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https://www.courtlistener.com/api/rest/v3/opinions/1571721/ | 562 F. Supp. 439 (1983)
SUPER TIRE ENGINEERING COMPANY
v.
BANDAG INCORPORATED.
Civ. A. No. 81-4924.
United States District Court, E.D. Pennsylvania.
April 26, 1983.
*440 S. Gordon Elkins, Stradley, Ronon, Stevens & Young, Philadelphia, Pa., for plaintiff.
Philip M. Hammett, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., for defendant.
MEMORANDUM
LOUIS H. POLLAK, District Judge.
This is a diversity action in which plaintiff, Super Tire Engineering Company, seeks to recover damages from defendant, Bandag Incorporated, for defendant's alleged breach of the parties' franchise agreement. Plaintiff has moved to compel the production of certain documents withheld by defendant on the grounds that they are protected from discovery by the attorney-client privilege.
Under Rule 501 of the Federal Rules of Evidence, a federal court sitting in diversity applies the privilege law that the courts of the forum state would apply. Samuelson v. Susen, 576 F.2d 546, 549 (3d Cir.1978). Because Pennsylvania has adopted the "interest analysis" approach to conflicts of law questions, a Pennsylvania federal court trying a diversity case must look to the privilege law "`of the predominantly concerned jurisdiction, measuring the depth and breadth of that concern by the relevant contacts each affected jurisdiction had with ... "the policies and interests underlying the particular issue before the court."'" Id. at 551 (quoting Suchomajcz v. Hummel Chemical Company, 524 F.2d 19 (3d Cir. 1975)).
The attorney-client relationship relevant to this case arose in Iowa, the state of Bandag's corporate headquarters. Accordingly, a Pennsylvania court ruling on the question whether these documents are protected would look to the privilege law of Iowa to answer that question. See Petruska v. Johns-Manville, 83 F.R.D. 32 (E.D.Pa. 1979).
The Iowa statute makes privileged "any confidential communication properly entrusted to [the attorney] in his professional capacity, and necessary and proper to enable him to discharge the functions of his office according to the usual course of practice or discipline." Iowa Code Ann. § 622.10 (West 1975). The burden of proof with respect to privilege is on the party asserting it. Bailey v. Chicago, Burlington and Quincy R.R. Co., 179 N.W.2d 560 (Iowa 1970). The privilege does not attach to communications also transmitted to third parties, to communications the attorney is under a duty to make public, or to communications contained in a pleading or other document filed of record or publicized in some other manner on behalf of the client. Id. at 564.
Plaintiff concedes that to the extent the documents it seeks reiterate any prior confidential *441 client communications, those portions of the documents are privileged. Plaintiff argues, however, that communications running from attorney to client which do not repeat communications related by the client are not privileged.
As the parties have pointed out in their memoranda, Iowa case law on the issues presented here is sparse. But since the Iowa Supreme Court looks to treatises, see, e.g., Bailey, 179 N.W.2d at 563-64, and to non-Iowa decisions, see id.; Olsson v. Pierson, 237 Iowa 1342, 25 N.W.2d 357 (1946), in addressing attorney-client privilege questions not answered by Iowa case law, it is appropriate for this court to look to the same sources in undertaking to determine what an Iowa court would do if this case were being tried there.
In Barr Marine Products Co. v. Borg-Warner Corp., 84 F.R.D. 631, 634-35 (E.D.Pa.1979), Chief Judge Lord summarized the state of the law with respect to attorney-client privilege in a corporate setting:[1]
First, confidentiality is essential to protected communications. Accordingly, communications made in the presence of or transmitted to third parties are not protected, and legal advice based on facts revealed to the attorney by third parties is not a privileged communication.
Second, the communication must be between client and the attorney in his or her capacity as an attorney rather than as, for example, a business advisor; the communication's primary purpose must be to gain or provide legal assistance. The privilege is not necessarily lost, however, when some non-legal information is included in a communication seeking or giving legal advice.
Third, business communications will not be protected from discovery because they were directed to an attorney.
Applying the standards articulated above to the documents submitted for in camera examination, I have divided them into three categories privileged, partially privileged, and non-privileged:
PRIVILEGED DOCUMENTS:
Of the documents listed in "Plaintiff's Second Request for Production of Documents" and withheld as privileged by defendant, the following are privileged:
1. Document No. 26, a letter dated September 9, 1970, from George T. Mobille, defendant's outside counsel, to defendant's president, Stephen A. Keller, forwarding Mobille's draft of a letter to a third party for Keller's approval. This document constitutes legal advice.
2. Document No. 37, a letter from George Mobille to Stephen Keller dated April 3, 1970, accompanied by two legal memoranda. The letter gives legal advice based on facts related by the client; the memoranda supplement the legal advice offered in the letter.
3. Document No. 42, a letter from William Bullinger (an attorney in George Mobille's firm) to Stephen Keller dated December 10, 1971, accompanied by a memorandum that gives legal advice.
4. Document No. 44, a letter dated January 4, 1974 from defendant's former president, Harker Collins, to George Mobille. It seeks legal advice.
5. Documents Nos. 29, 39, 45, 48, 50, 55, 59, and 64, all of which are letters from George Mobille directed or copied to Harold Vischer, Executive Vice President of Bandag, Harker Collins, or Stephen Keller. The letters either give legal advice or disclose facts communicated to counsel by these members of the corporate control group.
Of those documents listed in plaintiff's Exhibit A (see plaintiff's further motion to *442 compel production of documents) and withheld as privileged by defendant, the following are privileged:
1. Document No. 1, which is a copy of one of the memoranda included in the description of Document No. 37 above.
2. Document No. 3, a memorandum from William Bullinger to George Mobille dated April 6, 1970, and delivered to Bandag to supplement the legal advice offered in Mobille's April 3, 1970 letter to Stephen Keller.
3. Document No. 4, a memorandum giving legal advice prepared for Bandag by other counsel, Jim Barnes of Baker & McKenzie.
4. Document No. 6, a letter dated January 2, 1969 from Mobille to Keller, accompanied by a legal memorandum that gives legal advice in response to client inquiries.
5. Document No. 8, a memorandum supplementing the memorandum of January 2, 1969.
6. Documents Nos. 2, 7, 9 and 10, all of which are letters from counsel to Stephen Keller, giving legal advice based on client questions. Document No. 2 is a letter from George Mobille (the same letter included in Document No. 37 above). No. 7 is a letter from Peter Powles at Baker & McKenzie, dated March 3, 1969. No. 9 is a letter from George Mobille dated February 18, 1967. No. 10 is a letter from Gordon T. Roberts, a Boston attorney, dated January 10, 1968.
PARTIALLY PRIVILEGED DOCUMENTS:
Of the documents listed in plaintiff's Exhibit A and withheld as privileged by defendant, Document No. 5 is partially privileged. The cover letter from Mobille to Keller offers legal advice, as does the draft agreement enclosed with it. Those items are privileged. The news release referred to in the letter and enclosed with the other items is not privileged.
NON-PRIVILEGED DOCUMENTS:
Of the documents listed in "Plaintiff's Second Request for Production of Documents" and withheld as privileged by defendant, the following are not privileged:
1. Document No. 3, a letter from Carol A. Lawson, defendant's coordinator of franchise activities, to George Mobille, forwarding a file. Defendant has not met its burden to show that Ms. Lawson is an individual to whom the privilege should be extended on the corporation's behalf.
2. Document No. 27, a letter to Paul Sternberg, from George Mobille, dated October 17, 1981 and enclosing a draft of a notice to be sent to all dealers. Copies of these items were sent to Mr. Charles E. Edwards. Defendant has not identified Charles Edwards and thus has not met its burden to show that the privilege should be extended to him on the corporation's behalf.
3. Document No. 60, a letter from George Mobille to Harold Vischer, with a copy to Harker Collins. It offers no legal advice and it does not disclose facts related to him in confidence by the corporation.
Conclusion
In an accompanying Order, it is directed that within one week from the date of filing of the Order, defendant is to supply to plaintiff all items listed under the caption "Non-Privileged Documents" plus the news release enclosed within Document No. 5.
ORDER
For the reasons set forth in the accompanying Memorandum, it is hereby ORDERED that defendant shall within one week from the date of filing of this Order supply to plaintiff copies of all items listed in the Memorandum under the caption "Non-Privileged Documents" plus the news release enclosed within Document 5.
NOTES
[1] In determining to which corporate employees the privilege should be extended on the corporation's behalf, Judge Lord used the so-called "control group" test adopted by the Third Circuit in In re Grand Jury Investigation, 599 F.2d 1224 (3d Cir.1979). In Upjohn Co. v. United States, 449 U.S. 383, 101 S. Ct. 677, 66 L. Ed. 2d 584 (1981), the Court expanded the privilege beyond the control group to include communications to counsel by non-control group employees when made at the direction of corporate superiors for the purpose of securing legal advice for the corporation. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2498535/ | 45 F.Supp.2d 276 (1999)
BRIDGEWAY CORPORATION, Plaintiff,
v.
CITIBANK d/b/a Citicorp, N.A., Defendant.
No. 97 Civ. 8884 DC.
United States District Court, S.D. New York.
March 30, 1999.
*277 Amon & Sabatini by Michael J. Calvey, New York City, for plaintiff.
Petra T. Tasheff, New York City, for defendant.
OPINION
CHIN, District Judge.
In this case, plaintiff Bridgeway Corporation ("Bridgeway") seeks to enforce a $189,376.66 judgment rendered in its favor by the Supreme Court of Liberia in Monrovia, Liberia (the "Liberian Judgment") against defendant Citibank d/b/a Citicorp, N.A. ("Citibank").[1] For the reasons set *278 forth below, Bridgeway's motion for summary judgment is denied. Furthermore, because I find that the Liberian Judgment is unenforceable as a matter of law, summary judgment shall be entered in favor of Citibank.
BACKGROUND
I provide summaries of (a) Liberia's government, its recent civil war, and its judiciary; (b) the underlying facts in this case; and (c) the prior proceedings in this case, including the proceedings in Liberia.
A. Liberia[2]
1. The Government and History of Civil War in Liberia
The nation now known as Liberia was originally established by the American Colonization Society, an organization that was founded in 1817 to resettle freed American slaves in Africa. The first such emancipated slaves settled in Liberia in 1822. A constitution modeled on the United States Constitution was adopted, and Liberia became an independent republic in 1847.
The original 1847 Constitution was amended in 1976 and again in 1986. In many respects, the government established under the most recent amendments mirrors the United States Government. Indeed, under the 1986 Constitution, Liberia has a unitary government, consisting of three separate, distinct, but coordinate branches a Legislature, an Executive branch, and a Judiciary.
From 1980 to 1989, the Liberian government was headed by Samuel Kanyon Doe. Doe's regime was marked by corruption, human rights abuses, and, by the late 1980s, rampant inflation. In December of 1989, a group of dissidents began an uprising and took over the government of Liberia. Doe was executed by a group of rebels on September 12, 1990. His murder marked the end of constitutional government in Liberia and the beginning of a seven-year civil war, during which the country was consumed by violence.
By 1991, Liberia was effectively ruled by two governments. One government controlled Monrovia, while a rebel group controlled the remainder of the country. An attempt to reach a peace accord in 1992 proved unsuccessful, and in September 1992, hostilities broke out. Boys as young as eight years old were recruited to fight, and civilians who refused to join the rebel forces were executed. Monrovia was held under siege, and thousands of civilians were killed in the crossfire.
Another peace conference was held in July 1993 among the various warring factions. They drew up a plan for a Liberian National Transitional Government, to be led by a five-member Council of State. A cease-fire was implemented, but again, was short-lived. Hostilities flared up again in late 1993, with two new armed forces sprouting up. By mid-1994, the cease-fire *279 had completely failed, and fighting continued. The United Nations Observer Mission in Liberia intervened in March of 1994. Around this time, the United States Government issued a report condemning the widespread human rights violations in Liberia, noting in particular the massacre of civilians.
In August of 1994, the leaders of the various factions met secretly to discuss a timeline for disarmament and the institution of the 1993 Council of State plan. There was another brief cease-fire in December of 1994, and finally, a formal peace accord was signed on August 19, 1995. In September of 1995, a new government was organized, and the Council of State was tentatively established. Its authority, however, was tenuous. Moreover, disarmament was never achieved.
Hostilities flared up again in April of 1996. An uprising was sparked in the outskirts of Monrovia, and quickly spread into the capital city. Street fighting erupted in the city, accompanied by widespread looting, and, eventually, the new government collapsed. Another cease-fire was declared in May of 1996.
The restoration of peace and democracy in Liberia began in 1997. An election was held in July of 1997, the first democratic election in Liberia in 12 years. Charles Taylor was elected President, garnering 75% of the votes, and the newly elected government was inaugurated in August of that year. At the same time, the 1986 Constitution was reinstated by a joint resolution of the National Legislature.
Commentators have observed that, between 1989 and 1996, as many as 200,000 people were killed in Liberia, and that well over one million Liberian citizens were left homeless as a result of the civil war. Approximately 750,000 Liberians fled the country seeking refuge in other countries. Other commentators have reported that the fighting destroyed much of Liberia's economy, that the unemployment rate during the hostilities was as high as 80 to 90%, and that during the period of civil war in Liberia, corruption was rampant in all government organizations.
2. The Judiciary
Pursuant to the 1986 Constitution, the judicial powers of the Liberian government are vested in the Supreme Court and such subordinate courts as the Legislature may establish. The Supreme Court consists of one chief justice and four associate justices. Justices and judges are nominated by the President of Liberia and confirmed by the Liberian Senate. Once appointed, a justice or judge has life tenure, unless removed as a result of impeachment, resignation, or death.
After the civil war began in 1990, however, the provisions of the 1986 Constitution relating to the judiciary were no longer followed. Because the government was undergoing upheaval, justices and judges were no longer nominated by an executive authority, and were no longer confirmed by an elected legislative body.
In 1992, the Supreme Court was reorganized. The warring factions agreed that one faction could appoint three justices to the court, including the chief justice, and that the other could appoint two justices to the court. In his First Sworn Statement, H. Varney G. Sherman, a Liberian attorney, former president of the Liberian National Bar Association, and counsel to Citibank's branch in Liberia ("Citibank Liberia"), states that it was the head of each of these two factions who made the appointments to the court, and that, during this period, "it was common knowledge that members of the Supreme Court served at the will and pleasure of the appointing powers." (First Sworn Statement of H. Varney G. Sherman dated June 2, 1998 ("Varney Aff. I") ¶ 5).
One of the justices appointed by one faction died in 1992, and the other unilaterally appointed one of its justices as the new chief justice. The Supreme Court thus had only four justices at that time, and Varney asserts in his affidavit that, *280 from that point forward, the Supreme Court became an instrumentality of one of the factions. (Varney Aff. I ¶ 6). In 1994, the factions agreed that a fifth justice could be appointed by a third faction. Once again, the fifth justice was appointed exclusively by the leader of the faction, rather than in accordance with the appointment procedures provided for in the 1986 Constitution.
The portrayal of the Liberian judiciary in Varney's First Sworn Statement is consistent with that contained in the U.S. Department of State's Country Reports on Human Rights Practices for Liberia for the years 1994-97. For example, the 1994 report stated that all levels of the court system were functioning "erratically," and that "corruption and incompetent handling of cases remained a recurrent problem." (Def.'s Ex. 6). This report also stated that one of the improvements in the judicial system from the previous year was the implementation of a requirement that "circuit court judges be law school graduates." Id. Finally, the 1994 Report stated that, since 1991, legal and judicial protections in the part of the country controlled by one of the factions were "almost totally lacking," and that in areas controlled by other factions, "there was little pretense of due process," and that "swift justice was meted out by faction leaders." Id.
The 1995 Report depicted an equally bleak picture of the Liberian judicial system. This report stated that, in 1995, "the judicial system continued to be hampered by inefficiency and corruption." Id. The report stated further that, "because of the war, the judiciary does not function in most areas of the country," and that where it does function, "it is in practice subject to political, social, familial, and financial suasion." Id. Furthermore, while the Constitution theoretically provided for due process rights, "[m]ost of these rights ... were ignored in practice." Id. Similarly, the 1996 Report stated that "the judicial system, already hampered by inefficiency and corruption, collapsed for six months following the outbreak of fighting in April."
Finally, it appears that even after the conflict ended, problems with the judicial system persisted. Indeed, the 1997 Report stated that the Liberian judiciary was still "subject to political influence, outside pressure, and corruption" and continued to be subject to "political, social, familial, and financial pressures." Id. The report stated further that, "[e]ven after the elections, the judiciary did not function in most areas of the country due to lack of infrastructure," and that due process rights continued to be "ignored in practice." Id.
In 1997, in anticipation of the first democratic election in 12 years, the leaders of the various factions acknowledged that the membership of the Supreme Court had been based on factional loyalties since 1992, and agreed that any specter of factional loyalties would have to be eradicated to enhance the credibility of any electoral dispute that might be decided by the Supreme Court. Convinced that the international community would not accept a decision of the Supreme Court on any electoral dispute unless the membership was changed and the process for the selection of new justices reformed, the Council of State organized a new Supreme Court. The members of the court were dismissed, and new members were appointed based on recommendations by the Liberian National Bar Association. Accordingly, in August of 1997, the new Supreme Court was organized under the 1986 Constitution, through nominations by the President and confirmation by the Liberian Senate.
B. The Underlying Facts
Bridgeway is a Liberian corporation with a principal place of business in Monrovia, Liberia. Citibank is a national banking association incorporated under the laws of the United States with a principal place of business in New York, New York. Bridgeway maintained funds at Citibank Liberia, located in Monrovia.
*281 In November of 1991, the decision was made to close Citibank Liberia because Liberia was undergoing a violent civil war. Thereafter, Citibank Liberia formulated a plan of liquidation that was ultimately approved by the National Bank of Liberia (the "National Bank"), the government agency that regulates the commercial banking industry in Liberia. Under the liquidation plan, Citibank Liberia remitted funds to the National Bank. The National Bank, in turn, remitted funds to Meridien Bank Liberia Limited ("Meridien"), an entity appointed by the National Bank to pay all deposit liabilities on behalf of Citibank Liberia.
Pursuant to Liberian law, implementation of the liquidation plan had to be completed within three years. Accordingly, the liquidation period for Citibank Liberia began on February 1, 1992 and ended on January 31, 1995. At the end of the three-year period, all deposit liabilities of Citibank Liberia that had not been settled by Meridien were identified, and title to the funds remitted to Meridien passed back to the National Bank, also as required by Liberian law. The National Bank, however, elected to have Meridien remain as the depository for those funds.
Citibank Liberia's license to engage in banking in Liberia was terminated as of January 31, 1992. By letter dated April 21, 1995, the National Bank confirmed this fact and confirmed that Citibank Liberia had satisfactorily complied with the liquidation plan. Citibank was thereafter struck from the list of financial institutions licensed to do business in Liberia.
Bridgeway had opened an account at Citibank Liberia on June 7, 1982 by depositing an amount of funds in U.S. dollars. The account opening form signed by Bridgeway expressly stated that "the account and all transactions in respect thereof will be governed by the Savings Account Provisions and Rules and applicable regulations." (Affidavit of H. Varney G. Sherman dated June 2, 1998 ("Varney Aff. II") ¶ 11). Additionally, the passbook issued by Citibank Liberia to Bridgeway contained the following statement: "Withdrawals from an account may be made only at the Bank and only upon the presentation of the pass-book and withdrawal orders satisfactory as to form and signature to the Bank. Payment may be made by the Bank in any money lawfully circulating in Liberia at the time of withdrawal." (Id. ¶ 12).
In 1992, Bridgeway had a balance of L$189,376.66 in its account at Citibank Liberia. Concerned about the security of its deposits in light of the civil war and the liquidation of Citibank Liberia, Bridgeway demanded repayment of its funds from Citibank Liberia in U.S. dollars. Citibank Liberia refused to repay the funds in U.S. dollars. Citibank Liberia did, however, remit funds in Liberian dollars to the National Bank to cover Citibank Liberia's deposit liability to Bridgeway. The total amount set aside to cover this deposit liability was L$191,287.87, representing the L$189,376.66 deposit plus accrued interest.
C. Prior Proceedings
1. Proceedings in the Liberian Courts
On November 21, 1992, Bridgeway commenced a declaratory judgment action against Citibank in the Liberian courts claiming that it was entitled to be repaid its deposited funds in U.S. dollars. The trial court rendered judgment in favor of Citibank and against Bridgeway in August of 1993, holding that the relevant banking laws permitted Citibank to repay deposits in U.S. dollars or in Liberian dollars, at its option, and that, in any event, the two currencies have the same par value. Bridgeway appealed, and on July 28, 1995, the Supreme Court of Liberia reversed the judgment of the trial court and entered judgment for Bridgeway, holding that Citibank must repay Bridgeway's deposited funds in U.S. dollars.
Unhappy with the decision of the Supreme Court, Citibank prepared a petition *282 for reargument on August 1, 1995. The justices unanimously refused to approve the petition, however. Faced with the prospect of paying twice for the same deposit liability, Citibank made several requests of the National Bank to satisfy the judgment in U.S. dollars out of certain reserve funds that Citibank was required to maintain with the National Bank, or out of the L$191,287.87 that Citibank Liberia had previously deposited with the National Bank to satisfy its deposit liability to Bridgeway under the liquidation plan. The National Bank refused these requests. Citibank then took several additional legal steps to avoid paying twice on the same deposit liability, none of which was successful. Finally, Citibank was forced to file a declaratory judgment action against the National Bank. Its petition, however, was dismissed for lack of standing.
2. Proceedings in this Court
On October 20, 1997, Bridgeway filed suit against Citibank in New York State Supreme Court, New York County, seeking to enforce the Liberian Judgment. Citibank removed the action to this Court on December 2, 1997, and filed an Answer on March 17, 1998. These motions followed.
DISCUSSION
A. Standards for Summary Judgment
The standards applicable to motions for summary judgment are well-settled. A court may grant summary judgment only where there is no genuine issue of material fact and the moving party is therefore entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c). Accordingly, the court's task is not to "weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Summary judgment is inappropriate if, resolving all ambiguities and drawing all inferences against the moving party, id. at 255, 106 S.Ct. 2505 (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970)), there exists a dispute about a material fact "such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S.Ct. 2505.
Once the moving party meets its initial burden of production, the burden shifts to the nonmoving party to demonstrate that there exist genuine issues of material fact. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-86, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). To defeat a motion for summary judgment, however, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Id. at 586, 106 S.Ct. 1348. There is no issue for trial unless there exists sufficient evidence in the record favoring the party opposing summary judgment to support a jury verdict in that party's favor. Anderson, 477 U.S. at 249, 106 S.Ct. 2505. As the Supreme Court stated in Anderson, "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Id. at 249-50, 106 S.Ct. 2505 (citations omitted).
"In considering a motion for summary judgment, if [the court's] analysis reveals that there are no genuine issues of material fact, but that the law is on the side of the non-moving party, [the court] may grant summary judgment in favor of the non-moving party even though it has made no formal cross-motion. Summary judgment may be granted to the non-moving party in such circumstances so long as the moving party has had an adequate opportunity to come forward with all of its evidence. Notice to the moving party of the intention to grant summary judgment in favor of the non-moving party is not required; rather, the court must simply be satisfied that the moving party will not suffer any procedural prejudice resulting from an inadequate opportunity to fully present its case." Orix Credit Alliance, Inc. v. Horten, 965 F.Supp. 481, 484 *283 (S.D.N.Y.1997) (citations omitted). With these standards in mind, I turn to Bridgeway's motion for summary judgment.
B. Applicable Legal Standards
In this case, Bridgeway seeks enforcement of the Liberian Judgment. Citibank, on the other hand, asserts several defenses to enforcement of the judgment, one of which is that, under New York CPLR Art. 53, the judgment is unenforceable as a matter of law because the judgment was "rendered under a system which does not provide impartial tribunals or procedures compatible with the requirements of due process of law." See N.Y. C.P.L.R. § 5304(a)(1) (McKinney 1997) (hereinafter "CPLR"). Bridgeway's central argument in support of summary judgment is that Citibank should be judicially estopped from asserting this defense to enforcement of the judgment. Hence, two principal issues are presented: (1) whether Citibank is judicially estopped, and (2) whether, in fact, the Liberian justice system comports with the requirements of due process.
1. Judicial Estoppel
The doctrine of judicial estoppel "prevents a party from asserting a factual position in a legal proceeding that is contrary to a position previously taken by him in a prior legal proceeding." Bates v. Long Island R.R. Co., 997 F.2d 1028, 1037 (2d Cir.), cert. denied, 510 U.S. 992, 114 S.Ct. 550, 126 L.Ed.2d 452 (1993); accord United States v. King, 165 F.3d 15, No. 97-1522, 1998 WL 781594, at *1 (2d Cir. Nov. 9, 1998), cert. denied, ___ U.S. ___, 119 S.Ct. 1275, ___ L.Ed.2d ___ (1999). "The policies underlying the doctrine include preventing internal inconsistency, precluding litigants from `playing fast and loose' with the courts, and prohibiting parties from deliberately changing positions according to the exigencies of the moment." United States v. McCaskey, 9 F.3d 368, 378 (5th Cir.1993), cert. denied, 511 U.S. 1042, 114 S.Ct. 1565, 128 L.Ed.2d 211 (1994). In short, the aim of the doctrine is to "protect `the integrity of the judicial process.'" Maharaj v. Bankamerica Corp., 128 F.3d 94, 98 (2d Cir.1997) (quoting Bates, 997 F.2d at 1037). In this circuit, a party invoking judicial estoppel must show (1) that the party against whom estoppel is asserted took an inconsistent position in a prior proceeding, and (2) that that position was adopted by the court in some manner. King, 165 F.3d 15, 1998 WL 781594, at *1; Maharaj, 128 F.3d at 98; Motrade v. Rizkozaan, Inc., No. 95 Civ. 6545, 1998 WL 108013, at *6 (S.D.N.Y. Mar. 11, 1998).
Bridgeway argues that judicial estoppel bars Citibank from asserting that the Liberian Judgment is unenforceable because Citibank voluntarily appeared in the litigation in Liberia, but at no time contended that the Liberian system of jurisprudence is defective in any way. Indeed, Bridgeway contends, Citibank actually prevailed in the trial court and only argues that the Liberian judicial system is impartial now that the judgment in its favor has been reversed by the Supreme Court of Liberia. Bridgeway argues further that Citibank has appeared in numerous actions in the Liberian courts and has even appeared as the plaintiff in several of these actions, but has never once challenged the fairness of the Liberian system of jurisprudence. In essence, Bridgeway argues that, in the Bridgeway action and in other proceedings, Citibank has implicitly taken the position that the Liberian courts and the Liberian judicial system in general are fair and impartial and are governed by procedures that comport with the requirements of due process of law, and that, accordingly, Citibank should be barred from asserting otherwise in the present action to enforce the Liberian Judgment.
While Bridgeway's argument does have some appeal, I conclude as a matter of law that Citibank is not judicially estopped from arguing that the Liberian Supreme Court is unenforceable. I reach this conclusion for several reasons.
First, Bridgeway has not demonstrated that the requirements of judicial estoppel *284 have been met. Citibank never took the position in the Liberian proceedings that the Liberian courts are impartial and that the Liberian judicial system operates in accordance with the basic requirements of due process. That Citibank chose to defend itself in Liberia when sued surely does not mean that it waived any and all objections it might have to the fairness of the Liberian judicial system. Hence, Citibank cannot be said to have taken a position in a prior proceeding that is inconsistent with its position here. Moreover, even assuming that Citibank can be said to have taken an inconsistent position in the prior action, because the issue of the fairness of the Liberian judicial system was not actually raised and litigated in the Liberian proceeding, the Liberian courts cannot be said to have adopted the inconsistent position taken by Citibank.
Second, there is no support in the case law for the application of judicial estoppel in these circumstances. Indeed, Bridgeway has not come forward with a single case holding that a party must specifically raise the issue of impartiality of the foreign tribunal before which a matter is pending to preserve its right to assert that argument in opposing a subsequent action in a U.S. court to enforce the foreign judgment, nor has the Court's research revealed any such case. The cases cited by plaintiff in support of its judicial estoppel argument are clearly distinguishable. See, e.g., Guinness PLC v. Ward, 955 F.2d 875, 899-900 (4th Cir.1992) (holding that judicial estoppel barred defendant from relying on a settlement to avoid enforcement of foreign judgment where defendant had failed to advise the foreign appellate courts that the settlement had rendered the appeal moot).[3]
Finally, as a policy matter, parties in foreign proceedings should not be required to explicitly assert the position that the particular forum in which they are litigating is unfair and impartial to preserve their right to challenge the enforceability of the judgment rendered by that tribunal in a subsequent proceeding. Indeed, the very reason statutes such as CPLR Article 53 exist is so that parties who believe that they have not been treated fairly in foreign courts have an avenue of redress in courts in the United States. To hold that Citibank is barred from collaterally attacking the Liberian Judgment on the ground that it failed to challenge the fairness and impartiality of the Liberian judicial system would offend the very notion of due process that statutes such as CPLR Article 53 were designed to uphold.
For all of these reasons, Bridgeway's judicial estoppel argument is rejected, and accordingly, its motion for summary judgment on the basis of judicial estoppel is denied.
Having held that Citibank is not judicially estopped from asserting the CPLR Article 53 defense to enforcement of the Liberian Judgment, the question remains whether the Liberian Judgment is enforceable as a matter of law. Accordingly, I *285 now turn to the merits of Bridgeway's claim of enforcement.
2. Principles Governing Enforcement of Foreign Judgments
a. Comity
The recognition and enforcement of foreign judgments are governed by principles of comity. Pariente v. Scott Meredith Literary Agency, Inc., 771 F.Supp. 609, 615 (S.D.N.Y.1991); accord Victrix S.S. Co., S.A. v. Salen Dry Cargo A.B., 825 F.2d 709, 713 (2d Cir.1987); see also Hilton v. Guyot, 159 U.S. 113, 163-64, 16 S.Ct. 139, 40 L.Ed. 95 (1895). The seminal case in the area of enforcement of foreign judgments, Hilton v. Guyot, explains the doctrine of comity as follows:
No law has any effect ... beyond the limits of the sovereignty from which its authority is derived. The extent to which the law of one nation, as put in force within its territory, ... by judicial decree, shall be allowed to operate within the dominion of another nation, depends upon what our greatest jurists have been content to call "the comity of nations"....
"Comity" ... is the recognition which one nation allows within its territory to the ... judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens, or of other persons who are under the protection of its laws.
159 U.S. at 163-64, 16 S.Ct. 139. The Supreme Court in Hilton held that if the foreign forum provides a full and fair trial before a court of competent jurisdiction, "under a system of jurisprudence likely to secure an impartial administration of justice ... and there is nothing to show either prejudice ... or fraud in procuring the judgment," the judgment should be enforced and not "tried afresh." Id. at 202-03, 16 S.Ct. 139.
The practice of " `extend[ing] comity whenever the foreign court ha[s] proper jurisdiction and enforcement does not prejudice the rights of United States citizens or violate domestic public policy' has consistently been followed in this Circuit." Pariente, 771 F.Supp. at 615 (quoting Victrix, 825 F.2d at 713 and citing Ackermann v. Levine, 788 F.2d 830 (2d Cir. 1986); Cunard S.S. Co. v. Salen Reefer Servs. AB, 773 F.2d 452 (2d Cir.1985); Clarkson Co. v. Shaheen, 544 F.2d 624 (2d Cir.1976)).
b. New York CPLR Article 53
New York law governs actions brought in New York to enforce foreign judgments. Canadian Imperial Bank of Commerce v. Saxony Carpet Co., 899 F.Supp. 1248, 1252 (S.D.N.Y.1995) (citing In re Union Carbide Corp. Gas Plant Disaster at Bhopal, India, 809 F.2d 195, 204 (2d Cir.), cert. denied, 484 U.S. 871, 108 S.Ct. 199, 98 L.Ed.2d 150 (1987) and Pariente, 771 F.Supp. at 615), aff'd, 104 F.3d 352 (2d Cir.1996).
In New York, "courts `generally will accord recognition to the judgments rendered in a foreign country under the doctrine of comity absent a showing of fraud in the procurement of the foreign judgment or unless recognition of the [foreign] judgment would offend a strong policy of New York.'" Allstate Ins. Co. v. Administratia Asigurarilor de Stat, 962 F.Supp. 420, 425 (S.D.N.Y.1997) (quoting Lasry v. Lasry, 180 A.D.2d 488, 579 N.Y.S.2d 393, 393-94 (1st Dep't 1992)). Indeed, New York has a "long-standing" tradition of "permitting the enforcement of foreign country money judgments." Fairchild, Arabatzis & Smith, Inc. v. Prometco (Produce & Metals) Co., 470 F.Supp. 610, 615 (S.D.N.Y.1979) (citing Island Territory of Curacao v. Solitron Devices, Inc., 489 F.2d 1313, 1318 n. 6 (2d Cir.1973), cert. denied, 416 U.S. 986, 94 S.Ct. 2389, 40 L.Ed.2d 763 (1974)); see also Cowans v. Ticonderoga Pulp & Paper Co., 246 N.Y. 603, 159 N.E. 669 (N.Y.1927); David D. Siegel, Practice Commentaries, 7B McKinney's Cons.Laws of NY, CPLR C5304:1, at 548 (McKinney's 1997) (describing New York as "generous" *286 in the recognition of the judgments of foreign nations) (hereinafter "Siegel Commentaries").
New York has codified the principles of comity by statute in the "Uniform Foreign Money-Judgments Recognition Act." See CPLR Article 53. Article 53 provides that "a foreign country judgment ... is conclusive between the parties to the extent that it grants or denies recovery of a sum of money." CPLR § 5303. The article applies to "any foreign country judgment which is final, conclusive and enforceable where rendered even though an appeal therefrom is pending or it is subject to appeal." Id. § 5302.
A foreign country judgment is "not conclusive," however, if either of the following two circumstances exists: (1) "the judgment was rendered under a system which does not provide impartial tribunals or procedures compatible with the requirements of due process of law"; or (2) "the foreign court did not have personal jurisdiction over the defendant." Id. § 5304(a). These bases of non-recognition preclude courts from recognizing the foreign judgment as a matter of law. See Siegel Commentaries at 548-49; 11 Jack B. Weinstein et al., New York Civil Practice ¶ 5304.01 (1998) (hereinafter "Weinstein CPLR").
Similarly, a foreign country judgment "need not be recognized" if: (1) the foreign court did not have subject matter jurisdiction; (2) the defendant in the proceedings in the foreign court did not receive notice of the proceedings in sufficient time to enable a defense; (3) the judgment was obtained by fraud; (4) the cause of action violates public policy; (5) the judgment conflicts with another final and conclusive judgment; (6) the proceeding in the foreign country was contrary to an agreement between the parties under which the dispute in question was to be settled otherwise than by proceedings in that court; or (7) the foreign court was a seriously inconvenient forum for the trial of the action. CPLR § 5304(b). These bases of non-recognition are discretionary. Weinstein CPLR ¶ 5304.02.
c. Burdens of Proof
The burden of proof in "establishing the conclusive effect of a foreign judgment is on the party asserting conclusiveness." Id. ¶ 5302.01. As the Second Circuit has explained:
[A] plaintiff seeking enforcement of a foreign country judgment granting or denying recovery of a sum of money must establish prima facie: (1) a final judgment, conclusive and enforceable where rendered; (2) subject matter jurisdiction; (3) jurisdiction over the parties or the res; and (4) regular proceedings conducted under a system that provides impartial tribunals and procedures compatible with due process.
Ackermann v. Levine, 788 F.2d 830, 842 n. 12 (2d Cir.1986) (citations omitted). Once a plaintiff establishes a prima facie case of enforceability, a defendant may then raise defenses such as fraud and public policy. Id. Although the Ackermann court did not specify how these burdens apply with respect to CPLR Article 53, as a matter of logic, it would appear that the plaintiff seeking enforcement of the foreign judgment bears the burden of proving that no mandatory basis for non-recognition pursuant to CPLR § 5304(a) exists, and that the defendant opposing enforcement has the burden of proving that a discretionary basis for non-recognition pursuant to CPLR § 5304(b) applies. See S.C. Chimexim, S.A. v. Velco Enters. Ltd, 1999 WL 223513, at *6, No. 98 Civ. 0142 (S.D.N.Y. Mar. 17, 1999).
d. Application
In this case, Citibank does not dispute that Bridgeway has established the first three elements of a prima face case. Rather, Citibank challenges enforcement of the Liberian Judgment on the ground that Bridgeway has failed to offer any evidence that the Liberian Supreme Court was impartial or that its procedures were *287 compatible with due process of law, at the time the Liberian Judgment was rendered. On the record before the Court, a reasonable factfinder could only conclude that, at the time the judgment at issue here was rendered, the Liberian judicial system was not fair and impartial and did not comport with the requirements of due process. The Liberian Judgment is therefore unenforceable as a matter of law.
First, the record demonstrates that, throughout the period during which the Liberian action was pending, the country was embroiled in a civil war. The country was in a state of chaos, as the various factions fought. The Liberian Constitution was ignored. Some 200,000 Liberian citizens were killed, more than one million more were left homeless, and approximately 750,000 fled Liberia to seek refuge in other countries. It is difficult to imagine any judicial system functioning properly in these circumstances.
Second, the record shows that the regular procedures governing the selection of justices and judges had not been followed since the suspension of the 1986 Constitution. As a result, justices and judges served at the will of the leaders of the warring factions, and judicial officers were subject to political and social influence. The Liberian judicial system simply did not provide for impartial tribunals.
Third, the courts that did exist were barely functioning. The due process rights of litigants were often ignored, as corruption and incompetent handling of cases were prevalent. Although the Liberian judicial system might have been modeled on our own, it did not comport with the requirements of due process during the period of civil war.
Bridgeway offers the following as evidence that the Liberian judicial system is a system of jurisprudence likely to secure an impartial administration of justice: (1) a statement in the certification of James E. Pierre, Esq., a member of the Liberian Bar and the attorney who represented Bridgeway in the Liberian action, that the procedural rules of Liberia's courts are modeled on those of the New York State courts (Certification of James E. Pierre dated April 23, 1998 ¶ 6); (2) H. Varney G. Sherman's statement in his First Sworn Statement that, "[i]n essence, the Liberian Government is patterned after state governments of the United States of America" (Varney Aff. I ¶ 2); and (3) a statement in the certification of N. Oswald Tweh, former Vice President of the Liberian National Bar Association and also counsel to Bridgeway, that "Liberia's judicial system was and is structured and administered to afford party-litigants therein impartial justice." (Certification of N. Oswald Tweh dated July 6, 1998 ¶ 5).
The evidence presented by Bridgeway does not create a genuine issue of fact requiring a trial in this action. First, that the Liberian judicial system was modeled after judicial systems in the United States does not mean, of course, that the Liberian system was actually implemented in a manner consistent with procedures used in the American courts. Second, the statement that "Liberia's judicial system was and is structured and administered to afford party-litigants therein impartial justice" is purely conclusory and is not, by itself, sufficient to raise a genuine issue of fact. See Kulak v. City of New York, 88 F.3d 63, 71 (2d Cir.1996) ("Though we must accept as true the allegations of the party defending against the summary judgment motion, drawing all reasonable inferences in his favor, conclusory statements, conjecture, or speculation by the party resisting the motion will not defeat summary judgment.") (citation omitted); Tadros v. Coleman, 717 F.Supp. 996, 1006 (S.D.N.Y.1989) ("[S]elf-serving, conclusory allegations cannot defeat" motion for summary judgment), aff'd, 898 F.2d 10 (2d Cir.), cert. denied, 498 U.S. 869, 111 S.Ct. 186, 112 L.Ed.2d 149 (1990).
No genuine issues of fact exist for trial. On the record before the Court, a reasonable factfinder could only conclude that the *288 Liberian Judgment was rendered by a system that does not provide impartial tribunals or procedures compatible with the requirements of due process. Accordingly, the Liberian Judgment will not be enforced.
CONCLUSION
For the foregoing reasons, Bridgeway's motion for summary judgment is denied. Furthermore, because I conclude that the Liberian judgment is unenforceable as a matter of law, summary judgment is hereby granted in favor of Citibank. Bridgeway's complaint is dismissed with prejudice. The Clerk of the Court shall enter judgment accordingly.
SO ORDERED.
NOTES
[1] Citibank states that it is unaware of any activity conducted in Liberia or elsewhere by an entity named Citibank d/b/a Citicorp N.A., the name used by Bridgeway to identify the defendant in this action. In its Answer, however, Citibank admits that "at certain times in the past, Citibank maintained banking operations in Liberia through its branch, Citibank, N.A. Liberia." Thus, while Citibank apparently contends that Bridgeway referred to the defendant by the wrong name in the Complaint, it does not contend that Bridgeway has sued the wrong entity.
[2] Unless otherwise indicated, the facts in this section are drawn from the materials submitted by the parties as well as the following: Joseph Tellewoyan, The Liberian Civil War (visited Mar. 29, 1999) ; Liberia, Encarta Multimedia Encyclopedia (Microsoft 1997); CNN News Articles: Elections Archive Articles (posted Feb. 25, 1997 to Jul. 22, 1997) ; CNN News Reports: Mid War Articles (posted Apr. 8, 1996 to Aug. 18, 1996) .
Pursuant to Fed.R.Evid. 201(b)(1), I am permitted to take judicial notice of adjudicative facts "generally known" within the territorial jurisdiction of this Court, including facts pertaining to matters of history and politics. See Christopher B. Mueller & Laird C. Kirkpatrick, Federal Evidence § 50, at 263-64 (2d ed.1994). Accordingly, I take judicial notice of the facts contained in these sources for purposes of resolution of this dispute.
[3] The only other case we have found addressing the doctrine of judicial estoppel in an action to enforce a foreign judgment, Bank Melli Iran v. Pahlavi, 58 F.3d 1406 (9th Cir.), cert. denied, 516 U.S. 989, 116 S.Ct. 519, 133 L.Ed.2d 427 (1995), does not support Bridgeway's position either. There, the plaintiffs brought an action in the Central District of California to enforce a default judgment against the sister of the former Shah of Iran rendered in the Iranian courts. Id. at 1408. In opposing enforcement, the defendant argued that the default judgment was rendered without due process of law, and that, even if she had appeared in the action, she could not have received a fair trial in the Iranian courts. Id. at 1408, 1413. The plaintiffs attempted to show that the defendant had argued in an earlier, unrelated action that any claims against her would more properly be tried in Iran, and apparently argued that she should be estopped from taking the position in the current action that the Iranian courts would not give her a fair trial. Id. at 1413. The Ninth Circuit rejected the plaintiffs' judicial estoppel argument, holding that the position taken by the defendant in the prior action was "not truly inconsistent with her present position." Id. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1575087/ | 274 F. Supp. 336 (1967)
CONTROL DATA CORPORATION, Plaintiff,
v.
CAROLINA POWER & LIGHT COMPANY and Ebasco Services Incorporated, Defendants.
Civ. A. No. 67-23.
United States District Court S. D. New York.
April 25, 1967.
On Rehearing May 23, 1967.
*337 *338 Rogers, Hoge & Hills, New York City, for plaintiff.
Cahill, Gordon, Sonnett, Reindel & Ohl, New York City, for defendants.
MOTLEY, District Judge.
Memorandum Opinion Findings of Fact And Conclusions of Law
Plaintiff, Control Data Corporation (Control), brought this action against Carolina Power and Light Company (Carolina) and Ebasco Services Incorporated (Ebasco). The action against Carolina is (a) for goods sold and delivered; to wit: certain automatic data processing equipment, and (b) for services rendered by Control at the special instance and request of defendant Carolina.
In the alternative, if and to the extent that Carolina is found not to be liable for any portion of the sum claimed, plaintiff Control prays judgment against defendant Ebasco, by reason of Ebasco's having incurred obligation for the aforesaid goods and services while acting as agent for defendant Carolina.
Although it has not been specifically alleged by the complaint, federal jurisdiction, if it exists at all, must rest on the grounds of diversity of citizenship.
Carolina moves to dismiss the action or, in the alternative, to transfer it to the United States District Court for the Eastern District of North Carolina. The grounds for this motion are as follows:
1) Pursuant to Federal Rules of Civil Procedure, Rule 12(b) (2), the Court lacks in personam jurisdiction over defendant Carolina;
2) Pursuant to Federal Rules of Civil Procedure, Rule 12(b) (5), defendant Carolina was not served with valid process;
3) Under 28 U.S.C. § 1391(c), venue is improper as to defendant Carolina; and
4) (in the alternative) The action should be transferred for the convenience of parties and witnesses and in the interest of justice under 28 U.S.C. § 1404.
After oral argument of the motion and review of the memoranda, affidavits and exhibits submitted, the Court finds that venue has been improperly laid in this district and accordingly finds it unnecessary to consider the other grounds raised by this motion.
The relevant parts of 28 U.S.C. § 1391 read as follows:
"(a) A civil action wherein jurisdiction is founded only on diversity of citizenship may, except as otherwise provided by law, be brought only in the judicial district where all plaintiffs or all defendants reside. * * *
(c) A corporation may be sued in any judicial district in which it is incorporated or licensed to do business or is doing business, and such judicial district shall be regarded as the residence of such corporation for venue purposes."
In this particular case, then, venue is proper only 1) if plaintiff Control "resides" in this district, within the meaning of the statute, or 2) if both defendants Carolina and Ebasco "reside" here, within the meaning of 28 U.S.C. § 1391.
Residence of Plaintiff
Determination of a corporate party's residence for federal venue purposes requires a construction of 28 U.S.C. § 1391 (c). It is clear and uncontested that plaintiff Control is a corporation incorporated under the laws of Minnesota and is therefore a resident of that state. It is likewise clear and uncontested that Control is doing business in this district. Under the standard which applied prior to the enactment of 28 U.S.C. § 1391(c) in 1948, plaintiff would not be a resident of this district for federal venue purposes, since a plaintiff corporation was deemed a resident only of the state in which it was incorporated. Suttle v. *339 Reich Bros. Construction Co., 333 U.S. 163, 68 S. Ct. 587, 92 L. Ed. 614 (1948); Shaw v. Quincy Mining Co., 145 U.S. 444, 12 S. Ct. 935, 36 L. Ed. 768 (1892). The question for the Court then is whether 1391(c) changed the prevailing law so that both plaintiff and defendant corporations are deemed residents of any district where they are doing business or whether 1391(c) applies only to defendant corporations.
On this point there is a sharp division of authority. See 1 Moore's Fed.Practice ¶ 70.142[5-3] at 1500-1503; 1 Barron & Holtzoff, Federal Practice and Procedure § 80, at 386-388 (Wright rev. 1960). There have been decisions, some in this district, which have held that 1391 (c) was intended to apply to both plaintiff and defendant corporations. Toilet Goods Association, Inc. v. Celebrezze, 235 F. Supp. 648 (S.D.N.Y.1964); Wear-Ever Aluminum, Inc. v. Sipos, 184 F. Supp. 364 (S.D.N.Y.1960); Southern Paperboard Corporation v. United States, 127 F. Supp. 649 (S.D.N.Y.1955); Freiday v. Cowdin, 83 F. Supp. 516 (S.D.N.Y. 1949), appeal dismissed by consent, 177 F.2d 1020 (2d Cir. 1949); Consolidated Sun Ray, Inc. v. Steel Insurance Co., 190 F. Supp. 171 (E.D.Pa.1961); Travelers Insurance Co. v. Williams, 164 F. Supp. 566 (W.D.N.C.1958) aff'd 265 F.2d 531 (4th Cir. 1959); Standard Insurance Co. v. Isbell, 143 F. Supp. 910 (E.D.Tex. 1956); Eastern Motor Express, Inc. v. Espenshade, 138 F. Supp. 426 (E.D.Pa. 1956); Hadden v. Barrow, Wade, Guthrie & Co., 105 F. Supp. 530 (N.D.Ohio 1952).
The view taken in this line of cases is that construing 1391(c) in this way is more in keeping with the Congressional intent of liberalizing the venue statutes. It holds that unless 1391(c) applies to both corporate plaintiffs and defendants the second clause would be redundant, and the Court would have to ascribe to Congress the anomalous intent to define the residence of corporate defendants, but not corporate plaintiffs.
However, the only circuit courts of appeal that have ruled on this question take a different view. Robert E. Lee & Co. v. Veatch, 301 F.2d 434 (4th Cir. 1961), cert. denied 371 U.S. 813, 83 S. Ct. 23, 9 L. Ed. 2d 55; Carter-Beveridge Drilling Co. v. Hughes, 323 F.2d 417 (5th Cir. 1963). See also Abbott Laboratories v. Celebrezze, 228 F. Supp. 855 (D.C.Del. 1964) vac'd and dismissed on other grounds 352 F.2d 286 (3rd Cir. 1965), aff'd 352 F.2d 524 (3rd Cir. 1965) cert. granted 383 U.S. 924, 86 S. Ct. 928, 15 L. Ed. 2d 844 (1966); Nebraska-Iowa Bridge Corporation v. United States, 158 F. Supp. 796 (D.C.Neb.1958); Albright & Friel, Inc. of Delaware v. United States, 142 F. Supp. 607 (E.D.Pa.1956); Chicago & North Western Ry. v. Davenport, 94 F. Supp. 83 (S.D.Iowa 1950), vac'd on other grounds, 95 F. Supp. 469 (S.D.Iowa 1951).
This line of cases was followed in a recent decision by Judge Bonsal of this district in a case highly similar to the one at bar. Lumbermens Mutual Casualty Company v. South Portland Engineering Company, and Electric Boat Company Division of Dynamics Corp., 252 F. Supp. 149 (S.D.N.Y.1966).
The reasoning on which the view that § 1391(c) applies to corporate defendants only is based holds that there is nothing in the legislative history to indicate Congress intended a more radical departure from prior law. Rather, 1391(c) is seen as a codification of the case law that had developed at this time. This view holds that the plain meaning of the words of § 1391(c) and the syntax of that sub-section indicate that Congress intended it to apply to corporate defendants only, that if Congress had intended to include corporate plaintiffs, different language would have been employed. In the face of such wording, the courts are not justified in extending the meaning to cover corporate plaintiffs.
This Court shares the view of the courts of appeals and Judge Bonsal and, therefore, must hold that for purposes of § 1391 (c) plaintiff Control is a resident of Minnesota only and not of this district.
*340 Defendants' Residence
There is no question that Ebasco is doing business in New York and is a resident of this district. The question of whether Carolina was "doing business" such as to make it a resident of this district for § 1391 purposes requires closer scrutiny. What constitutes "doing business" for purposes of venue is governed by federal law, even though, in a diversity case, it is state law which determines whether a corporation is "doing business" in the state for purposes of jurisdiction. Rensing v. Turner Aviation Corp., 166 F. Supp. 790 (N.D.Ill.1958). What constitutes "doing business" must depend upon the facts in each case. Walton N. Moore Dry Goods Co. v. Commercial Industrial Co., 282 Fed. 21 (9th Cir. 1922).
Here we have Carolina which is a North Carolina corporation incorporated under the laws of that state and having its principal place of business in Raleigh, North Carolina. Carolina's sole business is the generation, transmission and distribution of electric power in the states of North and South Carolina. All of its generating, transmitting and distributing facilities are located entirely in those states. Carolina has no office or place of business in New York. It is not licensed to do business in New York. This controversy relates to the design, manufacture, operation and delivery of certain equipment to Carolina for operation in North Carolina. The goods and equipment which are the subject of this action were delivered to Carolina in North Carolina and are presently in that state.
Carolina's connection with New York in this controversy is that for this single transaction, Carolina engaged Ebasco, a New York firm, for the limited purpose of making the contract concerning this computer equipment and supervising its installation. Carolina does not control Ebasco, and so far as the affidavits and written and oral argument show, they are not corporately related. This contact is insufficient grounds for holding Carolina is "doing business" in this district. Lumbermens Mutual Casualty Co., supra; Walton N. Moore Dry Goods Co., supra. Ebasco is not a subsidiary of Carolina, but even if it were, courts have held that this fact, in and of itself would not necessarily mean that the parent (in this case Carolina) was doing business here. Cannon Manufacturing Co. v. Cudahy Packing Co., 267 U.S. 333, 45 S. Ct. 250, 69 L. Ed. 634 (1925); Echeverry v. Kellogg Switchboard & Supply Co., 175 F.2d 900 (2d Cir. 1949); Schenstrom v. Continental Machineries, Inc., 7 F.R.D. 434 (S.D.N.Y. 1947). Neither will such contacts, unrelated to this controversy, such as Carolina's consultation with counsel within this jurisdiction or its offering of securities for sale in New York, urged by plaintiff in opposition to this motion, support a finding that Carolina was doing business here. See Hastings v. Piper Aircraft Corp., 274 A.D. 435, 84 N. Y.S.2d 580 (1st Dept. 1948), reargument denied 275 A.D. 660, 86 N.Y.S.2d 668 (1949); Grossman v. Sapphire Petroleums, Ltd., 195 N.Y.S.2d 851 (Sup.Ct. Kings Co.1959); Wahl v. Vicana Sugar Co., 144 N.Y.S.2d 613 (Sup.Ct.N.Y.Co. 1955), aff'd 2 A.D.2d 848, 156 N.Y.S.2d 993 (1st Dept.1956). Consequently, this court holds that Carolina is not a resident of this district for purposes of § 1391.
Therefore, since this district is neither the residence of all the plaintiffs nor of all the defendants under 28 U.S.C. § 1391(a), this court concludes that venue was improperly laid in this district.
There is presently pending in the Eastern District of North Carolina an action brought by Carolina against Control and other defendants involving the same contract, goods and services as are involved in this controversy. Ebasco is not a part of that action but according to the affidavits is amenable to process there and deems that forum more appropriate than this one as far as the present controversy is concerned. Accordingly, this action will be transferred to the District Court for the Eastern District *341 of North Carolina (28 U.S.C. § 1406 (a)).
Settle order on notice.
On Reargument
Pursuant to Rule 9(m) of the General Rules of this court, plaintiff moved on May 2, 1967 for a reargument of defendant Carolina's motion to dismiss the complaint or, in the alternative, to transfer this proceeding to the Eastern District of North Carolina. The motion is granted without further argument.
Plaintiff assigns two grounds for reargument;
First, that the court overlooked an amendment to 28 U.S.C. § 1391 which statute was the authority upon which its decision was rendered, and
Second, the court overlooked plaintiff's application on oral argument for referral of the contested factual issues relating to jurisdiction and venue questions to a referee or, in the alternative, for leave to respond to extensive new facts raised by defendant Carolina in affidavits served on plaintiff just prior to argument and which facts now appear critical to the court's determination on the motion.
Both parties have submitted briefs on plaintiff's motion for reargument. Both parties appeared before this court and argued the effect of the amendment to § 1391(a). The defendant's motion had been fully briefed and argued, at length, on the original hearing of that motion.
In addition, the court has granted plaintiff leave to respond to defendant Carolina's reply affidavits served on plaintiff just prior to argument of defendant's motion. The court has now had opportunity to read the two additional affidavits filed by plaintiff and its additional memorandum wherein plaintiff reargues the original motion and the effect of the amendment to 28 U.S.C. § 1391(a). Plaintiff now claims that it cannot reply to the affidavits of defendant in the absence of discovery as to the relationship between defendant Carolina and defendant Ebasco. Plaintiff believes, however, that "both the terms of the contract and the performance thereunder as detailed by the affidavits of Mr. Miller and Mr. Dickinson (submitted herewith) so completely belie these [defendant's] assertions that serious reservations arise which should not be withheld from the court." The court is not convinced that there are other relevant undisclosed facts which would cause the court to reverse its prior decision in which it found that defendant Carolina was not doing business in New York for the purposes of 28 U.S.C. § 1391(c). The plaintiff is required by the provision of Rule 9(m) of the General Rules of this court to point out on a motion for reargument matter which the court has overlooked, not speculate as to the existence of evidence not yet discovered by the moving party.
Plaintiff urges that the contract between it and Carolina and its additional affidavits show that the claim arose in this District. Since the claim arose here, plaintiff says, the venue of this action is properly laid here. Plaintiff relies upon a 1966 amendment to 28 U.S.C. § 1391 (a) which makes that provision read as follows:
"a. A civil action wherein jurisdiction is founded only on diversity of citizenship may, except as otherwise provided by law, be brought only in the judicial district where all plaintiffs or all defendants reside, or in which the claim arose." (Italicized portion is the amendment.)
The claim, within the four corners of the complaint, is for money due for goods sold and delivered to defendant Carolina and for services rendered to defendant Carolina. The complaint alleges that Carolina owes plaintiff $1,822,153.04 for said goods and services and, if not, then the money is owed by defendant Ebasco "by reason of having incurred obligation for the aforesaid goods and services while acting as agent" for Carolina. The claim clearly does not arise in New York.
Having belatedly discovered the amendment to § 1391(a), plaintiff in its request for reargument recasts its claim in *342 an attempt to reap the benefit of the amendment. Plaintiff now claims that Ebasco, Carolina's agent for the purposes of the admittedly technically unprecedented contract with plaintiff, failed to supply plaintiff with certain data in New York necessary to the successful operation of the equipment installed in defendant Carolina's plant. Such a veiled attempt to amend a complaint is not the office of a motion for reargument under Rule 9(m) of the General Rules of this court. However, by reference now to all of the affidavits and briefs now before the court, the court is not persuaded that the real claim here arises in New York.
Plaintiff urges that the court make clear whether it assumed in personam jurisdiction of defendant Carolina under either § 301 or § 302 of the New York CPLR and, if so, use this standard as the criterion for finding that venue is proper in this court. Plaintiff claims this court generally does not distinguish between the "doing of business" test for jurisdiction and the same test for purposes of venue. Plaintiff admits, however, that the Second Circuit has never held this treatment of the problem proper. Jaftex Corp. v. Randolph Mills, Inc., 282 F.2d 508, 512 n.2 (2d Cir. 1960) overruled in Arrowsmith v. United Press International, 320 F.2d 219, 6 A.L.R. 3d 1072 (2d Cir. 1963).
Since a finding of jurisdiction is unnecessary to the transfer of a case under 28 U.S.C. § 1406(a), this court finds it needless to decide whether it has in personam jurisdiction over defendant Carolina. Goldlawr Inc. v. Heiman, 369 U.S. 463, 82 S. Ct. 913, 8 L. Ed. 2d 39 (1962); United States v. Berkowitz, 328 F.2d 358 (3rd Cir. 1964), cert. denied, 379 U.S. 821, 85 S. Ct. 42, 13 L. Ed. 2d 32.
In view of the protracted argument which has already taken place on this motion, and in the interest of judicial economy, the court finds it necessary to make a further observation. Having reviewed the additional affidavits and memorandum in conjunction with the earlier affidavits and memoranda, the court is convinced that even if plaintiff should be allowed at this time to amend his complaint to embrace a claim such as he now urges for the first time on reargument, and even if that claim could be found to have arisen in this district, the convenience of parties and witnesses and the interest of justice would dictate that this is still an action which should be properly tried in the Eastern District of North Carolina. 28 U.S.C. § 1404(a).
Therefore any further delay in effecting this transfer should be avoided. Settle order on notice in accordance with the opinions of the court. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1575495/ | 612 F. Supp. 448 (1984)
INVACARE CORPORATION, Plaintiff,
v.
SPERRY CORPORATION, Defendant.
No. C83-4986.
United States District Court, N.D. Ohio, E.D.
October 2, 1984.
*449 Ernest P. Mansour, Mansour, Gavin, Gerlack & Manos, Cleveland, Ohio, for plaintiff.
David A. Schaefer, Benesch, Friedlander, Coplan & Aronoff, Cleveland, Ohio, for defendant.
ORDER
DOWD, District Judge.
Plaintiff, Invacare Corporation, filed the above-captioned case against defendant, Sperry Corporation, alleging fraud, negligence, and breach of contract[1] involving *450 the sale of a computer system. Sperry filed a motion for summary judgment asserting the statute of limitations bars this action, the complaint fails to state a valid claim and the written agreements between the parties limit the amount of damages recoverable. For the reasons which follow, the motion for summary judgment is denied.
FACTUAL ALLEGATIONS
Invacare alleges that in 1980 it decided to acquire a computer, together with programs capable of coordinating Invacare's accounting and manufacturing systems. Invacare alleges that Sperry sent a team of employees, described as manufacturing specialists, to examine Invacare's operation and needs and to make recommendations to Invacare concerning the acquisition of a computer from Sperry. Invacare alleges further that after determining its requirements, Sperry recommended that Invacare purchase a Univac System 80 computer, together with certain programs and services which would fulfill Invacare's needs and requirements.
Invacare alleges that in reliance upon Sperry's expertise, Invacare entered into a series of agreements with Sperry commencing on November 25, 1980, and supplemented subsequently on many occasions, for the acquisition of the Univac System 80 through a lease with an option to purchase.
Invacare alleges that the computer equipment was delivered to plaintiff in May of 1981 and it was operational in November of 1981, but that the Univac System 80 entirely failed of its essential purpose. Invacare alleges that the equipment supplied was incapable of operating the programs and the related data processing products furnished by Sperry. Invacare alleges the programs and the related data processing products were inadequate to fulfill Invacare's needs. Invacare alleges further that, at the recommendation of Sperry, Invacare made additional acquisitions of equipment and programs from Sperry until November 30, 1982, upon the assurance by Sperry that the acquisitions would enable the Univac System 80 to perform its essential purpose. Invacare alleges that, in spite of the augmentation of the Univac System 80 through the additional acquisition of equipment and programs, the computer system continued to fail of its essential purpose.
Invacare alleges Sperry knew the Univac System 80 was entirely inadequate for Invacare's needs and that such needs could only be fulfilled through equipment in computer systems costing more than twice the price of the Univac System 80. Invacare alleges Sperry recommended the Univac System 80 for the purpose of making its price appear lower than prices of Sperry's competitors for Invacare's business, so as to induce Invacare to purchase the Univac System 80. Invacare alleges further that Sperry advised Invacare that the Univac System 80 was "user-friendly," operated by pushing a button, and that the programs provided would satisfy Invacare's needs without requiring modifications or a data processing specialist to operate the system. Invacare alleges that Sperry made such representations knowing they were false and for the sole purpose of inducing Invacare to purchase the system.
Invacare alleges it demanded Sperry to accept the return of the Univac System 80, as augmented, and demanded Sperry to cancel the agreements reached between the parties, but Sperry refused to cancel the agreements or accept the return of the system. Invacare requests a return of the purchase price, as well as incidental, consequential, and punitive damages. Sperry denies Invacare's allegations and counter-claims for $55,232.64 allegedly owed to Sperry on account.
The parties entered into several agreements regarding the hardware, software, and service for the computer system.[2] There appears to be four major agreements which were supplemented by other agreements. *451 The first agreement, captioned Six Year Lease And Service Agreement, was signed by a representative of Invacare on October 22, 1980, and signed by a representative of Sperry on November 25, 1980. The second agreement is captioned Systems Service Agreement, which was signed by a representative of Invacare on October 24, 1980, and was signed by a representative of Sperry on November 25, 1980. The Systems Services Agreement provides for future services. The third agreement between the parties is captioned Five Year Lease and Service Agreement, which was signed by a representative of Invacare on February 16, 1981, and was signed by a representative of Sperry on March 16, 1981. The fourth agreement is captioned, Extended Term Lease and Service Agreement and License For Program Products, which was signed by a representative of Invacare on July 7, 1982, and was signed by a representative of Sperry on August 13, 1982.
All of the contracts were supplemented with other contracts in the form of purchase orders. However, all the supplemental contracts either contained the same provisions as the original contracts or incorporate the provisions of the original contracts. The parties entered into supplemental contracts as late as January, 1983. The complaint in this action was filed December 14, 1983.
DISCUSSION AND LAW
1. Statute of Limitations.
The contracts in dispute provide for a two year statute of limitations for any action, regardless of form, arising out of transactions occurring under or contemplated under the agreements.[3] Sperry asserts that this action is barred by the two year statute of limitations provided in the contract and the two year statute of limitations provided in Ohio R.C. 2305.10. Revised Code § 2305.10 provides in pertinent part, "An action for bodily injury or injuring personal property shall be brought within two years after the cause thereof arose."[4]
Initially, the Court concludes that a four year statute of limitations applies to Invacare's claim of fraud. Ohio R.C. § 2305.09 provides a four year statute of limitations when relief is sought on the ground of fraud. Sperry asserts that the two year statute of limitations provided in the contracts apply to Invacare's claim of fraud, as well as other claims. The Court disagrees. Sperry cannot rely on a provision of the contracts to bar Invacare's claim, when the claim alleges the contracts were induced through fraud. Ott v. Midland-Ross Corporation, 600 F.2d 24, 32 (6th Cir.1979); Dice v. The Akron, Canton & Youngstown Rd. Co., 155 Ohio St. 185, 190, 98 N.E.2d 301 (1951); Eller v. Turvene, 71 Ohio Law. Abs. 375, 380, 131 N.E.2d 407 (Darke Cty.App.1955). Consequently, Invacare's claim of fraud is not barred by the statute of limitations.
However, a two year statute of limitations applies to the claims of negligence and breach of contract. The initial contracts were entered into on November 25, 1980 and the majority of the hardware was delivered in May of 1981. In that this action was filed in December of 1983, Sperry asserts that the period of limitations had expired when the action was filed and the action is therefore barred.
*452 If the agreement had in fact been completed and the products delivered by May of 1981, the Court would agree that the contract and negligence claims are barred. However, the parties continued to enter into supplemental agreements through January of 1983. These agreements covered hardware, software, and service, in an apparent attempt to remedy alleged deficiencies in the Univac System 80. Considering that Sperry accepted the benefits of the many supplemental contracts, it cannot now assert that the only contracts that apply for the purposes of the statute of limitations, are those contracts entered into more than two years before the commencement of this action. Upon a review of the contracts, the Court concludes that the contracts incorporate each other and are not independent agreements. Fairness dictates that the most appropriate time to commence the running of the period of limitations is the date of the final supplemental contract. Accordingly, Sperry's motion for summary judgment premised upon the statute of limitations is denied.
2. Failure to State a Claim.
Sperry asserts Invacare's allegations of fraud involve representations as to future performance. Sperry asserts further that representations as to future performance do not qualify as misstatements of existing fact upon which a cause of action for fraud can be based.
Invacare alleges that Sperry's employees examined Invacare's operation and recommended the Univac System 80 computer. Invacare alleges that Sperry's employees represented that the Univac System 80, with certain programs, could process Invacare's accounting and manufacturing systems. Such representations are not as to future performance, but apply to the capabilities of the Univac System 80, along with the appropriate programs, at the time of its delivery. Furthermore, Invacare alleges that upon the discovery that the Univac System 80 was deficient for its needs, Sperry employees represented that the system would work upon Invacare's purchase of various additional hardware and software. Such representations are not representations as to future performance, but are representations as to the Univac System 80's capabilities upon delivery to Invacare or upon delivery of the supplemental hardware and software. Consequently, Invacare alleges a valid claim of fraud regarding the alleged misrepresentations by Sperry employees of the Univac System 80's capabilities.
Sperry asserts alternatively that the contractual integration provision in the agreements executed in October and November of 1980 bar Invacare's claims regarding precontract misrepresentations. The contracts provide:
This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and shall supersede all previous proposals, both oral and written, negotiations, representations, commitments, writings, agreements and all other communications between the parties.
As noted above, if the contracts were in fact induced by fraud, Sperry cannot rely on provisions of the contract as a grounds for summary judgment on the fraud claim.[5]
Sperry asserts further that Invacare's second and third claims of negligence and fourth claim of breach of contract actually allege a claim for computer malpractice which is not actionable. As noted earlier, Invacare's fourth claim involves an alleged breach of contract.[6] Considering that there are numerous contracts involved in this action for computer hardware, software and service, and considering that Invacare alleges the system failed of its essential purpose, the Court views Invacare's fourth claim as one of breach of contract which states a valid claim.
Invacare's second and third claims are as follows:
*453 19. Defendant was negligent in that, in recommending the Univac System 80, and its augmentation to plaintiff, it knew, or in the exercise of ordinary care, it should have known, that the systems were totally inadequate to provide a closed loop manufacturing system for plaintiff, in that the equipment delivered by defendant was incapable of operating the programs and related data processing products furnished by defendant and the programs and related data processing products were inadequate.
20. Defendant was negligent in advising plaintiff as set forth in paragraph 8 because in the exercise of ordinary care it should have known that the programs furnished could not satisfy plaintiff's requirements and that plaintiff would require a data processing specialist to operate its programs.
. . . . .
23. Defendant was negligent in assigning employees to examine plaintiff's requirements and to recommend data processing products to fulfill plaintiff's needs who lacked sufficient knowledge and expertise to fulfill these functions.
Such allegations state a valid claim of negligence. Negligence is the lack of ordinary care. It is a failure to exercise that degree of care which a reasonably prudent person would have exercised under the same or similar circumstances. See generally, W. Prosser, Law of Torts, 143-45 (4th Ed.1971). The Restatement of Torts provides:
Unless he represents that he has a greater or less skill or knowledge, one who undertakes to render services in the practice of a profession or trade is required to exercise the skill and knowledge normally possessed by members of that profession or trade in good standing in similar communities.
Restatement (Second) of Torts § 299A (1965). The comments to § 299A explain the section as follows:
This section is thus a special application of the rule stated in § 299. It applies to any person who undertakes to render services to another in the practice of a profession, such as that of physician or surgeon, dentist, pharmacist, occultist, attorney, accountant, or engineer. It applies also to any person who undertakes to render services to others in the practice of a skilled trade, such as that of airplane pilot, precision machinist, electrician, carpenter, blacksmith, or plumber. This section states the minimum skill and knowledge which the actor undertakes to exercise, and therefore to have. If he has in fact greater skill then that common to the profession or trade, he is required to exercise that skill, as stated in § 299, Comment b.
Id. Comment b.
Invacare alleges that the personnel provided by Sperry failed to perform at a level of ordinary care. If machinists, electricians, carpenters, blacksmiths, and plumbers, are held to the ordinary standard of care in their professions, the Court fails to see why personnel in the computer industry should be held to any lower standard of care. Invacare simply alleges negligence in a business setting. This does not give rise to a new tort of "computer malpractice." Negligence in a business setting is clearly actionable. cf. First National Bank v. Small Business Administration, 429 F.2d 280, 287 (5th Cir.1970); United States v. Bernstein, 533 F.2d 775 (2d Cir. 1976); cert. denied, 429 U.S. 998, 97 S. Ct. 523, 50 L. Ed. 2d 608 (1976).
To support its assertion that Invacare fails to state a claim, Sperry cites Chatlos Systems v. National Cash Register Corp., 479 F. Supp. 738 (D.N.J.1979); modified in part, 635 F.2d 1081 (3rd Cir.1980). In Chatlos Systems, Inc., the Court held as follows:
Though not raised in the pleadings, in post-trial memoranda plaintiff has asserted two additional theories of liability. "Computer malpractice" and strict liability in tort are alleged to have been proven at trial.
The novel concept of a tort called "computer malpractice" is premised upon *454 a theory of elevated responsibility on the part of those who render computer sales and service. Plaintiff equates the sale and servicing of computer systems with established theories of professional malpractice. Simply because an activity is technically complex and important to the business community does not mean that greater potential liability must attach. In the absence of sound precedential authority, the court declines the invitation to create a new tort. In view of the findings and conclusions, infra, the Court deems it unnecessary to rule explicitly on plaintiff's assertion of strict liability in tort.
Id. at 479 F. Supp. 741 n. 1.
The Court in Chatlos Systems was concerned with creating a new tort on a theory of elevated responsibility on the part of those who render computer sales and service. Such a concept is not before this Court. Rather, Invacare's claims allege a breach of the ordinary standard of care to which those in Sperry's industry are held. Such allegations do not involve a new tort of "computer malpractice." Consequently, Invacare's allegations of negligence state a valid claim upon which relief can be granted.
3. Limitation on Damages.
The parties do not dispute that almost all of the contracts contain a provision limiting Sperry's liability. In bold face type the contracts provide as follows:
IN NO EVENT SHALL SPERRY UNIVAC BE LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR THE EXISTENCE, FURNISHING, FUNCTIONING, OR THE CUSTOMER'S USE OF ANY PRODUCTS OR SERVICES PROVIDED FOR IN THIS AGREEMENT. THE CUSTOMER'S SOLE AND EXCLUSIVE REMEDY FOR LIABILITY OF ANY KIND INCLUDING NEGLIGENCE, WITH RESPECT TO THE PRODUCTS AND SERVICES FURNISHED HEREUNDER, SHALL BE LIMITED TO THE REMEDIES PROVIDED IN ... THIS AGREEMENT.
THE CUSTOMER FURTHER AGREES THAT SPERRY UNIVAC SHALL NOT BE LIABLE FOR: (1) ANY LOSS OF USE, REVENUE OR PROFIT; (2) ANY CLAIM, DEMAND, OR ACTION AGAINST THE CUSTOMER BY ANY THIRD PARTY EXCEPT AS MAY BE PROVIDED ... HEREIN.
The language of this section is clear and unambiguous, with the effect of limiting Sperry's liability for incidental and consequential damages arising out of the failure of the Univac System 80. However, for two reasons, the provisions are not a basis for summary judgment arising out of Invacare's claims.
Primarily, as stated above, Sperry cannot shield itself with the language of a contract when Invacare's allegations are that the contract itself was induced through fraud.[7] Furthermore, Invacare alleges the Univac System 80, even as augmented, entirely failed of its essential purpose. It is axiomatic therefore, that Invacare alleges the contract failed of its essential purpose. Under certain circumstances, when a contract, including its damage limitation provision, entirely fails of its essential purpose and the product in question cannot be remedied through the means provided in the contract, the Court will disregard the contract, thereby allowing traditional damages. See generally, J. White and R. Summers, Uniform Commercial Code, § 12-10 (2nd ed. 1980).
The Court concludes there are genuine issues of material fact regarding whether to apply the provisions limiting damages in the contracts.
CONCLUSION
Pursuant to the reasons set forth above, Sperry's motion for summary judgment is denied.
IT IS SO ORDERED.
NOTES
[1] Although plaintiff does not specifically allege breach of contract, plaintiff alleges the computer system failed of its essential purpose in the fourth claim of the complaint. Such a claim amounts to a breach of contract claim. Furthermore, in its brief in opposition to the motion for summary judgment, plaintiff characterizes the claim as one for breach of contract.
[2] The agreements are attached as exhibits to Sperry's answer.
[3] The Systems Service Agreement is the only contract which provides for a one-year statute of limitations.
[4] Courts that have interpreted Ohio R.C. § 2305.10 have applied it to claims of negligence in a business setting. Mahalsky v. Salem Tool Co., 461 F.2d 581 (6th Cir.1972); AMF Inc. v. Computer Automation, Inc., 573 F. Supp. 924 (S.D.Ohio 1983).
In some of the contracts the parties agreed Pennsylvania law would apply to disputes arising out of the contracts. Choice of law provisions in contracts are generally enforced by federal courts. The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S. Ct. 1907, 32 L. Ed. 2d 513 (1972); AMF Inc. v. Computer Automation, Inc., 573 F. Supp. 924, 926 (S.D.Ohio 1983). However, the choice of law provision only applies to the claim for breach of contract, it does not apply to the tort claims. AMF Inc., supra.
[5] See supra text page 451.
[6] See supra footnote 1.
[7] See supra text page 451. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1575524/ | 612 F. Supp. 387 (1985)
TURRETT STEEL CORPORATION, a Pennsylvania corporation, Plaintiff,
v.
MANUEL INTERNATIONAL INCORPORATED, a New Jersey corporation, Defendant.
Civ. A. 84-2186.
United States District Court, W.D. Pennsylvania.
July 10, 1985.
*388 Robert A. King, Pittsburgh, Pa., for plaintiff.
John Shorall, Pittsburgh, Pa., Robert M. Schwartz, Trenton, N.J., for defendant.
MEMORANDUM OPINION
ZIEGLER, District Judge.
This is a civil action seeking damages for breach of contract, breach of express and implied warranties, negligence and misrepresentation stemming from defendant's sale of allegedly defective steel and alleged failure to supply certain other steel. Plaintiff, Turret Steel Corporation, is domiciled in Pennsylvania. Defendant, Manuel International Inc., is a New Jersey corporation. Jurisdiction is predicated upon diversity of citizenship, 28 U.S.C. § 1332.
Pursuant to Fed.R.Civ.P. 12(b)(2), defendant has moved for dismissal, alleging lack of personal jurisdiction. In the alternative, defendant requests a transfer to the United States District Court for the District of New Jersey pursuant to 28 U.S.C. § 1404(a). Plaintiff opposes both motions and the parties have submitted affidavits in support of their positions. Because defendant's contracts with the forum are sufficient to provide personal jurisdiction under the Pennsylvania "long-arm" statute, 42 Pa.C.S.A. § 5322 (Purdon 1981), defendant's Rule 12(b)(2) motion will be denied. Furthermore, defendant has failed to state reasons sufficient to warrant transfer to the District of New Jersey.
The Pennsylvania "long-arm" statute authorizes the assertion of personal jurisdiction over non-resident defendants to the "fullest extent allowed under the Constitution of the United States." 42 Pa.C. S.A. § 5322(b). Thus our exercise of jurisdiction is limited only by the due process clause. Time Share Vacation Club v. Atlantic Resorts, Ltd., 735 F.2d 61, 63 (3d Cir.1984); Proctor & Schwartz, Inc. v. Cleveland Lumber Company, 228 Pa.Super. 12, 16, 323 A.2d 11, 13 (1974). Plaintiff bears the burden of demonstrating contacts between the non-resident defendant and the forum state sufficient to satisfy due process. Compagnie des Bauxites de Guinee v. L'Union Atlantique S.A. D'Assurances, 723 F.2d 357, 363 (3d Cir.1983).
Our analysis of personal jurisdiction must begin with an initial inquiry: *389 does the cause of action arise from defendant's forum related activity? Reliance Steel Products Company v. Watson, Ess, Marshall & Enggas, 675 F.2d 587, 588 (3d Cir.1982). If so, plaintiff need demonstrate only certain "minimum contacts" so that "maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 158, 90 L. Ed. 95 (1945). If the cause of action arises from a non-forum related activity, a higher threshold of "continuous and substantial" contacts with Pennsylvania must be shown. Id. at 318, 66 S.Ct. at 159; See also Reliance Steel, supra, 675 F.2d at 588.
The instant cause of action is forum related. The transaction in question resulted from defendant's solicitation of sales in Pennsylvania. It is not disputed that defendant mailed price lists to plaintiff's Pennsylvania office, that defendant has made numerous telephone calls to plaintiff in the course of dealings between the parties, or that Cliff Emory, an employee of defendant, made two trips to plaintiff's office in Leetsdale, Pennsylvania to discuss business matters. (Feingold Affidavit dated October 5, 1984 ¶ 4, Gould Affidavit dated November 16, 1984 ¶ 2, 5-10, Feingold Affidavit dated December 17, 1984 ¶ 4). Although an independent trucking firm transported the steel, defendant knew that it was bound for Leetsdale, Pennsylvania. (Gould Affidavit ¶ 12 and Exhibit C). Defendant's solicitation of sales resulted in a series of steel purchases by plaintiff. The present cause of action arises from one of those purchases and thus is undeniably related to defendant's activities in Pennsylvania.
Consequently, plaintiff need show only that defendant had "minimum contacts" with Pennsylvania, not that its contacts were "continuous and substantial." Pennsylvania courts have formulated a three-prong test for determining whether "minimum contacts" are present:
The defendant must have purposefully availed itself of the privilege of acting within the forum state thus invoking the benefits and protections of its laws.... The cause of action must arise from defendant's activities within the forum state.... Lastly, the acts of the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over it reasonable.
Proctor & Schwartz, supra, 228 Pa.Super. at 19, 323 A.2d at 15. We will address each factor in turn.
Defendant contends that it has not "purposefully availed" itself of the privilege of conducting activities within Pennsylvania. In this regard, defendant notes that it is not licensed to do business in Pennsylvania, that it owns no property here, and that it has no Pennsylvania office, telephone listing, bank account, or agent for service of process. (Feingold Affidavit ¶ 4). Defendant does admit soliciting business in Pennsylvania, but contends that the solicitation amounted to only 1/10 of 1 percent of its total business.
We hold that defendant's solicitation of and actual sales to plaintiff are sufficient to satisfy the first prong of the Proctor test. Defendant initiated the business relationship when Ed Skalka, defendant's employee, telephoned plaintiff seeking business. (Could Affidavit ¶ 2). The mailings, telephone calls and visits are further evidence of defendant's voluntary entry into the Pennsylvania business market. Moreover, defendant could "foresee economic impact" within Pennsylvania as a result of its transactions with plaintiff. See Time Share, supra, 735 F.2d at 66. The proportion of direct sales to plaintiff when compared with total sales is irrelevant. Hendrickson v. Reg O Co., 657 F.2d 9, 13 (3d Cir.1981). Indeed, a ratio test would make it more difficult to establish jurisdiction over large corporations and raise equal protection problems. Id.
According to defendant, the invoice constitutes the entire contract between the parties. It contains a provision stating that the contract was made in New Jersey and governed by New Jersey law. Plaintiff *390 vigorously disputes that the invoice is the contract and that New Jersey law is controlling. However, we need not determine these issues at this time. The Court of Appeals has held that while a choice of law provision is "perhaps a factor," it is not enough to vest jurisdiction and does not create any economic impact within the state whose laws have been chosen. Time Share, supra, 735 F.2d at 65. Hence, if New Jersey law governs this action, we hold that defendant "purposefully availed" itself of the privilege of conducting activity within Pennsylvania.
As for the second prong, which requires that the cause of action arise from defendant's activities within the state, this issue was decided when we determined that the cause of action was forum related.
Finally, we find that the exercise of jurisdiction is fair and reasonable under the circumstances. As rehearsed, defendant, not plaintiff, initiated the contacts that ultimately led to this lawsuit. Pennsylvania has an interest in resolving suits brought by its citizens and mere inconvenience to defendant is insufficient to deny plaintiff the forum of its choice. Proctor & Schwartz, supra, 228 Pa.Super. at 20-21, 323 A.2d at 16. The parties have entered into at least six transactions since August, 1982, which, in our opinion, constitute a regular course of dealing. In sum, defendant's contacts with Pennsylvania are substantial and defendant "should reasonably anticipate being haled into court" in this forum. World-Wide Volkswagon Corp. v. Woodson, 444 U.S. 286, 297, 100 S. Ct. 559, 567, 62 L. Ed. 2d 490 (1980). The motion to dismiss for lack of personal jurisdiction will be denied.
Defendant also has moved for transfer to the District of New Jersey, relying upon 28 U.S.C. § 1404(a). Section 1404(a) empowers a district court to "transfer any civil action to any other district or division where it might have been brought" based on "the convenience of the parties and witnesses, in the interest of justice." 28 U.S.C. § 1404(a). The provision is designed to avoid unnecessary inconvenience and expense to litigants, witnesses and the public. Pikofsky v. Jem Oil, 607 F. Supp. 727, 731 (E.D.Wis.1985).
We hold that defendant has failed to state facts which would justify a transfer. The sole consideration suggested by defendant in support of its motion is its contention that New Jersey law applies. We need not decide that issue at this point, for even assuming that New Jersey law applies, transfer is not warranted. District courts regularly apply the law of states other than the forum state. No other allegations which might support transfer are proferred by defendant. Therefore, the motion for transfer pursuant to § 1404(a) is denied.
A written order will follow denying the motion of defendant.
ORDER OF COURT
AND NOW, this 10th day of July, 1985,
IT IS ORDERED that the motion of defendant to dismiss for lack of personal jurisdiction be and hereby is denied.
IT IS FURTHER ORDERED that the motion of defendant to transfer the action to the District of New Jersey pursuant to 28 U.S.C. § 1404(a) be and hereby is denied.
IT IS FURTHER ORDERED that defendant shall file an answer within 20 days. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1577482/ | 629 F. Supp. 1504 (1986)
MAX M., and his parents, Mr. & Mrs. M., Plaintiffs,
v.
The ILLINOIS STATE BOARD OF EDUCATION, et al., Defendants.
No. 82 C 6575.
United States District Court, N.D. Illinois, E.D.
March 10, 1986.
*1505 *1506 Matthew D. Cohen, Skokie, Ill., for plaintiffs.
Bernetta Bush, Bd. of Educ., Legal Dept., Chicago, Ill., for defendant Illinois State Bd. of Educ.
John A. Relias, Sherelyn R. Kaufman, Veddar, Price, Kaufman & Kammholz, Chicago, Ill., for defendants Bd. of Educ. of New Trier Tp. High School Dist. 203, New Trier Tp. High School Dist. 203, Roderick N. Bickert, and James A. Wolter.
Ralph Miller, Brydges, Riseborough, Morris, Franke & Miller, Chicago, Ill., for defendants North Suburban Special Educ. Dist. and Stanley Bristol.
ORDER
BUA, District Judge.
This order concerns plaintiffs' motion for reconsideration under Rule 60(b) of the Federal Rules of Civil Procedure and both parties' cross-motions for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. For the reasons stated herein, plaintiffs' motion for reconsideration is granted, plaintiffs' motion for summary judgment is granted in part and denied in part, and defendants' motion for summary judgment is granted in part and denied in part.
I. BACKGROUND
The plaintiffs' initial complaint stated claims which, although based on various federal and state statutory and constitutional provisions, were primarily derived from the Education for All Handicapped Children Act (EAHCA).[1] 20 U.S.C. § 1401 et seq. (1976). The EAHCA is a federal funding statute under which participating states receive federal funds to assist in providing educational and other related services *1507 to handicapped children. Any State educational agency receiving funds under the EAHCA must establish procedures whereby handicapped children and their parents may protect their rights to a "free and appropriate public education." 20 U.S.C. § 1415(a) (1976).
The plaintiffs are Max M., a handicapped child within the meaning of the EAHCA,[2] and his parents. The parties named as defendants are designated as the "State Defendants," the "Intermediate Defendants," and the "Local Defendants." The State Defendants include: (1) the Illinois State Board of Education (ISBE); (2) Donald Gill, the Illinois Superintendent of Education; and (3) Edward Copeland, the Chairperson of the Illinois State Board of Education. The Local Defendants are: (1) New Trier High School District # 203 (District # 203); (2) the New Trier District # 203 Board of Education; (3) Ronald Bickert, Superintendent of Schools in District # 203, and (4) James Walter, Director of Special Education for District # 203. The final group of defendants, the Intermediate Defendants, include: (1) the North Suburban Special Education District (NSSED); and (2) Stanley Bristol, Superintendent of the NSSED.
Max M. attended New Trier West, a public high school in Northfield, Illinois, from 1977 to 1981. Because of his disorganization, difficulty in writing, and anxiety, his academic performance was poor. In January of Max' freshman year, Max was referred to New Trier's Department of Special Education for evaluation. Max was examined by New Trier's consultant, Dr. Traisman, who later issued a written report recommending long term "intensive psychotherapy" for Max. Although the parents and Dr. Traisman believed that Max should be seen by a male therapist, no male therapists were provided by New Trier for Max during his freshman year.
New Trier recommended to Max' parents that he be placed in two special education classes for the remainder of his freshman year, but the Ms rejected this recommendation as too drastic. Instead, a compromise was reached allowing Max to spend one hour a day in a resource room where a student is allowed to work individually with a teacher in a particular subject. Shortly thereafter, New Trier again proposed that Max be enrolled in a special education math class, and this time the parents agreed. Max' first semester freshman grades in his major subjects were four Ds. After a special education component was implemented during Max' second semester, Max received three Cs and one D in his major subjects.
During the summer following his freshman year, Max attended summer school at New Trier. The Ms met with representatives of New Trier that summer to discuss Max, and the Ms formally requested that their son receive psychotherapy from Frank Brull, a New Trier social worker.[3] Also during that summer, Max saw a private psychotherapist, Dr. Burg, for four sessions.
New Trier developed an Individual Education Program (IEP) for Max to commence in September of his sophomore year. The IEP included one special education class, attendance in the resource room three days a week, and four standard courses in which Max was to be mainstreamed with the general student body. This IEP was shown to the Ms sometime in late November. Although the IEP did not so state, Max was also offered psychotherapy twice a week by New Trier social worker, Frank Brull. Max, however, failed to attend his therapy sessions with Mr. Brull on a regular basis. By the end of his sophomore year, Max' academic and social behavior had shown serious deterioration. Max received a D in the class he took during the summer between his freshman and sophomore year *1508 and received three Cs and two Fs in his first semester sophomore year. During his second semester, Max received three Ds and one F.
On May 30, 1979, New Trier recommended that Max attend the Central Campus Learning Center (CCLC), New Trier's off-campus facility designed for emotionally disturbed or behavior disordered students. In the CCLC a core teacher is assigned to each student and acts as instructor in most if not all the classes in which the student is enrolled. Students at the CCLC have no unsupervised time. Between 1979 and 1981, the maximum number of students attending CCLC at any one time was forty, and the average class size was eight.
On July 6, 1979 Max began receiving psychotherapy from Dr. Robert Rosenfeld, a psychiatrist. Aside from providing psychotherapy for Max, the Ms relied on Dr. Rosenfeld for input for Max' junior year placement. In that regard Rosenfeld first met with New Trier personnel on August 6, 1979 to discuss the proposed CCLC placement for Max' junior year. Rosenfeld informed the Ms that the CCLC placement could not be made without their knowledge and permission. Although Rosenfeld and the Ms discussed the possibility of a residential placement for Max, they all agreed not to pursue this option.
New Trier called a second meeting on August 20, 1979 to discuss Max' junior year placement. In addition to Dr. Rosenfeld, Dr. Wolter, New Trier's Director of Special Education, as well as the Ms, were in attendance. At this meeting, the CCLC placement for Max' junior year was approved by the parties. Rosenfeld felt the CCLC placement was a reasonable next step in addressing some of the problems Max had experienced in the larger setting of New Trier West. The Ms were informed by Dr. Wolter that if the CCLC placement did not work out, a due process hearing could occur.
A specific Individualized Education Plan (IEP) was prepared for Max naming Judy Knox as Max' core instructor. Knox observed that when Max first arrived at the CCLC, he seemed afraid to socialize with the other students, but as the year progressed he became much more socially interactive with his fellow classmates. At the end of his first semester at CCLC, Max received one A, two Bs, and one C. At the end of his second semester, Max received three As and one B. Max' scholastic improvement was a result of certain modifications in the regular CCLC program which enabled Max to succeed academically despite his insistence on not performing written work. Max was held accountable for work that he did not perform. The Ms received several low scholarship notices during his junior year explaining that Max was not completing his assigned work. Max' classroom behavior also showed improvement by the end of his junior year.
Aside from the educational component of Max' IEP, Max received group therapy at CCLC. Although family therapy sessions were to be provided by New Trier for the Ms, time conflicts with scheduling eventually led to a mutual agreement to discontinue the sessions. During Max' junior year, Dr. Rosenfeld was also providing private psychotherapy for Max at the Ms' expense. From July of 1979 to January of 1980, Rosenfeld saw Max twice a week. Thereafter he saw Max once a week. This reduction in sessions per week was due to the Ms' financial constraints.
Rosenfeld discussed Max' senior year placement with the Ms and a decision was reached allowing Max to continue at CCLC. Max' senior year IEP was discussed with the Ms in a conference on October 20, 1980 with New Trier. Ms. Knox noticed that Max began to socialize and interact more successfully with his classmates during his senior year. However, Max began to experience problems academically. During his first semester senior year, Max received one C, two Ds, and two Fs. Second semester senior year, Max received two Cs and three Ds. Although Ms. Knox felt that Max met the minimal expectations that she had for him in every class, she agreed that Max had many of the same problems at the end of his senior year as at the beginning of his junior year. Max' *1509 weakening academic performance was reflected to the Ms through a series of low scholarship notices. The notices universally cited Max' lack of preparation and failure to complete assigned work.
By the end of Max' senior year he had earned more than the required amount of credits to graduate and was ranked 455 out of 546 students in the senior class. On May 15, 1981, New Trier by letter informed the Ms that Max would probably successfully complete all requirements for graduation and that graduation constituted a change in special education status. On May 29, 1981, the Ms filed a request for a due process hearing. Because of financial considerations, the Ms decided to discontinue Max' psychotherapy from Dr. Rosenfeld on June 16, 1981 and concentrate their resources on the due process hearing. The Ms expended a total of $8,855 for Max' private psychiatric care while he attended New Trier and CCLC.
Max graduated on June 11, 1981. Both Max and his parents rejected the idea of continuing at CCLC during the pendency of the due process hearing. Instead, the Ms wanted a different special education program combining advanced academic work, vocational training, and therapy. No such special education program was offered by New Trier. In September of 1982, the Ms enrolled Max at Brehm Preparatory School, a residential facility for learning disabled and behavior disordered children. After several months of attendance at Brehm, Max developed acute psychiatric problems and was hospitalized at Hartgrove Hospital. Max was discharged to the Ridgeview Shelter Care Facility in Evanston, Illinois, on October 10, 1983, and received outpatient psychotherapy from Dr. Gary Phillips, a clinical psychologist. The Ms spent between $16,000 and $17,000 to place Max at Brehm and incurred approximately $3,500 in fees from Dr. Phillips.
Meanwhile, on October 13, 1981, Dr. Robert Monks conducted the due process hearing requested by the Ms. On October 16, 1981, Dr. Monks issued a decision revoking Max' graduation and ordering that services be continued and that an appropriate IEP be prepared. New Trier promptly appealed the Monks' decision and on February 12, 1982, the Illinois State Board of Education (ISBE) issued an Administrative Order reversing the hearing officer's decision. Both the hearing officer's opinion and the ISBE's Administrative Order found that Max had been denied an appropriate education with related services because New Trier failed to provide Max with the intensive psychotherapy recommended by the school district's psychologist, Dr. Traisman. The ISBE order reversing the hearing officer's decision to revoke Max' diploma and continue services was based on an alleged pleading defect on the part of the Ms.[4]
On October 26, 1982, the Ms filed their complaint in this Court. Although the Ms' initial complaint challenged the ISBE order on various federal and state statutory and constitutional provisions, this Court's four prior decisions limited the Ms' complaint to two basic claims under the EAHCA: (1) reimbursement from Local Defendants of the $8,855 expended by the Ms for Max' psychiatric treatment while attending New Trier; and (2) compensatory remedial educational services from all defendants to compensate Max for the alleged deprivation of EAHCA benefits while he attended New Trier and an injunction revoking Max' diploma to reestablish his eligibility under the EAHCA.[5]
*1510 II. ISSUES PRESENTED
The issues raised by the Ms' motion for reconsideration and both parties' motions for summary judgment will be stated in turn. The Ms' motion for reconsideration asks this Court to review its prior rulings limiting the Ms' claim for reimbursement in light of the recent Supreme Court decision of Burlington School Committee v. Department of Education, ___ U.S. ___, 105 S. Ct. 1996, 85 L. Ed. 2d 385 (1985). In Max M. III,[6] this Court placed two limitations on the Ms' claim for reimbursement of the $8,855 expended by them to provide Max with private psychotherapy while he attended New Trier. First, under the mandates of Anderson v. Thompson, 658 F.2d 1205 (7th Cir.1981), the Ms were required to show that the Local Defendants had acted in bad faith by failing to comply with the procedural safeguards of the EAHCA before they were entitled to make any claim for reimbursement under the EAHCA. Max M. v. Thompson, 592 F.Supp. at 1449.
Second, restrictions on the nature of services that may be provided by a psychiatrist under the EAHCA limited the Local Defendants' liability for the cost of privately obtained psychological services. Id. at 1444-45. Specifically, this Court held that the Local Defendants could be liable for no more than the cost of the service as provided by the minimum level health care personnel recognized as competent to perform the related service of psychotherapy. Id. The liability of the Local Defendants in such case was to be computed from the amount that such qualified personnel would normally and reasonably charge for the psychotherapy Max received. Id. If the Ms were not fully reimbursed after proving bad faith on the part of the Local Defendants, then the cost the Ms must incur is the cost of exercising their freedom to select more highly qualified personnel than the EAHCA requires. Id. at 1445. Thus, the Ms' motion for reconsideration raises three basic issues: (1) whether Fed. R.Civ.P. 60(b) allows reconsideration of Max M. III in light of Burlington; (2) whether retroactive application of Burlington is proper; and (3) if so, whether the limitations announced in Max M. III survive Burlington.
Both sides motion this Court for summary judgment on the issues of compensatory education and reimbursement for private educational and therapeutic services for Max. Central to the parties' cross-motions is the question of whether Max received a free and appropriate education under the guidelines set forth in the EAHCA. Defendants argue that since they have offered to reimburse the parents for the cost of Max' private psychotherapy, Max received a free and appropriate public education with related services. Thus, defendants contend that since Max completed all requirements for graduation, Max is no longer entitled to additional educational services. The Ms, however, argue that they will not be made whole by receiving compensation for sums expended for Max' psychotherapy while at New Trier. Instead, the Ms contend that because defendants allegedly failed to address Max' social and emotional problems in his IEP, Max was deprived of a free and appropriate public education, irrespective of whether the Ms are compensated for the cost of Max' private psychotherapy. Accordingly, the Ms argue they are not only entitled to the $8,855 spent on private psychotherapy for Max, but are also entitled to full reimbursement for all sums expended by them on educational and theraputic services for Max since the date of his allegedly illegal graduation from New Trier. Thus, the issues this Court must decide are (1) whether Max was denied a free and appropriate public education with related services; and (2) if so, what relief is appropriate under the EAHCA.
III. DISCUSSION
This Court will first address the issues raised by the Ms' motion for reconsideration and then turn to the questions presented by parties' cross-motions for summary judgment.
*1511 A. The Rule 60(b) Motion to Reconsider
The Ms move this Court pursuant to Fed.R.Civ.P. 60(b) to reconsider its prior ruling in Max M. III in light of the recent Supreme Court case of Burlington School Committee v. Department of Education, ___ U.S. ___, 105 S. Ct. 1996, 85 L. Ed. 2d 385 (1985). Rule 60(b) reads in relevant part:
(b) ... On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment order or proceeding for the following reasons: (1) mistake, inadvertance, surprise or excusable neglect; ... or (6) any other reason justifying relief from the operation of the judgment. The motion should be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment order, or proceeding was entered or taken....
Generally, a motion to vacate a judgment pursuant to Rule 60(b) is left to the discretion of the district court. McKnight v. U.S. Steel Corp., 726 F.2d 333, 335 (7th Cir.1984). A Rule 60(b)(1) motion, filed within the time for appeal, calling the trial court's attention to an intervening controlling appellate decision is a proper means to allow the trial court to correct a decision that would otherwise be corrected by a timely appeal. McKnight, 726 F.2d at 336. Thus, to satisfy Rule 60(b)(1), the motion to reconsider must be filed within the time permitted to make an appeal on the judgment.
Although the Ms' Rule 60(b) motion was filed over one year after Max M. III was decided, this Court denied both parties' cross-motions for summary judgment, finding issues of material fact still remained. As such, Max M. III was not a final appealable order. Thus, no impediment exists to bar this Court from entertaining the Ms' motion for reconsideration in light of an intervening controlling Supreme Court decision.[7] Accordingly, this Court turns to the second issue raised by the Ms' motion to reconsider: whether retroactive application of the Burlington decision is proper.
On April 29, 1985, the United States Supreme Court held that a trial court has the authority under the EAHCA to require a school district to reimburse parents for their expenditures on private special educational services for their child if the court determines that such placement, rather than the IEP proposed by the school district, is proper under the EAHCA. Burlington School Committee v. Department of Education, ___ U.S. ___, 105 S. Ct. 1996, 85 L. Ed. 2d 385 (1985). Prior to Burlington, the law in the Seventh Circuit was that a school district could be held liable for reimbursement of expenses incurred in an appropriate private unilateral placement only if parents could prove that the district acted in bad faith by failing to comply with the EAHCA's procedural provisions in an egregious fashion, or where the district's proposed IEP presented a serious risk of injury to the child's physical health. Anderson v. Thompson, 658 F.2d 1205, 1213-14 (7th Cir.1981). This Court followed the Anderson decision in Max M. III and imposed the bad faith requirement as a prerequisite to the Ms' claim for reimbursement for the $8,855 they spent obtaining Max private psychotherapy while he attended high school. Thus, the rule applied in Max M. III appears contrary to the teachings of Burlington.
Defendants oppose the Ms' motion for reconsideration on the grounds that Burlington should not be given retroactive application. Defendants contend that the Supreme Court decision of Chevron Oil Co. v. Huson, 404 U.S. 97, 106-07, 92 S. Ct. 349, 355-56, 30 L. Ed. 2d 296 (1971), mandates that the Burlington decision be applied on a prospective-only basis. In Chevron, the Supreme Court devised a three-part test to identify situations where civil, *1512 nonconstitutional precedent should be applied on a prospective-only basis:
(1) Does the decision "establish a new principle of law, either by overruling clear past precedent on which the litigants may have relied ... or by deciding an issue of first impression whose resolution was not clearly foreshadowed?"
(2) Considering "the prior history of the rule in question, its purpose and effect," does retroactive application "further or retard" the operations of the rule?
(3) Does retroactive application create "injustice or hardship" for one of the parties?
Chevron, 404 U.S. at 106-07, 92 S.Ct. at 355-56. Applying this three-part test to the facts before it, the Chevron Court ruled that a plaintiff's lawsuit should not be barred by the court's adoption, for the first time, of a more restrictive statute of limitations. Id. The Court reasoned that the plaintiff could not have known of a statute of limitations which did not then exist and refused to give retroactive effect to the newly espoused limitations period. Id.
The Seventh Circuit has held that since a presumption exists favoring retroactivity, all three Chevron factors must support prospective application in order to limit the retroactive effect of a decision. N.L.R.B. v. Lyon & Ryan Ford Inc., 647 F.2d 745, 757 (7th Cir.1981). Addressing the first Chevron factor, defendants argue that Burlington establishes a new rule on reimbursement for unilateral placement which represents a clean break with the well established rule formally followed in a majority of the federal circuits.[8] Little doubt exists that Burlington marked a departure from the general rule against allowing reimbursement for expenses incurred by parents for appropriate unilateral placements, unless certain exceptional circumstances existed.[9] The Burlington test for reimbursement under the EAHCA is met when the trial court determines that the private unilateral placement, rather than the proposed IEP, is proper under the Act. The Burlington Court made no mention of any exceptional circumstances as a prerequisite to reimbursement. Since Burlington establishes "a new principle of law by overruling clear past precedent," defendants have met the first element in the Chevron test. Chevron, 404 U.S. at 106, 92 S.Ct. at 355.
With regard to the second Chevron criterion, defendants contend that retroactive application of Burlington would retard the purpose and effect of the "no reimbursement for unilateral placement rule" previously followed in the Seventh Circuit. Anderson, 658 F.2d at 1213-14. Although defendants are quite accurate in their contention that retroactive application would retard the purpose and effect of the Anderson rule, defendants misinterpret the focus of the second Chevron factor. The question under this factor is whether retroactive application would further or retard the operation of the newly announced rule. In Burlington, the Court stated that the EAHCA "was intended to give handicapped children both an appropriate education and a free one; it should not be interpreted to defeat one or the other of those objectives." Burlington, ___ U.S. at ___, 105 S.Ct. at 2004. Burlington evinced a desire to facilitate rather than limit the handicapped child's right to a free and appropriate *1513 public education by allowing reimbursement for proper unilateral placements when the child's IEP was found inappropriate. Id. Retroactive application would clearly further the operation of the Burlington rule by advancing its purpose and effect while prospective application would create hinderance. Defendants' inability to satisfy the second Chevron criterion dismisses any argument against the propriety of giving Burlington retrospective effect.[10] Accordingly, this Court will reconsider Max M. III in light of the Burlington decision.[11]
In Max M. III this Court held that sums expended by the Ms on private psychotherapy and diagnostic services for Max were recoverable from defendants only if the exceptional circumstances outlined in Anderson were proven. Max M. III, 592 F.Supp. at 1449. Specifically, Max M. III held that the Ms must show defendants acted in bad faith by failing to comply with the procedural safeguards enumerated in § 1415 of the EAHCA in an egregious fashion. Id. This Court observed that defendants did not seriously dispute their failure to provide Max with intensive psychotherapy after his sophomore year and held that the Ms' procedural rights under § 1415 were violated by the defendants. However, this Court was forced to deny the Ms' motion because the issue of bad faith was not appropriate for summary judgment. Id. at 1448-49. Burlington, as previously noted, eliminates the requirement of showing exceptional circumstances as a prerequisite to recovery. Under Burlington, parents can be reimbursed for expenditures incurred from a unilateral placement of their child in a private educational facility "if the court ultimately determines such placement, rather than a proposed IEP, is proper under the Act." Burlington, ___ U.S. at ___, 105 S.Ct. at 2002-03. As no exceptional circumstances requirement survives Burlington, this Court amends its order in Max M. III to eliminate the necessity of showing defendants acted in bad faith.
The second limitation imposed in Max M. III arose out of the Ms' selection of a psychiatrist to provide Max with private psychotherapy. Although the EAHCA is interpreted to include psychotherapy as a related service school districts must provide, limitations exist on required medical services. Specifically, services provided by a licensed physician are limited to diagnosis and evaluation.[12] Due to the Local Defendants' failure to apprise the Ms of their rights under the EAHCA and provide Max with the psychotherapy he was identified as entitled to receive, this Court ruled that the Ms' uninformed selection of a psychiatrist would not bar their claim for reimbursement.
The EAHCA's limitation on physician-provided services was held to reflect a conscious effort on the part of Congress to limit costs by requiring a school district to provide only the minimum level of health care personnel recognized as legally and professionally competent to perform an EAHCA required service. Since many of the enumerated "related services" under the EAHCA could be provided by a physician or nonphysician, this Court reasoned that Congress intended to limit the nature of the services required rather than the personnel who provided the service. In *1514 that line of reasoning this Court held that where a school district failed to provide services required under the EAHCA and failed to properly inform the deprived EAHCA recipients of their right to seek review, the school district would be liable to reimburse the deprived recipients for the cost of privately obtained required services, even if a physician provided the services. Reimbursement for these physician rendered related services were subject to certain limitations. Specifically, the school district could be held liable for no more than the cost of the service as provided by the minimum level health care provider recognized as competent to perform the related service. The liability of the school district in such a case would be computed from the amount that such qualified personnel would normally and reasonably charge for the EAHCA services obtained privately by the deprived party. Thus, if the deprived party is not fully reimbursed, then the portion of the cost the deprived party must incur is the cost of exercising the freedom to select a special care provider.
The Ms in their instant motion argue that Burlington eliminates all reimbursement limitations under the EAHCA once it is found a school district proposed an inappropriate IEP. This Court disagrees. Burlington merely stated that § 1415(e)(2) of the EAHCA gave courts the remedial power to "order school authorities to reimburse parents for their expenditures on private special education for a child if the court ultimately determines that such placement, rather than a proposed IEP, is proper under the Act." Burlington, ___ U.S. at ___, 105 S.Ct. 2002-03 (emphasis added). Burlington did not consider whether full reimbursement should be required for the costs of physician administered related services, but was only concerned with privately supplied special educational services.
Max M. III represented an effort to reconcile the EAHCA's requirement that each child receive an appropriate and free public education including related services with the EAHCA's limitations on expenditures for medical services. To abandon the limitation on reimbursement for physician rendered related services in Max M. III would require this Court to completely ignore the clear language of the statute which limits medical services to diagnosis and evaluation. Burlington simply cannot be read to encompass the question of physician administered related services decided in Max M. III. Thus, the Ms' motion for reconsideration as to the reimbursement limitation imposed in Max M. III is denied.
B. The Rule 56 Motions for Summary Judgment
A motion for summary judgment may only be granted when the moving party establishes that there is no genuine issue of fact and that the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56; County of Milwaukee v. Northrop Data Systems, 602 F.2d 767, 774 (7th Cir.1979). Although complete agreement may not exist with regard to all the facts asserted by the parties, this Court agrees that there are no material facts at issue and finds the facts set forth in Part I of this opinion undisputed. Thus, parties' motions are proper for summary judgment.
Both sides' cross-motions for summary judgment on the issues of reimbursement and compensatory education require this Court to determine whether Max received a free and appropriate education under the EAHCA. Recently, the Supreme Court spoke on the question of what constitutes a free and appropriate education within the context of the EAHCA. Hendrick Hudson District Board of Educ. v. Rowley, 458 U.S. 176, 203, 102 S. Ct. 3034, 3049, 73 L. Ed. 2d 690 (1982). In Rowley, the Court developed a series of standards for judging whether a school district has met its obligations under the EAHCA. This Court will first address the standards outlined in Rowley, and then analyze the arguments of both parties in light of guidelines identified.
1. The Rowley Decision
In Rowley, the Court was asked to determine whether Amy Rowley, a partially deaf student, was entitled to sign-language interpreter in her public school classes under *1515 the requirements of the EAHCA. The parents of Amy read the EAHCA's requirement of a free and appropriate education to mean that the school district was to provide an IEP designed to maximize the potential of their handicapped child. Addressing this contention, the Court first turned to the language of the statute and determined that a free and appropriate education under the EAHCA consisted of the following:
Educational instruction specifically designed to meet the unique needs of the handicapped child, supported by such services as are necessary to permit the child `to benefit' from the instruction. Almost as a checklist for adequacy under the Act, the definition also requires that such instruction and services be provided at public expense and under public supervision, meet the State's educational standards, approximate the grade levels used in the State's regular education, and comport with the child's IEP. Thus, if personalized instruction is being provided with sufficient supportive services to permit the child to benefit from the instruction, and the other items on the definitional checklist are satisfied, the child is receiving a `free and appropriate public education' as defined by the Act.
Rowley, 458 U.S. at 188-89, 102 S.Ct. at 3041-42. Noting that the EAHCA did not include any language prescribing a substantive standard of education to be accorded to handicapped, the Court reviewed the Act's legislative history and determined:
By passing the Act, Congress sought primarily to make public education available to handicapped children. But in seeking to provide such access to public education, Congress did not impose upon the States any greater substantive educational standard than would be necessary to make such access meaningful. Indeed, Congress expressly `recognize[d] that in many instances the process of providing special education and related services to handicapped children in not guaranteed to produce any particular outcome.' S.Rep., at 11. Thus, the intent of the Act was more to open the door of public education to handicapped children on appropriate terms than to guarantee any particular level of education once inside. Id. at 192, 102 S.Ct. at 3043.
Looking at the EAHCA's language and congressional history, the Court specifically rejected the parents' contention that the school district be required to provide a potential-maximizing education. Id. at 198, 102 S.Ct. at 3046. Instead, the Court concluded that the "basic floor of opportunity" required by the Act is met when the school district provides "access to specialized instruction and related services which are individually designed to provide educational benefit to the handicapped child." Id. at 201, 102 S.Ct. at 3048. Although the Court refused to rule that every handicapped child being educated together with the general student body in the school's regular classrooms whose IEP allowed the child "to achieve passing marks and advance from grade to grade" was necessarily benefiting educationally, the Court identified such progress as a significant consideration. Id. at 206-07, n. 27, 28, 102 S.Ct. at 3050-51, n. 27, 28. Aside from adherence to the substantive requirements spelled out in the Court's definition of a "free and appropriate education," the Court noted that compliance with the EAHCA's procedural safeguards is also a factor. Id. at 206, 102 S.Ct. at 3050. The Rowley Court stated that compliance with such procedures insured parental involvement and thus created a check on the substantive contact of the proposed program. Id.
However, in pronouncing these guidelines, the Court cautioned judges against imposing their view of preferable education methods upon the school districts. Noting that courts lack the wisdom and experience necessary to resolve persistent and difficult questions of educational policy, the Court limited permissible inquiry to determining whether the specified requirements of the Act were being met. Id. at 208, 102 S.Ct. at 3052. Finally, to assist in reaching the determination of whether a free and appropriate education was being received, trial courts were urged to give due weight to the findings made during the administrative review proceedings. Id. at 206, 102 *1516 S.Ct. at 3051. Relating the factors and considerations identified to the facts in Rowley, the Court found that Amy was receiving an adequate education within the EAHCA's requirements and was not entitled to a sign language interpreter.
2. Application of Rowley to Max M.
Applying the arguments of the parties to the framework provided by the Supreme Court, this Court first turns to the checklist of criteria embodied in the Rowley analysis of a free and appropriate education. Putting to one side the issue of defendants' failure to provide Max with intensive psychotherapy after his sophomore year, the Ms argue that Max failed to receive a "truly personalized" program of instruction during his junior and senior years since Max' IEPs during that time paid inadequate attention to Max' refusal or inability to perform written work. Instead, the Ms contend that the IEPs focused almost entirely on Max' behavioral problems. Turning to the facts in this case, it is clear that Max was identified by the school district as having behavioral problems that took the form of anxiety and disorganization as well as a learning disability that related to Max' difficulty with written work. Dr. Traisman, the school district's psychologist, viewed Max as a bright child whose major difficulty was his ego. Max' lack of a strong self image was thought to be at the root of his social, emotional and academic difficulties with school. Dr. Traisman felt that before Max' learning disability could be successfully addressed, Max' ego needed to be strengthened through intensive psychotherapy.
Following the recommendation of Dr. Traisman, the school district prepared an IEP for Max' sophomore year which included intensive psychotherapy from Mr. Brull, New Trier's social worker. Although some dispute exists over the school district's willingness to provide Max with a male therapist during his junior and senior years, the school district either offered to provide a female therapist or now offers to compensate the Ms for the private therapy Max received during those years. Once the Ms agreed to the school district's repeated recommendation that Max be placed in special education, Max began to show academic improvement. In response to the difficulties Max experienced in the larger setting of New Trier West, the school district proposed and the Ms, with the assent of their private therapist, agreed to Max' placement at CCLC. While attending the highly structured and supervised environment at CCLC Max showed significant academic, social and emotional progress. Given the fact that this Court cannot impose its view of preferable educational methods upon the school district, this Court cannot hold that Max failed to receive a personalized program of instruction that allowed him to benefit educationally. Dr. Traisman stated that Max, in his opinion, was so emotionally disturbed that learning disability help would not be effective until Max' ego was strengthened. The school district adopted an educational method which was consistent with these concerns, and the Ms with the advice of their private psychotherapist agreed to his placement and program at CCLC. Although other methods may have existed for approaching Max' learning disability and behavioral difficulties, this Court finds that the school district provided Max with an adequate program of specialized education within the requirements of Rowley.
The Ms next argue that the school district failed to provide Max services consistent with his IEP. The Ms note that although Max' junior year IEP called for prevocational services, little time was spent on this area. Moreover, the Ms complain that although family therapy was a key feature in Max' overall program, the school district refused to offer the therapy at a convenient time. Addressing the first complaint, it appears that although an optimal level of prevocational services may not have been provided to Max, some attention was given to these concerns. New Trier secured part-time employment for Max which he maintained for about one year after leaving CCLC. Max was also being prepared to take college entrance exams by his core teacher at CCLC, Ms. Knox. Given the fact that prevocational skills did not appear to be a priority due to Max' general *1517 academic abilities, it is not surprising that not much time was spent in this area. As to the Ms' second complaint, this Court does not believe that the EAHCA imposes any requirement on the school district to plan family therapy sessions completely around the schedules of the parents. After a series of missed sessions by the Ms, both the school district and the Ms agreed that the sessions were not proving beneficial and should be discontinued. This Court cannot say that this situation caused Max to fail to receive the services necessary to allow him to receive an educational benefit from his IEP.
Third, the Ms argue that the school district did not meet the State's educational standard for special education. The Ms point to a 1981 Illinois State Board of Education report that showed that some of New Trier's special education staff did not have certain required certificates and letters of approval on file with the ISBE. Defendants, however, note that this report does not state that these special education instructors do not have the required certifications and letters of approval, nor does it state that these instructors are not qualified to receive such accreditations. The report, defendants contend, simply indicates that the letters and certificates are not on file with the ISBE. This Court agrees with defendants. The ISBE report, without more, is inadequate to show that the school district did not meet the State's educational standard. Nowhere in the report does the ISBE reach such a conclusion. Moreover, none of Max' special education teachers were mentioned in the report. Thus, the Ms' third argument is dismissed.
As noted earlier, Rowley states that the student's IEP should be reasonably calculated to enable the student "to achieve passing marks and advance from grade to grade, if the child is being educated in the regular classrooms of the public education system." Rowley, 458 U.S. at 203-04, 102 S.Ct. at 3049. Presumably, this statement means that a student who is mainstreamed should receive the instruction and services necessary to advance from grade to grade in the regular classrooms. Even though Max was not mainstreamed into regular classrooms during his junior and senior years at CCLC, his grades indicate that he was benefiting from his CCLC placement and that Max' IEP was reasonably calculated to enable him to have the opportunity to achieve passing marks and advance from grade to grade. Max' core teacher at CCLC, Ms. Knox, noted that Max made great improvements during his junior year in achieving the goals in his IEP and by his senior year, was showing improvement in overcoming his writing disability. Ms. Knox also stated that Max met at least the minimum expectations she had for him in each of his senior year classes and exhibited a good level of social interaction with his classmates. Although defendants complain that the school district failed to adequately address his social and educational needs, the foregoing shows different. Given that the program provided to Max at the CCLC appears to meet the substantive requirements of Rowley with the exception of psychotherapy, this Court turns its attention to the procedural violations issue.
Max M. III addressed the question of whether the school district complied with the procedural requirements of the EAHCA. Max M. III, 592 F.Supp. at 1445-48. After reviewing the facts then asserted by the parties, the failures of the school district to comply with the required notice provisions of the EAHCA were clear. Id. at 1448. The school district repeatedly failed to provide the Ms with proper notice of their right to seek an impartial due process hearing to review the adequacy of Max' IEPs. Under the EAHCA and its corresponding federal regulations, whenever a local educational agency proposes or refuses to initiate or change the identification, evaluation, or educational placement of the child, prior notice of the parents' procedural rights written in language understandable to the general public must be sent by the school.[13] This requirement was never met because such written notice in *1518 generally understandable language was never provided to the Ms during Max' years at New Trier and CCLC. Max M. III, 592 F.Supp. at 1448.
The school district, however, now contends that although proper legal notice was never sent to the Ms, the Ms did have actual notice of their right to seek a due process hearing. Citing the deposition testimony of Max' psychotherapist, Dr. Rosenfeld, the school district notes that the Ms were informed by Rosenfeld of their right to seek review during Max' junior year. Defendants also point to the Ms' admission that the school district informed them that they were entitled to a due process hearing if Max' junior year placement at CCLC proved unsatisfactory. Thus, the school district contends that any violations that occurred were only of the letter and not the spirit of the EAHCA requirements.
The reason Rowley identified the existence of procedural violations as a factor in determining the adequacy of an EAHCA education was that Congress intended parental involvement in the formulation of a child's IEP to assure that appropriate services were provided to the child. Rowley, 458 U.S. at 209-09, 102 S.Ct. at 3052-52. Turning to the facts in this case, the evidence shows that the school district did involve the parents in developing Max' special education programs. Max was first identified by the school district as a special education student during his second semester freshman year. The school district recommended that Max be placed in two special education classes for the remainder of his freshman year. The Ms objected to the proposal as too drastic and wanted to keep Max mainstreamed with the general student body. Shortly thereafter, the school district renewed its urging for special education, and the Ms finally agreed.
A meeting with the Ms was held by the school district in June of 1978 to discuss Max' sophomore IEP, and the parties agreed on the special education and support services Max was to receive. Prior to Max' junior year, the Ms engaged Dr. Rosenfeld to give Max psychotherapy and discussed with Rosenfeld the possibility of placing Max in a special education residential facility. The Ms and Rosenfeld agreed, however, not to pursue this option. Rosenfeld and the Ms attended a meeting with the school district to discuss Max' junior year placement in August of 1979 where the CCLC placement was proposed. Rosenfeld felt that CCLC was a reasonable next step in addressing problems Max had experienced in the larger setting of New Trier West and the Ms approved of the placement. The Ms were informed at this meeting that if the CCLC placement did not work out, a due process hearing could occur. Finally, Max' senior year placement was discussed with and approved by Rosenfeld and the Ms.
The foregoing facts reflect a pattern consistent with the purpose of the EAHCA's notice provisions. Here, the parents were quite involved with assessing the educational and supportive services their child was to receive from the school district and had the professional advice of a psychiatrist familiar with the EAHCA. Although procedural violations of the EAHCA notice provisions occurred throughout Max' high school education, no program or placement was implemented without the Ms' involvement and consent. The actions of the school district, although not commendable, square with the basic policy concern of ensuring proper educational and related services through parent involvement. Thus, this Court is not prepared to hold that a free and appropriate education was denied Max solely on the basis of the school district's procedural violations.
The final argument raised by the Ms is that the school district's failure to provide Max with intensive psychotherapy during his junior and senior years deprived Max of a free and appropriate education. The Ms note that the school district's psychologist, Dr. Traisman, evaluated Max during his second semester freshman year and unequivocally recommended intensive psychotherapy for Max. Traisman stated in his report that unless the intensive psychotherapy was undertaken, "Max will not experience success socially, emotionally or academically." The undisputed facts show *1519 no therapy was provided by the school district for Max after his sophomore year. Instead, the Ms were forced to purchase private psychotherapy from Dr. Rosenfeld at a cost to them of $8,855.
At the close of Max' senior year, the Ms exercised their right to a due process hearing and discontinued Max' psychotherapy sessions with Dr. Rosenfeld. Both the hearing officer and the ISBE specifically found that Max had been denied a free and appropriate education with related services because the school district failed to provide Max with the recommended intensive psychotherapy. The ISBE, however, reversed the hearing officer and denied relief to the Ms alleging that the Ms committed a pleading defect.[14]
Based on the foregoing facts, the plaintiffs must prevail on this issue. Max was denied a free and appropriate education under the EAHCA because of the school district's failure to provide Max with the recommended psychotherapy. Yet, reaching this conclusion does not entitle the Ms to full reimbursement for all sums they expended obtaining services for Max. Instead, this conclusion requires this Court to determine what relief is appropriate. § 20 U.S.C. § 1415(e)(2).
Aside from the issue of psychotherapy, this Court believes that the school district provided Max with a free and appropriate education within the guidelines set forth in Rowley. There may be little doubt that the program the Ms placed Max in after his senior year at CCLC was more beneficial to Max than the school district's proposed placement, but the school district is not required to maximize the potential of a EAHCA student. The school is only required to provide a program that will allow the child to benefit educationally. The school district provided Max with such a program but for its failure to assure free psychotherapy. After considering all the undisputed evidence presented by the parties, this Court finds reimbursing the Ms for the cost of Max' psychotherapy to be appropriate relief.[15]
Although defendants repeatedly state that they are willing to reimburse the Ms for Max' psychotherapy according to this Court's ruling in Max M. III, they have offered no figures of what New Trier's qualified therapists would normally and reasonably charge for such therapy. According to Max M. III, defendants have the burden of coming forth with such evidence if they believe the amount charged by the private physician exceeds the amount qualified school personnel would have normally and reasonably charged. Nowhere in any of the two hundred plus pages of argument filed by defendants concerning this motion is there any proof that the $8,855 expended by the Ms on private psychotherapy exceeds the amount qualified New Trier personnel would have charged. Considering the fact that defendants time and time again state in their briefs that they are willing to reimburse the Ms for Max' psychotherapy, yet offer no proof that similar services could have been provided at lower cost by New Trier personnel, this Court orders Local Defendants to reimburse the Ms for the full amount of $8,855 with interest.
IV. CONCLUSION
The Ms motion for reconsideration is granted, and both sides' motions for summary judgment are granted in part and denied in part. The defendants are ordered to reimburse the Ms for the $8,855 they *1520 spent obtaining private psychotherapy for Max during his junior and senior years of high school with interest and costs.
IT IS SO ORDERED.
NOTES
[1] Plaintiffs originally brought claims under the EAHCA, 20 U.S.C. § 1401 et seq.; § 504 of the Rehabilitation Act, 29 U.S.C. § 794; 42 U.S.C. § 1983; the due process and equal protection clauses of the fourteenth amendment; the Illinois School Code, Ill.Rev.Stat. ch. 122, ¶ 14-1.01 et seq.; and the Illinois Constitution, Art. I, § 2; Art. X, § 1.
[2] The term "handicapped children" in the context of the EAHCA includes "seriously emotionally disturbed children ... or children with specific learning disabilities, who by reason thereof require special education and related services." 20 U.S.C. 1401(1) (1976).
[3] Qualified social workers are among the personnel authorized to administer psychotherapy as a related service under the EAHCA. 34 C.F.R. § 300.13(b)(2) 1983.
[4] In Max M. IV, this Court disagreed with the ISBE and ruled that the Ms had sufficiently stated their claim for compensatory educational services for Max at the administrative proceedings before the ISBE. This Court's finding that no waiver had occurred at the administrative hearing undercut the ISBE's sole reasoning for dismissing the Ms' claim for compensatory education. Thus, at both levels of the administrative review process, New Trier was found to have denied Max a free and appropriate education because of its failure to provide Max with the recommended psychotherapy.
[5] See generally, Max M. v. Thompson, 566 F. Supp. 1330 (N.D.Ill.1983) (Max M. I); Max M. v. Thompson, 592 F. Supp. 1437 (N.D.Ill.1984) (Max M. III); Max M. v. Thompson, 592 F. Supp. 1450 (N.D.Ill.1984) (Max M. IV).
[6] See supra note 5.
[7] Motions to reconsider in light of intervening controlling precedent have been entertained not only under subsection (1) of Rule 60(b), but also under subsection (6). See e.g. DeFilippis v. United States, 567 F.2d 341, 343 n. 5 (7th Cir.1977). The Ms' motion appears to satisfy the requirements of either subsection of Rule 60(b).
[8] Reimbursement was denied for unilateral placements under the EAHCA in the following cases: Doe v. Anrig, 692 F.2d 800, 810 (1st Cir.1982); Stemple v. Board of Education, 623 F.2d 893, 898 (4th Cir.1980); Marvin H. v. Austin Independent School District, 714 F.2d 1348, 1356 (5th Cir.1983); Anderson v. Thompson, 658 F.2d 1205, 1213 (7th Cir.1981); Miener v. State of Missouri, 673 F.2d 969, 980 (8th Cir.1982); Mountain View-Los Altos High School District v. Sharron B.H., 709 F.2d 28 (9th Cir.1983); and Powell v. Defore, 699 F.2d 1078, 1081 (11th Cir. 1983).
[9] Prior to Burlington the rule in the Seventh Circuit was that reimbursement for the parents' cost of obtaining services required under the EAHCA was only appropriate (1) where "the Court determines that the services in dispute were necessary to protect the physical health of the child," acted in bad faith by failing to comply with the procedural safeguards of [20 U.S.C. § 1415 (1976)] in an egregious fashion. Anderson v. Thompson, 658 F.2d 1205, 1213-14 (7th Cir.1981).
[10] Moreover, the third Chevron factor, whether retroactive application creates any injustice or hardship, is also resolved in favor of the plaintiffs. Anderson was decided well after defendants' failure to provide Max with psychotherapy and decision to grant Max a diploma over the objections of the Ms. Even after Anderson, avenues existed for imposing liability on defendants for Max' psychotherapy given the procedural violations defendants committed while Max attended New Trier schools. Max M. v. Thompson, 592 F. Supp. 1437, 1445-48 (N.D.Ill.1984). Thus, this Court cannot agree that injustice or hardship will occur if Burlington is applied retroactively.
[11] In deciding that Burlington will apply, this Court is required to recognize the Ms' claims for sums expended on private education and related psychological services for Max after Max' graduation. This claim fits squarely within the unilateral placement rule in Burlington and will be addressed in this Court's ruling on parties' motions for summary judgment.
[12] See 20 U.S.C. § 1401(17) (1978); 34 C.F.R. 300.13(b)(4) (1985).
[13] See 20 U.S.C. § 1415; 34 C.F.R. 300.504, 505 (1985).
[14] See supra note 4.
[15] Because this Court finds that Max M. received an appropriate education under the EAHCA but for the school district's failure to provide free psychotherapy, the Ms' claim for reimbursement for sums spent obtaining special educational and therapeutic services after his graduation as well as the Ms' claim for compensatory remedial education is denied. Given the fact the Ms will be reimbursed for the private psychotherapy Max received during his high school years, Max will have received an appropriate education with related services at public expense. With reimbursement, Max' graduation was appropriate, and Max is not entitled to further education at the public's expense. Moreover, since the Ms clearly refused to allow Max to remain at CCLC after his senior year, the school district cannot be held for failing to maintain Max' placement during the statutory review process. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1577933/ | 439 F. Supp. 943 (1977)
Ransom Dean OWENS, Petitioner,
v.
C. L. BENSON, Warden, Respondent.
Civ. A. No. 77-71665.
United States District Court, E. D. Michigan, S. D.
August 30, 1977.
Ransom Dean Owens, in pro per.
OPINION AND ORDER DENYING MOTION TO VACATE SENTENCE
CORNELIA G. KENNEDY, District Judge.
On September 29, 1976, petitioner Ransom Dean Owens pleaded guilty to a charge of armed bank robbery; thereafter he was sentenced to an eighteen-year term of imprisonment to be served under the *944 provisions of 18 U.S.C. § 4205(b)(2). United States v. Owens, Crim. Action No. 76-80772. Defendant Owens' subsequent motion to reduce sentence was denied by the court in an Opinion and Order entered on April 7, 1977. On July 7, 1977, petitioner, acting pro se and in forma pauperis, filed a completed form entitled "Petition for Writ of Habeas Corpus for Person in Federal Custody," urging that he was being held in prison unlawfully because: 1) his attorney and the prosecutor had both told him he would get "far less time than the eighteen years imposed by the Court"; 2) his presentence report contained false and misleading information; and 3) his indictment was returned by a grand jury selected from a jury wheel which had not been emptied and refilled in accordance with this district court's approved jury selection plan. Although this petition seeks a writ of habeas corpus and names as respondent the warden of the institution in which petitioner is confined, the court will consider it as a motion to vacate sentence, since it is clear that the petition challenges the legality of the sentence and that an application for habeas relief may not be entertained. 28 U.S.C. § 2255.
Petitioner's primary contention is that his attorney and the Assistant United States Attorney prosecuting his case both told him that he would get "far less time than" the sentence actually imposed. Although it is conceivable that these attorneys merely explained that the time served in prison under a § 4205(b)(2) sentence is often less than the full term allowed by the sentence, petitioner's claim is apparently that he was induced to plead guilty by predictions that his sentence would be less than it actually proved to be.
Statements made on the record at the time of petitioner's guilty plea, however, contradict this vague allegation. After first indicating that he did not intend to plead guilty, petitioner later returned to the courtroom and tendered his plea of guilty. When asked by the court what had caused him to change his mind, petitioner answered candidly that he had hoped the government would reduce its offer of an eighteen-year maximum, and that he now wanted to accept that offer to avoid the possibility of a twenty-five year sentence. In petitioner's presence, the Assistant United States Attorney told the court that there had been no other promises than those set forth in open court and that he had told petitioner that (within the agreed-upon maximum) the actual sentence imposed would be entirely up to the court. Petitioner's attorney stated that he had informed petitioner of his rights and that he thought petitioner understood the plea agreement offered. The court then asked petitioner to explain the terms of the agreement as he understood it, and petitioner replied: "Well, I could be sentenced up to eighteen years, and I would be eligible for a parole period . . . well, you know (explaining § 4205(b)(2)." The court later addressed petitioner as follows:
Q: Aside from those promises [made in open court], have any promises been made to you to get you to plead guilty here?
A: No.
Q: Has anyone promised you anything to plead guilty aside from those?
A: No.
In the recent case of Blackledge v. Allison, 431 U.S. 63, 97 S. Ct. 1621, 52 L. Ed. 2d 136 (1977), the Supreme Court explained the considerations to be weighed when a defendant who has pleaded guilty seeks post-conviction relief on the basis of allegations which contradict statements made at the time of the plea. The Court made it clear that there is no per se rule excluding such collateral attacks. However, the Court also observed that
the representations of the defendant, his lawyer, and the prosecutor at [the plea] hearing, as well as any findings made by the judge accepting the plea, constitute a formidable barrier in any subsequent collateral proceedings. Solemn declarations in open court carry a strong presumption of verity. The subsequent presentation of conclusory allegations unsupported by *945 specifics is subject to summary dismissal. . . .
431 U.S. at 73, 97 S.Ct. at 1629.
In Allison the petitioner contended that his attorney had told him, in the presence of a third person, that he would get no more than a ten-year sentence and that he should answer the court's questions at the plea hearing so that his plea would be accepted. Moreover, the record of the plea hearing in that case consisted of nothing but a printed form with monosyllabic answers to thirteen rote questions, signed by the trial judge and the defendant. As the Supreme Court noted, "The record is silent as to what statements Allison, his lawyer, or the prosecutor might have made regarding promised sentencing concessions." 431 U.S. at 77, 97 S.Ct. at 1631. In contrast, the entire proceedings at petitioner Owens' change of plea hearing were recorded by the court reporter. As set forth above, both the prosecutor and the petitioner himself denied that any other promises had been made to induce his guilty plea. Moreover, petitioner here does not imply that he was told to answer the court's questions falsely in order to consummate a secret plea agreement.
For all of these reasons, the court is of the opinion that petitioner's vague claim regarding his plea agreement is a conclusory allegation "unsupported by specifics" and subject to summary dismissal. Petitioner's second contention that the presentence report concerning him was inaccurate was previously discussed in the court's Opinion and Order of April 7, 1977, denying his motion to reduce sentence, and is rejected again now for the same reasons. Finally, petitioner's claim that the grand jury which indicted him was improperly selected must be denied on the ground of untimeliness in light of the clear provision of the relevant statute:
(a) In criminal cases, before the voir dire examination begins, or within seven days after the defendant discovered or could have discovered by the exercise of diligence, the grounds therefor, whichever is earlier, the defendant may move to dismiss the indictment or stay the proceedings against him on the ground of substantial failure to comply with the provisions of this title in selecting the grand or petit jury. 28 U.S.C., § 1867(a).
Since it appears from the face of petitioner's motion and the prior proceedings in his case that he is not entitled to relief, that motion is DENIED and this action will be dismissed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2489068/ | 66 F. Supp. 2d 288 (1999)
RHODE ISLAND MEDICAL SOCIETY, Pablo Rodriguez, M.D., Benjamin S. Vogel, M.D., and Planned Parenthood of Rhode Island, Plaintiffs,
v.
Sheldon WHITEHOUSE, Attorney General of the State of Rhode Island, in his official capacity, Defendant,
and
Lincoln Almond, Governor of the State of Rhode Island, in his official capacity, DefendantIntervenor.
No. C.A. 97-416L.
United States District Court, D. Rhode Island.
August 30, 1999.
*289 *290 *291 *292 *293 Lynette J. Labinger, Roney & Labinger, Providence, RI, Catherine Weiss, Louise Melling, Caitlin Borgmann, Talcott Camp, ACLU Foundation, New York City, for plaintiffs.
Rebecca Tedford Parington, Attorney General's Office, Providence, RI, Claire *294 J.V. Richards, Office of the Governor, Providence, RI, for defendant.
DECISION AND ORDER
LAGUEUX, Chief Judge.
Attorney General Sheldon Whitehouse and Governor Lincoln Almond ("defendants") undertake a Herculean effort to save Rhode Island's ban on partial birth abortions, R.I.Gen.Laws § 23-4.12 (1996) (the "Act"). Two years ago, this Court opined that the Act appeared presumptively unconstitutional, even with all presumptions applied in favor of the law. That proved true.
The Act sprouted amid a national debate about a relatively-new surgical procedure described below as a "D & X." When the Act first passed in 1997, the Rhode Island General Assembly (the "Legislature") was tilling soil already occupied by nearly three decades of abortion jurisprudence. Almost immediately, this case was filed, and this Court predicted that constitutional pruning would be necessary. Thus in 1998, the Legislature transplanted language from a Congressional bill in the hopes of escaping the shears. That amended Act is under review here.
At trial, defendants argued that the term "partial birth abortion" refers only to the D & X procedure. Doctors accept a definition of the D & X, and defendants claim that the Legislature trussed the Act to a limited trellis and banned that single procedure. However, the reality is that the Legislature rejected the medical exegesis. The Act defines "partial birth abortion" with completely different words and encompasses a completely different set of operations. As such, the Act's canopy stretches to overshadow constitutionally-protected abortions. Obstetricians Pablo Rodriguez and Benjamin Vogel, along with Planned Parenthood of Rhode Island and the Rhode Island Medical Society (collectively "plaintiffs"), have demonstrated multiple flaws in the Act two provisions that strangle constitutional rights and two missing exceptions required by the United States Supreme Court.
Put simply, the Legislature did not write into law what defendants now claim that it intended. No reasonable reading of the Act matches what defendants see there. This is a nation of laws, not of legislative history or attorney general advisory opinions. No amount of government promises can salvage this Act. This case does not decide whether defendants may proscribe the D & X because this Act bans far more and, not coincidentally, far more than the Constitution allows. The Supreme Court instructs that a law this unrestrained and pernicious to the Constitution must be torn out by the roots.[1]
As explained below, the Act violates the Constitution for four distinct reasons. Because of the likelihood of legislative amendments, this Court seeks to be perfectly clear where the Act grows into a protected plot. First, the entire Act is unconstitutional because the definition of "partial birth abortion" is vague and infringes on the D & E procedure which is legally protected. Second, the entire Act is unconstitutional because it lacks an exception for the mother's health. Third, *295 the entire Act is unconstitutional because the "mother's life" exception is inadequate. Fourth, the civil remedies are unconstitutional because they place an undue burden on a woman's right to an abortion.
This Court declines to reach plaintiffs' "legitimate state interest" argument, which affects equal protection and substantive due process. These arguments would be relevant if the Legislature were to replace the Act's definition with the detailed, medically-accepted D & X definition. That, however, would be a different case and controversy.
Therefore, this Court issues a permanent injunction against the enforcement of R.I.Gen.Laws § 23-4.12. This Act violates the Constitution and 42 U.S.C. § 1983. Plaintiffs are also entitled to attorneys' fees and costs.
FACTS
I. Parties
Drs. Rodriguez and Vogel are physicians who perform abortions in Rhode Island. Planned Parenthood is a Rhode Island corporation that hires doctors to perform abortions at its facility. The Rhode Island Medical Society (the "Medical Society") is an association of doctors. The defendants are the Attorney General and Governor of Rhode Island.
II. Abortion Practice
Pursuant to Federal Rule of Civil Procedure 52(a), this Court may enter judgment following a trial without a jury. See Fed.R.Civ.P. 52(a). In crafting a decision following a bench trial, the Court "shall find the facts specially and state separately its conclusions of law thereon." Id. It is within the purview of the trial court to weigh the credibility of witnesses for the purpose of making findings of fact. See id. This Court draws its factual evidence from a bench trial conducted May 36, 1999. The medical facts depend primarily on the testimony of three doctors who were certified as experts in abortion practice: plaintiff Rodriguez of Women & Infants Hospital, (see P.s' Ex. 6 (resume)); plaintiffs' witness Phillip Stubblefield of Boston Medical Center, (see P.s' Ex. 8 (resume)); and defendants' witness Frank Boehm of Vanderbilt University Hospital, (see D.s' Ex. J (resume)).
A. Abortion Procedures
An abortion occurs any time that a pregnancy ends without a viable baby being born. The Act concerns itself only with induced, rather than natural, abortions, so the parties in this case use the term "abortion" without modification.
Doctors separate abortion procedures into six distinct types defined below. The procedures are performed at different stages of pregnancy and are accompanied by different risks and complications. The age of a fetus is measured in weeks, counting backwards to the first day of the woman's most-recent menstrual period.
One of the procedures the D & X is relatively new, and several courts have differed on whether it is distinct from the established procedure known as the D & E. However, the evidence in this case is clear that, even if there was confusion several years ago, the dust has settled. Based heavily on a 1997 definition by the American College of Obstetricians and Gynecologists ("ACOG"), doctors recognize the difference between the D & E and the D & X.
As an aside necessary to defining the words in the Act, this Court recognizes that doctors use the term "procedure" in a particularly diffuse fashion. It seems that any distinct action by a doctor can be defined as a procedure. Thus, the abortion operation is a procedure, and it is made up of components that are also procedures, such as injecting anesthesia, cutting an incision through a woman's abdomen, or scraping the uterine wall. Those, in turn, are made of up even more-basic and discrete procedures. Based on the testimony at this trial, this Court finds any *296 distinct action can be medically defined as a procedure, but that doctors define only some actions as "procedures." Apparently, an action much like esteemed people must have some recognized significance to qualify for a title.
1. Types of abortions
a. Vacuum aspiration
In a vacuum aspiration abortion, the physician dilates the cervix and then removes the fetus and the other products of conception with a tube or syringe that is inserted into the uterus. This is the procedure that carries the least risk to the woman, and it is the most-common type of abortion during the first 12 weeks of pregnancy.
The fetus can pass through the suction tube (called a "cannula") either intact or dismembered. While dismembered parts of the fetus are suctioned out of the uterus, part of the fetus remains in utero and may have a heartbeat. The vacuum aspiration becomes impossible when the fetus grows too large for the available tubes, typically after the first trimester.
Dr. Stubblefield and Dr. Rodriguez described instances in which portions of the fetus jam the suction tube. In that situation, the physician must remove the tube from the patient's body and clear the tube. The fetal tissue thereby passes through the vagina as the doctor removes the tube. The doctor then returns the tube to the uterus and continues the abortion.
b. D & E
In a D & E, the physician dilates the cervix and uses a combination of suction and traction to dismember the fetus inside the woman's body. The pieces are pulled out of the uterus through the vagina, generally with forceps. The D & E, also known as dilation and extraction, is the most-common technique used between 12 and 23 weeks.
The physician generally dilates the cervix with dilators that can be mechanical or osmotic, those which absorb moisture and expand slowly in the cervix. Once the cervix is open sufficiently and the dilators are removed, the doctor reaches into the uterus with an instrument and ruptures the amniotic sac. Then, using a combination of suction curettage and forceps, the physician removes the fetus. Normally, the fetus is removed in parts. The physician pulls on fetal body parts until the portion slides into the vagina and the remainder of the body jams against the cervix. The doctor tries to pull as much of the fetus as possible. Traction tears apart the fetus' body.
Theoretically, a D & E is possible until the fetus becomes viable. However, the fetus' bones become stronger as weeks pass, and the D & E becomes more and more difficult. Generally, this procedure may be performed until about 23 weeks.
At times, the physician can remove the fetus intact. This occurs when the cervix has dilated enough to allow the entire body to pass through intact. This is an unintended consequence and not the standard procedure for a D & E. Dr. Rodriguez described the rare event when the body will be delivered up to the head, which jams at the cervix because it is generally larger than the body. He said that the skull must be crushed for the head to pass.
The specific procedures in a D & E depend on a number of variables including the size and orientation of the fetus, the amount of dilation, the condition of the cervix and uterus, and the patient's overall health and medical condition.
c. Induction
In an induction, the physician induces premature labor by administering medications, including prostaglandin, saline or urea. The fetus is born, and because it is not old enough to survive outside the womb, it dies either during labor or within minutes of birth. These procedures are performed in a hospital or hospital-like setting, as opposed to a doctor's office or *297 less-prepared clinic. Inductions generally are not performed before 16 weeks because, prior to that point, the uterus is less responsive to labor-inducing medications. From 16 to 20 weeks, they are commonly done with prostaglandin and after 20 weeks with saline. They can be performed until viability.
Sometimes a separate procedure is necessary to remove the placenta and other remaining products of conception. Dr. Stubblefield described a rare complication, similar to the rare D & E complication described above, in which the mother's cervix dilates enough that the fetus' body passes into the vagina but the head jams at the internal os, the edge of the uterus where it meets the vagina. Even if the fetus is alive at this point, it is destined to die. However, that could come about in at least three ways: the doctor may inject poison into the fetus' heart; the doctor might crush the skull; or the doctor could wait for the fetus' blood supply to be strangled as the umbilical cord is compressed between the skull and the uterine wall.
d. Hysterectomy and hysterotomy
A hysterotomy is essentially a pre-term caesarian section. The physician makes an incision in the uterine wall and removes the fetus through the abdomen. Hysterectomy is the removal of the uterus as well as the fetus, and it renders the woman sterile. These are much less common than years ago because they have been supplanted by newer techniques with fewer risks to the mother's health and life. Only 44 hysterectomies and hysterotomies were reported nationwide in 1995 as a means of performing an abortion. (See P.s' Ex. 4 at Table 18.)
e. D & X
In the past decade, physicians have publicized the D & X, a variation of the D & E that they perform in later term abortions, generally after the 24th week. In the D & X, the physician extracts the fetus intact, feet first, until the cervix is obstructed by the fetal skull. The skull is crushed either with forceps or by inserting a sharp instrument at the base of the fetal skull and evacuating the brain. This procedure is also called the "intact D & E," "intact dilatation and extraction" or the "partial birth abortion." This Court uses the term D & X for simplicity's sake.
This procedure was first publicized by Dr. Martin Haskell in 1992 in a paper that he delivered at a convention. (See D.s' Ex. A.) Other courts have found that doctors could not distinguish between a D & E and a D & X. However, all witnesses in this case recognized the distinct procedure based on descriptions offered by Dr. Haskell and Dr. James McMahon, (see D.s' Ex. B), and based on a definition written by the executive board of ACOG in 1997. ACOG defined the D & X as having all four of the following elements:
1. deliberate dilatation of the cervix, usually over a sequence of days;
2. instrumental conversion of the fetus to a footling breach;
3. breech extraction of the body excepting the head;
4. partial evacuation of the intracranial contents of a living fetus to effect vaginal delivery of a dead but otherwise intact fetus.
(D.s' Ex. D [hereinafter the "ACOG definition"].)
As will become clear below, it is crucial to emphasize that Drs. Rodriguez, Stubblefield and Boehm relied on the ACOG definition to delineate the D & X. This Court finds that the ACOG definition created a common ground that doctors understand. The ACOG definition is the medically-accepted definition of D & X, and this Court uses D & X to refer to the ACOG-defined operation. Still, the D & X is a variant of the D & E. Any and all of the steps that occur during the D & X can occur during a D & E. The D & X is merely a subset, a defined group of procedures that would have been called a D & E *298 until doctors and medical groups carved it out.
2. Risks of different procedures
Generally, the risk to a woman's health or life created by an abortion increases with the number of weeks of the pregnancy. A vacuum aspiration carries less risk than a D & E, which carries less risk than an induction, which carries less risk than a hysterotomy or hysterectomy. Doctors have not done statistical studies as to the relative risk of a D & X, although the doctors testified that it was equal to or less than the risk of a D & E. The complications related to abortions can range from short-term fevers or bleeding to long-term inability to carry future babies to term to life-threatening endometritis or hemorrhage.
The D & E procedure is particularly important for women whose fetuses have genetic or congenital anomalies. Some of these anomalies are fatal within days, or even minutes, of birth. Because most fetal anomalies cannot be detected before the 16th to 18th week and the results of these tests take two to four weeks, D & E procedures are extremely important because they can be used to terminate these pregnancies safely.
B. Abortions in Rhode Island
1. Doctors' intent on beginning operations
When a doctor walks into an operating room to perform an abortion, he or she intends to perform one of the six abortion types described above. Doctors understand the differences, and they give evidence of their choice both through the consent forms that patients sign and through notes or hospital forms that the doctor signs.
Complications during the abortion some rare, some common may cause a doctor to change the procedure that he or she is performing. For example, extreme emergency may cause a doctor to undertake a hysterectomy or hysterotomy even though the initial intent had been to conduct an induction.
2. Abortions by Rhode Island doctors
In 1995, Rhode Island doctors performed 5,707 abortions. (See P.s' Ex. 4 at Table 8.) No doctor performs the D & X in Rhode Island. No evidence was offered that a D & X has ever been performed in the state.
Planned Parenthood only offers vacuum aspirations. Inductions are only performed in Rhode Island at Women & Infants Hospital in Providence. Some late-term procedures are not done at all in Rhode Island, so patients are sent out of state, often to Boston.
III. The Act
The Act's language was drawn from a bill that Congress passed but President Clinton vetoed. See H.R. 1122, 105th Cong. (1997) (the language); D.s' Ex. BB (Governor Almond noting the similarity in language).
A. The Language
The Act, after the 1998 amendments, includes the language at issue in this case:
23-4.12-1 Definitions.
(a) Partial birth abortion. For purposes of this chapter, "partial birth abortion" means an abortion in which the person performing the abortion vaginally delivers a living human fetus before killing the infant and completing the delivery.
(b) Fetus and infant. For purposes of this chapter, the terms "fetus" and "infant" are used interchangeably to refer to the biological offspring of human parents.
(c) As used in this section, the term "vaginally delivers a living fetus before killing the infant" means deliberately and intentionally delivers into the vagina a living fetus, or a substantial portion thereof, for the purpose of performing a procedure the person performing *299 the abortion knows will kill the infant, and kills the infant.
23-4.12-2 Prohibition of partial birth abortions.
No person shall knowingly perform a partial birth abortion.
23-4.12-3 Life of the mother exception.
Section 23-4.12-2 shall not apply to a partial birth abortion that is necessary to save the life of a mother because her life is endangered by a physical disorder, physical illness, or physical injury, including a life-endangering condition caused by or arising from the pregnancy itself; provided, that no other medical procedure would suffice for that purpose.
23-4.12-4 Civil remedies.
(a) The woman upon whom a partial birth abortion has been performed in violation of § 23-4.12-2, the father of the fetus or infant, and the maternal grandparents of the fetus or infant, and the maternal grandparents of the fetus or infant if the mother has not attained the age of eighteen (18) years at the time of the abortion, may obtain appropriate relief in a civil action, unless the pregnancy resulted from the plaintiff's criminal conduct or the plaintiff consented to the abortion.
(b) Such relief shall include:
(i) Money damages for all injuries, psychological and physical occasioned by the violation of this chapter; and
(ii) Statutory damages equal to three (3) times the cost of the partial birth abortion.
(c) If judgment is rendered in favor of the plaintiff in an action described in this section, the court shall also render judgment for a reasonable attorney's fee in favor of the plaintiff against the defendant. If the judgment is rendered in favor of the defendant and the court finds that the plaintiff's suit was frivolous and brought in bad faith, the court shall also render judgment for a reasonable attorney's fee in favor of the defendant against the plaintiff.
23-4.12-5 Penalty.
(a) Performance of a partial birth abortion deliberately and intentionally is a violation of this chapter and shall be a felony.
(b) A woman upon whom a partial birth abortion is performed may not be prosecuted under this chapter for violating this chapter, or any provision thereof, or for conspiracy to violate this chapter or any provision thereof.
23-4.12-6 Severability.
(a) If any one (1) or more provisions, clauses, phrases, or words of § 23- 4.12-3 or the application thereof to any person or circumstance is found to be unconstitutional, the same is hereby declared to be inseverable.
(b) If any one (1) or more provisions, sections, subsections, sentences, clauses, phrases or words of the remaining sections or the application thereof to any person or circumstance is found to be unconstitutional, the same are hereby declared to be severable and the balance of the chapter shall remain effective notwithstanding such unconstitutionality. The legislature hereby declares that it would have passed this chapter, and each provision, section, subsection, sentence, clause, phrase, or word thereto, with the exception of § 23-4.12-3, irrespective of the fact that any one (1) or more provisions, sections, subsections, sentences, clauses, phrases, or words be declared unconstitutional.
R.I. Gen.Laws § 23-4.12 (emphasis added).
B. History of the Legislation
On July 2, 1997, Governor Almond signed the first bill passed by the Legislature to ban partial birth abortions. This Court issued a temporary restraining order against enforcement of the Act on July *300 11, 1997.[2] The case was later stayed to allow the Legislature to amend the Act, and in July 1998, Governor Almond signed a bill that responded to this Court's comments. That amendment created the Act at issue in this case.
The legislative history entered into evidence in this case suggests that neither Governor Almond nor the legislative sponsors lobbied for the Act to ban all abortions. When legislators raised the possibility during the debate, Rep. Frank Anzeveno said that he wished that it would ban all abortions, but he said he did not think it reached so far. (See D.s' Ex. AA at 6, In. 15-16.) Governor Almond emphasized his limited intent in both of his transmission messages when he signed the bills. (See, e.g., D.s' Ex. BB & CC.) Many supporters mentioned "a procedure" or similar language that suggests that they were offended by and hoped to ban a single procedure. (See, e.g., D.s' Ex. AA at 2, In. 19-21 (Rep. Anzeveno offering to describe a partial birth abortion).) But there is no definitive evidence of how the Legislature defined that procedure other than the Act's language. (See D.s' Ex. AA at 7, In. 11-12 (Rep. Anzeveno declining to explain the procedure that would be banned: "Part of the baby is delivered. Part is not.").)
ISSUES OF LAW
IV. Overview of Supreme Court's Abortion Jurisprudence
A woman's right to an abortion before the fetus is viable is guaranteed by the Due Process Clause of the Fourteenth Amendment. See Planned Parenthood v. Casey, 505 U.S. 833, 846, 112 S. Ct. 2791, 120 L. Ed. 2d 674 (1992); Roe v. Wade, 410 U.S. 113, 153, 93 S. Ct. 705, 35 L. Ed. 2d 147 (1973).
The Sixth Circuit neatly summarized the Supreme Court's jurisprudence on two settled principles:
(1) states may ban a particular abortion procedure pre-viability as long as the regulation does not create an undue burden on a woman's right to choose an abortion; and
(2) subsequent to viability, states may regulate and even proscribe, abortion except where it is necessary, in appropriate medical judgment, for the preservation of the life or health of the mother.
See Women's Med. Prof'l Corp. v. Voinovich, 130 F.3d 187, 193 (6th Cir.1997) (quoting Casey, 505 U.S. at 879, 112 S. Ct. 2791). The Supreme Court plurality explained that "[a] finding of an undue burden is a shorthand for the conclusion that a state regulation has the purpose or effect of placing a substantial obstacle in the path of a woman seeking an abortion of a non-viable fetus." Casey, 505 U.S. at 877, 112 S. Ct. 2791. This "undue burden" standard is the central focus of the Court's analysis.
At least four district courts have examined other state laws with language that parallels the Act. All four reported opinions found that language drawn from the federal bill violated the Constitution. See Richmond Med. Ctr. v. Gilmore, 55 F. Supp. 2d 441 (E.D.Va. 1999), appeal docketed, Nos. 98-1930 & 99-2000 (4th Cir. July 29, 1999); Planned Parenthood v. Miller, 30 F. Supp. 2d 1157 (S.D.Iowa 1998), appeal submitted on briefs, No. 99-1372 (8th Cir. July 1, 1999); Planned Parenthood v. Verniero, 41 F. Supp. 2d 478 (D.N.J. 1998), appeal docketed, No. 99-5042 (3d Cir. Jan 28, 1999); Eubanks v. Stengel, 28 *301 F.Supp.2d 1024 (W.D.Ky.1998), appeal docketed, No. 98-6671 (6th Cir. Dec. 11, 1998).
One circuit court examined the Virginia law before the district court opinion cited above. A Fourth Circuit judge sitting alone on an appeal of a preliminary injunction held that the law only applied to the D & X. See Richmond Med. Ctr. v. Gilmore, 144 F.3d 326, 331-32 (4th Cir.1998). Judge J. Michael Luttig held that the Virginia plaintiffs lacked standing because the limiting interpretation offered by the governor and prosecutors meant that the law did not cover the abortions that the doctors performed.
V. Standing
Standing is the constitutional requirement that a plaintiff allege a judicially cognizable and redressable injury in order to pursue a lawsuit. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 559-61, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992). The inquiry involves constitutional limitations to federal court jurisdiction and prudential limitations to its exercise. See Warth v. Seldin, 422 U.S. 490, 498, 95 S. Ct. 2197, 45 L. Ed. 2d 343 (1975). Because standing is an element of subject matter jurisdiction, plaintiffs bear the burden of proof. See Aversa v. United States, 99 F.3d 1200, 1209 (1st Cir.1996). An analysis of a plaintiff's standing focuses not on the claim itself, but on the party bringing the challenge; whether a plaintiff's complaint could survive on its merits is irrelevant to the standing inquiry. See Libertad v. Welch, 53 F.3d 428, 437 n. 5 (1st Cir.1995) (civil RICO case dealing with abortion protests).
Although the standing doctrine is not easily susceptible to mechanical application, see New Hampshire Right to Life Political Action Comm. v. Gardner, 99 F.3d 8, 12-13 (1st Cir.1996), the Supreme Court and First Circuit have adopted a four-part test where a plaintiff facially challenges a criminal statute, see Babbitt v. United Farm Workers Nat'l Union, 442 U.S. 289, 298-99, 99 S. Ct. 2301, 60 L. Ed. 2d 895 (1979); Gardner, 99 F.3d at 14.
Plaintiffs in these cases need not violate the law and volunteer their heads on the chopping block. See Babbitt, 442 U.S. at 298, 99 S. Ct. 2301; Gardner, 99 F.3d at 13. It is enough that the party demonstrate that:
1) he or she intends to engage in a specific course of conduct.
2) the conduct arguably is affected with a constitutional interest
3) the conduct is proscribed by the statute; and
4) a credible threat of prosecution exists.
See Babbitt, 442 U.S. at 298, 99 S. Ct. 2301; Gardner, 99 F.3d at 14. See also Rhode Island Ass'n of Realtors, Inc. v. Whitehouse, 51 F. Supp. 2d 107, 111 (D.R.I.1999) (Torres, J.) [hereinafter R.I. Realtors], appeal docketed, No. 99-1812 (1st Cir. June 30, 1999).
A. The "Babbit" Test
1. "Intends to engage in conduct"
Dr. Rodriguez explained that he performs D & Es, vacuum aspirations and both saline and prostaglandin inductions. Similarly, he testified that Planned Parenthood, where he is medical director, hires doctors to perform vacuum aspirations.
The evidence was less clear about Dr. Vogel or the Medical Society. Vogel did not testify, and the immediate past President of the Medical Society, Dr. Michael Migliori, did not allege that any Society members planned to undertake any particular procedures. Dr. Rodriguez testified that Vogel performs both D & E and vacuum aspiration abortions. He also testified that 16 or 17 doctors besides Dr. Vogel and himself perform abortions and belong to the Medical Society. Women & Infants Hospital Senior Vice President Mary Dowd said that doctors perform abortions at Women and Infant's Hospital, but she did not testify about whether those doctors belong to the Society.
*302 2. "Affected by a constitutional interest"
Abortions are conduct affected by constitutional interest. See Casey, 505 U.S. at 846, 112 S. Ct. 2791. Physicians have standing to seek pre-enforcement review of their constitutional claims because they may face criminal prosecution or civil suit under the Act. See Doe v. Bolton, 410 U.S. 179, 188, 93 S. Ct. 739, 35 L. Ed. 2d 201 (1973). The owners of a medical clinic that provides abortions have similar standing. See Planned Parenthood v. Doyle, 162 F.3d 463, 465 (7th Cir.1998). Physicians may assert their own constitutional claims as well as those of their patients because their reaction to the statute affects patients' rights and because patients face practical obstacles to asserting their own claims. See Casey, 505 U.S. at 869, 112 S. Ct. 2791 (discussing women's liberty in case brought by doctors); Singleton v. Wulff, 428 U.S. 106, 115-16, 96 S. Ct. 2868, 49 L. Ed. 2d 826 (1976).
3. "Proscribed by the statute"
Plaintiffs lack standing where their interpretation of the statute is unreasonably broad. See Rodos v. Michaelson, 527 F.2d 582, 585 (1st Cir.1975) (finding that doctors lacked valid fear). Thus, defendants are correct that standing turns on an initial construction of the Act. But there is no requirement that plaintiffs seeking standing for a facial challenge must adopt the attorney general's narrow construction of the statute. Nor should the Court, at this preliminary stage, interpret the Act as if it were deciding the case on the merits. See Gardner, 99 F.3d at 16 ("[I]t is risky business for a district court to enter final judgment at the preliminary injunction stage.") See also Warth, 422 U.S. at 500, 95 S. Ct. 2197 (standing does not turn on the merits, but it often turns on the nature and source of the claim). Construction is the pith of this case, so interpreting a statute in the guise of standing merely permits a court to disingenuously disguise a decision on the merits. But see Richmond Med. Ctr., 144 F.3d at 331-32 (interpreting the statute and rejecting standing).
Taking the test from Babbitt and Rodos, this Court examines whether the conduct would be proscribed by a reasonable reading of the statute. The standard is such that actual injury exists where a regulation would have a chilling effect on the exercise of a constitutional right. Cf. City of Akron v. Akron Ctr. For Reproductive Health, Inc., 462 U.S. 416, 427, 103 S. Ct. 2481, 76 L. Ed. 2d 687 (1983) (explaining that abortion right requires physician have room to exercise judgment), overruled on other grounds, Casey, 505 U.S. at 881-82, 112 S. Ct. 2791. See Richmond Med. Ctr., 55 F.Supp.2d at 441, 459. For the issue of standing at a minimum, the Act can be read to criminalize D & Es and vacuum aspirations as doctors must perform them in response to predictable complications described above. In deciding the merits of the case, this Court might accept some state-provided narrow construction that keeps the Act from banning the operations, but that would not affect the objectively reasonable belief that plaintiffs' had when they filed suit that they could have run afoul of the Act. They need this Court to settle the issue.
4. "Credible threat of prosecution"
Even if the statute would proscribe their conduct, plaintiffs lack standing where they face no credible risk of prosecution. See Gardner, 99 F.3d at 14. The First Circuit is clear that "credible threat of prosecution" is a forgiving standard. See id. Where a statute facially restricts expressive activity, the First Circuit presumes a credible threat in the absence of compelling contrary evidence. See id. at 15. Nothing in Gardner suggests that the Circuit would limit the presumption to First Amendment cases, especially since it cited contraception and abortion cases in its analysis. See id. (citing Doe, 410 U.S. 179, 93 S. Ct. 739, 35 L. Ed. 2d 201 (1973) (abortion) and Poe v. Ullman, 367 U.S. 497, 81 S. Ct. 1752, 6 *303 L.Ed.2d 989 (1961) (contraception)). At the least, Gardner shifts the burden regarding statutes that facially restrict constitutional rights onto the state to "convincingly demonstrate that the statute is moribund or that it simply will not be enforced." Id. at 16.
Taking that cue, defendants say that the Act only proscribes the D & X and promise that they would not prosecute any physician who performed a "conventional abortion." In similar cases, courts have found no standing where the government concedes the unconstitutionality of a statute, see Sanger v. Reno, 966 F. Supp. 151, 162 (E.D.N.Y.1997), and where the government has prosecuted a single case in 80 years, see Poe, 367 U.S. at 507-09, 81 S. Ct. 1752. Similarly, courts have noted instances in which the government had prosecuted for many years based on a limiting construction. See Whiting v. Town of Westerly, 942 F.2d 18, 22 (1st Cir.1991) (town had interpreted "sleep" as "lodge" for years) (deciding vagueness, not standing).
But neither situation exists in this case. First, this law was in effect for no more than a week, so defendants' fore-bearance is not weighty evidence. See Doe, 410 U.S. at 188, 93 S. Ct. 739 (distinguishing Poe because statute at issue was recent); Gardner, 99 F.3d at 15 (citing Doe). Second, defendants never definitively distinguish a conventional abortion from what they would prosecute. Without knowing where prosecutors draw the line, doctors must rely on the Act and litigation to explain what is illegal.[3] Third, an attorney general's non-binding promise not to prosecute does not eliminate plaintiffs' standing. See Chamber of Commerce of the United States v. FEC, 69 F.3d 600, 603 (D.C.Cir.1995) (cited with favor by the First Circuit in Gardner, 99 F.3d at 15). In Chamber of Commerce, the D.C. Circuit found standing even where the plaintiffs were "not faced with any present danger of an enforcement proceeding" because nothing kept the Federal Election Commission from changing its mind in the future. See id. See also R.I. Realtors, 51 F.Supp.2d at 111 (noting that current attorney general does not bind future attorneys general). In this case, the Attorney General or his successors might change their minds, and even more powerfully, the Act's private right of action makes the threat of prosecution more credible and more imminent than in Chamber of Commerce because civil plaintiffs would never be bound by the attorney general's narrow construction.[4] Defendants need not change their minds for plaintiffs to face civil suits. Any patient, father of a fetus, or maternal grandparent of a fetus could file at any time, so defendants cannot promise that plaintiffs "can leave this Court secure in the knowledge that the *304 Act will be narrowly construed and does not apply to the conventional abortions that they perform." (D.s' Pre-Trial Mem. at 15.)[5]
B. Which Plaintiffs Have Standing
Under the Babbitt and Gardner analysis, Dr. Rodriguez and Planned Parenthood have standing to contest the Act. These two offered evidence that the Act could describe D & Es, vacuum aspirations and inductions that they or their agents perform. At the least, the non-medical language of the Act clouds the extent of its coverage. That murkiness chills their and their patients' constitutional rights and potentially exposes them both to criminal prosecution by the state and to civil suit by hundreds of potential plaintiffs a year. That valid fear distinguishes this case from Rodos, 527 F.2d at 585. See also Richmond Med. Ctr., 55 F.Supp.2d at 462 (collecting similar cases that found standing).
There is a dispute as to whether Vogel or the Medical Society has standing. As to Vogel, this Court can assume that any doctor who performs abortions would have a reasonable fear of application of the Act to his conduct. As to the Medical Society, the 16 or 17 members other than Dr. Rodriguez who perform abortions can qualify the Society for associational standing. See UFCW Union Local 751 v. Brown Group, Inc., 517 U.S. 544, 551-54, 116 S. Ct. 1529, 134 L. Ed. 2d 758 (1996) (discussing the doctrine); American Postal Workers Union v. Frank, 968 F.2d 1373, 1375 (1st Cir.1992) (same). However, defendants correctly note that neither Vogel nor the Medical Society put on direct evidence about their intentions or expectations. In the end, the issue is moot because the standing of Dr. Rodriguez and Planned Parenthood is sufficient to pursue the injunctive relief that plaintiffs seek. Plaintiffs were represented by a single set of attorneys and seek the same relief. See Babbitt, 442 U.S. at 299 n. 11, 99 S. Ct. 2301 (finding one plaintiff had standing).
VI. Abortion Jurisprudence Applies to the Act
Defendants argued that the Supreme Court's abortion jurisprudence did not apply to the Act, but this is a specious contention. The procedures described by the Act are abortions, the termination of a pregnancy before birth. The Act does not limit itself to viable fetuses, so this is not a law that covers infanticide, parturition or the killing of "quick" children, see R.I.Gen. Laws § 11-23-5 (outlawing willful killing of a quick child); R.I.Gen.Laws § 11-23-5(c) (defining "quick" in a way consistent with the use of "viable" during this trial). Nor does defendants' fascination with the internal os bear any legal weight. Defendants invite this Court to create some new protection for fetuses in the vagina, but the Supreme Court drew its line for protection at a timeviability not at a place the lip of the uterus.
In their post-trial memorandum, defendants struggle to link the Act to the Texas parturition statute that the Supreme Court left untouched in Roe. See Roe, 410 U.S. at 117-18 n. 1, 93 S. Ct. 705 (citing law codified at Tex.Rev.Civ.Stat.Ann. art. 4512.5). However, the Texas statute only applied to babies who "would otherwise have been born alive." Tex.Rev.Civ.Stat. Ann. art. 4512.5. It covers only parturition, the birth of a viable baby. See id. The Act's ban has no such restriction. In their memorandum, defendants appear to assume that the use of the words "partial birth" somehow makes the Act apply only to viable births. The author of that passage seems to ask this Court to trump the *305 Act's definition of "partial birth abortion" with some reckoning deduced from a medical dictionary's definition of "complete birth." Partial birth, defendants suggest, means "the incomplete separation of the infant from the maternal body." (D.s' Post-Trial Mem. at 68.) That is facetious. First, partial birth means what the Act says it means. This Court looks to the legislation's definition, which is broader and does not distinguish between pre- and post-viability. Second, the memorandum's definition is meaningless and hopelessly vague. "Incomplete separation" sounds as if it refers to abortions that were abandoned in mid-operation.
Therefore, this is a dispute over abortion, and it is controlled by the case law headlined by Roe and Casey.
CONSTRUCTING THE ACT'S DEFINITION
VII. How To Read The Act
The Act bans partial birth abortions. Plaintiffs argue that the definition of partial birth abortions extends to cover almost all abortions performed in the state. Defendants demur. In this Section, this Court decides what language is at issue and how that language should be constructed under the Supreme Court's rules on interpreting state statutes. In Section VIII, this Court will apply that language to the medically-accepted abortion types to decide preliminarily whether it could ban any of them.
A. What Language is at Issue?
The issue here is the Act's definition of partial birth abortion in R.I.Gen.Laws § 23-4.12-1. Not at issue are definitions offered by the AMA, ACOG and medical dictionaries. Nor the articles written by Drs. Haskell and McMahon with their details about Metzenbaum scissors and three days of dilation.
Defendants proved that some people use the words "partial birth abortion" to refer to the D & X. They offered AMA and ACOG documents that appear to equate the terms although partial birth abortion has no settled meaning, especially not a medical one. They even offered Dr. Boehm's hoary theory of statutory construction that he believes limits the Act's language to an intentional performance of an ACOG-defined D & X.
But the Legislature did not rely on the medically-accepted interpretation of "partial birth abortion." The Legislature created a specific definition. It did not adopt the ACOG definition of D & X. It did not use the words "D & X" or "intact D & E." It did not reference the papers by Dr. Haskell or Dr. McMahon. It did not even leave the term undefined and rely on general usage or dictionaries. Legislatures have the power to define words in legislation even to the point of conflicting with the words' common meaning. See, e.g., 18 U.S.C. § 924(c)(2) (defining "drug trafficking" convictions to include drug possession convictions if they were felonies). But when that legislation comes under constitutional attack, legislatures must live with the definitions that they have chosen.
It would be unreasonable for doctors to ignore the Act's definition and to trust that "partial birth abortion" means "D & X." Certainly, some physicians and medical organizations use the terms interchangeably, but those third-party definitions do not overrule the language utilized by the Legislature. They are relevant only as they weigh on the reasonableness of plaintiffs' definition of terms within the Act. In deciding this case, this Court focuses on R.I.Gen.Laws § 23-4.12-1(a) & (c).
B. Comity and the Presumption of Constitutionality
This Court recognizes that the Act must be read in a light favorable to seeing it as constitutional. A federal court must consider limiting constructions offered by the state, in this case by the Attorney General. See Forsyth County v. *306 Nationalist Movement, 505 U.S. 123, 131, 112 S. Ct. 2395, 120 L. Ed. 2d 101 (1992) (First Amendment case); Kolender v. Lawson, 461 U.S. 352, 355, 103 S. Ct. 1855, 75 L. Ed. 2d 903 (1983) (14th Amendment case); Whiting, 942 F.2d at 21 n. 3 (14th Amendment case). Even if the state offered no limiting construction, a state statute enjoys the presumption of constitutional validity, so in this facial challenge, this Court must apply any reasonable construction that would be constitutional. See Edward J. DeBartolo Corp. v. Florida Gulf Coast Bldg. & Constr. Trades Council, 485 U.S. 568, 575, 108 S. Ct. 1392, 99 L. Ed. 2d 645 (1988).
But the text of the Act amounts to more than lines in the sand for this Court to erase and redraw in a constitutional design. A limited construction only applies where, as the Supreme Court has alternatively said, the law is "readily susceptible" or the construction is "reasonable and readily apparent." See Reno v. ACLU, 521 U.S. 844, 884, 117 S. Ct. 2329, 138 L. Ed. 2d 874 (1997); Boos v. Barry, 485 U.S. 312, 330, 108 S. Ct. 1157, 99 L. Ed. 2d 333 (1988); Virginia v. American Booksellers Ass'n, 484 U.S. 383, 397, 108 S. Ct. 636, 98 L. Ed. 2d 782 (1988). This Court will narrow the Act where the statute or legislative intent "identifie[s] a clear line that th[e] Court could draw." Reno, 521 U.S. at 884, 117 S. Ct. 2329.
C. What The Definition Means
Throughout this dispute, defendants offered a wide variety of narrow constructions. Because the limited reading of the Act was so central to their case, defendants proffered a novel one at almost each step of litigation. Although most had the rickety look of lawyerly rationalizations, this Court remains mindful of the doctrines above and considers even those that conflict with each other. If any reasonable reading could be viewed as constitutional, then the Act could be narrowed and could survive. However, by thrashing about, defendants like swimmers adrift in a shark-infested lagoon only call attention to their dire predicament.
1. Defendants' unreasonable constructions
Most of defendants' offerings were so unreasonable that this Court can dispose of them summarily. Rather than paraphrase reasoning that varied slightly as defendants reargued the issues, the Court cites archetypical phrasings of three arguments from defendants' written briefs.
a) "The Act targets the intentional performance of the type of abortion described by ACOG."
(D.s' Post-Trial Submission at 19.)
Nothing in the Act mentions ACOG. Nothing in the Act mentions four distinct steps, which is a key to the four-part ACOG definition. Nothing in the Act comes close to using terms akin to "instrumental conversion of the fetus to a footling breach," "breech extraction," or "partial evacuation of the intracranial contents." Dr. Boehm's claim that the Act only bans ACOG-defined D & Xs was the legal conclusion of a medical partisan. The Act could never reasonably be read to limit partial birth abortions to ACOG-defined D & Xs.
b) "The [Act does] not apply to anything except the delivery of an intact fetus or a substantial portion of an intact fetus, and not to the extraction of dismembered body parts, no matter how substantial."
(D.s' Pre-Trial Mem. at 19 (citing Richmond Med. Ctr., 144 F.3d at 328-29) (emphasis in original).) (See also Ds Post-Trial Submission at 32 (equating the D & X to the "killing of a live, intact fetus that is wholly or substantially outside of the uterus").)
This tack might appeal to an activist judge, but this Court does not write legislation. The Act does not mention an "intact" fetus. In fact, it explicitly equates a *307 living fetus with a "substantial portion thereof." R.I.Gen.Laws. § 23-4.12-1(c). Defendants said themselves that the Legislature did not use the word "intact" because it would create too many loopholes. (See D.s' Post-Trial Submission at 54.) Adding a term like "intact" to the definition would, at best, be creating law from thin air and would, at worst, be contradicting the Act's plain language.
c) "A `partial birth,' therefore, is the incomplete separation of the infant from the maternal body ... [A partial birth abortion] is the abortion of a birth-in-progress."
(D.s' Post-Trial Submission at 68.)
As noted in Section VI, the Act does not limit itself to viable births, so partial birth abortion cannot mean only an abortion during the birth of a viable child. Thus, this definition, built in contrast to a medical dictionary's definition of "complete birth," is meaningless and unreasonable before it is even placed into the context of the Act. It describes an operation in which the infant is left attached in some fashion to the mother. The idea is barely explained in the brief, and the idea is as half-baked as it was half-argued.
This definition and the discussion that surrounds it in Defendants' Post-Trial Submission incorporate another argument that permeates their reading of the Act. Defendants suggest that the Act is limited to operations in which the procedure that kills the child occurs in the vagina. Defendants differentiate between a fetus killed in the uterus and one killed in the vagina. (See, e.g., id. at 69. See also D.s' Closing Argument, May 6 Tr. at 40-42.) This is unreasonable because, as a matter of fact, it is impossible for doctors to differentiate between procedures that occur in the uterus or vagina. There is no bright line. In fact, many crucial events occur on both sides of the os. For example, the doctors testified that they often grasp a portion of the fetus inside the vagina and pull until the body jams at the os and tears apart. A leg might be yanked off the body. Trauma and bleeding lead to death, but it is unclear whether that procedure occurred in the vagina where the leg was pulled or in the uterus where the bleeding trunk of the fetus remains. Conversely, the D & X requires the doctor to deliver the body feet-first until the head lodges at the os and then to puncture the skull and suction out the brain. Even though this would constitute the classic situation that defendants seek to outlaw, the puncture and suctioning occurs inside the uterus even though the heart and body die in the vagina.
Therefore, it would be unreasonable to read into the Act any limitation based on a comparison with the medical definition of "complete birth" or based on the location of the procedure that kills the fetus.
2. How the Act will be read
The keys to construing the Act are the sequencing of actions and the scienter clause. The reasonable reading that comes closest to being constitutional although certainly not the most-reasonable reading is that doctors must perform three actions in order, that they intend to kill the infant, and that they act knowingly.
The sequencing requirement is suggested by the Act's language because the definition of partial birth abortion requires that a person vaginally deliver the fetus, then kill the infant, and finally complete the delivery. See R.I.Gen.Laws 23-4.12-1(a). The intent to conduct an abortion is inherent because the Act defines partial birth abortion as "an abortion," see id., and limits "vaginally delivers" to delivering "for the purpose" of killing the infant, see R.I.Gen.Laws § 23-4.12-1(c). This excludes unintended deaths that occur during the natural birth of a child because the doctor would not vaginally deliver the baby with the intent of killing it. The scienter element is included both in the "for the purpose of" killing the infant, see R.I.Gen. *308 Laws § 23-4.12-1(c), and in the criterion that a partial birth abortion must be performed "knowingly," see R.I.Gen.Laws § 23-4.12-2. This excludes any deaths caused by a doctor's negligence or recklessness.
Therefore, this Court holds that the Act's definition must be read as follows: To face prosecution for conducting a partial birth abortion, physicians must intend to conduct an abortion and then follow a series of actions. They must deliver a "substantial portion" of the fetus into the vagina; then perform a procedure dependent on that delivery that kills the infant; and then complete the delivery. This progression violates the Act only if the first element is done with the purpose of killing the fetus and if each element is done knowingly.
VIII. Preliminary Question: Does the Act Ban Any Abortions?
As a preliminary step, this Court compares this language to the abortion procedures conducted in Rhode Island. As an analogy, this step parallels considering a motion for summary judgment. The issue of whether "substantial portion" is vague remains undecided. However, this Court can winnow other issues because several abortion procedures would be untouched by the Act even if this Court assumes that "substantial portion" is vague. If the definition's other facets had made the Act inapplicable to any abortion procedure, then this case could have ended at this juncture. As it turns out, the definition may describe the D & E, and this Court must continue in Section IX to discuss vagueness and undue burden. However, this Section's precursory analysis simplifies the pivotal discussion in Section IX.
A. The Act's Effect on Hysterectomies and Hysterotomies
The Act could never ban hysterectomies and hysterotomies as described at trial. In both, the fetus is removed through the wall of the uterus rather than through the vagina. The baby is never vaginally delivered.
B. The Act's Effect on Vacuum Aspirations and Inductions
The Act could never outlaw vacuum aspiration or inductions as described at trial.
The vacuum aspiration depends on the dismemberment of the fetus inside the uterus with a suction wand. Death results from trauma and blood loss as the doctor breaks up the tiny body. There is no delivery into the vagina for the purpose of performing a subsequent procedure that will kill the infant. Plaintiffs highlighted the predictable complication when fetal body parts congest the cannula. At those times, the doctor must pull the wand through the vagina and outside the woman's body to clear the obstruction. The cannula is then returned to the uterus. However, that "delivery" through the vagina is not for the purpose of conducting another procedure that kills the fetus. No doctor asserted that such a complication would separate the operation into two procedures. Rather, they all portrayed the vacuum aspiration as having a single, unified step. They portrayed the suctioning as a single procedure. Factually, the Act does not describe the vacuum aspiration as doctors described it at trial.
Plaintiffs argue that this passage of fetal parts through the vagina is "for the purpose" of clearing the canella and returning it for the fatal blows. Grammatically, they wish "procedure" in § 23-4.12-1(c) to mean the entire abortion operation. But that reading would make any action by the doctor related to the abortion "for the purpose" of killing the fetus. Such an interpretation would make the phrase meaningless and would ignore the reasonable reading that the delivery into the vagina must be for the purpose of a subsequent procedure that kills the fetus. That "procedure" in § 23-4.12-1(c) must be a *309 sub-procedure of the entire abortion operation.
Similarly, the induction depends on fetal death caused either by the injection or by premature birth. Either the fetus dies in the uterus, or it dies after being born because its lungs and heart are too young to survive without its mother. Therefore, the delivery into the vagina is not induced for the purpose of performing another procedure that kills the fetus. Its death is inevitable once the induction begins. Plaintiffs point to the predictable complication where the fetus's head jams at the os because the cervix has not dilated sufficiently. In those cases, the doctor may crush the skull, killing the fetus if it still lives, but those complications are unexpected and, as the doctors testified, unwanted. Therefore, the purpose of delivering the child into the vagina is not to perform the subsequent head-crushing.
C. The Act's Effect on D & Es
The Act could make doctors criminally liable for performing the D & E as described at trial. If "substantial portion" includes a fetus's arm or leg, then the Act's definition describes a D & E.
A doctor performing a D & E tears the fetus's body into pieces using instruments. One of the basic techniques is to reach into the uterus and grasp an extremity. The doctor extracts as much of the body as possible into the vagina, and the remainder jams at the os. Then, the doctor pulls until the traction against the uterine wall breaks apart the fetus. Needless to say, the injury causes trauma and bleeding.
If "substantial portion" is either vague or includes an extremity, then this series of actions violates the Act when it is read in the only reasonable construction that might survive the Constitution. See Section VII(C)(2), supra. The doctor grabs a substantial portion of the fetus and delivers it into the vagina. This is done with the intent of performing a second procedure the pulling and traction that the doctor knows will kill the child. The pulling and traction kill the child. Then, the doctor completes the delivery. The doctors described these as distinct procedures, (see May 5 Tr. at 51-53 (Dr. Stubblefield)), which factually distinguishes the D & E from the vacuum aspiration.
THE ACT'S UNCONSTITUTIONAL FLAWS
IX. The Definition Is Unconstitutional
This Court now comes to the crux of the legal analysis. The definition in Section VII(C)(2) is reasonable, but to be useable, it must be clarified. What is a "substantial portion" of a fetus? How do doctors know when they would violate the law? The Act does not offer a definition. The witnesses in this case could not agree. In fact, they offered definitions that were not even similar: a toe (Dr. Rodriguez), any extremity, (Dr. Stubblefield), any fetal part more than a single arm or leg, (Dr. Boehm), and either a head or at least both legs and half the abdomen (Dr. Boehm). (For these definitions, see respectively May 3 Tr. at 147-48; May 4 Tr. at 86; Video Tr. at 131-33; Video Tr. at 66-67.) In their Post-Trial Submission, defendants did not even offer their own proposal. They cited excellent precedents for the proposition that "substantial" is not inherently vague, (see D.s' Post-Trial Submission at 57-59), but they do not explain what "substantial portion" means in the Act.
There are two possible answers: either "substantial portion" is vague or it has a reasonable definition that doctors could accept. After hearing the evidence in this case, this Court finds that "substantial portion" is vague and does not provide doctors with sufficient guidance to know what the Legislature has made illegal. As explained at length below, doctors have no way to decide what "substantial portion" means, so they must assume that an arm or leg would qualify under the Act. That means they must assume that the D & E is illegal. This chilling effect bans the D & *310 E, and any law that bans the D & E places an undue burden on a woman's ability to receive an abortion.
A. The Definition Is Vague
1. The law of vagueness
Laws are unconstitutionally vague where they fail to provide the requisite notice and undermine public confidence that the laws are equally enforced. See City of Chicago v. Morales, ___ U.S. ___, ___, 119 S. Ct. 1849, 1859, 144 L. Ed. 2d 67 (1999); Grayned v. City of Rockford, 408 U.S. 104, 108-09, 92 S. Ct. 2294, 33 L. Ed. 2d 222 (1972); United States v. Hilton, 167 F.3d 61, 74-75 (1st Cir. 1999). The standard for overturning a law based on this doctrine is stringent. See Hilton, 167 F.3d at 75. A statute will not be held void for vagueness unless it fails to define the offense with sufficient definiteness that ordinary people can understand what conduct is prohibited and in a manner that does not encourage arbitrary or discriminatory enforcement. See Grayned, 408 U.S. at 108, 92 S. Ct. 2294; Hilton, 167 F.3d at 75.
A plaintiff may make a facial vagueness challenge even where no First Amendment right is at play. See Morales, ___ U.S. at ___, 119 S.Ct. at 1856-57 (affirming the invalidation of a loitering ordinance that infringed on a 14th Amendment right).
The vagueness analysis is inherently fact-based and should not be applied mechanically. See Village of Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 498, 102 S. Ct. 1186, 71 L. Ed. 2d 362 (1982) ("depends in part on the nature of the enactment"); United States v. Bay State Ambulance & Hosp. Rental Serv., Inc., 874 F.2d 20, 32 (1st Cir.1989). However, the First Circuit has boiled down Supreme Court precedents to emphasize four factors that a trial court should consider:
1) economic regulation is subject to a less-strict test.
2) there is greater tolerance of enactments with civil rather than criminal penalties.
3) a scienter requirement may mitigate a law's vagueness, especially with respect to the adequacy of notice to the defendant that his conduct is proscribed.
4) perhaps the most important factor is whether the law threatens to inhibit the exercise of constitutionally protected rights.
See Bay State Ambulance, 874 F.2d at 32. See also Village of Hoffman Estates, 455 U.S. at 498-99, 102 S. Ct. 1186.
2. "Substantial" is vague
"Substantial portion" is the statute's linchpin because evidence in this case suggests that it would be close to impossible to deliver the entire fetus into the vagina and then conduct another procedure before completing delivery. A fetus in the later stages of pregnancy is longer than the vagina. So by the time the entire fetus has completely left the uterus, its leading edge has already begun leaving its mother's body. Complete delivery comes rapidly, if not inevitably, because there is nothing to retard the progress. Therefore, the vast majority of situations in which the Act would apply would involve a "substantial portion" of the fetus being delivered before some procedure was done to it.
As noted above, the doctors who testified in this case could not reach a consensus about the meaning of "substantial portion." In fact, their interpretations ranged between extremes, which were obviously influenced by their ideological views: toe (Dr. Rodriguez), any extremity, (Dr. Stubblefield), any fetal part more than a single arm or leg, (Dr. Boehm), and either a head or at least both legs and half the abdomen (Dr. Boehm). (For these definitions, see respectively May 3 Tr. at 147-48; May 4 Tr. at 86; Video Tr. at 131-33; Video Tr. at 66-67.) Certainly, the medical community *311 has not been assisted by defendants, who gyrated on whether they thought the definition included an implied "intact" or mirrored the ACOG interpretation. See Section VII(C)(1).
The hefty dictionary that has served this writer for more than a decade defines "substantial" with several inches of tiny type. See Webster's Third New Int'l Dictionary 2280 (1986). See also id. at 2279 (defining "substance"). The gist is a "substantial" portion of something is an important portion, an essential portion.
The crux of this dispute is about a "substantial portion" of a fetus being pulled into the vagina. Witnesses talked about measuring a fetus by body parts (i.e., an arm or two legs being substantial because of their size), by percentage of its total mass (i.e., 51% being substantial because it was more than half), and by functionality (i.e., a head being substantial because its loss is fatal). Witnesses disagreed about whether the portion had to be still attached to the remaining body. Even after trial, defendants advocated two different ways of measuring "substantial" one by volume ("at least one-half of the fetus") and one by function (the head alone). (See D.s' Post-Trial Submission at 15.) Thus fair-minded people could disagree about the meaning and could not predict what would violate the law.
This is not a matter of an ambiguous dispute between two possible answers. In fact, nothing in the Act suggests a clear line for this Court to draw. See Reno, 521 U.S. at 884, 117 S. Ct. 2329. Would a limb qualify? What is an essential or important part of a fetus? Does the measurement depend on whether the portion is still attached to the fetus's body? Those questions are unanswerable by doctors, prosecutors or the lay people who could be civil plaintiffs or jurors. They would have to guess at when the Act applied. Therefore, the phrase is so vague as to be meaningless.
The scienter element of the statute cannot cure this vagueness. A scienter requirement may mitigate vagueness in some cases, see Village of Hoffman Estates, 455 U.S. at 499, 102 S. Ct. 1186, but it does not automatically save the statute, see Colautti v. Franklin, 439 U.S. 379, 395 n. 13, 99 S. Ct. 675, 58 L. Ed. 2d 596. In First Circuit cases, scienter requirements cured vagueness about notice where the government had to prove that criminal defendants had knowingly violated a statute. See, e.g., Hilton, 167 F.3d at 75 (knowingly possessed pornography that depicted models that appeared to be under 18 years old); Bay State Ambulance, 874 F.2d at 33 (knowingly made payments to induce fraud). In both cases, the United States had to prove that a defendant understood the legal standard underage appearance and inducement to fraud, respectively and that the defendant thought his act violated the law.
In contrast, the Act is vague when it describes the legal standard; "substantial portion" is indispensable because it defines what the Act proscribes. In Hilton, there could be no vagueness because the defendant had to subjectively believe that the models appeared to be younger than 18. In Bay State Ambulance, the defendant had to subjectively believe that the payment was made to induce fraud. In this case, neither doctors nor this Court can tell what a defendant would have to know. The Act's scienter requirement modifies a vague term. While people can know what it means to pay to induce fraud, they cannot know how to define "substantial portion" of the fetus, so the scienter requirement cannot save the Act.[6]
*312 In sum, ordinary physicians have no notice of what is illegal under the Act. At the peril of life, liberty or property, they must speculate on the meaning of "substantial portion." See Morales, ___ U.S. at ___, 119 S.Ct. at 1860 (plurality opinion). Those who perform D & Es are incapable of avoiding the law without stopping their practice because the only reasonable construction of the statute describes the D & E.
Defendants should not be shocked by this outcome. Their counsel emphasized in her closing argument that the Act must be broad in order to be "workable," namely to guarantee the outlawing of all operations that offended the Legislature. (See May 6 Tr. at 43-45.) She explained that amendments that would limit the scope would also open loopholes for doctors to escape liability. (See id. See also D.s' Post-Trial Submission at 52-53.) Therefore, the Legislature staked out broad language and avoided a bright line. The problem is that the D & X is a variant of the D & E, a procedure that follows similar steps and relies on the same pool of surgical techniques. The D & E fell under the shadow of the Act because the Act simply spreads out too far.
B. The Vagueness Creates An Undue Burden
1. "Casey" and "Salerno"
Courts disagree about whether the Supreme Court has created a special procedure in evaluating the constitutionality of abortion laws. On the one hand, the Supreme Court's general rule is that a court may only invalidate a law on a facial challenge where "no set of circumstances exists under which [the law] would be valid." United States v. Salerno, 481 U.S. 739, 745, 107 S. Ct. 2095, 95 L. Ed. 2d 697 (1987). On the other, the same court invalidated the law in Casey even though it accepted that it created no burden for the vast majority of women. See Casey, 505 U.S. at 894, 112 S. Ct. 2791. The Casey Court, without mentioning Salerno, instructed a court to invalidate a law that would operate as a substantial obstacle to a woman's choice of abortion in a large fraction of the cases in which it applies. See id. at 894-95, 112 S. Ct. 2791.
Circuits have split over whether Casey effectively overrules Salerno, at least in the forum of abortion rights. Compare Planned Parenthood v. Miller, 63 F.3d 1452, 1458 (8th Cir.1995) (finding Salerno to be "effectively overruled") with Barnes v. Moore, 970 F.2d 12, 14 n. 2 (5th Cir. 1992) (finding no overruling). Even Supreme Court justices disagree on whether the Salerno standard has been supplanted. Compare Fargo Women's Health Org. v. Schafer, 507 U.S. 1013, 1014, 113 S. Ct. 1668, 123 L. Ed. 2d 285 (1993) (O'Connor, J., concurring) (Casey analysis controls) with Ada v. Guam Soc'y of Obstetricians & Gynecologists, 506 U.S. 1011, 1011-13, 113 S. Ct. 633, 121 L. Ed. 2d 564 (1992) (Scalia, J., dissenting) (Salerno analysis controls). The First Circuit has not weighed in on this issue yet.
This Court holds that Casey provides a specific test for courts to apply in the abortion context. This conclusion follows in the wake of the majority of circuit courts who decided this issue. See Planned Parenthood v. Lawall, 180 F.3d 1022-1027, (9th Cir.1999); Women's Med. Prof'l Corp., 130 F.3d at 193-97 (6th Cir. 1997); Jane L. v. Bangerter, 102 F.3d 1112, 1116 (10th Cir.1996); Miller, 63 F.3d at 1456-58 (8th Cir.1995). But the true justification for the holding is that, as the Eighth Circuit wrote so trenchantly, the outcome in Casey depended on the creation of the new test:
We choose to follow what the Supreme Court actually did rather than what it failed to say and apply the undue-burden test. It is true that the Court did not expressly reject Salerno's application *313 in abortion cases, but it is equally true that the Court did not apply Salerno in Casey. If it had, it would have had to uphold Pennsylvania's spousal-notification law, because that law imposed "almost no burden at all for the vast majority of women seeking abortions." Casey, 505 U.S. at 894, 112 S. Ct. 2791. Instead, the Court held that "[t]he proper focus of constitutional inquiry is the group for whom the law is a restriction, not the group for whom the law is irrelevant." Id. If the law will operate as a substantial obstacle to a woman's choice to undergo an abortion "in a large fraction of the cases in which [it] is relevant, ... [i]t is an undue burden, and therefore invalid." Id. at 895, 112 S. Ct. 2791.
We believe the Court effectively overruled Salerno for facial challenges to abortion statutes.
Miller, 63 F.3d at 1458 (citations updated).
Certainly, the Supreme Court could have explained its analysis more explicitly in Casey. However, this Court is comfortable relying on the new test because it is a core holding of the Supreme Court's decision. The Supreme Court has recently cautioned lower courts against construing an opinion as overruled unless the Supreme Court speaks explicitly. See Hohn v. United States, 524 U.S. 236, ____, 118 S. Ct. 1969, 1978, 141 L. Ed. 2d 242 (1998); Agostini v. Felton, 521 U.S. 203, 236, 117 S. Ct. 1997, 2017, 138 L. Ed. 2d 391 (1997). But the fact is that Casey is "the case which directly controls" this issue. See Agostini, 521 U.S. at 236, 117 S. Ct. at 2017. By voiding the Pennsylvania law, the Casey Court created a new standard.
2. The law of undue burden
A finding of an undue burden is a shorthand for the conclusion that a state regulation has the purpose or effect of placing a substantial obstacle in the path of a woman seeking an abortion of a nonviable fetus. See Casey, 505 U.S. at 877, 112 S. Ct. 2791. A statute with a valid purpose that places a substantial obstacle in the path of a woman's choice cannot be considered a permissible means of serving its legitimate ends. See id.
The Act is not a structural mechanism that Rhode Island uses to express an interest in fetal life. See Casey, 505 U.S. at 877-78, 112 S. Ct. 2791. This is not a way to inform women or persuade them to choose childbirth. See id. Instead, the Act's clear purpose is to cull the list of available abortion techniques. Some operations that were legal in 1996 would be illegal under the Act. The breadth of that culling is in dispute, but even defendants do not suggest that the Act champions some educational agenda.
3. Banning the D & E creates an undue burden
The D & E is a crucial procedure for women who want abortions, especially those seeking abortions between 12 and 20 weeks when vacuum aspirations or inductions are generally unavailable. Women need not explain to the government why they want an abortion. However, the reasons that women seek abortions after a vacuum aspiration is unavailable include the mother's medical complications, genetic flaws discovered by prenatal testing, or the cost of the operation. In addition, the D & E might be preferable to the induction procedure between 20 and 23 weeks even though either would be available. For example, a woman may be too ill to endure labor, or she may want to avoid the physical and psychological effects that accompany a still-birth.
By banning the D & E, the Act would force women to travel across state lines or to undergo operations that would be more dangerous. That danger could come about from the inherently greater risk of an induction, or it could result from delaying the abortion until after the 20th week when inductions are available. Those effects, to return to Casey, amount to a "substantial obstacle in the path of a woman *314 seeking an abortion of a nonviable fetus." Casey, 505 U.S. at 877, 112 S. Ct. 2791. Thus, the Act is unconstitutional.
X. The Statute Lacks the Health Exception
The Supreme Court requires an exception to any abortion ban that would allow a woman to undergo an abortion if her pregnancy would constitute a threat to her health. See Casey, 505 U.S. at 879-80, 112 S. Ct. 2791; Roe, 410 U.S. at 164-65, 93 S. Ct. 705. This exception must apply even after viability. See Casey, 505 U.S. at 879, 112 S. Ct. 2791. A state cannot preclude women with physical or mental problems from pursuing the safest abortion. See Thornburgh v. ACOG, 476 U.S. 747, 768-69, 106 S. Ct. 2169, 90 L. Ed. 2d 779 (1986).
The D & E is often necessary for a woman's health. Plaintiffs explained several conditions, such as renal failure, depression or primary pulmonary hypertension, that could make abortion necessary. Especially where the pregnancy has advanced past the time for vacuum aspiration, the D & E will often be a safer alternative to inductions or hysterotomies. This Court has already held that the Act bans the D & E, so the Act requires a health exception.
Even if the Act only banned the D & X as defined by ACOG, it would require a health exception. Defendants claim that a D & X could never be necessary to save a woman's health, but the evidence at trial failed to support that contention. Such assertion by Dr. Boehm was unbelievable, especially when he also noted that people cannot "make a blanket statement about emergency abortions." (Video Tr. at 56.) Defendants' own evidence the statement by ACOG that all the doctors treated with deference demonstrates that doctors believe the D & X "may be the best or most appropriate procedure in a particular circumstance to save the life or preserve the health of a woman." (D.s' Ex. D at 2.) The D & X may not be taught in medical schools or tested in peer-reviewed journals, but the fact that a procedure is new is not grounds to say it cannot be used. There are women who cannot undergo an induction or hysterotomy, and the D & X is either as safe or safer than the D & E for those women, particularly because the D & X requires fewer passes of sharp instruments into the uterus. Therefore, this Court finds that the D & X could be used to preserve a woman's health and must be available to physicians and women who want to rely upon it.
In summation, the Act lacks a health-of-the-mother exception. The flaw is as simple to see as the exception would be to draft. The state may not strip a woman of her right to medical care. Thus, the Act is unconstitutional.
XI. The Statute Lacks a Proper Life Exception
The Supreme Court requires an exception to any abortion ban that would allow an abortion to save the life of the mother. See Casey, 505 U.S. at 879, 112 S. Ct. 2791; Roe, 410 U.S. at 164-65, 93 S. Ct. 705.
The Act has such an exception, but it limits the exception to times when "no other procedure would suffice." R.I.Gen.Laws § 23-4.12-3. That is an unconstitutionally meager exception. If a woman could die, then she has the constitutional right to have any and all operations that would save her life. She and her doctor decide what operation is appropriate. During an emergency, doctors must act rapidly and address ever-changing crises. The state may not risk a woman's life merely because the tool for saving her life would be a particular abortion technique.
As noted above, this Court has found that the Act bans the D & E along with the D & X. The D & E can certainly be used to save a woman's life, and therefore, this Act is void for failing to allow for an appropriate "woman's life" exception.
*315 But to emphasize the flaw, this Court assumes defendants' limited interpretation arguendo. Defendants argue that because the D & X as defined by ACOG cannot be done rapidly, it cannot be used to protect a mother's life. However, defendants introduced the ACOG statement explaining that a D & X may be the best or most appropriate procedure to save a life. (See D.s' Ex. D at 2.) Merely because an operation must be done over hours or days does not mean it cannot be used to save a woman's life. The constitutional exception is not limited to exigent circumstances; it is concerned with life-saving generally. If the D & X were necessary to save a life, then women must be allowed access to it.
Without a proper exception to save the life of the mother, the Act is unconstitutional.
XII. The Private Right of Action Is Unconstitutional
A state may not require a married woman to notify her husband before she undergoes an abortion because that places an undue burden on her constitutional right. See Casey, 505 U.S. at 887-898, 112 S. Ct. 2791. The Supreme Court explained why women would be reluctant to notify their husbands. See id. at 888-94, 112 S. Ct. 2791. The Court found that a notification requirement is likely to prevent a significant number of women from obtaining abortions. See id. at 893-95, 112 S. Ct. 2791. The Casey Court characterized this as a substantial obstacle. See id. at 893-96, 112 S. Ct. 2791. The woman's right to an abortion overcomes a husband's interest in the pregnancy. See id. at 895-98, 112 S. Ct. 2791.
Adult women need not consult with their parents or other people in the fashion that minors may be required. See Casey, 505 U.S. at 895, 112 S. Ct. 2791 (noting the difference between minors and adults).
It is a fact that the private right of action in R.I. Gen. Laws § 23-4.12-4 will cause doctors to require pre-abortion consent from the father of the fetus and the mother's parents. Dowd and Rodriguez testified persuasively that Women & Infants and Planned Parenthood, respectively, would avoid suits by requiring consents from those persons for all abortions. Any prudent doctor would do the same, although this ruling could convince them to seek permission only for D & Es. The Act's private right of action gives fathers even those not married to the mother and women's parents the right to sue a doctor who violates the Act. Based on the credibility of the trial witness, this Court finds factually that clinics and hospitals will contract that right away by requiring consent from patients' parents and sexual partners similar to the "informed consents" used before patients undergo operations.
The burden created by the Act is even greater than the one created by the law voided in Casey. First, it gives power over the abortion decision to people more attenuated from the pregnancy than the husbands mentioned in the Pennsylvania law. The Casey Court found that a woman's right to an abortion trumps her husband's interest, so her right certainly must triumph over the interests of an unmarried father of the fetus or her own parents. Second, it gives greater power to these third parties. Obviously, a person who must consent to an abortion must be notified about it. Thus, the Act forces women to notify their parents and sexual partners; plus it forces them to ask these third parties to consent to the abortion.
For the same factual reasons identified by the Casey Court, this Court finds that some women will be reluctant to contact their parents and sexual partners for consent. As the Casey Court instructs, this Court considers this group of women when it weighs the effect of the Act. As explained above, the Act's burden is even heavier than the one voided in Casey. More women will be affected, and the third parties will have even more power to *316 thwart a woman's decision about her pregnancy.
Therefore, this Court holds that a state may not create a private right of action through which any person other than the patient could sue a doctor for providing an abortion.[7] A woman has the right to an abortion. She has the right to make the ultimate decision about her pregnancy. The threat of civil suit will be enough to keep doctors from providing abortions without consents. Such required consents constitute significant obstacles to obtaining abortions. Therefore, the private right of action contained in R.I. Gen. Laws § 23-4.12-4 is unconstitutional.
XIII. Substantive Due Process and Equal Protection
The Court declines to reach plaintiffs' arguments about substantive due process and equal protection. The issues would appear relevant where the government bars a single procedure and doctors or women argue that there is no justification for the ban. For example, a state might ban the D & X as defined by ACOG. Cf. Planned Parenthood v. Danforth, 428 U.S. 52, 78-79, 96 S. Ct. 2831, 49 L. Ed. 2d 788 (1976) (invalidating ban on saline inductions). However, this Court has found that the Act does not fit that bill. The Act is so different and the issues are so intricate that this must await a different case and controversy.
CONCLUSION
This dispute has been a singular example of disciplined lawyering amid a larger debate that incorporates moral and controversial elements extrinsic to a constitutional challenge. Counsel for both sides presented sterling briefs and arguments that surpassed any missteps mentioned in this Decision. In particular, plaintiffs' Post-Trial Reply Memorandum was written with devastating clarity. This Court relied heavily on the parties' thorough research and sophisticated analysis.
Defendants' entire case rests on the assumption that the Act bans only a tiny swath of abortions. Defendants argue that this Court must defer either to legislative intent or to the attorney general's narrow construction. To the contrary, the plain language of the Act is at the core of this dispute, and the Act bans far more than just the D & X. Defendants' ever-changing explanations about what the Act bans were muddled and untenable, and the Fourth Circuit's detailed editing of similar language confirms that a court could only save the Act by stepping in as a super-legislature. The fundamental nature of defendants' flawed view is exposed in their alternating arguments that the Act's definition is narrow enough to survive a constitutional challenge yet wide enough to offer doctors no loopholes to escape.
To summarize, the Act suffers from four distinct constitutional flaws. First, the Act defines "partial birth abortion" in a fashion that vaguely defines what it outlaws such that doctors would not know whether it bans abortions known as D & Es. As such, the entire Act is unconstitutional because it places an undue burden on a woman's right to an abortion. Second and third, the entire Act is unconstitutional because it lacks the exceptions for the woman's health and life mandated by the Supreme Court. By its own terms, the current "life of the mother" exception cannot be severed from the Act. Fourth and independently, the private right of action is unconstitutional because it places an undue burden on the woman's right to an abortion. This Court notes that none of these flaws depend on the Act's status as a state law. They would exist in a federal statute with the same language.
This Court does not decide whether the Legislature may ban the D & X procedure *317 as defined by ACOG. It holds that the Act as currently written does not do that.
Therefore, this Court issues a permanent injunction against the enforcement of Rhode Island's ban on partial birth abortions, R.I.Gen.Laws § 23-4.12. Plaintiffs shall draft a form of judgment containing that injunction. Also, plaintiffs may move, within 30 days of the date hereof, for attorneys' fees and costs based on a detailed, contemporaneous accounting as required by Grendel's Den v. Larkin, 749 F.2d 945, 952 (1st Cir.1984).
It is so Ordered.
NOTES
[1] Abortion is protected, but it is still brutal. Over four days, this Court heard graphic descriptions of abortion procedures and complications that accompany them. In testimony, the doctors used medical language. Some of these terms are employed for their precision, but often they are merely bloodless substitution for common words. This Court will not offer the Disney version of this dispute. Therefore, this Court adopts common terms where appropriate, including:
"fetus" for the offspring of human beings before birth, otherwise described as "embryo," "pregnancy" or "child"
"dilate" for "dilitate"
"dismember" for "disarticulate"
"brain" for "intercranial contents"
"D & X" for the procedure defined in Section II(A)(1)(e), infra, otherwise described as "intact D & E" or "dilation and extraction"
"vacuum aspiration" for "suction curettage"
[2] A TRO has been in effect consistently since July 1997 and only ceases to exist because it is replaced by a permanent injunction as a result of this opinion. Despite the attorney general's new-found skepticism of federal power, this writer, on September 4, 1998, applied the TRO to prohibit enforcement of the amended Act until the case was heard on preliminary injunction. (See Sept. 4 Tr. at 17-18.) This Court heard the trial on the merits rather than on preliminary injunction.
[3] Plaintiffs are correct that no evidence exists that either Attorney General Whitehouse or his predecessor publicized this limited reading beyond making arguments in this case. However, the publicity surrounding this case makes it the ideal forum to publicize those views.
Plaintiffs are also correct that one of defendants' early briefs appears to say that a D & E as Rodriguez performs it "would be manslaughter under the current state of the law." See May 4 Tr. at 22-25 (citing Mem. in Supp. of Obj. to Mot. for Prelim. Inj. at 15 n. 3). Defendants' counsel say she meant illegal under the "quick child law," but that was not clear or even suggested by the writing.
Even if plaintiffs had been out of line, defendants evened the score by making the outrageous allegation that plaintiffs might inflict upon a patient "medically inappropriate abortion technique for political reasons." (D.s' Post-Trial Mem. at 94.) Phrasing the slur as a question did not make it appropriate for a legal brief.
[4] In fact, Superior Court plaintiffs would not be bound by this Court's construction. This Court like all federal courts"lack[s] jurisdiction authoritatively to construe state legislation" and bar prosecutors or plaintiffs from filing suit. Planned Parenthood v. Ashcroft, 462 U.S. 476, 502 n. 8, 103 S. Ct. 2517, 76 L. Ed. 2d 733 (1983) (Blackmun, J., concurring and dissenting) (citing Gooding v. Wilson, 405 U.S. 518, 520, 92 S. Ct. 1103, 31 L. Ed. 2d 408 (1972)).
[5] The same analysis defeats the ripeness argument that defendants raised early in this case, (see D.s' Pre-Trial Mem. at 16-17), and seem to have conceded by raising it only in the most-skeletal fashion at trial. One thing is clear there is no possibility that the attorney general has the final word on the construction of the Act. The Act's private right of action encourages civil actions against plaintiffs.
[6] The vagueness test asks whether doctors could interpret the Act. If this Court had found that the phrase was clear and doctors accepted a definition of "substantial portion," then that definition would need to pass constitutional muster. Specifically, the definition could not ban the D & E or other protected operations.
That would be a legal decision left up to the Court. Because the D & E is protected by the Constitution, any accepted definition of "substantial portion" would have to exclude whatever portions of the fetus are normally delivered into the vagina during a D & E.
[7] Nothing in this holding would affect Rhode Island's medical malpractice law. Allegations of negligence in the performance of an abortion should be handled in the same fashion as allegations of negligence in any medical procedure. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2531981/ | 28 F. Supp. 2d 1024 (1998)
Samuel G. EUBANKS, M.D., et al., Plaintiffs,
v.
R. David STENGEL, Commonwealth Attorney for Jefferson County, et al., Defendants.
No. CIV. A. 398CV383-H.
United States District Court, W.D. Kentucky.
November 5, 1998.
*1025 *1026 David A. Friedman, American Civil Liberties Union of Kentucky, Louisville, KY, A. Stephen Hut, Jr., Carrie Y. Flaxman, Matthew P. Previn, American Civil Liberties Union Foundation, Washington, DC, Catherine Weiss, Kimberly A. Parker, American Civil Liberties Union Foundation, Eve C. Gartner, Planned Parenthood Federation of America, New York City, for Plaintiffs.
N. Scott Lilly, Office of the County Attorney, Louisville, KY, Raymond Melvin Larson [Commonwealth Attorney], Margaret Kannenshohn, Fayette County Attorney, Lexington, KY, for R. David Stengel and Michael Conliffe.
D. Brent Irvin, Scott White, Office of the Attorney General, Frankfort, KY, for A.B. Chandler, III, Attorney General.
Donna L. Delahanty, Ky. Board of Medical Licensure, Louisville, KY, Marshall B. Woodson, Jr., Prospect, KY, for C. William Schmidt, Ky. Board of Medical Licensure.
Theodore H. Amshoff, Jr., Paul P. Clemens, Amshoff & Amshoff, Louisville, KY, for Kentucky Right to Life, Inc., et al.
MEMORANDUM OPINION
HEYBURN, District Judge.
The Court is called upon to determine whether the Kentucky "Partial Birth Abortion Act," KY. REV. STAT. § 311.720, et seq. (the "Act") is valid and enforceable under the United States Constitution. Three physicians challenge the Act as unconstitutional because they say it prohibits almost every type of abortion procedure.[1] Defendants counter that the legislature meant to ban only one procedure the partial birth abortion which has become a prominent political and moral symbol in the continuing fight over abortion rights and the right to life. The Court has no interest in either validating or rebuking its symbolic importance. Nothing in this opinion should be so conceived.
Instead, the Court's inquiry is strictly a constitutional one. In such an inquiry, the most vital and delicate task is often the accommodation of competing rights. Though "all rights tend to declare themselves absolute," in practice this is rarely so.[2] Here, the *1027 Court must accommodate three distinct rights, each of which asserts primacy: the state's interest in protecting potential life; the woman's right to terminate her pregnancy and to be free from an undue burden on that right; and the physician's due process right to know clearly when otherwise legitimate conduct becomes criminal. This opinion reveals the process of attempting to accommodate these competing interests.
I.
For some time, Kentucky law has prohibited a physician from knowingly performing an abortion upon a fetus which is reasonably expected to have reached viability, except where the physician believes it is necessary to preserve the life or health of the mother. KY. REV. STAT. ANN. § 311.780 (Michie 1995). This statute permissibly accommodates all competing interests.
On April 14, 1998, the Governor signed legislation enacted by the Kentucky General Assembly declaring that "no physician shall perform a partial birth abortion." New provisions to KY. REV. STAT. ANN. § 311.720 define the proscribed procedure as follows:
(7) "Partial-birth abortion" shall mean an abortion in which the physician performing the abortion partially vaginally delivers a living fetus before killing the fetus and completing the delivery.
(8) "Vaginally delivers a living fetus before killing the fetus" shall mean deliberately and intentionally delivers into the vagina a living fetus, or a substantial portion thereof, for the purpose of performing a procedure the physician knows will kill the fetus, and kills the fetus.
The legislature also added the following sections to KRS 311.990:
(11)(a) 1. Any physician who performs a partial-birth abortion in violation of Section 2 of this Act shall be guilty of a Class D felony. However, a physician shall not be guilty of the criminal offense if the partial-birth abortion was necessary to save the life of the mother whose life was endangered by a physical disorder, illness, or injury.
2. A physician may seek a hearing before the State Board of Medical Licensure on whether the physician's conduct was necessary to save the life of the mother whose life was endangered by a physical disorder, illness, or injury. The board's findings, decided by majority vote of a quorum, shall be admissible at the trial of the physician. The board shall promulgate administrative regulations to carry out the provisions of this subparagraph.
3. Upon a motion of the physician, the court shall delay the beginning of the trial for not more than thirty (30) days to permit the hearing referred to in subparagraph 2 of this paragraph, to occur.
(b) Any person other than a physician who performs a partial-birth abortion shall not be prosecuted under this subsection but shall be prosecuted under provisions of law which prohibit any person other than a physician from performing any abortion.
(c) No penalty shall be assessed against the woman upon whom the partial-birth abortion is performed or attempted to be performed.
Plaintiffs challenge the constitutionality of the Act on several grounds. They say that the Act is so vague that one cannot know the procedures it prohibits. This is so, they say, because physicians do not know the meaning of words such as "deliver," "living," and "substantial portion." They contend that the Act's breadth would prohibit almost every significant abortion procedure used in Kentucky. They argue the absence of an exception allowing physicians to perform partial birth abortions if necessary for the health of the woman makes the Act unconstitutional. *1028 They point out that in every other case except one courts have voided other partial birth abortion statutes on similar grounds.
Defendants argue that the legislature's true intent was to prohibit only one specific procedure, the partial birth abortion.[3] This is a procedure brought to national prominence by Dr. Martin Haskell of Ohio and known in medical circles as "dilation and extraction" ("D & X") or as "intact dilation and evacuation" ("Intact D & E").[4] Defendants focus on the state's compelling interest in protecting potential life and in preventing unnecessary cruelty to a partially born child. To a great extent they rely upon the decision and rationale of Judge J. Michael Luttig of the Fourth Circuit upholding a virtually identical statute in Virginia. See Richmond Medical Center for Women v. Gilmore, 144 F.3d 326 (4th Cir.1998).
Perhaps a statute specifically defining and prohibiting the Haskell or D & X procedure could survive a constitutional challenge on the evidence presented here. The Court is not called on to consider that precise question because the Act contains words which cover a broader scope of conduct. One of the Court's duties is to consider carefully the rights of those few who are within that scope. The moral, factual and legal complexities of the abortion debate, and indeed the horrific descriptions of some abortion practices, make this decision a wrenching one. The Court has struggled to accommodate the legitimate and vital exercise of representative government with the rights of those the statute affects. In the end, the legislature's words prevent an accommodation which preserves all important rights.
II.
The Court's consideration begins with a summary of the relevant procedural background and guiding legal principles.
Plaintiffs ask the Court to permanently enjoin enforcement of the Act on behalf of themselves and their patients. The Court has federal question jurisdiction because the case involves a challenge of a state statute under the United States Constitution. 28 U.S.C. § 1331. Plaintiffs have standing to raise the constitutional claim because they may face criminal prosecution under the Act and, thus, may seek pre-enforcement review. Doe v. Bolton, 410 U.S. 179, 188, 93 S. Ct. 739, 35 L. Ed. 2d 201 (1993). Plaintiffs can assert *1029 both their own constitutional claims as well as those of their patients because their own reaction to the statute affects the patients' rights and because the patients face many practical obstacles to asserting their own claims. Singleton v. Wulff, 428 U.S. 106, 96 S. Ct. 2868, 49 L. Ed. 2d 826 (1976); Planned Parenthood of Southeastern Pa. v. Casey, 505 U.S. 833, 112 S. Ct. 2791, 120 L. Ed. 2d 674 (1992). The issuance of a preliminary injunction is no longer at issue. The Court has received all the affidavits, testimony, and other evidence which the parties believe is relevant. Therefore, the sole issue is the constitutionality of the Act.
The Supreme Court's teachings on abortion rights are well known. A woman's right to an abortion before the fetus is viable is guaranteed under the Due Process Clause of the Fourteenth Amendment. Roe v. Wade, 410 U.S. 113, 93 S. Ct. 705, 35 L. Ed. 2d 147 (1973); Casey, 505 U.S. at 846, 112 S. Ct. 2791. Although the Casey plurality abandoned the Roe trimester framework, it did reaffirm a woman's unburdened right to a pre-viability abortion. A woman's right is not absolute in all circumstances. Casey reaffirmed the holding in Roe "that the state has legitimate interests in the health of the woman and protecting the potential life within her." 505 U.S. at 872, 112 S. Ct. 2791.
In Women's Medical Professional Corp. v. Voinovich, the court summarized succinctly the Supreme Court jurisprudence on two settled principles: (1) states may ban a particular abortion procedure pre-viability as long as the regulation does not create an undue burden on a woman's right to choose an abortion; and (2) subsequent to viability, states may "`regulate and even proscribe, abortion except where it is necessary, in appropriate medical judgment, for the preservation of the life or health of the mother.'" 130 F.3d 187, 193 (6th Cir.1997) (quoting Casey, 505 U.S. at 879, 112 S. Ct. 2791). The Supreme Court explained that "[a] finding of an undue burden is a shorthand for the conclusion that a state regulation has the purpose or effect of placing a substantial obstacle in the path of women seeking an abortion of a non-viable fetus." Casey, 505 U.S. at 877, 112 S. Ct. 2791. This "undue burden" standard is the central focus of the Court's analysis.
Several other concepts inform the undue burden analysis. One is the requirement of statutory clarity in the area of criminal law. It rests on the premise that a person should be able to tell what conduct a law actually prohibits. Clarity invokes fundamental due process because "[v]ague laws may trap the innocent by not providing fair warning." Grayned v. City of Rockford, 408 U.S. 104, 108, 92 S. Ct. 2294, 33 L. Ed. 2d 222 (1972) (footnote omitted). Moreover,
Vague laws offend several important values... because we assume that man is free to steer between lawful and unlawful conduct, we insist that laws give the person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly.
Id. 408 U.S. at 108, 92 S. Ct. 2294. Laws failing to meet this standard may be void for vagueness.
All words contain some ambiguity. All criminal statutes necessarily contain a degree of vagueness. Such statutes need not have literal clarity to pass the constitutional scrutiny of providing fair warning. In this case, for instance, the Court ultimately concludes that the Act does provide a fair enough warning to those affected. However, vague language creates other problems as well. It can extend the scope of conduct which the statute governs. Moreover, courts demand extra clarity when constitutional rights are at stake. That is why "the degree of vagueness that the Constitution tolerates ... depends in part on the nature of the enactment." Village of Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 498, 102 S. Ct. 1186, 71 L. Ed. 2d 362 (1982); see also Voinovich, 130 F.3d at 197 (quoting Hoffman, 455 U.S. at 499, 102 S. Ct. 1186; Springfield Armory Inc. v. City of Columbus, 29 F.3d 250, 252 (6th Cir.1994)). It is easy to see how the concept of vagueness is interrelated with and sometimes confused with that of overbreadth.
Statutes risk being overbroad when the legislature chooses words which implicate actual conduct which is constitutionally protected. *1030 "The Court has long recognized that ambiguous meanings cause citizens to `steer far wider of the unlawful zone' ... than if the boundaries of the forbidden areas were clearly marked." Baggett v. Bullitt, 377 U.S. 360, 372, 84 S. Ct. 1316, 12 L. Ed. 2d 377 (1964) (quoting Speiser v. Randall, 357 U.S. 513, 526, 78 S. Ct. 1332, 2 L. Ed. 2d 1460 (1958)), quoted in Hoffman, 455 U.S. at 494, n. 6, 102 S. Ct. 1186. Overbreadth analysis in the context of an abortion law is inseparable from the Court's undue burden analysis under Casey. If the Act is indeed found to be overbroad, it will chill the conduct of physicians who provide legal abortions, thereby creating an undue burden on the rights of women seeking pre-viability abortions in Kentucky. How the Court undertakes this analysis determines the result in this case.
Because the Act has yet to be enforced, no one disagrees that Plaintiffs' challenge is facial. Not long ago, the Sixth Circuit discussed the standard for this type of challenge. Voinovich, 130 F.3d at 193-197.[5] Quoting Casey, it stated that "an abortion law is unconstitutional on its face if `in a large fraction of the cases in which [the law] is relevant, it will operate as a substantial obstacle to a woman's choice to undergo an abortion."' Id. 130 F.3d at 194, (quoting 505 U.S. at 895, 112 S. Ct. 2791). In Casey the respondents argued that because the spousal notification requirement affected fewer than one percent of women seeking abortions, it did not affect a "large fraction of those cases in which [the law] is relevant." The plurality disagreed, saying that "the analysis does not end with the one percent of women upon whom the statute operates; it begins there. The legislation is measured for consistency with the Constitution by its impact on those whose conduct it affects.... The proper focus of constitutional inquiry is the group for whom the law is a restriction, not the group for whom the law is irrelevant." Casey, 505 U.S. at 894, 112 S. Ct. 2791.
Understanding this insight is integral to the analysis which this Court undertakes. It means that even though the Act's prohibitions may actually affect only a few women, those women's rights are still entitled to protection on a facial challenge if the Act creates an undue burden for them. Thus, to determine the viability of the Act, the Court must consider whether it imposes an undue burden upon those women who might lawfully choose or need a procedure the Act could prohibit.
That the Kentucky Act is similar to statutes in other states does not mean that the constitutional analysis is also identical. One analyzes the constitutionality of an abortion regulation by comparing generally known constitutional principles to the actual medical practices within the state. Indeed, this means that the actual medical practices within a state dictate the Court's constitutional analysis of a statute. The extent of those medical practices can dramatically affect the standing of the physicians in the state to challenge the statute and whether the statute is unconstitutional as an undue burden on women seeking an abortion.
III.
With this in mind, the Court will review the procedures used by Kentucky abortion providers.[6] Plaintiffs have provided written *1031 and oral testimony about their practices. Depending on the length of the pregnancy,[7] the abortion providers use one of three procedures: (1) suction and curettage (also known as vacuum aspiration); (2) induction and (3) dilation and evacuation ("D & E").[8] The D & X procedure is not performed in Kentucky. The details of abortion practice are not those which one can describe neatly or without discomfort. Nevertheless, the Court must summarize the evidence about each.
Suction and curettage or vacuum aspiration are interchangeable terms and refer to the procedure most frequently used in abortions through the twelfth week of pregnancy. It involves dilation of the cervix and insertion of a plastic tube or cannula into the uterus. Suction applied to the tube removes fetal tissue and other products of the pregnancy from the uterus, through the tube. Eubanks Declaration ¶ 11, p. 4; Marshall Declaration ¶ 10, p. 3; see Evans v. Kelley, 977 F. Supp. 1283, 1292 (E.D.Mich.1997). This process, in fact, kills the fetus; further action is neither taken nor necessary.
The induction method is preferred for some late pre-viability abortions and for all postviability abortions. Eubanks Declaration ¶ 12, p. 5; Marshall Declaration ¶ 11, p. 4. Induction abortions take place in hospitals and involve inducing pre-term labor. This method is not available until after 16 weeks. It is used typically in later term abortions by the introduction of labor-inducing agents that cause labor contractions to begin. The fetus emerges intact and the woman experiences the risks and pain associated with full-term delivery. Usually, the fetus dies from the process, either by introduction of labor inducing agents[9] or from the cutting off of oxygen and nutrients because of the contractions. Hearing Transcript, 212-13. Kentucky physicians use the induction procedure occasionally for abortions pre-viability and exclusively for the rare abortions they perform during the third trimester for fetuses incompatible with life. Eubanks Declaration ¶ 12, p. 5; Marshall Declaration ¶ 11, p. 4.
For abortions between the 12th through the 23rd weeks, both Drs. Marshall and Eubanks use a version of the conventional D & E procedure. In this procedure, the physician dilates the cervix more widely than is done for vacuum aspiration. For pregnancies from 13 to 16 weeks, dilation occurs over a few hours; for those after 16 weeks, dilation occurs overnight. After using forceps or other instruments to rupture the membranes and suctioning amniotic fluid, the doctor then inserts surgical instruments through the cervix *1032 and into the uterus to remove fetal tissue and the placenta. The process sometimes results in dismemberment or disarticulation of the fetus either in utero or in the vagina. Hearing Transcript, 196. Dr. Eubanks says that in 40 to 50 percent of his D & E abortions he delivers into the vagina a part of the fetus intact. Hearing Transcript, 195. Dr. Marshall's testimony was similar. He stated that in such a procedure he will draw part of the fetus into the vagina before detaching it. In a "great majority" of his D & E procedures, disarticulation of a fetal part occurs only after he has delivered at least a limb intact to the vagina. Marshall Supplemental Declaration, ¶ 5(h), p. 9. These results are a consequence, Eubanks says, of his intent to bring as much of the fetus into the vagina as possible, thereby reducing the number of entries into the uterus. Hearing Transcript, 205. The procedure is usually done in a clinic instead of a hospital. Hearing Transcript, 234.
The Court refers to Plaintiff's procedures as a version of the conventional D & E because evidence in the record indicates doctors performing D & Es use slightly different procedures, even though all agree that the D & E is the preferred method for second trimester abortions in Kentucky and nationwide. This discussion also bears out the difficulty of attaching rather general definitions to specific medical procedures, even procedures which are well-known to physicians.
According to Defendants, the conventional D & E involves dismembering the fetus inside the uterus using surgical instruments then removing the pieces through a dilated cervix. Defendants' Pretrial Brief, 9 (quoting Martin Haskell, M.D., Dilation and Extraction for Late Second Trimester Abortion, in PRESENTATIONS, BIBLIOGRAPHY & RELATED MATERIALS, SECOND TRIMESTER ABORTIONS: FROM EVERY ANGLE, FALL RISK MANAGEMENT SEMINAR (Nat'l Abortion Federation, 1992) at 28, provided in Defendants' Appendix, 237). Plaintiffs do not describe dismembering the fetus in the uterus as being an objective part of the procedure they consider a D & E. Hearing Testimony, 193-94; Eubanks Declaration, ¶ 11, p. 4; Marshall Declaration, ¶ 9, p. 3-4. The American Medical Association ("AMA") identifies a D & E as the primary procedure used in early second-trimester abortions, from the 13th to 15th weeks. That organization also indicates its use as one of several options for mid- and late-second trimester abortions, along with the D & X, labor induction, hysterotomy and hysterectomy. The AMA notes, "Because the fetus is larger at this stage of gestation (particularly the head), and because bones are more rigid, dismemberment or other destructive procedures are more likely to be required than at earlier gestational ages to remove fetal and placental tissue. Some physicians use intra fetal potassium chloride or digoxin to induce fetal demise prior to a late D & E (after 20 weeks), to facilitate evacuation." AMA Report of the Board of Trustees, B of T Report 26-A-97, at 8, provided in Defendants' Appendix, 185 ("AMA Report"). Kentucky physicians do not introduce any agents to induce fetal demise to facilitate removal of the fetus during a D & E.
Furthermore, in addressing early, second-trimester D & Es, the AMA does not describe a procedure in which the physician purposefully dismembers the fetus in uterus, but "[b]ecause fetal tissue is friable and easily broken, the fetus may not be removed intact." AMA Report at 8, provided in Defendants' Appendix, 185. Plaintiffs' expert Dr. Hausknecht testified that in his practice, the D & E is used from the 13th or 14th week until the 21st or 22nd week of gestation. Plaintiffs use the D & E from the 12th week through the 23rd week. Dr. Boehm, Defendants expert, testified that in his practice, D & E's are done only through the 16th or 17th week. Hearing Transcript at 106. Moreover, he only dilates the cervix briefly, for a few minutes, using mechanical dilators in the operating room. Hearing Transcript, 111. This contrasts to Dr. Hausknecht's practice of using osmotic dilators over several hours, Hearing Transcript, 116; or Dr. Eubanks testimony that he might use osmotic dilators to dilate some patients overnight. Hearing Transcript, 193; Eubanks Declaration, ¶ 11, p. 4. Defendants' expert Dr. Boehm admitted that the decision to use D & E through a particular week of gestation *1033 "varies from state to state, doctor to doctor." Hearing transcript at 112.
Having reviewed this evidence, the Court observes that Kentucky abortion providers undertake a procedure that many doctors would agree is a "conventional D & E." Those same doctors, however, may vary their own D & E practice in small but significant ways. Several factors might account for these differences, such as personal preference, training, and expertise of the physician, the medically relevant facts of the case, and the doctor's sound medical judgment. The differences in D & E practice among doctors across several states highlight the need for the Court to consider how the Act affects practitioners in Kentucky with little regard for medical practices, similar statutes, and constitutional challenges in other jurisdictions.
IV.
The Court now turns to interpret the Act. The core of Defendants' argument, asserted repeatedly, is that the legislature intended to prohibit only the D & X. However, as Justice Holmes reminds us, "[w]e do not inquire what the legislature meant; we ask only what the statute means."[10] Thus, the Court must consider the constitutionality of the group of words, selected and arranged by the General Assembly, presumably intended to ban whatever they encompass. In subsection A, the Court analyzes those words to gain some literal sense of the Act's meaning. The Court concludes that doctors have fair notice that it does not proscribe two commonly used procedures. In subsection B, the Court finds that the Act's "substantial portion" language broadens its scope to reach a significant number of the D & E's as performed in Kentucky. This reach constitutes an undue burden on some women seeking a lawful abortion. In subsection C, the Court discusses why it cannot simply accept the legislature's supposed intent to ban only the D & X procedure. In Subsection D the Court summarizes its conclusions that the Act will chill the exercise of necessary and constitutionally protected conduct.
A.
Judges and academics have produced volumes on the process of statutory interpretation. All would agree that one must start with an understanding of the words within the context of their general purpose. Every criminal statute has the purpose of prohibiting some evil. Here, the evil to be prohibited is the partial birth abortion, which KY. REV. STAT. ANN. § 311.720(7) defines as the two step process of (1) partially vaginally delivering a living fetus and (2) killing it. One can immediately sense the delicacy in defining the prohibited procedure, as most abortions may fall within this rather general definition. The legislature had to be more specific and it was. It provided its own definition in KY. REV. STAT. ANN. § 311.720(8). That definition adds only two new concepts: (1) that the entire procedure and each step of it must be intentional and (2) that a substantial portion of a living fetus be delivered into the vagina before the killing of it.
Plaintiffs argue that this definition includes within its scope of prohibited conduct any method in which the fetus is delivered and killed in the same procedure. The Court rejects this interpretation of the Act. By stating that the delivery must occur "before" the killing, the subsection (8) definition expressly prohibits only a several-step process, not a single procedure which delivers the fetus and kills it at virtually the same time. That other clearer words might have been omitted does not make the existing words insufficient.
Plaintiffs also argue that a completely detached portion of the living fetus may constitute a "living fetus" under the Act. Such an interpretation seems inconsistent with logical meaning of the words. Common sense implies that a "living fetus" must have a heartbeat and so be capable of life, at least for a moment. A limb or lower torso, detached in the uterus and delivered to the vagina, is capable of neither having a heartbeat nor sustaining life and, thus, is not "living" in the commonly understood sense. Moreover Plaintiffs' interpretation is contrary to the legislature's obvious intent of the *1034 words. Everyone agrees that the Act does not prohibit dismembering or killing a fetus in the uterus or cervix, so long as no portion of the fetus is outside the cervix. Thus, once a physician lawfully dismembers a fetus and makes death inevitable, the state has no legitimate reason to prohibit a later procedure which merely finalizes the death. Sensibly, the Act does not appear to cover such actions.
More important for our purposes, the Court's interpretations mean that the Act most certainly does not prohibit two commonly used procedures suction and curettage, and induction. In the suction and curettage or vacuum aspiration, the act itself of suctioning out the fetal tissue kills the fetus. No subsequent or separate procedure is needed to kill the fetus. The physician does not expect the fetal tissue to be "living" upon suctioning from the uterus. Thus, at several basic levels suction and curettage falls outside the Act's definition. The induction procedure likewise is not prohibited. Although induction includes vaginal delivery, the delivery itself kills the fetus on virtually every occasion, either prior to the fetus' entering the vagina, or while there because the induced contractions cut off the supply of oxygen. No separate act by the physician is anticipated or required. In sum, only forced or artificial interpretations of the Act could expand its scope to include these procedures.
B.
To complete its interpretation, the Court focuses now on whether the Act's "substantial portion" language is so broad that it includes a significant number of D & E's as Plaintiffs perform them in Kentucky.
The word "substantial" has several threads of meaning. It can imply an ample or considerable size, an essential or material part of a thing, or a strong or solid physical character.[11] In the context of the Act, the Court cannot say precisely what might comprise a substantial portion of a fetus measuring between nine and twelve inches in length and weighing between one and two pounds. Neither can physicians.[12]
For example, even a small portion could be vital and, thus, substantial. Could not a substantial portion of 9 inches be 3 inches? Could not a substantial portion of 2 pounds be 3/4 of a pound? A substantial portion need not be the largest part or more than half. Could not a limb be deemed "substantial" because it is a considerable part, a material or important part of the body and because it has a solid physical character? As best the Court can determine, the legs of the fetus represent about 35 to 40 percent of its overall length between the 20th and 24th week. See Diagram Illustrating Changes in Size of Human Fetus, Defendants' Appendix, 138. Could not a physician or a prosecutor reasonably believe limbs of this proportion to be a substantial portion of the fetus? The Court concludes that they could. If so, then the term "substantial" in this context has a breadth of meaning which greatly expands the Act's coverage beyond a D & X.
To be sure, the word "substantial" is not inherently vague. In many other contexts its use would raise no question. For instance, frequently in D & E's performed in Kentucky and apparently in other states, no portion of the fetus is delivered intact into the vagina. Hearing Transcript, 111, 195. No definition of "substantial" would implicate a D & E performed in those circumstances. However, context is vital to meaning.
In the context of Kentucky abortion practice the term "substantial" suffers for lack of precision, resulting not so much in vagueness, *1035 as in overbreadth. By adopting such broad language, the legislature has fashioned a statute which may prohibit procedures which Drs. Eubanks and Marshall normally and intentionally carry out in pregnancies up to the 23rd week of pregnancy. Indeed, Plaintiffs have notice of what the Act may prohibit and one such procedure is the natural, probable, and in many respects, intended consequence of a D & E performed during the later stages of pre-viability pregnancy. Consequently, the Act may reach a significant amount of constitutionally protected conduct, even though neither Drs. Eubanks nor Marshall perform a conventional D & X or the Haskell procedure. For reasons of medical safety, both Drs. Eubanks and Marshall do try to bring as much of the fetus into the vagina as possible when performing a D & E. This intent has important ramifications under the Act. About 40 to 50 percent of the time they deliver a leg or arm or more of the fetus intact into the vagina. Hearing Transcript, 195. When doing this, Eubanks considers a leg, two legs, or two legs and the buttocks to be a "substantial portion." Hearing Transcript, p. 197. They do this "before" then performing a procedure or procedures which they know will kill the fetus.[13]
Comparing the words of the Act with the actual medical practice, one can see the truth of the belief that "meaning resides not simply in the words of a text, for the words are always pointing to something outside."[14] Here, the words point to procedures in Kentucky which are often necessary to guarantee a woman's right to lawful abortion of a nonviable fetus. The words point to procedures that cover as many as 40 to 50 percent of the D & E's Plaintiffs perform. The words point to the rights women might lawfully exercise. By doing so, the words and the Act they comprise create an undue burden upon the women who seek only to exercise their rights.
C.
In Defendants' memoranda, they make almost no attempt to define the term "substantial portion." Instead, under the umbrella of legislative intent, they try to characterize partial birth abortion, the D & X procedure, and definitions in subsections (7) and (8) as synonymous. Defendants insist that "there can be little doubt" that the General Assembly intended to proscribe only D & X abortions. Because this intent is so clear, Defendants say that the Court should respect it and hold the Act constitutional.
Defendants cite the congressional debates and legislative history of the federal partial-birth abortion ban as evidence that the D & X/Intact D & E is what the Kentucky General Assembly intended to ban. They point out that during the congressional debates, "the AMA and the American College of Obstetricians and Gynecologists ("ACOG") both equate[d] the terms `partial birth abortion' with the D & X procedure." Defendant's Pretrial Brief, 6. Whether the AMA believes that a partial birth abortion is or is not the same as a D & X is of little consequence to the Court's analysis. If the definitions of these procedures were so clear, however, the legislature would have had no need to provide its own definition.
In the General Assembly's debate, the term "partial birth abortion" was referred to as a procedure having the following steps: (1) dilation of the cervix over several hours, usually two days; (2) manipulation of the fetus into a breech position so that the feet of the fetus exit the uterus first before the torso, upper body, or head; (3) extraction of an intact fetus, in the breech position, through the cervix, out of the uterus and into *1036 the vagina up to the head of the fetus (which remains in the uterus); (4) decompression of the cranium of the fetus, which kills the fetus and which facilitates complete removal of the fetus from the uterus and out of the woman's body. See footnote 3, supra. See also Videotape, House Judiciary Committee, Mar. 19, 1998; Videotape, House Floor Debate, Apr. 1, 1998; Defendant's Appendix, 244. However, the Court cannot simply ignore the legislature's statutory definition of the prohibited conduct in favor of one which is nowhere referenced in the Act. This is particularly true when the General Assembly refused to adopt a more precise definition describing the D & X. Videotape, House Floor Debate, April 1, 1998.
The differences between the two definitions are quite dramatic. The Act does not include or discuss, for example, deliberate dilation of the cervix over several hours or days. The Act does not address a physician's manipulation of the fetus into a breech position, so that the feet of the fetus exit the uterus first. The Act does not discuss an extraction of an intact fetus through the cervix and into the vagina up to the head of the fetus. Nor does the Act address decompression of the cranium of the fetus to kill the fetus, to get the fetal head out of the uterus and facilitate complete removal of the fetus from the woman's body. To be sure, to "deliver[] into the vagina a living fetus, or a substantial portion thereof," encompasses extraction of an intact fetus, in a breech position, into the vagina up to the head. A "substantial portion" of a living fetus certainly would mean a fetus from the neck down. It also could mean something less than that. True, "kills the fetus" encompasses the act of decompressing the cranium of the fetus. It also encompasses virtually every other method of fetal demise.
By adopting a considerably less precise definition of a partial birth abortion, the legislature not only defined the terms of its prohibition, but also said a lot about its own collective intent. Though the Act calls itself a partial birth abortion ban, it is not. The title is misleading, both medically and historically. No one, not even Defendants' counsel, can deny that the General Assembly selected words that encompass more than the D & X and a lot more than the procedure Dr. Haskell first described. See Hearing Transcript, 28-29. One could think of many reasons for this. Perhaps the legislators feared that physicians could easily circumvent a more precise definition. However, the Court need not approve of or even understand the legislature's exact reasoning.
The committee and floor debates concerning this Act show the legislature's collective intent was quite a bit less precise than Defendants suggest. To be sure, numerous legislators did intend to ban the D & X. However, others sought an extra measure of prohibition to cover procedures related to or derivative of the D & X. Still others warned that the language might cover a D & E. A few seem to disregard the constitutional arguments and push for language which they believed would make abortions more controllable. This hodgepodge of intent provides the Court with direction, but no meaning.[15] Certainly, it establishes no meaning so clear that it can override the broad language of the Act.
The Court has not gone out of its way to conjure up a hypothetical constitutional clash where none actually exists. See United States v. Raines, 362 U.S. 17, 21, 80 S. Ct. 519, 4 L. Ed. 2d 524 (1960). The clash is neither ancillary nor inadvertent. The legislature focused directly on protected activity in a manner which everyone knew might be unconstitutional. The legislature could have passed a statute of more limited reach and still achieved its supposed objective. Instead, it decided to go farther. Indeed as is sometimes the case in controversial issues, the legislature seems to have striven for, in Justice Frankfurter's words, a "purposeful ambiguity."[16] That is quite a different purpose than the one suggested by Defendants.
*1037 D.
By concluding that the Act places an undue burden on women who seek to exercise their constitutional right, is the Court saying that prosecutors surely would exercise their discretion to prosecute such cases? Does the Court mean to say that Plaintiffs would be indicted and convicted under the Act? The Court does not mean to say so. Nor does it need to. One must concede that these are open questions. It may be fairly argued that Plaintiffs' conduct is just at the margin of legality. It is true that "all criminal laws chill conduct that is at the margins of legality." Voinovich, 130 F.3d at 214 (Boggs, J. dissenting). However, where that margin of legality intersects another's constitutional rights, otherwise acceptable "chilling" takes on a whole new significance.
Sometimes legal analysis can seem like a captious word game, particularly when real lives and the most fervently held moral beliefs are at stake. However, one cannot ignore the words of the statute which point directly at each. The words are important because they have purpose. That purpose is to guide the actions of men and women. The words guide the actions of the few Kentucky physicians performing abortions. The Court must ask whether those physicians, given their conduct and the wording of the Act, have reason to fear prosecution. The Court must ask whether some conduct of those physicians is actually subject to prosecution under the Act. The Court must answer both questions "yes." The Court need not know that prosecutors will actually bring a charge. That the statute is so broad that it includes current legal abortions is enough to chill the conduct of those physicians. Instead of banning only a procedure not used in Kentucky, the Act's real impact is making physicians fearful that their constitutionally meaningful conduct is criminalized. Under this Court's analysis, that fear is both reasonable and credible. That fear makes the Act burden the exercise of constitutional rights by women seeking late-second trimester abortions.
The Court concludes that by choosing words having a broader scope, the legislature moved from arguably firm constitutional ground banning a very limited procedure used for late term abortions to a quagmire of constitutional infirmity banning a set of actions and results that embrace common and otherwise legal abortion procedures which Plaintiffs regularly use. This creates an undue burden upon a large fraction of those women whom the Act will affect.
V.
One principle of democracy is the right of a majority to enact certain moral judgments as laws. To uphold those enactments affirms democracy and the people's sense of morality. Consequently, courts should look for ways to avoid constitutional difficulties and uphold statutes. See Eubanks v. Wilkinson, 937 F.2d 1118, 1122 (6th Cir.1991). Therefore, the Court must consider carefully any other arguments or interpretation which might accommodate these principles.
A.
Defendants suggest that the Court should impose its own more precise construction upon the phrase "substantial portion." To be sure, laying down either a definitive or narrower meaning for this term would have a great many benefits in these circumstances.
Federal courts have always struggled to say how far they should go in defining state statutes so they are constitutional. On one hand, "[w]hen a statute is `readily susceptible' to a narrowing construction that would make it constitutional, it will be upheld." Eubanks v. Wilkinson, 937 F.2d at 1122 (quoting Virginia v. American Booksellers Assn., 484 U.S. 383, 397, 108 S. Ct. 636, 98 L. Ed. 2d 782 (1988))(internal quotations omitted). On the other hand, "[e]xtrapolation, of course, is a delicate task, for it is not within our power to construe and narrow state laws." Grayned v. City of Rockford, 408 U.S. 104, 110, 92 S. Ct. 2294, 33 L. Ed. 2d 222 (1972).
One possibility here is to construe "substantial portion" to comport with a responsible definition of a D & X. To accomplish this would require the Court to define "substantial portion" as meaning "four-fifths of the fetal body" or "the fetal body up to the head." Unfortunately, nothing in the language *1038 of the Act supports such an interpretation. The Act contains no reference to a fractional proportion of the fetal body nor to any fetal body part head, neck, or shoulders. Indeed, the legislature rejected such a definition. Videotape, House Floor Debate, April 1, 1998. It is hard to fathom how the Court could limit the Act to mean only a D & X when it is clear that the language encompasses more.
Another possibility that might save the Act is to construe "substantial portion" to mean "more than half." The evidence shows that Plaintiffs anticipate more than half of a fetus to present into the cervical os (i.e., opening) and be delivered into the vagina very rarely so rarely that it could not possibly be said to be their intent. Hearing Transcript, 198, 240. Were the Court to impose such an interpretation the Act might be saved. The Court rejects this interpretation for many of the same reasons it refuses to say "substantial portion" means "four-fifths" or "up to the head." The Court has found no definition of "substantial" as meaning only more than half. Moreover, it is not an interpretation clearly offered by the state as a saving construction, although one of their experts stated that this would be his personal interpretation. Hearing Transcript 105-106. Nothing in the language of the act supports "more than half," and nothing in the legislative history indicates this meaning was one intended by the legislature.
In the final analysis, these Defendants' limiting constructions are more convenient than plausible. To adopt any one of them would be nothing more than putting words in the legislature's mouth.[17]
B.
The Defendants also argue that the Act's strong mens rea elements prevent the Court from finding it unconstitutional. They say that the Act prohibits intentional and deliberate delivery of a living fetus or a substantial portion thereof into the vagina, which is not the intent of physicians performing D & E's in Kentucky. Defendants' Pretrial Brief, 30 (quoting Richmond Medical Center for Women v. Gilmore, 144 F.3d at 330). They argue, through Judge Luttig, that when a portion of a living fetus is delivered into the vagina during a D & E, it is done so as "a result of `luck' rather than deliberation and intent." Id. (quoting Gilmore, 144 F.3d at 330).
To be sure, some courts have concluded that strong mens rea language can cure problems of vagueness.[18] However, the mens rea language here is purported to solve a problem which the Court found does not exist. The Court has concluded that the Act is not void due to vagueness. The strong mens rea language does not reduce the Act's reach and, therefore, cannot cure that constitutional defect. Its presence does not change the Court's analysis of the undue burden. Kentucky law and the facts in evidence preclude that.
*1039 Kentucky Revised Statute § 501.020(1) defines "intentionally" as it is to be applied in criminal prosecutions as follows:
"Intentionally" A person acts intentionally with respect to a result or to conduct described by a statute defining an offense when his conscious objective is to cause that result or to engage in that conduct.
Kentucky's Supreme Court has stated "[i]ntent may be inferred from actions because a person is presumed to intend the logical and probable consequences of his conduct and a person's state of mind may be inferred from actions preceding and following the charged offense." Parker v. Commonwealth, 952 S.W.2d 209, 212 (Ky.1997) (citing Davidson v. Commonwealth, 340 S.W.2d 243 (Ky.1960); Wilson v. Commonwealth, 601 S.W.2d 280 (Ky.1980); Claypoole v. Commonwealth, 337 S.W.2d 30 (Ky.1960)); see also Smith v. Commonwealth, 737 S.W.2d 683, 688 (Ky. 1987).
Plaintiff's testimony clearly indicates that they lack the conscious objective to carry out a D & X. Marshall, Supplemental Declaration ¶ 5(k). However, the Act encompasses more than the D & X. Dr. Eubanks testified that 40 to 50 percent of the time he does a D & E that some portion a substantial portion of the fetus presents in the vagina, while it is still intact and before it is dismembered. Hearing Transcript, 195. Moreover, Dr. Eubanks testified that "each time you insert your instruments into the uterus, ... the uterus can be perforated." Hearing Transcript, 205. Thus, he further testified, it is part of his conscious objective to insert instruments into the uterus as few times as possible and that each time he does insert instruments into the uterus, he does so with the intent to bring out as much as the fetus as possible. Hearing Transcript, 205. Clearly, the natural and probable consequences of performing a conventional D & E are that a substantial portion of the fetus will present into the vagina; that the physician will deliver that portion into the vagina; and that subsequent acts by the doctor will then kill the fetus. This has implications under the Kentucky penal code which must be recognized. By the definition in KRS 501.020, Plaintiffs do have as their conscious objective to cause a result or to engage in conduct which the Act prohibits. Thus, based on the evidence presented here, the mens rea language of the Act would not exclude Plaintiffs' conduct.
C.
Defendants argue that the Plaintiffs face no credible threat of prosecution because, in Defendants' opinion, conventional D & E abortion procedures remain lawful under the Act. Defendants' Post Hearing Brief, 16. To physicians facing imprisonment or the loss of their medical license, the threat cannot be so lightly cast aside. See Section IV(D), supra. Nor is it logical for the Court to give much weight to Defendants' promise that they would not prosecute Plaintiffs for performing an abortion in their usual manner. Hearing Transcript, pp. 202-205.
These arguments and Defendants' assurances only make sense if one agrees with Defendants' interpretation of the Act as reaching only a D & X. The Court, however, has found the Act broader than that. See Section IV(C), supra. "It will not do to say that a prosecutor's sense of fairness and the Constitution would prevent a successful ... prosecution for some of the activities seemingly embraced within the sweeping statutory definitions." Baggett v. Bullitt, 377 U.S. 360, 373, 84 S. Ct. 1316, 12 L. Ed. 2d 377 (1964). Defendants' assurances are particularly unconvincing given their admission that the terms of the statute reach something more than a D & X and given the legislature's clear intent to have a definition somewhat broader than one limited to the D & X. Defendants place themselves in the untenable position of asserting that the Act is constitutional as drafted, while simultaneously saying that they will not enforce the Act to its full scope.
The opinion of the state's counsel at the hearing is neither binding on this Court nor is it constitutionally sufficient. "[T]he Attorney General does not bind the state courts or local law enforcement authorities," and accepting a statement made at the hearing as authoritative would be ill-advised. See Virginia v. American Booksellers Ass'n Inc., 484 U.S. at 394, 395, 108 S. Ct. 636 (1988); Baggett, *1040 377 U.S. at 373, 84 S. Ct. 1316. In those occasional cases where the interpretation of persons charged with a law's enforcement carry great weight before the Court, years of policy and practice support those interpretations. See Grayned v. City of Rockford, 408 U.S. 104, 110, 92 S. Ct. 2294, 33 L. Ed. 2d 222 (1972) (acknowledging the court may consider "perhaps to some degree ... the interpretation of the statute given by those charged with enforcing it"); see also Poe v. Ullman, 367 U.S. 497, 501, 81 S. Ct. 1752, 6 L. Ed. 2d 989 (1961)(statute being challenged had been on the books since 1879 and was never meaningfully enforced). They are not cases, such as this, involving a pre-enforcement challenge.
Finally, the assurances themselves are insufficient. They came in the form of a brief statement made at the hearing after the State's attorneys conferred, following a cross-examination of the Plaintiff, Dr. Eubanks. Lacking was an unequivocal denunciation of prosecution for carrying out a D & E procedure. Such a denunciation should rarely be relied upon in any case. In the final analysis, these assurances are little more than a snapshot of prosecutorial discretion. In these circumstances, that is simply not assurance enough. A single prosecutor's promise cannot trump the Court's interpretation.
D.
Defendants use most of their post-trial brief to urge upon the Court the merits of Judge Luttig's opinion in Richmond Medical Center for Women v. Gilmore, 144 F.3d 326 (4th Cir.1998). Because the Virginia statute is substantially identical to the Kentucky Act, they conclude that this Court should follow Judge Luttig's analysis and conclusion. The Court has carefully reviewed Judge Luttig's opinion and is impressed with much of its analysis.[19] However, for a variety of reasons its conclusions are unpersuasive here.[20] Because Defendants rely upon it so exclusively, a few additional comments are appropriate.
While the Virginia and Kentucky statutes are identical, the constitutional analysis is different as to each. That analysis is dictated by the scope of actual conduct proscribed. Judge Luttig considered the specific D & E procedures in Virginia, which are quite different from the results which Drs. Marshall and Eubanks experience. Different facts yield different legal results. Judge Luttig relied on a description of the conventional D & E that assumed dismemberment in the uterus and fetal demise prior to delivery of any portion of an intact fetus into the vagina. 144 F.3d at 330. He also indicated that "normal" D & E procedure in Virginia called for severing the umbilical cord of the fetus while it remained in uterus, causing fetal demise before anything is delivered into the vagina. Id. This is simply not the practice in Kentucky. Hearing Transcript, 206. Judge Luttig did not consider how the term "substantial portion thereof" greatly expands the breadth of the medical procedures which the Virginia statute might proscribe. Under Judge Luttig's facts, such an analysis may have seemed unnecessary. The breadth of those words is critically significant, however, under the facts of our case. In the final analysis, neither Judge Luttig's analysis nor the facts of his case can decide this one.
VI.
By declaring the Act facially unconstitutional, the Court does not mean to imply that every provision of the Act offends the Constitution. That declaration follows only from the effect of the Act on pre-viability abortions performed in Kentucky. The Act, however, bans partial birth abortions no matter when in pregnancy they are performed. Cf. *1041 Voinovich, 130 F.3d at 202 (explaining that Ohio banned the partial birth abortion procedure "without reference to viability"). The Court, thus, faces two questions: (1) whether it is possible to sever the definition section and leave a constitutional statute behind and (2) whether it is possible to sever the pre-viability application of the Act from its post-viability application.
The answer to the first question the severability of the definition provision is an easy one. When a legislature bans a partial birth abortion, its prohibition has meaning only by reference to the legislature's definition of that procedure. Where the overbreadth of that definition causes a constitutional problem, a court would only compound the problem by deleting the specific definition. Nothing intelligible would remain. Therefore, severing the definition section is not an option.
The second question the severability of pre- and post-viability applicationposes a more difficult problem. Nothing in the Act distinguishes between pre- and post-viability. There is no particular section, paragraph, sentence, or word that the Court could strike leaving behind any coherent remains. A decision from the Sixth Circuit, and from the Kentucky Supreme Court as well as a Kentucky's general severability statute all suggest that this Court should not introduce new terms or add a narrowing interpretation to a statute in order to save a portion of it. See Eubanks v. Wilkinson, 937 F.2d 1118, 1121-1128 (6th Cir.1991); Musselman v. Commonwealth, 705 S.W.2d 476, 477 (Ky.1986); KRS 446.090.[21] These cases parallel the more recent resolution of the Sixth Circuit in Voinovich where the court also explained that a federal court cannot rewrite a state statute through severance to save it. Voinovich, 130 F.3d at 202.
Thus, the Court sees no way to limit the application of the Act to post-viability partial birth abortions without rewriting the Act, and, thus, intruding upon the province of the legislature. Therefore, the Court must enjoin enforcement of the entire Act.
VII.
Plaintiffs have raised two additional objections to the Act, each of which may have considerable merit. First, Plaintiffs say that the absence of a provision allowing physicians to perform partial birth abortions post-viability to protect the health of the woman makes the Act unconstitutional. Second, they said that as a fundamental principle of due process, the state must have some rational basis for the regulation contained in the Act. They say that none exists. Because the Court has already found the Act facially unconstitutional as an impermissible burden on pre-viability abortions in Kentucky, it need not reach a conclusion on these remaining issues. By treating these issues only briefly, the Court does not mean to minimize their importance.
A.
Kentucky Revised Statute § 311.990(11)(a)(1) provides that "a physician shall not be guilty of the criminal offense if the partial-birth abortion was necessary to save the life of the mother whose life was endangered by a physical disorder, illness, or injury." The Act contains no exception to preserve the "health" of the woman.
The absence of the health exception would seem to raise fundamental concerns under binding Supreme Court precedents. In Casey, the Supreme Court explained that even after viability, when a state's interest in protecting potential life is greatest, a state could not proscribe abortion without providing an exception for an appropriate medical judgment that an abortion is necessary "`for the preservation of the life or health of the mother.'" 505 U.S. at 879, 112 S. Ct. 2791 (quoting Roe v. Wade, 410 U.S. at 164-65, 93 S. Ct. 705) (emphasis added). The Sixth Circuit recently underscored this concern in Voinovich, quoting from both Casey and Roe, to demonstrate the Supreme Court's consistent *1042 view. Voinovich, 130 F.3d at 197. The legislature's failure to include the health exception could prevent physicians from exercising appropriate medical judgment as to some post-viability abortions. This has rather obvious constitutional implications.
Because the Court cannot sever the pre-viability application of the Act from its post-viability application, the Court must enjoin the enforcement of the entire Act irrespective of any further consideration of the absence of the health exception.[22]
B.
Plaintiffs assert that the Act violates the due process protection against substantially arbitrary and purposeless restraints. See Casey 505 U.S. at 848, 112 S. Ct. 2791; Planned Parenthood of Cent. Mo. v. Danforth, 428 U.S. 52, 79, 96 S. Ct. 2831, 49 L. Ed. 2d 788 (1976). On the other hand, Defendants spend considerable effort to convince the Court that the legislature's purpose was valid. They discuss the Haskell procedure at length and explain that it is unnecessary, dangerous, inhumane and painful to the fetus. These two opposing arguments raise profound issues. However, neither party has provided the Court with sufficient evidence to reach a fully informed decision.
Defendants make a valid point in their assessment of the post-viability Haskell procedure and the legislature's interest in prohibiting true infanticide. However, whether the same can be said about a pre-viability D & X is not at all clear. Several courts have questioned the validity of the state's interest in such a prohibition. See Women's Medical Professional Corp. v. Voinovich, 911 F. Supp. 1051, 1074-75 (S.D.Ohio 1995), aff'd on other grounds 130 F.3d 187 (6th Cir.1997); Planned Parenthood of Wisconsin v. Doyle, 162 F.3d 463, 469-471 (7th Cir.1998). Though the record is far from complete, Defendants here seem unable to answer those questions very well and sometimes not at all.
For instance, nothing in the evidence would seem to establish that limiting fetal pain is a legitimate purpose of this Act. After all, it is hard to imagine that even the gruesome partial birth abortion procedure would be more painful to a fetus than being torn apart limb by limb as in an ordinary D & E procedure. No one seems to argue that the Act has as one of its legitimate purposes the protection of the mother's health. To be sure, the legislature has the right to express its moral outrage in the form of criminal statutes. However, that outrage cannot act to condemn conduct which is constitutionally protected.
In any event, for purposes of this Memorandum the Court assumed the legislature's purpose is to be valid. However, even an otherwise valid purpose could not save the unconstitutional effect of those words.
VIII.
The battle over abortion rights and the right to life has produced some bitter divisions among both political leaders and judges. In Casey, for instance, a minority of four justices decried the Roe precedent and the majority's refusal to overrule it.
The minority reserved especial disdain for the "undue burden" or "substantial obstacle" test, which has been the focus of this Court's analysis. The dissenters asserted that, "consciously or not, the joint opinion's verbal shell game will conceal raw judicial policy choices concerning what is `appropriate' abortion legislation." 505 U.S. at 987, 112 S. Ct. 2791 (emphasis added).[23] As a consequence, they foresaw
The inherently standardless nature of this [undue burden] inquiry, invites the district judge to give effect to his personal preferences about abortion. By finding or relying upon the right facts, he can invalidate, it would seem, almost any abortion restriction that strikes him as "undue" subject, of course, to the possibility of being reversed by a court of appeals or Supreme *1043 Court that is as unconstrained in reviewing the decision as he was in making it.
Id. at 992-993, 112 S. Ct. 2791. Their concerns have merit and deserve a response in the context of this decision.
That the "undue burden" standard is difficult to apply in these circumstances, few could deny. One should not expect the easy accommodation of such dramatically opposing rights. Neither the difficulty of the task nor the sensitivity of the issues, however, should have us believe that judges will resort merely to a personal preference. Rather, we are challenged to do our duty which is to faithfully and impartially declare what the law is.
While judicial opinions are mandates, they are also part of a continuing conversation between elected officials and the judiciary. In a shell game, one has no better chance of knowing the correct answer after one try than after the next. In our constitutional conversation, that is simply not so. Judges give reasons for their decisions. Those reasons are based upon the evidence in their case and the opinions of higher courts. By giving reasons, we help guide further conversation. Were this decision only a mandate, the conversation would be over. That other courts may choose to agree or disagree, that the legislature may respond, shows that this decision enhances and informs the on-going democratic process.
The Court will enter an order consistent with this Memorandum Opinion.
ORDER
The Court has considered the pending motions upon the pleadings, stipulations, evidence and arguments of counsel. The Court has issued a Memorandum Opinion concluding that the provisions of the Act of the General Assembly of Kentucky and signed by the Governor of the Commonwealth of Kentucky on April 14, 1998, Senate Bill 121, 1998 Kentucky Acts Chapter 578, and designated "AN ACT Relating to Abortion" and referred to as "Kentucky's Partial Birth Abortion Ban" (the "Act") which purports to ban the practice of partial birth abortions, are unconstitutional and invalid. Therefore, Plaintiffs are entitled to the relief sought.
Being otherwise sufficiently advised,
IT IS HEREBY ORDERED that Defendants and their successors in office and all others acting on behalf of them are hereby perpetually and permanently enjoined and restrained from enforcing or attempting to enforce the provisions of the Act.
This is a final and appealable order.
NOTES
[1] Only four physicians in Kentucky regularly perform abortions. Only three of them perform abortions after the 12th week of pregnancy. Those three are the individual plaintiffs in this case.
[2] As Justice Holmes observed in Hudson County Water Co. v. McCarter, 209 U.S. 349, 355, 28 S. Ct. 529, 52 L. Ed. 828 (1908): "All rights tend to declare themselves absolute to their logical extreme. Yet all in fact are limited by the neighborhood of principles of policy which are other than those on which the particular right is founded, and which become strong enough to hold their own when a certain point is reached. The limits set to property by other public interests present themselves as a branch of what is called the police power of the state. The boundary at which the conflicting interests balance cannot be determined by any general formula in advance, but points in the line, or helping to establish it, are fixed by decisions that this or that concrete case falls on the nearer or farther side."
[3] "Partial Birth Abortion" is not a medical term. The American College of Obstetricians and Gynecologists (ACOG) describes the procedure Congress sought to ban as an "Intact D & X" and stated it included four elements:
1. deliberate dilatation of the cervix, usually over a sequence of days;
2. instrumental conversion of the fetus to a footling breech;
3. breech extraction of the body excepting the head; and
4. partial evacuation of the intracranial contents of a living fetus to effect vaginal delivery of a dead but otherwise intact fetus.
ACOG Statement of Policy, As issued by the ACOG Executive Board; Jan. 12, 1997. Throughout this opinion, the Court's use of the term "D & X" refers to this four part procedure.
[4] The partial birth abortion came under public scrutiny following Dr. Martin Haskell's presentation of a paper at a medical conference hosted by the National Abortion Federation in 1992. "The dissemination of [Dr. Haskell's paper] to antiabortion activists set the stage" for the campaign to ban the procedure. David Brown, Late Term Abortions; Who Gets them and Why, WASHINGTON POST, Z12, (Sept. 17, 1996). Another physician Dr. James T. McMahon, who made a presentation at the same conference as Dr. Haskell, used the D & X/Intact D & E or "partial birth abortion" almost exclusively for the abortions he performed which were all after 24 weeks. Although most of Dr. McMahon's subjects suffered from conditions incompatible with life, a number of them suffered from conditions not so severe or fatal. Id. Thus, the fear became that this procedure was always performed on viable fetuses. Under these circumstances abortion opponents made the compelling argument that the procedure amounted to infanticide.
Since the time of Haskell's presentation, Dr. McMahon has died and Dr. Haskell has limited his practice of the D & X to abortions in the range from the 20th week to the 24th week of pregnancy. Women's Medical Professional Corp. v. Voinovich, 130 F.3d 187, 191 (6th Cir.1997). Thus, the likelihood that D & X's are being performed on viable fetuses in Ohio (Dr. Haskell's home) and California (Dr. McMahon's home) has greatly diminished. The evidence in this case shows that no one performs the D & X in Kentucky. Thus, the "partial birth abortion" issue has evolved from one addressing fears of infanticide to one directed at pre-viability procedures. For many, this evolution does not alter their opposition to the procedure in the slightest. However, the constitutional ramifications of this evolution are potentially significant.
[5] In Voinovich, the Sixth Circuit discussed at length whether the proper standard for reviewing a facial challenge to an abortion statute was governed by United States v. Salerno, 481 U.S. 739, 107 S. Ct. 2095, 95 L. Ed. 2d 697 (1987) or Casey, 505 U.S. 833, 112 S. Ct. 2791, 120 L. Ed. 2d 674 (1992). The Sixth Circuit concluded that the Casey analysis and standard should govern. This Court happens to agree with that analysis. Regardless, it is the standard which now guides courts in this circuit.
[6] Evidence regarding practice in Kentucky is that 78 to 80 percent of all abortions performed are for women in the first trimester of pregnancy. Estimates from the plaintiffs, Drs. Eubanks and Marshall, are that together, they perform approximately 4000 abortions annually; that means approximately 3200 of the procedures they perform are first trimester abortions. The remaining 20-22%, or approximately 800 procedures, are second trimester abortions. Eubanks Declaration, ¶ 9, p. 3; Marshall Declaration ¶ 8, p.3; Hearing Transcript p. 192-93. This is consistent with data compiled by the Centers for Disease Control regarding abortions in Kentucky in particular and in 36 states and New York City for 1994. Lisa M. Koonin, et al, Abortion Surveillance United States, 1993 and 1994, MORBIDITY AND MORTALITY WEEKLY REPORT, Vol. 46, No. SS-4, August 8, 1997, p. 64, 94 ("CDC statistics"). The CDC statistics indicate that 80% of abortions performed in Kentucky in 1994 were performed on pregnancies at the 12th week or earlier; of those performed after the 12th week, 13.7% were performed between 12 and 20 weeks; and 2.2% were performed at or after 21 weeks. The remaining 4.1% were performed on fetuses of unknown or unreported gestational age.
The Plaintiffs do not provide estimates on the number of abortions they perform per given week of gestation. If the above-listed CDC percentages are applied to Drs. Eubanks' and Marshall's practice, the following numbers result: 80% or 3200 are performed up until 12 weeks; 13.7% or 548 of the procedures performed by Drs. Eubanks and Marshall are done between 12 and 20 weeks; and approximately 2.2% or 88 of the procedures they perform take place at 21 weeks or beyond. Although CDC percentages would indicate 4.1% or 164 are performed on fetuses of unknown gestation, the testimony does not support this; apparently, the Plaintiffs are able to account for the gestational ages of all fetuses that are the subject of Plaintiffs' procedures.
[7] There are several methods of measuring the length of a pregnancy. In this case, all references are from the first day of the last menstrual period. Casey termed viability as "the time at which there is a realistic possibility of maintaining and nourishing life outside the womb." Casey, 505 U.S. at 870, 112 S. Ct. 2791. The parties stipulate that there is a 25% chance of viability at the 24th week of gestation. Hearing Transcript, 227.
[8] Although Hysterotomy and Hysterectomy are also procedures used to terminate pregnancies, they are not relevant to this discussion or implicated in the ban. Hysterotomy is the surgical transabdominal removal of a preterm fetus from the uterus. This would essentially be a Caesarean section performed pre-term. Hysterectomy is the removal of the uterus. These two forms of pregnancy termination are rare and not in issue in this case because neither involve vaginal delivery.
[9] Testimony on Kentucky abortion practice indicates that instillation of saline or urea is not the method of choice. Rather, Kentucky physicians use prostaglandins to induce labor and introduction of those alone do not kill the fetus.
[10] Oliver Wendell Holmes. The Theory of Legal Interpretation, 12 HARV. L. REV. 417, 419 (1899).
[11] See RANDOM HOUSE UNABRIDGED DICTIONARY 1897 (2d ed.1993).
[12] The witnesses do not agree on the meaning of "substantial" in this context. Drs. Eubanks, Marshall and Hansknecht say that they are uncertain about the meaning of substantial portion. Eubanks Declaration, ¶ 26, p. 9; Marshall Declaration, ¶ 19, p. 6-7; Hearing Transcript, 59-60; 68; 197-98. They say that it could include an arm or a leg. Dr. Boehm says that it means a "considerable size" which would not include a limb. Hearing Transcript, 104-5. Nevertheless, he concedes that it is a question about which reasonable people may disagree. Dr. Boehm seeks to downplay the importance of the "substantial portion" debate by asserting that, in any event, no physician ever intends to deliver a substantial portion when performing a D & E. Hearing Transcript, 123-24.
[13] On extremely rare occasions each physician may inadvertently deliver into the vagina an entire fetus up to the head. Hearing Transcript, 198, 240; Marshall Supplemental Declaration, ¶ 5(k). The Court is not concerned by these inadvertent occurrences, because they happen on such rare occasions less than 1% that one could never suggest either that they are intentional or anticipated.
[14] See RICHARD A. POSNER, THE PROBLEMS OF JURISPRUDENCE 296 (1990). When Judge Posner referenced "something outside" to which words invariably point, he may have been considering something more than just the actual conduct that might be proscribed by the words. He may have been pointing to the political culture in which laws are promulgated. Part of that culture or context includes the current practices of those to whom the words are directed and how those affected would reasonably interpret them.
[15] See Frank H. Easterbrook, Text, History, and Structure in Statutory Interpretation, 17 HARV. J.L. & PUB. POL'Y 61, 68 (1994).
[16] Felix Frankfurter, Some Reflections on the Reading of Statutes, 47 COL. L. REV. 527 (1947).
[17] Defendants urge the Court to certify the statutory construction issue to the Kentucky Supreme Court. The Court seriously considered this alternative. The most compelling argument for certification is that this Court lacks the power to offer any limiting statutory constructions that would bind Kentucky state courts. Where, however, sensitive constitutional rights are implicated, and where the statute is not obviously susceptible to a limiting construction that saves its constitutional infirmity, the Court concluded that certification is not appropriate. See Houston v. Hill, 482 U.S. 451, 471, 107 S. Ct. 2502, 96 L. Ed. 2d 398 (1987). Certification of this issue would essentially be sending the entire constitutional question to the Kentucky Supreme Court an inappropriate use of certification. Id. 482 U.S. at 471 n. 23, (citing 17 C. WRIGHT, A. MILLER, & E. COOPER, FEDERAL PRACTICE AND PROCEDURE § 4248, pp. 529-530 (1978)).
[18] See, e.g., Voinovich, 130 F.3d at 203-4 ("Statutes imposing criminal liability without a mental culpability requirement are generally disfavored") (citing Staples v. United States, 511 U.S. 600, 605-6, 114 S. Ct. 1793, 128 L. Ed. 2d 608 (1994); Evans v. Kelley, 977 F. Supp. 1283, 1305 (E.D.Mich.1997)) ("the lack of a mens rea or specific intent requirement in a statute which imposes criminal liability also may indicate that the statute is unconstitutionally vague") (citing Colautti v. Franklin, 439 U.S. 379, 395, 99 S. Ct. 675, 58 L. Ed. 2d 596 (1979); Summit Medical Associates v. James, 984 F. Supp. 1404, 1444-46 (M.D.Ala.1998))(holding mens rea element of recklessness could cure vague criminal statute pertaining to abortions performed at viability). See also Gilmore, 144 F.3d at 328, 329, 331 (discussing the mens rea elements of the Virginia partial birth abortion ban).
[19] For instance, the Court's analysis set forth in Section IV(A) of this Memorandum is consistent with Judge Luttig's analysis.
[20] In the course of this opinion the Court has already discussed and distinguished Judge Luttig's analysis from the material aspects of this case. Judge Luttig placed special importance upon evidence that Virginia authorities would not prosecute physicians performing a D & E. In Section V(C) of this Memorandum, the Court discusses why a statement by Defendants' counsel in this case is not so persuasive. Judge Luttig also placed importance on the mens rea provisions. In Section V(B) of this Memorandum, the Court discussed why the different medical practices in Kentucky make Judge Luttig's mens rea analysis inapplicable to this case.
[21] An earlier Kentucky case, Kentucky Municipal League v. Commonwealth, 530 S.W.2d 198 (Ky. 1975), contains some seemingly contrary language suggesting that courts can sever any part of a statute. However, in that case the statute in question contained its own severability clause, which the partial birth abortion statute does not.
[22] This also means that the Court need not consider the complex question of whether Plaintiffs would have standing under Article III to challenge the Act's post-viability application.
[23] In his dissent in Voinovich, Judge Boggs uses a similar game analogy of Lucy constantly pulling the football away from Charlie Brown at the last minute because he does not get it just right. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2563118/ | 208 F. Supp. 2d 806 (2002)
Joseph FEWLESS, by his parents, Patrick and Sherri FEWLESS, Plaintiffs,
v.
BOARD OF EDUCATION OF WAYLAND UNION SCHOOLS, Thomas Cutler, Larry Medendorp, Jack Deming, and Thomas J. Tarnutzer, Defendants.
No. 1:01-CV-271.
United States District Court, W.D. Michigan, Southern Division.
July 11, 2002.
*807 Myra Dutton Johnson, Muskegon, MI, for Plaintiffs.
Thomas R. Wurst, Kristen L. Kroger, Grand Rapids, MI, for Defendants.
OPINION
ENSLEN, District Judge.
This matter is before the Court on Plaintiffs' and Defendants' cross motions for summary judgment. The Court will grant Plaintiffs' Motion for Summary Judgment as to the claim made against Defendants Thomas Cutler and Larry Medendorp in their personal capacities.[1] The Court will grant Defendants' Motion for Summary Judgment as to the claim made against all Defendants in their official capacities. The issue of Plaintiffs' damages remains for trial.
I. Standard of Review
Review of a motion for summary judgment requires the Court to determine if there exists no genuine issue as to any material fact such that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). Under the language of this rule, summary judgment is proper if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The initial burden is on the movant to specify the basis upon which summary judgment should be granted and to identify portions of the record which demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). The burden then shifts to the non-movant to come forward with specific facts, supported by the evidence in the record, upon which a reasonable jury could find there to be a genuine fact issue for trial. Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). If, after adequate time for discovery on material matters at issue, the non-movant fails to make a showing sufficient to establish the existence of a material disputed fact, summary judgment is appropriate. Celotex Corp., 477 U.S. at 323, 106 S. Ct. 2548.
Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences are jury functions. Adams v. Metiva, 31 F.3d 375, 382 (6th Cir.1994). The evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in the non-movant's favor. Celotex Corp., 477 U.S. at 323, 106 S. Ct. 2548 (quoting Anderson, 477 U.S. at 255, 106 S. Ct. 2505). The factual record presented must be interpreted in a light most favorable to the non-movant. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986).
Rule 56 limits the materials the Court may consider in deciding a motion under the rule: "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits." Fed. *808 R.Civ.P. 56(c). Moreover, affidavits must meet certain requirements:
[A]ffidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein. Sworn or certified copies of all papers or parts thereof referred to in an affidavit shall be attached thereto or served therewith.
Fed.R.Civ.P. 56(e). The Sixth Circuit has held "that documents submitted in support of a motion for summary judgment must satisfy the requirements of Rule 56(e); otherwise, they must be disregarded." Moore v. Holbrook, 2 F.3d 697, 699 (6th Cir.1993) (citations omitted). Thus, in resolving a motion for summary judgment, the Court should not consider unsworn or uncertified documents, id.; unsworn statements, Dole v. Elliott Travel & Tours, Inc., 942 F.2d 962, 968-969 (6th Cir.1991); inadmissible expert testimony, North American Specialty Ins. Co. v. Myers, 111 F.3d 1273, 1280 (6th Cir.1997); or hearsay evidence, Hartsel v. Keys, 87 F.3d 795, 799 (6th Cir.1996); Wiley v. United States, 20 F.3d 222, 225-226 (6th Cir.1994).
II. Facts
Plaintiffs Patrick and Sherri Fewless, on behalf of their minor son Joseph Fewless,[2] filed this action against Defendants Board of Education of Wayland Union Schools, Thomas Cutler, Larry Medendorp, Jack Deming, and Thomas Tarnutzer (collectively "Defendants"), alleging unlawful deprivation of Joseph's constitutional rights under 42 U.S.C. § 1983. Plaintiffs claim that Joseph Fewless' Fourth and Fourteenth Amendment rights were violated when Defendants Thomas Cutler and Larry Medendorp performed an allegedly illegal strip search of Joseph's person at school.
Defendant Thomas Cutler is the Assistant Principal at Wayland Union High School. (Cutler Dep. at 4.) Defendant Larry Medendorp, previously a state police officer, is a security person and events coordinator for Wayland Union Schools. (Medendorp Dep. at 4, 10.) Defendants Cutler and Medendorp both testified that neither of them had performed any other strip searches while employed at Wayland Union High School. (Cutler Dep. at 51-53, Medendorp Dep. at 17.)
Defendants Jack Deming, Principal of Wayland Union High School, and Thomas Tarnutzer, Superintendent of Wayland Union Schools, were not informed of any search of Joseph Fewless until after the searches occurred. (Cutler Dep. at 5, 62-63; Tarnutzer Aff. at ¶ 3; Deming Aff. at ¶ 2.) No other strip searches had yet been performed in the 2000-2001 school year. (Plaintiffs' Motion for Summary Disposition, Ex. F.[3])
*809 On April 20, 2001 at Wayland Union High School, two searches of Joseph Fewless occurred on suspicion that he was in possession of marijuana. (Fewless Dep. at 51;[4] Cutler Dep. at 5.) Joseph Fewless was fourteen years old at the time of the searches. (Plaintiffs' Motion for Summary Disposition, Ex. A, at 7.)
Prior to the first search, four students, Chet Kemp, Darin Stark, Ryan Terpstra, and Kirk Blaauw, reported to Defendant Cutler that Joseph Fewless had marijuana at school. (Cutler Dep. at 36; Terpstra Aff. at ¶ 2.) The students were allegedly questioned together in Mr. Cutler's office regarding this accusation. (Cutler Dep. at 5.) Defendant Cutler testified these students said that Joseph Fewless told them he possessed marijuana in a dime roll[5] during Curd Alexander's class. (Cutler Dep. at 5.) Mr. Alexander is the teacher of a small gas engine and home improvement class. (Fewless Dep. at 43.) Several of the informants said they saw the dime roll and one student claimed to have seen the actual marijuana. (Cutler Dep. at 5-6; Lettinga Aff. at ¶ 2; Terpstra Aff. at ¶ 3.)
Joseph Fewless admits he removed a dime roll from his pocket and showed it to his classmates during Mr. Alexander's class. (Fewless Dep. at 56.) However, contrary to the students' accounts, Joseph claims he did not tell classmates he had marijuana, nor did he smell the dime roll or act like he was smoking it. (Fewless Dep. at 56-57.)
The day after the searches of Joseph Fewless, on April 21, 2001, Chet Kemp, Darrin Stark, Ryan Terpstra, and Justin Lettinga were all scheduled to serve a Saturday detention as punishment for an incident involving the destruction of Joseph's lawn mower in Mr. Alexander's small gas engine repair class, and they did serve that detention. (Cutler Dep. at 30.) All but one of the boys had been ordered to help pay for the cost to repair the mower as well. (Cutler Dep. at 31.) Defendant Cutler was aware of this, as well as Joseph's problems involving students picking on him in the past. (Cutler Dep. at 28, 31-32, 45.) Defendant Cutler was also aware that Joseph Fewless was a special education student. (Cutler Dep. at 27.)
Defendant Cutler stated that when the group of students made their report to him, Chet Kemp seemed "upset and stated that he did not want to be around drugs." (Cutler Aff. at ¶ 2.) Defendant Cutler asserts that a family member of Chet Kemp's reportedly has been involved with drugs in the past, and Chet's emotional state led Defendant Cutler to believe that Chet was telling the truth. (Id.)
After receiving the reports from the four students and the teacher, Defendant Cutler stopped Joseph Fewless and asked him to come with him to his office. Defendant Cutler claims Joseph Fewless voluntarily handed over a pink cigarette lighter, which is considered contraband, when the two were on their way to Defendant Cutler's office. (Cutler Dep. at 7, 21.) However, Joseph Fewless does not recall turning in a cigarette lighter on the day of the search. (Fewless Dep. at 24.) Once in Defendant Cutler's office, Defendant Cutler told Joseph about the accusation that Joseph was in possession of marijuana at school. (Cutler Dep. at 8.) Joseph denied having any marijuana. (Id.)
Defendant Cutler then searched Joseph Fewless' gym bag, pockets, and dime roll, and Joseph was cooperative in this search. (Cutler Dep. at 8.) The search turned up *810 no marijuana, and Joseph was sent back to class. The legality of this search is not at issue. After Defendant Cutler's search of Joseph's gym bag, dime roll and pockets, Defendant Cutler reported to Justin Lettinga, another student, and Ryan Terpstra that no marijuana was found on Joseph Fewless. (Terpstra Aff. at ¶ 2.)
After the first search and later that day, students Ryan Terpstra and Justin Lettinga reported to Defendant Cutler that Joseph Fewless said he evaded the first search because he hid the marijuana in his "butt crack." (Cutler Dep. at 12; Lettinga Aff. at ¶ 3; Terpstra Aff. at ¶ 4.) At about the same time, Mr. Alexander reported to Mr. Cutler that he was told by students that Joseph had drugs down "the crack of his ass." (Cutler Dep. at 10-11.) Mr. Alexander did not report that he actually saw marijuana, personally heard Joseph say this, saw Joseph acting suspiciously or smelled marijuana on Joseph. (Cf. Cutler Dep. at 11.)
Defendant Cutler then shared the additional information he received about Joseph Fewless with Defendant Medendorp. (Cutler Dep. at 12.) Defendant Cutler found Joseph in the cafeteria after concluding Joseph was attempting to evade him. (Cutler Dep. at 13, 26.) Defendant Cutler asserts that he came to this conclusion because he and Joseph made eye contact across the cafeteria, and then Joseph turned his head and left the cafeteria. (Cutler Dep. at 13.) Defendant Cutler did not make any motion to stop Joseph or call out to him because he felt there was not time since Joseph was leaving the cafeteria and because, with all of the other students present, Joseph would not have heard him call out. (Id.) When Defendant Cutler caught up to Joseph in the hallway and asked Joseph to come to his office, he did not smell marijuana on Joseph during their walk to the office. (Cutler Dep. at 23.)
Joseph Fewless claims he did not say to anyone that he hid marijuana in his "butt crack." (Fewless Dep. at 55-57.) He testified that Defendant Cutler told him Paul Kiry was the informant who made this assertion, rather than Ryan Terpstra, Justin Lettinga, and Mr. Alexander. (Fewless Dep. at 63.)
Joseph Fewless asserts that he believes that Paul Kiry made this accusation to Defendant Cutler because Paul Kiry told him that he did, and because the two classmates had trouble getting along in the past. (Fewless Dep. at 58.) Joseph Fewless stated that Paul Kiry assaulted him on numerous occasions. (Fewless Dep. at 49-51, 105.) Earlier in the year, Joseph and his mother Sherri Fewless reported to Defendant Cutler that Paul Kiry possessed drugs at school. (Cutler Dep. at 49-50; Fewless Dep. at 45-46.) The subsequent search of Paul Kiry produced marijuana. (Cutler Dep. at 50.[6]) Paul Kiry also knew about the subsequent strip search of Joseph after it happened and harassed and teased Joseph about it. (Cutler Dep. at 44.)
Defendants allege that the following scenario took place next: Defendant Cutler brought Joseph into his office[7] and told Joseph that Defendant Cutler was told by students that Joseph hid marijuana in his "butt crack." (Cutler Dep. at 15.) Joseph said, "No, I don't have any. I don't have anything to hide." (Id.)
*811 Defendant Medendorp then entered the office, and Defendant Cutler said to him that Joseph agreed to "drop his drawers." (Cutler Dep. at 15.) Defendant Medendorp then told Joseph that he did not have to consent to the search. (Cutler Dep. at 17.) Defendant Cutler asserts that Joseph then began to stand up, and Defendant Medendorp stated again: "Joe, this has to be freely and voluntary on your part." (Id.) Joseph then reportedly said that he understood and that he did not have anything to hide. (Id.) Defendant Medendorp then reportedly said, "I want you to understand this has to be freely and voluntary on your part. You don't have to do this. If you want to, we'll walk out the door." (Id.) Again, Joseph reportedly said that he did not have anything to hide. (Id.) Defendants Medendorp and Cutler testified that Joseph appeared "relaxed," "comfortable," and "anxious to show" that he was not in possession of marijuana. (Cutler Dep. at 17; Medendorp Dep. at 8.)
Thus, Defendants allege that Defendant Medendorp informed Joseph Fewless three times that Joseph did not have to consent to the search and it had to be voluntary. (Cutler Dep. at 17, 23; Medendorp Dep. at 9.) Defendants Cutler and Medendorp assert that they believed Joseph understood this and that he subsequently consented to the search. (Cutler Dep. at 17; Medendorp Dep. at 8-9.) Patrick Fewless, Joseph's stepfather, testified that Joseph told him after the search that he was asked to consent to the search, and Patrick Fewless testified that he believed Joseph said Defendant Cutler did the asking. (P. Fewless Dep. at 44.) Defendant Cutler, however, testified that he personally did not ask Joseph if he would permit a search, nor did he explain Joseph's constitutional rights to him. (Cutler Dep. at 15, 23.)
Joseph Fewless claims that Defendants Cutler and Medendorp said they were going to perform a strip search if that was okay with him. (Fewless Dep. at 66.) Joseph asserts that he then told Defendants Cutler and Medendorp that he had nothing to hide and that Defendants Cutler and Medendorp responded by saying that they could do the strip search "or the four police officers standing outside can do it." (Id.) Defendant Medendorp denied this specific allegation. (Medendorp Dep. at 14.) Joseph asserts that he was then told to go and stand by the wall and pull down his pants, which he did but that he was scared. (Fewless Dep. at 66.) Joseph denies being told the search "had to be voluntary." (Fewless Dep. at 70.)
The scope of the search is also in dispute. Defendant Cutler claims Joseph Fewless lowered his pants to about four to five inches above the knee, and Defendant Medendorp pulled the waistband of Joseph's boxer shorts back. (Cutler Dep. at 18.) Defendant Medendorp confirmed Defendant Cutler's account and stated he let go of Joseph's boxers after looking down the back of the boxers at Joseph's buttocks. (Cutler Dep. at 18; Medendorp Dep. at 9.)
However, Joseph Fewless claims he dropped his boxers as well as his pants to his ankles. (Fewless Dep. at 68-69.) Joseph also asserts that Defendant Medendorp pulled up Joseph's shirt and looked at his "front side" after Joseph dropped his pants and boxers to his ankles. (Fewless Dep. at 69.) No marijuana was found on Joseph's person as the result of the second search. (Medendorp Dep. at 9-10.[8])
*812 Defendant Medendorp acted on the basis of Defendant Cutler's information and directive. (Medendorp Dep. at 10, 21.) Defendant Medendorp was not told which students gave Defendant Cutler the tip that he received. (Medendorp Dep. at 5.) Finally, Defendant Cutler called Joseph's mother, Sherri Fewless, after the search, but not prior to it. (Cutler Dep. at 18, 26.)
Joseph Fewless has been diagnosed with Attention Deficit Hyperactivity Disorder ("ADHD"), and is eligible for special education services under the educational definition of being a Physically or Otherwise Health Impaired ("POHI") student.[9] (Plaintiffs' Motion for Summary Disposition, Ex. A, at 7.) Joseph has a history of lying, which he is working on with his doctors. (Fewless Dep. at 9; Med. Rec. at 103, 106, 113, 115, 118, 120, 127, 137, 382). Joseph's attention deficit disorder typically involves impulsive behavior and a lack of appropriate social judgment. (See Wayland Schools Special Programs Center, Assessment of Joseph Fewless and Explanation of ADHD, at Plaintiffs' Ex. A.) Joseph has a long history of disciplinary problems at Wayland Union High School, typically involving disruptive behavior like leaving his seat in class or talking out of turn. (Cutler Dep. at 27, 64, 65.) However, Joseph Fewless has never been disciplined at school for an offense involving drugs. (Cutler Dep. at 65.) In fact, prior to the second search, Defendant Cutler knew Joseph Fewless had never been accused of possession, use, or intoxication at school in the past. (Cutler Dep. at 8, 17, 27.) While Defendants have alleged instances where Joseph tested positive for marijuana or was accused of possessing marijuana in settings outside of school, there is no indication that Defendant Cutler knew about these alleged incidents or that the alleged incidents occurred prior to the search at issue in this lawsuit.
III. Analysis of Plaintiffs' Motion for Summary Judgment
To win summary judgment on their Fourth Amendment claim against Defendants Cutler and Medendorp, who were sued in their personal capacities, Plaintiffs must show that no reasonable jury could find other than that Joseph's Fourth Amendment rights were violated by Defendants Cutler and Medendorp. Plaintiffs must also demonstrate that qualified immunity does not entitle Defendants Cutler and Medendorp to summary judgment as to this claim. To win summary judgment as to the Defendants sued in their official capacities, Plaintiffs must show that Joseph's Fourth Amendment rights were violated and that school policy was the moving force behind the violation.
School officials are subject to constitutional restraints as state actors. Tarter v. Raybuck, 742 F.2d 977, 981 (6th Cir.1984). Therefore, Defendants Cutler and Medendorp have two avenues, given the circumstances and their allegations, through which they could prove that Joseph Fewless' Fourth Amendment rights were not violated: (1) Joseph gave legally valid consent to the search, or (2) the search was "reasonable." Even examining the facts in a light most favorable to Defendants, Defendants *813 Cutler and Medendorp cannot show either. Moreover, the Court does not find that qualified immunity shields them from liability. Therefore, this Court finds that Plaintiffs are entitled to summary judgment as to their claim against Defendants Cutler and Medendorp, as sued in their personal capacities, but not as to the claim against any of the Defendants sued in their official capacities.[10]
A. Whether Joseph Fewless Consented To The Strip Search
A search authorized by consent of the searched individual is constitutionally permissible, as long as the consent was given both freely and voluntarily. Schneckloth v. Bustamonte, 412 U.S. 218, 222, 93 S. Ct. 2041, 36 L. Ed. 2d 854 (1973). Defendants assert that Joseph Fewless gave constitutionally valid consent to be strip searched.
Voluntariness of a consent to a search should be determined from the totality of the circumstances, including both the characteristics of the searched party and the details of the interrogation. Schneckloth, 412 U.S. at 227, 93 S. Ct. 2041. First, the Court should examine the characteristics of the searched individual, including age, intelligence, and education; whether the individual understands the right to refuse to consent; and whether the individual understands his or her constitutional rights. United States v. Jones, 846 F.2d 358, 360 (6th Cir.1988). Second, the Court should consider the details of any detention, including length and nature of detention, and the use of coercive or punishing conduct. Schneckloth, 412 U.S. at 226, 93 S. Ct. 2041. Further, the Court is to consider indications of more subtle forms of coercion that might impact an individual's judgment. See United States v. Watson, 423 U.S. 411, 424, 96 S. Ct. 820, 46 L. Ed. 2d 598 (1976).
The Sixth Circuit has held that there is a presumption against the waiver of constitutional rights. Tarter, 742 F.2d at 980. When litigating the issue of consent, the burden is on the defendants to demonstrate such a voluntary relinquishment of constitutional rights by the plaintiff. Id. at 980. Consent must be proved by clear and positive testimony and must be unequivocal, specific, and intelligently given, uncontaminated by any duress and coercion. United States v. Williams, 754 F.2d 672, 674-75 (6th Cir.1985). Consent must not be coerced, by explicit or implicit means, by implied threat, or covert force. Schneckloth, 412 U.S. at 228, 93 S. Ct. 2041. When conducting this analysis, account must also be taken for the potentially vulnerable subjective state of the searched person. Id. at 229, 93 S. Ct. 2041.[11]
*814 When consent is relied upon as the basis for a warrantless search, the scope of the consent given determines the permissible scope of the search. United States v. Gant, 112 F.3d 239, 242 (6th Cir.1997) (citing Florida v. Jimeno, 500 U.S. 248, 251-52, 111 S. Ct. 1801, 114 L. Ed. 2d 297 (1991)). The standard for measuring the scope of consent is an objective reasonableness standard, asking what the reasonable person would have understood by the exchange between the official and suspect. Gant, 112 F.3d at 242 (citing Jimeno, 500 U.S. at 251, 111 S. Ct. 1801).
Because this is Plaintiffs' Motion for Summary Judgment, the Court must consider the record in a light most favorable to Defendants. Therefore, the Court will assume that Defendant Cutler asked Joseph Fewless about the accusation, he denied it, and he said that he did not have anything to hide. Defendant Cutler did not ask Joseph if he would permit a strip search. Defendant Medendorp then entered Defendant Cutler's office and was told by Defendant Cutler that Joseph agreed to "drop his drawers." Defendant Medendorp then told Joseph three times that the search had to be performed with Joseph's consent, and that the parties would "walk out the door" if Joseph did not consent. Joseph's response was again that he did not have anything to hide.
Considering the facts in a light most favorable to Defendants, Joseph was a fourteen-year-old youth at the time of this exchange, considered a special education student, and had ADHD. This information was known to Defendants Cutler and Medendorp. Joseph was escorted to a school official's office, measuring eight feet by eight feet, where he was joined by Defendants Cutler and Medendorp, the assistant principal and the school security officer, and his parents were not called. He had already been questioned that day, and a search of his pockets, gym bag, and dime roll conducted, confirming his denial of possession of marijuana at school.
Joseph's only response to whether he would permit a further search, to either Defendant Cutler or Defendant Medendorp, was that he had nothing to hide. In fact, while Joseph and Defendant Cutler were alone before Defendant Medendorp joined them, the subject of a search, much less any kind of strip search, never came up, but Defendant Cutler reported to Defendant Medendorp when he joined them that Joseph agreed to "drop his drawers." Defendant Medendorp told Joseph that he could refuse to allow the strip search and that the three would leave the office, but he did not inform Joseph what the next step would be: whether Joseph's parents would be called and informed about the accusation, whether Joseph would be allowed to go back to class and that would be the end of the inquiry, etc.[12]
Most troubling, the scope of the proposed search, a very intrusive type of strip *815 search of the person, was not explained to Joseph. He was not told that he would have to pull down his pants, even if he may have assumed that this would be the case. Moreover, he was not told his boxer shorts would be pulled away from his body, and his bare buttocks would be examined.
Joseph Fewless was a vulnerable youth in a situation akin to police custody. Defendants knew of his vulnerability, youth, and behavioral conditions impacting his impulse control and decision-making capacity. He was not provided an opportunity to speak to someone who was an advocate for him like a parent, counselor or attorney. He never gave explicit, clear consent to be searched which is required for a constitutionally valid consent; at most, his statements and actions could be described as acquiescence. See Williams, 754 F.2d at 674-75. "I have nothing to hide," without more, is not an expression of consent to be searched, particularly consent to be examined partially naked, as Joseph was. Another individual in Joseph's situation and with his personal traits would not have considered himself or herself to have other options besides "consenting" because he clearly would not be believed or left alone until he "consented" to the strip search.[13] Particularly since Defendants bear the burden of demonstrating the voluntariness of the consent, constitutionally valid consent was not present, even assuming all of Defendants' allegations are true. The "consent" was merely acquiescence and was not freely or voluntarily given.
B. Whether The Strip Search Was Reasonable Under The Fourth Amendment
Nevertheless, the search performed by Defendants Cutler and Medendorp was still within the confines of the Fourth Amendment if it was justified by "reasonable suspicion" that a law or rule of the school was being broken by Joseph Fewless. The Fourth Amendment's prohibition on unreasonable searches and seizures applies to searches conducted by public school officials. New Jersey v. T.L.O., 469 U.S. 325, 333, 105 S. Ct. 733, 83 L. Ed. 2d 720 (1985). "The basic purpose of this Amendment, as recognized in countless decisions of this Court, is to safeguard the privacy and security of individuals against arbitrary invasions by government officials." Camara v. Municipal Court, 387 U.S. 523, 528, 87 S. Ct. 1727, 18 L. Ed. 2d 930 (1967), cited in Tarter, 742 F.2d at 981.
The Sixth Circuit has stated that "it is the affirmative obligation of the school authorities to investigate any charge that a student is using or possessing narcotics and to take appropriate steps if the charge is substantiated." Tarter, 742 F.2d at 982. The accommodation of the privacy interests of schoolchildren with the substantial need of teachers and administrators for freedom to maintain order in the schools does not require strict adherence to the requirement that searches be based on probable cause to believe that the subject of the search has violated or is violating the law. T.L.O., 469 U.S. at 341, 105 S. Ct. 733. Accordingly, the Supreme Court created a two-pronged test defining the boundaries of a lawful search conducted by school officials:
Determining the reasonableness of any search involves a twofold inquiry: first, one must consider whether the action was justified at its inception; second, one must determine whether the search actually conducted was reasonably related *816 in scope to the circumstances which justified the interference in the first place. Under ordinary circumstances, a search of a student by a teacher or other school official will be justified at its inception when there are reasonable grounds for suspecting that the search will turn up evidence that the student has violated or is violating either the law or the rules of the school. Such a search will be permissible in scope when the measures adopted are reasonably related to the objectives of the search and not excessively intrusive in light of the age and sex of the student and the nature of the infraction.
T.L.O. at 341-342, 105 S. Ct. 733 (internal quotations and citations omitted). Thus, this Court looks for a search based on reasonable suspicion and reasonable in scope. See id.
A study of the record leads the Court to conclude that the strip search of Joseph Fewless' person was neither justified at its inception by reasonable suspicion nor was it reasonable in scope. First and most compelling, even assuming Defendants' account is true for purposes of Plaintiffs' motion, there was not enough evidence to justify the strip search which occurred. In fact, drawing all reasonable inferences from the available evidence should have led a reasonable official not to strip search Joseph without further investigation.
Defendant Cutler received a report in the morning from four students that Joseph Fewless claimed in small engine repair class to have marijuana in his dime roll and acted like he pretended to smoke the dime roll. Three of those four students were to serve a Saturday detention the next day for destroying Joseph's lawnmower in small engine repair class, and some of the students were also ordered to pay restitution. Those four students made their report to Defendant Cutler en masse and not independently. (See Cutler Dep. at 5.) Only one student claimed to have seen marijuana, although they all claimed to have seen Joseph's dime roll in addition to hearing him make incriminating statements.
Defendant Cutler then questioned Joseph Fewless, who turned over a pink cigarette lighter to Defendant Cutler, and searched Joseph's pockets, gym bag and dime roll. This search turned up no marijuana.
Two of the students who were to serve a Saturday detention the next day for destroying Joseph's lawnmower, Ryan Terpstra and Justin Lettinga, then made a report, apparently together, to Defendant Cutler that Joseph told them he evaded discovery during the first search because he was hiding marijuana in his "butt crack." The record does not disclose any additional questioning by Defendant Cutler regarding their clearly possible ulterior motives or any questioning designed to elicit information regarding the reliability of their tip. Although Defendant Cutler also received this same report from teacher Curd Alexander, Mr. Alexander's information appears from the record to have come from unidentified students, presumably the informants, rather than firsthand, personal observations. No adult, at any time during this day, smelled marijuana on Joseph or reports having observed him acting suspiciously, erratically, etc.
Defendants claim that because Chet Kemp appeared upset when he reported to Defendant Cutler, saying that he did not want to be around drugs apparently because of a family member's problems with drugs, Chet Kemp's account had additional credibility. This is one inference which can be drawn from such an observation by Defendant Cutler. However, other inferences could reasonably be drawn from an upset student in that situation. For purposes of Plaintiffs' summary judgment motion, *817 the Court assumes that the inference Defendant Cutler drew was the most reasonable one from his personal observation.
However, Defendant Cutler never conducted any investigation to determine whether other students not associated with the informants and not tainted or less tainted by potential ill will against Joseph might be able to provide any statements or information helpful to determining whether reasonable suspicion existed. He did not speak to other teachers who had contact with Joseph. He never called Joseph's parents to attempt to collect additional information which might be helpful in deciding whether further investigation was warranted. He did not ask further questions of Joseph besides confronting him with the "butt crack" accusation which could have led to discovery of more information. He did not search Joseph's locker or in other locations to look for items which may have led a reasonable person to believe the accusations about Joseph's marijuana possession.
In another case involving a school strip search for drugs, the Sixth Circuit held that qualified immunity shielded the school officials, but the circumstances were very different. See Williams v. Ellington, 936 F.2d 881, 882 (6th Cir.1991). There, the Sixth Circuit specifically noted that the principal "was satisfied there was no animosity between [the accused students and the informant] to provide [the informing student] with an ulterior motive for reporting the incident" after questioning the informant if she had any problem with the accused students. Id. at 882. On a Tuesday, a student named Ginger reported to the principal after Ginger's mother called the principal that the plaintiff, a female student, and another female student named Michelle had a clear vial containing white powder in class, that the girls were smelling the powder, and that they offered some to Ginger. Id. Upon questioning, the teacher in whose class the incident happened had other, independent observations to back up Ginger's allegations, since the teacher noticed that Michelle was acting strangely, to which Michelle reported to the teacher that she had the flu. Id. The teacher also recounted a previous incident involving a note found under the plaintiff's desk, apparently typed by the plaintiff, involving her friends and a reference to a "rich man's drug" which the girls convinced the teacher was a joke. Id.
The principal then spent the next few days investigating the allegation, including discussing it with the school guidance counselor, who was also the plaintiff's aunt, and Michelle's father. Williams, 936 F.2d at 882. Michelle's father reported that she had recently stolen $200 from his dresser drawer, and he expressed fear that Michelle was using illegal drugs. Id. During the same week, Michelle came to the principal and told him that two students, Kim and her boyfriend Steve, were inhaling a drug known as "rush." Id. Kim and Steve came to the principal and told him that it was other students, not them, inhaling "rush," so the principal "questioned the motives of these students in coming forward and the validity of the information." Id.
On Friday, when the original informant, Ginger, made another report to the principal, the principal and the assistant principal confronted the plaintiff and Michelle. Williams, 936 F.2d at 883. Upon confrontation in an administrative office, Michelle produced a vial of "rush" from her purse but claimed that it was Kim's. Id. The girls' own lockers were first searched, and then another locker that the plaintiff was known to have been using was searched. Id. The plaintiff's books and purse were then searched, and the search produced nothing. Id. Then the plaintiff was taken into an office and searched by the female *818 assistant principal and a female secretary. Id. The plaintiff was told to empty her pockets, and she did. Id. After being told twice to do so, the plaintiff took off her T-shirt. Id. The plaintiff was then required to lower her jeans to her knees. Id. The plaintiff claimed, and the assistant principal disputed, that the assistant principal pulled on the elastic of her undergarments "to see if anything would fall out." Id. Finally, Williams was told to remove her shoes and socks, and no drugs were found after this search. Id.
Despite the fact that Ellington was satisfied that Ginger had no ill motive towards the girls, Ellington attempted to verify the information with other individuals. Williams, 936 F.2d at 887. Based upon all the information that Ellington had collected, the Sixth Circuit found that qualified immunity shielded the defendants from suit because it was reasonable to believe that the search comported with the Fourth Amendment. Id. at 886-87.[14]
Importantly, the Sixth Circuit also examined to what extent an informant's tip could be used to create reasonable suspicion. See id. at 888. In analyzing the tip of an informant, a court is to use a "totality-of-the-circumstances" inquiry and take into account the quantity and quality of the information comprising a tip. Id. "While there is concern that students will be motivated by malice and falsely implicate other students in wrongdoing, that type of situation would be analogous to the anonymous tip. Because the tip lacks reliability, school officials would be required to further investigate the matter before a search or seizure would be warranted." Id. at 888-89.
The Williams Court found that Ellington carefully questioned Ginger, the informing student, to ascertain whether any improper motive existed and satisfied himself that none existed, and thus Ellington assured himself that Ginger's tip was reliable. Id. at 889. In addition, Ellington took steps to verify the information. Id.
Other cases where school searches have been found constitutional also include the presence of more evidence and evidence of greater reliability than the instant case. The Sixth Circuit found that there was reasonable cause to search a student where school officials personally observed activity they reasonably believed to be the student's use of marijuana and sale of marijuana to another student. Tarter, 742 F.2d at 983. In addition, another student identified the plaintiff's picture from a yearbook as a student who sold him marijuana. Id. See also Cornfield v. Consolidated High Sch. Dist. No. 230, 991 F.2d 1316, 1319, 1322 (7th Cir.1993) (strip search found reasonable where school officials observed an unusual bulge in the crotch area of the plaintiff's sweatpants and had collected various allegations that the plaintiff had, on previous occasions, allegedly smoked marijuana on a school bus, hid marijuana in his crotch area, dealt drugs, tested positive for marijuana, and failed to successfully complete a drug rehabilitation program); Widener v. Frye, 809 F. Supp. 35, 38 (S.D.Ohio 1992) (holding search reasonable where student who smelled of marijuana and appeared "lethargic" in a manner consistent with marijuana use and gave an unsatisfactory explanation for those factors was told to remove his jeans but not his undergarments).
Conversely, even where school officials had a personal observation by a school employee and some evidence after an initial purse search to indicate improper conduct *819 on the part of a student, more evidence than was present in the instant case, another district court still found that a strip search later undertaken was not justified at its inception. See Cales v. Howell Public Schools, 635 F. Supp. 454, 455 (E.D.Mich.1985). A female student was observed in the school parking lot during the day by the school security guard, who reported that she attempted to avoid detection by "ducking" behind parked cars. Id. Upon being asked who she was, the student gave a name other than her own, and she was taken to the assistant principal's office. Id. The student's purse was then searched, which turned up school "readmittance slips" improperly in her possession. Id.
The student was then made to empty her pockets, take off her jeans, and bend over so a female administrator could "visually examine the contents of her brassiere." Cales, 635 F.Supp. at 455. The school official in charge stated he believed on the basis of the evidence available the student was in possession of illegal drugs. Id. The court held that the search was not reasonable at its inception because while there was reasonable suspicion that the student was violating a school rule or a law, there was not reasonable suspicion that a search would turn up evidence of possession of drugs. Id. at 457. As the court pointed out, the student could have been guilty of truancy, stealing hubcaps, or meeting a boyfriend in the middle of the day, but very little if anything from her conduct and the evidence indicated that she was hiding drugs on her person. Id.
There are a number of circumstances which would not require an investigation on the scale of what took place in Williams before a constitutional search of a student could be performed. "Like police officers, school officials need discretionary authority to function with great efficiency and speed in certain situations, so long as these decisions are consistent with certain constitutional safeguards. To question an official's every decision with the benefit of hindsight would undermine the authority necessary to ensure the safety and order of our schools." Id. at 886 (emphasis added). On the other hand, the circumstances in this case were simply not enough to create reasonable suspicion justifying a strip search. To put it another way, one does not need the benefit of hindsight in this situation to know this search was unreasonable at its inception.
The informants' credibility was of a highly questionable nature, given their potential ill motives. After the first search of the gym bag and Joseph Fewless' pockets, which also included a search of the item said to contain the marijuana, Joseph Fewless' dime roll, no marijuana was found. There was no other corroborating evidence of marijuana possession, like the smell of marijuana. The only adult to make an accusation was apparently only reporting secondhand information received from the informants themselves. Moreover, the second accusation that Joseph hid marijuana in his "butt crack" to evade discovery is exactly an accusation of the type which might be expected to potentially result in a highly invasive and humiliating search. For this reason, this type of accusation should have been suspect, particularly given the dubious position from which the informants were providing their information.
While much has been made by Defendants about the usually credible nature of the student-informants and the manner in which the reports were made, i.e., that Chet Kemp was apparently upset and therefore appeared more credible, the Court does not see that as enough to remove the taint of the students' obvious motive to falsely accuse Joseph. In addition, while one of the original informants *820 was not associated with the lawnmower incident, the fact that this student made his report in conjunction with the students who were associated with the lawnmower incident render his word alone not enough to make these reports sufficiently credible to justify the strip search.
The fact that Joseph Fewless has lied to authority figures in the past and demonstrated behavioral problems does not somehow make the student-informants more credible, either. The Court's analysis assumes that Defendants' version is the truth, since the Court is analyzing Plaintiffs' motion for summary judgment. Joseph, despite all of his other discipline problems at school, was never before in any drug-related trouble at school or in any other setting to Defendants' knowledge. Defendants have also brought up incidents occurring after the search at issue where Joseph has been accused of possessing or using marijuana, incidents which do not appear to have yet been proven, and nevertheless are still irrelevant. At the time Defendants Cutler and Medendorp undertook the strip search of Joseph, Defendants had far from enough evidence to form reasonable suspicion.
Second, the record evidence also leads this Court to conclude, even considering the evidence in a light most favorable to Defendants, the strip search conducted was not reasonable in scope. Peering into Joseph Fewless' boxer shorts at his bare buttocks may not have been the least intrusive way to detect marijuana, depending on its form and container, hidden between his buttocks. For example, assuming an otherwise constitutionally-justified search, a student could be asked to shake his or her underwear, while not exposing themselves, to see if any contraband were to come loose and become visible beneath the underwear.
In addition, the search that was performed seems unlikely to have discovered marijuana placed deeply between the buttocks. This fact makes the search performed unreasonable in scope because of its pointlessness: the search could not achieve its aim of conclusively determining whether marijuana was hidden between the buttocks.[15] A strip search which has no hope of achieving its purported aim is not reasonable in scope.
C. Whether The Defendants Sued Only In Official Capacities Can Be Held Liable
Defendants Cutler and Medendorp have been sued in their personal capacities[16] and their official capacities, and the other Defendants have been sued in their official capacities. Personal capacity suits seek to impose personal liability upon a government official for actions he or she takes under color of state law. Kentucky v. Graham, 473 U.S. 159, 165, 105 S. Ct. 3099, 87 L. Ed. 2d 114 (1985). In contrast, official capacity suits generally represent only another way of pleading an action against an entity of which an officer is an agent. Id. at 165, 105 S. Ct. 3099. As long as the government entity receives notice and an opportunity to respond, an official-capacity suit is, in all respects other than name, to be treated as a suit against the entity. Id. at 166, 105 S. Ct. 3099.
*821 To establish personal liability in a § 1983 action, it is enough to show that the official, acting under color of state law, caused the deprivation of a federal right. Graham, 473 U.S. at 166, 105 S. Ct. 3099. More is required in an official-capacity action, however, because a governmental entity is liable under § 1983 only when the entity itself is a moving force behind the deprivation. Id. at 166, 105 S. Ct. 3099.
In Monell v. Department of Soc. Servs. of New York, the Court concluded that a municipality is a "person" within the meaning of § 1983. Monell, 436 U.S. 658, 689, 98 S. Ct. 2018, 56 L. Ed. 2d 611 (1978). The Court eliminated respondeat superior liability for government bodies when it concluded that a municipality may not be sued under § 1983 for an injury inflicted solely by its employees. Id. at 694, 98 S. Ct. 2018. Accordingly, the Monell Court required a plaintiff seeking to impose liability on a municipality under § 1983 to identify a municipal policy or custom, whether made by its lawmakers or by those whose acts may fairly be said to represent official policy, that caused the plaintiff's injury. Id. at 694, 98 S. Ct. 2018. The municipal policy at issue in this case involves the school's search and seizure policy and guidelines and the custom at issue involves the application of that policy by school officials and the Board of Education.
Congress did not intend to impose liability on a municipality under § 1983 unless deliberate action attributable to the municipality itself is the "moving force" behind the plaintiff's deprivation of federal rights. Board of the County Comm'rs of Bryan County v. Brown, 520 U.S. 397, 400, 117 S. Ct. 1382, 137 L. Ed. 2d 626 (1997). The Brown Court further stated that a § 1983 plaintiff must "show that the municipal action was taken with the requisite degree of culpability and must demonstrate a direct causal link between the municipal action and the deprivation of federal rights." Id. at 404, 117 S. Ct. 1382. The Court then elaborated the level of proof necessary for recovery under § 1983:
Proof that a municipality's legislative body or authorized decisionmaker has intentionally deprived a plaintiff of a federally protected right necessarily establishes that the municipality acted culpably. Similarly, the conclusion that the action taken or directed by the municipality or its authorized decisionmaker itself violates federal law will also determine that the municipal action was the moving force behind the injury of which the plaintiff complains.
Id. at 405, 117 S. Ct. 1382. However, the Court further stated that "where a plaintiff claims that the municipality has not directly inflicted an injury, but nonetheless has caused an employee to do so, rigorous standards of culpability and causation must be applied to ensure that the municipality is not held liable solely for the actions of its employee." Id. at 405, 117 S. Ct. 1382.
In Pembaur v. Cincinnati, the Supreme Court recognized that under the appropriate circumstances, municipal liability may be imposed for a single decision by municipal policymakers. Pembaur, 475 U.S. 469, 480, 106 S. Ct. 1292, 89 L. Ed. 2d 452 (1986). However, in City of Oklahoma City v. Tuttle, the Supreme Court stated that where the policy relied upon is not itself unconstitutional, considerably more proof than the single incident will be necessary to establish both the requisite fault on the part of the municipality, and the causal connection between the policy and the constitutional deprivation. Tuttle, 471 U.S. 808, 824, 105 S. Ct. 2427, 85 L. Ed. 2d 791 (1985).
The relevant question, regarding the official liability of Board of Education of Wayland Union Schools, Jack Deming, and Thomas Tarnutzer, is whether these Defendants' *822 deliberate actions were the moving force behind the violation. The policy in existence regarding student searches mirrors the legal standard for school searches, repeated above. "The Board .. directs that no student be searched without reasonable suspicion or in an unreasonable manner. The extent of the search will be governed by the seriousness of the alleged infraction, the student's age, and the student's disciplinary history." (Plaintiffs' Motion for Summary Disposition, Ex. G, Search and Seizure Policy, WS 0001.) Therefore, the Wayland Schools policy governing student searches is constitutional. Moreover, Plaintiffs have presented no evidence suggesting any deliberate actions behind the violation and are not entitled to summary judgment as to any of Defendants sued only in their official capacities.
D. Qualified Immunity
Defendants Cutler and Medendorp are still entitled to summary judgment as to claims made against them in their personal capacities if they can show entitlement to qualified immunity. Qualified immunity is intended to provide municipal officials sued in their personal capacities with the ability to reasonably anticipate when their conduct may give rise to liability for damages. Anderson v. Creighton, 483 U.S. 635, 638, 107 S. Ct. 3034, 97 L. Ed. 2d 523 (1987).
When government officials abuse their offices, action[s] for damages may offer the only realistic avenue for vindication of constitutional guarantees. On the other hand, permitting damages suits against government officials can entail substantial social costs, including the risk that fear of personal monetary liability and harassing litigation will unduly inhibit officials in the discharge of their duties. Our cases have accommodated these conflicting concerns by generally providing government officials performing discretionary functions with a[sic] qualified immunity, shielding them from civil damages liability as long as their actions could reasonably have been thought consistent with the rights they are alleged to have violated.
Id. (internal citations and quotations omitted). An official protected by qualified immunity may be held personally liable for an allegedly unlawful official action if the action assessed in light of the legal rules that were clearly established at the time of the action does not meet an "objective legal reasonableness" standard. Id. at 639, 107 S. Ct. 3034.
The right must be sufficiently clear that a reasonable official in the defendant's position would understand that what he or she is doing violates the right at issue under the circumstances. Anderson, 483 U.S. at 640, 107 S. Ct. 3034. The very action in question need not have been previously held unlawful, but in light of pre-existing law, the unlawfulness of the action must be apparent. Id. "[T]he determination whether it was objectively legally reasonable to conclude that a given search was supported by probable cause or exigent circumstances will often require examination of the information possessed by the searching officials." Id. at 3040. See also Wilson v. Layne, 526 U.S. 603, 609, 119 S. Ct. 1692, 143 L. Ed. 2d 818 (1999) (stating that "clearly established," for purposes of qualified immunity, means that the contours of the right must be sufficiently clear that a reasonable official would understand that the action in question violates that right).
In light of pre-existing law, the Court does not find that qualified immunity precludes the personal liability of Defendants Cutler and Medendorp. Having examined the information possessed by them, the Court concludes it was not objectively legally reasonable to believe that Joseph Fewless gave valid consent to be strip *823 searched,[17] nor that the search was justified by reasonable suspicion or was reasonable in scope.
As to Joseph Fewless' "consent," even ignoring for the moment Joseph's personal characteristics, he only ever said that he had "nothing to hide." This does not indicate clear and unequivocal consent to be searched. Moreover, it is well-settled law that the scope of the consent defines the scope of a search based on consent. Without informing Joseph in some manner about what they were planning to do, no reasonable official could believe that they had Joseph's express permission to conduct the search that Defendants Cutler and Medendorp allege took place. Finally, Defendants Cutler and Medendorp were well aware of Joseph's personal characteristics, and the law is clear that those characteristics, considered in total, can lead to a conclusion of inability to render voluntary consent to a search.
As to the reasonableness of the strip search, a Sixth Circuit case on point, Williams v. Ellington, held the school officials protected by qualified immunity only after an investigation much more extensive and reliable than the one that was conducted here. Williams, 936 F.2d at 886-87. Moreover, that case specifically discussed how information from student-informants, if reason existed to believe it was unreliable, would require further investigation before reasonable suspicion would exist which justified a search. Id. at 888-89. Thus, the decision to strip search Joseph Fewless was not objectively legally reasonable. Moreover, the decision was highly questionable in light of common sense and general experience. Qualified immunity does not bar the personal liability of Defendants Cutler and Medendorp.
IV. Analysis of Defendants' Motion for Summary Judgment
Having found that Plaintiffs' Motion for Summary Disposition should be granted as to the claim against Defendants Cutler and Medendorp in their personal capacities, Defendants' Motion for Summary Judgment as to those Defendants will be denied. As noted above, Plaintiffs have presented no evidence suggesting any deliberate actions behind the violation and are not entitled to summary judgment as *824 to any of Defendants in their official capacities. Therefore, Defendants' Motion for Summary Judgment will be granted as to all of the Defendants in their official capacities.
V. Conclusion
The Court will grant summary judgment for Plaintiffs as to the claim made against Defendants Cutler and Medendorp in their personal capacities and will grant summary judgment for Defendants as to the claim made against them in their official capacities. A Judgment consistent with this Opinion will be entered. The issue of Plaintiffs' damages is the sole issue remaining for trial.
PARTIAL JUDGMENT
In accordance with an Opinion filed this day,
IT IS HEREBY ORDERED that Plaintiffs' Motion for Summary Judgment (Dkt. No. 74) is GRANTED in part and DENIED in part. Plaintiffs' Motion is GRANTED as to Defendants Thomas Cutler and Larry Medendorp, as sued in their personal capacities, and DENIED as to all Defendants sued in their official capacities.
IT IS FURTHER ORDERED that Defendants' Motion for Summary Judgment (Dkt. No. 75) is GRANTED in part and DENIED in part. Defendants' Motion is GRANTED as to all Defendants sued in their official capacities and DENIED as to Defendants Thomas Cutler and Larry Medendorp, as sued in their personal capacities.
NOTES
[1] Plaintiffs' motion was styled as "Plaintiffs' Motion for Summary Disposition." The Court notes that "summary disposition" is the name of the procedure by which summary judgment is sought in Michigan state court, but "summary judgment" is the proper term in federal court.
[2] The wrong alleged was committed against only Joseph Fewless. However, cases discussing suits such as this one brought in the name of an infant plaintiff under Federal Rule of Civil Procedure 17(c) discuss the injured party and the next friend or friends collectively as "Plaintiffs." See, e.g., Helminski v. Ayerst Laboratories, 766 F.2d 208, 210 (6th Cir. 1985) (referring to the parents who brought the lawsuit on behalf of the child as "plaintiffs"). Therefore, this Court will refer to "Plaintiffs" meaning Joseph Fewless and his next friends, Patrick and Sherri Fewless.
[3] Plaintiffs' Exhibit F is a document which was apparently prepared by Defendant Cutler because the words "[p]repared by Thomas Cutler" appear at the top of the page. This document apparently lists all of the searches of students performed during the 2000-2001 school year by Defendant Cutler; the grade of the student; what was searched; and what contraband, if any, was found. Considering this document as part of the record evidence would normally present evidentiary problems, but since Defendants have not objected to its consideration, the Court will accept the statement gleaned from it as true for these purposes.
[4] "Fewless Dep." refers to the deposition of Joseph Fewless.
[5] The Court assumes that the "dime roll" was a paper container for storage of coin currency of the kind typically used by banks.
[6] Defendant Cutler's information that the search of Paul Kiry produced marijuana is hearsay, in that he testified that he was told the search produced marijuana and did not conduct the search himself. However, this information was not disputed by Defendants.
[7] Defendant Cutler's office measures about eight feet by eight feet. (Medendorp Dep. at 9.)
[8] The Court cannot consider as evidence a memo submitted by Plaintiffs which was purportedly written by Mr. Jamey Vermaat, a special education teacher for Wayland Public Schools. The memo does not comport with the requirements of Federal Rule of Civil Procedure 56(e), and thus was not considered by the Court.
[9] Plaintiffs' briefing argues that Joseph has been "diagnosed ... with post traumatic stress disorder and [is] suspect[ed to have] mild dissociative episodes which prevent Joseph from recalling some events." (Plaintiffs' Brief in Opposition to Defendants' Motion for Summary Disposition at 2 (citing Med. Rec. at 205).) However, the medical record cited by Plaintiffs contains a note apparently written by a doctor to another professional expressing suspicion of post traumatic stress disorder ("PTSD"), not a diagnosis. Moreover, the doctor apparently writing the note does not draw any conclusions about these conditions, and does not draw the conclusion that these conditions would or might prevent Joseph from recalling some events.
[10] Plaintiffs' Complaint contains one Count which alleges a violation of 42 U.S.C. § 1983. Within the description of this Count, Plaintiffs discuss the constitutional right to be free of unreasonable personal searches. Plaintiffs seem to implicate the Fourteenth Amendment as well by stating that "[t]he Fourth and Fourteenth Amendments to the United States Constitution prohibit unreasonable searches." (See Complaint, at ¶ 24.) However, the Fourteenth Amendment does not directly prohibit unreasonable searches except as the Due Process Clause of the Fourteenth Amendment makes the Fourth Amendment's requirements applicable to the states. See Mapp v. Ohio, 367 U.S. 643, 650, 81 S. Ct. 1684, 6 L. Ed. 2d 1081 (1961). The Court will assume that this was the meaning intended by Plaintiffs' reference to the Fourteenth Amendment in the Complaint.
[11] Defendants cite United States v. Crowder for the proposition that the plaintiff must show more than a subjective belief of coercion, but also some objectively improper action on the part of the defendants. Crowder, 62 F.3d 782, 787 (6th Cir.1995). For this proposition, the Crowder Court apparently refers to Watson, 423 U.S. 411, 96 S. Ct. 820, 46 L. Ed. 2d 598, but does not cite to a particular page number. See id. In addition, this Court can find no location in Watson where such a proposition may be derived. Finally, this proposition of law would seem to be in direct conflict with Schneckloth, which instructed that "[i]n examining all the surrounding circumstances to determine if in fact the consent to search was coerced, account must be taken of subtly coercive police questions, as well as the possibly vulnerable subjective state of the person who consents." Schneckloth, 412 U.S. at 229, 93 S. Ct. 2041. Schneckloth clearly contemplates consideration of objectively improper official action, but does not require such improper official action, since other circumstances can show a lack of voluntariness. Cf. id.
[12] It seems very unlikely to the Court that Joseph's outright refusal to consent to a second search would have been the end of the inquiry. Wayland Schools' policy instructs school officials to attempt to receive consent to be searched from the student, including informing the student of his or her right to refuse consent, but instructs that "[t]he principal shall conduct the search, however, with or without the consent." (See Plaintiffs' Motion for Summary Disposition, Wayland Schools Policy, at WS 00003.)
[13] Even if it is true that Joseph reported to his stepfather Patrick Fewless that he consented to a search, Joseph's own assessment is not legally relevant to whether the circumstances demonstrate the presence of constitutionally valid consent.
[14] The Sixth Circuit did not take up the issue of whether the search violated the Fourth Amendment, having decided the qualified immunity question in the defendants' favor. Cf. Williams, 936 F.2d at 886-87.
[15] Doing a visual inspection of the perianal area would be the only true way to rule out possession of marijuana between the buttocks, but the invasiveness of that type of search would have rendered it unreasonable in scope as well. Of course, this Court is not saying that making the search more invasive and more of an affront to Joseph's constitutional rights would have been the proper course of action.
[16] Personal capacity and individual capacity are used interchangeably to describe the same legal concept. Graham, 473 U.S. at 165 n. 10, 105 S. Ct. 3099.
[17] The Court could not find any cases involving school officials attempting to obtain legally valid consent from youths with disabilities like ADHD. The cases involving school searches of students either did not address the issue of consent at all or involved situations where consent was clearly not present. See, e.g., Cornfield, 991 F.2d at 1319 (school called student's mother to attempt to obtain consent to search, and mother refused). Other cases deciding the voluntariness of consent to search were factually inapposite to the instant case. However, Schneckloth clearly instructs courts to examine the totality of the circumstances, specifically naming factors like youth, intelligence, education, and the potentially vulnerable state of the person who consents. Schneckloth, 412 U.S. at 226, 229, 93 S. Ct. 2041. "In some circumstances, as when an earlier case expressly leaves open whether a general rule applies to the particular type of conduct at issue, a very high degree of prior factual particularity may be necessary. But general statements of the law are not inherently incapable of giving fair and clear warning, and in other instances a general constitutional rule already identified in the decisional law may apply with obvious clarity to the specific conduct in question, even though the very action in question has not previously been held unlawful." Hope v. Pelzer, ___ U.S. ___, 122 S. Ct. 2508, 153 L. Ed. 2d 666 (2002) (internal quotations and additions omitted). The question is whether the officials had "fair warning" as to the law governing their conduct. See Hope, ___ U.S. ___, 122 S. Ct. 2508, 153 L. Ed. 2d 666. This Court finds that Schneckloth gave "fair warning" that Joseph's personal characteristics, as they affected the totality of the circumstances, rendered him unable to voluntarily consent to be searched. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2567086/ | 225 F. Supp. 2d 414 (2002)
Guy SHAPIRA, Plaintiff,
v.
CHARLES SCHWAB & CO., INC., et ano., Defendants.
No. 02 CIV. 0425(LAK).
United States District Court, S.D. New York.
October 3, 2002.
*415 David A. Zelman, for Plaintiff.
Ned H. Bassen, Michelle W. Goldman, Hughes Hubbard & Reed LLP, for Defendant Charles Schwab & Co., Inc.
MEMORANDUM OPINION
KAPLAN, District Judge.
This case involves a claim that defendant Charles Schwab & Co., Inc. ("Schwab") improperly inquired into plaintiff's supposedly sealed arrest record and, upon discovering that he had been arrested, therefore denied him employment in a position that allegedly had been promised to him. The matter is before the Court on Schwab's motion for summary judgment dismissing the complaint.
Facts
The Arrest and the Records
On June 3, 1999, plaintiff, a licensed securities broker, was arrested for petit larceny. The parties agree that the arrest was the product of mistaken identity and that no charges ever were brought against him. Indeed, plaintiff asserts that he "was not involved in any `court proceeding,' ... never [was] charged with a crime[, and that n]o charging instrument was ever filed."[1]
Plaintiff contends that the New York Criminal Procedure Law resulted in the sealing of the arrest record once prosecution was declined.[2] The implicit assumption that the statute applied to this record is questionable as a matter of law.[3] But the salient point for present purposes is that the record in fact was not sealed immediately, whatever the statute intended.[4]*416 Plaintiff evidently learned as much in or about February 2000, as he then commenced a proceeding to seal the arrest record, a proceeding that ultimately resulted in an order and judgment in plaintiff's favor, which was entered on June 2, 2000.[5] The interval between the mid-1999 arrest and the mid-2000 sealing order, however, was to prove significant for purposes of this case, as the National Association of Securities Dealers, Inc. ("NASD") learned of the June 3, 1999 arrest by March 2000.[6]
The Employment Application at Schwab
In December 2000, plaintiff applied for corporate relationship manager and sales manager positions with Schwab.[7] Following an initial interview, he filled out an employment application and signed a form authorizing Schwab "to have full access to any and all court records pertaining to any criminal proceeding in which I have been involved, either as reflected on this form or on my employment application form, or as revealed in the records of the" Central Registration Depository of the NASD.[8] These forms then were faxed from Schwab's New York office, where plaintiff had been interviewed and where his application was pending, to Schwab's Risk Management & Investigations ("RMI") department in San Francisco for the purpose of RMI conducting a background check.[9] RMI then made inquiry of the NASD and learned that plaintiff had been arrested for petit larceny on June 3, 1999.[10]
At some point, plaintiff had a second interview in New York at which he claims he was promised a job. His pertinent deposition testimony was as follows:
"Q * * * My first question is, what representations did Schwab make to you that you would in fact be employed?
"A I was specifically requested when I could start. I was specifically requested for compensation. Expected compensation. I was specifically discussed and outlined the job duties. The preference of what position would be best suited for me from the two open positions, by the hiring manager. I was told specifically that I would be contacted shortly and this was a sure thing. In addition, I was asked to follow-up, after multiple interviews, *417 with a digitized document from a presentation that I had made to Schwab.
* * * * * *
"Q The next one, the second part says this was a sure thing. You would be contacted shortly and this was a sure thing. Did someone say those exact words to you?
"A Zachary Jolly [one of the interviewers] made it very clear that I would be contacted very shortly, within a day or so, and that at that point an offer would be formally presented."[11]
He testified also that he was told "the only impediment to his being hired in the position he applied for was to check his registration status with the National Association of Security [sic] Dealers, Inc."[12]
Schwab, on the other hand, denies that any promises were made. It contends that, immediately after the second interview, the interviewers who met with plaintiff unanimously concluded that he was not right for either of the jobs. And, of course, it is undisputed that no job offer ever was forthcoming.
The record concerning the knowledge of the plaintiff's arrest record by the four Schwab interviewers is murky, notwithstanding the categorical denials in Schwab's memorandum of law. Mr. Jolly, one of the Schwab interviewers, testified that he was not aware of the arrest record.[13] Another interviewer, Ms. Mabel, said that the interviewers never "discussed" plaintiff's arrest among themselves and that she had not discussed it with the RMI employee in San Francisco.[14] However, Ms. Mabel recalled a conversation in which the RMI employee advised her that Mr. Shapira "wasn't forthcoming with his answers," requiring additional investigation.[15] No affidavit or testimony of the other interviewers was submitted on the motion. The deposition testimony of the San Francisco RMI employee who learned of the arrest record, at least to the extent that it has been submitted to the Court, falls far short of claiming that she never advised the New York personnel of the arrest.
Discussion
Plaintiff makes three claims. He contends first that Schwab violated the New York State and New York City Human Rights Laws[16] by inquiring into his allegedly sealed arrest record. Second, he asserts that plaintiff unlawfully discriminated against him because of the arrest. Finally, he contends that Schwab is liable to him for the failure to hire on a theory of promissory estoppel.
A. The Inquiry
The relevant portions of the statutes in question provide, in substantially identical language,[17] that:
"It shall be an unlawful discriminatory practice, unless specifically required or permitted by statute [any other law], for any person ... to make any inquiry about, whether in the form of application or otherwise, or to act upon adversely to the person involved, any arrest or criminal accusation of such individual not then pending against that individual [such person] which was followed by a termination of that criminal action or *418 proceeding in favor of such individual [person] ... in connection with ... employment. ..."[18]
The Court puts to one side whether the statutes even apply to an arrest record where, as here, (a) no criminal action or proceeding ever was commenced against plaintiff and, in consequence, (b) no such action or proceeding could have been terminated in his favor.[19] For even if they did, Schwab plainly did not violate them.
Securities and Exchange Commission ("SEC") Rule 17a-3, promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"),[20] provides in relevant part as follows:
"(a) Every member of a national securities exchange who transacts a business in securities directly with others than members of a national securities exchange, and every broker or dealer who transacts a business in securities through the medium of any such member, and every broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended, ... shall make and keep current the following books and records relating to his business:
* * * * * *
"(12)(i) A questionnaire or application for employment executed by each `associated person' (as hereinafter defined) of such member, broker or dealer, which questionnaire or application shall be approved in writing by an authorized representative of such member, broker or dealer and shall contain at least the following information with respect to such person:
* * * * * *
"(g) A record of any arrest or indictment for any felony, or any misdemeanor pertaining to securities, commodities, banking, insurance or real estate ... fraud, false statements or omissions, wrongful taking of property or bribery, forgery, counterfeiting or extortion, and the disposition of the foregoing."[21]
Schwab, one of the nation's largest brokerage firms, is a member of national securities exchanges and is registered pursuant to Section 15 of the Exchange Act.[22] The Act defines "associated person" very broadly to include, among others, "any employee" of a member of a national securities exchange.[23] In consequence, Schwab was obliged by Rule 17a-3 to keep and maintain current records of any arrests for larceny, among other offenses, of any person in its employ. Moreover, as the Rule expressly contemplates that such information be obtained by "application[s] for employment," the Rule at a minimum permits employers such as Schwab to inquire with respect to such arrests concerning prospective employees. It of course makes no difference whether plaintiff's focus is the inquiry to the NASD or Schwab's inquiry to him once it learned of the arrest. Plaintiff's first claim must be dismissed.
B. The Discrimination Claim
Defendant's motion for summary judgment, although brought under state *419 law, is analyzed under the familiar rubric of McDonnell Douglas Corp. v. Green.[24] Defendant assumes, albeit dubitante, that plaintiff has offered evidence which, if credited, would establish a prima facie case.[25] Certainly defendant has advanced non-discriminatory reasons for its employment decision. The question therefore is whether the admissible evidence establishes the lack of a genuine issue of fact material to the question whether plaintiff's arrest was a factor in defendant's decision not to hire him.
The crux of this branch of defendant's motion is its assertion that the persons who decided not to hire plaintiff did not know of his arrest record.[26] But the evidence defendant has offered falls considerably short of proving any such thing. Assuming that it all were credited, it would establish no more than that Mr. Jolly was unaware of the arrest, that the interviewers did not discuss it among themselves, and that the relevant RMI employee in San Francisco was vague as to exactly what transpiredall of which could be true even if the arrest record played a part in the ultimate decision.
Plaintiff's discrimination case appears to be weak. Nevertheless, the Court's role on a motion for summary judgment is not to predict the winner at trial and rule accordingly. The questions whether defendant's decision maker(s) knew of the arrest and, if so, whether it was a factor in the decision are for trial.
C. The Promissory Estoppel Claim
Plaintiff claims that he is entitled to damages based on promissory estoppel on the theory that Schwab reneged on its alleged promise of at least one of the jobs in question. This is mistaken for at least two reasons.
First, New York does not apply the doctrine of promissory estoppel in the employment context. A prospective employee, in other words, cannot sue an employer who reneges on a job offer or other employment promise on such a theory.[27]
Second, even if the doctrine were available in this context, plaintiff has not brought himself within it. The elements of such a claim, as plaintiff agrees, generally are:
"(1) a clear and unambiguous promise, (2) reasonable and foreseeable reliance by the party to whom the promise is made, and (3) an injury sustained in reliance on that promise."[28]
As the plaintiff's testimony, quoted above, shows, his evidence, if credited, would not establish the requisite clear and unambiguous promise. Discussions about what salary a job applicant would like, which of two available jobs the applicant would prefer, *420 and so on, especially with the caveat about checking with the NASD, simply are not sufficiently unequivocal, even if an interviewer were so unguarded as to say that an offer was "a sure thing." And plaintiff did not even go that far. When examined about whether Mr. Jolly actually said it was "a sure thing," he backed off and said that Mr. Jolly said only that an offer would be presented.
Therefore, the promissory estoppel claim also must be dismissed.
Conclusion
Defendant's motion for summary judgment dismissing the complaint is granted except to the extent the complaint seeks relief for alleged discrimination on the basis of defendant's arrest.
SO ORDERED.
NOTES
[1] Pl. 56.1 St. ¶ 13.
[2] Id. ¶ 37.
[3] N.Y. CRIM. PROC. L. § 160.50 (McKinney 1992), with exceptions not here relevant, requires that records of "a criminal action or proceeding" be sealed "[u]pon the termination" thereof "in favor of" the accused. A "criminal action," as defined by the statute, "commences with the filing of an accusatory instrument against a defendant in a criminal court ..." Id. § 1.20, subd. 16. "Criminal proceeding" in turn "means any proceeding which (a) constitutes a part of a criminal action, or (b) occurs in a criminal court and is related to a prospective, pending or completed criminal action ... or involves a criminal investigation." Id. subd. 18. As no accusatory instruction ever was filed against plaintiff, the arrest record was not a record of a "criminal action." Nor was there any "criminal proceeding." Section 1.20, subd. 18(a), is not satisfied because the lack of any accusatory instrument precludes the arrest record from having been a record of "a part of a criminal action." And Section 1.20, subd. 18(b), is not satisfied because nothing ever occurred in any court.
While the considerations that resulted in the adoption of CPL § 160.50 are at least as applicable to situations in which there has been an arrest, but no criminal prosecution, the Legislature appears to have drawn the statute more narrowly. In any case, however, there is no need to decide this point here because, as appears in the text, the arrest record was not in fact sealed promptly upon a determination not to proceed against plaintiff.
[4] Plaintiff sued the City for wrongful disclosure of the arrest record and obtained a settlement of $17,500. Def. 56.1 St. ¶ 39. (All references to defendant's Rule 56.1 Statement are to paragraphs the truth of which is admitted by plaintiff.)
[5] Goldman Aff. Ex. L.
[6] This is clear because plaintiff's then employer advised him in March 2000 that the NASD had informed it that plaintiff had been involved in a "disciplinary matter" on June 3, 1999 and requested details from plaintiff. Plaintiff concedes that the "disciplinary matter" actually was the arrest. Def. 56.1 St. ¶ 33; Goldman Aff. Ex. J (referring to the June 3, 1999 "disciplinary matter"); Shapira Dep. (Goldman Aff. Ex. D) 16-17 (acknowledging that the June 3, 1999 "disciplinary matter" was the arrest).
[7] Def. 56.1 St. ¶ 8
[8] Goldman Aff. ¶ 9 & Ex. H.
It is interesting to note that, although the parties have not made much of it, plaintiff has taken the position that these forms did not consent to Schwab's inquiry into his arrest record because consent was granted to inquire only with respect to "court records pertaining to any criminal proceeding in which [plaintiff] ha[s] been involved" whereas the arrest record was neither a court record nor related to any criminal proceeding. Compare Def. 56.1 St. ¶ 13 with Pl. 56.1 St. ¶ 13. This of course is inconsistent with his contention that N.Y. CRIM. PROC. L. § 160.50 required that the record be sealed, as that statute does not apply unless the record was of "a criminal action or proceeding." Supra note 3.
[9] Def. 56.1 St. ¶ 15.
[10] Griffin Aff. ¶¶ 4-5.
Plaintiff had not disclosed the arrest on his employment application.
[11] Shapira Dep. 71-72, 74; Pl. Mem. 7.
[12] Shapira Dep. 83; Pl. Mem. 7.
[13] Jolly Dep. (Goldman Aff. Ex. B) 51.
[14] Mabel Dep. (Goldman Aff. Ex. C) 81, 94.
[15] Mabel Dep. 27; Pl. 56.1 St. ¶ 31.
[16] N.Y. EXEC. L. § 296, subd. 16 (McKinney 2001); N.Y.C. AD. C. § 8-107(11).
[17] The slightly different wording of the City provision appears in brackets following the corresponding wording of the State statute.
[18] Emphasis added.
[19] Supra note 3.
[20] 15 U.S.C. § 78a et seq.
[21] 17 C.F.R. § 240.17a-3(a) (emphasis added).
[22] Def. 56.1 St. ¶¶ 1-2.
[23] 15 U.S.C. § 78c(21).
Plaintiff relies upon a different definition of "associated person" that appears in 17 C.F.R. § 1.3(aa)(2). Pl. Mem. 2. The reference is frivolous. That section is a regulation promulgated by the Commodity Futures Exchange Commission under the Commodity Exchange Act, not by the SEC under the Exchange Act, the agency and statute relevant here.
[24] 411 U.S. 792, 93 S. Ct. 1817, 36 L. Ed. 2d 668 (1973).
[25] Def. Mem. 13-14.
[26] Id. 16-17.
[27] E.g., Phansalkar v. Anderson Weinroth & Co., L.P., No. 00 Civ. 7872(SAS), 2002 WL 1402297, *17 (S.D.N.Y. June 26, 2002); Miller v. Citicorp, No. 95 Civ. 9728(LAP), 1997 WL 96569, *10 (S.D.N.Y. Mar.4, 1997); Van Brunt v. Rauschenberg, 799 F. Supp. 1467, 1473 (S.D.N.Y.1992); Mayer v. Publishers Clearing House, 205 A.D.2d 506, 507, 613 N.Y.S.2d 190 (2d Dept.1994); Dalton v. Union Bank of Switzerland, 134 A.D.2d 174, 176-77, 520 N.Y.S.2d 764, 766 (1st Dept.1987).
Plaintiff's efforts to distinguish these cases are meritless. So too is his reliance upon Avne Systems Ltd. v. Marketsource Corp., No. 99 Civ. 11220(JSR), 2000 WL 1036035 (S.D.N.Y. July 27, 2000), and Scher v. Llorente, No. 92 Civ. 5206(MBM), 1993 WL 426840 (S.D.N.Y. Oct. 22, 1993), neither of which involved the application of promissory estoppel in an employment case.
[28] Rogers v. Town of Islip, 230 A.D.2d 727, 727, 646 N.Y.S.2d 158, 158 (2d Dept.1996). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2568417/ | 3 F.Supp.2d 120 (1998)
FEDERAL DEPOSIT INSURANCE CORPORATION, Receiver for Heritage Bank for Savings,
v.
UNDERWRITERS OF LLOYD'S OF LONDON FIDELITY BOND NUMBER 834/FB9010020, Syndicate Numbers 210, 839, 1067, 565 456, 204, 490, 1048, 1163, 624, 896, 638, 1053, 1145, 702, 113, 357, 323, 316, 989/279/650, 257, Generali Insurance Company.
No. CIV.A. 95-CV-30061-MAP.
United States District Court, D. Massachusetts.
April 17, 1998.
*121 *122 Julian S. Greenspun, Storch & Brenner, Washington, DC, Leila R. Kern, Kern, Hagerty, Roach & Carpenter, Boston, MA, for Plaintiffs.
William T. Bogaert, Andrew F. Caplan, Morrison, Mahoney & Miller, Boston, MA, for Defendants.
MEMORANDUM REGARDING CROSS-MOTIONS FOR SUMMARY JUDGMENT (Docket Nos. 40, 46)
PONSOR, District Judge.
I. INTRODUCTION
The Federal Deposit Insurance Corporation ("FDIC") brings this action against certain underwriters of Lloyd's of London ("Underwriters") who subscribed to a banker's blanket bond issued in 1990 by Lloyd's to the now-defunct Heritage Bank for Savings ("Heritage"). Specifically, defendants are those underwriters and the Generali Insurance Company who subscribed to Bond No. 834/FB9010020 issued to Heritage for the bond period of September 1, 1990 to September 1, 1991.
Plaintiff, FDIC, acting in its receivership capacity for Heritage, seeks to recover more than $15 million in losses allegedly covered under the fidelity provisions of the blanket bond. The FDIC claims that these losses are attributable to the fraudulent and dishonest acts of former Heritage Senior Vice President Michael Smith (Smith), who pled guilty to federal bank fraud and bribery charges in 1994.
Defendants have moved for summary judgment on four separate grounds. First, defendants contend that they are entitled to rescission of the bond under Mass. Gen. Laws ch. 175, § 186, because Heritage made material misrepresentations in response to certain questions on its 1990 bond application.
Second, defendants argue that Smith was never covered under the bond, because the "Cancellation or Termination" provision of the bond terminated coverage as to Smith when Heritage learned of his dishonest acts prior to the bond's inception.
Third, defendants argue that Heritage had "discovered" (as defined by the bond) the Smith losses before the bond ever took effect, and because the bond only covered losses "discovered" during the bond period, Heritage's *123 "discovery" of the losses prior to the bond period defeats plaintiff's claim for recovery.
Finally, defendants submit that, even if Heritage discovered the Smith losses during the 1990-91 bond period, plaintiff's claim is barred because Heritage failed to provide timely notice of their claim to defendants.
Plaintiff, FDIC, filed a consolidated cross motion for summary judgment seeking dismissal of defendants' misrepresentation defenses, and seeking judgment in its favor on the discovery and notice issues. The court has jurisdiction under 12 U.S.C. § 1819(b) and 28 U.S.C. §§ 1331 and 1345.
This case has moved though the court accompanied by a series of criminal cases, the last of which recently received its final disposition. By intention, the court has waited to address this civil action until now. After painstaking review of the parties' memoranda and the thousands of pages of exhibits, transcripts, and affidavits submitted in this case, the court is constrained to conclude that, on the undisputed facts of record, the defendants are entitled to rescission of the 1990 bond under Mass. Gen. Laws ch. 175, § 186, due to the material misrepresentations made by Heritage in its application for the bond.
The uncontested evidence compelling this conclusion will be set out at length below. To cite, by way of example, the most flagrant instance of misrepresentation, Heritage bank officials confronted the following question on the 1990 bond application: "Please state in detail, any irregularities in banking or financial operations ... known to the Bank during the past 3 years." To this question the bank officials answered: "None."
Heritage gave this answer in August 1990 despite being aware of the serious misconduct of two recently-discharged loan officers of the bank, including the unapproved extension of hundreds of thousands of dollars in credit over loan amounts, advances in excess of the officers' lending authority, camouflaged "straw" loans to borrowers via third-party proxies, and egregious deficiencies in loan documentation. Moreover, the bank had conducted internal audits on both officers' portfolios and had retained a law firm to investigate rumors that one of the officers appeared to have acquired possessions and property incommensurate with his salary at the bank. Finally, an FDIC examiner had filed a Report of Apparent Crime on one of the officers in June 1990, a few months before Heritage completed the bond application.
Under these circumstances, to answer "None" to the posed question is analogous to submitting an application for fire insurance without telling the carrier that the kitchen is already in flames. The bank's conduct may be explained perhaps by a desire to conceal the fact that one prominent cause of the bank's precarious financial position was the misconduct and ineptitude of the bank officials themselves, and by the bank's determination to obtain necessary insurance coverage by any means.
These misrepresentations would alone suffice to make the 1990 bond voidable. In addition, however, the facts of record establish that Heritage "discovered" the losses caused by Smith (as the law defines that term) well outside the 30-day notice period set by the bond. The bank's failure to give defendants timely notice of the discovered losses constitutes an independent and equally unavoidable ground for allowing defendants' motion. Because these two bases for summary judgment emerge so clearly from the record, it is unnecessary for the court to address defendants' other arguments.
The effect of the court's ruling is distasteful. Because of the misrepresentations made in the policy application and the failure of the bank's officials to give timely notice to the insurer, insurance coverage for some fifteen million dollars of loss to the bank, and perhaps more, will be forfeited. In short, this source of reimbursement to the FDIC, and presumably to the American taxpayer, will be lost. Unfortunately, the actions of Heritage officials require this result, as a more detailed review of the record will demonstrate.
II. FACTUAL BACKGROUND
The facts giving rise to this bond claim are enmeshed in a much larger web of events *124 that led to the demise of the Heritage Bank for Savings, a lending institution with roots in western Massachusetts going back 150 years. The narrative of that collapse presents a chronicle of naivete, greed, and misplaced trust a tale that reached its climax in the betrayal of the bank's investors and the larger community. Having now sentenced several individuals who pled guilty to bank fraud and bribery charges in connection with the criminal side of this story, and having presided over the jury trial of a former Heritage attorney who was ultimately acquitted of similar charges, the court is acutely aware of the backdrop against which this multimillion dollar bond claim rises. However, in deciding this case, the court emphasizes that it has based its conclusions solely upon the facts presented in the record in this case, and has in no way drawn upon independent knowledge of circumstances not directly part of this record.
Even with this limitation, it has been somewhat difficult to construct a comprehensive linear narrative of the events giving rise to this bond claim. This is due to the enormous volume of exhibits submitted by the parties and the fact that the story's various subplots are interwoven, with several key events occurring almost simultaneously.
With all this in mind, the critical task for the court in this case has been to distill from the record the undisputed material facts concerning what Heritage knew about the activities of Smith, both at the time Heritage applied for bond coverage with defendants in August 1990, and in the subsequent months leading up to August 30, 1991, when Heritage first provided notice to defendants of a bond claim on Smith. As it turns out, there is no genuine dispute about what information was known to Heritage; rather, the disagreement centers on the parties' characterization of the factual record, the inferences and conclusions that properly may be drawn from this record, and the application of the law to the facts of this case.
Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In reviewing defendants' Motion for Summary Judgment, the court views the evidence in the light most favorable to the plaintiff.[1]
A. THE HISTORY OF HERITAGE BANK FOR SAVINGS[2]
Heritage Bank for Savings was a state-chartered savings bank headquartered in Holyoke, Massachusetts. Founded in 1842 as the Amherst Savings Bank, the institution evolved through a series of mergers with small community banks in western Massachusetts, including the Franklin Savings Institution in 1982 and the Northampton Institute for Savings in 1986, and culminated in the acquisition of Community Savings Bank in 1988.[3]
In 1987, a holding company for Heritage was formed, named Heritage Bancorp, Inc. ("Bancorp"), which issued shares of publicly traded stock. Heritage became a wholly-owned subsidiary of Bancorp in 1988. The principal business of Bancorp, through Heritage, was attracting deposits and investing them in real estate mortgages, in commercial and consumer loans, and in various investment securities.
By 1989, Heritage was the second largest stock savings bank in Massachusetts, with 29 banking offices throughout Hampshire, Hampden, Franklin, and Worcester Counties, and assets of nearly $1.7 billion.
*125 When the local economy deteriorated in the late 1980s, Heritage began to suffer enormous losses, largely on commercial loans that defaulted. These losses reached $27 million in 1989, $28 million in 1990, and $57 million in 1991. Ultimately, in December 1992, as losses continued to mount, the Massachusetts Commissioner of Banks declared Heritage insolvent and closed the bank, at which time the FDIC was appointed receiver.
B. MICHAEL SMITH
1. Plaintiff's Claim
Plaintiff, FDIC, seeks to recover for losses allegedly sustained due to the dishonesty of Michael Smith, Heritage's former senior vice president in charge of commercial lending. FDIC claims that Smith, with the intent to receive financial benefits, and having indirectly received such benefits, extended loans to his former college roommate Ira Sutton and Sutton's various corporate entities; colleagues and family members, including Patrick Goggins, Arthur Pichette, Peter Whalen, Irving Labovitz, David Shrair, Valley Design and Development, Inc., Goggins & Whalen Real Estate Agency, Inc., Donald Todrin, Armand Duseau and some of Duseau's corporate entities; Steven and David Rostoff and some of their corporate entities and colleagues; and Jeffrey Anderson and his company, G & H Leasing, Inc. The FDIC asserts that the losses caused by Smith's misconduct exceeded $30 million as of the time it filed suit in 1995.
2. Michael Smith's Employment at Heritage
Smith was a Northampton native who started working at Heritage (then the Northampton Institute for Savings) in 1982. He started as a teller but became a commercial lending officer shortly thereafter. A lifelong resident, he was highly regarded in the Northampton community.
Until 1986, Heritage was primarily a residential mortgage and consumer loan savings bank with a small commercial loan department. However, in 1986 Heritage began substantially increasing deposits. Smith became chief commercial lending officer at Heritage/NIS that year, and, having been granted considerable autonomy by Heritage president and CEO Richard Covell, Smith began to contribute greatly to the bank's growth through the aggressive expansion of commercial loans. Covell, who was a family friend of Smith, had never been a commercial loan officer himself, and he relied heavily on Smith's judgment. Covell Dep. vol. II at 115.
When Heritage acquired Community Savings Bank ("Community") in 1988, John Fridlington, who arrived with Community, became the executive vice president of commercial lending, a position senior to Smith. Covell and Fridlington knew that Smith resented being passed over for Fridlington's position, and that his lending philosophy clashed with that of his more conservative supervisor. Covell Dep. vol. II at 100-02; Fridlington Dep. vol. I at 23-25.
3. Cummington Farms; Heritage's Internal Audit
Serious concerns with Smith's loan activity began to surface in early 1989. In January 1989, Heritage's chief financial officer, George Dimitrio, found that between $900,000 and $1 million had been overadvanced on a $2 million real estate development loan known as the Cummington Farms project, one of Smith's loans.[4] Fridlington Dep. vol. I at 38-39, 128-30. An "overadvance" is an unapproved extension of credit that is, an advance over the approved loan amount.
Heritage's management group wanted to know if there were any other overadvances by Smith they had not been informed of and asked the bank's vice president and director of internal auditing, Grant Jamieson, to conduct an internal review of such incidents. Id. at 126-28. Jamieson's February 1989 review uncovered a number of advances in excess of *126 approved loan commitments or in excess of Smith's lending authority, including loans to his former college roommate, Ira Sutton; the Rostoffs; Duseau Waste Industries; Cummington Farms; and Arthur Pichette. Fridlington Dep. vol. II at 16-20. Jamieson's review prompted a meeting in March 1989 between Heritage's management and Smith. Smith apparently acknowledged his poor record keeping and attempted to rationalize the overadvances as decisions he believed were made in the best interests of the bank. Management determined that Smith had exceeded his authority and was sloppy with his paperwork. Fridlington felt that the Cummington Farms overadvance was sufficient cause for terminating Smith, but Covell apparently disagreed. Id. at 21-22, 26-27, 116. Smith stayed on at Heritage for the time being.
4. The 1989 FDIC Examination/1989 Peat Marwick Letter
In addition to Jamieson's internal audit, two other reports issued in early 1989 revealed a host of problems at Heritage. The first of these was a February 24, 1989 report jointly issued by the Massachusetts Commissioner of Banks and the FDIC ("1989 FDIC Examination"), regarding their joint examination of Heritage, a copy of which was provided to the bank. This report revealed a severe lack of internal controls at Heritage, and cited numerous significant violations of state banking statutes, FDIC regulations, and internal bank policy. Pl.'s Ex. 230. These included real estate loans without appraisals, loans granted in excess of statutory loan-to-value ratios, real estate loans not properly amortized, and numerous substantial over-advances that were not properly approved. Id. The report cited the bank's loan documentation deficiencies, and singled out the Sutton loans as particularly egregious examples of lending overlines, noting that Sutton had signed a promissory note for a demand line of credit of $250,000, with borrowings (as of the time of the report) totaling $1,200,000. The report also identified other Smith loans made in violation of statutes and regulations, including loans to Duseau, Goggins & Whalen, and the Rostoffs. The report stated that "[m]anagement should also be aware that the[se] lending practices have created an ideal environment for fraud." Id. at Bates H023780. Covell gave the FDIC assurances that Heritage would take corrective action.
Contemporaneous with the 1989 FDIC Report, Heritage's external auditors, KPMG Peat, Marwick, Main & Company ("Peat Marwick") also conducted a review of the commercial loan department. Peat Marwick wrote to Heritage's Audit Committee on April 3, 1989 ("1989 Peat Marwick Management Letter"), pointing out several problems in the commercial lending administration, including unapproved advances made on loans over original note amounts and serious loan documentation deficiencies (including missing promissory notes, missing collateral documentation, missing appraisals, lack of evidence of committee approval, and lack of upto-date financials on borrowers and guarantors). Pl.'s Ex. 82. The letter also noted that the "Senior Vice President of Commercial Lending [i.e., Smith] had a portfolio of 743 loans totaling $188 million or 28% of the $682 million Bank portfolio." Id. at Bates A & A 100156.
5. Smith's Business Interests and Purported Assets
In the meantime, Heritage was aware that Smith had business interests with his brother-in-law, Patrick Goggins, as well as his friend Timothy Sicard, which Smith disclosed on a Lending Relationship with Executive Officers Form he had completed for Heritage. Defs.' Ex. 9. In addition, Smith had told another lending officer, Lucille Cernak, that he had a place in the Virgin Islands, and offered to rent it to her. Cernak Dep. vol. I at 63-66.
6. Smith's Resignation
As a result of Jamieson's internal audit, the 1989 FDIC Examination, and the 1989 Peat Marwick Management Letter, the Heritage Board held a series of meetings to discuss Smith's status. Fridlington Dep. vol. II at 31. Apparently there was some internal debate at these meetings over whether to fire Smith or ask that he resign; in any *127 event, the minutes from the June 28, 1989 Board Meeting reflect that the Board voted to accept Smith's resignation, effective August 1, 1989, and authorized Covell to negotiate Smith's severance agreement. Defs.' Ex. 11.
7. Goodwin, Procter & Hoar Investigation
In August 1989, mounting concerns about defaults on Smith's loans, as well as rumors that Smith owned condominiums in Sunapee, New Hampshire, and the Virgin Islands, led Heritage to retain the law firm of Goodwin, Procter & Hoar ("GPH") to conduct an investigation of Smith's portfolio. Fridlington Dep. vol. II at 37-38. According to GPH attorney Mark Tully, the bank instructed GPH to keep the investigation confidential out of concern for potentially damaging publicity. Tully Dep. at 13. Heritage limited the investigation to reviewing the Bank's own loan file documents and records, checking public records, and interviewing Bank personnel. GPH was instructed not to interview individuals outside the bank. Id. at 13-14. Although Tully expressed in his 1994 deposition that the purpose of the confidential review was to determine whether the Bank had a basis to file a Report of Apparent Crime with the FDIC or a bond claim on Smith, id. at 25, neither the Executive Committee meeting notes of August 16, 1989 authorizing the investigation, nor GPH's resulting November 27, 1989 memorandum ("GPH Memorandum") stated an official objective for the investigation. The GPH Memorandum noted that:
[o]ne of the driving forces behind the review of Smith's portfolio was the idea that Smith was living beyond his means, i.e., that Smith owned property in excess of what one would expect from someone earning Smith's salary. More particularly, there were rumors that Smith owned a house and a boat on lake Sunapee (or perhaps Lake Ossipee), and that Smith owned property in the Virgin Islands.
GPH Memorandum at 35, Pl.'s Ex. C.
GPH was unable to locate through public records any property in Smith's name in the Virgin Islands or New Hampshire. Tully Dep. at 22-24, 34; Fridlington Dep. vol. II at 42-43. GPH did locate a condominium development which was owned in part by "V.I. Condo Corp.," of which Heritage attorney Irving Labovitz was listed as an officer.[5] Pl.'s Ex. C at 36. It was later discovered in 1992 that Smith in fact had a secret partnership in V.I. Condo Corp. and several other commercial real estate ventures for which he had approved loans. Patterson Dep. vol. II at 112-18. These and other financial benefits, including cash bribes to Smith, did not surface in GPH's investigation, in part because the individuals involved concealed them, and in part because the GPH investigation was restricted to internal bank documents, public records, and interviews with five bank employees.[6]
On November 29, 1989, GPH attorneys Tully and Brackett Denniston presented the results of the investigation to the Heritage Board of Directors. The Board did not receive copies of the actual GPH Memorandum.[7] The Board Minutes for that meeting state:
*128 Mr. Denniston stated that Goodwin, Procter & Hoar is unable to give assurances to the Directors that no wrongful conduct or criminal activity occurred. Mr. Denniston stated that Goodwin, Procter & Hoar was unable to find substantial evidence of self-dealing or criminal activity and believes that the possibility of wrongful conduct could not be eliminated without the commitment of enormous resources including the expenditure of substantial funds. Mr. Denniston stated that based on the confidential review conducted by Goodwin, Procter & Hoar, there is insufficient evidence of wrongdoing to require a report to the FDIC or to initiate a claim under the fidelity bond. Mr. Denniston stated that, subject to the results of the review and analysis of the disbursement information, Goodwin, Procter & Hoar recommends that the investigation be concluded.
Minutes of Board of Directors Meeting November 29, 1989, Pl.'s Ex. D.
Heritage paid $45,000 to GPH for the confidential review and investigation. Defs.' Ex. 16.
8. Information Learned by Heritage in Fall 1989 through 1990
Jack Patterson was hired by Heritage in September 1989 to head the bank's credit department, and was promoted to head of the loan department when Fridlington left the bank at the end of 1991. After the November 29, 1989 Board meeting, Patterson began handling workouts for several of Smith's troubled loans, including Cummington Farms and another real estate development called Saddle Hill. Patterson Dep. vol. II at 52-53, 56-58. In early 1990, Patterson received a call from another banker conducting a credit check on Smith, and learned that Smith was president of a company named "The Dutchmen, Inc.," which owned a condominium at Lake Sunapee, New Hampshire. Id. at 64-66. Patterson learned that Smith had borrowed $315,000 for the condo from another bank and that he had disclosed the loan on his Heritage financial disclosure form. Id. During 1990, certain Heritage employees made remarks to Patterson that Smith had a couple of new cars, a boat, a Rolex watch, and a fur coat for his wife. Id. At the time, these possessions appeared to Patterson to be inconsistent with Smith's $70,000-$80,000 salary, and Patterson wondered how a person with such a salary could have accumulated his reported debt of $500,000 to $600,000. Id. Patterson relayed to GPH and Fridlington bits and pieces of information as it came to his attention. Id. at 24-26, 30-33; Tully Dep. at 46-47.
9. Facts Relating to Manuel Duarte
In order to maintain a true chronological narrative, the court will detour slightly from the Smith story at this juncture to summarize the facts in this early 1990 time frame concerning another Heritage employee, Manuel Duarte. The FDIC has not presented a bond claim in this case for the losses caused to Heritage by the dishonest acts of Duarte, but the circumstances surrounding his employment and termination are relevant to the defendants' misrepresentation defense, and therefore warrant brief discussion.
Duarte was hired by Heritage/NIS to run the commercial lending office at the bank's Worcester, Massachusetts branch. He was terminated (with severance pay and health benefits) in March 1990 because of an unusually high level of delinquencies in the Worcester office's loan portfolio. Fridlington Dep. vol. II at 86-88. In April 1990, Heritage retained Alfred Dean as a consultant to do the workouts for the Worcester office's troubled loans. On May 21, 1990, Dean sent a memorandum to Fridlington advising him that Duarte had circumvented loan policy by making loans to third party "proxies" in order to overadvance funds to borrowers without having to go through the loan approval process. Pl.'s Ex. 57. On May 29, 1990, Fridlington wrote to Duarte that his severance agreement was terminated due to Duarte's deliberate and repeated violations of bank policy. Pl.'s Ex. J. In September 1990, Dean submitted a second and final memorandum regarding his review of the Duarte/Worcester portfolio. This memorandum made similar findings and included additional incidents of Duarte's misconduct. Def.'s Ex. 23.
*129 Duarte's misuse of position and circumvention of board authority were reported to Heritage's Executive Committee in May and June 1990 by Fridlington and Patterson. Defs.' Ex. 26 at Bates H003875. The violations of lending policy uncovered by Dean's investigation of the Worcester portfolio had been discussed with FDIC examiners. Id at H003876. The situation was discussed at length at the Audit Committee meeting of July 18, 1990. Defs.' Ex. 27.
10. The 1990 FDIC Examination of Heritage/Gonzales' Report of Apparent Crime on Michael Smith
The court will now resume the main narrative involving Michael Smith.
In March 1990 the FDIC commenced an annual examination of Heritage headed by Louis Gonzales. During this time, the bank continued to experience losses on the Smith loans. As part of his assessment, Gonzales reviewed the 1989 FDIC Examination. He also learned from Fridlington that Smith had made loans to friends and to his brother-in-law Goggins, and had made loans without board approval. Additionally, Gonzales learned through his review of the Board of Directors minutes that GPH had conducted the 1989 confidential investigation. Gonzales testified that the evidence that Smith had extended approximately $20 million over his lending limit was the highest amount he had ever seen, and that he concluded that Smith was "abusing his authority as a lending officer, to the detriment of the Bank." Gonzales Dep. at 42-43.
After meeting with Patterson and Fridlington and informing them of his intentions, on June 14, 1990, Gonzales filed a Report of Apparent Crime concerning Smith's activities at Heritage ("Smith Report of Apparent Crime"). Fridlington testified that
[w]e weren't at that point sure what to do vis-a-vis Mike Smith and had a discussion with [Gonzales] as to should the bank be filing something with the FDIC, an apparent crime form. [Patterson] and I had sort of uncertainty, if you will, as to what had been going on.
Fridlington Dep. vol. II at 45.
Gonzales told him and Patterson that the bank itself should have filed a report on Smith for having exceeded his lending authority and for violating bank policy on a regular basis. Id. at 46. After learning of Gonzales' intention to file the Smith Report of Apparent Crime, Patterson and Fridlington informed bank management of the same.[8]
Although the Smith Report of Apparent Crime characterized the suspected violations as "Misuse of Position or Self Dealing," the Report describes Smith's activities in very blunt terms, stating that Smith reportedly approved loans and credit overlines in excess of his lending authority "in apparent disregard for the interests of the bank and in contravention of policy .... The irregular and questionable activities attributed to [Smith] resulted in eventual large loan losses and damage to the financial condition of the bank." Smith Report of Apparent Crime, Pl.'s Ex. 158.
In Gonzales' account of the suspected violation (in response to Question 7b of the report form), he wrote:
Credit advances ... were in excess of $20 million.... Whether or not [Smith] received kickbacks or bribes through these or other lending activities could not be determined through account review as he did not maintain any deposit accounts at Heritage.... A review of his accounts at those institutions [where Smith was believed to maintain accounts] is recommended.
Goodwin, Procter & Hoar ... was authorized to conduct an independent, confidential review of Mr. Smith's portfolio. Results of the review were presented at an 11-29-89 meeting of the Board of Directors .... Assurances could not be given that no wrongful conduct or criminal activity *130 occurred but insufficient evidence (it was reported) existed to require a report to the FDIC or to initiate a blanket bond claim. It was recommended that, subject to the results of review and analysis of disbursements, that the investigation be concluded. Mr. Grant Jamieson, bank's internal auditor, stated that disbursement review was conducted but failed to reveal any tangible evidence of wrongdoing since Mr. Smith did not maintain any accounts at the Bank. A written report by the law firm reportedly was not provided to the bank.
...
[Bank officials] also stated that they have determined that Mr. Smith would intimidate employees who may have challenged his lending procedures.
Id.
Gonzales noted on the form that he had interviewed Fridlington, Patterson, and Jamieson in preparing the report. In response to Question 11a ("Who discovered the suspected violation and when?"), Gonzales stated, "Management of the bank was aware of the transactions but, in view of findings of Goodwin, Procter and Hoar, and the internal auditor, made no reports." Id. The Report also stated that "additional losses are possible" and that "[l]osses have been contributory to the institution's capital levels falling below regulatory minimum requirements." Id.
Gonzales submitted his June 1990 report directly to the FDIC regional field office. Astonishingly, Gonzales apparently never forwarded a copy of the Smith Report of Apparent Crime to Heritage, nor does it appear that Heritage or GPH ever requested a copy until November 1990, after Tully met with Fridlington, Patterson, and FBI Special Agent James Scripture, to discuss the Smith situation. This meeting had been requested by Agent Scripture and, according to Tully's memorandum to Denniston describing the interview, it was prompted by Gonzales' Report of Apparent Crime. Pl.'s Ex. V at 1.
C. THE 1989 ST. PAUL BOND/HERITAGE'S INITIAL APPROACH TO LLOYD'S
Prior to and including 1989, Irene Soucy, the bank's treasurer, was responsible for Heritage's insurance programs. In 1989, Heritage hired Alexander & Alexander ("A & A") as an insurance broker. Gordon Langan of A & A's Hartford, Connecticut office, was the broker who handled the Heritage account.
A & A negotiated financial institution bond coverage from St. Paul Marine & Fire Insurance Company ("St.Paul") for the bond period from September 1, 1989 to September 1, 1990. Domenic Ritucci was the underwriter at St. Paul who took over the Heritage account.
By June 1990, St. Paul indicated that it was considering the cancellation or non-renewal of its bond due to Heritage's deteriorating financial condition; however, Ritucci advised Langan that he would hold off sending a notice of cancellation or non-renewal until he had an opportunity to meet with the bank. Pl.'s Exs. 15-16 (notes of telephone conversations between Ritucci and Langan). A meeting between St. Paul, Langan, and representatives from Heritage was later set for July 26, 1990 to discuss the situation.
In the meantime, on July 6, 1990, Langan spoke with Soucy and explained that St. Paul was nervous and might wish to "non-renew" the policy subject to a 90-day cancellation notice. Defs.' Ex. 36. Langan recommended approaching the London market for coverage, aware that Lloyd's actively pursued insurance business from distressed financial institutions in the United States. Pl.'s Ex. 36; Langan Dep. at 104-06. Soucy agreed. In her confirming letter of July 6, 1990, Soucy also advised Langan that Joe Barbato, senior vice president of operations, would be taking over the administration of the bank's insurance program and would be at the July 26, 1990 meeting with St. Paul. Pl.'s Ex. L.
On July 9, 1990, Langan sent Soucy a letter enclosing a Lloyd's Blanket Bond Proposal Form (the "LPO 230A") and Supplemental Questionnaire. That same day, before Langan received a completed Lloyd's application from Heritage, he sent a number of Heritage documents, including the 1988 *131 and 1989 annual reports, the 1988 and 1989 Peat Marwick Management Letters, and the expiring St. Paul bond to Sam Cargill of A & A's New York office, and asked for Cargill's assistance in approaching the London market. Pl.'s Ex. 226. Cargill acted as an intermediary to registered Lloyd's brokers in London. On July 17, 1990, Cargill forwarded the documents, and later Heritage's 1989 St. Paul bond application, to Simon Ashby of Holmes, Johnson & Lessiter, Ltd. ("HJL"). HJL was a registered Lloyd's broker, and a subsidiary of Alexander Howden Ltd. ("Howden"), also a Lloyd's broker. A & A could not negotiate directly with Lloyd's of London underwriters because Lloyd's permits only London brokers registered and regulated by the Council of Lloyd's to make these approaches. It was A & A's policy at the time to have its United States brokers use Howden.
On July 26, 1990, the meeting to discuss the St. Paul bond took place between Ritucci of St. Paul, Langan of A & A, and Soucy and Barbato of Heritage. St. Paul made no decision at this meeting as to whether to renew the bond.
On August 1, 1990, on the basis of the initial materials received about Heritage (including the 1989 annual report, the 1989 Peat Marwick Management Letter, and the 1989 St. Paul bond), the lead underwriter at Lloyd's furnished a preliminary indication of terms and conditions for a blanket bond, subject to receipt of a Lloyd's general application form (LPO 230A) and Supplemental Questionnaire. Pl.'s Ex. 29 (fax from Ashby to Cargill). This indication proposed a premium of $102,500 for the one-year bond, but Ashby made a note to Cargill stating, "As discussed we would appreciate it if you could obtain more premium." Id.
That same day, Barbato completed the official Lloyd's application package with the LPO 230A and the Supplemental Questionnaire, which he sent to Langan. Barbato had circulated portions of the application to various individuals at Heritage. Soucy assisted Barbato in completing Section 19 of the LPO 230A, the main subject of defendants' misrepresentation defense.
On August 13, 1990, Ritucci of St. Paul advised Langan by phone that St. Paul had decided not to renew its bond. Ritucci proposed however, that instead of issuing a 90-day notice of cancellation, St. Paul would be willing to accept a signed release from Heritage, which would extinguish any liability of St. Paul as of the date of the release. Ritucci told Langan that the release would be beneficial to Heritage because if St. Paul issued a notice of cancellation or non-renewal, it would be difficult for Langan to market the coverage to another insurer. Ritucci Dep. at 85.
In a letter dated August 17, 1990, Langan informed Soucy of the situation, and commented that "[h]andling the cancellation with St. Paul in this fashion avoids having to disclose on any future Financial Institution Bond applications of being canceled, non-renewed, or declined by a previous carrier." Pl.'s Ex. 28. In turn, Soucy wrote a memorandum to Covell on August 20, 1990, stating:
St. Paul is not willing to renew, however they will not cancel our present coverage if we are willing to sign an agreement that we will not present them with any claims through the expiration date. What this means is we would not have a "cancellation black mark" on our record. We have no claims pending nor do I anticipate any in the near future. This is the way we should proceed for 9-1-90.
Pl.'s Ex. 31.
That same day, Soucy sent the signed release form to Langan, leaving the effective date of release blank. Pl.'s Ex. 36a. Langan later filled in the date of September 1, 1990 and sent it to St. Paul. Langan Dep. at 468-69.
D. THE 1990 LLOYD'S BOND APPLICATION
As stated above, on August 1, 1990, Barbato forwarded to Langan Heritage's completed LPO 230A, Pl.'s Ex. 30a, and the Supplemental Questionnaire, Pl.'s Ex 30b, with applicable exhibits and reports.
The LPO 230A states on the cover page:
PLEASE NOTE: Every Proposer or Assured, when seeking a quotation, taking *132 out or renewing an Insurance Policy, is required to advise to the prospective Insurers any material fact or information which might affect the judgment of the Insurer in deciding whether to accept the insurance or assessing the conditions of that insurance. Failure to observe this obligation could avoid any contract entered into at inception.
Heritage's responses to Questions 19(a)-(c) of the LPO 230A, Pl.'s Ex. 30a, form the first part of defendants' misrepresentation defense. These questions, and Heritage's responses, were as follows:
19.(a) Has any proposal for Insurance of this nature been declined by any Insurance Company or Underwriter at Lloyd's, or has any policy been canceled or renewal thereof refused? If so, state reasons.
Heritage's response: No.
(b) Have you any knowledge of, or information concerning any occurrence or circumstance whatsoever, which might materially affect this proposal?
Heritage's response: No.
(c) Please state in detail, any irregularities in banking or financial operations discovered by, or under investigation by, governmental or banking authorities, or known to the Bank during the past 3 years.
Heritage's response: None.
Pl.'s Ex. 30a (emphasis supplied).
Question 20 of the LPO 230A asks:
Please give in the space provided below, brief details of any loss or losses which you have sustained during the past five years, and/or any circumstance likely to give rise to a loss or losses in excess of U.S. $5,000 (whether insured or uninsured).
Heritage's response identified five instances of embezzlement ranging from $8,400 to $67,000. Id. (emphasis supplied).
Question 2(b) of the Supplemental Questionnaire asks:
Have there been any changes in either Directors or Officers during the last three years? If yes, please attach complete explanation for the changes and resumes of the new Directors and Officers.
Heritage's response: "Refer to Annual Report." Pl.'s Ex. 30b.
The only reference in Heritage's 1989 Annual Report to changes in officers or directors appears on page 2, in President and CEO Richard Covell's Letter to Stockholders. The relevant passage states:
As part of our efforts to restructure and redirect our operations, we have trimmed down our management structure. As previously announced, Roy A. Scott, President and Chief Operating Officer, and Robert C. Peck, Senior Executive Vice President, have resigned; we have also eliminated sixteen other positions, including those of seven other officers. In the past year, we have added two Senior Vice Presidents, John J. Patterson and Charles D. Jeffrey, who provide us with additional expertise in the loan workout and investment portfolio areas. These changes represent a major effort to restructure management with emphasis on resolving asset quality issues and achieving cost containment objectives, while repositioning Heritage to improve financial performance in the future.
Pl.'s Ex. 83 (emphasis supplied).
The final page of the LPO 230A contains a declaration that provides, in part:
We declare that the statements and particulars in this proposal are true and that we have not misstated or suppressed any material facts. We agree that this proposal together with any other information supplied by us shall form the basis of any contract of insurance effected thereon and shall be incorporated therein.
Pl.'s Ex. 30b at Bates A & A 101248 (emphasis supplied).
The LPO 230A was signed by Covell, Everett Peterson, Assistant Vice President of Security, and Fred Schluter, Executive Vice President and Chief Financial Officer. These signatures were not dated. Id.
After reviewing Heritage's application, Langan sent them on August 9, 1990 to Cargill in New York, who forwarded them to Ashby in London on August 13, 1990.
On August 28, 1990, A & A presented Heritage with a written proposal that included the terms of the proposed Lloyd's coverage. *133 Heritage accepted the proposal at a $122,500 premium, $20,000 above the $102,500 in Ashby's August 1 indication.[9]
On August 31, 1990, Langan informed Barbato at Heritage that the Lloyd's coverage was bound effective September 1, 1990.[10] Heritage eventually received the final bond document in April 1991.
E. DEVELOPMENTS AT HERITAGE DURING THE LLOYD'S BOND PERIOD (SEPTEMBER 1, 1990 TO AUGUST 31, 1991)
1. Manuel Duarte
As stated above, Manuel Duarte of Heritage's Worcester branch office was terminated in March 1990 because of substantial delinquencies in his loan portfolio and for having deliberately circumvented bank loan policy. Duarte's conduct was reported to FDIC Examiner Gonzales, who recommended in the 1990 FDIC Examination Report that a criminal referral be filed on Duarte.[11] Defs.' Ex. 18 at Bates H024017.
Fred Dean, the consultant hired to do Duarte's loan workouts, submitted his final report to Fridlington on Duarte's portfolio on September 18, 1990. On October 3, 1990, Fridlington filed a Report of Apparent Crime on Duarte ("Duarte Report of Apparent Crime"), reporting Duarte's willful violations of Heritage's lending policy by lending to third-party (nominee) borrowers to circumvent his lending limit. Like the Smith Report of Apparent Crime, the Duarte Report of Apparent Crime characterized his suspected violations as "misuse of position/self-dealing." Pl.'s Ex. 55a.
On October 30, 1990, Fridlington sent a letter to HJL in London (in care of Langan at A & A), giving Lloyd's notice of an occurrence giving rise to a possible claim for Duarte. Pl.'s Ex. 46. Heritage ultimately confirmed that the Duarte loss had been discovered in April 1990 while Heritage was covered under the St. Paul bond. Defs.' Exs. 59-60. It is for this reason that plaintiff is not seeking to recover from defendants for any losses caused by Duarte.
2. Michael Smith
a. November 1990 Meeting with FBI Agent Scripture
In November 1990, Heritage was contacted by FBI Agent Jim Scripture to discuss the Smith Report of Apparent Crime. Attorney Tully of Goodwin, Procter & Hoar met with Fridlington and Patterson on November 13, 1990 to review the bank's knowledge of the Smith situation in anticipation of the FBI's questions.[12] Defs.' Exs. 13 & 46. Patterson advised Tully at that meeting that "Investment Partners, Inc.," a corporation made up of five Heritage borrowers all close to Smith, was showing a one-sixth interest that was unaccounted for. Defs.' Ex. 13 at 85; Ex. 46. They also discussed Smith's known assets, including his interest in The Dutchmen, Inc., the $300,000 mortgage on the Lake Sunapee property, Smith's personal residence, his two new cars, his boat, and his interest in the Virgin Islands condominium. Id. Patterson also said that Irving Labovitz had told him that Smith's interest in the Virgin Islands condo was the "equivalent of a time share." Defs.' Ex. 46; Tully Dep. at 87-88.
Tully, Patterson, and Fridlington met later that same day with Scripture. Scripture's questions focused on three areas: Smith's position and authority, Smith's misuse of his position and/or actions beyond his authority, and Smith's assets, financial condition, and lifestyle. Defs.' Ex. 48. Fridlington described *134 Smith's major lending relationships, including Cummington Farms, and the Sutton and Rostoff loans. Tully's memorandum to GPH attorney Denniston memorializing this meeting stated that, "Overall, Scripture indicated that an extensive investigation is unlikely." Pl.'s. Ex. V at 3. However, Scripture stated that the file would remain open while other related investigations were pending, and that it would be turned over to a Springfield Assistant U.S. Attorney. Id.
Tully testified that at that time, while there were suspicions about Smith, his behavior was still generally viewed as a matter of bad loans and poor judgment. Tully Dep. at 110-11. However, within two weeks of the meeting with the FBI, Tully asked Barbato at Heritage for copies of the fidelity bonds in effect since Smith's August 1989 departure. Defs.' Ex. 49 (11-27-90 Tully Memorandum).
b. First Grand Jury Subpoena
Six weeks after the meeting with Agent Scripture, on January 4, 1991, Heritage received a grand jury subpoena requesting all of Smith's loan files, all meeting minutes involving those loans, and Smith's personnel file. Pl.'s Ex. 50.
c. Smith's Assets
Beginning in late 1990 to early 1991, Patterson had several anecdotal conversations with loan officers Lucille Cernak and David Barszcz about Smith's lifestyle and luxurious possessions such as a Rolex watch, his wife's fur coat and diamond ring, and Smith's new car and boat. Patterson Dep. vol. II at 102-03.
By April 1991, Patterson learned from Heritage borrower Matthew Pitoniak that Smith was in fact a partner in the Virgin Islands condominium with Irving Labovitz, Pitoniak, and Timothy Sicard, another friend and customer of Smith. Id. at 67-72. Smith's interests in the condo were not reflected in public records, nor had he reported it on his Lending Relationship with Executive Officers Form. At some point that spring, Labovitz told Patterson and Fridlington that Smith, Sicard, and Pitoniak had been brought into the condominium, after Labovitz bought it, to help him with the negative cash flow. Patterson and Fridlington were concerned and suspicious about the fact that Labovitz had not been forthcoming about his relationship with Smith, particularly their shared interest in the Virgin Islands condominium, which Labovitz had falsely described as "equivalent to a time share," and the fact that Smith had not disclosed this interest.[13]
In late 1990 and early 1991, during the workout process on the Smith loans, Patterson detected a pattern of missing pieces of ownership in three partnerships involving customers of Smith. Patterson became suspicious that Smith was the missing piece. Patterson Dep. vol. II at 116-17, 135-41. Patterson kept Fridlington and Tully informed of his suspicions. Fridlington Dep. vol. II at 55, 76, 79, 98-99; Patterson Dep. vol. II at 18, 25-26, 31-32, 107. By late spring, Patterson asked GPH whether a bond claim could be filed on Smith and whether the bank had an obligation to file a criminal referral on him, but was advised by GPH that these were not warranted. Patterson Dep. vol. II at 107, 137.
d. Second Grand Jury Subpoena
On April 12, 1991, Heritage received a second grand jury subpoena, requesting all documents for loan files relating to Smith's college roommate Ira Sutton, files for which Smith had been responsible. Pl.'s Ex. Y. On April 30, 1991, Tully sent Fridlington a letter recommending that CPH coordinate Heritage's responses to the subpoenas in the Smith, Duarte, and Sutton investigations. Pl.'s Ex. Z.
*135 3. Heritage's 1991 Renewal of the Lloyd's Bond and the August 5, 1991 FBI Contact
In July 1991, A & A began to negotiate a renewal bond for Heritage as the 1990 bond was due to expire on August 31, 1991. Heritage submitted a renewal application on July 23. On its 1991 renewal application, Heritage stated in response to Question 19(b) of the LPO 230A (concerning known "irregularities"):[14]
19.(b)
1. From 1988 to 1990, a lending officer repeatedly violated the Bank's Lending Policy by extending loans to customers of the bank that on a one obligor basis were substantial [sic] in excess of his voted lending authority. By lending dollar amounts just below his lending authority limit to customers on an individual basis and not reporting the linkages between individual borrowers as required under the Bank Loan Policy, the lending officer effectively substantially exceeded his loan authority and extended substantial amounts of unsecured credit to individuals, which when combined under a one obligor concept, has caused the Bank substantial loan losses (in excess of $3,000,000).
2. FDIC has filed a report of apparent crime concerning a lending officer. The issues being investigated are loans in excess of his voted lending authority and loans in excess of his lending authority to individuals that may have other related interests with the lending officer outside of the Bank. The Bank has supplied loan file information to the U.S. Attorneys office in Springfield, MA.
Pl.'s Ex. 70.
The responses to these questions in 1991 are puzzling for several reasons. First, they roughly describe the Duarte and Smith situations, yet neither individual is specifically identified. Second, in July 1991, the Duarte issue, described in 19(b)(1.), was already a pending bond claim,[15] and the bank itself had filed a Report of Apparent Crime on Duarte the previous October yet this is not mentioned in Heritage's response. At the same time, Heritage does refer, in 19(b)(2.), to the Gonzales' Report of Apparent Crime (on Smith), which had been filed months before the bank completed its 1990 application. Significantly, with the exception of the U.S. Attorneys' involvement in the case, there is nothing in Heritage's response to Question 19(b) in its 1991 application that Heritage did not already know in August 1990 when it first applied for the fidelity coverage with Lloyd's, and answered "None" to the same question.
On August 5, 1991, FBI Special Agent T.J. Roberts contacted GPH attorney Tully. According to Tully's notes of this conversation, Agent Roberts told Tully that he was a bank fraud specialist, that he had been reassigned from Boston to Springfield to work exclusively on the Smith case, and that he wanted to interview Covell. Pl.'s Ex. AP. Tully later testified that this conversation led him to believe that Agent Roberts had a strong case against Smith, and that it gave him the impression that Roberts had information that Smith had received financial benefits. Tully Dep. at 163-69.
On August 14, 1991, Langan of A & A wrote to Fred Schluter at Heritage that he had received preliminary indications from Lloyd's that the renewal policy would contain more restrictive terms and a higher premium. Defs.' Ex. 52. Langan noted that Lloyd's might add a "retroactive date" to the renewal policy, which would limit coverage of losses to those actually sustained after that date. Langan advised that:
[s]hould the underwriters place a retroactive date endorsement to your policy at renewal, the bank needs to be prepared to quickly file a due diligence providing notice for any potential instances aware [sic] of *136 which might give rise to a claim under the existing policy. To be prepared we would suggest researching any instances prior to 9/1/91 in case the retrodate stated is the inception date for this renewal[,] ... the date [Lloyd's] first became involved in your coverages.
Id. at 2.
Langan spoke with Barbato and reviewed Lloyd's renewal proposal with him on August 26, 1991. Defs.' Ex. 53. Barbato spoke to Langan that day and again on August 28 about suggestions for compiling a "laundry list" notice of possible losses sustained prior to September 1, 1990. Id.
On August 28, 1991, Langan faxed Barbato a letter regarding the terms of the renewal quote. Pl.'s Ex. 81. In it, Langan confirmed that the renewal bond contained a loss sustained rider with a retroactive date of September 1, 1990. He advised that the renewal bond "shall only cover losses sustained on or after the retroactive date; in effect, eliminating the discovery provision of the bond. Therefore, any loss(es) sustained prior to 9/1/90 but discovered after 9/1/90 will no longer be covered under this bond." Id. (emphasis in original).
In the same letter, Langan added:
Obviously Joe, the most critical change is the inclusion of the loss sustained rider with the retro-date of 9/1/90. As you requested on 8/26/91, we did pursue with Lloyd's as to providing alternative quotes to eliminate the loss sustained rider or provide a retro-date which goes back further than 9/1/90.
Id.
Langan added that Lloyd's was unwilling to remove the loss sustained rider at any price, but would agree to roll back the retroactive date to September 1, 1989 if Heritage would pay an additional premium of $20,000 and provide Lloyd's with a letter indicating no known losses from 9/1/89. Id.
At 9:30am on Friday, August 30, 1991, Barbato called Langan and told him that their attorney wanted to "put together some general verbiage on Smith and Duarte notifying London on Bond." Defs.' Ex. 55. Later that day, just two days before the 1990 bond was to expire, Barbato faxed a letter to Howden in London to provide notice to defendants of a claim arising from Smith's conduct. This letter was drafted by GPH, and was received by Howden at 4:30 p.m. London time. It stated, in relevant part:
The Insured has recently been advised that the Federal Bureau of Investigation has renewed a comprehensive investigation concerning a former lending officer, Michael Smith, which investigation concerns, inter alia, loans in excess of approved amounts and loans to individuals or entities with whom he may have had relationships. The Insured believes that the activities of the former lending officer have resulted or will result in losses to the Insured, which losses are estimated at this time to be in excess of $5 million.
Pl.'s Ex. 174.
At the time he signed the letter, Barbato himself knew nothing of the FBI investigation referred to in the letter (which, again, was drafted by GPH), nor did he have any personal knowledge of Smith's actual receipt of any financial benefit from his alleged wrongful acts. Barbato Dep. at 130-31.
F. EVENTS FOLLOWING HERITAGE'S NOTICE TO LLOYD'S
On November 15, 1991, Langan of A & A met with Schluter, Barbato, and Fridlington to discuss the Smith claim, and issues surrounding notice, discovery, and the time for filing a proof of loss. Langan Dep. at 333-45. Langan's notes reflect concern over the date of discovery, given that Heritage had disclosed the Smith and Duarte circumstances (although not by name) in its July 22, 1991 renewal application. Pl.'s Ex. 215. The handwritten notes also state:
What is unclear is when prior to [Heritage's renewal] app was sufficient knowledge/information available to become aware of potential loss under bond.
Id.
On December 18, 1991, Barbato called Langan and informed him that Heritage's position on the date of discovery was "within a few days earlier of 8/30/91" because Heritage "didn't have proof of any dishonesty *137 until received FBI report just prior to 8/30/91." Defs.' Ex. 57 (Langan notes of conversation) (emphasis supplied). Barbato stated that the bank's position came after consultation with counsel. Id.
On March 13, 1992, Heritage supplied defendants with its Proof of Loss. Defs.' Ex. 68. In it, the bank asserts:
Smith's dishonest and fraudulent acts ... involved, inter alia, extending credit to certain borrowers who either secretly participated with Smith in real estate development projects or otherwise covertly provided valuable considerations to Smith. Smith and the borrowers, moreover, concealed Smith's dishonest and fraudulent acts from the Insured. Additionally, Smith made sizable loans to certain other friends and business associates under circumstances which reasonably give rise to the conclusion that a financial benefit may have been conferred on Smith.
Id. at 2.
In December 1992, the bank was declared insolvent and the FDIC was appointed receiver. In March 1994, the FDIC submitted a "Supplemental Proof of Loss" on the Smith claim, alleging losses in excess of $32 million. On March 24, 1995, the FDIC filed this suit to recover for the Smith losses.
III. DISCUSSION
The FDIC seeks to recover under the fidelity provisions of Banker's Blanket Bond No. 834/9010020. The Revised Fidelity Insuring Agreement of the bond covers losses "resulting directly from dishonest or fraudulent acts committed by an Employee acting alone or in collusion with others." Pl.'s Ex. 65 at 19. With respect to loan activity, the bond covers only "loss resulting directly from dishonest or fraudulent acts committed by an employee with the intent to make and which results [sic] in a financial benefit for the Employee." Id. (emphasis supplied).
Moreover, the bond only applies to "loss discovered by the Insured during the bond period." Id. at 13. "Discovery" occurs
when the Insured becomes aware of facts which would cause a reasonable person to assume that a loss covered by the bond has been or will be incurred, even though the exact amount or details of loss may not then be known.
Id.
Finally, the Notice provision of the bond states:
At the earliest practicable moment, not to exceed 30 days, after discovery of loss, the Insured shall give the Underwriter notice thereof.
Id.
Defendants apparently concede that Smith's dishonest and fraudulent acts were committed with the intent to receive financial benefit, and that Smith's acts resulted in financial benefit to him. Defendants, however, have denied recovery under the bond and have moved for summary judgment on the following grounds: 1) the 1990 Lloyd's bond is void ab initio under Mass. Gen. Laws ch. 175, § 186 because Heritage made material misrepresentations in its application; 2) pursuant to the bond's "Cancellation or Termination" provision, the bond "terminated" as to Smith since Heritage learned of many of Smith's dishonest or fraudulent acts prior to the commencement of bond coverage; 3) pursuant to the bond's "Discovery" provision, the losses attributed to Smith are not covered by the bond because the losses were "discovered" before the bond period; and 4) even assuming that the losses were "discovered" during the bond period, Heritage failed to give notice to defendants of the Smith claim within the 30-day time limit required by the bond.
Because the court finds the defendants' first and fourth arguments misrepresentation and failure of notice to be dispositive, it will not be necessary to discuss at any length defendants' other grounds.
A. MISREPRESENTATION
Defendants argue that they are entitled to rescission of the 1990 Lloyd's bond pursuant to Mass. Gen. Laws ch. 175, § 186, because Heritage misrepresented material facts in its 1990 application when it failed to disclose information known to it on the LPO 230A and Supplemental Questionnaire.
*138 Defendants' allegations of misrepresentation can be divided into three distinct claims. First, defendants argue that Heritage withheld critical information about Duarte and Smith in its responses to Question 19(b) (known "occurrences or circumstances" that "might materially affect" the proposal) and Question 19(c) ("irregularities" under investigation or known to the bank). Second, defendants contend that Heritage failed to disclose fully information regarding its "changes in officers" under Question 2(b) in the Supplemental Questionnaire. Finally, defendants submit that Heritage manipulated the termination of its St. Paul coverage in response to Question 19(a) in a deliberate attempt to avoid disclosing to Lloyd's that St. Paul had elected not to renew its bond.
Plaintiff responds to defendants' misrepresentation defense by arguing that Mass. Gen. Laws ch. 175, § 186 is inapplicable to this case, and that, instead, defendants must meet the more onerous burden of establishing the common law elements of fraud. In addition, plaintiff vigorously disputes the suggestion that Heritage falsely answered these questions or (even if it did), that the misinformation was material. Finally, plaintiff asserts that the defendants waived any defense based on Heritage's non-disclosure in 1990 of facts regarding Smith or Duarte because when the defendants were put on notice of this information (in Heritage's 1991 renewal application), defendants apparently ignored it, and thereafter collected premiums and issued the renewal bond.
1. Applicability of Mass. Gen. Laws ch. 175, § 186
The bond provisions at issue in this case form part of an insurance contract made in Massachusetts. Therefore, Massachusetts' law of contracts controls the interpretation of the bond's contractual terms. FDIC v. Insurance Co. of N. Am., 928 F.Supp. 54, 58 (D.Mass.1996).
Because an insurance contract transfers a defined risk from the insured to the insurer for a premium calculated to reflect the nature of the risk, the integrity of this process disintegrates when an insurer is induced by misrepresentations or omissions into accepting a risk it would have otherwise rejected, or accepting a risk on more lenient terms or at a lower premium than it would have if the true facts had been disclosed. See Joseph K. Powers, Pulling the Plug on Fidelity, Crime, and All Risk Coverage: The Availability of Rescission as a Remedy or Defense, 32 Tort & Ins. L.J. 905, 906 (1997). The law of rescission, therefore, operates as a major enforcement tool in regulating the dynamics of the insurance marketplace. Id. at 907.
Massachusetts, like many states, has enacted a statute governing the right of an insurer to rescind contracts of insurance. Mass. Gen. Laws ch. 175, § 186 provides:
No oral or written misrepresentation or warranty made in the negotiation of a policy of insurance by the insured or in his behalf shall be deemed material or defeat or avoid the policy or prevent its attaching unless such misrepresentation or warranty is made with actual intent to deceive, or unless the matter misrepresented or made a warranty increased the risk of loss.
The FDIC contends that § 186 does not govern the 1990 bond at issue here. It relies on Compagnie De Reassurance D'Ile De France v. New England Reins. Corp., 57 F.3d 56, 85 (1st Cir.), cert. denied, 516 U.S. 1109, 116 S.Ct. 564, 133 L.Ed.2d 490 (1995), for the proposition that § 186 allows rescission only where an insurance contract contains a warranty.[16] Here, there was no such warranty.[17] Therefore, plaintiff argues, the *139 provision does not apply, and, as a result, defendants must establish the elements of common law fraud, which include reasonable and justifiable reliance. See id. at 73. Plaintiff argues at great length that defendants cannot show such reliance.
Despite plaintiff's efforts, it is quite apparent that its contention that § 186 is inapplicable to the 1990 bond is founded on a distorted reading of Compagnie.
Compagnie involved alleged misrepresentations made on a "Placing Information," which was circulated to brokers to solicit business from the reinsurance market. The complaint in that case alleged, inter alia, common law fraudulent inducement. Compagnie, 57 F.3d at 61. The party alleging the fraud argued that proof of reliance was not needed, and cited Shapiro v. American Home Assur. Co., 584 F.Supp. 1245 (D.Mass. 1984), Pahigian v. Manufacturers' Life Ins. Co., 349 Mass. 78, 206 N.E.2d 660 (1965), and Davidson v. Massachusetts Cas. Ins. Co., 325 Mass. 115, 89 N.E.2d 201 (1949), in support of its contention. Compagnie, 57 F.3d at 85.
The First Circuit distinguished that line of cases, describing them as "deal[ing] with misrepresentations made on a form application for a policy of insurance, which application was then attached to and became part of the policy." Id. at 85.[18] The court characterized this group as "warranty" cases, and explained that a "warranty," in insurance law, is a "statement, stipulation, or condition which forms part of the contract, whereby the insured contracts as to the existence of certain facts, circumstances, or conditions, the literal truth as to which is essential to the validity of the contract." Id. (quoting 9 George J. Couch, Cyclopedia of Insurance Law § 36:1 (2d ed.1985)). The First Circuit found that the Placing Information in Compagnie was not a warranty, in that it was neither incorporated in, nor attached to, the contracts at issue in that case. Id. The court then added that Shapiro, Pahigian, and Davidson were all decided under Mass. Gen. Laws ch. 175, § 186, a statute "not at issue" in Compagnie and "arguably inapplicable" to the situation there. Id.
The First Circuit concluded from this comparison that the party alleging fraud in Compagnie could not rely on the Shapiro line of case law to argue that it need not prove reliance. Id. ("We, therefore, find no basis in Shapiro for making an exception here to the Massachusetts requirement that a plaintiff seeking recovery in [common law] fraud must prove reliance on the misrepresentations made."). Id. at 85-86.
Contrary to plaintiff's assertions, the court's commentary in Compagnie cannot be read to limit rescission under § 186 to policies containing warranties. Such an interpretation is contrary to both the plain terms of the statute and longstanding case law construing it.
Under common law, warranties, if false or untrue, rendered a policy voidable by the insurer wholly irrespective of the materiality of the statement or promise. Nonantum Inv. Co. v. Maryland Cas. Co., 56 F.2d 329, 332 (1st Cir.1932). On the other hand, false representations could invalidate a policy under common law only if such misrepresentations were material. Shapiro, 584 F.Supp. at 1249 (citing Campbell v. New England Mut. Life Ins. Co., 98 Mass. 381, 395 (1867)).
Mass. Gen. Laws ch. 175, § 186 was enacted to abolish this common law distinction between warranties and misrepresentations, and made a breach of warranty claim no more onerous for the insurer than a false representation. See Nonantum, 56 F.2d at 332; Metropolitan Life Ins. Co. v. Burno, 309 Mass. 7, 11, 33 N.E.2d 519 (1941). In other words, the insurer faces the same burden of proof as to materiality with respect to both breaches of warranty and misrepresentations. Thus, under the statute, the insurer seeking rescission must demonstrate that the *140 "misrepresentation or warranty" made in the negotiation of an insurance contract was material. Mass. Gen. Laws ch. 175, § 186 (emphasis supplied). The insurer can accomplish this (and avoid the policy) by showing either that the misrepresentation or warranty was made "with actual intent to deceive," or that it "increased the risk of loss." Id.
While the statute changed the law with respect to warranties, it merely codified the existing common law principle regarding representations. Burno, 309 Mass. at 11, 33 N.E.2d 519. The statute established that "[m]isstatements of fact, whether the statement is said to be by the parties a warranty or a representation, are equally misrepresentations, and are placed in each case upon the same footing by the statute which applies to them if the statements are called `warranties' by the parties no less than if they are mere `representations.'" Nonantum, 56 F.2d at 332 (quoting White v. Provident Sav. Life Assur. Soc., 163 Mass. 108, 115, 39 N.E. 771 (1895)). In no way did the statute somehow eliminate the remedy of rescission for material misrepresentations, however. Recent case law decided under § 186 confirms that rescission may be based on mere representations given on an application, where such false representations are material. See, e.g., Northwestern Mut. Life Ins. Co. v. Iannacchino, 950 F.Supp. 28 (D.Mass.1997); Protective Life Ins. v. Sullivan, 892 F.Supp. 299, 302 (D.Mass.1995).
Moreover, the statute cannot be read explicitly to require a fidelity bond insurer to incorporate or attach a policy application to the final contract in order to invoke a material misrepresentation defense under § 186; the terms of the statute require only that the misrepresentation be made "in the negotiation of a policy of insurance."[19] In any event, any such implicit requirement of the statute was met, as the LPO 230A application form completed by Heritage contained a declaration that the application and any other information supplied by Heritage "shall form the basis of any contract of insurance effected thereon and shall be incorporated therein." Pl.'s Ex. 30a, at Bates A & A 101248.
Thus, Compagnie cannot be read to restrict § 186 to policies that contain warranties, and plaintiff's efforts to convince the court otherwise are unavailing. Defendants base their defense in this case on alleged misrepresentations made in the negotiation of the 1990 blanket bond a claim that falls squarely within the parameters of Mass. Gen. Laws ch. 175, § 186. As such, defendants need not demonstrate reliance to be entitled to rescission, as long as they can prove that the misrepresentations were material. See Iannacchino, 950 F.Supp. at 31 ("[U]nder Massachusetts law `reliance' is not a prerequisite for proof of invalidation of an insurance policy ...."); cf. Shapiro, 584 F.Supp. at 1250.
Having concluded that the statute governs the 1990 bond, the court must decide whether Heritage's responses on the 1990 application were material misrepresentations.
2. Materiality of the Alleged Misrepresentations
A misrepresentation is "material" if it concerns a fact, "the knowledge or ignorance of which would naturally influence the judgment of the underwriter in making the contract at all, or in estimating the degree and character of the risk, or in fixing the rate of the premium." Employers' Liab. Assurance Corp. v. Vella, 366 Mass. 651, 655, 321 N.E.2d 910 (1975) (quoting Daniels v. Hudson River Fire Ins. Co., 66 Mass. (12 Cush.) 416, 425 (1853)); see also Iannacchino, 950 F.Supp. at 31 (facts are material where disclosure of truth would have influenced judgment of underwriter); Shapiro, 584 F.Supp. at 1249 (material facts include statements that mislead underwriter as to nature of risk or that heighten risk being insured against); Barnstable County Ins. Co. v. Gale, 425 Mass. 126, 128, 680 N.E.2d 42 (1997) (fact is deemed material if it influences premium).
In addition, misrepresentations under § 186 may include the omission or nondisclosure *141 of material information. See Iannacchino, 950 F.Supp. at 30-31; Pahigian, 349 Mass. at 86-87, 206 N.E.2d 660. Although the statute expressly allows rescission for misrepresentations made with actual intent to deceive, the misrepresentation need not be intentional to invalidate a policy, as long as the misrepresented matter increased the risk of loss.
Ordinarily, whether a misstatement is "material," in that it increases the risk of loss, is a question of fact for the jury. McLean Hosp. Corp. v. Lasher, 819 F.Supp. 110, 131 (D.Mass.1993); Shapiro, 584 F.Supp. at 1249; Hanover Ins. Co. v. Leeds, 42 Mass. App.Ct. 54, 57, 674 N.E.2d 1091 (1997). However, when the facts are not in dispute, courts have held that certain misrepresentations increase the risk of loss as a matter of law. Hanover Ins., 42 Mass.App.Ct. at 57, 60, 674 N.E.2d 1091; see also Iannacchino, 950 F.Supp. at 32; Shapiro, 584 F.Supp. at 1249; Pahigian, 349 Mass. at 85, 206 N.E.2d 660.
The court will now turn to the alleged instances of misrepresentation.
a. Questions 19(b) and 19(c)
The first category of alleged misrepresentations involves Heritage's failure to disclose the known conduct of Smith and Duarte in response to Questions 19(b) and 19(c) in the 1990 bond application.
Question 19(b) asked:
Have you any knowledge of, or information concerning any occurrence or circumstance whatsoever, which might materially affect this proposal? If so, you are required to state fully said occurrence or circumstance.
Question 19(c) asked:
Please state in detail, any irregularities in banking or financial operations discovered by, or under investigation by, governmental or banking authorities or known to the Bank during the past 3 years.
Heritage responded "No," and "None," respectively to these questions.
Defendants argue that Heritage's failure to disclose the facts known about Smith and Duarte amounted to material misrepresentation because this concealment prevented defendants from being able to evaluate accurately the risks associated with the fidelity coverage Heritage sought, and, thereby, increased defendants' risk of loss as a matter of law. The court agrees.
At the risk of repetition, the court will briefly restate the facts known to Heritage at the time it completed the August 1990 bond application.
Manuel Duarte
It is undisputed that Heritage terminated Duarte in March 1990 for serious delinquencies in his loan portfolio. After Duarte left the bank, Heritage hired Alfred Dean as a consultant to review Duarte's portfolio. Dean's discoveries prompted him to advise John Fridlington in May 1990 that Duarte had deliberately circumvented loan policy by making loans to third party proxies. Duarte's misconduct was reported to Heritage's Executive Committee in May and June 1990, and the situation was discussed at length at the Audit Committee meeting that July. Plaintiff has conceded that Heritage "discovered" the Duarte fidelity bond losses in April 1990.
Michael Smith
The information known to Heritage with respect to Smith was both more extensive and more ominous. By the time Heritage completed the LPO 230A form in August 1990, it was aware of serious problems involving the Smith loans. In January 1989, it discovered the $900,000 to $1 million over advances given on the Cummington Farms project. An internal audit of Smith's portfolio conducted in February of that year revealed a host of similar over advances and loans made in excess of Smith's lending authority. The 1989 FDIC Examination and the 1989 Peat Marwick letter further confirmed problems with Smith loans, including shockingly poor documentation, as well as numerous violations of banking statutes and regulations. These discoveries led to Smith's (clearly forced) resignation in the summer of 1989.
After Smith left Heritage, the bank's growing concern about Smith's loans, as well as rumors of his properties in New Hampshire *142 and the Virgin Islands, prompted Heritage, in August 1989, to commit $45,000 to Goodwin, Procter & Hoar's confidential investigation of Smith's portfolio. Although GPH verbally reported to the Heritage Board that it had discovered insufficient evidence to require a report to the FDIC or to initiate a bond claim, it could not give complete assurances that no wrongful or criminal activity occurred without committing substantial funds to a broader investigation. While the GPH investigation was unable to locate the alleged properties in Smith's name, Jack Patterson confirmed Smith's interest in the New Hampshire property in early 1990. Patterson also heard several rumors that Smith had acquired two new cars, a boat, a fur coat, and a Rolex watch, possessions that seemed incongruous with his income.
In the spring of 1990, Patterson and Fridlington met with FDIC Examiner Lou Gonzales, and were told that the bank should have filed a Report of Apparent Crime on Smith for having exceeded his lending authority and for his repeated violations of banking policy. Gonzales let Patterson and Fridlington know that he intended to file such a Report himself, which he did in June 1990.
Heritage's unequivocal negative responses in August 1990 to Questions 19(b) and 19(c) failed to disclose the bank's awareness of these circumstances. As a matter of law, these misrepresentations concerned matters that increased the risk of loss to the defendants.
The objective information known to Heritage in August 1990 concerning the egregious misconduct of Smith and Duarte is certainly the kind of information a fidelity insurer would want to consider in estimating the degree and character of the risk involved, and in turn, in fixing the rate of the premium, or in deciding whether to enter into an insurance contract at all. See Shapiro v. American Home Assur. Co., 584 F.Supp. 1245, 1249 (D.Mass.1984).
The obligations of Heritage to disclose what it knew about Smith and Duarte, and the consequences of its failure to do so, were established by the Court of Appeals more than sixty years ago in Nonantum Inv. Co. v. Maryland Cas. Co., 56 F.2d 329 (1st Cir. 1932). In that case, a corporation in the business of loaning money on second mortgages and on construction loans applied for a bond that insured the fidelity of the company's treasurer. One of the questions in the application asked the corporation to disclose any knowledge of any circumstances that might unfavorably affect the risk being insured. The company responded, "No." Nonantum, 56 F.2d at 331. In fact, the company had discovered shortly before completing the application that the treasurer had commingled $17,000 in corporate funds which he had used for his own purposes. Id. at 334.
The First Circuit ruled that the corporation's response on the application was a material misrepresentation, and that under Mass. Gen. Laws ch. 175, § 186, the misrepresentation vitiated the contract because it increased the risk of loss to the insurer as a matter of law. Id. at 335. The fact that the treasurer was engaging in such conduct was "so unreasonable and unusual in the management of corporate affairs" that it must have increased the risk of loss, because it was the sort of activity that often led to the type of losses covered. Id. As such, it was "indicative of a state of affairs which would deter any surety company from entering into [such a fidelity bond arrangement]." Id. The fact that the corporation may not have regarded the information as material was irrelevant: "It is immaterial whether the applicant did or did not actually or knowingly intend to deceive the defendant if as a matter of law the false representations increased the risk of loss." Id.
In this case, Heritage's failure to disclose in its application the highly "irregular" known circumstances surrounding Smith and Duarte obviously and indisputably increased the risk of loss to defendants. No fair argument to the contrary is conceivable. Even if the bank did not consider this information material which is hard to imagine, if the Heritage officers gave the matter any thought at all or did not believe at the time that it amounted technically to an insurable loss under the bond, the deliberate and repeated circumvention of loan policy and regulations *143 by Smith and Duarte was unreasonable and unusual in banking operations, and indicative of a state of affairs at Heritage that would give any underwriter pause before obligating itself to reimburse the bank for fidelity losses. It is important to remember that the bank was hiding damaging information about the very officers whose good faith the defendants were being asked to insure.
In summary, Heritage's failure to disclose (a) the conduct of Duarte and Smith, (b) the bank's internal reviews of both employees' portfolios and its retention of a private law firm to investigate the Smith loans, and (c) the FDIC's Report of Apparent Crime on Smith, increased the risk of loss to defendants, as a matter of law.
Heritage's nondisclosures in this case are "material," not because the information known to it at the time conclusively established a covered loss under the bond, but rather because the nondisclosures increased the risk of loss by depriving defendants of the opportunity to undertake a further investigation, which would have certainly influenced the underwriters in establishing the conditions of the bond and fixing the premium, or in considering the decision to issue the policy at all. See Pahigian v. Manufacturers' Life Ins. Co., 349 Mass. 78, 86, 206 N.E.2d 660 (1965) (failure to give truthful answers deprived insurer of opportunity to undertake further investigation); see also Northwestern Mut. Life Ins. Co. v. Iannacchino, 950 F.Supp. 28, 32 (D.Mass.1997) (nondisclosure rendered insurer unaware of material facts and unable to discover such information through further investigation).
The FDIC cannot argue that Questions 19(b) and 19(c) were overbroad or vague,[20] or that Heritage was not obligated to disclose the Smith and Duarte circumstances because the proposal form did not specifically ask the applicant to list or describe "violations of bank policy" or "regulations relating to loan underwriting" or "Reports of Apparent Crime." Any commonsense interpretation of the questions encompasses the type of objective information known to Heritage in August 1990 concerning the egregious misconduct of Smith and Duarte.
Moreover, plaintiff's claim that defendants waived any defense based on the nondisclosure of the Smith and Duarte circumstances fails. Plaintiff argues that defendants waived their right to a misrepresentation defense when, a year later, Lloyd's issued a renewal bond to Heritage and collected premiums for that bond in spite of the fact that Heritage had disclosed information about the Smith and Duarte situations in the 1991 renewal application.
It is well settled under Massachusetts law that "[w]aiver consists of the insurer's voluntary or intentional relinquishment of a known right." Merrimack Mut. Fire Ins. Co. v. Nonaka, 414 Mass. 187, 189, 606 N.E.2d 904 (1993). Plaintiff has not shown that defendants had "full knowledge" of the circumstances that warranted rescission of the 1990 bond when they issued the 1991 renewal bond, see Niagara Fire Ins. Co. v. Lowell Trucking Corp., 316 Mass. 652, 657, 56 N.E.2d 28 (1944), and, therefore, cannot show that defendants intentionally relinquished a known right or engaged in intentional conduct inconsistent with that right.
In sum, Heritage's nondisclosure of this information in Questions 19(b) and 19(c) resulted in defendants' failure to receive the candid answers necessary for them to evaluate the fidelity risk involved. Pahigian, 349 Mass. at 86, 206 N.E.2d 660. The failure to disclose these facts including the very facts that lie at the heart of plaintiff's present claim for recovery under the fidelity portion of the bond plainly increased the risk of loss to the defendants. As such, defendants are entitled to rescission of the bond.
*144 b. Supplemental Question 2(b)
The second instance of alleged misrepresentation is Heritage's response to Question 2(b) of the Supplemental Questionnaire.
Question 2(b) asked:
Have there been any changes in either Directors or Officers during the last three years? If yes, please attach complete explanation for the changes and resumes of the new Directors and Officers.
Pl.'s Ex. 30b.
Heritage responded by referring defendants to its 1989 Annual Report. That report stated, in the context of a prefatory letter to Heritage's stockholders from President and CEO Richard Covell, that "as part of [the bank's] efforts to restructure and redirect our operations," Heritage had "trimmed down its management structure ... [by] eliminat[ing] sixteen ... positions, including those of seven ... officers." Pl.'s Ex. 83.
Defendants contend that this was an entirely inadequate response to Question 2(b), given that Duarte had been terminated, and Smith had been asked to resign, for their deliberate circumvention of bank lending policies. Plaintiff counters that Heritage's response to Question 2(b) was not false, and that it provided reasons for the changes in officers. Moreover, plaintiff argues, if defendants considered the response insufficient, it was their responsibility to ask follow-up questions.
A sophisticated underwriting entity probably should assume that a corporation's annual report to stockholders is likely to paint as glossy a picture of the business as is fairly supportable. Given this, perhaps it ought not accept a reference to such a report in response to this kind of question. Nonetheless, the court disagrees with plaintiff that the burden of inquiry necessarily shifts to the insurer to ask follow-up questions, especially in a situation such as this, where the insured has provided virtually no indication to the insurer that follow-up questioning is necessary or warranted.[21]
Taken together with the nondisclosures in Questions 19(b) and 19(c), Heritage's failure to provide accurate and complete information explaining the changes in officers in response to Supplemental Question 2(b) worked further to deflect defendants' attention away from the serious known misconduct of Smith and Duarte. In that connection, the bank's response to the question again undermined defendants' accurate appraisal of the risk involved, and therefore increased the risk of loss on the bond.
c. Question 19(a)
The final category of alleged misrepresentation concerns Heritage's response to Question 19(a) of the LPO 230A application form.
Question 19a asked:
Has any proposal for Insurance of this nature been declined by any Insurance Company or Underwriter at Lloyd's, or has any policy been canceled or renewal thereof refused? If so, state reasons.
Heritage responded, "No."
The parties agree that when the application was initially completed on August 1, 1990, St. Paul had not made its final decision regarding its coverage of Heritage. However, Heritage was informed on August 13, 1990 that St. Paul had elected not to renew. Defendants contend that Heritage was aware of St. Paul's decision before the bond took effect on September 1, 1990, and that its failure to update the application with this information amounted to misrepresentation. Moreover, defendants argue that this particular misrepresentation was made with actual intent to deceive defendants, because the various memoranda between Gordon Langan *145 of A & A, and Irene Soucy and Richard Covell of Heritage, reveal that Heritage's "release of liability" arrangement with St. Paul was intended to avoid a "cancellation black mark" on Heritage's record, and allowed the bank to avoid having to disclose on future bond applications that it had been non-renewed or canceled by a previous carrier.
Plaintiff asserts that there was no need to supplement the response and inform the defendants of St. Paul's decision, absent a specific request from defendants. Furthermore, plaintiff avers that defendants already knew that the bond would not be renewed, because they regularly pursued the business of distressed U.S. banks that were domestically uninsurable, and because they were given the same financial information on Heritage that St. Paul had received. Finally, plaintiff maintains that there is no evidence that Heritage deliberately tried to mislead defendants into believing that the St. Paul bond had been or would be renewed, and instead characterizes the "release of liability" arrangement with St. Paul as comparable to a scheme where an employee is permitted to "resign" to avoid later having to disclose that he or she was in fact fired.
Perhaps Heritage's response to Question 19(a) would not, in itself, be sufficient to support a conclusion as a matter of law that defendants are entitled to rescission under § 186. However, viewed in combination with the bank's other acts of concealment, Heritage's response to Question 19(a) is further confirmation that the bank was doing everything it could to keep Lloyd's from having the opportunity to discover the full extent of the risk it was being asked to cover.
In conclusion, the court finds that Heritage withheld information connected to the misconduct of Smith and Duarte by failing to disclose known irregularities in their banking practices in response to Questions 19(b)-(c), and by failing to explain fully the bank's changes in officers in Supplemental Question 2(b). By failing to supplement its response to Question 19(a) Heritage concealed a red flag that might have prompted embarrassing inquiries into areas the bank wished to keep quiet. These misrepresentations were material in that they misled defendants as to the nature of the risk being undertaken, and thereby heightened defendants' risk of loss as a matter of law. As a result, defendants are entitled to rescission of the bond.[22]
B. DISCOVERY
The defendants' misrepresentation defense is dispositive of plaintiff's claim for recovery under the 1990 bond. However, the record also establishes that Heritage provided untimely notice of its claim to defendants. For this reason, the parties' arguments regarding "discovery" warrant brief discussion.
As stated above, the 1990 Lloyds bond only covers loan-related losses that result directly from dishonest or fraudulent acts committed by an employee with the intent to make, and which result in, a financial benefit for the employee. Pl.'s Ex. 65 at 19. In addition, the bond applies only to losses "discovered" by the insured during the bond period. Under the terms of the bond, "discovery" occurs:
when the Insured becomes aware of facts which would cause a reasonable person to assume that a loss covered by the bond has been or will be incurred, even though the exact amount or details of loss may not then be known.
Id. at 13.
The "Notice" provision of the bond states:
At the earliest practicable moment, not to exceed 30 days, after discovery of loss, the Insured shall give the Underwriter notice thereof.
Id.
Heritage provided notice of the Smith losses on August 30, 1991, when Joseph Barbato faxed a letter drafted by Goodwin, Procter & Hoar to Howden in London. Pl.'s Ex. 174. *146 The FDIC argues that this August 30 notice was triggered by Heritage's "discovery" of the Smith losses on August 5, 1991, two years after Smith's forced resignation, when GPH attorney Mark Tully was contacted by FBI Special Agent T.J. Roberts. Therefore, according to plaintiff, Heritage's August 30, 1991 notice fell within the 30-day limit set forth in the bond.
Defendants contend that Heritage learned no new substantive information about Smith from Agent Roberts' phone call and argue that Heritage actually "discovered" the Smith losses well before July 30, 1991, or 30 days before notice was given. Heritage's notice of loss was therefore untimely, barring plaintiff's claim for recovery under the bond.
Notice provisions in fidelity bonds are valid and enforceable. J.I. Corp. v. Federal Ins. Co., 730 F.Supp. 1187, 1189 (D.Mass.), aff'd, 920 F.2d 118 (1st Cir.1990). To deny a claim because of untimely notice, an insurer need not demonstrate actual prejudice resulting from the delay. Id. at 1190. Summary judgment is appropriate on the issue of untimely notice where there is no genuine dispute of fact that is material to determining the date of "discovery" of loss. See FDIC v. Insurance Co. of N. Am., 928 F.Supp. 54, 58 (D.Mass.1996), aff'd on other grounds, 105 F.3d 778 (1st Cir.1997) ("FDIC v. INA"). The court need not consider whether a single event or document alone demonstrates discovery beyond the possibility of genuine dispute; it is sufficient, for purposes of summary judgment, if the only reasonable inference to be drawn from the combination of undisputed historical events is that "discovery" occurred outside the notice period. Id. at 61-62. In this case, defendants are entitled to summary judgment if plaintiff discovered the Smith losses prior to July 30, 1991.
In FDIC v. INA, a case involving virtually identical discovery and notice provisions in a financial institution bond, the court concluded that "discovery" requires the insured to have "awareness of facts that would cause an ordinarily prudent person to `assume' that a loss of some kind had occurred." FDIC v. INA, 928 F.Supp. at 61. While the court in that case assumed, without deciding, that "mere suspicion" of loss is not sufficient to constitute discovery, id. at 60, it held that this assumption no longer holds where the insured has "more than mere suspicion." Id. In other words, "discovery" does occur where suspicion is coupled with an awareness of facts that would cause an ordinarily prudent person, in the face of incomplete information, to choose to act on the assumption that a loss has been or will be incurred. Id.
Plaintiff claims that Heritage did not have "discovery" of the Smith losses prior to August 5, 1991, because until that date it was not aware of facts sufficient to assume that a "loss covered by the bond" had been or would be incurred. Specifically, Heritage claims it did not have sufficient knowledge that Smith had received illicit financial benefits as part of his improper loan activities until that date. Absent such knowledge, argues the FDIC, Heritage had no more than "mere suspicion" that a loss covered by the bond had been, or would be incurred. Plaintiff asserts that the critical knowledge regarding Smith's receipt of illicit financial benefits and therefore "discovery" of the Smith losses was provided to Heritage through FBI Agent Roberts' phone call on August 5, 1991.
For a number of reasons, the court cannot credit plaintiff's proposition that the August 5, 1991 phone call provided the critical missing link in the chain of information about Smith, such that "discovery" first occurred on that date.
First, the discovery provision of the bond does not require the insured to have proof of illicit financial benefit before notice must be given. The insured need only be "aware of facts" sufficient to "cause a reasonable person to assume" that a loss had occurred. Such language cannot be reasonably understood to require the insured to believe with substantial certainty that such loss had occurred. FDIC v. INA, 928 F.Supp. at 60. The court therefore rejects the FDIC's argument that "discovery" cannot be shown without proof that Heritage knew of Smith's receipt of financial benefit. See id.
Second, even assuming arguendo that "discovery" did require actual knowledge *147 of Smith's receipt of financial benefit, the record simply does not support plaintiff's contention that the August 5, 1991 phone call from Agent Roberts provided this information. According to GPH attorney Tully's handwritten notes from the conversation, Agent Roberts explained that he was actively investigating Smith and had been transferred from Boston to work exclusively on the case; the notes do not reflect any discussion of Smith's possible receipt of financial benefits. Pl.'s Ex. AP. Tully's deposition testimony is equally vague. He stated that Roberts could not comment on what he had learned through the grand jury, and "did not give details," yet Tully's "sense" was that Roberts was "indicating" that he had such evidence of financial benefit. Tully Dep. at 164-65. John Fridlington's testimony further erodes plaintiff's position. Fridlington stated that he did not recall Tully telling him prior to Heritage's August 30, 1991 notice that Agent Roberts had provided any information regarding Smith. Fridlington Dep. vol. II at 79. In fact, Fridlington stated that he did not believe that Heritage "had learned specific new information" in August 1991, but that there was "just a continuation of reinforcement of suspicions ... that sort of I think at some point said to us it was a sufficient magnitude of suspicion that we reached that we ought to do something." Id. at 78.
Plaintiff cannot credibly argue, based on this evidence, that Tully's conversation with Agent Roberts provided the critical knowledge that tipped the balance, but that a $45,000 confidential investigation, a Report of Apparent Crime, the November 1990 meeting with FBI Agent Scripture, two grand jury subpoenas, knowledge of extraordinary assets incommensurate with Smith's salary, and a suspicious pattern of missing ownership interests in real estate partnerships involving Smith's friends and customers collectively fell short of "discovery." Plaintiff's position is simply untenable. On the contrary, these pre-August 1991 events represent far more than "mere suspicion." Indeed, if a "smell test" were in order, the smell by late spring 1991 was "rank indeed." FDIC v. INA, 105 F.3d 778, 783 (1st Cir. 1997), aff'g 928 F.Supp. 54 (D.Mass.1996). The only reasonable inference to be drawn from this combination of undisputed historical events is that "discovery" had occurred well before August 1991.
In fact, it seems obvious that the supposed August 5, 1991 date of discovery was merely an ex post facto attempt by Heritage to explain its decision to give notice just two days before the 1990 bond expired and the 1991 renewal bond which contained a loss sustained rider that would have barred recovery for any losses caused by Smith's prior conduct was to take effect.
The plain and unavoidable reality is that the facts known to Heritage by spring 1991, at the latest, were sufficient to lead a reasonable person to assume that a loss caused by Smith's dishonesty (as opposed to a loss caused merely by poor banking practices) had been or would be incurred. As a result, Heritage's notice on August 30, 1991 was untimely.
Because it is not necessary to the court's finding that discovery occurred outside the 30-day notice period, the court need not address defendants' argument that the losses attributed to Smith are not covered by the bond because "discovery" occurred even before the bond took effect. Likewise, the court need not address defendant's separate contention that, pursuant to the bond's "Cancellation or Termination" provision, the bond "terminated" prior to its inception as to Smith when Heritage learned of many of Smith's dishonest or fraudulent acts.[23] The court does not express any opinion as to these two arguments.
IV. CONCLUSION
Counsel for the FDIC has argued, with some force, that it is unfair to permit an insurer to charge an enhanced premium based on a bank's obviously shaky condition, *148 then refuse to cover losses when the institution suffers an unsurprising collapse. Such a "heads-I-win-tails-you-lose" approach would permit the defendants to pocket large premiums with little risk.
This is a compelling argument, but it is indisputably not what occurred here. Instead, the record demonstrates conclusively that Heritage officers made misrepresentations in the policy application, hiding ugly facts they knew regarding one of the prominent causes of the bank's decline: the misconduct and ineptitude of some of the bank officials themselves. It is one thing for an insurer to take on the risk that a competently operated banking institution will be overwhelmed by adverse economic conditions. It is quite another for the officials to conceal their colleagues' misconduct. The misrepresentations made by Heritage in this case significantly, and secretly, increased the risk defendants were covering. Under controlling Massachusetts law this misconduct gave the defendants the right to rescind.
Beyond this, Heritage officers waited until long after any reasonable person would have known that losses under the bond had been or would be incurred before notifying the defendants. The protestation that "discovery" did not occur until the August 5, 1991 phone call with FBI Special Agent Roberts is simply an after-the-fact concoction.
These two conclusions misrepresentation and failure to give timely notification are overwhelmingly supported by the undisputed facts of record. This lengthy saga may be the final chapter in the sad story of the Heritage Bank for Savings.
Defendants' motion for summary judgment will be ALLOWED, and plaintiff's cross motion will be DENIED. A separate order will issue.
ORDER
For the reasons stated in the accompanying Memorandum, defendants' Motion for Summary Judgment is hereby ALLOWED. Plaintiff's cross-motion is hereby DENIED.
NOTES
[1] Where the parties' exhibits overlap, the court has cited to the plaintiff's version of the exhibit. Depositions are referred to by the name of the deponent, regardless of which party submitted the excerpt.
[2] The history of Heritage is taken largely from plaintiff's Exhibit 83 (Heritage's 1989 Annual Report), at Bates A & A 100577.
[3] The Community Savings Bank itself was the product of mergers between Mechanics Savings Bank of Holyoke and Chicopee Falls Savings Bank in 1967, and later, between the resulting Falls Mechanics Savings Bank renamed Community Savings Bank in 1969 and Holyoke Cooperative Bank and Springfield Five Cent Savings Bank in 1971.
[4] According to Fridlington, Heritage's loan policy allowed Smith to lend up to $500,000 without Board of Directors or Loan Committee approval. Loans between $500,000 and $1 million were to be approved by the Senior Loan Committee, which Smith headed at that time. For loans over $1 million, the policy required Executive Committee or Board approval. Fridlington Dep. vol. I at 27-28.
[5] Irving Labovitz was acquitted of all bank fraud charges at a jury trial before this court in October 1997.
[6] Although no mention of the bank employee interviews appears in the November 29, 1989 Board Minutes, the GPH Memorandum itself reveals that these employees generally felt that although Smith was "held in high regard by the Bank," Pl.'s Ex. C at 23, "had a good rapport with customers" id. at 31, and was popularly known as "Mr. Northampton," id. at 26, he nonetheless could be "very forceful and intimidating," id. at 20, "would not hesitate to yell and scream to convince the committee to approve his requested loans," id., "had a big ego," id. at 32, "was very sensitive about his youth," id., and that "if you wanted to advance your career at the Bank, you took orders from Smith ... [H]e could make or break a person's career." Id. at 23.
[7] The actual GPH Memorandum is an internal document dated November 27, 1989, and is addressed to senior GPH attorney Brackett Denniston from attorneys Smith, Tully, and Duffy. Pl.'s Ex. C. Additionally, FDIC Examiner Louis Gonzales testified that when he conducted his 1990 Annual Examination of the bank, he became aware of the GPH investigation through the November 29, 1989 Heritage Board minutes; when he asked if GPH had submitted a written report, he was told that GPH had not. Gonzales Dep. at 79-80.
[8] Fridlington testified that he believed that he and Patterson also informed GPH at that time that Gonzales planned to file the Smith Report of Apparent Crime. Fridlington Dep. vol. II at 51-52. However, Tully of GPH testified in 1994 that he believed he was unaware of the Smith Report of Apparent Crime until November 1990, when he met with Patterson and Fridlington to prepare for an interview with Agent Jim Scripture of the FBI. Tully Dep. at 52-53.
[9] Langan testified that A & A did not inform the bank of the $102,500 initial quote. Langan Dep. at 407-10.
[10] The bond actually was not fully underwritten until September 15, 1990.
[11] The 1990 FDIC Examination Report was not submitted along with other materials in Heritage's 1990 Lloyd's application form, apparently because Heritage had not yet received the final report at that time. Pl.'s Ex. 30b at Bates A & A 101380.
[12] In his 1994 deposition, Tully testified that this November 1990 meeting between Heritage and the FBI was the first time he became aware of the Smith Report of Apparent Crime. Tully Dep. at 52-53. However, Fridlington testified that he believed GPH had been informed earlier of FDIC Examiner Gonzales' intention to file the report. Fridlington Dep. vol. II at 51-52.
[13] Labovitz did not disclose to Patterson and Fridlington at that time that Smith was in fact in V.I. Condo from the beginning and received a risk-free 50% interest in the condo in Smith's wife's name; that Smith got valuable tax deductions; that Pitoniak and Sicard were brought in later to help with the negative carry; and that Smith and Labovitz split the $10,000 paid by Pitoniak and Sicard into the corporation. Defs.' Ex. 68 at 6-10 (Heritage's Proof of Loss Provided to Underwriters 3-16-92).
[14] In the 1990 LPO 230A form, Question 19(c) asked the applicant to describe "irregularities" in banking operations. In the 1991 form, the same question was renumbered 19(b).
[15] Heritage had given notice to Lloyd's of a claim involving Duarte on October 30, 1990. On July 9, 1991, Heritage confirmed that discovery of the Duarte occurrence was in April 1990 under the St. Paul policy, and informed Lloyd's a day later that Lloyd's could close its file. Defs.' Ex. 60. However, Heritage continued to pursue the Duarte claim with St. Paul.
[16] Plaintiff also argues that the parties agreed to limit rescission to instances of intentional misrepresentation. Such (arguably) limiting language appeared at one point in the prefatory language of the bond. The parties agree, however, that the language was deleted in the final bond eventually received by Heritage.
[17] The parties do not dispute that there is no warranty in this case, and agree that Heritage's answers in the 1990 bond application were "representations." The bond language itself provides that "[n]o statement made by or on behalf of the Insured, whether contained in the application or otherwise, shall be deemed to be a warranty of anything except that it is true to the best of the knowledge and belief of the person making the statement." Pl.'s Ex. 65 at 6 ("General Agreement D: Warranty").
[18] Plaintiff ignores the contextual dissimilarity of the misrepresentations at issue in Compagnie. There, the First Circuit acknowledged a categorical distinction between information prepared and proffered in an effort to solicit potential reinsurers, and information provided by an insured on an application form in response to questions posed by the insurer. Compagnie, 57 F.3d at 80, 85. Addressing whether the false representations on the Placing Information provided a basis for a fraud claim, the court noted that "[m]atters would have been different" had defendants "given incomplete, evasive, or incorrect answers to questions asked." Id. at 80.
[19] By contrast, Massachusetts law does require life insurance and endowment insurance policies to attach a correct copy of the application in order for the application to be considered part of the policy. See Mass. Gen. Laws ch. 175, § 131.
[20] For example, plaintiff takes issue with the word "irregularities" in Question 19(c), and submits that, under the broadest sense of that term, Heritage had literally hundreds, if not thousands, of "irregularities" over the three-year period preceding the application. If the inference to be drawn from this argument is that Question 19(c) was so overbroad that Heritage could not possibly have listed all such "irregularities" in the application, Heritage's unequivocal response of "none" to Question 19(c) hardly supplies a truthful solution to the dilemma. In any event, this argument is specious. The misconduct of Smith and Duarte was "irregular" by any definition.
[21] Plaintiff cannot defend Heritage's incomplete response to Question 2(b) by pointing to other information provided in its application package that alluded to the fact that Heritage's losses lay largely in non-performing commercial loans, and that the "senior vice president of commercial lending" controlled a disproportionate share of the commercial loan portfolio. Plaintiff cannot credibly argue that this scattered information was either responsive to the question posed or that it put defendants on notice to ask whether the senior vice president mentioned was also one of the seven officers eliminated.
[22] Heritage's material misrepresentations on the 1990 bond application rendered the bond void ab initio. Although the issue does not appear in the parties' memoranda, plaintiff may be entitled to a return of the premiums. See Nonantum Inv. Co. v. Maryland Cas. Co., 56 F.2d 329, 330 (1st Cir.1932); Joseph K. Powers, Pulling the Plug on Fidelity, Crime and All Risk Coverage, 32 Tort & Ins. L.J. 905, 934 (1997).
[23] Section 12(d) of the bond's "Cancelation or Termination" provision holds: "This bond shall be deemed terminated as to any Employee ... as soon as any Insured ... shall learn of any dishonest or fraudulent act committed by such person at any time against the insured or any other person or entity...." Pl.'s Ex. 65 at 30. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2573280/ | 422 F. Supp. 2d 627 (2002)
Michael B. HAMBRICK, an infant who sues by and through his father and next friend, Carson HAMBRICK, Plaintiff,
v.
KEN-BAR MANUFACTURING COMPANY, Defendant.
No. CIV.A. 7:01CV00177.
United States District Court, W.D. Virginia, Roanoke Division.
February 28, 2002.
*628 *629 Gordon Hoffman Shapiro, Shapiro & Kurtin, Roanoke, VA, Jonathan Seth Kurtin, for plaintiff.
Melissa Walker Robinson, Victor S. Skaff, III, Gentry, Locke, Rakes & Moore, Roanoke, VA, for defendant.
MEMORANDUM OPINION
KISER, Senior District Judge.
Before me is the defendant's Motion for Summary Judgment filed January 11, 2002.
Plaintiff Michael Hambrick ("Hambrick") filed a complaint on March 13, 2001, alleging breach of implied warranty of fitness for intended purposes, negligent product design, and negligent manufacture by defendant Ken-Bar Manufacturing Company ("Ken-Bar"), a manufacturer and seller of go-karts and "fun karts" headquartered in Georgia. Hambrick alleges that design and manufacturing defects in the Ken-Bar Model D-680 "Streaker" fun kart caused him permanent physical injuries on July 31, 1998, after he overturned the cart in which he was driving.
The parties fully briefed the issues and were heard in oral argument, making this matter ripe for disposition. For the reasons set forth herein, the defendant's Motion for Summary Judgment is DENIED.
I. BACKGROUND
Facts and Procedural History
Viewed in the light most favorable to the plaintiff, the facts are as follows: On July 31, 1998, plaintiff Hambrick was riding in a *630 Model D-680 "Streaker" go-kart or "fun-kart" manufactured by Ken-Bar Manufacturing Co. of Cornelia, Georgia.[1] The two-seater cart, which is powered by an 11 horsepower internal combustion engine, is just under seven feet in length, is 59 inches in height, and weighs 510 pounds. See Defendants' Motion for Summary Judgment ("Def."), Ex. G (Ken-Bar product brochure), p. 7 (color photograph and specifications of D-680). As standard equipment, the cart, which does not have a roof, includes a "brush bar," a tubular construction over the driver's seat that looks like a roll cage, but is designed only to "deflect loose vegetation from the path of the fun-kart operator and passenger, if any (on two-seat karts)." Id.; ASTM Safety Std., 1. It is not known whether consumers are provided with any warnings or instructions concerning the brush bar, or whether Hambrick assumed any particular purpose for the bar.
The particular sections of shaped steel tube that form the brush bar are connected together by U-bolts and brackets or flanges placed at several junctures, including two places on a cross bar just a few inches above and behind the heads of the driver and any passenger. See Def., Ex. E (color photograph of actual cart, with U-bolt exposed). Other cart manufacturers may use welded tube joints or sleeved connections that are bolted in such a manner that no bolt pieces project from the tubes. Plaintiffs Memorandum of Law in Opposition to Summary Judgment ("Pl."), Affidavit of David Kassekert, P.E. ("Kassekert Aff."), 3. However, the parties do not know of any government or industry standard specifying that the tubes be joined in any particular way. Def., Ex. C (Deposition of David Kassekert ("Kassekert Dep")), Tr. at 35; Def. at 6. On a new Ken-Bar cart, the U-bolts and brackets are covered by open-cell foam rubber. Def., Ex. G; Pl.Ex., David Kassekert, Engineer's Report (Forensic Engineering Services, Inc., November 8, 2001) ("Kassekert Rpt."), 4. The plaintiff's expert opines that "this type of padding is susceptible to damage from contact with other objects." Id. He claims that since 1995 there has existed a specification for roll cage padding requiring the padding to be covered with vinyl. Kassekert Dep., 34-35 (citing SFI Foundation, Inc., Quality Assurance Specification 12); Kassekert Rpt., 4.[2] The cart driven by Hambrick was approximately one-year-old, and had already lost some of the foam covering the U-bolt and flange over the passenger side of the cart. Def., Ex. E. If, as the defendants claim, the cart in which Hambrick was allegedly injured was sold with an optional seat belt, the particular purchaser of this cart did not buy one.
On July 31, 1998, Hambrick, then 14, was riding as a passenger in the cart, which was owned and driven by a member of his church youth group. Def., Ex. A (Deposition of Michael B. Hambrick ("Hambrick")), Tr. at 13-15. The youths were driving the cart on a flat, dirt path approximately eight or nine feet wide, with no memorable potholes, washouts, or obstructions. *631 Hambrick, 15-19. Hambrick had ridden in the cart once before. Hambrick, 22. He says he didn't notice any padding missing from the brush bars or any protruding bolts before he got into the cart, though he wasn't looking for any at the time. Hambrick, 26. He also doesn't remember how the cart he was riding in flipped over, how many times it rolled, or when he was thrown out of the cart, though he remembers the accident happened on a flat, dirt section, at the end of the path where the boys had to turn around, and that the cart rolled to its right side "very quickly." Hambrick, 20,28,34-35. He denies that the youths had adjusted the speed of the go-cart's governor, drove too fast, attempted to "make doughnuts," leaned out, or did anything else unusual to increase the chances of overturning. Hambrick 30-34. At some time during the accident, he punctured his forearm, sustaining permanent injury. When exactly this happened in the course of the accident, he can't recall, but he does state that afterward he found pieces of his own flesh on the exposed U-bolt and flange, and that there was no other sharp objects on the path which could have caused his injury. Hambrick, 37-43 and Dep. Ex. 6 (photograph with area circled where flesh was found). Hambrick does remember that when the cart began to tip he tried to hold himself in by putting his arms up to the supports above his head and pressing his palms against the undersides of the brush bars. Hambrick, 56-59.
Plaintiff's expert Kassekert asserts that the fun-kart was designed for off-road operation, and that it was foreseeable that the cart could "trip" and roll over. He asserts the following design defects: (1) the lack of passenger restraints sufficient to keep the occupants inside a protected area of the cart during roll over; (2) the construction of the brush bar, which, allows exposed U-bolts and flanges to come into contact with passengers during roll overs; (3) the proximity of the brush bar to the passengers, which allows portions of occupants' bodies to contact it during roll overs; and (4) the lack of covered padding over the brush bar connections, which makes the padding susceptible to damage during operation and makes occupants susceptible to injury from coming into contact with the exposed brush bar. Kassekert Rpt., 5. To the defendant's assertions that the cart was not maintained in a proper mechanical condition, Kassekert responds that the roll over itself could have caused a number of the conditions observed. At any rate, argues Kassekert, Hambrick's injuries would not have been caused by these conditions. See Def., Ex. F (Wally A. James Letter of October 2, 2000 ("James Rpt.")), p. 2 (listing conditions in need of repair which would not have existed at time of manufacture); Kassekert Rpt., 3-4.
Because there appears to be no published government or industry standard against which the defendant's design can be judged, the plaintiff has produced evidence that most consumers would consider the protruding U-bolt threads and flange to be unreasonably dangerous. See PI.Ex. (Affidavit of Julie Edell, Ph.D ("Edell Aff.")); Def. Ex. D (Deposition of Julie Edell ("Edell Dep.")). To this end, the plaintiff employed a polling firm to survey 100 shoppers at malls in Charlottesville and Lynchburg. See Edell Dep., Ex. 1-3 (questionnaire and tabulations). No representatives of the polling firm were deposed by the defendant; however, the plaintiff asserts the consumers selected to participate were not selected based upon interest in, experience with, or knowledge of, fun-karts. "They were simply people over the age of 14, who might have previously purchased a fun cart, might purchase one at some time in the future, [or] might never purchase, drive or ride in a fun-kart." Edell Aff., 3. The survey asked various *632 questions concerning the features on the fun-kart already described, including consumers' expectations that these features would protect them from various injuries. Edell, an associate professor at Duke who has taught and wrote on survey research methodology, analyzed the results. Of particular importance to her conclusion that most consumers would consider the cart's U-bolt and flange to be unreasonably dangerous were answers to two of the survey's 26 questions, which asked:
23. If the cart design included sharp edges or pointed objects that could injure an occupants, would you consider this an unreasonable design defect?
26. (Pointing at flange) Is this an unreasonable design defect?
Edell Aff., 3 (quoting Edell Dep. Ex. A (survey questions)). According to the survey, 64% of participants who had previously driven a go-cart answered "Yes" to Question # 26. Sixty-six percent of those who had never driven a go-cart also answered yes to the same question. Id. Apparently, 87 % of all participants also answered "Yes" to Question # 23. Edell Dep. Ex. B (survey with totals noted), Ex. C (raw data tabulations).
Edell has also testified to the statistical validity of her assessment. Edell reports that she did not find the above two questions "inappropriate, biased, or misleading." Edell Aff., 3. Against separate criticism that she has no experience in mechanical design or go-carts, she considers such experience irrelevant to her particular task as a surveyor, which was only to determine consumer expectations. According to Edell, "the methods used do not vary based upon the topic being surveyed." Id. (quoting Alreck and Settle, The, Survey Research Handbook (1985)). In previous litigation for which Edell has been employed, she has, for instance, derived a community standard of obscenity in a federal pornography prosecution, and assessed the reasons why consumers drink malt liquor instead of beer for a Department of Justice antitrust suit. Yet "[i]t was not necessary to be a pornography expert to design or assess the validity of the survey research. . . . Industry knowledge has never been a prerequisite for my work as a survey research expert, because the methods and techniques used to assess the research are not dependant upon the topic under investigation." Edell Aff., 2. To the defendant's strenuous objections that Edell played no part in drafting or asking the survey questions, and that she in fact knows very little if anything about the polling firm or how the questions were administered, Edell testifies that such a division of labor and information between surveyor and analyst is critical to the validity of the results, and in fact is customary in survey research. Edell Aff., 2. Says Edell:
If I had actually written and administered the questionnaire, I would not be able to give an unbiased assessment of the validity of the research, since I would have my professional reputation at stake in the conduct of the research. As with peer review in the academic journal publication process, we take the word of the person conducting the research as to whether the questions on the survey were the questions to which the responses were given, and the data that is reported are the actual responses given by the respondents.
Id.
II STANDARD OF JUDGMENT
A. Summary Judgment
Summary judgment is appropriate only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material *633 fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The existence of an alleged factual dispute between the parties will not defeat a properly supported motion for summary judgment, unless the disputed fact is one that might affect the outcome of the litigation. Hooven-Lewis v. Caldera, 249 F.3d 259, 265 (4th Cir.2001). Mere speculation by the non-movant cannot create a genuine issue of material fact. Cox v. County of Prince William, 249 F.3d 295, 299 (4th Cir.2001). A material fact is one whose existence or non-existence could result in a different jury verdict. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). Any permissible inferences to be drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). However, such inferences must "fall within the range of reasonable probability and not be so tenuous as to amount to speculation or conjecture." Thompson Everett, Inc. v. National Cable Advert., L.P., 57 F.3d 1317, 1323 (4th Cir.1995). The function of the judge at the summary judgment stage is not to determine the truth of a matter or to weigh credibility but to determine whether there is any genuine issue of fact that can only properly be resolved by a finder of fact because it could reasonably be resolved in favor of either party. JKC Holding Co., LLC v. Washington Sports Ventures, Inc., 264 F.3d 459, 465 (4th Cir.2001) (citing Anderson, 477 U.S. at 250, 106 S. Ct. at 2505).
B. Admissibility of Expert Opinions[3]
"If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case." Fed.R.Evid. 702. When faced with a proffer of expert scientific testimony, a trial court must make "a preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and of whether that reasoning or methodology properly can be applied to the fact at issue." Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 592-593, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993). The most relevant factor is: (1) whether the method is in fact scientific, i.e., capable of empirical verification ("a key question"). Contributing factors include: (2) whether the method has been subject to peer review or publication; (3) known or potential rate of error; and (4) general acceptance within the scientific community. 509 U.S. at 593-594, 113 S. Ct. 2786. Even when an expert is eminently qualified to opine on an issue, the expert must still actually apply a reliable methodology to the facts, drawing upon his specialized knowledge by testing the product or referring to expert literature, in order for his proffer to be admissible. Oglesby v. General Motors Corp., 190 F.3d 244, 247-251 (4th Cir.1999) (where qualified expert merely looked at *634 broken pipe connection, took physical measurements, and photographed the item, his opinion why it broke was "mere speculation and conjecture," therefore inadmissible, where he did not know how the particular part was manufactured, or of what material it was made, and he performed no tests or calculations). See also Kumho Tire Co. v. Carmichael, 526 U.S. 137, 119 S. Ct. 1167, 1171-1173, 143 L. Ed. 2d 238 (1999) (where well-experienced expert merely employed syllogistic reasoning to determine that a blown out tire was defective, starting from the premises that a properly manufactured blown out tire stays on its rim, and the tire in his case didn't, his methodology of simply relying upon a visual inspection and experience was unreliable). However, "at bottom, the court's evaluation is always a flexible one, and the court's conclusions necessarily amount to an exercise of broad discretion guided by the overarching criteria of relevance and reliability." Oglesby, 190 F.3d at 250.
III DISCUSSION
The parties agree that Virginia law governs the present dispute. Under Virginia law, plaintiffs asserting negligent design and manufacture claims must make a threshold showing that: (1) an unreasonably dangerous condition (2) existed when the goods left the defendants' hands, and that (3) the product was not substantially changed after time of sale. Logan v. Montgomery Ward & Co., 216 Va. 425, 219 S.E.2d 685, 687 (1975); Bly v. Otis Elevator Co., 713 F.2d 1040, 1043 n. 2 (4th Cir.1983). The plaintiff must also (4) demonstrate with "reasonable certainty" that the defect caused the plaintiff's injuries. Stokes v. L. Geismar, S.A., 815 F. Supp. 904, 907 (E.D.Va.1993).
"In determining what constitutes an unreasonably dangerous defect, a court will consider safety standards promulgated by the government or the relevant industry, as well as the reasonable expectations of consumers." Alevromagiros v. Hechinger Co. 993 F.2d 417, 420-421 (4th Cir.1993) (citing Sexton v. Bell Helmets, Inc., 926 F.2d 331, 337 (4th Cir.), cert. denied, 502 U.S. 820, 112 S. Ct. 79, 116 L. Ed. 2d 52 (1991)). The Fourth Circuit in Alevromagiros and Sexton both recognized that the reasonable expectations of consumers may provide the sole criteria for unreasonable danger. "[A]n examination of societal standards at any given point in time usually reveals an expectation that balances known risks and dangers against the feasibility and practicability of applying any given technology." Sexton, 926 F.2d at 337. Consumer expectations, which may differ from government or industry standards, "may be proved from evidence of actual industry practices, knowledge at the time of other injuries, knowledge of dangers, the existence of published literature, and from direct evidence of what reasonable purchasers considered defective at the time." Id. Nonetheless, an individual's subjective expectations are insufficient to establish what degree of protection society expects from a product. See Redman v. John D. Brush and Co., 111 F.3d 1174, 1181 (4th Cir.1997) (distributor's testimony that based upon a safe's advertisement, warranty, and appearance, he expected it would protect valuables better was insufficient by itself to establish reasonable consumer expectations).
Under certain circumstances, an unreasonable dangerous product that causes injury will not subject a manufacturer to liability. The Fourth Circuit has held that "an open and obvious lack of safety features does not constitute an actionable defect." Higgins v. American Honda Motor Co., Inc., 974 F.2d 1331, 1992 WL 212147, *4 (4th Cir.1992) (unpublished) (citing Shaffer v. AMF, Inc., 842 F.2d 893 (6th *635 Cir.1988); Pressley v. Sears-Roebuck & Co., 738 F.2d 1222, 1223 (11th Cir.1984); Toney v. Kawasaki Heavy Indus., 763 F. Supp. 1356 (S.D.Miss.1991)). A risk is open and obvious "if the person using the product is or should be aware of the risk." Austin v. Clark Equip. Co., 48 F.3d 833, 836 (4th Cir.1995). For instance, "Courts have found the lack of safety features on motorcycles and the incident risk of bodily harm to be `patent beyond cavil.'" Higgins, 1992 WL 212147 at *4 (quoting Nicholson v. Yamaha Motor Co., 80 Md.App. 695, 566 A.2d 135, 147 (1989), cert. denied, 318 Md. 683, 569 A.2d 1242 (1990)). In Higgins, the Fourth Circuit applied this rule to a three-wheeled ATV which obviously had no rollover protection. The court held that the risk of bodily injury from striking horizontal wires while riding the ATV was "open and obvious" enough to constitute a risk that the operator assumed whenever he rode the vehicle. Id.
In other instances, "[w]hen a customer exercises an option to purchase a product without a safety feature, it is axiomatic that the manufacturer should not be held liable for damages which that safety feature may have prevented." Austin, 48 F.3d at 837 (applied to forklifts without audible or visual backup warnings) (quoting Butler v. Navistar Int'l Transp. Corp., 809 F. Supp. 1202, 1209 (W.D.Va.1991) (applied to farm tractor without a rollover protection system)). Although this axiom seems to apply narrowly to situations in which the lack of such an option creates an open and obvious danger, or where, as in Butler, "the customer chooses to delete the safety feature so the product can be put to some use that the feature would have prevented," 809 F. Supp. at 1209, the plaintiffs in this case do not attempt to limit its applicability. Instead, they argue that the rule simply does not apply to the facts of this case.
With the exception of Austin and Butler, the parties do not dispute the applicable precedents. The defendants claim that there is insufficient evidence to raise a genuine issue of material fact concerning the cause of Hambrick's injury. They claim that, as a matter of law, Ken-Bar may not be held liable due to the open and obvious nature of the risk of accident posed to the fun-kart's lack of a rollover protection system, the lack of a seatbelt, and the visibly protruding U-bolt and flange. Ken-Bar argues that, under Butler and Austin, the purchaser's failure to buy the seatbelt alone absolves the manufacturer of liability. On the issues of causation and unreasonable danger, for which there are obviously disputed issues of material fact, the defendants challenge the admissibility of Hambrick's expert opinions under Daubert.
A. Plaintiff's expert David Kassekert, P.E., is qualified to testify in the form of an opinion that will assist the trier of fact to understand the evidence, and his method and application are is sufficiently reliable under Daubert and Oglesby.
Kassekert's qualifications and relevant experience in motor vehicle design and safety are significant. See Kassekert Report, end pages (including curriculum vita and list of previous testimony). He has earned a master's degree in mechanical engineering from Purdue and completed a postgraduate program in automotive engineering at the Chrysler Institute of Engineering. He is registered as a Professional Engineer in Pennsylvania and Ohio. For approximately twenty years after he earned his postgraduate degree, he worked as an engineer for Chrysler, B & M Industries, Westinghouse and others, designing engine and drive train components. His work has also included providing engineering support for corporately *636 sponsored drag racers, NASCAR racers, and other sports car racing, in which his duties included the design and supervision of construction on roll bars, roll cages, driver restraints, and other safety systems. Kassekert Aff., 1. He also reports that he has designed, constructed and operated numerous personal racing and hobby vehicles over a period of thirty years. Kassekert Aff., 2. From 1994 through the present, he has attended the Society of Automotive Engineers' annual accident reconstruction and automotive safety seminars. Kassekert Rpt., 12. He has given trial and deposition testimony in approximately 50 cases since 1996, approximately five of these having to do with fun carts or go carts. Def., 8. Against this background, Ken-Bar's criticism that Kassekert has never worked in the fun cart industry, and is not familiar with fun kart organizations, might be applied to the weight of his expert testimony in the present case, but it is not disqualifying.
Kassekert's particular opinions are the result of reliable application of valid methodology or literature to the facts of the case. His opinion that rollover was foreseeable for this fun-kart, despite its low center of gravity, is backed by research showing that all vehicles can "trip" (slide sideways until the force of friction on the tires builds up to tip the vehicle). Pl.Ex. (Cooperrider, et al.) Testing and Analysis of Vehicle Rollover Behavior (Failure Analysis Associates, Inc., no date given) (surveying research on trip models); Meyer, et al., Accident Reconstruction of Rollovers-A Methodology" (S.A.E.2001) (explaining methodology by which tripping rollover can be determined at accident scenes)). He supports his contention that ejection was foreseeable with Consumer Product Safety Commission Statistics showing that between 22-35% of the 125,900 go-kart injuries reported between 1985 and 1996 were due to ejections or rollovers. Kassekert Report, 2. Kassekert inspected the subject vehicle himself, and compared it to the construction used in other vehicles in the field in order to render an opinion on feasible alternate designs. His experience in the racing industry qualifies him to opine that the brush bar surrounding the cart's occupants looked like, but was not, a functioning roll cage, an opinion which Ken-Bar does not really dispute anyway. Kassekert's experience also qualifies him to state, in general, what kinds of features would be necessary in order to equip this fun kart with a rollover prevention system that did not allow the occupant to be ejected or to come into contact with sharp objects on the frame of the cage. In general, I find his conclusions to be empirically verifiable, subject to peer review, and generally accepted within the engineering community. Though he presumably could have done more to verify the plausibility of his opinions, e.g., with product testing, modeling, or more research of practices and literature within the fun-kart industry, that is a matter of weight for the defendants to attack on cross-examination, but does not preclude admission under Daubert and Oglesby.
B. The physical cause of Hambrick's injuries is a genuinely disputed issue of material fact, if not conceded.
The defendants claim that Hambrick can only be speculating as to whether the U-bolt and flange joint on the fun kart's brush bar punctured his arm. They argue that not only were there no eyewitnesses to the moment of injury (including Hambrick himself, who can't remember it); Hambrick may not even have been in the cart when the injury happened. "Viewed in a light most favorable to the plaintiff, all that is known is that his arm at some point came in contact with a flange located at the top of the brush bar of the go-kart and illustrated in the photographs marked as *637 `Exhibit E.'" Def., 3. This argument fails to appreciate the plaintiff's theory of the case. According to that theory, it does not really matter whether Hambrick was still within the brush bar assembly when his arm impacted the U-bolt. According to Kassekert, only negligently inadequate restraints allowed Hambrick to be thrown from the cart, given the foreseeability of rollover and ejection in the absence of sufficient restraints. If his injury occurred after ejection, the injury was due to the combination of the dangerously protruding joint and the lack of restraints. If the injury occurred before ejection, it was caused by the dangerous proximity of the U-bolt and flange to the occupant's body.
C. Given the facts as developed to this point, the purchaser's purported failure to buy a seatbelt for the funkart does not absolve Ken-Bar from liability.
The plaintiff's theory of the case is that a seatbelt would not have prevented the injury, no matter how it actually occurred. If the injury occurred while Hambrick was still seated within the vehicle, the design cause of the accident was the proximity of the dangerously protruding U-bolt and flange to the occupant's body, and the issue concerning the seatbelt is moot. Furthermore, "[i]t is also necessary to design the roll cage large enough so that all parts of the restrained occupants remain inside the protected area. The cage on this kart is not large enough to protect the occupants in this fashion." Kassekert Rpt., 4. Even if a seatbelt would have kept Hambrick attached to the seat, it would still have allowed his arms to fly up and contact the U-bolt. The possibility that Hambrick was ejected before he contacted the U-bolt is also irrelevant. If some other joint besides a U-bolt and flange had been used to construct the brush bar, or if a vinyl-coated padding had covered the U-bolt and flange, the accident would not have caused puncture and permanent injury. Kassekert Rpt., at 4-5. Unlike the declined options in Austin and Butler, a seatbelt would not have saved Hambrick.
D. There is a genuine issue of fact whether the cart's defects were open and obvious.
In the defendant's view, the open and obvious risks which Hambrick ignored were: (1) the cart's lack of a rollover protection system, (2) the U-bolt and flange construction, and (3) the lack of a seatbelt. The first is just not obvious. To the untrained eye, there appears to be no difference between the tubular construction surrounding the cockpit of this vehicle and a "roll cage," the latter offering some protection to occupants upon rollover. The term "brush bar" is a term of art not known to the general public. "To an uninformed individual, it resembles a roll cage." Kassekert Rpt., 4. Hambrick himself apparently thought the brush bar assembly was a roll cage, stating in deposition that the difference between the D-680 and the go-carts he had driven at elsewhere is that the D-680 "has a bigger roll cage." Hambrick at 53:18-24. Nowhere does he state that he received any warning to the contrary.
Similarly, I do not find the U-bolt and flange construction and placement to present an open and obvious risk of puncture. Hambrick stated in deposition that, prior to getting into the cart, he took no notice of it at all. Hambrick does not know whether the offending joint at issue was exposed as it appears in the photograph at Ex. E before the accident. Even if it was, I find it hard to believe that the risk it posed is anywhere near as obvious as the risk of injury posed by rollover of an openmount motorcycle, ATV, or tractor. At the very least, the obviousness of this risk is a jury issue.
*638 Finally, Hambrick may be said to have assumed a risk by riding in a vehicle without a seatbelt. However, that risk was one of head injury or ejection, not puncture by a component of the vehicle which was situated behind the occupant. For reasons already stated, if the plaintiff's expert is correct, the lack of a seatbelt was not the proximate cause of Hambrick's particular injury. Thus, Austin and Higgins simply would not apply to the facts of this case.
E. Plaintiff's expert Julie Edell, is qualified to testify in the form of an opinion that will assist the trier of fact to understand the evidence, and her testimony at this point must be deemed sufficiently reliable under Daubert and Oglesby.
Edell has been offered as an expert on survey research-particularly on the analysis of survey results. Edell Aff., 1. Survey research is used to assess people's perceptions and opinions on a variety of topics. Edell Aff., 2. In this case, Edell interprets survey results conducted by plaintiff's pollster to express reasonable consumer expectations concerning funkarts and the particular features on the 680 cart. She also expresses an opinion concerning the validity of the survey itself, but only to the limited extent that she does not find crucial questions to be biased or misleading. Edell Aff., 3. Edell's representations concerning her background are not disputed. She has been trained in survey research methodology in the Ph.D program she completed at Carnegie-Mellon, and has taught research methods to MBA and Ph.D students at Duke. She has also co-authored a publication entitled, "Criteria for Assessing Empirical Research on the Effects of Marketing Communications," published in Bloom and Grundlach, Handbook of Marketing and Society (2001). The article provides a checklist of criteria used to assist survey research. Her expertise involves: (1) knowing how to assess whether a survey is of a sufficient size to support generalized conclusions; (2) knowing how to determine whether a sample of people is representative of the population; and (3) knowing proper techniques for analyzing whether different subsets of consumers have different perceptions or opinions. Edell Aff., 1. She has worked as an expert for the U.S. Justice Department in criminal and civil cases, as well as for law firms conducting litigation in federal courts. Edell Aff., 2.
Significant to Ken-Bar's Daubert challenge is the fact that Edell also offers testimony concerning the reliability and acceptance of her methodology. This testimony is the only such evidence before me on the subject. Responding to Ken-Bar's challenge that Edell is largely ignorant concerning how the plaintiff's survey was conducted, and has had negligible conduct with the polling firm, Edell testifies that this is standard practice in survey research, and is even required in order to preserve the validity of her analysis. Edell Aff., 2-3. The defendants may have persuasively pointed out Edell's ignorance concerning the authorship and conduct of the survey. However, this ignorance is justified by Edell, citing authority on the issue, and her justification is not controverted with authority by the defendants. Given that Edell's cited authorities on the issue have been published, presumably after peer review, and seem to espouse accepted method taught to university postgraduates, I find it sufficiently reliable to warrant admission of her testimony under Daubert.
While Ken-Bar argues correctly that the survey itself could have been conducted in any number of misleading ways, that does not appear to have been Edell's concern or responsibility, beyond her review of the questions and sample groups. Ken-Bar *639 had ample opportunity to discover how the survey was conducted, to depose pollsters and participants, and to offer expert testimony concerning the survey's validity. Ken-Bar chose to leave the record silent on the subject. Edell has testified that the working presumption in survey research is to accept the results of a survey as accurate representations of participants' responses. Edell Aff., 2. With no expert rebuttal evidence yet on record, I find it appropriate to honor that presumption.
The defendants have also challenged the admissibility of the survey results as hearsay. This argument fails to inhibit Edell's testimony for two reasons. First, Fed.R.Evid. 703 clearly states that "the facts and data [relied upon by an expert] need not be admissible in evidence in order for the opinion or inference to be admitted," as long as the data is "of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject." Even if particular data is otherwise inadmissible under the Federal Rules, a trial court may still admit them into evidence if "the court determines that their probative value in assisting the jury to evaluate the expert's opinion substantially outweighs their prejudicial effect." Id. See, e.g., The Learning Network, Inc. v. Discovery Communications, Inc., 153 F. Supp. 2d 785, 789 (D.Md. 2001) ("[t]he question here presented is whether the asserted defects in the Ostberg survey are so great as to warrant exclusion rather than grist for the mill of cross-examination, rebuttal evidence, and jury evaluation."). It almost goes without saying that survey researchers must rely upon surveys in order to render opinions. In this case, the survey's probative value is essential for understanding and evaluating Edell's opinion. Furthermore, any unfairly prejudicial effect this survey poses to the defendants can be cured by the opportunity to question the pollsters and participants at trial, and to present expert testimony in rebuttal.
Secondly, the objection ignores the fact that courts routinely admit surveys for various purposes. See, e.g., Glover v. Ampak, Inc., 74 F.3d 57, 59 (4th Cir.1996) (evidence of genericness in trademark case may come from consumer surveys); Cable News Network L.P., L.L.L.P. v. CNNews. com 177 F. Supp. 2d 506 (E.D.Va.2001) (actual economic harm in a trademark dilution case may be demonstrated by a consumer survey designed to demonstrate that consumers or customers in a relevant market mentally associate the offending name with the famous mark, and to determine further consumer impressions from which actual harm and cause might be inferred) (citing Ringling Bros. Barnum & Bailey Combined Shows, Inc. v. Utah Div. of Travel Dev., 170 F.3d 449, 452 (4th Cir.1999)); Alston v. Virginia High School League, Inc., 144 F. Supp. 2d 526, 539-540 (W.D.Va.1999) (survey conducted on behalf of defendant was admissible over hearsay objection in Title IX suit based on allegedly discriminatory scheduling of girls' sports for the purpose of establishing how girls felt about the scheduling of girls' and boys' sports; furthermore, survey results were admissible on ground that they formed the basis of expert testimony) (citing Fed.R.Evid. 703, 803(3)). Until the defendants offer some showing of the inherent unreliability of the survey, the survey can be admitted, if only because it forms the basis of Edell's testimony[4].
*640 Finally, Edell's testimony satisfies Oglesby in that it appears to apply a valid method to test results concerning a factual issue in this case. Edell's opinion concerning consumer expectations is not based upon her own impressions of the fun-kart, but upon the impressions of the surveyed consumers, the number of which she considers to be valid to reflect the expectations of society at large. Therefore, her opinion testimony is admissible, and raises a genuine issue of material fact concerning the unreasonable dangerousness of the 680 fun kart.
IV CONCLUSION
For the foregoing reasons, the defendants having failed, on the record as developed to date, "to show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law," the motion for summary judgment is DENIED.
An appropriate Order shall issue.
NOTES
[1] "Go-cart" is apparently not a commercial term of art. "Fun-kart" is defined in the industry as a gas powered motorized vehicle with four wheels sold commercially as consumer goods and intended for private personal recreation by consumers for off-road use on suitable terrain, as recommended by the manufacturer, at speeds over 12 m.p.h., but not exceeding 40 m.p.h. Defendant's Motion for Summary Judgment, Ex. H (ASTM F 1928-98, "Standard Safety Guide for Consumer Recreational use of Fun-Karts" (March 1999)) (hereafter "ASTM Safety Std."), p. 1.
[2] This specification is not in the record. The document Kassekert has produced is a 1999 SFI specification for the testing of roll cage padding, and does not advocate or mention protective vinyl covers. See Kassekert Dep., Ex. E.
[3] During oral argument, the plaintiff stated that he would not be relying upon an earlier expert opinion by Gary Derian as part of the summary judgment record. Accordingly, I do not address Ken-Bar's objections to Derian's qualifications and opinions in the Discussion below, I do not consider his testimony and report in rendering a decision as to Ken-Bar's motion.
[4] I take notice that Questions 23 and 26 of the survey ask participants to offer an opinion on the ultimate issue ("unreasonable design defect"). Offered as a keystone of the plaintiff's showing, the answers to these questions, as legal conclusions, are not impressive. I note, however, that the survey also asks a number of more specific questions going to consumers' impression of protection and unreasonable danger, and for this reason I hold that the survey lays a foundation for Edell's testimony, at least to the extent the survey has been examined to date. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2573284/ | 422 F. Supp. 2d 250 (2006)
George HILDEBRANDT, Jr. and Patricia Hildebrandt, Plaintiffs,
v.
Mike JOHANNS, et al., Defendants.
No. CIV.A. 04-1423(PLF).
United States District Court, District of Columbia.
March 31, 2006.
*251 James W. Myart, Jr., San Antonio, TX, for Plaintiffs.
Brian G. Kennedy, Michael Sitcov, Jeremiah Goulka, Matthew Lepore, U.S. Department of Justice, Washington, DC, for Defendants.
MEMORANDUM OPINION
PAUL L. FRIEDMAN, District Judge.
This matter comes before the Court on defendants' partial motion to dismiss the plaintiffs second amended complaint. Upon consideration of defendants' motion, plaintiffs amended response, and defendants' reply to the amended response, the Court will grant the partial motion to dismiss.
Plaintiffs bring this action under the Equal Credit Opportunity Act of 1972 ("ECOA"), 15 U.S.C. § 1691, claiming that they have been discriminated against because of their race.[1] Their allegations include that their loan applications have been mishandled and denied, that defendants have retaliated against them because they have filed discrimination complaints, and that defendants "enforced monetary offsets against Plaintiff in furtherance of their goal to destroy his farming operation." Plaintiffs' Second Amended Complaint ("Sec.Am.Compl.") ¶ 41(e). Defendants' partial motion to dismiss the plaintiffs' second amended complaint seeks to dismiss with prejudice (1) all claims against defendant Assistant Secretary for Civil Rights Vernon Parker in his individual capacity; (2) all of plaintiffs' claims predating August 23, 2002 as precluded by the Pigford Consent Decree and barred by the ECOA's statute of limitations; and (3) those of their claims that relate to the investigation of their administrative complaints and administrative offsets as not being covered by the ECOA.
Plaintiffs' amended response and partial opposition to the motion consents to the dismissal of Vernon Parker in his personal capacity from the case and concedes that *252 "any claims during the Pigford class period, from January 1, 1981 through December 31, 1996, and any debts or administrative offsets associated with those debts cannot form the basis for Plaintiffs' present ECOA claims." Plaintiffs' Amended Response and Brief in Partial Opposition to Defendant's Motion to Dismiss ("Pls' Am. Resp.") ¶ ¶ 6, 31. See also 31 U.S.C. § 3711(g)(9); Bradshaw v. Veneman, 338 F. Supp. 2d 139, 144 (D.D.C.2004) (noting that statute actually requires the USDA to administratively offset debts). Plaintiffs contest defendant's partial motion to dismiss only with respect to the issue of their claim that the USDA's Office of Civil Rights failed to investigate complaints filed by the plaintiffs between 1997 and 2003 for discriminatory reasons. Pls' Am. Resp. ¶ ¶ 1-34 see also Sec. Am. Compl. ¶ ¶ 22-27.
Defendants argue that the discriminatory failure to investigate administrative complaints alleged by plaintiffs does not give rise to a cause of action under the ECOA. Partial Motion to Dismiss Second Amended Complaint ("Mot. to Dism.") at 7; Supplemental Reply Brief Supporting Defendants' Partial Motion to Dismiss Second Amended Complaint ("Suppl.Reply") at 3-4. The ECOA prohibits a creditor from discriminating on the basis of race against any applicant only "with respect to any part of a credit transaction." 15 U.S.C. § 1691(a). The term "credit" is defined as "the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefor." 15 U.S.C. § 1691a(d). The Court agrees with the defendants that the USDA's investigation of or failure to investigate plaintiffs' complaints does not fall within the definition of "credit transaction." See Wise v. Glickman, 257 F. Supp. 2d 123, 127 (D.D.C.2003). Plaintiffs' claims with respect to the allegedly discriminatory conduct of the USDA in failing to investigate its complaints of discrimination therefore must be dismissed.
Accordingly, defendant's partial motion to dismiss will be GRANTED, and defendant Vernon Parker will be dismissed in his individual capacity as a defendant in this case.
A separate Order consistent with this Memorandum Opinion will be issued this same day.
ORDER
For the reasons set forth in the Memorandum Opinion issued this same day, it is hereby
ORDERED that defendants' partial motion to dismiss [37] is GRANTED; and it is
FURTHER ORDERED that defendant Vernon Parker is dismissed in his individual capacity as a defendant in this case.
NOTES
[1] Plaintiffs also states in their complaint that they are "members of a protected class as that phrase is defined in the Civil Rights Act of 1964," but do not appear to bring any claims under that statute, nor do any further references to that statute appear in their second amended complaint. See Second Amended Complaint at ¶ 40. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2572502/ | 603 F. Supp. 2d 344 (2009)
FEDERAL DEPOSIT INSURANCE CORPORATION, in its Capacity as Receiver of Connecticut Bank of Commerce, Plaintiff,
v.
GREAT AMERICAN INSURANCE COMPANY, Defendant.
Civil Action No. 3:06-cv-00091 (VLB).
United States District Court, D. Connecticut.
February 13, 2009.
*345 Christopher D. Kiesel, Dustin R. Bagwell, J. Brian Juban, Kyle M. Keegan, Victor L. Roy, III, Roy, Kiesel, Keegan & Denicola, APLC, Baton Rouge, LA, John B. Hughes, U.S. Attorney's Office, New Haven, CT, Katharine H. Haygood, Washington, DC, for Plaintiff.
F. Joseph Nealon, Jennifer E. Lattimore, Kirsten E. Keating, Ballard, Spahr, Andrews & Ingersoll, Washington, DC, Margaret A. Little, Law Offices of Margaret A. Little, Stratford, CT, for Defendant.
MEMORANDUM OF DECISION GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT [Doc. # 99]
VANESSA L. BRYANT, District Judge.
This is an action for damages for breach of an insurance contract. The Federal Deposit *346 Insurance Corporation (FDIC), in its capacity as receiver of Connecticut Bank of Commerce (CBC), brought this action to recover on a fidelity bond issued by Great American Insurance Company (GAIC). The Court has federal question jurisdiction over all cases to which the FDIC is a party. 12 U.S.C. § 1819. Venue is proper in this Court as CBC was domiciled in Connecticut and the fidelity bond was issued in Connecticut. GAIC has filed the within motion for summary judgment arguing that there is no disputed issue of material fact as to misrepresentations made by CBC in its application for insurance, entitling GAIC to rescission as a matter of law. [Doc. # 99] For the reasons hereinafter set forth, the Court GRANTS summary judgment in favor of GAIC.
Facts
Examination of the exhibits attached to the motion for summary judgment and responses thereto disclose the following undisputed material facts. Randolph Lenz was the majority shareholder and Chairman of the Board of CBC. In 1999, while CBC had assets of approximately $89 million, it entered into a Purchase and Assumption Agreement to acquire MTB Bank, a New York bank with approximately $299 million in assets. CBC purchased "substantially all" of MTB's assets, including its factoring unit. [Doc. # 93, Ex. 4] This transaction required the approval of the FDIC, which approval MTB sought on August 4, 1999.
In September of 1999, MTB management discovered that one or more of its agents had advanced $950,000 based on fraudulent invoices under a factoring agreement with Harmony Designs, Inc. MTB submitted a claim for indemnity under its fidelity bond (also referred to as a "blanket banker's bond") issued by Lloyd's of London ("Lloyd's"), its insurance carrier of 15 years.
On February 5, 2000, the FDIC approved the CBC's acquisition of MTB, subject to CDC's infusion of $20 million of new capital into MTB. Lenz agreed to infuse the additional capital from his own personal assets.
In March 2000, CBC made a series of loans totaling approximately $20 million to individuals and entities who then loaned the funds to Lenz, who was working with CBC President Don Weand to raise the required new capital. Lenz reused the proceeds of these loans to purchase CBC stock, the proceeds of which were then used to purchase MTB (the "straw loan scheme").
In March 2000, the president and several other officers of MTB were indicted in a conspiracy involving the importation of Argentinian minerals. MTB again submitted a claim to Lloyd's for its losses relating to the conduct resulting in the indictments. On March 31, 2000, the Purchase and Assumption Agreement was finalized. CBC was added to MTB's insurance policy with Lloyd's.
The Lloyd's insurance policy was scheduled to expire by its terms on June 30, 2000. In April 2000, CBC began seeking renewal of the policy. Lloyd's expressed concern about the two claims that MTB had made, and refused to issue a new policy or extend coverage without a visit by CBC representatives to Lloyds' headquarters in London. Thereafter, CBC employed the services of an insurance broker to replace the Lloyd's policy. [Doc. # 111, Ex. 24]
CBC's Chief Financial Officer, Barbara Van Bergen, filled out an application for insurance from CBC's insurance broker. Although the application was from Reliance Insurance, CBC knew that it would be submitted to multiple insurers to obtain quotes for insurance. The application contained the following questions: "[Does *347 CBC have] any knowledge of or information concerning any occurrence or circumstance whatsoever which might materially affect [this insurance proposal]?"; "Has any insurance of this nature been declined or cancelled during the past three years?"; "List all losses sustained during the past three years, whether reimbursed or not." Van Bergen answered "No," "No," and "None," respectively. [Doc # 100, Ex. 24] The application contained the statement, "[t]he Applicant represents that the information furnished in this application is complete, true, and correct. Any misrepresentation, omission, concealment, or incorrect statement, in this application or otherwise, shall be grounds for recision of any bond issued in reliance upon such information." Id. Van Bergen signed the application form on behalf of CBC on June 19, 2000 and gave it to CBC's insurance broker for submission to multiple insurers. On June 30, 2000, CBC's insurance broker submitted the Reliance application to GAIC.
On July 19, 2000, GAIC issued a fidelity bond to CBC. The bond was effective retroactively to June 30, 2000. The bond states that it is issued "in reliance upon all statements made and information furnished to the Underwriter by the Insured in applying for this bond" and "[t]he Insured represents that the information furnished in the application for this bond is complete, true and correct. Such application constitutes part of the bond. Any misrepresentation, omission, concealment or any incorrect statement of a material fact, in the application or otherwise, shall be grounds for the rescission of this bond." [Doc # 100, Ex. 28]
On June 26, 2002, CBC went into FDIC receivership. On January 18, 2006, the FDIC brought this suit alleging that GAIC breached its contractual duty by dishonoring the claim for coverage under the fidelity bond for losses sustained by CBC relating to the loans issued to fund Lenz' capital contribution required for the CBC acquisition of MTB and other transactions overseen by MTB and then CBC employee David Clapman.
GAIC has moved for summary judgment on the grounds that it had properly rescinded the fidelity bond due to omissions and misstatements made by CBC in its application for the fidelity bond.
Discussion
Summary judgment "should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The Court "construe[s] the evidence in the light most favorable to the non-moving party and . . . draw[s] all reasonable inferences in its favor." Huminski v. Corsones, 396 F.3d 53, 69-70 (2d Cir.2004). "[I]f there is any evidence in the record that could reasonably support a jury's verdict for the nonmoving party, summary judgment must be denied." Am. Home Assurance Co. v. Hapag Lloyd Container Linie, GmbH, 446 F.3d 313, 315 (2d Cir.2006). "The moving party bears the burden of showing that he or she is entitled to summary judgment." Huminski, 396 F.3d at 69. "[T]he burden on the moving party may be discharged by `showing'that is pointing out to the district courtthat there is an absence of evidence to support the nonmoving party's case." PepsiCo, Inc. v. Coca-Cola Co., 315 F.3d 101, 105 (2d Cir.2002). "If the party moving for summary judgment demonstrates the absence of any genuine issue as to all material facts, the nonmoving party must, to defeat summary judgment, come forward with evidence that would be sufficient to support a jury verdict in its favor." Burt Rigid Box, Inc. v. Travelers Prop. Cas. Corp., 302 F.3d 83, 91 (2d Cir.2002).
*348 GAIC argues that it is entitled to summary judgment on the FDIC's breach of contract claims because it properly rescinded the fidelity bond in accordance with its clear and express terms. Specifically, it argues that four misrepresentations in the Reliance application constitute grounds under the terms of the fidelity bond for rescinding the fidelity bond. The FDIC argues two points in response. First, it argues that 12 U.S.C. § 1823(e) bars GAIC from asserting a defense of misrepresentation against the FDIC's enforcement of the fidelity bond. Second, the FDIC argues that there is an issue of material fact as to whether CBC made misrepresentations in its application.
The Application of 12 U.S.C. § 1823(e)
The FDIC argues that 12 U.S.C. § 1823(e) bars consideration of the Reliance application in determining whether GAIC breached the fidelity bond contract. The statute provides in relevant part, "No agreement which tends to diminish or defeat the interest of the Corporation [FDIC] in any asset acquired by it . . . shall be valid against the Corporation unless such agreement" fulfills four requirements of authentication by the acquired institution. The parties do not dispute that by itself the Reliance application does not fulfill the four requirements of authentication. The FDIC argues that allowing misrepresentations in the Reliance application to bar recovery under the fidelity bond would impermissibly diminish the FDIC's interest in the fidelity bond application, as the Board of Directors of CBC did not approve the statements made in the fidelity bond application. GAIC argues that a fidelity bond should not be considered an "asset" under the terms of 12 U.S.C. § 1823(e). It further argues that the Reliance application is not a separate "agreement" under the terms of 12 U.S.C. § 1823(e) but part of the "asset" that the FDIC seeks to recover on.
The issue presents a case of first impression within the Second Circuit. The FDIC cites FDIC v. Oldenburg, 34 F.3d 1529 (10th Cir.1994) for the proposition that fidelity bonds are "assets" under the terms of 12 U.S.C. § 1823(e). GAIC, in turn, cites FDIC v. Aetna Casualty & Surety Co., 947 F.2d 196 (6th Cir.1991), which found to the contrary. As the Second Circuit has not yet expressed an opinion on this precise issue, the Court looks to its other decisions regarding 12 U.S.C. § 1823(e) for guidance. In Inn at Saratoga Associates v. FDIC, 60 F.3d 78 (2d Cir.1995), the court held that an "asset" was "everything which can be made available for the payment of debts" but noted that a "conditional promise of a future loan" would "bend the term `asset' beyond recognition." Id. at 82. The Second Circuit went on to hold that though the "asset" at issue in that case might not be subject to 12 U.S.C. § 1823(e), it was subject to the equitable common law "D'Oench Duhme" doctrine, adopted in D'Oench, Duhme & Co. v. FDIC, 315 U.S. 447, 62 S. Ct. 676, 86 L. Ed. 956 (1942), which barred the enforcement against the FDIC of secret agreements which would tend to deceive regulators.
The FDIC has not argued that the D'Oench Duhme doctrine applies in this case, perhaps because several Circuits have called its validity into doubt in light of other Supreme Court decisions on the status of the federal common law. See FDIC v. Deglau, 207 F.3d 153 (3d Cir. 2000). If the D'Oench Duhme doctrine is discarded, then the equitable inquiry into whether enforcement of an agreement would deceive bank regulators is less important than the determination of whether the subject of the action is an "asset" for purposes of 12 U.S.C. § 1823(e) analysis.
The Second Circuit's construction of an "asset" not subject to 12 U.S.C. § 1823(e) *349 in Inn at Saratoga, supra, is more analogous to the Sixth Circuit's description in Aetna, supra, of fidelity bonds as "a conditional promise to pay an uncertain sum of money that is payable only upon the occurrence of an uncertain condition"[1] than the Tenth Circuit's ends-driven reasoning that fidelity bonds should be swept into the statute to promote "stability and confidence with respect to the nation's banking system." FDIC v. Oldenburg, 34 F.3d at 1554. This view is shared by several Circuits. John v. Resolution Trust Corp., 39 F.3d 773, 776 (7th Cir.1994) (12 U.S.C. § 1823(e) applies only to "conventional loan activities," not non-banking sales); E.I. duPont de Nemours and Co. v. FDIC, 32 F.3d 592, 597 (D.C.Cir.1994) (funds held in escrow for payment of depositor's invoices not assets); Thigpen v. Sparks, 983 F.2d 644 (5th Cir.1993) (12 U.S.C. § 1823(e) only applies to "assets" acquired in the course of ordinary banking activities).
12 U.S.C. § 1823(e) is intended in insure that the FDIC can rely on a bank's books in determining its solvency. That objective is not advanced by the inclusion of fidelity bonds within its ambits. A fidelity bond is not reported to the FDIC or the Office of the Comptroller of Currency (OCC) as a financial asset of a banking institution. For instance, Form FFIEC 031, an annual report which CBC would have been required to submit to the FDIC and OCC under 12 U.S.C. § 324, contains prompts for the reporting bank to list all of its banking assets and liabilities. However, there is no entry in which a fidelity bond would be listed, as opposed to other hard-to-value assets, such as letters of credit, which are listed.
While promoting transparency in the nation's banking system and maximizing taxpayer recovery in bank receiverships is a worthy goal, the Court is not convinced that Congress intended to abrogate the rights of commercial entities to enter into and to be bound by the clear and unambiguous language of their contracts, which would be the consequence of including fidelity bonds issued in reliance on material misrepresentations within the definition of an "asset" covered by 12 U.S.C. § 1823(e). Such a construction would severely hamper all but the most sound FDIC-insured institutions' ability to operate, as insurers would be unwilling to contract with any institution which could conceivably be taken into receivership. Such an interpretation would undermine the banking system which the FDIC exists to foster. The Court's decision is not conditional upon this point, though, as even if the fidelity bond were examined within the bounds of 12 U.S.C. § 1823(e), there is ample precedent for considering the defenses raised by the bond itself concerning the application which would bar recovery by the FDIC.
GAIC argues that even when 12 U.S.C. § 1823(e) bars consideration of extrinsic documents, those defenses which are "bilateral" or appear on the face of the asset are still enforceable against the FDIC. While the Second Circuit has not addressed the issue, the First, Seventh, and Eleventh Circuits have all enforced defenses stated on the face of the asset the FDIC holds, reasoning that when FDIC has notice of a defense through the terms of a contract it relies on, 12 U.S.C. § 1823(e) is inapplicable, as it was intended to bar only secret defenses.[2] Though *350 the Court invited it to submit additional briefing on this subject, [Doc. # 123] the FDIC has not advanced any argument why this Court should not adopt this reasoning. The purpose of 12 U.S.C. § 1823(e) is to allow the FDIC to rely on the official records of an institution in regulating and insuring its deposits. Dimuzio v. Resolution Trust Corp., 68 F.3d 777, 780 (3d Cir.1995). However, if insurance companies were allowed no defense to payment under their policies, no matter the malfeasance involved in procuring them, the FDIC would soon find itself the only remaining insurer of troubled financial institutions. The application for insurance is an integral part of and is incorporated by reference in the rescission clause of the policy. The policy is expressly made in reliance and contingent upon the accuracy and completeness of the application. To disallow the provision would be to erase protections written into contracts between sophisticated commercial entities, undermining the ability of insurance companies to rely on their own contracts. Therefore, the Court will enforce the defenses stated upon the face of the bond.
The bond itself states, "[a]ny misrepresentation, omission, concealment or any incorrect statement of a material fact, in the application or otherwise, shall be grounds for the rescission of this bond." The FDIC argues that "the application" must be read to refer only to GAIC's own application, which was not filled out until after coverage was bound, and not the Reliance application. It then argues that GAIC could not rely on misrepresentations in its own application, because that application was not before GAIC at the time it decided to bind coverage. This Catch-22 is unavailing for several reasons. First, the fidelity bond referred to "misrepresentation. . . in the application or otherwise." (Emphasis added). It is undisputed that the Reliance application was sent to GAIC by CBC's agent, on CBC's behalf, for GAIC's consideration. Second, although the GAIC application was not sent until after coverage was bound, there is no reason that such coverage could not be revoked because of a material misrepresentation made later, especially since the submission of the GAIC application and CBC's financial statements was made a requirement at the time that coverage was bound. Not to submit the application would have been a breach of the contract. To do as the FDIC urges, and not consider any misrepresentations in the Reliance application or GAIC's own application, would effectively erase the rescission clause from the fidelity bond.
The FDIC further argues that the Reliance application cannot be considered part of the fidelity bond because there is no privity between GAIC and Reliance. However, the evidence shows that CBC filled out one application to be submitted by CBC's insurance broker to multiple insurers. Examination of the GAIC application submitted by CBC to GAIC after GAIC bound coverage shows that the two applications are substantially similar, and further, that CBC made the same answers in both applications. As CBC's agent submitted the Reliance application on CBC's behalf to GAIC for the purpose of applying for insurance from GAIC, GAIC was entitled to treat it as the "information furnished to the Underwriter by the Insured in applying for this bond" under the terms of the bond. It is undisputed that the Reliance application was the only information CBC submitted to GAIC in support of its application for the GAIC fidelity bond at issue. The Reliance application, irrespective of the letterhead on which the substance appears, is thus incorporated by reference into the fidelity bond, as the "information furnished" and as the "application" itself. To rule otherwise would *351 place form over substance, obviating reality.
Finally, the FDIC argues that if the Court considers misrepresentations in the Reliance application as grounds for rescission, it should apply the Connecticut common law standard for rescission, and not the standard contained in the bond and application. In the two cases cited by the FDIC, Corn v. Protective Life Ins. Co., 1998 WL 51783, 1998 U.S. Dist LEXIS 1283, 3:95-cv-556 (D.Conn. February 4, 1998) and Sherman v. Prudential Ins. Co. of America, 2002 WL 467774, 2002 Conn.Super. LEXIS 737, CV990078688S (Conn.Super.Ct., March 6, 2002), the courts interpreted the contractual language at issue through the lens of Connecticut precedent, but gave full effect to the bargained-for language. This Court shall do the same. As per the bond language, "[a]ny misrepresentation, omission, concealment or any incorrect statement of a material fact, in the application or otherwise, shall be grounds for the rescission of this bond." Under Connecticut law, a "misrepresentation" is one "known by the insured to be false when made" though not necessarily with conscious intent to defraud. Middlesex Mutual Assur. Co. v. Walsh, 218 Conn. 681, 692, 590 A.2d 957 (Conn.1991). However, an insured has an affirmative duty to "inform himself of the content of the application signed by him, under penalty of being bound by the representations recorded therein" if an agent fills out the application. Pinette v. Assurance Co. of America, 52 F.3d 407 (2d Cir.1995) (reviewing Connecticut law). A "material fact" is one that would "influence the parties in making the contract ... matters made the subject of special inquiry are deemed conclusively material." State Bank & Trust Co. v. Connecticut Gen. Life Ins. Co., 109 Conn. 67, 70-71, 145 A. 565 (Conn.1929). A fact is material if it "it would so increase the degree or character of the risk of the insurance as to substantially influence its issuance, or substantially affect the rate of the premium." Pinette, 52 F.3d at 411.
Grounds for Rescission
GAIC argues that CBC made four material misrepresentations in its application. First, it argues that CBC should have disclosed that it suffered a loss of $950,000 on fraudulent invoices presented by Harmony Designs, Inc. to MTB. Second, it argues that CBC should have disclosed the indictments of several officers of MTB. Third, it argues that CBC should have disclosed that Lloyd's of London had declined to renew its insurance coverage. Finally, it argues that CBC should have disclosed Mr. Lenz' improper loan scheme in connection with the MTB purchase and assumption agreement. These claims shall be addressed in turn.
a. The Harmony Designs Claim
GAIC argues that in response to the prompt in the Reliance application to list any losses, whether reimbursed or not, in the last three years, CBC should have listed the Harmony loss. CBC acknowledges that MTB filled a claim with Lloyd's in June 1999 for the loss of the money advanced based on fraudulent invoices, but argues that 1) MTB's loss is not imputed to CBC, and 2) that the loss was not material to CBC's application. This argument fails for several reasons. First, though CBC disputes the characterization of its Purchase and Assumption Agreement with MTB as a merger, it is undisputed that CBC purchased MTB's factoring business. MTB's factoring business was a part of CBC at the time that CBC applied for insurance. The loss belonged to CBC, and as it was CBC that later collected "several hundred thousand dollars" from Harmony Designs in recovery for the factoring loss, it cannot be disputed that CBC had replaced MTB as the injured party. [Doc. # 104, p. 15 n. 4] Second, *352 the second count of the FDIC's claim against GAIC concerns the fraud allegedly committed by David Clapman, a former MTB employee in the factoring division, who allegedly accepted fraudulent invoices. Materiality, in the context of Connecticut insurance law, is defined as "when, in the judgment of reasonably careful and intelligent persons, it would so increase the degree or character of the risk of the insurance as to substantially influence its issuance, or substantially affect the rate of the premium." Pinette v. Assurance Co. of America, 52 F.3d at 411. The prior acceptance of fraudulent invoices by a MTB employee must demonstrate the risk that a former MTB employee in the same division would accept fraudulent invoices in the future. "Common sense tells us that an applicant's prior loss history is material to a reasonable insurance company's decision whether to insure that applicant or determination of the premium." Pinette, 52 F.3d at 411. Therefore, the failure to disclose that MTB employees had accepted fraudulent invoices was a material misrepresentation.
b. MTB Officer Indictments
GAIC argues that CBC should have disclosed that John Bartholomew, the president of MTB, and several other officers of MTB were indicted in a conspiracy involving the importation of Argentinian metals in March 2000. The FDIC argues that these indictments were not material to CBC's application for insurance because the subject area of the indictments covered part of MTB's business not purchased by CBC.
After the Purchase and Assumption transaction, the resulting entity named CBC was more than two-thirds MTB assets. Even if Bartholomew himself was no longer working for the resulting entity, as he had been charged with customs fraud, wire fraud, and money laundering, GAIC should have been able to assess for itself whether a culture of corruption existed at the newly constituted CBC. A fidelity bond protects a company against the fraud of its employees. The application requested disclosure of any and all information which could conceivably affect its underwriting of the CBC risk. Specifically, it broadly requests "any knowledge of or information concerning any occurrence or circumstance whatsoever which might materially affect" (emphasis added) the insurance proposal. The scope of the information sought is clearly designed to enable GAIC to assess the risk it is being asked to insure, a critical task it was unable to perform to due CBC's misrepresentations. The prior fraud of the officers of a company substantially and very recently subsumed into the insurance applicant is material to the risk of future fraud in the applicant. Therefore, the failure to disclose the indictments of MTB officers for fraud was a material misrepresentation.
c. Lloyd's of London Insurance Renewal
GAIC next argues that CBC should have disclosed that Lloyd's of London had refused to renew the expiring fidelity bond insurance. The FDIC argues that the circumstances amounted to a "non-renewal" of CBC's fidelity bond coverage, and that the answer to the question, "[h]as any insurance of this nature been declined or cancelled during the past three years?" was correctly stated as "no." It is undisputed that CBC sought to extend its coverage with Lloyd's of London, and that Lloyd's of London would not do so. Lloyd's stated that it would not renew the coverage "given [MTB's] current claim circumstances as well as the break up of the MTB entity." [Doc. # 111, Ex. 23] The FDIC argues that the only reason that CBC could not procure insurance with Lloyd's of London was that it was unwilling to send its insurance agent to London to meet with Lloyd's at its headquarters, *353 but this is not material to CBC's answer. The FDIC's attempts to parse the language of the application to exclude inquiry into whether CBC's past insurance carrier considered CBC a bad risk is unavailing. As CBC's prior insurance carrier, Lloyd's of London was in the best position to know the risk of future claims. The specific inquiry into other carriers' assessment of CBC's risk is conclusively deemed material. State Bank & Trust Co., 109 Conn. at 70-71, 145 A. 565 (matters of special inquiry conclusively deemed material). The disclosure of Lloyd's decision not to renew their policy would have alerted GAIC to the need to acquire more information and would have likely led to the discovery of the claims made on Lloyd's bond. That discovery would have also disclosed CBC's lack of candor in answering other questions posed. This information would invariably affect GAIC's underwriting. Therefore, the failure to disclose the non-renewal, or declination, of insurance coverage is a material misrepresentation.
d. Lenz' Straw Loan Scheme
Finally, GAIC argues that CBC knew and should have disclosed that Lenz and CBC President Don Weand had begun a straw loan scheme to satisfy the FDIC's requirement for new capital at CBC before its purchase and assumption of MTB. The FDIC argues that CBC cannot be charged with knowledge of the conduct of its agents Lenz and Weand, as they were acting adversely to its interests by avoiding Lenz' duty to provide $20 million of his own funds in support of CBC in excess of his current investment.
The rule in Connecticut is that principals are deemed to receive and have the benefit of their agent's knowledge contemporaneously with the agent's actions, except when 1) it is not the duty of the agent to disclose, 2) the agent is acting adversely to the principal, or 3) the agent is acting in fraud of the principal. Reider v. Arthur Andersen, LLP, 47 Conn.Supp. 202, 784 A.2d 464, 470 (2001). There is an exception to the rule that a principal is not imputed with knowledge of an agent's fraud where the principal later seeks to enjoy the fruits of his agent's fraud, as by attempting to ratify an insurance policy procured by an employee who has defrauded the company. Davis-Scofield v. Agricultural Ins. Co., 109 Conn. 673, 145 A. 38 (1929). However, there is no evidence in the record that Van Bergen or Allocca, the agents who prepared the applications for the fidelity bond, had any knowledge of Lenz and Weand's fraud when they executed the applications. Therefore, the Court must determine whether Lenz and Weand were acting adversely to CBC to determine whether CBC is charged with knowledge of their actions. Lenz pled guilty to misapplication of bank funds, 18 U.S.C. § 656, an element of which is that "the defendant intended to injure the bank, in that, among other things, the natural effect of his actions was to put the Bank at a substantial risk of loss, whether or not the Bank ultimately suffered loss." [Doc. # 93, Ex. 3] However, this plea covered only loans made to a single company totaling $1.3 million. Lenz and Weand have invoked their Fifth Amendment right to refuse to testify, and there is no other evidence in the record, which is richly developed as to the nature of the loans themselves, from which the Court can draw any conclusion as to Lenz and Weand's motivations in concealing the other $18.7 million in straw loans. GAIC argues that the loans, while fraudulent, were made with the intent to deceive the FDIC and evade an "impediment to regulatory approval," but to ultimately advance CBC's interests by securing the purchase and assumption of MTB. [Doc. # 93, Ex. 8]. It further argues that it is unreasonable to conclude that Lenz intended to harm a *354 company in which he had invested millions of dollars and was the 93.5% shareholder. The FDIC argues that Lenz had the intent to harm CBC by denying it needed capitalization, saving himself $20 million, and avoiding his personal obligations. Drawing inferences in favor of the FDIC as the non-moving party on GAIC's motion for summary judgment, the Court concludes that there is a disputed issue of material fact as to whether Lenz and Weand believed that they were acting adversely to CBC's interests in executing the straw loan scheme. Therefore, the Court cannot conclude that CBC's failure to include mention of Lenz' and Weand's fraud in its application for insurance is a material misrepresentation by CBC, as it cannot conclude that CBC knowingly failed to disclose its agents' fraud in its application for insurance.
Conclusion
Therefore, the Court finds that there is no contested issue of material fact that CBC made material misrepresentations as to the Harmony claim, the Lloyd's of London fidelity bond, and the indictments of the MTB officers. Any one of these misrepresentations would entitle GAIC to rescind the fidelity bond. GAIC's motion for summary judgment is GRANTED and the Clerk is directed to close the file.
IT IS SO ORDERED.
NOTES
[1] 947 F.2d at 205.
[2] See, e.g., FDIC v. Panelfab Puerto Rico, Inc., 739 F.2d 26, 30 (1st Cir. 1984); Howell v. Continental Credit Corp., 655 F.2d 743, 746 (7th Cir.1981); Fed. Sav. & Loan Ins. Corp. v. Two Rivers Associates, 880 F.2d 1267 (11th Cir. 1989) (enforcing defenses to payment which appear on subject asset). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1757550/ | 79 F. Supp. 664 (1948)
EDWARD B. MARKS MUSIC CORPORATION
v.
FOULLON et al.
Civ. 41-741.
United States District Court S. D. New York.
May 11, 1948.
Arthur E. Garmaize, of New York City, for plaintiff.
Joseph R. Miller, of New York City, for defendants Seva Foullon and United Masters, Inc.
*665 Dannenberg, Hazen & Lake, of New York City (Benedict A. Leerburger, of New York City, of counsel), for defendant Bard Record Co., Inc.
GODDARD, District Judge.
This is a suit by the plaintiff for alleged infringement of a copyright and for an accounting and royalties under Sections 1(e) and 25(e) of the Copyright Act of March 4, 1909, 17 U.S.C.A. §§ 1(e) and 25(e).
Subsequent to filing the complaint against defendants Foullon and United Masters, Inc., plaintiff filed an amended complaint containing identical allegations but which included Bard Record Company, Incorporated, as a defendant.
The first cause of action alleges that the plaintiff has all right, title and interest in and to the copyright of the song "Malaguena" and that the plaintiff has published the work or permitted the publication by license or otherwise in strict conformity with the provisions of the Copyright Act of March 4, 1909. The plaintiff then alleges that "the defendants made or caused to be made a musical version and arrangement of the work entitled `Malaguena'"; that "the said version and arrangement was and is being used by defendants for commercial purposes"; that "the said musical version and arrangement was made without the knowledge or consent of the plaintiff"; that "the said musical arrangement infringers upon the copyright of the plaintiff".
The second cause of action alleges that the defendants recorded or caused to be recorded the alleged infringing arrangement and version; that the plaintiff has filed a notice of use of the said musical work upon parts of instruments serving to reproduce it mechanically; that defendants have not filed in the Copyright Office a notice of intention to use the copyrighted work in the manufacture of phonograph records; although plaintiff has requested reports as to the number of records manufactured, and payment of the statutory royalties due the plaintiff, the defendants have failed and refused to furnish reports and pay the royalties.
The plaintiff's prayer for relief is that the defendants account and pay damage suffered by the plaintiff for the infringing arrangement and version; or, in lieu thereof, statutory damages and furnish a report and pay royalties due on the manufacture of the records, plus the usual injunctive relief against subsequent infringement.
Motions for summary judgment by defendants and by plaintiff were denied by Judge Leibell on the ground that there were issues of fact which required a trial.
The defendants, Foullon and United Masters, Inc. in their answer, although they admit that an arrangement and version was made and was being used for commercial purposes denied that the version and arrangement was made without the knowledge and consent of the plaintiff, or that it infringed the copyright of the plaintiff.
The defendant's, Bard Record Company, Incorporated, answer is a general denial.
The defendants, Foullon and United Masters, Inc. admit in their answer that there is owing to the plaintiff a certain amount of royalties. All defendants set up as a separate and distinct defense the existence of an alleged license agreement between plaintiff and defendant, United Masters, Inc., which appears to give the latter the right to use the words and music of the copyrighted song in the manufacture of records.
The process in making a record to be sold at retail was as follows: The defendant, Foullon, as president of United Masters, Inc. engaged artists and a recording studio; the artists rendered a version and arrangement of the copyrighted composition which was recorded on a wax or acetate disc; this disc was then sent to an electroplating plant with whom United Masters, Inc. had contracted, and there a metal master, a mother and stampers were made. Upon the instruction of United Masters, Inc. the stampers were then sent to the defendant Bard and all the other equipment was left in the possession of the electroplating plant. Defendant Bard then used the stampers to press out the shellac record the consumer purchases. Neither the artists, the electroplating plant nor the recording studio are defendants.
*666 The plaintiff's first cause of action against all defendants appears to be based on the following premises:
1. The right to make a version and arrangement of a copyrighted musical composition is exclusively that of the copyright owner;
2. The alleged license relied on as a defense is not a separate and distinct contract but is merely a memorandum of the defendant, United Masters, Inc. use of the compulsory license provision of Section 1(e) of the Copyright Act of March 4, 1909.
3. The compulsory license provisions of Section 1(e) does not include the right to make a version and arrangement.
4. Even if the license agreement is separate and distinct from the compulsory license provisions it did not include the right to make a version and arrangement.
5. Therefore when United Masters, Inc. and/or Foullon made a version and arrangement of the copyrighted work for commercial purposes they went beyond the rights granted to them, either by "compulsory license" or by the contractual license.
6. And when defendant Bard pressed a record with the grooves which constituted this version and arrangement, it likewise infringed plaintiff's copyright.
There is no doubt that the copyright owner of a musical composition has a right to make a version and arrangement. Andur "Copyright Law and Practice" (1936), Ch. VIII, Sec. 14, p. 298. However, this right is limited.
Section 1(e) of the Act of 1909 provides in part that the copyright owner shall have the exclusive right "To perform the copyrighted work publicly for profit if it be a musical composition; and for the purpose of public performance for profit, and for the purposes set forth in subsection (a) hereof, to make any arrangement or setting of it or of the melody of it in any system of notation or any form of record in which the thought of an author may be recorded and from which it may be read or reproduced: * * *". Subdivision (a) is the right to "print, reprint, publish, copy, and vend the copyrighted work". Therefore, it is evident that the separate and distinct right to make an arrangement and version is limited to printing, reprinting, etc. It does not cover or include the right to mechanical reproduction. Those rights in subdivision (a) are separate and distinct from the right to mechanical reproduction. Corcoran v. Montgomery Ward & Co., 9 Cir., 121 F.2d 572. It is well settled that the intellectual conception is not protected apart from the manner of its use. Corcoran v. Montgomery Ward & Co., supra; it is also settled that the manner of use in mechanical reproduction is not covered by the provisions of subsection (a) printing, etc. White-Smith Music Pub. Co. v. Appollo Co., 209 U.S. 1, 28 S. Ct. 319, 52 L. Ed. 655, 14 Ann.Cas. 628. This right of mechanical reproduction set forth in subsection (e) is distinct from the rights set forth in subsection (a) and also the right to publicly perform for profit set forth in subsection (e). Interstate Hotel Co. v. Rennick Music Corporation, 8 Cir., 157 F.2d 744; White-Smith Music Publishing Co. v. Appollo Co., supra.
To hold that the separate and distinct right to make a version and arrangement also existed in connection with the right to mechanical reproduction, would be to rewrite the section so as to add to subsection (a) the right to mechanical reproduction. This the Congress has steadfastly refused to do on the ground that to grant to the copyright owner the right to control the arrangement and version of the mechanical reproduction would be to create an opportunity for the birth of mechanical trusts. See Committee Report (2222) contained in the "Copyright Law" by Herbert A. Howell, p. 194; Proposed Amendment of the Act of 1909, Congressional Record of January 8, 1940, Senate, pp. 134-149. Congress has recently as July 30, 1947 refused to change or extend the rights of the copyright owner in the way the plaintiff urges this court to do. See Copyright Act of July 30, 1947 Section 1(e) enacted without change 17 U.S.C.A. § 1 et seq. supra.
The court may not create a right which the Congress has seen fit not to grant.
There is no evidence showing either the mechanical reproduction initially made by the plaintiff or by its licensee, nor in what way the defendants' version and arrangement *667 differed from it. For that reason alone the claim is not sustained.
It is also to be noted that the requirement that a "compulsory licensee" be limited in its use in mechanical reproduction to the use originally made or granted by the plaintiff in the initial mechanical reproduction, has been liberally construed. This requirement has been said to mean that the reproduction need not be identical, but that some latitude must be allowed to each manufacturer to prepare an individual instrumental or vocal arrangement of the composition. Shafter, Musical Copyright (1932), p. 230; Third Copyright Law Symposium, 1940, pp. 123-124.
If the license agreement be treated as a contract the plaintiff has not shown that it did not grant the defendant United Masters, Inc. the right to make a version and arrangement. The plaintiff has not shown that the license did not inherently grant the defendant United Masters, Inc. the right to make a version and arrangement when it granted United Masters, Inc. the right to use the words and music. Certainly the plaintiff realized that defendant United Masters, Inc. was not just going to use words and music without making some arrangement of both the words and music.
Since there is no infringement, defendant Bard, as well as United Masters, Inc. and Foullon are not liable on the first cause of action.
The plaintiff's second cause of action is based upon the ground that the defendants have failed to comply with the provisions of Section 1(e) of the Act of 1909, by failing to render sworn accounts as to the number of records manufactured and to pay the statutory royalties due therein. The reason plaintiff brings defendant Bard in is because it maintains that Bard is a "manufacturer" within the meaning of Section 1(e) and the other defendants are practically bankrupt.
As has been previously pointed out Bard was the last instrumentality in a chain of production. In short, United Masters, Inc. was the general manufacturer, and was so considered by the plaintiff. United Masters, Inc. hired the artists, recording studio, electroplating plant, and finally the pressing outfit.
As early as 1926 owners of copyrights presented to the Congress comparable situations and have requested it not to limit the owners recourse to the general manufacturer where sub-contracting manufacturers are involved and the general manufacturer is judgment-proof. The decision in G. Ricordi & Co. v. Columbia Graphophone Co., D. C., 270 F. 822 was brought to the attention of the Congress, which case held that the various steps taken to produce the stamper were all essential to the manufacturer and that the party who made all the arrangements was deemed to be the manufacturer. See Hearings H. R. 1043 (1926) pp. 284-285 before Patents Committee, Shafter Musical Copyright p. 244. However, the Congress took no action to rectify this alleged shortcoming in the statute; and the court may not legislate.
It is conceded that defendant United Masters, Inc. is liable for statutory royalties. The sole remaining question is the individual liability of Foullon.
Although plaintiff cites cases where individuals were held liable for what appeared to be the acts of corporate bodies, these cases all concern individual liability where there has been infringement by a corporate body. The case at bar is void of any element of infringement.
The record shows that Foullon served as an officer of United Masters, Inc., but all the actions in the manufacturing of the records were done as corporate acts. The Copyright Act makes the manufacturer liable; it does not refer to the officers, agents or employees.
The complaint and amended complaint are dismissed on the merits as to defendants Foullon and Bard Recording Company, Incorporated, without costs, and the First cause of action is dismissed without costs as to the defendant United Masters, Inc. The defendant, United Masters, Inc. has admitted the manufacture by it of 5555 records, and under Sections 1(e) and 25(e) of the Copyright Act, the plaintiff is entitled to two cents for each record plus, and in the discretion of the court, a further sum by way of damages not to exceed *668 three times the amount due as royalty. Under all the circumstances, I think a total award of $333.30 is fair and reasonable, and plaintiff may have judgment for $333.30 against defendant United Masters, Inc with costs.
All parties to promptly submit proposed Findings of Fact and Conclusions of Law upon five days' notice. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1757864/ | 636 F. Supp. 742 (1986)
Robert FLEMING, Plaintiff,
v.
KANE COUNTY, et al., Defendants.
No. 85 C 8641.
United States District Court, N.D. Illinois, E.D.
May 27, 1986.
*743 Heidi Katz, Fawell, James & Brooks, Naperville, Ill., for plaintiff.
Theodore G. Schuster, Casey & Krippner, Geneva, Ill., for defendants.
MEMORANDUM OPINION AND ORDER
SHADUR, District Judge.
Robert Fleming ("Fleming") sues Kane County ("County") and County's Highway Superintendent Nabi Fakroddin ("Fakroddin"), asserting claims under:
1. 42 U.S.C. § 1983 ("Section 1983") for violating Fleming's First Amendment rights; and
2. Illinois common law for committing the tort of retaliatory discharge.
Fakroddin has responded in part with a defamation counterclaim (the "Counterclaim").
Fleming has now moved under Fed.R. Civ.P. ("Rule") 12(b)(1) and 12(b)(6) to dismiss the Counterclaim. Fakroddin has again reacted, this time with a Rule 12(f) motion to strike two of Fleming's affirmative defenses to the Counterclaim. For the reasons stated in this memorandum opinion and order:
1. Fleming's motion is granted in part but denied in principal part.
*744 2. Fakroddin's motion is granted.
3. Fleming's Affirmative Defense II is also stricken, in that instance sua sponte.
Facts[1]
From January 1, 1968 to June 7, 1984 Fleming a registered civil engineer worked as County's Assistant Superintendent of Highways (Complaint ¶¶ 1, 7). In August 1983 County requested bids on a contract to improve County Highway 83 ("Orchard Road") by constructing an overpass over Illinois Highway 5 (id. ¶ 9). County's original bid specifications required the contractor to excavate "borrow" material, needed for the overpass foundation, from property owned by County's Forest Preserve District and located three miles from the construction site (id. ¶¶ 10-11). In response to inquiries from several prospective bidders, Fleming asked then Superintendent William Carter ("Carter") to change the borrow site (id. ¶ 12). Carter refused (id. ¶ 13).
County awarded the overpass construction contract to A.J. Maggio Co. ("Maggio") for $1,163,700 (id. ¶ 14). Maggio's bid on the borrow specification was substantially lower than quotes submitted on that item by other bidders (id. ¶ 15). After Maggio began construction in September 1983, County changed the borrow site and thereby reduced Maggio's costs in supplying borrow material (id. ¶ 16). Accordingly Fleming urged Carter either to relet the contract or to lower the price County paid for the borrow material (id. ¶¶ 17-18). Carter rejected both suggestions (id.).
Fleming then attempted unsuccessfully to meet with various members of County's Board of Commissioners to discuss possible bidding irregularities in the Orchard Road contract (id. ¶¶ 20-21). In January 1984 Fleming reported the borrow-pit switch to County's State's Attorney, the Illinois Attorney General and the FBI (id. ¶ 22).
In January 1984 Superintendent Carter resigned (id. ¶ 19). Fakroddin took the vacated Superintendency position March 1, 1984 (id. ¶ 23). Thereafter Fakroddin assertedly pursued a course of conduct designed to manufacture cause for Fleming's dismissal (id. ¶ 24), allegedly by:
1. keeping a diary of Fleming's activities and each of Fakroddin's conversations with Fleming;
2. polling Highway Department personnel to determine whether they would prefer to be supervised by Fleming or by "Others," and recommending they vote for "Others";
3. requiring Fleming to visit six universities in Illinois and Wisconsin to investigate enrolling in a management course; and
4. twice suspending Fleming without pay for one week.
On June 7, 1984 Fakroddin fired Fleming (id. ¶ 25). Fleming unsuccessfully appealed his dismissal to a grievance committee and then to the Executive Committee of County's Board of Commissioners (id. ¶¶ 26-27).
Before Fleming's dismissal, he and Fakroddin engaged in several arguments (id. ¶ 25). On April 24, 1984 and June 7, 1984 Fleming maliciously made the following false statements in the presence of several persons (Counterclaim ¶ 5):
1. Fakroddin "doesn't have the guts to fire."
2. Fakroddin "wouldn't make a pimple on a [sic] engineer's ass."
3. Fakroddin was a "liar," a "gutless bastard" and a "black son of a bitch."[2]
Those statements injured Fakroddin's personal and professional reputations (id. ¶ 7).
*745 Jurisdiction over the Counterclaim
Fleming first contends this Court lacks subject matter jurisdiction over the Counterclaim. That notion involves two steps:
1. Fakroddin's defamation claim lacks an independent federal jurisdictional basis.
2. Fakroddin's Counterclaim is permissive under Rule 13 and hence falls outside this Court's ancillary jurisdiction as well.
Because the first proposition is really undisputed, only the second requires examination.
Rule 13 reads in relevant part:
(a) Compulsory Counterclaims. A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot acquire jurisdiction.
* * * * * *
(b) Permissive Counterclaims. A pleading may state as a counterclaim any claim against an opposing party not arising out of the transaction or occurrence that is the subject matter of the opposing party's claim.
That dichotomy between "compulsory" and "permissive" counterclaims is framed by our Court of Appeals in terms of a "logical relationship" test. As Valencia v. Anderson Bros. Ford, 617 F.2d 1278, 1291 (7th Cir.1980), rev'd on other grounds, 452 U.S. 205, 101 S. Ct. 2266, 68 L. Ed. 2d 783 (1981) (citations omitted) put it:
We have observed that whether a particular counterclaim should be considered compulsory depends not so much on the immediacy of its connection with the plaintiff's claim as upon its logical relationship to that claim.... This test is to be applied flexibly in order to further the policies of the federal rules in general and Rule 13(a) in particular.
In turn those "policies" underpinning the "logical relationship" concept have been succinctly stated (though by another Court of Appeals) in Great Lakes Rubber Corp. v. Herbert Cooper Co., 286 F.2d 631, 634 (3d Cir.1961):
The phrase "logical relationship" is given meaning by the purpose of the rule which it was designed to implement. Thus, a counterclaim is logically related to the opposing party's claim where separate trials on each of their respective claims would involve a substantial duplication of effort and time by the parties and the courts. Where multiple claims involve many of the same factual and legal issues, or where they are offshoots of the same basic controversy between the parties, fairness and considerations of convenience and of economy require that the counterclaimant be permitted to maintain his cause of action.
Here the Counterclaim plainly bears the requisite "logical relationship" to Fleming's claim. Fleming alleges County and Fakroddin fired him in retaliation for whistleblowing activity protected by the First Amendment. Fleming describes a series of events, from March 1984 to June 1984, during which Fakroddin allegedly harassed Fleming, seeking to fabricate a reason to fire him. Fakroddin counters with the charge Fleming slandered him during that same course of events. Certainly the claims derive from the same factual matrix and bear on the same issues indeed, at least some of the complained-of language was uttered on the day Fleming was fired, and Fakroddin's responsive Mem. 9-10 announces his intention to point directly to Fleming's asserted slander as a basis of Fleming's dismissal. Appletree v. City of Hartford, 555 F. Supp. 224, 229-30 (D.Conn. 1983) found just such a relationship satisfies Rule 13(a):
The similarity of facts in dispute when a counterclaim is based on a libelous publication contemporaneous with the transaction complained of in the original dispute is sufficient to meet the "logical relationship" test.
*746 Accordingly the Counterclaim is "compulsory" under the literal language of Rule 13(a) and the cases announcing the relevant standard, and this Court may properly exercise ancillary jurisdiction over the Counterclaim. Fleming's Rule 12(b)(1) jurisdictional motion to dismiss is denied.
Rule 12(b)(6) Motion
Turning to Rule 12(b)(6), Fleming moves to dismiss the Counterclaim for two reasons:
1. Fleming's alleged defamatory remarks do not constitute libel per se.
2. Fakroddin has not adequately alleged malice.
Neither contention succeeds, for the reasons next discussed.
1. Per Se Libel?
Fakroddin alleges no special damages.[3] Hence his "right to recover rests on whether the allegedly defamatory statements are actionable per se." Meyer v. Allen, 127 Ill.App.3d 163, 164, 82 Ill. Dec. 136, 137, 468 N.E.2d 198, 199 (4th Dist.1984). Fried v. Jacobson, 99 Ill. 2d 24, 27, 75 Ill. Dec. 398, 400, 457 N.E.2d 392, 394 (1983) (citations omitted) is the most recent definitive statement of that ancient-vintage doctrine:
An action for defamation based on libel per se requires that the words used are in and of themselves so obviously and naturally harmful that proof of special damages is unnecessary.... In Illinois, under the common law, four classes of words, if falsely communicated, give rise to a cause of action for defamation without a showing of special damages. They are:
"1. Those imputing the commission of a criminal offense;
2. Those imputing infection with a communicable disease of any kind which, if true, would tend to exclude one from society;
3. Those imputing inability to perform or want of integrity in the discharge of duties of office or employment;
4. Those prejudicing a particular party in his profession or trade."
And Chapski v. Copley Press, 92 Ill. 2d 344, 352, 65 Ill. Dec. 884, 888, 442 N.E.2d 195, 199 (1982) had just one year earlier restated the "rule of innocent construction" used in applying the per se test:
We therefore hold that a written or oral statement is to be considered in context, with the words and the implications therefrom given their natural and obvious meaning; if, as so construed, the statement may reasonably be innocently interpreted or reasonably be interpreted as referring to someone other than the plaintiff it cannot be actionable per se. This preliminary determination is properly a question of law to be resolved by the court in the first instance; whether the publication was in fact understood to be defamatory or to refer to the plaintiff is a question for the jury should the initial determination be resolved in favor of the plaintiff.
Fleming contends none of the alleged defamatory statements:
1. imputes any inability to perform or want of integrity in the discharge of Fakroddin's duties; or
2. prejudices Fakroddin in his profession as a civil engineer.
He is partly right and partly wrong.
As to the pejoratives "gutless bastard" and "black son of a bitch," the reasoning of Irving v. J.L. Marsh, Inc., 46 Ill.App.3d 162, 166, 4 Ill. Dec. 720, 722, 360 N.E.2d 983, 985 (3d Dist.1977) (citation *747 omitted) (rejecting "arrogant nigger" as libelous per se) is equally applicable here:
Plaintiff urges us to reconsider the scope and exclusiveness of the four categories of per se defamation adopted in the Whitby [v. Associates Discount Corp., 59 Ill.App.2d 337, 207 N.E.2d 482 (3d Dist.1965)] rule and hold that while defendant's conduct does not come within the literal meaning of any of the four categories, it is nevertheless defamatory per se. Defendant's conduct was abusive, offensive, and indecent, but we do not believe it comes within any of the four categories of defamation per se, nor is the character of the words sufficiently injurious to plaintiff's reputation that they should be included in the rule as defamatory per se.
* * * * * *
Count two of the amended complaint ... added an allegation that plaintiff was an architecture student and the words imputed to him an inability to perform the duties of his course of study and in his chosen profession. By so amending his complaint to add the foregoing, plaintiff sought to bring himself within the per se category of defamation which proscribes words imputing an inability to perform or want of integrity in discharge of duties of office or employment.... In arguing that the racial slur "nigger" implies that an individual is generally lacking in the virtues of honesty, intelligence or creativity, we believe plaintiff attributes a definition to the word that is far in excess of its meaning. The words used by defendant's salesman do not impute an inability to perform or want of integrity in the discharge of the duties of office or employment.
Fakroddin's professional abilities are similarly not implicated by calling him a "gutless bastard" and "black son of a bitch."
But "liar" stands on a different footing. That does suggest a lack of integrity in the discharge of Fakroddin's duties. Wade v. Sterling Gazette Co., 56 Ill.App.2d 101, 205 N.E.2d 44 (3d Dist.1965) sought to be adduced by Fleming in his own support does not hold "liar" can never be libelous per se. Instead Wade, id. at 107-08, 205 N.E.2d at 48-49 held calling someone a liar in a particular instance did not amount to libel per se. However, Wade clearly suggested using "liar" to imply a person is generally dishonest can meet the per se test. Here the Counterclaim carries the reasonable construction that, in context, Fleming used "liar" to impugn Fakroddin's character as a professional. That allegation therefore withstands Fleming's motion to dismiss.
Fleming finally contends the two remaining alleged defamatory statements Fakroddin "doesn't have the guts to fire" and "wouldn't make a pimple on a [sic] engineer's ass" are mere statements of opinion and so non-libelous as a matter of law under such cases as Naked City, Inc. v. Chicago Sun Times, 77 Ill.App.3d 188, 190, 32 Ill. Dec. 661, 662, 395 N.E.2d 1042, 1043 (1st Dist.1979):
While false statements of fact receive no constitutional protection, the expression of an opinion can never be false so as to constitute a false statement of fact.
But Chapski, 92 Ill.2d at 352, 65 Ill.Dec. at 888, 442 N.E.2d at 199 emphasizes:
We point out, however, that the innocent-construction rule requires language to be so treated [as a constitutional expression of opinion] only where that characterization, too, is a reasonable one.
Here the plain meaning of the alleged statements is to cast aspersions on Fakroddin's abilities as a civil engineer and as County's Highway Superintendent. This Court cannot say as a matter of law that Fleming's statements were mere expressions of opinion, and they too survive dismissal.[4]
*748 2. Malice
Because Fakroddin is a public official, under the Constitution he must prove Fleming acted with actual malice. Woods v. Evansville Press Co., 791 F.2d 480, 483-484 (7th Cir.1986) (our Court of Appeals' most recent adherence to the New York Times v. Sullivan "public official" standard). Fleming Mem. 12 and R. Mem. 5 then argue Fakroddin's Counterclaim does not sufficiently allege malice. But Counterclaim ¶ 5 alleges Fleming acted:
maliciously and with intent to cause it to be believed that the Counter-Plaintiff was an unfit person to engage in his profession as a civil engineer and continue as the Superintendent of The Kane County Highway Department, and pursuant to a preconceived policy and intent to injury [sic] Counter-Plaintiff in his profession and business reputation....
Fleming invokes Illinois law to urge Fakroddin must allege facts supporting an inference of actual malice. But that misperceives the source of pleading requirements in federal courts. Hernas v. City of Hickory Hills, 507 F. Supp. 103, 104-05 (N.D.Ill. 1981) articulates the flaw in Fleming's position:
Hernas points to a series of claimed deficiencies based on Kozicki's failure to meet requirements of pleading and proving slander under Illinois law. While this Court will look to Illinois law on substantive matters relating to the counterclaim, the same is not true as to pleading requirements. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938), held that in diversity cases federal courts must apply state substantive law, but retain federal rules for matters of procedure. That same concept operates whenever state law provides the rule of decision, irrespective of the source of federal jurisdiction. Commissioner of Internal Revenue v. Bosch, 387 U.S. 456, 461, 87 S. Ct. 1776, 1780, 18 L. Ed. 2d 886 (1967). Thus the identical doctrine applies to pendent state claims in a cause of action based on a federal question. 1A Moore's Federal Practice ¶ 0.305[3] at 3050-51.
Under the principles developed in Erie and its progeny, matters of pleading are governed by the Federal Rules of Civil Procedure regardless of the source of substantive law. Hanna v. Plumer, 380 U.S. 460, 85 S. Ct. 1136, 14 L. Ed. 2d 8 (1965); 5 Wright and Miller, Federal Practice and Procedure: Civil § 1204. Kozicki therefore does not have to meet the strict pleading requirements for slander under Illinois law. Flood v. Margis, 322 F. Supp. 1086, 1095 (E.D.Wis.1971), vacated on other grounds, 461 F.2d 253 (7th Cir.1972).
This Court need not look far to locate the applicable federal pleading standard. Rule 9(b) provides:
Malice, intent, knowledge, and other condition of mind of a person may be averred generally.
Here the Counterclaim clearly meets that easy test.
Motion To Strike
Fakroddin has moved to strike two of Fleming's affirmative defenses to the Counterclaim. He prevails on each, though for different reasons.
Here is the first affirmative defense:
I. CONDITIONAL PRIVILEGE
The statements complained of, if found to have been made by counter-defendant and if found to be defamatory, are privileged because made by him, without actual malice, to and concerning the activities of a public official of the County of Kane.
Fakroddin contends that defense raises the "fair comment" privilege, which cannot protect Fleming because his statements show actual malice as a matter of law.
However, Fleming R. Mem. 5 expressly disclaims reliance on Illinois' fair comment privilege. Instead Fleming says his first affirmative defense simply contests the sufficiency of Fakroddin's pleading of malice. Indeed, Fleming Mem. 11-12 treats *749 that issue as part of his Rule 12(b)(6) motion. This opinion has just considered and rejected that pleading contention, and that ruling defeats the first affirmative defense (as Fleming has explicated it) too.
Fakroddin also attacks what Fleming calls his third "affirmative defense":
III. PROVOCATION
In mitigation of any damages to which counter-plaintiff may be or may appear to be entitled, by reason of any words found to have been made by counter-defendant, and found to be defamatory, counter-defendant alleges that said statements were made in each case in anger after deliberate provocation by counter-plaintiff.
Were that a true affirmative defense, it would survive dismissal in light of the century-old (but, it seems, still-viable, 33A I.L.P. Slander and Libel § 73) expression of Illinois law in Miller v. Johnson, 79 Ill. 58, 60-61 (1875):
Whatever may be the rule elsewhere, it has been definitely settled in this State that, in an action for slander, the anger or passion of defendant at the time of the publication of the slanderous words is no justification, or even mitigation of damages, unless it is shown the passion was provoked by plaintiff, and even then it can only be proven in mitigation of damages.
Fakroddin does say Fleming must also allege a retraction of the slander to avail himself of the defense of provocation in mitigation of damages. But Fakroddin points to no Illinois cases imposing such a requirement. And Knoxville Pub. Co. v. Taylor, 31 Tenn.App. 368, 215 S.W.2d 27 (1948) cited by Fakroddin provides no support for his position. Provocation and retraction constitute separate grounds for mitigation of damages.[5]
But all that is really beside the mark for current purposes. Under federal law an affirmative defense admits the allegations in a complaint but nevertheless asserts facts that would defeat recovery. See Bobbitt v. Victorian House, Inc., 532 F. Supp. 734, 736-37 (N.D.Ill.1982). As Illinois law makes clear, however, proof of provocation would not bar recovery here it would simply enter into the calculation of damages. Accordingly Fleming's third "affirmative defense" is not a "matter constituting an avoidance" under Rule 8(c), and it is stricken.
Affirmative Defense II
Fleming asserts as his Affirmative Defense II a paragraph captioned "ABSENCE OF MALICE," said to be in mitigation of damages. Fakroddin had filed (unbidden) a "Reply of Counter-Plaintiff," which this Court struck by an April 16 order as unauthorized by Rule 7. Because the "affirmative defense" is also ill-conceived, it too is stricken sua sponte.
As this opinion has already said, Fakroddin's public-official status makes malice an essential element of his defamation claim. Absence of that element defeats all recovery, and Counterclaim ¶ 5 properly assumes Fakroddin's burden of proving that element. Hence Fleming's denial of that malice allegation in his Counterclaim Answer ¶ 5 puts the matter at issue. Moreover, the Reply's reaffirmation of Fleming's actual malice simply repeats an allegation already in the Counterclaim cluttering up the pleadings needlessly.
What that posture of the pleadings demonstrates is that so-called Affirmative Defense II is likewise inaccurately labeled, for it too does not accept the truth of the Counterclaim's allegations but explain why even so no liability exists. Bobbitt, *750 532 F.Supp. at 736. This Court strikes Affirmative Defense II sua sponte.[6]
Conclusion
Fleming's motion to dismiss is granted as to the words "gutless bastard" and "black son of a bitch" and denied in all other respects. Fakroddin's motion is granted in its entirety, and Fleming's first and third affirmative defenses are stricken. Fleming's second affirmative defense is stricken sua sponte.[7]
NOTES
[1] For purposes of both motions, this Court has accepted as true the Counterclaim's well-pleaded factual allegations, drawing all reasonable factual inferences in Fakroddin's favor. Ellsworth v. City of Racine, 774 F.2d 182, 184 (7th Cir.1985). Allegations of the Complaint are included only by way of background, so they are not accepted (or for that matter rejected) for current purposes.
[2] Nothing in the pleadings identifies Fakroddin's color or race. Fakroddin final Mem. 3 says he "is Pakistani, and is not black."
[3] Counterclaim ¶ 9 says the defamatory statements caused Fakroddin "great loss of financial gain that he otherwise would have made now or in the future ... in the sum of $50,000.00." But Rule 9(g) provides:
When items of special damages are claimed, they shall be specifically stated.
Fakroddin asserts no basis whatever for the $50,000 figure, so he fails Rule 9(g)'s standard. See Action Repair, Inc. v. American Broadcasting Cos., 776 F.2d 143, 149-50 (7th Cir.1985). Fakroddin seems to concede that point, for his briefs focus exclusively on establishing libel per se.
[4] If Fleming used "gutless bastard" in the same conversation as "doesn't have the guts to fire" rather than on another occasion, the first epithet might well be actionable in conjunction with the second statement.
[5] Fakroddin solicits this Court to adopt a more "modern" view. But this Court must follow established Illinois law on the provocation defense. As this Court said in Zick v. Verson Allsteel Press Co., 623 F. Supp. 927, 930 (N.D.Ill. 1985) (footnote omitted):
Just as in diversity cases, federal courts do not participate in the evolution of state law.
In any event, Fakroddin has come up with no "modern" authority to support his position.
[6] It is also puzzling how, if malice were absent, damages would merely be mitigated rather than lost entirely under New York Times. That flaw in the now-stricken pleading need not further detain the litigants or this Court.
[7] Perhaps a word is in order as to the extended submissions by the litigants, in which neither counsel is willing to let the other have the last word. After the last of the memoranda on the motions had been filed (providing more than the usual complement of briefs), Fleming's counsel wrote a letter to Fakroddin's lawyer objecting to part of that last filing and saw fit to send this Court a copy of the letter. Nothing loath, Fakroddin's counsel responded again with a copy sent here. No one, of course, asked whether this Court wanted to join counsels' penpal club. It doesn't. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1758454/ | 636 F. Supp. 585 (1986)
Larry HALE and Linda Hale, Plaintiffs,
v.
The FIRESTONE TIRE & RUBBER COMPANY, and the Budd Company, Defendants.
No. 78-0266-CV-W-5.
United States District Court, W.D. Missouri, W.D.
March 31, 1986.
Risjord & Curtis, P.C., Kansas City, Mo., for plaintiffs.
William Sanders, Robert Horn, Blackwell, Sanders, Matheny, Weary & Lombardi, Kansas City, Mo., for Firestone.
Tom Schulte, Karen Iverson, Lathrop, Koontz, Righter, et al., Kansas City, Mo., for Budd.
ORDER
SCOTT O. WRIGHT, Chief Judge.
In this exploding RH5° wheel rim case, the jury found in favor of plaintiff Larry Hale both on his strict liability-design defect claim and on his negligent failure to warn claim. The jury also found that, under each claim, Larry Hale was 5% at fault for his injuries. The jury assessed Larry Hale's total actual damages at $679,000.00 and assessed punitive damages against defendant Budd Company in the amount of $1,500,000.00. The jury further found in favor of plaintiff Linda Hale on her consortium claim under both the strict liability and negligence theories. The jury assessed Linda Hale's actual damages at $225,000.00.
Before entering judgment herein, the Court must consider four issues: (1) whether contributory negligence is a partial defense to a strict liability claim; (2) whether Larry Hale's fault should diminish Linda Hale's recovery of her actual damages; (3) whether Larry Hale's percentage of fault should be assessed against his and Linda Hale's actual damages before or after subtracting the amount of plaintiffs' settlement with Firestone; and (4) whether Larry Hale's percentage of fault should reduce the amount of punitive damages awarded to him. The Court will make the following rulings:
1. At least two courts[1] have ruled that, as a matter of Missouri law concerning *586 comparative fault, ordinary contributory negligence is a partial defense to a strict liability claim. While noting that the Missouri Supreme Court will have the final word on this issue[2] and that there is strong authority on both sides of the question,[3] this Court will follow Missouri law as it presently stands and will apply Larry Hale's percentage of fault to reduce his recovery under his strict liability claim as well as his negligence claim.
2. Having decided that Larry Hale's fault will diminish his recovery, it is but a small step to further hold that Larry Hale's fault will diminish his wife's recovery as well. A loss of consortium claim is "derivative" of the injured spouse's claim. Before Missouri adopted comparative fault, the contributory negligence of the injured spouse defeated recovery by the consortium spouse. Under comparative fault principles, the result should be analagous.[4]
3. Before trial, plaintiffs settled with defendant Firestone. Under Missouri law, a non-settling defendant is entitled to credit the amount of a settlement against his actual damages liability. See Mo.Rev.Stat. § 537.060. The question presented here is whether the amount of the Firestone settlement ($625,000.00) should be credited before or after decreasing plaintiffs' actual damages ($904,000.00 total) by Larry Hale's percentage of fault (5%).
This issue has substantial monetary significance. If the settlement is credited before taking Larry Hale's fault into account, Budd would be liable for $265,050.00 in actual damages. ($904,000 - $625,000 = $279,000; $279,000 × 95% = $265,050). On the other hand, if the settlement is credited after taking Larry Hale's fault into account, Budd would be liable for "only" $233,800.00 in actual damages ($904,000 × 95% = $858,800; $858,800 - $625,000 = $233,800). Thus, there is $31,250.00 riding on the disposition of this issue.
The Court's research has revealed no Missouri case addressing this question. Nevertheless, the Court believes that it is the better view, and most likely the view of the Missouri Supreme Court,[5] that the amount of the settlement should be subtracted after decreasing plaintiffs' actual damages by Larry Hale's percentage of fault. This approach allows the nonsettling defendant full credit for a settlement against the amount of its liability, not merely against the total amount of the plaintiff's damages. Such an approach is preferable since it advances the Missouri settlement statute's purpose of preventing double recovery by a plaintiff.[6] Thus, *587 plaintiffs' actual damages recovery against defendant Budd will be reduced to $233,800.00.
4. The final issue before the Court is whether Larry Hale's fault should diminish the jury's punitive damage award of $1,500,000.00. The Court previously addressed this issue in Friley, and held that punitive damages should not be reduced by the plaintiff's percentage of fault. 604 F.Supp. at 126.
Accordingly, it is hereby
ORDERED that defendant Budd's liability for plaintiffs' actual damages is reduced to $233,800.00. It is further
ORDERED that the punitive damage award of $1,500,000.00 shall not be reduced by Larry Hale's percentage of fault.
NOTES
[1] See Gearhart v. Uniden Corp. of America, 781 F.2d 147 (8th Cir.1986); Lippard v. Houdaille Ind., No. 49226 (Mo.St.App., December 3, 1986). In Gearhart, the Eighth Circuit suggested that this Court had previously held in Friley v. International Playtex, Inc., 604 F. Supp. 126 (W.D. Mo.1984), that contributory negligence is a partial defense to a strict liability claim. That characterization of Friley is not accurate. In Friley, this Court was required to reduce the plaintiff's actual damages by her percentage of contributory negligence because the jury returned a general verdict which did not indicate whether it found in favor of plaintiff on her strict liability claim, her negligence claim, or both. Thus, the Court could not be certain that the jury had not found for plaintiff only under her negligence claim; accordingly, plaintiff's actual damages had to be reduced by her percentage of fault. In contrast, the jury in the instant case returned special verdicts expressly finding defendant Budd liable under each theory.
[2] On February 21, 1986, the Missouri Supreme Court accepted transfer of the Lippard case.
[3] Compare Simpson v. General Motors, 108 Ill. 2d 146, 90 Ill. Dec. 854, 483 N.E.2d 1 (1985) (strict liability recovery not diminished by plaintiff's ordinary negligence); Speck v. Unit Handling Division, 366 N.W.2d 543 (Iowa 1985) (same) with Daly v. General Motors, 20 Cal. 3d 725, 144 Cal. Rptr. 380, 575 P.2d 1162 (1978) (strict liability recovery diminished by plaintiff's negligence).
[4] See Conway, Comparative Fault in Missouri, 50 Mo.L.Rev. 141, 144-45 (1985).
[5] See Conway, Comparative Fault in Missouri, 50 Mo.L.Rev. at 155.
[6] To illustrate, suppose that plaintiff (P) sues two defendants (D1 and D2). P's undisputed actual damages total $100,000.00. Before trial, D1 settles with P for $50,000.00. At trial, the jury finds P and D2 to be 50% at fault each and assesses P's total damages at $100,000.00.
Clearly, D2 is liable for no more than $50,000.00. Since P has already collected $50,000.00 from D1, D2 should get full credit for that settlement and P should be entitled to nothing from D2. If the D1 settlement is credited before taking P's fault into account, however, P would be able to collect $25,000.00 from D2. ($100,000 - $50,000 = $50,000; $50,000 × 50% = $25,000.00). Such a result would, in effect, permit double recovery of that $25,000.00 by P. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1760026/ | 582 F. Supp. 376 (1983)
COX CABLE CLEVELAND AREA, INC., Plaintiff,
v.
Donald S. KING, a/k/a Donald L. Smith, a/k/a William L. Rodges, a/k/a William L. Rogers, d/b/a American Hy-Tech and d/b/a Cleveland Cable Co., Defendant.
No. C83-3604.
United States District Court, N.D. Ohio, E.D.
October 18, 1983.
*377 Anthony F. LoFrisco, Breed, Abbott & Morgan, New York City, Barry L. Springel, Jones, Day, Reavis & Pogue, Cleveland, Ohio, James A. Hatcher, Atlanta, Ga., for plaintiff.
Joan B. Sebelin, Wessman, Simon & Sebelin, Cleveland, Ohio, for defendant.
MEMORANDUM AND ORDER
WHITE, District Judge.
This matter having come on for hearing on plaintiff's motion for preliminary injunction and the Court, having consolidated the hearing with a trial on the merits pursuant to Fed.R.Civ.P. 65(a)(2) and have heard the testimony of witnesses and arguments of counsel, makes the following findings of fact and conclusions of law in accordance with Rule 52 of the Fed.R.Civ.P.
FINDINGS OF FACT
The parties have stipulated to the first twelve numbered findings.
1. Plaintiff is a corporation organized and existing under the laws of the State of Ohio with its principal place of business at 12423 Plaza Drive, Parma, Ohio.
2. Defendant Donald S. King ("King"), whose real name is Donald L. Smith has used the other names of Don King, and William L. Rogers and is doing business as American Hy-Tech. Defendant resides and conducts business at 1821 Marloes Avenue, East Cleveland, Ohio. King has used and now uses other names, to wit, Donald L. Smith, William L. Rodgers, and William L. Rogers. Defendant is a citizen of the State of Ohio. The defendant's acts complained of have occurred and are occurring in the State of Ohio.
3. Plaintiff is in the business, among other things, of operating a cable television system in the Cleveland, Ohio area.
4. In order to provide cable television service, plaintiff has constructed facilities, which include a network of coaxial cable which starts at each individual subscriber's television set, feeds into a truck line and terminates ultimately at a local antenna of *378 plaintiff. Plaintiff's subscribers of premium programming view the premium channels by means of interstate through-the-air broadcasts received by plaintiff's centrally located antennas attached principally by cable to the subscriber's home television set.
5. Plaintiff operates its cable television system pursuant to authority granted by the localities of Rocky River, Parma, Parma Heights, Lakewood, Seven Hills, Fairview Park, Olmsted Falls, Olmsted Township, Broadview Heights, and Brooklyn Heights, all of which are localities in the Cleveland, Ohio area.
6. Plaintiff offers its paying subscribers two levels of service:
(a) "Basic Service consisting of:
(i) typical network television programs, local television programs and "super stations" (e.g. WOR in New York and Turner Broadcasting in Atlanta, Georgia), all of which can be received without the need of the usual rooftop antenna; and
(ii) local government, educational, informational (weather reports, stock market reports, and the like) and public access.
(b) "Premium Programming" consisting of special programming made available through Cox on four separate channels (19 through 22.)"
Premium Programming includes first run movies, special entertainment programs and other features not available to the general public by the television networks, super stations or other generally available television services. Plaintiff purchases Premium Programming from four suppliers, namely, Home Box Office, Cinemax, Playboy and Spotlight. Each of the four Premium Programming services are supplied to paying subscribers on a separate channel.
7. Plaintiff is authorized by each of the Premium Programming suppliers to provide the Premium Programming to those paying subscribers of plaintiff who pay an additional monthly fee for each Premium Programming channel selected.
8. Plaintiff is required to pay to each supplier of Premium Programming a portion of the applicable monthly subscription fee received by it.
9. Plaintiff supplies to each of its paying subscribers a device known as a "converter" or "converter/decoder," which enables a subscriber to receive intelligible signals on an ordinary television set when the device is connected between the subscriber's television set and the plaintiff's cable outlet.
10. Plaintiff specially adjusts its devices so that a paying subscriber will receive only the specific programming to which it has subscribed and no other.
11. The transmission of the Premium Programming supplied by Home Box Office, Cinemax, Spotlight and Playboy constitutes a common carrier transmission, (all of which originate outside of Ohio) via the Satcom F3 satellite, the Satcom F4 satellite and the Westar 5 satellite.
12. Defendant has advertised, offered for sale, and sold to the public one or more types of devices consisting of converters, converter/descramblers, converter/decoders, decoders and descramblers, including Oak Industries model M35B, which are capable of, used for and intended to be used for the unauthorized interception and reception of plaintiff's private signals, including the Premium Programming signals.
13. Defendant has sold Oak Industries M35B converter/decoders since at least March 1983, as follows: three in or about June 1983 and four or five additional in the period June 1983-August 1983 for a total of seven or eight or as many as ten from early 1983 to date. In addition defendant recommended to an undetermined number of potential purchasers, numbering between twenty and thirty, that they purchase M35B converter/decoder from another supplier, for which defendant was to receive a portion of the sales price as credit against equipment brought from the supplier.
14. Plaintiff arranges and pays for the reception of the interstate common carrier *379 transmission of the Premium Programming supplied by Home Box Office, Cinemax, Playboy and Spotlight, with the express intent that the transmissions are to be received only by persons who pay to subscribe to plaintiff's Premium Programming service. The plaintiff does not intend that the signals be received by the public at large.
15. Plaintiff's paying subscribers receive Premium Programming through interstate common carrier transmissions by means of the plaintiff's facilities, including the cable network installed by plaintiff.
16. In an attempt to avoid theft of its Premium Programming services, plaintiff scrambles its Premium Programming signals so that an ordinary television set will require a descrambler or decoder, among other things, to receive an intelligible signal.
17. An Oak M35B converting/decoder has a useful life of about seven to ten years.
18. When an unauthorized converter/decoder is connected to a purchaser's television set and plaintiff's cable facility, a purchaser can intercept all of the plaintiff's cable television programming, including Premium Programming signals which are intended solely for the paying subscribers and not for the general public.
19. Once defendant has sold an unauthorized converter/decoder it is virtually impossible for plaintiff to detect the purchasers' unauthorized use of the converter/decoder.
20. Plaintiff has made a substantial and continuing investment to bring Premium Programming to the Cleveland, Ohio area.
21. Under the terms of the authorizations granted to plaintiff by the localities in the Cleveland Ohio, area, the plaintiff is obliged to pay a portion of subscription fees to those localities.
22. Defendant is unable to identify any of the purchasers who bought M35B converter/decoders from him.
CONCLUSIONS OF LAW
23. The jurisdiction of this Court is based on the existence of a federal question under 28 U.S.C. § 1331.
24. Section 605 of the Communication Act of 1934 ("the Act"), 47 U.S.C. § 605 protects radio communications (including television communications, see Allen B. DuMont Laboratories v. Carrol, 184 F.2d 153 (3rd Cir.1950), cert. denied, 340 U.S. 929, 71 S. Ct. 490, 95 L. Ed. 670 (1951)) from unauthorized reception, interception, publication or divulgence except where the broadcast is transmitted for the use of the general public. 47 U.S.C. § 605.[1] Subscription television, is not "a *380 communication ... broadcast ... for the use of the general public" within the meaning of § 605 protecting radio communications from unauthorized reception. Chartwell Communications Group v. Westbrook, 637 F.2d 459 (6th Cir.1980).
25. The fact that the plaintiff's programming is transmitted in such a manner that the signal is meaningless without the use of special equipment i.e. converters or converter/decoders, negates a finding that it is intended for use of the general public. The transmissions of plaintiff's programming are private, and not intended to be received by the public at large, but rather are intended to be received only by such persons as are authorized by plaintiff. 47 U.S.C. § 605. Movie Systems v. Heller, 710 F.2d 492 (8th Cir.1983); National Subscription Television v. S & H TV, 644 F.2d 820 (9th Cir.1981); Chartwell Communications Group v. Westbrook, 637 F.2d 459 (6th Cir.1980).
26. Section 605 of the Act also prohibits, inter alia, any person not entitled thereto from receiving or assisting in receiving any interstate or foreign radio communication and using such communication for his own benefit or the benefit of another not entitled thereto. 47 U.S.C. § 605.
27. Defendant's advertisement, offer for sale, sale installation and use of devices capable of, used for, and intended to be used for unauthorized interception and reception of Premium Programming transmissions violates § 605 of the Act. Movie Systems v. Heller, supra; National Subscription Television v. S & H TV, supra; Chartwell Communications Group v. Westbrook, supra. See also Home Box Office, Inc. v. Pay TV of Greater New York, Inc., 467 F. Supp. 525 (E.D.N.Y.1979).
28. Plaintiff utilizes coaxial wire to enable subscribers to receive the protected signals. Section 605 prohibits the divulgement or publication of wire communications which are not intended for the general public. Defendant's activities "are assisting third parties in receiving communications to which they are not entitled." Chartwell Communications Group v. Westbrook, supra, 637 F.2d, 466 quoted in National Subscription Television v. S & H TV, 644 F.2d 820 at 826. Defendant's activities in selling decoders to purchasers who use them for viewing plaintiff's signals constitutes a prohibited divulgement or publication within the meaning of § 605 of the Communications Act of 1934 as "the act of viewing a ... program on a television set equipped with an unauthorized decoder amounts to disclosure of the `existence, contents, substance, purport, effect, or meaning' of ... signals to nonsubscribers. See 47 U.S.C. § 605." National Subscription Television v. S & H TV, supra, 644 F.2d 820 at 827.
29. The Sixth Circuit Court of Appeals has ruled that an aggrieved party has an implied private cause of action for injuries arising from § 605 violations of the Communications Act of 1934. Chartwell Communications Group v. Westbrook, supra. See also Movie Systems, Inc. v. Heller, supra; National Subscription Television v. S & H TV, supra.
30. A party seeking a preliminary injunction, must demonstrate:
(1) a substantial likelihood or probability of success on the merits;
(2) irreparable injury;
(3) that the issuance of a preliminary injunction would not cause substantial harm to others; and
(4) the public interest will be served by issuance of a preliminary injunction. Friendship Materials, Inc. v. Michigan Brick, Inc., 679 F.2d 100, 103 (6th Cir. 1982).
31. The plaintiff has succeeded on the merits with respect to its claim pursuant to § 605 of the Communications Act of 1934. The defendant is engaged in a scheme to distribute, sell and advertise converter/decoders *381 which enable defendants' customers to steal Cox's cable television signal. This undermines Cox's method and purpose of doing business which is based principally on the collection of monthly fees from subscribers who pay for "premium" cable television programming. The activity of the defendant also threatens the contractual relations between Cox and its subscribers who continue to pay for their subscription cable service. Defendant's activities threaten to erode the base of Cox subscribers. Every sale of an unauthorized converter/decoder results in the irretrievable loss of potential or present Cox subscribers. The purchaser of an unauthorized converter/decoder from defendant is lost as a subscriber to Cox forever. See Chartwell Communications Group v. Westbrook, supra.
32. The continued viability of Cox's business depends upon the willingness of subscribers to pay a subscription fee for the premium programming. If equipment necessary to receive, convert and decode Cox's scrambled signals can be purchased from defendants without payment to Cox, the public will no longer see any advantage in paying Cox to obtain premium programs.
33. Defendant will not suffer if a preliminary injunction is issued. Even if defendant's primary business is the distribution and sale of equipment for stealing Cox's cable television programming, and even if defendant would be deprived of substantially all of his revenues if he is enjoined, the defendant has no vested right to earn money by violating the law. Defendant will suffer no harm if an injunction is issued which simply requires him to obey the law. Home Box Office, Inc. v. Pay TV of Greater New York, Inc., 467 F. Supp. 525, 529 (E.D.N.Y.1979).
34. A preliminary injunction will also serve the public interest. First, Congress and the Courts have recognized and protected Cox's interest in cable television communications. See 47 U.S.C. § 605; Chartwell Communications Group v. Westbrook, supra.
Second, the municipalities and localities which have granted Cox the franchise to provide cable television service have a public interest in seeing that their right to franchise such service, is protected. Not only will an injunction protect a source of revenue for these municipalities and localities, but it also insures the quality of service and availability of service that the franchise agreements are intended to secure.
35. Third, individual members of the public, namely those subscribers to Cox who obey the law and do not utilize defendant's equipment to steal television signals have an interest in seeing that the subscriber base does not shrink and that they are not, consequently, forced to bear a disproportionate share of the costs of maintaining the local cable television system.
36. The plaintiff has also alleged an action for damages pursuant to 18 U.S.C. § 2520. Section 2520 provides that:
"Any person whose wire or oral communication is intercepted, disclosed, or used in violation of this chapter [Chapter 119] shall (1) have a civil cause of action against any person who intercepts, discloses, or uses, or procures any other person to intercept, disclose, or use such communications, and (2) be entitled to recover from any such person
(a) actual damages but not less than liquidated damages computed at the rate of $100 a day for each day of violation or $1,000, whichever is higher;
(b) punitive damages; and
(c) a reasonable attorney's fee and other litigation costs reasonably incurred. A good faith reliance on a court order or legislative authorization shall constitute a complete defense to any civil or criminal action brought under this chapter or under any other law.
The plaintiff contends that the defendant's conduct violates 18 U.S.C. § 2511 which prohibits the interception and disclosure of wire or oral communications.
*382 37. The Court is not persuaded that the plaintiff may pursue a cause of action pursuant to 18 U.S.C. § 2520.
38. The legislative history of 18 U.S.C. § 2510 et seq. reveals that this section is Title III of the Omnibus Crime Control and Safe Streets Act of 1968. See 1968 U.S. Code Cong. and Adm.News 2112. Title III of the Safe Streets Act was concerned with wiretapping and electronic surveillance by persons other than duly authorized law enforcement officials. The dual purpose of Title III was to protect the privacy of wire and oral communications i.e. telephone communications and to delineate the circumstances and conditions under which the interception of wire and oral communications may be authorized 1968 U.S.Code Cong. and Adm.News at 2153.
39. It is apparent from the legislative history of Title III that the Congress was concerned that the privacy of communication was being jeopardized by electronic surveillance. "Every spoken word relating to each man's personal, marital, religious, political or commercial concerns can be intercepted by an unseen auditor and turned against the speaker to the Auditor's advantage." Id. at 2154.
40. In order to remedy this "widespread use and abuse of electronic surveillance techniques," the Congress concluded that "[C]riminal penalties have their part to play. But other remedies must be afforded the victim of an unlawful invasion of privacy. Provisions must be made for civil recourse for damages." Id. at 2156.
41. Hence the enactment of 18 U.S.C. § 2520. This Court is not persuaded however that the defendant's conduct in the matter sub judice, is within the ambit of conduct proscribed by 18 U.S.C. § 2510 et seq. With the exception of plaintiff's single principal case Telecinema of Columbus, Inc., v. Tele-Tuner, Inc., case No. C-2-76-423 (S.D.OH 1976), cases brought under § 2520 were concerned with the "bugging" or "wiretapping" of telephones, and telephone conversation, use of pen registers, and other types of electronic surveillance. The activity common to these cases was a defendant's efforts to surreptitiously learn the contents of private, business or personal communications made over the telephone; not the unlawful interception of cable television programming.
42. The Court is persuaded that neither the defendant's conduct nor the wire communication here is within the ambit of 18 U.S.C. § 2520.
43. "Wire communication" is defined in 18 U.S.C. § 2510(1) as:
"Any communication made in whole or in part through the use of facilities for the transmission of communications by the aid of wire, cable, or other like connections between the point of origin and the point of reception furnished or operated by any person engaged as a common carrier in providing or operating such facilities for the transmission of interstate or foreign communications."
44. Section 2510(10) provides ... that the term communication common carrier shall have the same meaning as common carrier in 47 U.S.C. § 153(h). Section 153(h) of Title 47 defines common carrier as "... Any person engaged as a common carrier for hire in interstate or foreign communication by wire or radio or interstate or foreign radio transmission of energy..."
45. The Supreme Court has determined that radio and television broadcasters are not included in the definition of common carrier under the Communications Act of 1934, as are telephone and telegraph companies. United States v. Radio Corporation of America, 358 U.S. 334, 79 S. Ct. 453, 3 L. Ed. 2d 354 (1959). The Court also declined to view cable operators as common carriers when it ruled that the Federal Communications Commission could not regulate cable television systems as common carriers, just as it could not impose common carrier obligations on television broadcasters. FCC v. Midwest Video Corporation, 440 U.S. 689, 99 S. Ct. 1435, 59 L. Ed. 2d 692 (1979).
46. In Midwest Video Corp., supra the Supreme Court opined "[W]e think authority to compel cable operators to provide *383 common carriage of public-originated transmissions must come specifically from Congress." 440 U.S. at 709, 99 S.Ct. at 1446.
47. As the Supreme Court has declined to treat cable systems as common carriers subject to common carrier obligations and the plaintiff, has failed to show that it is a common carrier as used in 18 U.S.C. § 2510(1) or as defined in 18 U.S.C. § 2510(10) or 47 U.S.C. § 153(h), the Court is persuaded that the plaintiff does not transmit a "wire communication" as defined in 18 U.S.C. § 2510(1).
48. As the plaintiff is not a common carrier transmitting a `wire communication' as defined in § 2510(1), the defendant's conduct is not within the purview of 18 U.S.C. § 2520.
ORDER AND JUDGMENT
WHEREFORE, it is ordered that:
1. The defendant, his agents, servants, employees, and those persons acting in concert with him, be and hereby are preliminarily and permanently enjoined until the further order of this Court from selling, offering for sale, advertising, leasing, filling orders, shipping, moving or transferring to any other location, installing or soliciting the installation of or otherwise disposing of any device including but not limited to converters, decoders, descramblers, converter/descramblers or converter/decoders which may be used for decoding, converting and/or intercepting in any manner whatsoever all or any part of the cable television services of Cox Cable Cleveland Area, Inc.
2. Costs to be assessed against the defendant.
IT IS SO ORDERED.
NOTES
[1] Section 605, in full, reads as follows:
Except as authorized by chapter 119, Title 18, no person receiving, assisting in receiving, transmitting, or assisting in transmitting, any interstate or foreign communication by wire or radio shall divulge or publish the existence, content, substance, purport, effect, or meaning thereof, except through authorized channels of transmission or reception, (1) to any person other than the addressee, his agent or attorney, (2) to a person employed or authorized to forward such communication to its destination, (3) to proper accounting or distributing officers of the various communicating centers over which the communication may be passed, (4) to the master of a ship under whom he is serving, (5) in response to a subpoena issued by a court of competent jurisdiction, or (6) on demand of other lawful authority. No person not being authorized by the sender shall intercept any radio communication and divulge or publish the existence, contents, substance, purport, effect, or meaning of such intercepted communication to any person. No person not being entitled thereto shall receive or assist in receiving any interstate or foreign communication by radio and use such communication (or any information therein contained) for his own benefit or for the benefit of another not entitled thereto. No person having received any intercepted radio communication or having become acquainted with the contents, substance, purport, effect, or meaning of such communication (or any part thereof) knowing that such communication was intercepted, shall divulge or publish the existence, contents, substance, purport, effect, or meaning of such communication or any part thereof or use such communication (or any information therein contained) for his own benefit or for the benefit of another not entitled thereto. This section shall not apply to the receiving, divulging, publishing, or utilizing the contents of any radio communication which is broadcast or transmitted by amateurs or others for the use of the general public, or which relates to ships in distress. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1760648/ | 582 F. Supp. 297 (1983)
MALDEN AMUSEMENT COMPANY, INC., Plaintiff,
v.
CITY OF MALDEN, Thomas Fallon, as Mayor of the City of Malden, and City Council of Malden, Defendants.
Civ. A. No. 82-1840-S.
United States District Court, D. Massachusetts.
January 25, 1983.
*298 Richard J. White, Boston, Mass., for plaintiff.
Jordan L. Shapiro, Malden, Mass., for defendants.
MEMORANDUM AND ORDER
SKINNER, District Judge.
The parties are before this court on plaintiff's motion for partial summary judgment. Plaintiff Malden Amusement Company, Inc. ("Amusement Company") raises several federal and state constitutional challenges to the Revised Ordinance of the City of Malden, c. 13, § 34(2) and to M.G.L. c. 140, § 177A, arising out of the denial of its application for a license to operate fifty (50) video machine devices in Malden Square. Plaintiff names the City of Malden, its mayor, Thomas Fallon, and the City Council of Malden as defendants.
*299 The Amusement Company had originally applied in May, 1982 for a license to operate its video amusement center. On or about June 2, 1982, the Malden City Council passed an amendment to Malden Revised Ordinances restricting licenses for five or more video games to where the video games would be for a "purpose accessory to or incidental to only recreational business use" and limited each such licensee to a maximum of 25 video games. On June 15, 1982, the Council granted a license to operate 15 video games to a Malden movie theater and a license to operate 7 video games to the Granada Lanes Bowladrome, which already had 15 video games in operation. On June 29, 1982, the Council rejected the Amusement Company's application for a license to operate 50 video games in a business established for that purpose on the basis of the Amendment to the Revised Ordinances ("Ordinance").
The Amusement Company contends that video game playing is protected speech and association within the First Amendment to the United States Constitution and the Massachusetts Declaration of Rights. Only one federal court has addressed the question of whether video amusement games are protected speech within the First Amendment. America's Best Family Showplace v. City of New York, 530 F. Supp. 607, 536 F. Supp. 170 (E.D.N.Y. 1982). In deciding plaintiff's motion for a preliminary injunction, the court in Showplace undertook a thorough examination of First Amendment law and held that video amusement games are not protected under the First Amendment to the United States Constitution. I find that analysis persuasive, and I hold on the merits of the present case that video games are not protected speech within the First Amendment, or under the Massachusetts Declaration of Rights.
The ordinance is challenged as violating the freedom of association because it "precludes individuals from playing video games and from freely and socially associating in businesses devoted solely to the management and operation of automatic amusement devices for the public's enjoyment". Plaintiff's Brief in Support of its Motion for Partial Summary Judgment, p. 8. I find that plaintiff has not presented a recognizable claim of a violation of the freedom to associate. It cannot be said that a person has a constitutional right to play video games in an arcade that is not an "accessory to or incidental to only recreational business use". Compare Local 1814, Int'l v. Waterfront Comm'n of New York Harbor, 667 F.2d 267 (2d Cir.1981) (freedom to associate extends to advancement of beliefs and ideas). But cf. Aladdin's Castle, Inc. v. City of Mesquite, 630 F.2d 1029, 1041-1042 (5th Cir.1980) (ordinance preventing children under seventeen years old from using video game arcades violated their freedom to associate), rev'd in part and remanded in part, City of Mesquite v. Aladdin's Castle, Inc., 455 U.S. 283, 102 S. Ct. 1070, 1077, 71 L. Ed. 2d 152 (1982) (questioning standard applied by the Fifth Circuit in finding a violation of the right to association).
Vagueness.
A municipality's regulation of a particular business will be upheld against a challenge that it is void for vagueness where it puts reasonable persons on notice of the standards to be applied, Papachristou v. City of Jacksonville, 405 U.S. 156, 162, 92 S. Ct. 839, 843, 31 L. Ed. 2d 110 (1972), and where the prohibitions are clearly defined. City of Mesquite v. Aladdin's Castle, 455 U.S. 283, 102 S. Ct. 1070, 1075, 71 L. Ed. 2d 152 (1982) (emphasis in original) (citation and footnote omitted).
I find that reasonable persons are put on notice of the meaning of the phrase "accessory to or incidentally related to a recreational business use". See e.g., Davis v. Pine Mountain Lumber Co., 77 Cal. Rptr. 825, 828, 273 Cal. App. 2d 218 (1969) (defining incidental); Amarillo Lodge No. 731, A.F. and A.M. v. City of Amarillo, 473 S.W.2d 264, 273 (Tex.Civ.App.1971) (defining incident to); Lawrence v. Zoning Board of Appeals, 158 Conn. 509, 264 A.2d 552, 554 (Conn.1969) (defining incidental *300 and accessory); State v. Village of North Palm Beach, Fla., 133 So. 2d 641, 642 (Fla. 1961) (defining recreational purpose); and Johnson City v. Cloninger, 213 Tenn. 71, 372 S.W.2d 281, 283 (Tenn.1963) (defining recreational purpose).
The ordinance also contains the following provision which plaintiff claims is unconstitutionally vague:
Section 13-34(6):
Further rules and regulations for the keeping and/or operation of such devices, under Chapter 13-34 (1) through (6) may be enacted by the Malden Licensing Authorities. Licenses may be issued upon such terms and conditions as the Licensing Authority deems to be in the best interests of the health, welfare, safety, peace and quiet enjoyment for the citizens of the City of Malden. Whoever violates the terms, conditions or provisions of a license or this Ordinance shall be punishable by fines and penalties as provided by Chapter I-6 and said violation shall be cause for cancellation, suspension, revocation or modification after hearing, upon three days written notice, sent registered or certified mail, to the address set forth in the license application.
It is unnecessary to decide this question, however, for I find that plaintiff lacks standing to challenge that section of the ordinance.
Plaintiff applied for a license to operate 50 video game machines in a business established solely for that purpose. As such, plaintiff's application does not comply with either the 25-game limitation or the accessory or incidental use limitation. "A plaintiff who engages in some conduct that is clearly proscribed cannot complain of the vagueness of the law as applied to the conduct of others." Village of Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 102 S. Ct. 1186, 1191, 71 L. Ed. 2d 362 (1982) (note omitted). Plaintiff's vagueness challenge to the ordinance is therefore unsuccessful. Similarly, the Amusement Company lacks standing to challenge the licensing fee as being excessive and in violation of M.G.L. c. 140, § 177A.
Due Process and Equal Protection Claims.
An economic classification will be upheld against an equal protection challenge if the classification is rationally related to a legitimate state interest. New Orleans v. Dukes, 427 U.S. 297, 303, 96 S. Ct. 2513, 2517, 49 L. Ed. 2d 511 (1976) (cited in Friedman v. Rogers, 440 U.S. 1, 17, 99 S. Ct. 887, 898, 59 L. Ed. 2d 100 (1979). Malden has chosen to allow up to 25 video games as an accessory to or incidental to a recreational business purpose, thus treating recreational businesses differently from businesses entirely devoted to operating video games for profit. I find that there is a rational relationship between the requirement that the games be added to a business with a different primary use and the legitimate objective of maintaining order, preventing crowding, and diminishing the prospects of out-of-town people congregating in Malden.
Similarly, an economic regulation will survive a due process challenge unless it is arbitrary or capricious. North Dakota Pharmacy Bd. v. Snyder's Stores, 414 U.S. 156, 164-167, 94 S. Ct. 407, 412-414, 38 L. Ed. 2d 379 (1973). The majority of the councillors were concerned that patrons of a video arcade would become unruly and that extra police coverage would therefore be required. As one city councillor stated, "I don't think that [the problems] with video patrons [would] develop in the Granada [bowling] Lanes or whatever, because his business is of another nature. And they don't tolerate ... because they won't tolerate any kind of leeway or give no leeway in that, because of the fact that the other business is there." Malden City Council Meeting, June 29, 1982, Transcript, p. 16. I find that the councillor sufficiently articulated a reason for the distinction in the ordinance to defeat the plaintiff's claim that it is arbitrary or capricious. *301 Massachusetts General Laws chapter 140, section 177A.
The Amusement Company challenges c. 140, § 177A, ¶ (1) as being unconstitutionally vague in violation of the Fourteenth Amendment Due Process Clause.
M.G.L. c. 140, § 177A(1) states:
(1) The licensing authorities of any city or town may grant, and after written notice to the licensee, suspend or revoke a license to keep and operate an automatic amusement device for hire, gain or reward, approved by the director of standards and necessaries of life under section two hundred and eighty-three of chapter ninety-four.
The Amusement Company alleges that § 177A(1) violates the due process clause of the Fourteenth Amendment to the United States Constitution because it is overbroad, vague, and standardless. The Supreme Judicial Court of Massachusetts recently rejected this argument. Caswell v. Licensing Comm'n for Brockton, 387 Mass. 864, 875, 444 N.E.2d 922 (1983). In Caswell, the Supreme Judicial Court held that § 177A was to be interpreted in light of the holding in Turnpike Amusement Park, Inc. v. Licensing Comm'n of Cambridge, 343 Mass. 435, 438, 179 N.E.2d 322 (1962), that
... [l]ocal authorities may deny a particular license if in their discretion they find that the general good, order and welfare of the community so require. They cannot, however, act in an unreasonable or arbitrary manner and must consider and determine each application ... on its own set of facts. (citation omitted).
I hold that under the interpretation given to this statute by the Supreme Judicial Court, § 177A(1), as applied to video game licenses, does not violate the due process clause.
On the basis of the foregoing opinion, defendants' motion for summary judgment is ALLOWED. Plaintiff's motion for declaratory relief is DENIED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1760846/ | 582 F. Supp. 1061 (1984)
MARTIN OIL SERVICE, INC., Plaintiff,
v.
KOCH REFINING CO. and Koch Industries, Inc., Defendants.
No. 81 C 1844.
United States District Court, N.D. Illinois, E.D.
February 1, 1984.
*1062 Peter B. Freeman, Michael D. Renner, Hopkins & Sutter, Chicago, Ill., William H. Bode, John E. Varnum, Alfred Lawrence Toombs, Batzell, Nunn & Bode, Washington, D.C., for plaintiff.
Pope, Ballard, Shepard & Fowle, Chicago, Ill., Quarles & Brady, Milwaukee, Wis., for defendants.
MEMORANDUM AND ORDER
MORAN, District Judge.
Before the court is defendants' motion for partial summary judgment. By consent of both parties this court deferred decision on this motion pending the result in two consolidated cases before the Temporary Emergency Court of Appeals, the court with exclusive appellate jurisdiction over this case. On December 20, 1983, the appellate court reached its decision.
*1063 I. Background
Plaintiff brought this action to recoup overcharges on 875,900,000 gallons of motor gasoline sold to it by defendants between August 19, 1973 and January 28, 1981. Plaintiff's fourth cause of action alleges that defendants increased their prices beyond the level allowed under the applicable regulations by misapplying the Federal Energy Agency's (FEA)[1] deemed recovery rule. Defendants' twelfth affirmative defense alleges the invalidity of that rule. Defendants move for partial summary judgment asking for dismissal of plaintiff's fourth cause of action and judgment in defendants' favor on its twelfth affirmative defense. Defendants argue that the deemed recovery rule is invalid on procedural and substantive grounds.
The deemed recovery rule will be discussed only briefly because both sides are well aware of its mechanics. At the time of enactment of the deemed recovery rule an oil refiner could not charge a class of purchasers more than the base price for the product sold, except under certain specific conditions. 10 C.F.R. § 212.82 (1975).[2] A class of purchasers is made up of purchasers to whom a seller has charged a comparable price for comparable property pursuant to customary price differential between purchasers. See 10 C.F.R. § 212.31 (1975). One purpose of the deemed recovery rule was the maintenance of these price differentials. See Mobil Oil Corp. v. Department of Energy, 728 F.2d 1477 at 1480, (Temp.Emer.Ct.App., 1983). The base price for a product was the cost for that product on May 15, 1973, plus increased product costs incurred between May 1973 and the measurement month, usually the month before the sale. See 10 C.F.R. § 212.82(b) (1975).
The refiner, though unable to charge more than the base price, was allowed to charge less than that price. The regulations allow the refiner to carry over or "bank" the increased product costs it failed to recover by charging less than the base price. See 10 C.F.R. § 212.83(e)(1) (1975). Whenever a refiner added previously unrecouped costs to its price it had to reduce its bank value accordingly. See generally Mobil Oil Corp. v. Department of Energy, supra, at 1480-1481.
In September 1975, without prior notice or opportunity for comment, the FEA promulgated the deemed recovery rule. That rule required the refiner to pass through its increased costs uniformly among all classes of purchasers or suffer a cost recovery penalty. The rule stated that refiners would be deemed to have recovered their increased costs as if they had recovered from all classes of purchasers costs equal to the highest increment actually recovered from any one class. Thus, if a refiner applied increased costs unequally, by adding varying increments of increased costs to prices charged to different classes of customers, the refiner could not bank all of its unrecouped costs. See id. at 1482-1483; 10 C.F.R. § 212.83(e)(1) (1975).
Plaintiff alleges in its fourth cause of action that defendants banked increased product costs that the rule required to be deemed recovered. Plaintiff claims defendants added these improperly banked costs to prices charged, resulting in prices above defendants' allowable base price. Defendants counter by attacking the validity of the rule on both procedural and substantive grounds.
II. Procedural Attack
Defendants charge that the deemed recovery rule was procedurally invalid because the FEA failed to give notice and allow for public comment. They also claim that the FEA did not meet the stringent conditions required to show cause for dispensing with notice and public comment. Finally, they claim that there was insufficient *1064 notice for comment with regard to the repromulgation of the rule.
Defendants' procedural attack against the deemed recovery rule has been entirely defused by the Temporary Emergency Court of Appeals decision in Mobil Oil Corp. v. Department of Energy, 728 F.2d at 1480, (Temp.Emer.Ct.App., 1983). In Mobil Oil, the Court held that the FEA's finding that an announcement of the deemed recovery rule before promulgation could have caused serious market distortions was adequate support for its decision to promulgate the rule without prior notice or opportunity for comment. Id. at 1490-1494. The Court also held that subsequent notice of comment on the rule, on December 5, 1974, was also procedurally valid. Id. at 1494-1496. In short, the Court completely upheld the procedural validity of the rule.
The Temporary Emergency Court of Appeals has exclusive appellate jurisdiction over the questions presently before this court. See 12 U.S.C. § 1904 note (Economic Stabilization Act of 1970, § 211(b)(2)). This court is bound by the decisions of the Temporary Emergency Court of Appeals regarding this issue. Accordingly, pursuant to Mobil Oil, the court denies defendants' procedural attack on the deemed recovery rule.
III. Substantive Attack
Defendants also attack the deemed recovery rule on two substantive grounds. First, they claim the rule is inconsistent with the express provisions of the Emergency Petroleum Allocation Act of 1973 (EPAA), 15 U.S.C. §§ 751, et seq., the enabling act for the regulation in question. Second, they claim the FEA failed to properly consider the explicit statutory objectives of the EPAA, as required by the statute. Judicial review of informal rulemaking, as was involved in the promulgation of the deemed recovery rule, is governed by the provisions of 5 U.S.C. § 706(2). See Mobil Oil Corp. v. Department of Energy, supra; McColloch Gas Processing v. Department of Energy, 650 F.2d 1216, 1220 (Temp.Emer.Ct.App.1981). That statute states:
The reviewing court shall
* * * * * *
(2) hold unlawful and set aside agency action, findings, and conclusions found to be
(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law:
* * * * * *
(C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right;
* * * * * *
5 U.S.C. § 706(2). A claim that agency action is violative of a statutory limitation "necessarily entails a first-hand judicial comparison of the claimed excessive action with pertinent statutory authority." Western Union Telegraph Co. v. Federal Communications Commission, 541 F.2d 346, 354 (3d Cir.1976), cert. denied, 429 U.S. 1092, 97 S. Ct. 1104, 51 L. Ed. 2d 538 (1977).
Defendants' claim that the deemed recovery rule violates the dollar-for-dollar pass-through requirement of the EPAA set out in 15 U.S.C. § 753(b)(2)(A). That section states:
(2) In specifying prices for prescribing the manner for determining them, the regulation under subsection (a) of this section
(A) shall provide for a dollar-for-dollar passthrough of net increases in the cost of crude oil, residual fuel oil, and refined petroleum products at all levels of distribution from the producer through the retail level.[3]
Defendants claim that by deeming recovered cost increases that in fact were not recovered, the rule violated the dollar-fordollar *1065 passthrough provision cited above. They interpret section (b)(2)(A) as requiring that dollar-for-dollar passthroughs be allowed in all circumstances. They find support in the congressional desire that
prices for allocated fuels will be set at levels or pursuant to methods which will permit adequate compensation to assure that private property is not implicitly confiscated by the government.
H.R.Conf.Rep. No. 93-628, 93d Cong., 1st Sess., reprinted in (1973) U.S.Code Cong. & Ad.News, 2688, 2703. By not allowing recovery of all increases in costs they claim the deemed recovery rule implicitly confiscates a refiner's property.
Section (b)(2)(A), however, does not require that all refiners, under all circumstances, be allowed to recover all their increased costs. Courts have held that the statute only requires refiners be given a reasonable opportunity to recover all their increased costs. See Exxon Corp. v. Federal Energy Administration, 417 F. Supp. 516, 522 (D.N.J.1975); Exxon Corp. v. Federal Energy Administration, 398 F. Supp. 865, 875 (D.D.C.1975), aff'd sub nom., Texaco, Inc. v. Federal Energy Administration, 531 F.2d 1071 (Temp.Emer.Ct.App.), cert. denied, 426 U.S. 941, 96 S. Ct. 2662, 49 L. Ed. 2d 394 (1976). This is the interpretation supported by the FEA, see 39 Fed.Reg. 32306, 32307 (Sept. 5, 1974), Exxon Corp. v. Federal Energy Administration, 398 F.Supp. at 875, and as such is entitled to deference and should be followed, absent compelling indications that it is wrong. See DeAvilia v. Civiletti, 643 F.2d 471, 475 (7th Cir.), cert. denied, 454 U.S. 860, 102 S. Ct. 314, 70 L. Ed. 2d 157 (1981).
In addition, Congress has explicitly and implicitly approved the rule as being in accord with the statutory requirements of the EPAA. On March 5, 1975, the Senate Committee on Interior and Insular Affairs reported that the intent of Congress, as expressed in the EPAA, was to assure equitable prices for petroleum products. The Committee stated that Congress meant to require that "each class of purchaser is charged a price reflecting the maintenance of customary price differentials within the industry." S.Rep. No. 94-26, 94th Cong., 1st Sess. 37 (1975). The Committee referred to an FEA regulation designed to meet that requirement, apparently the deemed recovery rule, and determined not to recommend passage of a statutory mandate requiring maintenance of price differentials, relying instead on enforcement of the FEA regulation. This occurred despite explicit reference to the dollar-for-dollar passthrough provision. Id. at 37-38. The views of a subsequent congressional committee on the meaning of a statute are entitled to significant weight. See Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S. 572, 596, 100 S. Ct. 800, 813, 63 L. Ed. 2d 36 (1980). In addition, after expressly being informed of the workings of the deemed recovery rule, see Statement of Frank G. Zarb, Before Senate Committee on Interior and Insular Affairs, at 30-33 (May 19, 1975), Congress reviewed and amended the EPAA without rejecting the regulation. See Pub.L. 94-163, 89 Stat. 946, 948 (Dec. 22, 1975). Congress' decision not to reject the regulation, while amending the statute, is also relevant. See Andrus v. Allard, 444 U.S. 51, 57, 100 S. Ct. 318, 322, 62 L. Ed. 2d 210 (1979). In light of the language of the statute, the FEA's interpretation of the statute, judicial construction, and Congress' implicit and explicit acceptance of that meaning, this court finds that section (b)(2)(A) only requires a reasonable opportunity to recoup passthrough costs. The deemed recovery rule, by providing opportunity for such passthrough, is not violative of that section.
Defendants also argue that the FEA did not adequately or correctly consider the statutory objectives set out in EPAA, which the FEA is required to provide for, "to the maximum extent practicable." See 15 U.S.C. § 753(b)(1). Such an attack is to be reviewed by this court under the "arbitrary or capricious, an abuse of discretion, or otherwise not in accordance with the law" standard of 5 U.S.C. § 706(2)(A). See Texaco, Inc. v. Federal *1066 Energy Administration, 531 F.2d 1071, 1076 (Temp.Emer.Ct.App.), cert. denied, 426 U.S. 941, 96 S. Ct. 2662, 49 L. Ed. 2d 394 (1976). Under that standard the inquiry into an agency's action is "`whether the decision was based on a consideration of relevant factors, whether there has been a clear error of judgment and whether there is a rational basis for the conclusions approved by the administrative body.'" Mobil Oil Corp. v. Department of Energy, 610 F.2d 796, 801, (Temp.Emer.Ct.App. 1979), cert. denied 446 U.S. 937, 100 S. Ct. 2156, 64 L. Ed. 2d 790 (1980).
Defendants contend the FEA did not sufficiently consider the statutory objectives in promulgating the regulation and that the regulation was therefore beyond the FEA's statutory authority and invalid. See Mobil Oil v. Department of Energy, 610 F.2d at 802. These objectives are found at 15 U.S.C. § 753(b)(1)(A)-(I). The evidence discloses, however, that the FEA did in fact consider the objectives of the EPAA in promulgating the rule. In the preamble to the rule the FEA described the goal of the deemed recovery rule, the maintenance of price differentials, as "fundamental to the FEA system of price regulations." 39 Fed.Reg. 32306, 32307 (Sept. 5, 1974). The FEA found that continuation of the practices designed to be curtailed by the rule "would be injurious to the public welfare." Id. The protection of public welfare is one of the specifically enumerated objectives of the EPAA. See 15 U.S.C. § 753(b)(1)(A). On September 10 the FEA proposed modifications of the rule in a rule-change proposal promised in the September 5 preamble. See Mobil Oil Corp. v. Department of Energy, supra, at 1493. The note on these modifications is relevant in determining factors considered by the FEA promulgating the rule. Id. In that note, 39 Fed.Reg. 32718, 32722-23 (Sept. 10, 1974), the FEA mentioned considerations involving a number of the objectives stated in the EPAA, including: (1) the concern for market dislocations caused by price inflexibility, see 15 U.S.C. § 753(b)(1)(I); (2) the need for price mechanisms to play a role in the market, see id. at (H); (3) the desire for equitable prices for independent regional marketers, see id. at (F); and (4) the need to protect the independent sector, see id. at (D). In addition the FEA specifically noted that the rule "can have results that appear to be at odds with the objectives of the EPAA." 39 Fed.Reg. at 32723. It is clear from this review that the FEA did consider the statutory objectives of the EPAA in reaching its decision.
Defendants also contend that the FEA incorrectly weighed the objectives and reached a result contrary to the mandates of the Act. In reviewing this judgment the court is aware that:
The scope of review under the "arbitrary and capricious" standard is narrow and a court is not to substitute its judgment for that of the agency. Nevertheless, the agency must examine the relevant data and articulate a satisfactory explanation for its action, including a "rational connection between the facts found and the choice made."
Motor Vehicle Manufacturer's Association v. State Farm Mutual Insurance Co., ___ U.S. ___, ___-___, 103 S. Ct. 2856, 2866-67, 77 L. Ed. 2d 443, 457-58 (1983), citing Burlington Truck Lines v. United States, 371 U.S. 156, 168, 83 S. Ct. 239, 245, 9 L. Ed. 2d 207 (1962).
Under such a narrow standard, this court is not unable to find a rational connection between the EPAA's objectives and the FEA's decision to promulgate the deemed recovery rule. The FEA was concerned with protecting the independent sector and preserving customary price differentials. See 39 Fed.Reg. 32722, 32722-23 (Sept. 10, 1974). These problems, as well as a number of the statutory objectives, were explicitly considered in reaching the FEA's decision. Id. It is not required, or even possible, for the FEA to satisfy all the statutory objectives with each regulation. See H.R.Conf.Rep. 93-628, 93d Cong., 1st Sess., reprinted in (1973) U.S.Code Cong. & Ad.News, 2688. "It is fully recognized that, in some instances, it may be impossible to satisfy one objective without *1067 sacrificing the accomplishment of another." Id. A balancing is required; no one objective can be considered a mandatory duty. General Crude Oil Co. v. Department of Energy, 585 F.2d 508, 513 (Temp.Emer.Ct. App.1978), cert. denied, 440 U.S. 912, 99 S. Ct. 1226, 59 L. Ed. 2d 461 (1979). This court finds that the EPAA objectives of protecting the independent segment of the industry, see 15 U.S.C. § 753(b)(1)(D), and fostering equitable distribution and pricing, see id. at (F), were sufficiently strong justifications for allowing the rule, despite possible harm to economic efficiency, see id. at (H), and possible economic distortion and inflexibility, see id. at (I). The court finds a rational basis for the rule. This conclusion is buttressed by Congress' explicit and implicit acceptance of the rule as in harmony with the Act discussed above. Accordingly, defendants' substantive attack on the rule is also denied.
IV. Conclusion
One final issue needs to be resolved. In its motion defendants asked for dismissal of plaintiff's fourth cause of action for overcharges incurred between August 20, 1973 and September 1, 1974. The deemed recovery rule was not valid until September 1, 1974. See 39 Fed.Reg. at 32307 (Sept. 5, 1974). Accordingly, that request will be granted.
For the foregoing reasons, defendants' motion for summary judgment is denied, except for dismissal of plaintiff's fourth cause of action for overcharges that occurred between August 20, 1973 and September 1, 1974.
NOTES
[1] That agency has been subsumed within the Department of Energy.
[2] The regulations in effect at the time of promulgation of the deemed recovery rule are being cited and discussed. Only those regulations are relevant to the determinations made in this case.
[3] Plaintiff notes that at the time of promulgation of the deemed recovery rule the statute applied only "to all marketers or distributors at the retail level," thus not covering refiners. Defendants dispute that interpretation. In view of the court's construction of the present statute, no interpretation of the past statute is required. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1763818/ | 715 F. Supp. 996 (1989)
PROTECT OUR EAGLES' TREES (POETs), an unincorporated association, Plaintiff,
v.
CITY OF LAWRENCE, KANSAS; Lawrence River Plaza Associates; United States Army Corps of Engineers; United States Department of the Interior; United States Environmental Protection Agency, Defendants.
Civ. A. No. 89-2090-S.
United States District Court, D. Kansas.
February 28, 1989.
*997 Robert V. Eye, Tonganoxie, Kan., for plaintiff.
John W. Lungstrum, Scott J. Bloch, Stevens, Brand, Lungstrum, Golden & Winter, Lawrence, Kan., for Lawrence River Plaza Associates.
Gerald L. Cooley, Allen, Cooley & Allen, Lawrence, Kan., for City of Lawrence, Kan.
MEMORANDUM AND ORDER
SAFFELS, District Judge.
In January and February of each year, flocks of bald eagles winter along the Kansas River in Lawrence, Kansas. Warm water generated by a hydroelectric plant at the Bowersock Dam on the Kansas River remains unfrozen during these coldest times of the year. The bald eagles perch atop cottonwood trees near the dam and feed on fish in the unfrozen parts of the river.
Demolition along the south bank of the Kansas River has begun in order to make way for a new riverfront shopping center. On approximately March 1, 1989, the crews on the site are scheduled to cut down several of the cottonwoods along the south bank.
A group of concerned environmentalists in Lawrence formed the plaintiff organization and brought this suit on February 22, 1989, seeking to prevent the eagles' perch trees from being destroyed. Plaintiff sought relief under the Bald Eagle Protection Act ("BEPA"), 16 U.S.C. § 668 et seq., the Clean Water Act ("CWA"), 33 U.S.C. § 1251 et seq., the Endangered Species Act ("ESA"), 16 U.S.C. § 1531 et seq., and the National Environmental Policy Act ("NEPA"), 42 U.S.C. § 4321 et seq. Before filing suit, plaintiff sent notice to the Environmental Protection Agency ("EPA"), pursuant to the CWA, and to the Secretary of the Interior, pursuant to the ESA.
Plaintiff sought a temporary restraining order enjoining defendant Lawrence Riverfront Plaza Associates, L.P.,[1] from cutting down the cottonwoods in question. Defendants have moved to dismiss plaintiff's complaint. In order to obtain preliminary injunctive relief, plaintiff must establish the following:
(1) Substantial likelihood that the movant will eventually prevail on the merits; (2) a showing that the movant will suffer irreparable injury unless the injunction issues; (3) proof that the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party; and (4) a showing that the injunction, if issued, would not be adverse to the public interest.
Lundgrin v. Claytor, 619 F.2d 61, 63 (10th Cir.1980). "The touchtone for obtaining such relief is a showing of irreparable harm, coupled with a substantial likelihood of success on the merits." Community Communications Co., Inc. v. City of Boulder, Colo., 660 F.2d 1370, 1375 (10th Cir.), cert. dismissed, 456 U.S. 1001, 102 S. Ct. 2287, 73 L. Ed. 2d 1296 (1981). Defendants argued that this court is without jurisdiction under the BEPA, the CWA, and the ESA, and that plaintiff lacks standing *998 under the NEPA. Thus, defendants argued plaintiff is unable to show that it would succeed on the merits, and dismissal of the action is in order.
At the conclusion of the hearing held in this matter on February 28, 1989, the court denied plaintiff's motion for a temporary restraining order and granted the motion to dismiss. The court will now state more specifically the bases for its ruling.
Plaintiff first sought a writ of mandamus from this court, compelling the Department of the Interior to enforce the BEPA and prevent what it alleges are prohibited acts under that Act. However, there is no language in that Act purporting to create a private right of action against the Department of the Interior. 28 U.S.C. § 1361 grants this court jurisdiction over mandamus actions, but it does not create substantive rights which do not otherwise exist. Starbuck v. City and County of San Francisco, 556 F.2d 450, 459 (9th Cir. 1977); Carter v. Seamans, 411 F.2d 767, 773 (5th Cir.1969), cert. denied, 397 U.S. 941, 90 S. Ct. 953, 25 L. Ed. 2d 121 (1970). Since plaintiff has no private cause of action under the BEPA, the court cannot grant the relief requested.
Defendants next contend that plaintiff did not provide proper notice to the EPA as required under the CWA. 33 U.S. C. § 1365(b)(2) provides that no citizen suit may be commenced "prior to sixty days after the plaintiff has given notice of such action to the Administrator." Plaintiff concedes no notice was provided until sixteen days before this suit was filed. Plaintiff asked for waiver of this sixty-day notice requirement; however, plaintiff provided the court with no authority which would confer upon this court the power to waive the explicit congressional requirement of notice. The notice requirement has been held to be jurisdictional. Massachusetts v. United States Veterans Admin., 541 F.2d 119, 121 (1st Cir.1976). The court is therefore without jurisdiction to consider plaintiff's claim under the CWA.[2]
Likewise, plaintiff did not comply with the notice requirements of the ESA, found at 16 U.S.C. § 1540(g). Again, that provision requires that no citizen suit be commenced prior to sixty days after written notice is given to the government. Plaintiff concedes that notice was given only sixteen days before this suit was filed. An exception to the sixty day notice requirement is found at 16 U.S.C. § 1540(g)(2)(C), but that exception is not applicable here.[3]
Since plaintiff has failed to comply with the notice requirement of 16 U.S.C. § 1540(g), this court is without jurisdiction to address its claim under the ESA.[4]
*999 Finally, defendants contended that plaintiff does not have standing to bring its cause of action under the NEPA. Plaintiff is an unincorporated association, purporting to represent the interests of its individual members. An association may have standing solely as a representative of its members even though the association itself has suffered no injury. UAW v. Brock, 477 U.S. 274, 281, 106 S. Ct. 2523, 2528, 91 L. Ed. 2d 228 (1986); Warth v. Seldin, 422 U.S. 490, 511, 95 S. Ct. 2197, 2211-12, 45 L. Ed. 2d 343 (1975). An association has standing if it alleges an injury in fact on the part of its individual members, the interests the association seeks to protect are germane to the association's purposes, and neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit. UAW v. Brock, 477 U.S. at 282, 106 S.Ct. at 2529 (citing Hunt v. Washington State Apple Advertising Comm'n, 432 U.S. 333, 343, 97 S. Ct. 2434, 2441, 53 L. Ed. 2d 383 (1977)).
Plaintiff here has satisfied the court that the interests it seeks to protect are germane to its purposes; it alleges in its complaint that it is "an ad hoc group comprised of concerned citizens who seek to protect of [sic] a group of large, well-established trees along a stretch of the Kansas River bank that are frequented by endangered, wintering Bald Eagles from destruction." Plaintiff's Complaint ¶ 9. Further, there has been no contention by any of the parties that participation of the individual members would be required here. However, plaintiff is still required to make a showing that its individual members may suffer an injury in fact. The Supreme Court set out the test for individual standing in the cases United States v. SCRAP and Sierra Club v. Morton, 405 U.S. 727, 92 S. Ct. 1361, 31 L. Ed. 2d 636 (1972). The Court explained the doctrine as follows:
Whether a party has a sufficient stake in an otherwise justiciable controversy to obtain judicial resolution of that controversy is what has traditionally been referred to as the question of standing to sue.... Where ... Congress has authorized public officials to perform certain functions according to law, and has provided by statute for judicial review of those actions under certain circumstances, the inquiry as to standing must begin with a determination of whether the statute in question authorizes review at the behest of the plaintiff.
Id. at 732, 92 S.Ct. at 1364-65. Judicial review under the Administrative Procedure Act ("APA"), 5 U.S.C. § 701 et seq., as sought by plaintiff here, may be allowed if plaintiff alleges that the challenged action will cause it "injury in fact" and if the injury is to an interest "`arguably within the zone of interest to be protected or regulated' by the statutes that the agencies were claimed to have violated." Id. at 733, 92 S.Ct. at 1365 (citing Association of Data Processing Service Org. v. Camp, 397 U.S. 150, 90 S. Ct. 827, 25 L. Ed. 2d 184 (1970) and Barlow v. Collins, 397 U.S. 159, 90 S. Ct. 832, 25 L. Ed. 2d 192 (1970)). An "injury in fact" need not necessarily be an economic harm; rather, plaintiff may satisfy the "injury in fact" requirement by showing damage to aesthetic or environmental interests. United States v. SCRAP, 412 U.S. at 686, 93 S.Ct. at 2415. Despite this minimal requirement, however, a plaintiff is still required to show that it personally (or its individual members) will suffer the alleged injury. Id. at 687, 93 S.Ct. at 2415-16.
Plaintiff here has failed to allege that its individual members will suffer any "injury in fact" if the eagles' perch trees are cut down. It has not alleged that its members enjoy recreational activities (such as bird-watching or photography) involving the eagles, or that the members will suffer any other aesthetic injury. Rather, plaintiff has only alleged that the bald eagles themselves will suffer injury if the trees are cut down. Plaintiff has thus failed to make the required showing that its individual members will suffer injury in fact, as required for associational standing.
Even if plaintiff amended its complaint to properly assert its associational standing, the NEPA statutory section under which it seeks relief cannot be applied here. Plaintiff contended that defendant the United States Army Corps of Engineers ("the Corps") failed to properly analyze *1000 the environmental impact of the proposed construction, including an analysis of alternatives to the proposal, in violation of 42 U.S.C. § 4332(2)(C). See Plaintiff's Complaint ¶¶ 29-40. However, the language of section 4332(2)(C) indicates that the provision only applies to "major Federal actions significantly affecting the quality of the human environment." The government proffered that the Corps conducted an "environmental assessment" pursuant to 40 C.F.R. § 1508.9 to determine whether the proposed action would have a "significant effect." The Corps determined there would be no significant effect; thus, it did not conduct the analysis to which plaintiff refers in 42 U.S.C. § 4332(2)(C). The decisions reached as a result of the environmental assessment are matters directed to the Corps' judgment or discretion, and mandamus relief is therefore not available. See Craig v. Colburn, 414 F. Supp. 185, 193 (D.Kan.1976), aff'd, 570 F.2d 916 (10th Cir. 1978). Thus, even if plaintiff had standing, the court is without jurisdiction to consider plaintiff's NEPA claim.
Since plaintiff failed to show it was a likely to succeed on the merits of any of its claims, the court has denied the motion for a temporary restraining order. Further, since each of defendants' contentions in the motion to dismiss has merit, the case was and is hereby dismissed.
IT IS BY THE COURT THEREFORE ORDERED that plaintiff's motion for temporary restraining order is denied. IT IS FURTHER ORDERED that defendants' motion to dismiss is granted, and the case is hereby dismissed.
NOTES
[1] The defendant developer advises the court that although it was designated in the complaint as "Lawrence River Plaza Associates," its proper name is "Lawrence Riverfront Plaza Associates, L.P."
[2] Despite defendants' concession to the contrary, plaintiff also appears to lack standing. Case law indicates that a plaintiff proceeding under 33 U.S.C. § 1365 may still need to make some minimal showing of an injury in fact, as required by United States v. SCRAP, 412 U.S. 669, 686, 93 S. Ct. 2405, 2415, 37 L. Ed. 2d 254 (1973). See, e.g., Fairview Township v. United States Envtl. Protection Agency, 773 F.2d 517, 523 n. 10 (3d Cir.1985). This would purport with 33 U.S.C. § 1365(g), which defines "citizen" as "a person or persons having an interest which is or may be adversely affected." (emphasis added). Only a "citizen" may bring suit. In fact, at the time section 1365 was adopted, a provision was proposed which would have granted standing to any citizen regardless of ability to show an injury in fact, but the proposal was rejected by Congress. See Fairview Township, id. Thus, this court lacks jurisdiction over plaintiff's action under the CWA, both because plaintiff failed to comply with the notice requirements, and because plaintiff has failed to allege standing.
[3] Section 1540(g)(2)(C) provides that the sixty-day notice period may be waived when an emergency exists and an action is brought pursuant to section 1540(g)(1)(C). An action under subparagraph (1)(C) would address a designation by the Secretary of the Interior of certain species as "endangered." No section 1533 designation is at issue here.
[4] Despite defendants' concession to the contrary, standing may not be automatic under the ESA, and a separate, minimal showing of standing may be required. At least one circuit court of appeals has indicated that it believed a showing of injury in fact is required. See National Audobon Soc'y v. Hester, 801 F.2d 405, 407 n. 2 (D.C.Cir.1986). Since plaintiff has failed to allege any injury in fact to its members, plaintiff's cause of action under the ESA might not properly be before this court. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1761718/ | 812 F.Supp. 658 (1993)
In re SHELL OIL REFINERY.
Robert ADAMS, Sr.
v.
SHELL OIL COMPANY.
Civ. A. Nos. 88-1935, 88-2719.
United States District Court, E.D. Louisiana.
February 1, 1993.
*659 Thomas J. Wyllie, Adams and Reese, New Orleans, LA, for Shell Oil Company.
D. Douglas Howard, New Orleans, LA, for plaintiffs' Legal Committee.
Phillip A. Wittmann, Barry W. Ashe, Stone, Pigman, Walther, Wittman & Hutchinson, New Orleans, LA, for Kristopher Redmann.
Jackques Bezou, Jacqueline M. Daspit, Derussy, Bezou & Matthews, New Orleans, LA, for Jack Zewe.
MENTZ, District Judge.
ORDER AND REASONS
The issue before the Court is whether the attorney-client privilege protects communications made by Jack Zewe to Kristopher Redmann regarding any matters related to Zewe's involvement in this suit. Jack Zewe is a former employee of defendant, Shell Oil Company, who, while he was employed by Shell, surreptitiously provided the PLC with certain documents belonging to Shell and other information related to the litigation. Kristopher Redmann is a partner in a New Orleans law firm.[1] He does not represent any parties in this lawsuit; however, he purportedly acted as Zewe's lawyer and rendered legal advice to him from approximately January, 1991 until October 23, 1992, in connection with Zewe's relationship with the PLC.
Factual Background
The Plaintiffs' Legal Committee (PLC) represents the claimants in this class action against Shell Oil Company for compensatory and punitive damages arising from a catastrophic explosion at Shell's Norco, Louisiana refinery.[2] During the course of the proceedings, Shell learned that the PLC had possession of certain Shell business documents which Shell had not provided to the PLC during discovery. Shell conducted an internal investigation and learned that one of its employees who is a fact witness in the case, Jack Zewe, was the PLC's source for the documents.
*660 On October 1, 1992, Shell's attorneys took a 314-page, stenographically recorded, sworn statement from Zewe in which he discussed communications with Redmann and his dealings with the PLC. No other parties to the suit were present, and Zewe did not have legal counsel during the statement. At the conclusion of the statement, Zewe was terminated from his employment at Shell. Two days later, on October 3, Zewe gave a videotaped statement to the PLC in which he discussed similar matters. Again, no other parties to the suit were present, and Zewe did not have legal counsel present.
Thereafter, Shell filed a motion to disqualify the PLC for alleged ethical violations based on the PLC's contact with Zewe. Next, the PLC filed a motion to disqualify Shell's attorneys for alleged ethical violations based on discovery abuses. The motions to disqualify are set for an evidentiary hearing.
In the statement Zewe gave to Shell, he explained how his relationship with the PLC began. Zewe stated:
Contacted Attorney Kris Redmann. He's a long time personal friend of mine. I asked him if he knew anybody that was working with or involved with the litigation against Shell. If they would be interested in hiring me as a consultant was my question to Chris [sic]. He said he didn't know, but he would get back with me.
. . . . .
He called me back, I suppose, next day, and said that there was high interest in hiring me as a consultant and that he would set up a meeting....
. . . . .
[A]bout a week later he set up a meeting between me I went to his office, Kris Redmann's office, and he brought me over to Joe Bruno's[3] office on Baronne.
(Zewe Tr. Oct. 1, 1992 at 7-9).
The Court ordered Redmann's deposition to be taken prior to the evidentiary hearing. Redmann attempted to have the deposition quashed based on the attorney-client privilege. Two days before Redmann's deposition was scheduled to begin, Zewe's present attorney[4] sent a letter to Redmann's attorney[5] which simply states:
Jack Zewe fully invokes the attorney-client privilege that exists between him and Chris Redmond [sic]. Please instruct your client that any breach thereof will be dealt with severely.
Redmann argued that Zewe's invocation of the privilege would prohibit him from answering the majority of questions and therefore, the deposition would be futile.
Other than Zewe's conclusory assertion of the privilege, there was no evidence before the Court to show an attorney-client relationship between Zewe and Redmann. The two statements Zewe gave to Shell and the PLC tend to disprove an attorney-client relationship. Accordingly, the Court denied Redmann's motion to quash on the ground that there was no attorney-client relationship or privilege, and that if there were a privilege, Zewe had waived it by voluntarily giving two statements to third parties (Shell and the PLC). The Court ordered Redmann's deposition to be taken in Chambers.
In the beginning of Redmann's deposition, Zewe's attorney raised, for the first time, an argument that Zewe did not waive the privilege because the statement he gave to Shell was coerced, and the subsequent statement to the PLC was "tainted" by the coercion of the first statement. Notwithstanding the untimeliness of this argument, the Court permitted the parties to submit additional briefs, but ordered them to proceed with Redmann's deposition *661 so the Court could review the questions on which Zewe asserted the privilege.
Shell deposed Redmann over a two-day period during which Zewe made numerous objections on the ground of the attorney-client privilege, pursuant to which Redmann refused to answer the questions. Having reviewed Redmann's deposition, the legal memoranda, the record, and the applicable law, the Court adheres to its original finding that there is no attorney-client relationship or privilege between Jack Zewe and Kristopher Redmann regarding any matters related to Zewe's involvement with the PLC or any member thereof and this litigation,[6] and that even if there were a privilege, it has been waived.
Analysis
The burden of substantiating a claim of privilege falls upon the party asserting the privilege. Smith v. Kavanaugh, Pierson & Talley, 513 So.2d 1138, 1143 (La.1987). The asserting party must adequately substantiate the claim of privilege; a party cannot rely on a blanket assertion of privilege. Nutmeg Ins. Co. v. Atwell Vogel & Sterling, 120 F.R.D. 504, 510 (W.D.La.1988).
The elements necessary to establish an attorney-client privilege are:
1) the asserted holder of the privilege is or sought to become a client; 2) the communication is made to an attorney or his subordinate, in his professional capacity; 3) the communication is made outside the presence of strangers; 4) for the purpose of obtaining an opinion on the law or legal services and 5) the privilege is not waived.
New Orleans Saints v. Griesedieck, 612 F.Supp. 59, 62 (E.D.La.1985), aff'd, 790 F.2d 1249 (5th Cir.1986).
Redmann testified in deposition[7] that he believed that Zewe was his client (Redmann Tr. at 233-34, 407), and he rendered legal advice regarding Zewe's relationship with the PLC and what Zewe wanted to do in that regard (Redmann Tr. at 135-36, 408). Zewe submitted an affidavit referring to "my attorney, Kris Redmann"[8] and the letter containing his conclusory invocation of the attorney-client privilege, quoted above. Zewe's affidavit contains no averment that he made confidential communications to Redmann regarding any matter related to this litigation for the purpose of obtaining legal advice or services.
In contrast, the substantial evidence is that Zewe approached Redmann "as a long time personal friend" to put him in contact with the PLC. (Zewe Tr. Oct. 1, 1992 at 7-9). Zewe stated that "I came to see him [Joseph Bruno], through a friend." (Zewe Tr. Oct. 3, 1992 at 106). Zewe also stated that a "third party, Chris Redmann [sic]," conveyed to him that the Judge had prohibited the PLC from further communication with Zewe. (Id. at 39).
Redmann did not fill out a client sheet, allocate any time to any files, or charge Zewe any fees related to this matter (Redmann Tr. at 51, 101, 407-08). Redmann's testimony that he gave Zewe legal advice about his relationship with the PLC is cast in doubt by his testimony that he accompanied Zewe to a meeting with John Cummings[9] and Joseph Bruno, which he believed was to discuss what services Zewe would perform for the PLC (Redmann Tr. at 336-37), but sat outside that meeting, because he was not concerned with what happened with their relationship (Redmann Tr. at 329-331, 346). In addition, Zewe did not ask Redmann to attend the videotaped statement he gave to the PLC on October *662 3, 1992. (Redmann Tr. at 160, 427), and Redmann did not assist or advise Zewe in connection with his January, 1992, affidavit submitted by the PLC, even though these matters occurred during the time that Redmann and Zewe claim they had an attorney-client relationship (Redmann Tr. 150-53).
John M. Estes, Senior Security Representative for Shell Oil Company who was present during the October 1, 1992 statement Zewe gave to Shell, avers that prior to commencing the statement, he asked Zewe if he was represented by an attorney at present or at any time during the past two years. Zewe denied being represented by an attorney on that date, but stated that during the past two years, Redmann defended him on a collection matter involving Sherwin Williams.
Zewe has not adequately shown the existence of an attorney-client relationship with Redmann regarding any matter related to this litigation. Zewe did not engage Redmann for some activity peculiarly within the province of an attorney such as giving advice on legal questions, but approached him as a friend, contact, or agent to put Zewe in touch with the PLC. Any services Redmann performed for Zewe were not performed in a legal capacity. Further, Zewe has failed to show that his communications to Redmann were made with an expectation of confidentiality. United States v. Davis, 636 F.2d 1028 (5th Cir.), cert. denied, 454 U.S. 862, 102 S.Ct. 320, 70 L.Ed.2d 162 (1981) ("An attorney who acts as his client's business advisor, or his agent for receipt or disbursement of money or property to or from third parties is not acting in a legal capacity, and records of such transactions are not privileged"); McDaniel v. Dept. of Safety and Permits, 270 So.2d 290 (La.App. 4th Cir.1972) (no attorney-client relationship where attorney's services were used to set up a job interview); McCormick on Evidence, § 88 4th Ed. 322-24 (1992) ("[W]here one consults an attorney not as a lawyer but as a friend or as a business adviser ... or as an agent, the consultation is not professional nor the statement privileged").
Even if there were substantial evidence to show an attorney-client privilege regarding communications between Redmann and Zewe, the Court finds that the privilege was waived when Zewe gave the October 1, 1992 statement to Shell and the October 3, 1992 statement to the PLC. Zewe's affidavit in which he states that he was coerced to give his October 1 statement to Shell is not credible in light of substantial evidence to the contrary. In the sworn statement to Shell, Zewe clearly testified that he was making the statement voluntarily, that he had not been promised anything, coerced or forced to give the statement, and that no one had suggested what answers he should give to Shell's questions. (Zewe Tr. Oct. 1, 1992, at 5-6). This sworn testimony is corroborated by John Estes' affidavit and by Zewe himself when he gave his statement to the PLC two days later:
In the deposition Thursday [the October 1, 1992 statement to Shell], I was allowed to talk. I wasn't told to shut up. I wasn't coerced, I wasn't stopped. They didn't put their arms around me. I would say what I wanted. I was not threatened or anything. If you don't have a job, they can't threaten you anymore.
(Zewe Tr. Oct. 3, 1992 at 97).
Zewe's contends that his October 1 statement cannot constitute a waiver of privilege because Shell did not advise him of a right to counsel. His position is without merit because Shell's interrogation of Zewe was not a custodial interrogation by law enforcement officers or for a purpose of any criminal proceeding.[10]U.S. v. White, 589 F.2d 1283, 1285 (5th Cir.1979); U.S. v. Vecchiarello, 569 F.2d 656, 664 (D.C.Cir.1977).
Zewe gave a statement to the PLC two days after he was terminated from Shell and without any Shell representatives present. There is no indication of any forces *663 attendant to this second statement that would negate Zewe's apparently voluntary and deliberate disclosures.
Waiver also occurred by virtue of Redmann disclosing communications to a third party and member of the PLC, Joseph Bruno: he discussed with Bruno why Zewe was coming forward and what Zewe was offering to do for the PLC (Redmann Tr. at 180-84, 218-19, 222-23); he told Bruno what Zewe had experienced or had knowledge of (Redmann Tr. at 217); he discussed with Bruno Zewe's involvement in assisting Shell's defense (Redmann Tr. at 219-220); and he discussed with Bruno the activity performed by Zewe for the PLC (Redmann Tr. at 119-21, 345).
Zewe also waived any privilege by selectively disclosing allegedly privileged communications for unfair tactical advantage. In his October 30, 1992 affidavit, Zewe avers that "I had absolutely nothing to do with Shell's trial strategy" and that when he gave his deposition in the class litigation as a fact witness and employee of Shell, "Shell and its lawyers, specifically, James E. Blasek, Andrew C. Clausen and Margaret "Peggy" Joffe, were guilty of professional misconduct in that they counselled me to not tell the truth in my deposition; and further they threatened me with the loss of my job if I did tell the truth." Again, in his January 18, 1993 affidavit, Zewe avers that prior to his deposition as a fact witness, the lawyers for Shell "prepared me for three days and coached me on how to avoid the truth." Zewe has stated that the alleged instructions to evade the truth and threats motivated him to offer his services to the PLC. (Zewe Tr. Oct. 1, 1992 at 9-10). Yet, during Redmann's deposition, Zewe invoked the privilege to prevent Redmann from revealing Zewe's communications to him about his reasons for coming forward and his participation with Shell's counsel in their defense of the class action. (Redmann Tr. at 105, 122). Lawyers and clients may not abuse the privilege by selectively disclosing privileged communications for their own benefit and invoke the privilege as to other related communications to the detriment of the other litigant. See Smith v. Kavanaugh, Pierson & Talley, 513 So.2d 1138 (La.1987). "This is so because the privilege of secret communications is intended only as an incidental means of defense, and not as an independent means of attack, and to use it in the latter category is to abandon it in the former." U.S. v. Woodall, 438 F.2d 1317, 1324 (5th Cir.1970), cert. denied, 403 U.S. 933, 91 S.Ct. 2262, 29 L.Ed.2d 712 (1972) (quoting 8 Wigmore, Evidence § 2327 at 638 (McNaughton Rev.1961)).
Accordingly,
IT IS ORDERED that the deposition of Kristopher Redmann shall resume in Chambers on a mutually convenient date within the next two weeks. The attorney-client privilege shall not be a basis for any objection to questions about communications between Zewe and Redmann related in any manner to this litigation.
NOTES
[1] Lugenbuhl, Burke, Wheaton, Peck & Rankin.
[2] Brown & Root, U.S.A., Inc. is also a defendant in this case, but is not directly involved in the present dispute.
[3] Joseph Bruno is a member of the Plaintiffs' Legal Committee.
[4] On November 19, 1992, Jacques Bezou enrolled as counsel for Zewe for the limited purpose of making special appearances in this litigation on behalf of Zewe.
[5] On January 12, 1993, Phillip Wittmann enrolled as counsel for Redmann for the limited purpose of making special appearances in this litigation on behalf of Redmann.
[6] There may have been an attorney-client relationship between Zewe and Redmann regarding other matters unrelated to this litigation. The Court's ruling does not apply to those unrelated matters.
[7] The parties entered a stipulated protective order on Redmann's deposition. In an effort to respect the stipulation, the Court has summarized Redmann's testimony, and to the extent that these summaries may transgress the stipulation, the stipulated protective order is lifted for the limited purpose of rendering and publishing this opinion.
[8] Zewe has submitted several affidavits. The one referred to here is dated January 18, 1993.
[9] John Cummings is Lead Liaison Counsel for the Plaintiffs' Legal Committee.
[10] Shell advised Zewe that it did not intend to use the statement for any criminal prosecution against Zewe. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917387/ | 288 B.R. 521 (2003)
Dino MIRMINGOS, Plaintiff,
v.
Reginald BENJAMIN, Defendant.
No. 02 C 4475.
United States District Court, N.D. Illinois, Eastern Division.
January 31, 2003.
*522 Sidney M. Kaplan, Craig Robert Annunziata, Baker & McKenzie, Chicago, IL, for Plaintiff.
James Schelli, Jr., Webster & Schelli, Oak Brook, IL, Amy Anne Aronson, Aronson & Walsh, P.C., Vernon Hills, IL, for Defendant.
MEMORANDUM OPINION AND ORDER
BUCKLO, District Judge.
Plaintiff Dino Mirmingos filed an adversary complaint in defendant Reginald Benjamin's Chapter Seven bankruptcy proceeding before Judge Wedoff. Mr. Benjamin filed a motion to dismiss the complaint as untimely filed, which Judge Wedoff granted. Mr. Mirmingos appealed, and I remanded to the bankruptcy court for reconsideration in light of In re Kontrick, 295 F.3d 724 (7th Cir.2002). Upon reconsideration, Judge Wedoff affirmed his earlier granting of the motion to dismiss and Mr. Mirmingos' appeal was reinstated. I now affirm the bankruptcy court's decision granting defendant's motion to dismiss.
Bankruptcy Rules 4004 and 4007 state that a complaint filed in a Chapter Seven bankruptcy proceeding must be filed within sixty days of the creditors' meeting. Those rules also state that the bankruptcy judge may grant an extension of time if a motion for extension is filed before the expiration of the sixty day deadline. Bankruptcy Rule 9006 indicates that there is no other method for extending the deadlines in Rules 4004 and 4007. Here, the parties do not dispute that the deadline for filing a complaint expired on April 5, 2002, and that Mr. Mirmingos filed his complaint on April 10, 2002. Following Mr. Mirmingos' April 10 filing, Mr. Benjamin filed a motion to dismiss the complaint as untimely. Judge Wedoff granted the motion in a hearing on May 16, 2002, taking a plain meaning approach and noting that "it is a black and white rule" that he could not retroactively extend the time for filing a complaint. (Tr. of May 16 Proceedings at 4-5.)
While this case was originally on appeal before me, the Seventh Circuit handed down its decision in Kontrick, which held that the timeliness provisions in Bankruptcy Rules 4004 and 4007 are not jurisdictional, and are therefore subject to equitable defenses. 295 F.3d at 733. On reconsideration in light of Kontrick, Judge Wedoff in a hearing affirmed his earlier dismissal of the case, finding no equitable grounds justifying a deviation from the language of the rules in this case. (Tr. of Nov. 12 Proceedings at 9.) I review a bankruptcy court's legal conclusions de *523 novo. In re Yonikus, 996 F.2d 866, 868 (7th Cir.1993).
Mr. Mirmingos claims two equitable defenses to Mr. Benjamin's assertion of untimely filing: unclean hands and estoppel. The original dispute between the parties arose from Mr. Benjamin's allegedly defrauding Mr. Mirmingos with respect to investments in various business ventures. Mr. Mirmingos filed a complaint against Mr. Benjamin in DuPage County, which the parties allegedly agreed to settle. Mr. Mirmingos claims that Mr. Benjamin entered into the settlement agreement in bad faith, and has since been jumping from forum to forum, employing various procedural devices to delay enforcement of the settlement. These tactics include filing for bankruptcy under Chapter Thirteen and, when that was unsuccessful, filing for bankruptcy under Chapter Seven, the proceeding before Judge Wedoff. In asserting the equitable defenses of unclean hands and estoppel, Mr. Mirmingos argues that Mr. Benjamin should not be allowed to benefit from his alleged fraud on Mr. Mirmingos and various state and federal courts. Even if all of Mr. Mirmingos' allegations are true, however, application of the doctrines of unclean hands or estoppel here is not appropriate. Mr. Benjamin's alleged behavior has nothing to do with Mr. Mirmingos' failure to timely file his adversary complaint or a motion for extension. While Mr. Mirmingos asserts that he did not receive timely notification of Mr. Benjamin's Chapter Seven bankruptcy filing, he does not claim that this failure to receive notification was in any way caused by or related to Mr. Benjamin's alleged misconduct or any other misrepresentations by Mr. Benjamin. The doctrines of unclean hands and estoppel simply do not apply here. See Shondel v. McDermott, 775 F.2d 859, 869 (7th Cir.1985) ("[O]rdinarily, the clean hands doctrine only applies when there is a direct nexus between the bad conduct and the activities sought to be enjoined."); Lewis v. Washington, 300 F.3d 829, 834 (7th Cir.2002) ("[T]he party claiming estoppel must show: (1) a misrepresentation by the opposing party; (2) reasonable reliance on that misrepresentation; and (3) detriment.").
In addition to the equitable defenses of unclean hands and estoppel, Mr. Mirmingos argues that his late filing is justified by "excusable neglect." This argument is also unavailing. The "excusable neglect" standard is used to determine whether late filings may be permitted according to Bankruptcy Rule 9006(b)(1). See Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 388, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993). Rule 9006(b)(1) does not apply to determinations of whether to extend deadlines under Rules 4004 or 4007, however. Fed. R. Bankr.P. 9006(b)(3). Rules 4004 and 4007 make no mention of "excusable neglect." Further, unlike motions to allow late filing under Rule 9006 for "excusable neglect," motions for extension of time under Rules 4004 or 4007 must be filed prior to the expiration of the sixty day deadline; there is no provision in those rules permitting filing after the deadline has passed absent a timely-filed motion for extension of time. While Kontrick allows these deadlines to be subject to equitable defenses, as far as I know, "excusable neglect" is not an equitable defense. Thus, Mr. Mirmingos may not argue "excusable neglect" as a defense to Mr. Benjamin's motion to dismiss for untimely filing, and the bankruptcy court did not err in refusing to consider that defense. (Tr. of Nov. 12 Proceedings at 9.)
While Kontrick permits plaintiffs to assert equitable defenses in opposition to a motion to dismiss an adversary complaint *524 for untimely filing, the bankruptcy court here did not err in finding that there did not exist any grounds, equitable or otherwise, for excusing Mr. Mirmingos' late filing. The order of the bankruptcy court dismissing the adversary complaint is AFFIRMED. Mr. Benjamin argues that there was no basis for filing this appeal, and that he is therefore entitled to attorneys' fees in connection with preparation of his response brief. While I found that the bankruptcy court did not err, an appeal from its decision was not frivolous. Mr. Benjamin provides no authority requiring the payment of attorneys' fees in this case, and his request is consequently DENIED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1917975/ | 101 B.R. 306 (1989)
UNITED STATES of America, Appellant,
v.
Ralph C. McAULEY, et al., Appellees.
No. 88-1012-CIV-T-17(B), Bankruptcy No. 85-2834-8pl, Adv. No. 87-194.
United States District Court, M.D. Florida, Tampa Division.
February 17, 1989.
*307 Hillary B. Burchuk, Trial Atty., Tax Div., Washington, D.C., and Lynne England, Asst. U.S. Atty., Tampa, Fla., for appellant.
Shirley C. Arcuri, Straske, Farfante, Segall, Tampa, Fla., for appellees.
ORDER
KOVACHEVICH, District Judge.
This cause is before the Court on the Brief of Appellant, Response Brief of Appellees, and Appellant's Reply.
This action is an appeal from an Order of the Bankruptcy Court in an adversary proceeding to determine tax liability and dischargeability of debt. Upon de novo review of the conclusions of law of Bankruptcy Court's Order of May 13, 1988, 86 B.R. 695, the Court concludes that the Order should be reversed as to its conclusions of law.
I. Jurisdiction of Bankruptcy Court to Determine Tax Liability of Nondebtor
The Court finds that the Bankruptcy Court erred in its reliance on In Re Brandt-Airflex, 69 B.R. 701 (Bkrtcy.E.D. N.Y.1987). That decision was reversed, and the reversal was upheld on appeal. In Re Brandt-Airflex, 843 F.2d 90 (2nd Cir. 1988). As the Second Circuit noted, all courts which have considered this issue recently have concluded that Section 505(a) does not extend the bankruptcy court's jurisdiction to parties other than the debtor. The controlling law in this circuit so holds. United States v. Huckabee Auto Co., 783 F.2d 1546 (11th Cir.1986).
II. Lack of Jurisdiction over Nondebtor due to Sovereign Immunity
In the case now before the Court, only the husband filed Chapter 11, and his plan was already confirmed at the time the nondebtor spouse sought determination of liability and amount of her taxes. Any such determination by the Court could have no effect on the administration of the bankruptcy estate.
When a husband and wife file a joint income tax return, their liability for taxes for the time period covered by the return is joint and several. The United States can proceed against either or both to collect deficiencies relating thereto, without regard to the relative contributions of the husband and wife to total income. Where a debtor is liable for taxes, there is no reason for the court to assume jurisdiction over the nondebtor. In Re Brandt Airflex, supra; In Re Panda Development Corp., 76 B.R. 199 (Bkrtcy. M.D. Fla.1987); In Re Booth Tow Services, 53 B.R. 1014 (W.D. Mo.1985). The Court finds that sovereign immunity has not been waived as to the nondebtor. Matter of Interstate Motor Freight System, 62 B.R. 805, 810 Bkrtcy. W.D.Mich.1986). Accordingly, it is
ORDERED that the Order of the Bankruptcy Court dated May 13, 1988 is reversed, and the nondebtor's complaint is dismissed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1765377/ | 528 F. Supp. 1313 (1981)
Elaine PERKINS, Plaintiff,
v.
The BOARD OF DIRECTORS OF SCHOOL ADMINISTRATIVE DISTRICT NO. 13, et al., Defendants.
Civ. No. 76-109 P.
United States District Court, D. Maine.
December 31, 1981.
*1314 Stephen P. Sunenblick and Donald F. Fontaine, Portland, Maine, for plaintiff.
Harry S. Pringle and Hugh G. E. MacMahon, Portland, Maine, for defendants.
FINDINGS OF FACT, CONCLUSIONS OF LAW AND DIRECTION FOR ENTRY OF JUDGMENT
GIGNOUX, Chief Judge.
This is a civil rights action under 42 U.S.C. § 1983 brought by a former half-time home economics teacher employed by School Administrative District No. 13 (S.A.D. No. 13) in Bingham, Maine, against the Board of Directors, certain members of the Board in their official capacities, and the Chairman of the Board and Superintendent of Schools in their official and individual capacities.[1] Jurisdiction is predicated on 28 U.S.C. §§ 1331 and 1343. Plaintiff alleges that the manner in which the Board's decision not to renew her teaching contract for the 1976-77 school year was made denied her the procedural and substantive due process guaranteed by the Due Process Clause of the Fourteenth Amendment. She seeks injunctive relief, including reinstatement in her teaching position, damages, attorney's fees and costs.
The action has been tried to the Court, without jury, and the issues have been comprehensively briefed and argued by counsel. Having considered the evidence and the written and oral arguments of counsel, the Court now makes its findings of fact and conclusions of law, and directs entry of its judgment as follows:
FINDINGS OF FACT
The Court's findings of fact are:
1. During the 1975-76 school year, plaintiff Elaine Perkins was employed by S.A.D. No. 13 as a half-time home economics teacher at the Upper Kennebec Valley Memorial High School, Bingham, Maine, under a standard one-year continuing contract (D-8).[*],[2] At all material times plaintiff *1315 was a member of the Upper Kennebec Valley Teachers Association (UKVTA) and the Maine Teachers Association (MTA).
2. S.A.D. No. 13 is a quasi-municipal corporation under the laws of the State of Maine. At all material times defendants Reginald McCollor, Theresa Davis, Norman Dionne, Bryan Malloy, Susan Melcher, Christine Brown, Elvin Hawes, and John Birdsall were members of the Board of Directors of S.A.D. No. 13; defendant Reginald McCollor was Chairman of the Board of Directors; defendant Paul Hurlburt was Superintendent of Schools in S.A.D. No. 13; and John Morrison was Principal at the Upper Kennebec Valley Memorial High School.
3. At all material times the terms and conditions of employment for all teachers employed by S.A.D. No. 13 were governed by collective bargaining contracts between UKVTA and the District (D-11, 12, 13, 14). The collective bargaining contract in effect from September 1, 1974 through August 31, 1976 (D-11) contained the following provision:
ARTICLE IV TEACHER RIGHTS
....
B. No teacher shall be formally disciplined, reduced in rank or compensation, or deprived of any professional advantage including nonrenewal of contract without written reasons.
4. Hurlburt assumed his duties as Superintendent of Schools in S.A.D. No. 13 in June 1975. One of his first concerns was the status of the half-time home economics position held by plaintiff. In investigating the reasons for the reduction of the position to half-time, he reviewed the extremely low high school student enrollments in plaintiff's classes: although there were approximately 170 high school students during the 1974-75 and 1975-76 school years, in neither year did the high school enrollment in plaintiff's classes exceed 20 to 22 students. Hurlburt was also concerned that, because of the low enrollments and other deficiencies in the program, that the Maine Department of Educational & Cultural Services had terminated the federal subsidy for the home economics program for the 1975-76 school year. On September 8, 1975, Hurlburt discussed with plaintiff this problem and its relationship to her teaching. He indicated to plaintiff that before he could recommend the position be made full-time again, there would have to be substantial improvement in the program and increased student interest.
5. During the fall of 1975 Hurlburt and Morrison evaluated plaintiff's teaching on numerous occasions. These evaluations revealed serious teaching deficiencies substantiating the reasons suggested by the Maine Department of Educational & Cultural Services for the low student enrollment, namely, the lack of a challenging program and general student apathy.
6. On December 10, 1975, Hurlburt and Morrison discussed with plaintiff their concerns about her teaching performance and informed her that Hurlburt would not recommend the renewal of her teaching contract unless her performance improved substantially. On January 7, 1976, Morrison wrote a formal letter to plaintiff setting forth his concerns with her classroom teaching and the important points that would have to be improved before the issuance of contracts in February (5/6-32). On January 14, plaintiff forwarded to Morrison a letter drafted by the MTA Uniserv Director, Stewart Kinley, requesting more details with respect to Morrison's concerns *1316 (5/6-30). On January 16, Hurlburt and Morrison again met with plaintiff to discuss her January 14 letter. Hurlburt again told plaintiff that, if improvements were not made, he would definitely not recommend renewal of her contract. On January 19, Morrison formally replied to plaintiff's January 14 letter (5/6-28).
7. When Hurlburt became aware that plaintiff had been sharing the contents of Morrison's January 19 letter with the Bingham community, he called a special Board meeting for January 22. Both Hurlburt and McCollor notified plaintiff she had the right to be present at the meeting.[3] At the January 22 meeting Morrison's January 19 letter was read to the Board. Hurlburt also discussed his concerns regarding plaintiff's teaching performance. When asked for comments, plaintiff stated that she had a very difficult time working with Morrison; that she did not trust him; that she could not work with him; and that he lied to her. Morrison nevertheless stated he had recently observed an excellent class given by plaintiff, which he felt indicated an attempt to improve.
8. On the following day, January 23, Hurlburt went to plaintiff's classroom. Referring to Morrison's recent observation, he indicated to plaintiff that perhaps her relationship with Morrison was not as bad as she had stated and that Morrison's observation showed he could be fair. Plaintiff shouted at Hurlburt to get out, saying that she had taken all the "shit" from him she was going to take.[4]
9. By January 1976 the professional relationship between plaintiff and Morrison had seriously deteriorated. As described by Morrison, they "were not on a communicating basis"; communications were either through third persons or in writing; and on the few occasions when they met in person, plaintiff insisted on the presence of a third party.[5] Morrison informed Hurlburt of the impossible relationship between him and plaintiff.
10. In a written evaluation dated January 30, 1976, Morrison recommended that plaintiff be offered a contract for the following year conditioned upon satisfactory improvement in her performance during that year (5/6-24). Because Morrison's recommendation was based on only one good classroom observation, Hurlburt asked Morrison to review all his evaluations to see if he still felt plaintiff's contract should be renewed.
11. On February 23, 1976, Hurlburt informed plaintiff that he was unable to recommend her for a teaching contract for the 1976-77 school year. He discussed with her his final written evaluation of her teaching performance (5/6-22), setting forth the reasons for his recommendation: plaintiff was extremely defensive and did not seek advice concerning her program, showed little initiative *1317 in following program recommendations until very recently, was unable to look at herself objectively, felt that her principal was "out to get her," had sketchy lesson plans, and did not effectively present her subject to her students. Hurlburt's conclusion was that while plaintiff had shown some improvement of late, in general this improvement was "too little, too late." Id.
12. On February 25, 1976, the Board met in executive session for its annual review of the evaluations of all continuing contract teachers. At that meeting, which plaintiff attended, Hurlburt recommended that plaintiff not be offered a contract for the 1976-77 school year.[6] The Board accepted Hurlburt's recommendation and voted not to renew plaintiff's contract.
13. By letter dated February 26, 1976 (D-6), Hurlburt formally notified plaintiff of the Board's vote not to renew her contract. His letter stated that the Board's decision was based on the following seven reasons: 1) laxity in planning lessons; 2) ineffectiveness in carrying out lessons; 3) constant insubordinate attitude to principal; 4) inappropriate reactions to administrative directions and failure to follow recommendations; 5) lack of self-control; 6) ineffectiveness in motivating students; 7) lack of judgment in discussions with students. Accordingly, Hurlburt advised plaintiff her employment would terminate as of August 31, 1976.
14. Following receipt of Hurlburt's February 26 letter, plaintiff's counsel, Stephen P. Sunenblick, Esq., and her MTA representative, Stewart Kinley, requested a hearing before the Board pursuant to 20 M.R. S.A. § 161(5) (5/6-19, 21). At Sunenblick's request, the hearing, originally scheduled for April 8 (5/6-9), was postponed until May 6 in order to accommodate his schedule and to allow him ample time to prepare (5/6-6).[7] Sunenblick also demanded detailed discovery with respect to the reasons for the Board's action (5/6-12). In response to the discovery demand, Hurlburt and the Board's counsel, Hugh MacMahon, Esq., met with Sunenblick in Augusta and reviewed the evidence to be presented by Hurlburt at the Board hearing. The meeting lasted two to three hours. Sunenblick was informed of the evidence intended to be placed in evidence at the hearing and confirmed in a five-page single-spaced letter to Hurlburt his understanding of the reasons for the nonrenewal recommendation and the evidence intended to be used to substantiate those reasons (5/6-5).
15. Plaintiff's hearing before the Board commenced on May 6, 1976, at 7:04 p. m., adjourned at 11:43 p. m. that night, was reconvened on May 13 at 7:04 p. m., and concluded at 12:28 a. m. on May 14. The proceedings were transcribed by a registered professional reporter employed by the Board. The two-volume transcript of the hearing (D-18) totaled 480 pages, including 370 pages of transcript proceedings and 110 pages of exhibits. McCollor, as Chairman of the Board, presided, with the assistance of the Board's counsel, Mr. MacMahon. Plaintiff was represented by her counsel, Mr. Sunenblick, and by her MTA representative, Mr. Kinley. Although plaintiff requested an open hearing, the Board voted for a closed hearing pursuant to 20 M.R. *1318 S.A. § 161(5). The Board member who made the motion for a closed hearing stated that he was doing so because he felt that matters critical of plaintiff would be disclosed and a private meeting would be in plaintiff's best interests. The Board was told to consider only those exhibits which had been identified to Sunenblick a month earlier, and any observations or other documents referred to in testimony which had not previously been provided to Sunenblick were stricken from the record at his request, and MacMahon instructed the Board not to consider them in any way. At Sunenblick's request, all witnesses were sequestered.
16. At the outset of the first night of the hearing, MacMahon instructed the Board that it was required to maintain an open mind during the hearing, that they were required by their oath of office to act fairly and to make a fair judgment on the basis of the evidence, and that the purpose of the hearing was to hear both sides of the matter so that the Board could thereafter make the decision. MacMahon again reminded the Board of its obligations in this regard at the second night of the hearing.
17. At the May 6 hearing Sunenblick consumed nearly an hour with a lengthy argument of objections to the constituency of the Board and the procedures which had been set for the conduct of the hearing.[8] Hurlburt then read his statement presenting his reasons for recommending nonrenewal, with supporting documentation. Hurlburt's statement took approximately one-half hour. The balance of the evening, approximately two and one-half hours, was occupied by Sunenblick's rambling cross-examination of Hurlburt. Although Sunenblick initially insisted that the hearing conclude at 10:00 p. m., he consistently refused to respond to the chairman's requests for estimates of the time he would require to complete his cross-examination of Hurlburt and to present his case.[9] By 10:45 p. m., it had become evident that it would be necessary for the Board to establish time limits for the testimony of witnesses so that the hearing would not be unduly prolonged. Accordingly, after consulting with Mac-Mahon, the Board at 11:30 p. m. decided to adjourn the meeting to May 13 and established time limits for further testimony. It granted Sunenblick an additional one-half hour for cross-examination of Hurlburt; one-half hour for Morrison's statement; Sunenblick one-half hour for cross-examination of Morrison; one-half hour for Board questions; Sunenblick two hours for the presentation of plaintiff's case; and one-half hour for cross-examination of plaintiff's witnesses.[10] The May 6 hearing then adjourned.
18. The May 13 hearing proceeded under the previously established guidelines. Sunenblick continued cross-examination of Hurlburt for an additional one-half hour. Morrison presented his statement and was cross-examined by Sunenblick for over 40 minutes. Following brief examination of Hurlburt and Morrison by MacMahon and the Board, Sunenblick was granted additional time for recross examination of Morrison. Plaintiff began her direct testimony at 9:40 p. m. and her examination by Sunenblick continued for two full hours. Sunenblick then called her former principal, Walter H. Reed, who testified briefly concerning previous evaluations of plaintiff. Plaintiff was then recalled for examination by members of the Board and Hurlburt. *1319 At 12:24 a. m., Sunenblick was granted ten additional minutes for redirect examination of plaintiff. Without using the full time alloted, he then terminated plaintiff's case with the statement, "I have nothing further." The hearing adjourned at 12:28 a. m.[11]
19. After deliberating for a short time following the close of the second hearing, the Board adjourned at 1:07 a. m., and again met on May 20 in executive session to continue their deliberations.[12] Upon the completion of the Board's deliberations, Hurlburt, as Secretary to the Board, recorded the Board's decision (D-5) (P-14). The decision was then read to and signed by each Board member. Plaintiff was notified of the decision by a letter dated May 21, 1976 (D-7), which had been prepared by Hurlburt and which was signed by each of the Board members. This letter informed plaintiff that the Board had voted not to renew plaintiff's contract for the 1976-77 school year, and that the Board's decision was "based on each and all of the following findings which support the reasons listed 1, 2, 3, 4, and 5" in Hurlburt's February 26, 1976, letter to plaintiff: (a) lack of adequate planning resulting in ineffective teaching; (b) insubordinate attitude towards principal; (c) unwillingness to work with administration; and (d) insubordinate and abusive language; shouting at the Superintendent of Schools in your classroom on January 23, 1976: "I am not going to take any more of your shit!" Id.[13]
20. In accordance with the Board's decision, plaintiff's employment by S.A.D. No. 13 terminated on August 31, 1976.
21. The reasons for the Board's decision not to renew plaintiff's teaching contract for the school year 1976-77 were those set forth in the Board's May 21, 1976 letter to plaintiff (D-7). The decision was made in good faith and was not based on reasons that were either arbitrary or capricious.
22. The decision of the Board not to renew plaintiff's contract for the school year 1976-77 and the findings upon which that decision was based were adequately supported by substantial evidence, both at the May 6 and May 13 Board hearings, and at the four-day trial before this Court.
DISCUSSION
The essence of plaintiff's claim is that she was denied procedural due process by the decision of the defendant Board not to renew her teaching contract for the 1976-77 school year.[14] In order to prevail on this claim, plaintiff must establish that the Board's action deprived her of a "property" or a "liberty" interest protected by *1320 the Fourteenth Amendment. Board of Regents v. Roth, 408 U.S. 564, 569-72, 92 S. Ct. 2701, 2705-2706, 33 L. Ed. 2d 548 (1972). Plaintiff has failed to establish the existence of either of these interests:
(1) To establish a "property" interest, plaintiff must show a "legitimate claim of entitlement" to continued employment either under a statutory or contractual provision, Board of Regents v. Roth, supra, 408 U.S. at 576-78, 92 S.Ct. at 2708-2709, or under a de facto tenure policy, Perry v. Sindermann, 408 U.S. 593, 599-603, 92 S. Ct. 2694, 2698-2700, 33 L. Ed. 2d 570 (1972). See also Ventetuolo v. Burke, 596 F.2d 476, 480-81 (1st Cir. 1979); Willens v. University of Massachusetts, 570 F.2d 403, 405 (1st Cir. 1978). Whether plaintiff has such an interest "must be decided by reference to state law." Bishop v. Wood, 426 U.S. 341, 344, 96 S. Ct. 2074, 2077, 48 L. Ed. 2d 684 (1976); Hagopian v. Trefrey, 639 F.2d 52, 53 (1st Cir. 1981).
Here, neither Maine law nor plaintiff's employment contract provided her with the right to continued employment, and the record is devoid of evidence that there existed in the District any practice or policy with respect to reemployment which would amount to a de facto tenure policy. Plaintiff bases her claim on 20 M.R.S.A. § 161(5), the Maine teacher nonrenewal statute.[15] Section 161(5) only provides, however, that a nonprobationary teacher whose contract is not to be renewed is entitled to notice of nonrenewal at least six months before the terminal date of the contract and, if requested, a statement of reasons and a hearing before the school board. Section 161(5) does not provide for contract renewal absent "sufficient cause." See Board of Regents v. Roth, supra, 408 U.S. at 578, 92 S.Ct. at 2709-2710. While Maine law does require "cause" for the dismissal of a teacher during the term of a contract, see 20 M.R.S.A. § 473(4),[16] Section 161(5) contains no such provision.[17] It is now *1321 established that a public employee has no property interest sufficient to invoke the Fourteenth Amendment's due process guarantees unless the applicable statute or employment contract requires that employment may only be terminated upon a showing of "cause." Bishop v. Wood, supra, 426 U.S. at 345-47, 96 S.Ct. at 2077-2078; Arnett v. Kennedy, 416 U.S. 134, 167 n.2, 94 S. Ct. 1633, 1650 n.2, 40 L. Ed. 2d 15 (1974) (Powell, J., concurring); Board of Regents v. Roth, supra, 408 U.S. at 578, 92 S.Ct. at 2709-2710; Perry v. Sindermann, supra, 408 U.S. at 601, 92 S.Ct. at 2699; Beitzell v. Jeffrey, 643 F.2d 870, 874 (1st Cir. 1981); Hagopian v. Trefrey, supra, 639 F.2d at 53-54; Ventetuolo v. Burke, supra, 596 F.2d at 481. Plaintiff therefore had no statutory right to continued employment which was safeguarded by procedural due process. And since plaintiff's employment contract merely incorporated the statutory terms, plaintiff had no property interest arising from the contract.
(2) To establish that she was deprived of a "liberty" interest, plaintiff must show that the Board, in declining to extend her employment contract, made a charge against her "that might seriously damage [her] standing and associations in [her] community," or that the Board imposed on her "a stigma or other disability that foreclosed [her] freedom to take advantage of other employment opportunities." Board of Regents v. Roth, supra, 408 U.S. at 573, 92 S.Ct. at 2707; Bishop v. Wood, supra, 426 U.S. at 347-48, 96 S.Ct. at 2078-2079; Beitzell v. Jeffrey, supra, 643 F.2d at 877-79; Ventetuolo v. Burke, supra, 596 F.2d at 482-84. But "[m]ere proof, for example, that [her] record of nonretention in one job, taken alone, might make [her] somewhat less attractive to some other employers would hardly establish the kind of foreclosure of opportunities amounting to a deprivation of `liberty.'" Board of Regents v. Roth, supra, 408 U.S. at 574 n.13, 92 S.Ct. at 2707 n.13; Ventetuolo v. Burke, supra, 596 F.2d at 483.
In the present case, the reasons asserted by the Board for the nonrenewal of plaintiff's contract were ineffective job performance and inability to work with her supervisors in a professional manner. The Board did not base the nonrenewal of plaintiff's contract on a charge that she had been guilty of dishonesty, or immorality, or other egregious conduct. See Board of Regents v. Roth, supra, 408 U.S. at 573, 92 S.Ct. at 2707; Willens v. University of Massachusetts, supra, 570 F.2d at 405-06. Moreover, the Board in no way publicized its action. See Bishop v. Wood, supra, 426 U.S. at 348, 96 S.Ct. at 2079; Willens v. University of Massachusetts, supra, 570 F.2d at 406. The Board's decision and the findings on which it was based were communicated to plaintiff privately, both orally and in writing, and were not made public. In fact, the Board insisted, over plaintiff's objection, that the hearing be conducted in executive session in order to protect plaintiff from adverse publicity. On this record, plaintiff has not made out a claim of deprivation of a constitutionally protected "liberty" interest.
Plaintiff having failed to show that the Board's decision deprived her of any constitutionally protected "property" or "liberty" interest, it is unnecessary for the Court to consider her further contention that she was denied procedural due process by the manner in which the Board arrived at the nonrenewal decision. Nevertheless, the Court feels compelled to observe that, even were there a protected "property" or "liberty" interest at stake, plaintiff received in full measure the process that was her due. She was informed in writing of the reasons for the Board's initial nonrenewal decision in February 1976. Her request for a hearing before the Board was honored. Her counsel was granted extensive discovery and substantial time to prepare for the hearing. At the hearing she was represented by counsel and provided the opportunity to cross-examine witnesses, to introduce evidence and to offer her own testimony. In light of the dilatory tactics of her counsel, the time limitations on the *1322 presentation of evidence imposed by the Board were consistent with due process and the right of any tribunal to maintain reasonable control over the course of proceedings before it. See, e.g., Fed.R.Evid. 611(a). She was provided with written findings of fact supporting the reasons for the ultimate nonrenewal decision. Nor was plaintiff denied due process because the Board had some prehearing familiarity with the charges against her. Section 161(5) requires the Board itself to vote not to renew a teacher's contract and to notify the teacher of the reasons for its vote. See Beattie v. Roberts, 436 F.2d 747, 750-51 (1st Cir. 1971). It has been consistently held that previous contact with a case in discharge of a statutory duty does not disqualify the members of a school board or other tribunal, absent a clear showing of a personal or financial stake in the proceedings sufficient to create a conflict of interest. Hortonville Joint School District No. 1 v. Hortonville Education Association, 426 U.S. 482, 493, 96 S. Ct. 2308, 2314, 49 L. Ed. 2d 1 (1976); Withrow v. Larkin, 421 U.S. 35, 47, 95 S. Ct. 1456, 1464, 43 L. Ed. 2d 712 (1975); O'Brien v. DiGrazia, 544 F.2d 543, 546-47 (1976), cert. denied sub nom. O'Brien v. Jordan, 431 U.S. 914, 97 S. Ct. 2173, 53 L. Ed. 2d 223 (1977). Plaintiff has made no showing that any member of the Board had such a personal or financial stake in this case.
CONCLUSIONS OF LAW
The Court's conclusions of law are:
(1) This Court has jurisdiction of this action and of the parties hereto. 28 U.S.C. §§ 1331, 1343(a)(3).
(2) The decision of the defendant Board not to renew plaintiff's teaching contract for the 1976-77 school year did not deprive her of a "property" or a "liberty" interest protected by the Fourteenth Amendment.
(3) The manner in which the Board decided not to renew plaintiff's teaching contract for the 1976-77 school year conformed to the procedural and substantive due process requirements of the Fourteenth Amendment.
(4) The Board's decision not to renew plaintiff's teaching contract for the 1976-77 school year was not based upon any constitutionally impermissible ground and did not violate plaintiff's First Amendment right of free speech.
(5) Plaintiff is not entitled to recover of defendants in this action.
DIRECTION FOR ENTRY OF JUDGMENT
In accordance with the foregoing findings of fact and conclusions of law, it is
ORDERED, ADJUDGED and DECREED that judgment be entered for the defendants against the plaintiff dismissing the action with prejudice and with costs, and the Clerk of this Court is hereby directed to make entry of such judgment forthwith.
NOTES
[1] On the eve of trial, plaintiff dismissed as a defendant John Morrison, Principal of the Upper Kennebec Valley Memorial High School.
[*] References to plaintiff's and defendants' trial exhibits will be designed as (P- ) or (D- ); references to exhibits received at the May 6 and May 13, 1976 School Board hearings, post, will be designed as (5/6- ) or (5/13- ).
[2] Plaintiff had been employed as a full-time home economics teacher since September 1964. In February 1975, the defendant Board reduced plaintiff's full-time position to a half-time position for the school year 1975-76 because of budgetary constraints and the small student enrollments in her classes. Plaintiff filed a grievance under the collective bargaining agreement between S.A.D. No. 13 and UKVTA. Her grievance was dropped during the summer of 1975 when UKVTA filed a prohibited practice complaint against S.A.D. No. 13 with the Maine Labor Relations Board regarding the elimination of several teaching positions. The Maine Labor Relations Board ultimately dismissed the prohibited practice complaint when UKVTA failed to file requested documents in a timely fashion.
In the fall of 1975, plaintiff filed another grievance alleging she was in fact working more than half-time in her half-time position and therefore should receive additional pay and fringe benefits (D-10). This grievance went to arbitration in Augusta, Maine on March 23, 1976. After a full hearing, the arbitrator denied the grievance, ruling that the Board had not violated the collective bargaining agreement. Id.
[3] Plaintiff asked to have her husband attend the meeting, but McCollor responded that only she could attend because of the Board's practice that only the person being discussed could be present at an executive session.
[4] Following the January 23 incident, McCollor telephoned plaintiff to inquire about what had happened. Plaintiff denied making the statements attributed to her by Hurlburt. McCollor then cautioned plaintiff about the "snowballing effect" of the exchange of correspondence between her and Morrison, which, as plaintiff acknowledged, was only adding fuel to the fire. Although plaintiff testified that in the same telephone conversation McCollor told her the Board members were laughing at her evaluations and that she need not worry about the renewal of her contract, McCollor unequivocally denied making any such statements. The Court rejects plaintiff's testimony in this regard. It was at this point in the trial that it was disclosed that plaintiff was testifying, not from memory, but substantially verbatim from a detailed 19-page outline of testimony prepared by her counsel (D-19). The Court felt compelled to admonish counsel that this was a dangerous practice which could not be condoned. See 3 Wigmore on Evidence § 759 at 131 (Chadbourn Rev. 1970).
[5] At a meeting in Morrison's office in July 1975, at which plaintiff's husband was also present, plaintiff had called Morrison a "gooseneck" and an "ass." In December 1975, during a meeting between Morrison, plaintiff and the guidance counselor, Gary Crook, plaintiff refused to talk to Morrison directly and insisted upon conversing with him through Crook, so that Crook had to repeat plaintiff's statements to Morrison.
[6] Morrison also presented his January 30 evaluation to the Board, but indicated that upon reflection he supported Hurlburt's recommendation of nonrenewal. Despite her earlier statements to the Board at the January 22 meeting, plaintiff stated that she could indeed work with Morrison, but would now have trouble working with Hurlburt.
[7] In the meantime, McCollor had telephoned plaintiff in an attempt to set up a meeting with her. Plaintiff stated she wished an MTA representative to be present. McCollor indicated he did not wish to have such a representative present. After checking with her MTA representative, plaintiff informed McCollor she would be willing to meet with him, but McCollor replied that he had decided to turn the matter over to legal counsel.
Again consistently with the trial notes prepared by her counsel (D-19), plaintiff testified that during these telephone conversations McCollor indicated that the Board had already made up its mind, that she should not pursue her hearing request, and that she should resign quietly. McCollor flatly denied these allegations, and the Court cannot credit plaintiff's unsubstantiated charges to the contrary.
[8] An objective review of the transcript of the May 6 and May 13 hearings leads to the inescapable conclusion that Sunenblick conducted himself throughout in such an aggressive, hostile and obstreperous manner as to make the orderly conduct of the proceedings extremely difficult, if not impossible.
[9] Shortly after 10:00 p. m., Sunenblick stated he would "warm up about midnight." At one point, when MacMahon suggested that at the rate Sunenblick was conducting his cross-examination, the hearing could well last for ten days, Sunenblick replied, "It is possible."
[10] Having reviewed the entire transcript of the May 6 and May 13 Board hearings, the Court expressly finds that the time limits and procedural rules established by the Board were both reasonable and necessary because of the obstreperous conduct and dilatory tactics of plaintiff's counsel.
[11] At trial plaintiff testified she did not have sufficient time to present her evidence at the hearing. She said she wanted to call as additional witnesses her husband, the guidance counselor, Mr. Crook, and a fellow teacher, Mrs. Donna Smith. At no time during the course of the May 6 or May 13 hearing did her counsel make an offer of proof as to the testimony of these proposed witnesses. Indeed, at the May 13 hearing Sunenblick indicated Crook had refused to be present without a subpoena, and on cross-examination at trial, plaintiff herself was unable to testify that she had asked any witnesses to appear at the hearing other than Reed, who in fact did testify. Plaintiff's husband testified at trial, and it is evident that his testimony at the hearing would have been entirely cumulative.
[12] At no time following the adjournment of the second hearing were any persons other than Board members present with the Board while it was deliberating. Hurlburt and MacMahon left within two or three minutes after the close of the May 13 hearing. Hurlburt was present with the Board only at the start of the May 20 meeting. He reminded the Board of their responsibilities and then left, asking the Board to call him back when it had arrived at a decision. At the conclusion of the Board's deliberations on May 20, Hurlburt was asked to return to the meeting to record the Board's decision.
[13] Hurlburt testified that the Board's decision was intentionally not made public and was not attached to the Board's minutes in order to protect plaintiff's privacy.
[14] Plaintiff has not made even a colorable showing that the Board's decision denied her substantive due process, or that her contract was not renewed because of an exercise of her First Amendment right to free speech or for any other constitutionally impermissible reason. See Board of Regents v. Roth, supra, 408 U.S. at 575 n. 14, 92 S.Ct. at 2708 n. 14; Perry v. Sindermann, supra, 408 U.S. at 596-98, 92 S.Ct. at 2697-2698.
[15] Section 161(5) reads in relevant part:
After a probationary period of not to exceed 2 years, subsequent contracts of duly certified teachers shall be not for less than 2 years. Unless a duly certified teacher receives written notice to the contrary at least 6 months before the terminal date of the contract, the contract shall be extended automatically for one year and similarly in subsequent years although the right to an extension for a longer period of time through a new contract is specifically reserved to the contracting parties.... After a probationary period of 2 years, any teacher, who receives notice in accordance with this section that his contract is not going to be renewed, may during the 15 days following such notification request a hearing with the school committee or governing board. He may request reasons. The hearing shall be private except by mutual consent and except that either or both parties may be represented by counsel. Such hearing must be granted within 30 days of the receipt of the teacher's request.
[16] Section 473(4) provides in relevant part:
4. Teachers dismissed. After investigation, due notice of hearing, and hearing thereon, they shall dismiss any teacher, although having the requisite certificate, who proves unfit to teach or whose services they deem unprofitable to the school; and give to said teacher a certificate of dismissal and of the reasons therefor, a copy of which they shall retain.
[17] The relevant legislative history shows that the Maine legislature has consistently rejected teacher tenure bills. On three occasions during the past 40 years the Maine legislature has considered and rejected bills that would have required the establishment of a specified cause for the dismissal, demotion or contractual nonrenewal of nonprobationary public school teachers. For the proposed bills and pertinent legislative history, see (1) Legislative Document No. 272, 104th Legislature (1969), and [1969] Maine Legislative Record 2043; (2) Legislative Document No. 896, 95th Legislature (1951), and [1951] Maine Legislative Record 1006; and (3) Legislative Document Nos. 506, 1095, 90th Legislature (1941), and [1941] Maine Legislative Record 702, 900-09, 1051-52, 1093-1107, 1137, 1219, 1333, 1365.
Contrary to plaintiff's assertion, the Maine court has never held that a teacher's contract must be renewed in the absence of "just cause" for nonrenewal. Indeed, in Lovejoy v. Grant, 434 A.2d 45 (Me.1981), the Maine court's most recent discussion of Section 161(5), that court explicitly differentiated between Section 161(5), the teacher nonrenewal statute, and Section 473(4), the teacher dismissal statute, noting that while the former entitled teachers to "certain procedural and substantive protections concerning nonrenewal of their contract," the latter "restricts the grounds" on which a teacher may be discharged in the course of a contract. Id. at 50. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1766935/ | 883 F. Supp. 963 (1995)
Moriah M. Poole HARDEN, a minor, by her next friend, Phyllis R. Harden, Phyllis R. Harden, as Personal Representative of the Estate of Joshua M. Poole, Margaret L. Poole, Individually and as Personal Representative of the Estate of Michael W. Poole, and Glenna L. Rufenacht, Personal Representative of the Estate of Shelby R. Poole, Plaintiffs,
v.
ALLSTATE INSURANCE COMPANY, a foreign corporation, Defendant,
and
James M. DALRYMPLE, Jr., Defendant/Third-Party Plaintiff,
v.
Peter B. JONES, Esquire, Administrator of the Estate of Winnita M. Sennett, deceased, Third-Party Defendant.
Civ. A. No. 93-513-SLR.
United States District Court, D. Delaware.
May 2, 1995.
*964 *965 *966 William D. Fletcher, Jr., and Larry Fifer, of Schmittinger & Rodriguez, Dover, DE, Peter Ayers Wimbrow, III, Ocean City, MD, E. Scott Collins, Ocean City, MD, for plaintiffs Moriah M. Poole Harden, Phyllis R. Harden, Estate of Joshua M. Poole, Glenna L. Rufenacht, and the Estate of Shelby Poole.
Gary F. Dalton, and Rebecca D. Batson, of Prickett, Jones, Elliott, Kristol & Schnee, Dover, DE, for plaintiffs Margaret Poole and the Estate of Michael Wayne Poole.
Dennis D. Ferri, Wilmington, DE, for defendant Allstate Corp.
Carol P. Braverman, and Michael J. Rich, of Twilley, Street, Rich, Braverman & Hindman, Dover, DE, Richard Galperin, and Joseph R. Slights, of Morris, James, Hitchens & Williams, Wilmington, DE, for defendant/third party plaintiff James M. Dalrymple.
Richard F. Stokes, and Brian D. Shirey, of Tunnell & Raysor, Georgetown, DE, for third party defendant Peter B. Jones.
*967 OPINION
SUE L. ROBINSON, District Judge.
I. INTRODUCTION
Plaintiffs[1] filed this cause of action against defendants Allstate Insurance Company ("Allstate") and James C. Dalrymple ("Dalrymple") in November of 1993. (D.I. 1) In December of 1993 Dalrymple filed a third party complaint against Peter C. Jones, Esq., the administrator of the estate of Winnita M. Sennett (the "Estate"). (D.I. 6) Presently before the court are plaintiffs' and defendant Dalrymple's cross-motions for summary judgment (D.I. 101, 98); plaintiffs' and defendant Allstate's cross-motions for summary judgment (D.I. 92, 101); and the Estate's motion for summary judgment. (D.I. 95)
II. BACKGROUND
This litigation concerns events surrounding a tragic automobile accident occurring between Winnita M. Sennett ("Sennett") and Michael W. Poole ("Poole") on February 21, 1992 on Route 113 proximate to Milford, Delaware. In said automobile accident Poole was driving his automobile northbound on Route 113 with his wife, son, and daughter as passengers and Sennett was driving alone southbound. Evidence of record indicates that Sennett's automobile at some point crossed the center line of the street, driving others off the road, and eventually collided head-on into Poole's automobile. Poole's six-year-old daughter, Moriah M. Poole Harden ("Harden") is the sole survivor of the accident. (D.I. 100 at A102-107)
Sennett's vehicle was insured by Colonial Insurance Company and possessed a $30,000 limit on its coverage. Said amount was paid to the victims of this accident. (D.I. 1 at ¶ 17) Prior to the accident, the Pooles purchased underinsured coverage from Allstate in the amount of $100,000 per person or $300,000 per occurrence. (D.I. 103 at A55)
Plaintiffs' allegations against Dalrymple concern his role as Sennett's physician and, specifically, his treatment of her epileptic condition. Dalrymple, specializing in general neurology, first began caring for Sennett in 1987. (D.I. 99 at 7; 120 at 3) In March of 1988, Sennett ceased treatment with Dalrymple. Contact did not resume between the two until February 1989 when Dalrymple consulted with Sennett while she was in the hospital recovering from an automobile accident. During this consultation, Dalrymple learned that the 1989 accident was apparently caused by an epileptic seizure occurring immediately prior to her collision. (D.I. 99 at 7) In July of 1991, Sennett returned to Dalrymple's care and they continued this relationship until her death. (D.I. 100 at 66-75)
Section 1763, Title 24, of the Delaware Code provides as follows:
Every physician attending or treating epilepsy shall report within 1 week to the Division of Motor Vehicles the names, ages and addresses of all persons treated as cases of epilepsy.
The reports shall be for the information of the Division of Motor Vehicles in enforcing the Motor Vehicle Law. Said reports shall be kept confidential and used solely for the purpose of determining the eligibility of any person to operate a motor vehicle on the highways of this State.
A physician failing to make such a report shall be fined not less than $5 nor more than $50 and costs for each such report he fails to make.
Dalrymple, although aware of § 1763 and that Sennett fell within the category of citizens affected by said statute, did not report her to the Division of Motor Vehicles. He argues that he was "philosophically opposed to the statute because he felt that reporting his patients to the Division of Motor Vehicles constituted a betrayal of his patients' right to privacy, and of the doctor/patient privilege." (D.I. 99 at 8; 120, Ex. 1 at 12) Dalrymple did know that Sennett had a history of automobile accidents during which she apparently lost consciousness. He also opined that her condition was such that she should not be driving. (D.I. 120, Ex. 1, at 13) Dalrymple *968 did have Sennett read and sign a form which included recitation of § 1763, as well as 21 Del.C. § 2707, which outlines Delaware's license qualifications. (D.I. 100 at A101) Section 2707 particularly excludes from eligibility for driver's licenses individuals subject to losses of consciousness due to diseases of the central nervous system. Dalrymple did not advise Sennett's husband or children that she should not drive. (Id. at A78) Dalrymple testified that he was under the impression both that Sennett knew she should not be driving and that she was, in fact, not driving. (Id. at A77)
On November 2, 1993, plaintiffs filed this action. Count III is directed solely at Dalrymple on behalf of Harden for the wrongful deaths of her family and for her own injuries. (D.I. 1 at ¶ 30) Specifically, Harden alleges that Dalrymple was negligent in his failure to conform to the standards of care in the local community by 1) failing to provide reasonable care; 2) failing properly to treat Sennett for her seizures; 3) failing to timely report Sennett to the Division of Motor Vehicles pursuant to § 1763; 4) breaching his affirmative duty to the Pooles to protect them and others on the roads from Sennett; and 5) failing to take appropriate steps to protect plaintiffs from the unreasonable danger of Sennett's operation of the motor vehicle. (Id. at ¶ 29) Count IV alleges that Dalrymple was negligent per se in his failure to report Sennett pursuant to § 1763. For both these counts Harden seeks general and special damages for herself and for the wrongful death of her parents. She also seeks punitive damages. Counts V-VIII are survival causes of action on behalf of the decedents against both Dalrymple and Allstate. (Id. at ¶¶ 33-42)
Dalrymple denied plaintiffs' allegations and filed a third party complaint against the Estate. (D.I. 6) Dalrymple grounds his motion for summary judgment as to Counts III-VII in the argument that he owed no duty to plaintiffs either through § 1763 or the common law. He also moves for summary judgment as to Counts III and IV arguing that punitive damages are not permitted in wrongful death claims, and as to Counts V-VII arguing that hedonic damages are not permitted in "survival" claims. (D.I. 98) Plaintiffs move for partial summary judgment arguing that Dalrymple's failure to report Sennett was a breach of his duty of care, a violation of both his statutory and common law duties, and negligent per se. They also seek summary judgment against Allstate. (D.I. 101) Allstate has filed a cross-motion for summary judgment arguing that the plaintiffs are not eligible for underinsured motorist benefits. (D.I. 92) The Estate moves to dismiss Dalrymple's third party complaint arguing that his claim is barred. (D.I. 95)
This court has jurisdiction pursuant to 28 U.S.C. § 1332, this being a civil action between citizens of different states. Because this is a case in diversity, unless otherwise noted, this court shall apply Delaware law. Carroll v. Getty Oil Co., 498 F. Supp. 409, 412 (D.Del.1980), overruling on other grounds recog. by Figgs v. Bellevue Holding Co., 652 A.2d 1084 (Del.Super.Ct.1994).
III. DISCUSSION
A. Plaintiffs' and Dalrymple's Cross-Motions for Summary Judgment
1. Summary Judgment Standard
Federal Rule of Civil Procedure 56(c) provides that a party is entitled to a summary judgment where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law." An issue is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). A fact is "material" if it might affect the outcome of the litigation under the applicable law. Id. A party seeking a summary judgment always bears the initial responsibility of informing the court of the basis for the motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits, which said party believes demonstrate the absence of a genuine issue of material fact. Id.
*969 Where the nonmoving party opposing summary judgment has the burden of proof at trial on the issues for which summary judgment is sought, that party must then make a showing sufficient to establish the existence of an element essential to its case. If the nonmoving party fails to make a sufficient showing on an essential element of its case with respect to which it has the burden of proof, the moving party is entitled to a judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986). Moreover, the mere existence of some evidence in support of the nonmoving party will not be sufficient to support a denial of a motion for summary judgment; there must be enough evidence to enable a jury to reasonably find for the nonmoving party on that issue. Anderson, 477 U.S. at 249, 106 S.Ct. at 2510. However, "[a]ny inference to be drawn from facts contained in depositions and exhibits must be viewed in the light most favorable to the non-moving party." Josey v. John R. Hollingsworth Corp., 996 F.2d 632, 637 (3d Cir.1993). "In deciding a motion for summary judgment, the judge's function is not to weigh the evidence and determine the truth of the matter, but rather to determine if there is a genuine issue for trial." Id.
2. Analysis
Actionable negligence is premised upon the existence of a legal duty, a breach of that duty, and injury proximately caused by the breach. Naidu v. Laird, 539 A.2d 1064, 1071 (Del.1988). The question as to whether a legal duty exists, i.e., whether "`such a relationship exists between the parties that the community will impose a legal obligation upon one for the benefit of the other' is an issue for the court ..." and must be determined on a case-by-case basis. Id. Plaintiffs allege that Dalrymple owed them both a statutory and common law duty to report Sennett to the Division of Motor Vehicles and that his failure to do so was a negligent action. Dalrymple acknowledges that the law requires him to report Sennett, but argues that such does not create a duty flowing from him to plaintiffs.
a. Per Se Liability
Per se liability is properly imposed only if § 1763 creates a statutory duty owed by Dalrymple to the Pooles. Dalrymple argues that because § 1763 contains no mention of civil liability and because the purpose of the statute is to delegate an obligation of the state to others, namely physicians, per se liability is not properly imposed in this case. Plaintiffs argue that the purpose of § 1763 is for the general safety of others and that the statute, therefore, creates a duty to third parties such as the Pooles.
In order to establish that a defendant has been negligent per se a plaintiff must show (1) that the statute ... invoked by plaintiff embodies a "standard of conduct designed to protect from injury or harm a class of persons of which the plaintiff is a member," (2) that the defendant is a person required to conform to the minimum standards so imposed, and (3) that the defendant has in fact deviated from those standards.
Carroll, 498 F.Supp. at 412 (citing Rabar v. duPont de Nemours & Co., Inc, 415 A.2d 499, 503 (Del.Super.Ct.1980)).
"Under Delaware law, conduct in violation of a statute, ordinance, rule, or regulation enacted for the safety of others and having the force of law constitutes negligence per se." Id. (citing in part Sammons v. Ridgeway, 293 A.2d 547 (Del.Super Ct.1972)); Schwartzman v. Weiner, 319 A.2d 48 (Del.Super.Ct.1974); Nance v. Rees, 161 A.2d 795, 797 (Del.1960). As noted by Dalrymple, however, the Delaware Supreme Court has adopted § 288(c) of the Restatement of Torts[2] by holding that a city ordinance *970 which seeks to delegate to a citizen a duty imposed on it does not prescribe a standard of care for third parties which imposes civil liability. Burns v. Boudwin, 282 A.2d 620 (Del.1971) (failure of abutting land owner to obey city ordinance and clear sidewalk of snow does not create civil liability between the public and property owner).
The initial question facing the court, from which potential liability of Dalrymple flows, is whether the statute at issue was enacted for the safety of others, or as a legislative delegation of a duty of the state to certain citizens. The Delaware Superior Court offers limited guidance for a determination of whether a statute's purpose is "for the safety of others," by stating: "So long as the ... [law] embodies a standard of conduct designed to protect from injury or harm a class of persons of which the plaintiff is a member, a violation thereof constitutes negligence per se." Schwartzman, 319 A.2d at 54. The court has not found, nor have the parties identified, any relevant legislative history concerning § 1763.
In contrast, the language of the statute unambiguously indicates its purpose by stating that the information gathered as a function of the statute is for the use of "the Division of Motor Vehicles in enforcing the Motor Vehicle Law." 24 Del.C. § 1763 (emphasis added). Indeed, more specifically, the reports gathered are "solely for the purpose of determining the eligibility of any person to operate a motor vehicle." Id. (emphasis added). The purpose of the statute, according to its plain meaning, is not for the safety of others, but explicitly for aiding the Division of Motor Vehicles in enforcing the Motor Vehicle law, specifically enforcing the licensing procedure process.
Looking beyond the text of the statute, the parties offer numerous analogies to the case at bar in efforts to shed light on the meaning of § 1763. Of the analogies offered (i.e., dramshop cases and infectious disease cases), the court finds most analogous the aforementioned Burns case.[3] Critical to the Delaware Supreme Court's holding in Burns was the fact that the duty to clear the sidewalks was originally and unambiguously the government's duty. "It is generally held that a duty is imposed upon the city to use reasonable care to keep its sidewalks safe for passage." Burns, 282 A.2d at 622 (emphasis added). Similarly, the duty to issue driver's licenses rests solely with the state. 21 Del.C. § 2713. Specifically, it is the duty of the state to examine an applicant for a license "as to his physical and mental qualifications to operate a motor vehicle in such a manner as to not jeopardize the safety of persons or property and as to whether any facts exist which would bar the issuance of a license. ..." Id. Epilepsy is such a condition and the legislature decreed it illegal to drive with said condition, if the driver meets other prerequisites. 21 Del.C. § 2707(b)(7). Therefore, the legislature, through § 1763, has delegated to physicians treating epileptic patients its solely held duty to examine license applicants for certain physical qualifications. But see McIntosh v. Milano, 168 N.J.Super. 466, 403 A.2d 500, n. 13 (N.J.Super.Ct.1979).
Plaintiffs' citation to Hetherton v. Sears, Roebuck & Co., 593 F.2d 526 (3d Cir.1979) is inapposite. In Hetherton, a convicted felon illegally purchased a handgun from defendant and several months later shot and injured plaintiff. Plaintiff alleged that defendant negligently sold the gun because it did not require two independent freeholders to identify the purchaser and record such information, pursuant to 24 Del.C. § 904; and it sold the gun to a convicted felon in violation of 11 Del.C. § 1448. The Court of Appeals for the Third Circuit reversed the trial court's grant of summary judgment for defendant and held that § 904 was enacted for the safety of others and that defendant's failure to record the relevant information constituted negligence per se. Id. at 530. The case is inapplicable to the one at bar because nowhere does the court discuss, nor does it appear from the relevant statutes, that the state had a duty to record such information about gun purchasers and delegated *971 that duty to defendant. The statute at issue was a regulation of "deadly weapon dealers" and not a delegation of duties. Id. Therefore, the court finds no per se liability by Dalrymple's failure to follow § 1763.
b. Common Law Duty
The second predicate on which plaintiffs attempt to establish a duty between defendant and themselves is the common law. Generally a party does not have a duty to control the conduct of a third person. An exception exists when:
(a) a special relation exists between the actor and the third person which imposes a duty upon the actor to control the third person's conduct, or
(b) a special relation exists between the actor and the other which gives to the other a right to protection.
Naidu, 539 A.2d at 1072 (citing Restatement (Second) of Torts § 315 (1965)). Courts have found that both such relationships exist when a therapist is treating a patient, thus imposing an affirmative duty on a therapist to use reasonable care to protect an intended victim when the patient presents serious danger of violence. E.g., Tarasoff v. Regents of the Univ. of Cal., 551 P.2d 334 (Cal.1976). The Delaware Supreme Court has found such a relationship and, therefore, a duty to third persons, even where no "intended victim" has been identified prior to the violent act. Naidu, 539 A.2d 1064. Specifically, the Delaware Supreme Court held that the lower court
did not err in holding that, based on the special relationship that exists between a psychiatrist and a patient, a psychiatrist owes an affirmative duty to persons other than the patient to exercise reasonable care in the treatment and discharge of psychiatric patients.... Both the special relationship that existed between [the psychiatrist] and [the patient] as well as [the psychiatrist's] broad based obligation to protect the public from potentially violent patients who present unreasonable danger support the imposition of an affirmative duty.
Id. at 1072-1073.
Plaintiffs have cited numerous other jurisdictions which have found a duty running from a physician to a third party: Duvall v. Goldin, 362 N.W.2d 275 (Ct.App.Mich.1984) (physicians who failed to prescribe medication and instruct epileptic patient not to drive was liable to injured people struck by patient's car during a seizure); McIntosh, 403 A.2d at 509 (physician has the duty to warn third persons against possible exposure to contagious and infectious diseases); DiMarco v. Lynch Homes Chester Cty., Inc., 525 Pa. 558, 583 A.2d 422 (1990) (physician had duty of care to non-patient victim when he failed to inform patient to refrain from sexual activity for six months in order to avoid communicating hepatitis); Kaiser v. Suburban Transp. System, 65 Wash.2d 461, 398 P.2d 14 (1965) (failure of physician to warn patient of side effects of medication created a cause of action for injured non-patient third parties); Gooden v. Tips, 651 S.W.2d 364 (Tex.App.1983) ("under proper facts, a physician can owe a duty to use reasonable care to protect the driving public where the physician's negligence in diagnosis or treatment of his patient and contributes to plaintiff's injuries."). However, the court in this diversity action, must place itself in the shoes of the Delaware Supreme Court and, therefore, finds the only relevant caselaw applicable to the question at bar is from that court.
As noted, the Delaware Supreme Court found that a psychiatrist violated his duty to the general public when he negligently released a psychiatric patient who later killed others with his automobile. Naidu, 539 A.2d at 1072. The Naidu court was very explicit in its discussion of the relevant duty:
This duty arises only when, in accordance with the standards of the profession, a psychiatrist knows or should know that his patient's dangerous propensities present an unreasonable risk of harm to others. Lipari v. Sears, Roebuck & Co., 497 F.Supp. [185] at 193 [ (D.Neb.1980)]. This duty requires that the psychiatrist or other mental health professional initiate whatever precautions are reasonably necessary to protect potential victims of the patient.
Id. at 1073. Therefore, the Delaware Supreme Court has recognized both a duty to a *972 patient and a "broad-based obligation to protect the public from potentially violent patients who present an unreasonable danger." Id.
The analysis of the court, however, does not end at the recognition of this broad-based duty. Contrary to plaintiffs' position, and significantly limiting the factual grounds on which plaintiffs may establish their claims, Dalrymple's gross failure to adhere to the requirements of § 1763 cannot be offered to the jury as proof of his breach of his duty. The Supreme Court of Delaware has been equally as explicit about this point as it has about the existence of such a duty. The Burns court not only held that statutes such as the one at bar could not be used as a basis for per se liability, but that such statutes could not be used as a standard of care whatsoever.
[A]n ordinance requiring lot owners to keep the sidewalks free from snow and ice and imposing a penalty for the failure to do so imposes no civil liability on the lot owner in favor of a third person injured by reason of the violation of the ordinance.... The ordinance does not purport to establish a general standard of care to be imposed....
Burns, 282 A.2d at 622 (emphasis added). Similarly, the Restatement (Second) of Torts, relied upon by the Burns court, also states that "[t]he court will not adopt as the standard of conduct of a reasonable man the requirements of a legislative enactment" such as the one at issue in this litigation. Restatement (Second) of Torts § 288 (emphasis added). Consequently, the law is clear that it is inappropriate to utilize a statute such as the one at issue in this litigation, either for establishing negligence per se, or for any indication of negligence.
Having ruled that Dalrymple does have a duty to the general public, but that said duty could not be breached by a failure to adhere to the direction of § 1763,[4] the court declines to grant summary judgment in either party's favor. It remains for the jury to determine whether Dalrymple has violated that duty.[5]
B. Plaintiffs' and Allstate's Cross-Motions for Summary Judgment
Allstate moves for summary judgment against plaintiffs. The parties agree that because the insurance contract at issue was written and sold in Maryland, the laws of Maryland apply. Travelers Indem. Co. v. Lake, 594 A.2d 38 (Del.1991). (D.I. 93 at 6; 102 at 22)
The Pooles purchased from Allstate an insurance policy for "uninsured motorists."[6] "Underinsured [or uninsured] motorist coverage applies when an insured is involved in an accident with a motorist, who may carry extensive liability insurance far in excess of any amounts statutorily required, but whose liability coverage is less than insured's underinsured motorist coverage." Hoffman v. United Services Automobile Ass'n., 309 Md. 167, 522 A.2d 1320, 1323 (1987). The Pooles' policy is limited to $100,000 per person or $300,000 per accident. Section 541 of the Maryland Insurance Code, entitled "Required and Optional Coverage," defines "uninsured motor vehicle" as follows:
*973 [A] motor vehicle whose ownership, maintenance, or use has resulted in the bodily injury or death of an insured, and for which the sum of the limits of liability under all valid and collectible liability insurance policies, bonds, and securities applicable to the bodily injury or death is less than the amount of the coverage provided under this subsection.
* * * * * *
The limit of liability for an insurer providing uninsured motorist coverage under this subsection is the amount of that coverage less the sum of the limits under the liability insurance policies, bonds, and securities applicable to the bodily injury or death of the insured.
Md.Ins.Code Ann. § 541(c).
The issue facing the court is whether Dalrymple's insurance policy falls within the aforementioned definition. Plaintiffs argue, citing to Md.Ins.Code Ann. § 541(c)(2)(i)-(ii), that the statute only concerns itself with the liability of the owner or operator of an uninsured vehicle. Therefore, they assert it is incorrect for Allstate to attempt to include Dalrymple's insurance in calculating whether the Pooles can obtain benefits pursuant to their policy. Furthermore, plaintiffs accuse Allstate of attempting to contract away its duty to cover such damages. Finally, as evidence that the legislature did not intend insurance coverage such as Dalrymple's to be included within the scope of underinsurance coverage, plaintiffs cite to § 543(d) which requires benefits awarded through an underinsured policy to be decreased by any other benefits awarded through workman's compensation. Thus, plaintiffs conclude that when the legislature intended other insurance policies to be included in the underinsured calculation, it expressly stated as such. Allstate interprets § 541(c)(3) to indicate that the Maryland legislature intended multiple insurance policies to be included in the relevant calculation. (D.I. 93 at 6-7; 107 at 4-7) Even if such were not the case, Allstate argues that plaintiffs must exhaust Dalrymple's liability insurance prior to seeking such benefits from Allstate. (D.I. 93 at 8) In the event that the court rules Allstate must immediately pay the Pooles an award, Allstate argues it should be entitled to subrogation to offset future recovery from Dalrymple. (Id.)
As a threshold matter, a brief comment concerning Maryland's uninsured motorist scheme is required for clarity. Two main theories exist as to such coverage. The first, the "excess theory," determines a tortfeasor to be underinsured when the injured party's damages exceed the tortfeasor's liability coverage. The second theory, the "gap theory," defines a tortfeasor as underinsured when his or her liability insurance, although legally adequate, is less then the insured's underinsurance coverage. Maryland is a "gap theory" state. Waters v. United States Fidelity & Guaranty Co., 328 Md. 700, 616 A.2d 884 (1992).
The court agrees with Allstate that § 541(c) contemplates the liability of several tortfeasors and their respective insurance coverage policies. The language of the statute "the sum of the limits of liability under all valid and collectible liability insurance policies, bonds, and securities applicable to the bodily injury or death" unambiguously asserts this. Thus, it appears that should Dalrymple be determined to be a tortfeasor in this action, and should his insurance be determined a "valid and collectible liability insurance policy," then § 541(c) requires his inclusion in the determination of the applicability of the underinsured coverage owned by the Pooles and issued by Allstate.
Dalrymple, however, has yet to be determined a tortfeasor in this litigation. Therefore, it is premature to determine the remaining liability, if any, of Allstate at this time. Thus, the court shall deny both motions for summary judgment.[7]
C. Estate's Motion to Dismiss
Dalrymple filed a third party complaint against the Estate in December of 1993. *974 The Estate now moves to dismiss this complaint arguing that it is time barred by Section 2102(a) of Title 12, Delaware Code. Dalrymple disagrees with the Estate's representation that his causes of action arose prior to Sennett's death, thereby invoking § 2102. Rather, Dalrymple asserts that his contribution claim did not arise until he was sued by plaintiffs and his indemnity claim, as a technical matter, has yet to arise. Finally, Dalrymple asserts that § 2102(f) precludes § 2102(a) from barring his claim.
Section 2102(a) states as follows:
All claims against a decedent's estate which arose before the death of the decedent ... whether due or to become due, absolute or contingent, liquidated or unliquidated, founded on contract, tort or other legal basis, ... if not barred earlier by other statute of limitations, are barred against the estate, the personal representative and the heirs and devisees of the decedent unless presented as provided in § 2104 of this title within 8 months of decedent's death....
Thus, if a cause of action arises prior to a decedent's death, a party has eight months to assert it against the estate.
Dalrymple cites to general provisions of contribution and indemnity law which state that such claims generally arise when a party has paid more than his share of a claim in a judgment or settlement. Fehlhaber v. Indian Trails, Inc., 45 F.R.D. 285 (D.Del.1968); Council of Unit Owners of Sea Colony East v. Carl M. Freeman Associates, Inc., C.A. Nos. 86C-AU-49 and 50, slip op. at 3, 1989 WL 40973 (Del.Super.Ct. April 11, 1989). However, such citations ignore this court's more recent ruling that a defendant has eight months to assert a contribution claim against an estate even if the actual action against the defendant has not yet commenced. Witco Corp. v. Beekhuis, 822 F. Supp. 1084 (D.Del.1993), aff'd, 38 F.3d 682 (3d Cir.1994). This would indicate that an exception to the rule outlined by Dalrymple is a situation in which a party attempts to assert a claim against an estate. The plain language of the statute itself further supports such an interpretation by specifically including within its statute of limitations claims that are "due or to become due, absolute or contingent." (Emphasis added)
The court's analysis does not end here, however. Another subsection of § 2102 reads as follows:
Nothing in this section affects or prevents, to the limits of the insurance protection only, any proceeding to establish liability of the decedent or the personal representative for which he is protected by liability insurance.
12 Del.C. § 2102(f). There is no dispute that the Estate had liability insurance and said policy was paid in full to plaintiffs. The question remains as to the effect of that payment on § 2102(f). The Estate argues that because said policy is paid in full, no liability insurance policy exists and, therefore, § 2102(f) cannot be implicated as an exception to § 2102(a). Dalrymple, however, asserts, citing to caselaw from nonbinding jurisdictions which interpret the same language from the Uniform Probate Code § 3-803(c)(2), that he is only required to show the potential right to payment from the insurance policy. Corlett v. Smith, 107 N.M. 707, 709-10, 763 P.2d 1172, 1174-75 (Ct.App. 1988).
Were the court to adopt the Estate's interpretation of § 2102(f), no joint tortfeasor could ever file a third party complaint against the estate of another tortfeasor simply for the purpose of establishing the liability of the other tortfeasor, unless done within eight months of death of the other tortfeasor. Such would be the case even if the liability of the deceased tortfeasor were so obvious that the decedent's insurance paid its policy in full. The text of the statute[8] seems to intend to allow claims against an estate after the eight-month deadline only if they will not affect it financially. Therefore, Dalrymple may sue the Estate "to the limits of the insurance policy." However, it may well be the case that the insurance protection is nothing, in which instance Dalrymple can sue *975 the Estate up to that amount, allowing him the sole benefit of establishing liability of the Estate.
The Estate next argues that Dalrymple has failed to state a cause of action against it for either indemnification or contribution. With respect to indemnification, this court has noted that Delaware law provides for five situations which support a claim for indemnification. Among them, the two most applicable situations to the case at bar are:
(3) Where the one seeking indemnity has incurred liability because of a breach of duty owed to him by the one sought to be charged.
(4) Where the one seeking liability has incurred liability ... merely because of failure, even though negligent, to discover or prevent the misconduct of the one sought to be charged.
New Zealand Kiwifruit Mktg. Bd. v. City of Wilmington, 825 F. Supp. 1180, 1191-92 (D.Del.1993) (citing Ianire v. University of Delaware, 255 A.2d 687 (Del.Super.1969), aff'd 269 A.2d 52 (Del.1970)). This court noted in New Zealand that the Minnesota case upon which Ianire relied for including situation (4) had since been overruled. Id. at 1191, n. 7 (citing Tolbert v. Gerber Indus., 255 N.W.2d 362 (Minn.1977)). This court questioned, without resolving, whether situation (4) remained an available basis for an indemnity claim under Delaware law. Id. More persuasive, however, on the issue of the validity of establishing a cause of action based on situation (4) is the ruling of the Delaware Supreme Court in affirming the lower court's decision in Ianire.
The court below ... apparently based its decision upon the concept that when two individuals jointly are negligent and the concurrent negligence contribute to the injury of another, one is the primary wrongdoer and the other is the secondary wrongdoer, or that such may be the fact. In that event, there are decisions holding that the primary wrongdoer has the duty to indemnify the secondary or passive wrongdoer for any recovery made against it by the injured party.
We think, however, that such may not be[,] for the reason that to provide for indemnification in terms of primary and secondary, or active and passive wrongdoing is to hold the two parties as joint tortfeasor with the right of contribution running between them.
Diamond State Tel. Co. v. University of Del., 269 A.2d 52, 56 (Del.1970). Implicitly, therefore, the Delaware Supreme Court questioned the validity of situation (4). Although lower courts in Delaware have cited to Ianire as good law since New Zealand, e.g., Council of Unit Owners of Sea Colony East v. Carl M. Freeman Associates, Inc., 1989 WL 40973 (Del.Super.Ct. April 11, 1989); Cumberbatch v. Board of Trustees, Del. Tech. & Community College, 382 A.2d 1383 (Del.Super.Ct.1978), such is not enough for this court to find it precedential. As this is a diversity case, the court has a responsibility to sit in the position of the Delaware Supreme Court and determine how that court would rule. Given its implicit rejection of situation (4) in Diamond State Tel., as well as this court's questioning of Ianire's validity in light of Tolbert, this court finds that situation (4) is not an appropriate grounds for seeking indemnification.
Dalrymple also asserts as grounds for an indemnity claim situation (3) which allows indemnity when a party "has incurred liability because of a breach of duty owed to him by the one sought to be charged." New Zealand, 825 F.Supp. at 1192. He cites Rochester v. Katalan, 320 A.2d 704 (Del. 1974), for the proposition that "a patient owes a duty to his physician to use reasonable care in the role of the patient to further the goal of successfully treating his illness." (D.I. 110 at 15) A closer review of Rochester indicates that the duty recognized by the Delaware courts is the more limited "common-sense duty of a patient to be truthful in describing his symptoms to a physician to whom he looks for assistance. It is the duty of a patient to use such care as a man of ordinary prudence would ordinarily use in circumstances like his own...." Rochester, 320 A.2d at 709.[9] Nowhere in his complaint *976 does Dalrymple allege that Sennett was untruthful to him in describing her symptoms. Therefore, he has failed to allege a duty to him which Sennett breached. Consequently, Dalrymple may not state a cause of action based upon situation (3). No cause of action in indemnity exists.
The Estate's final argument is that Dalrymple has failed to state a cause of action in contribution because he neglected to include an allegation in his third party complaint indicating a claim of contribution against the Estate. Dalrymple disputes the Estate's argument and asserts that his complaint is sufficient under acceptable standards of notice pleading.
The court is inclined to agree with Dalrymple. In his prayer for relief, Dalrymple states that he "demands judgment against Third Party Defendant to the extent any judgment or verdict is rendered against defendant Dalrymple." (D.I. 6 at 12) Such is sufficient to allege both an indemnity and contribution claim. As noted by Dalrymple, Section 6306 of Title 10, Delaware Code, states that:
A pleader may ... state a cross-claim against a coparty any claim that the coparty is or may be liable to the cross claimant for all or part of a claim asserted in the action against the cross claimant.
(Emphasis added) Therefore, when Dalrymple requested payment "to the extent any judgment or verdict is rendered against Dalrymple," he adequately pled a claim for contribution. Dalrymple's request to amend his complaint is unnecessary given the court's ruling. Fed.R.Civ.P. 8(f).
IV. CONCLUSION
For the reasons stated herein, Dalrymple's motion for summary judgment shall be granted in part and denied in part. Plaintiffs' motion for summary judgment shall be granted in part and denied in part. Allstate's motion for summary judgment shall be granted. The Estate's motion for summary judgment shall be granted in part and denied in part. An order consistent with this opinion shall issue forthwith.
NOTES
[1] "Plaintiffs" refers to Moriah M. Poole Harden, by her next friend Phyllis R. Harden, Margaret Poole, and the representatives of and estates of Joshua M. Poole, Michael W. Poole, and Shelby R. Poole.
[2] court will not adopt as a standard of conduct of a reasonable man the requirements of a legislative enactment ... whose purpose is found exclusively ...
* * * * * *
(c) to impose upon the actor performance of a service which the state or any subdivision of it undertakes to give the public."
Restatement (Second) of Torts, § 288 (1965).
[3] It follows, therefore, that the court rejects plaintiffs' characterization of Burns as a real property case. (D.I. 120 at 10-11)
[4] The court notes in this regard, however, that its decision today should in no way be interpreted as condoning the disregard of a statute passed by the public's representatives simply because a citizen does not believe the law is the most efficacious possible.
[5] In his opening brief, Dalrymple argues that plaintiffs are not entitled to seek punitive damages on their wrongful death claims or "hedonic damages" on their wrongful death or survival claims. (D.I. 99 at 35-36) Because plaintiffs have stated that they are not seeking punitive damages on their wrongful death claims, the court finds Dalrymple's objection moot. (D.I. 120 at 33) The court also agrees with plaintiffs that Dalrymple's argument concerning hedonic damages requires more specificity in order to address it properly. (Id. at 33-34)
[6] "Although Section 541(c) refers to `uninsured motorist' coverage, it is clear that its provisions operate as underinsured motorist coverage to the extent that the person responsible for an accident has less liability coverage than the insured under the uninsured provisions of his own policy." Aetna Casualty & Surety Co. v. Souras, 78 Md. App. 71, 552 A.2d 908, 910 (Md.Ct. Spec.App.1989). Hereinafter, the terms "uninsured" and "underinsured" shall be used inter-changeably.
[7] The parties shall inform the court no later than at the pretrial conference of their respective positions as to whether Allstate should remain in the case through trial, given the current posture of the litigation.
[8] The court has not found, nor have the parties directed it to, any Delaware court's interpretation of § 2102(f).
[9] Rochester cites to 41 Am.Jur. § 80, to support its position. While this section does address a duty of ordinary prudence of the patient to submit to his or her doctor's care, it does so in the context of the defense of contributory negligence in a medical malpractice action. Therefore, its reasoning is not entirely applicable to the situation at bar. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1769595/ | 421 F. Supp. 674 (1976)
UNITED STATES of America ex rel. Alfred LEWIS, Petitioner,
v.
Robert J. HENDERSON, Superintendent, Auburn Correctional Facility, Respondent.
No. 76 Civ. 399.
United States District Court, S. D. New York.
July 16, 1976.
Lawrence Stern, Brooklyn, for petitioner.
Louis J. Lefkowitz, Atty. Gen., State of N. Y., New York City, for respondent; Joel Lewittes, David L. Birch, New York City, of counsel.
OPINION
FRANKEL, District Judge.
Alfred Lewis was convicted of bank robbery, grand larceny, and assault, after a jury trial in the New York State courts in 1958.[1] He was sentenced to a term of 30 to 60 years. Since then, he has persistently *675 sought to have his conviction vacated on the ground, inter alia, that confessions[2] introduced at his trial were the product of physical and mental coercion. These efforts started when, pursuant to a pro se coram nobis petition, a Huntley hearing was held in January 1970 by Justice Edward T. McCaffrey, who had presided at the original trial, to determine whether the confessions were the product of unconstitutional coercion. In an opinion dated March 24, 1970, Justice McCaffrey denied the application, finding that the confessions "were voluntarily made and were not the result of physical coercion of any kind." The decision was affirmed without opinion, 35 A.D.2d 1086, 316 N.Y.S.2d 191 (1st Dep't 1970), and leave to appeal to the Court of Appeals was denied. A pro se habeas corpus petition was then filed in the Western District of New York, again attacking the voluntariness of the confessions. Judge Curtin, in an unpublished memorandum opinion, denied the petition by order dated June 28, 1971, on the ground that the Huntley hearing had adequately determined the issue. Both Judge Curtin and the Court of Appeals denied a certificate of probable cause, and the Supreme Court denied certiorari.
Still moving pro se (although assisted by a brief of the Cornell Legal Assistance Project), petitioner filed the instant petition in the Northern District of New York on July 17, 1974, raising the voluntariness issue along with the adequacy of the state court proceeding. The petition was denied by Judge Port. This time, however, the Court of Appeals granted a certificate of probable cause, assigned counsel, reversed "as to the issue of mental and psychological coercion", and remanded for a hearing to resolve the factual disputes on that issue. United States ex rel. Lewis v. Henderson, 520 F.2d 896 (2d Cir.), cert. denied, 423 U.S. 998, 96 S. Ct. 429, 46 L. Ed. 373 (1975).[3]
Judge Port continued the assignment of counsel and transferred the case to this district for a hearing, which was held on April 5, 1976. Having reviewed the evidence, which is summarized below, and the legal arguments of the parties, the court concludes that the writ must issue.[4]
*676 I.
The evidence adduced at this court's hearing included the testimony of petitioner and of Dr. Lawrence Lichenstein, a psychologist, in support of the petition. Respondent presented Vincent Beckles and William Corbett, two of the detectives who questioned petitioner prior to his confessions. Exhibits included the transcript of the Huntley hearing, where Beckles and Corbett, but not petitioner, also testified, and the transcript of the trial, which included testimony of petitioner,[5] Beckles, and Corbett.
Petitioner's Testimony
At the hearing before this court, petitioner testified as follows:
He was picked up by the police at approximately 8:30 p.m. on February 17, 1958, and taken to the 30th Precinct, where he was questioned about some money the police claimed to have heard he possessed. When asked where he got the money, he said that he had won it gambling. The questioning started at a desk in a large room. After a few minutes there, petitioner was taken to a room containing "nine or ten beds," where he was seated in a chair. Initially, an Inspector Walsh asked most of the questions. Shortly after the interrogations began, a Detective Corbett came and actively participated in the questioning. Petitioner refused to tell where the money was, so he was beaten, primarily by Corbett and Walsh, but also by several others, as there were always six to eight, or more, people in the interrogation room. Later in his testimony, petitioner also recalled that Inspector Walsh
"asked me if I wanted to call somebody, wanted to make a telephone call, and I didn't have this in mind, although when he said it I immediately thought of calling my family and I said yes. And he said, `Well, if you cooperate, you can make a telephone call, you just tell us what we want to know and tell us where the money is and we'll let you call.' And I said when I said I couldn't do that, he said, `Well, you can't make a telephone call.'"
Later that night, petitioner was taken to his apartment, where some of his clothing and personal property were gathered. He was then returned to the 30th Precinct, where the police "held an identification session where I was told to put on various articles of clothing and put on this hat and that hat, and so forth and stand before a peephole for identification purposes." There were several detectives in the "identification room," but apparently only petitioner was placed before the peephole for identification. Petitioner was then taken back to the room with the beds in it, where he was left for a few hours, although there "was always someone in the room with me."
The questioning resumed about 2 or 3 o'clock in the morning, at which time petitioner was told that he had been positively identified as the robber, and that he should admit the robbery, cooperate, and produce the money. No one ever told him that he had been arrested for the robbery, that he had a right to a lawyer and a right to remain silent, or that what he said could be used against him in a court of law. Petitioner continued to be beaten and questioned throughout the night. He had no food and was permitted no sleep. He saw detectives with coffee and sandwiches, "but I never was offered any food." The interrogations at the 30th Precinct continued into the morning of February 18th.
About noon or 1:00 p.m. on the 18th, petitioner was taken to the 42d Precinct. Lewis said that he was "tired, . . . weak, . . . exhausted, . . . almost beaten . . .." at the time of the transfer. At some point, either shortly before or after being moved, he was told that *677 he was being charged with an assault. When he got to the 42d Precinct, with Detective Corbett "running the show," petitioner was again questioned by several detectives concerning the location of the money.
One of the detectives not Corbett told petitioner that the assault charge would be dropped if he "cooperated, confessed and primarily produced the money."[6] When he refused, Corbett and the others started beating him again, and told him he would stay there until they got the money. After the beatings had continued for about half an hour, petitioner "couldn't . . . keep taking that kind of stuff" and told Corbett that the money was on a roof at an unspecified location. Petitioner did not, at this time, admit that the money was the bank money, but did agree to take the police to it.
Petitioner was then left alone for a few minutes in a detention pen. When Detective Beckles came to take him to get the money, petitioner refused to go, whereupon Beckles promised that "if I took him to the money that my contention that the money was mine as a result of gambling winnings would not be you know, would not be attacked . . .." Fearing that the police might steal his money as they had his watch and gloves at the 30th Precinct,[7] Lewis insisted that a Mr. Joey Jones, whom he had seen in the 42d Precinct, would have to come along as a witness before he would even consider leading the police to the money.[8]
At this point, Beckles left the room and Corbett came in and told petitioner that he would "be smart to go along with Beckles, because if you don't get that money you are going to answer to me." Corbett then left the room. Beckles reentered and informed petitioner that it had been arranged for Jones to accompany them when they went for the money.
At about 2:00 p.m., petitioner, Jones, Beckles, and Cook, Beckles's partner, left to get the money. After the money had been retrieved and they were driving back, petitioner asked Detective Beckles for a receipt. Beckles promised him one when they got to the stationhouse. When they arrived back at the 42d Precinct at about 3:30 p.m., however, Corbett took charge again. He threatened that if petitioner did not shut up about the receipt, "you will get a receipt in the mouth," and told him to "come clean and admit to the robbery now because we've got the money." Corbett then took petitioner to a room where Corbett beat him while he was held by another detective. After this last beating, petitioner confessed to the robbery.
Corbett then took Lewis to a squad room where Inspector Walsh, Detective Beckles, and several other police officers were gathered. In response to their questions, petitioner gave the answers Corbett had instructed him to before they entered the squad room. Then, after a short period of time in the detention pen, petitioner was taken into another room where he repeated *678 his confession before an assistant district attorney and a stenographer. Petitioner was then taken downstairs and put in a cell, where he remained for the night. At about 10:00 a.m. on the morning of the 19th, he was arraigned.
Dr. Lichenstein's Testimony
Dr. Lichenstein, Chief Psychologist at Kings County Hospital, reviewed and interpreted two reports prepared at Bellevue Hospital in March and June of 1958 wherein the description of petitioner said: "Severe Character Disorder, Sociopath of the Schizoid Type; a type of individual, who, under stress and strain, may develop a psychotic episode in future." Dr. Lichenstein testified that a sociopath, in addition to possessing other maladaptive characteristics, "tends to be rather infantile and immature, has a low frustration tolerance and [sic] prone to panic under stress." He described a psychotic episode as a "breakdown in ego functioning or a breakdown in the ability to think clearly . . . usually evidenced in confusion, disorientation." In response to a hypothetical question regarding petitioner's experiences prior to the confessions,[9] he concluded that it was more probable than not that petitioner had a psychotic break under the assumed conditions. He went on to say that even if petitioner had not experienced a psychotic episode as such, a person with his diagnosis would have suffered a weakening in his power to reason and to resist authority under the described circumstances.
Detective Beckles
Mr. Beckles, called by respondent, gave testimony essentially as follows:
In response to her telephone complaint to the police that a man had threatened her with a gun, Beckles arrived at Ms. Elizabeth Waller's apartment at about 8:30 p.m. on February 17th. As Beckles and Waller were emerging from an elevator in the apartment building on their way to the stationhouse, they encountered petitioner in the hallway. Ms. Waller said that this was the man who had threatened her. Thereupon, Beckles informed petitioner that Waller had made a complaint that petitioner had assaulted her and that he was taking him to police headquarters. Beckles took petitioner to the Detective Squad of the 30th Precinct, where he was questioned first about the alleged assault. Petitioner said that he knew Ms. Waller because she lived in the same building as his mother, but denied any assault.
Detective Beckles, however, had called the 42d Precinct to have them bring any witnesses who might be able to identify the robber of the Bronx bank. This action was prompted by the fact that the complaining witness had stated that petitioner had given her a bag to keep which contained a large sum of money and a gun, and that, upon entering the stationhouse, Beckles had seen fliers relating to the bank robbery. The witnesses were brought down between 10 and 11 p.m., perhaps later. Although he did not take part in the identification proceedings that followed, he was informed that the witnesses had identified petitioner as the bank robber.
After the identification, petitioner was questioned by several detectives on and off during the entire night in the Precinct's "dormitory room." Detective Beckles, however, spent only about ten minutes questioning Lewis after he was identified. When petitioner was not being questioned, he was left in the squad room where he sat on a chair. Detective Beckles offered petitioner food during the evening at the time he was offering it to other detectives, but petitioner declined the offer. Beckles does not know if petitioner ate or slept that *679 night. Beckles never struck or beat petitioner.
During the course of the night, petitioner wanted to see a friend who came to the stationhouse. Beckles does not recall whether petitioner actually saw him or not. At one point during the course of the evening, Beckles went out with petitioner, presumably to get the clothing. Beckles went out at some other point with other detectives to search for the bank money in the apartment of a Mr. Johnson whose name and address had been obtained from the address book taken from petitioner at the time of his arrest.
By morning, the Borough Commander had decided to turn petitioner over to the 42d Squad on the bank robbery charge. Beckles drove petitioner to the 42d Precinct. There, Beckles continued to speak with petitioner, but did not participate in the interrogation. Beckles told petitioner that if the money was his, he could keep it, but he did not say petitioner could keep it no matter what. At the 42d Precinct, Beckles also told petitioner that the police at that precinct wanted the money, and that he (Beckles) was going to leave the 42d Precinct and would thereafter have nothing more to do with the proceedings. Eventually, Beckles, together with one of his partners, took petitioner and a friend to retrieve the money.
Detective Corbett
Detective Corbett, the other witness for respondent, testified that sometime after 10:00 p.m. on the evening of February 17, 1958, he received a telephone call from his precinct (the 42d) to the effect that the 30th Precinct was holding someone that they had reason to believe might be connected with a bank robbery he was investigating. After determining that the suspect had a space between his two front teeth,[10] Corbett called the 42d Squad and told them that he was going to the 30th Precinct and that they should arrange for the eyewitnesses to go there too.[11] Corbett arrived at the 30th Precinct shortly before midnight, and then remained all night. Upon his arrival, he was informed that the witnesses who had viewed petitioner had identified him as the robber.
Corbett had a brief conversation with petitioner that night, when petitioner accompanied him and other detectives to a residence in Harlem. Apart from that, Corbett did not interrogate petitioner that evening. During most of the night, Corbett was not with the higher-ranking 30th Precinct officers who were questioning petitioner.
As Corbett, Beckles, and Cook were driving petitioner between the 30th and 42d precincts the next morning, petitioner was questioned further and urged to take the police to the money. Corbett never told petitioner that he would be kept at the stationhouse until they got the money and cannot recall if he ever promised him that he would help him if he revealed the location of the money. After more questioning at the Precinct, petitioner agreed to take Beckles and Cook to the money.
When petitioner returned from getting the money, he requested, but was not given, a receipt. Instead, Corbett took him into a bedroom and "convinced him in my way of thinking, I convinced him that he was really identified." Thereupon, without further urging, petitioner started his confession. After he told the whole story, Corbett took petitioner to the Squad Commander's Office and told him to "tell them now what you told me." He never told petitioner what to say. After petitioner repeated his confession in the squad room, the district attorney and stenographer were called.
Corbett does not recall that petitioner was ever offered any food in his presence or *680 that he ever saw petitioner eat or sleep at either the 30th or 42d Precinct. Corbett testified that he never beat or struck Lewis. He did not advise petitioner of his constitutional rights. While he and his colleagues probably had grounds to arraign petitioner when he was turned over to them on the 18th and before he led them to the money, he was not arraigned until the 19th because the investigation had not been finished in time to permit an earlier arraignment.
The testimony given on prior occasions, at trial and at the Huntley hearing, is essentially cumulative in nature. Some aspects bear mention, however. Petitioner's only prior testimony was at the trial; he did not testify at the Huntley hearing. At the trial, he testified that, at one stretch on the evening of the 17th, they left him in the room with beds for three or four hours. "Once in a while one detective would come in; he would leave, and another detective would also come in. You know, after the other one had left, and about I lost track of time but about three or four hours later they began questioning me." Petitioner stated that "when like I said one detective would stay in there for a while with me, and I did sort of doze off in a in the chair, they'd wake me up."
As for the events at the 42d Precinct, in his trial testimony, petitioner remembered being told that they were charging him with assault in Manhattan, and that the charge would be dropped if he took them to the money. He also said that he confessed "solely because of the threats and the beating and the lack of food," and that neither Detective Corbett nor the District Attorney had promised him anything. Nothing was said about being denied a telephone call[12] or about Mr. Beckles's alleged promise to accept his gambling earnings story if he took them to the money.
Beckles and Corbett testified both at the trial and at the Huntley hearing. Beckles said nothing at either time about an offer of food to petitioner. At trial, Corbett was able to recall that he might have promised to help petitioner "a little" by promising to "help him if I could when I got to court if he would co-operate with us."
II.
The stubbornness with which petitioner has pursued his constitutional claims during over 18 years of confinement was not matched on February 18, 1958, when he gave in after 19 hours or so and confessed to the bank robbery. Phrasing the test broadly, petitioner's confession violated due process, and was thus inadmissible at trial, if "the totality of circumstances" leading to the confession show that it was not "the product of a rational intellect and a free will. . . ." See Fikes v. Alabama, 352 U.S. 191, 197, 77 S. Ct. 281, 1 L. Ed. 2d 246 (1957), Blackburn v. Alabama, 361 U.S. 199, 208, 80 S. Ct. 274, 280, 4 L. Ed. 2d 242 (1960).
The evidence in the now amplified record demonstrates that petitioner was worn down, that his will was overborne, and that he yielded to a combination of fatigue, despair, and weakness, all produced by his captors and interrogators. This court would so hold upon the evidence and the record if this were the initial habeas proceeding. But our inquiry and the grounds of today's decision have been considerably narrowed by the mandate of the Court of Appeals. Focusing the general principles upon the circumstances of this case, that court has directed us to consider six factors touching the voluntariness of petitioner's confessions. Following that direction, we are driven compellingly toward the granting of the writ.
The higher Court instructed that six specified allegations, or clusters of allegations, by petitioner would require issuance of the writ if they could be sustained on the remand. Finding them to be sustained, or vindicated so substantially as to permit no *681 other result, we reach the conclusion the mandate requires.[13]
(1) "He was never once, during the whole period of pre-arraignment interrogation, advised of his right to remain silent or of his right to counsel."
This is undisputed. It is, of course, a solid factor favoring petitioner.
(2) "According to Lewis he was arrested on the pretense of Mrs. Waller's alleged complaint, held for approximately 38 hours by the police during which time he was neither booked nor arraigned, and questioned during most of the first half of this period."
Although it does not appear that the arrest of the petitioner was "on a pretense," the remainder of the quoted factor, which is the portion that goes after all to the relevant issue of coercion and deprivation, is solidly established by the several records of evidence in this case. It is perfectly clear that the petitioner was held in close and isolated confinement for 38 hours during which he was neither booked nor arraigned. It is equally clear that he was questioned "during most of the first half of this period." As one detective told it, petitioner was "questioned about [the] money all night long", and he kept "insisting . . . all along during the night [that it was his money]", before he was broken on the following day and submitted to the will of his interrogators. Such interruptions as there were served only to accentuate the thoroughness of his subjugation and the futility of any attempt to resist.[14]
The extraordinary delay in arraignment, condemned by state no less than federal procedural law, was totally devoid of justification, at least once the night had passed.[15] As is evident from Detective Corbett's testimony, the delay was for the clear and explicit aim of having the petitioner under total control for the purposes of locating the money and extracting a confession before he was allowed access to anyone else or to any of the forms of the law's protection. In light of the eye-witness identifications, it is obvious that the continuing "police interrogation was essentially incriminatory rather than merely investigatory in nature," United States ex rel. Castro v. La Vallee, 282 F. Supp. 718, 724 (S.D.N.Y. 1968), and must be condemned as such. See also United States ex rel. Montgomery v. Mancusi, 338 F. Supp. 1247, 1251 (S.D.N.Y. 1972).
(3) "During his extended period of detention before and after confession, Lewis was not allowed to make any telephone calls, was not allowed to see anyone and, with one minor exception, saw and spoke to no one but the police."
Again, the record establishes conclusively the propositions in the quoted statement. *682 The petitioner was completely walled off during the many hours of his custody. It was made clear to him that his situation of close and isolated custody could not be expected to change until he had done the officers' bidding. The "minor exception" from the condition of isolation from friends or family was solely a bargaining ploy to "encourage" Lewis to lead the police to the money. Solely for this purpose, they acceded to petitioner's request that his friend Jones could accompany them as a kind of witness. So far as that is an "exception" at all, it is not one that diminishes the impact of petitioner's totally controlled environment during interrogation.
(4) "Lewis was continuously interrogated throughout the night of February 17 and on into February 18 on an intermittent basis without being given any real opportunity to sleep or any substantial food."
Once again the record is clear to the point of being substantially undisputed on this significant set of conditions. This court has noted earlier the admittedly continuous character of the interrogation. There is no real question that the petitioner was deprived of food and sleep, with all the debilitating consequences of these conditions.
Some equivocal intimations that food was brought into or out of the room where petitioner was held are without significance for the main point that petitioner was neither given any food nor given any reason to hope that a request for it would be effective. Detective Beckles's testimony at the hearing that he offered petitioner food at the 30th Precinct is largely, if not totally, discredited by his failure to recall this act of benevolence at either the trial or the Huntley hearing.
Petitioner testified that he had not slept at all between the time of his arrest and his confession. None of respondent's witnesses could contradict his contention. To be sure, petitioner's trial testimony that he had been left alone for three or four hours on the night of the 17th in which he "dozed off" from time to time, only to be awakened on each occasion by one of his interrogators, casts doubt on his broader claim here of total sleep deprivation. However, it remains clear that petitioner slept very little, if at all, between the time of his arrest and confession.
In the end, the court finds that petitioner was in fact left to suffer the pangs of hunger and the impairments caused by sleeplessness. The effects of such deprivations can only have impaired his ability to think straight and resist pressure. They weigh heavily in the picture pointing toward the involuntariness of petitioner's confession.
(5) "Lewis, at the time of his confession, was a young 22-year old black man of limited education with apparently little prior experience with police methods, thus rendering him particularly susceptible to police pressure."
At age 22, the petitioner was certainly not as young as some whose names have been identified with confessions held invalid because their youthful wills were "overborne." Nevertheless, the factor just quoted, already held significant by the Court of Appeals, remains a substantial one in the case. We have been repeatedly instructed that "the process of determining voluntariness involves more than `a mere colormatching of cases' . . .." Mancusi v. United States ex rel. Clayton, 454 F.2d 454, 456 (2d Cir.), cert. denied, 406 U.S. 977, 92 S. Ct. 2413, 32 L. Ed. 2d 677 (1972); Reck v. Pate, 367 U.S. 433, 442, 81 S. Ct. 1541, 6 L. Ed. 2d 948 (1961); Beecher v. Alabama, 389 U.S. 35, 38, 88 S. Ct. 189, 19 L. Ed. 2d 35 (1967).
Though he was all of 22, this petitioner was diagnosed by contemporaneous psychological evaluations as a sociopath and "a type of individual, who under stress and strain, [might] develop a psychotic episode in [the] future." Dr. Lichenstein testified that a sociopath "tends to be rather infantile and immature" and that it was more probable than not that petitioner "suffer[ed] a psychotic episode" in the conditions of extended custody and interrogation. While the court does not fully accept Dr. Lichenstein's conclusion, it seems highly *683 likely that petitioner was relatively young (emotionally and intellectually as well as chronologically), unstable, and vulnerable at the time he was interrogated. Such characteristics rendered him particularly susceptible to police pressure.
It is true, as respondent stresses, that petitioner had already been imprisoned once for a serious criminal offense, and was thus no stranger to the forces of the criminal process. It does not follow by any means, and the record does not suggest, that he had significant "prior experience with police methods." So far as the law is concerned, "even a long criminal record" is not sufficient to erase or overcome such problems of immaturity, ignorance and simplemindedness as our Court of Appeals identified, and as the Supreme Court has held important, for decision of questions like the one now considered. See Davis v. North Carolina, 384 U.S. 737, 742, 752, 86 S. Ct. 1761, 16 L. Ed. 2d 895 (1966).
(6) "The police detectives made various promises to petitioner, including an offer to `help' him with his case if he confessed and a pledge that his claim of ownership would not be challenged if he would only retrieve the money."
Once more, on this final topic, the proof is ample in favor of the petitioner. Rationally, in the comfort of the courthouse or a lawyer's office, it seems absurd to suppose that police would have told the petitioner "his claim of ownership would not be challenged" even if it turned out that he had robbed the money from a bank. Nevertheless, the record makes it evident that this is substantially what the police actually said, and it is even more clear that this is what they contrived to lead him to believe. Indeed, the Court of Appeals in its first review of this case seems to have found from the existing record a promise by the officers "to accept his claim that the money in the briefcase was gambling winnings . . .." 520 F.2d at 899. It has been evident from the time of petitioner's trial that the detectives who interrogated him were quite willing to lull and pressure him by promises of friendly assistance.[16] The several records of testimony are replete with specific promises of "help" in return for a confession. In sum, the sixth and last of the Court of Appeals standards is met beyond any serious question.
It follows, as the Court of Appeals said it should, that petitioner's "confession was obtained in violation of his Due Process rights."
III.
The respondent maintains that even if petitioner's confessions were involuntary, as the court has now held, their admission at his trial was harmless error. Assuming that the Circuit has not foreclosed this issue by its mandate,[17] this court rejects the argument on the merits.
It has been held that the admission of a coerced confession can, in rare circumstances, constitute harmless error. See United States ex rel. Moore v. Follette, 425 F.2d 925 (2d Cir.), cert. denied, 398 U.S. 966, 90 S. Ct. 2180, 26 L. Ed. 2d 550 (1970) (prior untainted confession also in evidence). This is not such an extraordinary case.
In addition to the involuntary confessions, the evidence introduced at petitioner's trial consisted of (1) the testimony and in-court identification by seven eye-witnesses, (2) the testimony of Elizabeth Waller that Lewis asked her to store a briefcase for him, which she later learned contained large amounts of packaged money, (3) a *684 matchbox and sheet of paper upon which petitioner allegedly made, or directed Ms. Waller to make, computations as they counted the money contained in the briefcase, (4) testimony by Beckles and Corbett that petitioner had led them to approximately $8,000 in cash, including two $5 bills that had been marked by one of the bank tellers, (5) the money itself, and (6) the testimony of the patrolman who found the stolen car allegedly used by petitioner in the bank robbery.
The case against petitioner was strong even without the confessions. But not all of the other evidence was itself free from taint and other weaknesses. Whether or not the fact that Lewis led the police to marked money taken from the bank and the money itself are regarded as additional "confessions,"[18] it is clear that they at least suffer from the same constitutional taint, see Wong Sun v. United States, 371 U.S. 471, 487-88, 83 S. Ct. 407, 9 L. Ed. 2d 441 (1963), and must be disregarded as independent evidence. The testimony regarding the stolen getaway car must be discounted because, without petitioner's confessions, there would have been nothing to link him to the car. Similarly, while Waller's testimony and the computation slips were circumstantial evidence that petitioner had robbed the bank, they did not conclusively establish the origin of the money since petitioner never told Waller where he got the cash.
After disregarding the tainted evidence and discounting the evidence otherwise dependent upon the confessions, it is obvious that the court cannot say that "beyond a reasonable doubt," the confessions "did not contribute" to petitioner's conviction. Chapman v. California, 386 U.S. 18, 24, 87 S. Ct. 824, 17 L. Ed. 2d 705 (1967). See also United States ex rel. Moore v. Follette, supra, 425 F.2d at 928. To be sure, the eye-witness identifications, while not perfect,[19] were powerful independent evidence of petitioner's guilt. But nothing is quite so damning as a defendant's own admission of guilt. Here, unlike the situation in United States ex rel. Moore v. Follette, supra, all of petitioner's confessions were involuntary. See United States ex rel. Montgomery v. Mancusi, supra, 338 F.Supp. at 1252.
In all these circumstances, the court holds that the admission of the confessions was harmful constitutional error.
Accordingly, the petition should be, and it is, granted. Petitioner will be released from custody unless the State brings his case on for retrial within sixty days.
It is so ordered.
NOTES
[1] All the charges related to the robbery of a branch of the Manufacturers Trust Company at 155th Street and Third Avenue in the Bronx at approximately noon on February 6, 1958.
[2] There were actually three verbal confessions. The first was made to a Detective Corbett. Petitioner then repeated the same admissions before a number of other detectives, with Corbett by his side. Petitioner recounted his confession a third time before the District Attorney and a stenographer. All of these confessions were to the same effect and given within the space of an hour and a half on the same day. Copies of the recorded confession were introduced at petitioner's trial. Detectives Beckles and Corbett testified concerning the two unrecorded confessions. Petitioner also asserts that evidence of his leading the police to marked money from the bank and the money itself constitute a fourth "confession." Although this characterization was apparently rejected by the state judge presiding over the Huntley hearing, it would seem that the same constitutional claims apply to this evidence as well.
[3] The question whether petitioner was beaten, as he continues to swear, appears to have been resolved finally against him by the decision of the Court of Appeals. The Circuit upheld Judge McCaffrey's finding that petitioner's confession was not the result of physical coercion of any kind. 520 F.2d at 904. However, since Judge McCaffrey made no findings of fact, it is not perfectly clear whether he found that (a) there had been no physical abuse whatever or (b) whatever abuse there was, if any, did not cause petitioner to confess. It is at least arguable, then, that it might be open to this court to determine whether there were any beatings and, if so, whether they contributed to petitioner's allegedly coerced confessions. In the end, however, the court has concluded that the issues of physical abuse and physical coercion are foreclosed by the Circuit's decision and has assumed that petitioner was not beaten and that his confession was not physically coerced. While this bifurcation may effect a small note of unreality, the task of deciding only what the court was directed to decide has proved wholly manageable.
[4] Before Judge Port, petitioner also raised the argument that the trial court had failed to properly charge the jury concerning voluntariness. The petition was denied on this ground:
"Petitioner's second contention has previously been passed upon by Judge Curtin and found to be without merit. United States ex rel. Alfred Lewis v. Mancusi, supra, decision of August 3, 1971. I am satisfied that the ends of justice do not require this court to reexamine that determination, and this contention is also denied and dismissed. 28 U.S.C. § 2244(a)."
Memorandum Decision and Order of Judge Port, 74 Civ. 366, at 4 (N.D.N.Y. August 20, 1974). The issue was not raised on appeal, see 520 F.2d at 903, and is not now before this court on remand, despite some belated attempts by petitioner to raise it in his post-hearing briefs. In any case, the contention having been twice denied on federal habeas applications, there is no persuasive reason to consider it again.
[5] Petitioner's trial testimony was limited to the issue of the voluntariness of his confessions.
[6] Petitioner made these remarks regarding the alleged promise:
"You know, it is hard to say whether anything like that is going to have an effect, but I'm just saying this: when they got a little tougher . . . it is possible that I thought about that promise . . . and perhaps I think they moved me closer to the disclosure point. I am not saying it did."
[7] Petitioner claims that the detective who made him empty his pockets kept his leather gloves and that another officer later confiscated his watch.
[8] Later, petitioner testified:
"I knew if I didn't [take them to the money], you know, I was going to be beaten again, you know, and like some fellow said, you know, that is the reason I was up there, they was keeping me there for that purpose . . ..
"And the fact that they had played this game on me, you know, told me that they was going to told me that they was not going to contest my saying that the money was mine as a result of gambling monies, and that then after I got back, led them to the money and got back to the station got back to the precinct, you know, they made it clear, you know, that that was just a sham, you know, this also had an effect on my condition, you know, on bringing me closer to the point where I couldn't resist nothing else, you know."
[9] "Is it possible that the individual described in that report, Doctor, subjected to sudden arrest, 19 hours of continuous interrogation overnight without food and sleep, without counsel from friends or lawyers, or anyone else on his side, subjected to a constant barrage of questioning, interrogation and accusations mixed in with promises of assistance . . . is it possible that the person described in that report under those circumstances had a psychotic break?" The original question contained the additional clause "and subjected to beatings." The question, however, was asked a second time without that clause.
[10] One of the eye-witnesses recalled this feature after the identification fliers had been prepared.
[11] Corbett later testified that detectives at the 42d Squad had already instructed the witnesses to go to the 30th Precinct, which would explain why at least some of the witnesses arrived at the Precinct between 10:00 and 11:00 p.m. and Corbett not until shortly before midnight.
[12] At the hearing, Mr. Lewis explained:
"I didn't testify to this at the original trial because I didn't know the value of this kind of testimony and apparently my lawyer, who at the trial, he was not familiar with all the factors of mental coercion because he didn't instruct me to testify in this regard . . .."
[13] The parties have briefed and argued the somewhat open question as to the burden of proof. There is substantial authority that in circumstances like the ones here, the burden is upon the State to establish the voluntariness of the confessions. United States ex rel. Castro v. La Vallee, 282 F. Supp. 718, 722 (S.D.N.Y.1968); United States ex rel. Smith v. Yeager, 336 F. Supp. 1287, 1301-02 (D.N.J.), affirmed per curiam, 451 F.2d 164 (3d Cir. 1971); United States ex rel. Thurmond v. Mancusi, 275 F. Supp. 508, 520-21 (E.D.N.Y.1967); United States ex rel. Senk v. Brierley, 363 F. Supp. 51 (M.D.Pa.1973).
As the record stands, however, there is no need to go nearly that far. Accepting respondent's position that the burden is petitioner's (by a preponderance of the evidence), this court reaches the findings and conclusions hereinafter outlined.
[14] The interruptions included two, and perhaps three, trips with, and at the instance of, various detectives. The first was to petitioner's residence, which the police searched and from which they "seized" some clothes and other personal belongings. At some point in the early hours of the morning, detectives searched the apartments of two of petitioner's friends after obtaining their names and addresses from petitioner's address book. It is not entirely clear whether petitioner accompanied the detectives on this mission, but he was at least aware that it took place. The final "diversion" was the trip with Beckles, Cook, and Jones to Manhattan to retrieve the money. The car ride from the 30th to the 42d Precinct on the 18th does not qualify as an interruption because the detectives questioned petitioner throughout.
[15] Both Detectives Beckles and Corbett testified that they thought arraignment would have been impossible before the morning of the 18th when the Criminal Court reopened.
[16] Typically, one of the detectives quoted himself as saying: "Now, you have to put your trust in somebody, and we are the ones who can help you," and, the officer continued, "it was right after that that we sat down and he started to tell me" about his commission of the bank robbery.
[17] Having concluded that there were unresolved factual issues as to mental and psychological coercion, the Court of Appeals remanded for a hearing "[s]ince a state court conviction tainted by an involuntary confession cannot stand under the Due Process Clause . . .." 520 F.2d at 904. Having failed to raise the question of harmless error in the Court of Appeals, the respondent might be held to have waived the contention.
[18] See note 2 supra.
[19] After remand, petitioner attempted to inject the further claim that his conviction was based upon tainted identifications in court following impermissibly suggestive lineups. If the court were to reach that issue, it would be resolved against petitioner. While it appears that the out-of-court identifications were indeed improper, in light of the witnesses' degree of certainty and the extensive cross-examination at trial, the in-court identifications did not violate due process and taint petitioner's conviction. See Neil v. Biggers, 409 U.S. 188, 199, 93 S. Ct. 375, 34 L. Ed. 2d 401 (1972); Simmons v. United States, 390 U.S. 377, 384, 88 S. Ct. 967, 19 L. Ed. 2d 1247 (1968). However, the out of court deficiencies do diminish to some degree the evidentiary value of the in-court identifications. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1770085/ | 421 F. Supp. 1024 (1976)
UNITED STATES of America
v.
Sheila PAIGE, Defendant.
No. 76 Cr. 713 (CHT).
United States District Court, S. D. New York.
November 1, 1976.
*1025 Robert B. Fiske, Jr., U. S. Atty., S.D. N.Y., by Dominic Amorosa, Asst. U. S. Atty., New York City, for the government.
Goldberger, Feldman & Breitbart by Paul A. Goldberger, New York City, for defendant.
MEMORANDUM
TENNEY, District Judge.
Defendant Sheila Paige ("Paige") brought this motion to suppress the use of her grand jury testimony in the prosecution of her indictment, predicated upon the circumstances of her grand jury appearance. Upon being subpoenaed to testify before the grand jury, Paige retained an attorney, one William Payten Smith ("Smith"). After consultation with the Assistant United States Attorney in charge of the investigation, Smith accompanied Paige to the grand jury. At the hearing the Government attorney told Paige that she was the target of the grand jury investigation. She requested immunity, but the request was denied. Paige alleges that at this point Smith advised her to testify truthfully, explaining:
"I informed Mr. Smith that my truthful testimony would reveal that I had cut and packaged large quantities of heroin and had been paid for doing this.
"Mr. Smith then again told me to testify and he specifically told me that I could not be indicted on this case.
"In reliance upon Mr. Smith's advice and solely because of such reliance, I did not assert my Fifth Amendment privilege in the Grand Jury after my request for immunity was denied, and I testified fully as to my participation in the activities under investigation by the Grand Jury." *1026 (Affidavit of Sheila Paige, sworn to September 27, 1976, ¶¶ 5-7).
At a hearing before this Court, Smith explained that he had discussed with Paige all the alternatives which might result from her forthcoming grand jury appearance. He stated that he understood from numerous conversations with the Government that "they had enough evidence to indict Miss Paige and that, if she cooperated, they were contemplating allowing her to plead to an information," which he presumed to be a misdemeanor charge. (Transcript at 68). Smith denied ever advising Paige that if she told the truth before the grand jury she could not be indicted because "she hadn't been caught in the act." (Id. at 65).
The Court finds Smith's testimony more credible than that of Paige. His advice to Paige was given in good faith and based on the Government's representation that if she cooperated in implicating her "bosses" the main targets of the particular narcotics investigation then she would be charged with a lesser crime and her cooperation would be conveyed to the sentencing judge. The Government apparently did not find Paige fully cooperative in the grand jury investigation and therefore decided to indict her. The Court does not find Smith's conduct negligent nor his advice unprofessional. He apprised his client of the circumstances and concluded that her truthful cooperation would probably be most advantageous under the circumstances.
Furthermore, even if the Court were to accept Paige's version of the facts, there would still be no basis for suppression of her grand jury testimony. Paige's motion contends that the incompetence and ill advice from her attorney was so gross as to shock the conscience of the Court and violate her sixth amendment right to effective assistance of counsel and, furthermore, that it was this sixth amendment denial that caused her to forfeit her fifth amendment privilege. Although Paige's current situation may be lamentable, the Court is unconvinced that any constitutional violation occurred.
First, Paige cannot prove a violation of sixth amendment rights. The Supreme Court in Kirby v. Illinois, 406 U.S. 682, 92 S. Ct. 1877, 32 L. Ed. 2d 411 (1972), established the principle that the right to counsel does not arise until criminal proceedings are instituted against an individual. Appearance as a grand jury witness, even when occurring by compulsion of subpoena, is not tantamount to institution of criminal proceedings.[1]In re Groban, 352 U.S. 330, 333, 77 S. Ct. 510, 1 L. Ed. 2d 376 (1957). Hence, the authority for presence of an attorney at grand jury proceedings is not constitutionally derived, but comes, instead, from Rule 6(d) of the Federal Rules of Criminal Procedure. Insofar as Paige's motion is based upon a sixth amendment violation, then, it must fail.
Second, even if the sixth amendment protections were extended to cover grand jury proceedings (although this seems highly unlikely in light of the recent Supreme Court opinion in United States v. Mandujano, 425 U.S. 564, 96 S. Ct. 1768, 48 L. Ed. 2d 212 (1976)), the standard for demonstrating sixth amendment violations is quite stringent and is not met in this case. Conduct which demonstrates a violation of the sixth amendment right to effective assistance of counsel must be of a kind that makes "a mockery of justice" and a "farce" of the judicial process so as to "shock the conscience" of the court. See, e. g., Holnagel v. Kropp, 426 F.2d 777, 779 (6th Cir.), cert. denied, 400 U.S. 867, 91 S. Ct. 108, 27 L. Ed. 2d 106 (1970); Hanks v. United States, 420 F.2d 412, 414 (10th Cir.), cert. denied, *1027 398 U.S. 913, 90 S. Ct. 1712, 26 L. Ed. 2d 75 (1970). In this instance, the Court finds that no such conduct occurred.
Finally, there is no fifth amendment basis for suppressing Paige's grand jury testimony where movant's failure to avail herself of the privilege against self-incrimination did not result from a deprivation of constitutional due process. Objections on fifth amendment grounds are appropriate where Government authorities unfairly coerce a suspect into incriminating himself in order to facilitate his prosecution and conviction. No such coercion took place here, however. The Supreme Court has recently held that the grand jury forum is noncoercive in the fifth amendment sense. Moreover, the violation Paige complains of did not involve improper conduct by Government officials, which is the only sort of compulsion contemplated by the fifth amendment and its progeny. See Miranda v. Arizona, 384 U.S. 436, 86 S. Ct. 1602, 16 L. Ed. 2d 694 (1966). The fifth amendment privilege against self-incrimination "proscribes state intrusion to extract self-condemnation," Couch v. United States, 409 U.S. 322, 327, 93 S. Ct. 611, 615, 34 L. Ed. 2d 548 (1973) (emphasis added), and "sprang from an abhorrence of governmental assault against the single individual accused of crime and the temptation on the part of the State to resort to the expedient of compelling incriminating evidence from one's own mouth," id., citing United States v. White, 322 U.S. 694, 698, 64 S. Ct. 1248, 88 L. Ed. 1542 (1944) (emphasis added). In addition, the record of the grand jury dialogue reveals that Paige was explicitly informed of her Miranda rights including a warning that her testimony could be used against her. Not only does this cure any alleged erroneous legal understanding conveyed by counsel, it clearly reveals the Government's careful observation of due process of law in questioning Paige.
Accordingly, there is no basis in the fifth or sixth amendments for suppression of Paige's grand jury testimony, and the motion must be denied.
So ordered.
NOTES
[1] The right to counsel established in Miranda v. Arizona, 384 U.S. 436, 86 S. Ct. 1602, 16 L. Ed. 2d 694 (1966), was found to be a fifth amendment right. As explained by the Supreme Court in United States v. Mandujano, 425 U.S. 564 n. 6, 96 S. Ct. 1768, 1779, 48 L. Ed. 2d 212 (1976), the right to counsel sometimes arising prior to institution of formal criminal proceedings as "mandated by Miranda was fashioned to secure the suspect's Fifth Amendment privilege in a setting thought inherently coercive [custodial interrogation]. The Sixth Amendment was not implicated." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/3517861/ | Appellee brought this action in the circuit court of Marion county against appellant to recover damages for an alleged slander uttered by Joseph Detman, appellant's *Page 557
superintendent and general manager. There was a verdict and judgment in the sum of $8,000, from which appellant prosecutes this appeal.
Appellant is a garment manufacturing company employing something like 700 women, among the employees were appellee, Mrs. Hargrove, and Mrs. Warren; the foreman of the floor on which they were engaged about their work was one Warren. There was ill feeling between Mrs. Hargrove and Mrs. Warren. The evidence tended to show that Mrs. Hargrove had threatened to stab Mrs. Warren with a pair of scissors, and that in some way appellee was connected with this trouble. Detman, for appellant, was investigating this matter and had before him appellee, Mrs. Hargrove, and Warren, the foreman. Mrs. Hargrove had already been discharged by Detman. Appellee and Mrs. Hargrove both testified that Detman turned to appellee and made this statement: "It has been reported to me by half a dozen people or more that you have been stealing. We are not going to have anything like that going on here; you are a dangerous character and a thief; you are fired," to which appellee replied: "So, I am fired for stealing, am I," and Detman said, "Yes." Detman and Warren both testified that no such statement was made by Detman, that he neither charged appellee with being a thief directly or indirectly, nor did he discharge her; on the contrary, that she quit her job voluntarily. Detman testified further that he knew nothing detrimental to appellee's character, and, on the contrary, that "to this day we can give her a clear cut recommendation on that score" (stealing).
Appellant contends that the court erred in refusing its request for a directed verdict upon the ground that the occasion on which the language in question was spoken was qualifiedly privileged and no actual malice was proven, and that the burden of proving such malice was upon appellee. It is true that the occasion was qualifiedly *Page 558
privileged, and that the burden of proving malice was upon appellee, Louisiana Oil Corporation v. Renno, 173 Miss. 609,157 So. 705; Gardner v. Standard Oil Co., Miss., 175 So. 203; Missouri Pacific Transportation Co. v. Beard, Miss., 176 So. 156; however, that burden was fully met not only by the surrounding facts and circumstances, but by the positive testimony of Detman himself, who admitted that there was no ground for any such charge against appellee, after denying that he made the statement. It follows, therefore, that if he used the language, as the jury found he did, it was without foundation and malicious, Louisiana Oil Corporation v. Renno, supra. Furthermore, the fact that the language was uttered in the presence of Warren and Mrs. Hargrove, who had no connection with the charge, was an unnecessary publication tending to show malice.
In some of the instructions given the appellee, the slanderous language was used, including the clause: "You are fired." Appellant argues that these instructions were erroneous because they conveyed the idea to the jury that being discharged was an element of damages. The contention is without merit. Taking all the instructions together, the jury were informed in unmistakable language that the ground of the action was the charge that the appellee was a thief and not that she had been discharged. The jury could not have been confused in this respect.
Appellant complains of the giving of other instructions for appellee and the refusal of certain instructions requested by it. We have carefully considered these alleged errors and find them without any substantial foundation. If errors there were, they were harmless. We do not set out and discuss the given and refused instructions complained of because we are of the opinion that to do so would be of little or no benefit as a precedent to the bench and bar.
One of the grounds of the motion for a new trial was *Page 559
that the verdict was excessive. Appellee is forty-six years old, is married and has two children. As stated, the verdict was for $8,000. The evidence tended to show that appellee had a good reputation for honesty and integrity both before and after the alleged slander. As above stated, appellant's superintendent Detman so testified. It therefore appears that appellee's good reputation was not entirely destroyed by the alleged slander. There is a considerable difference between the amount of damages a person is entitled to recover for a slander that is not effective in destroying his reputation for good character and one that does seriously and permanently injure or destroy such reputation. New Orleans Railroad Co. v. Frazer, 158 Miss. 407,130 So. 493. In that case the judgment was reduced from $7,500 to $3,750. We are of the opinion that this case comes within the principles laid down in that case covering the award of damages. We think the record in this case demonstrates that the jury in awarding damages treated appellee's good reputation as having been completely destroyed. We think the verdict is manifestly excessive — that $5,000 would have been an ample award. Unless appellee enters a remittitur to the extent of $3000, the judgment will be reversed and the cause remanded for trial on the issue of damages alone, otherwise affirmed.
Affirmed with remittitur. | 01-03-2023 | 07-05-2016 |
https://www.courtlistener.com/api/rest/v3/opinions/1926941/ | 245 B.R. 287 (2000)
INTERNAL REVENUE SERVICE, Appellant,
v.
Henry E. HILDEBRAND, III, Trustee, Appellee.
Nos. 3:99-0020, 3:99-0021, 3:99-0022.
United States District Court, M.D. Tennessee, Nashville Division.
January 11, 2000.
*288 Michael J. Martineau, (See above), for Internal Revenue Service, appellant. Henry Edward Hildebrand, III, Nashville, TN, for Henry E. Hildebrand, III, appellee.
Cowdell Alexander Meacham, LaVergne, TN, for Tonya Mae Brown, appellee, William Bryan Roehrig, III, Gallatin, TN, for Eugene Edward Toivonen, Anita Gail Toivonen, appellee, Sheri L. Gonyea, The Kennedy Law Firm, Clarksville, TN, for Doris Ann Berry, appellee.
MEMORANDUM
ECHOLS, District Judge.
This is an appeal brought by the Internal Revenue Service ("Service") from an order entered by the United States Bankruptcy Court for the Middle District of Tennessee on December 15, 1998.[1] In that order, the Bankruptcy Court disallowed claims asserted by the Service in three separate Chapter 13 cases because proof of the claims was made after the 180-day statutory period prescribed in 11 U.S.C. § 502(b)(9). The Bankruptcy Court held that, even where the Service had received no notice of the pending bankruptcy, the statutory bar date was absolute and would be applied to preclude the government's claims.
By Order of February 9, 1999, the cases were consolidated for purposes of appeal. The Court has jurisdiction pursuant to 28 U.S.C. § 158(a). For the reasons discussed herein, the decision of the Bankruptcy Court is REVERSED.
I. FACTS
The material facts of the cases are undisputed and set forth below.
A. In re Brown
Tonya Mae Brown filed a voluntary Chapter 13 petition on February 4, 1997. She did not list the Service as a creditor in her Chapter 13 schedules or statements. Her plan was confirmed on March 13, 1997.
Pursuant to 11 U.S.C. § 502(b)(9), the bar date for the filing of claims by governmental units was August 3, 1997.
On September 1, 1998, the Service learned of Brown's bankruptcy proceeding, and two weeks later it filed a claim against her for $2,270.57. The Trustee then objected to these claims as untimely.
B. In re Toivonen
Eugene and Anita Toivonen filed a voluntary Chapter 13 petition on March 17, 1997. They did not list the Service as a creditor in their schedules or statements, and they affirmatively stated in Schedule E that only two creditors, neither of them the Service, were entitled to priority status.
On May 20, 1997, the Bankruptcy Court confirmed the proposed plan, which provided a 100% distribution to unsecured creditors over sixty months, and provided for the payment of interest.
The bar date for the filing of claims by governmental units was September 13, 1997.
On July 31, 1998, the Service learned of the bankruptcy proceeding when the Toivonens filed an "Application to Add Creditors," which indicated that the Toivonens owed taxes for 1995, 1996, and 1997. The *289 following month, the Service filed a proof of claim for priority claims for the years 1995 and 1996 in the amount of $851.45. The Trustee subsequently objected to these claims as untimely.
C. In re Berry
Doris Berry filed a voluntary Chapter 13 petition on May 21, 1997. She did not list the Service as a creditor on the schedules and statements submitted in support of her application, and she affirmatively stated on Schedule E that there were no creditors holding unsecured priority claims.
By order entered June 26, 1997, the Bankruptcy Court confirmed Berry's Chapter 13 plan providing a 20% dividend to general unsecured creditors and committed her disposable income to the Trustee for a period of sixty months.
The bar date for the filing of claims by governmental units was November 17, 1997.
The Service learned of Berry's bankruptcy proceeding on July 14, 1998, and filed a proof of claim on August 10, 1998, in the amount of $1,336.67. This amount was asserted as a priority claim resulting from unpaid income tax for the year 1995. The Trustee subsequently objected to the claim as untimely.
D. The Bankruptcy Court Decision
On December 15, 1998, the Bankruptcy Court granted the Trustee's motions to disallow all Service claims filed outside the 180-day limitations period. In re McQueen, 228 B.R. 408 (Bankr.M.D.Tenn. 1998). The Bankruptcy Court held that, under 11 U.S.C. § 502(b)(9), this limitations period bars claims in Chapter 13 cases whether or not the creditor had notice of the bar date. The Service now appeals that ruling.
II. STANDARD OF REVIEW
"On appeal, the district court may affirm, modify, or reverse a bankruptcy judge's judgment, order or decree or remand with instructions for further proceedings." Fed.R.Bankr.P. 8013. The district court reviews the bankruptcy court's findings of fact under a clearly erroneous standard, while conclusions of law are reviewed de novo. Longo v. McLaren (In re McLaren), 3 F.3d 958, 961 (6th Cir.1993).
III. DISCUSSION
In most cases, a debtor who completes his payments under a Chapter 13 plan is entitled to a discharge of all debts that are "disallowed" under § 502 of the Bankruptcy Code. 11 U.S.C. § 1328(a) (1999) ("§ 1328"). Claims filed by a governmental unit after the statutory bar date[2] are "disallowed" under § 502(b)(9), and thus are subject to discharge under § 1328. See 11 U.S.C. § 502(b)(9) (1999). Where the governmental unit received no notice of the Chapter 13 proceeding, however, the debtor may not be entitled to a discharge despite the language of §§ 1328 and 502(b)(9).
In the instant case, it is undisputed that (1) the IRS was not listed on the petitions on any of the debtors, (2) the debtors asserted that there were no creditors holding an unsecured priority claim, and (3) the IRS did not receive notice of any of the Chapter 13 filings in these three cases until the last date for filing claims had passed. Although the record does not indicate that the debtors intentionally sought to defraud the IRS out of its tax claims, the petition is false unless it correctly lists the names of creditors that are expressly given the right to notice of the bankruptcy filing. 11 U.S.C. § 1007 (1999) ("§ 1007"); City of New York v. New York, New Haven & Hartford R.R. Co., 344 U.S. 293, 73 S. Ct. 299, 97 L. Ed. 333 (1953). The Court *290 also notes that it is generally known and statutorily mandated that all persons in the United States are subject to the payment of taxes under the various schemes of the IRS.
The seemingly rigidity of § 502(b)(9) does not automatically abrogate all the rights of a governmental unit to file a claim beyond the 180-day window if the debtor has fraudulently or mistakenly failed to give the required notice under § 1007. A contrary ruling would serve to give more weight or preference for one section of the Bankruptcy Code (§ 1502(b)(9)) than to another (§ 1007). This Court is unaware of any history or Congressional intent that suggests such an interpretation.
In Chapter 13 cases, "creditors are entitled to notice of . . . the filing of the case, the first meeting of creditors and the dates by which creditors must file claims." In re Friesenhahn, 169 B.R. 615, 623 (Bankr.W.D.Tex.1994); see 11 U.S.C. § 342(a) (1993). Fundamental fairness requires that "federal governmental representatives who are responsible for collecting taxes . . . [receive such] notice." Collier on Bankruptcy ¶ 342.02 (Lawrence P. King et al., eds., 15th ed., 1999). See also Aboody v. United States (In re Aboody), 223 B.R. 36, 40 (1st Cir. BAP 1998) ("`Governmental entities are entitled to whatever statutory due process a given legislative scheme provides.'") (quoting Friesenhahn at 622, n. 11); United States v. Cardinal Mine Supply, Inc., 916 F.2d 1087, 1089 (6th Cir.1990) ("Due process and equitable concerns require that when a creditor does not have notice or actual knowledge of a bankruptcy, the creditor must be permitted to file tardily when the creditor does so promptly after learning of the bankruptcy.") SouthTrust Bankcard Center v. Curenton (In re Curenton), 205 B.R. 967, 971 (Bankr.M.D.Ala.1995); Daniel R. Cowans, Bankruptcy Law and Practice § 12.5(c) (7th ed., 1998) (noting "fundamental fairness" problem where government creditor does not receive notice).
Where neither actual nor constructive notice is given, the bar date prescribed by § 502(b)(9) is not effective. See United States v. Hairopoulos (In re Hairopoulos), 118 F.3d 1240, 1245 (8th Cir.1997) (creditors "`have a right to assume that the statutory "reasonable notice" will be given them before their claims are forever barred'") (quoting City of New York, 344 U.S. at 297, 73 S. Ct. 299). Rather, the bankruptcy court may apply equitable doctrines to allow what would otherwise be an "untimely" filing. Gardenhire v. IRS (In re Gardenhire), 220 B.R. 376 (9th Cir. BAP 1998); United States v. Kennedy (In re H. & C. Table Co., Inc.), 457 F. Supp. 858 (W.D.Tenn.1978). This result obtains despite the express language of § 502(b)(9), which should not be interpreted as imposing a bar date in abrogation of the long-standing principles of due process and fundamental fairness. See, e.g., Aboody, 223 B.R. at 40; Cardinal Mine, 916 F.2d at 1089.
The Sixth Circuit discussed the importance of providing notice to creditors, as well as basic due process considerations, in United States v. Cardinal Mine Supply, Inc.:
Due process and equitable concerns require that when a creditor does not have notice or actual knowledge of a bankruptcy, the creditor must be permitted to file tardily when the creditor does so promptly after learning of the bankruptcy. . . . [N]otice and an opportunity to be heard [are] necessary before a party [can] be deprived of property. . . .
Id.
When faced with situations where creditors have not received notice in Chapter 13 cases, other bankruptcy courts have utilized different remedies. Some of these were noted by this bankruptcy court in the case of In re Stadaker, No. 97-12297 (Bankr.M.D.Tenn. October 27, 1998). See, e.g., In re Smith, 217 B.R. 567 (Bankr. E.D.Ark.1998) (finding that [s]ince the *291 creditor did not have proper adequate notice of the bankruptcy case, due to the failure of the debtor to properly schedule that creditor, it is appropriate for the Court to allow the late-filed proof of claim); Crites v. Oregon (In re Crites), 201 B.R. 277 (Bankr.D.Or.1996) (holding in a post-discharge case where the debtor failed to list the creditor, that the creditor's claim had not been "provided for" in the plan and therefore was not discharged); In re Herndon, 188 B.R. 562 (Bankr.E.D.Ky.1995) (finding that where creditor did not get proper notice of the bankruptcy, the creditor's late-filed proof of claim was disallowed, but debt was not discharged in bankruptcy) (holding the IRS's right to collect its claim was simply abated until plan payments were completed).
The Ninth Circuit Bankruptcy Appellate Panel, when confronted with a similar case involving lack of notice to the IRS, adopted the theory of "equitable tolling" of the § 502(b)(9) requirements in order to allow the late filing of a proof of claim by the IRS in a Chapter 13 case. Gardenhire, 220 B.R. 376.
To deem the claims barred under this circumstance would be fundamentally unfair. It would reward debtors who failed to fulfill the statutory requirement of listing all creditors and relieve the court system of its obligation to ensure that appropriate notice is provided.
Having carefully reviewed the record and considered all the facts and circumstances, the Court rules as follows: where a government unit receives no notice of entry of an order for Chapter 13 relief until after the period for filing claims has passed, that unit's claim is not automatically barred by 11 U.S.C. § 502(b)(9).
IV. CONCLUSION
Having reviewed the Bankruptcy Court's conclusions of law de novo, the Court finds the conclusions result from a construction of 11 U.S.C. § 502(b)(9) that disregards the requirements of 11 U.S.C. § 342(a). Accordingly, the Bankruptcy Court's decision is REVERSED. This case is REMANDED to the Bankruptcy Court for proceedings consistent with the Court's ruling that, where a government unit does not receive actual or constructive notice that a Chapter 13 case has been filed, the unit's claims are not, as a matter of law, automatically barred by 11 U.S.C. § 502(b)(9).
NOTES
[1] That order, In re McQueen, 228 B.R. 408 (Bankr.M.D.Tenn.1998), applied to fifteen unrelated Chapter 13 cases, only three of which are the subject of this appeal.
[2] The claim of a governmental unit is untimely if filed 180 days or more "after the date of the order for relief or such later time as the Federal Rules of Bankruptcy Procedure may provide." 11 U.S.C. § 502(b)(9) (1999). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2098034/ | 373 F. Supp. 740 (1973)
John DAVIS
v.
James BARR et al.
Civ. A. No. 8232.
United States District Court, E. D. Tennessee, N. D.
November 12, 1973.
*741 *742 William Lamar Newport, Gullett, Steele, Sanford, Robinson & Merritt, Nashville, Tenn., for plaintiff.
Chester S. Rainwater, Jr., Rainwater & Rainwater, Dandridge, Tenn., Richard L. Hollow, McCampbell, Young, Bartlett & Woolf, Knoxville, Tenn., for defendants.
MEMORANDUM
ROBERT L. TAYLOR, District Judge.
Plaintiff, a former coach and now a teacher in the Jefferson County, Tennessee school system, has filed this action pursuant to Title 42 U.S.C. § 1983 for damages and other equitable relief on the ground that he was demoted by the Jefferson County Board of Education from his coaching position without being afforded procedural safeguards under the Fourteenth Amendment.
The uncontroverted proof shows that plaintiff was hired in 1965 to fill a vacancy at Jefferson County High School as a coach and teacher. From that time until April 7, 1972, he remained on the staff in this dual capacity and it has been stipulated that plaintiff enjoyed tenured status as a teacher as is defined in T.C.A. § 49-1401 et seq. (hereinafter referred to as the Tenure Act).
Testimony further indicates, and the Court finds as a fact, that the position plaintiff filled is open only to one who is both a teacher and a football coach. That is to say that plaintiff was hired not only because he was qualified to teach in several areas,[1] but primarily because he would assume the position of head football coach.
As compensation, plaintiff received the annual state scheduled teachers' allotment, plus a supplement in the amount of $1,000.00 as provided by the county school board for performing his coaching duties. The proof clearly indicates that this supplement is not part of the scheduled teachers' salary as is provided by the State of Tennessee. Rather, each school system sets, whether by individual negotiation or otherwise, the supplement that is to be provided a coach.
On April 6, 1972, the Jefferson County School Board met and decided, for reasons not elucidated at trial, to remove plaintiff from his coaching position. The then superintendent, Mr. Y. J. McAndrew, testified that at no time prior or subsequent to the meeting was he in favor of this action and for that reason he did not concur in the vote for such removal. The minutes of the April 6th meeting corroborate this testimony. (See also minutes of April 13). On the following day, McAndrew was requested to notify plaintiff of the Board's action and this was so done by letter. Thereafter, plaintiff contacted McAndrew for the purpose of ascertaining the reasons for the Board's action and to be allowed to hear the charges against him and present evidence in his behalf. This request was made pursuant to advice of the Tennessee Teachers' Association (TEA) whom plaintiff had contacted subsequent to the notice of removal.
A meeting was then scheduled and held on July 13, 1972, but the undisputed proof shows that no charges were formally presented plaintiff and no hearing was held. Rather, the Board adjourned the meeting without further discussion.
On July 24, another meeting of the Board convened at which time plaintiff and his then counsel again requested presentation of charges, but none were forthcoming and the meeting was adjourned.
The Board again met on July 29, 1972 for the purpose of postponing football practice until the coaching situation could be resolved. Mr. Y. J. McAndrew informed the Board that certain members of the community wished to speak on plaintiff's behalf. The Board then scheduled a meeting open to the public for August 10, 1972.
*743 At this meeting, plaintiff again requested that charges be presented. It appearing that the meeting was resulting in a public squabble, the Board recessed into executive session, whereupon it ratified its action of April 6 and appointed Mr. Collins as interim coach.
Plaintiff once more attempted to ascertain reasons for his removal at a Board meeting held on August 31, 1972, but no such charges were forthcoming nor was a hearing held.
Plaintiff, as advised by TEA, reported "as normal" for duty when the fall school term commenced. However, his testimony indicates that his presence was received with "coolness and surprise." The class schedule and assignment sheet reflects that he was not originally assigned to the schedule, and that another teacher had been assigned to teach plaintiff's classes. Plaintiff testified that he was ignored for two days. However, on the third day, plaintiff was assigned to the teaching schedule and assumed such duties.
In October, 1972, plaintiff was notified that he was suspended pending an investigation of certain charges asserted against him relating to his performance as a teacher. This suspension was with full teacher compensation. In December, 1972, a three-day hearing was conducted by the Board, at which time plaintiff was returned to his teaching duties. However, in the opinion of the Board, a transfer to White Pine High School was required in order to promote the efficient operation of the school system.
Neverthless, plaintiff contends that this subsequent hearing, while comporting in form to the requirements of due process, was not in substance sufficient to rectify his prior removal from his coaching position without a hearing. He alleges that since the Board had already pre-judged the merits of the transfer by their prior action of removal, he was further damaged in that he was required to travel some 48 extra miles to his new school. Plaintiff supports this contention by arguing that since the position he occupied at Jefferson County High School could be filled only by one who was both a teacher and a coach, the subsequent transfer was incident to his initial removal.
Additionally, plaintiff's unrebutted testimony shows that because of the controversy surrounding his removal, he was forced to send his son to school in an adjoining county at an additional expense of some $287.00.
The sole issue for the Court to determine is whether plaintiff was, at the time he was removed from his coaching duties, entitled to notice and a pre-removal hearing comporting with the Due Process Clause of the Federal Constitution. If so, then the Court must further determine the relief plaintiff is to be granted. If he was not, plaintiff's action should be dismissed.
Before the procedural safeguards of the Due Process Clause may be invoked, plaintiff must demonstrate that the alleged actions of defendants deprived him of an interest encompassed by the Fourteenth Amendment's protection of property. (Board of Regents v. Roth, 408 U.S. 564, 92 S. Ct. 2701, 33 L. Ed. 2d 548 (1972); Perry v. Sindermann, 408 U.S. 593, 92 S. Ct. 2694, 33 L. Ed. 2d 570 (1972)).[2] Therefore, as a threshold determination, the Court must decide whether plaintiff enjoyed an interest in property in light of the controlling decisions herein cited. We hold that he did.
In Roth and Sindermann, supra, the Court clearly rejected the distinction between "rights" and "privileges" that had theretofore governed the applicability of the due process safeguards and stated:
"The Fourteenth Amendment's procedural protections of property is a safeguard of the security of interests that a person has already acquired in *744 some specific benefits. These interestsproperty interests may take many forms."
(Roth, supra, at p. 576, 92 S.Ct. at p. 2708)
In the present case, as in Roth and Sindermann, plaintiff contends that the property interest to be protected is his interest in continued employment as a teacher and coach. However, in order to meet the standard as established by those cases, he must demonstrate more than an abstract need or subjective desire for the position he held. He must show that he had a "legitimate claim of entitlement to it." (Roth supra, at p. 577, 92 S.Ct., at p. 2709). To ascertain whether plaintiff's interest in continued employment as a teacher/coach was a legitimate claim of entitlement, Roth, supra, clearly indicates that we may look to
". . . existing rules of understandings that stem from an independent source such as state law rules of understandings that secure certain benefits and that support claims of entitlement to those benefits."
(408 U.S., at p. 577, 92 S.Ct. at p. 2709)
It has been stipulated that plaintiff was tenured as a teacher under T. C.A. § 49-1401 et seq. and would clearly be entitled to notice and hearing as a matter of state law, irrespective of the Constitutional issue, if terminated or removed as a teacher. Defendants argue, however, that the protections afforded by the Tenure Act apply only to his position as a teacher and do not proscribe the hiring and firing of plaintiff as a coach. Plaintiff, on the other hand, argues that the vacancy he was hired to fill was that of teacher and coach and therefore the two positions were in reality inseparable. Plaintiff further contends that under the Tenure Act, and the interpretations given it by the Supreme Court of Tennessee, he had a substantive right, as a matter of state law, to a pre-demotion hearing. Defendants construe the state law to the contrary. Accordingly, we must ascertain the status of plaintiff under the applicable state law not for the purpose of deciding whether state law was violated as defendants would suggest, but to determine the limited issue of whether plaintiff enjoyed the legitimate claim of entitlement to continued employment without perfunctory discharge or demotion.
T.C.A. § 49-1401 provides in pertinent part that:
* * * * * *
"(1) The word `teacher' includes teachers, supervisors, principals, superintendents and all other certificated personnel employed by any county, city or special district board of education, . . .
* * * * * *
"(4) The word `tenure' indicates the statutory requirements, conditions, relations, . . . under which a teacher . . . holds a position as a teacher under the jurisdiction of the board. Administrative and supervisory personnel shall have tenure as teachers and not necessarily tenure in the specific type of position in which they may be employed."
T.C.A. § 49-1411, as amended, provides in pertinent part:
"The superintendent, with the approval of the board, when necessary to the efficient operation of the school system, may transfer a `teacher' from one location to another within the school system, or from one type of work to another for which he is qualified and certificated. Such a transfer can be made only by the concurrent action of the superintendent and the board."
T.C.A. § 49-1412 through § 49-1417 provide the procedure to be employed upon discharging a tenured teacher and the avenues of judicial review available in the state courts.
In Blair v. Mayo, 224 Tenn. 108, 450 S.W.2d 582 (1970), the Tennessee Supreme Court was faced with a summary dismissal of a principal and his assistant *745 arising out of a locally controversial suspension of a student from school. Both personnel had been tenured as teachers under the Act and both were retained by the board of education as teachers. The court, in affirming the chancellor's decree, enjoined the board's actions as being arbitrary and capricious under the Act.
Potts v. Gibson, 225 Tenn. 321, 469 S.W.2d 130 (1971), again dealt with a summary administrative demotion and transfer of a tenured principal. The court stated that:
"Our cases recognize and to some degree emphasize the right of a teacher having tenure to notice of a hearing before the Board before he can be transferred to a position with less responsibility and where he will be required to serve at a reduced salary. State v. Yoakum, 201 Tenn. 180, 297 S.W.2d 635; State ex rel. Taylor v. Rasnake, 209 Tenn. 229, 352 S.W.2d 427; Blair et al. v. Mayo, et al., 224 Tenn. 108, 450 S.W.2d 582."
However, since plaintiff had been afforded a de novo hearing in Chancery Court where all of the proof was subject to retrial, the court found that the spirit of the statute had been substantially satisfied, and, therefore, upheld the decision of the chancellor and the board.
Under the Potts decision, it was clear that before a teacher could be transferred to a position of less responsibility, a pre-transfer hearing or its equivalent was required as a matter of right. Nevertheless, in June and July, 1972, the supreme court decided the cases of State ex rel. Pemberton v. Wilson, 481 S.W.2d 760 (Tenn.1972 per curiam), and Gibson v. Butler, 484 S.W.2d 356 (Tenn.1972, McCanless, J. for the majority), which counsel submit represent authority for each of their respective positions.
Pemberton, supra, involved the following facts: In 1968, plaintiff who was a tenured teacher and was employed as an attendance teacher in Morgan County, Tennessee, ran for the elected post of superintendent against the defendant. Not only did plaintiff lose the election, but apparently a rift developed between the parties during the campaign. After the election, the board, with concurrence of its newly elected superintendent, approved the transfer of plaintiff from her prior position as an attendance teacher to that of classroom teacher. In her new position, plaintiff earned some $800.00 less per year but worked 20 fewer days and had approximately twenty-six miles less to travel per day. Plaintiff claimed that this was a demotion under the Act and the Potts and Blair decisions. The court stated that no teacher is guaranteed continuity of employment in a particular job and that under the facts presented, its scope of review was limited to whether the actions taken were arbitrary and capricious. It distinguished Potts, supra, on the ground that the court there was not required to reach the procedural issue. However, the critical distinction was made between the case and the Blair decision, in that Blair involved a situation where the transfer was made without concurrence of the superintendent under T.C.A. § 49-1411, thereby rendering the transfer prima facie arbitrary. (See State ex rel. v. Yoakum, 201 Tenn. 180, 297 S.W.2d 635 (1956)).
On July 3, 1972, the Supreme Court of Tennessee rendered the decision in Gibson v. Butler, 484 S.W.2d 356 (Tenn. 1972: see also Chancery Court opinion attached to plaintiff's brief), which concerned the following facts: Sixteen teachers had been transferred to positions of less responsibility and remuneration due to an apparent rift between the board of education and the superintendent. The transfers were made without notice of hearing and without the concurrence of the superintendent.[3] In affirming the trial judge's reinstatement *746 of those who were tenured plaintiffs, the court reaffirmed its position taken in Yoakum, supra, and held that each was entitled to notice and written charges of "dismissal or demotion" and an opportunity to be heard under the Act. (484 S.W.2d at p. 358). Additionally, upon petition to rehear in light of Pemberton, the court held that under the circumstances, that is, where plaintiffs were transferred to lesser positions of responsibility thereby causing a reduction in compensation, the Pemberton rule was inapplicable.
The case presently under consideration appears to be indistinguishable from the Court's most recent pronouncement in Gibson v. Butler, supra. Here, plaintiff was a tenured teacher and had held the position of teacher and coach since approximately 1966. The evidence further shows that he was hired specifically to fill this dual position and had been persuaded at least on one occasion to remain in it. The members of the board at its April 6th meeting, without concurrence of the then superintendent, Y. J. McAndrew, discharged plaintiff from his duties as coach thereby reducing his compensation for the next term of $1,000.00. No notice of the charges were presented at that time nor was he afforded a hearing until the events occurring in the fall of 1972 which lead to a formal suspension, hearing, and eventual transfer to White Pine School in January.
Under the applicable Tennessee law, plaintiff had a legitimate claim of entitlement to continued employment as a teacher and coach without summary discharge from his coaching duties. We emphasize, however, that in relying upon the law of Tennessee to find that plaintiff enjoyed an interest in property we do not hold that defendants violated state law. That issue is not before us and is a matter to be determined in the appropriate state forum. Thus, we conclude that defendants violated plaintiff's rights to procedural due process by summarily demoting him without a preremoval hearing. Board of Regents v. Roth, supra; Perry v. Sindermann, supra; Goldberg v. Kelly, 397 U.S. 254, 90 S. Ct. 1011, 25 L. Ed. 2d 287 (1970); Slochower v. Board of Education, 350 U.S. 551, 76 S. Ct. 637, 100 L. Ed. 692 (1955); Wieman v. Updegraff, 344 U.S. 183, 73 S. Ct. 215, 97 L. Ed. 216 (1952)).
As damages, plaintiff has asked the Court to reinstate him as coach at Jefferson County High School; to award him back salary in the amount of $2,000.00 which represents the additional county supplement for the two year period between the time of termination and suit; to award the sum of $15,000.00 as compensatory damages. Plaintiff further seeks attorney's fees and punitive damages. In support of his claim for $2,000.00 in back salary and damages sustained in his eventual transfer, plaintiffs contends that his summary demotion was not cured by the subsequent three-day hearing held in December, 1972. Specifically, plaintiff alleges that while outwardly conforming to procedural techniques that would conform to the due process standards, the members of the board had already formulated an opinion thereby preventing plaintiff from receiving an impartial determination.
The evidence does not support this contention. The deposition of Mr. Aubrey M. Witherington, TEA representative, reflects that the December hearing fully comported, as far as was practicable under the circumstances, with due process procedures. While a disinterested third party arbitrator, or separate hearing panel may have been more ideal, due process does not require a hearing to be conducted by those unconnected with the controversy where under the circumstances those who actually conducted the hearing were the only persons available for making the decision. (See, Morrissey v. Brewer, 408 U.S. 471, 92 S. Ct. 2593, 33 L. Ed. 2d 484 (1972)). The only damage plaintiff sustained as a result of the summary demotion in April, 1972 was the loss of that portion of the $1,000.00 coaching *747 supplement computed from April, 1972 until January, 1973, at which time he was properly transferred.[4] That amount comes to $750.00. The Court further finds that as a result of the controversy surrounding the April demotion, plaintiff was required to send his son to an adjoining school district. Plaintiff is entitled to recover this expense in the amount of $287.00. Plaintiff is not entitled to recover attorney's fees or punitive damages. (Lusk v. Estes, 361 F. Supp. 653 (N.D.Tex.1973)).
In their post-trial briefs, defendants contend that this action should be dismissed on the following grounds: (1) plaintiff failed to exhaust his state remedies; (2) a mere violation of rights which stem solely from a relation of a citizen to his state is not protected by the Federal Constitution; (3) plaintiff fails to state a claim under Title 42 U. S.C. § 1983 in that the defendants acted as a corporate body and not as individuals. Defendants further assert that the Jefferson County Board of Education, as such, should be dismissed as not being a person within the meaning of the Civil Rights Act.
As to defendants' contention that the Board, as such, is not a person within § 1983, we agree. (Monroe v. Pape, 365 U.S. 167, 81 S. Ct. 473, 5 L. Ed. 2d 492 (1961); Guelich v. Mounds View Independent Public School Dist. No. 621, 344 F. Supp. 1276 (D.Minn. 1972); Jones v. Jefferson County Board of Education et al, 359 F. Supp. 1081 (E.D.Tenn., 1972); Alexander v. Kammer, 363 F. Supp. 324 (E.D.Mich.1973)).
Nevertheless, the Court is of the opinion that both plaintiff's allegations and the proof adduced at trial support his claim against the individual members of the Board who were acting under color of state law. (Board of Regents v. Roth, supra; Perry v. Sindermann, supra; Orr v. Thorpe, 427 F.2d 1129 (5th Cir. 1970); Bennett v. Gravelle, 323 F. Supp. 203 (D.Md.1971)).
Additionally, Title 42 U.S.C. § 1983 does not, under the circumstances here presented, require plaintiff to exhaust his state administrative and judicial remedies before proceeding in this Court. (Beale v. Blount, 461 F.2d 1133 (5th Cir. 1972); Jones v. Metzger, 456 F.2d 854 (6th Cir. 1972); Webb v. Lake Mills Community School Dist., 344 F. Supp. 791 (N.D.Iowa 1972)).
Defendants' reliance upon Gentry v. Howard, 288 F. Supp. 495 (E.D. Tenn.1968) and other cases analagous thereto is also misplaced. The violation complained of in the present case rests solely upon the Federal Constitution. As previously indicated, we do not here decide whether the laws of Tennessee have been violated. Our inquiry into such laws is limited solely to the extent of determining whether plaintiff enjoyed an interest in property protected by the procedural safeguards of the Due Process Clause. Defendants' contention is, therefore, without merit.
In summary, we hold that plaintiff's right to continued employment as a teacher and coach without summary demotion to a position of less responsibility and reduction in salary was violated by defendants when they removed him from the position as coach of Jefferson County High School without a pre-removal hearing.
It is accordingly ordered that plaintiff be, and same hereby is, entitled to recover from the defendants, except the Jefferson County Board of School Commissioners, in the aggregate amount of $1,037.00, and statutory costs.
NOTES
[1] Plaintiff testified that he was certified to teach inter alia History, Social Studies, Health and Physical Education.
[2] There is no contention in the present case that plaintiff's interests in liberty were impinged by the actions of the members of the Board.
[3] From a reading of the cases and from testimony heard at trial it appears to be the general procedure, with some local variations, for both the superintendent and the board to submit individual lists of teachers that are subject to reelection. A vote is then taken, and those approved are appointed for an additional term.
[4] Defendants admit in their post-trial brief that if the Court finds that plaintiff's due process rights were violated in April, 1972, the measure of damages could be computed from then until his eventual transfer in January, 1973. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1880832/ | 322 F. Supp. 1055 (1971)
LaVonna CONRAN, Mary Susan Conran McLaughlin, Sally Ann Conran Maxwell, James E. Reeves, and R. L. Saalwaechter, Co-Executors of the Estate of James V. Conran, Deceased, and LaVonna Conran, widow of James V. Conran, Deceased, Plaintiffs,
v.
UNITED STATES of America, Defendant.
No. S 70 C 23.
United States District Court, E. D. Missouri, Southeastern Division.
February 4, 1971.
*1056 James E. Reeves, Ward & Reeves, Caruthersville, Mo., for plaintiffs.
Daniel Bartlett, Jr., U. S. Atty., Harold E. Zahner, Asst. U. S. Atty., St. Louis, Mo., Johnnie M. Walters, Asst. Atty. Gen., Harold S. Larsen and Michael C. Durney, Attys., Dept. of Justice, Washington, D. C., for defendant.
MEMORANDUM
MEREDITH, Chief Judge.
This is a suit for the recovery of federal income taxes alleged to have been overpaid by James V. Conran (deceased) and LaVonna Conran for the year 1966 in the amount of $11,526.38, plus statutory interest. At issue in this proceeding is the question of whether the $17,458.36 gain realized from the severance damages is to be recognized as taxable income or whether it qualifies for deferral of recognition, pursuant to 26 U.S.C. § 1033. The case was submitted by the parties to the Court for decision upon the pleadings, exhibits, and stipulation of fact. By stipulation, the parties have agreed that if the issue is resolved in plaintiffs' favor, the amount of the refund for purposes of judgment shall be computed by the defendant, and submitted to plaintiffs for approval. If the parties are unable to agree upon the amount of the refund, the matter shall be presented to the Court for resolution. If the issue is decided in favor of the defendant, this problem will, of course, not arise.
James V. and LaVonna Conran timely filed their joint individual income tax return for the year 1966. The Commissioner of Internal Revenue timely assessed a deficiency against the taxpayers, James V. and LaVonna Conran, in the amount of $11,526.38, plus interest in the amount of $1,350.17, which amounts were paid by the taxpayers. On May 15, 1969, a claim was timely filed by the taxpayers, and after more than six months elapsed, the instant suit was filed on May 22, 1970. This Court has jurisdiction under 28 U.S.C. § 1346 (a) (1).
During the taxable year in suit, 1966, the plaintiffs received a condemnation award from the State Highway Commission of Missouri in the amount of $102,824.30. This condemnation award was paid for land appropriated and damaged by the construction of Interstate Highway 55 across the plaintiffs' property in New Madrid County, Missouri.
Pursuant to Missouri condemnation procedure, three commissioners were appointed by the Circuit Court of New Madrid County, Missouri, to assess the damages to the plaintiffs' property sustained by reason of the condemnation of the highway right-of-way. In March 1966 the commissioners filed their report stating one lump sum, $102,824.30, as the amount of damages sustained by the taxpayers. Attached to the report of the commissioners was a separate sheet of paper showing the computations by the commissioners as to the method used in arriving at the total amount of damages. For the 25.71 acres actually taken for the right-of-way, the commissioners valued the land at $800.00 per acre, and awarded the plaintiffs the sum of $20,568.00. For the land adjoining the right-of-way, the commissioners awarded severance damages to the Conrans in the total amount of $72,763.00.
The Commissioner of Internal Revenue determined that, of the severance damages paid to the plaintiffs, $17,458.36 was recognizable gain which could *1057 not qualify for deferral by reinvestment pursuant to section 1033 of the Internal Revenue Code. The plaintiffs timely elected and purchased other property related in service or use to the property so converted or condemned in excess of the $17,458.36 within the meaning of section 1033.
Under the provisions of the Internal Revenue Code, condemnation proceeds are taxable as ordinary income when the award exceeds the cost basis of the property unless the taxpayer elects to take advantage of section 1033, which provides:
"(a) General Rule. If property (as a result of its destruction in whole or in part, theft, seizure, or requisition or condemnation or threat or imminence thereof) is compulsorily or involuntarily converted
* * * * * *
"(3) Conversion into Money Where Disposition Occurred After 1950. Into money or into property not similar or related in service or use to the converted property, and the disposition of the converted property (as defined in paragraph (2) occurred after December 31, 1950, the gain (if any) shall be recognized except to the extent hereinafter provided in this paragraph:
"(A) Nonrecognition of Gain. If the taxpayer during the period specified in subparagraph (B), for the purpose of replacing the property so converted, purchases other property similar or related in service or use to the property so converted, or purchases stock in the acquisition of control of a corporation owning such other property, at the election of the taxpayer the gain shall be recognized only to the extent that the amount realized upon such conversion (regardless of whether such amount is received in one or more taxable years) exceeds the cost of such other property or such stock. * * *"
In the instant case, the plaintiffs have complied with the literal wording of the statute. Therefore, the question remains whether severance damages received in a condemnation award are to be accorded different treatment than direct condemnation payments.
The defendant cites Vaira v. Commissioner of Internal Revenue, 52 T.C. 986 (1969); Johnston v. Commissioner of Internal Revenue, 42 T.C. 880 (1964); Rev.Rul. 64-183, 1964-1 Cum.Bull. 297; Rev.Rul. 68-37, 1968-1 Cum.Bull. 359; Rev.Rul. 53-271, 1953-2 Cum.Bull. 36, as authority for its position that severance damages do not fall within the ambit of section 1033, except under limited circumstances not applicable in this case. The limited circumstances in which section 1033 applies, according to defendant, are when the severance damages are used to restore the property retained as outlined in Rev.Rul. 271. This authority has been weakened by Rev.Rul. 69-45 which declared that GCM 20322 was not determinative as to future transactions. Revenue Ruling 68-37 amplified GCM 23698, which explained GCM 20322, so that the defendant itself cannot regard this as binding authority because of Revenue Ruling 69-45. Revenue Ruling 271 also emanates from the same General Counsel's memorandum GCM 23698.
It is the opinion of this Court that the purpose of section 1033 is to afford relief to taxpayers when they have involuntarily realized a gain by reason of condemnation. Loco Realty Co. v. Commissioner of Internal Revenue, 306 F.2d 207 (8th Cir. 1962); United Development Co. v. United States, 212 F. Supp. 664 (E.D.Mo.1962). Severance damages are an integral part of a condemnation award. United States v. Miller, 317 U.S. 369, 375, 63 S. Ct. 276, 87 L. Ed. 336 (1942); United States v. Dickinson, 331 U.S. 745, 751, 67 S. Ct. 1382, 91 L. Ed. 1789 (1947); State ex rel. State Highway Commission v. Long, 422 S.W.2d 276 (Mo.1967). There is no language in section 1033 distinguishing or dividing the proceeds of condemnation awards *1058 into various components. The statute simply provides that if property, as a result of condemnation, is converted into money, then the taxpayer is entitled to an election to defer any gain. Cf. Rev. Rul. 69-240. This Court finds no authority for the Commissioner to fragmentize a condemnation award into various components so that part of the award falls within the ambit of section 1033 and part of the award does not. Therefore, it is the opinion of this Court that the taxpayers in this case come within the provisions of section 1033, and are entitled to non-recognition of gain as provided for by that section.
The United States Attorney is directed to prepare a judgment within twenty (20) days in accordance with this memorandum. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1881276/ | 958 F. Supp. 49 (1997)
Cameron Jennings DODSON, Plaintiff,
v.
Janet RENO et al., Defendant.
Civil No. 95-2557 (HL.)
United States District Court, D. Puerto Rico.
February 25, 1997.
*50 *51 David W. Roman, Guaynabo, PR, for Cameron Jennings-Dodson.
Cameron Jennings-Dodson, San Juan, PR, pro se.
Esther Castro-Schmidt, Agnes I. Cordero, U.S. Attorney's Office, District of P.R., Criminal Division, Hato Rey, PR, for Janet Reno, Kathleen Hawk, Pete Carlson, G.L. Ingram, James Burrell, Al Garcia, John Tombone, Jose Santana, Ismael Laborde and Rolando Rosa.
OPINION AND ORDER
LAFFITTE, District Judge.
Plaintiff, Cameron Jennings Dodson, is currently incarcerated in the Metropolitan Detention Center ("M.D.C.") in Guaynabo, Puerto Rico. He filed the instant Bivens suit seeking monetary and injunctive relief because he is fearful that Defendants will transfer him to a federal penitentiary in the United States where he alleges that he is likely to be killed by his former cohorts in the Aryan Brotherhood.
Before the Court is Defendants' motion for summary judgment on the grounds that (1) they never received a copy of the full complaint, (2) the Marshal's Office never properly served the United States of America pursuant to Rule 4(i), (3) they have qualified immunity, (4) Dodson's request is moot, and (5) there is no evidence that Defendants were deliberately indifferent to his status as an exmember of the Aryan Brotherhood.[1]
Dodson, appearing pro se, insists that Defendants are indifferent to his safety based on the prior actions of officials in other penitentiaries and Defendants' attempt to transfer him to the United States Penitentiary in Marion, Illinois.[2] After analyzing Dodson's significant claims carefully, the Court finds that Dodson's complaint is moot and, furthermore, Dodson is unable to meet the strict prerequisites to establish an Eighth Amendment violation. Accordingly, the Court grants Defendants' motion and enters judgment accordingly.
FACTS
Cameron Jennings Dodson, an inmate at the federal Metropolitan Detention Center in Puerto Rico, has two advantages at this stage in the litigation proceedings. First, because he is appearing pro se, the Court must interpret the allegations in his complaint liberally. Ayala Serrano v. Lebron Gonzalez, 909 F.2d 8, 12 (1st Cir.1990). The Court is obligated to overlook the legal mistakes that may prove fatal to a plaintiff represented by an experienced attorney. For example, despite the fact that Dodson sued Defendants under section 1983, the Court denied Defendants' motion to dismiss on the grounds that Dodson stated a cognizable Bivens claim. See Bivens v. Six Unknown Named Agents of the Federal Bureau of Narcotics, 403 U.S. 388, 91 S. Ct. 1999, 29 L. Ed. 2d 619 (1971); Dkt. No. 27. Second, under the well-established standard of review for Rule 56 motions, the Court shall assume that Dodson's allegations are true when properly supported by reference to the Record and draw all reasonable inferences therefrom in his favor. Dodson, *52 of course, may not rest his case on mere speculation or improbable inferences. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S. Ct. 2548, 2553-54, 91 L. Ed. 2d 265 (1986); Local Rule 311.12.
Because of Dodson's conviction for being a felon in possession of a firearm, Dodson must spend the next ten years of his life in the federal prison system. His projected release date is May 5, 2007. Since his conviction, he has been transferred from one federal penitentiary to another. This has been largely due to his status as a former member of the Aryan Brotherhood. Apparently, the Aryan Brotherhood believes that he has been a confidential informant for the Government and has placed a "contract" on his life. The Aryan Brotherhood has a network of members throughout the federal penitentiaries of the United States. They are a credible threat to the safety and welfare of their enemies. Special precautions must be taken to protect the lives of their enemies, such as keeping an inmate in segregation or transferring an inmate to a prison like the M.D.C. without Aryan Brotherhood members.
As a result of his conviction, Dodson was first incarcerated in the United States Penitentiary in Lompoc, California. On December 3, 1992, however, he was stabbed by members of the Aryan Brotherhood in the general prison population. As a result, the prison authorities placed Dodson in segregation and on March 9, 1993 transferred him to the United States Penitentiary in Terre Haute, Indiana. For reasons which are not clear from the record, on June 17, 1993 the authorities subsequently transferred Dodson to the United States Penitentiary in Atlanta, Georgia where he was once again assaulted by the Aryan Brotherhood in the general prison population. To protect Dodson's life, the prison officials again placed him in segregation. On August 10, 1993, the officials issued a Central Inmate Monitoring Report that recognized the Aryan Brotherhood's threat to Dodson and recommended separation from the Brotherhood. Pl.'s Compl., Dkt. No. 1 at Ex. P.
On January 17, 1994, the prison officials transferred Dodson to the M.D.C. in Guaynabo, Puerto Rico. Without special precautions, it was clear that the Aryan Brotherhood in the federal penitentiaries of the United States was a threat to Dodson's life. According to the Warden of the M.D.C., J.A. García:
[Dodson] was transferred to this facility because the Federal Bureau of Prisons (BOP) has determined that inmate Dodson's life might be in danger if he is designated to a federal correctional facility which houses members or associates of the Aryan Brotherhood (prison gang). Presently, MDC Guaynabo does not have Aryan Brotherhood members or associates among its population. Accordingly, while being housed at this facility, he has lived in general population without being involved in incidents threatening his safety.
Aff. J.A. García, Dkt. No. 23 at Ex. D. The federal prison officials recognized the Aryan Brotherhood's threat to Dodson's life in any federal facility where the Aryan Brotherhood had a strong presence. Dodson's transfer to the M.D.C., therefore, was a protective measure designed to safeguard his health and well-being.
The M.D.C. is a nine story building designed to house pre-trial and holdover inmates from the District of Puerto Rico and the District of the United States Virgin Islands. It also houses a designated work cadre of long-term inmates, inmates pending I.N.S. deportation, and Puerto Rico state boarders. The building is an archetypal example of a modern prison facility. It has four floors with three wings on each floor, The first three floors contain seven male wings and two female wings. The fourth floor contains the special housing unit and housing for male juveniles who are pending trial as adults. The M.D.C. offers a series of programs to help the inmates including a parenting program, educational programs, recreational activities, a substance abuse program, and religious services. Pl.'s Mot., Dkt. No. 28 at Ex. A.
Despite what the M.D.C. has to offer, Dodson did not like the transfer. Undoubtedly, he preferred living in the M.D.C. as opposed to a federal penitentiary where the Aryan *53 Brotherhood could threaten his life. Unfortunately, the M.D.C. was not his first choice. Dodson wanted to finish his final ten years in a state prison close to his family in Washington. He asked the M.D.C. authorities for their help. Pl.'s Compl., Dkt. No. 1 at Exs. G & H. Warden García and several M.D.C. officials, including co-defendants Jose Santana and John Tombone, attempted to help Dodson. They decided that "[d]ue to the limited available programs for designated inmates in MDC, Guaynabo, the structural layout of the institution and the length of time that inmate Dodson has remaining to serve," they would request the transfer. Id. at Exs. C & D.
On June 12, 1995 and November 5, 1995, they referred Dodson's case to the Southeast Regional Office of the Bureau of Prisons and the Central Office of the Bureau of Prisons. On Dodson's behalf, they requested his transfer to a state prison in Washington. Id. at Ex. C & D. Unfortunately for Dodson, the Assistant Director of the Central Office denied both requests. Id. at Ex. E. It is possible that the state prison authorities in Washington refused to accept Dodson because of his prior record of escaping from the Spokane, Washington County Jail and a minimum security prison in the State of Washington. Id. at Ex. C. While Dodson waited for his transfer, he worked as a unit orderly and behaved himself well. Id. at Exs. A & F. His unit team recommended correctional counseling, recreational activities, religious programs, and computer classes to him. Id. at Ex. A. Dodson participated in the recreational programs. Id. at Ex. F.
While the M.D.C. attempted to help Dodson transfer to a state facility in the Northwest, the officials began exploring the option of transferring Dodson to the United States Penitentiary in Marion, Illinois. When Dodson heard about this, he wrote to Warden García. Id. at Ex. L & M. From his letter, it is evident that Dodson and García discussed all the possible options that the prison authorities were weighing, including the option of transferring him to Marion. Dodson forewarned Warden García that if the M.D.C. transfers him to a federal penitentiary he will have to go "back to the hole" for his own protection from the Aryan Brotherhood. Id. Dodson did not like this option and pleaded with Warden García for a transfer to a prison near his family. On October 3, 1995, Warden García wrote a letter to Dodson's parents in which he acknowledged their concerns about Dodson's transfer to a federal penitentiary. Id. at Ex. K. He explained that the attempt to transfer their son to a facility in Washington had failed and promised them that "the BOP designator[s] follow established security precautions to ensure the safety of all inmates entrusted to the care of the Bureau." Id.
In spite of Dodson and his family's objections, on November 20, 1995 the M.D.C. requested Dodson's transfer to the United States Penitentiary in Marion, Illinois. Id. at Ex. B. On the transfer form, the officials stated that Dodson did not agree with the request. They indicated that Dodson is a drop-out of the Aryan Brotherhood who has been involved in several altercations with this group. Id.
The U.S.P. in Marion is a high-security institution that "houses male offenders committed from all parts of the country who have demonstrated a need for high security confinement. Typically, offenders have compiled serious records of institutional misconduct, have been involved in violent or escape-related behavior, or have lengthy and complex sentences that indicate they require an unusually high level of security." Id. at Ex. O. All units at the facility are "single-cell." Id. Furthermore, the prison contains a control unit for offenders who cannot function in the general population without threatening the security of the institution or the safety of inmates and staff members. Id.
In his complaint, Dodson argues that the M.D.C. request to transfer him to Marion was approved. He speculates that Warden García and the other co-Defendants held up the transfer after they learned that he filed the instant lawsuit. Dodson asserts that he learned about this from his case manager. He also alleges that Assistant Warden Tombone deliberately sabotaged the transfer requests to state prisons in Washington. Id. at 4. According to Dodson, Tombone has deliberately *54 ignored the Aryan Brotherhood's threat to his safety and once told him:
Look at the spiritual side Dodson. If you were brain dead and hooked up to life support, would you want to stay that way for 12 more years or have your family pull the plug.... Well, go to Marion. Get killed, and your family can sue the B.O.P. and that way you'de be giving them something in life.
Id. at 3; Pl.'s Mot., Dkt. No. 32 at 8-9. Dodson maintains that he has a zero chance of survival in Marion because the Aryan Brotherhood has a strong presence in the general prison population. Dodson fears that he would have to live in segregation from the remainder of the prison population in order to survive. Pl.'s Compl., Dkt. No. 1 at Ex. L.
The case manager coordinator has filed an affidavit contradicting Dodson's story. According to the case management coordinator, Jose Santana, the authorities rejected Dodson's transfer to Marion because Dodson did not meet certain criteria. Def.'s Mot., Dkt. No. 23 at Ex. A. In an affidavit, Warden García states unequivocally that the M.D.C. has no present intent to transfer Dodson to a federal penitentiary in the United States. Def.'s Mot., Aff. Warden García, Dkt. No. 23 at D. In fact, since the inception of this suit, the M.D.C. officials have again attempted to help Dodson transfer to a state facility in Washington. Unfortunately for Dodson, once again, this attempt failed. Id.
Dodson does not trust the M.D.C. authorities. He believes that Warden García and the other co-Defendants have in the past consciously disregarded and will continue in the future to consciously disregard the threat that the Aryan Brotherhood poses to his safety. In fact, he does not believe that the M.D.C. officials initiated a third request to transfer him to a state prison.
During the progression of this lawsuit, his requests for relief have varied. He has asked for: (1) an injunction to stop any possible future transfer to the U.S.P. in Marion, Illinois; (2) an injunction to stop Defendants from transferring him to any federal penitentiary in the United States; (3) a declaration that the M.D.C. is an unfit place for him because it is a pre-trial facility without sufficient rehabilitation programs; (4) an order requiring the M.D.C. to transfer him to a state facility near his home in Washington; (5) an order requiring the M.D.C. to provide him with physical access to the law library; (6) an order requiring federal officials to prosecute Defendants for violating his civil rights; and (7) monetary relief for the violation of his civil and constitutional rights.
Recently, Dodson's fear of a transfer to the U.S.P. in Marion has subsided. He informed the Court that he "concedes to the fact that at this point he will probably not be sent to U.S.P. Marion, Ill. [H]owever, without an order for injunctive relief, [which] should extend to all Federal penitentiaries, plaintiff will surely be transferred to a Federal facility at some point in the future." Pl.'s Mot., Dkt. No. 28 at 6.
DISCUSSION
Defendants have moved for summary judgment on five grounds: (1) failure to serve a copy of the full complaint upon Defendants; (2) failure to serve the summons and complaint properly under Rule 4(i); (3) qualified immunity; (4) the doctrine of mootness; and (5) Dodson's inability to demonstrate Defendants' deliberate indifference.
I. Summons and Complaint:
The Court quickly dismisses both of Defendants' claims related to the summons and the complaint because the arguments are meritless. Defendants' assertion that the Court should dismiss this suit because they never received the entire complaint when it was filed is simply inane. Defendants have had a copy of the entire complaint for several months and have had more than sufficient time to analyze Dodson's allegations to formulate a response. Most importantly, Defendants have not been prejudiced in any way, shape, or form by the failure to receive a copy of the full complaint.
Defendants' second argument for dismissal must be addressed before the Court can reach the merits of the case. Defendants move for judgment on the grounds that the Marshal's Office failed to properly serve *55 the summons and a copy of the complaint upon the United States of America pursuant to Rule 4(i). Even though Dodson never sued the United States of America directly, Defendants argue that the Marshal's Office must serve officers of the United States under the provisions of Rule 4(i). That would signify that the Marshal's Office would have to serve a summons on the United States Attorney for the District of Puerto Rico and mail the summons to the Attorney General of the United States in Washington, D.C.
Defendants, however, overlook the fact that Dodson is bringing a Bivens action against Defendants in their individual capacities. For Bivens suits brought against federal officers in their individual capacities, service of process must comply only with Federal Rule of Civil Procedure 4(e). Despite Defendants' insistence to the contrary, Rule 4(i)'s procedure is irrelevant. See 4A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1107 at 163 (2d ed. 1987 & 1995 Supp.) (Rule 4(e) service of process sufficient when United States Officer is sued in her or his individual capacity); Armstrong v. Sears, 33 F.3d 182, 185-88 (2d Cir.1994) (same); Robinson v. Turner, 15 F.3d 82, 85 (7th Cir.1994) (same); Parsons v. Aguirre, 123 F.R.D. 293, 295-96 (N.D.Ill.1988) (same) Accordingly, the Marshal's Office served Defendants properly pursuant to Rule 4(e).
II. Mootness & Deliberate Indifference:
A. Farmer v. Brennan:
This leaves Defendants' argument for judgment on the grounds of qualified immunity,[3] mootness, and the failure to allege a sufficient case of deliberate indifference under the Eighth Amendment. Undoubtedly, the seminal case which controls the outcome of this dispute is Farmer v. Brennan, 511 U.S. 825, 114 S. Ct. 1970, 128 L. Ed. 2d 811 (1994). In Farmer, the Supreme Court carefully explained the contours of an allegation of a prison official's "deliberate indifference" to the safety and well-being of an inmate pursuant to the Eighth Amendment.
Dee Farmer, a transsexual who enjoyed wearing women's clothing, took estrogen, and received silicone breast implants, was serving time in the United States Penitentiary in Terre Haute, Indiana. Prior to his transfer to Terre Haute, he had been segregated for his safety and because he violated prison rules. At Terre Haute, however, he was placed in the general prison population. Within two weeks, an inmate beat and raped him in his cell. Farmer filed a Bivens complaint alleging that the prison authorities consciously disregarded the risks to his safety in the general prison population despite their knowledge of prior assaults upon him because of his transsexual status. Farmer sought compensatory damages and an injunction prohibiting future confinement in a penitentiary.
The Supreme Court restated the well-established principle that prison officials must "`take reasonable measures to guarantee the safety of the inmates.'" Farmer, 511 U.S. at 832, 114 S.Ct. at 1976 (quoting Hudson v. Palmer, 468 U.S. 517, 526-27, 104 S. Ct. 3194, 3200-01, 82 L. Ed. 2d 393 (1984)). This includes protecting the inmates against violence at the hands of other prisoners. Id. Having stripped prisoners of almost all means of self-protection and placed them in confinement with violent offenders, "the government and its officials are not free to let the state of nature take its course." Id. at 833, 114 S.Ct. at 1977. Prison officials may not subject inmates to "`unnecessary and wanton infliction' of pain" which are "`totally without penological justification.'" Rhodes v. Chapman, 452 U.S. 337, 346, 101 S. Ct. 2392, 2399, 69 L. Ed. 2d 59 (1981).
Prison officials that do not take reasonable measures to ensure the safety of the inmates may be held liable for a violation of the Eighth Amendment. Before the Court finds that there is such a violation, the inmate must demonstrate that: (1) he is suffering or shall suffer from a deprivation which, when viewed objectively, is "`sufficiently serious.'" Farmer, 511 U.S. at 833-35, 114 S.Ct. at 1977 (quoting Wilson v. Seiter, 501 U.S. 294, 298, 111 S. Ct. 2321, 2323-24, 115 L. Ed. 2d 271 (1991)). In other words, "the inmate must *56 show that he is incarcerated [or shall be incarcerated promptly] under conditions posing a substantial risk of serious harm." Id.; and (2) the prison officials have a "`sufficiently culpable state of mind.'" Id. (quoting Wilson v. Seiter, 501 U.S. 294, 297, 111 S. Ct. 2321, 2323, 115 L. Ed. 2d 271 (1991)). The inmate must demonstrate that the prison officials have been deliberately indifferent to his or her safety. Id. The Supreme Court in Farmer explained that an official is deliberately indifferent only when the official "knows of and disregards an excessive risk to inmate health or safety." Id. at 837, 114 S.Ct. at 1979.
Prison officials, of course, can defend themselves effectively in one of at least the following three ways. First, they can show that "they did not know of the underlying facts indicating a sufficiently substantial danger and that they were therefore unaware of a danger." Id. at 844, 114 S.Ct. at 1982. Second, they might show that there was never any substantial risk of harm to the inmate. Id. Third, even assuming that they knew about the danger and that the injured inmate was in harm's way, they are not liable "if they responded reasonably to the risk, even if the harm ultimately was not averted." Id. at 844, 114 S.Ct. at 1982-83. Prison officials are not responsible for preventing the unpreventable. So long as they act reasonably to protect the inmate's health and safety, they can not be found consciously indifferent.
An inmate does not have to be harmed before he or she can establish that the officials are consciously disregarding a substantial risk to his or her safety. Id. at 842-44, 114 S.Ct. at 1982. In cases where the prisoner is seeking injunctive relief because of a belief that the prison officials are disregarding an excessive risk to his or her safety that has not yet ripened into an actual injury, the Court determines whether the prison officials are consciously disregarding the risk "`in light of the prison authorities' current attitudes and conduct.'" Id. at 845, 114 S.Ct. at 1983 (quoting Helling v. McKinney, 509 U.S. 25, 25-27, 113 S. Ct. 2475, 2477, 125 L. Ed. 2d 22 (1993)). The Court must examine their attitudes at the time that the lawsuit is brought and during the course of the litigation.
Significantly, "[a]n inmate seeking an injunction on the ground that there is a `contemporary violation of a nature likely to continue,' must adequately plead such a violation; to survive summary judgment, he must come forward with evidence from which it can be inferred that the defendant-officials were at the time suit was filed, and are at the time of summary judgment, knowingly and unreasonably disregarding an objectively intolerable risk of harm. and that they will continue to do so; and finally to establish eligibility for an injunction, the inmate must demonstrate the continuance of that disregard during the remainder of the litigation and into the future." Id. at 845-46, 114 S.Ct. at 1983 (emphasis added). Plaintiff and Defendants may rely, therefore, on events which postdate the pleadings and pretrial motions to demonstrate the current attitudes and conduct of the prison authorities. A district court must "approach the issuance of injunctive orders with the usual caution" and, if appropriate, permit the defendants to rectify the situation before issuing injunctive relief. Id. at 846-48, 114 S.Ct. at 1984.
B. Mootness Doctrine:
Dodson is seeking, inter alia, an injunction to stop Defendants from transferring him to the United States Penitentiary in Marion, Illinois. According to Dodson, Defendants were all set to transfer him to Marion until he filed the instant complaint. Despite the fact that Plaintiff's claim is purely speculative and contradicted by an affidavit of the case manager coordinator, for the purposes of Defendants' motion for summary judgment against an individual appearing pro se the Court shall assume that the allegation is true.[4]
*57 Statements by Dodson himself, however, raise the question of whether his claim concerning the U.S.P. in Marion is moot. Dodson has conceded that "at this point he will probably not be sent to U.S.P. Marion" but may be transferred to another federal penitentiary in the future. Pl.'s Mot., Dkt. No. 28 at 6. "[W]hen the issues presented are no longer `live' or the parties lack a legally cognizable interest in the outcome, the case is moot." Boston Teachers Union, Local 66 v. Edgar, 787 F.2d 12, 16 (1st Cir.1986) (quoting County of Los Angeles v. Davis, 440 U.S. 625, 631, 99 S. Ct. 1379, 1383, 59 L. Ed. 2d 642 (1979)). The controversy over Dodson's alleged transfer to Marion ended when either (a) the prison authorities denied the transfer request or (b) Defendants decided to suspend the transfer because of the instant lawsuit. In either case, the issue of Dodson's transfer to Marion is no longer "live."
Two well-established exceptions to the mootness doctrine, however, could have helped Dodson seek an injunction against a transfer to Marion. Under the first exception, Defendants' voluntary cessation of their alleged conduct does not render the controversy moot. Id. at 16-17. The exception prevents Defendants from stopping their illegal activities and then continuing them once the Court dismisses the complaint. Normally, this exception would assist Dodson in getting around the mootness doctrine. However, he has conceded that it is improbable that Defendants will transfer him to Marion in the future. Whether that concession is the result of his recognition that the transfer was never approved or the result of his lawsuit is not clear. But the concession does signify that the transfer to Marion is no longer a realistic possibility. The Court should not issue an injunction preventing the improbable. See Farmer, 511 U.S. at 846-47, 114 S.Ct. at 1984 ("Of course, a district court should approach issuance of injunctive orders with the usual caution"); Bell v. Wolfish, 441 U.S. 520, 562, 99 S. Ct. 1861, 1886, 60 L. Ed. 2d 447 (1979) ("the wide range of `judgment calls' that meet constitutional and statutory requirements are confided to officials outside of the Judicial Branch of Government.") Accordingly, the first exception to the mootness doctrine does not help Dodson.
Under the second exception, Dodson must demonstrate that "`(1) the challenged action was in its duration too short to be fully litigated prior to its cessation or expiration, and (2) there was a reasonable expectation that the same complaining party would be subjected to the same action again.'" Local 66, 787 F.2d at 17 (quoting Murphy v. Hunt, 455 U.S. 478, 482, 102 S. Ct. 1181, 1183-84, 71 L. Ed. 2d 353 (1982)). Once again, Dodson's concession that Defendants will not likely transfer him to Marion in the future makes this exception inapplicable to his case. There is no reasonable expectation that Defendants will attempt to transfer Dodson to Marion in the future. See also Newspaper Guild of Salem v. Ottaway Newspapers, Inc., 79 F.3d 1273, 1277-78 (1st Cir.1996) (finding no basis in the record to suggest that the action is likely to recur). As a result, the Court finds that Dodson's request for an injunction to prevent Defendants from transferring him to the United States Penitentiary in Marion, Illinois is moot.
C. Objectively Serious Deprivation and Deliberate Indifference:
Five of Dodson's seven claims arise out of his fear that Defendants intend to transfer him to a federal penitentiary in the United States with conscious indifference to the threat posed by the Aryan Brotherhood. These claims include his requests for (1) an injunction to prevent a future transfer to the U.S.P. in Marion, Illinois, (2) an injunction to prevent a future transfer to any U.S.P. with members of the Aryan Brotherhood, (3) an order requiring Defendants to transfer him to a state penitentiary near his family, (4) an order requiring federal officials to prosecute Defendants for violating Dodson's civil rights, and (5) monetary damages for threatening to transfer him to Marion.
Dodson's proclaimed fear for his life is not feigned. He and his family have expressed a fear of the Aryan Brotherhood many times through letters and complaints. Pl.'s Compl., Dkt. No. 1 at Exs. L, N, P, O, & T. He has been assaulted by members of the Aryan Brotherhood in the U.S.P. in Lompoc and the U.S.P. in Atlanta. The prison authorities *58 clearly acknowledge that the threat is real. Dodson, unfortunately, can not establish the two principal elements of an Eighth Amendment violation for cruel and unusual punishment.
First, he has been unable to demonstrate that he is suffering from an objectively serious deprivation. Dodson must show more than the fact that Defendants intend to transfer him to Marion or any other federal penitentiary where there is an Aryan Brotherhood presence. He must demonstrate that the transfer poses a substantial risk to his safety. A mere "restrictive and even harsh" condition which does not rise to the level of a wanton and unnecessary infliction of pain is not a serious deprivation. Rhodes, 452 U.S. at 347, 101 S.Ct. at 2399-2400.
A relevant example of a restrictive and tough but permissible restriction upon an inmate's freedom is the transfer of an inmate to a segregated, isolated unit of a penitentiary. The Supreme Court has repeatedly emphasized that courts should hesitate to interfere with the decisions to segregate and transfer prisoners. In Bell v. Wolfish, 441 U.S. 520, 547, 99 S. Ct. 1861, 1878, 60 L. Ed. 2d 447 (1979), the Court stressed that "[p]rison officials must be free to take appropriate action to ensure the safety of inmates and corrections personnel and to prevent escape or unauthorized entry." Prison officials have a wide-ranging discretion to adopt the "policies and practices that in their judgment are needed to preserve internal order and discipline and to maintain institutional security." Id. at 547, 99 S.Ct. at 1878; see also Sandin v. Conner, 515 U.S. 472, ___, 115 S. Ct. 2293, 2299, 132 L. Ed. 2d 418 (1995) ("federal courts ought to afford appropriate deference and flexibility to state officials trying to manage a volatile environment"). This includes the decision to transfer inmates "to less amenable and more restrictive quarters for nonpunitive reasons." Hewitt v. Helms, 459 U.S. 460, 468, 103 S. Ct. 864, 869, 74 L. Ed. 2d 675 (1983).
Significantly, it also includes the decision to segregate an inmate to protect the prisoner's safety. Id.; see also Santana v. Collazo, 714 F.2d 1172, 1179 (1st Cir.1983) ("courts that have examined the confinement of adults in prison isolation cells have been reluctant to find them unconstitutional, based either on the length of confinement or on the possibility that isolation might cause psychiatric deterioration."), cert. denied, 466 U.S. 974, 104 S. Ct. 2352, 80 L. Ed. 2d 825 (1984). This explains why the Supreme Court in Farmer indicated that the segregation of the transsexual plaintiff from the general prison population would have been an acceptable measure to ensure the inmate's safety. 511 U.S. at 829-31, 114 S.Ct. at 1975.
Similarly, in Jackson v. Meachum, 699 F.2d 578, 581-84 (1st Cir.1983), the First Circuit followed Supreme Court precedent and held that an inmate placed in solitary confinement for his protection, because he was suicidal, and because he was an escape risk was not subjected to cruel and unusual punishment. Even though the confinement resulted in some degree of depression, the segregated unit provided satisfactory living conditions and did not impose wanton or unnecessary restraints upon the prisoner's liberties.
In light of these precedents, the proposed transfer of Dodson to the segregated wing of a federal penitentiary, which also houses the Aryan Brotherhood in the general prison population, is not a serious deprivation. In a letter to Warden García before filing the instant complaint, Dodson acknowledged that Defendants intended to transfer him to the segregated unit or, as he called it, "the hole" of a federal penitentiary. Pl.'s Compl., Dkt. No. 1 at Ex. L. Dodson complained that he had already spent twenty-two months in "the hole" on prior occasions and he strongly disliked the experience. Dodson overlooks, however, the Supreme Court precedents which emphasize deference to the security decisions of prison authorities. Should the M.D.C. officials transfer Dodson to a facility with less rehabilitation programs, less recreational time, and more restrictions, Dodson has no legal basis to complain. Similarly, should the M.D.C. officials transfer Dodson to the segregated, protective unit of the U.S.P. in Marion or any other penitentiary, Dodson has no legal basis to complain.
Upon close inspection, Dodson's fear of the Marion facility involves more than a fear for *59 his safety. Dodson is afraid of spending any more time in "the hole." The decision to isolate Dodson, however, is entirely reasonable and understandable. When the Aryan Brotherhood attacked Dodson in Lompoc and Atlanta, he was living in the general prison population. During his twenty-two months in isolation, in contrast, Dodson was protected from the Aryan Brotherhood's attacks. Because the Marion facility offers an unusually high level of security for inmates like Dodson, Defendants' decision to transfer him to the U.S.P. in Marion is not an objectively serious deprivation. On the contrary, it is a reasonable measure designed to ensure Dodson's safety and prevent an unstable, tense conflict between Dodson and members of the Aryan Brotherhood from erupting.
Second, even assuming that the transfer posed a substantial risk to Dodson's well-being, Dodson has been unable to establish that the prison officials have been consciously indifferent to his safety. Although it is understandable that Dodson is seeking an injunction before the Aryan Brotherhood attacks him again, it is quite clear that Defendants intended to transfer Dodson to the segregation unit of a United States Penitentiary. There, Dodson could be reasonably protected from the Aryan Brotherhood. Most importantly, the current attitude and conduct of Defendants since Dodson filed the instant lawsuit demonstrates that Defendants are doing everything but consciously disregarding the Aryan Brotherhood's threat to his safety. There is overwhelming evidence that Defendants are aware and concerned about the Aryan Brotherhood's threat to Dodson's safety.
In numerous prison documents, including the requests to transfer Dodson to a state penitentiary near Washington, Warden García's letters to Dodson and his family, Warden García's affidavit, and the Central Inmate Monitoring Report, Defendants recognized that special precautions would have to be taken to protect Dodson from the Aryan Brotherhood. Pl.'s Compl., Dkt. No. 1 at Exs. B, C, D, K, L, M, P; Defs.' Mot., Aff. of García, Dkt. No. 23 at Ex. D. In fact, this was one of the principal reasons that the authorities transferred Dodson to the M.D.C. in Guaynabo, Puerto Rico where there is no Aryan Brotherhood presence. Defs.' Mot., Aff. of Garcí, Dkt. No. 23 at Ex. D.
Defendants' conduct on June 6, 1996 is symbolic of their current attitude toward Dodson's precarious situation. On this date, the Aryan Brotherhood issued orders to all active members of the group to execute its enemies, the members who are not in good standing, and the drop-outs. Apparently, the symbol of the Aryan Brotherhood is the clover leaf with the number 6 above each of the three separate leaves. On the sixth day of the sixth month of the sixth year in the 1990's, the Aryan Brotherhood celebrated its existence by issuing this ominous order to murder its enemies. As a result, Warden García and Captain Bruce Conger of the M.D.C. spoke with Dodson about his safety. They offered Dodson a chance to spend the day in segregation for his own protection. Pl.'s Mot., Dkt. No. 28 at 7. This is not an example of an obstinate, cold-hearted attitude. On the contrary, it represents an unequivocal concern for protecting Dodson.
Perhaps the best evidence of Defendants' concern for Dodson is their attempt to transfer him to a state penitentiary near his home in Washington. Defendants were not under any obligation to help Dodson. Yet, on June 12, 1995 and November 5, 1995, they requested the transfer. Although the transfers were not granted, Defendants' efforts to assist Dodson demonstrates their good intentions. Pl.'s Compl., Dkt. No. 1 at Ex. C, D, E, F, G, H, K, M.
The only indication that Defendants have consciously disregarded the Aryan Brotherhood's threat is the alleged comment made by Assistant Warden Tombone. According to Dodson, Tombone's statement to the effect that Dodson's death at the hands of the Aryan Brotherhood would be beneficial to his family is symbolic of Defendants' attitude. But this stray, isolated remark is insufficient to create a genuine issue of material fact on Defendants' attitude. Even if assumed to be true, Defendants' documented concern for Dodson's safety and recognition of the Aryan Brotherhood's threat belies Dodson's claim *60 that this comment is representative of their attitude.
The Court, therefore, shall not tie the hands of the prison authorities by issuing an injunction to prevent Defendants from transferring Dodson to any federal penitentiary in the United States. Dodson has not demonstrated that a transfer to a federal penitentiary even with the presence of the Aryan Brotherhood would constitute an objectively serious risk of injury. An assignment to the segregated section of the prison is a reasonable and effective measure to remove Dodson from harm's way.
Furthermore, if anything, the record demonstrates Defendants' concern for Dodson's safety and well-being. They are not disregarding the Aryan Brotherhood's potential threat. In fact, the opposite is true. By requesting his transfer to a state facility, issuing the Central Inmate Monitoring Report, keeping Dodson at the M.D.C. where there is no Aryan Brotherhood, and offering Dodson extra protection on June 6, 1996, Defendants have demonstrated a serious concern for Dodson's safety.
Finally, an injunction that broad would set a precarious precedent. It would severely restrict the ability of the prison authorities to run the federal prison system. It could even lead to the creation of a separate prison for drop-outs of dangerous gangs. Because some gangs like the Aryan Brotherhood have a presence in most, if not all, federal penitentiaries, a new prison would have to be created for the ex-members and enemies of these gangs. Forcing the prison authorities into creating a new prison or transferring the enemies of these gangs to state penitentiaries would be contrary to the purposes of the Eighth Amendment and Supreme Court precedent. It would return the courts to the dangerous role of regulating the daily activities of inmates in the federal prisons. Accordingly, the Court hereby denies Dodson's request to enjoin a transfer to the U.S.P. in Marion, to enjoin a transfer to any U.S.P. in the country, to order Defendants to transfer him to a state facility near Washington, to order the United States Attorney's Office to prosecute Defendants, and to award monetary damages for attempting to transfer him to Marion, Illinois.
D. The M.D.C. and Dodson:
Dodson dislikes the M.D.C. He wants the Court to issue an order declaring that the M.D.C. is an unfit place for him. Dodson complains that the M.D.C. is a pretrial facility which does not have the types of rehabilitation programs that he wants. Unfortunately for Dodson, there is no constitutional or statutory right to rehabilitation programs. Moody v. Daggett, 429 U.S. 78, 88-89 n. 9, 97 S. Ct. 274, 279-80 n. 9, 50 L. Ed. 2d 236 (1976); Hoptowit v. Ray, 682 F.2d 1237, 1254-55 (9th Cir.1982). He does not have the right to select the federal penitentiary or state prison where he would like to serve the remaining years of his sentence. The record demonstrates clearly that the M.D.C. has a small population of long-term inmates in addition to its pre-trial prison population. The Court finds, therefore, that the M.D.C. is a fit place for Dodson.
As the Supreme Court explained in Meachum, Dodson has no right to transfer out of the M.D.C. because it imposes more restrictive conditions than the state prisons in Washington where he would like to serve his time. Meachum v. Fano, 427 U.S. 215, 224-25, 96 S. Ct. 2532, 2538-39, 49 L. Ed. 2d 451 (1976). "Transfers between institutions ... are made for a variety of reasons and often involve no more than informed predictions as to what would ... best serve institutional security or the safety and welfare of the inmate." Id. at 225, 96 S.Ct. at 2538 (emphasis added). The federal prison officials transferred Dodson to the M.D.C. for his protection and Dodson does not have either a constitutional or statutory right to force the officials to change their mind. See 18 U.S.C.A. § 4081 (1985) (providing federal prison officials with the discretion to classify and segregate prisoners).
Dodson also objects to the M.D.C.'s policy on access to the prison law library. Dodson may make as many requests for legal materials as he desires. However, neither he nor any other inmate may visit the library for security reasons. Dodson proclaims that *61 nothing less than physical access to the library is acceptable.
The Supreme Court's recent decision in Lewis v. Casey, ___ U.S. ___, 116 S. Ct. 2174, 135 L. Ed. 2d 606 (1996) shuts the door on Dodson's need for physical access. The Lewis Court reversed the lower court's decision to regulate the inmates' physical access to the law library. It criticized the district court's attempt to micro-manage Arizona's prison law libraries. The Court explained that to state a claim for the denial of the constitutional right of access to the courts, the inmate must demonstrate that: (1) the prison authorities restricted his or her access to legal materials or the courts in some material manner; and (2) the prison authorities' actions have hindered his or her effort to pursue a legal claim; and (3) the restrictions are not reasonably related to legitimate penological interests. Id. at ___ - ___, 116 S.Ct. at 2180-85. The prison authorities do not have to help the inmate "to discover grievances, and to litigate effectively once in court." Id. at ___, 116 S.Ct. at 2181. The constitutional right of access protects the inmate's capability of filing challenges to his or her prison sentence and conditions "rather than the capability of turning pages in a law library." Id, at ___, 116 S.Ct. at 2182.
Lewis clearly forecloses Dodson from proclaiming that Defendants have denied him and continue to deny him access to the courts. M.D.C. officials have not hindered Dodson from pursuing his legal claims. In fact, they have provided Dodson with copies of all the court decisions and statutory provisions that he requests. With these materials, Dodson has filed a comprehensive complaint and a variety of supplemental motions citing the relevant case law and constitutional authorities. Even if the Court assumed the absurd proposition that Dodson needs physical access to the law library to pursue his legal claims, the Court would reach the same result. Prohibiting physical access to the law library because of security reasons is reasonably related to one of the most legitimate penological interests, protecting the security of the inmates and the staff.
CONCLUSION
Dodson is looking for a way out of the M.D.C. in Guaynabo, Puerto Rico. As an ex-member of the Aryan Brotherhood, he is also looking for protection from this ominous group. Dodson, however, has no statutory or constitutional right to select the federal or state facility where he must serve the remaining ten years of his prison sentence.
He has been unable to demonstrate that Defendants have exposed him or shall expose him to an objectively serious risk of harm. He has also been unable to show that Defendants' current attitude and conduct is indicative of their conscious disregard for his safety and well-being. The record, in fact, indicates the opposite. There is overwhelming evidence that the prison authorities and Defendants are highly concerned about the Aryan Brotherhood's threat to his life.
Accordingly, the Court hereby grants Defendants' motion. Dodson's complaint is hereby dismissed with prejudice, without costs and attorneys fees. Judgment shall be entered accordingly.
IT IS SO ORDERED.
NOTES
[1] Defs.' Mot. Summ. J., Dkt., NO. 31.
[2] Pl.'s Opp'n Mot., Dkt. No. 32. Although Dodson is appearing pro se, he has demonstrated an impressive ability to express the current state of the law and argue persuasively for injunctive relief. Although the Court shall afford Dodson all the benefits that the law grants him for appearing pro se, Dodson's skills undoubtedly sharpened the legal issues required for adjudication.
[3] The Court never reaches the question of whether Defendants have qualified immunity.
[4] The Court has held Dodson's requests for discovery in abeyance pending the outcome of Defendants' motion for summary judgment. Because the Court shall not delay its ruling on Defendants' motion pursuant to Rule 56(f), the Court shall assume that Dodson's allegations regarding the transfer order to Marion are true. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1881494/ | 958 F. Supp. 846 (1997)
SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
SOFTPOINT, INC., Robert H. Cosby, Ronald G. Stoecklein, Remington Publications, Inc., and John W. Lane, Defendants.
No. 95 Civ. 2951(SS).
United States District Court, S.D. New York.
March 20, 1997.
*847 *848 *849 *850 *851 United States Securities & Exchange Commission, Northeast Regional Office, New York City, Alexander M. Vasilescu, Jacqueline Abramson Zucker, for Plaintiff.
Wayne P. Jordan, New York City, for Defendant Ronald G. Stoecklein.
OPINION AND ORDER
SOTOMAYOR, District Judge.
Plaintiff, Securities & Exchange Commission ("SEC"), alleges, inter alia, that defendant Ronald G. Stoecklein ("Stoecklein") participated in the sale of unregistered common stock of Softpoint, Inc. ("Softpoint"), thereby violating the securities registration provisions of Sections 5(a) and (c) of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. §§ 77e(a) and 77e(c). Plaintiff further claims that Stoecklein deceived public investors as to the true financial status of Softpoint in violation of the anti-fraud provisions of Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Plaintiff also maintains that Stoecklein falsified accounting records, thereby violating Rule 13b2-1, 17 C.F.R. § 240.13b2-1.
Plaintiff now moves for an order precluding Stoecklein from introducing evidence, denials, and defenses that he previously withheld by invoking his Fifth Amendment privilege during deposition. Plaintiff further moves for summary judgment, pursuant to Fed.R.Civ.P. 56, and requests that the Court permanently enjoin Stoecklein from future violations of the securities laws, bar him from future service as a director or officer of a public company, and order him to pay disgorgement, prejudgment interest, and civil penalties.
For the reasons discussed below, both motions are granted.
BACKGROUND
Between 1992 and 1995, Stoecklein participated in a series of securities transactions and related activities to raise capital for Softpoint,[1] a publicly-held Nevada corporation that markets a computerized cash register with proprietary software. During the relevant period, Softpoint common stock was traded on the over-the-counter market and on the Boston Stock Exchange. (1993 Form 10-K at 8 (Zucker Aft. Supp. Summ. J. of 5/15/96 (hereinafter "Zucker Aff.") Ex. 14.)) Softpoint is required to file annual and quarterly reports with the SEC, pursuant 15 U.S.C. § 78m and the rules promulgated thereunder.
The stock transactions and related activities began unfolding in 1992, while Stoecklein was a consultant to Softpoint. They continued after he became the president, chief operating officer, and a director of Softpoint in March and April 1994. Stoecklein remained a director and officer of Softpoint until his forced resignation in June 1995.
Stoecklein was a seasoned businessman when he began working for Softpoint in 1991. He had served as an officer and director of several public corporations, securities firms, and an investment banking company, where he gained expertise in structuring and filing securities registration statements and other SEC reports. (1994 Form 10-K at 29-30 (Zucker Aff.Ex. 10); Softpoint Mgt. Profile (Zucker Aff.Ex. 12 at nos. 315-17.)) Stoecklein was also president of a company that he formed to analyze the finances of corporate clients and help them raise capital. (Id.) He continued to hold directorships in other public companies while working for Softpoint. (1994 Form 10-K at 29.) The SEC maintains, without denial by Stoecklein, that Stoecklein currently serves as an officer and director of C.E.C. Industries Corp., a public company that attempted to merge with Softpoint during the period covered by this litigation. *852 (Statement of SEC counsel (Oral Ar. Tr. of 10/11/96 (hereinafter "Hr'g Tr.")); Pl. Summ. J. Mem. of 5/17/96 (hereinafter "Pl. 1st Sum. J. Mem.") at 23.)
As a consultant to Softpoint, Stoecklein held the title of Director of Administration. (Softpoint Mgt. Profile at no. 315.) He facilitated stock sales, prepared public filings and press releases, participated in business and marketing planning, and disseminated information to investors. (Stoecklein Inv. Interview Tr. of 5/12/94 (hereinafter "Inv. Tr.") at 27 (Zucker Aff.Ex. 3.))
Softpoint paid Stoecklein $71,100 in 1993 and $86,072 in 1994. (Forms 1099-Misc. (Vasilescu Aff.Supp.Summ. J. of 8/23/96 (hereinafter "Vasilescu 2d Aff.") Ex. 12.) Stoecklein also was compensated with 70,000 shares of Softpoint stock, which he sold for $282,416, through his company, co-defendant Remington Publications, Inc. ("Remington").[2] (Pl. Rule 3(g) Statement of Undisputed Facts (hereinafter "Pl. 3(g) Statement") ¶¶ 311-324.) In addition, Stoecklein and Remington received $192,000 from the sale of Softpoint common stock that had been issued to co-defendant John Lane ("Lane").[3] (Zucker Disgorgement & Penalties Decl. of 4/22/96 (hereinafter "Zucker Decl.") ¶ 22.)
I. Sale of Unregistered Stock And Fictitious Software Sales
In fiscal years 1992 and 1993,[4] Stoecklein participated in a series of transactions and related activities to sell unregistered Softpoint common stock in the United States and disguise the proceeds as earnings from the sale of Softpoint products. First, Softpoint invented fictitious sales of $4.41 million worth of software to six foreign distributors: Aston Pacific, Ltd. ("Aston Pacific") in Hong Kong, United Excel, Ltd. ("United Excel") in England, Europoint International ("Europoint") in Switzerland, Brantford (Jersey), Ltd. ("Brantford") in China, Canadyne Software Services ("Canadyne") in Canada, and Grupo E.A. ("Grupo") in Mexico. (Pl.3(g) Statement ¶¶ 23, 48.) Softpoint recorded the artificial sales as accounts receivable.[5] (1993, 1992 Forms 10-K (Zucker Aff. Exs. 21, 14); Pl. 3(g) Statement ¶¶ 266-67, 278-79.) Those fictitious receivables accounted for 78 percent of Softpoint's reported total sales of $5.61 million in fiscal years 1992 and 1993. (Pl.3(g) Statement ¶¶ 49-52.)
Stoecklein helped register the sales in Softpoint's quarterly and annual reports, filed with the SEC on Forms 10-Q and 10-K, and in a Form S-4 registration statement (collectively the "public filings") filed pursuant to a proposed merger with C.E.C. Industries Corp. (Inv. Tr. at 34-40, 184-85.) Stoecklein also publicized the sales in press releases. (Inv. Tr. at 27-29.) By portraying the fictitious sales as bona fide credit transactions, Softpoint's public filings and press releases misrepresented the nature of Softpoint's dealings with the foreign distributors and overstated Softpoint's 1992 and 1993 sales revenues by a total of 368 percent. (Tax Acc'ts Dep. at 110, 113-19, 122-23, 166, 171-72 (Zucker Aff.Ex. 6.); 1992 Form 10-K at 11 (Zucker Aff.Ex. 21); 1993 Form 10-K at 11 (Zucker Aff.Ex. 14.))
During the same period, Softpoint issued 460,000 shares[6] of unregistered common stock to four of the foreign distributors Aston Pacific, United Excel, Europoint, and Brantfordas consideration for undefined services pursuant to marketing agreements. (Stock Certificates (Zucker Aff. Exs. 19, 23, *853 29, 31, 33); Marketing Agreements (Zucker Aff. Exs. 27, 35-37.)) Stoecklein helped Softpoint's then president Robert Cosby ("Cosby")[7] prepare the marketing agreements and was familiar with their terms. (Inv. Tr. at 48-54, 58-60, 71, 87, 97-98, 101-02.) Stoecklein claimed, however, that his knowledge of the contractual arrangements was limited to the information that Cosby gave him to "input" into the marketing agreements. (Inv. Tr. at 48-54, 58-60, 71, 87; Stoecklein Aff. of 8/7/96 (hereinafter "Stoecklein 1st Aff.") ¶ 8.) Stoecklein asserted that Cosby was the only Softpoint official who dealt with foreign distributors. (Stoecklein 1st Aff. at ¶ 8.)
In the third group of transactions and related activities, 344,700 shares of the unregistered common stock issued to the foreign distributors were sold to public investors in the United States for more than $1.7 million. (Pl.3(g) Statement ¶¶ 153, 157, 167, 172, 178.) The bulk of the proceeds, $1.34 million, was remitted to Softpoint and recorded as payments against the fictitious accounts receivable. (Acc'ts Receivable Ledger (Zucker Aff. Ex. 22); Pl. 3(g) Statement ¶¶ 154, 158, 168, 175, 181.) During his pre-litigation examination, Stoecklein revealed that Softpoint's plan to liquidate the stock in the United States predated the distribution of the shares to three of the foreign distributors: United Excel, Europoint, and Brantford. (Inv. Tr. at 40-42, 45, 67-69, 91; Pl. 3(g) Statement ¶¶ 27, 33, 39, 44.)
Stoecklein admitted that he "helped to liquidate those blocks of stock" in the United States. (Inv. Tr. at 54-55.) He admitted that he contacted a number of large brokerage firms and arranged their compensation and the terms of the stock sales. (Inv. Tr. at 42-43, 67, 76-77, 91-92.) The firms included Lain Wagner, Inc., L.P. Charles & Goings, Inc., New World Securities, Inc., and Strategic Resource Management, Inc. (Id.) Stoecklein monitored the stock sales and the distribution of the proceeds. (Inv. Tr at 77-79; faxes to Stoecklein (Zucker Aff. Exs. 63, 64, 87, 90, 91, 95.)) He also arranged to have his brother, Donald Stoecklein ("D.Stoecklein"), open brokerage accounts and sell more than half of the unregistered shares liquidated in the United States.[8] Stoecklein subsequently attempted to recant his admission that he initiated contact with any brokerage firms, but he affirmed that he dealt with the broker-dealers to sell the stock. (Stoecklein 1st Aff. ¶ 19.)
During the stock liquidation, Softpoint remitted $196,000 to the brokerage firms without disclosing the payments to the SEC or to the public. (Pl.3(g) Statement ¶¶ 260, 263, 280, 285, 291.) The SEC labeled the payments as "kickbacks" and alleged that they were directed by Stoecklein. (Pl. 1st. Sum. J. Mem. at 10; Pl. 3(g) Statement ¶¶ 263, 269, 271-72.) Stoecklein knew about the payments and admitted handling communications regarding the funds, but he professed a lack of authority to make the disbursements. (Inv. Tr. at 77-81; Pl. 3(g) Statement ¶¶ 254-255, 257, 262-291; Stoecklein 1st Aff. ¶¶ 32-33.)
Although Stoecklein was aware that proceeds from the stock sales were remitted to Softpoint and used to pay down the accounts receivable, he nonetheless helped portray the stock proceeds as legitimate income in Softpoint's public filings and press releases. (Stoecklein Inv. Tr. at 54-55, 75-76, 86; Press Rels. (Zucker Aff. Ex. 34 at nos. 10026, 10042, 10047.)) Stoecklein subsequently tried to recant his admission that he knew that Softpoint recorded the stock proceeds as payments to accounts receivable. (Stoecklein 1st Aff. ¶¶ 20, 21, 23, 25.)
After Stoecklein became president of Softpoint in 1994, he retained the remainder of the fictitious receivables on Softpoint's books as doubtful accounts, thereby perpetuating the fiction that the software sales had been bona fide and that future collection was possible. (Pl.3(g) Statement ¶¶ 242, 244.) Nevertheless, *854 Softpoint did not report the fictitious software sales in its federal tax returns for fiscal 1992, 1993, and 1994, all of which were prepared and filed in 1994 and 1995, while Stoecklein was president of Softpoint. (Pl.3(g) Statement ¶¶ 215-223; 1992-94 Tax Returns (Zucker Aff. Exs. 77, 78, 81.) Stoecklein participated in discussions with Softpoint's auditor Duane Midgley ("Midgley") about the preparation of the 1992 federal tax return, and both the 1992 and 1993 returns were sent to Stoecklein before they were filed with the Internal Revenue Service. (Midgley Dep. at 44-49, 77 (Zucker Aff.Ex. 7.)) Softpoints 1992 and 1993 federal tax returns were inconsistent with the Form 10-Q and Form 10-K statements that Stoecklein had previously helped prepare and file with the SEC, listing the fictitious software sales as legitimate income. (1992, 1993 Tax Returns (Zucker Aff. Exs. 77, 78); 1992, 1993 Forms 10-K (Zucker Aft. Exs. 21, 14.)) Softpoint also included the fictitious accounts receivable in its 1994 Form 10-K statement, and Stoecklein signed both that 10-K statement and the 1994 federal tax return knowing that they were at variance. (1994 Form 10-K (Zucker Aff.Ex. 10); 1994 Tax Return (Zucker Aff. Ex. 81.)).
I. Stock Payments For Fictitious Consulting Fees
In late 1993, Stoecklein participated in additional transactions and related activities to raise capital for Softpoint through the sale of common stock disguised as compensation for consulting services. Softpoint issued 577,000 shares of common stock to co-defendant Lane through his public relations firm, New-house & Associates, Inc. ("Newhouse"). (Pl.3(g) Statement ¶ 292.) Softpoint filed two Form S-8 registration statements with the SEC, listing 550,000 shares of that stock as compensation for bona fide services not connected with activities to raise capital. (Pl.3(g) Statement ¶¶ 297-298.) Nonetheless, when the stock was subsequently sold through Newhouse's brokerage account, 45% of the proceeds were funneled back to Softpoint and to Stoecklein. Out of the $1.83 million generated by the stock sale, $400,000 was remitted directly to Softpoint; another $226,050 was used to pay advertising and other promotional expenses for Softpoint; and $192,000 was paid to Stoecklein through his company, Remington. (Pl.3(g) Statement ¶¶ 301-304.)
Stoecklein negotiated the stock arrangement with Lane. (Inv. Tr. at 121-22). Stoecklein also helped prepare the Form S-8 registration statements that falsely listed the stock as compensation for services by Lane's company, Newhouse. (Inv. Tr. at 121-22.)
III. Unauthorized Issuance of Preferred Stock
Stoecklein also participated in transactions and related activities to raise money for Softpoint by issuing preferred stock, even though such stock was not authorized by Softpoint's articles of incorporation. In fiscal 1994, Softpoint issued 125,000 shares of preferred stock to purchase prepaid media credits valued at $1.25 million. (1994 10-K at 13, 21-23 nn. 5 & 7.) As president of Softpoint, Stoecklein signed the 1994 10-K statement representing that Softpoint's articles of incorporation had been amended in August 1993 to authorize preferred stock. (1994 Form 10-K at 23.) That representation was false. (Softpoint Art. Incorp. (Zucker Aff.Ex. 111.)) Stoecklein subsequently denied culpability for the misrepresentation, professing unfamiliarity with Softpoint's corporate charter. (Stoecklein 1st Aff. ¶ 38.)
IV. Procedural History
The SEC began investigating Softpoint's activities in 1993. SEC attorneys questioned Stoecklein on May 12, 1994. During that examination, Stoecklein was represented by his brother D. Stoecklein, an attorney.[9]
The SEC commenced this action on March 27, 1995. Pursuant to the Court's scheduling order of September 8, 1995, the SEC sent Stoecklein a notice of deposition, dated January 17, 1996, requiring him to appear for questioning on February 9, 1996, in *855 Reno, Nevada, near his home. Prior to deposition, Stoecklein consulted with his counsel regarding assertion of the Fifth Amendment privilege. (Stoecklein 1st Aff. ¶ 4.) By letter dated February 1, 1996, defense counsel informed the SEC that Stoecklein could not afford to bring a lawyer to his deposition; however, the letter did not include any mention that Stoecklein would invoke the Fifth Amendment at the deposition. (Letter from Def. Att'y to SEC of 2/1/96 (Vasilescu 2d Aff.Ex. 2.)) Defense counsel contends that he informed the SEC before the deposition that Stoecklein planned to invoke the Fifth Amendment solely because his attorney would be absent. (Hr'g Tr. at 6-7.) Counsel for the SEC, however, disputes the assertion that defense counsel gave advance notice of the true reason for Stoecklein's assertion of privilege. (Id.)
During his deposition on February 8-9, 1996, Stoecklein invoked his Fifth Amendment privilege in response to virtually all questions. At the next case management conference, on March 22, 1996, the SEC advised Stoecklein's lawyer that it planned to move for a preclusion order and summary judgment, based, in part, on Stoecklein's assertion of the Fifth Amendment privilege. By letter of April 18, 1996, the SEC warned Stoecklein's counsel that it was preparing motion papers for preclusion and summary judgment. (Letter from SEC to Def. Atty of 4/18/96 (Vasilescu Aff.Supp.Summ. J. of 5/17/96 (hereinafter "Vasilescu 1st Aft.") Ex. 3.)) At the same time, however, the SEC expressed its willingness to halt work on the motions if Stoecklein would waive his Fifth Amendment privilege and sit for deposition. (Id.) On April 26, 1996, Stoecklein's counsel responded to the SEC that Stoecklein would not waive his privilege, but would, instead, "take his chances" with a motion for summary judgment. (Letter from SEC to Def. Att'y of 4/27/96 (Vasilescu 1st Aff. Ex. 4.)) The SEC filed its motions for preclusion and summary judgment on May 17, 1996.
By affidavit dated August 7, 1996, Stoecklein informed the Court for the first time that he had invoked the Fifth Amendment at deposition because he could not afford to fly his lawyer to Reno to attend the deposition. (Stoecklein 1st Aff. ¶ 4.) Stoecklein asserted that he would sit for deposition if he could afford to have his attorney present, but he did not specify the exact circumstances under which he would be willing to submit to examination. (Id.) Moreover, during oral argument, defense counsel was unable to tell the Court under what specific conditions Stoecklein would submit to deposition. (Hr'g Tr. at 4-5.)
DISCUSSION
I. Preclusion
Recognizing that assertion of the Fifth Amendment privilege is an effective way to obstruct discovery, the Second Circuit has instructed district courts to "pay particular attention to how and when the privilege was originally invoked" before allowing a defendant to withdraw his claim of privilege. United States v. Certain Real Property and Premises Known As 4003-4005 5th Ave., Brooklyn, N.Y., 55 F.3d 78, 84 (2d Cir.1995). Courts must be especially alert to the danger that litigants might invoke the privilege primarily to manipulate discovery or gain an unfair strategic advantage. Id. Courts may, in appropriate cases, bar litigants from testifying later about matters previously hidden from discovery through improper invocation of the Fifth Amendment. Id. at 87. This is just such a case.
A. Improper Assertion of Privilege
Defendant Stoecklein did not invoke the Fifth Amendment to shield himself from compulsion to provide incriminating testimony. Instead, he asserted the privilege to escape the expense of flying his lawyer from New York to Reno, Nevada, to attend his deposition. The Fifth Amendment privilege is not properly invoked when its sole purpose is to force a change of location for a pre-trial examination or to buy time to obtain the presence of counsel. See Doe v. United States, 487 U.S. 201, 212, 108 S. Ct. 2341, 2348-49, 101 L. Ed. 2d 184 (1988) ("[T]he privilege may be asserted only to resist compelled explicit or implicit disclosures of incriminating information."). Thus, Stoecklein's assertion of privilege was without legal justification, occurring, as it did, for *856 the express purpose of manipulating the location and timing of his deposition. Such dilatory tactics weigh heavily against Stoecklein's request to submit sworn statements in opposition to the motion for summary judgment.
In addition to his improper invocation of privilege at his deposition, Stoecklein's over-all behavior toward the Court and the SEC also militates against allowing him to withdraw his claim of privilege. Not only did Stoecklein conceal the true purpose of his Fifth Amendment assertion, he also manipulated the timing of his attempted waiver and disregarded his obligation to seek assistance from the Court. Courts have broad discretion to control the time and place of discovery; thus, when faced with a dilemma over the location of his deposition, Stoecklein's proper recourse was to the Court, not to a claim of privilege. See Fed.R.Civ.P. 26(c)(2). Stoecklein, however, did not notify the Court of any financial hardship caused by the deposition venue. Nor did he attempt to resolve the matter with the SEC, either before or after his deposition. Instead, Stoecklein ignored numerous warnings about the consequences of his Fifth Amendment assertion and bypassed numerous opportunities to waive the privilege. As late as April 18, 1996, the SEC expressed willingness to halt work on its summary judgment motion and forgo a motion for preclusion if Stoecklein would sit for deposition. Stoecklein responded through counsel that he would "take his chances" with summary judgment. (Letter from SEC to Def. Atty of 4/27/96 (Vasilescu 1st Aff. Ex 4.))
B. Untimely Request to Waive Privilege
Stoecklein's change of heart came six months after he invoked the Fifth Amendment and three months after the SEC moved for preclusion and summary judgment. During that period, neither Stoecklein nor his counsel thought it appropriate or necessary to reveal to the Court the true reason for Stoecklein's assertion of privilege. Stoecklein now claims that he remained silent, in part, because he did not want to bear the cost of applying for relief. (Hr'g Tr. at 3.) That explanation, however, does not excuse Stoecklein's failure to request assistance through the simple, inexpensive expedient of a letter to the Court. Nor does it excuse defense counsel's failure to seek judicial intervention while standing before this Court during the case management conference on March 22, 1996just six weeks after Stoecklein's deposition. At that time, it would have cost Stoecklein nothing to avail himself of the Court's assistance; yet neither Stoecklein nor his counsel offer any credible explanation for their failure to do so. Nor have they explained their continued silence while requesting several extensions of time to respond to the government's motions for preclusion and summary judgment.
In seeking to withdraw his improper assertion of privilege, Stoecklein relies heavily on SEC v. Graystone Nash, Inc. 25 F.3d 187 (3d Cir.1994), in which the Third Circuit reversed a preclusion order that flowed from an assertion of the Fifth Amendment during deposition. (See Def.Summ.J.Mem. of 8/9/96 (hereinafter "Def. 1st Mem.")) I find that Stoecklein's reliance on Graystone Nash is misplaced.
In Graystone Nash, the defendants properly invoked their Fifth Amendment privilege as a shield against self incrimination unlike Stoecklein, who makes no claim that he declined to answer deposition questions for fear of criminal prosecution. In Graystone Nash the defendants appeared pro se, hence were not charged with knowledge of the consequences of asserting privilegeunlike Stoecklein, whose counsel advised him prior to deposition that financial difficulty was not a valid ground for invoking the Fifth Amendment (Hr'g Tr. at 3.) In Graystone Nash, the SEC's motion for preclusion gave the defendants their first notice that their assertion of privilege might be costly to their defense unlike Stoecklein, who received ample warning that his repeated refusals to waive privilege would trigger motions for preclusion and summary judgment. In Graystone Nash, the court found an inadequate showing of unfair prejudice to the SECunlike this case, in which there is abundant prejudice to justify an order of preclusion.
*857 C. Prejudice
The Court is allowed to presume that the government has been unfairly prejudiced in cases such as this, where a defendant exhibits a history of obstructing discovery. Certain Real Property, 55 F.3d at 86. Stoecklein's six-month refusal to withdraw his assertion of privilege, coupled with his failure to seek an accommodation from the Court, his unwillingness to divulge the true reason for his assertion of privilege, and the eleventh-hour timing of his attempted waiver, compel a finding that Stoecklein has deliberately attempted to delay the adjudication of this case. Stoecklein simply may not invoke his privilege against self-incrimination to impede the government's discovery efforts and then seek to waive the privilege when faced with the consequences of his refusal to testify. See United States v. St. Pierre, 132 F.2d 837, 840 (2d Cir.1942) (requiring that a decision to waive or invoke the Fifth Amendment must be made when the litigant is first faced with the request to divulge privileged information), cert. dismissed, 319 U.S. 41, 63 S. Ct. 910, 87 L. Ed. 1199 (1943). By asserting and waiving privilege when convenient, Stoecklein has engaged in the type of conduct that the Second Circuit described as "a manipulative `cat and mouse' approach to the litigation" the type of conduct that warrants barring a defendant's testimony in opposition to summary judgment. Certain Real Property, 55 F.3d at 85.
The government also has suffered actual prejudice to its effort to police the securities markets and protect the investing public. Because the SEC seeks an officer and director bar, and because Stoecklein appears to be a current officer and director of a public corporation, each day that he manipulatively delays the resolution of this litigation potentially subjects the public to enormous risk and creates inherent prejudice in this case. Allowing Stoecklein to withdraw his assertion of privilege would only prolong that prejudice. Stoecklein's improper delaying tactics have further prejudiced the government by putting the SEC to enormous and unnecessary expense. His inappropriate and unwarranted assertion of privilege forced the SEC to bear the cost of a pointless deposition. Moreover, his subsequent refusals to waive privilege caused the SEC to bear the additional cost of a motion for preclusion. Absent preclusion, Stoecklein's dilatory tactics would provide him an unfair strategic advantage in this litigation, allowing him to effectively ambush the SEC with evidence, defenses, and denials that he concealed until after the government moved for summary judgment.
Stoecklein argues that the government will not suffer prejudice because the SEC questioned him during its investigation prior to this litigation. That argument is unsupported by fact or law. Courts have avoided giving administrative inquiries preclusive effect because that would transform those inquiries into discovery or trials. See SEC v. Saul, 133 F.R.D. 115, 118 (N.D.Ill.1990) ("[T]here is no authority which suggests that it is appropriate to limit the SEC's right to take discovery based upon the extent of its previous investigation into the facts underlying its case. ...."); cf. Hannah v. Larche, 363 U.S. 420, 446, 80 S. Ct. 1502, 1516-17, 4 L. Ed. 2d 1307 (1960) (refusing to grant preclusive effect to an investigation by the Federal Trade Commission because doing so would convert the investigation into a trial).
Contrary to Stoecklein's assertions, his May 1994 investigatory examination was not comprehensive; it did not, and could not, cover the same breadth of material as his subsequent deposition. During the May 1994 investigatory interview, the SEC could not discover Stoecklein's defenses and denials to the allegations in this litigation because the complaint had not yet been filed. During the May 1994 investigatory interview, the SEC could not inquire about much of Stoecklein's conduct as president of.Softpoint because he retained his position for more than one year after the interview. The scope of the May 1994 investigatory interview also was limited by Softpoint's failure to produce numerous significant documents until Autumn 1995, after Stoecklein had been replaced by new and more cooperative management. (Vasilescu 2d Aff. ¶ 32.) Consequently, Stoecklein's May 1994 testimony did *858 not address many of the significant issues in this case.
Both parties agree that the May 1994 inquiry did not cover (1) Stoecklein's role in preparing Softpoint's 1994 Form 10-K, (2) his involvement in preparing Softpoint's 1992, 1993, and 1994 tax returns, (3) Softpoint's inability to ship the requisite copyright protection hardware that accompanied all of its bona fide software sales, and (4) the circumstances surrounding Stoecklein's resignation from Softpoint. (Pl.Post-Arg.Mem. of 10/25/96 at 8-10; Def.Post-Arg.Mem. of 11/5/96 at 6.) Moreover, the then-incomplete document production restricted the SEC's ability to question Stoecklein in May 1994 about (1) his role in preparing Softpoint's Form S-8 registration statements and the 1992 and 1993 Forms 10-K and 10-Q, (2) his knowledge and participation in the sale of Softpoint stock issued to foreign distributors, and (3) his knowledge of who owned the foreign distributors that received Softpoint stock. (Compare Inv.Tr. (Zucker Aff.Ex. 3) with Stoecklein Dep. (Zucker Aff.Ex. 4.))
The SEC also was unable to question Stoecklein about a 1993 Remington invoice to Softpoint because Stoecklein did not produce the document until September 1996four months after the government moved for summary judgment and one month after Stoecklein submitted his responsive papers to the instant motions. (Remington Invoice of 10/27/93 (hereinafter "Remington invoice") (Stoecklein Supp. Aff. of 9/11/96 (hereinafter "Stoecklein 2d Aff.") Ex. 1.)) The Remington invoice clearly falls within the category of documents requested by the SEC in October 1995. (Pl.Doc.Req. of 10/30/95 (Vasilescu 2d Aff.Ex. 8)). Although Stoecklein claims timely production, the government has very adequately shown that the Remington invoice was not included in any of Stoecklein's or Softpoint's earlier document productions, and the circumstances of its production give rise to strong doubts about its authenticity. (See SEC Letter to Court of 9/17/96 (hereinafter "SEC Letter."))
D. Remedies
By his unwarranted assertion of privilege regarding basic aspects of the case, including his defenses and denials, Stoecklein has manipulatively obstructed the government's discovery and wrongfully delayed the adjudication of this case. The guidelines set forth by the Second Circuit in Certain Real Property make clear that it is appropriate for this Court to preclude Stoecklein from offering testimony in opposition to summary judgment (1) because his assertion of privilege was unwarranted by law, (2) because he abjured his obligation to seek judicial intervention regarding the location or timing of his deposition, (3) because he refused to disclose the true reason for his assertion of privilege, (4) because he manipulatively delayed his attempt to waive privilege until the eleventh hour, and (5) because his actions have severely prejudiced the plaintiff in this case. See Certain Real Property, 55 F.3d at 84-86 (discussing the types of conduct that justify preclusion of a litigant's testimony).
Although preclusion is appropriate where the Fifth Amendment privilege has been abused to obstruct the discovery process in the manner described above, I recognize that it is a harsh sanction, to be employed only when the court is sure of the impotence of less drastic remedies. Certain Real Property, 55 F.3d at 84-85. In this case, however, I am convinced that no lesser remedy will cure the prejudice caused by Stoecklein's conduct. Stoecklein has provided no firm commitment that he actually will submit to deposition should the Court accept his affidavits opposing summary judgment. His present bid to waive privilege is merely a conditional offer, contingent upon the existence of some vague confluence of undefined circumstances regarding the location of his deposition and his ability to afford counsel. (Hr'g Tr. at 4-5; Stoecklein 1st Aff. ¶ 4.) Moreover, the Court has received no assurance that Stoecklein's financial condition has improved such that he now can afford either to travel to New York for a deposition here, or fly his lawyer to Nevada for a deposition there.
Stoecklein's avowed financial difficulties also render lesser sanctions ineffective because he cannot afford to reimburse the government for its enormous and unnecessary expenses. See Graystone Nash, 25 F.3d at 194 (stating that reimbursement and other *859 remedial measures are appropriate to prevent undue prejudice where a litigant is permitted to withdraw an assertion of Fifth Amendment privilege).
Because Stoecklein's invocation of the Fifth Amendment was neither warranted by law, asserted in good faith, nor timely waived, and because it has prejudiced the plaintiff, I preclude the affidavits that Stoecklein has submitted in opposition to the motion for summary judgement. I also preclude the Remington invoice, pursuant to Fed.R.Civ.P. 37(c), because of its untimely production in a manner that appears calculated to ambush the plaintiff. Nonetheless, I accept the affidavits submitted by other individuals in opposition to the motion for summary judgment, because those individuals were not included in the Fifth Amendment invocation and could have been called or subpoenaed by the government at any time.
II. Summary Judgment
While denying Stoecklein the unfair advantage of asserting evidence that he withheld during discovery, my preclusion order does not relieve the government of its burden of proof for summary judgment pursuant to Fed.R.Civ.P. 56. Accordingly, the SEC, as the moving party, bears the initial burden of showing "the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986). Where a moving party meets that initial burden, the opposing party must come forward with specific evidence demonstrating the existence of a genuine dispute of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct. 2505, 2510-11, 91 L. Ed. 2d 202 (1986). In so doing, the opposing party "must do something more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp. 475 U.S. 574, 586, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986).
Stoecklein's burden is made more difficult by his disregard of Local Rule 3(g), which requires that a party opposing summary judgment submit a statement of disputed material facts. S.D.N.Y.Civ.R. 3(g). Stoecklein's non-compliance with Rule 3(g) compels the Court to accept as uncontroverted the material facts set forth in the government's Rule 3(g) statement of undisputed facts. Id.; accord United States v. All Right, Title and Int. In Real Prop. and Appurtenances thereto known as 143-147 East 23rd St., 77 F.3d 648, 657 (2d Cir.) (stating that defendant's failure to submit a Rule 3(g) statement was deemed to be an admission of the facts set forth in the government's Rule 3(g) statement), cert. denied, ___ U.S. ___, 117 S. Ct. 67, 136 L. Ed. 2d 28 (1996); see also Pl. 3(g) Statement ¶¶ 1-325.
The SEC's motion for summary judgment is supported by a voluminous record. The Court has heard oral argument; reviewed several hundred exhibits; read more than 1,000 pages of depositions, sworn interviews, and affidavits; and studied the parties' numerous memoranda and other submissions. On the basis of that record, I find that the government has met its burden for summary judgment pursuant to Fed.R.Civ.P. 56, as set forth below.
A. Section 5 Securities Registration Violations
Sections 5(a) and (c) of the Securities Act ("Section 5") prohibit "any person" from directly or indirectly using the mails or the means of interstate commerce to offer or sell a security unless it is registered with the SEC or is exempt from registration. 15 U.S.C. §§ 77e(a), (c). Liability arises when a principal in the sale of an unregistered security is either an issuer, an underwriter, or a necessary participant. SEC v. Holschuh, 694 F.2d 130, 137-39 (7th Cir.1982) (citing SEC v. Culpepper, 270 F.2d 241, 247 (2d Cir.1959); SEC v. Chinese Consol. Benev. Assn, 120 F.2d 738, 741 (2d Cir.), cert. denied, 314 U.S. 618, 62 S. Ct. 106, 86 L. Ed. 497 (1941)); SEC v. Universal Major Indust. Corp., 546 F.2d 1044, 1046-47 (2d Cir.1976), cert. denied, 434 U.S. 834, 98 S. Ct. 120, 54 L. Ed. 2d 95 (1977). If a registration exemption is claimed, the claimant bears the burden of proving the exemption. SEC v. Ralston Purina Co., 346 U.S. 119, 126, 73 S. Ct. 981, 985, 97 L. Ed. 1494 (1953); Byrnes v. Faulkner, Dawkins & Sullivan, 550 F.2d 1303, 1311 (2d Cir.1977). Scienter is not an element of a Section 5 *860 violation. Universal Major Indust. Corp., 546 F.2d at 1047.
The record is undisputed that no registration statement was filed with the SEC for the 344,700 Softpoint shares issued to the foreign distributors and subsequently sold in the United States. It also is undisputed that those shares were not exempt from the SEC registration requirements.
The facts of this case show that Stoecklein was extensively involved in the sale of the unregistered stock. He helped prepare the marketing agreements that led to the issuance of Softpoint stock to the foreign distributors. He admitted contacting brokerage firms and helping liquidate the stock in the United States. He made the necessary arrangements with the broker-dealers and negotiated their compensation for selling the stock. He acted as intermediary between the broker-dealers and the foreign distributors whose stock was sold. He arranged to have his brother, D. Stoecklein, open brokerage accounts and sell a large portion of the stock. He was kept apprised of the broker-dealers' progress in selling the shares and remitting the proceeds. He facilitated at least a portion of Softpoint's $196,000 in undisclosed payments to the brokerage firms. Stoecklein was involved at every stage of the stock liquidation scheme, hence his role in the sale of unregistered Softpoint securities was clearly necessary and substantial and not simply "de minimis." See SEC v. Murphy, 626 F.2d 633, 650-52 (9th Cir.1980) (requiring that liability for a Section 5 violation must be predicated upon substantial participation, and not de minimis activity.)
Having previously admitted his pivotal role in the stock liquidation scheme, Stoecklein cannot now recant. He is not only precluded from proffering a denial, but also is bound by his prior admissions even in the absence of a preclusion order. Buttry v. General Signal Corp. 68 F.3d 1488, 1493 (2d Cir.1995) ("It is well settled in this circuit that a party's affidavit which contradicts his own prior deposition testimony should be disregarded on a motion for summary judgment.") (quoting Mack v. United States, 814 F.2d 120, 124 (2d Cir.1987); cf. SEC v. Research Automation Corp. 585 F.2d 31, 34 n. 5 (2d Cir.1978) ("Sworn testimony taken in an SEC investigation may be used ... on a motion for summary judgment."). Moreover, Stoecklein does not fully recant; in his sworn statements opposing summary judgment, Stoecklein actually affirms a portion of his prior admission. (Stoecklein Supp. Aff of 9/11/96 (hereinafter "Stoecklein 2d Aff.") ¶¶ 8, 11, 14, 17 (confirming that he helped liquidate blocks of unregistered Softpoint stock.))
Furthermore, there is no merit to Stoecklein's argument that his lack of control over Softpoint's corporate policies absolves him of liability for his role in the stock liquidation. The prohibitions of Section 5 are not limited to control persons; the language of the statute sweeps broadly to encompass "any person" who participates in the offer or sale of an unregistered, non-exempt security. 15 U.S.C. §§ 77e(a), (c); Chinese Consol. Benev. Ass'n, 120 F.2d at 741 ("Section 5(a)(1) ... broadly prohibits sales of securities irrespective of the character of the person making them."). By his dealings with brokerage firms, Stoecklein was instrumental in opening the routes through which Softpoint's unregistered common stock flowed into the United States market. Such participation falls within the scope of Section 5. See SEC v. North Am. Research and Dev. Corp., 424 F.2d 63, 71-72 (2d Cir.1970) (noting that any person "joining in the common effort" to sell unregistered shares is subject to "the injunctive and other powers of the SEC and the federal courts").
Notwithstanding Stoecklein's failure to expressly assert any exemption to the registration requirement, I have carefully considered the statutory exemptions in the Securities Act and the applicable SEC Rules, and I find that none applies to the Softpoint transactions. In reaching that conclusion, I have paid particular attention to a pair of exemptions that, at first blush, appear appropriate. Closer analysis, however, reveals that they are inapplicable to this case.
By professing to be a mere underling who did not control the issuance of stock, Stoecklein appears to invoke Section 4(1) of the Securities Act ("Section 4(1)"), which exempts from registration securities transactions *861 that do not involve an issuer, underwriter, or dealer. 15 U.S.C. § 77d(1). Stoecklein, however, does not qualify under Section 4(1) because its exemption applies only to the transaction itself, not to the individuals involved. Holschuh, 694 F.2d at 137-38; accord Murphy, 626 F.2d at 648; United States v. Wolfson, 405 F.2d 779 (2d Cir.1968), cert. denied, 394 U.S. 946, 89 S. Ct. 1275, 22 L. Ed. 2d 479 (1969); SEC v. Netelkos, 592 F. Supp. 906, 915 (S.D.N.Y.1984). Section 4(1) was created "to exempt only trading transactions between individual investors with respect to securities already issued;" it does not exempt "distributions by issuers or the acts of individuals who engage in steps necessary to such distributions." Culpepper, 270 F.2d at 247 (quoting Chinese Consol. Benev. Ass'n, 120 F.2d at 741); see also Preliminary Note to SEC Rule 144, 17 C.F.R. § 230.144. Thus, it is immaterial whether Stoecklein was an issuer; he does not qualify for the protection of Section 4(1) because his participation in the offer and sale of unregistered stock was part of a transaction by Softpoint, an entity that was, in fact, an issuer. Holschuh, 694 F.2d at 137-38; Wolfson, 405 F.2d at 782; Culpepper, 270 F.2d at 247; Netelkos, 592 F.Supp. at 915.
The Softpoint stock liquidation also fails to qualify for exemption under Regulation S, which provides a safe harbor from registration for offshore securities transactions. 17 C.F.R. §§ 230.901 et seq. Regulation S shelters only bona fide overseas transactions; it is not a haven for any foreign stock distribution that is part of a plan to evade the registration provisions of the Securities Act. Id. n. 2. Stoecklein's pre-litigation testimony revealed that Softpoint was not engaged in bona fide overseas transactions. By disclosing that Softpoint's domestic stock liquidation plan predated its foreign distributions, Stoecklein exposed those distributions as a preconceived artificedesigned to cloak the sale of unregistered securities in the United States. (Inv.Tr. at 40-42, 45, 67-69, 91.) Consequently, the Softpoint stock liquidation scheme fails to qualify for the safe harbor exemption under Regulation S.
It is obvious from the record that Stoecklein's participation in the stock liquidation implicated the use of the mails and the facilities of interstate commerce. This prerequisite of a Section 5 violation is broadly construed to include tangential mailings or intrastate telephone calls. See Wolfson, 405 F.2d at 783-84 (construing Section 5(a)(1) to prohibit use of the mails to send stock offers, to transmit sales literature, to ship securities certificates after sale, to remit the proceeds to the seller, to send buyers' confirmation slips, and to effect more tangential communications) (citing United States v. Kane, 243 F. Supp. 746, 750 (S.D.N.Y.1965); SEC v. Hasho, 784 F. Supp. 1059, 1106 (S.D.N.Y. 1992) (ruling that telephone sales calls to securities customers were sufficient to implicate the prohibition of Section 5(a)(1)); Lennerth v. Mendenhall, 234 F. Supp. 59, 63 (N.D.Ohio 1964) (holding that intrastate telephone calls were sufficient to implicate the Section 5(a)(1) prohibition because the "use of a telephone is the use of a means of interstate communication" regardless of the intrastate character of the call). Accordingly, the Section 5 jurisdictional requirement is amply satisfied by Stoecklein's telephone communications with various brokerage firms; by the wire or mail transfers of funds among Softpoint, the brokerage firms, and various banks; and by the facsimile transmissions to Stoecklein, reporting on the progress of the stock sales and the distribution of the proceeds.
B. Section 17(a), Section 10(b), Rule 10b-5 Anti-Fraud Violations
Section 17(a) of the Securities Act ("Section 17(a)") is a general prohibition against fraud in the offer or sale of securities, using the mails or the instruments of interstate commerce. 15 U.S.C. § 77q(a). Section 17(a)(1) forbids the direct or indirect use of any device, scheme, or artifice to defraud; Section 17(a)(2) makes it unlawful to obtain money or property through misstatements or omissions about material facts; and Section 17(a)(3) proscribes any transaction or course of business that operates as a fraud or deceit upon a securities buyer. 15 U.S.C. § 77q(a)(1)-(3).
The three categories of misconduct in Section 17(a) do not have uniform culpability *862 requirements. Scienter is a necessary element of a Section 17(a)(1) violation; scienter is not an element of a violation of Sections 17(a)(2) or (3). Aaron v. SEC, 446 U.S. 680, 697, 100 S. Ct. 1945, 1956, 64 L. Ed. 2d 611 (1980).
Section 17(a) has been broadly construed to encompass a wide range of conduct. See, e.g., SEC v. Benson, 657 F. Supp. 1122, 1130 (S.D.N.Y.1987) (ruling that omissions and misstatements about a corporation's income in securities registration statements violated Section 17(a)); SEC v. Bangor Punta Corp.. 331 F. Supp. 1154, 1160-61 (S.D.N.Y.1971) (ruling that omission of just one material fact in a securities registration statement violated Section 17(a)), modified sub nom. Chris-Craft Indus., Inc. v. Piper Aircraft Corp., 480 F.2d 341 (2d Cir.), cert. denied, 414 U.S. 910, 94 S. Ct. 231, 232, 38 L. Ed. 2d 148 (1973).
Section 10(b) of the Exchange Act ("Section 10(b)") prohibits the direct or indirect employment of manipulative and deceptive devices in connection with the purchase or sale of securities, using the mails, instruments of interstate commerce, or any facility of a national securities exchange. 15 U.S.C. § 78j(b). Section 10(b) is enforced through SEC Rule 10b-5 ("Rule 10b-5"), which prohibits the use of any device, scheme, or artifice to defraud; any untrue statement or omission of material fact; and any act, practice, or course of business that operates as a fraud or deceit upon any person, in connection with the purchase or sale of any security. 17 C.F.R § 240.10b-5. Scienter is an element of a violation of Section 10(b) and Rule 10b-5. Aaron, 446 U.S. at 691, 100 S.Ct. at 1952-53.
Section 10(b) and Rule 10b-5 have "always been acknowledged as catchalls" to prevent manipulation and misrepresentation. SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 859 (2d Cir.1968) (en banc), cert. denied, 394 U.S. 976, 89 S. Ct. 1454, 22 L. Ed. 2d 756 (1969). Thus, courts have liberally construed the requirement that violative conduct must occur "in connection with" the purchase or sale of a security. Superintendent of Ins. of N.Y. v. Bankers Life and Cas. Co. 404 U.S. 6, 12, 92 S. Ct. 165, 168-69, 30 L. Ed. 2d 128 (1971) ("Section 10(b) must be read flexibly, not technically and restrictively."); Texas Gulf Sulphur Co. 401 F.2d at 860 (finding that the phrase "in connection with" allows Section 10(b) and Rule 10b-5 to reach any device on which a reasonable investor would rely). Section 10(b) and Rule 10b-5 liability can flow from "misstatements and omissions in press releases, news articles, and quarterly and annual public filings." In re Ames Dep't Stores, Inc. Stock Litig., 991 F.2d 953, 962 (2d Cir.1993). Rule 10b-5 also imposes liability for insider trading. Chiarella v. United States, 445 U.S. 222, 100 S. Ct. 1108, 63 L. Ed. 2d 348 (1980), construed in Dirks v. SEC, 463 U.S. 646, 103 S. Ct. 3255, 77 L. Ed. 2d 911 (1983); see also United States v. Teicher, 987 F.2d 112 (2d Cir.) (dictum) (suggesting that Rule 10b-5 imposes liability for insider trading without regard to whether the inside information is the actual cause of the purchase or sale of the securities), cert. denied, 510 U.S. 976, 114 S. Ct. 467, 126 L. Ed. 2d 419 (1993).
Stoecklein's activities fall unmistakably within the broad scope of conduct prohibited by Sections 17(a) and 10(b) and Rule 10b-5 (collectively the "anti-fraud provisions"). As a consultant to Softpoint, Stoecklein helped prepare and disseminate an array of press releases, Form 10-K annual reports, Form 10-Q quarterly reports, and Form S-8 registration statements, containing material misrepresentations and omissions about Softpoint's finances. As president of Softpoint, Stoecklein signed additional public filings containing material misrepresentations and omissions about Softpoint's financial status. He also participated in schemes to inflate Softpoint's income (1) by the unlawful sale of unregistered common stock in the United States and (2) by the sale of stock that had been spuriously registered as a consultant's fee payment to defaulted defendant Lane, pursuant to an employee stock compensation plan. Coincident with his activities on behalf of Softpoint, Stoecklein enriched himself through insider trading in Softpoint common stock.
Softpoint's press releases and quarterly and annual reports were unquestionably the type of documents upon which *863 an investor would have relied in deciding whether to purchase Softpoint stock, hence they satisfy the "in connection with" requirement of Section 10(b) and Rule 10b-5. Basic, Inc. v. Levinson, 485 U.S. 224, 108 S. Ct. 978, 99 L. Ed. 2d 194 (1988) (allowing a cause of action under Section 10 and Rule 10b-5 for misrepresentations in press releases); Ross v. A.H. Robins Co., 607 F.2d 545, 548-49 (2d Cir.1979) (allowing Section 10(b) and Rule 10b-5 liability to be premised upon material omissions in press releases and Form 10-K annual reports), cert. denied, 446 U.S. 946, 100 S. Ct. 2175, 64 L. Ed. 2d 802 (1980). Softpoint's Form S-8 registration statements were more closely linked to the offer and sale of Softpoint stock, hence they fall within the scope of Sections 17(a)(2) and (3), as well as Section 10(b) and Rule 10b-5. Benson, 657 F.Supp. at 1130-31; Bangor Punta Corp., 331 F.Supp. at 1160.
Softpoint's stock liquidation scheme was directly related to the offer and sale of securities. By facilitating the sale of unregistered shares, Stoecklein engaged in a course of business that deceived purchasers as to the legality of the stock issue and the financial stability of their investment. Thus, Stoecklein's activities in the liquidation scheme fall within the scope of Section 17(a)(3), as well as Section 10(b) and Rule 10b-5.
The misstatements and omissions contained in Softpoint's public filings and press releases were material within the meaning of Sections 17(a)(2) and 10(b) and Rule 10b-5. The test of materiality is whether a reasonable investor would consider the information significant. Basic, Inc. 485 U.S. at 231-32, 108 S.Ct. at 983-84 (defining materiality as a substantial likelihood that a reasonable investor would consider the information important in making an investment decision) (citing TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S. Ct. 2126, 2132, 48 L. Ed. 2d 757 (1976).
Softpoint's omissions and misrepresentations certainly concerned information of indisputable importance to a reasonable investor. By touting the $4.41 million in fictitious software sales as legitimate income, Stoecklein's array of press releases and public filings overstated Softpoint's 1992 and 1993 sales revenues by a total of 338 percent. The press releases and public filings failed to disclose the true nature of Softpoint's relationship with the foreign distributors. The press releases and public filings misrepresented the proceeds from stock liquidation as bona fide sales revenue. Softpoint's Form S-8 registrations misrepresented the stock issued to defaulted defendant Lane as a consultant's fee, when, in actuality, proceeds from the shares were funnelled back to Softpoint and remitted to Stoecklein. Softpoint's 1994 Form 10-K falsely stated that Softpoint's corporate charter had been amended to authorize 125,000 shares of preferred stock, which were issued for $1.25 million in media credits. Such information is unquestionably material to a reasonable investor. See San Leandro Emerg. Med. Group Profit Sharing Plan v. Philip Morris Cos., 75 F.3d 801, 810 (2d Cir.1996) ("[M]aterial facts include not only information disclosing the earnings and distributions of a company but also those facts which affect the probable future of the company and those which may affect the desire of investors to buy, sell, or hold the company's securities.") (quoting Texas Gulf Sulphur Co., 401 F.2d at 849).
Softpoint's $196,000 in payments to the brokerage firms were likewise omitted from the press releases and SEC filings. Those payments also were material information. See SEC v. Scott, 565 F. Supp. 1513, 1527 (S.D.N.Y.1983) (stating that an apparent kickback agreement between an issuer and an underwriter is material because it "raises an inherent conflict of interest"), aff'd sub nom. SEC v. Cayman Islands Reinsurance Corp., 734 F.2d 118 (2d Cir.1984).
Stoecklein also violated Rule 10b-5 by trading in Softpoint stock while in possession of material, non-public information about Softpoint. Liability for insider trading arises where a corporate insider, with a fiduciary duty to shareholders, buys or sells securities on the basis of undisclosed corporate information. Dirks, 463 U.S. at 654-55 & n. 14, 103 S.Ct. at 3262 & n. 14 (citing Chiarella, 445 U.S. at 232-33, 100 S.Ct. at 1116-17). In late 1993, Stoecklein and his company, Remington, sold 70,000 shares of Softpoint *864 common stock while Stoecklein continued working as a consultant to Softpoint. As a corporate insider, Stoecklein had legitimate access to corporate secrets and thus owed a fiduciary duty to shareholders. Dirks, 463 U.S. at 655 n. 14, 103 S.Ct. at 3262 n. 14 ("[Where corporate information is revealed legitimately to an underwriter, accountant, lawyer, or consultant working for the corporation, these outsiders may become fiduciaries of the shareholders.]"). Consequently, Stoecklein had an obligation either to disclose his non-public information or to refrain from trading. By doing neither, he violated the proscription against insider trading. Chiarella, 445 U.S. at 231, 100 S.Ct. at 1116; accord Shapiro v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 495 F.2d 228, 237 (2nd Cir.1974) ("[O]ur `disclose or abstain' rule applies whether the securities are traded on a public stock exchange or sold through private placement.") (construing Texas Gulf Sulphur, 401 F.2d at 848).
It is manifest from the record that Stoecklein acted with scienter, thus justifying assessment of liability under Sections 17(a)(1) and 10(b) and Rule 10b-5. Aaron, 446 U.S. at 686 n. 5, 100 S.Ct. at 1950 n. 5 (defining scienter as "a mental state embracing intent to deceive, manipulate, or defraud") (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 n. 12, 96 S. Ct. 1375, 1381 n. 12, 47 L. Ed. 2d 668 (1976)). In reaching this conclusion, I have considered only those violations caused by Stoecklein's knowing misconduct, and not those caused by his recklessness.[10]
Stoecklein admitted that he knew that proceeds from the sale of Softpoint stock were recorded as payments on accounts receivable, and he knew that Softpoint's press releases and public filings not only failed to reveal that fact, but also affirmatively portrayed the payments as legitimate sales revenue. Stoecklein also knew that Softpoint had paid large sums of money to the brokerage firms in connection with the unlawful stock liquidation, and he knew that Softpoint's press releases and public filings failed to reveal that fact. Nonetheless, Stoecklein continued to participate in the subterfuges for three years. (Pl.3(g) Statement ¶¶ 11-12.)
Faced with such indisputable evidence of Stoecklein's culpability, I am unable to credit his assertion that he lacked the requisite scienter to be held liable under Sections 17(a)(1) and 10(b) and 10b-5. Stoecklein claims that he is not culpable for his conduct as a consultant to Softpoint because (1) he was not a control person and (2) he had no knowledge of wrongdoing at the time of the offenses. (Def. 1st Mem. at 13-14.) He portrays himself as a mere scrivener who performed ministerial tasks at the direction of his superiorsin particular, Softpoint's then-president Cosby. (Stoecklein 1st Aff. ¶¶ 6-8, 11-25.) Stoecklein also denies culpability for his actions as president of Softpoint, on the grounds that he relied on Softpoint's auditor, Midgley, and also was misled by other Softpoint executives. (Def. 1st Mem. at 14-15; Stoecklein 1st Aff. ¶¶ 26-28.)
Stoecklein's belated denial is insufficient to overcome the overwhelming evidence that he acted with the requisite scienter. Even if he did not know the precise details of the fictitious software sales and the related stock sale scheme, Stoecklein knew that the press releases and public filings that he prepared were inaccurate and omitted material information. As an experienced businessman and an expert on SEC disclosure statements, Stoecklein cannot escape liability "by closing his eyes to what he saw and could readily understand." SEC v. Frank, 388 F.2d 486, 489 (2d Cir.1968). The same logic applies to Stoecklein's later activities as president and a director of Softpoint. He signed Softpoint's 1994 Form 10-K disclosure statement and its 1994 federal tax return even though they did *865 not match; the Form 10-K included the fictitious software sales, while the tax return did not. Thus, Stoecklein filed two financial disclosures with full knowledge that one of them materially misrepresented Softpoint's true financial condition.
There is no merit to Stoecklein's proffered defense that he relied on Softpoint's auditor, Midgley, to insure the accuracy of Softpoint's SEC disclosures. As a director of a public corporation, Stoecklein had a well-defined obligation to ensure the accuracy of the information filed with the SEC. SEC v. Bonastia, 614 F.2d 908, 914 (3d Cir. 1980) (rejecting a defense of good faith reliance where the defendant was a high-ranking corporate officer who acted with scienter); accord SEC v. Goldfield Deep Mines Co. of Nev., 758 F.2d 459, 467 (9th Cir.1985) ("If a company officer knows that the financial statements are false or misleading and yet proceeds to file them, the willingness of an accountant to give an unqualified opinion with respect to them does not negate the existence of the requisite intent or establish good faith reliance.") (quoting United States v. Erickson, 601 F.2d 296, 305 (7th Cir.), cert. denied 444 U.S. 979, 100 S. Ct. 480, 481, 62 L. Ed. 2d 406 (1979)); SEC v. McNulty, No. 94 Civ. 7114, 1996 WL 422259, at *7 (S.D.N.Y. July 29, 1996) (holding a businessman responsible for the accuracy of an SEC quarterly report that he signed, even though it was prepared by an accountant); cf. SEC v. Manor Nursing Ctrs., Inc., 458 F.2d 1082 (2d Cir.1972) (rejecting defendants' claim of good faith reliance on counsel as a defense to liability for violating the securities laws).
Stoecklein's culpability is confirmed by the duration of his participation in Softpoint's various financial manipulations. See Bankers Life and Cas. Co, 404 U.S. at 10, 92 S.Ct. at 167-68 (noting that Rule 10b-5 liability is not limited to isolated acts, but also may be predicated on a fraudulent course of business that creates an illusion of prosperity and false expectations). The record proves that Stoecklein engaged in a three-year course of conductfrom the time the schemes began unfolding in 1992 until his forced resignation from Softpoint in 1995. It would strain credulity to believe that he remained oblivious to all that transpired around him during that period. Consequently, the SEC has more than met its burden of proving that it is beyond any genuine dispute that Stoecklein acted with the requisite scienter to assess liability for fraud and deception pursuant to Sections 17(a)(1) and 10(b) and Rule 10b-5.
Scienter is not a prerequisite of several of Stoecklein's violations because they fall clearly within the scope of Section 17(a)(2) and (3), as well as Section 10(b) and Rule 10b-5. Those violations include Stoecklein's preparation of materially misleading Form S-8 registration statements and his participation in the sale of unregistered stock.
Stoecklein's participation in the various schemes implicates the use of the mails and the facilities of interstate commerce in the same manner as his participation in the Softpoint stock liquidation. The jurisdictional requirements of Sections 17(a) and 10(b) and Rule 10b-5 are broadly construed, so as to be satisfied by any activity connected with a national securities exchange, by intrastate telephone calls, and by even the most ancillary mailings. See, e.g., Franklin Savings Bank of N.Y. v. Levy, 551 F.2d 521, 524 (2d Cir.1977) ("The use of the mails need not be central to the fraudulent scheme and may be entirely incidental to it."); Loveridge v. Dreagoux, 678 F.2d 870, 874 (10th Cir.1982) (predicating Rule 10b-5 jurisdiction on intrastate telephone calls). Stoecklein's press releases and public filings were conveyed by mail or wire. So too were the proceeds from the sale of his own Softpoint shares. The jurisdictional requirement of Section 10(b) and Rule 10b-5 is further satisfied by the fact that Stoecklein sold his shares while Softpoint stock was trading on the Boston Stock Exchange.
C. Rule 13b2-1 Falsified Accounting Records
Rule 13b2-1 provides that "[n]o person shall directly or indirectly, falsify or cause to be falsified, any book, record or account" that a company is required to maintain under the Securities Exchange Act. 17 C.F.R § 240.13b2-1. The proscription is not *866 limited to corporate officers or employees. Promotion of Reliability of Financial Information, Exchange Act Release No. 34,15570, 1979 WL 17892(SEC), at *10 (Feb. 15, 1979) (Pl.Post-Arg.Mem.App.A.) There is no scienter requirement; liability is predicated on "standards of reasonableness." Id.
As president of Softpoint, Stoecklein was responsible for the accuracy of Softpoint's books and records. By deciding to retain fictitious entries and payments in Softpoint's accounts receivable ledger, he acted neither reasonably nor in conformity with Generally Accepted Accounting Principles. Stoecklein also approved and signed the 1994 annual disclosure that misrepresented Softpoint's sales and collections. Moreover, Stoecklein admitted that, as a consultant, he participated in the preparation of numerous annual and quarterly reports containing the fictitious entries and payments. None of those activities met the standards of reasonableness required by Rule 13b2-1.
In sum, the government has more than met its burden for summary judgment pursuant to Fed.R.Civ.P. 56. Although Stoecklein is precluded from introducing evidence that he withheld from discovery, he is not barred from coming forward with arguments or witnesses to rebut the government's claims. This he has failed to do. Stoecklein has not fulfilled his Rule 3(g) obligation to submit a statement identifying any triable issues of fact. Moreover, the affidavits of his supporting witnesses consist of immaterial statements and unsupported opinions and conclusions that are insufficient to raise a genuine issue to be tried.
Stoecklein has submitted statements from five supporting witnesses. Affiant David Cosby ("D.Cosby"), a former Softpoint officer and director, and the son of co-defendant Robert Cosby, speculates that Stoecklein lacked knowledge of Softpoint's foreign business dealings, but D. Cosby offers no relevant testimony about Stoecklein's participation in Softpoint's various securities transactions and related activities. (D. Cosby Aff. of 8/6/96 (appended to Stoecklein 1st Aff.)) Affiant D. Stoecklein, the defendant's brother, opines about Stoecklein's culpability, based on hearsay evidence obtained from attendance at depositions, a review of deposition transcripts, and discussions with Softpoint officers. (D. Stoecklein Aff.) Affiant Terry Maxwell, a former Softpoint consultant, theorizes that Stoecklein would have tried to rectify any wrongdoing had he been aware of misconduct in Softpoint's overseas business dealings. (Maxwell Aff. of 8/7/96 (appended to Stoecklein 1st Aff.)) Affiant Loretta Adams, Stoecklein's former secretary at Softpoint, offers non-material statements that Stoecklein did not travel overseas, and she opines that Stoecklein lacked authority to sign Softpoint checks. (Adams Aff. of 8/7/96 (appended to Stoecklein 1st Aff.)) Co-defendant Cosby postulates that Stoecklein could not have reasonably concluded that Softpoint had engaged in any wrongdoing. (Cosby Decl. of 3/14/95 ¶¶ 10-11 (appended to Stoecklein 1st Aff.)) Although Cosby, claims responsibility for retaining fictitious software sales on Softpoint's books in 1993, his statement is not relevant to Stoecklein's decision to write down the fictitious receivables as bad debt in 1994. (Contrast Id. ¶ 9 with Midgley Dep. at 95-97.)
Stoecklein's own proffered testimony would be similarly insufficient, if not precluded, because it too consists of unsubstantiated allegations and conclusory denials. See Matsushita Elec. Indus. Co., 475 U.S. at 586, 106 S.Ct. at 1355-56 (requiring the opponent of summary judgment to do more that raise "some metaphysical doubt as to the material facts"). Accordingly, I grant the government's motion for summary judgement as to Stoecklein's violations of Sections 5 and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and SEC Rules 10b-5 and 13b2-1.
D. Remedies
1. Permanent Injunction
The Securities Act and the Exchange Act both provide for injunctive relief when any of their provisions have been violated. See 15 U.S.C. §§ 77t(b), 78u(d). A defendant may be permanently enjoined from further violations of either act. Id. The Exchange Act also gives authority to permanently enjoin future service as an officer or *867 director of a public company. See 15 U.S.C. § 78u(d)(2). Injunctive relief is appropriate when there is a "realistic likelihood of recurrence" of the violations. SEC v. Commonwealth Chem. Secs., Inc., 574 F.2d 90, 99-100 (2d Cir.1978). Injunctive relief is permissible following summary judgment. Research Automation Corp., 585 F.2d at 33. First offenders are not immune from injunctive relief SEC v. Shapiro, 494 F.2d 1301, 1308 (2d Cir.1974).
The Second Circuit has articulated several factors to be considered in assessing the probability of future infractions: (1) the degree of scienter involved, (2) the isolated or recurring nature of the fraudulent activity, (3) the defendant's appreciation of his wrongdoing, and (4) the defendant's opportunities to commit future violations. Commonwealth Chem. Secs., Inc., 574 F.2d at 100. Examination of these factors shows that, without restraint, there is a realistic likelihood that Stoecklein's infractions would recur.
The record shows a high degree of culpability. Stoecklein participated in the fraudulent schemes despite his awareness of Softpoint's deceptive public disclosures. He helped prepare false reports, registrations, and press releases; signed and filed false reports with the SEC; engaged in insider trading; and participated in falsifying corporate financial records. Stoecklein's fraudulent behavior was not limited to a single, isolated incident. He engaged in a three-year course of conduct, entailing repeated and diverse violations of the securities laws; yet he shows no appreciation of his misconduct. Stoecklein adamantly maintains that his involvement in Softpoint's financial manipulations was entirely legitimate or unknowing. He depicts himself as an unwitting participant in schemes concocted by Cosby and other Softpoint officers.
Absent restraint, Stoecklein's profession would give him numerous opportunities to commit future violations. He holds himself out as an expert on corporate capitalization and appears to be a current officer and director of a public corporation. Moreover, Stoecklein already has demonstrated that he is capable of engaging in future unlawful acts. He flouted the law by continuing his misconduct throughout the SEC's investigation of Softpoint. Moreover, by ordering fictitious receivables retained on Softpoint's books, he spurned an opportunity to rectify past infractions. Accordingly, I find that Stoecklein's long and continuing pattern of misconduct demonstrates a reasonable likelihood of recurrent violations, and I grant the SEC's request to permanently enjoin him from future violations of the securities laws and permanently bar him from serving as an officer or director of a public company.
2. Disgorgement
Disgorgement of illicit profits is a proper equitable remedy for securities fraud. SEC v. Patel, 61 F.3d 137, 139 (2d Cir.1995) (citing Manor Nursing Ctrs., Inc., 458 F.2d at 1104). Disgorgement is not punitive; it is designed to deprive wrongdoers of the profits of their wrongdoing. SEC v. Tome, 833 F.2d 1086, 1096 (2d Cir.1987), cert. denied, 486 U.S. 1014, 108 S. Ct. 1751, 100 L. Ed. 2d 213 (1988). Thus, the proper measure of disgorgement is the amount of the wrongdoer's unjust enrichment Commonwealth Chem. Secs., Inc., 574 F.2d at 102. In cases of insider trading, the disgorgement normally consists of the full profit derived from the tainted securities transactions. SEC v. First City Financial Corp., 890 F.2d 1215, 1231 (D.C.Cir.1989). Where an exact computation is not possible, the wrongdoer bears any risk of uncertainty. SEC v. Lorin, 76 F.3d 458, 462 (2d Cir.1996).
Stoecklein's illicit profits consist of $192,000 received from co-defendant Lane and $282,416 derived from the sale of 70,000 shares of Softpoint stock in October and November 1993. Stoecklein traded the stock jointly with his company, co-defendant Remington, which was ordered to disgorge the $282,416 and pay prejudgment interest of $61,155, pursuant to a final default judgment entered on June 11, 1996. Accordingly, Stoecklein must disgorge a total of $474,416, of which he is jointly and severally liable with Remington for the sum of $282,416. Stoecklein also is assessed prejudgment interest of $61,155, for which is jointly and severally liable with Remington. Stoecklein will be *868 individually liable for prejudgment interest to be computed on his illicit profit of $192,000, received from co-defendant Lane.
3. Civil Penalties
The Securities Act and the Exchange Act both provide for civil penalties when any of their provisions have been violated. See 15 U.S.C. §§ 77t(d), 78u(d)(3). The penalties are established in three tiers, imposing escalating levies commensurate with the severity of the offenses. The third tier, for the most egregious violations, provides a civil penalty of $100,000 for individuals. The Exchange Act also allows imposition of an additional civil penalty in the amount of three times the profits derived from insider trading. 15 U.S.C. § 78u-1.
Because Stoecklein's conduct involved fraud, deceit, manipulation, and deliberate disregard of regulatory requirements, and because his conduct created a significant risk of substantial losses to others, Stoecklein's violations warrant imposition of the most severe civil penalty. See 15 U.S.C. §§ 77t(d)(2)(C), 78u(d)(3)(B)(iii); see also 15 U.S.C. § 78u(a)(2). Accordingly, Stoecklein is assessed a civil penalty of $100,000.
The Court is deeply troubled by the manner in which penalties have been sought by the SEC in this case. Co-defendant Cosby, whose conduct was equal to or more egregious than Stoecklein's, was assessed a civil penalty of $100,000 pursuant to a Default Order submitted by the SEC. (Cosby Default J. signed 8/23/96.) Similarly, co-defendant Lane, whose conduct was equal to or only slightly less egregious than Stoecklein's, also was assessed a civil penalty of $100,000 pursuant to a Default Order submitted by the SEC. (Lane Default J. filed 6/11/96.) The SEC, however, sought and obtained an order from this Court assessing against co-defendant Remington a civil penalty of $847,248, which is triple the amount that it profited, with Stoecklein, from insider trading. (Remington Default J. filed 6/11/96.) The Court believes this represents a fundamental inconsistency. Accordingly, the civil penalty assessed against Remington is reduced to $100,000.
CONCLUSION
For the reasons set forth above, the SEC's motion for an order of preclusion is granted. The SEC's motion for summary judgment also is granted as to Stoecklein's violations of Section 5 and Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 and Rule 13b2-1 thereunder. Stoecklein is permanently enjoined from violating Section 5 and Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 and Rule 13b2-1 thereunder. Stoecklein is permanently barred from service as an officer or director of a public company. Stoecklein is ordered to disgorge $474,424, of which he is jointly and severally liable with co-defendant Remington for $282,416. Stoecklein is ordered to pay a civil penalty in the amount of $100,000. Stoecklein is assessed prejudgment interest of $61,155, for which he is jointly and severally liable with co-defendant Remington. Stoecklein will be individually liable for prejudgment interest to be computed on the sum of $192,000. The civil penalty assessed against co-defendant Remington is reduced to $100,000.
Within five business days of this order, plaintiff is directed to submit a proposed judgment order (1) barring Stoecklein from serving as an officer or director of a public company, (2) specifying, with the particularity required by law, the conduct from which Stoecklein will be permanently enjoined, (3) enumerating the amounts to be disgorged by Stoecklein and the prejudgment interest to be assessed, including a computation of prejudgment interest on $192,000 of the disgorgement, and (4) specifying the amounts for which Stoecklein is individually liable and those for which he is jointly and severally liable with Remington.
Within five business days of this order, plaintiff is further directed to submit a proposed order modifying the Remington Default Judgment of June 11, 1996, by reducing the civil penalty assessed against Remington to $100,000.
*869 SO ORDERED.
NOTES
[1] A Consent Judgment was entered against Softpoint in this action on July 25, 1995, permanently enjoining Softpoint from violating the registration, anti-fraud, and record-keeping provisions of the securities laws, and ordering Softpoint to bring its previous financial statements into compliance with the securities laws and Generally Accepted Accounting Principles.
[2] A final Default Judgment was entered against Remington in this case on June 11, 1996, ordering disgorgement of $282,416 earned from the sale of Softpoint stock and assessing civil penalties in the amount of $847,248.
The state of Nevada revoked Remington's corporate charter on November 1, 1992. (Revocation Certificate (Zucker Aff.Ex. 112.))
[3] A final Default Judgment was entered against Lane in this case on June 11, 1996, ordering him to disgorge $1,010,712 that he received from the sale of Softpoint stock and to pay civil penalties in the amount of $100,000.
[4] Softpoint's fiscal year ran from September 1 to August 31.
[5] One of the distributors, Grupo, did not yet exist at the time of the ledger entry. (Pl.3(g) Statement ¶ 94.)
[6] Although the Complaint alleges that Softpoint transferred 420,000 shares of its stock to the overseas distributors, subsequent SEC filings place the number of shares at 460,000.
[7] A final Default Judgment was signed against Cosby in this action on August 23, 1996, ordering him to disgorge $779,971 and to pay a civil penalty of $ 100,000.
[8] Without admitting or denying the findings, D. Stoecklein consented to an SEC Cease and Desist Order regarding his role in the Softpoint stock transactions. He was required to disgorge $19,975. Cease and Desist Order, Securities Act Release No. 33,7207, Exchange Act Release No. 34,36177, 60 S.E.C. Docket 327 (Sept. 1, 1995) (Vasilescu 2d Aff.Ex. 14).
[9] D. Stoecklein represented virtually every witness subpoenaed to testify during the SEC investigation that preceded this litigation. (D. Stoecklein Aff. of 8/7/96 (hereinafter "D. Stoecklein Aff.") ¶¶ 2-3 (appended to Stoeckleins 1st Aff.))
[10] Both Aaron and Hochfelder reserved the question of whether recklessness satisfies the scienter requirement of Section 10(b) and Rule 10b-5. 446 U.S. at 686 n. 5, 100 S.Ct. at 1950 n. 5. In Rolf v. Blyth, Eastman Dillon & Co., the Second Circuit considered the issue in the context of a private right of action, rather than an SEC enforcement action, and held that recklessness does satisfy the scienter requirement where an aider and abettor owes a fiduciary duty to the defrauded party. 570 F.2d 38, 44 (2d Cir.), cert. denied, 439 U.S. 1039, 99 S. Ct. 642, 58 L. Ed. 2d 698 (1978). Rolf, however, reserved the question of whether the recklessness standard applies in the absence of a duty of disclosure and loyalty to the defrauded party. Id. at n. 9. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1882046/ | 685 F. Supp. 476 (1988)
BROCKUM COMPANY, A DIVISION OF KRIMSON CORPORATION, and Leidseplein Presse, B.V., a Netherlands Corporation f/s/o "AC/DC"
v.
VARIOUS JOHN DOES, Jane Does and XYZ Co.
Civ. A. No. 88-3728.
United States District Court, E.D. Pennsylvania.
May 19, 1988.
Barry I. Slotnick, Silverman, Shulman & Slotnick, P.C., New York City, Jonathan B. Sprague, Abrahams & Loewenstein, Philadelphia, Pa., for plaintiffs.
MEMORANDUM
LUDWIG, District Judge.
This is an action to restrain John and Jane Doe defendants from unauthorized selling of T-shirts and other merchandise bearing the name and indicia of a music group, AC/DC, during its 35-city tour of the United States that began May 3, 1988 in Portland, Maine. AC/DC was registered as a federal trademark in 1984 and, according to the complaint, has been in continuous use since 1981. Plaintiffs, owner and licensee of the mark, seek Lanham Act protections, 15 U.S.C. §§ 1114, 1125(a), and enforcement of common law property rights. Defendants are alleged to be unidentified "bootleggers" of merchandise deceptively similar to that marketed by plaintiff Brokum Companypersons who sell their wares at the sites where the concerts are held.
On May 6, 1988 I entered ex parte a temporary restraining order and order of seizure, granting plaintiffs their requests for relief, upon counsel's presentation in chambers. At that time, I interlineated the words "within this jurisdiction" to limit the territorial scope of the orderwhich, as proposed, covered all "stadiums or arenas at which AC/DC shall be performing, including but not limited to the Spectrum in *477 Philadelphia, Pennsylvania, in connection with the concert to be held on May 9, 1988."[1]
On May 16, 1988 a hearing was held on plaintiffs' application for a preliminary injunction. No defendant appeared. Proof of service of notice of the hearing was not forthcoming, the reason given by counsel being that the "bootleggers" refused to identify themselves. Counsel produced merchandise seized at both the Spectrum concert and at a concert that took place in Pittsburgh on May 15, 1988. The hearing was continued to give counsel time to provide affidavits or other proof of notice or of the inability to give notice. Counsel proffered that the temporary restraining order had been served and the seizures of merchandise effectuated in Philadelphia by plainclothes Spectrum guards. Counsel asserted, in oral argument and by memorandum, that in numerous cases involving group concert tours, federal judges had invariably granted injunctive relief and had done so on a nationwide basis. Counsel also stressed the difficulties involved in obtaining police law enforcement, together with the lack, in these cases, of any appearance in court by defendants.
On May 18, 1988 at the continued hearing, in response to my questioning, plaintiffs' counsel stated that the temporary restraining order was utilized in Pittsburgh in the belief that "within this jurisdiction" referred not to the Eastern District of Pennsylvania, but to the Commonwealth of Pennsylvania. Counsel also denied knowledge of two decisions, Brockum Int'l, Inc. v. Various John Does, 551 F. Supp. 1054 (E.D.Wis.1982) and Rock Tours, Ltd. v. Various John Does, 507 F. Supp. 63 (N.D. Ala.1981), in which district court judges expressed serious concerns as to concert tour bootleg merchandise injunction actions.[2]
In Brockum Int'l, the judge issued the restraining order but "decline[d] the invitation of the plaintiff to issue an order prohibiting the same activity in other cities visited by The Who on its national tour ... [t]hese issues are best left to the local communities involved, and ... an order having nationwide effect would be inappropriate." Brockum Int'l, 551 F.Supp. at 1055-56. The decision also decried the last-minute emergency presentation of the application and observed that any future application by plaintiff for such relief would be rejected because there was no need to proceed in that exigent fashion.
In Rock Tours, a jurisprudential analysis resulted in the denial of the injunction. The decision concluded that the "action is not justiciable for purposes of ex parte injunctive relief," Rock Tours, 507 F.Supp. at 66, because in personam jurisdiction was unclear and the proceeding lacked the requisite adversary interest. "Basically, plaintiffs seek through this Court a mechanism under which to seize and impound the allegedly bootleg merchandise to be sold by defendants. Counsel for plaintiffs have emphasized that the likelihood of a trial on the merits of the Lanham Act claim is small, if at all.... It would appear ... that this controversy ... may be more appropriately addressed to the legislative or executive branches." Id.[3]
Plaintiffs claim that a nationwide injunction is imperative and rest their legal entitlement on Fed.R.Civ.P. 65(d), which extends the court's injunctive power to "those persons in active concert or participation" with the parties. However, the necessary predicates for enjoining such persons, whoever and wherever they may be, is in personam *478 jurisdiction and venue, neither of which have been adequately established by a competent showing in this action. As stated to counsel at the continued hearing, as compelling and worthwhile as plaintiffs' objectives may be, the procedural means of accomplishment must be provided by law and must be carefully observed. This is particularly so in an ex parte proceeding. In these regards, counsel must be vigilant in discharging their duties as officers of the court, including articulating correct statements of the law, disclosing adverse authority, and avoiding a misuse of court orders.[4] They should recognize that the existence of an economic or societal problem does not necessarily mean that judicial power can or must deal with it.
I am not convinced that an injunction is the only realistic way to control bootleg merchandising at these concerts. Moreover, the use of plainclothes personnel to serve and enforce court orders of this type may be more conducive to violence than to discouraging bootlegging. For the reasons noted, I am reluctant to issue an injunctive order having extra-territorial effect. Moreover, enforcement problems make such an order potentially unduly complex.[5] Since no other AC/DC concert will be given in this district as part of the present tour, the temporary restraining order has fulfilled its purpose, and any continuation of injunctive relief would be academic and purposeless. So viewed, plaintiffs' application should not be granted. It is moot. An order will be entered.
ORDER
AND NOW, this 19th day of May, 1988 plaintiffs' application for a preliminary injunction is denied, and the temporary restraining order entered May 6, 1988 is dissolved, with security to be returned when this order becomes final.
NOTES
[1] Counsel immediately asked for reconsideration of the interlineated limitation. I deferred doing so as it appeared that the only concert at which the temporary restraining order would be available before the hearing on May 16, 1988 was the one in Philadelphia.
[2] In plaintiffs' 21-page memorandum, nine districts are reported to have granted the relief requested. No arguments, reasons, concerns, or authority to the contrary are noted. The two cases cited above were found by "Shepardizing" a decision cited in plaintiffs' memorandum: Joel v. Various John Does, 499 F. Supp. 791 (E.D. Wis.1980), which arose in the same district two years before Brockum Int'l. Brockum International is the predecessor, according to plaintiffs' counsel, of the licensee plaintiff of the similar name in the present action.
[3] Similar concerns were raised by me in the hearing held on May 16, 1988.
[4] The trial judge has "at least some role" in enforcing the ethical obligations of lawyers. Golden Eagle Distrib. Corp. v. Burroughs Corp., 801 F.2d 1531, 1539, n. 3 (9th Cir.1986) (citing Roadway Express, Inc. v. Piper, 447 U.S. 752, 766-67, 100 S. Ct. 2455, 2464, 65 L. Ed. 2d 488 (1980); Eash v. Riggins Trucking Inc., 757 F.2d 557, 564-65 (3d Cir.1985) (en banc)).
[5] The enforcement proposal suggested by plaintiffs, that the order be entered here but enforced in the federal courts where the violations occur, is unsatisfactory. The same legalistic problems remain and may be compounded by local laws and different fact settings as well as the views of other judges. The practical problems, while seemingly reduced from my standpoint, would involve instituting a new action in each district in which a seizure was made. Another possibility would be that counsel would simply utilize the order to effectuate the seizures through private guards and security personnel wherever the concert tour happened to be. To enter an order accommodating that purpose would, in my opinion, be an abuse of judicial power. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1884930/ | 217 B.R. 113 (1998)
Peter Robert SKYWARK, Plaintiff,
v.
Henry ISAACSON, Esq., and Isaacson, Schiowitz, Korson & Solny, Defendants.
No. 96 Civ. 2815(JFK).
United States District Court, S.D. New York.
January 29, 1998.
*114 MEMORANDUM OPINION and ORDER
KEENAN, District Judge.
Before the Court is Defendants' motion for reargument of this Court's November 18, 1996 Opinion and Order denying Defendants' motion for summary judgment. Alternatively, Defendants move pursuant to 28 U.S.C. § 1292(b) for an order certifying for interlocutory appeal the Court's decision not to grant summary judgment. The Court denies both applications.
The facts underlying this action and the instant motions are discussed in detail in Skywark v. Isaacson, No. 96 Civ. 2815(JFK), 202 B.R. 557 (S.D.N.Y.1996), and the Court therefore assumes the reader's familiarity with the underlying facts and the November 18, 1996 decision.
I. Motion for Reargument
The standards controlling a motion for reargument are set forth in Local Civil Rule 6.3 and Fed.R.Civ.P. 59(e). Reargument is appropriate only where the court has "overlooked controlling decisions or factual matters put before it on the underlying motion," In re New York Asbestos Litigation, 847 F. Supp. 1086, 1141 (S.D.N.Y.1994), and which, had they been considered, "might reasonably have altered the result reached by the court." Consolidated Gold Fields v. Anglo American Corp., 713 F. Supp. 1457, 1476 (S.D.N.Y.1989); see Morser v. AT & T Information Sys., 715 F. Supp. 516, 517 (S.D.N.Y. 1989). Rule 6.3 "precludes a party from advancing new facts, issues or arguments not previously presented to the court," Bank Leumi Trust Co. of New York v. Istim, Inc., 902 F. Supp. 46, 48 (S.D.N.Y.1995), and Rule 6.3 is to be "narrowly construed and strictly applied so as to avoid repetitive arguments on issues that have been fully considered by the court." Anglo American Ins. Group v. CalFed Inc., XCF, 940 F. Supp. 554, 557 (S.D.N.Y.1996). The purpose of Rule 6.3 is to "ensure the finality of decisions and to prevent the practice of a losing party examining a decision and then plugging the gaps of a lost motion with additional matters." (Carolco Pictures, Inc. v. Sirota, 700 F. Supp. 169, 170 (S.D.N.Y.1988)). Additionally, a Rule 6.3 motion "is not a motion to reargue those issues already considered when a party does not like the way the original motion was resolved." In re Houbigant, Inc., 914 F. Supp. 997, 1001 (S.D.N.Y.1996).
Defendants move for reargument of the November 18, 1996 Opinion and Order denying summary judgment on the ground that the Court "overlooked" and went against the "universally recognized rule that an attorney is not liable for an error of judgment on an unsettled proposition of law." Defs. Mem. in Supp. at 3 (citing Parksville Mobile Modular Inc. v. Fabricant, 73 A.D.2d 595, 600, 422 N.Y.S.2d 710, 717 (2d Dept.1979)). In essence, Defendants argue that this Court held that attorneys will always face liability when they have to make a decision in an unsettled area of the law.
Defendants have not presented any matter that the Court "overlooked" on the underlying motion and have therefore failed to meet the strict standards on a motion for reargument. Nevertheless, because the Court believes that Defendants have misconstrued the holding of the November 18, 1996 Opinion and Order and read the holding too broadly, the Court provides the following brief elaboration on the November 18, 1996 decision.
In the November 18, 1996 decision denying Defendants' motion for summary judgment as a matter of law with regard to Plaintiff's attorney malpractice claim, this Court held that on a statute of limitations issue where *115 the choice of when to file is that of settled law or unsettled law (or certainty versus uncertainty), and the attorney chooses to venture into the area of unsettled law in deciding when to file for no apparent strategic reason, and this choice places his client's six-year-old claim at risk of extinction, whereas the alternative choice ensures viability of the claim, this Court could not find as a matter of law that the choice to go into unsettled law was reasonable. This is not an issue as Defendants contend of an attorney having to make a decision only within an area of unsettled law or an attorney making a strategic or tactical decision where some degree of risk is always involved. Rather, this is an issue of an attorney choosing between filing the complaint within the definitive 30-day period allotted by 11 U.S.C.A. § 108(c)(2), where the law was unequivocally clear and there was no dispute that the six-year-old claim would still be timely, or filing the complaint within the "suspension" period allotted by 11 U.S.C.A. § 108(c)(1), where the courts were split as to the effect of this subsection on statutes of limitations. The Second Circuit had not ruled on the effect of § 108(c)(1), and there was a substantial risk that the claim would be ruled untimely given § 108(c)(1)'s inherent ambiguity and the split of authority as to its meaning. As the Court held in the November 18, 1996 Opinion and Order, under the circumstances of this case and the evidence and caselaw presented on the underlying motion, this Court finds that Defendants' decision to go into the uncertain area of the law on this statute of limitations issue and place Plaintiff's claim in jeopardy was not a reasonable course of conduct as a matter of law. Thus, a factual determination is necessary on the issue of whether, under the facts of this case, Defendants' decision to go into the uncertainty surrounding § 108(c)(1) and file Plaintiff's six-year-old claim more than 30 days after receipt of the notice of termination fell below the ordinary and reasonable skill and knowledge commonly possessed by an attorney. See O'Neill v. Gray, 30 F.2d 776, 780 (2d Cir.) ("Skillful conduct involves avoidance of wholly unnecessary risks. We think it was properly left to the jury to say whether the conduct of the litigation was reasonably skillful."), cert. denied, 279 U.S. 865, 49 S. Ct. 480, 73 L. Ed. 1003 (1929); Greene v. Payne, Wood and Littlejohn, 197 A.D.2d 664, 666, 602 N.Y.S.2d 883, 885 (2d Dept.1993) ("Whether [legal] malpractice has been committed is ordinarily a factual determination to be made by the jury."); Bernstein v. Oppenheim, 160 A.D.2d 428, 430, 554 N.Y.S.2d 487, 489 (1st Dept. 1990) ("[S]election of one among several reasonable courses of action does not constitute malpractice . . . Absent such reasonable courses of conduct found as a matter of law, a determination that a course of conduct constitutes malpractice requires findings of fact." (citations omitted)). Further, contrary to Defendants' assertions, the jury will not be asked to make legal determinations, to declare the law or to determine the "state of the law" as it existed when Defendants filed the complaint. The Court makes those legal determinations and will instruct the jury accordingly. The jury will decide the factual issue of whether Defendants' course of conduct constituted malpractice.
II. Certification for Interlocutory Appeal Pursuant to 28 U.S.C. § 1292(b)
28 U.S.C. § 1292(b) reads in pertinent part,
When a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, he shall so state in writing in such order.
Interlocutory review should only be granted in "exceptional circumstances," Butala v. Agashiwala, No. 95 Civ. 936(JGK), 1997 WL 162098, at * 1 (S.D.N.Y. March 24, 1997), and the Second Circuit has urged "district courts to exercise great care in making a § 1292(b) certification." Westwood Pharmaceuticals, Inc. v. National Fuel Gas Distrib. Corp., 964 F.2d 85, 89 (2d Cir.1992). The Court concludes that the November 18, 1996 decision is an application of the established New York law on attorney malpractice to the facts of this case, rather than a departure from the *116 law, and that there is not a controlling question of law at issue here as to which there is substantial ground for difference of opinion. The Court therefore denies Defendants' application for § 1292(b) certification.
III. Conclusion
For the reasons discussed above, the Court denies Defendants' motions. Discovery is to be completed by May 22, 1998, and the Court sets this matter down for a pre-trial conference on May 27, 1998 at 9:45 a.m. The Court refers this matter to Magistrate Judge Naomi Reice Buchwald for supervision of discovery.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1885398/ | 942 F. Supp. 1022 (1996)
Carl Erik KARLSSON and Lucy C. Karlsson
v.
FEDERAL DEPOSIT INSURANCE CORPORATION, and The Prudential Preferred Properties Devon Office.
No. 95-3266.
United States District Court, E.D. Pennsylvania.
May 2, 1996.
Jay D. Barsky, Barsky & Cohen, Bala Cynwyd, PA, for Plaintiffs.
Alan S. Gold, Tanya M. Sweet, Monaghan & Gold, P.C., Elkins Park, PA, for Federal Deposit Insurance Corporation.
Robert B.B. Schatz, Philadelphia, PA, for The Prudential Preferred Properties.
Lewis A. Grafman, Cozen & O'Connor, Philadelphia, PA, for Roach Wheeler, Co., Third-Party Defendant.
MEMORANDUM
PADOVA, Judge.
I. BACKGROUND
Plaintiffs, Carl and Lucy Karlsson, bring this action under the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 Pa.Stat.Ann. §§ 201-1 201-9.2 (West Supp.1995) (the "CPL"), for losses allegedly resulting from the purchase of their home. Currently before the court are Defendants' Motions to dismiss pursuant to Fed.R.Civ.P. 12(b)(6)[1]. For the reasons that follow, Defendants' Motions will be Granted.
*1023 Plaintiffs purchased residential real estate (the "Property") from the Federal Deposit Insurance Corporation ("FDIC"). The Property, located in West Chester County, Pennsylvania, consists of an irregularly shaped parcel of land containing an old farm house. FDIC acquired the Property in its takeover of Meritor Savings Bank, which had foreclosed a mortgage on the Property. Defendant Prudential Preferred Properties ("Prudential") is the real estate broker contracted by FDIC to sell the Property.
An agreement of sale was executed between the Plaintiffs and FDIC, and settlement was fixed for January 4, 1994. Some time after executing the agreement of sale, but before settlement, Plaintiffs became suspicious about the size of the lot. On December 17, 1993, Plaintiffs retained Chester Valley Engineers, Inc. ("CVE") to review documents and conduct a survey of the Property. This investigation indicated that while the Property consisted of 1.995 acres, approximately 0.6 acres were located within the public rights of way of three roads. Despite this information, FDIC refused to lower the purchase price for the Property, relying on the agreement of sale which stated that the Property was sold "as is." Plaintiffs went through with the transaction because withdrawal would mean losing their $41,000 down payment.
Plaintiffs filed a Complaint alleging breach of contract and seeking punitive damages. Judge Weiner dismissed the Complaint for failure to state a claim, but granted Plaintiffs leave to amend their Complaint to bring a claim under the CPL. The case was subsequently transferred to my docket. Plaintiffs have now filed their Amended Complaint alleging that advertisements for the Property misrepresented the lot size.
II. STANDARD OF REVIEW
A claim may be dismissed under Fed. R.Civ.P. 12(b)(6) only if the plaintiff can prove no set of facts in support of the claim that would entitle it to relief. ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 (3d Cir.1994). The reviewing court must consider only those facts alleged in the Complaint and accept all of the allegations as true. Id.
III. DISCUSSION
The CPL makes unlawful "unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." 73 Pa.Stat.Ann. § 201-3. The law seeks to place consumers and sellers on a more equal footing. In Re Smith, 866 F.2d 576, 581 (3d Cir.1989); Commonwealth v. Monumental Prop., Inc., 459 Pa. 450, 329 A.2d 812, 816 (1974). A liberal interpretation of the CPL best effectuates this purpose. Monumental Prop., Inc., 329 A.2d at 817.
To state a claim under the CPL, the acts alleged in the Amended Complaint must constitute unfair or deceptive acts or practices as the statute defines those terms. Smith, 866 F.2d at 583. Section 201-2(4) of the CPL sets out seventeen specific acts which constitute unfair or deceptive acts or practices. Plaintiffs' Reply Memorandum indicates that their claims sound under §§ 201-2(4)(v) and 201-2(4)(ix). Section 2(4)(v) states that the conduct prohibited by the statute includes "representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits or quantities that they do not have." Section 2(4)(ix) states that the statute prohibits "advertising goods or services with intent not to sell them as advertised."
In Commonwealth v. Hush-Tone Indus., Inc., 4 Pa.Commw. 1, 1971 WL 13030 (1971), the Pennsylvania Commonwealth Court articulated three elements that a plaintiff must prove in order to state a claim for false advertising under section 201-2(4)(v). The Plaintiff must show: (1) that defendant's advertisement is a false representation of a fact; (2) that it actually deceives or has a tendency to deceive a substantial segment of its audience; and (3) that the false representation is likely to make a difference in the purchasing decision. Id. at 21, 1971 WL 13030. Section 201-2(4)(ix) requires the additional element of intent. See id. at 24, 1971 WL 13030 (concluding that without evidence that defendants knew their product would not perform as advertised, Commonwealth failed to prove violation of § 2(4)(ix)).
*1024 The Amended Complaint makes the following allegations of fact.[2] Defendants advertised the Property in local newspapers. One advertisement described the property as consisting of "almost 2 acres." Pls.' Am. Compl. at ¶ 6(a). A second advertisement contained a list of descriptive elements about the property, including an item which reads "acreage 1.90." However, this same advertisement contains text that describes the property as consisting of "almost 2 acres," and further contains a disclaimer that "although deemed accurate, this information is subject to errors, omissions and changes without notice." Pls.' Am.Compl. at ¶ 6(b). Plaintiffs also allege that Defendants published an advertisement with a map depicting the Property and the adjoining roads, but that the map did not indicate that a portion of the advertised property rested beneath the road beds. Pls.' Am.Compl. at ¶ 6(c). Finally, the Property was listed in the Tri-County Multiple Listing Service ("MLS") as consisting of approximately 1.90 acres. However, the MLS listing also contained a disclaimer stating that the information contained in the listing "is accurate but not guaranteed, all dimensions are approximate." Pls.' Am.Compl. at ¶ 6(d).
Plaintiffs incorporate by reference into their Amended Complaint a letter from CVE whom Plaintiffs hired to review the title documents associated with the Property confirming that the Property consists of 1.995 acres. Pls.' Am.Compl. at ¶ 11. The letter goes on to state that "the 1.995 acres ... includes approximately 0.6 acres within the public rights of way. Pls.' Am.Compl.Ex. E (emphasis added)". It is the existence of these rights of way that give rise to Plaintiffs' claims. Plaintiffs allege that had they known of the public rights of way, they would not have entered into the agreement of sale. Pl'. Am.Compl. at ¶ 20.
Accepting all of Plaintiffs' allegations as true, it is apparent that they have failed to state a claim for false advertising under the CPL. Plaintiffs have not articulated any misrepresentation of fact contained in Defendants' advertising, and the letter from CVE confirms that the Property does, in fact, consist of approximately 2 acres. Plaintiffs do not allege that Defendants made any representations regarding easements or public rights of way on the Property, or that "acreage," as that term is used in the advertisements, was represented by defendants to refer only to unencumbered land. Additionally, the agreement of sale placed the onus of discovering any defects or exceptions to the title squarely on Plaintiffs. Pls.' Am. Compl.Ex. El ¶ 4.
My decision today is in accord with Judge Weiner's Memorandum dismissing Plaintiffs' first Complaint. Judge Weiner found that the qualified language of the advertisements, and the accompanying disclaimers, "certainly put plaintiffs on notice that the information provided to them was qualified and that the acreage was an estimate." Judge Weiner went on to conclude that "the contract's explicit recital that the property was sold `as is', and the fact that they were to receive only a quitclaim deed, should have placed [Plaintiffs] on notice that they were assuming any risk associated with the transaction." Karlsson v. Federal Deposit Ins. Corp., No. 95-CV-3266, slip op. at 5-6, 1996 WL 37830 (E.D.Pa. Jan. 29, 1996).
Plaintiffs have failed to allege any misrepresentation of fact contained in Defendants' advertising. The Property is as it was advertised to be. Plaintiffs were provided sufficient opportunity to examine the title to the Property, and failed to do so in a timely manner as required by the contract. Under the circumstances of this case, Plaintiffs' Amended Complaint must be dismissed.
An appropriate Order follows.
ORDER
AND NOW, this 2nd day of May, 1996, upon consideration of Defendant Prudential Preferred Properties' Motion to Dismiss (Doc. No. 21), and Defendant Federal Deposit Insurance Corporation's Motion to Dismiss (Doc. No. 22), and Plaintiffs' Response thereto *1025 (Doc. No. 23), and Defendant Federal Deposit Insurance Corporation's Reply (Doc. No. 24), and Defendant Prudential Preferred Properties' Reply (Doc. No. 25), and Plaintiffs' Counter Reply (Doc. No. 26), and Defendant Federal Deposit Insurance Corporation's Supplemental Memorandum (Doc. No. 27), IT IS HEREBY ORDERED THAT:
1. Defendant Prudential Preferred Properties' Motion is GRANTED;
2. Defendant Federal Deposit Insurance Corporation's Motion is GRANTED;
3. Plaintiff's Amended Complaint (Doc. No. 19) is DISMISSED;
4. The Clerk of the Court shall mark this case CLOSED.
NOTES
[1] While Defendants have not filed their motions jointly, their arguments are identical.
[2] The agreement of sale and other documents referred to in this Memorandum are attached as exhibits to the Amended Complaint and are therefore deemed part of the pleadings for purposes of this analysis. See Fed.R.Civ.P. 10(c). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1885391/ | 942 F. Supp. 1038 (1996)
DECISIONONE CORPORATION
v.
ITT HARTFORD INSURANCE GROUP.
Civil Action No. 96-3684.
United States District Court, E.D. Pennsylvania.
October 22, 1996.
*1039 Douglas Y. Christian, Reed, Smith, Shaw & McClay, Philadelphia, PA and Brian Anthony Pori, Law Offices of Malcolm A. Misuraca, San Francisco, CA, for Plaintiff.
William M. Savino, Jubanyik, Varbalow, Tedesco, Shaw & Shaffer, Cherry Hill, NJ, Edward C. Mintzer, McWilliams and Mintzer, P.C., Philadelphia, PA, Stephen J. Smirti, Jr., and Robert Tugander, Rivkin, Radler, Bayh, Hart & Kremer, Uniondale, NY, for Defendant.
MEMORANDUM
BARTLE, District Judge.
Plaintiff DecisionOne Corporation ("DecisionOne"), successor in interest to Bell Atlantic Business Systems Services, Inc. ("Bell Atlantic"), instituted this diversity action against its insurer, ITT Hartford Insurance Group ("Hartford"). DecisionOne seeks to recover some $3,000,000 in costs Bell Atlantic incurred in defending itself on a counterclaim in Bell Atlantic Business Systems Services, Inc. v. Storage Technology Corporation filed in the United States District Court for the Northern District of California. DecisionOne is also seeking punitive damages, attorney's fees, interest and costs pursuant to 42 Pa. Cons.Stat.Ann. § 8371, based upon Hartford's alleged bad faith in refusing to defend the action. Now before the court is Hartford's motion for judgment on the pleadings under Rule 12(c) of the Federal Rules of Civil Procedure on the ground that it had no duty to defend Bell Atlantic. According to Hartford, the claims against Bell Atlantic were not covered under the policy.
A judgment on the pleadings is only proper if "no set of facts could be adduced to support the plaintiff's claim for relief." Bryson v. Brand Insulations, Inc., 621 F.2d 556, 559 (3d Cir.1980). Bell Atlantic's allegations must be assumed true and all reasonable inferences drawn in its favor. Id.
I
The material facts taken from the pleadings are not in genuine dispute. On January 21, 1994 Bell Atlantic filed suit against Storage Technology Corporation ("STK"), a company which designed and manufactured information *1040 storage and retrieval subsystems that operated inside computers. STK also "writes original computer software and microcode that is used to operate and service STK equipment." STK Counterclaim ¶ 4. Bell Atlantic performed computer maintenance for STK. In the lawsuit, Bell Atlantic pleaded that STK violated the federal antitrust laws.
STK counterclaimed. STK alleged that in the course of servicing STK computer equipment, Bell Atlantic infringed STK's microcode and maintenance software copyrights. STK claimed that whenever Bell installed or maintained an STK automated cartridge system, it would load or "boot" the STK copyrighted microcode, creating a new copy and infringing its copyright. At times, STK also alleged, Bell Atlantic would copy STK software directly onto another floppy disk belonging to Bell Atlantic. STK maintained that Bell Atlantic was pursuing a campaign to misappropriate their trade secrets and "other valuable technical and business information." STK Counterclaim ¶ 17. STK listed these trade secrets to include, without limitation,
functional microcode and maintenance software; design and performance specifications, tolerances, gaps, calibrations, and torque wrench settings for the installation relocation, and service of library equipment; procedures, processes, flow charts, logic and block diagrams, instructions, techniques, and check lists for the efficient installation, relocation, and service of library equipment; training processes, procedures, instructions, techniques, and check lists for the efficient installation, relocation, and service of STK library equipment; all manuals, training materials, and technical documentation for library equipment, ...; installation and maintenance tools and the design and specifications for such tools; and, installation and diagnostic test procedures and parameters.
STK Counterclaim ¶ 19. According to the counterclaim, Bell Atlantic raided STK's customer service engineers for the purpose of acquiring these trade secrets and other valuable information. It accused Bell Atlantic of inducing customers and former STK employees to break their confidentiality agreements and share STK secrets. STK alleged that Bell Atlantic would then disclose these trade secrets to engineers it was training. STK also stated that Bell Atlantic misrepresented to its customers that it made its own maintenance software, which induced some of STK's former customers to switch to Bell Atlantic. The misrepresentation to customers involved "the source, nature, characteristics, and quality of its ability to maintain STK library equipment," and included representations that Bell Atlantic could service STK equipment as well as STK could do so. STK Counterclaim ¶ 26.
After these general allegations, STK listed nine specific counterclaims: (1) copyright infringement; (2) contributory copyright infringement for aiding and abetting others to infringe STK's copyrights; (3) misappropriation of trade secrets; (4) unfair competition; (5) Lanham Act violations; (6) Colorado Consumer Protection Act violations; (7) intentional interference with customer contracts; (8) intentional interference with employee confidentiality contracts; and (9) intentional interference with licensing agreement contracts. These nine counts contained additional factual averments.
At the time when this counterclaim was filed, Bell Atlantic Corporation, the parent corporation of Bell Atlantic, possessed a commercial general liability ("CGL") policy issued by Hartford. Bell Atlantic claimed coverage under this policy, as a subsidiary of Bell Atlantic Corporation. The policy was in effect from April 1, 1993 to April 1, 1994. After Bell Atlantic tendered the counterclaim to Hartford, the latter denied coverage. As a result, Bell Atlantic defended itself in the action with STK. That case ultimately settled and this lawsuit followed.
Under Pennsylvania law, which all parties agree is applicable, an insurer owes a duty to defend its insured in a suit brought by a third party so long as it appears on the face of that party's pleading that the allegations "may potentially come within the coverage of the policy." Heffernan & Company v. Hartford Insurance Co., 418 Pa.Super. 326, 614 A.2d 295, 298 (1992); accord C.H. Heist Caribe Corp. v. American Home Assurance *1041 Co., 640 F.2d 479, 483 (3d Cir.1981). If a single claim in a multi-claim lawsuit has potential for coverage, the insurer must defend all claims until it is obvious that no possibility of recovery exists as to claims within the policy provisions. American Contract Bridge League v. Nationwide Mut. Fire Ins. Co., 752 F.2d 71, 75 (3d Cir.1985); Heffernan, 614 A.2d at 298. All ambiguities must be construed in favor of the insured, although a court should not strain to create any such ambiguity. Pacific Indem. Co. v. Linn, 766 F.2d 754, 760-61 (3d Cir.1985).
Hartford first states that all of the claims arise out of "programming" and thus are precluded by the policy's programming exclusion which reads:
This insurance does not apply to "bodily injury," "property damage," "personal injury" or "advertising injury" arising out of or which would have not have occurred but for "programming." "Programming" means any of the following: 1. Statements or instructions, regardless of the form or method of their embodiment, that are used or intended to be used directly or indirectly in or with a computer or a computer system; or 2. Any and all information that is used or intended to be used in connection with or to explain such statements or instructions or their operation, such as specifications, flow diagrams or manuals.
Hartford further contends that even if the programming exclusion does not apply, the advertising injury and personal injury portions of the policy, on which DecisionOne relies, do not afford coverage. The policy provides insurance for:
(1) `Personal injury' caused by an offense arising out of your business, excluding advertising, publishing, broadcasting or telecasting done by or for you;
(2) `Advertising injury' caused by an offense committed in the course of advertising your goods, products or services; but only if the offense was committed in the `coverage territory' during the policy period.
CGL policy at Coverage B. Several exclusions limit this coverage. The coverage does not extend to personal or advertising injury:
(1) Arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity;
(2) Arising out of oral or written publication of material whose first publication took place before the beginning of the policy period;
. . . . .
Moreover, advertising injury arising out of "[t]he failure of goods, products or services to conform with advertised quality of performance" is excluded.
Section V of the policy defines key terms contained therein, including "advertising injury" and "personal injury." Advertising injury
means injury arising out of one or more of the following offenses:
a. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;
b. Oral or written publication of material that violates a person's right of privacy;
c. Misappropriation of advertising ideas or style of doing business; or
d. Infringement of copyright, title or slogan.
Personal injury is defined in relevant part to
mean[] injury, other than "bodily injury," arising out of one or more of the following offenses:
. . . . .
d. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services
. . . . .
We must now compare STK's counterclaim with the language of the policy to determine if at least one claim is potentially covered. American Contract, 752 F.2d at 75.
II
The STK counterclaim, as noted above, includes allegations under the Lanham Act, 15 U.S.C. § 1125. That Act creates *1042 a cause of action for any false or misleading descriptions or representations of a product. U.S. Healthcare v. Blue Cross of Greater Philadelphia, 898 F.2d 914, 921 (3d Cir.), cert. denied, 498 U.S. 816, 111 S. Ct. 58, 112 L. Ed. 2d 33 (1990). The statute states in relevant part:
(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which
(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or
(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities,
shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.
15 U.S.C. § 1125(a).
The STK allegations under this Act potentially state a claim covered under the advertising injury provision of the Hartford policy. Under this policy provision four prerequisites must be met: (1) the injury must be committed in the course of advertising the insured's goods, products, or services; (2) the injury must arise out of the offenses enumerated in the advertising injury definition; (3) the injury must be caused by the offense committed in the course of advertising; and (4) the offense must be committed during the policy period.
In its counterclaim, STK alleges that Bell Atlantic "falsely designated the origin and source of its ability to maintain STK equipment," and "falsely promoted or advertised its maintenance of STK library equipment" in violation of the Lanham Act. STK Counterclaim ¶ 70 (emphasis added). STK further pleaded that "in the course of its commercial and promotional activities designed to secure library maintenance contracts Bell Atlantic made false or misleading factual representations concerning its maintenance of STK library equipment and made false or misleading comparisons between itself and STK" which caused customers to switch from STK to Bell Atlantic. STK Counterclaim ¶¶ 71, 73.
Hartford maintains that the violations of the Lanham Act were not committed in the course of advertising, but arose out of copyright infringement. According to Hartford, the gravamen of the claim is copyright infringement and theft of trade secrets, which are not covered under the policy. We are not persuaded. The STK Lanham Act counterclaim clearly is not so restricted. STK's allegation that Bell Atlantic "has falsely promoted or advertised its maintenance of the STK library equipment" is not limited to and does not even refer to copyright infringement or trade secrets. The general allegations contained in the first 68 paragraphs of the counterclaims describe Bell Atlantic's wrongful conduct not only in connection with STK's copyrighted information and trade secrets, but also with "other valuable technical and business information." STK Counterclaim ¶ 17.[1]
*1043 Moreover, the alleged injury arose out of an offense enumerated in the policy, specifically, the oral or written publication of material that disparages a person's or organization's goods, products or services. Hartford does not define "disparagement" in its policy. According to Black's Law Dictionary, it is "[a] statement about a competitor's goods which is untrue or misleading and is made to influence or tends to influence the public not to buy." Black's Law Dictionary (6th ed. 1990). Because Bell Atlantic allegedly made false and misleading comparisons to STK's services, such that customers switched service providers, the allegations lie within the advertising injury definition as disparaging STK's services.
The Lanham Act count clearly alleges that "as a result of Bell Atlantic's wrongful acts and threatened continued wrongful acts, STK has suffered and will continue to suffer immediate and irreparable harm, damages, and loss." STK Counterclaim ¶ 75. The wrongful acts causing continued harm include Bell Atlantic's false promotion and advertisement of its maintenance of STK library equipment and false comparisons to STK. Thus, the causation requirement under the policy is met.
Finally, there are no applicable policy exclusions to prevent coverage of the Lanham Act count. The programming exclusion, on which Hartford heavily relies, is not applicable. In STK's Lanham Act allegations, there is no explicit or implicit limitation to computer programming. Instead, the STK allegations focus on false and misleading statements, representations, and comparisons that Bell Atlantic made concerning its ability to service or maintain STK library equipment. The facts supplied by STK are not sufficient to assume that only programming is implicated. Also, the exclusion for the failure of goods, products or services to conform with advertised quality or performance, is not applicable. STK was not claiming that Bell Atlantic's quality did not rise to the level advertised. It was claiming that Bell made misleading and false comparisons with STK's products and services. Further, the exclusion for oral or written publication of material, if done at the direction of the insured "with knowledge of its falsity," is not relevant. While STK alleges that Bell Atlantic's acts were intentional, willful, wanton and malicious, it also alleges that its acts were reckless. STK Counterclaim ¶ 74 (emphasis added). Under Pennsylvania law, "recklessness is something more than negligence but less than an intentional act." Princeton Ins. Co. v. LaHoda, No. CIV. A. 95-5036, 1996 WL 11353 at *4 (Jan. 4, 1996 E.D.Pa.); Gene's Restaurant, Inc. v. Nationwide Ins. Co., 519 Pa. 306, 548 A.2d 246, 247 n. 1 (1988); United Services Auto. Ass'n v. Elitzky, 358 Pa.Super. 362, 517 A.2d 982, 989 (1986), appeal denied, 515 Pa. 600, 601, 528 A.2d 957 (1987). Knowledge of falsity is not a definitive element of recklessness. See, e.g. St. Amant v. Thompson, 390 U.S. 727, 731, 88 S. Ct. 1323, 1325-26, 20 L. Ed. 2d 262 (1968); New York Times v. Sullivan, 376 U.S. 254, 280, 84 S. Ct. 710, 726, 11 L. Ed. 2d 686 (1964); Garrison v. State of Louisiana, 379 U.S. 64, 74, 85 S. Ct. 209, 215-16, 13 L. Ed. 2d 125 (1964); Restatement (Second) of Torts § 500; Black's Law Dictionary (6th ed. 1990). Thus, STK alleges, in the alternative and under our liberal standard of notice pleading, that Bell Atlantic's conduct may have been without knowledge of its falsity.
Moreover, for purposes of this motion only, Hartford has assumed that any offense alleged by STK was committed during the policy period. Thus, we conclude that STK's count for violation of the Lanham Act was potentially within the policy coverage and that Hartford had a duty to defend.[2]
*1044 III
In addition, STK's sixth count, alleging deceptive trade practices in violation of the Colorado Consumer Protection Act, Colo. Rev.Stat.Ann. § 6-1-105,[3] is potentially covered under the policy. While STK does not specify which portion of the Colorado Act Bell Atlantic violated, at least one subsection of the statute seems applicable given the thrust of STK's allegations. The statute states in relevant part:
A person engages in a deceptive trade practice when, in the course of such person's business, vocation, or occupation, such person:
. . . . .
(h) Disparages the goods, services, property, or business of another by false or misleading representation of fact;
. . . . .
Colo.Rev.Stat.Ann. § 6-1-105.
STK alleges that Bell Atlantic's deceptive trade practices under this Colorado statute were "intentional, willful, malicious, and in conscious and reckless disregard for STK's rights." STK Counterclaim ¶ 82 (emphasis added). Reckless conduct, as noted above, does not have as an element "knowledge of its falsity." Moreover, disparagement of another's goods or services is included in the definition of both personal and advertising injury.[4] Further, STK alleges these acts, made unlawful by the Colorado Consumer Protection Act, caused it to suffer "immediate and irreparable harm, damage, and loss." STK Counterclaim ¶ 83. Thus, the causal connection required by the policy is met. Again, not all of STK's allegations concerned programming. Because doubt should be resolved in favor of the insured, Hartford had a duty to defend this claim. C.H. Heist, 640 F.2d at 481; Cadwallader v. New Amsterdam Cas. Co., 396 Pa. 582, 152 A.2d 484, 487 (1959).
IV
We need not review the remaining claims of STK's counterclaim. Under Pennsylvania law, a duty to defend arises even if only one of a number of claims set forth in a pleading is potentially covered. American Contract Bridge League v. Nationwide Mut. Fire Ins. Co., 752 F.2d 71, 75 (3d Cir.1985). At least two counts of STK's counterclaim are encompassed within the language of the Hartford policy. Accordingly, Hartford's motion for judgment on the pleadings will be denied.[5]
NOTES
[1] Hartford cites several cases for the proposition that STK's allegations do not arise from the course of Bell Atlantic's advertising. However, in those cases no actual advertising occurred or was alleged to have occurred. See Simply Fresh Fruit, Inc. v. Continental Ins. Co., 94 F.3d 1219, 1222 (9th Cir.1996), petition for cert. filed, 65 U.S.L.W. 3181 (U.S. Aug. 27, 1996) (No. 96-333); Microtec Research v. Nationwide Mut. Ins. Co., 40 F.3d 968, 970 (9th Cir.1994); Sentry Ins. Co. v. R.J. Weber Co., 2 F.3d 554, 557 (5th Cir. 1993); Atlantic Mut. Ins. v. Brotech Corp., 857 F. Supp. 423, 429 (E.D.Pa.1994), aff'd, 60 F.3d 813 (3d Cir.1995). The lack of alleged advertising was the reason there was no coverage under the advertising injury portion of these policies. Hartford's characterization otherwise is inaccurate. For example, Hartford points us to a passage in Microtec which says "[i]f the tortfeasor does some wrongful act and then advertises it, the harm caused by the wrongful act alone is not within the scope of advertising injury." Microtec, 40 F.3d at 971 (emphasis added). STK is not alleging harm solely from theft of trade secrets or copyright infringement. It also alleges injury from plaintiff's advertising.
[2] Hartford also points us to the Third Circuit decision in United States Golf Assoc. v. St. Andrews Systems, Data-Max, Inc., 749 F.2d 1028 (3d Cir.1984), and claims that Bell Atlantic "shies away from" discussion of its merits. According to Hartford, this case holds that the misappropriation doctrine does not apply to the Lanham Act protection of deception of origin claims. STK, however, is alleging more. In addition, Hartford fails to recognize that the Lanham Act was amended in 1988 to encompass claims beyond simply deception of origin. See U.S. Healthcare, 898 F.2d at 921. U.S. Golf was decided in 1984, prior to this amendment. Finally, there is coverage under the advertising injury coverage based on disparaging statements about another's goods and services, not based on misappropriation.
[3] STK's principal place of business is in Colorado.
[4] Whether personal or advertising injury applies depends upon whether the disparagement occurred in the course of advertising.
[5] In its brief, Hartford raises the issue that Bell Atlantic is not a named insured under the policy. However, Hartford did not move for judgment on the pleadings on that basis. That issue will have to wait until another day. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1886765/ | 221 B.R. 69 (1998)
In re WHIMSY, INCORPORATED, Debtor.
No. 97 CIV. 9108(RWS).
United States District Court, S.D. New York.
May 14, 1998.
*70 Mary Jo White, U.S. Atty., Southern District of New York, New York City, by Andrew W. Schilling, Asst. U.S. Atty., for U.S.
Reid & Priest, New York City, by Marc E. Richards, Teena H. Kim, for Debtor.
OPINION
SWEET, District Judge.
The United States of America (the "Government") appeals from an order by the Bankruptcy Court (the "Order") denying the Government's motion to setoff an obligation owed to the appellee Whimsy, Inc. (the "Debtor") by the United States Department of the Treasury, United States Customs Service ("Customs"), against a debt owed by the Debtor to the United States Department of the Treasury, Internal Revenue Service (the "IRS"). For the reasons set forth below, the Order is reversed.
Facts and Prior Proceedings
I. The Facts
A. The Government's Pre-Petition Claims Against the Debtor
On February 26, 1992 (the "Petition Date"), the Debtor filed a voluntary petition for relief under Chapter 11, Title 11 of the United States Code (the "Bankruptcy Code"). As of the Petition Date, the Debtor had outstanding liabilities to two agencies of the Government: (1) the Debtor owed substantial sums to the IRS in connection with pre-petition tax obligations; and (2) the Debtor owed lesser amounts to Customs in connection with pre-petition import duties. Both the IRS and Customs filed proofs of claim and amended proofs of claim with respect to these liabilities in the bankruptcy court.
Specifically, on August 29, 1996, the Government (through the IRS) filed amended proofs of claim numbers 11021 through 11027, inclusive, with respect to the Debtor's tax obligations. The IRS and the Debtor *71 compromised and settled the IRS claims and, by order dated January 14, 1997, the bankruptcy court approved the settlement agreement reached between the IRS and the Debtor (the "Settlement Agreement"). The Settlement Agreement allowed a claim of the IRS for tax deficiencies totaling approximately $7.7 million (the "IRS Claim").
As of the Petition date, the Debtor was also indebted to Customs for certain unpaid customs duties. On July 15, 1997, the Government (through Customs) filed its most recent amended proof of claim in connection with these customs duties. In that filing, Customs claimed pre-petition obligations of the Debtor to the Government in the amount of $7,456.32 (the "Customs Claim").
Thus, at the time of the Government's setoff motion, the Debtor owed the Government (through the IRS) several million dollars in taxes, and the Debtor owed the Government (through Customs) several thousand dollars in customs duties.
B. The Government's Pre-Petition Obligation To The Debtor
As of the Petition Date, the Government also owed money to the Debtor. Specifically, as indicated on the July 15, 1997 amended proof of claim (as well as earlier proofs of claim), Customs owed the Debtor $119,322.80 for refunds that arose prior to the Petition Date (the "Customs Refund"). The Government had not paid the Debtor the Customs Refund as of the Petition Date.
II. The Bankruptcy Court Decision
In the bankruptcy court, the Government moved on August 15, 1997, pursuant to 11 U.S.C. § 362(d), for an order lifting the automatic stay to allow the Government to accomplish a setoff whereby (1) the Government would apply part of the $119,322.80 Customs Refund against a $7,456.32 Customs Claim, and (2) the Government would apply the balance of the Customs Refund remaining after the first setoff (i.e., $111,866.48) against the IRS Claim, thereby reducing the IRS Claim by $111,866.48.
On October 8, 1997, The Honorable Cornelius Blackshear issued the Order, granting in part and denying in part the motion. Specifically, the Order permitted the Government to setoff the Customs Refund against the Customs Claim, but not against the IRS Claim. First, the court ruled that allowing the IRS to setoff the Customs Refund against the IRS Claim "would be inequitable" because the Debtor's estate was "administratively insolvent." The court reasoned that allowing the IRS which was "merely an unsecured creditor" to effect a setoff would provide the IRS with a payment on its claim while other unsecured creditors received nothing. Second, the bankruptcy court found that a setoff of the Customs Refund against the IRS Claim would "unfairly alter" the Settlement Agreement reached between the Debtor and the IRS.
Third, the bankruptcy court ruled that the "IRS and Customs are not a unitary creditor for purposes of setoff under section 553" of the Bankruptcy Code. Judge Blackshear ruled that Chief Judge Lifland's 1994 decision in Shugrue v. Fischer (In re Ionosphere Clubs, Inc.), 164 B.R. 839 (Bankr.S.D.N.Y. 1994) was "correctly decided," whereas the Second Circuit's subsequent decision in Aetna Casualty & Surety Co. v. LTV Steel Co. (In re Chateaugay Corp.), 94 F.3d 772 (2d Cir.1996), "did not address the issue." Finally, the bankruptcy court found further support for its ruling in the fact that the IRS and Customs identified themselves on their respective proofs of claims as "`Department of the Treasury Internal Revenue Service' and `U.S. Customs Service,' respectively, not `United States of America,' thus further indicating that the IRS and Customs are different creditors."
On November 12, 1997, the Government filed the instant appeal. The appeal was deemed fully submitted after argument on April 1, 1998.
Discussion
I. Standard of Review
A district court's review of bankruptcy court orders is plenary. See Manville Forest Products Corp; Gulf States Exploration Co. v. Manville Forest, 896 F.2d 1384, 1388 (2d Cir.1990); Lomas Financial Corp. v. Northern Trust Co. (In re Lomas Financial *72 Corp.), 117 B.R. 64, 66 (S.D.N.Y.1990). The court independently reviews the factual findings and the legal conclusions of the bankruptcy court, and "must accept the findings of fact unless they are clearly erroneous," but will reverse if "`left with the definite and firm conviction that a mistake has been committed.'" Manville Forest, 896 F.2d at 1388 (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S. Ct. 525, 542, 92 L. Ed. 746 (1948)). Conclusions of law reached by a bankruptcy court are reviewed de novo. Id.
II. The Government Has A Right To Setoff Its Obligation To The Debtor Against The Debtor's Obligation To The Government
A. The Government Has A Common-Law Setoff Right Outside The Bankruptcy Context
Rooted in the common law, setoff is a creditor's equitable right to deduct a debt it owes to a debtor from a claim it has against the debtor arising out of a separate transaction. "The right of setoff (also called `offset') allows entities that owe each other money to apply their mutual debts against each other, thereby avoiding `the absurdity of making A pay B when B owes A.'" Citizens Bank of Md. v. Strumpf, 516 U.S. 16, 18, 116 S. Ct. 286, 289, 133 L. Ed. 2d 258 (1995) (quoting Studley v. Boylston Nat'l Bank, 229 U.S. 523, 528, 33 S. Ct. 806, 808, 57 L. Ed. 1313 (1913)). See also Chateaugay, 94 F.3d at 780 ("The right of setoff is a `common right, which belongs to every creditor, to apply the unappropriated moneys of his debtor, in his hands, in extinguishment of the debts due to him.'" (quoting Gratiot v. United States, 40 U.S. (15 Pet.) 336, 370, 10 L. Ed. 759 (1841))). By definition, therefore, setoff requires mutuality of parties; that is, the same creditor must hold both a debt to and a claim against the same debtor.
Outside the bankruptcy context, it has long been established that the departments, agencies and subdivisions of the United States Government constitute a single creditor for purposes of setoff. In Cherry Cotton Mills v. United States, 327 U.S. 536, 537, 66 S. Ct. 729, 729, 90 L. Ed. 835 (1946), for example, the United States owed the petitioner, Cherry Cotton Mills, a refund of approximately $3,000 for taxes paid under the Agricultural Adjustment Act. At the same time, however, the petitioner owed the Reconstruction Finance Corporation (the "RFC") approximately $6,000 pursuant to a promissory note. The General Accounting Office directed the Treasury Department to pay petitioner's tax refund to the RFC in partial satisfaction of the petitioner's outstanding balance on the loan. When the petitioner sued the United States in the Court of Claims to recover the tax refund, the United States filed a counterclaim for a setoff. In the Supreme Court, the petitioner argued that setoff was inappropriate because its debt was to the RFC, not to the United States Government.
The Supreme Court rejected the Company's argument, recognizing that the Government's right to setoff does not turn upon "whether the Government's interest has been entrusted to its agencies of one kind or another." With respect to the RFC, the Court observed that, like any other government agency, "all of its money comes from the Government; its profits, if any, go to the Government; its losses the Government must bear." Cherry Cotton Mills, 327 U.S. at 539, 66 S.Ct. at 730. Accordingly, the Supreme Court held that setoff was proper even though the Treasury Department and the RFC were separate and distinct agencies of the United States. See also Gratiot, 40 U.S. at 370 ("The United States possesses the general right to apply all sums due for such pay and emoluments, to the extinguishment of any balances due to them by the defendant, on any other account."); Malman v. United States, 202 F.2d 483 (2d Cir.1953) (United States properly setoff debt owed to plaintiff by Department of the Army against plaintiff's tax obligation to Treasury Department).
B. The United States Is A Unitary Creditor For Purposes of Setoff In Bankruptcy
The Bankruptcy Code recognizes and endorses the right to setoff in 11 U.S.C. § 553(a). That section provides, in pertinent part, as follows:
*73 [T]his title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case.
11 U.S.C. § 553(a). "This section does not itself create a right of setoff; rather, it merely preserves setoff rights that exist outside the bankruptcy context." Chateaugay, 94 F.3d at 777; accord Citizens Bank, 516 U.S. at 18, 116 S.Ct. at 288 ("Although no federal right of setoff is created by the Bankruptcy Code, 11 U.S.C. § 553(a) provides that, with certain exceptions, whatever right of setoff otherwise exists is preserved in bankruptcy."). The Government's right to interagency setoff outside the bankruptcy context is well settled; hence, that right was "preserved" in bankruptcy by Section 553(a).
The bankruptcy court below relied on Ionosphere. In that case, the court first decided that the fund which the Government sought to offset against was not "a debt owed to the Debtor" but rather was "owned by" Eastern, and therefore is not subject to offset. Ionosphere, 164 B.R. at 842. As an alternative ground for decision, the court declined to apply Cherry Cotton Mills to the bankruptcy context, and held instead that "one agency should not be able to setoff the claims and debts of another." Id. at 843. The court advanced three reasons to arrive at this conclusion. First, the court concluded that "a narrow interpretation of mutuality" is justified to prevent "preferential treatment of creditors," id. at 843, and therefore mutuality should be restricted to debts owed to and owing from a single agency. Second, the court interpreted the bankruptcy code section 101(27), which defined "governmental unit" as the "United States; State; . . . [or] department, agency, or instrumentality of the United States." The court concluded that this language compelled the result that "`Congress intended that [governmental] units be treated as distinguishable and therefore not the same creditor within the provisions of the statute.'" Id. at 843 (quoting Illinois v. Lakeside Community Hosp., Inc. (In re Lakeside Community Hosp., Inc., 151 B.R. 887, 891 (N.D.Ill.1993)). Finally, the court also pointed to evidence that "each of the departments and agencies . . . have distinct administrative structures" with "different rights and capacities vis a vis [the debtor])." Ionosphere, 164 B.R. at 843.
At the time of the 1994 decision in Ionosphere, however, Chief Judge Lifland did not have the benefit of the Second Circuit's decision in Chateaugay, which applied Cherry Cotton Mills in the bankruptcy context. In Chateaugay, the Second Circuit decided that the Government has a common-law right of interagency setoff, permitting the Government to offset a debt owed by one agency, the Department of Labor, against a tax refund owed by the Government. In that case, LTV Steel Corporation (the debtor) was a coal mine operator which was required, under federal law, to pay black lung disability benefits to its employees. Federal law also required coal mine operators such as LTV to either obtain insurance or to self-insure; employers who elected to self-insurer (such as LTV) were required to maintain a surety bond. In addition, federal law provided that the Department of Labor (the "DOL") would pay the benefits when the surety bond became exhausted, but gave the DOL the right to recoup such payments from the employer.
When LTV filed for bankruptcy, Aetna Casualty & Surety Co. (as LTV's surety) paid out black lung benefits until its bond was exhausted; thereafter, the DOL made the payments. In the bankruptcy court, both Aetna and the DOL filed proofs of claim against LTV, seeking to recover the black lung payments each made on behalf of LTV. Aetna filed proofs of claim on its own behalf (as subrogee to any claim the DOL might have) and on behalf of the DOL.
The IRS also filed proofs of claim against LTV in the bankruptcy court, claiming unpaid excise taxes. Although the IRS owed LTV $5.3 million in refunds, LTV's total liability to the IRS far exceeded that refund. As in the instant case, the amount of the debtor's liability to the IRS was the subject of a settlement agreement between the IRS and the Debtor. Aetna objected to that settlement, however, arguing that it had an interest in the tax refunds as subrogee to the *74 DOL. Specifically, Aetna argued that the DOL had a common-law right to offset the black lung payments owed by LTV to the DOL against the tax refund owed by the IRS to LTV; as the DOL's subrogee, Aetna claimed that right. The bankruptcy court and the district court disagreed, holding that the DOL had no common-law right in the tax refund.
The Second Circuit reversed. The narrow issue before the Court was whether the DOL possessed a right in bankruptcy to setoff amounts owed to the debtor by the IRS against amounts owed by the debtor to the DOL. Relying upon Cherry Cotton Mills and the Tenth Circuit's decision in Luther v. United States, 225 F.2d 495 (10th Cir.1954), the Second Circuit held that the "DOL possesses a common law right to setoff its nontax debts against tax refunds." Chateaugay, 94 F.3d at 779. Because Aetna was subrogated to the rights of the DOL, Aetna had an interest in the tax refunds.
The Ninth and Tenth Circuits have also applied Cherry Cotton Mills to the bankruptcy context and held that the agencies, departments and subdivisions of the United States Government constitute a single, unitary creditor for purposes of setoff in bankruptcy. See, e.g., Hal, Inc. v. United States (In re Hal, Inc.), 122 F.3d 851, 852-54 (9th Cir.1997) (Applying Cherry Cotton Mills, and holding that "the various agencies of the federal government constitute a single `governmental unit' for purposes of setoff under § 553 of the bankruptcy Code"); Turner v. Small Business Admin. (In re Turner), 84 F.3d 1294, 1299 (10th Cir.1996) (en banc) ("Because we hold that the United States is a unitary creditor in bankruptcy, it, like any other single creditor, should be entitled to offset any mutual debts it has involving multiple agencies in accordance with § 553.").
Chateaugay is controlling here. Accordingly, government agencies are a single unitary creditor entitled to setoff for purposes of § 553. This, however, does not dispose of the appeal. As discussed below, the right to setoff, although favored, is not absolute and, in the exercise of sound discretion, may be denied under compelling circumstances.
III. The Bankruptcy Court Erred To The Extent It Denied The Government's Setoff Motion As "Inequitable"
The Second Circuit has held:
The rule allowing setoff, both before and after bankruptcy, is not one that courts are free to ignore when they think application would be "unjust." It is a rule that has been embodied in every bankruptcy act the nation has had, and creditors . . . have long acted in reliance upon it.
New Jersey Nat'l Bank v. Gutterman (In re Applied Logic Corp.), 576 F.2d 952, 957-58 (2d Cir.1978) (emphasis added) (Friendly, J.). Thus, a court should enforce the remedy of setoff unless "compelling circumstances" require the disallowance of a setoff. Bohack Corp. v. Borden, Inc. (In re Bohack Corp.), 599 F.2d 1160, 1165 (2d Cir.1979); see also Scherling v. Chase Manhattan Bank (In re Tilston Roberts Corp.), 75 B.R. 76, 79 (S.D.N.Y.1987) ("The Second Circuit has repeatedly favored the allowance of setoffs and has noted specifically its reluctance to disturb the Bankruptcy Code's policy of allowing setoffs `unless compelling circumstances require it'") (citations omitted). Compelling circumstances may be present where there is a "serious and immediate threat to the debtor," Niagara Mohawk Power Corp. v. Utica Floor Maintenance, Inc. (In re Utica Floor Maintenance, Inc.), 41 B.R. 941, 944-45 (N.D.N.Y.1984), or where the creditor has engaged in criminal conduct or fraud. See Blanton v. Prudential-Bache Sec., Inc. (In re Blanton), 105 B.R. 321, 337-38 (Bankr. E.D.Va.1989) ("Most cases in which courts have exercised discretion to deny setoff outright have involved creditors who engaged in illegal or fraudulent conduct.").
The bankruptcy court cited several factors for exercising discretion to disallow the setoff. Most of these factors were based upon the erroneous conclusion that inter-agency setoff was not allowed as a matter of law. As discussed below, none of the remaining factors relied upon by the bankruptcy court amount to compelling circumstances in this *75 case. Accordingly, the exercise of discretion to disallow the setoff was improper.
A. Administrative Insolvency
Noting that the Debtor's estate is "administratively insolvent," Judge Blackshear reasoned that allowing a setoff of the Customs Refund against the IRS Claim would unfairly prefer the IRS over other unsecured creditors. The administrative insolvency of the Debtor's estate, however, does not necessarily render a setoff inequitable; indeed, Congress itself recognized that the allowance of setoff may be particularly appropriate where, as here, setoff would not interfere with a debtor's efforts to reorganize:
In a liquidation case, any setoff that occurs after the commencement of the case has no effect on the debtor. The amount that the creditor recovers through setoff will permit him to recover a higher percentage of his total claim than other creditors, but it will not interfere with the debtor's operation or business in any way, because the debtor has already gone out of business.
H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 183-84, reprinted in 1978 U.S.C.A.A.N. at 6144-45. Allowing a setoff in this case could not possibly have interfered with the operation of the Debtor's business since the Debtor's efforts at reorganization had already failed and the court had already approved the sale of the Debtor's assets.
B. Unfair Preference
The bankruptcy court also expressed the concern that a Customs-IRS setoff would unfairly prefer the IRS over other unsecured creditors. This, however, ignores the fact that inequality among creditors is inherent in the very nature of setoff. See Applied Logic, 576 F.2d at 957 (while the "dominant impulse" of bankruptcy is equal treatment of creditors, the "dominant impulse" of setoff "is inequality among creditors"); Scherling, 75 B.R. at 78-79 (remedy of setoff "is at odds with the dominant theme of the bankruptcy code's equal treatment of creditors").
Thus, the argument that setoff should be denied to avoid the inequity of preferential treatment is an argument against the very concept of setoff, not an argument against its application to the facts of this case. See New York County Nat'l Bank v. Massey, 192 U.S. 138, 24 S. Ct. 199, 48 L. Ed. 380 (1904) ("If this argument were to prevail, it would, in cases of insolvency, defeat the right to setoff recognized and enforced in the law, as every creditor of the bankrupt holding a claim against the estate subject to [setoff] receives a preference in the fact that, to the extent of the setoff, he is paid in full."). As one court explained:
Unsecured creditors generally have to settle for receiving a small percentage of the sum they are owed, sometimes as little as a few cents on the dollar. The creditor who asserts a setoff, by contrast, is paid 100% of its claim (at least up to the value of the setoff). This differential treatment contradicts the general policy of the bankruptcy laws, which is to treat the same class of creditors equally.
Whatever the merits of this argument, it is an argument against allowing setoffs in bankruptcy at all. We cannot give weight to such arguments, because section 553 makes it clear that Congress intended to preserve the right to a setoff.
Carolco Television Inc. v. Nat'l Broad. Co. (In re DeLaurentiis Entertainment Group, Inc.), 963 F.2d 1269, 1277 n. 18 (9th Cir.1992) (underline added; italics in original). Indeed, by granting the Government's motion to setoff the Customs Refund against the Customs Claim, the bankruptcy court itself accomplished such an "inequitable" result since Customs (i.e., merely another unsecured creditor) would be paid on its claim in full (out of the proceeds of the Customs Refund).
IV. The Settlement Agreement Is Consistent With The Setoff Right
Debtor contends that denial of the setoff is consistent with the terms of the Settlement Agreement entered into between the IRS and the Debtor, dated September 6, 1996, and approved by an order as amended of the bankruptcy court dated January 14, 1997. Debtor contends that the IRS was aware of the Customs Refund due to the Debtor throughout the span of the negotiations, *76 and that the IRS never indicated an intention to offset its claim against the Customs Refund.
Debtor, however, points to no term of the Settlement Agreement restricting the Government's right to setoff. Debtor concedes as much by acknowledging that the settlement negotiations solely addressed the liabilities of the Debtor to the IRS. Indeed, counsel for the Debtor conceded to Judge Blackshear during oral argument and in the opposition memorandum in the instant appeal that the Debtor had expressly refused to address setoff of the Customs Refund in the IRS Settlement Agreement, preferring instead to deal with that separate issue by motion.
The Debtor cites In re Holder, 182 B.R. 770, 776 (Bankr.M.D.Tenn.1995) to support their contention that setoff was properly denied in light of the Settlement Agreement reached between the Debtor and the IRS. In Holder, the bankruptcy court for the Middle District of Tennessee held that Customs had waived its right of setoff by entering into an agreement with the trustee settling its claim against the debtor (the "Agreed Order"). See Id. at 776. Specifically, the court found that Customs "consented [in the Agreed Order] to be bound to the Plan as a Class 18 claimant, and that it agreed that all distributions relative to its Class 18 claim were to be made only through the terms of the plan." Id. at 777 (bold in original; emphasis added). Because Customs had agreed to be paid on its claim only pursuant to the plan of reorganization, the court held that Customs had waived any right to recover on that claim by way of setoff. See id.
Here, in contrast, neither Customs nor the IRS has done anything that would waive the Government's right to retain the Customs Refund in partial satisfaction of the IRS Claim. Both the Settlement Agreement and the bankruptcy court's order approving the Settlement Agreement expressly provided that the IRS Claim would be an allowed claim. In addition, the order expressly and unequivocally provided that "the underlying liabilities to the IRS of the Debtors . . . are not extinguished." Furthermore, while the Agreed Order in Holder had expressly limited Customs to payments under the plan of reorganization, the order approving the Settlement Agreement in this case did not: To the contrary, it expressly provided that "if the Debtor fails to make any of the payments provided for in the Settlement Agreement, the Debtors . . . shall remain liable to the IRS to the extent of the unpaid balance. . . ." In short, nothing in the Settlement Agreement (or the order approving the Agreement) demonstrates an intent on the part of the IRS to waive its right to receive payment on its claims. Therefore, the Government did not waive its right of offset in the Settlement Agreement.
Accordingly, the Settlement Agreement does not preclude the Government from collecting the tax liability by retaining the Customs Refund.
Conclusion
For the reasons set forth above, the Order is reversed and the case is remanded for further proceedings.
It is so ordered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1887952/ | 360 F. Supp. 648 (1973)
Roman BLACK
v.
Joseph R. RIZZO, as Fire Commissioner of the City of Philadelphia, et al.
Civ. A. No. 72-1781.
United States District Court, E. D. Pennsylvania.
June 8, 1973.
*649 Benjamin Lerner and Richard L. Freeman, Jr., Philadelphia, Pa., for plaintiff.
Martin Weinberg, Philadelphia City Sol., by John M. McNally, Jr., First Deputy City Sol., Philadelphia, Pa., for defendants.
OPINION AND ORDER
HANNUM, District Judge.
Plaintiff, a uniformed fireman of the City of Philadelphia, challenges his suspension and dismissal from the Philadelphia Fire Department on the grounds that the Fire Department Personal Appearance Regulation[1] is unconstitutional on its face and as applied to him. Plaintiff claims that the regulation impermissibly interferes with his right to wear his hair in a manner, style and length which he chooses, as guaranteed by the due process clause of the Fourteenth Amendment, and his right of freedom of expression, as guaranteed by the First and Fourteenth Amendments. Plaintiff also claims that the Regulation is void for vagueness and that the procedures used by the defendants in suspending and dismissing him violated his right to procedural due process of law and his rights under applicable state law. Finally, plaintiff claims that the evidence shows that he was in compliance with the Regulation when he was suspended, and that the decision to the contrary was in violation of plaintiff's rights to due process and equal protection of the law, as guaranteed by the Fourteenth Amendment.
*650 Roman Black joined the Philadelphia Fire Department in October 1964. From that date until his suspension and dismissal in February 1972, he performed all of his duties as a Philadelphia fireman in a completely satisfactory manner. Somewhat more than three years prior to his dismissal, he began to wear his hair in a modified Afro or "Bush" style. On or about January 19, 1972, General Order No. 4, governing the "personal appearance" of firemen, was promulgated by the Fire Commissioner of the City of Philadelphia. At that time fireman Black was a member of Ladder Co. 17, Battalion 4. Shortly after reporting for work on January 28, 1972, he was informed by two of his superiors that the length of his hair did not conform to the requirements of General Order No. 4. He was thereafter ordered to comply with the regulation prior to reporting for his next duty date, three days hence. During that interval of time, fireman Black made an attempt to comply with the order by having his hair trimmed. Upon next reporting for duty, he was found by his superiors still to be in violation of the regulation and was placed on report. Consequently, as of February 1, 1972, he was suspended from further duty without pay. At a hearing before the Fire Board of Investigation on February 9, 1972, the determination that Black's appearance failed to comply with the regulation was affirmed. On February 10, the plaintiff was informed by Deputy Fire Commissioner Kite and Fire Board Personnel Officer, William McNulty, that should he comply with the regulation, he would be considered for reinstatement as a fireman. The plaintiff, however, declined the offer, maintaining that his hair style and length were then in conformance with the regulation. Consequently, on February 21, 1972, Black was dismissed from the Philadelphia Fire Department. Although he appealed both his suspension and dismissal to the Civil Service Commission, the appeal was denied on July 20, 1972 for the following reasons:
(a) Black's hair was not in compliance with the General Order.
(b) The General Order was sufficiently clear so that reasonable men should have no difficulty interpreting the required compliance.
(c) The Fire Department is a paramilitary institution in character and the General Order, as an integral element of discipline, was moderate, and therefore not unreasonable.
The present Complaint and Motion for a Preliminary Injunction followed the Commission's ruling. At a hearing thereafter, pursuant to the agreement of counsel and with the Court's approval, the plaintiff's motion for a preliminary injunction was consolidated with the trial on the merits as well as with the defendant's motion to dismiss the complaint. At the hearing, the plaintiff introduced into evidence various exhibits attached to the complaint, the notes of testimony from the Fire Board and Civil Service Commission hearings, and various pictures showing the plaintiff's appearance at the time of his suspension. The defendants offered no evidence. The case having been briefed and argued, it is before the Court for disposition.
Before passing on the merits, two preliminary issues deserve being mentioned. This suit has been brought pursuant to 42 U.S.C. § 1983, and 28 U.S.C. § 1331. Since there is no dispute that General Order #4 was promulgated under color of state law, there is no doubt that this Court has proper subject matter jurisdiction. Gere v. Stanley, 453 F.2d 205, 207-208 (3d Cir. 1971); Stull v. School Board of Western Beaver Junior-Senior High School, 459 F.2d 339, 341 (3d Cir. 1972). Likewise, because this case raises neither a question concerning the interpretation of unclear state law nor a matter of paramount interest to the state, it is also clear that the doctrine of abstention is not applicable. Gere v. Stanley, supra. There remain for resolution *651 the federal constitutional questions presented.
In order to resolve these questions, it is important to note at the outset that the plaintiff challenges the constitutionality of the Philadelphia Fire Department Regulation not as a citizen who has been unlawfully deprived of his right to wear his hair in a style, manner, and length which he chooses, but as a municipal employee who has been deprived of continued employment. Thus, the resolution of the question raised by the plaintiff commences with a determination of whether the defendants have the right to require compliance with the appearance regulation in question as a condition to the plaintiff's continued employment with the Philadelphia Fire Department, for "the theory that public employment which may be denied altogether may be subjected to any conditions, regardless of how unreasonable, has been uniformly rejected." Keyishian v. Board of Regents, 385 U.S. 589, 605-606, 87 S. Ct. 675, 685, 17 L. Ed. 2d 629 (1967); Pickering v. Board of Education, 391 U.S. 563, 568, 88 S. Ct. 1731, 1734, 20 L. Ed. 2d 811 (1968). As was said in Perry v. Sindermann, 408 U.S. 593, 92 S. Ct. 2694, 2697, 33 L. Ed. 2d 570 (1972), "[E]ven though a person has no `right' to a valuable governmental benefit and even though the government may deny him the benefit for any number of reasons, there are some reasons upon which the government may not act. It may not deny a benefit to a person on a basis that infringes his constitutionally protected interests . . . . Such interference with constitutional rights is impermissible." Since this is a case where an individual, as a public employee, alleges that a constitutionally protected interest is being infringed upon by a competing interest of a governmental body, as an employer, its resolution will turn upon a balancing of the respective interests asserted. The balancing test, rather than any other, is required because ". . . the State has interests as an employer in regulating . . . its employees that differ significantly from those it possesses in connection with regulation of . . . the citizenry in general." Pickering v. Board of Education, supra, 391 U.S. at 568, 88 S.Ct. at 1734; Commonwealth of Pennsylvania ex rel. Linda Rafferty v. Philadelphia Psychiatric Center, 356 F. Supp. 500 (E.D.Pa.1973).
To achieve the required balancing, it is first necessary to isolate and analyze the competing interests advanced by both parties.
Among other things, the plaintiff has argued that his interest in wearing his hair in a style, manner, and length of his choosing constitutes a constitutional right implicitly protected by the "liberty" assurance of the Due Process Clause of the Fourteenth Amendment. Stull v. School Board of Western Beaver Junior-Senior High School, 459 F.2d 339 (3d Cir. 1972); Massie v. Henry, 455 F.2d 779 (4th Cir. 1972); Gere v. Stanley, 453 F.2d 205 (3d Cir. 1971); Bishop v. Colaw, 450 F.2d 1069 (8th Cir. 1971); Richards v. Thurston, 424 F.2d 1281 (1st Cir. 1970); Seal v. Mertz, 338 F. Supp. 945 (M.D.Pa.1972); Martin v. Davison, 322 F. Supp. 318 (W.D.Pa. 1971). Given the substantial body of case law that has reached this conclusion, the Court is satisfied that the plaintiff has demonstrated the existence of such a constitutionally protected interest.[2] There being no dispute that *652 the Philadelphia Fire Department's requirement that fireman Black comply with General Order No. 4 infringes upon this constitutionally protected interest, what next must be considered is the interest sought to be promoted by the defendants.
Surprisingly, the Fire Department has chosen to advance a limited argument in support of its regulation. Simply stated, the defendants attempt to equate the fire department with the police department.
Because police forces have been recognized to be paramilitary organizations and therefore possess the power to regulate not only the dress but also the grooming of their members, the defendants advance the same argument on behalf of the fire department. The sole justification offered in support of such a parallel is that firemen, like policemen, are a uniformed force. In addition, because the power of a police department to regulate grooming has been justified on the basis, among others, that uniformity of appearance tends to instill public confidence, acceptance, and respect, and therefore maximized the effectiveness of the police in the performance of their duties, the defendants likewise advance the same argument on behalf of the fire department. The sole justification offered in support of this parallel is that "firemen are always on display and project an image to members of the public as protectors of their lives and property."[3] Because the fire department has never attempted to justify its regulation on the basis of safety, the question that remains before the Court is whether the two interests that have been asserted are valid, and, if so, whether they outweigh the interest asserted by the plaintiff.
In advancing the argument that the fire department should properly be considered a paramilitary organization the defendants do not posit the existence of a paramilitary interest as such. Instead, they seek to invoke a form of judicial restraint that has customarily been accorded to military matters. At the core of this practice of restraint is *653 the reluctance of the judiciary to interfere in matters of military authority involving discipline. The reason for this policy has its origin in this country's tradition of providing the military establishment with broad power to deal with its own personnel. Hunt v. Board of Fire Commissioners of Massapequa Fire District, 68 Misc. 2d 261, 327 N.Y. S.2d 36, 42 (Sup.Ct. 1971). In actuality, therefore, the Fire Department seeks judicial recognition of an interest in the maintenance of a military form of discipline over its members. Since such an interest, should its existence be recognized, borders upon an unqualified right to control individual appearance as well as behavior, there is little doubt that the right to regulate grooming would fall within its scope. This same interest as applied to a fire department was advanced in Hunt v. Board of Fire Commissioners of Massapequa Fire District, supra. But in that case as in this, never was it suggested why a military form of discipline is necessary to the effective operation of a fire department. And while this Court is willing to accept the fact that a fire department has a valid disciplinary interest in regulating the activities of its members during the performance of their training and firefighting activities, nowhere has it been suggested how the regulation of grooming would be reasonably related to the furtherance of such a qualified interest. Accordingly this Court holds that the Fire Department does not have a valid interest in the maintenance of a military form of discipline over its members and further that the qualified disciplinary interest it does possess does not encompass the regulation of grooming.
An analysis of the second interest advanced by the defendants brings much the same result. Because police are in constant contact with the public, Courts considering the question of whether police departments may properly regulate the grooming of their members have often relied upon more than such a department's interest in maintaining discipline. Because police are in constant contact with the public it has been held that a police department's regulation of grooming is reasonably related to the instillation of public confidence in the ability of police to perform their duties. The rationale would appear to be that the more neutral police appear to the public, the more readily they receive acceptance, cooperation, and respect, thus maximizing their effectiveness. See, e. g., Dwen v. Barry, 336 F. Supp. 487 (E.D. N.Y.1971); Greenwald v. Frank, 70 Misc. 2d 632, 334 N.Y.S.2d 680 (Sup.Ct. 1972). While the defendants argue that "firemen are always on display and project an image to members of the public as protectors of their lives and property," it is clear that the performance of their duties does not require the same kind or extent of public contact as is required of police. Thus, although this Court is willing to recognize the validity of the interest sought to be advanced, it cannot accept the argument that it is entitled to much weight.
Having reached the foregoing conclusion, and because the defendants have advanced no interest deserving of much weight, the question of balancing the respective interests of the parties is greatly simplified. Because the only valid interest advanced by the defendants is insubstantial, there is no need to gauge the weight to be afforded the constitutionally protected interest advanced by the plaintiff. The Court need only note that the plaintiff's interest, though constitutionally protected, is not overwhelming. Richards v. Thurston, 424 F.2d 1281, 1284 (1st Cir. 1970). For example, had the present appearance regulation been promulgated and justified in the interest of safety, there is little doubt that such an interest would be superior to the plaintiff's. See, e.g., Olszewski v. Council of Hempstead Fire Dept., 70 Misc. 2d 603, 334 N.Y.S.2d 504 (Sup.Ct. 1972). No such interest having been advanced, however, the plaintiff is entitled to reinstatement. Since the parties, at the hearing, agreed that if the plaintiff was entitled to reinstatement he was entitled to back pay as well, *654 the parties will have ten days to submit a final order to this Court covering the plaintiff's reinstatement and the amount of wages due him. In light of the Court's resolution of the plaintiff's substantive due process argument, it is unnecessary to consider the other federal constitutional questions that he has raised.
NOTES
[1] "PERSONAL APPEARANCE
* * * * *
b. Members shall have their hair properly cut and neatly trimmed. Hair on top of the head shall not be overly long and shall be combed or brushed in such a manner that it will remain clear of the forehead and not protrude beneath the band of the cap or helmet. Hair shall be neatly trimmed on the sides, and the back of the neck shall be kept trimmed in an even and tapered fashion. . . . If hair is worn in the Bush, Afro, Natural, or Freedom Style, it shall be worn in moderation. Hair shall be well trimmed and tapered on the neck, not touching shirt collar. Sides shall be well groomed or tapered so the hair doesn't protrude extremely from under the hat. If hair is combed, picked, blown out, or teased, it shall not exceed 1½ inch in height. . . .
c. Sideburns shall not extend below the middle of the ear and shall be kept neatly trimmed.
d. Beards, goatees, or extreme styles of any sort will not be tolerated."
* * * * *
[2] Since the application of a balancing test is dictated by Pickering v. Board of Education, supra, what appears to be an open question need not be resolved. The problem involves the uncertainty surrounding the weight to be accorded a personal right found to be implicit in the "liberty" protection of the Fourteenth Amendment. Originally, personal rights found to be protected by the "liberty" provision Fourteenth Amendment were afforded protection only from arbitrary interference by the state. See e. g., Pierce v. Society of Sisters, 268 U.S. 510, 534-535, 45 S. Ct. 571, 69 L. Ed. 1070 (1925); Meyer v. Nebraska, 262 U.S. 390, 399-400, 43 S. Ct. 625, 67 L. Ed. 1042 (1923).
In later cases certain personal rights found to be implicit within the "liberty" protection of the Due Process Clause of the Fourteenth Amendment have also been held to be "fundamental rights", thus requiring any state regulation to be justified by the showing of a "compelling" state interest. See e. g., Griswold v. State of Connecticut, 381 U.S. 479, 486, 493, 502-503, 85 S. Ct. 1678, 14 L. Ed. 2d 510 (1965); Roe v. Wade, 410 U.S. 113, 93 S. Ct. 705, 35 L. Ed. 2d 147 (1973).
Whether all rights found to be implicitly protected by the Constitution are "fundamental" is an open question. Recently, while considering the question of whether the right to education was "fundamental", the Supreme Court, in San Antonio Independent School District v. Rodriguez, 411 U.S. 1, 93 S. Ct. 1278, 36 L. Ed. 2d 16 (1973), made the following statement:
"The key to discovering whether education is "fundamental" is not to be found in comparisons of the relative societal significance of education as opposed to subsistence or housing. Nor is it to be found by weighing whether education is as important as the right to travel. Rather, the answer lies in assessing whether there is a right to education explicitly or implicitly guaranteed by the Constitution. (Citations omitted)." 411 U.S. at 33, 93 S.Ct. at 1297.
At least one court has construed this language to mean that any right found either implicitly or explicitly protected by the Constitution is a "fundamental" right. Republican College Council of Pennsylvania v. Winner, 357 F. Supp. 739 (E.D.Pa.1973).
For the purposes of this opinion, however, it is unnecessary to resolve the question of whether the governance of the length and style of one's hair is a "fundamental" right. It is sufficient that the plaintiff has demonstrated the existence of a constitutionally protected right that is being infringed upon by his governmental employer. Since, outside the employer-employee relationship, such a right, at a minimum is afforded protection against state regulation that fails to bear a reasonable relation to a legitimate state interest, it is unnecessary, for the purpose of applying a balancing test, to consider whether the government interest must contain compelling elements.
[3] Defendants' Trial Brief, 5. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2098962/ | 948 F. Supp. 1301 (1996)
Daisy WASHINGTON, Plaintiff,
v.
CITY OF CLEVELAND, et al., Defendants.
No. 1:95 CV 1762.
United States District Court, N.D. Ohio, Eastern Division.
December 16, 1996.
*1302 *1303 *1304 Rebecca L. Todt, Daniel T. Todt, Law Offices of Daniel T. Todt & Associates, Cleveland, OH, for plaintiff.
Sharon Sobol Jordon, Joseph J. Jerse, Corinne B. Katz, City of Cleveland, Department of Law, Cleveland, OH, for defendants.
MEMORANDUM OF OPINION
NUGENT, District Judge.
This case is before the Court upon Defendant's Motion for Summary Judgment (Doc. # 39). Plaintiff has filed her Response to Defendant's Motion (Doc. # 49). On September 4, 1996, this Court held a status conference on Defendant's Motion. Arguments by counsel have been heard and the matter is now fully submitted and ripe for decision by this Court.
I. FACTS
Plaintiff, Daisy Washington, a black female, was hired as a security officer in the Cleveland Public Utilities Police, Division of Water, on September 28, 1992. Plaintiff's initial term with the Division of Water was a 90-day probationary period. At the time she began her employment, the Chief of Security for the Division of Water was Defendant, Mr. Willie "Bob" Chambers, a white male. Defendant, Mr. Kenneth Haynes, was a Lieutenant in the Division of Water and later promoted to Acting Chief.
Plaintiff alleges that Defendant Chambers has a long standing and on-going pattern of sexual discrimination against Plaintiff. (Compl. ¶ 3, 10). For instance, Plaintiff alleges that Defendant Chambers continuously propositioned her for sex from the outset of her employment with the Department of Water. Specifically, Plaintiff alleges that Defendant Chambers would constantly rub against her and look down her blouse. (Compl. ¶ 7). Plaintiff also alleges that Defendant Chambers made sexual comments and innuendos and constantly inquired about what he perceived as a relationship between Plaintiff and her training officer. (Compl. ¶ 8). In addition to his sexually related comments, Plaintiff alleges that Defendant Chambers made various racial comments regarding black women and interracial relations, in general. (Compl. ¶ 9, 13). At one point, Plaintiff alleges that Defendant stated "since you like white guys, why not try me out." (Compl. ¶ 9).
On January 26, 1993, Plaintiff filed a charge of discrimination with the Equal Employment Opportunity Commission ("EEOC"). In her charge, Plaintiff alleged that Defendant Chambers discriminated against her due to her race and sex in violation of Title VII. On April 14, 1993, Plaintiff filed another charge with the EEOC claiming that Defendant Chambers had retaliated against her for filing the January 26, 1993 charge. Plaintiff alleged that this retaliation was in the form of threats as well as assignments given to her for which she was not trained.
Plaintiff's first and second counts dovetail with her third and fourth counts. Plaintiff alleges that she was maliciously prosecuted and slandered because she spurned Defendant Chambers' sexual advances. These counts stem from a criminal action undertaken against Plaintiff as a result of a motor vehicle accident she was involved in while driving a Division of Water Chevrolet Blazer. On October 6, 1994, Plaintiff reported that she had been rear-ended by a hit-skip driver. Upon reviewing the damage to the Blazer, Defendant Lieutenant Haynes determined that the damage was inconsistent with the report filed by Plaintiff. Defendant Haynes consulted with an officer of the Cleveland Police Department's Accident Investigation Unit, Bruce Leaks. After a review of this situation, it was Mr. Leaks opinion that the accident had not occurred as the Plaintiff claimed. Rather, the Defendants believed that the marks were made by backing into a Service Entrance loading dock. Therefore, the Defendants sought criminal charges against Plaintiff for filing a false report.
The matter was referred to a City of Cleveland Prosecutor who in turn referred it for review by the Cuyahoga County Prosecutor's office. The County Prosecutor presented *1305 the case to the Cuyahoga County Grand Jury, which returned indictments against the Plaintiff on one felony count each of tampering with evidence and tampering with records. At the conclusion of the State's case against her Cuyahoga County Common Pleas Judge Patricia A. Cleary dismissed the charges finding that there was no evidence submitted to show that the city was actually defrauded by Plaintiff's actions. On December 7, 1994, Plaintiff filed her third and final charge with the EEOC. In this charge, Plaintiff alleged that the criminal investigation into her automobile accident was in retaliation for filing her prior charges.
Plaintiff filed the present action on July 13, 1995 in the Cuyahoga County Court of Common Pleas. On August 10, 1995, the Defendant filed its notice of removal of the action to the United States District Court for the Northern District of Ohio. Plaintiff's Complaint sets forth five counts. This Court dismissed the Fifth count via marginal entry order on May 7, 1996. (See Doc. # 6). Therefore, the four remaining counts are as follows: 1) Sexual Harassment in violation of OHIO REV.CODE ANN. § 4112.02; 2) Race and Sex Discrimination in Violation of Title VII; 3) Malicious Prosecution; and 4) Slander Per Se.
Defendant has moved this Court for summary judgment on all of Plaintiff's claims.
II. SUMMARY JUDGMENT STANDARD
In determining whether summary judgment is to be granted, the court must consider only that evidence which is properly before it. Summary judgment is appropriate where the court is satisfied "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED.R.CIV.P. 56(c). The burden of showing the absence of any such "genuine issue" rests with the moving party:
[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of `the pleadings, depositions answers to interrogatories, and admissions on file, together with affidavits, if any,' which it believes demonstrates the absence of a genuine issue of material fact.
Celotex v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986) (citing FED.R.CIV.P. 56(c)). The court will view the summary judgment motion "in the light most favorable to the party opposing the motion." U.S. v. Diebold, Inc., 369 U.S. 654, 655, 82 S. Ct. 993, 994, 8 L. Ed. 2d 176 (1962), see also U.S. v. Hodges X-Ray, Inc., 759 F.2d 557, 562 (6th Cir.1985).
Summary judgment should be granted if a party who bears the burden of proof at trial does not establish an essential element of their case. Tolton v. American Biodyne, Inc., 48 F.3d 937, 941 (6th Cir.1995) (citing Celotex, 477 U.S. at 322, 106 S. Ct. at 2552). Accordingly, "[t]he mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Copeland v. Machulis, 57 F.3d 476, 478 (6th Cir.1995) (quoting Anderson v. Liberty Lobby, 477 U.S. 242, 248-49, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986)). Moreover, if the evidence presented is "merely colorable" and not "significantly probative," the court may decide the legal issue and grant summary judgment. Anderson, 477 U.S. at 249-50, 106 S. Ct. at 2511 (citation omitted).
Once the moving party has satisfied its burden of proof, the burden then shifts to the nonmover. The nonmoving party may not simply rely on its pleadings, but must "produce evidence that results in a conflict of material fact to be solved by a jury." Cox v. Kentucky Department of Transportation, 53 F.3d 146, 149 (6th Cir.1995).
In sum, proper summary judgment analysis entails:
"... the threshold inquiry of determining whether there is the need for a trial whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party."
Anderson, 477 U.S. at 250, 106 S. Ct. at 2511.
III. MALICIOUS PROSECUTION AND SLANDER PER SE
The third and fourth counts for malicious prosecution and slander per se, respectively, *1306 stem from the Plaintiff's indictment on two charges of tampering with evidence and tampering with records. Defendant argues that it is entitled to summary judgment on both of these counts as a matter of law. Defendant claims that the City of Cleveland is immune from the Plaintiff's claims under OHIO REV. CODE ANN. § 2744, which restored governmental immunity to municipal corporations subject to certain exceptions. OHIO REV. CODE ANN. § 2744.02(A)(1) provides, in part as follows:
"* * * Except as provided in division (B) of this section, a political subdivision is not liable in damages in a civil action for injury, death, or loss to persons or property allegedly caused by an act or omission of the political subdivision or an employee of the political subdivision in connection with a governmental or proprietary function."
The qualified-immunity provisions of OHIO REV.CODE ANN. § 2744.03(A)(5), as relevant here, shield Defendants from liability under the following conditions:
"The political subdivision is immune from liability if the injury, death, or loss to persons or property resulted from the exercise of judgment or discretion in determining whether to acquire, or how to use, equipment, supplies, materials, personnel, facilities, and other resources, unless the judgment or discretion was exercised with malicious purpose, in bad faith, or in a wanton or reckless manner."
The investigation of possible fraud in the filing of Plaintiff's damage report was a police service and an exercise of a governmental function. OHIO REV.CODE ANN. § 2744.01(C)(2)(a) and (i). Therefore, Defendants are immune from suit in the exercise of this function absent evidence that the investigation was undertaken with a malicious purpose or in a wanton or reckless manner.
A. Malicious prosecution
Malicious prosecution and abuse of process are state torts involving a misuse of the legal process. In Crawford v. Euclid National Bank, 19 Ohio St. 3d 135, 483 N.E.2d 1168 (1985) the Ohio Supreme Court held that to establish the tort of malicious prosecution, a plaintiff must prove the following elements: 1) the malicious institution of a prior proceeding against the plaintiff by the defendant; 2) the lack of probable cause for the filing of that prior suit; 3) the termination of that prior proceeding in the plaintiff's favor; 4) the seizure of the plaintiff's person or property during the course of the prior proceeding; and 5) injury or damages suffered by plaintiff as a result. Probable cause exists when a defendant had a reasonable ground of belief, supported by trustworthy information and circumstances known to the defendant which would be sufficiently strong to cause a reasonably careful person, under similar circumstances, to believe that the prior proceedings and method of presenting the action were reasonable and lawful. Melanowski v. Judy, 102 Ohio St. 153, 156, 131 N.E. 360 (1921), citing Ash v. Marlow, 20 Ohio 119 (1951); see also, Epling v. Pacific Intermountain Express Co., 55 Ohio App. 2d 59, 379 N.E.2d 239 (1977). A person has probable cause to believe and act if a reasonable person would have so believed and acted. Id.
In the present case, Plaintiff claims that the Defendant's initiation of the investigation into her accident report was a direct result of her spurning Defendant Chambers' sexual advances. However, Plaintiff has presented no evidence to support this allegation. On the contrary, Defendant has presented the affidavit of Lieutenant Haynes and the deposition of Mr. Leaks, the investigator. Both of these men state that the damage was inconsistent with the accident account given by Ms. Washington. Plaintiff has not presented any evidence to refute the opinions set forth in these affidavits. Moreover, the matter was referred to both the City and County prosecutors offices. Only after these offices reviewed the evidence was the matter submitted to the grand jury. Upon completion of the grand jury's investigation, an indictment was returned.
The return of an indictment by the grand jury is evidence of probable cause; when an indictment has been returned by the grand jury, the plaintiff has the burden of producing substantial evidence to establish lack of probable cause. Deoma v. Shaker Heights (1990), 68 Ohio App. 3d 72, *1307 587 N.E.2d 425; Adamson v. The May Co., 8 Ohio App. 3d 266, 268, 456 N.E.2d 1212 (1982). Plaintiff must produce evidence to the effect that the return of the indictment resulted from perjured testimony or that the grand jury proceedings were otherwise significantly irregular. Deoma, 68 Ohio App.3d at 77, 587 N.E.2d 425. Plaintiff has presented no such evidence. The evidence submitted before this Court shows that the initiation of the prosecution of the Plaintiff resulted from a reasonable belief that she had filed a false accident report. Plaintiff has presented no evidence of malice or ill will on the part of the Defendants. Therefore, summary judgment is GRANTED on Plaintiff's claim for malicious prosecution as the Defendant is entitled to immunity pursuant to OHIO REV.CODE ANN. § 2744.01(C)(2)(a).
B. Slander per se
For the reasons that follow, Plaintiff's claim for slander per se must also fail. Slander per se is slander by the very meaning of the words used. Statements which import an indictable criminal offense involving moral turpitude or infamous punishment, impute a loathsome or contagious disease which excludes one from society or injures one in his trade or occupation are slanderous per se. McCartney v. Oblates of St. Francis deSales (1992), 80 Ohio App. 3d 345, 353, 609 N.E.2d 216. In the present case, Plaintiff claims injury to her work and reputation as a result of her prosecution. The malice which is presumed in a case of slander per se is "express malice" and "consists of an express design to injure, based upon ill will, hatred, revenge or reckless disregard of the rights of another." Thomas H. Maloney & Sons, Inc. v. E.W. Scripps Co. (1974), 43 Ohio App. 2d 105, 108, 334 N.E.2d 494.
As previously stated, Plaintiff has presented no evidence to show any malice or ill will in the decision to investigate and prosecute her for the accident report. On the contrary, an impartial body, the grand jury found probable cause existed to indict the Plaintiff. Therefore, summary judgment is GRANTED on Plaintiff's claim for slander per se as Defendants are entitled to immunity pursuant to OHIO REV.CODE ANN. § 2744.01(C)(2)(a).
IV. RACE AND SEXUAL DISCRIMINATION
Plaintiff's first and second counts set forth allegations of racial and sexual harassment on the part of her supervisor and employer in violation of OHIO REV.CODE ANN. § 4112.02 and Title VII.[1] Under federal law, Title VII of the Civil Rights Act of 1964 forbids discrimination "with respect to compensation, terms, conditions or privileges of employment because of [an] individual's ... race, sex ..." 42 U.S.C. § 2000e-2(a)(1). Plaintiff's Title VII claims are premised upon both quid pro quo and hostile environment theories of discrimination.[2] The Supreme Court of Ohio has held that "federal case law interpreting Title VII of the Civil Rights Act of 1964, Section 2000e et seq., Title 42, is generally applicable to cases involving alleged violations of OHIO REV.CODE ANN. § 4112." Plumbers & Steamfitters Joint Apprenticeship Commt. v. Ohio Civil Rights Comm. (1981), 66 Ohio St. 2d 192, 196, 421 N.E.2d 128.
A. Quid pro quo harassment
To prevail under a quid pro quo theory, a plaintiff must assert and prove: 1) that the employee was a member of a protected class; 2) that the employee was subjected to unwelcomed sexual harassment in the form of sexual advances or requests for *1308 sexual favors; 3) that the harassment complained of was based on sex; 4) that the employee's submission to the unwelcomed advances was an express or implied condition for receiving job benefits or that the employee's refusal to submit to the supervisor's sexual demands resulted in a tangible job detriment; and 5) the existence of respondeat superior liability. Kauffman v. Allied Signal, Inc., 970 F.2d 178, 186 (6th Cir.1992); (quoting, Highlander v. KFC Nat'l Management Co., 805 F.2d 644, 648 (6th Cir.1986)). For purposes of summary judgment, the existence of the first three elements cannot be argued. Plaintiff is a black female who alleges that she was verbally and physically harassed as a result of her sex. However, plaintiff fails to present a genuine issue of material fact on the fourth element.
The Sixth Circuit has stated that under quid pro quo harassment a job detriment could be non-economic as well as economic in nature. Kauffman, at 187 (remanding on basis that a transfer to a different machine, while not economically detrimental, could be non-economically detrimental). Plaintiff contends that the job detriment she experienced was the extension of her 90-day probationary period.
In the present case, nowhere within the evidence presented to this Court has Plaintiff shown a job detriment, either non-economic or economic, as a result of the alleged harassment. The evidence presented clearly shows that the extension of Plaintiff's probationary period was a result of her initial failure of the state firearm proficiency test. Plaintiff has presented no evidence to refute this legitimate non-discriminatory reason for her probationary extension. Nor has Plaintiff shown any job detriment in any other form. On the contrary, Defendant has presented evidence that Plaintiff has continued to advance in her department and career. Therefore, as a matter of law Defendant's Motion for Summary Judgment is GRANTED on Plaintiff's quid pro quo theory of harassment.
B. Hostile work environment
Plaintiff's complaint sets forth allegations of a hostile work environment based upon sex and race discrimination. The elements and burdens upon the Plaintiff are the same regardless of the discrimination context in which the claim arises. Crawford v. Medina Gen. Hosp., 96 F.3d 830, 834 (6th Cir.1996); Risinger v. Ohio Bur. of Workers' Compensation, 883 F.2d 475 (6th Cir.1989).
To prevail in a claim of "hostile work environment" sexual harassment, the Plaintiff must assert and prove that: (1) she was a member of a protected class; (2) she was subjected to unwelcome sexual harassment in the form of sexual advances, requests for sexual favors, or other verbal or physical conduct of a sexual nature; (3) the harassment complained of was based upon sex; (4) the charged sexual harassment had the effect of unreasonably interfering with the Plaintiff's work performance and creating an intimidating, hostile, or offensive working environment; and (5) the existence of respondeat superior. Fleenor v. Hewitt Soap Co., 81 F.3d 48, 49 (6th Cir.1996); Kauffman, supra. The existence of the first three elements of this test has already been discussed by this Court in regard to Plaintiff's quid pro quo claim of harassment. Supra. Therefore, the Court's analysis will be limited to the fourth and fifth elements.
For the Plaintiff to satisfy the fourth element of her hostile work environment claim, she must present evidence that the workplace was "permeated with discriminatory intimidation, ridicule, and insult that is sufficiently severe or pervasive to alter the conditions of the victim's employment and create an abusive working environment." Harris v. Forklift Systems, Inc., 510 U.S. 17, 21, 114 S. Ct. 367, 370, 126 L. Ed. 2d 295 (1993), (quoting Meritor Savings Bank, FSB v. Vinson, 477 U.S. 57, 67, 106 S. Ct. 2399, 2405, 91 L. Ed. 2d 49 (1986)). "A party seeking summary judgment bears the initial burdens of specifying the basis upon which it contends judgment should be granted and of identifying that portion of the record which, in its opinion, demonstrates the absence of a genuine issue of material fact." Pierce v. Commonwealth Life Ins. Co., 40 F.3d 796, 800 (6th Cir.1994). "Whether harassment is sufficiently severe or pervasive to create an abusive work environment is `quintessentially *1309 a question of fact.'" Crawford, 96 F.3d at 835; (quoting Amirmokri v. Baltimore Gas & Elec. Co., 60 F.3d 1126, 1130-31 (4th Cir. 1995)). Whether an environment is hostile or abusive can be determined by looking at "the frequency of the discriminatory conduct; its severity; whether it is physically threatening or humiliating, or a mere offensive utterance; and whether it unreasonably interferes with an employee's work performance." Harris, 510 U.S. at 23, 114 S. Ct. at 371. Furthermore, the actions complained of must have "created an objectively hostile or abusive work environment an environment that a reasonable person would find hostile or abusive." Scott v. Central School Supply, 913 F. Supp. 522, 529 (E.D.Ky.1996) (quoting Harris, 510 U.S. at 21, 114 S. Ct. at 370).
The Plaintiff has presented evidence that she was continuously propositioned and exposed to various unwelcomed comments and touching in regard to both her sex and race. The evidence presented shows that these incidents were not random or isolated but continued over an extended period of time. Moreover, the alleged initiator of these incidents was the supervisor of Plaintiff, Defendant Chambers. In Pierce, supra, the Sixth Circuit held, at 803, that:
In supervisor sexual harassment cases, an individual who is acting as an employer's "agent" is deemed the alter ego of the employer and the employer is liable for his unlawful employment practices without regard to whether the employer actually knew (or should have known) of the individuals conduct.
Upon an allegation of supervisory sexual harassment, an employer can negate its liability if it responds adequately and effectively. Id., at 803; see also, Fleenor, 81 F.3d at 50. In the present case, Plaintiff brought an EEOC charge as early as January, 1993. This charge was clearly premised upon race and sex. Plaintiff has set forth evidence of harassment by Defendant Chambers that continues well into 1994.[3]
Construing the evidence in a light most favorable to the Plaintiff there remains a genuine issue to be resolved by the trier of fact whether Plaintiff's workplace was so permeated with discriminatory intimidation, ridicule and insult so as to "alter the conditions of plaintiff's employment" and "create an abusive working environment." Therefore, genuine issues of material fact exist as to whether the actions complained of amounted to Plaintiff being subjected to a hostile work environment on the basis of race and sex.
Accordingly, Defendant's Motion for Summary Judgment is DENIED as it pertains to Plaintiff's allegations of the creation of a hostile work environment on the basis of race and sex in violation of Title VII and OHIO REV.CODE ANN. § 4112.
V.
Therefore, Defendant's Motion for Summary Judgment (Doc. #39) on Plaintiff's Count One and Two is GRANTED as it pertains to Plaintiff's claims of quid pro quo harassment and DENIED as it pertains to Plaintiff's claims of being subjected to a hostile work environment on the basis of race and sex. Defendant's Motion for Summary Judgment (Doc. #39) is GRANTED on Count Three and Four of Plaintiff's Complaint.
IT IS SO ORDERED.
NOTES
[1] This Court must note, as Defendant states in its' Motion for Summary Judgment, that the Plaintiff's claims of harassment based upon race and sex are less than artfully pled. However, they are pled in a manner sufficient enough to satisfy the liberal pleading requirements of FED. R.Civ.P. 8.
[2] Plaintiff's Complaint seeks damages from Defendant Chambers in both his individual and official capacities. (Compl. ¶ 3) This Court has previously held that individual liability does not exist under Title VII. See, Czupih v. Card Pak Inc., 916 F. Supp. 687, 691 (N.D.Ohio 1996). Accordingly, summary judgment is GRANTED on Plaintiff's claims of harassment brought against Defendant Chambers in his individual capacity. As such, this Court will continue with its analysis of the motion in regard to Defendant Chambers in his official capacity.
[3] Neither the complaint, nor Plaintiff's response motion, state any actions undertaken by Lieutenant Haynes that are in any manner inappropriate and actionable. Furthermore, Plaintiff has presented no evidence to support any allegations against Lieutenant Haynes. Therefore, summary judgment is GRANTED in regard to all actions against Lieutenant Haynes. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1888994/ | 603 F. Supp. 2d 417 (2009)
Katherine J. LEE, Plaintiff,
v.
CITY OF SYRACUSE; City of Syracuse Police Department; Chief of Police Dennis Duval, in his Individual and Official Capacity; Former Chief of Police John Falge, in his individual and official capacity; Michael Kerwin, in his individual and official capacity; Mark McArdle, in his individual and official capacity; Captain Pugh, in his individual and official capacity; Dan Boyle, in his individual *418 and official capacity; Deputy Chief Hanna, in his individual and official capacity; John Kaufman, in his individual and official capacity; Captain Thomas Galvin, in his individual and official capacity, Defendants.
Katherine J. Lee, Plaintiff,
v.
City of Syracuse; City of Syracuse Police Department; Chief of Police Gary Miguel, in his Individual and Official Capacity; Steven Thompson, in His Individual Capacity; Michael Kerwin, in His Individual and Official Capacity; Captain Thomas Galvin, in His Individual and Official Capacity; Michael Rathbun, In His Individual Capacity; Richard Douglas, In His Individual and Official Capacity; and Michael Heenan, In His Individual and Official Capacity, Defendants.
Nos. 5:03-CV-1329 (Suit I), 5:06-CV-949 (Suit II).
United States District Court, N.D. New York.
March 25, 2009.
*423 Bosman Law Office, A.J. Bosman, Esq., of counsel, Rome, NY, for Plaintiff.
Corporation Counsel City of Syracuse, Joseph Francis Bergh, Esq., Robert P. Stamey, Esq., of counsel, Syracuse, NY, for Defendants.
Hancock, Estabrook Law Firm, John G. Powers, Esq., Lindsey H. Hazelton, Esq., of counsel, Syracuse, NY, for Defendant Douglas.
MEMORANDUM-DECISION and ORDER
DAVID N. HURD, District Judge.
I. INTRODUCTION
TABLE OF CONTENTS
I. INTRODUCTION .............................................................. 424
II. FACTS ..................................................................... 425
III. DISCUSSION ................................................................ 429
A. Summary Judgment Standard .............................................. 429
B. Statement of Material Facts ............................................ 430
C. City of Syracuse Police Department (Suits I and II) .................... 431
D. Title VII (Suit II) .................................................... 432
1. Individual Liability ................................................ 432
2. Gender Discrimination (First Cause of Action in Suit II) ............ 432
a. Overtime Assignment .............................................. 433
b. Use of Work-Time to Attend Appointments .......................... 433
c. Discipline for Violation of SPD Rules ............................ 433
3. Retaliation (Third Cause of Action in Suit II) ...................... 435
4. Hostile Work Environment (Second Cause of Action in Suit II) ........ 437
E. Americans with Disabilities Act (Fourth Cause of Action in Suit I) ..... 439
1. Individual Liability ................................................ 439
2. Title I Claim ....................................................... 439
3. Title II Claims ..................................................... 441
F. Section 1983 (Suits I and II) .......................................... 441
1. Equal Protection Claims (Sixth Cause of Action in Suit I and
Fourth and Fifth Causes of Action in Suit II) ...................... 442
2. Conspiracy (Tenth Cause of Action in Suit II) ....................... 442
3. First Amendment (Seventh Cause of Action in Suit I and Fourth
and Ninth Causes of Action in Suit II) ............................ 442
a. Individual Defendants and Qualified Immunity ..................... 443
b. Municipal Liability .............................................. 444
G. Equal Pay Act (Second Cause of Action Suit I and Sixth Cause of
Action Suit II) ...................................................... 444
*424
H. New York Human Rights Law (Fifth Cause of Action in Suit I and
Seventh Cause of Action in Suit II) .................................. 445
1. Notice of Claim Requirement for NYHRL Claims ........................ 445
2. Standard of Review and Statute of Limitations for NYHRL Claims ...... 445
3. Gender Discrimination ............................................... 446
a. Overtime Assignments ............................................. 446
b. Seizure of Plaintiff's Weapon .................................... 446
c. Medical Evaluations and Request for Medical Records .............. 446
d. Disciplinary Actions Taken Towards Plaintiff ..................... 447
4. Retaliation Claims (Suit II) ........................................ 447
5. Hostile Work Environment Claim (Suit II) ............................ 447
6. Individual Defendants ............................................... 447
7. Work Environment, Retaliation, and Disability Discrimination
(Suit I) ........................................................... 447
I. Breach of Contract Claim (Eighth Cause of Action in Suits I and II) .... 447
IV. CONCLUSION ................................................................ 448
Plaintiff Katherine Lee ("plaintiff"), a police officer with the Syracuse Police Department ("SPD"), commenced actions on October 31, 2003 ("Suit I" or "5:03-CV-1329") and August 4, 2006 ("Suit II" or "5:06-CV-949") against the City of Syracuse, the SPD, and a number of plaintiff's supervisors and fellow employees.[1] Defendants City of Syracuse, the SPD, Michael Kerwin, and Thomas Galvin are sued in both actions. Defendants John Falge, Mark McArdle, Captain Ronald Pugh, Daniel Boyle, Deputy Chief Hanna, John Kaufman, and Dennis Duval are named in Suit I only. Defendants Gary Miguel, Steve Thompson, Michael Rathbun, Richard Douglas,[2] and Michael Heenan are named in Suit II only. Plaintiff's claims were brought pursuant to Title VII of the Civil Rights Acts of 1964 and 1991, the Americans with Disabilities Act, the Equal Pay Act, 42 U.S.C. § 1983, the New York Human Rights Law ("NYHRL"), and state common law.
Plaintiff's Title VII claims for discrimination and retaliation in Suit I were dismissed. See Lee v. City of Syracuse, No. 5:03-CV-1329, slip op. at 6-9 (N.D.N.Y. Feb. 15, 2005), Dkt. No. 33 (dismissing plaintiff's first and third causes of action). Defendants move for summary judgment pursuant to Federal Rule of Civil Procedure 56 for the remaining claims in Suit I. Defendants also move for summary judgement for all causes of action in Suit II. Plaintiff opposes defendants' motions.[3] Oral arguments were heard on February 8, 2008 for Suit I and on June 13, 2008 for Suit II. Decision was reserved for both motions. Because these actions involve common questions of law and fact, they are now consolidated pursuant to Federal Rule of Civil Procedure 42(a). The extensive *425 discovery involved in these two suits, the number of causes of actions, and deficient citations to the record have caused the delay in issuing this opinion.
II. FACTS
Plaintiff is a member of the SPD and has been employed there since 1989. Plaintiff was on medical leave from November 15, 2000 until May 28, 2001. Plaintiff returned to work in May 2001 and remained on light duty until September 2002. On September 26, 2002, plaintiff was placed on administrative leave. Plaintiff remained on administrative leave until June 2003 when she returned to full-duty. On September 1, 2006, plaintiff was placed on medical leave for neck and back injuries related to an on-duty car accident that occurred in May of 2004, and although still employed as an SPD police officer, she has not returned to work as stated in her affidavit dated January 22, 2008. As a police officer, plaintiff was paid at the same wage rate as other police officers of the same rank and experience. Plaintiff was also paid when she was on medical and administrative leave, although she could not work overtime when she was on leave because her secondary work permits were revoked.
On November 11, 2000, a physical altercation occurred between plaintiff and defendant Kaufman in the Town of La Fayette while they were off-duty. Plaintiff called the New York State Police but did not have defendant Kaufman arrested. Plaintiff was transferred from the Second Platoon to the First Platoon on November 14, 2000. On November 15, 2000, plaintiff was relieved of her gun. That same day, plaintiff was examined by Dr. Saundra Barnett-Reyes, a private psychiatrist. Dr. Barnett-Reyes found plaintiff incapacitated due to depression and anxiety secondary to domestic assault. Dr. Barnett-Reyes sent a facsimile to the Personnel Division stating that plaintiff should remain on medical leave from November 15, 2000 until November 29, 2000. On November 28, 2000, Dr. Barnett-Reyes sent another letter to the Personnel Division stating that plaintiff should remain on medical leave until January 2, 2001. On December 27, 2000, Dr. Barnett-Reyes faxed a third letter to the Personnel Division stating that plaintiff should not return to work until February 1, 2001. In January 2001, Dr. Barnett-Reyes suggested plaintiff seek a second opinion from Dr. Norman J. Lesswing, a private licensed clinical psychologist. Defendant SPD agreed to this examination and plaintiff was evaluated by Dr. Lesswing.
On January 19, 2001, Dr. Barnett-Reyes wrote a letter to the Personnel Division stating that plaintiff could return to work on February 1, 2001. She also stated that plaintiff should work light duty and only during the day. Dr. Lesswing agreed that this was a reasonable accommodation for plaintiff. Dr. Barnett-Reyes's letter did not include any test results or documentation regarding plaintiff's status. Sergeant Susan Adams and Captain John Agne contacted plaintiff and asked her to release her records from Dr. Lesswing. Plaintiff did not release Dr. Lesswing's psychological tests. Because defendants regarded the information provided by Dr. Barnett-Reyes as insufficient to make a determination as to plaintiff's capacity to return to work, they had Dr. David Simon, a physician from the police department, interview plaintiff. Dr. Barnett-Reyes sent another letter on January 30, 2001 stating why plaintiff was fit to return to light duty during the daytime only.
Plaintiff met with Dr. Simon on January 31, 2001. On February 19, 2001, the Personnel Division received Dr. Simon's report regarding plaintiff. In his report, Dr. Simon recommended that plaintiff should not have access to guns because of her *426 medication and that defendant SPD should get an independent opinion from a psychiatrist because Dr. Barnett-Reyes had not provided an opinion of whether plaintiff could handle a gun. Plaintiff was not allowed to work at this time.
On February 14, 2001, plaintiff was transferred from the Uniform Bureau, Patrol Division to the Administrative Bureau, Personnel Division. On March 20, 2001, a settlement was agreed on at an arbitration hearing whereby plaintiff was required to submit evidence showing that she had received medical clearance to return to work, and defendant City of Syracuse had the right to accept the evidence or require plaintiff to submit to an additional examination. If medical opinions conflicted, the dispute was to be resolved by either a mutually agreed upon medical provider or the arbitrator.
Plaintiff was examined by Dr. Joseph T. Himmelsbach, a private psychologist, on April 20, 2001. Dr. Himmelsbach recommended that plaintiff remain on medical leave for sixty days after which she should be reassessed. Plaintiff returned to light duty in the Records Division on May 28, 2001. Plaintiff's gun was not returned to her. On July 10, 2001, Dr. Himmelsbach examined plaintiff again. He recommended that she remain on light duty for another sixty to ninety days. His letter also stated, "[i]t may also be indicated at this time to review and modify the conditions of her returning to work as regards to weapons and uniform." Ex. 13 to Pl.'s Aff. in Opp'n to Summ. J., 5:03-CV-1329, Dkt. No. 118-14, 3. Plaintiff continued to work on light duty.
On January 9, 2002, Dr. Barnett-Reyes sent a letter to the Personnel Division stating that plaintiff could return to full-duty on January 30, 2002. After reviewing Dr. Barnett-Reyes's letter on January 23, 2002, Dr. Simon expressed his concerns regarding plaintiff's return to full-duty and recommended an evaluation from an independent psychiatrist. On February 1, 2002, Dr. Simon met with plaintiff. Dr. Simon stated that he was concerned about plaintiff's access to guns because the medications she was takingKlonopin and Depakote could affect alertness, judgment, and reaction time. He recommended that plaintiff not have her gun returned at that time.
Plaintiff continued to work on light duty until September 2002. On September 26, 2002, plaintiff asserts that defendant Kerwin insisted that plaintiff release her records from Dr. Lesswing. Plaintiff refused to release these records. According to plaintiff, defendant Kerwin threatened to fire her if she did not release the records and ordered her to leave the building. On that day, plaintiff was placed on indefinite administrative leave. On April 24, 2003, plaintiff filed her Equal Employment Opportunity Commission ("EEOC") complaint.
Plaintiff brought a grievance against defendant SPD on an unrelated matter through her union, the Syracuse Police Benevolent Association, Inc ("Union"). Defendant SPD's refusal to allow plaintiff to return to full-duty with her gun was discussed at the arbitration hearing. The arbitrator chose a psychiatrist to evaluate plaintiff and determine whether she should have her gun returned. Defendant City of Syracuse agreed to accept the decision of the psychiatrist. On June 16, 2003, plaintiff was evaluated by Dr. Brian Joseph. Dr. Joseph determined that plaintiff was fit for duty, capable of handling a gun, and did not need further psychiatric treatment. Plaintiff returned to full-duty with her gun on June 27, 2003.
Defendants have a rule requiring a progressive system of discipline. The severity of offenses or whether an individual has been disciplined in the past will generally *427 affect the level of discipline. See Ex. A to Galvin Aff., 5:06-CV-949, Dkt. No. 35-25. The disciplinary records of a number of police officers have been submitted into evidence. See, e.g., Exs. J, L, M, P, Q to Bosman Affirmation, 5:03-CV-1329, Dkt. Nos. 117-11, 117-13, 117-14, 117-17, 117-18, respectively; Exs. B, D, E to Bosman Affirmation, 5:06-CV-949, Dkt. No. 41-2. Plaintiff had a disciplinary record before going on medical leave.
In October 2000, plaintiff was disciplined for transmitting personal text messages on police department equipment while on-duty during July through October of that year, including an incident involving officer Peggy Southwell. Plaintiff was penalized ten furlough days and later filed a grievance challenging the SPD's punishment. The penalty was thereafter reduced to a loss of two furlough days, and plaintiff agreed to not pursue legal action for that discipline. On August 22, 200, plaintiff was disciplined for making intimidating remarks about an officer.
On June 27, 2003, plaintiff was disciplined for allegedly harassing and threatening defendant Kaufman. Plaintiff lost three furlough days because of this conduct. On the same day, plaintiff was disciplined for insubordination after allegedly failing to obey an order from a sergeant to discontinue making excessive phone calls while on duty. As a result, plaintiff was suspended for ten days without pay.
In 2003, at a retirement party for a police officer, defendant Kerwin remarked to other police officers that the president of the Union, Jeff Piedmonte, could not be there because he was trying to persuade Paul Hanley, another Syracuse police officer, not to drive to plaintiff's house. Plaintiff heard about this comment from officer Timothy Gay. Plaintiff alleges that defendant Kerwin insinuated she was having an affair with Paul Hanley. Plaintiff reported the comments to the SPD EEOC officer. Defendants allege they investigated this comment. After interviewing defendant Kerwin, defendant Thompson determined defendant Kerwin did not state that plaintiff and Paul Hanley were having an affair. No discipline was imposed.
On May 30, 2004, plaintiff was injured in an on-duty car accident. In December 2004, plaintiff was told that she could no longer go to chiropractor appointments while working overtime. On July 26, 2005, plaintiff was told she could no longer go to physical therapy appointments during work. Plaintiff was also told that she could not use a SPD vehicle to attend medical appointments.
On October 7, 2005, plaintiff and defendant Douglas were involved in an incident at Nottingham High School. Plaintiff and defendant Douglas are the same rank. When plaintiff and defendant Douglas arrived, a male student was in handcuffs waiting to be taken to the Onondaga County Justice Center. Defendant Douglas claims that he put the student in the car and waited for plaintiff so she could follow him to the Justice Center. Plaintiff states that defendant Douglas ignored her the entire time and left without her. Defendant Douglas states that plaintiff did not follow him or assist with booking. Plaintiff claims she tried to follow defendant Douglas. For that incident, plaintiff was disciplined on January 5, 2006, directly before or after roll call in the presence of other officers, for not communicating with a fellow officer.
Plaintiff complained about defendant Douglas's failure to follow protocol in the Nottingham High incident and for derogatory comments he made about her to other officers. Defendant Douglas allegedly stated that plaintiff is "useless," "needs to retire," she has sex with everyone in the department, and she is a "psychotic cunt." Defendant Douglas admitted that he stated *428 plaintiff was useless. None of these comments were said directly to plaintiff. No action was taken against defendant Douglas for these comments after the investigator determined that the complaint was unsubstantiated. No discipline was imposed on defendant Douglas for the incident at Nottingham High School.
In December 2005, defendant Galvin asserts that he heard rumors that plaintiff had exposed herself at a SPD Christmas party. Defendant Galvin made inquiries regarding this rumor. Plaintiff received a memorandum asking whether she had exposed herself. Plaintiff denied that this had occurred. Defendant Galvin never found anyone who said that Plaintiff exposed herself. No disciplinary action was taken.
On January 22, 2006, plaintiff found a memorandum written by defendant Douglas dated November 16, 2005. This memorandum was posted by someone on a bulletin board. Plaintiff removed the memorandum from the bulletin board. The memorandum was regarding the investigation of the Nottingham High School incident. In the memorandum, defendant Douglas claimed that Sergeant Long was not credible because he wanted to have a personal relationship with plaintiff. Defendant Douglas was suspended for five days without pay for writing the memorandum.
On March 20, 2006, plaintiff filed her second EEOC complaint. On or about June 16, 2006, plaintiff's attorney, Ms. A.J. Bosman, mailed a letter to Robert Stamey, Assistant Corporation Counsel for the City of Syracuse. In that letter, Ms. Bosman demanded documents from April 15 and April 16, 2006 relating to an incident with defendant Kaufman. On June 26, defendant Kaufman filed a complaint with Internal Affairs alleging that plaintiff made slanderous statements about him, including that he was involved in illegal gambling and had retained injuries while fighting with one of his children, and that Sergeant Long had illegally investigated him. On June 30, 2006, defendant Galvin sent a memorandum to plaintiff asking her to respond to questions regarding defendant Kaufman's complaint. Plaintiff admits she told someone that defendant Kaufman beats his children.
Also on June 30, 2006, Ms. Bosman, sent another letter to Robert Stamey of the Syracuse Corporation Counsel. In that letter, Ms. Bosman threatened to seek sanctions and court intervention because plaintiff had received the memorandum inquiring about whether she had made statements relating to defendant Kaufman. Ms. Bosman claimed that the memorandum was sent in retaliation for the lawful discovery request. Defendant Galvin states that he had not received or heard about the discovery request when he sent the memorandum to plaintiff. Plaintiff alleges that no inquiry would have been made unless she had made the discovery request.
Sergeant Long stated in his deposition that in July 2006, defendant Heenan told him "grow a set of balls" and "write [plaintiff] up when she talks about people." Long. Dep. 41:23-25, 42:1-7 (Aug. 1, 2006), 5:06-CV-949, Dkt. No. 40. Defendant Heenan states that any comments he made were a critique of Sergeant Long's supervision of officers. In September 2006, Sergeant Long was disciplined for conducting an illegal investigation of defendant Kaufman. Sergeant Long was not transferred from his position and remains a sergeant assigned to the Patrol Division of the Second Platoon. Sergeant Long has not been disciplined since that investigation. Plaintiff will also lose five furlough days for spreading rumors about defendant Kaufman after she returns from medical leave.
In August 2006, plaintiff requested a transfer to a position in the city schools. *429 Plaintiff later rescinded this request. According to defendant Kerwin, he asked plaintiff if she rescinded the request because she thought he would transfer her to nights during the summer. In response, plaintiff alleges that defendant Kerwin positioned himself close to her, raised his voice, and asked her if she rescinded the transfer because he would "fuck" with her. Plaintiff denied that this was the reason and submitted a memorandum stating her denial at the request of defendant Kaufman. Defendant Kerwin ordered plaintiff to re-write and file the memorandum again. Sergeant John Kavanagh was present at this exchange and was also ordered to submit a memorandum detailing the conversation.
Plaintiff alleges that she has been subject to derogatory comments about her mental acuity, including being called an "EDP" or emotionally disturbed person. At least one ranking officer, defendant Kerwin, has admitted that he thinks that plaintiff is not fit to be a police officer. Plaintiff also states that she has been subject to derogatory gender based comments, including writing in the bathroom and the incidents involving defendant Kerwin and defendant Douglas discussed supra. In addition to the comments that have been communicated personally to her, plaintiff states that she has also heard male officers refer to women officers as "dikes", "lesbians", and "sluts." Plaintiff admits that she has made derogatory comments about other police officers, and Sergeant Long alleges that plaintiff has made such comments. Members of the police department have also witnessed their colleagues viewing pornography at the workplace, but plaintiff neither personally witnessed the pornography nor submitted a complaint regarding the display of such material.
On September 1, 2006, plaintiff was placed on medical leave for neck and back injuries she suffered in the on-duty car accident that occurred on May 30, 2004. Plaintiff did not file a notice of claim for either Suit I or Suit II.
III. DISCUSSION
A. Summary Judgment Standard
Summary judgment must be granted when the pleadings, depositions, answers to interrogatories, admissions, and affidavits show that there is no genuine issue as to any material fact and that the moving party is entitled to summary judgment as a matter of law. Fed.R.Civ.P. 56; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S. Ct. 2505, 2509-10, 91 L. Ed. 2d 202 (1986). The moving party carries the initial burden of demonstrating an absence of a genuine issue of material fact. Fed.R.Civ.P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986). Facts, inferences therefrom, and ambiguities must be viewed in a light most favorable to the non-movant. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986).
When the moving party has met their burden, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co., 475 U.S. at 586, 106 S. Ct. at 1356. At that point, the nonmoving party "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56; Liberty Lobby, Inc., 477 U.S. at 250, 106 S. Ct. at 2511; Matsushita Elec. Indus. Co., 475 U.S. at 587, 106 S. Ct. at 1356. To withstand a summary judgment motion, sufficient evidence must exist upon which a reasonable jury could return a verdict for the non-movant. Liberty Lobby, Inc., 477 U.S. at 248-49, 106 S. Ct. at 2510; Matsushita Elec. Indus. Co., 475 U.S. at 587, 106 S. Ct. at 1356. "[M]ere conclusory allegations, *430 speculation or conjecture will not avail a party resisting summary judgment." Cifarelli v. Vill. of Babylon, 93 F.3d 47, 51 (2d Cir.1996) (internal citation omitted). Additionally, affidavits or portions of affidavits that are not based on personal knowledge will not be entitled to any weight when considering a motion for summary judgment. Sarno v. Douglas Elliman-Gibbons & Ives, Inc., 183 F.3d 155, 160 (2d Cir.1999).
B. Statement of Material Facts
Both plaintiff and defendants assert that one another violated Local Rule 7.1(a)(3) ("LR 7.1"). Plaintiff asserts that defendants' statements of material facts should be struck because the statement in Suit I is "onerous" and the statement in Suit II is "unduly lengthy" and "engages in extended discussion of nonmaterial facts" that violates the "spirit" of LR 7.1. See Bosman Affirmation ¶ 13, 5:03-CV-1329, Dkt. No. 117; Pl.'s Resp. to Statement of Material Facts, 1-2, 5:06-CV-949, Dkt. No. 45. Plaintiff seeks to strike defendants' statements of material facts for both suits. Defendants argue that in both of her replies, plaintiff failed to admit or deny the facts in many responses and also did not set forth specific citations to the record. See Defs.' Reply Mem. in Supp. of Summ. J., 1-3, 5:03-CV-1329, Dkt. No. 128-11; Defs.' Reply Mem. in Supp. of Summ. J., 1-3, 5:06-CV-949, Dkt. No. 48-9; Def. Douglas's Reply Mem. in Supp. of Summ. J., 1-3, 5:06-CV-949, Dkt. No. 46. All defendants seek to have those responses deemed admissions.
The Local Rules are not "empty formalities". Meaney v. CHS Acquisition Corp., 103 F. Supp. 2d 104, 108 (N.D.N.Y.2000). The rules "notify the parties of the factual support for their opponent's arguments" and "inform the court of the evidence and arguments in an organized way." Id. Although rules are not applied so strictly as to "undermine the interests of justice ... there is a point when forbearance of a party's noncompliance with the Rules unfairly prejudices its adversaries." Id. at 109 (internal citation omitted).
With regard to plaintiff's request to strike defendants' statements of material facts, LR 7.1 does not impose a length restriction. Accordingly, defendants' statements of material facts do not violate LR 7.1. Even more importantly, given plaintiff's numerous causes of action, the length of defendants' statements of facts are not unreasonable. Plaintiff's request to strike will therefore be denied.
With regard to defendants' first argument, LR 7.1 states that a non-movant must respond "by admitting and/or denying each of the movant's assertions." Here, in response to a number of factual assertions, plaintiff disputes that the facts are relevant. See Pl.'s Resp. to Statement of Material Facts, ¶¶ 94-96, 5:03-CV-1329, Dkt. No. 125; Pl.'s Resp. to Statement of Material Facts, ¶¶ 2, 6, 11, 28, 80, 87, 88, 91, 100-104, 110, 111, 119, 120, 123, 5:06-CV-949, Dkt. No. 45; Pl.'s Resp. to Def. Douglas's Statement of Material Facts, ¶¶ 7-11, 15, 26-28, 5:06-CV-949, Dkt. No. 45. Plaintiff also disputes the admissibility of a number of statements on the ground that those statements are hearsay. See Pl.'s Resp. to Statement of Material Facts, ¶¶ 30, 33, 34, 41, 43, 49-52, 55, 56, 59, 60, 65, 68, 69, 71, 72, 75-81, 88, 89, 5:03-CV-1329, Dkt. No. 125; Pl.'s Resp. to Statement of Material Facts, ¶¶ 41, 43, 70, 98, 124, 125, 127, 5:06-CV-949, Dkt. No. 45; Pl.'s Resp. to Def. Douglas's Statement of Material Facts, ¶ 22, Dkt. No. 45. The non-moving party may object to the admissibility of statements. See Major League Baseball Props., Inc. v. Salvino, Inc., 542 F.3d 290, 312-15 (2d Cir.2008) (applying S.D.N.Y. Local Rule 56.1).[4]*431 However, if the facts are admissible and supported by the record, an objection is not sufficient to deny the fact. Id. at 314 ("An objection to the admissibility of a document is not the equivalent of a contention that the document's contents are untrue."). Therefore, where plaintiff objects only to admissibility and provides no indication that the fact is untrue, that fact will be deemed admitted by plaintiff if it is admissible under the Federal Rules of Evidence.
As for defendants' second argument, LR 7.1 requires that "[e]ach denial shall set forth a specific citation to the record where the factual issue arises." LR 7.1. In a motion for summary judgment, if a non-movant's statement fails to include citations to the record, a District Court could deem those facts to be admitted. See Meaney, 103 F.Supp.2d at 108. Second Circuit cases addressing the insufficiency of a non-movant's responses primarily address situations where the non-movant failed to submit any response or did not provide any cites to the record in the responses. See, e.g., N.Y. State Teamsters v. Express Servs., Inc., 426 F.3d 640, 648-49 (2d Cir.2005); Gubitosi v. Kapica, 154 F.3d 30, 31 n. 1 (2d Cir.1998).
Here, plaintiff does not completely fail to submit responses and, for the most part, cites the record. However, in a number of plaintiff's responses to individual paragraphs, there are no citations to the record. See, e.g., Pl.'s Resp. to Statement of Material Facts, ¶¶ 9,12, 53, 5:03-CV-1329, Dkt. No. 125. Additionally, in other responses, plaintiff fails to provide page numbers or exhibits where factual information may be found. See, e.g., Pl.'s Resp. to Statement of Material Facts, ¶¶ 17, 23, 29, 30, 40, 5:03-CV-1329, Dkt. No. 125; Pl.'s Resp. to Statement of Material Facts, ¶¶ 63, 65, 95, 96, 105, 5:06-CV-949, Dkt. No. 45. Although these responses are not as deficient as not responding at all, they do not meet the requirements of LR 7.1.
Nevertheless, a "district court has broad discretion to determine whether to overlook a party's failure to comply with local court rules." Holtz v. Rockefeller & Co., Inc., 258 F.3d 62, 73 (2d Cir.2001). Even if a non-movant fails to follow the local rules, summary judgment may not be granted if the movant has not met its burden under the Federal Rules of Civil Procedure. Id. Therefore, in the interest of justice, where the facts that plaintiff is attempting to reference can be ascertained by reviewing the record, the lack of a citation or an insufficient citation will not be taken construed as an admission. However, where plaintiff attempts to dispute material facts through conclusory assertions without factual support in the record, those assertions will not be sufficient for a motion for summary judgment.
C. City of Syracuse Police Department (Suits I and II)
A police department "does not have its own legal identity;" rather, it is an administrative arm of a city. Baker v. Willett, 42 F. Supp. 2d 192, 198 (N.D.N.Y.1999) (internal citation omitted). Here, plaintiff brought claims against both the City of Syracuse and the SPD. Because these are not separate legal entities, all claims against defendant SPD will be granted summary judgment to the extent that both the SPD and City of Syracuse are named as defendants in the same causes of action.
*432 D. Title VII (Suit II)
All of plaintiff's Title VII claims of discrimination, retaliation, and hostile work environment addressed here arise out of Suit II. Plaintiff asserted Title VII claims for discrimination and retaliation in Suit I. As previously noted, those claims were dismissed and will not be discussed here. See Lee, No. 5:03-CV-1329, slip op. at 6-9, Dkt. No. 33. Defendants' alleged discriminatory conduct falling within the relevant time period for Suit II includes the assignment of overtime, disciplinary decisions, and the prohibition on the use of work time to attend medical appointments for work-related injuries. Plaintiff's retaliation claims for Suit II arise from defendants' investigations and disciplinary decisions. Defendants' conduct relevant to plaintiff's hostile work environment claim include: defendant Douglas's verbal comments and memorandum, the comments made by defendant Kerwin at a retirement party, writing in the bathroom, the presence of pornography at work, and the general use of derogatory names for women by members of the police force.
1. Individual Liability
Under Title VII, "individuals are not subject to liability." Patterson v. County of Oneida, N.Y., 375 F.3d 206, 221 (2d Cir.2004) (internal cites omitted). Because defendants are not subject to individual liability under Title VII, defendants' motion for summary judgment will be granted for all individual defendants sued in their individual capacity under Title VII.
2. Gender Discrimination (First Cause of Action in Suit II)
Title VII discrimination claims are analyzed based on the McDonnell Douglas burden-shifting test. McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802-04, 93 S. Ct. 1817, 1824-25, 36 L. Ed. 2d 668 (1973). First, a plaintiff must establish a prima facie case of discrimination by showing: "(1) she is a member of a protected class; (2) she is qualified for her position; (3) she suffered an adverse employment action; and (4) the circumstances give rise to an inference of discrimination." Weinstock v. Columbia Univ., 224 F.3d 33, 42 (2d Cir. 2000) (citing McDonnell Douglas, 411 U.S. at 802, 93 S. Ct. at 1824). If a plaintiff establishes a prima facie case, then the defendant must demonstrate that it had a legitimate and non-discriminatory reason for its actions. McDonnell Douglas, 411 at 802, 93 S. Ct. at 1824. If the defendant meets its burden, the plaintiff must then show that the defendant's explanation is merely pretext for unlawful discrimination. Id. at 804, 93 S. Ct. at 1825. At this point, the plaintiff must "produce not simply `some' evidence, but `sufficient evidence to support a rational finding that the legitimate, non-discriminatory reasons proffered by the [defendant] were false, and that more likely than not [discrimination] was the real reason for the [employment action].'" Van Zant v. KLM Royal Dutch Airlines, 80 F.3d 708, 714 (2d Cir.1996) (quoting Woroski v. Nashua Corp., 31 F.3d 105, 110 (2d Cir.1994)).
For Title VII discrimination claims, instances of unlawful conduct are considered discrete acts. Nat'l R.R. Passenger Corp. v. Morgan, 536 U.S. 101, 104-05, 122 S. Ct. 2061, 2068, 153 L. Ed. 2d 106 (2002). Discrete acts that occurred more than 300 days prior to the EEOC complaint will not be considered. Id. For Suit II, plaintiff filed an EEOC complaint on March 20, 2006. Therefore, discrete acts prior to May 24, 2005 will not be considered.
Here, plaintiff's claims for disparate treatment in the relevant time period relate to the assignment of overtime, disciplinary actions, and the prohibition against using work time to attend medical appointments for work-related injuries. Although defendants admit plaintiff is a member of a *433 protected class, they do not concede any of the stages of the McDonnell Douglas burden-shifting analysis: First, defendants argue that plaintiff has not established a prima facie case of discrimination; second, they contend there were legitimate nondiscriminatory reasons for their actions; and third, they claim that plaintiff has not established that their actions were mere pretext.
a. Overtime Assignment
With regards to the assignment of overtime, plaintiff has not established her prima facie case because she has not shown an adverse employment action. An adverse employment action creates "a materially adverse change in the terms and conditions of employment." Galabya v. New York City Bd. of Educ., 202 F.3d 636, 640 (2d Cir.2000) (internal citation omitted). Here, although allocation of overtime could qualify as an adverse action because of the loss of an opportunity for a higher salary, plaintiff offers no evidence, including her own affidavit, that she personally was denied overtime assignments. In Suit II, plaintiff does not cite instances where she sought overtime work and that work was denied after May 24, 2005.[5] Plaintiff has submitted the report of her expert, Dr. Charles N. Kroll, as evidence that disparate assignment of overtime for women may occur. See Ex. G to Bosman Affirmation, 5:06-CV-949, Dkt. No. 41-3. However, even if that report is admissible, it is not sufficient to establish a prima facie case unless plaintiff submits some evidence that she personally was denied overtime. Because plaintiff has not submitted evidence that she has been denied overtime in the relevant time period, she has not establish a prima facie case of discrimination and accordingly, defendants will be granted summary judgment.
b. Use of Work-Time to Attend Appointments
Plaintiff asserts that male officers at the SPD are allowed to go to medical appointments while on-duty and she has been discriminated against because she is no longer allowed to go to medical appointments while working. She also states that she was discriminated against because she could not use a SPD car to attend these appointments. A showing of disparate treatment can raise a sufficient inference of discrimination for a prima facie case. See Mandell v. County of Suffolk, 316 F.3d 368, 379 (2d Cir.2003). In this case, however, plaintiff has not submitted admissible evidence that others at the police department are allowed to go to medical appointments while working. To the contrary, defendants have presented evidence of a lack of disparate treatment. They have shown that the SPD has a policy regarding the scheduling of medical appointments outside of work hours and a policy that limits the use of department vehicles. See Cuelton Reply Aff. ¶¶ 4-8, 5:06-CV-949, Dkt. No. 48-5. Defendants have shown that sergeant John Douglas, a white, male officer, was not allowed to use work time to attend medical appointments, just like plaintiff. Id. at ¶ 4. Defendants have also submitted a decision from a grievance that both Sergeant Douglas and plaintiff brought regarding this policy where they were denied relief. See Ex. A to Cuelton Reply Aff., 5:06-CV-949, Dkt. No. 48-6. Because plaintiff has not shown disparate treatment, she has not establish her prima facie case.
c. Discipline for Violation of SPD Rules
Defendants raise a number of arguments for why plaintiff has not established *434 a prima facie case of discriminatory discipline, including that her job performance was unsatisfactory, that the SPD's actions did not rise to the level of materially adverse employment actions, that she was disciplined for violating SPD rules instead of because of her gender, and that she has failed to present evidence of disparate treatment.
First, defendants argue that plaintiff has not performed her job in a satisfactory manner. They do not, however, establish that she was unqualified to be a police officer. In a situation where discipline may have been issued in a discriminatory manner, showing that plaintiff violated department rules is not sufficient, especially where such violations are commonly overlooked. Here, the core question is whether she was treated differently because of her gender for these violations. Therefore, although plaintiff's job performance is relevant to show defendant's legitimate, non-discriminatory reasons for their actions, this argument is not persuasive at the prima facie stage.
Second, defendants correctly assert that not all of their actions qualify as adverse employment actions. In order to qualify as an adverse employment action for a Title VII discrimination claim, the action must be "more disruptive than a mere inconvenience or an alteration of job responsibilities." Galabya, 202 F.3d at 640 (internal quotation omitted). To qualify as adverse, "there must be a link between the discrimination and some tangible job benefits such as compensation, terms, conditions or privileges of employment." Alfano v. Costello, 294 F.3d 365, 373 (2d Cir.2002) (internal citation omitted). Here, having to submit inter-departmental memorandums in response to either orders from superior officers or instances of misconduct does not constitute an adverse employment action because it does not alter the conditions of plaintiff's employment. However, disciplining plaintiff for the incident at Nottingham High School and for spreading rumors affect tangible job benefits because plaintiff lost a number of furlough days. Therefore, the penalties imposed from the discipline are sufficient to satisfy plaintiff's burden to show an adverse action during the prima facie stage.
Defendants also argue that plaintiff has not shown that the discipline she received was because of her gender or that she was treated differently than similarly situated male colleagues. These arguments are equally unavailing. First, plaintiff has only a minimal burden when establishing a prima facie case of gender discrimination. Mandell, 316 F.3d at 378 (internal citation omitted). Second, plaintiff has shown disparate treatment because defendant Douglas was not disciplined for his conduct in relation to the Nottingham High School incident and that others in the department have not been subjected to discipline for "spreading rumors." In addition to this, plaintiff has submitted evidence that the severity of punishment can vary greatly. See Exs. B, D, E to Bosman Affirmation, 5:06-CV-949, Dkt. No. 41-2. This is sufficient to show an inference of discrimination for a prima facie case. Because plaintiff has established her prima facie case for the discipline she received, the burden shifts to defendants.
At the second stage of the McDonnell Douglas burden-shifting analysis, the defendant must show a legitimate, non-discriminatory reason for an adverse employment action. Tex. Dep't of Cmty. Affairs v. Burdine, 450 U.S. 248, 254, 101 S. Ct. 1089, 1094, 67 L. Ed. 2d 207 (1981). Defendants present evidence that plaintiff violated SPD rules at Nottingham High School when she did not follow defendant Douglas and when she told others that defendant *435 Kaufman abused his children. They have presented evidence of the department rule governing discipline that applies to all members of the police department, regardless of gender. See Ex. A to Galvin, 5:06-CV-949, Dkt. No. 35-25. Defendants have also submitted evidence explaining why discipline may vary based on the number of past infractions and the severity of the conduct. See Galvin Reply Aff. ¶¶ 4-8, 5:06-CV-949, Dkt. No. 48-8. Because they have set forth legitimate, non-discriminatory reasons for imposing discipline and the level of discipline imposed, the burden shifts back to plaintiff. McDonnell Douglas, 411 U.S. at 804, 93 S. Ct. at 1825.
When the burden has shifted back to plaintiff, she must show by a preponderance of the evidence that defendants' proffered reasons are nothing more than pretext for unlawful discrimination. Id. at 802, 93 S. Ct. at 1824. Plaintiff's burden at the third stage of the McDonnell Douglas analysis is substantially higher than the burden at the first stage. Meiri v. Dacon, 759 F.2d 989, 996-98 (2d Cir.1985). Pretext can be established "either directly by persuading the court that a discriminatory reason more likely motivated the employer or indirectly by showing that the employer's proffered explanation is unworthy of credence." Tex. Dep't of Cmty. Affairs, 450 U.S. at 256, 101 S. Ct. at 1095.
Plaintiff has not presented evidence to establish pretext indirectly. In particular, defendants' explanation for the discipline is not "unworthy of credence" because plaintiff violated SPD rules before receiving discipline. Therefore, in order to survive summary judgment, plaintiff must show that discriminatory reasons more likely motivated the employer than the proffered reasons. However, by her own admissions, defendants were motivated by retaliation. For example, she states in her affidavit that "[e]ach time I have complained about a discriminatory or retaliatory act, the Department initiates an investigation into my conduct and finds a way to accuse me of wrongdoing." Pl.'s Aff. in Opp'n to Summ. J., ¶ 46, 5:06-CV-949, Dkt. No. 39. Additionally, in her deposition taken on December 20, 2006, plaintiff stated that "my lawsuit wasn't sexual harassment ... and the city was just looking for reasons to discipline me ... to retaliate or get back at me...." Pl.'s Dep. 211:22-25 (Dec. 20, 2006), 5:06-CV-949, Dkt. No. 41-8. Although supportive of her claim for retaliation discussed infra, these statements do not show that defendants were more likely motivated by plaintiff's gender for purposes of her discrimination claim. Admittedly, there may be more than one motive for any adverse action, but plaintiff still must show that the adverse action was more likely the result of gender discrimination. The limited admissible evidence plaintiff has submitted is insufficient to satisfy her burden, particularly as she all but concedes that defendants were motivated by retaliation instead of gender discrimination. As plaintiff has not established pretext, her Title VII claims for gender discrimination in discipline will not survive summary judgment and this cause of action will be dismissed.
3. Retaliation (Third Cause of Action in Suit II)
For a Title VII retaliation claim, a plaintiff must show (1) that she was engaged in a protected activity; (2) that the employer was aware of that activity; (3) that plaintiff was thereafter subjected to an adverse employment decision; and (4) that there was a causal connection between plaintiff's protected activity and the adverse action. Collins v. New York City Transit Auth., 305 F.3d 113, 118 (2d Cir.2002) (internal quotation omitted). Plaintiff's retaliation claim under Title VII is subject to the same burden shifting analysis established in McDonnell Douglas. *436 Amin v. Akzo Nobel Chemicals, Inc., 282 Fed.Appx. 958, 961 (2d Cir.2008). Retaliation claims are also subject to a 300-day time bar. See Morgan, 536 U.S. at 113, 117, 122 S. Ct. at 2072, 2074. Therefore, no alleged acts of retaliation from before May 24, 2005 will be addressed. Falling within the relevant time period is the investigation of plaintiff after the October 7, 2005 incident involving defendant Douglas, the investigation of whether plaintiff had exposed herself at a SPD Christmas party, and the investigations of plaintiff and Sergeant Long.
Defendants argue that plaintiff can not establish the third and fourth prongs of her prima facie case. First, they assert none of the alleged conduct by defendants, except for the discipline after the Nottingham High incident, qualifies as an adverse action because none of the conduct affected the terms and conditions of plaintiff's employment. This argument fails because it applies the wrong legal standard for "adverse action" for retaliation claims as recognized by the Supreme Court.[6]Burlington Northern & Santa Fe Ry. Co. v. White, 548 U.S. 53, 66, 126 S. Ct. 2405, 2414, 165 L. Ed. 2d 345 (2006). In Burlington Northern, the Supreme Court found that "adverse action" for a Title VII retaliation claim is a different and broader standard than for a Title VI I discrimination claim. Id. The Court stated that an "adverse action" is any action "that a reasonable employee would have found the challenged action materially adverse, which in this context means it well might have dissuaded a reasonable worker from making or supporting a charge of discrimination." Id. at 68, 126 S. Ct. at 2415 (internal quotations and citations omitted). An action will be considered material if it is "likely to deter victims of discrimination from complaining to the EEOC, the courts, and their employers." Id. (internal quotation omitted). Here, plaintiff was investigated for exposing herself and for other violations of SPD rules. Being investigated by one's employer could deter a reasonable person from complaining about discrimination because investigations can be intrusive and intimidating. Because being investigated by one's employer could likely deter a victim from complaining about discrimination, this qualifies as an adverse action.
Next, defendants point to plaintiff's filing of a second EEOC complaint and the time between the first EEOC complaint and any adverse actions as evidence that plaintiff was not dissuaded from complaining about discrimination. This argument fails because the adverse actions may have deterred a reasonable employee from reporting discrimination to her employer. Under Burlington Northern, it is not only conduct that will deter someone from reporting to the EEOC but also conduct that will deter a person from reporting discrimination to their employers. 548 U.S. at 66, 126 S.Ct. at 2415 (internal citation omitted) (Courts consider whether the action is "likely to deter victims of discrimination from complaining to the EEOC,' the courts, and their employers.") (emphasis added). Here, all investigations were done in close temporal proximity to complaints that plaintiff made to her employer. Because the adverse actions can be connected to complaints made to one's employer as well as the EEOC and plaintiff has shown that adverse actions were taken shortly after complaints to her employer, defendants' argument regarding the causal connection fails. By showing a causal connection, plaintiff has established all of the *437 elements of her prima facie case and the burden shifts to defendants.
As discussed, the investigations and discipline directed at plaintiff were the result of alleged violations of SPD rules. Such violations constitute legitimate, non-discriminatory reasons to conduct investigations and administer discipline. Accordingly, the burden shifts back to plaintiff to establish that such reasons were merely pretext for unlawful discrimination.
To establish pretext, plaintiff must show that discriminatory reasons more likely motivated the employer than the proffered reasons. Here, since some form of investigation followed plaintiff's complaints to her employer or her attorney's request for documents and plaintiff has submitted admissible evidence that her supervisor was told to write her up every time she spoke about someone and that others similarly situated were not disciplined or investigated in the same manner, plaintiff has shown that it is more likely than not that these investigations occurred because of her complaints about discrimination. Because pretext can be established here, defendant's motion for summary judgment for the Title VI I retaliation cause of action will be denied.
4. Hostile Work Environment (Second Cause of Action in Suit II)
For a hostile work environment claim, a plaintiff must "elicit evidence from which a reasonable trier of fact could conclude (1) that the workplace was permeated with discriminatory intimidation that was sufficiently severe or pervasive to alter the conditions of his or her work environment, and (2) that a specific basis exists for imputing the conduct that created the hostile environment to the employer." Mack v. Otis Elevator Co., 326 F.3d 116, 122 (2d Cir.2003) (internal citation omitted). For this type of claim, "the entire time period ... may be considered" as long as one act occurred within the statutory period. Morgan, 536 U.S. at 117, 122 S. Ct. at 2061.[7]
Generally, "hostile work environment claims present mixed questions of law and fact that are especially well-suited for jury determination." Schiano v. Quality Payroll Sys., Inc., 445 F.3d 597, 605 (2d Cir.2006) (internal citation omitted). Specifically, when considering a hostile work environment claim, the fact that an employee was not present when derogatory comments were made does not make those comments irrelevant because the quantity, frequency, and severity of those comments help demonstrate a realistic view of work environment. Schwapp v. Town of Avon, 118 F.3d 106, 110-11 (2d Cir.1997). Additionally, the Second Circuit has recognized that the mere presence of pornography in a workplace can alter the "status" of women and is relevant to assessing the objective hostility of the environment. Wolak v. Spucci, 217 F.3d 157, 160-61 (2d Cir.2000).
However, the Supreme Court has explained that the standard is not a "mathematically precise test," and "the frequency of the discriminatory conduct; its severity; whether it is physically threatening or humiliating, or a mere offensive utterance; and whether it unreasonably interferes with an employee's work performance" must be considered. Harris v. Forklift Sys., Inc., 510 U.S. 17, 22-23, 114 S. Ct. 367, 371, 126 L. Ed. 2d 295 (1993). Specifically, isolated incidents are generally not sufficient unless the conduct *438 is particularly severe. Demoret v. Zegarelli, 451 F.3d 140, 149 (2d Cir.2006). When addressing pervasiveness, the continuity of the conduct is considered. Id. If a plaintiff produces evidence of sufficiently severe conduct that created a hostile work environment, the plaintiff must also establish that "a specific basis exists for imputing the conduct that created the hostile environment to the employer." Mack, 326 F.3d at 122 (internal citation omitted).
The conduct relevant to plaintiff's Title VII hostile work environment claim presented in Suit II includes: defendant Douglas's verbal comments and memorandum after the Nottingham incident, the comments made by defendant Kerwin at the retirement party, the writing in the bathroom, the presence of pornography at work, and the general use of derogatory names against women by members of the police force.
Defendants argue that this conduct is not sufficient to establish a hostile work environment claim because the incidents were sporadic and not pervasive, any offensive comments were not made directly to plaintiff but conveyed to her third-hand, plaintiff herself made derogatory comments, plaintiff neither witnessed pornography first-hand nor complained that pornography was on display, and supervisors were generally not involved in the conduct.
The incidents involving defendant Douglas and defendant Kerwin appear to be isolated incidents. As isolated incidents, they are not pervasive and must be considered in light of their severity. See Demoret, 451 F.3d at 149 (citing Patterson, 375 F.3d at 227). First, defendant Kerwin's comments were not made directly to plaintiff and were made outside of work. Although it is still relevant to a claim of a hostile work environment, the context does affect the severity. Here, defendant Kerwin's off-duty comment, although unprofessional and later repeated to plaintiff, does not appear to have altered plaintiff's work environment.
As for defendant Douglas, the alleged derogatory comments and the memorandum was much more egregious. Nevertheless, defendant Douglas is not plaintiff's supervisor, he was investigated for the comments, and he was penalized five furlough days for the memorandum. Therefore, even if this conduct rose to the level of severity required for a hostile work environment claim, plaintiff has not established that her employer either expressly or passively ratified such behavior, and therefore, this conduct can not be attributed to the SPD. Finally, regarding specific conduct relating to plaintiff, there are the derogatory comments written on the bathroom wall. Plaintiff has only submitted evidence of this happening once, so it can not be deemed pervasive and the severity must be considered. Although this writing was highly inappropriate in a work place, plaintiff has not shown any evidence that the comments altered her working conditions. Additionally, defendants have shown that the writing was promptly removed after they were notified of its content. Therefore, these comments do not give rise to a hostile work environment claim.
Although all of these incidents alone are not sufficiently severe to establish a hostile work environment claim, they must also be considered with other, ongoing conduct that could be deemed pervasive and cumulatively give rise to a hostile work environment claim. The ongoing conduct at issue here is the presence of pornography at work and the general assertion that plaintiff heard women called derogatory names. Although the presence of pornography is considered as part of a hostile work environment claim, plaintiff never personally observed pornography and did not report the presence of such material. Plaintiff *439 admitted in her own deposition, "... I didn't see it so I had no complaint to make about it." Pl.'s Dep. 330:1-3 (Oct. 19, 2007), 5:06-CV-949, Dkt. No. 35-18. Since plaintiff admits that she had "no complaint" about it, the pornography did not severely alter her working conditions for the purposes of her hostile work environment claim. As for the use of derogatory terms to refer to women, plaintiff's assertion is quite vague. It does not include the names of anyone specifically who uses these terms, nor does it include the frequency that these terms were used. Again, plaintiff does not submit any evidence that she reported the use of these terms generally outside the complaints she made about defendants Kerwin and Douglas already discussed supra. Additionally, plaintiff herself does not deny that she sometimes used derogatory language when referring to other people at work. This weighs against her claim that the use of these terms altered her work environment because she was involved in similar conduct. Because of the vague nature of these claims, the fact that they were not reported to her supervisors, and plaintiff herself used similar derogatory terms, plaintiff has not shown pervasive conduct to support her claim of a hostile work environment.
Even when all of the conduct is considered together, plaintiff has not shown that the conduct was either sufficiently severe or pervasive. Further, much of the conduct does not involve supervisors and therefore can not be attributed to her employer under Title VII. Because plaintiff has not shown that the complained of conduct was either sufficiently severe or pervasive to alter her working conditions and most of the conduct can not be attributed to plaintiff's supervisors, defendants' motion for summary judgment will be granted for plaintiff's Title VII hostile work environment cause of action.
E. Americans with Disabilities Act (Fourth Cause of Action in Suit I)
1. Individual Liability
There is no individual liability under the Americans with Disabilities Act ("ADA"). Briggs v. New York State Dept. of Transp., 233 F. Supp. 2d 367, 373 (N.D.N.Y.2002). Because defendants are not subject to individual liability under the ADA, defendants' motion for summary judgment will be granted for all individual defendants.
2. Title I Claim
The McDonnell Douglas burden-shifting analysis applies to ADA employment discrimination claims. See Reg'l Econ. Cmty. Action Program v. City of Middletown, 294 F.3d 35, 48-49 (2d Cir. 2002). ADA Title I claims are time-barred if a plaintiff does not "file a charge with the EEOC within 300 days after `the alleged unlawful employment practice.'" Elmenayer v. ABF Freight Sys., Inc., 318 F.3d 130, 133 (2d Cir.2003) (citing 42 U.S.C. § 2000e-5(e)(1) (2000)). Because plaintiff filed her first EEOC complaint on April 24, 2003, any discrete acts occurring before June 28, 2002 may serve as the basis of her cause of action.
Plaintiff was on light duty until September 2002. At that time, plaintiff states that she was threatened with discipline or termination if she did not release her medical records from Dr. Lesswing. Plaintiff was then placed on administrative leave until July 2003. These acts fall within the relevant time period. The remainder of plaintiff's claims regarding conduct that could qualify as disability discrimination fall outside the time allowed to recover for discrete acts of discrimination, and accordingly are not cognizable.
To establish her prima facie case, plaintiff must show that: "(1) [her] employer is subject to the ADA; (2)[she] was disabled within the meaning of the ADA; (3)[she] *440 was otherwise qualified to perform the essential functions of his job, with or without reasonable accommodation; and (4)[she] suffered adverse employment action because of [her] disability." Giordano v. City of New York, 274 F.3d 740, 747 (2d Cir.2001). Under this part of the statute, a "disability" includes, "(A) a physical or mental impairment that substantially limits one or more of the major life activities...; (B) a record of such an impairment; or (C) being regarded as having such an impairment." Id. (quoting 42 U.S.C. § 12102(2)).
Plaintiff contends she was disabled as defined under the ADA because defendants considered her mentally unstable despite her treating psychiatrist's determination that she could return to full-duty. According to plaintiff, defendants' erroneous belief that she remained emotionally disturbed led to her working light-duty only. She also contends that defendants' put her on administrative leave when she would not release a portion of her medical records. In response, defendants argue that plaintiff has not established that she is disabled within the meaning of the ADA because none of the evidence presented demonstrates they perceived her as incapable of working as a police officer.
With regard to whether plaintiff was perceived as disabled, plaintiff has submitted evidence that at least one police officer with supervisory authority admitted that he believed that plaintiff was "emotionally unfit for police work" and that some of her colleagues referred to her as an "EDP" or emotionally disturbed person. See Kerwin Dep. 51:9-10, 60:15-16 (Feb. 2, 2007), 5:03-CV-1329, Dkt. No. 117-34. Additionally, plaintiff has submitted internal office memoranda that supports her assertion that supervisors at the SPD regarded plaintiff as disabled. See Exs. 8, 15 to Pl.'s Aff. in Opp'n to Summ. J. 5:03-CV-1329, Dkt. Nos. 118-9, 118-16, respectively. With this evidence, plaintiff has met her initial burden as to whether she was regarded as disabled within the meaning of the ADA.
Defendant City of Syracuse also asserts that they should be granted summary judgment because plaintiff has not suffered an adverse employment action since she was paid while on leave. The Second Circuit has held that even actions that do not reduce wages can constitute adverse employment actions if the action resulted in "significantly diminished material responsibilities." Brady v. Wal-Mart Stores, Inc., 531 F.3d 127, 134 (2d Cir. 2008) (internal citation omitted). Here, when placed on administrative leave, plaintiff did not have any responsibilities. Accordingly, plaintiff was entirely stripped of her responsibilities, and her placement on administrative leave thus qualifies as an adverse employment action even though she received her wages at that time. Additionally, because plaintiff was assigned to light duty, which had diminished responsibilities from her pre-administrative leave position, that assignment likewise qualifies as adverse employment action. Plaintiff has shown, for purposes of establishing a prima facie case, that she was subjected to an adverse employment action. Defendants do not contest the other prima facie elements. Therefore, plaintiff has established her prima facie case and the burden shifts to defendants to state a legitimate non-discriminatory reason for their conduct.
Defendants assert that the SPD had a business necessity for inquiries regarding plaintiff's mental health status. Defendants state that the demands for her medical records and evaluation by different psychiatrists and psychologists were necessary to determine whether plaintiff could perform her job-related duties and specifically whether she could safely handle a gun. Whether a police officer is able *441 to perform her work-related functions, including whether she can handle a gun, is a legitimate and non-discriminatory reason for their conduct because of obvious safety concerns both internally at the police department and for the public at large. Therefore, the burden shifts back to plaintiff to show that defendants' stated reasons are merely pretext.
Plaintiff first attempts to establish pretext by asserting that other officers, particularly male officers, have not been subject to examinations after being released from their treating doctor. Plaintiff does not submit any admissible evidence to support this assertion, however. Defendants have provided affidavits stating that on other occasions the SPD physician has recommended that police officers not return to duty and that at least one other officer has been relieved of his department issued weapon as part of a recommendation by the police physician. Again, plaintiff offers only conclusory statements that she was treated differently. See Pl.'s Resp. to Statement of Material Facts, ¶ 52, 5:03-CV-1329, Dkt. No. 125. However, in addition to these assertions, plaintiff has shown that by September 2002 she had undergone a number of examinations and had released most of her records to the police department, including repeated releases from her treating psychiatrist. Moreover, by that time defendants already had the records of the psychologist Dr. Himmelsbach who had examined plaintiff over a year earlier at the request of the police department and had determined that plaintiff could work light duty and other restrictions should be re-evaluated. In light of all of the medical information available to defendants by September 2002, plaintiff has shown that a discriminatory reason more likely motivated the employer than the stated business necessity for the records at that time. Because plaintiff has shown that the demand for Dr. Lesswing's testing records in September 2002 and her subsequent administrative leave were more likely motivated by discrimination, defendants' motion for summary judgment for plaintiff's Title I ADA cause of action will be denied.
3. Title II Claims
The Second Circuit has not yet addressed whether a claim for the denial of public services pursuant to Title II of the ADA is cognizable for employment discrimination by a public entity. Federal District Courts in the Second Circuit have expressed different opinions on this issue. See e.g., Fleming v. State Univ. of N.Y., 502 F. Supp. 2d 324, 333 (E.D.N.Y.2007) (holding that Title II does not apply to employment discrimination claims); Trans. Workers Union of America, Local 100, AFL-CIO v. New York City Transit Authority, 342 F. Supp. 2d 160, 173 (S.D.N.Y.2004) (holding that Title II does apply to employment discrimination claims). Although having not yet explicitly addressed this issue, However, the Northern District has found that a "perceived disability" does not qualify as a disability under Title II of the ADA. Farid v. Bouey, 554 F. Supp. 2d 301, 326-327 (N.D.N.Y. 2008). To be able to withstand summary judgment under Title II, a plaintiff must show that she "suffers from a physical or mental impairment which ... substantially limits a major life activity." Id. at 326 (citations omitted). In this case, plaintiff bases her discrimination claim on perceived disability and does not claim that she suffers from a physical or mental impairment. As plaintiff's claims of discrimination based on perceived disability are not sufficient under Title II of the ADA, the City of Syracuse's motion for summary judgment on that cause of action will be granted.
F. Section 1983 (Suits I and II)
"To state a claim under § 1983, a plaintiff must allege the violation *442 of a right secured by the Constitution and laws of the United States." West v. Atkins, 487 U.S. 42, 48, 108 S. Ct. 2250, 2254-55, 101 L. Ed. 2d 40 (1988). A plaintiff must also show "that the alleged deprivation was committed by a person acting under color of state law." Id. A defendant's "misuse of power, possessed by virtue of state law and made possible only because the wrongdoer is clothed with the authority of state law, is action taken `under color of state law.'" United States v. Classic, 313 U.S. 299, 326, 61 S. Ct. 1031, 1043, 85 L. Ed. 1368 (1941) (external citations omitted). Both individuals and municipalities are subject to § 1983 claims. See, e.g., Canton v. Harris, 489 U.S. 378, 385, 109 S. Ct. 1197, 1203, 103 L. Ed. 2d 412; Back v. Hastings on Hudson Union Free Sch. Dist., 365 F.3d 107, 122 (2d Cir.2004). However, qualified immunity may be granted to individuals. See Pearson v. Callahan, ___ U.S. ___, ___, 129 S. Ct. 808, 815, 172 L. Ed. 2d 565 (2009). Recently, in Pearson, the Supreme Court held that when addressing qualified immunity claims, district courts need not first determine whether facts alleged or shown by plaintiff make out violation of constitutional right and can consider first whether the right was "clearly established" at the time of defendant's alleged misconduct. Id. at ___, 129 S.Ct. at 818.
For plaintiff's § 1983 claims, the Equal Protection and conspiracy claims will be considered first. Then, plaintiff's First Amendment claims against individuals will be discussed. Finally, plaintiff's First Amendment claim against the City of Syracuse will be analyzed.
1. Equal Protection Claims (Sixth Cause of Action in Suit I and Fourth and Fifth Causes of Action in Suit II)
The Fourteenth Amendment protects state employees from discrimination on the basis of sex. Back, 365 F.3d at 117. The burden-shifting framework for Title VII claims applies to claims brought under § 1983. Annis v. County of Westchester, 136 F.3d 239, 245 (2d Cir.1998) (internal citation omitted). Where a plaintiff has made the same allegations of unlawful discrimination under Title VII, section 1983 does not give rise to a separate cause of action for unlawful discrimination. Carrion v. Yeshiva Univ., 535 F.2d 722, 729 (2d Cir.1976). For the same reasons that plaintiff failed to establish her gender discrimination and hostile work environment Title VII claims, plaintiff's Equal Protection cause of action must also fail under § 1983.
2. Conspiracy (Tenth Cause of Action in Suit II)
Employees of a single corporate entity are legally incapable of conspiring together under the intracorporate conspiracy doctrine. Herrmann v. Moore, 576 F.2d 453 (2d Cir.1978). This doctrine applies to public entities and their employees. Nassau County Employee "L" v. County of Nassau, 345 F. Supp. 2d 293, 304 (E.D.N.Y.2004). Here, plaintiff alleges a conspiracy among defendants. However, at the time of the alleged conspiracy, all individual defendants were employees of defendant SPD. Because employees of a single entity are legally incapable of conspiring under § 1983, defendants' motion for summary judgment will be granted for this cause of action.
3. First Amendment (Seventh Cause of Action in Suit I and Fourth and Ninth Causes of Action in Suit II)
Plaintiff asserts that defendants violated her First Amendment right to free speech by retaliating against her for lawful complaints of discrimination. Defendants argue that individual defendants are entitled *443 to qualified immunity and that defendant City of Syracuse should not be held liable because plaintiff has not shown that there was a custom or practice of retaliation against individuals who brought complaints of discrimination. Defendants also assert that plaintiff's claim can not survive a motion for summary judgment because her discrimination complaints were not a matter of public concern, she was not subject to adverse employment actions, and plaintiff has not shown that her complaints were the substantial motivating factor for their conduct.
a. Individual Defendants and Qualified Immunity
To determine whether a right is clearly established, the Court must determine "whether it would be clear to a reasonable officer that his conduct was unlawful in the situation he confronted." Saucier v. Katz, 533 U.S. 194, 202, 121 S. Ct. 2151, 2156, 150 L. Ed. 2d 272 (2001). "The contours of the right must be sufficiently clear that a reasonable official would understand that what he is doing violates that right." Anderson v. Creighton, 483 U.S. 635, 640, 107 S. Ct. 3034, 3039, 97 L. Ed. 2d 523 (1987).
Defendants' conduct in investigating and disciplining plaintiff for alleged violations of department rules, even though sufficiently close in temporal proximity to establish pretext under Title VII, is insufficient to overcome qualified immunity under § 1983. To establish qualified immunity, a defendant must show that a reasonable person in the position of the defendant would not know that his conduct was violating plaintiff's constitutional rights. See Saucier v. Katz, 533 U.S. at 202, 121 S. Ct. at 2156. The defendants here could not have reasonably expected that their investigation or subsequent discipline of plaintiff either threatened or violated plaintiff's First Amendment rights because they were responding to allegations that plaintiff violated SPD rules. Therefore, to the extent investigations were conducted and discipline imposed as a result of rules violations, defendants are entitled to qualified immunity.
However, where plaintiff can show that defendants sought to impose discipline absent a violation of department rules, a reasonable person would know that such conduct is unlawful when meant to silence a person. In this case, plaintiff has presented evidence that defendant Heenan told her supervisor, Sergeant Long, to write up plaintiff every time she said anything about another person. A reasonable officer would know that such conduct was unlawful because the officer was using discipline to intimidate a person rather than to address wrong doing. Therefore, defendant Heenan's claim of qualified immunity will fail. For the other individual defendants, there is insufficient evidence to show that a reasonable person would expect their conduct to violate plaintiff's First Amendment rights, and they will be granted summary judgment for plaintiff's § 1983 First Amendment claim because they are entitled to qualified immunity.
For plaintiff's claim against defendant Heenan, the burden-shifting analysis for Title VII is used to determine if there is a viable claim. See Annis, 136 F.3d at 245. In order to establish a prima facie case, a plaintiff must show that "(1) the speech at issue was made as a citizen on matters of public concern rather than as an employee on matters of personal interest;" (2) there was an adverse employment action; and "(3) the speech was at least a substantial and motivating factor" in the adverse employment action. Morrison v. Johnson, 429 F.3d 48, 51 (2d Cir.2005).
Plaintiff's complaints were primarily in regard to gender discrimination. Gender discrimination in public employment is a matter of public concern. See *444 Poulsen v. City of North Tonawanda, 811 F. Supp. 884, 894 (W.D.N.Y.1993). Because gender discrimination in public employment is a public concern, plaintiff has established the first prong of her prima facie case. As described supra, being investigated and disciplined could dissuade a reasonable person from filing a complaint. Therefore, plaintiff has established this prima facie element. Additionally, the temporal proximity of plaintiff's complaints to the adverse actions as well as the comments made by defendant Heenan are sufficient to establish the causal relationship. Finally, even if defendant Heenan could show that he had nondiscriminatory reasons for his actions under the second stage of the McDonnell Douglas analysis, his comments about plaintiff are sufficient to establish pretext because he stated that he wanted plaintiff to be disciplined for merely talking rather than for legitimate reasons. For these reasons, defendant Heenan's motion for summary judgment as to the fourth and ninth causes of action in Suit II will be denied.
b. Municipal Liability
Under § 1983, "a municipality is not vicariously liable for the acts of its employees." Coon v. Town of Springfield, 404 F.3d 683, 686-87 (2d Cir.2005). However, a municipality may be liable for the conduct of its employees where a plaintiff establishes that her constitutional rights were violated because of "a municipal custom or policy." Russo v. City of Bridgeport, 479 F.3d 196, 212 (2d Cir.2007) (internal citations omitted). For a claim based on custom or policy, courts consider "whether there is a direct causal link between a municipal policy or custom and the alleged constitutional deprivation." Canton, 489 U.S. at 385, 109 S. Ct. at 1203. "A municipal policy may be inferred from the informal acts or omissions of supervisory municipal officials ..., [h]owever, a policy or custom may only be inferred if the acts or omissions of a municipality's supervisory officials are serious enough to amount to `deliberate indifference' to the constitutional rights of a plaintiff." Poulsen, 811 F.Supp. at 896 (internal citation omitted).
Here, in order for defendant City of Syracuse to be liable, plaintiff must show that the SPD had a policy of retaliating against individuals who complain about discrimination. Plaintiff has presented evidence from a number of police officers that claim they have been retaliated against after complaining about discrimination and that supervisors were involved in this discrimination. See Ex. J to Bosman Affirmation, 5:06-CV-949, Dkt. No. 41-4. This evidence is sufficient to establish a question of material fact as to whether their was a policy or custom to retaliate against individuals who complained. Therefore, defendant City of Syracuse's motion for summary judgment will also be denied regarding these causes of action.
G. Equal Pay Act (Second Cause of Action Suit I and Sixth Cause of Action Suit II)
To establish a prima facie case of discrimination under the Equal Pay Act ("EPA"), a plaintiff must show: "i) the employer pays different wages to employees of the opposite sex; ii) the employees perform equal work on jobs requiring equal skill, effort, and responsibility; [and] iii) the jobs are performed under similar working conditions." Belfi v. Prendergast, 191 F.3d 129, 135 (2d Cir.1999) (internal citation omitted). Claims of "sex discrimination regarding overtime assignments rather than unequal wage rates" do not constitute a violation of the EPA. True v. N.Y. State Dept. of Corr. Servs., 613 F. Supp. 27, 31 (W.D.N.Y.1984); see also Aguilar v. N.Y. Convention Ctr. Operating Corp., 174 F. Supp. 2d 49, 55 (S.D.N.Y. 2001).
*445 The Union contracts with defendant City of Syracuse to set base rates and step increments for the SPD. In that contract, women do not have lower wage rates than men. Additionally, defendants have offered evidence that plaintiff is paid at the same wage rate as male colleagues with similar rank and experience, and plaintiff has not submitted any evidence to show the wage rate varies for men and women. As the wage rates are not different for men and women and plaintiff is not paid at a lower wage rate, the EPA is not violated. Plaintiff contends that even though the wage rates are the same, varying overtime hours could violate the EPA. Even if plaintiff could show that she was personally denied overtime hours because of her gender, which she has not, the disparate assignment of overtime hours does not constitute a violation of this act. Therefore, defendants motion for summary judgment will be granted for the EPA claims in Suit I and Suit II.
H. New York Human Rights Law (Fifth Cause of Action in Suit I and Seventh Cause of Action in Suit II)
Defendants state that the NYHRL claims should be barred against defendant City of Syracuse because plaintiff did not file a notice of claim. They also argue that plaintiff has not provided sufficient evidence for these claims to survive a motion for summary judgment.
1. Notice of Claim Requirement for NYHRL Claims
General Municipal Law § 50-e does not permit a notice of claim requirement for NYHRL claims. See Gentile v. Town of Huntington, 288 F. Supp. 2d 316, 320 (E.D.N.Y.2003); Lane-Weber v. Plainedge Union Free School Dist., 213 A.D.2d 515, 516, 624 N.Y.S.2d 185 (2d Dept. 1995); Palmer v. City of New York, 215 A.D.2d 336, 627 N.Y.S.2d 42 (1st Dept. 1995). By citing Mills v. County of Monroe, 59 N.Y.2d 307, 308-09, 464 N.Y.S.2d 709, 451 N.E.2d 456 (1983), defendants appear to rely on New York County Law § 52. See Defs.' Mem. in Supp. of Summ. J., 11-12, 5:03-CV-1329, Dkt. No. 95-46; Defs.' Mem. in Supp. of Summ. J., 22, 5:06-CV-949, Dkt. No. 35-36. New York County Law § 52 is much broader in scope and it allows for a notice of claim requirement in more types of claims than General Municipal Law § 50-e. As the Second Department has stated, "County Law § 52, applies to any claim for invasion of personal or property rights, of every name and nature and to any claim for damages arising at law or in equity." Picciano v. Nassau County Civil Serv. Comm'n, 290 A.D.2d 164, 170-71, 736 N.Y.S.2d 55 (2d Dept. 2001). However, as this case involves a municipality, instead of a county, General Municipal Law § 50-e, rather than New York County Law § 52, applies. See Keating v. Gaffney, 182 F. Supp. 2d 278, 290-291 (E.D.N.Y.2001) ("[E]mployment discrimination claims [brought] against municipal as opposed to county defendants are exempt from the notice of claim requirement.") Because General Municipal Law § 50-e does not allow for a notice of claim requirement for NYHRL claims, defendants' notice of claim argument fails.
2. Standard of Review and Statute of Limitations for NYHRL Claims
Claims under the NYHRL are subject to the burden-shifting analysis established in McDonnell Douglas. Weinstock, 224 F.3d at 42 n. 1 ("The identical standards apply to employment discrimination claims brought under Title VI I ... [and] New York Executive Law § 296."). However, "[u]nlike Title VI I's 300-day rule, the statute of limitations for actions under New York's Human Rights Law is three years." Van Zant, 80 F.3d at 714 (citing N.Y. Civ. Prac. L. & R. 214(2)). *446 Under the NYHRL, the statute of limitations is measured from the filing of the action in court. See N.Y. Civ. Prac. L. & R. 214(2). Unlike Title VII, under the NYHRL those "personally involved in the discriminatory conduct ... may be subject to individual liability." Briggs, 233 F.Supp.2d at 379. However, if there is no viable NYHRL claim against the employer, then individual employees can not be held liable under the statute. Yerry v. Pizza Hut of Se. Kan., 186 F. Supp. 2d 178, 187 (N.D.N.Y.2002).
3. Gender Discrimination
Plaintiff's gender discrimination claims under Title VI I that were not-timed barred have already been discussed and summary judgment is warranted regardless of whether they are brought under Title VII or the NYHRL. However, claims that are timely under the statute of limitations for the NYHRL that were not timely under Title VII warrant consideration. Based on the NYHRL's three year statute of limitations and the time frame of the Title VII claims already discussed, the relevant time period is October 30, 2000 until May 23, 2005.
Plaintiffs claims from this time period that affected her job responsibilities consist of: (1) discriminatory assignment of overtime; (2) being relieved of her gun on November 15, 2001; (3) gender discrimination when requiring her to be evaluated by a number of doctors after her treating psychiatrist released her to work; and (4) the discipline plaintiff received.
a. Overtime Assignments
Like the discussion of overtime assignments supra, plaintiff does not provide evidence of specific instances when she was denied overtime. However, plaintiff does argue that she was denied overtime generally because her secondary work permits were revoked when she was on leave. In response, defendants have shown that plaintiff is not treated differently than other officers who are unable to work secondary assignments when on medical leave. See Smith Aff. ¶ 8, 5:03-CV-1329, Dkt. No. 95-44; Cuelton Reply Aff. ¶ 7, 5:03-CV-1329, Dkt. No. 128-3. Because plaintiff has not established that she was entitled to secondary work permits while on leave, she has not established her prima facie case. Therefore, plaintiff's NYHRL claim for discrimination arising from the assignment of overtime will not survive summary judgment and this part of plaintiff's Fifth Cause of Action in Suit I and Seventh Cause of Action in Suit II will be dismissed.
b. Seizure of Plaintiff's Weapon
Plaintiff was relieved of her weapon on the same day she sought psychiatric treatment in relation to the physical altercation with defendant Kaufman. Plaintiff's own psychiatrist stated that plaintiff should be on medical leave at this time. Defendants have also provided statements that other officers, including at least one male officer, have been relieved of their weapons while on medical leave. See Cuelton Aff. ¶ 15, 5:03-CV-1329, Dkt. No. 95-30. Because plaintiff was placed on psychiatric medical leave and she has not presented evidence that she was treated differently than similarly situated male colleagues, this claim will not survive defendants' motion for summary judgment.
c. Medical Evaluations and Request for Medical Records
For the same safety reasons discussed supra, defendants' have established a legitimate, non-discriminatory reason why they need for plaintiff's psychiatric medical information. Plaintiff has not shown that these early requests were more likely based on gender discrimination. Because defendants' have a legitimate reason for their conduct and plaintiff has not established *447 pretext, defendants will be granted summary judgment.
d. Disciplinary Actions Taken Towards Plaintiff
Plaintiff was disciplined at the end of October 2000. Plaintiff brought grievances for that discipline and as part of the subsequent settlement, she agreed not to seek legal action. Therefore, plaintiff's October 2000 discipline will not be discussed here. Plaintiff was also disciplined on August 22, 2001 and June 27, 2003. Like the claims of gender discrimination discussed under the Title VI I analysis, even if plaintiff can establish a prima facie case, defendants have shown that plaintiff violated department rules. Again, plaintiff has not presented sufficient evidence that imposing discipline or the level of discipline was related to gender instead of her actual violations of the rules. Because plaintiff can not establish pretext, defendants' motion for summary judgment will be granted.
4. Retaliation Claims (Suit II)
Because the same standard is applied under Title VII and the NYHRL, plaintiff's NYHRL claim will survive summary judgment to the extent that plaintiff's Title VII retaliation claim survives summary judgment.
5. Hostile Work Environment Claim (Suit II)
The legal standard for claims under Title VII and the NYHRL are virtually identical. Van Zant, 80 F.3d at 714 (internal citation omitted). Because plaintiff could not establish defendants' conduct was so severe or pervasive as to constitute a hostile work environment claim under Title VII against the defendant City of Syracuse, plaintiff's hostile work environment claim under the NYHRL will also fail.
6. Individual Defendants
If there is no viable NYHRL claim against the employer, then individual employees can not be held liable under the NYHRL. Yerry, 186 F.Supp.2d at 187. For plaintiff's NYHRL claims that do not survive summary judgment against the defendant City of Syracuse, individual defendants will also be granted summary judgment. However, where plaintiff has a viable retaliation claim, claims against culpable individual defendants can survive summary judgment. Here, for the NYHRL retaliation claim, defendant Heenan's motion will be denied.
7. Work Environment, Retaliation, and Disability Discrimination (Suit I)
Plaintiff, in her complaint for Suit I, did not plead causes of action arising under the NYHRL stemming from a hostile work environment, retaliation, or disability discrimination. See Pl.'s Am. Compl. ¶ 56, 5:03-CV-1329, Dkt. No. 80. In her memorandum of law in opposition to defendants' motion for summary judgment, plaintiff appears to argue that these NYHRL causes of action should be decided at trial. See Pl.'s Mem. in Opp'n to Summ. J., 13-15, 17, 5:03-CV-1329, Dkt. No. 126. However, as these claims were never pled in Suit I, these causes of action can not now be asserted for Suit I.
I. Breach of Contract Claim (Eighth Cause of Action in Suits I and II)
Unlike a NYHRL claim, a municipality may raise a plaintiff's failure to file a notice of claim as a defense to a contract claim. See Davis-Wallbridge, Inc. v. City of Syracuse, 71 N.Y.2d 842, 527 N.Y.S.2d 736, 522 N.E.2d 1034 (1988). In Davis-Wallbridge, the New York Court of Appeals found that for a breach of contract claim, "[c]ompliance with the charter's notice of claim clause, unless waived, is a condition precedent to the commencement of litigation against the City." Davis-Wallbridge, 71 N.Y.2d at 844, 527 N.Y.S.2d 736, *448 522 N.E.2d 1034 (internal citation omitted). Additionally, the court noted that waiver can not be found unless "there is an express agreement that [notice of claim] is inapplicable" or "the parties have set out detailed procedures which are plainly inconsistent" with the notice of claim requirement. Id.
Plaintiff did not file a notice of claim for either Suit I or Suit II. Further, even though plaintiff argues that this defense was waived because it was not raised earlier in this litigation, that assertion incorrectly applies the Court of Appeals criteria for establishing waiver. Plaintiff has not presented any evidence that there was an express agreement that a notice of claim was not required or that detailed procedures were established that were plainly inconsistent with a notice of claim requirement. Therefore, because a municipality may require a notice of claim for a breach of contract claim and plaintiff did not file a notice of claim for either suit or present any evidence of express or implied waiver within the criteria established by the New York Court of Appeals, defendant City of Syracuse will be granted summary judgment for the breach of contract claims. Additionally, as the individual defendants are not parties to the Union contract, their motions will also be granted.
IV. CONCLUSION
Because plaintiff was unable to establish a prima facie claim of Title VII gender discrimination arising from the assignment of overtime and the prohibition against her attending medical appointments while on-duty, defendants' motion for summary judgment will be granted for those claims. Additionally, since plaintiff was unable to show pretext underlying the disciplinary actions taken against her, defendants' motion for summary judgment will granted for that Title VII claim. In regards to the hostile work environment claim, defendants' conduct was not sufficiently severe and/or pervasive to survive a motion for summary judgment and defendants' motion will be granted for that claim. Plaintiff's Title VII retaliation claim against defendant City of Syracuse, however, will survive defendants' motion for summary judgment because plaintiff was able to meet her burden for pretext under the McDonnell Douglas burden-shifting analysis.
Additionally, plaintiff presented sufficient evidence that she may have been perceived as disabled. That is sufficient under Title I of the ADA, but not Title II. For her Title I ADA claims, plaintiff has shown that defendants' stated reasons for their actions in 2002 may have been pretext for disability discrimination. However, because individual defendants are not liable under the ADA, only plaintiff's claim against defendant City of Syracuse will survive defendants' motion for summary judgment.
Plaintiff's § 1983 claim alleging that she was denied her Fourteenth Amendment right of equal protection will be dismissed for the same reasons as her Title VII gender discrimination and hostile work environment claims. Additionally, defendants' motion for summary judgment will be granted as to plaintiff's conspiracy claim because employees of a single entity are legally incapable of conspiring under § 1983.
As for the § 1983 First Amendment claim, all of the individual defendants except defendant Heenan will be granted summary judgment based on qualified immunity. Plaintiff's § 1983 First Amendment Claim against defendant City of Syracuse will survive summary judgment because plaintiff has submitted sufficient evidence to raise questions of material facts as to whether the SPD had a policy or custom to retaliate against those who complained of discrimination. Additionally, *449 to the extent that plaintiff has a viable Title VII retaliation claim against defendant City of Syracuse, defendants' motion to dismiss plaintiff's NYHRL claim against the City and defendant Heenan will be denied.
Defendants' motions for summary judgment for plaintiff's claims under New York contract law will be granted because plaintiff did not file a notice of claim. Finally, defendants' motions will also be granted for plaintiffs' EPA claims because plaintiff has not submitted evidence that she was paid at a different wage rate.
Accordingly, it is
ORDERED that
1. Defendant Syracuse Police Department's motions for summary judgment are GRANTED for all of plaintiff's claims, and all claims against the Syracuse Police Department are DISMISSED.
2. The individual defendants' motions for summary judgment for plaintiff's Title VII claims are GRANTED, and plaintiff's Title VII claims against individual defendants are DISMISSED.
3. Defendant City of Syracuse's motion for summary judgment for plaintiff's Title VII claims is GRANTED in part and DENIED in part.
a) Defendant City of Syracuse's motion is GRANTED for plaintiff's Title VII gender discrimination, hostile work environment claims, and retaliation claims arising from conduct before May 24, 2005.
b) Defendant City of Syracuse's motion is DENIED for plaintiff's Title VII retaliation claims arising from conduct after May 24, 2005.
4. The individual defendants' motions for summary judgment for plaintiff's ADA claims are GRANTED, and plaintiff's ADA claims against individual defendants are DISMISSED.
5. Defendant City of Syracuse's motion for summary judgment for plaintiff's ADA claims is GRANTED in part and DENIED in part.
a) Defendant City of Syracuse's motion is GRANTED for plaintiff's Title II ADA claims.
b) Defendant City of Syracuse's motion is DENIED for plaintiff's Title I ADA claims.
6. Defendants' motions for summary judgment for plaintiff's § 1983 claims are GRANTED in part and DENIED in part.
a) Defendants' motions are GRANTED for plaintiff's § 1983 claims arising under Equal Protection and Conspiracy.
b) Defendants' motions are GRANTED for plaintiff's § 1983 claims arising under the First Amendment against all individual defendants except defendant Heenan.
c) Defendants' motions are DENIED for plaintiff's § 1983 claims arising under the First Amendment against defendant Michael Heenan and defendant City of Syracuse.
7. Defendants' motions for summary judgment for plaintiff's EPA claims are GRANTED, and plaintiff's EPA claims against all defendants are DISMISSED.
8. Defendants' motions for summary judgment for plaintiff's NYHRL claims are GRANTED in part and DENIED in part.
a) Defendants' motions are GRANTED for plaintiff's NYHRL claims for gender discrimination and hostile work environment.
b) Defendants' motions are GRANTED for plaintiff's NYHRL claims for retaliation for all individual defendants except defendant Michael Heenan.
c) Defendants' motions are DENIED for plaintiff's NYHRL claims for retaliation for defendant Michael Heenan and defendant City of Syracuse.
*450 9. Defendants' motions for summary judgment for plaintiff's breach of contract claims are GRANTED, and plaintiff's breach of contract claims against all defendants are DISMISSED.
10. The Second, Fifth, Sixth, and Eighth causes of action in Suit I and the First, Second, Fifth, Sixth, Eighth, and Tenth Causes of Action in Suit II are DISMISSED in their entirety.
11. Both complaints in their entirety are DISMISSED against defendants the Syracuse Police Department, Michael Kerwin, Thomas Galvin, John Falge, Mark McArdle, Captain Ronald Pugh, Daniel Boyle, Deputy Chief Hanna, John Kaufman, Dennis Duval, Gary Miguel, Steve Thompson, Michael Rathbun, and Richard Douglas.
IT IS SO ORDERED.
The following issues remain to be resolved at trial: (1) liability and damages, if any, against the City of Syracuse for plaintiff's Title VII retaliation claim arising out of conduct after May 24, 2005 (third cause of action in Suit II); (2) liability and damages, if any, against the City of Syracuse for plaintiff's Title I ADA claim (fourth cause of action in Suit I); (3) liability and damages, if any, against the City of Syracuse for plaintiff's § 1983 claims arising under the First Amendment (seventh cause of action in Suit I and fourth and ninth causes of action in Suit II); (4) liability and damages, if any, against defendant Michael Heenan for plaintiff's § 1983 claims arising under the First Amendment (fourth and ninth causes of action in Suit II); and (5) liability and damages, if any, against defendant City of Syracuse and defendant Michael Heenan for plaintiff's NYHRL claims for retaliation (seventh cause of action in Suit II).
NOTES
[1] The individual defendants serve different roles at the SPD. Defendants Duval, Falge, Miguel, and Thompson were Chief of Police. Defendants Boyle, Hanna, and Heenan were Deputy Chiefs. Defendant Kerwin was a Captain and/or Inspector. Defendants Pugh, Galvin, and Rathbun were Captains. Defendant McArdle was a supervisor. Defendants Kaufman and Douglas were fellow police officers.
[2] Defendant Douglas is represented by separate counsel. Where his arguments address claims that are viable, they will be addressed independently. However, where the arguments made by defendants in general are sufficient to address the claims against defendant Douglas, his separate arguments will not be addressed.
[3] Plaintiff also includes in her motion papers a request for sanctions and attorneys' fees or an order compelling discovery. This is not the proper method for seeking compliance with discovery and will not be addressed.
[4] The standard for a response to a statement of material facts under Southern District of New York Local Rule 56.1 is analogous to N.D.N.Y. LR 7.1. See S.D.N.Y. Local Rule 56.1(c) ("Each numbered paragraph in the statement of material facts set forth in the statement required to be served by the moving party will be deemed to be admitted for purposes of the motion unless specifically controverted by a correspondingly numbered paragraph in the statement required to be served by the opposing party.") (emphasis omitted).
[5] Plaintiff does assert that she was denied the opportunity for overtime when she was on medical leave after the November 2000 altercation. That time period is not relevant to her Title VII claim because it falls outside of the relevant 300 day time period.
[6] Defendants in their reply memorandum of law state the correct standard but only address one investigation outside of the relevant time period. See Defs. Reply Mem. in Supp. of Summ. J., 9, 5:06-CV-949, Dkt. No. 48-9.
[7] Defendants argue that no conduct from 2000-2003 should be considered for plaintiff's Title VII claims in Suit II because her Title VII claims were dismissed in Suit I. See Defs.' Reply Mem. Supp. Summ. J., 5-7, 5:06-CV-949, Dkt. No. 48-9. However, plaintiff did not bring a Title VII hostile work environment claim in Suit I. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1890807/ | 689 F. Supp. 384 (1988)
Alphonse CAMASSO, Lyra Camasso, Richard Dion, Carmen Dion, Kevin Larocque, Paul Merritt, Virginia Merritt, George Semanie, Valerie Semanie, Paul Brennan, Dorothy Brennan, James Lomme, Lois Lomme, Martin Paul Flanagan, Lillian Flanagan, Stanley Plifka, Lori Plifka, Pamela Lucas Hartling, Gene Hartling, Richard Varrato, Linda Varrato, John Mirisola, and Sharon Mirisola, Plaintiffs,
v.
DORADO BEACH HOTEL CORPORATION d/b/a Hyatt Regency Cerromar Resort, Hyatt Hotels of Puerto Rico, Inc., and Hyatt Corporation, Defendants.
William BONOMI, Lynn Bonomi, Brad Cronin, Pauline Cronin, Donald D'Amour, Michelle D'Amour, Paul D'Amour, Helen D'Amour, Frank Disanti, Kathleen Disanti, Stephen McGarty, Roxanne McGarty, Thomas Millette, Claire Millette, Janet Rankin, Douglas Thornton, Kathleen Thornton, and Big Y Foods, Inc., Plaintiffs,
v.
DORADO BEACH HOTEL CORPORATION d/b/a Hyatt Regency Cerromar Resort, Hyatt Hotels of Puerto Rico, Inc., and Hyatt Corporation, Defendants.
Civ. A. Nos. 87-529, 87-559.
United States District Court, D. Delaware.
June 23, 1988.
*385 Alan T. Boyd of Bayard, Handelman & Murdoch, Wilmington, Del., of counsel: Thomas A. Kenefick, III, and Peter W. Shrair of Cooley, Shrair, Alpert, Labovitz & Dambrov, P.C., Springfield, Mass., for plaintiffs in Civ. A. No. 87-529.
Alan T. Boyd of Bayard, Handelman & Murdoch, Wilmington, Del., of counsel: George F. Kelly of Ryan & White, P.C., Springfield, Mass., for plaintiffs in Civ. A. No. 87-559.
Donald E. Reid of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., of counsel: Paul W. Goodrich of Morrison, Mahoney & Miller, Boston, Mass., for defendants.
OPINION
MURRAY M. SCHWARTZ, Chief Judge.
A November, 1986 alleged outbreak of salmonella poisoning at the Hyatt Regency Cerromar ("Cerromar") Resort located in Dorado Beach, Puerto Rico, led to the filing of two lawsuits in the Delaware District against identical defendants. Defendants are Dorado Beach Hotel Corporation d/b/a Hyatt Regency Cerromar Resort, a Delaware corporation, with its principal place of business in Puerto Rico; Hyatt Hotels of Puerto Rico, Inc., a Delaware corporation, with its principal place of business in Puerto Rico; and Hyatt Corporation, a Delaware corporation, with its principal place of business in Chicago, Illinois. The first filed suit has twenty-three plaintiffs: twelve residents of Massachusetts, five residents of New Hampshire, four residents of Connecticut, and two residents of Maine.[1] There are seventeen private plaintiffs in the second filed suit: eleven residents of Massachusetts and six residents of Connecticut, plus one Massachusetts Corporation.[2] Defendants initially filed a motion to change venue in both civil actions to Puerto Rico pursuant to 28 U.S.C. § 1404(a). Thereafter, perceiving potential difficulties with their legal positions on transfer, defendants filed an alternative motion in both lawsuits to sever one of the defendants or dismiss the entire action on grounds of forum non conveniens.
While the two complaints have not been consolidated, defendants' identical motions are treated in one opinion. Defendants' motions to transfer will be denied because these lawsuits could not "have been brought" in Puerto Rico. Defendants' alternative motion to sever or dismiss will be denied because neither is appropriate.
I. Motion for Change of Venue
Treating the two lawsuits as one for purposes of defendants' motion, there are *386 forty individual plaintiffs, 23 from Massachusetts, 10 from Connecticut, 5 from New Hampshire and 2 from Maine, plus a Massachusetts corporation. All three defendants are Delaware corporations with two having their principal place of business in Puerto Rico. The third defendant corporation, Hyatt Corporation, is not qualified to do business in Puerto Rico.
28 U.S.C. § 1404(a) provides:
For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.
(emphasis added).
The statute sets forth three criteria which must be satisfied before transfer is appropriate: 1) it must be established that the action "might have been brought" in the transferee district; 2) a transfer must serve the convenience of parties and witnesses and 3) the interests of justice must counsel transfer. If the first criteria is not met, there can be no transfer under Section 1404, irrespective of the convenience of parties and witnesses and the interests of justice. See VanDusen v. Barrack, 376 U.S. 612, 616, 84 S. Ct. 805, 809, 11 L. Ed. 2d 945 (1964).
A prerequisite to transfer under Section 1404(a) is that the plaintiff have an unqualified right to bring the action in the transferee district. This unqualified right is satisfied only if at the time of commencement of suit venue is proper in the transferee forum and the transferee district has the power to exercise personal jurisdiction over all defendants. Hoffman v. Blaski, 363 U.S. 335, 343-44, 80 S. Ct. 1084, 1089, 4 L. Ed. 2d 1254 (1960); Shutte v. Armco Steel Corp., 431 F.2d 22, 24 (3d Cir.1970), cert. denied, 401 U.S. 910, 91 S. Ct. 871, 27 L. Ed. 2d 808 (1971). Plaintiffs do not contest venue would be proper in Puerto Rico. Similarly, plaintiffs concede two of the three defendants who do business in Puerto Rico are subject to personal jurisdiction in Puerto Rico. Plaintiffs do assert the Puerto Rico district court could not exercise personal jurisdiction over the third defendant, Hyatt Corporation, because it is a Delaware corporation with its principal place of business in Chicago, Illinois, and is not qualified to do business in Puerto Rico.
Defendants have pointed to no provision in the Puerto Rico long-arm statute which would permit an assertion of personal jurisdiction by the District Court in Puerto Rico. In fact, they conceded there was no personal jurisdiction in their brief:
Based on the current record, however, defendants concede that a simple transfer of the entire case pursuant to Section 1404(a) is not possible due to the fact that it does not appear from the record that plaintiffs could have obtained personal jurisdiction over Hyatt Corporation in Puerto Rico.
Defendant's Reply Brief in Support of Their Alternative Motions to Sever or Dismiss, C.A. No. 87-559, Dkt. 18 at 1.[3] However, at oral argument, defendants insisted there was personal jurisdiction, because if defendant Hyatt Corporation committed the acts alleged in plaintiffs' complaint, it would be subject to personal jurisdiction in Puerto Rico. Defendants contend that, because the same set of facts govern both decisions, if there is personal jurisdiction over defendant Hyatt Corporation, it is also liable and if there is no jurisdiction, it is not liable. This obviously circular argument is totally bereft of merit. It confuses personal jurisdiction with the substantive merits.
These actions could not have been brought in Puerto Rico because there is no personal jurisdiction over Hyatt Corporation. Accordingly, Puerto Rico is not a jurisdiction where suit "might have been brought" within the meaning of 28 U.S.C. *387 § 1404(a). As a consequence, the Court will enter an order denying defendants' 28 U.S.C. § 1404(a) motion for change of venue.
II. Motion to Sever or Dismiss
Defendants, correctly perceiving they face an insurmountable obstacle for a statutory change of venue, filed an alternative motion to sever or dismiss. Defendants seek an order directing a severance of the claims against Hyatt Corporation from the claims against the other defendants so that lawsuit would be one "which might have been brought" in Puerto Rico. Defendants also urge that if their motion to sever is denied, the entire action should be dismissed under the doctrine of forum non conveniens. Defendants have offered several inducements to pave the way for grant of its alternative motions. If the Court were to sever and transfer, Hyatt Corporation has undertaken to file a motion to intervene in the Puerto Rico action. If the Court were to order a forum non conveniens dismissal, Hyatt Corporation has obligated itself to consent to the jurisdiction of the United States District Court for the District of Puerto Rico. In addition, all defendants recognize the Puerto Rico statute of limitations would bar plaintiffs' claims and agree to waive the limitations defense.
Defendants' motion to sever and transfer will be denied for two independent reasons. First, defendants have not carried their burden of demonstrating a transfer would result in convenience for parties and witnesses or in the interest of justice. Second, defendants' proposal is an attempt at a blatant "end-run" around Section 1404. See Hoffman v. Blaski, 363 U.S. 335, 342-44, 80 S. Ct. 1084, 1088-90, 4 L. Ed. 2d 1254 (1960).
The analysis of convenience in a motion to transfer begins with the oft-quoted standard set forth in Shutte v. Armco Steel Corp., 431 F.2d 22 (3d Cir.1970), cert. denied, 401 U.S. 910, 91 S. Ct. 871, 27 L. Ed. 2d 808 (1971). Unless the balance of convenience of the parties is strongly in favor of defendant, the plaintiffs' choice of forum should prevail. Id. at 25. However,
when plaintiffs choose to bring suit in a district that is not at or near their place of residence, the "convenience to plaintiff[s] of litigating in [their] choice of forum is not as great as it would be were [they] litigating at or near [their] residence, [their] principal place of business, or the site of the activities at issue in the lawsuit." Thus, the Shutte rule has "less of an impact in those cases where the plaintiff selects a forum which is connected neither with the plaintiff or [sic] the subject matter of the lawsuit." ...
Minstar, Inc. v. Laborde, 626 F. Supp. 142, 145 (D.Del.1985) (citations omitted). Notwithstanding this "lesser impact" when determining convenience in a case not brought on plaintiff's "home-turf," a court may keep in mind that plaintiffs' chosen forum may still be far more convenient to plaintiffs than the transferee forum. "[T]he quantum of inconvenience to defendant needed to tip the balance strongly in favor of transfer necessarily will be less than in the case where plaintiff's choice of forum is highly convenient to plaintiff." General Instrument Corp. v. Mostek Corp., 417 F. Supp. 821, 823 (D.Del.1976). In the instant matter, plaintiffs are all from the northeast and could be in and out of the Wilmington District in a day during presentation of any plaintiff's particularized damage facts. On the other hand, if the trial is in Puerto Rico, plaintiffs would have to find overnight accommodations for themselves and their witnesses.
Defendants correctly urge the vast majority, if not all, of their witnesses are located in Puerto Rico. They have identified twenty witnesses such as hotel employees, physicians, medical personnel officials of the Puerto Rican Department of Environmental Health and vendors providing food services who reside in Puerto Rico. These defense witnesses will testify about the condition of the hotel's kitchen, procedures for food preparation, the serving and storage of prepared food, defendants' efforts to maintain a clean and safe environment, and the activities and findings *388 of health professionals and officials who examined the hotel before and after plaintiffs' illness. On the other hand, the forty plaintiffs and their separate individualized medical witnesses all reside in the northeast.
Plaintiffs and defendants have committed themselves to taking the opponents' depositions at a place convenient to the other. That is, if transfer is granted, defendants have obligated themselves to take the depositions of plaintiffs and their witnesses at a convenient location in the northeast; if transfer is not granted, plaintiffs have assured the Court all depositions of Puerto Rican witnesses will be taken in Puerto Rico.
Most, if not all, non-party liability witnesses are located in Puerto Rico, and all plaintiffs and important non-party damage witnesses are in the northeast. The transfer urged by defendants simply will result in a shifting of inconvenience from defendants to plaintiffs.[4]
Defendants also urge the "interest of justice" component of § 1404(a) will be served by transfer to Puerto Rico. Specifically, they state access to proof is greater in Puerto Rico, a view of the preparation of food and condition of the hotel can only be had if the matter is tried in Puerto Rico, and compulsory process on non-party liability witnesses is available in Puerto Rico.
The above contentions, while true when viewed solely from the perspective of defendants, are unpersuasive when balanced against plaintiffs' interests. While the access to proof factor favors defendants in the liability phase, the same factor is strongly in favor of the plaintiffs in the damage phase. The need for view of the hotel or its food preparation is virtually nil. Finally, if the action were transferred to Puerto Rico, plaintiffs would have equal difficulty with respect to non-party compulsory process of treating physicians and other experts.
There is a second independent reason why the Court should decline to sever and transfer. The motion to sever is an undisputed effort to circumvent Section 1404(a) and Hoffman v. Blaski, 363 U.S. 335, 80 S. Ct. 1084, 4 L. Ed. 2d 1254 (1960). Hoffman explicitly held for Section 1404 purposes the transferee court must have jurisdiction over all defendants at the time of filing of the complaint, and a failure to have jurisdiction cannot be cured by defendants' consent. 363 U.S. at 343-44, 80 S.Ct. at 1089-90. Defendants' motion to sever and transfer, coupled with Hyatt Corporation's commitment to intervene if the action were severed as to it and transferred to Puerto Rico, seeks to accomplish what Hoffman forbids. Defendants point to Wyndham Associates v. Bintliff, 398 F.2d 614 (2d Cir.), cert. denied, 393 U.S. 977, 89 S. Ct. 444, 21 L. Ed. 2d 438 (1968), and Ferri v. United Aircraft Corp., 357 F. Supp. 814 (D.Conn.1973), as support for its proposed transgression.
The Wyndham court had before it two class actions against eight defendants who allegedly engaged in a scheme to manipulate the price of stock. 398 F.2d at 615-16. One defendant, the American Stock Exchange, seemingly precluded transfer to the district court in Houston where numerous other proceedings involved the same alleged stock manipulation were pending and to which eleven other cases had been transferred by the transferor court. Id. at 617-18. Faced with all factors pointing unequivocally to transfer, the transferor court determined it was preferable to have duplicative litigation in two forums. Id. at 618-19. The instant case is a far cry from the Wyndham facts. Defendants' other case, Ferri, is easily distinguished since it merely suggested in dicta an "end run" around Section 1404 by employment of the severance and transfer tactic. See 357 F.Supp. at 818.
*389 Having determined transfer to Puerto Rico would only shift inconvenience of parties and witnesses from defendants to plaintiffs and the interest of justice would not be served by a transfer, it follows no purpose would be served by severing the action against Hyatt Corporation. An order will be entered denying defendants' motion to sever and transfer.
Defendants have also moved for a forum non conveniens dismissal to compel plaintiffs to litigate in the Puerto Rico forum. Defendants' forum non conveniens dismissal is completely inappropriate because, as demonstrated above, neither convenience of parties nor the convenience of witnesses favors defendants. Moreover, passage of 28 U.S.C. § 1404 superseded the doctrine for purposes of federal inter-district court transfer. See Hoffman, 363 U.S. at 342, 80 S. Ct. at 1088-89. Finally, defendants have presented no valid reason why this action should be dismissed so as to relegate plaintiffs to a Puerto Rico local court. An order will be entered denying defendants' alternative motion to dismiss on forum non conveniens grounds.
In summary, the Court has denied defendants' motion to change venue because Puerto Rico is not a district where this action "might have been brought." In addition, defendants' motion to sever and transfer has been denied because transfer would only shift the inconvenience to plaintiffs from the defendants and their witnesses, and because the interests of justice would not be served by a transfer. Finally, defendants' motion for a forum non conveniens dismissal has been denied as being completely inappropriate on the facts of this case.
NOTES
[1] Alphonse Camasso, Lyra Camasso, Richard Dion, Carmen Dion, Kevin Larocque, Paul Merritt, Virginia Merritt, George Semanie, Valerie Semanie, Paul Brennan, Dorothy Brennan, James Lomme, Lois Lomme, Martin Paul Flanagan, Lillian Flanagan, Stanley Plifka, Lori Plifka, Pamela Lucas Hartling, Gene Hartling, Richard Varrato, Linda Varrato, John Mirisola, and Sharon Mirisola v. Dorado Beach Hotel Corporation d/b/a Hyatt Regency Cerromar Resort, Hyatt Hotels of Puerto Rico, Inc., and Hyatt Corporation, Civil Action No. 87-529 MMS.
[2] William Bonomi, Lynn Bonomi, Brad Cronin, Pauline Cronin, Donald D'Amour, Michelle D'Amour, Paul D'Amour, Helen D'Amour, Frank DiSanti, Kathleen DiSanti, Stephen McGarty, Roxanne McGarty, Thomas Millette, Claire Millette, Janet Rankin, Douglas Thornton, Kathleen Thornton, and Big Y Foods, Inc. v. Dorado Beach Hotel Corporation d/b/a Hyatt Regency Cerromar Resort, Hyatt Hotels of Puerto Rico, Inc., and Hyatt Corporation, Civil Action No. 87-559 MMS.
[3] Defendants make the identical concession in the companion case:
Based on the current record, however, defendants concede that a simple transfer of the entire case pursuant to Section 1404(a) is not possible due to the fact that it does not presently appear that plaintiffs could have obtained jurisdiction over Hyatt Corporation in Puerto Rico if the action had been originally filed there.
Defendants' Reply Brief in Support of Their Motion to Sever and Transfer, C.A. No. 87-529, Dkt. 19 at 1.
[4] Defendants rely upon two "hotel" cases. Campbell v. Hilton Hotels Corp., 611 F. Supp. 155 (E.D.Mich.1985), and Kyle v. Days Inn of America, Inc., 550 F. Supp. 368 (M.D.Pa.1982). While both cases are personal injury actions with hotels as defendants, they are distinguishable because each involved only a husband and wife as plaintiffs, while the instant matter has forty individual plaintiffs. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1891090/ | 689 F. Supp. 422 (1988)
REFAC INTERNATIONAL LTD., Plaintiff,
v.
IBM, et al., Defendants.
Civ. A. No. 85-2020.
United States District Court, D. New Jersey.
July 1, 1988.
*423 Richard T. Laughlin, Judson A. Parsons, Jr., Laughlin, Markensohn, Lagani & Pegg, P.C., Morristown, N.J., Philip Sperber, President, Refac Intern. Ltd., New York City, for plaintiff.
D. Peter Hochberg, D. Peter Hochberg Co., L.P.A., Cleveland, Ohio, Roy H. Wepner, Lerner, David, Littenberg, Krumholz & Mentlik, Westfield, N.J., for Diebold, Inc.
*424 Harold E. Meier, Gardere & Wynne, Dallas, Tex., John B. Lavecchia, Michael P. Murphy, Connell, Foley & Geiser, Roseland, N.J., for Olivetti USA, Inc. (Docutel).
Alan J. Hruska, Edward Hayum, Cravath, Swaine & Moore, New York City, Edward A. Zunz, Jr., Peter McDonough, Riker, Danzig, Scherer, Hyland & Perretti, Morristown, N.J., for IBM Corp.
Jonathan A. Marshall, Frank E. Morris, Maria McCormack, Pennie & Edmonds, New York City, Edward Dauber, Greenberg, Dauber & Epstein, Newark, N.J., for Manufacturers Hanover Trust Co.
Charles W. Bradley, Steven D. Glazer, Lawrence B. Goodwin, Davis Hoxie Faithfull & Hapgood, New York City, Richard D. Catenacci, John B. Lavecchia, Connell, Foley & Geiser, Roseland, N.J., for NCR Corp.
Ronald Santucci, David Kane, Kane, Dalsimer, Sullivan, Kurucz, Levy, Eisele and Richard, New York City, Roger Toner, Kuttner, Toner & DiBenedetto, Roseland, N.J., for Fujitsu.
Susan Lesinski, Dorsey & Whitney, New York City, for A.O. Smith Corp.
Robert C. Kahrl, Jones, Day, Reavis & Pogue, Cleveland, Ohio, Roger A. Lowenstein, Dickson, Creighton & Lowenstein, P.A., Hoboken, N.J., for TRW.
AMENDED OPINION
POLITAN, District Judge.
This case comes before this Court on a motion for summary judgment by the defendants, IBM et al. They allege that the patent at issue, the Cook patent # 3,612,687, is invalid because it fails to comply with 35 U.S.C. § 112[1], and 35 U.S. C. § 101-103. Additionally, defendants claim unenforceability of both the Cook and Nissman (patent # 3,609,690) patents, on the grounds that both patents fail to particularly point out and distinctly claim what the inventors regard as their invention.[2] Defendants also allege that the Cook patent should fail because it does not set forth the "best mode"; that there was anticipation of the Cook patent; and finally, that both the Cook and Nissman patents were procured by inequitable means.
For the reasons stated below, this Court grants summary judgment in favor of the defendants, holding the Cook patent invalid on its face under 35 U.S.C. § 112 for lack of adequate description which "particularly" points out the subject matter of the claim, and for failure to set forth the "best mode".
Background of the Case
This action was commenced by Refac International Ltd. (Refac) on April 29, 1985. *425 Refac owns the patent at issue by agreement with Holobeam, Inc., a company owned by Mr. Cook, the patentee. Holobeam owns a 40% stake in the outcome of this litigation.
The patent in suit concerns a design for comparing a secret code word known by a cardholder with information encoded on a credit card thereby giving the cardholder access to credit or cash. The secret code word is assigned to the cardholder when the card is issued to him. (See Figure 1 below.) In the patent application, a four character code word is used. (16)
The card is encoded using a process of passing light through a fiber optic bundle, formed by weaving a plurality of fibers in a "random" fashion, and imprinting a pattern of black dots on the card itself. The imprinting process is illustrated in Figure 2 below.
*426
Light passes from the source 38 through a mask 28 to the fiber optic bundle 20. The mask 28 is divided into four quadrants, marked 1, 2, 3 and 4, and each quadrant is divided into four sections marked a, b, c and d. The quadrants of the mask correspond to the four characters on the card. Each quadrant has three opaque sections and one transparent section, e.g., 30, 32, 34 and 36. The sections which are transparent will ultimately be translated into different characters. For example, in the illustration, the code word will be a, b, c and d. According to the patent, in a four character code word, 256 code words would be available to be assigned to customers.
Once a card has been received, the holder may use it at any location where there is a card reader. (See Figure 3 below). The cardholder hands his card (10) to a clerk who inserts it into the card reader. Once inserted, optic fibers in the card reader convey the light and dark spots on the card to a display. (50) At the same time, the cardholder tells the clerk his code word, and the clerk dials the code word in by rotating wheels of the card reader, 72, 74, 76 and 78. Light from source (98) passes through lens (100) and four transparencies (88) on each of the wheels, to present a light/dark pattern of squares on the mirror (96). This pattern is similarly sensed by 16 optic fibers, to produce a light-dark display in display blocks (92). If the patterns in blocks 50 and 92 match, the cardholder is verified as the owner and cash is given or credit is extended.
*427
*428 The issue involved in this litigation is the process used for encoding the card. The patent specifies that the card is encoded in a "random" manner. There are, however, two methods for generating random numbers, random with replacement and random without replacement. This is the precise issue upon which plaintiff's patent is either upheld or invalidated.
The difference between the two systems requires a brief explanation. Imagine a hat filled with marbles, each marble having imprinted on its face one number, and each marble in the hat having a different number. In a random with replacement system, a marble would be picked, its number noted, and then the marble would be replaced, to possibly be drawn again. This method would be repeated until the desired quantity of numbers had been picked. In a random without replacement system, a marble, once picked, would not be returned to the hat. Each pick would be discrete and a different number would be picked each time. (In a random with replacement system, there exists the possibility that the same number would be picked over and over because the marble is replaced after every pick.) Once the desired number of marbles had been chosen, the amount of marbles remaining in the hat would be the original number decreased by the number of picks.
The application of the random systems described above to the patent sub judice is that the patent asserts that the card is encoded in a "random" fashion. The plaintiff alleges that the system presented is random with replacement because otherwise the "system would be no system at all." The defendants assert that the system as presented is not clear, and therefore it must fail for lack of particularity and failure to specify the best mode as required under § 112. As proof of their contention, the parties look both to the patent application, and the conflicting testimony of Mr. Cook. Additionally, plaintiff's rely on the affidavit of a Dr. Hammer.
Standard for Review
Summary judgment is granted when there is no genuine issue of material fact and a party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). A Court uses a single set of principles in deciding whether to grant summary judgment; "the rules do not change simply because the case involves patent law". Aid Pack Inc. v. Beecham Inc., 641 F. Supp. 692, 694 (D.Mass.,1986), aff'd, 826 F.2d 1071 (Fed.Cir.1987). Although most suits involving patent invalidity involve such complex factual issues that they are unsuitable for summary judgment, there are some cases that do lend themselves to summary judgment. Chore-time Equipment Inc. v. Cumberland Corp., 713 F.2d 774, 778 (Fed.Cir.1983). Issues of fact are not created simply by or through the use of expert opinion, and therefore, expert opinion does not, in itself, bar the use of summary judgment. Lyle/Carlstrom Assoc. v. Manhattan Store Industries, 635 F. Supp. 1371 (E.D.N.Y.1986), aff'd., 824 F.2d 977 (Fed.Cir.1987). Claim construction, likewise, does not preclude the granting of a summary judgment, as it is generally considered an issue of law rather than one of fact. Molinaro v. Fannon/Courier Corp., 745 F.2d 651, 654 (Fed.Cir.1984).
In the case at bar, this Court is convinced that there is nothing in the subject matter before it that cannot be decided from a reading of the patent and the deposition testimony. Therefore, after a careful consideration of everything presented and the issues involved in this case, this Court rules that summary judgment is an appropriate remedy.
35 U.S.C. § 112
35 U.S.C § 112 contains the specific requirements for a written description in a patent application. The patent application must contain "the manner and process of making and using" the invention "in such full, clear, concise and exact terms as to enable any person skilled in the art to which it pertains, or with which it is most nearly connected, to make and use the same, and shall set forth the best mode contemplated by the inventor of carrying out his invention". (Emphasis added). This Court holds that the Cook patent does not meet these requirements because neither *429 the actual invention nor the best mode is adequately described in the patent specification.
"Skilled in the Art"
While § 112 specifies that a person "skilled in the art" may be used to interpret how to make or use the patent, the section does not require the use of experts to explain every patent application. Rather, the burden is on the Court to ascertain whether it needs "expert testimony or other extrinsic evidence to explain ... the application of complicated patent descriptions to the subject matter of the patent." Messing v. Quiltmaster Corp., 159 F. Supp. 181, 184 (D.N.J.1958).
This Court holds that the interpretation of patent claims only requires an expert when the subject matter becomes sufficiently complex so that the Court does not feel competent to interpret what is before it. Obviously, in a case where the subject matter involves chemical, mathematical, physical, electrical processes or the like, the Court must be guided by one "skilled in the art" in order to determine whether the invention may be used or made from the patent specification itself. In re Ruschig, 379 F.2d 990, 54 CCPA 1551 (1967); Struthers Patent Corp. v. Nestle Corp., Inc., 558 F. Supp. 747, 785 (D.N.J.1981).
On the other hand, when the subject matter is not deemed complex and is easily understandable without expert aid, and the words used can be interpreted in their ordinary, everyday sense, the Court is not bound to require or accept expert testimony. In these instances, expert testimony is of little help. Struthers Patent Corp. at 785. Johnson v. Riener, 302 F.2d 757, 49 CCPA 1096 (1962). C-Thru Products v. Uniflex, 397 F.2d 952 (2d Cir.1968).
The requirement for experts can be seen as being on a continuum; in the case at bar, because the patent sets forth a system, the basis of which can be understood by this Court, the use of such expert testimony is not required and the Court on its own, based upon a fundamental understanding of the English language, is competent to interpret the patent before it.
This Court finds that the testimony of experts should be limited to the use specified in 35 U.S.C. § 112, to explain the making and use of the patent. Experts may not be used to speculate as to what an invention might be, or to what use it might be put. Application of Winkhaus, 527 F.2d 637, 188 U.S.P.Q. 129 (1975). Nor may an expert be used as a lexicographer to define ordinary terms in an unordinary manner which have been utilized in a patent specification.
In the case at bar, the plaintiff has attempted to pass off his expert witness, a cryptologist, as a lexicographer. A cryptologist is one who scientifically studies the "enciphering and deciphering of messages". He is not supposed to ascertain which of several possible meanings a word may hold, when that word has not been defined by either the inventor, the description, or the specifications accompanying the patent application. He may aid the Court in explaining the process or in interpreting the invention, but he cannot rework the words to create the invention. The invention stands or falls on the words used by the inventor.
The plaintiff's expert, Dr. Hammer, testified that the plaintiff's system encompassed a random with replacement system. However, he arrived at this conclusion after he had extrapolated from the system presented by the plaintiff in his application. Dr. Hammer appears to have ignored what the patent stated and instead, looked at the patent as if he were deciphering a code; i.e., he looked for a hidden invention and did not consider the invention that was described. As admitted in the plaintiff's own brief, Dr. Hammer speculated about the process that could have been, (P.Mem. p. 10) rather than accepting the system as presented.
For example, Dr. Hammer relied on Figure 2 as definitively showing a random with replacement system. However, Figure 2 does not show any connections of multiple fibers to a single card location. Additionally, the specification gives examples wherein the number of fibers are defined as 100, and not the 400 to 600 that *430 Dr. Hammer stated. (Col. 2, lines 73-74). Finally, the specification states that the number of locations is equal to the number of fibers. Moreover, as admitted by counsel for plaintiffs at oral argument, the examples in the patent reflect a random without replacement system.[3] This last point is illustrated in the examples giving six locations for six fibers and one million locations for one million fibers. (Col. 3, lines 31-33).
The patent stands or falls on what is said, not what the holder of the patent hoped he said, nor what an expert speculates in hindsight about what the patent holder might have meant. Words mean what they mean and not what we want them to mean. In summary then, this Court finds unpersuasive the speculative testimony of Dr. Hammer, and confines the use of his testimony to the explanation of what actually is in the patent and not what might be read into the application. The examples given in the patent are clear on their face, and show a system utilizing a random without replacement process. The meaning given to the patent by Dr. Hammer is at variance with the patent's clear language. As such, this Court will rely upon the plain clear language of the patent.
Enablement
This Court is deemed capable of interpreting the patent before it. In so doing, the Court must look to both the written description as well as the drawings which accompany the application. In order to be adequate, a description must be sufficiently narrow. An invention described in terms that are too broad is an invention that describes not the invention but the goals of the inventor. In re Wilder, 736 F.2d 1516 (Fed.Cir.1984), cert. denied, 469 U.S. 1209, 105 S. Ct. 1173, 84 L. Ed. 2d 323 (1985). A court cannot, if the description is not clear on its face, presume the necessary motivation on the part of the reader to duplicate the invention by trial and error. In re Ruschig, 379 F.2d 990, 54 CCPA 1551 (1962); Application of Wolfensperger, 302 F.2d 950, 49 CCPA 1075 (1962). If a patent is silent about a particular specification, the normal inference is that either it is immaterial or not claimed because it is not novel. Permutit v. Graver, 284 U.S. 52, 52 S. Ct. 53, 76 L. Ed. 163 (1931).
Under § 112, patent claims are required to be definite so that the public will know what they are prohibited from doing during the term of the patent, and what they are to have at the end of the patent term. Merrill v. Yeomans, 94 U.S. (4 Otto) 568, 24 L. Ed. 235 (1877); Walker on Patents, Vol. 6, 21:18 (3rd Ed. 1987). If the scope of the subject matter embraced by the claim is clear in accordance with the concepts of common grammar rules, and if the applicant has not otherwise indicated that he intends the claim to have a different scope, then the claim is to be read as presented. In re Hyatt, 708 F.2d 712, 714 (Fed.Cir.1983). Claims may not be broadened by the specifications, nor by hindsight. Indeed,
Some persons seem to suppose that a claim in a patent is like a nose of wax which may be turned and twisted in any direction, by merely referring to the specification, so as to make it include something more than, or something different from what its words, express. [However], The claim is a statutory requirement, prescribed for the very purpose of making the patentee define precisely what his invention is.
White v. Dunbar, 119 U.S. 47, 51, 7 S. Ct. 72, 74, 30 L. Ed. 303 (1886).
Claim construction is a question of law and the mere existence of a dispute as to that legal issue does not preclude summary judgment. Howes v. Medical Components, Inc., 814 F.2d 638 (Fed.Cir. 1987). In interpreting a claim, the testimony of the inventor is important but he is required to properly interpret his patent and not invent what might have been. Durango Assoc. v. Reflange, Inc., 843 F.2d 1349, 6 U.S.P.Q.2d, 1290 (Fed.Cir.1988). Resort must be made to the patent itself *431 for a final determination of what is claimed. Loctite Corp v. Ultraseal Ltd., 781 F.2d 861, 867 (Fed.Cir.1985).
Applying these principles to the case at bar, it is clear on the basis of a total review of the record that the description of the patent contained in the application subjudice does not define what is meant by the word "random". Rather, the reader of the patent is directed to the examples used by the patentee to describe how the patent works. Those examples are admittedly crystal clear and Mr. Cook (the inventor) admitted in his deposition testimony that the patent nowhere alleges that a random with replacement system is used. This Court finds that the examples given in the patent are obvious in that they do not utilize a random with replacement system. Rather, both the description and the drawings accompanying the application refer to a random without replacement invention.
The attempt by the plaintiff in his deposition to assert that a random with replacement system was utilized in the patent was based on his contention that the examples in the patent were not his invention but were, instead, merely illustrative of the concepts he was trying to promote. Nowhere, however, in the patent application, nor in the specifications, nor in the claims, does Mr. Cook make clear that he had narrowed his invention to be a random with replacement system and that the examples given were not examples of his supposed system. Rather, he testified that the system as set forth in the application was an invention of his lawyers and that due to monetary constraints, he filed the application even though he knew the application was imprecise. However, what was said is what was saidno more, no less. This Court will not stray from the written words of the patent to a jungle of hyperbole.
Further, this Court rejects plaintiff's argument that Figure 2 illustrates a random with replacement system. Drawings in a patent application are illustrative of the system claimed in the patent. Ambiguous portions of drawings cannot be relied on to support a patent claim when these same claims are not sufficiently described in the patent specification itself. In the case at bar, it is not clear that the "spaghetti" of Figure 2 is meant to show a system of random with replacement. Rather, to this Court, Figure 2 merely illustrates the system of multiple intertwining of the fiber optic fibers, and the requirements for specific locations for individual characters.
This Court is convinced that the patent claimed and illustrated is a random without replacement system. Both the patentee and the expert engaged by the plaintiff have engaged in litigational hindsight. The contradictory testimony of the expert is based on post-facto speculation as to a system that the inventor might have invented. The contradictory testimony of the patentee is based on self-proclaimed mistakes that were made in the application itself. This Court finds totally unpersuasive the attempt by the plaintiff to read into the patent that which is not there, and thereby holds that the requirements of 35 U.S.C. § 112 to provide a full and clear description are not met.
Best Mode
A patentee is required under § 112 to disclose the "best mode contemplated by the inventor of carrying out his invention". 35 U.S.C.A. § 112, ¶ 1; W.L. Gore & Assoc. v. Garlock, 721 F.2d 1540, 1556 (Fed.Cir.1983), cert. denied, 469 U.S. 851, 105 S. Ct. 172, 83 L. Ed. 2d 107 (1984). This requirement is intertwined with the requirement for disclosure of the manner and process of making and using the invention. The essence of the best mode condition "requires the inventor to disclose the best mode contemplated by him, as of the time he executes the application, of carrying out his invention." In re Gay, 309 F.2d 769, 50 CCPA 725 (1962). Englehard Industries Inc. v. Sel Rex Corp., 253 F. Supp. 832 (D.N.J.1966), aff'd. 384 F.2d 877 (3rd Cir.1967); Application of Glass, 492 F.2d 1228, 1232, 181 U.S.P.Q. 31 (1974). Even though a patent is not required to teach that which is already well-known in the art, Spectra-Physics, Inc. v. Coherent, Inc., 827 F.2d 1524, 1534 (Fed.Cir.1987), cert. denied, ___ U.S. ___, 108 S. Ct. 346, 98 L. Ed. 2d 372 (1987), when there is a failure *432 to disclose the best mode, the Court must look to evidence of "concealment", whether accidental or intentional. DeGeorge v. Bernier, 768 F.2d 1318, 1324 (Fed.Cir.1985). If the quality of the disclosure is poor, the result may be effective concealment. In re Sherwood, 613 F.2d 809, 816, 204 U.S.P.Q. 537 (1980), cert. denied, 450 U.S. 994, 101 S. Ct. 1694, 68 L. Ed. 2d 193 (1981). If the inventor knows, at the time the application is filed, of a better method to practice his invention than the one set forth in his application, the patent can be ruled invalid. Englehard Industries, Inc. v. Sel Rex Corp. at 837.
There is no reason why this principle should not be applied to what is essential for carrying out the invention, as well as to the forms of the invention itself. A patentee is required to disclose the system which makes the patent run if that system is important in the disclosure of the "best mode". As in Randomex, Inc. v. Scopus Corp., 849 F.2d 585, 589-90 (Fed.Cir.1988), a patentee is required to divulge the "fuel" that makes his invention run. Randomex involved a system which cleaned disk packs with a cleaner fluid. While the lower court held the patent invalid for failure to particularly specify the components of the fluid, the Federal Circuit reversed because it felt that disclosure of a generic type of cleaner sufficed. However, as the court held, there remains a requirement for sufficient specificity under the best mode requirement that the patentee disclose the best method that would allow one skilled in the art to utilize the claimed invention. Id. p. 590, n. *.
In the case at bar, the patent has failed to affirmatively disclose the best mode as testified to by the patentee. The mode revealed by the patent is a system of encoding a card using a random without replacement. However, according to Mr. Cook, this is "no system at all". Additionally, the plaintiff was aware at the time of filing that his patent application was not precise and that it did not disclose the optimal system. It is for this reason that the Court holds that the patentee has not complied with the "best mode" requirement of § 112.
In summary, then, this Court holds that defendants have sustained their burden of proof by clear and convincing evidence that the Refac patent is invalid under the requirements of 35 U.S.C. § 112 for failure to particularly point out the claimed invention and for failure to specify the best mode.
An appropriate order will be entered.
NOTES
[1] § 112 Specification
The specification shall contain a written description of the invention, and of the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains, or with which it is most clearly connected, to make and use the same, and shall set forth the best mode contemplated by the inventor of carrying out his invention.
The specification shall conclude with one or more claims particularly pointing out and distinctly claiming the subject matter which the applicant regards as his invention.
A claim may be written in independent or, if the nature of the case admits, in dependent or multiple dependent form.
Subject to the following paragraph, a claim in dependent form shall contain a reference to a claim previously set forth and then specify a further limitation of the subject matter claimed. A claim in dependent form shall be construed to incorporate by reference all the limitations of the claim to which it refers.
A claim in multiple dependent form shall contain a reference, in the alternative only, to more than one claim previously set forth and then specify a further limitation of the subject matter claimed. A multiple dependent claim shall not serve as a basis for any other multiple dependent claim. A multiple dependent claim shall be construed to incorporate by reference all the limitations of the particular claim in relation to which it is being considered.
An element in a claim for a combination may be expressed as a means or step for performing a specified function without the recital of structure, material, or acts in support thereof, and such claim shall be construed to cover the corresponding structure, material, or acts described in the specification and equivalents thereof.
[2] Claims against all defendants as related to the Nissman patent were dismissed with prejudice pursuant to F.R.C.P. 41. Thus, the issues raised by the parties concerning the Nissman patent are moot and the opinion, as rendered, will deal exclusively with the Cook patent.
[3] See: col. 2, lines 6-20;
col. 2, lines 57-59; 66-75;
col. 3, lines 29-40;
col. 5, lines 49-58. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1890237/ | 17 B.R. 914 (1982)
In the Matter of Emilania TOLEDO, Debtor.
BROSCO INC., Plaintiff,
v.
Emilania TOLEDO, Defendant.
Civ. No. 81-0025.
United States District Court, D. Puerto Rico.
January 29, 1982.
*915 Wilfredo Segarra-Miranda, San Juan, P.R., for plaintiff-appellant.
*916 Julio Marrero-Ruiz, Rio Piedras, P.R., for defendant-debtor-appellee.
OPINION AND ORDER
CEREZO, District Judge.
Plaintiff-appellant, Brosco, Inc. ("Brosco"), obtained as assignee a judgment for $17,027.93 from the Superior Court of Puerto Rico plus an award for interests and attorney's fees. This judgment was against Marcelino Monroig Rodriguez and Emilania Toledo de Monroig; the former is the debtor-appellee in this proceeding. In order to secure the judgment, Brosco obtained from the Court an order directing the Registrar of the Puerto Rico Registry of Property to record the judgment as a lien on debtor-appellee's property. According to the terms of the order, the judgment lien was to guarantee the payment of the principal amount of $17,027.93, the 8% per annum interest on the principal until payment $2,107.18 on January 6, 1976and attorney's fees in the sum of $2,424.00. These amounts were specified in the judgment, in the order for attachment sent to the Registry as well as in the notices of judicial sale. On April 6, 1979 the Registrar recorded the lien for the judgment but failed to mention the amounts for the accrued interests and attorney's fees awarded to Brosco. The text of the entry only mentioned the amount of the principal, no mention was made of any interests or fees awarded with the judgment.
After obtaining mandate from the Superior Court of Puerto Rico to execute the judgment attached to debtor-appellee's property, Brosco posted and published the Notices of Judicial Sale as required by Rule 51.8 of Puerto Rico's Rules of Civil Procedure. Puerto Rico Laws Annotated, Title 32, App. III, R. 51.8. The judicial sale was set for December 20, 1979, and, as appears from the record before this Court, the mandate for execution and the notices of sale also included the amounts granted for interests and attorney's fees. The judicial sale was never carried out since the proceedings were stayed when the debtor-appellee filed on December 19, 1979 a Petition in Bankruptcy under a Chapter 13 proceeding,[1] 11 U.S.C. Secs. 362, 1301. Brosco then filed a proof of claim in the bankruptcy proceeding for the amounts specified in the judgment which at that moment added up to $25,645.57. Debtor-appellee objected to the secured status of that part of Brosco's claim that did not appear in the recording of debtor's property at the Registry when the petition was filed.[2] The trustee of the proceeding, Mr. Rafael Ocasio, did not object to the claim nor has he expressed his position before this Court.
The Bankruptcy Court examined the local law and concluded that Brosco's claim was secured up to the amount of $17,027.93 since this was the only amount that appeared in the Registry's recording at the time the petition in bankruptcy was filed. The Court examined Article 264 of the Puerto Rico Mortgage Law ("Mortgage Law"), Puerto Rico Laws Annotated, Title 30, Sec. 441,[3] and determined that the correction of the Registry's recording did not have retroactive effect. Since the correction was made after the petition was filed, the Court decided that the amounts for interests and fees not included in the text of the recording were not secured. Appeal is sought by Brosco from that order pursuant to 28 U.S.C. Sec. 1334.
Although the order appealed does not mention the section of the Bankruptcy Code *917 ("Code") that entitles a debtor to object the secured status of a claim, we assume that the underlying authority that the Court considered in permitting debtor-appellee's objection was the powers granted to "any party in interest" by 11 U.S.C. Sec. 502 to object to the allowance of claims. The Court apparently considered the debtor as included in the "any party in interest" category of 11 U.S.C. Sec. 502. Even though the Code does not define this phrase some bankruptcy courts have been flexible in extending its coverage in order to guarantee adequate fairness in the proceedings. See: In re Citizens Loans & Thrift Co., 7 B.R. 88, 3 C.B.C.2d 132 (Bkrtcy.ND, Iowa 1980); 4 Collier on Bankruptcy, Sec. 502.01 (15th ed.). Regardless of the wisdom of permitting the debtor to object to a claim under Sec. 502 and notwithstanding the fact that the debtor-appellee's objection in this case was directed at the secured status of the claim and not at whether the claim itself was allowable, we consider erroneous the order of the Bankruptcy Court.
The power granted to any party in interest by 11 U.S.C. Sec. 502 is not boundless. One of the limits is that the objection to the allowability of a claim must be based on the unenforceability of the claim against the debtor or property of the debtor under any agreement or applicable law. If the claim can be disallowed under local law by a defense that the debtor may have in a non-bankruptcy proceeding (i.e. usury) then the bankruptcy court may deny the allowance of the claim based on that defense. 11 U.S.C. Sec. 502(b)(1). See: Yutterman v. Stenberg, 86 F.2d 321 (8th Cir. 1936); B. Weintraub & A. Rosnick, Bankruptcy Law Manual, Sec. 505.(1)(A) (1980). A trustee objecting as party in interest under this section would be able to use any defenses available to the debtor. Collier, supra, Vol. 3, Sec. 502.02(1). However, the trustee, in addition to having the advantages that Section 502 grants to any party in interest, may of course use his avoiding powers under the so-called "strong arm clause" of the Code, 11 U.S.C. Sec. 544. This section confers upon the trustee all the rights that a creditor with a judicial lien or a hypothetical bona fide purchaser of real property may have under local law, Collier, supra, Vol. 4, Sec. 544. In the present situation, trustee Rafael Ocasio would be a third-party creditor protected by the Registry (tercero registral) and, according to Article 264 of the Mortgage Law, would have been able to avoid that part of Brosco's judgment lien that did not appear in the text of the recording. Nevertheless, if this had been the case the trustee would have been relying on the powers conferred by the strong arm clause of Section 544 and not upon the "any party in interest" objection to the allowability of a claim provided for by Section 502. The difference between the powers conferred by this section and the functions and powers conferred to the trustee under other sections of the Code was recently recognized by the Bankruptcy Court of California in In Re Foster, 11 B.R. 476, 4 C.B.C.2d 763 (Bkrtcy.SD, Cal.1981).
In the proceeding before this Court the trustee has not made any objection to the secured status of Brosco's claim. Neither is there any indication in the record that the situation is one of a debtor in possession in a Chapter 11 proceeding whereby most of the trustee's powers are granted to the debtor, 11 U.S.C. Secs. 1101(1), 1107(a). The record also fails to indicate the necessary elements to justify an exercise by the debtor of the trustee's transfer avoiding power in order to secure an exemption when the trustee fails to do so, 11 U.S.C. Sec. 522(f)(g). Debtor-appellee has not claimed the impairment of any exempted property or the failure of the trustee to protect it. See: In Re Saberman, 3 B.R. 316, 1 C.B.C.2d 671 (Bkrtcy. 1980). Besides these situations, we have not found any indication in the Bankruptcy Code or in the legislative record that Congress intended to confer upon the debtor all the powers and advantages provided to the trustee by the "strong arm clause" of the Code. Dealing with a similar situation, a bankruptcy court in Colorado concluded that a Chapter 13 debtor did not have the strong arm power of the trustee. The Court considered that a lien avoidance power *918 concurrently held by debtor and trustee would create difficulties in the proceedings and hinder the trustee's control over lien avoidance litigation. The Court examined the pertinent legislative record and concluded that when Congress intended the debtor to exercise the powers of a trustee in Chapter 11 it explicitly so stated as in Sec. 1107(a) and that if such were the congressional intent an analogous section would be present in Chapter 13. In Re Norman L. Carter, 2 B.R. 321, 1 C.B.C.2d 381 (Bkrtcy. Colo., 1980).
In the present case, in order to apply Article 264 of the Mortgage Law, PR Laws Annotated, Title 30, Sec. 441, the Bankruptcy Court had to invest upon debtor-appellee the characteristics of the hypothetical perfect lien creditor provided to the trustee by the strong arm clause of the Code, 11 U.S.C. Sec. 544. The trustee endowed with these characteristics is the only person entitled to the third party creditor protection of the Registry (tercero registral) in the situation before us. Article 264 of the Mortgage Law could then be used by the trustee to object to the secured status of that part of Brosco's claim not included in the text of the recording. The Bankruptcy Code, however, does not contain a disposition that would permit the debtor to assume the powers of a trustee in this type of situation. Since the debtor's objection is made pursuant to the "any party in interest" provision of Section 502, the debtor can only avail himself of those defenses available to debtor under local law. 11 U.S.C. Sec. 502(b)(1). The debtor-appellee is not a third party within the meaning of Article 27 of the Mortgage Law, P.R. Laws Ann., Tit. 30, Sec. 52, nor can debtor-appellee claim ignorance of the judicial reality that was omitted by the Registrar. See: Pascual v. Fernández Sierra, 108 D.P.R. 426, 435 (1979). The Bankruptcy Court erred in applying to debtor the protection afforded by the Registry of Property and Article 264 since debtor is not a third party creditor according to the Mortgage Law of Puerto Rico. Neither will this Court, absent a specific authority, grant to the debtor the powers of a trustee under Section 544 in a situation such as this one.
Accordingly, the Bankruptcy Court's order is reversed and the case is remanded for further proceedings.
SO ORDERED.
NOTES
[1] The record before this Court is contradictory as to whether debtor-appellee later changed to a Chapter 7 or a Chapter 11 petition. See complaint paragraph 1; debtor-appellee's memorandum paragraph 8.
[2] The omission was corrected by the Registrar on October 28, 1980.
[3] "Sec. 441. Effect of Correction; rights of third persons.
The portion corrected shall in no case produce any effect except from the date of correction, without prejudice to the right of third persons to object on account of the falsity or nullity of the deed referred to in the record which contained the error of construction or on account of that of the record itself." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1883204/ | 980 F.Supp. 349 (1997)
Harold BIBEAU and Melanie Ann Dooyen Bibeau on their own behalf and as Representatives of Classes of Similarly Situated Persons, Plaintiffs,
v.
PACIFIC NORTHWEST RESEARCH FOUNDATION, INC., a Washington Corporation; Battelle Pacific Northwest Laboratories, a division of Battelle Memorial Institute, Inc., an Ohio Corporation; Mavis Rowley; Dr. Daniel DiIaconi, in his individual and former official capacity; Dr. Fernando Leon, in his individual and former official capacity; Robert D. Wildman, in his individual and former official capacity; Dr. John Randolph Totter, in his individual capacity; Dr. James Leslie Liverman, in his individual capacity; Robert L. Ferguson, in his individual capacity; and, the United States of America, Defendants.
No. CIV. 95-06410-HO.
United States District Court, D. Oregon.
July 28, 1997.
*350 *351 Roy S. Haber, Eugene, OR, Stanley Siegel, Bernadette M. Rappold, Eric L. Cramer, Laura Stein, Kendall S. Zylstra, Berger & Montague, PC, Philadelphia, PA, H.W. Cummins, E. Cooper Brown, Berger & Montague, PC, Takoma Park, MD, for Harold Bibeau.
Milo Petranovich, Lane, Powell, Spears & Lubersky, Paul T. Fortino, Michael H. Simon, Perkins, Coie, Portland, OR, Paul R. Cressman, Sr., Seattle, WA, for Pacific Northwest Research Foundation Inc.
Kent B. Thurber, Davis Wright Tremaine, Portland, OR, William R. Squires, III, Seattle, WA, for Battelle Pacific Northwest Lab.
David A. Ernst, Jeremy E. Zuck, Scott A. Brooksby, Bullivant, Houser, Bailey, Pendergrass & Hoffman, Portland, OR, for Daniel Diiaconi.
Alan M. Spinrad, John D. Walch, Samuels, Yoelin, Wiener, Kantor & Seymour, Portland, OR, for Fernando Leon.
Kristine Olson, U.S. Attys. Office, Portland, OR, Frank W. Hunger, U.S. Dept. of Justice, Torts Branch, Civil Div., Washington, DC, James L. Sutherland, Asst. U.S. Atty., Eugene, OR, Richard Montague, Dept. Of Justice, Washington, DC, for John Randolph Totter.
ORDER
HOGAN, District Judge.
Before the court are defendants' motions for summary judgment (# s 143, 150, 154, 160). Defendants Pacific Northwest Research Foundation (PNRF), Mavis Rowley (Rowley), Battelle Pacific Northwest Laboratories (BPNL), and Dr. Daniel DiIaconi (DiIaconi) argue that summary judgment should be granted because plaintiffs' claims are barred by the statute of limitations, and they are shielded from liability by qualified immunity. PNRF and Rowley also argue that their motion for summary judgment should be granted because their research was conducted in good faith. Defendant DiIaconi also argues that his motion for summary judgment should be granted as to plaintiffs' federal claims because he is not subject to Bivens liability, and as to plaintiffs' state claims because plaintiffs never provided tort claims notice, and ORS 30.265(1) bars plaintiffs' state law claims against him. Having considered the briefs filed by the parties, and materials submitted therewith and in opposition to, the court finds as follows:
I. BACKGROUND FACTS
Plaintiffs, husband and wife, on their own behalf and as representatives of a class of similarly situated persons, claim that from 1963 to 1973 defendants conspired to fraudulently induce prisoners in custody of the Oregon Department of Corrections (DOC) to volunteer for a program of experiments, *352 known as the Heller experiments (Experiments), testing the effects of radiation exposure to the testes. The Experiments involved irradiating inmates' testes with x-ray radiation, and, allegedly, injecting inmates with radioactive substances. Participation in the Experiments required subjects to undergo biopsies and to agree to a vasectomy as a condition of participation. Plaintiffs allege that they were not fully informed of all the potential risks of participation in the Experiments, and that they were deliberately mislead as to potential health consequences. Thus, they claim, although they consented to participation in the Experiments, the consent was not sufficiently well-informed to be valid.
Harold Bibeau, the only named plaintiff/subject in this action, was a subject in the Experiments from 1965 to 1969, while an inmate at the DOC. Bibeau contends that Dr. Heller mislead him as to the risks and potential long term health consequences of participation in the Experiments, including an alleged increased risk of cancer.[1]
Dr. Heller informed Bibeau that the purpose of the Experiments was to study the effects of radiation on human testes. Dr. Heller also informed Bibeau that his participation in the Experiments would require periodic testicular biopsies and an x-ray exposure of his testes. He also was informed that he would be required to undergo a vasectomy at the conclusion of his participation, because of the chance that there could be chromosomal damage, which could produce mutated offspring. Heller also informed Bibeau that he might experience some reddening of the skin in his groin area, akin to a sunburn, that would last a few days, but no other long-term health consequences. Dr. Heller did not inform Bibeau that exposure to radiation might lead to an increased risk of cancer.
Bibeau consented in writing to participation in the Experiments. He agreed "to submit to x-ray radiation exposure of [his] scrotum and testes ... to donate urine samples, semen samples, and blood samples periodically ... to a surgical procedure known as a testicular biopsy, performed a number of times ... to a vasectomy operation at the completion of the experimental procedures." Bibeau acknowledged "that sterility may result from these procedures," and "that there may be some skin burn from the radiation." Bibeau was paid for his participation in the Experiments.
Defendant Dr. Leon performed Bibeau's first biopsy related to the experiments in January, 1965. Bibeau experienced testicular swelling in the hours following the procedure, and sharp testicular pains over the next few days. Bibeau indicates that he had not been warned about these symptoms.
On September 29, 1965, Bibeau underwent his first and only x-ray session as a participant in the Experiments. He received 18.5 rads of radiation. After the procedure, Bibeau did not report any pain, only a warm feeling in his testicles which dissipated the next day.
Bibeau underwent several testicular biopsies after his single exposure to radiation. Bibeau experienced "excruciating pain" during "a couple" of the biopsies. He claimed that "[i]t feels like you've hit yourself on the crossbar of a bicycle, where you have an excruciating pain that starts in your testicle and radiates clear up into your side, and you have the reflex to immediately dive into a fetal position." Bibeau allegedly was told that the post-biopsy pain was normal and temporary.
Bibeau underwent a vasectomy in late 1968 or early 1969 prior to his release from prison. His participation in the Experiments ended with his release from prison.
In the 1970s, Bibeau experienced recurring sharp testicular pain. Like the pain he suffered after biopsies were performed, he felt "a shooting pain that goes from the testicle up into the midsection of [his] body." Plaintiff continued to suffer from bouts of this pain until at least 1994. Bibeau claims that he did not associate his recurring, excruciating testicular pain with similar pain he suffered immediately after being biopsied. Rather, he attributed his recurring testicular pain, which he describes as a common male *353 health problem, to sitting for too long in one position.
In the early 1970s, Bibeau also began to suffer from "an ongoing, periodic groin rash," which appeared on the very tops of the insides of [his] legs." Bibeau explains that "his skin turns brown it gets itchy." Bibeau contends that his groin rash is merely "common male jock itch." In 1979, Bibeau also noticed a "lymph node lump" on his left arm and back, and a wart on the inside of his upper right leg.
Bibeau did not consult a medical doctor regarding his testicular pain, or tell any medical doctor about his participation in the Experiments, until 1997.
Dr. Heller, and his colleagues published the results of the Experiments in several scientific journals available to the public. A series of articles published from 1965 to 1974 by Heller and defendant Mavis Rowley in various scientific journals addressed the design, goals, methods and findings of the Experiments. Bibeau was informed at the outset of his involvement in the Experiments that the results would be published in scientific journals.
In addition, since the early 1970s, the Experiments have received media coverage in national newspapers and periodicals, such as the New York Times, the Washington Post, and Time Magazine, wire services, such as the Associated Press and United Press International, and regional and local newspapers, such as the Salem Statesmen-Journal, the Seattle Times, Willamette Week, and the Oregonian, and in tabloids such as the National Enquirer. In varying degrees of detail, the articles describe the purpose of the Experiments, the people and agencies involved, the methods employed, and the subjects who participated. Many articles, appearing as early as the 1970s, discuss the potential health consequences of the Experiments, including the possibility of increased risk of cancer. Other articles discuss whether inmates were fully informed of the risks of the Experiments. An article in 1985 in the Statesmen-Journal, identifies Bibeau by name, as a participant in OSP radiation research. Articles also provide coverage of legal and legislative activities relating to the Experiments, and other medical experimentation at OSP, such as the Oregon Corrections Department's 1973 decision to ban testing on prisoners, the series of federal lawsuits filed by ex-Heller research participants in 1976 and 1989, raising allegations of fraud, battery, and failure to warn of health risk, the public disclosures made by the Energy Research and Development Administration in 1976, regarding the role of its predecessor, the AEC, in the OSP research, the investigation in 1986 by a United States House of Representatives Subcommittee into government sponsored human experimentation, which resulted in the publication of a report entitled "American Nuclear Guinea Pigs: Three decades of Radiation Experiments on U.S. Citizens," (The "Markey" report), and the Oregon Legislature's passage of 1987 Or.Laws 486 § 1, which authorized free follow-up medical care for participants in OSP research.
In 1985, the Oregon Corrections Division attempted to contact Bibeau by letter at his last known address to inform him that OSP would provide his medical records to his physician should he want to seek a physical follow-up.
Bibeau claims that he did not read any articles regarding the Experiments until 1993. In 1993, he read an article in the Oregonian containing a summary of a speech given by then-Secretary of Energy Hazel O'Leary about the government's involvement in human radiation experiments. Bibeau indicates that until he read this article, and learned of O'Leary's speech, he believed the Experiments were "perfectly safe." O'Leary did not specifically refer to the Experiments in her speech.
LEGAL STANDARD
Summary judgment should be granted if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). If the moving party shows that there are no genuine issues of material fact, the non-moving party must go beyond the pleadings and designate facts showing an issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, *354 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). A scintilla of evidence, or evidence that is merely colorable or not significantly probative, does not present a genuine issue of material fact. United Steelworkers of America v. Phelps Dodge Corp., 865 F.2d 1539, 1542 (9th Cir.1989), cert. denied, 493 U.S. 809, 110 S.Ct. 51, 107 L.Ed.2d 20 (1989).
The substantive law governing a claim determines whether a fact is material. T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir.1987). Reasonable doubts as to the existence of a material factual issue are resolved against the moving party. Id. at 631. Inferences drawn from the facts are viewed in the light most favorable to the non-moving party. Id. at 630-31.
DISCUSSION
The parties agree that the statute of limitations on both the state and federal claims in this case is two years, as provided by ORS 12.110(1). The parties further agree that state law controls when the limitations period begins to run as to state claims, and that federal law determines when the limitation period begins to run as to federal claims. However, the parties dispute when the statute of limitations began to run in this case. Defendants argue that the limitation period under both state and federal accrual law began to run, and expired, long before plaintiffs commenced this action.
1. Federal Claims
Under federal law, "a cause of action generally accrues when a plaintiff knows or has reason to know of the injury which is the basis of his action." Gibson v. United States, 781 F.2d 1334, 1344 (9th Cir.1986) (quoting Cline v. Brusett, 661 F.2d 108, 110 (9th Cir.1981). When plaintiffs knew "both the fact of injury and its immediate physical cause ... [their] cause of action accrued." Dyniewicz v. United States, 742 F.2d 484 (9th Cir.1984) The "`cause' is known when the immediate physical cause of the injury is discovered." Davis v. United States, 642 F.2d 328, 331 (9th Cir.1981). A plaintiff need not realize or appreciate the full extent of his or her injury for the statute to accrue. Ashley v. United States, 413 F.2d 490, 493 (9th Cir.1969).
As referenced by the court in its September 27, 1996, Order, an exception to the rule that a cause of action accrues at the time of injury applies to plaintiffs whose injuries are inherently unknowable or who are blamelessly ignorant of the existence of their injuries and/or their cause. In re Swine Flu, 764 F.2d 637, 638 (9th Cir.1985). In such cases, the federal "discovery rule," also referred to as the "diligence-discovery" rule, applies, and the claim "accrues, and statute of limitations starts to run, when a `plaintiff has discovered, or in the exercise of reasonable diligence should have discovered,' both his injury and its cause." Herrera-Diaz v. United States, 845 F.2d 1534, 1537 (9th Cir.1988) (citations omitted); In re Swine Flu, 764 F.2d at 639-40.
a. Knowledge of Injury
Defendants argue that the discovery rule cannot apply to this case as plaintiff Bibeau was aware of his injury and its cause many years before he filed suit. Defendants argue that the purpose, nature, procedures, and risks associated with the Experiments were disclosed to plaintiff Bibeau at the time the Experiments occurred. Further, defendants argue that Bibeau's testimony in his deposition indicates that he understood the nature of the Experiments when he volunteered for them, and that over the years he experienced symptoms which did, or reasonably should have, put him on notice of his claims. With respect to physical symptoms, defendants argue that Bibeau's testicular pain, and other symptoms, which he experienced immediately after being biopsied, and which recurred from the 1970s until at least 1994, put Bibeau on notice of defendants' tortious conduct.
I agree with defendants that Bibeau's alleged injuries and their cause were not "inherently unknowable." Although he did not seek medical attention, clearly he was aware of his recurring testicular pain, and groin rash, as well as his participation in, and details regarding the Experiments. Even if it is true, as Bibeau suggests, that recurring *355 testicular pain is a common male health problem, a reasonable person, who knowingly participated in an experiment that involved exposing his testes to radiation, and undergoing several biopsies and a vasectomy, and who experienced recurring testicular pain for nearly thirty years after his participation, which was similar to pain he suffered immediately after being biopsied, would have associated the pain with the experiments, accurately or not, or at least would have made inquiries regarding a possible connection.[2]See, e.g., Nemmers v. United States, 795 F.2d 628, 631 (7th Cir.1986) (running of statute of limitations depends on reactions of the objective, reasonable person).
b. Diligence requirement
Defendants also argue that, as a matter of law, the discovery rule cannot apply in this case because plaintiff Bibeau did not diligently investigate his alleged injury. Plainly, the discovery rule requires a plaintiff to diligently investigate his or her claims. Herrera-Diaz v. United States, 845 F.2d at 1537. The very purpose of the discovery rule is to excuse a plaintiff's "blameless ignorance" of his injury and its cause. Id. Yet, "a plaintiff who remains ignorant through lack of diligence cannot be characterized as blameless." Arvayo v. United States, 766 F.2d 1416, 1423 (10th Cir.1985); Mendez v. United States, 732 F.Supp. 414, 422 (S.D.N.Y.1990) ("It is necessary ... that a plaintiff exercise `diligence' in order to benefit from the blameless ignorance rule.").
Here, notwithstanding the fact that Bibeau experienced excruciating, radiating testicular pain, and other symptoms, immediately after being biopsied, and then repeatedly for thirty years after his participation in the Experiments, Bibeau did not investigate in any manner his apparent injury until, at the earliest, 1993. It is undisputed that Bibeau did not request a single document from any of the several defendants, all of whose identities he knew, regarding the Experiments until after the 1993 O'Leary press conference. C.f. Hartnett v. Schering Corp., 2 F.3d 90, 93 (4th Cir.1993) ("We find, in cases involving medical issues, a reasonably diligent investigation must, at a minimum, include an attempt to obtain and review all available medical records."). Nor did Bibeau take the obviously fundamental step of seeing a doctor until 1997 about the pain which he now attributes, it appears, to the Experiments. Given the plethora of information in the public domain regarding the risks of radiation exposure, generally, and the Heller experiments, specifically, had Bibeau explained his participation in the Experiments to a medical doctor, to the extent there is merit to his case, presumably he would have learned that there was a possibility that his symptoms were related to the Experiments. Fernandez v. United States, 673 F.2d 269, 271 (9th Cir.1982).
Plaintiffs complain that they did not have adequate information regarding Bibeau's injury and its cause to even know that he had been injured until 1993. Even if true that Bibeau was not actually aware of a possible connection between his symptoms and the Experiments, because of his complete failure to investigate, his lack of knowledge is not dispositive. See Chrysler Workers Ass'n v. Chrysler Corp., 834 F.2d 573, 579 (6th Cir. 1987) ("the asserted actual knowledge of the plaintiffs is not determinative if they did not act as reasonable persons, and, in effect, closed their eyes to evidence and objective facts concerning the accrual of their right to sue."). Essentially, Bibeau suggests that his claims cannot have accrued until he happened to read an article in the paper regarding the O'Leary press conference in 1993. Accrual of a claim does not depend, however, on fortuity. See Mendez v. United States, 732 F.Supp. 414, 428 (S.D.N.Y.1990) (rejecting plaintiff's argument that claim accrued when she read article in paper regarding same subject, as "following the rationale of [plaintiff], this action would not have been brought had plaintiff not have read the New York Post article on October 20, 1982 which *356 in fact could have been published at any point in time, or not at all.").
Plaintiffs offer several reasons why their lack of diligence should not preclude application of the discovery rule. Plaintiffs argue that they relied on the assurance of Dr. Heller that participation in the Experiments was safe, and, thus, their lack of diligence should be excused. See In re Swine Flu, 764 F.2d at 641 (where plaintiff relies on assurance of doctor that conditions are normal and not the result of wrongdoing or malpractice, plaintiff may not be found to have failed to exercise reasonable diligence in pursuing his claim). Of course, reliance on a doctor's assurances must be reasonable in order to suspend the due diligence requirement. See Allen v. A.H. Robins, 752 F.2d 1365, 1371 (9th Cir.1985) (patient may reasonably rely on doctor's assurances). Here, Bibeau allegedly was told in the 1960s that the excruciating testicular pain, and swelling, as well as other symptoms that he experienced, were normal and temporary. Plaintiffs' continued reliance on these stale assurances notwithstanding the recurrence of severe testicular pain from the 1970s until at least 1994, was not reasonable. Moreover, it was hardly a secret through the Cold War years that radiation exposure was potentially dangerous. Plaintiffs' suggestion that they had no reason to suspect that the Experiments might not have been safe is, thus, dubious.
Plaintiffs also argue that defendants' alleged deliberate withholding, and fraudulent concealment of "critical facts" central to plaintiffs' claims, excuses their lack of diligence. See Barrett v. United States, 689 F.2d at 324, 333 (deliberate withholding and fraudulent concealment of critical facts tolls accrual). Plaintiffs fail to create a genuine issue of fact as to the withholding of "critical facts." Even if, as alleged, certain facts were withheld, such as the exact dose of radiation administered to Bibeau's testes, an unsupportable contention, given that Bibeau never even requested any information regarding the Experiments until at the earliest 1993, there is no evidence that critical facts were withheld. See Gibson v. United States, 781 F.2d at 1344 (fact of injury and immediate physical cause are critical facts for purpose of claims accrual analysis).
Plaintiffs suggest that Barrett v. United States, 689 F.2d 324 (2d Cir.1982) is "directly analogous." In Barrett, the plaintiff's decedent died from the injection of a mescaline derivative administered to him while he unknowingly served as a test subject in an Army Chemical Corps (ACC) chemical warfare experiment in the early 1950s. The ACC did not obtain the decedent's consent, or even inform him of his participation in the experiment. Id. at 326. Notwithstanding plaintiff's effort to obtain information regarding the matter, the ACC actively concealed its identity, its role, and the very existence of the drug research program from plaintiff and the New York state court system until 1975. For example, after the decedent's death, the ACC altered the decedent's records such that it appeared as if the drug was administered for therapeutic reasons by the Army Medical Corps. Id. at 327. Further, the existence of the drug program was classified as a defense secret, and defense counsel was informed that disclosure of information regarding the program was punishable under the Espionage Act. All of this information remained classified until 1975. Id. at 328. Based on these facts, the court held that there were factual disputes as to the extent of the Government's concealment of critical facts and the diligence exercised by plaintiffs. Id. at 330.
The case at bar stands in stark contrast to Barrett. Here, Bibeau was informed from the start of his participation in the Experiment. It is undisputed that he knowingly participated in the Experiments, and was aware of the various procedures he underwent. Further, there is no evidence that defendants concealed their identities, involvement, or roles in the Experiments from plaintiffs or others. Scientific journal articles specifically about the Experiments, published in the 1960s and 1970s, and references to the Experiments in the media, starting in the 1970s, belie any claim of concealment of critical facts.
Plaintiffs next argue that the latency and complexity of Bibeau's alleged injuries, including his alleged increased risk of cancer, *357 delay accrual of the statute of limitations. Logically, latency and complexity only delay accrual where, as a result, a plaintiff was not aware, and could not become aware through the exercise of due diligence, of the critical facts of injury and its cause. This is not the case here.[3] Moreover, none of the cases cited by plaintiffs support the proposition advanced by them that latency and complexity excuse them from the diligence requirement. In fact, in United States v. Kubrick, 444 U.S. 111, 118, 100 S.Ct. 352, 357, 62 L.Ed.2d 259 (1979), the Supreme Court specifically rejected this suggestion (rejecting proposition that in complex cases a "plaintiff ... need not initiate a prompt inquiry and [is] free to sue at any time within two years from the time he receives or perhaps forms for himself as reasonable opinion that he has been wronged.").
Finally, plaintiffs argue that the doctrine of fraudulent concealment tolls the statute of limitations in this case.[4] The law is clear that in order to establish fraudulent concealment, "[t]he plaintiff must plead with particularity the circumstances surrounding the fraudulent concealment and state facts showing his due diligence in trying to uncover the facts." Conerly v. Westinghouse Elec. Corp., 623 F.2d 117, 120 (9th Cir.1980) (emphasis added); Rutledge v. Boston Woven Hose and Rubber Co., 576 F.2d 248, 249-50 (9th Cir.1978) (Plaintiff must "show[] that [defendants] actively mislead him [and] that he had neither actual nor constructive knowledge of the facts constituting his claim for relief despite his diligence in trying to discover the pertinent facts."). Plaintiff Bibeau's lack of diligence, thus, precludes application of the doctrine of fraudulent concealment. Further, plaintiffs fails to raise a material issue of fact regarding Bibeau's actual or constructive knowledge of the pertinent facts. Even if Bibeau did not have actual knowledge of his injury and its possible cause, he could have obtained such knowledge had he investigated. See Conmar Corp. v. Mitsui & Co., 858 F.2d 499, 505 (9th Cir.1988) ("When the claim is one of concealment and the very facts allegedly concealed are available in public records, the argument that plaintiffs should, as a matter of law, be held to constructive knowledge of the cause of action is much stronger."). Plaintiffs' fraudulent concealment argument, like the other arguments they invoke to avoid the statute of limitations bar, is unavailing. Plaintiffs' federal claims are barred by the statute of limitations. Thus, defendants' motions for summary judgment are GRANTED as to plaintiffs' federal claims.
2. State Claims
In Oregon, a claim accrues when a plaintiff is aware, or in the exercise of reasonable diligence, should have been aware, that he or she has suffered a "legally cognizable harm." Gaston v. Parsons, 318 Or. 247, 259, 864 P.2d 1319 (1994). Such a harm consists of three elements, (1) harm; (2) causation; and, (3) tortious conduct. Id. at 255, 864 P.2d 1319; Doe v. American Red Cross, 322 Or. 502, 511, 910 P.2d 364 (1996). Accrual does not require "actual knowledge that each element is present. On the other hand, a mere suspicion is insufficient to begin the statute of limitations [running]." Gaston, 318 Or. at 255-56, 864 P.2d 1319. Further, a claim "accrues from the date the injury is, or should have been, discovered, not from the time the full extent of damages is ascertained." Raethke v. Oregon Health Sciences University, 115 Or.App. 195, 198, 837 P.2d 977 (1992), rev. denied, 315 Or. 442, 847 P.2d 410 (1993). Finally, as is true of the federal discovery rule, the analogous state rule is "an *358 objective one." American Red Cross, 322 Or. at 512, 910 P.2d 364.
For the reasons discussed above, it is evident that Bibeau was aware, or in the exercise of reasonable diligence should have been aware of harm and causation in this case.[5] Plaintiff also was aware, or should have been aware, of defendants' allegedly tortious conduct. Plaintiffs contend that Bibeau was fraudulently induced to participate in the Experiments, in that certain potential health risks were not disclosed to him. Based on this alleged conduct, plaintiffs assert claims for fraud, battery, intentional infliction of emotional distress, strict liability, and breach of fiduciary duty. The alleged invasion of plaintiffs' legal interests, however described, was known or should have been known at the time Bibeau suffered injuries or consequences about which he allegedly was not warned, or concerning which he allegedly was deceived. See, e.g., Gaston v. Parsons, 117 Or.App. 555, 558, 844 P.2d 941 (1993) (discussing informed consent claims: claim accrues when plaintiff suffers harm about which he has not been warned.); Mathies v. Hoeck, 284 Or. 539, 544, 588 P.2d 1 (1978) (discussing fraud claims: "the period of limitations for fraud begins to run when the plaintiff knows or should have known of the alleged fraud.").
Here, Bibeau was not warned of the possibility of recurring radiating testicular pain, and chronic groin rash, which he knowingly experienced as early as the late 1960s, and during the over thirty years since then. Further, the Oregon discovery rule and the doctrine of fraudulent concealment, like the analogous federal rules, require the exercise of due diligence, which, for the reasons discussed above, plaintiffs fail to satisfy. See Gaston, 318 Or. at 256, 864 P.2d 1319 ("The discovery rule does not protect those who sleep on their rights, but only those who, in exercising the diligence expected of a reasonable person, are unaware that they have suffered legally cognizable harm."); Chaney v. Fields Chevrolet Co., 264 Or. 21, 27, 503 P.2d 1239 (1972) (fraudulent concealment delays accrual until facts discovered or should, with reasonable diligence, have been discovered.). Accordingly, plaintiffs' state law claims also are barred by the statute of limitations.[6] Defendants' motions for summary judgment, thus, are granted as to plaintiffs' state law claims.
CONCLUSION
Plaintiff Bibeau was a participant in what appears to have been an inappropriate series of experiments on inmates at the DOC. However, this court may not hear a case, however old, simply because its facts appear compelling. Statutes of limitations are designed to "protect defendants and the courts from having to deal with cases in which the search for truth may be seriously impaired by a loss of evidence, whether by death or disappearance of witnesses, fading memories, disappearance of documents, or otherwise." Kubrick, 444 U.S. at 117, 100 S.Ct. at 357. This is such a case. Though the Court is disturbed by plaintiffs' allegations concerning the Heller Experiments, the time has come for defendants' "right to be free of stale claims" to prevail over plaintiffs' "right to prosecute them." Railroad Telegraphers v. Railway Express Agency, 321 U.S. 342, 349, 64 S.Ct. 582, 586, 88 L.Ed. 788 (1944). Plaintiffs' federal and state claims are barred by the applicable statutes of limitations. Defendants' motions for summary judgment (# s 143, 150, 154, 160) are GRANTED. This case is dismissed with prejudice. All other *359 pending motions in this case are denied as MOOT.
NOTES
[1] As of 1997, over thirty years after Bibeau's participation in the Experiments, he has not been diagnosed with cancer, or any precancerous condition.
[2] Plaintiff does not explain what is "common" about recurrent testicular pain that is so severe that "[i]t feels like you've hit yourself on the crossbar of a bicycle, where you have an excruciating pain that starts in your testicle and radiates clear up into your side, and you have the reflex to immediately dive into a fetal position."
[3] Bibeau suggests that his claim could not have accrued because he was not aware of his increased risk of cancer, a somewhat intangible, and likely incognizable injury, until 1993. As indicated above, however, Bibeau was aware, or should have been aware, of other apparent consequences of his participation in the Experiments during the limitations period. This is sufficient to start the statute of limitations running. See Ashley v. United States, 413 F.2d 490 (9th Cir. 1969) (where plaintiff knows he has been injured, he may not "delay filing suit until the time, however long, when he becomes knowledgeable as the precise extent of the damage resulting from the tort.").
[4] Unlike the discovery rule, which delays accrual of a claim, the doctrine of fraudulent concealment, also known as equitable tolling, is an equitable doctrine which tolls the statute once a claim has accrued.
[5] Unlike the state rule, the federal discovery rule does not require knowledge of tortious conduct. See Herrera-Diaz, 845 F.2d at 1536 ("When the injury and its cause are known, the claim accrues even though the plaintiff may not then be aware that the injury may have been negligently inflicted.").
[6] Because plaintiff Bibeau's claims are barred by the statute of limitations, plaintiffs' loss of consortium claim, as a matter of law, also must fail. See Lakin v. Senco Products, Inc., 144 Or.App. 52, 81, 925 P.2d 107 (1996) ("[A] spouse's loss of consortium action `is measured by and subject to' any defenses available in [the other spouse's] action for redress of the same harm.") (quoting Ross v. Cuthbert, 239 Or. 429, 397 P.2d 529 (1964). In addition, because of the court's ruling as to the statute of limitations, the court need not address the other arguments raised by defendants in their motions for summary judgment. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1886468/ | 609 F.Supp. 817 (1985)
Kelly M. O'GILVIE, Individually and as Administrator of the Estate of Betty L. O'Gilvie, Deceased; and Stephanie L. O'Gilvie, a Minor, and Kevin M. O'Gilvie, a Minor, By and Through Kelly M. O'Gilvie, Their Father and Natural Guardian, Plaintiffs,
v.
INTERNATIONAL PLAYTEX, INC., a Corporation, Defendant.
No. 83-1846-K.
United States District Court, D. Kansas.
May 24, 1985.
Gerald L. Michaud and Mark B. Hutton, Wichita, Kan., for plaintiffs.
Larry Wall, Fleeson, Gooing, Coulson & Kitch, Wichita, Kan., Charles M. McCaghey, Olwine, Connelly, Chase, O'Donnell & Weyner, New York City, for defendant.
REMITTITUR OF PUNITIVE DAMAGES
PATRICK F. KELLY, District Judge.
On February 25, 1985, the jury unanimously responded to certain questions propounded by the Court as follows:
1. Was decedent Betty O'Gilvie, in late March 1983 and during the course of her menstrual cycle, using defendant's product?
Yes X No ____
2. In March 1983, did use of Playtex super deodorant tampons cause or contribute to the cause of toxic shock syndrome?
Yes X No ____
3. As compared to all other tampons, including competitors, is there an increased risk of contracting toxic shock syndrome when using these super deodorant tampons?
Yes X No ____
4. Did the label and instructions inside and outside the Playtex box at the time the product was being used by Betty O'Gilvie adequately and fairly inform and warn Betty O'Gilvie of the risk of TSS which may be fatal from using Playtex tampons?
Yes ____ No X
5. Do you find International Playtex and/or Dr. Thomas Hays to be at fault in this case?
Yes X No ____
6. If you answer No. 5 "yes", then, considering all of the fault at 100%, what percentage of fault is attributable to each of the following:
International Playtex (0 to 100%) 80%
Dr. Hays (and his agents or
employees) (0 to 100%) 20%
Total 100%
*818 7. Without considering the percentage of fault found in No. 6, what total amount of damages do you find should be awarded:
Conscious pain and suffering of
Betty O'Gilvie $250,000.00
Nonpecuniary loss (not to
exceed $25,000.00) to Kelly
O'Gilvie and children 25,000.00
Pecuniary loss to Kelly O'Gilvie
and children 1,250,000.00
8. Did International Playtex know, or should it have known, of the increased risk of developing toxic shock syndrome when using Playtex super deodorant tampons at the time of the death of Betty O'Gilvie?
Yes X No ____
9. Was the failure of International Playtex to adequately warn about the increased risk of toxic shock syndrome with the usage of Playtex super deodorant tampons a reckless disregard by International Playtex of the consequences of its acts?
Yes X No ____
10. If your answer to No. 9 is "yes", you may assess punitive damages as you feel are warranted from the evidence.
Punitive damages $10 million
On March 21, 1985, the Court took up defendant's motions, all of which were overruled. Specifically, the jury's assessment of punitive damages, while substantial, was found to be not excessive, nor did it shock the Court's conscience. In the Court's view, in light of the evidence and the jury's findings, the jurors expressed their "outrage" the only way they could with money damages. Conversely, the jurors were actually saying, "Take that damnable product off the market!"
Following the Court's findings and rulings, the Court tendered a provocative proposition to the defendant. Speaking indirectly to the President of Beatrice Company, the parent company of defendant International Playtex, the Court commented in substance as follows:
That this person should know, that in the Court's view, there was ample evidence to support each finding of the jury; that punitive damages are essentially intended to deter wrongdoing; that in the event there are no changes contemplated by the defendant International Playtex, such damages as manifested by this jury are probably "only the beginning. There surely will be others!"
Further, the Court ventured that the President of Beatrice was probably an entirely decent person, and if he concurred with these findings, he would surely order a change.
The Court then represented to defendant's counsel that in the event this person, or his authorized representative, elected to appear in this Court on April 29, 1985, to acknowledge the jury's findings as factually established and announce the removal of the polyacrylate tampon from the market-place, the Court in turn would consider a substantial reduction, if not elimination, of the punitive damages award.
The Court's tender of a reduction of any portion of the jury verdict on the basis of the conditions set forth was probably without precedent. This proposition was an innovative remedy geared to what the Court reasoned as "that which ought to be." In this, the Court has drawn from similar experiences in dealing with those persons who have appeared here for the purposes of punishment. In many instances the ordeal itself is punishment enough. In others, deterrence is paramount. When wrongdoing is acknowledged, where changed is agreed to, indeed, where change has occurred, the Court is usually impressed and persuaded principally as to what further punishment, if any, is then in order. In the Court's view, such remedial events are appropriate elements of mitigation which, in the Court's discretion, should be noted and considered.
Within two weeks of that hearing, the Court noted the defendant's public announcement to the effect that its Playtex Slender, Super and Super Plus Tampons those containing polyacrylate fibers will no longer be made. Shortly thereafter, defendant's counsel communicated with the *819 Court in the interest of further conference and for a continuance of the pending hearing. With the concurrence of plaintiffs' counsel, the Court conferred with counsel for International Playtex; the hearing was set over to May 24, 1985.
At the outset, the defendant's counsel were apprised that it has never been the Court's intention to negotiate or otherwise dictate the course of defendant's decisions. Indeed, whatever decisions were made by the defendant company, were its alone to make.
In the course of the first session, the defendant's counsel specifically represented that the defendant had indeed removed polyacrylate fibers from all tampons, and all tampons with polyacrylate fibers are being removed from the market. The Court discussed the present state of the warning on defendant's product which acknowledges an "association" between the use of the tampon and toxic shock syndrome (TSS). The jury found that this warning was inadequate and the Court concurs. Additionally, the Court took up the necessity of a broad-spread communication by the industry to the consuming public and the medical community with regard to early signs and symptoms of TSS.
As to the need for a public education program, the defendant's counsel have outlined a meaningful program which, given time and exposure, should serve to inform and alert the public and medical community about the toxic shock process.
With regard to the warning, defendant's counsel have represented to the Court that as of now the defendant's alert statement or any warnings with regard to the sale of any tampon will be modified to include the following:
There are scientific studies which have concluded that tampons contribute to the cause of TSS.
While some may argue as to the adequacy of this statement, all should agree that it represents a sizeable "first step." Indeed, the Court is the first to note the sense of sincerity exercised by defendant's counsel. The Court is ever sensitive to certain pragmatics of this action. Given misperception, it could surely be abused by some, either in the course of pending litigation here or elsewhere and in future days! However unfortunate, it may well invite additional litigation. From the Court's perspective, however, the defendant's action represents a commendable exercise of fortitude and decency.
Of paramount importance, the Court finds that such action is a significant post-judgment remedial and mitigatory response to the jury's findings. Indeed, the jury's intent has been substantially sufficed. In view of the defendant's actions, the Court finds that the punitive damages award is now, in part, excessive and unnecessary. The jury's finding of ten million dollars ($10,000,000.00) is reduced to the amount of one million three hundred fifty thousand dollars ($1,350,000.00), effective from February 26, 1985. This remaining sum is intended to represent the jury's assessment regarding the element of punishment and is clearly the proprietary right of the plaintiffs. In the Court's view, such an amount is fair, reasonable and deserving. In light of defendant's action, the Court here asserts that International Playtex should not be called upon to respond in any punitive damage claims, at least with those matters pending here. It has faced its situation, it has acted most responsibly, and it has acted decently. It can be no further deterred; it has been punished enough!
Some comment is in order for the benefit of the plaintiff, Mr. Kelly O'Gilvie, for himself and on behalf of his children. Following the jury's verdict, they enjoyed the expectancy of a substantial recovery. Yet, they did not bring this action for personal enrichment. They sought punitive damages solely to punish and deter the defendant from future wrongdoing. In the face of defendant's announcements and representations, the plaintiffs have truly won!
Additionally, perhaps some solace is owing to plaintiffs' counsel. These lawyers, doubtless, have proceeded here with an attorney fee arrangement contingent upon the amount of recovery. This procedure is entirely acceptable and understood. They *820 have surely advanced substantial expenses necessary for the successful trial of this case. To reduce the recovery reduces their expectancy. Fortunately, trial of this case involves the kinds of lawyers with whom the Court can find comfort in open discussions.
The Court is first to note that it is only through these attorneys' considerable efforts, their commitment of much time in study and preparation, and their skills in the trial of this case, that plaintiffs have prevailed. Not every lawyer would share this experience. In the Court's view, however, they are also the kinds of lawyers who quietly share a certain professional satisfaction and sense of pride in seeing our adversary system work. Their efforts here have literally changed an industry! In the minds of good lawyers such as these, no amount of recompense quite touches that accomplishment. To them, the Court suggests that there will be other cases and other conquests. Indeed, attorneys such as these are always welcome here.
IT IS THEREFORE ORDERED this 24 day of May, 1985, that the jury's assessment of ten million dollars ($10,000,000.00) punitive damages is reduced to the sum of one million three hundred fifty thousand dollars ($1,350,000.00), effective from the date of first entry of judgment. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1765517/ | 528 F.Supp. 496 (1981)
Anthony J. VENERI, Jr., Petitioner,
v.
CIRCUIT COURT OF GASCONADE COUNTY, et al., Respondents.
No. 81-1319C(B).
United States District Court, E. D. Missouri, E. D.
December 10, 1981.
*497 Anthony Veneri, pro se.
Jay D. Haden, Asst. Atty. Gen., Jefferson City, Mo., for respondents.
MEMORANDUM OPINION
REGAN, District Judge.
Petitioner is presently serving a sentence of 25 to 50 years imprisonment in the State Correctional Institution at Graterford, Pennsylvania, following his conviction in the Court of Common Pleas of Delaware County, Pennsylvania on two charges of *498 bank robberies.[1] Theretofore, on July 1, 1968, he had been convicted in the Circuit Court of Gasconade County, Missouri, on his plea of guilty to a charge of robbery in the first degree by means of a dangerous and deadly weapon and sentenced to a term of twenty-five years imprisonment. On September 30, 1974, petitioner was paroled by the Board of Probation and Parole of Missouri, and pursuant to the Interstate Corrections Compact, he was transferred for supervision to the State of Pennsylvania. On August 28, 1978, the Missouri Board of Probation and Parole issued its parole violation warrant to the Pennsylvania Administrator of the Interstate Compact requesting him to arrest petitioner and hold him subject to the order of the Missouri Board. This warrant was lodged as a detainer in petitioner's file maintained by Pennsylvania but has not been executed, in that petitioner has not been transferred to the custody of the Missouri authorities.
Complaining that although more than two years had elapsed since the parole violation warrant was issued, the Missouri parole authorities have failed to hold "a Gagnon II hearing", petitioner filed in forma pauperis on November 14, 1980, a petition for a writ of habeas corpus in the Circuit Court of Gasconade County directed against the Parole Board and its members. No order to show cause was issued and the court took no action on motions filed March 24, 1981 for appointment of counsel and for a "default." There followed some correspondence between petitioner and the judge of the circuit court concerning the legal merits of the judge's actions and a September 21, 1981 communication to petitioner from the Chairman of the Board of Probation and Parole to the effect that no decision would be made by the Board until petitioner was "made available to the State of Missouri by Pennsylvania authorities." Petitioner then filed the instant petition in this Court for a writ of mandamus or in the alternative a writ of habeas corpus to obtain the relief he had sought in the Gasconade County action.
Insofar as the petition is directed against the Circuit Court of Gasconade County and the judge thereof, it is clear that the relief sought is a writ of mandamus or in the nature of a writ of mandamus to direct the state court and its judge to set aside the dismissal and exercise jurisdiction over the action for habeas corpus. However, it is well settled that federal courts have no superintending control over and are without authority to issue writs of mandamus to direct state courts or their judicial officers in the performance of their duties. Haggard v. State of Tennessee, 421 F.2d 1384, 1386 (6th Cir. 1970); Clark v. State of Washington, 366 F.2d 678, 681 (9th Cir. 1966); Russell v. Knight, 488 F.2d 96, 97 (5th Cir. 1973); Lamar v. 118th Judicial District of Texas, 440 F.2d 383, 384 (5th Cir. 1971).
Petitioner has not attempted to obtain relief in the state courts of Missouri from the alleged abdication of jurisdiction by the Circuit Court of Gasconade County. The Missouri Constitution (Article 5 § 4) expressly vests the supreme court and the courts of appeal of the state a general superintending control over all inferior courts in their jurisdiction, with power to issue original remedial writs. Numerous cases holding that a writ of mandamus lies to an inferior court to reinstate a case wrongfully dismissed and to hear and determine the case are cited in the annotation to Article 5 § 4 in Volume 1A, Vernon's Annotated Missouri Statutes. Clearly, by his failure to apply for a writ of mandamus in Missouri, petitioner has failed to exhaust his available and adequate state remedy. Cf. Croney v. Swenson, 271 F.Supp. 363, 364 (D.C.W.D.Mo.1967).
Parenthetically we note that there is a serious question (which is for the Missouri courts to resolve) as to whether Gasconade County was the proper forum for petitioner's habeas corpus action. As distinguished *499 from a Rule 27.26 post-conviction motion, which must be brought in the court which imposed sentence, a habeas application must be brought in the first instance in the circuit court for the county in which the applicant is held in custody.[2] Rule 91.59 of the Missouri Supreme Court Rules. Assuming under petitioner's theory that he is being held in constructive custody by the State Parole Board, it would appear that the proper venue of an action directed against the Board and its members in their official capacity would be in Jefferson City, the location of the office and headquarters of the Board. Section 549.224 V.A.M.S.
In his alternative claim for habeas relief in this Court,[3] petitioner complains of the failure of the Parole Board to hold a hearing within a reasonable time on the warrant or detainer. It is the position of the Board that no hearing is mandated unless and until the warrant is executed and petitioner is transferred to Missouri custody. In Moody v. Daggett, 429 U.S. 78, 97 S.Ct. 274, 50 L.Ed.2d 236 (1976), involving a federal parolee, the Supreme Court held, l.c. 89, 97 S.Ct. at 279, that the Parole Commission "has no constitutional duty to provide petitioner an adversary parole hearing until he is taken into custody as a parole violator by execution of the warrant." Earlier in its opinion, at l.c. 87, 97 S.Ct. at 278, the Supreme Court pointed out that Morrissey v. Brewer, 408 U.S. 471, 92 S.Ct. 2593, 33 L.Ed.2d 484 (1972), the case most relied on by petitioner, established "execution of the warrant and custody under that warrant as the operative event triggering any loss of liberty upon parole revocation. This is a functional designation, for the loss of liberty as a parole violator does not occur until the parolee is taken into custody under the warrant." And see Hicks v. United States Board of Paroles and Pardons, 550 F.2d 401, 403 (8th Cir. 1977); Mack v. McCune, 551 F.2d 251, 253 (10th Cir. 1977).
We do not definitively rule this issue for the reason that petitioner has not exhausted his state remedies with respect thereto. Even if it be assumed that the dismissal of the habeas petition in the Gasconade County Circuit Court sufficed as his initial attempt, the fact remains that under Missouri law petitioner could (after failing in the circuit court) file a new petition for habeas relief in the appropriate court of appeals, and then, if again unsuccessful, file another petition for the writ in the Missouri Supreme Court. Then, and only then, could petitioner be said to have exhausted his state remedies. There are no exceptional circumstances which would relieve petitioner (who relatively recently commenced serving his 25 to 50 year sentence in Pennsylvania) of his obligation to run the state court gamut before attempting to secure a determination of his claim by federal habeas corpus.
We have not overlooked the fact that in his habeas application petitioner has alleged that his original conviction and sentence on a "non-existent charge" was the result of coercion and ineffective assistance of counsel. If so, his remedy in the Missouri courts is a motion pursuant to Rule 27.26 and not habeas.
We judicially know that in January, 1969, petitioner filed a Rule 27.26 in the Circuit Court of Gasconade County, attacking the validity of his conviction on grounds which, inter alia, included those now asserted and that a full and fair evidentiary hearing was held on that motion. The Missouri Supreme Court in an opinion reported in Veneri v. State, 474 S.W.2d 833 (Mo. 1971), considered each of these claims and found them lacking in merit. After thus exhausting his then available state remedies on these and other claims, petitioner filed in this court a petition for a writ of habeas corpus in Veneri v. Wyrick, Cause No. 74-373C(4). Judge Nangle ruled each of these claims adversely to petitioner on *500 November 1, 1974. This decision is final. In our judgment, wholly aside from petitioner's failure to seek relief on a second Rule 27.26 motion in the state courts, the ends of justice would not be subserved by a rehearing in this Court of these claims which have heretofore been determined adversely to petitioner on the merits.
It follows that the petition for a writ of habeas corpus should be dismissed. An order to this effect will be entered.
NOTES
[1] It appears from the petition that although he was not sentenced until September 26, 1979, petitioner had been arrested on these charges on July 18, 1978 and was given credit for jail time for the period from that date to the date of sentencing.
[2] Cf. Sockel v. Missouri State Board of Probation and Parole, 297 F.Supp. 10, 18, footnote 1 (D.C.W.D.Mo.1968).
[3] Insofar as the habeas petition is concerned, the same question as to the proper forum is present as in the state case. Jefferson City is in the Western District. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1887730/ | 360 F.Supp. 615 (1973)
PEABODY COAL MINE, Plaintiff,
v.
LOCAL UNION NO. 7869, UNITED MINE WORKERS OF AMERICA, Defendant.
No. FS-73-C-67.
United States District Court, W. D. Arkansas, Fort Smith Division.
July 5, 1973.
Gerald L. DeLung of Warner, Warner, Ragon & Smith, Fort Smith, Ark., Harold I. Elbert of Kohn, Shands, Elbert, Gianoulakis & Giljum, St. Louis, Mo., for plaintiff.
Sam Sexton, Jr., Fort Smith, Ark., for defendant.
OPINION
JOHN E. MILLER, Senior District Judge (sitting by designation).
Pleadings
The plaintiff is a corporation duly organized and existing under the laws of the State of Delaware, is duly licensed to do business in Arkansas, and is an employer engaged in commerce within the meaning of 29 U.S.C.A. § 152(2) and (7).
The defendant is an unincorporated labor organization duly chartered by International Union, United Mine Workers of America, and represents employees in industries affecting commerce within *616 the meaning of 29 U.S.C.A. § 152(5) and (7).
On or about November 12, 1971, plaintiff entered into a collective bargaining agreement entitled "National Bituminous Coal Wage Agreement of 1971," with the International Union, United Mine Workers of America, on behalf of each member thereof and Local 7869.
On June 26, 1973, plaintiff filed its verified complaint against Local Union 7869 of United Mine Workers of America, seeking a temporary restraining order restraining the defendant, its members, officers, agents, servants and employees from engaging in any strike, partial strike, slowdown, work stoppage or refusal to work at plaintiff's Ozark Strip Mine because of the disputes between plaintiff and the defendant as specifically alleged in paragraphs 9, 10, 11, 12, 13 and 14 of the complaint. The plaintiff further prayed that the defendant be required to submit the grievances to arbitration pursuant to the Grievance Procedure or the Settlement of Health and Safety Disputes Procedure, and that preliminary injunction should be granted enjoining defendant from committing any of the acts set forth in said complaint.
Jurisdiction is granted by 29 U.S.C.A. § 185.
Notice of the filing of the complaint was served in the afternoon of June 28, 1973, demanding the attendance of the defendant in court at 10:00 a. m. on June 29, 1973. Counsel for defendant was not contacted nor employed until about 9:00 a. m. on the morning of June 29, 1973, the date set for the hearing. At that time the defendant filed an answer, in which it alleged:
"(1) The Petition, on its face, discloses that the Petitioner seeks an injunction to compel the members of the Defendant Union, to work in Petitioner's mining operation in violation of conditions which are proscribed and prohibited by the Federal Coal Mine Health & Safety Act of 1969 (Public Law 91-173, 83 Stat. 742, 30 U.S.C.A. § 801 et seq.).
"(2) The Defendant states that its members have always been ready, willing and able to perform work and labor for the Petitioner, but that the Congress of the United States in the Federal Coal Mine Health & Safety Act of 1969 provided that no man should be compelled to work in unsafe conditions. The Petition on its face discloses the existence of conditions which are violative of the Federal Coal Mine Health & Safety Act of 1969 and this Court should not undertake to substitute its judgment as to the health and safety of the affected workers for that of Congress."
Upon the convening of the court at 10:00 a. m. on the date fixed, the parties agreed that the court should hear the testimony and determine whether a preliminary injunction should be granted in lieu of a temporary restraining order.
The parties proceeded with the introduction of their evidence.[1]
In the amended and substituted answer, the defendant denied that this action arises under Section 301 of the Labor Management Relations Act, as amended, 29 U.S.C.A. § 185 and under *617 28 U.S.C.A. § 1331, and alleged that the instant action is a good-faith dispute concerning abnormally dangerous working conditions, and that such actions are specifically excluded from the operation of Section 301 of the Labor Management Relations Act. Defendant denied that its members have been disgruntled because of the scheduling of week-end overtime. Paragraph 13 of the complaint is denied, and the defendant stated:
"While each of the 51 separate items deemed unsafe may be subject to arbitration, the defendant states that the cumulative effect of the 51 conditions is such in the good-faith judgment of the Union, as to render the mine too dangerous in which to do further work until the danger is eliminated. The Union states that by virtue of contract Article III, Section (g) (1), the Union Mine Safety Committee has required the removal of workers from the area until the danger has abated. The contract vests this right exclusively in the Union and the Union relies upon the contract in this regard."
It is further alleged that the miners are refusing to work until the "unsafe conditions" are corrected, although the miners have separately offered to return to work for the purpose of correcting the "unsafe conditions" and then to resume full and normal production. That the contract does not contain a no-strike clause, and there is no language in the contract which requires the members of the Union to work in conditions considered dangerous or unsafe, and the Union believes that the conditions presently existing at the mine to be unsafe and dangerous to the health and safety of the workmen, and therefore specifically pleads 29 U.S.C.A. § 143.
Evidence
The plaintiff introduced Exhibits 1, 2, 3, 4 and 5. Exhibit 1 is the National Bituminous Coal Wage Agreement of 1971 between the Bituminous Coal Operators' Association, Inc., and the United Mine Workers of America.
Section (a) of Article XVII of the Wage Agreement provides that a committee of three employees shall be elected at each mine by the other employees. "The duties of the mine committee shall be confined to the adjustment of disputes arising out of this agreement that the mine management and the employee or employees have failed to adjust. The mine committee shall have no other authority or exercise any other control, nor in any way interfere with the operation of the mine; * * *."
Section (b) of said article provides that should differences arise between the Mine Workers and Employer "as to the meaning and application of the provisions of this agreement, or should differences arise about matters not specifically mentioned in this agreement, or should any local trouble of any kind arise at the mine, an earnest effort shall be made to settle such differences at the earliest practicable time."
Step 1, page 50, Exhibit 1, Contract, provides:
"By the aggrieved party and his foreman who shall have authority to settle the complaint. Any grievance which is not filed by the aggrieved party within fifteen calendar days after he reasonably should have known of such grievance shall be considered invalid and not subject to further prosecution under the grievance machinery."
Step 2 provides:
"If no agreement is reached, the grievance shall be taken up by the mine committee and the mine management within five calendar days of the conclusion of step 1."
Step 3 provides:
"If no agreement is reached, the grievance shall be taken up by the UMW district representative and a designated representative of the Employer within ten calendar days of the conclusion of step 2."
*618 After steps 1, 2 and 3 have been exhausted, then subsections (4) and (5) of section (b) apply, and provide:
"(4) If no agreement is reached, the grievance shall be taken up by the Board within ten calendar days of the conclusion of step 3 or in discharge cases within five calendar days of notice of appeal. The Board shall consist of four members, two of whom shall be designated by the Union and two by the Employer. Neither the Union's representatives on the Board nor the Employer's representatives on the Board shall be the same persons who participated in steps 1, 2 or 3 of this procedure.
"(5) Should the Board fail to agree the matter shall, within ten calendar days after decision by the Board, be referred to an umpire who shall expeditiously and without delay decide said case. The decision of the umpire shall be final. Expenses and fees incident to the services of an umpire shall be paid equally by the Employer or Employers affected and by the Union.
"The grievant shall have the right to be present at each step, if he so desires, of the foregoing procedures until such time as all evidence is taken. A decision reached at any stage prior to step 5 of the proceedings above outlined shall be reduced to writing and signed by both parties. The decision shall be binding on both parties and shall not be subject to reopening except by mutual agreement."
Article III of the contract deals with "Health and Safety" under the provisions of the Federal Coal Mine Health and Safety Act of 1969, and appears at pages 5, 6, 7, 8 and 9 of the contract.
Section (b) of Article III provides that the Federal Mine Safety Code for Bituminous Coal and Lignite Mines, underground mines and strip mines, promulgated and approved October 8, 1953, by the Secretary of the Interior, is adopted and incorporated by reference in the contract.
Section (c) provides that whenever inspectors of the United States Bureau of Mines, in making their inspections in accordance with the authority as provided under the Act, "find there are violations of the Federal Mine Safety Code and make recommendations for the elimination of such noncompliance, the operators shall promptly comply with such recommendations," but whenever either party to the contract feels that compliance with the recommendations would cause irreparable damage or great injustice, they may appeal such recommendation to the Joint Industry Health and Safety Committee as provided in section (e).
Section (g), page 8 of the contract, provides:
"(1) The mine health and safety committee may inspect any portion of a mine and surface installations in connection therewith. If the committee believes conditions found endanger the lives and bodies of the employees, it shall report its findings and recommendation to the Employer. In those special instances where the committee believes an imminent danger exists and the committee recommends that the Employer remove all employees from the involved area, the Employer is required to follow the recommendations of the committee.
"(2) While making inspections, the mine health and safety committee shall be accompanied by a representative of the Employer."
On May 30 and 31, 1973, inspections of the mine were made by a federal mine inspector who found no violations and issued an order abating one prior violation. Sometime prior to June 14, 1973, the Safety Committee of the miners compiled a list of 51 alleged "Unsafe Conditions." The list was apparently approved at a meeting of the employees on June 14 but it was not given to the mine superintendent until June 21, 1973.
The list of "Unsafe Conditions" was compiled without making any positive check or examination of danger, and *619 said list was compiled in answer to a notice, Exhibit 5, that had been posted on the bulletin board on the morning of June 14, 1973, directed to all Ozark Mine employees. In that notice, the Superintendent and Health and Safety Supervisor of the mine called attention to the regulations of the mine which required that all high-voltage trailing cables "shall be handled only by persons wearing protective rubber gloves and with such other protective devices as may be necessary and appropriate under the circumstances." On the subject of booms and masts, the notice provided:
"The booms and masts of equipment operated on the surface of any coal mine shall not be operated within 10 feet of an energized overhead powerline. Where the voltage of overhead powerlines is 69,000 volts, or more, the minimum distance shall be as follows: 69,000 to 114,000 volts12 feet, 115,000 to 229,000 volts15 feet, 230,000 to 344,000 volts20 feet, 345,000 to 499,000 volts25 feet, and 500,000 or more volts35 feet."
Two of the defendant's witnesses testified that some of the unsafe conditions had existed for a considerable period of time, but the federal inspector did not find any unsafe conditions on May 30 and 31, 1973.
The great majority of the employees of defendant, 22 in number, are members of the defendant union. Joe Lake, the Director of Service of the Service Division of plaintiff, was at the mine on June 21. On June 22 the Union members struck without notice, and the mine was forced to close and has remained closed.
The Mine Safety Committee did not comply in any respect with the requirements of the Collective Bargaining Agreement and failed to submit any of the so-called "unsafe conditions" to the grievance procedure or to the settlement of health and safety disputes procedure provided for in the Bargaining Agreement. In the bulletin that was posted by the plaintiff on June 14, above referred to, the following statement appears:
"In view of Ozark mine's fine record of accidents so far this year, these above listed sections of the Federal Register should be reviewed by everyone so that we might maintain our good record. This in turn assures us that everyone will remain healthy and alive."
Exhibit 2 is an injury report of plaintiff of all its active strip mines from January to November 1972, and discloses that during that time five injuries were reported in the Ozark Mine but no days lost, and no mention is made of the severity of the injury. Exhibit 3 is a report covering January to May 1973, and discloses that one injury was reported in the mine, but no mention is made of the severity and no time was lost.
Notwithstanding the defendant's safety committee did not claim that any of the conditions listed were imminently dangerous to the lives and bodies of the employees, the local safety man of the plaintiff, after checking the list on June 22, examined the same and corrected some of the conditions.
Applicable Law
In speaking of the action of the court on cases involving similar questions, the Supreme Court in Boys Markets v. Retail Clerks Union (1970), 398 U.S. 235, 90 S.Ct. 1583, 26 L.Ed.2d 199, said at page 242 of 398 U.S., at page 1588 of 90 S.Ct.:
"* * * the Act itself manifests a policy determination that arbitration should be encouraged. See 29 U.S.C. § 108. Subsequently in the Steelworkers Trilogy we emphasized the importance of arbitration as an instrument of federal policy for resolving disputes between labor and management and cautioned the lower courts against usurping the functions of the arbitrator."
Provisions in a collective bargaining agreement which require final and binding arbitration have been construed *620 to imply a "no strike" clause. A strike over a matter which is subject to the "Settlement of Disputes" clause (general grievance procedure), or the procedure for the "Settlement of Health or Safety Disputes," must be enjoined where the collective bargaining agreement provides for final and binding arbitration. Boys Markets v. Retail Clerks Union, supra; Old Ben Coal Corp. v. Local Union No. 1487, United Mine Workers of America, (7 Cir. 1972) 457 F.2d 162. In Blue Diamond Coal Co. v. United Mine Workers of America (6 Cir. 1970), 436 F.2d 551, the Court of Appeals for the Sixth Circuit had before it an action for damages growing out of illegal work stoppage. The court held that the provisions of the National Bituminous Coal Wage Agreement implied a "no strike" clause and that the union was liable for damages growing out of a strike which violated said implied clause.
The case of Hanna Mining Co. v. United Steel Workers of America (8 Cir. 1972), 464 F.2d 565, involved a complete work stoppage growing out of a safety dispute. The collective bargaining agreement involved in that case required binding arbitration of safety disputes, and the court ordered the employees to return to work and proceed with settlement of such disputes pursuant to the grievance procedure provided in the collective bargaining agreement, and that where the collective bargaining agreement contained a grievance procedure requiring binding arbitration in safety disputes, injunctive relief is proper.
The defendant cites and relies on the case of Gateway Coal Co. v. United Mine Workers of America (3 Cir. 1972), 466 F.2d 1157, as authority for its position in the instant case. The Gateway case is clearly distinguishable on its facts since it involved an underground coal mine as distinguished from a surface mine.
In National Labor Relations Board v. Fruin-Colnon Const. Co., (8 Cir. 1964) 330 F.2d 885, the court rejected the contention that an employee's belief that a dangerous working condition exists would relieve him of the obligation to work. Instead, the court held that the employee assumed the risk of discharge if it should be subsequently determined that the condition which caused him to strike was not an "abnormally dangerous" condition.
The provision in the contract for settlement of health and safety disputes imposes limitations on the Safety Committee and obligates it to follow the settlement of health and safety disputes provision in the collective bargaining agreement rather than to arbitrarily shut down the mine.
Conclusion
Everyone knows that surface mining of coal involves heavy equipment and the movement of large quantities of dirt and coal. There is certainly danger involved in the work, but the degree of danger required to be proved before any work stoppage is authorized is prescribed by the various statutes and the contract heretofore referred to. The defendant has failed to comply with the law and its contract, and its action in striking is illegal and without justification, and the plaintiff is entitled to a preliminary injunction as prayed for in the complaint.
NOTES
[1] At the conclusion of the evidence the court called the attention of counsel to Boys Markets, Inc., v. Retail Clerks Union, Local 770, (1970) 398 U.S. 235, 90 S.Ct. 1583, 26 L.Ed.2d 199; Hanna Mining Co. v. United Steelworkers of America, (8 Cir. 1972) 464 F.2d 565; and Detroit Newspaper Publishers Asso. v. Detroit Typo. Union No. 18, etc., (6 Cir. 1972) 471 F.2d 872, and stated that the court would consider those decisions along with any others which the parties might desire to call to the attention of the court. Whereupon counsel for defendant stated that he desired to have an opportunity to submit a memorandum in support of defendant's contentions. In view of the fact that defendant had had very brief notice, the court advised counsel to proceed to submit the memorandum at the earliest possible time. On Monday, June 2, 1973, counsel submitted memorandum brief together with amended and substituted answer. Likewise, the plaintiff submitted on the same day a memorandum in support of its conclusions. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1886622/ | 609 F.Supp.2d 631 (2009)
Kathy MATTHEWS, Plaintiff,
v.
CITY OF HOUSTON FIRE DEPARTMENT, et al., Defendants.
Civil Action No. H-07-1783.
United States District Court, S.D. Texas, Houston Division.
March 10, 2009.
*636 Kathy Matthews, Houston, TX, pro se.
Dola Jean Young, Legal Department, Houston, TX, for Defendant.
MEMORANDUM AND ORDER
LEE H. ROSENTHAL, District Judge.
The plaintiff, Kathy Matthews, sued her former employer, the City of Houston, where she had worked for the Fire Department in the Finance and Administrative Division. She was fired in 2006. In this suit, filed in 2007, Matthews alleges that she was subjected to race, sex, age, and disability discrimination and a hostile work environment, and retaliation for filing complaints and for filing a workers' compensation claim. Matthews also sued two supervisors, David Swan and Jack Williams. She asserted claims under Title VII, 42 U.S.C. § 2000e et seq., the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq.; the Americans with Disabilities Act, 42 U.S.C. § 12101 et seq.; and the Texas statute on workers' compensation retaliation, Tex. Lab.Code Ann. § 451.001 et seq.
The defendants moved for summary judgment. (Docket Entry No. 40). The plaintiff responded with affidavits and "character declarations" as well as other submissions. (Docket Entry No. 39, 41, 42). The magistrate judge thoroughly reviewed the pleadings, the motions, responses, and replies; the evidence; and the applicable law, and recommended dismissing all the claims because the undisputed facts showed no basis for recovery, as a matter of law.
Matthews filed an objection to the Memorandum and Recommendation. In the objection, Matthews asked the court for a "complete review of all affidavits and any documents submitted to the courts, by me the plaintiff, Kathy L. Matthews." (Docket Entry No. 54). These documents are all public and have been available to Matthews. In the objections, she also requested an extension to file additional information or documents and to obtain legal counsel. This case has been on file for almost two years. Matthews has had ample opportunity to retain counsel and has previously moved for appointment of counsel, without success. With the objections, Matthews also submitted "character declarations," evaluations, medical information, and other documents, which appear to be copies of documents previously submitted and already part of the summary judgment record.
This court has reviewed the Memorandum and Recommendation of the magistrate judge signed on February 18, 2009, with the plaintiff's objection. This court has made a de novo determination of the recommended disposition. Rule 72(b), Fed.R.Civ.P.; 28 U.S.C. § 636(b)(1)(C); United States v. Wilson, 864 F.2d 1219 (5th Cir.1989). The court finds the Memorandum and Recommendation should be, and the same is hereby, adopted as the court's Memorandum and Order. The objections do not provide a legal or factual basis to reject the magistrate judge's analysis.
Accordingly, this court grants the defendants' summary judgment motion. Final judgment is entered by separate order.
MEMORANDUM AND RECOMMENDATION ON MOTION FOR SUMMARY JUDGMENT
MARY MILLOY, United States Magistrate Judge.
This matter was referred by United States District Judge Lee H. Rosenthal, *637 for full pre-trial management, pursuant to 28 U.S.C. § 636(b)(1)(A) and (B). (Docket Entry # 21). Defendants have filed a motion for summary judgment, under Rule 56(c) of the Federal Rules of Civil Procedure. (Defendant City of Houston's Amended Motion for Summary Judgment ["Defendants' Motion"], Docket Entry # 40). Defendants ask for a judgment in their favor on Plaintiff's race, sex, age, and disability discrimination claims, as well as her state law claim for retaliation under the applicable workers' compensation statute. In response, pro se Plaintiff Kathy Matthews ["Plaintiff," "Matthews"] has provided various affidavits and "character declarations," and Defendants have replied. (Affidavit of Ivis Johnson, Docket Entry # 39; Affidavits of Character Declaration, Docket Entry # 41; Amended Affidavit of Charles Loving, Docket Entry # 42; Defendant's Reply to Plaintiff's Response to Defendant's Amended Motion for Summary Judgment ["Defendants' Reply"], Docket Entry # 48). After a review of the motion and responses, the evidence provided, and the applicable law, it is RECOMMENDED that Defendants' motion be GRANTED.
BACKGROUND
This case arises out of Matthews' former employment with the City of Houston ("the City"). While the precise facts are difficult to glean, it appears that Plaintiff was first hired, in 1991, by the City's housing and community development office, although it is not clear from the record which position she held. (Deposition of Kathy Matthews ["Matthews Deposition"] 72:3-4, Docket Entry # 40). In 2000, she was apparently promoted and transferred to the Finance and Administrative Division of the Houston Fire Department. (Id. 72:9-22). Matthews, an African-American woman in her forties, claims that, while working at the fire department, the City discriminated against her because of her race, sex, age, and disabilities. She is explicit in complaining that the City unlawfully assigned her to menial duties, excluded her from meetings, gave her poor work evaluations and unfair reprimands, and, ultimately, terminated her.
While employed with the fire department, Matthews was classified as a "Management Analyst II," a position she describes as "floating," and which required her to do "whatever they asked me to do to reorganize that department." (Id. 72:19-74:22), In that position, Plaintiff allegedly conducted research and reported on the department's budget and inventory. (Id.). Occasionally, Plaintiffs research required her to visit the department warehouse with other management analysts. (Id. 87:11-16). In addition to conducting research and working in the warehouse, Plaintiff testified that, unlike other employees, she was required to "clean up the file cabinets," and "put[] together cell phones." (Matthews Deposition 23:12-20; Transcript of September 24, 2008 Status Conference ["Conference Transcript"] 18:17-20, Docket Entry # 51). She was also reportedly required to attend division meetings, as part of her job, but she complains that she was excluded from major budget and planning meetings. (Matthews Deposition 18:16-21). In making her claims, Matthews alleges that she was forced to work in the warehouse, assigned "demeaning" duties, and was excluded from critical meetings on the basis of her race, sex, and age.
Matthews also complains, however, that she was discriminated against because of her physical impairments. While working at the City, Matthews was diagnosed with two physical ailments, which are allegedly relevant to her claims before this court. In October 2002, she was diagnosed as suffering from sleep apnea, which she claims caused her to "los[e] so many seconds of breathing" at night that she was at *638 risk for strokes. (Matthews Deposition 80:3-23). She also claims that this condition made her apt to fall asleep during the work day. (Id.). Following this diagnosis, Matthews took medical leave, from October 2, 2002, until early December 2002, "out of fear for possibl[y] having a stroke." (Matthews Deposition 80:15-23). The following year, in May 2003, Matthews was diagnosed as suffering from carpal tunnel syndrome. (Matthews Deposition 95:4-6). She applied for workers' compensation because of that condition, but the Texas Workforce Commission denied her claim. (Matthews Deposition 51:22-52:4). In her present lawsuit, Matthews alleges that the Commission denied her claim because her supervisor, Defendant David Swan, falsely reported that the City did not receive timely notice of her injury.
Several of Matthews' other complaints also stem from her relationship with David Swan. On January 9, 2004, Swan issued a written reprimand to Matthews "for failure to comply with the City of Houston Fire Department Rules and Regulations." (Ex. 6 to Defendants' Motion). In that reprimand, Swan stated that he had "witnessed inappropriate behavior between a co-worker, Yolanda Johnson," and Matthews. (Id.). Allegedly, the women had raised their "voices at each other while ... discussing a work related issue." Swan described Matthews' demeanor as "so aggressive that [Swan] had to repeatedly ask [her] to calm down." (Id.). Swan wrote that "[t]his is not the first instance you have exhibited inappropriate behavior toward other employees, both in the work area and in meetings." (Id.). In the reprimand, Swan also referenced Matthews' low performance evaluations for "Interpersonal skills," and a separate incident three months earlier, in which Matthews' "behavior was so unprofessional that we had to stop the meeting, [and] spend a few minutes getting you to calm down." (Id.). Plaintiff was warned that "[t]his type of argumentative and accusatory behavior" could lead to "further disciplinary action up to and including" termination. (Id.). Plaintiff appealed the reprimand through the City's grievance process, and to the Office of the Inspector General. (Ex. 10 to Defendants' Motion). Both appeals were unsuccessful. (Ex. 8 to Defendants' Motion; Ex. 11 to Defendants' Motion).
Two months after the reprimand was sustained, Swan issued a performance evaluation for Matthews' work, from July 2003, through February 2004. (Ex. 9 to Defendants' Motion). Swan rated Plaintiff in 16 different areas, on a scale of one to five, in which one represented "unacceptable" performance, two represented "needs improvement," three represented "acceptable," four represented "strong," and five represented "outstanding" work. (Id.). Plaintiff did not receive a five in any category, and she received only two fours, one for "punctuality," and one for "safety awareness." (Id.). Plaintiff received an "unacceptable" rating for "communication" and "interpersonal skills." (Id.). Her overall score was 2.42, or "needs improvement." (Id.). In response to this evaluation, Plaintiff stated "I feel the evaluation rating is a deliberate form of harassment, retaliation and racial discrimination and indifferential[sic] treatment." (Id.). She appealed that evaluation to the Inspector General's Office, but it was affirmed. (Ex. 10 to Defendants' Motion; Ex. 11 to Defendants' Motion). Matthews now complains that the low evaluation was based on her race. (Conference Transcript 20:3-8).
While she pursued her appeals with the City, Plaintiff also filed a charge of discrimination with the Equal Employment Opportunity Commission (EEOC), on April 1, 2004. (Ex. 1 to Defendants' Motion). On the EEOC form, Plaintiff marked "Race" and "Retaliation" as the bases for her complaint. (Id.). Matthews *639 alleged that she "was subjected to different terms, conditions, and privileges of employment by being subjected to unwarranted strict scrutiny in my duties, harassed, issued poor performance evaluations, and issued written reprimands based on false statements." (Id.). She also claimed that "[]White co-workers in my Division are not subjected to similar acts of discrimination." (Id.). The EEOC issued Plaintiff a right-to-sue letter on March 24, 2005. (Ex. 2 to Defendants' Motion).
Shortly after Matthews filed her EEOC charge, the Texas Workforce Commission reversed its decision regarding her carpal tunnel injury, and awarded benefits retroactive to her original claim in 2003. (Matthews Deposition 52:18-25). Plaintiff took workers' compensation leave for the injury, although it is not clear, on this record, when that leave began. It does appear, however, that Matthews was on leave for most of 2005, because she did not return to work until November 15 of that year. (Ex. 20 to Defendants' Motion; Plaintiffs Complaint ¶ 10.7). In May 2006, five months after she returned to work, Plaintiff "requested an accommodation to heal from sleep apnea, hypertension, and a previous hand injury." (Matthews Deposition 57:13-16). On May 17, 2006, the City denied her request. (Ex. 22 to Defendants' Motion). In a letter from Defendant Jack Williams to Matthews, he wrote that her "doctor released you to full duty with no restrictions," and that "a request for time to heal contradicts the release to full duty." (Id.). Williams advised Matthews that "[i]f your condition is such that you are ill and cannot work, then you must take sick leave to allow yourself to heal." (Id.).
Matthews also claims that she requested a transfer to accommodate her sleep apnea. (Matthews Deposition 26:4-7). She alleges that Williams and Swan told her that "they were trying to move [her] to another department" to accommodate her condition, but they ultimately denied the request, stating, "Oh, by the way, you're a liability. What [are] we supposed to do if you have a stroke or something? You've got so much going on." (Id. 26:22-27:17).
Less than one month after the City denied Plaintiff's request for "accommodations," Swan issued a performance evaluation for Matthews' work from February through May of 2006. (Ex. 12 to Defendants' Motion). Matthews was again rated in 16 categories on a one-to-five, or "unacceptable" to "outstanding" scale. (Id.). Plaintiff received one "outstanding" score for "safety awareness," but she was still rated as "unacceptable" for "communication." (Id.). Her overall rating was 2.65, or "needs improvement." (Id.).
There is some dispute about Plaintiffs response to the 2006 evaluation. Plaintiff acknowledges that she was upset about the evaluation, but she denies that she exhibited any unprofessional behavior. However, from the record, it is clear that on June 6, 2006, Swan filed a "formal complaint" with Assistant Fire Chief Thomas Patterson about Matthews' conduct during a meeting to discuss the evaluation with her. (Ex. 15 to Defendants' Motion). In his complaint, Swan reported that Matthews refused to read the evaluation, and instead threw it on his desk, and accused him of lying and harassing her. (Id.). Matthews allegedly made "derogatory" comments for several minutes and then left the office. (Id.). Swan complained that "Ms. Matthew's[sic] conduct during this meeting was disrespectful, unprofessional, and in violation of [City] Rules and Regulations." (Id.).
Two weeks later, Plaintiff was relieved of duty, purportedly so that the City could investigate Swan's report of her conduct. (Conference Transcript 28:10-15). The same day, Matthews filed a complaint with *640 the Office of Inspector General, in which she claimed that the low performance evaluation was in retaliation for her previous complaints about Swan to the EEOC and other City officials.[1] (Ex. 13 to Defendants' Motion).
On July 21, 2006, one month after she was relieved of duty, Plaintiff filed her second EEOC charge. (Ex. 3 to Defendants' Motion). On that second complaint form, Matthews again marked "Race" and "Retaliation" as the bases for her charges. (Id.). She complained specifically that "David Swan ... gave me a failing evaluation of 2.42, ... subject[ed] me to a hostile work environment, and on June 6, 2006, he gave me a failing evaluation of 2.65." (Id.). Plaintiff claimed that Swan "retaliated against me because I had filed both internal EEO and Office of Inspector General complaints, workers' comp, EEOC charge, and a complaint to City Council Member Adrian Garcia." (Id.). Plaintiff noted that "[o]n June 20, 2006, I was relieved of duty with a recommendation for an indefinite suspension by Jack Williams." (Id.).
On August 22, 2006, Plaintiff amended her EEOC charge to include "Age" and "Disability" as bases for her complaint. (Ex. 4 to Defendants' Motion). She also filed an attachment to her amended charge in which she explained that it had been "amended to include the issue of indefinite suspension on August 18, 2006, and retaliation in that I believe I was terminated in retaliation for complaining about discrimination." (Id.). She alleged further that "Respondent and Assistant Chief Jack Williams refused to accommodate my disability, on May 17, 2006, terminated, and retaliated against me." (Id.). Finally, on October 20, 2006, Plaintiff amended her second charge, again, this time to include "Sex" as a basis for her complaints. (Id.). Plaintiff was issued a right-to-sue letter for her second EEOC charge on February 23, 2007. (Ex. 5 to Defendants' Motion).
The record is clear that Matthews was placed on an "indefinite suspension" on August 18, 2006, less than one month after she filed her second EEOC charge. (Ex. 23 to Defendants' Motion). Under City Civil Service Rule 15, an "indefinite suspension" is, in fact, a termination. (Id.; Defendants' Motion p. 3 n. 3). The City terminated Matthews allegedly because of the written reprimand she received in 2004, her reported response to the 2006 evaluation, and the two consecutive poor performance evaluations. (Ex. 23 to Defendants' Motion). Plaintiff appealed the termination both through the City's grievance process, and to the Inspector General's Office. (Ex. 25 to Defendants' Motion). Both appeals were unsuccessful. (Ex. 24 to Defendants' Motion; Ex. 26 to Defendants' Motion).
Matthews filed suit in this case, as a pro se plaintiff, on May 24, 2007. (Plaintiffs Original Complaint, Docket Entry # 1). She has since amended her complaint five times. In her most recent Complaint, Plaintiff includes claims against the City for race and sex discrimination under 42 U.S.C. § 2000e et seq., Title VII of the Civil Rights Act of 1964; age discrimination under 29 U.S.C. § 621 et seq., the Age Discrimination in Employment Act (ADEA); disability discrimination under 42 U.S.C. § 12101 et seq., the Americans with Disabilities Act (ADA); and Workers' Compensation retaliation under Tex. Lab. Code Ann. § 451.001 et seq. (Plaintiffs Fifth Amended Complaint ["Plaintiffs *641 Complaint"], Docket Entry # 35). Defendants have moved for summary judgment on all of her claims.
After reviewing the pleadings and the evidence presented, it is RECOMMENDED that Defendants' motion be GRANTED. Those Title VII claims that are based on Plaintiffs poor work evaluations, her 2004 reprimand, her job duties, her exclusion from meetings, and her termination, should be dismissed. Likewise, her hostile environment claim, her ADEA claim based on her job duties, her ADA claim for a failure to accommodate and wrongful termination, her retaliation claim under the Workers' Compensation Act, and all claims against David Swan and Jack Williams should also be dismissed.
STANDARD OF REVIEW
Summary judgment is appropriate if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c). Under Rule 56(c), the moving party bears the initial burden of "informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue for trial." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Norman v. Apache Corp., 19 F.3d 1017, 1023 (5th Cir.1994). The party moving for summary judgment must demonstrate the absence of a genuine issue of material fact, but need not negate the elements of the non-movant's case. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994). If the moving party fails to meet its initial burden, the motion for summary judgment must be denied, regardless of the nonmovant's response. Id. When the moving party has met its Rule 56 burden, the non-movant cannot survive a motion for summary judgment by resting merely on the allegations in its pleadings. McCallum Highlands, Ltd. v. Washington Capital Dus, Inc., 66 F.3d 89, 92 (5th Cir.1995). If the movant does meet his burden, the non-movant must go beyond the pleadings and designate specific facts to show that there is a genuine issue for trial. Little, 37 F.3d at 1075. Further, the non-movant must "do more than simply show that there is some metaphysical doubt as to the material facts." Webb v. Cardiothoracic Surgery Assocs., 139 F.3d 532, 536 (5th Cir.1998) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)).
To meet its burden, the nonmoving party must present "significant probative" evidence indicating that there are issues of fact remaining for trial. Conkling v. Turner, 18 F.3d 1285, 1295 (5th Cir.1994). If the evidence presented to rebut the summary judgment motion is only colorable or not significantly probative, summary judgment should be granted. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-250, 106 S.Ct. 2505, 91 L.Ed.2d 202. (1986). But, in deciding a summary judgment motion, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in [its] favor." Id. at 248, 106 S.Ct. 2505. However, "Rule 56 mandates the entry of summary judgment, after adequate time for discovery, and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Little, 37 F.3d at 1075. Conclusory statements, speculation, and unsubstantiated assertions will not suffice to defeat a motion for summary judgment. Douglass v. United Services Automobile Ass'n, 79 F.3d 1415, 1429 (5th Cir.1996). In addition, pleadings filed by a pro se litigant are "`to be liberally construed,' ... and `a pro se complaint, however inartfully pleaded, must be held to less stringent standards than formal pleadings drafted by lawyers.'" Erickson *642 v. Pardus, 551 U.S. 89, 127 S.Ct. 2197, 167 L.Ed.2d 1081, (2007) (per curiam) (quoting Estelle v. Gamble, 429 U.S. 97, 106, 97 S.Ct. 285, 50 L.Ed.2d 251 (1976)).
DISCUSSION
Claims that are time barred
Plaintiff claims, first, that the City discriminated against her because of her race and sex, in violation of Title VII, Matthews contends that she was treated differently from other male and non-African American employees, specifically alleging the following: that the City unfairly reprimanded her; gave her poor performance reviews in 2004 and 2006; assigned her to "demeaning" duties; excluded her from major meetings; and ultimately, terminated her. Matthews also claims that she was subjected to racial and sexual harassment and a "hostile work environment," and that the City retaliated against her for complaining about the discrimination and harassment. Under Title VII, it is unlawful for an employer to "discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's race, color, religion, sex, or national origin." 42 U.S.C. § 2000e-2(a)(1).
As a threshold matter, Title VII requires employees to exhaust their administrative remedies before seeking judicial relief. McClain v. Lufkin Industries, Inc., 519 F.3d 264, 273 (5th Cir.2008). A claim is "exhausted" if an individual files a timely complaint with the Equal Employment Opportunity Commission, the claim is dismissed by that agency, and the agency informs her of her right to sue in federal court. Taylor v. Books A Million, Inc., 296 F.3d 376, 379 (5th Cir.2002). This allows the EEOC to investigate and, if appropriate, to negotiate a resolution with an employer. McClain, 519 F.3d at 273. In states, such as Texas, that have their own administrative procedures, employees have 300 days from the date of an alleged discriminatory act to file their claim with the EEOC. See Huckabay v. Moore, 142 F.3d 233, 238 (5th Cir.1998). If a plaintiff does not file a claim within that 300 day period, the claim is barred. Barrow v. New Orleans Steamship Association, 932 F.2d 473, 476-477 (5th Cir. 1991). Once a claim has been presented to the EEOC, and a plaintiff receives a right to sue letter from that agency, the plaintiff has 90 days to file suit on that claim or it is lost. Price v. Choctaw Glove & Safety Co., Inc., 459 F.3d 595, 598 (5th Cir.2006).
Defendants argue that any allegations arising from Matthews' 2004 reprimand and performance evaluation are time barred, because she did not file suit on those allegations within 90 days after she received a right to sue letter. In her first EEOC charge, dated April 1, 2004, Plaintiff alleged that she had been "issued poor performance evaluations" and "written reprimands based on false statements." (Ex. 1 to Defendants' Motion). Plaintiff received her right to sue letter for this charge on March 24, 2005, yet she did not file suit on these incidents until May 24, 2007. (Ex. 2 to Defendants' Motion; Plaintiffs Original Complaint). Again, Title VII requires that a plaintiff bring suit within 90 days after she receives her right-to-sue letter. Price, 459 F.3d at 598. Courts strictly construe this 90 day limitations window. Taylor v. Books A Million, Inc., 296 F.3d 376, 379 (5th Cir.2002). For example, in Taylor, the Fifth Circuit affirmed the dismissal of an action filed only three days late. Id. at 379-380. It is clear that Plaintiff's lawsuit, filed two years after she received her first right to sue letter, was not brought within the 90 day window required for Title VII claims. Price, 459 F.3d at 598. For that reason, Plaintiffs claims based on the 2004 evaluation and the 2004 reprimand were not *643 timely prosecuted, and both should be dismissed. Id.
Disparate treatment
Plaintiff claims that, in comparison to male and non-African American employees, she was treated differently when (1) she was assigned undesirable duties, including working in the warehouse, (2) she was excluded from major meetings, (3) she received a poor performance evaluation in 2006, and (4) when she was wrongfully terminated. It is well established that, "[t]o survive a motion for summary judgment," a plaintiff claiming disparate treatment, based on race or sex, "must first establish a prima facie case of discrimination by a preponderance of the evidence." Pratt v. City of Houston, 247 F.3d 601, 606 (5th Cir.2001) (citing McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802-04, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973)); St. Mary's Honor Ctr. v. Hicks, 509 U.S. 502, 506, 113 S.Ct. 2742, 125 L.Ed.2d 407 (1993). "A prima facie case may be established by a showing that the plaintiff was a member of an identifiable [protected class]; that he was qualified for the benefit or promotion he sought; that he was denied these benefits and such denial constitutes an adverse employment decision; and that the adverse employment decision was differentially applied to plaintiff." Rubinstein v. Administrators of Tulane Educational Fund, 218 F.3d 392, 399 (5th Cir.2000) (citing Texas Dept. of Community Affairs v. Burdine, 450 U.S. 248, 101 S.Ct. 1089, 67 L.Ed.2d 207 (1981); Ward v. Bechtel Corp., 102 F.3d 199, 202 (5th Cir. 1997)). This may be done through "direct evidence of discrimination" or through circumstantial evidence. Roberson, 373 F.3d at 651 (citing Price Waterhouse v. Hopkins, 490 U.S. 228, 241, 109 S.Ct. 1775, 104 L.Ed.2d 268 (1989); Fierros v. Tex. Dep't of Health, 274 F.3d 187, 192 (5th Cir. 2001)). A failure of proof on any element of the prima facie case "requires summary judgment against the entirety of the claim." Munoz v. Orr, 200 F.3d 291, 307 (5th Cir.2000). On the other hand, if a claimant can establish a prima facie case, then "an inference of unlawful discrimination" has been raised. Blow v. City of San Antonio, 236 F.3d 293, 296-97 (5th Cir. 2001).
The Fifth Circuit has held, repeatedly, that if the plaintiff has shown direct evidence that racial discrimination "was among the motives which prompted the adverse action, the `burden of proof shifts to the employer to establish by a preponderance of evidence that the same decision would have been made regardless of the forbidden factor.'" Fabela v. Socorro Indep. School Dist., 329 F.3d 409, 415 (5th Cir.2003) (quoting Moore v. U.S. Dep't of Agric., 55 F.3d 991, 995 (5th Cir.1995); Brown v. E. Miss. Elec. Power Ass'n, 989 F.2d 858, 861 (5th Cir.1993)). However, if it is circumstantial evidence only that supports the plaintiffs claim, then the burden of production, but not the burden of proof, shifts to the defendant, under the rubric established by the United States Supreme Court in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802-05, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973). Price v. Federal Exp. Corp., 283 F.3d 715, 720 (5th Cir. 2002); Munoz, 200 F.3d at 299; Brown v. CSC Logic, Inc., 82 F.3d 651, 654 (5th Cir.1996). If that burden-shifting occurs, the defendant must then "articulate a legitimate, nondiscriminatory reason" for the challenged employment practice. Munoz, 200 F.3d at 299 (citing McDonnell Douglas, 411 U.S. at 802, 93 S.Ct. 1817). A defendant may meet this burden by presenting evidence that, "if believed by the trier of fact, would support a finding that unlawful discrimination was not the cause of the employment action." St. Mary's Honor Ctr., 509 U.S. at 507, 113 S.Ct. 2742 (emphasis original); and see Price, 283 F.3d at 720. The burden of *644 persuasion, however, "remains at all times with the plaintiff." Hicks, 509 U.S. at 507, 113 S.Ct. 2742; Tex. Dept. of Community Affairs v. Burdine, 450 U.S. 248, 253, 101 S.Ct. 1089, 67 L.Ed.2d 207 (1981); Munoz, 200 F.3d at 299. If the defendant does raise evidence which points to a legitimate business reason for its action, then "the plaintiff must substantiate His claim of pretext through evidence demonstrating that discrimination lay at the heart of the employer's decision." Price, 283 F.3d at 720. But, the Fifth Circuit has held, consistently, that this evidence "must be enough to support a reasonable inference that the proffered reason is false; a mere shadow of doubt is insufficient." Auguster v. Vermilion Parish School Bd., 249 F.3d 400, 403 (5th Cir.2001); Bauer v. Albemarle Corp., 169 F.3d 962, 967 (5th Cir.1999). In other words, to defeat a competent motion for summary judgment, the claimant must submit evidence that is sufficient to allow a rational fact finder to conclude that the employer's action was based on discrimination. Price, 283 F.3d at 720 (citing Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 148, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000)). "[A]lthough the presumption of discrimination drops out of the picture once the defendant" raises a legitimate reason for its action, "the trier of fact may still consider the evidence establishing the plaintiffs prima facie case and all inferences properly drawn therefrom ... on the issue of whether the defendant's explanation is pretextual." Reeves, 530 U.S. at 143, 120 S.Ct. 2097 (internal quotation marks omitted). In fact,
a plaintiffs prima facie case, combined with sufficient evidence to find that the employer's asserted justification is false, may permit the trier of fact to conclude that the employer unlawfully discriminated.
Reeves; 530 U.S. at 148, 120 S.Ct. 2097; Russell, 235 F.3d at 223. Whether summary judgment is appropriate, based on such evidence, depends on "the strength of the plaintiffs prima facie case, the probative value of the proof that the employer's explanation is false, and any other evidence that supports the employer's case. . . ." Price, 283 F.3d at 720; see also Reeves, 530 U.S. at 148, 120 S.Ct. 2097.
1. Plaintiff's 2006 evaluation and termination
Defendants contend that Plaintiffs claims for wrongful termination and disparate treatment, based on her 2006 evaluation, both fail, as a matter of law, because she cannot show that another employee was treated differently. Even reading her pleadings liberally, it is true that Plaintiff has not identified another employee who received higher evaluations for similar work, or who retained his job in the face of two poor performance evaluations and repeated allegations of unprofessional conduct. To establish a prima facie case of discrimination in a disparate treatment case, a plaintiff must identify a similarly situated employee who was treated differently. Abarca v. Metro. Transit Auth., 404 F.3d 938, 941 (5th Cir.2005). An employee is similarly situated if that employee worked under "nearly identical" circumstances. Okoye v. Univ. of Tex. Houston Health Sci. Ctr., 245 F.3d 507, 514 (5th Cir.2001). For example, employees with different disciplinary records are not nearly identical. See Okoye, 245 F.3d at 514-15. Here, Matthews has failed to identify a single co-worker who was treated differently with regard to evaluations or terminations. For that reason, Plaintiff has failed to raise a fact issue on an element of her prima facie case, and her claims, based on the 2006 evaluation and her termination, should be dismissed. Id.
2. Demeaning duties, exclusion from meetings
Plaintiff claims that the City discriminated against her by forcing her to *645 work in the warehouse, by assigning her to demeaning duties, and by excluding her from major meetings. To state a prima facie case of discrimination, Plaintiff must show that each of these alleged actions constituted an "adverse employment decision." Rubinstein, 218 F.3d at 399. Only "ultimate employment decisions," such as hiring, granting leave, discharging, promoting, and compensating, are considered "adverse employment decisions." Felton v. Polles, 315 F.3d 470, 486 (5th Cir.2002). In this circuit, the mere assignment of undesirable duties, or the exclusion of employees from certain meetings, are not considered "ultimate employment decisions." See Southard v. Texas Board of Criminal Justice, 114 F.3d 539, 554-555 (5th Cir.1997); Hamilton v. Texas Dept. of Trans., 206 F.Supp.2d 826, 838 (S.D.Tex. 2001). In Southard, the plaintiff alleged that she received "less favorable work assignments because of ... `animus' toward women," but the Fifth Circuit held that "[u]ndesirable work assignments are not adverse employment actions." Southard, 114 F.3d at 554. Similarly, in Hamilton, this court held that,
[s]everal of the employment actions Hamilton alleges are clearly not ultimate employment actions. Work assignments, such as Hamilton's claims that he was overburdened; that he was humiliated by being asked to complete computer graphics; and that he was excluded from meetings and projects, are administrative decisions, not ultimate employment actions.
Hamilton, 206 F.Supp.2d at 838. In light of these holdings, it is clear that Matthews' claims based on purported undesirable duties, and exclusion from meetings, are not "ultimate employment decisions." For that reason, the actions do not constitute "adverse employment decisions," and Matthews has failed to state a prima facie case. Plaintiff's claims, based on those actions, should be dismissed.
Hostile work environment
Plaintiff has stated that, while with the City, she was subjected to harassment and a hostile work environment. A racial or sexual, hostile environment claim requires evidence that the plaintiff was subjected to "(1) racially [or sexually] discriminatory intimidation, ridicule and insults that are; (2) sufficiently severe or pervasive that they; (3) alter the conditions of employment; and (4) create an abusive working environment." Walker v. Thompson, 214 F.3d 615, 625 (5th Cir. 2000); Green v. Administrators of the Tulane Educational Fund, 284 F.3d 642, 655 (5th Cir.2002). On this record, Plaintiff has not alleged any racially or sexually derogatory comments or actions that would support a prima facie case. Walker, 214 F.3d at 625; Green, 284 F.3d at 655. For that reason, her claim should be dismissed.
Plaintiff's Title VII retaliation claim
Plaintiff claims that the City retaliated against her by issuing her a poor evaluation in 2006, and by terminating her. She contends that the retaliation was based on her complaints to the EEOC, to the Inspector General's Office, and to various other City officials. A retaliation claim, however, is weighed under the same burden shifting framework as one for disparate treatment under Title VII. Montemayor v. City of San Antonio, 276 F.3d 687, 692 (5th Cir.2001). To make a prima facie case of retaliation, an employee must show that (1) she engaged in a protected activity, that (2) an adverse employment action was taken against her, and that (3) a causal link exists between the protected activity and the adverse employment action. Roberson v. Alltel Info. Servs., 373 F.3d 647, 655 (5th Cir.2004). The causal link need not rise to the level of "but for" causation at the prima facie stage. Gee v. *646 Principi, 289 F.3d 342, 345 (5th Cir.2002). The burden of production, but not the burden of proof, then shifts to the defendant, who must articulate a legitimate, nonretaliatory reason for the challenged employment practice. Munoz, 200 F.3d at 299 (citing McDonnell Douglas, 411 U.S. at 802, 93 S.Ct. 1817). The defendant need only present evidence that, "if believed by the trier of fact, would support a finding that unlawful [retaliation] was not the cause of the employment action." St. Mary's Honor Ctr., 509 U.S. at 507, 113 S.Ct. 2742 (emphasis original); and see Price, 283 F.3d at 720. The burden of persuasion, however, "remains at all times with the plaintiff." Hicks, 509 U.S. at 507, 113 S.Ct. 2742; Tex. Dept. of Community Affairs v. Burdine, 450 U.S. 248, 253, 101 S.Ct. 1089, 67 L.Ed.2d 207 (1981); Munoz, 200 F.3d at 299.
Defendants argue that Plaintiff cannot show that there is a causal link between a protected activity and her 2006 evaluation. Plaintiff received the evaluation on June 6, 2006, three months after her most recent complaint to the Inspector General's Office. (Ex. 12 to Defendants' Motion). The Supreme Court has noted that "cases that accept mere temporal proximity ... as sufficient evidence of causality to establish a prima facie case uniformly hold that the temporal proximity must be `very close.'" Clark County School District v. Breeden, 532 U.S. 268, 273, 121 S.Ct. 1508, 149 L.Ed.2d 509 (2001); Strong v. Univ. Healthcare Sys., LLC, 482 F.3d 802, 808 (5th Cir.2007). The Court then cited cases holding that 3 and 4 month periods are insufficient to establish such causal links. Id. Here, Plaintiff has offered no evidence of retaliation other than that her 2006 evaluation was issued three months after her complaint to the Inspector General's Office. Without more, Plaintiff cannot state a prima facie case for retaliation based on that evaluation, and her claim should be dismissed. See Breeden, 532 U.S. at 273, 121 S.Ct. 1508; Strong, 482 F.3d at 808.
Defendants also argue that Plaintiff cannot show a causal link between a protected activity and her termination. Plaintiff was terminated on August 18, 2006, less than one month after filing her second EEOC charge. (Ex. 3 to Defendants' Motion; Ex. 23 to Defendants' Motion). Again, at the prima facie stage, the causal link need not rise to the level of "but for" causation. Gee, 289 F.3d at 345. Given Matthew's status as a pro se plaintiff, and considering the close temporal proximity between her second EEOC charge and her termination, the court is persuaded, on this record, that she has at least raised a fact issue as to whether a causal connection exists.
After an employee establishes a prima facie case, the burden shifts, first, to the employer to offer a legitimate, nonretaliatory reason for the adverse action, and then back to the employee to show that the given reason is merely a pretext for retaliation. McCoy v. City of Shreveport, 492 F.3d 551, 557 (5th Cir.2007). The City has argued that Matthews was terminated because she had two poor evaluations, and demonstrated "outrageous verbal behavior." (Defendants' Motion pp. 14-15; Ex. 23 to Defendants' Motion). Both poor performance and inappropriate behavior can constitute legitimate, non-retaliatory reasons for a termination. See Strong v. University Healthcare System, L.L.C., 482 F.3d 802, 808 (5th Cir.2007). Matthews has not argued, nor presented any evidence to show that those reasons were pretextual. Once the employer articulates a legitimate reason, "the plaintiff must rebut each ... non-retaliatory reason articulated by the employer." McCoy, 492 F.3d at 557. Moreover, unlike Defendants, who bear only the burden of production, Plaintiff bears the burden of persuasion *647 at all times. Hicks, 509 U.S. at 507, 113 S.Ct. 2742. Because Plaintiff has failed to present any evidence to raise a fact issue on whether Defendants' articulated reasons for her termination were mere pretext, her retaliation claim, based on her termination, should be dismissed.
Plaintiff's ADEA claim
Plaintiff claims that the City assigned her to demeaning duties based on her age, in violation of the ADEA. The ADEA makes it "unlawful for an employer... to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's age." 29 U.S.C.A. § 623(a)(1). Plaintiff's ADEA claim is analyzed under the same framework as her Title VII claims. Roberson v. Alltel Information Services, 373 F.3d 647, 651 (5th Cir.2004). To make out a prima facie case of discriminatory treatment based on age, a plaintiff is required to prove: (1) she is within the protected class; (2) she is qualified for the position; (3) she suffered an adverse employment decision; and (4) she was replaced by someone younger or treated less favorably than similarly situated younger employees. Smith v. City of Jackson, Miss., 351 F.3d 183 (5th Cir.2003).
As noted earlier, in the context of a Title VII claim, merely being assigned to undesirable duties does not amount to an "adverse employment decision." Southard, 114 F.3d at 555; Hamilton, 206 F.Supp.2d at 838. In fact, in Southard, the Fifth Circuit explicitly held that "[u]ndesirable work assignments are not adverse employment actions." Southard, 114 F.3d at 555. Plaintiff cannot state a prima facie case of age discrimination, based on her reportedly menial duties, because that does not constitute an "adverse employment action." Id. For that reason, Plaintiffs ADEA claim should be dismissed.
Plaintiff's ADA claims
Matthews complains that the City discriminated against her, in violation of the ADA, when it failed to make accommodations for her sleep apnea, and then terminated her because of that condition. (Deposition 46:15-19; Transcript 27:8-13). The ADA prohibits discrimination against a qualified individual because of a disability "in regard to job application procedures, the hiring, advancement, or discharge of employees, employee compensation, job training, and other terms, conditions, and privileges of employment." 42 U.S.C. § 12112(a). Plaintiffs claims under the ADA are subject to the same McDonnell Douglas burden-shifting framework as her claims under Title VII. Rizzo v. Children's World Learning Centers, Inc., 84 F.3d 758, 762 (5th Cir.1996). To establish a prima facie case of disability discrimination, a plaintiff must show that she is a qualified individual with a disability, and that a negative employment action resulted because of that. Sherrod v. Am. Airlines, Inc., 132 F.3d 1112, 1119 (5th Cir.1998). A "disability," under the ADA, includes (1) a mental or physical impairment that substantially limits one or more major life activities of an individual; (2) a record of such impairment; or (3) being regarded as having such an impairment. Sherrod, 132 F.3d at 1119 (citing 42 U.S.C. § 12102(2); 29 C.F.R. § 1630.2(g)). To determine whether an employee has a "mental or physical impairment that substantially limits one or more major life activities" within the meaning of the ADA, courts must determine: (1) whether the employee has an impairment; (2) whether the activity on which employee relies is a major life activity; and, if so, (3) whether employee's impairment substantially limits that major life activity. Waldrip v. Gen. Elec. Co., *648 325 F.3d 652, 654 (5th Cir.2003). "Substantially limits" means that a person is "[s]ignificantly restricted as to the condition, manner or duration under which an individual can perform a particular major life activity as compared to the condition, manner, or duration under which the average person in the general population can perform that same major life activity." 29 C.F.R. § 1630.2(j)(1); Sherrod, 132 F.3d at 1119.
Defendants argue that plaintiff is not "disabled" under the ADA because she cannot show that her sleep apnea substantially limited her ability to work. The ability to work is a "major life activity." Gowesky v. Singing River Hosp. Sys., 321 F.3d 503, 508 (5th Cir.2003). In this context,
substantially limits means significantly restricted in the ability to perform either a class of jobs or a broad range of jobs in various classes as compared to the average person having comparable training, skills and abilities. The inability to perform a single, particular job does not constitute a substantial limitation in the major life activity of working.
Dutcher v. Ingalls Shipbuilding, 53 F.3d 723, 727 (5th Cir.1995) (citing 29 C.F.R. § 1630.2(j)(3)(i)). Here, Matthews has not presented evidence, or even an argument, to suggest that her sleep apnea substantially limits "either a class of jobs or a broad range of jobs in various classes."In fact, the record shows clearly that the condition did not substantially limit her job with the City. After the diagnosis' in 2002, Matthews continued in her position for the next three and a half years. Moreover, as part of her relief in this case, Plaintiff requests that she be reinstated to a position similar to the one she held in the fire department. (Plaintiffs Complaint ¶ 29). Finally, the fact that Plaintiff is currently employed as a substitute teacher while she seeks certification to become a full time teacher, argues against a finding that she is substantially limited in the major life activity of working. (Matthews Deposition 68:3-70:3); See Dupre v. Charter Behavioral Health Systems of Lafayette, Inc., 242 F.3d 610, 615 (5th Cir.2001).
Defendants also contend that, because Plaintiff is not "disabled" under the ADA, her claim that they did not accommodate her impairment fails as a matter of law. The ADA requires employers to "reasonably accommodate" the limitations of their disabled employees. Gammage v. West Jasper School Bd. of Educ., 179 F.3d 952, 954 (5th Cir.1999). To maintain a failure to accommodate claim, the plaintiff must show that she actually had a disability, not merely that she was regarded as having one. Newberry v. East Texas State University, 161 F.3d 276, 280 (5th Cir.1998). "[A]n employer need not provide reasonable accommodation to an employee who does not suffer from a substantially limiting impairment merely because the employer thinks the employee has such an impairment." Id. Again, Matthews has not argued, nor presented any evidence to suggest, that her sleep apnea substantially limited a major life activity. For that reason, Plaintiffs claim for failure to accommodate should be dismissed.
Finally, Defendants contend that Plaintiff's wrongful termination claim fails, as a matter of law. The City argues that even if Plaintiff could show that she was "disabled" under the ADA, it has offered a legitimate reason for her termination, and there is no evidence of pretext. Matthews was purportedly relieved of duty to investigate Swan's complaint about her conduct during the meeting to discuss her 2006 evaluation. (Conference Transcript 28:10-15). The City also alleges that Matthews was ultimately terminated, not because of her disability, but because she had two poor evaluations, and demonstrated "out-rageous *649 verbal behavior." (Defendants' Motion pp. 14-15). Matthews has not argued, nor presented evidence to show that those reasons were merely pretexts for disability discrimination. Because Plaintiff has failed to raise a genuine issue of fact on whether Defendants' articulated reason for her termination was mere pretext, her ADA claim based on her termination should be dismissed.
Plaintiff's Workers' Compensation claim
Plaintiff claims that Defendants retaliated against her for filing a workers compensation claim. She alleges that this retaliation occurred when Swan reported that she did not provide timely notice of her injury, and when she was terminated. (Matthews Deposition 53:23-25). Under § 451.001 of the Texas Labor Code, "[a] person may not discharge or in any other manner discriminate against an employee because the employee has: (1) filed a workers' compensation claim in good faith." Tex. Lab.Code Ann. § 451.001. "The employee has the burden of demonstrating a causal link between the discharge or discrimination and the filing of a workers' compensation claim." Benners v. Blanks Color Imaging, Inc., 133 S.W.3d 364, 369 (Tex.App.-Dallas 2004, no pet.) (citing Tex. Lab.Code Ann. § 451.002(c)). "A causal connection is established between a plaintiffs protected action and a defendant's retaliation if, but for the employee's action, the adverse employment action would not have occurred when it did." Id. (citing Cont'l Coffee Prods. Co. v. Cazarez, 937 S.W.2d 444, 450-51 (Tex. 1996)). The employer may then rebut the claim of retaliation by showing that there was a legitimate, non-retaliatory reason for its action. Swearingen v. Owens-Corning Fiberglas Corp., 968 F.2d 559, 563 (5th Cir.1992).
Defendants argue that Plaintiff cannot show a causal connection between her workers' compensation claim and her termination. Plaintiff filed her workers' compensation claim on May 8, 2003, and she was terminated on August 18, 2006. (Matthews Deposition 51:22-52:4; Ex. 23 to Defendants' Motion). Plaintiff has offered no evidence to show a causal link between her workers' compensation claim, and her termination three years later. For that reason, her workers' compensation retaliation claim based on her termination should be dismissed.
Defendants also argue that there was a legitimate reason for Swan to report that Matthews filed an untimely notice of injury. The undisputed evidence shows that Plaintiff filed a "First Report of Injury" form on August 11, 2003. (Ex. C to Defendants' Motion: Affidavit of David Swan). On that form, she identified May 8, 2003, as the "Date of Injury." (Id.). Plaintiff has presented no other evidence to show that she notified the City of her injury at any time before filing this report. Under Texas workers' compensation law, an employee must notify her employer within thirty days of any injury. Tex. Lab.Code Ann. § 409.001. Defendants' argue that, because Plaintiff failed to report her injury within 30 days, Swan's accurate statement to that effect was legitimate, and not based on any retaliatory motive. Matthews has not presented evidence to suggest that her notice was timely, or to otherwise show that Swan's alleged report was pretext for retaliation. Because Defendants have articulated a legitimate, non-retaliatory reason for Swan's report, and there is no evidence of pretext, Plaintiffs workers' compensation retaliation claim based on that report should be dismissed.
CONCLUSION
After reviewing the pleadings and the evidence presented, it is RECOMMENDED *650 that Defendants' motion be GRANTED. Those Title VII claims that are based on Plaintiffs poor work evaluations, her 2004 reprimand, her job duties, her exclusion from meetings, and her termination, should be dismissed. Likewise, her hostile environment claim, her ADEA claim based on her job duties, her ADA claim for a failure to accommodate and wrongful termination, her retaliation claim under the Workers' Compensation Act, and all claims against David Swan, and Jack Williams should also be dismissed.
The Clerk of the Court shall send copies of the memorandum and recommendation to the respective parties, who will then have ten business days to file written objections, pursuant to 28 U.S.C. § 636(b)(1)(c), General Order 02-13, S.D. Texas. Failure to file written objections within the time period provided will bar an aggrieved party from attacking the factual findings and legal conclusions on appeal. Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir.1996) (en banc).
The original of any written objections shall be filed with the United States District Clerk, P.O. Box 61010, Houston, Texas 77208; copies of any such objections shall be delivered to the chambers of Judge Lee H. Rosenthal, Room 11535, and to the chambers of the undersigned, Room 7007.
Feb. 18, 2009.
NOTES
[1] The Inspector General's office notified Matthews that she should pursue her claim through the City's grievance process, because she had not provided any specific allegation of discrimination that invoked the Inspector General's jurisdiction. (Ex. 14 to Defendants' Motion). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2097921/ | 373 F.Supp. 1152 (1973)
Carl B. McCARTER
v.
UNITED STATES of America.
Civ. A. No. 8254.
United States District Court, E. D. Tennessee, N. D.
July 19, 1973.
Robert L. Ogle, Jr., Ogle & Schmutzer, Sevierville, Tenn., for plaintiff.
John L. Bowers, Jr., U. S. Atty., Knoxville, Tenn., for defendant.
MEMORANDUM AND ORDER
ROBERT L. TAYLOR, District Judge.
Defendant, United States of America, has filed a motion in this Court pursuant to Title 28 U.S.C. § 2675(b) to reduce the damages sought by the plaintiff from the $10,000.00 claimed in his complaint to $926.00 as claimed before the Post Office Department. Defendant further moves, pursuant to Title 28 U. S.C. § 2402, to strike that portion of plaintiff's complaint requesting a trial by jury on the ground that all actions under the Federal Tort Claims Act shall be tried by the Court without a jury.
The United States relies upon the cases of Singer v. United States, 186 F. Supp. 131 (E.D.N.Y.1960) and Rudd v. United States, 233 F.Supp. 730 (M.D. Ala.1964) for its position that a plaintiff in an action brought in Federal Court under the Federal Tort Claims Act is limited to that amount sought in his original claim filed before the appropriate agency. As a generalization, this proposition is sound.
However, Title 28 U.S.C. § 2675(b) recognizes that this rigid standard need not obtain in every instance and provides exceptions to the general rule of limitation, and states in pertinent part:
". . . where the increased amount is based upon newly discovered *1153 evidence not reasonably discoverable at the time of presenting the claim to the federal agency, or upon allegation and proof of intervening facts, relating to the amount of the claim."
Plaintiff, by way of affidavit, informs the Court that he is a man with only an eighth grade education and, when presented the claim form, he took it to his insurance agent for assistance in filling it out. He took all damage estimates and medical bills, and when asked questions regarding the amounts involved he recited those amounts to the insurance agent who transcribed them onto the form. Plaintiff further states that at the time the claim form was filled out and filed he was not aware that he was entitled to additional compensation for lost wages and pain and suffering. He did not discover this until after his claim had been denied and he had retained an attorney to file this action.
It is the opinion of the Court that plaintiff's claim falls within the exceptions to the general rule as stated in Title 28 U.S.C. § 2675(b) and that the case under consideration presents exceptional factors as that would allow plaintiff to claim an amount greater than that which was claimed before the agency. (See Bonner v. United States, 339 F.Supp. 640 (D.C.La.1972); Colin v. United States, 324 F.Supp. 121 (D.C. Mo.1970); Little v. United States, 317 F.Supp. 8 (E.D.Pa.1970); Rabovsky v. United States, 265 F.Supp. 597 (D. Conn.1967).)
Regarding defendant's motion to dismiss that portion of plaintiff's complaint demanding a jury trial, it is the opinion of the Court that said motion is well taken. (Title 28 U.S.C. § 2402).
Accordingly, it is ordered that defendant's motion pursuant to Title 28 U.S.C. § 2675(b) to reduce the ad damnum to $926.60 should be, and the same hereby is, denied, and that defendant's motion pursuant to Title 28 U.S.C. § 2402 to strike plaintiff's demand for a trial by jury should be, and the same hereby is, granted. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2099132/ | 948 F.Supp. 167 (1996)
Jack S. TOBACK, Plaintiff,
v.
CITY OF LONG BEACH, Defendant.
No. 96-CV-3322 (JS).
United States District Court, E.D. New York.
October 3, 1996.
*168 Kevin J. McGill, Clifton Budd & DeMaria, New York City, for Plaintiff.
Corey E. Klein, Corporation Counsel, Long Beach, NY, for Defendant.
ORDER
SEYBERT, District Judge:
Upon reviewing the Report and Recommendation of Magistrate Judge Michael L. Orenstein made on August 8, 1996, plaintiff's objections to the Report and Recommendation and defendant's opposition to the objections, and after hearing the parties oral arguments on October 3, 1996, the Court adopts the Report and Recommendation in its entirety and dismisses the case.
SO ORDERED.
REPORT AND RECOMMENDATION
ORENSTEIN, United States Magistrate Judge:
Plaintiff commenced this action pursuant to 42 U.S.C. § 1983, seeking, inter alia, to enjoin the City of Long Beach (hereinafter *169 "City") from enforcing certain sections of its newly-revised noise ordinance. By Order dated July 12, 1996, District Judge Joanna Seybert directed the City to show cause before this Court why a preliminary injunction should not issue. After hearing oral argument on this matter and carefully considering the parties' submissions, the Court respectfully reports and recommends that the District Court deny the application for a preliminary injunction and abstain under the doctrine enunciated in Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971).
BACKGROUND
Plaintiff is a religious proselytizer who conducts an outreach ministry during the summer months on the Long Beach boardwalk. His utilization of amplified sound in connection with his preaching of the Christian Gospel has generated much publicity in both Long Beach and the local media. See, e.g., Barbara Chai, Sound and Fury, Loud beach preacher attacked, arrested, Newsday, July 8, 1996; Evelyn Nieves, At Boardwalk, Battle Stations Over Decibels, N.Y.Times, Aug. 4, 1996, at 33.
This is the second action in which the present parties have appeared before this Court. On July 14, 1995, after a non-jury trial, this Court held that certain of the City's permit provisions and procedures set forth in both the noise code and park regulations sections of the Long Beach Code of Regulations, with which the City had required Plaintiff to comply in order to conduct his religious activities on the boardwalk, were facially invalid, as well as unconstitutionally applied to him. See Opinions, Findings of Fact and Conclusions of Law, dated July 15, 1995, Orenstein, M.J., attached as Toback Aff.Ex. 1. In reaching its decision, the Court found the Long Beach boardwalk to be a traditional public forum. Id. at 9. Plaintiff, however, withdrew his challenge to those sections of the noise code that provided certain maximum sound levels. Id. at 6 n. 2.
On May 21, 1996, the City amended Chapter 16 of the noise code. Eaton Aff. ¶ 5; "Chapter 16 Noise," attached as Eaton Aff. Ex. B; Toback Aff. Ex. 2. Newly-enacted Section 16-7 provides that "[n]o person shall cause, ... or permit the operation of any source of sound ... in such a manner as to create a sound level that exceeds the particular continuous sound level limits set forth in table 1." Table 1 fixes a maximum permissible continuous sound level of 65 decibels ("dBA") at Ocean Beach Park, which encompasses the Long Beach boardwalk.
On June 9, 1996, the City issued Plaintiff two summonses for violations of Section 16 of the Long Beach noise ordinance; the City issued Plaintiff a third summons on June 16, 1996. On June 19, 1996, Plaintiff appeared in Long Beach City Court to answer the summonses. At that time, the prosecution superseded the summonses with informations; the Court adjourned Plaintiff's arraignment for one week to enable Plaintiff to obtain counsel. Def.'s Mem. of Law in Support of Younger Abstention Ex. 1. On June 26, 1996, Plaintiff appeared with counsel for arraignment on the three informations. Plaintiff pleaded not guilty and the court, at counsel's request, granted Plaintiff forty-five days for the purpose of serving motions. The matter was adjourned to August 13, 1996.
On July 4, 1996, Plaintiff returned to the Long Beach boardwalk with a sound amplification system. The City served him with a summons for exceeding 65 dBA. On July 5, 1996, the City issued five summonses to Plaintiff for similar conduct. The sound was measured at various places as it projected from the boardwalk and at different times from 12:50 p.m. to 3:03 p.m. On July 6, 1996, Plaintiff again returned to the boardwalk with a sound amplification system. This time, Plaintiff was arrested and charged with disorderly conduct, pursuant to N.Y.Penal Law Section 240.20, subd. 2.[1] The following *170 day, the City served Plaintiff with another two summonses for violation of Section 16 of the Long Beach noise ordinance, and again charged him with disorderly conduct under the New York State Penal Law.
Meanwhile, on July 5, 1996, Plaintiff filed his complaint in this action, challenging the constitutionality of that portion of the noise code which prohibits excessive noise, including the 65 dBA sound level limit set for Ocean Beach Park. He asserts that the noise code is unconstitutional on its face and as applied to him. Plaintiff seeks, inter alia, an injunction permanently enjoining the City from enforcing the noise ordinance, a judgment declaring the challenged sections Sections 16-6K, 16-7 and 16-11I to be unconstitutional under the First and Fourteenth Amendments to the United States Constitution, and nominal damages in the amount of $10.00.
The City opposes the application for a preliminary injunction and urges this court to abstain from hearing the instant case.
DISCUSSION
I. Requirements for a Younger Abstention
In Younger v. Harris, 401 U.S. 37, 44, 53-54, 91 S.Ct. 746, 754-55, 27 L.Ed.2d 669 (1971), the United States Supreme Court held that, absent extraordinary circumstances, principles of federalism and judicial comity require federal district courts to abstain from enjoining pending state criminal proceedings. See also Rizzo v. Goode, 423 U.S. 362, 379-80, 96 S.Ct. 598, 608, 46 L.Ed.2d 561 (1976) ("`[A] major continuing intrusion of the equitable power of the federal courts into the daily conduct of state criminal proceedings is in sharp conflict with the principles of equitable restraint which this court has recognized....'" (quoting O'Shea v. Littleton, 414 U.S. 488, 502, 94 S.Ct. 669, 679, 38 L.Ed.2d 674 (1974))). In addition to preventing disruption of state court proceedings, the Younger doctrine is designed to protect the vital role of the state courts in the enforcement of federal law. In a companion case to Younger, the High Court extended the abstention principle to actions seeking declaratory relief. Samuels v. Mackell, 401 U.S. 66, 91 S.Ct. 764, 27 L.Ed.2d 688 (1971). "Younger abstention is appropriate when: 1) there is an ongoing state proceeding; 2) an important state interest is implicated; and 3) the plaintiff has an avenue open for review of constitutional claims in the state court." Hansel v. Town Court for Town of Springfield, New York, 56 F.3d 391, 393 (2d Cir.), cert. denied, ___ U.S. ___, 116 S.Ct. 572, 133 L.Ed.2d 496 (1995); see Doe v. Connecticut Dept. Of Health Servs., 75 F.3d 81, 85 (2d Cir.1996).
The three requirements of a Younger abstention set forth in Hansel clearly are met in the instant case. First, Plaintiff's criminal prosecution was proceeding when he commenced this action. As a result of his alleged activities on the Long Beach boardwalk on June 9 and June 16, 1996, Plaintiff was arraigned on three charges; informations were filed and he pleaded not guilty. Cf. Agriesti v. MGM Grand Hotels, Inc., 53 F.3d 1000, 1001-02 (9th Cir.1995) (finding no ongoing judicial proceeding where district attorney's office never filed citations in court; under Nevada Law, "a misdemeanor complaint issues when the misdemeanor citation is filed with a Court of competent jurisdiction").
As to the second requirement, it is beyond cavil that the City has an important interest at stake simply by virtue of the ongoing criminal prosecution. See Hansel, 56 F.3d at 393; Davis v. Lansing, 851 F.2d 72, 76 (2d Cir.1988) ("There is no question that [an] ongoing prosecution implicates important state interests: Younger itself settled the importance of the state's interest in criminal proceedings.")
Likewise, the third requirement of the Younger abstention rule also is met. Initially, the Court points out that "a federal court should assume that state procedures will afford an adequate remedy [to possible federal constitutional violations], in the absence of unambiguous authority to the contrary." Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 15, 107 S.Ct. 1519, 1528, 95 L.Ed.2d 1 (1987). Here, however, the Court need not employ such a presumption because Plaintiff has ample opportunity for review of his federal constitutional *171 claims in the Long Beach City Court, a New York State court of record. See N.Y.Jud.Law § 2 (McKinney 1983 and Supp.1996). Even prior to becoming a New York State court of record, the Long Beach City Court passed upon constitutional claims in criminal proceedings. See, e.g., People v. Davis, 38 Misc.2d 771, 238 N.Y.S.2d 981 (Long Beach City Ct.1963) (dismissing information based upon defendant's claim that city ordinance prohibiting hand billing unconstitutionally interfered with his First Amendment rights). Moreover, Plaintiff is guaranteed the right to appeal in the event he is convicted. See N.Y.Crim.Proc.Law § 450.10 (McKinney 1994). In sum, Plaintiff will be able to raise all of his federal claims in the state court proceeding and may utilize state and federal appellate processes for judicial review, if convicted.
II. Exceptions to the Rule of Younger
The satisfaction of the three requirements necessary to invoke the rule of Younger does not end the Court's analysis, because Younger and its progeny have established circumstances where it would be inappropriate for a federal district court to "stay its hand" pending disposition of related state proceedings:
"Younger ... do[es] of course allow intervention in those cases where the District Court properly finds that the state proceeding is motivated by a desire to harass or is conducted in bad faith, or where the challenged statute is flagrantly and patently violative of express constitutional prohibitions in every clause, sentence and paragraph, and in whatever manner and against whomever an effort might be made to apply it."
Moore v. Sims, 442 U.S. 415, 424, 99 S.Ct. 2371, 2377-78, 60 L.Ed.2d 994 (1979) (internal quotations omitted) (quoting Huffman v. Pursue, Ltd., 420 U.S. 592, 611, 95 S.Ct. 1200, 1212, 43 L.Ed.2d 482 (1975)); see Cullen v. Fliegner, 18 F.3d 96, 103 (2d Cir.) ("Intervention [by a federal court] would still be warranted upon a showing of `bad faith, harassment or any other exceptional circumstance that would call for equitable relief.' ... [A] refusal to abstain is also justified where a prosecution or proceeding has been brought to retaliate for or to deter constitutionally protected conduct...." (quoting Younger, 401 U.S. at 54, 91 S.Ct. at 755)), cert. denied, ___ U.S. ___, 115 S.Ct. 480, 130 L.Ed.2d 393 (1994). Nevertheless, when the requirements for a Younger abstention are met, its reach is expansive; "[the] twin rationales of respecting prosecutorial discretion and federalism explain why the exceptions to Younger only provide for a `very narrow gate for federal intervention.'" Phelps v. Hamilton, 59 F.3d 1058, 1064 (10th Cir.1995) (quoting Arkebauer v. Kiley, 985 F.2d 1351, 1358 (7th Cir.1993)); see also Cullen, 18 F.3d at 104 (holding bad faith exception to Younger abstention to be a "narrow" one).
A. Bad Faith/Retaliation
Plaintiff argues that the criminal proceedings in Long Beach City Court were brought in bad faith and in retaliation for Plaintiff's successful lawsuit against the City last summer, see Toback v. City of Long Beach, CV 94-3298 (MLO), Opinion, Findings of Fact and Conclusions of Law, dated July 14, 1995, as well as his filing of the instant action. In support of his contention, Plaintiff cites the "well-documented" history of conflict between Plaintiff and the City, and the fact that the City served Plaintiff with multiple summonses for violating the noise code mere hours after Plaintiff served the City with his complaint in the case at bar. Moreover, according to Plaintiff, the City's present noise code was crafted carefully to frustrate Plaintiff's attempts to preach on the boardwalk.
Prosecutorial bad faith will be found where "the party bringing the state action [has] no reasonable expectation of obtaining a favorable outcome." Cullen, 18 F.3d at 103; see Allee v. Medrano, 416 U.S. 802, 819, 94 S.Ct. 2191, 2202, 40 L.Ed.2d 566 (1974); Phelps, 59 F.3d at 1065. The accusatory instruments and summonses the City served upon Plaintiff allege that he either exceeded the permissible sound level as set forth in the newly-revised City nose code, or with intent to cause public inconvenience, annoyance or alarm, or recklessly creating a risk thereof, made unreasonable noise. See N.Y.Penal *172 Law § 240.20 subd. 2 (disorderly conduct). The Court reiterates that it did not address the issue of noise or sound level in the prior federal action; in point of fact, Plaintiff withdrew his challenge to the sound level restrictions of the old City ordinance, and "no evidence was ever presented to this Court which would demonstrate that the plaintiff had violated [the noise ordinance], or that the City had attempted to measure or monitor plaintiff's activity in compliance with § 16-16 (procedure for measuring noise)." Opinion, dated July 14, 1995, at 6 n. 2. Moreover, the constitutionality of Section 240.20 was upheld by the New York State Court of Appeals in People v. Bakolas, 59 N.Y.2d 51, 462 N.Y.S.2d 844, 449 N.E.2d 738 (1983). Therefore, taken together with this Court's finding that the Long Beach noise ordinance is not patently unconstitutional, see infra pp. 173-175, it can hardly be said that the City authorities, in issuing the summonses to Plaintiff, had no reasonable expectation of obtaining convictions. In addition, no criminal proceedings were in progress or brought during the pendency of the prior federal action, or until June 9, 1996, after the enactment of the revised noise code.
Furthermore, the Court is persuaded by the series of correspondence between Plaintiff and the City from March to June 1996 that the City made good faith attempts to accommodate Plaintiff. See Eaton Aff. Exs. D, E, F, G, I, J. In response to Plaintiff's request for permits to preach on the boardwalk, the City responded that, in light of this Court's July 14, 1995 decision, permits would not be required pending a revision to the City Code. See Eaton Aff. Ex. E. The City further advised Plaintiff by letter dated April 8, 1996 that it had authorized him to utilize a sound amplification device on all twenty-three dates he had requested, and at the specific location he had requested. See Eaton Aff. Ex. G. The April 8 letter further reminded Plaintiff that he, as everyone else, would be required to keep the sound level of his amplifier at or below 65 dBA, as provided in the old ordinance. Id. By letter dated May 23, 1996, the City agreed to change one of the dates requested by Plaintiff for use of a sound device; the letter also advised Plaintiff that the City's noise ordinance had been amended and that a maximum sound level of 65 dBA had been set for Ocean Beach Park. See Eaton Aff. Ex. I.
The Court also notes that Plaintiff was not issued summonses for creating noise at a level of 66 dBA. Instead, the City issued summonses for sound levels ranging from 72 to 93 dBA. Too, notwithstanding the fact that Section 16-7 of the noise ordinance provides for measuring sound levels in Ocean Beach Park "at the center of the boardwalk at a point perpendicular to the source," two of the summonses issued arose from measurements taken from residential buildings away from the boardwalk; therefore, Plaintiff's averment that "every syllable uttered by [him] is dutifully measured by a policeman stationed twelve feet away," Pl.'s Supp. Mem. at 4, is misleading somewhat.
Finally, Plaintiff cites to the Younger case itself for the proposition that he will suffer irreparable injury should the court abstain from hearing this case. Younger stated in pertinent part as follows:
Certain types of injury, in particular, the cost, anxiety, and inconvenience of having to defend against a single prosecution, could not by themselves be considered `irreparable' in the special legal sense of that term. Instead, the threat to the plaintiff's federally protected rights must be one that cannot be eliminated by his defense against a single criminal prosecution.
401 U.S. at 46, 91 S.Ct. at 751. Plaintiff urges that this language suffices to establish irreparable injury because he is facing multiple charges stemming from his alleged violations of the Long Beach noise ordinance. The Court finds, however, that despite the City's service of multiple summonses upon Plaintiff, the criminal proceedings in the Long Beach City Court are, for all practical purposes, just one proceeding, and are not repetitive and harassing. Only one motion to dismiss the accusatory instruments need be made. If the City Court finds the noise ordinance unconstitutional, all of the criminal prosecutions will fail. The Court notes in this regard that it is highly possible that all of the alleged violations will be consolidated for trial. In sum, the Court concludes that, *173 despite the multiple charges pending against Plaintiff, they are nevertheless subject to dismissal by a single application, thereby bringing this case within the purview of Younger's "single prosecution" language.
Under all of the circumstances, the Court finds that the present prosecutions pending against Plaintiff were not brought in bad faith or to harass Plaintiff, or in retaliation for Plaintiff's successful prior lawsuit against the City or his commencement of the instant one.[2]
B. Constitutionality of the Noise Ordinance
Plaintiff attacks the constitutionality of three provisions of the newly-enacted Long Beach noise ordinance, to wit: Sections 16-6K, 7, and 16-11I. Section 16-K prohibits "[a]ny excessive or unusually loud sound which either annoys, disturbs, injures or endangers the comfort, repose, health, peace or safety of a reasonable person of normal sensibilities." Section 16-7 sets forth the maximum permissible continuous sound levels for sounds emanating from various categories of property referenced in a chart annexed as "Table 1"; as noted previously, it sets a maximum sound level of 65 dBA for noise emanating from Ocean Beach Park. Section 16-7C provides that "[w]hen measuring on Ocean Beach Park noise shall be measured at the center of the boardwalk at a point directly perpendicular to the source." Finally, Section 16-11I exempts from the provisions of the noise ordinance "[n]oise generated by municipality[-]sponsored concerts and events designed to promote the health, safety or welfare of the citizens of Long Beach."
Without passing ultimate judgment on the merits of Plaintiff's claims, the Court can state with positive assurance that the Long Beach noise ordinance is not "flagrantly and patently violative of express constitutional prohibitions" so as to warrant this Court to proceed with the instant lawsuit. As to Section 16-6K, the Court points out that in People v. Bakolas, 59 N.Y.2d 51, 462 N.Y.S.2d 844, 449 N.E.2d 738 (1983), the New York State Court of Appeals upheld the constitutionality of N.Y.Penal Law Section 240.20, subd. 2 ("disorderly conduct"), rejecting claims that the term "unreasonable noise" was either vague or overbroad. Specifically, the court held that the term "unreasonable noise" was "not incapable of definition. Rather, it describes a noise of a type or volume that a reasonable person, under the circumstances, would not tolerate." 59 N.Y.2d at 53, 462 N.Y.S.2d 844, 449 N.E.2d 738. In so ruling, the court distinguished its holding in People v. New York Trap Rock Corp., 57 N.Y.2d 371, 456 N.Y.S.2d 711, 442 N.E.2d 1222 (1982), where it struck down an ordinance that in pertinent part proscribed making "any excessive or unusually loud sound or any sound which either annoys, disturbs, injures or endangers the comfort, repose, health, peace or safety of a person." Trap Rock, 57 N.Y.2d at 375, 456 N.Y.S.2d 711, 442 N.E.2d 1222.
In Bakolas, the Court of Appeals noted that the Trap Rock ordinance had employed "a subjective standard the annoyance, etc., of a person, rather than a neighborhood or the public and thus was subject to enforcement according to the `malice or animosity of a cantankerous neighbor' or the `boiling point of a particular person.'" Bakolas, 59 N.Y.2d at 54, 462 N.Y.S.2d 844, 449 N.E.2d 738 (citations omitted) (quoting Trap Rock, 57 N.Y.2d at 380, 456 N.Y.S.2d 711, 442 N.E.2d 1222). Moreover, Bakolas noted that in many of the Trap Rock ordinance's parts, "`the pervasive nature of its catchall effect' made it capable of ad hoc and discriminatory enforcement and incapable of a narrowing construction." Bakolas, 59 N.Y.2d at 54, 462 N.Y.S.2d 844, 449 N.E.2d 738 (quoting Trap Rock, 57 N.Y.2d at 381, 456 N.Y.S.2d 711, 442 N.E.2d 1222). The Bakolas court concluded as follows:
Here, the objective standard of public disturbance, the requirement of unreasonableness, and the narrowing effect of the fact that all of the other acts proscribed by *174 the section are publicly offensive, permit, if they do not require, [a constitutionally permissive] construction....
Id. at 54, 462 N.Y.S.2d 844, 449 N.E.2d 738. In the instant case, Section 16-6K does not appear to suffer from the same constitutional infirmities present in the Trap Rock ordinance. It clearly employs an objective standard of reasonableness ("a reasonable person of normal sensibilities"). In addition, the Court cannot say that the ordinance is "incapable of a narrowing construction" that renders it subject to ad hoc or discriminatory enforcement.
With respect to Section 16-7, it is well-settled that a municipality has a legitimate interest in preventing unwelcome noise. Ward v. Rock Against Racism, 491 U.S. 781, 796, 109 S.Ct. 2746, 2756-57, 105 L.Ed.2d 661 (1989); Carew-Reid v. Metro. Transp. Auth., 903 F.2d 914, 917 (2d Cir.1990) ("The elimination of excessive noise is a substantial and laudable goal."). This interest extends to traditional public forums such as the Long Beach boardwalk. Ward, 491 U.S. at 796, 109 S.Ct. at 2756-57; see also Perry Educ. Ass'n v. Perry Local Educators' Ass'n, 460 U.S. 37, 45, 103 S.Ct. 948, 955, 74 L.Ed.2d 794 (1983) (noting that "[t]he State may ... enforce regulations of the time, place, and manner of expression [in traditional public forums] which are content-neutral, are narrowly tailored to serve a significant government interest, and leave open ample alternative channels of communication"). Moreover, a municipality's interest in noise abatement is heightened where, as here, a traditional public forum abuts residential areas. See, e.g., Frisby v. Schultz, 487 U.S. 474, 485, 108 S.Ct. 2495, 2502, 101 L.Ed.2d 420 (1988) ("[W]e have repeatedly held that individuals are not required to welcome unwanted speech into their own homes and that the government may protect this freedom."). With the foregoing in mind, no less a champion of First Amendment freedoms than Supreme Court Justice Hugo Black expressed the following sentiments on the use of sound amplification devices:
[O]rdinances can be drawn which adequately protect a community from unreasonable use of public speaking devices without absolutely denying to the community's citizens all information that may be disseminated or received through this new avenue for trade in ideas. I would agree without reservation to the sentiment that `unrestrained use throughout a municipality of all sound amplifying devices would be intolerable.' And of course cities may restrict or absolutely ban the use of amplifiers on busy streets in the business area. A city ordinance that reasonably restricts the volume of sound, or the hours during which an amplifier may be used, does not, in my mind, infringe the constitutionally protected area of free speech.
Kovacs v. Cooper, 336 U.S. 77, 104, 69 S.Ct. 448, 462, 93 L.Ed. 513 (1949) (Black, J., dissenting) (emphasis added).
The City of Long Beach has "declared that the making, creation or maintenance of excessive or unreasonable noise within the City affects and is a menace to public health, comfort, convenience, safety, welfare and the prosperity of the people of the City." Noise Code, Section 16-2. As a means to achieve its legitimate goal of noise abatement, the City has enacted a scheme which Plaintiff concedes is "content-neutral on its face," i.e., all persons desiring to speak in Ocean Beach Park may do so, provided they keep their sound levels at or below 65 dBA. Cf. Carew, 903 F.2d at 917, 919 (upholding absolute ban on amplifiers in subway platforms and reasoning that "even though the regulation is based on a particular medium of expression and in fact is a complete ban on the use of that medium, it remains neutral with regard to the expression's content"). Nevertheless, Plaintiff contends that the noise ordinance is unconstitutional in its operation because in Ocean Beach Park, sound is measured "at the center of the boardwalk at a point directly perpendicular to the source." See Section 16-7C. In other categories of property, sound is measured from the property line of the receiving property. See Section 16-7A. Therefore, Plaintiff maintains that he is subject to a more onerous standard because of his proximity to the sound measurement device. Plaintiff's argument is not persuasive. Plaintiff himself has selected the Long Beach boardwalk as his bully pulpit, and is free to select another situs at Ocean Beach Park if *175 he so desires. See Carew, 903 F.2d at 919 ("The First Amendment ... does not guarantee [Plaintiff] access to every or even the best channels or locations for their expression.").
Finally, Plaintiff attacks the constitutionality of Section 16-11I, which exempts City-sponsored events from the strictures of the noise ordinance, on the grounds that the provision violates the First Amendment and the Equal Protection Clause. Courts have held, however, that the promotion of tourism or recreation is a legitimate governmental interest. See New Orleans v. Dukes, 427 U.S. 297, 304, 96 S.Ct. 2513, 2517, 49 L.Ed.2d 511 (1976); John Donnelly & Sons v. Campbell, 639 F.2d 6, 12 (1st Cir.1980), aff'd, 453 U.S. 916, 101 S.Ct. 3151, 69 L.Ed.2d 999 (1981); Burke v. City of Charleston, 893 F.Supp. 589, 610 (D.S.C.1995); Astro Limousine Serv., Inc. v. Hillsborough County Aviation Auth., 678 F.Supp. 1561, 1565 (M.D.Fla.), aff'd, 862 F.2d 877 (11th Cir. 1988); Burstyn v. City of Miami Beach, 663 F.Supp. 528, 534 (S.D.Fla.1987). Here, the City may be able to justify exempting events such as concerts on the grounds that they serve to attract new residents or tourists to a vibrant community and/or promote recreation in the area.
In sum, the Court concludes that the newly-revised Long Beach noise ordinance is not "`flagrantly and patently violative of express constitutional prohibitions in every clause, sentence and paragraph, and in whatever manner and against whomever an effort might be made to apply it,'" Younger, 401 U.S. at 53-54, 91 S.Ct. at 755 (quoting Watson v. Buck, 313 U.S. 387, 402, 61 S.Ct. 962, 967, 85 L.Ed. 1416 (1941)), so as to require the Court to retain jurisdiction over this matter.[3]
C. First Amendment Exception to Younger?
The Court feels constrained to address Plaintiff's assertion that "[t]he Supreme Court has been particularly reluctant to abstain in cases involving facial challenges based on the First Amendment." Pl.'s Supp. Mem. at 1 (quoting City of Houston v. Hill, 482 U.S. 451, 469, 107 S.Ct. 2502, 2513-14, 96 L.Ed.2d 398 (1987)). Initially, the Court notes that, by its terms, the pertinent language from the Hill case does not preclude this Court from abstaining from the instant case. More important, Hill was not a Younger abstention case, because the plaintiff in that case brought suit in federal district court after he had been acquitted for violating the allegedly unconstitutional statute. Hill, 482 U.S. at 454, 107 S.Ct. at 2507. The Younger rule is quite clear: whenever its three requirements are met, abstention is appropriate absent a showing of bad faith prosecution, harassment or a patently unconstitutional ordinance or statute, enforcement of which will result in irreparable injury to a plaintiff. Moreover, "a federal court can[not] properly enjoin enforcement of a statute solely on the basis of a showing that the statute `on its face' abridges First Amendment rights." Younger, 401 U.S. at 53, 91 S.Ct. at 755. As no criminal prosecution was pending in Hill, the Court did not address the exceptions to abstention enunciated in Younger. Additionally, the Court has found no case law according differential treatment to First Amendment cases in the Younger abstention context. In fact, Younger itself involved a facial attack on a California statute allegedly violative of First Amendment freedoms. Younger, 401 U.S. at 38-39, 91 S.Ct. at 747-48; see Carr v. Axelrod, 798 F.Supp. 168, 175-76 (S.D.N.Y.1992) (abstaining from 42 U.S.C. § 1983 action where plaintiff facially attacked state statute on ground that it violated his right to free exercise of speech), aff'd, 996 F.2d 302 (2d Cir.), cert. denied, 510 U.S. 931, 114 S.Ct. 344, 126 L.Ed.2d 308 (1993); Lilburn v. Racicot, 855 F.Supp. 327, 329-30 (D.Mont.1991) (same), aff'd, 967 F.2d 587 (9th Cir.1992).
CONCLUSION
The Court finds that the three requirements for a Younger abstention have been met in this case, and that no exception to the Younger doctrine is applicable. Accordingly, *176 this Court respectfully reports and recommends that Plaintiff's application for a preliminary injunction be DENIED, and that the District Court abstain from this action.
NOTICE
Any objections to this Report and Recommendation must be filed with the Clerk of the Court with a copy to the undersigned within 15 days of the date of this Report. Failure to file objections within this period waives the right to appeal the District Court's order. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72, 6(a), 6(e); Savoie v. Merchants Bank, 84 F.3d 52, 60 (2d Cir.1996); IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1054 (2d Cir.1993), cert. denied, ___ U.S. ___, 115 S.Ct. 86, 130 L.Ed.2d 38 (1994); Roldan v. Racette, 984 F.2d 85, 89 (2d Cir.1993); Frank v. Johnson, 968 F.2d 298 (2d Cir.), cert. denied, 506 U.S. 1038, 113 S.Ct. 825, 121 L.Ed.2d 696 (1992); Small v. Secretary of Health and Human Servs., 892 F.2d 15, 16 (2d Cir.1989) (per curiam).
Dated: Uniondale, New York
August 8, 1996.
NOTES
[1] Section 240.20 provides in pertinent part as follows:
A person is guilty of disorderly conduct when, with intent to cause public inconvenience, annoyance or alarm, or recklessly creating a risk thereof:
....
2. He makes unreasonable noise; ...
N.Y.Penal Law § 240.20 (McKinney 1989).
[2] The Court recognizes that a prosecution based upon probable cause may in some instances constitute bad faith or harassment, and consequently justify a federal court's refusal to abstain. See Cullen, 18 F.3d at 103; Phelps, 59 F.3d at 1064-65 n. 12. Having found that the prosecutions were not brought in bad faith or for purposes of harassment, however, the Court need not address this issue.
[3] The Court wishes to emphasize that in view of its decision that abstention in this action is proper, ultimate resolution of the noise ordinance's constitutionality rests with the state criminal trial court. This Court merely has found that the ordinance is not patently unconstitutional. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2098339/ | 373 F.Supp. 108 (1972)
George J. KRIEGER et al., Plaintiffs,
v.
TEXACO, INC., Defendant.
Civ. No. 9245.
United States District Court, W. D. New York.
February 1, 1972.
On Motion December 10, 1973.
*109 Bertil L. Peterson, Buffalo, N. Y., for plaintiffs.
Robert F. McGinnis, New York City, and Raichle, Moore, Banning & Weiss, Buffalo, N. Y. (David C. Diefendorf, Buffalo, N. Y., of counsel), for defendant.
CURTIN, District Judge.
Now more than ten years old, this action is still in the discovery stage. Pending at present is defendant's motion for an order pursuant to Rule 37(b) (2) of the Federal Rules of Civil Procedure imposing sanctions for plaintiffs' failure to comply with the court's order entered June 4, 1971. The sanction sought is preclusion of proof by plaintiffs of secondary damages. In pertinent part, the order required identification of the documents used in computing each element of the secondary damages claimed by plaintiffs, also referred to as indirect damages or damages for loss of business.
It is not necessary to set forth in detail the events in this litigation prior to the discovery sought by defendant. Suffice it to point out that, because of long periods of inactivity on the part of plaintiffs, the case appeared on the dismissal calendar on a number of occasions, but has not been dismissed. Plaintiffs filed a note of issue shortly before the last notice of dismissal and, at the subsequent appearance before the court, plaintiffs' counsel represented that plaintiffs were ready for trial. The court then gave defendant the opportunity to conduct discovery, which defendant's counsel stated had been deferred up to that time because of plaintiffs' apparent lack of interest in pursuing the litigation.
Between December 1969 and August 1970, defendant's counsel deposed the persons remaining as plaintiffs in the action and a nonparty witness, the former Secretary of the Buffalo and Suburban Gasoline Retailers' Association. On September 22, 1970 defendant served seven interrogatories on plaintiffs. No answers or objections to the interrogatories were filed within the 30-day limit provided in Rule 33(a). It was not until January 29, 1971, the date for which the court had scheduled a pretrial conference, that plaintiffs served their answers to the interrogatories. Dissatisfied with the answers, defendant moved by papers filed February 8, 1971 for an order to compel answers. Fed.R.Civ.P. 37(a). Defendant's motion asserted that plaintiffs' answers to some of its interrogatories did not give any of the information requested, but merely referred defendant to a mass of records, while the answers to the remaining interrogatories were evasive, unresponsive and incomplete. Argument was held on the motion on February 26, 1971 and, on March 13, 1971, the court ordered that plaintiffs' answers be stricken for insufficiency and that new answers be submitted by April 30, 1971. Following a suggestion made by the court at the February 26 hearing, counsel for plaintiffs and defendant met and discussed what information defendants sought by their interrogatories. Plaintiffs served their new answers on April 30, 1971 and, on May 14, 1971, defendant again moved against the answers, seeking dismissal of plaintiffs' action for failure to comply with the court's order of March 13. Fed.R.Civ.P. 37(b) (2) (C). Defendant asserted that the new answers *110 were deficient in the same way that the prior answers had been. On May 21, 1971 further argument was heard by the court and, on June 4, the court entered the order upon which the pending motion is based. In requiring that plaintiffs submit by July 16, 1971 a complete and detailed specification of the documents used in computing their secondary damages or relating to the computation, the order sought to elicit from plaintiffs the information remaining to be given in answer to defendant's interrogatory numbered 7. On July 16, plaintiffs served twenty-three affidavits pertaining to their secondary damage claims and, on August 23, defendant made the motion now before the court.
The court has examined the answers submitted by plaintiffs. Affiant DeMarco appears to set forth information relating to a claim for breach of contract rather than to a claim for loss of business. The remaining affidavits fall into three categories: (1) those which support plaintiffs' claims to secondary damages by reference to income tax returns, (2) those which support the claims by reference to reductions in the number of gallons of gasoline purchased multiplied by a certain number of cents per gallon, and (3) those which support the claims by reference to the number of gallons of gasoline purchased multiplied by a certain number of cents per gallon.
Into the first category fall thirteen affidavits. To compute his damages, the affiants Brier, Carlson, Fragale, Guzek, Jaekle, Kieta, Lawless, Rozborski, Sasiadek and Swanick each designated a base year and, from income tax returns, calculated the reduction in profits, or profits plus wages to employees, which occurred in the succeeding years constituting the claim period. Affiant Helenbrook inexplicitly claimed as secondary damages the profit reported on his income tax return for 1961. Affiant Kemp claimed loss on a sale of equipment and operating loss reported on his income tax return for 1961. Affiant Wilson claimed reductions in profit reported on his tax returns for 1958, 1960 and 1962 compared to his base year 1957 and net loss for 1962. None of the claims is supported by more than vague references to such items as "Schedule C of Federal Tax returns," "personal income tax State return" and "entries in my check book for payroll expenses." Even if the affidavits sufficiently identify the documents named therein, they do not specify the business records underlying the information reported in the documents so that defendant can request access to the records in order to determine whether the secondary losses resulted from the alleged price discrimination by defendant or from other business conditions.
Six affidavits fall into the second category. To compute damages, each of these affiants designated a base year, computed from defendant's gasoline invoices reductions in the number of gallons of gasoline purchased in the succeeding years constituting the claim period and multiplied the reductions by a certain number of cents per gallon. The gallonage figures of each affiant have been made available to defendant. As to the business records or other documents upon which the multiplier is based, affiants Doxtater, Nowak and Smith specified none. Affiants Caster and Krieger attached to their affidavits tables which set forth the wholesale price per gallon, the retail price per gallon, and the margin per gallon for the gasoline handled in the base year and the claim period. The multiplier which they used in determining their loss of business was said to be less than the margin shown in the tables. Other than a reference to "day sheets," no specification of the documents from which Caster derived his table was given. Krieger's table, however, specified ledger records for certain charge customers from which the prices in the table were derived. Affiant Kuntz stated that he retained no records which would substantiate the multiplier used in computing his loss.
Three affidavits fall into the last category. Each affiant designated a base period and multiplied the number of gallons *111 purchased in the succeeding years constituting the claim period by a certain number of cents per gallon. The gallonage figures of each affiant have been made available to defendant. Affiant Van Every attached to his affidavit tables prepared from his daily records which set forth the wholesale price per gallon, the retail price per gallon, and the margin per gallon for the gasoline handled by him in the claim period. The multiplier which he used in determining his loss of business was said to be the decline in his margin during the claim period. Van Every did not specify the documents from which his tables were derived. Affiant Kipp used a multiplier similar to Van Every's but offered a supporting table for only one of his claim periods, saying that his records had been destroyed as to the other period, January 9, 1959 to March 9, 1960. Like Van Every, Kipp did not specify the documents upon which his table was based. Affiant Riester used a multiplier like Van Every's but offered no data to support his estimate of the decline in his margin.
It is apparent from the foregoing discussion of the three categories that Kuntz, Riester and Kipp (for January 9, 1959 to March 9, 1960) are unable to specify the documents upon which their secondary damage claims are based either because no records were kept or because the records have been destroyed. Their claims should not be precluded at the discovery stage, although their proof may fail at trial. See Dorsey v. Academy Moving & Storage, Inc., 423 F.2d 858 (5th Cir. 1970). At the same time, however, Kuntz, Riester and Kipp will not be allowed to profit by their inability now to specify documents supporting their claims. If they find that records supporting their claims exist, they must immediately notify defense counsel and specify the documents. Furthermore, any documentation Kuntz, Riester and Kipp offer at trial will not be accepted into evidence unless the court is satisfied that it could not have been specified prior to trial.
It also appears from the discussion of the three categories that the only affidavit specifying the documents upon which the secondary damage claim is based is that of Krieger. Therefore, he should not be precluded from attempting to prove his secondary damage claim by the documents specified in the table attached to his affidavit.
The affidavits of plaintiffs other than Krieger, Kuntz, Riester and Kipp (for January 9, 1959 to March 9, 1960) fail to specify the documents upon which the secondary damage claims are based, or to provide reasons excusing the failure. The question before the court is whether these other plaintiffs should be precluded from proving their claims at trial.
Under Rule 37(b)(2), the court in which an action is pending may impose a variety of sanctions upon a party for failure to comply with an order compelling discovery. The flexibility of the Rule gives the court a broad discretion with regard to sanctions, and in exercising its discretion the court should take into account the full record of the case before it. See Diapulse Corp. of America v. Curtis Publishing Co., 374 F.2d 442 (2d Cir. 1967). Upon the record of the instant case, it is entirely proper to preclude proof of secondary damages by all plaintiffs except Krieger, Kuntz, Riester and Kipp, for counsel for plaintiffs has been given two opportunities to submit sufficient answers to interrogatories. See Life Music, Inc. v. Broadcast Music, Inc., 41 F. R.D. 16 (S.D.N.Y.1966). The present case is not one in which an inability to locate and to specify records has been shown, as were Dorsey v. Academy Moving & Storage, Inc., supra, and Campbell v. Johnson, 101 F.Supp. 705 (S.D.N.Y. 1951).
Therefore, it is the order of the court that proof of claims of secondary damages by plaintiffs Breier, Carlson, Caster, DeMarco, Doxtater, Fragale, Guzek, Helenbrook, Jaekle, Kemp, Kieta, Lawless, Nowak, Rozborski, Sasiadek, Smith, Swanick, Wilson, Van Every and Kipp *112 (other than for January 9, 1959 to March 9, 1960) will be precluded at trial. Plaintiffs Kuntz, Riester and Kipp (for January 9, 1959 to March 9, 1960) may offer proof of secondary damages subject to the conditions hitherto discussed. Plaintiff Krieger may offer proof of secondary damages by the documents specified in the table attached to his affidavit.
So ordered.
ON MOTION FOR SUMMARY JUDGMENT
Before the court for decision is defendant's motion for summary judgment pursuant to Rule 56(b) of the Federal Rules of Civil Procedure. This action was instituted by former and present Texaco retail gasoline dealers in the Buffalo, New York area seeking to recover for alleged price discrimination in violation of Section 2(a) of the Robinson-Patman Act, 15 U.S.C. § 13(a). Plaintiffs contend that the discrimination occurred during the period July 1957 until August 1962, when Texaco sold gasoline to Ben Glaser, a Buffalo area retail dealer, at a price more favorable than it sold to the plaintiffs. They claim that this constituted an illegal price discrimination.
Defendant bases its motion for a summary judgment upon two grounds. First is that under Section 2(b) of the Robinson-Patman Act [15 U.S.C. § 13(b)], even where all of the elements of a price discrimination claim are proven, there is no violation if the seller's lower price "was made in good faith to meet an equally low price of a competitor." In support of its motion, the defendant has submitted affidavits of Alan H. Glaser, son and associate of Ben Glaser, and E. S. Bennett, Jr., who from 1955 until 1962 was Assistant Division Manager for Texaco in the Buffalo division.
Texaco's second ground for summary judgment is that plaintiffs are unable to satisfy the legal requirement of proof with respect to proximate injury and damage. Texaco argues that there is a total absence of any specific sales lost to any Glaser station and no proof that any plaintiff lowered his price specifically to meet some lower price charged by Glaser.
The affidavits submitted by Texaco in support of its first ground are uncontroverted by plaintiffs. From 1957 until 1962, Ben Glaser operated four to six retail gasoline stations in the Buffalo area, all selling Texaco gasoline. Because of his substantial volume of sales, he was approached during this period by a number of Texaco competitors urging him to take on other brands. Although they offered him lower prices, he was not anxious to switch from Texaco because of his long connection with that company. However, he communicated these offers to Texaco and, on one occasion in 1961, he terminated the purchase of Texaco gasoline at one station. The affidavits detail the history of the negotiation between the parties and make it clear that, when the price to Glaser was reduced by Texaco, it was done only to meet the competition of the other competitors. Defendant Texaco is entitled to summary judgment on this ground, F. T. C. v. Sun Oil Co., 371 U.S. 505, 514, 83 S.Ct. 358, 9 L.Ed.2d 466 (1963); Jones v. Borden Co., 430 F.2d 568 (5th Cir. 1970).
The defendant Texaco is also entitled to summary judgment on the ground that the plaintiffs cannot satisfy the legal requirement of proof with respect to proximate injury and damage. At the present time, twenty-seven plaintiffs remain in the lawsuit. One plaintiff, Richard Yager, has admitted that he does not have a claim. Twenty-two plaintiffs depend upon the theory of automatic damages, claiming that damages accrue in the amount of the discrimination multiplied by the quantity of gasoline purchased by each plaintiff at the higher price. This theory was rejected in Enterprise Industries, Inc. v. Texas Co., 240 F.2d 457 (2d Cir.), cert. denied, 353 U.S. 965, 77 S.Ct. 1049, 1 L.Ed.2d *113 914 (1957). In this court's order of February 1, 1972 in which the claims of the twenty-two plaintiffs were discussed, the court permitted plaintiffs Kipp, Krieger, Kuntz and Reister to proceed further.
Defendant argues that an analysis of all of the depositions and other proceedings can only lead to the conclusion that none of these four plaintiffs may prevail and their action must be dismissed on this motion for summary judgment. Plaintiff George Reister's affidavit claims that he suffered $910 in damages because at some time between 1958 and 1962 he sold 91,000 gallons of gasoline and "during that time my mark-up was reduced by at least one cent in order to meet competition by Texaco stations receiving assistance from Texaco, and I therefore incurred a loss of at least $910." The stations Mr. Reister checked to determine competitive prices were not Glaser stations and he does not mention Glaser in his affidavit. There is no basis for attributing his claim for loss to the price charged by Texaco to Glaser.
Plaintiff Karl Kipp claims that there was a three-cent decline in margin during the period from January 9, 1959 to March 9, 1960. However, he does not connect this loss to Glaser or any activity on the part of the defendant Texaco causing his loss. Plaintiff Francis A. Kuntz claims that his gallonage declined after 1956 and finally totalled 272,936 gallons. In order to compute his damage, he multiplied the gallonage figure by three cents, but is unable to explain how he arrived at the three-cent figure. In his affidavit he does not mention Glaser, but does claim that two other Texaco stations undersold him during 1957 to 1960.
Plaintiff George J. Krieger alleges damages with respect to two stations, one in Kenmore and the other on Rhode Island Street in Buffalo. However, in his deposition he stated that he was not making a claim in regard to the Kenmore station. He claims that the gallonage declined at the Rhode Island station progressively after 1957. To arrive at a damage figure, he multiplied gallonage by three cents. He explains his use of three cents as follows: "The three cent per gallon claim is based on a computation of retail prices from ledger sheets and cash register rolls, showing that the mark-up after overhead expense was at least three cents per gallon." There is no claim that the lost gallonage went to the Glaser stations. In fact, he mentions three stations closer to him than any Glaser station which charged lower prices than himself. The defendant is also entitled to summary judgment against all plaintiffs on this second ground. Enterprise Industries, Inc. v. Texas Co., supra; McCaskill v. Texaco, Inc., 351 F.Supp. 1332 (S.D.Ala.1972).
The Clerk is directed to enter a judgment in favor of the defendant and against all plaintiffs, dismissing the complaint with costs.
So ordered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2098801/ | 948 F. Supp. 701 (1996)
Paul F. ROMSTADT, et al., Plaintiffs,
v.
APPLE COMPUTER, INC., Defendant.
No. 3:94CV7612.
United States District Court, N.D. Ohio, Western Division.
October 24, 1996.
As Amended December 10, 1996.
*702 Stanley M. Chesley, Glenn D. Feagan, Robert Alan Steinberg, Waite, Schneider, Bayless & Chesley, Cincinnati, OH, Brian J. Ballenger, Dean A. Horrigan, Troy L. Moore, Scott, Ballinger & Moore, Toledo, OH, for plaintiff Romstadt.
Stephen A. Rothschild, Robert A. Koenig, John C. Barron, Neema M. Bell, Shumaker, Loop & Kendrick, Toledo, OH, for defendant Apple Computer, Inc.
CARR, District Judge.
This is a diversity action in which the defendant Apple Computer, Inc. (Apple) has moved for stay of further proceedings (Doc. 95) and the plaintiff Paul F. Romstadt has moved for a preliminary injunction. (Doc. 97). In addition, plaintiff's class certification motion (Doc. 87) is decisional.
For the reasons that follow, defendant's motion to stay shall be overruled, without prejudice to renew, plaintiff's motion for preliminary injunction shall be overruled, and plaintiff's motion for class certification shall be initially and conditionally entered, subject to revision.
Background
Mr. Romstadt purchased a computer produced by Apple. When he did so, he believed that the computer contained a Motorola 68040 microprocessor with a floating point unit (FPU) to aid in mathematical computations. Contrary to that expectation, the computer had a Motorola 68LC040 microprocessor, which did not have the FPU. In an order entered August 6, 1996 (Doc. 86), I denied Apple's motion to dismiss, and in another order entered on September 3, 1996, I entered summary judgment in favor of the plaintiff and against Apple on Mr. Romstadt's claim under Ohio's Consumer Sales Practices Act, O.R.C. § 1345.02. (Doc. 88). At that point, I anticipated turning to the question of class certification, which had been postponed pending determination of the merits of Mr. Romstadt's claim it having appeared that such postponement might reduce the expense to all concerned, including Apple.
Unbeknownst to me or the plaintiff or his counsel, Apple had been engaged in settlement discussions in another case arising from the same factual situation. That case, Lizcano v. Apple Computer, Inc., No. C-363-96-F (Dist. Ct., Hidalgo Co.), filed in a state court in Texas after this case had been filed, had involved the taking of some depositions, production of documents by Apple, and settlement discussions. According to Apple, settlement as to all matters in dispute with the exception of attorneys' fees for plaintiff's counsel in that case was reached prior to entry of the above-referenced orders in this case. The issue of those fees was submitted to mediation, and the parties to the Texas litigation accepted the mediator's recommendation that plaintiff's counsel in that case be paid $2,000,000 as part of the settlement agreement.
On September 18, 1996, the judge in the Texas case was presented with a stipulation of facts, a second amended complaint, and a *703 motion to appoint class representative and counsel, approve class and claimant notices, and give preliminary approval to the settlement. After a hearing that appears to have lasted no more than a few minutes, during which the Texas judge was told nothing of significance about the pendency of this case, that Judge asked, "What do you-all want me to sign?" On being referred to "[t]he order, Your Honor. The last document I applied," the court said, "All right. I've signed the order certifying the class action, and the rest of your agreements will be approved by the Court." (Doc. 96, Exh. 16, at 11). Thus, at the same time, the Texas judge certified a class and preliminarily approved the settlement agreement that would bind that class.
Except for a passing reference to the fact that this case was pending in this court,[1] the Texas judge was told nothing of significance about this case. He was not told that this case began before the Texas case, included the filing of about 90 pleadings, led to entry of the orders referenced above, and involved a consumer protection statute that, according to the parties in this case, including Apple, is substantially equivalent to the Texas statute on which that case is based. The parties did not tell the Texas judge that neither Mr. Romstadt nor his attorney had been given notice of the settlement or its proposed submission for approval. Nor was the Texas judge advised that the settlement was in its material respects similar to a settlement proposal that had been rejected by Mr. Romstadt.[2]
After the injunction hearing before me on October 14, 1996, Texas plaintiffs' counsel and counsel for Apple appeared before the Texas court but before a different judge and conducted further proceedings. As with the original proceedings in that court, no notice was given to Mr. Romstadt or his counsel of those further proceedings. Those proceedings appear to have been prompted by concerns expressed by me during the October 14, 1996, injunction hearing.[3]
Because the plaintiff in the Texas case and Apple chose not to inform the participants in this case about the Texas court's approval of class certification, the proposed settlement or its submission for preliminary approval, Mr. Romstadt and his counsel did not have an opportunity to appear. Nor were they able to inform the Texas judge about the salient aspects of this litigation and their views on the proposed entry of the order preliminarily approving the settlement.[4]
*704 Violation of Due Process
Denying Mr. Romstadt notice and an opportunity to be heard when the proposed settlement and related matters were submitted to the Texas court for its consideration was, in my view, a denial of due process. To state a due process claim, a plaintiff must show 1) a deprivation; 2) of life, liberty, or property; 3) under color of state law; 4) without due process of law. Brotherton v. Cleveland, 923 F.2d 477, 479 (6th Cir.1991). By conducting hearings that were ex parte as to Mr. Romstadt and granting conditional approval to the settlement agreement submitted by counsel in the Texas case, the Texas court under the color of state law deprived Mr. Romstadt of a property interest in the judgment granted on the merits by this court.
The due process clause of the Fourteenth Amendment protects "a substantive interest to which the individual has a legitimate claim of entitlement." Olim v. Wakinekona, 461 U.S. 238, 250, 103 S. Ct. 1741, 1748, 75 L. Ed. 2d 813 (1983). In order to have a protected property interest, a person must have more than an abstract need or desire for it or a unilateral expectation of it; rather, he or she must have a "legitimate claim of entitlement" to it. Board of Regents v. Roth, 408 U.S. 564, 577, 92 S. Ct. 2701, 2709, 33 L. Ed. 2d 548 (1972); Leis v. Flynt, 439 U.S. 438, 442, 99 S. Ct. 698, 700-01, 58 L. Ed. 2d 717 (1979). This property right must also stem from an independent source of law. Id.
In this case, Mr. Romstadt possessed a "legitimate claim of entitlement" to his judgment on the merits as entered by this court. Although the precise amount of damages and the exact size of the class had yet to be determined, Mr. Romstadt secured his claim against Apple through an independent source of law, namely a decision on the merits by a court with proper jurisdiction. Such an entitlement cannot be characterized as "abstract." Nor was this property interest unilaterally expected, as Apple, too, was obligated by law to compensate Mr. Romstadt at some point in the future.
Mr. Romstadt, whom Texas plaintiff's counsel was undertaking to represent as a member of the class that he was proposing for certification, had secured a property right in his judgment as granted by this court. Thus, Mr. Romstadt had a due process right to notice and an opportunity to be heard before the Texas court preliminarily approved that settlement agreement. It is clear that, due to the ex parte and secretive nature of the Texas proceedings that lead to the conditional approval of the settlement agreement, Mr. Romstadt was deprived of his due process rights. As explained by one court, the only "universal requirement" of due process "is that a person receive notice and an opportunity to be heard." Burgess v. Miller, 492 F. Supp. 1284, 1290 (N.D.Fla. 1980).
Mr. Romstadt received no such notice and opportunity to be heard. Texas counsel and Apple improperly circumvented Mr. Romstadt by engaging in proceedings that were, as to him, ex parte. More importantly, the Texas court acting under the color of state law had a due process duty to provide Mr. Romstadt with an opportunity to be heard before it took action that might and, in this case, did jeopardize Mr. Romstadt's property interests and those of the class he sought to represent.
Contrary to Apple's contentions, the decision in Bowling v. Pfizer, Inc., 143 F.R.D. 141 (S.D.Ohio 1992), does not foreclose the action I am taking here. In that case, competing class counsel complained unsuccessfully about the secrecy of negotiations leading to a settlement by other class counsel (who happens to be counsel for Mr. Romstadt in this case). Answering that concern, the court stated, "[t]he law does not require the participation in settlement negotiations of *705 other lawyers representing class members.... No requirement exists that either Class Counsel or the Defendants must inform other attorneys, ..., about their negotiations." Id. at 156.
I agree: neither Texas counsel nor Apple had to tell Mr. Romstadt about their negotiations. Once, however, those negotiations resulted in an agreement that was to be presented to the Texas judge, Mr. Romstadt by virtue of his property interest created by this court's decision became entitled to his due process rights, including, at a minimum, the right to be informed about the agreement, its anticipated submission to the Texas court, and notice of the date and time of the hearing for preliminary approval. That due process right in a property interest was not at issue in Bowling, which distinguishes that decision from this case.
Apple contends, in effect, that nothing meaningful occurred as a result of entry by the Texas court of the preliminary and amended orders of approval, so that Mr. Romstadt suffered no cognizable deprivation of his property right in the summary judgment decision by this court. In Apple's view, this preliminary event at most sets the stage for the final hearing, at which opponents, including Mr. Romstadt and his counsel, can be heard.
I disagree with Apple's claim that no injury has been done to Mr. Romstadt and the class that he seeks to represent as a result of the denial to them of notice and the opportunity to be heard. If nothing of importance was to occur, or would place any cognizable interest of Mr. Romstadt in jeopardy, why was it necessary to proceed in secrecy? If the settlement was as fair as the Texas parties contend, what danger could result from scrutiny in light of Mr. Romstadt's views?[5]
Prior to approving a preliminary settlement, a court must "independently and objectively analyze the evidence and circumstances before it in order to determine whether the settlement is in the best interest of those whose claims will be extinguished." 2 Herbert Newberg & Alba Conte, Newberg on Class Actions § 11.41 at 88-89 (3d ed. 1992). The court "acts as a fiduciary who must serve as guardian of the rights of absent class members ... [t]he court cannot accept a settlement that the proponents have not shown to be fair, reasonable and adequate." Grunin v. International House of Pancakes, 513 F.2d 114, 123 (8th Cir.1975); Malchman v. Davis, 706 F.2d 426, 433 (2d Cir.1983); Piambino v. Bailey, 610 F.2d 1306 (5th Cir.1980). Finally, the proponents of the settlement bear the burden in showing that the agreement is fair, reasonable, and adequate. See In re General Motors Corp. Pick-Up Truck Fuel Tank, 55 F.3d 768, 785 (3d. Cir.1995).
In failing to inform the court of Mr. Romstadt's pending action, the Texas court was unable to scrutinize "independently and objectively" the settlement terms presented to it. By denying the opportunity for Mr. Romstadt to be heard, the Texas court thereby failed to learn that the settlement it was being asked to approve had already been rejected in this case. In addition, the Texas court did not learn that summary judgment on the merits had been entered pursuant to a statute that was the equivalent of its own law. Though viewed dismissively by Texas plaintiffs' counsel at the later October 18, 1996, hearing,[6] the existence of that decision on the merits, if presented vigorously by the prevailing party, might have changed the judge's view on Apple's potential liability and thus, the relative value of the settlement. As a result of its unawareness of these facts, among others, the Texas judge was deprived of the ability to inquire about the adequacy of representation that had been afforded (in exchange for attorneys' fees of $2,000,000) to the plaintiff class as well as the reasonableness *706 and fairness of the terms of the settlement.[7]
This complete lack of information about these and other salient aspects of the class and its claims and rights would not have impaired review of the proposed settlement if Mr. Romstadt had been accorded his rights to notice and an opportunity to be heard. Uninformed and unaware, the Texas judge proceeded without basic facts that might have caused him to unfurl a caution flag and slow or halt the proceedings, rather than going forward without meaningful consideration of what he was being asked to sign and do.
No one, including the judge, appears to have been aware of the view of Judge Friendly that judges to whom proposed settlements are presented for initial approval "are bound to scrutinize the fairness of the settlement agreement with even more than the usual care ... to meet the concerns, ..., regarding the possibilities of collusion or of undue pressure by the defendants on would-be class representatives." Weinberger v. Kendrick, 698 F.2d 61, 73 (2d Cir.1982). Moreover, as stated in First Com. Corp. of Boston Customer Accounts Litigation, 119 F.R.D. 301, 308 (D.Mass.1987), when preliminarily approving a class settlement "[t]here also has to be a clearer showing of the settlement's fairness, reasonableness and adequacy, and the propriety of negotiations leading to it." See also Mars Steel v. Continental Ill. Nat'l Bank & Trust, 834 F.2d 677, 681 (7th Cir.1987); Bowling, 143 F.R.D. at 151 ("when a settlement to a class action is reached prior to class certification, a court must apply a higher level of scrutiny in evaluating the fairness of the settlement"). When the court performs its role as supervisor/protector [of the class] "without the benefit of a full adversarial briefing," the judge has less information and "cannot as effectively monitor for collusion, individual settlements, buy-offs ... and other abuses." In re General Motors, 55 F.3d at 787.
This case presents an example of a judge approving a preliminary settlement without sufficient information to monitor "effectively" for collusion, buy-offs, and other potential abuses. I am by no means persuaded that the forthcoming final/fairness hearing can or will remedy the injury done by the proceedings in Texas to Mr. Romstadt and the class he seeks to represent. Once initial settlement approval has been given, a certain momentum develops. If not checked, that momentum can easily accelerate to a rush to judgment that bypasses considerations that, under more appropriate circumstances, would cause a court to pause and look carefully at the course it is being asked to take. Because, as Judge Friendly noted in Weinberger, a court's "disposition of a proposed class action settlement should be accorded considerable deference," 698 F.2d at 73, the proposed settlement may well come before the court at the final/fairness hearing with an improper degree of presumptive acceptability.
This concern is highlighted by the observation in the Manual for Complex Litigation 240 (3d ed. 1995) that a
court's role in settlement is limited.... The court [at the final hearing] may only approve or disapprove the settlement; it is not empowered to rewrite the agreement between the parties.... If [however] the court makes suggestions at the time of the settlement agreement is submitted for tentative approval, the parties may be willing to make changes prior to the time the agreement is submitted to the class members for their consideration. If substantial changes adversely affecting some members of the class are made at the time of the [final] settlement hearing, a new hearing and additional notice may be necessary.
*707 In other words, a judge's options at the time of initial presentation of a settlement are considerably greater than at the final hearing. When initially presented, and if carefully reviewed, the proposed agreement is more readily alterable. The choice facing the court and parties is not limited to the binary alternatives of approval or rejection. At that point, it is easier for the judge to tell the parties to return to the bargaining table. Moreover, the judge as supervisor or protector of the class is more likely, if informed at the initial hearing of all pertinent factors because all interested and affected parties are present, to correct problems or postpone approval. The same impulse will be more difficult to accommodate later, when the judge's only choice, if troubled by some aspect of the proposal, is to reject the settlement entirely. I note, as well, Professor Arthur Miller's observation that:
there really is a serious problem of the judge not having enough information prior to certification to do a completely effective job under Rule 23(e) [relating to notice to a settlement class]. What is clear, is that if the court is going to consider a proposed settlement prior to formal certification, he is advised to demand a full presentation on all of those aspects of certification bearing on an adequacy of representation and class homogeny.
Miller, An Overview of Federal Class Actions: Past, Present and Future 60 (Fed. Judicial Ctr.1977).
In making these observations, I do not disregard the presumption that the Texas judge will be attentive to any objections that may be presented to it in the final hearing. Indeed, I decline to issue any form of injunctive relief on the basis, at least in part, of that presumption.[8]
But the context in which those objections will be heard differs materially from the situation that would have existed if notice and opportunity to be heard had been afforded to Mr. Romstadt and the class at the initial appearances before the Texas judges. When and if Mr. Romstadt appears in the final hearing, he will be the odd man out, an unruly and disruptive protestor standing alone against formidable allies, who have had their mutual assistance pact ratified initially by the judicial officer from whom relief is sought.
Though in theory Mr. Romstadt should himself be allied with the Texas plaintiff (and vice-versa), that natural alliance has been severed by Apple. At this point, Mr. Romstadt finds himself in an adversary position, fighting a two or three front war on behalf of himself and the class, on whose behalf he already has secured a judgment on the merits and rejected the settlement now being offered for final approval in the Texas court. See Girsh v. Jepson, 521 F.2d 153, 157 (3d Cir.1975) ("[a]s an objector, [plaintiff] was in a adversary relationship with both plaintiffs and defendants").
The Texas court may, once it hears from Mr. Romstadt in the final/fairness hearing, decline to accept the settlement. But the prospects for that outcome have, in my view, been diminished substantially as a result of the failure to conduct a meaningful hearing prior to entry of the preliminary and amended orders. These circumstances justify the order that I am entering herein.
My perception of the handicap under which Mr. Romstadt will otherwise be laboring in Texas is not lessened by the further proceedings held there on October 18, 1996. *708 Those proceedings were ex parte, and did not, as noted above, cure the deficiencies that marred the submission of the proposed order. Because, in the mind of the participants, my concerns have been addressed and resolved (Doc. 106, Exh. at 32-37), Mr. Romstadt is likely to encounter an even steeper climb in his efforts to prevail on his objections to the settlement.
Other courts have expressed similar concerns with in response to actions similar to those taken by Apple in the Texas proceeding. Thus, in In re Federal Skywalk Cases, 97 F.R.D. 370 (W.D.Mo.1983), the court was confronted with a situation in which objectors to its class certification order entered secretly into a settlement agreement with the defendants and obtained, without notice to other class representatives or their counsel, an order preliminarily approving the settlement and certifying a congruent class from a state court. Though the court in Skywalk (which later vacated its opinion) addressed itself to the issue of the defendant's contempt of court, it noted that "havoc" would result from allowing the "defendants to make an end-run around its supervisory authority" and be "nearly irremedial." Id. at 377.
Similarly, another district court stated in Breswick & Co. v. Briggs, 135 F. Supp. 397, 403 (S.D.N.Y.1955), that defense attorneys in a shareholder derivative action had acted improperly when they procured a settlement with counsel other than the lawyers representing shareholders in the proceeding in that court. Declining to enter an order staying the state court proceeding, the federal court ruled that the defendants, as a result of their "inequitable" conduct, would not be allowed to reap the benefit of their state court settlement. Moving directly against the party responsible for wrongful conduct, the court held that it would bar the defendants from asserting res judicata on the basis of the state court judgment. The court pointed out that the "sole thrust of this determination is against the persons of the defendants; they are not in equity entitled to utilize a judgment based on a settlement negotiated behind the backs of the active plaintiffs here." Id. at 403.
The concerns expressed in Skywalk and Breswick arise in this case as well. The defendant, after having a settlement rejected by one class representative, secretly undertook to get judicial approval for the same settlement with counsel for another class representative.[9] Apple was able to pick and choose among its adversaries, who were, at least in theory, representing the same client. Then, by engaging in ex parte proceedings without notice to another known, active, and partially successful class member, the Texas parties procured approval for a proposed settlement that had been rejected by Mr. Romstadt. In sum, this series of actions amounts to a deprivation without due process of Mr. Romstadt's property interest in a judgment granted by this court under the color of state law.
The Remedy
In an attempt to remedy the denial of due process, I shall first enter an initial and conditional order of class certification, which shall be subject to revision on further consideration. Next, I express herewith my anticipation that any judgment entered in the Texas as proceeding shall not have, as to any class member in this proceeding, res judicata or similar effect unless such class member has taken advantage of the Texas settlement by affirmatively accepting one of the items being offered to the class members in that case. I shall, finally, overrule Apple's motion to stay these proceedings, without prejudice.
This order is subject to being amended or vacated, depending on further developments. If the amended order entered in the Texas court is vacated, and a hearing is scheduled whereby Mr. Romstadt and his counsel are given an opportunity fairly to be heard and present their objections, this order shall be vacated and further proceedings in this case shall be stayed. In that manner, the denial of due process, to the maximum extent possible, will be remedied, as the right to be heard fully and fairly will have been restored without further disadvantage to Mr. Romstadt *709 and the class he represents. He will not be confronted by the steep hill that otherwise awaits him if that order is not vacated and such opportunity is not afforded to him the field will have been leveled.
If that order is not vacated (and I am not ordering the Texas court to take such action, just as I am not ordering Apple or the Texas plaintiffs to do anything), I will proceed in this case to: 1) determine whether to finalize my class certification order, and if so, to do so in accordance with Rule 23 and prevailing case law;[10] 2) set this case for a hearing on class damages or other relief; and 3) take such other action as shall appear to be appropriate in the interests of the class or classes that may be certified.
Apple contends that no federal court has ever done what I am doing. It appears to be correct plaintiff has not cited and I have not found an exact precedent for my action. On the other hand, I have found no case which stands for the proposition that I cannot do what I am doing. Nor, for that matter, have I found a case in which a defendant so successfully turned looming defeat into victory by secretly having a rejected settlement offer accepted and preliminarily approved by a court of law as a class settlement.
As stated above, should the Texas court proceed to finalize the settlement that has been conditionally approved thus far, such a settlement will not be entitled to full faith and credit. For support for this decision and approach, I turn first, to the irrefutable proposition that "[t]he opportunity to be heard is an essential requisite of due process of law." Richards v. Jefferson County, ___ U.S. ___, ___ n. 4, 116 S. Ct. 1761, 1765 n. 4, 135 L. Ed. 2d 76 (1996). An ex parte proceeding does not afford due process to persons whose property interests are affected by the outcome of such proceeding. A "State may not, consistently with the Fourteenth Amendment, enforce a judgment against a party named in the proceedings without a hearing or an opportunity to be heard." Id.
Under the Full Faith and Credit Act, 28 U.S.C. § 1738,[11] "a judgment entered in a class action, like any other judgment entered in a state judicial proceeding is presumptively entitled to full faith and credit under the express terms of the Act." Matsushita Electric Indus. Co., Ltd. v. Epstein, ___ U.S. ___, ___, 116 S. Ct. 873, 878, 134 L. Ed. 2d 6 (1996). However, as noted by Justice Ginsburg in that case, a "state-court judgment generally is not entitled to full faith and credit unless it satisfies the requirements of the Fourteenth Amendment's Due Process Clause." (Id., ___ U.S. at ___ - ___, 116 S.Ct. at 884-85 (Ginsburg, J., concurring in part and dissenting in part)). See also Hanson v. Denckla, 357 U.S. 235, 255, 78 S. Ct. 1228, 1240-41, 2 L. Ed. 2d 1283 (1958) ("there is no obligation to give full faith and credit to a ... judgment invalid ... because offensive to the Due Process Clause of the Fourteenth Amendment"); Kremer v. Chemical Const. Corp., 456 U.S. 461, 482, 102 S. Ct. 1883, 1898, 72 L. Ed. 2d 262 (1982) ("A State may not grant preclusive effect in its own courts to a constitutionally infirm judgment, and other state and federal courts are not required to accord full faith and credit to such a judgment").
I understand full well that Richards and Matsushita involve final judgments, while this case involves a denial of due process at a preliminary, interlocutory phase. *710 Nonetheless, "no single model of procedural fairness, let alone a particular form of procedure, is dictated by the Due Process Clause." Kremer, 456 U.S. at 483, 102 S. Ct. at 1898.
Though perhaps contrary to the conventional wisdom of class action practitioners, I do not believe that a hearing at which preliminary approval is sought in a class action is a meaningless or harmless event. Though in some instances the final/fairness hearing may result in rejection of proposed settlements, that fact is not a basis for concluding that exclusion of Mr. Romstadt in this case can be remedied or redressed at that stage.[12]
To the extent that, as Apple also contends, I am disregarding the conventional view, that the "main event" is the final/fairness hearing, I am persuaded that whatever can happen at that hearing cannot remedy the due process wrongs that occurred in this case. For the reasons I have already expressed, I believe that Mr. Romstadt and the class he seeks to represent have been and will be disadvantaged and prejudiced unless I proceed with this order and further proceedings.
If, as already stated, the Texas amended order is vacated and a hearing is scheduled, with due notice and an opportunity to be heard being extended to Mr. Romstadt and his counsel, I will stay all further proceedings in this case.
If I am disregarding conventional wisdom about the proceedings by which preliminary approval is obtained in class actions, so be it. Contrary to such "wisdom," that is no time for proceeding ex parte and leaving judges uninformed. It is at that point that the judge has, and is most likely to exercise, maximum discretion and authority. Later he or she will be confronted, after the expenditure of considerable money and effort, with a binary "up or down" choice. Even the fairest judge will feel some hesitancy in the face of that situation. In practical effect, the settlement, even though contested, may have an aspect of presumptive acceptability that will be more difficult to overcome than at the outset of the proceedings.
How I proceed at this point is up to the Apple, Texas plaintiff's counsel, and the Texas court: but I issue no commands to any of them, and they are free to act as they see fit. I note, however, that if notice is issued to the class certified in Texas, I anticipate, if I certify a class or classes, to require Apple to undergo the expense of issuing notice to the class members in this case.
I will close with the observation that, if the proposed settlement is as fair as Apple and Texas counsel have represented to the Texas court, they should have no fear or reluctance to subject it forthwith to the attentive scrutiny that only a due process hearing can afford. There may well be no merit to the objections that Mr. Romstadt and his counsel seek to make that is for the Texas court to decide. The parties in Texas should be willing now to expose their agreement to the sunlight of challenge; if they do not want to do so, one must wonder what it is they seek to hide.
For the foregoing reasons, it is hereby
ORDERED THAT:
1. Plaintiff's motion for a preliminary injunction is denied;
2. Plaintiff's motion for class certification is initially and conditionally granted, subject to revision; the class being all persons who prior to August 21, 1996, purchased or leased for personal, and not commercial, use, a new Apple Performa 475 or 476 computer in the United States of America, for their own use and not for resale or lease to others, pursuant to Fed.R.Civ.P. 23; and
*711 3. Defendant's motion for stay is denied, without prejudice to renew.
So ordered.
NOTES
[1] "The only other thing I'd like to advise the Court of is that there is one other class action that is pending, I believe it's up in Ohio, and we just want to bring that to the Court's attention. However, it is our understanding that that class action has that it has not been certified and there is no bar to this Court conditionally certifying this class action for purposes of the proposed settlement." (Doc. 96, Exh. 16, at 4).
[2] I note that, although Apple in this court and the parties in the Texas proceeding have referred on frequent occasion to alleged misrepresentations by Mr. Romstadt's counsel, at no point, to my recollection, has counsel for Apple challenged the plaintiff's contention that the settlement that has been accepted by Texas counsel was the same, or substantially the same, as the settlement that was rejected by Mr. Romstadt.
[3] Among those concerns was, as I had earlier noted during the October 2, 1996, telephone conference, the fact that no notice was to be given of the existence of this case or that I had entered summary judgment on the merits in favor of the plaintiff. Contrary to the representations of Apple's counsel before me on October 14, 1996, its Texas counsel did not seek, during the further proceedings on October 18, 1996, to have such notification included in the class notice. Instead, Apple's lawyer stood by without comment as plaintiff's counsel in the Texas case stated he would be "quite comfortable" if such information were not included in the class notice. (Doc. 106, Exh. at 19). The Texas judge decided not to include that information in the class notice.
Because there is a "reality that absentees tend to lack a real understanding of the actions supposedly pursued in their names," In re General Motors Corp. Pick-Up Truck Fuel Tank, 55 F.3d 768, 789 (3d Cir.1995), I remain of the view that it is unlikely that members of the class can make an informed decision about the proposed settlement unless they are notified that summary judgment has been entered on the merits in favor of a class representative and against Apple. The conduct of Apple's counsel in Texas is, to say the least, troublesome, as I had assumed, in light of the unequivocal representations of its counsel, that steps would be taken to include such information in the class notice.
[4] The further ex parte proceedings in Texas, though considerably longer than the original hearing in that court, do not resolve the due process violations attendant on the original proceeding and the resulting concerns that I express in this order. Most importantly, neither of the Texas judges has been informed that the proposed settlement is similar in its material details to a proposal rejected by Mr. Romstadt. If anything, the transcript of the further proceedings in Texas underscores the danger that such ex parte proceedings pose to other class representatives. That transcript shows: the apparent occurrence of off the record conversations between the new judge and Texas counsel (id. at 19) and unawareness on the part of the Texas judge and Apple's counsel of the language that the judge was being asked to delete from the original order (id. at 12-13).
[5] It is no answer to these inquiries to suggest that Mr. Romstadt's views might have slowed the smooth flow of the initial proceeding. The greater the care the court took because of his involvement, the more necessary and useful it would have been for the court to have had the benefit of his participation.
[6] Plaintiff's counsel in Texas informed the court at the further proceedings on October 18, 1996, that entry of summary judgment on the merits for Mr. Romstadt, in his view, "does not affect this settlement as it relates to the entire class members." (Doc. 106, Exh. at 18).
[7] I note that, as originally proposed to and preliminarily approved by the Texas court, the settlement included an "offer" of software that was already in the computers that the class members had purchased. Though this error was corrected during the further proceedings in the Texas court on October 18, 1996, it should raise some concern about the adequacy of representation afforded to Mr. Romstadt and other members of the class by Texas counsel who, while receiving $2,000,000 were settling the class claims, in part, for something that the class members already had.
[8] I am also persuaded by Apple's argument in opposition to the plaintiff's motion for preliminary injunction (Doc. 92) that I would be acting in violation of the Anti-Injunction Act, 28 U.S.C. Sec. 2283, if I were to enjoin the Texas proceedings. See, e.g., Roth v. Bank of the Commonwealth, 583 F.2d 527, 533 (6th Cir.1978) (the Act's "ban is absolute and [its] language is to be taken literally"). I also reject the plaintiff's argument that I can disregard the Act because the Texas court, in its original order, enjoined Mr. Romstadt (though not by name) as a "Settlement Class Member [who was] barred from ... prosecuting any direct or representative action asserting any Claim, unless and until the Settlement Agreement and Release is terminated according to its terms." (Doc. 92, Exh. C at 5-6). That futile effort (corrected in the amended order entered October 18, 1996) to interfere with my jurisdiction had no more effect than an order that I might enter in return that sought to interfere with the Texas court's exercise of its jurisdiction. I decline to use that aspect of the original order as a pretext for issuing an otherwise improper injunction.
[9] The record does not indicate whether Texas plaintiff's counsel was aware that he was agreeing to a proposal that had been rejected by Mr. Romstadt and his lawyers.
[10] I wish to make clear that I have not decided that final class certification is or may be appropriate. For now, I am entering an initial conditional order that is as coextensive with the Texas class as, according to my understanding, I can issue. See, e.g., Toledo Metro Federal Credit Union v. Ted Papenhagen Oldsmobile, 56 Ohio App. 2d 218, 381 N.E.2d 1337 (1978). Such order is, in my view, the only way that I can protect the class represented by Mr. Romstadt from further injury as a result of the due process violations inflicted on him and it by Apple and the proceedings in Texas.
[11] The Full Faith and Credit statute states in relevant part:
The records and judicial proceedings of any court of any such State, Territory or Possession ... shall have the same full faith and credit in every court within the United States and its Territories and Possessions as they have by law or usage in the courts of such State, Territory or Possession from which they are taken.
[12] I note that to allow participation of other class action plaintiffs at the outset would likely have some benefits beyond providing due process. Well-taken challenges to proposed settlements would become known, as would the judge's acceptance of such challenges, before the expense and delay of class notice had been undertaken. The shambles left by failed class action settlements would be created in fewer cases. The primacy of the judge's role over all phases and aspects of a class action proceeding would be assured. The risk of collusion would be reduced, as would the risk, which has been actualized in this case, that potential allies would become adversaries, thereby benefiting the defendant whose conduct each is challenging. Settlement orders, even if preceded by challenge at the final/fairness hearing, would probably enjoy a greater measure of protection against reversal on appeal if due process were afforded at each step and not just the last step along the way. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/8569587/ | TEXTO COMPLETO DE LA SENTENCIA
Comparece ante nos Héctor M. Velázquez González y Onix M. Velázquez Irrizarry, y solicitan la revisión de una orden emitida por el Tribunal de Primera Instancia, Sala de Distrito de Guayanilla (Hon. Zahira Torres Moró, Juez) el 20 de enero de 2004, la cual fue notificada y archivada en autos el 23 de enero de 2004. Mediante dicha orden, el Tribunal de Primera Instancia declaró no ha lugar unas mociones de desestimación presentadas por los codemandados-peticionarios, Héctor M. Velázquez González y Onix M. Velázquez Irrizarry.
Luego de estudiados los hechos y el derecho aplicable, se expiden los autos de certiorari, y se revoca la resolución recurrida.
I
El 23 de mayo de 2003, la parte demandante-recurrida, Cooperativa de Seguros Múltiples de Puerto Rico, radicó una acción civil de subrogación a raíz de un accidente de tránsito ocurrido el 20 de mayo de 2002. Dicha demanda fue presentada en el Tribunal de Primera Instancia, Sala de Peñuelas, el cual no tenía competencia para entender en la controversia planteada. Por tal razón, la acción fue transferida al Tribunal de Primera Instancia, Sala de Guayanilla. La reclamación en cuanto al codemandado-peticionario, Héctor M. Velázquez, surge por ser éste dueño registral del vehículo de motor involucrado en el accidente de tránsito. Mientras que la reclamación respecto al codemandado-peticionario, Onix M. Velázquez Irizarry, surge por ser éste el conductor del vehículo de motor involucrado en el accidente. Las partes codemandadas-peticionarias fueron debidamente emplazadas.
La parte codemandada-peticionaria, Onix M. Velázquez Irizarry, presentó una moción de desestimación al amparo de la Regla 10.2 de las Reglas de Procedimiento Civil, 32 L.P.R.A. Ap. III, Regla 10.2, bajo el *238fundamento jurídico de que la causa de acción estaba prescrita.
Así las cosas, el 10 de diciembre de 2003, el codemandado-peticionario, Héctor M. Velázquez González, presentó también una moción de desestimación bajo el mismo fundamento, prescripción.
El Tribunal de Primera Instancia, el 16 de diciembre de 2003, expide una resolución en la que concedió veinte (20) días a la parte demandante-recurrida para que expresara su posición.
El 7 de enero de 2004, la parte demandante-recurrida, Cooperativa de Seguros Múltiples de Puerto Rico, radicó una moción en oposición a la moción de desestimación. En su moción la parte demandante-recurrida, expone que envió dos cartas; una con fecha de 10 de abril de 2003 y otra el 23 de abril de 2003, dirigida a la parte codemandada-peticionaria, Héctor M. Velázquez González a la dirección PO Box 2174, Peñuelas, P.R. 00624. Alegó la parte demandante-recurrida en su moción, que mediante el envío de dichas cartas se interrumpió el término prescriptivo para ejercer la acción, ya que estas cartas constituyeron una reclamación extrajudicial.
El 20 de enero de 2004, el Foro de Instancia emitió una resolución declarando no ha lugar las mociones de desestimación presentadas, notificada y archivada en autos el 23 de enero de 2004.
Luego el 22 de enero de 2004, la parte codemandada-peticionaria, Héctor M. Velázquez González, presentó una réplica a moción en oposición a la desestimación. Con dicha moción, la parte codemandada-peticionaria, Héctor M. Velázquez González, acompañó evidencia expedida por el Postmaster del Correo de Peñuelas, donde se reconoció la inexistencia de la dirección a la que la parte demandante-recurrida alegó que había enviado las cartas.
Ambos codemandados-peticionarios, Héctor M. Velázquez González y Onix M. Velázquez Irizarry, presentaron sus correspondientes mociones de reconsideración.
Inconforme con la determinación del foro de instancia, el 23 de febrero de 2004, Héctor M. Velázquez González, parte codemandada-peticionaria, presentó ante el Tribunal de Apelaciones el recurso de certiorari KLCE-04-00195. Dicha parte alegó que erró el Tribunal de Primera Instancia al declarar no ha lugar a la moción de desestimación por el fundamento de prescripción. Ese mismo día Onix M. Velázquez Irizarry, parte codemandada-peticionaria, presentó el recurso de certiorari KLCE-04-00196. Mediante dicho recurso, Onix M. Velázquez Irizarry, parte codemandada-peticionaria, planteó que erró el Tribunal de Primera Instancia, al declarar no ha lugar la moción de desestimación por haber expirado el término prescriptivo dispuesto por el Artículo 1868 del Código Civil de Puerto Rico, 31 L.P.R.A., see. 5298.
El 15 de marzo de 2004, este Tribunal de Apelaciones, una vez atiende los recursos de certiorari KLCE-04-00195 y KLCE-04-00196, emitió una Resolución consolidando los recursos por tratarse de las mismas partes y tener cuestiones comunes de hecho y derecho. Además, le concedió a la parte demandante-recurrida, Cooperativa de Seguros Múltiples de Puerto Rico, un término de treinta (30) días contados a partir de la notificación de dicha Resolución, para que mostrara causa por la cual no debían expedirse los autos de certiorari y revocarse la resolución recurrida. El 20 de abril de 2004, la parte demandante-recurrida presentó su alegato en oposición. Por ello que, con la comparecencia de ambas partes, nos encontramos en posición de resolver.
II
A. Las acciones en daños y perjuicios
Las obligaciones que se deriven de actos u omisiones culposos o negligentes no penados por ley, se *239reglamentarán por la disposición del Artículo 1802 del Código Civil, 31 L.P.R.A. see. 5141. Este artículo establece que "el que por acción u omisión causa daño a otro, interviniendo culpa o negligencia, está obligado a reparar el daño causado." Id.; Valle Izquierdo v. E.L.A., Opinión de 14 de mayo de 2002, 2002 J.T.S. 70, a la pág. 1139.
Daño es todo aquel menoscabo material o moral que sufre una persona, ya en sus bienes vitales naturales, ya en su propiedad o en su patrimonio, causado en contravención a una norma jurídica y por el cual ha de responder otras. García Pagán v. Shiley Caribbean, 122 D.P.R. 193, 205-206 (1988). El Artículo 1802 de nuestro Código Civil, supra, enuncia la norma genérica que prohíbe causar daño a otro mediante conducta activa o pasiva. Soc. Gananciales v. González Padín Co., Inc., 117 D.P.R. 94, 105 (1986).
El Código Civil dispone en su Artículo 1802, supra, que se puede imponer responsabilidad por daños y perjuicios si se demuestra la concurrencia de los tres elementos que definen esta causa de acción: 1) que ha habido una acción u omisión de una parte; 2) que ha mediado negligencia; y 3) que existe un nexo causal entre la acción u omisión de la parte y el daño sufrido. Véase además: Vélez Rodríguez v. Amaro Cora, 138 D.P.R. 182, 189 (1995); Miranda v. E.L.A., 137 D.P.R. 700, 707 (1994); J.A.D.M. v. Centro Comercial, 132 D.P.R. 785, 794 (1993); Arroyo López v. E.L.A., 126 D.P.R. 682, 687 (1990); Soc. de Gananciales v. G. Padín Co., Inc., 117 D.P.R. 94, 106 (1986); Jiménez v. Pelegrina Espinet, 112 D.P.R. 700, 704-706 (1982).
La culpa o negligencia es la falta del debido cuidado, que consiste en no anticipar y prever las consecuencias racionales de un acto, o de la omisión de un acto, que una persona prudente habría de prever en las mismas circunstancias. Toro Aponte v. E.L.A., 142 D.P.R. 464, 473 (1997).
B. La figura de la prescripción en los casos de daños y perjuicios
El Tribunal Supremo de Puerto Rico ha establecido que bajo nuestro sistema de derecho, la figura de la prescripción es materia de derecho sustantivo, regida por las disposiciones del Código Civil. Maldonado Vega v. Russe Santiago, 2001 J.T.S. 17, Opinión de 8 de febrero de 2001, a la pág. 834; Vega v. J. Pérez & Cía., Inc., 135 D.P.R. 746, 753 (1994); García Aponte et. al. v. E.L.A. et. al., 135 D.P.R. 137, 142 (1994). La prescripción constituye una forma de extinción de un derecho, debido a la inercia en ejercerlo durante un tiempo determinado. Santiago Rivera v. Ríos Alonso, Opinión de 7 de febrero de 2002, 2002 J.T.S. 21, a la pág. 714; Galib Frangie v. El Vocero, 138 D.P.R. 560, 566 (1995).
El propósito de la institución de la prescripción es castigar la inercia en el ejercicio de los derechos y asegurar así el tráfico jurídico, al evitar litigios difíciles de adjudicar por la antigüedad de sus reclamaciones. Vera Morales v. Dr. Bravo Colón, Opinión de 27 de febrero de 2004, 2004 J.T.S. 40, a la pág. 740; Padín Espinosa v. Compañía de Fomento Industrial de P.R., Opinión de 25 de febrero de 2000, 2000 J.T.S. 44, a la pág. 759; Zambrana Maldonado v. E.L.A., 129 D.P.R. 740, 751 (1992); De Jesús v. Chardón, 116 D.P.R. 238, 243 (1985). En Santiago Rivera v. Ríos Alonso, supra, citando a Colón Prieto v. Géigel, 115 D.P.R. 232, 243 (1984). El Tribunal Supremo expresó respecto a la prescripción extintiva que:
“La institución de la prescripción extintiva aspira a asegurar la estabilidad de la propiedad y la certidumbre de los demás derechos. Su innegable necesidad y valor corresponden a 'una presunción legal de abandono, derivado del hecho del transcurso de un tiempo determinado sin reclamar un derecho'. Sin embargo, ninguno de los intereses a los cuales que responde es absoluto -de un lado, salvaguardar un derecho, y del otro, darle carácter definido a la incertidumbre de una posible reclamación-, sino que deben ser aquilatados en su justa proyección. ” (Citas Omitidas)
El Artículo 1861 del Código Civil, 31 L.P.R.A. see. 5291, establece que las acciones prescriben por el mero lapso del tiempo fijado por la ley. Una vez transcurre el período de tiempo establecido por ley, sin que el titular *240del derecho lo reclame, surge una presunción legal de abandono. Galib Frangie v. El Vocero de P.R., supra; Zambrana Maldonado v. E.L.A., supra, a la pág. 752.
En reiteradas ocasiones se ha señalado que el acto interruptivo representa la manifestación inequívoca de una voluntad contraria al mantenimiento de la situación inerte manifestada ésta con anterioridad a que el plazo de deliberación se agote. Sánchez Montalvo v. Autoridad de Puertos y American Airlines, 2001 J.T.S. 34, Opinión de 7 de marzo de 2001, a la pág. 966; García Aponte et. al. v. E.L.A. et. al., supra, a la pág. 143; Zambrana v. E.L.A., supra, a la pág. 751.
El Artículo 1873 del Código Civil, 31 L.P.R.A. see. 5303, establece tres formas en las cuales se puede interrumpir la prescripción de las acciones: (1) el ejercicio de la acción ante el tribunal, (2) la reclamación extrajudicial por el acreedor, y (3) cualquier acto de reconocimiento de deuda por el deudor.
El efecto que tienen los mecanismos de interrupción es que el plazo de prescripción debe volver a computarse por entero desde el momento que se produce el acto que interrumpe. Sánchez Montalvo v. Autoridad de Puertos y American Airlines, supra; Díaz de Diana v. A.J.A.S. Ins. Co., 110 D.P.R. 471, 474-475 (1980).
En cuanto a la interrupción de la prescripción mediante reclamación extrajudicial, ésta se refiere a la manifestación inequívoca de quien, amenazado con la pérdida de su derecho, expresa su voluntad de no perderlo. Cintrón v. E.L.A., 127 D.P.R. 582, 590 (1990); De Jesús v. Chardón, 116 D.P.R. 238, 246-247 (1985); Feliciano v. A.A.A., 93 D.P.R. 655, 660 (1966). La reclamación extrajudicial sirve varios propósitos fundamentales, siendo los principales: interrumpir el transcurso del término prescriptivo de las acciones; fomentar las transacciones extrajudiciales; y notificar, a grandes rasgos, la naturaleza de la reclamación. Sánchez Montalvo v. Autoridad de Puertos y American Airlines, supra.
Son varios los requisitos con los cuales debe cumplir una reclamación extrajudicial para que la misma constituya una interrupción de la prescripción. Estos son: a) la oportunidad o tempestividad, que requiere que el ejercicio de la acción debe realizarse antes de la consumación del plazo; b) la legitimación, según la cual el ejercicio corresponde al titular del derecho o de la acción; c) la identidad, que consiste en que la acción ejercitada ha de responder exactamente al derecho que está afectado por la prescripción, y d) la idoneidad del medio utilizado. Galib Frangie v. El Vocero de P.R., supra, a la pág. 567.
En cuanto al requisito de la legitimación del reclamante, el mismo se extiende no sólo a que sea el mismo reclamante, titular del derecho el que ejercite personalmente la reclamación, sino que la misma se extiende al representante voluntario o legal del titular quien también puede formular la reclamación a nombre de éste e interrumpir así la prescripción. Véase: Srio. del Trabajo v. F.H. Co., Inc., 116 D.P.R. 823, 827 (1986). Respecto al elemento de identidad, el mismo ha sido definido como una "auténtica exigencia de la efectividad de la deuda." Galib Frangie v. El Vocero de P.R., supra, a la pág. 568.
Se he señalado que si en la notificación que el demandante cursó al demandado, aquél se limitó meramente a ofrecer información, entonces el término prescriptivo no quedó interrumpido, ya que la mera información no tiene el efecto de ser una manifestación inequívoca de perder su derecho. Zambrana Maldonado, supra, a la pág. 751; Feliciano v. A.A.A., 93 D.P.R. 655, 660 (1966).
También se ha establecido que: "no hay relación limitativa hecha por la ley sobre qué actos son los que se incluyen en esta causa interruptiva, admitiendo como tales todos aquéllos en que la voluntad del acreedor quede patente". Galib Frangie v. El Vocero de P.R., supra, a la pág. 568; Sánchez Montalvo v. Autoridad de Puertos y American Airlines, supra. Por lo tanto, la reclamación extrajudicial puede plasmarse a través de distintos actos, pero todos ellos han de cumplir con los requisitos genéricos de oportunidad, identidad, *241legitimación e idoneidad. Galib Frangie v. El Vocero de P.R., supra.
Respecto a la forma en que se tiene que hacer la reclamación, la ley no exige ninguna forma especial. Galib Frangie v. El Vocero de P.R., supra, a la pág. 568; Zambraña Maldonado v. E.L.A., supra, a la pág. 752. Al respecto, se ha señalado en el caso de Zambrana Maldonado v. E.L.A., supra, citando a Diez-Picazo que:
“La ley no exige, en este punto, ninguna forma especial y donde la ley no distingue, tampoco debemos nosotros distinguir. En cualquier forma que sea hecha la reclamación, posee valor interruptivo. ...En todo caso, se podrá plantear un problema de prueba —de la existencia de la reclamación y de su fecha-, pero no un problema deforma. ”
También se ha establecido que no se puede aceptar que memorandos o correspondencia interna entre un ajustador de seguros y la compañía aseguradora a la que representa, o entre éstos y el asegurado, con respecto a un determinado accidente y su evaluación, constituya reconocimiento de deuda a los fines del Artículo 1873 del Código Civil, supra. Díaz de Diana v. A.J.A.S. Ins. Co., 110 D.P.R. 471, 481-482 (19980).
El Artículo 1868 del Código Civil de Puerto Rico, supra, dispone que las acciones para reclamar responsabilidad civil por las obligaciones extracontractuales derivadas de la culpa o negligencia prescriben por el transcurso de un (1) año. Este término comenzará a decursar desde el momento que lo supo el agraviado. Esto implica saber que se ha sufrido un daño y quién lo causó. Sánchez Montalvo v. Autoridad de Puertos y American Airlines, supra; Riley v. Rodríguez Pacheco, 119 D.P.R. 762, 775-776 (1987); Rivera Encarnación v. E.L.A., 113 D.P.R. 383, 385 (1982).
III
Héctor M. Velázquez González y Onix M. Velázquez Irizarry, partes codemandadas-peticionarias, alegan que erró el Tribunal de Primera Instancia al declarar No Ha Lugar las mociones de desestimación que habían presentado. Le asiste la razón. Veamos.
Los hechos que dieron base a la radicación de la demanda de subrogación por el accidente de tránsito, ocurrieron el 20 de mayo de 2002. La parte demandante-recurrida presentó su acción el 23 de mayo de 2003.
Los codemandados-peticionarios, Héctor M. Velázquez González y Onix M. Velázquez Irizarry, plantean que la causa de acción presentada por la Cooperativa de Seguros Múltiples de Puerto Rico, parte demandante-recurrida, está prescrita debido a que ha transcurrido más de un año, para ser más exactos un año y tres días desde la ocurrencia del accidente, de que advino en conocimiento del daño y quién era responsable del mismo. En el caso de autos, no hay duda de que el término prescriptivo de un año dispuesto por ley para las acciones en daños y perjuicios, había transcurrido al momento de entablarse la acción de subrogación. La subrogación es una figura que opera de forma similar a la cesión o transmisión de derechos. Cuando una parte se subroga en los derechos de otra, el cedente otorga al cesionario todas las acciones y derechos que tenía contra el tercero, por lo cual no puede el cesionario, en una acción de subrogación, adquirir más o menos derechos de los que tenía el cedente. La causa de acción civil de subrogación en este caso surge a raíz de una acción de daños extracontractuales por el accidente de tránsito. Es por esto, que el término prescriptivo para ejercer cualquier acción basada en dicho acto culposo, incluso la acción de subrogación, comienza a decursar desde que la parte perjudicada advino en conocimiento del daño y quién fue el responsable del mismo. Por tal razón, la Cooperativa de Seguros Múltiples (cesionario) adquiere los mismos derechos y acciones que José A. Rodríguez Ramírez (asegurado-cedente) tenía para reclamar desde el momento en que este último conocía del daño y quién era el responsable del mismo. Por lo cual, le es perfectamente imputable a la Cooperativa de Seguros Múltiples, demandante-recurrida, el conocimiento del daño y el término para ejercer su acción de subrogación desde el momento del accidente, o sea, 20 de mayo de 2002, y no desde que efectivamente emitió el cheque a su asegurado, el señor José A. Rodríguez Ramírez. Contrario a lo que argumenta la parte demandante-recurrida, *242Cooperativa de Seguros Múltiples de Puerto Rico, esa transacción del 6 de junio de 2002, es un hecho aislado, que ocurre dentro de la relación asegurado-aseguradora lo cual no tiene ninguna correlación con el ejercicio oportuno de las acciones a las cuales tenga derecho el asegurado. Dicha transacción no tiene ningún efecto sobre la interrupción o paralización del término prescriptivo de un año que exige la ley, para entablar cualquier acción que surja al amparo del Artículo 1802 del Código Civil, supra, sobre responsabilidad civil extracontractual.
Las cartas alegadamente enviadas por la parte demandante-recurrida al codemandado-peticionario, Héctor M. Velázquez González, nunca fueron recibidas por éste, ya que, según comunicación del Postmaster del Correo de Peñuelas, la dirección a la cual alegadamente fue enviada no existe en dicho correo. El hecho de la inexistencia de la dirección en Peñuelas es óbice para sostener el argumento de que las cartas presuntamente enviadas a la parte codemandada-peticionaria, Héctor M. Velázquez González, nunca fueron recibidas, por lo cual dicha parte nunca advino en conocimiento de una reclamación extrajudicial hasta tanto no le fue notificada la demanda en su contra, ya pasado el término para ejercer la acción. Por ello, es forzoso concluir que dichas cartas no constituyeron una reclamación extrajudicial válida que tuviera el efecto de interrumpir el término prescriptivo para ejercer la acción de subrogación.
En el caso del codemandado-peticionario, Onix M. Velázquez Irizarry, dichas comunicaciones escritas nunca le fueron decursadas a él, por lo cual nunca existió respecto a él una válida reclamación extrajudicial que interrumpiera el término prescriptivo para ejercer la acción de subrogación.
Cónsono con lo anteriormente expuesto, es forzoso concluir que erró el Tribunal de Primera Instancia al declarar no ha lugar las mociones de desestimación presentadas por Héctor M. Velázquez González y Onix M. Velázquez Irizarry, ya que de la prueba que obra en autos se hace irrazonable llegar a concluir que la causa de acción no está prescrita.
IV
Por los fundamentos anteriormente expuestos, se expide el auto de certiorari solicitado y se revoca la determinación del Tribunal de Primera Instancia; se resuelve que la causa de acción contra Héctor M. Velázquez González y Onix M. Velázquez Irizarry está prescrita y se desestima la demanda.
Lo acordó y ordena el Tribunal y lo certifica la Secretaria General.
Aida Ileana Oquendo Graulau
Secretaria General | 01-03-2023 | 11-23-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/2098596/ | 948 F. Supp. 244 (1996)
Roland BREWTON, Plaintiff,
v.
F. HOLLISTER, A Captain of Security at Orleans Correctional Facility, Defendant.
No. 95-CV-17C.
United States District Court, W.D. New York.
November 13, 1996.
*245 *246 Plaintiff Pro Se.
Dennis C. Vacco, Attorney General of the State of New York (Peter B. Sullivan, Assistant Attorney General, of counsel), Buffalo, NY, for Defendant.
DECISION AND ORDER
CURTIN, District Judge.
BACKGROUND
Plaintiff Roland Brewton, an inmate at Orleans Correctional Facility ("Orleans") at all times material to this claim, brings this action under 42 U.S.C. § 1983, alleging that defendant Captain Frank Hollister violated his rights under the Eighth Amendment and the Due Process Clause of the Fourteenth Amendment. He claims that he was wrongfully confined to the Special Housing Unit ("SHU") after defendant conducted a constitutionally defective disciplinary hearing. He insists that under the Codes, Rules and Regulations of the State of New York ("N.Y.C.R.R.") he has a protected liberty interest in remaining in the facility's general population.
On May 1, 1995, this court dismissed plaintiff's claims against three of the defendants named in the original complaint for failure to allege sufficient facts upon which relief could be granted. Item 3. The claim against Sergeant Schwartz was dismissed since his alleged misbehavior did not rise to the level of a constitutional violation. The claims against New York Department of Corrections Commissioner Philip Coombe and Superintendent of Orleans Sally Johnson were dismissed because the complaint failed to allege that either was personally involved in a constitutional deprivation or that they had actual or constructive notice of a constitutional deprivation which they failed to terminate.
On August 16, 1995, defendant Hollister filed a motion to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for its failure to state a claim upon which relief can be granted. Item 5. After both sides submitted memoranda of law stating their arguments regarding the motion, this court directed the parties to submit additional briefs regarding their positions on the impact of Frazier v. Coughlin, 81 F.3d 313 (2d Cir.1996), in which the Second Circuit applied Sandin v. Conner, ___ U.S. ___, 115 S. Ct. 2293, 132 L. Ed. 2d 418 (1995), to disciplinary confinements imposed within the New York prison system, on the present case. Item 9. The parties were ultimately given until September 13, 1996 to file such briefs.
On July 22, 1996, defendant submitted a supplemental memorandum pursuant to the court's request. Item 15. Defendant also filed an affidavit made by Anthony Annucci, Deputy Commissioner and Counsel for the New York State Department of Correctional Services, in support of his pending motion to dismiss. Item 13. This affidavit describes the operation of correctional facilities, including the relative treatment of inmates housed in the general population with those housed in SHUs. It notes that the Commissioner has broad discretion to promulgate specific regulations within very broad parameters governing the operation of correctional facilities and that there is no New York statute that requires an inmate to live in any particular housing unit. Id., ¶¶ 2-3. Plaintiff never submitted any papers regarding his position on the applicability of Frazier to this case. Therefore, it appears that this action could be dismissed because of plaintiff's failure to proceed. The court, however, will turn to the merits of the motion.
Thus, the court now considers defendant's motion to dismiss in light of the Supreme Court's decision in Sandin and the Second Circuit's decision in Frazier. Rule 12(b) of the Federal Rules of Civil Procedure provides that if the court considers matters outside the complaint in ruling on a motion pursuant to 12(b)(6), "the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56." See Carter v. *247 Stanton, 405 U.S. 669, 671, 92 S. Ct. 1232, 1234, 31 L. Ed. 2d 569 (1972). A District Court has the power to grant summary judgment sua sponte where neither party has moved for such relief, provided that all parties are given advance notice that the court plans on converting the motion to dismiss to a motion for summary judgment. Reynolds v. Mercy Hospital, 861 F. Supp. 214, 218 (W.D.N.Y.1994). The standard for determining the adequacy of notice of conversion is whether the losing party "should have recognized the possibility that the motion might be converted into one for summary judgment or was taken by surprise and deprived of a reasonable opportunity to meet facts outside the pleadings." Kennedy v. Empire Blue Cross and Blue Shield, 989 F.2d 588, 592 (2d Cir.1993) (quoting In re G. & A. Books, 770 F.2d 288, 295 (2d Cir.1985), cert. denied, 475 U.S. 1015, 106 S. Ct. 1195, 89 L. Ed. 2d 310 (1986)). Because this court directed both parties to submit additional briefs concerning the impact of the Frazier decision on the present case, Item 9, and gave the parties approximately four months to submit these materials, the parties had both notice of the possibility that the court would treat defendant's motion as one for summary judgement and a full and fair opportunity to present supporting or opposing materials. Consequently, this court is presently treating defendant's motion as one for summary judgment pursuant to Rule 56.
FACTS
On July 10, 1994, while incarcerated at Orleans, plaintiff was confronted by Sergeant R. Schwartz and an unknown correction officer, frisked and handcuffed, and taken to the facility's SHU. Item 1, ¶ 1.[1] Plaintiff alleges that throughout the whole confrontation the officers verbally harassed him and they failed to respond to plaintiff's questions as to why he was being taken to the SHU. Once at the unit, the SHU officers explained its policies and procedures, conducted a routine strip frisk of plaintiff, and escorted plaintiff to a cell. Id., ¶¶ 2-3.
The following day, plaintiff was served with a Tier-III Misbehavior Report, written by Sergeant Schwartz, charging him with two violations of rules for inmate conduct. The report specified that plaintiff had violated rule 101.10 (assault on another inmate) and 104.10 (violent conduct).[2]Id., ¶ 4. Plaintiff was told that there would be a hearing regarding these charges three days later and the policies and procedures governing Tier III hearings were explained to him. Plaintiff requested that inmate Kim Simmiona appear as a witness at this hearing. Id.
On July 14, 1994, plaintiff appeared before defendant Hollister, in his capacity as hearing officer, on these charges. Before the proceeding began, defendant explained the hearing procedures to plaintiff. Plaintiff alleges that defendant directly asked whether plaintiff was guilty or innocent, and after plaintiff responded that he was innocent defendant stated "yeah, yeah, yeah, that's what all of you say, none of you will ever admit you're guilty." Id., ¶ 5.
Following this exchange, defendant started the tape recorder and commenced the proceeding. Defendant explained the hearing procedures on the record and then asked plaintiff to give his explanation of the events in question. Id. Inmate Kim Simmiona then testified as per plaintiff's request. Id. Defendant adjourned the hearing in order to locate Sergeant Schwartz so that he could testify. He explained that the hearing would resume as soon as Sergeant Schwartz was located or any other witnesses were selected to testify. Id. Defendant also told plaintiff that the inmate who had accused plaintiff of assaulting him would not be present at the hearing and plaintiff would not have an opportunity to cross-examine him pursuant to the "institutional safety and security guidelines." Id., ¶ 6.
The hearing resumed on July 19, 1994. Plaintiff alleges that before the proceedings *248 went on the record, defendant stated, "I want to get this hearing done today because I am tired and this is going nowhere." Id., ¶ 7. Once the proceeding formally recommenced, defendant advised plaintiff that Sergeant Schwartz was not available to testify, apparently because he was on vacation. Id. Since there were no other witnesses to testify, defendant proceeded to reach a determination, by which he found the plaintiff guilty of the charges and imposed a penalty of 180 days in SHU with loss of privileges, and recommended loss of ninety days of good time. Id. Defendant asked if plaintiff had any comments to make in response to the disposition, and plaintiff remained silent. Id.
On September 27, 1994, this determination was reversed on administrative appeal. Id., ¶ 10. Plaintiff was released from SHU, all of his privileges were restored, and all references to the hearing determination were ordered expunged from his record. Id. At the time of his release, plaintiff had spent a total of seventy-four days in SHU (nine days before the completion of his disciplinary hearing and sixty-five days following defendant's determination). Plaintiff alleges that while he was confined in SHU he was deprived of many of the privileges available to other SHU inmates. Specifically, he claims that he was denied a meal on one occasion and medical treatment on three occasions. Id., ¶¶ 8-9.
On January 2, 1995, plaintiff brought this action claiming that these events violated his constitutional rights under both the Eighth and Fourteenth Amendments. He seeks money damages.
DISCUSSION
Summary judgment is appropriate when "there is no genuine issue as to any material fact, and the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); Citizens' Bank v. Hunt, 927 F.2d 707, 710 (2d Cir.1991). When deciding a motion for summary judgment, the court must "resolve all ambiguities and inferences ... in the light most favorable to the party opposing the motion." Shockley v. Vermont State Colleges, 793 F.2d 478, 481 (2d Cir.1986) (citations omitted). If based on the submissions to the court, no rational fact-finder could find in the non-movant's favor, there is no genuine issue of material fact, and summary judgment is appropriate. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S. Ct. 2505, 2511-12, 91 L. Ed. 2d 202 (1986). "The function of the court is not to weigh the evidence and determine the truth of the matter, but rather to determine whether there is a genuine issue for trial." Carter v. Carriero, 905 F. Supp. 99, 102 (W.D.N.Y.1995). Used properly, Rule 56 is a "vital procedural tool to avoid wasteful trials." Capital Imaging v. Mohawk Valley Medical Associates, 996 F.2d 537, 541 (2d Cir.1993).
I. Due Process Claim
In order to succeed on his due process claim, plaintiff must show that he has a protected liberty interest, and if so, that he was deprived of sufficient process to protect that interest. In Sandin v. Conner, ___ U.S. ___, 115 S. Ct. 2293, 132 L. Ed. 2d 418 (1995), the Supreme Court reexamined the circumstances under which state prison regulations afford inmates a liberty interest protected by the Due Process Clause. Specifically, the Court explained that:
these interests will generally be limited to freedom from restraint which, while not exceeding the sentence in such an unexpected manner as to give rise to protection by the Due Process Clause of its own force, ... nonetheless imposes atypical and significant hardship on the inmate in relation to the ordinary incidents of prison life.
Id. at ___, 115 S.Ct. at 2300 (emphasis added). The inmate in Sandin was charged under Hawaii prison regulations with "high misconduct" punishable by confinement in the Special Holding Unit. Following a disciplinary hearing, plaintiff was sentenced to thirty days confinement. The Court held that the inmate's "discipline in segregated confinement did not present the type of atypical, significant deprivation in which a state might conceivably create a liberty interest." Id. at ___, 115 S.Ct. at 2301. The Court noted that the State expunged the inmate's disciplinary record with respect to the more serious charges against him; consequently, *249 his confinement "did not exceed similar, but totally discretionary confinement in either duration or degree of restriction." Id. Finding that no liberty interests were implicated, the court dismissed plaintiff's claim.
In Frazier v. Coughlin, 81 F.3d 313 (2d Cir.1996), the Second Circuit applied Sandin to disciplinary confinements within New York's prison system. The court explained that to prevail under Sandin, an inmate "must establish both that the confinement or restriction creates an `atypical and significant hardship' ... and that the state has granted its inmates, by regulation or by statute, a protected liberty interest in remaining free from that confinement." Id. at 317. The periods of confinement at issue in Frazier were ten days of prehearing confinement in SHU and approximately eleven months in the Close Supervision Unit ("CSU"). Although confinement in CSU is less restrictive than in SHU, prisoners in CSU are denied privileges available to inmates in the general population. The Frazier court found that under the standards of Sandin, the plaintiff failed to demonstrate a significant deprivation of a liberty interest because he did not show that the conditions of confinement in either SHU or CSU imposed on him an atypical and significant hardship in relation to the ordinary incidents of prison life. Id. at 317-18. Because it found that the inmate had not suffered the requisite hardship, the court did not address the question of whether New York State has granted its inmates, by regulation or by statute, a protected liberty interest in remaining free of confinement in SHU or CSU.
The decision in Frazier was reached following a bench trial where the District Court was able to conduct extensive fact finding. During the trial, the court heard evidence regarding the nature of the plaintiff's confinement in SHU and CSU as compared to confinement in the general population. The court did not directly address the question of whether such a detailed factual showing is required before Sandin can be applied. That a trial was held in that case does not mean that one must be held in all cases.
Other courts have applied Sandin and dismissed plaintiffs' complaints without going to trial. In Carter v. Carriero, 905 F. Supp. 99 (W.D.N.Y.1995), the court granted the defendant's motion for summary judgment with regards to the issue of whether the plaintiff had a protected liberty interest in not being assigned to SHU. The inmate in Carter served 270 days in SHU following a disciplinary hearing. The court noted that under New York prison regulations, inmates can be placed in SHU for disciplinary confinement, detention, administrative segregation, protective custody, keeplock confinement, and "for any other reason with the approval of the deputy commissioner for facility operations." Carter, 905 F.Supp. at 103 (citing 7 N.Y.C.R.R. §§ 301.1-7). The court found that neither the restrictions on privileges available to inmates in SHU nor the duration of the confinement in question imposed an atypical and significant hardship in relation to the ordinary incidents of prison life. Id., at 104. The court also held that "neither the New York prison regulations nor the Due Process Clause itself afforded plaintiff a protected liberty interest that would entitle him to the procedural protections he claims defendant violated." Id.
In the present case, plaintiff claims that he had a protected liberty interest in remaining in the Orleans general population and that his disciplinary hearing was constitutionally infirm. He spent a total of seventy-four days in SHU before his punishment was reversed on appeal (nine days before the completion of his hearing and sixty-five days following the determination). In his complaint, plaintiff specifically alleges that he was limited to one hour of recreation a day, that he was denied a meal on one occasion, and that he was denied medical treatment on three occasions. Item 1, ¶¶ 8-9. He also alleges that some of his personal property was withheld for a number of days. Id., ¶ 3. Defendant's supporting affidavit describes in detail the nature of the plaintiff's confinement in SHU and plaintiff has failed to challenge this evidence. Item 13. The affidavit establishes that it is not at all unusual for inmates to spend lengthy periods of time in SHUs for disciplinary reasons. Id., ¶ 12. The affidavit also compares the restrictions experienced by inmates in SHU as compared to inmates in the general population.
*250 In Carter, the court found that the SHU restrictions on law library access, educational opportunities, visitation, telephone use, personal property, employment eligibility, work release, and furloughs did not amount to atypical and significant hardship, even when the inmate was confined to SHU for 270 days. Carter, 905 F.Supp. at 105. The plaintiff in this case has not pled comparable restrictions on privileges. If Carriero's 270 days in SHU were found not to be dramatically different from the ordinary incidents of prison life, the court cannot see how the seventy-four days endured by the plaintiff in this case could implicate a protected liberty interest. In Frazier, the court found that twelve days in SHU and approximately eleven months in CSU did not amount to a sufficient hardship to implicate a protected liberty interest. Frazier, 81 F.3d at 317. Even though the latter confinement was less restrictive than SHU, the eleven months of confinement was considerably more than the seventy-four days experienced by the plaintiff in this case. Finally, as was the case in Sandin, the state of New York expunged plaintiff's disciplinary record following the reversal of the misconduct determination. The Supreme Court's opinion suggests that such an internal remedial measure reduces the harshness of the original disciplinary action.
Having found no protected liberty interest, this court does not consider whether plaintiff has a claim based on defendant's failure to provide adequate process at the disciplinary hearing. The court notes that after Sandin and Frazier, the appropriate remedy for violation of hearing regulations, where the result is not an atypical, significant hardship, is a question for the state courts.
II. Eighth Amendment Claim
In order to succeed on his Eighth Amendment claim, plaintiff must prove that the conditions of confinement can properly be termed "barbarous" or "shocking to the conscience." Sostre v. McGinnis, 442 F.2d 178, 191 (2d Cir.1971), cert. denied, 404 U.S. 1049, 92 S. Ct. 719, 30 L. Ed. 2d 740 (1972). Segregated confinement does not itself violate the Eighth Amendment. Id. at 192. The Sostre court found that the plaintiff's confinement in a punitive segregation facility for twelve months and eight days, in which he was isolated from human conduct, severely restricted in opportunities for exercise, limited to one shower per week, restricted from buying books, magazines or newspapers, limited in his access to the prison library, restricted in the ability to receive food packages from the outside, and limited at meals to only one portion of food and a different dessert than that given to the general population, did not violate basic human dignity. The court also found that it should not second-guess the prison authorities on their judgment that the punishment was a reasonable means of maintaining discipline and order. Id. at 191.
In Farmer v. Brennan, 511 U.S. 825, 114 S. Ct. 1970, 128 L. Ed. 2d 811 (1994), the Supreme Court explained that there are two prerequisites for an Eighth Amendment violation.
First, the deprivation alleged must be, objectively, "sufficiently serious," ... a prison official's act or omission must result in the denial of "the minimal civilized measure of life's necessities".... [T]he inmate must show that he is incarcerated under conditions posing a substantial risk of serious harm ... [Second,] a prison official must have a "sufficiently culpable state of mind." ... In prison-conditions cases that state of mind is one of "deliberate indifference" to inmate health or safety.
Id. at 824, 114 S. Ct. at 1977. In order for deliberate indifference to be found, the official must have "know[n] of and disregard[ed] an excessive risk to inmate health or safety; the official must [have] be[en] aware of facts from which the inference could be drawn that a substantial risk of serious harm exists, and he must [have] draw[n] the inference." Id. at 837, 114 S. Ct. at 1979.
Under either Farmer or Sostre, plaintiff's Eighth Amendment claim fails. Plaintiff has not alleged facts that would support the conclusion that the conditions in the Orleans SHU were sufficiently barbarous or that there was a substantial risk of serious *251 harm. The most serious allegations plaintiff has made are that he was deprived of a meal on one occasion and that he was deprived of medical care on three occasions. He has not alleged any of the deprivations experienced by the plaintiff in Sostre or anything conceivably worse. Even if the court were to find that he has alleged sufficient facts to warrant further fact-finding on the severity of the conditions in SHU, he has not alleged that defendant or anyone else at Orleans had the requisite culpable state of mind to support an Eighth Amendment claim.
CONCLUSION
For the foregoing reasons, this court grants summary judgment in favor of defendant. The complaint is dismissed, and judgment shall enter for defendant.
For the reasons set forth above, I hereby certify that any appeal from this order would not be taken in good faith pursuant to 28 U.S.C. § 1915(a), and leave to appeal to the Court of Appeals as a poor person is hereby denied. Coppedge v. United States, 369 U.S. 438, 82 S. Ct. 917, 8 L. Ed. 2d 21 (1962).
Further requests to proceed on appeal as a poor person should be directed, on motion, to the United States Court of Appeals for the Second Circuit in accordance with the requirements of Rule 24 of the Federal Rules of Appellate Procedure.
So ordered.
NOTES
[1] The paragraphs in the complaint are not separately numbered. There are ten paragraphs in the plaintiff's statement of claim. For purposes of this order, the court has assigned numbers to them in the order in which they appear.
[2] These violations are contained within 7 N.Y.C.R.R. § 270.2(B). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2539479/ | 705 F. Supp. 2d 216 (2010)
U.S. GAS & ELECTRIC, INC., Plaintiff,
v.
BIG APPLE ENERGY, LLC, and Victor Ferreira, Defendants.
No. 09-CV-1961 (ADS)(ARL).
United States District Court, E.D. New York.
April 10, 2010.
*217 Wildman, Harrold, Allen & Dixon LLP, by David J. Fischer, Esq., Jennifer Douglass, Esq., William Allen Woolley, Esq., of Counsel, Chicago, IL, for the Plaintiff.
Akerman Senterfitt LLP, by Martin Domb, Esq., of Counsel, New York, NY, for the Plaintiff.
Wolff & Samson, by Lori E. Grifa, Esq., Daniel D. Barnes, Esq., of Counsel, West Orange, NJ, for the Defendants.
MEMORANDUM OF DECISION AND ORDER
SPATT, District Judge.
U.S. Gas & Electric, Inc. ("USGE") is an energy company that provides natural gas to residential and commercial customers. In 2003, USGE entered into an agreement with Big Apple Energy LLC ("BAE"), whereby BAE agreed to act as USGE's agent in purchasing and delivering natural gas. BAE's principal, Victor Ferreira, was a longtime adviser to USGE and served as a member of its board of directors from September of 2004 to July of 2007.
On May 8, 2009, USGE filed this lawsuit against BAE and Ferreira ("the Defendants") alleging, among other wide-ranging causes of action, that BAE and Ferreira breached fiduciary duties they owed to USGE. On June 12, 2009, the Defendants filed an answer asserting five counterclaims. In particular, Ferreira's fifth counterclaim ("Count Five") asserted that, as a former member of the USGE board of directors, USGE was required to indemnify him for attorneys' fees and costs associated with this litigation under Delaware General Corporation Law § 145, Del.Code Ann. tit. 8, § 145 ("Section 145"), and applicable USGE corporate by-laws.
In an order dated November 2, 2009, the Court granted USGE's motion to dismiss Count Five, finding that Ferreira was not entitled to indemnification under either Section 145 or USGE corporate by-laws. See U.S. Gas & Elec., Inc. v. Big Apple Energy, LLC, 667 F. Supp. 2d 237 (E.D.N.Y.2009). Ferreira now moves for reconsideration of the November 2, 2009 order. While this motion was pending, Ferreira took the unusual step of moving to amend his already dismissed counterclaim.
On reconsideration, the Court now finds that although it was appropriate to dismiss Count Five, it was an error not to have afforded Ferreira the opportunity to replead a counterclaim for indemnification. For the reasons discussed below, the Court's November 2, 2009 order is vacated. The Court will permit Ferreira to file his proposed amended counterclaim.
I. BACKGROUND
The Court assumes the parties' familiarity with the factual background and procedural history of this case. However, as this is a motion for reconsideration, a brief review of the pertinent allegations and the Court's prior decision is in order.
The complaint alleges that both BAE and Ferreira breached fiduciary duties they owed to USGE. Compl. ¶ 111-116. In particular, ¶ 113 provides that:
Ferreira was a member of the [USGE's] board of directors from September 2004 to July 2007 and frequently acted as an adviser to [USGE]. [USGE] relied on Ferreira for advice and guidance in operating its business. Ferreira personally engaged in, directed or authorized the conduct alleged herein
*218 ¶ 113. Count VIII goes on to offer factual allegations explaining that BAE and Ferreira breached their fiduciary duties by:
Wrongfully marking up pipeline charges and concealing those charges had been marked up
Manipulating purchase locations to conceal and not pass along costs savings achieved through aggregate transportation
Misappropriating [USGE's] capacity for their own gain
Usurping [USGE's] opportunities to purchase the lowest-priced gas available for their own gain
Misrepresenting the hedging practices of utilities and the usefulness of hedging strategies in order to further their business
Failing to alert [USGE] to and ensure that it employed hedging strategies
Mismanaging delivery, injection and withdrawal of gas
Misreporting [BAE's] net income to avoid payment of 51 percent of all net income to USGE
Compl. ¶ 115. The Court interpreted Count VIII to allege that, as its agent in procuring and delivering natural gas, BAE had certain fiduciary duties that it breached by virtue of the foregoing conduct. U.S. Gas & Elec., Inc., 667 F.Supp.2d at 240. The Court also interpreted the complaint to allege that Ferreira directed and authorized this conduct in his capacity as the principal of BAE. Id.
The Defendants' answer offered only three conclusory allegations in support of Ferreira's counterclaim for indemnification:
Pursuant to Section 145 of the Delaware General Corporation Law . . . and any applicable by-laws of USGE, a corporate officer or director against whom a suit is filed is entitled to be indemnified for his attorney's fees and other costs incurred in defending such an action
USGE's complaint filed in this action is a suit subject to the indemnification obligation of Section 145 of the Delaware General Corporation Law . . . and any applicable by-laws of USGE.
As a result of the forgoing [sic], Mr. Ferreira is entitled to indemnification from USGE.
Ans. ¶ 41-43. On July 16, 2009, USGE moved to dismiss Count Five, contending that Ferreira was not entitled to indemnification under Section 145 because he was not sued "by reason of the fact" that he was formerly a USGE director. The Court agreed.
The Court observed that under Delaware law "a defendant is sued `by reason of the fact' that he was a corporate official `if there is a nexus or causal connection between any of the underlying proceedings. . . and one's official capacity . . .'" U.S. Gas & Elec., Inc., 667 F.Supp.2d at 241 (quoting Homestore, Inc. v. Tafeen, 888 A.2d 204, 215 (Del.2005)). The Court further noted that "`[t]his connection is established if the corporate powers were used or necessary for the commission of the alleged misconduct.'" Id. (quoting Bernstein v. TractManager, Inc., 953 A.2d 1003, 1011 (Del.Ch.2007) (internal citations omitted)). Subjecting Ferreira's skeletal pleading to these standards, the Court determined that he was not entitled to indemnification because he failed to allege that he "used his authority or corporate power as a USGE director to effectuate the alleged misconduct on the part of BAE." Id.
Ferreira now argues that the Court "apparently overlooked" several matters in reaching this decision: (1) that USGE alleged Ferreira's service on the board is the basis for its fiduciary duty claims; (2) that his board service was contemporaneous to *219 specific allegations against him, including those relating to hedging; (3) that the complaint did not explicitly allege that Ferreira was being sued in his capacity as the principal of BAE; and (4) that the only legal basis under New York law for imposing a fiduciary duty upon Ferreira was his service as a USGE board member. Br. at 12-13.
II. DISCUSSION
A. Legal Standard-Reconsideration
A motion for reconsideration in the Eastern and Southern Districts of New York is governed by Local Civil Rule 6.3. In general, "[t]he standard for granting [a motion for reconsideration] is strict, and reconsideration will generally be denied unless the moving party can point to controlling decisions or data that the court overlooked-matters, in other words, that might reasonably be expected to alter the conclusion reached by the court." Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir.1995). However, a motion for reconsideration may be granted to "`correct a clear error or prevent manifest injustice.'" Virgin Atlantic Airways, Ltd. v. National Mediation Bd., 956 F.2d 1245, 1255 (2d Cir.1992) (quoting 18 C. Wright, A. Miller & E. Cooper, Federal Practice & Procedure § 4478 at 790). Ultimately, the decision of whether to grant a motion for reconsideration rests within the sound discretion of the district court. Kapsis v. Bloom, 08-CV-3092, 2009 WL 414001, at *1 (E.D.N.Y. Feb. 17, 2009).
B. Analysis
Ferreira's indemnification claim was supported only by three bare legal conclusions that the Court was not required to accept on a Fed.R.Civ.P. 12(b)(6) motion to dismiss. Neither Count Five nor Ferreira's papers in opposition to USGE's motion adequately explained how Ferreira could have used entrusted corporate powers as a member of the USGE board to effectuate the conduct giving rise to the breach of fiduciary duty claim. On the other hand, aided in part by USGE's motion papers, the Court interpreted USGE's complaint to allege that: (1) Ferreira's fiduciary duties arose from his longstanding business relationship with USGE; and (2) Ferreira breached these duties through conduct undertaken in his capacity as the principal of BAE. U.S. Gas & Elec., Inc., 667 F.Supp.2d at 241-42.
Ferreira's motion for reconsideration is, in large measure, an attempt to offer arguments he did not initially discuss in opposing USGE's motion to dismiss. However, a motion for reconsideration is not designed to give a party the opportunity to "advance new facts, issues, or arguments not previously presented to the Court." National Union Fire Ins. Co. v. Stroh Cos., 265 F.3d 97, 115 (2d Cir.2001). The Court also notes that it did not "overlook" the factual matters that Ferreira now highlights; it simply drew a different conclusion from them.
Nevertheless, the Court agrees with Ferreira that it should have afforded him an opportunity to replead his indemnification claim. In particular, the Court should have granted Ferreira leave to amend in order to add factual allegations sufficient to make a plausible showing that he was sued "by reason of" acts he took in his capacity as a USGE director. Accordingly, upon reconsideration, the Court finds that its November 2, 2009 order should be vacated.
Ordinarily, the Court would give Ferreira 20 days to file an amended counterclaim. However, in this case, Ferreira moved to amend his already dismissed counterclaim while his motion for reconsideration was pending. USGE is correct in arguing that it was improper for Ferreira to have done so. However, given that the *220 Court has now determined that Ferreira must be given an opportunity to replead an indemnification claim, practical considerations dictate that the Court should address USGE's objections to the proposed amended counterclaim.
Federal Rule of Civil Procedure 15 ("Rule 15") states that leave to amend a pleading "shall be freely given when justice so requires." Fed.R.Civ.P. 15(a). Under Rule 15, "[l]eave to amend should be denied only because of undue delay, bad faith, futility, or prejudice to the non-moving party, and the decision to grant or deny a motion to amend rests within the sound discretion of the district court." DeFazio v. Wallis, 05-CV-5712, 2006 WL 4005577, at *1 (E.D.N.Y. Dec. 9, 2006) (citing Aetna Cas. and Sur. Co. v. Aniero Concrete Co., Inc., 404 F.3d 566, 603-04 (2d Cir.2005), and Zahra v. Town of Southold, 48 F.3d 674, 685 (2d Cir.1995)). An amendment is futile if the proposed claim would not survive a motion to dismiss. Lucente v. IBM Corp., 310 F.3d 243, 258 (2d Cir.2002).
USGE contends that allowing Ferreira to file the proposed amended counterclaim would be futile because, even with the new allegations, he fails to state a claim for indemnification under Section 145. USGE also contends that the proposed amendment has been unduly delayed and offered in bad faith. The Court disagrees.
Unlike the initial version, Ferreira's proposed amended counterclaim provides factual allegations that, if true, could plausibly support his claim for indemnification. The proposed amended counterclaim essentially alleges that: (1) Ferreira served on USGE's board from September 2004 to July 2007; (2) Ferreira provided advice and guidance to USGE during his tenure as a USGE board member; and (3) this advice and guidance was rendered in his capacity as a USGE board member. These allegations provide the necessary link between Ferreira's alleged wrongdoing and his role as a USGE board member. In other words, although USGE's position that Ferreira was sued only in his capacity as the principal of BAE is tenable, based upon these new allegations, it is also at least plausible that he was sued "by reason of the fact" that he was a USGE board member. This is all that is required at the pleading stage.
There is also no indication that USGE will be unduly prejudiced if Ferreira is permitted to replead his counterclaim. The parties are in the early stages of discovery and USGE has known since June of 2009 that Ferreira would seek indemnification. Nor does the Court detect any bad faith on the part of Ferreira in deciding to replead his counterclaim. Accordingly, the Court grants Ferreira leave to file his proposed amended counterclaim.
III. CONCLUSION
The Court's November 2, 2009 order dismissing Count Five is vacated. The Court grants Ferreira leave to file his proposed amended counterclaim.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1949843/ | 428 B.R. 545 (2009)
In re Jadwiga H. PAWLOWSKI, Debtor.
Monika Bernardez, an Infant by Her Mother and Natural Guardian, Lesbia Bernardez, Appellant,
v.
Jadwiga H. Pawlowski, Appellee.
Nos. 08-CV-0366 (RRM)(RML), 08-CV-1213 (RRM)(SMG).
United States District Court, E.D. New York.
March 22, 2009.
*546 John M. Daly, Mitchell Gittin, Fitzgerald & Fitzgerald, P.C., Yonkers, NY, for Appellant.
Todd E. Duffy, Anderson, Kill & Olick, New York, NY, Dennis Joseph Nolan, *547 James E. Atkins, Duffy & Atkins LLP, New York, NY, for Appellee.
ORDER
MAUSKOPF, District Judge.
Appellant and putative judgment creditor Monika Bernardez, an infant, by her mother and natural guardian, Lesbia Bernardez (herein after, "Bernardez"), appeals two Orders of the Bankruptcy Court (Milton, J.), one dated December 11, 2007 expunging her proof of claim for personal injury liability against Chapter 11 Debtor Jadwiga H. Pawlowski, and a second dated March 6, 2008 confirming the Debtor's bankruptcy reorganization plan (the "Plan"). The two appeals having been consolidated before this Court, Pawlowski cross-moves to dismiss both as equitably moot, citing the substantial consummation of the bankruptcy estate's reorganization Plan; the prejudice to the debtor and to other creditors in unwinding the Plan; and Bernardez's failure to take all reasonable steps to appeal and/or stay subsequent Bankruptcy Court action. For the reasons below, the Court agrees with the Debtor's position, and Bernardez's appeals are dismissed as equitably moot.
PROCEDURAL HISTORY AND BACKGROUND
In or about 2002, Bernardez, on her infant daughter's behalf, sued Pawlowski in New York State Court seeking damages for lead paint poisoning injuries. The personal injury Complaint asserted claims against Pawlowski only in her capacity as executrix of the Sadlowska estate (the "Estate"), which owned shares in 2328 University Avenue Corporation, the single-asset corporate owner of the Bronx, New York apartment building where the infant Bernardez resided.
Upon a trial on the merits, a Bronx, New York jury returned a verdict against Pawlowski for $1,240,000 in compensatory damages and an additional $400,000 in punitive damages. On March 28, 2007, subsequent to the jury's verdict, but prior to any post-verdict motions and the State Court's entry of final judgment (a procedure precluded by the Bankruptcy Code's automatic stay requirements), Pawlowski voluntarily filed for Chapter 11 bankruptcy protection.
On July 23, 2007, Bernardez timely filed her proof of claim,[1] asserting a general unsecured claim against Pawlowski in the amount of $1,640,000. On August 16, 2007, Bernardez sought relief from the automatic stay, which motion was denied by the Bankruptcy Court's Order dated, November 1, 2007. Bernardez did not appeal that Order.
Thereafter, on November 8, 2007, Pawlowski moved, inter alia, to expunge and disallow Bernardez's proof of claim. That motion was granted December 11, 2007 (the "Expungement Order"). On December 20, 2007, Bernardez filed the instant appeal of the Expungement Order (No. 08-CV-0366). Although Bernardez properly served Pawlowski with her Notice of Appeal, she failed to serve any of the bankruptcy creditors potentially impacted by such appeal. Moreover, Bernardez did not seek to stay enforcement of the Bankruptcy Court's Expungement Order pending appeal.
On January 2, 2008, the Bankruptcy Court moved forward with reorganization. On that date, Pawlowski filed and served her Disclosure Statement and proposed *548 Plan of Reorganization, which filing was amended on January 22, 2008. On January 25, 2008, Bernardez objected to the proposed reorganization plan and simultaneously sought to vacate the Bankruptcy Court's prior Expungement Order.
On February 8, 2008, Pawlowski responded with an Amended Disclosure Statement, which argued, in relevant part, that the proposed plan should be confirmed over Bernardez's objections, given Bernardez's failure to seek a stay. Notwithstanding Bernardez's counsel's documented and uncontroverted failure to timely seek a stay of the plan confirmation prior to the issuance of the February 8, 2008 Amended Disclosure Statement, it did not thereafter interpose a formal motion to stay the anticipated plan confirmation hearing. Thus, in the absence of a stay motion, a plan confirmation hearing was scheduled for and held on March 6, 2008.
The March 6, 2008 confirmation hearing again highlighted the progression of the confirmation process in the absence of a stay application. To wit, Debtor's counsel made the following record in further support of confirmation:
For the record, Ms. Bernardez's counsel has conceded time and time again that he has not applied for a stay in the bankruptcy proceedings ... pending her appeal.... There has been significant time for Ms. Bernardez to file for a stay of these proceedings, and they have not.... Although there is an appeal pending [08-CV-0366], there has been no stay pending that appeal, as Ms. Bernardez's counsel has admitted in the papers.
08-CV-1213 Record on Appeal (hereinafter, "R.") 20.32-33.
The Bankruptcy Court then considered Bernardez's objection to plan confirmation, and made clear its basis for proceeding to confirm the proposed plan over such objection. First, the Bankruptcy Court clarified that, contrary to Bernardez's assumptions, its decision to disallow and expunge Bernardez's claim was premised upon full and careful consideration of the merits of her claim, and not upon mere technical default.[2] Accordingly, the Court concluded that despite ample process, her claim was without merit. Second, the Court noted that the proposed plan fully resolved all surviving claims, including as to the following *549 creditors: (1) JP Morgan Chase, (2) Bank of America NA, (3) Household Bank (SB), N.A., (4) American Express Centurion Bank, (5) Bank of America, and (6) the Internal Revenue Service. The Court further determined that the interests of these creditors mitigated in favor of expedient plan confirmation.
Next, the Bankruptcy Court considered but rejected Bernardez's oral motion for a stay, stating: "I'm not going to hold in abeyance a ruling on confirmation of the Plan, because there is a matter regarding one claim on appeal." R. 20.34. The Bankruptcy Court further stated:
.... Counsel, if he so chooses to file an appeal from this order [the plan confirmation order], can at that time, pursuant to Rule 8005, file an application with this Court. And I think that would be the appropriate vehicle to pursue an application for a stay pending appeal.
And specifically, Mr. Gitten [Bernardez's counsel], I would look to the language of Rule 8005, which provides that the bankruptcy judge may suspend or order the continuation of other proceedings in the case under the Code, which I have just done. I continued other proceedings, such as this confirmation hearing, and this is the phrase I had in mind: `make any other appropriate order during the pendency of appeal on such terms as will protect the rights of all parties-in-interest.'
In addition to all the relevant factors that the Court considers in determination of a stay pending appeal, I think, absent a specific presentation as to what steps or provisions you would request this Court to make to protect the rights of all parties-in-interest pending an appeal, that such an application in this instance would be denied.
R. 20.36-37.
At the conclusion of the March 6, 2008 hearing, the Bankruptcy Court thus confirmed the proposed plan. The Court's March 6, 2008 Confirmation Order stated, in relevant part:
Upon making all payments contemplated by the Plan, in accordance with Article X of the Plan, and except as otherwise provided in the Plan or in this Order, entry of this Order acts as a discharge of and injunction against all Causes of Action against the Debtor or its Estate that arose before the Effective Date to the extent permitted by section 1141 of the Bankruptcy Code.
R. 11.
Bernardez appealed the Bankruptcy Court's Confirmation Order to this Court on March 14, 2008. That appeal is also pending before this Court (No. 08-CV-1213) and, together with the appeal of the Bankruptcy Court's Expungement Order (No. 08-CV-0366), is addressed herein.
Thereafter, on March 24, 2008, Bernardez's counsel moved the Bankruptcy Court to stay effectuation of the Plan pending determination of the instant appeals. On April 18, 2008, after additional briefing, a hearing on the application to stay Plan consummation was held. On April 24, 2008, the Bankruptcy Court denied the stay application on the merits. Bernardez did not appeal that decision, nor did Bernardez pursue further relief, which relief could havebut did notinclude an appeal from March 24, 2008 stay denial to this Court, and, if necessary, appellate mandamus relief from the United States Court of Appeals for the Second Circuit. See, e.g., In re Pub. Svc. Co. of New Hampshire, 963 F.2d 469, 472 (1st Cir. 1992). Pawlowski, relying upon the Confirmation Order and section 1141 of the Bankruptcy Code, refinanced her home, distributed the proceeds of that refinancing *550 to her allowed creditors, and obtained a discharge from liabilities.
DISCUSSION
Upon careful consideration of the record and for the reasons set forth below, this Court agrees that, despite fair notice and opportunity, Bernardez has failed to take all appropriate measures to preserve and advance her potentially meritorious claim in the manner anticipated and proscribed in the Bankruptcy Code and its attendant case law. Bernardez's failure to invoke the procedural tools necessary to stop or slow consummation of the bankruptcy process has permitted full consummation of the bankruptcy Plan and has occasioned by the fault of no other partya scenario by which the grant of equitable relief to Plaintiff would require its preclusion to all others in this matter. As such, this Court finds Plaintiffs respective appeals, 08-CV-366 and 08-CV-1213, equitably moot.
I.
EQUITABLE MOOTNESS
The jurisprudential doctrine of equitable mootness holds that "an appeal should ... be dismissed as moot when, even though effective relief could conceivably be fashioned, implementation of that relief would be inequitable." Official Comm. of Unsecured Creditors of LTV Aerospace & Def. Co., v. Official Comm. of Unsecured Creditors of LTV Steel Co., 988 F.2d 322, 325 (2d Cir.1993). In sum, "equitable mootness does not involve a court's inability to alter the outcome by fashioning relief, but rather, a court's unwillingness to do so.'" In re Box Bros. Holding Co., 194 B.R. 32, 39 (Bankr.D.Del.1996) (quoting In re UNR Indus., 20 F.3d 766, 769 (7th Cir.1994) (Easterbrook, J.)).
Pursuant to the Second Circuit's formulation in the seminal case In re Chateaugay Corp., 10 F.3d 944, 952 (2d Cir. 1993) (see also, In re Chateaugay Corp., 94 F.3d 772, 776 (2d Cir.1996)), courts must assess whether prudence and equity militate against reaching the merits of a bankruptcy appeal. In so doing, courts consider the potential effect to all creditors where distributions have been made, thus resulting in the substantial consummation of a legally sufficient and feasible reorganization plan. The strong presumption of mootness that inures in such cases will give way only where the appellant has adequately demonstrated that (1) the court may still order some effective relief; (2) such relief will not affect the re-emergence of the debtor as a revitalized corporate entity; (3) such relief will not unravel intricate transactions so as to knock the props out from under the authorization for every transaction that has taken place and create an unmanageable, uncontrollable situation for the bankruptcy court; (4) the parties who would be adversely affected by the modification have notice of the appeal and an opportunity to participate in the proceedings; and (5) the appellant pursued with diligence all available remedies to execution of the plan throughout the proceedings. Chateaugay, 94 F.3d 772 at 776; In re Kenwin Shops, Inc., No. 99 Civ. 10485, 2000 WL 351404, at *2 (S.D.N.Y. Apr. 5, 2000).
As set forth below, this Court finds (a) substantial Plan consummation, in that the anticipated monetary distribution to Pawlowski's allowed creditors has been effectuated, and (b) that the Plan itself was viable and properly confirmed by the Bankruptcy Court. In light of those determinations, this Court finds that Bernardez fails to rebut the resulting presumption of mootness in the manner set forth in Chateaugay. Her instant appeals are therefore dismissed as moot.
*551 A. Substantial Consummation
As defined in the bankruptcy code, "substantial consummation" is:
a) the transfer of all or substantially all of the property proposed by the plan to be transferred;
b) assumption by the debtor of by the successor to the debtor under the plan of the business or of the management of all or substantially all of the property dealt with by the plan; and
c) commencement of distribution under the plan.
11 U.S.C. § 1101(2); In re Metromedia Fiber Network, Inc., 416 F.3d 136, 144 (2d Cir.2005). The import of plan consummation, as the principal mootness inquiry, lies in the fact that it informs certain supplemental considerations, including the twin goals of providing finality for creditors and a "fresh start" for debtors. See Box Bros., 194 B.R. at 39. As such, evaluating whether the relevant bankruptcy reorganization plan has been substantially consummated is "paramount to a resolution of the dispute between the parties." Id. at 40; see also In re Manges, 29 F.3d 1034, 1041 (5th Cir.1994). Indeed, where there has been substantial consummation, there is a presumption that to grant further relief would be inequitable or impractical. In re Enron Corp., 326 B.R. 497, 502 (S.D.N.Y. 2005); In re Texaco, Inc., 92 B.R. 38, 46 (S.D.N.Y.1988).
In this case, the Court finds that Pawlowski's bankruptcy Plan has been substantially consummated. Pursuant to the Plan, Pawlowski refinanced her home and used the resulting proceeds to satisfy substantial debt obligations to her allowed creditors, as contemplated. Having received those distributions, Pawlowski's creditors are deemed to have relied upon the Plan. See In re Adelphia Commc'ns. Corp., 367 B.R. 84, 97 (S.D.N.Y.2007). Thus, there can be no question that further consideration of Bernardez's instant appeals substantially implicates the interests of parties not before this Court, and who are without adequate notice of the potential consequences involved. See id. ("[A]ll creditors are potentially at risk and should be parties. Appellants fail to explain how and why all of those creditors each of whom received unencumbered distributions under the Plan and very well may no longer be within the reach of the Court's jurisdictionare sufficiently on notice that their distributions are vulnerable to disgorgement on appeal.").
B. The Reorganization Plan was Properly Confirmed
In light of substantial consummation, the Court next considers the propriety of confirming the Plan itself. In appealing the Bankruptcy Court's Confirmation Order, Bernardez argues that the Bankruptcy Court's failure to contemplate reinstatement of her claim rendered the Plan "unfeasible," as that term is defined in Bankruptcy Code Section 1129(a)(11). This Court disagrees. Evaluating feasibility under the statute requires the Court to determine that:
Confirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the debtor under the plan, unless such liquidation or reorganization is proposed in the plan.
11 U.S.C. § 1129(a)(11). Upon review of the record, this Court finds the Bankruptcy Court's decision to confirm the Plan as feasible is without error.
Plan feasibility is concerned with whether a plan will be reasonably successful in effecting the Bankruptcy Code's goals of finality and closure. See In re *552 Leslie Fay Cos., Inc., 207 B.R. 764, 788-89 (S.D.N.Y.1997) ("Basically, feasibility involves the question of the emergence of the reorganized debtor in a solvent condition and with reasonable prospects of financial stability and success. It is not necessary that success be guaranteed, but only that the plan present a workable scheme of reorganization and operation from which there may be a reasonable expectation of success.") (citations omitted). Appealing the Bankruptcy Court's Confirmation Order, Bernardez alleges the Bankruptcy Court's failure to properly consider the potential negation and ultimate futility of the Plan, should her personal injury claim be reinstated on appeal. As reinstatement would necessarily thrust Pawlowski back into bankruptcy or otherwise require the unwinding of the proposed Plan, Bernardez argues that the Confirmation Order ran afoul of the finality principle underlying § 1129's feasibility requirement. See In re Harbin, 486 F.3d 510, 519 (9th Cir.2007). For the reasons below, this Court finds Harbin inapt.
In Harbin, Sherman, the potential creditor, won a substantial jury verdict against the debtor, Harbin, in Harbin's personal capacity. Prior to entry of judgment, the trial court set aside the verdict on grounds that Harbin could not be held personally liable. The factual similarities between Harbin and the instant case end there. Unlike here, Sherman sought and obtained relief from the automatic stay in order to appeal the trial court's action. Harbin, 486 F.3d at 514 n. 1. Indeed, Sherman, whose claims the bankruptcy court only conditionally dismissed, was provided an opportunity to reassert his claims should the state-court jury verdict be reinstated on appeal. Id. at 514. Thus, unlike here, the bankruptcy court, in confirming the plan without allowance for Sherman's claim, wholly ignored the very potentiality it must have contemplated when granting relief from the automatic stay. Owing to that grave deficiency, the plan was deemed unfeasible. No such circumstance is present here.
As discussed above, the bankruptcy court here was not contending with a disputed and sub judice state-court claim. Contrary to the facts in Harbin, the Bankruptcy Court here retained exclusive jurisdiction of Bernardez's claim, denied relief from the automatic stay, and then disallowed and expunged that claim upon a considered review of its underlying merits. Notwithstanding claim disallowance and expungement, the bankruptcy court nonetheless gave full hearing to Bernardez's confirmation objectiongoing so far as to provide Bernardez with an opportunity to make a formal stay application, process the bankruptcy court need not have permitted under the law of this Circuit. See In re Kreisler Group, Inc., 648 F.2d 86, 87 (2d Cir.1981) (holding that any claimant whose claim had been disallowed is without standing to object to Plan confirmation); see also In re Southold Dev. Corp., 136 B.R. 40, 42 (E.D.N.Y.1992) (same).
Here, because the Bankruptcy Court's March 6, 2008 decision to proceed with Plan confirmation was expressly predicated on the court's view that the Bernardez claim was not likely to be successful on appeal, the bankruptcy court reasonably determined that the Plan's failure to make allowance for the unlikely reinstatement of such claim on appeal did not render it unfeasible. Thus, having given ample consideration to the issueas evident on the record of the confirmation hearingthe Bankruptcy Court determined that the existence of litigation over a single disallowed claim was no basis to withhold effectuation of a reorganization plan that provided full satisfaction to all remaining creditors. This Court finds no error in that carefully considered determination. Indeed, nothing in Harbin suggests that *553 ongoing litigation renders a plan inherently unfeasible; it requires merely that the presiding court exercise discretion in evaluating feasibility in light of such claims. See In re ELL 11, LLC, No. 07-60089, 2008 WL 916695, at *2 (Bankr.M.D.Ga. Apr. 2, 2008) (distinguishing Harbin and holding that ongoing litigation does not render a reorganization plan unfeasible).
Bernardez disagrees with the Bankruptcy Court's decision to retain jurisdiction over her claim, its refusal to permit her to return to state court, and the disallowance and expungement of her claim. Nonetheless, those rulings comprise the operative background against which the decision to confirm the Plan must be evaluated. See Southold, 136 B.R. at 42 (citing In re Charter Co., 92 B.R. 510, 512-13 (M.D.Fla. 1988) (applying doctrine of "law of the case" to dismiss appeal of Confirmation Order where the same court had previously held that appellant had no cognizable claim)); see also In re ELL 11, (denying confirmation objection on grounds of court's prior disallowance determination). The only question, at least for purposes of appealing Plan confirmation, is whether in light of these facts, the Plan feasibly provided for satisfaction of claims by the allowed creditors. It did so. As such, this Court finds that confirmation of the Plan as feasible was appropriate, and that Bernardez's contingent, disallowed claim need not have been considered in the Bankruptcy Court's feasibility analysis. For these reasons, Bernardez's appeal of the Confirmation Order is dismissed.
C. Bernardez fails to rebut the applicable mootness presumption
This Court having concluded (a) that Pawlowski's Plan has been substantially consummated, and (b) that underlying confirmation of such Plan was both legally permissible and factually appropriate, the Court now considers the heart of the mootness question.
As stated above, to overcome the presumption of mootness inherent in cases where, as here, the plan has substantially been consummated, the claimant must satisfy each of the factors set forth in Chateaugay. See Chateaugay, 10 F.3d 944 at 952 (describing five factors and noting that "substantial consummation will not moot an appeal if all of the [five] circumstances exist") (emphasis added); Kenwin Shops, 2000 WL 351404, at *2. In addressing the Chateaugay analysis here, the Court begins with the fifth and final factordiligent pursuit of stay. Kenwin Shops, 2000 WL 351404, at *2. Whether a stay has been obtained is critical to the mootness analysis because granting relief to claims arising from substantially consummated reorganization plans has repercussions upon the reorganization scheme as a whole; impacts which must be considered by the Court. See Adelphia, 367 B.R. at 97-98. On this point, the record leaves no doubt that Bernardez's counsel left on the table a host of stay procedures that may have prevented Plan consummation. See, e.g., Pub. Svc. Co. of New Hampshire, 963 F.2d at 472. As stated above, Counsel notably failed to make a formal application for stay until after Plan confirmation. Subsequently, upon denial of that application, Counsel did not seek available relief from either this Court or the Court of Appeals. Even if all avenues available had been sought and denied,[3] Bernardez still had the option, pursuant to Federal Rule *554 62, to bond her way out of the predicament in which she now finds herself. She declined to do so. See Fed.R.Civ.P. 62(d); Fed. R. Bankr.P. 7001(5)(7); In re Pub. Svc. Co. of New Hampshire, 963 F.2d 469, 473 n. 9 (1st Cir.1992) (dismissing appeal as moot, stating: "While we recognize the practical difficulties of posting a supersedeas bond in a matter of this magnitude, appellants did not propose a supersedeas bond in any amount. In any event, ... appellants should not have sat by while this case drifted along a routine, unexpedited course.") (internal quotations omitted).
Bernardez's failure to forestall Plan confirmation and consummation must further be viewed against Counsel's demonstrated awareness of the potential repercussions of such action. See Box Bros., 194 B.R. at 40 (considering parties' knowledge of consequences flowing from failure to obtain stay). To wit, the record shows that all parties were well aware of the extensive legal precedents dismissing as moot appeals from unstayed, consummated reorganizations. Having thus been keenly aware that, absent stay, plan confirmation and consummation tend to render moot even meritorious appeals, Bernardez's failure to diligently pursue the relief necessary to halt Plan progression and to maintain the status quo now militates against reaching the merits of her claim.
II.
BERNARDEZ'S ALTERNATIVE PROPOSAL FOR RELIEF
Given the instant appeals' effect on third-party creditors, all of whom have undeniably relied upon the unstayed confirmation, Bernardez suggests the irrelevance of Chateaugay factors two and three by proffering alternative relief that would avoid unwinding the now fully consummated Plan. Bernardez argues that effective reliefthe first Chateaugay factorcould be granted by garnishing Pawlowski's future earnings, thereby preserving the transactions that have taken place under the Plan as well as the interests of all remaining creditors. By these means, Bernardez proposes to sidestep the mootness argument. This Court, however, finds Bernardez's proffered reliefwhich would be funded wholly outside the Plan to be legally impermissible.
Pursuant to the Bankruptcy Code, post-confirmation assets not expressly provided for in the plan are not within the bankruptcy estate, and neither this Court nor the Bankruptcy Court is possessed of jurisdiction sufficient to exercise control over such funds. See 11 U.S.C. §§ 541(a)(6), 1115(a)(2).[4] Even if there were jurisdiction over post-confirmation funds, which there is not, Bernardez's proposal to effectively garnish Pawlowski's future wages would squarely contravene the second Chateaugay factor and the "fresh-start" policy underlying the Bankruptcy Code's discharge procedures. For these reasons, Bernardez's proposal is rejected.
As the bankruptcy court is empowered to satisfy claims exclusively with estate assets, the only effective relief available *555 would necessarily require the Plan to be wholly unwound in order to redistribute the Estate. Accordingly, Bernardez cannot avoid the heart of the equitable mootness inquiry. In light of Bernardez's failure to protect her intereststhat is, to prevent reliance upon and confirmation of the Plan by all the varied and various means availablethis Court; will not undo what is done.
CONCLUSION
For the reasons set forth above, Debtor's cross-motion is GRANTED. Plaintiff Bernardez's bankruptcy appeals 08-CV-0366 (RRM)(RML) and 08-CV-1213 (RRM)(SMG) are hereby dismissed, respectively, as equitably moot.
SO ORDERED.
NOTES
[1] A June 13, 2007 Bankruptcy Court Order established July 28, 2009 as the "bar date" for filing of all nongovernmental proofs of claim.
[2] Several law office failures by Bernardez's counsel, including failure to appear for oral argument on the disallowance and expungement motion, raised issues as to whether Bernardez's claim had been extinguished on the merits or on default. The Bankruptcy Court resolved the issue at the March 6, 2008 hearing:
When I reviewed these motion papers, I can tell you in absolute honesty that I have a separate, distinct and clear recollection that I had read the declaration of creditor's counsel and objection to the motion, as well as the follow up reply. And 1 base my decision on the motion, upon my conclusions of fact and law after I read all of the motion papers. And so I think, regardless of whatever missteps may have been taken... it [Bernardez's opposition on the merits of the claim] was fully considered by the Court, by this Court, in rendering its decision.
With regard to the motion day itself, it certainly was the Court's expectation that all the parties and counsel would be before the Court that day. And I believe we did make some comment to that effect when the matter was called....
My sense in looking at the docket entry is simply that where it says, "no opposition" is really a shorthand, as I think counsel understands, for "no appearance in opposition". There certainly was an objection filed; that objection was reviewed by the Court. So the statement that there is no opposition is not entirely correct. But there was no appearance in opposition, and that's how I read the docket entry to read for that day.
R. 20.14-15.
[3] As courts have held, "whether the stay was not sought, or was sought and denied, is irrelevant to this inquiry. As one court observed, `[a] stay not sought, and a stay sought and denied, lead equally to the implementation of the plan of reorganization.'" Box Bros. Holding Co., 194 B.R. at 40 (quoting UNR Indus., 20 F.3d at 769).
[4] 11 U.S.C. 1115(a)(2), adopted pursuant to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), now includes post-petition earnings in the Chapter 11 bankruptcy estate, but only insofar as such funds are earned prior to plan confirmation. In In re Dapontes, the bankruptcy court in the District of Connecticut rejected a proposed reorganization plan funded by non-estate, future wages. In re Dapontes, 364 B.R. 866, 868 (D.Conn.2007). Although the definition of estate assets has been redefined to now include post-petition earnings earned prior to plan confirmation, the general principle that courts lack jurisdiction to confirm plans funded by non-estate assets (i.e., post-confirmation assets), as here, holds true. Id. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1950397/ | 505 F. Supp. 2d 755 (2007)
INTERNET ARCHIVE, Plaintiff and Counterclaim Defendant,
v.
Suzanne SHELL, Defendant and Counterclaimant,
v.
Brewster KAHLE, Rick Prelinger, and Kathleen Burke Third Party Defendants.
No. CIVA 06CV01726LTBCBS.
United States District Court, D. Colorado.
February 13, 2007.
*756 *757 *758 *759 *760 Kenneth B. Wilson, Michael H. Rubin, Stefani E. Shanberg, Leonard H. Mac-Phee, Lila I. Bailey, Perkins Coie, LLP, San Francisco, CA, for Plaintiff and Counterclaim Defendant.
Suzanne Shell, Elbert, CO, Pro se.
Brewster Kahle, San Francisco, CA, Pro se.
Kathleen Burch, San Francisco, CA, Pro se.
Rick Prelinger, San Francisco, CA, Pro se.
Order
BABCOCK, Chief Judge.
Plaintiff and Counterclaim Defendant Internet Archive moves to dismiss counterclaims by Defendant and Counterclaimant Suzanne Shell ("Shell") for conversion, civil theft, breach of contract and violations of the Racketeering Influence and Corrupt Organizations act ("RICO"), 18 U.S.C. § 1961, et. seq., and the Colorado Organized Crime Control Act ("COCCA"), Colo. Rev.Stat. § 18-17-101 et seq., involving Internet Archive's use of an automatic web browser to reproduce the contents of Shell's website. For the reasons discussed below Internet Archive's motion is GRANTED, in part and DENIED, in part.
I. BACKGROUND
Internet Archive is a San Francisco, California non-profit organization devoted to preserving a comprehensive record of all websites, documents and other information contained on the internet as a resource for future generations. It employs a technology called the Wayback machine to systematically browse the entire world wide web, reproducing content from websites and placing them in an internet archive. Neither the Wayback Machine nor Internet Archive actively seek the permission of website owners prior to reproducing website content, but according to Internet Archive, the Internet Archive website explains how website owners can remove material from the archive. Additionally, Internet Archive removes material on request from website owners.
Shell, a resident of El Paso County, Colorado, owns a website, www.profanejustice.org ("Profane Justice,") devoted to providing information, services and other advocacy on behalf of individuals accused of child abuse or neglect. Shell's website is registered with the U.S. Copyright Office. Shell's website contains a Copyright Notice, stating that
"IF YOU COPY OR DISTRIBUTE ANYTHING ON THIS SITE YOU ARE ENTERING INTO A CONTRACT. READ THE CONTRACT BEFORE YOU COPY OR DISTRIBUTE. YOUR ACT OF COPYING AND/OR DISTRIBUTING OBJECTIVELY AND EXPRESSLY INDICATES YOUR AGREEMENT TO AND ACCEPTANCE OF THE FOLLOWING TERMS:"
These terms include charging the user $5,000 for each individual page copied "in *761 advance of printing," granting Shell a perfected security interest of $250,000 "per each occurrence of unauthorized use" of the website in all of the user's land, assets and personal property, the user agreeing to pay "$50,000 per each occurrence of failure to pre-pay" for use of the website, "plus costs and triple damages," and agreeing to waive numerous defenses in any claims by Shell against the user.
This Copyright Notice is accessible through an icon located on Shell's website. According to Internet Archive, it does not pop up as a separate screen that a user must "click-through" in order to access web material and does not require users to agree to these terms before accessing material. Internet Archive states that the terms of this agreement, including the claim that copying website material creates a binding contract, appears to the user only after he has copied material. The record is not clear on what statement actually appears on the opening screen of Shell's website or where precisely this statement is located on the website. The record also is not clear on how a user, after having copied website materials, will be informed of the existence or terms of the Copyright Notice.
This dispute arose when Shell discovered that the Wayback machine had reproduced and archived the contents of her website. According to Shell, the Wayback machine contacted and reproduced the contents of her web site approximately 87 times between May of 1999 and October of 2004, and displayed her entire website to the public daily during that time period. On December 12, 2005, Shell emailed Internet Archive requesting that her website contents be removed from the Wayback machine. Internet Archive did so. Shell also demanded payment of $100,000 from Internet Archive and threatened to sue if Internet Archive failed to pay. Internet Archive, anticipating a lawsuit, filed a Declaratory Judgment Action in the U.S. District Court of the Northern District of California on January 20, 2006 seeking a judicial determination that Internet Archive did not violate Shell's copyright, pursuant to 28 U.S.C. § 2201 and Fed. R.Civ.P. 57.
Shell filed her Answer February 10, 2006, and also filed Counterclaims against Internet Archive for copyright infringement, conversion, civil theft, breach of contract and racketeering under RICO and COCCA. For the racketeering claims only, Shell added as Third Party defendants Brewster Kale, Rick Prelinger and Kathleen Burke, members of the Board of Directors of Internet Archive. The parties stipulated to transfer the case to the District of Colorado, and the case was refiled in this court on August 31, 2006.
On November 16, 2006, Internet Archive moved under Fed.R.Civ.P. 12(b)(6) to dismiss Shell's counterclaims of conversion, civil theft, breach of contract and RICO for failure to state a claim. Internet Archive's motion applies only to these claims as they apply to Internet Archive, not to the Third Party defendants.
II. STANDARD OF REVIEW
Under Fed.R.Civ.P. 12(b)(6), a district court may dismiss a complaint for failure to state a claim upon which relief can be granted if it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957). If the plaintiff has pled facts that would support a legally cognizable claim for relief, a motion to dismiss should be denied. See id. In evaluating a 12(b)(6) motion to dismiss, "all well-pleaded factual allegations in the . . . complaint are accepted as true and viewed in the light most favorable to the nonmoving party." Sutton *762 v. Utah State Sch. for Deaf and Blind, 173 F.3d 1226, 1236 (10th Cir.1999).
Fed.R.Civ.P. 12(b)(6) does not provide a procedure for resolving a contest about the facts or the merits of the case. Thus, one must read Fed.R.Civ.P. 12(b)(6) in conjunction with Fed. R. Civ. P 8(a), which sets forth the requirements for pleading a claim in federal court. Federal R. Civ. P 8(a) requires "a short and plain statement of the claim showing that the pleader is entitled to relief." The statement need not contain detailed facts, but it must "give the defendant fair notice of what the plaintiffs claim is and the grounds upon which it rests." Conley, 355 U.S. at 47, 78 S. Ct. 99. A plaintiff is not required to state precisely each element of the claim. See 5 Charles A. Wright and Arthur R. Miller, FEDERAL PRACTICE AND PROCEDURE § 1216, at 154-59 (1990). Nonetheless, a plaintiff must "set forth factual allegations, either direct or inferential, respecting each material element necessary to sustain recovery under some actionable legal theory." Gooley v. Mobil Oil Corp., 851 F.2d 513, 515 (1st Cir.1988).
Allegations of fraud or mistake are governed by the stricter requirements of Fed. R.Civ.P. 9(b), which requires that "the circumstances of fraud or mistake shall be stated with particularity." As I discuss in more detail below, this heightened pleading requirement applies in part to Shell's RICO claims.
Shell argues additionally that, since she is proceeding pro se, I must construe her pleadings even more liberally than I would typically in response to a Rule 12(b)(6) motion. It is true that "a pro se litigant's pleadings are to be construed liberally and held to a less stringent standard than formal, pleadings drafted by lawyers." Hall v. Bellmon, 935 F.2d 1106, 1110 (10th Cir1991). "If the court can reasonably read the pleadings to state a valid claim on which the plaintiff could prevail, it should do so despite the plaintiffs failure to cite proper legal authority, his confusion of various legal theories, his poor syntax and sentence construction, or his unfamiliarity with pleading requirements." Id. At the same time, "the court cannot take on the responsibility of serving as the litigant's attorney in constructing arguments and searching the record." Garrett v. Selby Connor Maddux & Janer, 425 F.3d 836, 840 (10th Cir2005). Ultimately, despite some allowance for technical errors, "pro se parties follow the same rules of procedure that govern other litigants." Nielsen v. Price, 17 F.3d 1276, 1277 (10th Cir.1994).
III. DISCUSSION
Internet Archive moves to dismiss Shell's claims of conversion, civil theft, breach of contract, and RICO for failure to state a claim.
A. Conversion
1. Failure to State a Claim
Conversion is "any distinct, unauthorized act of dominion or ownership exercised by one person over personal property belonging to another." Glenn Arms Associates v. Century Mortg. & Inv. Corp., 680 P.2d 1315, 1317 (Colo.Ct.App. 1984). "Predicates to a successful claim for conversion are the owner's demand for the return of the property, and the controlling party's refusal to return it." Id. Even if Shell's demand that Internet Archive remove her website from the Wayback machine is a demand for the return of property, it is undisputed that Internet Archive complied with her request. Shell's claim therefore lacks an essential element of a claim for conversion, and necessarily fails.
Additionally, Shell has failed to allege facts showing that Internet Archive exercised dominion or control over her website, *763 since Shell's complaint states explicitly that she continued to own and operate the website while it was archived on the Wayback machine. Shell identifies no authority supporting the notion that copying documents is by itself enough of a deprivation of use to support conversion.
Conversely, numerous circuits have determined that it is not. The Seventh Circuit concluded that, "The possession of copies of documents as opposed to documents themselves does not amount to an interference with the owner's property sufficient to constitute conversion." FMC Corp. v. Capital Cities/ABC, Inc., 915 F.2d 300, 303 (7th Cir.1990). The Second Circuit has similarly stated that "Merely removing one of a number of copies of a manuscript (with or without permission) for a short time, copying parts of it, and returning it undamaged, constitutes far too insubstantial an interference with property rights to demonstrate conversion." Harper & Row Publishers, Inc. v. Nation Enterprises, 723 F.2d 195, 201 (2nd Cir.1983), rev'd on other grounds, 471 U.S. 539, 105 S. Ct. 2218, 85 L. Ed. 2d 588 (1985). Likewise, the D.C. Circuit Court of Appeals, declared that a defendant who removes documents "from the files at night," photocopies them and returns them "to the files undamaged before office operations resumed in the morning" has not committed a sufficiently substantial deprivation of use to represent conversion. Pearson v. Dodd, 410 F.2d 701, 707 (D.C.Cir.1969).
Applying this law, I conclude that Shell has failed to state a claim for conversion.
2. Copyright Act Preemption
Internet Archive contends that the Copyright Act preempts even a properly plead claim for conversion. Under section 301 of the Copyright Act, state law claims are preempted if "(1) the work is within the scope of the `subject matter of copyright' as specified in 17 U.S.C. §§ 102, 103; and (2) the rights granted under state law are equivalent to any exclusive rights within the scope of the federal copyright as set out in 17 U.S.C. § 106." Ehat v. Tanner, 780 F.2d 876, 878 (10th Cir.1985). This second element is satisfied when "a state law violation is predicated upon an act incorporating elements beyond mere reproduction or the like." Id. (quoting Harper & Row, 723 F.2d at 200.) "If a state cause of action requires an extra element, beyond mere copying, preparation of derivative works, performance, distribution or display, then the state cause of action is qualitatively different from, and not subsumed within, a copyright infringement claim and federal law will not preempt the state action." Gates Rubber Co. v. Bando Chemical Industries, Ltd., 9 F.3d 823, 847 (10th Cir.1993).
The parties here do not dispute that Shell's website is within the "subject matter of copyright." The" only question is whether the conversion claim contains an element not contained within the Copyright Act itself.
Internet Archive asserts that Shell's conversion claim lacks an extra element because it is based on the copying and reproduction of her website, the precise same conduct underlying her copyright claim. However, preemption analysis "compares the elements of the causes of action, not the facts pled to prove them." Harolds Stores, Inc. v. Dillard Dept. Stores, Inc. 82 F.3d 1533, 1543 (10th Cir. 1996). As discussed above, a claim for conversion requires actual dominion over the property of another, a demand by the owner for return of the property, and refusal of the demand by the other party. Without question, these elements are not present in a claim for copyright infringement. Accordingly, the Copyright Act would not preempt a properly pled claim *764 for conversion. This conclusion is reinforced by Ehat, where the Tenth Circuit observed that the Copyright Act preempted plaintiff's claim because the plaintiff did not "allege a state law claim of conversion to recover for physical deprivation" of his property, but only "sought to recover for damage flowing from (the) reproduction and distribution" of the property. Ehat, 780 F.2d at 878. The fact that conversion is not preempted is of little help to Shell, however, because she has not pled the elements of conversion. Accordingly, her claim for conversion fails.
B. Civil Theft
Shell claims that Internet Archive's reproduction of her website constitutes civil theft, entitling her to triple damages, attorney fees and costs pursuant to Colo.Rev.Stat. § 18-4-405. While Colorado statutes do not define "civil theft," Colorado courts only grant triple damages for civil theft under § 18-4-405 when a plaintiff has proven conduct that satisfies the statutory definition of criminal theft under Colo.Rev.Stat. § 18-4-401. Itin v. Ungar, 17 P.3d 129, 133 (Colo.2000).
In Colorado a person commits theft when he:
"[K]nowingly obtains or exercises control over anything of value of another without authorization, or by threat or deception, and: (a) Intends to deprive the other person permanently of the use or benefit of the thing of value; or (b) Knowingly uses, conceals or abandons the thing of value in such manner as to deprive the other person permanently of its use or benefit; or (c) Uses, conceals, or abandons the thing of value intending that such use, concealment or abandonment will deprive the other person permanently of its use and benefit; or (d) Demands any consideration to which he is not legally entitled as a condition of restoring the thing of value to the other person."
Colo.Rev.Stat. § 18-4-401
Shell's complaint does not allege that Internet Archive ever deprived her permanently of the use of her property. On the contrary, her complaint states that she continued to operate her website during the period the copies of her website were stored in the WayBack machine. Shell has also not alleged that Internet Archive ever demanded consideration from Shell in exchange for removing her website from the Wayback machine. Shell has failed to allege the essential elements of a claim for civil theft, so this claim fails.
Internet Archive argues as well that Shell's claim for theft is pre-empted by the Copyright Act. However, as explained above, the Copyright Act only preempts a claim for theft if theft has no elements separate from a claim for copyright infringement. Gates, 9 F.3d at 847. Here, theft necessarily involves the permanent deprivation of the owner's property, a claim that is not part of copyright infringement. The Copyright Act would not preempt a properly pled claim for theft.
C. Breach of Contract
1. Failure to State a Claim
Shell contends that Internet Archive formed a contract with her when it reproduced her website contents, and then breached this contract when it failed to pay her the prescribed fees. Internet Archive argues that it never entered into a contract with Shell. It is undisputed that the parties did not form an explicit contract. Rather, Shell states that Internet Archive entered a contract with her by its conduct in reproducing her web materials.
While the parties do not address whether the putative contract is governed by the UCC or the common law, *765 under both bodies of law parties' conduct may constitute a meeting of the minds sufficient to form a contract. The Colorado UCC `looks' for "mutuality of assent as manifested by the conduct of the parties" in determining intent to form a contract. Cargill v. Stafford, 553 F.2d 1222, 1225 (10th Cir.1977). Similarly, under the common law agreement to the essential terms of a contract "may be inferred from the conduct and declarations of the parties." I.M.A., Inc. v. Rocky Mountain Airways, Inc., 713 P.2d 882, 888 (Colo.1986).
Internet Archive argues that Shell fails to state a claim for breach of contract because it only learned of the terms of Shell's Copyright Notice after it copied the information, and also that Shell's complaint fails to state that a human being at Internet Archive (as opposed to its automated web browser) was ever aware that this agreement existed. Internet Archive cites to two Second Circuit cases that lend some support to its argument. In Specht v. Netscape Communications Corp., 306 F.3d 17 (2nd Cir.2002), the court found a website's terms of use unenforceable where a user had unimpeded access to the website contents and could only become aware of the terms of use by clicking on a separate icon located elsewhere on the website. Id. at 35. The court contrasted this kind of agreement to cases where the user had to affirmatively click "I agree" to the terms of use before viewing or copying website materials. Id. at 32-33. The Second Circuit elaborated this doctrine in Register.Com, Inc. v. Verio, Inc., 356 F.3d 393, 401-402 (2nd Cir.2004), which considered a website where the terms of use were displayed only after each use, but where the same user made multiple contacts with the website. Id. at 401. The court reasoned that while the user might have been unaware of the terms of use the first time it accessed the website, it was certainly aware on all subsequent uses. Id. Moreover, in Verio the user did not dispute his actual awareness of the terms of use, a factor critical to the Court's conclusion that the user was bound by the website's terms. Id. at 402.
Internet Archive argues that while its web browser accessed Shell's website multiple times, as in Verio, it was not in fact aware of the terms of use, and Shell has not alleged that it was. Absent such actual knowledge, Internet Archive contends, there cannot be a contract even within the broader doctrine of Verio. The flaw in this argument is that it requires factual determinations that are premature at this stage of the case. Shell's complaint states that an advisement of the contract "is published on every page" of the website. The factual record is silent on the specific location of the purported contract, how a user reaches it, and when a user becomes aware of its existence. While Internet Archive alleges that the terms of use do not appear until after the website is reproduced, this allegation is contained in Internet Archive's motion to dismiss. For the purposes of Rule 12(b)(6), I examine the facts as stated in the pleadings, not the facts as stated in a motion to dismiss. The allegations in Shell's complaint are sufficient to put Internet Archive on notice of the nature of her claim, and satisfy the requirements of Rule 12(b)(6). See Conley, 355 U.S. at 47, 78 S. Ct. 99.
Similarly, while Internet Archive states that no human being from Internet Archive actually knew of the terms of use of Shell's website, Shell has alleged that Internet Archive expressly entered into a contract with Shell through her Copyright Notice, and that Internet Archive "possesses the capacity and authority to enter into contracts." Shell does not have to allege in her complaint every fact necessary to prove breach of contract. See Conley, 355 U.S. at 47, 78 S. Ct. 99. While Internet Archive may be correct that the *766 absence of human consent to this contract dooms Shell's claims, Shell has not had the opportunity to develop a factual record on this point. Shell has alleged the existence of a contract, breach and damages, which is sufficient to make out a claim for breach of contract.
2. Copyright Act Preemption
Additionally, Internet Archive argues that the Copyright Act preempts Shell's claim for breach of contract. As stated above, the Copyright Act does not preempt a state law claim if the state law claim contains an element in addition to the rights protected by the Copyright Act, "copying, preparation of derivative works, performance, distribution or display." Gates, 9 F.3d at 847. A state cause of action containing such an extra element is "qualitatively different from, and not subsumed within, a copyright infringement claim and federal law will not preempt the state action." Id. Also, as discussed above, I analyze the elements of the claim, and not the conduct underlying the claim, to ascertain if a contract claim is "qualitatively different" from a claim under the Copyright Act. Harolds Stores, 82 F.3d at 1543.
The Tenth Circuit has not addressed Copyright Act preemption of contract claims. Most circuits that have considered this issue have concluded that the Copyright Act does not, generally, preempt contract claims. See Wrench, LLC v. Taco Bell Corp., 256 F.3d 446, 456-458 (6th Cir.2001), ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1454 (7th Cir.1996), National Car Rental System, Inc., v. Computer Associates International Inc., 991 F.2d 426, 433 (8th Cir.1993), Taquino v. Teledyne Monarch Rubber, 893 F.2d 1488, 1501 (5th Cir.1990) and Acorn Structures, Inc. v. Swantz, 846 F.2d 923, 926 (4th Cir.1988). These circuits have concluded that contracts that require payment for use of copyrighted material protect a right beyond the rights protected in Copyright Act, and so establish the extra element necessary to thwart preemption. For example, the Sixth Circuit in Wrench concluded that a contract claim is for "breach of an actual promise to pay" for the use of creative work. Wrench, 256 F.3d at 456. This right to receive payment places the contract claim outside of the scope of rights protected by copyright, since the "the right to be paid for the use of the work is not one of those rights (protected by the Copyright Act.)" Id. "The qualitative difference (in the contract claim) includes the requirement of proof of an enforceable promise and a breach thereof which requires, inter alia, proof of mutual assent and consideration, as well as proof of the value of the work and appellee's use thereof." Id.
Similarly, the Seventh Circuit in ProCD concluded that a contract creates rights outside of the rights protected by the Copyright Act because the Copyright Act binds the general public, creating "a right against the world," while contracts "generally affect only their parties; strangers may do as they please." ProCD, 86 F.3d at 1454. The Seventh Circuit described situations where a contract constrains the rights of a user and extends the rights of a copyright holder far more than does the Copyright Act itself. Id. For example, when a customer rents a video under a contract to return the video in two days, the Copyright Act does not render the contract unenforceable and allow the customer to keep the video. Id.
The logic of these cases is persuasive here. Assuming a contract exists, Internet Archive has contracted for the use of Shell's material, and agreed to pay "$5,000 per printed page" for the website contents, and Internet Archive agreed not to use this material for commercial or financial purposes. Failure to meet these terms grants Shell a security interest in the *767 user's assets and goods, as well as triple damages. These requirements and damages lie well beyond the protections Shell receives through the Copyright Act. Were Internet Archive to stumble across pages of Shell's website in the public domain, these contract terms would not apply, but Shell would still be protected in a more limited manner via the Copyright Act.
Internet Archive argues that the underlying breach Shell alleges is indistinguishable from her copyright infringement claim. However, as discussed above, it is the elements of a claim, not the conduct underlying the claim, that is the basis of a preemption analysis. Harolds Stores, 82 F.3d at 1543., Internet Archive also argues that since there has been no offer and acceptance, no extra elements are present and the claim is preempted. Since I do not conclude that Shell has failed to state a claim for breach of contract, this argument is not a basis for preemption. Accordingly, the contract here potentially protects rights beyond those protected in the Copyright Act, and the Copyright Act does not preempt Shell's claim for breach of contract.
Finally, Internet Archive contends that the severe terms of this contract render it unconscionable under Colorado law. In Colorado, a finding of unconscionability requires "evidence of some overreaching on the part of one of the parties such as that which results from an inequality of bargaining power or under other circumstances in which there is an absence of meaningful choice on the part of one of the parties, together with contract terms which are unreasonably favorable to that party." Davis v. M.L.G. Corp., 712 P.2d 985, 991 (Colo.1986). Internet Archive states only, in a footnote, that the alleged contract is "both procedurally and substantively unconscionable" but provides no additional argument as to Shell's unequal bargaining power, Internet Archive's absence of meaningful choice, or why these terms are overly favorable to Shell. At this stage of the case, absent further factual findings, I cannot conclude that this contract is unconscionable.
D. Racketeering Under RICO and COCA
1. RICO
Internet Archive moves to dismiss Shell's claims under RICO, 18 U.S.C. §§ 1961(c) and (d). claim for liability under § 1962(c) requires that plaintiff allege and prove four elements: (i) conduct by a person, (ii) of an enterprise (iii) through a pattern (iv) of racketeering activity. See U.S. v. Turkette, 452 U.S. 576, 580, 101 S. Ct. 2524, 69 L. Ed. 2d 246 (1981). Section 1962(d) creates liability for conspiring to violate another section of RICO. Internet Archive alleges that Shell has failed to meet two essential predicates of a RICO claim: she has not sufficiently plead that Internet Archive engaged in any activity constituting a predicate act of racketeering, and she has not sufficiently plead the existence of an enterprise
a. Predicate Acts
RICO identifies numerous federal violations that can serve as predicate acts of racketeering, including mail fraud, wire fraud, and criminal copyright infringement. 18 U.S.C. § 1961(1)(B). RICO also defines racketeering as "any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter or dealing in a controlled substance or listed chemical . . . which is chargeable under State law and punishable by imprisonment for more than one year." 18 U.S.C. § 1961(1)(A).
Shell alleges mail fraud, wire fraud, criminal copyright infringement, and state law claims of theft and computer *768 crime as RICO predicate offenses. These state law claims are not embraced in RICO's definition of predicate offenses. Also, Shell has not satisfied the elements of theft, which are the same as those for criminal theft. (See above). Shell has not alleged any use of the mails in her complaint, a necessary element for mail fraud under 18 U.S.C. § 1341. Shell's remaining claims that may serve as RICO predicates are wire fraud under 18 U.S.C. § 1343 and criminal Copyright Infringement under 17 U.S.C. § 506.
A claim for wire fraud requires "(1) the existence of a scheme or artifice to defraud or obtain money or property by false pretenses, representations or promises," and (2) "that the defendant use interstate wire, radio or television communications in furtherance of the scheme to defraud." Tal v. Hogan, 453 F.3d 1244, 1263 (10th Cir.2006). Claims for wire fraud as a RICO predicate must meet the heightened pleading requirements of Fed. R.Civ.P. 9(b). Id. Rule 9(b) requires a plaintiff to "set forth the time, place and contents of the false representation, the identity of the party making the false statements and the consequences thereof." Id. A plaintiff must also "identify the purpose" of the use of the wires within the fraudulent scheme. Id. "When a plaintiff is dealing with more than one defendant, he or she is under a Rule 9(b) obligation to specify which defendant told which lie and under what circumstances." Brooks v. Bank of Boulder, 891 F. Supp. 1469, 1477 (D.Colo.1995).
Shell's Second Amended Complaint states, in relation to wire fraud, that Internet Archive and the individual defendants' scheme to defraud consisted, essentially, of their actions in using the Wayback machine to reproduce and store Shell's website without her knowledge or permission. While Shell provides the dates on which the Wayback machine allegedly contacted her website, Shell does not provide the "time, place and contents" of any specific false representation, or who specifically made any false representation. Shell's complaint states only that "fraud and deceit arose from Internet Archive's silence where there was an affirmative legal and moral duty to seek permission from the copyright owner prior to acquiring copyrighted intellectual property" and that this silence constituted "willful and intentional fraud in order to avoid paying permission license fees or obtaining permission from the copyright owners." (Answer and Counterclaim, ¶ 112(a).) Shell's failure to allege any specific false or fraudulent statement renders her complaint insufficient to meet the heightened pleading requirement of Rule 9(b). Shell has failed to state a claim for wire fraud as a RICO predicate act.
A person commits criminal copyright infringement under 17 U.S.C. § 506(a)(1) if the person infringes a copyright
"(A) for purposes of commercial advantage or private financial gain; (B) by the reproduction or distribution, including by electronic means, during any 180-day period, of 1 or more copies or phonorecords of 1 or more copyrighted works, which have a total retail value of more than $1,000; or (C) by the distribution of a work being prepared for commercial distribution, by making it available on a computer network accessible to members of the public, if such person knew or should have known that the work was intended for commercial distribution."
Internet Archive contends that Shell's claim for criminal copyright infringement fails because Internet Archive, as a non-profit organization, did not use the copyrighted material for "commercial advantage or private financial gain." The Copyright Act defines financial gain as *769 including "receipt, or expectation of receipt, of anything of value, including the receipt of other copyrighted works." 17 U.S.C. § 101. Shell states in her complaint that Internet Archive received pecuniary benefit from the material it copied from her website by "acquiring continuing grant awards, donations, unjust enrichment and the expectation of acquiring additional intellectual property." This allegation, while disputed by Internet Archive, is sufficient to satisfy this element of criminal copyright infringement.
Additionally, Shell states in her complaint that Internet Archive infringed her copyright "by the reproduction or distribution, including by electronic means, during any 180-day period, of 1 or more copies or phonorecords of 1 or ore copyrighted works, which have a total retail value of more than $1,000," an alternate basis for asserting criminal copyright violation, under 17 U.S.C. § 506(a)(1)(B). Internet Archive does not address this aspect of Shell's claim. I conclude that Shell has sufficiently plead a claim for criminal copyright infringement as a RICO predicate.
b. Enterprise
Finally, Internet Archive argues that Shell has failed to properly assert the existence of a racketeering enterprise. To claim enterprise liability, a plaintiff must allege (1) "an ongoing organization with a decision-making framework or mechanism for controlling the group," (2) "that various associates function as a continuing unit," and (3) "that the enterprise exists separate and apart from the pattern of racketeering activity." U.S. v. Smith, 413 F.3d 1253, 1266-1267 (10th Cir. 2005). A RICO enterprise is "a group of persons associated together for a common purpose of engaging in a course of conduct" and requires evidence "of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit." Seidl v. Greentree Mortg. Co., 30 F. Supp. 2d 1292, 1305 (D.Colo.1998) (quoting Turkette, 452 U.S. at 583, 101 S. Ct. 2524.)
Shell's complaint fails to allege sufficiently the existence of an enterprise under RICO. While Shell alleges that Internet Archive "collaborates" and relies on various donations from Alexa Internet, the National Archives, the Library of Congress and the Smithsonian, she has not alleged that these entities and Internet Archive function with a decision-making framework, have a mechanism for making decisions or function as a continuing unit.
Absent the participation of the other entities, Shell's allegation of an enterprise rests on an enterprise relationship between Internet Archive the defendant and Internet Archive acting with its directors as the enterprise. But it is wellestablished in the Tenth Circuit that "the defendant person must be an entity distinct from the alleged enterprise." Brannon v. Boatmen's First Nat. Bank of Oklahoma, 153 F.3d 1144, 1146 (10th Cir.1998). Enterprise liability under RICO "depends on showing that the defendant conducts or participates in the conduct of the enterprise's affairs, not just its own affairs." Id. For Internet Archive to be liable under RICO, its liability must be based on its association with an enterprise possessing "an existence and purpose distinct" from itself. Board of County Commissioners of San Juan County v. Liberty Group, 965 F.2d 879, 885 (10th Cir.1992). "A separate enterprise is not demonstrated by the mere showing that the corporation committed a pattern of predicate acts in the conduct of its own business." Id.
In Brannon, the Tenth Circuit concluded that an enterprise could not consist of a parent corporation and its subsidiary because these are not separate entities under RICO, and expressed concern *770 that such an interpretation would "allow the application of RICO in every fraud case against a corporation." Id. at 1147. This logic is applicable here, where the only conduct Shell alleges against these defendants is the actions of Internet Archive itself and their role as Internet Archive directors. If a corporation and its directors can constitute a RICO enterprise separate from the defendant corporation, then any corporation by definition can satisfy the definition of a RICO enterprise. The Tenth Circuit in Brannon rejected this expansion of RICO enterprise liability, and so do I. Shell's allegations that Internet Archive and its Directors constitute an enterprise does not meet the threshold requirements of RICO, and Shell's RICO claim fails.
2. COCCA
Shell also makes a racketeering claim against Internet Archive under COCCA, alleging that Internet Archive engaged in a "pattern of racketeering activity" under Colo.Rev.Stat. § 18-17-104(3). Internet Archive's motion does not address Shell's COCCA claim, nor does Shell's response. Under COCCA, unlike RICO, Shell's state law claims are viable predicate offenses [see Colo. Rev. Stat § 18-17-103(5)(b)]. However, Colorado courts interpret COCCA to require the enterprise to be a separate entity from a COCCA individual defendant, relying in part on Tenth Circuit interpretations of RICO. See Ferris v. Bakery, Confectionery and Tobacco Union, 867 P.2d 38, 46 (Colo.Ct.App. 1993) (citing Liberty Group for the proposition that "the enterprise and the person cannot be the same entity for purposes of a COCCA violation.") Accordingly, Shell's COCCA claim, like her RICO claim, fails to sufficiently allege the existence of an enterprise, and her COCCA claim fails.
It is so Ordered that Internet Archive's motion to dismiss counterclaims (docket # 20) is GRANTED, in part and DENIED, in part, as follows:
1) Internet Archive's motion to dismiss Shell's counterclaim for conversion and civil theft (Second Cause of Action) is GRANTED,
2) Internet Archive's motion to dismiss Shell's counterclaim for breach of contract (Third Cause of Action) is DENIED;
3) Internet Archive's motion to dismiss Shell's counterclaim for Racketeering under RICO and COCCA (Fourth Cause of Action) is GRANTED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1950267/ | 505 F. Supp. 2d 884 (2007)
Marcus CLARK, Plaintiff,
v.
Bradley THOMAS, et al., Defendants.
No. 05-2550-JWL.
United States District Court, D. Kansas.
February 28, 2007.
*885 *886 *887 Michael J. McVay, Michael J. McVay PA, Gary D. Stone, Kansas City, KS, for Plaintiff.
Matthew B. Briesacher, Office of the Attorney General, Jefferson City, MO, for Defendants.
MEMORANDUM AND ORDER
LUNGSTRUM, District Judge.
In this case, plaintiff Marcus Clark alleges that defendant Bradley Thomas used excessive force in pursuing and arresting him. Plaintiff has asserted tort claims sounding in negligence and battery, and he also asserts a claim against Thomas under 42 U.S.C. § 1983. Plaintiff has also sued the Board of Police Commissioners of Kansas City, Missouri (Thomas's employer) and the individual members of the Board in their official capacities, based on a theory of respondeat superior.
This matter comes before the Court on defendants' motion for summary judgment (Doc. # 56). For the reasons stated below, the motion is granted in part and denied in part. Summary judgment is granted in favor of the Board of Police Commissioners and its members on plaintiff's claim under section 1983, and any such claim is dismissed. Summary judgment is also granted on plaintiff's claim under section 1983 to the extent that it is based on any violation of the Fifth Amendment or the Fourteenth Amendment to the United States Constitution. The motion for summary judgment is denied otherwise, as material issues of fact remain on all other claims.
I. Facts
The following facts are uncontroverted for purposes of this motion or are set forth in the light most favorable to plaintiff, as supported in the parties' briefs.
On the evening of November 20, 2004, in Kansas City, Missouri, officers of the Kansas City, Missouri Police Department attempted to stop plaintiff's vehicle for alleged traffic violations. Plaintiff refused to stop and led the officers on a chase that lasted between 10 and 20 minutes. Defendant Thomas joined the pursuit while it was in progress. During the pursuit, plaintiff drove his vehicle at speeds up to 85 miles per hour and made illegal U-turns across highway medians.[1] The pursuit crossed into Kansas City, *888 Kansas, where plaintiff's vehicle came to a stop at the intersection of 18th Street and Quindaro. At that point, plaintiff exited his vehicle and began to run down the side of the street.
At the time that plaintiff's vehicle reached the intersection, Officer Thomas was in the secondary pursuit position, second among three police vehicles pursuing plaintiff. The first pursuit vehicle stopped behind plaintiff's stopped vehicle, and the officers pursued plaintiff on foot. Thomas drove around the two stopped vehicles and approached plaintiff, who was running away from the pursuing officers. Thomas struck plaintiff with his vehicle.[2] Plaintiff suffered broken bones in his left ankle, right foot, and left wrist. Upon being struck, plaintiff fell, arose, tried to continue fleeing, hopped approximately 10 yards towards an open field, fell again, and then surrendered himself to the officers pursuing him on foot, who arrested plaintiff.
Video footage from the pursuing police vehicles shows that, after Thomas passed plaintiff's vehicle and the primary pursuit vehicle, which were stopped, Thomas's vehicle headed directly towards plaintiff, who was running in the right side of the street. Thomas's vehicle was still traveling at a good rate of speed, and he was upon plaintiff in a matter of seconds. Just as Thomas's vehicle reached plaintiff, plaintiff veered to the right away from the street, and Thomas's vehicle veered to the left and then struck a utility pole.
Thomas testified that he was attempting to drive alongside plaintiff in an effort to direct plaintiff into an open field to the right of the street, and to Cut off any attempt by plaintiff to cross the street and enter an area containing homes and businesses to the left of the street. When he was struck by Thomas's vehicle, plaintiff had been running in a straight line in the right side of the street and had made no attempt to cross. Plaintiff testified that, just before he was struck, the engine in Thomas's vehicle roared and the vehicle accelerated. Another officer, who was pursuing plaintiff on foot, was very close to plaintiff when he was struck. Plaintiff was not armed, and he had not made any threats or directed any actions towards the officers. There were no other bystanders in the area. One of the other pursuing officers testified that it would not be an appropriate use of force to strike someone with a vehicle to prevent him from running away.[3]
Thomas testified that he believed at that time that plaintiff was a suspect in a kidnapping, who would therefore present a danger to the kidnapping victim. In fact, there is no evidence in the record that plaintiff was a suspect or was involved in any kidnapping. Nor is there evidence that plaintiff's recently-purchased vehicle was involved in any such incident.
Prior to the end of the pursuit, an order to terminate the pursuit was relayed to the *889 pursuing officers, but the order was not heeded. According to Kansas City, Missouri Police Department Procedural Instruction 04-1, "[a] pursuit will be terminated when . . . [a] supervisor/commander orders the pursuit terminated." That Instruction also provides that it is the responsibility of an officer in a secondary pursuit vehicle to "[m]aintain a safe distance behind the primary vehicle" and not to "overtake the primary vehicle unless requested to do so. . . ." (Emphasis in original.)
Plaintiff was ultimately charged only with traffic violations, which were eventually dismissed. Officer Thomas was suspended for one day for violating Procedural Instruction 03-17, which requires that officers "operate vehicles in a safe and prudent manner which projects a professional image of the department."
Kansas City, Missouri Police Department Procedural Instruction 01-3 provides as follows:
Officers are authorized to use lethal force in order to:
1. Protect themselves or others from what is reasonably believed to, be an imminent threat of death or serious bodily harm.
2. To prevent the escape of a person:
a. From the vicinity of a violent crime or confrontation during which that person is reasonably believed to have caused or attempted to cause death or serious bodily harm to the officer(s) or other persons, or
b. Who is reasonably believed to be armed and to have committed an offense in which he/she caused or attempted to cause death or serious Bodily harm to another person, or
c. Who may otherwise endanger life or inflict other serious physical in jury unless arrested without delay.
II. Summary Judgment Standards
Summary judgment is appropriate if the moving party demonstrates that there is "no genuine issue as to any material fact" and that it is "entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In applying this, standard, the Court views the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party. Burke v. Utah Transit Auth. & Local 382, 462 F.3d 1253, 1258 (10th Cir.2006). An issue of fact is "genuine" if "the evidence allows a reasonable jury to resolve the issue either way." Haynes v. Level 3 Communications, LLC, 456 F.3d 1215, 1219 (10th Cir.2006). A fact is "material" when "it is essential to the proper disposition of the claim." Id.
The moving party bears the initial burden of demonstrating an absence of a genuine issue of material fact and entitlement to judgment as a matter of law. Thom v. Bristol-Myers Squibb Co., 353 F.3d 848, 851 (10th Cir.2003) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986)). In attempting to meet that standard, a movant that does not bear the ultimate burden of persuasion at trial need not negate the other party's claim; rather, the movant need simply point out to the court a lack of evidence for the other party on an essential element of that party's claim. Id. (citing Celotex, 477 U.S. at 325, 106 S. Ct. 2548).
If the movant carries this initial burden, the nonmovant may not simply rest upon his or her pleadings but must "bring forward specific facts showing a genuine issue for trial as to those dispositive matters for which he or she carries the burden of proof." Garrison v. Gambro, Inc., 428 *890 F.3d 933, 935 (10th Cir.2005). To accomplish this, sufficient evidence pertinent to the material issue "must be identified by reference to an affidavit, a deposition transcript, or a specific exhibit incorporated therein." Diaz v. Paul J. Kennedy Law Firm, 289 F.3d 671, 675 (10th Cir.2002).
Finally, the Court notes that summary judgment is not a "disfavored procedural shortcut;" rather, it is an important procedure "designed to secure the just, speedy and inexpensive determination of every action." Celotex, 477 U.S. at 327, 106 S. Ct. 2548 (quoting Fed.R.Civ.P. 1).
III. State Law Claims
A. Neligence Claim
1. BREACH OF DUTY
Plaintiff asserts a claim of negligence against defendants, on the basis of his allegation that Thomas used excessive force against him in striking him with the police vehicle. Defendants first argue that the force, used by Thomas was necessary and reasonable as a mutter of law, and that plaintiff therefore cannot establish the requisite breach of a legal duty. Based on the evidence viewed in the light most favorable to plaintiff, this argument must fail.
The Kansas Supreme Court has held that, although police officers generally are immune from liability on claims arising from performance of their general duties, liability does arise upon the breach of a special duty owed by an officer, such as where an affirmative act of the officer causes injury. See Dauffenbach v. City of Wichita, 233 Kan. 1028, 1033, 667 P.2d 380, 385 (1983).[4] Defendants concede the existence of such a duty here. In addition, police officers owe a special duty where, as here, they are subject to mandatory guidelines. See Carl v. City of Overland Park, Kan., 65 F.3d 866, 870 (10th Cir.1995) (citing Fudge v. City of Kansas City, 239 Kan. 369, 720 P.2d 1093, 1098 (1986)).
Defendants argue that Thomas did not breach his duty to plaintiff because he used only reasonable and necessary force in striking plaintiff with the police vehicle. Defendants note Thomas's belief that plaintiff was a kidnapping suspect, plaintiff's attempt to evade capture, and the presence of a residential area nearby.
The Kansas Supreme Court has set forth the standard for an excessive-force negligence claim as follows:
The general rule is that a law enforcement officer who is making an arrest for a misdemeanor committed in his or her presence has the right to use reasonable force to effect the arrest. The officer has discretion to determine the degree of force required under the circumstances as they appear to the officer at the time. The reasonableness of the force used is a question for the trier of facts. The test to determine the actual amount of force necessary is not one of hindsight. The degree of force used may be reasonable even though it is more than is actually required. The officer may not, however, use an unreasonable amount of force or wantonly or maliciously injure a suspect.
Dauffenbach, 233 Kan. at 1034-35, 667 P.2d at 386 (citations omitted).
The federal courts have set forth additional standards by which to judge the reasonableness of force used by an officer in the context of a section 1983 claim. For instance, the Tenth Circuit has provided that courts evaluating an excessive force claim are to consider the totality of the *891 circumstances, including the following factors: "the severity of the crime at issue, whether the suspect poses an immediate threat to the safety of the officers or others, and whether the suspect is actively resisting arrest by flight." Jiron v. City of Lakewood, 392 F.3d 410, 414-15 (10th Cir. 2004). With respect to deadly force, the Supreme Court has stated as follows:
The use of deadly force to prevent the escape of all felony suspects, whatever the circumstances, is constitutionally unreasonable. . . . Where the suspect poses no immediate threat to the officer and no threat to others, the harm resulting from failing to apprehend him does not justify the use of deadly force to do so. . . .
. . . Thus, if the suspect threatens the officer with a weapon or there is probable cause to believe that he has committed a crime involving the infliction or threatened infliction of serious physical harm, deadly force may be used if necessary to prevent escape, and if, where feasible, some warning has been given.
Tennessee v. Garner, 471 U.S. 1, 11-12, 105 S. Ct. 1694, 85 L. Ed. 2d 1 (1985).[5]
Based on the facts viewed in the light most favorable to plaintiff, as set forth above, the Court concludes that there is ample evidence from which a jury could reasonably conclude that Thomas's use of force against plaintiff specifically, striking plaintiff with his police vehicle was not reasonable and necessary, and that Thomas therefore breached his duty to plaintiff. Plaintiff had not committed any violent or dangerous crimes, and the officers had only witnessed traffic offenses by plaintiff. Plaintiff was unarmed, had not threatened the officers or anyone else with words or actions, and was in fact running away from the pursuing officers. The fact that at least one other officer was in close pursuit of plaintiff on foot provides further evidence that striking plaintiff was not necessary to his apprehension. In addition, one of the other pursuing officers testified that using a vehicle to strike a person to prevent his escape on foot would not be appropriate. Thomas also ignored an order to terminate the pursuit, in apparent violation of an official police policy.
Officer Thomas testified that he did not intend to strike plaintiff with his vehicle, but was instead only trying to drive alongside plaintiff to direct him toward an open field and to cut him off from any attempt to cross the street into a residential area. The video evidence confirms, however, that plaintiff was running straight down the side of the street and that he gave no indication that he intended to cross the street. Thus, even if Thomas did not intend to strike plaintiff, his actions may nonetheless be judge unnecessary or unreasonably reckless by the jury.
Moreover, there was evidence from which a reasonable jury could believe that Thomas intended to strike plaintiff. The video evidence could readily be viewed as indicating that Thomas did not merely drive alongside plaintiff in an attempt to dissuade plaintiff from crossing the street, but that Thomas instead drove directly at plaintiff at a decent rate of speed after passing the two stopped vehicles, swerving only as he came upon plaintiff. Plaintiff also testified that Thomas accelerated and that Thomas's engine roared just before plaintiff was struck. Thomas also struck a utility pole along the side of the road *892 immediately after striking plaintiff, and he was disciplined for failing to operate his vehicle in a safe and prudent manner. Finally, the fact that Thomas actually struck plaintiff provides some evidence that Thomas was not merely trying to drive alongside plaintiff.
Defendants rely heavily on Thomas's testimony that he believed plaintiff to be kidnapping suspect, and they argue that the use of such deadly force would be reasonable given Thomas's belief that the kidnapping victim might remain in danger from plaintiff. Defendants have not provided any evidence, however, that such a belief, if held, was in fact reasonable. Specifically, there is no evidence concerning the circumstances of the suspected kidnapping or its victim that could justify the use of deadly force to stop this individual in this manner. Conversely, the reasonableness of Thomas's belief is undermined by the evidence that plaintiff was not a kidnapping suspect and that his vehicle was not thought to have been involved in any kidnapping. Finally, Thomas gave plaintiff no warning before striking him with the vehicle.
The Tenth Circuit has cautioned that the issue of breach "is a factual one that is typically left to a jury, except in rare cases where the evidence is susceptible to only one possible inference." Carl, 65 F.3d at 869; see also Dauffenbach, 233 Kan. at 1034, 667 P.2d at 386 ("The reasonableness of the force used is a question for the trier of facts."). In this case, a reasonable jury could conclude that Thomas used an unreasonable amount of force in striking plaintiff with his vehicle, or that he wantonly or maliciously injured plaintiff, and that he therefore breached his duty to plaintiff.
2. PROXIMATE CAUSE
Defendants also argue that plaintiff's negligence claim must fail for lack of proximate causation. Specifically, defendants argue that plaintiff's own decision to flee from the police led to what occurred at the end of the pursuit, and that therefore Thomas's act in striking plaintiff with his vehicle was not the proximate cause of plaintiff's injuries as a matter of law.
Defendants rely on the Tenth Circuit case of Carl v. City of Overland Park for this argument. In Carl, which involved a wrongful death claim, a vehicle crashed while being pursued by police, and the driver was killed. See 65 F.3d at 867-68. The Tenth Circuit reviewed the opinions by the Kansas Supreme Court in two cases involving police chases, focusing particularly on the Kansas court's language that an officer should not be made the insurer of a fleeing law violator. See id. at 872-74 (citing Thornton v. Shore, 233 Kan. 737, 666 P.2d 655 (1983) and Hammig v. Ford, 246 Kan. 70, 785 P.2d 977 (1990)). Those cases convinced the Tenth Circuit that Kansas courts would hold, in the case before it, that the fleeing criminal's own conduct in fleeing the police and crashing his vehicle was the sole proximate cause of his injuries, and that the decision of the pursuing officer to conduct that pursuit was not the proximate cause as a matter of law. See id. at 874, 785 P.2d 977.
Defendants argue that because the present case involved a police pursuit, the same result should obtain, and the conduct of the pursuing officer should be not considered a proximate cause of plaintiff's injuries as a matter of law. The present case is easily distinguished from Carl, however.
The Tenth Circuit in Carl was careful to limit its conclusion regarding Kansas courts' likely analysis of the proximate cause issue to the particular facts before it:
This prediction, of course, is limited to the facts of this case. While this case falls squarely within the set of typical police pursuit cases contemplated in *893 Thornton, Hammig, and the cases cited therein, we would not necessarily predict that Kansas courts would never find proximate cause as a matter of law in all cases involving police pursuits. It is possible, for example, that the Kansas Supreme Court would rule differently on the proximate cause issue if there was evidence that the police acted with recklessness or intent, such as an egregious case where an officer ignored clear danger by deliberately initiating pursuit through a parade, a school crossing zone, or a densely populated area during rush hour. Reckless acts are qualitatively different from negligent or grossly negligent acts (which are merely an extreme variant of carelessness), because reckless acts require an element of deliberateness a conscious acceptance of a known, serious risk. Thus, under such extreme circumstances, a Kansas court might come out differently on the question of proximate cause.
Id. at 874 (quotation and citations omitted) (emphasis in original). The court also noted that Kansas courts "normally treat proximate cause as a question of fact for the jury." Id. at 872.
The present case does not present the "typical police pursuit case" mentioned by the Tenth Circuit. Plaintiff is not seeking to recover for injuries suffered in crashing his car or in merely falling down while fleeing police; such a claim would likely be doomed by the Tenth Circuit's proximate cause analysis in Carl. Instead, in this case, plaintiff has alleged and presented evidence that a police office struck him with a vehicle while he was fleeing on foot. Moreover, as noted above, there is evidence here from which a jury could reasonably conclude that Thomas acted recklessly or with intent. Consequently, the Court is confident that the Kansas Supreme Court would not conclude in the present case that Thomas's act in striking plaintiff could not be a proximate cause of plaintiff's alleged injuries as a matter of law. The question of proximate cause is one for the jury in this case, and defendants' motion for summary judgment on the negligence claim is denied.
B. Battery Claim
Plaintiff has also asserted a claim for common-law battery based on the use excessive force. To prove battery, plaintiff must show an unprivileged touching or striking, done with intent of bringing about either a contact or an apprehension of a contact, that is harmful or offensive. See PIK-Civil 3d § 127.02 (2005); Daniels v. Dillard Dept. Stores, Inc., 881 F. Supp. 505, 510-11 (D.Kan.1995) (citing Stricklin v. Parsons Stockyard Co., 192 Kan. 360, 366, 388 P.2d 824, 829 (1964)).
Defendants argue that plaintiff's battery claim must fail because, as a matter of law, Thomas did not intend to strike plaintiff with his vehicle.[6] As set forth above with respect to the issue of breach, however, there is sufficient evidence from which a reasonable jury could conclude that Thomas intended to strike plaintiff. Moreover, under the governing standard, plaintiff may also prevail by showing that Thomas merely intended that plaintiff apprehend contact with the vehicle. Thomas has testified that he intended to cut plaintiff off to prevent him from crossing the street. The reasonable inference may be drawn from that testimony that Thomas intended that plaintiff would be physically prevented from crossing the *894 street by the presence of the vehicle, and that plaintiff therefore would not be able to cross without coming into contact with the vehicle. Therefore, based on that inference and the other evidence discussed above, a reasonable jury could conclude that Thomas had the requisite intent in this case.
C. Discretionary Function Immunity
Defendants next argue that Officer Thomas is shielded from liability on plaintiff's state-law claims on the basis of discretionary function immunity, as set forth in the Kansas Tort Claims Act (KTCA), 75 Kan. Stat. Ann. § 6104(e). That exception from KCTA liability provides immunity from damages for the following:
any claim based upon the exercise or performance or the failure to exercise or perform a discretionary function or duty on the part of a governmental entity or employee, whether or not the discretion is abused and regardless of the level of discretion involved.
Id. Defendants concede that there is no claim under the KCTA here and that the KCTA does not apply to them as out-of-state officials, but they argue that the same immunity should apply by virtue of the common law. See Fry v. City of Galena, Kan., 450 F. Supp. 2d 1236, 1247 (D.Kan.2006) (referring to the discretionary function exception and "its common law source").
It is not clear that Kansas courts would apply the same statutory exception to a Missouri police officer under a common-law theory. The Court need not decide that issue, however, because the exception does not shield defendants from liability in this case for other reasons.
First, this immunity would not protect defendants from liability for the use of an unreasonable amount of force. In Dauffenbach, as in the present case, the KCTA did not apply, and the Kansas Supreme Court made clear that state-law tort claims based on allegations of excessive force are to be judged under the reasonableness standard, assuming the existence of the requisite special duty. See Dauffenbach, 233 Kan. at 1032-37, 667 P.2d at 384-87. This Court has also noted that "a law enforcement officer who uses an unreasonable amount of force or acts maliciously or wantonly will not be protected by the [discretionary function] exception." Fry, 450 F.Supp.2d at 1247. (citing Hopkins v. State, 237 Kan. 601, 611, 702 P.2d 311, 319 (1985) and Dauffenbach, 233 Kan. at 1038, 667 P.2d at 386); see also Sevier v. City of Lawrence, 853 F. Supp. 1360, 1370 (D.Kan.1994) (KCTA's discretionary function exception does not shield a defendant from liability to the extent that the use of force was excessive); Caplinger v. Carter, 9 Kan. App. 2d 287, 295, 676 P.2d 1300, 1307 (1984) (discretionary function exception is not intended to permit officers to violate the prohibition against the use of unreasonable force).
In this case, plaintiff's state-law claims are based on allegations of excessive and unreasonable force. Thus, to the extent that plaintiff proves those claims, the discretionary function exception could not apply to shield defendants from liability. As set forth above, material issues of fact remain concerning whether Thomas acted unreasonably, or even maliciously or wantonly, and summary judgment is not appropriate on plaintiff's state-law claims. For the same reason, then, defendants are not entitled to summary judgment based on the discretionary function exception.
Second, even if the exception could otherwise apply to plaintiff's claims, the exception does not apply here because Thomas's conduct, based on the evidence viewed in plaintiff's favor, cannot be deemed to have been discretionary for *895 purposes of applying the exception. The Tenth Circuit has stressed as follows:
"Discretion" requires more than "the mere exercise of some judgment," because judgment is exercised in nearly all endeavors; instead, a discretionary function "must involve some element of policy formation."
Carl, 65 F.3d at 871 (quoting Kansas State Bank & Trust Co. v. Specialized Transp. Servs., Inc., 249 Kan. 348, 819 P.2d 587, 600 (1991)). More specifically, as concluded by the Kansas Supreme Court,
it would be difficult to visualize a situation where just the actual physical operation of a motor vehicle upon the highway would be a "discretionary function or duty."
Jackson v. City of Kansas City, 235 Kan. 278, 288, 680 P.2d 877, 887-88 (1984) (cited with approval in Carl, 65 F.3d at 872).[7] In this case, the alleged conduct occurred while defendant Thomas was operating his vehicle in pursuit of plaintiff, without any element of policy formation by Thomas, and that conduct cannot be said to have been "discretionary" for purposes of this exception.
Moreover, in Carl, the Tenth Circuit noted that the "discretion" issue "becomes an easy one in cases like this, where the legal duty at issue is itself created by the existence of specific mandatory guidelines." Carl, 65 F.3d at 871. Here, as in Carl and Jackson, Thomas's conduct was governed by specific guidelines (including various Kansas City, Missouri police instructions and Kan. Stat. Ann. § 8-1506, which required that Thomas operate his vehicle with due regard for the safety of others), from which a special duty arose. Accordingly, the discretionary function exception does not apply in this case, and defendants are not entitled to summary judgment on plaintiff's state-law tort claims.
IV. Section 1983 Claim
A. Seizure Under Fourth Amendment
Defendants seek summary judgment on plaintiff's claim under 42 U.S.C. § 1983 to the extent that the claim is based on an underlying violation of the Fourth Amendment. In this regard, defendants argue that no such violation occurred because there was no "seizure" of plaintiff for purposes of the Fourth Amendment as a matter of law. The Court disagrees.
In County of Sacramento v. Lewis, 523 U.S. 833, 118 S. Ct. 1708, 140 L. Ed. 2d 1043 (1998), the Supreme Court confirmed that a Fourth Amendment seizure occurs only in the event of a governmental termination of freedom of movement "through means intentionally applied," and not merely if a pursuing police car stops a suspect by accidentally crashing into him. Id. at 844, 118 S. Ct. 1708 (citing Brower v. County of Inyo, 489 U.S. 593, 596-97, 109 S. Ct. 1378, 103 L. Ed. 2d 628 (1989)). Defendants argue that no seizure took place in this case as a matter of law because defendant Thomas did not intend to strike plaintiff with his car. As set forth above, however, there is evidence from which a reasonable jury could conclude that Thomas intended to strike plaintiff, and defendants' argument must therefore be rejected.
Defendants also argue that Thomas's conduct did not effect a seizure as a matter of law because plaintiff arose after being struck and continued to flee. This argument too is unavailing. The Supreme Court has held that an officer's application of physical force or the submission of the suspect results in a seizure. See California *896 v. Hodari D., 499 U.S. 621, 621, 111 S. Ct. 1547, 113 L. Ed. 2d 690 (1991). If Thomas did intentionally strike plaintiff with his vehicle, then a seizure occurred. Accordingly, defendants are not entitled to summary judgment on plaintiff's claim under section 1983 for violation of the Fourth Amendment.[8]
B. Other Bases for Section 1983 Liability
In the Pretrial Order, plaintiff asserts violations of the Fifth and Fourteenth Amendments as bases for his claim under 42 U.S.C. § 1983. Defendants argue that the Fifth Amendment's Due Process Clause cannot apply here because defendants are not federal officials or agents. See In re Winship, 397 U.S. 358, 378 & n. 3, 90 S. Ct. 1068, 25 L. Ed. 2d 368 (1970); A.S. ex rel. Blalock v. Tellus, 22 F. Supp. 2d 1217, 1223 (D.Kan.1998). Defendants further argue that plaintiff's allegations do not rise to the level of a violation of substantive due process under the Fourteenth Amendment. See Lewis, 523 U.S. at 846-47, 118 S. Ct. 1708 (standard for substantive due process violation is conduct that shocks the conscience).
Plaintiff has not responded to these arguments or opposed summary judgment on any such claims. Accordingly, plaintiff is deemed to have abandoned any claims under section 1983 based on any violation of the Fifth Amendment or the Fourteenth Amendment, and summary judgment is granted on any such claims accordingly. See Berroth v. Farm Bureau Mut. Ins. Co., 232 F. Supp. 2d 1244, 1246 n. 2 (D.Kan. 2002) (claim deemed abandoned where party failed to address issue in summary judgment brief).
C. Qualified Immunity
Defendants argue that defendant Thomas is shielded from liability under section 1983 on the basis of his qualified immunity. To overcome the defense of qualified immunity, a plaintiff must not only show a violation of a specific constitutional right, he must also demonstrate that the right "was clearly established at the time of the defendant's unlawful conduct such that a reasonable person in the defendant's position would have known that the alleged conduct violated the federal right." Saucier v. Katz, 533 U.S. 194, 201, 121 S. Ct. 2151, 150 L. Ed. 2d 272 (2001).
In this case, defendants argue that plaintiff cannot meet this standard that the law have been "clearly established" because no reported case specifically prohibits a police officer from striking a fleeing suspect with his vehicle. The. Court concludes, however, that to the extent that plaintiff is able to prove that defendant Thomas used excessive force and violated the Fourth Amendment in striking plaintiff, the right to be free from such conduct was in fact "clearly established". Therefore, Thomas is not shielded from liability by qualified immunity.
The Supreme Court has explained the "clearly established" standard as follows:
The contours of the right must be sufficiently clear that a reasonable official would understand that what he is doing violates that right. This is not to say that an official action is protected by *897 qualified immunity unless the very action in question has been held unlawful; but it is to say that in the light of preexisting law the unlawfulness must be apparent.
Anderson v. Creighton, 483 U.S. 635, 640, 107 S. Ct. 3034, 97 L. Ed. 2d 523 (1987) (citations omitted); see also Saucier, 533 U.S. at 202, 121 S. Ct. 2151 (relevant inquiry is whether "it would be clear to a reasonable officer that his conduct was unlawful in the situation he confronted").
The Supreme Court has held that the general deadly-force standards that it set forth in Tennessee v. Garner, 471 U.S. 1, 105 S. Ct. 1694, 85 L. Ed. 2d 1 (1985), do not necessarily satisfy the "clearly established" standard in every excessive force case. See Brosseau v. Haugen, 543 U.S. 194, 199, 125 S. Ct. 596, 160 L. Ed. 2d 583 (2004). The Court stated, however, that "in an obvious case, these [Garner] standards can `clearly establish' the answer, even without a body of relevant case law." Id. The Tenth Circuit has elaborated on that idea:
Implicit in the Court's reasoning [in Brosseau] is the recognition that officials committing outrageous, yet sui generis, constitutional violations ought not to shield their behavior behind qualified immunity simply because another official has not previously had the audacity to commit a similar transgression.
Jones v. Hunt, 410 F.3d 1221, 1230 (10th Cir.2005).
The Court believes that the present case provides an example of the "obvious case" mentioned by the Supreme Court. The Court concludes that a reasonable officer would have understood in November 2004 that the particular conduct complained of here defendant Thomas's unreasonably and unnecessarily striking plaintiff with his police vehicle, without warning, while plaintiff fled officers on foot without presenting any threat to those officers is prohibited under the Fourth Amendment's reasonableness standard. Accordingly, the Court concludes that if plaintiff succeeds in proving the alleged constitutional violation, that particular right was clearly established at the time of the conduct, and defendant Thomas is therefore not entitled to qualified immunity.
D. Claim Against Board and Its Members
Finally, defendants seek summary judgment on any claim against the Board of Police Commissioners of Kansas City, Missouri or its members under section 1983. Defendants argue that respondeat superior liability is not available under section 1983. See Jenkins v. Wood, 81 F.3d 988, 994-95 (10th Cir.1996) (no supervisor liability exists under section 1983; defendant needs actually to have participated in the violation). Defendants also argue that the Board and its members (in their official capacities) are not "persons" for purposes of a claim for damages under section 1983. See Will v. Michigan Dept. of State Police, 491 U.S. 58, 70-71, 109 S. Ct. 2304, 105 L. Ed. 2d 45 (1989) (state officials sued in their official capacity are not "persons" for purposes of a claim for damages under section 1983); Smith v. State, 152 S.W.3d 275 (Mo.2005) (St. Louis Police Board is an agency of the State of Missouri).
Plaintiff has not responded to these arguments in its brief, and any such claims are therefore deemed abandoned. See Berroth, 232 F.Supp.2d at 1246 n. 2. Moreover, the Court notes that plaintiff asserted in the Pretrial Order that the Board and its members are vicariously liable for Thomas's acts, but plaintiff has not alleged any affirmative conduct for which they should be liable. Accordingly, summary judgment is granted in favor of the Board and its members on any claim under section 1983.
*898 V. Conclusion
Defendants' motion for summary judgment is granted in favor of the Board of Police Commissioners and its members on plaintiff's claim under section 1983, and any such claim is dismissed. The motion is also granted on plaintiff's claim under section 1983 to the extent that it is based on any violation of the Fifth Amendment or the Fourteenth Amendment. The motion for summary judgment is denied in all other respects.
IT IS THEREFORE ORDERED THAT defendants' motion for summary judgment (Doc. # 56) is granted in part and denied in part, as set forth above.
IT IS SO ORDERED.
NOTES
[1] Defendants have provided unsworn police reports in support of their factual contentions that plaintiff drove recklessly during the pursuit and that the pursuit caused a non-injury traffic accident involving other vehicles. The reports also indicate that, according to police records, plaintiff's license plate (which he had obtained from another individual and illegally affixed to his recently-purchased vehicle) had been on another vehicle involved in a suspected kidpapping. The Court agrees with plaintiff that such evidence should not be considered here. Unsworn statements do not constitute proper evidence for consideration upon summary judgment. See Ryan v. Shawnee Mission Unified Sch. Dist. No. 512, 437 F. Supp. 2d 1233, 1236 (D.Kan.2006) (citing Hayes v. Marriott, 70 F.3d 1144, 1148 (10th Cir.1995)); Fed.R.Civ.P. 56(c), (e); D. Kan. Rule 56.1(d). The fact that the parties have stipulated to the reports' foundation is irrelevant; the reports themselves constitute hearsay, and such statements must be presented upon oath for purposes of summary judgment. For the same reason, defendants' offer to provide a business records affidavit is unhelpful. Finally, even if these particular facts were considered, the Court would, not reach any different conclusions regarding the motion.
[2] Thomas testified that he did not believe that he struck plaintiff with his vehicle, and defendants deny that plaintiff was struck, but they concede that Thomas's vehicle struck plaintiff for purposes of this summary judgment motion.
[3] Defendants object to this testimony as "inadmissible opinion testimony". Of course, the mere fact that testimony may constitute an opinion does not render such testimony inadmissible. Such testimony's admissibility at trial may depend upon a number of factors, including the circumstances in which the testimony is offered. Defendants have not explained why this particular opinion testimony should be deemed inadmissible for purposes of this motion. Moreover, defendants did not object at the deposition to the question that elicited this testimony from the officer, and Fed.R.Civ.P. 32(d) provides that errors in the form of questions or answers at a deposition are waived unless objection is made at that time. Accordingly, this testimony may be considered for purposes of this motion.
[4] In this diversity action, because the alleged torts occurred in Kansas, the Court applies Kansas substantive law. See Carl v. City of Overland Park, Kan., 65 F.3d 866, 868 (10th Cir.1995).
[5] The Tenth Circuit has noted that "the use of deadly force does not occur only when the suspect actually dies." Ryder v. City of Topeka, 814 F.2d 1412, 1416 n. 11 (10th Cir.1987). Deadly force is "force that the actor uses with the purpose of causing or that he knows to create a substantial risk of causing death or serious bodily harm." Jiron, 392 F.3d at 415 n. 2 (quoting Ryder, 814 F.2d at 1416 n. 11).
[6] The parties, in apparent reliance on the criminal battery statute, Kan. Stat. Ann. § 21-3412, have argued this issue in terms whether Thomas acted intentionally or recklessly. As stated herein, however, a civil battery claim requires proof of intentional conduct, not merely reckless conduct.
[7] The Kansas Supreme Court also held in Jackson that the KCTA's statutory exceptions are to be construed narrowly. 235 Kan. at 286, 680 P.2d at 886.
[8] Defendants also argue in their reply brief that there is no Fourth Amendment violation here as a matter of law because defendant Thomas's actions were not unreasonable. See, e.g., Graham v. Connor, 490 U.S. 386, 395, 109 S. Ct. 1865, 104 L. Ed. 2d 443 (1989) (a claim of excessive force during an arrest or seizure is evaluated under the Fourth Amendment's reasonableness standard). Ordinarily, the Court does not consider arguments raised for the first time in a reply brief. See First Specialty Ins. Corp. v. NAIS, Inc., 459 F. Supp. 2d 1094, 1099 (D.Kan.2006). At any rate, as explained above, material questions of fact remain with respect to whether Thomas acted reasonably. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1970691/ | 911 F. Supp. 135 (1996)
In re PRUDENTIAL SECURITIES INCORPORATED LIMITED PARTNERSHIPS LITIGATION.
MDL No. 1005, No. M-21-67 (MP).
United States District Court, S.D. New York.
January 22, 1996.
Miller Milove & Kob by Brian D. Miller, Bradd Milove, San Diego, CA, for First plaintiffs.
*136 Goodkind Labaton Rudoff & Sucharow by Lawrence Sucharow, Joel H. Bernstein, Diane Zilka, Liaison Counsel, New York City, for plaintiffs in MDL No. 1005.
Cahill Gordon & Reindel by Thomas J. Kavaler, New York City, for Prudential defendants.
Ross & Hardies by Marshall Beil, New York City, for Madison Plaza Associates.
ORDER # 51
FINDINGS OF FACT AND CONCLUSIONS OF LAW
REGARDING APPLICATION BY MILLER MILOVE & KOB
FOR ATTORNEYS' FEES, COSTS AND EXPENSES
MILTON POLLACK, Senior District Judge.
This matter is before the Court on the Application by Miller Milove & Kob (the "Miller Firm") for Attorneys' Fees, Costs and Expenses, dated November 7, 1995 (the "Miller Firm Application"). The Court has received and considered the Miller Firm Application, together with supporting documents, as well as Class Plaintiffs' Memorandum in Opposition to Application by Miller Milove & Kob for Attorneys' Fees, Costs and Expenses, together with supporting documents, including the Joint Declaration of Joel H. Bernstein and H. Sullivan Bunch In Opposition To Applications Of Miller Milove & Kob [and others] For Attorneys' Fees, Costs and Expenses dated November 15, 1995, and, on November 17, 1995 heard Miller Milove & Kob in support of the Miller Firm Application and the Class Plaintiffs in opposition thereto. In addition, the Court has received and considered proposed findings of fact and conclusions of law submitted by Class Plaintiffs' Counsel, the Miller Firm's Objections to such proposed findings and Class Plaintiffs' Counsel's reply thereto. Under all the facts and circumstances, the Miller Firm Application is DENIED.
The Miller Firm, at the Court hearing on their application for an allowance of fees, based its claim for compensation on "the benefits conferred upon the entire class while representing the certified class and initiating the First certified class action which became discovery in this MDL proceeding pursuant to your Honor's request."
A brief review of the Miller Firm's relation to the present proceeding is in order. The Miller Firm commenced First v. Prudential-Bache Securities Inc. on January 14, 1991 in the United States District Court for the Southern District of California as a putative class action against Prudential-Bache Securities, Inc., which later became "PSI," on behalf of investors in the Madison Plaza Associates Limited Partnership and the Madison Avenue Limited Partnership. The First claim alleged securities fraud in connection with the sale of interests in Madison Plaza to these investors. The class was certified on July 29, 1992 and class members were given an opportunity to opt out of the class until October 1, 1992. The First action was transferred to this Court by the Judicial Panel on Multidistrict Litigation for purposes of "inclusion in the centralized pretrial proceedings occurring there in this docket" on August 3, 1994. In re Prudential Securities, Inc. Transfer Order dated August 3, 1994.
On October 21, 1993, before transfer of the First action to this Court, and simultaneously with the filing of the Securities and Exchange Commission ("SEC") of a complaint against PSI in the United States District Court for the District of Columbia, PSI consented to the entry of a Final Order by the District Court for the District of Columbia that required PSI to pay compensatory damages for all valid claims presented through a court-supervised Claims Resolution Process. PSI consented among other things to pay $330 million to establish a fund ("the SEC Fund") for the benefit of defrauded investors and to pay all additional valid claims in excess of the $330 million in the SEC Fund. The SEC Fund was placed under the general supervision of the District Court to be administered by a court-approved Claims Administrator.
Counsel for the Claims Administrator subsequently ruled that members of the First class could not participate in the Claims Resolution *137 Process until the class was decertified. This ruling created a dilemma for the Miller Firm: by continuing to press the First action claims, it was limiting the avenues of recovery available to members of its class. Accordingly, the Miller Firm filed a motion in this Court seeking an additional period to opt-out from the class.
On November 16, 1994 this Court denied the Miller Firm's motion, but, at the Miller Firm's request, decertified the First class pursuant to Fed.R.Civ.P. 23(c)(1). 158 F.R.D. 301 (1994). That ruling enabled each member of the previously certified First action to file a claim with PSI pursuant to the Claims Resolution Process or to pursue their claims against PSI in any other forum, subject to PSI's defenses. By order of March 17, 1995 this Court, at the Miller Firm's instance, subsequently dismissed the First action as against all defendants with prejudice.
Following the decertification, most of the Miller Firm's clients in the First class suit, at the Miller Firm's solicitation, employed the Miller Firm on contingent retainers to proceed privately against Prudential on the same claims. Using the preparations of the claims in the First action, the Miller Firm successfully negotiated private settlements with Prudential on behalf of these clients apparently totaling in excess of $19 million from which the Miller Firm obtained a fee of approximately $5.25 million.[1] The requested dismissal of the First action by this Court subsequently terminated the Miller Firm's right to any class compensation, and did not confer upon the Miller Firm a right to a share of the fees awarded in the present proceeding.
FINDINGS OF FACT
1. The Miller Firm served as plaintiff class counsel in the action entitled First v. Prudential-Bache Securities, Inc., 91-0047-IEG (BTM), which was commenced in 1991 in the United States District Court for the Southern District of California (the "First Action"). The First Action was certified by the United States District Court for the Southern District of California as a class action on behalf of purchasers of limited partnership units in Madison Plaza Associates Limited Partnership ("Madison Plaza"), and the Miller Firm was designated as class counsel.
2. Madison Plaza is only one of more than 700 limited partnerships which are the subject of MDL 1005 and the Consolidated Complaint herein.
3. The Miller Firm prosecuted the First Action on behalf of the certified class identified therein, undertaking discovery relating to the specific issues and claims asserted in the First Action, including deposition and document discovery.
4. The discovery in the First Action was directed at identifying specific fraudulent misrepresentations and omissions in the Madison Plaza investment memorandum and supplements, and at establishing a nexus between the alleged misrepresentations and omissions and the cause of the investors' losses. (See Letter of the Miller Firm to members of the Class in the First Action dated October 10, 1994.)
5. On May 4, 1994, the Judicial Panel on Multidistrict Litigation ("JPMDL") issued a conditional transfer order, transferring the First Action to this Court as a tag-along action to MDL 1005. The Miller Firm sought to vacate the JPMDL's conditional transfer order citing, inter alia, purported differences between the broad claims in MDL 1005 and the more limited claims asserted in the First Action.
6. In support of their motion to vacate the conditional transfer order the Miller Firm stated that:
"The legal and factual contentions of the First Plaintiffs and the consolidated plaintiffs [in MDL 1005] are incompatible."
7. On or about August 3, 1994 the JPMDL, over the Miller Firm's objection, issued an Order transferring the First Action *138 to this Court for consolidated or coordinated treatment with MDL 1005.
8. On or about August 9, 1994, the Miller Firm sought, with the consent of Class Counsel in MDL 1005, limited deposition discovery solely relating to issues relevant to the First Action, and not necessarily relevant to MDL-1005. This Court granted that discovery request. The Miller Firm's stated intention was to complete the discovery relevant to the First Action and seek remand of the First Action to the transferor court for trial.
9. On or about October 10, 1994 the Miller Firm sent a letter, not previously approved by this Court, to the Madison Plaza class members in the First Action. Among other things, that letter informed the class in the First Action, of the Miller Firm's intention to seek decertification of the class in the First Action in order to allow those class members, should they choose to do so, to file claims in the SEC Claims Resolution Process.
10. The October 10, 1994 letter solicited class members in the First Action to retain the Miller Firm on an individual contingent fee basis to continue to represent their interests with respect to claims arising from their investments in Madison Plaza. The October 10, 1994 letter included a retainer agreement and confidential questionnaire for execution and completion by class members in the First Action, together with a stamped envelope addressed to the Miller Firm.
11. Among other things, the October 10, 1994 letter requested that Madison Plaza investors, in selecting counsel to privately represent them, keep in mind that the Miller Firm had spent four years developing a securities fraud case on behalf of the Madison Plaza investors. The letter stated that "Nobody is more knowledgeable concerning the Madison Plaza investment and the evidence of fraud."
12. In addition, the October 10, 1994 letter in setting forth factors which Madison Plaza investors should consider in selecting an attorney to represent them going forward, specifically cited to the extensive work and discovery which the Miller Firm had theretofore performed and obtained in the First Action, stating:
Miller & Milove is poised to present the securities fraud case and has retained top notch experts who have completed reports concerning the fraud in the Madison Plaza investment. Recently we completed the depositions of Edward Strasser (General Partner), David Levine (Pru-Bache Due Diligence Officer), and Paul Tessler (Pru-Bache Asset Manager). We are close to concluding depositions on behalf of the Madison Plaza investors.
and
We believe the SEC Claim should include fraud allegations based upon the evidence which has been developed in the [First] class action. (emphasis in original.)
This clearly evidences that it was the Miller Firm's intention, as represented to its clients, that the work product that they had produced was going to be used for the benefit of the Miller Firm's private clients.
13. The October 10, 1994 Miller Firm letter to Madison Plaza investors did not disclose the ongoing pendency of MDL 1005 prior to or in connection with that solicitation or that the class members in the First Action could remain in the MDL 1005 putative class following decertification of the First Action.
14. On or about November 16, 1994 this Court granted decertification of the plaintiff class in the First Action.
15. Both prior to and following the decertification of the plaintiff class in the First Action, the Miller Firm solicited, received and accepted individual contingent fee retainer agreements from investors in Madison Plaza. These individuals were the former members of the plaintiff class in the First Action and members of the class in MDL 1005.
16. During January 1995, the Miller Firm undertook negotiations with counsel for Prudential Securities Incorporated ("PSI") to resolve and privately settle the claims of the Madison Plaza investors from whom they had received individual retainer agreements in connection with the decertification of the First Action. These claims were settled in *139 early 1995 and the First Action was dismissed with prejudice by Order dated March 17, 1995.
17. The Miller Firm did not act or serve as class counsel in MDL 1005. By soliciting the members of the First class to privately retain the Miller Firm, and then privately settling for such clients which had the effect of excluding them from the class herein the Miller Firm actually acted in a manner contrary to and in competition with the interests of the Class. For example, the private retainers and secret settlements conflicted with the bargaining power of the Class in MDL 1005.
18. The Miller Firm did not perform any work of a significant or substantial nature with the intent or purpose to benefit MDL 1005.
19. The Miller Firm did not consolidate the First Action with the claims in MDL 1005 and was not responsible in the development of the theories asserted in the Consolidated Complaint in MDL 1005 or in the prosecution or settlement of those claims. In fact the Miller Firm actively sought to have its claims separated from the claims of the overall Class herein. To the extent that the Miller Firm contends that it benefited MDL 1005, it was solely through making available to Class Counsel in MDL 1005 certain of the raw discovery materials it had obtained in connection with its prosecution of the independent claims in the First Action.
20. The Miller Firm contends that it provided Class Counsel with certain documents, deposition transcripts, deposition summaries, affidavits, and other materials obtained and created by the Miller Firm in connection with the prosecution of the First Action.
21. These documents, deposition transcripts, deposition summaries, affidavits, and other materials, to the extent they were made available to Class Counsel in MDL 1005, were of minimal or de minimis value to Class Plaintiffs and Class Counsel in connection with the development or prosecution of and/or settlement discussions in MDL 1005 because, among other things:
(a) The documents and other materials consisted essentially of raw data without analysis of their relevance to the claims in MDL 1005 as distinct from the claims in the First Action;
(b) Most materials were not timely delivered to Class Counsel;
(c) The materials related to issues which were only peripheral or incidental to the matters asserted in MDL 1005; and
(d) The materials did not enhance the negotiating position of Class counsel in their negotiation of the Settlement with the PSI Settling Defendants. The Miller Firm did not originate, participate in and did not contribute to the creation, negotiation or enhancement of the progress of the Class proceedings as such or provide anything of compensable value for the settlement. Their sole participation came after the settlement was promulgated, by a letter advocating an increase in one of the terms in respect to the allocation for former First class members the few who did not settle privately with the Miller Firm as their personal attorneys or through the SEC proceeding or otherwise and by this misguided fee application presented to the Settlement Fund. They have not earned any fees additional to those already reaped as indicated hereinabove. The Miller firm never sought to advance the interests of the Class or its partial settlement as opposed to the interests of its private clients.
22. Any overlap between the allegations in the First Action and the allegations in MDL 1005 is fortuitous and is not the result of any sharing of discovery materials or information developed in the First Action with Class Counsel in MDL 1005.
23. The benefit, if any, which accrued to MDL 1005 from the information or documents obtained, or services rendered, by the Miller Firm in the First Action was merely incidental to the Miller Firm's prosecution of the First Action. The information and documents obtained in connection with the First Action were used by the Miller firm to obtain private settlements for their private clients, for which work the Miller firm was paid.
24. Although certain documents provided by the Miller Firm might under other circumstances have had incidental value in the *140 prosecution of claims for their personal clients, they presented nothing of influence or use on the negotiation of the settlement for the Settlement Class in MDL 1005. On the whole, the information and/or alleged services provided by the Miller Firm was of insignificant, minimal and de minimis value or benefit in the development, prosecution, and partial resolution of MDL 1005 by the settlement achieved by the Class and its associated counsel.
25. The Miller Firm Application reports a lodestar of $2,746,117.50 for work exclusively undertaken by them in the First Action. The Miller Firm Application seeks an enhancement multiplier of 2, requesting a fee of $5,492,235. In addition, the Miller Firm Application seeks reimbursement of expenses incurred in the First Action in the amount of $543,811.56. The Miller Firm Application, thus seeks an award from the Settlement Class in MDL 1005 in the amount of $6,036,046.56.
26. In connection with the resolution of the claims of the Madison Plaza investors who had individually retained them on a contingent fee basis, the Miller Firm has represented to the Court that it has received legal fees of approximately $5,250,000. This represents a multiple of almost two times their reported lodestar that they have already received. The application by the Miller Firm does not in any event and under all the facts and circumstances persuade the Court that any enhancement to their lodestar would have been appropriate in this action. Based on the record and the disclosures made at the fairness hearing, it is clear that the Miller Firm received this $5,250,000 in exchange for the services that the Miller Firm is now again applying for before this Court. The Miller Firm has already been compensated in amounts that far exceed the rates applied for by the members of the Executive Committee of class counsel in MDL 1005, who seek a 1.57 blended multiple for services which actually created the Settlement herein.
27. The ability of the Miller Firm to solicit and obtain individual retainers from Madison Plaza investors; to promptly settle and resolve these claims; and to receive the substantial compensation which it received in connection with the settlement of these claims, was a direct result of the Miller Firm's expenditure of professional time, effort, and expense in the prosecution of the First Action.
28. The lodestar and expenses for which the Miller Firm seeks compensation from MDL 1005 actually directly benefitted their individual Madison Plaza clients and they have been compensated in full therefor.[2]
29. The Miller Firm has already received adequate compensation for all of their efforts in connection with their claims herein, and were the Court to grant the Miller Firm Application in any part, the Miller Firm would receive a duplicate payment and windfall at the expense of the Settlement Class for the same legal services.
CONCLUSIONS OF LAW
1. Where specific legal services are rendered by counsel which has the effect of benefitting a class by tending to create, increase, protect or preserve a fund, such counsel may equitably be awarded compensation from such common fund available to satisfy claims of class members even if such counsel was not "of record" in the class litigation. See Sprague v. Ticonic Bank, 307 U.S. 161, 166, 59 S. Ct. 777, 780, 83 L.Ed. *141 1184 (1939); City of Detroit v. Grinnell Corp., 495 F.2d 448, 474 (2d Cir.1974); Dubin v. E.F. Hutton Group, Inc., 845 F. Supp. 1004 (S.D.N.Y.1994). Attorneys' fee awards from a common fund depend on whether the attorneys' "specific services benefitted the fund whether they tended to create, increase, protect or preserve the fund." Lindy Bros. Builders, Inc. v. American Radiator, Etc., 540 F.2d 102, 112 (3rd Cir.1976).
2. That principle, being equitable in nature, does not entitle counsel to double payment for the mere incidental recycling of their original efforts which have been otherwise fully compensated. Cranston v. Hardin, 504 F.2d 566, 579-580 (2d Cir.1974) ("[petitioners] have already been adequately compensated since ... they were awarded $750,000 in [another] case. It is a novel assertion that attorneys who are victorious in one case may, like the holder of a copyright, claim fees from all subsequent litigants who might rely on it in one way or another.").
3. "The question of whether, and to what extent, a Firm that represents private parties in separate litigation can recover attorney's fees in a class action covering the same matter has arisen in connection with previous settlements. Courts have held that work that was not undertaken for the purpose of benefitting the class (as opposed to the lawyers' private clients), or which did not actually result in such a benefit, could not be the basis for a fee award." In re: Prudential-Bache Energy Income Partnerships Securities Litigation, 1994 WL 202394, *11, 1994 U.S.Dist. LEXIS 6621, *29 (E.D.La. May 18, 1994).
4. Neither the case law nor equity requires compensation where the benefit contributed is incidental, or of a minimal or de minimis value to the class. Class Plaintiffs v. Jaffe & Schlesinger, P.A., 19 F.3d 1306, 1309 (9th Cir.1994) ("We know of no authority which mandates an award of fees to attorneys not formally representing the class, whose activities in representing others incidentally benefit the class."); Cranston, 504 F.2d at 579; In re Marine Midland Motor Vehicle Leasing Lit., 155 F.R.D. 416, 423 (W.D.N.Y.1994).
5. Moreover, where legal work has been performed on behalf of claimants who have elected to exclude themselves from the class particularly where, as here, they have done so at the behest of the counsel seeking fees it would be inappropriate to impose the cost of that work on the class. See, generally, Class Plaintiffs, 19 F.3d at 1306; In re "Agent Orange" Product Liability Litigation, 818 F.2d 226 (2d Cir.1987); Cranston, 504 F.2d at 579; Marine Midland, 155 F.R.D. at 422-423.
CONCLUSION
For all of the foregoing reasons and under all the facts and circumstances, the Court DENIES the Miller Firm Application in its entirety, concluding that the Miller Firm has been fully compensated for its services and that the information and/or assistance it provided or rendered in connection with the prosecution and/or settlement of MDL 1005 was of only incidental, minimal, or de minimis benefit to the Settlement Class, requiring no further compensation.
The foregoing shall constitute the Court's Findings of Fact and Conclusions of law including the preliminary Opinion set forth above, regarding application by the Miller Firm for attorneys' fees, costs and expenses. In view of the substantial administrative matters involving thousands of claims in the distribution process concerning the Partial Settlement herein and the ongoing pendency of their claims in this docket against others not involved in this matter, this Court certifies in accordance with Rule 54(b) Fed. R.Civ.P. that final judgment should be entered on the matters involved herein and the Court expressly determines there is no just reason for delay and the Clerk is directed to enter final judgment hereon forthwith.
NOTES
[1] The Miller Firm had obtained a private settlement on behalf of most of the former First class members as of the date of dismissal of the First claim. See Order of March 17, 1995. The Miller Firm did not reveal details of these settlements until the fairness hearing of November 17, 1995 because it claimed these negotiations were made pursuant to a confidentiality agreement.
[2] In its application, the Miller Firm relies in part on this Court's statement in another context during the November 16, 1994 hearing for decertification, implying that the Miller Firm might be entitled to compensation from an equitable fund for their efforts in the Consolidated Action. There, this Court stated:
Whatever you have done in four years inures to the benefit of any class that's involved in this thing. You will find there is law which says you are entitled to be recognized.
November 16, 1994 Reporter's Transcript at page 2, line 16. This statement was intended to leave open the possibility of conferring compensation upon the Miller Firm as a matter of equitable concern. It was issued before dismissal of the First action, and before this Court became aware of the extensive compensation the Miller Firm garnered for itself in a private settlement for the First class plaintiffs based substantially on the Miller Firm's services for them in MDL 1005 before the decertification hearing. In light of such compensation, this Court now determines that the Miller Firm is not entitled to any further award. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1970529/ | 559 F. Supp. 754 (1983)
Allen OLSEN, et al., Plaintiffs,
v.
COMMUNICATIONS WORKERS OF AMERICA (CWA), et al., Defendants.
Civ. A. No. 82-3443.
United States District Court, D. New Jersey.
March 16, 1983.
*755 Henry A. Stein, Jeffry A. Mintz, Stein & Shapiro, Medford, N.J., and Nelson Kieff, National Right to Work Legal Defense Foundation, Inc., Springfield, Va., for plaintiffs.
Irwin I. Kimmelman, Atty. Gen. of N.J. by Alfred E. Ramey, Jr., Deputy Atty. Gen., Trenton, N.J., for defendant, Thomas H. Kean, Governor, State of N.J.
Steven P. Weissman, CWA District 1, Trenton, N.J., James B. Coppess, Adair & Goldthwaite, P.C., Michael T. Leibig, Zwerdling, Schlossberg, Leibig & Kahn, Washington, D.C., Sidney Reitman, Reitman, Parsonnet, Maisel & Duggan, Newark, N.J., for Communications Workers of America, AFL-CIO, CWA District 1, and Locals 1031, 1032, 1033, 1034, 1037, 1038, 1039, and 1040; Laurence Gold, AFL-CIO, Washington, D.C., of counsel.
OPINION
DEBEVOISE, District Judge.
Plaintiffs, employees of the State of New Jersey who are not members of the union which is the majority representative of their employment unit, instituted this action attacking the validity of N.J.S.A. 34:13A-5.5 and 5.6. These statutory provisions *756 permit a public employer and a majority representative to include in a collective bargaining agreement provisions requiring non-members to pay a representation fee to the union. Plaintiffs also assert that they have been deprived of First Amendment rights to oppose implementation of the statute and to seek to persuade other State employees to join them in their opposition.
Defendants are Communications Workers of America, AFL-CIO ("CWA") (the majority representative), CWA District 1, CWA Locals 1031, 1032, 1033, 1034, 1037, 1038, 1039 and 1040, the State of New Jersey and Thomas H. Kean, Governor of the State of New Jersey.
In their complaint, plaintiffs seek to be designated representatives of a class pursuant to Fed.R.Civ.P. 23(b)(2) and (b)(3). The class is asserted to consist "of all public employees represented by CWA's locals, but who exercised their right not to be a member of defendant union and, therefore, have paid, and are paying, a representation fee pursuant to [N.J.S.A. 34:13A-5.5 and 5.6]." Plaintiffs seek injunctive and declaratory relief, nominal and punitive damages, and attorneys fees and expenses of suit.
On December 6 and 7, 1982, a hearing was held on plaintiffs' application for preliminary injunctive relief. Decision was reserved. Thereafter, plaintiffs' motion for class certification was denied for the reason that the positions and interests of nonmembers of the union are likely to be diverse and for the reason that the principal objective of a class action can be realized by treating this as a test case. This opinion constitutes my findings of fact and conclusions of law upon the preliminary injunction application.
FINDINGS OF FACT
A. The Statute: The statutory provisions which are applicable in this case are described in the opinion in Robinson v. State of N.J., 547 F. Supp. 1297, 1299-1301 (D.N.J.1982).
B. The Majority Representative: CWA is a national labor organization which has established Districts as geographic subdivisions. The Districts are staffed and financed as divisions of the national union and are not independent organizations.
The national union charters local unions which are separate organizations, electing their own officers and setting their own budgets. Under the CWA constitution, collective bargaining within the established bargaining units must be conducted under the direction of the CWA Executive Board, and all contracts and agreements entered into must be in the name of the national union.
In March 1981, CWA was certified as the majority representative for a State-wide unit of Administrative and Clerical State Employees. In August 1981, CWA was certified as the majority representative for three additional State-wide bargaining units consisting of Professional Employees, Primary Level Supervisors and Higher Level Supervisors, Eight State Locals were chartered by CWA for the purpose of representing employees in the four bargaining unitsLocals 1031, 1032, 1033, 1034, 1037, 1038, 1039 and 1040. The Locals are not the certified bargaining representatives. Rather, as mentioned above, the CWA national union is the collective bargaining representative and signs all collective bargaining agreements.
Plaintiff Anderson is employed within Local 1032's jurisdiction (Department of Transportation and New Jersey Public Broadcasting Authority). Plaintiff Lang is employed within Local 1034's jurisdiction (Departments of Environmental Protection, Health, and Labor and Industry employed in Mercer County). Plaintiffs Olsen, Smartt and Harrington are employed within Local 1039's jurisdiction (Departments of Human Services, Corrections and Parole and Community Affairs employed in designated counties). Plaintiff Yull is not an employee in a CWA bargaining unit and, unlike the other plaintiffs, has not paid representation fees.
CWA and the State of New Jersey entered into negotiations and in October 1981 the negotiations resulted in four two-year *757 collective bargaining agreements (one for each bargaining unit), retroactive to July 1, 1981.
Article II, Section B(2) of each contract provides for the deduction of a representation fee in lieu of dues from the regular paychecks of non-union members in the respective units. Deductions commenced on or about July 12, 1982. The amount of the deduction is determined as follows:
b. Amount of Fee
Prior to the beginning of each contract year, the Union will notify the State in writing of the amount of regular membership dues, initiation fees and assessments charged by the Union to its own members for that contract year, and the amount of the representation fee for that contract year. Any changes in the representation fee structure during the contract year shall be in accordance with B.1.d. above.
The representation fee in lieu of dues shall be in an amount equivalent to the regular membership dues, initiation fees and assessments charged by the majority representative to its own members less the cost of benefits financed through the dues, fees and assessments and available to or benefiting only its members, but in no event shall such fee exceed 85% of the regular membership dues, fees and assessments.
CWA member dues were set at an amount equal to two hours pay. Dues and representation fees are forwarded directly to national CWA. National CWA retains 40% of the funds; it places 50 cents for each employee into a CWA Defense Fund; and it remits the balance of almost 60% to the locals. It will be noted that (subject to the 85% limitation) the representation fee is to be an amount equal to regular member dues, initiation fees and assessments less the cost of member only benefits but not less the amounts spent for activities of a partisan or political or ideological nature. This, of course, is consistent with the New Jersey statutory provision permitting representation fees.
Article II, Section B(2) of each contract also provides for the creation of a Demand and Return System:
d. Demand and Return System
The representation fee in lieu of dues only shall be available to the Union if the procedures hereafter are maintained by the Union.
The burden of proof under this system is on the Union.
The Union shall return any part of the representation fee paid by the employee which represents the employee's additional pro rata share of expenditures by the Union that is either in aid of activities or causes of a partisan political or ideological nature only incidentally related to the terms and conditions of employment, or applied toward the cost of other benefits available only to members of the majority representative.
The employee shall be entitled to a review of the amount of the representation fee by requesting the Union to substantiate the amount charged for the representation fee. This review shall be accorded in conformance with the internal steps and procedures established by the Union.
The Union shall submit a copy of the Union review system to the Office of Employee Relations. The deduction of the representation fee shall be available only if the Union establishes and maintains this review system.
If the employee is dissatisfied with the Union's decision, he may appeal to a three-member board established by the Governor.
C. Details of the Demand and Return System: In contrast to the Demand and Return System described in Robinson v. State of N.J., supra, CWA has established a highly sophisticated method for determining what expenditures are reimbursable, what expenditures are not reimbursable and how to apportion expenditures which are for both reimbursable and non-reimbursable items.
Under the New Jersey CWA Demand and Return System, an employee seeking reimbursement *758 must submit a request in writing to CWA's secretary-treasurer in Washington, D.C. Upon receipt of the request, 40 percent of the payments received from the objecting fee payer is placed in an escrow account to be held until a rebate is paid to the objector and any dispute concerning the amount of the rebate has been resolved. The account bears interest at 5.25% annually and rebates to objectors include interest at this rate for the period their money is held. For the fiscal year ended September 30, 1982, CWA received more than 2000 rebate requests from workers employed by the State of New Jersey and represented by CWA.
The CWA Executive Committee determines the amount of the union's rebatable activities for the year on the basis of the calculation described below and on the basis of data which the CWA locals representing New Jersey State employees forward to the Executive Committee. The Executive Committee is required to make its determination by the January 1 following the close of the fiscal year.
Along with any rebate payment, an objector receives an explanation of the calculation and a copy of the policy statement explaining the appeals procedure. A fee payer who is dissatisfied with the amount of the rebate may appeal to an impartial hearing officer operating under the rules of procedure of the CWA Review Board, or he may appeal directly to the Appeal Board created by the New Jersey statute or he may appeal first to the CWA hearing officer and then to the New Jersey Appeal Board.
Effective February 13, 1981 CWA created a Public Review Board to decide complaints by members and non-members of CWA about rebates of sums paid to the union under union or agency shop contract provisions. The initial members of the Board were the Chairman of the Georgetown University Law Center, the President of Hunter College, and the minister of Peoples' United Church of Christ in Washington, D.C. CWA adopted detailed rules governing the filing of appeals with the Board and the procedures to be followed at hearings by the Board.
As mentioned above, CWA has developed a sophisticated procedure for determining reimbursable expenditures and non-reimbursable expenditures and for apportioning expenditures which are devoted to both reimbursable and to non-reimbursable items. The necessity for developing this procedure arose in the course of an action in the United States District Court in Maryland in which Maryland employees of American Telephone and Telegraph Company and of Chesapeake and Potomac Telephone Company who had paid agency fees sought reimbursement for expenditures not made for collective bargaining, contract administration and grievance adjustment. Beck v. Communications Workers of America, 468 F. Supp. 93 (1979). On May 3, 1979, the court referred the matter to Special Master Wilson K. Barnes. The Special Master filed his Report on August 18, 1980, ruling that CWA was entitled to retain 19% of its expenditures and was required to reimburse to the plaintiffs in that case 81% of its expenditures.
After the Special Master issued his Original Report, CWA and various local unions moved to recommit the matter to the Special Master to make additional findings on the basis of new evidence assembled by CWA. The motion was granted and the Special Master took additional testimony and received new exhibits. In his Supplemental Report the Special Master stated, "[t]he Defendants [CWA and various locals] have also accepted the holding that the record-keeping and bookkeeping methods of the Defendants before the filing of the Original Report were not adequate to enable them in a number of instances to meet the required burden of proof by clear and convincing evidence, and generally accept the method of calculations used by the Special Master in reaching the results in the Original Report. It is recognized that the 19 percent of permissible expenditures (and 81 percent of nonpermissible expenditures) continue in effect until the Defendants are able to meet their burden of proof by clear *759 and convincing evidence that other percentages are appropriate."
CWA sought by its additional evidence to show that it had developed a methodology which enabled it to establish a different (and higher) percentage of expenditures which it was entitled to charge to non-members in the form of agency fees. The new evidence consisted of testimony of and exhibits prepared by experts. The data which CWA has presented in this action are a somewhat modified version of the data presented to the Special Master.
CWA retained Edward C. Bryant, Chairman of the Board of Westat, Inc., a scientific survey research organization. He developed a system of time recording which would be capable of producing estimates of "retainable, nonretainable and administrative time for the employees of CWA." He also collected data by sampling procedures, developed forms and engaged in pretesting the data collections. The work which he performed and submitted to the Special Master is described in the Supplemental Report of the Special Master. This work and certain additional work which he and his firm performed after the Special Master issued his Supplemental Report are described in his affidavit filed in the present action.
Counsel for CWA had provided Bryant with a list of 25 descriptive categories of activities in which CWA engaged.[1] The Westat Report allocated the 25 descriptive categories set forth in footnote No. 1 to five major categories: 1. Retainable (Nos. 1-9); 2. Other Retainable (Nos. 15 and 23); 3. Administrative (Nos. 10-13). The allocation of time in this category was to be made on the basis of the allocation of the nonadministrative time of each district or department; 4. Allocable (Nos. 6, 16, 20, 22 and 25). CWA contended that if the portion of the allocable activity was directly related to the working lives of CWA represented employees, it would be retainable and if the portion of the allocable activity was related to the everyday lives of CWA represented employees as citizens generally, it would be nonretainable; 5. Nonretainable (Nos. 14, 17, 18, 19 and 24).
Given these descriptive categories and major categories Westat devised the system described in the Bryant affidavit for determining and analyzing time spent by CWA employees on their various tasks so as to provide a basis for estimating reimbursable (nonretainable) and nonreimbursable (retainable) time.
Harvey J. Nuland, a certified public accountant with the firm of Buchbinder, Stein, Tunick & Platkin, also appeared as a witness before the Special Master. Nuland and his firm had been retained by CWA to recommend a system of apportionment that would distribute or categorize CWA's expenditures as reflected in its accounting system as reimbursable or nonreimbursable. The systems divided by Nuland are described in the Special Master's Supplemental Report and in Exhibits J and K to the affidavit of Emanuel Saxe filed in the present action. Nuland recommended, among other things, that the salaries of the 17 elected Executive Board members of CWA be considered as retainable and not subject to apportionment.
*760 CWA also retained Dr. Emanuel Saxe, a certified public accountant and professor. He was asked to review the reports prepared by Nuland's firm and to determine their compliance with accepted cost allocating standards and thereafter to devise a program based on those standards which, when applied to the audited financial statements of CWA would yield data that would disclose the amount of retainable expenses and the amount of non-retainable expenses. Dr. Saxe devised such a program. It is described in the Special Master's Supplemental Report and in the Saxe affidavit filed in this action.
Plaintiffs in the Maryland District Court action also produced expert witnesses who challenged certain of the methods and conclusions of CWA's experts. It is unnecessary for present purposes to go into the details of their opinions. Suffice it to say, they appeared to be as experienced and competent as CWA's very experienced and competent experts.
The Special Master reviewed the evidence and arrived at a number of conclusions. Those having the most pertinence for present purposes are:
... the Court expected that the record-keeping position of the CWA Defendants at the time of the hearing before the Special Master would be in place and in actual operation so that they could be applied to the specific figures disclosed by the audited financial reports and records. This, however, has not been the case. The CWA Defendants produced evidence to set forth a system of record-keeping and allocation of costs which they hope and expect to apply in the future. This is clear from Nuland 1 and Nuland 11, the Westat Report and the Saxe Format Report, as well as from the testimonies of Mr. Nuland, Dr. Bryant and Dr. Saxe, considered supra, and particularly at pages 8 through 28 of this Supplemental Report.
b. There appears to be no dispute that the percentage of retainable (19 percent) and nonretainable expenditures (81 percent) held to be applicable in the Original Report continues in effect until modified upon a proper motion by CWA for such modification and the establishment by CWA at the time of hearing on such a motion that amounts in excess of 19 percent of CWA expenditures were properly chargeable in the future to the Plaintiffs as Agency Fee Payors.
. . . . .
The new system designed by CWA experts is generally sufficient subject to the correction of certain defects, supplying certain omissions and being properly monitored and administered.
The Special Master has concluded, and so finds, that the new system as set forth in Nuland 1, Nuland 11, the Westat Report, the Saxe Format Study and in the testimonies of Mr. Nuland, Dr. Bryant and Dr. Saxe is generally sufficient, prima facie, to enable CWA to meet its burden of proof as set forth in the Original Report, provided, however, that certain defects and omissions, later mentioned, are corrected or supplied and provided further that the system is properly monitored and administered as later considered.
The Special Master is not unmindful of the various objections forcefully made by counsel for the Plaintiffs. He is however of the opinion that these objections either do not substantially affect the general sufficiency of the proposed new system or will be met and overcome by the proper monitoring and administration of the proposed new system.
After the Special Master issued his Supplemental Report on September 14, 1981, Dr. Saxe revised his format designed to enable an accountant to calculate retainable and non-retainable expenses. The first application of the Saxe Format in terms of a rebate calculation was made for the year ending March 31, 1982. That calculation resulted in a special report issued and certified by the accounting firm of Main Hurdman (Exhibit D to the Shepperson affidavit filed in this action). The special report concluded: "In our opinion the schedules referred to previously, present fairly the *761 retainable (84.98%) and non-retainable (15.02%) expenses for the year ended March 31, 1982, computed on the basis of the Westat study and in accordance with the format developed by Dr. Saxe."
Plaintiffs in the present case have filed the affidavit of Irving B. Ross, a certified public accountant who had participated as an expert on behalf of the plaintiffs in Beck v. CWA. Ross challenges the validity of the allocation computed by Main Hurdman on a number of grounds. Among the grounds are:
6. Main Hurdman, however, do not give their opinion on the CWA computation of Retainable Expenditures.
. . . . .
7. Main Hurdman's special report was not prepared for the purpose of determining the portion of CWA's retainable versus non-retainable expenses for the fiscal year. Main Hurdman merely rearranged data provided to them by the CWA in accordance with the format developed by Dr. Saxe. They in fact state "we have performed no additional review or verification procedures".
8. In the Supplemental Report of Wilson K. Barnes, Special Master in the Beck litigation, certain changes were recommended in CWA's proposed system. The CWA computation of Retainable Expenses does not meet either its burden of proof or the criteria established by the Court in regard to its
(1) treatment of organizing expenses,
(2) its proper monitoring, and
(3) its timeliness, specifically:
(A) The CWA admits that its report is not in conformance with the Special Master's conclusions with respect to its Organizing Categories.
(B) The Special Master as well as the expert witnesses stressed that monitoring the system is "extremely important." Although WESTAT monitored the data collection plan including interviewing employees on a sample basis, there was no monitoring of the data in terms of verifying that the timekeeping records accurately reflected actual employee activities.
(C) The computation for the year ended March 31, 1982, was not completed until September, 1982. This unreasonable time delay could increase the difficulty of any independent verification because of the risk of document and memory loss.
. . . . .
10. The specific agreed-upon procedures to test the veracity of a computation of retainable expenses should include but not be limited to the following:
(A) Review and testing of the worksheets which compile the retainable information. This procedure would include tests of the mathematical accuracy of the calculations including tracings to individual activity reports.
(B) Development of a program for testing the accuracy of the information contained on the source documents, i.e. the activity reports. This procedure would include the gathering of corroborating evidence which is sufficient, competent and reliable to afford reasonable assurance that the time allocations are proper. Testing of corroborating evidence should include but not be limited to the examination of:
1. Travel vouchers,
2. Employee Job Descriptions,
3. Personnel Files,
4. Correspondence Files,
5. Other Work Progress Reports,
6. Individual Employee Interviews.
11. In connection with Beck, et al. v. CWA, et al., the defendant Union has calculated its retainable versus non-retainable expenses and applied them to the agency fee payment it received from a group of Maryland private sector employees. No evidence has been provided among the Olsen documents to demonstrate that the same causal-beneficial relationship exists between the retainable/non-retainable expenses applicable to Maryland private sector employees and New Jersey public sector employees. Consequently, the veracity of any calculation *762 in this regard lacks a sound accounting basis.
12. In addition to supporting the national CWA effort, the Plaintiff's representative fees are also expended at the district and local levels. The CWA is presently relying on a sampling system designed by the WESTAT Corporation to allocate its retainable and non-retainable expenses. This system is based on the assumption that all CWA districts are relatively homogeneous units. No evidence has been provided among the Olsen documents to substantiate that CWA's District retainable versus non-retainable expense bear the same relationship to New Jersey state government employees as they do to American Telephone and Telegraph Company and Chesapeake and Potomac Telephone Company employees in Maryland.
13. Each local makes its own rebate calculation based on guideline instructions from CWA national office. The veracity of all such calculations should be subject to the gathering of similar corroborating evidence as described in 10(B) herein. This factor is more critical in relation to the defendant locals in view of the fact that the suggested rebate calculation forms only require the reporting of detail concerning rebatable expenses and time and not all expenses and time. Furthermore, Schedule C of the form which report officers' rebatable time is not the product of contemporaneous recordkeeping and therefore warrant expanded verification procedures.
It is unnecessary and impossible at the present juncture of this lawsuit to determine whether the Main Hurdman computation of retainable and non-retainable expenses is proper for constitutional purposes and for New Jersey statutory purposes. Assuming that a similar computation is made for the period July 12, 1982 to September 30, 1982 to which plaintiffs' demands for rebates relate, CWA's internal hearing procedure and ultimately New Jersey's Appeals Board would have to address that question. The Special Master's Supplemental Report and the Saxe, Bryant and Ross affidavits and the Main Hurdman special report filed in this case demonstrate the complexity of the question and the insurmountable difficulties an objecting employee would encounter were he to seek to challenge the rebate computation.[2]
D. Plaintiffs' First Amendment Activities: Each of the plaintiffs in this action is a State employee in a unit for which CWA is the bargaining representative. None of the plaintiffs is a member of CWA and each objects to the deduction of representation fees from his pay as permitted by the New Jersey statute. Each of the plaintiffs has sought to organize resistance to the representation fees among fellow employees, and each has been threatened with disciplinary action as a result of his activities. There follows a recital of the events relating to the plaintiffs who testified at the preliminary injunction hearing.
1. Olsen: Plaintiff, Allen Olsen, is employed in the Department of Community Affairs. In May of 1982 he read in the newspapers that employees in the Department who were not CWA members would be required to pay a representation fee. He received an official notice of the deduction from his pay when he received his paycheck on July 15, 1982. On July 10, he had received from CWA a notice of its Demand and Return System.
Olsen disagrees with political and social positions which CWA takes and objected to the fee deducted from his pay for the reason that he had no way of knowing for what purpose the money would be spent. He communicated with the National Right to Work Legal Defense Foundation, Inc. to seek assistance in combatting what he considered to be a deprivation of his rights. The Fund provided Olsen with a specimen protest letter to be sent to the union and to state officials. Olsen showed the letter to *763 his colleagues, and nineteen agreed to join with him in signing the letter and sending it to the President of CWA Local 1039 and to Frank Mason, Director of Employee Relations in the Governor's Office. Copies were mailed to the Commissioner of the Department of Community Affairs, the Chairmen of the New Jersey House and Senate Labor Committees and to the Chairman of PERC.
The letter was dated June 1, 1982. It was written on stationery bearing Olsen's home address. The letter protested the representation fee and asked that the constitutional rights of the signers of the letter be protected. It demanded that the State and CWA provide data to show what costs were incurred by the union for contract negotiation, contract administration and processing grievances.
On June 14, 1982 Mason responded. He alluded to the statute which authorized the deduction of a representation fee, referred to pending litigation which, he said, might affect actions taken by the State, and expressed regret that he was unable to satisfy Olsen's views on the issue.
Not having heard from the President of Local 1039, on June 25, 1982 Olsen, on behalf of the signers of the earlier letter, wrote another letter on his home stationery. It was addressed (and copied) to the same persons as those who received the first letter. The letter repeated Olsen's contentions that the deduction of representation fees was illegal until a proper amount was established in advance and requested that the deductions cease. There was no response to the letter.
Olsen informed his supervisors of his activities and none had any objections.
The persons opposing the representation fees were loosely associated in an organization which they called Committee for a Rational Union Representation Fee. During the first or second weeks in July 1982, Olsen and plaintiffs William Anderson, Peter Yull, and Larry Lang prepared a Status Report addressed to Non Exempt Nonmembers of CWA. The Report stated that there was evidence that the amount of the representation fee was "at least four times as high as it should be."[3] The letter urged that demands for rebates be filed in a timely manner and described certain pending litigation contesting the New Jersey fee plan. A form of demand letter was included. The names of the four signers were typed on the report along with their telephone numbers.
On July 16, 1982, a memorandum was sent to all department managers. Its author was Valerie L. Sunkett, Principal Personnel Assistant, Bureau of Employee Relations. The subject: "Distribution of Literature from Employee Organizations other than the Certified Majority Representative." The memorandum stated:
The Office of Employee Relations has advised us that it has come to their attention that some supervisors and managers have distributed or allowed the distribution of literature from employee organizations other than the certified majority representative. With this in mind, we are advising all managers that there is a long standing State policy and a matter of commitment set forth in the various contracts between the State and the employee majority representative that the State, through its supervisors or managers, will not undertake to distribute any materials from employee organizations other than the majority representative. We are requesting that each manager advise their supervision that in no case should they distribute, post, or allow the distribution or posting of any literature from employee organizations other than the certified majority representatives.
If you have any questions regarding this matter, please contact the Bureau of Employee Relations.
*764 On or about September 15, 1982 Kenneth J. Horton, Personnel Officer, sent to Olsen a memorandum which read:
We have been informed by the Office of Employee Relations that you have been engaging in the promotion of the interests of the "Committee for a Rational Representation Fee" using State time.
This letter is to advise you that such activity is not permitted if it involves State time, equipment or the distribution of such literature.
The Office of Employee Relations has also urged us to remind you that continuation of this type of activity can lead to disciplinary action.
Olsen's supervisor had been approached a week prior to Olsen's receipt of the September 15 letter and had been asked to write a similar letter to Olsen.
On September 20, 1982 Olsen wrote to Horton, denying implications of misuse of State time and facilities and questioning the procedures which Horton pursued when receiving "third part allegations."
On September 30, 1982 Ms. Nancy Schaefer, Employee Relations Coordinator wrote Olsen to the following effect:
Your memo to Kenneth Horton, Personnel Officer for the Department of Community Affairs was referred to me for response.
The memo of September 15 you refer to did not "imply" misuse of State time and facilities. In fact, it was a misuse of State time and facilities and I directed the Department advise you to discontinue these activities if you had not already done so.
The information was not, as you say, "third hand." In fact your supervisor spoke to you regarding distribution of such material on State property and it is my understanding you did admit to distribution of the leaflet. Your name and work number are clearly printed on the leaflet with an invitation to call you. Such information would be considered "first hand." Use of a State phone for business other than that of the State's is clearly inappropriate.
The Governor's Office of Employee Relations has been the agent for developing and enforcing labor relations policy throughout the State. It has been a long standing policy of the State that distribution of any literature on State property at any time by any organization without the express permission of the State is not allowed.
The Department is aware of the State's policies regarding union activity, as well as permissible activities spelled out in the negotiated agreement. Should you have any further questions regarding this matter please feel free to contact me.
Olsen wrote to Schaefer and asked for a copy of the State's policies concerning union/nonunion activities. Numerous other forms of literature are distributed in State offices by State employees concerning organizations, activities and contributions. Olsen received no reply to his inquiry.
2. Lang: Lang is employed in the New Jersey Department of Labor. He pursued a course of action similar to Olsen's.
He first obtained 44 signatures on a letter to the President of Local 1034 and to Frank Mason. It was similar in content to Olsen's first letter. He had received permission from his director to engage in this activity if he did it on his lunch hour, which he did. He distributed copies of the status report urging the filing of requests for rebates at this work place before 8:00 a.m.
On August 11, 1982, the Chief of Personnel Services wrote to Lang stating:
It has come to the attention of this office that you have been using state time to promote the interests of the Committee For A Rational Representation Fee. This letter will serve as notice to you that you must cease and desist from such practice in the future if it involves state time, equipment, supplies, or the distribution of material in state offices.
The Governor's Office of Employee Relations has urged us to remind you that continued activity of this sort can lead to a disciplinary action.
*765 Lang had also become aware of the Valerie Sunkett memorandum of July 16, 1982 concerning the distribution of literature from employee organizations other than the certified majority representative. As a result of these communications, Lang removed all material concerning the representation fee from his office.
3. Anderson: Anderson's efforts to persuade fellow employees to contest the representation fee system followed the same course as Olsen's and Lang's. After initial approval of distribution of literature and discussions during lunch hours or breaks, Anderson was directed to stop his activities.
On August 5, 1982 Nancy Schaefer, Employee Relations Coordinator, wrote to Jeffrey Bodholt, Chief, Bureau of Employee Relations, Department of Transportation, as follows:
Attached is a copy of a leaflet the CWA alleges is being distributed by employees of the State who are part of the "Committee." Please investigate and advise me as to whether the leaflet was distributed on State time and whether or not the employee in question has been receiving phone calls on work time.
I would suggest you advise this employee in writing that such activity is not permitted on State time and continuation of this may lead to discipline.
Attached to the Schaefer memorandum was a copy of the July 15, 1982 Status Report of the Committee for a Rational Representation Fee urging employees to apply for a rebate.
On August 12, 1982, Bodholt wrote to Anderson as follows:
This is to confirm my telephone conversation of August 10, 1982 wherein I advised you that the "Committee for a Rational Representation Fee" cannot distribute literature on State premises nor can persons accept calls on State telephones during working hours to discuss Committee business. Only the majority representative organization, the Communications Workers of America, has contractual rights to utilize State facilities as outlined in the Union Rights and Representative portion of the contracts.
If you receive a call at your work telephone from employees interested in the Committee business, please advise the caller to contact you after working hours or on public telephones while you are at lunch, on your own time, or on your rest break. As I understand it, you indicated that the July 15, 1982 information sheet entitled "Status Report" (copy attached) was not distributed on the Department of Transportation premises. Any information the Committee wishes to disseminate can be accomplished off of State premises.
Your cooperation in this matter is appreciated.
4. Yull: Without detailing all the events, Yull experienced treatment similar to that described above. In addition, one episode illustrates the special consideration given to the union with respect to communications to employees.
Pursuant to Article XXVIIC of the various collective bargaining agreements, the union is given the right to maintain a bulletin board at each work place and to distribute literature in central locations. The material which may be posted on the bulletin boards or distributed to employees may concern union matters and matters of concern to unions generally. The only express limitations are that the "material shall not contain anything profane, obscene or defamatory of the State or its representatives and employees, nor anything constituting election campaign material."
At least one union bulletin board was used to post information attacking the Committee for a Rational Representation Fee and threatening those who espoused its goals. The circular involved read as follows:
Fellow Workers:
The National Right to Work Committee, an anti-worker, right-wing organization funded by the worst union busting corporations in America, is behind a drive to weaken your union. A front group of disgruntled State employees calling *766 themselves "A Committee for a `Rational' Union Representation Fee" along with a group called "United Professional Employees," is attempting to discredit your union by spreading half truths and feeding on rumors. These cowardly individuals (many of whom are supervisors) refuse to use the Democratic procedures established in our union to resolve controversial issues. They prefer to attack our unionthe only organization currently elected by State employees to help us defend our interests as workers. The National Right to Work (FOR LESS) Committee and its front groups do nothing but keep working people from getting decent wages and benefits for their families. They try to destroy the only organizations established to protect and defend workersunions. Unlike unions, these groups are not controlled by workers. They do not hold elections. They are the exact opposite of the Democratic procedures they purport to defend. Recently, these anti-worker groups have been posting material on CWA bulletin boards. This is a violation of your contract. If you witness this happening, get the name of the individual and contact your steward or the Union office. A grievance will be filed against any supervisor posting anti-union material on these boards, or handing out anti-union material on the job.
DEFEND YOUR CONTRACTDEFEND YOUR UNIONDEFEND YOUR FAMILY. JOIN CWABUILD YOUR LOCALSTOP ATTEMPTS TO ATTACK YOUR UNION.
5. General Observations: It is quite apparent from the evidence that plaintiffs' activities when opposing the representation fee were consistent with previously permitted conduct by State employees on State property. Most of these activities took place before work or during breaks or lunch hours. Use of the phone was limited in nature and of a kind generally permitted in the offices where they worked. The distribution of literature was an activity in which employees were permitted to engage for other non-employment related causes. Under the collective bargaining agreement, however, the State has agreed that one group of employees (members of CWA) may express themselves on bulletin boards and through the distribution of literature, while non-members may not enjoy the same privilege.
I find that the sole reason plaintiffs were directed to cease their activities on behalf of the Committee for a Rational Representation Fee and were threatened with discipline was because of the ideas and policies which they advocated. Their activities in no way interferred with their work and in no way intruded upon other employees. The State, apparently at the instigation of the union, sought to prevent expression of the views and policies espoused by plaintiffs.
CONCLUSIONS OF LAW
The court has jurisdiction over this action by virtue of 28 U.S.C. § 1343 to provide remedies for causes of action arising under 42 U.S.C. § 1983.
Plaintiffs, who now seek preliminary injunctive relief, must show: (i) a reasonable probability of ultimate success on the merits of the litigation, (ii) irreparable harm to themselves if the injunction is not granted, (iii) the absence of countervailing harm to other interested persons if the injunction is granted, and (iv) the absence of countervailing public interests should the injunction be granted. Kennecott Corp. v. Smith, 637 F.2d 181 (3d Cir.1981).
Three substantive issues must be addressed at this time to determine whether plaintiffs have a reasonable probability of ultimate success on the merits: (i) Did the actions which the state and the union defendants took to prevent plaintiffs from expressing their views through the Committee for a Rational Representation Fee violate plaintiffs' First Amendment rights? (ii) Did I correctly decide in Robinson v. State of N.J., supra, that the New Jersey statutory provision permitting the majority representative to use non-members' fees for certain lobbying purposes is unconstitutional? *767 and (iii) Does CWA's demand and return system adequately protect plaintiffs' First Amendment rights?[4]
A. Plaintiffs' Rights to Express Themselves: As described above, plaintiffs' superiors, upon the urging of union officials, have forbidden plaintiffs to express their views about the representation fee procedures on state property and have threatened them with disciplinary action if they do so. The conclusion is inescapable that this action was taken because of the content of plaintiffs' speech and writings and not because of any interference with their work or the work of any other state employees. The prohibition extends to activities during recess and recreation periods and it extends to activities conducted on all portions of state propertyhallways, sidewalks, dining rooms, and social areas as well as offices and other work areas.
It is well established that public employees have protected First Amendment rights. Tinker v. Des Moines Independent Community School District, 393 U.S. 503, 89 S. Ct. 733, 21 L. Ed. 2d 731 (1969). The First Amendment prohibits governmental discrimination among viewpoints on particular issues falling within the realm of protected speech. Niemotko v. Maryland, 340 U.S. 268, 71 S. Ct. 325, 95 L. Ed. 267 (1951). Such discrimination has occurred in this case. The State has permitted pro-union views to be expressed both on the bulletin board devoted exclusively to union materials and apparently elsewhere. The State has prohibited contrary views from being expressed anywhere or at anytime on state premises. This is a clear violation of plaintiffs' First Amendment rights.
The recent Supreme Court case of Perry Education Assn. v. Perry Local Educators' Assn., ___ U.S. ___, 103 S. Ct. 948, 74 L. Ed. 2d 794 (1983) is instructive. There the Court upheld a collective bargaining agreement provision which gave the exclusive bargaining representative access to the interschool mail system and teacher mailboxes and denied such access to a rival organization. The Court found that the internal mail system was not a public forum and held that exclusive use was necessary to permit the bargaining representative to perform its responsibilities effectively. This reasoning would tend to validate the provision in the contract involved in this case granting CWA the exclusive use of certain bulletin boards in working areas.
The reasoning of Perry, however, clearly does not validate the State's actions in the present case which prohibit those opposed to the union's representation fee system from expressing their views anywhere on State property. In fact, the language in Perry suggests that the Court would consider such a prohibition unlawful:
The exclusive access policy applies only to use of the mailboxes and school mail system. PLEA is not prevented from using other school facilities to communicate with teachers. PLEA may post notices on school bulletin boards; may hold meetings on school property after school hours; and may, with approval of the building principals, make announcements on the public address system. Of course, PLEA also may communicate with teachers by word of mouth, telephone, or the United States mail.
___ U.S. at ___, 103 S.Ct. at 952.
There is, however, no indication that the school board intended to discourage one viewpoint and advance another. We believe it is more accurate to characterize the access policy as based on the status of the respective unions rather than their views. Implicit in the concept of the nonpublic forum is the right to make *768 distinctions in access on the basis of subject matter and speaker identity. These distinctions may be impermissible in a public forum but are inherent and inescapable in the process of limiting a non-public forum to activities compatible with the intended purpose of the property. The touchstone for evaluating these distinctions is whether they are reasonable in light of the purpose which the forum at issue serves.
Id. at ___, 103 S.Ct. at 957.
Finally, the reasonableness of the limitations on PLEA's access to the school mail system is also supported by the substantial alternative channels that remain open for union-teacher communication to take place. These means range from bulletin boards to meeting facilities to the United States mail. During election periods, PLEA is assured of equal access to all modes of communication. There is no showing here that PLEA's ability to communicate with teachers is seriously impinged by the restricted access to the internal mail system. The variety and type of alternative modes of access present here compare favorably with those in other non-public forum cases where we have upheld restrictions on access.
Id. at ___, 103 S.Ct. at 959.
In the present case, unlike Perry, plaintiffs were not only excluded from communicating with fellow employees via the bulletin boards, they were excluded from communicating with fellow employees anywhere on State property, regardless of whether the areas constituted public or non-public fora. The reason they were so excluded was because they espoused views which were hostile to those of CWA and its members. This is a clear violation of the First Amendment.
The statute upon which plaintiffs rely, 42 U.S.C. § 1983, provides a cause of action based upon conduct by a person acting under color of state law which subjects the complainant to deprivation of federally protected rights, privileges or immunities in this case a deprivation of First Amendment rights of free speech, rights made applicable to the states by the Fourteenth Amendment. Conduct of a private party, not acting against a backdrop of state compulsion or involvement, does not give rise to a § 1983 claim. Adickes v. Kress & Co., 398 U.S. 144, 90 S. Ct. 1598, 26 L. Ed. 2d 142 (1970).
In the present case there can be no doubt that the conduct of the personnel officers and of plaintiffs' supervisors constituted state action. In addition, there was sufficient union involvement with state officials in the actions designed to prevent plaintiffs from communicating their views to constitute the conduct of the union state action for § 1983 purposes. CWA negotiated and entered into the collective bargaining agreement with the State pursuant to a State statute which permitted CWA to become the exclusive bargaining representative for State employees in designated employment units. The agreement (lawfully) gave the union the exclusive right to use certain bulletin boards to advance its interests and views. The union used at least one of these bulletin boards to attack plaintiffs' views. The union then succeeded in persuading state officials to order plaintiffs to cease communicating on State property concerning the representation fee and to threaten disciplinary action if they did. Thus the union and the State acting together deprived plaintiffs of federal rights. This is sufficient to constitute the actions of the union state action within the meaning of § 1983. Dennis v. Sparks, 449 U.S. 24, 101 S. Ct. 183, 66 L. Ed. 2d 185 (1980); Adickes v. Kress & Co., supra; Henderson v. Fisher, 631 F.2d 1115 (3d Cir.1980).
On this issue plaintiffs have established a likelihood of success on the merits. Deprivation of First Amendment rights constitutes irreparable injury. There are no legitimate interests of the defendants which would be adversely affected by enjoining continuation of the kind of conduct of which plaintiffs complain. The interest of the public would be served by protecting plaintiffs' First Amendment rights.
*769 A preliminary injunction will issue enjoining defendants from forbidding plaintiffs to speak or write on State property concerning union or representation fee issues and from disciplining plaintiffs should they engage in such activities and, in the case of the union defendants, from seeking to persuade State authorities to engage in such forbidden conduct. The injunction will be drafted so as to permit the State to comply with its collective bargaining agreement provisions governing CWA's use of bulletin boards and so as to permit reasonable regulations of general application as to the time, place and manner in which State employees may engage in non-work related communications, provided such regulations do not discriminate on the basis of views expressed about union matters, representation fees and employee relations generally.
B. Lobbying: In Robinson, supra, I held that the provision of N.J.S.A. 34:13A-5.5 c permitting labor organizations to use the representation fees of public employees for lobbying activities designed to foster "policy goals in collective negotiations and contract administration or to secure for the employees represented advantages in wages, hours, and other conditions of employment in addition to those secured through collective negotiations with the public employer" violated the First Amendment rights of non-member employees. I concluded that the New Jersey statute went beyond the kind of lobbying to which the Supreme Court has held representation fees may be applied, namely, "subsequent approval [of the collective bargaining agreement] by other public authorities; related budgetary and appropriations decisions might be seen as an integral part of the bargaining process." Abood v. Detroit Board of Education, 431 U.S. 209, 236, 97 S. Ct. 1782, 1800, 52 L. Ed. 2d 261 (1977).
Defendants in the present case ask that I reconsider my previous ruling. CWA urges two grounds for reconsideration.
First, CWA argues that collective bargaining in New Jersey may lead to an agreement by the parties to lobby for a change in legislation, and that this would, under my reasoning in Robinson, permit a union to use representation fees to lobby to obtain "subsequent approval" of that agreement, i.e., to lobby for legislative changes. If this can be done, so the argument goes, it is irrational to forbid the union to use representation fees to lobby for the legislative changes in the first place. CWA's rationale would permit the union and the employer to insert a provision in a collective bargaining agreement to lobby for any legislation they thought appropriate and then use non-members' fees to lobby for it. I do not understand Abood to so hold and I do not believe that a non-member's First Amendment right to refrain from advocating social and political views can be so easily destroyed.
CWA's second argument is more persuasive. It points out that many subjects such as pensions and protection against layoffs which are the subject of bargaining in the private sector are established by State legislation when the State is the employer, and thus, under New Jersey cases such as those cited in Robinson, are removed from the bargaining process. In order to achieve improvements in these provisions the union must lobby and, according to CWA, non-members should pay their fair share of the benefits received through the lobbying process.
One problem which this thesis presents is that the range of subject matters which can be brought under the New Jersey statutory umbrella is virtually unlimited. There are few subjects of general concern which cannot be deemed to affect "policy goals in collective negotiations and contract administration or to secure for the employees represented advantages in wages, hours, and other conditions of employment in addition to those secured through collective negotiations with the public employer." The breadth of the lobbying which CWA contends is permitted by the statute is suggested by the affidavit filed by CWA of Paul Goldberg, Director of Field Services of the American Federation of State, County and Municipal Employees, AFL-CIO:
Because the employer in the public sector is the state or local government itself, *770 the Union must both work closely with appointed and elected officials and take positions before legislative bodies on matters affecting public employee wages, hours and working conditions including budgets, tax reform, civil service reform, collective bargaining rights and legislation, health institutions, pensions, discrimination and civil rights issues affecting employees.
. . . . .
Examples of the Union's lobbying efforts range from testifying in favor of legislation authorizing collective bargaining in the public sector, to opposing the effects of deinstitutionalization on employees of public health institutions to advocating tax reform to ameliorate the effects of property tax cutbacks on public sector employees.
. . . . .
Approximately five hundred bills pending in the New Jersey legislature would have a direct impact on collective bargaining and public employee wages, hours and working conditions. Included in the subjects addressed by these bills are occupational safety and health, workers' "right to know" about hazardous chemicals in their workplace, changes in New Jersey's CAP" law which sets a 5% cap on government budgets and spending and thus limits monies available for public employee wages and benefits, and numerous other measures regarding state services, state aid to local governments and tax revenues.
(Emphasis added.)
These matters concern many if not most of the principal public issues with which the New Jersey legislature must dealthe extent of collective bargaining rights, the State budget, tax policy, assistance to municipalities, limits on municipal spending, how health care is to be provided and paid for. All, of course, can be said to have some effect upon State employees.
Unions have every right to lobby with respect to these issues. However these issues, involving as they do important questions of public policy, are the subject of intense debate and disagreement. To permit the majority representative to use representation fees to pay for lobbying on these questions is to compel non-members to pay to support policy views which they may consider unwise or abhorrent. If CWA's arguments were accepted, representation fees could be used to lobby with respect to practically all significant legislative questions. There would be practically no limit on the use of representation fees for lobbying purposes. This would constitute a major breach of non-members' First Amendment rights. I do not believe Abood contemplated such a result.
Consequently I reaffirm the conclusion I arrived at in Robinson. As in Robinson, the union defendants will be preliminarily enjoined from using any portion of plaintiffs' representation fees for lobbying other than lobbying to secure agency or legislative action required to implement a collective bargaining agreement.
In light of CWA's first argument described above, the order will include language designed to prevent the defendants from evading what I consider to be the intent of Abood. Plaintiffs' First Amendment rights cannot be permitted to be lost through the vehicle of provisions in collective bargaining agreements which obligate the employer and the union to lobby for all manner of causes having some effect on public employees. I suggest a provision in the order which would specify that "lobbying to secure agency or legislative action required to implement a collective bargaining agreement" shall be deemed to encompass lobbying designed to secure budgetary and appropriation legislation to provide funds to pay for benefits and programs contained in a collective bargaining agreement. However, I am receptive to suggestions of the parties as to alternative language which would insure conformity with Abood by preventing unlimited lobbying with non-members' fees.
C. CWA's Demand and Return System: In Robinson I found that the demand and return systems of the union defendants in *771 that case were such that a non-member's fee was taken under circumstances where he did not know in advance of payment and was unable to ascertain after payment whether the fee was used for political and ideological purposes which he opposed. I also found that the demand and return systems which were the subject of that case placed such heavy burdens on the objecting non-members and took such an inordinately long time to complete that in reality it does not constitute a system by which a non-member can recover the portion of the fee paid by him which is used for impermissible purposes. I concluded that the demand and return systems in that case could not protect a non-member's First Amendment rights and that "[t]hese rights can be protected only if there is an advance determination of the amount to which the unions are entitled for collective bargaining services and only if the enforced payments are limited to those amounts." 547 F. Supp. at 1322.
There are substantial differences in the demand and return system in the present case and the systems which were under review in Robinson. Here, as a result of the Maryland District Court case, there is in place a complex and highly sophisticated method for allocating expenditures between those which the CWA considers reimbursable to non-members and those which CWA considers non-reimbursable. CWA escrows 40% of the fees paid by objecting non-members. There is formal procedure which CWA has established to hear claims for reimbursement. One does wonder how the busy persons who comprise CWA's outside hearing board can possibly spend the time required to adjudicate properly the complex issues involved in the various claims for refunds arising in the many jurisdictions having differing representation fee statutes. However, the existence of such a board demonstrates CWA's efforts to involve disinterested persons in the process.
The question still remains whether even CWA's more sophisticated system adequately protects the First Amendment rights of objecting non-members. The time lag between filing an objection and resolution of the objection is very great. In order to obtain an authoritative adjudication of the various complex legal and factual issues it is still necessary to pursue intra-union remedies and then to appeal to New Jersey's Board of Appeals and from it to the New Jersey courts. I will defer passing on the constitutionality of this system for the time being.
In Robinson, in deference to the important role the union defendants were filling, I did not enjoin forthwith collection of representation fees from the plaintiffs in that case. Instead, I required that a portion of the plaintiffs' representation fees be placed in escrow and provided that if a final hearing were not heard in six months and if within that time there had not been established a representation fee system meeting constitutional requirements, I would entertain an application for additional injunctive relief.
Since I entered the order implementing the opinion in Robinson the union defendants in that case have devised new procedures for implementing their demand and return systems which they contend meet constitutional requirements. On May 3, 1983 a hearing is scheduled at which there will be considered, among other matters, the constitutionality of the revised systems. There will be added to the May 3 agenda the question whether CWA's system meets constitutional requirements. If any of the parties in this case wish to submit additional briefs on that question, they may do so on or before April 25. They will also have an opportunity to argue that question on May 3. The decisions I reach in the various cases are obviously interrelated and if there are appeals, the Court of Appeals should have the opportunity to hear all the cases at the same time. I shall try to enter appropriate orders granting or denying injunctive relief in all cases on the same date.
In the meantime, in view of CWA's escrow procedure it is unnecessary to require the escrow of additional portions of plaintiffs' representation fees.
Plaintiffs are requested to submit a form of order in conformity with this opinion.
NOTES
[1] The Special Master's Supplemental Report listed the categories provided to Bryant and used in the Westat Report as follows:
1. Formulating contract proposals, contract negotiations, and contract ratification; 2. Handling questions and complaints about working conditions, benefits and contract rights; 3. Handling grievances and arbitrations; 4. Other meetings, phone calls, etc. with company representatives; 5. Reading or discussing background information and news related to wages, working conditions, etc.; 6. Government agency, board or regulatory body matters; 7. Demonstrations, leafletting, strikes about CWA wages, working conditions, etc.; 8. Steward meetings or training; 9. CWA schools; 10. CWA conventions or monthly, area, etc. meetings; 11. CWA local union meetings; 12. Local union administration; 13. Office management and administration; 14. Meetings or conventions of other labor organizations; 15. Organizing; 16. Legislative activities; 17. Registration and get out the vote activity; 18. COPE fundraising; 19. Other political activity; 20. Community service activity; 21. Time offe.g., sick time, vacation; 22. CWA publications; 23. Public relations; 24. International affairs; 25. Other.
[2] In a memorandum opinion dated March 4, 1983 the Maryland United States District Court adopted with minor modifications the original report of the Special Master as modified by the supplemental report.
[3] One can surmise that the calculation was derived from the conclusion of the Special Master in the Maryland District Court case that 81% of the agency fee involved there had to be refunded. The 81% figure was changed to 79% by the District Court after correcting one of the Special Master's calculations.
[4] At this time it is unnecessary to address the different constitutional and statutory questions which plaintiffs raise as to the propriety of charging non-members for union expenditures for items such as representing employees before the New Jersey Civil Service Commission, union organizational efforts, the union sponsored newspaper, and the CWA "Defense Fund" designed to assist members who go on strike. It may well be that the New Jersey courts first should decide if these are expenses which the New Jersey statute permits to be charged to non-members before a federal court reaches the constitutional issues. Railroad Comm'n v. Pullman Co., 312 U.S. 496, 61 S. Ct. 643, 85 L. Ed. 971 (1941). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1970558/ | 559 F. Supp. 1115 (1983)
Joseph B. MORRISSEY, Jr., Plaintiff,
v.
COUNTY TOWER CORP., et al., Defendants.
No. 82-2032C(2).
United States District Court, E.D. Missouri, E.D.
March 9, 1983.
*1116 Thomas J. Guilfoil, Jim J. Shoemake, Guilfoil, Symington, Petzall & Shoemake, St. Louis, Mo., for plaintiff.
Robert D. Rosenbaum, William J. Baer, Gary E. Humes, Arnold & Porter, Washington, D.C., Albert H. Hamel, James M. Byrne, Lashly, Caruthers, Baer & Hamel, St. Louis, Mo., for defendants.
MEMORANDUM
NANGLE, District Judge.
Plaintiff brought this action pursuant to Section 27 of the Securities Exchange Act of 1934, 15 U.S.C. § 78aa et seq., and 28 U.S.C. § 1331(a). The gravamen of the plaintiff's complaint rests in his allegation that the defendants violated Section 14(a) of the Exchange Act, 15 U.S.C. § 78n(a), and Rule 14 a-9 promulgated thereunder, 17 C.F.R. § 240 14 a-9, through the dissemination of a proxy statement which both contained false or misleading statements of material fact, and omitted material facts. In this action, the plaintiff seeks an injunction voiding the results of an election held on December 22, 1982 at a Special Meeting of the shareholders of County Tower Corporation. At this meeting, a majority of those holding outstanding shares of County Tower common stock voted to approve the proposals which were embodied in the proxy statement which the plaintiff contends is false and misleading.
This case was tried to the court sitting without a jury. At the close of the plaintiff's case, the defendants moved for dismissal pursuant to Rule 41(b) of the Federal Rules of Civil Procedure, on the ground that upon the facts and the law the plaintiff had shown no right to relief. This motion was granted and judgment was rendered on the merits against the plaintiff. The court having considered the pleadings, the testimony of the witnesses, the documents in evidence and the stipulations of the parties, and being fully advised in the premises, hereby makes the following findings of fact and conclusions of law as required by Rule 52(a) of the Federal Rules of Civil Procedure.
FINDINGS OF FACT
1. Plaintiff Joseph O. Morrissey, Jr. (hereinafter "Morrissey") is a citizen of the State of Missouri domiciled in St. Louis County, Missouri. On December 22, 1982 Morrissey was elected a director of County Tower at the special meeting of the shareholders.
2. County Tower Corp. (hereinafter "County Tower"), the corporate defendant in this action, is a Missouri Corporation with its principle place of business at 8000 Forsyth Boulevard, Clayton, Missouri. County Tower is a bank holding company registered with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956, as amended. County Tower owns either directly or indirectly County Bank of House Springs, County Bank of Louisiana, County Bank of Webster Groves, County Bank of Richmond Heights, County Bank of Chesterfield, County Bank of St. Louis, County Bank of Manchester, County Bank of Tower Grove, and two nonbank affiliates, Midwest Investment Advisory Services, Inc. and County Realty Corp.
3. County Tower's common stock is publicly held and is traded in the over-the-counter securities market and is registered pursuant to Section 12 of the Securities Exchange Act of 1934. As of November 15, 1982, there were 1,601,630 shares of County Tower common stock issued and outstanding. By reason of a 5% stock dividend on December 30, 1982, there are, as of December 31, 1982, 1,680,479 issued and outstanding shares of common stock.
4. The 23 individual defendants in this action were members of County Tower's Board of Directors at the time of the filing of this complaint and at the time the November 24, 1982 Proxy statement was disseminated to the shareholders.
5. County Tower came into corporate existence by virtue of a merger between TG *1117 Bancshares Co. and TGB Co. On December 23, 1981 the merger closed, and, on that date TG Bancshares Co. merged in TGB Co., a wholly owned subsidiary of County National Bancorporation; County National Bancorporation changed its name to County Tower Corporation. As a result of this merger, Morrissey exchanged 34,004 shares of TG Bancshares stock for 24,287 shares of County Tower stock.
6. Pursuant to the Plan and Agreement of Merger between County National Bancorporation and TG Bancshares Co., at a Special Meeting of the Board of Directors of County Tower on December 30, 1981, the size of the Board of Directors of County Tower was increased from 16 to 23; the 7 persons elected were directors of TG Bancshares on the date of the aforesaid merger.
7. On or about March 4, 1982, County Tower mailed to each shareholder a proxy statement soliciting proxies with respect to the election of directors at the annual meeting of shareholders to be held March 17, 1982. At that meeting, all of the nominees of the Board of Directors were elected as directors. At that time, Article III, Section 2 of the By-Laws of County Tower provided:
The number of Directors of the corporation shall be such number of its shareholders, not less than twenty-three (23), as from time-to-time shall be determined by a majority of the votes cast at a meeting of the Board of Directors at which a quorum was present, each of whom shall be elected by the shareholder by ballot at the annual shareholders' meeting, for a term of one (1) year, each of whom shall hold office until such Director's successor has been elected and qualified.
On April 21, 1982, the By-Laws were amended by the Board of Directors to provide for one additional director.
8. As early as 1982, several of the individual defendants in this action, began to express a concern that County Tower might be vulnerable to a takeover attempt, which would result in minority shareholders not receiving a fair value for their stock, and which would disrupt the banking business of its subsidiaries. This concern was in part in reaction to Mr. Morrissey's accumulation of County Tower shares, which seemed to demonstrate that any person or company could rapidly accumulate such shares with a view toward seizing control of County Tower under circumstances not necessarily in the best interest of County Tower and all its shareholders. Mr. Morrissey's schedule 13D, filed with the Securities & Exchange Commission in September of 1982, revealed that he had increased his aggregate beneficial ownership of County Tower common stock to approximately five percent of the outstanding shares. In this schedule, Mr. Morrissey stated he had no present intention of seeking control of County Tower.
9. As a result of these concerns, meetings were held to discuss various possible changes in the structure of the Board of Directors. At a meeting of the nominating Committee on March 29, 1982, in addition to discussing further the possibility of adopting certain amendments to the Articles of Incorporation and By-Laws of the Incorporation, Mr. Sanguinet proposed that the committee recommend to the full Board of Directors that Mr. Morrissey be elected as a director. The committee unanimously adopted a resolution making the recommendation to the full Board of Directors. This offer was in response to Mr. Morrissey's expressed interest in sitting on the Board. On or about July 21, 1982, the County Tower's Board of Directors voted to make Morrissey an "advisory director" of County Tower, with the understanding that he may be nominated by the Board as a director at the 1983 Annual Meeting of shareholders. In a letter to the Chairman of County Tower dated August 5, 1982 Morrissey declined that offer, which had been communicated to him by the Chairman of County Tower.
10. On or about September 22, 1982 a committee of Directors was established to consider and study possible changes to County Tower's Articles of Incorporation and By-Laws. From late September to early November 1982, the committee, referred to as the Shareholders Relations Committee, *1118 met five times, and, in consultation with counsel, reviewed possible changes, selected those proposals that seemed most appropriate, and formulated a series of recommendations to present to the full Board of Directors for its consideration.
11. On November 10, 1982 the Board reviewed the proposals of the Shareholders Relations Committee and tentatively decided to recommend them to the shareholders at a special meeting to be held in December, rather than waiting until the next annual meeting scheduled for April of 1983. The Board unanimously recommended the adoption of the proposals; the Board also examined, a copy of portions of preliminary proxy material which was distributed to them at that meeting.
12. This court finds that the plaintiff submitted no evidence to support his contention that it was the defendants' purpose in recommending that a special meeting be held for the consideration of the proposals for the purpose of evading reporting requirements required by the federal securities laws, or to hide the allegedly deteriorating financial condition of County Tower. In fact, on or about November 10, 1982, County Tower mailed to its shareholders its third quarterly report for the period ending September 30, 1982, which disclosed the then-current financial condition of County Tower. The report included, among other things, a consolidated nine months' income statement consolidated balance sheet of County Tower and its subsidiaries for September 30, 1982 and September 30, 1981, and accompanying materials, consisting of four newspaper articles concerning County Tower and a letter signed by defendant Sanguinet.
13. County Tower's financial condition at December 31, 1982 and the results of its operations for the year then ended do not differ materially from the financial information reported to shareholders in the company's third quarter report. The plaintiff was unable to demonstrate that County Tower's financial condition was deteriorating as he alleged in his complaint. In fact as late as December of 1982, Morrissey attempted to buy a substantial amount of County Tower stock. On December 15, 1982, at least one month after this suit was instituted, a letter from Mr. Morrissey was delivered to the trust departments of County Bank of St. Louis and Tower Grove Bank and Trust Company which reads as follows:
I understand that the Trust Department(s) ... holds in a fiduciary capacity a number of shares of County Tower Corp. I will purchase all shares of County Tower Corp. presently held by the Trust Department(s) whether as executor, trustee, co-executor, co-trustee or in some other fiduciary capacity. The present over-the-counter market price is approximately $30.50 per share. I will pay $35.00 per share subject to three conditions. First, I cannot close the sale until I receive the appropriate regulatory approvals. Second, there shall be no change in the Articles of Incorporation and By-Laws of County Tower Corporation (such as are presently proposed) between the date of this letter and closing. Third, I require a response as to the shares held in fiduciary capacities by the Trust Department(s) by 2:00 p.m. on Tuesday, December 21, 1982.
I will be prepared to close any transaction in cash within one week of obtaining regulatory approval.
14. Among the proposals to be submitted to the shareholders at the Special Meeting was a proposal to reduce the size of County Tower's Board of Directors from twenty-three members to nine members. At the November 10, 1982 meeting of the Board of Directors, all 23 of the defendant-directors submitted their resignations, contingent upon and effective as of the time of the shareholders adoption of the proposals which would reduce the size of the Board. The directors had agreed at the October 1, 1982 meeting to submit such conditional resignations in the event they ultimately voted to recommend that the size of the Board be reduced.
15. At the November 10, 1982 Board Meeting, Mr. Sanguinet, at the request of the Board of Directors recommended the *1119 persons to be nominated to the reduced board. At this meeting, the Board adopted Mr. Sanguinet's recommendation. The following persons were recommended by Mr. Sanguinet to serve as nominees for directors to be submitted to the shareholders at the special meeting: Messrs. Eckhardt, Forsyth, Frank, McIlroy, Owen, Peck, Vatterott, Walker and Sanguinet.
16. On November 24, 1982, the Board held a special meeting, during which the Board received and gave final approval to the proxy statement to be submitted to the shareholders.
17. The Notice of the Special Meeting, the Proxy Statement, and a letter from Mr. Sanguinet, were mailed to shareholders on November 24, 1982. Therefore, the shareholders were provided with 28 days' notice of the Special Meeting. Mr. Morrissey received a copy of the letter, Notice, and the Proxy Statement.
18. The Proxy Statement contained two sets of proposed amendments to the Articles of Incorporation and the By-Laws.
19. Proposal No. 1 established new rules governing an effort by a large shareholder or otherwise a "Related Person" of the Company to merge or consolidate County Tower with another entity. The proxy defines "Related Person" as "certain entities that have acquired or obtained control of 10% or more of the Voting Shares of the Company." Under the terms of the proposals, large shareholders seeking to bring about a merger would be required to meet one of several conditions: approval of the business combination by 80 percent shareholder vote; or prior approval of the business combination by two-thirds of the Board; or compliance with certain specified conditions, one of which was using a formula "designed to ensure that any shareholder in the company receives a fair price ... for any stock purchased from him or her in a Business Combination." The proxy further states that under Missouri law two-thirds majority of the outstanding shares of common stock may authorize a sale, unless the articles of incorporation or by-laws require a greater favorable vote. Prior to the approval of this proposal County Tower did not have a provision requiring the approval of a Business Combination by any vote other than that required by Missouri law.
20. Proposal No. 1 also provides that in the case in which vacancies could be filled by a vote of the shareholders, the Board of Directors should be given advance notice of shareholder nominations. In addition, the proposal required two-thirds approval of the outstanding voting shares and two-thirds approval by the Board of Directors prior to the amendment or repeal of certain of the newly adopted by-laws; two-thirds approval by the Board and approval by 80% of the outstanding voting shares was required for the amendment or repeal of the Article relating to the "Approval of Mergers or other Similar Transactions with Related Parties."
21. Proposal No. 2 provided for a classified board and reduced the membership of the Board from 23 to nine. Under the terms of the proposal the Board would be divided into "three classes of director, as nearly equal in number as possible, who would serve staggered three-year terms." The Proxy Statement also provided that, if Proposal No. 2 were adopted, an election of directors would be held at the Special Meeting. The statement identified the nine nominees for the newly constituted Board recommended by management.
22. In addition to setting out the actual proposals, the Proxy Statement disclosed the "purpose of amendments" and the "general effect of amendments." In the Proxy Statement, it is explained that "(t)he primary purpose of the amendments is to discourage attempts by other persons, companies or groups to acquire control of the Company, without negotiation with the Company, through the acquisition of a substantial number of shares of the Company's stock, possibly followed by a forced merger or other business combination in which the remaining shareholders of the Company may not receive a fair price for "their shares. Such a merger may or may not be in the interests of the Company or its shareholders." It is further explained in the *1120 proxy that management was not aware of a present intention of any person or company to make such an effort. However, it is pointed out that the acquisition of a substantial number of shares of the company's stock by Mr. Morrissey "had the effect of forcing management's attention on the possibility that any person or company could rapidly accumulate shares of the Company with a view to a tender offer or other effect to seize control under circumstances not in the best interests of the Company and its shareholders."
23. In addition to setting out the purpose of the proposals, the general effect of the amendments, both positive and negative, are also set out in the proxy statement:
It should be noted that any or all of the proposed amendments might have the effect of entrenching management or of discouraging an attempt to acquire control of the Company that is not approved by a specified vote of the Board. It should be noted that a majority of shareholders might welcome the opportunity to liquidate their holdings and that acquiring companies often offer a premium over the prevailing market price.... To the extent that the proposed amendments have the effect of discouraging an attempt to acquire control, the proposals could be considered to be antitakeover devices that could deter a takeover attempt and entrench management even if the terms of the proposed takeover could have been desirable or beneficial to shareholders.... Shareholders should recognize that adoption of the amendments to the By-Laws could enable a majority of the Company's directors and shareholders to prevent a transaction favored by or favorable to a majority of the directors and stockholders.
Finally, the proxy statement provides an explicit warning with respect to the classification of the Board: "[a] Classified Board would also make it more difficult for minority shareholders to elect a director by means of cumulative voting because fewer directors would be elected at each annual meeting."
24. The November 24, 1982 Proxy Statement disclosed the remuneration of the top five officers of County Tower for the most recent fiscal year. At the time the Proxy Statement was disseminated County Tower's most recent fiscal year was calendar year 1981. During 1982, the remuneration of County Tower's officers and directors was increased only as appropriate to take into account the effects of inflation, as well as the increased responsibilities of certain of the officers and directors.
25. The Special Meeting of Shareholders took place as scheduled on December 22, 1982. The Inspectors of Election reported the following: Proposal No. 1 received 1,267,488 votes or 79.14%[1] for, 190,274 votes or 11.88% against, and 12,188 votes, or .76% abstained; Proposal No. 2 received 1,258,334 votes or 78.7% for, 192,194 votes or 12.00% against, and 19,347 votes or 1.21% abstained. The Inspectors reported that both proposals passed.
26. Following adoption of the proposed amendments, the shareholders elected nine directors to the newly constituted Board. The directors nominated received the following votes according to the Inspectors:
Nominee Vote
Earl E. Walker 1,908,414
J. Gordon Forsyth 1,909,764
Ben Peck 1,909,764
L. Carl Owne 1,889,764
Harlan A. Ackhardt 1,889,764
Merle M. Sanguinet 1,889,764
Joseph O. Morrissey, Jr. 1,241,685
John M. McIlroy 54,364
Gregory B. Vatterott 88,697
William A. Frank 84,282
The inspectors declared that Messrs. Frank, Morrissey and Vatterott were elected for a term expiring in April 1983; Messers. Eckhardt, Owen and Sanguinet were elected for a term expiring in April of 1984; and Messrs. Forsyth, Peck and Walker were *1121 elected for a term expiring in April of 1985. The directors elected included eight of the nine candidates recommended by management in the Proxy Statement. In addition, Morrissey was nominated from the floor by his attorney, Mr. Jim J. Shoemake, who held a proxy for Morrissey's spouse, and was elected as one of the then nine directors.
CONCLUSIONS OF LAW
This court has jurisdiction of this case pursuant to Section 27 of the Securities Exchange Act of 1934, 15 U.S.C. § 78aa, and 28 U.S.C. § 1331. Plaintiff claims that he is entitled to an injunction voiding the results of the election held on December 22, 1982 because the proxy statement disseminated by the defendants contained false or misleading statements of material fact and omitted material facts in contravention of Section 14(a) of the Exchange Act, 15 U.S.C. § 78n(a), and Rule 14 a-9 promulgated thereunder. Therefore, the question of law presented by this case is whether the proxy statement disseminated to County Tower shareholders was false and misleading, as those terms are defined by the federal securities laws.[2]
Rule 14-9, which is promulgated pursuant to Section 14(a) of the Securities Exchange Act, 15 U.S.C. § 78n(a) provides:
No solicitation subject to this regulation shall be made by means of any proxy statement, form of proxy, notice of meeting or other communication, written or oral, containing any statement which, at the time and in light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact, or which omits to state material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting on subject matter which has become false or misleading
17 C.F.R. S 240.14 a-9. In order to establish a private cause of action for the violation of Section 14(a) of the Securities Exchange Act, 15 U.S.C. § 78n(a) and Rule 14-9, promulgated thereunder, it is necessary for the plaintiff to establish either the existence of a false or misleading statement, or the omission of a fact and also to demonstrate that the statement or omission is "material." The standard of materiality is objective; a false statement or an omission is material "if there is a substantial likelihood that a reasonable shareholder would consider it important deciding how to vote.... [t]here must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information made available." TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 439, 96 S. Ct. 2126, 2128, 48 L. Ed. 2d 757 (1979). In addition to establishing that a false statement or omission is material, a burden also rests on the plaintiff to demonstrate that the proxy statement was an "essential link" in effectuating the corporate action which in turn gives rise to the injury. Mills v. Electric Auto-Lite, 396 U.S. 375, 385, 90 S. Ct. 616, 622, 24 L. Ed. 2d 593 (1969); Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374, 383 (2nd Cir. 1974) cert. denied 421 U.S. 976, 95 S. Ct. 1976, 44 L. Ed. 2d 467 (1975).
Under the standard of materiality set out by the Supreme Court, it is clear that proxy statements need not set out every argument against a particular recommendation or proposal. The securities laws only prohibit a false or misleading statement of material fact, or the omission of a material *1122 fact. Gollub v. PPD Corp., 435 F. Supp. 564, 567 (E.D.Mo.1977) aff'd 576 F.2d 759 (8th Cir.1978). Several courts have held that the failure to state the motive behind a particular proposal or transaction does not constitute a material omission. "It is well established, however, that for the purposes of the federal securities laws, the actual subjective motives behind a controlling shareholders recommendation of a transaction need not be disclosed, as long as the relevant underlying facts are disclosed." Lewis v. Oppenheimer & Co., 481 F. Supp. 1199, 1204 (S.D. N.Y.1979). See also, Selk v. St. Paul Ammonia Products, Inc., 597 F.2d 635, 639 (8th Cir.1979); Gollub v. PPD Corp., 576 F.2d 759 (8th Cir.1978). Therefore, the "unclean heart of a director is not actionable, whether or not it is `disclosed', unless the impunities are translated into actionable deeds or omissions both objective and external." Stedman v. Storer, 308 F. Supp. 881, 887 (S.D.N.Y.1969).
Applying the above principles to the facts presented by this case, it must be concluded that the plaintiff has failed to show by a preponderance of the evidence[3] that the proxy statement, which the defendants disseminated on November 24, 1982 contained false or misleading statement or omissions of any material fact. Over and above the previous standard, this court also has viewed the evidence in the light most favorable to the plaintiff, and has given the plaintiff the benefit of all reasonable inferences from his evidence and has reached the same factual and legal conclusions. Furthermore, it should be noted that there are very few disputes of material fact; instead, the disagreements arise out of an interpretation of the motives, intentions, and purpose of the actions taken by the defendants. In reality, the plaintiff is not objecting to the absence of any facts in the proxy; instead, his claim rests upon the allegations that the defendants failed to disclose what their true motivation was in making these proposals, and that the defendants failed to describe the proposals in the same manner that the plaintiff would have them characterized.[4]Selk v. St. Paul Ammonia Products, Inc., 597 F.2d at 639. Citing Gollub v. PPD Corp., 576 F.2d at 765. *1123 It is the opinion of this court that the Proxy Statement fairly and accurately disclosed all material information, including the potential negative effects of the various amendments. See Findings of Fact Nos. 22 and 23. The omissions of which the defendant complains are either pieces of information contained in the proxy, or plaintiff's personal characterization of the proposals. See Findings of Fact Nos. 22 and 23. Therefore, it is the conclusion of this court that the defendants did not violate Section 14(a) of the Securities Exchange Act or Rule 14 a-9 through the dissemination of the November 24 Proxy Statement.
The plaintiff's second claim consists of the allegation that the defendants scheduled the Special Meeting of the shareholders at the latest possible date in order to evade the disclosure requirements of Section 14(a) of the 1934 Act, Rule 14 a-3, and Schedule 14A, and also to prevent disclosure of the financial status of County Tower. Under Missouri law, written notice of each shareholder meeting cannot be given less than ten days prior to the date of the meeting. Mo.Rev.Stat. § 351.230.1. Article II § 4 of the by-laws of County Tower contains a similar provision, which provides that in a case of a special meeting notice shall not be delivered less than ten days before the date of the meeting. The shareholders of County Tower received notice of the special meeting 28 days prior to the date it was held. See Findings of Fact No. 17. Under the circumstances, it must be concluded that this length of time was reasonable. Furthermore, the record establishes that the meeting was in fact scheduled on December 22, 1982 due to the defendant's fear of potential takeovers; the defendants did not recommend that a special meeting be held at this time for the purpose of evading any reporting requirements required by the federal securities laws. See Findings of Fact No. 12. Finally, the plaintiff has failed to demonstrate that County Tower's financial condition was deteriorating. See Findings of Fact No. 13. Therefore, it is the conclusion of this court that the scheduling of this meeting did not violate federal or state law, and was not for the purpose of evading disclosure requirement under Section 14(a) of the Securities Exchange Act.
The plaintiff's final claim is that the defendants breached their fiduciary duty by proposing these amendments to the stockholders of County Tower, by scheduling a special meeting for the consideration of these proposals and the election of the members of the board in December of 1982, and by disseminating false and misleading proxy statements to the shareholders of County Tower.
Under Missouri law, once a proposal which calls for the business judgment of the board of directors is ratified by the stockholders, a court will only interfere if the matter complained of is ultra vires, illegal, fraudulent, unfair, or dishonest. Saigh v. Busch, Neidert v. Neidert, 637 S.W.2d 296, 301 (Mo.App.1982), citing Saigh v. Busch, 396 S.W.2d 9, 22 (Mo.App.1965). Under this rule, shareholders may ratify informal or irregular actions of the board, if the action taken was within the corporate powers of the Board. Id. It has already been established that the purpose of these amendments was to discourage attempts by substantial shareholders to gain control of County Tower in a manner unfair to the company's remaining shareholders. See Findings of Fact Nos. 8 and 22. In fact, proposals of a similar nature have passed muster. Elgin National Industries v. Chemetron Corp., 299 F. Supp. 367 (D.Del. 1969). Furthermore, the proxy statement disseminated to the shareholders was neither false or misleading or in contravention of the federal securities laws; the statement warned shareholders of the potential entrenching effects that the proposal might have. See Findings of Fact No. 23. Finally, this court has already concluded that the special meeting was held in a lawful manner and that a sufficient amount of notice was provided to the shareholders of County Tower. Therefore, it must be concluded that the plaintiff has failed to demonstrate that the defendants took any actions that were ultra vires, illegal, fraudulent, or dishonest. Upon the facts of this case, it is the conclusion of the court that the actions proposed by the defendants in the Proxy Statement were lawful and for a proper *1124 business purpose. The decision to recommend the proposals to the shareholders, and actions taken in conjunction with these proposals, including the scheduling of a Special Meeting did not constitute a breach of fiduciary duty on the part of the defendants in this action.
Accordingly, judgment will be entered for the defendants.
ORDER
IT IS HEREBY ORDERED, ADJUDGED, and DECREED, that judgment be and is entered for the defendants on counts I, II, and III of the plaintiff's complaint.
IT IS FURTHER ORDERED that this judgment be and is deemed a final judgment upon this court's express determination that there is no just reason for delay and upon an express direction for the entry of judgment, as required by Rule 54(b) of the Federal Rules of Civil Procedure.
IT IS FURTHER ORDERED that the defendants' counterclaim, which was severed from the trial on the merits pursuant to this order of this court, be and is set for trial on May 9, 1983.
NOTES
[1] The percentages cited in Findings of Fact No. 25 represent the percentage of issued and outstanding shares entitled to vote.
[2] The plaintiff's complaint contains two additional claims. In Count II, the plaintiff alleges that the defendants scheduled the Special Meeting at the latest possible date in order to evade the disclosure requirements of Section 14(a) of the 1934 Act, Rule 14a-3, and Schedule 14 A and to prevent disclosure of the allegedly deteriorating condition of County Tower. In Count III, plaintiff brings a state law claim for breach of fiduciary duty, in which he alleges that the defendants made these proposals in an effort to entrench themselves. The latter two counts will be examined after the plaintiff's claim that defendants violated Section 14(a) and Rule 14a-9 is considered.
[3] This case was dismissed at the close of the plaintiff's case, upon the motion of the defendants, pursuant to Rule 41(b) of the Federal Rules of Civil Procedure. The Rule provides that dismissal is appropriate at this stage in the proceedings if upon the facts and the law the plaintiff has shown no right to relief. In rendering judgment under Rule 41(b), a court is not as limited in its evaluation of the plaintiff's case as it would be on a motion for a directed verdict. "The court is not to make any special inferences in the plaintiff's favor nor concern itself with whether plaintiff has made out a prima facie case. Instead, it is to weigh the evidence, resolve any conflicts in it, and decide for itself where the preponderance lies." 9 Wright & Miller, Federal Practice and Procedure, § 2371 P. 233.
[4] More specifically, the plaintiff contends that the November 24th Proxy Statement omitted the following facts in contravention of the Federal Securities Laws: one, the deteriorating financial condition of County Tower; two, the purpose and effect of the proposed amendments, which would be to entrench management; three, the unconstitutionality of the Missouri statute which permits classification of Boards of Directors; and finally, the remuneration of the Directors for 1982 fiscal year. As previously stated, the plaintiff failed to establish that County Tower's financial situation was deteriorating. See Findings of Fact No. 13. Furthermore, the potential entrenching effect of these proposals was clearly set out in the Proxy Statement. See Findings of Fact Nos. 22 and 23. In addition, the defendant complied with the federal regulation which require only the disclosure of remuneration for executive officers or directors "during the registrant's last fiscal year." 17 C.F.R. § 229.402. See Findings of Fact No. 24. Finally, the plaintiff contends that it was false and misleading for the defendants to omit from the proxy statement that the classification of the Board violated the Missouri Constitution. It was by no means established that Section 351.315 of the Missouri General and Business Corporation Law is violative of the Missouri Constitution when defendant disseminated the proxy statement on November 24. Even today, this fact has not yet been established and remains an allegation on the part of the plaintiff. In light of the fact that this issue presents a question of state law, which is more appropriately resolved by a state court, this court will abstain from considering this issue. However, this court does hold that the defendants did not violate the federal securities laws by failing to include in the proxy statement the questionable claim that classification of boards violate Article XI, Section 6 of the Missouri Constitution. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1970567/ | (2008)
STARBUCKS CORPORATION, a Washington corporation; and Starbucks U.S. Brands L.L.C., a Nevada Corporation, Plaintiffs,
v.
WOLFE'S BOROUGH COFFEE, INC., a New Hampshire corporation d/b/a Black Bear Micro Roastery, Defendant.
No. 01 Civ. 5981(LTS)(THK).
United States District Court, S.D. New York.
June 5, 2008.
OPINION AND ORDER
LAURA TAYLOR SWAIN, District Judge.
In this action, Plaintiffs Starbucks Corporation and Starbucks U.S. Brands LLC (collectively "Plaintiff), seek injunctive relief against Defendant Wolfe's Borough Coffee, Inc., d/b/a Black Bear Micro Roastery ("Defendant" or "Black Bear"), on their federal trademark infringement and unfair competition claims brought pursuant to the Lanham Act, 15 U.S.C. §§ 1114(1), 1125(a); federal and state trademark dilution claims brought pursuant to the newly-amended Federal Trademark Dilution Act ("FTDA"), 15 U.S.C. §§ 1125(e) and 1127, and New York Gen. Bus. Law § 360-l, respectively; and their common-law unfair competition claim. The Court has jurisdiction of the federal claims in this action pursuant to 28 U.S.C. §§ 1331, 1338(a), and 1332(a). The Court has supplemental jurisdiction of Plaintiffs state statutory and common law claims pursuant to 28 U.S.C. §§ 1367 and 1338(b).
PROCEDURAL HISTORY AND FACTUAL BACKGROUND
The case was tried to the Court over two days on March 15 and March 17, 2005. The Court considered the stipulated facts, trial testimony and evidence carefully, while also observing the demeanor of the witnesses, and considered thoroughly all of the written and oral submissions of counsel. In its December 23, 2005, Opinion and Order[1] (the "December 2005 Decision"), the Court found that Plaintiff had failed to carry its burden of demonstrating its entitlement to relief and ordered that judgment be entered in Defendant's favor with respect to all of Plaintiffs claims; Plaintiff appealed.
Under the FDTA as in effect at the time this Court rendered its December 2005 Decision, a showing of actual dilution was required to demonstrate entitlement to injunctive relief. Moseley v. V. Secret Catalogue, Inc., 537 U.S. 418, 433, 123 S. Ct. 1115, 155 L. Ed. 2d 1 (2003). Signed into law on October 6, 2006, the Trademark Dilution Revision Act of 2006 ("TDRA") amended the FTDA to provide, inter alia, that the owner of a famous, distinctive mark is entitled to an injunction against the user of a mark that is likely to cause dilution of the famous mark. 15 U.S.C. § 1125(c)(1). In light of the enactment of the TDRA, the Second Circuit vacated the earlier judgment and remanded the case for further proceedings. In its remand decision, the Second Circuit noted that this Court had already considered "likelihood of trademark dilution" in connection with New York state law, but ordered reconsideration nevertheless because "it is not clear that [the New York] statute is coextensive with the amended [federal] statute [and] the district court's treatment of the New York statute does not permit a review of whether the analysis conforms with the amended statute." Starbucks Corp. v. Wolfe's Borough Coffee, Inc., 47 F.3d 765, 766 (2d Cir.2007). Accordingly, the Court has reconsidered Plaintiffs claim for injunctive relief in light of the TDRA's amendment to the FTDA.
The parties submitted briefs following the remand, and agreed that no further evidentiary proceedings were required. Having considered thoroughly all of the arguments by counsel on remand, and for the following reasons, the Court finds that Plaintiff has failed to carry its burden of demonstrating its entitlement to relief under the FTDA, as amended. For substantially the reasons detailed in the December 2005 Decision and as explained below, the Court finds that Plaintiff has also failed to demonstrate its entitlement to relief on its: (1) federal trademark infringement and unfair competition claims brought pursuant to the Lanham Act; (2) state trademark dilution claims brought pursuant to New York Gen. Bus. Law § 360-1; and (3) unfair competition claim under the common law. The December 2005 Decision, which is hereby incorporated by reference insofar as it addresses the relevant facts and Plaintiffs non-FTDA claims, and this Opinion and Order, constitute the Court's findings of fact and conclusions of law in accordance with Rule 52 of the Federal Rules of Civil Procedure.
The Court's findings as to the material background facts of this matter are detailed in the December 2005 Decision.
DISCUSSION
The principal issue for examination on remand is whether, in light of the 2006 amendment to the FTDA, Plaintiff is entitled to injunctive relief based on the likelihood that Defendant's challenged activities will dilute Plaintiffs rights in its Starbucks trademarks. To obtain such relief, Plaintiff must demonstrate that Defendant's use of its "Mr. Charbucks" and "Mister Charbucks" marks for one of its coffee blend products creates associations arising from similarity to the Starbucks marks that are likely to impair the distinctiveness of the Starbucks mark or tarnish that mark by harming its reputation. In the December 2005 Decision, the Court found the record insufficient to demonstrate the actual dilution that was required under then-current law.
The TDRA made a number of significant changes to the FTDA, three of which are relevant to the instant matter.[2] First and foremost, a plaintiff must merely show a "likelihood of dilution" rather' than actual dilution. 15 U.S.C. § 1125(c)(1). Second, the amended statute explicitly recognizes two types of dilution: dilution by blurring and dilution by tarnishment. 15 U.S.C. § 1125(c)(2). Third, the amended statute defines both blurring and tarnishment, setting forth six non-exclusive factors for courts to consider in assessing the likelihood of dilution by blurring. 15 U.S.C. § 1125(c)(2)(B).
Dilution by Blurring Claims
FTDA Claim
"In previous cases, blurring has typically involved `the whittling away of an established trademark's selling power through its unauthorized use by others upon dissimilar products.' Thus, dilution by `blurring' may occur where the defendant uses or modifies the plaintiffs trademark to identify the defendant's goods and services, raising the possibility that the mark will lose its ability to serve as a unique identifier of the plaintiffs product." Deere & Co. v. MTD Prods., 41 F.3d 39, 43 (2d Cir.1994), quoting Mead Data Central, Inc. v. Toyota Motor Sales, U.S.A., Inc., 875 F.2d 1026, 1031 (2d Cir.1989). Public association of the trademark with other goods and services, injuring the selling power of the plaintiffs mark as a unique identifier, constitutes such blurring. See Hormel Foods Corp. v. Jim Henson Prods. Inc., 73 F.3d 497, 506 (2d Cir.1996). Mere mental association among consumers between the senior and junior mark without more was, however, insufficient to establish dilution by blurring. Louis Vuitton Malletier v. Dooney & Bourke, Inc., 454 F.3d 108, 118-119 (2d Cir.2006).
The amended FTDA defines dilution by blurring similarly, as "[an] association arising from the similarity between a mark or trade name and a famous mark that impairs the distinctiveness of the famous mark." 15 U.S.C.A. § 1125(c)(2)(B) (emphasis added). The statute instructs the Court to consider all relevant factors, six of which are specifically identified: "(i) [t]he degree of similarity between the mark or trade name and the famous mark[;] (ii)[t]he degree of inherent or acquired distinctiveness of the famous mark[;] (iii)[t]he extent to which the owner of the famous mark is engaging in substantially exclusive use of the mark[;] (iv)[t]he degree of recognition of the famous mark[;] (v)[w]hether the user of the mark or trade name intended to create an association with the famous mark[;] and (vi)[a]ny actual association between the mark or trade name and the famous mark."[3]Id.
In the December 2005 Decision, the Court found that, although the evidence indicated that Defendant's principal intended, in adopting the "Charbucks" moniker, to evoke associations with the sort of dark-roasted coffee purportedly favored by Starbucks' clientele, the evidence did not demonstrate any actual diminution of the capacity of the Starbucks marks to serve as unique identifiers of Starbucks' products by reason of Defendant's commercial activities under the former provisions of the FTDA, or any likelihood of such diminution under New York state law. See Starbucks, 2005 WL 3527126, at *9. The Court now turns to an examination, under the amended provisions of the FTDA, of whether the record demonstrates likelihood of dilution of the Starbucks marks by Defendant's use of the "Mr. Charbucks" and "Mister Charbucks" marks.
A Similarity of the Marks
In addressing Plaintiffs trademark infringement claim in its December 2005 Decision, the Court found strong similarity between the core term "Charbucks" and Plaintiffs "Starbucks" mark, but also explained that, as that term was used by Defendant in the "Mr. Charbucks" name for its coffee blend and in the packaging of Defendant's product, the similarity factor favored Plaintiff only slightly, if at all, in assessing the likelihood of consumer confusion as to the source of Defendant's products or as to a connection between Starbucks and Black Bear.
The question of similarity is also highly relevant in the dilution context. Plaintiffs and Defendant's marks are far from identical. "In order to establish dilution by blurring, the two marks must not only be similar, they must be `very' or `substantially' similar." Hormel Foods Corp., 73 F.3d at 503, quoting Mead Data Central, 375 F.2d at 1029. As explained in the December 2005 Decision, Defendant's marks appear on packaging very different from that used by Starbucks. There is no evidence that Defendant uses "Charbucks" as a standalone term. Rather, it is used with "Mr." or "Mister" on Defendant's distinctive packaging or in product lists. For these reasons, the marks at issue here are not substantially similar. This dissimilarity alone is sufficient to defeat Plaintiffs blurring claim, see Hormel Foods Corp., 73 F.3d at 506, and in any event, this factor at a minimum weighs strongly against Plaintiff in the dilution analysis.
B. Distinctiveness of the Famous Mark
In the December 2005 Decision, the Court found that:
[o]ver the past 33 years, Starbucks has grown from a single coffee shop to over 8,700 retail locations across the United States and the world . . . From the year 2000 to 2003, Starbucks spent over $136 million on advertising, promotion and related marketing activities . . . [and] [virtually all of Starbucks' advertising prominently features (or, in the case of radio, mentions) the Starbucks Mark. . . [I]n recent years, Starbucks products or retail stores have been featured prominently in a number of popular motion pictures and television shows which have been seen by millions of viewers in theaters or on television or video.
Starbucks, 2005 WL 3527126, *1-2 (citations omitted). For substantially these reasons, as well as the reasons detailed in the Court's other findings relating to distinctiveness in the December 2005 Decision, the distinctiveness factor favors Plaintiff in the blurring analysis.
C. Substantially Exclusive Use of Famous Mark by Owner
Starbucks devotes substantial effort to policing its registered Starbucks Marks. Starbucks has a policy of following up on uses that it deems to be infringing and demanding that the use be terminated. Starbucks routinely sends cease and desist letters and, if necessary, commences litigation in support of these efforts.
Starbucks, 2005 WL 3527126, *2 (citations omitted). In its December 2005 Decision, the Court also recognized Starbucks' efforts, including the expenditure of substantial time and money, in advertising and promoting the Starbucks Marks throughout the United States and elsewhere. Id. This factor also weighs in favor of Plaintiff in the blurring analysis.
D. Degree of Recognition of the Famous Mark
Over the past 33 years, Starbucks has grown from a single coffee shop to over 8,700 retail locations across the United States and the world. Starbucks is now the largest and best-known purveyor of speciality coffees and coffee products in North America. Starbucks owns, or operates through affiliates and licensees, more than 6,600 retail stores in the United States and Canada . . . More than 20 million customers visit Starbucks' United States stores each week.
Starbucks, 2005 WL 3527126, *1 (citations omitted). This factor, too, weighs in favor of Plaintiff in the blurring analysis.
E. Intent to Create an Association with the Famous Mark
As noted above, Defendant Black Bear intended to create an association with Plaintiffs mark by wordplayspecifically, by alluding to the dark roasted characteristic of the Starbucks product. Such intent is not sufficient in and of itself, however, to demonstrate a likelihood of dilution by blurring. In the blurring context, the ultimate question is whether the intended association is likely to impair the distinctiveness of Plaintiffs famous mark. Here, the record makes clear that the distinctiveness of the character of Starbucks coffee products is key to the achievement of Defendant's stated goal, which is to signal to purchasers that "Mr. Charbucks" is a very dark roast and unlike Defendant's other coffee products. Such an intended association, especially where, as here, Defendant's mark is not substantially similar to Plaintiffs, is not indicative of bad faith or of an association likely to cause dilution by blurring. Cf. Louis Vuitton Malletier S.A. v. Haute Diggity Dog, LLC, 507 F.3d 252, 267 (4th Cir.2007) (no trademark blurring found where parody mimics and/or associates with the famous mark, but does not simultaneously communicate that it is the famous mark). Accordingly, the evidence is insufficient to establish Defendant's intent to create an unlawful association with its famous mark and this factor weighs against Plaintiff.
F. Actual Association with the Famous Mark
The Court must also consider any actual association between the mark or trade name and the famous mark. 11 U.S.C. § 1125(c)(2)(B)(vi). Survey results do show, as explained in the December 2005 Decision, some consumer association between the spoken, standalone term "Charbucks" and Plaintiffs Starbucks mark. Starbucks, 2005 WL 3527126, *5. However, as noted in that Decision, "[the evidence] is insufficient to make the actual confusion factor weigh in Plaintiffs favor to any significant degree." Id.
As found in the December 2005 Decision and as shown in the foregoing examination of the factors specified in the amended FTDA, Starbucks' marks are distinctive and famous. Thus, several of the specified factors weigh in its favor. However, Defendant's marks, as used in commerce, are not substantially similar to Plaintiffs' Starbucks marks, and the association Defendant intended to evoke in consumers' minds through its use of a playful dissimilar mark is not one that would be likely to dilute the Starbucks marks as unique identifiers of Starbucks' goods and services. Rather, it is dependent on an identification of those marks with Starbucks' own products and a characteristic of the taste of those products. The record is, therefore, insufficient to demonstrate the requisite likelihood that the association arising from the similarity of the core terms is likely to impair the distinctiveness of Starbucks' mark, and Plaintiff is not entitled to injunctive relief under that statute. Cf. N.Y. Stock Exch., Inc. v. N.Y., N.Y. Hotel, LLC, 293 F.3d 550, 558 (2d Cir.2002) (refusing to grant an injunction where parodic use of a similar mark emphasized that a casino offered possible profits and risks similar to those on the New York Stock Exchange).
New York Statutory Claim
Under New York dilution law, courts generally consider six factors in determining the likelihood of blurring: (i) the similarity of the marks; (ii) the similarity of the products covered; (iii) the sophistication of the consumers; (iv) the existence of predatory intent; (v) the renown of the senior mark; and (vi) the renown of the junior mark. The Sports Authority, Inc., 89 F.3d at 966. For substantially the reasons explained above, the similarity of the marks and the predatory intent factors favor Defendant because the marks, as used, are dissimilar and the record does not demonstrate a predatory intent on Defendant's part. In light of the principal concern of dilution lawdiminution of the capacity of the senior user's mark to serve as a unique identifierthese factors weigh more heavily in the analysis than the renown and product similarity factors which do, for substantially the reasons explained above and those laid out in the December 2005 Decision, favor Plaintiff.
As to the consumer sophistication factor, Defendant's CEO and co-owner gave unremitted testimony at trial that his consumers were highly discriminating, generally repeat customers, including many retailers. See Tr. Trans. 79:22-25, 93:23-25, 94:4-6, 94:17-18; W.W.W. Pharmaceutical Co. v. Gillette Co., 984 F.2d 567, 576 (2d Cir.1993) (finding that "retailers are assumed to be more sophisticated buyers"). Starbucks' Director of Brand Management testified at trial that Starbucks' customers are sophisticated enough to have a "specific set of expectations around the drink they have enjoyed in store" and that Starbucks is a premium product priced toward the high end of coffee products. See Tr. Trans 22:18-19 and 39:24-40:3. The Court found "based on the distinctive packaging and separate retailing channels of the parties' respective products, that an ordinary purchaser is very unlikely to mistake Defendant's 'Mr. Charbucks Blend' or `Charbucks Blend' product for one offered by Starbucks, whether or not that person is highly discriminating." Starbucks, 2005 WL 3527126, at *6.
For substantially the reasons discussed in the Court's December 2005 Decision in connection with the Court's consumer sophistication finding in connection with its trademark infringement analysis, the Court finds that the consumer sophistication factor also favors Defendant in the dilution-by-blurring context.
Thus, while, as in the FTDA analysis, several of the relevant factors favor Plaintiff, the record is insufficient to establish Plaintiffs right to injunctive relief because it fails to demonstrate the requisite likelihood of dilution by blurring in light of the similarity of the marks and predatory intent factors which, as explained above, weigh strongly in Defendant's favor. For these reasons, and for the reasons explained in the December 2005 Decision, Plaintiff has failed to demonstrate that Defendant's use of the "Mr. Charbucks" mark is likely to impair the distinctiveness of Starbucks' mark, and thus to blur Plaintiffs marks within the meaning of New York anti-dilution law.
Dilution by Tarnishment Claims
Dilution by tarnishment "is usually found where a distinctive mark is depicted in a context of sexual activity, obscenity, or illegal activity." Deere & Co., 41 F.3d at 44. The amended FTDA defines dilution by tarnishment as "an association arising from the similarity between a mark or trade name and a famous mark that harms the reputation of the famous mark." 15 U.S.C. § 1125(c)(2)(C) (emphasis added). In its December 2005 Decision, the Court carefully considered all of Plaintiffs phone survey evidence and expert conclusions before concluding that Plaintiff had shown neither actual dilution under the former version of the FTDA nor a likelihood of dilution under New York state law. See Starbucks, 2005 WL 3527126 at *9. The utility of the "Mr. Charbucks" mark to Defendant depends on the association being one to something that is attractive or consumer-appealing. As explained in the December 2005 Decision, the survey comments about the characteristics of a product called "Charbucks" are not necessarily negative and the record lacks sufficient evidence of inferior quality to sustain Plaintiffs burden of demonstrating that the association of Defendant's mark with Plaintiffs is likely to harm the reputation of Plaintiffs marks.[4]
On remand, Starbucks places particular emphasis on a newly-calculated statistic indicating that, of the 30.5% of respondents who had an immediate association between "Charbucks" and "Starbucks," 62% said they would have a negative impression of a coffee called "Charbucks." This statistic says nothing, however, about the likelihood that those respondents' negative impression of a coffee called "Charbucks" would affect detrimentally their perception of Starbucks. It would be just as reasonable to conclude that their negative impressions of a hypothetical coffee named "Charbucks" were based on their strong allegiance to Starbucks, something Defendant observes by noting that 71% of those respondents had a positive impression of Starbucks. Additionally, the record at trial established that Defendant's product is a high-quality coffee with rigorous quality control mechanisms. See Tr. Trans. at 82:7-84:15, 86:8-87:1, 89:6-15; see Starbucks, 2005 WL 3527126, at *6. Thus, looking beyond the inferences argued from the hypothetical phone survey, the record demonstrates that the Defendant's actual "Mr. Charbucks" coffee product is of such a quality that its association with Starbucks is unlikely to be damaging.
For these reasons, and for substantially the reasons discussed in the December 2005 Decision, Plaintiff has not demonstrated the likelihood of dilution by tarnishment that is required to support injunctive relief under either the FTDA or New York law.
Trademark Infringement Claims
After having balanced the Polaroid factors as detailed in the December 2005 Decision, and for substantially the reasons detailed in the December 2005 Decision, the Court concludes that Plaintiff is unable to prove the requisite likelihood of consumer confusion as to source, sponsorship, or association of Defendant's goods with the Starbucks mark. Accordingly, Plaintiffs trademark infringement claim under the Lanham Act, as well as its common law unfair competition claim, which is analyzed under the same legal standard as a claim for trademark infringement under the Lanham Act, fail.
CONCLUSION
For the foregoing reasons, the Court finds that Plaintiff has failed to carry its burden of demonstrating its entitlement to relief under the amended FTDA, and that Plaintiff has failed to meet its burden of demonstrating entitlement to injunctive relief under the anti-infringement provisions of the Lanham Act or the New York law of unfair competition. The Court adopts and reinstates its December 2005 findings of fact and conclusions of law with respect to Plaintiffs federal trademark infringement and unfair competition claims brought pursuant to the Lanham Act, Plaintiffs state trademark dilution claims brought pursuant to New York Gen. Bus. Law § 360-1, and Plaintiffs unfair competition claim under the common law.
Accordingly, judgment will be entered in Defendant's favor on all counts and the Clerk of Court is respectfully requested to close this case. This Opinion and Order resolves docket entry no. 100.
SO ORDERED.
NOTES
[1] Starbucks Corp. v. Wolfe's Borough Coffee, Inc., No. 01 Civ. 5981(LTS)(THK), 2005 WL 3527126 (S.D.N.Y. Dec. 23, 2005).
[2] The amended FTDA reads in relevant part as follows:
(c) Dilution by blurring; dilution by tarnishment.
(1) Injunctive relief. Subject to the principles of equity, the owner of a famous mark that is distinctive, inherently or through acquired distinctiveness, shall be entitled to an injunction against another person who, at any time after the owner's mark has become famous, commences use of a mark or trade name in commerce that is likely to cause dilution by blurring or dilution by tarnishment of the famous mark, regardless of the presence or absence of actual or likely confusion, of competition, or of actual economic injury.
(2) Definitions.
* * *
(B) For purposes of paragraph (1), "dilution by blurring" is association arising from the similarity between a mark or trade name and a famous mark that impairs the distinctiveness of the famous mark. In determining whether a mark or trade name is likely to cause dilution by blurring, the court may consider all relevant factors, including the following:
(i) The degree of similarity between the mark or trade name and the famous mark.
(ii) The degree of inherent or acquired distinctiveness of the famous mark.
(iii) The extent to which the owner of the famous mark is engaging in substantially exclusive use of the mark.
(iv) The degree of recognition of the famous mark.
(v) Whether the user of the mark or trade name intended to create an association with the famous mark.
(vi) Any actual association between the mark or trade name and the famous mark.
(C) For purposes of paragraph (1), "dilution by tarnishment" is association arising from the similarity between a mark or trade name and a famous mark that harms the reputation of the famous mark.
15 U.S.C.A. § 1125(c) (West Supp.2008).
[3] Under New York law, courts generally consider six factors in determining the likelihood of dilution by blurring: (i) the similarity of the marks; (ii) the similarity of the products covered; (iii) the sophistication of the consumers; (iv) the existence of predatory intent; (v) the renown of the senior mark; and (vi) the renown of the junior mark. The Sports Authority, Inc. v. Prime Hospitality Corp., 89 F.3d 955, 966 (2d Cir.1996).
[4] In its December 2005 Decision, the Court noted that the survey used the open-ended question "If the name `Charbucks' were used for a type of coffee, how would you describe the coffee?," and found that only 6.3% of the survey respondents provided what was characterized as a "generally negative" response. See Starbucks, 2005 WL 3527126, at *9. Further, while 15.2% of respondents described a hypothetical coffee named Charbucks as "charred," "burnt," "bitter" or "smokey," and 34.9% described the hypothetical flavor as "strong," "dark," "black," or "rich-flavoured," many of those respondents expressed a favorable view of a coffee with these qualities. Id. Other reported responses to the open-ended question included "general positive comments" (7.9%) and "special/original/expensive" (4.7%). Id. "Don't know" was another very popular response, at 22.6%. Id. With respect to the linkage between Starbucks and Charbucks, the court found that survey respondents generally described it as a "joke" or a "ripoff," and none of the respondents appeared to have incorporated negative references to Starbucks products in their responses to the open-ended question regarding "Charbucks." Id. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1970599/ | 911 F. Supp. 230 (1995)
NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Plaintiff,
v.
Walter Shane MITCHELL, By and Through his mother, Lana Ree SEYMOUR, Defendant.
Civil A. No. 1:95cv322GR.
United States District Court, S.D. Mississippi, Southern Division.
October 31, 1995.
*231 Peter C. Abide, Compton, Crowell & Hewitt, Biloxi, MS, for plaintiff.
MEMORANDUM OPINION
GEX, District Judge.
This cause comes before the Court on the motion for summary judgment [4-1] and motion for default judgment [6-1], filed by the plaintiff, Nationwide Mutual Fire Insurance Company [Nationwide]. After due consideration of the evidence of record, the briefs of counsel, the applicable law, and being otherwise fully advised in the premises, the Court finds that Nationwide's motion for summary judgment should granted, and motion for default judgment should be denied as moot.
Statement of Facts
The instant controversy stems from a domestic dispute turned violent, which occurred at the residence of the insured, Walter Seymour [Walter]. At the time of the altercation, Walter was married to Lana Ree Seymour [Lana]. The defendant's uncontested itemization of facts and supporting documents indicate that, on October 7, 1994, Walter's ex-wife, Shirley Seymour [Shirley], pulled up in front of Walter's home in her car. An argument arose between Walter and Shirley (who remained in her car) about the time that Lana's son and Walter's stepson, sixteen-year-old Walter Shane Mitchell [Shane], walked outside with his girlfriend, intending to go to a homecoming dance. Shane's mother, Lana, went over and joined in the argument while Shane watched from the car where he was seated with his girlfriend. The ongoing argument between Walter, Lana, and Shirley became more intense. Shane observed Shirley get out of her car and approach his mother. Shane then got out of his car and jogged across the yard to get between them. When Shane saw Shirley push his mother, he moved in and struck Shirley on the left side of her head with his fist. Shirley was knocked to the ground by the force of the blow and suffered severe injuries to her face, eye, skull, jaw, and cheek. See Def.'s Item. of Material Facts not in Dispute [Item.], ¶¶ 1-8; Def.'s Mot. for *232 Summ.J., attached exhibits.[1]
Shirley subsequently filed a personal injury claim against Shane and demanded payment of policy limits from a homeowner's insurance policy issued by Nationwide to Shane's stepfather, Walter, which covered Shane as a resident relative of Walter's household. See Def.'s Mot. for Summ.J., Exh. A (complaint for declaratory judgment). The policy at issue contained an exclusion from personal liability for personal injury or medical payments if the bodily injury was:
caused intentionally by or at direction of an insured, including willful acts the result of which the insured knows or ought to know will follow from the insured's conduct.
See id., Exh. A; Nationwide Homeowner's Policy, Amend.Endors.Fire 3191 (8-91) at 4 (emphasis omitted). On June 16, 1995, Nationwide filed the instant complaint for a declaratory judgment that the defendant insured is not entitled to coverage in light of the foregoing policy exclusion. Following the defendant's failure to file an answer, Nationwide filed a motion for summary judgment and a motion for default judgment on September 1, 1995. The defendant has neither filed an answer nor responded to Nationwide's motions.
Standard of Review
Summary judgment is designed "to secure the just, speedy, and inexpensive determination of every action." Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986) (citation and internal quotation omitted); see Berry v. Armstrong Rubber Co., 780 F. Supp. 1097, 1099 (S.D.Miss.1991), affirmed, 989 F.2d 822 (5th Cir.1993), cert. denied, ___ U.S. ___, 114 S. Ct. 1067, 127 L. Ed. 2d 386 (1994). A grant of summary judgment is appropriate when, viewed in the light most favorable to the nonmoving party, "[t]he pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED.R.CIV.P. 56(c).
The failure of a party to respond to a motion for summary judgment does not automatically entitle the moving party to summary judgment. See John v. State of Louisiana Bd. of Trustees for State Colleges and Univs., 757 F.2d 698, 709-10 (5th Cir. 1985). If the movant has not satisfied its initial burden, the nonmovant need not respond at all. Id. However, if the movant has met its burden, "the nonmovant cannot survive the motion by resting on the mere allegations of its pleadings." Isquith v. Middle South Utilities, Inc., 847 F.2d 186 (5th Cir.) (citations omitted), cert. denied, 488 U.S. 926, 109 S. Ct. 310, 102 L. Ed. 2d 329 (1988). When there is a wholly nonresponsive party, the Court looks to the evidence presented by the moving party to see if the moving party has met its substantive burden under Rule 56. Smith v. Alumax Extrusions, Inc., 868 F.2d 1469, 1472 (5th Cir. 1989). If the party has satisfied its burden, the Court may rule on the merits and grant summary judgment as opposed to default judgment. Id.[2]
Legal Analysis
This Court applies Mississippi law in deciding the legal issues in this lawsuit, filed pursuant to this Court's diversity jurisdiction. Batts v. Tow-Motor Forklift Co., 978 F.2d 1386, 1389 (5th Cir.1992) (citing Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 *233 L.Ed. 1188 (1938)). In deciding how Mississippi courts would resolve an issue of law, Judge Davidson in the Northern District of Mississippi noted the following:
While it is not the province of this court to create new law for Mississippi, Green v. Amerada-Hess Corp., 612 F.2d 212 (5th Cir.1980), cert. denied, 449 U.S. 952, 101 S. Ct. 356, 66 L. Ed. 2d 216 (1980), the court is permitted to "reach the decision we think a state court would reach." DiPascal v. New York Life Ins. Co., 749 F.2d 255, 260 (5th Cir.1985). Additionally, as the Fifth Circuit has recently cautioned, in the Erie context: "We are emphatically not permitted to do merely what we think best; we must do that which we think the Mississippi Supreme Court would deem best." [emphasis omitted] Jackson v. Johns-Manville Sales Corp., 781 F.2d 394, 397 (5th Cir.1986).
Laws v. Aetna Finance Co., 667 F. Supp. 342, 344 (N.D.Miss.1987). In determining how the Mississippi Supreme Court would decide a disputed issue not expressly ruled upon, federal courts look, inter alia, to supreme court dicta, general common law, and decisions of other states to which the supreme court would look for guidance in making its decisions. See id. at 344-45.
In Southern Farm Bureau Casualty Ins. Co. v. Allard, 611 So. 2d 966 (Miss.1992), the insured's brother-in-law was injured when the insured fired a shotgun "to bring [him] to his senses" and the brother-in-law stepped into the line of fire. Id. at 968. A factual issue arose whether the shooting was an intentional act sufficient to trigger the intentional-act exclusion clause in the insured's homeowner's insurance policy. Id. The jury found that the insured did not intentionally shoot his brother-in-law in the foot, and the Mississippi Supreme Court affirmed. Id. at 968-69. The Mississippi Supreme Court, relying on precedent, found that "`[a]n act is intentional if the actor desires to cause the consequences of his act, or believes that the consequences are substantially certain to result from it.'" Id. at 968 (citing Coleman v. Sanford, 521 So. 2d 876, 878 (Miss.1988)). The court further found that "`an intentional tort is an act of intentional behavior designed to bring about the injury.'" Id. (citing Stevens v. FMC Corp., 515 So. 2d 928, 931 (Miss. 1987)).
The Court finds that the record clearly establishes that Shane's blow to the victim was an intentional act. Shane's mother testified on deposition as follows:
[A]fter she [the victim] pushed me and my husband hollered, "no Shane," I knew what was coming, because she has threatened us and harassed us so much in the last four years that I knew he had this anger built up in him, you know, against her because she has done so much to us. So I jumped up in between them to prevent it. I mean, I jumped as high as I could, and still he come over and hit her, and I was knocked down in the process.
Def.'s Mot. for Summ.J., Exh. C (Lana's Depo.), at 18 (emphasis added). Shane's hostility toward Shirley is supported by his own deposition testimony, in which he recounts her previous threats, his mother's desire to avoid a violent confrontation because it "wasn't worth it," and his mistrust of Shirley because of his belief that she had tried to kill herself and might also try to kill his mother. Id., Exh. B. (Shane's Depo.), at 4-12. Shane testified that, because he did not trust Shirley, he waited in the car, listening with his car window cracked, to intervene in any possible altercation. Id. at 9-10. Shane further testified that, although he "blacked out" and could not remember his fist actually contacting Shirley's face, he knew that he had punched her. Id. at 11-12.
Although the Court has not unearthed any Mississippi case involving facts presented in this controversy, Mississippi courts are guided by ample persuasive authority that demonstrates that Shane's decision to intervene in the altercation between the victim and his mother by punching her in the face was an intentional act. See Simpson v. Angel, 598 So. 2d 584 (La.Ct.App.) (two punches by minor assailant, allegedly in self-defense, resulting in fracture of eye and facial bones of minor victim, an intentional act for purposes of policy exclusion because act was reasonably calculated to cause bodily harm), writ denied, 605 So. 2d 1091 (La.1992); Cavalier v. Suberville, 592 So. 2d 506 (La.Ct.App.1991) *234 (single punch, in retaliation for previous wrongs, resulting in fracture of several facial bones, was intentional because anyone would reasonably expect the act to result in injury), writ denied, 594 So. 2d 1318 (La.1992); Fire Ins. Exchange v. Altieri, 235 Cal. App. 3d 1352, 1 Cal. Rptr. 2d 360 (1991) (assaulting victim from behind by pulling his hair and punching him without any legal justification an uninsurable, willful act); Maxson v. Farmers Ins. of Idaho, Inc., 695 P.2d 428 (Idaho App.1985) (when assailant initiated barroom confrontation and punched victim in face, only reasonable inference was that act was intended to cause injury within meaning of policy exclusion).
In Fire Ins. Exchange v. Berray, 143 Ariz. 361, 694 P.2d 191 (1984) (en banc), which involved a similar intentional-act exclusion, the Arizona Supreme Court, affirming the lower court, held that "an act committed in self-defense should not be considered an `intentional act' within the meaning of the exclusion." Id. 694 P.2d at 193 (citation omitted). The court further adopted the view that "[t]here is a close link between such a circumstance and events that we think of as a conventional accident." Id. 694 P.2d at 193-94 (citation and internal quotation omitted). It is clear from the record that Shane did not strike the victim in self-defense, but that he did so in defense of his mother. In any event, even if Shane's actions could be taken to fall within the self-defense exception, the Court need not apply the exception. It appears that the majority view does not allow self-defense as an exception to a policy's intentional-act exclusion when a punch, as here, is thrown with a purpose to injure. See e.g., State Farm Fire and Casualty Co., v. Caldwell, 630 So. 2d 668, 669 (Fla.App.1994). In Caldwell, the court held that the intent to injure was established when the insured punched his menacing guest's head with enough force to break the guest's nose and cheekbone. Id.
Other courts hold that an act is not unintentional just because the harm actually resulting from the deliberate act was greater than expected or intended by the assailant. See Simpson, 598 So.2d at 585; Cavalier, 592 So.2d at 507; Jones v. Norval, 203 Neb. 549, 279 N.W.2d 388, 392 (1979); see also Caldwell, supra, 630 So.2d at 669 (legal distinction between an act and its anticipated consequences "would allow all manner of persons engaging in intentional acts to escape accountability for those acts simply by disclaiming any intent to achieve the precise result that occurred"). Further, that the act was impulsive or caused by blind rage or a buildup of tensions from past incidents does not render the act unintentional. See Cavalier, 592 So.2d at 507.
In Republic Ins. Co. v. Feidler, 178 Ariz. 528, 875 P.2d 187 (App.1993), review denied, (June 21, 1994), the court noted that an act may be rendered unintentional within the meaning of a policy exclusion for intentional acts when the insured suffered from a "derangement of the intellect which deprived him of the capacity to govern his conduct in accordance with reason and while in that condition [acted] on an irrational impulse." Id. 875 P.2d at 191. Specifically, the court was applying the principle to the effects of voluntary intoxication. See id. Although this Court doubts that such would be the law of Mississippi, see Coleman, 521 So.2d at 878 (rejecting argument that insured was so intoxicated that he could not form requisite intent to commit intentional tort); cf. Lanier v. State, 533 So. 2d 473 (Miss.1988) (voluntary intoxication not a defense to a specific intent crime); McDaniel v. State, 356 So. 2d 1151 (Miss.1978) (same), the Court finds that the exception would not, in any event, be availing. The record does not reasonably show that Shane's actions were the result of intoxication, a deranged state of mind, or an involuntary impulse.
The Feidler court, supra, held that "a conclusive presumption of intent to injure arises when the insured commits an act virtually certain to cause injury." Feidler, 875 P.2d at 190 (attack with a knife). Further, in cases when severe injury has been inflicted by a blow, as here, the very nature of the act demonstrates that harm "must have been intended." See Jones, 279 N.W.2d at 390-91 (when insured hits victim hard enough to break jaw and render him unconscious, the insured "must be said to expect or intend the natural, normal consequences of his own intentional *235 act"). The Court need not rely on the degree of injury to find that Shane's punch was delivered with intent to do harm. The Court holds that, under Mississippi law, Shane's single blow to the victim, which resulted in substantial injuries, was an intentional act within the meaning of the Nationwide policy exclusion.[3]
Conclusion
For reasons set forth above, the Court finds that Nationwide has met its burden that no material issues of fact exist and that summary judgment is warranted as a matter of law. The record establishes that the insured's single blow to the victim was an intentional act within the meaning of the Nationwide policy exclusion. Accordingly, the Court finds that Nationwide's motion for summary judgment should be granted. The Court further finds that, although there is a sufficient basis for granting default judgment, Nationwide's motion for default judgment should be denied as moot in light of the Court's disposition on the merits. A declaratory judgment in conformity with and incorporating this opinion shall issue this date.
NOTES
[1] Nationwide's exhibits in support of its motion for summary judgment are labeled redundantly. There are two exhibits marked "A," i.e., Nationwide's Homeowner Policy and Nationwide's complaint for declaratory judgment, two exhibits marked "B," i.e., the police report and excerpts from Shane's deposition, and two exhibits marked "C," i.e., a letter from Shirley's attorney to Nationwide and excerpts from Lana's deposition. The Court will hereinafter further clarify which exhibits are cited.
[2] "Default judgments are a drastic remedy, not favored by the Federal Rules and resorted to by courts only in extreme situations." Sun Bank Ocala v. Pelican Homestead & Sav. Assoc., 874 F.2d 274, 276 (5th Cir.1989) (citations omitted). "[T]hey are available only when the adversary process has been halted because of an essentially unresponsive party." Id. (citations and internal quotation omitted; emphasis added); see FED. R.Civ.P. 55.
[3] The extent of the victim's injuries are set forth by a letter to Nationwide from her attorney, who, referring to medical records, details that Shane's single blow to the victim rendered her unconscious and resulted, inter alia, in numerous facial fractures, a deep laceration in her left check, and a torn and detached left retina. Def.'s Mot. for Summ.J., Exh. C (letter by Mark S. Larson, dated May 16, 1995). Although the medical reports are not attached, the seriousness of the victim's injuries are reflected in the police report. Id. at Exh. B; Long Beach Police Department Police Report (victim sitting in her car holding bloody towel, left eye swollen shut and bleeding; advised to go to hospital and check for facial fractures). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1972391/ | 738 F. Supp. 1128 (1990)
Andrea TOURLAKIS, Petitioner,
v.
H.L. MORRIS, Respondent.
Nos. C-2-89-314, C-2-89-955.
United States District Court, S.D. Ohio, E.D.
May 30, 1990.
John A. Bay, Ohio Public Defender Com'n, Columbus, Ohio, for petitioner.
Suzanne E. Mohr, Asst. Atty. Gen., Columbus, Ohio, for respondent.
OPINION AND ORDER
GRAHAM, District Judge.
Petitioner, a state prisoner, brings this action for a writ of habeas corpus under the provisions of 28 U.S.C. § 2254. This matter is before the Court on the petition, respondent's return of writ, the trial transcripts in State of Ohio v. Tourlakis, No. CR-2-01520 (Cuyahoga Cty. Com.Pl.), petitioner's traverse[1] and the briefs and exhibits *1129 of the parties. The issue presented in this case is whether petitioner's constitutional rights were violated as a result of the trial court's refusal to admit expert testimony on the battered woman syndrome.
I. FACTS
The May, 1985 term of the Cuyahoga County, Ohio Grand Jury indicted petitioner on one count of attempted murder and two counts of felonious assault, with all three counts containing a gun specification. Petitioner initially entered a plea of not guilty but later withdrew her not guilty plea and entered a plea of not guilty by reason of insanity. After a psychiatric examination, petitioner withdrew her plea of not guilty by reason of insanity and reinstated her not guilty plea.
Prior to trial, the state made a motion in limine seeking to exclude any expert testimony on the "battered woman syndrome." The trial court granted the motion. Petitioner then waived her right to a trial to a jury and proceeded to trial before the judge. Petitioner asserted the defense of self-defense at trial, attempting to establish the victim's reputation and propensity for violence, including specific prior violent acts against petitioner, over prosecutor Ester Harbor's numerous objections. The trial judge found petitioner guilty of the count of attempted murder with the gun specification, but not guilty of the two counts of felonious assault. The trial court sentenced petitioner on April 10, 1986 to a term of five to twenty-five years imprisonment for attempted murder and a consecutive term of three years actual incarceration for the gun specification.
Petitioner appealed the judgment of the trial court to the Court of Appeals for the First Appellate District of Ohio, raising the following assignments of error:
1. The trial judge erred by excluding lay testimony on the victim's treatment of the defendant in the months preceding the incident in violation of defendant's right to a fair trial and due process of law as guaranteed by the Fifth, Sixth and Fourteenth Amendments to the United States Constitution and Article One, Sections Ten and Sixteen of the Ohio Constitution.
2. The trial court erred in excluding expert testimony on the defendant's state of mind at the time of the shooting.
3. The trial court erred by granting appellee's pretrial motion in limine to exclude all testimony on battered woman syndrome, expert testimony essential for the fact-finder to accurately determine defendant's state of mind.
4. The trial judge's repeated exclusion of lay and expert testimony on defendant's state of mind denied the defendant her right to a fair trial and due process of law as provided by article one section ten of the Ohio Constitution and the Fifth, Sixth and Fourteenth Amendments to the United States Constitution.
5. The trial court's refusal to reduce the charge of attempted murder to voluntary manslaughter at the close of the state's case and at the close of the defendant's case was against the manifest weight of the evidence.
6. Ohio's concept of self-defense placing the burden of proof of this affirmative defense upon the defendant is in violation of Article One, Section Ten of the Ohio Constitution and the Fifth, Sixth and Fourteenth Amendments to the United States Constitution.
The American Civil Liberties Union filed an amicus brief joining petitioner on her fourth assignment of error. In an opinion written by Judge Ann McManamon, the Court of Appeals overruled each assignment of error and affirmed the judgment *1130 of the trial court. State of Ohio v. Tourlakis, No. 52035 (Cuyahoga Cty. App. Apr. 25, 1987). The Court of Appeals' decision accurately summarizes the evidence adduced at trial as follows:
On the afternoon of July 20, 1985, the defendant, Andrea Tourlakis, shot and wounded her boyfriend, Murray Sparks. The state charged Tourlakis with attempted murder of Sparks and two counts of felonious assault against the paramedics who assisted Sparks. All three counts included firearm specifications. Tourlakis tried her case to the bench, arguing that she acted in self-defense in shooting Sparks. She further denied firing at the paramedics. The court acquitted Tourlakis of the felonious assault charges but found her guilty of attempted murder. In a timely appeal, she raises six assignments of error. [footnote omitted] Since none of her assignments are meritorious we affirm her conviction.
The record discloses that Tourlakis and Sparks engaged in a sexual relationship for approximately one and one-half years before the shooting. They maintained separate residences, although Sparks picked the defendant up everynight [sic] after her shift at a local bar and typically stayed with her until the early morning hours. Both Tourlakis and Sparks described a deterioration in their relationship in the months before the shooting. According to Sparks, he stayed with Tourlakis until 12:30 A.M. on the day of the shooting. Although Sparks claimed he wished to break off with the defendant, he entertained a suspicion that she intended to go out after he left. Sparks returned to her residence shortly thereafter. Finding the house empty, Sparks threw a basket of clothes on the floor and knocked the phone off its receiver. Sparks testified that he repeatedly telephoned the defendant to determine when she returned home.
Sparks further averred that Tourlakis telephoned him at 9:00 A.M. and 1:00 P.M. the following day, demanding that he return to her house. Sparks claimed that upon arriving there, she requested that he embrace her. According to Sparks, he spurned her advances, accused her of spending the night with another man and informed her that their relationship was over. However, Sparks told Tourlakis they could continue their joint efforts to purchase the bar where she worked if she so desired. Sparks testified that while he waited for her reply, Tourlakis secured a gun from her bedroom and shot him three times. The defendant continued to fire at Sparks as he ran into a nearby Convenience Store and finally into a parked Emergency Medical Service Ambulance.
In response to questions about the nature of their relationship, Sparks averred that he had never threatened or beaten Tourlakis. He also testified that on July 12th, one week before he was wounded, the defendant fired a gun in his direction when he attempted to leave for the evening. He denied that any argument provoked that shooting.
On her part, Tourlakis described a series of beatings and threats in the months before she wounded Sparks. Her testimony portrays Sparks as an intensely jealous and violent individual, always armed with a straight razor. For example, she testified that in March of 1985, while she was working, Sparks placed his razor on the bar and announced to her customers "you don't touch her." (Tr. 340). Tourlakis told the court that, in April of 1985, Sparks called her into the kitchen of the bar, put his hands around her throat and threatened to kill her. (Tr. 341). According to the defendant, Sparks also threatened her at home later that same month by holding his razor to her throat and telling her that "he was going to cut my body so no one else could look at me and he would break my legs." (Tr. 343).
Tourlakis's version of the July 12th shooting differed from Sparks. [sic] She claimed that, following an argument, Sparks "... tore my whole body up ...", "... slammed me around, beat me up, my arms were totally bleeding." (Tr. 321-3). According to the defendant, she *1131 shot at the wall and begged him to leave because she did not want to hurt him. She averred they argued every night the following week about her desire to end the relationship.
Tourlakis also testified to the events of July 19th and 20th which culminated in the wounding of Sparks. According to the defendant, she and Sparks argued about a man who had touched her shoulder at the bar. The defendant explained that after Sparks left her home, she went for a drive to get something to eat. Knowing Sparks would return, she called him the next morning to find out when to expect him. Tourlakis averred that when he arrived he stated that he loved her. According to Tourlakis, she shot Sparks as he stepped toward her. She testified that Sparks then threw a clothes basket at her and she wounded him two more times. She admitted chasing him from her home and firing as he entered the ambulance.
In a statement to the police, Tourlakis claimed that Sparks did not strike her that afternoon. She also acknowledged that she reloaded the gun as she chased him from her home. When questioned at trial about seeking help from others, she claimed she had nowhere to go.
The defense also presented the testimony of four patrons from the bar at which Tourlakis worked. Two of these witnesses testified to Spark's [sic] general reputation for violence and jealousy. Malcolm Leggon told the court that he witnessed Sparks hold a knife to Tourlakis in the spring of 1985. Carol Thompson averred that the defendant often wore turtlenecks to cover her bruises. The witness also was present in April of 1985 when Sparks allegedly told the defendant he was going to kill her. Clarence McAdams told the court that he broke up a fight at the bar when Sparks tried to choke Tourlakis.
. . . . .
In the instant case, Tourlakis proffered the testimony of Dr. Rosewater for our review. The record demonstrates that the psychologist was prepared to testify that the defendant's Minnesota Multiphasic Personality Inventory test scores were "... consistent with the diagnosis of post-traumatic stress syndrome, specifically the battered woman profile." (Tr. 457). She described Tourlakis's symptoms to include depression, confusion, and paranoia as well as an inability to escape or avoid violent situations. (Tr. 454). The proffered testimony further reveals that Dr. Rosewater opined that the syndrome from which Tourlakis suffered predated the shooting. (Tr. 462).
Petitioner next sought leave to appeal the Court of Appeals' decision to the Supreme Court of Ohio, asserting the following propositions of law:
1. In a prosecution for attempted murder where the defendant pleads self-defense, the erroneous exclusion of substantial evidence of the alleged victim's prior acts of violence and threats of violence, and of the defendant's resulting state of mind, cannot be considered harmless, where the issue of the alleged victim's character for violence is sharply disputed.
2. Testimony of the accused's clinical psychologist regarding the accused's mental state, based on the psychologist's testing and evaluation of the accused, and offered to support her claim of self defense in the shooting of her abusive boyfriend, is relevant and admissible to show the defendant's state of mind at the time of the killing; State v. [Kathy] Thomas distinguished.
3. Expert testimony on the "battered woman syndrome," offered to support a claim of self defense, is relevant and admissible in evidence where (1) there is substantial evidence of a history of abuse and (2) the expert testimony is based on an evaluation of the defendant's particular psychological characteristics; State v. Thomas overruled.
The Supreme Court of Ohio sua sponte dismissed petitioner's appeal by an entry dated October 21, 1987, stating as its reason *1132 that the appeal did not present a substantial constitutional question.
II. CLAIM PRESENTED
Petitioner, in her pro se petition filed in Case No. 89-314, raises the following claim:
Conviction obtained by not allowing expert testimony denying defendant to [sic] a fair trial 5, 6, 14th Amendments, U.S. 1-10 and 16 of Ohio.
Supporting Facts: The Court ruled in favor of the prosecutor on a motion to disallow any expert testimony as [sic] the state of mind the defendant was in at the time of offense and prior to alleged offense, denying defendant a fair trial.
In the petition filed through counsel in Case No. 89-955, petitioner likewise asserts that her conviction was obtained by a violation of her right to a fair trial and due process of law as a result of the trial court's exclusion of expert testimony on the battered woman syndrome. The Court finds that petitioner has exhausted her available state court remedies with respect to the claim raised in the instant petition.
III. DISCUSSION
A. Commentary And State Law On Admissibility.
Respondent argues that the exclusion of the expert testimony was correct under Ohio law and that the exclusion did not deny petitioner a fundamentally fair trial. Indeed, evidentiary questions do not rise to the constitutional level unless the error was so prejudicial as to deprive the defendant of a fundamentally fair trial. Cooper v. Sowders, 837 F.2d 284, 286 (6th Cir.1988); Walker v. Engle, 703 F.2d 959, 962 (6th Cir.), cert. denied, 464 U.S. 962, 104 S. Ct. 396, 78 L. Ed. 2d 338 (1983); Burks v. Egeler, 512 F.2d 221, 223 (6th Cir.), cert. denied, 423 U.S. 937, 96 S. Ct. 297, 46 L. Ed. 2d 270 (1975).
There can be no question that the trial court's decision in the instant case was correct under Ohio law. The evidentiary rule in effect at the time of petitioner's trial was that expert testimony on the battered woman syndrome was inadmissible to support a defense of self-defense in murder cases. State v. Thomas, 66 Ohio St. 2d 518, 423 N.E.2d 137 (1981) (syllabus by the court), over'd, State v. Koss, 49 Ohio St. 3d 213, 551 N.E.2d 970 (1990).[2] Both the trial court and the Court of Appeals in petitioner's case relied upon State v. Thomas in reaching the conclusion that the proffered expert testimony on the battered woman syndrome was inadmissible. This Court "must defer to a state court's interpretation of its own rules of evidence and procedure" in considering a habeas petition. Allen v. Morris, 845 F.2d 610, 614 (6th Cir. 1988), cert. denied, 488 U.S. 1011, 109 S. Ct. 799, 102 L. Ed. 2d 790 (1989).
Numerous commentators have written on the subject of the battered woman syndrome and whether expert testimony on the battered woman syndrome should be admissible to prove self-defense. See e.g. C. Gillespie, Justifiable Homicide: Battered Women, Self-defense, And The Law (1989) (discussing the battered woman syndrome from historical, social and legal perspectives. Extensive list of books, articles and cases on this subject contained in the appendix); L. Walker, The Battered Woman (1979); Buda & Butler, The Battered Wife Syndrome, A Back Door Assault On Domestic Violence, 23 J.Fam.L. 359 (1984-85); Crocker, The Meaning of Equality For Battered Women Who Kill Men In Self-Defense, 8 Harv.Women's L.J. 121 (1985); Rosen, The Excuse Of Self-Defense: Correcting A Historical Accident On Behalf Of Battered Women Who Kill, 36 Am.U.L.Rev. 11 (1986); Note, Defense Strategies For Battered Women Who Assault Their Mates; State v. Curry, 4 Harv. Women's L.J. 161 (1981); Note, The Battered Wife's Dilemma: To Kill Or To Be Killed, 32 Hastings L.J. 895 (1981); Comment, The Defense Of Battered Women *1133 Who Kill, 135 U.Pa.L.Rev. 427 (1987) (advocating use of insanity defense). The majority of the material written on this subject advocates the admissibility of expert testimony on the battered woman syndrome. But see Acker & Toch, Battered Women, Straw Men, And Expert Testimony: A Comment On State v. Kelly, 21 Crim.L.Bull. 125 (1985); Note, The Battered Woman Syndrome And Self-Defense: A Legal And Emperical Dissent, 72 Va.L.Rev. 619 (1986); Note, Does Wife Abuse Justify Homicide?, 24 Wayne L.Rev. 1705 (1978); see generally Comment, Human Biology And Criminal Responsibility: Free Will or Free Ride?, 137 U.Pa.L.Rev. 615 (1988).
In addition to the Supreme Court of Ohio, a number of other state appellate courts have addressed the issue of the admissibility of expert testimony on the battered woman syndrome. The following state appellate courts have held that expert testimony on the battered woman syndrome is admissible to prove self-defense. People v. Aris, 215 Cal. App. 3d 1178, 264 Cal. Rptr. 167 (1989); Ibn-Tamas v. United States, 407 A.2d 626 (D.C.1979) (cf. Ibn-Tamas v. United States, 455 A.2d 893 (D.C.1983)); Hawthorne v. State, 408 So. 2d 801 (Fla.Ct.App.1982); Chapman v. State, 258 Ga. 214, 367 S.E.2d 541 (1988); Smith v. State, 247 Ga. 612, 277 S.E.2d 678 (1981); People v. Minnis, 118 Ill.App.3d 345, 74 Ill. Dec. 179, 455 N.E.2d 209 (1983); State v. Hodges, 239 Kan. 63, 716 P.2d 563 (1986), over'd on other grounds, State v. Stewart, 243 Kan. 639, 763 P.2d 572 (1988); State v. Hundley, 236 Kan. 461, 693 P.2d 475 (1985); Commonwealth v. Rose, 725 S.W.2d 588 (Ky.1987), over'd in part, Commonwealth v. Craig, 783 S.W.2d 387 (1990); State v. Anaya, 438 A.2d 892 (Me. 1981); State v. Hennum, 441 N.W.2d 793 (Minn.1989); State v. Williams, 787 S.W.2d 308 (1990); State v. Clay, 779 S.W.2d 673 (Mo.App.1989) (recognizing expert testimony admissible under statute); State v. Kelly, 97 N.J. 178, 478 A.2d 364 (1984); State v. Gallegos, 104 N.M. 247, 719 P.2d 1268 (1986); People v. Torres, 128 Misc. 2d 129, 488 N.Y.S.2d 358 (1985); State v. Leidholm, 334 N.W.2d 811 (N.D.1983); State v. Moore, 72 Ore.App. 454, 695 P.2d 985 (1985); Commonwealth v. Stonehouse, 521 Pa. 41, 555 A.2d 772 (1989); State v. Hill, 287 S.C. 398, 339 S.E.2d 121 (1986); State v. Furlough, 1990 WL 40068, 1990 Tenn. Crim.App. LEXIS 293 (Apr. 10, 1990); Fielder v. Texas, 756 S.W.2d 309 (1988); State v. Ciskie, 110 Wash.2d 263, 751 P.2d 1165 (1988); State v. Allery, 101 Wash.2d 591, 682 P.2d 312 (1984); State v. Steele, 359 S.E.2d 558 (W.Va.1987). A number of state appellate courts have held such testimony to be inadmissible. Hill v. State, 507 So. 2d 554 (Ala.1986) (dicta); Fultz v. State, 439 N.E.2d 659 (Ind.App.1982) (court of appeals upheld trial court's refusal to admit expert testimony on facts of particular case; does not appear to establish per se rule); State v. Necaise, 466 So. 2d 660 (La. App.1985); State v. Felton, 106 Wis. 2d 769, 318 N.W.2d 25 (App.1981), aff'd in part, rev'd in part, 110 Wis. 2d 485, 329 N.W.2d 161 (1983); Buhrle v. State, 627 P.2d 1374 (Wyo.1981). Clearly, both the majority position and the trend among state appellate courts favors the admissibility of expert testimony on the battered woman syndrome. See generally Annotation, Admissibility of Expert or Opinion Testimony on Battered Wife or Battered Woman Syndrome, 18 A.L.R. 4th 1153 (1982).
State Courts have approached the issue of admissibility as a state evidentiary law question rather than a constitutional issue. This Court is aware of only two reported state court decisions on this subject that even make reference to the constitutional implications of this issue, and in both cases the references to constitutional law were made only in passing. See State v. Necaise, 466 So.2d at 665; State v. Kelly, 97 N.J. at 202-03 n. 11, 478 A.2d at 376.
Although the aforementioned authorities are helpful in gaining an understanding of the general subject of the battered woman syndrome, they do not provide much guidance for the determination of the issue presently before this Court. The aforementioned authorities address admissibility under state law. The issue before this Court, however, is whether the trial court constitutionally was required to admit the *1134 proffered expert testimony on the battered woman syndrome at petitioner's trial.
B. The Battered Woman Syndrome.
Before proceeding further, a brief description of the battered woman syndrome is in order:
The "battered woman syndrome" generally refers to common characteristics appearing in women who are physically and psychologically abused by their mates. The typical pattern of violence consists of three recurrent phases of abuse: a tension-building stage, characterized by minor abuse; an acute battering stage, characterized by uncontrollable explosions of brutal violence; and a loving respite stage, characterized by calm and loving behavior of the batterer, coupled with pleas for forgiveness. The continued cycle of violence and contrition results in the battered woman living in a state of learned helplessness. Because she is financially dependent on the batterer, she may feel partly responsible for the batterer's violence, she may believe that her children need a father, or fear reprisal if she leaves. The battered woman lives with constant fear, coupled with a perceived inability to escape. Eventually, she comes to believe that her only options are enduring the abuse, striking back, or committing suicide.
Fennell v. Goolsby, 630 F. Supp. 451, 456 (E.D.Pa.1985). Proponents of the battered woman syndrome defense essentially maintain that women suffering from the syndrome are in a constant state of fear and as a result reasonably perceive that they are in danger even when their battering partners are in a passive stage. Proponents assert that expert testimony is essential to a battered woman's defense because the average juror does not understand why a battered woman perceives she is in danger when her battering partner is in a passive or contrite stage, and because concepts such as "learned helplessness" are beyond the ken of most jurors. Proponents also complain that jurors, and society in general, suffer from various misconceptions or prejudices concerning battered women, such as that battered women deserve or take pleasure in being abused.
How expert testimony on the battered woman syndrome would be used at trial to help establish the defense of self-defense should also be examined. Under Ohio law, to establish self-defense a criminal defendant must prove the following by a preponderance of the evidence:
(1) The slayer was not at fault in creating the situation giving rise to the affray; (2) the slayer has a bona fide belief that he was in imminent danger of death or great bodily harm and that his only means of escape from such danger was the use of such force; and (3) the slayer must not have violated any duty to retreat or avoid the danger.
State of Ohio v. Tourlakis, No. 52035 (Cuyahoga Cty. App. Apr. 25, 1987) at 6 (quoting State v. Robbins, 58 Ohio St. 2d 74, 388 N.E.2d 755 (1979) (syllabus by the court, paragraph two)). "Ohio employs a subjective test to determine whether a defendant had a bona fide belief in imminent danger." Id. (citing State v. Sheets, 115 Ohio St. 308, 152 N.E. 664 (1926)).
In general, expert testimony on the battered woman syndrome would be used to establish self-defense in two ways. First, it ostensibly would provide a reason for the battered woman's perception that she was in imminent danger in spite of the fact that her battering partner was passive at the time of the offense. Second, the theory of learned helplessness would provide an explanation for why the battered woman resorted to deadly force rather than attempting to escape from or otherwise avoid the perceived danger.
C. Applicable Constitutional Standards.
The Sixth Amendment provides that "[i]n all criminal prosecutions, the accused shall enjoy the right ... to have compulsory process for obtaining witnesses in his favor." U.S. CONST. amend. VI.
The right to offer the testimony of witnesses, and to compel their attendance, if necessary, is in plain terms the right to present a defense, the right to present the defendant's version of the facts as *1135 well as the prosecution's to the jury so it may decide where the truth lies. Just as an accused has the right to confront the prosecution's witnesses for the purpose of challenging their testimony, he has the right to present his own witnesses to establish a defense. This right is a fundamental element of due process of law.
Washington v. Texas, 388 U.S. 14, 19, 87 S. Ct. 1920, 1923, 18 L. Ed. 2d 1019 (1967). In Washington v. Texas, the Court struck down a Texas law that prohibited co-participants in the same crime from testifying for one another. Under the compulsory process clause of the Sixth Amendment, as applicable to the states through the due process clause of the Fourteenth Amendment, the Court in Washington v. Texas held that a state may not arbitrarily prevent a criminal defendant from introducing testimony by a witness who is physically and mentally capable of testifying to events that he personally observed, and whose testimony is relevant and material to the defense. 388 U.S. at 23, 87 S.Ct. at 1925. More recently, under the same principles, the Court held unconstitutional an Arkansas rule that prohibited a criminal defendant from introducing her own hypnotically-enhanced testimony. Rock v. Arkansas, 483 U.S. 44, 52, 62, 107 S. Ct. 2704, 2709, 2714-15, 97 L. Ed. 2d 37 (1987). Stated succinctly, "`The Sixth Amendment does not operate to prevent a state from adopting any limitations on defense evidence in criminal trials, but only prevents the adoption of broad arbitrary limitations.'" Fennell v. Goolsby, 630 F. Supp. 451, 461 (E.D.Pa.1985) (quoting Myers v. Frye, 401 F.2d 18, 21 (7th Cir.1968)).
The right to present relevant testimony is not without limitation. Id. 483 U.S. at 55, 107 S. Ct. at 2711; Allen v. Morris, 845 F.2d at 1614. For example, the right "`may, in appropriate cases, bow to accommodate other legitimate interests in the criminal trial process.'" Rock v. Arkansas, 483 U.S. at 55, 107 S. Ct. at 2711 (quoting Chambers v. Mississippi, 410 U.S. 284, 295, 93 S. Ct. 1038, 1045-46, 35 L. Ed. 2d 297 (1973)). In the realm of expert testimony, a criminal defendant is not constitutionally entitled to introduce an expert's conclusion that the criminal defendant acted in self-defense. Phillips v. Wainwright, 624 F.2d 585, 590 (5th Cir.1980). On the other hand, at least one court of appeals has held unconstitutional a trial court's refusal to permit expert testimony on "homosexual panic" in order to explain the defendant's state of mind in a murder case. Parisie v. Greer, 671 F.2d 1011 (7th Cir.1982), vacated on other grounds, 705 F.2d 882 (7th Cir.1983), cert. denied, 464 U.S. 950, 104 S. Ct. 366, 78 L. Ed. 2d 326 (1983).
Recently, the Sixth Circuit held that a state court's exclusion of expert testimony on the subject of eyewitness identification did not violate the defendant's constitutional rights. Moore v. Tate, 882 F.2d 1107, 1111 (6th Cir.1989). Interestingly, like the battered woman syndrome, the notion that eyewitness identification testimony is inherently unreliable is based, in part, on scientific study. See Black, A Unified Theory Of Scientific Evidence, 56 Fordham Law Rev. 595, 655 (1988); Note, Did Your Eyes Deceive You? Expert Psychological Testimony On The Unreliability Of Eyewitness Identification, 29 Stan. L. Rev. 969, 974-89 (1977). Some of the other parallels between Moore and the instant case are striking. Like self-defense, misidentification is a defense firmly rooted in our society's concept of justice, inasmuch as the conviction and imprisonment of an innocent person as a result of misidentification would be universally condemned as unjust. Many jurors afford eyewitness identification testimony greater weight than they should, according to the scientific studies on this subject. Moreover, the reasons why eyewitness identification testimony may be inherently unreliable arguably are beyond the ken of the average juror. Additionally, expert testimony on the unreliability of eyewitness identification undoubtedly would result in a stronger misidentification defense. Nevertheless, under Moore, a criminal defendant does not have a constitutional right to introduce expert testimony on the subject. The state's interest in developing its own rules prevails.
It is also appropriate in this case to consider the state's right to determine what *1136 constitutes punishable behavior and exculpatory circumstances. If a state has legitimately determined the existence of a certain set of circumstances is not exculpatory, then evidence of such circumstances is rendered irrelevant.
It goes without saying that preventing and dealing with crime is much more the business of the States than it is of the Federal Government, Irvine v. California, 347 U.S. 128, 134 [74 S. Ct. 381, 384, 98 L. Ed. 561] (1954) (plurality opinion), and we should not lightly construe the Constitution so as to intrude upon the administration of justice by the individual States. Among other things, it is normally "within the power of the State to regulate procedures under which its laws are carried out, including the burden of producing evidence and the burden of persuasion," and its decision in this regard is not subject to proscription under the Due Process Clause unless "it offends some principle of justice so rooted in the traditions and conscience of our people as to be ranked as fundamental." Speiser v. Randall, 357 U.S. 513, 523, 78 S. Ct. 1332, 1341, 2 L. Ed. 2d 1460 (1958).
Patterson v. New York, 432 U.S. 197, 201-02, 97 S. Ct. 2319, 2322, 53 L. Ed. 2d 281 (1977). See also McMillan v. Pennsylvania, 477 U.S. 79, 85, 106 S. Ct. 2411, 2415, 91 L. Ed. 2d 67 (1986); White v. Arn, 788 F.2d 338, 347 n. 15 (6th Cir.1986), cert. denied, 480 U.S. 917, 107 S. Ct. 1370, 94 L. Ed. 2d 686 (1987). Although Patterson involved the allocation of the burden of proof, the general principle that dealing with crime, including determining what constitutes crime and exculpatory circumstances, is much more the business of the states is applicable in this case. The federal courts should not lightly intrude upon the states' inherent right to make such determinations.
Aside from these general principles, this Court has found only two federal court decisions that squarely address the question of whether a state court's refusal to admit expert testimony on the battered woman syndrome amounts to constitutional error. See Fennell v. Goolsby, 630 F. Supp. 451 (E.D.Pa.1985); Thomas v. Arn, 728 F.2d 813, 815 (6th Cir.1984), aff'd, 474 U.S. 140, 106 S. Ct. 466, 88 L. Ed. 2d 435 (1985) (concurring opinion by Jones, J.). The district court in Fennell held that the exclusion of expert testimony on the battered woman syndrome did not violate the defendant's Sixth Amendment or due process rights because the expert's testimony was "not of a fact witness to the crime, but of an expert on petitioner's mental state." 630 F. Supp. at 460. The court in Fennell drew a distinction between "fact witnesses" and "expert testimony" based upon its interpretation of Washington v. Texas, supra, which, as previously stated, involved the exclusion of eyewitness testimony to the crime. The court in Fennell held in the alternative that even if the exclusion of the expert testimony on the battered woman syndrome was constitutional error, the error was harmless beyond a reasonable doubt. 630 F. Supp. at 461. The Fennell court found the exclusion to be harmless because the history of the defendant's abuse by her husband had been brought before the jury and the jury was therefore free to draw inferences concerning the effect of the abuse on the defendant's behavior. "Thus, the jury was not denied testimony of essential facts but an expert's explanation of those facts." Id.
The other federal opinion on this subject is contained in the Honorable Nathanial R. Jones's concurring opinion in Thomas v. Arn, supra. In Thomas v. Arn, the majority did not consider the merits of the petitioner's case because the petitioner failed timely to object to the magistrate's report and recommendation. However, Judge Jones wrote separately
to note that if I were to reach the merits of this case, I would grant the writ of habeas corpus. In my view, the trial court's exclusion of expert testimony on the "battered wife syndrome" impuned the fundamental fairness of the trial process thereby depriving Thomas of her constitutional right to a fair trial.
Thomas v. Arn, 728 F.2d at 815 (concurring opinion by Jones, J.). Judge Jones further stated "[t]he law cannot be allowed to be mired in antiquated notions about *1137 human responses when a body of knowledge is available which is capable of providing insight. Id.
Petitioner specifically relies upon Judge Jones's concurring opinion in Thomas v. Arn for the proposition that the exclusion of the expert testimony on the battered woman syndrome violated her right to a fair trial. Although Judge Jones's comments represent the view of a highly respected member of the Sixth Circuit, they are nevertheless dicta and were not joined in by the other members of the panel. This Court concludes that the best indication of the Sixth Circuit view on this issue is its recent holding in the closely analogous case of Moore v. Tate, supra.
In her traverse filed through counsel, petitioner also argues that her rights under the compulsory process and due process clauses were violated because the excluded testimony on the battered woman syndrome was both material and favorable to the defense. In support of this proposition, petitioner cites United States v. Valenzuela-Bernal, 458 U.S. 858, 102 S. Ct. 3440, 73 L. Ed. 2d 1193 (1982) and United States v. Davis, 639 F.2d 239 (5th Cir.1981). The defendant in United States v. Valenzuela-Bernal was charged with transporting illegal aliens. The Court in Valenzuela-Bernal reversed the court of appeals, holding that the deportation of the allegedly illegal aliens prior to trial did not violate the defendant's rights under either the compulsory process clause of the Sixth Amendment or the due process clause of the Fourteenth Amendment. 458 U.S. at 873-74, 102 S.Ct. at 3449-50. In Davis, the district court excluded testimony by two character witnesses offered by the defendant to impeach the government's key witness as to his reputation for truth and veracity. The district court excluded the testimony as a sanction against the defendant for failing to provide the names of the witnesses on a witness list as required by a pretrial discovery order. The court of appeals in Davis reversed the district court, holding that the Sixth Amendment forbids the exclusion of otherwise admissible evidence solely as a sanction to enforce discovery rules or orders. 639 F.2d at 243.
This Court does not find either Valenzuela-Bernal or Davis to be supportive of petitioner's case. Neither case involves the exclusion of evidence on the basis of state evidentiary rule. The correct standard to apply in reviewing a state evidentiary rule is whether the rule arbitrarily excludes evidence that is relevant and material to the defense. Rock v. Arkansas, 483 U.S. at 54-55, 107 S. Ct. at 2710-11; Washington v. Texas, 388 U.S. at 23, 87 S. Ct. at 1925; Myers v. Frye, 401 F.2d at 21.
In addition, Valenzuela-Bernal and Davis do not involve the exclusion of expert testimony. The Court finds this distinction to be significant. There can be no dispute that "`in the mind of a typical lay juror, a scientific witness has a special aura of credibility.'" Barefoot v. Estelle, 463 U.S. 880, 926 n. 8, 103 S. Ct. 3383, 3399 n. 8, 77 L. Ed. 2d 1090 (1983) (dissenting opinion by Blackmun, J.) (quoting Imwinkelried, Evidence Law and Tactics For the Proponents of Scientific Evidence in Scientific and Expert Evidence 33, 37 (E. Imwinkelried ed. 1981)). For reasons such as this, "[c]ourts are generally granted far more discretion in determining the admissibility of expert testimony than of fact testimony." Fennell v. Goolsby, 630 F.Supp. at 460. Given these considerations, it is clear that a state ruling concerning the exclusion of scientific expert testimony should be afforded additional deference.
D. Analysis.
After carefully considering the facts of the instant case, the Court concludes that the trial court's refusal to admit expert testimony on the battered woman syndrome did not result in an error of constitutional magnitude. The reason for this conclusion is twofold. First, although the Ohio rule excluding testimony on the battered woman syndrome is broad, it is not unconstitutionally arbitrary. Second, under the facts of this case, the exclusion of the disputed testimony was not constitutional error, or, even if the exclusion was constitutional error, the error was harmless beyond a reasonable doubt.
*1138 The reasoning behind the former Ohio rule excluding testimony on the battered woman syndrome is as follows:
Expert testimony on the "battered wife syndrome" by a psychiatric social worker to support defendant's claim of self-defense is inadmissible herein because (1) it is irrelevant and immaterial to the issue of whether defendant acted in self-defense at the time of the shooting; (2) the subject of the expert testimony is within the understanding of the jury; (3) the "battered wife syndrome" is not sufficiently developed, as a matter of commonly accepted scientific knowledge, to warrant testimony under the guise of expertise; and (4) its prejudicial impact outweighs its probative value.
State v. Thomas, 66 Ohio St.2d at 521-22, 423 N.E.2d at 140.[3] The Court of Appeals in the instant case acknowledged the applicability of State v. Thomas to the facts of the case. State of Ohio v. Tourlakis, No. 52035 (Cuyahoga Cty. App. Apr. 25, 1987) at 10-11.
The reasoning behind Ohio's former rule is not arbitrary in the constitutional sense. To illustrate this point, the Court will examine each of the four reasons for the former rule stated in State v. Thomas.
The first reason stated in State v. Thomas is that expert testimony on the battered woman syndrome is "irrelevant and immaterial to the issue of whether defendant acted in self-defense at the time of the shooting." 66 Ohio St. 2d at 521, 423 N.E.2d at 140. By declaring such testimony irrelevant, the Supreme Court of Ohio effectively precluded a defense based on the battered woman syndrome as explained through expert testimony under the former rule.
Although the right to present a defense is unquestionably fundamental, it cannot likewise be said that the admissibility of expert testimony on the battered woman syndrome was, at the time of petitioner's trial, a principle of justice rooted in the traditions and conscience of our people. Even if the battered woman syndrome has since become generally accepted by the scientific community, the question of whether the syndrome constitutes a legitimate defense is not scientific, but legal.
Whether a battered woman's actions should be deemed "justified" or "excused" raises moral and social issues that cannot be answered by administering tests and analyzing data. See State v. Norman, 324 N.C. 253, 264-66, 378 S.E.2d 8, 15-16 (1989). Simply because behavior can be scientifically described and associated with a certain cause, in this case abuse, does not mean that society is constitutionally required to excuse that behavior when it otherwise is violative of the law. In weighing the State of Ohio's legitimate interest in deterring and punishing behavior involving death and injury to its citizens against the arguments in favor of allowing expert testimony on the battered woman syndrome to be used to establish self-defense, the Supreme Court of Ohio in 1981 apparently determined that the defense of self-defense should not be extended to include a defense based upon such expert testimony. That there may have been good arguments in favor of the admissibility of expert testimony on the battered woman syndrome at that time does not render the Supreme Court of Ohio's determination irrational or arbitrary. This Court believes that reasonable minds could differ on the question of whether, in light of the battered woman syndrome, battered women's actions in killing or attempting to kill their battering partners should be deemed legally justified or excused. For this reason, the first reason stated in State v. Thomas is not unconstitutionally arbitrary.
The second reason stated in State v. Thomas is that the subject of the expert testimony, the experiences and perceptions of the battered woman, is within the understanding of the jury. Significantly, in *1139 Ohio, "the victim's reputation for violence as known by the defendant is admissible to support a claim of self-defense." State of Ohio v. Tourlakis, No. 52035 (Cuyahoga Cty. App. Apr. 25, 1987) at 6 (citing McGaw v. State, 123 Ohio St. 196, 174 N.E. 741 (1931); State v. Smith, 10 Ohio App. 3d 99, 460 N.E.2d 693 (1983)). Evidence of the victim's character may be proved by specific instances of the victim's conduct. Id. at 6-7 (citing Rules 404(A)(2) and 405(B), Ohio Rules of Evidence). Under the former rule, therefore, a battered woman defendant in Ohio was able to introduce evidence of past episodes of battering to establish a pattern of abuse. Petitioner was allowed to do this. Nothing in the former rule suggests that a defendant would have been precluded from testifying as to her own perceptions that she subjectively perceived inescapable, imminent danger. There is also nothing about the former rule to suggest that a battered woman would have been precluded from explaining the reasons why she used force rather than leave her battering partner. It is far from self-evident that a factfinder, having heard such evidence, would have been unable to understand that a woman who experienced frequent serious physical abuse may have had a bona fide subjective belief that she was in inescapable danger of further abuse even when her battering partner was outwardly passive. For these reasons, the second reason stated in State v. Thomas, is not unconstitutionally arbitrary.
The third reason stated for the decision in State v. Thomas is that the battered woman syndrome was not sufficiently developed as a matter of commonly accepted scientific knowledge to warrant expert testimony on the subject. The State of Ohio has an undeniably legitimate interest in ensuring that scientific expert testimony not be admitted in criminal trials unless the testimony is based upon a sufficiently developed, well-recognized body of scientific knowledge. This Court believes that the states should be afforded some discretion in determining whether, under the state's standards, a particular theory upon which a proposed expert offers to testify is sufficiently developed so as to warrant admission of the testimony based on the theory. See Note, The Battered Woman Syndrome And Self-Defense: A Legal And Emperical Dissent, 72 Va.L.Rev. 619, 636-643 (1986) (pointing out several potential flaws in scientific research on the battered woman syndrome). This Court cannot fault the Supreme Court of Ohio for failing to adopt a theory in 1981 where the leading proponent of the theory published her major work on the subject only two years earlier. See L. Walker, The Battered Woman (1979). The Court similarly does not find to be arbitrary the Ohio courts' refusal to depart from the rule several years later in the instant case.
The fourth and final reason for excluding expert testimony on the battered woman syndrome stated in State v. Thomas is that the prejudicial impact of such testimony outweighed its probative value. The Supreme Court of Ohio explained "we believe the expert testimony offered here would tend to stereotype defendant, causing the jury to become prejudiced. It could decide the facts based on typical, and not the actual, facts." 66 Ohio St.2d at 521, 423 N.E.2d at 140. The following observations have been made concerning the use of expert testimony in criminal cases:
There can be no dispute about this obvious proposition:
"Scientific evidence impresses lay jurors. They tend to assume it is more accurate and objective than lay testimony. A juror who thinks of scientific evidence visualizes instruments capable of amazingly precise measurement, of findings arrived at by dispassionate scientific tests. In short, in the mind of the typical lay juror, a scientific witness has a special aura of credibility." Imwinkelried, Evidence Law And Tactics For The Proponents Of Scientific Evidence In Scientific And Expert Evidence 33, 37 (E. Imwinkelried ed. 1981).
Barefoot v. Estelle, 463 U.S. 880, 926 n. 8, 103 S. Ct. 3383, 3412 n. 8, 77 L. Ed. 2d 1090 (1983) (dissenting opinion by Blackmun, J.). "`The major danger of scientific evidence is its potential to mislead the jury; an aura of scientific infallibility may shroud the *1140 evidence and thus lead the jury to accept it without critical scrutiny.'" Id. at 926, 103 S. Ct. at 3412 (quoting Ginnelli, The Admissibility Of Novel Scientific Evidence: Frye v. United States, A Half-Century Later, 80 Colum.L.Rev. 1197, 1237 (1980)). See also United States v. Anderson, 851 F.2d 384, 393 (D.C.Cir.1988), cert. denied, 488 U.S. 1012, 109 S. Ct. 801, 102 L. Ed. 2d 792 (1989); United States v. Amaral, 488 F.2d 1148, 1152 (9th Cir.1973). Although Barefoot and Anderson addressed the prejudicial impact of expert testimony offered against the accused, the same "obvious proposition" would apply where a criminal defendant seeks to offer expert testimony in support of a defense. See United States v. Amaral, 488 F.2d at 1152. In light of this proposition, the Supreme Court of Ohio's concern that the prejudicial impact of expert testimony on the battered woman syndrome would outweigh its probative value is not unconstitutionally arbitrary.
If any of the four reasons stated in State v. Thomas constitute an adequate state ground for excluding expert testimony on the battered woman syndrome, then the former rule is not unconstitutional. Based on the foregoing discussion, this Court finds each of the four reasons given by the Supreme Court of Ohio in State v. Thomas to be sufficiently compelling so as to preclude a conclusion that Ohio's former rule is unconstitutional.
This Court's decision is also based upon a determination that under the facts of this case, the exclusion of expert testimony on the battered woman syndrome was not constitutional error. The testimony excluded was not that of a "key fact witness" who actually observed the crime. Rather, petitioner's expert would have testified as to petitioner's state of mind, and, presumably, on the ultimate issue of whether petitioner perceived she was in immediate danger at the time of the shooting. The Constitution does not require that such testimony be admitted. See Fennell v. Goolsby, 630 F.Supp. at 460-61.
Further, petitioner was able to introduce a significant amount of evidence of her prior abuse by the victim, in spite of the fact that the trial court sustained numerous objections by the prosecutor to the introduction of such evidence. For example, petitioner was allowed to testify that at one point the victim put his hands around her throat and threatened to kill her. (Tr. p. 341). Petitioner was also allowed to testify as to another death threat during which the victim held a razor to petitioner's throat, telling her that "he was going to cut my body so no one else could look at me and he would break my legs." (Tr. p. 343). Petitioner additionally was able to introduce testimony by other witnesses as to Sparks' general reputation for violence and jealousy as well as testimony corroborating petitioner's assertion that Sparks tried to choke her and on at least one occasion held a knife to her. Therefore, as in Fennell, the fact-finder was not denied testimony of the essential facts but rather an expert's explanation of those facts. See Fennell v. Goolsby, 630 F.Supp. at 461. For these reasons, even if the exclusion of the expert testimony on the battered woman syndrome was constitutional error, the error was harmless beyond a reasonable doubt.
WHEREUPON, the Court HOLDS that the petition is without merit. Accordingly, the petition is DENIED, and this action is hereby DISMISSED.
NOTES
[1] Petitioner filed her initial habeas petition pro se on April 11, 1989 in Case No. 89-314. Petitioner, through counsel, filed a second habeas petition on November 17, 1989 in Case No. 89-955, raising the same claim presented in her initial pro se petition. Respondent's unopposed motion to consolidate was granted on December 27, 1989. Petitioner, through counsel, filed a traverse on January 11, 1990. By Order of this Court dated March 13, 1990, this Court directed the parties to submit supplemental briefs addressing the possible impact of State v. Koss, 49 Ohio St. 3d 213, 551 N.E.2d 970 (1990) on this case. Respondent filed his supplemental brief on April 16, 1990, and petitioner submitted her supplemental brief, through counsel, on April 26, 1990.
[2] The Supreme Court of Ohio held this year in Koss that expert testimony on the battered woman syndrome is admissible to prove the defense of self-defense. Petitioner concedes, however, that nothing in Koss suggests that the new state evidentiary rule could be applied retroactively to petitioner's case. Petitioner's memorandum on impact of State v. Koss, p. ___.
[3] Expert testimony on the battered woman syndrome is now admissible in Ohio to prove the defense of self-defense under State v. Koss, 49 Ohio St. 3d 213, 551 N.E.2d 970 (1990). Curiously, Koss only addresses the third reason stated in State v. Thomas, concluding that the battered woman syndrome is now a matter of commonly accepted scientific knowledge. See State v. Koss, 49 Ohio St.3d at 217, 551 N.E.2d at 974. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1972653/ | 738 F. Supp. 508 (1988)
Hiram HOWARD, Plaintiff,
v.
Carl C. BROWN, Jr. and the Probate Court of Burke County, Defendants.
No. CV188-042.
United States District Court, S.D. Georgia, Augusta Division.
November 23, 1988.
ORDER
EDENFIELD, Chief Judge.
Before the Court are the motion to dismiss of defendant Carl C. Brown, Jr., the motion for summary judgment of defendant Probate Court of Burke County, and the motion of plaintiff for a stay or to dismiss without prejudice. For the reasons set forth below, plaintiff's motion is DENIED and defendants' motions are GRANTED.
I. Background
Defendant Carl C. Brown, Jr. was appointed administrator of the estate of Julius Howard on May 2, 1983, by Mary O. Herrington, Judge of Probate Court, Burke County, Georgia. The majority of the estate was apparently comprised of land situated in Burke County. On December 31, 1984, the Probate Court entered an order approving defendant Brown's petition to sell three hundred acres of this land. There is some disagreement among the parties as to whether heirs of the estate objected to this Probate Court order, but in any event the heirs appealed the order to the Superior Court of Burke County, which upheld the administrator's actions, and to the Georgia Court of Appeals, which affirmed the judgment of the Superior Court. *509 See Howard v. Estate of Julius Howard, 176 Ga.App. 86, 87, 335 S.E.2d 171 (1985).
Not satisfied with the disposition of the state court action, plaintiff Hiram Howard, an heir of Julius Howard, has brought this action alleging that he and other heirs have been deprived of their rights to due process and equal protection of the law as guaranteed by the Fifth and Fourteenth Amendments of the United States Constitution. Plaintiff claims that, in selling property from the estate at below market value and in failing to document legal fees that he has recovered from the estate, defendant Brown has acted under color of state law in taking the property in violation of the Constitution. Plaintiff claims that defendant Probate Court of Burke County refused to consider objections of the heirs to the sale of property from the estate and refused to hold a hearing on the matter or to consider the heirs' petitions.
II. Claims Against The Administrator
Defendant Brown has moved the Court to dismiss on several grounds. Brown claims that, by failing to submit certain prefiling information and to respond to the Court's standard interrogatories and by failing to associate counsel who is a member of this Court's bar, plaintiff has failed to comply with the Local Rules of this Court. Plaintiff's only response to this motion has been to agree to a dismissal without prejudice. It appears that, by not responding to the standard interrogatories, see Local Rules, Section I, Rule 8.6, and by failing to associate counsel who is a member of this Court's bar, see Local Rules, Section IV, Rule 4, plaintiff has indeed failed to comply with the Local Rules of this Court. See Fed.R.Civ.P. 83. Such failures warrant dismissal; however, there are other reasons why this action should be dismissed.
Brown claims that in his capacity as administrator and counsel for a private estate he was not acting "under color of state law," and that there could have been no denial of due process in this case because there existed adequate postdeprivation remedies.[1] The Court will give plaintiff the benefit of the doubt and assume that plaintiff intended to plead a violation of 42 U.S.C. § 1983 in addition to his allegations of Fifth and Fourteenth Amendment violations.
Clearly, a private individual cannot be liable under § 1983 unless he or she acted "under color" of state law, and the Supreme Court has consistently held that conduct allegedly causing a deprivation of a federal constitutional right must be fairly attributable to a state. See Lugar v. Edmondson Oil Co., 457 U.S. 922, 937, 102 S. Ct. 2744, 2753, 73 L. Ed. 2d 482 (1982). Because the due process and equal protection clauses limit only the power of government, plaintiff must make a showing of state action in order to prevail on his claim against Brown.
Plaintiff has made no argument and there appears to be no precedent for the proposition that defendant Brown, acting in his capacity as estate administrator, was somehow clothed in the power of the state. Indeed, the only authority which speaks to this issue indicates that plaintiff has failed to allege state action as to defendant Brown. See, e.g., Loyd v. Loyd, 731 F.2d 393, 402 (7th Cir.1984) (administrator of estate does not act under color of state law); Ganoe v. Lummis, 662 F. Supp. 718, 722 (S.D.N.Y.1987) (action taken by administrator of estate not state action), aff'd mem., 841 F.2d 1116 (2d Cir.), cert. denied, 487 U.S. 1206, 108 S. Ct. 2848, 101 L. Ed. 2d 886 (1988). The Court is convinced that, at least as to the allegations set forth in the complaint, defendant Brown did not act under color of state law, and there was no constitutional violation on which to premise federal jurisdiction.
III. If You Lose Your Case, Sue The Court
Defendant Probate Court of Burke County has moved for summary judgment on several grounds.[2] Defendant claims that *510 the Probate Court is not a legal entity which can be the subject of suit under the law of the State of Georgia, and that this action is barred by the doctrines of res judicata and collateral estoppel.
The Supreme Court has long held that a federal court has no jurisdiction to administer an estate or entertain an action that would interfere with probate proceedings pending in a state court or with property controlled by a state probate court. See Markham v. Allen, 326 U.S. 490, 494, 66 S. Ct. 296, 298, 90 L. Ed. 256 (1946). Mindful of this limitation on federal jurisdiction, the Court inquires whether the Probate Court of Burke County can be sued in this court.
The capacity of the defendant to be sued in this court is determined by the law of the State of Georgia. Fed.R.Civ.P. 17(b). The Georgia Supreme Court has determined that in every action there must be "a legal entity as the real plaintiff and the real defendant." Georgia Insurer's Insolvency Pool v. Elbert County, 258 Ga. 317, 368 S.E.2d 500, 502 (1988). Georgia recognizes only three categories of legal entities: "(1) natural persons; (2) an artificial person (a corporation); and (3) such quasi-artificial persons as the law recognizes as being capable." Id. 368 S.E.2d at 502 (emphasis added) (quoting Cravey v. Southeastern Underwriters Association, 214 Ga. 450, 453, 105 S.E.2d 497 (1958)). Clearly, defendant Probate Court is neither a natural nor an artificial person, and even if it could be considered a quasi-artificial person, the law of Georgia does not recognize it as being capable of being sued. A court is not subject to suit in its own name absent express statutory authority, and there is none in Georgia.
This results logically from the nature and function of courts within our society. A court is defined, not as a person or quasi-artificial person, but as "a place in which justice is judicially administered. It is the exercise of judicial power, by the proper officer or officers, at a time and place appointed by law." United States v. Todd, 158 U.S. 278, 15 S. Ct. 889, 39 L. Ed. 982 (1895) (quoting Justice Story's opinion in United States v. Clark, 25 F. Cas. 441 (C.C.D.Ma. 1813).
Because the Probate Court of Burke County is not a legal entity subject to suit, defendant prevails on its motion for summary judgment. Even if the Probate Court were subject to suit, this Court would decline to adjudicate the merits of the present claim. Plaintiff asks for a motion to stay, pending the outcome of further proceedings in state court, and plaintiff concedes that the issues at stake in this action continue to be considered in state court through his appeal of a recent Probate Court ruling to the Superior Court of Burke County. Furthermore, plaintiff's claims were already considered and resolved in part. See Howard v. Estate of Howard, 176 Ga.App. 86, 335 S.E.2d 171 (1985).
*511 The Court believes that the doctrine of res judicata would bar this suit. See Wilson v. Auto-Owner's Ins. Co., 791 F.2d 886 (11th Cir.1986). Moreover, the implications of allowing plaintiff to go forward are too disturbing to ignore. In essence, plaintiff objected to the performance of the estate administrator, tried to resolve the dispute through the state court system and lost, fair and square. Because plaintiff dislikes the result of the state court proceeding, he wants another chance to prevail and so brings an action in this court against the other court. The absurdity of such a tactic is obvious.[3]
IV. Due Process
Finally, there was no denial of due process in this case. Due process requires "notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." Mulane v. Central Hanover Trust Co., 339 U.S. 306, 314, 70 S. Ct. 652, 657, 94 L. Ed. 865 (1950). There is no indication that plaintiff was not afforded due process. Plaintiff's claims were fully litigated in state court. Plaintiff dislikes certain actions taken by the administrator, and because his state court challenge to those actions failed, he claims denial of due process. Still, an unfavorable result is not the equivalent of a denial of due process.
Conclusion
For the foregoing reasons, the motion of plaintiff for a stay or to dismiss without prejudice is DENIED, the motion to dismiss with prejudice of defendant Carl C. Brown, Jr. is GRANTED, and the motion for summary judgment of defendant Probate Court of Burke County is GRANTED.
SO ORDERED.
NOTES
[1] Plaintiff has made essentially no response to these assertions.
[2] The Court is aware that, because summary judgment is a "lethal weapon, depriving a litigant of a trial on the issue, caution must be used to ensure only those cases devoid of any need for factual determinations are disposed of by summary judgment." Tippens v. Celotex Corp., 805 F.2d 949, 953 (11th Cir.1986). As the parties seeking summary judgment, defendants bear "the exacting burden of demonstrating that there is no dispute as to any material fact in the case." Warrior Tombigbee Transp. v. M/V Nan Fung, 695 F.2d 1294, 1296 (11th Cir.1983). All reasonable doubts about the facts are to be resolved in favor of the non-movant, although "the non-moving party ... bears the burden of coming forward with sufficient evidence of every element that he or she must prove." Rollins v. TechSouth, Inc., 833 F.2d 1525, 1528 (11th Cir.1987). See also Young v. General Foods Corp., 840 F.2d 825 (11th Cir.1988); Livernois v. Medical Disposables, Inc., 837 F.2d 1018, 1022 (11th Cir.1987). Moreover, if the record presents factual issues, the Court must not decide them; it must deny the motion and proceed to trial. Clemons v. Dougherty County, 684 F.2d 1365, 1369 (11th Cir.1982).
Of course, "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S. Ct. 2505, 2509-10, 91 L. Ed. 2d 202 (1986) (emphasis in original). At the summary judgment stage, the court's function is not "to weigh the evidence and determine the truth of the matter but to determine whether there is an issue for trial." Id. at 249, 106 S. Ct. at 2510. See also McKenzie v. Davenport-Harris Funeral Home, 834 F.2d 930 (11th Cir.1987). The case sub judice presents no issue for trial.
[3] The Court notes that if such a procedure became a standard litigation tool, the federal courts would carry a burden that would dwarf the load of cases that presently result from diversity jurisdiction, and there is nothing to indicate that the interests of justice would be further served. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1971961/ | 738 F. Supp. 691 (1990)
UNITED STATES of America,
v.
Angelo PACCIONE, Anthony Vulpis, John McDonald, A & A Land Development, W & W Properties, August Recycling, Inc., National Carting, Inc., Stage Carting, Inc., New York Environmental Contractors, Inc., Rosedale Carting, Inc., and Vulpis Brothers, Ltd., Defendants.
No. SSS 89 Cr. 446 (CBM).
United States District Court, S.D. New York.
April 30, 1990.
*692 *693 Otto G. Obermaier, U.S. Atty., S.D.N.Y., New York City by Elliot Peters, Deirdre Daly, and Kevin Ford, Asst. U.S. Attys., for the U.S.
Newman & Schwartz, New York City by Gustave Newman and Deborah Schwartz, for defendant Paccione.
Benjamin Brafman, P.C., New York City by Benjamin Brafman, for defendant Vulpis.
Robert Kasanof, New York City by Robert Kasanof and Edward Chikofsky, for defendant McDonald.
OPINION ON DEFENDANTS' MOTIONS TO DISMISS
MOTLEY, District Judge.
BACKGROUND
Indictment 89 Cr. 446 was filed on June 15, 1989. A superseding indictment adding Defendant McDonald was filed on August 24, 1989. The superseding indictment charges defendants with the following: substantive and conspiracy violations of the Racketeer Influenced and Corrupt Organizations ("RICO") statute, 18 U.S.C. Sections 1962(c) and (d), through a "pattern of racketeering activity" and mail and wire fraud violations of 18 U.S.C. Section 1341. The RICO counts of that superseding indictment alleged twenty-two racketeering acts, including mail fraud on New York City and State government agencies, mail and wire fraud on CSX Transportation Inc. ("CSX") and mail fraud on doctors and medical care facilities. A superseding indictment removing, inter alia, Racketeering Acts 19-22, alleging acts of mail fraud on several doctors and a nursing home, was filed on February 6, 1990. A further superseding indictment, removing Racketeering Act 1(d) and the corresponding Count 6 an alleged act of mail fraud against the City of New York and adding two mailings to Racketeering Act 4, Acts 4(a) and *694 (b) corresponding to new Counts 8 and 9 alleging acts of mail fraud against CSX Realty, was filed on March 8, 1990.[*]
Defendants have moved pursuant to Fed. R.Crim.P. 12 and 41 for the following:
1) dismissal of Counts One and Two of the indictment (the RICO counts) on the grounds that they are unconstitutionally vague;
2) dismissal of the RICO counts or striking of Racketeering Acts 1-2 and 5-22 on the grounds that environmental crimes are not authorized RICO predicate acts;
3) dismissal of Counts 3-8 of the indictment, alleging mail fraud against the City of New York on the grounds that they are based on insufficient evidence;
4) dismissal of Racketeering Acts 1-2 and 5-22 and Counts 3-8 of the indictment on the grounds that the conduct alleged does not constitute mail fraud;
5) dismissal of the RICO counts on the grounds that there is no separation alleged between the enterprise and the persons conducting the affairs of the enterprise;
6) dismissal of the RICO counts on the grounds that the indictment does not allege a proper enterprise;
7) severance of the trial of Angelo Paccione and Anthony Vulpis from John McDonald on the grounds that severance is required under Bruton v. United States, 391 U.S. 123, 88 S. Ct. 1620, 20 L. Ed. 2d 476 (1968) and that their defenses will be antagonistic and mutually exclusive;
8) suppression of the evidence seized pursuant to the search warrants on the grounds that the warrants authorized a general search in violation of the Fourth Amendment's particularity clause;
9) suppression of evidence seized pursuant to allegedly warrantless searches.
Defendant John McDonald has also moved pursuant to Fed.R.Crim.P. 12(b)(3) for suppression of statements allegedly made by Defendant McDonald on or about July 19, 1989.
For the following reasons, these motions are denied.
ANALYSIS
1. The RICO Statute Is Not Unconstitutionally Vague
Defendants have moved to dismiss Counts One and Two of the indictment (the RICO substantive and conspiracy counts) on the ground that the RICO statute is unconstitutionally vague. Defendants assert that the terms "pattern of racketeering activity", "enterprise" and "association" with the enterprise are so vague as to provide little or no notice to any person of what conduct is prohibited and that the statute has provided neither content nor standard for determining what these terms mean, nor have the courts provided any meaningful limitation.
Relying extensively on dicta in Justice Scalia's concurring opinion in H.J., Inc. v. Northwestern Bell Telephone Co., ___ U.S. ___, 109 S. Ct. 2893, 106 L. Ed. 2d 195 (1989), defendants maintain that the terms "pattern of racketeering" activity, "enterprise," and "association" with the enterprise, are concepts so vague as to violate the notice to defendants requirement that the due process clause of the Fifth Amendment imposes on all federal criminal statutes. Defendants also complain that the vagueness of the statute's language, especially as to the meaning of "association" with the enterprise, is such as to give to the prosecutors impermissible discretion as applied to this case.
In H.J., Inc., the Court defined the term "pattern of racketeering" which requires proof by the prosecution of at least two predicate acts, as enumerated in the RICO statute, as consisting of two components: (1) relatedness and (2) continuity.
RICO's legislative history reveals Congress' intent that to prove a pattern of racketeering activity a plaintiff or prosecutor must show that the racketeering *695 predicates are related, and that they amount to or pose a threat of continued criminal activity. For analytic purposes these two constituents of RICO's pattern requirement must be stated separately, though in practice their proof will often overlap. The element of relatedness is the easier to define, for we may take guidance from a provision elsewhere in the Organized Crime Control Act of 1970 (OOCA), Pub.L. 91-452, 84 Stat. 922, of which RICO formed Title IX. OCCA included as Title X the Dangerous Special Offender Sentencing Act, 18 U.S.C. Section 3575 et seq. (now partially repealed). Title X provided for enhanced sentences where, among other things, the defendant had committed a prior felony as part of a pattern of criminal conduct. As we noted in Sedima [v. Imrex Company, Inc.], 473 U.S. [479], at 496, n. 14 [105 S. Ct. 3275, 3285, n. 14, 87 L. Ed. 2d 346], Congress defined Title X's pattern requirement solely in terms of the relationship of the defendant's criminal acts one to another: "criminal conduct forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events." 18 U.S.C. Section 3575(e) ... RICO's legislative history tells us, however, that the relatedness of racketeering activities is not alone enough to satisfy Section 1962's pattern element. To establish a RICO pattern it must also be shown that the predicates themselves amount to, or that they otherwise constitute a threat of, continuing racketeering activity ... "Continuity" is both a closed- and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition. See Barticheck v. Fidelity Union Bank/First National State, 832 F.2d 36, 39 (CA3 1987). It is, in either case, centrally a temporal conceptand particularly so in the RICO context, where what must be continuous, RICO's predicate acts or offenses, and the relationship these predicates must bear to one another, are distinct requirements. A party alleging a RICO violation may demonstrate continuity over a closed period by proving a series of related predicates extending over a substantial period of time. Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement: Congress was concerned in RICO with long-term criminal conduct. Often a RICO action will be brought before continuity can be established in this way. In such cases, liability depends on whether the threat of continuity is demonstrated. See S.Rep. No. 91-617, at 158.
Whether the predicates proved establish a threat of continued racketeering activity depends on the specific facts of each case. Without making any claim to cover the field of possibilities preferring to deal with this issue in the context of concrete factual situations presented for decision we offer some examples of how this element might be satisfied. A RICO pattern may surely be established if the related predicates themselves involve a distinct threat of long-term racketeering activity, either implicit or explicit. Suppose a hoodlum were to sell "insurance" to a neighborhood's storekeepers to cover them against breakage of their windows, telling his victims he would be reappearing each month to collect the "premium" that would continue their "coverage." Though the number of related predicates involved may be small and they may occur close together in time, the racketeering acts themselves include a specific threat of repetition extending indefinitely into the future, and thus supply the requisite threat of continuity. In other cases, the threat of continuity may be established by showing that the predicate acts or offenses are part of an ongoing entity's regular way of doing business. Thus, the threat of continuity is sufficiently established where the predicates can be attributed to a defendant operating as part of a long-term association that exists for criminal purposes. Such associations include, but extend well beyond, those traditionally *696 grouped under the phrase "organized crime." The continuity requirement is likewise satisfied where it is shown that the predicates are a regular way of conducting defendant's ongoing legitimate business (in the sense that it is not a business that exists for criminal purposes), or of conducting or participating in an ongoing and legitimate RICO "enterprise."
Id., 109 S.Ct. at 2900-02.
The Court construed the term "pattern" as requiring plaintiffs or prosecutors to prove "... continuity of racketeering activity, or its threat, simpliciter. This may be done in a variety of ways, thus making it difficult to formulate in the abstract any general test for continuity." Id., 109 S.Ct. at 2901.
The term "pattern of racketeering" had been previously defined by the Second Circuit as requiring similar proof. Very recently in United States v. Indelicato, 865 F.2d 1370 (2d Cir.1989), this Circuit, en banc, defined the meaning of the term "pattern of racketeering", which definition is binding on this Court:
[P]roof of two acts of racketeering activity without more does not suffice to establish a RICO pattern; ... the concepts of relatedness and continuity are attributes of activity, not of a RICO enterprise, and.... a RICO pattern may not be established without some showing that the racketeering acts are interrelated and that there is continuity or a threat of continuity; ... a pattern may be established without proof of multiple schemes, multiple episodes, or multiple transactions; and ... racketeering acts that are not widely separated in time or space may nonetheless, given other evidence of the threat of continuity, constitute a RICO pattern.
Id. at 1381. (emphasis added)
The degree to which these factors establish a pattern may depend on the degree of proximity, or any similarities in goals or methodology, or the number of repetitions. Congress' elaboration on the concept of pattern in connection with its provision in 18 U.S.C. Section 3575(e) for dangerous special offenders is instructive. As discussed in Sedima's footnote 14, [Sedima, S.P.R.L. v. Imrex Co., 741 F.2d 482 (2d Cir.1984), rev'd, 473 U.S. 479, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985)] that section provided that criminal conduct would form a pattern if it embraced criminal acts that had for example, "the same or similar purposes, results, participants, victims, or methods of commission." 18 U.S.C. Section 3575(e) (1982), repealed by Sentencing Reform Act of 1984, Pub.L. No. 473, tit. II, Sections 212(a)(1) and (2), 235(a)(1), 98 Stat. 1987, 2031.
Indelicato, at 1382.
The allegations in the indictment in this case satisfy the Indelicato requirements. The Government alleges in the indictment that the racketeering acts are interrelated and that there is a threat of continuity, if not continuity in fact. "The validity of the indictment is to be tested by its allegations, not by defense counsel's forecast of the ... evidence," so that a technically sufficient indictment "is not subject to dismissal on the basis of factual questions, the resolution of which must await trial." United States v. Black, 291 F. Supp. 262, 264 (S.D. N.Y.1968) (Weinfeld, J.)
Lower federal courts have found the specific provisions challenged by defendants here as well as other related provisions not to be vague. United States v. Tripp, 782 F.2d 38, at 41-42 (6th Cir.1986) (rejecting contention that definition of "racketeering activity" is void for vagueness); United States v. Ruggiero, 726 F.2d 913, 923 (2d Cir.1984); United States v. Scotto, 641 F.2d 47, 52 (2d Cir.1980), cert. denied, 452 U.S. 961, 101 S. Ct. 3109, 69 L. Ed. 2d 971 (1981); United States v. Huber, 603 F.2d 387, 393 (2d Cir.1979), cert. denied, 445 U.S. 927, 100 S. Ct. 1312, 63 L. Ed. 2d 759 (1980); United States v. Swiderski, 593 F.2d 1246 (D.C.Cir.1978), cert. denied, 441 U.S. 933, 99 S. Ct. 2056, 60 L. Ed. 2d 662 (1979) (Section 1962(c) not vague and, in particular, terms "enterprise," "employed by or associated with," "directly and indirectly in the conduct of such enterprise's affairs through a pattern of racketeering *697 activity," and "pattern of racketeering activity," not vague; United States v. Castellano, 416 F. Supp. 125, 128 (E.D.N.Y.1975); United States v. Scalzitti, 408 F. Supp. 1014 (W.D.Pa.1975), appeal dismissed without opinion, 556 F.2d 569 (2d Cir.1977) ("conduct of affairs" language of Section 1962(c) not vague); United States v. Stofsky, 409 F. Supp. 609, 612-14 (S.D.N.Y. 1973) ("conduct or participate ... in the conduct of such enterprise's affairs through a pattern of racketeering activity" not vague) aff'd, 527 F.2d 237 (2d Cir.1975), cert. denied, 429 U.S. 819, 97 S. Ct. 66, 50 L. Ed. 2d 80.
Although the aforementioned cases were decided prior to H.J. Inc., RICO's statutory requirement of an "enterprise", "association with the enterprise" and "a pattern of racketeering activity" have not changed since these cases were decided; thus, these cases still have precedential value.
Justice Scalia concurring in the result in H.J., Inc. assessed the definitional problems pertaining to the "pattern" requirement in the RICO statute and rejected the majority's definition as inadequate. He opined that the definitional difficulties, as the Court's opinion demonstrates, may make the RICO statute vulnerable to future constitutional attack.
The Second Circuit has also previously construed "enterprise", and "association" with an enterprise.
In discussing the relationship between "pattern" and "enterprise" in United States v. Turkette, 452 U.S. 576, 101 S. Ct. 2524, 69 L. Ed. 2d 246 (1981), the Court had stated as follows:
In order to secure a conviction under RICO, the Government must prove both the existence of an "enterprise" and the connected "pattern of racketeering activity." The enterprise is an entity, for present purposes a group of persons associated together for a common purpose of engaging in a course of conduct. The pattern of racketeering activity is, on the other hand, a series of criminal acts as defined by the statute. [Section 1961(1).] The former is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit.... While the proof used to establish these separate elements may in particular cases coalesce, proof of one does not necessarily establish the other. The "enterprise" is not the "pattern of racketeering activity"; it is an entity separate and apart from the pattern of activity in which it engages. The existence of an enterprise at all times remains a separate element which must be proved by the Government.
Id., cited in U.S. v. Indelicato, 865 F.2d 1370, 1376 (2nd Cir.1989).
The statute defines enterprise clearly.
18 U.S.C., Section 1961(4) reads as follows:
(4) "enterprise" includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.
As discussed, infra, at pages 704-705 the indictment properly alleges the existence of an enterprise. It specifically identifies "the enterprise" to include: the individual defendants, Angelo Paccione, Anthony Vulpis, John McDonald, and Fred E. Weiss; the defendant partnerships, A & A Land Development and W & W Properties; and the defendant corporations, August Recycling, Inc., National Carting, Inc., Stage Carting, Inc., New York Environmental Contractors, Inc., Rosedale Carting, Inc., and Vulpis Brothers, Ltd.
Although defendants would have this court believe that the theoretical permutations and boundaries of the words "associated with an enterprise" are indiscernible, the Government has alleged that such relationships exist in this case as a matter of fact.
Title 18 U.S.C. Section 1962(c) provides as follows:
(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly *698 or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity ...
If the Government satisfactorily proves defendants' participation in or conduct of the enterprise's affairs through a pattern of racketeering activity as the statute requires, the Government will have satisfied the "associated with" requirement. U.S. v. Biaggi, 672 F. Supp. 112, 121 (S.D.N. Y.1987) citing Alfaro v. E.F. Hutton Co., 606 F. Supp. 1100, 1116 (E.D.Pa.1985). Whether or not defendants and their actions constituted an enterprise, or were associated with an enterprise, are matters of fact which the Government must prove at trial. Quite simply, as the cases demonstrate, courts have offered guidance in construing the statute.
Again, it should be noted, that a void for vagueness issue was not raised in H.J., Inc. One such claim had been recently raised and rejected by the Supreme Court in Fort Wayne Books, Inc., 489 U.S. 46, 109 S. Ct. 916, 103 L. Ed. 2d 34 (1989), with respect to a similar Indiana statute which used state obscenity statutes as predicate offenses. In Fort Wayne Books, Inc., 489 U.S. 46, 109 S. Ct. 916, 103 L. Ed. 2d 34 (1989), the defendant was charged with RICO offenses under the Indiana statute where the underlying acts were violations of the state's obscenity statutes. The Indiana statute had been modeled after the federal RICO statute. On appeal, the defendant challenged the use of state obscenity statute violations as a basis for the state RICO prosecution and challenged the state RICO statute itself on vagueness grounds. The Supreme Court held in Fort Wayne Books, Inc. that "if the [predicate offenses are] not unconstitutionally vague, [RICO] cannot be vague either." Accord United States v. Ruggiero, 726 F.2d 913, 923 (2d Cir.1984) cert. denied, 469 U.S. 831, 105 S. Ct. 118, 83 L. Ed. 2d 60 (1984).
Defendants in the instant case, unlike the defendant in Fort Wayne Books, Inc., make no claim that the predicate offenses here (mail and wire fraud) are themselves unconstitutionally vague. This court will not disregard settled case law in this area. In this case defendants are charged with predicate mail fraud and wire fraud offenses. What constitutes mail fraud and wire fraud is well defined in this Circuit and the mail fraud and wire fraud statutes. Defendants, taking up Justice Scalia's invitation, urge this court to consider Justice Scalia's warning in H.J. as a self-fulfilling prophecy wholly applicable in the instant situation and to declare the RICO statute void for vagueness. Under the due process vagueness doctrine
The relevant inquiry is whether the statute is so vague that a person could not reasonably understand that the contemplated conduct, as charged in the Indictment, would be proscribed by the statute ... [and] [i]n determining the sufficiency of the notice a statute must, of necessity, be examined in the light of the conduct with which a defendant is charged.
United States v. Boffa, 513 F. Supp. 444, 461 (D.Delaware 1980) (emphasis added); See United States v. Harriss, 347 U.S. 612, 74 S. Ct. 808, 98 L. Ed. 989 (1953) (defendant must show that statute is vague as applied to specific conduct charged against him). Accord, New York v. Ferber, supra, 458 U.S. 747, 767-768, 102 S. Ct. 3348, 3359-61, 73 L. Ed. 2d 1113 (1982); United States v. Powell, 423 U.S. 87, 92-94, 96 S. Ct. 316, 319-21, 46 L. Ed. 2d 228 (1975); United States v. Mazurie, 419 U.S. 544, 550, 553, 95 S. Ct. 710, 714, 715, 42 L. Ed. 2d 706 (1975); National Dairy Corp., 372 U.S. 29, at 31-33, 36, 83 S. Ct. 594, 597-98, 599, 9 L. Ed. 2d 561 (1963). See also, United States v. Cintolo, 818 F.2d 980, 996-997 (1st Cir.1987); United States v. Smith, 680 F.2d 255, 258-259 (1st Cir.1982). The test the court is concerned with here is whether the statute conveys an adequate warning as applied in a specific situation. United States v. Parness, 503 F.2d 430, 442 (2d Cir.1974), cert. denied, 419 U.S. 1105, 95 S. Ct. 775, 42 L. Ed. 2d 801 (1975).
Since the specific allegations in the indictment here and settled precedent remove this case from Justice Scalia's foreboding analysis, this court declines defendants' invitation. The court holds that the relevant governing constitutional principles and settled *699 precedent control this issue and that the RICO statute is constitutional as applied to the defendants in the instant case.
2. Environmental Crimes as Predicate Acts
Defendants argue that the "gravamen of this indictment is unquestionably the commission of environmental crimes." Defendants' Joint Memorandum of Law in Support of Their Motions ("Jt. Memo") at 13. They point specifically to the indictment's characterization of their participation in the conduct of the alleged RICO enterprise as consisting of the operating of an illegal landfill and the illegal "`transferring, storing and disposing of medical and infectious waste.'" Jt. Memo at 13, citing the indictment at Paragraph 10. Defendants then observe that environmental crimes are not found in the statutory list of offenses that can constitute predicate racketeering activity under the RICO statute. They contend that the Government has circumvented the express limitations of RICO by characterizing defendants' alleged environmental misconduct as mail or wire fraud. Citing the concerns expressed by the Second Circuit in United States v. Porcelli, 865 F.2d 1352 (2d Cir.), cert. denied, ___ U.S. ___, 110 S. Ct. 53, 107 L. Ed. 2d 22 (1989), defendants claim that the instant indictment pushes RICO beyond its outer limits and ask that Racketeering Acts 1-2 and 5-22 be dismissed. The court disagrees and denies the request.
The question of whether mail or wire fraud is properly alleged in the instant indictment is addressed below. Defendants argue, however, that regardless of whether mail or wire fraud is properly alleged, Racketeering Acts 1-2 and 5-22 should be dismissed. This position simply ignores the language of the RICO statute which includes mail and wire fraud as predicate acts constituting racketeering activity. 18 U.S.C. Section 1961(1). The allegations of mail and wire fraud are not invalidated as predicate acts because the alleged enterprise is accused of violations of environmental laws as well.
Nothing in the decisions of this Circuit suggests that mail or wire fraud, properly alleged, in the conduct of an enterprise cannot be included as racketeering activity because the enterprise is alleged to have engaged in violations of regulatory schemes which do not constitute racketeering activity on their own. As the Government explains, the decision in United States v. Porcelli, 865 F.2d 1352 (2d Cir.), cert. denied, ___ U.S. ___, 110 S. Ct. 53, 107 L. Ed. 2d 22 (1989), actually undermines defendants' argument. In Porcelli, the Government sought to use the mail fraud statute to prosecute a state sales tax evader under RICO where the tax evasion involved did not even violate any state criminal statutes. The Court approved this use of mail fraud as racketeering activity "by virtue of the extraordinarily broad sweep of RICO and the federal mail fraud statute." Id. at 1355. Contrary to defendants' contention, the existence of environmental regulatory schemes, including criminal penalties, does not somehow "preempt" the use of properly stated allegations of mail fraud as racketeering activity in charging a violation of RICO because violations of that environmental regulatory scheme are also implicated. The indictment in this case is not merely an instance of the Government using the mail fraud statute, and thereby RICO, to add counts "in an indictment the gravamen of which was the violation of other federal criminal statutes." United States v. Mangan, 575 F.2d 32, 49 (2d Cir.), cert. denied, 439 U.S. 931, 99 S. Ct. 320, 58 L. Ed. 2d 324 (1978), citing United States v. Dixon, 536 F.2d 1388, 1398-1401 (2d Cir. 1976). No other federal criminal violations are listed in the counts of the indictment, and, as explained below, the mail fraud and RICO counts are properly alleged.
The Second Circuit's decision in United States v. Ivic, 700 F.2d 51 (2d Cir.1983) in no way undermines a broad approach to the use of mail fraud as a RICO predicate. In that case, the Court found no "enterprise" because the defendants, Croatian nationalists, were seeking to advance political goals, not to make a profit. Clearly, defendants in the instant case are alleged to *700 have participated in a profit-making enterprise.
3. Sufficiency of the Evidence of Counts Three Through Eight
Defendants argue that, as a matter of law, there is insufficient evidence alleged in the indictment for mail fraud against the City of New York. Defendants observe that in a mail or wire fraud prosecution, the Government must allege a "scheme or artifice to defraud," and that the Government must offer proof that defendants possessed a "fraudulent intent," and, specifically, that defendants contemplated some actual harm to their victims. Misrepresentation amounting to deceit but without contemplated harm does not constitute mail or wire fraud. See United States v. Starr, 816 F.2d 94 (2d Cir.1987); United States v. Regent Office Supply, 421 F.2d 1174 (2d Cir.1970).
In Counts 3-8, defendants are charged with scheming fraudulently to deprive the City of licensing and dumping fees. Defendants argue that the Government's allegations rest on the assumption that defendants were under an obligation to dump in City landfills and that by not doing so they were depriving the City of fees. Defendants then contend that since no such obligation to dump, and hence no obligation to pay fees, existed, there was no "`discrepancy between benefits reasonably anticipated because of the misleading representations [i.e. payment of fees] and the actual benefits which the defendants delivered, or intended to deliver.'" Jt. Memo at 20, citing Regent Office Supply Co., 421 F.2d at 1182. The court disagrees.
The Second Circuit has established that "an indictment need do little more than to track the language of the statute charged and state the time and place ... of the alleged crime." United States v. Tramunti, 513 F.2d 1087, 1113 (2d Cir.) (citations omitted), cert. denied, 423 U.S. 832, 96 S. Ct. 54, 46 L. Ed. 2d 50 (1975). See United States v. Citron, 783 F.2d 307, 314 (2d Cir.1986); United States v. Covino, 837 F.2d 65 (2d Cir.1988); United States v. Carr, 582 F.2d 242, 244 (2d Cir.1978). The instant indictment clearly meets this test. As shown below, the indictment makes factual allegations which the Government will have to prove at trial concerning misrepresentations by defendants and their intentions to deprive the City of licensing and dumping fees. In so alleging, the Government has satisfied its responsibilities at this stage. It is, as the Government states, well established that an "indictment returned by a legally constituted and unbiased grand jury, ... if valid on its face, is enough to call for trial of the charge on the merits." Costello v. United States, 350 U.S. 359, 363, 76 S. Ct. 406, 409, 100 L. Ed. 397 (1956); see United States v. Scacchetti, 668 F.2d 643, 646 (2d Cir.), cert. denied, 457 U.S. 1132, 102 S. Ct. 2957, 73 L. Ed. 2d 1349 (1982). As this court has stated, per Judge Weinfeld, a facially sufficient indictment "is not subject to dismissal on the basis of factual questions, the resolution of which must await trial." United States v. Black, 291 F. Supp. 262, 264 (S.D.N.Y.1968).
The problem with defendants' argument is that the indictment is not flawed on its face. The Government has properly alleged that defendants engaged in a scheme to defraud the City of licensing and dumping fees through the use of misrepresentations concerning their intentions to operate a landfill legally within the City. According to the indictment, defendants alleged misrepresentations concerning the nature of their landfill operation served a scheme in which they dumped illegally within the City. In dumping illegally within the City, the indictment alleges, defendants did not pay fees they would have been obliged to pay had they dumped legally within the City. The Government need not allege a contractual or fiduciary obligation to dump within the City to assert that those who have in fact dumped evaded paying fees associated with legal dumping operations. Whether Defendants actually committed such misrepresentations, whether they conducted such an illegal dumping operation, and whether they would otherwise have dumped legally within New York City are questions of fact to be proved by the prosecution at trial.
*701 Defendants' reliance on the Second Circuit's decision in United States v. Starr, 816 F.2d 94 (2d Cir.1987), is unavailing. In Starr, the Second Circuit reversed a conviction where it held evidence of mail fraud to be insufficient because the court found no evidence that the defendants had intended to harm the customers they had deceived. While Starr establishes rules of law concerning the requirements of proof under the mail fraud statute, it, like the Second Circuit's decision in United States v. Regent Office Supply, 421 F.2d 1174 (2d Cir. 1970), addresses the evidence that the Government in fact presented at trial, not the allegations on the face of the indictment. In Starr, the court essentially found that the Government had identified the wrong party as the victim; in Regent Office Supply, the court found that the defendants deceived the alleged victims but not in a way which, on the facts presented at trial, evidenced an intent to harm them. Under both these cases, therefore, the Government will be required at trial to proffer sufficient evidence of an intent by defendants to harm the City by depriving it of fees. See, e.g., United States v. Gelb, 881 F.2d 1155, 1162-63 (2d Cir.1989) (distinguishing Starr where defendants charged with depriving Postal Service of postage). However, it is not for this court to anticipate whether the Government's evidence on this or any other material issue will prove sufficient.
The court therefore declines to dismiss the counts in question in the instant indictment, leaving it to the Government to proffer sufficient evidence of intent to defraud at trial.
4. The Conduct Alleged Constitutes Mail Fraud under McNally
Defendants argue that, with the exception of Racketeering Acts 3 and 4, the conduct alleged in the instant indictment does not constitute mail fraud under the Supreme Court's decision in McNally v. United States, 483 U.S. 350, 107 S. Ct. 2875, 97 L. Ed. 2d 292 (1987), because the alleged victims were not deprived of money or property. Specifically, with respect to the allegations of mail fraud against the City and State, defendants argue 1) that permits are not property within the meaning of the mail fraud statute as interpreted under McNally and 2) that the Government's allegation that defendants fraudulently schemed to deprive the City and State of licensing fees is factually and legally specious because defendants, in fact, paid licensing fees and therefore did not deprive the City of money. In sum, defendants argue that any injury suffered by the City or State was in their capacity as regulators not property holders and was, therefore, not a cognizable deprivation under the mail fraud statute. They therefore request that Racketeering Acts 1-2, 5-12 and Counts 3-8 be dismissed.
Defendants also maintain that the Government has not alleged a scheme to deprive generators of medical waste of money or property as required in McNally. Defendants contend that, as they argue with respect to Counts 3-8, there is insufficient evidence as a matter of law to support the charge that defendants intended to deprive the medical waste generators in question of any money or property. In short, defendants, at worst, deprived these waste generators of the "intangible right to honest services," a deprivation not recognized under McNally. Defendants deny, inter alia, that their alleged actions exposed these generators to civil or criminal liability. They also maintain that the indictment alleges no new misrepresentations after November 18, 1988, the effective date of the provision making deprivation of the "intangible right of honest services," a violation of the mail fraud statute.[**] Defendants therefore request that Racketeering Acts 13-22 and Counts 9-11 be dismissed.
In McNally v. United States, 483 U.S. 350, 356, 107 S. Ct. 2875, 2879, 97 L. Ed. 2d 292 (1987), the Supreme Court held that the federal mail fraud statute "clearly protects property rights, but does not refer to the *702 intangible right of the citizenry to good government." Congress subsequently amended the statute by enacting 18 U.S.C. Section 1346, effective as of November 18, 1988, which provides that "the term `scheme or artifice to defraud' [as used in the mail fraud statute] includes a scheme or artifice to deprive another of the intangible right of honest services." Much of the conduct at issue in the instant case occurred before the enactment of Section 1346. The Government does not deny the applicability of McNally to the mail fraud allegations before November 18, 1988, but insists that the indictment alleges a scheme to defraud the City and State and various medical waste generators of money or other property.
For the following reasons, the court agrees with the Government and denies defendants' requests to dismiss the Racketeering Acts and Counts in question.
While the McNally Court required an intended property deprivation, it did not define property. In Carpenter v. United States, 484 U.S. 19, 108 S. Ct. 316, 98 L. Ed. 2d 275 (1987), however, the Court made it clear that both tangible and intangible property are included under McNally. See also United States v. Grossman, 843 F.2d 78, 86 (2d Cir.), cert. denied, ___ U.S. ___, 109 S. Ct. 864, 102 L. Ed. 2d 988 (1988) (law firm has property interest in confidential information). The relevant inquiry under McNally, therefore, is not whether the interest in question is tangible or intangible, but whether it is a property interest and not merely an interest in honest services.
Citing several cases from other circuits, defendants contend that permits, licenses, and contracts awarded by government agencies are not property under the mail fraud statute. However, this position is not supported by the weight of case law within this Circuit. In United States v. Biaggi, 675 F. Supp. 790, 801-02 (S.D.N.Y. 1987), for example, this court held that the right of a government agency to award millions of dollars in contracts is a property interest under the mail fraud statute. As this court observed in Biaggi, id. at 800-01, the McNally Court, in describing ways the jury was not charged in that case, implied that the federal mail fraud statute includes schemes 1) to defraud the Government of money or property, 2) to have the Government pay more for a service or for poorer service than otherwise, or 3) to deprive the Government of control over how it spends its money. See McNally, 483 U.S. at 360, 107 S. Ct. at 2881.
This third possible basis for a mail fraud claim, deprivation of control over the spending of money, served as the basis for this court's decision in Biaggi and applies as well to the State permit in the case at hand. As the Government argues, the licensing scheme for medical waste implicates far more than the Government's mere regulatory interests because of the State's exposure to the costs of cleaning up hazardous waste improperly disposed of. The issuance of permits directly protects the State's money. When the State loses control over the disbursement of permits because of fraud, it is effectively being deprived of control over the expenditure of its money.
Other courts in this Circuit have reached similar results following the Biaggi decision. In United States v. Turoff, 701 F. Supp. 981 (E.D.N.Y.1988), Judge Glasser held that taxi medallions wrongfully taken from the City are property. In United States v. Berg, 710 F. Supp. 438 (E.D.N.Y. 1989), Judge Platt held that licenses to export arms from the United States are property. But see United States v. Ferrara, 701 F. Supp. 39, 42 (E.D.N.Y.1988) (licenses to practice medicine not property for purposes of mail fraud statute), aff'd without opinion, 868 F.2d 1268 (2d Cir. 1988). In contrast, other circuits have found various licenses and permits not to be property for purposes of the mail fraud statute. See United States v. Kato, 878 F.2d 267 (9th Cir.1989) (pilots' licenses not property); Toulabi v. United States, 875 F.2d 122 (7th Cir.1989) (taxi drivers' licenses not property); United States v. Murphy, 836 F.2d 248 (6th Cir.) (bingo permits not property), cert. denied, 488 U.S. 924, 109 S. Ct. 307, 102 L. Ed. 2d 325 (1988). *703 However, none of these licenses or permits implicates the governmental budget, at least in as direct a way as is present in this case. Also, each of these decisions seems to regard the licenses or permits in question as property, in fact, items of significant value, in the hands of the recipients, but not in the hands of the Government. This position directly contradicts the implication in McNally, as developed in Biaggi, that the Government has a property interest in control over the expenditure of its money, and hence over the distribution of items of value.
Defendants' reliance on the Second Circuit's decision in United States v. Evans, 844 F.2d 36 (2d Cir.1988), is misplaced. Evans held that the federal government has no property interest in the resale or retransfer of U.S. military weaponry from one foreign nation to another. This holding does not conflict with the view that a government agency has a property interest in the disbursement of its resources. It merely establishes that, under some circumstances, it does not have a property interest in their future alienation once disbursed.
In addition, as the Government observes, defendants' allegedly fraudulent means of obtaining the permits in question were part of an alleged scheme to defraud the Government of actual fees and to defraud others of money and other property interests as well. The court now turns to those allegations each in turn.
Defendants characterize the Government's allegations that they schemed to defraud the City and State of licensing fees, as opposed to licenses, as "juridical hairsplitting." This court cannot agree. According to the Government, defendants never acquired licenses, and, therefore, did not pay the appropriate licensing fees for the kind of landfill they actually operated. While the Government admits that defendants did, in fact, pay licensing fees, it contends that those fees were not paid for the kind of operation conducted. Therefore, the Government was deprived of fees for the actual operation. Clearly, schemes to defraud government agencies of money in the form of fees can properly be charged under the mail fraud statute. See United States v. Gelb, 881 F.2d 1155, 1162-63 (2d Cir.1989); United States v. Porcelli, 865 F.2d 1352, 1359-62 (2d Cir.1989); United States v. King, 860 F.2d 54 (2d Cir.1988), cert. denied, ___ U.S. ___, 109 S. Ct. 2062, 104 L. Ed. 2d 628 (1989); Ingber v. Enzor, 664 F. Supp. 814, 822 (S.D.N.Y.1987), aff'd, 841 F.2d 450 (2d Cir.1988). The fact that the agencies received other fees does not give cause to dismiss the Government's charges with respect to the unpaid fees.
Defendants' reliance on the Second Circuit's decision in Corcoran v. American Plan Corp., 886 F.2d 16, 20-22 (2d Cir. 1989) is unavailing. In that case, the court found that the plaintiff, the State Superintendent of Insurance, had not even attempted to allege that the State had any property interest in the money allegedly stolen by the defendants.
In addition, defendants' alleged fraudulent evasion of licensing fees threatens other pecuniary interest of the City and State. By allegedly evading licensing fees, defendants sought to sidestep a licensing system which safeguards substantial monetary interest of the City and State. As the Government indicates, state and local regulations expose the City and State to paying the costs of cleaning up environmental disasters such as those alleged here. See, e.g., N.Y.Envtl.Conserv.Law, Article 27, Title 13; N.Y.C.Admin.Code, Title 24, Chapter 6. If the property owners cannot clean up such a disaster, the City and State will be required to do so at great cost. Such exposure falls within the coverage of the federal mail fraud statute.
Defendants' arguments concerning the deprivation of dumping fees repeat those made to request dismissal of Counts 3-8: that there is insufficient evidence as a matter of law that defendants intended to defraud the City of dumping fees. For the reasons given above, this argument fails to persuade.
Finally, defendants contend that the indictment fails to allege a scheme to defraud the generators of medical waste *704 of property. Defendants argue that they are accused of scheming to deprive their medical waste customers of the honest services for which they thought they were contracting, i.e. dumping their waste at approved sites. Relying on United States v. Starr, 816 F.2d 94 (2d Cir.1987) and United States v. Regent Office Supply, 421 F.2d 1174 (2d Cir.1970), defendants claim that it is not enough for the Government to allege that these customers were deceived with respect to the bargain they were entering with these defendants. They also claim that these customers were not exposed to any potential liability by defendants' alleged use of unapproved sites.
Once again, the decisions in Starr and Regent Office Supply, prove unavailing to defendants. In both of those cases, the Second Circuit examined the evidence presented by the Government at trial and found it insufficient to show harm to the customers. The court did not hold that as a matter of law one cannot scheme to defraud a customer by misrepresenting a material part of a bargain. Whereas the Government failed to show that the customers in Starr and in Regent Office Supply did not receive the services they paid for, the Government may be able to do so at trial here. In the instant case, unlike those relied on by defendants, the customers arguably bargained for a highly specialized kind of service, the legal dumping of the medical waste they generated. The value of legal dumping to a generator of medical waste arguably might lie in its importance to its business reputation or in potential exposure to civil or criminal liability. As the McNally Court implied, if the alleged victim would have paid less or received better quality services absent the alleged deceit, then mail fraud has been properly charged. See McNally v. United States, 483 U.S. at 360, 107 S. Ct. at 2881. These are questions of fact to go to the jury.
The Second Circuit's decision in United States v. Covino, 837 F.2d 65 (2d Cir.1988) is also not helpful to defendants. In that case, where the defendant was charged, inter alia, with wire fraud for violating his fiduciary duty to his employer, the court found that the indictment did not ask the jury to find that the alleged victim had been defrauded of money or peoperty. It therefore reversed the wire fraud convictions. Id. at 71. Clearly, in the instant indictment, the Government has alleged a scheme to deprive the medical waste generators of property and money, not merely of some fiduciary duty to dispose of the waste as promised.
In addition, while defendants claim that their alleged victims were not exposed to liability, close examination of state and local law in the relevant time period indicates otherwise. Since 1985, disposal of potentially infectious waste has been governed by provisions of the Administrative Code, currently Section 16-120.1, originally enacted as Local Laws 57 and 90. This law provides, inter alia, for suspensions and fines for violations of the municipal regulatory scheme. Similarly, starting in August, 1988, the State of New York issued and reissued emergency regulations, 6 NYCRR Section 364.9 (now authorized under N.Y.Envtl.Conserv.Law, Article 27, Sections 1504 and 1510 (McKinney 1990)), which regulated disposal of infectious waste and established a manifest system which generators of such waste were obliged to use. Under a state statute passed in July, 1987, 1987 N.Y.Laws Ch. 431, and amended in November, 1988, 1988 N.Y.Laws Ch. 654, (codified as amended at N.Y.Envtl.Conserv.Law, Article 71, Section 2703 (McKinney 1990)), generators of infectious waste who violated the requirements of these disposal regulations were exposed to civil and criminal penalties. Defendants' alleged activity, therefore, did expose their customers to potential liability.
For the foregoing reasons, Defendants' request that Racketeering Acts 13-22 and Counts 9-11 be dismissed is denied.
5. Failure to Allege a Proper "Enterprise"
Counts 1-2 of the indictment allege that Defendantsfour individuals, two partnerships and six corporationsand their co-racketeers constituted an "enterprise" *705 as defined by 18 U.S.C. Section 1961(4), that is, a group of individuals and corporations associated in fact although not a legal entity. Defendants seek to dismiss both counts on the ground that the enterprise charged is not a proper enterprise within the meaning of the RICO statute. Specifically, defendants contend that the enterprise alleged is invalid because it consists exclusively of defendants; they assert that the law prohibits a single entity from being both a defendant and the enterprise itself. Defendants also argue that a group of corporations and individual people cannot be an enterprise under RICO. The court rejects both of these arguments.
As the Second Circuit held in Cullen v. Margiotta, 811 F.2d 698, 729-30 (2d Cir.), cert. denied, 483 U.S. 1021, 107 S. Ct. 3266, 97 L. Ed. 2d 764 (1987), there is "no reason why a single entity could not be both the RICO `person' and one of a number of members of the RICO `enterprise.'" As the court observed, the language of 18 U.S.C. Section 1962(c) appears to envision that the same entity might be both a RICO "person" and one member of the "enterprise," by speaking of a "person ... associated with any enterprise." Id. at 730. That the indictment names many, or even all, of the persons in an alleged enterprise makes it thorough, not improper.
Defendants' reliance on Bennett v. United States Trust Co., 770 F.2d 308 (2d Cir. 1985), cert. denied, 474 U.S. 1058, 106 S. Ct. 800, 88 L. Ed. 2d 776 (1986), is misplaced. In that case, the Second Circuit held that "a solitary entity cannot, as a matter of law, simultaneously constitute both the RICO `person' whose conduct is prohibited and the entire RICO `enterprise' whose affairs are impacted by the RICO person." Cullen, 811 F.2d at 729, citing Bennett, 770 F.2d at 315. In Bennett, the court rejected the notion that an entity may be regarded as "associated with" itself alone. Id. As the Second Circuit noted in Cullen, 811 F.2d at 730, such a holding in no way precludes the charging of entities as associated with an enterprise of which they are part. That is precisely what the instant indictment does. That the entities named in it as "persons" are alleged to be members of the same enterprise, therefore, does not invalidate the RICO counts.
Defendants' claim that a RICO enterprise cannot include an association in fact of business and human entities is also without foundation. Nothing in the language of the statute suggests an intent to exclude this perhaps rather common form of association. If anything, the statute is broadly inclusive. The statute defines "enterprise" as including "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. Section 1961(4). This definition does not exclude an association in fact consisting of different types of entities, such as a combination of the enumerated types of entities. Such a suggested reading would perversely insulate more complex, though perhaps not uncommon, types of enterprises. In addition, the Second Circuit has held that a group of corporations may constitute a "group of individuals associated in fact" under Section 1961(4). United States v. Huber, 603 F.2d 387, 393-94 (2d Cir.1979) (group of corporations constituted "association in fact" enterprise), cert. denied, 445 U.S. 927, 100 S. Ct. 1312, 63 L. Ed. 2d 759 (1980); see also Porcelli, 865 F.2d 1352, 1364 (2d Cir.) (group of twelve operating companies, realty companies and a management company constituted enterprise), cert. denied, ___ U.S. ___, 110 S. Ct. 53, 107 L. Ed. 2d 22 (1989). The enterprise alleged in the instant indictment consists of individuals, corporations, and partnerships associated in fact. The court finds nothing improper in this allegation.
6. Severance
Defendants Paccione and Vulpis move for a severance from the trial of co-defendant McDonald on two grounds: 1) that it is required under Bruton v. United States, 391 U.S. 123, 88 S. Ct. 1620, 20 L. Ed. 2d 476 (1968), due to statements of defendant McDonald that the Government apparently intends to use at trial, and 2) that the defenses available to defendants Paccione and Vulpis, on the one hand, and *706 to defendant McDonald, on the other, are antagonistic and mutually exclusive, such that all defendants would be deprived of a fair trial if tried together. The court will address each of these arguments in turn.
On July 19, 1989, defendant McDonald was interviewed at his home by two agents of the FBI.[***] During the interview, McDonald allegedly made various statements linking himself and defendants Paccione and Vulpis to the ownership and running of defendants New York Environmental Contractors, Inc. ("NYEC") and A & A Land Development ("A & A"). These defendants are among those charged with dumping illegal waste materials and with not dumping other waste materials at City and State approved dumping facilities.
Defendants Paccione and Vulpis argue that the admission of even redacted versions of these statements at a joint trial would violate their right to confront McDonald under Bruton v. United States, 391 U.S. 123, 88 S. Ct. 1620, 20 L. Ed. 2d 476 (1968), and its progeny. Specifically, defendants assert that any attempt to redact McDonald's alleged statements would be "ineffective and patently unfair" to one or more of the defendants. They contend that the substitution of the phrase "another person" for the names of the defendants would still allow the Government to link those defendants to the alleged criminal activity.
Alternatively, defendants Paccione and Vulpis ask for a complete deletion of any reference to anyone other than McDonald, so as not to connect them to the alleged crimes. However, they warn, correctly, that such a redaction might have an adverse impact on McDonald's rights.
In Bruton v. United States, 391 U.S. 123, 88 S. Ct. 1620, 20 L. Ed. 2d 476 (1968), the Supreme Court held that a defendant is deprived of the right to confront witnesses when a nontestifying codefendant's confession naming the defendant as a participant in the crime is introduced at their joint trial, even if the jury is instructed only to consider the confession against the codefendant. However, in Richardson v. Marsh, 481 U.S. 200, 107 S. Ct. 1702, 95 L. Ed. 2d 176 (1987), the Court held that the Confrontation Clause permits the use of a codefendant's confession at a joint trial where the confession is redacted to omit any reference to the defendant, even though the defendant is nonetheless linked to the confession by evidence properly admitted against that defendant at trial, and where the jury is given a proper limiting instruction. Since Richardson, the Second Circuit has held "that a redacted statement in which the names of co-defendants are replaced by neutral pronouns, with no indication to the jury that the original statement contained actual names, and where the statement standing alone does not otherwise connect co-defendants to the crimes, may be admitted without violating a co-defendant's Bruton rights." United States v. Tutino, 883 F.2d 1125, 1135 (2d Cir. 1989). See also United States v. Alvarado, 882 F.2d 645, 652-53 (2d Cir.1989). In light of these decisions, there is no reason why the Government cannot redact the text in question in a manner which would not violate defendants Paccione and Vulpis's rights under the Confrontation Clause if introduced at a joint trial.
Defendants Paccione and Vulpis also argue that they should receive a severance because their defenses will be "antagonistic" to and "mutually exclusive" of McDonald's defense. Specifically, Paccione and Vulpis contend that they will dispute McDonald's likely assertions concerning responsibility for the running of defendant NYEC. According to defendants, the jury will be asked to believe one version and to disbelieve the other. However, such mutual assertions of responsibility do not make the requisite showing of antagonism. As the Second Circuit has stated, "A simple showing of some antagonism between defendants' theories of defense does not require severance." United States v. Carpentier, 689 F.2d 21 (2d Cir.1982), cert. *707 denied, 459 U.S. 1108, 103 S. Ct. 735, 74 L. Ed. 2d 957 (1983). There must be an antagonism at the core of the testimony offered on behalf of a defendant. Id. at 28, citing United States v. Berkowitz, 662 F.2d 1127, 1134 (5th Cir.1981). In Berkowitz, the Fifth Circuit affirmed a denial of a severance motion where each defendant's defense was based on a claim of noninvolvement; each cast the other as the more active participant. Similarly, in the case at bar, the two groups of defendants may choose to point a finger at the other as the more active participant in the alleged enterprise. If so, as in Berkowitz, it will not be necessary for the jury to disbelieve the one in order to believe the other. There are various combinations or degrees of involvement the jury may find credible. With proper protections at trial, defendants will not be prejudiced. Given the foregoing and the strong institutional reasons for preferring a joint trial, the motion for a severance is denied.
7. The Search Warrants Were Entirely Lawful
On September 15, 1988, the Honorable A. Simon Chrein, United States Magistrate, Eastern District of New York, issued six search warrants for the following premises: (1) the Port Ivory Landfill, Staten Island New York; (2) the National Carting Transfer Station, 6401 9th Avenue, Brooklyn, New York; (3) the Rosedale Carting Transfer Station, 96-14 Ditmas Avenue, Brooklyn, New York; (4) the Mill Basin Transfer Station, Flatlands Avenue and East 58th Street, Brooklyn, New York; (5) the Red Ball Interior Demolition Transfer Station, 625-635 West 29th Street, New York, New York; and (6) the Mill Basin Contracting Offices, located at 1379 Utica Avenue, Brooklyn, New York. On the same day, the Honorable Michael Dolinger, United States Magistrate, Southern District of New York, issued two search warrants for the following premises: (1) the Red Ball Interior Demolition Transfer Station, located at 625-635 West 29th Street, New York, New York; and (2) the Red Ball Interior Demolition Offices, located at 575 Washington Street, New York, New York. (hereinafter collectively referred to as "the September 15 warrants.")
Each of the September 15 warrants authorizing a search of a premise containing office space called for seizure of the following:
business records including but not limited to: permit applications and permits; agreements and contracts regarding land use: lists, correspondence, journals and other records naming clients and customers; documents reflecting ownership of property and vehicles on property; receipts and dump tickets; financial records and documents.
The Government maintains that the description of documents to be seized was carefully tailored to satisfy its legitimate interests in investigating wrongdoing, while minimizing the intrusion on any legitimate aspects of defendants' businesses. Defendants charge that the warrants authorized a general search in violation of the Fourth Amendment's particularity clause.
The documents described were relevant to the Government's investigations of each business' activities. Probable cause for the issuance of each of the September 15 warrants was provided by the Affidavit of FBI Special Agent Paul C. McMahon which described in detail the Government's investigation into defendants' operation of an allegedly illegal landfill. Moreover, the McMahon affidavit established ample probable cause to believe that the Port Ivory Landfill was an unlawful operation.
Defendants argue that the search warrants described above constituted impermissibly general warrants which failed to particularize sufficiently the items to be seized. This court disagrees. In applying the proper legal analysis, the warrants were sufficiently particularized and descriptive.
It is settled law that a general warrant is one which fails to satisfy the Fourth Amendment's requirement that the warrant "particularly describ[e] the place to be searched, and the persons or things to be seized." U.S. Const.Amend. IV. The Second Circuit in United States v. Buck, 813 *708 F.2d 588, 590 (2d Cir.), cert. denied, 484 U.S. 857, 108 S. Ct. 167, 98 L. Ed. 2d 121 (1987), stated the standard to be followed with regard to the particularization of a search warrant:
The purpose of the particularity requirement, the Supreme Court has held, "is that those searches deemed necessary should be as limited as possible. Here, the specific evil is the `general warrant' abhorred by the colonists, and the problem is not that of intrusion per se, but of a general, exploratory rummaging in a person's belongings." Coolidge v. New Hampshire, 403 U.S. 443, 467 [91 S. Ct. 2022, 2038, 29 L. Ed. 2d 564] ... (1971). Moreover, the Court has stated, in an oft-quoted passage, that the particularity requirement "makes general searches ... impossible and prevents the seizure of one thing under a warrant describing another. As to what is to be taken, nothing is left to the discretion of the officer executing the warrant." Marron v. United States, 275 U.S. 192, 196 [48 S. Ct. 74, 76, 72 L. Ed. 231] ... (1927). This Court, however, has recognized that these familiar words from Marron "ha[ve] not always been applied literally ... Courts tend to tolerate a greater degree of ambiguity where law enforcement agents have done the best that could reasonably be expected under the circumstances, have acquired all the descriptive facts which a reasonable investigation could be expected to uncover, and have insured that all those facts were included in the warrant." United States v. Young, 745 F.2d 733, 759 (2d Cir.1984), cert. denied, 470 U.S. 1084 [105 S. Ct. 1842, 85 L. Ed. 2d 142] ... (1985).
813 F.2d at 590.
The warrants at issue in the instant case were very detailed. Numerous, clearly delineated items were authorized for seizure at the Port Ivory Landfill, and at the various transfer stations and offices. A warrant authorizing the seizure of a large quantity of accurately described business records at a given location does not pose the danger of giving unbridled discretion to seize to the executing agents; it thus constitutes a valid warrant, so long as it is supported by probable cause. See National City Trading Corp. v. United States, 635 F.2d 1020, 1026 (2d Cir.) (citing United States v. Brien, 617 F.2d 299, 309 (1st Cir.), cert. denied, 446 U.S. 919, 100 S. Ct. 1854, 64 L. Ed. 2d 273 (1980)); United States v. McClintock, 748 F.2d 1278, 1282-83 (9th Cir.1984), cert. denied, 474 U.S. 822, 106 S. Ct. 75, 88 L. Ed. 2d 61 (1985); United States v. Offices Known As 50 State Distributing Co., 708 F.2d 1371, 1372-75 (9th Cir.1983), cert. denied, 465 U.S. 1021, 104 S. Ct. 1272, 79 L. Ed. 2d 677 (1984). Defendants do not claim that there was insufficient probable cause to sustain issuance of the warrants, just that the warrants were not sufficiently particularized, and therefore overbroad.
Courts have consistently held that where a business is totally illegal, a search warrant may properly authorize the seizure of all documents of the business. In National City Trading Corp. v. United States, 635 F.2d 1020 (2d Cir.1980), the Second Circuit held that "there was probable cause to believe that [the business searched] was permeated with fraud. Accordingly, the agents could properly seize all of the business records ... described in the warrant." Id. at 1026.
The First Circuit, in Brien, held:
Where there is probable cause to find that there exists a pervasive scheme to defraud, all the business records of an enterprise may be seized, if they are, as here, accurately described so that the executing officers have no need to exercise their own judgement as to what should be seized.
Brien, 617 F.2d at 309. Relying on both National City and Brien, the Ninth Circuit held in 50 State Distributing that a warrant authorizing the seizure of a broad category of documents was not a general warrant:
In this case the government argues that the search warrant met the particularity requirement. It argues ... that the warrant removed discretion from the executing officers in that the warrant essentially authorized seizure of all the business-related *709 books, records, equipment and merchandise on Appellee's premises ... We agree. The warrant left the executing officers with no discretion.
United States v. Offices Known as 50 State Distributing Co., supra, 708 F.2d at 1374. Defendants argue on the basis of what they characterize as a defect in this search warrant, yet, the very defect they say exists here did not invalidate the less particularized warrant in 50 State Distributing.
Where a search warrant application establishes probable cause for the existence of a scheme involving widespread wrongdoing, as did the search warrant applications at issue here, courts are entitled to authorize searches for and seizures of correspondingly broad categories of documents. Andresen v. Maryland, 427 U.S. 463, 481 n. 10, 96 S. Ct. 2737, 2748 n. 10, 49 L. Ed. 2d 627 (1976). The breadth of the description of documents to be seized depends on the probable cause which exists for issuance of the warrant.
The warrants at issue here were as particularized as possible, given the nature of the illegal schemes involved and the exhaustive and widespread description of probable cause, as set forth in the McMahon Affidavit. Id. To the extent that any items outside the scope of these valid warrants were seized, the proper remedy would be suppression and return of those items, not suppression of all items seized under the warrant. United States v. Matias, 836 F.2d 744, 747 (2d Cir.1988); United States v. Dunloy, 584 F.2d 6, 11 n. 4 (2d Cir.1978).
8. Motion To Suppress McDonald's Statements Is Denied
Defendant McDonald, pursuant to Fed.R.Crim.P. 12(b)(3), has moved to suppress statements he made to FBI agents on the grounds that he was not advised of his Miranda rights prior to being interviewed. This court deems his motion frivolous. Two FBI agents, who identified themselves and explained the nature and purpose of the interview, spoke with McDonald at his home. Miranda rights attach only when a suspect is in custody. Dunaway v. New York, 442 U.S. 200, 99 S. Ct. 2248, 60 L. Ed. 2d 824 (1979). McDonald, who was interviewed voluntarily in his own home, was not in custody. The fact that a criminal investigation has been commenced does not require Miranda warnings in an otherwise non-custodial setting. Beckwith v. United States, 425 U.S. 341, 96 S. Ct. 1612, 48 L. Ed. 2d 1 (1976) (taxpayer's home). McDonald relies heavily on United States v. Jacobs, 547 F.2d 772 (2d Cir.1976) cert. dismissed, 436 U.S. 31, 98 S. Ct. 1873, 56 L. Ed. 2d 53 (1978); however, his reliance is misplaced. Jacobs stands for the proposition that grand jury witnesses must be advised of their Fifth Amendment rights and their status as "targets" prior to being questioned in the grand jury. McDonald was neither a witness appearing before a grand jury nor had he been served with a grand jury subpoena. Thus, McDonald's motion is denied.
NOTES
[*] Since the changes made in the two superseding indictments following the court's January 27, 1990 Order denying the motions discussed in this Opinion do not affect Defendants' arguments, this Opinion will refer to the Racketeering Acts and Counts of the first superseding indictment ("the indictment").
[**] As the court agrees with the Government's contention that it has properly alleged a deprivation of property of the medical waste generators, there is no need to analyze the post-amendment mailings alleged.
[***] Defendant McDonald has moved to suppress the statements made in that interview. For the reasons given below, that motion is denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1971496/ | 950 F. Supp. 584 (1996)
UNITED STATES of America,
v.
Jose Eugenio PAREDES, a/k/a "Toshiba," Defendant.
No. 96 Cr. 286 (SAS).
United States District Court, S.D. New York.
December 9, 1996.
James J. Benjamin, Jr., Assistant United States Attorney, Southern District of New York, New York City, for the Government.
David Meister and David E. McCraw, Rogers & Wells, New York City, for Defendant.
OPINION AND ORDER
SCHEINDLIN, District Judge:
On April 18, 1996, defendant was indicted on two counts of violating the federal murder-for-hire statute, 18 U.S.C. § 1958 and one count of possession by a felon of ammunition, 18 U.S.C. § 922(g). This opinion addresses defendant's pretrial motion to dismiss his indictments under 18 U.S.C. § 1958 for lack of federal jurisdiction and defendant's request for a pretrial hearing to determine whether the government manufactured *585 federal jurisdiction in this case. For the reasons set forth below, defendant's motion is granted and Counts One and Two of the April 18 indictment are dismissed. Accordingly, no hearing is required.
Factual Background
For the purposes of this motion, the following facts will be accepted as true.[1]See 2A James W. Moore, Moore's Federal Practice 12-52 (2d ed. 1996) (facts asserted in pleadings should be accepted as true for purposes of determining existence of subject matter jurisdiction). In January or early February of 1996, a confidential informant ("CI-1") informed FBI Agent Robert Bukowski that defendant had discussed a contract murder with other persons. CI-1 then met with defendant, who told CI-1 that he would pay $6,000 to hire someone to murder a man whom the government later identified as Eugenio Perez. CI-1 obtained defendant's beeper number at that meeting. On February 15, 1996, at the direction of Agent Bukowski, CI-1 told defendant that CI-1 had arranged for someone else to carry out the contract murder. The person identified by CI-1 was an undercover police officer ("UC-1"). Subsequently, on February 16, either CI-1 or UC-1 called defendant's beeper from within New York and left a call-back number in the Bronx. Defendant then called the Bronx number from within New York and spoke to CI-1 or UC-1 or both.
Later, on February 18, a second confidential informant ("CI-2") obtained defendant's beeper number from someone the government alleges was defendant's co-conspirator. On February 19, 1996, CI-2 placed a call to the beeper number from within New York and left a Bronx call-back number. Soon afterwards, defendant called that number from within New York and spoke with CI-2.
Defendant was arrested on February 22, 1996, on charges of using an interstate commerce facility in the commission of a murder-for-hire scheme in violation of 18 U.S.C. § 1958. Defendant was subsequently charged with possession by a felon of ammunition in violation of 18 U.S.C. § 922(g) when the government discovered 10 bullets in defendant's car at the time of his arrest. On April 18, 1996, defendant was indicted on two counts of violating the murder-for-hire statute and one count of possession of ammunition by a convicted felon.
Applicable Legal Standards
The federal murder-for-hire statute states in pertinent part:
Whoever ... uses or causes another (including the intended victim) to use the mail or any facility in interstate or foreign commerce, with intent that a murder be committed in violation of the laws of any State or the United States ... shall be fined under this title or imprisoned for not more than ten years, or both....
18 U.S.C. § 1958. The term "facility in interstate commerce" includes "means of transportation and communication". 18 U.S.C. § 1958(b). The requirement that defendant use the mail or a facility in interstate commerce (the "interstate nexus requirement") is jurisdictional. See United States v. Razo-Leora, 961 F.2d 1140, 1148 (5th Cir.1992). Cf. United States v. Sigalow, 812 F.2d 783, 785-86 (2d Cir.1987) (the interstate nexus requirement of the Travel Act, 18 U.S.C. § 1952, is jurisdictional and not an additional element that government was required to prove); United States v. Blackmon, 839 F.2d 900, 907 (2d Cir.1988) (interstate nexus requirement of wire fraud statute is jurisdictional). The interstate nexus requirement arises from "constitutional limits on Congressional power over intrastate activities under the Commerce Clause". See Blackmon, 839 F.2d at 907 (quoting United States v. Bryant, 766 F.2d 370, 375 (8th Cir.1985), cert. denied, 474 U.S. 1054, 106 S. Ct. 790, 88 L. Ed. 2d 768 (1986)). Thus, where no such nexus is established, an indictment under the statute must *586 be dismissed. If defendant's conduct does implicate federal jurisdiction by satisfying the interstate nexus required under the statute, the Court may not decline to exercise jurisdiction over the charges against him. See United States v. Dickson, 816 F.2d 751, 752 (D.C.Cir.1987) (per curiam).
A federal court may challenge sua sponte subject matter jurisdiction. See Louisville & Nashville R. Co. v. Mottley, 211 U.S. 149, 29 S. Ct. 42, 53 L. Ed. 126 (1908) (Supreme Court raising objection to federal court jurisdiction). See generally Erwin Chemerinsky, Federal Jurisdiction 249-250 (2d ed. 1994) (explaining that federal courts may raise sua sponte objections to subject matter jurisdiction because the restrictions on federal jurisdiction advance important values of federalism and separation of powers). Here, defendant has expressly challenged the existence of federal subject matter jurisdiction. "[O]nce the existence of subject matter jurisdiction is challenged, the burden of establishing it always rests on the party asserting jurisdiction." 2A Moore's Federal Practice at 12-50.
Discussion
This case presents a question that has not yet been addressed by any Court of Appeals: Is the interstate nexus required for federal jurisdiction under 18 U.S.C. § 1958 satisfied when a beeper is used solely within one state? To answer this question it is necessary to review the language of the statute, the legislative history and the applicable case law.
I. Plain Meaning Interpretation of 18 U.S.C. § 1958
In applying criminal laws, courts "generally must follow the plain and unambiguous meaning of the statutory language." United States v. Albertini, 472 U.S. 675, 680, 105 S. Ct. 2897, 2902, 86 L. Ed. 2d 536 (1985). The starting point in determining the question presented must therefore be the language of the statute itself. The instant motion turns on whether defendant used or caused another to use a facility in interstate commerce within the meaning of the murder-for-hire statute. Specifically, the question is whether defendant used a facility in interstate commerce by (1) giving CI-1 and CI-2 his beeper number to further his murder-for-hire scheme; (2) causing CI-1 and CI-2 to call his beeper number for the same purpose; or by (3) responding to calls to his beeper from CI-1 and CI-2 for the same purpose. It is undisputed that defendant, UC-1, CI-1, and CI-2 acted at all relevant times within the geographic boundaries of New York.
The government's theory rests solely on the proposition that the beeper system, which emits an interstate signal each time it is activated, is intrinsically a "facility in interstate commerce."[2] Thus, the government contends that defendant used a facility in interstate commerce within the meaning of § 1958 by providing his beeper number and by returning calls placed to that number in furtherance of a murder-for-hire scheme. In support of this argument, the government relies on United States v. Stevens, 842 F. Supp. 96 (S.D.N.Y.1994), which appears to be the first and only federal court opinion directly on point. Stevens involved a similar murder-for-hire case in which the only basis for establishing an interstate nexus was the defendant's in-state call to a paging system. The Stevens court held:
The defendant's call to such a system cannot be considered an intrastate act, no matter how its signals were routed. The paging system's very purpose is to reach across state lines to find people. In pursuit of that purpose, it sends radio waves across the borders of three states each time it is activated; every time the system is used, it is used in an interstate manner. It makes no difference that the paging party may not know of the system's interstate *587 range. Further, it is of no importance that the paged party is ultimately reached in the same state as the paging party. This does not change the fact that by using the interstate system, the paging party, in effect, makes an interstate search.
Id. at 98. Thus Stevens distinguishes a call to an interstate paging system from a local telephone call which similarly involves an interstate communication system because the former makes an "interstate search" while the latter merely connects one in-state point to another.[3]Id. This theory, advanced by the government here, allows federal jurisdiction to turn on the means by which the defendant's chosen mode of communication functions rather than the location of the communicating parties.
Although grammatically viable, this reading of the statute is not the only reasonable interpretation of the murder-for-hire statute. A rigorous parsing of the statute also leads to the conclusion that it is the "use" that must be "in interstate commerce", not the "facility". Stated another way, the statute may be read to indicate that the interstate nexus requirement turns not on the facility's interstate capacity but its actual use in the particular case.[4]See Minneapolis & St. Louis R. Co. v. Winters, 242 U.S. 353, 357, 37 S. Ct. 170, 172, 61 L. Ed. 358 (1917) (Holmes, J.) (in determining the inter- or intra-state character of a train, "[i]ts character as an instrument of commerce depended on its employment at the time, not upon remote probabilities or upon accidental later events.") See also Rosen v. Albern Color Research, Inc., 218 F. Supp. 473, 476 (E.D.Pa.1963) ("The question as to whether a particular instrumentality is one of interstate commerce is to be determined by the use to which it is put, rather than its nature.") (citing 15 C.J.S. § 41). See generally 15A Am.Jur.2d, Commerce § 8 ("Whether a particular business or activity is interstate or intrastate commerce depends basically upon the facts of each case") (citation omitted).
The phrase "use ... any facility in interstate or foreign commerce" is inherently ambiguous.[5] As discussed, there are at least two grammatically cognizable interpretations one stressing "use" and the other stressing "facility". Faced with unavoidably ambiguous statutory wording, a court must look behind the words themselves in an attempt to reconstruct their purpose. See United States v. R.L.C., 503 U.S. 291, 298, 112 S. Ct. 1329, 1334, 117 L. Ed. 2d 559 (1992); Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384, 395, 71 S. Ct. 745, 751, 95 L. Ed. 1035 (1951) (Jackson, J., concurring).
II. Legislative History of 18 U.S.C. § 1958
The murder-for-hire statute was not intended to completely preempt state prosecution of similar crimes. The statute's limited legislative history demonstrates that Congress did not intend to convert "all or even most such offenses [into] matters of federal responsibility." S.Rep. No. 225, 98th Cong., 1st Sess. 305 (1984), U.S.Code Cong. & Admin.News 1984, at 3182, 3484. Rather, Congress intended that:
Federal jurisdiction should be asserted selectively based on such factors as the type of defendants reasonably believed to be involved and the relative ability of the federal and state authorities to investigate and prosecute. For example, the apparent involvement of organized crime figures or the lack of effective local investigation because of the interstate features of the *588 crime could indicate that federal action was appropriate.... Cooperation and coordination between federal and state officials should be utilized to ensure that the new murder-for-hire statute is used in appropriate cases to assist the states rather than to allow the usurpation of significant cases by federal authorities that could be handled as well or better at the local level.
Id. (emphasis added). This language has been interpreted to be a guideline for the exercise of prosecutorial discretion in the application of the murder-for-hire statute. See Dickson, 816 F.2d at 753 (single interstate telephone call suffices to establish federal jurisdiction under murder-for-hire statute). However, this brief quotation from the legislative history confirms that even before the mushrooming of interstate communication technology such as beepers, cellular phones and email, Congress was concerned that the murder-for-hire statute would allow federal "usurpation" of essentially local cases.
Placed against this backdrop of Congressional intent, the government's interpretation of § 1958 rests on shaky ground. By focusing on the interstate nature of the paging system, the government advocates an extremely broad exercise of federal jurisdiction. The spread of innovative interstate communications technology, combined with this interpretation of the interstate nexus requirement, sweeps within the province of federal jurisdiction crimes previously considered to be entirely local in nature. In enacting § 1958, Congress's expressed intent was to provide a statutory mechanism for prosecuting "crimes with interstate features". That a defendant who never travelled from one state to another, conducted an interstate transaction, or communicated across state lines could now be prosecuted under this Act because of the evolution in communications technology runs against the grain of the statute's legislative history.
III. Constitutional Limits on 18 U.S.C. § 1958
Under our federal system, the "`States possess primary authority for defining and enforcing criminal law.'" United States v. Lopez, 514 U.S. 549, ___ n. 3, 115 S. Ct. 1624, 1631 n. 3, 131 L. Ed. 2d 626 (1995) (quoting Brecht v. Abrahamson, 507 U.S. 619, 635, 113 S. Ct. 1710, 1720, 123 L. Ed. 2d 353 (1993) (quotation omitted)). See also Screws v. United States, 325 U.S. 91, 109, 65 S. Ct. 1031, 1039, 89 L. Ed. 1495 (1945) (plurality opinion) ("Our national government is one of delegated powers alone. Under our federal system the administration of criminal justice rests with the States except as Congress, acting within the scope of those delegated powers, has created offenses against the United States."). Thus, "[w]hen Congress criminalizes conduct already denounced as criminal by the States, it effects `a change in the sensitive relation between federal and state criminal jurisdiction.'" Lopez, 514 U.S. at ___ n. 3, 115 S. Ct. at 1631 n. 3 (quoting United States v. Enmons, 410 U.S. 396, 411-412, 93 S. Ct. 1007, 1015-1016, 35 L. Ed. 2d 379 (1973) (quotation omitted)). See generally Thomas J. Eagan, The Jurisdictional Element of 18 U.S.C. § 844(j), A Federal Criminal Commerce Clause Statute, 48 Wash. U.J.Urb. & Contemp.L. 183, 186 (Summer 1995) (discussing origin and limits of federal criminal jurisdiction); Kathleen F. Brickey, Criminal Mischief: The Federalization of American Criminal Law, 46 Hastings L.J. 1135, 1172 (April 1995) (citing, inter alia, Charles Warren, Federal Criminal Laws and the State Courts, 38 Harv.L.Rev. 545, 546-48 (1925)).
Last year, for the first time in six decades, the Supreme Court struck down a federal criminal statute on the ground that its scope exceeded Congress's power under the Commerce Clause. United States v. Lopez, 514 U.S. 549, 115 S. Ct. 1624, 131 L. Ed. 2d 626 (1995). Of primary concern to the Lopez Court was the breadth of the theories advanced by the government[6] to justify the constitutionality of the statute in question: *589 Under the theories that the Government presents in support of § 922(q), it is difficult to perceive any limitation on federal power, even in areas such as criminal law enforcement or education where States historically have been sovereign. Thus, if we were to accept the Government's arguments, we are hard-pressed to posit any activity that Congress is without power to regulate.
Id. at ___, 115 S.Ct. at 1632. The Court refused to uphold the government's theories because "[t]o do so would require us to conclude that the Constitution's enumeration of powers does not presuppose something not enumerated, and that there never will be a distinction between what is truly national and what is truly local." Id. at ___, 115 S.Ct. at 1634 (citing Gibbons v. Ogden, 9 Wheat (22 U.S.) 1, 195, 6 L. Ed. 23 (1824), and N.L.R.B. v. Jones & Laughlin Steel Corp., 301 U.S. 1, 30, 57 S. Ct. 615, 620-621, 81 L. Ed. 893 (1937)). See Adam H. Kurland, First Principles of American Federalism and the Nature of Federal Criminal Jurisdiction, 45 Emory L.J. 1, 16-17 (Winter 1996) (Lopez was decided on Commerce Clause grounds); see also Deborah Jones Merritt, Commerce!, 94 Mich. L.Rev. 674, 685-689 (Dec. 1995) (primary concern of Lopez Court was to recognize some bounds to federal criminal jurisdiction based on Commerce Clause).
Lopez stands for the proposition that Congress may not limitlessly expand federal criminal jurisdiction based on the Commerce Clause. Rather, in interpreting federal criminal statutes, courts must keep in mind that Congress does not enjoy "a general police power of the sort retained by the States". Lopez, ___ U.S. at ___, 115 S.Ct. at 1634. After Lopez, the constitutionality of assertions of federal jurisdiction over what are essentially local crimes must be closely scrutinized.
The government's interpretation of 18 U.S.C. § 1958 must be reviewed with Lopez and the state of modern communications technology in mind. Intrastate communications have taken on an interstate quality because of the means by which beepers, cellular phones, email and telephones function. It is very likely that in the near future all electronic forms of communication will be transmitted across state lines regardless of the location of the communicating parties. As the original role of federal criminal jurisdiction was intended to be limited in nature, it is troubling to permit technological innovation to significantly expand its scope without a specific expression of Congressional intent.[7]
The weakest link in the government's argument is its failure to set reasonable bounds on federal criminal jurisdiction. Under the government's theory, an email sent from the kitchen to the office down the road might implicate federal jurisdiction simply because the electronic message was transmitted from a computer in New York to a computer in New Jersey before reaching its final destination.[8] After Lopez, the government's theory seems a slender reed upon which to rest the exercise of federal jurisdiction over defendant's alleged conduct.
IV. Defendant's Conduct in the Instant Case
It is undisputed that defendant's allegedly unlawful conduct took place at all times within *590 the boundaries of New York. It is also undisputed that the action of the government's agents also occurred within those boundaries. The meetings and telephone calls that form the basis of the government's case were all intrastate transactions. The only interstate element of the entire transaction consisted of intrastate calls to defendant's interstate paging system.
The language of the murder-for-hire statute is unclear as to whether the intrastate use of an interstate communications facility satisfies the constitutionally-required interstate nexus. Yet when the person who calls the paging system and the person who carries the beeper are both within the same state, neither have used the paging system to conduct interstate commerce. That the paging system had the capacity to find the beeper owner in another state is not determinative; what matters is the actual location of the parties at the time the paging system was used.
This interpretation of the interstate nexus requirement of § 1958 is consistent with the statute's legislative history. By allowing federal jurisdiction to expand in lock-step with communications technology, the government threatens to transform virtually all murder-for-hire schemes that involve electronic forms of communication into federal crimes despite Congress's expressed intent to avoid such a result. The historic limits of federal criminal jurisdiction, together with the Supreme Court's recently expressed warnings in Lopez, also support an interpretation of § 1958's interstate nexus requirement that demands more than the government presents here.
The government has failed to sustain its burden of establishing federal jurisdiction over defendant's allegedly unlawful conduct. The murder-for-hire charge must therefore be dismissed.
Conclusion
For the reasons stated above, I find the government agents' intrastate calls to defendant's beeper, and defendant's response to those calls, did not implicate federal jurisdiction as required by 18 U.S.C. § 1958. Defendant's motion to dismiss Counts One and Two of the indictment is granted. No hearing is required to determine whether the government manufactured jurisdiction with regard to these counts. A conference is scheduled for 11.00 A.M., December 17, 1996.
SO ORDERED.
NOTES
[1] The parties appear to agree on all the facts set forth below with the exception of who called defendant's beeper on February 16, 1996. Defendant claims that a confidential informant called defendant's beeper. See Defendant's Memorandum of Law in Support of Pretrial Motions at 3. The government asserts that an undercover police officer, whom a confidential informant had identified to defendant as a potential contract assassin, called defendant's beeper. See Government's Memorandum in Opposition to Defendant's Pretrial Motions at 3. This discrepancy is not relevant to the determination of the instant motion.
[2] The government's theory that a paging system is an intrinsically interstate facility would place an interstate paging system on the same footing as the United States mails. See United States v. Riccardelli, 794 F.2d 829, 831 (2d Cir.1986) (mailing need not be interstate to implicate federal jurisdiction under the Travel Act because "[u]se of the United States mails, whether to mail a letter across the street or across the nation, historically has been recognized by Congress as use of an exclusively federal instrumentality.") However, defendant's paging system is privately owned and the historical basis of the Riccardelli holding does not apply to paging systems.
[3] Purely intrastate telephone calls do not give rise to federal jurisdiction under the wire fraud statute, 18 U.S.C. § 1952, and similar enactments. See Smith v. Ayres, 845 F.2d 1360, 1366 (5th Cir.1988); United States v. Freeman, 524 F.2d 337, 339 (7th Cir.1975), cert. denied, 424 U.S. 920, 96 S. Ct. 1126, 47 L. Ed. 2d 327 (1976); McCoy v. Goldberg, 748 F. Supp. 146, 154 (S.D.N.Y.1990); Utz v. Correa, 631 F. Supp. 592, 595-96 (S.D.N.Y.1986).
[4] The government maintains that defendant did "use" his beeper "in interstate commerce" because the paging system emitted an interstate signal. This argument fails for reasons set forth below in Part IV of this Opinion.
[5] The statute's ambiguity may be illustrated by observing that a more precise drafting of the statute might have read either (1) "Whoever ... uses or causes another ... to use the mail or any facility in the course of interstate or foreign commerce"; or (2) "Whoever ... uses or causes another ... to use the mail or any facility that operates in interstate or foreign commerce".
[6] In defense of § 922(q) of the Gun-Free School Zone Act, the government argued (1) possession of a firearm in a local school zone may result in a violent crime and that violent crime can be expected to affect the functioning of the national economy; and (2) the presence of guns in schools poses a substantial threat to the educational process by threatening the learning environment which in turn results in a less productive citizenry. Lopez, 514 U.S. at ___, 115 S.Ct. at 1632.
[7] See, e.g., Greg Hollon, After the Federalization Binge: A Civil Liberties Hangover, 31 Harv.C.R.C.L.L.Rev. 499 (Summer 1996) (examining problematic civil liberties issues resulting from the rapid expansion of federal criminal jurisdiction).
[8] Of course, the way email messages are transmitted differs from the way paging systems operate. When the pager and the beeper carrier are within the same state, the paging system's signal to the beeper carrier is solely an intrastate transmission. In other words, even though the signal itself may be emitted throughout an interstate area, the receipt of the signal and thus the electronic transmission between the paging system and the beeper carrier is an intrastate event. An intrastate email message, however, may necessarily involve an interstate transmission because of the structure of the internet: although the email is sent and received within one state, the message itself may be transmitted across state lines. See G. Burgess Allison, The Lawyer's Guide to the Internet 31-32 (1995) (describing the manner in which email messages are transmitted). Nevertheless, the manner in which the communication facility operates does not determine the outcome. In evaluating the assertion of federal jurisdiction, the focus should be on the location of the communicating parties. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1972536/ | 738 F. Supp. 1283 (1990)
UNITED STATES of America, Plaintiff,
v.
Gilbert L. DOWDY, et al., Defendants.
No. 90-00026-11-CR-W-8.
United States District Court, W.D. Missouri, W.D.
June 26, 1990.
*1284 Linda L. Parker and Kenneth E. Weinfurt, Kansas City, Mo., for the U.S.
Carol Coe, Kansas City, Mo., for Gilbert Dowdy.
Sylvester James, Jr., Kansas City, Mo., for Samuel Dowdy.
Lawrence H. Pelofsky, Overland Park, Kan., for Steven Baker.
C. Brooks Wood, Daniel P. Wheeler, Kansas City, Mo., for Ocie Baker.
Donald L. Williams, Kansas City, Mo., for Vicky Nixon.
R.J. Campbell, Kansas City, Mo., for Sheri Ellison.
Robert G. Duncan, Kansas City, Mo., for Robert Turner.
Bruce W. Simon, Kansas City, Mo., for Rodney Miller.
Willis L. Toney, Kansas City, Mo., for Cassandra Miller.
ORDER
STEVENS, District Judge.
At a hearing held in open court on June 21, 1990 the court announced its decision to deny the severance motion filed by defendant Cassandra Miller. The court explained that the motion was denied because the marital privilege asserted by Cassandra Miller does not apply in cases where the husband and wife are alleged to be joint participants in a crime. Because of the dearth of Eighth Circuit authority on the issue, the court issues this opinion to explain its decision in further detail.
Both Cassandra Miller and her husband Rodney are among eleven defendants charged in a 27-count indictment. The Millers are charged in counts alleging conspiracy to distribute cocaine and money laundering. In support of her motion to sever Cassandra Miller argues that she will testify on her own behalf at trial and will rely on the defenses of lack of knowledge and lack of intent. She states in her motion that her testimony would be incriminating to her husband, Rodney Miller, also a defendant in this case. As a result, she seeks a severance so that she would be able to testify on her own behalf without contributing to the prosecution of her husband. She argues that the common law marital privilege compels this court to grant her motion.[1]
Cassandra Miller relies exclusively on Hawkins v. United States, 358 U.S. 74, 79 S. Ct. 136, 3 L. Ed. 2d 125 (1958). In that case the Supreme Court concluded that the district court erred in admitting the unwilling testimony of Hawkins' wife[2] since the testimony was protected by the marital privilege. The court found that although the traditional common law rule prohibiting testimony of one spouse in favor of the other spouse was antiquated, it "was not prepared to say the same about the rule barring testimony of one spouse against the other." Id. at 77, 79 S. Ct. at 138 (emphasis in original). This decision was based specifically on the policy consideration of fostering "family peace." Id.
*1285 As the government notes, however, the Court's decision in Hawkins was significantly limited in Trammel v. United States, 445 U.S. 40, 100 S. Ct. 906, 63 L. Ed. 2d 186 (1980). After considering the history and policy considerations giving rise to the marital privilege, the Court concluded "that the existing rule should be modified so that the witness-spouse alone has a privilege to refuse to testify adversely; the witness may be neither compelled to testify nor foreclosed from testifying." Id. at 53, 100 S. Ct. at 914. In other words, the decision whether to testify now belongs solely to the witness-spouse. Id.
The Court in Trammel noted that two forms of marital communications privilege exist: confidential marital communications privately disclosed between husband and wife and those communications made in the presence of third parties to which an individual may be asked to testify at trial. Id. at 51, 100 S. Ct. at 912. See also United States v. Picciandra, 788 F.2d 39, 43 (1st Cir.), cert. denied, 479 U.S. 847, 107 S. Ct. 166, 93 L. Ed. 2d 104 (1986) (Marital communications privilege "is separate and distinct from the privilege of one spouse to refuse to testify adversely against the other spouse."). It is the latter privilege that the Supreme Court addressed in Trammel.
Unlike the spouse in either Trammel or Hawkins, Cassandra Miller is also a defendant. A number of courts, relying on Trammel, have found that the privilege does not apply if the husband and wife are joint participants[3] in the alleged crime. See e.g., Picciandra, 788 F.2d at 43 ("Communications concerning crimes in which the spouses are jointly participating ... do not fall within the protection of the marital communications privilege."); United States v. Keck, 773 F.2d 759, 767 (7th Cir.1985) (neither adverse testimony privilege nor confidential communications privilege may be asserted "where both parties are `joint participants' in a crime"); United States v. Sims, 755 F.2d 1239, 1241, 1243 (6th Cir.), cert. denied, 473 U.S. 907, 105 S. Ct. 3533, 87 L. Ed. 2d 656 (1985) (court adopts joint participant exception for confidential marital communications and notes that other circuits have adopted the exception for one or both types of marital privilege); United States v. Freeman, 694 F. Supp. 190, 191 (E.D.Va.1988) ("the privilege against testifying adversely against a spouse does not apply to joint criminal participants"); United States v. Sasso, 78 F.R.D. 292, 294 (S.D.N.Y.1977) (privilege does not apply to married codefendants).
The reason for the joint participation exception was succinctly explained by one court prior to Trammel: "[j]ust as a criminal defendant must shed the protective cloak of the fifth amendment when taking the witness stand in his or her own defense ..., [a codefendant spouse] may be required to forego her privilege not to testify against her spouse which implicates no constitutional right in order to be able to testify on her own behalf." Sasso, 78 F.R.D. at 294 (citations omitted). Accord Freeman, 694 F.Supp. at 191-192 ("If a criminal defendant may be required to choose his right to testify over his fifth amendment right to avoid self-incrimination, ... surely a defendant may be required to make a choice between her right to testify and her option to assert a privilege that implicates no constitutional right.").
The Eighth Circuit has not expressly ruled on the matter. In one recent case the court cited Trammel and noted that any expansion of the marital privilege "would be contrary to developments narrowing the scope of the privilege." In re Martenson, 779 F.2d 461, 464 (8th Cir.1985).[4] The only *1286 other indication of how the Eighth Circuit might decide this question comes from the Seventh Circuit's decision in United States v. Clark, 712 F.2d 299 (7th Cir.1983), which was written by Senior Judge Floyd R. Gibson of the Eighth Circuit, sitting by designation. In that case the Seventh Circuit affirmed the use of the joint participant exception.
Some circuits, however, have refused to adopt the exception. See e.g., In re Grand Jury Subpoena United States, 755 F.2d 1022, 1025 (2d Cir.1985), vacated as moot, 474 U.S. 815, 106 S. Ct. 56, 88 L. Ed. 2d 46 (1987) (holding that "marital privilege is not subject to a joint participant exception"); Appeal of Malfitano, 633 F.2d 276, 280 (3d Cir.1980) (there is no exception to marital privilege). The court believes, however, that the joint participant exception should be applied to cases such as this one. As the district courts noted in both Sasso and Freeman, if a defendant may be forced to choose between his or her fifth amendment rights and the decision to take the stand, it is certainly fair to compel a defendant to choose between taking the stand and waiving the marital privilege, which is not constitutionally protected. Accordingly, it is
ORDERED that the motion of defendant Cassandra Miller to sever her trial from that of her husband is denied.
NOTES
[1] Under Fed.R.Evid. 501 "the privilege of a witness, person, government, State, or political subdivision thereof shall by governed by the principles of the common law as they may be interpreted by the courts of the United States ..." except as otherwise provided by either the Constitution or statute.
[2] The wife was not a defendant in the case.
[3] Cassandra Miller argues that her testimony, if taken in camera, would establish that she is not a participant in the crime and, therefore, the joint participant exception does not apply to her. While the cases speak of "joint participants," the term "alleged joint participants" might be more appropriate since there obviously has been no determination of guilt or innocence at the motion to sever stage. If the court adopted Miller's argument and took the testimony in camera it would be placed in the position of factfinder and forced to decide whether Cassandra Miller participated in the crime. Such action would violate the province of the jury.
[4] Martenson is otherwise inapposite. It involved an individual who invoked the marital privilege at a deposition taken in a wrongful levy action. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1972542/ | 738 F. Supp. 466 (1990)
Frank R. POTUCEK, an individual and ARCO Services, Inc., a Florida corporation, Plaintiffs,
v.
Charles L. TAYLOR, an individual, Taylor General Construction Co., Inc., a Florida corporation, R. David Gilmore, an individual, and William E. Kickliter, an individual, Defendants.
No. 87-505-Civ-T-17A.
United States District Court, M.D. Florida, Tampa Division.
May 21, 1990.
*467 Anne S. Mason, Joseph C. Mason, Jr., P.A., Clearwater, Fla., for plaintiffs.
Frances M. Toole, Bush, Ross, Gardner, Warren & Rudy, Tampa, Fla., for defendants.
ORDER ON MOTION FOR SUMMARY JUDGMENT
KOVACHEVICH, District Judge.
This is an action under Section 43(a) of the Lanham Trademark Act of 1946, 15 U.S.C. § 1125(a), charging defendants with unfair competition, state trade secret violations, and other common law claims arising out of the misappropriation of proprietary information. Section 43(a) of the Lanham Act was amended by the Trademark Revision Act of 1988, effective November 16, 1989. This claim was brought under the Act prior to its amendment. Defendants assert this court lacks jurisdiction. Both parties have moved for summary judgment.
FACTS
Plaintiff Potucek alleges that he is an inventor of a five sided star shaped nail, called the "star fastener." The term "star fastener" is not a registered trademark. However, Plaintiff applied for, and has received, a patent for the nail.
Before Plaintiff Potucek received a patent for the five sided nail, Plaintiff revealed his invention to the Defendants in the hopes of securing funds to begin manufacturing *468 and selling the nail. In return for their investment, Defendants were to receive stock in ACRO Services, Inc., which was incorporated for the purpose of manufacturing and selling the "star fastener" nail. Plaintiff Potucek and Defendant Gilmore jointly produced a booklet explaining the "star fastener" nail to show to potential manufacturers and customers.
When Defendants were informed by a potential customer's attorney that the "star fastener" was not patentable because the device was not new and was in the public domain, Defendants withdrew from the joint venture with Plaintiffs. Defendants subsequently began efforts to manufacture and sell a similar nail, called the "penta" nail. Except for a few handmade prototype nails which were models and not offered for sale, Plaintiffs have not alleged the manufacture or sale in interstate commerce of any "star fastener" or "penta" nails.
Plaintiffs urge that proprietary information consisting, among other things, of the concept of the "star fastener," the "star fastener" nail and booklet, and the manufacturing expertise and knowledge needed to produce the "star fastener" is "goods" for purposes of the Lanham Act. Therefore, Defendants' solicitation of sales and manufacturers using the proprietary information gained from Plaintiff constitutes an introduction of goods into interstate commerce with "a false designation of origin or ... false description or representation." Plaintiffs also contend that the name "star fastener" is a mark protectable under the Lanham Act. Defendants assert that since proprietary information does not constitute "goods" and that Plaintiffs have never sold a product called the "star fastener" in interstate commerce, this court has no jurisdiction.
STANDARD FOR SUMMARY JUDGMENT
This circuit clearly holds that summary judgment should only be entered when the moving party has sustained its burden of showing the absence of a genuine issue as to any material fact when all the evidence is viewed in the light most favorable to the nonmoving party. Sweat v. Miller Brewing Co., 708 F.2d 655 (11th Cir.1983). All doubt as to the existence of a genuine issue of material fact must be resolved against the moving party. Hayden v. First National Bank of Mt. Pleasant, 595 F.2d 994, 996-97 (5th Cir.1979), quoting Gross v. Southern Railroad Co., 414 F.2d 292 (5th Cir.1969). Factual disputes preclude summary judgment.
The Supreme Court of the United States held, in Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986):
In our view the plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to establish the existence of an element essential to that party's case, and on which that party will bear the burden at trial.
Id. 477 U.S. at 322, 106 S. Ct. at 2552, 91 L.Ed.2d at 273.
The Court also said, "Rule 56(e) therefore, requires that the moving party go beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file, `designate' specific facts showing there is a genuine issue for trial." Celotex, supra, 477 U.S. at 324, 106 S. Ct. at 2553, 91 L.Ed.2d at 274.
15 U.S.C. § 1125(a)
Section 43(a) of the Lanham Act of 1946 (15 U.S.C. § 1125(a)) provides:
§ 1125 False designation of origin and false description forbidden
(a) Any person who shall affix, apply, or annex, or use in connection with goods or services, or any container, or containers for goods, a false designation of origin, or any false description or representation, including words or other symbols tending falsely to describe or represent the same, and shall cause such goods or services to enter into commerce, ... shall be liable to a civil action ... by any person who believes that he is or is *469 likely to be damaged by the use of any such false description or representation.
(emphasis added).
Section 43(a) grew out of the common law tort of false advertising concerning one's own goods to the detriment of a competitor. A claim under the Lanham Act requires the use of a false designation of origin or a false description or representation in advertising goods or services and acts causing them to enter commerce. Tubeco, Inc. v. Crippen Pipe Fabrication Corp., 402 F. Supp. 838 (E.D.N.Y.1975). Exaggerated or false claims about one's product unfairly tilts the playing field toward the unscrupulous competitor to the detriment of consumers as well as the market. Therefore, the intent of section 43(a) was to create a new "statutory civil wrong of false representation of goods in commerce" in order to prevent deceitful practices in the market place. L'Aiglon Apparel v. Lana Lobell, Inc., 214 F.2d 649 (3rd Cir.1954). It is well established that use of a photograph of a competitor's product to advertise and sell one's own product is false advertising and a violation of section 43(a). Matsushita Electric Corp. of America v. Solar Sound Sys., Inc., 381 F. Supp. 64, 67 (S.D.N.Y.1974); Bangor Punta Operations v. Universal Marine, Co., 543 F.2d 1107 (5th Cir.1976).
The Lanham Act is an independent grant of federal jurisdiction based upon the interstate commerce clause and is interpreted broadly. Alum-A-Fold Shutter Corp. v. Folding Shutter Corp., 441 F.2d 556 (5th Cir.1971). "Even though the Lanham Act supports a broad view of misrepresentations within its reach, it is clearly directed only against the `false representation of goods or services in interstate commerce.'" Tubeco, Inc. v. Crippen Pipe Fabrication Corp., 402 F.Supp. at 847 (quoting 1 Callman, Unfair Competition, Trademarks and Monopolies, § 18.2(b)(2) at 621 (3d ed. 1967). Solicitation of sales across state lines is sufficient to invoke jurisdiction. Shatel Corp. v. Mao Ta Lumber & Yacht Corp., 697 F.2d 1352 (11th Cir.1983).
However, liability is predicated upon the subject behavior being used "in connection with goods or services." 15 U.S.C. § 1125 (1946); Blue Bell, Inc. v. Farah Mfg. Co., Inc., 508 F.2d 1260 (5th Cir.1975). Because rights in a mark are determined by priority of use, the mark must be used in trade before an owner can claim rights in any mark. Therefore, for a mark to be protected under section 43(a), the mark must have been used in connection with goods in a bona fide sale across state lines. Blue Bell, Inc. v. Farah Mfg. Co., Inc., 508 F.2d 1260 (5th Cir.1975); Blazon, Inc. v. DeLuxe Game Corp., 268 F. Supp. 416, 428-29 (S.D.N.Y.1965); Tubeco, Inc. v. Crippen Pipe Fabrication Corp., 402 F. Supp. 838 (E.D.N.Y.1975); 15 U.S.C. § 1127 (Lanham Act § 45). Under the amended Lanham Act, parties may now reserve rights in a mark without ever having used the mark in interstate commerce by filing an intent to use form.
Though section 43(a) encompasses protection against a broad range of deceitful market practices, its protection should not be confused with the protection provided by federal patent law or state trade secret law. Section 43(a) does not prohibit copying of an unpatented product. Products not protected by patent are within the public domain and may be precisely copied and sold by anyone without recompense to or authorization of the inventor. Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 84 S. Ct. 784, 11 L. Ed. 2d 661 (1964); Compco Corp. v. Day-Brite Lighting, Inc., 376 U.S. 234, 84 S. Ct. 779, 11 L. Ed. 2d 669 (1964); Bonito Boats, Inc. v. Thunder Craft Boats, 489 U.S. 141, 109 S. Ct. 971, 103 L. Ed. 2d 118 (1989). "Sharing in the goodwill of an article unprotected by patent or trade-mark is the exercise of a right possessed by all...." Kellogg Co. v. National Biscuit Co., 305 U.S. 111, 122, 59 S. Ct. 109, 115, 83 L. Ed. 73 (1938).
State trade secret laws prohibit the acquisition through improper means of knowledge or information that provides an advantage or competitive edge to a business. Trade secret laws usually require that the information is in fact a secret, i.e. *470 not known or readily discernible to the general public, and that the "owner" of the secret take precautions to prevent the disclosure of the secret to the public. These precautions usually necessitate that the owner divulge the secret only under conditions of confidentiality. Smith v. Snap-On Tools Corp., 833 F.2d 578 (5th Cir. 1987); Metallurgical Industries, Inc. v. Fourtek, Inc., 790 F.2d 1195 (5th Cir.1986); See also Florida Statutes § 812.081 (1989). Trade secret laws do not prohibit copying or use of information that has been gained by proper means such as reverse engineering, independent invention, or copying or use of information within the public domain. Supra Bonito Boats.
DISCUSSION
Because there is no diversity of citizenship between the parties, subject matter jurisdiction is predicated on Plaintiffs' demonstrating a cognizable claim under the Lanham Act (15 U.S.C. § 1125(a)). McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 56 S. Ct. 780, 80 L. Ed. 1135 (1936); Tubeco, Inc. v. Crippen Pipe Fabrication Corp., 402 F. Supp. 838 (E.D. N.Y.1975). The confusion in Plaintiffs' unfair competition claim is caused by Plaintiffs' assertion that "goods" as used in 15 U.S.C. § 1125 (Lanham § 43(a)) includes proprietary information. Plaintiffs have not cited any cases that support Plaintiffs' contention that "goods" in section 43(a) extends to ideas, concepts, or manufacturing expertise. The cases cited by Plaintiffs do not support this proposition; but either merely restate the general rule that a photograph of a competitor's product used in advertising to represent another's product is false advertising and a violation of section 43(a) or the obvious rule that a publisher's "goods" are magazines and other printed material. Bangor Punta v. Universal Marine, Co., 543 F.2d 1107 (5th Cir.1976); Ames Publishing Co. v. Walker Davis Publications, Inc., 372 F. Supp. 1 (E.D.Pa.1974). See also Matsushita Electric Corp. of America v. Solar Sound Sys., 381 F. Supp. 64, 67 (S.D.N.Y.1974). The term "goods" is not defined in the Act. Further, an examination of the history of the Act does not reveal an intention by Congress to protect trade secrets. L'Aiglon Apparel v. Lana Lobell, Inc., 214 F.2d 649, 651 (3rd Cir.1954). The Court finds that proprietary information is not included within the meaning of the term "goods" as used in the Lanham Act.
Further, under the Lanham Act, rights in a mark are determined by use of a mark in a bona fide sale in interstate commerce. Because Plaintiffs have not sold in interstate commerce any nails called "star fastener," Plaintiffs have not accrued rights in the name "star fastener" for Lanham Act purposes.
For the above reasons, Plaintiffs' complaint fails to state a cognizable claim under the Lanham Act. Therefore, this court lacks jurisdiction. Accordingly, it is
ORDERED the Defendants' motion for summary judgment be GRANTED and the petition dismissed. The Clerk is directed to enter a final judgment of dismissal. It is further
ORDERED that Plaintiffs' pendent state claims are DISMISSED for lack of jurisdiction, and Plaintiffs' motion for summary judgment is DENIED as moot. (Injunction lifted)
DONE AND ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1972548/ | 738 F. Supp. 937 (1989)
John J.B. JONES, an individual, Plaintiff,
v.
BASKIN, FLAHERTY, ELLIOT AND MANNINO, P.C.; Philip Baskin, an individual; Raymond N. Baum, an individual; James B. Brown, an individual; Victor R. Delle Donne, an individual; Robert E. Fiorito, an individual; James J. Flaherty, an individual; Linda L. Goldston, an individual; Kenneth E. Lewis, an individual; R. Darryl Ponton, an individual; and Charles E. Wittlin, an individual, Defendants.
Civ. A. No. 86-2533.
United States District Court, W.D. Pennsylvania.
April 11, 1989.
John J.B. Jones, Pittsburgh, Pa., for plaintiff.
Carl H. Hellerstedt, Jr., Pittsburgh, Pa., for defendants.
MEMORANDUM OPINION
MENCER, District Judge.
This pro se action by the plaintiff, John J.B. Jones, alleges that his dismissal as an attorney from the law firm of Baskin Flaherty Elliot and Mannino, P.C. (BFEM) on March 31, 1985 violated the Age Discrimination in Employment Act (ADEA) and the Employee Retirement Income Security Act *938 of 1974 (ERISA). The defendants have filed a motion for summary judgment with respect to the ADEA count, the ADEA conspiracy count, and the ERISA count. The defendants' motion is presently before this court.
Legal Analysis
This court has already summarized the facts of this case in its opinion issued in September, 1987, 670 F. Supp. 597, and we will not repeat that summary here. We will begin our analysis by considering the defendants' claim that Jones's ADEA claim is time barred.
ADEA Count
In Count I, Jones asserts a cause of action under the ADEA. The defendants claim that Jones failed to satisfy the procedural prerequisite of the ADEA that the plaintiff file administrative charges within the prescribed time limits.
Section 626(d) of Title 29 sets the time limits for filing an ADEA action in federal court:
No civil action may be commenced by an individual under this section until 60 days after a charge alleging unlawful discrimination has been filed with the Equal Employment Opportunity Commission. Such charge shall be filed
(1) within 180 days after the alleged unlawful practice occurred; or,
(2) in a case to which section 633(b) of this title applies, within 300 days after the alleged unlawful practice occurred, or within 30 days after receipt by the individual of notice of termination of proceedings under State law, whichever is earlier.
29 U.S.C. § 626(d). Section 633(b) provides that:
In the case of an alleged unlawful practice occurring in a State which has a law prohibiting discrimination in employment because of age and establishing or authorizing a State authority to grant or seek relief from such discriminatory practice, no suit may be brought under section 626 of this title before the expiration of sixty days after proceedings have been commenced under State law, unless such proceedings have been earlier terminated.
29 U.S.C. § 633(b).
Thus, the U.S.C. establishes two different limitation periods depending upon whether the state has anti-discriminatory laws that apply to the claimant. In the absence of a state law addressing discrimination, the plaintiff has 180 days to file his charge with the EEOC. 29 U.S.C. § 626(d)(1). If the state does have anti-discriminatory laws, then the plaintiff has an obligation to pursue his remedies under that law, and obtains additional time to file his charges. 29 U.S.C. § 626(d)(2); Oscar Meyer & Co. v. Evans, 441 U.S. 750, 753, 99 S. Ct. 2066, 2070, 60 L. Ed. 2d 609 (1979). In such a state, the plaintiff must file both the EEOC charge and the state charge within 300 days in order to preserve his federal cause of action, regardless of any state statute of limitations. Equal Employment Opportunity Comm'n v. Commercial Office Products Co., 486 U.S. 107, 108 S. Ct. 1666, 100 L. Ed. 2d 96 (1988). Oscar Meyer & Co. v. Evans, 441 U.S. 750, 753, 99 S. Ct. 2066, 2070, 60 L. Ed. 2d 609 (1979).
Pennsylvania has an authority whose function includes "prohibiting discrimination in employment because of age," namely the Pennsylvania Human Relations Commission (PHRC). Thus, § 633 applies to this case, and Jones must have filed an action before both the PHRC and the EEOC within 300 days of the alleged discriminatory acts in order to bring this action in federal court. Kocian v. Getty Refining & Marketing Co., 707 F.2d 748, 751 (3d Cir.), cert. denied, 464 U.S. 852, 104 S. Ct. 164, 78 L. Ed. 2d 150 (1983). Oscar Meyer & Co. v. Evans, 441 U.S. 750, 753, 99 S. Ct. 2066, 2070, 60 L. Ed. 2d 609 (1979).
Jones argues that his Complaint was timely for several reasons. First, he argues that the December 4, 1984 notice to him of his discharge was procedurally defective. He asserts that the executive committee that made the decision to discharge him was not authorized by the corporate minutes, and thus was "merely ad hoc and had no official corporate status." Therefore, *939 he argues, its acts did not constitute official notice. Similarly, he argues that the Shareholder and Employment Agreement requires sixty days written notice and ratification by eighty percent of the board of directors before termination. Jones asserts that he did not receive written notice and that the board never voted on his termination, and implies that these procedural defects render the notice ineffective.
This court finds Jones's arguments about the technical deficiencies of his notice unavailing. On December 4, 1984, Jones received unequivocal notice that his employment was to terminate on March 31, 1985. The fact that he subsequently discovered procedural defects in that notice does not accord him the right to claim that he was not aware that he was being discriminated against. Jones did not cite any cases supporting the proposition that such technical defects in the notice would toll the statute of limitations, and this court did not discover any authority for that proposition in its research. Therefore, we find that the statutory periods began to run on December 4, 1984.
Second, Jones argues that his complaint was timely even if the court uses December 4 as the date of notice. The essence of Jones's argument is that the EEOC and the PHRC were parties to a worksharing agreement under which each organization designated the other as an authorized agent for the purposes of receiving charges. Furthermore, under the contract, the EEOC agreed to refer all age complaints to the PHRC on a weekly basis.
Jones filed his charges with the EEOC 280 days after the December 4 notice. Therefore, he argues, the court should presume that the EEOC forwarded the charges to the PHRC within one week. The charges would thus have been before the PHRC by the 287th day, and his complaint is timely. Even if the EEOC did not forward the charges, Jones argues, he should not be penalized by the EEOC's failure to follow its regulations.
We agree that, under some circumstances, it would be unjust to preclude Jones's claim based on the omission of the EEOC. For example, in Seredinski v. Clifton Precision Products Co., 776 F.2d 56 (3d Cir. 1985), the plaintiff filed a charge with the EEOC 280 days after the alleged discrimination. It was unclear from the record whether the EEOC referred the charges to the PHRC, but the court assumed that it had because, "[w]e have previously made it clear that the failure of EEOC to follow its regulations and refer charges to an appropriate state agency for filing will not deprive complainants of their right to proceed before the EEOC." Id. at 61, n. 7. See also Gabrielle v. Barrett, Haentjens & Co., 663 F. Supp. 1187, 1191-92 (M.D.Pa. 1986) (protecting the plaintiff from the EEOC's inaction because he was pro se).
The mere fact that Jones filed with the EEOC within the 300 day limitation, however, is not sufficient to preserve his right to sue in federal court. In Jackson v. Savin Corp., 43 F.E.P. Cases 1575, 1987 WL 17007 (D.N.J.1987), the plaintiff filed a charge with the EEOC 297 days after the alleged discriminatory act. The EEOC forwarded a letter to the PHRC on day 309. The court expressed uncertainty about whether the letter constituted an actual filing with the PHRC, but held that even if it were a filing, it was untimely. Id. at 1577. The court held that Congress's intent to limit federal jurisdiction over discrimination claims would be undermined if the courts did not adhere to the 300 day limitation strictly. Id. The court did not address the EEOC's responsibility or lack thereof for referring the charges to the PHRC.
Several courts have addressed the effects of allegedly misleading or false information provided by an EEOC representative. In Schier v. Temple University, 576 F. Supp. 1569 (E.D.Pa.), aff'd and remanded, 742 F.2d 94 (3d Cir.1984), cert. denied, 471 U.S. 1015, 105 S. Ct. 2018, 85 L. Ed. 2d 300 (1985), the court considered an argument by the plaintiff that she filed her charge with the EEOC late because they had told her on the phone that she had 300 days when, in fact, she did not. The court refused to apply the equitable tolling doctrines because, as a former employee of an *940 employment office, she had "more than average knowledge about the operating of anti-discrimination laws." Id. at 1572. Furthermore, she had retained counsel before she filed her EEOC charge. Id. See also Hamel v. Prudential Ins. Co., 640 F. Supp. 103, 105 (D.Mass.1986) (equitable tolling not available where EEOC failed to process intake questionnaire in a timely fashion because the plaintiff was represented by counsel); Keyse v. California Texas Oil Corp., 590 F.2d 45 (2d Cir.1978) (allegations of misinformation from an EEOC employee and from the plaintiff's attorney do not excuse failure to file timely charges with the EEOC when plaintiff was represented by counsel).
Conversely, in Giles v. Carlin, 641 F. Supp. 629 (E.D.Mich.1986), the plaintiff alleged that an EEOC counselor advised him to wait until his pending grievance was decided before filing charges with the EEOC. The court held that reliance by an unrepresented layperson on the advice of an EEOC counselor was a reasonable excuse for failing to file within the limitation period. Id. at 641. See also Dartt v. Shell Oil Co., 539 F.2d 1256 (10th Cir.1976), aff'd, 434 U.S. 99, 98 S. Ct. 600, 54 L. Ed. 2d 270 (1977).
The facts of this case present an interesting blend of equitable considerations. In many of the cases that we examined, the court relied on the fact that the plaintiff was a pro se litigant in finding that he was entitled to protection from the EEOC's inaction or misinformation. In this case, Jones was not represented by an attorney when he filed his charges, but he is himself an attorney. Furthermore, he explicitly instructed the EEOC representative not to refer the charges to the PHRC. One could argue that this case is not one of omission by the EEOC, but rather a case of the EEOC obeying the explicit instructions of an attorney.
On the other hand, this is not the straightforward scenario presented in Jackson either. The plaintiff in Jackson filed his complaint so near the 300 day limitation that normal operating procedures may not have resulted in the charges reaching the PHRC in a timely manner. Jones filed his charge at the EEOC on day 280. The agreement provides that the EEOC will forward all charges to the PHRC within one week. Therefore, under normal circumstances, the PHRC would have received the charges by day 288 at the latest. One could argue that Jones's instructions to the EEOC representative not to forward the charges to the PHRC were directly elicited by the representative's question to Jones as to whether he would prefer that the EEOC or the PHRC investigate his claim. If Jones was misled by the EEOC representative, it may be inequitable to preclude his claim.
After reviewing the facts in this case, this court finds that Jones did not satisfy the prerequisites for bringing an age discrimination action in federal court. The EEOC seems never to have referred his charge to the PHRC, and presentation of his charge to the PHRC is unquestionably a precondition to suit in this court. Were Jones not an attorney who explicitly told the EEOC representative not to refer his charge to the PHRC, we would probably presume that the EEOC had followed its agreement with the PHRC and referred the charge, and we would not penalize him if the EEOC failed to do so. However, his status as an attorney places him on a par with plaintiffs who are represented by counsel, and the case law clearly places a high duty of vigilance on such plaintiffs. Therefore, we find that Jones's ADEA claim is not timely, and we will dismiss Count I.
ADEA Conspiracy Count
In Count II, Jones alleges that various individual members of the law firm conspired to violate the ADEA. The defendants have moved for summary judgment on Count II, arguing that conspiracy to violate the ADEA is not a viable claim and that the officers or employees of a corporation cannot be liable for conspiracy for a corporate act, except under limited circumstances not present in this case.
The leading Supreme Court case in this area of the law is Great American Federal S. & L. Ass'n v. Novotny, 442 U.S. 366, 99 *941 S.Ct. 2345, 60 L. Ed. 2d 957 (1979). In Novotny, the Court considered the viability of a cause of action for a conspiracy to violate Title VII of the Civil Rights Act, 42 U.S.C. § 2000e. The Court found that such an action does not exist. Title VII has many damages limitations and procedural requirements. If a plaintiff could assert a Title VII violation through a conspiracy claim under 42 U.S.C. § 1985(3), then he "could avoid most, if not all of these detailed and specific provisions of the law." Id. at 375-76, 99 S. Ct. at 2350-51. The Court concluded that "[u]nimpaired effectiveness can be given to the plan put together by Congress in Title VII only by holding that deprivation of a right created by Title VII cannot be the basis for a cause of action under § 1985(c)." Id. at 378, 99 S. Ct. at 2352.
Although the Court did not refer to the ADEA in Novotny, the logic in that case applies equally well to the ADEA. The Court has held that language from the ADEA "was patterned after and is virtually in haec verba with" language from Title VII. Oscar Mayer & Co. v. Evans, 441 U.S. 750, 755, 99 S. Ct. 2066, 2071, 60 L. Ed. 2d 609 (1979). Furthermore, lower courts addressing the issue have extended the Novotny rule to the ADEA. In Golden v. Shapell Industries, 24 FEP Cases 1283 (N.D.Cal.1980), the court wrote:
The ADEA and Title VII each set forth procedures for vindication of the statutory rights. The procedural provisions of the two acts are similar, and both mandate administrative conciliation efforts. It would be incongruous to hold that an ADEA claim can be pursued under § 1985(3), when such a claim is barred for rights protected by Title VII. The policies and intent behind the statutes are related, and the limitation imposed by Novotny must apply in each instance.
Id. at 1285. See also Moorhouse v. Boeing Co., 501 F. Supp. 390, 394 (E.D.Pa.1980), aff'd, 639 F.2d 774 (3d Cir.1981); Davis v. Southeastern Community College, 424 F. Supp. 1341 (1976), vacated in part on other grounds, 574 F.2d 1158 (1978); Pavlo v. Stiefel Laboratories, Inc., 22 FEP Cases 489, 496-97 (S.D.N.Y.1979) (allowing the conspiracy count only because the plaintiff was only 35 years old, and, thus, not within the protected class under the ADEA).
We conclude, therefore, that the facts of this case do not present a claim for conspiracy to violate the ADEA, and we will grant the defendants' motion for summary judgment on Count II. We will not consider the defendants' alternative basis for summary judgment, their assertion that the facts of this case do not constitute a conspiracy among corporate officers, except to note that it also seems to be a valid defense to Count II.
ERISA Count
In Count V, Jones asserts a cause of action under ERISA. Essentially, he alleges that the law firm and Philip Baskin breached their fiduciary duty by investing in Israel Bonds and by mismanaging the fund so as to obtain a poor return on the investments. The defendants argue that Jones has failed to support his claim with any specific factual allegations.
The defendants primarily rely on American Communications Ass'n v. Retirement Plan for Employees of RCA Corp., 488 F. Supp. 479 (S.D.N.Y.), aff'd mem., 646 F.2d 559 (2d Cir.1980). In that case, the plaintiff alleged that the assets were "imprudently invested so as to provide a lower return or yield than could have been obtained by the exercise of prudence." Id. at 482. The court found that the plaintiff had failed to support his claim with any specific allegations of imprudence, and had relied on general conclusory allegations. Id. at 483. The court wrote that:
The standard to be applied is that of conduct, tested at the time of the investment decision, rather than performance, judged from the vantage point of hindsight. The complaint contains no factual specification of any act the trustees took or failed to take that resulted in the lower rate of return alleged by plaintiffs. Plaintiffs have not alleged a single act of commission or omission to indicate that the trustees were derelict in the discharge *942 of their fiduciary duties or in what respect it is charged that the trustees failed to discharge those duties "with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims."
Id. (footnotes omitted). See also Metzner v. D.H. Blair & Co., Inc., 663 F. Supp. 716, 720 (S.D.N.Y.1987); Katsaros v. Cody, 744 F.2d 270, 279 (2d Cir.), cert. denied, 469 U.S. 1072, 105 S. Ct. 565, 83 L. Ed. 2d 506 (1984).
We find a similar lack of specific factual allegations of misconduct by Jones. His only allegations were that he is not Jewish so he would prefer investments other than Israel bonds and that he would have obtained a higher rate of return in a savings account. Clearly, his personal feelings about investments in Israel bonds do not render the fiduciary's actions unreasonable. Similarly, retrospectively developing an investment strategy that would have yielded a higher rate of return does not prove that the fiduciary's strategy was unreasonable at the time he was acting. Jones's statement in his deposition that he was not prepared to identify specific improper investments because he intended to develop them at trial cannot save his insufficient pleadings. Therefore, we find that Jones has not supported his claim of breach of the fiduciary duty, and we will grant summary judgment on Count V.
ORDER
AND NOW, this 11th day of April, 1989, for the reasons set forth in the accompanying Memorandum Opinion,
IT IS HEREBY ORDERED that the Defendants' Motion for Summary Judgment is GRANTED and judgment is entered in favor of the Defendants and against the Plaintiff on Count I, Count II, and Count V of the Complaint. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1972052/ | 738 F. Supp. 854 (1990)
UNITED STATES of America, Plaintiff,
v.
A PARCEL OF LAND, BUILDINGS, APPURTENANCES, AND IMPROVEMENTS, KNOWN AS 92 BUENA VISTA AVE., RUMSON, NEW JERSEY, Defendant.
Civ. A. No. 89-1411.
United States District Court, D. New Jersey.
June 1, 1990.
*855 *856 Neil R. Gallagher, Asst. U.S. Atty., Newark, N.J., for plaintiff.
James A. Plaisted, Walder, Sondak, Berkeley & Brogan, Roseland, N.J., for claimant.
OPINION
HAROLD A. ACKERMAN, District Judge.
The United States of America brings this action for the civil forfeiture of real property pursuant to 21 U.S.C. § 881. The property in question is a Parcel of Land, Buildings, Appurtenances and Improvements, known as 92 Buena Vista Avenue, Rumson, New Jersey (hereinafter the "premises"). The action was commenced by the filing of a Verified Complaint in April, 1989, which was immediately followed by a seizure of the premises. On June 15, 1989, Ms. Beth Ann Goodwin filed an Answer and Claim against the property.
Presently before the Court is a motion by the claimant, Ms. Goodwin, to dismiss the complaint, for summary judgment, and to compel discovery. Her motion for dismissal of the complaint is based upon the grounds that (1) the seizure of her home was unconstitutional, because there was no probable cause and no preseizure hearing; (2) the property is not subject to forfeiture, because Ms. Goodwin is an "innocent owner"; (3) the Verified Complaint was based, at least in part, on immunized testimony; (4) the government unduly delayed in the seizure and/or is barred by the statute of limitations; and (5) the government's refusal to engage in discovery justifies dismissal of this action. The government has opposed the claimant's motion on all grounds and has cross-moved for a stay on discovery and/or a stay of this action. I shall first address the arguments raised by the claimant, because a finding that this action should be dismissed would obviate the need to consider the government's motion for a stay. On the other hand, a finding that the government is entitled to a stay may only postpone (and not obviate) the need to consider the claimant's arguments in support of her motion, and I think the fairest approach is to consider claimant's arguments first.
I. Constitutionality of the Seizure
The premises in question were seized after the complaint, verified by Special Agent Richard Giacobbe of the Drug Enforcement Administration, ("DEA"), was reviewed by this Court and a finding was made that probable cause existed for the seizure. The claimant asserts that the "seizure should be dissolved," because it was effected in violation of the United States Constitution since there was no probable cause for the seizure and no preseizure hearing. The parties have pointed out that there is no binding precedent to guide this Court on the issue of whether preseizure notice and a hearing are constitutionally required before a home is seized under 21 U.S.C. § 881, and further, that the Second and Eleventh Circuits have split on the issue. See United States v. Property at 4492 S. Livonia Road, Livonia, New York, 889 F.2d 1258, 1265 (2d Cir.1989), reh'g denied, 897 F.2d 659 (2d Cir.1990) (preseizure notice and hearing required), and United States v. A Single Family Residence and Real Property Located at 900 Rio Vista Blvd., Ft. Lauderdale, Fl., 803 F.2d 625, 632 (11th Cir.1986) (no preseizure notice or hearing required).
However, there is no need for me to address this constitutional issue. "Various circuit courts have held that the illegal seizure of property, standing alone, will not *857 immunize that property from forfeiture, so long as impermissibly obtained evidence is not used in the forfeiture proceeding." Real Property Located at 4492 S. Livonia Rd., supra, at 1265 (citations omitted); see also Application of Kingsley, 802 F.2d 571, 578-579 & n. 9 (1st Cir.1986). Where an unconstitutional seizure occurs, the victim can bring a damages action against the offending officer "should he be able to show that the warrantless seizure was effected in bad faith and caused personal damage", United States v. One 1978 Mercedes Benz, Four-Door Sedan, 711 F.2d 1297, 1303 & n. 7 (5th Cir.1983), but it provides no basis for dismissing an action where the government demonstrates entitlement to forfeiture based upon permissible evidence. See id. at 1303; see also United States v. One 1975 Pontiac Lemans, Etc., 621 F.2d 444, 450-51 (1st Cir. 1980) (same). I find that the instant complaint should not be dismissed, because the government has established, by permissible evidence, that probable cause exists to subject the premises to forfeiture.
Pursuant to the forfeiture statute at hand, all proceeds traceable to drug transactions are subject to forfeiture. 21 U.S.C. § 881(a)(6). In determining whether proceeds are so traceable, "[t]here is no need to tie the [property] to proceeds of a particular identifiable illicit drug transaction." United States v. 1982 Yukon Delta Houseboat, 774 F.2d 1432, 1435 & n. 4 (9th Cir.1985) (emphasis in original). In addition, the government is only required to demonstrate that probable cause exists for property to be subject to forfeiture under 21 U.S.C. § 881. United States v. Property Known as 6109 Grubb Road, 886 F.2d 618, 621 (3d Cir.1989), reh'g denied, 890 F.2d 659, (3d Cir.1989). The burden then shifts to the claimant to show, by a preponderance of the evidence, that the property is not forfeitable. See 19 U.S.C. § 1615. See also United States v. $55,518.05 in U.S. Currency, 728 F.2d 192, 195-6 (3d Cir.1983); United States v. One 56-Foot Yacht Named Tahuna, 702 F.2d 1276, 1281 (9th Cir.1983).
In assessing whether the government has sustained its burden of showing probable cause, inadmissible hearsay may be considered. United States v. Miscellaneous Jewelry, 667 F. Supp. 232, 238 (D.Md. 1987), aff'd, 889 F.2d 1317 (4th Cir.1989); United States v. Yacht Named Tahuna, supra, at 1283. In addition, probable cause merely requires that the available facts would "warrant a man of reasonable caution in the belief" that the property is subject to forfeiture; "it does not demand any showing that such a belief be correct or more likely true or false." Texas v. Brown, 460 U.S. 730, 742, 103 S. Ct. 1535, 1543, 75 L. Ed. 2d 502 (1983) (Rehnquist, J., plurality) (citations omitted); see also United States v. Rickus, 737 F.2d 360, 367 (3d Cir.1984) ("[p]robable cause deals with probabilities, not certainties"). In making a probable cause determination, the totality of the circumstances are considered. See Rickus, supra, at 367. "[A]ll that is required is that a court be able to look at the `aggregate' of the facts and find reasonable grounds to believe that the property probably was derived from drug transactions." United States v. Parcels of Land, 903 F.2d 36 (1st Cir.1990).
I find that the government has demonstrated that probable cause exists to believe that the premises are traceable to drug transactions. On or about April 13, 1990, a Grand Jury sitting in the Southern District of Florida returned an indictment against Joseph A. Brenna, among others, for violations of 21 U.S.C. §§ 848 and 853 and for forfeiture of the property in question. See Affidavit of Neil R. Gallagher, Esq., filed May 4, 1990, ("Gallagher Aff. II"), and Exhibit A. The probable cause to indict Mr. Brenna for the drug offenses was derived independent of any information from the claimant, since the claimant disclaims any knowledge of Mr. Brenna's involvement in drug transactions. See infra, Section II. In addition, apart from the indictment, probable cause is established. In the Verified Complaint, DEA Agent Giacobbe attests that, to his knowledge, the following facts, among others, are true: (1) that the premises in question were purchased *858 by Ms. Goodwin with funds provided by Joseph A. Brenna; (2) that Mr. Brenna had been involved in a scheme to import marijuana into the United States from Columbia during the years 1982 through 1986; (3) that Mr. Brenna obtained $216,000.00 for the purchase of the premises from criminal acts involving importation, possession and distribution of controlled dangerous substances; (4) that on September 29, 1988, Mr. Brenna pled guilty to violating 31 U.S.C. § 5322 and 18 U.S.C. § 2 for failure to file a currency report for the transfer of $225,000, part of which was used to purchase the premises; and (5) that in December, 1986, Mr. Brenna paid $30,000.00 to a crew member smuggling marijuana in the premises. See Verified Complaint, ¶¶ 5-19. In addition, Mr. Giacobbe obtained information from a Mr. Joseph Mazacco, an individual cooperating with the government on a plea agreement, that Brenna used drug money to purchase the premises. See deposition of Mr. Giacobbe, taken June 27, 1989, at 75, 78-79, 143, (annexed as Exhibit A to Affidavit of James A. Plaisted, filed Sept. 1, 1989, ["Plaisted Aff."]).
In addition, Ms. Goodwin states in her verified petition that she lived with Joseph Brenna from approximately 1981 through 1987; that she maintained an intimate personal relationship with him during that time; and that he supported her and her children. See Verified Petition of Beth A. Goodwin, May 19, 1989, ("Goodwin Pet."), ¶ 1, annexed to Plaisted Aff. as Exhibit C. She further states that Mr. Brenna made a gift to her of the proceeds used to purchase the premises. Id., ¶¶ 3, 8. As attested to by Agent Giacobbe in his deposition, an Internal Revenue Service Investigation revealed that Ms. Goodwin had no visible means of support from 1980 through at least 1985. See Giacobbe dep. at 85; see also Verified Complaint, ¶ 9. Neither she nor Mr. Brenna filed income tax returns for the years 1978 through 1985. See Certificates of Non-Record, annexed as Exhibits A and B to Neil R. Gallagher Aff., filed Oct. 5, 1989, ("Gallagher Aff. I"). Ms. Goodwin explains her failure to file tax returns by stating that she has not been shown to have had any income other than that obtained from Mr. Brenna. See Claimant's Reply Brief at 9.
The government has also received testimony from Mr. Shaun Murphy, an accountant working out of the British Virgin Islands, who made investments on behalf of clients so that their real names would not be revealed. See deposition of Shaun Murphy, August 2, 1989, ("Murphy dep."), annexed to Gallagher Aff. I as Exhibit E, at 7, 11. In making investments for his clients, Mr. Murphy used code names. He thought Mr. Brenna's real name was either Joseph Crawford or Joseph Cavanaugh with his pseudonym being Joseph Smith. Id. at 7, 10, 11. Mr. Murphy had a large number of clients; he had approximately five hundred companies and managed funds or investments for about two hundred of those companies. Id. at 4-5. It was his business practice not to inquire of his clients as to the source of their funds, although many of his clients had given him funds in excess of one million dollars. Id. at 6, 16. It appears that he had a practice of picking up money in St. Thomas and taking it to Tortola in the British Virgin Islands. Id. at 11. He also had a practice of shredding all "wastepaper" from his transactions on a daily basis. Id. at 27.
As for his business with Mr. Brenna, between August and October, 1982, Mr. Brenna brought two cash deposits to Mr. Murphy in the amount of $250,000.00 and $220,000.00, the latter deposit being given to him in a bag. See Murphy dep. at p. 95, 98-9. Mr. Brenna instructed Mr. Murphy to wire $216,000.00 of this cash to Mason, Griffin and Pierson, a law firm in New Jersey, (Murphy dep., at 100), for purchase of the premises. See Claimant's Reply Brief at 1, 8. Mr. Murphy also wired about $89,000 up to New Jersey. Id. at 102. Mr. Brenna did not explain from where he got his cash and, as was his general business practice, Mr. Murphy made no inquiries. Murphy dep. at 6-7. "[A] large amount of cash `is strong evidence that the money was furnished or intended to be furnished in exchange for drugs.'" United States v. U.S. Currency $88,310,78, 851 F.2d 1231, 1236 (9th Cir.1988); see also, for example, *859 United States v. $55,518.05 in United States Currency, supra, at 196 ("Golden's silence speaks ever so loudly. For most Americans, $55,518 is not casual pocket change which one leaves on the bureau at night").
In sum, (in addition to the indictment which itself establishes probable cause), DEA Agent Giacobbe received information that Mr. Brenna was involved in drug trafficking between 1982 and 1988; the premises were purchased by Ms. Goodwin with proceeds received from Mr. Brenna "as a gift"; the premises were purchased with cash wired from Mr. Murphy in the British Virgin Islands, whose business has been described above, to law offices in New Jersey; Mr. Brenna had deposited about $470,000.00 in cash with Mr. Murphy under an alias name and without explaining the source of same; Ms. Goodwin lived with Mr. Brenna during the years 1982 through 1988 during which time he supported her and her children; and neither Ms. Goodwin nor Mr. Brenna filed tax returns during the years 1979 through 1985. I find that these facts provide sufficient basis for probable cause to believe that the premises were purchased with proceeds traceable to drug transactions. Compare United States v. 1982 Yukon Delta Houseboat, supra, 774 F.2d at 1435 ("[t]he above cited evidence certainly gives rise to a reasonable belief that Ray-May Corp. lacked a source of funds to purchase the houseboats itself, and that Parker used the income he derived from illegal narcotics transactions to purchase the houseboats, but arranged for Ray-May to front for him and to be the nominal owner"). Accordingly, since the government has demonstrated that it is entitled to forfeiture, it is immaterial whether or not the initial seizure was constitutional and I will not pass on that issue.
II. Innocent Owner Defense
The claimant contends that the complaint should be dismissed, because she has adequately satisfied her burden of showing that the property is not forfeitable. She claims that she has an "innocent owner" defense to the forfeiture. She asserts that she had no knowledge that the funds used to purchase the premises were traceable to drug sales; that the premises were used to facilitate drug sales; or that Mr. Brenna had a record of violating any laws. Goodwin Pet., ¶ 11.
In support of her innocent owner defense, it appears that the claimant relies upon 21 U.S.C. § 881(a)(6), which provides, in pertinent part, that property subject to forfeiture includes:
....(6) All moneys ... or other things of value furnished or intended to be furnished by any person in exchange for a controlled dangerous substance in violation of this subchapter, all proceeds traceable to such an exchange,[1] and all moneys, ... intended to be used to facilitate any violation of this subchapter, except that no property shall be forfeited ... to the extent of the interest of an owner, by reason of any act or omission established by that owner to have been committed or omitted without the knowledge or consent of that owner.
21 U.S.C. § 881(a)(6) (emphasis supplied).[2]
The government contends that the claimant is not entitled to invoke the innocent owner defense, because all right, title and interest in the proceeds of the narcotics transactions passed to the United States at the time of the sale, (see 21 U.S.C. § 881(h)), and thus, the claimant never acquired an interest in the property. See Government's Supplemental Brief at 16. It appears that some courts have rejected such an application of the relation back *860 doctrine in deciding whether or not a claimant has an interest in property to have standing to object to the forfeiture. See United States v. Miscellaneous Jewelry, supra, at 249 and cases cited therein.[3] However, I believe there is a difference between the issue of whether a person has standing to object to a forfeiture and whether that forfeiture is permissible.[4]
I find that the claimant cannot successfully invoke the "innocent owner" defense here, because she admits that she received the proceeds to purchase the premises as a gift from Mr. Brenna. More particularly, I find that where, as here, the government has demonstrated probable cause to believe that property is traceable to proceeds from drug transactions, the innocent owner defense may only be invoked by those who can demonstrate that they are bona fide purchasers for value. Accord United States v. One Single Family Residence, Miami, 683 F. Supp. 783, 788 (S.D.Fla.1988) ("the innocent owner exception to forfeiture under section 881 also protects bona fide purchasers for value") (emphasis added).
In One Single Family residence, the court arrived at a similar conclusion after reviewing the legislative history behind the criminal and civil forfeiture provisions at 21 U.S.C. §§ 853(c) and 881. See 683 F.Supp. at 787. Also, the court took note that the typical case in which the innocent owner defense has been applied is where a person legitimately obtains ownership to property with untainted funds, and then the trafficker uses that property to facilitate his drug deals without the knowledge and consent of the owner. See 683 F.Supp. at 786. See also United States v. One 107.9 A. Parcel of Land in Warren Tp., 898 F.2d 396, 397 (3d Cir.1990). In such a case, an innocent owner defense is necessary, because otherwise a legitimate property interest of a third party would be forfeited to the government for reasons entirely beyond the owner's control. See Property Known as 6109 Grubb Road, supra, 886 F.2d at 624-25. However, the same equities do not apply where, as here, there is probable cause to believe that the property was purchased with proceeds from drug transactions and given to the third party as a gift, because no investment has been made by the claimant.
This finding is consistent with the language of the civil forfeiture statute. In particular, the "innocent owner defense" at issue provides that "no property shall be forfeited ... to the extent of the interest of an owner, by reason of any act or omission ... committed or omitted without the knowledge or consent of that owner." 21 U.S.C. § 881(a)(6) (emphasis supplied). This language implies that the acts or omissions giving rise to forfeiture must be committed after the third party acquires a legitimate ownership interest in the property. In addition, if the drug trafficker purchases property with drug proceeds and thereafter conveys it as a gift, there is no reason for the drug trafficker to have obtained the consent of the transferee, and there is no incentive for the transferee to inquire as to the legitimacy of the transaction since no investment is being made.
The rule I have enunciated abovethat the innocent owner defense cannot be invoked by the recipient of a gift of drug proceedsis also buttressed by the analogous criminal forfeiture statute, traditional legal precepts, and common sense. The "innocent owner" exception under the criminal forfeiture statute (which was codified after the exception had been in place under the civil forfeiture statute) protects only transferees who are bona fide purchasers *861 for value. See 21 U.S.C. § 853(c). In addition, it is a traditional rule of law that those who do not have legal title to property cannot validly transfer it to others, and certain exceptions to this rule apply only where the transferee is a bona fide purchaser for value. See, e.g., N.J.S.A. § 12A:2-403. Similarly, where fraudulent conveyances are made, bona fide purchasers for value may be protected, but recipients of gifts are not. See, e.g., N.J.S.A. § 25:2-6. I simply do not believe that Congress intended for the innocent owner exception to permit a drug dealer to avoid the impact of the forfeiture statute by disbursing the proceeds from his drug transactions to "innocent" friends, family or other random recipients of the trafficker's benevolence.
Accordingly, I deny the claimant's motion for summary judgment to the extent it is based upon an "innocent owner" defense.[5]
III. The Immunity Agreement
The claimant argues that this action should be dismissed, because the Verified Complaint was based, at least in part, on immunized testimony. I disagree. The claimant was granted use immunity for her testimony and not transactional immunity. See May 4, 1988 letter to Joel Kaplan, Esq., from Lynne W. Lamprecht, AUSA, annexed as page 2 to Exhibit A of Supplemental Plaisted Affidavit, filed Oct. 13, 1989; see also 18 U.S.C. § 6002. The government has adequately demonstrated, from other sources independent of Ms. Goodwin's testimony, that probable cause exists to support forfeiture of the premises. See supra, at Section I. Thus, I will not dismiss the Verified Complaint on the grounds that it is partly based upon immunized testimony.[6]
IV. Alleged Undue Delay
The claimant next argues that the government's complaint is barred, because it unduly delayed in the seizure in violation of her due process rights. The claimant argues that the government unduly delayed between the time at which the alleged criminal events occurred and the seizure of the property. The government responds that there can be no due process concerns, because forfeiture proceedings were instituted before the seizure and the seizure was instituted immediately thereafter.
To the extent that the claimant is arguing that the warrant authorizing the seizure was based upon "stale" information, her arguments lack merit. As explained by the court in United States v. One 1978 Mercedes Benz, supra, at 1301-02, "the passage of time between the occurrence of the facts giving rise to probable cause and the occurrence of the seizure is irrelevant" on the issue of statutory probable cause. Mercedes Benz, 711 F.2d at 1302.
Due process concerns are implicated where there is a delay between the seizure of the property and the postseizure filing *862 of a judicial forfeiture action. See United States v. Eight Thousand Eight Hundred and Fifty Dollars in U.S. Currency, 461 U.S. 555, 563, 103 S. Ct. 2005, 2011, 76 L. Ed. 2d 143 (1983) (standards used to determine whether right to speedy trial is violated are applicable in determining whether due process concerns arise as to delay between seizure of the property and institution of forfeiture action) (18-month delay held permissible). Each of the cases relied upon by the claimant in support of her due process claim involved delays between the seizure of property and institution of forfeiture proceedings. See Claimant's Brief at 22, citing Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663, 94 S. Ct. 2080, 40 L. Ed. 2d 452 (1974); United States v. U.S. Treasury Bills Totalling $160,916.25, 750 F.2d 900 (11th Cir. 1985), and United States v. One Motor Yacht Named Mercury, 527 F.2d 1112 (1st Cir.1975). Due process concerns arise in such a situation, because a property owner is entitled to be heard at a meaningful time after the deprivation of property that is caused by a seizure. See United States v. 8,850, supra, 461 U.S. at 562, 103 S. Ct. at 2010. Notably, there has been no real deprivation in this case, because Ms. Goodwin has been permitted to continue to reside at the premises under an arrangement with the government. See Occupancy Agreement, Gallagher Aff. II, Exhibit D.
Moreover, there is no dispute that this forfeiture proceeding was instituted before the seizure. The claimant was afforded the opportunity to contest the forfeiture and engage in discovery shortly after the seizure. Thus, under the cases cited by the claimant, no due process concerns are implicated. To the extent there was any delay between the events giving rise to the forfeiture and the institution of these proceedings, the statute of limitations governs.
V. Statute of Limitations
Claimant argues that this action is barred by the applicable statute of limitations. However, I find no cogent reason to distinguish this case from United States v. $116,000 in U.S. Currency, 721 F. Supp. 701 (D.N.J.1989). In that case, Judge Wolin applied the statute of limitations set forth under the customs laws to actions brought under 19 U.S.C. § 1621. The customs laws require that the suit or action be "commenced within five years after the time when the alleged offense was discovered." Id., at 703, citing 19 U.S.C. § 1621 (emphasis added). Although Judge Wolin was concerned with the statute of limitations under Section 1955(d) of Title 18, and here I am concerned with Section 881(a) of Title 21, both of these sections contain similar language incorporating the customs laws in general. The claimant argues that the government became aware of the events giving rise to this action in 1986 and thus, her motion to dismiss the complaint on statute of limitations grounds is denied.
VI. Discovery Issues
Lastly, the claimant argues that the government's refusal to engage in discovery justifies dismissal of the action. I disagree. However egregious a failure to abide by the discovery rules may be, the court is obliged to consider the appropriateness of alternative sanctions; dismissal is a drastic sanction, reserved for drastic cases, and should only be ordered where no lesser sanction is adequate. See Poulis v. State Farm and Fire Casualty Co., 747 F.2d 863, 867-68 (3d Cir.1984).
Further, I do not find that plaintiff's alleged interference with discovery warrants sanctions. The claimant is primarily complaining that the government has not permitted discovery with respect to statements made by, and it has not permitted the deposition of, Joseph Mazacco. Mr. Mazacco is the government's chief informant in connection with what is now a pending criminal case. Thus, the government's refusal to permit discovery was not based upon any dilatoriness, willfulness or bad faith, but upon its concern over the outcome of criminal proceedings. Accordingly, the claimant's motion for dismissal of the Verified Complaint on the grounds that the government has not engaged in appropriate discovery is hereby denied.
*863 VII. Government's Motion for a Stay
The government has moved for a stay of these proceedings pending trial of a criminal action in the Southern District of Florida pursuant to 21 U.S.C. 881(i). This section provides that "[t]he filing of an indictment alleging a violation of this subchapter ... which is also related to a civil forfeiture proceeding under this section shall, upon motion of the United States and for good cause shown, stay the civil forfeiture proceeding." 21 U.S.C. § 881(i). In deciding whether a stay is appropriate, the court should exercise its discretion and determine whether the hardships to the claimant are outweighed by the government's interest in avoiding civil discovery. See United States v. Mellon Bank, N.A., 545 F.2d 869, 872-73 (3d Cir.1976).
I find that the balance weighs in favor of granting the government's request for a stay. The government has demonstrated good cause in support of its request; this is evidenced by the claimant's insistence for disclosure of the statements made by Mr. Mazacco, the government's informant, and the government's refusal to produce same. See United States v. One Single Family Residence, 710 F. Supp. 1351, 1352 (S.D.Fla.1989) (government satisfied its burden of demonstrating good cause by representing that "civil discovery would substantially interfere with and prejudice the prosecution of the criminal action, because civil discovery is substantially more comprehensive and wide-reaching than is criminal discovery"). It does not appear that the hardship to the claimant is severe, as she has been permitted to reside at the premises under an occupancy agreement. Although the claimant complains that she is not indicted and the government is not seeking to forfeit her interest in the property in the criminal proceedings, stays are appropriate whether or not the same parties are involved in the criminal and civil litigation, provided the actions concern related transactions. See Larouche Campaign v. FBI, 106 F.R.D. 500, 501 (D.Mass. 1985).
Accordingly, I shall grant the government's request for a stay of this civil proceeding pending trial of the criminal proceeding in the Southern District of Florida.
VIII. Conclusion
For all the reasons set forth above, I deny the claimant's motion to dismiss the Verified Complaint and I grant the government's request for a stay of this case pending the trial in the criminal proceeding.
NOTES
[1] This reference to "all proceeds" clearly includes all types of property, including real and personal property. See United States v. Premises Known as 8584 Old Brownsville Road, 736 F.2d 1129, 1130 (6th Cir.1984); United States v. Parcels of Land, supra, at 47 (1st Cir., 1990).
[2] A similar "innocent ownership" defense is set forth at subsection (a)(7) to this provision, which provides that real estate used to facilitate the commission of drug offenses is subject to forfeiture, "except that no property shall be forfeited under this paragraph, to the extent an interest of an owner, by reason of any act or omission established by that owner to have been committed or omitted without the knowledge or consent of that owner." 21 U.S.C. § 881(a)(7).
[3] However, in Miscellaneous Jewelry, the court held that alleged heirs of property lacked standing to contest the forfeiture of the property which was traceable to and/or used to facilitate drug transactions. See 667 F.Supp. at 249.
[4] The claimant has standing here, because, in addition to having legal title to the premises, she claims that she resided there for a number of years and treated the premises as her home. Cf. United States v. One Parcel of Real Estate at 5860 N. Bay Road, 121 F.R.D. 439, 440 (S.D.Fla. 1988) ("possession of bare legal title by one who does not exercise dominion and control over the property is insufficient even to establish standing to challenge a forfeiture"). But, for reasons discussed infra, she does not have a legitimate innocent owner defense.
[5] Although I have found probable cause for forfeiture, I will not grant summary judgment in favor of the government, because the government has not so moved, and the claimant can still defeat the forfeiture by demonstrating, by a preponderance of the evidence, that the premises were not purchased with proceeds from drug trafficking.
[6] The government has made the additional argument that it could use the testimony at issue, because this is not a criminal proceeding but a civil proceeding against the property. See United States v. $39,000 in Canadian Currency, 801 F.2d 1210, 1218 (10th Cir.1986). Various courts have permitted the use of immunized testimony in civil cases, even where the civil suit was somewhat penal in nature. See, e.g., Childs v. Schlitz, 556 F.2d 1178, 1179 (4th Cir.1977) (license revocation proceedings); United States v. Kates, 419 F. Supp. 846, 857-58 (E.D.Pa.1976) (civil fraud action). However, in One 1958 Plymouth Sedan v. Pennsylvania, 380 U.S. 693, 85 S. Ct. 1246, 14 L. Ed. 2d 170 (1965), the Court held that evidence seized in violation of the Fourth and Fourteenth Amendments could not be used in civil forfeiture proceedings, because such proceedings are quasi-criminal in nature. See 380 U.S. at 700, 85 S. Ct. at 1250. Although it appears that, in light of the Plymouth Sedan case, Ms. Goodwin's immunized testimony could not be used in this civil forfeiture proceeding, I need not dismiss the Verified Complaint, because, as discussed above, there is an independent basis to provide probable cause to forfeit the premises apart from Ms. Goodwin's testimony. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1972783/ | 855 F. Supp. 187 (1994)
Gerald G. DITMORE, Plaintiff,
v.
FAIRFIELD INDUSTRIES, INC., Defendant.
Civ. A. No. G-93-178.
United States District Court, S.D. Texas, Galveston Division.
May 4, 1994.
*188 Robert A. Chaffin, Houston, TX, Kurt Siess, Sugarland, TX, for plaintiff.
Dan Becker, Thomas Fitzhugh, III, Houston, TX, for intervenor-plaintiff.
Willie Ben Daw, III, W.T. Womble, King Waters, Houston, TX, for defendant.
ORDER
HUGH GIBSON, District Judge.
Before the Court is Intervenor's Motion for Summary Judgment. Plaintiff and Intervenor have submitted briefs, documentary evidence and a list of stipulated facts for the Court's consideration.
Background
Plaintiff Gerald G. Ditmore, a Texas resident, was hired by Defendant Fairfield Industries, Inc. in Texas and sent to Louisiana on a short-term assignment. On December 3, 1991, Ditmore suffered injuries while working aboard the Quarterboat Fairfield, a work platform operated by Fairfield on a navigable waterway.
Although the accident occurred in Louisiana, Ditmore was eligible and applied for Texas workers' compensation benefits under the extra-territorial provisions of the Texas Workers' Compensation Act. See Tex.Lab. Code § 406.071. The "Employer's First Report of Injury or Illness," a standardized report form completed following the incident, indicates Ditmore hurt his lower back when he slipped after stepping down into a boat. Copies of the report were forwarded by Fairfield to the Texas Workers' Compensation Commission and to Intervenor Liberty Mutual Fire Insurance Company, Fairfield's workers' compensation underwriter.
Liberty Mutual never contested the workers' compensation claim and paid a total of $42,819.32 ($26,280.00 in temporary income benefits and $16,539.38 for medical expenses) to or on behalf of Ditmore. All of these benefits were paid pursuant to the Texas Workers' Compensation Act.
Ditmore filed a Jones Act complaint on April 5, 1993. Prior to reaching trial, Ditmore and Fairfield tendered to the Court an "Agreed, Final, Take Nothing Judgment" which was entered on January 24, 1994. In this document Ditmore acknowledges that the Quarterboat Fairfield is not a vessel. Plaintiff and Defendant agree, however, that Ditmore was a seaman by virtue of being attached to a "fleet of vessels." Ditmore and Fairfield further stipulate:
This settlement contemplates and incorporates the full amount of compensation benefits paid by Liberty Mutual Fire Insurance Co. ("Intervenor"), Intervenor to the previous action. Plaintiff and Defendant agree that all such payments made by Intervenor on behalf of Defendant, including the $42,819.32 alleged in Intervenor's Petition in Intervention, were made as Maintenance and Cure for seaman's benefits under the Jones Act.
The insurance contract between Fairfield and Liberty Mutual provided for workers' compensation coverage and expressly excluded Jones Act coverage. Because Ditmore has proclaimed his seaman status and settled his maritime claim against Fairfield, Liberty Mutual asserts that equitable principles, in addition to the sparse case law on the issue, support Liberty Mutual's right to reimbursement of the $42,819.32 paid as workers' compensation benefits.
Ditmore contends Liberty Mutual cannot recover on the basis of either subrogation because Liberty Mutual has no statutory subrogation right or restitution because neither he nor Fairfield engaged in any wrongful conduct. Ditmore also argues that Liberty Mutual cannot now assert mistake as to compensability because Liberty Mutual did not contest compensability of the injury within sixty days after receiving notice of the injury as required under the Texas Workers' Compensation Act. Tex.Lab.Code § 409.021(c).
Ditmore steadfastly insists that no double recovery will result if he receives the disputed amount, and thus equity does not compel *189 a finding in favor of Liberty Mutual. As an alternative to ruling in Liberty Mutual's favor, Ditmore asks the Court to decline jurisdiction under the authority of 28 U.S.C.A. § 1367(c)(2), and allow the matter now before the Court to be decided "in the appropriate Texas forum."
The contested $42,819.32 has been placed in escrow pending the Court's ruling. Ditmore and Liberty Mutual agree there exists no genuine, material factual dispute and that the issue presently before the Court can be decided as a matter of law. No on-point, controlling Supreme Court or Fifth Circuit authority is available to provide unequivocal guidance for resolving the issue presented.
Analysis
The Texas Workers' Compensation Act exempts employers from common-law liability based on negligence or gross negligence. Castleberry v. Goolsby Bldg. Corp., 617 S.W.2d 665, 666 (Tex.1981). "For covered employees, the Texas workers' compensation statute provides the exclusive remedy for injuries sustained in the course of their employment." Rodriguez v. Naylor Indus., Inc., 763 S.W.2d 411, 412 (Tex.1989).
The Jones Act provides that "any seaman who shall suffer personal injury in the course of his employment may, at his election, maintain an action for damages at law [against his employer]." 46 U.S.C.App. § 688. The Supreme Court has ruled that this language provides a seaman's exclusive remedy. North Coal & Dock Co. v. Strand, 278 U.S. 142, 147, 49 S. Ct. 88, 89, 73 L. Ed. 232 (1928). The Texas Workers' Compensation Act and the Jones Act, consequently, provide mutually exclusive remedies for an injured worker.
The Supreme Court has held, when an employer is the permanent or pro hac vice owner of the vessel to which the employee is assigned, the employee may sue his employer under general maritime law notwithstanding that previously the employee has received compensation. Reed v. S.S. Yaka, 373 U.S. 410, 83 S. Ct. 1349, 10 L. Ed. 2d 448 (1963). Accordingly, an amphibious worker such as Ditmore may file for and receive workers' compensation benefits before the issue of seaman status is resolved. Sharp v. Johnson Bros. Corp., 973 F.2d 423, 427 (5th Cir.1992).
Credit and Reimbursement
Both federal and state courts have concluded that an injured maritime worker is not allowed to recover twice for the same maritime injury once under federal maritime law and again under the state workers' compensation plan. See Sun Ship, Inc. v. Pennsylvania, 447 U.S. 715, 725, 100 S. Ct. 2432, 2439, 65 L. Ed. 2d 458, 466 (1980); Miron v. All Alaskan Seafoods, Inc., 705 F. Supp. 518, 519 (W.D.Wash.1988); State Dept. of Public Safety v. Brown, 794 P.2d 108, 110 (Alaska 1990); McFarland v. Justiss Oil Co., 526 So. 2d 1206, 1214 (La.App. 1988); Benders v. Board of Governors, 636 A.2d 1313, 1314-15 (R.I.1994); Indiana & Michigan Elec. Co. v. Workers' Compensation Commissioner, 184 W.Va. 673, 403 S.E.2d 416, 420 (1991). Similarly, the Texas Workers' Compensation Act provides that an injured worker who elects to pursue the employee's remedy under the workers' compensation laws of another jurisdiction and who recovers benefits under those laws may not recover under the Texas act. Tex.Lab.Code § 406.075.
If an employer provides workers' compensation benefits to an injured employee and the injured worker is ultimately determined to be a seaman, the employer can receive a credit for these payments against the Jones Act settlement or judgment. See, e.g., Massey v. Williams-McWilliams, Inc., 414 F.2d 675, 679 (5th Cir.1969), cert. denied, 396 U.S. 1037, 90 S. Ct. 682, 24 L. Ed. 2d 681 (1970); Jacques v. Kalmar Industries, AB, 8 F.3d 272, 273 (5th Cir.1993). In some situations, however, the nature of the insurance coverage may preclude a set-off or credit. See, e.g., Gauthier v. Crosby Marine Service, Inc., 752 F.2d 1085, 1090 (5th Cir.1985) (no set-off allowed where seaman alone purchased the insurance); Owens v. Conticarriers & Terminals, Inc., 591 F. Supp. 777, 792-93 (W.D.Tenn.1984) (no set-off where medical insurance was provided as a "fringe benefit"). None of these relatively uncommon insurance-coverage circumstances are a concern in the instant case.
*190 Although conceding that, under both maritime law and the Texas Workers' Compensation Act, a credit is allowed when workers' compensation benefits are paid to a seaman, Ditmore asserts that the rule is not applicable to his situation. Ditmore characterizes Liberty Mutual's claim as one of subrogation, or in the alternative, as restitution. He claims the Texas workers' compensation scheme precludes Liberty Mutual's recoupment under either theory.
In Texas, a worker's compensation carrier's right of subrogation is provided by statute. Gautreaux v. Port Arthur, 406 S.W.2d 531, 534 (Tex.Civ.App. Beaumont 1966, writ ref'd n.r.e.). The Texas Workers Compensation Act expressly subrogates the carrier only to a worker's claims against third parties. Tex.Lab.Code § 417.001-.002. Ditmore concludes, therefore, that Liberty Mutual must take nothing on its claims since there exists no statutory right of subrogation to Ditmore's claims against his employer.
In the alternative, Ditmore portrays Liberty Mutual's reimbursement request as a claim for restitution pursuant to the Texas Workers' Compensation Act. The act declares that an employee who has obtained excess workers' compensation payments through fraud, misrepresentation, or fabrication, alteration, concealment or destruction of documents, is liable for full repayment of the funds plus interest. Tex.Lab.Code § 415.008(a) and (c). According to Ditmore, he has not acted wrongfully, and restitution should not be required absent employee wrongdoing as delineated in the workers' compensation statute.
Both of Ditmore's arguments fail because Liberty Mutual is neither claiming subrogation rights nor directly seeking restitution from Ditmore pursuant to the Texas Workers' Compensation Act. Instead, Liberty Mutual wants credit and reimbursement for workers' compensation benefits paid to a worker who was not entitled to receive them. See Commercial Union Ins. Co. v. McKinnon, 10 F.3d 1352 (8th Cir.1993). Whatever Ditmore's status whether a Jones Act seaman or a worker embraced by the Texas compensation act the party liable for compensation to Ditmore, the injured employee, is Fairfield Industries, the employer. The employer's insurance arrangements are not determinative of the ultimate liability to the injured employee. As the Fourth Circuit Court of Appeals explained:
If the plaintiff succeeds in his [Jones Act] suit, the employer may recoup the amounts already paid by deducting them when satisfying the judgment. In the event the compensation was paid by one insurer and the judgment becomes payable by another, the employer as the legal debtor in both instances may retain from the settlement of the judgment the sums necessary to reimburse the compensation carrier. The two remedies compensation and suit are thus made complementary. An important purpose of the compensation statutes, to provide immediate relief to an injured employee, is achieved, and the injured party's opportunity to press further remedies remains unabridged.
Biggs v. Norfolk Dredging Co., 360 F.2d 360, 364 (4th Cir.1966).
Under some circumstances, courts may refuse to grant credit and reimbursement to the workers' compensation carrier. In one case, where the seaman-status issue was unresolved and thus there existed a real dispute as to which insurer was liable to an injured employee, the court held that the state workers' compensation insurer had no direct claim against the maritime liability insurer of the same employer for reimbursement of amounts paid to or on behalf of the injured employee. Insurance Co. of North America v. Prudential Assurance Co., 1993 WL 500818, 1993 U.S.Dist. LEXIS 16961 (E.D.La.1993).
Another appropriate circumstance for disallowing reimbursement occurs when an untimely third party claim will deny, to the original plaintiffs in the suit, rights created by federal law. For example, a workers compensation carrier was denied a lien by the United States District Court in Rhode Island after a seaman and his employer had settled and the workers' compensation carrier, "a third party, previously unheard of," claimed a right to settlement proceeds. Benders v. Board of Governors, 728 F. Supp. 839, 840 (D.R.I.1990).
*191 In the instant case, there exist no such special factors or circumstances which should preclude reimbursement. Ditmore's status as a Jones Act seaman is not in dispute and, unlike the Benders plaintiff, Ditmore faces no loss of rights because Liberty Mutual timely intervened prior to the execution of the Ditmore-Fairfield settlement.
Ditmore argues that his claim to the disputed $42,819.32 is bolstered by "undisputed evidence that the settlement between Ditmore and Fairfield included a credit for worker's compensation benefits received by him." Plaintiff's Brief in Opposition to Intervention at 11. The "undisputed evidence" Ditmore refers to presumably is a single sentence in the settlement agreement: "This settlement contemplates and incorporates the full amount of compensation benefits paid by [Liberty Mutual]."
It is not apparent what precise legal effect Ditmore believes this provision should have on the rights of Liberty Mutual, who was not a party to the agreement. One thing is clear: At the time Ditmore and Fairfield executed their settlement, Ditmore must have been fully aware that Liberty Mutual was the proper payor only for Texas Workers' Compensation benefits and was not liable for paying compensation pursuant to the Jones Act. By allowing the disputed amount to be deposited in an escrowed account, Ditmore surely "contemplated" that Liberty Mutual's claim for reimbursement might be valid. See Black's Law Dictionary at 288 (West 5th ed. 1979) (to "contemplate" means to "view or consider with continued attention; to regard thoroughly."). The Court, accordingly, concludes that the insertion of one ambiguous sentence in the Ditmore-Fairfield settlement agreement alone does not provide a legal, equitable, or policy basis for denying Liberty Mutual's request for reimbursement.
Compensability under the Texas Workers' Compensation Act
The Texas Workers' Compensation Act provides that an insurance carrier must contest compensability of an injury within sixty days of its receipt of notice of the injury. Tex.Lab.Code § 409.021(c). To reopen the issue of whether an injury to a worker is compensable under the Act requires a showing that there was evidence that could not reasonably have been discovered earlier. Tex.Lab.Code § 409.021(d). According to Ditmore, these provisions bar Liberty Mutual's assertion of mistake as to the compensability of Ditmore's injury as a ground for recovery.
Ditmore claims Liberty Mutual cannot assert that the agreed judgment between Fairfield and Ditmore is determinative of compensability. To support this contention, Ditmore cites Fifth Circuit authority holding that an agreed judgment is merely an enforceable contract between the parties, and is not determinative as to any issue in a dispute with a third party. Hughes v. Santa Fe Int'l Corp., 847 F.2d 239, 242 (5th Cir.1988). According to Ditmore, because there has been no final disposition of his claim by the Texas Workers' Compensation Commission, no "election of remedies" has occurred.
As the Court already has noted, Liberty Mutual is not challenging Ditmore's entitlement to compensation, but merely is seeking credit and reimbursement. The requirement that compensability be challenged within 60 days, therefore, is not applicable.
Ditmore's assertion that his status as a Jones Act seaman has not been conclusively established is insupportable. He has tendered evidence to the Court confirming his seaman status, signed an agreement stipulating he was a seaman, and accepted compensation pursuant to the Jones Act. An employee has seaman status if he is assigned to a "fleet of vessels," such a fleet being defined as "an identifiable group of vessels acting under one control." Barrett v. Chevron USA, Inc., 781 F.2d 1067, 1074 (5th Cir.1986) (en banc). The record establishes that Ditmore was assigned to a fleet of vessels and there exists no genuine issue of material fact concerning his status as a Jones Act seaman.
Ditmore's acceptance of Jones Act benefits was akin to accepting benefits under the law of "another jurisdiction" as contemplated by the Texas Workers' Compensation Act, and as a consequence, he should no longer recover benefits under the Texas act. See Tex. Lab.Code § 406.075(a). See also Tex.Lab. Code § 406.075(b) (even without an election, *192 the amount of benefits accepted under the laws of another jurisdiction are to be credited against benefits that the employee would have received had the claim been made under the Texas act). The statute compliments Texas case law holding that the election of remedies doctrine applies as a bar to the relief sought if it is affirmatively shown that the plaintiff has successfully exercised an informed choice between two or more remedies, rights or sets of facts which are so inconsistent as to constitute manifest injustice. See Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 851 (Tex.1980); Texas General Indem. Co. v. Hearn, 830 S.W.2d 257, 258 (Tex.App.Beaumont 1992, no writ) (discussing election of remedies).
By his own actions, Ditmore has abandoned his workers' compensation claim. Only his election to take under the Jones Act, not Liberty Mutual's intervention, has affected compensability.
Identity of Damage Elements
Liberty Mutual may receive credit only against those items of loss that bear a reasonable relationship to items of loss compensated by workers compensation benefits. Credit should be allowed for: 1) the ultimate award of maintenance and cure; 2) the pecuniary loss of wages during the period of payment of the compensation benefits, and 3) medical expenses. Massey v. Williams-McWilliams, Inc., 414 F.2d at 679. Credit is not given for either pain and suffering or for lost earning capacity. Id.
The Ditmore-Fairfield agreement specifies that the entire $42,819.32 was made as maintenance and cure for seaman's benefits under the Jones Act. This characterization of the benefits is consistent with other evidence in the record. Consequently, credit may be given for the entire $42,819.32 paid as workers' compensation by Liberty Mutual.
Conclusion
Plaintiff Ditmore's rationales for denying reimbursement are unpersuasive. The Court finds, as a matter of law, that Intervenor Liberty Mutual is entitled to reimbursement of all benefits paid pursuant to the Texas Workers' Compensation Act. It is, accordingly,
ORDERED that Intervenor's Motion for Summary Judgment is GRANTED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1895069/ | 956 F.Supp. 230 (1997)
Armand P. DESHAIS and Karl H. Stieg, Plaintiffs,
v.
CONSOLIDATED RAIL CORP., Defendant.
93-CV-1223.
United States District Court, N.D. New York.
February 26, 1997.
*231 *232 Office of Benjamin T. Garry, Albany, NY, for Plaintiffs; Benjamin T. Garry, of counsel.
Hodgson, Russ, Andrews, Woods & Goodyear, Buffalo, NY, for Defendant; Robert B. Conklin, Adam W. Perry, of counsel.
MEMORANDUM-DECISION & ORDER
McAVOY, Chief Judge.
I. BACKGROUND
Plaintiffs Armand Deshais and Karl Stieg allege that they were discriminated against on the basis of their age by defendant Consolidated Rail Corporation ("Conrail"). Plaintiffs also allege that Conrail committed fraud by submitting falsified documents and providing inaccurate information to the Equal Employment Opportunity Commission ("EEOC") in connection with the EEOC's investigation of Plaintiffs' allegations.
The following factual background is taken from Defendant's Local Rule 7.1(f) Statement of Uncontested Facts which Plaintiffs have not disputed. In June, 1992, Conrail was in the midst of a company wide workforce reduction program. Over the preceding fifteen years, Conrail had implemented a series of workforce reductions that reduced its staffing levels from approximately 100,000 employees in 1976 to approximately 22,000 employees in 1996.
In a continuing effort to reduce the costs associated with redundant operations and to take advantage of advances in communication technology and data processing, Conrail planned to consolidate its six geographically *233 dispersed regional customer service centers. Through a planned June 30, 1992, workforce reduction, the six Customer Operations Centers ("COCs") were to be consolidated into a single National Customer Service Center ("NCSC") in Pittsburgh, Pennsylvania. Both plaintiffs were employed at Conrail's COC in Selkirk, New York.
As a result of the planned consolidation, Conrail recognized that in order to fully staff its new single NCSC it would no longer need all 73 of the supervisors currently employed in the six COCs. Accordingly, Conrail implemented a plan to rank the 73 supervisors. (Def's Rule 7.1(f) Statement ¶ 10). The procedure involved a score based upon performance appraisals (50%), a structured interview (30%), supervisor's recommendation (10%), and specific project/team activities (10%). (O'Donnell Aff. ¶ 14). As a result of this evaluation process the 73 supervisors were ranked from highest to lowest. Plaintiff Deshais ranked 65th and plaintiff Stieg ranked 71st out of the 73 supervisors evaluated. (O'Donnell Aff. ¶ 16).
After completing the evaluation process, Conrail eliminated the positions of the 10 lowest ranking supervisors, including plaintiffs Deshais and Stieg, and transferred the remaining supervisors to the NCSC or to other non-agreement management positions elsewhere in the company. Of the 73 COC supervisors evaluated, only 9 were younger than forty on June 30, 1992, and Conrail retained fifteen supervisors who were older than plaintiff Deshais and twenty-two supervisors who were older than plaintiff Stieg. (Def's Rule 7.1(f) Statement ¶¶ 16, 21). In addition, three of the four oldest employees whose positions were abolished in the June 1992 workforce reduction were subsequently placed in non-agreement management positions equal to or higher in job level than their former positions. (Def's Rule 7.1(f) Statement ¶ 19).
Nevertheless, seven of the ten supervisors whose positions were abolished, including the plaintiffs here, filed charges of age discrimination against Conrail with the EEOC. Several EEOC offices investigated the charges because the seven charging employees were located in different states or regions. All EEOC offices involved issued determinations of no probable cause. (Def's Rule 7.1(f) Statement ¶ 20).
A. Procedural History
Plaintiffs commenced this action on September 23, 1993. On January 31, 1994, more than 120 days after commencing the action and more than 210 days after the EEOC issued to Plaintiffs a 90-day Right to Sue Letter on June 21, 1993, Plaintiffs requested an extension of time to serve Conrail. On February 15, 1994, Magistrate Judge Hurd granted Plaintiffs' request to extend the service deadline to March 31, 1994. On March 31, 1994, Plaintiffs' filed their Amended Complaint; service was finally effectuated on Conrail almost nine months after Plaintiffs received their 90-day Right to Sue Letter from the EEOC.
On July 17, 1996, due to Plaintiffs' failure for almost nine months to respond to Conrail's written discovery requests served in late 1995, Magistrate Judge Hurd ordered Plaintiffs to serve complete and satisfactory discovery responses. (See July 17, 1996 Order). As a result of Plaintiffs' failure to comply with Judge Hurd's July 17, 1996 Order, Conrail moved for Rule 37 sanctions. Conrail subsequently withdrew its motion for sanctions as Plaintiffs partially complied with the discovery requests and promised to appear for their depositions in August of 1996.
Although Plaintiffs commenced this action on September 23, 1993, Plaintiffs did not serve any discovery requests until the last week of October 1996. On November 19, 1996, Judge Hurd denied Plaintiffs' request for an extension of the discovery schedule because the discovery requests served by Plaintiffs sought discovery after the discovery cut-off, and after the Court had already extended the discovery deadline at the request of Plaintiffs. Discovery closed on October 30, 1996.
As is evident from the preceding procedural history, Plaintiffs have continuously flirted with, and sometimes violated, this Court's rules and scheduling orders. In addition, Plaintiffs did not respond to Conrail's Statement *234 of Uncontested Facts as required by Local Rule 7.1(f). Local Rule 7.1(f) states:
On a motion for summary judgment pursuant to Fed.R.Civ.P. 56, there shall be annexed to the notice of motion a separate, short and concise statement of the material facts as to which the moving party contends there is no genuine issue, with specific citations to the record where such facts are set forth. The papers opposing a motion for summary judgment shall include a separate, short and concise statement of the material facts as to which it is contended that there exists a genuine issue, with specific citations to the record where the factual issues arise. All material facts set forth in the statement served by the moving party shall be deemed admitted unless controverted by the statement served by the opposing party.
N.D.N.Y.L.R. 7.1(f) (emphasis added). Accordingly, all facts in Conrail's statement must be deemed admitted.
B. The Claims
Plaintiffs' Complaint asserts a claim for age discrimination in violation of the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. § 621 et seq. Plaintiffs also allege a cause of action in common law fraud based upon their allegation that Conrail submitted forged or altered performance appraisals and submitted inaccurate information to the EEOC in connection with the EEOC's investigation of Plaintiffs' charges.
Presently before the Court is Defendants' Motion for Summary Judgment.
II. DISCUSSION
A. Summary Judgment Standard
Pursuant to Fed.R.Civ.P. 56(c), a court may grant summary judgment if it appears "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). Furthermore, it is the substantive law that will determine what facts are material to the outcome of a case. See Anderson, 477 U.S. at 250, 106 S.Ct. at 2511.
Initially, the moving party has the burden of informing the court of the basis of its motion. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). If the moving party satisfies its burden, the burden then shifts to the non-moving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). The Court must then resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986). However, the non-moving party must do more than simply show "that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586, 106 S.Ct. at 1356. Only when the Court concludes that no rational finder of fact can find in favor of the non-moving party should summary judgment be granted. Gallo v. Prudential Residential Servs., Ltd., 22 F.3d 1219, 1223 (2d Cir.1994).
B. ADEA Claim
Plaintiffs bring a claim for age discrimination under the ADEA. 29 U.S.C. § 621 et seq. Initially, the Court notes that although summary judgment is no longer a disfavored process for the elimination of groundless claims, see Celotex, 477 U.S. at 322, 106 S.Ct. at 2552 (summary judgment favored to dispose of meritless claims), a district court should be wary of granting summary judgment in a discrimination case because the device is generally inappropriate where, as is typical, an employer's state of mind is relevant. See Gallo, 22 F.3d at 1224.
This is not to say that summary judgment is wholly inappropriate; rather, as the Second Circuit has noted, "the summary judgment rule would be rendered sterile ... if the mere incantation of intent or state of mind would operate as a talisman to defeat an otherwise valid motion. [T]he purposes of summary judgment ... apply no less to discrimination cases than to ... other areas of litigation." Meiri v. Dacon, 759 F.2d 989, 998 (2d Cir.), cert. denied, 474 U.S. 829, 106 S.Ct. 91, 88 L.Ed.2d 74 (1985). Considering the relative ease of bringing a suit alleging *235 discrimination and the difficulty and expense of defending against such a suit, courts correctly find summary judgment proper where allegations of discriminatory intent are merely conclusory. See Meiri, 759 F.2d at 998.
i. Prima facie case under ADEA
Under the ADEA, an employer is prohibited from discharging an employee "because of [the employee's] age." 29 U.S.C. § 623(a)(1). However, an employer may lawfully discharge an employee based on reasonable factors other than age. See 29 U.S.C. § 623(f)(1). ADEA standards are modeled upon the prohibitions of Title VII of the Civil Rights Act. See, e.g., McKennon v. Nashville Banner Pub. Co., 513 U.S. 352, ___, 115 S.Ct. 879, 884, 130 L.Ed.2d 852 (1995) ("The substantive, antidiscrimination provisions of the ADEA are modeled upon the prohibitions of Title VII.").
In the Second Circuit, ADEA cases are analyzed under the familiar framework of McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973), a Title VII case. See, e.g., Promisel v. First American Artificial Flowers, 943 F.2d 251, 259 (2d Cir.1991), cert. denied, 502 U.S. 1060, 112 S.Ct. 939, 117 L.Ed.2d 110 (1992). Under the standards originally articulated in McDonnell Douglas, when an employer initiates a reduction-in-force an employee has the initial burden of establishing a prima facie case of unlawful age discrimination by showing:
1) she belongs to the protected age group; 2) she was qualified to assume another position had it been available at the time she was discharged; 3) she was discharged; 4) and that the discharge occurred under circumstances suggesting that age was a factor.
Gallo v. Prudential Residential Servs., Ltd. Partnership, 22 F.3d 1219, 1224 (2d Cir. 1994); see also Maresco v. Evans Chemetics, Div. of W.R. Grace & Co., 964 F.2d 106, 110-11 (2d Cir.1992). Once a plaintiff has established a prima facie case, "the employer then has the burden of articulating a legitimate, nondiscriminatory reason for its action.... The burden shifts back at that point to the plaintiff to prove that this reason is pretextual." Promisel, 943 F.2d at 259.
The Court will now examine each of the steps in the burden shifting analysis in order to determine whether Plaintiffs have put forth a viable cause of action. We must be mindful that regardless of how these burdens are described, Plaintiffs retain the ultimate burden of persuading the fact finder. See Lopez v. Metropolitan Life Ins. Co., 930 F.2d 157, 161 (2d Cir.1991).
Here, there is no dispute that Plaintiffs have established the first element of their prima facie ADEA case. Deshais was 49 years old and Stieg was 47 years old when their positions were abolished; thus they clearly fall within the protected group under the ADEA, which includes all persons over the age of 40. 29 U.S.C. § 631(a). Furthermore, there is also no dispute as to the third element of their prima facie case that Plaintiffs' were discharged from their supervisory positions.[1] The controversy here surrounds the remaining two elements, job qualification and inference of discrimination.
After examining the factual record, it appears that Plaintiffs have offered no evidence that they were "qualified to assume another position had it been available at the time [of their] discharge[ ]." Gallo, 22 F.3d at 1224. As Conrail's undisputed statement of facts demonstrates, Conrail had at least ten fewer positions for supervisors at its NCSC in Pittsburgh than the combined 73 positions in its six regional COCs. Plaintiffs were among the ten lowest scoring supervisors; thus, their positions were abolished.
Even if Plaintiffs are able to establish that they were qualified to assume another available position, they must still demonstrate that they were discharged under circumstances giving rise to an inference of discrimination. See McDonnell Douglas, 411 U.S. at 792, 93 S.Ct. at 1819. As the Second Circuit recently noted, "[i]n a case such as the present one, where the plaintiff's evidence is entirely *236 circumstantial, the pertinent question is whether plaintiff's main case contains evidence sufficient to permit the trier of fact to draw an inference that the prohibited motive was a substantial factor in the adverse employment decision." Burger v. New York Institute of Technology, 94 F.3d 830, 833 (2d Cir.1996). Furthermore, "[i]n cases involving a reduction in force, the inquiry is highly fact specific." Burger, 94 F.3d at 833.
Here, Plaintiffs argue an inference of discrimination can be drawn from the fact that Conrail's evaluation process was flawed. First, they assert that "Defendant's appraisal process which represented 50% of the rationalization ranking was riddled with forged signatures, scores altered by management and missing employee comments." (Pltfs' Mem. of Law at 11). Plaintiffs also state that the structured personal interview took less than one half-hour, and that one of Defendant's managers admitted that the process was subjective and at times age biased. (Pltfs' Mem. of Law at 11).
To support these assertions Plaintiffs rely exclusively on an affidavit from a former Conrail Employee, John Sanocki. (See Sanocki Aff., Conklin Aff., Exh. E). Sanocki states that he and other "Conrail workers perceived a negative atmosphere toward older employees by management." (Sanocki Aff. ¶ 2). In addition, Sanocki asserts that Conrail "Management wanted to dispose of Stieg and Deshais" and that Conrail arbitrarily changed employees' performance evaluations. (Sanocki Aff. ¶¶ 5-11).
However, an examination of John Sanocki's affidavit raises some important concerns. First, Mr. Sanocki does not state the basis of his knowledge concerning his assertions. Second, the affidavit generically identifies "Conrail management" without specifying any particular individuals. Third, Sanocki does not identify any decision-maker at Conrail who had a role in the decision to abolish Plaintiffs' positions. Finally, Sanocki does not connect Conrail's asserted "age animus" with the decision to abolish Plaintiffs' positions.
Nevertheless, in light of the fact that Plaintiffs' burden as this point is de minimis, the Court will assume that Plaintiffs have established a prima facie case of age discrimination. Consequently, if Conrail can articulate a legitimate, nondiscriminatory reason for its action, the burden will shift back to Plaintiffs to prove that this reason is pretextual. See Promisel, 943 F.2d at 259.
ii. Non-discriminatory reason for termination
Establishment of the prima facie case creates a presumption that the employer unlawfully discriminated against the employee. Texas Dep't of Community Affairs v. Burdine, 450 U.S. 248, 254, 101 S.Ct. 1089, 1094, 67 L.Ed.2d 207 (1981). In order to rebut this presumption, the employer has the burden of producing evidence that the employee was discharged for a legitimate, nondiscriminatory reason. Burdine, 450 U.S. at 254, 101 S.Ct. at 1094. The defendant, however, "need not persuade the court that it was actually motivated by the proffered reasons." Burdine, 450 U.S. at 254, 101 S.Ct. at 1094 (citing Board of Trustees of Keene State College v. Sweeney, 439 U.S. 24, 25, 99 S.Ct. 295, 296, 58 L.Ed.2d 216 (1978)). As the Supreme Court stated in Texas Dep't of Community Affairs v. Burdine:
It is sufficient if the defendant's evidence raises a genuine issue of fact as to whether it discriminated against the plaintiff. To accomplish this, the defendant must clearly set forth, through the introduction of admissible evidence, the reasons for the plaintiff's rejection. The explanation provided must be legally sufficient to justify a judgment for the defendant. If the defendant carries this burden of production, the presumption raised by the prima facie case is rebutted.
Burdine, 450 U.S. at 254-55, 101 S.Ct. at 1094-95. The strength of the defendant's rebuttal, to a large extent, depends on the strength or weakness of a plaintiff's prima facie case. See Lieberman v. Gant, 630 F.2d 60, 66-67 (2d Cir.1980) (noting relationship between the burden borne by the employee and the employer).
Here, Defendant states, and Plaintiffs do not contest, that in order to fully staff its new single NCSC Conrail no longer *237 need all 73 of the supervisors currently employed in the six COCs. Accordingly, Conrail implemented a plan to rank the 73 supervisors. (Def's Rule 7.1(f) Statement ¶ 10). The procedure involved a score based upon performance appraisals, a structured interview, supervisor's recommendation, and specific project/team activities. (O'Donnell Aff. ¶ 14). Plaintiff Deshais ranked 65th and plaintiff Stieg ranked 71st out of the 73 supervisors evaluated. (O'Donnell Aff. ¶ 16). It is also undisputed that after completing the evaluation process Conrail eliminated the positions of the 10 lowest ranking supervisors, including plaintiffs Deshais and Stieg.
Moreover, Conrail need only "articulat[e] some legitimate, nondiscriminatory reason" for the discharge. Board of Trustees of Keene State College v. Sweeney, 439 U.S. 24, 25, 99 S.Ct. 295, 295, 58 L.Ed.2d 216 (1978). In this circuit, "[i]t is enough for the defendants in the second phase of the case to bring forth evidence that they acted on a neutral basis. They do not have the burden of establishing that their basis was sound." Lieberman, 630 F.2d at 65. Furthermore, "courts must refrain from intruding into an employer's policy apparatus or second-guessing a business's decision-making process" Meiri, 759 F.2d at 995 (citing Sweeney v. Research Foundation of State Univ. of N.Y., 711 F.2d 1179, 1187 n. 11 (2d Cir.1983)).
Even assuming that Plaintiffs' unsupported allegations are true, this Court finds that Conrail's decision to discharge Plaintiffs was based on legitimate nondiscriminatory reasons. Conrail has thus successfully rebutted the presumption of discrimination associated with Plaintiffs' prima facie case. The burden now falls back on Plaintiffs to show that the proffered reasons were mere pretext and that unlawful discrimination was the real reason for Conrail's action.
iii. Pretext and Unlawful Discrimination.
If the employer has articulated a legitimate nondiscriminatory reason for the termination, the plaintiff must then present evidence establishing intentional discrimination. See Saint Mary's Honor Ctr. v. Hicks, 509 U.S. 502, 113 S.Ct. 2742, 125 L.Ed.2d 407 (1993). Furthermore, "[a]fter the employer articulates legitimate, non-discriminatory reasons for the employee's discharge, the employee must ... prove the existence of factual issues demonstrating that the stated reasons were merely a pretext for discrimination." Meiri, 759 F.2d at 997 (citing Burdine, 450 U.S. at 256-57, 101 S.Ct. at 1095).
On this issue, "the evidence as a whole ... must be sufficient for a reasonable factfinder to infer that the employer's decision was motivated by age animus ... Thus, the plaintiff cannot avert summary judgment if the record is devoid of adequate direct or circumstantial evidence of discriminatory animus on the part of the employer." LeBlanc v. Great Am. Ins. Co., 6 F.3d 836, 843 (1st Cir.1993), cert. denied, 511 U.S. 1018, 114 S.Ct. 1398, 128 L.Ed.2d 72 (1994). As the Supreme Court stated in St. Mary's Honor Ctr. v. Hicks, it is now incumbent on a plaintiff to prove, not only falsity of the proffered reasons given by the employer, but also that discriminatory motive was the true reason for their discharge. 509 U.S. 502, 519, 113 S.Ct. 2742, 2753, 125 L.Ed.2d 407 (1993).
From the evidence submitted here, there is nothing tending to show that Plaintiffs' discharge was due to reasons other than the fact that Conrail viewed Plaintiffs' performance rankings as insufficient. As Defendant's Local Rule 7.1(f) statement demonstrates, Conrail instituted a time consuming evaluation system to provide a ranking of the 73 supervisors. Because Plaintiffs' performance rankings placed them in the bottom ten supervisors their positions were abolished.
In opposition, and in support of their argument that Conrail's reasons were merely a pretext for discrimination, Plaintiffs do not offer one scintilla of direct evidence in support of their claim. Instead, Plaintiffs opposition consists entirely of an affidavit from a former Conrail Employee, John Sanocki. Sanocki states that he and other "Conrail workers perceived a negative atmosphere toward older employees by management." (Sanocki Aff. ¶ 2) (emphasis added). In addition, Sanocki asserts that Conrail "Management wanted to dispose of Stieg and *238 Deshais" and that Conrail arbitrarily changed employees' performance evaluations. (Sanocki Aff. ¶¶ 5-11).
However, a close examination of John Sanocki's affidavit reveals its deficiency. First, Mr. Sanocki does not state the basis of his knowledge concerning his assertions. Second, the affidavit generically identifies "Conrail management" without specifying any particular individuals. Third, Sanocki does not identify any decision-maker at Conrail who had a role in the decision to abolish Plaintiffs' positions. Finally, Sanocki does not connect Conrail's asserted "age animus" to Conrail's decision to abolish Plaintiffs' positions.
It is well settled that affidavits of persons without personal knowledge of the facts, inadmissible hearsay statements, and conclusory allegations are not sufficient to defeat a properly supported summary judgment motion. See, e.g., Fed.R.Civ.P. 56(e); Matsushita, 475 U.S. at 586, 106 S.Ct. at 1356 (stating that conclusory affidavits are not sufficient to withstand summary judgment); H. Sand & Co. v. Airtemp Corp., 934 F.2d 450, 454-55 (2d Cir.1991) (requiring personal knowledge); Davis v. United Artists, Inc., 547 F.Supp. 722, 728 (S.D.N.Y. 1982) (disallowing multiple hearsay statements).
Moreover, even assuming that Sanocki has personal knowledge of every allegation in his affidavit, and assuming that his affidavit makes specific reference to individuals in Conrail management who had a role in the decision to abolish Plaintiffs' positions, Sanocki's affidavit nevertheless fails to state that Conrail's decision to discharge Plaintiffs was due to Plaintiffs' age. For this reason, the Sanocki affidavit fails raise a genuine issue of material fact as to Conrail's motive for discharging Plaintiffs.
Because Conrail has offered a legitimate nondiscriminatory reason for discharging Plaintiffs, the burden is squarely on Plaintiffs to show not only the falsity of the proffered reasons given by Conrail, but also that discriminatory motive was the true reason for Plaintiffs' discharge. See St. Mary's Honor Ctr., 509 U.S. at 517-18, 113 S.Ct. at 2753. In other words, even if Conrail improperly altered Plaintiffs' performance appraisals this alone is not enough. Plaintiffs must still show that a discriminatory motive was behind their discharge. Perhaps Conrail management simply did not like Deshais and Stieg; this may be a lamentable reason to discharge them, but it does not rise to an ADEA violation. See Burger, 94 F.3d at 833. Consequently, Plaintiffs' conclusory allegations of age bias are not sufficient to oppose summary judgment.
On the other hand, Conrail's undisputed evidence supports the conclusion that Conrail's decision was unrelated to age. Of the 73 supervisors evaluated, only 9 were younger than forty on June 30, 1992, and Conrail retained fifteen supervisors who were older than plaintiff Deshais and twenty-two supervisors who were older than plaintiff Stieg. (Def's Rule 7.1(f) Statement ¶¶ 16, 21). Furthermore, three of the four oldest employees whose positions were abolished in the June 1992 workforce reduction were subsequently placed in nonagreement management positions equal to or higher in job level than their former positions. (Def's Rule 7.1(f) Statement ¶ 19).
After an examination of the entire record, there is nothing to indicate that Conrail's reason for discharging Plaintiffs was anything but truthful. Plaintiffs have submitted insufficient evidence to indicate that reasons other than what has been proffered by Conrail played a role in the decision process. Accordingly, Plaintiffs have not met their burden in showing that a triable issue of fact exists as to whether Conrail's proffered reasons for their discharge were merely pretext. And, for this reason, Plaintiffs' age discrimination claim must be dismissed.
C. Common Law Fraud
Plaintiffs' second cause of action alleges that Conrail committed fraud in connection with the EEOC's investigation of Plaintiffs' charges of discrimination. Specifically, Plaintiffs allege that Conrail submitted performance appraisals with forged signatures and alterations to the EEOC and that Conrail represented to the EEOC that it would "rehire the aforesaid ten supervisors *239 who were laid off for the purpose of halting the investigation." (Amended Complaint at ¶ 34).
Under New York law, to recover for common law fraud a plaintiff must demonstrate that "(1) the defendant made a material false representation, (2) the defendant intended to defraud the plaintiff thereby, (3) the plaintiff reasonably relied upon the representation, and (4) the plaintiff suffered damage as a result of such reliance." Banque Arabe et Internationale D'Investissement v. Maryland Nat. Bank, 57 F.3d 146, 153 (2d Cir.1995); see also Albert Apartment Corp. v. Corbo Co., 182 A.D.2d 500, 582 N.Y.S.2d 409 (1st Dep't 1992).
Addressing the first prong of Plaintiffs' fraud claim, Conrail avers that it did not submit any performance appraisals, let alone altered performance appraisals, to the EEOC in response to the EEOC's investigation. In fact, Plaintiffs themselves admit that they do not know if any performance appraisals were submitted by Conrail to the EEOC. For example, in Stieg's deposition he states:
Q. Do you know if Conrail ever submitted [a performance appraisal?]
A. I have no idea what Conrail did.
(Stieg Dep. at 43). Later in his deposition plaintiff Stieg again states:
Q ... I'm asking you whether or not the documents which are the appraisals which were performed on you in the course of your employment at Conrail were delivered to EEOC as alleged....
A. Well, I don't know what Conrail delivered to the EEOC.
(Stieg Dep. at 225).
Evidently as a result of Plaintiffs' lack of knowledge concerning Conrail's submissions to the EEOC, Plaintiffs made a Freedom of Information Act request to the EEOC. In response to Conrail's request for production of documents, Plaintiffs produced the complete files they received from the EEOC. Those files were marked as Deposition Exhibits 16 (Deshais) and 17 (Stieg) at their respective depositions. Neither of the exhibits contain a single performance appraisal form. When asked if he knew if Conrail submitted any other documents, Deshais answered:
Q. ... [Y]ou have no personal knowledge of what documents Conrail submitted to the EEOC other than what you see in the file here; is that correct?
A. Right. Yes.
(Deshais Dep. at 38-39).
Turning to Plaintiffs' second allegation of fraudulent conduct, Plaintiffs allege that Conrail represented to the EEOC that it would "rehire the aforesaid ten supervisors who were laid off for the purpose of halting the investigation." (Amended Complaint at ¶ 34). However, Plaintiffs do not identify who at Conrail made the alleged misrepresentation regarding "rehiring," they do not identify to whom the alleged representation was made at the EEOC, they do not state whether the statement was oral or written, and they do not provide a date on which the alleged misrepresentation was made. Furthermore, the Court notes that the EEOC did not halt its investigation, but proceeded to issue a finding of no cause.
Plaintiffs' allegations of fraud are deficient in at least two respects. First, Plaintiffs have not demonstrated that a genuine issue of facts exists as to whether Conrail made a material false representation by submitting altered performance appraisals to the EEOC. See Banque Arabe et Internationale D'Investissement, 57 F.3d at 153. Second, Plaintiffs' vague allegations of Conrail's purported promise to "rehire" do not meet the minimum pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure. See Fed.R.Civ.P. 9(b) ("the circumstances constituting fraud or mistake shall be stated with particularity"); see also DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir.1987) (stating that "[f]raud allegations ought to specify the time, place, speaker, and content of the alleged misrepresentations").
Accordingly, Plaintiffs' fraud claim must also be dismissed.
III. CONCLUSION
In summary, no genuine issue of material fact exists as to whether Plaintiffs can prove *240 age discrimination in violation of the Age Discrimination in Employment Act. In addition, summary judgment is appropriate as to Plaintiffs' claim that Conrail committed fraud in its dealings with the EEOC.
Therefore, the Complaint is dismissed in its entirety. Defendant's Motion for Summary Judgment is hereby GRANTED.
IT IS SO ORDERED
NOTES
[1] For purposes of this motion, Defendant concedes that Plaintiffs were discharged. (Def's Mem. of Law at 13 n. 12). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1894373/ | (2008)
Kayci Lynn TATSCH-CORBIN, in her own right and as Administratrix of the Estate of Jeremy Corbin, Kayci Lynn Tatsch-Corbin, as Guardian of Kaylob Joseph Tatsch and Kameron Samuel Corbin and Tommi Sue Norris, as Guardian of Joshua Trai Corbin and Marcadies Jenica Corbin, Plaintiffs,
v.
Jennifer FEATHERS, in her individual capacity, Primecare Medical, Inc. and Blair County, Pennsylvania, Defendants.
Civil Action No. 3:2007-197.
United States District Court, W.D. Pennsylvania.
May 30, 2008.
MEMORANDUM OPINION AND ORDER OF COURT
GIBSON, District Judge.
This matter comes before the Court on Defendant Jennifer Feathers' Motion to Dismiss Amended Complaint (Document 28) (hereinafter "Feathers' Motion") pursuant to Federal. Rule of Civil Procedure 12(b)(6). For the reasons set forth below, the motion will be denied.
JURISDICTION AND VENUE
This action was initiated pursuant to the Civil Rights Act of 1871, 42 U.S.C. § 1983, for alleged constitutional violations of the Fourteenth Amendment's prohibition against deprivations of life without due process of law. This Court has original jurisdiction in this matter pursuant to 28 U.S.C. §§ 1331 and 1343. Supplemental jurisdiction over the Plaintiffs state law claims derives from 28 U.S.C. § 1367. Venue is proper in this district pursuant to 28 U.S.C. § 1391(b).
FACTUAL BACKGROUND
This action arises from the death of Jeremy Corbin (hereinafter "Corbin"), who was incarcerated in the Blair County Prison (hereinafter "prison"). Plaintiffs' Amended Complaint (Document 21) (hereinafter "A.C."), ¶ 6. In following prison policy, an intake officer questioned Corbin upon his arrival at the prison pursuant to a "Suicide Prevention Screening form ... to ascertain ... whether Corbin posed a heightened risk of attempting suicide in the facility." A.C., ¶ 7. "The intake officer noted on the screening form that [Corbin] was `thinking of killing himself,'" and that Corbin had attempted suicide in the past. A.C., ¶ 8. It was also noted that Corbin "showed `signs of depression,' appeared to `feel unusually embarrassed or ashamed,' was `acting and/or talking in a strange manner,' and had a. `psychiatric history' of bipolar/schizophrenia." A.C., ¶ 8. Upon completion of this screening procedure, "Corbin presented a substantial risk of committing suicide, well over the numerical threshold governing the screening instrument." A.C., ¶ 9. As a result, "Corbin was placed in a suicide observation cell ... rather than [in the] general population cell block." A.C., ¶ 11. "[T]he suicide observation cell ... contained no bed sheets or other articles" which could be utilized in committing suicide. Additionally, per "the Prison's suicide prevention protocol, ... Corbin's clothing was taken from him" in order to prevent its use in a suicide attempt. A.C., ¶ 12. "[Corbin] was given a tear away gown" and was periodically monitored by guards. A.C., ¶ 12.
"[T]he Prison's intake officer referred the matter to Jennifer Feathers [ (hereinafter "Feathers"),] the jail's Forensic Specialist,"[1] for an assessment of "Corbin's mental health." A.C., ¶ 13. Feathers' work assignment at the prison was based upon "a Comprehensive Health Services Agreement between Blair County and PrimeCare Medical, Inc." (hereinafter "PrimeCare"); PrimeCare thereafter subcontracted with Altoona Regional Health System (hereinafter "ARHS"), Feathers' employer. A.C., ¶¶ 14, 15. PrimeCare "provide[d] comprehensive medical and mental health services to inmates [at the prison.]" A.C., ¶ 15. ARHS professionals working pursuant to the contract were identified in the contract as "independent contractors." Psychological Services Independent Contractor Agreement (Document 28-2), ¶ 11. PrimeCare had in place a Suicide Prevention Policy, which read
that if a PrimeCare staff member or a correctional officer `identifies someone who is potentially suicidal, the inmate... is [to be] placed on suicide precautions and ... referred immediately to mental health staff; that an `evaluation will be conducted by a qualified mental health professional, who will designate the individual's level of suicide risk, level of supervision needed, and need for transfer to an inpatient mental health facility or program'; and that `[o]nce an inmate is placed on suicide watch, he/she should only be removed from the watch with the authorization of the Psychiatrist/Psychologist.'
A.C., ¶ 18. It is alleged that it was "custom and practice" for Feathers to assess those prisoners in "suicide observation cells ... and [she] was permitted ... to unilaterally remove inmates from those cells without the authorization of either a psychiatrist, a psychologist, or other qualified, licensed mental health professional." A.C, ¶ 19. "[A] psychiatrist retained by PrimeCare worked in the Blair County Prison and was available to" assess the condition of inmates. A.C., ¶ 29.
On October 18, 2006, approximately seven hours after assessment by the prison intake officer, Feathers assessed Corbin for his risk of suicide. A.C., ¶ 31. During that meeting, it came to Feathers' attention that Corbin: "had been diagnosed by psychiatric professionals as having a bipolar disorder; had a history of multiple inpatient hospitalizations in psychiatric facilities; had been prescribed a regimen of psychotropic medications at the time of his admission to the [p]rison; had attempted suicide a few years prior to his arrest; had not previously been confined to a prison setting, and; was recently estranged from his wife and children in connection with the protection ... [from] abuse matter that precipitated his imprisonment." A.C., ¶ 32. Feathers observed "that Corbin was tearful, had a dysphoric mood, had a restricted affect, and reported a history of panic attacks." A.C., ¶ 33. After this interview, Feathers determined that Corbin did not present a suicide risk and "cleared him for release to a general population cell block." A.C., ¶ 34. That same morning, Corbin was transferred to a general population cell block. A.C., ¶ 35.
On October 19, 2006, Corbin was escorted to and from "a hearing at the Blair County Courthouse" by sheriff deputies, who reported to the admitting officer upon their return to the Prison "that Corbin had made repeated [suicidal] threats ... while in their custody." A.C., ¶¶ 41, 43. The admitting officer advised Feathers of the threats and requested an evaluation of Corbin. A.C., ¶ 44. Feathers saw Corbin that same day, after reviewing his "mental health records from a psychiatric facility where Corbin had been treated five days prior to his incarceration." A.C., ¶ 45. The records revealed Corbin's reports of "auditory hallucinations as well as `ideas of reference in addition to extreme panic...."' A.C., ¶ 45. Feathers "unilaterally determined" to keep Corbin "in a general population cell block." A.C., ¶ 46. Additionally, Feathers taught Corbin "relaxation techniques for using w[ith] anxiety symptoms" and made a "contract" with Corbin in which he promised "not to attempt to kill himself while in the prison." A.C., ¶ 46. On October 20, 2006, Corbin hung himself with a bed sheet inside a general population cell and died later that day from asphyxiation. A.C., ¶ 47.
Plaintiffs' Amended Complaint, pursuant to 42 U.S.C. § 1983, alleges a violation of the Due Process Clause of the Fourteenth Amendment of the United States Constitution. A.C., ¶¶ 53, 54. Plaintiffs seek damages under the Pennsylvania Survival Act on behalf of Corbin's estate and the Pennsylvania Wrongful Death Act on behalf' of Corbin's survivors, A.C., ¶¶ 55-60. Corbin's wife also states a claim of loss of consortium. A.C., ¶ 61-62. Plaintiffs seek compensatory damages, punitive damages, and attorneys' fees, costs, and expenses generated pursuant to this suit. See A.C., p. 16.
Feathers has filed a Motion to Dismiss Plaintiffs' Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6).
I. Feathers' Motion to Dismiss Amended Complaint
A. Motion to Dismiss Standards
In analyzing a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6): "[T]he district court [is] required ... to accept as true all allegations in the complaint and all reasonable inferences that can be drawn therefrom, after construing them in the light most favorable to the non-movant." Jordan v. Fox, Rothschild O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.1994) (citations omitted). "[T]he complaint should be dismissed only if it appears to a certainty that no relief could be granted under any set of facts which could be proved." D.P. Enters., Inc. v. Bucks County Community College, 725 F.2d 943, 944 (3d Cir.1984). "In determining whether a claim should be dismissed under Rule 12(b) (6), a court looks only to the facts alleged in the complaint and its attachments without reference to other parts of the record." Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.1994). "[O]nce a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint." Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 1969, 167 L.Ed.2d 929, 945 (2007) (citations omitted). A complaint that states "a plausible entitlement to relief is the complaint that survives a Rule 12(b) (6) motion as well as satisfies the Rule 8 pleading requirements." Bell Atlantic, ___ U.S. at ___, 127 S.Ct. at 1964-65, 1967, 167 L.Ed.2d at 940, 942. In a § 1983 action, "plaintiffs are entitled to relief if their complaint sufficiently alleges deprivation of any [Constitutional] right. . . ." Langford v. City of Atlantic City, 235 F.3d 845, 847 (3d Cir.2000). In evaluating a motion to dismiss, the Court is not deciding the issue of whether "plaintiffs will ultimately prevail," but is deciding if the plaintiffs "are entitled to offer evidence to support their claims." Nami v. Fauver, 82 F.3d 63, 65 (3d Cir.1996) (citation omitted). "[A] defendant may supplement the complaint by adding exhibits such as public records and other indisputably authentic documents underlying the plaintiffs claims." Sentinel Trust Co. v. Universal Bonding Ins. Co., 316 F.3d 213, 216 (3d Cir.2003) (citations omitted).
B. Analysis
42 U.S.C. § 1983 Claim
Feathers moves for dismissal of the 42 U.S.C. § 1983 claim in her Motion to Dismiss and sets forth an argument in favor of dismissal in her Brief in Support of Motion to Dismiss Plaintiffs' Amended Complaint. (Document Nos. 28, 29) (hereinafter "Motion" and "Feathers' Brief," respectively). "To state a claim under § 1983, a plaintiff must allege the violation of a right secured by the Constitution and laws of the United States, and must show that the alleged deprivation was committed by a person acting under color of state law." West v. Atkins, 487 U.S. 42, 48, 108 S.Ct. 2250, 2254-2255, 101 L.Ed.2d 40, 48-49 (1988). Feathers contends that she did not act under color of state law because she lacked a contractual relationship with either the prison or PrimeCare; she claims that she was an employee of ARHS and cannot be considered a "state actor." Feathers' Brief, pp. 3-4. This is incorrect.
"Where the actors are not state or municipal officials, but are private individuals or associations, [a court] still must address whether their activity can nevertheless be deemed to be under color of law." Groman v. Township of Manalapan, 47 F.3d 628, 638 (3d Cir.1995). Individuals who provide medical treatment to prison inmates have been held in appropriate circumstances to have acted under color of state law for the purposes of § 1983. See West, 487 U.S. at 54-57, 108 S.Ct. at 2258-2260, 101 L.Ed.2d at 53-55; Walker v. Horn, 385 F.3d 321, 332, n. 24 (3d Cir.2004). "A physician under contract... to provide medical services to prison inmates, but not employed directly by the state, acts under the color of state law when treating an inmate." Conner v. Donnelly, 42 F.3d 220, 224 (4th Cir.1994) citing West, 487 U.S. at 54-57, 108 S.Ct. at 2258-2260, 101 L.Ed.2d at 53-55. "A direct employment relationship with the state is not required to find that a physician who treated a prison inmate acted under color of state law." Conner, 42 F.3d at 224. Medical personnel "can treat a prisoner only with the state's authorization," as inmates are not entitled to secure their own medical care providers. Conner, 42 F.3d at 225. "It is [one's] ... function with the state system, not the precise terms of .. . employment, that determines whether [one's] actions can be fairly attributed to the State." West, 487 U.S. at 55-56, 108 S.Ct. at 2259, 101 L.Ed.2d at 54. Feathers served a specific function within the state system; she was a "forensic specialist." Prisons are required by law to provide adequate medical care to inmates. Feathers' role was to provide mental health care to inmates at the prison, regardless of her other job responsibilities through ARHS or the contractual nuances through which she came to work at the prison. She provided mental health care to inmates, in this case to Corbin, which she could not have done without the authorization of the state. Therefore, Feathers can be deemed a state actor for purposes of 42 U.S.C. § 1983.
In addition to establishing that the Defendant acted under color of law, the Plaintiffs must also establish that Feathers acted with deliberate indifference to Corbin's condition. "[A] plaintiff in a prison suicide case has the burden of establishing three elements: (1) the detainee had a `particular vulnerability to suicide,' (2) the custodial officer or officers knew or should have known of that vulnerability, and (3) those officers `acted with reckless indifference' to the detainee's particular vulnerability." Colburn v. Upper Darby Township, 946 F.2d 1017, 1023 (3d Cir. 1991). In order to establish liability, Plaintiffs must prove that the Defendant "[knew] of and disregarded] an excessive risk to the inmate's health or safety." Natale v. Camden County Correctional Facility, 318 F.3d 575, 582 (3d Cir.2003) citing Farmer v. Brennan, 511 U.S. 825, 837, 114 S.Ct. 1970, 128 L.Ed.2d 811, 825 (1994). Plaintiffs must show that Feathers was "aware of facts from which the inference could be drawn that a substantial risk of serious harm exist[ed], and [that she drew] the inference." Natale, 318 F.3d at 582; Farmer, 511 U.S. at 837, 114 S.Ct. at 1979, 128 L.Ed.2d at 825. A factfinder may determine the actor's knowledge through "circumstantial evidence" or "may conclude that [an actor] knew of a substantial risk from the very fact that the risk was obvious." Farmer, 511 U.S. at 842, 114 S.Ct. at 1981, 128 L.Ed.2d at 828.
Knowledge of an inmate's particular vulnerability to suicide can be established through psychiatric history: "Custodians have been found to `know' of a particular vulnerability to suicide when they have had actual knowledge of an obviously serious suicide threat, a history of suicide attempts, or a psychiatric diagnosis identifying suicidal propensities." Colburn, 946 F.2d at 1025, n. 1. The facts alleged suggest that Corbin had made various threats to kill himself, which had been taken seriously enough by prison officials to warrant the request of an evaluation by a mental health professional. Corbin had a documented history of attempted suicide and psychiatric hospitalization, of which Feathers was allegedly aware. Nevertheless, Feathers removed Corbin from the suicide observation cell in which he had originally been placed. Under the standards set forth above, a jury could find that Feathers displayed deliberate indifference to Corbin's condition and therefore, she could be found liable for a violation of § 1983.
"[W]hen the factual scenario presented by a plaintiff suggests that [the defendant] should have known that a prisoner was a suicide risk, and failed to take necessary and available precautions to protect the prisoner from self-inflicted wounds, the complaint will survive dismissal." Freedman v. City of Allentown, 853 F.2d 1111, 1115 (3d Cir.1988). It has been sufficiently alleged that Feathers was a state actor for the purposes of § 1983, exposing her to liability. Further, there are sufficient facts alleged to establish that Feathers should have known, or did know, that Corbin presented a suicide risk and failed to take necessary or available precautions to protect Corbin, and thereby sufficiently pleading deliberate indifference. For these reasons, the Defendant's Motion to Dismiss the § 1983 claim is denied.
Immunity
Feathers also claims that she is not subject to liability under 42 U.S.C. § 1983 because she possesses immunity under the Pennsylvania Mental Health Procedures Act (hereinafter "PMHPA"). "The '[PMHPA] provides civil immunity [to]' any individual involved in a decision to treat or discharge any person for mental health issues, [with the exception of decisions which have been] made with willful disregard or gross negligence." Feathers' Brief, p. 5. However, a grant of immunity by state law does not impact or prevent potential § 1983 liability. "Conduct by persons acting under color of state law which is wrongful under 42 U.S.C. § 1983... cannot be immunized by state law." Martinez v. California, 444 U.S. 277, 284, 100 S.Ct. 553, 558, 62 L.Ed.2d 481, 488 (1980). "[A state] immunity statute ... has no force when applied to suits under the Civil Rights Acts. The supremacy clause of the Constitution prevents a state from immunizing entities or individuals alleged to have violated federal law." Good v. Dauphin County Social Services for Children & Youth, 891 F.2d 1087, 1090-1091 (3d Cir.1989). Feathers is clearly not immune to suit under § 1983, as it is a federal law, from which one cannot be immunized by state law. Therefore, Defendant's Motion to Dismiss on the basis of immunity is denied.
Punitive Damages
Feathers contends that punitive damages should not be available to the Plaintiffs in this case, alleging that "there is no factual basis" for Plaintiffs' request for punitive damages. Feathers' Brief, p. 6. "[A] jury may be permitted to assess punitive damages in an action under § 1983 when the defendant's conduct ... involves reckless or callous indifference to the federally protected rights of others.... [T]his threshold applies even when the underlying standard for liability for compensatory damages is one of recklessness." Smith v. Wade, 461 U.S. 30, 56, 103 S.Ct. 1625, 1640, 75 L.Ed.2d 632, 651 (1983). For § 1983 purposes, "deliberate indifference to a substantial risk of serious harm to a prisoner is the equivalent of recklessly disregarding that risk." Farmer, 511 U.S. at 836-837, 114 S.Ct. at 1978-1979, 128 L.Ed.2d at 825. Punitive damages have been found to be available at the discretion of the jury in cases such as this, where the standard for establishing liability is one of recklessness, or deliberate indifference. In alleging deliberate indifference per their § 1983 claim, Plaintiffs have alleged more than negligence. Feathers contends that the facts contain allegations of negligence at best. However, a § 1983 claim requires conduct beyond mere negligence. The facts allege reckless conduct and therefore, at this juncture the punitive damages claim is sufficient. Feathers' Motion to Dismiss as to the availability of punitive damages is denied.
Attorneys' Fees
Defendant concedes that if it is determined that Feathers is liable for a § 1983 violation, then attorneys' fees "may be appropriate." Feathers' Brief, p. 6. Defendant bases her Motion to Dismiss on the suggestion that Plaintiffs cannot support a claim for liability under § 1983. Feathers' Brief, p. 6. Given that the Plaintiffs' § 1983 claim survives the present motion, an award of attorneys' fees remains as a possible remedy. Therefore, Feathers' Motion to Dismiss as to attorneys' fees is denied.
CONCLUSION
In conclusion, Plaintiffs have alleged sufficient facts to establish that Feathers acted under color of law and with deliberate indifference. Feathers is not immune based on Pennsylvania law and therefore the Motion to Dismiss based on immunity will be denied. Both punitive damages and attorneys' fees are sufficiently plead and therefore, both will remain possible remedies.
An appropriate Order follows.
AND NOW, this 30th day of May, 2008, in accordance with the foregoing Memorandum Opinion, IT IS HEREBY ORDERED THAT: Defendant Jennifer Feathers' Motion to Dismiss Amended Complaint (Document No. 28) is DENIED; IT IS FURTHER ORDERED THAT Defendant Feathers shall answer the Amended Complaint on or before June 20, 2008.
NOTES
[1] Feathers "was neither a psychiatrist, psychologist, nor any other category of licensed mental health professional." A.C. ¶ 14. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1971927/ | 738 F.Supp. 686 (1990)
AVON PRODUCTS, INC., Plaintiff,
v.
CHARTWELL ASSOCIATES L.P., Larry Fisher, Zachary Fisher, Arnold Fisher, Richard L. Fisher, M. Anthony Fisher, Argonaut Partners I, L.P., The Gordon P. Getty Family Trust, New Arrow Corporation, Mary Kay Cosmetics, Inc., Mary Kay Corporation, J.R. Investments Corp., Richard R. Rogers, First Chicago Trust Company of New York, and John P. Rochon, Defendants.
No. 89 Civ. 8032 (PNL).
United States District Court, S.D. New York.
April 27, 1990.
*687 Sullivan & Cromwell, New York City (D. Stuart Meiklejohn, of counsel), for plaintiff.
Willkie Farr & Gallagher, New York City (Philippe Salomon, of counsel), Skadden, Arps, Slate, Meagher & Flom, New York City (Michael W. Mitchell, of counsel), for defendants.
OPINION AND ORDER
LEVAL, District Judge.
This is an action for declaratory judgment. Chartwell Associates L.P. and all other defendants except First Chicago Trust Company of New York ask the court to hold that an amended Rights Plan adopted by Avon Products, Inc. as a defensive maneuver against risk of takeover violates New York law.
Chartwell seeks expedited final determination of three claims: a) that the Rights Plan on its face violates Section 501 of the New York Business Corporation Law ("NYBCL"); b) that the Rights Plan violates Section 505(a)(2)(ii) of that statute because it is not in the best long- and short-term interests of Avon's shareholders; and c) that the Plan breaches Avon's fiduciary duty to its shareholders. Avon objects to the court's adjudication of the second and third claims because, it contends, the brief period during which discovery was conducted on these questions did not give Avon sufficient opportunity to develop a full factual record to put before the court. Chartwell contends that there has been adequate discovery, that Rule 57 of the Federal Rules of Civil Procedure contemplates a "speedy hearing" of declaratory judgments, and that Avon has been fully on notice that the evidence now presented would serve as a basis for a final adjudication.
I need not resolve the dispute as to the amenability of the second and third theories to final declaratory judgment on the present record. Both sides agree that Chartwell's first claim has been fully presented to the court with all pertinent evidence and is ripe for final adjudication. I find that Avon's amended Rights Plan violates Section 501 of the NYBCL.
BACKGROUND
On March 30, 1988, Avon adopted a shareholder Rights Plan, of the type commonly referred to in market parlance as a "poison pill," as a protection against unwelcome takeover bids. The Plan provided for a "Right" to be issued as appurtenant to each share of common stock. Each Right, upon activation, would entitle the holder to purchase from the company a newly issued share of common stock at half the market price, with the exception that the rights appurtenant to shares of a holder of 20% or more of the stock would not participate. The Rights issue was subject to redemption in stated circumstances by Avon's Board of Directors for a nominal price. The Plan provided, however, that ten days following any shareholder's crossing the threshold of 20% ownership, the Rights would become nonredeemable unless the Board previously voted to redeem the Rights. If the ten days expired without redemption, the Rights would activate, or become immediately exercisable (in the vernacular, "flip *688 in")permitting all stockholders except the 20% holder (whose Rights are automatically voided) to purchase an additional share of Avon's common stock at half price. The impact of the exercise of the Rights would be to dilute the equity and voting power of a 20% holder to approximately 11%.
On November 13, 1989, Chartwell filed a Schedule 13D with the Securities and Exchange Commission, indicating that it was accumulating stock in Avon for the purpose of acquiring control. On November 16, Avon commenced suit against Chartwell in New York state court seeking a declaratory judgment that its Preferred Rights Plan is valid and that the New York state anti-takeover statute, Section 912 of the New York Business Corporation Law, does not violate the Supremacy Clause and Commerce Clause of the United States Constitution. This action was removed to federal court, and on March 1, 1990, I denied a motion by Avon to remand.
Meanwhile, Chartwell had filed an amended Schedule 13D on February 8, 1990, announcing its intention to commence a proxy contest to place four nominees on Avon's Board of Directors, and sought shareholder lists and other records from Avon. When Avon refused to produce the records, Chartwell moved by order to show cause for an order requiring Avon to furnish shareholder information. On February 23, 1990, I entered an order requiring Avon to produce most of the records demanded by Chartwell.
On March 25, 1990, Avon and Chartwell reached an agreement which would terminate the then existing proxy contest. Among the terms of this agreement were that two of Chartwell's nominees were to be supported for Board election by Avon on May 4, 1990, and that another would be hired as a special consultant to Avon. Following the resolution of the proxy contest, Chartwell indicated that it intended to continue to purchase additional shares of Avon stock. Avon contended that additional large purchases by Chartwell would be contrary to the spirit of the settlement the parties had reached.
Chartwell continued to make substantial open market purchases of Avon stock, bringing its ownership share of Avon to roughly 12.2%.
On April 5, 1990, Avon amended its Rights Plan. The amended Plan reduced to 12.5% the threshold at which the Rights become nonredeemable without Board action within ten days. If the ten days expire without redemption, the Board no longer has the power to redeem the Rights with respect to any future bid by the 12.5% holder. The amended Plan maintained 20% as the threshold at which the Rights become exercisable. Thus, if the 12.5% holder later crosses the 20% threshold, the Rights of all other shareholders automatically become exercisable, doubling the amount of stock not held by that stockholder.
The effect of this amendment is to make it more difficult for an unwelcome bidder to acquire control. It creates a strong disincentive to cross the 12.5% boundary. Under the original Plan, the bidder might acquire 19.9% without adverse effect and use those stockholdings to seek sufficient influence on over the Board to insure that the Rights Plan will be redeemed upon his crossing of the 20% threshold. Under the amended Plan, the Rights become nonredeemable ten days after crossing the 12.5% threshold. If the bidder is not capable of causing redemption within ten days of his acquisition of 12.5%, he is then assured of having his percentage of control diluted after he crosses the 20% mark.
Shortly after Avon amended its Rights Plan, Chartwell amended its counterclaims in the underlying declaratory judgment action to challenge the lawfulness of the amended Rights Plan, and sought expedited trial of its claim.[1]
*689 DISCUSSION
Chartwell contends that the Amended Rights Plan violates the "anti-discrimination" provisions of Section 501(c) of the NYBCL, which requires, subject to certain exceptions, that "each share shall be equal to every other share of the same class." The statutory exceptions are primarily those permitted by Section 505(a)(2), which expressly permits a corporation to "void," or preclude the exercise of, rights or options held by an "interested person," a term defined in Section 912 as a holder of 20% of the stock. This exception was inserted into the anti-discrimination statute by legislative amendment on December 21, 1988.
Both sides assume, for purposes of this claim, that the original Plan did not violate the equality requirement of Section 501(c) because it conformed to the exception permitted by Section 505(a)(2), being a voiding of options held by a 20% holder. Chartwell contends that the reduction of the non-redeemability threshold to 12.5% is a discrimination that is not protected by Section 505(a)(2) and violates Section 501(c).
The stated purpose of the New York legislature in enacting the 1988 amendments to Sections 501 and 505 was to allow corporate boards "sufficient time to evaluate offers or bids made by any party for all or part of the shares of the corporation, and to determine and pursue whatever course of action promotes the best long-term interests and short-term interests of the corporation and its shareholders." Legislative Findings and Declaration, Section 1 of L.1988, c. 743. The legislature stated that it found "the ability to restrict or condition the exercise or receipt by certain shareholders ... of rights or options ... will grant additional time to board of directors to evaluate such offers or bids and take appropriate action thereafter." Id.[2] The provision was designed specifically in response to "recent judicial decisions of certain New York courts" which prohibited corporate boards from restricting the rights of interested shareholders, and thus "may have [had] the effect of unduly shortening the time available to such boards to fully and fairly evaluate offers or bids for the corporation's shares." Id.
The judicial decision which most directly sparked the legislature's concern, and prompted the amendment of Section 505(a)(2), was Bank of New York Co., Inc. v. Irving Bank Corp., 142 Misc.2d 145, 536 N.Y.S.2d 923 (Sup.1988). In that case, the court found that a "flip-in" amendment to a corporation's rights agreement which entitled all common shareholders except those holding 20% or more to obtain more shares at a bargain price impermissibly discriminated among shareholders in violation of Section 501, because it greatly diluted the equity and voting rights of the shareholder who crossed the 20% threshold. The court enjoined the enforcement of the flip-in provision. Id. 536 N.Y.S.2d at 926.
With the enactment of Section 505(a)(2), the legislature made the express decision that a Plan of the sort enjoined in Bank of New York could lawfully discriminate against a holder of 20% or more.[3] In selecting the 20% level as the line between permissible and impermissible discrimination, the legislature effected a compromise between the general anti-discrimination norms embodied in Section 501 and the clearly expressed legislative concern about the proliferation of hostile takeovers. The compromise permitted some discrimination against presumed acquirors, but set the level of permitted discrimination at 20% holdings of a company's stock.
There is of course no question that the 12.5% threshold established by the amended Plan is lower than the 20% threshold *690 permitted by Section 505(a)(2). Chartwell contends that the discriminatory Rights Plan therefore violates Section 501(c). Avon argues that this is not the type of discrimination forbidden by Section 501(c).
Section 501(c), Avon argues, requires only that shares of stock be equal to one another. It does not forbid discrimination against stockholders. Avon argues that the discrimination effected by its amended Plan is against the holders in their role as bidders and that it is not a discrimination between shares of stock, as prohibited by Section 501(c).
I find no merit whatever in Avon's argument. Even accepting its premise that Section 501(c) forbids discrimination only among shares of stock and not among shareholders, it is unmistakably clear that Avon has created a discrimination between shares of stock.
Each share is entitled to one Right under the amended Plan. The Rights in the hands of a 12.5% owner are different from those in the hands of a holder of fewer shares. The Rights in the hands of the 12.5% holder, after the passage of ten days, face the certainty that upon that holder's crossing of the 20% activation threshold, they will be voided while the Rights of all other holders will be exercised. Because the Rights issue became nonredeemable ten days after the crossing of the 12.5% threshold, the Rights of the 12.5% holder enjoy no possibility of a future redemption that would avert the undesirable discriminatory dilution. In contrast, the Rights held by a 12.4% holder carry a significantly different advantageous featurethe continuing possibility of redemption of the Rights issue. The 12.4% holder may exercise influence on the Board in the hope of procuring redemption. Thus, the Rights of the 12.4% holder carry with them an important opportunity not carried by the Rights of the 12.5% holderthe possibility of redemption.
The difference is most clearly illustrated by imagining two nearly identical situationsthe acquisition by the holders of 12.5% and 12.4% on a single day of an additional 8% of the Avon stock, bringing the holdings of each above 20%. In the case of the 12.5% holder, the Rights issue will unavoidably be activated, with all Rights holders except him purchasing additional shares at a bargain price, substantially diluting his interest. In the case of a 12.4% holder, this disastrous consequence remains avoidable; his Rights enjoy the possibility that within ten days the Rights issue may be redeemed, averting discriminatory exercise and dilution.
The argument that the shares of the 12.5% holder and the 12.4% holder are "equal" to one another has no conceivable merit. The fact that Avon can point to many respects in which the securities are equal is irrelevant. Of course, they enjoy equal voting, dividend and liquidation rights. In addition, the Rights distributed under the Plan enjoy equal right to exercise when activated by another holder's crossing of the 20% threshold.[4] They do not, however, enjoy equal access to the redemption of the "poison pill" directed against them. In this respect, the shares are not equal, and the amended Plan therefore violates Section 501(c).
The point can be further illustrated by the following example. Assuming that there are two competing bidders for control; one holds 12.5% of Avon's stock, while the other does not. Each makes a tender offer to acquire control of the corporation. The offeror holding less than 12.5% can *691 offer to buy up to a majority share of the corporation's stock at a stated price, the offer being conditioned on Board of Directors redemption of the Rights Plan within ten days. In contrast, the holder of 12.5% cannot make such an offer; the Board of Directors may not redeem the Rights Plan in connection with his acquisition of 20% or more of the stock. In this sense the stock of the 12.5% holder carries a burden which is not carried by other shares, and is not equal to other shares as required by Section 501(c).
Moreover, Chartwell correctly points out that if Avon can lawfully set 12.5% as the threshold for nonredeemability, it could set the threshold at a much lower percentage as well. The evidence shows that 12.5% was selected by Avon not because of any special logic inhering in that number, but because that was the level which Chartwell had almost reached in its accumulation. Chartwell points out correctly that a Board of Directors through this device could place a formidable obstacle in the path of any accumulation of stock. This is clearly not what the legislature intended to permit when it selected 20% as the dividing line between permitted and prohibited discrimination.
CONCLUSION
The court finds that Avon's amendment to its Rights Plan violates Section 501(c) of the NYBCL.[5]
Chartwell is entitled to the entry of declaratory judgment.
SO ORDERED.
NOTES
[1] Chartwell asserts that an expedited ruling is needed because it would like to increase its ownership share of Avon to 19.9% before the May 4 election of the Avon Board, after which it contends that open-market purchases will be rendered more difficult by the access of any elected Chartwell nominees to material inside information. Chartwell asserts that the amended Rights Plan effectively precludes it from purchasing further Avon stock until the invalidity of the 12.5% threshold has been established.
[2] Presumably, the extra time would afford the target's board additional time to react to a hostile takeover bid or to explore other alternatives in an effort to maximize stockholder value.
[3] Thus, the Memorandum of the Assembly Rules Committee notes that the 1988 amendment to Section 505 was intended to permit resident corporations to use poison pill rights plans to prevent or delay hostile takeovers, and to reverse judicial decisions that had declared those poison pills invalid. See New York State Legislative Annual 1988, ch. 743, at 298.
[4] Avon cites GAF Corp. v. Union Carbide Corp., 624 F.Supp. 1016, 1035 (S.D.N.Y.1985), for the proposition that "nothing in New York law requires even-handed treatment of bidders." I find this case inapposite. GAF held that it was permissible for a board facing a hostile tender offer to make an exchange offer to repurchase shares of the corporation. The court noted that the exchange offer merely provided shareholders a financial alternative to tendering their shares, and left the potential acquiror free to compete with the exchange offer in the market. Nothing in GAF remotely addresses the question raised todaywhether a board may take action which forecloses the possibility of redemption of "poison pill" rights in bids by one shareholder but not in bids by others. Moreover, nothing in GAF purports to address the anti-discrimination provisions of the NYBCL, much less the specific requirements of Section 505(a)(2), which was amended to its present form three years after the GAF opinion was rendered.
[5] I express no opinion about the legality of the 20% threshold set by the New York legislature, which is among the issues posed by the underlying declaratory judgment action brought by Avon. The current motion only challenges Avon's right to amend its Rights Plan to lower the nonredeemability threshold below 20%. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1971795/ | 93 F.Supp. 538 (1950)
PROVIDENT LIFE & ACCIDENT INS. CO.
v.
DOTSON et al.
Civ. A. No. 543.
United States District Court S. D. West Virginia, Huntington Division.
October 6, 1950.
*539 Steptoe & Johnson and Charles W. Yeager, of Charleston, W. Va., for plaintiff.
F. H. Combs, of Grundy, Va., and Buford C. Tynes, of Huntington, W. Va., for defendant Amanda Dotson.
Joseph W. Fitchett, of Huntington, W. Va., for defendant Clemmie Dotson.
WATKINS, District Judge.
This is an action of interpleader brought by plaintiff insurance company to determine whether Clemmie Dotson, wife, or Amanda Dotson, mother of the insured, is entitled to the proceeds of a group life insurance certificate issued to Robert Dotson, now deceased.
Plaintiff issued its group policy of life and accident insurance to Panther Coal Company, of Blackey, Virginia, on May 1, 1945. Robert Dotson, an employee of the coal company, made application for and received a certificate in the group policy which provided for payment of $500 "to the beneficiary designated by the Employee" in event of death. He died on May 9, 1949, from gunshot wounds inflicted by another person. The insurance company has paid the proceeds of the certificate amounting to $517.50 into court.
When the certificate was issued Clemmie Dotson, who was then the wife of Robert Dotson, and living with him, was named beneficiary in the policy, however, the policy reserved to Robert Dotson the right to change the beneficiary. The policy provided: "The Employee may at any time and from time to time during the continuance of his insurance, change any designated beneficiary by filing a written request at the Home Office of the Company, such change to take effect only when endorsed by the company on this certificate during the lifetime of the Employee * * *."
About three weeks before he died, the assured called at the office of the coal company and requested Elmer E. Snellenberger and Paul Thompson, agents of the insurance company, to change the beneficiary in his policy from his wife to his mother. He was told that they did not have but would procure the form upon which to request this change in beneficiary. He returned a week or two later, shortly before his death, and made a second request that the beneficiary be changed from his wife to his mother, but was told that they had not yet received the regular form for making written request for such change in beneficiary. He was killed before the blanks were received and filled out for change of beneficiary.
*540 It is clear from the evidence that the assured intended that his mother, and not his wife, should collect the insurance, and that the assured did everything within his power to effect such change of beneficiary. Therefore, it would serve no useful purpose to discuss the marital difficulties which caused the defendant to make the change. It is also clear that the only reason the change in beneficiary was not made in strict compliance with the insurance policy was due to the fault or neglect of the agents of the insurance company in neither having nor procuring the written forms required by the insurance company. Had the company agents, charged with the duty of taking care of such matters, kept a supply of such forms on hand, or had they not neglected to obtain such forms, it is clear that the change in beneficiary would have been made in strict compliance with the procedure required by the insurance company. The intention and efforts of the assured to change his beneficiary may not be defeated by the negligence of the company's agents in failing to make available to him the appropriate form upon which to make written request for change of beneficiary. Daly v. Daly, 138 Md. 155, 113 A. 643; Starling v. West Virginia & Kentucky Ins. Agency, 110 W.Va. 219, 157 S.E. 399; Somog v. West Virginia & Kentucky Ins. Agency, 110 W.Va. 205, 157 S.E. 400; Union Mutual Life Ins. Co. v. Lindamood, 108 W.Va. 594, 152 S.E. 321.
It seems clear that Snellenberger and Thompson were agents of the insurance company. They were employees of the coal company, but were also engaged by the insurance company to solicit the coal miners in an effort to get as many of them as possible to avail themselves of the group insurance plan. For this service the insurance company paid them one dollar for each new application sent in. The insurance company furnished them with all necessary forms, including the forms for change of beneficiary.
The laws of Virginia require insurance agents to take out a license, showing the company they represent. Michie's 1942 Virginia Code, Sec. 4235, subds. 1 and 2. Snellenberger was so licensed as an agent of this particular insurance company to solicit insurance at the time the assured took out his certificate and at the time he requested the change in beneficiary. Thompson worked under Snellenberger and assisted him in his insurance activities. Another Virginia statute provides that: "A person who is authorized by any company to solicit insurance or applications therefor shall in any controversy between the insured or his beneficiary and the company be held to be the agent of the company which issued the insurance solicited or so applied for, anything in the application or policy to the contrary notwithstanding." Virginia Code, Section 4222(d).
Another Virginia statute provides that "* * * no policy of industrial life insurance shall be issued or delivered in this State, * * * if it contains * * * A provision to the effect that the agent soliciting the insurance is the agent of the person insured under said policy, or making the acts or representations of such agent binding upon the person so insured under said policy." Virginia Code, Section 4258l (c). These statutes were in effect when this insurance contract was entered into in May, 1945 and are still in full force and effect.
Where the failure to make the change in beneficiary is due solely to the negligence of the insurer in failing to supply the proper forms, the court may hold the change accomplished regardless of the failure to comply strictly with the mode of change. Reid v. Durboraw, 4 Cir., 272 F. 99. For good annotations on the subject, see 78 A.L.R. 970, 151 A.L.R. 274. Daly v. Daly, supra. Under such circumstances the majority of the courts will give effect to the change where the insured has done everything within his power to designate a new beneficiary, and only ministerial acts remain to be performed by the insurer thereafter.
The majority rule is that provisions for change of beneficiary are for the benefit of the insurer alone, and that the insurer alone may question the eligibility of beneficiaries. The insurer alone can insist upon strict compliance with provisions in the policy as to mode of change of beneficiaries. It alone can waive compliance, and *541 non-compliance with such provisions will not afford any ground for attack by the original beneficiary. If the insurer does not object to strict compliance with the provisions, the change becomes effective on the theory of waiver. Arrington v. Grand Lodge of Brotherhood of Railroad Trainmen, 5 Cir., 21 F.2d 914, certiorari denied 276 U.S. 591, 48 S.Ct. 213, 72 L.Ed. 733.
It is the general rule that by bringing an interpleader action and paying the fund into court, the insurance company waives its right to insist upon strict compliance with the terms of the policy with reference to change of beneficiary, such as making the request in writing instead of orally, or endorsement of such change upon the policy. Even the act of the insured in erasing the name of one beneficiary from his certificate has been held ratified by interpleader, and a person not even named in the certificate has been permitted to claim benefit as against named beneficiaries. Brett v. Warnick, 44 Or. 511, 75 P. 1061; Bills v. Bills, Tex.Civ.App. 207 S.W. 614. When it appears that the insured actually attempted to make a valid change of beneficiary the courts will give effect to his intention. As stated in Union Mutual Life Insurance v. Lindamood et al., supra [108 W.Va. 594, 152 S.E. 322]: "Where the insured has done all that he is required to do and only formal ministerial acts on the part of the insured remain to be done in order to complete the change, equity will treat it as having been made. `Equity will aid in attempted, but incomplete, change of beneficiary; * * * when the insured in good faith has attempted to comply with the prescribed mode of change. Equity will, in such case, consider that done which ought to have been done, and will not require impossibilities.' Cooley's Briefs on Insurance, p. 6455. `If, however, the insured has done substantially all that is required of him to effect a change of beneficiary, and all that remains to be done are the ministerial acts of the officers of the association (insurer), the change will take effect, though the formal details were not completed before the death of the insured.'"
In Daly v. Daly, supra [138 Md. 155, 113 A. 647], the facts were very similar to those here. The insured requested the agent of the employer who had charge of the group insurance department of the employer to make a change in his certificate by making his wife the beneficiary and the only reason the change was not made at once was because the agent did not have the blanks which were furnished to him for that purpose. He neglected to get the blanks before the insured died. In holding that the change of beneficiary had been completed, and awarding the proceeds to the wife, the court said: "There can be no doubt of the insured's desire and intention to change the beneficiary or that he did all in his power to effect the change, and the only reason a more formal application was not made, and noted on the insurance register of the society, was because the society or the employer had failed to furnish its or their agent the blanks used for that purpose, or because its or their agent failed to give him a blank in accordance with his promise to do so."
Here it is urged that the right of the wife became vested upon the death of the assured. But it is well settled that the right of a named beneficiary vests at the death of the insured only if no change in beneficiary has been made, and that the latter depends not merely upon the records in the office of the company at the moment of death of the insured but also upon what steps have been taken by the insured prior to death. Johnston v. Kearns, 107 Cal.App. 557, 290 P. 640; Annotation 151 A.L.R. 274.
From the foregoing authorities it appears: (1) That the insured did everything within his power to effect the twice requested change in beneficiary; that strict compliance with the formal provisions of the policy was due entirely to the fault and neglect of the agent of the insurance company, and in such cases equity will consider that done which ought to have been done; and (2) Such provisions in the policy relating to the mode of change of beneficiary are for the benefit of the insurer alone, and the insurer has waived strict compliance with such provisions by bringing this interpleader action and paying the proceeds of the policy into court. The defendant Amanda Dotson, mother of assured, is entitled *542 to the proceeds of the insurance certificate.
Attorneys for the plaintiff have asked that they be paid a reasonable attorney fee out of the proceeds of such policy. Ordinarily I have allowed such requests in cases of this type. But here it does not seem fair that the insurance company should have its counsel paid from this fund. The litigation was not caused by the fault of either claimant but is chargeable to the plaintiff insurance company through the fault of its agent. Under such circumstances it is proper for the court to refuse to allow plaintiff its attorneys' fees. United Mutual Life Ins. Co. v. Lindamood, supra.
An order may be entered in accordance with the views expressed above. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1970290/ | 58 B.R. 593 (1986)
GRUNDY NATIONAL BANK, Appellant,
v.
Kermit A. STILTNER and Goldie R. Stiltner, Appellees.
Civ. A. No. 84-0228-B.
United States District Court, W.D. Virginia, Big Stone Gap Division.
February 28, 1986.
*594 John E. Kieffer, Bristol, Va., for appellant.
Robert T. Copeland, Abingdon, Va., for appellees.
MEMORANDUM OPINION
GLEN M. WILLIAMS, District Judge.
This case comes to the court on appeal from the orders of the United States Bankruptcy Court for the Western District of Virginia entered on September 13, 1984, denying Grundy National Bank's motion for relief from an automatic stay and on September 24, 1984, confirming the debtors' 11 U.S.C. Chapter 13 plan. In passing on an appeal from bankruptcy court, the district court must make an independent determination on the legal issues, but must accept the bankruptcy judge's findings of fact unless those findings are clearly erroneous. Gilbert v. Scratch 'n Smell Inc., 756 F.2d 320 (4th Cir.1985). A review of the record and the relevant law under this standard leads this court to conclude that the bankruptcy court's orders denying the Bank's motion and confirming the debtors' Chapter 13 plan must be affirmed.
I.
The debtors, Kermit and Goldie Stiltner, filed a Chapter 13 petition on April 24, 1984. At that time, their major indebtedness was to the Bank on two mortgage loans which were secured by deeds of trust on their principal residential property located in Buchanan County, Virginia. They were then delinquent on both loans, with the first loan overdue from September 1983 and the second loan from November 1983. Their Chapter 13 plan of rehabilitation proposed to make monthly mortgage payments but did not make any provision for curing arrearages. The Bank filed an objection to confirmation of the plan and a motion for relief from the stay in order to commence foreclosure under its deeds of trust.
On September 12, 1984 the bankruptcy court held a consolidated evidentiary hearing on the confirmation, objections and the motion for relief from the stay. The evidence consisted of testimony regarding the amount of the debtors' indebtedness to the Bank; their ability to make their regular monthly payments and bring current the arrearages within the period of the plan; and the fair market value of the mortgaged residence. Based on this evidence, the bankruptcy court determined in its memorandum opinion that with their current level of income the debtors could make the regular monthly payments and cure the arrearages within thirty-six months under the plan. The bankruptcy court refused, however, to consider whether the Bank had proven its case for relief from the stay under 11 U.S.C. § 362(d)(2). Orders were subsequently entered confirming the debtors' plan, which then included terms for curing arrearages, and denying the Bank's motion for relief.
II.
The Bank seeks to have lifted the stay of any act against the debtors' property that was automatically imposed under 11 U.S.C. § 362 when the debtors filed their Chapter 13 petition. This statutory provision applies equally to petitions filed under Chapters 7, 9 and 11 of the Bankruptcy Code. By halting creditors' actions against the debtor, the stay gives the debtor an opportunity to formulate plans for repayment and reorganization or rehabilitation. Alternative means for obtaining relief from the automatic stay, however, are provided in subsections (d)(1) and (2) of § 362. Section 362(d)(2), under which the Bank seeks relief, provides as follows:
On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by termination, annulling, modifying or conditioning such stay
* * * * * *
*595 (2) with respect to a stay of an act against property, if
(A) the debtor does not have equity in such property; and
(B) if the property is not necessary to an effective reorganization.
Due to the use of the term "reorganization" in the above provision rather than or absent the addition of the term "rehabilitation," some courts have held that § 362(d)(2) does not apply to Chapter 13 proceedings. See, e.g., Matter of Feimster, 3 B.R. 11, 14 (Bkrtcy.N.D.Ga.1979) (holding § 362(d)(2) applicable only to Chapter 11 cases). But the trend is, and a clear majority of courts have held, that § 362(d)(2) is applicable to Chapter 13 cases. See, Matter of Willey, 24 B.R. 369 (Bkrtcy.E.D. Mich.1982). Among the reasons for such an application of this statutory provision is that § 103(a) of the Bankruptcy Code expressly applies to Chapter 3, which includes § 362, in Chapter 13 proceedings. For a good discussion of the applicability of § 362(d)(2) in Chapter 13 cases, see In Re Garner, 18 B.R. 369 (S.D.N.Y.1982) and Matter of Miller, 13 B.R. 110 (Bkrtcy.S.D. Ind.1981).
Since the clear weight of authority is that § 362(d)(2) is applicable in Chapter 13 cases, the court is of the opinion that the bankruptcy court erred in not directly considering whether the Bank had proven its case for relief from the stay under the two-part test of § 362(d)(2). The bankruptcy court has nevertheless reached the correct determination in this case where the debtors' home is the primary asset sought to be saved in their Chapter 13 plan of rehabilitation. The record reveals that the Bank has met its burden of proof in showing that the debtors had no equity in their home, as required under § 362(d)(2)(A). The issue then becomes whether the subject property is necessary to an effective reorganization as required under § 362(d)(2)(B). Unlike the type of analysis that would be used when applying this standard in a Chapter 11 case where property is only used for business, in a Chapter 13 case the "`necessary to an effective reorganization' standard should take on an entirely different meaning given the rehabilitative purpose of Chapter 13." In Re Garner, 18 B.R. 369, 371 (S.D.N.Y.1982). In In Re Garner, as with the present appeal, the creditor appealed from a decision of the bankruptcy court denying its motion for relief under § 362(d)(2) from an automatic stay in order that it might commence foreclosure upon the debtors' residence. Id. at 370. There, too, the bankruptcy court failed to apply § 362(d)(2) to the Chapter 13 case, which the reviewing court found to be error. Id. at 371. The court nevertheless affirmed the bankruptcy court's decision where the debtors' purpose in filing a Chapter 13 petition was to save their home. As the court explained:
It is undoubtedly `necessary to an effective reorganization' to maintain the stay and prevent foreclosure where the main objective of the proceeding is to save the home, `at least until the confirmation hearing,' at which time it will be determined whether or not the debtors' financial position and their budgeted expenses will justify a confirmation.
Id. The same construction was given to § 362(d)(2)(B) in Matter of Willey, 24 B.R. 369, 374 (Bkrtcy.E.D.Mich.1982), where the bankruptcy court observed that
[A] high proportion of Chapter 13 debtors with residential mortgage obligations are behind in their payments or facing foreclosure at the time of filing. The home will often be the single most important asset of a Chapter 13 debtor and saving the property may be the primary reason why the debtor proposes, and seeks to successfully perform the conditions embodied in the plan.
Thus, once the bankruptcy court in the present case determined from the evidence produced at the consolidated evidentiary hearing that the debtors were financially able to meet the terms of their plan of rehabilitation to save their residence, the bankruptcy court was justified in denying the Bank's motion for relief from the automatic stay even though it did not make a specific finding under *596 § 362(d)(2)(B) that the debtors' residence was "necessary to effective reorganization."[1]
As to the second issue the Bank has raised in this appeal, the court concludes that the bankruptcy court did not err in allowing the debtors thirty-six months to cure their mortgage arrearages since the court cannot find, after reviewing the factual basis for that decision, that the bankruptcy court's findings were clearly erroneous. Having heard evidence regarding the debtors' current income, their monthly household expenses, the amount of their regular monthly payments to the Bank, and the amount of arrearages they owed the Bank, the bankruptcy court found that the plan by which the debtors would cure the arrearages within thirty-six months was both "reasonable and feasible." Title 11 U.S.C. § 1322(b)(5) provides that a default under a Chapter 13 plan must be cured "within a reasonable time." What is a reasonable time for a particular plan is a question of fact that must be decided on a case-by-case basis by the bankruptcy court. See In re Coleman, 5 B.R. 812 (W.D.Ky. 1980); In re Taddeo, 685 F.2d 24 (2nd Cir.1982). Payments under a plan, however, may not extend over a period longer than three years, as provided by 11 U.S.C. § 1322(b)(5), absent a showing of exceptional circumstances. Since the plan approved by the bankruptcy court does not exceed this limitation, and the same court's findings as to the reasonableness of the period of cure cannot be found clearly erroneous, the order confirming the debtors' Chapter 13 plan must be upheld.
Therefore, both orders of the bankruptcy court here challenged on appeal are hereby affirmed.
The Clerk is directed to send certified copies of this Memorandum Opinion to counsel of record and to the U.S. Bankruptcy Court for the Western District of Virginia.
NOTES
[1] In effect, an irrebuttable presumption is created in a Chapter 13 case as to the debtor's home as necessary to effective reorganization where the debtor's primary purpose in filing the Chapter 13 petition is to save his home.
For a case where certain property of the Chapter 13 debtors was held not to be necessary to an effective reorganization under § 362(d)(2)(B), and which accords with this court's view of the provision's construction as to property other than the debtor's home, see Matter of Miller, 13 B.R. 110 (Bkrtcy.S.D.Ind.1981) (holding a pickup truck not necessary to effective reorganization). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1970983/ | 110 B.R. 328 (1989)
In re Mack SANDERS, Debtor.
FIRST NATIONAL BANK & TRUST COMPANY IN GREAT BEND, Plaintiff/Appellee,
v.
Mack SANDERS, Defendant/Appellant.
No. 3-88-0675, Bankruptcy No. 387-01069, Adv. No. 387-0238.
United States District Court, M.D. Tennessee, Nashville Division.
May 25, 1989.
*329 William R. O'Bryan, Jr., Nashville, Tenn., for plaintiff/appellee.
William P. Sutherland, Nashville, Tenn., for defendant/appellant.
MEMORANDUM
MORTON, Senior District Judge.
Appellant Mack Sanders appeals a judgment of the United States Bankruptcy Court declaring Sanders' debt to appellee First National Bank & Trust Company non-dischargeable pursuant to 11 U.S.C. § 523. Having withdrawn two issues, the appellant now asserts only four grounds for reversal. First, the appellant asserts that the bankruptcy judge erred in finding a causal connection between misrepresentations in Sanders' financial statement and the appellee's extension of credit. Second, the appellant contends that the bankruptcy judge erred in finding that the appellee placed material, substantial, and reasonable reliance on the false financial statement. Third, the appellant argues that the bankruptcy judge applied the wrong standard of proof of reliance. Finally, as a fallback position, the appellant attacks the judge's finding that the entire amount of the judgment was credit extended as a direct and proximate result of the financial statement. As explained below, this court concludes that each assertion of error is without merit. The judgment of the United States Bankruptcy Court is therefore affirmed.
Before addressing the four issues mentioned above, the court briefly notes a fifth issue raised by the appellant. Bankruptcy Rule 8013 forbids this court from setting aside the factual findings of the bankruptcy judge unless those findings are clearly erroneous. Despite the fact that the bankruptcy rules were drafted by the Supreme Court,[1] and despite the fact that the Sixth Circuit has no problem with the constitutionality of Rule 8013,[2] and despite the fact that Rule 8013 in no way conflicts with Northern Pipeline Construction Co. v. Marathon Pipe Line Company, 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982),[3] the appellant complains that Rule *330 8013 violates Article III of the United States Constitution. Beyond what has already been stated, the court gives this argument the further attention that it deservesnone.
The first three issues raised by the appellant are very closely intertwined. As noted earlier, the appellant objects to the bankruptcy court's finding of a causal connection between the misrepresentations and the extension of credit. Likewise, the appellant objects to the finding of material, substantial and reasonable reliance upon the false financial statement. However, if there was reasonable, material and substantial reliance, then there was also obviously causation. Reliance is not reliance if it did not cause some action or inaction. Thus, despite the appellant's formulations of the issues, they are probably best articulated as separate inquiries into whether there was reliance to such an extent that the "credit [was] obtained by use of [the false financial] statement," and if so, whether that reliance was reasonable.[4]See 11 U.S.C. § 523. The correctness of these determinations relate, in turn, to the third issue of whether the bankruptcy judge applied the correct standard of proof of reliance. This third issue is a question of law and is therefore subject to de novo review by this court. The first two are factual inquiries subject to the clearly erroneous standard already discussed.
The appellant's attack upon the standard of proof of reliance used by the bankruptcy court focuses on one statement by the court that "[t]he reliance element is now almost a feather where maybe it was a club at one time." The appellant also argues that the court "placed untoward and inappropriate reliance on three opinions from the United States Court of Appeals for the Sixth Circuit."
This court finds no fault with the standard of proof used by the bankruptcy court. The three opinions mentioned by the bankruptcy court are very relevant and provide the necessary Sixth Circuit guidance on the issue of reliance. See Knoxville Teachers Credit Union v. Parkey, 790 F.2d 490 (6th Cir.1986); In re Phillips, 804 F.2d 930 (6th Cir.1986); In re Martin, 761 F.2d 1163 (6th Cir.1985). Apparently, the appellant believes the guidance from these three cases to be limited by the fact that much smaller amounts of money were involved in those cases. This court does not deem this distinction to be of great significance. Of much greater importance is the fact that all three cases emphasized that the reliance element "cannot be said to be a rigorous requirement, but rather is directed at creditors acting in bad faith." Martin, 761 F.2d at 1166; Parkey, 790 F.2d at 492; Phillips, 804 F.2d at 933. This is not a standard which would change according to the amount of money involved. Accordingly, this is the standard which should be applied in this case, and it appears that it was indeed the standard applied.
Placed within the entire context of the bankruptcy court's findings and discussion of precedent, there is nothing wrong with the statement that "[t]he reliance element is now almost a feather. . . ." The word picture painted by the bankruptcy court's "almost a feather" as opposed to a "club" analogy is just that a word picture. It was not intended to be a precise articulation of the standard of proof. It did, however, convey the idea that the reliance inquiry is not very stringent. In view of the Sixth Circuit's emphasis on aiming the requirement at creditors acting in bad faith, it was very appropriate to convey just such an idea. Furthermore, the Sixth Circuit has accepted that "dischargeability shall *331 not be denied where a creditor's claimed `reliance' . . . would be so unreasonable as not to be actual reliance at all." Phillips, 804 F.2d at 930. This certainly suggests a very relaxed reliance requirement. Accordingly, the court rejects the contention that the bankruptcy court applied the wrong standard of proof.
Likewise, the court finds no fault with the findings of reliance and of the reasonableness of that reliance. The financial statement at issue represented the appellant's net worth to be millions of dollars above what it really was. More importantly, when viewed in conjunction with previous financial statements submitted to the bank, this particular financial statement showed the appellant's business fortunes as improving, when in fact they were suffering a dramatic reversal. Don Pundsack, president of the bank, testified that he compared the financial statement to the one from the previous year. Since the two statements "were pretty consistent with each other," and since there were no "red flags" to suggest further inquiry was necessary, no further independent investigation was done. Pundsack also specifically testified that the bank would not have extended any credit or renewal of credit if the inaccuracies of the financial statement had been known. This is sufficient proof of reliance. Given the long historical relationship between the bank and the appellant, as well as the absence of "red flags," no further inquiry was necessary in order to satisfy the requirement that the reliance be reasonable. See Phillips, 804 F.2d at 933. As already noted, the bankruptcy court's finding of reasonable reliance may not be disturbed unless clearly erroneous. In this case, however, this court would not disturb the finding even if a de novo review was appropriate. A fortiori, the court does not believe the finding to be clearly erroneous.
The only contention with some credence is the appellant's claim that only part, if any, of the debt should be nondischargeable. This argument is based on the idea that some credit would have been extended even if the appellant had accurately presented his financial condition to the bank. As a matter of theory, the appellant correctly asserts that only that amount of debt extended in reasonable reliance upon the false statement is nondischargeable. In this case, however, Mr. Pundsack testified in essence that no credit would have been extended if the truth about the appellant's financial condition had been revealed. Given the serious nature of the appellant's financial reversals, this court cannot say the bankruptcy court's acceptance of this testimony was clearly erroneous.
The decision of the bankruptcy court is affirmed.
NOTES
[1] See 28 U.S.C. § 2075.
[2] See In Re Martin, 761 F.2d 1163, 1166 (6th Cir.1985). Accord In re Mullet, 817 F.2d 677 (10th Cir.1987); In re Branding Iron Motel, Inc., 798 F.2d 396 (10th Cir.1987); Harman v. Levin, 772 F.2d 1150 (4th Cir.1985); Matter of T & B General Contracting, Inc, 833 F.2d 1455 (11th Cir.1987).
[3] If this were not a "core proceeding," this issue might require a more detailed analysis. However, this case clearly involves a core proceeding. At the very least, Northern Pipeline suggests that it is entirely appropriate for a bankruptcy court, as an "adjunct" to the district court, to make factual determinations in a core proceeding as long as those determinations are subject to review by an Article III court for being clearly erroneous. Northern Pipeline even provides ample support for arguing that Article III limitations do not apply to "core proceedings" by virtue of Article I, section 8. Nevertheless, it is unnecessary to address that question today.
[4] The appellant's use of the word "material" may have been intended to raise an issue of whether the bankruptcy court correctly determined that the financial statement was materially false. The appellant has clearly dropped opposition to the finding of falsity, but he may be arguing that the statement was not materially false. Such an argument, if being made, is ridiculous. The financial statement misrepresented the appellant's net worth by millions of dollars. Additionally, it concealed the fact that the appellant's business had suffered greatly since submission of the previous financial statement. Materiality is therefore unquestionable. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1971566/ | 950 F.Supp. 545 (1997)
Richard J. BRENNAN, Plaintiff,
v.
BAUSCH & LOMB, INC. and Pharmafair, Inc., Defendants.
CV 94-3712 (ADS).
United States District Court, E.D. New York.
January 23, 1997.
*546 John J. Leo, New York City, for Plaintiff.
Bond, Schoeneck & King, LLP, Syracuse, (Raymond J. Pascucci, of counsel), for Defendants.
MEMORANDUM OF DECISION AND ORDER
SPATT, District Judge:
This employment discrimination lawsuit arises from the claims of the plaintiff, Richard J. Brennan ("Brennan" or the "plaintiff"), that he was unlawfully discharged by the defendants Bausch & Lomb, Inc. ("B & L") and Pharmafair, Inc. ("Pharmafair," collectively the "defendants" or the "Company") based on his age, disability and gender in *547 violation of the Age Discrimination in Employment Act, ("ADEA") 29 U.S.C. §§ 621 et seq., Americans with Disabilities Act ("ADA"), 42 U.S.C. §§ 12101 et seq., and Civil Rights Act of 1964 ("Title VII"), as amended, 42 U.S.C. §§ 2000e et seq. Originally, the Complaint also alleged several state law causes of action. These claims however, were withdrawn by stipulation dated August 6, 1996.
Presently before the Court is the defendants' motion for summary judgment pursuant to Fed.R.Civ.P. 56 arguing that Brennan has failed to produce any evidence that their legitimate non-discriminatory reasons for the plaintiff's discharge were a pretext for unlawful discrimination. The plaintiff opposes the motion arguing that he has set forth sufficient evidence of pretext to create material issues of triable fact and defeat the defendants' motion.
I. Background
The plaintiff is a resident of Suffolk County. From 1968 through 1971, he served in the Army. According to the Complaint, he has a "military service-connected epilepsy/seizure disorder, a service-connected broken back, and service-connected gastric ulcer condition." Compl. ¶ 9. At all times relevant to this litigation he was over 40 years old.
The defendants are New York corporations, B & L with its principal place of business in Syracuse, New York and Pharmafair with its principal place of business in Hauppauge, New York. Pharmafair is subsidiary of B & L. The Company is a manufacturer of, among other things, pharmaceutical products.
The plaintiff was originally hired on May 1, 1990 at age 43, through an employment agency as a leased employee, to work at the Company's Hauppauge plant as a Human Resources Manager. At that time, the operations in the Hauppauge facility were winding down and being transferred to the Company's new plant in Tampa, Florida. Brennan was hired by Timothy Irvin, Vice President of Human Resources in order to facilitate the closing. According to the defendants, at the time of hire, they knew that Brennan was disabled. In November 1990, the plaintiff was hired as a Company employee with the projected closing of the Hauppauge plant in six to eight months. Brennan concedes that when he was hired, he knew that the Hauppauge facility would close, but claims that he was advised that upon closing, he would be transferred to the Tampa facility.
In any event, in July 1991 he was laid off and replaced by Elissa Tommasi. According the defendants' moving papers, which the plaintiff does not dispute, Tomassi was Brennan's predecessor as Human Resources Manager. She was transferred to Tampa to accommodate her husband's medical problems. In July 1991, Tommasi returned to Hauppauge after her husband died and she was given her old job, thereby displacing Brennan. At that time, the plaintiff was 44 years old and Tommasi was 40.
In November 1991, the closing date for the Hauppauge facility was again postponed, this time to mid 1992, and Tommasi left the Human Resources Manager position, creating a vacancy. Irvin, along with Ted Borgel, the new Plant Manager, contacted Brennan to rehire him. They did so knowing of the plaintiff's age, and that he had certain medical needs.
According to the plaintiff however, he was contemplating filing discrimination charges at this time pursuant to his initial layoff. He was advised that he would be rehired if he did not commence any proceedings.
In March 1992, the Food and Drug Administration ("FDA") placed severe restrictions on drug manufacturing approvals thereby limiting the Company's ability to close the Hauppauge facility. Consequently, the target closing date was moved back from several months to several years. According to the defendants, Irvin and Borgel then decided they would need a more experienced Human Resources Manager "to manage what would be a more stable, long-term Human Resources function."
In February 1992, B & L's International Division ("ID") headquarters was being eliminated. As a result, the ID's staff was looking for reassignments. Among these *548 employees was Elaine Lakis, who was associated with the ID's human resources organization since 1984. Lakis was ultimately hired to replace Brennan in September 1992. At that time, the plaintiff was 45 years old and Lakis was 40. According to the defendants, Lakis was hired because she was a "more experienced Human Resource professional who was a long-term [B & L] employee ... who was being displaced ... due to corporate reorganization." The Hauppuage Plant was closed in 1994 and Lakis was terminated. She was then retained on a temporary basis to assist with the open cases in Hauppauge.
According to Brennan however, the reasons alleged by the defendants for his discharge are nothing more than a pretext for unlawful discrimination. In support of his position he claims that he had been given a number of conflicting reasons for his discharge. For example, Brennan asserts that he was advised by Borgel, that Lakis would replace him for fear of "EEOC problems and trouble." To further bolster this argument, Brennan claims that a job posting notice for Lakis's former position was listed shortly after she began working at Pharmafair. The defendants dispute this contention, maintaining that this listing was for a different position.
In a letter dated September 25, 1992, Lakis states that the plaintiff was laid off as the result of "staff considerations" related to the "impending relocation." Brennan Aff. ¶ 28, Exh. N-a. Yet, Pharmafair advised the New York State Department of Labor, that the plaintiff was being terminated based on "lack of work." Id. Exh. O. After discrimination charges were filed with the New York State Division of Human Rights, the Company took a third position, namely that the plaintiff was a temporary employee. Id. Exh. Q. The defendants contest Brennan's interpretation of these reasons, arguing that they are all consistent with the plant closing.
Further, Brennan claims that during discovery, the Company modified its position again, maintaining that it was attempting to recruit "good," "junior" people who would further their career with on-the-job training. Id. Exh. R. Nevertheless, alleges Brennan, in direct contradiction to this position he was advised that he was being discharged because of his insufficient experience in plant management. Id. Exh. S. Despite this, he stayed on for two weeks to help train Lakis.
In addition, the plaintiff alleges that during the course of his employment with the defendants, his superiors would insult him because of his disability. In his deposition, the plaintiff testified as follows:
A: On several occasions Mr. Irvin made fun of the fact that I have a seizure disorder and asked me if that was in any way shape or form affecting the function of my brain because he didn't think I was making a very good decision on one thing or another.
On more than one occasion that was done.
Q: When was the first time that was done?
A: The first occasion was probably, if I recall correctly, it was during my first period of employment there before I was laid off with Elissa Tommasi coming back to New York.
Tim has a very favorite phrase, he calls it "no brainer," and he would apply the "no brainer" thing to me on if not a regular basis, an occasional basis, was my brain not functioning right, was it the army thing that you have there, ha, ha, he would laugh, is that affecting your way of thinking on this project or whatever? No, it was not.
Q: What does the phrase "no brainer" mean?
A: To me it means something that requires very little or no thought whatsoever, as a sort of mechanical response necessary to accomplish whatever the task is.
Q: So that term is not meant to describe your particular mentality, its just a general term?
A: That's the general term, yes.
Q: For easily understood matters, correct?
*549 A: That's correct. Followed, though, by his comment upon my brain function. I find that a direct connection.
* * * * * *
He said, "I don't know what's going on with your brain, is it that thing you have from the army that's affecting your thoughts on this one?"
He made several references to it.
* * * * * *
Q: Do you have any specific recollection of the exact words he used?
A: Specific recollection? Yes. Again it was "that army thing, that thing you have from the army. Is that what's making your brain malfunction? This is really a no-brainer. Is that affecting your brain."
Id. Exh. Y, Deposition of Richard J. Brennan, at 111-15.
II. Discussion
A. Summary judgment standard
A court may grant summary judgment only if the evidence, viewed in the light most favorable to the party opposing the motion, presents no genuine issue of material fact, Samuels v. Mockry, 77 F.3d 34, 35 (2d Cir. 1996), and the movant is entitled to judgment as a matter of law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). The Court must, however, resolve all ambiguities and draw all reasonable inferences in the light most favorable to the party opposing the motion. See Quaratino v. Tiffany & Co., 71 F.3d 58, 64 (2d Cir.1995); Twin Laboratories, Inc. v. Weider Health & Fitness, 900 F.2d 566, 568 (2d Cir.1990); Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir.1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987).
According to the Second Circuit "[s]ummary judgment is a tool to winnow out from the trial calendar those cases whose facts predestine them to result in a directed verdict." United National Ins. Co. v. The Tunnel, Inc., 988 F.2d 351, 355 (2d Cir.1993). Once a party moves for summary judgment, in order to avoid the granting of the motion, the non-movant must come forward with specific facts showing that a genuine issue for trial exists. West-Fair Elec. Contractors v. Aetna Cas. & Surety Co., 78 F.3d 61, 63 (2d Cir.1996); see also Western World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir. 1990) (quoting Fed.R.Civ.P. 56(e)). A genuine issue of material fact exists if "a reasonable jury could return a verdict for the non-moving party." Liberty Lobby, 477 U.S. at 248, 106 S.Ct. at 2510; see Vann v. New York City, 72 F.3d 1040 (2d Cir.1995).
However, mere conclusory allegations, speculation or conjecture will not avail a party resisting summary judgment. Kulak v. City of New York, 88 F.3d 63, 70 (2d Cir. 1996). If there is evidence in the record as to any material fact from which an inference could be drawn in favor of the non-movant, summary judgment is unavailable. Holt v. KMI-Continental, Inc., 95 F.3d 123, 128 (2d Cir.1996); Rattner v. Netburn, 930 F.2d 204, 209 (2d Cir.1991). Finally, the Court is charged with the function of "issue finding", not "issue resolution." Gallo v. Prudential Residential Servs., Ltd Partnership, 22 F.3d 1219, 1224 (2d Cir.1994).
It is within this framework that the Court addresses the grounds for the present motion for summary judgment.
B. The defendants' motion
The defendants move for summary judgment arguing that the plaintiff is unable to establish any of his claims for unlawful employment discrimination as a matter of law. In the absence of substantial direct evidence, allegations of employment discrimination are governed by the three step burden shifting test as set forth in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973); Texas Dep't of Community Affairs v. Burdine, 450 U.S. 248, 101 S.Ct. 1089, 67 L.Ed.2d 207 (1981); and St. Mary's Honor Ctr. v. Hicks, 509 U.S. 502, 113 S.Ct. 2742, 125 L.Ed.2d 407 (1993). As the Second Circuit recently restated the test in Quaratino:
First, the plaintiff has the initial burden of proving by a preponderance of the evidence a prima facie case of discrimination under Title VII by showing that: (1) []he *550 is a member of a protected class; (2) []he satisfactorily performed the duties required by the position; (3) []he was discharged; and (4) h[is] position has remained open and was ultimately filled by non-[protected] employee. See McDonnell Douglas, 411 U.S. at 802, 93 S.Ct. at 1824 ..., Burdine, 450 U.S. at 253, 101 S.Ct. at 1093-94.... Alternatively, a plaintiff may satisfy the fourth requirement to make out a prima facie case by showing that the discharge occurred in circumstances giving rise to an inference of discrimination. See McDonnell Douglas, 411 U.S. at 802, n. 13, 93 S.Ct. at 1824, n. 13 ...; Montana v. First Fed. Sav. & Loan Ass'n, 869 F.2d 100, 104 (2d Cir.1989).
Second, assuming the plaintiff demonstrates a prima facie case, the burden of production shifts to the employer to articulate a legitimate, clear, specific and non-discriminatory reason for discharging the employee. See Gallo, 22 F.3d at 1226. Third, if the defendant satisfies this burden of production, the plaintiff has the ultimate burden to prove that the employer's reason was merely a pretext for [unlawful] discrimination. An employer's reason for termination cannot be proven to be a pretext for discrimination unless it is shown to be false and that discrimination was the real reason. Hicks, 509 U.S. at 515-17, 113 S.Ct. at 2752.
Quaratino, 71 F.3d at 64.
This three step burden shifting analysis applies to discrimination claims brought pursuant to ADEA, see Gallo, 22 F.3d at 1224-25, and the ADA, see Estwick v. U.S. Air Shuttle, 950 F.Supp. 493, ___ (E.D.N.Y. 1996), citing, Newman v. GHS Osteopathic, Inc., 60 F.3d 153, 157-58 (3d Cir.1995); Heilweil v. Mount Sinai Hosp., 32 F.3d 718, 721-22 (2d Cir.1994) (applying burden shifting analysis in disability discrimination case brought pursuant to Rehabilitation Act).
In reverse discrimination cases however, such as the plaintiff's sex discrimination claim, some courts have applied somewhat modified version of the McDonnell Douglas burden shifting standard. See Olenick v. New York Telephone/A NYNEX Co., 881 F.Supp. 113 (S.D.N.Y.1995) (adopting the standard adopted by the D.C. Circuit in Parker v. Baltimore & Ohio R.R. Co., 652 F.2d 1012 (D.C.Cir.1981)). In Parker, the court reasoned that a plaintiff alleging a claims for reverse discrimination may rely on the McDonnell Douglas criteria to establish a prima facie case "`when background circumstances support the suspicion that the defendant is that unusual employer who discriminates against the majority.'" Parker, 652 F.2d at 1017; Olenick, 881 F.Supp. at 114; see also Notari v. Denver Water Dep't, 971 F.2d 585, 589 (10th Cir.1992) (recognizing this modified standard); Murray v. Thistledown Racing Club, Inc., 770 F.2d 63, 67 (6th Cir.1985). According to the D.C. Circuit:
[m]embership in a socially disfavored group was the assumption on which the entire McDonnell Douglas analysis was predicated, for only in that context can it be stated as a general rule that the "light of common experience" would lead a fact-finder to infer discriminatory motive from the unexplained hiring of an outsider rather than a group member. [Majority members] are also a protected group under Title VII, but it defies common sense to suggest that the promotion of a [minority] employee justifies an inference of prejudice against [majority] co-workers in our present society.
Parker, 652 F.2d at 1017.
Applying these standards, our analysis begins with a determination as to whether the plaintiff has established a prima facie case. As stated above, to demonstrate a prima facie case for each of his claims, Brennan must show that: (1) he is a member of a protected class; (2) he satisfactorily performed the duties required by the position; (3) he was discharged; and (4) his position has remained open and was ultimately filled by non-protected employee. See, e.g., Quaratino, 71 F.3d at 64 (setting forth these standards in the sex discrimination context). The plaintiff is disabled male over forty, which places him in protected classes under ADEA and the ADA, and renders his reverse discrimination claim possible. The Company assumes that he was qualified for the Human *551 Resources Manager position for the limited purpose of its summary judgment motion. In 1992, he was terminated and subsequently replaced by a younger non-disabled female each time he was laid off. Accordingly he has established a prima facie case for each of his claims.
The burden then shifts to the defendants to set forth a legitimate non-discriminatory reason for the plaintiff's discharge. Id. According to the Company, "[t]he material facts establishing [the] legitimate reasons for laying off Brennan are undisputed." The plaintiff was originally hired in May 1990 as a leased employee on a temporary basis in anticipation of the imminent closure of the Hauppauge facility. Brennan was hired to replace Tommasi who was moving to the new plant in Tampa to accommodate her husband's illness. By November 1990 it had become apparent that the closing of the Hauppauge Plant would not occur for six to eight months. As a result, Brennan was hired as a Company employee. In July 1991, the plaintiff was laid off when Tommasi returned from Florida after her husband's death.
In November 1991, Tommasi left the Company and Brennan was rehired. By this time, the anticipated plant closure had been pushed back to early or mid 1992. However, in 1992, new FDA restrictions on new drug manufacturing approvals for the Tampa facility led the defendants to believe that the Hauppauge closing would be delayed for several more years. As a result of this last postponement "both Borgel and Irvin decided that the Human Resources Manager at the Hauppauge plant should no longer assume merely a short-term caretaker role, but should assume a more long-term responsibility for building worker morale and conducting employee training programs." Accordingly, the defendants initiated a search for a "more experienced" individual who "could better handle a more stable, long-term Human Resources function."
At this time, Elaine Lakis, who had been employed by the Company's International Division became available as the result of a corporate reorganization. According to the defendants, "Lakis was offered the position based on her qualifications, the favorable impression she created during her interviews, her 8 years of Human Resources experience with the Company, and her 13 years of service with the Company." In short, the defendants maintain that their decision to terminate the plaintiff was based on three legitimate non-discriminatory reasons: (1) the nature of the Human Resources position had changed since the plant was to remain open longer than originally anticipated; (2) the Company believed it needed a more experienced and more qualified person to fill this role; and (3) Lakis had 13 years with the Company and eight years experience in human resources work. In the Court's view, these reasons are sufficient to constitute legitimate non-discriminatory reasons for Brennan's discharge.
Once the Court finds that the employer has stated a legitimate reason for the termination, the burden is on the plaintiff to set forth evidence that the defendants' reasons for the discharge constitute a pretext for unlawful discrimination. Id. The Company argues that the plaintiff has failed to produce such evidence, and as a result, it is entitled to summary judgment as a matter of law. For the sake of clarity, the Court will address each of the plaintiff's three discrimination claims separately.
1. Age discrimination
The defendants argue that the plaintiff has failed to put forth sufficient evidence that would establish that the Company reason for the termination was a pretext for age discrimination. In support of their position, the defendants argue that the plaintiff was hired and fired by the same person and was a member of a protected class both at the time he was hired, and when he was discharged shortly thereafter. Indeed, some courts recognize that under such circumstances, "a strong inference exists that discrimination was not a determining factor for the adverse action taken by the employer." Proud v. Stone, 945 F.2d 796, 797 (4th Cir. 1991); see also Brown v. CSC Logic, Inc., 82 F.3d 651, 658 (5th Cir.1996) (recognizing this inference); Rand v. CF Indus., Inc., 42 F.3d 1139, 1147 (7th Cir.1994) (plaintiff hired at *552 age 47 and fired by the same person two years later failed to establish a claim for age discrimination); Lowe v. J.B. Hunt Transp., Inc., 963 F.2d 173, 175 (8th Cir.1992) ("it is simply incredible, in light of the weaknesses of plaintiff's evidence otherwise, that the company officials who hired him at age fifty-one had suddenly developed an aversion to older people less than two years later").
Although the Second Circuit has not yet ruled on the validity of this inference, the Court finds its application, even if not appropriate in all cases, is appropriate here. The only evidence that the plaintiff offers of pretext is that during his deposition, Borgel stated that he was interested in recruiting "junior" people and giving them "on-the-job training" to enhance their career [sic]. Brennan Aff. Exh R. Borgel Dep. at 151-52. Yet, in spite of these representations, the defendants hired a younger employee with more experience than the plaintiff. In the Court's view, these allegations alone, are insufficient to support a claim for age discrimination. The plaintiff was over 40 years old both when he was initially hired and when he was rehired. He was hired and fired by the same individuals and his entire employment with the defendants lasted less than three years. Further, when he was replaced on both occasions, it was by a woman who 40 years old, not much younger than him. Accordingly, the defendants motion for summary judgment dismissing the plaintiff's age discrimination claims is granted.
2. Disability discrimination
The Court reaches a different conclusion with respect to Brennan's disability discrimination claim. In addition to establishing a prima facie case under the ADA, the plaintiff further contends that he was regularly harassed with respect to disability. As set forth above, Brennan testified in deposition that:
On several occasions Mr. Irvin made fun of the fact that I have a seizure disorder and asked me if that was in any way shape or form affecting the function of my brain because he didn't think I was making a very good decision on one thing or another.
On more than one occasion that was done.
Further, the plaintiff recalled:
Tim has a very favorite phrase, he calls it "no brainer," and he would apply the "no brainer" thing to me on if not a regular basis, an occasional basis, was my brain not functioning right, was it the army thing that you have there, ha, ha, he would laugh, is that affecting your way of thinking on this project or whatever? No, it was not.
[A "no brainer"] means something that requires very little or no thought whatsoever, as a sort of mechanical response necessary to accomplish whatever the task is.
Brennan also testified that Irvin:
said, "I don't know what's going on with your brain, is it that thing you have from the army that's affecting your thoughts on this one?"
He made several references to it.
* * * * * *
[He would consistently comment] it was "that army thing, that thing you have from the army. Is that what's making your brain malfunction? This is really a no-brainer. Is that affecting your brain."
Id. Exh. Y, Deposition of Richard J. Brennan, at 111-15. In the Court's view, assuming these allegations to be true, Brennan has produced sufficient evidence of pretext to deny the defendants' motion for summary judgment with respect to this cause of action.
In reaching this conclusion the Court briefly notes the defendants argument that "Irvin denies that he ever made such comments," "that he was very flexible in allowing Brennan time off ... for his disabilities," and that the defendants hired and rehired the plaintiff with full knowledge of his disability. In the Court's view, the Company's position does nothing more than create issues of fact as to the plaintiff's claims, thereby making a trial necessary.
The Court further notes that in a footnote in its reply papers, the Company argues for the first time that the plaintiff's ADA claim should be dismissed because he has not produced evidence that he "is substantially limited *553 in a major life activity," in other words, that he is not disabled under the ADA. See 42 U.S.C. § 12102(2) (defining the term "disability"). In the Court's view, it is entirely inappropriate to raise such an argument in this fashion. In their original moving papers, the Company conceded that the plaintiff is a "disabled veteran." To then challenge Brennan's disabled status for the first time in its reply papers would constitute an unfair surprise depriving the plaintiff of an opportunity to address this issue. Accordingly, while the Court notes that the plaintiff will be required to demonstrate that he is disabled under the ADA at trial, the Court will not further address the issue in the context of the defendants' summary judgment motion.
3. Gender discrimination
Finally, the defendants argue that the plaintiff has failed to offer sufficient evidence that his discharge was a pretext for gender discrimination, thereby rendering summary judgment appropriate. According to Company, the plaintiff has offered "no direct evidence, statistical evidence or anecdotal evidence that defendant (or Irvin and Borgel, both of whom are male) discriminate against male employees." This statement however directly contradicts the plaintiff's claim that he was advised that the defendants had to find a position for Lakis for fear that she would make "EEOC problems and trouble." Although "Irvin and Borgel deny that they ever made such statements to plaintiff, and deny that this was ever a consideration in their decision to replace [the] plaintiff," the Court finds that such allegations create an issue of material fact as to Brennan's gender discrimination claims, rendering resolution of this issue on a summary judgment motion inappropriate. This is so even if the Court were to apply the heightened standard employed by some courts in reverse discrimination suits. See, e.g., Olenick, 881 F.Supp. at 114. Accordingly, the defendants' motion is denied in this respect.
In reaching this conclusion the Court notes the defendants argument that even if the plaintiff's allegations regarding the Company's fear of discrimination charges brought by Lakis were true, such an argument would not support a claim for gender discrimination because it addresses a given employee's "litigiousness" not her gender, or that of the plaintiff. In the Court's view, this argument cannot be resolved on a motion for summary judgment. Assuming that Lakis was retained because of her predisposition to file discrimination charges, this decision begs the question, why discharge Brennan, a male, as a opposed to another female. The evidence at trial may demonstrate that the defendants thought it safer to terminate a male rather than a female, a determination which could support a claim for reverse discrimination. As a result, the Court believes that this issue is better resolved at trial, once all the evidence has been adduced.
III. Conclusion
Having reviewed the parties' submissions, and for the reasons set forth above, it is hereby
ORDERED, that the defendants' motion for summary judgment with respect to the plaintiff's age discrimination claim is granted, and that cause of action is dismissed; it is further
ORDERED, that the defendants' motion for summary judgment with respect to the plaintiff's claims for disability discrimination and reverse gender discrimination is denied; and it is further
ORDERED, that the parties are directed to appear on Tuesday, February 18, 1997 at 9:00 a.m. for jury selection with respect to the remaining causes of action.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1971158/ | 950 F.Supp. 1382 (1997)
Dottie WOODARD, and Richard Wright, Plaintiffs,
v.
AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin Corporation, American Family Insurance Group, a Wisconsin Corporation, William Soyk, individually and in his representative capacity as an employee and agent of American Family Mutual Insurance Company, a Wisconsin Corporation, Southeastern Research Laboratories Inc., a South Carolina Corporation, and Richard W. Henderson, individually and in his representative capacity as President of Southeastern Research Laboratories, Inc., Defendants.
No. 96 C 50200.
United States District Court, N.D. Illinois, Western Division.
January 31, 1997.
*1383 *1384 *1385 Mark A. Byrd, Christopher J. Taylor, Byrd & Taylor, Rockford, IL, for Plaintiffs.
Ricky L. Hammond, Chuhak & Tecson, Chicago, IL, Debra B. Walker, John M. Hynes, Clausen, Miller, Gorman, Caffrey & Witous, P.C., Chicago, IL, for Defendants.
MEMORANDUM OPINION AND ORDER
REINHARD, District Judge.
INTRODUCTION
Plaintiffs, Dottie Woodard and Richard Wright, filed a seven-count complaint alleging various state law claims against defendants, American Family Mutual Insurance Company, American Family Insurance Group, William Soyk, Southeastern Research Laboratories, Inc., and Richard W. Henderson. This court has jurisdiction pursuant to 28 U.S.C. § 1332, and venue is proper as a substantial part of the alleged events giving rise to this action occurred in this district and division. Pending before the court are separate motions to dismiss by defendants. These motions have been consolidated for purposes of this opinion and will be resolved herein.
BACKGROUND
The facts are taken from the complaint and are assumed to be true for purposes of the pending motions. American Family Mutual Insurance Company and American Family Insurance Group (hereinafter collectively referred to as "American Family") are Wisconsin corporations engaged in providing liability insurance throughout the United States, including Illinois. Soyk is a Wisconsin resident and is employed as a special investigator by American Family. Southeastern Research Laboratories, Inc. ("Southeastern") is a South Carolina corporation engaged in the business of chemical and other types of scientific testing. Henderson is a South Carolina resident and is president and chief executive officer of Southeastern. Plaintiffs Woodard and Wright, both Illinois residents, lived in a mobile home owned by Woodard in New Milford, Illinois.
On January 8, 1994, a fire occurred in the mobile home destroying the home and the personal belongings contained therein. At that time, Woodard held an insurance policy with American Family. Woodard filed a claim with American Family on January 27, 1994, seeking the maximum limits on her policy for the loss of her mobile home and personal property, that limit being $10,000 for the building and $10,000 for the personal property. The Illinois State Fire Marshall and local police agencies investigated the fire. American Family also conducted its own investigation. During these investigations, samples of wood, carpet and cloth were taken from the mobile home to be tested for the presence of accelerants. The fire marshall's samples were sent to the Illinois State Police crime lab, where analysis thereon revealed no presence of accelerants. American Family's samples, taken from the same locations, were sent to Southeastern for testing. It is alleged that defendants all conspired with each other to obtain false test results in order to provide American Family with a basis for denying Woodard's insurance claim.
Southeastern tested four samples and claimed that the results on two of the four samples revealed the presence of accelerants. It is alleged that all defendants, with knowledge of their falsity, provided these test results to the Winnebago County State's Attorney's office. It is also alleged that American Family, having knowledge that the fire was caused by accidental means, wrongfully denied Woodard's claim on April 27, 1994, on the basis that the fire was deliberately set by either Woodard or Wright, or both.
On July 14, 1994, a Winnebago County grand jury returned an indictment against both Woodard and Wright, charging them with arson. For more than twenty-two months, plaintiffs defended the criminal charges and expended great sums of money for legal fees and retention of experts. It is alleged that during this entire period, all defendants actively participated in, and encouraged, the prosecution of plaintiffs with knowledge that the fire in question was caused by accidental means.
*1386 On April 7, 1995, Soyk and Henderson were present at the laboratory of plaintiffs' expert in Illinois for purpose of witnessing plaintiffs' expert conduct tests on the same samples tested by defendants. The tests revealed no presence of accelerants. In addition to witnessing these tests, all defendants were provided with copies of all of the test results. Notwithstanding this, American Family persisted in denying Woodard's claim. On May 2, 1996, the criminal charges against plaintiffs were dismissed by the Winnebago County State's Attorney.
Count I asserts a claim for malicious prosecution against all defendants. Count II alleges a claim for libel per se against all defendants based on defendants' false statements to the Winnebago County State's Attorney. Count III asserts a claim for fraud against defendants based on falsification of test results. Count IV asserts a claim for negligence, alleging that American Family failed to exercise reasonable care in selecting a testing laboratory and that Southeastern failed to exercise reasonable care in performing the tests. Count V, against American Family, alleges a claim for breach of contract based on American Family's refusal to allow Woodard's claim under the insurance contract. Count VI, against American Family, alleges a claim pursuant to 215 ILCS 5/155 for American Family's vexatious refusal to settle the claim. Last, Count VII alleges a claim against American Family under the theory of quantum meruit/unjust enrichment.
DISCUSSION
In considering the motions to dismiss, the court accepts the allegations in the complaint as true and draws all reasonable inferences therefrom in a light most favorable to plaintiffs. Wilczynski v. Lumbermens Mut. Cas. Co., 93 F.3d 397, 401 (7th Cir.1996). The motions will be denied unless it appears beyond doubt that plaintiffs can prove no set of facts consistent with the allegations in the complaint that would entitle them to relief Id.
I. Southeastern & Henderson's Motion to Dismiss
A. Count I (Malicious Prosecution)
In order to establish a claim for malicious prosecution under Illinois law, a plaintiff must show: (1) the commencement or continuance of an original criminal or civil judicial proceeding by the defendant; (2) the termination of the proceeding in favor of the plaintiff; (3) the absence of probable cause for such proceeding; (4) the presence of malice; and (5) damages resulting to the plaintiff. Swick v. Liautaud, 169 Ill.2d 504, 215 Ill.Dec. 98, 102, 662 N.E.2d 1238, 1242 (1996). Southeastern and Henderson move to dismiss Count I on the grounds that it fails to sufficiently allege the elements of malicious prosecution. Because these defendants challenge the sufficiency of each element, the court shall consider each element and the contentions relating thereto in turn.
As to the first element, a defendant must either have "initiated a criminal proceeding or his participation in it must have been of so active and positive a character as to amount to advice and cooperation." Denton v. Allstate Ins. Co., 152 Ill.App.3d 578, 105 Ill.Dec. 471, 475, 504 N.E.2d 756, 760 (1st Dist.1986), appeal denied, 115 Ill.2d 539, 110 Ill.Dec. 455, 511 N.E.2d 427 (1987). Southeastern and Henderson contend that Count I fails to allege sufficient facts showing that they had an active role in the criminal proceedings against plaintiffs. They contend that the various allegations to the effect that they "actively participated in and encouraged the prosecution" and that they submitted the false test results to the Winnebago County State's Attorney are mere conclusions.
Under federal notice pleading standards, mere conclusions are usually sufficient as long as they provide minimal notice of the claims being asserted. Leatherman v. Tarrant County Narcotics Intelligence and Coordination Unit, 507 U.S. 163, 168-69, 113 S.Ct. 1160, 1163, 122 L.Ed.2d 517 (1993); Jackson v. Marion County, 66 F.3d 151, 154 (7th Cir.1995). Accepting the allegations of the complaint to be true, as the court must, the court cannot accept Southeastern and Henderson's contention that Count I fails to allege sufficient involvement in the prosecution. This element is alleged, and the mere fact that it is not supported with detailed *1387 factual allegations is not a basis for dismissal. Nonetheless, the court cautions plaintiffs that the allegations as to this element must be made to the best of their knowledge based on reasonable inquiry. If the allegations are not accurate, or if further investigation during discovery reveals that such allegations can no longer be made in good faith, the court expects plaintiffs to act accordingly.
Southeastern and Henderson's contentions with respect to the second element are that plaintiffs' factual allegations show, as a matter of law, that they cannot establish the second element. Count I merely alleges that the Winnebago State's Attorney dismissed the charges. Southeastern and Henderson contend that a dismissal by the prosecutor does not operate as a favorable termination under Illinois law, relying in part on Sutton v. Hofeld, 118 Ill.App.3d 65, 73 Ill.Dec. 584, 586, 454 N.E.2d 681, 683 (1st Dist.1983). In response, plaintiffs contend that the second element can be predicated on dismissal of the charges by the prosecutor if the proceedings were terminated in a manner consistent with their innocence, relying on the recent Illinois Supreme Court decision Swick v. Liautaud, 169 Ill.2d 504, 215 Ill.Dec. 98, 103, 662 N.E.2d 1238, 1243 (1996). Plaintiffs, therefore, contend that the rule announced in Swick does not, as a matter of law, bar plaintiffs' claim.
In Swick the Illinois Supreme Court adopted the majority rule, holding that a "criminal proceeding has been terminated in favor of the accused when a prosecutor formally abandons the proceeding via a nolle prosequi, unless the abandonment is for reasons not indicative of the innocence of the accused." Id., 215 Ill.Dec. at 102-03, 662 N.E.2d at 1242-43. The court held that the "abandonment of the proceedings is not indicative of the innocence of the accused when the nolle prosequi is the result of an agreement or compromise with the accused, misconduct on the part of the accused for the purpose of preventing trial, mercy requested or accepted by the accused, the institution of new criminal proceedings, or the impossibility or impracticability of bringing the accused to trial." Id. at 103, 662 N.E.2d at 1243. The burden of proving a favorable termination, moreover, remains with the plaintiff even when the criminal charges are dismissed via a nolle prosequi; that is, in order to satisfy the burden of proof at trial, the plaintiff must show that the prosecutor dismissed the charges for reasons consistent with his or her innocence. The circumstances surrounding the abandonment of the criminal proceedings must "compel an inference that there existed a lack of reasonable grounds to pursue the criminal prosecution." Id.
The Swick decision renders the contentions in Southeastern and Henderson's motion and supporting brief moot, as it clearly displaces the rule applied in Sutton. In their reply brief, these defendants maintain that plaintiffs' allegations are insufficient, even under Swick. Count I alleges that the "criminal actions against Plaintiffs were judicially determined in favor of the Plaintiffs when the Winnebago County State's Attorney dismissed both indictments charging [plaintiffs] with Arson." Southeastern and Henderson contend that this is insufficient and that, at a minimum, plaintiffs should be required to plead that the dismissal of the indictments was entered "for reasons consistent with their innocence."
The court is of the opinion that plaintiffs' allegations in this regard are sufficient under federal notice pleading standards. The rule announced in Swick is that a dismissal of criminal charges via a nolle prosequi is a termination in favor of the accused, but in order to meet the burden of proof at trial, a plaintiff must establish that the nolle prosequi was entered for reasons consistent with his or her innocence. Swick, 215 Ill. Dec. at 103, 662 N.E.2d at 1243. The court does not find any basis for requiring a plaintiff in federal court to always plead facts which, if proven, would show that the dismissal was entered for reasons consistent with his or her innocence. Not only would that run afoul of notice pleading principles, it would also, in essence, require a plaintiff to meet his or her burden of proof at the pleading stage. Here, plaintiffs allege that the charges were dismissed by the prosecutor and that this constituted a termination in their favor. This is sufficient. Accordingly, *1388 the court rejects Southeastern and Henderson's contentions with respect to the second element.
Southeastern and Henderson's contentions with respect to the probable cause and malice elements deserve little attention. Their contentions in this regard are that the allegations with respect to these elements are "conclusory" and that the complaint lacks sufficient factual allegations. As stated earlier, these are not valid criticisms of the complaint. Accordingly, these contentions are rejected.
Southeastern and Henderson's last contention with respect to Count I is that the facts alleged show that their actions were not the cause of plaintiffs' damages. They contend that the criminal proceedings against plaintiffs were instituted by a grand jury, not them, and that they therefore cannot be responsible for the damages that resulted from the criminal charges. This is really an argument relating to the initiation element, which this court has already determined to be sufficiently pleaded. Thus, this last contention is rejected. Accordingly, for the foregoing reasons, Southeastern and Henderson's motion to dismiss Count I is denied.
B. Count II (Libel)
Southeastern and Henderson advance two contentions with respect to Count II. They contend it should be dismissed because it fails to specifically identify the libelous material and the precise date of publication. They contend that failure to allege either of these elements requires dismissal. Plaintiffs do not respond to either of these contentions.
Although the precise date of publication requirement appears to be exclusively an animal of state court pleading, the precise language or "in haec verba" requirement is employed by most courts in this district. See, e.g., Buckley v. County of DuPage, No. 88 C 1939, 1996 WL 10899, at *7 (N.D.Ill. Jan. 9, 1996); Manion v. Lima Mem'l Hosp., No. 93 C 6138, 1994 WL 178316, at *3 (N.D.Ill. May 9, 1994); Vantassell-Matin v. Nelson, 741 F.Supp. 698, 707 (N.D.Ill.1990); Seaphus v. Lilly, 691 F.Supp. 127, 134 (N.D.Ill.1988). The reason a plaintiff must, under notice pleading requirements, plead the specific words alleged to be actionable is that knowledge of the exact language used is necessary to form responsive pleadings. Seaphus, 691 F.Supp. at 134.
Although Count II alleges that Southeastern and Henderson caused false statements about plaintiffs to be published, it fails to specifically identify the alleged false statements. Plaintiffs do not advance any arguments in regard to this pleading deficiency. Accordingly, Southeastern and Henderson's motion to dismiss Count II is granted.
C. Count III (Fraud)
Next, Southeastern and Henderson move to dismiss Count III on the basis that it fails to plead two essential elements materiality and reliance. Plaintiffs' response is two-fold. First, they contend that the materiality element can be inferred from the facts alleged in Count III and that they did, in fact, rely on the test results. This reliance, according to plaintiffs, took the form of forgoing their rights under the insurance contract and not pursuing their claims until after the misrepresentation had been discovered.[1] In the alternative, plaintiffs request leave to amend their complaint to cure these alleged deficiencies. In response to the latter, Southeastern and Henderson contend that leave to amend should not be granted because the well-pleaded facts show that plaintiffs did not rely on the test results, but rather, contested those results continuously throughout the period relevant to the complaint.
Rule 9(b) of the Federal Rules of Civil Procedure requires the circumstances constituting fraud to be stated with particularity. A sufficient level of factual support may be found where the circumstances are pleaded in detail. Generally, this is satisfied when "who, what, when, where and how" are *1389 alleged. In re HealthCare Compare Corp. Sec. Litig., 75 F.3d 276, 281 (7th Cir.1996). Materiality and reliance are essential elements to a fraud claim under Illinois law. See Fitzpatrick v. ACF Properties Group, Inc., 231 Ill.App.3d 690, 172 Ill.Dec. 657, 671, 595 N.E.2d 1327, 1341 (2d Dist.) (reciting elements of common law fraud), appeal denied, 146 Ill.2d 626, 176 Ill.Dec. 797, 602 N.E.2d 451 (1992). Although the court agrees with plaintiffs that, based on the factual allegations in the complaint, materiality can be easily implied, it cannot agree that reliance can be so inferred as well. Although it is alleged that defendants' misrepresentations regarding the test results were designed to induce plaintiffs to forgo their rights under the insurance policy, nothing in Count III indicates that plaintiffs were, in fact, induced. In fact, the allegations suggest otherwise. Not only did Woodard file a claim under the policy, but she and Wright retained their own experts to test the samples and contested the criminal charges brought against them. These facts controvert rather than support the element of reliance. Because Count III does not plead that plaintiffs relied to their detriment on defendants' misrepresentations, it is properly subject to dismissal. Accordingly, Southeastern and Henderson's motion to dismiss is granted with respect to Count III.
The next issue the court must address at this juncture is whether plaintiffs should be permitted to amend their complaint or whether the well-pleaded facts presently alleged show that they cannot amend their complaint to state a cause of action and be in compliance with Fed.R.Civ.P. 11. While a plaintiff can plead herself out of court by alleging facts which show, as a matter of law, that she cannot prevail on a claim, see Jackson, 66 F.3d at 153-54, the court cannot conclude that this is one of those cases. There was almost a one and one-half year period between Woodard's claim under the policy and the testing of the samples at plaintiffs' expert's laboratory. The allegations in the complaint do not rule out the possibility that plaintiffs relied upon Southeastern's test results during this period. Accordingly, the court shall permit plaintiffs to amend their complaint. In so doing, however, it reminds plaintiffs that any amendment should and must comply with the requirements of Rule 11.
D. Count IV (Negligence)
Southeastern and Henderson contend that Count IV should be dismissed because they owed no duty of care to plaintiffs. These defendants contend that the complaint merely alleges a duty in "conclusory" fashion and that there are no facts which could establish a legal duty. In response, plaintiffs contend that a duty exists by virtue of their contractual relationship with American Family, American Family's contractual relationship with Southeastern and because it was foreseeable to all defendants that a lack of reasonable care would adversely affect plaintiffs. In their reply brief, Southeastern and Henderson contend that plaintiffs have failed to rebut their contention that no legal duty exists because plaintiffs do not provide any legal authority showing that such a duty exists.
At the outset, the court notes that none of the parties have provided the court with a case specifically addressing this issue. Thus, the court can hardly fault plaintiffs alone for failing to produce any legal authority. Whether a duty exists is a question of law which depends on whether the parties stood in such a relationship to one another that the law imposes an obligation on the defendant to act reasonably for the protection of the plaintiff. Gouge v. Central Illinois Pub. Serv., 144 Ill.2d 535, 163 Ill.Dec. 842, 846, 582 N.E.2d 108, 112 (1991). Thus, the mere fact that the complaint alleges that defendants owed plaintiffs a legal duty, a legal conclusion, need not be accepted by the court and is subject to this court's own determination. In considering whether a duty exists, the court must weigh the foreseeability of the injury, the likelihood of the injury, the magnitude of the burden of guarding against it and the consequences of placing that burden on the defendant. Id.
Considering first the relationship between Woodard and Southeastern (and Henderson), the court distinguishes this case from the situation where two parties contract *1390 with the intent to benefit a third party. There is no showing that American Family had the samples from Woodard's home independently tested for Woodard's benefit. If anything, the opposite was true. The cause of the fire would have been of no concern to Woodard her only concern was receiving the benefits of her insurance policy. Rather, it was American Family who was concerned about the cause, for if the fire was deliberately caused by Woodard, American Family would not be obligated to pay her for her loss. If Southeastern's tests did not reveal evidence of foul play, then American Family could rest easy knowing it was paying a valid claim. Conversely, if the tests revealed otherwise, then American Family would have a basis for denying Woodard's claim. In either outcome, American Family was the only intended beneficiary of Southeastern's tests. Although it is true that, in a metaphysical sense, Woodard stood to benefit from American Family and Southeastern's contract in the event the tests failed to detect the presence of accelerants, such a benefit would have been merely incidental to, and not intended by, American Family and Southeastern's contractual relationship. Thus, this case is readily distinguishable from those decisions finding a tort duty owed by virtue of the plaintiff's status as an intended third-party beneficiary to a contract. See, e.g., McLane v. Russell, 131 Ill.2d 509, 137 Ill. Dec. 554, 558, 546 N.E.2d 499, 503 (1989) (holding that an attorney may owe a duty to a third party if that party can show it was the intended beneficiary of the attorney-client relationship).
Not only is there no indication that Woodard was an intended beneficiary of American Family and Southeastern's contract, there is no allegation that Woodard was known to Southeastern or that Southeastern knew that negligent testing of the samples would result in damages to Woodard by her being branded as an "arsonist." Nor could Southeastern be expected to know the circumstances behind the samples it was asked to test. A person could have materials tested for any number of reasons, and it is not the job of a laboratory asked to conduct such tests to inquire as to the intended use of the results. Not only that, but the mere presence of accelerants would not, in and of itself, identify the person or persons responsible for the fire. That is, the accelerant could have been used by any person, not just the insured, and it would be unreasonable to expect a laboratory to anticipate the myriad of bizarre possibilities with respect to such matters. In short, the relationship between Woodard and Southeastern is such that it is not reasonably foreseeable that Woodard would be injured by Southeastern's negligence in the way alleged, nor can the court find that there was even a reasonable likelihood of such injury.
In addition to this type of injury not being reasonably foreseeable or likely, the court also finds that the magnitude of the burden of guarding against such injury would be great. Woodard would have Southeastern be responsible for ensuring that the samples tested were the ones actually taken from her mobile home. To impose such a burden would require every laboratory engaged in such a business play the role of investigator, in addition to scientist. There simply is no justification for imposing such a far-reaching obligation on Southeastern.
There is another reason for not recognizing a duty under these circumstances. Woodard had a number of remedies at her disposal which protected her from Southeastern's negligence. Woodard was free to contest the test results and submit the test results of her own experts to American Family. In fact, she did so in this case, albeit unsuccessfully. Moreover, if she was unsuccessful with American Family, she was also free (as she also did in this case) to file suit against American Family for breach of contract. No one was in a better position to know whether Woodard deliberately caused the fire than Woodard herself, and she had a number of available avenues through which she could protect herself from Southeastern's negligence.
This court's conclusion that no duty exists in this case is reinforced by Rardin v. T & D Mach. Handling, Inc., 890 F.2d 24 (7th Cir. 1989). In Rardin the plaintiff was the purchaser of a printing press. Id. at 25. Pursuant to the sale contract, it was the seller's responsibility to dismantle the printing press *1391 and ship it to plaintiff's place of business. Id. The seller hired the defendant to dismantle the press, who in the course of doing so, damaged it, causing plaintiff to lose business profits. The plaintiff sought recovery against the defendant in tort for the defendant's negligence. In discussing whether a duty existed between the plaintiff and defendant, the court employed the following analogy:
A takes his watch to a retail store, B, for repair. B sends it out to a watchmaker, C. Through negligence, C damages the watch, and when it is returned to A via B it does not tell time accurately. As a result, A misses an important meeting with his creditors. They petition him into bankruptcy. He loses everything. Can he obtain damages from C, the watchmaker, for the consequences of C's negligence?
Id. at 26. The court answered the hypothetical question no, based on the finding that the relationship between A and C was not such that C would owe A any duty of care in repairing the watch. Id. In rejecting such "for-want-of-a-nail-the-kingdom-was-lost" liability, the court grounded its decision, both as to the hypothetical and the actual controversy before it, on two principles of Illinois law. The first was that no duty should be recognized because the tortfeasor in each instance was not in a position to assess the consequences of its negligence. Id. at 26-27. The second principle was that the Moorman doctrine, derived from Moorman Mfg. Co. v. National Tank Co., 91 Ill.2d 69, 61 Ill.Dec. 746, 435 N.E.2d 443 (1982) and subsequent Illinois Supreme Court decisions, precludes the recovery of damages in tort for "purely economic loss." Rardin, 890 F.2d at 27-8.
Although the latter principle has no efficacy here, as plaintiffs seek damages solely for injury to their reputation, the former principle does. Southeastern was in no position to assess the consequences of its negligence with regards to Woodard. The court, therefore, holds under the circumstances here that an independent laboratory retained by an insurance company to test materials for the purpose of determining the cause of the insured's loss does not owe a duty of reasonable care to the insured in collecting, handling and testing those materials or in reporting those tests to the insurer. Accordingly, because Woodard cannot recover damages from Southeastern based on a tort theory of negligence, the court grants Southeastern and Henderson's motion with respect to her claim against them in Count IV.[2]
As to Wright's claim against Southeastern and Henderson in Count IV, the court has little difficulty in finding that no duty should exist. Wright was not the owner of the mobile home, he was not the insured and he had no claim before American Family. In addition, there is no allegation that Wright was known to Southeastern. Thus, the relationship between Wright and Southeastern is even more tenuous than Woodard's relationship with Southeastern. On this basis, therefore, the court finds that Southeastern and Henderson owed no duty to Wright. Accordingly, the court grants their motion as to Wright's claim against them in Count IV as well.
II. American Family & Soyk's Motion to Dismiss
A. Count I (Malicious Prosecution)
American Family and Soyk offer no reasons beyond those offered in Southeastern and Henderson's motion as to Count I. American Family and Soyk's contentions consist of nothing more than arguing that plaintiffs have not pleaded enough facts as to each element of this claim. For the reasons stated earlier in this opinion, these contentions are rejected. Accordingly, American Family and Soyk's motion to dismiss Count I is denied.
*1392 B. Count II (Libel)
American Family and Soyk advance two reasons for dismissing Count II. First, these defendants contend that the action is barred by the one-year statute of limitations applicable to libel actions, 735 ILCS 5/13-201. Second, they contend that their alleged statements to the Winnebago County State's Attorney are privileged and cannot provide a basis for a civil action. Plaintiffs do not respond to either contention.
The failure to affirmatively plead compliance with the applicable statute of limitations is not a basis for dismissal in federal court. Tregenza v. Great Am. Communications Co., 12 F.3d 717, 719 (7th Cir.1993), cert. denied, 511 U.S. 1085, 114 S.Ct. 1837, 128 L.Ed.2d 465 (1994). Where a plaintiff, however, pleads facts that show her claim is time-barred, she has, in effect, pleaded herself out of court. Whirlpool Fin. Corp. v. GN Holdings, Inc., 67 F.3d 605, 608 (7th Cir.1995). Under Illinois law, actions for libel must be commenced within one year after the cause of action accrues. 735 ILCS 5/13-201. The discovery rule applies to this limitation period, which means that the action accrues when the plaintiff knew or should have known of the defamatory remark or statement. See Tom Olesker's Exciting World of Fashion, Inc. v. Dun & Bradstreet, Inc., 61 Ill.2d 129, 334 N.E.2d 160, 164 (1975).
American Family and Soyk contend that this action accrued at about the time the information was given to the Winnebago County State's Attorney (a date which is not specified in the complaint and is therefore unknown), or, at the latest, July 14, 1994, when the grand jury indicted plaintiffs for arson. The problem with this argument is that neither of these events necessarily means that plaintiffs were aware of the alleged defamatory statement. That is, the court cannot infer from these events alone that plaintiffs were aware that defendants provided false information to law enforcement authorities. There are, however, other facts that are alleged which show this action is time-barred. It is alleged that the publication of the false statements was ongoing from the time plaintiffs were indicted to the time the charges were dismissed on May 2, 1996. It is further alleged that plaintiffs had their own experts retest the materials in the presence of defendants on April 7, 1995, to show defendants that their previous tests were false, and that defendants continued to publish the false statements by denying Woodard's claim and encouraging the prosecution. It is evident from these allegations that plaintiffs were aware of the defamatory remarks and of defendants' involvement in the prosecution by no later than April 7, 1995. This action was filed on May 20, 1996, over a year later. Accordingly, this action is time-barred.
Even if this court did not find this claim time-barred, it would nonetheless grant American Family and Soyk's motion, as the alleged defamatory remarks fall under an Illinois privilege. Under Illinois law, statements made to law enforcement officials regarding an alleged commission of a crime are absolutely privileged and no civil action for libel based thereon can be maintained. Layne v. Builders Plumbing Supply Co., 210 Ill.App.3d 966, 155 Ill.Dec. 493, 497, 569 N.E.2d 1104, 1108 (2d Dist.1991). Thus, the mere transmission of the test results and any other information relating to the alleged arson to the Winnebago County State's Attorney cannot be grounds for a libel action. Accordingly, for all these reasons, American Family and Soyk's motion to dismiss Count II is granted. Because plaintiffs do not offer any basis for amending this claim, Count II is dismissed with prejudice.[3]
C. Count III (Fraud)
American Family and Soyk move to dismiss Count III on the grounds that plaintiffs' *1393 fraud claim against them is preempted by 215 ILCS 5/155(1) and that Count III fails to allege plaintiffs relied on defendants' misrepresentations. With respect to the former contention, American Family and Soyk rely on Kush v. American States Ins. Co., 853 F.2d 1380, 1385 (7th Cir.1988), which held that any claim alleging nothing more than the conduct proscribed by section 155 is preempted by the statute. American Family and Soyk contend that the allegations in Count III merely amount to an unreasonable denial of coverage, conduct which is proscribed by section 155. In response, plaintiffs contend that Count III alleges more than a mere refusal to settle a claim and that it therefore is not preempted. As to the failure to allege reliance, plaintiffs contend that the reliance element is sufficiently alleged. Plaintiffs also seek leave to amend so as to properly plead the reliance element.
Prior to the completion of the briefing schedule in this case, the Illinois Supreme Court decided Cramer v. Insurance Exch. Agency, 174 Ill.2d 513, 221 Ill.Dec. 473, 675 N.E.2d 897 (Ill.1996). In Cramer, the court was presented with the issue of whether section 155 preempts common law torts arising out of an insurance company's delay in settling a claim. The court held that the statute merely provides an extra-contractual remedy for insurer misconduct that is vexatious and unreasonable and that it was not intended to displace well-established tort actions, including common law fraud. Id. at 524, 221 Ill.Dec. at 478, 675 N.E.2d at 902. Thus, an insurer's conduct may give rise to both a breach of contract action as well as a separate tort action, provided the plaintiff can establish the elements of that tort. Id. at 527, 221 Ill.Dec. at 479, 675 N.E.2d at 903. In light of the Illinois Supreme Court's recent decision, Kush no longer provides the rule of decision. Because section 155 does not preempt common law torts, but merely supplements an insured's contractual remedy, defendants' first contention is rejected.
Plaintiffs must nonetheless plead all the elements of fraud, and as this court has already determined in Section I of this opinion, plaintiffs have not alleged that they relied on defendants' misrepresentations. Accordingly, American Family and Soyk's motion to dismiss Count III is granted. Plaintiffs shall be granted leave to amend this claim, but the court reminds plaintiffs of the admonitions made in Section I(C) of this opinion.
D. Count IV (Negligence)
American Family and Soyk move to dismiss Count IV on the grounds that they owed no duty to plaintiffs in selecting a laboratory and that 215 ILCS 5/155(1) preempts all common law tort actions against an insurer. With regard to this latter contention, American Family and Soyk contend that Count IV is merely based on their bad faith conduct, and as such, cannot be maintained under the Seventh Circuit's decision in Kush. Plaintiffs contend that a duty is properly alleged and that section 155 does not preempt torts which require proof beyond a mere bad faith or vexatious refusal to settle. As it found in its discussion of Count III, see infra Section II(C), there is no basis for finding a duty of care owed to Wright. He has no relationship with any of the defendants, contractual or otherwise, and plaintiffs have not provided the court with, nor is the court aware of, any case law which would support finding such a duty. Accordingly, the court grants American Family and Soyk's motion as it relates to any claim Wright is asserting against them in Count IV. Woodard's claim, however, requires a different analysis.
Although American Family and Soyk's reliance on Kush is misplaced, they are nonetheless entitled to a dismissal of Woodard's claim against them in Count IV. While the Illinois Supreme Court in Cramer held that section 155 did not preempt common law torts, it also held that there is no common law tort for bad faith or unreasonable and vexatious conduct. Cramer, 174 Ill.2d at 527, 221 Ill.Dec. at 479, 675 N.E.2d at 903. Looking beyond the legal theory attached to the conduct forming the basis of Woodard's claim against American Family and Soyk, see id., the court concludes that she has alleged no more than a mere breach *1394 of an implied duty of good faith and fair dealing by American Family and Soyk under the insurance agreement. Whatever duty of care American Family and Soyk owed Woodard with respect to processing her claim, it arose out of the contract between them. The complained of conduct alleged in Count IV merely amounts to a breach of that duty of care. The Illinois Supreme Court in Cramer clearly foreclosed a plaintiff from maintaining such a claim as an independent tort action, as such a claim would be nothing more than a claim of bad faith. Id. at 527, 221 Ill.Dec. at 479, 675 N.E.2d at 903. Thus, Woodard's claim in Count IV against American Family and Soyk is dismissed.
E. Count V (Breach of Contract)
American Family and Soyk move to dismiss Count V on the grounds that it is barred by the one-year limitations period contained in the insurance agreement. In response, Woodard concedes this action was commenced well beyond the one-year limitations period but contends that the doctrines of equitable estoppel and fraudulent concealment operate to bar defendants from raising the limitations period as a defense. Woodard seeks leave to amend the complaint to add such allegations should this court determine the present allegations to be insufficient.
The court does not find Woodard's allegations sufficient to support a tolling of the limitations period. The mere fact that Woodard had to defend a criminal prosecution against her does not, in and of itself, explain why she was prevented from filing suit. Similarly, there are no allegations that defendants fraudulently concealed matters which prevented her from timely filing suit. In fact, as the court has already noted in its discussion of the fraud claim, the allegations suggest that Woodard contested the test results throughout the period relevant to this complaint. Be that as it may, the court shall grant Woodard leave to amend the complaint. In so doing, however, the court reiterates its admonitions regarding Rule 11. Accordingly, Count V is dismissed without prejudice.
F. Count VI (Vexatious Refusal to Settle)
The sole contention made by American Family and Soyk with respect to this count is that once this court finds Count V barred by the limitations period, Count VI should also be dismissed. Woodard did not respond to this contention. Because a claim under section 155 is dependent upon a valid claim for breach of contract, it is properly dismissed. Accordingly, defendants' motion is granted as to Count VI.
CONCLUSION
For the foregoing reasons, defendants' motions to dismiss are granted in part and denied in part. Counts II and IV are dismissed with prejudice as to all defendants. Counts III, V and VI are dismissed without prejudice. The motions are denied in all other respects. Plaintiffs are granted leave to file an amended complaint, if necessary, within twenty-one (21) days of this order, after which defendants shall have twenty (20) days to answer or otherwise plead.
NOTES
[1] It is not clear to the court what, if any, rights Wright had under the insurance agreement. According to the allegations in the complaint, only Woodard was the insured. Plaintiffs do not discuss this issue, nor have Southeastern and Henderson raised it as an issue at this stage in the proceedings.
[2] Although not cited by any of the parties, the court notes that there is one Illinois appellate court decision which is arguably on point with the issue before this court. See Stinson v. Physicians Immediate Care, Ltd., 269 Ill.App.3d 659, 207 Ill.Dec. 96, 646 N.E.2d 930 (2d Dist.1995). The duty recognized in Stinson, however, appears to be based on a third-party beneficiary theory. Id. 207 Ill.Dec. at 99, 646 N.E.2d at 933. As discussed above, no such theory is applicable here.
[3] Although Southeastern and Henderson moved to dismiss this count on other grounds, the foregoing defects apply to the claims asserted against them in Count II equally as well. Thus, Count II is dismissed with prejudice as to all defendants. See D'Last Corp. v. Ugent 863 F.Supp. 763, 769-70 (N.D.Ill.1994) (dismissing complaint as to party who did not join in the motion where flaws in complaint were claim-oriented and applied to both moving and non-moving defendants), aff'd, 51 F.3d 275 (7th Cir.1995). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2123939/ | 472 F.Supp. 560 (1979)
Sheila E. DICK
v.
Paul F. LAMBERT, t/a Maryland Line Inn.
Civ. No. 78-1039.
United States District Court, M. D. Pennsylvania.
March 30, 1979.
*561 Donald B. Hoyt, York, Pa., for plaintiff.
Gebhardt & Smith, Baltimore, Md., Goldberg, Evans & Katzman, Harrisburg, Pa., for defendant.
MEMORANDUM AND ORDER
NEALON, Chief Judge.
In this diversity action, plaintiff, a Pennsylvania minor, seeks contribution from defendant, the owner of a Maryland tavern where plaintiff was served intoxicating beverages, for damages paid to a third party injured when struck by plaintiff's automobile. Presently before the court is a motion by defendant to dismiss or for summary judgment on the grounds that the law of Maryland applies and under that law no claim lies against the defendant. The motion is construed as brought pursuant to Fed.R.Civ.P. 12(b)(6). It will be granted.[1]
FACTS[2]
Defendant, a Maryland resident, owns and operates a restaurant and tavern, known as the Maryland Line Inn, in Baltimore County, Maryland. This tavern is close to the Pennsylvania border. On December 17, 1976, plaintiff, a resident of Pennsylvania and a minor under both Maryland and Pennsylvania law, drove from Pennsylvania into Maryland and visited the Inn. There she was served liquor. After she became intoxicated the employees at the Inn continued to serve her intoxicating beverages. Upon leaving the Inn, she returned to Pennsylvania where she negligently operated her automobile causing a collision with an automobile operated by David Hanle, a Pennsylvania resident. As a result of this accident, plaintiff (or her liability insurance carrier) paid Mr. Hanle $25,000 for the personal injuries and property damage he sustained. A full and complete release was obtained from him for all claims he might have against plaintiff or the Maryland Line Inn.
Plaintiff does not controvert defendant's representation that under Maryland law an Inn keeper cannot be held liable in a civil *562 action for injuries which result from serving liquor to a minor or to one already intoxicated. Hence, plaintiff concedes that if Maryland law is applicable, no claim can lie against defendant, he is not a joint tortfeasor, contribution is not appropriate, and this action must be dismissed. Plaintiff's sole argument is that Pennsylvania law applies here. The parties agree that if Pennsylvania law does apply, contribution may be appropriate. See 23 P.L.E., Liquor § 11 (1959); also see Pa.Stat.Ann. tit. 47, § 4-497 (Purdon).
DISCUSSION
In this diversity action the court looks to Pennsylvania's conflict-of-law rules to determine which state's law applies. See Klaxon Co. v. Stentor Elec. Mfg., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941).
. . . Pennsylvania has, generally speaking, adopted the `interest analysis' approach to conflict-of-law questions. Griffith v. United Air Lines, 416 Pa. 1, 203 A.2d 796 (1964); Cipolla v. Shaposka, 439 Pa. 563, 267 A.2d 854 (1970). Under that approach, we should apply the law of the predominantly concerned jurisdiction, measuring the depth and breadth of that concern by the relevant contacts each affected jurisdiction had with . . . "the policies and interests underlying the particular issue before the court"'. Suchomajcz v. Hummel Chemical Company, 524 F.2d 19, 23 (3rd Cir. 1975).
Samuelson v. Susen, 576 F.2d 546, 551 (3rd Cir. 1978).
Initially, I think this case represents a false conflict[3] because Pennsylvania has no interest in having one of its residents receive contribution from an out of state Inn keeper when the Pennsylvania resident went to the other state, was served intoxicating beverages there, returned to Pennsylvania intoxicated, negligently injured another Pennsylvania resident and settled that other Pennsylvania resident's claim. Pennsylvania has no interest in having defendant be a joint tortfeasor here.[4] The point of permitting a civil recovery against a business person who serves a minor or one already intoxicated is to deter the appropriate Pennsylvania residents and/or licensees from violating the liquor code and to compensate those Pennsylvania residents who are injured as a result of the violation. Here the injured person is not suing and has already been compensated. And the defendant is not a Pennsylvania resident. Hence, Pennsylvania, in the conflicts-of-law sense, has no concern in regulating his behavior. There are no allegations that defendant purposefully attempts to attract Pennsylvania residents or that defendant knew or should have known that plaintiff was from Pennsylvania and would be returning there. To reiterate, I do not believe that by providing for a civil recovery against one who serves liquor to a minor or one already intoxicated Pennsylvania has evidenced any concern that the person served receive contribution when she settles a claim with one who was injured as a result of the service of the liquor.
Maryland, on the other hand, does have an interest which is involved here. It has decided that its residents who are owners of taverns and who unlawfully serve liquor in Maryland shall not be held civilly liable for injuries resulting from that unlawful act. Apparently Maryland has elected to promote its liquor industry and to financially protect its residents who are tavern owners from civil liability. Defendant is a Maryland resident and tavern owner and, therefore, Maryland's interest is implicated here. Since Pennsylvania has no interest in its laws being applied, see supra, Maryland law must control.
*563 Furthermore, assuming arguendo that this case does in fact represent a true conflict, I believe that Maryland is the predominantly concerned jurisdiction. Pennsylvania's contacts with this action would be that the accident causing Mr. Hanle's injury occurred there, both plaintiff and Mr. Hanle were residents of Pennsylvania at the time of the accident, the injuries were treated in Pennsylvania and any other aid was rendered in Pennsylvania. These contacts would relate to Pennsylvania's interest in not having its underaged citizens going to another state, becoming intoxicated, returning to Pennsylvania and causing an accident on its highways. Pennsylvania would also arguably have an interest in not having its resources taxed by dealing with the accident.[5]
As stated supra, Maryland's interest here is in not having its tavern owners suffer economic losses in a civil action for serving minors or intoxicated persons. Its primary contact with this action is that the alleged tort or unlawful act, the serving of liquor to plaintiff, occurred there. The relationship between plaintiff and defendant existed only in Maryland. I believe this case comes within the reasoning applied by the Pennsylvania Supreme Court in Cipolla v. Shaposka, 439 Pa. 563, 267 A.2d 854 (1970). There a resident of Pennsylvania was injured in Delaware while riding as a guest in a car registered in Delaware and owned and operated by Delaware residents. Delaware had a guest statute and Pennsylvania did not. The court decided that Delaware law was to be applied and stated:
. . . it seems only fair to permit a defendant to rely on his home state law when he is acting within that state. [footnote omitted]
"Consider the response that would be accorded a proposal that was the opposite of this principle if it were advanced against a person living in the state of injury on behalf of a person coming there from a state having a higher standard of care or of financial protection. The proposal thus advanced would require the community the visitor entered to step up its standard of behavior for his greater safety or lift its financial protection to the level to which he was accustomed. Such a proposal would be rejected as unfair. By entering the state or nation, the visitor has exposed himself to the risk of the territory and should not subject persons living there to a financial hazard that their law had not created." [citation omitted]
Inhabitants of a state should not be put in jeopardy of liability exceeding that created by their state's laws just because a visitor from a state offering higher protection decides to visit there.
The accident in Cipolla did occur in Delaware. Nevertheless, based on the above reasoning I believe that the Pennsylvania courts, even if they considered this case to represent a true conflict, would hold that Maryland law is applicable. Therefore, so must I.
Plaintiff relies on Suchomajcz v. Hummel Chemical Company, 524 F.2d 19 (3rd Cir. 1975). There a New Jersey manufacturer sold a product (a fireworks component) to a New Jersey fabricator of firecracker assembly kits knowing that the fabricator would, contrary to law and in violation of a court injunction, use the component in the kits and ship those kits in interstate commerce. Two kits were purchased by a non party through the mail. Parts of the kits were abandoned in a bottle in a park in Pennsylvania. Plaintiffs were Pennsylvania residents who were killed or injured in that park when someone threw a match into the bottle. Although the parties had assumed that Pennsylvania law applied, the court made its own determination and agreed. It based its conclusion on Cipolla, supra, which it felt to be consistent with the view of the Restatement (Second) of Conflict of Laws §§ 145, 146, 156-157 (1971) which provides that the law determining whether a person's *564 behavior is tortious will usually be the law of the state where the injury occurred. The court believed that a true conflict existed,[6] and held that Pennsylvania would apply its own tort law since it was the place of injury.
Although the Suchomajcz case is somewhat analogous, I believe it is distinguishable in four important respects. First, here the injured party is not the plaintiff and as stated supra, I do not believe a true conflict exists. Secondly, there the defendant knew that his component part was going to be used in the assembly kit and that those kits would be illegally placed in interstate commerce. Here there are no allegations that defendant was or should have been aware of the residency of plaintiff or that plaintiff intended to return to Pennsylvania. See supra. Thirdly, here plaintiff entered Maryland herself in order to purchase the liquor. Although it is not clear in Suchomajcz exactly where the kits were ordered from, (it was probably Pennsylvania), the decision might well have been different if the fabricator did not place the kits in interstate commerce and the purchaser had traveled to New Jersey in order to buy the kits. Lastly, the relationship between defendant and plaintiff in Suchomajcz (one between a supplier and a "consumer"), to the extent one existed, was located in Pennsylvania. Hence, I do not believe that Suchomajcz requires that Pennsylvania law be applied here.[7]
NOTES
[1] Also before the court is a motion by defendant to strike Ms. Dick as plaintiff and substitute the insurance company which paid the settlement for which contribution is sought. Given my decision on the motion to dismiss, it is not necessary to reach this motion.
[2] Consistent with the proper procedure for ruling on this motion, I accept as true all the facts alleged in the complaint. Defendant denies the allegations of the complaint regarding the incident at the Maryland tavern. Those allegations are assumed to be true only for the purpose of ruling on this motion.
[3] This means that an analysis of the underlying policies of the laws of both Pennsylvania and Maryland indicates that only one of the states has an interest in having its law being applied.
[4] Plaintiff argues that Pennsylvania, through its Uniform Contribution Among Tortfeasors Act, Pa.Stat.Ann. tit. 12, § 2082 et seq., has indicated an interest that Pennsylvania residents who settle claims receive contribution. But to phrase the issue in that manner begs the question. Before Pennsylvania can have an interest in providing contribution it must have an interest in having the person from whom contribution is sought be a joint tortfeasor.
[5] To reiterate, I am merely assuming arguendo that these interests exist here and are implicated.
[6] Pennsylvania would impose liability and New Jersey would not. Pennsylvania had an interest in protecting its citizens against harm and New Jersey had an interest in promoting its industry by not imposing liability.
[7] Plaintiff also argues that under the reasoning of Cipolla, supra, she was entitled to rely on the law of Pennsylvania when she settled her claim and that this law would require contribution. I find this argument unpersuasive. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2115557/ | 791 F.Supp.2d 431 (2011)
ASHLEY II OF CHARLESTON, LLC, Plaintiff,
v.
PCS NITROGEN, INC., Defendant/Third-Party Plaintiff,
v.
Ross Development Corporation; J. Holcombe Enterprises, L.P.; James H. Holcombe; J. Henry Fair, Jr.; Allwaste Tank Cleaning, Inc. n/k/a PSC Container Services, LLC; Robin Hood Container Express, Inc.; City of Charleston, South Carolina, Third-Party Defendants.
Civil Action No. 2:05-cv-2782-MBS.
United States District Court, D. South Carolina, Charleston Division.
May 27, 2011.
Order Denying Motion to Amend or Modify August 19, 2011.
*439 Thomas N. Barefoot, Thomas N. Barefoot Law Offices, Raleigh, NC, Christy Ford Allen, John Allen Massalon, Wills Massalon and Allen, Charleston, SC, for Plaintiff.
Carmen G. McLean, John Buchanan Williams, Kevin P. Holewinski, Sandra Kaczmarczyk, Alton Associates, Washington, DC, Michael Howard Ginsberg, Jones Day, Pittsburgh, PA, William Howell Morrison, Moore and Van Allen, Charleston, SC, William G. Laxton, Jr., Jones Day, for Defendant/Third-Party Plaintiff.
Robert Bryan Barnes, Thomas McRoy Shelley, III, Rogers Townsend and Thomas, Alexander G. Shissias, Clarke W. DuBose, Haynsworth Sinkler Boyd, Columbia, SC, Ben A. Hagood, Jr., Wendy L. Wilkie, Hagood and Kerr, Mt. Pleasant, SC, Amy Elizabeth Melvin, Timothy William Bouch, Leath Bouch and Crawford, Jason Scott Luck, John Page Seibels, Jr., Seibels Law Firm, Charleston, SC, for Third-Party Defendants.
SECOND AMENDED ORDER AND OPINION
MARGARET B. SEYMOUR, District Judge.
This is a cost-recovery action brought under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), as amended, 42 U.S.C. §§ 9601, et seq., to recover costs incurred to remediate 33.95 acres of a 43 acre parcel of land in Charleston, South Carolina ("the Site"). On September 26, 2005, this lawsuit was filed under CERCLA § 107 (42 U.S.C. § 9607) by one of the Site's current owners, Ashley II of Charleston, LLC ("Ashley"), against PCS Nitrogen, Inc. ("PCS"), seeking a declaratory judgment that PCS is jointly and severally liable for the cost of remediating the Site; and a money judgment in the amount of $194,232.94 to reimburse Ashley for costs of remediation that it has already incurred. [Entry 1 at ¶¶ 28-36; Entry 209 at ¶¶ 31-37]. This court has jurisdiction pursuant to 28 U.S.C. § 1331 and CERCLA. Venue is proper in this district pursuant to 28 U.S.C. § 1391(b) and (c), and 42 U.S.C. § 9613 because the claims arise, and the releases of hazardous substances occurred at the Site, which is located in the District of South Carolina.
PCS filed contribution claims pursuant to CERCLA § 113(f)(1) against Ashley, Ross Development Corporation ("Ross"); Koninklijke DSM N.V., and DSM Chemicals of North America, Inc. (collectively "the DSM Parties"); James H. Holcombe ("Holcombe"), J. Holcombe Enterprises, *440 L.P. ("Holcombe Enterprises"), and J. Henry Fair, Jr. ("Fair") (collectively "The Holcombe and Fair Parties"); Allwaste Tank Cleaning (n/k/a PSC Container Services, LLC) ("Allwaste"); Robin Hood Container Express, Inc. ("RHCE"); and the City of Charleston, South Carolina ("the City"), alleging that they are potentially responsible parties ("PRPs").[1] [Entry 226].
Pursuant to § 113 of CERCLA, Ross filed counterclaims against PCS and cross-claims against the Holcombe and Fair Parties, the DSM Parties, RHCE, the City, and Allwaste. [Entry 239 at 12-18]. RHCE filed § 113 counterclaims against PCS and cross claims against the DSM Parties, the Holcombe and Fair Parties, Allwaste, and the City. [Entry 231 at 8-11]. The Holcombe and Fair Parties have filed counterclaims against PCS and cross-claims against Ross and the DSM Parties pursuant to § 113. [Entry 234 at 10-12]. The City has filed a § 113 counterclaim against PCS. [Entry 228 at 7-8]. PCS, Ross, RHCE, the Holcombe and Fair Parties, and the City all seek a judicial determination of their rights to future cost recovery and contribution pursuant to 28 U.S.C. §§ 2201 and 2202. [Entry 226 ¶ 50; Entry 231 ¶ 50; Entry 234 ¶¶ 55, 63; Entry 228 at 9].
This case was bifurcated into liability and allocation phases by order of The Honorable C. Weston Houck on July 25, 2006. [Entry 56]. From February 20, 2007 to February 22, 2007, Judge Houck held a bench trial for the liability phase. [Entries 107, 108, 109 and 115]. On September 28, 2007, 2007 WL 2893372, pursuant to Federal Rule of Civil Procedure 52, Judge Houck entered Findings of Fact and Conclusions of Law determining PCS to be the successor-in-interest to former Site owner, Columbia Nitrogen Corporation ("CNC"). [Entry 118]. On January 5, 2009, Judge Houck disqualified himself from further participation in the case. [Entries 307 and 308]. The case was reassigned to the undersigned on January 6, 2009. [Entries 307 and 308].[2] On August 13, 2009, this court granted summary judgment to the DSM Parties. [Entry 409].
From October 26, 2009 to November 6, 2009 and continuing from January 19, 2010 to January 27, 2010, the court held a bench trial for the allocation phase. [Entries 472, 473, 475-478, 480, 483, and 484]. This case is currently before the court on three *441 motions for judgment on partial findings filed during trial by Allwaste, the Holcombe and Fair Parties, and RHCE, [Entries 517, 520 and 521]; as well as findings of fact and conclusions of law as to allocation pursuant to Federal Rule of Civil Procedure 52(a). On June 2, 2010, each of the parties submitted proposed findings of fact and conclusions of law. PCS's responses to the motions for judgment on partial findings were contained within its proposed findings. [Entries 556-558].
Federal Rule of Civil Procedure 52(c), which governs judgments on partial findings, provides in pertinent part:
If a party has been fully heard on an issue during a nonjury trial and the court finds against the party on that issue, the court may enter judgment against the party on a claim or defense that, under the controlling law, can be maintained or defeated only with a favorable finding on that issue. The court may, however, decline to render any judgment until the close of the evidence.
Judgments entered pursuant to Rule 52(c) "must be supported by findings of fact and conclusions of law." Fed.R.Civ.P. 52(c). Under Rule 52(c), a court assesses the evidence and may enter a judgment if the evidence is insufficient to support a claim or defense. See generally Carter v. Ball, 33 F.3d 450 (4th Cir.1994); Fed.R.Civ.P. 52. Rule 52(a) directs that when an action is tried without a jury, a court "must find the facts specially and state its conclusions of law separately." Fed.R.Civ.P. 52(a). Having carefully considered the testimony, exhibits, deposition excerpts, trial briefs, and proposed findings of fact and conclusions of law, the court makes the following findings and conclusions.
I. FINDINGS OF FACT
A. Current Site Conditions
1. The property at issue consists of approximately forty-three acres in the Upper Peninsula area of Charleston, South Carolina, and is located at the end of Milford Street, abutting the Ashley River. [Ash. Ex. 162, 195]. The westernmost 33.95 acres of the property is the area that requires remediation and is the area referred to as "the Site." [Entry 194 at 12].
2. Ashley seeks reimbursement of $194,232.94 in costs associated with the remediation of the Site. The costs claimed are itemized with invoices. [Ash. Exs. 231, 232, 247, 248, 250, 251 and 252]. The listed costs were actually paid by Ashley. [Id.].
3. The environmental conditions at the Site have been comprehensively studied and investigated by experts, including experts from the United States Environmental Protection Agency ("EPA") and the South Carolina Department of Health and Environmental Control ("DHEC"). [Ash. Ex. 256, at 9-13; Trial Tr. 23:10-16].
4. There are four conditions at the Site that the remediation seeks to correct: arsenic contamination, lead contamination, low pH, and carcinogenic polyaromatic hydrocarbon ("cPAH") contamination. [PCS Exs. 216 and 218; Trial Tr. 1298:514; Ash. Exs. 91 and 162].
5. Arsenic and lead contamination are found across the entire Site. [Ash. Ex. 140; Trial Tr. 646:3-24 and 663:22].
6. The contamination at the Site is related to historic operations of a fertilizer plant at the Site. As part of the fertilizer manufacturing process, pyrite ore was burned as feedstock to create sulfuric acid. [PCS Ex. 1 at 7; PCS Ex. 218 at 1-2]. Cinders of pyrite ore that "did not burn completely in the combustion process" resulted in the creation of pyrite slag. [PCS Ex. 218 at 1-2; PCS Ex. 1 at 15]. Pyrite slag contains arsenic and lead. [Trial Tr. *442 649:10-19, 892:23-893:4, 914:4-7, 1059:3-5 and 1451:7-14].
7. The use of pyrite ore in fertilizer manufacturing operations is the source of the vast majority of the arsenic contamination at the Site. [Trial Tr. 637:2-4, 899:1-5 and 1900:19-22].
8. Another source of lead at the Site, other than pyrite slag, is lead sludge that was rinsed from lead acid chambers, which were used to make sulfuric acid during the operation of the fertilizer plant. [Trial Tr. 892:23-893:4 and 1449:13-20; PCS Ex. 218 at 1 and 10; O. Carter Dep. 17:8-18:3, Sept. 1, 2009].
9. There are two hot spots for cPAHs on the Site. One location is in the southwest corner of the Site and the other is on the Allwaste Parcel. [Trial Tr. 941:24-942:10]. The source of the cPAH contamination was a fire that destroyed a major portion of the acid plant in 1963. [Ash. Ex. 230 at 40; Trial Tr. 941:24-942:10 and 950:14-951:3].
10. The low pH of the soil and groundwater on the Site means that there are acidic conditions at the Site. These conditions are caused by a process referred to as "acid mine drainage" in which sulfides in pyrite ore react with groundwater and oxygen to produce hydrogen ions. [PCS Ex. 1 at 20; Trial Tr. 1493:22-1494:9]. Arsenic and lead percolate through the soil and into the groundwater on the Site more readily in low pH conditions. [Trial Tr. 1460:13-23].
11. The majority of the Site is currently covered with a limestone run of crusher ("ROC") layer that is graded to promote drainage. [Ash. Ex. 80 at A-EPA 006141; Trial Tr. 774:7-18].
B. Remediation Plan
12. EPA has determined that the Site meets the requirements for initiating a Non-Time-Critical Removal Action under the National Contingency Plan. [Ash Ex. 162 at A00859 and A00868].
13. In October 2005, EPA published its first remediation plan for the Site. [PCS Ex. 216]. This plan included three basic parts. First, soils contaminated with arsenic contamination above 37.3 milligrams per kilogram (mg/kg), or with lead contamination above 895 mg/kg, were to be removed from the Site and replaced with clean back fill. [PCS Ex. 216 at 6]. Second, any soil remaining onsite with arsenic over 22.5 mg/kg or with lead over 400 mg/kg would be covered with a cap. [PCS Ex. 216 at 60]. Third, groundwater would be directed to a sewer for treatment. [PCS Ex. 216 at A 00864; PCS Ex. 218 at A 00718]. The approximate total cost of EPA's first remediation plan was $7,900,000 in 2005 dollars. [PCS Ex. 218 at A 00718].
14. In March 2008, Ashley submitted a plan, designed by engineering firm Entact, to implement the soil and sediment components of EPA's remediation plan (the "Entact Plan"). [Ash. Ex. 194; Trial Tr. 556:19-561:13]. In the Entact Plan, it was estimated that the implementation of EPA's plan would require the excavation and offsite disposal of 35,337 cubic yards of soil and 800 cubic yards of sediment. [Ash. Ex. 194 at A04_04861 and A04_04863]. The Entact Plan also calls for the consolidation and capping of 9,500 cubic yards of soil for areas in which the contamination levels are higher than 22.5 mg/kg for arsenic and 400 mg/kg for lead (the residential standard), but *443 lower than 37.3 mg/kg for arsenic and 895 mg/kg for lead (the industrial standard). [Ash. Ex. 194 at A04_04861-2 and A04_04868-9].
15. Ashley also developed alternative proposals for the remediation of the Site. [PCS Ex. 200; Trial Tr. 540:2-13]. In June 2008, Ashley proposed an alternative groundwater remedy involving the use of geochemical sequestration. [PCS Ex. 229 at A04_05150, A04_05165]. Ashley also proposed mixing the 9,500 cubic yards of soil that was to be capped with a chemical stabilizer that would treat the contaminants in the soil and prevent contamination from leaching into the groundwater. [PCS Ex. 229 at A04_05150 and A04_05165]. The estimated cost of the June 2008 plan using the chemical stabilizer is $8,778,221. [PCS Ex. 200 at Table 1]. In October 2008, Ashley proposed another remediation plan calling for the offsite disposal of the 9,500 cubic yards of contaminated soil that EPA had proposed to cap. [PCS Ex. 200 at 3; Trial Tr. 559:5-560:12 and 702:4-704:11]. Under this proposal, contaminated soil will be excavated on all of the parcels of land involved in this litigation. [Trial Tr. 673:19-674:4, 645:17-646:6 and 650:24-651:16]. This plan also calls for the excavation of 13,670 cubic yards of ROC from the Site. [PCS Ex. 200 at Table 3Case 2]. Where the ROC is more than four inches deep, it would be "tested and evaluated for suitable onsite reuse." [Ash. Ex. 194 at A04_04867; Trial Tr. 710:16-20 and 805:2-20]. If the ROC is contaminated with lead or arsenic above remediation levels, the stockpiled ROC will be disposed of off-site and replaced with clean fill. [Trial Tr. 1367:2-13]. The estimated cost of the October 2008 plan involving offsite disposal of the 9,500 cubic yards of soil is $8,021,240. [PCS Ex. 200 at Table 1].
C. Basis for Dividing up Remediation Costs
16. The cost of the remediation is directly related to the volume of contaminated soil on the Site. [Trial Tr. 701:6-11]. The predominant factors contributing to the cost of the cleanup are the amount of hazardous materials and the spread of these hazardous materials throughout the Site. [Ash. Ex. 162 at 12; PCS Ex. 1 at 24-25; Trial Tr. 510:11-16, 511:1-4, 791:7-18, 812:6-11, 842:7-22, 939:2-6, 1567:9-18, 1587:9-15, 1589:7-10, 1595:10-14, 1596:19-20, 1618:7-10, 1647:18-1648:2, 1648:4-15, 1943:11-15 and 2070:20-24; see also Trial Tr. 1600:10-12, 1620:15-22 and 1932:20-23 (Murphy testifying that the contamination at the Site was "spotty"); Trial Tr. 1618:25-1619:16, 1617:21-1618:10 and 1949:19-1950:1 (Murphy testifying that he did not know which areas of the Site were already contaminated with pyrite slag by 1933)].
17. The majority of the remediation at the Site is necessary because of arsenic contamination. [Trial Tr. 660:3-8 and 1900:9-11].
18. The spread of contamination occurs in several ways, including air dispersion, chemical migration, construction, demolition, earth moving, grading, and filling. Air dispersion involves contamination spreading on the land surface due to wind activity. [Trial Tr. 1606:7-16, 1606:22-1607:2, 1607:8-12 and 1608:1-7]. Chemical migration involves contamination moving through soil when contaminants interact with the environment. For example, both lead and arsenic can move through the soil, particularly in low *444 pH conditions, through chemical migration. [Trial Tr. 842:23-843:11]. Development activities engaged in by Site owners including construction, demolition, earth moving, grading, and filling can cause horizontal as well as vertical movement of contaminants. [Trial Tr. 791:7-18, 811:24-812:5 and 1646:10-17; PCS Ex. 1 at 16].
D. Summary of Site Ownership
19. Ross, formerly known as Planters Fertilizer & Phosphate Company ("Planters"), was incorporated on May 15, 1906. [PCS Ex. 177]. Planters owned the Site from 1906 until June 30, 1966, and operated a phosphate fertilizer manufacturing facility on the Site during those years. [Ash. Ex. 162 at 1].
20. On October 1, 1962, CNC filed its Certificate of Incorporation in Delaware as Columbia Nitrogen Corporation. [Entry 118 ¶ 11]. On June 30, 1966, CNC purchased the Site from Ross. [Entry 118 ¶ 1; Ash. Ex. 23].
21. Between 1966 and 1972, CNC owned the Site and operated a fertilizer granulation plant on the Site. CNC produced superphosphate and N-P-K fertilizer (nitrogen-phosphatepotassium fertilizer). [Entry 118 ¶ 2]. In 1972, CNC ceased fertilizer production at the Site. [Entry 118 ¶ 3].
22. On February 7, 1985, CNC conveyed the Site to Susan M. Smythe ("Smythe"), as counsel to Holcombe and Fair, for the sum of $588,168.00. [Entry 118 ¶ 5; Ash. Ex. 46]. Smythe took title to the property to facilitate a like-kind exchange for Holcombe and Fair. [Ash. Ex. 48; Trial Tr. 2861:11-2862:15]. On May 3, 1985, Smythe conveyed the Site to Donald J. Hyde ("Hyde") for the sum of $365,323.00. [Ash. Ex. 48]. On May 3, 1985, Hyde conveyed the Site to Holcombe and Fair for the sum of $365,323.00. [Entry 118 ¶ 7; Ash. Ex. 49].
23. On December 29, 1987, Holcombe and Fair sold three acres of the Site to Max B. Mast and Marlene B. Mast ("the Masts") for the sum of $75,000.00. [Holcombe and Fair Parties Ex. 1; Trial Tr. 2593:2-10]. Subsequently, the Masts conveyed the same three acres of the Site to Allwaste by deed recorded on January 11, 1989. [Allwaste Ex. 1].
24. The City was conveyed a right-of-way over 1.28 acres of the Site by quit-claim deed from Holcombe and Fair on September 30, 1991. [City Ex. 19]. On December 13, 1991, the City conveyed the turnaround at the end of the right-of-way to Holcombe and Fair by quit-claim deed. [Holcombe and Fair Parties Ex. 5; Trial Tr. 2658:7-2659:3].
25. On January 15, 1992, Holcombe and Fair conveyed two acres of the Site to Robin W. Hood, II ("Hood"). [RHCE Ex. 2]. This parcel was then leased to RHCE for the purpose of conducting a business for the storage of intermodal shipping containers. RHCE continues to operate that business. [RHCE Exs. 5-7].
26. On December 23, 1997, Holcombe conveyed his part ownership of the Site to Holcombe Enterprises. [Entry 118 ¶ 8, PCS Ex. 72].
27. On December 31, 2002, Holcombe Enterprises and Fair entered into a Contract of Sale with Ashley for the sale of the Holcombe and Fair Parties' remaining property at the Site. [Ash. Ex. 94]. On November 24, 2003, Holcombe Enterprises, Fair, and Ashley amended the Contract of Sale by entering into the Fourth *445 Amendment to the Contract of Sale. [Ash. Ex. 94; Trial Tr. 80:8-16]. On November 24, 2003, Holcombe Enterprises and Fair conveyed 27.62 acres of the Site to Ashley for the sum of $2,700,000. [Ash. Exs. 94 and 113; Entry 118 ¶ 9]. On May 15, 2008, Ashley acquired 2.99 acres of the Site from Allwaste. [Allwaste Ex. 1].
28. Currently, Ashley owns 30.67 acres of the Site [Ash Exs. 194, 200], Hood owns 2.00 acres of the Site [RHCE Ex. 2], and the City holds an interest in 1.28 acres of the Site. [City Ex. 19].
E. Planters Period of Ownership (1906-1966) and Subsequent Actions by Ross
29. The only evidence introduced at trial about the Site for the period prior to 1906 was an historical map of Charleston, South Carolina from 1884. [Ash. Ex. 72 at A 001879]. On the 1884 map, the Site is referred to as W.H. Kinsman's. [Ash. Ex. 72 at A 001879]. The map shows that there were three structures on the western portion of the Site in 1884. [Ash. Ex. 72 at A 001879]. It is unknown what uses were made of the Site prior to Planters' purchase of the Site in 1906.
30. Prior to the construction of the buildings and structures shown in a 1907 Planters brochure, the Site would have required grading and filling of the undeveloped surface. [PCS Exs. 4 at 2, 168].
31. To the extent fill containing pyrite waste was used on the Site prior to the construction of the manufacturing facilities first used by Planters in 1906, such fill came from an off-site source. Seven other phosphate fertilizer plants were in operation from 1884 to the early 1900's in close proximity to the Site, all of which are potential sources of contaminated fill. [Trial Tr. 1665:6-10 and 1564:23-1565:3; Ash. Ex. 72 at A XXXXXX-XX, A XXXXXX-XX and A 001888].
32. Throughout its ownership period, Planters made phosphate fertilizer by reacting sulfuric acid with phosphate rock. [PCS Ex. 1 at 2]. Planters manufactured the sulfuric acid in acid chambers that were housed in an acid manufacturing plant on the northern portion of the Site. [Ash. Ex. 226 at 6]. Once produced, the sulfuric acid was piped to a building on the southern portion of the Site where it was added to crushed phosphate rock. [Ash. Ex. 226 at 5-7].
33. The chief fuel used by Planters until the early 1930's was pyrite, which led to the production of pyrite slag. [Ash. Ex. 76 at 2 and 4; Ash. Ex. 162 at A 00857]. The pyrite slag was spread over the Site for road stabilization and used to line off-site roads in the area. [Ash. Ex. 76 at 2, 4; Ash. Ex. 81].
34. Planters is the only known Site owner that burned pyrite ore and generated pyrite slag. [Trial Tr. 899:6-8, 1239:12-14 and 1492:16-23]. Pyrite slag is the source of the vast majority of the arsenic and much of lead contamination at the Site. [Trial Tr. 637:2-4, 899:1-5 and 1900:19-22].
35. One of the causes of the low pH at the Site is the pyrite slag from Planters' operations. [Trial Tr. 1461:8-22 and 1492:22-1493:9; PCS Ex. 1 at 20-22]. Low pH is a condition often seen at phosphate fertilizer plant sites contaminated with slag. [Trial Tr. 1461:13-22 and 1494:1-4]. The lowest pH on the Site is in the groundwater in the PZ-05 well cluster. [Trial Tr. 1461:8-22, 1494:10-23 and 1496:10-1497:5]. The low pH *446 and contamination in well cluster PZ-05 was caused by pyrite slag. [PCS Ex. 226 at I-30 and I-33; PCS Ex. 217 at A01_01389; Trial Tr. 635:16-25, 636:8-10 and 1888:25-1889:10].
36. The low pH conditions were also caused by acid discharges from the fertilizer operations, including acid rinsed out of the acid chambers, acid leaks from pipes, and discharges of fluorocylic acid and hydrofluoric acid. [Trial Tr. 926:17-927:15 and 1307:3-15]. If a leak occurred at night while Planters operated the Site, the leak would not be fixed immediately and the production process would not be halted. [O. Carter Dep. 163:17-165:1, Sept. 1, 2009]. The sulfuric acid plant operated "on automatic" during the evening shifts. [PCS Ex. 169 at 7].
37. There were five acid chambers at the Site, which were lined with lead. The use of these chambers to make sulfuric acid resulted in the build up of lead sludge in the acid chambers. Three of these chambers were rinsed out every year and two were rinsed out every two to three years. [O. Carter Dep. 16:17-17:7, Sept. 1, 2009; PCS Ex. 169 at 6, PCS Ex. 170 at 6]. hole was cut in the bottom of each of the chambers, and a fire hose was used to wash the sludge out of the chambers and onto the ground. [O. Carter Dep. 17:19-21, Sept. 1, 2009]. Fire hoses were then used to push the lead sludge into the marsh and the Ashley River. [O. Carter Dep. 23:2-23:17, Sept. 1, 2009; Benson Dep. 36:4-36:11, 45:24-46:22, Nov. 15, 2006]. "[V]ery little" soda ash was used by Planters to treat the lead acid sludge created in the acid-making process, and Planters did not test the sludge with litmus paper to determine whether it was neutralized. [O. Carter Dep. 160:23-161:4, Sept. 1, 2009]. However, the amount of lead contributed by these maintenance procedures was relatively minor. [Trial Tr. 1834:23-25, 1837:1-5 and 1838:12-16; PCS Ex. 1 at 24].
38. Between 1945 and 1949, Planters built a repair shop southwest of the phosphate plant. [PCS Ex. 4 at 9, Figs. 1-4 and 3-2]. Between 1949 and 1962, Planters made two additions to the repair shop, constructed a building southeast of the main fertilizer plant, built a shed east of the acid plant, added two buildings along the southern edge of the Site, and constructed a bulk storage building at the west end of the Site. [PCS Ex. 4 at 10-11, Figs. 3-4, 3-5, 3-10 and 3-11; Trial Tr. 1995:13-20].
39. In 1963, there was a fire that destroyed a significant portion of the acid plant. [PCS Ex. 169 at 6; Trial Tr. 1995:5-9]. The 1963 fire is the source of the cPAHs on the Site. [Trial Tr. 856:3-7]. Planters constructed a new, modernized acid plant in 1964. [PCS Ex. 169 at 6; Trial Tr. 1995:5-9].
40. In 1965, as a result of fish kills in the Ashley River, the United States Public Health Service conducted an Ashley River Pollution Study. [Ash. Ex. 21 at 1]. In June and July 1965, water discharges into the Ashley River from a number of industrial sources, including Planters Fertilizer, were sampled and analyzed. [Ash. Ex. 21 at 2]. Two waste ditches leaving the Planters plant were sampled. [Ash. Ex. 21 at 4]. One was described as being process drainage and the other as roof drainage. [Ash. Ex. 21 at 4]. Two samples from the process ditch had "extremely low" pHs of 1.7 and less than zero. [Ash. Ex. 21 at 4].
*447 41. In a Letter of Agreement dated January 6, 1966, Planters agreed to sell the Site to CNC and promised to indemnify CNC. [PCS Ex. 276]. The Indemnification provision states:
Seller [Planters] agrees to indemnify and hold harmless Buyer [CNC] in respect to all acts, suits, demands, assessments, precedings and cost and expenses resulting from any acts or omission of the Seller [Planters] occurring prior to the closing date and pertaining herein, provided the Seller [Planters] receives prompt notice in writing of such claims or demand and Seller [Planters] shall have the right to litigate or contest such claim.
[PCS Ex. 276 at 10].
42. On June 30, 1966, the Planters plant and equipment were transferred from Planters to CNC by way of a Bill of Sale. [PCS Ex. 15]. The real estate on which the Plant was located was transferred by way of a deed on the same date. [Ash. Ex 23].
43. The phosphate fertilizer industry was aware that the use of pyrite caused the release of lead and arsenic since at least 1924. [Trial Tr. 1953:22-1954:5].
44. Ross filed a Notice of Intent to Dissolve in 1983. [PCS Ex. 177; Ross Ex. 5].
45. The Board of Directors of Ross (the "Ross Directors") knew that the Site was contaminated at least as early as 1992 when an article appeared in a Charleston paper regarding the listing of the Koppers Superfund Site on the National Priorities List. [Trial Tr. 2916:19-2917:12; PCS Ex. 261]. One of the Ross Directors, Katherine Rike ("Rike"), understood from the article that the entire Neck Area in Charleston, South Carolina, including the Site, was contaminated. [Trial Tr. 2916:19-2917:12]. Another director, Mr. Carter ("Carter") clipped out the article and placed it in a file entitled "Special Directors Meeting." [Trial Tr. 2984:20-2985:1]. On January 31, 1992, the Special Directors Meeting was held in part to discuss a potential environmental liability claim against Ross. [Trial Tr. 2981:21-2982:18]. At that meeting, Carter was authorized by the Ross Directors to consult with an environmental attorney. [Trial Tr. 2987:11-14].
46. A November 12, 1998 article about the Site that was published in the Charleston Post and Courier specifically addressed lead and arsenic contamination at the Planters facility. [PCS Ex. 262]. This article stated that the clean up could cost millions of dollars and that the EPA had not yet determined "which former property owner would be responsible for the clean-up." [PCS Ex. 262]. Following publication of the 1998 article, the Ross Directors held a meeting, and again discussed "possible environmental issues." [PCS Ex. 263]. During that meeting three of the Ross Directors were authorized to discuss the matter with an environmental attorney. [PCS Ex. 263].
47. On January 28, 1999, Rike left a telephone message with Carter and another Ross Director. [PCS Ex. 264]. She stated that "her thoughts at this point are to completely drain all the accounts, particularly since there is a potential `threat' from the environmental agency right now." [PCS Ex. 264].
48. From 1996 through 2006, Ross sold real estate valued at about $11,000,000 and transferred to its shareholders all proceeds from these sales not used to pay expenses. [PCS Ex. 181].
*448 49. In 2004, Ross distributed $1,832,019 to its shareholders. [PCS Ex. 181 at 15]. In 2005, Ross distributed $916,010 to its shareholders. [PCS Ex. 181 at 15]. In 2006, Ross distributed $694,991 to its shareholders. [PCS Ex. 181 at 5].
50. In July 2006, Mr. Carter advised Ross's shareholders that the distribution being made at that time might have to be returned to a creditor making a claim within ten years of Ross's dissolution. [PCS Ex. 181 at 1].
51. Ross filed its Articles of Dissolution on September 13, 2006. [PCS Ex. 177; Ross Ex. 6].
52. Rike has acknowledged that she was aware of PCS's claim against Ross in November 2006. [Trial Tr. 2932:3-5].
53. The Ross Directors made a final distribution of $35,439 to its shareholders on December 13, 2006. [Trial Tr. 2932:6-2933:18]. The Ross Directors were themselves Ross shareholders who received payments upon authorizing distributions. [PCS Ex. 181].
54. Ross has filed a declaratory judgment action in South Carolina state court against Fireman's Fund Insurance Company and United States Fire Company, both of which have denied Ross insurance coverage for any liability related to the contamination at the Site. [PCS Ex. 183]; see Ross Dev. Corp. v. Fireman's Fund Ins. Co., 2008-CP-10-5524. This case was subsequently removed to federal court. Ross Dev. Corp. v. Fireman's Fund Ins. Co, 2:08-CV-03672-MBS.
F. CNC Period of Ownership (1966-1987)
55. CNC owned the Site from 1966 to 1985. PCS operated the acid plant at the Site until June 1970 and operated the fertilizer plant until 1972. [PCS Ex. 1 at 3; PCS Ex. 15; PCS Ex. 175 at DSMNV-000585].
56. Arsenic and lead were present in CNC's finished product, normal superphosphate fertilizer. [Ash. Ex. 41 at 75]. Dust generated by the manufacture of this product contained elevated lead and arsenic, which was deposited on the Site. [Trial Tr. 1303:7-1304:8 and 1347:20-24].
57. Arsenic was present in the raw phosphate ore from Florida used by CNC in its manufacturing processes, but much less arsenic was released when the phosphate rock was burned than when pyrite was burned by Planters. [Trial Tr. 1299:7-10, 1299:18-22, 1407:19-24, 1958:25-1959:2, 1959:7-9 and 1959:18-25; Ash. Ex. 41; Ash. Ex. 29 at 7].
58. CNC never used pyrite ore to manufacture sulfuric acid and generated no pyrite slag. [Trial Tr. 1492:21-23 and 1524:12-13].
59. Lead was also present in the raw phosphate ore used by CNC in its manufacturing processes. [Trial Tr. 1299:7-10, 1299:18-22, 1407:19-24, 1958:25-1959:2, 1959:7-9 and 1959:18-25; Ash. Ex. 41; Ash. Ex. 29 at 7].
60. Every summer CNC closed the acid plant for three months for plant maintenance. Of the five acid chambers, three were washed out every year, and two were washed out every two years. CNC personnel washed lead sludge that built up in the acid chambers from a four by six inch hole cut into the bottom of each chamber onto the ground. [O. Carter Dep. 22:13-22, Sept. 1, 2009]. This wash out resulted in a pyramid of sludge under each chamber that was two feet wide, and two to three feet high. [O. Carter Dep. 22:13-22, Sept. 1, 2009]. Each pyramid of sludge was *449 then hosed with a 225 foot long fire hose into an unlined ditch that ran toward the Ashley River. [O. Carter Dep. 102:25-103:12, Sept. 1, 2009]. The sludge then migrated towards the Ashley River. [O. Carter Dep. 15:24-26:11, 77:20-78:24, 89:17-105:19, Sept. 1, 2009; Trial Tr. 1842:3; Ash. Ex. 272 at 3-4, Figs. S-7 and S-8; Ash. Ex. 41 at ii, A04_04337; Ash. Ex. 72 at 4, A001881; Ash. Ex. 150 at 1; Ash. Ex. 91 at 2, 6-63; Ash. Ex. 93 at A01_06704]. The sludge washed out of the acid chambers was a mixture containing lead sulfate, which was in part comprised of lead and acid. [Trial Tr. 831:9-22].
61. In addition, during periodic repairs to the lead acid chambers, pieces of lead were cut out and discarded onto the ground. From 1969 to 1971, the used lead was "just thrown and left laying around." [2007 Trial Tr. 90:20-22, 93:16-20 and 104:4-14]. In conducting a Site inspection during the Phase I Remedial Investigation, EPA contractor Black and Veatch Special Projects Corp. ("Black and Veatch") noted that the site was "littered with . . . sheets of lead lining from the lead acid chambers." [Ash. Ex. 87 at 9]. Lead sheets were seen on the ground by EPA in the 1990's. [Ash. Ex. 93 at 1-8]. If lead sheets were left on the surface of the ground from the time of the acid plant demolition in 1972, they could have contributed to the contamination at the Site. [Trial Tr. 1653:1-9].
62. The onsite manufacturing processes generated liquid process effluent that contained fluorosilicic acid and lead that was discharged into drainage ditches, releasing these contaminants across the Site and into the marsh and the Ashley River. [Ash. Ex. 228 at 4]. Fumes containing fluorosilicic acid were released into the air to be deposited onsite by prevailing winds. [PCS Ex. 1 at 5-6 & n. 2; Ash. Ex. 21 at 1].
63. After CNC purchased the plant, two new environmental practices were implemented by CNC's environmental manager Herbert Respess ("Respess"). [Trial Tr. 1481:2-12 and 1850:1-15]. First, during the periodic maintenance of the acid chambers, maintenance workers would enter the acid chambers and treat the acidic lead sludge with four to five hundred pounds of soda ash. [O. Carter Dep. 37:14-17, 20:1-6, Sept. 1, 2009]. After the treated sludge rested for twenty-four hours, the tanks were drained and another four to five hundred pounds of soda ash were mixed into the lead sludge. [O. Carter Dep. 17:12-21, 21:2-22:13, Sept. 1, 2009]. Before the lead sludge was washed away, it was tested with litmus paper to confirm that it had been neutralized. [O. Carter Dep. 160:6-18, Sept. 1, 2009]. Second, CNC implemented new procedures not used by Planters to address acid leaks from pipes. When pipes leaked, Carter was called to address the problem immediately and if he was not available, the plant was shut down. [O. Carter Dep. 163:17-165:1, Sept. 1, 2009]. When a leak was discovered, it was treated with soda ash. [O. Carter Dep. 29:20-30:4, Sept. 1, 2009; Trial Tr. 875:18-878:3, 882:16-21 and 883:5-15]. As a result, CNC shut down the plant more frequently than Planters did for maintenance. [O. Carter Dep. 28:20-29:12, Sept. 1, 2009]. CNC also shut down the plant on occasion to minimize air emissions from the plant. [PCS Ex. 175 at DSMNV-000609].
*450 64. Site data show that lead sulfate was released from the acid lines. These acid releases created conditions that allowed the redistribution of lead and arsenic through natural processes including chemical migration, leaching, and chemical dissolution followed by re-precipitation. Over time, periodic releases of acid, either from the washing out of the lead chambers or acid spills from line leaks and tank leaks, mobilized both lead and arsenic through the soil. [Trial Tr. 831:9-22, 840:13-16 and 842:23-843:7].
65. During 1968 and 1969, CNC constructed a new granulation plant. [Ash. Ex. 26 at 3]. CNC dismantled existing components of the old granulation plant and moved them to a new structure. [Ash. Ex. 26 at 2]. New construction involved over 120 tons of steel, creating heavier foundations and running over 4,500 feet of new underground piping, including 500 feet of piping from the acid plant to the new granulation plant. [Ash. Ex. 26 at 14,15 and 21; Ash. Ex. 28 at 1 and 14-15].
66. In 1969, the old granulation plant was converted to storage, which required the construction of concrete ramps, the removal of old equipment, and the replacement of support columns. [Ash. Ex. 26 at 15]. Two stories of the old granulation plant were removed and the roof replaced. [Id.].
67. In May of 1970, CNC reported that the acid plant was "in poor repair." [PCS Ex. 1 at 5-6 & n. 2; Ash. Ex. 26 at 1; Ash. Ex. 30 at 3].
68. During CNC's ownership of the Site, material was brought onto the Site and used as fill. Locations at which fill material was placed are contaminated and require remediation. [Ash. Ex. 226 at 11 and 18; Ash. Ex. 229 at 23 and 26].
69. On April 23, 1971, a severe wind storm caused extensive damage to the roof of the sulfuric acid plant, the main building, and the plant protection chemicals storage building. [Ash. Ex. 32 at 6]. Estimated loss amounted to $45,000 to buildings, $28,000 to fertilizer, and $20,000 to chemicals. [Ash. Ex. 32 at 6]. This damage resulted in air dispersion of contaminated roof dust, the finished fertilizer product, and chemicals.
70. The acid plant was not repaired after this event. Demolition of the plant began in 1971 and was completed by February 28, 1972. [Ash. Ex. 32 at 6; Ash Ex. 33 at 4; Trial Tr. 1667:24-1668:1]. Demolition involved dismantling and washing out the acid chambers and acid towers, and excavating the acid tank and associated piping. Heavy equipment was required to demolish and remove the structures, and to remove the pilings on which the structure was built. Demolition of the plant would have disturbed the subsurface soil to a depth of at least two feet. [Ash. Ex. 272 at 2, Figure S-1; Trial Tr. 2561:4-19 and 2564:20-2565:1]. Underground piping was dug out with an excavator by digging a trench right over the pipe or next to it and removing the pipe to a staging area. [Trial Tr. 2561:4-2562:6].
71. By July 1972, the dismantling of all acid plant equipment was nearly complete. [Ash. Ex. 37 at 4]. By October of 1972, all fertilizer production at the Site had ceased. [Ash. Ex. 226 at 13; Ash. Ex. 37 at 4]. Between 1972 and 1977, the Site was inactive. [PCS Ex. 4 at 13-14]. An April 1973 aerial photograph indicates that the roof on the old granulation plant had collapsed. [PCS Ex. 4, Figs. 3-25 and 3-33].
*451 72. Between February and September of 1977, CNC dismantled most of the remaining structures on the Site. [Trial Tr. 2005:23-25]. The dismantling of the acid and fertilizer plants left wooden timbers and poles on the Site from late 1977 until 1979. [Trial Tr. 2072:1-10; PCS Ex. 4 at 14-15].
73. In April 1979, CNC's demolition contractor defaulted on his contract and walked off the Site leaving "a lot of rubble and some very difficult concrete structures to remove." [Ash. Ex. 40]. Access to the Site was not secure; fencing was down and a gate left open. [Ash. Ex. 40].
74. By January 11, 1981 the demolition of the fertilizer plant was completed. [Ash. Ex. 33 at 4; Ash. Ex. 40 at 1; PCS Ex. 4 at 15]. Demolition of the fertilizer plant required the use of substantial heavy equipment, such as large hydraulic excavators, a crane with a wrecking ball, front-end loaders, and bulldozers. [Trial Tr. 2556:19-2557:16]. Demolishing the large buildings on the Site required using an area around the buildings to position the equipment and to place pieces of the demolished building. [Trial Tr. 2558:9-2559:14]. In addition, grading was likely required to expand site access and prepare an area for staging. [Trial Tr. 2558:9-2559:14]. These processes disturbed the soil. [Trial Tr. 2564:20-2565:1].
75. The removal of three separate railroad tracks on the Site, including portions elevated on trussle-type structures, would have required the use of heavy excavation equipment to dig out the tracks. [Trial Tr. 2560:13-2561:3]. The piles would either be pulled out or broken off with a bulldozer, disturbing the soil. [Trial Tr. 2560:13-2561:3].
76. After demolition activities were completed, CNC did not implement a stormwater management system on the Site. By early 1981, most of the debris from the demolition process had been removed. [PCS Ex. 4 at 15; Ash. Ex. 272 at 3, fig. S-5].
77. The CNC demolition and Site preparation activities that occurred in the 1971-1981 time period impacted an area a little less than eighty percent of the area where contaminated soils and sediments must be excavated. [Trial Tr. 1047:5-17]. Demolition and regrading of the Site by CNC significantly disturbed the soil at the Site. [Trial Tr. 939:2-6].
78. CNC operated three phosphate fertilizer plants located in: Charleston, South Carolina; Moultrie, Georgia; and Macon, Georgia. [Ash. Exs. 31-38]. According to the testimony of Thomas Blue, a PCS environmental expert who testified at the first trial, a company with expertise in the manufacturing of phosphate fertilizer would be aware that these processes result in lead and arsenic contamination. [2007 Trial Tr. 364:24-366:17]. If pyrite clinkers and pyrite slag were on the land surface of the Site, a person with expertise in the phosphate fertilizer business would know that lead and arsenic contamination were being released. [Trial Tr. 1600:2-1601:2]. CNC employed more stringent environmental practices at its phosphate fertilizer plant in Moultrie, Georgia than in Charleston, South Carolina. In Moultrie the lead sludge from the lead acid chambers was washed into a retention basin lined with calcitic lime rock, whereas in Charleston the lead sludge was washed onto the ground, sprinkled with soda ash, and then washed away with a fire hose. [O. Carter Dep. *452 74:21-75:3, 93:9-22, September 1, 2009]. The foregoing indicates that CNC knew that hazardous materials had been disposed of on the Site.
79. CNC continued to own the Site until 1985, roughly five years after CERCLA was enacted. CNC did not report any release of hazardous substances at the Site to EPA. [Ash. Ex. 258].
80. Prior to the purchase of the Site by Holcombe and Fair in 1985, all of the structures on the Site were demolished and "some grading of portions of the Site took place." [Trial Tr. 2565:17-2566:2; Ash. Ex. 258 at 5].
81. CNC did not disclose the presence of contamination on the Site to Holcombe and Fair prior to the sale of the Site. [Ash. Ex. 47; Trial Tr. 2863:24-2864:12].
G. Holcombe and Fair Parties Ownership (1987-2003)
82. In November of 1984, Holcombe and Fair, and CNC executed an agreement for the sale of approximately thirty-nine acres of the Site. [PCS Ex. 58; Trial Tr. 2580:20-21].
83. Holcombe and Fair were represented by Smythe, a real estate lawyer. [Trial Tr. 311:18-19, 2584:3-4 and 2861:5-14].
84. On December 11, 1984, William Bivens ("Bivens"), counsel to CNC, sent Fair a letter enclosing the results of a soil sampling performed in 1968. [Ash. Ex. 44]. This soil sampling was performed for the purpose of assessing the suitability of the soil for construction purposes and did not assess the environmental condition of the soil. [Id.; Trial Tr. 2585:2-2587:11].
85. Prior to consummating the sale of the property, Holcombe and Fair agreed to sell a portion of the property to the Commissioner of Public Works for the City and agreed to enter into a like-kind exchange of property with Hyde. [Trial Tr. 2583:14-2584:5 and 2861:3-2863:13].
86. On January 4, 1985, Bivens sent Fair a letter describing an agreement between CNC and the City whereby the City planned to extend Milford Street and water and sewer utilities onto the Site. [PCS Ex. 59]. In the letter, CNC offered to assign its rights under the agreement with the City to Holcombe and Fair. [PCS Ex. 59]. Fair understood this letter to mean that the City would pay to extend Milford Street and the utility lines. [Trial Tr. 2581:6-2582:18].
87. On February 7, 1985, CNC conveyed the Site to Smythe, as counsel to Holcombe and Fair, for the sum of $588,168.00. [Entry 118 ¶ 5; Ash. Ex. 46]. Smythe then conveyed six acres of the property she received from CNC to the Commissioner of Public Works. [Trial Tr. 2584:2-5 and 2861:3-2863:13]. On May 3, 1985, Smythe conveyed the remainder of the land at the Site to Hyde for the sum of $365,323.00. [Entry 118 ¶ 6; Ash. Ex. 48; Trial Tr. 2861:11-2862:15]. That same day, Hyde conveyed the property to Holcombe and Fair. [Entry 118 ¶ 7]. Holcombe and Fair, in turn, conveyed another property to Hyde through Smythe. [Ash. Ex. 49; Ash. Ex. 50; PCS Ex. 66; Trial Tr. 311:5-17, 313:11-314:3, 2583:14-2584:11 and 2861:3-2863:13]. Holcombe and Fair did not have knowledge of environmental contamination at the time of the like-kind exchange. [Trial Tr. 2584:11-2585:10 and 2863:24-2864:12; Ash. Ex. 47].
88. No environmental site assessment was conducted by Holcombe and Fair prior to purchase because it was not *453 customary at the time for purchasers of commercial property to investigate the property's environmental condition. [Entry 528 at 5:23-6:12 and Ex. 1; Trial Tr. 310:4-311:1, 471:16-474:18, 2588:20-2589:5, 2793:4-2794:12, 2868:24-2870:9 and 2885:10-16; Entry 527 at 16:5-17:21, 18:16-22, 22:2-9 and Ex. 1; Holcombe and Fair Parties Ex. 13].
89. When the Site was acquired by Holcombe and Fair, it was in a condition that did not require rough grading or the removal of buildings. [Trial Tr. 434:11-17, 2496:6-25, 2498:1-2499:7, 2685:6-14, 2699:1-18 and 2801:25-2802:7]. Witnesses who observed the Site at the time described the land as relatively flat, with some vegetation, but no trees. [Trial Tr. 434:11-17, 2496:6-25, 2498:1-2499:7, 2685:6-14, 2699:1-18 and 2801:25-2802:7].
90. On December 29, 1987, Holcombe and Fair conveyed three acres of the Site to the Masts by deed for the sum of $75,000.00. [Holcombe and Fair Parties Ex. 1, Trial Tr. 2593:2-10]. Holcombe and Fair did not perform any site work or construction on this parcel prior to the sale to the Masts. [Trial Tr. 2593:2-10].
91. Holcombe and Fair intended to divide their property up into parcels for lease. [Trial Tr. 2494:12-2495:3, 2590:3-9, 2598:7-25, 2681:23-2682:7 and 2695:6-2698:14].
92. In the summer of 1990, Holcombe and Fair began constructing the Milford Street extension. [Trial Tr. 2796:1-19]. Holcombe and Fair paid for the extension of Milford Street. [Trial Tr. 2656:10-2557:9]. The City did not contribute to the payment of these expenses. E.M. Seabrook Jr., Inc., a local engineering and surveying company, was hired by Holcombe and Fair to design and supervise the construction of the Milford Street extension. [Trial Tr. 2598:13-22, 2682:1-7 and 2687:6-8; PCS Ex. 79 at 3-6]. The design of the Milford Street extension included the addition of underground water and sewer lines as well as a drainage ditch. [Trial Tr. 2494:12-2495:3, 2582:19-22, 2598:7-25, 2681:23-2682:7, 2685:6-18 and 2695:6-2698:14]. These plans were approved by the South Carolina Coastal Council. [PCS Exs. 79, 80, 83, 84, 155, 157 and 165; Holcombe and Fair Parties Ex. 2].
93. During the construction of the Milford Street extension, a bulldozer was used to level and smooth the land. [Trial Tr. 1128:17-1129:6, 2694:14-2696:3 and 2699:1-18; PCS Ex. 157]. By the end of the summer of 1990, the Milford Street extension was roughed in. [Trial Tr. 2796:1-19]. ROC was put down as base material with asphalt placed on top. [Trial Tr. 1128:17-1129:6, 2494:12-2495:22, 2694:14-2696:3 and 2699:1-18; PCS Ex. 157]. A turnaround was constructed at the end of the road extension, but was left unpaved. [PCS Ex. 157; Trial Tr. 2686:12-25 and 2780:5-8]. The water and sewer utility extensions were constructed by excavating soil adjacent to the road extension, placing utility pipe in the excavated trench, backfilling the trench with soil removed from the trench, and spreading any excess dirt in the immediate area of the excavation. [PCS Ex. 157; Trial Tr. 2696:4-2697:2]. The water line extension was placed on one of the road shoulders at an elevation of approximately three feet deep. [Trial Tr. 2731:15-16]. The sewer line was placed on the other road shoulder at a depth of four and one half feet. [Trial Tr. 2731:2-14]. A drainage *454 ditch approximately two feet in depth and ten feet in width was constructed along the road extension and along the turnaround. [PCS Ex. 157; PCS Ex. 166 at PCS-0016120; City Ex. 17 at 6; Trial Tr. 2686:12-25, 2697:3-12 and 2746:23-2747:22]. The final portions of the water and sewer lines were installed in 1996. [PCS Ex. 259 at HF0001249; PCS Ex. 101]. The construction of the road, ditch, and utility lines proceeded through areas with discolored soils. [PCS Ex. 126; Trial Tr. 422:6-9 and 2800:18-25].
94. The asphalt on the Milford Street extension acted as a cap, preventing further environmental harm; and the addition of water and sewer lines prevented the use of contaminated groundwater, protecting human health. [Trial Tr. 439:15-440:3, 445:7-12, 479:15-22, 480:3-14 and 1731:2-1732:6].
95. In mid-1990, Charles Lane ("Lane"), a real estate professional working at Holcombe and Fair Realtors, recommended that Holcombe and Fair conduct an environmental assessment of the Site before leasing or selling portions of the property. [Trial Tr. 2491:8-2492:6 and 2589:9-15].
96. On July 31, 1990, Lane sent a letter to Tom Hutto ("Hutto") of General Engineering Laboratories, Inc. ("GEL") requesting an environmental investigation of the property "to the minimum extent necessary to show due diligence." [PCS Ex. 124].
97. Subsequently, Scott Smith ("Smith") and Hutto of GEL performed an environmental assessment of the property that included a review of historical information, interviews, and soil sampling and testing. [Ash. Ex. 53; PCS Ex. 126-127; Trial Tr. 314:1-323:12, 487:15-493:5 and 2795:9-2802:13].
98. Hutto and Smith performed a visual inspection of the Site in the summer of 1990. [Trial Tr. 2795:1-17 and 2797:13-20; PCS Ex. 126]. During this visual inspection, Smith noted a pile of material near the road construction that he believed was soil and building debris. [Trial Tr. 2800:6-15]. He did not sample this material. [Trial Tr. 2801:5-24]. Smith also noted the presence of discolored soils along the edge of the Milford Street extension and to the west of the turnaround. [PCS Ex. 126; Trial Tr. 2797:21-2798:2]. These discolored soils included a purple slag-like material. [Trial Tr. 2815:9-14]. Hutto observed waste materials spread across the land surface during the inspection. [Trial Tr. 510:23-511:8].
99. On October 3, 1990, a draft report of GEL's investigation was sent to Lane. [Ash. Ex. 53; Trial Tr. 317:6-16, 496:12-497-6 and 2493:8-16]. The report detailed the analytical results from several samples taken from sixteen on-site test pits that were seven to ten feet deep. [Ash. Ex. 53; Trial Tr. 320:5-321:1]. The results showed elevated metals, including lead and arsenic, and low pH conditions in several of the samples. [Ash. Ex. 53; Trial Tr. 316:10-323:24]. These results were not reported to DHEC because samples from test pits are not required to be reported. [Trial Tr. 489:16-490:5, 2838:12-14 and 2839:5-11]. The draft report indicated the presence a gray material that is considered characteristically hazardous as well as a purple slag material that is not considered characteristically hazardous. [PCS Ex. 127 at 2-3].
*455 100. On October 4, 1990, Smith faxed a copy of the draft report to Smythe. [PCS Ex. 128].
101. On December 12, 1990, Elizabeth Warner ("Warner"), an attorney representing Holcombe and Fair, sent a copy of the GEL draft report to an attorney at Arcadian Corporation, successor to CNC, and predecessor to PCS. [Ash. Ex. 55; PCS Ex. 129; Entry 118 at 8 and 22]. Warner's letter indicated that GEL's investigation of the Site revealed "significant contamination" involving phosphates and petroleum products. [PCS Ex. 129].
102. Ross was never contacted by the Holcombe and Fair Parties regarding the contamination or clean up costs despite Holcombe's knowledge that the Site had been owned by Planters. [Trial Tr. 2632:1-4 and 2880:23-2881:60; PCS Ex. 56].
103. GEL's final report on its subsurface investigation concluded that there were "materials in the subsurface which would be considered characteristically hazardous." [PCS Ex. 132 at iii]. Contamination was found at depths ranging from one and one half to eight feet below the land surface. [PCS Exs. 127 and 132]. The final report also indicated that stormwater presented a problem at the Site because it could carry contaminants that were on the land surface to the marsh and tidal pool at the western edge of the Site. [PCS Exs. 127, 132; Trial Tr. 2820:18-2821:21 and 2822:18-25].
104. Holcombe and Fair did not commission further soil sampling or analysis after the GEL report [Trial Tr. 411:6-8, 2629:21-2630:22 and 2837:6-16], despite GEL's statement that additional sampling was appropriate. [PCS Exs. 127 and 132].
105. On December 29, 1990, Holcombe and Fair entered into a Contract of Sale with RHCE for three acres of land at the Site. [Holcombe and Fair Parties Ex. 3 at 3; Trial Tr. 2594:4-2597:8]. The Purchase and Sale Agreement stated, "There is no contamination on the property at the time [RHCE] takes over the property, except as outlined in GEL letter dated December 20, 1990." [PCS Ex. 131]. The December 20, 1990 letter did not mention contamination on the Site besides that found on tracts one and two. [Trial Tr. 2836:3-21]. The letter mentioned the purple slag, but did not mention the gray characteristically hazardous material described in the draft report. [PCS Ex. 130]. The GEL letter indicated that the presence of contamination should not affect the use of the property for the purpose parking commercial vehicles on six inches of ROC. [PCS Ex. 130 at 2].
106. On January 23, 1991, an attorney for Arcadian Corporation responded to Warner's letter regarding the contamination at the Site denying responsibility. [Ash. Ex. 56]. Arcadian subsequently provided EPA with a copy of GEL's draft report in response to a request for information. [Ash. Ex. 62].
107. On May 22, 1991, Holcombe faxed additional information to Hood. [PCS Ex. 186; Trial Tr. 2594:25-2596:5]. The fax, which summarizes the findings of a July 22, 1987 environmental audit of a neighboring property by the Commissioner of Public Works, indicates that contaminants in the soil did not significantly impact the surface soils or the groundwater on the neighboring property and that current activities were not exacerbating the contamination *456 of the neighboring property. [PCS Ex. 186 at 5].
108. On May 29, 1991, the Holcombe and Fair Parties commissioned GEL to analyze the groundwater at the Site. [PCS Ex. 133].
109. In July of 1991, GEL conducted groundwater sampling and analysis at the Site. [Ash. Ex. 59; PCS Exs. 134 and 136]. In conducting this analysis, GEL took samples from a well not owned by Holcombe and Fair. [PCS Ex. 133; Trial Tr. 2806:5-12, 2838:7-25]. Because the well was owned by another entity, the test results from this sampling were not required to be reported to DHEC. [PCS Ex. 133; Trial Tr. 2806:5-12 and 2838:7-25]. The results of the analysis were provided to Holcombe, who forwarded the information to Hood on July 3, 1991. [Ash. Ex. 59; PCS Exs. 134-137]. The results revealed low pH conditions, [Trial Tr. 417:7-12] and that the groundwater at the Site failed to meet South Carolina groundwater standards for levels of nitrates as well as the secondary standard for sulfates, [PCS Ex. 134]. The report, however, stated that the groundwater results should not affect Holcombe and Fair's intended use of the property to park commercial vehicles and containers. [Ash. Ex. 59; Trial Tr. 2806:19-2807:16].
110. On September 30, 1991, the Holcombe and Fair Parties deeded the Milford Street extension, which covers 1.28 acres of the Site, to the City by quitclaim deed. [City Ex. 19].
111. On December 13, 1991, the City conveyed the land from the turnaround at the end of the Milford Street extension back to Holcombe and Fair by quit-claim deed. [Holcombe and Fair Parties Ex. 5; Trial Tr. at 2658:7-2659:3]. The deed to the Milford Street extension was recorded on December 19, 1991. [City Ex. 19].
112. Prior to leasing out parcels of the Site, Holcombe and Fair prepared each parcel by removing vegetation, filling any low spots, and putting down a four to six inch layer of ROC. [Trial Tr. 2496:6-2500:13, 2600:1-12 and 2600:24-2601:1, 2697:13-2699:18]. The contractor performing the site preparation work encountered concrete and steel rods. In order to prevent breaking the equipment, the contractor stopped using a bushog and used a bulldozer to clear vegetation. [Trial Tr. 2496, 2499 and 2632:19-2633:11]. Site preparation was conducted over approximately six years as leases were signed for the use of different parcels. [Trial Tr. 1174:7-24, 2495:23-2496:5, 2697:13-2698:2; Ash. Ex. 229]. Portions of the Site were graded, proof rolled and cleared as late as 1998. [PCS Exs. 105-106].
113. Development of the parcels by Holcombe and Fair occurred on contaminated soil. [Ash. Ex. 194 and drawings 1-6].
114. On January 15, 1992, Holcombe and Fair conveyed two acres of the Site to Hood. [RHCE Ex. 2]. This parcel was then leased to RHCE, for the purpose of conducting a business for the storage of intermodal shipping containers on the parcel. [RHCE Exs. 5-7]. RHCE continues to operate its intermodal shipping container storage business. [RHCE Exs. 5-7].
115. Between February 1992 and May 1993, Holcombe and Fair placed ROC on the first parcel of land that *457 it leased. [Ash. Ex. 229 at 29-32; Trial Tr. 1192:13-1197:7 and 2026:19-2030:9; PCS Ex 4, Figs. X-XX-X-XX].
116. Holcombe and Fair were required to have a master drainage plan for the Site approved by DHEC before they developed the Site. [Trial Tr. 2688:20-24; PCS Exs. 96; 97]. In 1992, Seabrook worked with DHEC to develop such a plan. [PCS Exs. 96-99]. The resultant plan involved the construction of four detention ponds. [PCS Ex. 4 at 17-18 and Fig. 4-1; PCS Ex. 99; PCS Ex. 142; PCS Ex. 144].
117. On February 5, 1993, EPA sent a letter to Holcombe and Fair requesting access to their property in order to conduct environmental assessment activities related to the neighboring Koppers facility. Holcombe and Fair granted access. [PCS Ex. 74; Trial Tr. 2602:13-25].
118. Holcombe and Fair placed ROC on the second leased parcel in February of 1994. [Ash. Ex. 229 at 29-32; PCS Ex 4, Figs. 3-623-67; Trial Tr. 1192:13-1197:7 and 2026:19-2030:9].
119. In 1995, EPA requested access to the Site to conduct environmental assessment activities, which Holcombe and Fair granted. [PCS Ex. 75; Trial Tr. 2603:1-18].
120. On July 12, 1995, EPA project manager Craig Zeller ("Zeller") sent the results of EPA's preliminary assessment to Hutto as representative of Holcombe and Fair. [Ash. Ex. 68; PCS Ex. 140; Trial Tr. 324:8-325:9].
121. In April of 1997, Holcombe and Fair placed ROC on a third leased parcel. [Ash. Ex. 229 at 29-32; Trial Tr. 1192:13-1197:7 and 2026:19-2030:9; PCS Ex 4, Fig. X-XX-X-XX].
122. On December 17, 1997, Holcombe formed Holcombe Enterprises. [PCS Third-Party Complaint ¶ 81; Holcombe and Fair Parties Answer ¶ 3]. On December 23, 1997, Holcombe conveyed his ownership of the Site to Holcombe Enterprises. [Entry 118 ¶ 8; PCS Ex. 72].
123. In August 1998, an Expanded Site Inspection was performed for EPA by DHEC. The Expanded Site Inspection indicated that contamination existed at the Site, including elevated levels of arsenic, lead, and mercury. [Ash. Exs. 81 and 162].
124. On November 5, 1998, Zeller, EPA project manager, contacted Hutto about the Site. [Ash. Ex. 77]. Zeller's letter indicates that future remedial actions would be necessary to adequately protect human health and the environment from the contamination at the Site. [Ash. Ex. 77]. The letter further indicates that EPA's greatest concern at the time was surface water runoff. [Ash. Ex. 77]. On or about November 12, 1998, Zeller met with Holcombe, Fair, and Hutto to discuss a surface water management plan. [Ash. Ex. 77; Trial Tr. 2605:1-2606:8 and 337:8-338:25]. To avoid an EPA Removal Action, the Holcombe and Fair Parties agreed that they would: 1) develop a comprehensive surface water management plan; 2) submit the plan to EPA; and 3) upon approval of the plan, complete the required work. [PCS Ex. 144].
125. As previously found in Paragraph 116, in 1992 Seabrook designed four stormwater detention ponds to control surface water runoff at the Site after the placement of the ROC. Coastal Council regulations required that the post-development rate of *458 surface water runoff not exceed the pre-construction development rate of surface water runoff. [Trial Tr. 2599:18-25, 2685:15-22 and 2699:19-2702:11; Holcombe and Fair Parties Exs. 10a-10b; PCS Ex. 157]. Seabrook first learned about the contamination at the Site in 1998 while working with EPA to design a plan to control runoff. [Trial Tr. 2715:13-24].
126. On December 4, 1998, Holcombe and Fair wrote to Zeller that they had begun work on the detention ponds in response to his request. [Holcombe and Fair Parties Ex. 10; PCS Exs. 142, 144; Trial Tr. 423:4-424:1 and 2606:9-2608:10]. The Holcombe and Fair Parties did not submit the plan for approval from the EPA prior to beginning the work. [PCS Ex. 144]. The plan did not "[m]eet the substantive requirements for a NPL-Caliber site." [PCS Ex. 144 at A09_00400]. The Holcombe and Fair Parties' implementation of the plan destroyed wetlands along the Ashley River. [PCS Ex. 148 at HF000288]. The EPA informed the Holcombe and Fair Parties that by proceeding without oversight they failed to follow "protocols" for work in "coastal/critical areas." [PCS Ex. 144 at A09_00400].
127. DHEC approved the construction of ponds on the Site, "unaware of the serious contamination issues related to past uses in this area." [PCS Ex. 143]. When DHEC learned about the Site contamination in 1999, DHEC determined that the construction of the ponds might not have been appropriate. [Trial Tr. 2710:15-20; PCS Exs. 143 and 145].
128. Only three of the four ponds were built. [PCS Ex. 4, Figure 4-1; Trial Tr. 2709:5-9]. The fourth pond was not built because the area around it was not developed and no ROC was put down. [Trial Tr. at 2709:1-17]. The ponds were constructed by excavating dirt in the footprint of the pond and using the excavated dirt to form embankment walls. [Trial Tr. 2601:19-24, 2703:12-24].
129. The Holcombe and Fair Parties did not maintain the three detention ponds that were constructed, as evidenced by DHEC's inability to locate the ponds during a 1998 inspection because the ponds were overgrown. [PCS Exs. 98, 145 and 148; Trial Tr. 2737:6-8 and 2737:12-23].
130. In 1998 and early 1999, the Holcombe and Fair Parties put down additional ROC on the property and relocated one of the detention ponds. [Trial Tr. 2608:11-2609:13 and 2710:18-2712:4]. In March 1999, DHEC's Department of Ocean and Coastal Resource Management ("OCRM") expressed concern to the Holcombe and Fair Parties that the detention pond that had been relocated was now seaward of the coastal area critical line established by OCRM. [Holcombe and Fair Parties Ex. 11; Trial Tr. 2608:13-7 and 2717:17-23]. The relocation of the detention pond seaward of the OCRM critical line was inadvertent due to the establishment of a new critical line. [Trial Tr. 2609:2-21 and 2717:17-2719:13; PCS Ex. 154]. As a result of OCRM's concern, the relocated detention pond was filled back in. [Trial Tr. at 2721:2-4]. Seabrook determined that another detention pond did not need to be constructed because his calculations showed that the ditch at the end of the road extension was adequate to *459 serve the need for stormwater retention. [Trial Tr. 2717:24-2721:4].
131. Aerial photography taken in March of 1999 shows ROC covering almost the entire site. [Ash. Ex. 229 at 29-32; PCS Ex. 4, Figs. 3-623-67; Trial Tr. 1192:13-1197:7 and 2026:19-2030:9]. ROC can become contaminated in three ways: 1) wicking from the soil below, [Trial Tr. 1442:6-12]; 2) overland water flow or runoff, [Trial Tr. 1442:6-12]; and 3) truck traffic carrying contaminated soil onto the rock or pushing the rock into the soil, [Trial Tr. 765:17-19, 1373:3-8, 1488:15-24]. The ROC on the Site may be contaminated above remediation levels.
132. At the direction of Zeller, EPA officials inspected the property in 1999 to evaluate the work conducted by the Holcombe and Fair Parties. [Ash. Ex. 80; PCS Ex. 144]. The findings of this inspection were documented in a letter dated March 23, 1999 from Zeller to an official at OCRM. [Ash. Ex. 80; PCS Ex. 144]. While this letter expressed concern that the Holcombe and Fair Parties had not submitted a work plan to EPA for approval prior to performing work at the Site, the letter concluded that the work performed was beneficial to the property because it mitigated some of the risks posed by contamination. [Trial Tr. 2609:22-2610]. Zeller acknowledged the benefits of the work as follows:
On January 12, 1999, Mr. Don Rigger, EPA-OSC, visited the subject property to inspect the progress of work and to conduct a Removal Assessment. Based on the data available at that time, it was concluded that the Columbia Nitrogen site did not meet the established criteria in the National Contingency Plan (NCP) to initiate an EPA Removal Action. In other words, capping of the site with approximately 6 inches of crushed/compacted limestone has mitigated potential short-term risks posed to on-site workers/trespassers by exposure to site soils. Moreover, the construction of a surface water detention basin, regrading activities and silt-fence installation is an improvement from pre-existing conditions.
[Ash. Ex. 80].
133. In early to mid-1999, DHEC inspected the Site to examine the stormwater management features in place. [PCS Ex. 145]. DHEC concluded that Seabrook's original stormwater management plan was never implemented. [PCS Ex. 145]. DHEC informed the Holcombe and Fair Parties that they would be fined $1,000 for "non-compliance with the original approvals from OCRM." [PCS Ex. 146]. Subsequently, around July 1999, Barbara Neale ("Neale"), an employee of DHEC conducted a site visit with Joe Fersner ("Fersner") and Holcombe. [PCS Ex. 148 at 1]. With regard to Pond 1, Fersner was able to recall an outfall pipe, and Neale observed that the Pond was constructed in a different shape from the approved plans. [Id.] Neale was able to locate an outfall pipe for Pond 3, which was in a different location than on the approved plans. [Id.]. Neale was unable to confirm whether or not Pond 2 existed, and noted that Pond 4 was never constructed because the associated parcel had not been built on. [Id. at 2]. Neale concluded that DHEC should "discuss rescinding the fine" based upon these findings. [Id.]. In March 2007, Neale wrote a memorandum to Fair in response to an inquiry, indicating that the fine was *460 likely rescinded because DHEC had no record of receiving the fine. [Holcombe and Fair Parties Ex. 14].
134. From 1999 to 2001, Black and Veatch conducted Phase I and Phase II Remedial Investigations to characterize the contamination associated with the Site for EPA. [Ash. Exs. 87 and 91].
135. The Phase I Remedial Investigation Report concluded that "potentially unacceptable levels of risk are posed to ecological receptors exposed to inorganics, [semi-volatile organic compounds ("SVOCs")], and pesticides" in soils, surface water, and sediments at the Site. [Ash. Ex. 87 at 224]. The report also noted low pH levels in the groundwater and sediments. [Id.]. The report indicated that further testing on soils, surface water and sediments should be performed. [Ash. Ex. 87 at 225]. The Phase II Remedial Investigation Report concluded that the surface soils, subsurface soils, sediments, groundwater, and surface water on the Site are contaminated with lead and arsenic. [Ash. Ex. 91 at Figs. 7-4-7-8].
136. There is no evidence that the Holcombe and Fair Parties introduced any hazardous substances to the Site.
137. Black and Veatch prepared a Final Feasibility Study Report for EPA, dated October 31, 2002, that analyzed alternative approaches for remediating the Site as well as the costs of these approaches. [Ash. Ex. 93].
138. On December 31, 2002, Holcombe Enterprises and Fair contracted with Ashley to sell the remaining property at the Site. [PCS Ex. 31; Ash. Ex. 94; Trial Tr. 75:25-76:9]. The Contract of Sale contemplated that the parties would enter into an environmental indemnity agreement that would be made part of the Contract of Sale. [Ash. Ex. 94 at A00435-6]. The Contract of Sale was amended four times. [PCS Exs. 32-35].
139. On November 24, 2003, Holcombe Enterprises, Fair, and Ashley entered into the Fourth Amendment to the Contract of Sale. [Ash. Ex. 94; Trial Tr. 80:8-16]. This amendment added section 5, titled "Environmental Indemnity," to the Contract of Sale. [Ash. Ex. 94 at A00456-62]. In significant part, the section 5 provided as follows:
5.b. Release of Claims by Purchaser. Purchaser has accepted the Property and for itself and its members and managers and their respective successors, assigns, officers, directors, employees and agents (collectively the "Releasing Parties") waives, releases and discharges the Seller from any and all liabilities, actions, causes of actions, claims and demands whatsoever, whether or not well founded in fact or in law, including without limit response costs incurred under the Environmental Laws, and from any suit or controversy arising from or in any way related to the existence of Hazardous Materials in or with respect to the Property and from any Hazardous Material Claims arising from or related in any way to the Property, except for matters relating to a breach of representation or warranty under the Contract.
[Ash. Ex. 94 at 00458, ¶ 5(b) (emphasis added)]. In a separate provision, Ashley indemnified Holcombe Enterprises and Fair for any claim brought by EPA up to $2.7 million with $200,000 of the first $400,000 paid by the Holcombe and *461 Fair Parties. [Id. at 5(d)]. The Agreement also includes a broader indemnification against claims brought by any third parties, on the condition that Ashley acquire cost cap and legal liability insurance to protect it from cost overruns in remediating the Site. [Id. at 5(e); Trial Tr. 47:3-9, 275:10-18]. The broad indemnity provision is not currently in effect because Ashley has not acquired the cost cap and legal liability insurance. [PCS Ex. 35 at 5(e); Trial Tr. 275:10-18, 47:3-9 and 726:8-12]. Ashley could still acquire the insurance necessary to make the broad indemnity effective. [Trial Tr. 726:5-7].
140. Ashley manager Robert Clement testified that the intent of the "Environmental Indemnity" provision was for Ashley not to sue Holcombe, Fair, or Holcombe Enterprises for any environmental contamination claims. [Trial Tr. 144:14-22]. Counsel for Ashley stipulated on the trial record that:
Ashley does not dispute that its release of Holcombe and Fair was intended to extend to all of the Holcombe and Fair Parties, that is to Mr. Holcombe individually, as well as the Holcombe Enterprises, L.P. and to Mr. Henry Fair, and to all of the sites formerly owned by Holcombe and Fair. So our release extends to all of those parties and to all of that property.
[Trial Tr. 1410:24-1411:7].
141. Ashley does not contest that the release has the effect of preventing Ashley from recovering money from the Holcombe and Fair Parties to clean up the Site. [Trial Tr. 276:7-17 and 276:21-277:2]. Counsel for PCS stated that PCS has no objection to Ashley bearing financial responsibility for any allocation of responsibility made to the Holcombe and Fair Parties. [Trial Tr. 3220:8-10].
142. On November 24, 2003, Holcombe Enterprises and Fair conveyed 27.62 acres of the Site to Ashley. [Entry 118 ¶ 9]. The contractual documents for the sale of this property provided that Ashley would assume existing leases with tenants. [Ash. Exs. 94 and 113].
143. The Holcombe and Fair Parties' cost basis in the portion of the Site sold to Ashley was $491,000. [Trial Tr. 2644:23-2645:1]. The Holcombe and Fair Parties sold their remaining property on the Site to Ashley for $2,700,000, [PCS Exs. 35 and 31], resulting in a profit of approximately $2,200,000. In addition, the Holcombe and Fair Parties received income from leasing the property. [Trial Tr. 2645:4-10].
H. Allwaste Ownership Period (1989-2008)
144. Allwaste was incorporated in Georgia in 1985 as Allwaste Tank Cleaning, Inc. [Allwaste Ex. 1; Ash. Ex. 200]. On January 25, 2008, Allwaste became PSC Container Services, LLC, a Delaware limited liability company. [Allwaste Ex. 1; Ash. Ex. 200].
145. Allwaste purchased three acres of the Site from the Masts by deed dated August 16, 1988, and recorded on January 11, 1989. [Allwaste Exs. 1 and 4; Ash. Ex. 200]. At the time of Allwaste's acquisition from the Masts, the parcel had already been covered with a layer of ROC and some buildings constructed. [Trial Tr. 2593; 3046:5-8]. Allwaste leased an additional two acres of the Site from the Holcombe and Fair Parties beginning in December of *462 1991 for the storage of trucks and containers. [PCS Ex. 28 at A04_01807; Trial Tr. 3043:11-14].
146. For twenty years, Allwaste operated a container cleaning and storage facility on its three-acre parcel. [PCS Ex. 9 at A03_03149; Trial Tr. 3036-3043]. Allwaste parked trucks on the leased parcel before and after they were cleaned. [Trial Tr. 3060:9-15]. Allwaste cleaned both over-the-road tanker trucks and isocontainers. [Trial Tr. 3036:3-4]. Isocontainers hold a wide variety of hazardous and non-hazardous materials and can be shipped overseas. [PCS Ex. 9 at A03_03112; Trial Tr. 3036:3-10].
147. When the isocontainers were cleaned, residual material was first drained from the containers into a five gallon pail. [PCS Ex. 9 at A03_03149; Trial Tr. 3036:23-3037:2]. Materials cleared from tanks were classified as either hazardous or non-hazardous. [Trial Tr. 3037:4-6]. Hazardous materials were placed in drums and shipped to a hazardous waste site. [Trial Tr. 3037:6-8]. Non-hazardous materials were sent to a non-hazardous landfill. [Trial Tr. 3038:1-4]. Rinse water was directed into the Charleston sewer system. [Trial Tr. 3037:9-12, 3045:11-19 and 3049:22-3051:1]. The isocontainers were then cleaned in either one of three wash bays in the main building on the parcel, or in the exterior wash bay. [PCS Ex. 9 at A03_03149]. Cleaning solvents, including diesel fuel, caustic sodas, and sulfuric acid were stored in containers on the pads where they were used. [PCS Ex. 9 at A03_03118, A03_03147-9, A03_03358, Photograph 7; PCS Ex. 10 at A04_04642, Photograph 3]. Allwaste used up to 300 gallons of diesel fuel each day and cleaned twenty-five to thirty isocontainers per day on average. [PCS Ex. 9 at A03_03149; PCS Ex. 10 at A03_03347]. Wastewater generated by the cleaning process was collected in a trench and sumps located in the main wash building, and a sump in the exterior wash bay. [PCS Ex. 9 at A03_03145, 49]. The sumps were intended to capture spills of any hazardous materials until that material was pumped out and placed in a drum. [Trial Tr. 386:5-22 and 3067:4-12]. From the sumps, the wastewater was pumped into a wastewater treatment system. [PCS Ex. 9 at A03_03145; see also Trial Tr. 3045:11-19, 3062:6-10]. The pumps did not remove all of the solid material that collected in the sumps. [PCS Ex. 9 at A03_03358, Photograph 9; see also Trial Tr. 3063:1-3064:3].
148. During its ownership period, Allwaste constructed a new building on its property, expanded existing structures, and modified the underground components of its wastewater collection system. [PCS Ex. 12 at Allwaste 0950, Allwaste 0952, Allwaste 0955, Allwaste 0960]. Allwaste's facility manager, Mr. Warren ("Warren"), testified that he did not know how much excavation this construction required. [Trial Tr. 3058:6-11].
149. On or about February 19, 2007, Ashley executed a Purchase and Sale Agreement with Allwaste. [Allwaste Exs. 1 and 2; Trial Tr. 293-94]. The agreement between Ashley and Allwaste included the following language:
(i) Release. [Ashley] hereby fully and finally releases and discharges [Allwaste] from any and all Claims[ ] and *463 Liabilities, whether for contribution or otherwise. [Ashley] intends for this release to be effective notwithstanding the negligence of [Allwaste] and regardless of whether the Claims and/or Liabilities arise in law, equity or under strict liability.
(ii) Indemnity. Subject only to the exclusions specifically set forth in Section 23(c)(vi) below, to the fullest extent permitted by applicable law, [Ashley] will indemnify, defend and hold harmless [Allwaste] from and against any and all Claims, and Liabilities related to or arising in connection with Claims, and all costs and expenses incurred in connection therewith (including, without limitation, attorneys' fees and expenses, including those incurred by [Allwaste] in enforcing the terms of this Agreement), even if such Claims or Liabilities arise from or are attributed to the sole or concurrent negligence of [Allwaste]. It is the intent of [Ashley], in entering into this Agreement, to indemnify and defend [Allwaste] against (1) all Claims, and Liabilities arising in connection to the Claims, that are or may be based, in whole or in part, on the sole or concurrent negligence or strict liability of [Allwaste], and (2) Indefinite Claims, and Liabilities arising in connection with Indefinite Claims. This Indemnity is intended, among other things, to cover Claims and Liabilities between [Ashley] and [Allwaste] as contemplated by CERCLA, any successor federal statute, rule or regulation, and/or comparable state statute, rule or regulation. However, this indemnity is not intended, and shall not be construed, to abrogate or diminish [Ashley's] status as a bonafide prospective purchaser in accordance with section 107(r)(1) of CERCLA and any successor federal statute, rule or regulation, and/or comparable state statute, rule or regulation.
[Allwaste Ex. 2 at 22].
150. In 2007, Ashley hired GEL to perform a pre-purchase environmental assessment of the Allwaste parcel. [PCS Ex. 9]. GEL produced three reports in connection with its investigation. [PCS Exs. 9-11]. GEL summarized the results of its initial investigation in an April, 13, 2007 environmental assessment. [PCS Ex. 9 at A03_03116]. GEL summarized the results of the testing of the soil and groundwater in an April 16, 2007 report. [PCS Ex. 11]. GEL's environmental assessment was updated on February 29, 2008. [PCS Ex. 10]. In its environmental assessments, GEL identified the cement pads and sumps on the Allwaste parcel as recognized environmental conditions ("RECs"). [PCS Ex. 9 at A03_03115]. An REC denotes "the presence or likely presence of any hazardous substances or petroleum products on a property under conditions that indicate an existing release, a past release, or a material threat of a release of any hazardous substances or petroleum products into structures on the property or into the ground, groundwater or surface water of the property." [PCS Ex. 9 at A03_03115]. At Allwaste's hazardous materials storage shed, GEL observed "significant staining and cracks . . . on the floor," [PCS Ex. 9 at A03_03112, A03_03359 and Photograph 16], noting that the staining "indicat[ed] spills have occurred in the past," [PCS Ex. 9 at A03_03147]. GEL concluded that "[t]he presence of spills and cracks in the concrete slab increase the potential for a release to migrate to *464 the subsurface and is therefore considered an REC." [PCS Ex. 9 at A03_03147 and A03_03119]. GEL also found RECs in the exterior wash bay. [PCS Ex. 9 at A03_03119]. GEL observed "[c]racks and significant staining by diesel fuel, detergents and container residues . . . on the concrete pad." [PCS Ex. 9 at A03_03113, A03_03136 and A03_03358, Photograph 11]. GEL noted that the berm around the pad did not prevent wash water from flowing off of the pad and into the soil. [PCS Ex. 9 at A03_03113 and A03_03147]. The sump in the exterior wash bay was "clogged with silt and container residue." [PCS Ex. 9 at A03_03147, A03_03358, Photograph 9]. In addition, "[t]ire tracks from trucks and/or trailers that had been cleaned were observed to pass through the sediment piles and stained areas suggesting residues and cleaning agents may potentially be tracked . . . onto the surrounding ROC surfaced parking areas." [PCS Ex. 9 at A03_03358, Photograph 10]. GEL also noted that in the main wash bay "[t]he concrete floor [was] etched by either the container contents and/or treatment chemicals used to clean the container interiors." [PCS Ex. 9 at A03_03145]. When GEL updated its report in 2008, the conditions were the same. [PCS Ex. 10 at A04_04626, A04_04642, Photograph 3]. GEL's soil and groundwater sampling, summarized in the April 16, 2007 report, indicated that there were elevated levels of iron and cadmium in the groundwater. [PCS Ex. 11 at A03_03367; Trial Tr. 380:25-381:8]. GEL also concluded that there were elevated levels of SVOCs and metals in the soil at the Allwaste parcel. [PCS Ex. 11 at A03_03366-67, A03_03373-5; Trial Tr. 380:17-24].
151. Allwaste's operations on the Site ceased on March 19, 2008. [Trial Tr. 3051:11-13]. On March 20, 2008, Allwaste moved to a new facility in North Charleston. [Trial Tr. 3051:11-13; Allwaste Ex. 3]. Before leaving the Site, Allwaste pumped water out of the trenches and sumps. [Trial Tr. 1326:14-16]. According to Warren, the facility manager, Allwaste did not attempt to dig out the solid material that had accumulated in the sumps and trenches. [Trial Tr. 3064:4-13]. Allwaste removed its equipment from the Site between April and September 2008. [Trial Tr. 1326:8-16].
152. By deed recorded May 28, 2008, Allwaste conveyed its property at the Site to Ashley. [Allwaste Ex. 1].
153. Ashley's insurance policy covers both Allwaste and Allwaste's parent corporation as additional named insureds. [PCS Ex. 48 at A10_01242; PCS Ex. 49 at A10_01240; Trial Tr. 722:10-723:1]. Coverage under Ashley's policy is, however, excluded for certain contaminants identified in the policy including arsenic, iron, dieldrin, PAHs, cadmium and lead. [PCS Ex. 48 at A10_01243; Trial Tr. 729:2-11].
154. The Allwaste parcel and the two acres formerly leased by Allwaste are contaminated with lead and arsenic above the proposed remediation levels. [PCS Ex. 226 at PCS002_002580-81; PCS Ex. 227 at A 00287, A 00292 and Figs. 3-3a, 3-4a; PCS Ex. 120 at 1; Ash. Ex. 194 at Drawing 2, A04_04879; Trial Tr. 672:17-673:6].
*465 155. If any leaks occurred from Allwaste's business activities, those releases contributed little to the need for remediation. [Ash Ex. 274 at 11-13; PCS Ex. 194, Drawings 8-11]. Allwaste did not introduce any lead, arsenic, or cPAHs to the Site.
I. RHCE Tenancy
156. On December 29, 1990, the Holcombe and Fair Parties entered into a Contract of Sale with RHCE for two acres of land at the Site. [Holcombe and Fair Parties Ex. 3 at 3; Trial Tr. 2594:4-2597:8]. This contract was executed by Hood, who is the President of RHCE. [PCS Ex. 71 at RHCE000071].
157. In July of 1991, Hood and RHCE were informed by way of a letter authored by GEL that the groundwater on the Site contained elevated levels of nitrates and sulfates "indicative of impact." [PCS Ex. 134 at HF000543]. The letter noted that agencies "could require further assessment," but indicated that this would not affect using the property for the parking of commercial vehicles and containers on a layer of ROC. [PCS Ex. 134].
158. In December 1991, Landmark Construction excavated a 1380 cubic foot pond, installed two fifty-foot asphalt driveways, stripped six inches of topsoil, graded and proof rolled the land, and extended sewer and water lines at the parcel RHCE contracted to purchase. [City Ex. 17 at 16; PCS Ex. 91 at 000030; PCS Ex. 93 at 000722]. This work was directed and paid for by RHCE. [PCS Ex. 90 at 000028; PCS Ex. 91 at 000030; PCS Ex. 93 at 000028]. The construction of a detention pond on the Site improved surface runoff. [Trial Tr. 479:7-14].
159. On January 15, 1992, the Holcombe and Fair Parties conveyed the two acres of the Site to Hood rather than RHCE. [RHCE Ex. 2; PCS Ex. 71 at RHCE000071-73].
160. Since 1992, RHCE has leased the parcel from Hood and operated a dropyard on the Site. [RHCE Exs. 5-7; Trial Tr. 1869:13-23; PCS Ex. 1 at 4]. EPA and DHEC are aware of this use and have not asked RHCE to cease operations. [Trial Tr. 505:5-12].
161. Sometime between 1994 and 1997, RHCE filled in the detention pond on the parcel and covered it with ROC. [Trial Tr. 2358:22-2359:23].
162. No evidence exists that a release of motor oil or gear oil occurred on the RHCE parcel. [Trial Tr. 1877:15-22]. There is also no evidence that hazardous materials or containers were ever present on the RHCE parcel. [Trial Tr. 506:12-14]. RHCE did not introduce any lead, arsenic, or cPAHs to the Site.
163. The RHCE parcel is currently covered with a layer of ROC. [PCS Ex. 4, Fig. 9-9].
164. The RHCE parcel is currently zoned heavy industrial by the City. [Trial Tr. 501:5-9, 773:5-7]. However, the RHCE parcel is contaminated with lead and arsenic above the proposed residential remediation levels [PCS Ex. 120 at 3; PCS Ex. 226 at PCS002_002580-81; PCS Ex. 227 at A 00287, A 00292, Fig 3-3a & 3-4a; Trial Tr. 672:17-673:2 and 1875], and the proposed remediation plan includes remediation of the RHCE parcel to residential standards. [PCS Ex. 200 at 3; PCS Ex. 213, Drawing 8]. The residential standards are 22.5 parts per million for *466 arsenic and 400 parts per million for lead. [Trial Tr. 771:21-25].
J. City of Charleston Ownership Period (1991-present)
165. On October 22, 1991, the Charleston City Council approved a bill authorizing the Mayor to accept a quitclaim deed on behalf of the City for the Milford Street extension. [PCS Ex. 70 at C000024]. The bill stated that the City would own "all of Milford Street." [PCS Ex. 70 at C000024].
166. The Holcombe and Fair Parties, as grantors, transferred the Milford Street extension to the City by quitclaim deed dated September 30, 1991. [PCS Ex. 69]. Through the deed, the Holcombe and Fair Parties "remised, released, and forever quit-claimed" the property to the City. [PCS Ex. 69 at 1]. The Holcombe and Fair Parties retained no interest in the premises, as the deed provided that the Grantors shall not "at any time hereafter, by any way or means, have, claim, or demand any right or title to the aforesaid premises or appurtenances, or any part or parcel thereof, forever." [PCS Ex. 69 at 2]. The deed makes no provision for the property to revert back to the Holcombe and Fair Parties. Fair testified that the 1991 deed resulted in the City owning the "road and the land under it." [Trial Tr. 2658:23-2659:3].
167. The City's interest does not include the turnaround at the end of the Milford Street extension. [Trial Tr. 2779:17-2780:8]. In the 1991 deed, the City agreed to abandon the turnaround in exchange for "owning all of Milford Street as shown on the plat" attached to the deed. [PCS Ex. 69 at 1].
168. The Milford Street extension is fifty feet wide and consists of 1.28 acres. [PCS Ex. 1 at 4; PCS Ex. 69; PCS Ex. 188; Ash. Ex. 194 at 2]. The Milford Street extension includes a twenty-five foot wide, paved roadway and drainage swales on either side of the road. [PCS Exs. 69 and 188]. The Milford Street extension runs through the Site and allows access to the leased and sold tracts. [PCS Ex. 4, Fig. 9-9]. A portion of Milford Street runs through soil contaminated with lead and arsenic above the proposed remediation levels because of the historic fertilizer manufacturing operations at the site. [PCS Ex. 226 at PCS002_002580-81; PCS Ex. 120 at 2; PCS Ex. 227 at A 00287, A 00290, A 00292-6, Figs. 3-3a, 3-3d, 3-4a, 3-4b, 3-4c, 3-4d and 3-4e; PCS Ex. 4 at Fig. 6-1; Ash. Ex. 194 at A04_04879]. No part of the construction of the road was paid for or directed by the City. [Trial Tr. 2656:2-2657:9].
169. The City continues to have an interest in the Milford Street extension. [Trial Tr. 129:17-22].
170. There is no evidence that anyone notified the City of the contamination on the Site prior to the City's acquisition of the road. [See Trial Tr. 129:2-5]. In addition, the City did not investigate the environmental condition of the property before taking its interest in the Milford Street extension because it was not customary for a municipality to conduct an environmental investigation prior to accepting a dedication of a right-of-way or deed of a road at the time. [Trial Tr. 127:22-128:21].
171. No regulatory agency has called on the City to take any action with regard to the contamination under *467 the Milford Street extension. [Trial Tr. 129:6-9].
172. The pavement on the Milford Street extension acts as a cap over that portion of the Site, precluding erosion of the contaminated soil, preventing human contact with the soil under the road, and preventing stormwater from reaching the soils under the road, which would cause contaminants to leach into the groundwater. [Trial Tr. 479:15-22].
173. Although the pavement on the Milford Street extension will be removed as part of the remediation of the Site, the expected future use of the Site requires the removal of the Milford Street extension for the construction of new roads. [Trial Tr. 296:3-297:5].
174. There was no evidence presented at trial that the City has contributed any arsenic, lead, or other contaminant of concern to the Site, or has engaged in earth moving activities on the Site.
175. The City did not acquire the Milford Street extension to make a profit. [Trial Tr. 129:17-22].
176. The City has taken substantial steps to enable the Magnolia Development project to put the Site back to productive use. [Trial Tr. 101:10-102:13]. This includes the passing of a Tax Increment Financing ("TIF") ordinance to provide funds for the redevelopment, to be repaid with the incremental increase in taxes from the improved property. [Trial Tr. 65:12-24, 68:23, 69:16, 103:21-105:2 and 108:21-109:7]. As of the date of trial, the City had issued $15,600,000 worth of TIF bonds for the project, out of an available $140,000,000 in TIF bonds, and $30,000,000 in municipal improvement bonds. [Trial Tr. 65:12-24, 68:23, 69:16, 103:21-105:2 and 108:21-109:7].
177. At the time of trial, the City's budget was experiencing a significant deficit due to decreased revenues. [Trial Tr. 3087:15-3088:12]. The City's deficit for fiscal year 2009 was $2,200,000, which required the City to expend reserves in that amount. [Trial Tr. 3087:15-3088:12]. To avoid further invading its reserves in 2010, the City cut services in several areas and has imposed minimum five-day furloughs on all City employees. [Trial Tr. 3089:4-13 and 3090:8-3092:9].
K. Ashley's Ownership (2002-Present)
178. Ashley is a South Carolina limited liability company. The principals of Ashley are Cherokee Investment Partners ("Cherokee"), Craig Briner, Jim Lumsden, and Robert Clement. [Trial Tr. 63:14-20; Ash. Ex. 116 at A01_00281 and A01_00282]. Cherokee is a large investment fund, [Trial Tr. 149:19-23, 183:21-23], that has dedicated a billion dollar fund to the acquisition of Brownfields[3] properties, [Trial Tr. 520:9-20].
179. In 2002, after the passage of the Brownfields Amendments, Ashley initiated its participation in the Magnolia Development project. [Ash. Ex. 224 at 1]. Magnolia is planned as a sustainable, mixed-use development. [Ash. Ex. 224 at 1]. To date, Cherokee has invested more than $50,000,000 in acquiring properties *468 for the Magnolia Development project. [Trial Tr. 184:11-16].
180. To oversee the environmental aspects of all of the parcels of land comprising the Magnolia Development project, including the Site, Ashley retained the services of Scott Freeman ("Freeman"), an environmental engineer with experience on over thirty Superfund sites and familiarity with the Brownfields Amendments relating to the Bonafide Prospective Purchaser ("BFPP") defense. [Trial Tr. 139:10-13, 538:8-25, 582:18-583:10, 583:21-584:17]. Ashley assigned Freeman the responsibility of ensuring that Ashley complied with all BFPP requirements. [Trial Tr. 534:24-535:5].
181. Since purchasing the Site, Ashley has provided security and conducted periodic inspections of the Site. [Trial Tr. 595:10-22; Ash. Ex. 227]. The Site has been fenced, gated, and placarded with no-trespassing signs to prevent unauthorized entry and potential exposure to contaminants. [Trial Tr. 140:3-8].
182. GEL prepared a September 25, 2003 Phase I Environmental Site Assessment for Ashley prior to Ashley's purchase of the Site. [Ash. Ex. 110]. This Environmental Site Assessment incorporated EPA's October 31, 2002 Final Feasibility Study Report. [Ash. Ex. 110].
183. On November 23, 2003, Ashley notified EPA that it had acquired a portion of the Site and explicitly requested that EPA inform Ashley if EPA desired "specific cooperation, assistance, access or the undertaking of any reasonable steps with respect to the Site." [Ash. Ex. 114].
184. On November 24, 2003, Holcombe Enterprises and Fair conveyed 27.62 acres of the Site to Ashley. [Entry 118 ¶ 9]. The contractual documents for this sale provided that Ashley would assume existing leases with tenants. [Ash. Exs. 94, 113].
185. On February 26, 2004, Ashley responded to a request for information from EPA. [Ash. Ex. 116].
186. In 2004, GEL conducted a pre-design site characterization study for Ashley, collecting 452 soil samples from 159 soil boring locations on the Site at depths of one to five feet for the purpose of more fully characterizing and delineating the areas of elevated arsenic and lead at the Site. [Ash. Ex. 140 at A00271-A00273]. The GEL report does not mention the various construction activities undertaken by the Holcombe and Fair Parties on the property, such as the construction of the road and the capping of the Site with ROC. [Trial Tr. 465:9-15; PCS Ex. 259]. The GEL report also does not address the Holcombe and Fair Parties' construction of three detention ponds on the Site between 1992 and 1999. [PCS Ex. 4 at Fig. 4-1].
187. A triangular lot to the west of the Allwaste parcel, leased by Ashley to Allwaste from 2003 to 2008, was not completely covered in crushed rock in 2004. [PCS Ex. 22 at A 00283, Fig. 1-2]. On other portions of the Site, the crushed rock cover was degraded. [Trial Tr. 2031:14-2032:10].
188. Ashley knew "there were occasions of midnight dumping" on the Site. [Trial Tr. 265:1-2]. Although the leased parcels were fenced, the gates were not locked until after the tenants vacated. [Trial Tr. 263:8-23; Ash. Ex. 169 at A01_07422].
189. In June 2006, Freeman walked the Site with Ashley Expert Jack Riggenbach *469 ("Riggenbach") and noticed a thirty foot by five foot area of stained soil. [Trial Tr. 554:10-555:3 and 1291:10-1292:5; Ash. Ex. 169; Ash. Ex. 172 at A01_05742 and A01_05748]. Freeman thought that it "looked like . . . a surface spill . . . or was related to the Site." [Trial Tr. 554:22-25; Ash. Ex. 169 at A01_07422]. Freeman acknowledged that "[he] wasn't sure at the time whether that was a stain or a spill" and that he asked GEL to assess the problem. [Trial Tr. 610:8-14 and 806:19-807:6]. GEL took a sample of the soil and tested it for lead and arsenic, but no other contaminants. [Ash. Ex. 172 at A01_05742; Trial Tr. 1359:14-1360:10]. Because the sample was found to contain lead and arsenic, Freeman concluded that the stain was not a spill, but instead was related to the past contamination of the Site and covered it with ROC. [Trial Tr. 610:8-21].
190. Freeman, testified that he began "paying attention" to a pile of debris onsite in 2006. [Trial Tr. 552:8-14 and 552:24-553:15]. However, "there was no effort . . . made to identify what was in the trash pile, what were the characteristics of that trash pile, or to remove the trash pile." [Trial Tr. 2439:3-6]. The trash pile contained a barrel, tires, and discarded vehicles. [PCS Ex. 18 at A01_05783, A01_05787, A01_05790 and A01_05794; Trial Tr. 733:3-23].
191. Ashley granted Site access to EPA in 2007. [Ash. Ex. 188 at 2].
192. On April 13, 2007, a Phase I Environmental Site Assessment was conducted on the Allwaste Parcel. [Ash. Ex. 179]. On April 16, 2007, a Soil and Groundwater Investigation was conducted on the Allwaste Parcel. [Ash. Ex. 180]. On February 29, 2008 the Phase I Environmental Site Assessment on the Allwaste Parcel was updated. [Ash. Ex. 193].
193. In March 2008, PCS experts Wayne Grip ("Grip") and Dr. Brian Murphy ("Murphy") conducted an investigation of the Site, excluding the Allwaste parcel, on behalf of PCS. [Trial Tr. 1488:25-1489:1]. The investigation included taking soil and sediment samples from the surface and subsurface. [Trial Tr. 1488:25-1489:1]. During this investigation, Murphy observed areas where the ROC had eroded away, exposing contaminated soil. [Trial Tr. 1488:25-1489:1].
194. On March 27, 2008, Ashley submitted a Removal Action Work Plan for the soil and sediment at the Site to EPA and DHEC. [Ash Ex. 195].
195. In June 2008, Ashley retained an environmental consulting firm to demolish all remaining structures on the Allwaste parcel. [Trial Tr. 561:14-565:1]. No underground demolition activities were conducted. [Trial Tr. 561:14-565:1]. When the buildings were demolished, Ashley left in place the cement pads, sumps, trench, and underground pipes. [Trial Tr. 564:5-565:1]. The demolition of the buildings permitted runoff to collect in the pads, the sumps, and the trench. [Trial Tr. 400:20-23 and 3054:11-17]. This is because there was no longer any pumping equipment in place to remove the water. [Trial Tr. 400:20-23 and 3054:11-17].
196. Hutto testified that releases could occur from the sumps. [Trial Tr. 400:20-401:13]. Freeman knew that the sumps and pads posed a threat *470 to the environment in the summer of 2008. [Trial Tr. 766:13-16]. According to Freeman, Ashley had a protocol in place that required it to demolish concrete slabs and to look under the slabs "to make sure that there weren't any more environmental conditions that we need to be concerned about." [Trial Tr. 565:17-21, 761:2-5; Ash. Ex. 170]. This protocol was not followed on the Allwaste parcel. [Trial Tr. 565:2-566:16]. After the buildings were torn down, Freeman walked the Allwaste parcel, [Trial Tr. 756:7-15], but he did not stop to take a "detailed look" at the pads, sumps, or trenches, [Trial Tr. 758:18]. In passing, he saw what "appeared to be some dirt around or in those trenches," [Trial Tr. 567:3-23, 757:11-20], and cracks in the cement pads, [Trial Tr. 757:21-22]. Freeman left the property without taking additional action to protect against potential releases of hazardous substances. [Trial Tr. 757:23-758:17]. PCS expert Marie BenKinney ("BenKinney") testified that there was a threat of release of hazardous substances from the sumps at the Allwaste parcel. [Trial Tr. 2419:20-2421:19].
197. In 2008, Ashley removed the debris pile from the main portion of the Site and completed hazardous waste manifests. [PCS Ex. 19]. The hazardous waste manifests show that Ashley removed hazardous substances from the Site, including a cleaning liquid containing hydrochloric acid and waste paint. [PCS Ex. 19 at A05_01238, A04_05365, A04_05368, A04_05370, A04_05376 and A04_05380].
198. On September 3, 2008, Ashley wrote a letter to the EPA acknowledging that the Holcombe and Fair Parties could be liable for response costs, and that EPA has "insiste[d] on asserting a claim for cost reimbursement against Holcombe and Fair." [PCS Ex. 256 at 2]. The basis of that claim is their "installation of a roadway and storm water detention ponds, and covering the Site with crushed limestone rock." [PCS Ex. 256 at 6]. In this letter, Ashley stated that because of the contract between Ashley and the Holcombe and Fair Parties, Ashley would ultimately be responsible for "substantially all expenditures for EPA's past costs that EPA would recover from Holcombe and Fair." [PCS Ex. 256 at 2]. Ashley stated that if the EPA insisted on pursuing a claim against the Holcombe and Fair Parties it would discourage Ashley's future development efforts. [PCS Ex. 256 at 6]. Ashley stated that its "actions to secure an alternative source of repayment of past costs [through the within lawsuit] should provide adequate consideration to secure a release of Ashley's indemnitees." [PCS Ex. 256 at 5].
199. In July 2009, PCS's consultant, Exponent, conducted a second round of sampling focusing on the land where the debris pile was located, and the Allwaste parcel. [PCS Ex. 1 at 13; PCS Ex. 3 at 1; PCS Ex. 4 at 8]. Exponent took three samples of soil that had been under the debris pile. [PCS Ex. 3 at 6; Trial Tr. 858:12-14, 859:15-20 and 1490:17-1491:16]. The sampling results indicated the presence of hydrocarbons, and elevated levels of benzo(a)pyrene and other contaminants. [PCS Ex. 3 at 6; Trial Tr. 858:12-14, 859:15-20 and 1490:17-1491:16]. When these samples were taken, debris including buckets, tires, and a bottle of engine *471 oil that contained fluid remained on the Site. [PCS Ex. 3 at 2; PCS Ex. 7 at 5].
200. Exponent also conducted surface and subsurface soil sampling, and investigated the condition of the cement pads, sumps, and trench on the Allwaste parcel. [PCS Ex. 3 at 1]. Hazardous substances were found in the soil, sediment, and water on the Allwaste parcel. [PCS Ex. 7 at Table 2; PCS Ex. 3 at Table 4]. The sump contamination was not limited to petroleum products. [Trial Tr. 2433:25-2434:1; PCS Ex. 7 at Table 2; PCS Ex. 3 at Table 4]. The sediments in the main building sump were contaminated with metals, volatile organic compounds ("VOCs"), and semi-volatile organic compounds ("SVOCs"). [Trial Tr. 2418:14-25]. The water was contaminated with metals and VOCs. [Trial Tr. 2419:1-3]. Sediment and water from the sump in the hazardous materials storage shed were contaminated with VOCs, solvents, chlorinated solvents, and phthalates. [Trial Tr. 2419:10-15]. "[I]n the sumps there are other chemicals that are also considered hazardous substances under the regulations. . . . That would mean that the material [i]n that sump is co-mingled and would not be subject to the petroleum exclusion." [Trial Tr. 862:6-9, 2465:18-2466:2]. The exterior wash bay sump contained similar constituents. [Trial Tr. 2419:4-9].
201. It is likely that there were releases from the sumps and the pads on the Allwaste property after Ashley tore down the protective structures in 2008. [Ash. Ex. 271 at A01_07865, A01_07867; Trial Tr. 761:2-5]. This is because there was standing water on the pads and in the sumps, which overflowed with some regularity. [Trial Tr. 2422:13-22 and 2436:XX-XXXX-X; Ash. Ex. 271 at A01_07866; PCS Ex. 3 at 2-3; PCS Ex. 7 at 5]. When the sumps overflowed, the water reached cracks in the pads and even the edge of the pads. [PCS Exs. 3 at 2-3; 7 at 5].
202. In September 2009, Ashley retained GEL to perform an evaluation of the sumps on the Allwaste parcel. [Ash. Ex. 271]. GEL's investigation entailed the following: 1) observing the sumps for eight hours to see if the water levels remained constant; and 2) analyzing the depth of cracks in sumps. [Ash. Ex. 271 at A01_07866 and A01_07867]. After completing these tasks, GEL washed the sumps and filled them with concrete. [Ash. Ex. 271 at A01_07865 and A01_07867].
203. GEL concluded that the only water loss was due to evaporation and that the sumps were not leaking into the subsurface. [Ash. Ex. 271 at A01_07866]. GEL's report indicated a "potential for leakage" in three sumps and the trench. [Ash. Ex. 271 at A01_07867-8; Trial Tr. 398:6-18 and 405:23-25]. Hutto acknowledged at trial that there is a crack at least twelve inches deep in one sump. [Trial Tr. 406:5-20].
204. GEL's investigation was insufficient to establish that the structures did not leak. GEL measured the water levels in only some of the sumps and did not analyze the trench in the main wash bay or the sump in the eastern portion of that building. [Trial Tr. 402:9-24, 403:9-19]. GEL also disregarded its measurements for the sump in the hazardous materials storage shed because the water level rose in that sump during the course of the test. [Trial Tr. 404:3-405:7]. Despite acknowledging that *472 there were cracks in the cement pads, and evidence of water on the pads, GEL did not evaluate the cracks or the possibility that hazardous substances had penetrated those cracks. [Trial Tr. 405:13-18]. Because GEL did not evaluate the sumps over a more extended period of time, it could not measure "any kind of loss that might be occurring through leaching or leaking through the sumps." [Trial Tr. 2437:15-20].
205. On October 8, 2009, Ashley submitted to EPA and DHEC a revised cost estimate for the removal action at the Site. [Ash. Ex. 214]. This revised cost estimate proposed to dispose of all soils and sediments contaminated above remediation levels off-site as opposed to consolidating some contaminated soils and sediments on-site for treatment. [Ash. Ex. 214]. The cost estimate for the new approach was $8,021,240. [Ash. Ex. 214]. The estimated cost of the old approach involving the on-site consolidation of some contaminated soils and sediments was $8,778,221.
206. No manufacturing operations have been conducted on the Site during Ashley's ownership of the Site. [Ash. Ex. 258 at 3; Trial Tr. 140:23-141:1].
207. Ashley has no direct or indirect familial relationship with other PRPs. [Trial Tr. 141:14-145:2 and 181:13-182:9].
II. CONCLUSIONS OF LAW
A. Rule 52(c) Motions
1. Allwaste's Motion for Judgment on Partial Findings
At issue in Allwaste's Motion for Judgment on Partial Findings is whether the release and indemnity provisions of the February 19, 2007 Purchase and Sale Agreement between Allwaste and Ashley bar all actions against Allwaste. The parties do not dispute that Ashley has indemnified Allwaste against "any and all claims" related to the Site. [Entry 517 at 2; PCS Proposed Findings ¶ 381]. PCS contends that the effect of this indemnification is to shift the financial responsibility for any environmental contamination that Allwaste is found responsible for to Ashley. [PCS Proposed Findings ¶ 388].
CERCLA permits parties to shift the burden for paying response costs through contractual indemnification and release agreements. See 42 U.S.C. § 9607(e)(1) ("Nothing in [CERCLA § 107(e)(1)] shall bar any agreement to insure, hold harmless, or indemnify a party to such agreement for any liability under [CERCLA § 107]."); see also C.P. Chem., Inc. v. Exide Corp., Inc., 14 F.3d 594 (Table), No. 93-1426, at *1 (4th Cir. Dec. 28, 1993) (stating that CERCLA liability can be allocated by contract); Dent v. Beazer, 993 F.Supp. 923, 939 (D.S.C.1995) ("Under CERCLA, parties are free to contractually shift the burden for liability for response costs among themselves."). "A private party contract which apportions CERCLA liability must contain a provision which allocates risks of this nature to one of the parties." Dent, 993 F.Supp. at 939 (citing Rodenbeck v. Marathon Petroleum Co., 742 F.Supp. 1448, 1456 (N.D.Ind. 1990)). This is because "[s]uch agreements cannot alter or excuse the underlying liability, but can only change who ultimately pays that liability." Vill. of Fox River Grove v. Grayhill, Inc., 806 F.Supp. 785, 792 (N.D.Ill.1992).
Federal law governs the validity of releases of federal causes of action. Pinchback v. Armistead Homes Corp., 907 F.2d 1447, 1453 (4th Cir.1990) (citing Gamewell Mfg., Inc. v. HVAC Supply, Inc., 715 F.2d 112, 114 & n. 4 (4th Cir. 1983)). Federal courts are competent to formulate a federal rule of decision that *473 incorporates state law when making determinations related to the adjudication of federal claims. See United States v. Kimbell Foods, Inc., 440 U.S. 715, 726-27, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979); United States v. Little Lake Misere Land Co., 412 U.S. 580, 592-95, 93 S.Ct. 2389, 37 L.Ed.2d 187 (1973).
A joint tortfeasor may recover from another joint tortfeasor "unless the other previously had a valid settlement and release from the plaintiff." Restatement (Third) of Torts § 23(a). This means that an individual or entity that settles with the plaintiff before final judgment is not liable for contribution to others for the injury. Restatement (Third) of Torts § 23 cmt. i. According to the Restatement, where a tortfeasor has settled with the plaintiff before the initiation or conclusion of a law suit, the settling tortfeasor should be dismissed even if contribution claims have been made against the settling tortfeasor, because these contribution claims are barred by law. Restatement (Third) of Torts § 24 cmt. e. South Carolina law contains a similar rule: "When a release . . . is given in good faith to one of two or more persons liable in tort for the same injury. . . [the release] discharges the tortfeasor to whom it is given from all liability for contribution to any other tortfeasor." S.C.Code Ann. § 15-38-50. Thus, if Allwaste has been released from liability by Ashley, it must be dismissed from the case as no contribution claim may be made against Allwaste.
A release is interpreted according to the general principles of contract construction. Dent, 993 F.Supp. at 939 (citing Campbell v. Beacon Mfg. Co., 313 S.C. 451, 438 S.E.2d 271, 272 (S.C.Ct.App.1993)). If the language of the release is "clear and unambiguous, a court should interpret the release according to its plain meaning." Acstar Ins. Co. v. Harden, 16 Fed.Appx. 213, 216 (4th Cir.2001); see also Ecclesiastes v. Outparcel Assoc., LLC, 374 S.C. 483, 649 S.E.2d 494, 502 (S.C.Ct.App. 2007). However, if the terms of the release are ambiguous, a court may look to extrinsic evidence to determine the meaning of a release. Acstar, 16 Fed.Appx. at 216; Ecclesiastes, 649 S.E.2d at 502.
The release between Ashley and Allwaste "fully and finally releases and discharges [Allwaste] from any and all Claims and Liabilities, whether for contribution or otherwise." [Ash. Ex. 177 at 22]. The word "claim" is defined in the Purchase and Sale Agreement to include: "any proceeding . . . arising out of (1) the Columbia Nitrogen CERCLA site . . . and/or (4) the pending litigation styled Ashley II of Charleston, L.L.C. v. PCS Nitrogen, Inc., Civil Action No. 2:05-2782." [Ash. Ex. 177 at 19]. The indemnity provision of the Purchase and Sale Agreement provides that Ashley shall "indemnify, defend and hold harmless" Allwaste against "any and all claims, and liabilities related to or arising in connection with claims" and specifically states that it is intended to cover CERCLA claims. [Ash. Ex. 177 at 22]. Based upon the foregoing, the court finds that the language of the February 19, 2007 Purchase and Sale Agreement between Ashley and Allwaste unambiguously releases Allwaste from any liability associated with the Site. Allwaste's Motion for Judgment on Partial Findings [Entry 517] is granted. All claims for contribution against Allwaste are dismissed and Ashley must bear any allocation assessed against Allwaste.
2. The Holcombe and Fair Parties' Motion for Judgment as a Matter of Law[4]
At issue in the Holcombe and Fair Parties' Motion for Judgment as a Matter of *474 Law is whether the release provision of the November 24, 2003, Fourth Amendment to the Contract of Sale among Holcombe Enterprises, Fair, and Ashley bars all contribution claims against the Holcombe and Fair Parties related to the Site.
As was previously stated, CERCLA permits parties to shift the burden for paying response costs through contractual indemnification and release agreements. See 42 U.S.C. § 9607(e)(1). The same legal principles that applied to the Allwaste release and indemnification agreements apply here.
The release between Ashley and the Holcombe and Fair Parties provides:
Release of Claims by Purchaser: Purchaser. . . waives, releases and discharges the Seller from any and all liabilities, actions, causes of actions, claims and demands whatsoever, whether or not well founded in fact or in law, including without limit response costs incurred under the Environmental Laws, and from any suit or controversy arising from or in any way related to the existence of Hazardous Materials in or with respect to the Property and from any Hazardous Material Claims arising from or related in any way to the Property.. . .
[Ash. Ex. 94 at 00458, ¶ 5(b) (emphasis added)].[5]
Prior to trial, the court denied the Holcombe and Fair Parties' motion for summary judgment based upon the release from Ashley because the scope of the release was unclear. [Entry 385]. However, Ashley does not contest that the release has the effect of preventing Ashley from recovering money from any of the Holcombe and Fair Parties to clean up the Site. Ashley's manager, Robert Clement, testified that the intent of the release was that Ashley would not be able to sue Holcombe, Fair, or Holcombe Enterprises for any environmental contamination claims. [Trial Tr. 276:7-17 and 276:21-277:2]. Counsel for Ashley stipulated on the trial record that:
Ashley does not dispute that its release of Holcombe and Fair was intended to extend to all of the Holcombe and Fair Parties, that is to Mr. Holcombe individually, as well as the Holcombe Enterprises, L.P. and to Mr. Henry Fair, and to all of the sites formerly owned by Holcombe and Fair. So our release extends to all of those parties and to all of that property.
[Tr. at 1410:24-1411:7]. PCS has no objection to Ashley bearing financial responsibility for any remediation costs allocated to the Holcombe and Fair Parties. [Trial Tr. 3220:8-10].
The court notes that in many CERCLA cases, courts have found release and indemnification agreements to shield parties from financial responsibility when the release language was much less specific than in the present case. In Dent, this court found that under South Carolina law, a lease agreement that the lessee would save the lessor harmless from "any and all claims arising from [the lessor's] use of the leased property" covered CERCLA claims even though the agreement was entered into prior to the enactment of CERCLA. *475 993 F.Supp. at 939-40. In Rodenbeck, the Northern District of Indiana upheld a contractual provision which provided that one of the parties would be released "from all claims and obligations of any character or nature whatsoever arising out of or in connection with said agreement" as being sufficient to indemnify against claims arising under CERCLA. 742 F.Supp. at 1448. In Village of Fox River Grove, the Northern District of Illinois held that a general release between a CERCLA plaintiff and a third-party defendant, which was entered into prior to the enactment of CERCLA, barred third-party contribution claims. 806 F.Supp. at 785. In Joslyn Mfg. Co. v. Koppers, 40 F.3d 750 (5th Cir.1994), the Fifth Circuit found that broad language in indemnification agreements indicated that the agreements were intended to cover all forms of liability, including liability under CERCLA, even though environmental liability under CERCLA was not contemplated at the time of contracting. Id. at 754. See also Kerr-McGee Chem. Corp. v. Lefton Iron & Metal Co., 14 F.3d 321, 327 (7th Cir.1994) (recognizing that a party may contract to indemnify another for environmental liability even though CERCLA was not in existence at the time of contracting); Jones-Hamilton Co. v. Kop-Coat, Inc., 750 F.Supp. 1022, 1026-27 (N.D.Cal.1990) (holding that an indemnification agreement that encompassed "all losses, damages and costs" resulting from any violation of law was sufficient to release the indemnitee from CERCLA liability even though the agreement was entered into prior to the enactment of CERCLA and did not specifically mention CERCLA).
The court finds that the language of the November 24, 2003, Fourth Amendment to the Contract of Sale among Holcombe Enterprises, Fair, and Ashley was intended to release all of the Holcombe and Fair Parties from liability to Ashley for CERCLA claims related to the Site. The release at issue expressly states that the release includes response costs incurred by Ashley under the "Environmental Laws," which term is defined in the contract to include CERCLA. Because the Holcombe and Fair Parties have been released from liability by Ashley, the Holcombe and Fair Parties have been discharged "from all liability for contribution to any other tortfeasor." See S.C.Code § 15-38-50. The Holcombe and Fair Parties' Motion for Judgment as a Matter of Law [Entry 520] is granted. All claims against the Holcombe and Fair Parties for contribution are dismissed. The court finds that Ashley must bear any allocation assessed against the Holcombe and Fair Parties.
3. RHCE's Motion for Judgment on Partial Findings
At issue in RHCE's motion for judgment on partial findings is whether the RHCE parcel is contaminated and requires remediation, and whether RHCE is a PRP under CERCLA § 107.
i. Whether RHCE's Property is Contaminated and Requires Remediation
RHCE contends that its parcel is not a part of the Site at issue. As a result, RHCE contends that it cannot not be held liable for response costs. RHCE also contends that because its parcel is zoned heavy industrial and is not contaminated above heavy industrial remediation levels, it need not be remediated. The court disagrees.
Other courts have determined the scope of a CERCLA facility based upon such factors as the scope of response actions, the EPA's determination of what land is included in a facility, where hazardous substances have been disposed of, and how the plaintiff defines the scope of the facility in the complaint. See e.g. United States *476 v. Ne. Pharm. & Chem. Co., 810 F.2d 726, 743 (8th Cir.1986) (location where hazardous substances were disposed of and where government concentrated cleanup efforts was facility); United States v. Atchison, Topeka & Santa Fe. Ry. Co., Nos. CV-F-92-5068 OWW, CV-F-96-6226 OWW, CV-F-96-6228 OWW, 2003 WL 25518047, at *47 (E.D.Cal. July 15, 2003) (rejecting arguments similar to those made by RHCE); Akzo Coatings Inc. v. Aigner Corp., 960 F.Supp. 1354, 1358-59 (N.D.Ind. 1996) (noncontiguous areas were one facility because EPA treated them as such); United States v. Ottati & Goss, 694 F.Supp. 977, 984 (D.N.H.1988) (listing of two sites on the National Priorities List for unified response action determined facility).
The RHCE parcel is indeed part of the Site. Ashley's allegations in the complaint include the RHCE parcel as part of the Site. [Entry 209 ¶ 21]. In addition, EPA's investigations of the Site included investigation of the RHCE parcel. [PCS Exs. 216 at A 00858, 226 at Figs 2-1 and 2-2]. CERCLA affords EPA the authority to create and adopt a remediation plan. See 42 U.S.C. § 9617. While EPA has not yet adopted a final remediation plan for the Site, EPA's proposed remediation plan uses the residential standards for lead and arsenic as its remediation levels. [PCS Ex. 216 at 60]. EPA's proposed remediation plan includes remediation of RHCE's parcel because it is contaminated with lead and arsenic above the residential standards. [PCS Ex. 120 at 3; PCS Ex. 226 at PCS002XXXXXX-XX; PCS Ex. 227 at A 00287, A 00292, Figs. 3-3a and 3-4a]. Regardless of the RHCE parcel's zoning classification, EPA has the authority to decide and has decided that RHCE's parcel requires remediation. 42 U.S.C. § 9617.
ii. Whether RHCE is a PRP
RHCE argues that it cannot be held liable for contribution under CERCLA § 113 because it does not fall into any of the four categories of PRPs listed in 42 U.S.C. § 9607(a), CERCLA § 107(a). RHCE specifically argues that 1) it is a lessee, not an owner of the property; and 2) it cannot be held liable as an operator of the property because no release of a hazardous substance occurred on its parcel during its tenancy.
In making its contribution claim against RHCE under § 113(f) of CERCLA, PCS must prove that RHCE is a responsible party under § 107(a) of CERCLA and demonstrate RHCE's equitable share of costs. Minyard Enter., Inc. v. Se. Chem. & Solvent Co., 184 F.3d 373, 385 (4th Cir.1999). The four categories of PRPs under CERCLA are:
(1) the owner and operator of a facility;[6]
(2) any person who at the time of disposal of any hazardous substance owned or operated any facility at which hazardous substances were disposed of;
(3) any person who, by contract, agreement, or otherwise, arranged for disposal or treatment, or arranged with a transporter for transport for disposal or treatment, of hazardous substances owned or possessed by such person, by any other party or entity, at any facility owned or operated by another party or entity and containing such hazardous substances; and
*477 (4) any person who accepts, or accepted, any hazardous substances for transport to disposal or treatment facilities, incineration vessels, or sites selected by such person.
42 U.S.C. § 9607(a)(1)-(4) (CERCLA § 107(a)(1)-(4)). RHCE currently leases of two acres of land on the Site. Thus, the issue is whether RHCE is an "owner" or "operator" under CERCLA § 107(a)(1) or (2). The statutory definition of "owner and operator" refers to "any person owning or operating [a] facility." 42 U.S.C. § 9601(20)(A).
Several district courts have found that lessees can be held liable as owners of facilities. See, e.g., Louisiana v. Braselman Corp., 78 F.Supp.2d 543, 551 (E.D.La.1999) ("Even though [defendant] did not have title to the property, [defendant] was a lessee who asserted control over the property, and, as such, was an `owner' under CERCLA § 107(a)(1)."); Burlington N. Ry. Co. v. Woods Indus., Inc., 815 F.Supp. 1384, 1391-92 (E.D.Wash.1993) ("Since [defendant] asserted control over the use of the property, [defendant] is an `owner' for purposes of CERCLA § 107(a)(1) even though it is only a lessee."); Pape v. Great Lakes Chem. Co., No. 93 C 1585, 1993 WL 424249 (N.D.Ill. Oct. 19, 1993) (". . . the lessee of a site where a release or threatened release of hazardous substances occurred is considered the `owner' for purposes of CERCLA liability."); United States v. South Carolina Recycling and Disposal, Inc., 653 F.Supp. 984, 1003 (D.S.C.1986) (holding that a lessee that operated a landfill was an "owner" under CERCLA because the lessee "had control over and responsibility for, the use of the property and, essentially, stood in the shoes of the property owner"). However, the Second Circuit in addressing this issue stated: "while the imposition of liability [on lessees] is surely correct, imposing owner liability instead of operator liability threatens to conflate two statutorily distinct categories of potentially responsible parties." See Barlo, 215 F.3d at 328. The court agrees with the Second Circuit that interpreting lessees as owners for the purposes of CERCLA makes CERCLA's imposition of liability on operators redundant and is contrary to the intentions of the drafters of CERCLA. Thus, RHCE, as a lessee, is not an "owner" for the purpose of imposing liability under CERCLA.
The court next considers whether RHCE is an "operator" for the purpose of imposing liability under CERCLA. In United States v. Bestfoods, 524 U.S. 51, 118 S.Ct. 1876, 141 L.Ed.2d 43 (1998), the Supreme Court addressed the issue of whether parent corporations could be held liable under CERCLA for operating facilities that appeared to be under the control of subsidiaries, and clarified when a party can be held liable as an "operator" under CERCLA § 9607(a)(2). See id. at 65-67, 118 S.Ct. 1876. The Court stated: "under CERCLA, an operator is simply someone who directs the workings of, manages, or conducts the affairs of a facility." Bestfoods, 524 U.S. at 66, 118 S.Ct. 1876. The Court went on to state that because of "CERCLA's concern with environmental contamination, an operator must manage, direct, or conduct operations specifically related to pollution, that is, operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations." Id. at 66-67, 118 S.Ct. 1876.
The Bestfoods decision does not make clear whether the requirement that an operator must conduct operations related to pollution applies also to § 9607(a)(1). At least two federal courts have interpreted Bestfoods to require that all operators held liable for response costs under CERCLA must have conducted operations related to pollution. See Barlo, 215 F.3d at n. 3 *478 (stating that under no version of facts could the defendant be an operator under § 9607(a)(1) [CERCLA § 107(a)(1)] because it did not manage, direct or conduct operations specifically related to pollution); United States v. Newmont U.S.A. Ltd., No. CV-05-020-JLQ, 2007 WL 2477361, at *2 (E.D.Wash. Aug. 28, 2007) (finding that the Bestfoods interpretation of operator liability applies to both CERCLA § 107(a)(1) and (2)).
The District Court of Maryland, however, has found that operators under § 9607(a)(1) need not conduct operations related to pollution, stating: "As a current owner and operator of the site where hazardous substances have been released, [the plaintiff] is itself a potentially responsible party (PRP), even if [the plaintiff] did not own the property at the time the hazardous waste disposal occurred." Sherwin-Williams Co. v. ARTRA Grp., Inc., 125 F.Supp.2d 739, 745 (D.Md.2001) (citing 42 U.S.C. § 9607(a)(1); Trinity Amer. Corp. v. EPA, 150 F.3d 389, 395 (4th Cir.1998)); see also New Jersey Turnpike Auth. v. PPG Indus., Inc., 16 F.Supp.2d 460 (D.N.J.1998) ("Compare CERCLA, 42 U.S.C. § 9607(a)(1) and (2) (including in its definition of PRP both the person who owned or operated the facility at the time of the disposal of a hazardous substance and the current owner or operator of a facility, regardless of when the disposal took place).") (decided prior to Bestfoods).
The Fourth Circuit's ruling in Trinity Amer. Corp. v. EPA, 150 F.3d 389, 395 (4th Cir.1998), indicates that CERCLA § 107(a)(1) does not require a disposal of hazardous materials by a current operator for liability to be imposed. In Trinity, a case decided after the Bestfoods decision, the Fourth Circuit stated that current owners need not have owned the property when pollution took place. Id. at 395. This implies that the same is true of current operators because they are listed in the same statutory category, § 9607(a)(1). There is no reason to distinguish between current owners and current operators when it comes to the extent of liability. The court finds that current operators of a CERCLA facility need not direct operations related to pollution to be held liable for response costs under CERCLA § 107(a)(1). See § 9607(a)(1). The court's conclusion is consistent with the mandate that courts construe CERCLA's provisions broadly to avoid frustrating the remedial purpose of the statute. See Westfarm Assoc. Ltd. P'ship v. Washington Suburban Sanitary Comm'n, 66 F.3d 669, 677 (4th Cir.1995) ("CERCLA is a comprehensive remedial statutory scheme, and [] the courts must construe its provisions liberally to avoid frustrating the legislature's purpose.").
Pursuant to Bestfoods, CERCLA § 107(a)(2), unlike § 107(a)(1), requires that a former operator direct operations related to pollution. 524 U.S. at 66-67, 118 S.Ct. 1876. This distinction from § 107(a)(1) conforms with the text of CERCLA because in order for a party to be liable for response costs under § 107(a)(2), it must have owned or operated the facility "at the time of disposal of any hazardous substance." 42 U.S.C. § 9607(a)(2); see also Nurad, Inc. v. William E. Hooper & Sons Co., 966 F.2d 837, 842 (4th Cir.1992) (a tenant can be held liable as "operator" under CERCLA § 107(a)(2) if it had "authority to control operations or decisions involving the disposal of hazardous substances at the Site" whether or not it exercised that authority).
The court turns to the issue of whether RHCE is a current "operator" of the Site and therefore a PRP. The record indicates that RHCE operates a drop yard on the Site. Because RHCE directs the day-to-day workings of the parcel it leases, RHCE is a current operator of the Site *479 pursuant to CERCLA § 107(a)(1) and is a PRP.
In addition, under CERCLA § 107(a)(2), RHCE can be held liable as an operator of the Site at a time when the disposal of hazardous wastes occurred. The term "disposal" means the
discharge, deposit, injection, dumping, spilling, leaking, or placing of any solid waste or hazardous waste into or on any land or water so that such solid waste or hazardous waste or any constituent thereof may enter the environment or be emitted into the air or discharged into any waters, including ground waters.
42 U.S.C. § 6903(3); 42 U.S.C. § 9601(29). The Fourth Circuit has ruled that "§ 9607(a)(2) imposes liability not only for active involvement in the `dumping' or `placing' of hazardous waste at the facility, but for ownership of the facility at a time that hazardous waste was `spilling' or `leaking.'" Nurad, 966 F.2d at 846. Disposals are not limited to one-time occurrences, but instead include times when hazardous materials are moved or dispersed. See Tanglewood E. Homeowners v. Charles-Thomas, Inc., 849 F.2d 1568, 1573 (5th Cir.1988); Kaiser Aluminum & Chem. Corp. v. Catellus Dev. Corp., 976 F.2d 1338, 1342 (9th Cir.1992). Specifically, "a `disposal' may occur when a party disperses contaminated soil during the course of grading and filling a construction site." Redwing Carriers, Inc. v. Saraland Apartments, 94 F.3d 1489, 1511-12 (11th Cir.1996).
The RHCE parcel is currently contaminated with lead and arsenic above EPA's proposed residential remediation levels. [PCS Ex. 120 at 3; PCS Ex. 216 at A 00861; PCS Ex. 226 at PCS002 XXXXXX-XX; PCS Ex. 227 at A 00287, A 00292, Figs. 3-3a and 3-4a; Trial Tr. 672:17-673:2, 1875, 1879:20-1880:24 and 1597:4-9]. Black and Veatch's final feasibility study indicates that most of the RHCE property will need to be remediated due to arsenic contamination. [PCS Ex. 226 at PCS002_002580-81]. In 1991, RCHE commissioned the construction of a detention pond, two asphalt driveways, and grading and proof rolling of the parcel. Because the majority of the RHCE parcel is currently contaminated and the contamination on the Site is spotty, the court finds that the construction work commissioned by RHCE, which redistributed the soil, spread the contamination on the Site. RHCE's earth moving activities constitute a "disposal" under CERCLA. Thus, RHCE is a PRP pursuant to CERCLA § 107(a)(2). RHCE's Motion for Judgment on Partial Findings [Entry 521] is denied.
B. Ashley's CERCLA § 107(a) Claim
"Congress enacted CERCLA to protect public health and the environment from inactive hazardous waste sites." Westfarm, 66 F.3d at 677 (citing H.R.Rep. No. 1016(I), 96th Cong., 2d Sess. 1 (1980), reprinted in 1980 U.S.C.C.A.N. 6119, 6119). "CERCLA is a comprehensive remedial statutory scheme, and [ ] the courts must construe its provisions liberally to avoid frustrating the legislature's purpose." Id. CERCLA actions can be brought by the government or by private parties. See 42 U.S.C. § 9607(a).
To succeed in its claim against PCS under § 107(a) of CERCLA, Ashley must prove the following: 1) that the defendant [PCS] falls within one of the four classes of persons subject to CERCLA liability, 42 U.S.C. § 9607(a); 2) that a CERCLA "facility" exists, 42 U.S.C. § 9601(9); 3) that a "hazardous substance" has been "released" (or threatens to be released) from the defendant's facility, 42 U.S.C. §§ 9601(14), (22); 42 U.S.C. § 9607(a)(4); and 4) that the release or threatened release has caused the plaintiff to incur response costs that are "`necessary' and *480 `consistent with the national contingency plan,'" 42 U.S.C. § 9607(a)(4).
The term "hazardous substance" is defined in the Act as any substance that appears on any one of six statutory lists of substances. See 42 U.S.C. § 9601(14). Based on sampling and analysis conducted by Ashley, PCS, and EPA, "hazardous substances," as defined pursuant to § 101(14) of CERCLA, 42 U.S.C. § 9601(14), including but not limited to, arsenic and lead, are present in the soil and groundwater on the Site. 40 C.F.R. § 302.4 at Table at 50. A "facility" is "any site or area where a hazardous substance has been deposited, stored, disposed of, or placed, or otherwise come to be located." 42 U.S.C. § 9601(9). Because there are hazardous materials on the Site, the Site is a "facility" as defined by CERCLA.
As was previously noted, the list of PRPs includes "any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of." 42 U.S.C. § 9607(a)(2). The record makes clear that CNC, predecessor to PCS, released arsenic and lead on the Site. Thus, PCS is a "person" subject to CERCLA liability because it is the successor of a corporation that owned and operated the facility when hazardous substances were disposed of. Entry 118 (PCS found to be successor to CNC); United States v. Carolina Transformer Co., 978 F.2d 832, 837 (4th Cir.1992).
To recover response costs, Ashley must show that its claimed response costs were "necessary" and "consistent with the national contingency plan [NCP]." 42 U.S.C. § 9607(a)(4)(B). "Costs are `necessary' if incurred in response to a threat to human health or the environment." ITT Indus., Inc. v. Borgwarner, Inc., 700 F.Supp.2d 848, 880 (W.D.Mich. 2010) (citing Reg'l Airport Auth. of Louisville v. LFG, LLC, 460 F.3d 697, 703 (6th Cir.2006)). Ashley's response costs in this case, which involved conducting Site assessments and submitting a remediation plan to EPA, were necessary to protect human health and the environment. The record demonstrates that the acidic conditions on the property and the presence of arsenic and lead are harmful to the environment and pose a danger to human health.
A response action is "consistent with the NCP" if the action is in "substantial compliance" with 40 C.F.R. § 300.700(c)(5)-(6), and results in a "CERCLA-quality cleanup." 40 C.F.R. § 300.700(c)(3)(I). "An `immaterial or insubstantial' deviation, however, will not result in a cleanup that is `not consistent' with the NCP." ITT Indus., 700 F.Supp.2d at 880 (citing 40 C.F.R. § 300.700(c)(4)). Litigation-related costs are not recoverable under CERCLA. Young v. United States, 394 F.3d 858, 865 (10th Cir.2005); Ellis v. Gallatin Steel Co., 390 F.3d 461, 482 (6th Cir.2004); Dedham Water Co. v. Cumberland Farms Dairy, Inc., 972 F.2d 453, 461 (1st Cir.1992). "Costs otherwise necessary and consistent with the NCP may be unrecoverable if the steps taken were extravagant or otherwise unreasonably costly." Nw. Mut. Life Ins. Co. v. Atl. Research Corp., 847 F.Supp. 389, 401 (E.D.Va.1994).
The court has reviewed the submissions of Ashley in pursuing the remediation of the property. Ashley has separated out its litigation costs and does not seek recovery of these expenditures. [See Ash. Ex. 247]. The court finds that the past response costs incurred by Ashley were consistent with the NCP and were reasonable. [Ash Ex. 227; Trial Tr. 176:18-24, 584:25-587:2, 611:7-615:3 and 1295:11-1296:7]. The court finds that Ashley is entitled to recover its past response costs. With regard to future response costs, the court notes that there is no final remediation *481 plan for the Site that has been approved by EPA. However, a government-approved remediation plan is not a prerequisite for the court's entry of an order allocating liability allocation. Dent, 993 F.Supp. at 949. To the extent that it later becomes disputed whether the final remediation plan for the Site is consistent with the NCP, the court will retain jurisdiction over the case to decide this issue.
C. Divisibility of Harm
Liability under CERCLA § 107(a) is joint and several if the harm is indivisible. United States v. Monsanto Co., 858 F.2d 160, 171 (4th Cir.1988). Divisibility is a legal defense to joint and several liability under CERCLA in which a party makes "a causation-based argument that the cleanup costs at a single CERCLA facility should be divided between [a defendant] and [other] responsible part[ies]." ITT Indus., 700 F.Supp.2d at 877. PCS seeks a court finding that the harm at the Site is divisible. The burden is on PCS in seeking to avoid joint and several liability to prove that a reasonable basis for apportionment of the remediation costs exists. Burlington Northern and Santa Fe. Ry. Co. v. United States, 556 U.S. 599, 129 S.Ct. 1870, 1880-81, 173 L.Ed.2d 812 (2009).
The scope of liability under CERCLA § 107, 42 U.S.C. § 9607, is determined from "traditional and evolving principles of common law." United States v. Chem-Dyne Corp., 572 F.Supp. 802, 808 (S.D.Ohio 1983); see also Burlington Northern, 129 S.Ct. at 1881. "The universal starting point for divisibility of harm analyses in CERCLA cases is § 433A of the Restatement (Second) of Torts." Burlington Northern, 129 S.Ct. at 1881 (internal citations omitted).
Under the Restatement, "when two or more persons acting independently caus[e] a distinct or single harm for which there is a reasonable basis for division according to the contribution of each, each is subject to liability only for the portion of the total harm that he has himself caused. . . . But where two or more persons cause a single and indivisible harm, each is subject to liability for the entire harm.
Id. (citing Restatement (Second) of Torts, §§ 433A, 881 (1976)).[7] Comment d to § 433A of the Restatement (Second) of Torts indicates that some harms are capable of division on a reasonable and rational basis when the evidence provides a divisor over which the harm can be divided.[8]*482 Steve C. Gold, Dis-Jointed? Several Approaches to Divisibility After Burlington Northern, 11 VT. J. ENVTL. L. 307, 332 (2009) (Restatement (Second) of Torts, § 433A cmt. d).
Not all harms can be apportioned. Burlington Northern, 129 S.Ct. at 1881. A party invoking the doctrine of divisibility is required to show that "(a) there are distinct harms, or (b) there is a reasonable basis for determining the contribution of each cause to a single harm." ITT Indus., 700 F.Supp.2d at 877; see also Burlington Northern, 129 S.Ct. at 1881 (citing Restatement (Second) of Torts § 433A(1)(b) at 434 (1963-1964)).
Proving divisibility of harm at a CERCLA site in accordance with the Restatement approach can be difficult because of "the commingling of wastes, the migration of contamination over time, and other complex fact patterns." 8 Bus. & Com. Litig. Fed. Cts. § 95:24 (2d ed.) (citing United States v. Ottati & Goss, Inc., 630 F.Supp. 1361 (D.N.H.1985)). "Where causation is unclear, courts should not hasten to `split the difference' in an attempt to achieve equity. Courts lacking a reasonable basis for dividing causation should avoid apportionment altogether by imposing joint and several liability." Atchison, 2003 WL 25518047, at *84 (citing United States v. Hercules, Inc., 247 F.3d 706, 718-19 (8th Cir.2001); United States v. Township of Brighton, 153 F.3d 307, 319 (6th Cir.1998)); see also Burlington Northern, 129 S.Ct. at 1881 (citing Restatement (Second) of Torts § 433A, cmt. i. at 440 (1963-1964)) (when two or more causes produce a single, indivisible harm, "courts have refused to make an arbitrary apportionment for its own sake, and each of the causes is charged with responsibility for the entire harm.").[9]
The divisibility issue presents an intensely factual analysis. See United States v. Alcan Aluminum Corp., 964 F.2d 252, 269 (3d Cir.1992). Divisibility can be based on a variety of factors including volumetric, chronological, or geographic considerations, as well as contaminant-specific considerations. ITT Indus., 700 F.Supp.2d at 878. (citing Burlington Northern, 129 S.Ct. at 1883). Equitable considerations are not taken into account in the apportionment analysis. Burlington Northern, 129 S.Ct. at 1882 & n. 9.
Prior to the Supreme Court's ruling in Burlington Northern, the burden of proving divisibility was considered high and defendants were rarely successful establishing this defense. See, e.g., United States v. Capital Tax Corp., 545 F.3d 525, 535 n. 9 (7th Cir.2008) ("[D]ivisibility is a `rare scenario.'"); Control Data Corp. v. S.C.S.C. Corp., 53 F.3d 930, 934 n. 4 (8th Cir.1995) (stating that it is difficult to establish that harm is divisible); Matter of Bell Petroleum Servs., Inc., 3 F.3d 889, 901 (5th Cir.1993) (defendants "rarely succeed" in proving a reasonable basis for apportionment); Alcan, 964 F.2d at 269 ("Alcan's burden in attempting to prove the divisibility of harm . . . is substantial, and the analysis will be factually complex.. . ."); O'Neil v. Picillo, 883 F.2d 176, 178-79 (1st Cir.1989) ("[P]ractical effect of *483 placing the burden on defendants has been that responsible parties rarely escape joint and several liability. . . ."); United States v. Washington State Dep't of Transp., No. C05-5447RJB, 2007 WL 445972, at *26 (W.D.Wash.2007) (burden of providing a reasonable basis for apportioning harm is high). In May of 2009, however, the Supreme Court reinstated a district court's finding of divisibility after a reversal by the Ninth Circuit. Burlington Northern, 129 S.Ct. at 1882-83. The Supreme Court found that a calculation based upon the percentage of land area owned by a party, the party's period of ownership, and types and amounts of hazardous materials requiring remediation, including a fifty percent margin of error was supported by the record and sufficiently reasonable to provide a basis for apportionment. Id. at 1882-83.
Some legal commentary and case law have interpreted Burlington Northern to lessen the burden on defendants seeking to avoid joint and several liability by demonstrating a reasonable basis for apportionment. See Superfund and Natural Res. Damages Litig., 2009 ABA Env't Energy & Resources L.: Year in Rev. 132; ABA Envtl., Energy, and Res. Law: The Year in Review, Environmental Committee, at 138 (2009) (Burlington Northern "essentially lowered the evidentiary standard for divisibility."); Kevin A. Gaynor, Benjamin S. Lippard, Sean M. Lohnquist, Unresolved CERCLA Issues After Atlantic Research and Burlington Northern, SR053 ALI-ABA 77, 91 (2010) (stating that the Supreme Court in Burlington Northern rejected the approach making it nearly impossible for a CERCLA PRP to demonstrate divisibility and expanded the situations in which divisibility will allow CERCLA litigants to avoid joint and several liability); Reichhold, Inc. v. United States Metals Ref. Co., 655 F.Supp.2d 400, 449-50 (D.N.J.2009) (apportioning liability for the single harm of metals contamination on a portion of property when two causes of the contamination were both sufficient to require the proposed remediation).
In United States v. Iron Mountain Mines, Inc., No. 91-0768-JAM-JFM, 2010 WL 1854118 (E.D.Cal. May 6, 2010), however, the District Court for the Eastern District of California found that Burlington Northern was not a change in the law, but simply a reiteration of established law applied to the specific facts of the case. Id. at *3. The Iron Mountain court also stated that Burlington Northern did not mandate that district courts apportion harm. Id. The court concurs with the Iron Mountain court that Burlington Northern did not change the law with regard to divisibility, but merely recognized a reasonable basis for apportionment based on the facts of that particular case.
The court finds that the contamination of the Site, which has caused the need for remediation constitutes a single harm. See Monsanto, 858 F.2d at 172-73 (finding that environmental contamination on a piece of property requiring remediation constitutes a single harm). The remedy selected by EPA to clean up the contaminated soil and sediments at the Site involves excavation and off-site disposal. The volume of contaminated soil is directly related to how much the remediation is going to cost. [See supra ¶ 6]. The predominant factors that contribute to the volume of contaminated soil and thus drive the cost of the remediation are the volume of hazardous materials and the spread of these hazardous materials throughout the Site. [Id.]. The question becomes, then, whether there is a reasonable basis for apportioning the harm at the Site based upon these factors. In an attempt to meet its burden of demonstrating divisibility, PCS presented the court with five proposed methods of apportionment. In determining whether the harm at the Site is *484 divisible, the court will address each of PCS's proposals and will consider any other possible bases for apportionment contained in the record.
1. Method 1
PCS's first method of apportionment is based upon Grip's calculation of the amount of fill or other material added to the Site during each PRP's ownership period. Grip used aerial photography to calculate the amount of material added to the Site as of certain dates and used these calculations to allocate shares of the remediation cost to Ross, PCS, and the Holcombe and Fair Parties. Grip then allocated shares of responsibility to RHCE and Allwaste based upon the size of their parcels and the depth of excavation.
The court finds that Method 1 does not provide a reasonable basis for apportionment. PCS has not shown a reasonable relationship between the addition of material to the Site and the spread of contamination on the Site. This is because aerial photography does not detect contamination. [See Trial Tr. 2102:2-6 (Grip confirming that aerial photography cannot identify whether or not material is contaminated); 2249:17-20 (aerial photography cannot detect contamination); 2250:5-8 (aerial photography cannot detect contamination)]. In addition, although PCS contends that the record provides a reasonable basis for assuming "virtually all" of the material added to the Site was contaminated, no evidence has been presented to the court indicating that all or even most changes in elevation or new materials identified in aerial photography were contaminated. [See, e.g., supra ¶ 68]. It was PCS's burden to show a relationship between the changes in elevation identified by Grip and the contamination. This it did not do.
Moreover, assuming that no significant filling with uncontaminated materials occurred, Grip's analysis is still not sufficiently related to the cause of the contamination to be a reasonable basis for apportionment. Grip's calculations are based upon two assumptions. First, Grip's calculations assume that the contaminants on the Site would not have moved through the soil due to chemical migration, which is contradicted by the record in this case. [Trial Tr. 842:23-843:11 (Brown testifying about chemical migration]. Second, Grip's calculations assume that Planters is responsible for all contributions to the volume of contaminants on the Site prior to 1945. [See Trial Tr. 2140:18-20 (Grip has no information on whether fill was put on the Site prior to 1907); 2320:8-11 (Grip has no information on how the Site looked prior to Planters' ownership); 2322:3-7 (Grip does not have information on whether or not materials he attributes to Planters is actually material Planters put there); 2333:3-10 (Grip stating: "I can't tell you how much pyrite was placed there before or during Planters' operations."); 2331:20-2332:6 (Grip cannot rule out whether there was pyrite on the property prior to Planters' purchase); 2116:6-12 (Grip's calculations assume that "anything below the 1945 surface has to be Planters.") and 2137:11-21 (Grip assuming that anything below the 1945 surface would have been Planters)]. This second assumption is significant given the large time period that Grip is unable to account for. The second assumption is not reasonable in the face of evidence that: 1) the Site had prior ownership, [see supra ¶ 29 (citing Ash. Ex. 72 at A 001879)]; 2) the site would have required extensive grading and filling prior to Planters beginning operations, [supra ¶ 30 (citing PCS Exs. 4, 168), see also Trial Tr. 2329:23-2330:6 (Grip testifies that the Planters buildings would have required extensive filling and grading prior to construction) *485 and 2323:11-15 (Grip testifying that filling and grading were necessary prior to the construction of the plant)]; 3) burnt pyrite was a common fill material during the relevant time, [Ash Ex. 72 at 4 (former plant manager at CNC states that burnt pyrite was used as fill on the Site for road stabilization and used to line roads in the area); Trial Tr. 1623:22 to 1624:10 (Murphy testimony that pyrite clinkers had a useful value as fill and roadbed material)]; and 4) seven other phosphate fertilizer plants were in operation from 1884 to the early 1900's in close proximity to the Site, all of which were potential sources of contaminated fill, [supra ¶ 31 (citing Trial Tr. 1665:6-10, 1564:23-1565:3; Ash. Ex. 72 at A XXXXXX-XX, A XXXXXX-XX, A 001888)]. This evidence distinguishes this case from Burlington Northern because in that case, there was no indication that any of contamination at issue could have come from any source other than the operations of the main polluting entity, B & B. Based upon the foregoing, Grips's calculations are afforded little weight by the court.
The court also notes that even if Grip's calculations are accurate enough to fall within a fifty percent margin of error, as contended by PCS, the Supreme Court's approval of a fifty percent margin of error in the Burlington Northern case was fact-specific and did not indicate that a fifty percent margin of error will always be appropriate in apportionment calculations. See Burlington Northern, 129 S.Ct. at 1883.
The court also notes that Grip changed his methodology in the middle of his analysis to assign shares of the allocation to RHCE and Allwaste. [Cf. PCS Ex. 4A; Trial Tr. 2369:12-15]. Grip apportions all materials to be excavated on the RHCE and Allwaste parcels to these two entities without regard to historical changes in elevation. Although PCS contends that the amounts attributed to Allwaste and RHCE were not intended to result in double counting and that these amounts could be subtracted from the allocation to the Holcombe and Fair Parties, it remains unclear whether the change in methodology is appropriate. It is not clear that RHCE and Allwaste contributed all of the contaminated materials to be excavated on their parcels. In addition, it is not clear whether the materials to be excavated on the RHCE and Allwaste parcels were originally attributed to the Holcombe and Fair Parties or to another party in Grip's original analysis. PCS's first method of apportionment is not reasonable.
2. Method 2
PCS's second method of apportionment is based upon the volume of contaminants introduced to the Site. PCS argues that data in the record allow the court to determine the approximate amount of arsenic and lead Planters and CNC each contributed to the Site. Using stoichiometry, Murphy sought to calculate the volume of contamination added to the Site by Planters and CNC. [Entry 569-1 at 11]. PCS contends that this is a reasonable method of apportioning harm at the Site. [Id. at 12].
The starting point of Murphy's volumetric calculations was the assumption that Planters operated at full capacity. [See Trial Tr. 1571:15-25, 1572:18-25 and 1808:25-1812]. However, Murphy also performed a check on this calculation by performing the calculation again, assuming that Planters only operated at fifty percent capacity. According to Murphy, this second calculation only changed CNC's allocation from one percent to two percent of the harm at the Site. [Trial Tr. 1812:23-1813 and 1899:2-22]. It is reasonable to assume that Planters operated at between fifty percent and one hundred percent of its *486 maximum capacity. [Trial Tr. 1816: 5-8]. Murphy also performed a "reality check" on his calculations in which he checked his volumetric calculations for the amount of pyrite produced by Planters against the volume of pyrite that he and GEL estimated was on the Site. [Trial Tr. 1572:5012, see also Trial Tr. 1573:22-1574:10. (Murphy testifying that the amount of soil that is contaminated and the degree to which it is contaminated is consistent with his volumetric calculations); 1625:9-22 and 1818:1-2 (Murphy testifying that his calculations are consistent with the GEL report as to how much material needs to be excavated); PCS ex. 2 at 2-3 ("The total volume of soil and sediments estimated by Entact to be treated is . . . 35,848 m3 . . . . The total amount of pyrite slag and cinder generated over Planters' occupancy was estimated . . . as 46,539 m3. Thus the planned remediation will treat a volume of material that is 35,848/ 46,539= 77% of the estimated pyrite generated from 1906 to 1933.")].
Both Murphy's volumetric calculations and the "reality check" assume that Planters deposited all waste from its manufacturing operations on Site and thus is responsible for all pyrite on the Site. [Trial Tr. 1573:5-18, 1623:16-25 (volumetric calculations); 1572:5-12 (reality check)]. This assumption, which was also made by Grip in Method 1, is significant because of the large time period that is unaccounted for. As was previously stated, this assumption is not reasonable in the face of evidence that: 1) the Site had prior ownership; 2) the Site would have required grading and filling prior to Planters beginning operations; 3) burnt pyrite was a common fill material during the relevant time; and 4) seven other phosphate fertilizer plants were in operation from 1884 to the early 1900's in close proximity to the Site, all of which were potential sources of contaminated fill. This evidence distinguishes this case from Burlington Northern because in that case, there was no indication that any of the contamination at issue could have come from any source other than the operations of the polluting company.
Assuming that Method 2 is a reasonable volumetric calculation despite the assumption that Planters contributed all pyrite slag to the Site, Method 2 is not by itself a sufficient basis for a divisibility finding. In order for a divisibility finding to be appropriate based upon the facts of this case, PCS must prove that a reasonable method that accounts for the spread of contamination across the Site also exists. This is because the spread of the contamination across the Site due to earth moving activities significantly contributed to the extent of the contamination at the Site. See Monsanto, 858 F.2d at 173 n. 27 ("Volumetric contributions provide a reasonable basis for apportioning liability only if it can be reasonably assumed, or it has been demonstrated, that independent factors had no substantial effect on the harm to the environment."). As the remainder of the court's analysis demonstrates, PCS has not met its burden of proving by a preponderance of the evidence that a reasonable method for accounting for the spread of contamination across the Site exists.
3. Method 3
PCS's third method of apportionment is based upon the period of time Planters and CNC each operated the fertilizer plant. The court finds that although a time period method of apportionment was part of the court's analysis in Burlington Northern, such an approach is not reasonable based upon the facts in this case. The Burlington Northern case did not embrace apportioning harm based upon periods of operations in all cases. Instead, the Supreme Court found that the district court's use of this information was appropriate as *487 a "starting point for its analysis" based upon factual findings that
ma[d]e it abundantly clear that the primary pollution at the . . . facility was contained in an unlined sump and an unlined pond [on a] portion of the facility most distant from the Railroads' parcel and that the spills of hazardous chemicals that occurred on the Railroad parcel contributed to no more than 10% of the total site contamination, some of which did not require remediation.
Burlington Northern, 129 S.Ct. at 1883.
There are significant differences between Burlington Northern and the case before the court that indicate that apportionment based upon periods of operations is inappropriate in this case. First, in Burlington Northern, only one company conducted the operations leading to the contamination, making it more reasonable to assume that contamination occurred at reasonably constant levels over time. In this case, two different companies, Planters and CNC, conducted operations at the Site and there is evidence indicating that these companies did not uniformly disposed of contaminants on the Site. [Ash. Ex. 76 at 4]. At times during Planters' ownership period, pyrite cinders from the Site were used to line roadbeds in the area. [Ash Ex. 76 at 4]. In addition, CNC's operations differed from those of Planters. [Trial Tr. 1492:21-23, 1524:12-13, 1481:2-12, 1850:1-15]. Second, unlike in Burlington Northern, the evidence in this case does not place the bulk of the contamination on a part of the Site far away from CNC's or Planters's operations. Third, in Burlington Northern, there was no evidence that earth moving activities such as grading, filling, and demolition substantially affected the extent of the contamination on the site as is the case here. See Atchison, 2003 WL 25518047, at ¶ 479 (cited by PCS because it states that the site was graded towards a waste pond, but giving no indication that grading took place after contamination was disposed of on the site or through contaminated soils). Based upon the foregoing, the court concludes that Method 3 is not a reasonable basis for apportioning the harm in this case.
4. Method 4
PCS's fourth method of apportionment is based upon an analysis of the PRPs who first physically disturbed the different portions of the remediation area. In this analysis, Grip used aerial photography to determine which party first engaged in filling, grading, or other development activities on the Site. Grip then used this information to determine the percent of the remediation area attributable to each party. [PCS Ex. 4A].
PCS's fourth method of apportionment also fails to provide a reasonable basis for apportionment. First, this method fails to take into account the original sources of the contaminants, which is one of the driving factors of the remediation. Second, the use of aerial photography to determine when areas of the Site were first impacted by contamination is problematic because aerial photography cannot show when contaminants were moved across the Site; it can only show when earth moving activities took place. [See Trial Tr. 2157:18-2158:10 (Grip testifying that the area of first impact method is related to disturbances of soil and is not directly related to contamination)]. Therefore, this method does not have a reasonable relationship to the amount of contaminated soil at the Site.
Third, the area of first impact does not take into account the total volume of soil affected by earth moving activities. Subsequent, more invasive, earth moving activities in an area where earth moving has already occurred may disturb a greater volume of soil, which would not be taken *488 into account in this calculation. As a result, any allocation based upon Method 4 would involve a substantial risk that the wrong PRP will be held liable for contamination. This point is illustrated by Grip's testimony. [Trial Tr. 2305:14-18 ("Yes, because this exercise simply shows the first time that in the photography a tract of land was disturbed by one of the periods of ownership. Just so happened that Columbia Nitrogen operated on areas that have already been disturbed for the most part by Planters."); 2294:25-2295:3 ("It may have been impacted by Planters prior to the first date of aerial photography. I can't rule that out. But the first visual impact that I see to that area is during the Holcombe and Fair period."); 2320:17-20 ("Okay. And when you're talking about areas of first impact, you're also not telling us that Planters was the only one that had any impact in that area; correct? Correct. I'm just identifying the areas of first impact as detected in the aerial photography.")]. Moreover, Grip implied at trial that Method 4 is not a reliable method for apportioning the harm at the Site. [See Trial Tr. 2306:11-12 ("I don't know that I would recommend using it by itself, that's right."); 2158:8-10 ("I'm not recommending that you use that as a measurement all by itself, however. That just one of the one of the clues to unraveling the puzzle.")].
5. Method 5
PCS's fifth method of allocation is based upon the number of contaminated soil samples taken by GEL that Stout attributed to CNC, and that Murphy attributed to Allwaste, RHCE and the Holcombe and Fair Parties; divided by the total number of contaminated soil samples taken by GEL. Stout testified that it would be reasonable to determine CNC's contribution to the contamination on the Site based upon the contaminated soil samples that Stout attributed to CNC. [Trial Tr. 1136:10-23].
There are a number of problems with Method 5. First, it should be noted that Stout's testimony that Method 5 is a reasonable way to divide up the harm at the Site is not dispositive because whether or not a method of apportionment is reasonable is a determination to be made by the court. Second, although EPA and GEL did use soil samples to estimate the volume of contaminated soil, the simple division of soil samples attributed to each PRP by the total number of contaminated soil samples is not an appropriate method of apportionment. This is because how the EPA and GEL made their volume calculation is unclear. [See Trial Tr. 641:8-21 (Freeman testimony that an isoconcentration map shows the contours of concentration levels of a given contaminant between data points); Ash. Ex. 93 at Figs. 2-1, 2-2 (Final Feasibility Study conducted by Black and Veatch for the EPA showing isoconcentration maps); PCS Ex. 22]. What is clear is that the EPA and GEL's estimates of contaminated soil were not obtained through a simple attribution of a certain amount of soil per soil sample. See PCS Ex. 22 at 14 ("Contaminant mass for the sample area was estimated in 1 foot increments from 0 to 5 feet bls using data from the appropriate sample interval. . . . The area for each concentration contour was estimated and the corresponding volume (1-foot soil increment) was calculated. The soil mass was then calculated (1 cubic yard = 1.5 ton) and the lead and arsenic mass was estimated using the median concentration value for the specified contour interval."); Ash. Ex. 93 at A01_06771 ("Information concerning the nature and extent of contamination in soil, groundwater and marsh sediment was used to estimate the volume of contaminated media that would need to be remediated."). Therefore, division of the number of soil samples attributed to each party by the number of contaminated soil samples does not bear a *489 reasonable relationship to the estimated volume of contaminated soil.
Third, the grid pattern of sampling used by GEL, upon which Method 5 is based, was not consistent such that a uniform volume of contaminated soil can be reasonably attributed to every contaminated sample. [PCS Ex. 22 at 9 ("A 50-foot sampling grid was established over the most highly contaminated areas. . . . A 100-foot sampling grid was established over the remainder of the site. . . .")]. This further indicates that Method 5 does not bear a reasonable relationship to the volume of contaminated soil at the Site. Fourth, Stout's allocation of soil samples to CNC is suspect due to the limited information that may be obtained from aerial photography. Stout was not able to determine from aerial photographs whether or not any earth moving activities occurred in between the dates of photography and was not able to detect whether or not the earth moving activities that she did detect resulted in the spread of contamination. [See Trial Tr. 1098:14-25 (Stout testifying that she cannot determine from aerial photography whether or not slag has been placed and redistributed); see also Trial Tr. 1100:11-17 and 1203:14-23]. Fifth, the allocation of samples presented by PCS in Method 5 involves the double counting of two samples, making Method 5 unreliable as a basis for apportionment. Specifically, Murphy attributed contamination at sample 555 to both the Holcombe and Fair Parties and Robin Hood. [See Trial Tr. 1455:16-1456:11; 1457:5-9]. In addition, sample 415 is attributed to CNC by Stout and to the Holcombe and Fair Parties by Murphy. [Cf. Ash. Ex. 226 at 19 and Trial Tr. 1456:9]. This double counting is significant given the small number of contaminated soil samples attributed to these parties. [See Ash. Ex. 226 at 19; Trial Tr. 1455:16-1456:11 and 1457:5-9]. Method 5 is not a reasonable basis for apportionment of the harm at the Site.
6. Conclusions With Regard to Divisibility
While the harm at the Site is theoretically divisible based upon: 1) how much contamination each party contributed to the Site, and 2) how much soil each party caused to be included in the remediation area by spreading the contamination throughout the Site, the court finds that the record does not provide the court with a reasonable basis for apportioning this harm.
Although PCS attempted to provide the court with a reasonable basis for determining the approximate volume of contaminants introduced to the Site by Planters and CNC, these calculations are based upon a significant assumption in favor of PCS. However, even if the court had a reasonably accurate calculation of the volume of contaminants released on the Site by Planters and CNC, this is only half of the equation; the other main factor contributing to the cost of the remediation is the spread of contamination across the Site. None of PCS's methods of apportionment provides a reasonable estimate of the additional volume of soil contaminated by earth moving and development activities. While the record reveals that construction and earth moving activities occurred throughout the history of the Site, significantly contributing to the cost of the remediation of the Site, the record provides the court with no reasonable basis for determining approximately how much each party contributed to the volume of contaminated soil through such activities. In addition, evidence in the record suggests that the acidic (low pH) conditions on the Site led to the migration of lead and arsenic through the soil. This consequence of commingling contaminants on the Site indicates that the volume of hazardous materials and the amount of earth moving and construction activities on the *490 Site do not have a direct cause/effect relationship with the amount of harm at the Site. The court concludes that the record does not provide the court with a reasonable basis for apportioning the harm at the Site, and that therefore, the harm at the Site is indivisible. The court declines to make a divisibility determination without a reasonable basis. See Burlington Northern, 129 S.Ct. at 1881 (citing Restatement (Second) of Torts § 433A, cmt. i. at 440 (1963-1964)) (when two or more causes produce a single, indivisible harm, "courts have refused to make an arbitrary apportionment for its own sake, and each of the causes is charged with responsibility for the entire harm.").
D. Contribution
1. Introduction
Title 42, United States Code, Section 9613(f) enables "[a]ny person [to] seek contribution from any other person who is liable or potentially liable under section 9607(a) [CERCLA § 107(a)] of this title, during or following any civil action under section 9606 of this title or under section 9607(a) of this title." 42 U.S.C. § 9613(f) (CERCLA § 113(f)). A party making a claim under CERCLA § 113(f) bears the burden of proving: 1) that the defendant is a responsible party under § 107(a) of CERCLA; and 2) the defendant's equitable share of costs. Minyard, 184 F.3d at 385. With regard to responsibility under § 107(a), the Court has already determined that the Site is a "facility," that there has been a release of a hazardous substance at the facility, and that the releases have caused Ashley to incur response costs. Thus, PCS need only prove that each party being sued for contribution is a PRP. ITT Indus., 700 F.Supp.2d at 887-88.
Contribution claims require courts to make an equitable allocation of responsibility among the liable parties. ITT Indus., 700 F.Supp.2d at 889-90. In enacting the contribution section of CERCLA, Congress was concerned "that the relative culpability of each responsible party be considered in determining the proportionate share of costs each must bear." Monsanto, 858 F.2d at 173 & n. 29.
In resolving a contribution claim, the court allocates response costs among the liable parties using such equitable factors as it deems appropriate. 42 U.S.C. § 9613(f); see also Weyerhaeuser Co. v. Koppers Co., Inc., 771 F.Supp. 1420, 1426 (D.Md.1991); Dent, 993 F.Supp. at 923. The Gore Factors are six equitable factors derived from the legislative history of CERCLA that are relevant in most CERCLA cases. Dent, 993 F.Supp. at 950. The Gore Factors are: 1) the ability of the parties to demonstrate that their contribution to a discharge, release, or disposal of a hazardous waste can be distinguished; 2) the amount of hazardous waste involved; 3) the toxicity of the hazardous waste involved; 4) the degree of involvement by the parties in the generation, transportation, treatment, storage, or disposal of the hazardous waste, especially waste driving the remediation; 5) the degree of care exercised by the parties with respect to the hazardous waste concerned, taking into account the characteristics of such hazardous waste; and 6) the degree of cooperation by the parties with Federal, State, or local officials to prevent harm to the public health or the environment. Dent, 993 F.Supp. at 950. Other courts have also considered: 1) the economic benefit to each party associated with releases of hazardous wastes, and 2) each party's ability to pay its share of the cost. See Weyerhaeuser, 771 F.Supp. at 1427; United States v. Davis, 31 F.Supp.2d 45, 63 (D.R.I.1998). Liability under § 113(f) is several, not joint and several. Minyard, 184 F.3d at 385. The court will proceed by *491 considering the defenses raised by each party and weighing the equitable factors it deems relevant with respect to each liable party's equitable share. Then, taking all of this information into account, the court will equitably allocate the past and future response costs for the remediation among the liable parties.
2. Ross
PCS must demonstrate that Ross is a PRP under § 107(a) of CERCLA and prove Ross's equitable share of costs. Minyard, 184 F.3d at 385. As was previously noted, the categories of responsible parties include "any [party] who at the time of disposal of any hazardous substance owned or operated any facility at which hazardous substances were disposed of." 42 U.S.C. § 9607(a)(2). Planters was the owner and operator of the fertilizer plant on the Site from 1906-1966. The evidence in this case shows that Planters disposed of hazardous wastes on the Site when it dumped pyrite slag on the Site and cleaned out the lead acid chambers. As the successor to Planters, Ross is subject to CERCLA liability under 42 U.S.C. § 9607(a)(2). See Carolina Transformer Co., 978 F.2d at 832.
Ross urges the court to take into account its alleged inability to pay a judgment in determining its equitable share of the response costs. Ross argues that as a dissolved corporation, it has no readily-available assets.
An orphan share is created when a party otherwise qualifying as a responsible party under CERCLA is "defunct, bankrupt, uninsured, or otherwise lacks[] the resources to bear its ideal measure of responsibility in monetary terms." United States v. Newmont USA Ltd., 2008 WL 4621566, at *62 (E.D.Wash. Oct. 17, 2008) (quoting United States v. Kramer, 953 F.Supp. 592, 595 (D.N.J. 1997)). When a so-called orphan share exists, a court may take this fact into account to increase the equitable share of others. Id. However, when the record does not make clear that a party is defunct, bankrupt, uninsured, or otherwise lacking of resources, courts have declined to take ability to pay into account in determining the equitable allocation among the parties. See id. The court concludes that it is not clear from the record that Ross will be unable to pay any share allocated to it. Ross has a case pending against its insurers, for coverage of any liability imposed in this suit. See Ross Dev. Corp. v. Firemans Fund Ins. Co., 2:08-CV-03672-MBS. In addition, there are cases pending against the Ross Directors and shareholders that seek to disgorge distributions made by Ross prior to dissolution.[10] These cases may make funds available to pay a judgment entered against Ross. In addition, the court finds that the existence of any orphan share is irrelevant for the purposes of allocation in light of evidence which suggests that Ross took steps to make itself judgment proof. See supra ¶¶ 44-48. The court will not take Ross's alleged inability to pay into account in making an equitable allocation. Should Ross later be determined to be defunct, each liable party will be responsible for its proportional share of Ross's allocated amount. See 42 U.S.C. § 9613(f); see also Newmont, 2008 WL 4621566, at *62.
In determining Ross's equitable share of the response costs, the court deems the following facts important:
*492 i. Planters manufactured fertilizer on the Site for sixty of the sixty-six years the fertilizer plant was in operation. See supra ¶¶ 19 and 20.
ii. As the only known property owner that burned pyrite slag, Planters generated the majority of arsenic that is found on the Site today. See supra ¶ 34.
iii. Planters introduced much of the lead contamination to the Site. See supra ¶ 34.
iv. Planters constructed several buildings on the Site during its ownership period. See supra ¶¶ 30, 32, 37, 38, and 39.
v. Planters owned and operated the site prior to the enactment of CERCLA when the issue of environmental contamination was not well known. There is no evidence that Planters' actions were illegal or contrary to industry standards at the time. See supra ¶¶ 20 and 78.
vi. Planters benefitted economically from its operations on the Site that caused the contamination. See supra ¶ 32.
vii. The evidence suggests that the Ross Directors knew that Ross might be held liable for contamination at the Site and took action to make the company judgment proof. See supra ¶¶ 43-53.
3. PCS
The court found above that PCS is subject to liability as the successor to CNC under CERCLA § 107(a)(1). The court deems the following factors important in determining PCS's equitable share of the response costs:
i. CNC conducted manufacturing operations on the Site for six out of the sixty-six years the fertilizer plant was in operation. See supra ¶¶ 91, 21 and 55.
ii. CNC generated no pyrite slag. See supra ¶ 58.
iii. All of the lead and arsenic on the Site that was introduced after the Planters period of operations was introduced by CNC.
iv. When CNC ceased operations, it demolished all of the structures on the Site. This demolition was highly disruptive to the Site and took place over several years, leaving contaminants open to the elements. See supra ¶¶ 70-77.
v. Prior to selling the property to the Holcombe and Fair Parties, CNC graded the Site. See supra ¶ 80.
vi. CNC knew that its manufacturing operations contaminated the Site and yet did not notify the Holcombe and Fair Parties or EPA of the contamination. See supra ¶¶ 78 and 81.
vii. CNC took more steps to protect the environment than did Planters, but it did not follow the more stringent environmental standards it imposed at its Moultrie, Georgia plant. See supra ¶ 63 and 78.
viii. CNC left lead sheeting discarded on the Site. See supra ¶ 61.
ix. CNC benefitted economically from manufacturing fertilizer on the Site. See supra ¶ 55.
x. PCS's predecessor, Arcadian reported the contamination of the Site found by GEL to EPA in response to a request for information. See supra ¶ 106.
4. Holcombe and Fair Parties
i. Whether the Holcombe and Fair Parties are PRPs
As previously noted, a PRP includes "any person who, at the time of disposal of a hazardous substance, owned or operated *493 any facility at which such hazardous substances were disposed." 42 U.S.C. § 9607(a)(2). Title 42, United States Code, Section 6903(a) defines "disposal" as "the discharge, deposit, injection, dumping, spilling, leaking, or placing of any solid waste or hazardous waste into or on any land or water so that such solid waste or hazardous waste or any constituent thereof may enter the environment or be emitted into the air or discharged into any waters, including ground waters." The Fourth Circuit has ruled that "§ 9607(a)(2) imposes liability not only for active involvement in placing hazardous waste on a facility, but for ownership of a facility at a time that hazardous waste was `spilling' or `leaking.'" Nurad, 966 F.2d at 846. Thus, in Nurad, the Fourth Circuit recognized that a "disposal" could involve merely passive conduct, specifically stating that "Congress intended the 42 U.S.C. § 6903(3) definition of disposal `to have a range of meanings,' including not only active conduct, but also the reposing of hazardous waste and its subsequent movement through the environment." Id. at 845, 846 (citing United States v. Waste Industries, Inc., 734 F.2d 159, 164 (4th Cir.1984)). Thus, hazardous materials can be disposed of multiple times such as when hazardous materials are moved or dispersed. See Tanglewood, 849 F.2d at 1573; Kaiser, 976 F.2d at 1342. "[A] `disposal' may occur when a party disperses contaminated soil during the course of grading and filling a construction site." Redwing, 94 F.3d at 1511-12.
The record establishes that at the time the Holcombe and Fair Parties purchased the Site, it was already contaminated with lead and arsenic from the operations of the fertilizer plant. In constructing the Milford Street extension and extending water and sewer lines through the area where the fertilizer plant was once located, the Holcombe and Fair Parties engaged in earth moving activities that redistributed contaminants and caused the disposal of hazardous wastes on the property. [See Trial Tr. 2070:20-24 (Grip testimony based upon aerial photography that the Holcombe and Fair Parties' excavation and grading activities caused an "intense disturbance" at the Site); 1587:9-15 (Murphy testifying that the distribution of contamination across the Site is driving the remedy); 1943:11-15 (Murphy agreeing that the fact that contamination was mixed up with clean soil increased the volume of soil that had to be removed); 791:7-18 (Freeman testifying that man-made activities can redistribute contamination)]. The Holcombe and Fair Parties are subject to CERCLA liability under 42 U.S.C. § 9607(a)(2) as owners of the Site at a time when a disposal of hazardous substances occurred.[11]
ii. Innocent Landowner Defense
The Holcombe and Fair Parties seek to avoid liability for response costs associated with the Site by asserting CERCLA's innocent landowner defense. See 42 U.S.C.A. § 9607(b)(3). To establish the innocent landowner defense, a property *494 owner must demonstrate "(1) that another party was the `sole cause' of the release of hazardous substances and the damages caused thereby; (2) that the other, responsible party did not cause the release in connection with a contractual, employment, or agency relationship with the [property owner]; and (3) that the [property owner] exercised due care and guarded against the foreseeable acts or omissions of the responsible party." Trinity, 150 F.3d at 396 (quoting Westfarm, 66 F.3d at 682 (quoting 42 U.S.C.A. § 9607(b)(3))).
In United States v. Honeywell Int'l, Inc., 542 F.Supp.2d 1188, 1200 (E.D.Cal.2008), the District Court for the Eastern District of California denied a party the innocent landowner defense because the party's affirmative steps in grading and excavating the property agitated the soil and caused the release of contaminants during the party's ownership period. The record indicates that the Holcombe and Fair Parties constructed the Milford Street extension and extended water and sewer lines through contaminated soil. These actions agitated the soil, causing new releases of hazardous substances. Therefore, the Holcombe and Fair Parties have not established the first element of the innocent landowner defense.
The Holcombe and Fair Parties also cannot establish the due care element of the innocent landowner defense. The due care element is satisfied by taking precautionary action against the foreseeable actions of third parties responsible for the hazardous substances in question. See Monsanto, 858 F.2d at 169. The record discloses the after discovering the contaminated state of the Site, the Holcombe and Fair parties made no effort to inform environmental authorities of the contamination. Although the placement of ROC on the Site by the Holcombe and Fair Parties was an environmental benefit to the Site, the Holcombe and Fair Parties only placed ROC on parcels of the Site as they were leased. Due care would have involved the Holcombe and Fair Parties capping the entire Site with ROC upon learning of the contamination in order to prevent air dispersion and human contact with contaminants. In addition, after environmental authorities became involved with the Site, the Holcombe and Fair Parties failed to follow their instructions. For example, instead of submitting a plan to control surface water runoff to EPA as agreed, the Holcombe and Fair Parties began the construction of detention ponds without approval. The Holcombe and Fair Parties also exhibited a lack of due care by failing to maintain the detention ponds on the Site. The court finds that the Holcombe and Fair Parties have not established the innocent landowner defense and will be allocated an equitable share of response costs for the remediation of the Site.
iii. Allocation
The court deems the following factors important in determining the equitable share of the response costs to be allocated to the Holcombe and Fair Parties:
a. The Holcombe and Fair Parties did not know of the contamination at the time they purchased the Site. See supra ¶ 87.
b. There is no evidence that the Holcombe and Fair Parties introduced any hazardous substances to the Site. See supra ¶ 136.
c. The Holcombe and Fair Parties contributed to the spread of the contamination on the Site by constructing the Milford Street extension and extending utility lines. See supra ¶¶ 92-93.
d. The addition of water and sewer lines on the Site prevented the use of contaminated groundwater thereby *495 protecting human health. See supra ¶ 94.
e. The Holcombe and Fair Parties did not disclose the contamination of the Site to the City prior to deeding it the Milford Street extension despite knowledge of the contamination. See supra ¶¶ 99-101, 110, and 170.
f. After learning of the contamination, the Holcombe and Fair Parties left the contaminated soil exposed to the elements until each parcel of property was leased and capped with ROC. See supra ¶¶ 112, 113, 115, 118, 121, and 130.
g. The ROC covering the majority of the Site provided important benefits to the Site. See supra ¶ 132.
h. The Holcombe and Fair Parties did not commission additional soil sampling despite GEL's advice that additional testing was appropriate. See supra ¶ 104.
i. The Holcombe and Fair Parties' actions in response to requests from EPA and DHEC were not fully compliant. See supra ¶¶ 124, 126, 132 and 133.
j. The Holcombe and Fair Parties profited from leasing out and later selling the Site despite knowing of the contamination and doing little to fix it. See supra ¶ 143.
5. RHCE
i. Innocent Landowner Defense
The court ruled above that RHCE is a PRP under §§ 107(a)(1) and (2) of CERCLA. RHCE seeks to avoid liability for response costs associated with the Site by asserting the innocent landowner defense. See 42 U.S.C.A. § 9607(b)(3). The record indicates that RHCE commissioned the following construction on its parcel: 1) the excavation of a 1380 cubic foot pond; 2) the installation of two fifty-foot asphalt driveways; 3) the stripping of six inches of topsoil and storing of this soil on an adjacent parcel; and 4) grading and proof rolling of the parcel. These actions agitated the soil, causing new releases of hazardous substances. See supra ¶ 155. Therefore, RHCE cannot meet the first element of the innocent landowner defense.
The second prong of the innocent landowner defense requires that RHCE not know and have no reason to know that any hazardous substance had been released at that facility. See United States v. A & N Cleaners and Launderers, Inc., 788 F.Supp. 1317, 1329-30 (S.D.N.Y.1992) (citing 42 U.S.C. § 9601(35)(A)). The record indicates that the Holcombe and Fair Parties disclosed at least some of the contamination to RHCE before the parcel was conveyed to Hood, President of RHCE. See supra ¶ 105. In addition, the grading and proof rolling of the RHCE parcel indicates a lack of due care on the part of RHCE when it had knowledge of the contamination. RHCE has not established the innocent landowner defense and will be allocated an equitable share of response costs for the remediation of the Site.
ii. Allocation
The court deems the following factors important in determining the equitable share of RHCE:
a. RHCE did not introduce any lead, arsenic or cPAHs to the Site. See supra ¶ 162.
b. RHCE only leases a two-acre parcel on the Site, which amounts to at most, 5.9% (2.00 acres/33.94 acres = 5.9%) of the remediation area. See supra ¶¶ 28 and 159.
c. If releases of motor oil or gear oil occurred on RHCE's parcel, such releases are not driving the remediation and will not affect the cost of remediation. See supra ¶¶ 160 and 162.
*496 d. RHCE engaged in some construction on its parcel. See supra ¶¶ 158 and 161.
e. The placement of ROC and construction of a detention pond on the RHCE parcel were of some benefit to the environment. See supra ¶¶ 132 and 158.
f. EPA is aware of RHCE's dropyard operation and has not requested that RHCE cease operations. See supra ¶ 160.
6. Allwaste
i. Whether Allwaste is a PRP
Current owners and operators of a facility are covered persons under CERCLA. 42 U.S.C. § 9607(a)(1). Ownership status in CERCLA cases is determined at the time of the filing of the complaint. See Trinity, 150 F.3d at 395 ("Generally, CERCLA imposes strict liability on the owner of the property at the time an enforcement action is brought, even if that party did not own the property when the pollution took place."); see also Fleet Factors Corp., 901 F.2d at 1554 ("Within the meaning of Section 107(a)(1) of CERCLA, the current owner means the owner at the time of filing of the complaint."). This action was filed in 2005. Allwaste did not sell its parcel to Ashley until 2008. Thus, Allwaste is potentially responsible for response costs as a current owner of the Site. See 42 U.S.C. §§ 9613(g), 9607(a)(1).
ii. Allocation
The court deems the following factors important in determining the equitable share of Allwaste:
a. Allwaste did not introduce any lead, arsenic or cPAHs to the Site. See supra ¶¶ 144-155.
b. Allwaste only owned a three-acre parcel and leased a two-acre parcel on the Site, which amounts to at most, 14.7% (5.00 acres/33.94 acres = 14.7%) of the remediation area. See supra ¶ 145.
c. If releases of motor oil or gear oil occurred on Allwaste's parcel, such releases are not driving the cost of remediation. See supra ¶ 155.
d. During its ownership period, Allwaste constructed a new building on its property, expanded existing structures, and modified the underground components of its wastewater collection system. See supra ¶ 148.
e. Stained cement indicates that some leaks of cleaning solvents occurred during Allwaste's operations. If any leaks occurred from Allwaste's business activities, however, those releases contributed little to the need for environmental remediation. See supra ¶ 150.
f. Allwaste allowed the sumps and pads in its facility to deteriorate to the point where they were identified as RECs. See supra ¶ 150.
7. The City
i. Whether the City is a PRP
Current owners and operators of a facility are liable for response costs under CERCLA. 42 U.S.C. § 9607(a)(1). The City contends that it is not a current owner or operator of the Site because it owns a right-of-way and does not manage any part of the Site. To determine whether the City has a current ownership interest in the Site, the court looks to the deed transferring the Milford Street extension to the City. [PCS Ex. 69].
"The construction of a clear and unambiguous deed is a question of law for the court." Bennett v. Inv. Title Ins. Co., 370 S.C. 578, 635 S.E.2d 649, 655 (S.C.Ct.App.2006). In ascertaining the *497 meaning of a deed, the court looks to the intention of the grantor. See id. To determine the intention of the grantor, the court must construe the deed as a whole. Id. When a deed is ambiguous as to intention, extrinsic evidence may be considered to explain it. Gardner v. Mozingo, 293 S.C. 23, 358 S.E.2d 390, 391-92 (1987); see Bellamy v. Bellamy, 292 S.C. 107, 355 S.E.2d 1, 3 (S.C.Ct.App.1987).
In the 1991 deed, the City agreed to abandon the turnaround at the end of the Milford Street extension in exchange for "owning all of Milford Street as shown on the plat" attached to the deed. [PCS Ex. 69 at 1]. The Holcombe and Fair Parties "remised, released, and forever quit-claimed" the Extension of Millford Street to the City. [PCS Ex. 69 at 1]. The Holcombe and Fair Parties retained no interest in the premises, as the deed provided that the grantors shall not "at any time hereafter, by any way or means, have, claim, or demand any right or title to the aforesaid premises or appurtenances, or any part of parcel thereof, forever." [PCS Ex. 69 at 2]. The deed uses the term "right-of-way" numerous times to describe the Milford Street extension. [PCS Ex. 69 at 1]. The court finds that the deed is ambiguous as to whether it grants a right-of-way or a fee simple in the Milford Street extension. Therefore, the court will consider extrinsic evidence to determine the intention of the grantors, the Holcombe and Fair Parties.
The deed makes no provision for the property to revert to the Holcombe and Fair Parties, indicating that the deed transferred all ownership rights to the City. Fair testified at trial that the deed resulted in the City owning the "road and the land under it." [Trial Tr. 2658:23-2659:3]. Based upon this evidence, the court finds that the intent of the grantor was to grant to the City the Milford Street extension in fee simple. Therefore, the City is an owner of part of the Site and is a PRP pursuant to 42 U.S.C. § 9607(a)(1).
Ownership is not required by CERCLA where a party is an "operator" for purposes of the statute. See Atchison, 2003 WL 25518047, at *58-59. In order for a party to be held liable as an operator, the person must have participated in the day-to-day or operational management of the facility. Acme Fill Corp. v. Althin CD Med., Inc., 1995 WL 597300 at *7 (N.D.Cal. Aug. 22, 1995); see also United States v. Dart Indus., Inc., 847 F.2d 144 (4th Cir.1988). The court finds that the City's ownership of the Milford Street extension does not meet the definition of "operator" because once the Milford Street extension was built, it did not require day-to-day management. In fact, there is no evidence in the record that the City performed any management activities related to the Milford Street extension. The City is not an operator for purposes of CERCLA liability. However, as found above, the City is a PRP because of its ownership status.
ii. Allocation
The court deems the following factors important in determining the equitable share of the City:
a. The City did not introduce any lead, arsenic, or cPAHs to the Site. See supra ¶ 174.
b. The City did not engage in any construction activities on the Site. See supra ¶ 168.
c. The City only owns 1.28 acres, which comprises about 3.7% (1.28 acres/33.95 acres = 3.7%) of the Site. See supra ¶ 28.
d. The asphalt road acts as a cap over some of the contamination at the Site, preventing human contact with contamination. See supra ¶ 172.
*498 e. There is no evidence that the City was notified of the contamination at the Site prior to taking ownership of the road. See supra ¶ 170.
f. The City has taken an active role in financing the remediation by issuing bonds. See supra ¶ 176.
g. The City did not acquire the Milford Street extension for profit. See supra ¶ 175.
The court concludes that the City took no active part in introducing contamination to the Site or in spreading contamination throughout the parcel. Any releases that occurred on the City's parcel during its period of ownership were due to the passive migration of chemicals or runoff, which would have occurred during all ownership periods.
8. Ashley
i. Bona Fide Prospective Purchaser Defense
To establish the bona fide prospective purchaser defense ("BFPP"), Ashley must have acquired ownership of the facility after 2002 and prove each of the following eight elements by a preponderance of the evidence:
(A) Disposal prior to acquisition
All disposal of hazardous substances at the facility occurred before the person acquired the facility.
(B) Inquiries
(i) In general
The person made all appropriate inquiries into the previous ownership and uses of the facility in accordance with generally accepted good commercial and customary standards and practices in accordance with clauses (ii) and (iii).
(ii) Standards and practices
The standards and practices referred to in clauses (ii) and (iv) of paragraph (35)(B) of this section shall be considered to satisfy the requirements of this subparagraph.
. . .
(C) Notices
The person provides all legally required notices with respect to the discovery or release of any hazardous substances at the facility.
(D) Care
The person exercises appropriate care with respect to hazardous substances found at the facility by taking reasonable steps to
(i) stop any continuing release;
(ii) prevent any threatened future release; and
(iii) prevent or limit human, environmental, or natural resource exposure to any previously released hazardous substance.
(E) Cooperation, assistance, and access
The person provides full cooperation, assistance, and access to persons that are authorized to conduct response actions or natural resource restoration at a . . . or facility (including the cooperation and access necessary for the installation, integrity, operation, and maintenance of any complete or partial response actions or natural resource restoration at the vessel or facility).
(F) Institutional control
The person
(i) is in compliance with any land use restrictions established or relied on in connection with the response action at a . . . facility; and
(ii) does not impede the effectiveness or integrity of any institutional control employed at the . . . facility in connection with a response action.
(G) Requests; subpoenas
The person complies with any request for information or administrative subpoena issued by the President under this chapter.
(H) No affiliation
*499 The person is not
(i) potentially liable, or affiliated with any other person that is potentially liable, for response costs at a facility through
(I) any direct or indirect familial relationship; or
(II) any contractual, corporate, or financial relationship (other than a contractual, corporate, or financial relationship that is created by the instruments by which title to the facility is conveyed or financed or by a contract for the sale of goods or services); or
(ii) the result of a reorganization of a business entity that was potentially liable.
42 U.S.C. § 9601(40). Ashley first acquired a portion of the Site in 2003. Therefore, Ashley is eligible for the BFPP defense if it establishes all eight elements by a preponderance of the evidence.
a. Whether All Disposals Of Hazardous Substances Occurred Before Ashley Acquired Part of the Site
This element requires Ashley to prove that all disposals of hazardous substances occurred before it acquired the Site. 42 U.S.C. § 9601(40)(A). As previously noted, "disposal" is defined as
the discharge, deposit, injection, dumping, spilling, leaking, or placing of any solid waste or hazardous waste into or on any land or water so that such solid waste or hazardous waste or any constituent thereof may enter the environment or be emitted into the air or discharged into any waters, including ground waters.
42 U.S.C. § 6903(3); 42 U.S.C. § 9601(29). The Fourth Circuit has ruled that disposals include not only active involvement in the `dumping' or `placing' of hazardous waste at the facility, but for ownership of the facility at a time that hazardous waste was `spilling' or `leaking.' Nurad, 966 F.2d at 846. Disposals are not limited to one-time occurrences, but instead include times when hazardous materials are moved or dispersed. See Tanglewood, 849 F.2d at 1573; Kaiser, 976 F.2d at 1342. A "disposal" "may occur when a party disperses contaminated soil. . . ." Redwing, 94 F.3d at 1511-12.
It is likely that there were disposals on the Allwaste property after Ashley tore down the structures on the Allwaste parcel in 2008 because the sumps contained hazardous substances, were cracked, and were allowed to fill with rainwater. [Trial Tr. 760:14-761:1]. Ashley did not conduct testing to determine whether disposals occurred on the Allwaste parcel during its ownership period. Specifically, Ashley did not test under the concrete pads, sumps, or trench to see if the soil under those structures was contaminated. Ashley attempted to introduce evidence that no disposals occurred after its acquisition of the property through the testimony of Riggenbach. However, the court struck this testimony at trial because Riggenbach's opinion on this issue was not disclosed prior to trial. [Trial Tr. 1399:1-17]. The court concludes that Ashley did not prove that no disposals occurred on the Site after its acquisition of the Site.
b. All Appropriate Inquiries ("AAI")
This element requires Ashley to prove that it performed AAI prior to acquiring the Site. 42 U.S.C. § 9601(40)(B). At the time Ashley would have been performing its pre-purchase inquiry on the Holcombe and Fair Parties' parcel, prior to 2003, interim standards were in place to meet the AAI standard.[12] 42 U.S.C. *500 § 9601(40)(B); 68 FR 24888-01. The AAI standard could be met for the Holcombe and Fair Parties' parcel by complying with ASTM Standard E1527-00.[13] At the time Ashley performed its pre-purchase inquiry on the Allwaste parcel, a final standard for AAI's had been promulgated, 40 C.F.R. §§ 312, et seq.; this is the standard applicable to the Allwaste parcel.
Ashley acquired a portion of the Site from the Holcombe and Fair Parties on November 24, 2003. Prior to the acquisition of the Holcombe and Fair Parties' parcel, Ashley hired GEL to conduct AAI. GEL prepared a September 25, 2003 Phase I Environmental Site Assessment, and certified that its inquiry was in compliance with ASTM E1527-00. [Ash. Ex. 110 at 1-2]. Ashley also hired GEL to conduct a Phase I Environmental Site Assessment on the Allwaste parcel prior to purchase. [Ash. Ex. 179]. GEL certified in its report on the Allwaste parcel that its inquiry was in compliance with ASTM E 1527-05.[14] [Ash. Ex. 179 at 4]. While PCS points to some inconsistencies between GEL's Phase I Reports and the relevant ASTM Standards, the court finds that such inconsistencies lack significance. What is important is that Ashley acted reasonably; it hired an expert to conduct an AAI and relied on that expert to perform its job properly. The court finds that Ashley properly conducted AAI.
c. All Legally Required Notices
Title 42, United States Code, Section 9603(a) requires that any person in charge of a facility immediately notify the National Response Center of any release of a hazardous substance once it has knowledge of a release. Ashley contends that there have been no releases of hazardous substances at the Site since Ashley's acquisition of the property that required notice to EPA or DHEC. The record does not establish that any releases occurred on the Site subsequent to Ashley acquiring ownership. The court finds that Ashley has met its burden of proving that it made all legally required notices.
d. Whether Ashley has Exercised Appropriate Care
To demonstrate that it has exercised appropriate care, Ashley must prove that it took reasonable steps to: 1) stop any continuing release; 2) prevent any threatened future release; and 3) prevent or limit human, environmental, or natural resource exposure to any previously released hazardous substance. 42 U.S.C. § 9601(40)(D). According to EPA, Congress intended the "reasonable steps" requirement to be "consonant with traditional common law principles and the existing CERCLA due care requirement." [Ash. Ex. 100, at 9 & n. 9]. Under the CERCLA due care requirements, a party must establish by a preponderance of the evidence that it "exercised due care with respect to the hazardous substance concerned, taking into consideration the characteristics of such hazardous substance, in light of all relevant facts or circumstances." [Ash. Ex. 100 at 11]. "[E]xisting case law on due care provides a reference point for evaluating the reasonable steps requirement." [Ash. Ex. 100, at 11]. According to EPA, "doing nothing in the face of a known or suspected environmental hazard would likely be insufficient." [Ash. Ex. 100, Attachment B at 5].
*501 EPA's Interim Guidance on BFPP status states as follows:
The pre-purchase "appropriate inquiry" by the [BFPP] will most likely inform the [BFPP] as to the nature and extent of contamination on the property and what might be considered reasonable steps regarding the contaminationhow to stop continuing releases, prevent threatened future releases, and prevent or limit human, environmental and natural resource exposures. Knowledge of contamination and the opportunity to plan prior to purchase should be factors in evaluating what are reasonable steps, and could result in greater reasonable steps obligations for a [BFPP].
[Ash. Ex. 100 at 11].
The court concludes that Ashley did not exercise appropriate care with regard to hazardous substances. First, GEL identified the sumps and concrete pads at the Allwaste parcel as RECs. When Ashley demolished all of the above-ground structures on the Allwaste parcel, but failed to clean out and fill in the sumps, leaving them exposed to the elements, it may have exacerbated these conditions. At trial, experts testified that Ashley should have capped, filled, or removed the sumps at the time it demolished the above-ground structures. [Trial Tr. 401:14-402:2, 2419:20-2421:19, 2434:18-2436:4]. Ashley's later action commissioning GEL to test, clean, and fill the sumps with concrete came too late to prevent possible releases.
Second, Ashley's failure to 1) prevent a debris pile from accumulating on the Site, 2) investigate the contents of the debris pile, and 3) remove the debris pile for over a year indicates a lack of appropriate care. [Trial Tr. 552:8-14 and 552:24-553:15; PCS Ex. 3 at 1; PCS Ex. 19 at A05_01238, A04_05365, A04_05368, A04_05370, A04_05376 and A04_05380]. Third, Ashley failed to adequately maintain the ROC cover on the Site. For example, the ROC cover on the parcel Ashley leased to Allwaste from 2003 to 2008, was deteriorated in 2004. [PCS Ex. 22 at A 00283, Fig. 1-2].
e. Whether Ashley Provided Full Cooperation, Assistance and Access
This element requires that Ashley prove that it provided "full cooperation, assistance, and access to persons that are authorized to conduct response actions or natural resource restoration at a . . . facility." 42 U.S.C. § 9601(40)(E). Ashley has provided the court with sufficient evidence to meet its burden of proof on this element of the BFPP defense. When Ashley acquired the Holcombe and Fair Parties' parcel, it immediately notified EPA of its ownership and asked EPA to advise Ashley if EPA desired Ashley to take specific action. [Ash. Ex. 114]. The record demonstrates that Ashley's cooperation with EPA has been ongoing since it purchased the Site. [Ash. Exs. 187 and 188].
f. Institutional Controls
This element requires that Ashley prove that it: 1) is in compliance with any land use restrictions at the facility; and 2) is not impeding any institutional control employed at the facility in connection with a response action. 42 U.S.C. § 9601(40)(F). Freeman testified at trial that there are no land use restrictions or unusual institutional controls in place at the Site, and that Ashley is in compliance with any controls in place. [Trial Tr. 594:16-24]. This testimony has not been contradicted. The court finds that Ashley has met its burden of proof on this element.
g. Compliance with Requests and Subpoenas
This element requires that Ashley prove that it has complied with any request for information or administrative subpoena directed to it. 42 U.S.C. § 9601(40)(G). Freeman testified at trial that Ashley has *502 complied with all information requests and subpoenas that it has received from EPA. [Trial Tr. 599:12-16]. Ashley's Exhibit 116 is an example of Ashley responding to a request for information by the EPA. [Ash. Ex. 116]. The court finds that Ashley has met its burden of proof on this element.
h. No Affiliation
This element requires that Ashley prove that it is not: 1) a potentially liable for response costs at the Site through: a) any direct or indirect familial relationship; b) any contractual, corporate, or financial relationship "(other than a contractual, corporate, or financial relationship that is created by the instruments by which title to the facility is conveyed or financed or by a contract for the sale of goods or services);" 2) affiliated with persons who are potentially liable, for response costs at the Site through: a) any direct or indirect familial relationship; b) any contractual, corporate, or financial relationship "(other than a contractual, corporate, or financial relationship that is created by the instruments by which title to the facility is conveyed or financed or by a contract for the sale of goods or services)"; or 3) "the result of a reorganization of a business entity that was potentially liable." 42 U.S.C. § 9601(40)(H). EPA has stated that in deciding which "affiliations" are prohibited by CERCLA, courts should be guided by "Congress's intent of preventing transactions structured to avoid liability." [Ash. Ex. 100 at 5]. There is no allegation in this case that Ashley is the result of a reorganization of a business entity that was potentially liable.
1. Whether Ashley is Potentially Liable for Response Costs at the Site through any Familial Relationship, or any Contractual, Corporate, or Financial Relationship
As previously noted, current owners and operators of a facility are liable for response costs under CERCLA. 42 U.S.C. § 9607(a)(1). There is no allegation in this case that Ashley is potentially liable for response costs at the Site based upon a familial relationship. However, Ashley is potentially liable for response costs at the Site due to contractual relationships. Ashley has released the Holcombe and Fair Parties and Allwaste from environmental liability for contamination at the Site. [Ash. Ex. 94, 113; Allwaste Exs. 1-2]. These releases were given in connection with the purchases of parcels of property on the Site. Because of its release of the Holcombe and Fair Parties, Ashley attempted to persuade EPA not to take enforcement action to recover for any harm at the Site caused by the Holcombe and Fair Parties. [PCS Ex. 256 at 2]. In releasing the Holcombe and Fair Parties, Ashley took the risk that the Holcombe and Fair Parties might be liable for response costs. Ashley's efforts to discourage EPA from recovering response costs from the Holcombe and Fair Parties reveals just the sort of affiliation Congress intended to discourage. The court finds that Ashley's contractual release of the Holcombe and Fair Parties makes Ashley potentially liable for response costs at the Site and is a prohibited affiliation, which precludes the application of the BFPP defense.
2. Whether Ashley is Affiliated with Others Who are Potentially Liable for Response Costs at the Site Through any Familial Relationship, or any Contractual, Corporate, or Financial Relationship
Ashley has no direct or indirect familial relationship with any of the other PRPs in this case. [Trial Tr. 141:14-145:2 and 181:13-182:9]. Moreover it does not appear that Ashley is affiliated with others who are potentially liable for response costs at the Site through any familial, contractual, corporate or financial relationship. *503 For example, although Ashley is affiliated with the Holcombe and Fair Parties, there is no evidence that the Holcombe and Fair Parties are potentially liable for response costs at the Site due to any familial, contractual, corporate or financial relationship.
i. Conclusion
Ashley has failed to meet its burden of proving several of the elements of the BFPP defense and will be held liable for an equitable share of response costs.
ii. Allocation
The court deems the following factors important in determining the equitable share of Ashley:
a. Ashley did not engage in any manufacturing activities on the Site. See supra ¶ 206.
b. Ashley has made efforts to secure and restrict access to the Site. See supra ¶ 181.
c. Ashley performed extensive environmental testing at the Site and performed AAI. See supra ¶¶ 182, 186, 189, 192, 194, and 202; Part II. D.8.i.b.
d. Ashley has cooperated with EPA. See supra Part II.D.8.i.e.
e. Ashley's ultimate goal in remediating the Site and conducting the Magnolia Development project is to cleanup the Site for productive use and ultimately make a profit. See supra ¶¶ 178-79.
f. Ashley has attempted to discourage EPA from pursuing recovery for response costs caused by the Holcombe and Fair Parties. See supra ¶ 198.
g. Ashley failed to exercise appropriate care with regard to the Site. See supra Part II.D.8.i.d.
h. Ashley may have permitted additional releases of hazardous materials to occur on the Allwaste parcel. See supra Part II.D.8.i.a.
9. Equitable Shares
Taking all of the foregoing into account, the court finds that in accordance with equity, the parties shall be liable for the following percentages of the past and future response costs to clean up the Site:
i. Ross is responsible for forty-five percent (45%);
ii. PCS is responsible for thirty percent (30%);
iii. The Holcombe and Fair Parties are responsible for sixteen percent (16%);[15]
iv. RHCE is responsible for one percent (1%);
v. Allwaste is responsible for three percent (3%);[16]
vi. The City of Charleston is responsible for zero percent (0%);[17] and
vii. Ashley is responsible for five percent (5%).
If it is subsequently determined that any liable party is adjudged unable to pay all or a portion of its equitable share, that share, less recovered amounts, shall be reallocated to the other liable parties on a *504 pro rata basis in accordance with the above percentage shares. See, e.g., United States v. Stringfellow, No. CV-83-2501-JMI, 1995 WL 450856 (C.D.Cal. Jan. 24, 1995) (the court first allocates to each responsible party; if one party is later adjudicated bankrupt, the court then reallocates this share to the other parties).
E. Ross Indemnification of PCS
PCS argues that it, as successor to CNC, has a valid indemnification agreement with Ross, as successor to Planters.
1. Whether the Planters-CNC Indemnification Agreement is in Effect
PCS contends that the Planters-CNC indemnification agreement ("Indemnification Agreement") is in effect because: 1) the parties expressly provided that the Indemnification Agreement would remain in effect after closing; and 2) the Indemnification Agreement is unqualified in that it reaches all of the assets in the transaction between Planters and CNC. [Entry 569-1 at 21]. PCS contends that because the deed transferring the Site from Planters to CNC only partially performed the provisions in the January 7, 1996 Letter of Agreement ("Letter of Agreement"), the Letter of Agreement, which contains the Indemnification Agreement, was not merged into the deed at closing. [Entry 596 at 4]. Ross contends that because the deed does not contain or incorporate the Indemnification Agreement; and the Bill of Sale that incorporates the Indemnification Agreement specifically excludes the land, PCS is not entitled to indemnification from Ross. [Entry 578 at 1-3].
"The cardinal rule of contract interpretation is to ascertain and give legal effect to the parties' intentions as determined by the contract language." Beaufort Cnty. Sch. Dist. v. United Nat. Ins. Co., 392 S.C. 506, 709 S.E.2d 85, 90 (S.C.Ct.App.2011) (citing Schulmeyer v. State Farm Fire & Cas. Co., 353 S.C. 491, 579 S.E.2d 132, 134 (2003)). "If [a] contract's language is clear and unambiguous, the language alone, understood in its plain, ordinary, and popular sense, determines the contract's force and effect." Id. (citing Schulmeyer, 579 S.E.2d at 134). Only when a contract is ambiguous may extrinsic evidence be admitted to aid interpretation. Rhame v. Nat'l Grange Mut. Ins. Co., 238 S.C. 539, 121 S.E.2d 94, 97 (1961). Whether a contract's language is ambiguous is a question of law. S.C. Dep't of Natural Res. v. Town of McClellanville, 345 S.C. 617, 550 S.E.2d 299, 302-03 (2001). A contract is ambiguous "only when it may fairly and reasonably be understood in more ways than one." Hansen v. United Servs. Auto. Assoc., 350 S.C. 62, 565 S.E.2d 114, 117 (S.C.Ct.App.2002).
Generally speaking, the merger by deed doctrine provides that "a deed made in full execution of a contract of sale of land merges the provisions of the contract therein. . . ." Charleston & W. Carolina Ry. Co. v. Joyce, 231 S.C. 493, 99 S.E.2d 187, 193 (1957). "[T]his rule extends to and includes all prior negotiations and agreements leading up to the execution of the deed." Id.; see also Wilson v. Landstrom, 281 S.C. 260, 315 S.E.2d 130, 133 (S.C.Ct.App.1984) ("A deed executed subsequent to the making of an executory contract for the sale of land supersedes that contract . . . .") (citing Charleston & W., 99 S.E.2d at 187).
There are two exceptions to the merger by deed doctrine. First, if a deed "constitutes only part performance of a preceding contract, other distinct and unperformed provisions of the contract are not merged in the deed." New Prospect Area Fire Dist. v. New Prospect Ruritan Club, 311 S.C. 402, 429 S.E.2d 791, 792 (1993) (citing 26 C.J.S. Deeds § 91 (1956)). Second, agreements that are not intended to be merged in a deed, are also not *505 merged into the deed. Hughes v. Greenville Country Club, 283 S.C. 448, 322 S.E.2d 827, 828 (S.C.Ct.App.1984) (citing Charleston & W., 99 S.E.2d at 193). Under the second exception, "the party denying merger has the burden of proving by clear and convincing evidence that merger was not intended." Hughes, 322 S.E.2d at 828 (citing Knight v. Hedden, 112 Ga.App. 847, 146 S.E.2d 556, 558 (1965)).
In the Letter of Agreement, Planters agreed to sell its business to CNC and promised to indemnify CNC. [PCS Ex. 276]. The Letter of Agreement contains sixteen terms and conditions involving such topics as obtaining board approval of the sale by CNC, maintenance of adequate insurance, continuance of operations, indemnification, covenants not to compete, and termination of employment relationships with employees. [Id. ¶ I, IV, VII, VIII, X, and XII]. The Letter of Agreement's indemnification provision states:
Seller [Planters] agrees to indemnify and hold harmless Buyer [CNC] in respect to all acts, suits, demands, assessments, precedings and cost and expenses resulting from any acts or omission of the Seller [Planters] occurring prior to the closing date and pertaining herein, provided the Seller [Planters] receives prompt notice in writing of such claim or demand and Seller [Planters] shall have the right to litigate or contest such claim.
[PCS Ex. 276 at 10 ¶ VIII]. The Letter of Agreement also states: "the sale, conveyance and transfer of the assets of the business of the Seller [Planters] which are to be transferred to the Buyer [CNC], shall be effected by Deed, Bill of Sale, and other instruments of transfer and conveyances in such form as the Buyer [CNC] shall reasonably request." [Id. at 4, ¶ V].
On June 30, 1966, the Planters plant and equipment were transferred from Planters to CNC by way of a Bill of Sale. [PCS Ex. 15]. The real estate on which the plant was located was transferred through a deed on the same date. [Ash. Ex 23]. The deed did not explicitly incorporate the Letter of Agreement or the indemnification provision. [See id.]. However, the Bill of Sale states:
It is the intention of the Seller by this instrument to fully and effectually implement its obligation to deliver to the Buyer certain tangible personal property and interest in certain real and personal property pursuant to a certain Letter of Agreement dated January 7, 1966, as supplemented by a letter dated March 31, 1966, and it is accordingly declared that the Letter of Agreement above referred to as so supplemented, shall survive the execution and delivery of this Bill of Sale, so that it shall be the continuing obligation of the Seller to execute and deliver such further instruments of conveyance and assurance as may be required in order that the Seller shall faithfully and fully implement its obligation above referred to.
[PCS Ex. 15 ¶ VIII (emphasis added)]. Because the Letter of Agreement clearly contains provisions that are not addressed in the deed or performed by the deed, the doctrine of merger by deed is inapplicable. In addition, the language of the Bill of Sale that incorporates the Letter of Agreement explicitly mentions the sale of real property, and not just the plant and equipment, indicating that the indemnification agreement is applicable to the land. Based upon the foregoing, the court finds that the Indemnification Agreement between Planters and CNC remains in effect.
i. Effect of the Indemnification Agreement
a. Whether PCS is Entitled to Payment of Its Costs by Ross
PCS contends that the court should find that the Indemnification *506 Agreement requires Ross to reimburse PCS for the costs of this litigation that arise from Ross' acts and omissions. [Entry 569-1 at 23]. PCS contends that these costs include litigation costs incurred by PCS to date to identify Ross as a liable party and to bring Ross into this litigation. [Id.].
As a preliminary matter, the court finds that the broad language of the Indemnification Agreement, which covers "all acts, suits, demands, assessments, precedings and cost and expenses resulting from any acts or omission of the Seller [Planters] occurring prior to the closing date," encompasses CERCLA claims. See Joslyn Mfg. Co., 40 F.3d at 754 (5th Cir.1994) (holding that broad language in indemnity clauses indicated that the agreements were intended to cover all forms of liability, including liability under CERCLA, even though environmental liability under CERCLA was not contemplated at the time of contracting); Kerr-McGee, 14 F.3d at 327 (recognizing that a party may contract to indemnify another for environmental liability even though CERCLA was not in existence at the time of contracting); Vill. of Fox River Grove, 806 F.Supp. at 792 (holding that a general release between a CERCLA plaintiff and a third-party defendant, which was entered into prior to the enactment of CERCLA, barred third-party contribution claims); Jones-Hamilton Co., 750 F.Supp. at 1026-27 (holding that an indemnification agreement that encompassed "all losses, damages and costs" resulting from any violation of law was sufficient to release the indemnitee from CERCLA liability even though the agreement was entered into prior to the enactment of CERCLA and did not specifically mention CERCLA). In addition, based upon the plain language of the Indemnification agreement, the court finds that Ross must reimburse PCS for the costs and expenses of this case resulting from any acts or omissions that occurred "prior to the closing date" of the sale of the Planters business to CNC. [See PCS Ex. 276 at 10 ¶ VIII].
b. Whether the Indemnification Agreement Bars Ashley from Holding PCS Liable for Ross's Equitable Share of the Harm at the Site
PCS contends that the Indemnification Agreement prevents any entity from recovering from PCS any response costs allocated to Ross, including part of any orphan share, because PCS has been released from such claims and indemnified from such costs. [Entry 569-1 at 20]. The court disagrees.
As previously stated, CERCLA permits parties to shift the burden for paying response costs through contractual agreements. See 42 U.S.C. § 9607(e)(1) ("Nothing in [CERCLA § 107(e)(1)] shall bar any agreement to insure, hold harmless, or indemnify a party to such agreement for any liability under [CERCLA § 107]."). An individual or entity that settles with a CERCLA plaintiff before final judgment is not liable for contribution to others for the injury. Restatement (Third) of Torts § 23 cmt. i. However, contrary to PCS's contention, this principle does not apply to indemnification agreements among joint tortfeasors.
Generally speaking, when two or more parties have engaged in tortious conduct that is a legal cause of indivisible harm, as in this case, each joint tortfeasor can be held liable for the entire harm. Restatement (Second) of Torts § 875. A plaintiff then has the right to decide which joint tortfeasor(s) to sue for recovery. Chester v. S. Carolina Dept. of Pub. Safety, 388 S.C. 343, 698 S.E.2d 559, 560 (2010) (citing Doctor v. Robert Lee, Inc., 215 S.C. 332, 55 S.E.2d 68 (1949)). The effect of a contractual indemnification agreement among joint tortfeasors, does not affect a *507 plaintiff's right to decide which joint tortfeasor(s) to sue. Instead, a contractual indemnity agreement among joint tortfeasors allows the indemnitee tortfeasor to recover from the indemnitor tortfeasor. See First Gen. Servs. of Charleston, Inc. v. Miller, 314 S.C. 439, 445 S.E.2d 446, 449 (1994) ("Indemnity is that form of compensation in which a first party is liable to pay a second party for a loss or damage the second party incurs to a third party.") (quoting Winnsboro v. Wiedeman-Singleton, Inc., 303 S.C. 52, 398 S.E.2d 500 (S.C.Ct.App.1990)); see also McCain Mfg. Corp. v. Rockwell Intern. Corp., 695 F.2d 803 (4th Cir.1982) (finding that in South Carolina, if a joint tortfeasor could prove that it had a contractual indemnification agreement with another joint tortfeasor, it would be able to recover from the other joint tortfeasor for damages paid to a harmed party). Therefore, the Indemnification Agreement does not change the fact that PCS is jointly and severally liable for all costs of the remediation of the Site pursuant to CERCLA. With regard to PCS's claim that it cannot be apportioned any part of any orphan share left by Ross due to the Planters-CNC indemnification agreement, any ruling on this issue would be speculative until such time as an orphan share is established. Therefore, the court declines to address PCS's claim at this time.
III. CONCLUSION
Allwaste's Motion for Judgment on Partial Findings [Entry 517] is granted. The Holcombe and Fair Parties' Motion for Judgment as a Matter of Law [Entry 520] is granted. RHCE's Motion for Judgment on Partial Findings [Entry 521] is denied. PCS is liable to Ashley for response costs pursuant to § 107(a)(2) of CERCLA. The harm at the Site is indivisible and PCS's liability is joint and several.
Judgment shall be entered for Ashley in the amount of $147,617.02 plus interest against PCS, which represents the amount of $194,232.94 that Ashley spent in past response costs for which PCS is jointly and severally liable minus applicable set-offs. Judgment shall be entered for PCS in the amount of $87,404.82 plus interest against Ross; and in the amount of $1,942.32 plus interest against RHCE, which represents those parties' respective shares of Ashley's past response costs.
Declaratory judgment shall be entered for Ashley against PCS for 76% of future response costs at the Site, which represents the percentage of future response costs for which PCS is jointly and severally liable minus applicable set-offs. Declaratory judgement shall be entered for PCS against Ross and RHCE in the respective percentages of 45% and 1% for future response costs at the Site. PCS is entitled to reimbursement from Ross for PCS's costs and expenses in this litigation resulting from any acts or omissions of Planters that occurred prior to the closing date of the sale of the Planters business to CNC. The court retains jurisdiction over the case should it become necessary to determine whether the final remediation plan for the Site is consistent with the National Contingency Plan.
IT IS SO ORDERED.
ORDER
This was a cost-recovery action brought under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), as amended, 42 U.S.C. §§ 9601, et seq., to recover costs incurred to remediate 33.95 acres of a 43 acre parcel of land in Charleston, South Carolina ("the Site"). On September 26, 2005, this lawsuit was filed under CERCLA § 107 (42 U.S.C. § 9607) by one of the Site's current owners, Ashley II of Charleston, LLC ("Ashley"), against PCS Nitrogen, Inc. ("PCS"), seeking a declaratory judgment *508 that PCS is jointly and severally liable for the cost of remediating the Site; and a money judgment in the amount of $194,232.94 to reimburse Ashley for costs of remediation that it had already incurred. [Entry 1 at ¶¶ 28-36; Entry 209 at ¶¶ 31-37].
PCS filed contribution claims pursuant to CERCLA § 113(f)(1) against Ashley, Ross Development Corporation ("Ross"); Koninklijke DSM N.V., and DSM Chemicals of North America, Inc. (collectively "the DSM Parties"); James H. Holcombe ("Holcombe"), J. Holcombe Enterprises, L.P. ("Holcombe Enterprises"), and J. Henry Fair, Jr. ("Fair") (collectively "The Holcombe and Fair Parties"); Allwaste Tank Cleaning (n/k/a QualaServices, LLC) ("Allwaste"); Robin Hood Container Express, Inc. ("RHCE"); and the City of Charleston, South Carolina ("the City"), alleging that each third party was a potentially responsible party ("PRP"). [Entry 226]. Several of the third-parties also filed claims.
The case was bifurcated into liability and allocation phases by order of The Honorable C. Weston Houck on July 25, 2006. [Entry 56]. On September 28, 2007, pursuant to Federal Rule of Civil Procedure 52, Judge Houck entered Findings of Fact and Conclusions of Law determining PCS to be the successor-in-interest to former Site owner, Columbia Nitrogen Corporation ("CNC"). [Entry 118]. The case was reassigned to the undersigned on January 6, 2009. [Entries 307 and 308]. On August 13, 2009, the court granted summary judgment to the DSM Parties. [Entry 409]. On September 30, 2010, the court issued an order and opinion containing its findings of fact and conclusions of law. [Entry 561]. On October 13, 2010, the court issued an amended order and opinion. [Entry 563]. On May 27, 2011, the court issued a second amended order and opinion, after addressing several motions to amend or correct the judgment, and for reconsideration. [Entry 27, 2011].
This case is currently before the court on Ross's Motion to Amend of Modify the court's second amended order and opinion, as well as PCS's motion to modify the judgment entered against Ashley.
DISCUSSION
I. Standards
A. Rule 52(b)
Federal Rule of Civil Procedure 52(b) provides, in pertinent part, as follows: "On a party's motion filed no later than 28 days after the entry of judgment, the court may amend its findingsor make additional findingsand may amend the judgment accordingly." Id.
B. Rule 59(e)
Although Rule 59 addresses grounds for new trials, some courts have reasoned that the concept of a new trial under Rule 59 is broad enough to include a rehearing of any matter decided by the court without a jury. 11 Wright & Miller, FEDERAL PRACTICE & PROCEDURE § 2804. The Fourth Circuit recognizes only three limited grounds for a district court's grant of a motion under Rule 59(e): 1) to accommodate an intervening change in controlling law; 2) to account for new evidence not available earlier; or 3) to correct a clear error of law or prevent manifest injustice. Hutchinson v. Staton, 994 F.2d 1076, 1081 (4th Cir.1993). The Fourth Circuit has emphasized that mere disagreement with the court's ruling does not warrant a Rule 59(e) motion. Id. (citing Atkins v. Marathon LeTourneau Co., 130 F.R.D. 625, 626 (S.D.Miss.1990)). Moreover, "Rule 59(e) motions may not be used to raise arguments which could have been raised prior to the issuance of the judgment, nor may they be used to argue a *509 case under a novel legal theory that the party had the ability to address in the first instance." Pacific Ins. Co. v. Am. Nat. Fire Ins. Co., 148 F.3d 396, 403 (4th Cir. 1998) (citing In re: Reese, 91 F.3d 37, 39 (7th Cir.1996) ("A motion under Rule 59(e) is not authorized `to enable a party to complete presenting his case after the court has ruled against him.'"). "In general reconsideration of a judgment after its entry is an extraordinary remedy which should be used sparingly." Id. (internal citations omitted).
C. Rule 60(b)(6)
Rule 60(b)(6) provides that the court may relieve a party from a final judgment, order, or proceeding for any reason that justifies relief. Id.
II. Ross's Motion to Amend or Modify
A. Money Judgment
Ross requests that the court modify its second amended order and opinion to find that PCS may not obtain a monetary judgment on its contribution claim against Ross until it has proven that PCS has paid Ashley II more than its pro rata share of the monetary judgment against it. [Entry 634 at 1]. In United States v. Atl. Research Corp., 551 U.S. 128, 138-39, 127 S.Ct. 2331, 168 L.Ed.2d 28 (2007), the Supreme Court found that the meaning of the term "contribution" in CERCLA is the same as in the traditional sense and is defined as the "tortfeasor's right to collect from others responsible for the same tort after the tortfeasor has paid more than his or her proportionate share, the shares being determined as a percentage of fault." Id. at 138, 127 S.Ct. 2331 (citing Black's Law Dictionary 353 (8th ed.2004)). Ross's assertion is a correct interpretation of the law to the extent that PCS cannot collect upon its judgements against contributing tortfeasors until it has paid more than its share of the judgment entered in favor of Ashley in this case. However, the court finds that it is not necessary to amend or modify its previous order as the entry of judgment against Ross in favor of PCS was proper pursuant to CERCLA § 113(f) and (g)(2)(B).
B. Indemnification Agreement
Ross requests that the court modify its ruling that Ross is liable to PCS under an indemnity provision arguing that: 1) PCS did not show by clear and convincing evidence that any exception to the doctrine of merger by deed applies; 2) PCS failed to provide "prompt notice in writing" of a claim involving the Site as required by the indemnity provision; and 3) that PCS's indemnification claim is precluded by South Carolina's statute of repose and statute of limitations. Entry 634 at 2.
1. Doctrine of Merger by Deed
Ross contends that the court "committed legal error" in holding Ross liable to PCS under the indemnification provision in the January 1966 Letter of Agreement. [Entry 634 at 4]. Ross contends PCS did not show by clear and convincing evidence that any exception to the doctrine of merger by deed applies. [Entry 634 at 2]. The court considered the parties' arguments with regard to the survival of the indemnification agreement in its order on several motions for reconsideration filed by the parties. See Entry 626. Ross's disagreement with the court's decision does not warrant reconsideration. Hutchinson v. Staton, 994 F.2d 1076, 1081 (4th Cir.1993) (citing Atkins v. Marathon LeTourneau Co., 130 F.R.D. 625, 626 (S.D.Miss.1990)).
2. Notice, Statute of Limitations and Statute of Repose Arguments
Ross contends that the indemnification agreement should not be enforced against it because: 1) PCS failed to comply with its terms to provide "prompt notice in writing" of a claim involving the Site; and *510 2) PCS's indemnification claim is precluded by South Carolina's statute of repose and statute of limitations.
Ross never argued or explained these defenses prior to judgment, and only cursorily raised these defenses in their answer in a list of thirty-two other possible defenses to PCS's claims. [See Entry 239 at 6, 7]. Ross had ample opportunity to properly assert these defenses before this time. To permit Ross to argue these defenses at this late stage would be to permit the waste of judicial resources after Ross made a strategic decision not to argue these points during the various stages of this litigation. See Sales v. Grant, 224 F.3d 293 (4th Cir.2000) (finding that although two defendants had "technically pled" a qualified immunity defense in their answers to the initial complaint they could not raise this issue before the district court on remand because: 1) they never explained the legal or factual basis for their claim of qualified immunity prior to remand; 2) their mention of qualified immunity in their answers consisted of only a single, cursory sentence on the matter, contained in a listing of several affirmative defenses; and 3) the defendants had numerous other opportunities to assert their claim of qualified immunity); Holland v. Big River Minerals Corp., 181 F.3d 597, 605 (4th Cir.1999) ("[A]n issue presented for the first time in a motion pursuant to Federal Rule of Civil Procedure 59(e) generally is not timely raised."); Rice v. Nova Biomedical Corp., 38 F.3d 909, 914 (7th Cir.1994) (although raised in initial pleading, defense of lack of personal jurisdiction waived when not advanced again until appeal); Yeldell v. Tutt, 913 F.2d 533, 539 (8th Cir.1990) (although raised in initial pleading, defense of lack of personal jurisdiction waived when not advanced again until appeal). The court declines to consider these arguments, finding that they have been waived.
III. PCS's Motion to Modify the Judgment Entered Against Ashley
PCS requests that the court "eliminate from its judgment any ambiguity as to the financial responsibility for future response costs of [Allwaste] and [the Holcombe and Fair Parties] to [PCS] or any other entity that remediates the [Site]." Entry 637 at 2. PCS requests that the Court make three changes to its second amended judgment: 1) include in the judgment the court's conclusions that Ashley, Allwaste and the Holcombe and Fair Parties are liable to PCS for five percent, three percent, and sixteen percent respectively of past and future response costs at the Site;[1] 2) vacate the portion of the judgment that shifts financial responsibility for response costs from Allwaste and the Holcombe and Fair Parties to Ashley; and 3) reverse its dismissal of PCS's contribution claims against Allwaste and the Holcombe and Fair Parties, and enter judgment in favor of PCS and against Allwaste and the Holcombe and Fair Parties in the amount of three percent and sixteen percent respectively. Entry 637 at 11-12.
PCS contends that the following changed circumstances warrant the requested amendments: 1) Ashley has declared that it is unable to remediate the Site; 2) the court clarified that the agreement between the Holcombe and Fair Parties and Ashley was a "release" rather than an "indemnification" provision in its second amended order and opinion; and 3) Fair and Ashley are now engaged in new *511 litigation over the impact of Ashley's inability to remediate the Site. Entry 637 at 2, 5, 6. The court declines to amend the judgment as requested by PCS.
PCS essentially seeks amendment to the judgment to address what would happen if another entity remediates the Site instead of Ashley. See Entry 637 at 5-6, 8-9, 11. However, the fact that Ashley is purportedly unable to remediate the Site at this time does not permit the court to adjudicate claims that are not before it. In the case before the court, Ashley sought to recover past and future response costs to remediate the Site from PCS. PCS then brought contribution claims against Allwaste, the Holcombe and Fair Parties, and others. Because Ashley, the plaintiff in this case, released Allwaste and the Holcombe and Fair Parties from liability related to these claims, the court properly determined that Allwaste and the Holcombe and Fair Parties could not be held liable in contribution to any other party for Ashley's past and future response costs, and dismissed these claims. See Restatement (Third) of Torts § 23(a). Whether or not Allwaste and the Holcombe and Fair Parties will be required to pay remediation costs should an entity other than Ashley seek to remediate the Site is not before this court. The court notes, however, that it equitably allocated the remediation costs among the parties pursuant to CERCLA § 113(g)(2)(B) and that this equitable allocation is binding in future actions. Thus, to the extent that the Site is remediated by another entity, the affect of the release and indemnification agreements between Ashley and Allwaste, and Ashley and the Holcombe and Fair Parties respectively will need to be addressed in a separate action brought by that entity seeking response costs pursuant to the court's equitable allocation.
CONCLUSION
Ross's Motion to Amend or Modify the court's second amended order and opinion (Entry 634), is denied. PCS's motion to modify the judgment entered against Ashley II of Charleston, L.L.C. (Entry 637) is denied.
IT IS SO ORDERED.
NOTES
[1] To the extent any party other than Ashley alleged claims pursuant to § 107, these parties are limited to recovery under CERCLA § 113. See United States v. Atlantic Research Corp., 551 U.S. 128, 138, 127 S.Ct. 2331, 168 L.Ed.2d 28 (2007) (explaining that § 107 actions lie when a party has itself incurred clean up costs and that § 113 actions lie when a party is reimbursing costs paid by others).
[2] On June 2, 2009, the court denied PCS's motion to vacate Judge Houck's orders, but permitted PCS to file motions for reconsideration of 1) Judge Houck's April 22, 2008 order denying PCS's motion to certify the Court's findings of fact and conclusions of law for interlocutory appeal (Entry 164), and 2) Judge Houck's June 13, 2008, 2008 WL 2462862, order denying PCS leave to amend its complaint to join former shareholders of Ross Development Corporation ("Ross") to this action (Entry 194). [Entry 384]. On July 27, 2009, PCS filed a motion for reconsideration of the court's order denying it a certificate of appealability of the phase I ruling under § 1292(b). Entry 402. That same day, PCS filed a motion for reconsideration of the court's order denying PCS leave to amend its complaint to add claims against the Ross shareholders. [Entry 405]. On August 17, 2009, PCS also filed a motion under § 1292(b) for certification of the court's June 2, 2009 order denying PCS's motion to vacate Judge Houck's rulings. [Entry 412]. On October 13, 2009, the court held a hearing on PCS's various motions for reconsideration and leave to file. [Entry 462]. The court denied PCS's motions for reconsideration and leave to file. [Id.].
[3] CERCLA defines a brownfields property as "real property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant." 42 U.S.C. § 9601(39)(A).
[4] The court recognizes that the Holcombe and Fair Parties' Motion for Judgment as a Matter of Law is actually a motion for judgment on partial findings made pursuant to Federal Rule of Civil Procedure 52(c) because a motion for judgment as a matter of law under Federal Rule of Civil Procedure 50 is not a proper motion in a non-jury case. In re Modanlo, 413 B.R. 262, n. 5 (Bankr.Md.2009).
[5] In a separate provision, Ashley indemnified Fair and Holcombe Enterprises for any claim brought by EPA up to $2.7 million with $200,000 of the first $400,000 to be paid by the Holcombe and Fair Parties. [PCS Ex. 35 at § 5(d)]. This provision is inapplicable in this case because this case was not brought by the EPA.
[6] Although § 9607(a)(1) (CERCLA § 107(a)(1)) is written in the conjunctive, it has been interpreted in the disjunctive. See, e.g., Long Beach Unified Sch. Dist. v. Dorothy B. Godwin California Living Trust, 32 F.3d 1364, 1367 (9th Cir.1994); Commander Oil Corp. v. Barlo Equip. Corp., 215 F.3d 321, 328 (2d Cir.2000) (stating that "owner" liability and "operator" liability are "two statutorily distinct categories of potentially responsible parties.").
[7] While comment c to § 875 of the Restatement indicates that a plaintiff must prove that each defendant was a "substantial factor" in causing a single harm in order for joint and several liability to attach, courts have not imposed this requirement in CERCLA cases due to "inconsistency with CERCLA's relaxed causation requirement." See United States v. Atchison, Topeka & Santa Fe Ry. Co., Nos. CV-F-92-5068 OWW, CV-F-96-6226 OWW, CV-F-96-6228, 2003 WL 25518047, at *82 (E.D.Cal. July 15, 2003).
[8] Section 443 A, comment d states:
There are other kinds of harm which, while not so clearly marked out as severable into distinct parts, are still capable of division upon a reasonable and rational basis, and of fair apportionment among the causes responsible. Thus where the cattle of two or more owners trespass upon the plaintiff's land and destroy his crop, the aggregate harm is a lost crop, but it may nevertheless be apportioned among the owners of the cattle, on the basis of the number owned by each, and the reasonable assumption that the respective harm done is proportionate to that number. Where such apportionment can be made without injustice to any of the parties, the court may require it to be made. Such apportionment is commonly made in cases of private nuisance, where the pollution of a stream, or flooding, or smoke or dust or noise, from different sources, has interfered with the plaintiff's use or enjoyment of his land. Thus where two or more factories independently pollute a stream, the interference with the plaintiff's use of the water may be treated as divisible in terms of degree, and may be apportioned among the owners of the factories, on the basis of evidence of the respective quantities of pollution discharged into the stream.
Restatement (Second) of Torts § 433A cmt. d
[9] Comment i to § 433A indicates that certain kinds of harms are incapable of reasonable division and that courts should not make arbitrary apportionments in such cases. Restatement (Second) of Torts, § 433A, cmt. i. As examples of such harms, Comment i lists death, a broken leg, the destruction of a house by fire, and the sinking of a barge.
[10] In PCS Nitrogen, Inc. v. Buhrmaster et al., 2008-CP-10-5269, S.C. Court of Common Pleas, PCS has sued the Ross shareholders under South Carolina's dissolution statute for disgorgement of assets distributed by Ross. In PCS Nitrogen, Inc. v. Ross Dev. Corp., 2:09-CV-03171-MBS, PCS has sued the Ross Directors alleging claims for fraudulent conveyance, civil conspiracy, and breach of fiduciary duty.
[11] Holcombe, Holcombe Enterprises and Fair are not liable under CERCLA § 107(a)(1) as current owners and operators of the facility because they did not own any portion of the Site at the time this action was commenced. The Fourth Circuit has held that CERCLA § 107(a)(1) applies only to the owner and operator at the time the enforcement action or complaint for response costs is filed. See Trinity, 150 F.3d at 395 (CERCLA imposes strict liability on the owner of a site "at the time of the enforcement action"); see also United States v. Fleet Factors Corp., 901 F.2d 1550, 1554 (11th Cir.1990) ("Within the meaning of Section 107(a)(1) of CERCLA, the current owner means the owner at the time of filing of the complaint.").
[12] The final standard for performing all appropriate inquiries became effective on November 1, 2006. 40 C.F.R. §§ 312 et seq.
[13] Ashley could also have satisfied the AAI standard with ASTM Standard E1527-97. However, the only ASTM Standard admitted at trial was ASTM Standard E1527-00.
[14] EPA has stated that ASTM Standard E1527-05 is consistent with the AAI final rule. Environmental Protection Agency, Comparison of the Final All Appropriate Inquiries Standard and the STM E1527-00 Environmental Site Assessment Standard, at 1 (2005), http://www.epa.gov/brownfields/aai/compare_ astm.pdf.
[15] In accordance with the court's ruling on the Holcombe and Fair Parties' Motion for Partial Judgment on the Findings [Entry 520], Ashley is responsible for this share.
[16] In accordance with the court's ruling on Allwaste's Motion for Partial Judgment on the Findings [Entry 517], Ashley is responsible for this share.
[17] Based on the facts and equities, the court determines that the City should be allocated a zero percent share of liability for the cost of remediation at the Site. Alcan, 964 F.2d at 269 (a PRP can avoid liability with proof that its release of hazardous substances did not contribute to the response costs).
[1] The court notes that it did not conclude that Allwaste and the Holcombe and Fair Parties were liable to PCS. In fact, the court dismissed PCS's contribution claims against Allwaste and the Holcombe and Fair Parties because these parties had obtained releases from Ashley, the plaintiff in this case. See Entry 627 at 61 and 64. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2116629/ | 814 F.Supp.2d 952 (2011)
Maurice LARIMER, Plaintiff,
v.
KONOCTI VISTA CASINO RESORT, MARINA & RV PARK, et al., Defendants.
No. C 11-01061 JW.
United States District Court, N.D. California, San Francisco Division.
September 29, 2011.
*953 Mark Alan Vegh, Wells Small Fleharty & Weil, Redding, CA, for Plaintiff.
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS
JAMES WARE, Chief Judge.
I. INTRODUCTION
Maurice Larimer ("Plaintiff") brings this action against Konocti Vista Casino, Resort, Marina, & RV Park ("Konocti Vista") and Anthony Jack ("Jack") (collectively, "Defendants"), alleging failure to pay overtime wages in violation of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. §§ 207(a), 216, and breach of employment contract. Plaintiff alleges that Defendant Konocti Vista, his former employer, failed to pay him overtime wages and failed to keep accurate pay records in violation of the FLSA.
Presently before the Court is Defendants' Motion to Dismiss.[1] The Court conducted a hearing on September 19, 2011. Based on the papers submitted to date and oral argument, the Court GRANTS Defendants' Motion to Dismiss.
II. BACKGROUND
In a Complaint[2] filed on March 7, 2011, Plaintiff alleges as follows:
Defendant Konocti Vista is a business enterprise doing business in Lake County, California. (Complaint ¶ 5.) Defendant Jack is the Chief Executive Officer of Konocti Vista, and exercised economic and operational control over the employment *954 relationship with the Plaintiff. (Id. ¶¶ 6, 12.)
Plaintiff was employed by Defendants from on or about August 29, 2009, through December 13, 2010. (Complaint ¶ 4.) Defendants classified Plaintiff as exempt from federal overtime pay requirements. (Id. ¶ 7.) This classification was erroneous, because Plaintiff did not meet the criteria for exemption under FLSA. (Id. ¶ 9.) Plaintiff's work was non-managerial and consisted largely of work normally performed by non-exempt and hourly employees. (Id. ¶ 10.) Plaintiff routinely worked for more than forty hours per week and without receiving overtime pay. (Id. ¶ 8.) For the duration of Plaintiff's employment, Defendants did not keep accurate records of the actual hours worked by Plaintiff. (Id. ¶ 11.) On the basis of the allegations outlined above, Plaintiff alleges two causes of action: (1) Breach of Employment Contract; and (2) Failure to pay overtime in violation of the Fair Labor Standards Act, 29 U.S.C. §§ 206, 207.
Presently before the Court is Defendants' Motion to Dismiss for lack of subject matter jurisdiction, personal jurisdiction and insufficiency of process.[3] Because the issue of subject matter jurisdiction may be dispositive, the Court considers it first.
III. STANDARDS
Rule 12(b)(1) of the Federal Rules of Civil Procedure provides for a motion to dismiss for lack of subject-matter jurisdiction. A Rule 12(b)(1) motion may be either facial, where the inquiry is confined to the allegations in the complaint, or factual, where the court is permitted to look beyond the complaint to extrinsic evidence. Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir.2004). On a facial challenge, all material allegations in the complaint are assumed true, and the question for the court is whether the lack of federal jurisdiction appears from the face of the pleading itself. See Wolfe, 392 F.3d at 362; Thornhill Publishing Co. v. General Telephone Electronics, 594 F.2d 730, 733 (9th Cir.1979). When a defendant makes a factual challenge "by presenting affidavits or other evidence properly brought before the court, the party opposing the motion must furnish affidavits or other evidence necessary to satisfy its burden of establishing subject-matter jurisdiction." Safe Air For Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir.2004). The court need not presume the truthfulness of the plaintiff's allegations under a factual attack. White v. Lee, 227 F.3d 1214, 1242 (9th Cir.2000); Augustine v. United States, 704 F.2d 1074, 1077 (9th Cir.1983). However, in the absence of a full-fledged evidentiary hearing, disputes in the facts pertinent to subject-matter are viewed in the light most favorable to the opposing party. Dreier v. United States, 106 F.3d 844, 847 (9th Cir. 1996). The disputed facts related to subject-matter jurisdiction should be treated in the same way as one would adjudicate a motion for summary judgment. Id.
IV. DISCUSSION
Defendants move to dismiss Plaintiff's Complaint on the grounds that under the doctrine of tribal sovereign immunity, the Court lacks subject matter jurisdiction over both Defendant Konocti Vista, a corporation wholly owned and operated by a *955 federally recognized tribe, and Defendant Jack, who was acting within the scope of his official duties for the tribe during the relevant acts. (Motion at 6.)
A. Tribal Sovereign Immunity
At issue is whether the FLSA claim against Defendant Konocti Vista is barred by sovereign immunity.
The Supreme Court has held that as a matter of federal law, a Tribal Nation is subject to suit only where Congress has authorized the suit or the Tribe has expressly waived its sovereign immunity. See Kiowa Tribe of Okla. v. Mfg. Techs., 523 U.S. 751, 754, 118 S.Ct. 1700, 140 L.Ed.2d 981 (1998). Inclusion of a tribe on the Federal Register list of recognized tribes is generally sufficient to establish entitlement to sovereign immunity. See Ingrassia v. Chicken Ranch Bingo and Casino, 676 F.Supp.2d 953, 957 (E.D.Cal.2009) (citation omitted). Waivers of tribal sovereign immunity "cannot be implied but must be unequivocally expressed." Santa Clara Pueblo v. Martinez, 436 U.S. 49, 58, 98 S.Ct. 1670, 56 L.Ed.2d 106 (1978) (citation omitted). Tribal sovereign immunity extends to the off-reservation activities and to the economic as well as the governmental activities of the tribe, so long as the entity "functions as an arm of the tribe." Allen v. Gold Country Casino, 464 F.3d 1044, 1046 (9th Cir.2006). Where a casino is wholly owned and operated by a tribe, and its profits inure directly to the tribe, that casino is generally considered to be functioning as arm of the tribe. See id. at 1047. Tribes protected by sovereign immunity may waive that immunity by contract. See Am. Vantage Cos., Inc. v. Table Mountain Rancheria, 292 F.3d 1091, 1099 (9th Cir.2002). The Ninth Circuit has held that any alleged waiver of sovereign immunity must "unequivocally and expressly indicate[] the [tribe's] consent to waive its sovereign immunity." Pan Am. Co. v. Sycuan Band of Mission Indians, 884 F.2d 416, 418 (9th Cir.1989). Thus, waiver must be express and will not be found by implication. See id.
Here, based on uncontested evidence presented, the Court finds that Defendant Konocti Vista is entitled to tribal sovereign immunity. Defendants provide an affidavit from Defendant Jack, a tribal administrator, stating that (1) Konocti Vista is wholly owned and operated by the Big Valley Pomo Band of Pomo Indians of the Big Valley Rancheria ("Tribe"); and (2) the Tribe's business committee, as established by the Tribal constitution, is responsible for the operation of the casino.[4] Defendants also offer evidence showing that the Tribe is federally recognized as an Indian tribe and thus is entitled to sovereign immunity.[5] Plaintiff offers no evidence to contradict these statements, nor does he dispute that Konocti Vista is tribally owned and operated. Further, Plaintiff has failed to plead the existence of any statements within his employment contract that could plausibly constitute a waiver of sovereign immunity. In light of the undisputed status of Konocti Vista as a casino wholly owned and operated by a tribe entitled to sovereign immunity, the Court finds that the casino is immune from suit in federal court as an arm of the tribe.
The Court proceeds to consider whether Congress, in enacting the FLSA, abrogated *956 the sovereign immunity of tribes as to claims arising under the Act.
B. Abrogation by Congress
Plaintiff contends that tribes are bound by the requirements of the FLSA and as such, should be amenable to suit for its violation. (Opp'n at 2.) The Court construes this contention as an argument for abrogation of tribal immunity under the FLSA.
The Supreme Court has held that an abrogation of tribal sovereign immunity by Congress cannot be determined by implication and must be expressly stated. See Okla. Tax Comm'n v. Citizen Band of Potawatomi Indian Tribe of Okla., 498 U.S. 505, 509, 111 S.Ct. 905, 112 L.Ed.2d 1112 (1991). The Ninth Circuit has not directly addressed whether the FLSA abrogates tribal sovereign immunity. Thus, the Court treats this as a matter of first impression.
In interpreting whether Congress intended a particular statute to waive tribal sovereign immunity, other circuits have drawn on a similar doctrine interpreting congressional intent to legislatively abrogate state sovereign immunity. See Fla. Paraplegic, Ass'n, Inc. v. Miccosukee Tribe of Indians of Fla., 166 F.3d 1126, 1131 (11th Cir.1999) (citing Atascadero State Hosp. v. Scanlon, 473 U.S. 234, 242, 105 S.Ct. 3142, 87 L.Ed.2d 171 (1985)). In Atascadero, the Supreme Court held that Congress may abrogate sovereign immunity "only by making its intention unmistakably clear in the language of the statute." 473 U.S. at 242, 105 S.Ct. 3142. This interpretive standard, looking solely to statutory text, is consistent with the approach taken by the Supreme Court in holding that the Indian Civil Rights Act ("ICRA"), 25 U.S.C. §§ 1301-03, did not abrogate tribal sovereign immunity in that "[n]othing on the face of Title I of the ICRA purports to subject tribes to the jurisdiction of the federal courts in civil actions for injunctive or declaratory relief." Santa Clara Pueblo, 436 U.S. at 59, 98 S.Ct. 1670.
Here, the FLSA makes no mention of private enforcement against tribal governments and does not specifically reference tribes anywhere in the statutory scheme. See 25 U.S.C. §§ 201-19. To the contrary, while the statute does expressly abrogate sovereign immunity with regards to public agencies, it expressly limits the definition of "public agencies" to agencies of the United States or state governments. Id. §§ 203, 216. That Congress specifically considered the abrogation issue and did not include tribes among those sovereigns whose immunity was being abrogated is telling evidence of Congress' decision not to abrogate. Thus, the Court finds that Congress did not abrogate tribal sovereign immunity in the FLSA.
Defendant relies on Solis v. Matheson[6] for the proposition that the provisions of the FLSA may be enforced against a tribal business. The Court finds that this reliance is misplaced, as Matheson has no bearing on the question of tribal sovereign immunity. In Matheson, the defendant business was not owned by a tribe, but rather by an individual member of a tribe with no plausible claim to sovereign immunity. 563 F.3d at 428. Thus, the Matheson court did not consider whether the FLSA abrogates tribal sovereign immunity; it merely held that the FLSA could be enforced against a non-sovereign individual business owner on tribal land. Id. at 434. In addition, the action in Matheson was brought by the United States Secretary of Labor. Id. at 428. Unlike suits by private citizens, suits by the United States and its agencies are generally not barred *957 by sovereign immunity. See Blatchford v. Native Village of Noatak and Circle Village, 501 U.S. 775, 782, 111 S.Ct. 2578, 115 L.Ed.2d 686 (1991).
Accordingly, the Court GRANTS Defendants' Motion to Dismiss for lack of subject matter jurisdiction as to Konocti Vista based on tribal sovereign immunity.
C. Immunity of Defendant Jack
At issue is whether tribal sovereign immunity extends to Defendant Jack for purposes of this lawsuit.
Tribal sovereign immunity extends to tribal officials when acting in their official capacity and withing the scope of their authority. See Linneen v. Gila River Indian Cmty., 276 F.3d 489, 492 (9th Cir.2002). "Tribal officials," for purposes of this analysis, are not limited to political officials, but include all employees of a tribe or tribal casino if they are acting within the scope of their employment. See Cook v. AVI Casino Enter. Inc., 548 F.3d 718, 727 (9th Cir.2008). The relevant inquiry for sovereign immunity purposes is not whether an individual or the tribe itself is named in the suit, but whether payment is in effect sought from the Tribe's treasury. Id.
Here, Plaintiff's Complaint does not actually allege any specific acts by Defendant Jack, but instead seeks relief against him solely for his role in exercising "economic and operational control" over Defendant Konocti Vista. (Complaint ¶ 12.) Plaintiff alleges that Defendant Jack was "responsible for handling labor and employment matters" for the casino. (Id.) Thus, it is clear on the face of the Complaint that any actions allegedly taken by Defendant Jack against Plaintiff were within the scope of his authority as a tribal employee. Because Plaintiff's claims against Defendant Jack are indistinguishable from his claims against the Tribe, the Court finds that tribal sovereign immunity extends to Defendant Jack.
Accordingly, the Court GRANTS Defendants' Motion to Dismiss for lack of subject matter jurisdiction as to Defendant Jack based on tribal sovereign immunity.
V. CONCLUSION
The Court GRANTS Defendants' Motion to Dismiss for lack of subject matter jurisdiction.[7]
The Clerk of the Court shall close this file.
NOTES
[1] (Notice of Motion and Motion to Dismiss Plaintiff's Summon [sic] and Complaint for Lack of Personal and Subject Matter Jurisdiction and Insufficiency of Service of Process (FRCP 12(b)(1), FRCP 12(b)(2), FRCP 12(b)(5)); Memorandum of Points and Authorities in Support of Motion, hereafter, "Motion," Docket Item No. 7.)
[2] (Complaint for Failure to Pay Overtime Wages and for Breach of Contract to Pay Wages, hereafter, "Complaint," Docket Item No. 1.)
[3] Plaintiff opposes the Motion to Dismiss only as to the FLSA claim. Plaintiff concedes that his breach of contract claim is barred on sovereign immunity grounds. (See Plaintiff's Opposition to Defendants' Motion to Dismiss Plaintiff's Summons and Complaint, hereafter, "Opp'n," Docket Item No. 12.) Thus, only the FLSA claim is presently before the Court.
[4] (See Declaration of Tribal Administrator Anthony Jack in Support of Defendants' Motion to Dismiss Plaintiff's Summon [sic] and Complaint for Lack of Personal and Subject Matter Jurisdiction and Insufficiency of Service of Process ¶¶ 11, 13, hereafter, "Jack Decl.," Docket Item No. 7-2.)
[5] (See Indian Entities Recognized, 75 Fed. Reg. 60,810, 60,810 (Oct. 1, 2010).)
[6] 563 F.3d 425 (9th Cir.2009).
[7] Dismissal for lack of subject matter jurisdiction is not a ruling on the merits of a plaintiff's claim and is therefore a dismissal without prejudice. Haywood v. Drown, 556 U.S. 729, 129 S.Ct. 2108, 2134, 173 L.Ed.2d 920 (2009). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2116880/ | 801 F. Supp. 2d 497 (2011)
GENETICS & IVF INSTITUTE, Plaintiff,
v.
David KAPPOS, Under Secretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office, et al., Defendants.
No. 1:10cv996 JCC/TRJ.
United States District Court, E.D. Virginia, Alexandria Division.
July 21, 2011.
*499 Joshua David Rogaczewski, McDermott Will & Emery, Washington, DC, for Plaintiff.
Dennis Carl Barghaan, Jr., United States Attorney's Office, Alexandria, VA, for Defendant.
MEMORANDUM OPINION
JAMES C. CACHERIS, District Judge.
This matter is before the Court on the parties' cross-motions for summary judgment. For the following reasons, the Court will deny Plaintiff's motion, [Dkt. 13], and will grant Defendants' motion, [Dkt. 15].
I. Background
A. The Parties and the Case
Plaintiff Genetics & IVF Institute ("Plaintiff" or "GIVF") brings this action against defendants the United States Patent and Trademark Office (the "USPTO") and David Kappos, in his official capacity as Under Secretary of Commerce for Intellectual Property and Director of the USPTO (together with the USPTO, "Defendants"). Under the Administrative *500 Procedure Act, 5 U.S.C. §§ 551-706 (the "APA"), Plaintiff seeks to set aside the denial of an application made under the Drug Price Competition and Patent Term Restoration Act, popularly known as the "Hatch-Waxman Act," Pub.L. No. 98-417, 98 Stat. 1585 (Sept. 24, 1984), to extend the term of a U.S. patent, as further described below. (Complaint ("Compl.") [Dkt. 1] ¶ 1.)
B. Overview of Relevant Patent Law
Under the Patent Act, 35 U.S.C. § 100 et seq. (the "Patent Act"), a United States patent expires after a certain term, generally 20 years from the date on which the patent application was filed. See 35 U.S.C. § 154(a)(2). For patents claiming certain drug and medical devices, some or all of the patent term may be consumed by the (often lengthy) Food and Drug Administration ("FDA") approval process for products utilizing that patent. See 35 U.S.C. § 156; 21 U.S.C. § 355(a).
Recognizing this, the Hatch-Waxman Act provides patent holders with "interim" extensions for patents utilized by products that remain under FDA review when the relevant patent term is set to expire. These extensions, however, are not automatic. The first time a patent holder seeks an interim patent term extension (an "Extension"), the relevant statute, 35 U.S.C. § 156(d)(5)(A), provides that the holder must file an application with the USPTO "during the period beginning [six] months, and ending 15 days, before [the patent term] is due to expire." Then, "[i]f the [USPTO] Director determines that, except for permission to market or use the product commercially, the patent would be eligible for an extension of the patent term under this section ... [the Director] shall issue to the applicant a certificate of interim extension" for a maximum length of one year. 35 U.S.C. § 156(d)(5)(B).
Patent law permits patent holders to apply for additional, "subsequent," Extensions. On that front, the statute provides that
[t]he owner of record of a patent, or its agent, for which an interim extension has been granted under subparagraph (B), may apply for not more than 4 subsequent interim extensions under this paragraph, except that, in the case of a patent subject to subsection (g)(6)(C), the owner of record of the patent, or its agent, may apply for only 1 subsequent interim extension under this paragraph. Each such subsequent application shall be made during the period beginning 60 days before, and ending 30 days before, the expiration of the preceding interim extension.
35 U.S.C. § 156(d)(5)(C) (emphasis added). It is this statute, particularly the emphasized language, which is relevant here.
C. Factual Background
i. The '759 Patent
On August 4, 1992, the USPTO issued U.S. Patent No. 5,135,759 (the "'759 Patent") to the United States Department of Agriculture ("USDA"). (Plaintiff's Memorandum in Support ("P. Mem.") [Dkt. 14] at 3.) The '759 Patent is entitled a "Method to Preselect the Sex of Offspring" and claimed a method of preselecting the sex of offspring by sorting sperm into X and Y chromosome bearing sperm. (Defendants' Memorandum in Support ("D. Mem.") [Dkt. 16] at 7.)
The USDA and GIVF entered into a private agreement under which the USDA granted GIVF an exclusive license to obtain regulatory approval for products created under the '759 Patent and to market any such products in the United States. (P. Mem. at 3.) GIVF has applied to the FDA for approval of products under the '759 Patent and has commenced clinical *501 studies. Id. GIVF has not yet received FDA approval. Id.
ii. The 2009 Extension
The '759 Patent was set to expire on August 4, 2009. Id. Because GIVF had not received FDA approval, the USDA timely filed, on June 5, 2009, an application with the USPTO for a first Extension. (D. Mem. at 7.) On July 28, 2009, the USPTO granted the first Extension, thereby extending the term of the '759 Patent for one year, to August 4, 2010. Id. The order granting the Extension was published in the Federal Register on August 4, 2009. Id.
iii. The 2010 Extension
As of July 2010, the GIVF's FDA application was still pending. (P. Mem. at 4.) With the '759 Patent set to expire on August 4, 2010, the USDA filed a request for a second Extension with the USPTO on July 27, 2010. Id.
Under 35 U.S.C. § 156(d)(5)(C), however, the request for the second Extension was due on July 6, 2010, so the USDA's application was untimely. Id. GIVF was responsible for drafting the second Extension application and engaged counsel to do so. (D. Mem. at 8.) "On or about" July 19, 2010, GIVF's counsel discovered that the application was due on July 6. (P. Mem. at 4.)
GIVF's counsel used a computer program to track patent-filing dates, and the program did not provide a reminder that the application for the second Extension was due. (D. Mem. at 8.) The program's failure was not a malfunction, however; the program was not capable of tracking filing dates for Extension applications, though GIVF's counsel was unaware that the program lacked this capability. Id.
Along with its July 27, 2010 application for a second Extension, the USDA petitioned the USPTO, pursuant to 37 C.F.R §§ 1.182 and 1.183, for a suspension of the applicable USPTO rule. (P. Mem. at 4.)
iv. Effect of the Late Application
On August 2, 2010, the USPTO denied the USDA's petition and request for a second Extension. Id. The USPTO deemed this denial a final agency action under the APA. Id. On August 4, 2010, the '759 Patent expired. Id.
D. Agency Review
Plaintiff claims that the USPTO's decision was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." (Compl. ¶ 37 (quoting 5 U.S.C. § 706(2)(A))). Because this is a review under the APA of the USPTO's decision denying the USDA's petition for a second Extension, a brief overview of the USPTO's decision is helpful.
The USPTO reasoned that, over fifteen years prior to the USDA's petition, it promulgated formal regulations that provided its interpretation that the timing provisions found in § 156(d)(5)(C) are mandatory. (D. Mem. at 10; Administrative Record ("AR") [Dkt. 11-2] at 90.)
The USPTO further found that "[a]ny analysis of a statute begins with the language of the statute itself" and that through the use of, and plain meaning of, "shall," Congress "indicate[d] an imperative duty." (D. Mem. at 10; AR at 89.) The USPTO also reasoned that since another provision of § 156, § 156(a), which dictates when the USPTO "shall" provide a patent holder with an Extension, like § 156(d)(5)(C) uses "shall," the term should be interpreted the same way in both instances. (D. Mem. at 10; AR at 91-92.)
The USPTO's decision also explained that the timing provisions for Extensions serve an important purpose, namely the "timely publication of the notice that a *502 patent was being extended based on the ongoing regulatory review of a product claimed by the patent." (D. Mem. at 10; AR at 93.) The USPTO also determined that because the Patent Act included various provisions that vested the USPTO with discretion to excuse errors, but did not include this discretion in § 156(d)(5)(C), "it speaks volumes that Congress provided no avenue to allow the USPTO to accept a late subsequent [Extension] application." (D. Mem. at 10; AR at 93.)
E. Procedural Background
Plaintiff filed this case on September 1, 2010. [Dkt. 1.] The parties filed an agreed order, entered by this Court, submitting the case to a decision based on the administrative record before the USPTO and the parties' cross dispositive motions, on the papers and without a hearing. [Dkt. 12.] Plaintiff filed its motion for summary judgment on April 13, 2011 [Dkt. 13], and Defendants filed their motion for summary judgment on May 5, 2011 [Dkt. 15]. Plaintiff replied on May 18, 2011 [Dkt. 17], and Defendants replied on May 27, 2011 [Dkt. 18]. The parties' motions are before the Court.
II. Standard of Review
"Under the APA, agency action may be set aside if the court finds that the agency action was `arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.'" PhotoCure ASA v. Dudas, 622 F. Supp. 2d 338, 343 (E.D.Va. 2009) (quoting 5 U.S.C. § 706(2)(A)). Although this is an APA action, "the ordinary standard for summary judgment applies." Tafas v. Dudas, 541 F. Supp. 2d 805, 810 (E.D.Va.2008) (vacated in part by Tafas v. Doll, 559 F.3d 1345 (Fed.Cir. 2009), rehearing en banc granted and opinion vacated by Tafas v. Doll, 328 Fed. Appx. 658 (Fed.Cir.2009)) (citing Star Fruits S.N.C. v. United States, 393 F.3d 1277, 1281 (Fed.Cir.2005)). Under the "ordinary" and well-settled standard, summary judgment is appropriate only if the record shows "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986).
On that "genuine issue of material fact" front, the APA "confines judicial review of executive branch decisions to the administrative record of proceedings before the pertinent agency." Shipbuilders Council of Am. v. U.S. Dept. of Homeland Sec., 770 F. Supp. 2d 793, 802 (E.D.Va.2011) (citing 5 U.S.C. § 706; Camp v. Pitts, 411 U.S. 138, 142, 93 S. Ct. 1241, 36 L. Ed. 2d 106 (1973)). "As such, there can be no genuine issue of material fact in an APA action, and the legal questions presented in [an APA] action are therefore ripe for resolution on cross-motions for summary judgment." Id. (citing Am. Forest Res. Council v. Hall, 533 F. Supp. 2d 84, 89 (D.D.C.2008) (quoting Occidental Eng'g Co. v. INS, 753 F.2d 766, 769-70 (9th Cir.1985)) ("[I]t is the role of the agency to resolve factual issues to arrive at a decision that is supported by the administrative record, whereas `the function of the district court is to determine whether or not as a matter of law the evidence in the administrative record permitted the agency to make the decision it did.'")). As the District of Columbia Circuit has stated, "when a party seeks review of agency action under the APA, the district judge sits as an appellate tribunal," and "[t]he `entire case' on review is a question of law." Am. Bioscience, Inc. v. Thompson, 269 F.3d 1077, 1083 (D.C.Cir.2001).
Finally, it is worth noting that because Plaintiff invokes this Court's jurisdiction over its case under 28 U.S.C.A. *503 § 1338, (Compl.¶ 6), any appeal in this matter would be noticed to the Federal Circuit and not the Fourth Circuit.[1]See 28 U.S.C.A. § 1295; see also Tafas, 541 F.Supp.2d at 811 n. 3 ("[A]ppellate jurisdiction over this case lies in the U.S. Court of Appeals for the Federal Circuit, whose law governs the standard applied at summary judgment.") (citing Star Fruits, 393 F.3d at 1281). "In patent-related cases filed in the Eastern District of Virginia, Federal Circuit law governs substantive issues, and the law of the Fourth Circuit applies to procedural matters that are not unique to patent law."[2]Level 3 Commc'ns, LLC v. Limelight Networks, Inc., 611 F. Supp. 2d 572, 575 (E.D.Va.2009) (quotation and citation omitted).
III. Analysis
Plaintiff argues that "the USPTO's refusal to exercise discretion regarding and [its] denial of the USDA's application for a second [Extension] of the '759 [P]atent was arbitrary and capricious and must be set aside." (P. Mem. at 5.) Specifically, according to Plaintiff, the USPTO's decision that it lacked discretion to consider the USDA's untimely application, because § 156(d)(5)(C) uses "shall," "fails for three reasons." Id. First, "shall" is sometimes discretionary; second, the USPTO's decision is "inconsistent with how the USPTO views Section 156 and how the law views the other timing provisions in federal patent law;" and third, "allowing the USPTO's decision to stand will result in a harsh, absurd, and unfair result." (P. Mem. at 5-6.)
Defendants counter Plaintiff's statutory arguments regarding § 156(d)(5)(C), arguing "that Congress's use of `shall' renders a patent owner's application to submit an application for a subsequent [Extension] in a timely fashion mandatory, and deprives the USPTO of discretion to entertain late-filed applications." (D. Mem. at 15.) Defendants also argue that, even if the language of § 156(d)(5)(C) is unclear, "the USPTO's interpretation must carry the day, because alternatively its formal regulations on this subject are entitled to binding... deference" under Chevron USA, Inc. v. NRDC, Inc., 467 U.S. 837, 104 S. Ct. 2778, 81 L. Ed. 2d 694 (1984).
The Court will address these arguments in turn.
A. Statutory Analysis
i. Language of § 156(d)(5)(C)
The issue before the Court concerns an interpretation of 35 U.S.C. § 156(d)(5)(C). To review, the statute provides that
[t]he owner of record of a patent, or its agent, for which an interim extension has been granted under subparagraph (B), may apply for not more than 4 subsequent interim extensions under this paragraph, except that, in the case of a patent subject to subsection (g)(6)(C), the owner of record of the patent, or its agent, may apply for only 1 subsequent interim extension under this paragraph. Each such subsequent application shall be made during the period beginning 60 days before, and ending 30 days before, the expiration of the preceding interim extension.
35 U.S.C. § 156(d)(5)(C) (emphasis added). The Court's analysis, then, begins with the language of § 156(d)(5)(C).
"As in any case of statutory construction, [the Court's] analysis begins with the language of the statute.... And *504 where the statutory language provides a clear answer, it ends there as well." Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 438, 119 S. Ct. 755, 142 L. Ed. 2d 881 (1999) (citation and internal quotation marks omitted). The "preeminent canon of statutory interpretation requires [courts] to `presume that the legislature says in a statute what it means and means in a statute what it says there.'" BedRoc Ltd., LLC v. United States, 541 U.S. 176, 183, 124 S. Ct. 1587, 158 L. Ed. 2d 338 (2004) (quoting Conn. Nat'l Bank v. Germain, 503 U.S. 249, 253-54, 112 S. Ct. 1146, 117 L. Ed. 2d 391 (1992)). The relevant statutory language is "[e]ach such subsequent application shall be made during the period beginning 60 days before, and ending 30 days before, the expiration of the preceding interim extension." 35 U.S.C. § 156(d)(5)(C). As the parties agree that the USDA's second Extension application was not made during the relevant time period, the critical language for the Court's inquiry is "shall be made." Id. Specifically, can the USPTO consider an untimely application under that language.
"Shall" is not defined in the Patent Act. "When a word is not defined by statute, [courts] normally construe it in accord with its ordinary or natural meaning." Smith v. United States, 508 U.S. 223, 228, 113 S. Ct. 2050, 124 L. Ed. 2d 138 (1993). As for the ordinary or natural meaning of "shall," the American Heritage Dictionary defines "shall" as, among other things, "a requirement, or an obligation." American Heritage Dictionary of the English Language 1657 (3d ed. 1992). Black's Law Dictionary defines "shall," among other things, as "[h]as a duty to; more broadly, is required to." Black's Law Dictionary 1407 (8th ed. 2004).[3] These common usage definitions comport with courts' interpretations of the term. "Use of the word `shall' in a statute generally denotes the imperative." Merck & Co., Inc. v. Hi-Tech Pharmacal Co., Inc., 482 F.3d 1317, 1322 (Fed.Cir.2007); see also National R.R. Passenger Corp. v. Morgan, 536 U.S. 101, 109, 122 S. Ct. 2061, 153 L. Ed. 2d 106 (2002) ("`[S]hall' makes the act of filing a[n administrative] charge [for purposes of Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e to e-17 ("Title VII")] within the specified time period mandatory."); Holland v. Pardee Coal Co., 269 F.3d 424, 431 (4th Cir.2001) (noting that "the word `shall,' when used in a statutory context, is generally construed to be mandatory"). Thus, as one would expect, in both common and statutory usage, "shall" generally means a mandatory requirement or obligation.
In the proper context, however, "shall" may be permissive. "[W]e recognize that the context of a particular usage may at times require the construction of `may' as mandatory or `shall' as permissive." LO Shippers Action Committee v. Interstate Commerce Comm'n, 857 F.2d 802, 806 (D.C.Cir.1988) (citing United Hosp. Center, Inc. v. Richardson, 757 F.2d 1445 (4th Cir.1985)). Thus, regardless of the general meaning of "shall," it can sometimes be permissive, for example when used in the clause "shall in its discretion." See Trumball Invs., Ltd. v. Wachovia Bank, N.A., 436 F.3d 443, 447 (4th Cir.2006). But, "no such modifying context is present here." LO Shippers, 857 F.2d at 806.
The relevant language provides that "[e]ach such subsequent application shall be made during the period beginning 60 days before, and ending 30 days before, the expiration of the preceding interim *505 extension." 35 U.S.C. § 156(d)(5)(C). This language is unqualified. The application "shall be made" in the relevant period, full stop. Without any qualifying language, "[n]othing in the language of the statute states or suggests that the word `shall' does not mean exactly what it says." Merck, 482 F.3d at 1322. Thus, "shall" has its ordinary meaning denoting a mandatory requirement or obligation.
ii. The Federal Circuit's Merck Decision
This reading is supported by the Federal Circuit's reading of "shall" in § 156(a). In Merck & Co., Inc. v. Hi-Tech Pharmacal Co., Inc., 482 F.3d 1317 (Fed. Cir.2007), the Court read "shall" in § 156(a) as "the imperative." 482 F.3d at 1322. Though not a construction of § 156(d)(5)(C), "identical words used in different parts of the same statute are ... presumed to have the same meaning." IBP, Inc. v. Alvarez, 546 U.S. 21, 34, 126 S. Ct. 514, 163 L. Ed. 2d 288 (2005). This canon of statutory construction, thus, supports reading "shall" in § 156(d)(5)(C) under its ordinary meaning.
In response to Merck & Co., Plaintiff argues that "shall" in § 156(a) means something different than "shall" in § 156(d)(5)(C). (Plaintiff's Reply ("P. Reply") [Dkt. 17] at 11.) Plaintiff, however, has provided "no plausible argument that these terms mean something different" in the two sections. IBP, Inc., 546 U.S. at 33, 126 S. Ct. 514. Plaintiff argues that because "shall" in § 156(d)(5)(C) is directed at the patent holder and not at the USPTO, § 156(d)(5)(C) is permissive. (P. Reply at 11.) Plaintiff also argues that § 156's remedial purpose leads to "shall" being read as permissive. The Court addresses both of those arguments below and finds that neither alters the meaning of "shall" from its common usage.
iii. USPTO Discretion
That "shall" in § 156(d)(5)(C) has its ordinary meaning does not end the inquiry. That mandatory requirement or obligation applies to the applicant for the Extension, and not the USPTO. That is, § 156(d)(5)(C) speaks to when a patent holder must file an application for an Extension, and does not, by its terms, address anything the USPTO must do. Put simply, saying that Plaintiff had a mandatory requirement or obligation to file its application within a certain period does not, in and of itself, address whether the USPTO had discretion to consider a tardy application. Thus, the Court turns to whether § 156(d)(5)(C) speaks to the USPTO's discretion, independent of imposing a mandatory obligation on Plaintiff.
On this front, § 156(d)(5)(C) is silent. Nothing in that statute, or in § 156 generally, answers the question of whether the USPTO has discretion to consider a tardy application under § 156(d)(5)(C). But, as Plaintiff argues, at least 10 other provisions of the Patent Act expressly grant the USPTO with discretion when administering time periods or deadlines. (Mem. at 14-15 (citing 35 U.S.C. §§ 41(b),(c)(1), 111(a)(4), 119(b)(2), (e)(1), 122(b)(2)(B)(iii), 133, 151, 184, 185, 364(b), 371(d)).) For example, 35 U.S.C. § 122(b)(2)(B)(iii) states that "[a] failure of the applicant to provide . . . notice within the prescribed period shall result in the application being regarded as abandoned, unless it is shown to the satisfaction of the Director that the delay in submitting the notice was unintentional." (emphasis added). The remaining provisions cited by Plaintiff are substantially similar in structure: a requirement on the patent holder or prospective holder, followed by an express grant to the USPTO of discretion to disregard the applicable requirement in certain instances if the requirement was not properly satisfied. Plaintiff argues that these provisions illustrate that the "USPTO's interpretation of [§ 156(d)(5)(C)] is inconsistent with the significant majority of all of the other similar *506 timing provisions of the patent law." (Mem. at 14.) The Court considers these other provisions and comes to a different conclusion.
The Supreme Court has stated that when "Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion." Russello v. United States, 464 U.S. 16, 23, 104 S. Ct. 296, 78 L. Ed. 2d 17 (1983) (citation omitted). The provisions of the Patent Law cited above serve the same function as § 156(d)(5)(C), but expressly grant the USPTO with discretion to disregard a failure to satisfy the provisions' respective requirements. Thus, following the Russello presumption, Congress acted intentionally and purposely in not granting that discretion in § 156(d)(5)(C).
Russello does not necessarily compel a reading in every case. As the Supreme Court has cautioned, "[t]he [Russello] presumption loses some of its force when the sections in question are dissimilar and scattered at distant points of a lengthy and complex enactment." United States v. Granderson, 511 U.S. 39, 63, 114 S. Ct. 1259, 127 L. Ed. 2d 611 (1994) (Kennedy, J., concurring). And, "[t]he Russello presumption... grows weaker with each difference in the formulation of the provisions under inspection." City of Columbus v. Ours Garage & Wrecker Service, Inc., 536 U.S. 424, 435-36, 122 S. Ct. 2226, 153 L. Ed. 2d 430 (2002).
These caveats do not alter Russello's application here, however, as the sections at issue are neither dissimilar nor different in formulation. Indeed, for present purposeswhether the USPTO has discretion to disregard a patent holder or applicant's failure to comply with requirements set forth in the Patent Act in considering whether to grant that holder or applicant the benefit soughtthey are identical. When provisions of the same statute (the Patent Act) serve identical purposes (setting forth requirements on patent holders or applicants), and 10 provisions expressly provide discretion to the USPTO to excuse noncompliance with the requirements but § 156(d)(5)(C) does not, the Court thinks Russello a reasonable tool of construction. Either Congress "act[ed] intentionally and purposely in the disparate inclusion or exclusion," Russello, 464 U.S. at 23, 104 S. Ct. 296, of the discretion-granting language, or it simply forgot to add the language. The Court will presume the former, particularly viewed in light of the plain meaning of "shall," as addressed above, and in light of the canon of statutory construction against superfluity.
iv. Superfluity
Another well-settled canon of statutory construction is that "against interpreting any statutory provision in a manner that would render another provision superfluous." Bilski v. Kappos, ___ U.S. ___, 130 S. Ct. 3218, 3228, 177 L. Ed. 2d 792 (2010) (internal citations omitted). As addressed above, 10 provisions cited by Plaintiff expressly grant the USPTO discretion. If, as in Plaintiff's reading of § 156(d)(5)(C), the USPTO has discretion regardless of the mandatory requirement placed on the patent holder (to file an application within a certain time period, for instance) and without the statute's granting discretion, then Congress would not have needed to provide for that discretion in the other provisions of the Patent Act cited above. Thus, all of that discretionary language would be unneeded and superfluous. Avoiding superfluity, however, is "a cardinal principle" of statutory construction. TRW Inc. v. Andrews, 534 U.S. 19, 31, 122 S. Ct. 441, 151 L. Ed. 2d 339 (2001). Thus, the Court will not construe § 156(d)(5)(C) in a manner to render the *507 discretionary language expressly set forth in 35 U.S.C. §§ 41(b), (c)(1), 111(a)(4), 119(b)(2), (e)(1), 122(b)(2)(B)(iii), 133, 151, 184, 185, 364(b), and 371(d) as mere surplusage.[4]
v. French v. Edwards
Plaintiff argues that under the reasoning of French v. Edwards, 80 U.S. (13 Wall.) 506, 20 L. Ed. 702 (1872), and its progeny, § 156(d)(5)(C) is a "directory," not "mandatory," statute "and should be construed to confer discretion on the USPTO to accept applications outside the statutory window but before the patent expires." (P. Reply at 6.) Defendants counter that French and cases following it are "applied only to a very specific subset of timing provisions that utilize the term `shall' those that prescribe a timeframe within which a government official must carry out a ministerial duty." (Defendants' Reply ("D. Reply") [Dkt. 18] at 7.)
French, by its terms, addressed "statutory [provisions] intended for the guide of officers in the conduct of business devolved upon them, which do not limit their power or render its exercise in disregard of the requisitions ineffectual." French, 80 U.S. at 511 (emphasis added). The Supreme Court's later use of French reinforces its limited application. For example, in United States v. Montalvo-Murillo, 495 U.S. 711, 110 S. Ct. 2072, 109 L. Ed. 2d 720 (1990), a case addressing a statutory provisions stating that a "hearing shall be held immediately upon [a] person's first appearance before [a] judicial officer," id. at 714, 110 S. Ct. 2072, the Court "h[e]ld that a failure to comply with the first appearance requirement does not defeat the Government's authority to seek detention of the person charged." Id. at 717, 110 S. Ct. 2072. In so holding, the Court "reject[ed] the contention that if there has been a deviation from the time limits of the statute, the hearing necessarily [wa]s not one conducted" pursuant to the relevant statutory provision. Id. Citing French, the Montalvo-Murillo Court stated that "[t]here is no presumption or general rule that for every duty imposed upon ... the Government ... there must exist some corollary punitive sanction for departures or omissions, even if negligent." Id. (emphasis added). Similarly, in Brock v. Pierce County, 476 U.S. 253, 260, 106 S. Ct. 1834, 90 L. Ed. 2d 248 (1986), the Court reiterated "the `great principle of public policy, applicable to all governments alike, which forbids that the public interests should be prejudiced by the negligence of the officers or agents to whose care they are confided.'" 476 U.S. at 260, 106 S. Ct. 1834 (emphasis added) (quoting United States v. Nashville, C. & St. L.R. Co., 118 U.S. 120, 125, 6 S. Ct. 1006, 30 L. Ed. 81 (1886)).
The upshot of this line of reasoning is articulated in French itself. Where a mandatory duty is placed on the government, in the proper circumstances that otherwise mandatory duty may be relaxed. Or, as the Fourth Circuit has framed it, "as the Supreme Court has pronounced, statutory provisions imposing a mandatory duty on an agency to act before a specific date are not generally construed to remove the agency's power to act after that date." Pardee Coal, 269 F.3d at 431. That is not the situation here, however, where both the duty and the failure to comply with it fall on the patent holder, and not the USPTO. To be sure, French provides an example of where "shall" is not necessarily mandatory. But, it is a limited exception to the general rule and, as establishing a *508 circumstance in which an otherwise mandatory obligation may be viewed as permissive, one inapplicable here.
Ralpho v. Bell, 569 F.2d 607 (D.C.Cir. 1977), cited by Plaintiff, is not to the contrary. There, the D.C. Circuit stated that "[s]tatutes that, for guidance of a governmental official's discharge of duties, propose `to secure order, system, and dispatch in proceedings' are usually construed as directory, whether or not worded in the imperative." Ralpho v. Bell, 569 F.2d 607 (D.C.Cir.1977) (emphasis added) (citing French, 80 U.S. at 511). Ralpho is in line with French.
Plaintiff argues that § 156(d)(5)(C), as applied in this case, "does relate to government action," namely "whether the USPTO can disregard [the timing provisions of § 156(d)(5)(C)]." (P. Reply at 7 (emphasis in original).) Thus, it is a "regulation of and `guidance of a governmental official's discharge of duties.'" Id. (citing Ralpho, 569 F.2d at 627.) But, § 156(d)(5)(C) expressly does not guide the USPTO's discharge of its duties, only a patent holder's, as stated above. As to the USPTO's, it is silent. The statute itself may "relate to" the USPTO, but only as much as any provision of the Patent Act does. The duty in § 156(d)(5)(C), however, expressly applies only to the patent holder. Because the "shall" in § 156(d)(5)(C) applies to the patent holder and not to the USPTO, the reasoning of French and its progeny is inapplicable. Therefore, French does nothing to alter the Court's reading of § 156(d)(5)(C).
vi. § 156 as a Remedial Statute
Plaintiff also argues that interpreting "shall" in § 156(d)(5)(C) as mandatory is inconsistent with the remedial nature of the statute. (P. Mem. at 8.) It is well-settled that "remedial legislation ... is to be given a liberal construction consistent with [its] overriding purpose." United States v. Article of Drug ... Bacto-Unidisk..., 394 U.S. 784, 798, 89 S. Ct. 1410, 22 L. Ed. 2d 726 (1969). As stated by this Court, in a case cited by Plaintiff addressing a different provision in § 156, "Section 156 provides a remedy: an extended patent term to offset the loss of effective patent life during the period of regulatory review of a new drug product. The timing provision of § 156(d)(1) is an integral part of the mechanism Congress enacted to remedy this harm." Medicines Co. v. Kappos, 731 F. Supp. 2d 470, 478 (E.D.Va.2010). This is certainly sound, and § 156 is a "remedial" statute. Medicines Co., however, did not go as far as Plaintiff would have the Court go here. As Judge Hilton stated, "Courts have held that the rule in construing remedial statutes is that everything is to be done in advancement of the remedy that can be done consistently with any fair construction that can be put upon [the statute]." Id. (emphasis added). Thus, a liberal construction is a not a license to re-write the statute. See, e.g., United States v. Floyd, 992 F.2d 498, 501 (5th Cir.1993) ("[T]his command for liberal construction does not allow us to amend by interpretation."); see also Dupuis v. Cancer Screening Servs., No. Civ. 96-169, 1997 WL 97110, at *4 (D.Me. Feb. 13, 1997) ("Rules of liberal construction cannot properly be applied to rewrite a statute in order to alter what it actually says.").
Here, § 156(d)(5)(C) is not merely a remedy provided to patent holders, but also a statute placing a mandatory obligation on them. Again, it does not grant the USPTO any discretion whatsoever. It would be one thing to read liberally § 156(d)(5)(C)'s timing provisions placed on the patent holders, but another thing entirely to then read into the statute discretion on the part of the USPTO that is not there. A liberal reading of "shall" in § 156(d)(5)(C) is not enough to get to *509 where Plaintiff would have this Court go. The Court would also need to add language to the statute to add discretion where Congress stated none. The Court will not do so.
This Court's application of the liberal-reading-of-a-remedial-statute rule in Medicines Co. is instructive. There, the Court addressed § 156(d)(1), which provides that to obtain an extension of a patent term a patent holder's application "may only be submitted within the sixty-day period beginning on the date the product received permission" from the applicable regulatory agency. Id. at 472. At issue was whether "date" in "beginning on the date" meant calendar day or business day, and "[t]he Court f[ound] the proper interpretation of § 156(d)(1) [wa]s a business day construction of the phrase `beginning on the date.'" Id. at 482. In that context, it is perfectly reasonable that a liberal construction of the remedial § 156 leads to "business day." The Court's analysis in Medicines Co. also illustrates why this case is different. First, § 156(d)(5)(C), unlike undefined "date" in § 156(d)(1), is unambiguousit is mandatory as to Plaintiff and does not grant discretion to the USPTO. Second, unlike Medicines Co., which reasonably applied one of two alternative common definitions for a term, Plaintiff here is effectively asking the Court to rewrite, or at least add, whole-cloth, language to § 156(d)(5)(C). Thus, even the remedial nature of § 156 does not counsel the reading Plaintiff seeks.
Plaintiff also argues that, like Zipes v. Trans World Airlines, Inc., 455 U.S. 385, 102 S. Ct. 1127, 71 L. Ed. 2d 234 (1982), addressing the timing requirements for filing of administrative claims with the Equal Employment Opportunity Commission prior to bringing Title VII cases in courts, "the time period in [§ 156(d)(5)(C)] is non-jurisdictional, and therefore may be tolled or extended, as equity permits." (P. Reply at 6.) In Zipes, the Supreme Court ruled that 42 U.S.C. § 2000e-5(e), which requires that administrative proceedings in Title VII cases "shall be filed within [180] days after the alleged unlawful employment practice occurred," "is not a jurisdictional prerequisite to suit in federal court, but a requirement that like a statute of limitations, is subject to waiver, estoppel, and equitable tolling." Zipes, 455 U.S. at 393, 102 S. Ct. 1127. Because § 156(d)(5)(C) is similarly non-jurisdictional, however, does not mean that under Zipes its time period is also subject to waiver, estoppel, and equitable tolling. This is so because "administrative agencies... are creatures of statute, bound to the confines of the statute that created them, and lack the inherent equitable powers that courts possess." U.S. Fidelity and Guar. Co. v. Lee Invs. LLC, 641 F.3d 1126, 1135 (9th Cir.2011) (citing Int'l Union of Elec., Radio & Mach. Workers, AFL-CIO v. NLRB, 502 F.2d 349, 354 n. * (D.C.Cir. 1974)). Thus, with no inherent equitable powers, such as tolling or estoppel, the USPTO cannot, as a court could, toll the timing requirement of § 156(d)(5)(C) based solely on the fact that it is non-jurisdictional.
vii. Harsh Result
Plaintiff also argues that reading "shall" in § 156(d)(5)(C) as mandatory would "yield a ... harsh and absurd result." (P. Mem. at 17.) As the Fourth Circuit has noted, "[courts] are not required to apply statutory language when such an application `results in an outcome that can truly be characterized as absurd.'" In re Jones, 591 F.3d 308, 313 n. 4 (4th Cir.2010) (quoting Hillman v. IRS, 250 F.3d 228, 233 (4th Cir.2001)). Reading § 156(d)(5)(C) as the Court does, however, does not "result[] in an outcome that can truly be characterized as absurd." Id. It is not "absurd" to read a statute stating that one "shall" do something within a *510 specified time period as requiring that thing to be done within that period. Nor is it "absurd" to read a statute that does not provide for discretion as not providing discretion. As for the harshness of the reading, to the extent it is harsh, that, in and of itself, does not cause the Court to alter its reading. As this Court has stated, "[t]he harsh result reached in this Memorandum Opinion is mandated by the language of the applicable statutes." Howard Florey Inst. v. Dudas, No. 1:07cv778, 2008 WL 2674033, at *12 (E.D.Va. July 8, 2008) (O'Grady, J.).
* * *
For these reasons, the USPTO's reading of § 156(d)(5)(C) is not "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law," 5 U.S.C. § 706(2)(A), and the Court will grant summary judgment for Defendants.
B. Chevron Deference
Even assuming that the language of § 156(d)(5)(C) did not compel the Court's result, there is an alternative basis for granting summary judgment for Defendants. The USPTO has promulgated formal regulations concerning § 156(d)(5)(C) and the time period stated therein. 37 C.F.R. § 1.790, entitled "[i]nterim extension of patent term under 35 U.S.C. 156(d)(5)," states that "[e]ach subsequent application for interim extension must be filed during the period beginning 60 days before and ending 30 days before the expiration of the preceding interim extension." 37 C.F.R. § 1.790(a) (emphasis added). By its terms, 37 C.F.R. § 1.790(a) renders § 156(d)(5)(C)'s time period mandatory.
In Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S. Ct. 2778, 81 L. Ed. 2d 694 (1984), the Supreme Court established a framework for according deference to agency interpretations of a statute it is charged with administering. The Supreme Court explained that if Congress "has directly spoken to the precise question at issue" and its intent is clear, then the "court, as well as the agency, must give effect to [that] unambiguously expressed intent." Id. at 842-43, 104 S. Ct. 2778. If, however, "the statute is silent or ambiguous with respect to the specific issue," then the court must defer to the agency's interpretation as long as it is "based on a permissible construction of the statute." Id. at 843, 104 S. Ct. 2778.
Defendants argue that "the USPTO's interpretation must carry the day, because... its formal regulations on [§ 156(d)(5)(C)] are entitled to binding Chevron deference." (D. Mem. at 26). Plaintiff argues that the USPTO's "construction is contrary to law and cannot be afforded [Chevron] deference." (P. Reply at 14.) Significantly, Plaintiff does not dispute that 37 C.F.R. § 1.790(a) itself is subject to Chevron deference.
Here, for the reasons stated above, the USPTO's interpretation of § 156(d)(5)(C) is entitled to Chevron deference. The USPTO's interpretation is "based on a permissible construction of the statute." Chevron, 467 U.S. at 843, 104 S. Ct. 2778 (emphasis added). As the Federal Circuit has stated, "to uphold the agency's interpretation, the court need not conclude that it was the only permissible construction or even the construction the court would have reached on its own reading of the statute. The agency's interpretation must merely be `reasonable.'" Eastman Kodak Co. v. Bell & Howell Document Mgmt. Prods. Co., 994 F.2d 1569, 1571 (Fed.Cir.1993) (citations omitted). The USPTO's interpretation was permissible and reasonable and, indeed, is the same construction that Court reaches. Thus, the USPTO is entitled to Chevron deference here.
Plaintiff argues that 37 C.F.R. § 1.790(a) "by itself[does not] constitute *511 the regulatory interpretation of § 156(d)(5)(C)." (P. Reply at 14.) Plaintiff cites 37 C.F.R. § 1.182, stating that "[a]ll situations not specifically provided for in the regulations of this part will be decided in accordance with the merits of each situation," and 37 C.F.R. § 1.183, stating that "[i]n an extraordinary situation, when justice requires, any requirement of the regulations in this part which is not a requirement of the statutes may be suspended or waived." (P. Reply at 14) (emphases added). The Court disagrees.
37 C.F.R. § 1.790(a) states that "[e]ach subsequent application for interim extension must be filed during the period beginning 60 days before and ending 30 days before the expiration of the preceding interim extension." (emphasis added). This regulation, by its terms, specifically provides for the situation here, namely whether filing an application during the prescribed time period is mandatory. 37 C.F.R. § 1.182, then, is not applicable. Similarly, the timeliness requirement in 37 C.F.R. § 1.790(a) is a requirement of § 156(d)(5)(C), for the reasons set forth above. Thus, 37 C.F.R. § 1.183 is also inapplicable. Contrary to Plaintiff's argument, 37 C.F.R. § 1.790(a) constitutes the USPTO's regulatory interpretation of § 156(d)(5)(C), and as stated, it is a permissible interpretation for purposes of Chevron and, thus, entitled to deference, providing an independent basis for granting summary judgment in favor of Defendants.
IV. Conclusion
For these reasons, the Court will deny Plaintiff's motion, [Dkt. 13], and will grant Defendants' motion, [Dkt. 15].
An appropriate Order will issue.
NOTES
[1] Only Defendants discussed the applicability of Federal Circuit law as opposed to Fourth Circuit law, and Plaintiff did not contest this point in its Reply.
[2] Regardless of whether the statutory provision at issue is "substantive," it is, at least, a procedural matter unique to patent law.
[3] Black's Law Dictionary further states that this meaning of "shall" is "the mandatory sense that drafters typically intend" and is the "[o]nly sense ... acceptable under strict standards of drafting." Id.
[4] Because these provisions expressly provide for discretion, Plaintiff's argument is unavailing that the USPTO's interpretation of § 156(d)(5)(C) is inconsistent with these very timing provisions. (P. Mem. at 12, 14-15.) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2114192/ | 822 F. Supp. 2d 615 (2011)
UNITED STATES of America,
v.
Justin G. FRENCH, Defendant.
Criminal Action No. 3:11cr17-JAG.
United States District Court, E.D. Virginia, Richmond Division.
October 21, 2011.
*616 Michael R. Gill, Laura Colombell Marshall, United States Attorney's Office, Richmond, VA, for Plaintiff.
William Ray Baldwin, III, John Kimpton Honey, Jr., Marchant Thorsen Honey Baldwin & Meyer LLP, Richmond, VA, for Defendant.
MEMORANDUM ORDER
JOHN A. GIBNEY, JR., District Judge.
THIS MATTER is before the Court on the United States' motion to dismiss the third-party claims of Paragon Commercial Bank ("Paragon") and Lynn L. Tavenner (the "Trustee"), the Chapter 7 bankruptcy trustee for the estate of defendant-Justin G. French (Dk. No. 46). Paragon and the Trustee filed claims to assets forfeited by the defendant, under 21 U.S.C. § 853(n), in United States v. Justin Glynn French, No. 3:11cr017 (E.D. Va. information filed Jan. 12, 2011). The issue before the Court is whether the third-party petitioners have standing to assert a legal interest in the forfeited property. Pursuant to Federal Rule of Civil Procedure 12(d), the Court converted the government's motion to dismiss into a motion for summary judgment on August 10, 2011. Fed.R.Civ.P. 12(d). Paragon and the Trustee filed timely responses to the newly-converted motion (Dk. Nos. 49, 50). The matter is now ripe for disposition.
For the reasons stated herein, the Court GRANTS summary judgment in the government's favor on both third-party claims.
I. Statement of the Case
The defendant, Justin French ("French"), was charged in a criminal information with wire fraud and money laundering in violation of 18 U.S.C. § 1343 and § 1957(a). Pursuant to Federal Rule of Criminal Procedure 32.2(a), the government sought forfeiture of proceeds traceable to the commission of the defendant's alleged crime, and if property subject to forfeiture could not be located, then it sought substitute assets to the sum of, at least, $7 million. Fed.R.Crim.P. 32.2(a).
On January 24, 2011, French pled guilty to the charges and agreed to forfeit all of his interests in fraud-related and substitute assets. (See Plea Agreement (Dk. *617 No. 12) ¶ 10.) French also admitted to fraudulently obtaining historic tax credits beginning in 2005. (See Statement of Facts ¶ 6.) On March 4, 2011, the government entered the First Consent Order of Forfeiture (Dk. No. 17), which sought a monetary judgment of $7 million and listed several assets to be forfeited. On March 14, 2011, a Second Consent Order of Forfeiture (Dk. No. 18) was entered, specifying additional assets.
On March 24, 2011, Paragon, Citizens Bank and Trust Company, and Franklin Federal Savings Bank filed an involuntary Chapter 7 petition against French in the United States Bankruptcy Court for the Eastern District of Virginia (the "Bankruptcy Court"), In re French, No. 3:11br31954 (Bankr.E.D.Va.2011). On April 25, 2011, the Bankruptcy Court entered an Order of Relief and, three days later, appointed the Trustee to serve the defendant's bankruptcy estate in an interim capacity.
Thereafter, on May 3, 2011, this Court sentenced French to 192 months of imprisonment and three years of supervised release. The same day, the government entered the Third Preliminary Order of Forfeiture (Dk. No. 24).
Finally, on May 6, 2011, the Trustee filed her Verified Petition Pursuant to 21 U.S.C. § 853 ("Trustee's Petition") claiming a third-party interest in the forfeited assets, or alternatively, requesting the Court hold a joint hearing with the Bankruptcy Court to administer the forfeited property. Later that day, Paragon filed its petition ("Paragon's Petition") claiming a third-party interest in the forfeited property.
II. Legal Standard
21 U.S.C. § 853(n) allows a third-party to "petition the court for a hearing to adjudicate the validity of [its] alleged interest in [criminally forfeited] property." 21 U.S.C. § 853(n)(2). "[T]he function of ancillary forfeiture proceedings is to resolve third-party claims of ownership." United States v. Cox, 575 F.3d 352, 358 (4th Cir.2009). The burden is on the petitioner to establish his superior legal interest in the property by a preponderance of the evidence. See 21 U.S.C. § 853(n)(6).
In analyzing a petition regarding forfeited property, the Court must first, as a threshold issue, determine whether the petitioner has the requisite standing to assert its claim. A court may "dismiss the petition for lack of standing, for failure to state a claim, or for any other lawful reason." In considering standing, however, "the facts set forth in the petition are assumed to be true." Fed.R.Crim.P. 32.2(c)(1)(A). To establish standing under 21 U.S.C. § 853, a petitioner has the burden of showing a present legal interest in the specific property subject to forfeiture. 21 U.S.C. § 853(n)(2); see United States v. Schecter, 251 F.3d 490, 495 (4th Cir.2001).
III. Discussion
A. Paragon Commercial Bank's Petition
Paragon is a general creditor of French. It contends that because "the United States has obtained from French all, or substantially all, of French's assets" in the forfeiture Plea Agreement, Paragon qualifies under an exception to the general rule barring standing to general creditors. (Paragon's Petition ¶ 10.)[1] In response, the government argues that, as less than French's entire estate has been forfeited, the exception does not apply in this case. The Court agrees with the United States.
*618 A majority of jurisdictions have held that an unsecured, general creditor (e.g. Paragon) does not have an interest in forfeited property; therefore, it cannot contest the property's takeover and distribution by the government. See United States v. Watkins, 320 F.3d 1279, 1283 (11th Cir.2003) (agreeing with the majority view that "general creditors cannot be considered bona fide purchasers for value"); Schecter, 251 F.3d at 495 (upholding United States' motion for summary judgment because an unsecured creditor could not claim a specific interest in forfeited property when less than the entirety of the defendant's estate was forfeited); United States v. Ribadeneira, 105 F.3d 833, 836 (2d Cir.1997) ("[G]eneral creditors without an identifiable legal interest in the particular assets subject to forfeiture lacked standing to contest the Final Order of Forfeiture . . ."); see also United States v. BCCI Holdings (Luxembourg) S.A. (Petition of Chawla), 46 F.3d 1185, 1191 (D.C.Cir.1995).
The Fourth Circuit, however, allows a narrow exception when the defendant's entire estate is criminally forfeited. See United States v. Reckmeyer, 836 F.2d 200, 205-06 (4th Cir.1987) (allowing a father to recover loaned money to his son after all of his criminal-defendant son's assets were forfeited). Yet, if some portion of the estate has been left out of the forfeiture proceedings, the exception does not apply. Id. Although Reckmeyer offers little guidance as to the quantity of one's estate which must be left to avoid the exception, this Court has chosen to apply Reckmeyer narrowly. See United States v. $3,000 in Cash, 906 F. Supp. 1061, 1068 (E.D.Va.1995) (stating that, because other circuits have rejected Reckmeyer and the decision has not been explicitly reaffirmed, "it would seem prudent to limit Reckmeyer to its particular facts.").
In this case, Paragon has standing under the Reckmeyer exception only if French has forfeited his entire estate. Paragon's situation is distinguished from Reckmeyer, however, because in that case, the government conceded that it took "all the discovered and undiscovered assets" of the criminal defendant. Reckmeyer, 836 F.2d at 206. Here, in contrast, at the time of his arrest, French owned numerous business entities, unascertained jewelry and coins, lease agreements, and other real estate which were never subject to forfeiture. Such assets demonstrate that something less than French's entire estate was made subject to the criminal forfeiture. As a result, the Reckmeyer exception does not apply in this case, and Paragon, as a general creditor, is without standing to challenge the forfeiture of the seized assets.
The Court grants the government's summary judgment motion as to Paragon's Petition.
B. Bankruptcy Trustee's Petition
The Trustee alleges an interest in all of French's assets as a bona fide purchaser under 11 U.S.C. § 544(a). Relying on the "relation back" doctrine, the government claims that French was divested of any interest in the forfeited property at the time of the criminal acts. See 21 U.S.C. § 853(c); 28 U.S.C. § 2461(c). Under this doctrine, the government's interest in the forfeited property vests at the time of the criminal acts giving rise to the forfeiture action. Id.; see United States v. Zaccagnino, No. 03-10095, 2006 WL 1005042, at *4 (C.D.Ill. Apr. 18, 2006). The government contends, therefore, that the Trustee has no interest in French's forfeited property because his bankruptcy estate may only include property in which French has an immediate interestan interest which he lost at the time of his criminal acts. The Court agrees that the *619 "relation back" doctrine defeats the Trustee's standing argument.
The bankruptcy estate is comprised of "all legal or equitable interests of the debtor in property as of the commencement of the case" as well as any interests under other "avoiding powers ascribed by 11 U.S.C. §§ 545, 547, 548, or 554." 11 U.S.C. § 541(a)(1); (Trustee's Petition ¶ 8.) Clearly, the avoiding powers ascribed in the above code sections do not apply to the present action.[2] Thus, French's bankruptcy estate consists only of the property held by French at the estate's creation. Codified in 21 U.S.C. 853(c), the "relation back" doctrine vests all forfeited property "in the United States upon the commission of the act giving rise to forfeiture." 21 U.S.C. § 853(c). Importantly, the Fourth Circuit also applies this doctrine to substitute property. United States v. McHan, 345 F.3d 262, 272 (4th Cir.2003) ("[Substitute property that is subject to forfeiture under § 853(p) must be read to include all property of the defendant at the time of the commission of the acts giving rise to the forfeiture.").
Neither this Court nor the Fourth Circuit has ruled on the issue of whether a bankruptcy estate's interest may trump the United States' interest when the estate was created prior to the filing of a preliminary forfeiture order.[3] Nevertheless, by operation of the "relation back" doctrine, French's forfeited property vested in the United States at the time of his criminal acts, i.e. in 2005six years prior to the creation of the bankruptcy estate. Upon her appointment, the Trustee merely stands in the shoes of the debtor as a bona fide purchaser. Because French lacked an ownership interest in the forfeited property at the creation of his bankruptcy estate, the Trustee also lacks an ownership interest and thus, lacks standing to challenge the forfeiture order.
The Court grants summary judgment to the government on the Trustee's petition.
IV. Conclusion
For the foregoing reasons, the United States' summary judgment motion is GRANTED (Dk. No. 46). The previously-filed motion to dismiss (Dk. No. 34) is DENIED as moot. The petitions filed by Paragon and the Trustee are DISMISSED WITH PREJUDICE.
It is SO ORDERED.
NOTES
[1] The government stated in its motion to dismiss that it "has selectively forfeited French's interest in only certain assets[,]" not the entirety.
[2] 11 U.S.C. §§ 545, 547, 548, and 553 allow the trustee to avoid liens placed on a debtor's property, transfers of the debtor's property to creditors around the time of the creation of the bankruptcy estate, fraudulent transfers of the debtor's property, and any offsets between a debtor and his creditors. There has been no showing of property transfers immediately prior or subsequent to the enactment of the instant bankruptcy proceeding.
[3] The court in United States v. Zaccagnino, No. 03-10095, 2006 WL 1005042 (C.D.Ill. Apr. 18, 2006), ruled on this very issue in favor of the government and against the bankruptcy estate. See also United States v. One Silicon Valley Bank Account, 549 F. Supp. 2d 940, 958 (W.D.Mich.2008) (holding that the bankruptcy estate only has the legal interest of the debtor "as of the commencement of the case[,]" and due to the "relation back" doctrine, the forfeited assets vested in the United States prior to the commission of the criminal acts.). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2113220/ | 800 F. Supp. 2d 559 (2011)
Frank FIGUEROA, Petitioner,
v.
Robert ERCOLE, Superintendent of Green Haven Correctional Facility, Respondent.
No. 10 Civ. 3262.
United States District Court, S.D. New York.
July 27, 2011.
*562 Frank Figueroa, Elmira, NY, pro se.
DECISION AND ORDER
VICTOR MARRERO, District Judge.
Pro se petitioner Frank Figueroa ("Figueroa"), currently incarcerated at New York State's Elmira Correctional Facility, commenced this action against respondent Robert Ercole, superintendent of New York's Green Haven Correctional Facility (the "Respondent"), where Figueroa was previously incarcerated, seeking a writ of habeas corpus pursuant to 28 U.S.C. § 2254 (the "Petition"). Figueroa alleges that, for a variety of reasons, his Sixth and Fourteenth Amendment rights were violated during the course of his trial. For the reasons discussed below, Figueroa's Petition is DENIED.
I. BACKGROUND[1]
A. FACTS
On November 26, 2001, Figueroa and Demetrius Brown ("Brown") drove to 304 East 178th Street in Bronx, New York. The two men exited the car and approached Cecil Pressley ("Pressley") and Jennifer Lopez ("Lopez"), who were standing on the steps in front of the building. Pressley and Brown were drug dealers who operated in different territories. Lopez sold drugs for both Brown and Pressley in their respective areas. Pressley, who expected an altercation told Lopez to run, and she did. After a brief verbal altercation between Brown and Pressley, Figueroa fired a gun twice at Pressley, hitting him in the abdomen and grazing his leg. The second bullet ricocheted, and grazed Lopez's leg as she ran away. After the shooting, Figueroa and Brown walked back to their car and drove from the scene. Lopez returned to Pressley, who was lying on the steps bleeding. Pressley asked Lopez to tell his wife that he loved her.
Shortly thereafter, New York City Police Department officers Benjamin Gottlieb ("Gottlieb") and Lawrence Block arrived on the scene along with an ambulance and emergency medical technicians (the "EMTs"). Gottlieb accompanied Pressley in the ambulance to St. Barnabus Hospital in the Bronx as the EMTs worked to stabilize Pressley's condition. During the ride, Pressley's breathing returned to normal and he appeared lucid. At that time, Gottlieb asked Pressley if he knew who was responsible for the shooting. Pressley replied: "I don't know who did this to me. I don't know nothing." (Resp. Decl. at 3.) The ambulance arrived at the hospital and Pressley was brought into an operating room. Pressley died from the bullet wounds a few hours later.
*563 B. PROCEDURAL HISTORY
Figueroa was subsequently charged with: (1) murder in the second degree, in violation of New York Penal Law § 125.25(1); (2) manslaughter in the first degree, in violation of New York Penal Law § 125.20(1); and (3) criminal possession of a weapon in the second degree, in violation of New York Penal Law § 265.03(2). He was tried in New York State Supreme Court, Bronx County (the "Trial Court").
At trial, Figueroa was represented by David Blackstone ("Blackstone"), who moved to enter as a dying declaration Pressley's statement in the ambulance. The Trial Court denied the motion, finding that Figueroa did not establish that Pressley believed he was going to die at the time he made the statement. The Trial Court reasoned that most of Pressley's wounds were internal, that he could not have known their severity, that the external wound would have appeared small in size, and Pressley's breathing had returned to normal at the time of the statement. Therefore, the statement was not admissible as a dying declaration.
Blackstone also moved for a mistrial on the grounds that the conduct of a court officer (the "Court Officer") interfered with the trial's integrity in three ways. First, the Court Officer brought Lopez off the stand and to the back of the court at a break during her first day testifying. While the jury was not present, the Court Officer called Lopez a "bitch" and told her "we will see what happens here." (Petition at 13.) Second, a friend of Lopez reported to the prosecutor that he overheard the Court Officer tell Figueroa's family that he advised Brown not to appear in court that day and that Brown "was always packing." (Id.) Finally, when the Court Officer attempted to escort Lopez off the witness stand after her second day testifying, she shouted that she would not accompany him because of the previous day's events. This also occurred while the jury was not present.
In response to Blackstone's motion for a mistrial, the Trial Court conducted an individual voir dire for each jury member to determine whether they were affected by the Court Officer's behavior. The Trial Court determined that no juror was aware of the Court Officer's conduct and concluded that the integrity of the trial had not been compromised. Later in the trial, Blackstone again moved for a mistrial after explaining that he could not obtain sufficient information to determine whether the Court Officer's conduct had interfered with the trial's integrity. Blackstone explained that his attempts to investigate the Court Officer's relationship with Brown had been stymied because the' Court Officer had been reassigned to another courtroom and could not now be identified. The prosecution conceded that the Court Officer's behavior affected Lopez, but asserted that it did not influence the jury. The Trial Court denied the second motion for a mistrial.
On August 2, 2004, Figueroa was acquitted of murder in the second degree but convicted of manslaughter in the first degree and criminal possession of a weapon in the second degree.
Figueroa appealed his convictions to the Supreme Court of the State of New York, Appellate Division, First Department ("Appellate Division"), which unanimously affirmed his convictions on February 13, 2007. Figueroa I, 830 N.Y.S.2d at 81. The Appellate Division rejected two of Figueroa's claims as unpreserved: (1) that the Trial Court violated his Sixth Amendment right to compulsory process when it did not admit Pressley's statement as a dying declaration; and (2) that he was deprived of his Sixth Amendment right to *564 effective assistance of counsel when Blackstone failed to introduce Pressley's statement as an excited utterance. The Appellate Division also held that the Trial Court properly rejected Figueroa's motions for a mistrial, finding that the Court Officer's behavior did not have a prejudicial effect on the trial. Subsequently, Figueroa was denied leave to appeal to the New York Court of Appeals ("Court of Appeals"). See Figueroa II, 838 N.Y.S.2d 487, 869 N.E.2d at 663.
Following an unsuccessful motion to vacate the judgment, pursuant to New York Criminal Procedure Law § 440.10(1), Figueroa timely filed the instant Petition.
II. DISCUSSION
A. LEGAL STANDARD FOR HABEAS RELIEF
As a starting point, the Court notes that Figueroa is a pro se litigant. Accordingly, his submission must be held "to less stringent standards than formal pleadings drafted by lawyers." Ferran v. Town of Nassau, 11 F.3d 21, 22 (2d Cir. 1993) (quoting Hughes v. Rowe, 449 U.S. 5, 9, 101 S. Ct. 173, 66 L. Ed. 2d 163 (1980)). The Court must construe Figueroa's submissions "liberally and interpret them to raise the strongest arguments that they suggest." McPherson v. Coombe, 174 F.3d 276, 280 (2d Cir.1999) (citation omitted). A pro se litigant, however, is not exempt "from compliance with relevant rules of procedural and substantive law." Boddie v. N.Y. State Div. of Parole, 285 F. Supp. 2d 421, 426 (S.D.N.Y.2003) (quoting Traguth v. Zuck, 710 F.2d 90, 95 (2d Cir.1983)).
1. Exhaustion
A petitioner in custody pursuant to a judgment of a state trial court is entitled to federal habeas relief only if he has exhausted all available state court remedies. See 28 U.S.C. § 2254(b)-(c). A claim has been exhausted if it was fairly presented in state courts, thereby giving the state the "opportunity to pass upon and correct" alleged violations of federal rights. Duncan v. Henry, 513 U.S. 364, 365, 115 S. Ct. 887, 130 L. Ed. 2d 865 (1995) (quoting Picard v. Connor, 404 U.S. 270, 275, 92 S. Ct. 509, 30 L. Ed. 2d 438 (1971)). A petitioner need not have cited "book and verse on the federal constitution" in his claim in state court for the claim to have been exhausted. Picard, 404 U.S. at 278, 92 S. Ct. 509. Instead, a petitioner may have fairly presented his claim to state courts through
(a) reliance on pertinent federal cases employing constitutional analysis, (b) reliance on state cases employing constitutional analysis in like fact situations, (c) assertion of the claim in terms so particular as to call to mind a specific right protected by the Constitution, and (d) allegation of a pattern of facts that is well within the mainstream of constitutional litigation.
Daye v. Att'y Gen. of the State of N.Y., 696 F.2d 186, 194 (2d Cir.1982).
2. Independent and Adequate State Grounds
A federal court's authority to review a habeas petition also depends on whether the state court adjudicated the petitioner's claims on the merits or on state procedural grounds. See Coleman v. Thompson, 501 U.S. 722, 729-30, 111 S. Ct. 2546, 115 L. Ed. 2d 640 (1991). A claim resolved on independent and adequate state `procedural grounds is generally not subject to habeas review. See id.
A claim resolved in state court on the merits, however, may be subject to habeas review. A state court resolves a claim on the merits when it reduces its disposition to a final judgment with res *565 judicata effect on substantive rather than procedural grounds. See Sellan v. Kuhlman, 261 F.3d 303, 311-12 (2d Cir.2001); see also Castillo v. Walsh, 443 F. Supp. 2d 557, 562 (S.D.N.Y.2006).
3. Substantive Grounds for Federal Habeas Relief
Federal habeas review of state court decisions is governed by the standard set forth in the Anti-Terrorism and Effective Death Penalty Act of 1996, 28 U.S.C. §§ 2241-55 ("AEDPA"). AEDPA provides that
[a] district court shall entertain an application for a writ of habeas corpus on behalf of a person in custody pursuant to the judgment of a State only on the ground that he is in custody in violation of the Constitution or laws or treaties of the United States.
28 U.S.C. § 2254(a). Accordingly, a petitioner must demonstrate that his state court conviction violated federal law. See DiGuglielmo v. Smith, 366 F.3d 130, 136-37 (2d Cir.2004) (citing Estelle v. McGuire, 502 U.S. 62, 68, 112 S. Ct. 475, 116 L. Ed. 2d 385 (1991)).
Not every alleged violation of federal law, however, will warrant the issuance of a writ of habeas corpus. See Thurman v. Allard, No. 01 Civ. 8746, 2004 WL 2101911, at *11 (S.D.N.Y. Sept. 22, 2004). Under 28 U.S.C. § 2254(d) ("§ 2254(d)"), where a state court has decided a petitioner's federal claims on the merits, a court may-grant habeas relief only if the state court's decision either:
(1) resulted in a decision that was contrary to, or involved an unreasonable application of, clearly established Federal law, as determined by the Supreme Court of the United States; or
(2) resulted in a decision that was based on an unreasonable determination of the facts in light of the evidence presented in the State court proceeding.
§ 2254(d).
For the purposes of federal habeas review, "clearly established federal law" refers to the holdings, as opposed to dicta, of Supreme Court decisions in effect at the time of the relevant state court decision. See Williams v. Taylor, 529 U.S. 362, 412, 120 S. Ct. 1495, 146 L. Ed. 2d 389 (2000). A state court decision is "contrary to clearly established federal law" within the meaning of § 2254(d) if a state court decision contradicts relevant Supreme Court precedent or "if the state court confronts a set of facts that are materially indistinguishable from a decision of [the Supreme Court] and nevertheless arrives at a result different from the Supreme Court." Id. at 405-06, 120 S. Ct. 1495. Under this standard, as long as the state court decision applies the correct legal rule to the petitioner's facts, it is not subject to habeas review, even if the federal court would have reached a different conclusion if it were to apply the rule itself. See id. at 406, 120 S. Ct. 1495.
A state court decision is based on an "unreasonable application of clearly established federal law" if the court correctly identifies the legal rule set forth in governing Supreme Court decisions, but unreasonably applies the rule to the particular facts of the case. See id. at 412-13, 120 S. Ct. 1495. A federal court may grant habeas relief only where the state court decision, as it pertains to any issue of federal law, was objectively unreasonable in light of relevant precedent. See id. at 409, 120 S. Ct. 1495. In construing and applying federal law, even erroneous state court decisions, if deemed reasonable, will survive habeas review. See id. at 411, 120 S. Ct. 1495. However, the state court decision need not be "so far off the mark as to suggest judicial incompetence" before habeas *566 relief may be granted. Francis S. v. Stone, 221 F.3d 100, 111 (2d Cir.2000) (internal quotation marks omitted). Thus, an unreasonable application "falls somewhere between `merely erroneous and unreasonable to all reasonable jurists.'" Jones v. Stinson, 229 F.3d 112, 119 (2d Cir.2000) (quoting Francis S., 221 F.3d at 109).
B. ANALYSIS
Figueroa's Petition raises three grounds for relief: (1) that the Trial Court violated his Sixth Amendment right to compulsory process when it did not admit as a dying declaration Pressley's statement in the ambulance; (2) that Blackstone provided ineffective assistance of counsel, in violation of the Sixth Amendment, because he did not (a) seek admission of Pressley's statement as an excited utterance, (b) persuade the Trial Court to admit Pressley's statement as a dying declaration, and (c) investigate the Court Officer; and (3) the Court Officer's conduct violated Figueroa's Fourteenth Amendment right to a fair trial.
1. Dying Declaration Claim
Figueroa claims that the Trial Court violated his Sixth Amendment right to present a defense, pursuant to the Compulsory Process Clause, when it did not admit Pressley's statement in the ambulance as a dying declaration. The Appellate Division rejected that claim, holding that it was unpreserved because Figueroa failed to satisfy the contemporaneous objection rule, codified in New York's Criminal Procedure Law § 470.05. Specifically, the Appellate Division concluded that "[Figueroa] based his application to introduce the alleged dying declaration entirely on state evidentiary law and never asserted a constitutional right to introduce it." Figueroa I, 830 N.Y.S.2d at 81-82. Respondent asserts that the Appellate Division's rejection was based on independent and adequate state grounds that bar federal review of Figueroa's Petition. The Court agrees.
A state ground is independent when it "fairly appear[s] to rest primarily on state procedural law" and is not interwoven with federal law. Jimenez v. Walker, 458 F.3d 130, 145 (2d Cir.2006). The Appellate Division's holding was based exclusively on New York's contemporaneous objection rule, which is a valid independent state ground that precludes federal review. Garcia v. Lewis, 188 F.3d 71, 77 (2d Cir. 1999) (denying petition for a writ of habeas corpus because contemporaneous objection rule was an independent and adequate state ground that barred federal review of the petitioner's claim); see also Bossett v. Walker, 41 F.3d 825, 829 n. 2 (2d Cir.1994). While the Court of Appeals denied Figueroa's leave to appeal without a written opinion, the Court finds that its decision was based on the same procedural grounds as the Appellate Division's opinion. See Ylst v. Nunnemaker, 501 U.S. 797, 803, 111 S. Ct. 2590, 115 L. Ed. 2d 706 (1991) (holding that a later decision without written opinion does not silently consider the merits of a claim). Thus, the Court will proceed to review Figueroa's claim only if the independent state grounds are not adequate.
A state ground is adequate when "application of the procedural rule is firmly established and regularly followed in the specific circumstances presented in the case." Cotto v. Herbert, 331 F.3d 217, 240 (2d Cir.2003) (internal quotation marks omitted). To determine whether a state ground is adequate, the Court refers to three guideposts:
(1) [W]hether the alleged procedural violation was actually relied on in the trial court, and whether perfect compliance with the state rule would have changed the trial court's decision; (2) whether state case law indicated that compliance *567 with the rule was demanded in the specific circumstances presented; and (3) whether petitioner had substantially complied with the rule given the realities of trial and, therefore, whether demanding perfect compliance with the rule would serve a legitimate government interest.
Id.
Taking into consideration the three Cotto guideposts, the Court concludes that the contemporaneous objection rule is adequate because it is regularly followed in factual circumstances that are similar to Figueroa's case. As an initial point, the Court finds that the first guidepost does not "weigh as heavily" in Figueroa's case "because the lack of a contemporaneous objection would not, almost by definition, be mentioned by the trial court." Id. at 242. In addition, "consideration of whether perfect compliance would have changed the outcome, is less relevant in evaluating the failure to preserve a claim." Thomas v. Heath, No. 10 Civ. 5861, 2011 WL 1849097, at *8 (S.D.N.Y. May 16, 2011) (collecting cases) (internal quotation marks omitted). Consequently, the first guidepost offers little guidance in determining whether the state ground was adequate in Figueroa's case.
Under the second guidepost, New York case law dictates that compliance with the contemporaneous objection rule was demanded in Figueroa's circumstances. The Appellate Division cited a factually indistinguishable Court of Appeals case, which found federal claims unpreserved for direct review because "defendant failed to present these constitutional claims to [the lower] Court." People v. Angelo, 88 N.Y.2d 217, 644 N.Y.S.2d 460, 666 N.E.2d 1333, 1334 (1996); see also Gonzalez v. Scully, No. 84 Civ. 7385, 1986 WL 3505, at *3 (S.D.N.Y. March 21, 1986) (holding that the petitioner failed to preserve a constitutional claim when he raised only a state law hearsay objection at trial). As such, the state law is adequate under the second guidepost.
Under the third guidepost, Figueroa has not demonstrated that he substantially complied with the contemporaneous objection rule given the realities of trial. Figueroa's trial lasted three days, and the Trial Court held an additional two-day hearing to determine whether Pressley's statement should be admitted as a dying declaration. Yet, Figueroa never raised a Sixth Amendment claim at the trial or hearing. Consequently, the state law is adequate under the third guidepost and the Court concludes that the Appellate Division's decision is based on independent and adequate state grounds that bar federal review of Figueroa's claim.
2. Ineffective Assistance of Counsel Claims
Figueroa's Petition raises three claims of ineffective assistance of counsel: Blackstone erred in failing to (1) offer Pressley's statement as an excited utterance; (2) persuade the Trial Court to admit the same statement as a dying declaration; and (3) investigate or intending to investigate the Court Officer's allegedly prejudicial conduct.
The Sixth Amendment guarantees criminal defendants the right to effective assistance of counsel. Kimmelman v. Morrison, 477 U.S. 365, 374-75, 106 S. Ct. 2574, 91 L. Ed. 2d 305 (1986). In Strickland v. Washington, the Supreme Court established a two-part test to determine whether defense counsel's assistance was ineffective. 466 U.S. 668, 687, 104 S. Ct. 2052, 80 L. Ed. 2d 674 (1984). First, the defendant must show that "counsel's representation fell below an objective standard of reasonableness... under prevailing norms." Id. at 688-89, 104 S. Ct. 2052. Second, the *568 defendant must show that he suffered prejudice as a result of defense counsel's deficient performance. See id. at 693, 104 S. Ct. 2052. Prejudice is established where "there is a reasonable probability that, but for counsel's errors, the outcome of the proceeding would have been different." Id. at 694, 104 S. Ct. 2052. A "reasonable probability is a probability sufficient to undermine confidence in the outcome." Id.
However, counsel's competence is presumed and the petitioner must rebut this presumption. See Kimmelman, 477 U.S. at 384, 106 S. Ct. 2574. Consequently, "[t]he Strickland standard is rigorous, and the great majority of habeas petitions that allege constitutionally ineffective counsel founder on that standard." Lindstadt v. Keane, 239 F.3d 191, 199 (2d Cir.2001). Moreover, any "[s]trategic choices made after thorough investigation of law and facts relevant to plausible options are virtually unchallengeable." Strickland, 466 U.S. at 690-91, 104 S. Ct. 2052. When a trial court finds that defendant's counsel performed such an investigation, it is strong evidence of petitioner's inability to show ineffective assistance of counsel. See Knowles v. Mirzayance, 556 U.S. 111, 129 S. Ct. 1411, 1421, 173 L. Ed. 2d 251 (2009) ("[Petitioner's] failure to show ineffective assistance of counsel is confirmed by the Magistrate Judge's finding that [counsel] carefully weighed his options before making his decision final; he did not make it rashly." (internal quotation marks omitted)). In addition, it is not necessary for "defense counsel to pursue every claim or defense, regardless of its merit, viability, or realistic chance for success." Id.
a. Excited Utterance
The Appellate Division rejected Figueroa's first ineffective assistance claim, that Blackstone erred when he failed to offer as an excited utterance Pressley's statement that "I don't know who did this to me. I don't know nothing." (Petition at 34.)
"[D]ecisions as to which arguments to stress, which witnesses to call, which motions to make, and which lines of inquiry to pursue, fall squarely within the ambit of trial strategy and, if reasonably made, cannot support an ineffective assistance claim." Elgabrowny v. United States, No. 01 Civ. 162, 2003 WL 22416167, at *7 (S.D.N.Y. Oct. 22, 2003) (internal quotation marks omitted). In Figueroa's case, Blackstone made a reasonable strategic decision to move the Trial Court to admit Pressley's statement as a dying declaration rather than as an excited utterance. After investigating the circumstances of Pressley's statement, Blackstone supported his motion by referencing relevant case law, describing Pressley's injuries, and citing testimony that Pressley asked Lopez to tell his wife that he loved her. This was sufficiently effective to persuade the Trial Court to hold a two-day hearing to consider the statement's admissibility. Although Blackstone's tactical choice was ultimately unsuccessful, the Court "will not second-guess trial counsel's defense strategy simply because the chosen strategy has failed." United States v. DiTommaso, 817 F.2d 201, 215 (2d Cir. 1987). Moreover, Blackstone's approach did not "omit ... significant and obvious issues while pursuing issues that were clearly and significantly weaker." Pacheco v. United States, No. 02 Civ. 4266, 2006 WL 760287, at *3 (S.D.N.Y. Mar. 23, 2006). Consequently, the Court concludes that the Appellate Division's holding that Blackstone's performance did not fall below professional standards was a reasonable application of Strickland.
The Appellate Division also held that Blackstone's performance did not prejudice the outcome of the trial. Even if *569 Blackstone had sought to introduce Pressley's statement as an excited utterance, the Trial Court would have been unlikely to admit it. An excited utterance must be made "under the immediate and uncontrolled domination of the senses." People v. Vasquez, 88 N.Y.2d 561, 647 N.Y.S.2d 697, 670 N.E.2d 1328, 1336 (1996) (quoting People v. Brown, 70 N.Y.2d 513, 522 N.Y.S.2d 837, 517 N.E.2d 515, 518 (1987)). After a two-day hearing on the statement's admissibility, the Trial Court concluded that, at the time of the statement, Pressley was "alert and responsive ... [and] in an improve [sic] condition." (Resp. Decl. Ex. 15 at 8.) Figueroa has not established a reasonable probability that Blackstone's failure to raise the excited utterance argument, which the Trial Court would most likely have rejected, changed the outcome of the trial. Thus, the Court concludes that the Appellate Division's application of the second Strickland prong was reasonable and the Court rejects Figueroa's first ineffective assistance claim.
b. Failure to Persuade
Figueroa's second ineffective assistance claim asserts that Blackstone erred by failing to persuade the Trial Court to admit Pressley's statement as a dying declaration. Figueroa concedes that he did not fairly present the claim to the state courts, but urges the Court to review it in the interest of justice.
Figueroa failed to exhaust this claim and, thus, it is barred. However, even if the Court were to consider it, the Court would conclude that it is without merit. "An application for a writ of habeas corpus may be denied on the merits, notwithstanding the failure of the applicant to exhaust the remedies available in the courts of the State." 28 U.S.C. § 2254(b)(2).
Blackstone made repeated efforts to introduce Pressley's statement into evidence. Figueroa himself acknowledges that:
[d]efense counsel requested that the statement be admitted as a dying declaration, pointing specifically to Lopez's testimony that Pressley said to tell his wife that he loved her. The court heard further evidence on this matter and issued a decsion [sic] specifically adressing [sic] this issue.
(Petition at 31.) As discussed above, Blackstone conducted a thorough investigation of the issue and successfully moved the Trial Court to hold a hearing on the statement's admissibility. Blackstone's efforts do not fall below an objective standard of reasonableness simply because the Trial Court ultimately concluded that Pressley's statement was not admissible. Effective assistance does not require counsel to win every argument. See Strickland, 466 U.S. at 689, 104 S. Ct. 2052 ("Judicial scrutiny of counsel's performance must be highly deferential ... it is all too easy for a court, examining counsel's defense after it has proved unsuccessful, to conclude that a particular act or omission of counsel was unreasonable."). Because Figueroa has not established that Blackstone erred by failing to persuade the Trial Court to admit Pressley's statement as a dying declaration, his second ineffective assistance claim fails.
c. Failure to Investigate the Court Officer
Figueroa's third ineffective assistance claim asserts that Blackstone erred by failing to investigate the Court Officer's conduct. Figueroa again concedes that he did not fairly present the claim to the state courts, but urges the Court to review it in the interest of justice. The Court concludes that Figueroa's claim is unexhausted, *570 but should nevertheless be denied on the merits. See 28 U.S.C. § 2254(b)(2).
"A convicted defendant making a claim of ineffective assistance must identify the acts or omissions of counsel that are alleged not to have been the result of reasonable professional judgment." See Strickland, 466 U.S. at 690, 104 S. Ct. 2052. Figueroa fails to identify any specific deficiencies that fell outside the "wide range of professionally competent assistance" in Blackstone's performance. Id. Instead, Figueroa's own Petition points out that Blackstone moved for a mistrial after learning of the Court Officer's behavior. Figueroa goes on to note that Blackstone successfully persuaded the Trial Court to conduct an individual voir dire with each juror to determine whether the jury had been contaminated by the Court Officer's conduct. Even after the Trial Court determined that the jury was not aware of the Court Officer's behavior, Blackstone returned to the issue again, asserting, "there is a potential ... of very serious contamination of this jury and I am again renewing my motion for a mistrial." (Petition at 19.) That the Trial Court again denied the motion does not show that Blackstone committed unprofessional error. See Strickland, 466 U.S. at 689, 104 S. Ct. 2052. Thus, Figueroa has not established under the first Strickland prong that Blackstone's performance fell below objectively reasonable standards.
Figueroa also fails to satisfy the second Strickland prong because he "has made only the most conclusory assertions with respect to [counsel's] shortcomings and the likely effect of these alleged deficiencies on the jury's verdict." Cheng Chui Ping v. Willingham, 746 F. Supp. 2d 496, 500 (S.D.N.Y.2010) (quoting United States v. Feyrer, 333 F.3d 110, 120 (2d Cir.2003) (internal quotation marks omitted)). Paradoxically, Figueroa acknowledges that Blackstone moved for a mistrial because of the difficulties he encountered while attempting to investigate the Court Officer, but nonetheless goes on to assert that trial counsel "never intended to investigate" the Court Officer's conduct. (Petition at 49.) Figueroa's assertion does not in any way illustrate that Blackstone's performance prejudiced the trial's outcome. Consequently, the Court rejects Figueroa's claim that trial counsel was ineffective for failing to investigate the Court Officer.
3. Court Officer Claim
Finally, Figueroa claims that his right to a fair trial under the Fourteenth Amendment was violated because the Court Officer allegedly (1) threatened Lopez, (2) threatened Figueroa's family and (3) was acquainted with Brown. The Appellate Division rejected Figueroa's claim, holding that the Trial Court properly exercised its discretion in concluding that Figueroa's rights were not violated because the jury was not aware of the Court Officer's conduct.
Under the Fourteenth Amendment, a fair criminal trial requires that "a jury's verdict must be based upon the evidence developed at the trial ... in a public courtroom where there is full judicial protection of the defendant's right of confrontation, of cross-examination, and of counsel." Turner v. Louisiana, 379 U.S. 466, 472-73, 85 S. Ct. 546, 13 L. Ed. 2d 424 (1965). The Appellate Division determined that the Court Officer's conduct did not deprive Figueroa of this basic protection. While the Court Officer's behavior may have been inappropriate, the Trial Court found that the problematic conduct occurred entirely outside the jury's presence. The Trial Court also conducted an individual voir dire and confirmed that the jury was not aware of the Court Officer's behavior. Consequently, the Appellate Division *571 reasonably applied Turner in concluding that Figueroa was not deprived of a fair trial because the jury's verdict was not influenced by the Court Officer's behavior.
Figueroa asserts that Webb v. Texas, rather than Turner, governs. The Supreme Court held in Webb that a criminal defendant's Fourteenth Amendment right to a fair trial was violated when a judge threatened a witness with future prosecution if he provided certain testimony. 409 U.S. 95, 98, 93 S. Ct. 351, 34 L. Ed. 2d 330 (1972). The judge's remarks "exerted such duress on the witness' mind as to preclude him from making a free and voluntary choice whether or not to testify." Id. In contrast to Webb, the threatening remarks at Figueroa's trial were made by the Court Officer, who is not vested with the same level of authority as the presiding judge. In any event, Lopez apparently did not experience duress, as she continued to offer consistent testimony both before and after the Court Officer's interactions with her and Figueroa's family. Therefore, even assuming Webb's relevance, the Court would find that the Appellate Division's decision was not an unreasonable application of Webb. The Court therefore concludes that Figueroa is not entitled to habeas relief.
III. ORDER
For the reasons stated above, it is hereby
ORDERED that the petition (Docket No. 1) of petitioner Frank Figueroa ("Figueroa") for a writ of habeas corpus pursuant to 28 U.S.C. § 2254 is DENIED.
As Figueroa has not made a substantial showing of a denial of his constitutional rights, a certificate of appealability will not issue. See 28 U.S.C. § 2253(c); Lucidore v. N.Y. State Div. of Parole, 209 F.3d 107, 111-13 (2d Cir.2000). The Court certifies, pursuant to 28 U.S.C. § 1915(a)(3), that any appeal from this Order would not be taken in good faith, and therefore in forma pauperis status is denied for the purpose of an appeal. See Coppedge v. United States, 369 U.S. 438, 444-445, 82 S. Ct. 917, 8 L. Ed. 2d 21 (1962).
The Clerk of Court is directed to terminate any pending motions and to close this case.
SO ORDERED.
NOTES
[1] The factual and procedural summary below is derived from the following documents and any exhibits attached thereto: Petition, dated June 29, 2010; Respondent's Declaration in Opposition to Petition for a Writ of Habeas Corpus, dated February 25, 2011 ("Resp. Decl."); People v. Figueroa, 37 A.D.3d 246, 830 N.Y.S.2d 80 (1st Dep't 2007) ("Figueroa I"); and People v. Figueroa, 8 N.Y.3d 984, 838 N.Y.S.2d 487, 869 N.E.2d 663 (2007) ("Figueroa II"). Except where specifically referenced, no further citation to these sources will be made. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2114894/ | 792 F. Supp. 2d 98 (2011)
Maureen LAPPEN, Plaintiff,
v.
Michael J. ASTRUE, as he is Commissioner, Social Security Administration, Defendant.
Civil Action No. 09-11857-WGY.
United States District Court, D. Massachusetts.
June 15, 2011.
*99 Rayford A. Farquhar, United States Attorney's Office, Boston, MA, for Defendant.
*100 Michael J. Kelley, Law Office of Michael J. Kelley, Boston, MA, for Plaintiff.
Thomas D. Ramsey, Office of the General Counsel, Social Security Administration, Boston, MA, for Social Security Administration (Interested Party).
MEMORANDUM AND ORDER
YOUNG, District Judge.
I. INTRODUCTION
The plaintiff, Maureen Lappen ("Lappen"), brings this action pursuant to section 405(g) of the Social Security Act, 42 U.S.C. § 405(g), seeking judicial review of the final decision of the Commissioner of Social Security (the "Commissioner"). Lappen challenges the decision of Administrative Law Judge John F. Markuns (the "hearing officer") denying her application for Social Security Disability Insurance Benefits. She argues that the Commissioner's decision was not based on substantial evidence, specifically claiming that the hearing officer "misstated the findings of the medical expert" and found that the "Claimant's subjective complaints [were] not credible without supporting this conclusion with specific facts and substantial evidence." Mem. L. Supp. Pl.'s Mot. Reverse or Remand 3, ECF No. 13 ("Lappen Mem."). Lappen requests that this Court reverse the decision of the Commissioner or, in the alternative, remand the case to the Commissioner. Compl., ECF No. 1. The Commissioner filed a motion for an order confirming his decision. ECF No. 14.
A. Procedural Posture
Lappen applied for Social Security Disability Insurance Benefits on March 28, 2007, alleging a disability commencing on January 1, 2003. Admin. R. 135-137. On July 2, 2007, the Commissioner denied Lappen's claim. Id. at 90. Lappen's timely request for reconsideration was denied on July 25, 2008. Id. at 69. Lappen requested an oral hearing on August 14, 2008; the hearing took place before hearing officer John F. Markuns on February 18, 2009. Id. at 7. The hearing officer issued a decision unfavorable to Lappen on May 21, 2009, stating that Lappen was not disabled within the meaning of the Social Security Act from the alleged onset date through the date last insured. Id. at 7-17. The hearing officer's decision was selected for review by the Decision Review Board, but the Board did not complete its review within the prescribed ninety-day period. Id. at 1-3. Consequently, the hearing officer's decision became the final decision of the Commissioner. Id.; see 20 C.F.R. § 405.420(a)(2). On October 30, 2009, Lappen filed the present action with this Court to review the decision of the Commissioner.
B. FACTUAL BACKGROUND
Lappen was born on April 25, 1960. Admin. R. 135. She has completed two years of college. Id. at 170. She worked for several years as a registered nurse and nursing assistant, and was most recently employed as a clerical assistant at a packaging and supply company from 1999 to 2002. Id. at 172.
In March 2000, Lappen began seeing Dr. Kirk Lum ("Dr. Lum"). Id. at 371. She reported on her initial psychiatric evaluation that she was feeling depression and anxiety in the context of a divorce, that such depression was noted as early as thirteen years of age, and that for the past five years, her depression had been in remission. Id. at 379. In May 2000, Dr. Lum diagnosed Lappen with bipolar disorder, and prescribed her a trial of Depakote. Id. at 381-82. Dr. Lum continued to see Lappen until October 2000, when he assigned her a global assessment of functioning *101 score of 70, Id. at 392-93, which represents a person with only some mild symptoms. Mem. L. Supp. Comm'r's Mot. Order Affirming His Decision 6 n.3, ECF No. 15.
Dr. Emanuel Chris ("Dr. Chris") began to see Lappen in September 2005. He diagnosed her with a major depressive disorder and prescribed Fluoxetine and Trazodone. Admin. R. 348. Two weeks later, Dr. Chris saw Lappen at a follow-up appointment and reported improvement in mood, anxiety, and sleeplessness. Id. at 346. At the onset of her treatment with Dr. Chris, Lappen experienced improvement in several areas, including mood, affect, anxiety, and communicativeness. Id. at 344-46. Dr. Chris terminated his relationship with Lappen on January 18, 2007, however, citing Lappen's failure to keep her appointments. Id. at 317. In addition, Lappen had been in alcohol treatment from January 13 to January 18, 2007, and admitted that she had been drinking heavily, which she had never told Dr. Chris. Id. at 310, 317. Over the course of his treatment of Lappen, Dr. Chris slightly adjusted her drug treatment, but for the large part, her regimen consisted of Fluoxetine and Trazodone, with a period of Lamictal, a mood stabilizer, and trials of various sleep aids. Id. at 317-46. In his final write-up for Lappen on May 1, 2007, Dr. Chris reported that aside from lying about her alcoholism, Lappen's adaptive functioning, concentration, and memory were all good. Id. at 313.
On May 9, 2007, Dr. Jane Metcalf ("Dr. Metcalf") prepared a Psychiatric Review Technique Form ("PRT") and a Residual Functional Capacity Assessment ("RFC") for Lappen. Id. at 350-67. In the "Summary Conclusions" portion of the RFC, Dr. Metcalf concluded that Lappen was either "not significantly limited" or "moderately limited" in all respects; Lappen's ailments did not "markedly limit" any facets of her functioning. Id. at 350-51. Dr. Metcalf elaborated on her residual functional capacity assessment: "[Lappen] [c]an understand simple instructions ... sustain adequate focus/pace on simple tasks ... relate with [a] supportive, consistent supervisor... [and] work in [a] low stress work setting." Id. at 352.
Lappen reported in March 2007 that because of her depression, she could not "do [her] daily living or get out of bed," and that because of her anxiety she could not concentrate. Id. at 163. She said that her anxiety and depression made her unable to hold a job. Id. Before the hearing officer, Lappen testified that she "couldn't even get out of bed half the time," could not concentrate, and was anxious. Id. at 37. She also admitted lying to her doctors about her alcohol abuse, citing a fear that the Department of Social Services would try to take her children away from her. Id. at 39. She denied having a history of "alcohol abuse," however, despite more than one doctor having concluded that she had an alcohol problem and her having sought alcohol treatment on two separate occasions. Id. at 31-32, 40.
At the hearing, a medical expert, Dr. Alfred Jonas ("Dr. Jonas") testified that after reviewing Lappen's record of alcohol abuse, he "didn't see anything that looked... like a reliable description of any considerable impairment" and that "there probably [were] not meaningful impairments there." Id. at 47. Dr. Jonas' testimony regarding Lappen's bi-polar disorder was varied: at one point he stated: "at her worst, she probably [meets or equals a listing]." Id. at 50. Later, he qualified this conclusion, testifying that, given her record, it was impossible to tell exactly what contributed to her instability. Id. at 50, 53, 55.
*102 Richard Hall ("Hall"), a vocational expert, also testified at the hearing. Id. at 57. The hearing officer presented Hall with a hypothetical individual of the same age as Lappen and with similar education, work experience, physical restrictions, postural restrictions, and a limitation on task difficulty and environmental stress. Id. at 60-61. Hall testified that such a hypothetical individual would be able to perform a number of jobs, including mail clerk, marker, and order caller, and that such jobs exist in significant numbers in the national and regional economies. Id. at 63.
II. LEGAL STANDARD
A. Standard of Review
Under 42 U.S.C. § 405(g), a district court has the power to affirm, modify, or reverse a decision of the Commissioner. The district court must make its decision based on the pleadings and transcript of the record before the Commissioner; "[t]he findings of the Commissioner of Social Security as to any fact, if supported by substantial evidence, shall be conclusive." 42 U.S.C. § 405(g); see Manso-Pizarro v. Sec'y of Health & Human Servs., 76 F.3d 15, 16 (1st Cir.1996). The First Circuit has clarified this standard as requiring a court to "uphold the [Commissioner's] findings if a reasonable mind, reviewing the evidence in the record as a whole, could accept it as adequate to support his conclusion." Irlanda Ortiz v. Sec'y of Health & Human Servs., 955 F.2d 765, 769 (1st Cir.1991) (quoting Rodriguez v. Sec'y of Health & Human Servs., 647 F.2d 218, 222 (1st Cir.1981)) (internal quotation mark omitted). As it is the role of the Commissioner to draw factual inferences, make credibility determinations, and resolve conflicts in the evidence, the Court must not perform such tasks in reviewing the record. Id. Complainants face a difficult battle in challenging the Commissioner's determination because, under the substantial evidence standard, the Court must uphold the Commissioner's determination, "even if the record arguably could justify a different conclusion, so long as it is supported by substantial evidence." Rodriguez Pagan v. Sec'y of Health & Human Servs., 819 F.2d 1, 3 (1st Cir.1987).
B. Social Security Disability Standard
An individual is considered disabled if she is unable "to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months." 42 U.S.C. § 423(d)(1)(A).
The Social Security Administration has promulgated a five-step sequential analysis to determine whether a claimant is disabled. See 20 C.F.R § 404.1520(a)(4). The hearing officer must determine: (1) whether the claimant is engaged in substantial gainful activity; (2) whether the claimant has a severe impairment; (3) whether the impairment meets or medically equals an impairment listed in Appendix 1 of Subpart P of Part 404 of Title 20 of the Code of Federal Regulations; (4) whether the claimant has the residual functional capacity to perform his past relevant work; and (5) whether the impairment prevents the claimant from doing any other work considering the claimant's age, education, and work experience. Id.
The claimant bears the burden at the first four steps of showing that she is disabled within the meaning of the Act. Goodermote v. Sec'y of Health & Human Servs., 690 F.2d 5, 7 (1st Cir.1982). Once the claimant has established that she is unable to return to her former employment, the burden shifts to the Commissioner *103 at the fifth step to prove that the claimant is able to perform jobs that exist in significant numbers in the national economy. Id.
III. THE HEARING OFFICER'S DECISION
The hearing officer found, at the first step, that Lappen had not engaged in substantial gainful activity since January 1, 2003. Admin. R. 9. At the second step, the hearing officer found that Lappen's fecal incontinence, bipolar disorder, obesity, and history of alcohol abuse constituted severe impairments during the relevant time period. Id. At the third step, the hearing officer found that none of Lappen's impairments met or were medically equal to any of the impairments listed in Appendix 1 of Subpart P of Part 404. Id. at 10. At the fourth step, the hearing officer held that Lappen retained the residual functional capacity to perform light work in close proximity to a restroom, limited nonexertionally to simple, routine, and repetitive one to three step tasks with occasional changes in work setting and occasional interaction with the public and coworkers. Id. at 11-12. At the fifth, step, based on this residual functional capacity and the testimony of the vocational expert, the hearing officer found that Ms. Lappen could perform work that exists in significant amounts in the national economy, including jobs such as mail clerk, order caller, and marker. Id. at 16. The hearing officer therefore concluded that Lappen had not been disabled since January 1, 2003. Id. at 17.
IV. ANALYSIS
Lappen disputes the hearing officer's findings, arguing that he misstated the findings of the medical expert who testified at the hearing and that he found Lappen's subjective complaints not credible without supporting that conclusion with specific facts and substantial evidence.
A. Medical Expert
Lappen contends that the hearing officer misstated the testimony of the medical expert. Dr. Jonas, the medical expert who testified at the hearing, evaluated all of the medical evidence beforehand, and was available for cross-examination. Dr. Jonas opined, in response to the hearing officer's questioning, as to whether Lappen met a listed disability. Lappen argues that the administrative record clearly indicates that Dr. Jonas could not, and did not, render a dispositive opinion as to the severity of Ms. Lappen's mental health impairments. This, on its own, is not an incorrect statement. Dr. Jonas' testimony is fraught with lacunae, and it is quite clear that Dr. Jonas could not specifically identify the severity of Lappen's ailments. He testified that he needed more data to assess her level of dysfunction. See Admin. R. at 47-57.
Be that as it may, it is the Commissioner's charge to weigh the evidence and to resolve material conflicts in the testimony. See Richardson v. Perales, 402 U.S. 389, 400, 91 S. Ct. 1420, 28 L. Ed. 2d 842 (1971); Gonzalez Garcia v. Sec'y of Health & Human Servs., 835 F.2d 1, 2 (1st Cir. 1987) ("[C]onflicts in the evidence are for the [hearing officer] to resolve."). He can make reasonable assumptions and inferences based on the sworn testimony of an examining expert, and here, the hearing officer did exactly that. Dr. Jonas' forthright testimony speaks to the varying impediments endured by Lappen as a consequence of her various conditions and the uncertainty surrounding those impediments. The hearing officer, based on that testimony carried out his duty to evaluate the available evidence and decided that Lappen had not carried her burden of *104 proving that she was disabled. Especially in a scenario where the claimant bears the burden of proof, this Court will not disturb a finding the hearing officer made while he was performing his evidentiary duty. Thus, the Court concludes that, notwithstanding the equivocal testimony of Dr. Jonas, the hearing officer's decision was supported by substantial evidence.
B. Subjective Complaints
The hearing officer's findings with respect to Lappen's subjective complaints were likewise proper. The hearing officer based his credibility determination on the whole record. He determined that her complaints were not supported by objective medical evidence, specifically citing Dr. Jonas's testimony that he did not see anything in the record that supported Lappen's testimony that she would have difficulty getting out of bed five days out of seven and Lappen's lack of candor with her treating sources. Admin. R. 13. The hearing officer also noted that, although Lappen claimed to not be able to get out of bed on most days, the medical evidence showed that she had engaged in activities outside her home, including working with a personal trainer. Id. Lastly, Lappen's own untruthfulness in her interactions with her doctors diminished the credibility of her subjective complaints. Id. Based on these considerations, the hearing officer's decision not to credit Lappen's subjective complaints was supported by substantial evidence, and this Court will not disturb that result.
V. CONCLUSION
For the reasons stated above, this Court DENIES Lappen's motion to reverse or remand, ECF No. 12, and ALLOWS the Commissioner's motion for an order affirming his decision. ECF No. 14. Judgment shall enter for the Commissioner.
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2115785/ | 807 F. Supp. 2d 871 (2011)
NORTHSTAR FINANCIAL ADVISORS, INC., on Behalf of Itself and All Others Similarly Situated, Plaintiff,
v.
SCHWAB INVESTMENTS; and Mariann Byerwalter, Donald F. Dorward, William A. Hasler, Robert G. Holmes, Gerald B. Smith, Donald R. Stephens, Michael W. Wilsey, Charles R. Schwab, Randall W. Merk, Joseph H. Wender and John F. Cogan as Trustees of Schwab Investments; and Charles Schwab Investment Management, Inc., Defendants.
Case No. 08-CV-04119 LHK.
United States District Court, N.D. California, San Jose Division.
August 8, 2011.
*872 Christopher T. Heffelfinger, James Christopher Magid, Lesley Ann Hale, Joseph J. Tabacco, Jr., Berman Devalerio, San Francisco, CA, Marc J. Gross, Greenbaum Rowe Smith & Davis LLP, Roseland, NJ, Bryan D. Plocker, Greenbaum *873 Rowe Smith & Davis LLP, Iselin, NJ, Robert C. Finkel, Wolf Popper LLP, New York, NY, for Plaintiff.
Darryl Paul Rains, Morrison & Foerster LLP, Palo Alto, CA, Dorothy L. Fernandez, Morrison & Foerster, San Francisco, CA, for Defendants.
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS
LUCY H. KOH, District Judge.
The Court heard oral argument on defendants' Motion to Dismiss the Third Amended Complaint (Third MTD) in this matter on August 4, 2011. For the reasons set forth below, the Motion is GRANTED.
I. Introduction and Procedural History
On August 28, 2008, Plaintiff Northstar Financial Advisors, Inc. (Northstar) filed its first complaint in this class action lawsuit on behalf of all persons who owned shares of the Schwab Total Bond Market Fund (the Fund) at any time from August 31, 2007 to the present. Compl. (Dkt. No. 1) ¶ 1. Northstar is a registered investment advisory and financial planning firm serving both institutional and individual clients. Id. ¶ 9. Northstar manages both discretionary and nondiscretionary accounts on behalf of investors in its role as an investment advisor. Id. Northstar traded through Charles Schwab's Institutional Advisor Platform, and purchased shares in the Fund for its clients. Id. ¶¶ 11-12.
Although Northstar has amended its Complaint three times, its core allegations remain the same. Northstar alleges that defendants deviated from the Fund's investment objective to track the Lehman Brothers U.S. Aggregate Bond Index (the Index) in two ways. First, Northstar alleged that the Fund deviated from this objective by investing in high risk non-U.S. agency collateralized mortgage obligations (CMOs) that were not part of the Lehman Index and were substantially more risky than the U.S. agency securities and other instruments that comprised the Index. Id. ¶ 3; Third Am. Compl. (TAC) ¶ 5. Second, Northstar alleged that the Fund deviated from its investment objectives which prohibited any concentration of investments greater than 25% in any industry by investing more than 25% of its total assets in U.S. agency and non-agency mortgage-backed securities and CMOs. Compl. ¶ 4; TAC ¶ 6. Northstar alleged that defendants' deviation from the Fund's investment objective exposed the Fund and its shareholders to tens of millions of dollars in losses due to a sustained decline in the value of non-agency mortgage-backed securities. The Funds' deviation from its stated investment objective caused it to incur a negative total return of 4.80% for the period September 1, 2007 through February 27, 2009, compared to a positive return of 7.85% for the Index over that period. TAC ¶ 7.
Based on these allegations, Northstar asserted the following claims: 1) Violation of Section 13(a) of the Investment Company Act of 1940(ICA); 2) Breach of Fiduciary Duty 3) Breach of Contract and 4) Breach of Covenant of Good Faith and Fair Dealing. Defendants moved to dismiss the first complaint. See First MTD (Dkt. No. 33). Judge Illston, to whom this case was previously assigned, granted-in-part and denied-in-part defendants' motion. See Feb. 19, 2009 Order, 609 F. Supp. 2d 938 (N.D.Cal.2009) (Dkt. No. 74).
Judge Illston found that there was an implied private right of action under Section 13(a) of the ICA, and that Plaintiffs had stated a claim for violation of shareholders' voting rights under this section. *874 Feb. 19, 2009 Order, 609 F. Supp. 2d at 944, 945-48. Regarding the asserted state law causes of action, Judge Illston granted Plaintiffs leave to amend their breach of fiduciary duty and breach of contract claims.
On March 2, 2009, Plaintiffs filed a First Amended Complaint (FAC). On March 5, 2009, defendants sought and were granted leave to appeal Judge Illston's Order finding a private right of action under the ICA § 13(a), and a stay of this action pending the appeal. See Dkt. No. 108. Thus, the case was stayed from April 27, 2009 through August 13, 2010 while the appeal was pending. In the interim, the case was reassigned, first to Judge Seeborg, and then to the undersigned. See Dkt. Nos. 115, 117. On August 13, 2010, the Ninth Circuit reversed Judge Illston's Order, holding that there is no private right of action under Section 13(a). Northstar Fin. Advisors, Inc. v. Schwab Invs., 615 F.3d 1106, 1122 (9th Cir.2010).
In light of this, Northstar[1] filed a Second Amended Complaint (SAC) removing its Section 13(a) claim on September 28, 2010. The SAC (like the TAC) named Schwab Investments (the Trust), its Trustees [2], and Charles Schwab Investment Management, Inc. (the Investment Advisor) as defendants. According to the SAC, the Trust is an investment trust organized under Massachusetts law, and "consists of a series of mutual funds, including the Fund." SAC ¶ 16. The Trust is managed by the Trustees. SAC ¶ 19. Pursuant to a contractual agreement between the Trust and the Investment Advisor, the Investment Advisor serves as the investment manager for the Fund. SAC ¶ 23, 154. The SAC alleged claims based on breach of fiduciary duty (against all defendants), breach of contract (against the Trust), breach of the covenant of good faith and fair dealing (against the Trust and the Investment Advisor), and a claim for third party beneficiary status to the agreement between the Trust and the Investment Advisor (against the Investment Advisor).
This Court dismissed the SAC on March 2, 2011, 781 F. Supp. 2d 926 (N.D.Cal.2011). The Court found that all of Northstar's claims, as alleged, were precluded by the Securities Litigation Uniform Standards Act of 1998 (SLUSA), because all the claims alleged misrepresentations or omissions of material fact made in connection with the purchase or sale of the Fund's shares. 15 U.S.C. § 77p. The Court found that "the central theme of the SAC and all of Plaintiffs' claims is that defendants made misrepresentations about how investments in the fund would be managed, that Plaintiffs purchased Fund shares relying on these misrepresentations, and that Plaintiffs were injured when these statements turned out to be false." The one exception was the fiduciary duty claim. Under the Delaware carve-out, this claim was not subject to SLUSA preclusion if brought under the law of the state where the security issuer is organized (here, Massachusetts).
In addition to dismissing based on SLUSA preclusion, the Court found that Northstar had failed to allege a breach of contract claim, despite specific instructions from Judge Illston to "add more specific allegations regarding the language plaintiff relies on to allege the formation of a contract." *875 Feb. 19, 2009 Order, 609 F. Supp. 2d at 950. In light of this, Northstar's breach of contract claim and related claim for breach of the covenant of good faith and fair dealing were dismissed with prejudice. Northstar's claim for breach of fiduciary duty was dismissed with leave to amend to address the SLUSA preclusion issue, and to state a non-derivative claim. Northstar's claim for third party beneficiary status was also dismissed with leave to amend to "specify ... what specific provisions of the Investment Advisor Agreement were allegedly breached, and how." March 2, 2011 Order, 781 F. Supp. 2d at 944, at 24.
Northstar filed its TAC on March 28, 2011. In the TAC, Northstar identifies two classes of potential plaintiffs. TAC ¶ 65. First, a "Pre-Breach" class, consisting of "all persons or entities who purchased shares of the Fund on or prior to August 31, 2007, and who continued to hold their shares as of August 31, 2007 ... and were damaged thereafter." Id. Second, a "Breach Class," consisting of "all persons or entities who purchased shares of the Fund during the period September 1, 2007 through February 27, 2009 ... and were damaged thereafter." Id. The classes are divided between August 31 and September 1, 2007 because Northstar alleges that "August 31, 2007 is the last day of the fiscal year preceding the one during which the Fund first began deviating from its required fundamental investment policy to seek to track the Lehman Index through the use of an indexing strategy." Northstar alleges that the Fund "reverted back to its required fundamental investment policy" on February 27, 2009 (approximately). TAC ¶ 66. Northstar alleges five causes of action on behalf of each of the two classes, for a total of 10 claims. These are: (1) and (6) breach of fiduciary duty against the Trustees and the Trust; (2) and (7) breach of fiduciary duty against the Investment Advisor; (3) and (8) aiding and abetting breach of fiduciary duty against the Trustees; (4) and (9) aiding and abetting breach of fiduciary duty against the Investment Advisor; (5) and (10) breach of contract as third party beneficiary of the Investment Advisory Agreement against the Investment Advisor.
During oral argument on this Motion, the parties discussed the fact that certain Schwab defendants have entered into a settlement of claims, including Section 13(a) claims, brought by the Securities and Exchange Commission (SEC) based on management of the Fund at issue in this case as well as management of another fund. Northstar and the defendants both agreed that any recovery under the fiduciary duty breach claims asserted in this case would need to be reduced by the amount of recovery obtained by Fund investors through the SEC enforcement action. As Northstar's counsel put it, the fiduciary duty breach claims asserted here are "alter egos" of the Section 13(a) claims enforced by the SEC.
II. Legal Standard
Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it fails to state a claim upon which relief can be granted. To survive a motion to dismiss, the plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007). This "facial plausibility" standard requires the plaintiff to allege facts that add up to "more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009). In deciding whether the plaintiff has stated a claim, the Court must assume the plaintiff's allegations are true and draw all reasonable inferences in the plaintiff's *876 favor. Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir.1987). However, the court is not required to accept as true "allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). Leave to amend must be granted unless it is clear that the complaint's deficiencies cannot be cured by amendment. Lucas v. Dep't. of Corr., 66 F.3d 245, 248 (9th Cir.1995).
III. Application
a. Breach of Fiduciary Duty
Northstar argues that the Trustees owed fiduciary duties directly to Fund investors as a matter of law, and that the rest of the defendants owed fiduciary duties to the investors as a matter of fact. The Court finds that Northstar has failed to successfully allege a breach of any duty owed directly to Fund investors, and that these claims would have to be asserted derivatively.
The two main cases Northstar relies on for the ability of the Fund investors to sue directly for a breach of fiduciary duty are Fogelin v. Nordblom, 402 Mass. 218, 222, 521 N.E.2d 1007 (1988), and In re Great N. Iron Ore Properties, 263 N.W.2d 610, 620 (Minn.1978). Fogelin involved a Massachusetts Business Trust established in 1957 "for dealing in real estate." Fogelin, 402 Mass. at 220, 521 N.E.2d 1007. Robert C. Nordblom, one of three trustees, was initially the owner of all 500 shares of common stock of the trust. Id. In 1969, Nordblom amended the trust declaration to increase the number of common shares from 500 to 4,000, to create 6,000 preferred shares, and to give both common and preferred shareholders voting rights. Id. The 1969 Amendment also stated that no further amendment altering the rights of either class could be made without separate approval of two-thirds of each class. In 1972, the Trustees executed a further amendment which significantly decreased the liquidation value of preferred shares, and significantly increased the majority required for shareholders to make further amendments to the Trust. Fogelin, 402 Mass. at 221, 521 N.E.2d 1007. In response, the preferred shareholders (who were also all Nordblom's grandchildren) asked the Trustees not to ratify the 1972 Amendment. Fogelin, 402 Mass. at 222, 521 N.E.2d 1007. The Massachusetts Supreme Court held that the Amendment could not be ratified because, contrary to the 1969 Amendment, it benefited only trustee Nordblom himself, and prejudiced only the preferred shareholder grandchildren. In this context, the Massachusetts Supreme Court held that "[i]t is axiomatic that the BRT trustees stood in a fiduciary relationship to all of the beneficiaries of the trust and, therefore, had a duty not to favor one class of shareholders over another." Fogelin, 402 Mass. at 222-23, 521 N.E.2d 1007.
Although Northstar focuses exclusively on the first part of the quotation above, it is not clear that Fogelin stands for the broad rule Northstar urgesi.e., that trustees of all Massachusetts Business Trusts owe direct fiduciary duties to all beneficiaries of such trusts. As defendants argue, the source of the fiduciary duty in that case could have been based on the fact that the trust was a family trust administering gifts to minors. See Reply ISO Third MTD (Third Reply) at 3. Another possible explanation for the court's holding is the unequal treatment of shareholders. As the Ninth Circuit has held, it is proper to find a direct claim for breach of fiduciary duty when a trust beneficiary is injured in a way distinct from other beneficiaries. "A shareholder does not acquire standing to maintain a direct action *877 when the alleged injury is inflicted on the corporation and the only injury to the shareholder is the indirect harm which consists of the diminution in the value of his or her shares." Lapidus v. Hecht, 232 F.3d 679, 683 (9th Cir.2000). The Fogelin court's holding appears limited to finding a fiduciary duty on the part of trustees not to favor one class of shareholders over another.
Northstar's other cited case, Great N. Iron Ore, is not very helpful.[3] As defendants note, the statement that a Massachusetts business trust "is subject to the underlying equitable and fiduciary duties toward trust beneficiaries imposed by the common law of trusts" was made in dicta. Great N. Iron Ore Props., 263 N.W.2d at 620. The court in Great N. Iron Ore did not decide if the trust in question was a Massachusetts business trust or not. Id. In addition, as in Fogelin, Great N. Iron Ore involved alleged unfair treatment of one class of shareholders in comparison to another, and the Minnesota Supreme Court held that the trustees were "under a legal duty to manage the trust `with equal consideration for the interests of all beneficiaries.'" Thus, as in Fogelin, it appears that the holding of Great N. Iron Ore is limited to finding a fiduciary duty not to favor one class of beneficiaries over another. Again, this is consistent with the Ninth Circuit's finding in Lapidus that standing to assert a direct action depends on whether the corporation or the shareholder is injured. For example, it is possible to imagine a trustee action that benefits the trust overall, but disadvantages one class of shareholders in comparison to another. Fogelin, Great N. Iron Ore, and Lapidus suggest that a shareholder claim in these circumstances would be direct.
As defendants point out, with one exception, the only cases cited by either party to consider whether a mutual fund trustee owes fiduciary duties directly to mutual fund investors under Massachusetts law have concluded either that no such duty is owed, or that the claim to assert a breach of fiduciary duty must be brought derivatively (because the duty is owed to the mutual fund rather than to individual investors).[4] In Stegall v. Ladner, 394 F. Supp. 2d 358 (D.Mass.2005), the court concluded that a fiduciary duty to maximize the value of trust shares by participating in class action settlements was owed by trustees of a Massachusetts business trust to the trust rather than directly to the trust's beneficiaries. The Court analogized a Massachusetts business trust mutual fund to a corporation:[5]
*878 In short, the pooling of resources, collective assets, expenses, and management to a great extent restrict the duties owed to individual investors. That defendants do not owe a duty directly to plaintiff in this setting is not the same as saying that no duties to individual investors are owed. In the context of the mutual fund, at least so far as decisions affecting all shareholders in the same way are concerned, managers owe a duty to the fund itself. Plaintiff enjoys the benefits of that duty, but does so derivatively. Consequently, he is empowered to enforce that duty, but must do so on behalf of the fund after providing the fund an opportunity to take action on its own behalf.
Stegall, 394 F.Supp.2d at 366 (emphasis added).
Defendants cite another case in which plaintiff mutual fund investors asserted a claim for breach of fiduciary duty based on the fund's trustees "carelessly or negligently fail[ing] to seek compensation from settlement of certain securities class action suits." Hamilton v. Allen, 396 F. Supp. 2d 545, 560 (E.D.Pa.2005). The Hamilton court relied on the rule that there is no direct fiduciary relationship between corporate directors and shareholders and concluded that the plaintiffs could not bring a direct claim for the diminution in fund value resulting from the alleged breach of duty. Id., 396 F.Supp 2d at 552. Northstar criticizes Hamilton for relying on corporations law rather than trusts law, but the court stated that it did so because "there appear to be no cases in which Massachusetts or Ohio courts considered the applicability of these principles to claims filed by investors in mutual funds." Id. at 550. Likewise, in Forsythe v. Sun Life Fin., Inc., 417 F. Supp. 2d 100, 112 (D.Mass.2006)[6], the court found that plaintiffs could not state a direct claim for breach of fiduciary duty by trustees of a Massachusetts business trust. The court held that "[u]nder Massachusetts law, if the wrong underlying claim results in harm to a plaintiff shareholder only because the corporate entity has been injured, with the plaintiff's injury simply being his proportionate share of the entity's injury, the harm to the shareholder is indirect and his cause of action is derivative." Id.
Several other district court decisions follow the reasoning of Hamilton, Stegall and Forsythe and conclude that when investors in Massachusetts business trust mutual funds bring fiduciary duty breach claims asserting a harm that affects all investors equally, no direct duty is owed to the investors and the claims are therefore derivative of duties owed to the trust. See Zucker v. Federated Shareholder Servs. Co., No. 06cv241, 2007 WL 709305, at *4, 2007 U.S. Dist. LEXIS 15186, at *11 (W.D.Penn. Mar. 5, 2007) (relying in part on Stegall); In re Blackrock Mut. Funds Fee Litig., No 04 Civ 164, 2006 WL 4683167 at *8-*9, 2006 U.S. Dist. LEXIS 13846 at *29-*30 (W.D.Penn. Mar. 29, *879 2006) (same); Everett v. Bozic, No. 05 Civ. 00296(DAB), 2006 WL 2291083, at *4, 2006 U.S. Dist. LEXIS 55824, at *15 (S.D.N.Y. Aug. 3, 2006) (dismissing fiduciary duty claims predicated on diminution of value in a mutual fund as derivative without deciding "whether such a direct [fiduciary] duty exists or not").
Northstar has failed to cite a single case finding a direct claim for breach of fiduciary duty against mutual fund trustees by trust beneficiaries.[7] In support of its argument that its claims are direct, Northstar argues that it is error to focus on the fact that it seeks the diminution in trust share values as its damages. Northstar cites a District of Massachusetts case noting that "what differentiates a direct from a derivative suit is neither the nature of the damages that result from the defendant's alleged conduct, nor the identity of the party who sustained the brunt of the damages, but rather the source of the claim of right itself. If the right flows from the breach of a duty owed by the defendants to the corporation, the harm to the investor flows through the corporation, and a suit brought by the shareholder to redress the harm is one `derivative' of the right retained by the corporation." Branch v. Ernst & Young U.S., No. Civ. A. 93-10024-RGS, 1995 WL 791941 (D.Mass. Dec. 22, 1995). Branch involved a bank investor's claims that he had invested based on misrepresentations made by third party Ernst & Young. Branch, 1995 WL 791941 at *3. Defendant Ernst & Young argued that the investor's claims were derivative of the bank's. In rejecting this, the court held that because the bank had benefited from the alleged misrepresentations, it had sustained no injury by them, and therefore could not have pursued Branch's claims. Branch, 1995 WL 791941 at *6. Thus, the claims were not derivative. In distinguishing derivative claims, the court noted that "the challenged claims in this case are not premised upon an allegation that Ernst & Young's misfeasance caused a decline in the subsidiary banks' value." Thus, Branch is consistent with the holdings of the many authorities cited above (including several more-recent District of Massachusetts decisions) finding that "[u]nder Massachusetts law, if the wrong underlying claim results in harm to a plaintiff shareholder only because the corporate entity has been injured, with the plaintiff's injury simply being his proportionate share of the entity's injury, the harm to the shareholder is indirect and his cause of action is derivative." Forsythe, 417 F.Supp.2d at 112.
Although Northstar alleges that the putative class was harmed through a change of the Fund's fundamental investment objective without the required shareholder vote, the Court finds that this does not convert the claims to direct claims, despite the Ninth Circuit's holding in Lapidus that a claim for violation of contractual shareholder voting rights "satisf[ies] the injury requirement for a direct action under Massachusetts law" and confers standing to pursue individual claims. Lapidus, 232 F.3d at 683. The Ninth Circuit's holding was based on the requirement that "a plaintiff must allege an injury distinct from that suffered by shareholders generally or a wrong involving one of his or her contractual rights as a shareholder, such as the right to vote." Id. (emphasis added). Here, the Court previously found that Northstar has failed to plead a contract *880 between the Trust and its beneficiaries, so there are no contractual rights to assert.[8]
Northstar's other arguments as to why the fiduciary duty breach claims cannot be derivative are without merit. Northstar argues that its fiduciary duty breach claims must not be derivative because each shareholder was injured to a different degree depending on the number of shares purchased and their buy and sell dates. This argument is inconsistent with the holdings of all the cases cited herein finding no direct claim for damages affecting all shareholders by decreasing share values, including the holding in Lapidus. Northstar also argues that because a trust itself holds no property, the Trust could not have sustained any injury as a result of the alleged mismanagement. But, as defendants point out, the courts in both Hamilton and Forsythe explicitly found that diminution-of-value injuries were directly felt by the trusts at issue in those cases. See Hamilton, 396 F.Supp.2d at 552; Forsythe, 417 F.Supp.2d at 112. Indeed, this holding is implicit in all the cited decisions finding that claims against mutual fund trustees are derivative. Finally, Northstar argues that it would be inequitable to allow the defendants to benefit from their own wrongs. While this is true, it does not mean that there cannot be a derivative claim on behalf of the Trust. Any recovery would go to the Trust and therefore, ultimately, to the beneficiaries of the Trust.
Northstar claims that the defendants breached their fiduciary duty by failing to follow the Fund's fundamental investment objectives, and to comply with the 25% concentration policy, and caused the Fund to fail to track the Index as a result. Because the complained-of acts allegedly caused the Fund's shares to diminish in value equally for all shareholders, the Court finds that Northstar's fiduciary duty claim must be asserted derivatively. In light of Lapidus, which holds that diminution-in-value claims alleged by mutual fund shareholders are derivative under Massachusetts law, the Court finds that Northstar's fiduciary duty claims against the defendants are derivative.
At the hearing on this Motion, Northstar first argued that it would not have standing to bring a derivative claim, and then argued that if the fiduciary duty breach claims were found to be derivative, it could amend its complaint to assert demand futility. However, Northstar's fiduciary duty breach claim is brought under Massachusetts law. As of July 1, 2004, Massachusetts law requires that a written demand be made before a derivative suit may be brought. Mass. Gen. Laws ch. 156D, § 7.42. There are no exceptions (such as futility of demand) to this requirement. See ING Principal Prot. Funds Derivative Litig., 369 F. Supp. 2d 163, 170 (D.Mass.2005) (dismissing derivative claims against a mutual fund organized as a Massachusetts business trust based on the fact that plaintiffs had failed to make a demand). Because Northstar admittedly *881 did not meet the demand requirements of Massachusetts law before bringing suit, these claims cannot be saved by amendment. Therefore, these claims are DISMISSED with prejudice. In light of this finding, the Court does not address the other arguments raised by the parties regarding Plaintiff's claims for breach of fiduciary duty, including whether claims against the Trustees were timely and whether Northstar successfully pled a fiduciary duty arising as a matter of fact.
b. Aiding and Abetting Breach of Fiduciary Duty
In addition to its breach of fiduciary duty claims, Northstar has asserted several claims for aiding and abetting in the asserted breaches of fiduciary duty. See 4AC Claims 3, 4, 8 and 9. In order to state a claim for aiding and abetting in the breach of fiduciary duty, a plaintiff must allege an underlying breach of fiduciary duty. Arcidi v. Nat'l Ass'n of Gov't Emps., Inc., 447 Mass. 616, 856 N.E.2d 167, 174 (2006). Because the Court has concluded that Northstar's fiduciary duty claims are derivative claims, the aiding and abetting claims must also be brought derivatively. Therefore, the Court DISMISSES Northstar's aiding and abetting breach of fiduciary duty claims with prejudice.
c. Third Party Beneficiary Status
Northstar's fifth and tenth claims are for breach of the Investment Advisor Agreement (IAA)[9] between the Investment Advisor and the Trust. Northstar claims that Fund investors were third party beneficiaries to this agreement. In support of this claim, Northstar alleges that the Investment Advisor was required to "manage the Fund consistent with the Fund's fundamental investment objectives and policies." TAC ¶¶ 156, 210. Northstar identifies several provisions of the IAA in its TAC, noting that the Investment Advisor was required to "supervise or perform . . . all aspects of the operations of the Schwab Funds;" to "provide general economic and financial analysis and advice to the [Fund];" to provide a "continuous investment program for the Schwab Funds, including investment research and management as to all securities and investments and cash equivalents in the [Fund];" to "determine from time to time what securities and other investments will be purchased, retained or sold" by the Fund; to "assist in all aspects of the operations of the [Fund];" to "comply with all applicable Rules and Regulations of the SEC;" and to "comply with the provisions of the [ICA] of 1940 in buying or selling portfolio securities." TAC ¶¶ 159, 211. Northstar asserts that the Investment Advisor breached the IAA by "failing to invest the Fund's assets consistent with the Fund's fundamental investment policy to `seek to track' the Index `through the use of an indexing strategy'" and by "`concentrating' more than 25% of the Fund's total assets in `investments in a particular industry or group.'" TAC ¶¶ 165; 217. The internal quotations come not from the IAA itself but from Proxy statements distributed to shareholders.
As the Court previously noted, under California law, a contract must be clear in its intention to benefit a third party in order for that party to establish beneficiary status. Id.; Cal. Civil Code § 1559 ("a contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties *882 thereto rescind it."). "[T]he third person need not be named or identified individually to be an express beneficiary." Kaiser Eng'rs v. Grinnell Fire Prot. Sys. Co., 173 Cal. App. 3d 1050, 1055, 219 Cal. Rptr. 626 (1985) (internal citations omitted). "By judicial construction, the term `expressly' in Civil Code section 1559 has come to mean merely the negative of `incidentally.' In other words, Civil Code section 1559 excludes enforcement of a contract by persons who are only incidentally or remotely benefited by it . . . [a] third party may enforce a contract if it can be shown that he or she is a member of the class for whose express benefit the contract was made." Id. (internal citations omitted).
The IAA does not expressly mention Fund investors, but it does mention the Fund. Northstar argues that because investors are the beneficial owners of the Fund, the Fund is a "class for whose express benefit the contract was made." However, the Fund and the investors are legally separate, and Northstar has cited no authority holding that they should be considered indistinct for these purposes. Therefore, the Court must determine if Northstar has successfully stated a claim that investors should be entitled to enforce the IAA even though they are not expressly mentioned in it (neither specifically, nor as members of a class).
Northstar cites a recent California appellate decision finding that an excess insurance provider was a third-party beneficiary to a contract between an employer and a claims administrator. Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Servs. Grp., Inc., 171 Cal. App. 4th 35, 51, 89 Cal. Rptr. 3d 473 (2009). The excess insurance provider (National Union) insured workers' compensation claims over $250,000. Id. The Cambridge contract provided that the claims administrator, Cambridge, must notify any excess insurer of certain claims, as specified by the excess insurance policy. Id. In addition, any claim covered by National Union would continue to be administered by Cambridge. Id. The court concluded that National Union was a third party beneficiary to the Cambridge contract for two "interrelated" reasons. First, if Cambridge performed its duties as required and limited worker's compensation claims, this would directly benefit National Union by reducing what it must pay out in excess insurance. Id. Second, Cambridge was obligated to perform claims administration directly for National Union if the claims exceeded $250,000. Id. Northstar relies on the court's statement that the benefit to National Union was not incidental because it "flow[ed] directly from one of the purposes of the contracting parties, which was to limit the Bank's liability for workers' compensation claims," and argues that likewise, the benefit to investors under the IAA was not incidental because the value of the Fund's shares would directly rise or fall depending on the investment decisions made by the Investment Advisor.
Northstar also cites Escalante v. Minn. Life Ins. Co., No. 09cv1843-L(BLM), 2010 WL 4975658, at *2, 2010 U.S. Dist. LEXIS 127463, at *6 (S.D.Cal. Dec. 2, 2010). In this case, the plaintiff had entered into a life insurance contract. Id. Under a contract between the plaintiff's mortgage lender and the life insurer, plaintiff could make payments on the life insurance policy together with her mortgage payments, and the lender would forward the life insurance premiums to the insurer. Id. Plaintiff alleged that coverage under the life insurance policy was denied because the lender failed to forward payments to the insurer. Id. Although the court provided limited analysis of the agreement between the lender and the insurer, it appears that *883 plaintiff was mentioned as a class of persons intended to benefit from the agreement (that is, insureds who pay premiums to their mortgage lenders). Id. The court concluded that the agreement directly benefited the plaintiff, because the agreement made it much more convenient for the plaintiff to make payments, and this benefit was not incidental because it was a necessary consequence of the agreement. Id. Therefore, the plaintiff adequately pled a claim for third-party beneficiary status to the agreement.
Finally, Plaintiffs submitted supplemental authority finding that partners were third-party beneficiaries to an agreement between the partnership and an auditor. Tuttle v. Sky Bell Asset Mgmt., LLC, No. C-10-3588, 2011 WL 2519235 (N.D.Cal. June 16, 2011). This result was based on the agreements themselves and on allegations that that "[t]he engagement letters reflect an understanding and agreement that the audit reports would be sent to the Limited Partners. The Auditors Defendants understood and agreed that their audit reports would be sent to the Limited Partners." Id. at 2.
The agreements in Northstar's cited cases are distinguishable from the IAA on several grounds. First, at least regarding the agreement in National Union, it is clear that the agreement expressly mentioned an excess insurer. Although National Union itself was not named in the agreement, the agreement named a class of persons (excess insurers) to which National Union belonged. Likewise, although the opinion is somewhat unclear, it appears that the plaintiff in Escalante was a member of a class (insured mortgagors) mentioned specifically in the relevant contract. And in Tuttle, the court concluded that the agreements "reflected the understanding" that audit reports would be sent to partners. Second, all of the agreements in question benefitted the plaintiff third parties directly. Cambridge's claims administration would reduce National Union's exposure to claims, and National Union received claims administration directly from Cambridge once claims exceeded $250,000; Escalante was able to pay her mortgage and insurance premium in one convenient step; and the partners in Tuttle received copies of the auditors' reports.
As summarized in the Court's March 2, 2011 Order, if a contract does not clearly evince the intent to benefit a third party, that party is not a beneficiary of the contract. It is not enough for a plaintiff to identify a benefit he will receive if the contract is performed; the plaintiff must show that the contracting parties intended that he, specifically, receive this benefit. For example, in Jones v. Aetna Cas. and Sur. Co., 26 Cal. App. 4th 1717, 1722, 33 Cal. Rptr. 2d 291 (1994), the plaintiff leased property for his restaurant. The lease agreement required the lessor to obtain rental income insurance coverage for damage to the property, to be paid by the lessee. In the case of damage, the lease stated that plaintiff's rent would be reduced by the amount of any insurance recovery. Jones, 26 Cal.App.4th at 1721, 33 Cal. Rptr. 2d 291. Despite the fact that the plaintiff would benefit in case of an insurance payout, the court found that plaintiff was not a third-party beneficiary to the insurance agreement between the lessor and the insurer. The insurance agreement itself did not mention the plaintiff, and did not demonstrate that the lessee and the insurer intended to benefit the plaintiff by entering it. Id. at 1725, 33 Cal. Rptr. 2d 291.
Northstar asks the Court to expand the third-party beneficiary concept beyond the outlines set forth by the California appellate courts, described above. None of *884 Northstar's cited authority allowed third parties to enforce contracts that did not mention the third party at all (either expressly, or by naming a class of persons to whom the third party belonged)[10]. Although the National Union court states that "the third party need not be identified as a beneficiary, or even named, in the contract," in order to enforce it, the facts of that case show that National Union, as a member of the class of excess insurers, was named in the contract. National Union cited Prouty v. Gores Tech. Grp., 121 Cal. App. 4th 1225, 18 Cal. Rptr. 3d 178 (2004) in support of that statement, but in Prouty, the third-party beneficiaries were also named as a class in the provision of the contract they were entitled to enforce. See Prouty, 121 Cal.App.4th at 1233, 18 Cal. Rptr. 3d 178. Both National Union and Prouty explain that "[t]he fact that [the third party] is incidentally named in the contract, or that the contract, if carried out according to its terms, would inure to his benefit, is not sufficient to entitle him to demand its fulfillment. It must appear to have been the intention of the parties to secure to him personally the benefit of its provisions." Id.; Nat'l Union at 51, 89 Cal. Rptr. 3d 473.
It is undisputed that the IAA does not explicitly mention the Fund investors, and the Court finds that its references to the Fund do not equate to referencing a class of beneficiaries to which the Fund investors belong. Based on the language of the IAA itself, the Fund's intention in entering the agreement was to "retain the Investment Adviser to furnish investment advisory, administrative, and certain accounting and record-keeping services to the investment portfolios of the Trust [including the Fund at issue here]." See IAA (Dkt. No. 152, Ex. D). Although, as the Court previously noted, the Fund's share values (and therefore the Fund investor's investment values) would change depending on the Investment Advisor's actions, the benefit to Fund investors was incidental to the purposes of the IAA. As Northstar argues, a finding that investors enjoy third-party beneficiary status to enforce this contract would mean that investors could enforce any third-party contracts if the execution of such contracts affected the value of the Fund. This rule would be overbroad, likely encompassing employment agreements between the Investment Advisor and its employees. The Court previously ordered Northstar to amend its third party beneficiary claims, and deferred ruling on the question of whether Fund investors could claim third party beneficiary status based on the IAA. In light of the parties' additional briefing on this issue, the Court concludes that Fund investors are not third party beneficiaries to the IAA. Accordingly, these claims are hereby DISMISSED with prejudice.
IV. Conclusions
For the reasons set forth above, Northstar's claims are DISMISSED with prejudice. The Clerk shall close the file.
IT IS SO ORDERED.
NOTES
[1] Northstar had standing to assert these claims through an assignment from an individual investor who owned shares of the Fund as of August 31, 2007. See March 2, 2011 Order, 781 F. Supp. 2d at 931-33, at 5-7.
[2] Mariann Byerwalter, Donald F. Dorward, William A. Hasler, Robert G. Holmes, Gerald B. Smith, Donald R. Stephens, Michael W. Wilsey, Charles R. Schwab, Randall W. Merk, Joseph H. Wender and John F. Cogan
[3] Northstar also cites Loring v. United States, 80 F. Supp. 781, 786 (D.Mass.1948). However, this case is inapposite. Loring held that trustees were not employees of the trust when they acted as trustees, and stated generally that there are differences between trustees of a business trust and corporate directors (who may serve as employees separately from their role as directors). Defendants have cited significant authority analogizing Massachusetts business trusts to corporations, and Loring does not undermine this analogy. In fact, Loring likened trustees to corporate directors and noted that neither acts as an employee when performing the functions of director or trustee. See Loring, 80 F.Supp. at 786. Similarly, Northstar's citation to Levesque v. Ojala, No. 2003-4485, 2005 WL 3721859, at *22 (Mass.Super.Ct. Dec. 8, 2005) is inapposite. In that case, the court found a fiduciary relationship between shareholders in a corporation. Id.
[4] The exception is Strigliabotti v. Franklin Resources, Inc., No. C 04-00883 SI, 2005 WL 645529 at *7-8 (N.D.Cal.Mar. 7, 2005). However, defendants correctly note that many of the authorities discussed herein have declined to follow Strigliabotti. The Court previously distinguished this case and finds the authorities discussed in this Order to be more persuasive authority. See March 2, 2011 Order, 781 F. Supp. 2d at 941-42, at 20.
[5] Both parties in this case recognize that generally, directors of a corporation owe no fiduciary duties directly to shareholders. See Third Opp'n at 5; Third Mot. at 5; Jernberg v. Mann, 358 F.3d 131, 135 (1st Cir.2004) ("a director or officer of a corporation does not occupy a fiduciary relation to individual stockholders") (internal citation omitted). Instead, their fiduciary duties are owed to the corporation itself. This distinction is critical because it determines whether a claim may be brought directly or must be brought derivatively, on behalf of the corporation or trust.
[6] Superseded on other grounds by statute as noted in Ark. Teacher Ret. Sys. v. Alsop, No. 06-11459-RCL, 2007 WL 7069609, at *8 n. 16, 2007 U.S. Dist. LEXIS 99152, at *29 n. 16 (D.Mass. Aug. 29, 2007)
[7] Although the court in Strigliabotti v. Franklin Resources, Inc., No. C 04-00883 SI, 2005 WL 645529 at *7-8 (N.D.Cal. Mar. 7, 2005), found a direct claim for breach of fiduciary duty by mutual fund shareholders against trustees, Northstar does not cite Strigliabotti for this proposition in the Third Opposition.
[8] Northstar cites to this Court's holding in a related case for the proposition that a voting rights violation based on Section 13(a) can serve as the predicate for a claim of violation of California's Unfair Competition Law (UCL). Smit v. Charles Schwab & Co., No. 10-CV-03971-LHK, 2011 WL 846697 at *3, 2011 U.S. Dist. LEXIS 25589 at *7-*8 (N.D.Cal. Mar. 8, 2011). The Court's conclusion rested, in part, on the expansive interpretation of what may serve as a predicate unlawful act for a UCL claim adopted by California courts. Id. at *2-3, 2011 U.S. Dist. LEXIS 25589, at *6. Northstar has failed to cite any authority suggesting that an equally broad reading should be given to fiduciary duty breach claims under Massachusetts law; on the contrary, Lapidus suggests that only contractual voting rights would give rise to a direct claim.
[9] The Court previously took judicial notice of the IAA. See March 2, 2011 Order, 781 F. Supp. 2d at 942, at 21.
[10] At the hearing on this Motion, when asked if it had any authority allowing a party to enforce a contract as a third-party beneficiary even though it was not named explicitly or as a member of a class of beneficiaries, Northstar cited Johnson v. Holmes Tuttle Lincoln-Mercury Inc., 160 Cal. App. 2d 290, 301, 325 P.2d 193 (1958). However, in Johnson, the court approved the jury's conclusion that an oral contract to provide public liability insurance for an automobile was undertaken for the benefit of the public, and that the plaintiff accident victims were members of the class (the public) intended to benefit from this contract. Id. Therefore, Johnson does not support the finding Northstar urges. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2116758/ | 817 F. Supp. 2d 418 (2011)
SRI INTERNATIONAL INC., a California corporation, Plaintiff,
v.
INTERNET SECURITY SYSTEMS, INC., a Georgia corporation, Symantec Corporation, a Delaware corporation, and Internet Security Systems, Inc., a Delaware corporation, Defendants.
Civ. No. 04-1199-SLR.
United States District Court, D. Delaware.
October 4, 2011.
*419 Thomas L. Halkowski, Esquire, and Kyle Wagner Compton, Esquire of Fish & Richardson P.C., Wilmington, DE, Counsel for Plaintiff. Of Counsel: Frank E. Scherkenbach, Esquire, Howard G. Pollack, Esquire, Todd G. Miller, Esquire and Michael M. Rosen, Esquire of Fish & Richardson P.C.
Richard L. Horwitz, Esquire and David E. Moore, Esquire of Potter Anderson & Corroon LLP, Wilmington, DE. Counsel for Defendants Internet Security Systems, Inc., a Delaware corporation and Internet Security Systems, Inc., a Georgia corporation. Of Counsel: Alison H. Altersohn, Esquire, Scott T. Weingaertner, Esquire, Adam M. Conrad, Esquire, Holmes J. Hawkins III, Esquire, Natasha H. Moffitt, Esquire, and Charles A. Pannell, Esquire of King & Spalding, LLP.
Richard K. Herrmann, Esquire and Mary Matterer, Esquire of Morris James LLP, Wilmington, DE. Counsel for Defendant Symantec Corporation. Of Counsel: Robert M. Galvin, Esquire, Geoffrey M. Godfrey, Esquire, and S. Dennis Wang, Esquire of Wilmer Cutler Pickering Hale and Dorr LLP; Stefani E. Shamberg, Esquire, Robin L. Brewer, Esquire, Constance J. Choi, Esquire and Ryan R. Smith, Esquire of Wilson Sonsini Goodrich & Rosati P.C.
MEMORANDUM OPINION
SUE L. ROBINSON, District Judge.
I. INTRODUCTION
On August 26, 2004, plaintiff SRI International, Inc. ("SRI") brought suit against defendants Symantec Corporation ("Symantec") and Internet Security Systems, Inc. ("ISS") (collectively, "defendants") charging infringement of four patents: United States Patent Nos. 6,484,203 ("the `203 patent"), 6,708,212 ("the `212 patent"), 6,321,338 ("the `338 patent"), and 6,711,615 ("the `615 patent"). On April 13, 2005, 2005 WL 851126, the court denied defendants' motions to dismiss, sever and transfer. (D.I. 31) Following discovery, Symantec moved for summary judgment of non-infringement (D.I. 286), ISS moved for summary judgment of non-infringement and invalidity (D.I. 282, 291, 364), and *420 defendants jointly moved for summary judgment that each of the patents in suit is invalid pursuant to 35 U.S.C. § 102 and § 103 (D.I. 297). Plaintiff filed motions for summary judgment of validity. (D.I. 270, 276, 279) The court issued its claim construction opinion on October 17, 2006, 2006 WL 2949305. (D.I. 468) On the same date, the court held each of the asserted patents invalid as anticipated by SRI's prior art publication "Live Traffic Analysis of TCP/IP Gateways" ("Live Traffic") pursuant to 35 U.S.C. § 102. The court also found the `212 patent invalid as anticipated by a paper entitled "EMERALD: Event Monitoring Enabling Responses To Anomalous Live Disturbances" ("EMERALD 1997") pursuant to 35 U.S.C. § 102. (D.I. 471[1]) On appeal, the Federal Circuit affirmed the court's decision with respect to the `212 patent and vacated and remanded the court's determination that the remaining patents were rendered invalid by Live Traffic. SRI Int'l, Inc. v. Internet Sec. Sys., Inc., 511 F.3d 1186 (Fed.Cir.2008). The court denied defendants' renewed motion for summary judgment of invalidity (D.I. 297) on August 21, 2008, 572 F. Supp. 2d 511 (D.Del.2008). (D.I. 525)
A jury trial commenced September 2, 2008. Plaintiff asserted that defendants infringe claims 1 and 12 of the `203 patent and claims 1, 13, 14, and 16 of the `615 patent. Plaintiff asserted that ISS also infringes claims 1, 11, 12, 13 and 24 of the `338 patent. Defendants challenged the validity of the asserted patents. On September 18, 2008, the jury found that Symantec and ISS infringed each asserted claim of the `615 and `203 patents, that ISS did not infringe the `338 patent, and that each of the `203, `615 and `338 patents are valid. (D.I. 558) Post-trial, on August 20, 2009, 647 F. Supp. 2d 323 (D.Del.2009), the court reversed the jury verdict with respect to Symantec's infringement of the `203 and `615 patents by one product combination (the SGS and Manager Products), reversed the verdict that ISS infringes the `203 and `615 patents, and affirmed the jury's other findings. (D.I. 609) On appeal, the Federal Circuit affirmed without opinion. (D.I. 632) Thereafter, on August 2, 2011, Symantec filed a motion to amend its answer and counterclaims to add allegations of inequitable conduct. (D.I.654) That motion is currently pending before the court, A damages trial is scheduled to commence in this court on November 7, 2011.
II. BACKGROUND
As this case has been thoroughly addressed in the court's (and Federal Circuit's) prior opinions cited above, the court iterates only those facts most pertinent to the motion at bar. On July 7, 2006, Symantec filed third party requests for ex parte reexamination of the `203 and `615 patents with the PTO. (Reexam.Nos.90/008125, 90/008113) This court held in October 2006 that all claims of SRI's U.S. Patent No. 6,708,212 ("the `212 patent") were anticipated by EMERALD 1997. In so holding, the court had construed the claim term "service monitor" to mean "[a] network monitor that provides local real-time analysis of network packets transmitted by a network entity, such as a gateway, router, firewall or proxy server." (D.I. 468) (emphasis added) The Federal Circuit affirmed in January 2008. On April 25, 2008, International Business Machines Corporation ("IBM") and Symantec jointly filed a second set of requests for reexamination of the `203 and `615 patents with the PTO. (Reexam.Nos.90/009126, 90/009127) The reexamination proceedings were subsequently merged. Unbeknownst to the court, the reexaminations were ongoing concurrently with the litigation at bar.
*421 The anticipated `212 patent shares the same specification and many identical limitations to the `203 and `615 patents, for example, the limitation "said plurality of said network monitors detecting suspicious network activity based on an analysis of network traffic data." (D.I. 654, ex. 1 at ¶ 49) (emphasis added) Following the court's prior ruling that EMERALD 1997 anticipated the patent claims, SRI stipulated (on August 29, 2008) that EMERALD 1997 described and enabled "detecting, by the network monitors, suspicious network activity based on analysis of network traffic data." (Id. at ¶ 50) (D.I. 533, ex. 1, ¶ 15(c) (addendum to pretrial order)) (emphasis added) A jury trial was held in this court in September 2008, after which the jury found that Symantec infringed the `203 and `615 patents, which are not invalid. (D.I. 558) Also in September 2008, the examiner issued final rejections of the `203 and `615 patent claims as unpatentable as obvious in view of Emerald 1997[2] in view of other references.
On December 5, 2008, reexamination counsel W. Karl Renner and George P. Bonanto[3] represented to the PTO that "[t]he proposed combination of EMERALD 1997 and Intrusive Activity 1991[[4]] fails to describe or suggest detecting, by the network monitors, suspicious network activity based on direct packet examination, as required by claim 1 and discussed above." (D.I. 654, ex. 1 at ¶¶ 52, 55-56) (emphasis added) SRI reiterated its positions in its briefs on appeal to the Board of Patent Appeals and Interferences ("BPAI"). Before the appeal was heard by the BPAI, however, the examiner withdrew the rejections. During this time, the Federal Circuit affirmed the court's post-trial opinion (following the jury's September 2008 verdict) in December 2010. The examiner issued reexamination certificates for both the `203 and `615 patents in January 2011, stating that all independent claims require detecting suspicious network activity "based on analysis of network traffic data," which would be interpreted (by the skilled artisan) as analysis of network packets, and EMERALD 1997 "fails to teach direct examination of packet data." (D.I. 654, ex. 1 at ¶¶ 58, 60)
This court entered a scheduling order for the damages phase of this litigation following the Federal Circuit's remand on June 6, 2011. (D.I. 649) Symantec filed the present motion to add an inequitable conduct counterclaim on August 2, 2011. Symantec argues that the PTO would not have issued reexamination certificates confirming the patentability of all claims of SRI's patents in suit "but for" counsel's representations. By its motion, Symantec also seeks to depose two attorneys purportedly responsible for the representations.
III. STANDARD[5]
"[L]eave to amend `shall be freely given when justice so requires.'" Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. *422 227, 9 L. Ed. 2d 222 (1962) (quoting Fed. R.Civ.P. 15(a)). The court may exercise its discretion to deny leave to amend in situations in which the moving party has delayed seeking leave and the delay "is undue, motivated by bad faith, or prejudicial to the opposing party." Bjorgung v. Whitetail Resort, LP, 550 F.3d 263, 266 (3d Cir.2008) (citation omitted). Put another way, where the non-moving party will not suffer "substantial or undue prejudice," "denial [of leave to amend] must be based on bad faith or dilatory motives, truly undue or unexplained delay, repeated failures to cure the deficiency by amendments previously allowed, or futility of amendment." USX Corp. v. Barnhart, 395 F.3d 161, 166 (3d Cir.2004) (quoting Lorenz v. CSX Corp., 1 F.3d 1406, 1413-14 (3d Cir.1993)). Delay is "undue" when an unwarranted burden is placed on the court or when the requesting party has had previous opportunities to amend. See Estate of Oliva ex rel. McHugh v. New Jersey, 604 F.3d 788, 803 (3d Cir.2010) (citation omitted).
IV. DISCUSSION
The court emphasizes at the outset that the alleged inequitable conduct occurring in this case is SRI's counsel's inconsistent statements to the PTO and to this court regarding the disclosures of EMERALD 1997 a reference before the examiner on reexamination. According to SRI, the question of whether EMERALD 1997 generally teaches "analysis of network traffic data" was never at issue during the reexaminations, rather, the issue framed by the examiner was whether the prior art specifically taught analysis of the claimed categories of network data.[6] (D.I. 668 at 6) The court need not delve into the parties' substantive arguments in these regards, however, for several reasons.
The complained-of mischaracterizations of EMERALD 1997 to the examiner occurred in December 2008.[7] While the ultimate effect of the statements was (perhaps) unknown at that time,[8] Symantec admits it was closely monitoring the progress of the reexamination and was aware of its position on inequitable conduct when SRI made the comments at issue in December 2008. On December 16, 2008, Symantec drafted a letter to Mr. Renner stating that Symantec was concerned with SRI's failure to disclose to the PTO the stipulation in the pretrial order at bar. (D.I. 654, ex. 1 at ¶ 54) SRI attempted to submit Symantec's letter to the PTO, but its interview summary provides that the PTO would not accept into its record a (non-prior art) letter from a third party requester. (D.I. 669, ex. B) Nevertheless, SRI provided the PTO an Information Disclosure Statement including a copy of the stipulated protective order at issue. (Id.) Symantec does not dispute the foregoing, and argues that there is no specific indication that the examiner considered the substance of its letter. (D.I. 673 at 9[9])
*423 As is the case with most defendants involved in copending reexaminations and litigation, the timing of the events at issue suggests that Symantec strategically planned its actions in both fora to its advantage. The first set of reexamination requests was not filed commensurate with this suit in 2004, but filed in July 2006, on the heels of the parties' completion of claim construction and summary judgment briefing. The second set of reexamination requests was filed in April 2008, two months after the Federal Circuit reversed the court's holding of invalidity of the patents based on Live Traffic. The motion to amend Symantec's answer and counterclaims to add allegations of inequitable conduct was filed after the Federal Circuit's affirmance of the 2008 jury verdict of infringement and validity (in 2010). Symantec addressed the issue of filing its motion to amend in a teleconference with the court on July 9, 2011, at which time the court warned counsel that it would award costs if the allegations proved frivolous in view of Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276 (Fed.Cir.2011). (D.I. 670, ex. E) Symantec filed its motion to amend on August 2, 2011, the day after the court entered a scheduling order governing discovery and motion practice with respect to the damages phase of trial.[10] There is no particular explanation for why Symantec did not address SRI's alleged inequitable conduct (in 2008) with the court prior to August 2011. It would appear, based on the chronology of events, that inequitable conduct was an ace in the hole to be used if Symantec's other attempts to avoid liability in this case failed. Based upon the foregoing, the court would deny the motion at issue on the bases of unexplained delay as well as dilatory motives.
The foregoing also supports the denial of Symantec's motion based on futility. Futility of amendment occurs when the complaint, as amended, does not state a claim upon which relief can be granted. See In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir.1997). If the proposed amendment "is frivolous or advances a claim or defense that is legally insufficient on its face, the court may deny leave to amend." Harrison Beverage Co. v. Dribeck Importers, Inc., 133 F.R.D. 463, 468 (D.N.J.1990).
To prove inequitable conduct, Symantec must demonstrate that reexamination counsel had the specific intent to mislead the PTO, which intent cannot be solely inferred from materiality. See Therasense, 649 F.3d at 1290-91. "[T]o meet the clear and convincing evidence standard, the specific intent to deceive must be the single most reasonable inference able to be drawn from the evidence." Id. (quotation omitted). Regardless of what the deposition testimony may reveal, Symantec cannot meet this burden in view of the fact that SRI disclosed to the PTO a copy of the allegedly inconsistent characterizations of EMERALD 1997 during reexamination.
It is not the case that Symantec alleges that SRI committed inequitable conduct by, for example, intentionally withholding material prior art from the PTO. The prior art allegedly mischaracterized EMERALD 1997 was a focus of the reexamination proceedings. The asserted inequitable conduct concerns inconsistent statements by counsel about the import of the prior art already before the examiner. In this regard, the court notes additional policy considerations evoked by the motion at bar. Symantec *424 elected to file a concurrent, ex parte reexamination in which it was not permitted to participate. Regardless of this fact, having so elected to file a reexamination in the first instance, Symantec elected to pursue its invalidity claims in two separate and by their nature, very different fora. The court is now asked to undertake a thorough review of the record of concurrent (and now-concluded) PTO proceedings and compare the advocacy of counsel during those proceedings to that at bar. The court's limited judicial resources are not best expended in this manner. Consistent with the foregoing, the court finds that leave to amend should not be granted under these circumstances.
V. CONCLUSION
For the aforementioned reasons, Symantec's motion to amend is denied. An appropriate order shall issue.
ORDER
At Wilmington this 4th day of October, 2011, consistent with the memorandum opinion issued this same date;
IT IS ORDERED that Symantec's motion to amend its answer and counterclaims (D.I. 654) is denied.
NOTES
[1] SRI Int'l, Inc. v. Internet Sec. Sys., Inc., 456 F. Supp. 2d 623 (D.Del.2006).
[2] A prior art reference discussed at length in the court's prior opinions.
[3] Reexamination counsel are not of record in the litigation at bar.
[4] Another prior art reference discussed at length in the court's prior opinions.
[5] Symantec's motion presents what appears to be an issue of first impression: whether leave to amend between the liability and damages phases of a bifurcated patent trial is subject to the liberal standard set forth in Federal Rule of Civil Procedure 15(a) or, as SRI suggests, the more conservative standard set forth in Federal Rule of Civil Procedure 15(b). Rule 15(b) permits amendments to pleadings ("after trial") based on objections at trial and for issues tried by consent. Insofar as neither circumstance is presented here, Symantec's motion would be denied under this standard. The court need not conclusively determine this issue, however, because it denies Symantec's motion under the rubric of Rule 15(a), as discussed infra.
[6] While SRI does not specifically oppose Symantec's motion to amend on the basis of futility, futility is the gravamen of its arguments that Symantec's proposed claim is without basis.
[7] Symantec does not state that the reexamination records were not open to the public. In fact, rather than provide the full record in support for its motion, Symantec directs the court to specific portions of the file wrapper accessible in public PAIR.
[8] To the extent the effects are relevant in the first instance to inequitable conduct (intent and materiality). The court does not so presume.
[9] An examiner's interview summary cited by Symantec in public PAIR (but not docketed) includes a timeline of litigation and reexamination proceedings considered by the examiner. Symantec's letter is not specifically cited therein.
[10] The August 1, 2011 scheduling order superceded a schedule entered on June 10, 2011, providing dates for the pretrial conference and trial. (D.I. 649) Neither scheduling order contemplated a deadline for amending pleadings under Rule 15. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2135680/ | 454 F. Supp. 9 (1978)
William L. STANLEY
v.
VETERANS ADMINISTRATION, Gary Kohler and Barbara Kohler.
Civ. A. No. 76-3646.
United States District Court, E. D. Pennsylvania.
June 21, 1978.
*10 William L. Stanley, pro se.
Joseph Gontram, Asst. U. S. Atty., Philadelphia, Pa., for defendants.
MEMORANDUM
RAYMOND J. BRODERICK, District Judge.
In this action the plaintiff, William L. Stanley, filed a pro se complaint with a District Justice in Levittown, Bucks County, Pennsylvania. In his complaint, filed against the Veterans Administration and Gary and Barbara Kohler, the plaintiff alleges "faulty workmanship done on roof of home at 23 Crimson King Lane." On behalf of the Veterans Administration, the United States Attorney filed a petition to remove the action to the United States District Court for the Eastern District of Pennsylvania, pursuant to 28 U.S.C. § 1442(a).[1] The petition for removal was accompanied by certification from the United States Attorney that the Veterans Administration is an agency of the United States and that the claim was based upon an act committed under color of federal office. See Willingham v. Morgan, 395 U.S. 402, 406, 89 S. Ct. 1813, 23 L. Ed. 2d 396 (1969).
This matter was originally assigned to our recently departed colleague, Judge Gorbey. After a conference in chambers, this court ordered that a hearing be held for the purpose of ascertaining, on the record, the nature of the plaintiff's complaint. The plaintiff testified that in the fall of 1975 he purchased his current residence at 23 Crimson King Lane, Levittown from Gary and Barbara Kohler, the defendants. Plaintiff stated that because of his status as a veteran, he applied for a Veterans Administration mortgage guarantee, that the Veterans Administration had the home inspected and then approved the loan guaranty on the condition that the Kohlers provide a new *11 roof for the house. The Kohlers complied with this condition and the matter then went to settlement. The plaintiff has been experiencing difficulties with a leaky roof since shortly after the settlement.
The Government has filed a motion for summary judgment urging two reasons in support thereof: (1) "Plaintiff's complaint fails to state a claim upon which relief can be granted" and (2) "There exists no genuine issue of material fact and Defendant is entitled to judgment as a matter of law." The Government's motion will be treated as a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6). The motion to dismiss will be granted for the following reasons: (1) The Federal Tort Claims Act does not include actions based upon negligent misrepresentation or deceit, (2) In the event plaintiff's allegations against the Veterans Administration were determined to come within the purview of the Federal Tort Claims Act, the plaintiff has not exhausted his administrative remedies as required by the Act, and (3) 38 U.S.C. § 1827, if applicable, precludes judicial review.
Pro se complaints are held to less stringent requirements than are formal pleadings drafted by lawyers. Haines v. Kerner, 404 U.S. 519, 520-521, 92 S. Ct. 594, 30 L. Ed. 2d 652 (1971); Fischer v. Cahill, 474 F.2d 991, 993 (3d Cir. 1973); United States ex rel. Tyrrell v. Speaker, 471 F.2d 1197, 1201 (3d Cir. 1973); Marshall v. Brierley, 461 F.2d 929, 930 (3d Cir. 1972). A most sympathetic reading of the plaintiff's allegation is that the Veterans Administration was negligent in failing to discover faulty workmanship in the new roof, which it required as a condition for granting a Veterans Administration mortgage guarantee on the home purchased by the plaintiff. The plaintiff's allegations amount to a claim that his reliance upon the misrepresentation made by the Veterans Administration Inspector caused him damage.
United States v. Neustadt, 366 U.S. 696, 81 S. Ct. 1294, 6 L. Ed. 2d 614 (1961), points out that recovery is prohibited under § 2680(h) of the Federal Tort Claims Act for any claim against the United States arising out of misrepresentation or deceit,[2] and holds that a plaintiff may not maintain an action based upon a negligent inspection since such an interpretation amounts to circumvention of § 2680(h). In Neustadt, the Supreme Court stated:
To say, as the Fourth Circuit did, that a claim arises out of "negligence," rather than "misrepresentation," when the loss suffered by the injured party is caused by the breach of a "specific duty" owed by the Government to him, i. e., the duty to use due care in obtaining and communicating information upon which that party may reasonably be expected to rely in the conduct of his economic affairs, is only to state the traditional and commonly understood legal definition of the tort of "negligent misrepresentation," . . .
Id. at 706, 81 S. Ct. at 1300.
A similar issue concerning the FHA was raised in the case of Cason v. United States, 381 F. Supp. 1362, 1367 (W.D.Mo.1974) wherein the court stated:
Plaintiffs now suggest that their claim for damages under subsection 1346(b) was not based on misrepresentation but simply on the negligence of the FHA in applying and enforcing the appropriate statutes and regulations pertaining to inspections and appraisals. Even on a simple negligence theory plaintiffs have failed to state a claim for which damages could be granted. In order to recover on such a theory, plaintiffs would have to demonstrate that a duty of due care was owed plaintiffs by the FHA in the application and enforcement of the statutes and regulations in question. It is now settled, however, that the primary and predominant objective of the FHA appraisal system is the protection of the Government and its insurance funds; *12 that the mortgage insurance programs do not insure anything other than the repayment of loans made by lender-mortgagees; "and that `there is no legal relationship between the FHA and the individual mortgagor.'" United States v. Neustadt, supra, 366 U.S. at 709, 81 S.Ct. at 1301. Although Neustadt was based on a different theory of liability, the Court believes that the Supreme Court completely rejected the notion that Congress intended to establish a duty of due care for the benefit of mortgagors such as plaintiffs. See Jackson v. Romney, 355 F. Supp. 737, 741-743 (D.D.C.1973); cf. Davis v. Romney, 490 F.2d 1360, 1371-1372 (3d Cir. 1974). In the absence of such a duty, plaintiffs cannot recover damages under a negligence theory.
In the event this court had been persuaded that the plaintiff's allegation stated a claim within the purview of the Federal Tort Claims Act, it would be necessary nonetheless to dismiss the complaint as to the Veterans Administration since jurisdiction under the Federal Tort Claims Act requires that the plaintiff exhaust his administrative remedies. This is a jurisdictional requirement which cannot be waived. In Bialowas v. United States, 443 F.2d 1047 (3d Cir. 1971), the Third Circuit held that although the Federal Tort Claims Act allows suits against the federal government for torts committed by its employees while performing their duties of employment, the Act requires a claim to the proper agency and a final rejection of the claim by that agency as a prerequisite to filing suit. The filing of the claim is deemed an absolute jurisdictional requirement for bringing suit and cannot be waived under 28 U.S.C. § 2675(a). Bialowas, 443 F.2d at 1049; Ensley v. HUD, No. 77-859 (E.D.Pa., filed April 12, 1977); Dreakward v. Chestnut Hill Hospital, 427 F. Supp. 177, 179 (E.D.Pa.1977); Commonwealth of Pennsylvania, by Denenberg, v. National Association of Flood Insurers, 378 F. Supp. 1339, 1350 (M.D.Pa. 1974), affirmed in part, reversed in part on other grounds and remanded, 520 F.2d 11, 24 (3d Cir. 1975); Turtzo v. United States, 347 F. Supp. 336, 338 (E.D.Pa.1972); Staley v. United States, 306 F. Supp. 521, 523 (M.D. Pa.1969).
We also considered whether the plaintiff had stated a claim under 38 U.S.C. § 1827 which provides:
(a) The Administrator is authorized with respect to any property improved by a one-to-four-family dwelling inspected during construction by the Veterans' Administration or the Federal Housing Administration which the Administrator finds to have structural defects seriously affecting the livability of the property, to make expenditures for (1) correcting such defects, (2) paying the claims of the owner of the property arising from such defects, or (3) acquiring title to the property; except that such authority of the Administrator shall exist only (A) if the owner requests assistance under this section not later than four years (or such shorter time as the Administrator may prescribe) after the mortgage loan was made, guaranteed, or insured, and (B) if the property is encumbered by a mortgage which is made, guaranteed, or insured under this chapter after the date of enactment of this section.
(b) The Administrator shall by regulation prescribe the terms and conditions under which expenditures and payments may be made under the provisions of this section, and the Administrator's decisions regarding such expenditures or payments, and the terms and conditions under which the same are approved or disapproved, shall be final and conclusive, and shall not be subject to judicial review. (Emphasis added.)
The above quoted section covers new construction only. However, even if the section could be considered applicable to other than new construction, the language quoted in § 1827(b) above precludes judicial review. Potnick v. United States, 356 F. Supp. 395 (N.D.Miss.1973).
Since plaintiff has not stated a claim against the United States upon which relief can be granted, there being no basis for federal jurisdiction in this matter, the *13 Court shall enter an Order returning the plaintiff's claim against the Kohlers to the State court. Ensley v. HUD, C.A. 77-859 (E.D.Pa., April 12, 1977); Dreakward v. Chestnut Hill Hospital, 427 F.Supp. at 179; Smith v. Rivest, 396 F. Supp. 379, 383 (E.D. Wis.1975); Smith v. Randall, 393 F. Supp. 1320, 1321 (D.Md.1974); Whealton v. United States, 271 F. Supp. 770, 773-774 (E.D.Va. 1967).
NOTES
[1] 28 U.S.C. § 1442 provides in pertinent part:
(a) A civil action or criminal prosecution commenced in a State court against any of the following persons may be removed by them to the district court of the United States for the district and division embracing the place wherein it is pending:
(1) Any officer of the United States or any agency thereof . . . for any act under color of such office . . ..
[2] 28 U.S.C. § 2680 provides in pertinent part:
The provisions of this chapter and section 1346(b) of this title shall not apply to
(h) Any claim arising out of . . . misrepresentation, deceit . . .. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2135523/ | 454 F. Supp. 394 (1978)
Janet L. BROWN
v.
Francis X. BIGLIN, in his capacity as Regional Postmaster General.
No. 76-355.
United States District Court, E. D. Pennsylvania.
July 18, 1978.
*395 Andrew F. Erba, Community Legal Services, Philadelphia, Pa., for plaintiff.
David W. Marston, U. S. Atty., Alexander Ewing, Jr., Asst. U. S. Atty., Philadelphia, Pa., for defendant.
MEMORANDUM AND ORDER
BECHTLE, District Judge.
Plaintiff Janet L. Brown ("Brown") brought this suit[1] to redress the alleged retaliatory treatment experienced in her employment as a mailhandler with the United States Postal Service ("Postal Service"), in violation of § 717(a) of the Equal Employment Opportunity Act of 1972, 42 U.S.C. § 2000e-16(a), amending Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. Brown alleged in her complaint that her discharge from employment with the Postal Service was in retaliation for her having filed a complaint with the Equal Employment Opportunity Office ("EEO") of the Postal Service, which charged her supervisors with harassment and favoritism.[2] The case was tried de *396 novo[3] before this Court and, pursuant to Fed.R.Civ.P. 52(a), we make the following findings of fact and conclusions of law.
FINDINGS OF FACT
On April 9, 1973, Brown, a black female resident of Philadelphia, Pennsylvania, was hired by the Postal Service as a part-time mailhandler, Postal Service Level 4, Flexible Schedule, with the General Post Office at 30th and Market Streets in Philadelphia. Brown and approximately 20 other new, part-time flexible mailhandlers were assigned to work on Tour Two, Incoming Mails, Third Floor, where the mailhandlers unloaded and moved incoming bulk mail from the truck terminal and various conveyor belts for processing. All new employees with the Postal Service work as probationary employees for 90 days before they become eligible for regular employment. During this probationary period, the Postal Service can terminate a new employee for any reason.
1. Brown's One-Day Suspension
In April of 1973, Brown worked on Tour Two, Paper Side, under the supervision of Group Leader Charles C. Lane, Jr. ("Lane"), and Foremen of Mails William J. Buchanon ("Buchanon") and Herbert E. Katz ("Katz"). From the beginning of her employment with the Postal Service, a personality conflict developed between Brown and her supervisors, Buchanon and Lane. On May 17, 1973, Buchanon assigned Brown to sort mail items from non-mail items as they passed her on a particular conveyor belt.[4] Brown became upset because the speed of the belt, which was controlled by Buchanon, was so fast that she was unable to effectively remove the mail from the belt as it moved, and because she was the only mailhandler assigned to sort mail on this belt. Brown thereupon left her work station without permission to talk with her uncle, who worked in a different location in the General Post Office. When Brown returned to her work station 20 minutes later, Buchanon called Brown to his desk and advised her that a Postal Service employee is prohibited from leaving an assignment without first obtaining permission from either a group leader or a foreman. As a result of this discussion, Buchanon determined that Brown was uncooperative and that he was unable to communicate with her with respect to the rules of the Postal Service. Consequently, Buchanon recommended a one-day suspension from work for Brown, even though he knew that he could have recommended dismissal of Brown from the Postal Service because of her probationary work status.[5] On the same day that Brown left her work assignment, she requested and obtained permission to visit the Postal Service EEO to obtain advice from EEO Counselor Jacqueline Tate ("Tate"), and to initiate an informal complaint charging Buchanon with discrimination. *397 Brown's request to visit the EEO was not unusual, because many employees secured permission to leave their work areas to obtain counseling from the Postal Service EEO.
On June 5, 1973, Brown received a Notice of Disciplinary Action from the Postal Service which approved Buchanon's recommendation of a one-day suspension, effective June 12, 1973, for Brown's behavior on May 17, 1973. After Brown received the notice of suspension, she circulated a petition among her co-workers charging Buchanon and Lane with "favoritism" and "unnecessary harassment."[6] The petitioners, including Brown and 11 other mailhandlers, discussed the charges with Buchanon's supervisors, General Foreman Leroy Hall ("Hall") and Coordinator Joseph J. DiGiacomo ("DiGiacomo"), before they submitted the petition to EEO Counselor Tate. Subsequent to the circulation of the petition, Buchanon was transferred by his supervisors from Tour Two, Paper Side, to a different section of the third floor.
2. Brown's Three-Day Suspension
A number of Postal Service mailhandlers had problems working under the supervision of Group Leader Lane, and one employee observed an immediate personality conflict between Brown and Lane because Brown was so outspoken at work. On August 8, 1973, Lane assigned Brown and co-worker Valerie Gant ("Gant") to work on Opening Mail Belt No. 3. In order to expedite the moving of the mail, Lane requested that Brown move from her position along the belt to an empty space adjacent to Gant. Brown objected because, if she moved, she would no longer be able to utilize a floor bar which enabled her to elevate herself so as to be able to fully reach across the belt. Although Gant volunteered to move into the open position, Lane insisted that Brown comply with his direct order to change her work position along the belt. When Brown refused to move to the vacant position, Lane completed Postal Service Form 13, commonly known as a "buck slip," which reported Brown's infraction of the Postal Service rules. In addition to Brown's refusal to obey a direct order issued by a group leader, Lane reported to his supervisors that Brown addressed him with obscene language as Lane passed by Brown near Belt No. 3.[7] Lane submitted the "buck slip" through normal channels to his supervisor, Foreman Katz, who recommended another suspension. In order to avoid another suspension, Brown wrote a letter [Ex. P-2], dated August 21, 1973, to Postmaster Vincent J. Logan wherein she denied the use of obscene language to Lane and argued that Lane's harassment and false charges were based on a personality conflict between herself and Lane caused by her previous filing of an EEO complaint against Lane and by Brown's having joined the National Alliance of Postal and Federal Employees instead of the Mailhandlers' Union. On August 29, 1973, Brown received a Notice of Disciplinary Action [Ex. D-3], submitted by Foreman Katz and approved by Coordinator DiGiacomo, advising Brown of her three-day suspension from work, effective September 3, 1973, because of the mail belt incident with Lane. Upon receipt of this notice, Brown filed an informal complaint with the Postal Service EEO alleging *398 harassment on the basis of sex.[8] This complaint was investigated and on October 2, 1973, EEO Counselor John R. Brooks advised Brown that she had the right to file a formal written complaint if the matter were not resolved to her satisfaction. [See Ex. D-4.] Brown did not file a formal EEO complaint with respect to her three-day suspension.
3. Brown's Discharge from the Postal Service
On October 13, 1973, Brown was promoted from a part-time flexible mailhandler to a full-time mailhandler. On November 17, 1973, at approximately 20 minutes before the noon lunch break, Brown left her job assignment in the mail bundles "throw off" area to go to the restroom because she was feeling ill. Brown did not obtain permission from her group leader or foreman to leave the work area because of the emergency nature of her illness. Foreman Arthur L. Klein ("Klein"), a new foreman in the Tour Two, Incoming Mails section of the General Post Office, observed Brown leaving her assignment without permission and noticed that Brown was carrying a brown paper bag.[9] Klein, assuming that Brown was leaving her assignment early to have lunch in the "swing room," called Brown and informed her that it was not yet time for lunch. Brown ignored Klein and continued to walk away from her assignment at a fast pace. Klein then told Brown that, if she did not return to her work assignment, he would write a "buck slip" reporting to his supervisors Brown's infraction of the Postal Service rules. Brown refused to obey Klein's order to return, and responded with abusive and obscene language. Although profanity is commonly used on the work floor of the General Post Office, obscene language is rarely directed personally toward supervisors by employees. Klein testified at trial that, before the incident with Brown in November of 1973, no employee had directed profanity toward him as a supervisor. However, as in the incident with Lane, Brown denied the allegation that she had used abusive and obscene language in addressing Klein. Upon consideration of the demeanor of the witnesses and of all of the evidence adduced at trial, we find Klein's testimony concerning Brown's use of obscene language to be the more credible version of the incident. Accord, Findings of Fact and Recommended Decision of EEO Complaints Examiner, dated February 13, 1975, at 10.
When Brown returned to her assignment in the "throw off" area, she made no attempt to explain to Klein the reasons for leaving her work station without permission; nor did Klein inquire about Brown's refusal to follow his direct order because, on the basis of Brown's abusive language, he felt that it would be unwise to have further conversations with her. Klein subsequently described the incident in a "buck slip" [Ex. D-5], and recommended that, "in view of Brown's current action and past indifference," Brown be dismissed from the Postal Service. Klein's recommendation for Brown's discharge was not made in reprisal for her EEO visits and complaints because, as a new supervisor in the Tour Two, Incoming Mails section of the General Post Office, Klein was unaware of any of Brown's EEO activities or of Brown's earlier suspensions, but rather was based upon Brown's insubordination and profanity.
After receiving Klein's "buck slip" recommending Brown's discharge from the Postal Service, General Foreman Hall reviewed Brown's personnel record. [See Ex. P-5.] Although Brown's use of obscene language to a supervisor was a factor in his decision, Hall approved the recommendation for discharge *399 primarily because of Brown's two prior suspensions. Further, Brown's utilization of the EEO services was not considered by Hall as a ground for her discharge from the Postal Service because Hall believed that the EEO should be used by all aggrieved Postal Service employees. On November 20, 1974, Hall, together with Klein, Tour Coordinator R. A. Kennedy and Mail Processing Representative C. G. Baugh, recommended to the Postmaster in Philadelphia that Brown be discharged from the Postal Service. On December 3, 1973, Brown received an Advance Notice of Discharge and on January 3, 1973, the Postal Service discharged Brown for leaving her assignment without permission, refusing to obey a direct order given by a supervisor and using obscene and abusive language to a supervisor. Brown was not discharged for her utilization of the EEO counseling facilities and complaint procedures available to Postal Service employees.
DISCUSSION
In McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S. Ct. 1817, 36 L. Ed. 2d 668 (1973), the Supreme Court established the order and allocation of proof in a private, non-class Title VII action challenging employment discrimination. In the case of an alleged retaliatory discharge, it is the burden of the plaintiff to establish a prima facie case of retaliation by showing that: (1) the employee engaged in activity protected by Title VII, such as participation in EEO proceedings; (2) the employer knew that the employee participated in protected activity; and, (3) the employee was discharged following participation in protected activities within such period of time and in such a manner that the court can infer retaliatory motivation. Id. at 802 n.13, 93 S. Ct. 1817; Hochstadt v. Worcester Foundation for Experimental Biology, Inc., 425 F. Supp. 318, 324 (D.Mass.), aff'd, 545 F.2d 222 (1st Cir. 1976). Once the plaintiff establishes a prima facie case of employment discrimination, the burden shifts to the employer to articulate some legitimate, nondiscriminatory reason for the action taken against the plaintiff. Id. at 411 U.S. at 802, 93 S. Ct. 1817; Ostapowicz v. Johnson Bronze Co., 541 F.2d 394, 399 (3d Cir. 1976), cert. denied, 429 U.S. 1041, 97 S. Ct. 741, 50 L. Ed. 2d 753 (1977). Once the employer demonstrates a legitimate, nondiscriminatory purpose for its action, the burden shifts back to the plaintiff to show that the employer's stated reason is a mere pretext for discrimination prohibited by Title VII. McDonnell Douglas Corp. v. Green, supra, 411 U.S. at 804-806, 93 S. Ct. 1817; Hicks v. Abt Associates, Inc., 572 F.2d 960, 968 n.11 (3d Cir. 1978).
Applying the above standards to the facts of the case before us, we find that Brown has failed to establish a prima facie case of employment discrimination based upon her suspensions and discharge from the Postal Service. There is no dispute that Brown's utilization of the EEO constitutes activity which is protected by Title VII, or that Buchanon and Lane knew that Brown and other mailhandlers often requested permission to visit the Postal Service EEO. However, although Brown has satisfied the first two elements of the applicable standard for establishing a prima facie case of discriminatory reprisal, Brown has failed to establish that her discharge was within such a period of time of her visits to the EEO and in such a manner that would support an inference of retaliatory motivation. Klein, unaware of Brown's regular visits to the EEO, recommended shortly after the November 17, 1973, incident that Brown be discharged because of Brown's violation of Postal Service rules. Klein's timing and manner in recommending Brown's discharge do not support an inference of retaliatory motivation for Brown's utilization of the EEO for counseling and complaints. Foreman Hall, an advocate of the EEO for aggrieved employees, approved Klein's recommendation for Brown's discharge only upon the grounds of Brown's insubordination with Klein and of Brown's prior disciplinary record, and not because of her involvement with the Postal Service EEO. We find therefore, that Brown has failed to establish a prima facie case of employment discrimination violative of Title VII.
*400 CONCLUSIONS OF LAW
Any factual references under the "Discussion" section of this Memorandum shall be considered as our findings of fact in addition to those set forth under "Findings of Fact," and any conclusions of law contained in the "Discussion" shall be deemed our conclusions of law in addition to those set forth in this section.
The Court has jurisdiction over the subject matter of this action pursuant to § 717(c) of the Equal Employment Opportunity Act of 1972, 42 U.S.C. § 2000e-16(c), amending Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. The plaintiff has not established by a preponderance of the evidence a prima facie case of employment discrimination by the Postal Service. The Postal Service did not discriminate against Brown during her employment with or in her discharge from the Postal Service, and the Postal Service did not act in retaliation against Brown for her proper and protected pursuit of relief through the EEO. We hold, therefore, that the Postal Service has not discriminated against Brown in violation of Title VII and that the defendant is entitled to a judgment in its favor and against the plaintiff.
An appropriate Order will be entered.
NOTES
[1] Prior to filing her complaint in this action, Brown, on January 7, 1974, filed an informal complaint with the Postal Service Equal Employment Opportunity ("EEO") Office charging employment discrimination. When Brown's informal complaint was not resolved in her favor, she filed a formal complaint dated January 24, 1974, with the same office, which alleged that she was discharged from the Postal Service because of discrimination based upon sex, race and creed and because of reprisal for her utilization of the EEO procedure. On December 12, 1974, the United States Civil Service Commission Complaints Examiner conducted an extensive hearing concerning Brown's formal complaint and reported on February 13, 1975, that the evidence did not support her complaint of discrimination or her allegation of reprisal. On February 20, 1975, the Postal Service issued a "Disposition of Complaint of Discrimination" which concurred with the Complaints Examiner's findings of no discrimination or reprisal against Brown. This agency decision was appealed to the United States Civil Service Commission Appeals and Review Board where, in its decision of January 6, 1976, the Board affirmed the decision of the Postal Service. On February 6, 1976, Brown filed her complaint and a motion for leave to proceed in forma pauperis in this Court, which motion was granted on February 9, 1976.
[2] Brown's original complaint in this action alleged discrimination by the Postal Service on the basis of race, sex and reprisal. However, pursuant to a Fed.R.Civ.P. 15(a) stipulation to amend the complaint, approved by this Court on September 7, 1977, Brown filed an amended complaint which alleged only reprisal.
[3] See Chandler v. Roudebush, 425 U.S. 840, 96 S. Ct. 1949, 48 L. Ed. 2d 416 (1976).
[4] At the end of this conveyor belt, also known as the "junk belt," the non-mail items, which often include trash and other debris, fall into a trash hamper. Consequently, any loose mail that is not removed from the "junk belt" by the mailhandler must later be extricated from the trash hamper. Movement of the belt is controlled by a pushbutton switch at the front end of the belt where the mail is unloaded.
[5] Buchanon's reasons for recommending a one-day suspension for Brown were as follows:
This employee left her assignment without permission at approximately 0825, on Thursday May 17, 1973.
When she returned at 0845, I attempted to talk to the employee so that I could advise her that she should not leave her assignment without getting permission either from her supervisor or her group leader. The employee would not say anything. When I insisted on an answer her reply was"I went to the office."
This employee's attitude is very poor, she seems to resent being told anything. I am unable to communicate with this employee, and without communication nothing can be accomplished. Therefore I recommend a One (1) day suspension. This is not intended to be punitive but merely an attempt to rectify this employees [sic] short coming [sic]. [Ex. D-2.]
[6] The petition, addressed to EEO Counselor Tate, stated as follows:
We the undersigned, feel it's our duty, to report the unjust treatment and constant discomfort felt on the Third Floor, Tour Two Paperside. We feel that there is a display of "Favoritism", and a large amount of unnecessary "Harassment". That's how we all have come together to file this over-due [sic] complaint against Mr. Buchanon. One of tour two's Supervisor [sic], and Group Leader Lane. We like our Job, Tour, and each other as working people, we have to work. To be govern [sic] by those who show, and display, outrageous, and very unprofessional "Favoritism" makes it hard to enjoy your work, knowing that we have to work. We seek relief [sic] through your office. [Ex. P-1.]
[7] See Ex. D-3 for Lane's description of the incident and the language used by Brown.
[8] In a pre-EEO case log form, dated September 10, 1973, EEO Counselor Tate reported that Brown charged that Lane's treatment of her "in a demeaning and different manner" than that enjoyed by male employees was "union motivated." [Ex. P-6.]
[9] Brown testified that, because large handbags and pocketbooks were not allowed on the work floor of the General Post Office, she carried her personal effects in a brown paper bag. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2135568/ | 454 F. Supp. 858 (1978)
PNEUMA-FLO SYSTEMS, INC. and Morton Weiss, Plaintiffs,
v.
UNIVERSAL MACHINERY CORP., Defendant.
No. 78 Civ. 69-CSH.
United States District Court, S. D. New York.
July 28, 1978.
*859 *860 Edmiston, Burrows, Vaccaro & Galloway, Yonkers, N. Y., for plaintiffs; Frederick Buck, Jr., Yonkers, N. Y., of counsel.
Trubin, Sillcocks, Edelman & Knapp, New York City, for defendant; Howard M. Goldstein, New York City, of counsel.
MEMORANDUM OPINION AND ORDER
HAIGHT, District Judge:
The due process era in jurisdiction, ushered in by International Shoe Co. v. Washington, 326 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945) and continued apace by decisions such as Shaffer v. Heitner, 433 U.S. 186, 97 S. Ct. 2569, 53 L. Ed. 2d 683 (1977), has undoubtedly brought about a more equitable distribution of hardships arising when a local plaintiff seeks redress against a foreign defendant. This revolution, achieved through the repudiation of simple physical presence as the sine qua non of amenability to suit and substituting the forum court's assessment of the defendant's "contacts" with the jurisdiction, has not, alas, been accomplished without cost. The price paid for the abandonment of the hard and fast rules established by Pennoyer v. Neff, 95 U.S. (5 Otto) 714, 24 L. Ed. 565 (1878) has been the virtue of certainty.
The difficulty is no better illustrated than in the present diversity action, a suit by a local sales representative and its president against a California manufacturer for commissions averred to be due and owing under two contracts. Defendant seeks an order pursuant to Rule 12(b)(2), F.R.Civ.P., dismissing the action for lack of personal jurisdiction.[1] It may come as some surprise to plaintiff, and possibly even to its counsel, to be informed that the defendant on whose *861 behalf it has labored long and hard in this state is not amenable to suit here. Having reviewed the record in this case, this is the conclusion which the Court reaches.
I.
Defendant Universal Machinery Corporation ("Universal") exists by virtue of the laws of California, the state wherein it maintains its principal place of business.[2] It is engaged in the manufacture of "wicketers", a complex piece of industrial machinery used in the production and packaging of plastic bags and other wrapping materials. Universal is devoid of the usual indicia of presence in this forum, such as a license to conduct business in New York, the maintenance here of a local office, employees, designated agent, bank account or other property or a telephone listing.[3]
Defendant's only connection with New York exists by virtue of its relationship with plaintiff Pneuma-Flo Systems, Inc. ("Pneuma-Flo"), a wholly independent company organized under the laws of this state with its principal place of business in Yonkers, New York and having plaintiff Morton Weiss ("Weiss") as its president. It is involved in the business of selling, repairing and replacing industrial equipment such as that manufactured by Universal. In August, 1973, the parties entered into a one year sales agreement[4] whereby plaintiff acquired the exclusive right to vend defendant's products in the Eastern United States and Canada on a commission basis. In December, 1974, a second agreement[5] virtually identical to the prior contract, but having a three year duration, was entered into by the parties. It is averred that Weiss signed the earlier contract in New York,[6] although it appears that both agreements were negotiated and ultimately executed in California.[7]
Those contracts established plaintiff company as a sales representative of defendant: under the procedure contemplated by those agreements, plaintiff would solicit sales here on behalf of defendant, and forward the orders received to California from which point Universal appears to ship the equipment to either the purchaser, or its sales representative, and bill the purchaser directly. In this manner, it is averred that Pneuma-Flo serviced approximately 15 customers in New York for defendant, and generated between $40,000 and $60,000 worth of business per year.[8]
During the course of the contracts, plaintiff avers that Richard Joice, then a Vice President of Universal, made several trips to Pneuma-Flo's offices for the purpose of suggesting ways in which new customers could be found and present clients induced to enlarge their orders. Meetings with one or more customers were alleged to have been held.[9] It is further averred that in 1974, Universal's President, one Len Monaco, together with another corporate official, met with Weiss at a trade show in New York City for the purpose of discussing market conditions and trade prospects.[10]*862 Finally, plaintiff urges that Universal's presence in New York is established because its name was placed on Pneuma-Flo's office door, and because a brochure prepared by it states that "decentralized" facilities are maintained by defendant in New York for sales and repair services.[11]
Based upon the foregoing, plaintiff posits personal jurisdiction over defendant on both Civil Practice Law and Rules ("CPLR") § 301 ("doing business") and CPLR § 302(a)(1) ("transacting business"). These contentions are considered in turn.
II.
It must be noted preliminarily that under New York law, which governs the issues at bar, plaintiff under either CPLR §§ 301 or 302(a)(1) has the burden of establishing by a preponderance of the evidence that defendant's person is properly before the court, Charles Abel, Ltd. v. School Pictures, Inc., 40 A.D.2d 944, 339 N.Y.S.2d 242 (1st Dept. 1972) (§ 301); Lamarr v. Klein, 35 A.D.2d 248, 315 N.Y.S.2d 695 (1st Dept. 1970) (§ 302[a][1]); G.S.C. Assoc., Inc. v. Rogers, 430 F. Supp. 148 (E.D. N.Y.1977). This is entirely appropriate since it is still the rule that defendants should normally be sued where they are found, McGee v. International Life Ins. Co., 355 U.S. 220, 78 S. Ct. 199, 2 L. Ed. 2d 223 (1957). In this connection, although the essential facts as set forth above are not disputed,[12] this Court has resolved all ambiguities or evidentiary conflicts in favor of the party opposing the motion to dismiss. Notwithstanding the Court's construction of the lamentably slim record before it, plaintiff has not borne its burden.
A. Jurisdiction under CPLR § 301.
A non-resident defendant may subject itself to the personal jurisdiction of a New York court under CPLR § 301 if it does business in this State ". . . not occasionally or casually, but with a fair measure of permanence and continuity," Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 115 N.E. 915 (1917); see also Frummer v. Hilton Hotels Int'l., Inc., 19 N.Y.2d 533, 281 N.Y.S.2d 41, 227 N.E.2d 851, remittitur amended, 20 N.Y.2d 737, 283 N.Y.S.2d 99, 229 N.E.2d 696, cert. den., 389 U.S. 923, 88 S. Ct. 241, 19 L. Ed. 2d 266 (1967). Normally, when such activity is undertaken here on defendant's behalf by an agent, Frummer v. Hilton Hotels Int'l., Inc., supra; cf. McShan v. Omega Louis Brandt et Frere, S.A., 536 F.2d 516 (2d Cir. 1976), or even an independent contractor operating with the authority and for the substantial benefit of the non-resident, Galgay v. Bulletin Co., Inc., 504 F.2d 1062 (2d Cir. 1974); Gelfand v. Tanner Motor Tours, Ltd., 385 F.2d 116 (2d Cir. 1967), cert. den., 390 U.S. 996, 88 S. Ct. 1198, 20 L. Ed. 2d 95 (1968), those acts may be attributed to the non-domiciliary for the purpose of ascertaining its liability to a New York judgment in personam. Where, however, it is the local representative itself rather than a third party who seeks to reach the foreign defendant, the plaintiff's own efforts here on defendant's behalf may not be entered into the jurisdictional computation.
Such is the holding of Haar v. Armendaris Corp., 31 N.Y.2d 1040, 342 N.Y.S.2d 70, 294 N.E.2d 855 (1973), rev'g, 40 A.D.2d 769, *863 337 N.Y.S.2d 285 (1st Dept. 1972,[13] wherein the New York Court of Appeals put its imprimatur upon a dissent filed in the court below, which held that an agent may not rely upon its own acts in seeking to establish long-arm jurisdiction over a non-domiciliary principal. This construction has its genesis in dicta found in Parke-Bernet Galleries, Inc. v. Franklyn, 26 N.Y.2d 13, 19 n.2, 308 N.Y.S.2d 337, 341 n.2, 256 N.E.2d 506 (1972)[14] to the effect that only the independent, repeated and purposeful acts of a non-resident principal will suffice to render it liable to in personam jurisdiction in a lawsuit instituted by its agent. The rationale for this rule has not been thoroughly elucidated, although it does appear to rest on a reluctance, for equitable reasons, to allow local plaintiffs to gain personal jurisdiction over their foreign affiliates through their own unilateral conduct. This "bootstrap" doctrine has met with a chilly critical reception from courts[15] and commentators[16] alike; but however insupportable the rule may seem, the federal courts in this area are bound by the clear pronouncements of the forum state's highest tribunal.
In a noble effort to confine this seemingly unwarranted curtailment of state power, one New York court has declined to apply the Haar rule in cases in which personal jurisdiction over the non-resident defendant is predicated upon the more continuous and purposeful contacts required to find it "doing business" under CPLR § 301. In Traub v. Robertson-American Corp., 82 Misc. 2d 222, 368 N.Y.S.2d 958 (Sup.Ct.Nassau Cty. 1975),[17] the court refused to preclude a local *864 sales agent from asserting jurisdiction over its foreign principal based only upon plaintiff's unilateral acts here. Justice Harnett contended that the limitation of the Haar doctrine to CPLR § 302(a)(1) was reasonable because a corporation "doing business" in New York was more likely than a casual "transacter of business" to be present here in the literal sense. This rationale is unpersuasive since it assumes its own conclusion: that is, it posits the doing of business which is, of course, the matter to be determined by the appropriate judicial criteria.
The New York Court of Appeals has not explicitly passed upon this contention, thereby placing the federal district court in the precarious position of having to predict not only what this State's highest court will eventually decree, but also what our own Circuit Court will foresee that determination to be.[18] Although this result is at best perceived through a glass darkly, this Court holds that the Haar rule will be applied to cases in which personal jurisdiction is asserted by a local representative over a foreign affiliate based upon the former's own activities within the forum pursuant to CPLR § 301. This conclusion is based on the inherent weakness of the arguments contra, as exemplified by Traub, supra; because other New York State courts, including an appellate panel, have so held, DelBello v. Japanese Steak House, Inc., 43 App.Div.2d 455, 352 N.Y.S.2d 537 (4th Dept. 1974), Ladenburg, Thalmann & Co. v. Scalleat, 86 Misc. 2d 503, 383 N.Y.S.2d 168 (Civil Ct.N.Y.Cty.1976); and because a leading commentator on New York practice and procedure has concluded:
". . . [I]t is difficult to believe that the Court of Appeals could espouse a doctrine that imputed the acts of an agent when the non-domiciliary was `doing business', but would not impute the acts when the non-domiciliary was `transacting business'." McLaughlin, Practice Commentary, 7B McKinney's Consol. Laws of New York § 302 (1977-1978) Supp. Pocket Part at 21.
Furthermore, even if the Haar rule were held inoperative in the CPLR § 301 context, Pneuma-Flo's intra-state activities could nonetheless not be ascribed to Universal. A local representative, through its own acts, may subject its foreign affiliate to in personam jurisdiction in New York if it undertakes the non-resident's business here with either too much or too little authority. Thus, if the local entity is sufficiently controlled or dominated by the foreign defendant such that their relationship gives rise to a valid "inference of agency," Noble v. Singapore Resort Motel of Miami Beach, 21 N.Y.2d 1006, 1008, 290 N.Y.S.2d 926, 928, 238 N.E.2d 328 (1968), its behavior here will be imputed to the foreign principal, see also Delagi v. Volkswagenwerk, 29 N.Y.2d 426, 328 N.Y.S.2d 653, 278 N.E.2d 895 (1972); Frummer v. Hilton Hotels Int'l Corp., supra. So too will the defendant bear responsibility for an independent contractor's *865 efforts in this State if they are undertaken with sufficient authority to bind defendant, and represent so significant a portion of his business that the non-resident would have to dispatch its own employees to this State were its affairs not conducted on its behalf, Gelfand v. Tanner Motor Tours, Ltd., supra; see also Galgay v. Bulletin Co. Inc., supra. Pneuma-Flo's relationship with Universal falls between these two stools.
Plainly, Pneuma-Flo is not an "agent" of Universal in the legal sense of the term. That relationship is precluded by, inter alia, the express terms of the sales agreements, both of which state at paragraph "I":
"RELATIONSHIP OF PARTIES
1. It is expressly understood by the parties that the Sales Representative is an independent contractor and is in no way an employee of the Company, and nothing herein shall be construed as creating any such relationship between them."[19]
Moreover, it does not appear that Universal directs the manner in which Pneuma-Flo conducts its business.
On the other hand, plaintiff as an independent contractor seems to lack the authority necessary to have its activities imputed to Universal. Generally, in order to have such an ascription, it must be demonstrated that the local representative does here all that the foreign affiliate could do, were it here by its own officials, Frummer v. Hilton Hotels Int'l, Inc., supra, 19 N.Y.2d at 537, 281 N.Y.S.2d at 44, 227 N.E.2d 851. Translated into the manufacture-distributor context, this usually requires that the latter party must, as a minimum, have the power not only to solicit orders, but also to confirm or accept them on behalf of the former. Plaintiff makes no such representation on this point, and while the record is not entirely clear on this issue, Pneuma-Flo's mandate does appear to be limited to the channeling of orders to California where Universal retains the right to accept them or not.[20] Additionally, there is no indication of the importance to defendant of its New York business. Consequently, even were this action being prosecuted by a third party, it is doubtful whether defendant could be held to be "doing business" in New York through the action of its sales representative.
For the reasons set forth above, the Court finds that plaintiff's own activities in this State cannot be considered in determining whether defendant is subject to personal jurisdiction in New York under CPLR § 301. Putting Pneuma-Flo's presence to one side, Universal's activities within the forum, when considered alone, are an insufficient predicate for the assertion that it was "doing business" here. At most, its own actions consist of the mere solicitation of business in this State, which has long been held an inadequate basis for personal liability, Aquascutum of London, Inc. v. S.S. "American Champion", 426 F.2d 205 (2d Cir. 1970), even if accompanied by occasional visits of a company official acting in a troubleshooting or promotional capacity, Liquid Carriers Corp. v. American Marine Corp., 375 F.2d 951 (2d Cir. 1967); see also Fontanetta v. American Board of Internal Medicine, 421 F.2d 355 (2d Cir. 1970).
B. Jurisdiction under CPLR § 302(a).
Alternatively, Pneuma-Flo argues that Universal is susceptible to a judgment in personam here on the ground that defendant's officers, on several occasions, entered the State to confer with plaintiff and its customers about matters arising under the commission sales contracts. Jurisdiction is therefore postulated under the "transacting business" rationale set forth in CPLR § 302(a)(1).
*866 It is true that our courts have based personal jurisdiction on the existence of such periodic visits, see e. g. Erving v. Virginia Squires Basketball Club, 349 F. Supp. 709 (E.D.N.Y.), aff'd, 468 F.2d 1064 (2d Cir. 1972); Federal Deposit Ins. Corp. v. Interbanca, 405 F. Supp. 1118 (S.D.N.Y.1975); National Iranian Oil Co. v. Commercial Union Ins. Co. of N. Y., 363 F. Supp. 129 (S.D. N.Y.1973), or even on a single such sojourn, George Reiner & Co., Inc. v. Schwartz, 41 N.Y.2d 648, 394 N.Y.S.2d 844, 363 N.E.2d 551 (1977); Milton R. Barrie Co. v. Levine, 54 A.D.2d 642, 387 N.Y.S.2d 627 (1st Dept. 1976); see also Sterling Nat'l Bank & Trust Co. of N. Y. v. Fidelity Mort. Investors, 510 F.2d 870 (2d Cir. 1975).
It is not the number of such incursions, or their duration, however, which is dispositive; rather, it is their nature and quality. Thus, in each of the cases where jurisdiction over a non-resident has been upheld due to the visits of its officials, those meetings were for purposes essential to the formation or continuance of the contract which has given rise to the litigation. For example, in George Reiner & Co., Inc. v. Schwartz, supra, the defendant entered New York only on a single occasion, but with the purpose of negotiating, concluding and formally executing the employment contract on which he was later sued for the excess of his drawings over his earned commissions.[21]
Here there is no averment, nor can any intimation be drawn, that the alleged visits of defendant's officials were of comparable significance. As previously set forth, the contracts in issue were negotiated and executed in California. There is no claim that the subsequent New York meetings were essential to the ongoing relationship of the parties, and it may be worth noting that those discussions are averred to have been for the benefit of plaintiff,[22] see Meyer v. Gas Magazines, Inc., 49 A.D.2d 864, 374 N.Y.S.2d 322 (1st Dept. 1975). Under these circumstances, the issue is controlled by McKee Elec. Co. v. Rauland-Borg Corp., 20 N.Y.2d 377, 283 N.Y.S.2d 34, 229 N.E.2d 604 (1967), wherein the Court of Appeals rejected an attempt to predicate personal jurisdiction under CPLR § 302(a)(1) on the visit to New York of one of defendant's officers, stating:
". . . [I]t seems to us the contacts here, rather than being minimal, were so infinitesimal . . . that jurisdiction of the New York courts cannot be sustained. Otherwise, every corporation whose officers or sales personnel happen to pass the time of day with a New York customer in New York runs the risk of being subjected to the personal jurisdiction of our courts." 20 N.Y.2d at 382, 283 N.Y.S.2d at 37, 229 N.E.2d at 607.
Accord, Bankers Commercial Corp. v. Alto, Inc., 30 A.D.2d 517, 289 N.Y.S.2d 993 (1st Dept. 1968); see also Lehigh Valley Ind., Inc. v. Birenbaum, 527 F.2d 87 (2d Cir. 1975). Consequently, Universal has not subjected itself to this Court's power by virtue of the occasional visits paid plaintiff by its various corporate officers.
*867 III.
For the reasons set forth above, the motion to dismiss the complaint is granted.
It is So Ordered.
NOTES
[1] Movant, in the alternative, prays for an order pursuant to 28 U.S.C. § 1404(a) transferring this action to the united States District Court for the Southern District of California, an application which is resisted by plaintiff. In light of the disposition reached with respect to the issue of personal jurisdiction and in view of plaintiff's objection, the Court intimates no view on the propriety of the request.
In declining to order the proposed transfer, the Court is cognizant of its power, despite its lack of personal jurisdiction over defendant, to issue such an order in the "interests of justice," Corke v. Sameiet M.S. "Song of Norway", 572 F.2d 77 (2d Cir. 1978). However, that phrase has generally been interpreted to require a showing that a litigant would be prejudiced by the failure of the district judge to consider the transfer motion, see 572 F.2d at 80. No prejudice would result by virtue of the simple dismissal of this action, and the Court leaves it to plaintiff to decide whether to reinstitute this action in the California courts.
[2] Affidavit of Richard Joice Submitted in Support of the Motion, sworn to February 6, 1978 ("Joice Aff't"), ¶ 5. Defendant's sales brochure, attached as Exhibit A to the Affidavit of Morton Weiss in Opposition to the Motion, sworn to March 20, 1978 ("Weiss Aff't") portrays Universal as "the Idea People from California."
[3] Joice Aff't, ¶¶ 8-10.
[4] See Exhibit 2 to Joice Aff't.
[5] See Exhibit 3 to Joice Aff't.
[6] Weiss Aff't, ¶ 4.
[7] Affidavit of Howard Goldstein Submitted in Support of the Motion, sworn to February 16, 1978 ("Goldstein Aff't"), ¶ 6; Reply Affidavit of Howard Goldstein Submitted in Support of the Motion, sworn to April 6, 1978 ("Goldstein Reply Aff't"), p. 4.
[8] Weiss Aff't, ¶ 7. It is further averred that plaintiff has maintained supplies of replacement parts on consignment from Universal, but this system was replaced in August, 1973, with a strict cash on delivery method, see Reply Affidavit of Richard Joice, Submitted in Support of the Motion, sworn to April 3, 1978 ("Joice Reply Aff't"), ¶ 4.
[9] Weiss Aff't, ¶ 5.
[10] Weiss Aff't, ¶ 5.
[11] The brochure described in the text is attached as Exhibit A to the Weiss Aff't. The passage alluded to by plaintiff provides as follows:
"Universal maintains decentralized facilities in Atlanta, Georgia, New York City, New York and Milwaukee, Wisconsin. The Company provides full service, sales and parts operations at these decentralized facilities. Decentralization of operation saves Universal's customers time and money, facilitates delivery, and expedites service."
[12] Some differences are apparent, however; for example, defendant disputes that a meeting between plaintiff's president and various Universal officials took place at a trade fair in New York City in 1974, see Joice Reply Aff't, ¶ 8. Exception is taken to certain other particulars as well, none of which appear to be material to the disposition reached herein, see Joice Reply Aff't, ¶¶ 2-4.
[13] In Haar, an attorney instituted an action in New York seeking legal fees allegedly owed him by a Delaware corporation which had retained him to perform certain services in this State. The Appellate Division held that a nonresident, through the actions of its local agent here, the plaintiff attorney had transacted business within the meaning of CPLR § 302(a)(1), 40 A.D.2d at 769, 337 N.Y.S.2d at 287. Justice Capozzoli disagreed, arguing that the majority's conclusion was foreclosed by footnote two of the opinion in Parke-Bernet Galleries, Inc. v. Franklyn, 26 N.Y.2d 13, 19 n.2, 308 N.Y.S.2d 337, 341 n.2, 256 N.E.2d 506 (1972) quoted infra at n.14. The Court of Appeals concurred with the dissent, and in a four line per curiam opinion reversed for the reason set forth by Justice Capozzoli.
[14] Non-resident defendant in Parke-Bernet Galleries, supra, while physically located in California, participated in an auction conducted by plaintiff in New York through telephonic communication. In this manner, defendant was able to hear the proceedings and to announce his bids through a Gallery employee later deemed to be a "borrowed servant" and thus an agent of defendant who held a receiver. In a subsequent suit for nonpayment brought in the New York courts, personal jurisdiction over defendant was upheld. The Court of Appeals distinguished defendant's authorities, cited for the proposition that his activities were insufficient to subject him to an in personam judgment here, in a footnote, stating:
"It is sufficient to point out that in each of those cases, all of which involved agents who were suing their principals, the plaintiff was relying on his own activities within the State, and not those of the defendant, as the basis for jurisdiction. In other words, in no one of these cases had the defendant himself engaged in purposeful activity within the State nor had the cause of action arisen out of transactions with third parties conducted through an agent." 26 N.Y.2d at 19 n.2, 308 N.Y.S.2d at 341-42 n.2, 256 N.E.2d at 509.
[15] See e. g. Merrill Lynch, Pierce, Fenner & Smith v. Lecopulos, 553 F.2d 842, 844 (2d Cir. 1977); Merrill Lynch, Pierce, Fenner & Smith v. Alexiou, 397 F. Supp. 1292, 1294-95 (S.D.N. Y. 1975).
[16] Professor McLaughlin has commented:
"This is a regrettable turn in the tortuous road of CPLR 302. If the acts of a true agent may be imputed to his foreign principal when the suit is between a third party, who dealt with the agent, and the principal, there is no analytical reason why the acts of the agent cannot be similarly attributed when the suit is between the agent and the principal," Practice Commentary, 7B McKinney's Consol.Laws of New York § 302 (1977-1978) Supp. Pocket Part at 25-26.
[17] Plaintiff in Traub was the local sales representative of a non-resident defendant, a Pennsylvania manufacturer of ceramic tile. Suit was commenced here for the payment of commissions alleged to be due and owing under a letter agreement. Justice Harnett acquiesced in the application of the Haar rule to CPLR § 302(a)(1), but not to CPLR § 301:
"There is a different balance of fairness in the two categories. The business that lives here is more responsive to suit than the business that does not. Rights and duties allocate differently between them. As stated in Elman v. Belson, 32 A.D.2d 422, 426, 302 N.Y.S.2d 961, 965, `The final standard for jurisdiction is reasonableness whether the defendant is unfairly burdened by the compulsion to contest a suit in a forum outside his domicile' . . . To the `doing business' corporation, the forum is neither remote nor burdensome, and no reason exists to protect it against its agent." 368 N.Y.S.2d at 967.
[18] Since the instant question involves construction of state law, the Court is not in the enviable position my brother Conner found himself in when he declared recently that constitutional notions of due process do not compel application of the Haar doctrine in assessing whether a non-resident defendant's contacts with New York are sufficient to support the attachment of his property here. In Drexel Burnham Lambert Inc. v. D'Angelo, 453 F. Supp. 1294 (S.D.N. Y.1978), plaintiff brokerage house claimed that non-resident defendant, a former customer, had incurred a substantial debit, on which payment was refused. Quasi-in-rem jurisdiction was obtained over defendant through the attachment here of two deposits he maintained with brokers. Denying a motion to dismiss for lack of jurisdiction, Judge Conner held that Haar did not preclude consideration of plaintiff-agent's own acts in the forum in weighing the sufficiency of defendant-principal's presence, since the question was one of constitutional due process rather than of state statutory construction, Opinion at 862-863, see also Intermeat, Inc. v. American Poultry, Inc., 575 F.2d 1017 (2d Cir. 1978), and plaintiff had demonstrated the necessary minimum contacts.
[19] Exhibits 2, 3 to Joice Aff't.
[20] Paragraph I to the sales agreements, see Exhibits 2, 3 to Joice Aff't, contains the following language:
"2. The Sales Representative is not authorized and has no power to represent or bind the Company in any manner whatsoever, except in his capacity of soliciting sales for the products and equipment of the Company, and further, neither party shall have any right whatsoever to incur any liabilities or obligations for or on behalf of the other party."
[21] Compare, Moser v. Boatman, 392 F. Supp. 270 (E.D.N.Y.1975) (jurisdiction upheld where defendants entered New York on two occasions and "essential" terms of contract negotiated); Mendelson v. Fleischmann, 386 F. Supp. 436 (S.D.N.Y.1973) (terms of brokerage contract agreed to at New York meeting); Aviation Sales Corp. v. Canada ITW Ltd., 346 F. Supp. 864 (E.D.N.Y.1972) (presence of high level officials of defendant during critical start-up phase of disputed contractual relationship); ECC Corp. v. Slater Elec. Inc., 336 F. Supp. 148 (E.D. N.Y.1971) (critical negotiations in New York) with G.S.C. Assoc. Inc. v. Rogers, supra, (jurisdiction declined where defendant was present in New York only for "training session"); Concrete Detailing Services, Inc. v. Thomsson Steel Co., Inc., 411 F. Supp. 1021 (S.D.N.Y.1976) (visit by officer followed by extensive telephone conversation concerning performance of the contract at issue held insufficient); A.I.L., a Division of Cutler-Hammer, Inc. v. Symetrics Ind., Inc., 360 F. Supp. 1138 (E.D.N.Y.1973) (visits subsequent to execution of contract held insufficient); Chertok v. Ethyl Corp. of Canada, 341 F. Supp. 1251 (S.D.N.Y.1972) (visit by defendant's official, at behest of plaintiff, during which underlying cause of action was discussed, deemed not adequately "purposeful" to support jurisdiction).
[22] Joice Reply Aff't, ¶ 8. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2135411/ | 454 F. Supp. 1156 (1978)
Salvatore TUMMINELLO, Plaintiff,
v.
The BERGEN EVENING RECORD, INC., United Press International, Inc., Associated Press, Inc., WABC-TV, Inc., WCBS-TV, Inc., William Soiffer, and WNBC-TV, Inc., Defendants.
Civ. A. No. 77-2447.
United States District Court, D. New Jersey.
May 23, 1978.
John W. Surgent, Clifton, N.J., for plaintiff.
*1157 Donald A. Klein, Winne, Banta, Rizzi & Harrington, Hackensack, N.J., for defendants The Bergen Evening Record Corp. and William Soiffer.
Frederick L. Whitmer, Pitney, Hardin & Kipp, Morristown, N.J., for defendants ABC and CBS.
Arthur J. Lesemann, Mazer, Lesemann & Rupp, Hackensack, N.J., for defendant The Associated Press.
McElroy, Connell, Foley & Geiser, Newark, N.J., for defendant United Press International, Inc.
OPINION
STERN, District Judge.
Salvatore Tumminello instituted this action against the Bergen Evening Record [Record]; William Soiffer, one of its reporters; United Press International, Inc. [UPI]; Associated Press, Inc. [AP]; American Broadcasting Companies [ABC]; CBS, Inc. [CBS]; and National Broadcasting Company, Inc. [NBC]. The defendants now move to dismiss the complaint for failure to state a claim under F.R.Civ.P. 12(b)(6) or for summary judgment under F.R.Civ.P. 56; or for judgment on the pleadings under F.R. Civ.P. 12(c).[*] Because on a motion for judgment on the pleadings, all well-pleaded material allegations of the opposing party are taken as true, see 2A Moore's Federal Practice ¶ 12.15, at 1243, and because in this case, it is unnecessary to look beyond the plaintiff's pleading, analytically the motions can all be treated as motions to dismiss for failure to state a claim. They will be granted.
The allegations of the complaint are as follows. Plaintiff is a citizen of Florida. Defendant Soiffer is a citizen of New Jersey. The corporate defendants are corporations of states other than Florida with principal places of business in states other than Florida. The amount in controversy allegedly exceeds $10,000, exclusive of interest and costs.
On November 16, 1977, at a meeting of the Paramus Chamber of Commerce, the Honorable Morris Pashman, Associate Justice of the Supreme Court of New Jersey, delivered a speech. Defendant Soiffer, a reporter employed by the Record, was present at that meeting. After the meeting, Soiffer wrote a story which stated that Justice Pashman had announced that the Supreme Court of New Jersey would rule the following day that a five-year statute of limitations applies to the crime of murder. Notwithstanding Justice Pashman's request that no story be published until after the Supreme Court officially announced its ruling, and notwithstanding a lack of confirmation, the story was copyrighted by the Record, picked up by the defendant wire services AP and UPI, and broadcast by the defendant TV stations. Through one or more of these channels of communication, the story came to the attention of plaintiff Tumminello, who was then under indictment in New Jersey for a murder committed in 1968.
Upon hearing the story, Tumminello became elated, presumably because a ruling that murder was governed by a five-year limitations period would require dismissal of his indictment.
His elation was short-lived. Much to Tumminello's disappointment, on November 17, 1977, the Supreme Court ruled unanimously in the case of State v. Zarinsky, 143 N.J.Super. 35, 362 A.2d 611 that the statute of limitations did not apply to the crime of murder. Upon hearing this bad news, Tumminello:
was rendered despondent and depressed, suffered in his health, both physically and mentally, has been unable to sleep, and unable to assume his normal daily activities. Furthermore, his reputation among the people to whom he communicated the original story was lowered and suffered because of his reliance thereon.
*1158 Count 1 charges that the Record and Soiffer, by failing to confirm the accuracy of their story, by failing to heed Justice Pashman's request that the story not be published, and by wilfully, maliciously and recklessly reporting the story, damaged plaintiff's health. Tumminello seeks two million dollars in compensatory damages and five million dollars in punitive damages. Count 2 seeks to hold the defendant wire services liable for damages in an unspecified amount. Count 3 charges that defendants WABC, WCBS and WNBC, knowingly and wilfully failed to confirm the story's veracity and failed to comply with the duty of all broadcasters to strive for truth in news reporting. Again, damages in an unspecified amount are sought.
Believing that Tumminello might be incarcerated in New Jersey and thus might be viewed as a citizen of New Jersey for diversity purposes, the Court initially and sua sponte questioned its jurisdiction. The Court is, however, satisfied that incarceration in a penal institution will not work a change in domicile and that Tumminello remains a citizen of Florida. See generally 13 Wright & Miller, Federal Practice and Procedure, § 3618, at 749-750. Accordingly, the Court concludes that diversity jurisdiction exists. The Court also concludes (and all parties agree) that New Jersey law applies.
Plaintiff attempts to plead causes of action (1) for intentional infliction of emotional distress and (2) for negligent infliction of emotional distress. The Court will treat these theories in turn.
(1) Intentional Infliction of Emotional Distress.
The leading case permitting recovery for extreme intentional misconduct causing emotional distress is Wilkinson v. Downston, 2 Q.B.D. 57 [1897] in which a practical joker amused himself by telling a woman that her husband had been smashed up in an accident and was lying at The Elms at Leytonstone with both legs broken, and that she was to go at once in a cab with two pillows to fetch him home.
The fact patterns in cases which have recognized this tort, also known as the tort of outrage, are widely varied. So far as it is possible to generalize, the rule which seems to have emerged is that there is liability only for conduct exceeding all bounds usually tolerated by decent society, of a nature which is especially calculated to cause, and does cause, emotional distress of a very serious kind. In cases which bear some resemblance to the facts in the instant case, extreme outrage has been found in decoying a woman suspected of insanity to a hospital by a concocted tale of an injured husband and child, Savage v. Boies, 77 Ariz. 355, 272 P.2d 349 (1954); and in spreading the false rumor that the plaintiff's son had hanged himself, Bielitski v. Obadiak, 61 Dom.L.Rep. 494 (1921). The cases, however, allow recovery only where the mental distress has been inflicted intentionally, either in the sense that the defendant desired to cause it, or that he knew that it was substantially certain to follow from his conduct. See generally Prosser, Handbook on the Law of Torts 55-60.
In no sense can the defendants' publication of the initially erroneous news story be deemed to have been intentionally done in order to harm the plaintiff; Tumminello does not allege otherwise.
Although plaintiff alleges that the conduct complained of was intentional, it was intentional only in the sense that the defendants intended that their story be disseminated. There is no allegation that they intended to hurt this plaintiff or that they intentionally published a story knowing it to be untrue and knowing that it would have a substantial likelihood of harming this plaintiff. On this ground alone, the complaint fails to state a cause of action for intentional infliction of emotional distress.
In addition, a mistake in a news story a mistake which may not have arisen had the Record or its reporter confirmed their story is not conduct which can be viewed as exceeding all bounds usually tolerated by decent society. Moreover, while the Court must accept as true plaintiff's allegations *1159 that he suffered physical and emotional harm, and while the Court can easily believe that one in the position of plaintiff would have been initially elated and then substantially disappointed by the story and his later discovery of its error, in order to be compensable, the harm suffered by the plaintiff, except in cases where the defendant has knowledge of the plaintiff's peculiar susceptibility and practices upon it, must be such as a reasonable man "of ordinary sensibilities" would undergo under the circumstances. This is not such a case. See Prosser, supra; Oehler v. L. Bamberger & Co., 103 N.J.L. 703, 137 A. 425 (1927), aff'g 4 N.J.Misc. 1003, 135 A. 71 (1926) (stroke at repossession of vacuum cleaner).
(2) Negligent Infliction of Emotional Distress.
New Jersey has not gone very far in recognizing the tort of negligent infliction of emotional distress. In Falzone v. Busch, 45 N.J. 559, 214 A.2d 12 (1965), the Supreme Court of New Jersey departed from the rule that physical impact was a prerequisite to recovery for injuries from fright. In Falzone, plaintiff was sitting in a parked automobile; her husband was standing in a field adjacent to the road. Defendant's car struck the husband and then veered in the direction of the wife coming so close to plaintiff as to put her in fear for her safety. Carving out a narrow exception to the impact rule, the Court held that where negligence causes fright from a reasonable fear of immediate personal injury, which fright is adequately demonstrated to have resulted in substantial bodily injury or sickness, the injured person may recover if such bodily injury or sickness would be regarded as proper elements of damage had they occurred as a consequence of direct physical injury rather than fright.
The Falzone exception has been read narrowly. Thus, in Caputzal v. Lindsay Co., 48 N.J. 69, 222 A.2d 513 (1966), recovery was not permitted. In that case, the purchaser of a water softener sued its manufacturer and seller for a heart attack which he allegedly suffered after he drew brownish water from his faucet after installation of the softener. The Court adhered literally to Falzone's language that the injury must have resulted from a reasonable fear of personal injury in the sense of a reasonably apprehended physical impact. Plaintiff here cannot bring himself within the Falzone exception.
It does appear that the New Jersey courts might recognize liability for negligent infliction of emotional distress in the most outrageous circumstances despite an absence of physical impact or reasonably apprehended fear of same. Thus, the appellate division, in Muniz v. United Hospital Medical Center, 153 N.J.Super. 79, 379 A.2d 57 (App.Div.1977), rev'g 146 N.J.Super. 512, 370 A.2d 76 (L.Div.1976), reversed the trial court's dismissal of the complaint in a case where the facts were particularly grotesque. The plaintiffs alleged that their newborn premature infant was brought to the defendant hospital; that one day later, the infant's mother received a phone call from an unidentified hospital employee advising that the baby was dead; but that, despite repeated requests by the parents, the hospital could not verify the death nor could it locate the infant's body for three weeks.
Obviously, the case does not support Tumminello's claim. The defendants' conduct here, if wrongful at all, was not so outrageous as to support liability under a theory of negligent infliction of emotional harm. New Jersey would not permit recovery on these facts.
The Court notes in passing that New Jersey could not, consistent with the requirements of the First Amendment, impose liability for a negligently untruthful news story. See Time Inc. v. Hill, 385 U.S. 374, 87 S. Ct. 534, 17 L. Ed. 2d 456 (1967). Recovery may be had at best only for knowing or reckless falsehood. But even assuming that the defendants' publication without confirmation constituted recklessness a doubtful proposition itself plaintiff may still not recover because, under traditional tort principles, he was not one to whom the defendants owed any particular *1160 duty of care. Accuracy in news reporting is certainly a desideratum, but the chilling effect of imposing a high duty of care on those in the business of news dissemination and making that duty run to a wide range of readers or TV viewers would have a chilling effect which is unacceptable under our Constitution.
Accordingly, this Court concludes that plaintiff's allegations of negligent infliction of emotional distress do not state a claim. Defendants' motions will be granted.
NOTES
[*] Defendants Record, Soiffer and UPI have moved, under Rule 12(b)(6) for dismissal, or alternatively, under Rule 56, for summary judgment. Defendant AP has moved for judgment on the pleadings under Rule 12(c). Defendants ABC, CBS and NBC have moved "for dismissal of the complaint for failure to state a claim under Rule 12(c)." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2135044/ | 319 F. Supp. 563 (1970)
UNITED STATES of America
v.
Carlos Manuel GONZALEZ.
Cr. No. 12826.
United States District Court, D. Connecticut.
October 23, 1970.
F. Mac Buckley, Asst. U. S. Atty., Hartford, Conn., for plaintiff.
Sherin V. Reynolds, Reid & Reige, Hartford, Conn., for defendant.
RULING ON MOTION TO SUPPRESS EVIDENCE
CLARIE, District Judge.
The defendant has moved under Federal Criminal Rule 41(e) to suppress as evidence 6.4 grams of heroin seized from his person as a result of a round up of *564 drug offenders. The basis of his motion is that the seizure was made without a warrant and did not fall under the "stop and frisk" exception to the search requirements prescribed by the constitutional guarantees of the fourth amendment. The Court finds that the search and seizure in question was unconstitutional and grants defendant's motion to suppress.
The Government and the defendant essentially agree to the factual circumstances as recited in defendant's brief. On June 20, 1970, a Government agent (Koplowski), Detective Schatz of the Hartford Police Department and an unidentified Government agent began searching for one Raul Rosario, who was wanted in connection with a multiple arrest of several dope peddlers in the Hartford area. Rosario's arrest was sought pursuant to a warrant issued on June 19, 1970. At approximately 10:12 p. m. on a Saturday evening, the agents spotted Rosario's car and followed it for a few blocks. There was a passenger in the car whom the officers could not identify.
At Main and Belden Streets where Rosario's car momentarily stopped, Detective Schatz' car pulled up in front of him and the Government car, which Special Agent Koplowski was driving, pulled up behind. The officers immediately jumped out of their vehicles and proceeded to arrest Rosario for whom they had a warrant. Meanwhile, Detective Schatz approached the passenger side of the blocked car and seized the defendant. At the direction of Detective Schatz, Agent Koplowski led the defendant by the arm from Rosario's vehicle to the Government car which was to the rear.
The defendant was ordered to place his hands on top of the car and stand with his feet apart. Agent Koplowski then proceeded to "frisk" him for weapons. Agent Koplowski claimed to have frisked the defendant because of his being in the company of Rosario at the time the latter's arrest warrant was executed. He also represented that this was the normal police procedure under such circumstances. In the course of these frisk procedures, he detected a bulge in the upper right inside pocket of the defendant's suit jacket. He reached into the defendant's pocket and seized an open cigarette package. The pack was open at the top; and while nothing was protruding, several (ten) glassine envelopes could be seen through the opening at the top of the package. It was subsequently determined that these glassine packages contained heroin, however, no weapons were found on the defendant.
The Government would utilize this evidence on the theory that it was uncovered during a reasonable search for weapons for the protection and safety of the police officer. This argument was approved in Terry v. Ohio, 392 U.S. 1, 88 S. Ct. 1868, 20 L. Ed. 2d 889 (1968), a case which involved a "frisk" on the street of a suspicious group of men and which led to the conviction of two men for carrying revolvers. The Court first made the point that under these circumstances it was reasonable for the frisk to take place. The issue is "whether a reasonably prudent man in the circumstances would be warranted in the belief that his safety or that of others was in danger." (at 27, 88 S. Ct. at 1883). A further issue is whether the search is reasonable as conducted. On this point the Terry case reads:
"(The police officer) * * * is entitled for protection of himself and others in the area to conduct a carefully limited search of the outer clothing of such persons in an attempt to discover weapons which might be used to assault him." (at 30, 88 S. Ct. at 1884).
The present case indicates that the officer's initial accosting of the defendant and the frisk which followed were indeed reasonable under the circumstances. The arrest of Rosario took place at night and in a high crime area. The defendant was attempting to exit from the car when he was seized and restrained *565 by Detective Schatz. It was possible that the defendant might have tossed a weapon to his friend who was being arrested. In light of the "protean variety of the street encounter" (Terry at 15, 88 S. Ct. at 1876) it cannot be said that this initial frisk was unreasonable.
The extent of the frisk that subsequently occurred, however, was beyond the bounds set in the Terry case. When Special Agent Koplowski frisked the defendant, he felt a soft bulge in the defendant's pocket. Thinking that the packet might have contained a razor blade, which the agent described as a dangerous weapon, he invaded the defendant's pocket and pulled out the cigarette package containing the glassine heroin bags. This was not a carefully limited search of the defendant's outer clothing to check for weapons as authorized in Terry. This frisk intruded upon the personal effects of the defendant unreasonably and without probable cause. Having felt a soft packet wrapped in cellophane, the agent was not entitled to search further into the defendant's pocket on the improbable ground that there might have been a weapon of the type described hidden in the packet. In similar cases to the present one, where the officers proceeded to search in the defendant's clothing after feeling some soft object, obviously not a weapon, courts have struck down the frisk as not sufficiently limited and unreasonable. See, Tinney v. Wilson, 408 F.2d 912 (9th Cir. 1969) and United States v. Hostetter, 295 F. Supp. 1312 (D.Del.1969).
Therefore because the evidence in question was not procured incident to a lawful arrest and was taken by means of a frisk that went beyond the scope approved in Terry, it is hereby adjudged that the cigarette pack containing the glassine bags of heroin was obtained from the defendant illegally and must be suppressed as evidence.
So ordered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2251640/ | 507 F. Supp. 1177 (1980)
Donald J. LAREAU
v.
John R. MANSON, Commissioner of Correction, State of Connecticut.
Jesus CAMPOS, James Scott, Jr., Donald J. Lareau and Clarence King
v.
John R. MANSON, Commissioner of Correction, State of Connecticut, and Richard Wezowicz, Warden, Hartford Community Correctional Center.
Civ. A. Nos. H 78-145, H 78-199.
United States District Court, D. Connecticut.
December 29, 1980.
Martha Stone, Connecticut Civil Liberties Union Foundation, James W. Greene, Jr., Jon C. Blue, Prisoners' Legal Assistance Ass'n, Hartford, Conn., for plaintiffs.
Stephen J. O'Neill, Lee Bezanson, Asst. Attys. Gen., Carl R. Ajello, Atty. Gen. of the State of Conn., Hartford, Conn., for defendants.
*1178 Renee D. Chotiner, New Haven, Conn., for amici curiae Jerome N. Frank Legal Services Organization, Yale Law School, et al.
MEMORANDUM OF DECISION
JOSÉ A. CABRANES, District Judge:
The plaintiffs in these consolidated actions are the class of inmates at the Hartford Community Correctional Center ("HCCC"), including both persons being detained pending trials on criminal charges and convicted inmates serving sentences of imprisonment.[1] They challenge a number of the conditions of their confinement principally, the overcrowding of the HCCC, but also other conditions, including allegedly inadequate health care, sanitation, food and heating on constitutional grounds. The defendants are John R. Manson, Commissioner of Correction of the State of Connecticut and Richard Wezowicz, Warden of the HCCC. The case was tried before Magistrate F. Owen Eagan, who rendered proposed findings of fact and conclusions of law. The court filed its findings of fact, pursuant to Rule 52(a), Fed.R.Civ.P., after considering the magistrate's proposed findings, the parties' submissions and the record as a whole.[2] On the basis of the facts as found, the court renders its conclusions of law and its ruling on an appropriate remedy in this Memorandum of Decision.
Stated briefly, the court holds that conditions at the HCCC where well over 500 inmates are housed in an institution designed to accommodate only 390, so that more than 100 inmates live doubled up in 60 or 65 square-foot cells, or crowded in a small makeshift dormitory, or in a hospital area cause serious harm to the health and well-being of the inmates and the security of the institution. The court also holds that defendants have not justified the policies which allowed such conditions to come about, and that the overcrowded conditions: (a) constitute impermissible "punishment" of those inmates who have not been convicted of any crime, but are merely being held at the HCCC while awaiting trial, in violation of their rights under the Due Process Clause of the Fourteenth Amendment to the United States Constitution; and (b) subject those inmates who are serving prison sentences to "cruel and unusual punishment" forbidden by the Eighth Amendment to the United States Constitution. Furthermore, the court concludes that the defendants' failure to screen inmates for communicable diseases when they are first taken to the HCCC poses so substantial a threat to the health of all inmates (who may therefore be exposed to potential carriers of contagious diseases), without any justification, that it violates the inmates' due process rights.
In the absence of clearly unconstitutional conditions, the judiciary should not, of course, become involved in the operations of correctional institutions. The day-to-day administration of such institutions is a matter for professional administrators, not judges. However, under well-established principles of federal law, a court faced with evidence of violations of the constitutional rights of inmates, such as those established here, may and, indeed, must act to remedy them. The court accordingly orders that the defendants reduce the population of the HCCC to its original design capacity of 390 inmates within 45 days of this decision; that they not permit the population of the institution to exceed that number; and that they adopt procedures to screen inmates for contagious diseases upon their arrival at the HCCC. This order is as unintrusive as possible, while remedying the violations of the Constitution which the plaintiffs have proven. The court declines the plaintiffs' invitation to rule that a variety of other conditions *1179 at the HCCC, which are in large part the results of the overcrowding of that institution, are in themselves unconstitutional. The court also declines the defendants' invitation to devise a comprehensive plan to enable the Commissioner to comply with the court's order. The court thereby follows the instructions of the Supreme Court that federal courts avoid becoming enmeshed in the details or minutiae of administering correctional institutions.
This decision should not be construed as reflecting a willingness to involve the court in the state's correctional practices or policies; to the contrary, it represents a reluctant response to clear proof that the defendants have violated certain basic constitutional rights of HCCC inmates, and an effort to remedy those conditions by ordering speedy and direct relief from them without miring the judiciary in the day-to-day operations of the HCCC. Nor should it be construed as requiring, or in any way sanctioning, the release into the community of inmates now housed at the HCCC. The court expects that the defendants who have time and again reminded the court of their good faith and asked it to defer to their expertise in administering the state's correctional system will comply with the court's simple remedial order without in any way jeopardizing the safety of the citizens of this state.
Summary of Facts
The court's findings of fact were filed on November 25, 1980, and an order clarifying and modifying two of the court's 116 numbered findings was filed on December 19, 1980. There is no need for a detailed recounting of the court's findings of fact. However, the following summary is helpful to an understanding of the court's resolution of the legal issues presented.
The HCCC was designed to hold 390 inmates one in each cell. However, soon after it opened in July 1977, the HCCC's population swelled. Since January 7, 1980, the institution has had no fewer than 500 inmates on any night; the number of inmates incarcerated there which fluctuates from day to day was expected to reach the range of 580 to 630 by December 1980.
Approximately three-quarters of the HCCC's population are pretrial detainees i. e., inmates who have not yet been tried. The remainder are sentenced prisoners (serving relatively short terms imposed by federal or state courts), persons being held in connection with immigration proceedings and persons awaiting transfers to other institutions. Approximately two-thirds of the inmates incarcerated at the HCCC at any given time have spent more than 60 days there.
Most of the inmates at the HCCC are young; their average age is only 25 years. Among the pretrial detainees are 94 inmates being held in lieu of bonds of $1000 or less.
In an effort to accommodate the increasing number of inmates assigned to the HCCC, the defendants have converted 120 cells which were designed for one inmate into "double-bunked" cells. Equipped with a double-bunk bed, in addition to a toilet and sink fixture, a metal desk and a chair, each of these cells measures between 60 and 65 square feet. A 60 square foot cell has only 36 square feet of "free" space (the equivalent of a 6-foot by 6-foot area) in which the inmates can move; the fixtures and furniture occupy the remaining 24 square feet. The mobility of the inmates in "double-bunked" cells is therefore greatly constrained. On occasion, the defendants have assigned two inmates to one cell in which there is no double bunk-bed; in such a cell, one inmate must sleep on a mattress on the floor, placed between the desk (at one end of the cell) and the toilet (at the other). Inmates so confined have no room at all to move about their cell.
In addition to housing two inmates in cells designed for one, the defendants have converted a "dayroom" of approximately 200 square feet (the equivalent of a 10-foot by 20-foot area), which was originally designed and used for eating and recreation, into a dormitory. This "dayroom," dubbed the "fishtank" by the inmates (because its walls are transparent, so that the inmates *1180 are readily observed at all times from a corridor), houses as many as nine persons.[3] Inmates in the "fishtank" actually crawl over one another to reach the single toilet provided to them. Finally, the defendants' search for space to house the increasing number of inmates has led them to place inmates suffering from no illness in cells in the HCCC's hospital area. At times, inmates who are well are required to share a "double-bunked" cell with inmates who have physical or psychiatric disorders. Inmates housed in the hospital unit are routinely confined to their cells for 23 hours every day; they have no access to "dayrooms" or other recreational facilities.
The overcrowding at the HCCC is manifested not only in its housing conditions, but in other aspects of life at the institution. Particularly noteworthy is the overcrowding of the "dayrooms." With the exception of approximately 20 sentenced prisoners who leave the HCCC to participate in "work release" or "educational release" programs in the community, the inmates spend almost all of their time either in their cells (or the "fishtank," if they have been assigned to that makeshift dormitory) or in the "dayrooms." Except for the "fishtank," which has been converted into a residential area, the "dayrooms" (which measure between 196 and 262 square feet) are used for inactive recreation such as playing cards, watching television and reading and as dining areas. There are regularly 15 to 20 inmates (and occasionally as many as 24) in the "dayrooms"; while eating meals, inmates have had to sit on the floor, a radiator or even the single toilet in the "dayroom." The crowding of the "dayrooms" increases the level of tensions, and the incidence of fighting, among inmates at the HCCC. More generally, the overcrowded conditions at the HCCC have had an adverse psychological impact above and beyond that which is inevitably caused by incarceration on the inmates, particularly the young inmates who make up much of the facility's population. As a result of the overcrowded conditions at the HCCC, some inmates choose to plead guilty to pending charges (and thus reduce the time they would have to spend at the HCCC) rather than wait, at the HCCC, for their cases to be tried.
The level of services provided to inmates at the HCCC has deteriorated as the population has increased. For example, each of the four counselors at the facility assigned to conduct "intake" interviews with newly arrived inmates, to act as liaisons between inmates and agencies outside the institution, and to assist inmates with their personal problems now has a caseload of approximately 130 inmates. It is hardly surprising that the counselors are unable to respond to all of the requests (approximately 40 to 60 per counselor daily) for help which the inmates make. The psychiatrist who visits the HCCC weekly sees 152 inmates per month, but cannot see many more inmates who desire his assistance. Those inmates fortunate enough to obtain appointments with the psychiatrist see him for an average of only 7 to 8 minutes. Finally, the increased population of the HCCC has caused an increase in the number of visitors who come to see the inmates. The defendants have responded to this development by curtailing the period of visitation for inmates to 45 minutes per inmate per day.
The overcrowded conditions have strained the provision of medical care to inmates at the HCCC. Moreover, the inmates' health is adversely affected by another practice, apparently unrelated to the overcrowding *1181 of the institution: the defendants do not test or screen newly arrived inmates for infectious or contagious diseases. Because potential carriers of communicable diseases are not identified or isolated from the general population of the HCCC, other inmates may be exposed to the carriers. The defendants' practice of double-bunking inmates and crowding them into the "fishtank" aggravates the dangers posed by such inadequate screening procedures; inmates who share close quarters with others who may have an infectious disease are more likely to contract such a disease than those who occupy single cells.
Finally, overcrowding has jeopardized security at the HCCC. Tensions and fights among inmates have increased; correctional officers, each of whom is responsible for 48 to 60 inmates, have found it more difficult to police the institution. For example, there are often so many inmates in the "dayrooms" which are supervised by the officers at all times except when they are on their hourly checks of the cells that the inmates block the officers' view of what is going on inside the room.
In the absence of an order of this court, the overcrowding of the HCCC is not likely to be diminished in the near future. The inmate population continues to increase, and is expected to do so until the correctional institution at Cheshire, Connecticut, is opened; that facility is scheduled to commence operations in November 1981. However, the defendants have made contingency plans to house inmates who cannot be housed at the HCCC and other comparable facilities. These plans include opening a 250-bed facility at Camp Hartell, and housing approximately 100 male inmates classified for minimum security incarceration at the Niantic Correctional Institution, which has until now been used only to house female prisoners.[4] Moreover, assigning a number of the HCCC's sentenced inmates to half-way houses is another option available to the defendants.
THE CONSTITUTIONAL ISSUES
A. Bell v. Wolfish
The starting point for the court's analysis of the plaintiffs' claims must be the decision of the Supreme Court in Bell v. Wolfish, 441 U.S. 520, 99 S. Ct. 1861, 60 L. Ed. 2d 447 (1979). Indeed, because the Wolfish opinion establishes the standards which govern this court's determination of the constitutionality of the conditions of confinement at HCCC, the facts, holding and analysis of that case merit close attention here.
Wolfish was a class action challenging the conditions of confinement at the Metropolitan Correctional Center ("MCC"), which the Supreme Court described as "a federally operated short-term custodial facility in New York City designed primarily to house pretrial detainees." Bell v. Wolfish, supra, 441 U.S. at 523, 99 S. Ct. at 1866. The MCC, constructed in 1975, "has as its primary objective the housing of persons who are being detained in custody prior to trial for federal criminal offenses in the United States District Courts" in the New York metropolitan area. Id. at 524, 99 S.Ct. at *1182 1866. It also houses "some convicted inmates who are awaiting sentencing or transportation to federal prison or who are serving generally relatively short sentences," and others. Id.[5] The facilities there were described by the Supreme Court as follows:
The MCC differs markedly from the familiar image of a jail; there are no barred cells, dank, colorless corridors, or clanging steel gates. It was intended to include the most advanced and innovative features of modern design of detention facilities. As the Court of Appeals [for the Second Circuit] stated: `[I]t represented the architectural embodiment of the best and most progressive penological planning.'"
Bell v. Wolfish, supra, 441 U.S. at 525, 99 S. Ct. at 1866, quoting Wolfish v. Levi, 573 F.2d 118, 121 (2d Cir. 1978).
Wolfish involved allegations of overcrowding at the MCC; in addition, the prisoners who brought that case "served up a veritable potpourri of complaints that implicated virtually every facet of the institution's conditions and practices." Bell v. Wolfish, supra, 441 U.S. at 526-27, 99 S. Ct. at 1867-1868. The Court of Appeals for the Second Circuit affirmed most of the rulings of the district court, which had granted wide-ranging relief to the plaintiffs. The Court of Appeals held that due process required that "pretrial detainees ... be subjected to only those `restrictions and privations' which `inhere in their confinement itself or which are justified by the compelling necessities of jail administration.'" Wolfish v. Levi, supra, 573 F.2d at 124, quoting Rhem v. Malcolm, 507 F.2d 333, 336 (2d Cir. 1974). With respect to inmates who have been convicted and sentenced, the Court of Appeals held that "[t]he parameters of judicial intervention into the conditions of incarceration ... are more restrictive." Specifically, the court held that "[a]n institution's obligation under the eighth amendment is at an end if it furnishes sentenced prisoners with adequate food, clothing, shelter, sanitation, medical care and personal safety." Wolfish v. Levi, supra, 573 F.2d at 125.
In Wolfish, the Supreme Court rejected the "compelling necessities" test applied by the Court of Appeals. The Court held that the Due Process Clause "provides no basis for application of a compelling-necessity standard to conditions of pretrial confinement that are not alleged to infringe any other, more specific guarantee of the Constitution." Bell v. Wolfish, supra, 441 U.S. at 533, 99 S. Ct. at 1871. In the absence of a claim that a more specific constitutional right has been infringed i. e., where the detainee alleges only that he has been denied "the protection against deprivation of liberty without due process of law" the Court held that "the proper inquiry is whether [the] conditions [of detention] amount to punishment of the detainee." Id. at 535, 99 S. Ct. at 1872. The rationale for this standard, the Court noted, was that "under the Due Process Clause, a detainee may not be punished prior to an adjudication of guilt in accordance with due process of law." Id. (footnote omitted).
The Court in Wolfish grappled with the question of what constitutes "punishment" under this standard. As the Court stated, "[n]ot every disability imposed during pretrial detention amounts to `punishment' in the constitutional sense," since the government "obviously is entitled to employ devices that are calculated to effectuate" the detention of persons held pending trial. Id. at 537, 99 S. Ct. at 1873. The Court gave the following guidance to lower courts faced with the task of distinguishing impermissible "punishment" from constitutionally acceptable "regulatory restraints":
A court must decide whether the disability is imposed for the purpose of punishment or whether it is but an incident of some other legitimate governmental purpose. Absent a showing of an expressed *1183 intent to punish on the part of detention facility officials, that determination generally will turn on "whether an alternative purpose to which [the restriction] may rationally be connected is assignable for it, and whether it appears excessive in relation to the alternative purpose assigned [to it]." Thus, if a particular condition or restriction of pretrial detention is reasonably related to a legitimate governmental objective, it does not, without more, amount to "punishment." Conversely, if a restriction or condition is not reasonably related to a legitimate goal if it is arbitrary or purposeless a court permissibly may infer that the purpose of the governmental action is punishment that may not constitutionally be inflicted upon detainees qua detainees. Courts must be mindful that these inquiries spring from constitutional requirements and that judicial answers to them must reflect that fact rather than a court's idea of how best to operate a detention facility.
Id. at 538-39, 99 S. Ct. at 1873-1874, quoting Kennedy v. Mendoza-Martinez, 372 U.S. 144, 168-69, 83 S. Ct. 554, 567-568, 9 L. Ed. 2d 644 (1963) (citations and footnotes omitted; brackets in original).
The governmental interests which may justify conditions or restrictions of pretrial detainees are not limited to "ensuring the detainees' presence at trial," the Court held. Id. 441 U.S. at 540, 99 S. Ct. at 1874. Rather, "the effective management of the detention facility once the individual is confined is a valid objective that may justify imposition of conditions and restrictions of pretrial detention and dispel any inference that such restrictions are intended as punishment." Id. (footnote omitted). The Court stressed that "[i]n determining whether restrictions or conditions are reasonably related to the government's interest in maintaining security and order and operating the institution in a manageable fashion, courts must heed [the] warning that `[s]uch considerations are peculiarly within the province and professional expertise of corrections officials,'" to whose judgment the courts should defer in such matters. Id. at 540 n.23, 99 S. Ct. at 1875 n.23, quoting Pell v. Procunier, 417 U.S. 817, 827, 94 S. Ct. 2800, 2806, 41 L. Ed. 2d 495 (1974).
The Court in Wolfish, eschewing any "attempt to detail the precise extent of the legitimate governmental interests that may justify conditions or restrictions of pretrial detention," id. 441 U.S. at 540, 99 S. Ct. at 1874, held that on the facts of that case placing two inmates in a cell designed to house only one was not a form of impermissible "punishment." Id. at 541-42, 99 S. Ct. at 1875-1876. The court noted that detainees at the MCC
are required to spend only seven or eight hours each day in their rooms, during most or all of which they presumably are sleeping. The rooms provide more than adequate space for sleeping. During the remainder of the time, the detainees are free to move between their rooms and the common area.... Nearly all of the detainees are released within 60 days.... We simply do not believe that requiring a detainee to share toilet facilities and this admittedly small sleeping space with another person for generally a maximum of 60 days violates the Constitution.
Id. at 543, 99 S. Ct. at 1876 (footnotes omitted). Accordingly, the court held that
[w]hile confining a given number of people in a given amount of space in such a manner to cause them to endure genuine privations and hardship over an extended period of time might raise serious questions under the Due Process Clause as to whether those conditions amounted to punishment, nothing even approaching such hardship is shown by this record.
Id. at 542, 99 S. Ct. at 1875 (footnote omitted).
In Wolfish, the Court also addressed the question of the constitutionality of certain limitations and restrictions on both pretrial detainees and sentenced inmates at the MCC. The Court summarized four principles "that inform [its] evaluation of the constitutionality" of such restrictions. Id. at 545, 99 S. Ct. at 1877. First, the Court reiterated that "convicted prisoners do not *1184 forfeit all constitutional protections by reason of their conviction and confinement in prison." Id. Second, the Court noted that the rights of prisoners are "subject to restrictions and limitations" imposed not only by the fact that they are confined, but also by "the legitimate goals and policies of the penal institution." Id. at 545-46, 99 S. Ct. at 1877-1878. Third, "maintaining institutional security and preserving internal order and discipline are essential goals that may require limitation or retraction of the retained constitutional rights of convicted prisoners and pretrial detainees." Id. at 546, 99 S. Ct. at 1877. Finally, prison officials "should be accorded wide-ranging deference in the adoption and execution of policies and practices that in their judgment are needed to preserve internal order and discipline and to maintain institutional security." Id. at 547, 99 S. Ct. at 1878.
In view of these principles, the Court in Wolfish found that: (a) the MCC's policy of limiting inmates' receipt of books and magazines to publications mailed directly by publishers or book clubs was justified by security and administrative considerations; (b) the MCC's practice of not permitting inmates to receive, from outside the facility, packages containing food or personal property (except for one package of food at Christmas) was justified by the need to maintain security and diminish the risks of gambling, theft and fights among inmates; (c) unannounced searches by MCC staff members of the living quarters of inmates were permissible, since the Fourth Amendment does not prohibit such searches and the MCC's policy "facilitates the safe and effective performance" of them; and (d) the requirement of the Federal Bureau of Prisons that inmates at all federal facilities, including the MCC, expose their body cavities for visual inspection in the course of strip searches after contact visits was justified by the government's interest in preventing and detecting the smuggling of money, drugs, weapons and other contraband. The Court concluded that these policies and practices did not constitute impermissible "punishment" of pretrial detainees, in violation of the Due Process Clause, see id. at 561-62, 99 S. Ct. at 1885-1886, any more than they violated the constitutional rights of the convicted inmates.
Bell v. Wolfish unquestionably establishes stringent standards to be met by those (such as the plaintiffs here) who challenge the constitutionality of the conditions of confinement of pretrial detainees and convicted inmates. However, it cannot fairly be stated, as one commentator argued, that the Court's test would not allow the inference of impermissible punishment except in "a case of `loading a detainee with chains and shackles and throwing him in a dungeon.'" The Supreme Court, 1978 Term, 93 Harv.L.Rev. 60, 108 (1979), quoting Bell v. Wolfish, supra, 441 U.S. at 539 n.20, 99 S. Ct. at 1874 n.20. The holding of Wolfish imposes no such absolute bar to relief on claims of unconstitutional conditions of confinement falling short of that barbaric example. See Robbins, The Cry of Wolfish in the Federal Courts: The Future of Federal Intervention in Prison Administration, 71 J.Crim.L. & Criminology 211, 219 (1980). Cf. Benjamin v. Malcolm, 495 F. Supp. 1357, 1364 (S.D.N.Y.1980) (Lasker, J.) ("the Wolfish Court quite clearly indicates that overcrowding may constitute impermissible `punishment' within the meaning of its opinion").
Under the Court's framework for analyzing cases such as this one, a determination of whether pretrial detainees or convicted inmates have been denied their constitutional rights requires analysis of whether specific conditions, policies and practices in particular cases are constitutionally justified. Under Wolfish, whether a challenged condition of confinement passes constitutional muster requires an inquiry into whether that condition or restriction "is reasonably related to a legitimate governmental objective," Bell v. Wolfish, supra, 441 U.S. at 539, 99 S. Ct. at 1874; see id. at 546, 99 S. Ct. at 1877 ("[t]his principle applies equally to pretrial detainees and convicted inmates"); this standard necessarily *1185 contemplates a case-by-case analysis.[6] Those who read Wolfish more broadly, as an absolute prohibition on judicial scrutiny of conditions of confinement, ignore the plain language of the Supreme Court's opinion, including the Court's explicit reservation of the question whether overcrowding in circumstances other than those presented by the facts of Wolfish might violate the constitutional rights of inmates. See Bell v. Wolfish, supra, 441 U.S. at 542, 543 n.27, 99 S. Ct. at 1876 n.27.
It should therefore come as no surprise that the federal courts have not treated Wolfish as an insuperable obstacle to claims by pretrial detainees or sentenced inmates that specific conditions of confinement are unconstitutional, or to orders remedying unconstitutional conditions, including overcrowding, in jails and prisons. See, e. g., Chapman v. Rhodes, 624 F.2d 1099 (6th Cir. 1980), aff'g without published opinion 434 F. Supp. 1007 (S.D.Ohio 1977) (declaring unconstitutional the double-celling of convicted prisoners); Campbell v. Cauthron, 623 F.2d 503, 506-07 (8th Cir. 1980) (holding that overcrowding, including placing of inmates in multiple-bunk cells, violated due process rights of pretrial detainees and Eighth Amendment rights of convicted prisoners); Adams v. Mathis, 614 F.2d 42, 43 (5th Cir. 1980) (per curiam), aff'g 458 F. Supp. 302 (M.D.Ala.1978) (Johnson, J.) (holding that conditions, including overcrowding in cells and "dayrooms," violated constitutional rights of both pretrial detainees and convicted prisoners); Benjamin v. Malcolm, supra, 495 F.Supp. at 1364-65 (notwithstanding Bell v. Wolfish, district court ordered reduction in number of pretrial detainees held at house of detention on grounds that the case was factually distinguishable from Wolfish and that the defendants had stipulated, even after Wolfish, that the overcrowded conditions of confinement were unconstitutional); Capps v. Atiyeh, 495 F. Supp. 802, 813-15 (D.Or.1980) (holding that, notwithstanding Wolfish, overcrowded conditions violated sentenced inmates' Eighth Amendment rights); West v. Lamb, 497 F. Supp. 989, 991, 1004-05 (D.Nev.1980) (holding that overcrowded conditions violated the due process rights of pretrial detainees and the Eighth Amendment rights of convicted inmates, and imposing a "cap" on jail population); Nicholson v. Choctaw County, 498 F. Supp. 295 (S.D.Ala.1980) (holding that totality of conditions violated due process rights of pretrial detainees and Eighth Amendment rights of convicted inmates; ordering, inter alia, a ceiling on population of various large cells housing more than one inmate); Hutchings v. Corum, 501 F. Supp. 1276 (W.D.Mo.1980) (holding that overcrowding violated due process rights of pretrial detainees and Eighth Amendment rights of convicted inmates); Hoptowit v. Ray, No. 79-359 at 50-51, 56 (E.D.Wash. June 23, 1980) (holding that totality of conditions, including overcrowding, at penitentiary violated inmates' Eighth Amendment rights; ordering, inter alia, reduction of the inmate population); Ramos v. Lamm, 485 F. Supp. 122, 154-55, 169-70 (D.Colo.1979) (holding that totality of conditions, including overcrowding, at penitentiary violated Eighth Amendment rights of prisoners; ordering that prison be closed unless state submitted plan protecting constitutional rights of the prisoners). Cf. Jordan v. Wolke, 615 F.2d 749, 754-57 (7th Cir. 1980) (Swygert, J., dissenting); Burks v. Teasdale, 603 F.2d 59, 62-63 (8th Cir. 1979) (suggesting that district court consider whether double-celling should be eliminated at state penitentiary); Washington v. Keller, 479 F. Supp. 569 (D.Md.1979) (approving, over taxpayer's objection, a post-Wolfish consent decree eliminating double-celling and other overcrowded conditions at correctional institution); Valentine v. Englehardt, 474 F. Supp. 294, *1186 299-302 (D.N.J.1979) (referring question of constitutionality of various restrictions on pretrial detainees' access to visits from friends and families to a special master for report, and holding practice of absolutely barring children as visitors unconstitutional, under Wolfish test).
B. The Application of Bell v. Wolfish to Conditions at the HCCC
Under Bell v. Wolfish, the court must determine: (1) whether the overcrowded living conditions of pretrial detainees at the HCCC constitute impermissible "punishment," as defined in Wolfish, and thus violate the Due Process Clause; (2) whether the overcrowded conditions in which "double-bunked" convicted prisoners live violate a specific constitutional provision here, the prohibition of cruel and unusual punishment in the Eighth Amendment; and (3) whether conditions to which both pretrial detainees and convicted inmates are subjected, without regard to their status, violate the due process standard of Wolfish.[7]
(1) Overcrowding of Pretrial Detainees
It has been established that many pretrial detainees are "double-bunked" in cells containing 60 to 65 square feet of space, 36 square feet of which are occupied by fixtures and furniture. Others are housed in the makeshift dormitory which the inmates call the "fishtank"; at a capacity of 9 inmates, the 200 square foot "fishtank" provides an average of less than 23 square feet per inmate (including the substantial area occupied by fixtures and furniture). Finally, other inmates who need neither medical nor psychiatric care are housed in the HCCC's hospital unit, sometimes sharing cells with inmates who are ill. They spend 23 hours a day in their cells, and are without access even to the inadequate and overcrowded "dayrooms" for recreation.
The overcrowding extends to the bulk of the time which pretrial detainees spend outside their cells or dormitory, for the "dayrooms" in which they pass much of the day (while watching television, reading, playing cards, and eating) are so crowded that the inmates have little room in which to move about. The court has already recounted the effects on the institution and the inmates of the overcrowding of both residential areas and "dayrooms." The overcrowding to which pretrial inmates are almost constantly subject has, inter alia, caused harm to the psychological and physical well-being of the inmates and posed a threat to the security of the institution.
As previously noted, under Wolfish, "if a restriction or condition is not reasonably related to a legitimate goal if it is arbitrary or purposeless a court permissibly may infer that the purpose of the governmental action is punishment that may not constitutionally be inflicted upon detainees qua detainees," id. at 539, 99 S. Ct. at 1874. The Court noted that "`[t]here is, of course, a de minimis level of imposition with which the Constitution is not concerned.'" Id. at 539 n.21, 99 S. Ct. at 1874 n.21, quoting Ingraham v. Wright, 430 U.S. 651, 674, 97 S. Ct. 1401, 1414, 51 L. Ed. 2d 711 (1977).[8]
On the record before this court, it is clear that the overcrowded conditions to which the defendants subject pretrial detainees at *1187 the HCCC represents a substantial, rather than a de minimis, imposition. The conditions at the HCCC impose on inmates greater hardship than did conditions at the MCC. Many of the pretrial detainees in the plaintiff class are forced to live in cells and dormitory accommodations which leave them with approximately one-half as much space as is prescribed, as minimally acceptable, by experts (including administrators of correctional facilities) concerned with the architecture of jails and prisons and the establishment of generally recognized correctional standards.[9] This is even less space *1188 *1189 than was afforded the "double-bunked" inmates in Wolfish.[10] Moreover, unlike the conditions in Wolfish, such overcrowding cannot be avoided by inmates while they are outside their cells,[11] and has been established to have caused injury to the mental and physical well-being of pretrial detainees. Unlike Wolfish, a substantial number of inmates here are confined in double-bunked cells for periods of more than 60 days. On these facts the court finds that the pretrial detainees at the HCCC are confined "in a given amount of space in such manner as to cause them to endure genuine privations and hardship over an extended period of time." Bell v. Wolfish, supra, 441 U.S. at 542, 99 S. Ct. at 1875.
Under Bell v. Wolfish, such a finding is not the end of the inquiry. Rather, the court must determine whether the privations endured by the pretrial detainees are justifiable on the facts of the case. See Bell v. Wolfish, supra, 441 U.S. at 538-39, 99 S. Ct. at 1873-1874. In doing so, the court must defer broadly to the defendants' expertise and administrative discretion, but also must determine whether there is some minimal nexus between the defendants' practices and a legitimate objective of the HCCC's management. Absent a showing by the defendants of that kind of connection, the defendants have failed to "dispel [the] inference that such restrictions are intended as punishment," id. at 540, 1874 (footnote omitted), and are therefore impermissible under the Due Process Clause.
The record of this case is devoid of any indication that placing two inmates in a 60- or 65-square foot cell, or fifteen to twenty inmates in a 200-square foot "day-room" while they are not in their cells or dormitory, or confining inmates not suffering from any disease or disorder to a cell in the hospital area (which they must sometimes share with inmates who are ill) for 23 hours a day, furthers in the least any legitimate purpose of the defendants whether it be "ensuring a detainee's presence at trial," Bell v. Wolfish, supra, 441 U.S. at 540, 99 S. Ct. at 1874, "maintaining security and order," id., or anything else which might have any tendency to promote "the effective management of the detention facility." Id. To the contrary, on the record before this court, the overcrowded conditions at the HCCC have increased security problems[12] and made more difficult the effective management of the institution.[13] In passing, the court notes that this cause-and-effect relationship between extreme overcrowding *1190 and breakdowns in discipline is not unusual or unprecedented. Although the very nature of incarceration may render disciplinary problems inevitable, see generally M. Foucault, Discipline and Punish: The Birth of the Prison 266-68 (Vintage ed. 1979), experience confirms that overcrowded conditions of confinement may aggravate such problems and lead to the collapse of discipline, including violence within correctional institutions. See, e. g., Capps v. Atiyeh, supra, 495 F.Supp. at 811 ("the increased potential for violence is one of the most significant effects of overcrowding" in correctional facilities, as demonstrated by expert testimony and the admissions of correctional administrators); Hoptowit v. Ray, supra, at 9 (overcrowding found to have increased the possibility of violence at penitentiary); B. McKelvey, American Prisons 6-7, 81-82 (1936).[14]
The overcrowded conditions at the HCCC, which have been demonstrated to have had serious effects on the welfare of pretrial detainees,[15] have not been justified by the defendants as being "reasonably related to a legitimate goal," Bell v. Wolfish, supra, 441 U.S. at 539, 99 S. Ct. at 1874.[16] On the facts of this case, the court therefore draws the inference, expressly permitted by the Supreme Court's decision in Bell v. Wolfish, that the purpose of the defendants' overcrowding of the facility "is punishment that may not constitutionally be inflicted upon detainees qua detainees." Id. It necessarily follows, under the test of Bell v. Wolfish, that the defendants have violated the due process rights, guaranteed by the Fourteenth Amendment to the United States Constitution, of pretrial inmates at the HCCC. In so holding, the court in no way contravenes the Supreme Court's dictum that there is no "`one man, one cell' principle lurking in the Due Process Clause," Bell v. Wolfish, supra, 441 U.S. at 542, 99 S. Ct. at 1875. Rather, it finds that even under the stringent test of Bell v. Wolfish, the overcrowded conditions at the HCCC are so egregious and so unsupported by any rational or legitimate justification that they are unconstitutional insofar as they affect the pretrial detainees in the plaintiff class. *1191
*1192 (2) Overcrowding of Sentenced Inmates
A different constitutional standard applies to the defendants' treatment of sentenced inmates. For sentenced inmates the question posed by the allegation that overcrowding violates the Constitution is whether those conditions contravene the Eighth Amendment's prohibition of "cruel and unusual punishment." In the prison context, the Supreme Court has stated:
The Eighth Amendment's ban on inflicting cruel and unusual punishments, made applicable to the States by the Fourteenth Amendment, "proscribe[s] more than physically barbarous punishments." Estelle v. Gamble, 429 U.S. 97, 102 [97 S. Ct. 285, 290, 50 L. Ed. 2d 251] [(1976)]. It prohibits penalties that are grossly disproportionate to the offense, Weems v. United States, 217 U.S. 349, 367 [30 S. Ct. 544, 549, 54 L. Ed. 793] [(1910)], as well as those that transgress today's "`broad and idealistic concepts of dignity, civilized standards, humanity and decency.'" Estelle v. Gamble, supra, [429 U.S.] at 102 [97 S.Ct. at 290,] quoting Jackson v. Bishop, 404 F.2d 571, 579 (CA 8 1968). Confinement in a prison or in an isolation cell is a form of punishment subject to scrutiny under Eighth Amendment standards.
Hutto v. Finney, 437 U.S. 678, 685, 98 S. Ct. 2565, 2570, 57 L. Ed. 2d 522 (1978) (emphasis added).
There is no clear test by which conditions of confinement may be measured to determine whether they "are incompatible with `the evolving standards of decency that mark the progress of a maturing society.'" Estelle v. Gamble, supra, 429 U.S. at 102, 97 S. Ct. at 290, quoting Trop v. Dulles, 356 U.S. 86, 101, 78 S. Ct. 590, 598, 2 L. Ed. 2d 630 (1958). Because this test has been held to be more stringent than that governing the due process rights of pretrial detainees, see Wolfish v. Levi, 573 F.2d 118, 125, 127 (2d Cir. 1978), rev'd on other grounds sub nom. Bell v. Wolfish, supra, the Court's inquiry is limited to determining whether the defendants have violated their duty to "provid[e] adequate housing" for sentenced inmates. Id. at 127.
There is no need to belabor the effects of overcrowded conditions on inmates at the HCCC. As noted previously, inmates including those who have been convicted and sentenced are required to live in such close quarters that their physical and mental well-being is harmed.[17] The "evolving standards of decency" with which the overcrowding of inmates at the HCCC are incompatible include the Standard Minimum Rules for the Treatment of Prisoners, which have been adopted by the United Nations Economic and Social Council (the members of which include some nations whose standards of decency and human rights are far less stringent than our own) and thus form part of the body of international human rights principles establishing standards for *1193 decent and humane conduct by all nations.[18]See Estelle v. Gamble, supra, 429 U.S. at 103-04 & n.8, 97 S. Ct. at 290-291 n.8 (citing the Standard Minimum Rules as evidence of "contemporary standards of decency").
The defendants themselves have embraced these international standards. In 1974, the defendants adopted the Standard Minimum Rules as the preamble to the Administrative Directives of the Connecticut Department of Correction.[19] This action was apparently taken pursuant to Commissioner Manson's statutory mandate to promulgate "rules for administrative practices ... in accordance with recognized correctional standards." Conn.Gen.Stat. § 18-81 (emphasis added).
There may be no absolute prescription of "one man, one cell" in the Eighth Amendment. However, at the HCCC convicted inmates are subject virtually all the time to institutionalized overcrowding which violates not only the standards embraced by the defendants themselves, but also other, less demanding, correctional standards which are generally recognized. See, e. g., Campbell v. Cauthron, supra, 623 F.2d at 506-07 (housing inmates in multiple-person cells giving as little as 18 to 26 square feet of space per prisoner, in violation of state Criminal Detention Facilities Board's minimum design standards, violated the Eighth Amendment); Battle v. Anderson, 564 F.2d 388, 395 (10th Cir. 1977) (holding that the "contemporary standards of human decency" embodied in the Eighth Amendment require 60 square feet of space per prisoner in cells and 75 square feet per prisoner in dormitories, as suggested by American Public Health Association standards); Hoptowit v. Ray, supra, No. 79-359 at 7-9, 50 (overcrowded housing conditions for sentenced inmates which afforded them substantially less space than minimum standards, such as those of the American Correctional Association, violated their Eighth Amendment rights); Capps v. Atiyeh, supra (holding unconstitutional under the Eighth Amendment the double-celling of inmates *1194 in cells of 51 to 68 square feet and the confinement of inmates in dormitories giving them an average of 43 square feet of space). Moreover, here the defendants have not argued (much less established) that the suffering endured by inmates "would serve any penological purpose." See Estelle v. Gamble, supra, 429 U.S. at 103, 97 S. Ct. at 290.[20] In these circumstances, the court cannot avoid holding that the defendants have violated their duty under the Eighth Amendment to provide adequate housing for convicted inmates at the HCCC.
(3) Other Conditions of Confinement
Although the grossly overcrowded conditions at the HCCC are at the heart of these cases, the plaintiffs have also alleged that other conditions at that institution violate their constitutional rights. The plaintiffs complain of a breakdown in the delivery of medical and psychiatric service at the HCCC, the inadequacy of counseling services, a decline in sanitary conditions, and allegedly inadequate food services and opportunities for recreation. While the court has found that there are inadequacies in most of these areas, those deficiencies appear, with one important exception, to be so closely tied to the overcrowding of the HCCC that they can be remedied by an order which places a "ceiling" on the number of inmates at the institution in order to correct the constitutional violations discussed in Parts B(1) and B(2) of this decision. Because such a simple order (which would in any event be necessary to correct the major unconstitutional condition at the institution) will alleviate these ancillary problems, and because the courts may not become "enmeshed in the minutiae of prison operations," Bell v. Wolfish, supra, 441 U.S. at 562, 99 S. Ct. at 1886, or supervise "the day-to-day operation of a corrections facility," id. at 547, 99 S. Ct. at 1878, I decline to rule that the defendants' practices with respect to providing medical and psychiatric treatment, counseling, sanitation services, food and recreation are themselves unconstitutional.
There is, however, one practice of the defendants which, standing alone, violates the Due Process Clause of the Constitution. The defendants have failed adequately to screen newly arrived inmates in order to identify and segregate from other inmates persons carrying communicable diseases. The threat posed to the health of all HCCC inmates by this practice is obvious. A medical "screening" examination shortly after admission to a correctional facility is therefore widely recognized to be essential to the health of inmates. See American Medical Association, Standards for Health Services in Jails 21-23 (1979); American Bar Association Commission on Correctional Facilities and Legal Services, Medical and Health Care in Jails, Prisons and Other Correctional Facilities 7, 16, 19 (3d ed. 1974). Moreover, section 19-13-A10(2) of the Regulations of Connecticut State Agencies provides that "[t]he warden ... in charge of any prison or jail shall notify the prison or jail physician, in writing, within twenty-four hours upon the receipt of a prisoner who may have been exposed to a communicable disease ...."; it is impossible for the warden to comply with this regulation unless his staff performs adequate examinations for communicable diseases.[21] There is no evidence that any inmates *1195 at the HCCC have yet contracted communicable diseases as a result of the defendants' failure to screen, identify and isolate cases of such diseases. Nevertheless, the resulting threat to the well-being of the inmates is so serious, and the record so devoid of any justification for the defendants' policy, that under the standard of Bell v. Wolfish this practice constitutes "punishment" in violation of the Due Process Clause.[22]
Conclusion
On the facts of these cases, the overcrowding of the HCCC violates the due process rights of the pretrial detainees and the right of sentenced inmates to be free from "cruel and unusual punishment." Moreover, the lack of screening procedures which would ensure the identification and segregation of inmates carrying contagious diseases violates the constitutional rights of all the inmates at the HCCC. While the myriad other conditions of which the plaintiffs have complained are probably unpleasant for the inmates, none of these consequences of overcrowding are in and of themselves unconstitutional, and they will surely be ameliorated by an order protecting the inmates from the overcrowding which is at the heart of these cases.
The court recognizes that "state and local authorities have primary responsibility for curing constitutional violations" in correctional institutions. See Hutto v. Finney, supra, 437 U.S. at 687 n.9, 98 S. Ct. at 2572 (1978). "If, however, `[those] authorities fail in their affirmative obligations ... judicial authority may be invoked.'" Milliken v. Bradley, 433 U.S. 267, 281, 97 S. Ct. 2749, 2757, 53 L. Ed. 2d 745 (1977), quoting Swann v. Charlotte-Mecklenburg Board of Education, 402 U.S. 1, 15, 91 S. Ct. 1267, 1275, 28 L. Ed. 2d 554 (1971). This is plainly an instance of such a failure by state authorities. While the court must hesitate to thrust itself unnecessarily into the functioning of a correctional institution, it has a duty to order equitable relief "commensurate with the violation ascertained." Columbus Board of Education v. Penick, 443 U.S. 449, 465, 99 S. Ct. 2941, 2950, 61 L. Ed. 2d 666 (1979).
To correct promptly the constitutional violations established on the record, while simultaneously avoiding unnecessary judicial involvement in the day-to-day work of administering a correctional institution, the court makes the following simple order:
1. The defendants shall reduce the nighttime population of the HCCC to 390 *1196 inmates no later than February 13, 1981. By that date no inmate shall share a cell with any other inmate, no inmate who is not ill shall be placed in the hospital area, and no inmate shall sleep in the "fishtank" or other "dayroom" areas. The maximum number of inmates housed at the HCCC after February 13, 1981 shall remain 390, unless the court orders otherwise.
2. By January 29, 1981, the defendants shall institute procedures for (a) conducting medical examinations and tests which identify those newly admitted inmates who may have a communicable disease, and (b) isolating such inmates from other inmates.
3. The defendants shall certify their compliance with ¶¶ 1 and 2 of the court's order in affidavits, to be prepared by either the warden of the HCCC or the Commissioner of the Department of Correction, and filed with the court no later than February 2, 1981 (as to ¶ 2) and February 20, 1981 (as to ¶ 1).
The court's order is limited to ensuring that the overpopulation of the HCCC is cured and that adequate medical screening procedures are implemented. Because the details of correctional administration are not properly matters within the court's province, the specific means to which the defendants may resort to comply with this order are not for the court to determine.[23] However, the court assumes that the professional administrators of the HCCC and the Connecticut Department of Correction will exercise their judgment and discretion in a manner which will protect the constitutional rights of the inmates at the HCCC without jeopardizing the safety and welfare of the community.
The court notes that at oral argument and in their written submissions counsel for the defendants contended that the inevitable result of any order limiting the HCCC's population to its design capacity would be the unwarranted release into the community of numerous inmates who had been committed to the defendant's custody by the courts of the State of Connecticut.[24] While this prospect is an alarming one, the defendants have not in fact established that the release of any inmates from their correctional system would result from such an order; all that they have offered in support of the fearsome specter of inmates turned loose to victimize the innocent people of the state are the bare statements of counsel. The court neither orders nor expects the release of inmates who may pose a danger to the community. In view of the options available to the state to remedy conditions found unconstitutional by the court options clearly within the reach of state officials the responsibility for the release into the community of any potentially dangerous inmates rests squarely on the shoulders of the state officials whose actions, inaction or abdication of public trust lead to any such release.
It is the Commissioner's duty to provide secure facilities for the confinement of all inmates remanded to his custody by the courts of Connecticut, and to do so in a manner consistent with the Constitution of the United States. Notwithstanding the defendants' unusual request that this federal court take responsibility for running their institutions,[25] it is up to the defendants, and particularly the Commissioner, to ensure that the people of Connecticut are protected from those who have been adjudicated to have violated the criminal laws; that persons held pending trial be kept in secure facilities, so that the state will be certain that they will appear at trial; and that the institutions used to house inmates be maintained in compliance with minimal *1197 constitutional standards. The means of fulfilling all of these responsibilities, including avoiding the fearsome possibilities raised by the state, are available. How the defendants employ those means, in consultation with all relevant branches of the state government, is not this court's concern. But it should be clearly understood that a default by the state government in meeting its constitutional obligations might subsequently require this court to consider such additional remedial action as will vindicate the demands of our Constitution.[26] The court assumes and expects that the defendants will continue to perform their responsibilities with professionalism and good faith,[27] and that their response to this order will protect both the public safety and the rights secured to the plaintiffs by the Constitution.
NOTES
[1] The cases were consolidated by order of Magistrate F. Owen Eagan, filed June 5, 1978. On April 2, 1980, Magistrate Eagan recommended that the plaintiffs' motion for class certification be granted, except as to certain claims pertaining to the treatment of non-English-speaking inmates. The court adopted this recommendation to which the defendants interposed no objection as its ruling on June 4, 1980.
[2] See Findings of Fact, filed November 25, 1980.
[3] After the record in this case was closed, the defendants allegedly made certain modifications of conditions in the "fishtank." According to representations made by the defendants' counsel in the course of oral argument, and in an earlier document filed with the court, the "fishtank" which is still separated from a corridor by a transparent wall, and still contains only one open toilet for its numerous residents now is populated by eight, rather than nine, inmates; the inmates now sleep in four double-bunk beds, rather than individual beds arranged on the floor of the "fishtank." See Transcript of Oral Argument on Appropriate Conclusions of Law and Remedy, Dec. 8, 1980 ("Tr.") 37-42; Defendant's Proposed Plan for the Hartford Correctional Center, filed November 21, 1980.
[4] Camp Hartell, which is located in the vicinity of Windsor (just north of Hartford) was, in a previous emergency, converted by the state from use as a National Guard camp to a jail for inmates who posed little or no security risk. See Tr. 116-18. Although the defendants' counsel argued that the prior experience at Camp Hartell (which then was used to house striking teachers) is of no relevance to the present situation, see Tr. 117-18, the record is devoid of evidence that Camp Hartell could not, with modifications, accommodate a significant number of low-security risk inmates. As defendants' counsel conceded, the facility at Niantic (an existing correctional institution maintained by the defendants) will be able to accommodate up to 100 male inmates "within the next few months." Tr. 119. See Niantic to House Males from Overcrowded Jails, Hartford Courant, Nov. 19, 1980, p. A5, col. 1. Connecticut officials have also recently explored the possible acquisition and renovation of a 500-bed facility in Shelton, the development of a 100-bed halfway house and reforms in judicial procedure to reduce the number of defendants sentenced to prison or detained pending trial. See Advisers Discuss Increased Use of Promise to Appear in Court, Hartford Courant, Dec. 19, 1980, p. A21, col. 1; Manson Urges Tying Number of Sentences to Prison Beds, Hartford Courant, Dec. 3, 1980, p. A9, col. 2.
[5] These include "convicted prisoners who have been lodged at the facility under writs of habeas corpus ad prosequendum or ad testificandum issued to ensure their presence at upcoming trials, witnesses in protective custody, and persons incarcerated for contempt." Bell v. Wolfish, 441 U.S. 520, 524, 99 S. Ct. 1861, 1866, 60 L. Ed. 2d 447 (1979) (footnote omitted).
[6] As the Wolfish opinion makes clear at numerous points, in undertaking that analysis, a court must defer broadly to the judgment of prison administrators. At the same time, Wolfish did not repudiate the basic principle that a court reviewing claims of unconstitutional conditions must not "abdicate its constitutional responsibility to delineate and protect fundamental liberties." Pell v. Procunier, 417 U.S. 817, 827, 94 S. Ct. 2800, 2806, 41 L. Ed. 2d 495 (1974). See Campbell v. Cauthron, 623 F.2d 503, 505 (8th Cir. 1980). The defendants have conceded that this requires a case-by-case analysis. See Tr. 31.
[7] The due process standard applicable to pretrial detainees also applies to the conditions of confinement of convicted prisoners to the extent that the latter are integrated or mixed with the former. See White Eagle v. Storie, 456 F. Supp. 302, 304-05 (D.Neb.1978); Owens-El v. Robinson, 442 F. Supp. 1368, 1374 (W.D.Pa. 1978); O'Bryan v. County of Saginaw, 437 F. Supp. 582, 596 (E.D.Mich.1977). In this case, the defendants have segregated the pretrial detainees from convicted prisoners in their housing. See Findings of Fact, ¶ 4. Therefore, the court's consideration of the latter group's confinement in "double-bunked" cells is governed by the stricter Eighth Amendment test, rather than the due process analysis of Bell v. Wolfish, supra. However, where the defendants have made no distinctions between pretrial detainees and convicted inmates e. g., with respect to counseling services, recreation and medical practices the "Constitutional common denominator" of the due process clause, O'Bryan v. County of Saginaw, supra, 437 F.Supp. at 596, applies.
[8] Although the Court in Wolfish held that the double-bunking at issue there did not violate the due process rights of the inmates, that decision may not fairly be read as holding that double-bunking is always constitutional. The Court wrote that "[o]n this record, we are convinced as a matter of law that `double-bunking' as practiced at the MCC did not amount to punishment and did not, therefore, violate respondents' rights under the Due Process Clause ...." 441 U.S. at 541, 99 S.Ct. at 1875 (emphasis added). The opinion in Wolfish implies that on other factual records such double-bunking might well be unconstitutional. See Benjamin v. Malcolm, 495 F. Supp. 1357, 1364 (S.D. N.Y.1980).
[9] As noted above, a "double-bunked" inmate at the HCCC has approximately 30 to 32½ square feet of space (including space occupied by fixtures and furniture), while an inmate assigned to the "fishtank" has less than 23 square feet of space (calculated the same way, on the assumption of 9 inmates in the "fishtank"). By way of contrast the plaintiffs have called the court's attention to the following standards:
(a) The United Nations Standard Minimum Rules for the Treatment of Prisoners, adopted by the First United Nations Congress on the Prevention of Crime and Treatment of Offenders in 1955, and approved by the Economic and Social Council of the United Nations by its Resolutions 663C (LLIV) on July 31, 1957 and 2076 (LXII) on May 13, 1977. The Standard Minimum Rules which were explicitly adopted as the "Preamble to The Administrative Directives of the Connecticut Department of Correction" by the Connecticut Department of Correction on November 8, 1974, see Plaintiffs' Exhibit G-2 prohibit double-bunking. In adopting the Standard Minimum Rules, the Department acted in accordance with Conn.Gen.Stat. § 18-81, which provides that the Commissioner of Correction "shall establish rules for the administrative practices ... of [state correctional] institutions and facilities in accordance with recognized correctional standards." (emphasis supplied).
Article 9(1) of the Standard Minimum Rules provides that "each prisoner shall occupy by night a cell or room by himself." In 1974 the Connecticut Department of Correction noted that this rule was "[c]urrently in effect at all units of the Department except at Community Correctional Centers at New Haven and Hartford, where new facilities, projected for completion in July 1975 and February 1976 [i. e., the HCCC], respectively, will enable total compliance." Plaintiffs' Exhibit G-2 at 2 n.2. Article 86 of the Standard Minimum Rules provides that pretrial detainees "shall sleep singly in separate rooms, with the reservation of different local custom in respect of the climate." The Department made no observation that, as of 1974, it was not in compliance with this rule.
(b) The Commission on Accreditation for Corrections' Manual of Standards for Adult Correctional Institutions, sponsored by the American Correctional Association, an organization whose members are corrections administrators from all parts of the country. The Manual provides that in a detention facility there should be one inmate per room or cell, each of which has a floor area of at least 60 square feet. Exhibit O at 21. It also calls for a minimum floor area of 50 square feet for dormitory accomodations where these are used. Id.
(c) The National Sheriffs' Association Handbook on Jail Architecture. This publication, prepared in 1975, stated that "[i]ndividual detention rooms must be provided for each inmate who is detained for longer than 4 to 8 hours and that "[s]ingle occupancy detention rooms should average 70 to 80 square feet in area." Exhibit G-3 at 62-63.
(d) The Guidelines for the Planning and Design of Regional and Community Correctional Centers for Adults, established by the Department of Architecture of the University of Illinois, which call for individual rooms. Exhibit G-1.
(e) The Standards for Health Services in Correctional Institutions of the American Public Health Association, which call for 60 square feet of space per inmate. Exhibit X at 62.
While the Court in Bell v. Wolfish noted that such standards, taken as the recommendations of various groups, "do not establish the constitutional minima," it also stated that they "may be instructive in certain cases." Id., 441 U.S. at 544 n.27, 99 S. Ct. at 1876 n.27. It is in that light that the court refers to such standards, as did the courts in Ramos v. Lamm, 485 F. Supp. 122, 154 (D.Colo.1979) (citing American Public Health Association standard of 60 square feet per inmate, in post-Wolfish case); Capps v. Atiyeh, 495 F. Supp. 802, 809-810 (D.Or.1980) (citing various criteria calling for 55 or more square feet per prisoner); and Hoptowit v. Ray, No. 79-359 at 8 (E.D.Wash. June 23, 1980) (referring to Manual of Standards for Adult Correctional Institutions). Cf. Chapman v. Rhodes, 434 F. Supp. 1007, 1021 (S.D.Ohio 1977), aff'd without opinion, 624 F.2d 1099 (6th Cir. 1980) (referring to a number of criteria which call for minima of between 50 and 75 square feet per prisoner).
Apart from Connecticut's administrative adoption of the United Nations Standard Minimum Rules for the Treatment of Prisoners, those standards may be significant as expressions of the obligations to the international community of the member states of the United Nations, cf. Filartiga v. Pena-Irala, 630 F.2d 876, 883 (2d Cir. 1980), and as part of the body of international law (including customary international law) concerning human rights which has been built upon the foundation of the United Nations Charter. See generally Buergenthal, Codification and Implementation of International Human Rights 15-19 in Human Dignity: The Internationalization of Human Rights (A. Henkin ed. 1978). It is well established that customary international law is part of the law of the United States. See, e. g., The Paquete Habana, 175 U.S. 677, 700, 20 S. Ct. 290, 299, 44 L. Ed. 320 (1900); L. Henkin, Foreign Affairs and the Constitution 221 (1972). The United Nations Charter is, of course, a treaty ratified by the United States. 59 Stat. 1031, T.S. No. 993 (1945). Although not self-executing, see Hitai v. Immigration & Naturalization Service, 343 F.2d 466, 468 (2d Cir. 1965), the Charter's provisions on human rights are evidence of principles of customary international law recognized as part of the law of the United States. See Filartiga v. Pena-Irala, supra, 630 F.2d at 881-82 & n.9; see generally United States v. Toscanino, 500 F.2d 267, 277 (2d Cir. 1974); Restatement of the Foreign Relations Law of the United States (Revised) §§ 102(1)(b), 102(3), 131 & Comment h to § 102 (Tent. Draft. No. 1, 1980). Article 55 of the Charter provides that the United Nations shall promote the observance of human rights; in Article 56 the member states pledge "to take joint and separate action in cooperation with the Organization for the achievement" of the goals of Article 55; and Article 62(2) of the Charter authorizes the Economic and Social Council of the United Nations to "make recommendations for the purpose of promoting respect for, and observance of, human rights and fundamental freedoms for all."
In adopting the Standard Minimum Rules for the Treatment of Prisoners, the Economic and Social Council acted in furtherance of this mandate to set international standards promoting the observance of human rights. See generally J. Carey, UN Protection of Civil and Political Rights 9-16 (1970); M. McDougal, H. Lasswell & L. Chen, Human Rights and the World Public Order 332-35 (1980); McDougal & Bebr, Human Rights in the United Nations, 58 Am.J.Int'l L. 603, 613-14 (1964). The United States took a leading role in the promulgation of the human rights provisions of the United Nations Charter, and in the program to implement those provisions of the Charter. President Truman stated in his closing address to the San Francisco Conference: "Under this document we have good reason to expect an international bill of rights acceptable to all the nations involved. That Bill of Rights will be as much a part of international life as our own Bill of Rights is part of our Constitution." 1 U.N.C.I.O. Docs. 717 (1945), quoted in McDougal & Bebr, supra, 58 Am.J.Int'l L. at 613. See generally McDougal & Leighton, The Rights of Man in the World Community: Constitutional Illusions Versus Rational Action, 59 Yale L.J. 60 (1949) (arguing for an active American role in support of the United Nations' program for human rights); Nayar, Human Rights: The United Nations and United States Foreign Policy, 19 Harv.Int'l L.J. 813, 824-26 (1978) (noting recent American government actions to implement the obligations to promote human rights contained in the United Nations Charter).
The adoption of the Standard Minimum Rules by the First United Nations Congress on the Prevention of Crime and Treatment of Offenders and its subsequent approval by the Economic and Social Council does not necessarily render them applicable here. However, these actions constitute an authoritative international statement of basic norms of human dignity and of certain practices which are repugnant to the conscience of mankind. The standards embodied in this statement are relevant to the "canons of decency and fairness which express the notions of justice" embodied in the Due Process Clause. See Rochin v. California, 342 U.S. 165, 169, 72 S. Ct. 205, 208, 96 L. Ed. 183 (1952), quoting Malinski v. New York, 324 U.S. 401, 417, 65 S. Ct. 781, 789, 89 L. Ed. 1029 (1945) (Frankfurter, J., concurring); Louisiana ex rel. Francis v. Resweber, 329 U.S. 459, 469, 67 S. Ct. 374, 379, 91 L. Ed. 422 (1947) (Frankfurter, J., concurring) ("a state may be found to deny a person due process by treating even one guilty of crime in a manner that violates standards of decency more or less universally accepted ...."). The due process guarantees in our Constitution are based on a concept which "is not final and fixed," but evolves on the basis of judgments "reconciling the needs both of continuity and of change in a progressive society." Rochin v. California, supra, 342 U.S. at 170, 171, 72 S. Ct. at 208-209. Cf. Estelle v. Gamble, 429 U.S. 97, 102, 97 S. Ct. 285, 290, 50 L. Ed. 2d 251 (1976) (Eighth Amendment prohibits punishment transgressing "the evolving standards of decency that mark the progress of a maturing society"); Rudolph v. Alabama, 375 U.S. 889, 890 & n. 1, 84 S. Ct. 155, 11 L. Ed. 2d 119 (1963) (Goldberg, J., dissenting from denial of certiorari) (citing Economic and Social Council resolution as relevant to question whether Eighth Amendment has been violated). In this regard, it is significant that federal courts including the Supreme Court and the Court of Appeals for the Second Circuit have invoked the Standard Minimum Rules for guidance in particular cases. See, e.g., Estelle v. Gamble, supra, 429 U.S. at 103-104 & n.8, 97 S. Ct. at 290-291 & n.8 (citing the Standard Minimum Rules as evidence of "contemporary standards of decency" for purposes of the Eighth Amendment); Detainees of Brooklyn House of Detention for Men v. Malcolm, 520 F.2d 392, 396 (2d Cir. 1975) (referring to the single cell provision of the Standard Minimum Rules).
[10] Each of the rooms at the MCC, with which the Wolfish case was concerned, had a total floor space of approximately 75 square feet, Bell v. Wolfish, supra, 441 U.S. at 541, 99 S. Ct. at 1875, compared to the 60 to 65 square feet of the cells at the HCCC. Moreover, Wolfish did not involve makeshift dormitory housing providing inmates with as little as 23 square feet of space per person.
[11] For nearly all pretrial detainees (and most sentenced inmates as well) the major alternative to spending time in the cells (or the "fishtank") is to pass time in overcrowded "dayrooms." See Findings of Fact, ¶ 95, as modified by order of the court, Dec. 19, 1980. As noted in the court's Findings of Fact (see ¶ 65), although inmates may choose between these alternatives for given blocks of time, they do not have the right, as did the plaintiffs in Wolfish, to "move about freely between their rooms and the common areas," Bell v. Wolfish, supra, 441 U.S. at 541, 99 S. Ct. at 1875. Nothing in the Wolfish opinion indicates that the plaintiffs there contended (as do the plaintiffs here) that the overcrowding in the "dayrooms" was violative of their constitutional rights. The inmates assigned to cells in the medical area of the HCCC do not even have the privilege of choosing to spend time in a "dayroom"; they remain in their cells 23 hours every day. See Findings of Fact, ¶¶ 47, 48.
[12] The importance of this factor is underscored by the Supreme Court's observation that "central to all other corrections goals is the institutional consideration of internal security within the corrections facilities themselves." Pell v. Procunier, 417 U.S. 817, 823, 94 S. Ct. 2800, 2804, 41 L. Ed. 2d 495 (1974). This dictates deference to correctional administrators' decisions which further institutional security interests even at the expense of specific constitutional rights of inmates, see Bell v. Wolfish, supra, 441 U.S. at 546-47, 99 S. Ct. at 1877-1878. However, it would appear to cut the other way where, as here, the decisions of the administrators jeopardize, rather than promote, the security of the facility. See Findings of Fact, ¶¶ 43, 49-50, 60, 62, 64; cf. Tr. 56-57 (admission by defendants' counsel that security at the HCCC is not enhanced by overcrowding, and disclaimer of the argument that security considerations justify such overcrowding); Tr. 130 (admission by Commissioner Manson that security problems increase with the number of inmates).
[13] Cf. Benjamin v. Malcolm, 495 F. Supp. 1357, 1363 (S.D.N.Y.1980) (overpopulation at house of detention resulted in harm to security and management, by causing an "atmosphere of tension and hostility, a strain on all of the institution's facilities, and interference with supervision, protection and provision of services to members of the plaintiff class," as stipulated by the parties).
[14] William Carbone, the executive director of the Connecticut Justice Commission, recently stated: "I don't think there's any question but that overcrowding [in correctional institutions] increases tension and tension leads to violence." Jammed Prisons May Explode, State Warned, New Haven Register, Dec. 3, 1980, p. 1, col. 1. The Connecticut Justice Commission is a part of the executive branch of state government established, inter alia, to "develop a comprehensive statewide action plan for ... the improvement of the criminal and juvenile justice systems in Connecticut," and "[t]o advise the governor and the general assembly on legislation and other significant matters pertaining to law enforcement improvement, criminal and juvenile justice reform and the prevention of crime, and prepare and recommend legislation to the governor for the improvement of the criminal and juvenile justice systems." Conn.Gen.Stat. § 29-181(a), (s). Cf. Burger Says Threat of Prison Violence Is Growing, N.Y. Times, Dec. 29, 1980, p. A13, col. 1 (statement of the Chief Justice of the United States, in his year-end summary of the problems and accomplishments of the judiciary, on overcrowding and violence in American prisons).
[15] See Findings of Fact, ¶¶ 42-43, 52-53, 58, 68, 85, 110, 112.
[16] The record of these cases is devoid of any rationale for the overcrowded conditions at the HCCC. At oral argument, the defendants' counsel explained the state's interest in housing so many inmates at the HCCC as follows:
The Court: What is your justification for double celling? Exactly what state interest does double celling serve?
Mr. O'Neill: I suppose to get to the basic elements of the double celling is that Connecticut courts send people to the custody of the Commissioner of Corrections [sic]; whatever their reasoning, either because they've been sentenced or because they have set a bond which the inmate cannot meet. It is then the job of the Commissioner to provide a correctional system, a functioning correctional system or facility for them, to go to.
He just doesn't have enough individual cells at the Hartford jail to give every inmate a single cell.
Tr. 57-58 (emphasis added). The defendants' argument may appear to be based on a lack of adequate resources, a form of the argument (familiar in cases such as this one) that the cost to the state of alternatives to the challenged conditions justifies those conditions. However, as Judge Lasker recently noted in this context, "the decisions of the courts are legion that cost burden is not a defense to the deprivation of constitutional rights." Benjamin v. Malcolm, supra, 495 F.Supp. at 1363. If the state were to be excused from adhering to the United States Constitution whenever it deemed compliance too costly, it would be free in some cases to violate constitutional rights (and indeed effectuate a de facto repeal of rights guaranteed by the federal Constitution) merely by refusing to appropriate funds. The cases establish that the law does not sanction such an absurdity. See, e. g., Campbell v. Cauthron, 623 F.2d 503, 508 (8th Cir. 1980); Turpin v. Mailet, 579 F.2d 152, 165 n.38 (2d Cir. 1978); Todaro v. Ward, 565 F.2d 48, 54 n.8 (2d Cir. 1977); Detainees of Brooklyn House of Detention for Men v. Malcolm, 520 F.2d 392, 399 (2d Cir. 1975); Rhem v. Malcolm, 507 F.2d 333, 342 (2d Cir. 1974). Without denigrating the state's interest in preserving the public fisc, the court cannot regard the incremental financial hardship on the state of providing minimally acceptable living conditions as a legitimate excuse for the overcrowded conditions at the HCCC. The conscious and knowing refusal of a state to make available the resources necessary to fulfill its basic constitutional obligations cannot possibly justify the state's constitutional default; to hold otherwise would be to sanction any deviation from constitutional norms which is directly attributable to budgetary decision-making. If it is true that there is no "`one man, one cell' principle lurking in the Due Process Clause," see Bell v. Wolfish, supra, 441 U.S. at 542, 99 S. Ct. at 1875, surely there is no principle lurking anywhere in the Constitution which permits a state to avoid compliance with constitutional requirements by invoking the preferences of budget-makers in the state legislature or the state executive branch.
In any event, the evidence concerning costs in this case is inconclusive; while the state suggests that improving the conditions of the plaintiffs' confinement will be costly, there is evidence that placing inmates in halfway houses a measure which the state could undertake with regard to many of the pretrial detainees may be less expensive than keeping them at the HCCC. See Findings of Fact, ¶ 69.
Whether because the law regards it as an insufficient justification or because the facts of this case do not support it, the state does not press the proposition that the inadequacy of its resources justifies the overcrowding of the HCCC. At oral argument, defendants' counsel disclaimed the position (apparently taken in the above-quoted statement) that inadequate resources was the state's reason for overcrowding the HCCC, see Tr. 58, 60, and argued as follows:
The Court: Well, I'm still trying to find out what the state interests are that would be served by double celling.
Mr. O'Neill: The state interest, your Honor, is that the state has to provide a correctional system to accommodate people.
The Court: And it just doesn't have the space?
Mr. O'Neill: Accommodate people that are sent to it by the courts, that's correct.
...
The Court: ... The question I'm asking is what state interest is served by double celling? That's the question.
Mr. O'Neill: That the jail provides
The Court: You haven't told me what the interest is.
Mr. O'Neill: The interest, as best I can state it, your Honor, is that the Hartford jail provides a functioning system whereby inmates are fed, they're clothed, they have shelter, they have medical care, they have visiting, they have recreation, they have counseling, they have access to their attorneys, they have access to their families; not as in some respects perhaps not as complete as everybody would like it to be, perhaps not as complete as it will be when Cheshire opens, perhaps not as complete [as] if the courts did not send that many people to the jail.
But the Hartford jail provides those services in a constitutional manner. That's the public function that the Hartford jail, as I see it, that the Hartford jail performs.
. . .
The Court: If I find that the conditions are so bad at the HCCC that I must infer that punishment within the meaning of Wolfish is going on, how would you rebut that inference by showing a logical connection between the overcrowded conditions at the HCCC and some legitimate state objective in running your institutions, as opposed to merely saving money? That's really the question I'm trying to put to you.
Mr. O'Neill: The state objective, as I see it, is this, your Honor and it starts with the courts: that there are judicial actions which end up in the incarceration of certain people. The Commissioner has nothing to do with those actions, but there are judicial actions which result in that situation.
Tr. 59-63 (emphasis added). It would appear that the defendants' ultimate argument is that the conditions at the HCCC are justified by the need to house, feed and clothe the persons who are sent to the facility by courts. While this is surely ample justification for having a facility such as the HCCC in Hartford, it is no excuse for either the egregious overcrowding there or the harmful results of that overcrowding. The court must therefore conclude that the state has failed to articulate, much less prove, any legitimate interest justifying the conditions from which the court has inferred the existence of "punishment" under the test of Bell v. Wolfish, supra.
[17] See Findings of Fact cited in note 15, supra.
[18] See note 9, supra. The relevance of international norms such as the Standard Minimum Rules to the determination of the "evolving standards of decency" which are basic to our Eighth Amendment jurisprudence is underscored by Article 7 of the International Covenant on Civil and Political Rights, which prohibits "cruel, inhuman or degrading treatment or punishment" of individuals. The Covenant (which, in Article 7, parallels the Eighth Amendment to the United States Constitution) is an international treaty; although it has not been ratified by the United States Senate, it is not necessarily without significance for this country (which signed it on October 5, 1977, see U.S., Fulfilling Promise, Signs 11-Year Old Rights Pacts at U.N., N.Y. Times, Oct. 6, 1977, p. A2, col. 5), since "multilateral agreements designed for adherence by states generally ... may come to be law for non-parties by virtue of state practice and opinio juris resulting in customary law." Comment f to Restatement of the Foreign Relations Law of the United States (Revised) § 102 (Tent. Draft No. 1, 1980). Similarly, Article 5 of the Universal Declaration of Human Rights prohibits "cruel, inhuman or degrading treatment or punishment." As the Court of Appeals for the Second Circuit recently observed, the United Nations General Assembly "has declared that the [UN] Charter precepts embodied in the Universal Declaration [of Human Rights] `constitute basic principles of international law.'" Filartiga v. Pena-Irala, 630 F.2d 876, 882 (2d Cir. 1980), quoting G.A. Res. 2625 (XXV) (Oct. 24, 1970). The Universal Declaration is "`an authoritative statement of the international community,'" id. at 883, quoting E. Schwelb, Human Rights and the International Community 70 (1964), which "creates an expectation of adherence, and `insofar as the expectation is gradually justified by State practice, a declaration may by custom become recognized as laying down rules binding upon the States.'" Id., quoting 34 U.N. ESCOR, Supp. (No. 8) 15, U.N. Doc. E/cn. 4/1/610 (1962) (memorandum of Office of Legal Affairs, U.N. Secretariat). As our Court of Appeals noted in Filartiga, "several commentators have concluded that the Universal Declaration has become, in toto, a part of binding, customary international law." Id. See Schluter, The Domestic Status of the Human Rights Clauses of the United Nations Charter, 61 Cal. L.Rev. 110, 145-46 (1973); cf. Nguyen Da Yen v. Kissinger, 528 F.2d 1194, 1201 n.13 (9th Cir. 1975).
[19] See notes 9 and 18, supra. As the Preamble to the Department's Administrative Directives, the Standard Minimum Rules including the rule of a single cell for each inmate concededly constitute (at the very least) "guidelines" for the Department. See generally Tr. 67-74. At a minimum, it is the Department's acknowledged "goal" to comply with these standards. See Tr. 66, 74.
[20] See note 16, supra.
[21] There is no merit to the suggestion of the defendants' counsel that the communicable diseases referred to in the relevant section of the regulation include only "venereal disease, that sort of thing." Tr. 93; see also Tr. 91. A reading of section 19-13-A10(2) makes clear that the warden has an affirmative obligation to report the possible exposure of any newly arrived inmate to any communicable disease as well as a separate duty to inform the jail physician of inmates who have been convicted of sex-related offenses. The entire subsection reads as follows (emphasis added):
The warden or other person in charge of any prison or jail in the state shall notify the prison or jail physician, in writing, within twenty-four hours upon the receipt of a prisoner who may have been exposed to a communicable disease and of every prisoner who has been convicted of any offense involving sexual promiscuity or illicit sex relations.
The phrase "communicable disease" is broadly defined by the Connecticut State Regulations. Section 19-13-A1(6) defines the term thus:
A communicable disease is a disease, the infectious agent of which may pass or be carried, directly or indirectly, from the body of one person or animal to the body of another person or animal. The term communicable disease embraces the common term[s] contagious and infectious disease.
The defendants' strained interpretation of section 19-13-A10(2) thus directly conflicts not only with that section's wording, but also with the definitional section applicable to it.
[22] Because the practice indiscriminately creates a threat to the health of all inmates, whether or not they have been convicted of a crime, the due process standard governs the constitutional question as to both pretrial detainees and sentenced inmates. See note 7, supra. However, the dangerously inadequate medical practice at issue here would surely violate the Eighth Amendment as well, for it is "sufficiently harmful to evidence deliberate indifference to serious medical needs." Estelle v. Gamble, 429 U.S. 97, 106, 97 S. Ct. 285, 292, 50 L. Ed. 2d 251 (1976). See Morales Feliciano v. Romero Barcelo, Civ. No. 79-4 (D.P.R. Sept. 5, 1980). In Todaro v. Ward, 431 F. Supp. 1129, 1138 (S.D.N.Y.), aff'd on other grounds, 565 F.2d 48 (2d Cir. 1977) the court held that although the failure to perform examinations of inmates shortly after their admission was contrary to generally accepted procedures, and was not justified by the state, it did not violate the Eighth Amendment rights of inmates in the absence of proof that infection was thereby introduced into the prison population. This case is factually distinguishable from Todaro. In that case, the court held constitutional the delayed administration of a full physical examination where a nurse performed more limited screening examinations (including the taking of medical histories, the taking and recording of vital signs, and the administration of urinalysis and tests for gonorrhea) of all inmates on the day of their admission. See Todaro v. Ward, supra, 431 F.Supp. at 1137-38. No such day-of-admission examinations are performed by medical personnel at the HCCC, see Findings of Fact, ¶ 107, and inmates at the HCCC are therefore exposed to a greater degree of risk of exposure to communicable diseases than were the inmates in Todaro.
[23] The court declines the invitation surprisingly, made by the defendants that it devise a comprehensive plan to "provide the mechanism whereby the Commissioner could administer such an order." Tr. 121.
[24] See Tr. 121, 123; Defendants' Objections to Plaintiffs' Proposed Remedial Order, filed Oct. 14, 1980 ("Defendants' Objections"), pp. 7-8.
[25] See note 23, supra. The court notes that the period in which the defendants must make adjustments to comply with this order is limited to no more than a year, until the long-planned Cheshire Correctional Institution is opened. See Tr. 135-36.
[26] Although the injunctive relief ordered by the court is directed only to the defendants, Commissioner Manson and Warden Wezowicz, under Rule 65(d), Fed.R.Civ.P., their officers, agents, servants, employees and attorneys, as well as those persons who are in active conduct or participation with them and who receive actual notice of the order, are also bound by the court's order. Moreover, in the unlikely event that it becomes necessary to bind other state officials in order to cure the violations of the Constitution at the HCCC, the court has ample power to bring them into this litigation and make appropriate orders for further injunctive relief, or they may be made parties to a subsequent action to enforce the order in these cases. See generally O. Fiss, Injunctions 625-29, 645-75 (1972); Lee v. Macon County Board of Education, 267 F. Supp. 458, 479 (M.D.Ala.) (three-judge court) (per curiam), aff'd per curiam sub nom. Wallace v. United States, 389 U.S. 215, 88 S. Ct. 415, 19 L. Ed. 2d 422 (1967).
[27] See Defendants' Objections, p. 4. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2251650/ | 507 F. Supp. 345 (1980)
Mitchell DIXON, Plaintiff,
v.
Mitchell MACK, Gifford R. Cappellini, Joseph Alexander, Jr., Gary Scharff, William Rick, Douglas "Doe", Michael "Moe", and Tim "Toe", Defendants.
No. 80 CIV 3040 (LBS).
United States District Court, S. D. New York.
December 10, 1980.
*346 Levy, Gutman, Goldberg & Kaplan, Eugene N. Harley, Jeremiah S. Gutman, New York City, for plaintiff.
Alan G. Apfel, Great Neck, N. Y., for defendants William Rick and Gifford R. Cappellini.
OPINION
SAND, District Judge.
This case presents the question of whether an out-of-state defendant subjects himself to jurisdiction under the New York long-arm statute by virtue of the activities of his co-conspirators in New York, when he did not join the conspiracy until after its activities in New York had been completed.
Plaintiff Mitchell Dixon has sued a number of defendants, including William Rick, under 42 U.S.C. §§ 1983 and 1985, alleging a conspiracy to deprive Dixon of his civil rights and seeking damages and injunctive relief. The matter comes before this Court at present on a motion by defendant Rick to quash service as to him on the ground that the Court lacks personal jurisdiction over him.
For the reasons stated below, we deny Rick's motion, subject to renewal at trial should the facts as they then appear so warrant.
The facts in this case, as alleged in the complaint, are as follows. Plaintiff at some point in the past became an adherent of the Unification Church. Subsequently, an order was procured ex parte in Arkansas, naming plaintiff's mother as his conservator. Plaintiff asserts that the order was invalid, claiming the issuing court lacked jurisdiction and that the order was procured "through fraud and deceit." Plaintiff's "Verified Complaint" at 8. The events of which plaintiff complains in the present action are alleged to have begun when defendants Cappellini, Alexander, "Doe", "Toe", and "Moe" met with plaintiff's mother on a day in May of 1978 and allegedly formed a conspiracy to deprive plaintiff of his civil rights. Plaintiff alleges that on or about that day defendants "Doe", "Toe", and Cappellini, together with plaintiff's mother, forcibly abducted him in New York City and drove him to New Jersey. There they were joined by defendants Alexander, "Moe", and Scharff. Plaintiff alleges that the defendants "attempted to `deprogram'" him. Plaintiff's "Verified Complaint" at 7. After three days they were joined by defendant Mack and plaintiff's aunt, and plaintiff was removed to Pennsylvania. After what was apparently four more days, defendant Rick, who is a psychiatrist, was called in. Plaintiff's *347 "Verified Complaint" at p. 5, recites that, "Defendant ... Rick ... is a psychiatrist licensed in the State of Pennsylvania. Defendant Rick participated in and agreed to commit the wrongful acts hereinafter described." Plaintiff's assertions regarding Rick continue:
Defendant Cappellini thereafter [once plaintiff had been removed to Pennsylvania] brought in Defendant Rick to speak with plaintiff. Rick asked plaintiff a few questions concerning Plaintiff's relationship with his mother. Upon information and belief, Defendant Rick thereafter, and with no further examination of Plaintiff, wrote a report in which he asserted that, in Rick's professional opinion as a psychiatrist, Plaintiff was "unbalanced."
Plaintiff's "Verified Complaint" at 10.[1] One week after plaintiff was moved from New Jersey to Pennsylvania, he escaped and returned to New York.
Plaintiff's allegations are that Rick joined the conspiracy when he was called in to see plaintiff Dixon in Pennsylvania. "Affidavit" of Eugene N. Harley at 2-3. The same affidavit recites further specifics of Rick's involvement. See Appendix infra. Plaintiff states that, "[t]he exact extent of [Rick's] participation and his liability ... are questions of fact to be determined at trial." Id. at 6.
Plaintiff thus maintains that Rick joined a conspiracy in progress and that although he himself performed no acts in furtherance of the conspiracy in New York, and did not join the conspiracy until after the conspirators' acts in New York were completed, he is responsible for the acts of his co-conspirators in New York and therefore is subject to this Court's jurisdiction under N.Y.Civ. Prac.Law § 302(a)1. or 2. (McKinney 1972 & Supp.1979). Plaintiff states that, "Defendant Rick joined the conspiracy in progress knowing that overt acts in furtherance of the conspiracy had already occurred in the State of New York." "Plaintiff's Memorandum of Law in Opposition to Motion of Defendant William Rick to Dismiss the Complaint at 1 [hereinafter "Plaintiff's `Memorandum in Opposition'"]. Plaintiff also states that, "Defendants and the conspirators have threatened and continue to threaten to assault and imprison Plaintiff unless he renounces his religious beliefs and associational preferences." Plaintiff's "Verified Complaint" at 4.
Defendant Rick does not contest that he was called in by Cappellini to see Dixon and did so. However, Rick denies that he was party to the conspiracy. "Reply Affidavit" of Alan G. Apfel at 2. Rick maintains that he did not know and had not communicated with any of his co-defendants before Cappellini's phone call. "Affidavit" of William Rick at 3. He also denies that before he was approached in Pennsylvania he "had any knowledge ... of any actions that had taken place prior to" the day he got the call. "Memorandum of Law in Support of Motion by Defendant, William Rick, to Quash Service of the Summons and Complaint" at 9 [hereinafter "Defendant's `Memorandum in Support'"]. Moreover, "[t]he defendant, RICK, ... denies committing any tortious act through this agency in New York." Id. at 10. Defendant Rick further states in his "Affidavit" at p. 2:
I am a resident of the State of Pennsylvania ... and am a duly licensed psychiatrist in that state. I do not own, use or *348 possess any real estate within the State of New York. My practice is limited to Pennsylvania and I obtain no revenue from outside the State of Pennsylvania, and I do not solicit business from or in New York and I further do not derive revenue from goods or services sold in New York.
Whether this Court has jurisdiction over Rick is determined first by New York law, since Fed.R.Civ.P. 4(e) makes state law determinative in cases in which the relevant federal statute does not prescribe the circumstances of proper service.[2] Only if this Court has jurisdiction under New York law do we proceed to consider whether such jurisdiction is constitutional.
The controlling statute is N.Y.Civ. Prac.Law § 302.[3] Plaintiff argues that this Court has jurisdiction over Rick primarily under § 302(a)2., but also argues under § 302(a)1. "Plaintiff's Memorandum of Law in Opposition" at 7-10.
The only act of which plaintiff complains which took place in New York is plaintiff's alleged abduction in May of 1978. Therefore, if we are to hold that this Court has jurisdiction over Rick, such jurisdiction must derive from that event. In order to find that we have jurisdiction, we must conclude as a matter of state law that Rick "in person or through an agent: 1. transacts any business within the state...; or 2. commits a tortious act within the state...." § 302(a). As we find that we have jurisdiction under § 302(a)2., we do not reach § 302(a)1.
We recognize at the outset that plaintiff has the burden of establishing the Court's jurisdiction over Rick. See Lehigh Valley Industries, Inc. v. Birenbaum, 527 F.2d 87, 92 (2d Cir. 1975). At the same time, on a motion to dismiss the Court will construe the pleadings and affidavits in the light most favorable to the nonmoving party. See Equipment Spare Parts, Ltd. v. World Wide Machinery Corp., No. 79 Civ. 5811 (S.D.N.Y. Aug. 1, 1980) (Motley, J.).
It has been recognized that "under certain circumstances a person may be subjected to jurisdiction under CPLR § 302(a)(2) on the theory that his co-conspirator is carrying out activities in New York pursuant to the conspiracy." Socialist Workers Party v. Attorney General of the United States, 375 F. Supp. 318, 321 (S.D.N. Y.1974). To establish jurisdiction on this basis, plaintiff must make a prima facie factual showing of conspiracy. Merkel Associates, Inc. v. Bellofram Corp., 437 F. Supp. 612, 617 (W.D.N.Y.1977). See also United States v. Montreal Trust Co., 358 F.2d 239, 242 & n.4 (2d Cir. 1966), cert. denied, 384 U.S. 919, 86 S. Ct. 1366, 16 L. Ed. 2d 440 (1966). He must also allege specific facts warranting the inference that the defendant was a member of the conspiracy. Louis Marx & Co. v. Fuji Seiko Co., 453 F. Supp. 385, 391-92 (S.D.N.Y.1978). "The plaintiff must come forward with some definite evidentiary facts to connect the defendant with transactions occurring in New York." Socialist Workers Party, 375 F.Supp. at 322.
We find that plaintiff has made the necessary prima facie factual showing that Rick was a member of a conspiracy in this case. Plaintiff's "Affidavit" of Eugene N. Harley, see Appendix infra, gives rise to a reasonable inference that Rick knew that he was participating in an effort to "deprogram" Dixon. Moreover, Harley's "Affidavit", at p. 4, presents Rick as having said in his deposition, referring to the night Rick saw Dixon, that "I indicated that perhaps *349 he [i. e., defendant Alexander] and I could work together and we would combine medical and lay deprogramming together, and that was agreed to as a reasonable idea." See also Grove Press, Inc. v. Central Intelligence Agency, 483 F. Supp. 132, 137 (S.D.N. Y.1980).
Furthermore, "plaintiff ... [has] come forward with some definite evidentiary facts to connect the defendant with transactions occurring in New York." See Socialist Workers Party, 375 F.Supp. at 322. Unlike the Socialist Workers Party case, in which the plaintiff failed to come forward with any indication that the moving defendants' activities had any connection with the plaintiff, such a connection is alleged here. Plaintiff here, by making a prima facie showing that Rick joined a conspiracy whose members' activities in furtherance of the conspiracy included a critical overt act in New York, has connected the moving defendant with acts occurring in New York. Moreover, as noted earlier, plaintiff alleges that "Defendant Rick joined the conspiracy in progress knowing that overt acts in furtherance of the conspiracy had already occurred in the State of New York." "Plaintiff's Memorandum of Law in Opposition" at 1. Nowhere in Rick's papers does he controvert this allegation, limiting his denials to knowledge of such acts prior to the time he was first approached by the alleged co-conspirators. See pp. 347-348 supra. For the purposes of this motion, we will accept plaintiff's allegation as true. This strengthens the connection between Rick and the activities of the conspiracy in New York. In addition, since the "mere presence of one co-conspirator within the jurisdiction does not create jurisdiction over all alleged co-conspirators," see Lehigh, 527 F.2d at 94 n.6, we note that the plaintiff has made the necessary showing of more than "mere presence" in New York. Plaintiff's allegations, if true, establish that an overt act not only in furtherance of the conspiracy, but critical to it, occurred in New York, namely Dixon's alleged abduction.
In his papers, Rick argues that in order for this Court to have jurisdiction over him, more is required than activities of co-conspirators in New York in furtherance of the conspiracy. He quotes that portion of the district court's first opinion in Leasco Data Processing Equipment Corp. v. Maxwell, 319 F. Supp. 1256, 1262 (S.D.N.Y.1970) (Lasker, J.), vacated, 468 F.2d 1326 (2d Cir. 1972), on remand 68 F.R.D. 178 (S.D.N.Y. 1974) (Carter J.), which states that "to establish an agency relationship under the New York long-arm statute ... there must be specific facts that show that the principal had requested the agent to perform purposeful acts in New York for the principal's benefit" (citation omitted). "Reply Affidavit" of Alan G. Apfel at 3. He also quotes from the court's opinion in Faim Information Services, Inc. v. Borchert, 395 F. Supp. 878, 880 (S.D.N.Y.1975): "the rule in New York is that an out-of-state principal must exercise `domination and control' over the in-state agent in order for the principal to be subject to the jurisdiction of New York courts" (citations omitted). Rick asserts, "[i]t follows from the fact pattern of this case that no out-of-state principal, i. e., RICK, exercised any control over any agent in New York since RICK was not a member of the conspiracy during the time when the acts took place within New York." Defendant's "Supplemental Memorandum in Support" at 6. Elsewhere, he states that,
While it is true that co-conspirators are held to have an agency relationship under the New York law and that the relationship need not be the traditional agency relationship, there must be a showing for jurisdictional purposes that the agent acted in New York for the benefit and with the knowledge and consent of the nonresident.
Defendant's "Memorandum in Support" at 9 (citations omitted).
The Second Circuit has repudiated the requirement of a formal agency relationship as a basis for imputing acts to a co-conspirator for jurisdictional purposes. See Lehigh, 527 F.2d at 90 n.3 citing Galgay v. Bulletin Co., 504 F.2d 1062, 1065 (2d Cir. 1974); Clark v. United States, 481 F.Supp. *350 1086, 1100 (S.D.N.Y.1979), appeal dismissed, 624 F.2d 3 (2d Cir. 1980). However, where the courts have been asked to exercise jurisdiction under § 302(a)2. on the basis of the acts of co-conspirators in New York, they have continued to impose requirements related to agency concepts. Thus, the courts have required that the defendant have an awareness of the effects in New York of its activity, see Grove Press, 483 F.Supp. at 137-38; Equipment Spare Parts, No. 79 Civ. 5811, that the activity of the co-conspirators in New York be to the benefit of the out-of-state conspirators, see Clark, 481 F.Supp. at 1101; and that the co-conspirators acting in New York be "acting at the direction or under the control of the ... [out of state] defendants," Grove Press, 483 F.Supp. at 137-38, or, as another court has put it, "at the request of or on behalf of" the out-of-state defendant, Equipment Spare Parts, No. 79 Civ. 5811. But see Ghazoul v. International Management Services, Inc., 398 F. Supp. 307, 312-14 (S.D.N.Y. 1975) (sustaining jurisdiction without mention of a control requirement, although apparently the defendant's challenge to the court's jurisdiction was based not on the absence of control but rather on "the fact that it [had] never been in New York (either by officer or agent) and that it fulfilled its role in the subject transaction by means of the mails and by telephone").[4]
We find these requirements satisfied in the present case. First, the requirement that the defendant have an awareness of the effects in New York of its activity is satisfied.[5] Plaintiff has alleged that Rick had knowledge that overt acts in furtherance of the conspiracy had occurred in New York. Rick's joining of the conspiracy, adoption of its goal, and action in furtherance of it, thus constituted a ratification of those acts already committed with the purpose of accomplishing the shared goal. Rick's knowing ratification of acts committed in New York constitutes an awareness of the ramifications or effects in New York of his own activity as a co-conspirator. Additionally, we note that it is black letter *351 conspiracy law that one who joins a conspiracy in progress ratifies all that has come before.
Second, we turn to the requirement that the activity of the co-conspirators in New York be to the benefit of the out-of-state conspirator. In Clark, 481 F.Supp. at 1101, the court held that the benefit need not be economic, and that the requisite benefit accrues to the out-of-state conspirator when the acts of his co-conspirators in New York realize the goals of the conspiracy. In Dixon, the alleged abduction of the plaintiff by the co-conspirators in New York acted to realize the goals of the conspiracy. Therefore, this jurisdictional requirement also is fulfilled.
Third, and lastly, there is the requirement that the out-of-state conspirator have exercised direction or control over the co-conspirators acting in New York, or that the co-conspirators in New York have acted "at the request of or on behalf of" the out-of-state defendant, Equipment Spare Parts, No. 79 Civ. 5811. We find this requirement to be satisfied as well. Since, for jurisdictional purposes, we have found that Rick joined the conspiracy, and since plaintiff alleges that Rick knew overt acts had been committed in New York, then, as we have said above, in joining the conspiracy, Rick ratified its earlier acts including those, of course, in New York. It appears from the pleadings and affidavits as they stand that Rick joined the conspiracy and acted, knowing full well that what was going on at the time he answered Cappellini's call and met with Dixon was an attempt to "deprogram" Dixon. In fact, according to Harley's "Affidavit", see Appendix infra, Rick made plans with defendant Alexander that evening to collaborate on further "deprogramming" projects. Nowhere in Rick's papers does he suggest to the Court that he believed that Dixon was undergoing "deprogramming" voluntarily. The only reasonable inference for the Court to draw is that Rick knew plaintiff was being "deprogrammed" against his will. Since Rick, as a conspirator, ratified the acts of his co-conspirators in New York, knew that prior overt acts in furtherance of the conspiracy had taken place in New York, and, we infer, knew that plaintiff was being "deprogrammed" against his will, the necessary abduction of Dixon in New York and by Rick's co-conspirators was an act committed also on Rick's behalf, with his approval and assent.[6] While Grove Press could be construed to impose a requirement that the out-of-state defendant have directed and controlled the in-state actors, in the sense of having acted as their superior (which was the case in Grove Press), we see no reason for this particular requirement, which would distinguish without cause the case of the conspiracy which features a "mastermind", 483 F. Supp. at 137, from the case of that featuring only peer co-conspirators.[7]*352 In the case at hand, plaintiff alleges directly that Rick had knowledge of acts in New York at the time he joined the conspiracy. Therefore, we need not fall back on a requirement that Rick have "masterminded" those acts in order to find that he knew of and approved of them.
Therefore, we conclude that the New York long-arm statute, § 302(a)2., confers jurisdiction over Rick on this Court.[8] We consequently must proceed to consider whether the exercise of such jurisdiction comports with due process.
We find that it does. The act of the conspiracy in allegedly abducting plaintiff in New York, which is one of the acts, of course, complained of in the suit, supplies the necessary minimum contacts. See International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 158, 90 L. Ed. 95 (1945). By joining the conspiracy with the knowledge that overt acts in furtherance of the conspiracy had taken place in New York, Rick "purposely [availed himself] of the privilege of conducting activities within the forum state," Hanson v. Denckla, 357 U.S. 235, 253, 78 S. Ct. 1228, 1239, 2 L. Ed. 2d 1283 (1958). "[T]he defendant's conduct and connection with the forum state are such that he should reasonably anticipate being haled into court there." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S. Ct. 559, 567, 62 L. Ed. 2d 490 (1980) (citations omitted). It is reasonable, fair and just that Rick defend himself in this forum. See id. at 292, 100 S. Ct. at 564, and cases cited therein.[9] This is particularly the case, where to hold otherwise might substantially prejudice plaintiff by posing problems of proof and inviting duplicative litigation. See generally, id.; McGee v. International Life Insurance Co., 355 U.S. 220, 223, 78 S. Ct. 199, 201, 2 L. Ed. 2d 223 (1957).
While we have found that plaintiff has made the necessary prima facie showings for jurisdictional purposes, in the event evidence is adduced at trial which undercuts the bases for this Court's jurisdiction over Rick, Rick may then renew this motion. See Ghazoul, 398 F.Supp. at 310 n.1, 314.
SO ORDERED.
APPENDIX
Harley's Affidavit recites that Rick's deposition has been taken in a case now pending in the Middle District of Pennsylvania. "Affidavit" of Eugene N. Harley at 2. It goes on to recite, at pp. 2-5:
THIRD: The following excerpts from the deposition of Dr. Rick set forth in his own words how he came to join the conspiracy to violate the civil rights of Mitchell Dixon....
(1) Page 17, lines 15-22
A: (Doctor Rick) Attorney Gifford Cappellini called me.
Q: (deponent) In relation to what matter?
A: In relationship to a case which he was dealing with Freedom of Mind and wanted a medical and psychiatric opinion.
Q: What case was that?
A: The case was Mitchell Dixon.
It should be noted that Freedom of Mind, Inc. was a corporation formed by Defendant Cappellini and Joseph Alexander, Tim Lusch and others for the purpose of "deprogramming" *353 and "rehabilitating" members of unpopular religious groups....
(2) Page 26, lines 17 through 24
THE WITNESS: I think that Tim [Lusch] was at Attorney Cappellini's house that night. I think that he was there and also Joe Alexander was present at the time I went to see Mitchell Dixon because they were concerned about what psychiatric manifestations he might be showing, and that was my original contact with Freedom of Mind.
(3) Page 39, lines 16-18, 25
Page 40, lines 1 through 9
. . . . .
A: .... This was still around the time I was just getting into this organization....
Q: When you are talking about just getting in, are you talking about May of 1978 or January of 1979?
A: May of 1978.
Q: Which is the approximate time of the Dixon matter?
A: The Mitchell Dixon matter.
(4) Page 49 lines 3-6, and 20-25
A: ... and when Gifford thought the organization needed a medical and psychiatric thing, his mother mentioned my name to him and, therefore, he called me
Q: Did you have a conversation with Mr. Cappellini?
A: Yes.
Q: What was the substance of that conversation?
A: "Thanks for coming out, I don't know what we would do without you."
(5) Page 53 lines 23-25
Page 54 lines 1-9
Q: Did you have any conversation with Joe Alexander, Jr. that evening?
A: Yes.
Q: What was the substance of the conversation with Joe Alexander, Jr.?
A: I only honestly recall that he wanted to know what my theories were on deprogramming and I indicated that perhaps he and I could work together and we would combine medical and lay deprogramming together, and that was agreed to as a reasonable idea. That's the sum and substance of it.
The night in question is the same night in which Defendant Rick first met Plaintiff Mitchell Dixon.
(6) Page 110 lines 23-25
Page 111 lines 1-16
Q: Did you evaluate the parents in any of these deprogramming or rehabilitation situations?
A: Yes, Mitchell Dixon, for example going back to number one. I am not sureI think it was the day after I saw him or shortly thereafter that his mother had come up from wherever it wasNorth CarolinaSouth Carolina, and I did see his mother and she was very upset about the situation with her son, and I asked her to come into the office. Well, she asked me to come into the office, and I suggested that would be a good idea because she wanted to find out why he might have possibly been attracted to deviate from her goals and I think I thought it was a wise judgment to have the mother come in so I could see whether or not the idea involvedand again, you have to realize this is the first case I was involved with with Freedom of Mind that I wanted to be able to talk to the family members as much as possible.
NOTES
[1] Rick asserts:
That at approximately 9 o'clock on the night of June 1, 1978, I received a telephone call from the defendant, GIFFORD CAPPELLINI, who asked if I would come to his home to speak with the plaintiff who it was believed was acting in an irrational manner....
That on June 1st, 1978, I did go to the home of the co-defendant, GIFFORD CAPPELLINI, and did spend a short period of time speaking with the plaintiff and his mother and left the Cappellini residence at approximately 3 a. m. in the morning of June 2nd.
That the foregoing, which is basically what is alleged in the complaint, was my sole contact with the plaintiff, his mother or any of the co-defendants concerning the instant matter. I further state to the Court that I wrote no report as alleged in the complaint and have no idea what led the plaintiff to make that allegation.
"Affidavit" of William Rick at 3-4.
[2] None of the statutes under which plaintiff sues so prescribe.
[3] The text of this provision, in relevant part, reads as follows:
§ 302. Personal jurisdiction by acts of non-domiciliaries
(a) Acts which are the basis of jurisdiction. As to a cause of action arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any non-domiciliary, ... who in person or through an agent:
1. transacts any business within the state or contracts anywhere to supply goods or services in the state; or
2. commits a tortious act within the state ....
[4] In addition, Grove Press, 483 F.Supp. at 137, suggests that plaintiff must "[make] out a prima facie case that ... [the defendant was] aware of the illegality of [his] acts." This requirement too is satisfied in this case, since plaintiff has made out a prima facie case that Rick joined the conspiracy to "deprogram" Dixon, knew of the acts in New York, i. e., the abduction, and, we infer, knew that Dixon was being subjected to deprogramming efforts against his will, see pp. 351-352 infra.
[5] We note also that the requirements articulated by the courts in Leasco are satisfied here. The Court of Appeals, in ruling on plaintiffs' assertion of personal jurisdiction under § 27 of the Securities Exchange Act, which the court found afforded jurisdiction to the full extent permitted by the Constitution, stated,
At minimum the conduct must meet the tests laid down in § 18 of the Restatement (Second) of Foreign Relations Law, including the important requirement that the effect "occurs as a direct and foreseeable result of the conduct outside the territory." We believe, moreover, that attaining the rather low floor of foreseeability necessary to support a finding of tort liability is not enough to support in personam jurisdiction. The person sought to be charged must know, or have good reason to know, that his conduct will have effects in the state seeking to assert jurisdiction over him.
468 F.2d at 1341 (footnote omitted). On remand, the district court interpreted and applied this standard:
While it is clear that Kerman was never in New York during the course of these negotiations, he could be held to have brought himself within the personal jurisdiction of this court if he committed in England any acts which he "must know, or have good reason to know ... will have effects" in New York, and the resultant impact in New York must occur "as a direct and foreseeable result of the conduct outside" this country. See 2d Circuit Leasco opinion, supra, at 1341. What I understand this to mean is that Kerman must be shown to have performed some activity in England which he either knew at the time, or should have known, would directly contribute to the furtherance of the negotiations between Maxwell and Leasco in New York, and that the signing of the agreement in New York on June 17, 1969, was a direct and foreseeable consequence of this conduct.
68 F.R.D. at 182. As concluded within, Dixon has made out a prima facie case that Rick acted in furtherance of the conspiracy with knowledge of overt acts in New York essential to the goals of the conspiracy. Inasmuch as he joined and furthered a conspiracy involving an abduction in New York, we conclude that he satisfied the circuit court's requirement.
[6] This case is distinguishable from the circumstance referred to in Lehigh, 527 F.2d at 94 n.6, where the Second Circuit said,
In antitrust cases it is well established that the mere presence of one co-conspirator within the jurisdiction does not render alleged co-conspirators outside the jurisdiction amenable to process. Bertha Building Corp. v. National Theatres Corp., 248 F.2d 833 (2d Cir. 1957), cert. denied, 356 U.S. 936 [78 S. Ct. 777, 2 L. Ed. 2d 811] (1958) [and cert. denied sub. nom. Gumbiner Theatrical Enterprises, Inc. v. National Theatres Corp., 356 U.S. 936 [78 S. Ct. 778, 2 L. Ed. 2d 811] (1958)]. Similarly where there is a claim of a conspiracy to violate section 10(b) of the Securities Exchange Act, as Judge Friendly stated in Leasco Data Processing Equipment Corp. v. Maxwell, 468 F.2d 1326, 1343 (2d Cir. 1972), "To be sure, the rule in this circuit is that the mere presence of one conspirator ... does not confer personal jurisdiction over another alleged conspirator."
First, this refers to statutory provisions other than § 302. Second, here we have found more than "mere presence" of a co-conspirator in New York. See pp. 349-350 infra. Third, here we find not only a conspiracy relationship, but also a satisfaction of the lingering agency related requirements which evidently remain in force.
[7] The suggestion in Grove Press that jurisdiction over an out-of-state conspirator depends in part on his having "directed and controlled the New York activities," 483 F. Supp. at 138, arises in that part of the opinion in which the court distinguishes Marsh v. Kitchen, 480 F.2d 1270 (2d Cir. 1973). In Marsh, the court ruled there was no jurisdiction over Missouri defendants. However, Marsh relied on the rule that "a traditional agency relationship must exist between the non-domicilary and the alleged agent." Id. at 1273. However, the Second Circuit overturned this rule in Galgay, undermining the authority of Marsh. Moreover, Marsh makes no mention of conspiracy as a possible basis for jurisdiction over an out-of-state defendant. In any event, the case at hand is distinguishable from the situation presented in Marsh.
[8] While plaintiff hinges all of its arguments that this Court has jurisdiction over Rick on Rick's relationship to the alleged abduction in New York, we note that there may be an additional basis for finding such jurisdiction in plaintiff's allegation that, "Defendants and the conspirators have threatened and continue to threaten to assault and imprison Plaintiff unless he renounces his religious beliefs and associational preferences." Plaintiff's "Verified Complaint" at 11. Again we note that it is black letter conspiracy law that a conspirator, in this case Rick, remains a member of the conspiracy until he affirmatively acts to repudiate it and remove himself.
[9] Also, see note 5, supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2140669/ | 463 F. Supp. 162 (1978)
Nancy Ruth NOSONOWITZ, Plaintiff,
v.
ALLEGHENY BEVERAGE CORPORATION, Morton M. Lapides, Harry J. Conn, Anthony Joseph Hering, William W. Kane, Valu Vend, Inc., Valu Vend Credit Corporation, Miles A. Bahl, and First Duso Securities Corporation, Defendants.
No. 78 Civ. 3853 (CHT).
United States District Court, S. D. New York.
January 12, 1978.
Rosen, Crane & Wolfson, Poughkeepsie, N. Y., for plaintiff; William G. Crane, Poughkeepsie, N. Y., of counsel.
Webster & Sheffield, New York City, for defendants Allegheny Beverage Corporation, Morton M. Lapides, Harry J. Conn, Anthony Joseph Hering, William W. Kane, Valu Vend, Inc. and Valu Vend Credit Corp.; Lloyd S. Clareman, New York City, of counsel.
OPINION
TENNEY, District Judge.
Plaintiff sued all the named defendants in the Supreme Court of the State of New York, Dutchess County, alleging fraud in the sale to her of 1,500 shares of common stock issued by defendant Allegheny Beverage Corporation ("ABC"). In each of four causes of action she demanded judgment against the defendants in the amount of $19,800, the purchase price of the shares she purportedly bought in reliance on the alleged fraud. The defendants ABC, Morton M. Lapides, Harry J. Conn, Anthony Joseph Hering, William W. Kane, Valu Vend, Inc. and Valu Vend Credit Corporation (hereinafter the "diversity defendants") are all nonresidents of New York. They have petitioned for removal of the action to this Court pursuant to 28 U.S.C. § 1446. Defendants First Duso Securities Corporation ("First Duso") and Miles A. Bahl ("Bahl") are allegedly the underwriter of the security *163 and its principal, respectively. Both are citizens of New York; neither has responded to the complaint nor joined in the petition for removal.
Plaintiff has now petitioned the Court for remand to the state, alleging that removal is improper on two grounds: (1) that the petition for removal was not timely filed, 28 U.S.C. § 1446(b); and (2) that First Duso and Bahl are properly joined so as to defeat diversity jurisdiction in this Court. The diversity defendants counter that the joinder of Bahl and First Duso is "fraudulent," that word being used as a legal term of art to refer to the joinder of unnecessary or nominal parties in order to defeat federal jurisdiction. See Jacks v. Torrington Co., 256 F. Supp. 282, 285 (D.S.C.1966).
Diversity defendants do not dispute that their petition for removal is untimely by the standards of section 1446(b); however, if the joinder of First Duso and Bahl was indeed "fraudulent," then the defendants were not bound by the thirty-day time limit in that section.[1]Parks v. New York Times Co., 195 F. Supp. 919, 924 (M.D.Ala. 1961), rev'd on other grounds, 308 F.2d 474 (5th Cir. 1962), cert. denied, 376 U.S. 949, 84 S. Ct. 964, 11 L. Ed. 2d 969 (1964). Therefore, the disposition of this motion to remand and the validity of the removal ab initio both turn on whether the non-diverse defendants were fraudulently joined. For the following reasons, the Court concludes that such joinder was not fraudulent, and accordingly the plaintiff's motion to remand is granted.
The diversity defendants base their claim of fraudulent joinder on the apparent insolvency of first Duso and of Bahl. They document the fact that Bahl was adjudicated a bankrupt and state that First Duso "appears to be defunct." Affidavit of Lloyd S. Clareman, sworn to September 11, 1978, ¶ 2(i) & (ii) and Exhs. A & C. They complain that the joinder of these defendants was motivated solely by a desire to defeat diversity jurisdiction and imply that the mere mechanical sale of stock to the plaintiff through First Dusobecause it is not the gravamen of the complaintis somehow separable from the cause of action as pleaded. Primarily they urge that First Duso and Bahl are neither necessary nor indispensable to the action, since no pecuniary damagesthe only relief soughtcould be obtained against either. From this "practical" view they see the joinder as fraudulent.
The burden is on the removing defendants to show fraudulent joinder by clear and convincing evidence. Parks v. New York Times Co., 308 F.2d 474, 478 (5th Cir. 1962); Wright-Miller-Cooper, Federal Practice and Procedure § 3723, at 54 (1976). "Whether the joinder is fraudulent or not is said to depend on whether the plaintiff really intended to obtain a judgment against [the resident] defendants." 1A Moore's Federal Practice ¶ 0.161[2], at 210 (2d ed. 1974) ("Moore's"). That intent is measured by objective indices. In Parks the court explored the applicable authorities and concluded that
there can be no fraudulent joinder unless it be clear that there can be no recovery under the law of the state on the cause alleged, or on the facts in view of the law as they exist when the petition to remand is heard. One or the other at least would be required before it could be said that there was no real intention to get a joint judgment, and that there was no colorable ground for so claiming.
Parks, supra, 308 F.2d at 478.
Viewed from this perspective, the diversity defendants' showing is insufficient to prove fraudulent joinder, for "intent to obtain a judgment" is clearly not co-extensive with "intent to collect upon that judgment." Likewise, that the plaintiff may have had the motive to defeat diversity jurisdiction in joining Bahl and First Duso *164 is immaterial: "Even if a defendant has been joined solely to prevent removal, such joinder is not fraudulent if the plaintiff does have a claim against the resident defendants." Harris Diamond Co. v. Army Times Pub. Co., 280 F. Supp. 273, 275 (S.D. N.Y.1968). Nor does the magnitude of the alleged culpability of the diversity defendants in any way diminish the exposure of the non-diversity defendants. The latter are clearly responsible for their acts under the securities laws. 15 U.S.C. § 77k(a) makes the issuer liable for loss resulting from the purchase or sale of any security made in reliance on a false registration statement and with it certain persons connected with it; subsection (a)(5) extends that liability to an underwriter. Moreover, 15 U.S.C. § 77k(f) states that "[a]ll or any one or more of the persons specified in subsection (a) of this section shall be jointly and severally liable." The Supreme Court has specifically held that "where there is a prima facie joint liability, averment and proof that resident and nonresident tortfeasors are jointly sued for the purpose of preventing removal does not amount to an allegation that the joinder was fraudulent, and will not justify a removal from the state court." Mecom v. Fitzsimmons Drilling Co., 284 U.S. 183, 189, 52 S. Ct. 84, 87, 76 L. Ed. 233 (1931).
Finally, the Court sees no merit in the diversity defendants' main contention, i. e., that because Bahl and First Duso cannot respond in money damages they are mere "formal" parties to this action, their presence being neither indispensable nor necessary to the relief requested and, a fortiori, in "fraud" of the Court's jurisdiction. In support of this proposition, the diversity defendants rely on Stoneybrook Tenants Ass'n, Inc. v. Alpert, 194 F. Supp. 552 (D.Conn.1961). In that case two non-diverse corporations in the process of dissolution were joined with diversity defendants in an action to enforce a written agreement relating to a housing development. The court found that the practical considerations arising from the actual controversy supported removal, holding that the corporations were "no more than formal, nominal parties to this action [and] that they are neither necessary nor indispensable parties," id. at 560, and refusing the remand.
The particular facts in Stoneybrook support its conclusion: at the time of suit neither corporation had any interest in the housing developmentindeed, the agreement sued upon contained a disclaimer of interest by them. The corporations were parties to the agreement only by virtue of the fact that they were required to execute certain leases, having been parties to earlier litigation which resulted in the agreement sued upon. Moreover, and perhaps dispositive, the corporations appear to have been merely the individual defendants in corporate form, an identity not present in the facts at bar. Thus, while the Stoneybrook court focused in part on the inability to respond in damages of the non-diverse corporate defendants, id. at 558-59, many other circumstances entered into the decisional calculus.
To the extent that the diversity defendants in this case draw from Stoneybrook the proposition that the insolvency of a non-diverse defendant is by itself sufficient proof of fraudulent joinder, they are directly at odds with a venerable line of cases and authorities. In Chicago, Rock Island and Pacific Railway Co. v. Schwyhart, 227 U.S. 184, 33 S. Ct. 250, 57 L. Ed. 473 (1913), Mr. Justice Holmes stated that
the motive of the plaintiff, taken by itself, does not affect the right to remove. If there is a joint liability, he has an absolute right to enforce it, whatever the reason that makes him wish to assert the right. Hence the fact that the [diversity defendant] is rich and [the non-diversity defendant] poor does not affect the case.
Id. at 193, 33 S. Ct. at 251 (citations omitted). See also Chicago, Rock Island & Pacific Railway Co. v. Whiteaker, 239 U.S. 421, 36 S. Ct. 152, 60 L. Ed. 360 (1915); 1A Moore's ¶ 0.161[2], at 214 ("[t]he motive for joining . . . a [resident] defendant is immaterial, even when the defendant is judgment proof").
*165 For all of the foregoing reasons the Court concludes that removal was improper, and the petition to remand is granted. However, in connection with the plaintiff's motion for costs incurred in the petition for remand, 28 U.S.C. § 1447(c), the Court will exercise its discretion to refuse the request. Columbia Pictures Corp. v. Towne Theatre Corp., 282 F. Supp. 467 (E.D.Wis.1968). This is not a case where such costs are warranted because "lack of jurisdiction was obvious from the face of the petition." Dunkin Donuts of America v. Family Enterprises, Inc., 381 F. Supp. 371, 373 (D.Md.1974).
So ordered.
NOTES
[1] Likewise the normal rule that all defendants must join in a petition for removal, Committee of Interns & Residents v. New York State Labor Relations Bd., 420 F. Supp. 826, 832 (S.D.N. Y.1976), a predicate not met in the instant case, is also disregarded in the case of joinder of a nominal or formal party. Tri-Cities Newspapers, Inc. v. Tri-Cities Pressmen & Assistants' Local 349, 427 F.2d 325 (5th Cir. 1970). | 01-03-2023 | 10-30-2013 |
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