to support American
economic growth.
Timothy N. Thomas
INDIANA
LAW REVIEW
VOLUME 22
1989
INDEX & TABLE OF CASES
The Trustees of Indiana University
Copyright © 1990
Indiana La^v Revie^v
Volume 22
1989
Editor-in-Chief
Robert G. Solloway
Executive Editors
Articles and Production
Carol Kirk
Notes and Topics
Katharine Liell Polito
Articles Editors
Rebecca S. Bowman Madonna F. McGrath
Debra Linn Burns Peggy J. Naile
Cynthia Pearson Purvis
Business Editor and Survey Coordinator
Robert Davis
Note Development Editors
Bruce J. Alvarado Catherine A. Kling
Douglas E. Cressler OH via A. Napariu
Karen Glasser Deane Douglas K. Norman
Associate Editors
Rene F. Barnard Kisti L. Good
Carolyn A. Bielefeld Barbara E. Lollar
Raymond Charles Bowyer Karen R. McClure
Thomas A. Brodnik Deborah B. Noah
Gary L. Chapman Paul F. Reidy
L.S. John Ciecimirski Mara J. Snyder
Jane A. B. Eppink Clare M. Sproule
Brian S. Fennerty Darlene M. Stephens
E. Scott Tread way
Editorial Assistant
Amy Morrison Grubbs
Faculty Advisor
Paul J. Galanti
1989) INDEX m
ARTICLES
Current Issues Affecting Indiana Tax Policy
Larry J. Stroble
Ronald d'Avis 449
Defending Purchase Money Security Interests Under Article 9 of the UCC
From Professor Buckley
Paul M. Shupack 111
Developments in Federal Civil Practice Affecting Indiana Practitioners: Survey
of Supreme Court, Seventh Circuit, and Indiana District Court Opinions
John R. Maley 103
Developments in Indiana Emloyment Law
Leland B. Cross, Jr.
Douglas Craig Haney 249
Developments in Social Security Law
Michael G. Ruppert 401
Discoverability of Privileged Physician-Patient and Peer Review Communica-
tions: Not What the Doctor Ordered
Peter M. Racher 151
The Dram Shop: Closing Pandora's Box
William Hurst 487
The Efficiency of a Disgorgement as a Remedy for Breach of Contract
Sidney W. Belong 131
Frivolous, Unreasonable or Groundless Litigation: What Shall the Standard
Be for Awarding Attorney's Fees?
Donald Clementson-Mohr
Jeffrey A. Cooke 299
An Indiana Doctor's Duty to Warn Non-Patients at Risk of HIV Infection
from an AIDS Patient
Kenneth M. Stroud 587
The Indiana Motor Vehicle Protection Act of 1988: The Real Thing for
Sweetening the Lemon or Merely a Weak Artificial Sweetener?
Harold Greenberg 57
Indiana Revised Uniform Limited Partnership Act
Paul J. Galanti 11
Indiana's New Guardianship Code: A New Emphasis on Alternative Forms
of Protection
David M. Berry 335
Insurance Law
John C. Trimble 229
McClanahan v. Remington Freight Lines, Inc. : Making a Mountain Out of
Molehill
Richard Pitts
Susan Stuart 1
Medical Malpractice
The New Indiana Child Support Guidelines
Thomas R. Ruge 535
Gale M. Phelps
Jerald L. Miller 203
Professional Responsibility
Martin E. Risacher 313
Recent Developments Affecting the Criminal Procedure in Indiana
Monica Foster 163
iv INDIANA LA W REVIEW [Vol. 22
The Right to a Lawyer at a Lineup: Support From State Courts and
Experimental Psychology
Neil C. McCabe 905
Second Wind for the Indiana Bill of Rights
Chief Justice Randall T. Shepard 575
Selected Current Topics in Indiana Taxation
Francina A. Dlouhy 419
Survey of Indiana Products Liability Cases: 1987-88
Michael Rosiello
Ronald V. Weisenberger 263
Survey of Indiana Property Law
Walter W. Krieger 369
A Survey of Indiana Tort Law
Michael Rosiello
John R. Talley 503
Survey of Recent Developments in the Indiana Law of Evidence
Norman T. Funk 181
Worker's Compensation
Robert A. Fanning 553
NOTES
Delimiting the Manufacturer's Liability: An Examination of Loss of Con-
sortium Recovery in Strict Products Liability Actions Under Section 402A
of the Restatement (Second of Torts) 821
The Eleventh Amendment Controversy Continues: The Availability and Scope
of Relief Against State Entities Under the Education of the Handicapped Act 707
The Fraud-on-the-Market Theory: A "Basic"ally Good Idea Whose Time
Has Arrived, Basic, Inc. v. Levinson 1061
Institutional Arrangments for Governing the Construction of Electric
Generating Units: A Transaction Cost Analysis 1085
"A Modest Proposal" — The Prohibition of All- Adult Communities by the
Fair Housing Amendments Act of 1988 1021
Partial Settlement of Multiple Tortfeasor Cases Under the Indiana Com-
parative Fault Act 939
Random Drug Testing of PoUce Officers: A Proposed Procedure Which
Satisfies Fourth Amendment Requirements 799
Retroactive Application of Legislatively Enlarged Statutes of Limitations for
Child Abuse: Time's No Bar to Revival 989
The Standard of Proof in Civil RICO Actions for Treble Damages: Why
the Clear and Convincing Standard Should Apply 881
The Test for Patent Infringement Under the Doctrine of Equivalents After
Pennwalt v. Durand- Wayland 849
Tort Liability for DPT Vaccine Injury and the Preemption Doctrine .... 655
The Work Made for Hire Doctrine Under the Copyright Act of 1976:
Employees, Independent Contractors and the Actual Control Test .... 619
1989]
INDEX
TABLE OF CASES
Abbot V. American Cyanamid
Co. 676
Acme Milles & Elevator Co. v.
Johnson 769-70
ACS Hospital Systems, Inc. v.
Montefiore Hospital 856, 863, 865
Addington v. Texas 892
Aetna Insurance Co. v. Rodriguez
229, 233-34
Affiliated Ute Citizens v. United
States 1068-69
Aldon Accessories Ltd. v. Spiegel,
Inc. 630, 633, 635-36,
643-45, 648-52
Al-Kazemi v. General Acceptance
& Investment Corp. 897
Allen V. State 169
Alston V. State 179
American United Life Insurance Co.
V. Peffley 184
Anderson v. Liberty Lobby, Inc.
104-05, 113-24, 126-30
Anderson v. Thompson 722-23, 725
Armco Industrial Credit Corp. v.
SLT Warehouse Co. 888
Arnold v. State Farm Mutual
Automobile Insurance Co. 242
Ashlock V. Norris 499
Ashton V. Anderson 198-99
Atascadero State Hospital v.
Scanlon 708-09, 711-12, 714,
716-19, 721, 725-28, 734
Automobile Underwriters, Inc. v.
Hitch 230-34
B
Babcock v. Jackson 264
Baggett V. State 159
Baker v. American States Insurance
Co. 517
Baker v. Townsend 399-400
Barnes v. A.H. Robins Co. 284-89
Basic Inc. v. Levinson 1063-65,
1073-83
Bass Foundry & Machine Works v.
Board of Commissioners 2, 3
Batchelor v. State 579
Bates V. State Bar of Arizona
313, 315
Bates V. State 172
Batson v. Kentucky 170-71
Baxter v. State 166
Beach v. M & N Modern Hydraulic
Press 963
Beem v. Chestnut 491
Bellew V. Byers 504
Bemis Co. v. Rubush 278
Betsey v. Turtle Creek Assoc. 1031
Billman v. Hensel 400
Blackie v. Barrack 1069-71
Bleistein v. Donaldson Lithographing
Co. 621, 623
Blood V. Poindexter 420,
443-44, 446-47
Blue Chip Stamps v. Manor Drug
Stores 900, 1062-63, 1071-79
Blue V. State 930
Board of Commissioners, Allen County
V. Trautman 3, 5
Board of Zoning Appeals v. Sink
981, 983, 985-86
Bostic V. McClendon 812
Boston V. Chesapeake & Ohio
Railway 515-16
Bowles V. Tatom 510-11, 953-54
Bown & Sons v. Honabarger 396
Boyle V. United Technologies
Corp. 293-95, 297-98, 698-99
Brant Construction Co. v. Lumen
Construction, Inc. 184
Braughton v. Metropohtan Board of
Zoning Appeals 5, 7
Bridgewater v. Economy Engineering
Co. 278
Brokers, Inc. v. White 530-31
Brooks V. State 163
Brown v. American Fletcher National
Bank 397
Brown v. Board of Education 729
Brown v. Keill 960, 962-67, 971
Brown v. Penn Central Corp. 378
Brunswick Beacon, Inc. v. Schock-
Hopchas Publishing Co. 651
Bud Wolf Chevrolet, Inc. v.
Robertson 518, 520
Burger Man, Inc. v. Jordan Paper
Products, Inc. 184
Burk V. Anderson 493
Burke v. Capello 190
Burlington School Committee v.
Department of Education 722,
724, 731
VI
INDIANA LA W REVIEW
[Vol. 22
Burns v. State
166 Craig v. ERA Mark Five
Realtors
Cross V. State
369
172
Calder v. Bull 998-99,
1002-03, 1007-08, 1011-12
Calvary Baptist Church v.
Joseph 531-33
Campbell v. Holt 1015, 1018
Canfield v. Sandock 151-52
Cannaday v. State 926
Capua v. City of Plainfield 810,
816-17
Celotex Corp. v. Catrett 104-05,
108-13, 117, 124, 126
Charlie Stuart Oldsmobile, Inc.
v. Smith 516, 518
Chase Securities Corp. v.
Donaldson 1010, 1014, 1018
Chase v. Nelson 384
Childers v. High Society Magazine,
Inc. 641, 648-49
Citizens Action Coahtion of Indiana
V. Nothern Indiana PubUc Service
Co. 1088, 1095
City of Bloomington v.
Kuruzovich 523-24
City of Palm Bay v. Bauman 812
City of Tucson v. Gallagher 981
Cleveland Board of Education v.
Lafleur 1034
Closson Lumber Co. v. Wiseman
(I) (II) 382-84
Colligan v. Cousar 493
ColUns V. Associated Pathologists,
Ltd. 125
Commonwealth v. Bargeron 1008-09
Commonwealth v. Richman 925, 927
Community for Creative Non- Violence
V. Reid 620, 631
Complete Auto Transit, Inc. v.
Brady 438
Conafay v. Wyeth Laboratories 681
Conrad v. State 195
Consolidated Products, Inc. v.
Lawrence 258, 262, 564
Cooper V. Robert Hall Clothes
943, 948
Covalt V. Carey-Canada, Inc. 285,
287, 290-91
Cox V. Indiana Subcontractors
Association, Inc. 13, 17-18,
20-22, 24
Coy V. Iowa 583
D
Dague V. Piper Aircraft Corp. 284,
286-89
David D. V. Dartmouth School
Committee 727, 729-32
Davis Cattle Co. v. Great Western
Sugar Co. 761,
763-64, 766, 771-72
Decker v. State 168-69
Department of Revenue v. Kimball
International, Inc. 473
Derrick v. Ontario Community
Hospital 598-99
Dillon V. Legg 839-41
Doe ex rel. Gonzales v. Maher 727
Don Meadows Motors, Inc. v. State
Board of Tax Commissioners 419
Dunlap V. Wagner 491, 493
Dunn V. Cadiente 542
E
Easley v. Metropolitan Board of
Zoning Appeals 6, 7
Easter Seal Society For Crippled
Children and Adults of Louisiana,
Ind. V. Playboy Enterprises 630,
632, 651
Eastham v. Whirlpool Corp. 562, 568
Edelman v. Jordan 719
Eichler v. Scott Pools, Inc. 245
Eisenstadt v. Baird 1048
Elder v. Fisher 492-94, 496-97
Ellis V. Union Pacific Railroad
Co. 969-72
Elmore v. American Motors
Corp. 839
Ember v. BFD., Inc. 522-23,
527, 596
Enyeart v. Kepler 373
Epoch Producing Corp. v. Killiam
Shows, Inc. 625
Escobedo v. lUinois 920
Escola V. Coca-Cola Bottling
Co. 825-26
Estate of Fasken 484-85
Estate of Mathes v. Ireland 539
Evans Newton, Inc. v. Chicago
Systems Software 650-51
1989]
INDEX
Vll
Evans v. Yankeetown Dock Corp.
258-60, 553, 561-69
Everts v. Arkham House Publishers,
Inc. 649
Ex Parte Virginia 720
Exeter Towers Associates v.
Bowditch 893-94
Farm Bureau Co-Op v. Deseret Title
Holding Corp. 392
Farmers & Merchants State Bank v.
Norfolk & Western Railway
Co. 507
Fendley v. Ford 186
Feres v. United States 295-96
Ferriter v. Daniel O'Connell's
Sons Inc. 824
Fidelity & Casualty Co. v.
Garcia 236
Finney v. Johnson 462
Fitzpatrick v. Bitzer 719, 721
Fleischer v. Hebrew Orthodox
Congregation 523-24
Flowers v. John Burnham &
Co. 1036-37
Flowers v. State 175
Forte V. State 932-35
Foster v. States (see n. 92) 905,
916, 932, 934
Frampton v. Central Indiana Gas.
Co. 11, 249-53, 261
Freeman v. Robinson 577
French v. Sunburst Properties,
Inc. 526
Frey v. Snelgrove 978-81, 983-84
Frick V. Pennsylvania 483
Gammill v. United States 598
Gariup Construction Co. v.
Foster 497-99
Gary A. v. New Trier High School
District No. 203 725-27
Gear v. City of Des Moines
13-18, 21-22
Geier v. Wikel 966-67
Gideon v. Wainwright 578
Gilbert v. California 919,
921, 933, 935
Givens v. Lederle Laboratories 681
Glover v. Tacoma General
Hosp. 985
Goff V. Graham 390
Gomez v. Illinois State Board
of Education 726, 732
Graham v. Wyeth Laboratories
689, 693
Graver Tank & Manufacturing Co. v.
Linde Air Products 850, 852,
858, 861, 872-73, 876, 878
Gray v. Chacon 503-04, 947-49,
966, 987
Great Western Sugar Co. v. Northern
Natural Gas Co. 764, 766,
770-71, 773-74
Greenman v. Yuba Power Products,
Inc. 821, 826-27, 829-30
Griffith v. County School Board of
Prince Edward County 729
Groce v. Johns-Manville Sales
Corp. 292
Groves v. First National Bank of
Valparaiso 517-18
Gulf Stream Coach, Inc. v. State Board
of Tax Commissioners 427, 429
H
Hager v. National Union Electric
Co. 266
Halet V. Wend Investment Co. 1032,
1034, 1036, 1048-49
Halliday v. Auburn Mobile
Homes 388
Hammond v. North American Asbestos
Corp. 842
Hammonds v. Aetna Casulty 593
Haroco v. American National Bank
and Trust Co. 894
Hatcher v. State 197-98
Hayes v. State 194-95
Henley v. State 197
Herff Jones, Inc. v. State Bd. of Tax
Comm'rs 444-45
Herman & MacLean v. Huddleston
889, 899, 900-01
Hill V. Metropolitan Trucking, Inc.
507-08, 952, 964
Hillsborough County, Florida v.
Automated Medical Laboratories,
Inc. 690
Hinkle v. Niehaus Lumber Co. 113,
268, 270
Vlll
INDIANA LA W REVIEW
[Vol. 22
Hitaffer v. Argonne Co. 823
Hoffman v. Blackmon 597
House V. D.P.D., Inc. 565-67
Hubbard Manufacturing Co. v.
Greeson 263, 265-67, 297
Huber v. Henley 506-09, 952, 964
Hughes Aircraft Co. v. United
States 856, 860-65, 869-71, 873
Hurley v. Lederle Laboratories
690-92, 694
Hurtado v. California 576
Hutto V. Finney 733
In re Agnew
In re Briggs
In re Holloway
In re Jones
In re Klein
372
327
332
330-31
111-12
In re LTV Securities Litigation 1068
In re Musser 329, 331
In re Oliver 330, 332
In re Orbison 326
In re Petit 329-31
In re Sandy Ridge Oil Co., Inc. 395
In re Swihart 329
In re Wurm 356
Indiana Department of Revenue v.
Kimberly-Clark Corp. 439
Indiana Department of State Revenue v.
AMAX, Inc. 473
Indiana Department of State Revenue
V. Cave Stone, Inc. 471-74
Indiana Department of State Revenue
V. Estate of Pearson 476-77,
482-83, 486
Indiana Department of State Revenue
V. Indiana Harbor Belt Railroad
Co. 473
Indiana Department of State Revenue
V. Indianapolis Transit System, Inc.
470
Indiana Department of State Revenue
V. RCA Corp. 469-71, 474
Indiana State Board of Tax
Commissioners v. Lyon and Greenleaf
Co. 462, 464
Indiana State Board of Tax
Commissioners v. Stanadyne,
Inc. 429
Indiana State Highway Commission
V. Morris 158
Ingram v. Hook's Drugs, Inc. 282
Inter dent Corp. v. United States
859-60, 864
International Sygma Photo News, Inc.
V. Glove International Inc. 649
ITT Industrial Credit Co. v. R.T.M.
Development Co., Inc. 380
J. C. Penney Co. v. Wesolek
521-22, 524
Jennings v. State 167-68
Jeski V. Connaught Laboratories,
Inc. 692
Johnson v. Moberg 982
Johnson v. Padilla 547
Jones V. Griffith 543, 547
Jones V. State 184
Jordan v. State 176
K
Kately v. Wilkinson 841
Kennedy v. City of Sawyer 968,
970-72
KerHn v. State 198
Kikkert v. Krumm 300-04
Kindred v. State 159
King V. State 195
Kirby v. lUinois 906-08, 916, 918-35
Kline v. Business Press, Inc. 187-89
K-Mart Corp. v. Novak 259, 262
Knox V. AC «fe S, Inc. 285, 290
Kroske v. Townsend Engineering
Co. 277
Krach v. Heilman 490-91, 493
Kring v. Missouri 1014, 1016
Kroger Co. Sav-On Store v.
Presnell 270, 272
Kuchel V. State 198
Lafary v. Lafary 189, 374
Lamont Building Co. v. Court 1036
Langley v. Monumental Corp. 1035
Larsen v. General Motors Corp. 273
Laurin v. DeCaroHs Constr. Co.,
Inc. 748
Lemelson v. United States 856,
864-65, 871
Lesher v. Baltimore Football Club
306-07, 310
Liebig v. Superior Court of Napa
County 1017
1989]
INDEX
IX
624
980
Lin-Brook Builders Hardware! v.
Gertler
Lines v. Ryan
Liquid Air Corp. v. Rogers
892, 899, 901
Livingston v. State 927-28
Love V. State 170-71
Lovvorn v. Chattanooga 811
Luna V. Bowen 401, 406, 410,
412, 414, 416-17
M
594
MacDonald v. dinger
MacPherson v. Buick Motor
Co. 825-46
Maggio V. Lee 301-02
Mapp V. Ohio 575, 578
Marina Point, Ltd. v. Wolfson
1037-38, 1044-45, 1050
Marshall v. Miles Laboratores,
Inc. 651
Marshall v. Reeves 307
Martinkovic v. Wyeth Laboratories,
Inc. 681
Mathes v. Ireland 601
Mathews v. United States 169-70
Mauricio v. Duckworth 164-65
Maxwell v. Hahn 379
May V. Morganelli-Heumann &
Associates 649
McCambridge v. State 935
McCIanahan v. Remington Freight
Lines, Inc. 1, 10, 12-17,
19-22, 24-25, 250-53, 261
McDonell v. Hunter 816
McDowell V. Johns-Mansville Sales
Corp. 292
McMartin v. County of Los
Angeles 990
Meltzer v. Zoller 649
Meredith v. Bowen 401-06,
410, 412, 414, 416
Merrill v. Wimmer 398
Metro Cable Co. v. CATV of
Rockford, Inc. 901
MetropoHtan Housing Development
Corp. V. Village of Arlington
Heights 1032
Miller v. Loman 234, 237-38
Miller v. Todd 274
Mills V. State 583
Miranda v. Arizona 920
Mirtinez v. State 932
Moffatt V. Brown 127
Moore v. City of East Cleveland 1034
Moore v. General Motors Corp., Delco
Remy Division 505
Moore v. General Motors Corp.
953, 960
Moravian Development Corp. v. Dow
Chemical Co. 896
Morgan Drive Away, Inc. v.
Brant 250-52
Murray v. Gelderman 624
Muth V. Central Bucks School
District 731
Myers v. State 184
N
Nagunst v. Western Union Tel
Co. 958, 960
National Can Corp. v. Jovanovich
260, 262
National Mutual Insurance Co.
V. Edward 241, 243
Neal V. Home Builders, Inc. 596
Nelson v. Secretary of Health &
Human Serv. 416
Niagara Mohawk Corporation v.
Wanamaker 468
NLRB V. United Insurance co. of
America 647
Nobiesville Casting Division of
TRW, Inc. V. Prince 193
Northwestern States Portland Cement
Co. V. Minnesota 437-38
Nur V. Blake Developmen
Corp. 109, 112
O
O'Bryant v. Veterans of Foreig
Wars 532
O'Connor v. Ortega 808
O'Connor v. Sears, Roebuck and
Co. 130-31, 135-38
Or kin Exterminating Co. v
Traina 121
Orr V. State 195
Orr V. Turco Manufacturing
Co. 304-12
Ortho Pharmaceutical Corp. v.
Chapman 280, 282
Pacific Gas & Electric Co. v. State
Energy Resources Conservation &
Development Commission 697
INDIANA LA W REVIEW
[Vol. 22
Page Two, Inc. v. P.C. Management
Inc. 388
Page V. State 177, 926-27
Panzirer v. Wolf 1070-71
Parden v. Terminal Railway 717-18
Park 100 Development Company v.
Indiana Department of State
Revenue 423
Park V. Standard Chemical Way
Co. 840, 843
Parkview Memorial Hospital, Inc.
V. Pepple 157
Patterson v. State 188-89
Patton V. State 173
Paul V. Kuntz 511-12
Payne v. State 184, 186
Peil V. Speiser 1067
Penmanta Corp. v. Mollis 393
Pennhurst State School & Hosp. v.
Halderman 728
Pennwalt Corp. Durand-Wayland, Inc.
849, 857-59, 870-72, 874
Penny v. Kennedy 811
People V. Anderson 929
People V. Bustamante 930-31
People V. Fowler 931
People V. Jackson 929
Peregrine v. Lauren Corp. 638, 641
Per kin-Elmer Corp. v. Westinghouse
Electric Corp. 857, 862,
868-71, 873-74
Perry v. Sindermann 257
Perry v. State 178
Phelps v. Sherwood Medical
Industries 279, 281-83
Picadilly, Inc. v. Colvin 489-90,
494, 496-99
Picture Music, Inc. v. Bourne,
Inc. 624
Pierringer v. Hoger 976,
978-82, 986-87
Pieters v. B-Right Trucking,
Inc. 514-16
Pohcemen's Benevolent Association
V. Washington Township 800,
814-16, 820
Popp V. Hardy 385
Posey V. Lafayette Bank and Trust
Company 306-07, 311
Prigg V. Pennsylvania 577
R
Rahn v. Gerdts
Raj ski V. Tezich
838
376
Rambaum v. Swisher 975-76
Ramsey v. United Mine Workers
900, 902
Rappaport v. Nichols 488-89
Rasp V. Hidden Valley Lake,
Inc. 375
RCA V. State Board of Tax
Commissioners 432
Reed v. Ford Motor Co. 120,
122, 272
Reeve v. Georgia-Pacific Corp.
528-29
Roberts v. Carrier Corp. 160-61
Rochin v. California 580
Rodriguez v. Bethlehem Steel
Corp. 834
Rogers v. Hembd 569
Romack v. Public Service Co. 253,
255-56, 261
Rylands v. Fletcher 835
Saenz v. Playbor Enterprises 117-19
Samuels v. State 189
San Jose Country Club Apartments
V. County of Santa Clara 1049
Sanders v. Cole Municipal Finance 132
Sanders v. Townsend 321,
323-26, 528
Santosky v. Kramer 887
Sarratore v. Longview Van Corp.
250, 252, 261
Scherr v. Universal Match Corp. 625
Schmerber v. California 580, 809
Schneider v. Wilson 199-200
Schon V. Van Diest Supply Co. 372
Schreiber Distribution Co. v.
Serv-Well Furniture Co. 885
Scroggins v. Uniden Corp. of
America 160-61
Scully V. United States 120
Securities and Exchange Commission v.
Capital Gains Research Bureau 901
Sedima, S.P.R.L. v. Imrex Co.,
Inc. 886-88, 894
Senff V. Estate of Levi 186-87
Sepulveda v. American Motors Sales
Corp. 85
Shannon v. Bepko 256-57, 262
Shapero v. Kentucky Bar
Association 313-21
Sharp V. Bailey 568
Shelton v. Tucker 1049
Shepard v. Supeiior Court 840-41
1989]
INDEX
XI
Shockley v. Prier 824
Shoemaker v. Handel 809-10, 814-17
Shores v. Sklar 1070-71, 1078
Shortridge v. Review Board of Indiana
Employment Security Division
18, 23
Silkwood V. Kerr-McGee Corp. 697-98
Skendzel v. Marshall 232
Slaughter-House Cases 576
Sloan V. Metropolitan Health Counsel
of Indianapolis, Inc. 538-40
Smith V. Robinson 724, 730
Smithers v. Mettert 238, 240
Smock V. Coots 1053
South Bend Federation of Teachers
V. National Education Association
13, 20, 21, 23
Sports Bench, Inc. v. McPherson 526
St. Joseph College v. Morrison,
Inc. 300, 302
Stainko v. Tri-State Coach Lines,
Inc. 525
Starks v. State 174
State Board of Tax Commissioners v.
Chicago, Milwaukee, St. Paul &
Pacific Railroad 464
State Department of Revenue v.
Calcar Quarries, Inc. 471-72
State ex. rel. Hiland v. Fountain
Circuit Court 540
State ex. rel. Keaton v. Rush Circuit
Court 165-66
State Farm Mutual Automobile
Insurance Co. v. Barton 236-37
State Line Elevator, Inc. v. State Board
of Tax Commissioners 429, 431
State V. Creekpaum 999, 1001-03
State V. Hodgson 1006-07
State V. Lasselle 577
State V. Purdue National Bank 478,
482, 486
Stockberger v. Meridian Mutual
Insurance Co. 230-34
Stone V. State 189
Stroud V. State 584
Struble v. Nodwift 490-91
Stueve V. American Honda Motors
Co. 966
Sunshine Anthracite Coal Co. v.
Adkins 8, 9
Swain v. Alabama 170
Taber v. Hutson
584
Tarasoff v. Board of Regents
599-606, 608-12
Taxpayers Association of Weymouth
Township, Inc. v. Weymouth
Township 1050
Taylor v. State 583
Teamsters Local 282 Pension Trust
Fund V. Angelos 120
Terre Haute Regional Hospital, Inc.
V. Basden 158
Texas Instruments Inc. v. International
Trade Commission 856, 865,
867-68, 870, 872-73, 878-79
Thompson v. Utah 1016-17
Toner v. Lederle Laboratories 676
Treichler v. Wisconsin 483-85
TSC Industries, Inc. v. Northway,
Inc. 1073
U
United States Tobacco Co. v.
Commonwealth 439
United States v. Ash 906, 929
United States v. Cappetto 895-96
United States v. Gouveia 922-23
United States v. Guiliano 894
United States v. Local 560 of Inter-
national Brotherhood of Teamsters
887, 892, 896, 900
United States v. Utah Construction &
Mining Co. 7, 10
United States v. Wade 905-08,
910, 916-21, 924-25, 930-35
Vaccaro v. Squibb Corp. 841
Valentine v. Joilet Township High
School District No. 204 111-12
Valley Liquors, Inc. v. Renfield
Importers, Ltd. 124
Van Cleave v. State 173
Veal V. Bowen 401, 406, 410,
412-14, 416
W
Walker v. Bowen 401, 406,
410, 412, 414, 416
Walter v. Schuler 460
Walters v. Dean 510
Walters v. Mintec International 838
Walters v. Owens-Corning Fiberglass
Corp. 285-87
xu
INDIANA LAW REVIEW
[Vol. 22
Walters v. Rinker 536-37
Weaver v. Graham 1000, 1002
Welch V. Texas Department of Highways
and Pubhc Transportation 718, 735
Wells V. State 183-84
West Publishing Co. v. Indiana
Department of Revenue 419-20,
439-42
Whisman v. Fawcett 494, 496-97
179
V.
White V. State
Whiteco Industries, Inc.
Kopani 255, 261
Wilcox V. First Interstate Bank 898
Williams v. Crist 244
Willis V. State 184-85
Wilmington v. Harvest Insurance
Cos. 253, 261
Wilson V. Sligar 196
Wilson V. State 198
Winans v. Denmead 858
183-84
Wishard Memorial Hospital v.
Logwood 516
Witherspoon v. Salm 264
Wixom V. Gledhill Road Machinery
Co.
Wojcik V. Aluminum Co. of
America
Woodby V. INS
Woodhill V. Parke Davis &
Co.
Y
275-76
597
886-92
841-43
192
Wiseman v. State
Yang V. Stafford
Yardley v. Houghton Mifflin Co. 624
Young V. Hoke 948-49
Zauderer v. Office of DiscipHnary
Counsel 315
Zimmerman v. State 195
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