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G.R. No. 195661, March 11, 2015 - UNKNOWN OWNER OF THE VESSEL M/V CHINA JOY, SAMSUN SHIPPING LTD., AND INTER-ASIA MARINE TRANSPORT, INC., Petitioners, v. ASIAN TERMINALS, INC., Respondent.
UNKNOWN OWNER OF THE VESSEL M/V CHINA JOY, SAMSUN SHIPPING LTD., AND INTER-ASIA MARINE TRANSPORT, INC., Petitioners, v. ASIAN TERMINALS, INC., Respondent.
The instant petition for review on certiorari1 assails the Decision2 dated November 10, 2010 and Resolution3 dated February 14, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93164. The CA reversed and set aside the Decision4 dated January 30, 2009 of the Regional Trial Court (RTC) of Manila, Branch 51, in Civil Case No. 99-93067, which dismissed for insufficiency of evidence the complaint for damages5 filed by herein respondent Asian Terminals, Inc. (ATI) against Unknown Owner of the Vessel M/V China Joy (shipowner),6 Samsun Shipping Ltd. (Samsun) and Inter-Asia Marine Transport, Inc. (Inter-Asia) (petitioners).
On 25 January 1997, the cargo ship M/V “China Joy” (the Vessel) arrived at the Mariveles Grain Terminal Wharf, operated by plaintiff [ATI].
According to the Berth Term Grain Bills of Lading, the Vessel carried soybean meal that had been shipped by ContiQuincyBunge L.L.C[.] (ContiQuincyBunge), an exporter of soybean meal and related products, in favor of several consignees in the Philippines.
Under the Charter Party Agreement over M/V “China Joy,” ContiQuincyBunge represented itself as the Charterer of the Vessel, with San Miguel Foods, Inc. as Co-Charterer, and defendant [Samsun] represented itself as the Agent of the Shipowners. Samsun is a foreign corporation not doing business in the Philippines.
On 3 February 1997[,] ATI used its Siwertell Unloader No. 2 to unload the soybean meal from the Vessel’s Hold No. 2. The Siwertell Unloader is a pneumatic vacubator that uses compressed gas to vertically move heavy bulk grain from within the hatch of the ship in order to unload it off the ship.
The unloading operations were suddenly halted when the head of Unloader No. 2 hit a flat low-carbon or “mild” steel bar measuring around 8 to 10 inches in length, 4 inches in width, and 1 ¼ inch in thickness that was in the middle of the mass of soybean meal. The flat steel bar lodged itself between the vertical screws of Unloader No. 2, causing portions of screw numbers 2 and 3 to crack and be sheared off under the torsional load.
According to the quotation of BMH Marine AB Sweden, the sole manufacturer of Siwertell unloaders, the replacement cost of each screw is US$12,395.00 or US$24,790.00 for the 2 screws plus freight. The labor cost to remove and re-assemble the screws is estimated at US$2,000.00.
On 4 February 1997, ATI sent a Note of Protest to the Master of the Vessel for the damages sustained by its unloading equipment as a result of encountering the flat steel bar among the soybean meal. However, the Vessel’s Master wrote a note on the Protest stating that it is not responsible for the damage because the metal piece came from the cargo and not from the vessel itself.
On 5 March 1997, ATI sent a claim to defendant [Inter-Asia] for the amount of US$37,185.00 plus US$2,000.00 labor cost representing the damages sustained by its unloading equipment.
Inter-Asia rejected ATI’s claim for the alleged reason that it is not the Shipowner’s Agent. Inter-Asia informed ATI that its principal is Samsun. Moreover, according to Inter-Asia, the owner of the Vessel is Trans-Pacific Shipping Co., c/o Lasco Shipping Company. Inter-Asia, however, offered to relay ATI’s claim to Trans-Pacific through Samsun.
As previously noted, the Charter Party Agreement states Samsun to be the Agent of the Shipowners, but since Samsun is a foreign corporation not licensed to do business in the Philippines, it transacted its business through Inter-Asia. Hence, Inter-Asia is the Agent of the Agent of the Shipowners.
When negotiations for settlement failed, ATI filed the instant Complaint for Damages against Samsun, Inter-Asia and the “Unknown Owner of the Vessel M/V ‘China Joy’” on 9 March 1999.
In the joint Answer, Inter-Asia reiterated that it is not the Agent of the Shipowners. Defendants further averred that the soybean meal was shipped on board the M/V “China Joy” under a Free-In-and-Out-Stowed-and-Trimmed (FIOST) Clause, which supposedly means that the Shipper/Charterer itself (ContiQuincyBunge LLC) loaded the cargo on board the Vessel, and the latter and her complement had no participation therein except to provide the use of the Vessel’s gear. Similarly, under the FIOST clause, the discharge of the cargo was to be done by the consignees’ designated personnel without any participation of the Vessel and her complement.
Defendants argued that since the metal foreign object was found in the middle of the cargo, it could not have come from the bottom of the hatch because the hatch had been inspected and found clean prior to loading. Defendants further averred that neither could the metal bar have been part of the Vessel that had broken off and fallen into the hatch because tests conducted on the metal piece revealed that said metal bar was not part of the Vessel.
WHEREFORE, the appeal is GRANTED, x x x. Defendants-appellees are found jointly and severally liable to [ATI] for the amount of US$30,300.00 with interest thereon at 6% per annum from the filing of the Complaint on 9 March 1999 until the judgment becomes final and executory. Thereafter, an interest rate of 12% per annum shall be imposed until the amount is fully and actually paid.
As a rule of evidence, the doctrine of res ipsa loquitur is peculiar to the law of negligence which recognizes that prima facie negligence may be established without direct proof and furnishes a substitute for specific proof of negligence.
We find the application of the doctrine of res ipsa loquitur to be appropriate in the case at bar.
First. Since the cargo to be unloaded was free-flowing soybean meal in bulk, ATI correctly used a pneumatic vacubator unloader to extract the soybean meal from the holds. Under normal unloading procedures of bulk grain, it is not expected that a metal foreign object would be among the grain to be unloaded. x x x.
Such an accident does not occur in the ordinary course of things, unless the loading of the soybean meal at loadport was mismanaged in some way that allowed a metal foreign object to be co-mingled with the soybean meal cargo.
Second. The damage to the vertical screws of ATI’s unloader was caused by the presence of the metal bar among the soybean meal in Hold No. 2 of the ship: an instrumentality within the exclusive control of the shipowner.
Defendants’ argument is neither accurate nor meritorious. In the first place, the terms of the Charter Party in this case was not Free-In-and-Out-Stowed-and-Trimmed [FIOST] but Free-In-and-Spout-Trimmed-and-Free-Out [FISTFO].
x x x [I]t appears that the FIOST clause in a Charter Party Agreement speaks of who is to bear the cost or expense of loading, spout trimming and unloading the cargo. “Free In and Out” means that the shipowner is free from such expenses. This becomes clearer when the FIOST clause is stipulated as an adjunct to the terms of payment of the freight rate.
Being a provision for the apportionment of expense (as an exclusion from the rate of freight to be paid), the interpretation of the FIOST clause should not be extended to mean an apportionment of liability, unless specified in clear and unambiguous terms.
While there are instances where a Charter Party Agreement clearly states that the Charterer will be liable to third parties for damages caused by its cargo (as in the case of spills of petroleum oil cargo, or of damage to third parties caused by toxic cargo), there is no such provision in this case. Therefore, liability or non-liability for such damage cannot be presumed from the FIOST clause alone, and the Charter Party Agreement must be closely scrutinized for the parties’ intention on liability.
x x x Clause 22 clearly states that loading shall be done under the direction and control of the Master. Hence, if the metal bar that damaged ATI’s unloader was inadvertently mixed into the soybean meal during loading, by express provision of the Charter Party Agreement, the cost of the damage should be borne by the shipowner because the loading was done under the supervision and control of the Master of the Vessel.
Hence, not only did defendants have presumed exclusive control of the Vessel during the loading of the soybean meal by reason of them being the owners or agents of the owners thereof, they also had actual exclusive control thereof by express stipulation in the Charter Party Agreement that the loading of the cargo shall be under the direction and control of the Master of the Vessel.
This is as it should be, considering that the charter in this case is a contract of affreightment by which the owner of a ship lets the whole or part of her to a merchant or other person for the conveyance of goods, on a particular voyage, in consideration of the payment of freight. The Supreme Court has held that if the charter is a contract of affreightment, the rights and the responsibilities of ownership rest on the owner. The charterer is free from liability to third persons in respect of the ship.
Third. There is neither allegation nor evidence in the record that ATI’s negligence contributed to the damage of its unloader.
All 3 requisites of res ipsa loquitur being present, the presumption or inference arises that defendants’ negligence was the proximate cause of the damage to ATI’s unloader. The burden of evidence shifted to defendants to prove otherwise. Th[e] defendants failed to do so.
Defendants’ testimonial evidence consisted of the sole testimony of the former Operations Manager of Inter-Asia, who x x x on cross-examination, x x x admitted that he was not present at the loading of the cargo and, therefore, did not actually see that the soybean meal was free of any foreign metal object.
Defendants’ evidence, which heavily relies on (1) their erroneous interpretation of the FIOST clause in the Charter Party Agreement; (2) the Master’s unsupported allegation written on the Note of Protest that the metal bar did not come from the vessel; and (3) their witness’ dubious interpretation that the notation “loaded clean” on the Berth Term[ ]Grain Bills of Lading means that the soybean meal had no foreign material included therein, does not present a satisfactory answer to the question: How did the metal bar get co-mingled with the soybean meal, and what did the Master of the Vessel do to prevent such an occurrence? x x x.
By their failure to explain the circumstances that attended the accident, when knowledge of such circumstances is accessible only to them, defendants failed to overcome the prima facie presumption that the accident arose from or was caused by their negligence or want of care.
The res ipsa loquitur doctrine is based in part upon the theory that the defendant in charge of the instrumentality which causes the injury either knows the cause of the accident or has the best opportunity of ascertaining it and that the plaintiff has no such knowledge, and therefore is compelled to allege negligence in general terms and to rely upon the proof of the happening of the accident in order to establish negligence. x x x.
The prima facie evidence of defendants’ negligence, being unexplained and uncontroverted, is sufficient to maintain the proposition affirmed. Hence, the negligence of the Master of the Vessel is conclusively presumed to be the proximate cause of the damage sustained by ATI’s unloader. Moreover, since the Master’s liability is ultimately that of the shipowner because he is the representative of the shipowner, the shipowner and its agents are solidarily liable to pay ATI the amount of damages actually proved.
The herein petitioners filed a motion for reconsideration before the CA, which denied the same through the Resolution issued on February 14, 2011.
In its Comment,21 ATI contends that “the law does not distinguish between ‘covert’ and ‘evident’ negligence in determining whether the doctrine of res ipsa loquitur applies.”22 An unusual event occurred because proper care was not observed. The event took place in Hold No. 2 of M/V China Joy, which was within the shipowner’s exclusive control. There is likewise no evidence of ATI’s negligence, which could have contributed to the damage of its own unloader. Besides, ATI did not witness the loading of the soybean meal cargo into M/V China Joy at the Port of New Orleans, United States of America. Hence, ATI cannot furnish direct evidence on whether or not the hold or hatch containing the cargo was inspected and found clean prior to loading, and sealed thereafter.
The Court agrees with the CA that the petitioners are liable to ATI for the damage sustained by the latter’s unloader. However, the Court finds the petitioners’ liability to be based on quasi-delict and not on a contract of carriage. The Court likewise deems it proper to modify the rate of interests on the amount of damages imposed by the CA upon the petitioners.
The Court notes that the shipowner and shipowner’s agent, Samsun, are all juridical entities not registered and not doing business in the Philippines. It was the charterer’s agent, Inter-Asia, a duly-registered domestic corporation, which had filed the instant petition for itself and on behalf of the shipowner and Samsun.25 In the course of the proceedings too, none of the parties had raised issues anent the validity of the service of summons and the courts’ acquisition of jurisdiction over the persons of the petitioners.
The petitioners present two issues for the Court’s resolution, to wit: (a) the applicability of the doctrine of res ipsa loquitur in the case at bar; and (b) who participated and should thus assume liability for the loading of the soybean meal cargo.
In its Decision dated January 30, 2009, the RTC declared that while ATI indeed sustained damages to its unloader, liability therefor cannot, however, be established with certainty.
In the assailed decision, the CA, on the other hand, discussed in detail why and how the three requisites to the application of the doctrine of res ipsa loquitur are found to be attendant in the case at bar. First, the co-mingling of the two foreign metal objects with the soybean meal cargo and the consequent damage to ATI’s unloader is an accident which ordinarily does not occur in the absence of someone’s negligence. Second, the foreign metal objects were found in the vessel’s Hold No. 2, which is within the exclusive control of the petitioners. Third, records do not show that ATI’s negligence had in any way contributed to the damage caused to its unloader.
The Court agrees with the CA anent ATI’s entitlement to the payment of damages from the petitioners and the applicability of the doctrine of res ipsa loquitur. However, the Court finds as misplaced the CA’s application of the laws on maritime commerce and contracts of carriage for reasons discussed below.
There is no contract of carriage between the petitioners and ATI.
There is no contract of carriage between ATI, on one hand, and the shipowner, Samsun, ContiQuincyBunge L.L.C., and Inter-Asia, on the other. It likewise bears stressing that the subject of the complaint, from which the instant petition arose, is not the damage caused to the cargo, but to the equipment of an arrastre operator. Further, ATI’s contractual relation is not with the petitioners, but with the consignee and with the Philippine Ports Authority (PPA).
In Insurance Company of North America v. Asian Terminals, Inc.,30 the Court explained that the liabilities of the arrastre operator for losses and damages are set forth in the contract for cargo handling services it had executed with the PPA. Corollarily then, the rights of an arrastre operator to be paid for damages it sustains from handling cargoes do not likewise spring from contracts of carriage.
However, in the instant petition, the contending parties make no references at all to any provisions in the contract for cargo handling services ATI had executed with the PPA.
Article 2176 of the New Civil Code and the doctrine of res ipsa loquitur apply.
In the case under consideration, the parties do not dispute the facts of damage upon ATI’s unloader, and of such damage being the consequence of someone’s negligence. However, the petitioners deny liability claiming that it was not established with reasonable certainty whose negligence had caused the co-mingling of the metal bars with the soybean meal cargo. The Court, on this matter, agrees with the CA’s disquisition that the petitioners should be held jointly and severally liable to ATI. ATI cannot be faulted for its lack of direct access to evidence determinative as to who among the shipowner, Samsun, ContiQuincyBunge and Inter-Asia should assume liability. The CA had exhaustively discussed why the doctrine of res ipsa loquitur applies. The metal bars which caused damage to ATI’s unloader was found co-mingled with the cargo inside Hold No. 2 of the ship, which was then within the exclusive control of the petitioners. Thus, the presumption that it was the petitioners’ collective negligence, which caused the damage, stands. This is, however, without prejudice to the petitioners’ rights to seek reimbursements among themselves from the party whose negligence primarily caused the damage.
A modification of the interests imposed on the damages awarded is in order.
Anent the interests imposed by the CA upon the damages to be paid to ATI, modification of the same is in order.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on “Damages” of the Civil Code govern in determining the measure of recoverable damages.
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
The Court agrees with the CA that as regards ATI’s claim, only the amount of US$30,300.00 is duly supported by evidence. However, in view of Nacar, the said amount shall be subject to legal interest at the rate of six percent (6%) per annum reckoned from the finality of this Resolution, the date when the quantification of damages may be deemed to have been reasonably ascertained, until full satisfaction thereof.
WHEREFORE, the Decision dated November 10, 2010 of the Court of Appeals in CA-G.R. CV No. 93164 is AFFIRMED with MODIFICATION. The petitioners, Unknown Owner of the Vessel M/V China Joy, Samsun Shipping Ltd. and Inter-Asia Marine Transport, Inc., are hereby ordered to pay the respondent, Asian Terminals, Inc., actual and compensatory damages in the amount of US$30,300.00, plus legal interest at the rate of six percent (6%) per annum reckoned from the finality of this Resolution until full satisfaction thereof.
2 Penned by Associate Justice Ricardo R. Rosario, with Associate Justices Hakim S. Abdulwahid and Samuel H. Gaerlan concurring; id. at 23-42.
4 Issued by Judge Gregorio B. Clemeña, Jr.; id. at 193-200.
6 Subsequently identified as Trans-Pacific Shipping Company, with address at 3200 N.W. Yeon Avenue, Portland, Oregon, United States of America, id. at 92.
26 111 Phil. 452 (1961).
28Asian Terminals, Inc. v. Philam Insurance Co., Inc., G.R. No. 181163, July 24, 2013, 702 SCRA 88, 115.
29International Container Terminal Services, Inc. v. Prudential Guarantee & Assurance Co., Inc., 377 Phil. 1082, 1090 (1999).
30 G.R. No. 180784, February 15, 2012, 666 SCRA 226.
31 16 Phil. 8 (1910).
33United States v. Barias, 23 Phil. 434, 437 (1912).
34 G.R. No. 189871, August 13, 2013, 703 SCRA 439.

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The consortium strives to publish as much open information as possible through peer-reviewed publications and by active participation in conferences. Presented papers can be accessed below.
GRAIL: Green Solid Propellants for Launchers. N. Wingborg, M. Skarstind, M. Sjöblom, A. Lindborg, M. Brantlind, J. Johansson, S. Ek, M. Liljedahl and J. Kjellberg. 7th European Conference for Aeronautics and Space Sciences. Milan, Italy, 3-6 July 2017.
Burning Behavior of Aluminized ADN/PSAN Propellants. V. Gettwert, C. Tagliabue, V. Weiser. 7th European Conference for Aeronautics and Space Sciences. Milan, Italy, 3-6 July 2017.
Burning Behavior of ADN-Based Propellants Loaded with Al-Mg Mechanically Activated Powders. F. Cristilli, V. Weiser, F. Maggi, A. Imiolek, C. Tagliabue, V. Gettwert, and S. Dossi. 7th European Conference for Aeronautics and Space Sciences. Milan, Italy, 3-6 July 2017.
Calculated and experimental binary phase diagrams for ADN and AN based solid propellants – H2020 GRAIL project. X. Sécordel, D. Daigurande, R. Beauchet, Y. Batonneau, C. Kappenstein, N. Wingborg. 7th European Conference for Aeronautics and Space Sciences. Milan, Italy, 3-6 July 2017.
Synthesis, characterization and treatment of alane (aluminium hydride, AlH3). Z. El Sayah, R. Brahmi, R. Beauchet, Y. Batonneau, C. Kappenstein. 7th European Conference for Aeronautics and Space Sciences. Milan, Italy, 3-6 July 2017.
Catalyst screening for ammonium nitrate oxidizer. F. Maggi, L. Arosio, L. Galfetti. 7th European Conference for Aeronautics and Space Sciences. Milan, Italy, 3-6 July 2017.
Green Solid Propellants for Launchers. M. Calabro, N. Wingborg. 67th International Astronautical Congress. Guadalajara, Mexico, September 26 – 30, 2016.
GRAIL: A European Initiative to Develop Green Solid Propellants for Launchers. N. Wingborg. 47th International Annual Conference of the Fraunhofer ICT. Karlsruhe, Germany. June 28 – July 1, 2016.
One-step synthesis of ADN from FOX-12. J. Johansson, S. Ek, M. Skarstind. 47th International Annual Conference of the Fraunhofer ICT. Karlsruhe, Germany. June 28 – July 1, 2016.
Burning Behavior of AN/ADN Propellants. C. Tagliabue, V. Weiser, A. Imiolek, M.A. Bohn, T. Heintz, V. Gettwert. 47th International Annual Conference of the Fraunhofer ICT. Karlsruhe, Germany. June 28 – July 1, 2016.
AlH3-Based Solid Propellant Development and Characterization in GRAIL H2020 Project. F. Maggi, S. Dossi, C. Paravan, G. Colombo, L. Galfetti, Z. El Sayah, R. Brahmi, R. Beauchet, Y. Batonneau, C. Kappenstein. Space Propulsion. Rome, Italy. 2-6 May 2016.
Green Solid Propellants for Launchers. N. Wingborg, M. Calabro. Space Propulsion. Rome, Italy. 2-6 May 2016.
ADN/AN Propellants as Green Advanced High Energy Propellants for Launchers. C. Tagliabue, V. Gettwert, M. Bohn, T. Heintz, T. Keicher, V. Weiser. Space Propulsion. Rome, Italy. 2-6 May 2016.
ADN: Production, Properties and Future Perspectives. S. Ek, H. Stenmark, H. Skifs, M. Skarstind, J. Johansson, N. Wingborg. Space Propulsion. Rome, Italy. 2-6 May 2016.
Green Solid Propellants for Launchers, N. Wingborg, 5th CEAS Air & Space Conference, Delft the Netherlands, 7-11 September 2015.
Green Advanced High Energy Propellants for Launchers (GRAIL) - First results on the Burning Behavior of AN/ADN Propellants, V. Gettwert, C. Tagliabue, V. Weiser and A. Imiolek, 6th European Conference for Aeronautics and Space Sciences, Krakow Poland, 29 June-3 July 2015.

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COMMONWEALTH of Pennsylvania, Appellee, v. Barbara GOSSELIN, Appellant.
BEFORE: HUDOCK and KLEIN, JJ., and McEWEN, P.J.E. Dirk S. Berger, Pottsville, for appellant. Andrew J. Serina, Asst. Dist. Atty., Pottsville, for Com., appellee.
¶ 1 This appeal revolves around the life and times of Nutkin the squirrel.
¶ 2 Nutkin's early life was spent in the state of ferrae naturae, in the state of South Carolina, and, as far as we can tell, in a state of contentment. She apparently had plenty of nuts to eat and trees to climb, and her male friends, while not particularly handsome, did have nice personalities. Life was good.
¶ 3 Then one day tragedy struck: Nutkin fell from her tree nest!
¶ 4 But fate was kind. Nutkin was found and adopted by Appellant and her husband who, at that time, were residents of South Carolina. Appellant lovingly nursed Nutkin back to health, and Nutkin became the family pet. A large room-sized enclosure was built so Nutkin had plenty of room to run and climb. Life was good again.
¶ 5 Nutkin's captivity and domestication were perfectly legal in South Carolina, possibly a reflection of that state's long tradition of hospitality to all.
¶ 6 In 1994, Appellant and her husband moved to Pennsylvania and brought Nutkin with them. Life was full of promise.
¶ 7 Dark clouds began to gather, however, in November, 2002, when Appellant's husband phoned the Pennsylvania Game Commission concerning a hunter whom he and Appellant believed was hunting near an area on their property where they had set out food for deer. In response to that complaint, a Wildlife Officer appeared at Appellant's property to investigate. At that time the Officer became aware that a deer had been illegally shot on Appellant's property and dragged to a neighboring property. Appellant and her husband requested that the Game Officer further investigate the poaching of the deer. The Officer refused to do so, but when he spotted Nutkin in her room-sized enclosure, he advised Appellant that it was a violation of the law to keep Nutkin in this manner. The Game Officer acknowledged that the squirrel was too old and too tame to be released to the wild (A situation akin to that of an old appellate judge, like the undersigned, attempting to return to the boiling cauldron of the trial court after being tamed by years of peace and quiet above the fray. Chances of survival of both species are poor.) He offered to forgo citing Appellant if she would relinquish Nutkin to his control. Appellant and her husband refused.
¶ 9 Nutkin would then learn the shocking truth that the cheery Pennsylvania slogan “You've got a friend in Pennsylvania” did not apply to four-legged critters like Nutkin. On December 2, 2002, the Wildlife Conservation Officer issued a citation directed to Appellant's husband for violating section 2307(a) of the Game and Wildlife Code, entitled “Unlawful taking or possession of game or wildlife”.1 For some unexplained reason, this citation was withdrawn and a new citation alleging the same violation was directed to Appellant.
¶ 10 Appellant had become known to the Pennsylvania Game Commission by appearing to testify before the Game and Fisheries Committee of the Pennsylvania House of Representatives in September, 2001. In this testimony, the Appellant complained about the enforcement proceedings of the Pennsylvania Game Commission, and particularly complained of the fact that every year “bubba” hunters showed up in the woods near their house to drive out the deer and the hunters were guilty of various other displays of bad hunting manners. Stipulation of Facts, 8/5/03, Exhibit C. She further testified to her opinion that the Game Commission is “against any landowner who posts their property.” Id.
¶ 11 While there is no explicit claim of retaliatory prosecution, the stipulated facts show an interesting temporal relationship between Appellant's complaints both to the Game Commission and the General Assembly and her present difficulties.
*To sustain this finding, reference must be had to the PA Code Title 58 Chapter 137 in which it is provided at 137.1(a), “unless otherwise provided in this section or the Act, it is unlawful for a person to․ possess․ (9) game or wildlife taken alive from the wild or (10) game or wildlife held captive or game or wildlife held in captivity or captive bred in another state.” Also, 137.31(b) a person violating this subchapter will be subject to the penalties provided in 2307 of the Act (relating to unlawful taking or possession of game o[r] wildlife).
B. Whether the trial court, in convicting [Appellant] for violating 34 Pa.C.S.A. § 2307(a) improperly applied 58 Pa.Code § 137.1[?].
Appellant's Brief at 6 (emphasis deleted). The essence of Appellant's arguments is that her possession of Nutkin is permitted pursuant to the language of 34 Pa.C.S.A. section 2307(c). Appellant contends that the trial court not only failed to consider this provision, but, rather convicted her for violating a provision of the Pennsylvania Code (58 Pa.Code section 137.1) with which she was not charged.
[An appellate court's review of a] de novo trial on a summary offense is limited to whether the trial court committed an error of law and whether the findings of the trial court are supported by competent evidence. The adjudication of the trial court will not be disturbed on appeal absent a manifest abuse of discretion. An abuse of discretion exists when the trial court has rendered a judgment that is manifestly unreasonable, arbitrary, or capricious, has failed to apply the law, or was motivated by partiality, prejudice, bias, or ill will.
Commonwealth v. Parks, 768 A.2d 1168, 1171 (Pa.Super.2001) (citations and quotation marks omitted). Moreover, because the issues on appeal concern the interpretation of a statute, it is purely a question of law, over which our review is plenary. R.M. v. Baxter, 565 Pa. 619, 624, 777 A.2d 446, 449 (2001).
(a) General rule.-It is unlawful for any person to aid, abet, attempt or conspire to hunt for or take or possess, use, transport or conceal any game or wildlife unlawfully taken or not properly marked or any part thereof, or to hunt for, trap, take, kill, transport, conceal, possess or use any game or wildlife contrary to the provisions of this title.
(c) Wild Birds and wild animals taken outside Commonwealth.-Nothing in this title shall prohibit the possession, at any time, of wild birds or wild animals lawfully taken outside of this Commonwealth which are tagged and marked in accordance with the laws of the state or nation where the wild birds or wild animals were taken. It is unlawful to transport or possess wild birds or wild animals from another state or nation which have been unlawfully taken, killed or exported.
34 Pa.C.S.A. § 2307(a) and (c). “The basic tenet of statutory construction requires a court to construe the words of the statute according to their plain meaning.” Grom v. Burgoon, 448 Pa.Super. 616, 672 A.2d 823, 825 (1996) “[W]ords and phrases contained in a statute shall be construed according to rules of grammar and according to their common and approved usage.” R.M., 565 Pa. at 626, 777 A.2d at 451; 1 Pa.C.S.A. § 1903(a). “When the words of a statute are clear and free from ambiguity the letter of it is not to be disregarded under the pretext of pursuing its spirit.” Id. (citing Pa.C.S.A. § 1921(b)).
¶ 16 Our review of the language of section 2307 leads us to conclude that Appellant's interpretation of the statute is consistent with the plain meaning of the text. The language of section 2307 clearly and unambiguously provides that possession of wild animals in this Commonwealth is not prohibited where: (1) the wild birds or wild animals are lawfully taken 3 outside of this Commonwealth; and, (2) the wild birds or wild animals are tagged and marked in accordance with the laws of the state or nation where the birds or animals were taken.
¶ 17 In this instance the parties have stipulated that Nutkin is a wild animal within the meaning of this section. They have further stipulated that in the state of South Carolina the taking and domestication of squirrels is legal and that there are no provisions for tagging or marking animals taken, as contemplated in section (c) of the Pennsylvania statute. Thus, because it is agreed by both parties that Nutkin is a “wild animal”, and that she was “taken” outside the Commonwealth in a lawful fashion, the first element of the exception set forth in Section 2307(c) has been established. For the exception in 2307(c) to apply, then it seems that Nutkin must have been tagged and marked in accordance with the laws of the state where she was taken. We then refer to the law of South Carolina to see what the requirements of marking and tagging are. As stated above, it was stipulated that there are no such marking and tagging requirements. Hence, the lack of tagging and marking is in “accordance with the laws of the state ․ where the ․ wild animals were taken.” Accordingly, we find that both elements of Section 2307(c) have been satisfied and, as such, the exception applies here.
¶ 18 Nonetheless, the Commonwealth argues that this interpretation of Section 2307 is erroneous and it points to various sections of Title 58 of the Pennsylvania Code, which it claims prohibits possession of animals taken from the wild, no matter where the taking took place. The Commonwealth first points to 58 Pa.Code Sections 131.1 and 131.2 which explain that Title 34 of the Pennsylvania Consolidated Statutes (the Act), which embodies the Game and Wildlife Code, and Title 58 of the Pennsylvania Code are interrelated and shall be construed with reference to each other. Then the Commonwealth alludes to 58 Pa.Code section 137.1(a) which states “[i]t is unlawful for a person to import [and/or] possess ․ (9) [g]ame or wildlife taken alive from the wild ․ [or] (10) [g]ame or wildlife held in captivity or captive bred in another state” and section 137.31 which provides that, “[i]t is unlawful for a person to possess live wildlife taken from a wild state within this Commonwealth”, with certain exceptions not relevant here. Thus, the Commonwealth concludes that to interpret 34 Pa.C.S.A. section 2307(c) as Appellant does would render Section 2307(c) and 58 Pa.Code Sections 137.1 and 137.31 incongruent. The difficulty with the Commonwealth's argument is that Section 137.1 specifically provides in subsection (a) the language “[u]nless otherwise provided in this section or the [A]ct, it is unlawful for a person to import, possess,” etc. As stated above, the Act itself in 34 Pa.C.S.A. section 2307(c) does provide otherwise. It provides an exception to the otherwise blanket prohibition in section 2307(a) and the regulation.
¶ 19 The Commonwealth in further support of its argument points to 34 Pa.C.S.A. section 2163. Section 2163 provides that “[i]t is unlawful for any person to bring or, in any manner, to have transported into this Commonwealth from any other state or nation, any living game or wildlife․ the importation of which is prohibited by the commission․” Thus, the Commonwealth contends that because 58 Pa.Code section 137.1 is a regulation of the commission, and it prohibits importation of wildlife, Appellant is in violation of the regulation. While the regulation of the commission set forth in Section 137.1 on its face seems to prohibit all importation of wildlife, the regulation of the commission cannot conflict with an act of the General Assembly, such as 34 Pa.C.S.A. section 2307(c), which creates an exception. See Commonwealth v. DeFusco, 378 Pa.Super. 442, 549 A.2d 140, 145 (1988) (providing that “where ․ there is an apparent conflict between a statute and a regulation promulgated thereunder, the statute must prevail”); Lookenbill v. Garrett, 340 Pa.Super. 435, 490 A.2d 857, 861 (1985) (same); Wernersville State Hospital v. Peters, 659 A.2d 67, 69-70 (Pa.Cmwlth.1995) (same).
Pa.R.Crim.P. 403(A)(6). The citation in this case charges a violation of section 2307(a), and it is that charge which Appellant was on notice to defend against. The trial court's incorporation of 58 Pa.Code section 137.1(a) in its order charges a new offense in that this latter section prohibits the importation or possession of wildlife held in captivity without any exception for animals taken and marked and tagged in accordance with the law of state where taken. It is obvious that 58 Pa.Code section 137.1(a) is a different offense from the one charged in Appellant's citation. Therefore, Appellant's conviction also must fail on this basis.
¶ 21 Accordingly, for the reasons set forth above, we must reverse the judgment of sentence and dismiss the citation.
¶ 22 Judgment of sentence reversed. Citation dismissed. Fines and costs, if paid, to be returned.
1. 34 Pa.C.S.A. § 2307(a).
2. The Commonwealth Court of Pennsylvania is conferred with jurisdiction over appeals from criminal prosecutions brought pursuant to the Game and Wildlife Code. Commonwealth v. Neitzel, 451 Pa.Super. 1, 678 A.2d 369, 370 n. 2 (1996) (citing Dickerson v. Commonwealth, 138 Pa.Cmwlth. 141, 587 A.2d 379, 380-81 (1991)). See also 42 Pa.C.S.A. § 762(a)(2)(ii) (providing that the Commonwealth Court has jurisdiction over criminal proceedings for violations of regulatory statutes administered by Commonwealth agencies). However, because oral argument has already occurred and the parties have not challenged the Superior Court's jurisdiction, we will, in the interest of judicial economy, address the merits of the issues raised in the appeal. Neitzel, 678 A.2d at 370 n. 2. See also Pa.R.A.P. 741(a) (stating that “[t]he failure of an appellee to file an objection to the jurisdiction of an appellate court ․ shall ․ operate to perfect the appellate jurisdiction of such appellate court, notwithstanding any provision of law vesting jurisdiction of such appeal in another appellate court”).
3. The word “Take” in the context of the Game and Wildlife Code has been defined as: “[t]o harass, pursue, hunt for, shoot, wound, kill, trap, capture, possess or collect any game or wildlife, including shooting at a facsimile of game or wildlife, or attempt to harass, pursue, hunt for, shoot, wound, kill, trap, capture or collect any game or wildlife or aiding, abetting or conspiring with another person in that purpose.” 34 Pa.C.S.A. § 102.


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The obligation [of the Department of Revenue] to update the coal severance tax rate under section 39-29-106(5), C.R.S. (2006), in light of the limitations imposed by article X, section 20 of the Colorado Constitution, the Taxpayers’ Bill of Rights (“TABOR”).
Concerning his power to authorize the Colorado National Guard to use lethal force when protecting infrastructure critical to the life, health or welfare of the State of Colorado.
Whether the Board of Medical Examiners (“Board”) is authorized to take disciplinary action for a criminal “conviction” pending appeal of that conviction.
The governor requested an opinion concerning his power to authorize the Colorado National Guard to use lethal force when protecting infrastructure critical to the life. health or welfare of the State of Colorado. This analysis addresses only those situations in which damage to the infrastructure would likely result in death or serious bodily injury to persons, either immediately or in the foreseeable future.
The respective authority of the Colorado Department of Revenue and the Colorado Limited Gaming Control Commission for the budget and personnel of the Division of Gaming.
The application of the County, Municipal, and Political Subdivision Officers’ and Employees’ Retirement Systems, § 24-54-101, et seq. C.R.S. (2005) to metropolitan sewage disposal districts.
Regarding the disposition of investment interest earned on moneys in school districts’ bond redemption funds.
The authority of the Colorado Commission on Higher Education (“CCHE”) to grant in-state tuition status to undocumented aliens.
The counting of partial terms for purposes of legislative term limits.
The distribution of mineral leasing funds granted to the State of Colorado pursuant to § 34-63-101, C.R.S. (2005). It is being issued to clarify whether the portion of the monies allotted in § 34-63- 102(3)(b)(III), C.R.S. (2005) may be distributed to counties with at least one mine but with no residents who are employees of the mine.
The operation of C.R.S. § 18-1-1001 regarding protection orders against defendants in domestic violence-related cases. This opinion is being issued to clarify whether the provisions of that statute apply to municipal courts and violations of municipal ordinances.
The application of term limits to special district candidates who are declared elected after the election is cancelled. The Opinion also analyzes the effect of Colo. Const. art. XVIII, § 11(1) upon elected officials of special districts who resign from their offices prior to the expiration of their terms.
How the College Opportunity Fund affects calculation of federal financial aid, and the effect, if any, that such calculations have on whether such stipend should be considered a state grant for purposes of Colo. Const. Art. X, § 20 ( “TABOR”).
Whether, under the current statute dealing with the Colorado Lottery it can promulgate one general rule and individual guidelines for conducting instant scratch games.
The status of stored value cards, including gift cards, under Colorado's Unclaimed Property Act. It is issued at the request of the State Treasurer, who asks whether Colorado's Unclaimed Property Act applies to stored value cards and gift cards, and if so, which section of the Act is applicable.
The powers of Colorado’s Deputy Treasurer as those powers are delegated from Colorado’s Treasurer.
Limits to the ability of the General Assembly to alter retirement benefits for public employees under the pension program administered by Public Employees’ Retirement Association of Colorado.
Whether certain individuals who hold positions within a political party may serve on a judicial nominating commission.
Is it constitutional to appropriate monies in the Conservation Trust Fund, established by § 29-21-101 (2) (a) (I), C.R.S., to a state agency to pay for audits and reviews of the use of Conservation Trust Fund dollars by local governments, given restrictions on the use of lottery revenues in Article XXVII of the Colorado Constitution?


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Employers must keep accurate records of all hours worked by employees. Failure to keep accurate records of hours worked by an employee relaxes the burden on that employee to prove he or she worked unpaid time. While the employer has the opportunity to present evidence disputing the employee’s proof, the lack of accurate records works strongly in the employee’s favor.
Employers must comply with section 226.2 of the California Labor Code, to pay piece-rate employees on an hourly basis for rest and recovery periods and other nonproductive time separate from any piece-rate compensation. According to the Court of Appeal, which rejected a constitutional challenge to the statute, the statutory definition of “other nonproductive time” as “time spent under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis,” is sufficiently clear for employer compliance.
In a case decided in December 2018 and ordered published in January 2019, Furry v. East Bay Publishing, LLC (Dec. 12, 2018) 2018 WL 6930903, the California Court of Appeal reinforced the legal principle that an employer’s failure to keep accurate and precise records of a non-exempt employee’s hours worked relaxes the employee’s burden of proving unpaid time worked. At the same time, the court affirmed a judgment denying the employee regular or premium pay for meal periods, during which the employee had worked, because the employer had provided appropriate meal periods, and the employee had failed to show that the employer was aware or reasonably should have been aware that the employee was working through the meal periods.
With regard to the legal principle governing proof of unpaid hours worked, Furry’s evidence during a four-day bench trial established that the East Bay Publishing, LLC had not kept track of the hours that Furry worked, and that Furry had performed work during evenings and on weekends at employer-sponsored events and promotions. Both a subordinate and a supervisor of Furry knew he was performing that work at times outside of normal business hours.
In these circumstances, the appellate court held that the trial court erred in completely denying to Furry relief on his overtime compensation claim, because imprecise evidence by an employee of hours worked can form a sufficient basis for damages when the employer fails to keep accurate records of the employee’s work hours. Relying on Hernandez v. Mendoza (1988) 199 Cal.App.3d 721, 727, the Court explained that the failure of an employer to keep records of hours worked by an employee results in the application of a relaxed standard of proof for the employee to show the number of hours worked. Once the employee has made this showing, the burden then shifts to the employer to produce evidence of the precise amount of work performed or to negate the reasonableness of the inference of the number of hours worked that could be drawn from the evidence the employee provided.
Because Furry’s work beyond normal work hours was established by his and others’ testimony, the fact of damage was established and, consequently, his estimates of hours worked were sufficient to prove the amount of damage. The trial court erred in holding that he had failed to account for hours worked for which he was not compensated by sales commissions he received. According to the Court of Appeal, the trial court should have used the evidence of amount of commissions paid to calculate the regular rate of pay, and therefore, the overtime rate and pay, not as a basis for denying relief.
In Nisei Farmers League v. California Labor and Workforce Development Agency (Jan. 4, 2019) 2019 WL 99087, the California Court of Appeal denied a challenge to the constitutionality of a Labor Code provision effective January 1, 2016, which codified case law requiring employers with piece-rate workers to pay those workers separately on an hourly basis at a rate not less than minimum wage for rest and recovery periods and other nonproductive time. The employers groups that brought the case had argued that their piece-rate compensation system took account of nonproductive time to pay sufficient compensation, and challenged the constitutionality of the statute on the grounds that it (1) was void for vagueness, and (2) retroactive and therefore a violation of due process as well as a taking of property.
The appellate court held that the plaintiffs failed to allege an adequate basis to find the statute, section 226.2 of the Labor Code, unconstitutional. The Legislature had enacted section 226.2 to codify the case law in Gonzales v. Downtown LA Motors, LP (2013) 215 Cal.App.4th 36, and Bluford v. Safeway Inc. (2013) 216 Cal.App.4th 8644, which had “upended” the expectations of employers who had assumed that a piece-rate system that allegedly took account of and compensated for nonproductive work periods by the way the piece-rate was set complied with California’s wage and hour laws.
In Gonzales, 215 Cal.App.4th at 40-41, the Court of Appeal had held that automobile service employees were “entitled to separate hourly compensation for time spent waiting for repair work or performing non-repair tasks directed by the employer during their work shifts”. Such compensation was required to comply with minimum wage, because the minimum wage law applies to each hour an employee works. For similar reasons, the Court in Bluford, 216 Cal.App.4th at 872, held that employers must separately pay piece-rate employees at the rate of at least minimum wage for rest periods. Both cases relied on the earlier case of Armenta v. Osmose, Inc. (2005) 135 Cal.App.4th 314, 317-24, in which the Court had held that, because California’s minimum wage law applies to each hour worked, an employer could not withhold payment of wages to an hourly employee for nonproductive time and average the wages paid over productive and non-productive time to assure that the average met minimum wage requirements.
In codifying Gonzales and Bluford in section 226.2 of the Labor Code, the California Legislature also, in section 226.2(b), created a safe harbor affirmative defense for employers that had previously failed to pay on an hourly basis for rest periods and nonproductive work by employees who were otherwise paid on a piece-rate basis. The affirmative defense was only available to those employers that, (1) by December 15, 2016, made payments of actual sums not paid (or underpaid) for rest and recovery periods and other nonproductive work (or based upon an alternative payment calculation) during the period July 1, 2012 through December 31, 2015, and (2) had provided notice by July 1, 2016 to the Department of Industrial Relations of their election to make those payments.
The trial court had sustained demurrers to the employer groups’ complaint without leave to amend, and the Court of Appeal affirmed. It agreed with the trial court that the statute was not void for vagueness. Section 226.2 clarified the statutory requirements for piece-rate compensation by confirming, as of January 1, 2016, that employers were required to compensate piece-rate employees for rest and recovery periods and other nonproductive time separate from any piece-rate compensation. Neither the term “other nonproductive time” nor the term “actual sums due” in the statute were unconstitutionally vague.
The statutory definition of “other nonproductive time” as “time spent under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis,” was “reasonably clear and specific and provide[d] adequate notice of the nature of the conduct that is being described.” Moreover, section 226.2 was enacted to codify Gonzales, which, like Bluford, relied on Armenta. This context of case law lent clarity to the statute. In particular, Gonzales provided “fact-based concrete illustrations of what was meant by the term ‘other nonproductive time’”. The phrase in the definition, “not directly related” was not unconstitutionally vague: many statutes have used the phrase “directly related”. The constitution did not require the statute’s terms to contemplate all possible circumstances in which it would be applied.
The second ground for the employers’ constitutional challenge, that the statute was retroactive, also was without merit. The safe-harbor affirmative defense, which required payment by employers of pre-January 1, 2016 unpaid compensation, did not constitute an unconstitutionally retroactive statute, because the compensation for prior rest periods and nonproductive work, on which the affirmative defense was conditioned, was based upon the law that was in effect at the time, before the adoption of section 226.2—i.e., the case law of Gonzales, Bluford and Armenta. When the Gonzales and Bluford decisions were final, employers were required to separately compensate piece-rate employees for nonproductive uncompensated time and for rest periods.
The Nisei Farmers League case makes clear that employers cannot expect a judicial reprieve from the requirement of separate hourly compensation of piece-rate employees for rest periods and other nonproductive time. The workability of such a compensation system remains in question. Tracking nonproductive time will continue to be cumbersome. And the potential liability exposure for failing to track and pay for it properly may continue to shift employers away from any piece-rate compensation in California. This development could adversely impact employees who, in some circumstances, can earn higher pay on a piece-rate basis than as an hourly employee.


1. This enforcement action concerns Lemcke's scheme to defraud several clients, most of whom live in Rhode Island, of approximately $1�million which he obtained while acting as their investment adviser between December 1995 and September 2001. The clients include a close personal friend (and best man at his wedding), the friend's sister and her then husband, the sister's three minor children, the husband's elderly parents, and even a neighbor who was helping renovate Lemcke's kitchen. Lemcke told the clients that he was going to invest their money in various stocks, mutual funds, and other investments through a financial services company based in Chicago. He even provided them with periodic account statements showing that their investments were generating substantial returns. Unfortunately, the financial servicescompany, the returns,and the investments themselves did not exist. Indeed, Lemcke has recently admitted that he diverted the clients' funds for his personal use and that most, if not all, of the money has been lost.
2. Through the activities alleged in this Complaint, Lemcke engaged in: (i) fraud in the offer or sale of securities, in violation of Section 17(a) of the Securities Act of 1933 ("Securities Act"); (ii) fraudulent or deceptive conduct in connection with the purchase or sale of securities, in violation of Section 10(b) of the Exchange Act of 1934 ("Exchange Act") and Rule�10b-5 thereunder; and (iii) fraudulent or deceptive conduct with respect to investment advisory clients, in violation of Sections 206(1) and (2) of the Investment Advisers Act of 1940 ("Advisers Act").
3. Accordingly, the Commission seeks: (i) entry of a permanent injunction prohibiting Lemcke from further violations of the relevant provisions of the federal securities laws; (ii) disgorgement of Lemcke's ill-gotten gains, plus pre-judgment interest; and (iii) the imposition of a civil monetary penalty due to the egregious nature of Lemcke's violations. In addition, because of the risk that Lemcke will continue violating the federal securities laws and the danger that any remaining investor funds will be dissipated or concealed before entry of a final judgment, the Commission seeks preliminary equitable relief to: (i) prohibit Lemcke from continuing to violate the relevant provisions of the federal securities laws; (ii) freeze Lemcke's assets and otherwise maintain the status quo; (iii) require Lemcke to submit an accounting of investor funds and other assets in his possession; (iv) prevent Lemcke from destroying relevant documents; and (v) authorize the Commission to undertake expedited discovery.
4. The Commission seeks a permanent injunction and disgorgement pursuant toSection 20(b) of the Securities Act [15 U.S.C. §77t(b)], Section 21(d)(1) of the Exchange Act [15 U.S.C. §78u(d)(1)], and Section 209(d) of the Advisers Act [15 U.S.C. §80b-9(d)]. The Commission seeks the imposition of a civil monetary penalty pursuant to Section 20(d) of the Securities Act [15 U.S.C.§77t(d)], Section 21(d)(3) of the Exchange Act [15 U.S.C. §78u(d)(3)], and Section 209(e) of the Advisers Act [15 U.S.C. §80b-9(e)].
5. This Court has jurisdiction over this action pursuant to Sections 20(d) and 22(a) of the Securities Act [15 U.S.C. §§77t(d), 77v(a)], Sections 21(d), 21(e) and 27 of the Exchange Act [15 U.S.C. §§78u(d), 78u(e), 78aa], and Sections 209(3) and 214 of the Advisers Act [15 U.S.C. §80b-9(d), 80b-14]. Venue is proper in this District because much of Lemcke's wrongful conduct occurred here and most of the defrauded clients live here.
6. In connection with the conduct described in this Complaint, Lemcke directly or indirectly made use of the mails or the means or instruments of transportation or communication in interstate commerce.
7. Lemcke, age 42, resides in Hingham, Massachusetts. At all relevant times, he sold life insurance and acted as an unregistered investment adviser under the name of "Lemcke & Associates", with an office in Hingham. He has been associated with three broker-dealers since he was first licensed in 1993. He is currently a registered representative associated with MML Investor Services, Inc. ("MML"), a broker-dealer based in Springfield, Massachusetts, but MML recently suspended him. He holds series 6 and 63 licenses, which permit him to sell a limited class of securities including mutual funds. He previously held a series 7 license, which permitted him to sell additional types of securities including stocks.
8. Lemcke's scheme centered on Dr. Frank Fraioli, Jr., a physician whose residence and office are both in Smithfield, Rhode Island. Lemcke had known Dr. Fraioli's then wife, Louise Fraioli, and her brother, Michael Verville, since the mid-1980s when they were in college. Louise introduced Lemcke to Dr. Fraioli in late 1993. Lemcke told Dr.�Fraioli that he was an investment adviser and that he could provide complete financial services, including insurance products and investment advice. He also provided Dr. Fraioli with a business card indicating that he conducted a "financial designs and services" business under the name Lemcke & Associates.
9. On several occasions in 1994 and 1995, Lemcke met with Dr. Fraioli at the latter's office in Smithfield to discuss insurance and investments. During those meetings, Dr. Fraioli stated that he wanted to save for retirement and for his children's education, and Lemcke stated that he could help Dr. Fraioli achieve those objectives by purchasing stocks and other investments on his behalf. Lemcke also stated that he would invest Dr. Fraioli's money through a company known as Individual Investment Portfolio Design Company or I2PDCO ("Portfolio Design"). Lemcke stated that Portfolio Design was a financial services company based in Chicago which designed customized investment programs for individual investors. Lemcke indicated that his compensation would be a percentage of the assets under management.
10. Starting in December 1995 and continuing until September 2001, Dr. Fraioli provided Lemcke with approximately $900,000 for Lemcke to invest on behalf of Dr. Fraioli and his family. That figure included approximately $92,000 that had been held in education accounts for Dr. Fraioli's three minor children and $100,000 that Dr. Fraioli had raised through a businessline of credit.
11. Dr. Fraioli made the investments through checks that he gave to Lemcke when Lemcke visited his office in Smithfield once or twice a month. At Lemcke's direction, Dr.�Fraioli made the checks payable to Portfolio Design, to Lemcke & Associates, or to Lemcke personally.
12. Dr. Fraioli almost always relied upon Lemcke to decide what investments to make. On one occasion, however, Dr. Fraioli told Lemcke to invest $100,000 in a particular stock.
13. On various occasions, Lemcke asked Dr. Fraioli for referrals to other potential clients. Dr.�Fraioli provided Lemcke with several names, including those of his elderly parents, Frank�Sr. and Dora Fraioli, who also live in Smithfield, Rhode Island.
14. In the summer of 1997, Dr. Fraioli introduced Lemcke to his parents in a meeting at their home in Smithfield. Shortly thereafter, Dr. Fraioli's parents decided to invest their entire life savings of $65,000 with Lemcke. They made the investment by writing two checks to Dr. Fraioli, who then wrote checks for the same amounts to Lemcke. Thereafter, Lemcke mailed quarterly "interest" payments of $1,076 to Dr. Fraioli's parents and, on one occasion, returned additional funds at their request so they could buy a car. It appears that Dr. Fraioli's parents received a total of approximately $35,000 from Lemcke.
15. Sometime in 1998, Lemcke told Michael Verville that he was managing investments for his sister, Louise Fraioli. In December 1998, Michael Verville transferred $13,368 to Lemcke so that Lemcke could invest in mutual funds on his behalf. In May 1999, at Verville's request, Lemcke returned $13,000 to Verville.
16. Dr. Fraioli and his wife Louise were divorced in May 1999. After the divorce, Louise continued to reside in Smithfield. As part of the divorce, the Fraiolis agreed that their investments with Portfolio Design would be split into two accounts. Lemcke told the Fraiolis thathe would divide their investments into two separate accounts and indicated that the investments in Louise's account were worth almost $220,000.
17. In October 2000, Lemcke advised Louise Fraioli to redeem several savings bonds in the names of her three children and to invest the money with him through Portfolio Design. She followed Lemcke's advice, redeemed the savings bonds for approximately $4,000, and invested the entire proceeds with Lemcke through a check payable to Portfolio Design.
18. Lemcke also obtained money from at least one client unrelated to the Fraiolis. In 1996, Sean Ford, a former neighbor of Lemcke's who also worked as a contractor on the renovation of Lemcke's kitchen, transferred $1,300 to Lemcke so that Lemcke could invest in unit investment trusts on his behalf. In July 2000, Ford transferred an additional $1,000 to Lemcke so that Lemcke could purchase stock in Dell Corporation on his behalf. At Lemcke's direction, Ford gave Lemcke a $1,000 check payable to Portfolio Design.
19. On numerous occasions between December 1995 and September 2001, Lemcke told Dr. Fraioli that his money was invested in stocks and unit investment trusts and that his investments were performing well. Lemcke made similar statements to his other clients. For example, he told Dr. Fraioli's parents sometime in 1999 that their stocks were doing well and that he treated their investments just like he treated his grandmother's investments. Similarly, he told Louise Fraioli on several occasions between May 1999 and September 2001 that her money was invested in CDs and bonds, that her investments were performing well, and that her money was not invested in anything risky. These statements were false and misleading because, as Lemcke has since admitted, the investments did not exist and he diverted the clients' money for hispersonal use.
o. account statements dated July 17, 2001 provided to Louise Fraioli indicating that she owned unidentified stock and unit investment trust interests worth more than $300,000.
21. Each of the account statements identified in the preceding paragraph was false and misleading because, as Lemcke has since admitted, Portfolio Design did not exist, the investments did not exist, and Lemcke had diverted the clients' money for his personal use.
22. In addition, Lemcke told Dr. Fraioli that he would take care of paying Dr.�Fraioli's taxes. On several occasions, Lemcke even provided Dr. Fraioli with copies of cashier's checks reflecting tax payments. These statements were false and misleading because, as Lemcke has since admitted and as Dr. Fraioli has since verified, Lemcke was not paying Dr. Fraioli's taxes and the cashier's checks were fictitious.
23. In July 2001, Louise Fraioli became concerned about how her investments were performing in light of the recent economic downturn. When she asked Lemcke for more detailed information about her account, he was evasive and simply assured her that she was "makingmoney" and that her investments were "guaranteed". When she insisted on more information, Lemcke provided her with account statements dated July 17, 2001 (described above) indicating that her investments were worth more than $300,000. In other words, the statements indicated that Louise's retirement account had grown by more than 33% since the Fraiolis' divorce two years earlier.
24. Louise Fraioli was not satisfied with Lemcke's assurances. In August 2001, she told him that she wanted to transfer her investments to PaineWebber. She then asked PaineWebber to facilitate the transfer of her assets from Lemcke. However, Lemcke refused to respond to PaineWebber's phone calls or to effect the transfer.
25. On or about August 31, 2001, Lemcke called Louise's brother, Michael Verville, and told him that Louise's attempt to transfer her investments to PaineWebber could result in criminal liability for Lemcke. Lemcke asked Verville to persuade Louise to give him more time "to come up with the money." Shortly thereafter, Verville asked Louise to give Lemcke more time, but she refused.
26. Louise Fraioli then communicated her concerns to Dr. Fraioli, who confronted Lemcke in early September 2001. At a meeting in Dr. Fraioli's house, Lemcke stated that the money designated for Louise's retirement "was never there" and "it is going to look like I took the money." Lemcke nevertheless assured Dr. Fraioli that the money invested for himself, his parents and his children was safe. Dr. Fraioli demanded that Lemcke return all the remaining money, but Lemcke failed to do so.
27. Also in September 2001, Dr. Fraioli's parents asked Lemcke to verify the security of their investments. Lemcke agreed to meet them at their home on September 13, 2001. However, Lemcke called them that morning to cancel the meeting. In a separate conversation,Lemcke explained to Dr. Fraioli that he needed to attend the funeral of a Portfolio Design work associate who had died in the World Trade Center terrorist attack on September 11, 2001.
28. Shortly thereafter, Dr. Fraioli asked Lemcke for additional documentation about the family's investments. Lemcke responded that the records were lost because Portfolio Design's offices in the World Trade Center had been destroyed in the terrorist attack.
29. In late September and October 2001, under continued pressure to account for the Fraiolis' money, Lemcke finally told Dr. Fraioli that all of the money was "gone" and that he could not identify the people to whom he had given the money because his life was in danger. Lemcke made similar statements to Verville in October 2001, admitting that he had used the money "to support a lifestyle" and to repay a loan.
30. By reason of Lemcke's fraudulent scheme and his failure to return his clients' money, Dr. Fraioli and Louise Fraioli have lost their entire $900,000 investment, Dr.�Fraioli's parents have lost approximately $30,000, Sean Ford has lost $2,300, and Michael Verville has lost $368.
31. The Commission repeats and incorporates by reference the allegations in paragraphs 1-30 of the Complaint as if set forth fully herein.
32. Lemcke, directly and indirectly, acting intentionally, knowingly or recklessly, in the offer or sale of securities by the use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails: (a) has employed or is employing devices, schemes or artifices to defraud; (b) has obtained or is obtaining money or property by means of untrue statements of material fact or omissions to state a material factnecessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) has engaged or is engaging in transactions, practices or courses of business which operate as a fraud or deceit upon purchasers of the securities.
33. As a result, Lemcke has violated and, unless enjoined, will continue to violate Section 17(a) of the Securities Act [15 U.S.C. §77q(a)].
34. Lemcke's violations of Section 17(a) of the Securities Act have involved fraud, deceit or deliberate or reckless disregard of regulatory requirements and have resulted in substantial losses or significant risk of substantial losses to other persons, within the meaning of Section 20(d) of the Securities Act [15 U.S.C. §77t(d)].
35. The Commission repeats and incorporates by reference the allegations in paragraphs 1-34 of the Complaint as if set forth fully herein.
36. Lemcke, directly or indirectly, acting intentionally, knowingly or recklessly, by the use of means or instrumentalities of interstate commerce or of the mails, in connection with the purchase or sale of securities: (a) has employed or is employing devices, schemes or artifices to defraud; (b) has made or is making untrue statements of material fact or has omitted or is omitting to state a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) has engaged or is engaging in acts, practices or courses of business which operate as a fraud or deceit upon certain persons.
37. As a result, Lemcke has violated and, unless enjoined, will continue to violate Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5].
38. Lemcke's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder have involved fraud, deceit or deliberate or reckless disregard of regulatory requirements and have resulted in substantial losses or significant risk of substantial losses to other persons, within the meaning of Section 21(d)(3) of the Exchange Act [15 U.S.C. §78u(d)(3)].
39. The Commission repeats and incorporates by reference the allegations in paragraphs 1-38 of the Complaint as if set forth fully herein.
40. Lemcke was an "investment adviser" within the meaning of Section 202(a)(11) of the Advisers Act [15 U.S.C. §80b-2(a)(11)].
41. Lemcke, by use of the mails or any means or instrumentality of interstate commerce, directly or indirectly, acting intentionally, knowingly or recklessly: (i) has employed or is employing devices, schemes, or artifices to defraud; or (b) has engaged or is engaging in transactions, practices, or courses of business which operate as a fraud or deceit upon a client or prospective client.
42. As a result, Lemcke has violated and, unless enjoined, will continue to violate Sections 206(1) and (2) of the Advisers Act [15 U.S.C. §§80b-6(1), (2)].
43. Lemcke's violations of Sections 206(1) and (2) of the Advisers Act have involved fraud, deceit or deliberate or reckless disregard of regulatory requirements and have resulted in substantial losses or significant risk of substantial losses to other persons, within the meaning of Section 209(e) of the Advisers Act [15 U.S.C. §80b-9(e)].
F. Award such other and further relief as the Court deems just and proper.