AETNA CASUALTY SURETY CO v. INDUSTRIAL ACCIDENT COMMISSION

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District Court of Appeal, First District, Division 2, California.

AETNA CASUALTY & SURETY CO. et al. v. INDUSTRIAL ACCIDENT COMMISSION

Decided: November 07, 1946

Brobeck, Phleger & Harrison, of San Francisco (Maurice E. Harrison and Moses Lasky, both of San Francisco, of counsel), for all petitioners in all cases. John H. Black and Edward R. Kay, both of San Francisco, for petitioners in No. 13206. George R. Haswell and Thomas F. McGrath, both of Los Angeles, for petitioners in No. 13212. S. Norman Hays, of San Francisco, for petitioners in No. 13157. Herlihy & Herlihy, of Los Angeles, for petitioners in Nos. 13160 and 13219. Keith, Creede & Sedgwick, of San Francisco, for petitioners in No. 13159. Leonard, Hanna & Brophy, of San Francisco, for petitioners in Nos. 13156, 13158, and 13163. F. Carlton Myers, of Los Angeles, for petitioners in No. 13160. Claude F. Weingand, of Los Angeles, for petitioners in No. 13212. Donald Gallagher, of San Francisco, for petitioners in Nos. 13175, 13192, and 13193. Robert W. Kenny, Atty. Gen., and Clarence A. Linn, Asst. Atty. Gen., amici curiae on behalf of respondents. George Olshausen and John K. Hagopian, both of San Francisco, amici curiae on behalf of respondents. Charles J. Janigian and Charles P. Scully, both of San Francisco, amici curiae on behalf of respondents for California State Federation of Labor. R. C. McKellips, John A. Rowe, Jr., and Joseph Sheehan, all of San Francisco, for respondents.

The within petitions for writs of review all involve the same question. In view of that fact stipulations were entered into and orders of court made under which thirteen of the petitions are supported by one memorandum of points and authorities, one answer by the Industrial Accident Commission and one reply brief and forty-nine similar petitions were agreed to follow the decision in this case. Briefs of amici curiae support the position of respondent. The petitions which are consolidated by the stipulation under number 13160 are as follows: 13156, 13157, 13158, 13159, 13163, 13175, 13192, 13193, 13201, 13206, 13212, and 13219. The commission assumes the burden of the defense of all the interested employees and will herein be referred to as the respondent.

On September 2, 1942, William Charlesworth was an employee of Frank E. Barrow, one of the petitioners herein, and on that day sustained an injury arising out of and in the course of his employment. The employer, a school teacher, employed Charlesworth to work as a carpenter on a summer home and in order to protect himself from possible liability the employer took out a policy of workmen's compensation insurance with the Aetna Casualty and Surety Company, petitioner herein, covering the period from August 20, 1942, to September 20, 1942. On July 20, 1945, the employee filed an application for adjustment of claim with the commission, claiming both temporary and permanent disability. Hearing on the application was had on August 17, 1945.

At the time of the occurrence of the injury section 4661 of the Labor Code read as follows: ‘Where an injury causes both temporary and permanent disability, the injured employee is not entitled to both a temporary and permanent disability payment, but only to the greater of the two.’ By Statute of 1945, Ch. 1335, Sec. 1, there became effective on September 15, 1945, an amendment to section 4661 of the Labor Code, which added the following provision: ‘except that where the temporary disability payment exceeds 25 per cent of the permanent disability payment the injured employee shall be paid 75 per cent of such permanent disability payment in addition to the temporary disability payment.’

On March 11, 1946, the commission issued its award. It found that the injury caused the employee both temporary and permanent disability; that the permanent disability was of such character as in the absence of a temporary disability entitled the employee to $6400; and that temporary disability payments had been made in excess of 25 per cent of the permanent disability payment. In view of the latter fact it was held, under amendment to section 4661, that the employee should be paid 75 per cent of the permanent disability payment in addition to the whole of the temporary disability payments, and an award of $4800 was made in his favor. A petition for rehearing was denied on April 9, 1946.

The issue presented by all of these petitions is whether the commission exceeded its jurisdiction in applying the greater liability provided for by the amendment to Labor Code Sec. 4661 to injuries which occurred prior to the effective date of the amendment.

It is petitioners' main contention that as a matter of construction under the weight of authority and California law a statute such as the amendment to section 4661 may not be interpreted to apply retroactively unless that intention affirmatively appears in the statute; that an amendment to the Workmen's Compensation Act changing the amount of compensation relates to the substantive rights of the parties rather than to a mere remedy and hence it may not be given effect in a case where the injury occurred before the amendment. Petitioners' secondary contention is that since an increase in the amount of compensation affects a substantive right, a retroactive application of the amendment to section 4661 to injuries occurring prior to September 15, 1945, would violate the due process and the impairment of contract provisions of the state and federal Constitutions. Const.Cal. Art. 1, §§ 13, 16; U.S.C.A.Const. Art. 1, § 10, cl. 1; Amend. 14.

The respondent argues that under Art. XX, sec. 21, of our Constitution the protection and benefits of workmen's compensation are the policies of the state and the legislation must therefore be construed to remedy the evils it was intended to terminate—to protect against the depletion of funds during a prolonged temporary disability which would prevent rehabilitation of an injured worker. It is contended that the rights and liabilities involved are not founded on contract but evolve from an employer-employee status which may be regulated at any time. The respondent also argues that the application of the amendment to section 4661 to prior injuries is required by section 11 of the Labor Code which provides that the present tense includes the past. In answer to petitioners' main contention the respondent argues that workmen's compensation is concerned with industrial disability and with the injury only as an antecedent fact, hence the application of the amendment to an injury occurring prior to the effective date of the statute does not constitute a retroactive application. In answer to petitioners' secondary argument the respondent contends that section 4661 is a reasonable regulation justifiable under the police power and hence it is not a deprivation of due process nor does it impair the obligations of contracts.

Petitioners ground their main contention on the well established rule of statutory construction that legislative acts are not to be given a retroactive application unless that intention clearly appears.

This rule of construction, in so far as it relates to statutory law in this state, is founded on section 3 of each of the four original codes. In the early California cases the rule was given recognition in one brief sentence. Bascomb v. Davis, 56 Cal. 152; Sharp v. Blankenship, 59 Cal. 288; In re Estate of Richards, 133 Cal. 524, 527, 65 P. 1034; In re Estate of Frees, 187 Cal. 150, 155, 201 P. 112, and In re Cate, 207 Cal. 443, 448, 279 P. 131, these earlier cases were affirmed. In the Cate case the Supreme Court said: (207 Cal. at page 448, 279 P. at page 133) ‘It is a canon of interpretation that statutes are not to be given a retrospective operation unless it is clearly made to appear that such was the legislative intention. Our Civil Code contains the express provision that ‘No part of it is retroactive, unless expressly so declared’ (Civ. Code, § 3), and this court has frequently decided that a like rule is to be applied generally to statutory construction. (Bascomb v. Davis, 56 Cal. 152; In re Estate of Richards, 133 Cal. 524, 65 P. 1034; In re Estate of Frees, 187 Cal. 150, 156, 201 P. 112, and cases cited; Cooley, Const. Limitations (7th Ed.), p. 539; Endlich on Interpretation of Statutes, p. 362.)'

In accord are American States Water Service Co. of California v. Johnson, 31 Cal.App.2d 606, 88 P.2d 770; Ware v. Heller, 63 Cal.App.2d 817, 822, 148 P.2d 410; Jones v. Union Oil Co., 218 Cal. 775, 777, 25 P.2d 5; and see 23 Cal.Jur. p. 629 et seq. A retrospective law as considered in these authorities is ‘one which affects rights, obligations, acts, transactions and conditions which are performed or exist prior to the adoption of the statute. The terms ‘retrospective’ and ‘retroactive’ are interchangeable. City of Los Angeles v. Oliver, 102 Cal.App. 299, 309, 283 P. 298; 5 Cal.Jur. 747, sec. 142; 12 C.J. 1084, sec. 778.' American States Water Service Co. of California v. Johnson, supra, 31 Cal.App.2d at page 613, 88 P.2d at page 774.

Pertinent language on the same subject is found in Jones v. Union Oil Co., supra, 218 Cal. at page 778, 25 P.2d at page 6: ‘The rule that a statute is presumed to operate prospectively only, unless an intent to the contrary clearly appears, is especially applicable to cases where retroactive operation of the statute would impair the obligations of contracts or interfere with vested rights. Hoyt Metal Co. v. Atwood, 9 Cir., 289 F. 453.’

A clear expression of the rule and of how it operates is found in 50 Am.Jur. p. 500 reading: ‘Ordinarily, an intention to give a statute a retroactive operation will not be inferred. If it is doubtful whether the statute or amendment was intended to operate retrospectively, the doubt should be resolved against such operation. It is especially true that the statute or amendment will be regarded as operating prospectively only, where it is in derogation of a common-law right, or where the effect of giving it a retroactive operation would be to interfere with an existing contract, destroy a vested right, or create a new liability in connection with a past transaction, invalidate a defense which was good when the statute was passed, or, in general, render the statute or amendment unconstitutional.’

Aside from the unanimous rulings of our appellate courts, and the express provisions of the four basic codes, we find the same principles recognized in the Labor Code. Section 4 reads: ‘No action or proceeding commenced before this code takes effect, and no right accrued, is affected by the provisions of this code, but all procedure thereafter taken therein shall conform to the provisions of this code so far as possible.’ That the section was intended to apply to subsequent amendments to the Labor Code appears from section 9 which declares: ‘Whenever any reference is made to any portion of this code or of any other law of this State, such reference shall apply to all amendments and additions thereto now or hereafter made.’ These provisions of the Labor Code must be given special weight when we come to the question of the intention of the legislature in enacting the 1945 amendment. It must be presumed that the legislature knew the existing law and that the amendment was enacted in conformity with it.

This non-retrospective interpretation has been specially applied in industrial accident and pension cases without exception. In the early case of Western Indemnity Co. v. Pillsbury, 170 Cal. 686, 151 P. 398, which determined the constitutionality of the original Workmen's Compensation Act, the supreme court said, 170 Cal. at page 698, 151 P. at page 403: ‘Laws must be framed so as to respect existing and vested property rights, and so as to operate equally upon all who are similarly situated with respect to such laws. But the laws defining rights of property, personal relations, or the obligations of individuals to their fellow-beings or to the state may, in general, be molded and altered by the states at will, if the change does not affect acts previously done, or property rights previously acquired. Therefore a law which disturbs no vested right of property, which is not retroactive in its operation upon the conduct of persons, but which, looking to the future, merely changes the existing rules governing the liability of masters for injuries caused by accidents occurring to their servants while in the service, does not come within the scope of the fourteenth amendment. It is simply an exercise by the state of its governmental power to pass laws regulating the ordinary private rights of persons and property. The law in question is of this character. It does not affect past transactions or previously acquired rights of person or property. It provides for a notice and a hearing as to liabilities arising under it, and it bears alike upon all affected by its provisions.’

In Hyman Bros. Box & Label Co. v. Industrial Accident Comm., 180 Cal. 423, 181 P. 784, where a workman was injured in December of 1917 while feeding a printing press it was held that ‘his rights must be measured by the Workmen's Compensation Act of 1913, as amended in 1915, * * * which was then in force.’ 180 Cal. at page 424, 181 P. at page 784. In Hendrickson v. Industrial Accident Comm., 215 Cal. 82, 8 P.2d 833, which involved an amendment to the Workmen's Compensation Act providing for a 10% increase in an award if the employer wilfully failed to secure payment of the compensation as required by the Act, the court held, 215 Cal. at page 84, 8 P.2d at page 834: ‘The injury occurred on May 21, 1929. The increase of ten per cent. was provided for in section 29(c) as amended in 1929. St.1929, p. 551. The amendment became effective on August 14, 1929, or about three months after the date of the injury. It is conceded by the commission that the amendment was not retroactive, and that the increase of ten per cent. was inapplicable to the case. For this reason, the award must in any event be annulled.’ Holmberg v. City of Oakland, 55 Cal.App. 270, 203 P. 167 was a case involving a provision in the city charter with respect to compensation of policemen. Plaintiff was injured on October 3, 1914, and was given a surgical operation for the injury on March 16, 1920; the charter provision allowing compensation went into effect on January 18, 1919. The court held that the section of the charter was not applicable to injuries sustained prior to the date it became effective. In holding against a retroactive application the court stated, 55 Cal.App. at pages 271 and 272, 203 P. at page 168: ‘This conclusion is further enforced by the construction which has been quite uniformly applied to compensation laws, which is to the effect that the state of the law at the time of the injury is to be taken as the measure of the right of recovery of the injured person. It was so held by our Supreme Court in the case of Hyman Bros. Box & Label Co. v. Industrial Acc. Comm., 180 Cal. 423, 181 P. 784, and the rule therein stated follows in the line of the general authority in other jurisdictions.’ (Citing cases.)

In a well considered case in the State of Washington the court had under consideration an amendment to the Workmen's Compensation Act increasing the allowance to the widow of a deceased employee from $35 to $50 a month. In holding that the 1941 amendment was not applicable to a case of death or injury occurring prior to its enactment the court said: ‘It is a fundamental rule in this state that a statute will be presumed to operate prospectively only, and that it will not be held to apply retrospectively in the absence of language clearly indicating such legislative intent. (Quoting cases.)

‘It is also the general rule in this state that awards payable under the Workmen's Compensation Act are governed by the law in effect at the time the injury to the workman occurred. (Quoting cases.)

‘If referendum measure 22 be read and construed in the light of the rules hereinbefore stated, our conclusion must be that the provision for increased pensions to the widows of injured workmen speaks in futuro and includes only those cases where the injury to the workmen occurs subsequent to the effective date of the measure, December 3, 1942.’ Lynch v. State, 19 Wash. 2d 802, 145 P.2d 265, 267.

To the general statement that compensation acts authorizing awards for industrial injuries as well as those providing for pensions are applicable only to rights thereafter accrued, see Matkosky v. Midvale Co., 143 Pa.Super. 197, 18 A.2d 102; Gauthier v. Penobscot Chemical Fiber Co., 120 Me. 73, 113 A. 28; Neglia v. Zimmerman, 237 N.Y. 131, 142 N.E. 442; Virden v. Smith, 46 Nev. 208, 210 P. 129; United Iron Works v. Smethers, 159 Okl. 105, 14 P.2d 380; Leon v. Crowell & Spencer Lumber Co., 151 La. 932, 92 So. 389; Soderstrom v. Curry & Whyte, 143 Minn. 154, 173 N.W. 649; State ex rel. Globe Indemnity Co. v. District Court, 132 Minn. 249, 156 N.W. 120; Cote v. Bachelder-Worcester Co., 85 N.H. 444, 160 A. 101, 82 A.L.R. 1239; Illinois Zine Co. v. Industrial Comm., 366 Ill. 480, 9 N.E.2d 212.

It would serve no purpose to multiply these citations. Some of the cases hold with the rule of In re Cate, 207 Cal. 443, 279 P. 131, that a retroactive effect will not be given unless that intention is clearly expressed. Others hold that the legislature could not give that effect to the statute because in changing the amount of payments the legislation deals with the substantive rights of the parties and such a change would offend due process and the clause prohibiting the impairment of the obligation of contracts.

Heretofore we have spoken of the intent of the legislature in enacting the amendment of 1945. The question of power to make it retroactive is indirectly involved. But linked with the question of intention is the pertinent phrase found in the footnote 95(a) at p. 338 of 71 C.J., reading:

“If the Legislature may increase awards, it may also decrease them. To permit subsequent legislation to increase or diminish the compensation specified in awards would be to strike down vested rights. Then no one would be secure. The resulting uncertainty, distrust, and confusion would destroy the compensation plan itself.' Riggs v. Lehigh Portland Cement Co., 76 Ind.App. 308, 131 N.E. 231, 232.'

Rules of limitation of the powers of the legislature are designed to meet all in the same circumstances and to apply to all without regard to race, color or other conditions. Assuming that the legislature had the constitutional power to reduce a pre-existing award it is apparent that a statute which did not appear on its face to apply retroactively might be enacted with many members of the legislature, as well as the beneficiaries of prior awards, unaware that such would be its effect. This merely emphasizes the soundness of that rule of construction requiring some affirmative declaration of intention before the statute can be held retroactive.

The answer of respondent consumes many pages in arguing the policy behind the Workmen's Compensation Acts and the inadequacies in compensation which the 1945 amendment endeavored to correct. We have not found that the petitioners have at any time questioned that policy or that they have denied the right of the legislature to amend the statute so as to provide the necessary adjustments in the payments of compensation for injuries. The petitioners have presented two plain issues—that the 1945 amendment was not intended to be retroactive when it was enacted and that the legislature could not have made it retroactive because of the inhibitions of the state and federal Constitutions. We may therefore, without further comment, dispose of the frequent repetitions of the argument that Art. XX, Section 21 of the state Constitution established a policy for the protection and rehabilitation of workmen suffering from industrial injuries and that this status of the employee is open to readjustment in whatever manner the legislature chooses to act. The real issue involved is whether the legislature elected to make the 1945 amendment retroactive. The question of policy is no criterion for the interpretation of a statute of this character. It is more reasonable to infer that the legislature, having full knowledge of the settled rules of interpretation heretofore referred to, chose to follow those rules and so to provide for a standard governing future awards. It would be an unreasonable inference that, having resolved that awards for pre-existing injuries should be increased, it would intentionally fail to declare the amendment retrospective and thus permit confusion and uncertainty to result.

For these reasons we cannot declare that because it would have been a beneficient act for the legislature to have expressly made the amendment applicable to pre-existing injuries, we will overlook its failure to do so and supply by court decree the declaration which the legislature declined to make. We must look at what the legislature did, and not at what it might have done. Hence we must hold that the amendment is prospective and inapplicable to any injury occurring prior to its effective date.

All parties argue the question of the power of the legislature to make such a statute retroactive. This issue is presented with greater vigor than the other but it requires consideration only because it bears upon the other issue of legislative intention. It bears on the question of intention in this way—if the power to make the statute retrospective is denied, or deemed doubtful, it is a settled rule of construction that the statute should have that construction which would make it valid and operative and that the legislature must be deemed to have enacted it for a valid and constitutional purpose rather than for a purpose which might be held unconstitutional. And it is the duty of the courts, when doubt arises over the constitutionality of a statute, to adopt that interpretation which would render the statute constitutional. 23 Cal.Jur. p. 757. To restate—the legislature is presumed to know the law and the rules of statutory construction followed by the courts of the state. Hence, when the 1945 amendment was adopted the legislature, knowing that there was serious doubt whether the legislation could be made retroactive (for the reasons hereafter stated), must be presumed to have chosen the valid course and thus refrained from declaring the statute retroactive. And when such doubt exists it is the duty of the courts to adopt that construction which will render the statute valid and operative. This principle is well stated in 11 Am.Jur. pp. 725–728, supported by a long list of citations:

‘It is an elementary principle that where the validity of a statute is assailed and there are two possible interpretations, by one of which the statute would be unconstitutional and by the other it would be valid, the court should adopt the construction which would uphold it. It is the duty of courts to adopt a construction of a statute that will bring it into harmony with the Constitution, if its language will permit.’

The question of the validity of the amendment if applied to pre-existing awards is presented directly in Columbia Steel Company v. Industrial Accident Commission, Cal.App., 174 P.2d 50, but is argued in the briefs in these cases as well. Because of our ruling on the question of legislative intent it does not require extended consideration. But the insistence of respondent that the amendment is applicable to pre-existing awards as well as to subsequent awards covering pre-existing injuries necessitates a brief reference to the point.

Petitioners assert that such an interpretation would offend both the federal and the state Constitutions. Respondent answers that the amendment is in accord with Article XX, Section 21 of the state Constitution which eliminates all other constitutional inhibitions. The answer does not meet the injunctions of the federal Constitution relating to due process and impairment of contracts. The federal Constitution is a limitation of the powers of the several states. Under it a state is prohibited from passing any law contrary to those injunctions. It makes no difference whether such a state law is passed by constitutional amendment, by the initiative vote of the people, or by the legislature. Our state courts have consistently followed this rule, and hence respondent relies on Schmidt v. Wolf Contracting Co., 269 App.Div. 201, 55 N.Y.S.2d 162 as their authority for the proposition that no federal guaranty is applicable to a state statute which is designed for the benefit and rehabilitation of injured employees. That decision was rendered on May 9, 1945, while the California legislature was in session, but we are not informed as to the date when the amendment to section 4661 of the Labor Code was passed or whether the legislature had knowledge of the decision at that time. Suffice it to say that the Schmidt case to this extent is new law and out of harmony with all the authorities in this and other states.

In Jones v. Union Oil Co. 218 Cal. 775, 778, 25 P.2d 5, our supreme court said: ‘It is well established in this state that a judgment is a contract as contemplated by the Constitution. Scarborough v. Dugan, 10 Cal. 305; Miller v. Murphy, 186 Cal. 344, 199 P. 525; 14 Cal.Jur., p. 852. One of the incidents of the judgment contract under section 671 of the Code of Civil Procedure prior to the amendment thereof was the lien thereby created by operation of law. See Beatty v. Cook, 192 Iowa 542, 185 N.W. 360. The lien thus created was inseparably connected with the judgment and the Legislature had no power to impair it. Massingill v. Downs, 7 How. 760, 48 U.S. 760, 12 L.Ed. 903. Considered in the sense of a remedy for the enforcement of the judgment, such remedy was nevertheless a part of the obligation of the contract and subject to constitutional protection against impairment. Gunn v. Barry, 15 Wall. 610, 82 U.S. 610, 21 L.Ed. 212.’

An award for industrial injuries has all the semblances of a judgment of a court at law and should be governed by these same rules. If a judgment is a contract within the contemplation of the federal Constitution it would seem to follow that an award of the Industrial Accident Commission would enjoy the same constitutional protection. All authorities from other states which have been called to our attention support the rule that such awards are to be governed by the law in force at the time of the injury. Lynch v. State, 19 Wash.2d 802, 145 P.2d 265; Preveslin v. Derby & Ansonia Developing Co., 112 Conn. 129, 151 A. 518, 70 A.L.R. 1426; Gauthier v. Penobscot Chemical Fiber Co., 120 Me. 73, 113 A. 32; Neglia v. Zimmerman, 237 N.Y. 131, 142 N.E. 442; Associated Employers' Reciprocal v. Brown, Tex.Civ.App., 56 S.W.2d 483; Virden v. Smith, 46 Nev. 208, 210 P. 129.

It should not be understood that we hold that the rule of the Schmidt case should be rejected because of these authorities. The conflict is emphasized to illustrate the application of these accepted rules of law—that when two interpretations of a statute are possible, one valid the other invalid, the courts will accept the construction in favor of the validity; secondly, when there is serious doubt at the time the legislation is passed whether it could be made retroactive the legislature will be presumed to have intended that it should be prospective only.

The same confusion relating to the power of the legislature to increase the preexisting awards is caused by the arguments of counsel for respondent and amici curiae that because the increase was in the interest of the public welfare and hence an exercise of the police power of the state, the legislation is not controlled by the limitations in the federal Constitution. In this argument respondent is supported by and it relies upon certain language found in Schmidt v. Wolf Contracting Co., supra, which indicates that the New York court might have had the same view. In support of that language the New York Court cited New York Central R. Co. v. White, 243 U.S. 188, 37 S.Ct. 247, 61 L.Ed. 667, L.R.A. 1917D, 1, Ann.Cas. 1917D, 629. That case, however, does not support the statement. To the contrary the supreme court in Panhandle Eastern Pipe Line Co. v. State Highway Comm., 294 U.S. 613, 55 S.Ct. 563, page 567, 79 L.Ed. 1090, at 1097, declared in no uncertain terms that: ‘The police power of a state, while not susceptible of definition with circumstantial precision, must be exercised within a limited ambit and is subordinate to constitutional limitations. It springs from the obligation of the state to protect its citizens and provide for the safety and good order of society. Under it there is no unrestricted authority to accomplish whatever the public may presently desire.’

This holding is in harmony with that canon of constitutional construction that the Constitution of the United States is a limitation upon the power of the various states. This power was exercised most effectively in the adoption of the 14th amendment to the federal Constitution, and it would be a travesty on the use of the clear language of the amendment to hold that notwithstanding its provisions, any state could, by a simple declaration that the legislation was in the interest of public health, safety, or welfare, enact a statute in derogation of that constitutional limitation. However, whether in a case depending wholly on the question of power we would have to decide that the power does not exist to increase or decrease pre-existing awards, we do not have to decide that in this case. The question of intention not to make the amendment retroactive is decisive of this case. But, because of the confusion and uncertainty as to the legislative power, the legislature must be presumed to have refrained from attempting to exercise a doubtful power and to have chosen to exercise the safe and conceded power to make the statute prospective only.

The awards in each of the above numbered petitions are annulled.

NOURSE, Presiding Justice.

GOODELL and DOOLING, JJ., concur.