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https://www.courtlistener.com/api/rest/v3/opinions/2710774/ | Order Michigan Supreme Court
Lansing, Michigan
March 28, 2014 Robert P. Young, Jr.,
Chief Justice
147986 & (32)(33) Michael F. Cavanagh
Stephen J. Markman
Mary Beth Kelly
Brian K. Zahra
Bridget M. McCormack
PEOPLE OF THE STATE OF MICHIGAN, David F. Viviano,
Plaintiff-Appellee, Justices
v SC: 147986
COA: 315042
Wayne CC: 08-016191-FC
ATIBA MERIWEATHER,
Defendant-Appellant.
_________________________________________/
On order of the Court, the motion to exceed page limit is GRANTED. The
application for leave to appeal the October 8, 2013 order of the Court of Appeals is
considered, and it is DENIED, because the defendant has failed to meet the burden of
establishing entitlement to relief under MCR 6.508(D). The motion to compel disclosure
of transcripts and other miscellaneous relief is DENIED.
I, Larry S. Royster, Clerk of the Michigan Supreme Court, certify that the
foregoing is a true and complete copy of the order entered at the direction of the Court.
March 28, 2014
h0324
Clerk | 01-03-2023 | 08-05-2014 |
https://www.courtlistener.com/api/rest/v3/opinions/2140830/ | 463 F. Supp. 538 (1978)
DIVERSIFIED MORTGAGE INVESTORS, a Massachusetts Business Trust, Plaintiff,
v.
GEORGIA-CAROLINA INDUSTRIAL PARK VENTURE, a partnership, Charles S. Ackerman, et al., Defendants.
Civ. A. No. C76-2052A.
United States District Court, N. D. Georgia, Atlanta Division.
December 18, 1978.
Larry Esteridge, James Parham, Wyche, Burgess, Freeman & Parham, Greenville, S. C., Richard D. Elliott, Smith, Harman, Asbill, Roach & Nellis, Atlanta, Ga., for plaintiff.
Harvey G. Sanders, R. Frank Plaxco, Leatherwood, Walker, Todd & Mann, Greenville, S. C., Charles L. Gregory, Arnall, Golden & Gregory, Atlanta, Ga., for defendants.
ORDER
HAROLD L. MURPHY, District Judge.
This garnishment proceeding is based on a judgment obtained in the United States District Court for the District of South Carolina, Greenville Division. That judgment was rendered in favor of the plaintiff, Diversified Mortgage Investors ("Diversified"), against Robert N. Hatfield on November 22, 1976. On December 16, 1976, the judgment of the South Carolina District Court was registered in the United States District Court for the Northern District of Georgia, Atlanta Division, pursuant to the provisions of 28 U.S.C. § 1963, and this proceeding was commenced. Presently before the Court is the motion of the garnishee-defendant, *539 Ackerman & Company ("Ackerman"), to dismiss this garnishment proceeding.
The Federal Rules of Civil Procedure provide that the remedy of a garnishment proceeding in a district court for the satisfaction of a judgment is "available under the circumstances and in the manner provided by the law of the state in which the district court is held, existing at the time the remedy is sought," subject to any applicable federal statute and the Federal Rules of Civil Procedure, Fed.R.Civ.P. 64, 69(a). Therefore the law of the State of Georgia determines the availability of the post-judgment garnishment sought in this proceeding.
The relevant statute governing the availability of post-judgment garnishment in Georgia provides as follows: "In all cases where a money judgment shall have been obtained in a court of this State, the plaintiff shall be entitled to the process of garnishment." Ga.Code Ann. § 46-101.
In support of its motion to dismiss, Ackerman argues that since the judgment on which this garnishment proceeding is based was not obtained "in a court of this State", the plaintiff is not entitled to the process of garnishment. This argument is well taken.
In determining the manifest intention of the Georgia legislature in restricting the application of the renewal statute, Ga.Code Ann. § 3-808, to apply only to State courts, the Georgia courts have consistently held that the words "courts of this State" meant "courts created by the constitution and laws of this State." Henson v. Columbus Bank & Trust Co., 144 Ga.App. 80, 84, 240 S.E.2d 284, 287 (1977). The effect of this interpretation has been that even where actions were first brought in a federal district court sitting in Georgia, the renewal statute did not apply.
The renewal statute confers a personal statutory privilege upon suitors who bring their actions in Georgia courts. Id. Likewise, garnishment proceedings in Georgia are purely statutory and cannot be extended to cases not enumerated in the statutes. Undercofler v. Brosnan, 113 Ga.App. 475, 148 S.E.2d 470 (1966). Given the similarities of these two statutes, the Court discerns no basis for saying that the Georgia Supreme Court would interpret the phrase "a court of this State" differently from the phrase "courts of this State". Therefore, the Court finds that the availability of garnishment proceedings under Georgia law is limited to proceedings based on judgments rendered by courts created by the constitution and laws of Georgia. Since the several federal district courts were not so created, the Court holds that under Georgia law as it now stands, no garnishment proceeding is available if it is based on a judgment obtained in a federal district court.
On this basis it appears that the Court lacks jurisdiction of the subject matter of this proceeding. Therefore, this garnishment proceeding should be dismissed in its entirety.
ACCORDINGLY, defendant Ackerman's motion to dismiss is GRANTED and the entire proceeding is DISMISSED sua sponte by the Court for lack of subject matter jurisdiction. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2115368/ | 788 F.Supp.2d 523 (2011)
WELLOGIX, INC., Plaintiff,
v.
ACCENTURE, LLP, Defendant.
Case No. 3:08-cv-119.
United States District Court, S.D. Texas, Houston Division.
April 22, 2011.
*528 Richard N. Laminack, Laminack Pirtle et al., Buffy Kay Martines, Laminack Pirtle and Martines, Frank Zugin Lin, Hagan Noll Boyle LLC, Guy Kelly Cooksey, Law Offices of Michael Phifer, PC, Randall Carroll Owens, Wright & Close LLP, Thomas W. Pirtle, Laminack Pirtle et al., Houston, TX, for Plaintiff.
Maria Wyckoff Boyce, Cristina Espinoza Rodriguez, Edward Michael Cottrell, Baker Botts LLP, Carter G. Phillips, Jonathan F. Cohn, Sidley Austin LLP, Washington, DC, Claudia Veronica Rivas-Molloy, Jones Walker et al., Houston, TX, for Defendant.
MEMORANDUM AND ORDER
KEITH P. ELLISON, District Judge.
Pending before the Court is Accenture's Motion for Summary Judgment (Doc. No. 210), Accenture's Motion to Exclude Wellogix's Proposed Expert Witness Kendyl Roman (Doc. No. 212), and Accenture's Motion to Dismiss (Doc. No. 206). Upon considering the Motions, all responses thereto, and the applicable law, the Court finds that the Motion for Summary Judgment must be granted in part and denied in part, the Motion to Exclude Wellogix's Proposed Expert Witness Kendyl Roman must be denied, and the Motion to Dismiss must be granted.
I. BACKGROUND
A. Wellogix's Software Offerings
Plaintiff Wellogix, Inc. ("Plaintiff or "Wellogix") is a software company that, beginning in 1998, offered a variety of software solutions to assist companies to manage complex services. (Doc. No. 210 Ex. 6.) "Complex services" refers to a broad category of a company's business needs. Within the oil and gas industry, "complex services" can refer to services needed by an oil and gas producer, but the specific nature and amount of which are hard to define fully until the service is completed. (Philip Dep. 230:20-24.) The oil and gas industry is generally divided into the exploration and production ("E & P") sector (sometimes referred to as the "upstream" sector) and the refining and marketing ("R & M") sector (sometimes referred to as the "downstream" sector). (Kostial Dep. 30:22-31:17.) "Complex services" in the E & P sector can include tasks such as drilling and completion of oil and gas wells, which in turn requires completion of tasks like cementing and drilling mud. (Philip Dep. 231:5-13.) Wellogix's software solution included functionality called Dynamaps, which were a number of templates that addressed various tasks within the E & P sector, such as cementing, drilling fluids, mud logging, and perforating. (Doc. No. 210, Exs. 6, 9.) In addition, Wellogix offered a functionality called Electronic Field Ticket reconciliation ("eFT" or "eField-Ticket"), which provided a method by which an oil & gas producer could electronically exchange work order and field ticket documentation with a supplier. (Doc. No. 210, Exs. 6, 9; Chisholm 30(b)(6) Dep. 67:9-14.) Another Wellogix software offering was WorkFlow *529 Navigator ("WFN"). (Doe. No. 210, Ex. 6; Chisholm 30(b)(6) Dep. 68:12.)
B. Wellogix's Work with BP America, Inc. on the "eTrans" Project
In 2000, Wellogix's predecessor company approached BP America, Inc. ("BP") about its software offerings for complex services. (Arb. Tr. 156:22-25.) Wellogix conducted a "proof of concept" test of its software with BP to demonstrate the software's ability to procure goods and services electronically. (Id. 157:6-11, 165:21-25.) As part of this "proof of concept" test, Wellogix delivered its software to BP. (Id. 157:12-14.) Wellogix was largely successful in these demonstrative efforts. (Id.)
In 2004, Wellogix and BP began work on a project called "eTrans," which was an attempt to implement an "electronic procurement" or a "purchase to pay" process in which procurement of complex services occurred electronically instead of using paper invoices. (Barnes Dep. 11:14-18, 12:17-25; Arb. Tr. 177:2-3.) Wellogix and BP entered into a letter of intent in 2004 regarding the eTrans project, followed by a Master Software Licensing Agreement ("MSLA"). (Arb. Tr. 158:5-9.) The MSLA was executed on April 28, 2004. (Doc. No. 210, Ex. 32.) The MSLA contained a strict confidentiality/non-disclosure provision wherein BP agreed not to disclose Wellogix's software or licensed material to any third party. (Id.) BP's eTrans project involved not only Wellogix, but also a number of other companies, such as SAIC, Obsidian, New Millennium, and IBM. (Barnes Dep. 12:13-16.)
The eTrans Project incorporated the products of Wellogix's "proof of concept" testing with BP, including eField-Ticket, electronic invoicing, and WorkFlow Navigator, and put them into the eTrans project. (Arb. Tr. 157:22-25.) The eTrans project did not, however, involve the use of Wellogix's Dynamaps or templates for complex services. (Id. 1103:21-22.) During the eTrans project, Wellogix provided its software to BP through an Internet portal. (Id. 1125:23-1126:2.) Wellogix stored its source and object code for WorkFlow Navigator, eField-Ticket, and Dynamps behind a firewall that BP never penetrated. (Id. 1126:6-11.)
BP implemented the eTrans project in two operations centers: Durango, Colorado and Farmington, New Mexico. (Barnes Dep. 13:10-11.) BP's Project Manager for the eTrans project considered the eTrans project to be successful. (Id. 13:13-18.) However, the eTrans project was ultimately terminated at the end of 2005 due to cost and internal integration issues. (Doc. No. 210, Ex. 15.)
C. Wellogix's Relationship with Accenture and SAP
Accenture is a global consulting firm that assists its oil and gas company clients in various ways, including the implementation of third-party software. (Arb. Tr. 72:9-11.) Beginning in 2000, Wellogix and Accenture entered into six different agreements reflecting their desire to create a marketing alliance to target potential customers, to submit joint proposals for submission in response to companies' requests for proposals, to share confidential information with each other, and to allow Accenture to license Wellogix's software. In another agreement, executed after Accenture received a contract to implement certain software at Marathon Oil Company, Accenture subcontracted with Wellogix for provision of Wellogix's software, customer service, and technical expertise during the implementation process. (Doc. No 222 Exs. 29-34.)
SAP America, Inc. and SAP A.G. (collectively, "SAP") are a global business accounting *530 software company that offers a software solution called Supplier Relationship Management ("SRM"). (Arb. Tr. 71:23-25.) SRM allows companies to handle a large number of business processes, including accounting, human resource, financial planning and plant maintenance. (Id. 154:5-9.) From 2000 to 2005, SAP did not have electronic complex services functionality. (Id. 73:19-22.) SAP approached Wellogix to be its complex services partner and to fill the complex services solutions gap in SAP's then-current software. (Id. 78:4-18.) At one point, SAP's level of interest in Wellogix reached the level where SAP considered becoming an owner of Wellogix. (Id. 191:18-22.) SAP visited Wellogix's office to conduct due diligence regarding Wellogix's financial and technical background. (Id. 191:23-192:9.) SAP and Wellogix executed a NetWeaver Cooperation Agreement in March 2005. (Doc. No. 210 Ex. 30; Arb. Tr. I 189:21-25.) Under this agreement, Wellogix and SAP agreed to integrate Wellogix's complex services software into SAP's NetWeaver software platform. (Doc. No. 210 Ex. 30.)
D. Accenture's Relationship with SAP
In early 2004, Accenture and SAP began developing together a software application known as "xIEP." (Kostial Dep. 20:10-11, 34:2.) "xIEP" referred to an "integrated exploration and production" application that interfaced with SAP's software using SAP's NetWeaver software platform. (Id. 29:8-9, 30:3-11.) Accenture and SAP aimed xIEP at the E & P sector of the oil and gas industry. (Id. 30:21.) They developed two scenarios for xIEP: asset maintenance (i.e. maintaining an oil producing well or platform) and managing the life cycle of the asset. (Id. 34:16-35:13.) The third scenario, which was never developed, would have involved complex services. (Id. 35:23-25.) If the third scenario had been developed, Accenture intended to include Wellogix's complex services software solution as an integrated part of xIEP. (Id. 133:16-19.)
Accenture and SAP ceased development of xIEP in mid-2006 because SAP's Net-Weaver platform did not function. (Id. 34:5-11.) BP never used xIEP or participated in the development of it. (Arb. Tr. 1192:4-5.)
E. BP's Global E & P P2P Project
In early 2004, while the eTrans project was underway, BP began developing a project called "Global E & P P2P." (Arb. Tr. 176:25, 182:11-13.) The Global E & P P2P project differed from eTrans in that eTrans focused on complex services while Global E & P P2P covered the entire supply chain of all goods and services for all business units. (Id. 177:2-5.)
In 2004, BP hired Accenture to be the lead integrator of the Global E & P P2P project, that is, to select the software company that would be the platform of BP's P2P project. (Id. 193:19-25.) The three companies that were considered as providers of the software platform were SAP, Maximo and Ariba. (Id. 178:3-4.) Wellogix would not have been capable of providing a software platform for the entire P2P project, but believed that it would provide the complex services component for the P2P project. (Id. 177:14-15, 177:19-23.) SAP submitted its bid to provide the software platform for the Global E & P P2P project to BP in April 2005. (Id. 1117:16-17.) In May 2005, pursuant to their partnering relationship, Wellogix and SAP made a joint presentation to BP during the BP's selection process for a software platform. (Id. 186:21-25; 1118:4-7.) During the May 2005 presentation, Wellogix described its eField-Ticket software, supplier collaboration capability for complex services, *531 and complex services templates. (Id. 1118-1123.)
In the latter part of 2005, Wellogix first heard about the possibility that it might not be included in the building of the complex services solution of the Global E & P P2P project. (Id. 199:13-15, 200:17-20.) Wellogix learned that Accenture and SAP were planning to develop the complex services solution themselves. (Id. 199:20-22.)
BP began implementing Global E & P P2P in September 2005. (Id. 200:17-18.) Ultimately, Wellogix was not on the transition team that transitioned from eTrans to P2P. (Id. 181:21-23; 183:6-8; 1129:7-9.) During the transition process, information from eTrans was uploaded onto a website called SharePoint. (Id. 1185:18-20.) The eTrans SharePoint site contained various types of flow diagrams, implementation information for deployment, and interface design specifications designed by the eTrans team. (Id. 402-403.) At least some computer language and source code from eTrans was also on the SharePoint site. (Id. 406:21-407:3, 418:5-6.) BP allowed certain Accenture and SAP employees to access the SharePoint site, where BP knew many documents related to the eTrans project were stored, for the purpose of extracting lessons learned. (Id. 1341:15-1342:11.)
The Global E & P P2P Project ended in approximately October 2007, as BP began developing the E & P Backbone project to handle purchase to pay in its E & P sector going forward. (Id. 1190:16-17.)
F. BP's Backbone Project
In March 2008, BP implemented the Backbone project. (Id. 1190:22.) BP was assisted in the Backbone project by KPMG. (Mahmood Dep. 25:4-10.) KPMG designed the architecture for Backbone, but did not use any portion of BP's E & P P2P project in developing Backbone. (Id. 29:10-24, 30:1-5.)
G. Wellogix Files Suit Against BP, Accenture, and SAP
Wellogix filed suit against BP, Accenture and SAP in 2008. SAP was dismissed from the case due to improper venue. (Doc. No. 54.) Pursuant to a stipulation by the parties, Wellogix's action against BP was severed from the case against Accenture. (Doc. Nos. 106, 107.) Wellogix and BP agreed to arbitrate the claims between them, with Judge Keith P. Ellison acting as sole arbitrator. (Doc. No. 109.) Wellogix and Accenture agreed to proceed with a civil action in this Court. Wellogix's claims for relief against Accenture are: (1) breach of fiduciary duty; (2) aiding and abetting breach of fiduciary duty; (3) tortious interference with existing contracts; (4) tortious interference with prospective business relations; (5) misappropriation of trade secrets; (6) theft; (7) breach of confidence and trust; and (8) conspiracy to commit the alleged torts. (Doc. Nos. 110, 126, 205.)
H. Wellogix-BP Arbitration
From June 22, 2010 through July 2, 2010, the private arbitration between Wellogix and BP was held. The arbitrator's findings of fact and conclusions of law were issued in August 2010 (the "Arbitration Order"). Key among the Arbitration Order's findings of fact were the following items: (1) BP's eTrans project SharePoint site contained various types of information designed by the eTrans team; (2) At least some computer language and source code from eTrans was on the SharePoint site; (3) BP allowed certain Accenture and SAP employees access to the eTrans site; (4) eTrans, Global E & P P2P, and Backbone have similar or identical elements in terms of architecture and process flow, at the *532 more general levels; (5) no expert could conclusively state that Wellogix source or object code was being used in BP's P2P or Backbone programs; and (6) at some point during 2000 to 2006, Accenture and SAP did develop complex services templates. (Arb. Order ¶¶ 40, 41, 42, 46, 47, 53.)
With respect to conclusions of law, the Arbitration Order concluded that BP had committed a breach of contract by disclosing Wellogix's confidential information on the SharePoint site, to which Accenture and SAP had access, in violation of the MSLA. With respect to the misappropriation of trade secrets claim, the Arbitrator Order held that the evidence did not demonstrate that BP used or was using trade secrets belonging exclusively to Wellogix. The evidence failed to demonstrate that the process flow maps and architectural documents developed during the eTrans project were the trade secrets of Wellogix. Wellogix's source and object code, in contrast, was kept substantially secret and constituted a trade secret. However, no expert could conclusively testify as to whether Wellogix's source and object code could be found in SAP SRM 4.0 or 5.0. Though it appeared that SAP offered complex service functionality rivaling Wellogix's functionality in SAP SRM 7.0, it was undisputed that SAP SRM 7.0 was not used by BP.
II. PRECLUSIVE EFFECT OF ARBITRATION
Accenture contends that the findings contained in the Arbitration Order are binding on Wellogix in this civil action under the doctrine of issue preclusion. Wellogix argues that issue preclusion is not applicable because the issues being litigation in the present action are not identical to the issues addressed in the prior arbitration.
Under the doctrine of collateral estoppel, or issue preclusion, "once a court has decided an issue of fact or law necessary to its judgment, that decision may preclude litigation of the issue in a suit on a different cause of action involving a party to the first case." Allen v. McCurry, 449 U.S. 90, 94, 101 S.Ct. 411, 66 L.Ed.2d 308 (1980). Collateral estoppel can be used defensively a plaintiff may be estopped from asserting a claim that the plaintiff has previously litigated and lost against another defendant or can be used offensively a plaintiff seeks to estop a defendant from relitigating issues that the defendant previously litigated and lost against another plaintiff. Parklane Hosiery Co. v. Shore, 439 U.S. 322, 328, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979). "Collateral estoppel applies when, in the initial litigation, (1) the issue at stake in the pending litigation is the same, (2) the issue was actually litigated, and (3) the determination of the issue in the initial litigation was a necessary part of the judgment." Harvey Specialty & Supply, Inc. v. Anson Flowline Equip. Inc., 434 F.3d 320, 323 (5th Cir.2005).
This is a case of defensive non-mutual collateral estoppel. Accenture argues that Wellogix raised trade secret misappropriation and theft claims against BP in the arbitration that are virtually identical to the claims raised against Accenture in this action. Because Wellogix lost its claims in the arbitration, Accenture contends that the arbitration's findings against Wellogix have preclusive effect in the present action. Wellogix argues that there is not complete identity of issues between the claims addressed in the arbitration and the claims presented here and that additional evidence gathered during discovery after the arbitration substantiates Wellogix's claims against Accenture.
*533 Wellogix asserted the following claims against BP during the arbitration: (1) breach of contract; (2) misappropriation of trade secrets; (3) theft; and (4) tortious interference with an existing contract. Wellogix's currently asserts the following claims against Accenture: (1) misappropriation of trade secrets; (2) theft; (3) breach of fiduciary duty; (4) aiding and abetting breach of fiduciary duty; (5) tortious interference with existing contracts; (6) breach of confidence and trust; and (7) conspiracy.[1] As an initial matter, we note that Wellogix's claims against Accenture of breach of fiduciary duty, aiding and abetting breach of fiduciary duty, breach of confidence and trust, and conspiracy were not raised vis-à-vis BP during the arbitration. Therefore, any issues of law relating to these four claims and that are presented in the current proceeding will not be precluded by findings made in the arbitration. As to issues of fact that arose during the arbitration and that are relevant to these four claims, the Court will have to address each issue of fact as it arises in the motion for summary judgment and at trial, apply the elements of collateral estoppel, and determine whether the particular issue of fact must be accorded preclusive effect.
With respect to Wellogix's claim of misappropriation of trade secrets, Wellogix was required to prove in the arbitration that: (1) it possessed a trade secret; (2) that BP used or disclosed the trade secret after either improperly obtaining it or obtaining via a breach of a confidential relationship; and (3) that Wellogix was injured by the use or disclosure. The Arbitration Order held that there was no trade secret misappropriation because there was no evidence that BP used Wellogix's trade secrets in its Global E & P P2P project. The issue presented in the arbitration, which was whether BP used Wellogix's trade secrets, is not identical to the one presented here, which is whether Accenture used Wellogix's trade secrets. Evidence of BP's use could be found only in BP's Global E & P P2P and Backbone projects, while evidence of Accenture's use could be found in Accenture's internal documents, the xIEP application, and, to the extent that Accenture's unlawfully disclosed Wellogix's trade secrets to SAP, in SAP's software. The Arbitration Order did not focus on Accenture's use or disclosure apart from the Global E & P P2P project. Thus, we do not accord preclusive effect in this action to the Arbitration Order's finding that BP did not use Wellogix's trade secrets insofar as this holding is used to absolve Accenture of liability for trade secret misappropriation.
However, with respect to the issue of whether a trade secret exists, we do give preclusive effect to our finding that Wellogix's trade secrets do not consist of the "architecture and process flow of the eTrans project." (Arb. Order at 9.) We reached this finding because it appeared "that several companies took part in developing these maps." (Id.) To the extent that Wellogix claims in this action that the architecture and the process flow documents of the eTrans project constitute a trade secret, this issue was at stake in the arbitration, was actually litigated during the arbitration, and was necessary to the holding that there was no evidence of trade secret misappropriation. Further, Wellogix has had a full and fair opportunity to litigate this issue. As discussed in more detail in the Court's Memorandum and Order on Wellogix's Motion to Compel (Doc. No. 231), Wellogix had an opportunity *534 to raise any concerns it had with BP's production of electronic data and did not timely do so. Wellogix cannot now rely on the possibility that it may not have received all of BP's electronic data to argue that it did not have a full and fair possibility to litigate the issue, especially when its expert testified without issue at the arbitration about BP's purported misappropriation of Wellogix's trade secrets. Finally, even if Wellogix was unable to decipher all of BP's electronic data, it is unclear how additional information would have changed the Arbitration Order's finding that the contribution of several companies to the architecture and process flow charts prevented these items from being Wellogix's trade secrets.
Wellogix also contends that it claims ownership over the "core process flow" documentation that it prepared and provided to Accenture in June 2005 regarding the way in which Wellogix Workflow Navigator and eField-Ticket could be integrated with SAP's software. (Doc. No. 222 at 5 n. 2; Doc. No. 222 Ex. 22.) It is unclear whether this document was presented as evidence during the arbitration. Even if it was presented, this document does not appear to be part of the "architecture and process flow [documents] of the eTrans project," which we have held are not Wellogix's trade secrets. Rather, this document was sent by Wellogix to Accenture (which did not work on the eTrans project) in June 2005, when Accenture was heavily involved in BP's Global E & P P2P project. Moreover, this document does not appear to be the product of several companies' collaboration, but appears to have been produced only by a Wellogix employee. We cannot conclude that the Arbitration Order prevents Wellogix from arguing that the June 2005 "core process flow" documentation is a Wellogix trade secret.
With respect to Wellogix's claim of theft of trade secrets, the Arbitration Order's finding that BP did not engage in theft will not be given preclusive effect insofar as it is used to claim that Accenture did not engage in theft of trade secrets. Wellogix's theft of trade secrets claim is based on the same evidence as its trade secret misappropriation claim. Therefore, we reach this conclusion for the same reasons we do not accord preclusive effect to the Arbitration Order's finding regarding BP's misappropriation of trade secrets. As for Wellogix's theft of property and theft of services claims against Accenture, we need not rule on whether they are precluded by the Arbitration Order because we grant summary judgment to Accenture on these claims for reasons independent from the arbitration's findings.
With respect to Wellogix's claim of tortious interference with existing contracts, the claim presented in the current litigation is not identical to the claim presented in the arbitration. The arbitration focused on whether BP through one of its employees tortiously interfered with its own contracts with Wellogix. Here, however, we are asked to focus on whether Accenture through its employees tortiously interfered with Wellogix's contracts with BP and SAP. The factual and legal questions to resolve are quite different from those in the arbitration. Therefore, we will not give preclusive effect to the Arbitration Order's finding that BP did not commit tortious interference with an existing contract insofar as this finding is used to argue that Accenture did not commit tortious interference with an existing contract.
III. MOTION TO EXCLUDE KENDYL ROMAN AS EXPERT WITNESS
Accenture has moved to exclude Wellogix's expert witness Kendyl Roman ("Roman") *535 on a number of grounds, including his qualifications and the reliability of his expert opinions.
A. Legal Standard
Federal Rule of Evidence 702 provides for the admission of expert testimony that assists the trier of fact to understand the evidence or to determine a fact in issue. A court is charged with a "gatekeeping function" to ensure expert testimony is both reliable and relevant. Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 597, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). Reliability is analyzed under Rule 702, which requires that: (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. Experts are permitted to render opinions even if based on inadmissible evidence so long as the inadmissible evidence is of the type reasonably relied upon by experts in that field. See Fed.R.Evid. 703; Daubert, 509 U.S. at 595, 113 S.Ct. 2786. Inadmissible facts or data that serve as a basis for the expert's opinion may not be disclosed to the jury by the proponent of the expert testimony unless a court determines "that their probative value in assisting the jury to evaluate the expert's opinion substantially outweighs their prejudicial effect." Fed.R.Evid. 703.
Further, the expert witness must be qualified "by knowledge, skill, experience, training, or education...." Fed. R.Evid. 702. A court must exclude an expert witness "if it finds that the witness is not qualified to testify in a particular field or on a given subject." Wilson v. Woods, 163 F.3d 935, 937 (5th Cir.1999); However, "Rule 702 does not mandate that an expert be highly qualified in order to testify about a given issue. Differences in expertise bear chiefly on the weight to be assigned to the testimony by the trier of fact, not its admissibility." Huss v. Gayden, 571 F.3d 442, 452 (5th Cir.2009) (citing Daubert, 509 U.S. at 596, 113 S.Ct. 2786).
The party seeking to rely on expert testimony bears the burden of establishing, by a preponderance of the evidence, that all requirements have been met. Daubert, 509 U.S. at 593, n. 10, 113 S.Ct. 2786; Moore v. Ashland Chem., Inc., 151 F.3d 269, 276 (5th Cir.1998).
B. Analysis
1. Experience in Oil and Gas Industry
Accenture first challenges Roman's qualifications on the basis that he does not have experience in the oil and gas industry, and specifically, in the electronic procurement of complex services. As a result, Accenture argues, Roman is not qualified to testify that Wellogix's purported trade secrets were somehow unique or otherwise qualify as a trade secret because he does not know whether these functionalities were achievable with existing software on the market. Wellogix responds that Roman is qualified to render an opinion.
The opinions proffered in Roman's second expert report fall within one of two categories: (1) those that discuss how Wellogix's software constitutes trade secrets; and (2) those that compare Wellogix's source code and software to BP's P2P and Backbone software and to SAP's software. As to the first category of opinions, Roman mainly discusses the various characteristics and functions of Wellogix's software that he claims should qualify as trade secrets. He does not offer opinions about the state of the relevant field in the early 2000s, nor whether other companies offered similar functions in their software. As such, Roman does not attempt to testify broadly about a field i.e., oil and gas, *536 or procurement within the oil and gas sector in which he has little to no experience. Rather, Roman draws upon his experience in the software development field to explain to a layperson how various components and characteristics of Wellogix's software function and why certain components and aspects might be considered a trade secret.
Regarding the second category of opinions, Roman is qualified through his years of experience as a software developer and forensic analyst to compare, analyze, and opine on the resulting matches between Wellogix source code and software, on one hand, to BP's and SAP's software and source code, on the other.
The cases cited by Accenture, while relevant, are not persuasive. In Taylor Pipeline Cons., Inc. v. Directional Rd. Boring, Inc., 438 F.Supp.2d 696 (E.D.Tex.2006), the court held that a proposed expert with over 30 years of experience in the construction industry as a contractor could testify regarding the quality of construction methods, but could not testify regarding construction law topics, such as the obligations of parties to construction contracts. In Kozak v. Medtronic, Inc., 512 F.Supp.2d 913, 918-19 (S.D.Tex.2007), the court held that an orthopedic surgeon with extensive training in biomedical engineering, experience designing spinal implant products, and a history of providing advice regarding the market for such products was unqualified to offer a future damages model. The court noted that, though the expert had experience generally in marketing spinal products, he did not have any experience calculating future damages or royalties based on projected future sales and market adoption/penetration rates. The connecting line between these cases is that an expert, who admittedly had years of experience performing a specific type of activity, was being asked in the case at issue to perform an admittedly new type of activity (i.e. constructing a damages model) or testify about a new area of knowledge (i.e. construction law). Here, however, Roman is providing an opinion based on a forensic analysis and comparison of software an activity that he has performed several times in the past as an expert. In addition, he is parsing Wellogix's software into understandable terms for a layperson, an activity that he is able and qualified to do considering to his history working with various software programs. We deny Accenture's motion to exclude Roman's expert testimony on these grounds.
2. Experience with SAP Software
Accenture next argues that Roman is unqualified to render opinions regarding SAP software because he has no experience with SAP software directly and no experience with ABAP, the programming language used to write SAP source code. Wellogix responds that Roman has sufficient experience with SAP software and that his opinion is based upon sufficient information and analytical tools.
SAP uses its own programming language, ABAP, to write its software. Roman testified in his deposition that he taught himself how to read and write ABAP source code, but has not taken an instructor-led course in ABAP. (Roman Dep. 141:15-143:24.) However, Roman also testified that he compared Wellogix and SAP source code by using a software program that compares the source code and generates any literal and non-literal matches between the source codes. (Roman Dep. 87:23-88:7; 231:4-232:12.) The comparison software can process the programming languages at issue here. (Roman Dep. 236:10-17; 238:12-23; 239:17-240:7.) Roman was required to review the matches generated by the source code and to analyze them to determine whether they *537 indicated copying. (Roman Dep. 243:7-244:12.) Roman's ability to analyze the matches admittedly requires knowledge of ABAP, but, more importantly, requires an ability to compare two different programming languages with each other and determine whether matches in the source code are significant. Roman possesses this latter experience and, from our reading of his deposition, possesses enough of the former to conduct the necessary comparison. Accenture's real issues with Roman's expert report relate to his conclusions, rather than his level of experience with ABAP, and should be addressed through cross-examination. See MGE UPS Sys. v. Fakouri Elec. Eng'g, Inc., 2006 WL 680513, *3-4, 2006 U.S. Dist. LEXIS 14142, *11-*12 (N.D.Tex. Mar. 14, 2006) (experts in computer software need not be experts in electrical engineering in order to testify about software purportedly developed through electrical engineering principles).
The cases cited by Accenture do not persuade us that exclusion of Roman's expert testimony is necessary due to his purported unfamiliarity with ABAP. The Fifth Circuit upheld the exclusion of testimony in a bankruptcy case where a party proffered as an expert the president and owner of a seafood supply company in order to establish the ordinary course of business in the baked goods industry. In re SGSM Acquisition Co., LLC, 439 F.3d 233, 240-41 (5th Cir.2006). The Fifth Circuit noted that "it is certainly conceivable that a fellow businessman and DSD supplier like Stephens could have provided relevant testimony for Leidenheimer despite his lack of personal involvement in the baked goods industry." Id. at 241. However, the expert conceded that he did not have the necessary knowledge regarding normal terms of credit for baked goods vendors. This case does not require us to exclude Roman, and, in fact, suggests that Roman can testify in matters relating to ABAP as long as his testimony is supported by sufficient information. In another Fifth Circuit case, the court upheld the exclusion of a mechanical engineer who attempted to testify regarding failures in an automobile seat belt restraint system despite never having any academic or professional experience in automobile design, manufacture, air bags, or restraint systems. Lofton v. Gen. Motors Corp., 33 F.3d 1379, No. 93-5590, 1994 WL 487251, at *3 (5th Cir. Aug. 19, 1994). Here, Roman has broad experience at the general level of computer design and programming in various programming languages and computer systems, and has developed experience with ABAP specifically. We decline to exclude Roman's expert opinion on these grounds.
3. Reliability of Opinions
Accenture contends that Roman's methodology is unreliable because he is unable to testify regarding how his proprietary software matching tool worked and is unable to identify the standard tool used in the software analysis.
Roman testified that, in conducting the forensic review and analysis of source code, he used (1) a proprietary software tool; and (2) a standard took for indexing the source code. (Roman Dep. 87:25-88:7.) With respect to the proprietary tool, Roman testified that this was available on his company's website. (Roman Dep. 233:13-14.) Contrary to Accenture's argument, Roman described in his deposition how his proprietary tool worked. He testified that the proprietary software tool included a number of tools within it, including a side-by-side comparison tool (that is the subject of and explained in one of Roman's patents) and a tokenizer that parses the source code to identify meaningful tokens. (Id. 232:15-233:9.) He described how he and his colleagues had *538 come up with the list of files to input into the tools, and how the tool generated percentages associated with the matches between the source code. (Roman Dep. 236:10-240:7.) Roman did not misrepresent that the proprietary tool would automatically identify identical code, but clearly stated that identification of "functionally identical" code (as opposed to literally identical code) was a "manual process." (Roman Dep. 237:25.) Roman never offered an opinion in his report or his testimony that there was 98.7% identity between Wellogix's source code and SAP's source code; rather, this was an assertion made by Wellogix's counsel in their responsive briefing. Ultimately, Accenture's arguments are that Roman's conclusions are unreliable because they contradict Accenture's expert's conclusions, which is an insufficient basis for excluding expert testimony. See Walker v. Soo Line R.R. Co., 208 F.3d 581, 588-89 (7th Cir.2000). Based on Roman's qualifications and his explanations of his methodology, we are satisfied that his opinions are sufficiently reliable and that he applied the principles and methods reliably.
With respect to the standard tool, Roman testified that one of his employees would know the name of the tool. (Roman Dep. 88:8-14.) During the Court's hearing regarding this motion on March 31, 2011, Wellogix's counsel represented that Roman would provide Wellogix with the name of the standard tool. Unless Wellogix has failed to turn over the name of the standard tool to Accenture, we decline to exclude Roman's testimony on these grounds.
4. Evidentiary Basis for Roman's Opinions
Accenture argues that there is no evidentiary basis for Roman's opinions regarding misappropriation because he cannot identify any Accenture employee who had access to Wellogix's source code or any evidence that Accenture provided input into SAP's source code. In fact, Roman's Second Expert Report cites several documents that provide a basis for his assertions that Accenture employees had access to Wellogix's intellectual property via a SharePoint site and through direct communications from Wellogix to Accenture. (Roman Second Expert Report ¶¶ 276-281, 298, 313.) His expert report also cites to documents written by Accenture employees indicating that they were involved in SAP's software development efforts in Germany and transferred information to SAP. (Id. ¶ 274.) If Accenture believes that reliance upon these documents is misplaced, it may highlight the issues during cross-examination. We deny Accenture's motion to exclude Roman's opinion on these grounds.
5. Roman's Analysis of SRM and ECC Software
The final basis on which Accenture moves to exclude Roman's testimony is his purported failure to analyze the software that is actually at issue in this case. Accenture contends that Roman did not analyze SAP's SRM software, which the key software at issue, and instead analyzed SAP's ECC 6.0 software, which is not at issue in the case.
Roman has described SAP's software offerings as including a product called Supplier Relationship Management ("SRM"), which is part of SAP's Business Suite and is used to pay supplier invoices. (Roman Second Expert Report ¶ 141.) In addition, SAP provides software called ERP Central Component ("ECC"), which operates as the core "engine" of SAP business software. (Id. ¶ 144.) Roman testified that, in conducting his forensic analysis and comparison, he obtained SAP source code for "an all-in-one package that includes EEC and SRM." (Roman Dep. *539 71:18-19.) In response to questioning by Accenture's counsel, Roman confirmed that the SAP source code he examined was from a "standard SAP/SRM distribution" and a "standard distribution of SAP's ECC software." (Id. 89:1-9, 91:8-10.) When Roman identified the portions of SAP's source code that were similar to Wellogix's source code, the SAP source code containing the matches were from SAP's ECC software. (Id. 10:11-22.) Roman states that the ECC software was SAP's "core functionality," and that source code integrated into the core functionality made it available to SAP's SRM software as well as other SAP software. (Id. 258:20-259:5.)
This evidence demonstrates that Roman analyzed both SRM and ECC, and not just ECC as Accenture contends. Though Roman's report found similarity between ECC and Wellogix's source code, and not between SRM and Wellogix's source code, Roman also stated that the functionality arising from ECC's source code would be made available to SRM. Roman's opinion was not based on a faulty analysis or an analysis of completely irrelevant data. If Accenture wishes to challenge Roman's reliance on ECC to support his opinion that Wellogix and SRM contained similarities, or the significance of Roman's findings with respect to ECC, it can do so on cross-examination. These issues go to the weight of Roman's opinion and not its admissibility. We decline to exclude Roman's opinion on these grounds. In sum, we deny Accenture's motion to exclude Roman as an expert.
IV. SUMMARY JUDGMENT LEGAL STANDARD
A motion for summary judgment requires the Court to determine whether the moving party is entitled to judgment as a matter of law based on the evidence thus far presented. Fed.R.Civ.P. 56(c). Summary judgment is proper "if 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 judgment as a matter of law." Kee v. City of Rowlett, 247 F.3d 206, 210 (5th Cir.2001) (quotations omitted). A genuine issue of material fact exists if a reasonable jury could enter a verdict for the non-moving party. Crawford v. Formosa Plastics Corp., 234 F.3d 899, 902 (5th Cir.2000). 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 nonmovant's case. Exxon Corp. v. Oxxford Clotkes, Inc., 109 F.3d 1070, 1074 (5th Cir.1997). If the movant meets this burden, then the nonmovant is required to go beyond its pleadings and designate, by competent summary judgment evidence, the specific facts showing that there is a genuine issue for trial. Id. The Court views all evidence in the light most favorable to the nonmoving party and draws all reasonable inferences in that party's favor. Id. Hearsay, conclusory allegations, unsubstantiated assertions, and unsupported speculation are not competent summary judgment evidence. F.R.C.P. 56(e)(1); See, e.g., Eason v. Thaler, 73 F.3d 1322, 1325 (5th Cir. 1996), McIntosh v. Partridge, 540 F.3d 315, 322 (5th Cir.2008); see also Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (noting that a non-movant's burden is "not satisfied with `some metaphysical doubt as to the material facts.'" (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986))).
V. ANALYSIS
Accenture has moved for summary judgment on all of the claims alleged in Wellogix's *540 third amended complaint. We address each of these claims below.
A. Misappropriation of Trade Secrets
Under Texas law, a claim of trade secret misappropriation requires a plaintiff to show that (a) a trade secret existed; (b) the trade secret was acquired through a breach of a confidential relationship or discovered by improper means; and (c) use of the trade secret without authorization from the plaintiff. Phillips v. Frey, 20 F.3d 623, 627 (5th Cir.1994) (citing cases); Avera v. Clark Moulding, 791 S.W.2d 144, 145 (Tex.App.-Dallas 1990, no writ.). The word "use," as it appears as an element of this offense, has been equated with "commercial use," and has been liberally defined to include both the sale of the trade secrets themselves, as well as the "commercial operation" of those trade secrets within profit-seeking endeavors. See Metallurgical Indus. Inc. v. Fourtek, Inc., 790 F.2d 1195, 1205 (5th Cir.1986); Global Water Group, Inc. v. Atchley, 244 S.W.3d 924, 930 (Tex.App.-Dallas 2008, pet. denied). Recently, the Fifth Circuit has noted with approval the even more liberal construction of the term "use" contained in the Restatement (Third) of Unfair Competition Section 40: "[a]s a general matter, any exploitation of trade secrets that is likely to result in injury to the trade secret owner or enrichment to the defendant is "use" under this Section." General Universal Systems, Inc. v. HAL, Inc., 500 F.3d 444, 450-52 (5th Cir.2007). We find that there are genuine issues of material fact with respect to all of the elements of the trade secret misappropriation claim.
1. Existence of Trade Secret
Wellogix has raised a fact issue as to whether its source and object code should be accorded trade secret protection. As the Arbitration Order notes, Wellogix kept its object and source code substantially secret. Even though Wellogix disclosed its object and source code to at least three companies without first obtaining a written confidentiality agreement, all of these disclosures appear to be in furtherance of the parties' economic interests. In such situations, Wellogix's object and source code may still qualify for trade secret protection. See Phillips, 20 F.3d at 631-32 (disclosure of trade secret without protection of express confidentiality agreement not fatal to trade secret protection where disclosure occurred during sale negotiation); Metallurgical Industries, Inc., 790 F.2d at 1200-01 (limited disclosure made to further holder's economic interests does not necessarily destroy trade secret protection). In addition, Wellogix has raised a fact issue as to whether the "process workflow" for Wellogix software's integration with SAP software should be considered a trade secret. See Mabrey v. SandStream Inc., 124 S.W.3d 302, 311 (Tex.App.-Fort Worth 2003, no pet.) (business models related to telecommunications architecture are trade secrets); (Doc. No. 222 Ex. 22.).
2. Use of Trade Secret
We find that there are genuine issues of material fact with respect to whether Accenture used Wellogix's trade secrets to (1) develop complex services templates for BP, (2) develop xIEP with SAP, or (3) assist SAP to enhance SRM functionality. As to the first type of use, Wellogix has submitted evidence that Accenture developed complex services templates for BP. (Doc. No. 222 Ex. 16, 18, 19, 21.) As to the second and third types of use, Wellogix has submitted evidence that Accenture may have used Wellogix's trade secrets during its work with SAP. In at least one instance, Wellogix transmitted a "process workflow" document to Accenture *541 which contained information about how its software could be integrated with SAP's software. (Doc. No. 222 Ex. 22.). In addition, during the time that Accenture was assisting BP to implement Global E & P P2P and had access to source code on the eTrans SharePoint site, Accenture was also working with SAP to develop the xIEP application and to enhance SRM functionality. On one hand, Accenture's employee Kostial states that scenario 3 of xIEP (development of complex services templates) was never developed. (Kostial Dep. 35:23-24, 179:6-7.) This statement is contradicted by other summary judgment evidence that information was transmitted to SAP in order for SAP and Accenture to develop scenario 3. (Doc. No. 222 Ex. 15 at 1). Even though xIEP may not have been piloted, deployed, or implemented, Accenture's purported use of Wellogix's source or object code during xIEP's development can constitute a commercial use. "Any misappropriation of trade secrets, followed by an exercise of control and domination, is considered a commercial use." Garth v. Staktek Corp., 876 S.W.2d 545, 548 (Tex. App.-Austin 1994, writ dism. w.o.j.) (citing University Computing Co. v. Lykes Youngstown Corp., 504 F.2d 518, 542 (5th Cir.1974)). Finally, with respect to the third type of use, enhancing SAP's SRM to incorporate Wellogix's trade secrets, there is evidence that SRM's ECC core functionality, which feeds into SAP SRM, contains the same code as Wellogix's code. (Roman Dep. 258:20-259:5; Doc. No. 222 Ex. 3 (Roman Dep. Exs. 920A, 920B, 920C); Roman Second Expert Report at ¶¶ 354-57.) Thus, we find that there are genuine issues of material fact with respect to Accenture's "use" of Wellogix's trade secrets during and in Accenture's work for BP, Accenture's work on xIEP, and Accenture's work to enhance SRM functionality.
3. Acquisition of Trade Secret
There are genuine issues of material fact with respect to both whether Accenture acquired Wellogix's trade secrets by a breach of a confidential relationship or through improper means. Regarding the confidential relationship, it is clear that Wellogix and Accenture entered into six agreements with each other, each containing confidentiality provisions. These agreements establish that a confidential relationship existed between the two companies. IAC, Ltd. v. Bell Helicopter Textron, Inc., 160 S.W.3d 191, 199 (Tex.App.-Fort Worth 2005, no pet.) (confidentiality agreement between parties supported finding of confidential relationship between parties). Further, there are genuine issues of material fact with respect to the type of information Wellogix disclosed to Accenture pursuant to these agreements, and whether this information later found its way into the complex services templates developed by Accenture, the xIEP application developed by Accenture and SAP, or enhancements to SAP SRM functionality made by incorporating Wellogix's source code into SAP's ECC core functionality. (Doc. No. 222 Ex. 22; Roman Dep. 258:20-259:5; Doc. No. 222 Ex. 3 (Roman Dep. Exs. 920A, 920B, 920C); Roman Second Expert Report at ¶¶ 354-57.).
With respect to discovering Wellogix's trade secrets by improper means, "[i]mproper means of acquiring another's trade secrets include theft, fraud, unauthorized interception of communications, inducement of or knowing participation in a breach of confidence, and other means either wrongful in themselves or wrongful under the circumstances of the case." Astoria Indus, of Iowa, Inc. v. SNF, Inc., 223 S.W.3d 616, 636 (Tex.App.-Fort Worth 2007, pet. denied). Here, the Arbitration Order notes that the eTrans SharePoint site contained some source code and computer *542 language.[2] (Arb. Order ¶ 41.) The Arbitration Order also notes that Accenture employees were allowed to access the SharePoint site. (Id. ¶ 42.) Summary judgment evidence shows that Accenture claimed that xIEP would have a complex services solution and pushed SAP to represent to BP that the xIEP would offer a better solution than Wellogix's complex services software. (Doc. No. 222, Exs. 35, 36.) In addition, summary judgment evidence shows that Accenture feared being marginalized by a close relationship between SAP and Wellogix. (Doc. No. 222, Ex. 38.) Finally, summary judgment evidence shows that Accenture possessed information created by Wellogix and BP for the eTrans project and for other projects. (Greene Dep. 129:6-130:4; Doc. No. 222 Ex. 22.) Viewing this evidence in the light most favorable to Wellogix, we find that it would enable a reasonable juror to reach a conclusion that Accenture improperly obtained Wellogix's trade secrets via the SharePoint site in order to buttress its own xIEP application and enhance SRM functionality.
4. Plaintiff suffered Injury
The summary judgment evidence raises a fact issue as to whether Wellogix suffered an injury as a result of Accenture's purported use of Wellogix's trade secrets. The summary judgment evidence shows that Accenture may have used Wellogix's trade secrets in xIEP and to enhance SRM functionality. Accenture attempted to replace Wellogix's complex services functionality with its own development of a complex services solution or to enhance SRM's functionality to include complex services functions. Accenture communicated with BP and SAP to dissuade them from going forward with Wellogix's complex services solution. This evidence could lead a reasonable juror to conclude that Wellogix did not continue work with BP and SAP as a result of Accenture's use of Wellogix's trade secrets to replicate a complex services solution in xIEP and SRM. In addition, Accenture's development of complex services templates similarly may have led BP to forego a relationship with Wellogix for provision of Wellogix's complex services solution, thereby causing Wellogix an injury.
In sum, the summary judgment evidence raises fact issues with respect to all of the elements of a trade secret misappropriation claim. We deny summary judgment to Accenture on this claim.
B. Texas Theft Liability Act
Wellogix has brought three separate claims under the Texas Theft Liability Act ("TLA") theft of property, theft of services, and theft of trade secrets. For all TLA claims, the plaintiff must establish: (1) the plaintiff had a possessory right to property or was the provider of services; (2) the defendant unlawfully appropriated property or unlawfully obtained services in violation of certain sections of the Penal Code; and (3) the plaintiff sustained damages as a result of the theft. Tex. Civ. Prac. & Rem.Code §§ 134.002(2), 134.003, 134.005(a); Tex. Penal Code §§ 31.03(a), 31.05. Deprive means, among other things, "to withhold property from *543 the owner permanently or for so extended a period of time that a major portion of the value or enjoyment of the property is lost to the owner." Tex. Penal Code § 31.01. "Appropriation of property is unlawful if it is without the owner's effective consent." Id. § 31.01(2).
With respect to theft of trade secrets, a plaintiff may establish this claim by showing (1) without Wellogix's consent; (2) Accenture stole Wellogix's trade secret, made a copy of an article representing the trade secret, or communicated or transmitted a trade secret. Tex. Penal Code § 31.05. The theft claim based on theft of trade secrets rests on the same evidence as Wellogix's trade secret misappropriation claim. See SP Midtown, Ltd v. Urban Storage, L.P., 2008 WL 1991747, *7 n. 8, 2008 Tex.App. LEXIS 3364, *21 n. 8 (Tex.App.-Houston May 8, 2008, pet. denied) (though "the elements of a statutory claim and a common law claim of misappropriation are not exactly the same, we conclude the same evidence supports both causes of action.") For the same reasons we have found that genuine issues of material fact exist with respect to Wellogix's trade secret misappropriation claim, we find that genuine issues of material fact exist with respect to Wellogix's theft of trade secrets claim.
With respect to theft of property, Wellogix must demonstrate that Accenture possessed an intent to deprive Wellogix of its property permanently or for an extended period of time. Tex. Penal Code § 31.03. Wellogix has not come forward with evidence that Accenture possessed such intent. Although Accenture may have been provided with or improperly obtained copies of Wellogix's complex services solution and source and object code, there is no suggestion that Accenture prevented Wellogix from retaining copies of these items or intended to do so. Without such intent, Wellogix cannot demonstrate that Accenture committed a theft of property. We grant summary judgment to Accenture on the theft of property claim.
With respect to Wellogix's theft of services claim, Accenture contends that Wellogix did not provide it with any service, and that, even if a service was rendered, Wellogix did not seek compensation for this service. Accenture cites the deposition of Wellogix employee Ike Epley as evidence that Wellogix did not provide "services" to Accenture other than giving Accenture its "Marathon relationship." Even if we assume that Wellogix's assistance to Accenture in creating a business relationship with Marathon constitutes a service, Wellogix has not pointed to any evidence that Accenture knew that this service was provided in exchange for compensation. See Tex. Penal Code § 31.04(a) (element of theft of services is that defendant possesses intent to avoid payment for service that he knows is provided only for compensation). Wellogix has not shown that there is a genuine issue of fact in dispute with respect to the theft of services claim and therefore we grant summary judgment to Accenture regarding this claim.
C. Breach of Fiduciary Duty
The elements of a breach of fiduciary duty claim under Texas law are: (1) a fiduciary relationship between the plaintiff and defendant; (2) the defendant must have breached his fiduciary duty to the plaintiff; and (3) the defendant's breach must result in injury to the plaintiff or benefit to the defendant. Navigant Consulting, Inc. v. Wilkinson, 508 F.3d 277, 283 (5th Cir.2007). "A fiduciary relationship exists when the parties are under a duty to act for or give advice for the benefit of another upon matters within the scope of the relationship." Stephanz v. *544 Laird, 846 S.W.2d 895, 901 (Tex.App.-Houston 1993, pet. denied). Texas law recognizes two types of fiduciary relationships. The first, a formal fiduciary relationship, "arises as a matter of law and includes the relationships between attorney and client, principal and agent, partners, and joint venturers." Id. (quoting Abetter Trucking Co. v. Arizpe, 113 S.W.3d 503, 508 (Tex.App.-Houston [1st Dist.] 2003, no pet.)). The second, an informal fiduciary relationship, may arise in the context of informal moral, social, domestic, or personal relationships in which one person trusts and relies on another. Crim Truck & Tractor Co. v. Navistar Int'l, 823 S.W.2d 591, 594 (Tex.1992). "However, a fiduciary relationship is an extraordinary one and will not be lightly created; the mere fact that one subjectively trusts another does not, alone, indicate that he placed confidence in another in the sense demanded by fiduciary relationships because something apart from the transaction between the parties is required." American Medical Int'l, Inc. v. Giurintano, 821 S.W.2d 331, 339 (Tex.App.-Houston 1991, no pet.).
1. Formal Fiduciary Relationship
Accenture argues that none of the six agreements entered into between Wellogix and Accenture gives rise to a formal fiduciary relationship between the two entities. It is unclear whether Wellogix contends that these agreements create a formal fiduciary relationship.
Joint venturers owe a formal fiduciary duty to each other in dealings within the scope of the joint venture. Rankin v. Naftalis, 557 S.W.2d 940, 944 (Tex.1977). The elements of a joint venture are (1) mutual right of control, (2) community interest, (3) the sharing of profits as principals, and (4) the sharing of loses, costs or expenses. Taylor v. GWR Operating Co., 820 S.W.2d 908, 911 (Tex. App.-Houston 1991, pet. denied). None of the agreements between Wellogix and Accenture creates a joint venture relationship between the two companies such that the agreements can be said to give rise to a formal fiduciary relationship. The Mutual Nondisclosure Agreement is merely an agreement to keep certain proprietary information confidential. (Doc. No. 222 Ex. 29.) The Marketing Alliance Agreement provides that Wellogix and Accenture engage in a joint marketing plan of Wellogix's software and Accenture's integration services to target companies in the oil and gas E & P sector. Each company was to bear its own costs. (Doc. No. 222 Ex. 30.) Wellogix's Subcontract with Accenture involves Accenture paying Wellogix a fixed sum of money in exchange for Wellogix's provision of software and technical services during the implementation of Wellogix's software at Marathon Oil Company. (Doc. No. 222 Ex. 31.) The Subscription Agreement between Wellogix and Accenture grants Accenture a license to use Wellogix's software and services. (Doc. No. 222 Ex. 32.) Finally, the two Teaming Agreements simply provide that Wellogix and Accenture would work together to submit joint proposals to oil companies that had issued requests for proposals. Both agreements provide that each party would bear their own expenses and costs. (Doc. No. 222 Ex. 33, 34.) We conclude that, on the basis of these agreements, Wellogix and Accenture did not have a formal fiduciary relationship.
2. Informal Fiduciary Relationship
Accenture also argues that the six agreements between Wellogix and Accenture do not give rise to an informal fiduciary relationship. Weilogix contends that six agreements are evidence that an informal fiduciary relationship existed between Accenture *545 and Wellogix such that Accenture was obligated to exercise good faith and fair dealing towards Wellogix.
Generally, "while a fiduciary relationship or confidential relationship may arise from the circumstances of a particular case, to impose such a relationship in a business transaction, the relationship must exist prior to, and apart from the agreement made the basis of the suit." Willis v. Donnelly, 199 S.W.3d 262, 277 (Tex.2006) (quoting Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 177 (Tex.1997)). Mere subjective trust alone is not enough to transform arms-length dealing into a fiduciary relationship. Crim Truck & Tractor Co., 823 S.W.2d at 595. A fiduciary relationship may arise either as a result of dominance on the part of one, or weakness and dependence on the part of the other, such as may exist in contractor/subcontractor relationships. Texas Bank & Trust Co. v. Moore, 595 S.W.2d 502, 507 (Tex.1980). Whether such a duty exists depends on the circumstances. Lundy v. Masson, 260 S.W.3d 482, 501 (Tex.App.-Houston 2008). The existence of an informal fiduciary relationship is ordinarily a question of fact, but when the underlying facts are undisputed, it becomes a question of law. Crim Truck & Tractor Co., 823 S.W.2d at 594; Anglo-Dutch Pet. Int'l v. Smith, 243 S.W.3d 776, 782 (Tex.App.-Houston 2007, pet., denied).
As an initial matter, we decline to send to the jury the issue of whether an informal fiduciary relationship existed. The material issues of fact relevant to this inquiry are undisputed. Wellogix relies on the six agreements between Wellogix and Accenture as the basis for the informal fiduciary relationship. It does not cite any other evidence as support for the existence of the fiduciary relationship. Accenture does not dispute that these agreements exist. In turn, Accenture relies upon Wellogix employees' professed distrust of Accenture as evidence that no informal fiduciary relationship existed. Wellogix does not dispute its employees' attitudes towards and characterization of Accenture. The only dispute between the parties is whether this collection of evidence the six agreements and the emails of Wellogix employees establishes an informal fiduciary relationship. This is an issue of law that is appropriate for the Court to decide at this juncture since Wellogix has not identified any genuine issues of material fact that should be presented to the jury.
Neither party has identified the agreement, if any, between Wellogix and Accenture that serves as the basis of this suit. Rather, the allegations of a breach of fiduciary duty appear to be based upon Accenture's actions while acting as BP's agent in selecting software platform vendors during BP's Global E & P P2P project, which began in 2004. In order to determine whether an informal fiduciary relationship existed between Wellogix and Accenture, we must determine whether the parties' relationship prior to 2004 and separate from the Global E & P P2P activities gave rise to a fiduciary obligation.
The Mutual Nondisclosure Agreement, the Marketing Alliance Agreement, the two Teaming Agreements were all agreements between Accenture and Wellogix to jointly exchange information with each other in order to develop business opportunities to which both would contribute particular expertise and from which both would benefit. As such, these agreements are "arms-length transactions entered into for the parties' mutual benefit, and thus do not establish a basis for a fiduciary relationship." Meyer v. Cathey, 167 S.W.3d 327, 331 (Tex.2005) (citing Associated Indem. Corp. v. CAT Contr., 964 S.W.2d 276, 288 (Tex.1998)). The Subscription Agreement is merely a license agreement in *546 which Accenture obtained a license to use certain intellectual property owned by Wellogix in exchange for a fee. The Subcontract between Accenture and Wellogix does not reflect a relationship in which Accenture was a dominant party and Wellogix a weak one. Wellogix provided the key software for implementation at Marathon and Accenture implemented that software. Wellogix was compensated for its software and services. The Teaming Agreements are not subcontractor agreements and explicitly provide that each party is an independent contractor.
Any expectation that Wellogix may have had under the Subcontract that Accenture would act in its best interests was contradicted by the express language of other agreements. In the Mutual Nondisclosure Agreement, Wellogix acknowledged that Accenture retained the right to develop, use, and market products and services competitive and similar to Wellogix's own products, subject to the confidentiality and non-disclosure provisions in the agreement. In the Marketing Alliance Agreement, Wellogix acknowledged that the alliance between the two companies was not exclusive.
Finally, Wellogix argues that the confidentiality and non-disclosure provisions in the agreements created a special relationship of trust and confidence between the parties to support the existence of a fiduciary relationship. These confidentiality provisions related to Wellogix's proprietary information, including intellectual property and software, and limited Accenture's ability to use, disclose, or rely upon Wellogix's proprietary information. The agreements certainly gave rise to Wellogix's expectation that Accenture would abide by the confidentiality provisions contained in them. However, "[r]eliance on another party to perform its obligations under an agreement is not sufficient to establish a confidential relationship." Swinehart v. Stubbeman, 48 S.W.3d 865, 882 (Tex.App.-Houston 2001, pet. denied). The agreements here do not automatically create fiduciary duties simply because they were confidentiality agreements. See Anglo-Dutch Pet. Int'l, Inc., 243 S.W.3d at 783 ("To the extent Smith's position equates a confidentiality agreement to a relationship of trust and confidence giving rise to a fiduciary duty, he has cited, and we have found, no authority supporting the notion that confidentiality agreements can create fiduciary relationships.") Rather, the dealings between the parties must show that one part is justified in relying on the other to act in his best interest. Stephanz, 846 S.W.2d at 902. The confidentiality agreements and provisions do not support such a conclusion.
Therefore, we find that no informal fiduciary relationship existed between Wellogix and Accenture. Without the existence of either a formal or informal fiduciary relationship, Wellogix cannot make out a claim for breach of fiduciary duty. We need not examine the second and third elements of this claim i.e., whether a breach occurred and whether Wellogix was injured or Accenture benefited. We grant summary judgment to Accenture on Wellogix's claim of breach of fiduciary duty.
D. Aiding and Abetting a Breach of Fiduciary Duty
In its complaint, Wellogix alleges that Accenture aided and abetted a breach of fiduciary duty. Specifically, Wellogix's third amended complaint states that Accenture knew that SAP's actions constituted a breach of fiduciary duty to Wellogix, and that Accenture assisted and encouraged SAP in its breach of fiduciary duty. Accenture has moved for summary judgment on this claim. In its response brief, Wellogix does not address the fiduciary *547 duty alleged owed to it by SAP. Instead, Wellogix focuses on the fiduciary duty owed to it by BP and Accenture's acts that aided and abetted BP's breach of fiduciary duty. In its reply brief, Accenture argues that Wellogix failed to plead an aiding and abetting claim based on BP's breach of fiduciary duty, and that Wellogix has abandoned its claim of aiding and abetting SAP's breach of fiduciary duty.
Texas law recognizes that, "where a third party knowingly participates in the breach of duty of a fiduciary, such third party becomes a joint tort-feasor with the fiduciary and is liable as such." Kinzbach Tool Co. v. Corbett-Wallace Corp., 138 Tex. 565, 160 S.W.2d 509, 514 (1942). We address each of Wellogix's factual theories in turn.
1. Aiding and Abetting SAP's Breach of Fiduciary Duty
Key to Wellogix's claim that Accenture aided and abetted SAP's breach of fiduciary duty is the existence of a fiduciary relationship between SAP and Wellogix. The evidence cited by Accenture as relevant to the existence of a fiduciary relationship between SAP and Wellogix is the NetWeaver Cooperation Agreement executed in March 2005, personal relationships between Wellogix's executives and SAP's employees, and participation by Wellogix's executives in SAP's product conferences. Wellogix does not dispute that this evidence is relevant or cite any evidence that might give rise to a genuine issue of material fact.
We find that this evidence does not support the existence of a formal fiduciary relationship. The NetWeaver Cooperation Agreement expressly disclaims the creation of a partnership or joint venture relationship between SAP and Wellogix. (Doc. No 210 Ex. 30 § 8.4; Doc. No. 210 Ex. 31 § 18.3.) In addition, the agreement provides that each party shall bear its own costs with respect to their own activities under the agreement. (Doc. No. 210 Ex. 30 § 3.5.) We do not believe that this agreement creates a joint venture relationship that would give rise to a formal fiduciary duty. See Rankin, 557 S.W.2d at 944.
With respect to an informal fiduciary relationship, the relationship between Wellogix and SAP must have existed prior to and apart from the agreement that is the basis of the suit. See Willis, 199 S.W.3d at 277. Here, the NetWeaver Cooperation Agreement, and SAP's alleged failure to comply with its terms, serves as the basis of Wellogix's suit. Wellogix has not come forward with any evidence that Wellogix and SAP entered into agreements or engaged in activities prior to and separate from the NetWeaver Cooperation Agreement that would give rise to SAP's fiduciary obligation to Wellogix. Therefore, we find that Wellogix was not engaged in an informal fiduciary relationship with SAP. Without either a formal or informal fiduciary relationship, Wellogix cannot show that SAP breached its fiduciary duty towards Wellogix. In turn, without a breach of a fiduciary duty, Wellogix cannot show that Accenture aided and abetted the breach of a fiduciary duty.
2. Aiding and Abetting BP's Breach of Fiduciary Duty
It is clear that Wellogix did not plead a claim for aiding and abetting breach of fiduciary duty that is based on BP's breach of fiduciary duty. Even if it had timely pled this claim, Wellogix has not cited any evidence sufficient to establish or raise a genuine issue of material fact with respect to the existence of a fiduciary relationship between BP and Wellogix.
With respect to a formal fiduciary relationship, the MSLA does not create a *548 joint venture relationship between Wellogix and BP. Instead, the MSLA is a license agreement under which Wellogix provided a license to BP for use of Wellogix's software and software-related services in exchange for a license fee. With respect to an informal fiduciary relationship, we must examine the relationship between Wellogix and BP as it existed prior to and separate from the MSLA, which serves as the basis of Wellogix's claim that BP breached its fiduciary duty to Wellogix. Although there were a number of agreements between Wellogix and BP beginning in 2000 and leading up to the MSLA's execution in 2004, none of these agreements is anything other than an arms-length transaction entered into for the parties' mutual benefit. Meyer, 167 S.W.3d at 331. Although the agreements impose confidentiality provisions upon the parties, these provisions are insufficient to transform a contractual relationship into a fiduciary relationship. Anglo-Dutch Pet. Int'l, 243 S.W.3d at 782. Again, without the existence of a formal or informal fiduciary relationship, Wellogix cannot show a breach of a fiduciary relationship or Accenture's aiding and abetting of the breach,
Thus we grant summary judgment to Accenture on Wellogix's claims of aiding and abetting a breach of fiduciary duty.
E. Breach of Confidence and Trust
Accenture has moved to dismiss Wellogix's claim of breach of confidence and trust and has also moved for summary judgment on this claim. (Docs. No. 206, 210.) Wellogix has not opposed either the motion to dismiss or the motion for summary judgment regarding this claim.
Contrary to Accenture's argument, Texas courts have recognized that a breach of confidence claim may be brought separately from a trade secret misappropriation claim. See United States Sporting Prods, v. Johnny Stewart Game Calls, 865 S.W.2d 214, 218 (Tex.App.-Waco 1993, pet. denied); see also Tavana v. GTE Southwest, 1999 WL 512624, *3, 1999 Tex. App. LEXIS 5365, *7 (Tex.App.-Dallas July 21, 1999). However, Texas courts also have noted that a "breach of confidence" claim based upon a defendant's use of plaintiff's trade secrets in violation of a confidential relationship that results in plaintiffs injuries is identical to a trade secret misappropriation claim. Hyde Corp. v. Huffines, 158 Tex. 566, 587, 314 S.W.2d 763 (1958); K & G Oil Tool & Service Co. v. G & G Fishing Tool Svc., 158 Tex. 594, 610, 314 S.W.2d 782 (1958); Tavana, 1999 WL 512624 at *3, 1999 Tex. App. LEXIS 5365 at *7. The allegations in Wellogix's complaint corresponding to the breach of confidence and trust claim simply restate the allegations that serve as the basis of Wellogix's trade secret misappropriation claim. Therefore, Wellogix's factual allegations in this regard shall be analyzed in an identical fashion to Wellogix's trade secret misappropriation claim. We grant Accenture's motion to dismiss and dismiss Wellogix's breach of confidence and trust claim.
F. Tortious Interference with an Existing Contract
To establish tortious interference with an existing contract, a plaintiff must show: (1) plaintiff had a valid contract; (2) the defendant willfully and intentionally interfered with that contract; (3) the interference proximately caused the plaintiff damage; and (4) the plaintiff suffered actual damage or loss. Butnaru v. Ford Motor Co., 84 S.W.3d 198, 207 (Tex.2002). "Establishing causation requires that the plaintiff bring forth sufficient facts so that the evidence, and logical inferences drawn from the evidence, support a reasonable probability that the defendant's acts or *549 omissions were a substantial factor in bringing about injury." Richardson-Eagle, Inc. v. William M. Mercer, Inc., 213 S.W.3d 469, 474 (Tex.App.-Houston 2006, pet. denied).
In its complaint, Wellogix alleged that Accenture had interfered with the MSLA between Wellogix and BP and with the NetWeaver Cooperation Agreement between Wellogix and SAP. Accenture moved for summary judgment on both these claims. In its response, Wellogix focused only upon Accenture's alleged interference with the BP contract and did not address its claim regarding the SAP contract. As such, we find that Wellogix has abandoned its theory of tortious interference with the NetWeaver Cooperation Agreement. See Hargrave v. Fibreboard Corp., 710 F.2d 1154, 1164 (5th Cir.1983) (plaintiff abandoned theory pleaded in complaint but not raised in opposition to summary judgment motion).
As for the remaining theory interference with the MSLA Accenture argues that there is no evidence to support Wellogix's claim that Accenture interfered with this agreement or any others between Wellogix and BP. With respect to the first element of tortious interference, the existence of a valid contract between Wellogix and BP (i.e., the MSLA) does not appear to be in dispute. In addition, Wellogix cites to other agreements between Wellogix and BP, and Accenture does not contest that these agreements exist and are valid.
With respect to the second element, Wellogix has not come forward with evidence showing a genuine issue of material fact with respect to Accenture's interference with the MSLA or any other agreement that existed between Wellogix and BP. Wellogix cites emails among Accenture and SAP in which Accenture strenuously opposes Wellogix's participation in xIEP meetings. (Doc. No. 222 Exs. 10, 11, 12.) These emails, however, do not pertain to eTrans project, the MSLA, or Wellogix's relationship with BP generally. They do not support an inference that Accenture acted improperly with respect to Wellogix's business relationship with BP. Another email from an Accenture employee expressing hope that Wellogix loses favor with BP does not amount to direct action by Accenture towards BP to interfere with Wellogix's relationship with BP. (Doc. No. 222, Ex. 14.) An email between Accenture and Wellogix that expresses frustration over the companies' mutual dealings and over each companies' relationship with SAP does not provide evidence that Accenture conducted activities vis-a-vis BP. (Doc. No. 222, Ex. 13.) Finally, an email among Accenture employees that expresses their fears of being marginalized by Wellogix focuses specifically on Wellogix's potential sale to SAP, not Wellogix's relationship with BP. (Doc. No. 222 Ex. 38.) This email does not provide support for the claim that Accenture somehow interfered with Wellogix's contracts with BP. All of this summary judgment evidence shows that Accenture harbored suspicion towards Wellogix's relationship with SAP and perhaps acted in a way to prevent Wellogix from moving forward with SAP or on the xIEP project. However, this evidence does not raise genuine issues of material fact regarding any interference by Accenture of Wellogix's relationship with BP.
Without evidence of interference by Accenture of Wellogix's relationship with BP, we need not examine whether BP's breach of the MSLA was caused by Accenture's interference, nor whether Wellogix was damaged by the interference or breach. We grant summary judgment to Accenture on Wellogix's claim of tortious interference with an existing contract.
*550 G. Tortious Interference with Prospective Business Relations
Accenture has moved for summary judgment on Wellogix's tortious interference with prospective business relations claim. Wellogix has stated that it will not be pursuing a claim for tortious interference with prospective contracts. (Doc. No. 222 at 3 n. 1.) Thus, we grant summary judgment to Accenture on Wellogix's claim of tortious interference with prospective business relations.
H. Conspiracy
To prevail on a claim of conspiracy, a plaintiff must establish: (1) a combination of two or more persons; (2) an object to be accomplished (an unlawful purpose or a lawful purpose by unlawful means) (3) a meeting of minds on the object or course of action; (4) one or more unlawful, overt acts; and (5) damages as the proximate result. Insurance Co. of N. Am. v. Morris, 981 S.W.2d 667, 675 (Tex. 1998); see also Schlumberger Well Surveying Corp. v. Nortex Oil & Gas Corp., 435 S.W.2d 854, 857 (Tex.1968) ("There must be an agreement or understanding between the conspirators to inflict a wrong against, or injury on, another, a meeting of minds on the object or course of action, and some mutual mental action coupled with an intent to commit the act which results in injury; in short, there must be a preconceived plan and unity of design and purpose, for the common design is of the essence of the conspiracy.").
We first examine whether Wellogix has raised a genuine issue of material fact regarding a meeting of the minds between Accenture and SAP to commit the intentional torts in this case trade secret misappropriation, theft, and tortious interference with an existing contract. Accenture has submitted summary judgment evidence from Accenture and SAP employees denying that they had any agreement or intent to steal Wellogix's trade secrets or prevent Wellogix from fulfilling its contracts. In opposition, Wellogix cites deposition testimony showing that Accenture contained a division of employees that implemented SAP, employed individuals known as SAP specialists, developed xIEP in tandem in with SAP, and established a knowledge sharing center at SAP's office in Germany. Wellogix also cites emails among Accenture and BP employees discussing potential litigation between Wellogix and SAP over the use of Wellogix's intellectual property. (Doc. No. 222 Exs. 23, 24, 25, 26, 27, 28.) Wellogix cites emails among Accenture employees (and one email between Accenture and Wellogix) regarding Accenture's position towards Wellogix, fears over Wellogix's potential acquisition by SAP, and concerns over Wellogix's business relationship with SAP and BP. (Doc. No. 222 Exs. 7, 13, 14, 15, 37, 38.) Wellogix has also cited to emails regarding work that Accenture performed for BP on the creation of complex services templates. (Doc. No. 222 Exs. 16, 18-22.) None of this evidence, however, establishes SAP's intention to do anything with respect to Wellogix's intellectual property or Wellogix's contracts with BP. Rather, this evidence simply shows that Accenture and SAP had a close working relationship. In addition, Accenture was wary of Wellogix's potential to edge Accenture out of a role at SAP and at BP. Though Accenture may have moved forward in committing wrongful acts, this evidence does not establish that SAP intended to join Accenture in doing so.
There are a few pieces of summary judgment evidence that deserve further discussion. In one email sent among Accenture employees, an Accenture employee recounts a discussion she had with an SAP employee (Doc. No. 222, Ex. 35). As summarized *551 in the email, the SAP employee does not express any thoughts suggesting stealing or misappropriating Wellogix's intellectual property. In addition, what the SAP employee planned to discuss with BP does not include comments that would interfere with BP's contracts with Wellogix. Similarly, there is an email written by an Accenture employee to an SAP employee expressing concern over competition posed by Wellogix to xIEP. (Doc. No. 222, Ex. 36.) However, this email does not reflect SAP's intention to commit any wrongful act with respect to Wellogix's intellectual property or Wellogix's contracts. Finally, a group of emails among Accenture and SAP employees discuss Accenture's position regarding a Wellogix/SAP solution and a Wellogix/xIEP solution. (Doc. No. 222, Exs. 8, 9, 10, 11, 12.) These emails show that SAP intended to continue partnering with Wellogix, even going as far as to ensure that Wellogix would be invited to participate in a xIEP partners meeting despite Accenture's objection. Far from suggesting that SAP had a meeting of the minds with Accenture to steal or misappropriate Wellogix's trade secrets or interfere with Wellogix's contracts, these emails in fact show that SAP and Accenture parted ways significantly in their approach to Wellogix.
In sum, Wellogix has not raised a genuine issue of material fact with respect to the "meeting of the minds" element of conspiracy. As such, we need not review the other elements of the conspiracy claim. Summary judgment is granted to Accenture on Wellogix's conspiracy claim.
VI. CONCLUSION
Accenture's Motion for Summary Judgment, (Doc. No. 210), is GRANTED IN PART and DENIED IN PART:
(1) Summary judgment is denied on Wellogix's claim of trade secret misappropriation;
(2) Summary judgment is denied on Wellogix's claim of theft of trade secrets. Summary judgment is granted to Accenture on Wellogix's claims of theft of property and theft of services;
(3) Summary judgment is granted to Accenture on Wellogix's claim of breach of fiduciary duty;
(4) Summary judgment is granted to Accenture on Wellogix's claim of aiding and abetting a breach of fiduciary duty;
(5) Summary judgment is denied on Wellogix's claim of breach of confidence and trust;
(6) Summary judgment is granted to Accenture on Wellogix's claim of tortious interference with an existing contract;
(7) Summary judgment is granted to Accenture on Wellogix's claim of tortious interference with prospective business relations; and
(8) Summary judgment is granted to Accenture on Wellogix's claim of conspiracy.
Accenture's Motion to Exclude Wellogix's Proposed Expert Witness Kendyl Roman (Doc. No. 212) is DENIED. Accenture's Motion to Dismiss (Doc. No. 206) is GRANTED. Wellogix's breach of confidence and trust claim is DISMISSED.
IT IS SO ORDERED.
NOTES
[1] Wellogix states that it will no longer pursue its claim of tortious interference with prospective business relations. (Doc. No. 222 at 3 n. 1.) Therefore, we will not analyze whether this claim is precluded by the findings made during the arbitration.
[2] As Accenture did not participate in the arbitration, we do not give preclusive effect to the Arbitration Order's finding that the SharePoint site contained Wellogix's object and source code, insofar as this finding is used against Accenture. We simply note that evidence was presented during the Arbitration that led to this finding, and that this evidence raises a genuine issue of material fact with respect to whether the SharePoint site contained Wellogix's source and object code, and whether Accenture employees were allowed to and, in fact, did access the site. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2115131/ | 788 F.Supp.2d 892 (2011)
James B. KITTERMAN and Diane Kitterman, Plaintiffs,
v.
COVENTRY HEALTH CARE OF IOWA, INC., Defendant.
No. C 09-4046-MWB.
United States District Court, N.D. Iowa, Western Division.
June 6, 2011.
*894 Richard J. Barry, Sean J. Barry, Montgomery, Barry & Bovee, Spencer, IA, for Plaintiffs.
Michael W. Thrall, Nyemaster Goode Voigts West Hansell & O'Brien, PC, Des Moines, IA, for Defendant.
MEMORANDUM OPINION AND ORDER REGARDING REMAINING QUESTIONS ON REMAND
MARK W. BENNETT, District Judge.
TABLE OF CONTENTS
I. INSTRODUCTION .................................................894
A. Factual Background .......................................894
B. The Prior Proceedings ....................................896
C. Positions Of The Parties On Remaining Issues .............898
II. LEGAL ANALYSIS ...............................................898
A. The Effect Of An SPC .....................................899
B. The Effect Of A "Faulty" SPD .............................901
C. What "Further Proceedings" Are Required? .................901
III. CONCLUSION ..................................................902
This judicial review action, pursuant to the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq., is back before me on remand from the Eighth Circuit Court of Appeals "for further proceedings." The underlying dispute was whether the plaintiff insured was required to pay more than the $8,000 identified as the "Out-of-Pocket Maximum" for an individual for treatment from a "Non-Participating Provider." The defendant plan administrator had declined to pay medical expenses totaling almost three times that amount, on the ground that various costs did not "apply" to the "Out-of-Pocket Maximum." I found that the plan administrator's denial of benefits must be reversed and that the insured's claim for payment of all charges in excess of $8,000 must be granted. Kitterman v. Coventry Health Care of Iowa, Inc., 703 F.Supp.2d 896 (N.D.Iowa 2010). On the plan administrator's appeal, however, the Eighth Circuit Court of Appeals reversed, holding that "Out-of-Pocket Maximum" was specifically defined in the plan as not including out-of-network charges above the out-of-network rate, and remanded "for further proceedings." Kitterman v. Coventry Health Care of Iowa, Inc., 632 F.3d 445, 450 (8th Cir.2011). The parties have now submitted briefs on the question of what issues, if any, remain to be resolved on remand.
I. INTRODUCTION
A. Factual Background
In the fall of 2008, plaintiff Diane Kitterman[1] required treatment for ovarian cancer. Her physician referred her to the *895 Mayo Clinic in Rochester, Minnesota. She was then participating in a health insurance benefit plan (the Plan) administered by Coventry Health Care of Iowa, Inc. (Coventry). Kitterman contacted a customer service representative about her plan's coverage and was advised that the Mayo Clinic was an "Out-of-Network" or "Non-Participating Provider," so that her coverage would be limited to the out-of-network benefits set forth in the Plan's Schedule of Benefits. Kitterman asserted that she also asked whether or not there were any additional charges besides the "Out-of-Pocket Maximum" for "out-of-network" coverage, but she was simply told to refer to the Plan; she was not told that she would be liable for any amount greater than the "Out-of-Pocket Maximum," nor was "Out-of-Pocket Maximum" or any exclusions from it, defined for her. In the proceedings before me, Coventry did not dispute either the fact or content of the query or the response.
Kitterman reviewed the Schedule of Benefits in her Coventry Health Care Plan booklet, which stated that the "Out-of-Pocket Maximum" for an individual per calendar year for services from a non-participating provider would be $8,000, as compared to $4,000 for services from a participating provider. Kitterman asserted that the Schedule of Benefits does not state or refer to any possible additional costs on either of the first two pages, and that a blank space at the bottom of the second page "does not invite the participant to continue to turn the page." Therefore, she decided that paying the extra $4,000 to treat her suspected ovarian cancer at the Mayo Clinic was worth the additional money, in light of her doctor's recommendation and the avoidance of additional travel time to Iowa City, where a participating provider was located.
There is a third page to the Schedule of Benefits, however, which consists of explanations and definitions of various terms. The two entries on this third page that are most pertinent to the present action are the following:
Out-of-Network Rate The Out-of-Network Rate is the maximum amount covered by Us for approved out-of-network services. This rate will be derived from either a Medicare based fee schedule or a percent of billed charges as determined by Us. You are responsible for Charges that exceed our Out-of-Network Rate for Non-Participating Providers. This could result in you having to pay a significant portion of your claim. Balances above the Out-of-Network Rate do NOT apply to your Out-of-Pocket Maximum.
Out-of-Pocket The Individual Out-of-Pocket Maximum is a limit on the amount You must pay out of Your pocket for specified Covered Services in a calendar year, as specified in this Schedule of Benefits. The family Out-of-Pocket Maximum is the limit on the total amount Members of the same family covered under this Agreement must pay for specified Covered Services in a calendar year. Coinsurance and Deductible amounts apply to your Out-of-Pocket Maximum. Copayments and Charges that exceed our Out-of-Network Rate for Non-Participating Providers do not apply to your Out-of-Pocket Maximum. You will be responsible for office visit copayments throughout the calendar year.
Administrative Record at 4 (emphasis in the original).
*896 Kitterman was admitted to the Mayo Clinic on September 9, 2008, and released on September 21, 2008. Upon her return home, she received a letter dated September 9, 2008, from Coventry, entitled "Authorization Notification," concerning her anticipated treatment. This letter explained, inter alia, that because Kitterman had elected to receive treatment from a non-participating provider, "charges above the Plan's out-of-network rate do not apply toward your out-of-pocket maximums." Administrative Record at 83. Kitterman asserted that this letter, which she received only after she had been treated, provided the first indication that she might owe far in excess of $8,000 for her treatment at the Mayo Clinic.
Kitterman eventually received an Explanation of Benefits (EOB), Administrative Record at 108-09, indicating that the Plan paid $20,670.83 for out-of-network services, out of a total of $44,458.99, and that she was responsible for $23,788.16. Kitterman represented that she paid $8,000 to Rochester Methodist Hospital, but left the remaining $15,768.16 unpaid and accruing penalties and interest.
Kitterman appealed the denial of payment of benefits in excess of the $8,000 Out-of-Pocket Maximum through two levels of administrative appeals with Coventry, but both appeals were unsuccessful. Administrative Record at 91-109 (first-level appeal); 110-20 (second-level appeal). Kitterman then filed this lawsuit in state court, which Coventry removed to this federal district court.
B. The Prior Proceedings
In proceedings before me, Kitterman asserted that the blank section at the bottom of page two of the Schedule of Benefits "does not invite the participant to continue to turn the page," so that a reasonable Plan participant would rely on the first two pages of the Schedule of Benefits, which contain no restrictions on medical expenses that apply to the "Out-of-Pocket Maximum." She argued, further, that the only conclusion that an average Plan participant could reach from reviewing the first two pages of the Schedule of Benefits is that Coventry is responsible for all services provided in excess of the "Out-of-Pocket Maximum." She argued that the Schedule of Benefits, as she understood it, was a "Summary Plan Description" (SPD), which is binding over conflicting terms in the Plan, or a "faulty" SPD, which prejudiced her, because she relied upon it to obtain treatment from the Mayo Clinic rather than from a participating provider. Coventry argued that the Schedule of Benefits is three pages long, not two, and that Kitterman could not pick and choose the provisions of the Schedule of Benefits upon which she chose to rely. Coventry asserted that there is no conflict between the Schedule of Benefits and the terms of the Plan, as set out more fully in the Evidence of Coverage, because both make clear that balances above the out-of-network rate do not apply to the participant's "Out-of-Pocket Maximum" for non-participating providers.
I found that the common and ordinary meaning of "Out-of-Pocket Maximum" to a reasonable Plan participant, as Kitterman contended, was the greatest amount that the Plan participant would have to pay for medical services per calendar year, with different amounts specified for the services of participating providers ($4,000 per individual) and for services of non-participating providers ($8,000 per individual). See Schedule of Benefits, Administrative Record at 2. I sincerely doubted that a reasonable plan participant knows that terms that have such an unambiguous common and ordinary meaning can be defined in a contract to mean something entirely different. Kitterman, 703 *897 F.Supp.2d at 907. After reviewing the terms of the Plan, as well as the Schedule of Benefits, I concluded that those terms, including the "does not apply" language in the definition of "Out-of-Pocket Maximum," were ambiguous and that Coventry's construction irreconcilably conflicted with the common and ordinary meaning of "Out-of-Pocket Maximum." Id. at 907-08. Ultimately, I concluded that, giving the "Out-of-Pocket Maximum" language of the Plan its common and ordinary meaning as a reasonable person in the position of the Plan participant, not the actual participant, would have understood the words of the Plan, the "Out-of-Pocket Maximum" identified for either participating providers ($4,000) or non-participating providers ($8,000) is the greatest amount that the Plan participant will have to pay per calendar year for those services. Consequently, in this case, Kitterman was responsible for no more than $8,000 for her services from the Mayo Clinic. Id. at 910, I noted that this conclusion made it unnecessary for me to consider whether the Schedule of Benefits or any other document provided to Kitterman was an SPD, let alone whether any such SPD was "faulty," whether the purported SPD was consistent or inconsistent with the terms of the Plan, or whether Kitterman relied on the purported SPD to her detriment. Id.
The Eighth Circuit Court of Appeals did not agree with my analysis. That court noted that "both the schedule of benefits and the evidence of coverage provide that charges in excess of Coventry's `Out-of-Network Rate do NOT apply to' Kitterman's out-of-pocket maximum." Kitterman, 632 F.3d at 448. The appellate court also noted that page three of the Schedule of Benefits expressly stated, "You are responsible for Charges that exceed our Out-of-Network Rate for Non-Participating Providers. This could result in you having to pay a significant portion of your claim," and also stated that charges in excess of Coventry's "Out-of-Network Rate do NOT apply to" a claimant's "Out-of-Pocket Maximum." Id. It also noted that the Evidence of Coverage warned that capitalized terms had "special meaning" and were specifically defined. Id. at 448 n. 4. Thus, the Eighth Circuit Court of Appeals concluded,
Read together, these and other provisions in the plan documents temper the effect of the words "Out-of-Pocket Maximum." We therefore conclude that a reasonable plan participant, reviewing the policy as a whole, would understand that out-of-network charges above Coventry's out-of-network rate would not be applied toward satisfaction of the participant's "Out-of-Pocket Maximum."
632 F.3d at 448-49 (footnote omitted). The Eighth Circuit Court of Appeals also rejected my conclusion that the "do not apply" language was ambiguous and that Coventry's construction of that language was irreconcilably contrary to the common and ordinary meaning of "Out-of-Pocket Maximum":
When read in context with accompanying statements in the plan documents warning that the participant is "responsible for Charges that exceed [Coventry's] Out-of-Network Rate for non-participating providers," which "could result in [the participant] having to pay a significant portion of [the] claim," we believe a reasonable participant would reach only one conclusion: Out-of-network charges above the out-of-network rate may result in out-of-pocket expenditures above the "Out-of-Pocket Maximum."
Kitterman, 632 F.3d at 449. The appellate court also concluded that it could not "ignore provisions or rewrite the plan documents to conform with what Kitterman *898 actually read," but "[m]ust consider the documents as an `integrated whole,' and `give[] effect' to `all parts of the contract.'" Id. (citations omitted). Ultimately, the appellate court concluded as follows:
Because we are required to view the plan language in its totality, and because the term "Out-of-Pocket Maximum" is specifically defined not to include out-of-network charges above the out-of-network rate, we conclude that a reasonable plan participant would give the term "Out-of-Pocket Maximum" the meaning ascribed to it by the plan.
Id. at 450-51. For these reasons, the Eighth Circuit Court of Appeals "vacate[d] the judgment of the district court and remand[ed] for further proceedings." Id. at 450.
C. Positions Of The Parties On Remaining Issues
The Judgment of the Eighth Circuit Court of Appeals was filed in this court on February 16, 2011, see docket no. 31, and the appellate court's Mandate followed on March 14, 2011, see docket no. 32. Following a telephonic conference with the parties on March 17, 2011, Chief United States Magistrate Judge Paul A. Zoss entered an Order (docket no. 35) directing the parties to file briefs outlining what they believed were the remaining issues for this court to resolve.
In her Brief (docket no. 36), filed April 1, 2011, Kitterman argued that, in light of the decision of the Eighth Circuit Court of Appeals, which remanded "for further proceedings," it was now necessary for me to decide the issues that I did not reach in my decision on the merits: (1) whether the Schedule of Benefits should be deemed a Summary Plan Description (SPD), which would bind Coventry to cover all medical expenses over $8,000, the Out-of-Pocket Maximum for services performed by an out-of-network provider; and (2) if the Schedule of Benefits is not an SPD, whether it is a "faulty" SPD, thus requiring Coventry to pay all medical expenses over $8,000. Kitterman asserted that these issues have already been adequately briefed.
In its Brief (docket no. 37), however, Coventry argued that there is nothing left to decide in this case. Coventry argues that, on appeal, the Eighth Circuit Court of Appeals held that, when reading the definitions of Out-of-Pocket Maximum and Out-of-Network in the Schedule of Benefits, "`a reasonable participant would reach only one conclusion: Out-of-network charges above the out-of-network rate may result in out-of-pocket expenditures above the "Out-of-Pocket Maximum."'" Defendant's Brief at 1 (quoting Kitterman, 632 F.3d at 449). Coventry argues that this holding precludes Kitterman's claim, even if the Schedule of Benefits was the SPD for the Plan or was a "faulty" SPD for the Plan, and Coventry argues it was neither. Coventry points out that there is nothing in the Schedule of Benefits that grants a participant a right that the other Plan documents do not, as both the Schedule of Benefits and the Evidence of Coverage provide that charges above the Out-of-Network Rate "do not apply to your Out-of-Pocket Maximum." Any argument that this language entitled Kitterman to additional benefits, Coventry argues, is foreclosed by the appellate court's holding that "`the term `out-of-pocket maximum' is specifically defined not to include out-of-network charges above the out-of-network rate.'" Defendant's Brief at 2 (quoting Kitterman, 632 F.3d at 449). Consequently, Coventry asks me to dismiss this action and enter judgment in its favor.
II. LEGAL ANALYSIS
At the outset, I note that proof that the Schedule of Benefits is an SPD, faulty or *899 otherwise, does not, in and of itself, entitle Kitterman to any relief, as she did not assert a claim for an ERISA disclosure violation. See Palmisano v. Allina Health Sys., Inc., 190 F.3d 881, 888-89 (8th Cir. 1999) (holding that proof that an administrator violated ERISA by failing to provide an SPD or providing only a "faulty" SPD does not entitle a participant or beneficiary to benefits to which he is not entitled under the plan). Rather, to determine whether or not I must now decide whether or not the Schedule of Benefits is an SPD or a "faulty" SPD, as Kitterman contends, I must consider whether such a determination could potentially lead to an award of benefits to Kitterman, notwithstanding the decision of the Eighth Circuit Court of Appeals. That determination, in turn, depends upon the effect of a finding that the Schedule of Benefits is an SPD or a "faulty" SPD.
A. The Effect Of An SPD
The principle on which both parties rely is that, "[a]s a general rule, when the SPD conflicts with the plan it purports to summarize, the SPD provision governs." Jessup v. Alcoa, Inc., 481 F.3d 1004, 1007 (8th Cir.2007) (citing Koons v. Aventis Pharm., Inc., 367 F.3d 768, 775 (8th Cir. 2004)). As the Eighth Circuit Court of Appeals has explained,
[T]he policy underlying the "SPD prevails" rule was ERISA's important goal of providing complete disclosure to plan participants, such that where disclosures made in an SPD pursuant to 29 U.S.C. § 1022(a)(1) which must "be plainspoken for the benefit of average plan participants" conflicted with "an obscure passage in a transactional document only lawyers will read and understand," the "accessible provisions [in the SPD] govern because adequate disclosure to employees is one of ERISA's major purposes." [Jobe v. Medical Life Ins. Co., 598 F.3d 478,] 483 [(8th Cir.2010)] (quoting Marolt v. Alliant Techsystems, Inc., 146 F.3d 617, 621 (8th Cir.1998)).
Ringwald v. Prudential Ins. Co. of Am., 609 F.3d 946, 949 (8th Cir.2010);[2]see generally CIGNA Corp. v. Amara, CIGNA Corp. v. Amara, ___ U.S. ___, ___, 131 S.Ct. 1866, 1877, 179 L.Ed.2d 843 (2011) (the objective of the summary plan description is "clear, simple communication") (citing 29 U.S.C. § 1001(a)). An SPD does not necessarily conflict with the plan simply because it uses different language, if it nevertheless incorporates the substance of the plan's more explicit terms. See Jessup, 481 F.3d at 1008; accord Koons v. Aventis Pharm., Inc., 367 F.3d 768, 775 (8th Cir.2004) (the "SPD prevails" rule is qualified, because "`this rule of construction does not apply when the plan document is specific and the SPD is silent on a particular matter'") (quoting Jensen v. SIPCO, Inc., 38 F.3d 945, 952 (8th Cir. 1994)); see generally Amara, ___ U.S. at ___, 131 S.Ct. at 1877-78 ("To make the language of a plan summary legally binding could well lead plan administrators to sacrifice simplicity and comprehensibility in order to describe plan terms in the language of lawyers.").
In this case, as Coventry argues, even if the Schedule of Benefits is an SPD, it does not conflict with the terms of the *900 Plan. Jessup, 481 F.3d at 1007 (the "SPD prevails" rule applies when the SPD conflicts with the terms of the plan). Nowhere in her Brief (docket no. 36) on remaining issues did Kitterman explain how the Schedule of Benefits "conflicts" with the terms of the Plan with regard to the "Out-of-Pocket Maximum" for services from a non-participating provider. Although Kitterman acknowledged on page 4 of her Brief On The Merits (docket no. 17)[3] that "[t]he Federal Courts have been quite clear in stating that a summary plan description provision prevails if it is in conflict with a provision of the plan," citing Jensen v. SIPCO, Inc., 38 F.3d 945, 952 (8th Cir.1994), she did not explain anywhere in that brief how there is any "conflict" between the terms of the Schedule of Benefits, which she asserts is an SPD, and the terms of the Plan. Instead, her argument on the merits[4] was that average reasonable Plan participants who read the portions of the Schedule of Benefits that she read would believe or understand the "Out-of-Pocket Maximum" to be their absolute limit for the greatest amount that they would owe for services provided in a calendar year, because caveats or limitations were not provided adjacent to the benefit description in the Schedule of Benefits, but on a subsequent page that the reader was not "invited" to turn to, because of a blank space at the bottom of the preceding page. Plaintiff's Brief On The Merits (docket no. 17) at 6-9.
However, the Schedule of Benefits must be considered in its entirety, even if it is an SPD; review is not limited to the parts that Kitterman read. Cf. Kitterman, 632 F.3d at 449 (the court could not "ignore provisions or rewrite the plan documents to conform with what Kitterman actually read," but had to "consider the documents as an `integrated whole,' and `give[] effect' to `all parts of the contract'" (citations omitted)). The definition of "Out-of-Pocket Maximum" appears on the third page of the Schedule of Benefits. As the Eighth Circuit Court of Appeals noted, "both the schedule of benefits and the evidence of coverage provide that charges in excess of Coventry's `Out-of-Network Rate do NOT apply to' Kitterman's out-of-pocket maximum." Kitterman, 632 F.3d at 448; compare Administrative Record at 4 (portion of the Schedule of Benefits including this language); with id. at 13 and 73 (portions of the Evidence of Coverage including this language). Similarly, the definition of "Out-of-Network Rate" in the Schedule of Benefits cautions, "You are responsible for Charges that exceed our Out-of-Network Rate for Non-Participating Providers. This could result in you having to pay a significant portion of your claim." Administrative Record at 4 (emphasis in the original). Thus, these portions of the Schedule of Benefits state precisely what the Eighth Circuit Court of Appeals concluded that a reasonable participant would understand the Plan terms to be: "Out-of-network charges above the out-of-network rate may result in out-of-pocket expenditures above the `Out-of-Pocket Maximum.'" Kitterman, 632 F.3d at 449. There is no conflict between the terms of the Schedule of Benefits and the terms of the Plan as to "Out-of-Pocket Maximum" for out-of-network services.
*901 Nor would the Schedule of Benefits prevail over the terms of the Plan simply because the Schedule of Benefits may have lacked all of the detail that led the Eighth Circuit Court of Appeals to its final interpretation of the terms of the Plan. See id. at 448 (reading together cited terms of the Schedule of Benefits and the Evidence of Coverage "and other provisions in the plan documents" to conclude that "a reasonable plan participant, reviewing the policy as a whole, would understand that out-of-network charges above Coventry's out-of-network rate would not be applied toward satisfaction of the participant's `Out-of-Pocket Maximum'"). The language of an SPD does not need to match precisely the language of the Plan, although the language of the Schedule of Benefits, the purported SPD here, does track the essential language of comparable provisions of the Evidence of Coverage. See Jessup, 481 F.3d at 1008; accord Koons, 367 F.3d at 775; see generally Amara, ___ U.S. at ____, 131 S.Ct. at 1877-78, 79 U.S.L.W. at ____. Kitterman has not demonstrated, and I cannot find, that the Schedule of Benefits, if read in its entirety, fails to incorporate the substance of the Plan's more explicit terms. See Jessup, 481 F.3d at 1008.
Thus, whether or not the Schedule of Benefits is an SPD, there is no respect in which the terms of the Schedule of Benefits would "prevail" over the terms of the Plan, because of a "conflict" between them, so that Kitterman would be entitled to additional benefits. Therefore, I need not decide whether or not the Schedule of Benefits is an SPD.
B. The Effect Of A "Faulty" SPD
Nor is the result any different if the Schedule of Benefits is a "faulty" SPD. A "faulty" SPD is one that does not contain all of the information required by the statute and regulations. See Antolik v. Saks, Inc., 463 F.3d 796, 801 (8th Cir. 2006).[5] What distinguishes a "faulty" SPD claim from an ordinary "SPD prevails" claim is that, "`"to secure relief on the basis of a faulty summary plan description, the claimant must show some significant reliance on, or possible prejudice flowing from the summary."'" Greeley v. Fairview Health Servs., 479 F.3d 612, 614 (8th Cir.2007) (quoting Maxa v. John Alden Life Ins. Co., 972 F.2d 980, 984 (8th Cir. 1992), in turn quoting Anderson v. Alpha Portland Indus., Inc., 836 F.2d 1512, 1520 (8th Cir.1988)); Koons, 367 F.3d at 775 ("Reliance or prejudice, however, is not required if the SPD is not `faulty.'"). However, a "faulty" SPD, like a purported SPD, must still conflict with the terms of the plan to prevail. See Antolik, 463 F.3d at 801; Koons, 367 F.3d at 775; Palmisano, 190 F.3d at 887-88. Here, even if the Schedule of Benefits is a "faulty" SPD, and Kitterman relied upon it (or portions of it that she read), the Schedule of Benefits, read in its entirety, does not conflict with the terms of the Plan. Thus, Kitterman is not entitled to benefits, even if the Schedule of Benefits is a "faulty" SPD, and I need not reach the question of whether the Schedule of Benefits is or is not a "faulty" SPD.
C. What "Further Proceedings" Are Required?
Because I need not reach the questions that Kitterman contends remain unresolved, the only remaining question is what, if any, "further proceedings" are required on remand? I agree with Coventry that the only "further proceedings" required are entry of judgment in Coventry's favor.
*902 III. CONCLUSION
After remand from the Eighth Circuit Court of Appeals for "further proceedings," I find that I need not decide either of the questions that Kitterman contends remain to be resolved in light of the appellate court's decision. Kitterman cannot obtain any relief simply by prevailing on her remaining contentions, that the Schedule of Benefits is an SPD or a "faulty" SPD, because she has not asserted a claim for an ERISA disclosure violation. Moreover, prevailing on her remaining contentions will not result in the award of benefits the claim that she does assert because the terms of the Schedule of Benefits do not conflict with the terms of the Plan, as both were construed by the Eighth Circuit Court of Appeals. Consequently, I need not determine whether or not the Schedule of Benefits is an SPD or a "faulty" SPD, and the only "further proceedings" required are the entry of judgment in Coventry's favor.
THEREFORE, Kitterman's claim for benefits is denied. Judgment in favor of Coventry shall enter accordingly.
IT IS SO ORDERED.
NOTES
[1] In its decision on the appeal in this matter, the Eighth Circuit Court of Appeals observed that Diane Kitterman's husband, James, was also named as a plaintiff in the state-court petition, but neither the original petition nor any other court filing identified any cause of action that James may have against Coventry. Kitterman, 632 F.3d at 446 n. 1. Therefore, "for ease of reference," the Eighth Circuit Court of Appeals referred to the plaintiffs collectively as "Kitterman." Id. I have adopted the same practice in this decision.
[2] As the Eighth Circuit Court of Appeals has recognized, "One context where the rationale behind the rule would be contradicted by a blanket `SPD prevails' rule, as other circuits have recognized, is the situation involved [in the case before that court] and in Jobe, where the SPD purports to enlarge the rights of the plan administrator at the expense of plan participants when the plan itself does not confer those rights." Ringwald, 609 F.3d at 949. Neither party asserts that this or any other exception to the general rule that the SPD prevails, when it conflicts with the terms of the plan, is applicable in Kitterman's case.
[3] This document is erroneously entitled "Plaintiffs' Request For Enlargement Of Time To File Brief."
[4] Kitterman asserted in her Brief (docket no. 36) on remaining issues that the issues that she contended I must now resolve had already been adequately briefed. Plaintiff's Brief (docket no. 36) at 3. Thus, I may properly rely on her Brief On The Merits to address what "conflict," if any, she identifies between the SPD and the terms of the Plan.
[5] A "hopelessly inadequate" SPD does not trump a conflicting plan provision, because ERISA precludes informal amendments to a plan, by estoppel or otherwise. Antolik, 463 F.3d at 801. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2115395/ | 797 F.Supp.2d 1057 (2011)
Adam Kenneth JACKSON, Plaintiff,
v.
Jason JOHNSON, Defendant.
No. CV 10-98-M-DWM.
United States District Court, D. Montana, Missoula Division.
July 18, 2011.
*1060 Brett D. Schandelson, Richard R. Buley, Tipp & Buley, Missoula, MT, for Plaintiff.
Charles E. McNeil, Garlington, Lohn & Robinson, PLLP, Elena J. Zlatnik, Garlington, Lohn & Robinson, Missoula, MT, for Defendant.
ORDER
DONALD W. MOLLOY, District Judge.
I. Introduction
Plaintiff Adam Jackson brings this action under 42 U.S.C. § 1983 alleging violations of his federal constitutional rights stemming from a June 2009 incident in which Missoula County Deputy Sheriff Jason Johnson tasered Jackson on a residential street. Jackson states federal claims for unlawful seizure and excessive use of force. The Amended Complaint also alleges pendent state claims for violation of Jackson's rights under the Montana Constitution, as well as a claim for punitive damages. Deputy Johnson seeks summary judgment arguing he is entitled to *1061 qualified immunity on the federal claim and he asks that the Court decline to exercise supplemental jurisdiction over the state claim.
II. Factual Background
The facts, presented in the light most favorable to Plaintiff and non-movant Jackson, are as follows: At 12:55 a.m. on June 10, 2009, Deputy Johnson was dispatched to the scene of a one-car accident near the corner of South 7th Street West and Como Drive in Missoula, Montana. Upon arrival at the scene, Deputy Johnson observed two vehicles, one that had been crashed and one parked in the middle of the street. Near the damaged vehicle were a man and two women. The man claimed responsibility for the accident, telling Deputy Johnson, "It's me, I did it, I was driving, I am going to jail, take me to jail." The two women told Deputy Johnson that they were not involved in the accident, but had stopped and gotten out of their car to see if anyone needed help.
Deputy Johnson then spotted the Plaintiff, Adam Jackson, 70 yards from the scene walking along the street in the opposite direction. Jackson was not involved with the car accident and did not witness the accident. Deputy Johnson ran after Jackson. Jackson did not quicken his pace or attempt to flee from Deputy Johnson. When Deputy Johnson got within 15 to 20 feet of Jackson, he shined his flashlight on Jackson and ordered him to stop walking. Jackson, who was sober, stopped and turned to face Deputy Johnson, at which point Deputy Johnson ordered Jackson to get to his knees. Jackson put his hands in the air and asked Deputy Johnson why he was being stopped, stating he had done nothing wrong. Deputy Johnson responded by pulling out his taser and pointing it at Jackson, again ordering Jackson to get to his knees. Jackson kept his hands in the air and did not approach Deputy Johnson. Jackson again asked what he had done wrong, stated that Deputy Johnson had not told him he was under arrest, and asked Deputy Johnson to talk to him. Without warning Jackson or identifying himself as a sheriff's deputy, Deputy Johnson shot Jackson with his taser at a distance of 15 to 20 feet. Deputy Johnson then arrested Jackson on charges of obstructing a peace officer and resisting arrest.[1]
For the reasons set forth below Johnson's motion is granted with respect to the illegal seizure claim and denied in all other respects.
III. Analysis
A. Summary Judgment Standard
A party is entitled to summary judgment if it can demonstrate "that there is no genuine dispute as to any material fact and the movant is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(a). Summary judgment is warranted where *1062 the documentary evidence produced by the parties permits only one conclusion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). On a motion for summary judgment, this Court must determine whether a fair-minded jury could return a verdict for the nonmoving party. Id. at 252, 106 S.Ct. 2505. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude entry of summary judgment; factual disputes which are irrelevant or unnecessary to the outcome are not considered. Id. at 248, 106 S.Ct. 2505.
B. Qualified Immunity
Qualified immunity shields a government actor from a suit for damages if the actor could have reasonably believed his conduct was lawful, in light of clearly established law and the information possessed by the official. Anderson v. Creighton, 483 U.S. 635, 637-39, 641, 107 S.Ct. 3034, 97 L.Ed.2d 523 (1987). Not a mere defense to liability, qualified immunity entitles a government official "not to stand trial or face the other burdens of litigation." Mitchell v. Forsyth, 472 U.S. 511, 526, 105 S.Ct. 2806, 86 L.Ed.2d 411 (1985). Accordingly, even when a constitutional violation occurs, "law enforcement officers nonetheless are entitled to qualified immunity if they act reasonably under the circumstances." See KRL v. Estate of Moore, 512 F.3d 1184, 1189 (9th Cir.2008) (citing Wilson v. Layne, 526 U.S. 603, 614, 119 S.Ct. 1692, 143 L.Ed.2d 818 (1999)).
The United States Supreme Court outlined a two-step qualified immunity analysis in Saucier v. Katz, 533 U.S. 194, 121 S.Ct. 2151, 150 L.Ed.2d 272 (2001), requiring district courts to first determine whether the officer's conduct violated a constitutional right. Saucier, 533 U.S. at 201, 121 S.Ct. 2151. If there are disputed issues of material fact, the court must adopt the version of the facts presented by, and draw all reasonable inferences in favor of, the non-movant. Bryan v. MacPherson, 630 F.3d 805, 823 (9th Cir.2010). If no constitutional right was violated, the court need not inquire further. If a constitutional violation has occurred, the court's second inquiry under Saucier is to ask whether the law was "clearly established" at the time of defendant's alleged misconduct. Saucier, 533 U.S. at 201, 121 S.Ct. 2151. In deciding if a right is clearly established, the Court must ask "whether it would be clear to a reasonable officer that his conduct was unlawful in the situation he confronted." Id. at 202, 121 S.Ct. 2151.
Recently the Supreme Court held that "while the sequence set forth [in Saucier ] is often appropriate, it should no longer be regarded as mandatory." Pearson v. Callahan, 555 U.S. 223, 129 S.Ct. 808, 818, 172 L.Ed.2d 565 (2009). Following Pearson, courts are "permitted to exercise their sound discretion in deciding which of the two prongs of the qualified immunity analysis should be addressed first in light of the circumstances in the particular case at hand." Pearson, 129 S.Ct. at 818. Analysis pursuant to the sequence set forth in Saucier remains useful in many situations, Pearson, 129 S.Ct. at 818, and will be followed here, first as to the illegal seizure claim, and second as to the excessive force claim.
1. Illegal Seizure
"For purposes of the Fourth Amendment, a seizure occurs when a law enforcement officer, by means of physical force or show of authority, in some way restrains the liberty of a citizen." United States v. Chan-Jimenez, 125 F.3d 1324, 1326 (9th Cir.1997). The Fourth Amendment provides protection against two types of seizures: investigatory stops and arrests. *1063 An investigatory stop, or Terry[2] stop, is a brief detention and interrogation and must be founded on reasonable suspicion. United States v. Miles, 247 F.3d 1009, 1012-13 (9th Cir.2001). An arrest is a more intrusive detention and requires probable cause. Beck v. Ohio, 379 U.S. 89, 91, 85 S.Ct. 223, 13 L.Ed.2d 142 (1964).
Deputy Johnson contends he only seized Jackson one time, when he used his taser to arrest Jackson. Johnson relies on California v. Hodari D., 499 U.S. 621, 111 S.Ct. 1547, 113 L.Ed.2d 690 (1991), to argue that his initial stop of Jackson was not a Fourth Amendment seizure because Jackson did not comply with Deputy Johnson's commands and therefore had not submitted to authority. Hodari D. involved a fleeing suspect who discarded a rock of crack cocaine while running from police officers. 499 U.S. at 623, 111 S.Ct. 1547. The Supreme Court held that where there is a show of authority but the suspect does not yield in response, a seizure has not occurred. Id. at 626, 111 S.Ct. 1547.
Hodari D. has no application here because in this instance Jackson yielded instantly in response to Johnson's instructions to stop. Once Jackson had turned to face Deputy Johnson and put his hands in the air, Jackson had submitted to authority and his freedom to walk away had been restrained. Jackson's refusal to get to his knees does not constitute non-compliance sufficient to rob the encounter of its status as a seizure under Hodari D. Consequently in this case, there are two seizures to be considered, the Terry stop and Jackson's subsequent arrest.
The first question to resolve is whether the Terry stop was supported by reasonable suspicion. If Deputy Johnson had reasonable suspicion to make the stop, it is then necessary to determine at what point the Terry stop became an arrest. After determining when the arrest occurred, it is further necessary to decide whether the facts gave rise to probable cause at the moment the arrest occurs. If there is a constitutional violation at any stage, the next inquiry is whether the rights violated were clearly established at the time of the incident.
a. Was There Reasonable Suspicion For a Terry Stop?
For a Terry stop to be lawful under the Fourth Amendment, the officer must have "a reasonable suspicion supported by articulable facts that criminal activity `may be afoot[.]'" United States v. Sokolow, 490 U.S. 1, 7, 109 S.Ct. 1581, 104 L.Ed.2d 1 (1989) (quoting Terry, 392 U.S. at 30, 88 S.Ct. 1868). "The quantum of proof needed for reasonable suspicion is less than a preponderance of evidence, and less than probable cause." United States v. Tiong, 224 F.3d 1136, 1140 (9th Cir. 2000). Whether reasonable suspicion exists for a Terry stop depends on the totality of the circumstances. United States v. Arvizu, 534 U.S. 266, 273, 122 S.Ct. 744, 151 L.Ed.2d 740 (2002).
Deputy Johnson had reason to conduct a Terry stop. He encountered an accident scene on a residential street at one o'clock in the morning. A man at the scene immediately claimed responsibility for the accident. Deputy Johnson observed a different man walking over 200 feet away from the scene in the opposite direction. Under the circumstances, it was reasonable for Deputy Johnson to have a suspicion about a person walking away from the scene of a wreck. Johnson had the unprompted confession he received upon arrival at the scene as another figure walked away.[3] A law enforcement *1064 officer in that position could reasonably decide that the admission of guilt came a bit too easily, and wonder whether it was an attempt to cover up the wrongdoing of another. And while the presence of a retreating figure in the distance might not be a basis for suspicion if the accident scene is a busy downtown intersection at midday, the presence of a passerby on a residential street at one o'clock in the morning would naturally arouse much more suspicion. Taking into account the totality of the circumstances, Deputy Johnson had reasonable suspicion to justify a brief investigatory stop. Deputy Johnson is entitled to summary judgment on Jackson's illegal seizure claim to the extent that claim alleges a Terry stop without reasonable suspicion.
b. At What Point Did the Terry Stop Become an Arrest?
Before evaluating whether Jackson's arrest was supported by probable cause, it is necessary to decide when the arrest occurred. There is no dispute that the Terry stop had been converted to an arrest when Deputy Johnson used his taser on Jackson. The question is whether earlier events escalated the encounter from a Terry stop to an arrest.
Whether a Terry stop escalated to an arrest cannot be determined by reference to a "mechanical checklist," United States v. Parr, 843 F.2d 1228, 1231 (9th Cir.1988), but must instead be judged according to the totality of the circumstances. Gallegos v. City of Los Angeles, 308 F.3d 987, 991 (9th Cir.2002). In assessing the totality of the circumstances, a court must consider "both the intrusiveness of the stop, i.e., the aggressiveness of the police methods and how much the plaintiff's liberty was restricted, and the justification for the use of such tactics, i.e., whether the officer had sufficient basis to fear for his safety to warrant the intrusiveness of the action taken." Washington v. Lambert, 98 F.3d 1181, 1185 (9th Cir.1996) (citation omitted). "While certain police actions constitute an arrest in certain circumstances, e.g., where the `suspects' are cooperative, those same actions may not constitute an arrest where the suspect is uncooperative or the police have specific reasons to believe that a serious threat to the safety of one of the officers exists." Id. (emphasis in original).
In a typical Terry stop for which an officer has no reason to suspect danger, it is a Fourth Amendment violation for the officer to employ aggressive tactics such as drawing a weapon, forcing a subject to lie prone on the ground, and using handcuffs. United States v. Del Vizo, 918 F.2d 821, 825 (9th Cir.1990). "The police may not employ such tactics every time they have an `articulable basis' for thinking that someone may be a suspect in a crime." Lambert, 98 F.3d at 1187 (emphasis in original). The Ninth Circuit has voiced the following examples of "special circumstances" under which intrusive techniques may be used to effectuate a Terry stop:
1) where the suspect is uncooperative or takes action at the scene that raises a reasonable possibility of danger or flight; 2) where the police have information that the suspect is currently armed; 3) where the stop closely follows a violent crime; and 4) where the police have information that a crime that may involve violence is about to occur. Clearly, some combination of these factors may also justify the use of aggressive *1065 police action without causing an investigatory stop to turn into an arrest.
Lambert, 98 F.3d at 1189.
A number of Ninth Circuit cases illustrate the types of conditions under which aggressive police actions during a Terry stop are warranted, and therefore do not constitute an arrest. See, e.g., United States v. Miles, 247 F.3d 1009, 1011-13 (9th Cir.2001) (approaching suspect with guns drawn, forcing him to kneel and handcuffing him before conducting any investigation did not constitute an arrest where officers had a report of an armed suspect and were outnumbered three to two in the immediate vicinity); Allen v. City of Los Angeles, 66 F.3d 1052, 1055-57 (9th Cir.1995) (intoxicated passenger forced to lie on the ground and handcuffed at gunpoint, held not to constitute an arrest where companion was combative, passenger was drunk and stop was preceded by a high-speed car chase); United States v. Alvarez, 899 F.2d 833, 836-839 (9th Cir. 1990) (no arrest where police approached with weapons drawn after receiving credible tip that subject possessed explosives); United States v. Greene, 783 F.2d 1364, 1366-68 (9th Cir.1986) (police ordered subject seated in a car to place hands on the headliner and drew weapons when he did not immediately comply, held not to constitute an arrest where police had informant's report that the suspect was in possession of a pistol); United States v. Taylor, 716 F.2d 701, 708-09 (9th Cir. 1983) (no arrest when police handcuffed companion of suspected drug dealer at gunpoint where police had strong evidence of drug activity and received briefing that dealer and his companions should be considered dangerous); and United States v. Bautista, 684 F.2d 1286, 1287-90 (9th Cir. 1982) (handcuffing of two subjects justified, and not an arrest, where police suspected subjects of armed robbery and knew that a third suspect might still be in the vicinity).
By contrast, where officers have no reason to suspect danger, or where the suspected offense is minor or non-violent, aggressive actions during an investigative stop may constitute an arrest. For example, in Del Vizo, officers stopped the driver of a van after surveillance indicated that the driver had just completed a drug transaction. Police approached with weapons drawn, ordered the driver out of the van, forced him to lie down on the street, and handcuffed him. Del Vizo, 918 F.2d at 823. The Ninth Circuit held that the police conduct constituted an arrest under the circumstances, and therefore required a showing of probable cause. Id. at 824. The court of appeals went on to say that mere suspicion of drug trafficking did not justify the extent of the restraints to effectuate an investigative stop, noting that the driver was compliant and there was no evidence suggesting he was dangerous. Id. at 825.
Handcuffing "substantially aggravates the intrusion and aggressiveness" of a Terry stop, Bautista, 684 F.2d at 1289, but it is not a pre-requisite to finding an arrest has occurred. "In fact, even markedly less intrusive police action has been held to constitute an arrest when the inherent danger of the situation does not justify the intrusive police action." Lambert, 98 F.3d at 1187. In United States v. Ricardo D., 912 F.2d 337 (9th Cir.1990), the Ninth Circuit found an arrest had occurred where officers took a non-fleeing, non-threatening juvenile subject by the arm, told him not to run, and placed him in a patrol car for questioning. In United States v. Robertson, 833 F.2d 777, 781 (9th Cir.1987), officers were held to have arrested a female companion of a known methamphetamine manufacturer when they detained her at gunpoint, though they did not handcuff or touch her. The court noted that the police "had not the slightest *1066 indication that she was armed," and there was "[n]othing in the record suggest[ing] that the display of force was necessary to insure her compliance with a request to stop." Robertson, 833 F.2d at 781. In light of those facts the court concluded that "the purpose of the asserted `Terry stop'to allow the officers to investigate without fear of flight or violencewas not served by the intrusion imposed." Id. (citation omitted). The dissent in Robertson determined no arrest had occurred, but suggested an arrest likely would have occurred had the officers taken the further step of making the subject "prone out." Id. at 787 (Noonan, J., dissenting). Similarly, in Kraus v. Pierce County, police officers confronted subjects with spotlights and weapons drawn, and ordered them to raise their arms and drop to their knees. 793 F.2d 1105, 1109 (9th Cir.1986). The court of appeals determined these actions constituted an arrest where there was no information linking the subjects to a crime, stating "the officers' commands led Kraus and Montgomery reasonably to believe that they had no choice but to raise their arms and drop to their knees. A reasonable person in this situation would have believed that he was not free to leave and was effectively under arrest." Id. at 1109.
In light of these cases, the Terry stop in this case became an arrest when Johnson drew his taser and pointed it at Jackson after Jackson failed to immediately comply with Deputy Johnson' first command that Jackson drop to his knees. Only one of the four Lambert factors is even arguably present. Deputy Johnson had no information that Jackson was armed. The stop did not closely follow a violent crime, and there was no reason for Deputy Johnson to believe a crime involving violence was about to occur. In fact, there was scant reason for Deputy Johnson to believe that Jackson was involved in any criminal activity at all. Jackson's actions at the scene did not support a reasonable belief that he presented a danger or a flight risk. The only conceivable fact supporting the intrusive action of pointing a taser at Jackson was Jackson's failure to immediately drop to his knees on the first command.
Under Robertson and Kraus, and in light of the four factors identified in Lambert, there is a credible argument to be made that the stop was converted to an arrest as soon as Deputy Johnson gave the initial order for Jackson to drop to his knees. Any doubt was erased, however, when Deputy Johnson drew his taser. Once he had drawn a weapon and ordered to Jackson to his knees, Johnson had escalated the encounter to an arrest under the Fourth Amendment. Other than Jackson's minimal act of non-compliance in refusing to act as a supplicant, Deputy Johnson had no reason to suspect that he was dangerous, that he would attempt to flee, or that he had committed or was planning to commit a violent offense. Moreover, Jackson's non-compliance was partial; he had stopped walking when asked and placed his arms in the air in response to the order to drop to his knees. At that point, Jackson, like the subjects in Kraus, reasonably would have believed he was not free to leave. See also Robertson, 833 F.2d at 781 (suspect approached at gunpoint "was not free to `choose between terminating or continuing the encounter'") (quoting United States v. Johnson, 626 F.2d 753, 755 (9th Cir.1980)). In the moment before he drew his taser, Deputy Johnson faced no impediment to his achievement of the purposes of a Terry stop, i.e., the brief investigatory detention and questioning of a subject without fear for his safety.
In each of the Ninth Circuit cases cited above the weapons drawn by officers were guns rather than tasers. See, e.g., Lambert, 98 F.3d at 1188 ("[I]f the police draw *1067 their guns it greatly increases the seriousness of the stop."). Unlike a firearm, a taser does not constitute deadly force, and therefore the threatened use of a taser cannot be deemed as severe an intrusion as the brandishing of a firearm. But the non-deadly nature of a taser does not render meaningless its use in deciding whether a Terry stop escalated to an arrest. The taser properly falls among that class of other non-deadly tactics, such as the use of handcuffs, that may "substantially aggravate[] the intrusiveness of an otherwise routine investigatory detention and [are] not part of a typical Terry stop." Bautista, 684 F.2d at 1289.
Moreover, it is unclear the degree to which the average person would appreciate the distinction between a taser and a firearm when the weapon is drawn from the holster of a uniformed officer in the dark of night. It suffices to say that an officer who draws his taser has significantly heightened the degree intrusion associated with the stop and the restraint placed upon the subject.[4] Taking the view of the facts most favorable to Jackson, Deputy Johnson's actions were not reasonably necessary under the circumstances to safely effectuate a Terry stop, and therefore constituted an arrest as of the moment he drew his taser.
c. Did Deputy Johnson Have Probable Cause to Arrest Jackson When He Drew His Taser?
If Deputy Johnson did not have probable cause when he drew his taser, his arrest of Jackson was a false arrest in violation of the Fourth Amendment. Lambert, 98 F.3d at 1186. "Probable cause exists when, under the totality of the circumstances known to the arresting officers (or within the knowledge of the other officers at the scene), a prudent person would believe the suspect had committed a crime." Dubner v. City and County of San Francisco, 266 F.3d 959, 966 (9th Cir.2001). Reasonable suspicion may ripen into probable cause based on events that occur after the initial investigative stop. Greene, 783 F.2d at 1368 (quoting United States v. Medina-Gasca, 739 F.2d 1451, 1453 (9th Cir.1984)).
Deputy Johnson asserts he had probable cause to arrest Jackson because "[Jackson's] non-compliance interfered with Johnson's ability to accomplish his lawful investigation and, at some point, became a crime." Def.'s Reply Brief, Doc. No. 20 at 5. Jackson was charged with two offenses under Montana law, resisting arrest and obstructing a peace officer. Johnson Affidavit, Doc. No. 17-1 at 3. A person commits the offense of resisting arrest under Mont.Code Ann. § 45-7-301 if he "knowingly prevents or attempts to prevent a peace officer from effecting an arrest," either by use or threat of force or violence, or by any other means that places another person at risk of physical harm. A reasonable law enforcement officer could not have believed there was probable cause to arrest Jackson for resisting arrest. What Johnson espouses is plenary authority to arrest so an officer is never wrong in making an arrest. Jackson did not use or threaten violence, and Deputy Johnson had no reason to perceive a risk that he or anyone else would suffer physical injury due to Jackson's actions.
*1068 That leaves obstructing a peace officer as the lone offense for which Deputy Johnson might have had probable cause to arrest Jackson. Under Mont.Code. Ann. § 45-7-302(1), "A person commits the offense of obstructing a peace officer or public servant if the person knowingly obstructs, impairs, or hinders the enforcement of the criminal law, the preservation of the peace, or the performance of a governmental function, including service of process." Under Jackson's version of the facts, the only conduct that conceivably could have given rise to probable cause was Jackson's failure to comply with Deputy Johnson's first command to drop to his knees. The question is whether the failure to immediately comply with an officer's command to assume a supplicant's position during an investigative stop is a violation of Mont.Code Ann. § 45-7-302.
The Montana Supreme Court addressed the question in City of Kalispell v. Cameron, 309 Mont. 248, 46 P.3d 46 (2002). The defendant in Cameron was a passenger in a truck that two officers had observed driving erratically. Id. at 46. After the truck parked at a restaurant, the officers approached to investigate, one officer confronting the driver on the driver's side of the truck and another confronting the defendant on the passenger side. Id. at 46-47. As the defendant exited the truck to enter the restaurant the officer called to him and told him to get back in the truck. Id. The defendant did not comply, telling the officer he was going into the restaurant to eat. Id. at 47. The officer repeated the command, and the defendant responded by swearing at the officer and turning to enter the restaurant. Id. At that point the officer forced the defendant against the truck in a "control position" and handcuffed him. Id. The defendant charged with obstructing a peace officer in violation of Mont.Code Ann. § 45-7-302. He was convicted following a jury trial after his motion for directed verdict failed.
On appeal, the Montana Supreme Court reversed the lower court and directed a judgment acquitting the defendant, holding that mere non-compliance with a police officer's command is not obstruction unless it is done with the knowledge that non-compliance will hinder the officer's investigation. The court explained:
Sections 45-2-101(34) (statutory definition of "knowingly") and 45-7-302(1), MCA, require that an individual obstructing a peace officer must engage in conduct under circumstances that make him or her aware that it is highly probable that such conduct will impede the performance of a peace officer's lawful duty. In other words, the City had to prove that Cameron was aware that his conduct would hinder the execution of the Officers' duties.
We conclude that Cameron did not obstruct the Officers. Brenden testified that he arrested the driver without incident and was not impaired by Cameron. Moreover, Brenden testified that he did not require Zimmerman's assistance to arrest the driver. Finally, there was no reason for arresting Cameron and he had no reason to know why he was being investigated or arrested.
Cameron, 46 P.3d at 47.
Like the defendant in Cameron, here Jackson had no reason to know why he was being investigated and he was not informed of the purpose of the stop by Deputy Johnson. This was despite Jackson's asking Johnson what he did wrong. Jackson did not hinder Deputy Johnson's ability to investigate, as Jackson had his arms raised and in fact claims he was inviting questioning. In light of Cameron, Deputy Johnson did not have probable cause to believe Jackson's conduct was obstruction of a peace officer under Mont. Code Ann. § 45-7-302.
*1069 This result is consistent with the Ninth Circuit's decision in Mackinney v. Nielsen, 69 F.3d 1002 (9th Cir.1995). In Mackinney, the plaintiff was arrested for obstruction for continuing to write on a sidewalk with chalk after officers told him to stop. 69 F.3d at 1004. The plaintiff filed a § 1983 action alleging false arrest, and the district court granted summary judgment for the defendants. The court of appeals held that the officers did not have probable cause to arrest the plaintiff for the offense of obstructing a peace officer in California, citing California case law in which outright refusal to comply with police commands was held not to constitute obstruction under the state statute. Id. at 1006. In concluding its analysis, the Ninth Circuit panel stated, "Of course, people must obey the police in most situations. But here, the police overreacted to Mackinney's momentary disobedience." 69 F.3d at 1006.[5]
Cameron was decided in 2002, well before the events at issue here took place. Since then, it has been clearly established under Montana law that mere momentary non-compliance with a peace officer's commands is not obstruction under Mont.Code Ann. § 45-7-302. At a minimum, there exists a triable issue of fact regarding whether, under Jackson's allegations, Deputy Johnson unreasonably violated clearly established law when he arrested Jackson. Deputy Johnson has failed to carry his summary judgment burden with respect to Jackson's false arrest claim, and his motion for summary judgment is denied as it relates to that claim.
2. Excessive Force
Deputy Johnson argues that he is entitled to qualified immunity on the excessive force claim because the law on excessive force involving tasers was not clearly established when this incident occurred on June 10, 2009. Deputy Johnson does not attempt to argue that the quantum of force he used was constitutionally permissible, instead urging the Court to skip the excessive force inquiry and proceed directly to the question whether the law was clearly established. If that approach is followed, Deputy Johnson argues, he is entitled to qualified immunity under the Ninth Circuit's recent decision in Bryan.
a. Did Deputy Johnson Use Excessive Force?
An officer will not be found to have used excessive force so long as his actions are objectively reasonable in light of the facts and circumstances confronting him. Graham v. Connor, 490 U.S. 386, 395-97, 109 S.Ct. 1865, 104 L.Ed.2d 443 (1989). In assessing the reasonableness of an officer's use of force, a court must "balance the nature and quality of the intrusion on the individual's Fourth Amendment interests against the countervailing governmental interests at stake." Bryan, 630 F.3d at 823 (internal quotation marks omitted).
*1070 The nature and quality of the intrusion in this case is the use of a taser, which the Ninth Circuit has deemed an intensely painful and frightening blow. Bryan, 630 F.3d at 825-26. The Bryan panel held that a taser constitutes an "intermediate, significant level of force[.]" Id. at 826.
The Court must balance that intrusion against the countervailing governmental interests at stake. Three core factors are used to assess the government's interest in the use of force: "`the severity of the crime at issue, whether the suspect poses an immediate threat to the safety of the officers or others, and whether he is actively resisting arrest or attempting to evade arrest by flight.'" Bryan, 630 F.3d at 826 (quoting Graham, 490 U.S. at 396, 109 S.Ct. 1865). These factors are not exclusive; in each case, any factor that is appropriate under the specific circumstances should be considered. Bryan, 630 F.3d at 826. Such factors include, where relevant, whether the officer warned the subject before using force, and whether the officer considered less intrusive means to effect arrest. Id. at 831.
When considered in the context of the Graham factors, the governmental interests at issue here do not justify the use of a taser in this case. Jackson had his arms raised and he did not approach or otherwise threaten Deputy Johnson, who was 15 to 20 feet away. Jackson twice asked the officer what he had done wrong, stated that Deputy Johnson had not told him he was under arrest, and asked Deputy Johnson to talk to him. To the extent that Jackson's failure to drop to his knees after two commands constituted resistance, his resistance was entirely passive. Furthermore there was nothing about the situation that could reasonably have caused Johnson to believe forcing Jackson to his knees was required for any reason including officer safety. The first Graham factor, severity of the crime, does not support any use of force. Assuming Jackson was in the wrong, the severity of his offense in this instance was de minimis, if indeed there was reason to suspect him of any offense at all. No fact gave rise to a reasonable suspicion he had committed or was about to commit a violent crime. As for the second Graham factor, Jackson did not pose an immediate threat to Deputy Johnson. Finally, Jackson did not actively resist arrest or attempt to flee. His minimal, passive resistance to an uncalled for order to get on his knees does not come close to justifying the use of a taser, particularly where Jackson had raised his arms and asked Deputy Johnson to tell him why he had been stopped, and Deputy Johnson did not warn Jackson that he would use the taser.
As alleged by Jackson, Deputy Johnson's use of force in this case was excessive under Graham in violation of the Fourth Amendment. With that determination it is necessary to turn to the second step in the qualified immunity analysis, i.e., whether the right violated by Deputy Johnson was clearly established in the law as of June 10, 2009.
b. Did Deputy Johnson Violate Jackson's Clearly Established Rights?
The Ninth Circuit has conceded that the law on excessive force regarding the use of tasers was to some degree unsettled prior to its decision in Bryan. 630 F.3d at 833.[6] In Bryan, the driver of a car was stopped *1071 at an intersection when an officer stationed there to enforce seatbelt laws stepped in front of the car. Id. at 822. When the officer approached the driver's window and asked if the driver knew why he had been stopped, the driver stared straight ahead and said nothing. Id. The officer then instructed the driver to turn down the radio and pull over, and as the driver complied, he began to punch the steering wheel and repeatedly yell expletives. Id. The driver then exited the vehicle despite having been instructed by the officer to stay in the car. Id. The driver wore only boxer shorts and tennis shoes, and was visibly agitated. Id. He stood outside his car, yelling gibberish and pounding his thighs with his fists. Id. The court of appeals characterized the driver's behavior as a "bizarre tantrum." Id. at 832. The driver did not make any attempt to advance toward the officer. Id. at 822. Beholding the driver's conduct from 20 to 25 feet away, the officer drew and fired his taser without warning, causing the driver to fall to the ground and suffer injuries to his face and teeth. Id.
The driver filed a § 1983 action, and the district court denied the defendant's motion for summary judgment on qualified immunity. On appeal, the panel concluded that the officer's use of the taser in Bryan was excessive under the Fourth Amendment because the situation did not call for an intermediate level of force. 630 F.3d at 832. The court of appeals held that under the circumstances "the government had, at best, a minimal interest in the use of force against Bryan." Id. at 831. The court then went on to find that the officer was entitled to qualified immunity because prior to the Bryan opinion there had been no Ninth Circuit case declaring a taser to constitute an intermediate use of force. Id. at 833. In other words, while it was clearly established in the law that intermediate force was not reasonably called for in the situation, it was not clearly established that a taser constitutes intermediate force. The effect of Bryan's qualified immunity analysis is that before the Bryan opinion, a police officer was entitled qualified immunity against any excessive force claim based on the use of a taser, provided that at least some degree of force was reasonable under the circumstances. Whether Deputy Johnson is entitled to qualified immunity therefore turns on whether it was reasonably necessary to use any level of force under the circumstances. It merits comment that law enforcement officers are not required to check in their common sense when they check out their taser, regardless of the state of the law.
"Where there is no need for force, any force used is constitutionally unreasonable." Headwaters Forest Defense v. County of Humboldt, 240 F.3d 1185, 1199 (9th Cir.2000), vacated and remanded on other grounds sub nom. County of Humboldt v. Headwaters Forest Defense, 534 U.S. 801, 122 S.Ct. 24, 151 L.Ed.2d 1 (2001) (emphasis in original). Headwaters involved the use of pepper spray on peaceful protesters who had linked themselves together using steel locking devices while demonstrating on lumber company property and in a politician's office. The Ninth Circuit concluded that the use of pepper spray constituted excessive force in those circumstances, 240 F.3d at 1205-06, and re-affirmed its excessive force analysis on remand from the Supreme Court. See Headwaters Forest Defense v. County of Humboldt, 276 F.3d 1125, 1131 (9th Cir. 2002) (holding the use of pepper spray was "plainly in excess of the force necessary under the circumstances"). The circuit faulted the officers for not considering less intrusive force because alternatives such as using a grinder to cut the locking devices or physically removing the protesters by carrying them were reasonable options *1072 to the force used. Headwaters, 240 F.3d at 1205.
Unlike Bryan and Headwaters, this is a case in which no force was reasonably necessary. In both Bryan (seat belt infraction) and Headwaters (trespass), the officers had probable cause to believe a crime had been committed, and therefore were justified in effecting an arrest. "If an officer has probable cause to believe that an individual has committed even a very minor criminal offense in his presence, he may, without violating the Fourth Amendment, arrest the offender." Michigan v. DeFillippo, 443 U.S. 31, 37, 99 S.Ct. 2627, 61 L.Ed.2d 343 (2001). Deputy Johnson has no probable cause to arrest Jackson, so he was not entitled to use any force. When an officer illegally makes a false arrest, the "countervailing governmental interest" required by Graham is entirely absent. No level of force can be reasonably justified in such circumstances.
Viewing the facts in the light most favorable to Jackson, Deputy Johnson is not entitled to qualified immunity on the excessive force claim because tasering Jackson to effectuate a false arrest constituted a use of force where none was necessary, and no reasonable officer could have concluded otherwise. Deputy Johnson's motion for summary judgment on the excessive force claim is denied.
IV. Conclusion
Based on the foregoing, Deputy Johnson's motion for summary judgment (dkt. # 15) is GRANTED with regard to Jackson's illegal seizure claim based on the absence of reasonable suspicion for an investigative stop, and DENIED in all other respects.
NOTES
[1] Deputy Johnson's account differs from Jackson's in several ways. According to Deputy Johnson's Affidavit:
He did not know who was the driver of either car at the time he approached Jackson;
He "perceived Jackson to be intoxicated and belligerent";
He "suspected that Jackson was involved in the accident, or had committed a crime, or was attempting to flee the scene";
When he approached Jackson, Jackson "suddenly snapped around and stated in an aggressive and challenging manner, `What the fuck do you want, I didn't do anything.'"
Jackson advanced toward Deputy Johnson, "yelling and posturing as if to fight."
Before tasering Jackson he identified himself as a sheriff's deputy, told Jackson to get to his knees four times, and warned Jackson that he would be tasered if he did not comply.
Johnson Affidavit, Doc. No. 17-1 at 2-3.
[2] Terry v. Ohio, 392 U.S. 1, 88 S.Ct. 1868, 20 L.Ed.2d 889 (1968).
[3] In both his Opening Brief and Reply Brief, Deputy Johnson repeatedly describes Jackson as "hastening" or "walking hastily" away from the scene. See, e.g., Doc. No. 16 at 15, Doc No. 20 at 3. There is no support in the record for such descriptions; the affidavits of both Deputy Johnson and Jackson merely state that Jackson was "walking." Doc. No. 17-1 at ¶ 4; Doc. No. 19-1 at ¶ 8.
[4] In Lambert, the Ninth Circuit quoted with approval the Seventh Circuit's observation that "[i]t would be a sad day for the people of the United States if police had carte blanche to point a gun at each and every person of whom they had an `articulable suspicion' of engaging in criminal activity." 98 F.3d at 1188-89 (quoting United States v. Serna-Barreto, 842 F.2d 965, 967 (7th Cir.1988)). It would be only marginally less disturbing to our constitutionally rooted notions of individual liberty if police had the freedom to conduct every investigatory stop from behind a drawn taser.
[5] Deputy Johnson's reliance on Hiibel v. Sixth Judicial District Court of Nevada, Hombolt County, 542 U.S. 177, 124 S.Ct. 2451, 159 L.Ed.2d 292 (2004), is misplaced. Although Deputy Johnson's Reply Brief characterizes the Nevada statute at issue in Hiibel as a "stop and frisk" statute "which is similar to Montana's," Doc. No. 20 at 5, the Nevada law is in fact a "stop and identify" statute which requires the subject of a Terry stop to disclose his or her identity at the request of a peace officer-a feature not found in the Montana stop and frisk statute, Mont Code Ann. § 46-5-401. Hiibel, 542 U.S. at 181, 124 S.Ct. 2451. In Hiibel, the Supreme Court held that failure to respond to such a request is grounds to arrest the subject of a Terry stop for violation of the "stop and identify statute." Id. at 187-89, 124 S.Ct. 2451. Hiibel has no application here, because the subject in Hiibel committed a clear violation of state law in the presence of the arresting officer.
[6] Bryan is one of three excessive force cases involving tasers decided by the Ninth Circuit in 2010. The court has granted rehearing en banc in the other two, Brooks v. City of Seattle, 599 F.3d 1018 (9th Cir.2010), rehr'g en banc granted by 623 F.3d 911 (9th Cir.2010), and Mattos v. Agarano, 590 F.3d 1082 (9th Cir.2010), rehr'g en banc granted by 625 F.3d 1132 (9th Cir.2010). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2113645/ | 824 F.Supp.2d 12 (2011)
UNITED STATES of America ex rel. Robert R. PURCELL, Plaintiff,
v.
MWI CORPORATION, Defendant.
Civil Action No. 98-2088 (RMU).
United States District Court, District of Columbia.
November 14, 2011.
*15 Joseph J. Aronica, Duane Morris, Washington, DC, for Robert R. Purcell.
David B. Wiseman, Michael D. Granston, U.S. Department of Justice, Roscoe C. Howard, Jr., Andrews Kurth LLP, Keith V. Morgan, U.S. Attorney's Office, Washington, DC, for United States of America.
Robert T. Rhoad, Brian T. McLaughlin, Crowell & Moring LLP, Washington, DC, for Defendant.
MEMORANDUM OPINION
GRANTING THE GOVERNMENT'S MOTION TO STRIKE THE DECLARATION OF JOHN STEPHEN FANCHER; GRANTING THE GOVERNMENT'S MOTION TO STRIKE THE DISCLOSURE AND DECLARATION OF JAMES MOORHOUSE; DENYING THE DEFENDANT'S MOTION FOR SUMMARY JUDGMENT; DENYING THE GOVERNMENT'S MOTION FOR SUMMARY JUDGMENT; DENYING THE DEFENDANT'S MOTION TO DISMISS THE RELATOR'S COMPLAINT
RICARDO M. URBINA, District Judge.
I. INTRODUCTION
This matter concerns allegations that Moving Water Industries, Inc. ("MWI") defrauded the federal government by fraudulently concealing bribes made to its sales agents in Nigeria. One of MWI's former employees, Robert Purcell, originally brought this action under the False Claims Act. The United States subsequently intervened to bring its own suit, alleging violations of the False Claims Act and other common law claims. This matter now comes before the court upon a bevy of motions, including: the government's motions to strike two of the defendant's witnesses, the defendant's motion to dismiss Purcell's claims for lack of jurisdiction and the parties' cross-motions for summary judgment.
Because the defendant failed to disclose two of its witnesses during discovery, the court grants the government's motions to strike those witnesses' declarations. Because the government has shown that the False Claim Act poses no jurisdictional bar to this matter, the court denies the defendant's motion to dismiss Purcell's complaint. Finally, because several genuine disputes of material fact exist with regards to the government's False Claims Act and common law claims, the court denies the parties' cross-motions for summary judgment.
II. BACKGROUND
A. Statutory Framework
The False Claims Act ("FCA") was signed into law by President Abraham Lincoln in 1863 to combat rampant fraud and war profiteering in Civil War defense contracts. Rainwater v. United States, 356 U.S. 590, 592, 78 S.Ct. 946, 2 L.Ed.2d 996 (1958). The FCA imposes civil penalties on any person who, among other things, knowingly submits false claims to the federal government. 31 U.S.C. § 3729. The chief purpose of the FCA is to prevent the commission of fraud against the federal government and to provide for the restitution of money that was taken from the federal government by fraudulent means. U.S. ex rel. Marcus v. Hess, 317 *16 U.S. 537, 544-45, 63 S.Ct. 379, 87 L.Ed. 443 (1943).
A private personreferred to as the "relator"may bring an FCA action in the name of the government. Id. § 3730(b). Under the FCA's qui tam provision, a relator may share in any proceeds that are ultimately recovered.[1]U.S. ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 647 (D.C.Cir.1994). The FCA's qui tam provision brings legal force to the idea "that one of the least expensive and most effective means of preventing frauds upon the Treasury is to make the perpetrators of them liable to actions by private persons acting under the strong stimulus of personal ill will or the hope of gain." Hess, 317 U.S. at 541, n. 5, 63 S.Ct. 379 (internal citations omitted). In addition, the FCA's qui tam provision encourages whistleblowers to expose fraudulent activities of which the government was previously unaware. Quinn, 14 F.3d at 649; U.S. ex rel. Findley v. F.P.C.-Boron Employees' Club, 105 F.3d 675, 678 (D.C.Cir.1997).
Following the filing of a relator's FCA claim, the federal government may elect to intervene in the case. 31 U.S.C. § 3730(b). By intervening, the government bears the primary responsibility of prosecuting the action and is not bound by the actions of the relator, who may continue as a party to the original suit. Id. § 3730(c). If the government's intervening claim is successful, the relator is then entitled to collect between 15% and 25% of the proceeds. Id. § 3730(d).
B. Elements of an FCA Claim
The FCA provides for two types of liability. U.S. ex rel. Schwedt v. Planning Research Corp., 59 F.3d 196, 199 (D.C.Cir. 1995). First, the submitter of a "false claim" or "statement" is liable for an automatic civil penalty, regardless of whether the submission of the claim actually causes the government any damages. Id.; 31 U.S.C. § 3729(a)(1)(G).
Second, the defendant may be held liable for damages that were actually sustained because of the submission of the false claim. Id. The elements of a FCA action are that (1) the defendant presented a claim to the government, (2) the claim was false and (3) the defendant knew the claim was false. U.S. ex rel. Westrick v. Second Chance Body Armor, Inc., 685 F.Supp.2d 129, 134 (D.D.C.2010). FCA claims are also subject to a judicially imposed materiality requirement. United States v. Science Applications, 626 F.3d 1257, 1266 (D.C.Cir.2010); see also U.S. ex rel. Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163, 1169 (10th Cir.2010); U.S. ex rel. Cantekin v. Univ. of Pittsburgh, 192 F.3d 402, 415 (3d Cir.1999).
Finally, a plaintiff who successfully proves these four elements may recover damages only if it shows that the defendant caused the government to pay claims "because of" the alleged false statements. 31 U.S.C. § 3729(a). These damages are measured as the difference between what the government actually paid and what the government would have paid had it known of the falsity of the defendant's claim. See U.S. ex rel. Schwedt v. Planning Research Corp., 59 F.3d 196, 200 (D.C.Cir.1995).
C. Factual and Procedural History
In the early 1990s, MWI, a Florida corporation, arranged to sell irrigation pumps and other equipment to seven Nigerian states. Govt.'s Statement of Undisputed Material Facts ("Govt.'s Stmt.") ¶¶ 1, 3. To *17 finance these sales, MWI and Nigeria sought and received eight loans from the Export-Import Bank of the United States ("Ex-Im Bank"), an agency of the United States that is tasked with financing and facilitating the sales of U.S. exports to international buyers. See 12 U.S.C. § 635(a). These loans totaled $74.3 million. Govt.'s Stmt. ¶ 4.
Before the Ex-Im Bank would approve the loans, it required MWI to submit a "supplier's certificate" to the Ex-Im Bank attesting that it had not paid any "irregular commissions" or other payments in connection with the pump sales. Id. ¶¶ 15-16. Among other things, the supplier's certificates allow the Ex-Im Bank to finance U.S. exports while ensuring that sales are not tainted by the stigma of bribery or other illegal activity. Govt.'s Mot. for Summ. J., Ex. 10 at 7. After the Ex-Im approved the loan, MWI was required to submit another supplier's certificate to the Ex-Im Bank before any payment would be disbursed. Govt.'s Stmt. ¶ 17. Accordingly, MWI first submitted supplier's certificates to obtain the Ex-Im Bank's approval of the bank reimbursements, and then submitted additional supplier's certificates prior to receiving each payment from the bank. Id. ¶¶ 16, 18. On each of the supplier's certificates, MWI certified that it had not paid any "irregular commissions" or made other payments in connection with the pump sales. Id. ¶¶ 19, 21.
The government alleges that these certifications were false. Id. ¶¶ 24, 35. Specifically, the government claims that MWI had paid $28 million in "excessive, highly irregular" commissionsnamely, a series of bribesto their Nigerian sales representative, Alhaji Mohammed Indimi ("Indimi"). Id. ¶¶ 22-27. The government contends these commissions represented 34 percent of the sales price of the pumps.[2] Govt.'s Mot. for Partial Summ. J. at 1.
At the time of this project, the government contends that MWI had a policy of paying its sales agents a commission of approximately 10 percent of the standard discounted sale price, plus half of any amount received over that price. Govt.'s Mot. for Partial Summ. J. at 7, Ex. 10 at 11-12. With the exception of Indimi's commission, MWI's commission payments between January 1, 1990 and December 31, 1994a period encompassing the Indimi sales and 70 other MWI transactions averaged $13,956 or 9 percent of the sale price. Govt.'s Mot. for Partial Summ. J. at 8.
Purcell is a Florida resident who was at all relevant times employed as MWI's Vice President of National Sales and Director of Asian Operations. Relator's Compl. ¶ 7. Purcell filed this action against MWI in August 1998, alleging that MWI violated the FCA. See generally id. Specifically, the relator's complaint alleges that MWI's receipt of $74.3 million in Ex-Im Bank loan guarantees was induced by MWI's fraudulent concealment of the fact that bribes were paid to Nigerian officials. Id. ¶¶ 11-13, 15-16, 23-31, 47-49. The relator's complaint charges MWI with violating the FCA by: (1) knowingly causing the submission of false or fraudulent claims for payment or approval; (2) knowingly making false records or statements to obtain government payment of false or fraudulent claims; and (3) conspiring to defraud the government. Id. ¶¶ 50-55. The relator seeks treble damages and civil penalties under the FCA. Id. ¶¶ 24-25.
The government intervened in April 2002 by filing suit against MWI and its *18 former president and majority shareholder, J. David Eller. Govt.'s Compl. ¶¶ 11-45. The government's complaint contains not one but four counts. Id. ¶¶ 46-56. Of the four counts, the first two allege the same FCA violations as the relator's complaint, namely that MWI and Eller: (1) knowingly caused the presentation of false or fraudulent claims for payment or approval and (2) knowingly made false records and statements to obtain government payment of false or fraudulent claims. Id. ¶¶ 46-51. The third and fourth counts ("the common law claims") allege claims under the common law theories of (3) unjust enrichment and (4) payment by mistake. Id. ¶¶ 52-56.
Following the close of discovery, the parties filed cross-motions for summary judgment which were addressed by the court. See generally Mem. Op. (Nov. 6, 2007). Specifically, the court granted defendant Eller's motion for summary judgment on all claims, concluding that the government's FCA claims against Eller were time-barred and that the government had failed to show that Eller derived any benefit from the government's actions. Id. at 12-21. In addition, the court granted in part the government's motion for partial summary judgment, concluding that the government had successfully presented two elements of its FCA claim.
Upon the court's order for supplemental briefing, the government and the defendant again filed cross-motions for summary judgment on the elements of (1) materiality, (2) falsity and (3) damages. See generally Govt.'s Mot. for Partial Summ. J.; Def.'s Mot. for Summ. J. Additionally, the defendant moves to dismiss the relator's claim for lack of jurisdiction, arguing that the "public disclosure" provision of the FCA deprives this court of jurisdiction. See generally Def.'s Mot. to Dismiss Against Purcell ("Def.'s Mot. to Dismiss"). Finally, the government filed two motions to strike under Rule 37(c)(1) various declarations submitted by the defendant. See generally Govt.'s Mot. to Strike the Declaration of John Stephen Fancher; Govt.'s Mot. to Strike the Disclose and Declaration of James A. Moorhouse; FED.R.CIV.P. 37(c). With this welter of motions now ripe for review, the court now turns to the parties' arguments and the relevant legal standards.
III. ANALYSIS
A. The Court Strikes Both the Declaration of John Stephen Fancher and the Disclosure and Declaration of James Moorhouse
In support of its motion for summary judgment, MWI submits the declarations of two witnesses: Stephen Fancher and James Moorhouse. See Def.'s Mot. for Summ. J., Ex. 6 ("Fancher Decl."); Def.'s Reply to Govt.'s Opp'n to Def.'s Mot for Summ. J., Ex. 3 ("Moorhouse Decl."). These submissions putatively shed light on the range of commissions that were common in the water pump industry. See generally Def.'s Opp'n to Govt.'s Mot. to Strike Fancher Decl.; Def.'s Opp'n to Govt.'s Mot. to Strike Moorhouse Disclosure Decl.
The government argues that the declarations of Mr. Fancher and Mr. Moorhouse should be stricken from the record because the defendant failed to properly disclose both witnesses during discovery. See generally Govt.'s Mot. to Strike Fancher Decl.; Govt.'s Mot. to Strike Moorhouse Disclosure & Decl. The defendant counters that the declarations are admissible on account of legal arguments that were newly developed since the initial round of summary judgment briefing. See generally Def.'s Opp'n to Govt.'s Mot. to Strike Fancher Declaration. In addition, the defendants argue that these declarations inflict no harm on the government in *19 the absence of a looming trial date.[3]See generally id.; Def.'s Opp'n to Govt.'s Mot. to Strike Moorhouse Disclosure & Decl.
If "a party fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence on a motion ... unless the failure was substantially justified or is harmless." FED.R.CIV.P. 37(c)(1). As a corollary, the exclusion of evidence proffered in violation of Rule 26(a) is "automatic and mandatory unless the party to be sanctioned can show that its violation ... was either justified or harmless." Foster v. United States, 130 F.Supp.2d 68, 70 n. 1 (D.D.C.2001) (quoting NutraSweet Co. v. X-L Eng'g Co., 227 F.3d 776, 785-86 (7th Cir.2000)).
The defendant has failed to provide a substantial justification to support its untimely disclosure of the declarations. The defendant has been on notice that it might be required to present evidence regarding the irregularity of the Indimi commission from the moment the government filed its complaint in 2002. See Govt. Compl. ¶ 23. The defendant's failure to anticipate the need for witnesses regarding this subject does not substantially justify the untimely submission of Mr. Moorhouse's and Mr. Fancher's declarations. See Minebea Co. Ltd. v. Papst, 231 F.R.D. 3, 6-7 (D.D.C.2005) (determining that no substantial justification existed for untimely submission of testimony because the party "could reasonably have anticipated" the need for such testimony during discovery).
Likewise, the defendant has failed to demonstrate that the late disclosure is harmless. If the court accepted these eleventh-hour declarations, the government would effectively be deprived of the opportunity to depose the defendant's new witnesses. See Elion v. Jackson, 544 F.Supp.2d 1, 6 (D.D.C.2008) ("The harm from the failure to disclose a witness flows from the unfair surprise hindering the prejudiced party's ability to examine and contest that witness' evidence" (quoting Muldrow ex rel. Estate of Muldrow v. Re-Direct, Inc., 493 F.3d 160 (D.C.Cir.2007))). In addition, the government would be prevented from finding and deposing additional witnesses to rebut the new evidence if they so choose. See id. The defendant has thus failed to convince the court that the introduction of this new evidence, which would necessarily alter the government's trial preparation strategy, is harmless. DAG Enterprises, Inc. v. ExxonMobil Corp., 2007 WL 4294317, at *1 (D.D.C. 2007) (concluding that a party's access to data and knowledge of new witnesses prior to untimely submission is a significant factor in determining harmlessness). Accordingly, the court grants the government's two motions to strike.
B. The Court Denies the Defendant's Motion to Dismiss The Relator's Complaint
The defendant also moves to dismiss the relator's complaint under Rule 12(b)(1) on the grounds that the FCA deprives the court of jurisdiction to entertain claims that are based on publicly available information. See generally Def.'s Mot. to Dismiss. According to the defendant, the relator's allegations were based on publicly available information at the time he filed *20 suit. Id. at 1. They therefore contend that the FCA deprives the court of jurisdiction. Id. at 1-2. In response, the relator and the government deny that the allegations were based on publicly available information. See generally Govt.'s Opp'n to Def.'s Mot. to Dismiss. Resolution of this motion requires discussion of the jurisdictional bar and the relevant evidence before the court, which is provided below.
1. Legal Standard for a Motion to Dismiss Pursuant to Rule 12(b)(1)
Federal courts are courts of limited jurisdiction and the law presumes that "a cause lies outside this limited jurisdiction." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994); see also Gen. Motors Corp. v. Envtl. Prot. Agency, 363 F.3d 442, 448 (D.C.Cir.2004) (noting that "[a]s a court of limited jurisdiction, we begin, and end, with an examination of our jurisdiction").
Because "subject-matter jurisdiction is an `Art[icle] III as well as a statutory requirement[,] no action of the parties can confer subject-matter jurisdiction upon a federal court.'" Akinseye v. District of Columbia, 339 F.3d 970, 971 (D.C.Cir. 2003) (quoting Ins. Corp. of Ir., Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982)). On a motion to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), the plaintiff bears the burden of establishing by a preponderance of the evidence that the court has subject matter jurisdiction. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992).
2. The FCA's Public Disclosure Bar
Courts lack jurisdiction to hear a relator's qui tam suit if the relevant information underlying the suit has already entered the public domain through certain channels. Graham Cnty. Soil & Water Conservation District v. U.S. ex rel. Karen Wilson, ___ U.S. ___, 130 S.Ct. 1396, 1401, 176 L.Ed.2d 225 (2010). In relevant part, the FCA states:
No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.[4]
31 U.S.C. § 3730(e)(4); see also Quinn, 14 F.3d at 651.
Congress's passage of the public disclosure bar aimed "to strike a balance between encouraging private persons to root out fraud and stifling parasitic lawsuits," Graham Cnty., 130 S.Ct. at 1407, especially "by those who learn of the fraud through public channels and seek remuneration although they contributed nothing to the exposure of the fraud," id. at 1408 n. 16 (internal quotations and citation omitted). This jurisdictional boundary represents Congress's effort to achieve "the golden mean between adequate incentives for whistle-blowing insiders with genuinely valuable information and discouragement of opportunistic plaintiffs who have no significant information to contribute of their *21 own." Quinn, 14 F.3d at 649. The plaintiff bears the burden of establishing jurisdiction under the FCA. U.S. ex rel. Herbert v. Nat'l Acad. of Scis., 1992 WL 247587, at *4 (D.D.C. Sept. 15, 1992) (citing Moir v. Greater Cleveland Regional Transit Auth., 895 F.2d 266, 269 (6th Cir. 1990)), aff'd, 974 F.2d 192 (D.C.Cir.1992).
Accordingly, the court must first determine whether the government and the relator have shown that the qui tam suit was not "based upon" allegations or transactions that were disclosed in the public domain. Quinn, 14 F.3d at 654; see also U.S. ex rel. Ronald Long v. SCS Business & Technical Institute, 999 F.Supp. 78, 87 (D.D.C.1998). In doing so, the court must inquire as to "whether the publicly disclosed information could have formed the basis for a governmental decision on prosecution, or could at least have alerted law-enforcement authorities to the likelihood of wrongdoing." U.S. ex rel. Earl S. Settlemire v. District of Columbia, 198 F.3d 913, 918 (D.C.Cir.1999) (quotation marks omitted). If the "publicly disclosed transaction is sufficient to raise the inference of fraud," the court lacks jurisdiction to hear the claim. Id. at 919 (noting that the relevant public disclosures need not "irrefutably prove a case of fraud" but rather need only raise an inference of the alleged fraud).
Recognizing that "[c]ourts sometimes speak loosely of barring a qui tam suit because it is based on `publicly disclosed information,'" the Circuit has explained that not all public information related to an allegation is sufficient to constitute "allegations or transactions" of fraudulent activity within the meaning of the FCA jurisdictional bar. Quinn, 14 F.3d at 653 (explaining that "[m]any potentially valuable qui tam suits would be aborted prematurely by a reading of the jurisdictional provision that barred suits when the only publicly disclosed information was itself innocuous"). Instead, the FCA's public disclosure bar prohibits qui tam actions only when enough information exists in the public domain to expose the fraudulent transaction in its entirety. As the Circuit has explained, the term "`allegation' connotes a conclusory statement implying the existence of provable supporting facts," and "[t]he term `transaction' suggests an exchange between two parties or things that reciprocally affect or influence one another." Id.
The Circuit, in an effort to provide a more thorough explanation of the jurisdictional bar, fashioned the following equation:
if X + Y = Z, Z represents the allegation of fraud and X and Y represent its essential elements. In order to disclose the fraudulent transaction publicly, the combination of X and Y must be revealed, from which readers or listeners may infer Z, i.e., the conclusion that fraud has been committed . . . [W]hen X by itself is in the public domain, and its presence is essential but not sufficient to suggest fraud, the public fisc only suffers when the whistle-blower's suit is banned. When X and Y surface publicly, or when Z is broadcast, however, there is little need for qui tam actions, which would tend to be suits that the government presumably has chosen not to pursue or which might decrease the government's recovery in suits it has chosen to pursue.
Id. at 654. In sum, the FCA's public disclosure bar prohibits qui tam actions "only when enough information exists in the public domain to expose the fraudulent transaction (the combination of X and Y) or the allegation of fraud (Z)." Id. Thus, even if one element of a fraudulent transaction is already in the public domain, "the qui tam plaintiff may mount a case by *22 coming forward with either the additional elements necessary to state a case of fraud (e.g., Y) or allegations of fraud itself (e.g., Z)." Id. at 655.
Finally, a court retains jurisdiction over a relator's complaint that is based on public information as long as the suit was filed by "an original source of the information." 31 U.S.C. § 3730(e)(4)(A). An original source is statutorily defined as "an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information." Id. § 3730(e)(4)(B). The court, however, will inquire whether the relator is an original source of the information ifand only ifthe allegations were publicly disclosed prior to the lawsuit. Quinn, 14 F.3d at 651.
3. Because the Relator's Suit Was Not Based on Publicly Available Information, the Court Retains Jurisdiction Over Purcell's Complaint
The defendant argues that Purcell's complaint lies outside the jurisdiction of this court because "[t]he allegations forming the basis of [his] complaint were publicly disclosed" through various news media articles and through Freedom of Information Act ("FOIA"). Def.'s Mot. to Dismiss at 1. In support of its motion to dismiss, the defendant references fourteen published news articles, as well as documentary evidence that the government had received several FOIA requests related to this action.[5]See generally id. According to the defendant, the relator "did not provide any information to the Government until after the public disclosures had occurred, and thus failed to contribute significant first-hand independent information not already in the public domain." Id. at 1.
In response, Purcell argues that the news sources referenced by the defendant have no bearing on the central allegations in this case and that "[n]either the fraudulent loan documents nor the underlying allegations concerning [the defendant's] violations were publicly disclosed prior to the filing of [this] qui tam action." Relator's Opp'n to Def.'s Mot. to Dismiss at 4-5, 10. Instead, Purcell asserts that he used his position within MWI to obtain "significant, independent information" regarding "the fraudulent loan documents MWI submitted to Ex-Im Bank," and that he submitted this information to the government before commencing this suit. Id. at 7. More specifically, Purcell states that he provided the government with "specific and substantial information regarding the irregular and exorbitant commissions MWI paid to Mr. Indimi and MWI's fraudulent disclosures to [the Ex-Im Bank] Bank regarding these commissions." Id. at 14. Purcell further argues that although "certain information he gathered and submitted to the government was obtained via a FOIA request to [the Ex-Im Bank]," he only received "background documents and other general information." Id. These arguments are addressed in turn.
i. Public Disclosures Based on News Articles
MWI offers fourteen news articles in support of its argument that the allegations *23 forming the basis of Purcell's complaint had been publicly disclosed in the news media. Def.'s Mot. to Dismiss at 21. Only seven of the fourteen news articles, however, were published prior to the commencement of this action in August 1998. See generally id.; Relator's Opp'n to Def.'s Mot. to Dismiss, Exs. I-O. As a matter of law, the articles that were published after Purcell's complaint was filed have no relevance to the present jurisdictional inquiry. See 31 U.S.C. § 3730(e)(4)(A).
The "critical elements" of Purcell's complaint center on MWI's pump sales to various Nigerian states, which were financed by Ex-Im Bank loans and loan guarantees in the amount of $74.3 million. Relator's Compl. ¶ 11. Purcell alleges that these Ex-Im Bank loans and loan guarantees were fraudulently obtained when the defendant knowingly failed "to disclose to the relevant Nigerian Federal Government authorities the actual commissions paid to Indimi (and possibly others)." Id. ¶ 12.
The articles cited by the defendant instead concentrate on the business relationship that apparently existed between MWI's owner, David Eller, and Jeb Bush, the former governor of Florida and brother of former president George W. Bush. See generally id., Exs. J-N. None of these articles contain any information regarding the critical elements underlying the relator's complaint.
One of the articles cited by the defendant, a May 1998 article in the Miami Herald, reports that MWI had generally conducted "fraudulent activities" in relation to its Nigeria sale, including "cash payments for influence and bid-rigging." See Relator's Opp'n to Def.'s Mot. to Dismiss, Ex. L. This article appears to merely summarize the allegations that were set forth in a previous lawsuit Purcell had filed against MWI, ostensibly making Purcell the original source of the information. Id.; see 31 U.S.C. § 3730(e)(4)(A). In any event, the article does not suggest that MWI concealed irregular sales commissions in an effort to secure loan money from the Ex-Im Bank, the central allegation at issue here. Relator's Opp'n to Def.'s Mot. to Dismiss, Ex. L. Thus, the article does not provide the "critical elements" of the relator's complaint.
Because the articles that the defendant refers to in support of its motion do not discuss the critical elements of the allegedly fraudulent transaction at the core of this lawsuit, they do not trigger the FCA's jurisdictional bar. See, e.g., U.S. ex rel. Mossey v. Pal-Tech, Inc., 231 F.Supp.2d 94, 97 (D.D.C.2002).
ii. Public Disclosures Based on FOIA Requests
The defendant further argues that the FCA's jurisdictional public disclosure bar should apply because at least one major newspaper had filed FOIA requests to secure information regarding MWI's business activities in Nigeria. Def.'s Mot. to Dismiss at 1. The defendant is correct to argue that a federal agency's written response to a FOIA request may constitute a "public disclosure" under the FCA's jurisdictional bar. Schindler Elevator Corp. v. U.S. ex rel. Kirk, ___ U.S. ___, 131 S.Ct. 1885, 1889, 179 L.Ed.2d 825 (2011). That said, the substance of the defendant's argument is somewhat lackluster. The defendant cites to a news article that mentions the Wall Street Journal's FOIA request "for documents about the overseas business activities of [Jeb Bush]." Relator's Opp'n to Def.'s Mot. to Dismiss, Ex. J. However, the defendant provides no evidence as to what was requested (or what was eventually disclosed) as a result of the Wall Street Journal's FOIA request. See generally Def.'s Mot. to Dismiss. Because the defendant has not provided any evidence regarding this FOIA request, there is nothing before the court (aside *24 from the defendant's ipse dixit) that shows that the factual allegations at the heart of this lawsuit had been publicly disclosed.
Finally, the defendant claims that Purcell simultaneously filed his own FOIA request for MWI and Ex-Im Bank documents related to the putatively fraudulent affairs that underlie this suit, and that the government subsequently responded to by releasing documents into the public domain by the summer of 1998. Id. at 5, 12. Again, the defendant provides the court with scant detail regarding the subject of the FOIA request or the government's response. See generally id. In response, Purcell claims that he received only "background documents and other general information" from the Ex-Im Bank. Purcell's Opp'n to Def.'s Mot. to Dismiss at 23-25. Although Purcell testified in his deposition that he received general "Ex-Im Bank records" via a FOIA request to the Ex-Im Bank, he insists that no documents relating to the allegations and transactions in the Complaint were released by the Ex-Im Bank in response to the FOIA request. Id., Ex. A at 141. Purcell testified that he instead acquired the relevant suppliers' certificate from another MWI employee. Id., Ex. A (Purcell Dep.) at 142-144. The defendant fails to provide a wisp of testimony or documentary evidence that might controvert Purcell's assertion.
In sum, the FCA's public disclosure bar prohibits qui tam actions only when enough information exists in the public domain to expose the fraudulent transaction. Quinn, 14 F.3d at 653-54. Here, the defendant has not put forth sufficient evidence to show that the allegation or transaction underlying the present lawsuit was publicly available at the time that Purcell filed suit. Accordingly, the FCA's jurisdictional bar does not apply, and the court denies the defendant's motion to dismiss the relator's complaint.
4. The Court Denies Without Prejudice the Defendant's Motion for Summary Judgment on Attorney's Fees and Costs
The defendant also moves to dismiss Purcell's claim for attorney's fees and costs. See Def.'s Mot. to Dismiss at 20. The defendant contends that Purcell waived his claim to any attorney's fees and costs by executing a settlement waiver and release from claims in a separate lawsuit. Id. at 20-21. Purcell responds that the settlement only release MWI from claims that were "related to [his] employment with MWI" and are thus unrelated to his current qui tam action. Relator's Opp'n to Def.'s Mot. to Dismiss at 31-32.
A qui tam plaintiff is entitled to receive "reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys' fees and costs. All such expenses, fees, and costs shall be awarded against the defendant." 31 U.S.C. § 3730(d)(1). The FCA also incorporates the attorney fees provision of the Equal Access to Justice Act, see id. § 3730(g), which calls for attorney's fees to be awarded to a prevailing party in a suit brought by the government unless the court finds that the government's position was "substantially justified or that special circumstances make an award unjust." 28 U.S.C. § 2412(d).
The court declines the defendant's invitation to wade into this dispute before the ultimate issues of liability has been resolved. It would be premature at this juncture for the court to determine whether the relator, the government or the defendant is the prevailing party in this suit. Once this matter is decided at trial, the parties may bring motions for attorney's fees and costs. At that later point in time the court may address whether the settlement waiver effectively prohibits the plaintiff from recovering attorney's fees and *25 costs in this action. See U.S. ex rel. Sutton v. Double Day Office Servs., 121 F.3d 531, 535 (9th Cir.1997) (denying without prejudice the relator's request for attorney's fees after determining that it was premature, as the case had not yet been resolved). Accordingly, the court denies without prejudice the defendant's motion as it relates to attorney's fees and costs.
C. The Defendant Has Waived its Argument that the Complaint Lacks Particularity Under Rule 9(b)
The defendant contends that the government has not drafted its complaint with the specificity required by Rule 9(b) because it does not assert with sufficient precision whether the Indimi commission was "irregular." Def.'s Mot. for Summ. J. at 9-13; FED.R.CIV.P. 9(b). The government responds that this argument has been waived because it was not raised earlier in the litigation. Govt's Opp'n to Def.'s Mot. to Dismiss at 11-12.
Federal Rule 9(b) requires that a pleader state with particularity the circumstances constituting fraud or mistake. FED.R.CIV.P. 9(b). If a party fails to raise a Rule 9(b) objection in the first responsive pleading or in an early motion, however, the issue will be deemed waived. WMH Tool Group, Inc. v. Woodstock Intern., Inc., 2009 WL 6825247, at *10 n. 4 (N.D.Ill. Dec. 09, 2009) (citing 2 JAMES WM. MOORE et al., MOORE'S FEDERAL PRACTICE ¶ 9.03[5] (2009)); see also In re Docteroff, 133 F.3d 210, 217 (3d Cir.1997) (deeming Rule 9(b) challenge as waived because the party did not raise the issue in a motion to dismiss or in his answer); Jana, Inc. v. United States, 41 Fed.Cl. 735 (Fed.Cl. 1998) (deeming Rule 9(b) objection waived in an FCA claim because it was not timely raised). Here, the defendant has newly unveiled Rule 9(b) as a basis for dismissing the government's complaint after previously filing two dispositive motions that made no mention of this argument. See generally Def.'s Mot. to Dismiss; Def.'s Mot. for Summ. J.
Even if this argument had not been procedurally waived, the defendant's argument is substantively meritless. The Circuit has described the requirements set forth by Rule 9(b) as it applies to qui tam cases in United States ex rel. Totten v. Bombardier Corp., 286 F.3d 542, 551-52 (D.C.Cir.2002). The court noted that a plaintiff may satisfy Rule 9(b) simply by setting forth the "time, place, and contents of the false representations." Id. at 552 (citations and emphasis omitted). Here, the defendant has been put on notice of these facts since day one. See Relator's Compl. ¶¶ 11-17 (describing time, place and contents of the Indimi commissions and the allegedly fraudulent supplier certificates). The court therefore denies the defendant's motion to dismiss.
D. The Court Denies Both the Government's Motion for Partial Summary Judgment and the Defendant's Motion for Summary Judgment
1. Legal Standard for Summary Judgment
Summary judgment is appropriate when the pleadings and evidence show "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R.CIV.P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Diamond v. Atwood, 43 F.3d 1538, 1540 (D.C.Cir.1995). To determine which facts are "material," a court must look to the substantive law on which each claim rests. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A "genuine dispute" is one whose resolution could establish an element of a claim or defense and, therefore, affect the outcome of the action. Celotex, 477 U.S. at 322, 106 S.Ct. 2548; Anderson, 477 U.S. at 248, 106 S.Ct. 2505.
*26 In ruling on a motion for summary judgment, the court must draw all justifiable inferences in the nonmoving party's favor and accept the nonmoving party's evidence as true. Anderson, 477 U.S. at 255, 106 S.Ct. 2505. A nonmoving party, however, must establish more than "the mere existence of a scintilla of evidence" in support of its position. Id. at 252, 106 S.Ct. 2505. To prevail on a motion for summary judgment, the moving party must show that the nonmoving party "fail[ed] 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." Celotex, 477 U.S. at 322, 106 S.Ct. 2548. By pointing to the absence of evidence proffered by the nonmoving party, a moving party may succeed on summary judgment. Id.
The nonmoving party may defeat summary judgment through factual representations made in a sworn affidavit if he "support[s] his allegations . . . with facts in the record," Greene v. Dalton, 164 F.3d 671, 675 (D.C.Cir.1999) (quoting Harding v. Gray, 9 F.3d 150, 154 (D.C.Cir.1993)), or provides "direct testimonial evidence," Arrington v. United States, 473 F.3d 329, 338 (D.C.Cir.2006). Indeed, for the court to accept anything less "would defeat the central purpose of the summary judgment device, which is to weed out those cases insufficiently meritorious to warrant the expense of a jury trial." Greene, 164 F.3d at 675.
2. A Genuine Dispute of Material Fact Exists as to the "Falsity" Element of the Government's FCA Claim
The government argues that this court should conclude, as a matter of law, that the Indimi commission was not a "regular commission" within the meaning of the Ex-Im Bank's supplier's certificates. Govt.'s Mot. for Partial Summ. J. at 16-17. The government contends that the undisputed evidence in the record shows that the Indimi commission was not consistent with normal commission practices in the defendant's industry. Id. In contrast, the defendant argues that the government cannot establish the element of falsity because it has failed to identify the "relevant industry framework" under which a commission would be deemed "regular." Def.'s Mot. for Summ. J. at 4. The defendant thus argues that the plaintiffs cannot define what the "geographic and product components at issue are in this specific case." Id. at 6. In the alternative, the defendant argues that a reasonable factfinder might conclude that the Indimi commission was "regular" and therefore did not constitute a false statement under the FCA. Def.'s Opp'n to Govt.'s Mot. for Partial Summ. J. at 10-14.
Summary judgment is not generally appropriate if both parties have marshaled inconsistent facts to support their arguments as to whether or not a defendant's ran afoul of the FCA by violating applicable federal regulations. United States v. Sci. Applications Intern. Corp., 555 F.Supp.2d 40, 53 (D.D.C.2008) aff'd in part and rev'd on other grounds, 626 F.3d 1257 (D.C.Cir.2010). Rather, that is a task for a factfinder at trial. Id. (citing Chaple v. Johnson, 453 F.Supp.2d 63, 71 (D.D.C. 2006)); see also U.S. ex rel. El-Amin v. George Washington Univ., 533 F.Supp.2d 12, 17 (D.D.C.2008) (treating question of whether the defendant made a false statement under the FCA by failing to comply with federal regulations as a question for the jury); United States v. Allen, 116 Fed. Appx. 210, 217 (10th Cir.2004) (hearing appeal of jury determination as to whether or not a defendant's act was "false" under FCA).
Here, the government has put forth evidence to show that the average commission paid by the defendant was $13,956, or 9%. Govt.'s Mot. for Partial Summ. J. at
*27 19. The government contends that the uncontroverted evidence shows that the Indimi commission was $27,907,868, an amount that approximates 34% of the relevant project. Id. The government thus argues that the Indimi commission dwarfs the average commission paid by MWI in the relevant time period by a factor of 2,000. Id. at 20. The government also points out that the Indimi commission was almost four times greater than the average commission paid by MWI when measured by percentage. Id. The government also notes that the Indimi commission was 50 times larger than the second largest commission that had ever been paid by MWI in the relevant time period. Id. The government has buttressed its arguments by submitting documentary evidence of the defendant's prior history of paying commissions in the relevant time period. Id., Ex. 11. In addition, the government has reinforced its arguments with the testimony of several of MWI's former employees. See id. at 9, Ex. 19 ¶ 6 (declaration of Robert Purcell); id., Ex. 20 ¶ 5 (declaration of Juan Ponce).
The defendant responds that "[t]he question of what is `regular' within the relevant industry is a question of fact that should be left to the jury, should this case proceed to trial." Def.'s Opp'n to Govt.'s Mot. at 10 n. 4. The defendant contends that "the mere fact that a commission is greater than 2-15% does not, in a vacuum, make it irregular." Id. at 10. The defendant points to the declaration of a witness who contends that a 30% commission might be regular, depending on the level of effort the agent expended to obtain the business sought. Id. at 11; id., Ex. A ¶¶ 8-10. Furthermore, the defendant argues that the government's evidence is inapposite, as its witnesses do not draw their experience from Nigeria in particular or West Africa generally. See id. at 12. Furthermore, the defendant relies on the deposition testimony of the government's witnesses to show that those witnesses lack both credibility and sufficient knowledge with which to ground their conclusions. Id. at 13-14. Finally, the defendant points to evidence which may suggest that a 30% commission may have been issued in the past. Id. at 14; id. Ex. F.
The government responds by attacking the relevance and applicability of the defendant's evidence and the defendant's alleged distortions of its profferred evidence. See generally Govt.'s Reply in Support of Govt.'s Mot. for Partial Summ. J. The court, however, is mindful that when ruling upon summary judgment, it may not resolve factual disputes or issue credibility determinations. Anderson, 477 U.S. at 255, 106 S.Ct. 2505 ("Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge. . . ."); George v. Leavitt, 407 F.3d 405, 413 (D.C.Cir.2005) ("[A]t the summary judgment stage, a judge may not make credibility determinations, weigh the evidence, or draw inferences from the factsthese are jury functions, not those of a judge ruling on a motion for summary judgment."). The court concludes at this juncture that a genuine dispute of material fact exists as to whether the defendant made a false statement when it certified that it had not paid any "irregular" commissions.[6] Accordingly, the court denies *28 both parties' motions for summary judgment on whether or not the defendant made a "false" claim when it failed to disclose the Indimi commission.
3. A Genuine Dispute of Material Fact Exists Regarding the "Materiality" Element of the Government's FCA Claim
The parties disagree as to whether the defendant's failure to disclose the Indimi Commission was "material" within the meaning of the FCA. Govt.'s Mot. for Partial Summ. J. at 22. The government maintains that the FCA only requires a defendant's acts to be "material" inasmuch as they had "a natural tendency to influence agency action or were capable of influencing agency action." Id. at 23. In contrast, the defendant argues that the government cannot establish that its actions were material. Def.'s Mot. for Summ. J. at 22. The defendant construes "material" to require a showing that (1) the government actually relied upon the defendant's false statements; (2) the alleged false statement directly caused the government to approve the loans at issue; and (3) the alleged false statement proximately caused the government to approve the loans at issue. Def.'s Opp'n to Govt.'s Mot. for Partial Summ. J. at 22.
Claims under the False Claims Act are subject to a judicially imposed materiality requirement. See, e.g., Science Applications, 626 F.3d at 1266; U.S. ex rel. Lemmon v. Envirocare of Utah, Inc., 614 F.3d 1163, 1169 (10th Cir.2010); U.S. ex rel. Cantekin v. Univ. of Pittsburgh, 192 F.3d 402, 415 (3d Cir.1999). In particular, a defendant who falsely certifies that it has complied with an applicable federal regulation or contract may only be held liable if that false statement was "material" to the government's decision to disburse any funds. Science Applications, 626 F.3d at 1269. Here, the government claims that the defendant falsely certified that it had followed one of the Ex-Im Bank's internal regulations, which call for the disclosure of any irregular commissions. See Govt.'s Mot. for Partial Summ. J. at 8-11. The government must therefore show that MWI's failure to disclose was material to the Ex-Im Bank's decision to pay the loans.
A false statement is "material" under the FCA if it has a natural tendency to influence agency action or is capable of influencing agency action.[7]United States v. Rogan, 517 F.3d 449, 452 (7th Cir.2008); U.S. ex rel. Harrison v. Westinghouse Savannah River Co., 352 F.3d 908, 914 (4th Cir.2003); U.S. ex rel. Fago v. M & T Morg. Corp., 518 F.Supp.2d 108, 118 (D.Me.2007); see also Neder v. United States, 527 U.S. 1, 22 n. 5, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999) (applying the same definition when judicially imposing a materiality requirement under federal fraud statutes). Westinghouse Savannah River Co., 352 F.3d at 917 ("Courts give effect to the FCA by holding a party liable if the false statement it makes in an attempt to obtain government funding has a natural tendency to influence or is capable of influencing the government's funding decision, *29 not whether it actually influenced the government.. . .").
A plaintiff must prove that the false statements were material by a preponderance of the evidence. Science Applications, 626 F.3d at 1271. The plaintiff may do so by providing record evidence such as witness testimony to the effect that the government would not have awarded contracts had they known about certain payments. Id. Alternately, a plaintiff may establish materiality through testimony demonstrating that both parties to the contract understood that payment was conditional on compliance with the requirement at issue. Id.
Here, the government has submitted evidence by which a reasonable juror could infer that the failure to report the Indimi commission was material. See Govt.'s Mot. for Partial Summ. J. at 23-25 (citing testimony from three Ex-Im Bank employees). The defendant responds by characterizing the government's evidence as "speculative and unsupported by personal knowledge." Def.'s Opp'n to Govt.'s Mot. for Partial Summ. J. at 20. In addition, the defendant points to the Ex-Im Bank employees' testimony to show that they lacked supervisory authority over approval of the Ex-Im Bank loans, arguing that remains unclear whether or not the defendant's disclosure of the Indimi commission would have realistically affected the witness' behavior. Def.'s Mot. for Summ. J. at 24; Def.'s Opp'n to Govt.'s Mot. for Partial Summ. J. at 20-28. In sum, the parties dispute whether or not the government's evidence establishes the essentially factual question of whether or not the Indimi commission had the natural tendency of influencing agency action. Although the court is not particularly swayed by the merit of the defendant's arguments, it is convinced that this matter is inappropriate for summary judgment. M & T Morg. Corp., 518 F.Supp.2d at 118 (declining to grant summary judgment because there were disputed issues of material fact regarding the materiality of the defendant's false statements). The parties' cross-motions for summary judgment are therefore denied with regard to the element of materiality.
4. A Genuine Dispute of Material Fact Exists Regarding the Element of Damages
The defendant argues that the government cannot establish that it suffered any damages under the FCA. Def.'s Mot. for Summ. J. at 13-15. The defendant contends that the government cannot show that (1) it relied upon the defendant's certificates before approving the loans at issue or that (2) identification of any irregular commissions would have been fatal to the defendant's loan application.[8]Id. The government argues that the undisputed evidence shows that Ex-Im Bank officials actually relied on defendant's misconduct, and that those officials would not have approved of the loans had they known of MWI's fraudulent conduct. Govt.'s Opp'n to Def.'s Mot. for Summ. J. at 20-23.
*30 To recover damages in an FCA claim, a plaintiff must prove that the defendant's false claims caused the government to decision to pay. Id. at 200; 31 U.S.C. § 3729(a). In proving causation, the government need only show that it relied on the defendant's false claim when making its decision to disburse the loans. See Schwedt, 59 F.3d at 200. The sum of recoverable damages is measured by the difference between what the government actually paid and what the government would have paid had it known of the falsity of the defendant's claim. Id. Here, if the government proves that Ex-Im Bank officials would not have issued the $74.3 million in loans had it known of the defendant's fraudulent actions, it is entitled to recover damages equal to the entire $74.3 million. See id.
In support of its claim, the government points to the testimony of several Ex-Im Bank employees, who stated that they never would have approved of the loans if they had known of the staggering scale of the Indimi commission. See Govt.'s Mot. for Partial Summ. J. at 23-25 (citing testimony from three Ex-Im Bank employees). In contrast, the defendant points to portions of that same testimony and suggests that government may have still approved the loans even if the defendant had reported the Indimi commissions. Def.'s Opp'n to Govt.'s Mot. for Partial Summ. J. at 32.
Here, the parties dispute a relevant factual questionwhether or not the evidence shows that Ex-Im Bank's employees would have approved the loans if they had known of the Indimi commission. The extent to which a defendant caused damages in a FCA claim is usually a question for the jury. U.S. ex rel. Miller v. Bill Harbert Intern. Const., Inc., 2007 WL 851868, at *2 (D.D.C. March 14, 2007) ("The jury's job in this case will be to determine the number of violations and fix the amount of actual damages, if any."). This is in part because the measure of damages necessarily turns on counterfactual scenarios namely, the estimation of what would have occurred had the government known of the defendant's allegedly false statements. This is a question that is best left to the province of the jury; after all, "the what-might-have-been is but boggy ground to build upon." HERMAN MELVILLE, BILLY BUDD, SAILOR, AND OTHER STORIES 52 (Bantam Books 1962). In sum, the court concludes that a genuine dispute of material fact also exists as to whether or not the government would have approved the Ex-Im Bank loans had it known of the Indimi commissions. Accordingly, the court denies the parties' cross-motions for summary judgment on the element of damages.
E. The Court Denies the Government's Motion for Summary Judgment on Its Common Law Claims of Unjust Enrichment and Payment by Mistake
The government claims that it is entitled to summary judgment on its common law claims for the same reasons that it is entitled to summary judgment on its FCA claims. Govt.'s Mot. for Partial Summ. J. at 34. The government concedes one important point, however: if the court concludes that a material dispute of fact exists regarding the falsity of the defendant's acts, summary judgment on the government's common law claims would be inappropriate. Id. The defendant argues that a material dispute of fact exists as to the falsity of its acts, thereby precluding the issuance of summary judgment on the government's common law claims. Def.'s Opp'n to Govt.'s Mot. for Partial Summ. J. at 38.
The typical elements of a claim for unjust enrichment are that: "(1) the plaintiff conferred a benefit upon the defendant; (2) the defendant accepted and retained *31 the benefit; and (3) it would be unjust for the defendant not to pay the plaintiff the value of the benefit." Rapaport v. U.S. Dep't of Treasury, Office of Thrift Supervision, 59 F.3d 212, 217 (D.C.Cir.1995).
In the context of this particular case, whether or not the defendant's acts were "unjust" turns entirely on the falsity of the defendant's acts. Here, there exists a material dispute of fact as to whether or not MWI committed a false act. See Part II.D.2, supra. The court therefore concludes that this material dispute of fact precludes summary judgment on the government's unjust enrichment claim. See ATC Petroleum, Inc. v. Sanders, 860 F.2d 1104, 1113 (D.C.Cir.1988) (holding that the parties had alleged sufficient facts to preclude summary judgment on unjust enrichment claim); Zirintusa v. Whitaker, 674 F.Supp.2d 1, 9 (D.D.C.2009) (same). Accordingly, the court denies the government's motion for summary judgment on its unjust enrichment claim.
The government's motion for summary judgment under the common law theory of payment by mistake is so conclusory that it appears to be an afterthought. See Govt.'s Mot. for Partial Summ. J. at 36. Although the facts and legal arguments underlying this case have been briefed at great length, none of the many filings submitted here discuss the relevant facts as they pertain to the legal doctrine underpinning the government's payment by mistake claim. Accordingly, the court denies the government's motion for summary judgment on its fourth and final claim.
IV. CONCLUSION
For the foregoing reasons, the court grants the government's motions to strike the declaration of John Stephen Fancher and James Moorhouse. In addition, the court denies the defendant's motion to dismiss the relator's complaint. Finally, the court denies parties' cross-motions for summary judgment. An Order consistent with this Memorandum Opinion is separately and contemporaneously issued this 14th day of November, 2011.
NOTES
[1] Qui tam is shorthand for "qui tam pro domino rege quam pro se ipso in hac parte sequitur," a Latin phrase which translates to "who pursues this action on our Lord the King's behalf as well as his own." Rockwell Intern. Corp. v. United States, 549 U.S. 457, 463 n. 2, 127 S.Ct. 1397, 167 L.Ed.2d 190 (2007).
[2] The defendant contends that Indimi's compensation totaled no more than $26.2 million, reflecting aggregate commissions of 31.75%. Def.'s Mot. for Summ. J. at 3. This factual dispute is not central to the court's analysis.
[3] The defendant also argues that the government's motion to strike violated Local Rule 7(m) because the government failed to contact the defendant before filing the motion. Def.'s Opp'n to Govt.'s Mot. to Strike Fancher Declaration at 1-3. Although violations of this rule may in some circumstances be grounds for denying a motion, the court has the discretion to excuse such failures. Ghawanmeh v. Islamic Saudi Academy, 268 F.R.D. 108, 111 (D.D.C.2010). This is particularly true where, as here, the parties would have proceeded with the exact same disputes regardless of efforts to comply with the rule. Id.
[4] On March 2010, the FCA's public disclosure bar was amended. See P.L. 111-148, § 10104(j)(2), 123 Stat. 1624. The newer version of the statute, however, does not apply to this action. See Graham Cnty. Soil & Water Conservation District, 130 S.Ct. at 1400 n. 1 (noting that the amended version of the FCA does not apply retroactively). For convenience, the court uses the present tense throughout this opinion to discuss the statute as it existed at the time that the relator commenced this action.
[5] The defendant does not provide the court with copies of the majority of news articles cited in its brief. See generally Def.'s Mot. to Dismiss. For convenience, the court cites to the relevant news articles by citing to the exhibits attached to Purcell's opposition of the defendant's motion. See generally Relator's Opp'n to Def.'s Mot. to Dismiss., Exs. B-P. In addition, the defendant does not provide any copies of relevant FOIA requests or responses to the court.
[6] The court also rejects the defendant's contention regarding the putative difficulty of defining the relevant industry. The government suggests, quite reasonably, that the relevant industry may be defined roughly as those companies engaged "in the business of manufacturing and selling pumps and related equipment." See Govt.'s Opp'n at 6. Of course, the precise metes and bounds of the "relevant industry" cannot be defined with mechanical precision. The court nevertheless has faith that a jury is more than capable of resolving any borderline definitional issues. See McCleskey v. Kemp, 481 U.S. 279, 311, 107 S.Ct. 1756, 95 L.Ed.2d 262 (1987) ("[I]t is the jury's function to make the difficult and uniquely human judgments that defy codification and that `buil[d] discretion, equity, and flexibility into a legal system.'" (citing H. KALVEN & H. ZEISEL, THE AMERICAN JURY 498 (1966))). The defendant's argumentthat the difficulty of defining the term "industry" insulates them from liabilityis therefore meritless.
[7] It is not necessary to showas the defendant contendsthat the government actually relied on the false statements at issue. Actual reliance may be relevant, however, with regard to damages. See infra Part III.D.4.
[8] The defendant also contends that the government has not suffered what it characterizes as "direct" damages because MWI eventually repaid Ex-Im Bank for the loans. Def.'s Opp'n to Govt.'s Mot. for Partial Summ. J. at 33. This is an incorrect statement of the law. With respect to damages under the FCA, the Supreme Court has held that the actual damages must first be multiplied pursuant to the statute, and then be reduced by any compensatory payments that are later received. United States v. Bornstein, 423 U.S. 303, 316-17, 96 S.Ct. 523, 46 L.Ed.2d 514 (1976); U.S. ex rel. Miller v. Bill Harbert Intern. Const., Inc., 501 F.Supp.2d 51, 54 (D.D.C.2007). In addition, the plaintiffs may continue to seek statutory civil penalties under the FCA, which do not require any showing of causation. M & T Mortg. Corp., 518 F.Supp.2d at 122. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2113030/ | 800 F.Supp.2d 1329 (2011)
The CONTAINER STORE, Plaintiff,
v.
UNITED STATES, Defendant.
Slip Op. 11-135. Court No. 05-00385.
United States Court of International Trade.
October 26, 2011.
*1330 Frances P. Hadfield, Alan R. Klestadt, and Robert B. Silverman, Grunfeld Desiderio Lebowitz Silverman & Klestadt LLP, of New York, NY, for plaintiff.
Marcella Powell, International Trade Field Office, Commercial Litigation Branch, Civil Division, U.S. Department of Justice, of New York, NY, for defendant. *1331 With her on the brief were Tony West, Assistant Attorney General, Michael F. Hertz, Deputy Assistant Attorney General, Washington, DC, and Barbara S. Williams, Attorney in Charge. Of counsel on the brief was Paula S. Smith, Office of the Assistant Chief Counsel, International Trade Litigation, Bureau of Customs and Border Protection, U.S. Department of Homeland Security, of New York, NY.
OPINION
RIDGWAY, Judge:
In this action, Plaintiff The Container Store ("Container Store") challenges the decisions of the Bureau of Customs and Border Protection[1] denying Container Store's protests of Customs' classification of two itemsspecifically, "top tracks" and "hanging standards"which are components of Container Store's elfa® modular organization and storage system.
Container Store contends that elfa® top tracks and hanging standards are classifiable as "[o]ther furniture and parts thereof," under heading 9403 of the Harmonized Tariff Schedule of the United States ("HTSUS") (and, more specifically, under subheading 9403.90.80), and are therefore duty-free. See generally Subheading 9403.90.80, HTSUS;[2] Memorandum of Law in Support of Plaintiff's Motion for Summary Judgment at 1, 3, 7-11, 21 ("Pl.'s Brief"); Memorandum of Law in Support of Plaintiff's Response in Opposition to Defendant's Cross-Motion for Summary Judgment at 1, 5-8, 22 ("Pl.'s Reply Brief"); Sur-Reply Memorandum of Law in Support of Plaintiff's Motion for Summary Judgment at 3-5, 12-13 ("Pl.'s Sur-Reply Brief"). In contrast, the Government maintains that the top tracks and hanging standards are properly classified under heading 8302, which covers "[b]ase metal mountings, fittings and similar articles"and, more specifically, under subheading 8302.41.60, dutiable at the rate of 3.9% ad valorem. See generally Subheading 8302.41.60, HTSUS; Memorandum in Opposition to Plaintiff's Motion for Summary Judgment and in Support of Defendant's Cross-Motion for Summary Judgment at 3, 12-22 ("Def.'s Brief"); Reply Memorandum in Further Support of Defendant's Cross Motion for Summary Judgment at 1-2, 13-19 ("Def.'s Reply Brief").
Cross-motions for summary judgment are pending. Jurisdiction lies under 28 U.S.C. § 1581(a) (2000).[3] Pursuant to the Court of Appeals' recent decision in storeWALL, elfa® "top tracks" and "hanging standards" are properly classified under heading 9403, "[o]ther furniture and parts thereof," and, more specifically, as "parts" under subheading 9403.90.80. See generally storeWALL, LLC v. United States, 644 F.3d 1358 (Fed.Cir.2011); Subheading 9403.90.80, HTSUS. Container Store's motion for summary judgment therefore must be granted, and the Government's cross-motion denied.[4]
I. Background
The two products at issue in this mattertop tracks and hanging standards *1332 are components of Container Store's elfa® system, which were manufactured in Sweden and imported into the United States between 2002 and 2004.[5] Much like the system at issue in storeWALL, the elfa® system is a customizable, modular system of components that can be combined in a wide range of configurations to meet the organization and storage needs of individual consumers in their homes and offices. See generally storeWALL, 644 F.3d at 1360 (describing storeWALL system); storeWALL, LLC v. United States, 33 CIT ___, ___, 675 F.Supp.2d 1200, 1202 (2009), rev'd, 644 F.3d 1358 (Fed.Cir.2011) (same).
Top tracks and hanging standards are the core components of the elfa® system, and are made of epoxy-bonded steel. The top track has a flat back and is designed to be fastened horizontally to a perpendicular surface (typically a wall or a door), using anchors and screws. The top and bottom edges of the top track protrude and bend downward and upward, respectively, to form the top track's "upper lip" and "lower lip." Hanging standards are specifically designed to be suspended from a top trackwithout the use of any hardware by means of a groove that hooks onto the top track's "lower lip." Before a hanging standard can be hooked onto the "lower lip" of a top track, however, the hanging standard first must be inserted through notches in the top track's "upper lip" (which are also the sole means of removing a hanging standard from a top track). Those notches, together with the overhanging design of the "upper lip" of the top track, prevent hanging standards from inadvertently slipping off a top track. Hanging standards must be used with a top track, and cannot be mounted directly onto a wall or door.
Top tracks and hanging standards serve as the "backbone" of the elfa® system, and are designed to be used exclusively with other elfa® system components. Top tracks and hanging standards alone do not constitute a complete elfa® system, and, unless accessorized with other elfa® components, cannot be used to organize or store anything. However, depending on the needs of the individual consumer, elfa® components that are not at issue hereincluding drawers, baskets, and shelvescan be attached to hanging standards, in customized configurations. Other elfa® components, such as utility hooks, can be attached directly to a top track.
Top tracks and hanging standards may or may not be imported together, and may or may not be imported with other elfa® components. Components of the elfa® system are sold both separately and in various combinations, to meet the needs of individual consumers.
Customs liquidated the elfa® top tracks and hanging standards at issue here under HTSUS subheadings 8302.41.60[6] and *1333 8302.42.30[7] (which cover "[b]ase metal mountings, fittings and similar articles," suitable for "buildings" or "furniture," respectively), as well as subheading 7326.90.85 (which covers "[o]ther articles of iron or steel"),[8] assessing duties at rates ranging from 2.9% to 3.9% ad valorem. Container Store filed several protests, arguing that elfa® top tracks and hanging standards are properly classifiable as "[o]ther furniture and parts thereof," under HTSUS subheading 9403.90.80.[9] Customs denied Container Store's protests, and issued two ruling letters addressing the classification of the merchandise. Headquarters Ruling ("HQ") 966458 classified the top tracks and hanging standards as "mountings" under subheading 8302.41.60. See HQ 966458 (June 19, 2003). After Container Store requested reconsideration of HQ 966458, Customs issued a "clarified" ruling, reaffirming the agency's classification of top tracks and hanging standards under subheading 8302.41.60, but revising the agency's legal rationale. See HQ 967149 (Nov. 2, 2004).
This action followed.
II. Standard of Review
Customs classification decisions are reviewed de novo, through a two-step analysis. See 28 U.S.C. § 2640; Faus Group, Inc. v. United States, 581 F.3d 1369, 1371-72 (Fed.Cir.2009). The first step of the analysis addresses the proper meaning of the relevant tariff provisions, which is a question of law. The second step involves determining whether the merchandise at issue falls within a particular tariff provision as construed. See id. (citing Orlando Food Corp. v. United States, 140 F.3d 1437, 1439 (Fed.Cir.1998)).
Under USCIT Rule 56, summary judgment is appropriate where "there is no genuine issue as to any material fact" and the moving party is entitled to judgment as a matter of law. See USCIT R. 56(c). Summary judgment is thus appropriate in a customs classification case if there is no genuine dispute of material fact (because the nature of the merchandise at issue is not in question), such that the decision on the classification of the merchandise turns solely on the proper meaning and scope of the relevant tariff provisions. See Faus Group, 581 F.3d at 1371-72. Here, the parties disagree as to the meaning and scope of the tariff provisions at issue. However, there are no genuine disputes of material fact. In the absence of any such dispute, this matter is ripe for summary judgment.
Although Customs' classification decisions are entitled to "a respect proportional to [their] `power to persuade,'" they do not merit Chevron deference. United States v. Mead Corp., 533 U.S. 218, 235, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001) (citing Christensen v. Harris County, 529 *1334 U.S. 576, 587, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000); Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 89 L.Ed. 124 (1944)); Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-45, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Further, the statutory presumption of correctness that Customs' classification decisions enjoy under 28 U.S.C. § 2639(a)(1) has no effectas a practical matterat the summary judgment stage, because "the presumption carries no force as to questions of law." Universal Electronics, Inc. v. United States, 112 F.3d 488, 492-93 (Fed.Cir.1997); see also Rollerblade, Inc. v. United States, 112 F.3d 481, 483-84 (Fed.Cir.1997); Goodman Mfg., L.P. v. United States, 69 F.3d 505, 508 (Fed.Cir.1995).
III. Analysis
The tariff classification of all merchandise imported into the United States is governed by the General Rules of Interpretation ("GRIs") and the Additional U.S. Rules of Interpretation ("ARIs"), which provide a framework for classification under the HTSUS, and are to be applied in numerical order. See BASF Corp. v. United States, 482 F.3d 1324, 1325-26 (Fed.Cir.2007); 19 U.S.C. § 1202.[10] Most merchandise is classified pursuant to GRI 1, which states that "classification shall be determined according to the terms of the headings and any relative section or chapter notes and, provided such headings or notes do not otherwise require, according to [GRIs 2 through 6]." See GRI 1, HTSUS. Only when the headings and Section and Chapter Notes do not themselves determine classification does one look to the subordinate GRIs. See Mita Copystar America v. United States, 160 F.3d 710, 712 (Fed.Cir.1998).
The first step in a classification analysis is thus to construe the terms of the headings of the HTSUS, together with any pertinent Section and Chapter Notes (which are statutory law), to determine whether they require a specific classification. See Avenues in Leather, Inc. v. United States, 423 F.3d 1326, 1333 (Fed. Cir.2005) (explaining that Section Notes and Chapter Notes "are not optional interpretive rules, but are statutory law, codified at 19 U.S.C. § 1202") (internal quotation marks omitted); Degussa Corp. v. United States, 508 F.3d 1044, 1047 (Fed. Cir.2007) (stating that the "section and chapter notes are integral parts of the HTSUS, and have the same legal force as the text of the headings").
Tariff terms are construed in accordance with their common and commercial meanings; and a court may rely both on its own understanding of a term and on lexicographic and scientific authorities. See Len-Ron Mfg. Co. v. United States, 334 F.3d 1304, 1309 (Fed.Cir.2003). Also instructive are the Harmonized Commodity Description and Coding System's Explanatory Notes ("Explanatory Notes"), "whichalthough not controllingprovide interpretive guidance." See E.T. Horn Co. *1335 v. United States, 367 F.3d 1326, 1329 (Fed. Cir.2004) (citation omitted); see also storeWALL, 644 F.3d at 1362, 1363 (noting proper role of Explanatory Notes, and explaining that storeWALL trial court "appropriately looked to the Explanatory Notes for clarification" in defining term "unit furniture," as that term is used in the Chapter Notes to Chapter 94 of the HTSUS).[11]
The issue presented by the pending motions is whether elfa® top tracks and hanging standards are properly classifiable under heading 8302 as "[b]ase metal mountings, fittings and similar articles," or under heading 9403 as "[o]ther furniture and parts thereof." The Section Notes for Section XV of the HTSUS (which includes Chapter 83) specifically exclude "[a]rticles of chapter 94" (such as furniture) from classification under Section XV. See Section Note 1(k) to Section XV, HTSUS.[12] Therefore, if top tracks and hanging standards are classifiable under heading 9403, they cannot be classified under heading 8302.[13] Thus, the threshold question to be answered is whether elfa® top tracks and hanging standards are properly classifiable under heading 9403, as Container Store contends. Under the Court of Appeals' decision in storeWALL, the answer to this question is unequivocally "yes."
The HTSUS does not define the term "furniture." As the Court of Appeals explained in storeWALL, however, Chapter Note 2 to Chapter 94 makes it clear that merchandise is classifiable under heading *1336 9403 of the HTSUS only if the merchandise is "designed for placing on the floor or ground," or if the merchandise falls with certain specified exceptions. See Chapter Note 2 to Chapter 94, HTSUS;[14]storeWALL, 644 F.3d at 1363; see also Def.'s Brief at 8-9; Def.'s Reply Brief at 2. And, as the Court of Appeals further explained, one of those specified exceptions coversand thus includes within the definition of "furniture""[c]upboards, bookcases, other shelved furniture and unit furniture," even if such merchandise is not designed for placing on the floor or ground and is instead "designed to be hung, to be fixed to the wall or to stand one on the other." See Chapter Note 2(a) to Chapter 94, HTSUS (emphases added); storeWALL, 644 F.3d at 1363; see also Pl.'s Brief at 7; Def.'s Brief at 9; Def.'s Reply Brief at 2-3.[15]
The Court of Appeals acknowledged in storeWALL that the HTSUS does not define the term "unit furniture." See storeWALL, 644 F.3d at 1363. However, the Court of Appeals endorsed the definition of "unit furniture" devised by the Court of International Trade, drawing on "dictionary definitions, Explanatory Note requirements, and [the 1971] Brussels Nomenclature Committee Report." See storeWALL, 33 CIT at ___, 675 F.Supp.2d at 1204; see also storeWALL, 644 F.3d at 1363.
Specifically, in storeWALL, the Court of International Trade explained that, although neither the Chapter Notes nor the Explanatory Notes define "unit furniture," the Explanatory Notes make it clear that "unit furniture" must be "designed to be hung, to be fixed to the wall or to stand one on the other or side by side, for holding various objects or articles." See storeWALL, 33 CIT at ___, 675 F.Supp.2d at 1204 (quoting General Explanatory Notes, Chapter 94, at (4)(B)(i) (1996) (identical to 2002 edition in all relevant respects)). The court further observed that the Explanatory Notes expressly exclude from coverage under Chapter 94 "other wall fixtures such as coat, hat and similar racks, key racks, clothes brush hangers, and newspaper racks." See storeWALL, 33 CIT at ___, 675 F.Supp.2d at 1204 (quoting General Explanatory Notes, Chapter 94 (1996) (identical to 2002 edition in all relevant respects)) (emphasis added). The court also took note of the Brussels Nomenclature Committee Report, which "emphasizes that `unit furniture' is adaptable to consumer tastes and needs." See storeWALL, 33 CIT at ___, 675 F.Supp.2d at 1204 (citing Nomenclature Committee, 26th Session, Report (April 14, 1971)). Finally, the court looked to relevant dictionary *1337 definitions of the term "unit," which focus essentially on the ability to use a "unit" in combination with other complementary components of furniture or equipment to form a larger whole. See storeWALL, 33 CIT at ___, 675 F.Supp.2d at 1204 (citations omitted).
Thus, according to the definition derived by the Court of International Trade and adopted by the Court of Appeals, "unit furniture" is defined (for purposes of the HTSUS) as:
[A]n item
(a) fitted with other pieces to form a larger system or which is itself composed of smaller complimentary items,
(b) designed to be hung, to be fixed to the wall, or to stand one on the other or side by side, and
(c) assembled together in various ways to suit the consumer's individual needs to hold various objects or articles, but
(d) exclud[ing] other wall fixtures such as coat, hat and similar racks, key racks, clothes brush hangers, and newspaper racks.
storeWALL, 644 F.3d at 1361 (quoting storeWALL, 33 CIT at ___, 675 F.Supp.2d at 1204); see also storeWALL, 644 F.3d at 1363 (noting that Court of International Trade "properly define[d] `unit furniture' in light of the Chapter Notes").
Under the storeWALL definition, a completed system of elfa® components such as a top track and hanging standards, fitted with accessory components like drawers, baskets, and/or shelves, constitutes "unit furniture," because it consists of components that are fitted together with other pieces to form a larger system, it is designed to be hung on or fixed to a wall, and it is assembled together so as to suit specific individual consumers' particular needs to organize and store various objects or articles. The Government does not fundamentally dispute this point.
Instead, the gravamen of the Government's argument is that a completed assembly of elfa® components does not always constitute "shelved" or "unit" furniture, because consumers in some instances may choose to accessorize top tracks only with elfa® hooks (as opposed to drawers, baskets, shelves, and/or other elfa® components). See Def.'s Reply Brief at 6 (asserting that "elfa configurations" can include "simply top tracks and hooks (no shelves)"); id. at 6, Exhs. P, Q (photos from elfa® utility catalogue, depicting "the use of top tracks with various hooks onlyno hanging standards and no shelves," cited as "an example of how top tracks and hooks can be used to simply suspend various items" on a wall). According to the Government, an elfa® configuration featuring only a top track and hooks is a type of "wall fixture" such as a "coat, hat [or] similar rack[]," which is expressly excluded from classification under heading 9403 by the Explanatory Notes to Chapter 94. See General Explanatory Notes, Chapter 94 (2002) (specifying that "[i]t therefore follows that ... Chapter [94] does not cover other wall fixtures such as coat, hat and similar racks ...."); see also, e.g., Def.'s Reply Brief at 9.
But the argument that the Government advances in this case was expressly rejected by the Court of Appeals in storeWALL. The Court of Appeals there flatly dismissed the notion that "a completed storeWALL system utilizing only hooks is `merely a rack,' and therefore, excluded from the ... definition of `unit furniture.'" See storeWALL, 644 F.3d at 1364. The Court of Appeals explained that the "fungibility" of the system as a whole (the feature that is emphasized by the Government *1338 here) "is due entirely to the system's versatility and adaptability, characteristics that are the hallmark of unit furniture." See id. The Court of Appeals further underscored the difference between "unit furniture"such as a storeWALL system or an elfa® systemand "wall fixtures such as coat, hat and similar racks," which are excluded from classification as "furniture" by the General Explanatory Notes to Chapter 94 (quoted above):
The versatility and adaptability of a completed ... system is the reason that such a system, equipped only with hooks, is dissimilar to wall fixtures such as coat, hat and similar racks. An end user may add shelving, cupboards, baskets, etc. to a storeWALL [or elfa®] system initially equipped only with just hooks. Indeed, the end user could remove all of the hooks and replace them with other accessories. However, a coat rack, a hat rack, or any conceivable "similar rack" does not possess that same flexibility. One day a storeWALL [or elfa®] system could only have hooks, the next it could only contain shelving but a coat rack will always be just a coat rack.
storeWALL, 644 F.3d at 1364.
The Court of Appeals concluded that "[t]he fact that the end user has the option with the storeWALL system to add or subtract accessories is the very reason any such system is unit furniture." See storeWALL, 644 F.3d at 1364. The Court of Appeals therefore held that, "[e]ven if equipped only with hooks, the storeWALL system retains the essential versatility and adaptability that is the very essence of unit furniture," and is properly classifiable under heading 9403 of the HTSUS. See id. (emphasis added).
The Court of Appeals' analysis in storeWALL applies with equal force here, and counsels the same result. The fact that an elfa® system (like a storeWALL system) does not always include shelving, and indeedmay consist of only a top track and hooks, is of no moment. In the words of the Court of Appeals, even if accessorized solely with hooks, it is the very "versatility and adaptability" of systems such as the elfa® system and the storeWALL system that render them "unit furniture" and distinguish them from the run-of-the-mill "coat, hat and similar racks" that are specifically excluded from classification as "furniture." See storeWALL, 644 F.3d at 1364. In sum, a complete elfa® system like a complete storeWALL systemconstitutes "unit furniture" and is classifiable under heading 9403.
Moreover, just as the Court of Appeals held that the components at issue in storeWALL were classifiable as "parts" of unit furniture, so too the elfa® top tracks and hanging standards at issue here are similarly classifiable as "parts" of unit furniture. See storeWALL, 644 F.3d at 1364. Much like the components at issue in storeWALL, which were "dedicated solely for use with a completed storeWALL system," elfa® top tracks and hanging standards have no general or generic applications and are "dedicated solely for use with a completed [elfa®] system." See id.; see also Pl.'s Brief at 9-11; Pl.'s Reply Brief at 7. The top tracks and hanging standards are therefore properly classified under HTSUS subheading 9403.90.80, which covers "Other furniture and parts thereof: Parts: Other: Other." See Subheading 9403.90.80, HTSUS.[16]
*1339 IV. Conclusion
For all the reasons set forth above, elfa® "top tracks" and "hanging standards" are properly classified under subheading 9403.90.80 of the HTSUS. Container Store's motion for summary judgment is therefore granted, and the Government's cross-motion for summary judgment is denied.
Judgment will enter accordingly.
NOTES
[1] The Bureau of Customs and Border Protectionpart of the U.S. Department of Homeland Securityis commonly known as U.S. Customs and Border Protection. The agency is referred to as "Customs" herein.
[2] All citations to the HTSUS herein are to the 2002 edition.
[3] All statutory citations herein (other than citations to the HTSUS) are to the 2000 edition of the United States Code.
[4] Container Store has voluntarily dismissed Protest Number XXXX-XX-XXXXXX. See Pl.'s Brief at 1 n. 1; Agreed Statement of Facts [as] to Which No Genuine Issue Exists ¶ 3.
[5] All material facts set forth herein concerning the elfa® system are uncontested, and are drawn from the parties' Agreed Statement of Facts [as] to Which No Genuine Issue Exists, from Plaintiff's Separate Statement of Material Facts as to Which No Genuine Issue Exists and Defendant's Response thereto, from Defendant's Statement of Undisputed Material Facts and Plaintiff's Response thereto, and from the samples of the merchandise at issue (which were filed with the Government's cross-motion).
[6] Subheading 8302.41.60 covers "Base metal mountings, fittings and similar articles suitable for furniture, doors, staircases, windows, blinds, coachwork, saddlery, trunks, chests, caskets or the like; base metal hat racks, hat-pegs, brackets and similar fixtures; castors with mountings of base metal; automatic door closers of base metal; and base metal parts thereof: ... Other mountings, fittings and similar articles, and parts thereof: Suitable for buildings: ... Other: Of iron or steel, of aluminum or of zinc." See Subheading 8302.41.60, HTSUS.
[7] Subheading 8302.42.30 covers "Base metal mountings, fittings and similar articles suitable for furniture, doors, staircases, windows, blinds, coachwork, saddlery, trunks, chests, caskets or the like; base metal hat racks, hat-pegs, brackets and similar fixtures; castors with mountings of base metal; automatic door closers of base metal; and base metal parts thereof: ... Other mountings, fittings and similar articles, and parts thereof: ... Other, suitable for furniture: Of iron or steel, of aluminum or of zinc." See Subheading 8302.42.30, HTSUS.
[8] Subheading 7326.90.85 covers "Other articles of iron or steel: ... Other: ... Other:... Other: ... Other." See Subheading 7326.90.85, HTSUS.
[9] Subheading 9403.90.80 covers "Other furniture and parts thereof: ... Parts: ... Other:... Other." See Subheading 9403.90.80, HTSUS.
[10] The HTSUS consists of the General Notes, the General Rules of Interpretation ("GRIs"), the Additional U.S. Rules of Interpretation ("ARIs"), and Sections I to XXII of the HTSUS (including Chapters 1 to 99, together with all Section Notes and Chapter Notes, article provisions, and tariff and other treatment accorded thereto), as well as the Chemical Appendix. See BASF Corp., 482 F.3d at 1325-26; Libas, Ltd. v. United States, 193 F.3d 1361, 1364 (Fed.Cir.1999) (noting that the HTSUS "is indeed a statute but is not published physically in the United States Code") (citing 19 U.S.C. § 1202). The terms of the HTSUS are "considered `statutory provisions of law for all purposes.'" See Alcan Aluminum Corp. v. United States, 165 F.3d 898, 904 n. 5 (Fed.Cir.1999) (internal citation omitted).
[11] The Explanatory Notes are the official interpretation of the Harmonized Commodity Description and Coding System (on which the HTSUS is based), as set forth by the World Customs Organization (the same body which drafts the international nomenclature). See Rocknel Fastener, Inc. v. United States, 267 F.3d 1354, 1360 (Fed.Cir.2001) (noting that Explanatory Notes are "prepared by the World Customs Organization to accompany the international harmonized schedule"). As Congress has recognized, the Explanatory Notes "provide a commentary on the scope of each heading of the Harmonized System and are thus useful in ascertaining the classification of merchandise under the system." H.R. Conf. Rep. No. 576, 100th Cong., 2d Sess. 549 (1988), reprinted in 1988 U.S.C.C.A.N. 1547, 1582, 1988 U.S.C.C.A.N. 1547, 1582; see also Guidance for Interpretation of Harmonized System, 54 Fed.Reg. 35,127, 35,128 (Aug. 23, 1989) (noting that the Explanatory Notes provide a commentary on the scope of each heading of the HTSUS, and are the official interpretation of the Harmonized System at the international level). The Explanatory Notes are therefore highly authoritative "persuasive" and "`generally indicative of the proper interpretation of a tariff provision.'" Agfa Corp. v. United States, 520 F.3d 1326, 1329-30 (Fed.Cir.2008) (quoting Degussa Corp. v. United States, 508 F.3d 1044, 1047 (Fed.Cir.2007) (citation omitted)).
[12] Specifically, Section Note 1(k) to Section XV of the HTSUS (which includes Chapter 83), provides:
This section does not cover: ...
(k) Articles of chapter 94 ...
Section Note 1(k) to Section XV, HTSUS.
[13] The Government asserts that, by the same token, "if imported merchandise is classifiable in heading 8302, it cannot be classified in Chapter 94." See Def.'s Brief at 7. Chapter Note 1(d) to Chapter 94 provides:
This chapter does not cover: ...
(d) Parts of general use as defined in note 2 to section XV, of base metal (section XV), or similar goods of plastics (chapter 39), or safes of heading 8303; ...
Chapter Note 1(d) to Chapter 94, HTSUS. The phrase "parts of general use" is defined in Section Note 2 to Section XV:
Throughout the tariff schedule, the expression "parts of general use" means:
(a) Articles of heading 7307, 7312, 7315, 7317, or 7318 and similar articles of other base metals;
(b) Springs and leaves for springs, of base metal, other than clock or watch springs (heading 9114); and
(c) Articles of heading 8301, 8302, 8308 or 8310 and frames and mirrors, of base metal, of heading 8306.
Section Note 2 to Section XV, HTSUS.
[14] Chapter Note 2 to Chapter 94 provides, in relevant part:
The articles (other than parts) referred to in headings 9401 to 9403 are to be classified in those headings only if they are designed for placing on the floor or ground.
The following are, however, to be classified in the above-mentioned headings even if they are designed to be hung, to be fixed to the wall or to stand one on the other:
(a) Cupboards, bookcases, other shelved furniture and unit furniture;
Chapter Note 2 to Chapter 94, HTSUS (emphases added).
[15] In its briefs, which predate the Court of Appeals' decision in storeWALL, Container Store claims that its merchandise is properly classified under HTSUS heading 9403 as "shelved furniture," rather than "unit furniture." See, e.g., Pl.'s Brief at 7-9, 11; Pl.'s Reply Brief at 1, 5-6, 10-11; Pl.'s Sur-Reply Brief at 2-3, 7, 9-10, 12. As discussed herein, however, the elfa® system falls squarely within the definition of "unit furniture" adopted by the Court of Appeals in storeWALL. In any event, whether the elfa® system is deemed "unit furniture" or "shelved furniture," the outcome of the analysis here would be the same.
[16] Because the components at issue in storeWALL were made of plastic, they were classified under subheading 9403.90.50. See storeWALL, 644 F.3d at 1360, 1364. In contrast, the elfa® components at issue here are made of epoxy-bonded steel. They are therefore properly classified under subheading 9403.90.80. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2134731/ | 688 F.Supp. 1172 (1988)
Bob MERRILL, d/b/a Golden Bell Songs, et al., Plaintiffs,
v.
BILL MILLER'S BAR-B-Q ENTERPRISES, INC. and Balous Miller, Defendants.
No. SA-87-CA-151.
United States District Court, W.D. Texas, San Antonio Division.
May 13, 1988.
*1173 John Nelson and Bryan Collins, of Jackson, Walker, Winstead, Cantwell & Miller, Dallas, Tex., and Ross Charap and Karen Sherman, New York City, Office of the General Counsel of ASCAP, for plaintiffs.
Don McManus, San Antonio, Tex., for defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
PRADO, District Judge.
Plaintiffs, Bob Merrill, d/b/a Golden Bell Songs, et al., brought this copyright infringement action against defendants, Bill Miller's Bar-B-Q Enterprises, Inc. ("Bill Miller's, Inc.") and Balous Miller, pursuant to the United States Copyright Act, 17 U.S. C. § 101 et seq. Plaintiffs alleged defendants infringed plaintiffs' thirteen copyrighted musical compositions by publicly performing the compositions at defendants' restaurants without authorization, by means of defendants' radio-over-speaker music equipment. A bench trial was held on April 25, 1988. On the basis of the pleadings, the Agreed Pretrial Order, the parties' Stipulations, and trial testimony and exhibits, the Court makes the following Findings of Fact and Conclusions of Law.
Findings of Fact
1. Each plaintiff is the owner of a valid copyright in one or more of the following thirteen copyrighted musical compositions: "Honeycomb", "Sometimes A Lady", "Paper Roses", "You Decorated My Life", "Read My Lips", "Roll On Eighteen Wheeler", "Tulsa Time", "Can't Keep A Good Man Down", "Danny's Song", "Just Another Woman In Love", "Once In A Blue Moon", "There's No Way" and "Thank God For Kids".
2. Each of these original musical compositions is copyrightable subject matter under the United States Copyright Act.
3. Plaintiffs are members of the American Society of Composers, Authors and Publishers ("ASCAP"), to which they have *1174 granted the nonexclusive right to license the nondramatic public performances of their copyrighted musical compositions.
4. Defendant Bill Miller's, Inc., at all material times, has owned, controlled, managed, operated and maintained a chain of "Bill Miller Bar-B-Q" restaurants in Texas, including the Bill Miller Bar-B-Q restaurant located at 1720 North New Braunfels, in San Antonio ("the San Antonio restaurant"); and the Bill Miller Bar-B-Q restaurant located at 709 East Ben White Boulevard, in Austin ("the Austin restaurant"). On the dates of the infringements alleged in the complaint, there were 36 Bill Miller Bar-B-Q restaurants. At present, there are 43 Bill Miller Bar-B-Q restaurants.
5. For approximately 15 years, defendant Balous Miller has been President, Chief Operating Officer and a 25 percent shareholder of Bill Miller's, Inc., with primary responsibility for the control, management and operation of Bill Miller's, Inc. and the restaurants.
6. From 1984 through 1986, the Bill Miller Bar-B-Q chain had annual gross revenues of approximately $30 million. In 1986, the San Antonio restaurant grossed over $900,000 and the Austin restaurant grossed over $700,000.
7. At all material times, each of the restaurants in the Bill Miller Bar-B-Q chain has had between 1000 and 1500 square feet of public dining area, and has seated between 100 and 125 people.
8. For many years, the corporate policy of Bill Miller's, Inc. has been to offer background music at each Bill Miller Bar-B-Q restaurant. Muzak, a commercial background music service, provided the background music service and equipment for use at the restaurants for more than ten years. In June 1985, defendants terminated their subscription to the Muzak service and had the Muzak equipment removed, with the exception of the Muzak ceiling speaker grilles and wiring hidden in the ceiling. They replaced the Muzak equipment with their own equipment, purchased from a retail electronics store engaged primarily in the sale of consumer electronics for the home.
9. The equipment defendants purchased for each of their (then 34) restaurants consisted of a homestyle Pioneer SX-212 AM/FM receiver and two, eight-inch, round J.W. Davis 712 speakers intended for ceiling installation. Each set of one receiver and two speakers cost defendants $118.00. The equipment defendants purchased for restaurants added to the chain after June 1985 was of comparable quality and cost.
10. Without exception, the receiver in each restaurant is located in a storeroom or storage closet inaccessible to the public. There are no speakers in the storerooms or storage closets.
11. In each restaurant, the radio broadcasts received by the receiver are sent by hidden wiring to the two speakers located in the dining area. The speakers are located approximately 40 feet from the receiver and are placed approximately 30 feet from each other. They are bolted atop speaker grilles recessed into ceiling tiles.
12. Music is audible throughout the dining areas of the restaurants.
13. While defendants were Muzak subscribers, beginning in at least July 1982, defendants publicly performed copyrighted musical compositions owned by ASCAP members at defendants' restaurants by means of retransmissions of radio broadcasts as well as by means of the Muzak background music service, through the Muzak equipment. Defendants did not have permission to do so from either the ASCAP members in interest or their representative, ASCAP.
14. Defendants received notice from ASCAP and Muzak that it was unlawful to perform publicly, without authorization, the copyrighted musical compositions in the ASCAP repertory by means of retransmissions of radio broadcasts. Although defendants acknowledged receiving these notices, these performances continued while defendants were Muzak subscribers and the Muzak equipment was in place.
15. Defendants continued such performances after they terminated the Muzak service *1175 and purchased and installed their own radio-over-speaker equipment.
16. The ASCAP District Office file contains copies of letters and memoranda documenting telephone calls and personal visits to defendants or their representatives, offering defendants a license agreement for their radio-over-speaker uses and advising defendants of the consequences under the Copyright Act of their unlawful public performances.
17. Defendants refused to obtain a license for their radio-over-speakers music uses on the ground that they believed they were exempt from liability under 17 U.S.C. § 110(5). In forming this belief, they relied on articles received from the National Restaurant Association and the Texas Restaurant Association and advice of counsel.
18. The articles defendants received from the National Restaurant Association and the Texas Restaurant Association quoted from the Conference Report on the 1976 Copyright Act concerning 17 U.S.C. § 110(5) and made clear that Congress did not intend to exempt from liability commercial establishments which are "of sufficient size to justify, as a practical matter, a subscription to a commercial background music service."
19. On August 3, 1986, six of the plaintiffs' musical compositions were publicly performed without authorization at the San Antonio restaurant; and on August 13, 1986, seven of the plaintiffs' musical compositions were publicly performed without authorization at the Austin restaurant. The performances were all rendered by means of the radio-over-speaker equipment.
20. On the basis of defendants' long history of background music use, there is a substantial likelihood that they will continue to provide in their restaurants public performances of plaintiffs' and other ASCAP members' copyrighted musical compositions.
Conclusions of Law
1. The Court has jurisdiction of the subject matter of this action pursuant to 28 U.S.C. § 1338.
2. Defendants infringed plaintiffs' copyrighted musical compositions which are the subject of this lawsuit by publicly performing these compositions without the permission of the plaintiffs or their representative, ASCAP.
3. Defendants are jointly and severally liable for these infringing performances because defendant Balous Miller had both the right and ability to control the infringing performances provided at defendants' restaurants and a financial interest in the operation of the restaurant chain. See, e.g., Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1161-62 (2d Cir.1971); Sailor Music v. Mai Kai of Concord, Inc., 640 F.Supp. 629, 633 (D.N.H.1986); Warner Bros.-Seven Arts, Inc. v. Kalantzakis, 326 F.Supp. 80, 82 (S.D.Tex.1971).
4. For three independent reasons, defendants' public performances of plaintiffs' copyrighted musical compositions are not exempt under 17 U.S.C. § 110(5).
5. First, pursuant to the plain language of the statute, defendants do not employ in their restaurants "a single receiving apparatus of a kind commonly used in private homes." The fact that individual components of the entire apparatus may be "home-type" does not make the entire apparatus "home-type". Rather, all the features of the complete apparatus must be considered in determining whether it is "home-type", including, for example, whether the wiring is hidden, the distance between the speakers, and the mounting of the speakers. Defendants' "receiving apparatus", a receiver connected by some 40 feet of hidden wiring to two, unfinished, round, eight-inch, ceiling-mounted speakers spaced some 30 feet apart, is not the type of radio receiving apparatus commonly found in the home. Rather, it is "commercial" in nature. See Lamminations Music v. P & X Markets, Inc., 1985 Copyright Law Decisions ¶ 25,790, at 19,557 (N.D.Cal. 1985); Rodgers v. Eighty Four Lumber Co., 617 F.Supp. 1021, 1023 (W.D.Pa.1985); Sailor Music v. Gap Stores, Inc., 516 F.Supp. 923, 925 (S.D.N.Y.), aff'd per curiam, 668 F.2d 84 (2d Cir.1981), cert. denied, *1176 456 U.S. 945, 102 S.Ct. 2012, 72 L.Ed. 2d 468 (1982) (hereinafter "Gap").
6. Second, the radio broadcasts received by defendants were "further transmitted" to the public because the broadcasts were initially received in a room or area without speakers and were sent to a separate room with speakers via some 40 feet of wiring. See International Korwin Corp. v. Kowalczyk, 665 F.Supp. 652, 657 (N.D.Ill.), appeal docketed, No. 87-2376 (7th Cir.1987); P & X Markets, Inc., ¶ 25,790, at 19,556; Gap, 516 F.Supp. at 925. Cf. definition of "transmit," 17 U.S.C. § 101.
7. Third, defendants' chain operation is "of a sufficient size to justify, as a practical matter, a subscription to a commercial background music service." H.Con.Rep. No. 94-1733, 94th Cong., 2d Sess. 75, 1976 U.S.Code Cong. & Ad.News 5659, 5816. It is clearly "practical" for a chain of restaurants, each restaurant having 1000 to 1500 square feet of public dining area and grossing well over $500,000 annually, to subscribe to a commercial background music service. See BMI v. U.S. Shoe, 678 F.2d 816, 817 (9th Cir.1982); Gap, 516 F.Supp. at 925; Eighty Four Lumber Company, 617 F.Supp. at 1023. Defendants' prior subscription to a commercial background music service further establishes the inapplicability of the exemption to defendants' performances of copyrighted musical compositions. Cf. P & X Markets, Inc., ¶ 25,790, at 19,556.
8. Given the "substantial likelihood of further infringements of the plaintiffs' copyrights", a permanent injunction shall issue prohibiting the defendants from publicly performing the musical compositions in suit without proper authorization. Rare Blue Music v. Guttadauro, 616 F.Supp. 1528 (D.Mass.1985).
9. Turning to the question of damages, defendants claimed that they had a good faith belief that their performances were exempt under 17 U.S.C. § 110(5). Section 504(c)(2) of the Copyright Act allows for a determination that an infringer is innocent if the "infringer was not aware and had no reason to believe that his or her acts constituted an infringement of copyright". If defendants were "innocent" infringers, this Court would have the discretion pursuant to 17 U.S.C. § 504(c)(2) to reduce the minimum statutory damage award for each cause of action from $250 to $100.
10. However, in view of the physical and financial size of defendants' restaurant chain, their prior subscription to Muzak, and the well-developed case law interpreting the statute, defendants could not form a reasonable, good faith belief that their public performances of copyrighted music were exempt under 17 U.S.C. § 110(5). Accordingly, defendants are not "innocent" infringers under 17 U.S.C. § 504(c)(2). See Original Appalachian Artworks, Inc. v. J.F. Reichert, Inc., 658 F.Supp. 458, 464 (E.D.Pa.1987); Broadcast Music, Inc. v. Lyndon Lanes, Inc., 1985 Copyright Law Decisions ¶ 25,846, at 19,869 (W.D.Ky.1985) [available on WESTLAW, 1985 WL 5139].
11. Plaintiffs are entitled to statutory damages in the total amount of $22,000.00. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2134514/ | 688 F.Supp. 825 (1988)
Haim YUZARI, et al., Plaintiffs,
v.
SOUTHERN AUTO SALES, et al., Defendants.
Civ. A. No. H-84-759 (RCZ).
United States District Court, D. Connecticut.
June 29, 1988.
*826 Ira Ressler, Ressler & Ressler, New York City, for plaintiffs.
Edward S. Ludorf, Winona W. Zimberlin, Howd & Ludorf, Hartford, Conn., for defendants.
RULING ON POST-TRIAL MOTIONS
ZAMPANO, Senior District Judge.
I. Background
The above-entitled personal injury action was tried to conclusion before a jury. The jury returned verdicts for the plaintiff Haim Yuzari in the amount of $1,000,000.00, for the plaintiff Nahemi Yuzari's loss of consortium in the amount of $100,000.00, and for the plaintiff Naftaly Hirshman in the amount of $10,000.00. The jury also found the plaintiffs Haim Yuzari and Naftaly Hirshman to be 35 percent contributorily negligent, and accordingly reduced the amount of their respective awards to $650,000.00 for Mr. Yuzari and to $6,500.00 for Mr. Hirshman. Prior to the rendering of these verdicts, Mr. Yuzari had already received $309,000.00 from settling defendants, and Mr. Hirshman had received $11,000.00.[1]
Subsequent to the verdicts, the sole defendant that had not settled, Southern Auto Sales ("Southern Auto"), moved for a remittitur, seeking to have set off against the verdicts the settlement amounts previously paid to the plaintiffs. Additionally, Southern Auto sought a reduction in the award of damages to Mrs. Yuzari on the ground that her claim for loss of consortium should be reduced by the percentage of contributory negligence which the jury ascribed to Mr. Yuzari. The plaintiffs, on their part, requested an additur based on the claim that the jury verdict was inadequate to compensate them for the injuries that they suffered.
II. Discussion
A. Motion for Remittitur
The plaintiffs contend that under Conn.Gen.Stat. § 52-216a,[2] this Court should deduct settlement amounts from the *827 jury verdicts only where the verdicts are "excessive as a matter of law." The plaintiffs argue that, even if the amounts received in settlement are added to the jury verdicts, they are not excessive as a matter of law, considering the severity of the injuries sustained. Southern Auto responds that set-off is appropriate under the circumstances of this case.
Section 52-216a has been a recurrent source of consternation in the Connecticut state courts. The Connecticut Supreme Court declared the predecessor version of § 52-216a unconstitutional because it was found to afford "unbridled discretion" to a trial judge to deduct amounts received in settlement from a jury verdict,[3] thereby denying the defendant the right to a jury trial under the Connecticut Constitution by usurping the role of the jury as the final arbiter of damages. See Seals v. Hickey, 186 Conn. 337, 352, 441 A.2d 604 (1982). After a revision which included the option for a new trial where additur or remittitur is ordered, as well as the standard requiring, as prerequisite to additur or remittitur, a finding of inadequacy or excessiveness of the verdict as a matter of law,[4] the statute again came under constitutional attack in Peck v. Jacquemin, 196 Conn. 53, 491 A.2d 1043 (1985).
In Peck, the plaintiff brought suit against two defendants for injuries sustained in an auto accident. Id. at 54, 491 A.2d 1043. The plaintiff settled with one defendant, and tried the case to conclusion against the other. Id. The trial judge instructed the jury that, in the event the nonsettling defendant was found liable, he was entitled to a set-off in the amount of the settlement. Id. at 57 n. 8, 491 A.2d 1043. The jury rendered a verdict in favor of the plaintiff, who appealed after the trial court denied his motions to set aside the verdict and for a new trial, as well as his motion for an additur. The plaintiff based his appeal of the verdict, in part, on the argument that § 52-216a prohibited bringing settlement to the attention of the jury. On appeal, the defendant claimed that the revision of § 52-216a conferred upon a trial court the same broad discretion found to be violative of the defendant's right to a jury trial in Seals.
The Connecticut Supreme Court disagreed, finding that the new trial option and the "as a matter of law" standard sufficiently cabined the discretion of the trial judge. Id. at 72, 491 A.2d 1043. The court observed that the question of whether additur or remittitur was appropriate under the statute was "a pure question of law" that required the trial court merely "to consider the amount of the money paid to the plaintiff as a result of settlement." Id. at 71, 491 A.2d 1043. The common law rule of set-off[5] thus met its demise under the revised, and constitutionally sound, version of § 52-216a. Justice Shea, however, noted in dissent that the majority's holding in Peck rendered settlement amounts "a bonus in addition to the fair and reasonable damages sustained as determined by the jury...." Id. at 74, 491 A.2d 1043 (Shea, J., dissenting). This comment is particularly significant in light of Justice Shea's subsequent majority opinion in Alfano v. Ins. Center of Torrington, 203 Conn. 607, 525 A.2d 1338 (1987).
In Alfano, the jury rendered a $30,000.00 verdict in favor of the plaintiff, and also found the plaintiff 35 percent contributorily negligent. Id. at 608, 525 A.2d 1338. The verdict was reduced to $19,500.00. Id. Upon motion of the defendant, the trial court also ordered that $15,000.00 received in a settlement from another defendant be remitted. Id. The plaintiff appealed the order of remittitur, but the Connecticut Supreme Court affirmed. In concluding that the verdict would be excessive as a *828 matter of law if the settlement amount were not deducted, the court stated that the jury's finding of total loss or harm, as well as the jury's determination of contributory negligence, were factual conclusions not subject to alteration by the trial court. Id. at 611, 525 A.2d 1338. Consequently, the sum arrived at when the total verdict is reduced by contributory negligence represents a "legally unassailable determination of fair compensation for the plaintiff's loss." Id. Therefore, "any additional compensation received by the plaintiff for that loss must be deemed excessive as a matter of law" (emphasis added). Id. This statement demarks a departure from the approach followed in Peck, where the court noted that settlement amounts were merely factors to be considered when deciding whether a verdict is excessive as a matter of law. 196 Conn. at 71, 491 A.2d 1043. This apparent shift recently drew comment in Ames v. Sears, Roebuck & Co., 206 Conn. 16, 536 A.2d 563 (1988).
In Ames the defendant argued, in seeking a writ of audita querela,[6] that a jury verdict in plaintiff's favor should be offset by money received in a preverdict settlement. 206 Conn. at 20, 536 A.2d 563. In confronting the contention that the claim was not subject to review on appeal because it was not raised below, the defendant asserted that attempting to argue the point under Peck, which was the controlling precedent at the time of appeal, would have been futile because that decision made it clear that settlements need only be "considered" by the trial judge in determining whether a verdict was excessive as a matter of law. Id. at 22, 536 A.2d 563. The defendant further asserted that the Alfano decision had changed the law so that a jury verdict which is not reduced by settlement amounts would be excessive as a matter of law, and that the defendant should thus be allowed to raise the claim on appeal. Id. at 22-23, 536 A.2d 563. The Connecticut Supreme Court did not deny that a change in the law had occurred, but refused to address the issue as not properly before it on the petition for audita querela. Id. at 23, 536 A.2d 563. Ames nonetheless indicates that the Connecticut Supreme Court has at least countenanced what appears to be an alteration in the law under § 52-216a that would revive the common law rule of set-off as stated in Kosko, 176 Conn. at 387, 407 A.2d 1009.
Applying these precedents to the facts of the instant matter, the Court finds the approach adopted in Alfano, rather than that of Peck, to be the more reasonable and logical interpretation of § 52-216a, as well as more consistent with the intent underlying the revision of § 52-216a. The legislative objective of § 52-216a's revision was to preserve the province and function of the jury primarily by providing the option of a new trial[7] to a party ordered to remit or add to the verdict. The Seals court declared the prior version of § 52-216a unconstitutional because the trial court could upset the jury's findings concerning damages represented by the monetary award without providing any recourse for the affected party. The holding in Peck is, however, inconsistent with this solicitude for the role, findings, and conclusions of the jury.
It is long-settled that the jury determines total damages, and that an injured party is entitled to full recovery only once for the harm suffered. See Dwy v. Connecticut Co., 89 Conn. 74 (1915). Therefore, the verdict rendered by the jury under proper instructions represents an amount intended to recompense completely the plaintiff for the harm incurred. The approach adopted in Peck, however, results in the court's *829 reviewing total damages plus amounts received in settlement to determine whether the jury has been too stingy or generous as a matter of law. This review in effect entails the determination of what the jury could have given the plaintiff. Indeed, as Justice Shea has pointed out in the context of remittitur:
The result of ... [the Peck majority's] perception of ... [§ 52-216a] is that only when the jury verdict added to the sum previously received as compensation from another tortfeasor exceeds the upper limit of permissible jury generosity for the damages proved by the evidence may the court reduce the verdict rendered. This construction of the statute creates the anomaly that plaintiffs who are fortunate enough to be damaged by several tortfeasors, as in a multiple car accident, may recover compensation for the same damages against each of several tortfeasors in a succession of settlements until the ceiling of excessiveness as a matter of law is reached.
Peck, 196 Conn. at 72, 491 A.2d 1043 (Shea, J., dissenting). Justice Shea's language illustrates that the determination of the excessiveness of a verdict as a matter of law under the approach adopted in Peck may actually result in the rejection of the jury's factual findings regarding damagesfindings which are to be regarded as "unassailable." See Alfano, 203 Conn. at 611, 525 A.2d 1338. The trial judge who does not set off amounts received in settlement will therefore be substituting his judgment for the jury's on the issue of total damages.
In accordance with the holding in Alfano, and the above reasoning, Southern Auto's motion for remittitur is hereby GRANTED. Mr. Yuzari's recovery is accordingly reduced to $341,000.00 ($650,000.00-$309,000.00); Mr. Hirshman's verdict is reduced to $0.00 ($10,000.00-$11,000.00). The plaintiffs' motion for additur is hereby DENIED.
B. Motion to Reduce Damages for Loss of Consortium
The second issue to be addressed is whether Mrs. Yuzari's award for loss of consortium must be reduced in proportion to the contributory negligence that the jury attributed to her husband. Mrs. Yuzari argues that although a claim for loss of consortium derives from the injured spouse's claim, it is also independent of it. Southern Auto, on the other hand, contends that, because a claim for loss of consortium represents a cause of action deriving from the injured spouse's claim, it should therefore be subject to a reduction reflecting the jury's finding of contributory negligence.
In Hopson v. St. Mary's Hospital, 176 Conn. 485, 408 A.2d 260 (1979), the Connecticut Supreme Court first recognized a claim for loss of consortium. The court explicitly noted that "a consortium action is derivative of the injured spouse's cause of action, [so that] the consortium claim would be barred when the suit brought by the injured spouse has been terminated by settlement or an adverse judgment on the merits" (emphasis added). Id. at 494, 408 A.2d 260 (citing Millington v. Southeastern Elevator Co., 22 N.Y.2d 498, 508, 293 N.Y.S.2d 305, 239 N.E.2d 897 (1968); Diaz v. Eli Lilly & Co., 364 Mass. 153, 167, 302 N.E.2d 555 (1973)). In Izzo v. Colonial Penn. Ins. Co., 203 Conn. 305, 312, 524 A.2d 641 (1987), the court held in part that a "per person" limit on liability contained in the plaintiff's insurance policy included claims for loss of consortium arising out of the injured spouse's harm because "[l]oss of consortium, although a separate cause of action, is not truly independent, but rather derivative and inextricably attached to the claim of the injured spouse." See also, Reed v. Pacific Mountain Express Co., 597 F.Supp. 42, 44 (D.Conn.1984) (Zampano, J.) (consortium action is derivative of the injured spouse's cause of action); Wesson v. Milford, 5 Conn.App. 369, 375, 498 A.2d 505 (1985) (same); Green v. Metals Selling Corp., 3 Conn.App. 40, 47, 484 A.2d 478 (1984) (same); Hinde v. Butler, 35 Conn.Supp. 292, 295, 408 A.2d 668 (1979) (same).
These cases make evident that the verdict in favor of Mrs. Yuzari must be reduced by the percentage of contributory negligence that the jury attributed to Mr. Yuzari. Southern Auto's motion is therefore *830 GRANTED, and Mrs. Yuzari's verdict is accordingly reduced to $65,000.00.
III. Conclusion
Southern Auto's motion for remittitur is GRANTED; the plaintiffs' motion for additur is DENIED; Southern Auto's motion for reduction of Mrs. Yuzari's award of damages for loss of consortium is GRANTED.
Finally, although Mrs. Hirshman's case was not presented to the jury for a determination of damages, it was not withdrawn. Therefore, Mrs. Hirshman's case is DISMISSED for lack of prosecution.
Judgment to enter accordingly.
SO ORDERED.
NOTES
[1] The plaintiffs indicate that Mr. Yuzari has received $314,000.00 and that Mr. Hirshman has received $6,000.00. These figures are inconsistent with those presented at trial, however, and the Court will use the amounts referred to in the text above, subject to documentary evidence that these figures are incorrect.
[2] § 52-216a provides: An agreement with any tortfeasor not to bring legal action or a release of a tortfeasor in any cause of action shall not be read to a jury or in any other way introduced in evidence by either party at any time during the trial of the cause of action against any other joint tortfeasors, nor shall any other agreement not to sue or release of claim among any plaintiffs or defendants in the action be read or in any other way introduced to a jury. If the court at the conclusion of the trial concludes that the verdict is excessive as a matter of law, it shall order a remittitur and, upon failure of the party so ordered to remit the amount ordered by the court, it shall set aside the verdict and order a new trial. If the court concludes that the verdict is inadequate as a matter of law, it shall order an additur, and upon failure of the party so ordered to add the amount ordered by the court, it shall set aside the verdict and order a new trial. This section shall not prohibit the introduction of such agreement or release in a trial to the court.
[3] The constitutionally infirm portion of the prior version of § 52-216a provided that "The court at the conclusion of the trial may deduct from the verdict any amount of money received by any party to the action pursuant to an agreement not to sue or a release of claim...."
[4] This standard codified the common law requirement of a finding of an inadequate or excessive verdict as a matter of law under the prior version of the statute. See Seals, 186 Conn. at 348, 441 A.2d 604.
[5] See Kosko v. Kohler, 176 Conn. 383, 387, 407 A.2d 1009 (1978).
[6] A writ of audita querela provides a defendant with the means to obtain relief from the consequences of a judgment because of some matter of defense or discharge arising since the rendition of judgment which could not be taken advantage of otherwise. The writ may also lie for matters arising before judgment where the defendant had no opportunity to raise such matters in defense. In federal court, the writ has been abolished and replaced by a motion for relief from judgment pursuant to Fed.R.Civ.P. 60(b).
[7] Despite the Peck court's focus on the "as a matter of law" standard as a saving grace of the revision, that standard had already been read into the prior version of § 52-216a. See Seals, 186 Conn. at 348, 441 A.2d 604. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2147171/ | 290 F.Supp. 878 (1968)
Frances INCE, Dorothy Miles and William J. May, jointly and severally on their own behalf and on behalf of all other citizens of the County of Queens, State of New York and particularly citizens residing in East Elmhurst, who are similarly situated, Plaintiffs,
v.
Nelson A. ROCKEFELLER, as Governor of the State of New York, Louis J. Lefkowitz, as Attorney General of the State of New York, John P. Lomenzo, as Secretary of State of the State of New York, Malcolm Wilson, as Lt. Governor of the State of New York and Presiding Officer of the Senate of the State of New York and Anthony J. Travia, as Speaker and Presiding Officer of the Assembly of the State of New York, Defendants.
No. 68 Civil 1281.
United States District Court S. D. New York.
September 30, 1968.
*879 Friedmann & Fischman, New York City, for plaintiffs, William D. Friedmann, New York City, of counsel.
Louis J. Lefkowitz, Atty. Gen. of N. Y., New York City, for defendants, George D. Zuckerman, New York City, of counsel.
OPINION
POLLACK, District Judge.
Defendants, New York State executive and legislative officials, move to dismiss the complaint herein for lack of subject matter jurisdiction and legal insufficiency of the claim. Rules 12(b) (1) and (6), F.R.Civ.P.
This is a class action brought by three qualified voters who reside in East Elmhurst, one of 44 recognized communities in Queens County. (Tauber and Kaplan, The New York City Handbook, 1968). Plaintiffs claim that as to themselves and others similarly situated in East Elmhurst, the present apportionment of State Assembly Districtsmade in 1966 under mandate of the New York Court of Appeals in Matter of Orans, 17 N.Y.2d 107, 269 N.Y.S.2d 97, 216 N.E.2d 311 (1966) violates the United States Constitution, Amendments XIV and XV. Plaintiffs, in attacking the constitutionality of the 1966 apportionment plan on these allegations, seek to reactivate a dispute which ricocheted within the state and federal judicial systems, between state and federal courts, and between the courts and the New York legislature from 1961 until 1966. (See Appendix to this opinion for a brief review of the complex state and federal litigation culminating in the present apportionment.)
*880 ALLEGATIONS OF THE COMPLAINT
Under the present apportionment plan, the predominantly Negro community of East Elmhurst is divided between the 23rd and 31st Assembly Districts. This division of the community is characterized by the plaintiffs as an "irrational, racially motivated, invidiously discriminatory scheme whereby the plaintiffs and other citizens of East Elmhurst, particularly Negro citizens there, are deprived of the right to cast effective votes for their representatives in the New York State Assembly * * *". Plaintiffs in effect seek a District from which they presumably would be able to elect a Negro Assemblyman by the use of the full leverage of their homogeneity.
The factual allegations of the complaint are deemed admitted for the purposes of the issues raised by the motions. Accordingly, it appears that:
In the 1960 census, East Elmhurst contained approximately 20,000 people of whom approximately 10,000 were Negroes. Population movements since the census have resulted in a clear and growing majority of Negroes in East Elmhurst. According to the 1960 census, the 23rd and 31st Assembly Districts are virtually equal in population, each containing just over 108,000 persons. Matter of Orans, 17A N.Y.2d Map 8.
The present apportionment plan divides East Elmhurst between two Assembly Districts; five largely Negro election districts are now included in the heavily white 23rd Assembly District, and the remainder of East Elmhurst is included in the 31st Assembly District.
The portion of East Elmhurst placed in the 23rd Assembly District is not contiguous with the rest of that District, being widely separated therefrom by Flushing Bay, Flushing River, Flushing Meadow and a major highway complex-interchange but not by any residential area. This East Elmhurst portion of the 23rd Assembly District is geographically contiguous with Elmhurst and Coronawhich are in the 31st Assembly District. (See MAP appended to the end of this opinion.)
It is alleged that the voters residing in East Elmhurst tend to have a common point of view on many of the important issues facing a State Assemblyman, including civil rights, education, law enforcement, minimum wages, housing, social welfare, taxation, and others; and further, that, being similarly situated, they are similarly affected by the actions of the State Assembly upon these issues.
As a result of the division of their community between the two Assembly Districts (whether motivated by racial or other considerations) the people of East Elmhurst are allegedly prevented from being a significant political force in either one; they are unable to elect either party leaders in the primaries or Assemblymen in the general elections who reflect and are concerned with their problems and points of view. Such circumstances allegedly constitute an effective deprivation of their right to vote in violation of the United States Constitution, Amendments XIV and XV.
The gravamen of the claim is impairment of voting rightsrights fundamental "because preservative of all rights". Yick Wo v. Hopkins, 118 U.S. 356, 370, 6 S.Ct. 1064, 30 L.Ed. 220 (1886).
JURISDICTION
Plaintiffs invoke the jurisdiction of this Court under the civil rights statutes, 42 U.S.C. §§ 1983, 1988 and 28 U.S.C. § 1343, and the Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202. Plaintiffs also seek a hearing by a special three-judge district court under 28 U.S.C. §§ 2281, 2282 and 2284.
The complaint prays for declaratory and injunctive relief. It requests that the present apportionment of State Assembly Districts, as it affects the community of East Elmhurst, be declared to be invalid under the United States Constitution, Amendments XIV and XV; and that the Court enjoin the defendants, after the general election of 1968, from conducting any elections for State Assemblymen in Queens County under *881 the present (1966) apportionment plan. Plaintiffs also request the Court to direct the defendants, representing the executive and the legislative branches of the government of the State of New York, to reapportion the Assembly Districts of Queens County in accordance with the United States Constitution and the rights of plaintiffs and of all others similarly situated.
On its face, the complaint asserts violations of the United States Constitution. These allegations do not appear to be either wholly immaterial or made solely for the purpose of obtaining jurisdiction. This Court, therefore, has jurisdiction of the subject matter of the complaint to determine whether a claim is stated upon which relief can be granted. Bell v. Hood, 327 U.S. 678, 682, 66 S.Ct. 773, 90 L.Ed. 939 (1946). Jurisdiction is not lacking to decide the legal sufficiency of the claim merely because of the possibility that the allegations will not withstand a legal test thereof or require a determination of any issues of fact arising in the controversy. (Ibid.)
A district judge, sitting alone (but, of course, subject to review), is authorized to determine in the first instance whether or not a case is one for the convening of a special three-judge panel of the District Court. J. B. Schermerhorn, Inc. v. Holloman, 74 F.2d 265, 266 (10th Cir. 1934), cert. den. 294 U.S. 721, 55 S.Ct. 548, 79 L.Ed. 1253 (1935). For the reasons stated below, it is held that this case does not warrant a three-judge panel.
It is settled that under § 2281 a three-judge panel may be convened only where: the complaint challenges a state statute; the statute is of general application throughout the state; a state officer is a party defendant; injunctive relief is sought; and a substantial federal constitutional issue is raised. Absent any one of these prerequisites there is no statutory basis for convening a three-judge panel. Hinton v. Threet, 280 F.Supp. 831, 835 (M.D.Tenn.1968); Liveright v. Joint Committee of General Assembly, 279 F.Supp. 205 (M.D.Tenn. 1968).
The three-judge statute is "not * * * a measure of broad social policy to be construed with great liberality, but * * * an enactment technical in the strict sense of the term and to be applied as such". Phillips v. United States, 312 U.S. 246, 251, 61 S.Ct. 480, 483, 85 L.Ed. 800 (1941).
In light of this rule of construction, the presence here of the first of the five statutory prerequisites is questionable, viz., a state statute, or its equivalent, which has been challenged. Here we are dealing with a judicial decree, not a legislative enactment, by which an apportionment plan was promulgated. Query whether such a decree may be equated with a state "statute" within the meaning of § 2281. It is true that a statute in its strictest sense is not prerequisite. In A. F. of L. v. Watson, 327 U.S. 582, 592-593, 66 S.Ct. 761, 766, 90 L.Ed. 873 (1946), the Supreme Court said that:
"In our view the word `statute' in § 266 [the predecessor of § 2281] is a compendious summary of various enactments, by whatever method they may be adopted, to which a State gives her sanction * * *"
and thus administrative orders of state agencies and state constitutional provisions have been held to be "statutes". However, research has not disclosed any case holding that a judicial decree is similarly within the reach of § 2281.
Nor is it clear that the relief sought and the constitutional challenge presented here are of general and statewide application, so as to require the convening of a three-judge court. The Supreme Court has frequently reviewed the legislative history of § 2281 and has repeatedly concluded that its purpose was "`to prevent a single federal judge from being able to paralyze totally the operation of an entire regulatory scheme * * * by issuance of a broad injunctive order' (Kennedy v. Mendoza-Martinez, 372 U.S. 144, 154, 83 S.Ct. 554, 560, 9 L.Ed.2d 644 *882 (1963) * * *". Moody v. Flowers, 387 U.S. 97, 101, 87 S.Ct. 1544, 1547, 18 L.Ed.2d 643 (1967), and see cases cited therein. And in Phillips v. United States, supra, 312 U.S. at 251, 61 S.Ct. at 483:
"The crux of the business is procedural protection against an improvident state-wide doom by a federal court of a state's legislative policy. This was the aim of Congress and this is the reconciling principle of the cases."
The injunctive relief here sought is only as to one small corner of but one of the State's 62 counties. This suit concerns not a cohesive statewide system of legislation, Cf. Flast v. Cohen, 392 U.S. 83, 88-89, 88 S.Ct. 1942, 20 L.Ed.2d 947 (1968), but rather a situation unique to a portion of Queens County.
Furthermore, the Supreme Court has said that a three-judge court is not required when the claim of unconstitutionality "is wholly insubstantial, legally speaking non-existent." Bailey v. Patterson, 369 U.S. 31, 33, 82 S.Ct. 549, 551, 7 L.Ed.2d 512 (1962). As we shall see, the claim here is insubstantial and is foreclosed as a litigable issue.
Accordingly, it is held that the jurisdiction of this Court, sitting alone, is not limited by 28 U.S.C. § 2281. Griffin v. County School Board, 377 U.S. 218, 228, 84 S.Ct. 1226, 12 L.Ed.2d 256 (1964).
SUFFICIENCY OF THE COMPLAINT
The plaintiffs herein base their allegation that the division of East Elmhurst was "racially motivated" solely on the contention that a recognized community having a majority of Negro residents was divided between two Assembly Districts, resulting in the loss of unitary voting strength of the Negro residents in the East Elmhurst community.
Plaintiffs' naked assertion of racial motivation is devoid of legal significance. The complaint is barren of allegations of fact to support it. Something of substance must be alleged, and the strong presumption of validity must be overcome by factual allegations.
FORMULATION OF THE PRESENT PLAN
The Court and public records strongly support the presumption of the validity of the plan under attack here. After countless decisions, orders and appeals on all levels of the federal and state judicial systems, the New York Court of Appeals, in 1966, appointed a Commission of distinguished citizens to "hold hearings and prepare and submit to [the Court] a complete and valid reapportionment plan for the Senate and Assembly of the State * * *." Matter of Orans, 17 N.Y.2d 601, 268 N.Y.S.2d 561, 215 N.E.2d 682 (1966). Pursuant to this mandate, the Commission invited "all interested persons to submit suggestions in writing to the Commission * * *." Report of Judicial Commission, March 22, 1966, 17A N.Y.2d 7.
The Commission held a public hearing on March 2, 1966 in the courtroom of the Court of Appeals at which counsel for the parties in Matter of Orans were heard. Two reapportionment plans, one passed only by the Assembly on February 14, 1966 (Assembly Intro. 3799, Pr.A. 3883; Senate Intro. 2025, Pr.S. 2078), and the other passed only by the Senate (Senate Intro. 2051, Pr.S. 2014; Assembly Intro. 4009, Prs.A. 4103, 4430), were considered at the Commission hearings.
In drawing its own plan, the Commission "adopted district lines contained in one or both of [the legislative] bills wherever [the Commission] deemed it appropriate to do so." 17A N.Y.2d at 8.
The Commission stated in its report to the Court of Appeals that "[i]n all cases, the plan recommended represents our best judgment as to the proper districting in this large and populous state, with its countless complex situations.
"Our recommendations are based on the overriding requirement of the United States Supreme Court decisions, the mandates of the New York State Constitution * * * and the decisions of this Court [with respect to compactness and contiguity] * * *, at the same time *883 endeavoring to prevent inequities". 17A N.Y.2d 7 at 8.
The report of the Commission was submitted to the Court of Appeals which invited any citizen or governmental body affected to apply by a given date to the Court for any appropriate relief from technical defects in description or other inadvertences in the plan. Twenty-one applications were filed. Among these, an objection respecting an omission of the Town of DeWitt in Onondaga County was sustained. 17 N.Y.2d 721, 269 N.Y. S.2d 971, 216 N.E.2d 834. The applicants included the Senator from the 8th Senatorial District in Queens and the Assemblyman from the 22nd Assembly District in Queens.
The Court of Appeals "examined the plan * * *, found it to be complete and valid under the Constitution of the United States and the Constitution of the State of New York * * *" and stated that "we hereby promulgate and establish it to govern the election of Senators and Assemblymen at the November, 1966 election and thereafter until validly superseded * * *." 17 N.Y.2d 107, 110, 269 N.Y.S.2d 97, 98, 216 N.E.2d 311, 312.
Under the 1966 plan nearly every voting district in Queens lacks geometric symmetry and rectangular proportions. In addition to areas of high and low population density, the Court-appointed Commission was faced with pre-existing communities and natural barriers, such as Flushing Bay (contained in the 23rd District). That the contiguity of Assembly Districts and the maintenance therein of community homogeneity suffered in the plan promulgated by the Court of Appeals was to be expected. These facts are not evidence of racial discrimination.
East Elmhurst was not the only community in Queens divided between two or more Assembly Districts. Similar splits occurred in Forest Hills (25th and 28th Assembly Districts); Woodhaven (28th and 29th Assembly Districts); Jackson Heights (31st and 32nd Assembly Districts); Glendale (27th, 29th and 34th Assembly Districts); and Woodside (30th and 34th Assembly Districts). (See 17A N.Y.2d, maps and descriptions of districts).
It is obvious that each of the 44 communities in Queens could not be treated as separate entities in the establishment of 16 equal assembly districts that Queens County was entitled to by virtue of its population. Pleas for separate community recognition, similar to those raised by plaintiffs here, were made by intervenors from Flatbush and Bay Ridge in contesting the recently enacted congressional districts in New York State. In rejecting their contentions, the three-judge Court in its unanimous opinion in Wells v. Rockefeller, 281 F.Supp. 821, 825 (S.D.N.Y.1968) stated:
"The Legislature cannot be expected to satisfy, by its redistricting action, the personal political ambitions or the district preferences of all of our citizens. For everyone on the wrong side of the line, there may well be his counterpart on the right side. The twenty or more identifiable communities of Brooklyn may well have preserved their own traditions from the days of the Dutch, although in today's rapidly changing world, this is doubtful. But even Brooklyn's large population will not support twenty community congressmen. Of necessity, there must be lines which divide."
Nor is the separation of two sections of the 23rd Assembly District by Flushing Bay and a section of a highway of constitutional importance. There is no federal constitutional right either to contiguity or compactness of voting districts, Wood v. Broom, 287 U.S. 1, 53 S.Ct. 1, 77 L.Ed. 131 (1932), and in any event no part of any district separates the two sections of the 23rd Assembly District.
The factual allegations of this complaint are to be sharply distinguished from those in Gomillion v. Lightfoot, 364 U.S. 339, 81 S.Ct. 125, 5 L.Ed.2d 110 (1960), relied upon by the plaintiffs.
In Gomillion, the plaintiffs, Negro voters, complained of being segregated *884 and denied their voting status. The Alabama legislature altered the boundaries of a city, Tuskegee, to form a 28 sided figure out of what had been a square. The effect of the alteration of the districts in Gomillion was to exclude from city voting rolls all but four or five of its 400 Negro voters. No rational justification for the legislative Act was presented.
Here, no Negroes are disenfranchised by the New York reapportionment plan, and no voting rights are extinguished. Each East Elmhurst voter is, in fact, for the first time accorded voting strength equal to that of an upstate voter under the doctrine of "one person, one vote". (It is conceded that the 23rd and 31st Assembly Districts are substantially equal in population [23rd District: 108,318 persons; 31st District: 108,314 persons. 17A N.Y.2d 7, 17] and that the population of each Assembly District in New York State is substantially equal in population to those two.)
In Gomillion, assuming the truth of the allegations in the complaint, "the conclusion [was] * * * irresistible, tantamount for all practical purposes to a mathematical demonstration, that the legislation is solely concerned with segregating white and colored voters by fencing Negro citizens out of town * * *." 364 U.S. at 341, 81 S.Ct. at 127. No such conclusion may be drawn from the facts alleged in the complaint herein.
Framers of voting districts are required to be color blind. Neither the concept of "one person, one vote" nor the provisions of the Fourteenth or Fifteenth Amendments guarantee to Negroes or to any other racial or national group the right to concentrated voting power.
In Mann v. Davis, 245 F.Supp. 241 (E.D.Va.), aff'd. sub nom. Burnette v. Davis, 382 U.S. 42, 86 S.Ct. 181, 15 L.Ed. 2d 35 (1965), certain Negro residents of the city of Richmond attacked the fusion of Richmond and Henrico Counties into one Assembly District on the ground that it deprived Negroes of a chance to elect one of their own race to the General Assembly. Had Richmond been divided into five Assembly Districts, as was warranted by its population, the non-white voters would have controlled one district; in the combined district they constituted a small minority. In rejecting the claim of the Negro intervenors, the statutory three-judge court held that:
"The concept of `one person, one vote', we understand, neither connotes nor envisages representation according to color. Certainly it does not demand an alignment of districts to assure success at the polls of any race. No line may be drawn to prefer by race or color". 245 F.Supp. at 245.
See also, Kilgarlin v. Martin, 252 F.Supp. 404 (S.D.Tex.1966), rev'd on other grounds sub nom. Kilgarlin v. Hill, 386 U.S. 120, 87 S.Ct. 820, 17 L.Ed.2d 771 (1967).
Stripped of its conclusory allegations, the complaint appears as an unabashed plea for segregation in the composition of Assembly Districts, for color consciousness rather than color blindness. Speaking in a different context, Mr. Justice Douglas has emphasized the repugnance of such a plea to the principles of democracy: "Racial boroughs [like rotten boroughs], are * * * at war with democratic standards." Wright v. Rockefeller, 376 U.S. 52, 62, 84 S.Ct. 603, 609, 11 L.Ed.2d 512 (1964) (dissenting opinion).
Any purposeful attempt to maintain a majority of persons of one race within a given district would, in fact, raise grave constitutional questions. Wright v. Rockefeller, 211 F.Supp. 460, 468-469 (S.D.N.Y.1962) (concurring opinion by Feinberg, J.) aff'd. 376 U.S. 52, 84 S.Ct. 603, 11 L.Ed.2d 512 (1964).
ABSTENTION
Even if it were to be assumed that enough has been alleged to require a factual inspection under the civil rights statutes of the allegations in the complaint, there is yet another reason why this Court should refrain, at least at present, from exercising its jurisdiction *885 and should defer to the courts of New York State.
In so holding the Court does not proceed from any notion that the plaintiffs are required, as a matter of law, first to exhaust their state court remedies. Rights under the federal constitution are always a proper subject for federal adjudication. Damico v. California, 389 U.S. 416, 88 S.Ct. 526, 19 L.Ed.2d 647 (1967); McNeese v. Board of Education, 373 U.S. 668, 83 S.Ct. 1433, 10 L.Ed. 2d 622 (1963); Monroe v. Pape, 365 U.S. 167, 81 S.Ct. 473, 5 L.Ed.2d 492 (1961). Rather, the doctrine of federal abstention is the basis on which this Court declines to exercise its jurisdiction at this time.
As between the states and the federal government, there exists no hierarchy of power and scrupulous care must be taken to preserve to the states primary responsibility for dealing with matters affecting them directly * * * "[A] federal district court is vested with discretion to decline to exercise or to postpone the exercise of its jurisdiction in deference to state court resolution of underlying issues of state law." Harman v. Forssenius, 380 U.S. 528 at 534, 85 S.Ct. 1177 at 1181, 14 L.Ed.2d 50 (1965).
Harman v. Forssenius involved a Virginia statute that allegedly violated the Twenty-fourth Amendment to the United States Constitution banning poll taxes. Chief Justice Warren, speaking for a unanimous court, 380 U.S. at 534, 85 S. Ct. at 1182, declared:
"Where resolution of the federal constitutional question is dependent upon, or may be materially altered by, the determination of an uncertain issue of state law, abstention may be proper in order to avoid unnecessary friction in federal-state relations, interference with important state functions, tentative decisions on questions of state law, and premature constitutional adjudication. * * * The doctrine, however, contemplates that deference to state court adjudication only be made where the issue of state law is uncertain."
It is plain that the claim presented in this Court raises serious questions under the New York Constitution, Article I, § 11 (The Equal Protection Clause) and Article III, § 5 (The Compact and Contiguous Districts Clause);[*] and see, Matter of Richardson, 307 N.Y. 269, 121 N.E.2d 217 (1954) and particularly the dissenting opinion by Judge Fuld (now Chief Judge) at 275-276, 121 N.E.2d 217. The final paragraph of Article III, § 5 gives the plaintiffs a constitutional right to have their claim adjudicated in a New York Supreme Court with a calendar preference.
Avoidance of unnecessary friction in federal-state relations could be a purpose well served by abstention in this case of the federal district court.
"Few public interests have a higher claim upon the discretion of a federal chancellor than the avoidance of needless friction with state policies * * *. * * * [T]he federal courts, `exercising a wise discretion,' restrain their authority because of `scrupulous regard for the rightful independence of the state governments' and for the smooth working of the federal judiciary." Railroad Commission of Texas v. Pullman Co., 312 U.S. 496, 500-501, 61 S.Ct. 643, 645, 85 L.Ed. 971 (1941).
Seldom have the state and federal courts been subjected to a more unseemly course of litigation than that surrounding reapportionment in New York. Yet federal jurisdiction has, throughout, been exercised with extreme reluctance (see cases cited in Appendix). There can be no question that the apportionment of a Legislature is one of the most important state functions. In Scott v. Germano, 381 U.S. 407, 408, 85 S.Ct. 1525, 14 L.E.2d 477 (1965), involving reapportionment *886 in Illinois, the Supreme Court reversed the district court decision not to abstain; the Supreme Court observed that the power of a state judiciary to manage the apportionment process had not only been specifically recognized but had also been "specifically encouraged" (381 U.S. at 409, 85 S.Ct. 1525), and cited Scranton v. Drew, 379 U.S. 40, 85 S.Ct. 207, 13 L.Ed.2d 107 (1964), which was the Pennsylvania reapportionment litigation.
It is also a purpose of abstention to avoid premature constitutional adjudication. No court should go out of its way to reach a constitutional question before it has to do so. The principle has been consistently and clearly expressed that federal courts should not adjudicate the constitutionality of state enactments fairly open to interpretation until the state courts have been afforded a reasonable opportunity to pass upon them. Harrison v. N. A. A. C. P., 360 U.S. 167, at 176-177, 79 S.Ct. 1025, 3 L.Ed.2d 1152 (1959).
Further, the present case deals not with a legislative enactment but with a state court decision, review of which is traditionally eschewed by a federal district court; due regard for the proper functioning of federal and state judiciaries suggests that this Court avoid constitutional inquiry before the state courts have themselves considered the matter if properly called to their attention. Under the special circumstances surrounding the creation of the 1966 reapportionment plan, this Court should tread warily.
The Court is therefore inclined to abstain from acting as deus ex machina in a local dispute.
RES JUDICATA
The defendants assert that Matter of Orans, 17 N.Y.2d 107, 269 N.Y.S.2d 97, 216 N.E.2d 311 (1966), a class action on behalf of all the citizens and taxpayers of the State of New York in which the Court of Appeals held valid and promulgated the apportionment plan now under attack operates as res judicata to bar the present claim. In its order, 17 N.Y.2d at 110, 269 N.Y.S.2d at 98, 216 N.E.2d at 312, the New York high court declared:
"We have examined the plan * * *, found it to be complete and valid under the Constitution of the United States and the Constitution of the State of New York and we hereby promulgate and establish it to govern * * *."
Ordinarily, a state court's decision may not be reviewed in a federal district court by means of a bill in equity. Davega-City Radio v. Boland, 23 F.Supp. 969, 970 (S.D.N.Y.1938). Normally, the state action is res judicata as to all subsequent actions. East Crossroads Center v. Mellon-Stuart Co., 245 F.Supp. 191, 194-195 (W.D.Pa.1965); and cases cited therein. But the situation faced here is neither normal nor ordinary. In fact, it is altogether extraordinary. (See Appendix.)
Were the plaintiffs' claim to stand or fall on the issue of res judicata the effect of that doctrine herein would merit careful consideration. Such, however, is not the case, for the Court has concluded on other grounds that it should not proceed to a determination of the factual merits of this case.
The Court concludes (1) that the naked assertions in the complaint of "racial motivation" and "invidious discrimination" are unsupported by any allegations of fact, (2) that the other allegations of the complaint fail to state a claim upon which relief can be granted under the Constitution and laws of the United States, and (3) that if the complaint does state a sufficient claim, it should be presented in the first instance to a tribunal of the State and correction of alleged infirmities should be sought therein.
Accordingly, the complaint is dismissed, with costs.
So ordered. *887
*888 APPENDIX
The litigation over apportionment in New York was so extensive that a review thereof may be useful in connection with the foregoing Opinion.
An action to declare unconstitutional New York's predecessor apportionment statute was commenced in the United States District Court, Southern District of New York, in 1961, W.M.C.A., Inc. v. Simon, 196 F.Supp. 758 (S.D.N.Y.1961). The complaint therein was dismissed by a three-judge panel for lack of justiciability. 202 F.Supp. 741 (S.D.N.Y.1962). In the light of its decision in Baker v. Carr, 369 U.S. 186, 82 S.Ct. 691, 7 L. Ed.2d 663 (1962), the Supreme Court remanded W.M.C.A., Inc. v. Simon to the said district court for further consideration. 370 U.S. 190, 82 S.Ct. 1234, 8 L.Ed. 2d 430 (1962).
The three-judge district court again dismissed, holding that Baker v. Carr required a showing of invidious discrimination, not merely disproportion of population in assembly districts. W.M. C.A., Inc. v. Simon, 208 F.Supp. 368 (S.D.N.Y.1962). Again the dismissal was vacated by the Supreme Court, WM CA, Inc. v. Lomenzo, 377 U.S. 633, 84 S.Ct. 1418, 12 L.Ed.2d 568 (1964), this time on the basis of Reynolds v. Sims, 377 U.S. 533, 84 S.Ct. 1362, 12 L.Ed.2d 506 (1964), a companion case which held that both houses of a bicameral state Legislature must be selected according to the principle of "one person, one vote".
On remand, the three-judge court, by order dated July 27, 1964, (61 Civ. 1559) held the New York apportionment statute unconstitutional, and ordered the Legislature to submit by April 1, 1965 a new plan of apportionment. One of four such plans (Plan A) submitted by the Legislature was approved in WM CA, Inc. v. Lomenzo, 238 F.Supp. 916 (S.D.N.Y.1965). The three-judge court refused, however, to pass upon the plan's validity under the New York Constitution, and refused to stay state court proceedings instituted to declare the plan invalid thereunder. Finding that the state court case involved matters solely of state law, the Court concluded that no conflict of jurisdiction would occur; but jurisdiction was retained for such further proceedings as might be necessary. This disposition of the matter was summarily affirmed, sub nom. Hughes v. W.M.C.A., Inc., 379 U.S. 694, 85 S.Ct. 713, 13 L.Ed. 2d 698 (1965).
Matter of Orans in the state court proceeded simultaneously with the federal suit, and the state court held that the plan approved by the federal district court violated the State Constitution. (Matter of Orans, 45 Misc.2d 616, 257 N.Y.S.2d 839 [Sp.Tm., N.Y.Co.1965]). The suit had been brought under L.1911 c. 773 (McKinney's Unconsolidated Laws, § 4221 et seq.) authorizing judicial review by "any citizen" of a legislative apportionment of voting districts. The State Supreme Court's declaration of unconstitutionality was affirmed, Matter of Orans, 15 N.Y.2d 339, 258 N.Y.S.2d 825, 206 N.E.2d 854 (1965). An appeal therefrom by the State officials to the Supreme Court was dismissed for want of a federal question. (Rockefeller v. Orans, 382 U.S. 10, 86 S.Ct. 75, 15 L.Ed. 2d 13 (1965)).
Nevertheless, the three-judge district court in W.M.C.A., Inc. v. Lomenzo (61 Civ.1559) on May 24, 1965 ordered that 1965 elections should proceed under the plan approved by it. An application to accelerate an appeal and pending appeal to stay the district court order was denied by the Supreme Court, sub nom. Travia v. Lomenzo, 381 U.S. 431, 85 S.Ct. 1582, 14 L.Ed.2d 480 (1965).
Thereafter, a new action (Glinski v. Lomenzo) was commenced in the Supreme Court of the State of New York, Albany County, to enjoin state officials from proceeding under the plan authorized by the federal court. Injunctive relief against the state officials was granted on appeal in the Albany case, on the grounds that the May 18, 1965 order of the federal court was not final. Glinski v. Lomenzo, 16 N.Y.2d 27, 261 N.Y. S.2d 281, 209 N.E.2d 277 (1965), modifying 24 A.D.2d 655, 261 N.Y.S.2d 280 (3d Dept. 1965). This order was directly *889 countermanded by an order of the three-judge district court on July 13, 1965, W.M.C.A., Inc. v. Lomenzo (61 Civ. 1559), enjoining all persons from interfering in any way with the holding of the elections under the federally approved plan. The Supreme Court (per Mr. Justice Harlan), on July 19, 1965, refused to stay this district court order pending appeal.
Immediately upon denial of the stay of the district court injunction, the Speaker of the New York State Assembly (Hon. Anthony Travia) and the President Pro Tem of the Senate (Hon. Joseph Zaretski) applied to intervene in the earlier New York County state court proceedings (Matter of Orans). Leave was sought "on their own behalves, as members of the Legislature, citizens and taxpayers and on behalf of all citizens and taxpayers of New York." Matter of Orans, 47 Misc.2d 493, at 494, 262 N.Y.S.2d 893, at 895 (Sp.Tm. N.Y. County 1965).
Intervention of Senator Zaretski was opposed on the grounds that the interests of those he purported to represent were adequately represented by the existing petitioners. Intervention was granted pursuant to New York's CPLR § 1012 (a) 2, which allows intervention as of right to any person "when the representation of the person's interest by the parties is or may be inadequate and the person is or may be bound by the judgment * * *."
Intervention was further opposed on the grounds that the original proceeding in Matter of Orans ended in a final judgment (45 Misc.2d 616, 257 N.Y.S.2d 839) affirmed by the Court of Appeals (15 N.Y.2d 339, 258 N.Y.S.2d 825, 206 N.E.2d 854) and that this "exhausted" the Court's power to proceed pursuant to the special statutory review provision L.1911, c. 773). This statute empowered the Court to grant "such relief as is necessary to effectuate the court's primary determination", 47 Misc.2d at 498, 262 N.Y.S.2d at 898. The state court (Culkin, J.) said that the three-judge district court's injunctive order had frustrated enforcement of the injunction issued in Glinski v. Lomenzo, 16 N.Y.2d 27, 261 N.Y.S.2d 281, 209 N.E. 2d 277 (1965), by ordering the November 1965 election to be held pursuant to Plan A.
The intervenors sought reference to a Special Referee or panel of referees or jury of experts to formulate a comprehensive plan of reapportionment of the Senate and Assembly of New York. This was refused by the Court which said that it would take matters into its own hands if the Legislature did not submit a constitutionally satisfactory reapportionment plan to the Court by February 1, 1966 (47 Misc.2d at 503, 262 N.Y.S.2d 893).
The Court cited numerous Supreme Court cases in which it was held that a state court had the power to reapportion: Maryland Committee for Fair Representation v. Tawes, 377 U.S. 656, 84 S.Ct. 1429, 12 L.Ed.2d 595 (1964); Scranton v. Drew, 379 U.S. 40, 85 S.Ct. 207, 13 L. Ed.2d 107 (1964); Scott v. Germano, 381 U.S. 407, 409, 85 S.Ct. 1525, 14 L.Ed. 2d 477 (1965).
In Scott v. Germano, supra, the Supreme Court dealt with the question of conflicting federal-state jurisdiction. The Supreme Court stated that the district court "should have stayed its hand" until after the state court itself had had a chance to reapportion. The lower New York Court in Matter of Orans, 47 Misc. 2d at p. 502, 262 N.Y.S.2d at p. 902, weighed the question whether to assume direct supervision and determined that "`[t]o turn the whole thing over to the Federal courts would be an abdication of the State's sovereignty.'" (quoting Matter of Orans, 15 N.Y.2d 339, 352, 258 N.Y.S.2d 825, 206 N.E.2d 854 [1965].
The Appellate Division (24 A.D.2d 217, 265 N.Y.S.2d 49 [1965]) and the Court of Appeals (17 N.Y.2d 107, 269 N.Y.S.2d 97, 216 N.E.2d 311 [1966]) approved Justice Culkin's disposition of the matter, but the Court of Appeals modified his order to the extent that it did not await apportionment by the Legislature. Instead, it appointed a five-man Commission *890 with instructions to hold hearings and present a reapportionment plan to the Court of Appeals. (17 N.Y.2d 601, 268 N.Y.S.2d 561, 215 N.E.2d 682 (1966), affirming, 24 A.D.2d 217, 265 N.Y.S.2d 49 (1965)).
The five-man Commission held public hearings, drew up a plan, and reported to the Court of Appeals. The Court of Appeals found the plan to be "complete and valid under the Constitution of the United States and the Constitution of the State of New York". Matter of Orans, 17 N.Y.2d 107, 110, 269 N.Y.S.2d 97, 98, 216 N.E.2d 311, 312 (1966). This plan was promulgated and established to govern the election of Senators and Assemblymen in the 1966 election and subsequent elections until superseded by a legislative apportionment scheme. Maps and descriptions of the plan were printed in 17A N.Y.2d.
NOTES
[*] Assembly Districts are required by the New York Constitution, Article III, § 5 to be "* * * of convenient and contiguous territory in as compact form as practicable * * *." (Para. 4). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2143122/ | 226 F. Supp. 819 (1963)
Millicent F. BROWN et al., Plaintiffs,
v.
SCHOOL DISTRICT NO. 20, CHARLESTON, SOUTH CAROLINA, a public body corporate, and Charles A. Brown, Chairman of School District No. 20, Charleston, South Carolina; and Thomas A. Carrere, Superintendent, Lawrence O'Hear Stoney, Leonard A. Mackey, John T. Welch, Mrs. Edwin A. Pearlstine, Mrs. W. Allan Moore, Jr., John C. Hawk, Jr., Members, Board of Trustees of School District No. 20, Charleston, South Carolina, Defendants, Mark Allen, a minor, by W. K. Allen, his father and next friend; and Barbara L. Bellows and George Bellows, Jr., minors, by their father and next friend George Bellows, Julia Jeanne Canfield, a minor, by Eugene C. Canfield, her father and next friend, and Elizabeth S. Stack and William F. Stack, Sr., their father and next friend, Intervenors.
Civ. A. No. 7747.
United States District Court E. D. South Carolina, Charleston Division.
August 22, 1963.
Matthew J. Perry, Lincoln C. Jenkins, Jr., Columbia, S. C., Constance Baker Motley, Jack Greenberg, Michael Meltsner, New York City, F. Henderson Moore, Benjamin Cooke, Charleston, S. C., for plaintiffs.
Huger Sinkler, Charles H. Gibbs, Charleston, S. C., A. T. Graydon, and D. W. Robinson, Columbia, S. C., for defendants.
Burnet R. Maybank, Charleston, S. C., and George Stephen Leonard, Washington, D. C., for intervenors.
MARTIN, District Judge.
This action was brought by thirteen[1] Negro children and their parents on behalf of themselves and others similarly situated for an injunction enjoining the operation of the school system of School District Number 20 in Charleston County, South Carolina, on a racially segregated basis. Plaintiffs seek an order of this Court requiring that the plaintiffs here be allowed to enroll in the white school of their choice; requiring the School Board to submit a plan calling for the abolition of a dual school system; for an order requiring the complete integration of school personnel and for costs.
Plaintiffs invoke the jurisdiction of this Court pursuant to 28 U.S.C. § 1343 (3), 42 U.S.C. § 1983.
After the pleadings were complete, several white students and their parents moved the Court for permission to intervene in this action. This motion was granted and they were permitted to participate in the hearing and filed extensive briefs thereafter.
The cause was heard at Columbia, South Carolina, on August 5, 1963.
School District Number 20 is composed of the City of Charleston.[2] The school system is completely segregated and operates a total of fifteen schools, six for white children and nine for Negro children. Areas served by each school *820 are established so that a dual set of attendance area lines exist; white children live in the zones of Negro schools but attend white schools. Negro children live in zones of white schools but attend Negro schools. When the white elementary school (Mitchell) was closed, (end of school year 1963) all of its former pupils living on one side of a line bisecting its zone were assigned to one of the other two white schools and all other former pupils living on the opposite side of the dividing line were assigned to another white school by the direction of the Superintendent of Schools. The total population of the District is 65,925 made up of 32,313 whites and 33,612 Negroes. There are a total of 12,647 students 9,539 Negroes and 3,108 whites. 420 teachers are employed 286 Negroes and 134 whites.
There have been no formal applications filed by Negro children to enter white schools at the first grade level. All the plaintiffs herein have made application to transfer from a Negro school to a white school.
The applications of the various plaintiffs were considered by the Board and all were rejected. Applications for transfer from one school in School District Number 20 to another are governed by rules adopted by the Board of Trustees of the District on the 10th day of June 1959. These rules prescribe the procedure for filing an application for transfer and the procedure to be followed when an application has been denied. Three of the plaintiffs, Brown, Hines and Dawson, have exhausted the administrative remedies provided for by the rules of the Board. Their applications for transfer to a white school were denied by the Board for the reason, that, the Board concluded, it was for the children's best interest to remain in the Negro schools they were presently enrolled in and attending. The other plaintiffs have not exhausted such remedies but allege that the remedies are inadequate to provide the relief sought.
The defendants contend, that the plaintiffs have no standing in this Court, until all administrative remedies are exhausted and therefore the action should be dismissed as to those plaintiffs who have failed to exhaust administrative remedies. The defendants further contend, that there is no evidence of racial discrimination present in the rejection of the applications of the plaintiffs who have exhausted their administrative remedies and, that any racial separation in the public schools of District Number 20 is voluntary and therefore offends no constitutional principle.
The primary questions presented, therefore, are the justification of the School Board's denial of that group of applications which were denied on their merits; and the remaining applications which were denied because of that group's failure to exhaust administrative remedies.
The rules promulgated by the Board of Trustees of Charleston School District Number 20 and the South Carolina Statutory Law, known as the South Carolina Pupil Assignment Law, § 21-247 et seq., South Carolina Code of Laws (1962), are the authority by which the School Board attempts to justify the denial of both groups of petitions. This same position was taken by the School Board in the case of Jeffers v. Whitley, 309 F.2d 621 (4th Cir. 1962). The overall factual situation in the instant case is analogous to that presented in the Jeffers case. By a Per Curiam opinion, the Fourth Circuit sitting en banc in the Jeffers case held:
* * * * * *
"Racial segregation in the schools was required by the Constitution of North Carolina until 1954 when the Supreme Court held similar requirements invalid under the Fourteenth Amendment. Since then the School Board of Caswell County has routinely assigned each pupil to the school he attended the previous year. This practice, in conjunction with invariable denial of transfer applications, perpetuated the old system with no opportunity for escape by *821 any pupil enrolled in the schools in 1954.
"Since 1954, all first grade pupils have been segregated by race. The School Board contends, however, that the assignments of such pupils have been voluntary. It has routinely assigned all first grade pupils to the schools where they attended a preschool clinic, but, the Board says, the parents could select the school to which the child was taken for enrollment in the preschool clinic, their choice being limited only by the availability of transportation facilities.
"We need not consider whether freedom of choice at the first grade level, without any right of choice thereafter, would be a sufficient interim step toward establishment of a constitutionally permissible, voluntary system, for the record does not establish the factual premise. The record refers to no resolution of the Board establishing a right of choice at the time of enrollment in the preschool clinics. No such right of choice was mentioned in the pleadings of the Board in this action. The District Court has not found that the Board adopted any such policy or intended to confer any such right of choice. Indeed, the record indicates that the principal of each school controlled preschool clinic enrollments at that school. More importantly, there is no evidence that any such policy, if ever adopted, had been announced, or made known, to the people of Caswell County. Since the schools had been operated on a completely segregated basis, parents of preschool children cannot be said to have any freedom of choice until there has been some announcement that such a right exists.
* * * * * *
"The principal questions, therefore, go to the justification of the School Board's denial of the Brown applications on their merits and of the Jeffers applications because of their failure to exhaust administrative remedies in 1960.
"The School Board takes shelter behind the North Carolina Pupil Enrollment Act.
"We have held that Act to be constitutional upon its face.[3] We have held that rights derived from the Fourteenth Amendment are individual and are to be individually asserted in the Federal Courts, but only after exhaustion of reasonable administrative remedies provided by the state. We have required exhaustion of administrative remedies though the School Board had initiated no abandonment of discriminatory practices which antedated the 1954 School Cases.
"Those principles, firmly established in this circuit, do not support the position of the School Board, or warrant denial of all judicial relief except to the two Saunders children. They presuppose a fair and lawful conduct of administrative procedures. They are premised upon an expectation that administrators will take appropriate steps to relieve victims of discrimination, when an unwanted assignment is shown administratively to have been discriminatory. Until there has been a failure of the administrative process, it should be assumed in a federal court that state officials will obey the law when their official action is properly invoked. When, however, administrators have displayed a firm purpose to circumvent the law, when they have consistently employed the administrative processes to frustrate enjoyment of legal rights, there is no longer room for indulgence of an assumption that the administrative *822 proceedings provide an appropriate method by which recognition and enforcement of those rights may be obtained.
"The School Board here has turned to the North Carolina Pupil Enrollment Act only when dealing with interracial transfer requests. It has not followed that Act in making original assignments. Assignments on a racial basis are neither authorized nor contemplated by that permissive Act. The only possible justification for a system of racial assignments, as practiced in Caswell County, is the volition of the pupils and their parents.
"Though a voluntary separation of the races in schools is uncondemned by any provision of the Constitution, its legality is dependent upon the volition of each of the pupils. If a reasonable attempt to exercise a pupil's individual volition is thwarted by official coercion or compulsion, the organization of the schools, to that extent, comes into plain conflict with the constitutional requirement. A voluntary system is no longer voluntary when it becomes compulsive.
"This is not to say that when a pupil is assigned to a school in accordance with his wish, he must be transferred immediately if his wishes change in the middle of a school year. It does not mean that alternatives may not be limited if one school is overcrowded while others are not, or that special public transportation must be provided to accommodate every pupil's wish. It does mean that if a voluntary system is to justify its name, it must, at reasonable intervals, offer to the pupils reasonable alternatives, so that, generally, those, who wish to do so, may attend a school with members of the other race.
"Caswell County's administration of her schools has been obviously compulsive. The invariable denial of interracial transfer requests cannot be squared with any freedom of choice on the part of the applicants. There can be no freedom of choice if its exercise is conditioned upon exhaustion of administrative remedies which, as administered, are unnegotiable obstacle courses. Freedom of choice is not accorded if the choice of the individual may be disregarded unless he can prove, by a preponderance of the evidence, that, under some other system never adopted nor practiced by the School Board, he would have been assigned to the school of his choice. Freedom of choice is a vapid notion if its attempted exercise may be branded, condemned and ignored as racially motivated.
"Administrative remedies, such as those afforded by North Carolina's Pupil Enrollment Act, have a place in a voluntary system of racial separation. If the system in operation was truly voluntary, if, generally, interracial transfers were to be had for the asking, a school official might still deny a particular request upon grounds thought not to undermine the voluntary nature of the system. In that event, it would be appropriate for the state to provide the applicant effective means of administrative review, and failure to pursue an adequate administrative remedy might foreclose judicial intervention. When the administrative processes, however, are used solely to prevent all freedom of choice in a system dependent for its legality upon the volition of its pupils, the remedy is both inadequate and discriminatory.
"In other circumstances, when an administrative remedy respecting school assignments and transfers, however fair upon its face, has, in practice, been employed principally as a means of perpetration of discrimination and of denial of constitutionally protected rights, we have consistently held it inadequate. A *823 remedy, so administered, need not be exhausted or pursued before resort to the courts for enforcement of the protected rights.
"In the light of these principles, the District Court was clearly correct in concluding that the transfer applications the Saunders children should have been granted. The same conclusion was required with respect to the Brown and Jeffers applications. Those children had withdrawn their consent, if they ever had consented, to their assignment, because of their race, to Caswell County Training School. They were legally entitled to attend the school of their choice, under an assignment system having no legal justification except by their consent, unless administrative considerations dictated some other alternative, and nothing of the sort is suggested. The remoteness from the Brown residence of the route of the Bartlett Yancey bus is not such a reason, for, concededly, the Brown children could ride the Training School bus and walk the short distance from that school to Bartlett Yancey. The failure of the Jeffers children to exhaust the administrative remedy is an irrelevance, for, as we have held, that remedy, as administered, was inadequate and discriminatory.
"We think general injunctive relief is also required.
"While rights derived from the Constitution are individual and are to be individually asserted, the record shows a general disregard by the School Board of the constitutional rights of Negro pupils who do not wish to attend schools populated exclusively by members of their race. Some of the plaintiffs exhausted administrative remedies, and in this action they have sought relief for others similarly situated as well as for themselves. Upon a proper showing, such relief is available in a spurious class action, such as this.
"Since the School Board has been obstinate in refusing to recognize the constitutional rights of Negro applicants, this case should not be closed on a basis which would leave the Board free to ignore the rights of other applicants, until, after long and expensive litigation, they were judicially declared. The duty to recognize the constitutional rights of pupils in the Caswell County Schools rests primarily upon the School Board. There it should be placed by an appropriate order of the court, for the District Court has a secondary duty of enforcement of individual right and of supervision of the steps taken by the School Board to bring itself within the requirements of the law.
"In these circumstances, the duty of the court, as a court of equity, is traditionally discharged through injunctive orders.
"We conclude, therefore, that the appellants, the Brown and Jeffers children, as well as the appellants, Saunders, are entitled to individual relief. This may be done by an order comparable to that of the District Court respecting the Saunders children. The District Court ordered their admission to the school of their choice if they should present themselves there for enrollment. The order similarly should require the School Board to enroll the Brown and Jeffers children in Bartlett Yancey, provided only, as to each of them, that he presents himself there for enrollment at the commencement of any semester.
"On behalf of others, similarly situated, the appellants are not entitled to an order requiring the School Board to effect a general intermixture of the races in the schools. They are entitled to an order enjoining the School Board from refusing admission to any school of any pupil because of the pupil's race. So long as the School Board follows its practice of racial assignments, *824 the injunctive order should require that it freely and readily grant all requests for transfer or initial assignment to a school attended solely or largely by pupils of the other race. The order should prohibit the School Board's conditioning its grant of any such requested transfer upon the applicant's submission to futile, burdensome or discriminatory administrative procedures. The order should further provide that, if the School Board does not adopt some other nondiscriminatory plan, it shall inform pupils and their parents that there is a right of free choice at the time of initial assignment and at such reasonable intervals thereafter as may be determined by the Board with the approval of the District Court. How and when such information shall be disseminated may be determined by the District Court after receiving the suggestions of the parties.
"The injunctive order may provide for its modification upon application of the School Board to the extent that modification may be required to enable the Board to solve and eliminate any administrative difficulty that may arise. It may contain other provisions not inconsistent with this opinion.
"The injunctive order should remain in effect until the School Board, if it elects to do so, presents and, with the approval of the District Court, adopts some other plan for the elimination of racial discrimination in the operation of the schools of Caswell County.
"The District Court should retain jurisdiction of the action for further proceedings and the entry of such further orders as are not inconsistent with this opinion."
In Bell v. School Board of Powhatan County, 321 F.2d 494 (4th Cir. 1963).
"* * * The School Board argues that whatever segregation exists must be deemed voluntary until a valid transfer application is filed. They look for support to the state court decision declaring that it was not their duty to conduct any investigations, and that the applications were void and should be disregarded. We, however, hold that the entire record, including the filing of these applications and of the present complaint itself, amply demonstrate the involuntary character of segregation in the Powhatan schools. Moreover, the continued practice of initially assigning all students by race shows that the School Board is actively engaged in perpetuating segregation. See Jeffers v. Whitley, 309 F.2d 621, (4th Cir. 1962)."
In Green v. School Board of the City of Roanoke, 304 F.2d 118 (4th Cir. 1962).
"* * * The pupil assignment system in effect in the City of Roanoke, as administered by the joint efforts of the local school authorities and the state Pupil Placement Board, is, as demonstrated by the facts, infected throughout with racially discriminatory applications of assignment criteria.
"All initial assignments of children enrolling in the city's school system are on a completely racial basis. Every white child is initially assigned to a school in a section other than section II, regardless of how near he might reside to a section II school. Every Negro child, on the other hand, is initially assigned to a section II school, regardless of his place of residence or any other criteria. The Negro child, if he desires a desegregated education, must thereafter run the gauntlet of numerous transfer criteria in order to extricate himself, if he can, from the section II schools. These are hurdles to which a white child, living in the same area as the Negro and having the same scholastic aptitude, would not be subjected, for he would have been initially assigned to the school to which the Negro *825 seeks admission. In Jones vs. School Board of City of Alexandria, Virginia, 278 F.2d 72, 77 (4th Cir., 1960), this practice was expressly condemned:
"`* * * if the criteria are, in the future, applied only to applications for transfer and not to applications for initial enrollment by children not previously attending the city's school system, then such action would also be subject to attack on constitutional grounds, for by reason of the existing segregation pattern it will be Negro children, primarily, who seek transfers.'
"Or, as we stated in Hill v. School Board of City of Norfolk, Virginia, 282 F.2d 473, 475 (4th Cir., 1960), where
"`* * * assignments to the first grade in the primary schools are still on a racial basis, and a pupil thus assigned to the first grade still is being required to remain in the school to which he is assigned, unless, on an individual application, he is reassigned on the basis of the criteria which are not then applied to other pupils who do not seek transfers * *, such an arrangement does not meet the requirements of the law.'
"Steps must be taken to end this unlawful initial assignment arrangement which the record discloses to exist in the City of Roanoke. It is a racially discriminatory application of assignment criteria to which all of the appellants were subjected."
In addition to the decisions of the Fourth Circuit, holding that Negro children need not comply with administrative procedures prior to instituting suit in the federal courts when the school system is operated on a racially segregated basis, the United States Supreme Court in McNeese v. Board of Education, 373 U.S. 668, 83 S. Ct. 1433, 10 L. Ed. 2d 622, has put beyond debate the proposition that, in a school desegregation case, it is not necessary to exhaust state administrative remedies before seeking relief in the federal courts.
The Court said:
"[As] We [have] stated in Monroe v. Pape, 365 U.S. 167, 183 [81 S. Ct. 473, 5 L. Ed. 2d 492]:
"`It is no answer that the State has a law which if enforced would give relief. The federal remedy is supplementary to the state remedy, and the latter need not be first sought and refused before the federal one is invoked.'
"The cause of action alleged here is pleaded in terms of * * * 42 U.S.C. § 1983 * * *
"* * * That is the statute that was involved in Monroe v. Pape, * * * and we reviewed its history at length in that case. * * * The purposes were several fold to override certain kinds of state laws, to provide a remedy where state law was inadequate, `to provide a federal remedy where the state remedy, though adequate in theory, was not available in practice' (id., 174), and to provide a remedy in the federal courts supplementary to any remedy any State might have."
The defendants by their answer and the intervenors by similar allegations contend: "that there are differences and disparities between the ethnic group allegedly represented by plaintiffs (Negro children) and that represented by petitioners (white children) as to form a rational basis for separating such ethnic groups in the schools of Charleston.
In Brown v. Board of Education, 347 U.S. 483, 495, 74 S. Ct. 686, 692, 98 L. Ed. 873, the United States Supreme Court held:
"We conclude that in the field of public education the doctrine of `separate but equal' has no place. Separate educational facilities are inherently unequal. Therefore, we hold that the plaintiffs and others similarly situated for whom the actions have been brought are, by reason of *826 the segregation complained of, deprived of the equal protection of the laws guaranteed by the Fourteenth Amendment."
The position taken by the defendants and the intervenors in effect, asks this Court (a U. S. District Court) to overrule the United States Supreme Court, the Fourth Circuit Court of Appeals and all the numerous decisions by those courts, reiterating, expanding and amplifying the holdings of the United States Supreme Court in Brown v. Board of Education (supra). Under the doctrine of stare decisis this Court has no such authority.
By a unanimous opinion filed, May 27, 1963, the United States Supreme Court in Watson v. City of Memphis, 373 U.S. 526, 83 S. Ct. 1314, 10 L. Ed. 2d 529, said:
"It is now more than nine years since this Court held in the first Brown decision, Brown v. Board of Education, 347 U.S. 483 [74 S. Ct. 686, 98 L. Ed. 873], that racial segregation in state public schools violates the Equal Protection Clause of the Fourteenth Amendment."
"* * * Given the extended time which has elapsed, it is far from clear that the mandate of the second Brown decision [349 U.S. 294, 75 S. Ct. 753, 99 L. Ed. 1083], requiring that desegregation proceed with `all deliberate speed' would today be fully satisfied by types of plans or programs for desegregation of public educational facilities which eight years ago might have been deemed sufficient. Brown never contemplated that the concept of `deliberate speed' would countenance indefinite delay in elimination of racial barriers in schools, let alone other public facilities not involving the same physical problems or comparable conditions."
The holdings of the United States Supreme Court and the Fourth Circuit Court of Appeals in the cases hereinabove referred to, dictate to this court the decision that must follow in the light of the existing factual situation surrounding the operation of School District Number 20.
FINDINGS OF FACT
1. This school system is completely segregated, white children attending those schools operated for whites and Negro children attending only those schools operated for Negroes.
2. A dual set of attendance area lines exist, with white children living in the zones of Negro schools and Negro children living in the zones of white schools.
3. No formal application has been made by any Negro child to enter a white school at the first grade level; all of the plaintiffs herein have made formal applications to transfer from a Negro school to a white school.
4. All applications have been denied by the Board; (e) Brown, Hines and Dawson because it was for the applicants' best interest; (b) Glover, E. Alexander, Clarence Alexander, Cassandra Alexander, G. Alexander, J. Ford, B. Ford and G. Ford because they had not complied with and exhausted their administrative remedies.
5. That the applicants of the second group, as set out in 4(b) above, would have been denied by the Board had they exhausted their administrative remedies.
6. That the rules and regulations of the Board are inadequate, since they fail to establish a right of choice, to a child or his parents, at the time of enrollment and the announcement of such right of choice made known to the parents of pre-school children.
7. That any consent on the part of the plaintiffs or their parents that might have been inferred, prior to the filing of their applications to transfer and the bringing of this action, is clearly refuted and the denial of their applications for transfer to white schools amounts to involuntary segregation.
8. The plaintiffs' applications for transfer are the only ones to which the Board's Rules, governing transfer and the South Carolina law governing pupil assignment, have been applied.
*827 9. Neither the Board Rules or the South Carolina Pupil Assignment Law is applied by the Board when enrolling pupils at the first grade level.
10. That the school year for School District Number 20 begins in September 1963 and runs to June 1964. There are no mid-term semester promotions or initial assignments of first grade pupils.
11. The authorities of School District Number 20 have taken no action, to formulate any plan or procedure, towards carrying out the mandate of the United States Supreme Court as announced in the second Brown decision and subsequent decisions of that Court and the Fourth Circuit Court of Appeals.
ORDER
1. It is ordered that the defendants herein and their agents, servants and employees, admit and enroll as students the Plaintiffs, Millicent F. Brown, Oveta Glover, Clarisse Karan Hines, Ralph Stoney Dawson, Eddie Alexander, Clarence Alexander, Cassandra Alexander, Gerald Alexander, Jacqueline Ford, Barbara Ford and Gale Ford at the white school, where a white child would normally attend, if he resided in the same school zone that each of plaintiffs respectively resides in, subject to the same terms and conditions as other students enrolled there, provided only, that these minor plaintiffs present themselves at said school for registration at the beginning of the new school term in September 1963.
2. It is further ordered that the defendants, their agents, servants and employees are hereby restrained and enjoined from refusing admission to the minor plaintiffs herein on the basis of race or color.
3. It is further ordered that due to the short period of time before the beginning of the 1963-64 school year; the uncertainty of the number of applicants that may desire transfer to a different school than the one in which they are presently enrolled; the uncertainty of the number of first grade students who may desire to enroll in a school other than the one in which they would have been enrolled prior to this order; the administrative difficulties that would necessarily flow from such uncertainties, this Court, in the exercise of the discretion vested in it, holds that it would be impractical to require the Board to admit others, similarly situated to the plaintiffs herein, to schools other than those they are presently enrolled in or other than those that they would be initially enrolled in, under the dual system now in existence for the 1963-64 school year.
4. It is further ordered, however, that beginning with the school year 1064-65 the defendants and their agents, servants and employees are hereby restrained and enjoined from refusing admission, assignment or transfer of any other Negro child entitled to attend the schools under their supervision, management or control, on the basis of race or color.
5. It is further ordered that beginning with the school year 1964-65, the defendants and their agents, servants and employees are hereby restrained and enjoined from:
(a) Failing or refusing to freely and readily grant all requests by parents or guardians for the transfer or initial assignment of pupils to a school attended solely or largely by pupils of another race;
(b) Conditioning the grant of requests for transfers or initial assignments pursuant to paragraph 5 (a) above upon the applicants' submission to any futile, burdensome or discriminatory administrative procedures. This provision is intended to include, but is not limited to, prohibiting the use of such administrative procedures as standards for deciding such requests which are not generally and uniformly applied in assigning all pupils, and the requirement that pupils or parents attend administrative hearings, or submit to tests or other evaluations which are not uniformly applied in assigning pupils.
*828 6. It is further ordered that the defendant, their agents, servants and employees shall inform the parents or guardians of all pupils presently attending school in School District Number 20, as well as all those who shall hereafter enroll in the said school system, of the right of all pupils to freely choose to attend a racially nonsegregated school, in the following manner:
(a) The following notice or its equivalent shall be individually given in writing at the times prescribed in subparagraph 6(b) below to the parents or guardians of all pupils:
"Every child in School District Number 20 school system has the right to attend a school freely selected without regard to race or color. Parents' requests for initial assignment or transfer of pupils in order to attend a school with members of the other race will be freely granted. If your child is entering school for the first time, you may present the child for enrollment at any school serving the child's grade level without regard to whether the school you choose is or was formerly attended solely by Negro pupils or solely by white pupils. If your child is now assigned to an all-Negro or an all-white school, and you desire that the child be transferred to another school in order to obtain a desegregated education, you should indicate this desire on this notice in the space provided and return it to your child's present teacher or principal." The foregoing language is sufficient under this Order, but the school authorities may adopt such other language consistent with the purpose of the order as they may desire. The defendant school authorities may give this notice by regular United States mail or by any other means which will fairly insure that copies reach all parents concerned.
(b) The notices prescribed in subparagraph 6(a) above shall be given to the parents of every child presently enrolled in School District Number 20 system at least ten (10) days before the end of the 1963-64 school year. The same notice shall be given to the parents of every child who is enrolled in School District Number 20 system at the end of the 1963-64 school year at least thirty (30) days before the beginning of the 1964-65 school year, and thereafter the notice shall be given to such persons at least thirty (30) days before the beginning of each school year, unless the defendants secure the approval of the Court to give the notice in some other manner. The same notice shall also be given to the parents of every child who shall enroll in School District Number 20 school system for the first time, whether such child is beginning school, has changed residence from another school, administrative unit or otherwise, at or prior to the time any such pupil is first assigned to or enrolled in a school in the system, at whatever time of the year this may occur.
7. The provisions of paragraphs 5 and 6 above of this Order are to remain in effect until the defendant school authorities present to this Court, and with its approval, adopt some other plan for the complete elimination of racial discrimination in the operation of the public schools in School District Number 20. When and if the defendants file such a desegregation plan with the Court, they shall serve copies upon plaintiffs' attorneys and the Court will schedule further hearings in order to judge the adequacy of such plan.
8. It is hereby provided that the School Board of District Number 20 may apply to this Court for any reasonable modification of this Order necessary to solve and eliminate any administrative difficulties that may arise hereunder.
9. It is further ordered that this Court retain jurisdiction of this cause for such further proceedings and entry of such further orders as are necessary and proper, including the questions of *829 teacher qualifications and assignments as well as attorneys' fees requested by plaintiffs.
10. It appearing, that some of the named defendants are no longer serving in the capacity of officials of School District Number 20; It is, therefore, ordered, that their successors in office, not originally named as defendants in this action, are substituted as defendants herein for their predecessors in public office. Counsel for the defendants are directed to make known to the United States Marshal, the names of the present School Officials of School District Number 20, in order that a copy of this Order may be served upon each, personally, by the Marshal.
NOTES
[1] Subsequent to filing, two infant plaintiffs, Valerie Wright and Henderson Alexander, have ceased to attend the school system operated by defendants.
[2] Old City of Charleston prior to recent annexations.
[3] The South Carolina Act is patterned after the North Carolina Act, which was held to be constitutional on its face. See Carson v. Warlick, 4 Cir., 238 F.2d 724. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2141217/ | 162 F. Supp. 772 (1958)
ABBETT ELECTRIC CORPORATION
v.
UNITED STATES.
No. 591-53.
United States Court of Claims.
June 4, 1958.
John A. McWhorter, Jr., Washington, D. C., for plaintiff. John W. Gaskins, Washington, D. C., Johnson & Stanton, San Francisco, Cal., and King & King, Washington, D. C., were on the brief.
Kendall M. Barnes, Washington, D. C., with whom was Asst. Atty. Gen. George Cochran Doub, for defendant.
LARAMORE, Judge.
This is a suit to recover the increased costs of performance on a Government contract. The increased costs are claimed to have resulted from delays caused by the defendant's failure to give proper notice to proceed as required by the terms of the contract. The facts upon which plaintiff predicates its suit are as follows:
In April 1950, the Bureau of Reclamation, hereinafter referred to as the Bureau, invited bids for the construction of a 230-kilovolt electrical transmission line between Rio Vista and Tracy in the Central Valley of California. The invitation to bid provided that the work was to be divided into two schedules. Schedule No. 1 covered the construction of foundations and the erection of steel towers for the transmission lines. Schedule No. 2 consisted of two parts; Part I provided for the stringing of conductors and overhead ground wires on the towers to be erected under Schedule No. 1, and Part II called for the stringing of conductors and overhead ground wires for the Sacramento and San Joaquin River crossings.
*773 Plaintiff submitted a low bid for the work called for under Schedule No. 2, and on May 31, 1950, the plaintiff and the Bureau, acting for the United States, entered into a unit price contract for the work called for by that schedule. The contract was a standard form Government contract which required the defendant to supply the necessary conductors, ground wire, insulators and hardware needed by the plaintiff for the installation of the transmission line. The specifications which were attached to and made a part of the contract contained the following provision:
"22. Commencement, prosecution, and completion of work. The contractor shall begin work within twenty (20) calendar days after date of receipt of notice to proceed and shall complete all of the work within the following number of calendar days from the date of receipt of such notice: Schedule No. 1, three hundred and five (305) days; and Schedule No. 2, three hundred and sixty-five (365) days; Provided, That if award of contract for the work under Schedule No. 2 is made to a contractor other than the contractor awarded the contract for work under Schedule No. 1, notice to proceed for the work under Schedule No. 2 will be issued at the discretion of the contracting officer any time within two hundred and forty (240) calendar days for the work under Part I, and two hundred and seventy-five (275) calendar days, for the work under Part II, after date of award of the contract, and the contractor under Schedule No. 2 shall complete all work under Part I within one hundred and twenty-five (125) calendar days and all work under Part II within ninety (90) calendar days, from the date of receipt by him of such notice. * * *"
Immediately after the consummation of the contract, levees protecting one of the islands in the San Joaquin River broke which caused flooding of a portion of the land over which the transmission line was to be strung. The Bureau upon learning that the levees, which were privately owned and maintained, were not to be rebuilt decided to reroute a portion of the line covered by plaintiff's contract. It also redesigned the transmission towers increasing the height of their foundations, and new rights-of-way had to be negotiated over the rerouted area.
Plaintiff heard of the flooding and wrote the Bureau on July 26, 1950, asking for the approximate location of the rerouted lines and whether the river crossings were to remain as planned. This letter also requested some idea as to the starting and completion time on the contract. In response the Bureau, on July 28, 1950, sent plaintiff a drawing showing the new routing of the line and advised it that the river crossings were about the same as previously specified. The Bureau then stated:
"It is estimated, by this office, that the tower erection for the Rio Vista-Tracy Section of the line will be well enough advanced to enable you to begin stringing operations about October 1. It is estimated that the river crossing towers should be available for stringing approximately December 15. We will endeavor to inform you well in advance of the issuance of Notice to Proceed so that you may make your plans accordingly."
The Bureau, however, did not give the changes to the contractor for the river crossing towers until September 13, 1950, and the line towers contractor did not receive its changes until December 21, 1950. On November 24, 1950, the Bureau notified plaintiff that the proposed dates for issuance of the notices to proceed contained in its letter of July 28, 1950, had to be advanced to March 1, 1951, for the line route and to February 15, 1951, for the river crossings.
On December 22, 1950, the Bureau wrote plaintiff stating that under the contract the Bureau was required to issue a notice to proceed on Part I (line route) within 240 calendar days *774 after the award of the contract and that this time expired on January 26, 1951. The Bureau desired to withhold issuance of the notice until work under Scheudule No. 1 (construction of the towers) had further progressed. Plaintiff replied agreeing to a postponement upon the condition that the Bureau "reimburse us for any additional costs that we might incur due to increased wages and working conditions demanded and awarded to the Local Unions having jurisdiction". Thereafter on January 25, 1951, plaintiff received a notice to proceed with its work under Part I. This letter read, in material part, as follows:
"Pursuant to the provisions of paragraph 22 of the specifications, you are hereby notified to proceed with the work covered by this contract. The date you receive this letter, as shown on the registry return receipt, will be the effective date in computing the time within which completion of the contract is required.
"Inasmuch as the work covered by Schedule 1 of subject specifications is not sufficiently advanced for you to begin your stringing operations, it will be necessary for us to grant an extension of time for the completion of your contract. This delay will be made the subject of a Findings of Fact which will be issued at a later date."
On March 1, 1951, plaintiff was sent a similar letter regarding the work to be performed under Part II of its contract. The effect of these letters was to give literal notice to proceed as required under the specifications to the contract while at the same time suspending the work which the defendant had a right to do under paragraph 14 of the specifications, page 7.
On August 21, 1951, plaintiff was notified that on September 1, 1951, it could begin work on Part I and that an extension of time for performance would be granted from the date on which notice to proceed was issued until such time as it was possible for plaintiff to proceed. Such an extension on Part I was in fact granted from January 27 to August 31, 1951. A similar letter was received by plaintiff with respect to Part II directing work to begin on the river crossings October 22, 1951. Plaintiff was also granted an extension of time for the period from March 3 to October 21, 1951.
As a result of these delays plaintiff was required to carry on its work in unseasonable weather which slowed and inhibited its performance. Realizing that such was the case the defendant further extended the time for performance to the dates upon which each part of the work was formally accepted, i. e., April 25, 1952, for Part I and March 31, 1952, for Part II.
By letter dated May 23, 1952, plaintiff submitted to the contracting officer a claim for additional compensation in the amount of $53,335.13 for added costs due to the delay in issuing notices to proceed. The claim was denied by the contracting officer and this denial was approved by the Solicitor of the Department of Interior acting under authority of the Secretary. The denials of relief were based on the ground that the claim was one for unliquidated damages which were not reimbursable under the contract.[1] Thereafter a suit for damages was brought in this court on the ground that the defendant breached the contract by failing to give actual notices to proceed within the time required by paragraph 22 of the specifications to the contract. It is alleged that none of the additional costs would have occurred but for such failure on the part of the defendant. A Commissioner of this court charged with the duty to take evidence and make findings of fact has reported *775 that: (1) The defendant's delay in issuing effective notices to proceed resulted in performance of the work in a period when plaintiff was obliged to pay increased rates of wages for labor; (2) This delay also caused plaintiff to perform the work in the winter rainy season with resultant loss of efficiency of labor and equipment.
The elements and computations making up the increased costs caused by the delays are set forth in detail in findings 23 through 37. The total increased costs reasonably attributable to the delays on the part of the defendant are found by the Commissioner to be $13,474.26. Both parties have taken exception to this figure, but we feel that it fairly represents the actual loss suffered by the plaintiff. Therefore, the sole question to be decided by this court is whether or not the plaintiff may recover this amount from the defendant. We think it is so entitled for the following reasons.
The contract specifications called for the defendant to give plaintiff notice to proceed within a specified period of time. It is clear from the recited facts that this provision was not complied with. True the defendant purported to give notice to proceed and then in the same letter invoked the section which allowed it to suspend operations. A notice to proceed is an order by the Government to the contractor to get its equipment and men on the job and begin performing the work called for under the contract, Peter Kiewit Sons' Co. v. United States, Ct.Cl., 151 F. Supp. 726. Clearly this was not the effect of the letters of January 25 and March 1, 1951, to the plaintiff. Those letters were apparently an attempt on the part of the defendant to circumvent the contract requirement that it issue notices to proceed within a certain time and should not be given the standing of notices to proceed. It seems to us that this was a breach of the plain and unambiguous terms of the contract.
Defendant says that this case presents a situation closely analogous to United States v. Howard P. Foley Co., 329 U.S. 64, 67 S. Ct. 154, 91 L. Ed. 44. In that case the contractor was delayed 157 days in the performance of its contract by reason of the failure of the Government to make the job site available. Plaintiff there had contracted to install a lighting system at Washington's National Airport. Its obligation, in the nature of a "follow-up contract," was to be discharged when and as Government engineers made runways available to plaintiff. The Supreme Court in reversing this court's judgment for the plaintiff held that since the contract in question neither expressly nor impliedly warranted that the site would be made available within a certain time, no liability for damages due to delays could attach to the Government, citing H. E. Crook Co. v. United States, 270 U.S. 4, 46 S. Ct. 184, 70 L. Ed. 438, and United States v. Rice, 317 U.S. 61, 63 S. Ct. 120, 87 L. Ed. 53.
We feel that a careful reading of the Foley decision, however, rather than weakening, fully supports plaintiff's claim for recovery in this case. Initially the Supreme Court therein stated that the issue before it was not one involving a breach by the Government of an express covenant found in the contract. Thus, in the words of the Court 329 U.S. at page 66, 67 S.Ct. at page 155: "In no single word, clause, or sentence in the contract does the Government expressly covenant to make the runways available to respondent at any particular time * * *." The inference to be drawn from this language seems obvious. Moreover, the Court extended its argument by stating that Government liability might be implied from the terms of the contract. As the Court reasoned, if by implication the contract had included an unqualified warranty to make the runways promptly available which was breached by defendant, plaintiff's claim for damages would have been allowed. However, a close examination of relevant provisions of the Foley contract satisfied the Court that such an implied warranty did not exist. As a consequence, the contractor there was held entitled only to *776 the relief provided for in the contract for Government-induced delay; viz., a time extension.
We think the Supreme Court's preliminary statement concerning an "express covenant," and the inference which accompanies it, is sound in law and applicable to the facts before us.[2]
Here the express covenant is found in paragraph 22 of the contract specifications. That paragraph reads:
"* * * [N]otice to proceed for the work under Schedule No. 2 will be issued at the discretion of the contracting officer any time within two hundred and forty (240) calendar days for the work under Part I, and two hundred and seventy-five (275) calendar days, for the work under Part II, after date of award of the contract * * *." [Emphasis supplied.]
As mentioned above, this provision of the contract was not complied with by the Government. The delay thereby growing out of the breach caused plaintiff to sustain added expenses in the completion of its contract (finding 22). Furthermore, the fact that the Government might not have been negligent in meeting its obligations under the contract is beside the point where delays attributable to it constituted a breach of contract. See Kehm Corp. v. United States, 93 F. Supp. 620, 119 Ct. Cl. 454.
It necessarily follows that plaintiff is entitled to recover its actual damages caused by defendant's failure to give notices to proceed as provided by the contract. Judgment will therefore be entered for the plaintiff in the amount of $13,474.26.
It is so ordered.
JONES, Chief Judge, and MADDEN, WHITAKER and LITTLETON, Judges, concur.
NOTES
[1] Except for an item in the amount of $714.54 claimed by plaintiff as extra costs incurred in the maintenance and repair of an access road which was held to be plaintiff's responsibility. Plaintiff submitted no substantial evidence that the finding of the contracting officer was erroneous or to support this item of the claim against the defendant.
[2] The manner in which we have interpreted that decision is revealed in the case of Cauldwell-Wingate Co. v. United States, 109 Ct. Cl. 193, involving a claim based on the Government's alleged delay in making a work site available to plaintiff. At page 221 this court said:
"But, even though there may have been some delay in the delivery of the buildings, plaintiff would not be entitled to recover under the decision of the Supreme Court in United States v. Howard P. Foley Co., 329 U.S. 64, 67 S. Ct. 154, 91 L. Ed. 44. The defendant did not agree to deliver the buildings on any specific dates." Emphasis supplied.] | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2141226/ | 162 F. Supp. 882 (1958)
AMERICAN BAKERIES COMPANY et al., Plaintiffs,
v.
Andrew BARRICK, Trustee, etc., et al., Defendants.
Civ. No. 34019.
United States District Court N. D. Ohio, E. D.
February 27, 1958.
Frank C. Heath, Thomas P. Mulligan, Jones, Day, Cockley & Reavis, Cleveland, Ohio, for plaintiffs.
R. C. Ogline, John G. Cardinal, Harold H. Kahn, Cleveland, Ohio, Robert E. Boyd, Neva H. Wertz, Asst. Attys. Gen., State of Ohio, for defendants.
JONES, Chief Judge.
This action was brought under favor of Section 186, Title 29 U.S.C.A., amending Section 302 of the Labor Management Relations Act.
The court has been given power and jurisdiction to enjoin violations of the Act. It is not in the province of the court to lay down a course of conduct *883 for the management and operation of the trust fund made the subject of an agreement and declaration of trust in October, 1952. In two or three pre-trial conferences (officially reported) the defendants have advised that several alleged irregularities have been corrected, such as a loan which it is conceded was not according to generally accepted trust fund principles. But the court, in pre-trial conferences, pointed out to the parties that many of the objectionable practices complained of should have been the subject of the trust agreement.
Since the case was commenced the trust fund agreement has, by the court's suggestion, been modified or amended to discontinue some of the challenged irregularities.
Upon hearing in open court the main contention now relates to the question of whether the trust fund offices and administration of the Fund should physically be separated and be made independent of the Union offices, in order to avoid the objectionable practices and to make the trust fund administration completely independent and solely divorced from Union contact or influence. No rules or standards have been laid down by the Act.
Certainly, I cannot read into the law respecting the creation of trust funds and the right to seek the jurisdiction of the District Court where violations of the Act occur, that the court shall take over the supervision or management of the trust fund, or that the trust fund shall become the ward of the court. The trust agreement should contain all the provisions for the proper management of the trust fund and the court's injunctive jurisdiction only should be invoked where violation of the Act, as it affects the contract or agreement of trust, occurs. Such, I conceive to be the limit of the court's jurisdiction. Here the fault lies, in my judgment, in the failure of the parties contributing to the trust fund to set out in their trust agreement specifically how the trust fund should be managed and in what manner investments and operations should be conducted. Article IV of the Agreement and Declaration of Trust of October, 1952 (Exhibit 1 attached to the complaint) sets forth the powers, duties and obligations of the trustees,and broad and widely discretionary powers they are; as for example, Section 1 of Article IV provides:
"The Trustees are authorized and empowered to lease or purchase such premises, materials, supplies and equipment, and to hire and employ and retain such legal counsel, investment counsel, administrative, accounting, actuarial, clerical and other assistants or employees as in their discretion they may find necessary or appropriate in the performance of their duties."
and, Section 3(a) provides:
"To invest and reinvest such part of the Trust Fund as in their sole judgment is advisable, and is not required for current expenditures in such securities (of any classification) as they may select in their sole discretion whether or not the same be authorized by law for the investment of trust funds generally."
The powers granted under these two provisions have been among the acts of the trustees challenged here, and sought to be made the subject of this court's powers of restraint or correction.
Another section of the agreement, Section 2 of Article IV, provides:
"The Trustees and their legal counsel shall have power to construe the provisions of this Agreement and Declaration of Trust and the terms used herein and any construction adopted by the Trustees in good faith shall be binding upon the Union, the Employers and the Employees and their families and dependents."
What bothers the court is how far and to what extent should the court undertake to interpret, modify, or extend the contract entered into by the parties to it. My own motion of the law is that the parties to the trust fund agreement should with more particularity lay down *884 the standards and powers of trustee management and make more specific the provisions for the operation of the fund by the trustees. Then, if violations occur, the court would be able to make definitive injunctive orders upon a showing of cause. Where such broad discretionary powers are given to the trustees as in the current agreement, the court is placed in a position, not contemplated by the law, of supervising the management and operation of the trust fund and of considering whether the discretionary power given the trustees has, in specific instances amounted to a violation of the law; and the law, as I earlier have stated, promulgates no standards or limitations upon the conduct of the trustees of the fund or its management.
To come now to the matters at issue between the complaining parties and the defending trustees, whether the court should declare the complete separation and physical divorcement of the trust fund offices from the Union offices in order legally to conform to the intendment and purpose of the law.
The primary and principal purpose of the Act is to provide and maintain the trust fund for the sole and exclusive benefit of the employees of the employers, and their families and dependents, and any act or conduct in the management and operation of the fund which departs from that purpose well may be found to be a violation of the Act, subject, upon cause shown to the restraining jurisdiction of the District Court.
All would agree that complete records of all proceedings of the trustees and a complete accounting system should be installed; that no payments to trustees out of the fund for services of any kind, except such compensation as may be the subject of written agreement should be made; that trust funds may not be used for Union purposes and that no expenditures except for essential things and services on behalf of the trust fund should be made. All would agree that those in control of the fund should be restrained from hiring, paying or permitting any person connected with the employer or with the Union participating in any manner whatsoever in the management of the fund or receiving any compensation therefor.
These conditions fairly are implicit in the law providing for the creation of such trust funds. Completely separate quarters, independent operation as to accounts, facilities, employees and files also would be expected.
The broad discretion given the trustees in the examples above cited, and other provisions of the agreement, have been materially circumscribed in amendments and resolutions adopted by the trustees.
Counsel for the plaintiffs urge strongly that the court should enter an injunctive order on the basis of the so-called irregularities challenged, because the objectionable practices were not corrected until after this action was threatened or commenced; and the plaintiffs, through counsel, express some misgivings respecting the good faith reformation of the majority of the trustees.
Frankly, I think the actions and conduct of one or more of the trustees evidenced an arbitrary attitude and a disregard for the disinterested and fiduciary character of their office; but I am unable to say, in view of the changed attitude and the amendments and resolutions adopted, that the court now should impeach their good faith by entering what well could be regarded as a punitive injunction for past misconduct, and a warning that future irregularities may become the concern of the court, based upon such order.
What I have consistently urged and recommended in this case is that the prevention of the acts, conduct and operations of the fund complained of should be made the subject of specific provisions against them in the agreement and declaration of trust.
In the absence of any standards or rules of management of such trust funds specified in Section 186 of the Code, and in view of the wide discretionary powers *885 granted the trustees by the agreement and declaration of trust, I am unable to find that violations of Section 186 have been shown such as to require or justify the injunctive jurisdiction of the court.
This is not to say that the court condones or approves actions or conduct of the majority of the trustees that are inconsistent with or contrary to the accepted standards of fiduciary management for the sole and exclusive benefit of the employees, their families and dependents. What I do hold is that the jurisdiction of this court to restrain violations of the Act, cannot extend to enjoining such broad discretionary powers of trustees as are given by the agreement and declaration of trust in this case, unless the agreement itself be found to be contrary to the best interests of the sole beneficiaries of the fund and thus offends the purpose of the Act.
This case is unusual from the standpoint of litigation involving labor and management relationship in that two of the three trustees representing employer or management groups, contributors to the Fund, have joined the three trustees representing the labor groups in the defense of the action taken by the Fund management. This has made difficult the court's balanced appraisal of the rights of the respective contributors to the Fund, even though the court has recognized the impropriety of some of the acts of management as contrary to acceptable trust principles. As I said earlier, the court is able better to exercise its jurisdictional powers under the statute, if the parties, by agreement, adequately have charted the limits of the trustees' powers and discretion.
The earlier stated remaining substantial complaint of the parties plaintiff is the question of housing the Fund in the building of the Union headquarters. This more than most other complaints seems to have precipitated and caused the conflict and produced the controversy out of which this action arose. Upon careful consideration of the facts, the affidavits, the briefs, and the necessity of maintaining the complete integrity of the Fund and its management free of influence of labor or management, and to avoid the chance, or even the appearance, of improper practices such as complained of and subsequently provided against by amended contract,the trustees of the Fund shall be required to seek other convenient, suitable and adequate quarters away from the premises of the Union building.
The trustees will be given sixty days within which to comply with an order of complete separation of offices and independent quarters at some other location than the Union offices,during which time mandatory injunction will be withheld.
If an appeal is desired by either party a mandatory injunction presently will be entered so that the court's action may be made appealable as a final order. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2141055/ | 463 F. Supp. 800 (1978)
Ray MARSHALL, Secty. of Labor, U. S. Dept. of Labor
v.
Frank J. BOSACK, Jr., et al.
Civ. A. No. 77-3223.
United States District Court, E. D. Pennsylvania.
August 22, 1978.
Alan Yamamoto, Arlington, Va., for plaintiff.
Charles A. Bressi, Jr., Pottsville, Pa., for defendants.
MEMORANDUM TO SUPPLEMENT BENCH OPINION
HUYETT, District Judge.
On April 21, 1978, I held oral argument on the parties' motions for summary judgment. After argument, I orally rendered an opinion from the bench, granting summary judgment in favor of plaintiff Secretary of Labor and stating the reasons for my conclusions. The purpose of this memorandum is to clarify and amplify those reasons stated in open court.
The facts are not in dispute. Defendants Frank Bosack and Edward Hoke own and operate as a partnership a coal preparation plant, the Glen Worth Coal Company (Glen Worth), located near Pottsville, Pennsylvania. They have no other employees. On June 27, 1977, one Michael Sheib, an authorized representative of the Secretary of Interior employed by the Mining Enforcement and Safety Administration, was refused entrance to Glen Worth's premises to conduct an inspection pursuant to the Federal Coal Mine Health and Safety Act of 1969 (Act), 30 U.S.C. §§ 801-878. On subsequent occasions, defendants continued to refuse authorized representatives entrance to inspect Glen Worth.
Defendants claim that they are not subject to the provisions of the Act because their products do not enter commerce, nor do their operations or products affect commerce. 30 U.S.C. § 803. The parties have stipulated to the following facts relative to the question of whether defendants are covered by the Act. Glen Worth sold approximately 4,241 tons of coal from January through October of 1977. All of this coal was processed and sold within the state of Pennsylvania; all but 300 tons was consumed within Pennsylvania. Further, Glen Worth stopped selling coal to their only *801 out-of-state buyer in May, 1977. The sole question before the court was whether, under the facts stated above, the defendants were subject to the terms of the Act. I determined that they were.
First of all, the defendants admitted that Glen Worth, though a coal processing plant, falls within the definition of "coal mine" set forth in the Act. 30 U.S.C. § 802(h). That subsection specifically enumerates "coal preparation facilities" as one of the types of enterprises covered by the terms of the Act.
Defendant argued strenuously that Glen Worth's operations do not affect commerce and, therefore, Glen Worth cannot be subject to the provisions of the Act. The Act states, "Each coal mine, the products of which enter commerce, or the operations or products of which affect commerce, . . shall be subject to the provisions of this chapter." 30 U.S.C. § 803. The language of the statute and the legislative history make it clear that Congress intended the reach of the Act to be concurrent with the scope of the Commerce Clause. See S.Rep. No.1055, 89th Cong., 2d Sess. 1 (1966) reprinted at 1966 U.S.Code Cong. & Admin. News, p. 2072. Thus, in deciding whether the operations of Glen Worth "affect commerce," I was in reality deciding whether the Commerce Clause is broad enough to cover activities such as the operations of Glen Worth.
I concluded that the activities of the defendants do "affect commerce." The Act does not require that the effect on interstate commerce be substantial; any effect at all will subject Glen Worth to the Act's coverage. Even though coal processed at Glen Worth is sold intrastate only, its products compete with those of out-of-state producers. Therefore, local users might be forced to purchase interstate if Glen Worth did not produce coal. Secretary of Interior v. Shingara, 418 F. Supp. 693 (M.D.Pa.1976). Because of this "ripple effect", defendants' operations do affect commerce. I might add parenthetically that the cumulative impact of all intrastate sales of coal certainly has a substantial impact upon interstate commerce. See Wickard v. Filburn, 317 U.S. 111, 63 S. Ct. 82, 87 L. Ed. 122 (1942). For these reasons, I concluded that Glen Worth's sale of coal intrastate does "affect commerce."
Another approach which may be used to analyze whether Glen Worth's operations "affect commerce" is based upon a specific Congressional finding that "the disruption of production and the loss of income to operators and miners as a result of coal mine accidents or occupationally caused diseases unduly impedes and burdens commerce." 30 U.S.C. § 801. Here, Congress found that a class of activities, unsafe mine operations, affected commerce. For purposes of this finding it makes no difference whether a mine sells all of its coal intrastate, since the disruption of coal mine activities in itself is what impedes and burdens commerce. In the case of a mine that sells intrastate only, the disruption of production would force buyers to look elsewhere to purchase coal. Where Congress has made a specific finding that a certain class of activities burdens interstate commerce, and that Congressional determination is a reasonable one, I am unwilling to reach a contrary conclusion. See Katzenbach v. McClung, 379 U.S. 294, 85 S. Ct. 377, 13 L. Ed. 2d 290 (1964).
It is clear to me that defendants' real contention is that the Act simply does not apply to an operation which is owned and operated by the same two persons, without the help of other employees. Defendants' argue that if the purpose of the Act is to protect coal miners, it is pointless to regulate an operation which has no employees. However, Congress plainly did not exempt owner-operated mines from the coverage of the Act. Secretary of the Interior v. Shingara, supra, at 695. But see Morton v. Bloom, 373 F. Supp. 797 (W.D.Pa.1973).
Finally, the Government suggested during oral argument that even an owner-operated coal mine where the coal produced was used solely for the consumption of the owner would, nevertheless, be subject to the Act. I have serious doubts whether such an operation could be held to "affect commerce," but I emphasize that was not the *802 issue or the facts before me. Defendants sell a substantial amount of coal intrastate, and in the past have sold coal which has been used interstate. Under the circumstances, and for the reasons stated in detail above, I reaffirm my conclusion that defendants' operation is subject to the Act. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2141084/ | 463 F. Supp. 1073 (1979)
UNITED STATES of America,
v.
Prudence WHEATON, Willie Leroy Wheaton, Jr., Wilton E. Jones, Francisco Miranda, Ventura Perez, Adrian Davis, Jose Sanchez, Luella McKay, Andrew J. Williams and Elliot P. Williams, Defendants.
No. 78 Cr. 765.
United States District Court, S. D. New York.
January 8, 1979.
*1074 *1075 Robert B. Fiske, Jr., U.S. Atty. S.D.N.Y., New York City, for the United States; Henry H. Korn, Asst. U.S. Atty., New York City, of counsel.
James W. Reilley, Barry E. Witlin, Chicago, Ill., for defendant Wilton E. Jones.
Helena Pichel Solleder, New York City, for defendant Luella McKay.
David A. DePetris, New York City, for defendant Prudence Wheaton.
Jeff L. Greenup, New York City, for defendant Andrew J. Williams.
Robert Mitchell, New York City, for defendant Elliot Williams.
LASKER, District Judge.
A number of defendants move for varied relief.
Wilton E. Jones
Under the authority of United States v. Estepa, 471 F.2d 1132 (2d Cir. 1972), Jones moves for in camera inspection of the Grand Jury minutes, and, if the court finds that the indictment as to him was based on hearsay, to dismiss it. The motion is denied. An indictment returned by a duly constituted Grand Jury is legally sufficient if it appears so on its face. Costello v. United States, 350 U.S. 359, 76 S. Ct. 406, 100 L. Ed. 397 (1956); United States v. Blitz, 533 F.2d 1329 (2d Cir.) cert. denied, 429 U.S. 819, 97 S. Ct. 65, 50 L. Ed. 2d 79 (1976). While it is true that Estepa, supra, holds that where it can be demonstrated that the indictment was procured substantially on the basis of hearsay testimony and that the Grand Jury was not informed of its right to secure non-hearsay testimony the indictment should be dismissed, here, the government in its memorandum (Page 3) represents "that the bulk of testimony before the Grand Jury was direct, non-hearsay testimony and that a proper hearsay warning was given by the attorney for the government, pursuant to United States v. Estepa." Such a representation would, in any event, ordinarily be accepted on its face. Here it certainly can be accepted since Jones has not made even a minimal threshold showing of any reason to believe that the indictment was obtained in violation of Estepa, his sole claim being that: "an examination of the Grand Jury testimony may reveal a direct violation of the principals enunciated in United States v. Estepa."
*1076 There is no basis for granting the relief requested because of Jones' expressed concern that he might be denied his right to "impeach by contradiction." To the extent that Grand Jury minutes in this case may constitute material falling within the provisions of 18 U.S.C. § 3500, it will be made available to him at trial at the appropriate time.
Jones' motion to strike alleged surplusage from the indictment is also denied. He claims that references to him as being also known as "William Williams" and "Wilton" are unnecessary and prejudicial. However, the inclusion of aliases for the purposes of identifying a defendant by name or occupation is permissible. Here the government claims that the proof will identify Jones as having been known from time to time as William Williams or Wilton. If the proof at trial does not so identify him, a renewed motion will be granted. The indictment will not be furnished to the jury before the close of the evidence.
Luella McKay
McKay moves that overt act 45, which charges her with carrying a gun, be stricken as surplus and prejudicial. Such material is permissible, however, if the government submits relevant and admissible evidence at trial of Miss McKay's carrying a gun. If the government does not submit such proof or it is not relevant or admissible, a renewed motion will be granted at the appropriate time. The indictment will not be furnished to the jury before the close of the evidence.
Prudence Wheaton
Prudence Wheaton moves under Rule 18 of the Federal Rules of Criminal Procedure to dismiss Counts 11 through 14 of the indictment on the grounds that the court lacks jurisdiction because, it is claimed, the acts described cannot properly be tried in the Southern District of New York. Counts 11 through 14 charge, in identical language, that on various dates Prudence Wheaton (and as to Count 13, Prudence Wheaton and Willie Leroy Wheaton, Jr.) "in the Southern District of New York" distributed, or possessed with intent to distribute various amounts of heroin. On their face these counts raise no question that venue properly lies in this district. However, in his affidavit in support of the motion, Wheaton's counsel states that he has been advised by the Assistant United States Attorney prosecuting the case that Prudence Wheaton actually sold the heroin referred to in Counts 11 through 14 in Chicago, Illinois, that another person subsequently traveled to New York and resold the last portions of the narcotics within this district and that the government does not contend that Wheaton participated physically in the sales which took place in New York. The government responds that it will establish that the offenses charged in Counts 11 through 14 constituted "continuing" crimes over which 18 U.S.C. § 3237[1] confers venue in this district even though Wheaton was not present during the sales which took place here.
It is not possible to determine at this stage of the proceedings whether the government will in fact prove a "continuing" crime within the meaning of 18 U.S.C. § 3237. If it does, venue and jurisdiction will of course exist. If it does not, a motion to acquit as to these counts would be in order. Accordingly, Wheaton's motion to dismiss Counts 11 through 14 of the indictment is denied without prejudice to renewal at the close of the government's case. It is appropriate to observe that it is highly doubtful whether jurisdiction would lie if the government proves merely that Wheaton made a sale in Chicago, knowing that another independent seller would sell the same material in New York but does not establish that Wheaton intended that such a sale should take place or that Wheaton aided and abetted the New York sale or had a stake in it.
*1077 Prudence Wheaton also moves to strike certain portions of Count one as surplus and prejudicial. In particular, she contends that overt acts 1 through 46 and Paragraphs 3 through 5 of Count one, which describe the structure of the conspiracy, do not state a necessary element of the crime and, therefore, should be stricken. The short answer is that an indictment need not be limited to statements specifying the elements of the offense charged but may, and generally does, describe the nature of the conspiracy charged and enumerate overt acts. It is expected, of course, that the government will prove the facts alleged. If it does not, striking such material as surplus will be appropriate. Accordingly, the motion is denied without prejudice to renewal at the close of the government's case.
Prudence Wheaton further moves for a severance claiming that there has been a mis-joinder of defendants under Rule 8 of the Federal Rules of Criminal Procedure. She contends that it is the government's theory that her participation in the conspiracy was limited to the period following her release from prison December 23, 1976 through early January 1977, that the government has no proof as to conspiratorial activity from the latter date until September, 1978 and that there is no evidence connecting her alleged activity in late September, 1978 and early November, 1978 to the allegations relating to 1976-77. The government responds, however, (see Memorandum, Page 22) that it will establish that Prudence Wheaton was involved in the conspiracy while she was in jail in October through December, 1976; that during the period January, 1977 through September, 1978 the conspiracy continued and that among the facts in furtherance thereof was Prudence Wheaton's possession of some $13,000. in cash and drugs in early January, 1978 as well as her attempt to bribe a Chicago Police Officer to persuade him not to voucher the funds and that in September, 1978, she was recorded as having stated that she had been in the drug business before that time.
The question is to be judged pursuant to Rule 8(b) of the Federal Rules of Criminal Procedure. Under that rule, there is no basis for granting a severance. Prudence Wheaton has been properly joined with the other defendants because it is alleged that she and they participated in the same acts and transaction constituting the offenses charged. Nor is severance required under the provisions of Rule 14 of the Federal Rules of Criminal Procedure. The burden is upon the defendant to show that she would be so prejudiced by a joint trial that in effect she would be denied a constitutionally fair trial. United States v. Fassoulis, 49 F.R.D. 43 (S.D.N.Y.1969), aff'd, 445 F.2d 13 (2d Cir.) cert. denied, 404 U.S. 858, 92 S. Ct. 110, 30 L. Ed. 2d 100 (1971) and United States v. Wolfson, 289 F. Supp. 903 (S.D.N.Y.), aff'd, 405 F.2d 779, (2d Cir. 1968) cert. denied, 394 U.S. 946, 89 S. Ct. 1275, 22 L. Ed. 2d 479 (1969). Wheaton has furnished no facts to support her claim that she will be legally prejudiced by a joint trial. Where the defendant fails "to show the nature of his defense . . . [and] in what respect, if any, his defense is inconsistent with or antagonistic to that of his co-defendants" there is no basis for severance. United States v. Marquez, 319 F. Supp. 1016, 1018 (S.D.N.Y.1970), aff'd, 449 F.2d 89 (2d Cir. 1971) cert. denied, 405 U.S. 963, 92 S. Ct. 1167, 31 L. Ed. 2d 239 (1972).
Finally, Wheaton moves for a severance on the grounds that she "desires to call the co-defendant Willie Leroy Wheaton, Jr., as a witness and expects that the testimony which the co-defendant would give would be useful to the defense concerning participation by the defendant Prudence Wheaton in the alleged offenses." That motion must also be denied since such a bare assertion does not meet the defendant's burden to establish that without severance she would be denied a fair trial. United States v. Crisona, 271 F. Supp. 150 (S.D.N.Y.1967), aff'd, 416 F.2d 107 (2d Cir. 1969), cert. denied, 397 U.S. 961, 90 S. Ct. 991, 25 L. Ed. 2d 253, see also United States v. Dioguardi, 332 F. Supp. 7 (S.D.N.Y.1971).
*1078 Andrew Williams
Andrew Williams moves pursuant to Rule 21 of the Federal Rules of Criminal Procedure that his trial be transferred to the United States District Court for the Northern District of Illinois. His first claim is that trial here would prejudice him because "It is a well known fact that New York City and, in particular, Harlem, which is the part of the Southern District known notoriously as `The Narcotics Capitol of the World.'" The affidavit of Andrew Williams' counsel in support of the motion emphasizes recent major narcotics trials in this district and the fact that one such case was featured as a cover story of a recent issue of the New York Times Magazine.
Although it is appropriate to take judicial notice of these facts, they do not constitute a showing of prejudice within the meaning of Rule 21(a). If counsel's theory were to be accepted, no narcotics offense could be prosecuted in the Southern District of New York. Carried to its extreme, the theory would result in the inability of federal prosecutors to prosecute alleged crimes in the very districts in which they were the most prevalent. Such a construction of the rule turns it on its head. Indeed, the fact that large numbers of narcotics offenses are prosecuted in the Southern District of New York could well be argued to be favorable to a defendant since it is logical to contend that juries here are more enured to such offenses than in districts where trafficking in narcotics is rare.
Andrew Williams also moves, pursuant to Rule 21(b), to transfer the trial to the Northern District of Illinois. Rule 21(b) provides that:
"for the convenience of parties and witnesses, and in the interest of justice, the court upon motion of the defendant may transfer the proceeding as to him or any one or more of the counts thereof to another district."
Although no affidavit from Andrew Williams supports his motion, an affirmation by his counsel contends that such transfer (or as he describes it severance) should be granted because the indictment alleges only one overt act by Andrew Williams (so that his defense will be "contaminated" by the alleged criminal acts of the other defendants) and, more to the point, that most of the acts alleged in the indictment occurred in Chicago, that Andrew Williams is a native of that city, that he does not have the funds to travel here and support himself during a trial which will last several weeks and that he cannot procure fact and character witnesses to testify in his defense in New York although he could do so in Chicago.
The appropriateness of transfer under Rule 21(b) is determined by the criteria specified in Platt v. Minnesota Mining & Mfg. Co., 376 U.S. 240, 84 S. Ct. 769, 11 L. Ed. 2d 674 (1964):
(1) location of defendant
(2) location of witnesses
(3) location of events in issue
(4) location of documents and record
(5) disruption of defendant's business
(6) expense to all parties
(7) location of all counsel
(8) relative accessibility of place of trial
(9) relative docket condition
(10) other special elements which might affect the transfer.
In this case, (1-3) the defendant and his witnesses and a number of the events in issue are located or occurred in the Northern District of Illinois. (4) Documents and records are not significant. (5) There is no showing of a disruption of the defendant's business. (6) Expense is properly of concern to the defendant. However, the government has represented that if the defendant makes a good faith showing of inability to sustain the expense at trial and procuring the presence of witnesses, the government will furnish reasonable funds for those purposes. On the other hand, trial in the Northern District of Illinois would put the government to substantial extra expense. Only a minority of the defendants (and of the Chicago defendants) has moved for a transfer to the Northern District of Illinois. The cases of the nonmoving defendants cannot be transferred to *1079 the Northern District of Illinois. United States v. Griesa, 481 F.2d 276 (2d Cir. 1973). Accordingly, if Andrew Williams' motion were to be granted separate trials would be required in Chicago and New York. It is obvious that the resultant duplication would impose substantial extra expense on the government as well as a double burden on the judiciary. (7-8) Most of the defense counsel are located in New York; New York and Chicago are each totally accessible as places of trial. (9) The requirements of the Speedy Trial Act eliminate differences of docket condition between this district and the Northern District of Illinois and (10) there are no other elements which would justify the transfer.
The burden is on the defendant to establish either that a substantial balance of inconvenience or the interests of justice require a transfer. That burden has not been met. Accordingly, the motion for transfer is denied on condition that the government abide by its representation to make available to the defendant, upon a good faith showing of need, reasonable funds for transportation to New York City and for subsistence for the defendant and witnesses residing in the Chicago area whom he may reasonably call in his defense.
Elliot Williams
Defendant Elliot Williams moves for a transfer to the Northern District of Illinois or a severance on substantially the same grounds as Andrew Williams. The motion is denied on the same terms as the denial of Andrew Williams' motion.
All motions are disposed of in accordance with this memorandum.
It is so ordered.
NOTES
[1] The government also relies on Rule 18 of the Federal Rules of Criminal Procedure which provides that "except as otherwise permitted by statute or by these rules, the prosecution shall be had in a district in which the offense was committed", on Article 3, § 2, Clause 3 of the Constitution and on the Sixth Amendment to the Constitution. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2141022/ | 463 F. Supp. 44 (1978)
Donald Edward ALLEN, Anne Mary Allen, Dawn Anne Allen, Raymond Edward Allen
v.
Joseph W. DORSEY, Individually and in his official capacity as Clerk of Court for the Thirty-second Judicial District, Mary Osswald, Individually and in her official capacity as Agent for Joseph W. Dorsey, John Doe, Individually and in his official capacity, Mary Poe, Individually and in her official capacity.
Civ. A. No. 75-1505.
United States District Court, E. D. Pennsylvania.
September 18, 1978.
Frances Estabrook Dalton, Philadelphia, Pa., for plaintiff.
G. Guy Smith, Media, Pa., for defendants.
*45 MEMORANDUM AND ORDER
BECHTLE, District Judge.
Plaintiff Donald Edward Allen ("Allen") brought this civil rights action pursuant to 42 U.S.C. § 1983 alleging that the defendants, while acting under color of state law, deprived him of his Fourteenth Amendment right to due process of law by failing to properly docket and file, pursuant to the Pennsylvania Post Conviction Hearing Act ("PCHA"), 19 Pa.C.S. § 1180-1 et seq., Allen's petitions for habeas corpus. The named defendants in this action are Joseph W. Dorsey ("Dorsey"), individually and in his official capacity as Clerk of the Court of Common Pleas of Delaware County, and Mary Osswald ("Osswald"), individually and in her official capacity as mailroom clerk in the Court of Common Pleas of Delaware County. The jurisdiction of this Court is based upon 28 U.S.C. §§ 1331, 1343 and pendent jurisdiction, and the amount in controversy is alleged to exceed $10,000, exclusive of interest and costs. Presently before the Court are the cross-motions of plaintiffs and defendants for summary judgment, pursuant to Fed.R.Civ.P. 56. For the reasons stated below, plaintiffs' motions will be denied and defendants' motions will be granted.
The pleadings, affidavits and briefs in support of the motions for summary judgment demonstrate that the pertinent facts underlying Allen's civil rights claim are not in dispute: On January 29, 1974, while serving a 20-year federal sentence[1] in Lewisburg Federal Penitentiary, Allen mailed to Dorsey a petition for habeas corpus ("January petition"), challenging a 1958 juvenile conviction in state court for burglary and larceny on the ground that his Sixth Amendment right to counsel had been violated. Osswald received the January petition on January 31, 1974, and pursuant to Local Rule 301[2] delivered the petition to the Office of the Prothonotary ("Prothonotary") for filing. The Prothonotary assigned the January petition the docket number "1180 of 1974," and transmitted the petition to then-Administrative Judge, the Honorable Francis J. Catania.
On or about February 1, 1974, Allen mailed to Dorsey a second petition for habeas corpus ("February petition"), challenging an allegedly illegal detainer lodged against Allen by the Delaware County Sheriff's Office. Osswald received the February petition on February 5, 1974, and pursuant to Local Rule 301 delivered it to the Prothonotary for filing. The Prothonotary assigned the February petition the same docket number as Allen's January petition, "1180 of 1974," and transmitted the February petition to Administrative Judge Catania. By order dated February 7, 1974, Judge Catania denied Allen's January petition, but he relied only on the grounds advanced by Allen in the second petition filed in February to the effect that the state detainer lodged against Allen was valid and proper. Judge Catania issued another order on March 23, 1974, dismissing the February petition. Here, too, he ruled on the grounds concerning the state detainer and not on the grounds concerning the juvenile record.[3] On March 23, 1974, the same day as Judge Catania's second order, the Prothonotary *46 redocketed Allen's January petition (presumably because the January petition grounds had not been fully disposed of), again using the docket number "1180 of 1974." On March 24, 1975, the Honorable Robert A. Wright of the Delaware County Court of Common Pleas granted Allen's January petition and ordered the expungement of all criminal records in the 1958 juvenile proceedings brought against Allen.[4]
During the time period between the January filing and the May redocketing of the January petition by the Prothonotary, Allen wrote four letters to the Clerk of the Court[5] in which he explained that the prompt disposition of his petitions in state court was essential to the disposition of Allen's pending Fed.R.Crim.P. 35 motion for correction of his 20-year sentence in federal court. By order dated May 17, 1974, United States District Court Judge Clarence C. Newcomer denied Allen's Fed. R.Crim.P. 35 motion for correction of sentence on the ground that the 20-year sentence imposed for bank robbery was appropriate in light of Allen's prior criminal record, which included Allen's 1958 juvenile conviction.[6] However, after Judge Wright granted Allen's January petition for habeas corpus in March of 1975, Allen again moved for a correction of his federal sentence, pursuant to both Fed.R.Crim.P. 35 and 28 U.S.C. § 2255, in light of Judge Wright's holding that Allen's 1958 juvenile conviction in state court was obtained in violation of Allen's constitutional right to counsel. By order dated July 11, 1975, Judge Newcomer granted Allen's motion for reconsideration and, on the basis of an updated presentence report which did not contain the unconstitutional juvenile conviction, vacated Allen's 20-year sentence and resentenced him to a term of imprisonment of ten years.[7] On October 8, 1975, Allen was released on parole from Lewisburg Federal Penitentiary.
The thrust of Allen's complaint is that the defendants' actions in delivering his petitions for habeas corpus to the Prothonotary, instead of docketing them as PCHA petitions in the office of the Clerk of the Court, delayed the disposition of the petitions and ultimately caused Allen's allegedly false imprisonment in Lewisburg Federal Penitentiary for eight months beyond the time when he allegedly would have been eligible for parole. Specifically, Allen alleges that, if the disposition of his petitions in state court had not delayed the granting of his motion for reconsideration of sentence in federal court, he would have been eligible for parole, under the new sentence imposed by Judge Newcomer, as early as February 15, 1975. Allen's wife and children, the other plaintiffs in this case, allege that they were denied the aid, support and protection which Allen could have provided as husband and father during the period of Allen's allegedly wrongful imprisonment; namely, the term of imprisonment between February 15 and October 8, 1975.
To prevail upon a motion for summary judgment, the movant must conclusively demonstrate that there is no genuine issue as to any material fact and that he is entitled to a judgment as a matter of law. Adickes v. S. H. Kress & Co., 398 U.S. 144, 157, 90 S. Ct. 1598, 26 L. Ed. 2d 142 (1970); Fed.R.Civ.P. 56(c). In this case, on the basis of the undisputed facts in the pleadings, admissions and affidavits, we find that the parties have conclusively demonstrated that there is no genuine issue of material fact which must be preserved for trial. The issue, therefore, is whether either movant is *47 entitled to a judgment in his favor as a matter of law. The resolution of this issue depends upon a determination of the question of whether the defendants, while acting under color of state law, violated Allen's civil and constitutional rights by transmitting, without docketing, Allen's two petitions for habeas corpus to the Prothonotary. To resolve this question, we must analyze the extent to which each of the named defendants is immune from liability for damages resulting from the failure to docket Allen's habeas corpus petitions.
42 U.S.C. § 1983 provides that "every person" who acts under color of state law to deprive another person of a constitutional right shall be liable to that person in a suit for damages. However, it is well settled that § 1983 must be read in harmony with the general common law principles of tort immunities and defenses. Imbler v. Pachtman, 424 U.S. 409, 418, 96 S. Ct. 984, 47 L. Ed. 2d 128 (1976), citing Tenney v. Brandhove, 341 U.S. 367, 71 S. Ct. 783, 95 L. Ed. 1019 (1951). Thus, under § 1983, two general levels of immunity are recognized: absolute immunity for judges for acts committed within their discretion, and qualified immunity for governmental officials for acts undertaken in good faith and without malice in the performance of their duties. See Pierson v. Ray, 386 U.S. 547, 87 S. Ct. 1213, 18 L. Ed. 2d 288 (1967); Wood v. Strickland, 420 U.S. 308, 322, 95 S. Ct. 992, 43 L. Ed. 2d 214 (1974); and, Scheuer v. Rhodes, 416 U.S. 232, 247-248, 94 S. Ct. 1683, 40 L. Ed. 2d 90 (1974). The doctrine of absolute immunity for judges has been extended by the Supreme Court to provide absolute immunity to those "quasi-judicial" officials, such as prosecutors, who exercise discretion in the performance of their duties. See, e. g., Imbler v. Pachtman, supra, 424 U.S. at 431, 96 S. Ct. 984; Brawer v. Horowitz, 535 F.2d 830, 834 (3d Cir. 1976). However, absolute "quasi-judicial" immunity has been limited by the Third Circuit to extend only to those "quasi-judicial" officials performing adjudicatory or otherwise judgmental functions. Skehan v. Board of Trustees of Bloomsburg State College, 538 F.2d 53, 59-61 (3rd Cir.) (en banc), cert. denied, 429 U.S. 979, 97 S. Ct. 490, 50 L. Ed. 2d 588 (1976).
The Clerk of the Court and his agents exercise no discretion in the performance of their duties similar to the discretion exercised by judges or "quasi-judicial" officials. Although the Clerk of the Court and his agents have important duties in the judicial process, their duties, such as docketing and filing papers with the court, are ministerial and mandatory acts which do not merit insulation from liability for damages by a grant of absolute "quasi-judicial" immunity. We hold, therefore, that the defendants in this case cannot be characterized as "quasi-judicial" officials and, thus, are not entitled to absolute "quasi-judicial" immunity from liability under 42 U.S.C. § 1983 for the allegedly improper performance of their ministerial duties. McCray v. Maryland, 456 F.2d 1, 4 (4th Cir. 1972); Raitport v. Provident National Bank, 451 F. Supp. 522, 535-538 (E.D.Pa. 1978).
However, qualified immunity from liability for damages in suits brought under 42 U.S.C. § 1983 may be available for a government official acting in good faith pursuant to the lawful authority vested in him by the state. This qualified immunity from liability for damages is available where the official: (1) did not know or reasonably should not have known that the action he took within his sphere of official responsibility would violate the constitutional rights of another person; or, (2) acted without malicious intention to cause a deprivation of constitutional rights or other injury to the person. Wood v. Strickland, 420 U.S. 308, 322, 95 S. Ct. 992, 43 L. Ed. 2d 214 (1974); Scheuer v. Rhodes, 416 U.S. 232, 247-248, 94 S. Ct. 1683, 40 L. Ed. 2d 90 (1974). In the instant case, Allen argues first that the defendants are not entitled to qualified immunity because they knew or reasonably should have known that Allen's petitions were filed pursuant to the PCHA because the face of his January petition indicated that Allen was seeking post-conviction relief from his allegedly unconstitutional juvenile conviction in state court and because *48 the PCHA encompasses all common law and statutory procedures, including habeas corpus, available to secure post-conviction relief. Further, Allen argues that the defendants knew or reasonably should have known that the transmittal, without docketing, of Allen's petitions to the Prothonotary was contrary to Section 6 of the PCHA,[8] which requires the Clerk of the Court, and not the Prothonotary, to immediately docket all PCHA petitions for post-conviction relief. In response, the defendants argue that they did not know, nor reasonably should have known, that Allen's petitions for habeas corpus were filed pursuant to the PCHA because his petitions were unidentifiable as PCHA petitions. Specifically, Dorsey and Osswald contend that Allen did not comply with Section 5(a) of the PCHA[9] and Pa.R.Crim.P. 1501, the statutes which govern the form of all PCHA petitions, because Allen's petitions failed to include the following: a plain statement on its face that the petition was a "post conviction hearing act petition"; identification of all previous proceedings in which Allen attempted to secure relief from his conviction or sentence; affidavits, records and other supporting evidence; a statement of other available grounds of relief for Allen; or, a separation of all facts within the personal knowledge of Allen from other allegations of fact. The defendants also state that Allen's petitions improperly included argument, citations and discussion of authorities in support of his habeas corpus petitions. Upon review of Allen's January and February petitions for habeas corpus, we find that Allen failed to comply with the mandatory requirements of both Section 5(a) of the PCHA, 19 Pa.C.S. § 1180-5(a), and Pa. R.Crim.P. 1501; that Allen's petitions for habeas corpus were unidentifiable as PCHA petitions; and, that the defendants did not know, and reasonably could not have known, that Allen's petitions were sent to the office of the Clerk of the Court pursuant to the PCHA.
Allen argues, second, that the defendants are not entitled to qualified immunity because the transmittal of his petitions to the Prothonotary was "patently unreasonable" because the defendants should have known that then-Local Rule 301, which required every petition for a writ of habeas corpus to be filed with the Prothonotary, was in direct contradiction to Section 6 of the PCHA. Dorsey and Osswald respond that they acted without malicious intention to deprive Allen of his constitutional rights because they had no discretion to disobey the order and mandate of the Delaware County Court of Common Pleas. We find that the ministerial nature of the defendants' jobs required obedience to all judicial orders or directions, including Rule 301 of the Local Rules of Court, and that the *49 defendants acted in good faith and without malice by transmitting Allen's petitions for habeas corpus to the Prothonotary, pursuant to then-Local Rule of Court 301.
In conclusion, having found that the defendants did not know or reasonably could not have known that Allen's petitions for habeas corpus were mailed to the Clerk of the Court for filing pursuant to the PCHA, and having found that the subsequent transmittal of the petitions to the Prothonotary was in good faith and without malicious intention, we hold that the defendants in this case are entitled to qualified immunity from liability for damages. Accordingly, we hold that the defendants are entitled to judgment in their favor as a matter of law, and that the plaintiffs are not entitled to a judgment in their favor as a matter of law because the defendants, while acting under color of state law, are entitled under the circumstances of this case to qualified immunity from liability for damages resulting from the alleged deprivation of Allen's civil and constitutional rights. We will, therefore, grant defendants' and deny plaintiffs' respective motions for summary judgment, pursuant to Fed.R.Civ.P. 56.
An appropriate Order will be entered.
NOTES
[1] On October 22, 1971, Allen was sentenced to Delaware County Prison for a period of 11 to 23 months for state law crimes. Commonwealth of Pennsylvania v. Allen, C.P.Del.Co., Crim. No. 1002 etc., March Sessions, 1970. After serving eight months of this sentence, Allen was tried and convicted in federal district court for bank robbery and on July 31, 1972, was sentenced to Lewisburg Federal Penitentiary for a 20-year term of imprisonment. United States v. Allen, Crim. No. 71-589 (E.D.Pa. 1972).
[2] At the time Allen filed his petitions for habeas corpus, Rule 301 of the Local Rules of the Court of Common Pleas for Delaware County required every petition for a writ of habeas corpus to be filed with the Prothonotary, and not with the Clerk of the Court.
[3] Each of Judge Catania's orders was filed under the docket number for Allen's earlier criminal proceeding in Delaware County, Commonwealth of Pennsylvania v. Allen, C.P.Del.Co., Crim. No. 1002 etc., March Sessions, 1970, and not under the civil docket number "1180 of 1974" assigned to Allen's habeas corpus petitions by the Prothonotary.
[4] See Commonwealth of Pennsylvania v. Allen, C.P.Del.Co. Juvenile Div.: No. 188 and 189, June Sessions, 1958; No. 616, June Sessions, 1958; and, No. 481, September Sessions, 1958.
[5] Allen's letters to the Clerk's Office were mailed on or about February 20, March 10, April 6 and April 30, 1974. Allen received no response to any of these letters.
[6] United States v. Allen, Crim. No. 71-589 (E.D.Pa., May 17, 1974).
[7] Judge Newcomer's order also provided that Allen be eligible for parole under 18 U.S.C. § 4208(a)(1) after having served a term of three years of imprisonment, thus making Allen eligible for parole on July 31, 1975. See n.1 supra; United States v. Allen, Crim. No. 71-589 (July 11, 1975).
[8] Section 6 of the PCHA, 19 Pa.C.S. § 1180-6 provides, in pertinent part:
Upon receipt of a petition seeking relief under this act, the clerk of the court in which the indictment upon which sentence was imposed shall immediately docket the petition to the same term and number as the original proceedings, and promptly notify the court and serve a copy upon the district attorney.
[9] Section 5(a) of the PCHA, 19 Pa.C.S. § 1180-5(a), requires that each PCHA petition shall be in the following form:
(1) The petition must state that it is a post conviction procedure act petition and must include the name of the petitioner, his place of confinement, an identification of the proceedings in which the petitioner was convicted and the place of conviction, the date of the entry of judgment, the sentence imposed, all facts in support of the alleged error on which the petition is based, the relief desired, and an identification of all previous proceedings that the petitioner has taken to secure relief from his conviction or sentence.
(2) The petition must either include affidavits, records, and other supporting evidence, or state why they are not included.
(3) The petition shall not include argument or citation and discussion of authorities.
(4) All facts within the personal knowledge of the petitioner must be set forth separately from other allegations of fact.
(b) Any person desiring to obtain relief under this act shall set forth all of his then available grounds for such relief for any particular sentence he is currently serving in such petition and he shall be entitled to only one petition for each such crime. The failure to raise any such issue in such petition shall be deemed a waiver of any right to future presentation of another petition containing grounds for relief that were available and could have been presented. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2141127/ | 463 F. Supp. 365 (1978)
UNITED STATES of America, Plaintiff,
v.
ONE ASSORTMENT OF 93 FIREARMS, Defendant.
Civ. A. No. 77-590.
United States District Court, D. South Carolina, Columbia Division.
November 14, 1978.
*366 Glen E. Craig, Asst. U. S. Atty., Columbia, S. C., for plaintiff.
Herbert W. Louthian, Columbia, S. C., for Patrick M. Mulcahey, owner of property.
ORDER ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND PLAINTIFF'S MOTION TO STRIKE.
HEMPHILL, District Judge.
This is a forfeiture action, originally filed March 31, 1977, and in which and by which plaintiff seeks condemnation as forfeited to the United States[1], and a decree for the proper disposal thereof of 92 assorted firearms, as listed in an exhibit to the complaint, on the ground that "said firearms were had and possessed and used and intended to be used on January 20, 1977, and prior thereto by Patrick M. Mulcahey and Richland County, South Carolina, in violation of the laws of the United States by engaging in the business of a dealer in firearms and ammunition without the said Patrick M. Mulcahey having first applied for and received a license as a dealer in firearms * * *". In his answer, filed April 18, 1977, Mulcahey, first claimed ownership of the property described in the complaint and entered a general denial; for a second defense Mulcahey declared that he *367 had been tried on the criminal side of the court, under the provisions of Chapter 44, Title 18, United States Code, in violation of Title 18, United States Code, §§ 922(a)(1) and 924(a) and thereafter acquitted by a verdict of a jury which rendered the issues before the court as res judicata, and collaterally estops the government from proceeding. A third defense alleges that the property was seized solely for the purpose of use of said property in evidence in a criminal proceeding and the criminal proceeding having been terminated, that plaintiff had no right to retain or condemn the property.
It is the last two defenses that plaintiff would strike, as positioned in its motion to strike, filed September 20, 1977. On November 9, 1977, defendant moved for summary judgment on the grounds that the owner had been acquitted in the criminal prosecution and that such criminal prosecution bars the forfeiture action. Therefore the motions involve the same issue, to wit: whether the admitted fact that the owner of the firearms was acquitted in a criminal prosecution foreclosed the forfeiture action as pursued by the government. The complaint verifies the fact that plaintiff accuses Mulcahey of violation of 18 U.S.C. §§ 922(a)(1), 923(a), and 924(d). At the hearing on the motions it was admitted that the verdict in the criminal trial on these charges was not guilty. A recitation or finding of fact is unnecessary as the facts are not in dispute.
Initially, this court finds the complaint is lodged under the forfeiture provisions of 18 U.S.C. § 924(d) which states:
Penalties.
(d) Any firearm or ammunition involved in or used or intended to be used in, any violation of the provisions of this chapter or any rule or regulation promulgated thereunder, or any violation of any other criminal law of the United States, shall be subject to seizure and forfeiture and all provisions of the Internal Revenue Code of 1954 relating to the seizure, forfeiture, and disposition of firearms, as defined in section 5845(a) of that Code, shall, so far as applicable, extend to seizures and forfeitures under the provisions of this chapter.
It is to be noted that the section is not a criminal statute in term or in effect, but provides a civil penalty forfeiture for "any violation of the provisions of this chapter or any rule or regulation promulgated thereunder * * *." Such is the case before the court, a civil pursuit, as countenanced by the statute. A forfeiture proceeding is remedial in nature and is properly characterized as a civil proceeding. Glup v. United States, 523 F.2d 557, 561 (8th Cir. 1975); One Lot Stones v. United States, 409 U.S. 232, 237, 93 S. Ct. 489, 493, 34 L. Ed. 2d 438, 443 (1972) citing Helvering v. Mitchell, 303 U.S. 391, 58 S. Ct. 630, 634, 82 L. Ed. 917 (1930).
In Glup the Eighth Circuit stated:
Even assuming, arguendo that the criminal trial and the forfeiture involved some of the same firearms, the collateral estoppel doctrine, which is at the core of appellant's present contention, does not apply. The collateral estoppel effect of an acquittal on a forfeiture proceeding has been most recently addressed by the Supreme Court in One Lot Emerald Cut Stones v. United States, 409 U.S. 232, 93 S. Ct. 489, 34 L. Ed. 2d 438 (1972). In that case, the owner of undeclared imports urged that his acquittal of charges of violating 18 U.S.C. § 545, was a defense to a forfeiture action instituted by the Government under the Tariff Act of 1930, 18 U.S.C. §§ 545, 597. The district court held that the forfeiture was barred by collateral estoppel and the fifth amendment. The Court of Appeals for the Fifth Circuit reversed. The Supreme Court granted certiorari and affirmed. Citing Ashe v. Swenson, 397 U.S. 436, 443, 90 S. Ct. 1189, 25 L. Ed. 2d 469 (1970), the Court noted that "[c]ollateral estoppel would bar a forfeiture under § 1497 if, in the earlier criminal proceeding, the elements of a § 1497 forfeiture had been resolved against the Government." 409 U.S. at 234, 93 S.Ct. at 491. But, the Court observed, acquittal on the criminal charge does not necessarily resolve the *368 issues in the forfeiture action. The difference in the burden of proof in a criminal case and in a civil proceeding precludes application of the collateral estoppel doctrine. The Court stated:
Moreover, the difference in the burden of proof in criminal and civil cases precludes application of the doctrine of collateral estoppel. The acquittal of the criminal charges may have only represented "`an adjudication that the proof was not sufficient to overcome all reasonable doubt of the guilt of the accused'." As to the issues raised, it does not constitute an adjudication on the preponderance-of-the-evidence burden applicable in civil proceedings.
409 U.S. at 235, 93 S. Ct. at 492 (citations omitted). It is well established that a forfeiture proceeding under 18 U.S.C. § 924(d) is remedial in nature and is properly characterized as a civil proceeding. Bramble v. Richardson, 498 F.2d 968 (10th Cir. 1974); United States v. One (1) 1969 Buick Riviera Automobile, 493 F.2d 553, 554 (5th Cir. 1974); Epps v. Bureau of Alcohol, Tobacco & Firearms, 375 F. Supp. 345, 346 (E.D.Tenn.1973); United States v. 1,922 Assorted Firearms, 330 F. Supp. 635, 637 (E.D.Mo.1971). (Emphasis added.) (p. 561.)
The reasoning in One Lot Stones is also applicable here:
If for no other reason, the forfeiture is not barred by the Double Jeopardy Clause of the Fifth Amendment because it involves neither two criminal trials nor two criminal punishments "Congress may impose both a criminal and a civil sanction in respect to the same act or omission * * *" (Citing Helvering v. Mitchell, supra.)
An examination of the record here shows one criminal case, another civil. The difference in the criminal proceeding on the one hand and the forfeiture proceeding on the other emphasizes the distinction here. The present action invokes the provisions of 26 U.S.C. § 5872(a)[2] and 26 U.S.C. § 7323(a)[3]. The criminal action was not based on, neither included nor involved such sections.
This forfeiture action was properly brought under the provisions of 18 U.S.C. § 924(d) invoking the provisions of 26 U.S.C. § 5872(a) and 26 U.S.C. § 7323(a). This is an action in rem commenced by the Complaint for Forfeiture filed on March 31, 1977.[4] The court ordered (April 4, 1977) that Warrant for Arrest and Notice issue. The court obtained jurisdiction over the property by the Marshal arresting it and retaining custody thereof under the direction of the court. There is nothing in such statutes that requires the property be seized under a warrant specifically providing that it is seized for forfeiture.
Where the property is lawfully seized as evidence in a criminal proceeding, it may be made the subject of a forfeiture proceeding under the provisions of 18 U.S.C. § 924(d), 26 U.S.C. §§ 5872(a), and 7323(a). It is clear that a claimant in a forfeiture proceeding is not entitled to the return of the defendant property on the ground he was acquitted in the related criminal proceeding. Glup, supra; United States v. One 1969 Buick Riviera Automobile, 493 F.2d 553 (5th Cir. 1974).
Of interest to this discussion is Epps v. Bureau of Alcohol, Tobacco & Firearms, 375 *369 F.Supp. 345 (E.D.Tenn.1973), affirmed without opinion, 495 F.2d 1373 (6th Cir.). There the court stated as follows:
It is undisputed that the plaintiff did not, at the pertinent times, have a license to engage in the business of dealing in firearms and ammunition; but, he was acquitted of having violated the provisions of 18 U.S.C. § 922(a)(1) on November 7, 1972, in United States of America, plaintiff v. William E. Epps, Jr., defendant, criminal action no. 7260, this district and division. Such acquittal on such criminal charge is not a bar to the civil administrative action by the government, which is remedial in nature, arising out of the same facts on which the criminal proceeding was based. Helvering v. Mitchell (1938), 303 U.S. 391, 397, 58 S. Ct. 630, 82 L. Ed. 917, 921 (headnote 2). Forfeiture of goods is a civil sanction, remedial in nature. Ibid., 303 U.S. at 400, 82 L.Ed. at 922 (headnote 6); see also Colacicco v. United States, infra, [2 Cir.] 143 F.2d [410] at 411-412[2]. (Emphasis added.) (p. 346).
It is obvious the second defense is insufficient.
THE THIRD DEFENSE
In paragraph 9 of the complaint Mulcahey alleges that some of the appraised values of the firearms are not accurate and that the appraised total value is approximately one-third of the actual total value. This is not a valid defense.
The general statute (26 U.S.C. § 7323) providing for judicial action to enforce forfeiture does not require any appraisal of seized property. That statute is subject to the exception in 26 U.S.C. § 7325 providing that if the property is valued at $2,500 or less it will be appraised as the claimant is entitled to judicial enforcement of the forfeiture where the property has a value of $2,500 or less if he files $250 cost bond. The regulations are in accord with the statutes in not applying the appraisement procedure set forth in 26 U.S.C. § 7325 where the property is alleged to have a value of over $2,500. Accordingly, where the property is alleged to have a value of over $2,500, the appraisal is jurisdictional only to the extent that it entitles the claimant to a judicial action without the requirement that he post a cost bond.
Since the Government's appraised value in this case is over $2,500 and is admitted to be so by Mulcahey in his Answer, any defect or inaccuracy in the appraisal is not jurisdictional and is immaterial to the prosecution of the forfeiture action. In other circumstances involving administrative forfeiture proceedings where the property was appraised at $2,500 or less, it has been held that a technical defect in the appraisal was not jurisdictional to the administrative forfeiture proceedings. Glup, supra. For an explanation of the reason for the requirements of appraisal and filing of a cost bond by the claimant where the property is valued at $2,500 or less, see Epps, supra; and Application of Colacicco, 55 F. Supp. 766 (D.N.Y.1943) affirmed 143 F.2d 410 (2d Cir. 1944).
In paragraph 10 Mulcahey alleges that many of the alleged items of property were not his property, but the property of his wife, children, and others.[5] This does not allege a valid defense to the forfeiture of any of the property. See United States v. One 1972 Toyota Mark II, 505 F.2d 1162 (8th Cir. 1974) where the Eighth Circuit stated as follows:
The innocence, noninvolvement or lack of negligence of the owner in allowing the vehicle to be used for the forfeitable offense is no defense to the forfeiture action. United States v. One 1971 Lincoln Continental Mark III, 460 F.2d 273, 275 (8th Cir. 1972); United States v. One 1967 Cadillac Coupe Eldorado, 415 F.2d 647, 648 (9th Cir. 1969); United States v. One 1961 Cadillac, 337 F.2d 730, 732 (6th *370 Cir. 1964); cf. Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663, 94 S. Ct. 2080, 40 L. Ed. 2d 452 (1974). (p. 1165)
In paragraph 11 Mulcahey alleges, in effect, that many of the seized items were "curios and relics" and not firearms within the meaning of Chapter 44, Title 18 U.S.C., and that such items should be eliminated from the forfeiture proceeding. This is a misinterpretation of the statutes and does not allege a defense to the forfeiture action.
The provisions of 18 U.S.C. § 921(a)(13) and 27 CFR 178.11 defining certain firearms as "curios and relics" make it clear that firearms classified as "curios and relics" are "firearms" as defined in 18 U.S.C. § 921(a)(3)-(8). It is clear that the statute provides for certain firearms to be classified as "curios and relics" in order to create the category of licensee as a collector ((18 U.S.C. § 923(b)) who is a person "who acquires, holds, or disposes of firearms and ammunition as curios and relics" ((18 U.S.C. § 921(a)(13)).
An unlicensed person is not prohibited from collecting firearms generally or of the category of curios or relics. Additionally, an unlicensed person may only buy and sell firearms generally (including "curios and relics") within his own state, with certain exceptions, whereas if licensed as a collector who "acquires, holds, and disposes of firearms as curios and relics" he may acquire "curios and relics" anywhere and dispose of them to any licensee wherever located.
27 C.F.R. 178.41(d) makes it clear that a collector's license applies "only to transactions related to a collector's activity in acquiring, holding, or disposing of curios and relics" and such license does not authorize the collector licensee to acquire and dispose of curios and relics in engaging in the business of a dealer in firearms.
CONCLUSIONS
For the reasons stated above the court concludes that the motion to strike the second and third defenses is granted and that the defense motion for a summary judgment is denied. (The court schedules a post-decision status hearing November 27, 1978, at 10:00 a. m. o'clock, at Columbia).
The Second and Third Defenses of the Answer are stricken. The Motion for Summary Judgment is denied.
AND IT IS SO ORDERED.
NOTES
[1] Under provisions of 26 U.S.C. § 7401, which provides: Authorization.
No civil action for the collection or recovery of taxes, or of any fine, penalty, or forfeiture, shall be commenced unless the Secretary or his delegate authorizes or sanctions the proceedings and the Attorney General or his delegate directs that the action be commenced.
[2] 26 U.S.C. § 5872(a) provides: Forfeitures.
(a) Laws applicable. Any firearm involved in any violation of the provisions of this chapter shall be subject to seizure and forfeiture, and (except as provided in subsection (b)) all the provisions of internal revenue laws relating to searches, seizures, and forfeitures of unstamped articles are extended to and made to apply to the articles taxed under this chapter, and the persons to whom this chapter applies.
[3] 26 U.S.C. § 7323(a) provides: Judicial action to enforce forfeiture.
(a) Nature and venue. The proceedings to enforce such forfeitures shall be in the nature of a proceeding in rem in the United States District Court for the district where such seizure is made.
[4] By Orders dated July 6, 1977, the court ordered that the Complaint be amended to include an additional firearm and that warrant for arrest and notice issue in connection with such additional firearm. On July 18, 1977 Mulcahey filed an Answer to the Amended Complaint.
[5] By Order dated July 6, 1977 the court ordered that four of the firearms be delivered to Mrs. Mulcahey. Government counsel moved for such Order. No one except Mulcahey has filed a claim for any of the defendant firearms as required by the notice published in THE STATE newspaper dated April 29, 1977. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2140634/ | 463 F. Supp. 636 (1978)
NATIONAL BANK OF NORTH AMERICA, Petitioner,
v.
LOCAL 553 PENSION FUND OF the INTERNATIONAL BROTHERHOOD OF TEAMSTERS AND CHAUFFEURS, Respondent.
Anthony Lombardo, Judgment-Debtor.
No. 78 C 758.
United States District Court, E. D. New York.
December 28, 1978.
*637 Halpern, Halpern & Axelrod, Mineola, N.Y. by Elliot Pecker, Mineola, N.Y., for petitioner.
Cohen, Weiss & Simon, New York City by Samuel J. Cohen, Keith E. Secular, New York City, for respondent.
MEMORANDUM AND ORDER
NEAHER, District Judge.
In October 1975, petitioner, the National Bank of North America (the "Bank"), obtained a money judgment for $3,414.65 against Anthony Lombardo in the Civil Court of the City of New York, Queens County, $2,639.05 of which remains unsatisfied. Petitioner commenced the above-styled special proceeding in the Civil Court in April 1978, to obtain an order, pursuant to N.Y. CPLR § 5225(b), directing the respondent, Local 553 Pension Fund (the "Fund"), to make monthly payments to it of $32.85, representing ten percent of Lombardo's monthly pension benefits, in satisfaction of the 1975 judgment.[1] Respondent thereafter removed the proceedings to this court pursuant to 28 U.S.C. § 1441(a). The matter is before the court on petitioner's motion to remand to the Civil Court on the *638 ground that the removal was improvident. See 28 U.S.C. § 1447(c).
Resolution of this motion turns on whether the claim sued upon arises under federal law. The parties agree that the Local 553 Pension Fund constitutes a "plan" subject to the provisions of the Employees Retirement Income Security Act of 1974 ("ERISA"), Pub. L. No. 93-406, 29 U.S.C. § 1001 et seq. But their accord extends no further. Respondent urges that the cause of action properly sounds under Section 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B), which provides that:
"(a) A civil action may be brought
(1) by a participant or beneficiary
* * * * * *
(B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan; . . .."
Section 502(e)(1), 29 U.S.C. § 1132(e)(1), in turn confers on federal and State courts concurrent original jurisdiction of actions brought under subsection (a)(1)(B). Hence, if this proceeding falls within Section 502(a)(1)(B), removal was proper. See 28 U.S.C. § 1441(a).
To span the apparent gulf between the kind of action contemplated by Section 502(a)(1)(B) and the relief sought by the Bank in this proceedinggarnishment of a portion of Lombardo's monthly pension benefits as well as the fact that the Bank, as judgment creditor, hardly qualifies as a "participant" or "beneficiary" as those terms are defined in ERISA, see 29 U.S.C. § 1002(7) & (8),[2] the Fund offers a two-pronged argument. First, it contends that the order petitioner seeks would necessarily modify Lombardo's right to receive benefits from the Fund and that the proceeding must, therefore, be viewed as one brought "to clarify the rights of a pensioner to future benefits." Respondent's Memorandum (6/27/78), at 5. Second, the Fund invokes the familiar rule that a judgment creditor "stands in the shoes" of the judgment debtor when he seeks to enforce the judgment against property of the judgment debtor held by a third party. Id. at 5-6. Petitioner responds that it does not seek to clarify Lombardo's right to pension benefits but simply to "intercept" a portion of the benefits currently being paid to him, in *639 order to satisfy the 1975 Civil Court judgment.
It is settled that "[w]hether an action arises under federal law is determined with reference solely to plaintiff's complaint . . .." State of New York v. Local 1115 J. Bd., N.H. & H.E.D., 412 F. Supp. 720, 722 (E.D.N.Y. 1976). See Pan American Petroleum Corp. v. Superior Court, 366 U.S. 656, 81 S. Ct. 1303, 6 L. Ed. 2d 584 (1961). This follows naturally from the rule that a claim is federal only if federal law creates the cause of action sued upon. See, e. g., Oneida Indian Nation of New York State v. County of Oneida, 414 U.S. 661, 94 S. Ct. 772, 39 L. Ed. 2d 73 (1974); American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 36 S. Ct. 585, 60 L. Ed. 987 (1916); Louisville & Nashville R.R. v. Mottley, 211 U.S. 149, 152, 29 S. Ct. 42, 53 L. Ed. 126 (1908). Thus, as the Supreme Court has only lately held, if a claim is to be characterized as federal,
"`a right or immunity created by the Constitution or laws of the United States must be an element, and an essential one, of the plaintiff's cause of action.' Gully v. First National Bank in Meridian, 299 U.S. 109, 112 [57 S. Ct. 96, 81 L. Ed. 70] (1936). The federal questions `must be disclosed upon the face of the complaint, unaided by the answer.' Moreover, `the complaint itself will not avail as a basis of jurisdiction in so far as it goes beyond a statement of the plaintiff's cause of action and anticipates or replies to a probable defense.' Gully, supra, at 113 [57 S. Ct. 96.]"
Phillips Petroleum Company v. Texaco, Inc., 415 U.S. 125, 127-28, 94 S. Ct. 1002, 1003-1004, 39 L. Ed. 2d 209 (1974) (additional citations omitted).
A plaintiff may not, of course, defeat federal removal jurisdiction by casting in terms of State law a claim which is properly federal; nonetheless, where he has a right to relief under either State or federal law, a plaintiff may elect to rely exclusively on State law and his unasserted federal claim will not support removal. State of New York v. Local 1115, supra, 412 F.Supp. at 722; see Great Northern Ry. Co. v. Alexander (Hall's Adm'r), 246 U.S. 276, 282, 38 S. Ct. 237, 62 L. Ed. 713 (1918); The Fair v. Kohler Die & Specialty Company, 228 U.S. 22, 25, 33 S. Ct. 410, 57 L. Ed. 716 (1913).
It is evident here that the Bank's claim, as reflected in its petition to the State court, derives entirely from State, rather than federal, law. Indeed, the relief soughtan order directing the Fund to pay to the Bank a portion of Lombardo's monthly pension benefitsis purely a creation of New York law. See N.Y. CPLR § 5225(b). The Fund's effort to characterize the proceeding as an action brought to clarify a pensioner's right to future benefits from a plan subject to ERISA's substantive provisions and therefore both within this court's subject matter jurisdiction and calling for a federally-created remedyis foreclosed by the simple fact that the Bank is neither a "participant" nor a "beneficiary," and in any event falls with the Fund's concession of its obligation, under the terms of the plan, to Lombardo. Certainly, the Bank's claim presupposes Lombardo's right to receive pension benefit payments; but the Bank's right, if any, to reach those payments stems entirely from the judgment-enforcing remedies provided by the CPLR, and not from the common law notion that a judgment creditor's interest in property held by a third party is coextensive with that of his judgment debtor. Cf. Slaff v. Slaff, 9 A.D.2d 80, 191 N.Y.S.2d 636, 638-39 (1st Dep't 1959); Gombert v. George C. Fuller Contracting Co., 285 A.D. 1053, 139 N.Y.S.2d 464, 466 (2d Dep't 1955); 6 Weinstein, Korn & Miller ¶ 5225.16 (1964).
While conceding that the merits are not before the court on this motion to remand, the Fund nonetheless urges that "important issues of federal pension policy" are raised which support a recognition of federal jurisdiction. Respondent's Memorandum (6/27/78) at 3. The Fund seemingly argues that it would be an exercise in futility to remand this case, since Sections 206(d)(1) and 1021(c) of ERISA, 29 U.S.C. *640 § 1056(d)(1), 26 U.S.C. § 401(a)(13), preclude the relief now sought by the Bank.
Undeniably, as the Fund points out, § 206(d)(1) requires that "[e]ach pension plan shall provide that benefits provided under the plan may not be assigned or alienated." Ostensibly in conformity with that requirement, the Local 553 Pension Plan "provides that no portion of any pension benefit paid by the Fund is subject to attachment, garnishment, levy, execution or other legal equitable [sic] process against a plan participant." Respondent's Memorandum (6/27/78), at 3. The Plan's provision, however, parallels virtually identical language appearing in a Treasury Regulation, § 1.401(a)(13)(b)(1) (February 17, 1978), interpreting Section 1021(c), 26 U.S.C. § 401(a)(13), as making the inclusion of an anti-assignment and alienation term a precondition to treatment of a pension plan as a "qualified trust"that is, one eligible for such tax advantages as exempt status under 26 U.S.C. § 501 and deferred taxation of employer contributions under id. § 402.
Despite the foregoing, this court (per Judge Nickerson) has recently held that neither ERISA nor the provisions of the pension fund agreement would prevent a levy against fund benefits to satisfy a State court judgment for familial support, Cody v. Riecker, 454 F. Supp. 22 (E.D.N.Y. 1978), relying upon the rule that federal legislation will not be interpreted as displacing the States' power to enforce such obligations, absent an "unambiguous declaration" of Congress' intent to do so.[3] See generally Wetmore v. Markoe, 196 U.S. 68, 25 S. Ct. 172, 49 L. Ed. 390 (1904) (familial support obligations not dischargeable in bankruptcy); Schlaefer v. Schlaefer, 71 U.S.App.D.C. 350, 112 F.2d 177 (1940) (bankruptcy). Compare Free v. Bland, 369 U.S. 663, 82 S. Ct. 1089, 8 L. Ed. 2d 180 (1962); Wissner v. Wissner, 338 U.S. 655, 70 S. Ct. 398, 94 L. Ed. 424 (1950).
At least one other district court has reached a similar result, albeit in a somewhat different setting, declining to enjoin a Family Court order directing the diversion to a county social services agency of a portion of pension benefits otherwise payable to an individual in arrears in making court-directed support payments to his wife and children, where the wife had assigned to the agency her support rights in exchange for assistance provided by the agency, a practice required by Section 402(a)(26)(A) of the Social Security Act, as amended, 42 U.S.C. § 602(a)(26)(A). See Cartledge v. Miller, 457 F. Supp. 1146 (S.D.N.Y. 1978). Cf. Stone v. Stone, 450 F. Supp. 919 (N.D. Cal. 1978).
The New York courts seem generally to have adopted a view of Section 206(d) consistent with the holdings of Cody and Cartledge, finding that ERISA has not displaced the traditional New York rule (now codified in N.Y. Pers. Prop. Law § 49-b) that pension benefits are subject to levy and attachment to enforce support obligations notwithstanding language in the instrument restricting assignment or alienation. See, e. g., M.H. v. J.H., 93 Misc. 2d 1016, 403 N.Y.S.2d 411 (Fam. Ct., Queens County, 1978); Cogollos v. Cogollos, 93 Misc. 2d 406, 402 N.Y.S.2d 929 (Sup. Ct., N.Y. County, 1978); Wanamaker v. Wanamaker, 93 Misc. 2d 784, 401 N.Y.S.2d 702 (Fam. Ct., Rockland County, 1978). One New York decision goes even further, however, interpreting Section 206(d) as restricting voluntary assignments and alienations only, and holding, therefore, that State-court judgment-enforcing process may issue, unimpeded by ERISA, against a judgment debtor's pension benefits without regard to the source of the underlying obligation. National Bank of North America v. International Brotherhood of Electrical Workers Local # 3, 93 Misc. 2d 590, 400 N.Y.S.2d 482 *641 (Sup. Ct., Nassau County, 1977). That decision amply supports petitioner's contention that its claim is predicated solely on State law, and places in perspective the respective positions of the parties on this motion.
Even if the matters raised in defense by the Fund required interpretation of federal law,[4] it is settled that "[a] defense based on federal law . . . will not sustain removal jurisdiction." State of New York v. Local 1115, supra, 412 F.Supp. at 722 (citing Application of State of New York, 362 F. Supp. 922, 926 (S.D.N.Y. 1973)). The Fund's proper course is to submit this issue to the State courts for determination, subject to ultimate review in the Supreme Court. State of New York, supra, 412 F.Supp. at 724.
No other basis for removal jurisdiction having been offered, petitioner's motion to remand this action to the New York City Civil Court is granted.
SO ORDERED.
NOTES
[1] N.Y. CPLR § 5225(b) provides, in pertinent part, as follows:
"Upon a special proceeding commenced by the judgment creditor, against a person in possession or custody of money or other personal property in which the judgment debtor has an interest, . . . where it is shown that the judgment debtor is entitled to the possession of such property . . ., the court shall require such person to pay the money, or so much of it as is sufficient to satisfy the judgment, to the judgment creditor . . .. Notice of the proceeding shall also be served upon the judgment debtor . . .. The court may permit the judgment debtor to intervene in the proceeding. The court may permit any adverse claimant to intervene in the proceeding and may determine his rights in accordance with [N.Y. CPLR] section 5239."
Although trust principal is wholly exempt from execution for purposes of satisfying a money judgment, N.Y. CPLR § 5205(c), at least 10 percent of the "income or other payments" from an exempted trust is generally subject to enforcement proceedings, id. § 5205(d)(1).
[2] 29 U.S.C. § 1002(7) & (8) provide:
"(7) The term `participant' means any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or whose beneficiaries may be eligible to receive any such benefit. "(8) The term `beneficiary' means a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder."
The only other persons authorized by Section 502 to bring suit under ERISA are "fiduciaries" and the Secretary of Labor. See 29 U.S.C. § 1132(a)(1)-(6). The Plan does not contend that the Bank qualifies as a fiduciary. Cf. Hibernia Bank v. International Brotherhood of Teamsters, 411 F. Supp. 478, 488-90 (N.D. Cal. 1976).
The federal courts have uniformly restricted standing to sue under Section 502(a)(1)(B) to employee-participants and designated beneficiaries. See, e. g., Francis v. United Technologies Corp., No. C 77-1504, 458 F. Supp. 84 (N.D. Cal. 1978); Kerbow v. Kerbow, 421 F. Supp. 1253 (N.D. Tex. 1976). Indeed, each of the cases cited by the respondent in support of this court's removal jurisdiction is consistent with this view. See Cowan v. Cowan, No. C 76-116A (N.D. Ohio, June 9, 1976) (alleged beneficiary); Buck v. Union Trustees of Plumbers & Pipefitters National Pension Fund, 70 F.R.D. 530 (E.D. Tenn. 1975) (employee-participant); Leonardis v. Local 282 Pension Trust Fund, 391 F. Supp. 554 (E.D.N.Y. 1975) (employee-participant). The only decision adopting a contrary rule is Stone v. Stone, 450 F. Supp. 919 (N.D. Cal. 1978), where the court held that neither Section 206(d) nor Section 514(a) of ERISA preempts State community property laws that permit the transfer of a portion of an employee-participant's covered pension plan benefits to his non-employee spouse upon a judgment dissolving their marriage, and that ERISA therefore poses no obstacle to the concomitant transfer of the participant's right of action under Section 502(a)(1)(B). The holding was rejected in the Francis case, supra, and, in any event, turned largely on the distinction between the claims of business creditors and the community property interests of non-employee spouses, as well as the fundamental interest of the State in regulating domestic relations.
[3] On facts virtually identical to those of Cody, however, the Eastern District of Michigan has reached a contrary result, holding that Section 206(d) supersedes any State decisional rule that would permit garnishment of pension plan benefits, despite an anti-assignment or alienation provision in the trust agreement, to enforce obligations created by a judgment of divorce. See General Motors Corp. v. Townsend, No. 6-72159 (E.D. Mich., Dec. 16, 1976). See also Francis v. United Technologies Corp., No. C 77-1504, 458 F. Supp. 84 (N.D. Cal. 1978) (ERISA preempts so much of State community property law as gives non-employee spouse interest in covered retirement plan; no cause of action under ERISA).
[4] Of course, the fact that federal law may govern certain aspects of a case does not mean that the action arises under federal law for purposes of original or removal jurisdiction. Again, the remedy sought by petitioner is not one provided by Section 502 nor is the proceeding one over which Congress has given the federal courts jurisdiction. The Supreme Court has uniformly rejected the view that federal jurisdiction may be asserted over an action solely on the ground that a property right or interest recognized or governed by federal law is involved or may be affected by the action where, although matters of national policy are implicated, neither the federal government nor a federal entity is a party and no proprietary interest of the federal government is in issue or is likely to be affected by the outcome. Thus where, as here, a claim is founded on State law and does not lie within any specific grant of federal court subject matter jurisdiction, it must be prosecuted in the State courts, and will be governed by State substantive law except to the extent that federal questions may emerge in determining the contours of the State claim. See Phillips Petroleum Co. v. Texaco, Inc., 415 U.S. 125, 94 S. Ct. 1002, 39 L. Ed. 2d 209 (1974) (suit to recover value of helium constituent of natural gas sold by plaintiff to defendant at rates set by the Federal Power Commission); Lear, Inc. v. Adkins, 395 U.S. 653, 89 S. Ct. 1902, 23 L. Ed. 2d 610 (1969) (suit involving patent licensing agreement); Pan American Petroleum Corp. v. Superior Court, 366 U.S. 656, 81 S. Ct. 1303, 6 L. Ed. 2d 584 (1961) (suit to recover natural gas overpayments); Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 70 S. Ct. 876, 94 L. Ed. 1194 (1950) (suit on contract concerning issuance of certificate by FPC); American Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 36 S. Ct. 585, 60 L. Ed. 987 (1916) (disparagement action). Contra, Smith v. Kansas City Title & Trust Co., 255 U.S. 180, 41 S. Ct. 243, 65 L. Ed. 577 (1921) (suit brought by shareholder to enjoin bank from investing in federal farm loan bonds). Compare D'Oench Duhme & Co. v. FDIC, 315 U.S. 447, 62 S. Ct. 676, 86 L. Ed. 956 (1942), and Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S. Ct. 573, 87 L. Ed. 838 (1943), with Wallis v. Pan American Petroleum Corp., 384 U.S. 63, 86 S. Ct. 1301, 16 L. Ed. 2d 369 (1966), and Nolan v. Meyer, 520 F.2d 1276 (2 Cir.), cert. denied, 423 U.S. 1034, 96 S. Ct. 567, 46 L. Ed. 2d 408 (1975). See generally Wong v. Bacon, 445 F. Supp. 1177, 1186 n. 12 (N.D. Cal. 1977) (discussing implication of federal common law remedies). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2142565/ | 462 F. Supp. 336 (1978)
Anita JOHNSON, and Health Research Group, Plaintiffs,
v.
DEPARTMENT OF HEALTH, EDUCATION AND WELFARE, et al., Defendants.
Civ. A. No. 77-2013.
United States District Court, District of Columbia.
December 20, 1978.
David C. Vladeck, Alan B. Morrison, Diane B. Cohn, William B. Schultz, Washington, D. C., for plaintiffs.
Herbert Dym, Robert M. Sussman, Washington, D. C., for defendant, Smith, Kline and French.
Earl J. Silbert, U. S. Atty., Robert N. Ford, Robert M. Werdig, Jr., Asst. U. S. Attys., Washington, D. C., for defendant, HEW.
ORDER
CHARLES R. RICHEY, District Judge.
This Freedom of Information Act case is now before the Court upon cross-motions for summary judgment. The plaintiffs seek an order requiring the defendants to make public raw animal test data and pharmacologists' reviews relating to the drug cimetidine, which defendant Smith, Kline and French markets under the trade name Tagamet. This information was collected by the federal defendants, the Department of Health, Education and Welfare (HEW) and the Food and Drug Administration (FDA), in connection with Smith, Kline's new drug application to secure marketing approval for cimetidine.
The federal defendants oppose the disclosure of the pharmacologists' reviews on the ground that these are within exemption 5 to the FOIA, which permits the withholding of intra-agency memoranda. The Court will order the in camera inspection of these reviews, as provided in 5 U.S.C. § 552(a)(4)(B), to determine whether any portions of these documents are within the exemption.
*337 Defendant Smith, Kline opposes the disclosure of the raw animal test data for cimetidine primarily on the ground that such data submitted in support of a new drug application constitute "trade secrets and confidential commercial information," and are therefore protected from disclosure by exemption 4 to the FOIA. The cross-motions for summary judgment on the exemption issue will be denied, because it is the Court's view that the decision in National Association of Government Employees v. Campbell, No. 76-1210 (D.C.Cir., May 9, 1978), requires an evidentiary hearing. However, the Court will resolve at this time the question whether the existence of a patent for cimetidine precludes the use of exemption 4 to the FOIA to protect information submitted in support of the new drug application.
Defendant Smith, Kline holds a patent for the drug cimetidine which will expire in 1993. To obtain this patent, Smith, Kline had to make certain showings to the patent office concerning the novelty, usefulness and chemical composition of the drug. This information is now in the public domain. In exchange for its release of this information concerning its discovery, Smith, Kline acquired an exclusive right to make, market and license the drug until the expiration of its patent. In Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 94 S. Ct. 1879, 40 L. Ed. 2d 315 (1970), the Supreme Court held that a patent excludes other forms of protection from competition. Therefore, Smith, Kline's choice of patent protection constitutes an election not to seek other means to guard against competitive production of the new drug.
It is the plaintiffs' contention that Smith, Kline's patents for cimetidine preclude it from claiming trade secret protection for the raw animal test data which was submitted as safety and effectiveness data in support of Smith, Kline's application for marketing approval for the drug. The plaintiffs argue that the existence of the patent makes it impossible to prove the "likelihood of substantial competitive injury" which is necessary to a claim of exemption 4 protection from disclosure. National Parks Association v. Morton, 162 U.S.App. D.C. 223, 498 F.2d 765 (1974). Plaintiffs contend that no such competitive injury will occur as a matter of law, since patent protection is available for the drug. The Court rejects this contention, because defendants have pointed out at least two instances in which competitive injury due to the release of these studies could occur as a matter of fact. Defendants contend that the availability of the animal test data would make it easier for competitors to market cimetidine when Smith, Kline's patents expire. In addition, defendants argue that competitors could use the data now to enter foreign markets, where Smith, Kline has no adequate patent protection for cimetidine, but where regulators will accept safety and effectiveness studies developed for U.S. new drug applications. Therefore, the patent protection for cimetidine does not necessarily preclude a finding of competitive injury as a matter of fact. Accordingly, the National Association of Government Employees v. Campbell decision, supra, mandates an evidentiary hearing to determine the likelihood of substantial competitive injury.
In addition, plaintiffs argue that to extend trade secret protection from FOIA disclosure of any information concerning cimetidine would violate the policy of exclusivity of the patent laws, as it has been developed in such cases as Kewanee Oil Co. v. Bicron Corp., supra, and Sears Roebuck v. Stiffel Co., 376 U.S. 225, 84 S. Ct. 784, 11 L. Ed. 2d 661 (1964). This policy relies upon a theory of quid pro quo: Under the patent laws, the inventor is granted a limited monopoly in exchange for his disclosure of essential information concerning the invention. Plaintiffs contend that a grant of trade secret protection of information necessary to secure marketing approval for the patented drug would unfairly extend the period and scope of the patent. This argument rests upon the assumption that the safety and effectiveness data necessary to secure marketing approval for the drug must be part of the exchange upon which the grant of the patent is based. Without access to *338 this information, plaintiffs argue, potential competitors would be unable to decide whether to enter the market upon expiration of the patent, and would be unable to secure immediate marketing approval for the drug. This, they contend, is inconsistent with the inherent and intended limitations in patent protection. Plaintiffs therefore maintain that no information necessary to secure marketing approval for cimetidine may be protected through trade secret law because a patent has been granted.
Plaintiffs' argument concerning the intended exclusivity of the patent laws cannot be applied to the information here at issue. The raw animal test data sought was not submitted as part of the patent application. It was developed and submitted to obtain marketing approval for the drug. The disclosures that are required to obtain patent protection are limited to those which would enable one skilled in the art to practice the invention. Plaintiffs now ask this Court to add to those requirements an obligation to disclose information which potential competitors might use to obtain government permission to market the drug once the patent expires. Such information may well be of independent commercial value to potential competitors, but is not within the requirements for patent protection. The Court concludes that the possession of a patent does not as a matter of law preclude the patent holder from claiming the protection of FOIA exemption 4 for safety and effectiveness data which was not part of the patent application but was submitted in support of a new drug application.
It is, therefore, by the Court, this 20th day of December, 1978,
ORDERED, that plaintiffs' motion for summary judgment is denied; and it is
FURTHER ORDERED, that the Court shall defer ruling upon the federal defendants' motion for summary judgment until it has inspected the documents which are the subject of their claim in camera; and it is
FURTHER ORDERED, that the pharmacologists' reviews concerning cimetidine are to be submitted to the Court for in camera inspection pursuant to 5 U.S.C. § 552(a)(4)(B) for a determination as to whether the federal defendants may properly withhold them from the plaintiffs under FOIA exemption 5; and it is
FURTHER ORDERED, that the motion for summary judgment of defendant Smith, Kline and French is hereby denied, except that the defendant is not necessarily barred from claiming protection under exemption 4 to the FOIA for raw animal test data submitted in support of its new drug application for cimetidine because it holds a patent on the drug. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2142890/ | 462 F. Supp. 184 (1978)
UNITED STATES of America
v.
Charles F. BROWN, Defendant.
No. 78 Cr. 497.
United States District Court, S. D. New York.
November 29, 1978.
*185 Robert B. Fiske, Jr., U. S. Atty., S. D. N. Y., New York City by John F. Kaley, Asst. U. S. Atty., New York City, of counsel, for plaintiff.
Leon B. Polsky, Federal Defender Services Unit, Legal Aid Society, New York City by John P. Curley, New York City, of counsel, for defendant.
MEMORANDUM AND ORDER
KNAPP, District Judge.
Defendant Charles Brown, a plumber by trade, is charged in this single-count indictment with possession of unregistered explosive devices or "pipe bombs." After a trial, which ended with the jury deadlocked seven to five for acquittal, Brown moved for a judgment of acquittal pursuant to Rule 29(c), Fed.R.Cr.P. Upon oral argument on that motion, we asked counsel to submit briefs on the issues of whether, assuming denial of the motion to acquit, we could or should dismiss the indictment under our supervisory power over the administration of criminal justice. We now deny the Rule 29 motion for acquittal, but dismiss the indictment under our supervisory power.
Facts
There is agreement on most of the facts in this case. The government presented four witnesses, three of whom were agents for the Bureau of Alcohol, Tobacco, and Firearms ("BATF").[1] Their testimony established that at about 1:00 P. M. on June 19, 1978, in response to a telephone call from an informer, several BATF agents, including an undercover agent named Raul Rodriguez, drove to the vicinity of 80th Street and Riverside Drive in Manhattan. When they arrived there, Rodriguez met with the informer, who introduced him to defendant Brown. After a brief conversation, which was recorded on a hidden tape recorder, Brown sold Rodriguez five devices in a brown paper bag for $650. Brown was then arrested by other BATF agents who had arrived on the scene at about the same time as Rodriguez and had observed the transaction.
All of the five devices were made of metal tubing and had fuses. One device was dismantled and found to contain an explosive powder, which was also present on one of the fuses. No analysis was made of the other devices.
Brown took the stand and admitted the essential facts related by the agents. He denied, however, that he had known or believed that the devices he had sold were in fact real explosives. Brown testified that about 11:30 A. M. on June 19th, the informer, whom he knew from the neighborhood as "Mousie," approached him with a scheme in which he wanted Brown to participate. During a fifteen minute discussion in Brown's apartment, Mousie showed him five fake pipe bombs which he had brought to the apartment in a paper bag, and told him he had a potential customer whomistakenly believing that the bombs were realwas willing to pay $650 for them. If Brown should help Mousie sell the fake bombs, Mousie would pay him $50. Brown, who was unemployed at the time, agreed. Mousie then left Brown's apartment, taking the bag with him, to call the prospective buyer. When he returned he told Brown that the buyer would meet them on 80th Street and Riverside Drive at 1:00 o'clock. Brown and Mousie then proceeded to that area. Brown's testimony concerning the events that followed differs in no substantial respect from that of the agents who testified for the government.[2]
*186 Immediately after his arrest, Brown made a statement to the agents that was substantially identical to his testimony at trial. Although that statement was not admitted into evidence, we indicated in a bench colloquy that in the event the government challenged Brown's veracity on cross-examination the statement would be admissible on re-direct examination to demonstrate that his version of events was not a recent fabrication. Although the statement was not offered on re-direct, it would be admissible for these purposes in any future trial.[3]
The only testimony contradicting Brown's version of the events preceding the sale was that of the informer, Mousie,[4] who was called as a court witness at defense counsel's request. Mousie testified that at the time of Brown's arrest he was working for BATF as a paid informer and that he received $500 for his role in the events of June 19. This was not his first venture into this line of work. On prior occasions BATF agents had paid him $250 and $350 as an informer. The pay he received for any work depended on BATF's estimate of its importance. In addition, he testified that he was under indictment in a New Jersey state court on charges of breaking and entering, larceny, and conspiracy, and that he planned to testify for the state in that case in return for a promise of leniency. Mousie also testified that the agents with whom he was working in New York had interceded on his behalf in the New Jersey case and that he hoped that his work for them would be favorably considered when sentence was imposed. Finally, Mousie admitted that he had been previously convicted on charges of arson, larceny, breaking and entering, possession of a stolen car, and possession of a controlled substance and had served approximately seven years in prison on these charges. Mousie's total testimony, together with his demeanor on the witness stand, convinced us that he is an absolutely amoral individual without scruples of any kind.
Mousie's version of the events preceding the sale differs substantially from Brown's. According to Mousie, sometime in early June of 1978 he overheard Brown and three other persons negotiating what sounded like a sale of pipe bombs. Mousie thereupon telephoned Agent O'Leary of BATF, told him of this activity, informed him of Brown's identity, and asked if BATF wished him to pursue this lead. As O'Leary instructed him to do, Mousie told Brown that he had a friend interested in buying any bombs he could supply. Although Brown was agreeable, the next contact between the two did not come until about two weeks later on June 16th, when, again according to Mousie, Brown told him that he had one bomb to sell and wished to arrange a deal for the following Monday, June 19th. Mousie visited O'Leary at BATF's office to relay this information, and was told to go ahead with the deal. When Mousie arrived at Brown's apartment on June 19th, he found five pipe bombsnot oneon the kitchen table in a brown paper bag. Brown told him that all five bombs were for sale. Mousie again called O'Leary before he left with Brown for the 80th Street-Riverside Drive area. Mousie's version of the events that followed was, like Brown's, consistent with that of the agents.
No evidence corroborates Mousie's version of the pre-sale events. If, as Mousie *187 testified, BATF agents were apprised of the sale three days in advance, they could easily have kept Mousie and/or Brown under surveillance on the day of the sale. Had they done so, the agents and the jury would have known whether Mousie brought the devices to Brown's apartment, as Brown testified, or whether they had been there previously, as Mousie claimed. The agents, however, failed to take this simple precaution. Other than their observation of the transaction itself, they conducted no surveillance at all. The fruit of this failure is a complete lack of corroboration on the crucial issue in this case.
The trial was a brief one. The jury deliberated for two and one-half dayslonger than it had taken to present the evidence before announcing that it was hopelessly deadlocked seven to five for acquittal.
Discussion
I. Rule 29 Acquittal.
In evaluating Brown's motion for an acquittal under Rule 29, Fed.R.Cr.P., we must determine whether the evidence before the jury was substantial enough for reasonable jurors to find guilt beyond a reasonable doubt. United States v. Taylor (2d Cir. 1972) 464 F.2d 240.
We did not find the government's case to be a strong one. On the essential issue whether Brown knew the devices to be pipe bombswe have only the paid informer's word against Brown's. The informer's hope for leniency in New Jersey, his laundry list of prior convictions, his generally unsavory character and, most importantly, his economic motive for producing arrests lead us to view him as a witness in whom we would place little confidence. Nor did Brown's version of events, as it emerged from his testimony, strike us as less plausible than Mousie's. Had we been the trier of fact, we would have found that the conflict between Brown's testimony and Mousie'sin the absence of any corroborating evidenceraised a reasonable doubt requiring an acquittal.
This view of the evidence does not, however, control the outcome here. In considering this motion, our task is only to determine whether there are facts in evidence which if unanswered would justify reasonable jurors in returning a guilty verdict. Taylor, supra, 464 F.2d at 242. Despite our skeptical view of Mousie's testimony, we cannot say that the jury was not entitled to believe himand reject defendant's contrary testimonyif it chose to do so. It is for the jury, not the court, to decide what testimony should be believed. Taylor, supra, 464 F.2d at 245. Although we would have acquitted Brown had we been the trier of fact, his Rule 29 motion for acquittal must be denied.
II. Supervisory Power Over the Administration of Justice.
The question of whether we should dismiss the indictment under our supervisory power is more troubling. The argument for dismissal takes as its starting point the dangers inherent in the use of paid informers. Defendant argues that because of such dangers, the government should be obliged, where feasible, to make at least some minimal effort to check the accuracy of a paid informer's story. The government's failure to have made any such effort despite opportunities for it to have done so creates, according to defendant, unacceptable risks of a miscarriage of justice. Although this argument raises difficult questions of policy, we are inclined to agree.
The seminal case on the role of the judiciary in supervising the administration of criminal justice in federal courts is McNabb v. United States (1943) 318 U.S. 332, 63 S. Ct. 608, 87 L. Ed. 819. In that case, Mr. Justice Frankfurter wrote for a seven to one majority that "[j]udicial supervision of the administration of criminal justice in the federal courts implies the duty of establishing and maintaining civilized standards of procedure and evidence. Such standards are not satisfied merely by observance of those minimal historic safeguards for securing trial by reason which are summarized as `due process of law' ..." (at 340, 63 S. Ct. at 613). We read McNabb as recognizing an inherent authority in federal courts to insure that federal criminal investigations *188 and trials are conducted with appropriate safeguards against unacceptable risks of the miscarriage of justice. See Williamson v. United States (5th Cir. 1962) 311 F.2d 441, 444. In Williamson the court relied upon McNabb in reversing a conviction because the court found, among other things, that the use of an informer hired on a contingency basis to obtain information concerning specified individuals created an unacceptable risk of a "frame-up" (311 F.2d at 444). "The opportunities for abuse" in such an arrangement, declared the court, "are too obvious to require ... elaboration." (id.).
The applicability of Williamson in this Circuit remains an open question. Our Court of Appeals has on several occasions declined to extend Williamson beyond its peculiar facts or to articulate a broad rule denying the government the right to rely on paid informers. United States v. Neal (2d Cir. 1976) 536 F.2d 533, 534 cert. denied 429 U.S. 857, 97 S. Ct. 155, 50 L. Ed. 2d 134; United States v. Cuomo (2d Cir. 1973) 479 F.2d 688, 692 cert. denied 414 U.S. 1002, 94 S. Ct. 357, 38 L. Ed. 2d 238; United States v. Smalls (2d Cir. 1966) 363 F.2d 417, 420 cert. denied (1967) 385 U.S. 1027, 87 S. Ct. 755, 17 L. Ed. 2d 675. The facts of Cuomo and Smalls merit detailed discussion.
Cuomo presents an elaborate picture of government surveillance of a paid informer. In that case, the agents carefully searched both the informer and his automobile, satisfying themselves that both were clean of contraband, before the informer left to rendezvous with one of the defendants. From the conclusion of such searches until that defendant's arrest, several agents kept the informer under "a close and continual watch" while several other agents observed the defendant's movements. The agents eventually observed the informer give the defendant money they had supplied to him, and watched the defendant place in the trunk of the informer's automobile a bag later found to contain heroin. The Court of Appeals rejected defendants' claim of impropriety in such use of an informer. Speaking through Judge Waterman, the Court declared (479 F.2d at 692):
"This case ... is perhaps typical of the kind of case in which a paid informant may be used, and to declare that the Government exceeded permissible limits here would be tantamount to a declaration that paid informants may no longer be used in the enforcement of the laws designed to prevent the clandestine sale of `hard narcotics.'"
In Smalls, agents' detailed observations similarly confirmed an informer's testimony. The evidence established that the defendant had been introduced to an undercover agent by a paid informer. During an automobile ride with the informer present, the defendant negotiated to sell heroin to the agent. With another agent observing, he then left the car, entered a building, and emerged a short time after carrying a package of heroin. He delivered that package to the agent, who had remained with the informer in the automobile. The defendant took the stand and claimedin contrast to the testimony both of the agents and of the informerthat the informer had accompanied him when he left the automobile and entered the building. The Court of Appeals rejected the defendant's claim that the use of the informer required dismissal, but reserved "for another day the knotty problems posed by an attempt to put limits on the use of an informer." Smalls, supra, 363 F.2d at 420. This case forces upon us those "knotty problems" the Smalls court did not have to face.
We are here confronted with a situation which is the exact antithesis of the ones before the Court in Cuomo and Smalls. In each of those cases the Court, in affirming convictions, noted that the government agents had gone to great lengthsby surveillance both of the informer and the defendant to neutralize the risk inherent in the use of paid informers. Here, on the other hand, the agents took no precautionary measures whatever. On the contrary, they let their informer prowl around the city and simply showed up in order to spring the trap when the informer told them it had been duly baited. In consequence *189 we are left with absolutely no means of checking the reliability of the paid informer's testimony on the crucial issue of the case. As a court of first impression, it is not our role to devise general rules for the guidance of other courts. We do, however, believe that the integrity of a criminal trial is unacceptably compromised when the government (1) uses as an informer a wholly amoral individual, (2) provides him with an economic motive for producing arrests by rewarding him on a contingency basis and (3) fails to take any steps whatsoever to insure the reliability of his version of events, despite (4) ample opportunity for it to do so. Where, as here, all four of these elements are present, we believe that a criminal defendant is needlessly exposed to unacceptable risk of a serious miscarriage of justice and that his trial should not be allowed to continue.
Although the Court in Smalls did not mention dismissal of an indictment as an appropriate means of putting "limits on the use of an informer", its subsequent decisions in United States v. Jacobs (2d Cir. 1976) 547 F.2d 772 and United States v. Fields (2d Cir. 1978) 592 F.2d 638, establish that the dismissal of an indictment or a count thereofis a sanction within the court's supervisory power. In Jacobs the Court actually dismissed a count of the indictment,[5] and in Fields it went to great lengths to demonstrate why discretion to dismiss had been abused in the particular case before it.[6] We therefore need not analyze the government's argument that the earlier case of United States v. Weinstein (2d Cir. 1971) 452 F.2d 704, cert. denied 406 U.S. 917, 92 S. Ct. 1766, 32 L. Ed. 2d 116 should be read as wholly denying the very existence of such power.
Nor does the very recent decision of the Court of Appeals in United States v. Tanu (2d Cir. 1978) 589 F.2d 82, expand the Weinstein holding. The Court was not there dealing with the "knotty problem" reserved in Smalls or indeed with any attempt by a court to protect the integrity of its own fact-finding processes. Significantly none of the authorities collected in footnotes 5 and 6 of the Court's opinion deal with any such problem. Indeed in Ex Parte United States (1916) 242 U.S. 27, 39, 37 S. Ct. 72, 73, 61 L. Ed. 129 the Supreme Court specifically directed attention to the district court's finding that "nothing exists in this case which moved the court to suspend the execution of sentence to prevent `an abuse of the court's process, or to prevent an injustice being done to the defendant' . . ." While it is of course possible that the Court of Appeals might apply to such a situation the broad language of Weinstein and Tanu, it has not yet done so.
Recognizing some basis for our concern, the government nonetheless urges us not to exercise our supervisory power, but to rely on it to take administrative action to prevent repetition of the sloppy procedures disclosed by this record. Thus in a letter dated October 20, 1978, the government writes:
"We, of course, must agree that the better practice would have been for the agents involved in the investigation to give more attention to the proper supervision of the informant. In this regard, we share Your Honor's concerns. To insure that appropriate supervision is provided in the future and to prevent a *190 reoccurrence of the conduct which has troubled Your Honor in this case, we have scheduled a conference with Michael J. LaPerch, Jr., Special Agent-in-Charge of the New York office of the Bureau of Alcohol, Tobacco and Firearms, during which we intend to advise Mr. LaPerch of the Court's concern with respect to the manner in which the investigation of this case was conducted."
Two flaws in that proposal appear to us to be fatal. In the first place it obviously fails to deal with our very real fear that the criticized conduct might have resulted in an unjustified arrest in this very case. Secondly when considered for its effect on future conduct, the suggested "conference" would be effective only so long as the involved agents remember it. On the other hand a judicial declaration that such conduct will not be allowed to result in conviction might wellespecially if affirmed on appeal[7]result in permanent curtailment of such dangerous practices. Compare United States v. Jacobs (2d Cir. 1974) 547 F.2d 772, 778.[8]
Nor are there open to us any other effective sanctions. It would, for example, be meaningless to exclude the testimony of the informer. It was only by causing him to be called as a witness that defendant was able to demonstrate the dangers of his use. And there would be no sense in excluding the agents' testimony, thus depriving the court of the only reliable evidence.[9]
In summary, we deny defendant's Rule 29(c) motion for acquittal, but in the exercise of our supervisory powers over the administration of criminal justice direct that the indictment be dismissed.
SO ORDERED.
NOTES
[1] The final government witness worked in the crime lab of the New York City police department.
[2] There are minor discrepancies between Brown's and Rodriguez' recollections of their conversation immediately preceding the sale. Thus Rodriguez remembered Brown as having said that he obtained bombs from his "brother" while Brown denied this. The very indistinct tape recording does notin our view at least resolve the conflict. However either Brown's or Rodriguez' version would be equally consistent with Brown's testimony that he was puffing his own expertise in order to hoodwink Mousie's supposedly gullible client.
[3] Presumably defendant's counsel refrained from offering the statement for fear that the court might then allow the government to prove defendant's extensive criminal (misdemeanor) record on the theory that a person with such a record would be more likely to come up with a detailed explanation than a first offender. The importance of this consideration would be lessened by the government's subsequent discovery that one of defendant's convictions had been for a felony. Moreover, defendant's counsel might well find it useful to argue that the very existence of his client's criminal record was precisely the consideration that lead Mousie to select him as victim for a frame-up.
[4] Mousie's real name is Richard Delli Santi.
[5] Also see Ballard v. United States (1946) 329 U.S. 187, 67 S. Ct. 261, 91 L. Ed. 181.
[6] We do not believe that the admonitions in the Fields opinion are here applicable. In that case there was no contention that the criticized governmental activities had resultedor ever could resultin a miscarriage of justice. The Court was there concerned only with the circumstances if anyin which a court would be justified in dismissing an indictment because it found abhorrent governmental practices which had no tendency to compromise the integrity of the criminal fact-finding process. Here, on the other hand, we are concerned only with the integrity of that process. We are, of course, aware of our obligation to use our supervisory power sparingly and with circumspection. Cf. United States v. Russell (1973) 411 U.S. 423, 93 S. Ct. 1637, 36 L. Ed. 2d 366, Hampton v. United States (1976) 425 U.S. 484, 96 S. Ct. 1646, 48 L. Ed. 2d 113.
[7] We note that if the Court of Appeals shouldin this case or at some other timelay down guidelines to protect against unreliable use of informers, such guidelines could never result in the exclusion of reliable evidence. By hypothesis, any time the government could satisfy the court that a particular informer's evidence had been obtained without unacceptable risk of frame-up, such evidence would be admitted. This is in sharp contrast with the oft-criticized Fourth Amendment exclusionary rule, which almost invariably keeps from the jury wholly reliable testimony. Nor is the Supreme Court decision declining to sanction the use of the entrapment defense as a device for judicial monitoring of governmental morality (United States v. Russell, supra), here applicable. We intervene here not because of any concern for official morality but only because we have found that the government's investigative procedures were so negligentamounting to a reckless disregard for known dangersas to compromise the integrity of our fact-finding process to such an extent as to create an unacceptable risk of miscarriage of justice.
[8] The Jacobs case is of course distinguishable because hereunlike the situation in Jacobs and in Estepa which it citesour action will cause defendant to "go scott free". Cf. United States v. Estepa (2d Cir. 1972) 471 F.2d 1132, 1137. However, as already noted, there is also a distinction on the other side in that hereunlike either of those casesthere is real concern that substantive injustice might have been done to this particular defendant.
[9] We could, of course, exclude the testimony of both the agents and the informer. Such action would be tantamount to a dismissal. See Ramos Colon v. U. S. Atty. for D. Puerto Rico (1st Cir. 1978) 576 F.2d 1, 4 n. 2. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2142900/ | 462 F. Supp. 405 (1976)
Wayne MILANI, Plaintiff,
v.
CONTICOMMODITY SERVICES, INC., a Delaware Corporation, Harold Maine, Defendants.
No. C-75-2694 SAW.
United States District Court, N. D. California.
October 26, 1976.
*406 William E. Trautman and D. Wayne Jeffries, Chickering & Gregory, San Francisco, Cal., for plaintiff.
Paul H. Breslin, Long & Levit, San Francisco, Cal., for defendants.
Stephen F. Selig, Baer, Marks & Upham, New York City, for amicus.
MEMORANDUM AND ORDER DENYING MOTION TO COMPEL ARBITRATION
WEIGEL, District Judge.
This matter is before the court on defendant's motion to compel arbitration pursuant to the United States Arbitration Act, 9 U.S.C. § 4 (1970). Jurisdiction is found in 28 U.S.C. § 1337 (1970) and under the doctrine of pendent jurisdiction.
Defendant ContiCommodity Services, Inc., is a commodities brokerage firm. Defendant Harold Maine is one of its account executives. Plaintiff, formerly a customer of defendants, alleges violations of sections 4b and 4o of the Commodity Exchange Act ("CEA"), as amended by the Commodity Futures Trading Commission Act of 1974, 7 U.S.C. §§ 6b & 6o (Supp. V 1975), as well as common law fraud, negligence, rescission, and breach of fiduciary duty.
Defendants' motion is based upon paragraph 8 of a Customer's Agreement signed by plaintiff on June 27, 1975, an agreement to arbitrate future disputes:
Any controversy between you and me arising out of or relating to this contract or the breach thereof shall be settled by arbitration in accordance with the rules then obtaining, of the American Arbitration Association or the Arbitration Committee of any exchange on which any order involved therein may have been executed or in which you shall have the benefit of membership. Arbitration must be commenced within one year after the cause of action has accrued by service upon the other of a written demand for arbitration, naming therein the arbitration tribunal.
Since the parties have conceded that the Customer's Agreement evidences a transaction in interstate commerce, it would ordinarily be subject to the terms of the United States Arbitration Act. However, plaintiff urges two reasons for not enforcing the arbitration provisions: (1) It is contrary to § 209 of the CEA, 7 U.S.C. § 7a(11) (Supp. V 1975), which permits arbitration only if it is voluntarily elected by a customer;[1] (2) Plaintiff also contends that Wilko v. Swan, 346 U.S. 427, 74 S. Ct. 182, 98 L. Ed. 168 (1953), and its progeny make clear that arbitration is not to be ordered. These contentions will now be examined.
I
Under section 209, an exchange or association of persons engaged in the business of selling commodities is required to have a procedure similar to a small claims court for the settlement of customer's claims and grievances. Under this settlement procedure, the amount in controversy cannot exceed $15,000 and arbitration cannot be used unless a customer voluntarily chooses it. Plaintiff contends that section 209 bars agreements to arbitrate future disputes *407 or disputes involving amounts in excess of $15,000. However, section 209 only sets out limitations upon the procedure established by the exchange or association. It does not prohibit a compulsory arbitration clause in an agreement between a member of an exchange or association and his customer; nor does it bar arbitration of disputes in excess of $15,000. See Arkoosh v. Dean Witter & Co., 415 F. Supp. 535 (D.Neb., 1976). In the absence of a statutory or judicial exception, approval of private arbitration is presumed. 9 U.S.C. § 2 et seq. (1970); Wilko v. Swan, supra. There being no exception within the statute, plaintiff's second contention, that Wilko bars an order compelling arbitration, will now be considered.
II
In Wilko v. Swan, supra at 431, 74 S. Ct. 182, the Supreme Court recognized that the "United States Arbitration Act establishes by statute the desirability of arbitration as an alternative to the complications of litigation." Nevertheless, the Court carved out an exception, holding that an agreement to arbitrate future disputes was not enforceable as to issues arising under the Securities Act. A further exception, barring agreements to arbitrate future disputes, has been created for claims under the antitrust laws. E. g., Power Replacements, Inc. v. Air Preheater Co., 426 F.2d 980 (9th Cir. 1970); American Safety Equipment Corp. v. J. P. Maguire & Co., 391 F.2d 821 (2d Cir. 1968). The Wilko holding has been extended to claims under the Securities Exchange Act. E. g., Macchiavelli v. Shearson, Hammill & Co., 384 F. Supp. 21 (E.D.Cal.1974). See also Alexander v. Gardner-Denver Co., 415 U.S. 36, 51-52, 94 S. Ct. 1011, 39 L. Ed. 2d 147 (1974), deciding that the right to a trial conferred by Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. (Supp. V 1975), cannot be prospectively waived in a collective bargaining agreement.
These exceptions, as can be seen from the nature of the subject matter, were created to protect the integrity of the marketplace. The Wilko Court made clear that the protection of investors by federal courts controls over the policy favoring arbitration. 346 U.S. at 438, 74 S. Ct. 182. Judicial direction, at the trial level, is essential to assure that legislation designed to protect investors is properly applied. Id. at 436-37, 74 S. Ct. 182. Like the securities acts, the CEA is clearly designed to protect the investing public. E. g., S.Rep.No.93-1131, reported in 3 U.S.Code Cong. & Admin.News, 93d Cong., 2d Sess., p. 5856 (1974).
In the only case to consider an agreement to arbitrate future disputes involving commodities, Arkoosh v. Dean Witter & Co., supra, the court ordered the parties to arbitrate. But its ruling expressly excepted cases where allegations of violations of the CEA were made. Id. at nn. 7 & 8. Where, as here, a claim of a violation of the Act is sufficiently raised, the action should be decided by the court, not by arbitrators.
Plaintiff also alleges common law claims, each of which arises out of the same transaction as the CEA claim. This court has broad discretion in deciding whether to order the common law counts to be arbitrated. Macchiavelli v. Shearson, Hammill & Co., supra at 31. Two parallel actions seem inefficient and unwarranted. The same facts would be considered by the court and then by the arbitrators. Accordingly, plaintiff's pendent claims will be decided by this court.
Since the court has decided that agreements to arbitrate future disputes will not be enforced where a claim of a violation of the CEA is sufficiently raised, defendants' motion to compel arbitration is denied.
NOTES
[1] Each contract market shall
(11) provide a fair and equitable procedure through arbitration or otherwise for the settlement of customers' claims and grievances against any member or employee thereof: Provided, That (i) the use of such procedure by a customer shall be voluntary, (ii) the procedure shall not be applicable to any claim in excess of $15,000, (iii) the procedure shall not result in any compulsory payment except as agreed between the parties, and (iv) the term "customer" as used in this paragraph shall not include a futures commission merchant or a floor broker .... | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2142586/ | 462 F. Supp. 788 (1978)
George P. TOBLER and Henry Ford Plantation, Inc., Plaintiffs,
v.
YODER & FREY AUCTIONEERS, INC., Defendant, Chemical Bank, Intervenor.
Civ. A. No. 478-114.
United States District Court, S. D. Georgia, Savannah Division.
December 15, 1978.
*789 M. Fleming Martin, III, Brunswick, Ga., for plaintiffs.
Robert E. Falligant, Jr., Falligant, Sims, Hunter & Donaldson, Julian H. Toporek, Falligant, Kent & Toporek, Savannah, Ga., for defendant Yoder & Frey Auctioneers, Inc.
John M. Hewson, III, Hunter, Houlihan, MacLean, Exley, Dunn & Connerat, Savannah, Ga., for intervenor Chemical Bank.
FINDINGS AND OPINION AND ORDER
LAWRENCE, Senior District Judge.
I. History and Issues
This complicated litigation began with the filing of an action in Bryan County Superior Court on May 16, 1978, by George P. Tobler and Henry Ford Plantation, Inc. *790 against Yoder & Frey Auctioneers, Inc. in which plaintiffs sought to set aside the sale at foreclosure on May 2nd of a tract of 1,875 acres situated along the Ogeechee River in Bryan County. It was alleged that the circumstances surrounding the sale chilled the bidding and that the price brought was totally inadequate. The Superior Court action was removed to this Court on May 23, 1978 on the ground of diversity.
At the foreclosure sale on May 2nd, Yoder & Frey purchased the 1,875 acre tract for $250,000, the sale being subject to two outstanding first security interests. Williamsburg Savings Bank held a first security deed to 737 acres of the tract on which Yoder & Frey was holder of a second mortgage from Tobler and Henry Ford Plantation, Inc. Federal Land Bank of Columbia, South Carolina held a first security deed on 687 acres of the property. Another first security interest covered approximately 451 acres and was held by Yoder & Frey as a result of the transfer to it in 1976 by First Bank of Savannah of its second security deed on the 1,875 acre tract conveyed by Henry Ford Plantation, Inc.[1] At the same time, Yoder & Frey had purchased the underlying $200,000 note as well as the note in favor of First Bank made by George P. Tobler and John C. Buttolph in connection with the same indebtedness. Tobler had grandiose plans of developing the Henry Ford tract. It became a casualty of the recession that followed the oil embargo in the fall of 1973.
An evidentiary hearing was held by this Court on May 26, 1978, and on June 5th I set the foreclosure sale aside for the reasons given in the accompanying Opinion. A resale of the mortgaged tract was ordered. At the second sale on July 4, 1978, the highest bid was $600,000 and the property was conveyed to A. G. Proctor Company, Inc. subject to the two outstanding first security deeds.
Before this Court is the problem of determining the respective rights of the claimants to the excess of the bid price over the actual indebtedness due Yoder & Frey by Tobler and Henry Ford Plantation, Inc. under the notes and the second mortgage held by the former. By agreement of the parties $65,000 of the purchase price was placed in escrow pending determination by this Court of the matter of entitlement to the surplus.
The claimants to this fund are (a) Yoder & Frey, (b) George P. Tobler and Henry Ford Plantation, Inc., and (c) Chemical Bank. Determination of the rights of the claimants to the contested fund involves issues of fact as well as law. The primary questions before this Court are (1) the sufficiency of the notice by Yoder & Frey to Tobler and Henry Ford Plantation, Inc. of its intention to collect attorney's fees; (2) the recoverability and amount of expenses of collection of the indebtedness claimed by Yoder & Frey on the notes held by it, and (3) the amount of the interest due on such note by the makers.
A third evidentiary hearing was held in connection with the surplus issue on November 21, 1978. A lengthy stipulation between the parties with attached exhibits is part of the trial record. Oral testimony was also heard.
II. The claims to the surplus fund
The contentions of the three contestants to the escrowed fund are as follows:
(A) Yoder & Frey says that it is entitled to $56,278.12 of the escrowed fund as attorney's fees due it under the terms of the note and its second mortgage.[2] It further contends that expenses of collection of the note and incidental to the foreclosure are owed in the amount of $16,579.98. Yoder & Frey further insists that the interest on the indebtedness is 13½% per annum on the *791 note and not 7% as Chemical Bank and Tobler maintain.
(B) Tobler and Henry Ford Plantation, Inc., claim the over-plus on the theory that they are entitled to the excess under the provision of the second mortgage which states that upon foreclosure the grantee shall collect the proceeds of the sale and, after reserving therefrom taxes, expenses, principal and interest, attorney's fees and expenses of sale, "shall pay any over-plus to the Grantor." It is contended by Tobler and Henry Ford Plantation, Inc. that the notice concerning attorney's fees is insufficient under § 20-506 of the Georgia Code and that its defectiveness precludes recovery of 15% attorney's fees by Yoder & Frey. They also claim that the costs of collection of the note and expenses incidental to the foreclosure are excessive and that various items of the expense claim are not recoverable as a matter of law.
(C) Chemical Bank intervened in the litigation following the second sale of the tract at foreclosure. Its claim to the excess is based on the deed to secure debt dated February 13, 1975, it holds in which Henry Ford Plantation, Inc. conveyed same as part security for an indebtedness of $500,000 guaranteed by it. Tobler had initially in 1973 guaranteed the note personally. Chemical Bank has obtained a summary judgment against Tobler in New York on his guaranty. No part of the principal or interest on the indebtedness has been paid. The accumulated interest totals around $280,000.
The Bank takes the same position as the mortgagors do in regard to the insufficiency of the notice of intent to enforce the attorney's fees provision of the note; the excessive amount of interest claimed by Yoder & Frey to be due to Tobler and his corporation, and the recoverability of various expenses of collection of the indebtedness it incurred in connection with the foreclosure and particularly incident to the litigation in the Bankruptcy Court in New York.
There are other collateral and related issues to which this Court will hereafter address itself. They concern generally the standing of Chemical Bank to challenge the sufficiency of the notice and the contention of Yoder & Frey that the other claimants conceded that the notice in question was adequate and that this Court has so found in its Opinion of June 5, 1978.
III. Sufficiency of the notice to enforce the attorney's fee provision of the note
The most important of the issues connected with the rights of the three claimants to the fund involves the $56,278.12 claimed by Yoder & Frey as attorney's fees. The notice sent to the debtors on June 12, 1978, identified the indebtedness and stated that the provisions of the promissory note "shall be enforced, and they had ten days from the date hereof to pay the principal and interest without additional attorney's fees." (Italics supplied.)[3]
Section 20-506(c) of the Code of Georgia Annotated provides:
"(c) The holder of the note or other evidence of indebtedness, or his attorney at law, shall, after maturity of the obligation, notify in writing the maker, indorser or party sought to be held on said obligation that the provisions relative to payment of attorney's fees in addition to the principal and interest shall be enforced and that such maker, indorser or party sought to be held on said obligation has 10 days from the receipt of such notice to pay the principal and interest without the attorney's fees. If the maker, indorser or party sought to be held on any such obligation shall pay the principal and interest *792 in full before the expiration of such time, then the obligation to pay the attorney's fees shall be void and no court shall enforce the agreement. The refusal of a debtor to accept delivery of the notice hereinbefore specified shall be the equivalent of such notice." (Italics supplied).
The difference between the statutory requirement of "ten days from the receipt of this notice" and the notice to the obligors, "ten days from the date hereof", is at best slight. However, in the words of the wounded Mercutio: "'Tis not so deep as a well, nor so wide as a church-door; but 'tis enough, 'twill serve." Rom. & Jul., Act III, sc. 1. The failure to comply "exactly" with the notice provisions of the statute requires disallowance of recovery of attorney's fees. Strickland v. Williams, 215 Ga. 175-177, 109 S.E.2d 761; Farnan v. National Bank of Georgia, 142 Ga.App. 777, 236 S.E.2d 923; Holt v. Rickett, 143 Ga.App. 337, 238 S.E.2d 706.
The decision in Adair Realty & Loan Company v. Williams Brothers Lumber Company, 112 Ga.App. 16, 143 S.E.2d 577, speaks squarely and to the point.
The Court of Appeals there said:
"In the case at bar the notice given by the holder of the note to the maker is deficient in that the alleged notice did not contain the statutory requirement informing the maker that she had ten days from the receipt of the notice to pay the principal and interest of the note without obligating herself for the payment of attorney's fees."
". . . The notice here while otherwise substantially complying with the requirements of the statute, merely advised the maker that, if she did not make arrangements to pay the note in full within ten days from the date of the notice, rather than from the date of its receipt by her, plaintiff would claim attorney's fees provided for in the note." (Italics supplied).
The ruling in Adair was followed in Turk's Memory Chapel, Inc. v. Toccoa Casket Company, 134 Ga.App. 71, 213 S.E.2d 174. The letter in that case stated that "Payment must be made within ten (10) days from the date of this letter ... Please contact this office within ten (10) days from the date of this letter to avoid litigation." It was held to be defective.
In the recent case of General Electric Credit Corporation of Georgia v. Brooks, 242 Ga. 109, 117, 249 S.E.2d 596, the Supreme Court adopted the substantial compliance test in respect to § 20-506. In doing so it discussed and approved the holding in Adair. General legal principles must yield to a specific application of the law made in a decision where the facts are identical to those in the case under consideration.
Another defect in the notice, says Chemical Bank, is the failure to state clearly that the defendants could pay the principal and interest within the ten days of receipt thereof and thereby avoid payment of the attorney's fees under the note. See Holt v. Rickett, supra, 143 Ga.App. at 338, 238 S.E.2d 706. The recommended wording of the notice in a modern form-book is found in Brown's Georgia Forms § 81A-108(a)[4].
The decision in Adair governs this case. It is binding on a diversity court. It stands insurmountable athwart the contentions of Yoder & Frey. The statute as construed by the appellate courts of this State requires denial of attorney's fees.
IV. Costs of collection of note and of foreclosure of mortgage
The note made by Tobler, Henry Ford Plantation, Inc. and Buttolph obligated payment of $200,000 to First Bank of Savannah with interest thereon and "all cost of collection including 15% as attorney's fees if collected by law or through an attorney at law." See Ga.Code Ann. § 20-506. Under Georgia law, a deed to secure debt shall, if so stated therein, "secure all expenses incident[al] to the collection of the debt thereby secured and the foreclosure thereof by action in any court and by exercise of a power of sale therein contained." Ga.Code Ann. § 67-1317.
*793 Costs of the collection of the indebtedness represented by the note and of expenses incidental to the foreclosure charged by Yoder & Frey amount to $16,579.98. By far the greater part thereof represents costs claimed to have been incurred in the vacation of a stay of foreclosure entered in the Bankruptcy Court in the Eastern District of New York in 1976 in a Chapter XI proceeding. The costs include $5,676.16 paid by Yoder & Frey to expert witnesses as fees and expenses for appraisals of the mortgaged property. Expenses of counsel for Yoder & Frey are claimed for airplane fare, hotels, meals, car rentals, photographs of the Plantation tract and miscellaneous items. They total $2,933.07. The expenses incurred for travel of representatives of Yoder & Frey in order to attend foreclosure sales, conferences with counsel and the hearing in New York run to $3,843.31. There is a charge of $423.50 for stenographic services (transcript?). Expense of photostats of documents and long distance calls incurred by counsel for Yoder & Frey amount to $1,291.91. There is also a charge of $600.00 paid to a New York attorney in connection with the bankruptcy proceedings. The expenses claimed for advertising the sale and travel of counsel in connection with attendance at the two foreclosure sales in Bryan County amount to $1,013.52.
It appears that approximately 80% of the total expense and costs of collection charged against Henry Ford Plantation, Inc. was incurred in connection with the litigation in the Bankruptcy Court in the Southern District of New York.
Yoder & Frey rely on § 20-506 and § 67-1317 separately and in combination to support its claim as to the expenses and costs incurred in vacating the stay of foreclosure.
The note secured by the second mortgage includes "all other costs of collection including 15% as attorney's fees if collected by law or through an attorney." There are also provisions therein that expenses of collection in enforcing rights in collateral include reasonable attorney's and legal expenses and that the proceeds of the collateral shall be subject to such expense.
The second mortgage authorizes Yoder & Frey as grantee to retain that part of the proceeds of foreclosure representing "costs and expenses of sale and fifteen per cent (15%) of the aggregate amount due for attorney's fees." Such a provision in a mortgage is statutorily implemented by § 67-1317 which recognizes expenses incident to the collection by foreclosure of the secured debt by foreclosure. The provision in the security deed in respect to collection of attorney's fees does not dispense with the requirements of the notice to collect same in § 20-506. The collection thereof is authorized by the promissory note and is governed by that section. In my opinion, the General Assembly purposefully omitted any reference to attorney's fees in § 67-1317 which was enacted in 1958. It was aware that a debt secured by a deed to secure debt is invariably evidenced by a promissory note. The legislature had already provided in § 20-506 the conditions for enforcement of the contractual obligation as to attorney's fees.
Broadly read, the statute extends to costs incidental to foreclosure but which do not grow out of a suit on the foreclosure proceeding itself. There is a dearth of case law in Georgia on the subject of what costs and expenses are chargeable to the obligor in collecting a note or to a mortgagor in case of foreclosure of the property securing the indebtedness. The interpretational aids to statutory construction are of little assistance in fathoming the legislative intent. Statutes in derogation of the common law are strictly construed. Warren v. Walton, 231 Ga. 495-499, 202 S.E.2d 405. However, the statute is not in derogation of the common law. Prior to its passage in 1891 Georgia recognized the validity of contracts for recovery of attorney's fees. Kirkpatrick v. Faw, 184 Ga. 170, 175-76, 190 S.E. 566.
V. The obstructionist efforts of Tobler and Henry Ford Plantation, Inc. to prevent foreclosure of the second mortgage
In considering the question of whether the General Assembly meant to include *794 "costs of collection" where they are incurred in independent litigation in another jurisdiction involving the preserving of the mortgagee's exercise of his power of sale, I must confess to my deep concern with any conservative interpretation of the provision therefor in the note, the mortgage and the Georgia statutes in reference thereto.
The arrangement proceedings brought by Henry Ford Plantation, Inc. in New York in 1977 were meritless and were eventually found to be so by the Bankruptcy Court. They were brought in the name of Tobler's wholly-owned corporation. He was, I find from the evidence, its alter ego. The patent purpose of the New York proceeding was to delay foreclosure of the second mortgage, a result achieved by the automatic stay called for under Bankruptcy Rule 12-43(a).
After months of litigation in the Bankruptcy Court in New York and after considerable expense and trouble to Yoder & Frey, the stay was vacated by consent of the parties subject to certain conditions. The result of the Order vacating the stay was to delay the foreclosure until April, 1978.
Shortly before the advertising of the sale commenced, Tobler individually filed a petition for arrangement under Chapter XII in the Southern District of Georgia. It resulted in an automatic stay of the foreclosure. A hearing consuming eight hours of time was held by Bankruptcy Judge Coolidge. On May 1, 1978, the day before the scheduled sale of the tract at public outcry, he entered findings and conclusions and vacated the stay. This did not feaze Mr. Tobler. On the morning of May 2, 1978, the day of the public sale, Tobler and his corporation claiming to be a co-partnership filed a Chapter XII proceeding in the Bankruptcy Court at Brunswick with the avowed purpose of obtaining another automatic stay. Bankruptcy Judge Coolidge informed petitioners' counsel that he would immediately vacate same. The Chapter XII proceeding was not pressed by Tobler and was subsequently dismissed by the Bankruptcy Court.
Judge Coolidge's Order denying the stay contains the following animadversions on the subject of Tobler's conduct in filing the bankruptcy proceeding in this District in his individual capacity following the lifting of the stay in New York:
"[H]e chose to bargain both for himself and the corporation and achieved a settlement in which all parties gave up something and all parties gained something. In short, he not only made his bargain, he invoked the solemn powers of the United States District Court of the Eastern District of New York to solemnize and sanctify that agreement and now having received full benefit of the weight and authority of that Court, he has chosen to openly reject the Court's authority to order him to do anything. He has stated in this proceedings that he was advised that the Order was not binding on him and that he entered into the Order with that belief. Yet he waited until the day before the sale to challenge that Order, after all other parties to the Order had abided by its terms."
VI. The decisional law in respect to recovery of costs and expenses incurred in separate actions involving the right to foreclose
There are no Georgia cases at full point. Decisions in other jurisdictions relied on by Yoder & Frey include Leventhal v. Krinsky, 325 Mass. 336, 90 N.E.2d 545, 548 (1950). There the Supreme Judicial Court of Massachusetts held that the costs and expenses of collection of a note secured by a mortgage authorizing recovery of attorney's fees incurred were reasonable where the same were incurred in preserving the mortgaged property. The case of John Hancock Mut. Life Ins. Co. v. Casey, 155 F.2d 229, 235 (1st Cir.) involved a bankruptcy proceeding. The First Circuit said that counsel fees are properly chargeable as collection of costs against the debtor in a bankruptcy proceeding where they were incurred in order to protect the mortgagee's security interest as a result of his efforts to obtain a vacation of an injunction issued against foreclosure of the mortgage.
*795 My research of the law has turned up two Georgia decisions which appear to relate to the factual situation we are confronted with in this case.
In Ray v. Pease, 97 Ga. 618, 25 S.E. 360 the purchase money notes provided for payment of "all costs of collection, including attorney's fees." After suit was instituted on the notes by the holder, the defendant filed an action to enjoin the action upon the ground that the plaintiff could not convey marketable title to the land. The trial court denied an injunction and the ruling was affirmed on appeal. See 95 Ga. 153, 22 S.E. 190. At the trial of the suit on the notes plaintiff argued that the cost of attorney's fees in defending the injunction proceeding should be considered by the jury in determining a reasonable fee for the legal services. The Supreme Court said:
"[T]he plaintiffs were entitled to recover such an amount as would be reasonable for the services rendered. In order to collect the notes it was necessary, not only to bring the present suit, but to resist the attempt of the defendant to enjoin the suit; and the services rendered by the plaintiffs' attorneys in the injunction case were therefore properly allowed to be considered by the jury in determining the amount of fees which the plaintiffs were entitled to recover, especially when it appeared from the decision of this court that the petitions sued out by the defendant to restrain the collection of the notes were without merit and resulted only in delaying the plaintiffs in the enforcement of their legal rights to collect the notes." (Italics supplied).
However, in Franklin Mortgage Company v. McDuffie, 43 Ga.App. 604, 159 S.E. 599 a different result was reached. There the security instrument provided for payment of reasonable attorney's fees incurred in a suit in which the holder was a party or where it was necessary to intervene in order to protect the lien or the priority thereof. In the syllabus to that decision prepared by the Court it was said that the purpose of the provision referred to was that of "protecting his security, and would not entitle him to recover on account of attorney's fees incurred in defending a suit brought by the maker of the note to restrain a suit at law instituted upon the note." The Court of Appeals ruled that the trial judge did not err in striking plaintiff's amendment seeking recovery of the expense of attorney's fees incurred defending the action for injunctive relief. That holding was not elaborated upon in the body of the Court's Opinion.
The decisions in Ray and Franklin Mortgage Company walk a lonely road along Georgia law. They have been cited but not for the propositions referred to above. Each involved a bond for title, a factor that is not significant since such an instrument is in essence a deed to secure debt. Ga. Code Ann. § 67-1301; Carter v. Johnson, 156 Ga. 207, 119 S.E. 22. Both cases dealt with recovery of attorney's fees rather than other costs of collection. However, the two types of expense or cost are familial in nature. See McClain v. Continental Supply Co., 66 Okl. 225, 168 P. 815, 818.
To the extent that the decisions are in conflict, that of the Supreme Court is controlling upon a federal diversity court. I have decided to follow Ray v. Pease in reaching my conclusion as to recovery of reasonable expenses and costs, exclusive of attorney's fees, in connection with vindication of the right of foreclosure. Ray supports an award of costs and expenses in a case where an insolvent mortgagor files a bankruptcy proceeding with the intent to hinder and delay the mortgagee in foreclosing his security deed and the latter must appear therein to protect his right to the exercise of the power of sale.
I move on to a consideration of other issues.
VII. The contention of Yoder & Frey that this Court has found that valid and proper notice to collect attorney's fees was given and that opposing counsel conceded that fact
(a) The contention that this Court approved the sufficiency of the notice reminds *796 one of the reference by Tennessee Williams in Orpheus Descending to the "kind of bird that don't have legs so it can't light on nothing and has to stay all its life in the sky."
In this Court's Opinion of June 5, 1978, I stated (gratuitously, may I add) that "All other prerequisites to the sale have been satisfied by the defendants, including timely notice of intent to collect attorney's fees."
At that time no issue had been raised as to the sufficiency or validity of the notice. In fact, the notice applicable to the July sale was not sent to the mortgagees until June 12, 1978. It was practically identical to the one given in March. The last thing this Court had in mind was to pass on a matter not before it without the point of law having been specifically raised or argued. The language used does not support the contention of counsel. This Court said no more than that "timely notice" of the intention to collect attorney's fees had been given by Yoder & Frey. It did not say that the notice was sufficient or valid.
In the Order of the Court dated August 9, 1978, confirming the sale and ordering the distribution of $535,000 to Yoder & Frey, the statement appears that no objections had been raised as to the "regularity of the notice." Chemical Bank filed its petition to intervene on July 14th. The question of the sufficiency of the notice was not explicitly raised either there or in its briefs supporting the intervention. Leave to intervene was granted on August 21, 1978. The purpose of the intervention by Chemical Bank was to protect its interest in a proper accounting of expenses and in connection with the surplus. That subject includes Yoder & Frey's claim of 15% attorney's fees. After the intervention by Chemical Bank, it raised the question of validity of the notice. I had no intention in my Order of August 9th, approving the sale, of foreclosing consideration of such an issue. It was and is very much alive.
(b) At the evidentiary hearing on November 21st an attorney for Yoder & Frey testified that all counsel had agreed that his client's right to attorney's fees would not be questioned. He further testified that at one of the earlier hearings such a concession had been made of record. The tapes have been replayed. I find nothing in them to support such contention. Counsel also stated that the attorney for Chemical Bank had assured him in an out-of-court discussion that such issue would not be raised. This was heatedly denied by the Bank's attorney.
Whatever the facts may be in that regard, this wrangling of counsel is not judicable. I move on to the excessive interest claim of the plaintiffs and intervenor.
VIII. The rate of interest dispute
Chemical Bank insists that the indebtedness of Tobler and Henry Ford Plantation, Inc. to Yoder & Frey must be reduced to the extent of the excessive interest paid or to be paid, that is to say, the difference between the legal rate collectible under Georgia law after maturity of a note (7%) and the 13 ½% rate plaintiffs, Tobler and the corporation, agreed to pay. I say "agreed" both in the light of their course of conduct and in view of the notes themselves which state that the debt bore interest at the rate specified. That rate was 13½% per annum.
The maker of the original note payable to First Bank of Savannah was U.S. Financial Southeast, Inc. It was dated February 1st, 1973 and was in the amount of $52,457.55. It bore interest at 8½% per annum. The note and the second mortgage was later transferred to Tobler by First Bank. Subsequent renewals were executed by him as advances were made by the Bank on the $200,000 principal. On June 20, 1974, the full amount thereof was advanced. Apparently, it was at this period that the interest rate was increased to 13½%. On October 18, 1974, Tobler and John C. Buttolph executed a new note in the amount of $200,000 secured by First Bank's second mortgage. The interest rate agreed on was 13½% until the note was "paid in full." It matured without payment on November 18, 1974.
*797 The litigants have stipulated that the higher interest rate was paid by (or on behalf of) George P. Tobler from October 18, 1974 through May 30, 1976. Interest payments on the principal from the latter date up to the July 4th sale this year total $56,515.17. At the legal rate of interest the total interest from June 1, 1976 through July 4, 1978 would have been $29,322.33. The difference between the two rates is $27,192.84.
Chemical Bank contends that under Georgia law the legal rate constitutes the governing interest rate on a note after maturity where the instrument is silent on that subject. See Jenkins v. Morgan, 100 Ga. App. 561, 112 S.E.2d 23; Fitzgerald v. United Virginia Bank of Roanoke, 139 Ga.App. 664, 667, 229 S.E.2d 138; 11 C.J.S. Bills and Notes § 722d.
As stated, Tobler (or his corporation) voluntarily paid the 13½% rate after maturity. No question was raised as to the applicability of that rate. It was not usurious under Georgia law. Ga.Code Ann. § 57-119.
The note dated October 18, 1974 was never renewed. Its comaker, Buttolph, refused to do so. The Bank did not want to release him by obtaining a renewal note executed only by Tobler. Counsel for Chemical Bank capitalizes on that fact, arguing that the payment of the 13½% rate after maturity amounted to an oral agreement to vary the applicable 7% legal rate of interest. The mutual consent of all parties, says the Bank, was essential and Buttolph had refused to sign a renewal. Therefore mutuality is lacking and the higher rate cannot be charged by Yoder & Frey. So the Bank contends. It argues that "While a new verbal contract may be substituted for a valid written contract the new contract must arise from the mutual consent of all of the parties to the original contract." See Ga.Code Ann. § 20-116.
This Court is not persuaded by the argument of Chemical Bank that the blank space in the note for insertion of the interest rate was not filled in. However, the 13½% figure appears in the disclosure statement in the right hand corner of the note. The purpose of the information there stated was, of course, to comply with the Truth-in-Lending requirement in disclosing the Annual Percentage Rate. Counsel for Chemical Bank argues that the recitations in the block have nothing to do with the note proper. The President of First Bank of Savannah, Howard Gaines, testified on deposition that the Truth-in-Lending block was utilized by the Bank and treated as the date of the note and the interest rate. However, Wilton C. Futch who was "number two man" in First Bank of Savannah at the time testified that the interest rate in the note itself would normally have been filled in.
Be that as it may, Tobler and the Bank acted on the statement in the disclosure block that the interest rate was 13½% per annum. Tobler and/or Henry Ford Plantation, Inc. paid on that basis. Parol evidence as to the date of a note or rate of interest may be received where the latter does not clearly appear in the instrument itself. 12 Am.Jur.2d Bills and Notes pp. 1258, 1260.
IX. Chemical Bank's standing to contest the validity and sufficiency of the mortgagee's notice to collect attorney's fees
At the hearing in this Court on November 21st last I broached the subject of Chemical Bank's standing to contend that there was an insufficient compliance by Yoder & Frey with the notice statute. Here the Bank is not a party to the note or to the second mortgage. The requirements of § 20-506 as to proper notice is for the benefit of the debtor, not strangers to the contract.
I have concluded however, that the claimants to the fund should stand on a parity as to the defect in the notice of intent to collect attorney's fees. It is axiomatic that equality is equity (Williams Bros. Lumber Company v. Anderson, 210 Ga. 198, 206, 78 S.E.2d 612) and we are in a court of equity. The fund is a common one. *798 The Bank has an interest in contesting the mortgagor's indebtedness wherever items may be erroneously charged or claimed.
Parity among claimants in such a case does not contemplate increasing the recovery by Tobler and reducing same in the instance of Chemical Bank. The Schoolmen of the medieval era would revel in such a subtlety.
X. The claim of Tobler and Henry Ford Plantation, Inc. to the fund
The mortgagors claim the escrowed fund on the basis of the provision in the second mortgage which states that any over-plus on the sale after payment of the debt, costs, etc., belongs to the grantor.
The trouble with this claim upon the fund is that Chemical Bank holds a security deed from Tobler and Henry Ford Plantation, Inc. secured by the property foreclosed on. It is superior to any right of theirs to the over-plus. The underlying note secured by the Bank's deed to secure debt is in default. Its lien to the surplus did not vanish with the foreclosure by the second security deed held by Yoder & Frey. Under Georgia law, where a surplus is created by foreclosure of a mortgage a court of equity will impress upon the fund the lien of a claimant. See East Atlanta Bank v. Limbert et al., 191 Ga. 486, 490, 12 S.E.2d 865. Chemical Bank's lien under its security deed was transferred to the fund and, as stated, is paramount to any claim thereto of Tobler and Henry Ford Plantation, Inc.
The exertions of Mr. Tobler resulted in a resale of the property for $600,000 instead of the $250,000 bid by Yoder & Frey at the first sale. Tobler created the surplus. His success in that respect is akin to Pyrrhus' victory over the Romans at Heraclea. The triumph proved to be a disaster.
XI. Costs of collection revisited
I return to the subject of the collection expenses incidental to the foreclosure which was discussed in Part IV of this Opinion. I will now deal more specifically with the matter of recoverable items and the proper amount of the costs and expenses claimed by Yoder & Frey incident to the foreclosure. Its lien under the second mortgage is superior in respect to costs and expenses incurred, both under the terms of the mortgage and the general law. See Bob Parrott, Inc. v. First Palmetto Bank, 133 Ga. App. 447, 211 S.E.2d 401.
I ruled earlier that under the facts of this case, Yoder & Frey is entitled to the reasonable costs and expenses in vindicating in the bankruptcy court in New York its right to exercise its power of sale under the second mortgage it held on the property.
The parties are at odds over what are recoverable and reasonable costs of collection. Yoder & Frey's right to charge various items included in arriving at the total owed by the mortgagors is challenged.
It is the duty of a mortgagee in conducting a sale under a power contained in a security deed or mortgage to keep the expenses within reasonable bounds. 55 Am. Jur.2d Mortgages § 758. Tobler and Chemical Bank maintain that the costs of collection of the note and the expenses claimed incidental to the foreclosure are excessive and that in a number of instances are not recoverable.
Attached as an Appendix to this Opinion is a break-down of expenses and costs charged by Yoder & Frey against Tobler and Henry Ford Plantation, Inc. Part of the items of expense included represent the travel of attorneys. I have ruled that the notice as to attorney's fees was defective. The 15% recovery provided for in the note and second mortgage, pursuant to the statute, was intended to embrace all attorney's fees. Such cannot be collected under the guise of costs or expense of collection allowable by the provisions of the note and security deed. To me "all costs of collection including 15% as attorney's fees" means expense incurred in employing an attorney to collect the indebtedness due on the note, or, as in this case, cost of litigation in which the mortgagee has to take part in to protect his security interest. Attorney's fees are not chargeable on the theory that they are *799 "costs" independent of the 15% attorney's fees allowed under the note or security deed.[4]
So viewed, the $600.00 item incurred for services of New York counsel must be eliminated. This is also true of the travel expenses of attorneys employed by Yoder & Frey which have been charged to Tobler and Henry Ford Plantation, Inc. in the amount of $2,803.59. These include trips by counsel to New York as well as Bryan County. Generally, an attorney is entitled to disbursements made by him which are necessary in carrying out the object of his employment. 7 C.J.S. Attorney and Client § 180. Such an expense is so closely related to the fee itself that no realistic distinction can be drawn between the two as to chargeability to the client. If attorney's fees are not recoverable, neither are expenses of counsel. Such is my view of the law and logic of the matter.
Yoder & Frey has charged to the mortgagors the travel expenses incurred by officials on various trips. They total $3,843.31, and consist of travel for court appearances ($533.35); conferences with their attorneys ($853.63), and attendance at two foreclosure sales in Bryan County as well as the one advertised for April 1978 but which had to be called off as a result of the automatic stay following the filing of the Chapter XII proceeding in bankruptcy at Brunswick ($2,456.33).
In considering travel costs one needs to keep in mind the difference between expenses incurred in connection with the litigation relating directly to the protection of Yoder & Frey's power to foreclose as opposed to expenses incidental to the foreclosure proper. Only those in the former category have been allowed.[5]
The only item of travel in connection with the New York litigation amounts to $231.29. It is allowed. There is an item of $302.06 as expense of travel to Savannah by Yoder & Frey's officers for attendance at the evidentiary hearing before Bankruptcy Judge Coolidge. Such is a proper and allowable charge since it was necessary to protection of the security. It appears that $445.67 was incurred by Yoder & Frey in attending a conference with counsel concerning the New York bankruptcy proceedings. Same is allowed. Travel expenses apparently claimed in connection with a conference with counsel at Savannah concerning the future conduct of the case ($407.96) are not allowed. This was after the Order in New York lifting the stay until April, 1978.
All the other costs sought involve attendance by Yoder & Frey personnel at the foreclosure sales. They are disallowed as are telephone tolls ($766.55) and photocopies ($801.60).
This Court allows the expenses incurred by Yoder & Frey for the two expert witnesses on value whose testimony in the bankruptcy courts in New York was essential to opposing the stay of the foreclosure. *800 Such item of expense amounted to $5,676.19.
It appears that various other expenses were incidental to the bankruptcy proceedings in New York. These include Modern Shorthand ($423.50); copy of the Joseph Blake appraisal ($35.00); filing fee ($15.00); photographs of the mortgaged property ($149.50), and an item for service of process in New York billed by Academy Process Service ($50.00). These expenses which total $673.00 are allowed.
Advertising costs of foreclosure sales are ordinarily recoverable. Here, however, the Order of this Court dated June 5, 1978, made it clear that a condition of the resale there granted was that Tobler should bear the cost of the advertising of both the May and the July foreclosure sales. The amount of $392.00 was accordingly deposited with the Clerk of this Court covering the cost of the two legal advertisements. Costs of the three advertisements amount to $644.08. They are not allowable to the extent of $392.00. However, $252.08 is recoverable by Yoder & Frey. It appears to grow out of the meritless Chapter XII proceeding by the mortgagors in this jurisdiction which automatically stayed such foreclosure.
Among the expenses billed by the attorneys for Yoder & Frey is a $600.00 advance made to the Clerk of the Superior Court of Bryan County for the State transfer tax after the resale at foreclosure. This is a legitimate item of expense and is allowed. The claim of witness fees ($88.00) appear to relate to the bankruptcy proceedings in this Court. It is allowed.
Several items included in the list of expenses have not been explained. Their precise nature has not been made known to this Court. The cost of removal of the complaint to this Court is not taxable against the mortgagees. Miscellaneous costs of $33.60 are not explained. The bankruptcy court in Brunswick has no record of such charges. They are not allowed.
XII. The bottom line
Applying the findings and conclusions in Part XI, this Court comes up with the following computation of the amount owed to Yoder & Frey by the mortgagors at the time of the foreclosure as adjusted by the various credits and debits applicable to mortgagee's claim:
Debt secured by second mortgage $200,000.00
Interest owed thereon 56,515.07
Judgment in favor of Southern Golf 235,000.00
Builders, Inc. against Tobler
and Henry Ford Plantation, Inc.
purchased by Yoder & Frey
Interest on that judgment 36,137.70
Expenses of collection allowed 8,268.29
___________
Total due Yoder & Frey 535,921.06
Less amount disbursed 535,000.00
___________
Amount of escrowed fund to which 921.06
Yoder & Frey is entitled
Escrowed fund 65,000.00
Less disbursement to Yoder & Frey 921.06
___________
Balance due Chemical Bank $ 64,078.94
L'Envoi
I have personally spent over 100 hours on this litigation, excluding the time of my law clerk (and secretary). I intend to spend precious little more. There will be no more evidentiary hearings. Three are enough. I am not going to relitigate the merits of any part of this case.
That there will be disagreement and disappointment I quite well recognize. If so, don't come weeping and wailing to this Court. Tell it to the Fifth Circuit.
ORDER
Judgment will be entered against the claim of George P. Tobler and Henry Ford Plantation, Inc. to the fund in escrow. The amount of $64,078.94 will be payable out of the fund to the intervenor, Chemical Bank. The balance will go to Yoder & Frey Auctioneers, Inc. in the amount of $921.06.
This is not a final judgment. Before entering judgment on this Order, the parties will have the opportunity on or before December 22nd next to object in writing to the mathematical computations or to significant and palpable error other than the rulings themselves. As Thackeray says in the last line of Vanity Fair: "Come children, let us shut up the box and the puppets, for our play is played out."
*801 Appendix A
Expenses Claimed
1. Modern Shorthand $ 423.50
2. Joseph Blake & Associates 35.00
(Copy of Appraisal)
3. United States District Court 15.00
(New York, Filing fee)
4. Wilhoit Photography 149.08
(Photos of Henry Ford Plantation)
5. Pembroke Journal and Savannah
News Press 532.00
(Advertisements)
6. J. M. Adams, Appraiser 2,928.07
(witness fee & expenses)
7. Hugh Armstrong, Appraiser 2,748.09
(witness fee & expenses)
8. Jules V. Speciner 600.00
(Attorney fee)
9. New Yorktrips of attorneys:
(a) 12/8-9/76: Air fare 232.00
Lodging 36.62
Meals, tips, taxi, etc. 75.00
(b) 2/11/77: Air fare 158.00
Hertz, Rent-a-car 59.65
Meals, lodging, tips, 326.21
misc., etc.
(c) 3/16/77: Air fare 160.00
Avis, Rent-a-car 57.57
Meals, lodging, tips, 125.00
etc.
(d) 4/20/77: Air fare 160.00
Meals, lodging, taxi, 150.00
etc.
(e) 5/30/77: Air fare 160.00
Meals, lodging, tips, 150.00
taxi, etc.
Hertz, Rent-a-car 37.58
(f) 8/11/77: Air fare 248.00
Hertz, Rent-a-car 135.00
Witness, meals, tips, 320.00
taxi, etc.
Lodging 143.36
SUB TOTAL 2,733.99
10. Mileage, trips of attorneys to Pembroke 54.40
11. Academy Process Service, Inc. 50.00
12. Witness Fees 88.00
13. Bond Fee (removal) 20.00
14. Miscellaneous 33.36
15. Gay Oldfield, Court Reporter 15.75
16. Photocopies 704.00
17. Long Distance tolls 592.91
18. Advances by Robert E. Falligant, Jr.,
atty. 1,013.52
19. Yoder & Frey Auctioneers, Inc.[*] 3,843.31
_________
TOTAL $16,579.98
NOTES
[1] Tobler owns the entire stock of Henry Ford Plantation, Inc.
[2] Yoder & Frey is assignee of a judgment in the amount of $235,000 obtained by Southern Golf Builders, Inc., in 1975, against Tobler and Henry Ford Plantation, Inc. The lien thereof is ahead of other claims to the surplus. Without objection, it was included in the indebtedness due Yoder & Frey by Tobler and his corporation.
[3] The notice stated that it was cumulative of other notices previously sent to the debtors. This would include the one sent by First Bank of Savannah on September 3, 1976, which complied with § 20-506. However, the notice by the First Bank is ineffective and cannot be cumulative. See Baskins v. Valdosta Bank & Trust Co., 5 Ga.App. 600, 63 S.E. 648; Aycock v. Tillman, 14 Ga.App. 80, 80 S.E. 301. The Bank was about to foreclose its second mortgage but such action was stayed by the Chapter XI bankruptcy proceeding filed in New York by Henry Ford Plantation, Inc.
[4] A provision in a note allowing attorney's fees and costs of collection in addition to the indebtedness does not impair its negotiability. Stapleton v. Louisville Banking Company, 95 Ga. 802, 23 S.E. 81. However, while the decision is relevant only in small degree, attention is called to Nussenfeld v. Smith, et al., 110 Conn. 438, 148 A. 388, 390 (Sup.Ct. of Errors, Conn., 1930). The Court there recognized the general rule as to non-negotiability. It added in reference to a provision of the note allowing cost of collection by foreclosure that such "goes far beyond the costs and attorney's fees which might be included in the collection of the note. It would embrace, for instance, the costs and fees incurred in an action to cancel the note for fraud in its inception, or to reform it on the ground of mistake. The costs, charges, and expenses which might be incurred under this provision might amount to a very large sum, left entirely indefinite by the terms of the note."
[5] When I was at the bar, I handled many foreclosures and observed numerous others. I never saw a power of sale exercised where expenses incurred by the mortgagee in attending the foreclosure was sought or allowed as part of the secured indebtedness. As an illustration of the conservative approach of some courts to costs of foreclosure, see Griffith v. Dale, 109 Md. 697, 72 A. 471, 472. There the Supreme Court of Maryland ruled that costs and expenses of a foreclosure sale includes only advertising costs, services of an auctioneer, and other expenses necessary to an advantageous sale.
[*] This item consists of travel expense of Yoder & Frey representatives incurred in trips for court appearances ($533.35); conferences with counsel ($853.63); and attendance at foreclosure sales ($2,456.33). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2142517/ | 462 F. Supp. 320 (1978)
In re AIRPORT ASSOCIATES, Debtor.
FIRST HAWAIIAN BANK, Plaintiff-Appellant,
v.
HUGH MENEFEE DEVELOPMENT CORPORATION, Richard I. Blum, Frank F. Herman, James W. Byrer, Hugh A. Menefee, Jack K. Palk, Steven J. Kolar, Hugh Menefee, Inc., and Airport Associates, Defendants-Appellees.
No. 77-00339(1).
United States District Court, D. Hawaii.
December 19, 1978.
*321 Richard A. Hicks, Nicholas C. Dreher, John R. Aube, Cades, Schutte, Fleming & Wright, Honolulu, Hawaii, for plaintiff-appellant.
John A. Chanin, Patrick Y. Taomae, Honolulu, Hawaii, for defendants-appellees.
DECISION AND ORDER OF REVERSAL
SAMUEL P. KING, Chief Judge.
Appellant, First Hawaiian Bank, seeks relief from a stay on actions against the general partners of this chapter XII debtor. On August 3, 1977, an automatic stay issued, preventing proceedings based on individual debts of the general partners. Those partners were liable on notes signed as co-makers or taken out individually for the benefit of the Debtor. Appellant commenced an adversary proceeding seeking relief from the stay on two grounds: (1) that Debtor had no equity beyond creditor-appellant's first mortgage and (2) that the bankruptcy court had no jurisdiction to stay suits against the general partners based on their direct individual liability on the notes.
Appellant's partial victory in the proceeding was short lived. Although first finding that the fair market value of the mortgaged property exceeded the amount of the note, the court found that actions against the general partners based on their individual debts would not directly affect the debtor's property. Thus, there was no jurisdiction for the stay on actions on individual debts. The court also observed, however, that "[t]he partners [were] not using any of their personal assets to inject additional cash into the Debtor estate to help keep the Debtor in an on-going business condition." Capitalizing on this finding, appellees returned to convince the bankruptcy court that an infusion of $320,000 was necessary "to achieve full occupancy" of the debtor's principal asset, a building. On July 17, 1978, an amendment to the findings was filed; the stay was resurrected; the $320,000 was paid.
Contrary to appellee's claims, this is not an exceptional case. Although a bankruptcy court may "make such orders . . . as may be necessary for the enforcement" of the Bankruptcy Act, section 16 of the Act declares that "[t]he liability of a person who is a co-debtor with, or guarantor or in any manner a surety for, a bankrupt shall not be altered by the discharge of such bankrupt." Section 16 has been construed to deny jurisdiction to stay suits against co-debtors of a principal debtor in a bankruptcy proceeding. E. g., Reed v. General Finance Loan Co., 394 F.2d 509 (4th Cir. 1968). In re Helmwood Apartments, 9 Collier Bankruptcy Cases 443 (N.D.Ga.1976), did no more than formulate an exception that merely tests that general rule.
The Helmwood court prevented a creditor from destroying a chapter XII plan before it was even formulated. A general partner, one William Craig, who had not filed bankruptcy jointly with the partnership, held title to the principal chapter XII partnership property in his own name. A creditor sought satisfaction of Craig's individual defaulted note from that partnership property, which secured it. The court observed that the partnership could not be expected to engage in fruitful development of a plan if the property essential to any plan was being threatened by a creditor taking advantage of a peculiar form of title to the debtor-partnership's property. Id. at 458-60. Reiterating its finding that the property belonged to the partnership despite the state of title, the court spoke of "a oneness of mutual liability to the partnership creditors." Id. at 458. Thus, to the extent that partnership property might otherwise be subject to creditors seeking satisfaction of a general partner's individual debts, the general rule did not apply. Inferences beyond the holding in Helmwood are dicta.
If the thrust of Helmwood is not already clear, the considerations upon which bankruptcy court jurisdiction is often extended are absent here. Jurisdictional extensions to preserve a vital "asset" of debtors in rehabilitation are common where the affected creditor is not forced to carry further substantial burdens. E. g., In re Merritt Lumber Co., 336 F. Supp. 325 (E.D.Pa. 1971). The burden here is substantial. *322 Having already gained the benefit of further money on their individual account for the benefit of their already highly leveraged partnership, the general partners should not prevent or delay satisfaction of the debt from assets not necessary to the partnership. The absence of necessity is further pronounced by the bankruptcy court's findings that "[e]ach of the general partners has individual assets in excess of individual debts" and that "(n)one of the general partners will be rendered insolvent by the required contributions . . .."
While the appellee general partners have gained from the stay, appellant has gained nothing. Unlike the case of an insurer who upon ensured payment of the premium is forced to insure the warehouse of a debtor in possession at no greater risk by reason of the insolvency, see id., appellant is harmed without an offsetting benefit. A stay would further delay appellant's recovery on the individual notes, while not significantly ensuring speedier payments on a partnership note already adequately secured.
The consideration of the purposes of a chapter XII proceeding is unhelpful. Appellees would emphasize the dearth of chapter XII case authority for the general rule by noting that rehabilitation is a primary consideration under chapter XII. Nonetheless, the general rule is applied in chapter XI proceedings, which promote a similar goal. Globe Construction Co. v. Oklahoma City Housing Authority, 571 F.2d 1140, 1143 (10th Cir. 1978); In re General Steel Tank Co., 478 F.2d 294 (4th Cir. 1973); In re New York & Worcester Express, Inc., 294 F. Supp. 1163 (S.D.N.Y.1968). Although the bankruptcy court found that the general partners were actively participating in the management and operation of the debtor's principal asset, in terms of contributing their personal assets and services, this was part of their responsibilities as general partners, which if successfully fulfilled would be to their own benefit. Even if the $320,000 were considered necessary to the success of the plan, the existing case authority would have protected only the integrity of that $320,000 as a partnership asset, not the individual assets remaining after the pro rata contribution.
Having contributed the $320,000 at their own risk, appellees shall have whatever status these circumstances would afford general partners who voluntarily contribute to such expenses as were incurred.
Accordingly, IT IS HEREBY ORDERED that the FINDINGS OF FACT AND CONCLUSIONS OF LAW filed on April 26, 1978, and amended on July 17, 1978, be AMENDED as provided above and that the stay predicated thereon be lifted. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2142541/ | 462 F. Supp. 374 (1979)
Joseph L. EDWARDS
v.
W. F. SASSER, Superintendent.
Civ. A. No. 77-0775-R.
United States District Court, E. D. Virginia, Richmond Division.
January 3, 1979.
*375 Joseph L. Edwards, pro se.
Robert H. Herring, Jr., Asst. Atty. Gen. of Va., Richmond, Va., for defendant.
MEMORANDUM
MERHIGE, District Judge.
Petitioner, Joseph L. Edwards, a prisoner confined in the Virginia State Correction System at the Caroline Correctional Unit # 2, Hanover, Virginia, has filed a petition for writ of habeas corpus. Jurisdiction vests in this court pursuant to 28 U.S.C. § 2254(a).
The Court has previously determined that petitioner exhausted his state remedies when the Virginia Supreme Court considered and denied his state petition for a writ of habeas corpus, involving certain of the claims here presented. Respondent, prison superintendent, filed an answer to the petition and moved for summary judgment, asserting that the facts surrounding petitioner's allegations are fully developed in the record of petitioner's trial so that no evidentiary hearing is necessary. Petitioner has responded, and the matter is now ripe for disposition. For the reasons which follow, the Court concurs in the respondent's contention that there is no need for an evidentiary hearing, and deems it appropriate to grant petitioner's prayer for a writ of habeas corpus.
After a nonjury trial on April 28, 1976, before the Circuit Court of Newport News, Virginia, petitioner Edwards was convicted of two counts of grand larceny and sentenced to five years imprisonment on each count, with the sentences to be served concurrently. Petitioner attacks the constitutionality of his convictions, alleging in his petition: (a) that he was denied the effective assistance of counsel because counsel failed to inform the trial court that petitioner sought a jury trial; (b) he was denied his right to trial by jury when the trial judge refused petitioner's personal request for a jury trial; (c) that a prosecution witness was coerced by police detectives into testifying against petitioner at trial.
Petitioner's allegations (a) and (b) are interrelated and shall be considered by the Court together as an allegation by petitioner that he was denied his right to jury trial. The Court, however, will first address petitioner's allegation that detectives coerced a prosecution witness into testifying.
At petitioner's trial, Barbara Zimmerman, a prosecution witness, testified that on the night of the larceny in question, defendant had stated that he was going to a mutual acquaintance's apartment, that defendant departed and returned with a television set, and that defendant the following day attempted to sell that same television to a friend of the witness's father.
Petitioner does not allege that Ms. Zimmerman's testimony was false. Petitioner, *376 rather, contends that police detectives compelled Ms. Zimmerman to testify against him by telling her that she would lose her child and be placed in jail if she didn't testify.
Petitioner clearly had the right to cross examine Barbara Zimmerman as to her possible bias due to the detectives' alleged offers of leniency if she testified and concomitant threats of dire consequences if she did not. United States ex rel. Annuziato v. Manson, 425 F. Supp. 1272, 1275 (D.Conn.1977). Any restriction by the trial judge of the petitioner's right to effectively cross examine Ms. Zimmerman as to possible bias would have been "`constitutional error of the first magnitude'". Davis v. Alaska, 415 U.S. 308, 318, 94 S. Ct. 1105, 1111, 39 L. Ed. 2d 347 (1974).
In the instant case, the trial judge in no way restricted petitioner's right to cross examine the witness. All factors which petitioner chose to ask Ms. Zimmerman regarding possible bias were brought to the Court's attention on cross examination.
On cross examination, Ms. Zimmerman testified that the police told her they could put her in jail on a separate charge and thereby, separate her from her child if she did not testify at petitioner's trial. She testified additionally, however, that she knew the meaning of her oath, that her testimony on direct examination incriminating petitioner was the truth, and that she would tell the truth even if she had been separated from her child.
Detective H. T. Cole, testified that he spoke with Barbara Zimmerman regarding petitioner's involvement in the crime, that the police had information linking Ms. Zimmerman to another crime but never charged her, and that no threats or promises were ever made to her to induce her to testify.
A witness's bias affects the credibility of his testimony. It is the function of the trier of fact to determine whether a witness is to be believed ". . . or whether he had perjured himself hoping thereby to obtain some consideration from the Government." United States v. Gonzalez-Carta, 419 F.2d 548, 551 (2d Cir. 1969). The credibility of Barbara Zimmerman and H. T. Cole was a matter solely within the province of the trial judge, the trier of fact, and is not susceptible to review in this habeas corpus proceeding. Pigford v. United States, 518 F.2d 831, 836 (4th Cir. 1975); Robertson v. Riddle, 404 F. Supp. 1388, 1391 (W.D.Va.1975).
Petitioner also contends that he was denied his constitutional right to trial by jury. The trial court record reveals that, prior to petitioner's trial, his counsel advised the court that petitioner waived his right to jury trial, that, on the day of trial, petitioner's counsel informed the court that petitioner sought a trial continuance so that he might be afforded a jury trial, and that petitioner told the court that he himself had never said he didn't want a jury. The trial judge stated that he assumed petitioner's attorney had spoken for petitioner when he informed the court that petitioner waived the jury. The trial judge then denied what he deemed an untimely request by petitioner to withdraw a valid jury trial waiver.
The Fourteenth Amendment guarantees a defendant the right to trial by jury in all state nonpetty criminal cases. Duncan v. Louisiana, 391 U.S. 145, 149, 88 S. Ct. 1444, 20 L. Ed. 2d 491 (1968). This right to a jury trial attached in petitioner's case because he was charged with two counts of burglary,[1] alleged violations of Virginia Code § 18.2-91, the possible penalty for each count being twenty years confinement in the penitentiary. ". . . [N]o offense can be deemed `petty' for purposes of the right to trial by jury where imprisonment for more than six months is authorized." Baldwin v. New York, 399 U.S. 66, 69, 90 S. Ct. 1886, 1888, 26 L. Ed. 2d 437 (1970) (footnote omitted).
*377 Respondent contends that petitioner effectively waived his right to a jury trial because petitioner's attorney had advised the Court previous to trial that petitioner did not want a jury. Respondent also points to petitioner's attorney's statement that he and petitioner had discussed the jury question on a number of occasions, and that petitioner had indicated his preference for a trial without a jury.
Several principles guide this Court in determining whether there was an effective waiver by petitioner of his constitutional right to a jury trial. ". . . The question of an effective waiver of a federal constitutional right in a proceeding is of course governed by federal standards." Boykin v. Alabama, 395 U.S. 238, 243, 89 S. Ct. 1709, 1712, 23 L. Ed. 2d 274 (1969) (citation omitted). Before there can be an effective waiver of a trial by a constitutional jury ". . . the consent of government counsel and the sanction of the court must be had, in addition to the express and intelligent consent of the defendant . ." Patton v. United States, 281 U.S. 276, 312, 50 S. Ct. 253, 263, 74 L. Ed. 854 (1930).
The Patton decision antedated the adoption of the Federal Rules of Criminal Procedure, and was an interpretation of constitutional mandates rather than federal procedural requirements. The United States Court of Appeals for the Fourth Circuit, in cases involving the presence of an alternate juror in the jury room wherein the entire compliment of jurors was deliberating, has left no doubt that the phrase "express and intelligent consent of the defendant" used in Patton requires that the defendant personally consent to a waiver of a trial by a constitutional jury. United States v. Virginia Erection Corp., 335 F.2d 868, 870 n.3 (4th Cir. 1964); United States v. Chatman, 584 F.2d 1358 (4th Cir. 1978); Cf. Horne v. United States, 264 F.2d 40 (5th Cir. 1959); Little v. Smith, 347 F. Supp. 427 (N.D.Ga.1971). While the Patton case was decided upon direct appeal from a conviction, rather than upon a collateral attack by habeas corpus, requirements for a valid jury trial waiver set down in Patton and interpreted in Virginia Erection Corp. and Chatman, are constitutional mandates which are controlling in the instant proceeding. See Johnson v. Zerbst, 304 U.S. 458, 464, 58 S. Ct. 1019, 82 L. Ed. 1461 (1938).
In the instant case, it is clear from the record that petitioner did not personally consent to a waiver of his right to a jury trial. Counsel for petitioner, as well as counsel for the Commonwealth, consented to a non-jury trial, but this, without more, was insufficient for a valid jury waiver. See, United States v. Virginia Erection Corp., supra.
After petitioner's counsel had moved the court for a continuance so that petitioner could be tried by a jury, the judge informed petitioner that the Court had been advised that he (petitioner) did not want a jury, and that it was too late for petitioner to withdraw his jury waiver on the day of trial. The trial record reflects that petitioner's response was "I never said I didn't want a jury", to which the trial judge replied "The attorney said so, and I assume you said so. He advised us."[2]
*378 "... [T]rial by jury in criminal cases is fundamental to the American scheme of justice ..." Duncan v. Louisiana, 391 U.S. 145, 149, 88 S. Ct. 1444, 1447, 20 L. Ed. 2d 491 (1968). The duty of a trial court to insure that any waiver of this fundamental right is the intelligent act of the defendant himself "... is not to be discharged as a mere matter of rote." A judge may not "assume" that an attorney who waives a jury necessarily voices the wishes of his client. Such an assumption of waiver is especially invalid in a case such as the instant one wherein petitioner affirmatively advised the Court that he had never said that he didn't want a jury. "... [T]he right to a jury trial is a fundamental right, and a waiver should not be presumed." United States v. Lee, 539 F.2d 606, 609 (6th Cir. 1976).
Without the express, personal consent of petitioner himself, there was no effective waiver by petitioner of his right to a jury trial. Patton v. United States, supra; United States v. Virginia Erection Corp., supra. The trial of petitioner without a jury, under the facts of this case, in the Court's view, constituted constitutional error. Denial of the right to trial by jury cannot be deemed harmless error. See United States v. Taylor, 498 F.2d 390, 392 (6th Cir. 1974) (per curiam). Petitioner's application for a writ of habeas corpus must issue.
An appropriate order will follow.
NOTES
[1] Petitioner was indicted on four charges, two for burglary and two for grand larceny, but was tried only on the burglary charges. The judge found the Commonwealth had not sufficiently proven all of the elements of the burglary charges, and instead found petitioner guilty of the lesser offenses of grand larceny.
[2] The following is the testimony in the record dealing with the purported jury trial waiver:
Mr. Smith: (Respondent's counsel) If Your Honor, please, for the record, Mr. Edwards has requested that I ask that these cases be continued and that he be afforded a jury trial on all these charges.
The Court: Well, when did he decide that?
Mr. Smith: He just asked me to request that when I held conference a moment ago.
The Court: Let me explain something, Mr. Edwards. The right of trial by jury under the Constitution of Virginia, as I view it, carries with it the corresponding duty to let us know that you want a jury in time to have a jury here for your trial.
Now, we have been advised that you did not want a jury. The witnesses are here, everybody is ready to go to trial, and it's too late for you to change your mind.
Mr. J. L. Edwards: I never said I didn't want a jury.
The Court: Well, the attorney said so and I assume you said so. He advised us.
Mr. Smith: Your Honor, we discussed the pros and cons of a jury and nonjuries, on numerous occasions. He made indications then that he did not want a jury.
The Court: Andyes sir. And you so advised us, and we're ready to go to trial. And we cannot go out and get a jury; no way we can do that. Now, I'll note your exception for that.
Mr. Smith: Yes sir, please sir.
The Court: Otherwise, if that is not the law, then these people can keep the Court on a strangling yo-yo. First this way, and the other way, and I justI just can't do that. I have to be in control of my own court.
. . . . .
The Court: Are you ready to go to trial?
Mr. J. L. Edwards: I can't get no jury, I guess I am.
The Court: Well, I'm sure you appreciate the fact that there's no way I can get a jury today; no way I can do that. I've got to summons in thirty people. I can't draw a jury and get them in here today. You should have let me know before that you wanted a jury. I can't allow you a jury.
Otherwise, are you ready to go to trial? Mr. J. L. Edwards: Yes, sir.
. . . . .
The Court: All right, sir. Mr. Commonwealth, I assume you haven't changed your mind about not wanting a jury?
Mr. Olson: (Commonwealth's Attorney) No sir. We're ready to go.
The Court: All right, we'll try you without a jury. Call your witnesses.
. . . . .
The controlling issue in this habeas corpus proceeding is not whether a trial judge may deny a defendant's request to withdraw a valid jury waiver when granting the request would cause an unmerited continuance. See McCranie v. United States, 333 F.2d 307 (5th Cir. 1964) (per curiam). The question in the instant case is, rather, whether there ever had been an effective waiver by defendant of his constitutional right to a jury trial. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2141325/ | 162 F. Supp. 890 (1957)
Petition for Writ of Habeas Corpus for Mile MILANOVIC.
United States District Court S. D. New York.
February 21, 1957.
*891 Delson, Levin & Gordon, New York City, for relator. Ernest Fleischman, New York City, of counsel.
Paul W. Williams, U. S. Atty., for the Southern District of New York, New York City, for respondent. Roy Babitt, Sp. Asst. U. S. Atty., New York City, of counsel.
PALMIERI, District Judge.
Relator, Mile Milanovic, is an alien who has been held excluded from entering the United States and ordered deported to Yugoslavia. Milanovic, claiming that he will be subject to physical persecution in Yugoslavia and that Yugoslavia is not the country "whence he came" to the United States, brought this petition for habeas corpus to test the destination of his deportation.
Mile Milanovic was born in Yugoslavia in September, 1925, and lived there with his parents until the outbreak of World War II. During the war, he served in the Royal Yugoslav Navy and also fought the so-called Titoists in Yugoslavia. His father was killed by the latter; his mother still lives in that country. After the war, he could not return to live under the prevailing régime and instead spent two and one-half years in a displaced persons camp maintained by England in Italy. He was released from the camp *892 when he shipped out as a crewman on an Italian vessel. When the ship arrived in New York harbor, he was not paid for his three-month tour of duty and the ship captain threatened to return Milanovic to the displaced persons camp. Fearing the probability of being deported to Yugoslavia, Milanovic escaped from his confinement aboard ship, swam to a tugboat, and was taken to Ellis Island. He was held to have entered illegally, but avoided deportation by finding employment under a former captain in the Royal Yugoslav Navy who was then piloting a Panamanian vessel. After a number of voyages, the ship was sold and Milanovic left rather than take a drastic pay cut. Since the Belgian Government would not allow him to remain in the port where he was then located, the owners of the vessel transported him to New York where he expected to ship out for better wages. Upon his arrival in January, 1949, the Immigration Service detained him, held a hearing, and ordered Milanovic excluded as an immigrant not in possession of an unexpired immigration visa, and as an alien not in possession of a valid passport or other official travel document. Milanovic lost an appeal to the Board of Immigration Appeals, and then won a parole to give him an opportunity to become admitted by private Congressional bill. He also sought to comply with various other procedures for admission into the United States, but neither avenue brought success. The Immigration and Naturalization Service, unable to obtain consent from the Belgian Government for Milanovic's entry into that country, obtained consent from Yugoslavia, and in August, 1956, Milanovic was ordered deported to Yugoslavia. Subsequently, deportation was delayed to allow both Milanovic and the Service to seek his entry into a different nation, but all such attempts proved unavailing. When the Service again took action to enforce its order, Milanovic brought this petition.
The Immigration and Nationality Act of 1952, 8 U.S.C.A. § 1101 et seq., which is the law applicable to the matter before me, see United States ex rel. Harisiades v. Shaughnessy, 2 Cir., 1951, 187 F.2d 137, affirmed 1952, 342 U.S. 580, 72 S. Ct. 512, 96 L. Ed. 586; United States ex rel. Wiczynski v. Shaughnessy, 2 Cir., 1950, 185 F.2d 347; United States ex rel. Pizzuto v. Shaughnessy, 2 Cir., 1950, 184 F.2d 666; cf. Imm. & Nat. Act § 405 (1952), 8 U.S.C.A. § 1101 note, contains two procedures for deportation.[1] An excluded alien is deportable under section 237, 8 U.S.C.A. § 1227(a), which reads as follows:
"§ 1227. Immediate deportation of aliens excluded from admission or entering in violation of lawMaintenance expenses
"(a) Any alien (other than an alien crewman) arriving in the United States who is excluded under this chapter, shall be immediately deported to the country whence he came, in accommodations of the same class in which he arrived, on the vessel or aircraft bringing him, unless the Attorney General, in an individual case, in his discretion, concludes that immediate deportation is not practicable or proper. * * *"
An alien in the United States who is to be expelled is deportable[2] under section 243, 8 U.S.C.A. § 1253, which reads as follows:
"§ 1253. Countries to which aliens shall be deportedAcceptance by designated country; deportation upon nonacceptance by country
"(a) The deportation of an alien in the United States provided for in *893 this chapter, or any other Act or treaty, shall be directed by the Attorney General to a country promptly designated by the alien if that country is willing to accept him into its territory, unless the Attorney General, in his discretion, concludes that deportation to such country would be prejudicial to the interests of the United States. * * * If the government of the country designated by the alien fails finally to advise the Attorney General within three months following original inquiry whether that government will or will not accept such alien into its territory, such designation may thereafter be disregarded. Thereupon deportation of such alien shall be directed to any country of which such alien is a subject national, or citizen if such country is willing to accept him into its territory. If the Government of such country fails finally to advise the Attorney General or the alien within three months following the date of original inquiry, * * *, whether that government will or will not accept such alien into its territory, then such deportation shall be directed by the Attorney General within his discretion and without necessarily giving any priority or preference because of their order as herein set forth either
"(1) to the country from which such alien last entered the United States;
"(2) to the country in which is located the foreign port at which such alien embarked for the United States or for foreign contiguous territory;
"(3) to the country in which he was born;
* * * * *
"(7) if deportation to any of the foregoing places or countries is impracticable, inadvisable, or impossible, then to any country which is willing to accept such alien into its territory.
"Deportation during war
"(b) If the United States is at war and the deportation, in accordance with the provisions of subsection (a) of this section, of any alien who is deportable under any law of the United States shall be found by the Attorney General to be impracticable, inadvisable, inconvenient, or impossible because of enemy occupation of the country from which such alien came or wherein is located the foreign port at which he embarked for the United States * * *, such alien may, in the discretion of the Attorney General, be deported as follows: (emphasis supplied)
* * * * *
"Withholding of deportation
"(h) The Attorney General is authorized to withhold deportation of any alien within the United States to any country in which in his opinion the alien would be subject to physical persecution and for such period of time as he deems to be necessary for such reason."
Milanovic, although cognizant of the difference between exclusion and expulsion, asks that § 243(h) and the suspension of deportation provisions of § 244, 8 U.S.C.A. § 1254,[3] be held applicable to the deportation pursuant to his exclusion. He relies for his argument on the broad wording of § 243, his seven year residence while paroled in this country, and the case of Ng Lin Chong v. McGrath, 1952, 91 U.S.App.D.C. 131, 202 F.2d 316. Except for the last, which presents an arguable point, these contentions clearly lack merit.
It has been settled that Congress has established, and that the Constitution requires, different procedures for those expelled from the procedures *894 applicable to those excluded. Compare Shaughnessy v. United States ex rel. Mezei, 1953, 345 U.S. 206, 73 S. Ct. 625, 97 L. Ed. 956, and United States ex rel. Knauff v. Shaughnessy, 1950, 338 U.S. 537, 544, 70 S. Ct. 309, 94 L. Ed. 317, with Kwong Hai Chew v. Colding, 1953, 344 U.S. 590, 73 S. Ct. 472, 97 L. Ed. 576. Even though some provisions of § 243 purport by their terms to be relevant to the entire field of deportation, the broad terms are to be deemed modified by the specific requirements of § 237. Jew Sing v. Barber, 9 Cir., 1954, 215 F.2d 906, certiorari granted 348 U.S. 910, 75 S. Ct. 296, 99 L. Ed. 714, judgment vacated and case dismissed because moot, 1955, 350 U.S. 898, 76 S. Ct. 175, 100 L. Ed. 790; United States ex rel. Lue Chow Yee v. Shaughnessy, D.C.S.D.N.Y.1956, 146 F. Supp. 3; Dong Wing Ott v. Shaughnessy, D.C.S.D.N.Y.1956, 142 F. Supp. 379; United States ex rel. Camezon v. District Dir. of Imm. & Nat., D.C.S.D.N.Y.1952, 105 F. Supp. 32. Furthermore, the alien has to be within the United States to meet the literal requirements of § 243 (h).
It is also clear that an alien paroled into the United States has not "entered" the United States. See Imm. & Nat. Act § 212(d) (5), 8 U.S.C.A. § 1182(d) (5); Kaplan v. Tod, 1925, 267 U.S. 228, 45 S. Ct. 257, 69 L. Ed. 585; Shaughnessy v. United States ex rel. Mezei, supra. Hence he is not "within the United States" so as to be able to invoke §§ 243(h) and 244. See last four cases cited in next preceding paragraph; cf., Ex parte Kurth, D.C.S.D.Cal., 28 F. Supp. 258, appeal dismissed on technical grounds, Kurth v. Carr, 9 Cir., 1939, 106 F.2d 1003 (no constitutional right to asylum).
In Ng Lin Chong v. McGrath, 1952, 91 U.S.App.D.C. 131, 202 F.2d 316, two Chinese immigrants were held excludable, but instead of being deported, were tried and convicted of a perjury they had committed during a prior residence in the United States. Subsequently, when the Government moved to deport them to China, they sought to get that destination changed by invoking the physical persecution clause of Int. Sec. Act § 23 (1950), amending Imm. Act § 20 (1917), the predecessor of § 243 of the 1952 Act. That clause directed that:
"No alien shall be deported under any provisions of this Act to any country in which the Attorney General shall find that such alien would be subjected to physical persecution." 64 Stat. 1010.
The Court directed that the Government had to furnish a hearing pursuant to this section, even though there had been no entry. According to the exclusion section (§ 18 of the 1917 Act), the Court reasoned, the Government had two courses of action with respect to an excludable person: "immediately [to send him] back, in accommodations of the same class in which [he] arrived, to the country whence [he] * * * came, on the vessel bringing [him]," and, unless "in the opinion of the Attorney General immediate deportation is not practicable or proper." Since the Attorney General selected the second alternative, the Court went on he could no longer avail himself of § 18 but had to proceed under § 20 which applied to "all * * immigration laws of the United States." Contra, United States ex rel. Camezon v. District Dir. of Imm. & Nat., supra.
In the instant case, no element other than the humanitarian one of alleviating the harshness of deportation to Yugoslavia motivated the Immigration Service. Thus, it is distinguishable from a suspension of deportation in order to subject an alien to criminal prosecution. Therefore, it is unnecessary for me to consider whether an assumption of personal jurisdiction over an alien sufficient to ground a criminal prosecution constitutes an admission of that alien into this land. Unless there is such an admission, the alien would not be "within the United States" so as to enjoy the benefits of § 243(h). See Jew Sing v. Barber, supra (distinguishing Ng Lin Chong v. McGrath by the change in wording between § 243(h) and § 23 of the 1950 Act); cf., Shaughnessy v. United States ex rel. *895 Mezei, supra, 345 U.S. at page 215, 73 S. Ct. 625, 97 L. Ed. 956 (confining, instead of deporting, an excluded person is an act of legislative grace, not an admission; a fortiori, so is paroling such a person).
I turn now to the second ground of Milanovic's argument: that, assuming he is to be treated under § 237, he cannot be deported to Yugoslavia because it is not the country whence he came. The Government contends that since Belgium will not acept him, for want of a more appropriate nation, Yugoslavia, as his place of origin and last established residence and as the home of his mother, is tantamount to such a country. Furthermore, it contends that habeas corpus is not available to test the propriety of the place to which an excluded person is destined.
For some time, the term "country whence he came" was given various interpretations.[4] In United States ex rel. Karamian v. Curran, 2 Cir., 1927, 16 F.2d 958, 961, the relator for a writ of habeas corpus was born in Persia. He was rescued from persecution in that country and sent to Mesopotamia, where he lived for three years. From there he went to India, where he stayed for three months, and then to France, where he lived for a year. Unable to get a passport to the United States, he sailed to Mexico with the intention of using that country as a means of gaining entrance into the United States. He stayed in Mexico for nine months, secretly entered the United States, was caught, imprisoned, and ordered deported to Persia. The Court, however, held that he had come from France, "because he had been there long enough to have a place of abode, whether it was technically a residence or domicile, or neither of them, [is not] material; he `started' from France for the United States, so he `came from' that country."
In two succeeding cases, however, the Second Circuit departed from its former rule, declaring that the country whence an alien came "has generally been held to mean the country of the alien's nativity, if it does not appear that he has acquired a domicile elsewhere." See United States ex rel. Di Paola v. Reimer, 2 Cir., 1939, 102 F.2d 40, 41; United States ex rel. Mazur v. Commissioner of Imm., 2 Cir., 1939, 101 F.2d 707, 709. The dispute between "nativity" and "abode" has recently been settled. In United States v. Holland-America Line, 2 Cir., 1956, 231 F.2d 373, 376, the Court, explicitly adopting the Karamian rule, held that an alien's citizenship or place of birth is not determinative of the country whence he came: "The country from whence an alien comes is that country in which the alien has a place of abode and which he leaves with the intention of coming ultimately to this country."
The instant case, however, presents a set of facts which cannot be properly categorized by either "abode" or "nativity." Milanovic is a stateless person, whose only residences since the end of the war have been a camp for displaced persons, bunks on two ships, lodgings such as are available to seamen on shore leave and the home of his American uncle in whose custody he has been paroled. Nor can his abode be identified artificially with the domicile of his origin. Not only has this doctrine been rejected by the Holland-America Line case, it cannot be used to define properly an identification with a country, under the circumstances of post World War II conditions of revolution, displaced persons or Communist vengeance.[5] Milanovic's return to the country of his birth, if such were ordered, would not be a return to the jurisdiction of the government which he left. Cf., Delany v. Moraitis, 4 Cir., 1943, 136 F.2d 129.
*896 If Yugoslavia is not the country whence Milanovic came, is there another country to which deportation can be effected within the purview of the statutory scheme? It appears that his intention to come to the United States was formulated while he was in Belgium. Belgium, it would seem, is thus the country whence he came. This view is supported by assumptions in two opinions, both dealing with excluded aliens, that the country which the alien left to come to the United States is the country whence he came. See Shaughnessy v. United States ex rel. Mezei, 1953, 345 U.S. 206, 208-209, 73 S. Ct. 625, 97 L. Ed. 956, reversing 2 Cir., 1952, 195 F.2d 964, 966; United States ex rel. Paetau v. Watkins, 2 Cir., 1947, 164 F.2d 457, 459. Furthermore, the Holland-America Line case, although it required both "abode" and "intention of coming * * * to the United States" to fix the country whence an alien came, adopted a former decision which noted explicitly that "every case depends on its own facts." See United States ex rel. Karamian v. Curran, supra, 16 F.2d at page 961.
Belgium, it is true, denied Milanovic entry. This fact, however, should not suggest a change in the definition of "whence he came." The problem of the stateless person is unfortunately not a unique one, and the Immigration Service has precedent to guide its treatment of Milanovic. See Shaughnessy v. United States ex rel. Mezei, supra.
However valid is the substance of Milanovic's contentions, he cannot prevail unless he has the right to test the destination of his deportation by habeas corpus. The Service urges that as an excluded alien he has no such right. "The Bill of Rights is a futile authority for the alien seeking admission for the first time to these shores." Kwong Hai Chew v. Colding, 1953, 344 U.S. 590, 596 note 5, 73 S. Ct. 472, 477, 97 L. Ed. 576. "Whatever the procedure authorized by Congress is, it is due process as far as an alien denied entry is concerned." United States ex rel. Knauff v. Shaughnessy, 1950, 338 U.S. 537, 544, 70 S. Ct. 309, 313, 94 L. Ed. 317; Shaughnessy v. United States ex rel. Mezei, 1953, 345 U.S. 206, 208-209, 73 S. Ct. 625, 97 L. Ed. 956. Although the applicant for admission may test the validity of his exclusion by habeas corpus, unless he is an alien within the United States he is not entitled to Constitutional rights of procedural due process. Ibid. Furthermore, deportation of an alien to a country other than the one whence he came does not violate due process under the Fifth Amendment. United States ex rel. Ling Yee Suey v. Spar, 2 Cir., 1945, 149 F.2d 881.
In the instant situation, however, Congress has established procedures to which the Attorney General does not appear to be adhering. If such a departure were part of an expulsion case, there would be no question that the alien could test the destination of his deportation by habeas corpus. See United States ex rel. Karamian v. Curran, supra; United States ex rel. Di Paola v. Reimer, supra; United States ex rel. Mazur v. Commissioner of Imm., supra. And in United States ex rel. Paetau v. Watkins, 2 Cir., 1947, 164 F.2d 457, an exclusion case, the court entertained this writ without questioning the relator's standing to bring it.
I believe that the assumption of the Paetau case is supported by sound policy considerations. It is one thing to say that courts cannot interfere with conjoint action of Congress and Executive in a sphere where federal power is plenary. See Shaughnessy v. United States ex rel. Mezei, supra; cf., Youngstown Sheet & Tube Co. v. Sawyer, 1952, 343 U.S. 579, 592, 72 S. Ct. 863, 96 L. Ed. 1153 (concurring opinion of Jackson, J.). It is quite another, however, to give sanction to executive action inconsistent with procedures required by Congress. Because an excluded alien cannot stand on the Bill of Rights does not mean that he is powerless to seek judicial protection where he has a valid basis for asserting that he is aggrieved by the completely arbitrary action of government officials. See Shaughnessy v. United States ex rel. Mezei, supra, 345 U.S. at pages 218, 226-227, *897 73 S. Ct. 625, 97 L. Ed. 956 (dissenting opinion of Jackson, J.).[6]
I therefore conclude that Mile Milanovic cannot be ordered deported to Yugoslavia. Submit order on notice.
NOTES
[1] These two different procedures were applicable as well when Milanovic arrived in the United States in January of 1949. See Imm. & Nat. Act §§ 18, 20 (1917); 39 Stat. 887, 890. Now 8 U.S.C.A. §§ 1227, 1252.
[2] Exclusion signifies the treatment of an alien who has never "entered" the United States. Expulsion signifies the treatment of an alien who has "entered" the United States. Deportation signifies the transfer of an alien, excluded or expelled, from this to a foreign country.
[3] Section 1254 authorizes the Attorney General to suspend deportation and adjust the status to that of an alien lawfully admitted for permanent residence of certain classes of aliens who had "entered" the United States.
[4] The phrase, "country whence he came" has been in the immigration and naturalization statutes since at least 1917. See Imm. & Nat. Act §§ 18, 20 (1917), 39 Stat. 887, 890. See also 36 Stat. 263, 265 (1910).
[5] Cf., Reese, Does Domicile Bear a Single Meaning, 55 Col.L.Rev. 589 (1955) (Domicile should be defined according to the function it serves).
[6] "Because the respondent has no right of entry, does it follow that he has no rights at all? Does the power to exclude mean that exclusion may be continued or effectuated by any means which happened to seem appropriate to the authorities? It would effectuate his exclusion to eject him bodily into the sea or to set him adrift in a rowboat.
"Would not such measures be condemned judicially as a deprivation of life without due process of law? Suppose the authorities decide to disable an alien from entry by confiscating his valuables and money. Would we not hold this a taking of property without due process of law? Here we have a case that lies between the taking of life and the taking of property; it is the taking of liberty. It seems to me that this, occurring within the United States or its territorial waters, may be done only by proceedings which meet the test of due process of law." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2142095/ | 614 F. Supp. 1320 (1985)
W.G. TAYLOR, K.P. Brockhoeft, A.J. Ruiz, Wayne A. Sepcich and Brotherhood of Locomotive Engineers
v.
MISSOURI PACIFIC R.R. CO. and United Transportation Union.
Civ. A. No. 84-700.
United States District Court, E.D. Louisiana.
March 20, 1985.
*1321 Harold A. Ross, Cleveland, Ohio, Louis L. Robein, Jr., Metairie, La., for plaintiffs.
Dennis M. Angelico, New Orleans, La., Norton N. Newborn, Cleveland, Ohio, for United Transp. Union.
Harry & Rosenberg, New Orleans, La., for Missouri Pacific R.R. Co.
ORDER AND REASONS
DUPLANTIER, District Judge.
Plaintiffs Taylor, Brockhoeft, Ruiz and Sepcich are railway workers employed by defendant Missouri Pacific Railroad Company ("MOPAC"). Plaintiff Brotherhood of Locomotive Engineers ("BLE"), of which the individual plaintiffs are members, is the collective bargaining representative pursuant to the Railway Labor Act ("RLA" or "Act"), 45 U.S.C. §§ 151-163 (1972), for the craft of locomotive engineers employed by MOPAC. Defendant United Transportation Union ("UTU") is the collective bargaining representative for the crafts of switchmen and firemen employed by MOPAC. The rates of pay, rules, and working conditions for the crafts employed by MOPAC are established by agreement between MOPAC and the collective bargaining representative of each respective craft. Although the individual plaintiffs are members of BLE, the engineer's collective representative, they work principally as switchmen.
At various times during late 1983 and early 1984 the individual plaintiffs either were subjects of MOPAC disciplinary proceedings or filed grievances with MOPAC. In all instances, the grievances and disciplinary proceedings concerned the plaintiffs' services as switchmen.
The individual plaintiffs sought representation by their union, BLE, at the MOPAC disciplinary and grievance proceedings. MOPAC, however, refused their requests, basing its position on provisions of two collective bargaining agreements between MOPAC and UTU that establish terms and conditions of employment for MOPAC switchmen: Articles 18 and 23 of the January 1, 1974, Agreement and Section 17 of the August 11, 1948, Agreement. (See Appendix). The parties to this suit agree that these provisions are intended to limit a switchman's choice of representatives before a disciplinary or grievance proceeding to himself or a UTU representative, even though that switchman may be a member of BLE rather than UTU. Thus, the provisions vest in UTU an exclusive right to represent MOPAC employees in proceedings concerning switchmen services.
The individual plaintiffs, joined by BLE, instituted this action in which they seek a declaration that the exclusive representation provisions of the UTU/MOPAC agreements violate employees' rights under the RLA and are null and void insofar as they restrict plaintiffs' rights to have their grievances and disciplinary matters handled at all levels by BLE representatives.[1] We now consider extensively briefed cross motions for summary judgment filed by plaintiffs and by defendant UTU.
Defendant MOPAC opposes both motions for summary judgment. To the extent that MOPAC's opposition resurrects the question of this court's jurisdiction to *1322 adjudicate this labor dispute, we reiterate our ruling on MOPAC's previously considered motion to dismiss. Contrary to MOPAC's contentions, this case does not present a "major dispute" regarding the jurisdiction of competing unions over which the National Mediation Board has exclusive jurisdiction. RLA Section 2, Ninth (45 U.S.C. § 152, Ninth). This case presents no issue about UTU's authority to make agreements with MOPAC relating to the working conditions, rules, and pay of MOPAC switchmen. See Elgin, J. & E. Ry. Co. v. Burley, 325 U.S. 711, 65 S. Ct. 1282, 89 L. Ed. 1886 (1945). Nor is this matter a "minor dispute" arising out of a grievance or dispute regarding the interpretation or application of a collective bargaining agreement provision, over which the National Railroad Adjustment Board, RLA Section 3, First (i), or alternatively, a Special Adjustment Board, RLA Section 3, Second, may have exclusive jurisdiction. The parties agree that the challenged provisions of the UTU/MOPAC agreements purport to create an exclusive right of UTU to represent switchmen at all MOPAC company level proceedings. The issue presented is whether these exclusive representation provisions can prevent a member of the BLE from choosing as his representative at a company level grievance or disciplinary proceeding a BLE union official, in view of the rights of employees under the RLA. Since the issue is one of validity, not interpretation, it is for judicial consideration. See Felter v. Southern Pacific Co., 359 U.S. 326, 327 n. 3, 79 S. Ct. 847, 850 n. 3, 3 L. Ed. 2d 854 (1959); Order of Railway Conductors & Brakemen v. Switchmen's Union of North America, 269 F.2d 726 (5th Cir.1959). Nothing in the RLA restricts the court's jurisdiction to determine whether the exclusive representation provisions of the UTU/MOPAC agreements are valid.
The factual disputes are minimal and, in any event, immaterial. The resolution of this matter turns on a pure question of law. Therefore, the case is ripe for summary judgment. We conclude that plaintiffs are entitled to relief and order judgment accordingly.
At the outset of our analysis we note that the language of the Act provides no clear answer to the question before us. Furthermore, we find no binding precedent. Indeed, of the several reported decisions concerning representational rights in minor disputes, only two directly address the narrow question with which we are concerned: an employee's right under the Act to designate as his representative at company level dispute proceedings the railway union of which he is a member but which is not the certified bargaining representative of the craft in which he was working at the time the dispute arose. See McElroy v. Terminal Railroad Association of St. Louis, 392 F.2d 966 (7th Cir.1968), cert. den., 393 U.S. 1015, 89 S. Ct. 610, 21 L. Ed. 2d 559 (1969); General Committee of Adjustment of Brotherhood of Locomotive Engineers for Pacific Lines of Southern Pacific Co. v. Southern Pac. Co., 132 F.2d 194 (9th Cir.), rev'd on other grounds, 320 U.S. 338, 64 S. Ct. 142, 88 L. Ed. 85 (1943). Only one case, McElroy, is an action by a member of one craft union seeking to nullify the exclusive representation agreement between the employer and the collective bargaining agent union for the craft in which the employee was working when the dispute arose.
Absent prohibition by the Act, the exclusive representation agreements would be valid and enforceable contractual provisions, although they prevent an employee from having his own union represent him at company level proceedings involving a labor contract with a different union. The reported decisions interpreting the Act vis-a-vis an employee's choice of representative exemplify the diverse interpretations to which the Act lends itself. The disparate results and reasoning in these decisions suggest two reasonable assessments of the Act. First, the Act's failure to address the specific issue before us may be caused by the failure of the drafters to anticipate such a dispute. Alternatively, Congress might have intended a definite stance on *1323 the issue; if so, the draftsmanship of the Act is wanting in clarity.
Reading the language of the Act "not in a vacuum, but in the light of the policies [it] was intended to serve," Pennsylvania R.R. Co. v. Rychlik, 352 U.S. 480, 488, 77 S. Ct. 421, 425, 1 L. Ed. 2d 480 (1957), we conclude that under the Act the individual plaintiffs are entitled to designate their union, BLE, to represent them in company level proceedings notwithstanding the UTU/MOPAC agreements to the contrary. We hold that the Act renders null and unenforceable the exclusive representation provisions of the UTU/MOPAC agreements insofar as they prevent a member of a railway union from selecting his own union rather than the bargaining representative union of the craft in which he is working to assist him at company level proceedings. We do not pass upon the question of whether an employee has a right under the Act to select any person or organization other than his own union as his representative at company level proceedings.
The general purposes of the Act are delineated in RLA Section 2 (45 U.S.C. § 151a). Section 2 reflects the congressional intent to create and maintain stable relations between labor and management in a vital national industry. See Brotherhood of R.R. Trainmen v. Chicago R. & I.R. Co., 353 U.S. 30, 77 S. Ct. 635, 1 L. Ed. 2d 622 (1957). One of the specific objectives of the Act is to forbid "any limitation upon freedom of association among employees or any denial, as a condition of employment or otherwise, of the right of employees to join a labor organization." RLA Section 2(2) (45 U.S.C. § 151a(2)). Inherent in the right of an employee to join a railway employees labor union of his choice is the right to enjoy fully the fundamental benefits of union membership. It is difficult to conceive of a benefit of union membership more fundamental than union representation in employee/employer dispute proceedings.
In the 1951 amendments to the Act concerning union shops in the railroad industry, Congress reaffirmed each employee's right to belong to a railway union of his choice. Through Section 2, Eleventh, Congress allowed carriers and unions to establish union shop requirements, which make membership in a union a condition of employment. However, a typical union shop agreement could cause significant problems because of an unusual characteristic of the railroad industry: the shuttling back and forth between crafts (and union jurisdiction) of employees traditionally organized along craft lines. To forestall such problems, Congress included in the union shop section of the Act a specific provision to the effect that membership in any railway employees union national in scope satisfies the union membership requirement of any other such union's contract with the employer. "The requirement of membership in a labor organization in an agreement ... shall be satisfied, as to both a present or future employee in engine, train, yard, or hostling service ... if said employee shall hold or acquire membership in any one of the labor organizations, national in scope, organized in accordance with this chapter, and admitting to membership employees of a craft or class in any of said services...." RLA Section 2, Eleventh (c) (45 U.S.C. § 152, Eleventh (c)). It is not disputed that both UTU and BLE are the type of labor organizations referred to in the quoted provision.
This recognition of an employee's right to maintain his union membership while working in a craft not represented by his union was designed to protect employees from the expense of being required to belong to more than one union or the likely loss of union benefits that would result if an employee were required periodically to shift his union membership. See Rychlik, supra, 352 U.S. at 490, 77 S. Ct., at 426. In Rychlik the Supreme Court noted that by this provision of the Act Congress conferred upon qualified craft unions the right to "assure members employment security, even if a member should be working temporarily in a craft for which another union is the bargaining representative." Id. The obverse of the Court's observation is that *1324 the provision gives union members the right to be assisted by their union in employment security matters. Grievance and disciplinary proceedings arising out of work in a craft for which another union is the bargaining representative clearly fall within the purview of employment security.
Section 2 and Section 2, Eleventh (c) would clearly prohibit UTU from contracting with MOPAC to prohibit MOPAC employees working within UTU's craft from joining BLE. Congress conferred upon the plaintiff employees a right to belong to BLE. It follows, then, that UTU and MOPAC cannot lawfully contract to strip MOPAC employees of a basic privilege of union membership. The employee's right to belong to a union of his choice would be hollow if this court enforced a contract between the employer and a rival union which stripped the employee of his right to have his union represent him at company level dispute proceedings with the employer.
No provision in the Act appears to address specifically the issue before us. The language of the Act is notably ambiguous in its many references to the "representative" of an employee. Section 2, Sixth typifies the ambiguity of the Act:
In case of a dispute between a carrier and its or their employees, arising out of grievances or out of the interpretation or application of agreements concerning rates of pay, rules, or working conditions, it shall be the duty of the designated representative of such carrier or carriers and of such employees, within ten days after the receipt of notice of a desire on the part of either party to confer in respect to such dispute, to specify a time and place at which such conference shall be held. RLA Section 2, Sixth (45 U.S.C. § 152, Sixth). (emphasis added).
The defendants argue, with some logic, that "designated representative" refers to the certified collective bargaining representatives of the employee's craft. On the other hand, "designated representative" reasonably may be interpreted to mean a representative of the union "designated" by the employee, the union of which he is a member. The Act gives that membership special status; in the spirit of the Act, we adopt the interpretation of the above quoted language which gives full measure to the protected union membership.
There is merit to the defendants' contention that an employee who enjoys the benefits of a collective bargaining agreement must accept the limitations established by that agreement, including exclusive representation provisions. That logical argument must yield to the compelling evidence of Congress's intent to assure each employee the right to enjoy unimpeded the privileges and benefits of membership in the union of his choice.
Our conclusion fosters the Act's explicit objective of providing for the prompt settlement at the company level of all disputes growing out of the application or interpretation of collective bargaining agreements. RLA Section 2(4) and Section 2, First and Second (45 U.S.C. § 151a(4) and § 152, First and Second). See General Committee v. Southern Pacific Co., supra, 132 F.2d at 198. When an employee elects to be a member of one union rather than another, he is, among other things, designating the union representative in which he wishes to place his trust and confidence with respect to employment matters. The employee reaffirms his preference when he designates his union to represent him at company level dispute proceedings, as the individual plaintiffs did in this case. This relationship of trust and confidence surely will facilitate the dispute resolution process. Id. Although representation by a different union pursuant to an exclusive representation provision may yield similar results, the likelihood of settlement at the company level is certainly greater when the employee is represented by his own union.
The defendants assert that the exclusive representation requirement is a necessary and desirable means for a collective bargaining representative to protect the integrity of the collective bargaining agreement. Even minor dispute resolution at the company *1325 level implicates the duty of the collective agent to negotiate and protect the terms of employment for the craft it represents, because the resolution of minor disputes often turns on interpretations of the collective agreement. In some instances the resolution of a minor dispute may have implications broader than the immediate case by influencing the practical application of the collective agreement in subsequent cases. See, e.g., Elgin, J. & E. Ry Co. v. Burley, 325 U.S. 711, 729-41, 65 S. Ct. 1282, 1292-98 (1945); General Committee of Adjustment, United Transportation Union v. Burlington Northern, Inc., 563 F.2d 1279 (8th Cir.1977), cert. denied, 449 U.S. 826, 101 S. Ct. 88, 66 L. Ed. 2d 29 (1980). However, the resolution of many minor disputes at the company level depends upon factual determinations rather than novel interpretations or applications of the collective agreement.
In any event, our ruling does not interfere with the collective bargaining representative's ability to perform its duties. A craft representative may be a necessary party to a company level proceeding potentially affecting other employees, even though the employee directly involved has designated his own union to represent him. We certainly do not hold that the craft representative must be excluded from the company level proceedings in those instances; the craft representative's participation protects the interests and obligations of the collective bargaining union to represent the craft which it is designated to represent. Accord Burley, supra, 325 U.S. at 737 n. 35, 65 S. Ct. at 1296-96 n. 35. (to exclude the collective agent from any voice whatever in the collective agreement's interpretation would go too far toward destroying its uniform applications); McElroy, supra, at 972 (a "right to participate clause" in union/carrier agreements may be permissible). Furthermore, because the carrier may not unilaterally alter the terms of a collective agreement, the carrier should follow precedent established in proceedings with the collective agent. See Burlington Northern, supra, 563 F.2d at 1284.
For the foregoing reasons, we hold that the exclusive representation provisions in the UTU/MOPAC agreements are inapplicable to the individual plaintiffs in this case and do not bar them from having BLE representation at company level dispute proceedings. We will enter judgment in accordance with these findings.
APPENDIX
AGREEMENT
between
TEXAS PACIFIC-MISSOURI PACIFIC TERMINAL RAILROAD OF NEW ORLEANS
and the
UNITED TRANSPORTATION UNION
Schedule of Pay Allowed and Rules Governing Switchmen
Reprinted
January 1, 1974
ARTICLE 18
Discipline and Grievances
(a) No employee covered by this agreement will be suspended, discharged, or unfavorable entries made against his record without just and sufficient cause, and not until he has had a fair and impartial investigation. Investigations will be held promptly, ordinarily within ten (10) days after the offense has been committed, to which a decision in writing will be rendered within ten (10) days after the investigation or the case will be considered closed. When brought to trial for any offense, the charge will be specified in writing, and the employe charged shall have the right to have another employe covered by this agreement, or a duly accredited representative of the UTU to assist at such investigation, and to procure witnesses to testify in his defense, to examine all papers used in the investigation, and to question all persons giving evidence in his case. The employe charged and his representative will be furnished a copy of the transcript of the investigation on request. In case he is not *1326 satisfied with the result of said investigation, he shall have the right to appeal within ten (10) days, to his superior officer in person, or through his representative, as above specified. (T-32141)
(b) In case his suspension or dismissal is found to be unjust, he shall be reinstated and paid for all time lost. All complaints made by one employe against another, covered by this agreement, must be made in writing.
(c) If an employe is asked to sign a statement, the contents of same should be made entirely clear to him and a copy of such statement furnished to him, if desired.
(d) In the handling of grievances, including time claims, the chairman will inform the officer rendering decision within a reasonable time when a decision is accepted; in the event question in dispute has been handled with the officer having final authority, and his decision is not acceptable, the chairman will so notify him of this fact within a reasonable time.
ARTICLE 23
Representation and Rulings
(a) The right to negotiate and interpret schedule rules and agreements covering rates of pay and working conditions of employes covered by this agreement, is vested in the General Grievance Committee of the UTU and the Railroad.
(b) The right of employes covered by this agreement to have the regularly constituted committee of his organization represent him in the handling of his grievances under the recognized interpretation placed upon the agreement involved between the officials of the Railroad and the General Grievance Committee making same is conceded.
(c) Any rulings made with reference to any Article enumerated herein by the proper Official of the Railroad will be made in writing, and the Chairman of the General Grievance Committee, UTU, will be furnished a copy of said ruling, but said ruling shall not be made effective until agreed to between the parties herein mentioned.
(d) This agreement as rewritten is effective 1-1-74 and supersedes Yard Agreement effective 10-7-57 with the understanding that other written agreements and settlements on matters not covered by this rewritten agreement are not cancelled and that written agreements, rulings, settlements, and interpretations and decisions and awards of tribunals authorized to represent the parties hereto interpreting the rules of the agreement named herein are not superseded by this rewritten agreement.
This agreement shall remain in effect until and unless changed in accordance with the Railway Labor Act. Revised January 1, 1974.
AGREEMENT August 11, 1948
SECTION 17 TIME LIMIT ON CLAIMS
Section 17 Time Limit on Claims.
* * * * * *
(a) All claims or grievances must be presented in writing by or on behalf of the employe involved, to the officer of the company authorized to receive same, within sixty days from the date of the occurrence on which the claim or grievance is based. Should any such claim or grievance be disallowed, the carrier shall, within sixty days from the date same is filed, notify the employe or his representative of the reasons for such disallowance. If not so notified, the claim or grievance shall be considered valid and settled accordingly, but this shall not be considered as a precedent or waiver of the contentions of the carrier as to other similar claims or grievances.
(b) If a disallowed claim or grievance is to be appealed, such appeal must be taken within sixty days from receipt of notice of disallowance, and the representative of the carrier shall be notified of the rejection of his decision. Failing to comply with this provision the matter shall be considered closed, but this shall not be considered as a precedent or waiver of the contentions of the employes as to other similar claims or grievances.
*1327 (c) The procedure outlined in paragraphs (a) and (b) shall govern in appeals taken to each succeeding officer. Decision by the highest officer designated to handle claims and grievances shall be final and binding unless within sixty days after written notice of the decision of said officer he is notified in writing that his decision is not accepted. All claims or grievances involved in a decision of the highest officer shall be barred unless within six months from the date of said officer's decision proceedings are instituted by the employee or his duly authorized representative before a tribunal having jurisdiction pursuant to law or agreement of the claim or grievance involved. It is understood, however, that the parties may by agreement in any particular case extend the six months period herein referred to.
(d) All rights of a claimant involved in continuing alleged violations of agreement shall, under this rule, be fully protected by continuing to file a claim or grievance for each occurrence (or tour of duty) up to the time when such claim or grievance is disallowed by the first officer of the carrier. With respect to claims and grievances involving an employe held out of service in discipline cases, the original notice of request for reinstatement with pay for time lost shall be sufficient.
(e) This rule recognizes the right of representatives of the organizations parties hereto to file and prosecute claims and grievances for and on behalf of the employes they represent.
(f) This rule shall not apply to requests for leniency.
NOTES
[1] We defer consideration of further relief sought by plaintiff, including prospective injunctive relief, the nullification of the proceedings at which plaintiffs were denied BLE representation, and BLE's claim for damages against MOPAC for loss of membership resulting from MOPAC's refusal to treat with BLE representatives. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2141419/ | 614 F. Supp. 115 (1985)
Murray W. WHITTLE, et al., Plaintiffs,
v.
TIMESAVERS, INCORPORATED, et al., Defendants.
Civ. A. No. 81-0190-D.
United States District Court, W.D. Virginia, Danville Division.
May 17, 1985.
*116 Joseph M. Winston, Jr., Luis A. Abreu, Clement & Wheatley, Danville, Va., for Plywood Equipment Sales.
William B. Poff, Anderson Cromer, Woods, Roger & Hazelgrove, Roanoke, Va., for Timesavers, Inc.
MEMORANDUM OPINION
KISER, District Judge.
This case is presently before this Court on remand from the United States Court of Appeals for the Fourth Circuit. On September 28, 1983, I denied the Defendant Timesavers, Incorporated's ("Timesavers") Motion for Summary Judgment on a cross-claim for indemnity filed by their Co-Defendant Plywood Equipment Sales ("PES"). Whittle v. Timesavers, 572 F. Supp. 584 (W.D.Va.1983). This denial was subsequently appealed, reversed and remanded with precise instructions to consider two rather specific questions in light of the facts of this case. Whittle v. Timesavers, 749 F.2d 1103, 1106 (4th Cir.1984). The first question presented is whether an implied warranty of merchantability runs with the sale of a used product, and secondly, whether such an implied warranty will give rise to an implied contract of indemnity.
Before beginning this analysis, it would be beneficial to very briefly consider the historical posture and the facts of this case. Mr. Murray W. Whittle originally filed this products liability action against Timesavers, PES and U.S. Plywood Champion Papers, Incorporated ("Champion") seeking damages for injuries sustained while using an industrial wood sander. He alleged that the Defendants had been negligent and had breached the implied warranties in the sale and that this caused his injuries. This *117 sander had been originally designed and manufactured by Timesavers who initially sold it to Champion. After a period of time, Timesavers reacquired ownership, but not possession of the sander, as a trade-in from Champion. Timesavers then sold the machine, still in place at the Champion plant, to PES who was and is in the business of refurbishing and selling used industrial woodworking equipment. PES sold the sander to Whittle Plywood, the original plaintiff's employer, on an "as is where is" basis. Following the institution of this suit by Whittle, PES filed a cross-claim against Timesavers seeking indemnity. Prior to trial, PES settled with Whittle, and Timesavers settled during the trial. Timesavers then filed a Motion for Summary Judgment against PES which was denied by this Court. See Whittle, supra, 572 F. Supp. 584 (W.D.Va.1983). The subsequent history of this litigation is all too well known by the parties.
I.
On remand, the initial issue which must be considered is whether an implied warranty of merchantability runs with the sale of a used good. An implied warranty of merchantability in this State finds its legitimacy in the Virginia Commercial Code which became effective on January 1, 1966. This warranty arises by operation of law, and not by agreement of the parties. Anderson on the Uniform Commercial Code, § 2-314:25 (3rd Ed.1983). The relevant statute provides in pertinent part:
(1) Unless excluded or modified (§ 8.2-316), a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to the goods of that kind.
Va. Code § 8.2-314 (1950), as amended.
This warranty of merchantability is implied in every sale made by a merchant seller unless excluded in a manner which is effective under the Code. Anderson, supra, § 2-314:25. There is little question that had the sander been a new product the warranty would have followed. Timesavers certainly qualifies as a merchant with regard to these particular goods and absent an express exclusion sufficient under Va. Code § 8.2-316, the warranty would apply. Thus, the question is whether this result would be any different when the product was used. I believe not.
The provisions of the Code relating to warranties applies to all goods, without any distinction as to whether the goods are new or used goods. Therefore, any warranty authorized by the Code may arise with respect to the sale of used or secondhand goods.
Anderson, supra, § 2-314:188.
The Code makes absolutely no distinction between new and used goods when defining "goods" in Va.Code § 8.2-105, 1950, as amended. If the drafters of the Code had intended for this particular section to apply only to new goods, then it would have been simple to have so stated; however, this was not done. In the absence of express language to the contrary, I believe that in the area of implied warranties that no distinction is made between new and used goods. This view is followed by other commentators on this subject as well as numerous other jurisdictions who have considered this question. See, Robert I. Stevenson, Virginia and West Virginia Products Liability at 117 (1983); A.L. Crandell v. Larkin and Jones Appliance Company, S.D., 334 N.W.2d 31, 36 (1983); International Petroleum Services, Inc. v. S & N Well Service, Inc., 230 Kan. 452, 639 P.2d 29, 34 (1982); Natale v. Martin Volkswagen, Inc., 92 Misc. 2d 1046, 402 N.Y.S.2d 156, 158 (N.Y.City Ct.1978); Knipp v. Weinbaum, 351 So. 2d 1081, 1084 (Fla.App. 1977); Testo v. Russ Dunmire Oldsmobile, Inc., 16 Wash.App. 39, 554 P.2d 349 (1976); Georgia Timberlands, Inc. v. Southern Airways Co., 125 Ga.App. 404, 188 S.E.2d 108, 109 (1972).
Timesavers has skillfully argued that no such implied warranty attached to the sale of used goods. As support, they point to one of the official comments to the Uniform Commercial Code which states:
*118 A contract for the sale of secondhand goods, however, involves only such obligation as is appropriate to such goods for that is their contract description.
Va.Code § 8.2-314, Comment 3, 1950, as amended.
Timesavers argues that this supports the proposition that there is no implied warranty of merchantability with used goods. On the contrary, I believe that this supports even further the conclusion that the drafters intended not to make a distinction between new and used goods. Had the implied warranty been intended to apply only to new goods, this comment would be meaningless. This statement by the drafters refers to the scope of the warranty and not the existence of such. It merely indicates that when you buy a used product you cannot expect it to be as good as a new one. In short, the warranty which attaches to a used good obviously takes into account normal wear and tear. See International Petroleum Services, Incorporated v. S & N Wells Service, Incorporated, 230 Kan. 452, 639 P.2d 29; McCormack v. Lynn Imports, Incorporated, 114 Misc. 2d 905, 452 N.Y.S.2d 821.
PES accurately notes that this limitation would not be of any relevance in a design defect case. If a product is defectively designed when new, then it is no less so when used. The original Plaintiff in this action, Murray Whittle, specifically alleged that Defendants were negligent in failing to guard moving parts properly and to install safety devices and of failing to fully and adequately warn of the dangers. While it is true that these charges were never proven, if any warranties were breached it would have been the result of a design defect.
Additional authority cited by Timesavers is the Virginia Supreme Court case of Smith v. Mooers, 206 Va. 307, 142 S.E.2d 473 (1965), wherein the court held that there was no implied warranty with a used product. This, however, is a pre-Code case and as such is not binding. Timesavers argues on the contrary that Smith is still good law since it was not specifically overruled by the Code. This position is without merit. The very wording of the statute in question would indicate otherwise. The statute provides that "unless excluded or modified (§ 8.2-316)" a warranty is implied. With the exception of the circumstances set forth in Va.Code § 8.2-316, a warranty will exist. There are no implied exclusions to the implied warranty.
Contrary to the recognition of warranties in the sale of used goods, there are decisions that read into the Code an exception that is not expressly stated and refuse to find an implied warranty in the sale of used goods. This view is based upon pre-Code authority and should be regarded as displaced by exclusion: the warranty provisions of the Code exclude any implied exception by the fact that no exception is stated.
Anderson, supra, § 2-314:188.
While Smith may accurately reflect the state of the law prior to 1966, this was displaced by the General Assembly's enactment of the U.C.C. on January 1, 1966. Thus, I conclude that an implied warranty of merchantability for the used sander did run from Timesavers to PES.
II.
The next issue is whether there is an implied contract of indemnity which derives its existence from the implied warranty of merchantability. I believe that there is.
Indemnity is distinguishable from contribution in that contribution springs from the equitable theory that where there is a common burden, as between joint tort feasors, there should be a common right, while indemnity springs from an express or implied contract.
Moretz v. General Electric Company, 170 F. Supp. 698, 704 (W.D.Va.1959) (Emphasis Added).
An implied warranty of merchantability would suffice as such an implied contract. In considering this precise question, Anderson states:
*119 When the defendant's breach of warranty has caused the plaintiff to sustain loss by subjecting him to liability to a third person, the plaintiff may obtain indemnity from the defendant.
Anderson, supra, § 2-314:15.
More specifically, "when a seller is held liable for a defect which also constitutes a breach of the implied warranty of the manufacturer to the seller, the seller is entitled to indemnity from the manufacturer." Id. at 2-314:16.
The case authority cited to this Court also supports this proposition.
Both the originator of the dangerous instrumentality and the subsequent owner owes duties to protect an innocent victim from its dangers. ... A duty arises on the part of the original supplier to indemnify his successor who has become liable to the person injured. There is no policy of the law which forbids a seller of a product from making good on his warranty to the buyer, whether the representation be expressed or implied.
Eagle Star Insurance Company of America v. Metromedia, Incorporation, 578 F. Supp. 184, 189 (D.Vt.1984).
Likewise, applying Missouri law, a federal district court held:
A retailer may have a right to indemnification from the manufacturer of a component part based on a breach of either an express or implied warranty.
City of Clayton v. Grumman Emergency Products, Incorporated, 576 F. Supp. 1122, 1128 (E.D.Mo.1983).
"An implied warranty may also be the basis for survival of an indemnity action." Feehan v. United States Alliance, Incorporated, 522 F. Supp. 811, 816 (S.D.N.Y. 1981). Accord, Bell v. Federal Reserve Bank, 57 F.R.D. 632, 635 (E.D.Va.1972).
While there is no specific Virginia authority directly on point, I believe that where there has been a breach of an implied warranty of merchantability that an implied contract for indemnity will lie. We need not reach the issue as to the degree of proof required to support an action for indemnity. This was thoroughly discussed in this Court's earlier opinion. See Whittle v. Timesavers, 572 F. Supp. 584 (W.D.Va. 1983).
The Clerk is directed to send certified copies of this Memorandum Opinion to all counsel of record.
An appropriate Order will be entered. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2142423/ | 462 F. Supp. 879 (1978)
ASSOCIATION OF COMMUNITY ORGANIZATIONS FOR REFORM NOW (ACORN) and Philadelphia Welfare Rights Organization (WRO), and Delaware Valley Citizens' Council for Clean Air, on behalf of themselves, their members, and all others similarly situated
v.
SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY (SEPTA), Joseph T. Mack, Richard S. Page, Urban Mass Transit Administration (UMTA), United States Department of Transportation (DOT), and Brock Adams.
Civ. A. No. 78-4094.
United States District Court, E. D. Pennsylvania.
December 21, 1978.
*880 Steven P. Hershey, Irv Ackelsberg, Carol S. Sanders, Community Legal Services, Inc., Michael Churchill, Public Interest Law Center of Philadelphia, Philadelphia, Pa., for plaintiffs.
Peter F. Vaira, U. S. Atty., Alexander Ewing, Jr., Asst. U. S. Atty., Philadelphia, Pa., Trudy B. Levy, Attorney-Advisor, Urban Mass Transp. Admin., Washington, D. C., for defendants; Robert W. Batchelder, Asst. Chief Counsel, Urban Mass Transp. Admin., Washington, D. C., Nancy A. Greene, Regional Counsel, Urban Mass Transp. Admin., Philadelphia, Pa., Lewis H. Van Dusen, Jr., P. Alan Bulliner, Drinker, Biddle & Reath, Philadelphia, Pa., for Southeastern Pennsylvania Transp. Authority and Joseph T. Mack, of counsel.
MEMORANDUM
RAYMOND J. BRODERICK, District Judge.
Plaintiffs in this action seek injunctive relief in connection with a fare increase which the defendant, Southeastern Pennsylvania *881 Transportation Authority (SEPTA) has scheduled to become effective on January 1, 1979. Specifically, the plaintiffs request the following relief from this Court: (1) a declaratory judgment that certain actions of the United States Department of Transportation (DOT), the Urban Mass Transportation Administration (UMTA) and SEPTA were illegal; (2) preliminary and permanent injunctions preventing a fare increase proposed by SEPTA until it has reported full consideration of alternatives and possible adverse economic, social, and environmental impact of its operating expenses (the project) and the fare increase; (3) preliminary and permanent injunctions directing that UMTA forthwith review the Fiscal Year 1979 SEPTA application for federal funds and forthwith assure full consideration of alternatives and possible adverse economic, social, and environmental impact of the project and of the fare increase; and (4) a permanent injunction requiring the Secretary of Transportation to promulgate regulations prohibiting implementation of a proposed fare increase until after the Secretary has considered the applicant's report on the effects of such fare increase.
Defendants have moved to dismiss, pursuant to Fed.R.Civ.P. 12(b)(1), for lack of subject matter jurisdiction and pursuant to Fed.R.Civ.P. 12(b)(6), for failure to state a claim upon which relief can be granted. The defendants claim that this Court lacks jurisdiction because the federal claims do not present a justiciable case or controversy under Article III of the United States Constitution in that there is no final agency action ripe for review.[1] Briefs were submitted and oral argument was held on December 15, 1978. For the reasons hereinafter set forth, we have determined that this Court lacks subject matter jurisdiction over plaintiffs' federal claims and that defendants' motions to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) should therefore be granted.
The plaintiffs are the Pennsylvania Association of Community Organizations for Reform Now (ACORN), the Philadelphia Welfare Rights Organization (WRO), and the Delaware Valley Citizens' Council for Clean Air (DVCCCA), and they bring this action on their own behalf and on behalf of their members and all others similarly situated pursuant to Fed.R.Civ.P. 23(a)(b)(2). Plaintiffs allege injury to their health from the deterioration of air quality that has occurred as a result of each recent SEPTA fare increase and that they will suffer greater injury if the proposed fare increase becomes effective and air quality then deteriorates further. Plaintiffs also represent that the fare increase will cause them economic injury and will further restrict the mobility of low-income members of the class, thereby limiting their access to jobs, doctors, and other essential services.
The plaintiffs allege that jurisdiction is conferred upon this Court by 28 U.S.C. § 1331 as an action arising under an Act of Congress and under the Administrative Procedure Act, 5 U.S.C. § 701 et seq. They allege further that the amount in question is greater than $10,000.
Plaintiffs allege five causes of action in their Amended Complaint. First, plaintiffs allege that SEPTA's report submitted pursuant to Section 5(i)(1) of the Urban Mass Transportation Act (the UMT Act), 49 U.S.C. § 1604(i)(1), failed to describe the possible adverse effects of the project or its elements (Amended Complaint, Paragraph 43), and that SEPTA's certification submitted with its grant application pursuant to Section 5(i) of the UMT Act is meaningless and fails to comply with the provisions of said section (Amended Complaint, Paragraph 46). Second, plaintiffs allege that DOT and UMTA have failed to consider, and the Secretary of DOT has failed to assure that SEPTA considered, pursuant to *882 Section 5(h)(2) of the UMT Act, 49 U.S.C. § 1604(h)(2), the possible adverse economic, social or environmental effects of the project and alternatives to it (Amended Complaint, Paragraphs 51, 53). Third, plaintiffs allege that no consideration has been given by SEPTA, UMTA or DOT, pursuant to Section 5(i)(3)(C) of the UMT Act, 49 U.S.C. § 1604(i)(3)(C), to the effect on energy conservation or to the economic, environmental or social impact of SEPTA's scheduled fare increase (Amended Complaint, Paragraphs 57, 58). Fourth, plaintiffs allege that UMTA's continued funding of SEPTA's Section 5 application is major federal action significantly affecting the environment, within the meaning of the National Environmental Policy Act (NEPA), 42 U.S.C. § 4321 et seq. and that neither SEPTA, UMTA nor DOT has prepared an environmental impact statement as required by 42 U.S.C. § 4332(C) (Amended Complaint, Paragraphs 60, 61). And fifth, plaintiffs allege that the action of SEPTA in raising fares without considering economic, social, and environmental impact and alternatives is such an abuse of discretion as to violate the Metropolitan Transportation Authorities Act, 66 P.S. § 2004(d)(9) and that SEPTA's failure to comply with federal funding conditions is a manifest and flagrant abuse of discretion in that it jeopardizes SEPTA's right to receive federal monies essential to SEPTA's continued operation.
A careful analysis of the plaintiffs' Amended Complaint reveals that the plaintiffs' claim of federal question jurisdiction in connection with the first three causes of action alleged by the plaintiffs is based upon the defendants' alleged failure to comply with Sections 5(h)(2) and 5(i) of the UMT Act, 49 U.S.C. § 1604(h)(2), (i). In connection with these first three alleged causes of action, the Amended Complaint claims (a) that although SEPTA submitted a report and certification with its grant application, the report and certification do not comply with the provisions of Section 5(i); (b) that the Secretary has not assured that the effects of the project and alternatives to it were fully considered as provided in Section 5(h)(2); and (c) that the Secretary has not received assurance from SEPTA in connection with the fare increases as provided in Section 5(i)(3).
Section 5(h)(2) of the UMT Act, 49 U.S.C. § 1604(h)(2), provides:
(h) ....
(2) In approving any project under this section, the Secretary shall assure that possible adverse economic, social, and environmental effects relating to the proposed project have been fully considered in developing the project, and that the final decisions on the project are made in the best overall public interest, taking into consideration the need for fast, safe, and efficient transportation, public services, and conservation of environment and natural resources, and the costs of eliminating or minimizing any such adverse effects, including
(A) air, noise, and water pollution;
(B) destruction or disruption of manmade and natural resources, esthetic values, community cohesion, and the availability of public facilities and services;
(C) adverse employment effects, and tax and property value losses;
(D) injurious displacement of people, businesses, and farms; and
(E) disruption of desirable community and regional growth.
Section 5(i) of the UMT Act, 49 U.S.C. § 1604(i), provides:
(i) Upon submission for approval of a proposed project under this section, the Governor or the designated recipient of the urbanized area shall certify to the Secretary that he or it has conducted public hearings (or has afforded the opportunity for such hearings) and that these hearings included (or were scheduled to include) consideration of the economic and social effects of such project, its impact on the environment, including requirements under the Clear Air Act, the Federal Water Pollution Control Act, and other applicable Federal environmental statutes, and its consistency with the *883 goals and objectives of such urban planning as has been promulgated by the community. Such certification shall be accompanied by (1) a report which indicates the consideration given to the economic, social, environmental, and other effects of the proposed project, including, for construction projects, the effects of its location or design, and the consideration given to the various alternatives which were raised during the hearing or which were otherwise considered, (2) upon the Secretary's request, a copy of the transcript of the hearings, and (3) assurances satisfactory to the Secretary that any public mass transportation system receiving financial assistance under such project will not change any fare and will not substantially change any service except (A) after having held public hearings or having afforded an adequate opportunity for such hearings, after adequate public notice, (B) after having given proper consideration to views and comments expressed in such hearings, and (C) after having given consideration to the effect on energy conservation, and the economic, environmental, and social impact of the change in such fare or such service. (Emphasis added).[2]
A reading of the above quoted Section 5(h)(2) of the UMT Act makes it abundantly clear that this section sets forth the criteria to be used by the Secretary in making his determination as to whether an applicant should be given a federal urban mass transit grant pursuant to Section 5 of the UMT Act. The Amended Complaint states that SEPTA has filed an application for such a grant and that the application is presently pending and has not been acted upon by the Secretary. In addition, the Complaint does not set forth any action taken by the agency in connection with SEPTA's application for such a grant, but does allege that the Secretary has not as yet acted upon SEPTA's application. Furthermore, the above quoted Section 5(i) of the UMT Act clearly sets forth the certification, the report and the assurances which must be furnished by the applicant in connection with its application for a federal urban mass transit grant. The Amended Complaint states that SEPTA has filed the certification and report but has not furnished assurances pursuant to the recent amendment to Section 5(i) of the UMT Act signed into law on November 6, 1978. It is therefore obvious from the Amended Complaint that the agency in this case, UMTA, has not as yet taken action upon SEPTA's application. This Court must therefore conclude that there has been no final agency action in connection with the first three causes of action based upon Sections 5(h)(2) and 5(i) of the UMT Act.
The law is clear that this Court is without jurisdiction to review matters that are not ripe for adjudication. As the Supreme Court held in Abbott Laboratories v. Gardner, 387 U.S. 136, 87 S. Ct. 1507, 18 L. Ed. 2d 681 (1967), a matter is not ripe for adjudication unless a court finds that the challenged agency action is "final action" within the meaning of Section 10 of the Administrative Procedure Act (APA), 5 U.S.C. § 704. In Abbott Laboratories, the Supreme Court said:
Without undertaking to survey the intricacies of the ripeness doctrine it is fair to say that its basic rationale is to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements over administrative policies, and also to protect the agencies from judicial interference until an administrative decision has been formalized and its effects felt in a concrete way by the challenging parties.
Id. at 148-49, 87 S. Ct. at 1515.
The APA, 5 U.S.C. § 704 provides:[3]
*884 Agency action made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review. A preliminary, procedural or intermediate agency action or ruling not directly reviewable is subject to review on the review of the final agency action.
Furthermore, even where there has been final agency action, the court's review must be as stated in 5 U.S.C. § 706:
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 law ....
There are two district court cases which hold that until UMTA makes a final decision on an application for a federal urban mass transit grant, there is no final agency action, the dispute is not ripe for adjudication, and the court lacks jurisdiction. Hudson v. Washington Metropolitan Area Transit Authority, Civil No. 75-0360 (D.D.C., July 8, 1976) (Ritchie, J.); Hudson Transit Lines v. Brinegar, Civil No. 74-648 (D.N.J., July 25, 1974) (Whipple, J.). In the latter case, the court observed:
In this matter, the Secretary [of Transportation] has not made a determination as to [the applicant's] preliminary application. The mere receipt of the preliminary application by the Secretary is not reviewable by this Court nor are the intra departmental discussions, relevant to this application, which must certainly be taking place with [sic] the Department of Transportation reviewable at this time. Therefore, since there has been no final decision as required by 5 U.S.C. 704, this Court presently lacks jurisdiction to grant the plaintiff the sought after relief. Therefore, the action as to the Federal defendants will be dismissed.
As stated in 13 Wright, Miller & Cooper, Federal Practice and Procedure: Jurisdiction § 3532, at 260 (1975): "As a general principle, it can be readily agreed that courts should await some degree of finality before intruding into ongoing processes of general rulemaking or specific enforcement."
We conclude therefore that as to the first three causes of action which claim federal question jurisdiction based upon Sections 5(h)(2) and 5(i) of the UMT Act, a review of the Amended Complaint shows that there has not been a final agency action, and pursuant to the law heretofore discussed, this Court will grant the defendants' Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction.
Although this Court arrived at this determination solely on the basis of the allegations in the Amended Complaint, such a conclusion is buttressed by an examination of the affidavit of Frank K. Gimmler, Regional Director, Urban Mass Transportation Administration, which was filed by the defendants. His affidavit, which is uncontroverted, states UMTA received SEPTA's grant application, including the report and certification (Affidavit, Paragraphs 3, 6, 7, 8), that UMTA has asked SEPTA to provide, but has not yet received, the assurance called for by the recently enacted Section 5(i)(3) and that "[i]f and when the assurance is received, UMTA will review SEPTA's entire Section 5 application and make a final determination regarding compliance with all statutory requirements." (Affidavit, Paragraph 11). Thus, it is abundantly clear that the Secretary, acting through UMTA, has not yet reviewed the application of SEPTA nor determined whether the various components of the application are in conformity with the UMT Act. The affidavit further states that UMTA anticipates that it will be able to make a final decision on SEPTA's application during the month of January, 1979. (Affidavit, Paragraph 11). Our Third Circuit has made it clear that in connection with a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction, the Court may consider an affidavit such as that filed by the defendants. In Mortensen v. First Federal Savings and Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977), Judge Hunter stated:
*885 The procedure under a motion to dismiss for lack of subject matter jurisdiction is quite different [from that under a Rule 12(b)(6) motion to dismiss].... Because at issue in a factual 12(b)(1) motion is the trial court's jurisdictionits very power to hear the casethere is substantial authority that the trial court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case. In short, no presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims. Moreover, the plaintiff will have the burden of proof that jurisdiction does in fact exist. (footnote omitted).
In their fourth cause of action, the plaintiffs incorporate the allegations of the Amended Complaint and allege that SEPTA's application for a federal urban mass transit grant is major federal action and that the defendants have not prepared an environmental impact statement as required by NEPA. Section 102(2)(C) of NEPA, 42 U.S.C. § 4332(2)(C), provides:
The Congress authorizes and directs that, to the fullest extent possible: .. (2) all agencies of the Federal Government shall
(C) include in every recommendation or report on proposals for legislation and other major Federal actions significantly affecting the quality of the human environment, a detailed statement by the responsible official on
(i) the environmental impact of the proposed action,
(ii) any adverse environmental effects which cannot be avoided should the proposal be implemented,
(iii) alternatives to the proposed action,
(iv) the relationship between local short-term uses of man's environment and the maintenance and enhancement of long-term productivity, and
(v) any irreversible and irretrievable commitments of resources which would be involved in the proposed action should it be implemented.
As we heretofore pointed out in our discussion of the first three causes of action, it is abundantly clear that there has not as yet been any final action on SEPTA's application for a federal urban mass transit grant. The question as to whether SEPTA's application and UMTA action thereon is a major federal action requiring an environmental impact statement pursuant to NEPA is a determination which must initially be made by the federal defendants. The Amended Complaint does not allege that any such determination has been made, nor does it allege that any "recommendation or report" has been made by the federal defendants. The matter is not ripe for adjudication since there has not been final agency action. We shall therefore apply to the plaintiff's fourth cause of action the well recognized general rule that courts have no jurisdiction in NEPA cases until after the agency's decision to act. As the Supreme Court recently stated in Kleppe v. Sierra Club, 427 U.S. 390, 406 n. 15, 96 S. Ct. 2718, 49 L. Ed. 2d 576 (1976), "the time at which a court enters the process is when the report or recommendation on the proposal is made, and someone protests either the absence or the adequacy of the final impact statement. This is the point at which an agency has reached sufficient maturity to assure that judicial intervention will not hazard unnecessary disruption." This is the same principle of law which we heretofore discussed in connection with the plaintiffs' first three causes of action; that is, the dispute is not ripe for adjudication. The Court will therefore grant the defendants' Rule 12(b)(1) motion to dismiss the plaintiffs' fourth cause of action for lack of subject matter jurisdiction.
In connection with the plaintiffs' four causes of action heretofore discussed, the plaintiffs not only have requested injunctive relief but also have asked for a declaratory judgment. Since we have determined that the plaintiffs' four causes of action are not ripe for adjudication, there is no jurisdictional basis for the declaratory *886 relief requested. Pharmaceutical Manufacturers Ass'n v. Gardner, 127 U.S.App.D.C. 103, 381 F.2d 271 (1967); Continental Bank and Trust Co. v. Martin, 303 F.2d 214 (D.C. Cir. 1962).
In addition, the plaintiffs have requested that UMTA be directed to forthwith review SEPTA's Section 5 application. The Amended Complaint contains no allegations, however, of any unreasonable delay or due process violation. As stated in Wright v. Califano, 587 F.2d 345, (7th Cir. 1978): "Since administrative efficiency is not a subject particularly suited to judicial evaluation, the courts should be reluctant to intervene in the administrative adjudication process, absent clear congressional guidelines or a threat to a constitutional interest." Although 28 U.S.C. § 1361 grants jurisdiction to United States district courts over actions in the nature of mandamus to compel an officer or employee of the United States or any agency thereof to perform a duty owed to the plaintiff, it is well settled that a requisite for jurisdiction on the basis of § 1361 is an allegation that the defendant officer or employee of the United States owes the plaintiff a legal duty which is a specific, plain, ministerial act "devoid of the exercise of judgment or discretion." Commonwealth of Pennsylvania v. National Association of Flood Insurers, 520 F.2d 11, 25-26 (3d Cir. 1975); Spock v. David, 469 F.2d 1047, 1050 (3d Cir. 1972); 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). An act is ministerial only when its performance is positively commanded and so plainly prescribed as to be free from doubt. We are therefore without jurisdiction to order UMTA to act promptly.
Having determined that the plaintiffs' first four causes of action must be dismissed for lack of subject matter jurisdiction, we now consider plaintiffs' fifth and final cause of action. It is clearly a pendent state law claim, alleging that the action of SEPTA in raising fares constitutes an abuse of discretion in violation of Section 4(d)(9) of the Metropolitan Transportation Authorities Act, 66 P.S. § 2001 et seq. Section 4(d)(9) of this Act, 66 P.S. § 2004(d)(9), provides in part:
Any person aggrieved by any rate or service or change of service fixed by the authority may bring an appeal against the authority in the court of common pleas of any county in the metropolitan area in which the charge, service or change of service shall be applicable, for the purpose of protesting against any such charge, service or change of service: Provided, however, That the grounds for such suits shall be restricted to a manifest and flagrant abuse of discretion or an error of law; otherwise, all such actions by the authority shall be final. Whenever two or more appeals shall be brought against the same action of the authority, exclusive jurisdiction for the determination thereof shall be vested in the first such court to receive such an appeal, and all other courts receiving subsequent appeals against the same action shall transfer such appeals to the said first court. Upon the finding of an error of law or a manifest and flagrant abuse of discretion, the court shall issue an order setting forth the abuse of error and returning the matter to the authority for such further action as shall be not inconsistent with the findings of the court. No appeal from the action of the authority or from the decision of the court of common pleas shall act as a supersedeas, except when taken by the authority or any county or municipality, or, in other cases, when specially granted after a finding that irreparable and extraordinary harm will result. The courts shall give priority to all such appeals and no bond shall be required of any party instituting such an appeal under the provisions of this section.
It appears therefore that an appeal procedure to the court of common pleas is specifically provided in the state statute.
Federal courts have the power to adjudicate claims based on state law if there is a federal claim of sufficient substance to confer subject matter jurisdiction on the court. *887 Tully v. Mott Supermarkets, Inc., 540 F.2d 187, 196 (3d Cir. 1976). However, as stated in United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S. Ct. 1130, 1139, 16 L. Ed. 2d 218 (1966), if the federal claims are dismissed before trial, the state claims should also be dismissed. We, therefore, shall decline to exercise jurisdiction over plaintiffs' state law claim.
Accordingly, an Order will be entered granting the defendants' motions to dismiss the alleged federal claims for lack of subject matter jurisdiction and dismissing the pendent state law claim.
NOTES
[1] An alternative basis for dismissal asserted by the defendants in their Rule 12(b)(1) motion is that plaintiffs lack standing to sue on each of the federal claims. In view of our decision to grant defendants' Rule 12(b)(1) motion because there has been no final agency action ripe for review, we need not address the issue of plaintiffs' standing. We also need not address the Rule 12(b)(6) motions to dismiss.
[2] The underlined portion of Section 5(i) quoted above was enacted as an amendment to the UMT Act, signed into law on November 6, 1978.
[3] The Administrative Procedure Act is not an independent grant of subject matter jurisdiction. As the Supreme Court stated in Califano v. Sanders, 430 U.S. 99, 97 S. Ct. 980, 984, 51 L. Ed. 2d 192 (1977), "the APA is not to be interpreted as an implied grant of subject-matter jurisdiction to review agency actions." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2178268/ | 798 F. Supp. 2d 336 (2011)
Frank T. DIXON; Deana M. Dixon, Plaintiffs,
v.
WELLS FARGO BANK, N.A. formerly known as Wachovia Mortgage, FSB formerly known as World Savings Bank, FSB, Defendant.
Civil Action No. 11-10368-WGY.
United States District Court, D. Massachusetts.
July 22, 2011.
*338 David M. Bizar, Seyfarth Shaw, Boston, MA, for Defendants.
Gerald A. Phelps, Law Office of Gerald A. Phelps, Halifax, MA, for Plaintiff.
MEMORANDUM AND ORDER
YOUNG, District Judge.
I. INTRODUCTION
Frank and Deana Dixon (collectively "the Dixons") bring this cause of action against Wells Fargo Bank, N.A. ("Wells Fargo"), seeking (1) an injunction prohibiting Wells Fargo from foreclosing on their home; (2) specific performance of an oral agreement to enter into a loan modification; and (3) damages. Wells Fargo, having removed the action from state court, now moves for dismissal of the Dixons' complaint under Fed.R.Civ.P. 12(b)(6), arguing that the allegations are insufficient to invoke the doctrine of promissory estoppel and that, to the extent the Dixons have stated a state-law claim, it is preempted by the Home Owners' Loan Act ("HOLA"), 12 U.S.C. §§ 1461-1700, and its implementing regulations, 12 C.F.R. §§ 500-99.
A. Procedural History
On January 6, 2011, the Dixons initiated this civil action in the Massachusetts Superior Court sitting in and for the County of Plymouth, Civil Docket No. PLCV2011-00015, by filing a "Verified Complaint for Injunctive Relief, Specific Performance and Damages." Compl., Ex. A, ECF No. 1-1; Summons & Order Notice, Ex. D, ECF No. 1-4. They also filed an ex parte motion for a temporary restraining order. TRO, Ex. B, ECF No. 1-2. After an initial continuance, the hearing on that motion was held on February 14, 2011, and the Superior Court issued a preliminary injunction, enjoining Wells Fargo from prosecuting the foreclosure action it had filed against the Dixons until further order of the court. Sup. Ct. Civ. Dkt. 3-4, Ex. C, ECF No. 1-3; Order Prelim. Inj., ECF No. 4. At the present time, the preliminary injunction remains in effect. Mem. Opp'n Pls.' Mot. Remand 1, ECF No. 13.
On March 4, 2011, Wells Fargo removed the action to the United States District Court for the District of Massachusetts. Notice Removal, ECF No. 1. Wells Fargo filed its motion to dismiss the Dixons' complaint on April 11, 2011. Def.'s Mot. Dismiss, ECF No. 5; Mem. Supp. Def.'s Mot. Dismiss ("Def.'s Mem. Supp."), ECF No. 7. The Dixons opposed Wells Fargo's motion and moved to remand the case. Mem. Opp'n Def.'s Mot. Dismiss ("Pls.' Mem. Opp'n"), ECF No. 12; Pls.' Mot. Remand, ECF No. 9; Mem. Supp. Pls.' Mot. Remand, ECF No. 10.
After a hearing on May 9, 2011, this Court denied the Dixons' motion to remand and granted Wells Fargo's motion to dismiss the Dixons' contract claim as insufficiently pleaded. The Court took under advisement the two remaining issues: (1) *339 the sufficiency of the allegations in the complaint with respect to the doctrine of promissory estoppel; and (2) HOLA preemption. With leave of the Court, both parties have since filed supplemental briefing. Supplemental Mem. Supp. Def.'s Mot. Dismiss ("Def.'s Supplemental Mem. Supp."), ECF No. 16; Supplemental Mem. Opp'n Def.'s Mot. Dismiss ("Pls.' Supplemental Mem. Opp'n"), ECF No. 18.
B. Facts Alleged
The Dixons reside at their home in Scituate, Plymouth County, Massachusetts. Compl. ¶ 2. Wells Fargo is a corporation doing business in the Commonwealth of Massachusetts. Id. ¶ 3. Wells Fargo alleges that it is the holder of a mortgage on the Dixons' home. Id. ¶ 6.
On or about June 8, 2009, the Dixons orally agreed with Wells Fargo to take the steps necessary to enter into a mortgage loan modification. Id. ¶ 7. As part of this agreement, Wells Fargo instructed the Dixons to stop making payments on their loan. Id. It was contemplated that the unpaid payments would be added to the note as modified. Id. In addition, Wells Fargo requested certain financial information, which the Dixons promptly supplied. Id.
Notwithstanding the Dixons' diligent efforts and reliance on Wells Fargo's promise, Wells Fargo has failed, and effectively refused, to abide by the oral agreement to modify the existing mortgage loan. Id. ¶ 8.
On or about December 8, 2010, the Dixons received notice from the Massachusetts Land Court that Wells Fargo was proceeding with a foreclosure on their home. Id. ¶ 9. The return date on the order of notice in the Land Court was January 10, 2011, and so the Dixons sought a temporary restraining order in the Superior Court to prevent the loss of their home. See Procedural History, supra.
The Dixons state that, on information and belief, the fair market value of their home is in excess of the mortgage loan balance and any arrearage. Compl. ¶ 10.
II. ANALYSIS
The Dixons seek to enforce Wells Fargo's alleged promise to engage in negotiating a loan modification. See Pls.' Supplemental Mem. Opp'n 1-2. Arguing that the bank's initiation of foreclosure proceedings without warning shows its promise to consider their eligibility for a modification was insincere, the Dixons ask not only that the foreclosure be halted but also that Wells Fargo be returned to its place at the bargaining table. See Id.; see also Pls.' Mem. Opp'n 7-8, 11-12. Wells Fargo contends that (1) any promise it made to consider the Dixons for a loan modification was not sufficiently definite as to be binding, see Def.'s Supplemental Mem. Supp. 1; (2) the Dixons' reliance on its promise was neither reasonable nor detrimental, see Def.'s Mem. Supp. at 17-19; and (3) in any event, the claim for promissory estoppel is preempted by federal law, see Id. at 8-14.
A. Legal Standard
To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, 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). In addition to accepting all factual allegations in the complaint as true, the Court must draw all reasonable inferences in the plaintiff's favor. Langadinos v. American Airlines, Inc., 199 F.3d 68, 69 (1st Cir.2000). If the facts in the complaint are sufficient to state a cause of action, a motion to dismiss the complaint must be denied. See *340 Nollet v. Justices of Trial Court of Mass., 83 F. Supp. 2d 204, 208 (D.Mass.2000) (Harrington, J.).
Although the Court must accept as true all of the factual allegations contained in the complaint, that doctrine is not applicable to legal conclusions. Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009). Threadbare recitals of the legal elements, supported by mere conclusory statements, do not suffice to state a cause of action. Id. Accordingly, a complaint does not state a claim for relief where the well-pleaded facts fail to warrant an inference of anything more than the mere possibility of misconduct. Id. at 1950.
B. Promissory Estoppel
The gravamen of the Dixons' complaint is that Wells Fargo promised to engage in negotiations to modify their loan, provided that they took certain "steps necessary to enter into a mortgage modification." Compl. ¶ 7. On the basis of Wells Fargo's representation, the Dixons stopped making payments on their loan and submitted the requested financial informationonly to learn subsequently that the bank had initiated foreclosure proceedings against them. They contend that Wells Fargo ought have anticipated their compliance with the terms of its promise to consider them for a loan modification. Not only was it reasonable that they would rely on the promise, but also their reliance left them considerably worse off, for by entering into default they became vulnerable to foreclosure.
The question whether these allegations are sufficient to state a claim for promissory estoppel requires a close look at the doctrine's evolution in the law of Massachusetts. In Loranger Const. Corp. v. E.F. Hauserman Co., 376 Mass. 757, 384 N.E.2d 176 (1978), the Supreme Judicial Court recognized the enforceability of a promise on the basis of detrimental reliance, but declined to "use the expression `promissory estoppel,' since it tends to confusion rather than clarity." Id. at 760-61, 384 N.E.2d 176. The court reasoned that "[w]hen a promise is enforceable in whole or in part by virtue of reliance, it is a `contract,' and it is enforceable pursuant to a `traditional contract theory' antedating the modern doctrine of consideration." Id. at 761, 384 N.E.2d 176. Since Loranger, the court has adhered to its view that "an action based on reliance is equivalent to a contract action, and the party bringing such an action must prove all the necessary elements of a contract other than consideration." Rhode Island Hosp. Trust Nat'l Bank v. Varadian, 419 Mass. 841, 850, 647 N.E.2d 1174 (1995).
"An essential element in the pleading and proof of a contract claim is, of course, the `promise' sought to be enforced." Kiely v. Raytheon Co., 914 F. Supp. 708, 712 (D.Mass.1996) (O'Toole, J.). Thus, even where detrimental reliance acts as a substitute for consideration, the promise on which a claim for promissory estoppel is based must be interchangeable with an offer "in the sense of `commitment.'" Cataldo Ambulance Serv., Inc. v. City of Chelsea, 426 Mass. 383, 386 n. 6, 688 N.E.2d 959 (1998). The promise must demonstrate "an intention to act or refrain from acting in a specified way, so as to justify a promisee in understanding that a commitment has been made." Varadian, 419 Mass. at 849-50, 647 N.E.2d 1174 (quoting Restatement (Second) of Contracts § 2 (1981)). That the representation is of future, rather than present, intention will not preclude recovery, so long as the promisor's expectation to be legally bound is clear. See Sullivan v. Chief Justice for Admin. & Mgt. of Trial Court, 448 Mass. 15, 28 & n. 9, 858 N.E.2d 699 (2006) *341 (quoting Boylston Dev. Group, Inc. v. 22 Boylston St. Corp., 412 Mass. 531, 542 n. 17, 591 N.E.2d 157 (1992)).
In addition to demonstrating a firm commitment, the putative promise, like any offer, must be sufficiently "definite and certain in its terms" to be enforceable. Moore v. La-Z-Boy, Inc., 639 F. Supp. 2d 136, 142 (D.Mass.2009) (Stearns, J.) (quoting Kiely, 914 F.Supp. at 712). "[I]f an essential element is reserved for the future agreement of both parties, as a general rule, the promise can give rise to no legal obligation until such future agreement." 1 Richard A. Lord, Williston on Contracts § 4:29 (4th ed. 1990); see Lucey v. Hero Int'l Corp., 361 Mass. 569, 574-75, 281 N.E.2d 266 (1972). Under well-settled Massachusetts law, "an agreement to enter into a contract which leaves the terms of that contract for future negotiation is too indefinite to be enforced." Caggiano v. Marchegiano, 327 Mass. 574, 580, 99 N.E.2d 861 (1951); see Sax v. DiPrete, 639 F. Supp. 2d 165, 171 (D.Mass.2009) (Stearns, J.); Moore, 639 F.Supp.2d at 142; In re Harvey Probber, Inc., 50 B.R. 292, 296-97 (Bankr.Mass. 1985); Lafayette Place Assocs. v. Boston Redevelopment Auth., 427 Mass. 509, 517, 694 N.E.2d 820 (1998); Bell v. B.F. Goodrich Co., 359 Mass. 763, 763, 270 N.E.2d 926 (1971); Air Tech. Corp. v. General Elec. Co., 347 Mass. 613, 626, 199 N.E.2d 538 (1964); Rosenfield v. United States Trust Co., 290 Mass. 210, 217, 195 N.E. 323 (1935); Restatement (Second) of Contracts § 33, comment (c) ("The more terms the parties leave open, the less likely it is that they have intended to conclude a binding agreement.").
The longstanding reluctance of courts to enforce open-ended "agreements to agree" reflects a belief that, unless a "fall-back standard" exists to supply the missing terms, there is no way to know what ultimate agreement, if any, would have resulted. E. Allan Farnsworth, Precontractual Liability and Preliminary Agreements: Fair Dealing and Failed Negotiations, 87 Colum. L.Rev. 217, 255-56 (1987). It is the vague and indefinite nature of that potential final agreementnot the preliminary agreement to agreethat troubles courts. See Armstrong v. Rohm & Haas Co., Inc., 349 F. Supp. 2d 71, 78 (D.Mass. 2004) (Saylor, J.) (holding that an agreement must be sufficiently definite to enable courts to give it an exact meaning). Judges are justifiably unwilling to endorse one party's aspirational view of the terms of an unrealized agreement. See Farnsworth, supra at 259. Just as "[i]t is no appropriate part of judicial business to rewrite contracts freely entered into," RCI Northeast Servs. Div. v. Boston Edison Co., 822 F.2d 199, 205 (1st Cir.1987), courts must not force parties into contracts into which they have not entered freely, Armstrong, 349 F.Supp.2d at 80 (holding a promise unenforceable where the court could not "supply the missing terms without `writing a contract for the parties which they themselves did not make'" (quoting Held v. Zamparelli, 13 Mass.App. Ct. 957, 958, 431 N.E.2d 961 (1982))).
Moreover, parties ought be allowed to step away unscathed if they are unable to reach a deal. Cf. R.W. Int'l Corp. v. Welch Food, Inc., 13 F.3d 478, 484-85 (1st Cir. 1994). To impose rights and duties at "the stage of `imperfect negotiation,'" Lafayette Place Assocs., 427 Mass. at 517, 694 N.E.2d 820, would be to interfere with the liberty to contractor not to contract. Thus, the concern is that if a court were to order specific performance of an agreement to agree, where the material terms of the final agreement were left open by the parties, not only would there be "little, if anything, to enforce," Lambert v. Fleet Nat'l Bank, 449 Mass. 119, 123, 865 *342 N.E.2d 1091 (2007), but also future negotiations would be chilled. Cf. American Broad. Cos., Inc. v. Wolf, 52 N.Y.2d 394, 438 N.Y.S.2d 482, 420 N.E.2d 363, 368-69 (1981) (denying request for specific performance of general contract negotiation clause as inhibitive of free competition).
Wells Fargo would have this Court end its inquiry here. The complaint plainly alleges that the parties had an "agreement to enter into a loan modification agreement," but as matter of law "[a]n agreement to reach an agreement is a contradiction in terms and imposes no obligations on the parties thereto." Rosenfield, 290 Mass. at 217, 195 N.E. 323. As such, the complaint would appear to fail to state a claim.
During the course of opposing Wells Fargo's motion to dismiss, however, the Dixons have made clear that they do not seek specific performance of a promised loan modification. See Pls.' Supplemental Mem. Opp'n 1-2. They admit that there was no guarantee of a modification by Wells Fargo, only a verbal commitment to determine their eligibility for a modification if they followed the bank's prescribed steps. Thus, the Dixons' request that Wells Fargo be held to its promise to consider them for a loan modification is not a covert attempt to bind the bank to a final agreement it had not contemplated. There is no risk that this Court, were it to uphold the promissory estoppel claim, would be "trapping" Wells Fargo into a vague, indefinite, and unintended loan modification masquerading as an agreement to agree. Teachers Ins. & Annuity Ass'n of Am. v. Tribune Co., 670 F. Supp. 491, 497 (S.D.N.Y.1987).
Furthermore, because the parties had not yet begun to negotiate the terms of a modification, the Court questions whether Wells Fargo's promise ought even be characterized as a preliminary agreement to agree. Instead, it more closely resembles an "agreement to negotiate." See Farnsworth, supra at 263-69; cf. Aceves v. U.S. Bank, N.A., 192 Cal. App. 4th 218, 120 Cal. Rptr. 3d 507, 514 (2011) ("[T]he question here is simply whether U.S. Bank made and kept a promise to negotiate with Aceves, not whether . . . the bank promised to make a loan or, more precisely, to modify a loan.").
To be sure, Massachusetts courts have tended to treat agreements to negotiate as variants of open-ended agreements to agree. The view that "[a]n agreement to negotiate does not create a binding contract," Sax, 639 F.Supp.2d at 171, again reflects a concern that a promise of further negotiations is too indefinite, too undefined in scope, to be enforceable. See Bell, 359 Mass. at 763, 270 N.E.2d 926 (finding an agreement to negotiate "for as long as the parties agreed" to be "void for vagueness"). This is particularly true where the parties have not specified the terms on which they will continue negotiating. See Farnsworth, supra at 264. Conventional wisdom holds that courts ought not "strain[] to find an agreement to negotiate in the absence of a clear indication of assent" by the parties to a governing standard of conduct, e.g., "good faith" or "best efforts," Id. at 266-67, because "there is no meaningful content in a general duty to negotiate, standing alone," Steven J. Burton & Eric G. Anderson, Contractual Good Faith § 8.4.2, at 361 (1995). See Pinnacle Books, Inc. v. Harlequin Enters. Ltd., 519 F. Supp. 118, 122 (S.D.N.Y.1981). As with open-ended agreements to agree, judicial enforcement of vague agreements to negotiate would risk imposing on parties contractual obligations they had not taken on themselves.
In this case, Wells Fargo and the Dixons had not yet contemplated the terms of a loan modification, but they had *343 contemplated negotiations. Their failure to elaborate on the boundaries of that duty to negotiate, however, would seem to militate against enforcement of it. Yet, Wells Fargo made a specific promise to consider the Dixons' eligibility for a loan modification if they defaulted on their payments and submitted certain financial information. See Burton & Andersen, supra § 8.2.2, at 332-33 (recognizing that, while there is no general duty to negotiate in good faith, public policy favors imposing noncontractual liability "when one person wrongfully harms another" by making a promise intended to induce reliance); Lucian Arye Bebchuk & Omri Ben-Shahar, Precontractual Reliance, 30 J. Legal Stud. 423, 424 (2001) ("A party may be liable for the other party's reliance costs on three possible grounds: if it induced this reliance through misrepresentation, if it benefited from the reliance, or if it made a specific promise during negotiations."); Farnsworth, supra at 236 (referring to the "specific promises that one party makes to another in order to interest the other party in the negotiations" as a "common basis for precontractual liability"). Importantly, it was not a promise made in exchange for a bargained-for legal detriment, as there was no bargain between the parties; rather, the legal detriment that the Dixons claim to have suffered was a direct consequence of their reliance on Wells Fargo's promise. Joseph Perillo, Calamari & Perillo on Contracts § 6.1, at 218 (6th ed. 2009). Under the theory of promissory estoppel, "[a] negotiating party may not with impunity break a promise made during negotiations if the other party has relied on it." Farnsworth, supra at 236.
Promissory estoppel has developed into "an attempt by the courts to keep remedies abreast of increased moral consciousness of honesty and fair representations in all business dealings." Peoples Nat'l Bank of Little Rock v. Linebarger Constr. Co., 219 Ark. 11, 240 S.W.2d 12, 16 (1951). While it began as "a substitute for (or the equivalent of) consideration" in the context of an otherwise binding contract, Perillo, supra § 6.1, at 218, "promissory estoppel has come to be a doctrine employed to rescue failing contracts where the cause of the failure is not related to consideration," Id. § 6.3, at 229. It now "provides a remedy for many promises or agreements that fail the test of enforceability under many traditional contract doctrines," Id. § 6.1, at 218, but whose enforcement is "necessary to avoid injustice," Restatement (Second) of Contracts § 90, comment (b).
Admittedly, the courts of Massachusetts have yet to formally embrace promissory estoppel as more than a consideration substitute. See, e.g., Varadian, 419 Mass. at 850, 647 N.E.2d 1174. Nonetheless, without equivocation, they have adopted section 90 of the Restatement (Second) of Contracts, which reads, "A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise." See Chedd-Angier Prod. Co. v. Omni Publ'ns Int'l, Ltd., 756 F.2d 930, 937 (1st Cir.1985); Loranger Constr. Corp., 376 Mass. at 760-61, 384 N.E.2d 176; McAndrew v. School Comm., 20 Mass.App. Ct. 356, 363, 480 N.E.2d 327 (1985); see also Anzalone v. Administrative Office of Trial Court, 457 Mass. 647, 661, 932 N.E.2d 774 (2010) (using the term "promissory estoppel" and defining estoppel similarly to the Restatement); Sullivan, 448 Mass. at 27-28, 858 N.E.2d 699 (same). Nowhere in the comments to section 90 nor in section 2 of the Restatement, which defines the word "promise," is there an explicit "requirement that the promise giving rise to the cause of action must be so *344 comprehensive in scope as to meet the requirements of an offer that would ripen into a contract if accepted by the promisee." Hoffman v. Red Owl Stores, Inc., 26 Wis. 2d 683, 133 N.W.2d 267, 275 (1965). In fact, the Restatement "has expressly approved" promissory estoppel's use to protect reliance on indefinite promises. See Michael B. Metzger & Michael J. Phillips, Promissory Estoppel and Reliance on Illusory Promises, 44 Sw. L.J. 841, 842 (1990). But see Alan Schwartz & Robert E. Scott, Precontractual Liability and Preliminary Agreements, 120 Harv. L.Rev. 661, 669-70 (2007) ("To the contrary, the Restatement of Contracts has only one definition of a promise, and that definition applies equally to a promise that is the product of a bargained-for exchange and a promise for which enforcement is sought on the grounds of induced reliance. Thus, if Hoffman stands for the proposition that a commitment can be binding under a theory of promissory estoppel even though it lacks the clarity and certainty required of a bargained-for promise, the case is wrong as a matter of doctrine.").
Massachusetts's continued insistence that a promise be definiteat least to a degree likely not met in the present case is arguably in tension with its adoption of the Restatement's more relaxed standard. This tension is not irreconcilable, however. Tracing the development of promissory estoppel through the case law reveals a willingness on courts' part to enforce even an indefinite promise made during preliminary negotiations where the facts suggest that the promisor's words or conduct were designed to take advantage of the promisee. The promisor need not have acted fraudulently, deceitfully, or in bad faith. McLearn v. Hill, 276 Mass. 519, 524-25, 177 N.E. 617 (1931). Rather, "[f]acts falling short of these elements may constitute conduct contrary to general principles of fair dealing and to the good conscience which ought to actuate individuals and which it is the design of courts to enforce." Id. at 524, 177 N.E. 617. As the Supreme Judicial Court remarked in an early promissory estoppel case:
[I]t is not essential that the representations or conduct giving rise to [the doctrine's] application should be fraudulent in the strictly legal significance of that term, or with intent to mislead or deceive; the test appears to be whether in all the circumstances of the case conscience and duty of honest dealing should deny one the right to repudiate the consequence of his representations or conduct; whether the author of a proximate cause may justly repudiate its natural and reasonably anticipated effect; fraud, in the sense of a court of equity, properly including all acts, omissions, and concealments which involve a breach of legal or equitable duty, trust, or confidence, justly reposed, and are injurious to another or by which an undue and unconscientious advantage is taken of another.
Id. at 525, 177 N.E. 617 (quoting Howard v. West Jersey & Seashore R.R., 102 N.J. Eq. 517, 141 A. 755, 757 (N.J.Ch.1928), aff'd, 104 N.J. Eq. 201, 144 A. 919 (N.J. 1929)).
Typically, where the Massachusetts courts have applied the doctrine of promissory estoppel to enforce an otherwise unenforceable promise, "there has been a pattern of conduct by one side which has dangled the other side on a string." Pappas Indus. Parks, Inc. v. Psarros, 24 Mass.App.Ct. 596, 598, 511 N.E.2d 621 (1987) (citing Greenstein v. Flatley, 19 Mass.App.Ct. 351, 352-54, 474 N.E.2d 1130 (1985); Loranger Constr. Corp. v. E.F. Hauserman Co., 6 Mass.App.Ct. 152, 154-59, 374 N.E.2d 306 (1978), aff'd, 376 Mass. at 759-61, 384 N.E.2d 176; Cellucci v. Sun *345 Oil Co., 2 Mass.App.Ct. 722, 725-28, 320 N.E.2d 919 (1974), aff'd, 368 Mass. 811, 331 N.E.2d 813 (1975)). In Greenstein, where a landlord submitted a lease to a prospective tenant and then strung him along for more than four months before repudiating the lease he had submitted, the Massachusetts Appeals Court concluded that the conduct of the landlord "was calculated to misrepresent the true situation to the [tenant], keep him on a string, and make the [tenant] concludereasonablythat the deal had been made and that only a bureaucratic formality remained." 19 Mass. App.Ct. at 356, 474 N.E.2d 1130. Because this conduct "was misleading, it fit[] comfortably `within at least the penumbra of some common-law, statutory, or other established concept of unfairness.'" Id. (quoting PMP Assocs., Inc. v. Globe Newspaper Co., 366 Mass. 593, 596, 321 N.E.2d 915 (1975)); see Avery Katz, When Should an Offer Stick? The Economics of Promissory Estoppel in Preliminary Negotiations, 105 Yale L.J. 1249, 1254 (1996) ("The doctrine of promissory estoppel is commonly explained as promoting the same purposes as the tort of misrepresentation: punishing or deterring those who mislead others to their detriment and compensating those who are misled."). While Greenstein presented a situation ripe for a straightforward application of promissory estoppel, the court noted that "[i]t is not even necessary that the conduct complained of fit into a precise tort or contract niche" for relief to be appropriate. 19 Mass.App.Ct. at 356, 474 N.E.2d 1130 (citing Slaney v. Westwood Auto, Inc., 366 Mass. 688, 693, 322 N.E.2d 768 (1975)).
The circumstances of the McLearn case, quoted from above, are also instructive. See 276 Mass. 519, 177 N.E. 617. There, after the plaintiff timely filed his tort claim in a municipal court, the defendant convinced him to dismiss it and refile in the Superior Court, where a number of other lawsuits arising from the same motor vehicle accident were pending a consolidated trial. Id. at 521, 177 N.E. 617. But, in so doing, the plaintiff's second action was filed after the one-year statute of limitations had run, and the defendant promptly asserted this as a defense. Id. at 521-22, 177 N.E. 617. The defendant had not expressly promised not to plead the statute of limitations, but the court deemed it "a necessary implication," as "the arrangement suggested by the defendant could be carried out only by not pleading the statute." Id. at 527, 177 N.E. 617. The court observed that "the plaintiff ha[d] suffered direct harm brought about by conduct of the defendant when he discontinued an action seasonably brought to enforce his claim; and the defendant ha[d] acquired the direct advantage of being enabled to interpose a defence resting on that conduct alone." Id. at 526, 177 N.E. 617. Having acted in a manner "not consonant with fairness and designed to induce action by the plaintiff to his harm," the defendant was estopped from raising the statute as a defense. Id. at 527, 177 N.E. 617.
One final case, the core allegations of which mirror those presented in the Dixons' complaint, merits mention. In Cohoon v. Citizens Bank, No. 002774, 2000 WL 33170737 (Mass.Super. Nov. 11, 2000) (Agnes, J.), the parties orally agreed to a discounted payoff in full satisfaction of the plaintiff's original mortgage obligation. Id. at *1. The defendant encouraged the plaintiff to default on a mortgage payment to ensure approval of the discounted payoff. Id. at *4. Until that time, the plaintiff had made timely payments. Id. Once in default, however, the defendant sold the note to a buyer who promptly commenced foreclosure. Id. The court upheld the plaintiff's claim for promissory estoppel because, "[t]aking the facts in the light most favorable to the plaintiff, it could be found *346 that [the defendant] encouraged [the plaintiff] to delay mortgage payment and, as a result of that reliance, the eventual buyer. . . took advantage of [the plaintiff's] vulnerable state by initiating foreclosure on [the plaintiff's] property interest." Id. While the court indicated that, to prevail at trial, the plaintiff would need to establish that he "was misled or induced to believe that by defaulting he would achieve the discounted purchase of the note that he was seeking," Id. at *6, he was at least entitled to "th[is] opportunity to prove facts in support of his claim of detrimental reliance," Id. at *4.
In the present case, Wells Fargo convinced the Dixons that to be eligible for a loan modification they had to default on their payments, and it was only because they relied on this representation and stopped making their payments that Wells Fargo was able to initiate foreclosure proceedings. While there is no allegation that its promise was dishonest, Wells Fargo distinctly gained the upper hand by inducing the Dixons to open themselves up to a foreclosure action. In specifically telling the Dixons that stopping their payments and submitting financial information were the "steps necessary to enter into a mortgage modification," Wells Fargo not only should have known that the Dixons would take these steps believing their fulfillment would lead to a loan modification, but also must have intended that the Dixons do so. The bank's promise to consider them for a loan modification if they took those steps necessarily "involved as matter of fair dealing an undertaking on [its] part not to [foreclose] based upon facts coming into existence solely from" the making of its promise. McLearn, 276 Mass. at 523-24, 177 N.E. 617; see Aceves, 120 Cal.Rptr.3d at 514 ("U.S. Bank agreed to `work with [Aceves] on a mortgage reinstatement and loan modification' if she no longer pursued relief in the bankruptcy court. . . . [This promise] indicates that U.S. Bank would not foreclose on Aceves's home without first engaging in negotiations with her to reinstate and modify the loan on mutually agreeable terms."); cf. Vigoda v. Denver Urban Renewal Auth., 646 P.2d 900, 905 (Colo.1982) (ruling that the plaintiff's allegation that she incurred losses in reasonable reliance on the defendant's promise to negotiate in good faith was sufficient to state a claim for relief). Wells Fargo's decision to foreclose without warning was unseemly conduct at best. In the opinion of this Court, such conduct presents "an identifiable occasion for applying the principle of promissory estoppel." Greenstein, 19 Mass.App.Ct. at 356-57, 474 N.E.2d 1130.
As the cases reveal, where, like here, the promisor opportunistically has strung along the promisee, the imposition of liability despite the preliminary stage of the negotiations produces the most equitable result. This balancing of the harms "is explicitly made an element of recovery under the doctrine of promissory estoppel by the last words of [section 90 of the Restatement], which make the promise binding only if injustice can be avoided by its enforcement." Metzger & Phillips, supra at 849. Binding the promisor to a promise made to take advantage of the promisee is also the most efficient result. Cf. Richard Craswell, Offer, Acceptance, and Efficient Reliance, 48 Stan. L.Rev. 481, 538 (1996). In cases of opportunism, "[the] willingness to impose a liability rule can be justified as efficient since such intervention may be the most cost-effective means of controlling opportunistic behavior, which both parties would seek to control ex ante as a means of maximizing joint gains. Because private control arrangements may be costly, the law-supplied rule may be the most effective means of controlling opportunism and maximizing joint gain." Juliet P. Kostritsky, *347 The Rise and Fall of Promissory Estoppel or Is Promissory Estoppel Really as Unsuccessful as Scholars Say It Is: A New Look at the Data, 37 Wake Forest L.Rev. 531, 574 (2002); see Katz, supra at 1309 (contending that promissory estoppel can help "regulat[e] the opportunistic exercise of bargaining power" during preliminary negotiations); Schwartz & Scott, supra at 667 (remarking that protecting the party who has relied "will deter some strategic behavior").
There remains the concern that, by imposing precontractual liability for specific promises made to induce reliance during preliminary negotiations, courts will restrict parties' freedom to negotiate by reading in a duty to bargain in good faith not recognized at common law. While this concern does not fall on deaf ears, it can be effectively minimized by limiting the promisee's recovery to his or her reliance expenditures. See Farnsworth, supra at 267 (remarking that, where relief involves an award of reliance damages only, courts need not be troubled by "the indefiniteness of the concept of fair dealing"); Metzger & Phillips, supra at 853-54 (commenting that "reliance-based damage awards may sometimes be preferable in promissory estoppel cases" because, where the promise is indefinite, specific performance or expectation damages are not possible); Schwartz & Scott, supra at 667 (stating that, while the emerging legal rule requiring parties to bargain in good faith but not requiring them to reach an agreement is "a step in the right direction," "efficiency would be enhanced if the law were simply to protect the promisee's reliance interest"); see also Restatement (Second) of Contracts § 90 ("The remedy granted for breach may be limited as justice requires."). See generally L.L. Fuller & William R. Perdue, Jr., The Reliance Interest in Contract Damages (Part I), 46 Yale L.J. 52 (1936). "Because promissory estoppel allows a reliance-based damage recovery in appropriate cases, it provides courts an alternative to forcing an unjustly terminated party into an unpromising relationship." Metzger & Phillips, supra at 888; see Bebchuk & Ben-Shahar, supra at 451-52 (contending that, by imposing "an interim measure of liability, extending only to reliance investments," courts need not "make the contract for the parties").
Moreover, because the promisee's reliance must be not only reasonable and foreseeable but also detrimental, such that injustice would result if the promise were not binding, "the doctrine renders the motive of the promisor a secondary consideration in deciding whether to award relief." Metzger & Phillips, supra at 888. Although some sense that the promisor has acted to take unfair advantage of the promisee is typically what prompts courts to enforce promises made during preliminary negotiations, the foreseeability and injustice requirements of section 90 render inquiry into whether the promisor acted in bad faith unnecessary, which, in turn, obviates any need to impose a precontractual duty to negotiate in good faith.[1]See Id. at *348 873 (referring to promissory estoppel as "superior to good faith as a device for protecting reliance"). It is also worth noting that "few claims that arise are fairly treated under the existing grounds of . . . [a] specific promise [made during negotiations]. As long as these grounds are not often invoked and have not been pushed to their limits, there will be little pressure to add a general obligation of fair dealing." Farnsworth, supra at 242.
Finally, contrary to the conventional wisdom that precontractual liability unduly restricts the freedom to negotiate, a default rule allowing recovery but limiting it to reliance expenditures may in fact promote more efficient bargaining. See Bebchuk & Ben-Shahar, supra at 457; Schwartz & Scott, supra at 690. "[T]he existence of liability does not chill the parties' incentives to enter negotiation," Bebchuk & Ben-Shahar, supra at 457, as "[r]ational parties will pursue efficient projects and abandon inefficient projects. . . . disagree[ing], if at all, over whether a party should be compensated for a reliance expense," Schwartz & Scott, supra at 667. It is only under the current regime of either no liability or strict liability that negotiating parties are discouraged from making early and "exploratory investments that are a necessary precondition to the later writing of efficient final contracts." Id. at 690; see Bebchuk & Ben-Shahar, supra at 457; Katz, supra at 1267. In contrast, a scheme of reliance-only precontractual liability makes negotiations more desirable by inducing optimal-level commitment from each party. See Bebchuk & Ben-Shahar, supra at 457. Certainly, enforcement of specific promises made to induce reliance during preliminary negotiations "might sometimes work an injustice on promisors." Metzger & Phillips, supra at 851; see Katz, supra at 1273. But reliance-based recovery in such instances offers the most equitable and efficient result without "distort[ing] the incentives to enter negotiations" in the first place. Bebchuk & Ben-Shahar, supra at 457.
This Court, therefore, holds that the complaint states a claim for promissory estoppel: Wells Fargo promised to engage in negotiating a loan modification if the Dixons defaulted on their payments and provided certain financial information, and they did so in reasonable reliance on that promise, only to learn that the bank had taken advantage of their default status by initiating foreclosure proceedings. Assuming they can prove these allegations by a preponderance of the evidence, their damages appropriately will be confined to the value of their expenditures in reliance on Wells Fargo's promise.[2]
*349 Without question, this is an uncertain result. But the "type of life-situation" out of which the Dixons' case arisesa devastating and nationwide foreclosure crisis that is crippling entire communitiescannot be ignored. Karl N. Llewellyn, Jurisprudence Realism in Theory and Practice 219-20 (1962). Distressed homeowners are turning to the courts in droves, hoping for relief for what they perceive as misconduct by their mortgage lenders. Many of these cases are factually similar, if not identical to, the Dixons' case. Yet, with the notable exception of three Massachusetts federal district court cases,[3] virtually *350 no other court has upheld a claim for promissory estoppel premised on such facts.[4]*351
*352 To the extent that today's result is an anomaly, this Court has sought to explain its decision "openly and with respect for precedent, not by sleight of hand." David L. Shapiro, Mr. Justice Rehnquist: A Preliminary View, 90 Harv. L.Rev. 293, 355 (1976); see Robert E. Keeton, Keeton on Judging in the American Legal System 5 (1999) ("Judging is choice. . . . Judicial choice, at its best, is reasoned choice, candidly explained."). It is the view of this Court that "[f]oreclosure is a powerful act with significant consequences," Ibanez, 458 Mass. at 655, 941 N.E.2d 40 (Cordy, J., concurring), and where a bank has obtained the opportunity to foreclose by representing an intention to do the exact oppositei.e., to negotiate a loan modification that would give the homeowner the right to stay in his or her homethe doctrine of promissory estoppel is properly invoked under Massachusetts law to provide at least reliance-based recovery.[5]
*353 C. HOLA Preemption
Having concluded that the Dixons' complaint states a claim for promissory estoppel, the Court now turns to Wells Fargo's contention that this state-law cause of action is preempted by the federal statutory and regulatory scheme of HOLA.
Pursuant to the Supremacy Clause of Article VI, clause 2, of the United States Constitution, federal law preempts state law where Congress has "enact[ed] a regulatory scheme `so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it.'" SPGGC, LLC v. Ayotte, 488 F.3d 525, 530 (1st Cir.2007) (quoting Barnett Bank of Marion Cnty., N.A. v. Nelson, 517 U.S. 25, 31, 116 S. Ct. 1103, 134 L. Ed. 2d 237 (1996)). Federal statutes and the regulations adopted thereunder have equal preemptive effect. Fidelity Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 153, 102 S. Ct. 3014, 73 L. Ed. 2d 664 (1982).
In 1933, Congress enacted HOLA as "a radical and comprehensive response" to the devastating effect of the Great Depression on the national housing market. Id. at 159-60, 102 S. Ct. 3014 (quoting Conference of Fed. Sav. & Loan Ass'ns. v. Stein, 604 F.2d 1256, 1257 (9th Cir.1979)). At the time, roughly half of all home loans were in default, and nearly one-fifth of the nation's population was without access to home-financing opportunities. See Id. at 159-60, 102 S. Ct. 3014. In passing HOLA, Congress sought to provide emergency relief to homeowners while simultaneously restoring public confidence in a network of centrally regulated federal savings and loan associations. Id. at 159-61, 102 S. Ct. 3014; Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1004 (9th Cir.2008).
Through HOLA, Congress created the Office of Thrift Supervision (the "OTS")[6] and gave its director plenary authority to regulate and govern "the powers and operations of every Federal savings and loan association from its cradle to its corporate grave."[7]de la Cuesta, 458 U.S. at 145, 102 S. Ct. 3014 (quoting People v. Coast Fed. Sav. & Loan Ass'n, 98 F. Supp. 311, 316 (S.D.Cal.1951)); see 12 U.S.C. § 1464; 12 C.F.R. §§ 500.1(a) (giving the OTS "responsib[ility] for the administration and enforcement of [HOLA]"), 500.10 (delineating the functions of the OTS as to "charter, supervise, regulate and examine Federal savings associations"). "This is an extremely broad grant of power that *354 provides ample authority for the [OTS] Director's efforts to enforce consistent, nationwide regulations affecting lending practices, by preempt[ion]." Flagg v. Yonkers Sav. & Loan Ass'n, FA, 396 F.3d 178, 183 (2d Cir.2005). "The Supreme Court has stated that `[i]t would have been difficult for Congress to give the [OTS] a broader mandate.'" SPGGC, 488 F.3d at 535 (quoting de la Cuesta, 458 U.S. at 161, 102 S. Ct. 3014).
Pursuant to this broad mandate, the OTS has promulgated extensive regulations, including two that preempt state statutory and common-law causes of action that otherwise would regulate the operations of federal savings associations. See 12 C.F.R. § 545.2 (stating that the OTS's exercise of its regulatory authority "is preemptive of any state law purporting to address the subject of the operations of a Federal savings association"); Id. § 560.2 ("[The] OTS hereby occupies the entire field of lending regulation for federal savings associations. [The] OTS intends to give federal savings associations maximum flexibility to exercise their lending powers in accordance with a uniform federal scheme of regulation. Accordingly, federal savings associations may extend credit as authorized under federal law, including this part, without regard to state laws purporting to regulate or otherwise affect their credit activities, except to the extent provided in paragraph (c) of this section . . . ."). That OTS regulations are "preemptive of any state law purporting to address the subject of the operations of a Federal savings association" has been recognized by the First Circuit. SPGGC, 488 F.3d at 535 (quoting 12 C.F.R. § 545.2). Moreover, courts have considered these preemptive regulations to have been enacted within the scope of the OTS's congressionally delegated authority. See, e.g., Flagg, 396 F.3d at 182-84.
The regulations set forth an analytical framework for courts to follow in determining whether a specific state law is preempted by HOLA. See 12 C.F.R. § 560.2; Lending and Investment, 61 Fed. Reg. 50951, 50966-67 (Sept. 30, 1996) (codified at 12 C.F.R. pts. 545, 560, 563, 566, 571, 590). First, a court must decide whether the law in question appears in section 560.2(b)'s illustrative list of types of state laws that are definitively preempted. 61 Fed.Reg. at 50966. These include "[t]he terms of credit, including . . . adjustments to the interest rate, balance, payments due, or term to maturity of the loan;" "[d]isclosure and advertising;" and "[p]rocessing, origination, servicing, sale or purchase of, or investment or participation in, mortgages." 12 C.F.R. § 560.2(b)(4), (b)(9), (b)(10). If the law is not of a type appearing in paragraph (b) of section 560.2, the court must analyze whether the law "affects lending." 61 Fed.Reg. at 50966. If so, then it presumptively is preempted, rebuttable only if the law clearly is shown to fit within the purview of paragraph (c). Id.
Paragraph (c) lists state laws that HOLA is not presumed to preempt, including contract and commercial law, real property law, homestead laws, tort law, and criminal law. 12 C.F.R. § 560.2(c). Any other law that, in the estimation of the OTS, promotes a vital state interest and either has only an incidental effect on lending or is not otherwise contrary to the regulatory intent to "occupy the field" is also not preempted. Id. Courts, however, are to interpret paragraph (c) narrowly, with any doubt resolved in favor of preemption. 61 Fed.Reg. at 50966. As the OTS has said, "the purpose of paragraph (c) is to preserve the traditional infrastructure of basic state laws that undergird commercial transactions, not to open the door to state regulation of lending by federal savings associations." Id. A plaintiff's *355 complaint, therefore, must be divided into claims which "fall on the regulatory side of the ledger and [those] which, for want of a better term, fall on the common law side." In re Ocwen Loan Servicing, LLC Mortg. Servicing Litig., 491 F.3d 638, 644 (7th Cir.2007) (Posner, J.).
The Eighth and Ninth Circuits have interpreted the OTS's analytical framework to mean that any "state law that either on its face or as applied imposes requirements regarding the examples listed in § 560.2(b) is preempted." Casey v. Federal Deposit Ins. Corp., 583 F.3d 586, 595 (8th Cir.2009); Silvas, 514 F.3d at 1006. In other words, "a state law that on its face is not one described in § 560.2(b) may nevertheless be preempted if, as applied, it fits within § 560.2(b)." Casey, 583 F.3d at 594. Under this "as applied" rule, only generally applicable state laws that fit within paragraph (c) without more than incidentally affecting lending are exempt from preemption. See Jones v. Home Loan Inv., FSB, 718 F. Supp. 2d 728, 734 (S.D.W.Va.2010).
While the Sixth Circuit has addressed express preemption under paragraph (b), see State Farm Bank v. Reardon, 539 F.3d 336, 347-49 (6th Cir.2008), the Seventh Circuit is the only other appellate court to have applied the paragraph (c) analysis, see In re Ocwen Loan Servicing, 491 F.3d at 643-44.[8] Judge Posner, writing for a three-judge panel, recognized that, while the OTS has plenary authority over federal savings banks, HOLA does not provide a private right of action to consumers, leaving them with "little recourse in disputes with federal savings banks outside of those generally applicable state laws exempted from preemption in § 560.2(c)." Jones, 718 F.Supp.2d at 734 (discussing Judge Posner's opinion). The Seventh Circuit thus interpreted paragraph (c), on balance, "to mean that [the] OTS's assertion of plenary regulatory authority does not deprive persons harmed by the wrongful acts of savings and loan associations of their basic state common-law-type remedies." In re Ocwen Loan Servicing, 491 F.3d at 643. The court gave two examples:
Suppose [a savings and loan association] signs a mortgage agreement with a homeowner that specifies an annual interest rate of 6 percent and a year later bills the homeowner at a rate of 10 percent and when the homeowner refuses to pay institutes foreclosure proceedings. It would be surprising for a federal regulation to forbid the homeowner's state to give the homeowner a defense based on the mortgagee's breach of contract. Or if the mortgagee *356 (or a servicer like Ocwen) fraudulently represents to the mortgagor that it will forgive a default, and then forecloses, it would be surprising for a federal regulation to bar a suit for fraud. Some federal laws do create such bars, notably ERISA, but this is recognized as exceptional. Enforcement of state law in either of the mortgage-servicing examples above would complement rather than substitute for the federal regulatory scheme.
Id. at 643-44 (internal citations omitted). If states could not provide protection to consumers through traditional state-law causes of action with only incidental effect on lending, then federal savings associations effectively could "use preemption as a shield to avoid adherence" to the commitments they make to their customers. McAnaney v. Astoria Fin. Corp., 665 F. Supp. 2d 132, 164 & n. 36 (E.D.N.Y. 2009); see Binetti v. Washington Mut. Bank, 446 F. Supp. 2d 217, 219 (S.D.N.Y. 2006) (expressing concern that "the Bank would be completely insulated from liability for its breach [of contract] if the Court were to find plaintiff's claim preempted").
At the same time, courts must be wary of artfully pleaded attempts to use common-law claims as a clandestine way of imposing requirements on lenders that states otherwise could not enact through legislation or regulation. McAnaney, 665 F.Supp.2d at 169 n. 39. Courts must look beyond "the label given to the putative cause of action," Schilke v. Wachovia Mortg., FSB, 758 F. Supp. 2d 549, 557 (N.D.Ill.2010), and instead undertake "an independent fact-intensive inquiry into the substance of each claim raised," Bishop v. Ocwen Loan Servicing, LLC, Civ. No. 3:10-0468, 2010 WL 4115463, at *4 (S.D.W.Va. Oct. 19, 2010). See Watkins v. Wells Fargo Home Mortg., 631 F. Supp. 2d 776, 782-83 (S.D.W.Va.2008) ("If the plaintiff truly complains of a term or practice outside the purview of the federal regulations, there is no preemption. However, conflicting state regulation masquerading as a common law contract claim cannot be allowed to supplant existing federal regulations."). The question is one of function, not theory: will enforcement of the cause of action interfere with or contravene lending, the regulation of which Congress has committed exclusively to a federal agency? See Naulty v. GreenPoint Mortg. Funding, Inc., Nos. C 09-1542 MHP, C 09-1545 MHP, 2009 WL 2870620, at *4 (N.D.Cal. Sept. 3, 2009). "[I]f the conduct complained of . . . falls within the scope of federal authority concerning lending activities, it is preempted." Schilke, 758 F.Supp.2d at 557; see Gibson v. World Sav. & Loan Assoc., 103 Cal. App. 4th 1291, 128 Cal. Rptr. 2d 19, 27 (2002) ("As to each state law claim, the central inquiry is whether the legal duty that is the predicate of the claims constitutes a requirement or prohibition of the sort that federal law expressly preempts."). This functional analysis is consistent with the "as applied" rule of the Eighth and Ninth Circuits as well as the balancing approach of the Seventh Circuit. See Coffman v. Bank of Am., NA, No. 2:09-00587, 2010 WL 3069905, at *6 (S.D.W.Va. Aug. 4, 2010) ("[B]oth approaches are, in essence, a method of determining whether a plaintiff's state law claim attempts to impose requirements upon the lending activities of federal savings banks."); Jones, 718 F.Supp.2d at 735 ("In Casey, Silvas, and Ocwen, the courts considered the specific nature of each state law claim to determine whether an allegation is a state-based cause of action or an attempt at regulation preempted by section 560.2(b).").
Here, the only claim sufficiently pleaded to survive the motion to dismiss is that of promissory estoppel. The allegations that form the basis of this claim are that (1) *357 Wells Fargo orally promised to negotiate a loan modification agreement if the Dixons took certain steps, and (2) despite the Dixons' compliance, Wells Fargo never engaged in modifying their loan and instead initiated foreclosure proceedings. Promissory estoppel, as an alternative to a breach of contract claim, undeniably falls within the purview of traditional state law. It nonetheless may be preempted if the alleged misconduct fits into one of the categories identified in paragraph (b) or if the practical effect on lending is more than incidental under paragraph (c).
Wells Fargo argues that the Dixons' claim seeks to impose substantive requirements regarding several expressly preempted categories, specifically (1) the terms of the loan; (2) the lender's disclosure obligations; and (3) the processing, origination, servicing, or investment or participation in mortgages. Def.'s Mem. Supp. 11 (citing 12 C.F.R. § 560.2(b)(4), (b)(9), (b)(10)). The Dixons, however, do not assert that they were entitled to a loan modification; nor do they demand that their loan be modified in a particular way. They acknowledge that, at most, Wells Fargo promised to negotiate a modification, but argue that, because they took the steps that Wells Fargo instructed them to take, Wells Fargo cannot now deny its promise to consider their eligibility. This has no bearing on the terms of any modification that the parties might negotiate in the future.
There is some suggestion in the complaint that Wells Fargo failed to notify the Dixons that their loan modification application had been denied before it initiated foreclosure proceedings. This is tangential to the promissory estoppel issue, however, and thus the Court need not address whether the allegations that touch on Wells Fargo's disclosure obligations are preempted by HOLA.
Undoubtedly, the claim that Wells Fargo failed to uphold a promise to consider the Dixons for a loan modification relates to Wells Fargo's "servicing" of the mortgage. See 12 C.F.R. § 560.2(b)(10). But the standard for express preemption is more than "relates to." See Coffman, 2010 WL 3069905, at *6 (citing In re Ocwen Loan Servicing, 491 F.3d at 643-44). The claim must "purport[] to impose requirements" regarding loan servicing for express preemption to apply. 12 C.F.R. § 560.2(b). Here, the Dixons do not aim to impose any substantive requirement on the loan modification process used by Wells Fargo, in particular, or federal savings banks, in general. Coffman, 2010 WL 3069905, at *9. The promissory estoppel claim seeks not to attack Wells Fargo's underlying loan servicing policies and practices, but rather to hold the lender to its word, on which the Dixons relied to their detriment. Enforcement of Wells Fargo's promise merely requires the lender to deal fairly and honestly, which no more burdens those lending operations listed in paragraph (b) than it does everyday business transactions. Bishop, 2010 WL 4115463, at *5 ("[R]equiring a bank to perform the obligations of its contract in good faith implicates none of the concerns embodied in HOLA."); see Morse v. Mutual Fed. Sav. & Loan Ass'n of Whitman, 536 F. Supp. 1271, 1281 (D.Mass.1982) (Aldrich, J.) ("An award of Chapter 93A exemplary damages against defendant would no more threaten the ability of federal savings and loan associations to perform their functions in the Commonwealth than it would state-chartered savings and loan associations, or other corporations subject to the statute."). "Only claims that are specific to a defendant's lending activities, as distinguished from legal duties applicable to all businesses, are preempted by HOLA." Cuevas v. Atlas *358 Realty/Fin. Servs., Inc., No. C 07-02814 JF, 2008 WL 268981, at *3 (N.D.Cal. Jan. 30, 2008).
Turning to paragraph (c) of section 560.2, the Dixons' promissory estoppel claim "affect[s] lending businesses, just as [it would] affect any other business that enters into contracts or makes representations during the course of its operations." Gibson, 128 Cal.Rptr.2d at 28. Because it has some effect on lending, a presumption of preemption arises. 61 Fed.Reg. at 50966. This presumption is rebutted here, however, because promissory estoppel, as a state common-law doctrine of general applicability, is "not designed to regulate lending and do[es] not have a disproportionate or otherwise substantial effect on lending." Gibson, 128 Cal.Rptr.2d at 28-29. All businesses, not just federal savings associations, are subject to the predicate duty that the Dixons seek to enforcea duty to honor promises made. Compliance with that duty would not require Wells Fargo to alter its loan modification program, or any substantive aspect of its approach to servicing loans, but it would ensure that consumers like the Dixons reasonably could rely on their lenders' statements without suffering harm as a result.
With the national housing market once again rattled by an overwhelming number of foreclosures, other federal courts have been grappling recently with the preemption issue in cases factually indistinguishable from the present one. Yet, no consensus has emerged with respect to HOLA's reach. In DeLeon v. Wells Fargo Bank, N.A., No. 10-CV-01390-LHK, 2011 WL 311376 (N.D.Cal. Jan. 28, 2011), for example, the plaintiffs had complied with the steps required by Wells Fargo for a loan modification, which they had been assured would be successful, when abruptly and without warning they lost their home to foreclosure. Id. at *1-2. The court held that the plaintiffs' intentional misrepresentation claim against Wells Fargo was not preempted by HOLA because it "d[id] not attempt to impose substantive requirements regarding loan terms, disclosures, or servicing or processing procedures." Id. at *7. Similarly, in Becker v. Wells Fargo Bank, N.A., No. 2:10-cv-02799 LKK KJN PS, 2011 WL 1103439 (E.D.Cal. Mar. 22, 2011), where the plaintiff "allege[d] that he was promised a modification even though [the lender] never intended to modify his loan or seriously consider his application," the court concluded that the "plaintiff's fraud claim appears to arise from a more `general duty not to misrepresent material facts,' and therefore it does not necessarily regulate lending activity." Id. at *8-9.[9] In contrast, *359 however, the court in Zarif v. Wells Fargo Bank, N.A., No. 10cv2688-WQH-WVG, 2011 WL 1085660 (S.D.Cal. Mar. 23, 2011), held that the plaintiffs' state-law claims, including intentional misrepresentation, negligent misrepresentation, and promissory estoppel, were preempted by HOLA because they "specifically challenge the processing of Plaintiffs' loan modification application and servicing of Plaintiffs' mortgage." Id. at *3.[10] There, like here, *360 the plaintiffs faced foreclosure after following Wells Fargo's instruction to stop making their payments while waiting for their loan modification application to be processed.
Without guidance from another court within the First Circuit and without clear direction from other federal and state courts across the nation, this Court agrees with Judge Posner's conclusion that, especially because HOLA does not give a private right of action, Congress could not have intended to deny all traditional state-law avenues of recourse to consumers who are harmed by the unseemly conduct of lenders. This Court, therefore, holds that the Dixons' promissory estoppel claim, rooted in the common law and with no ambition of regulating lending, is not barred by HOLA.
III. CONCLUSION, SCHEDULING ORDER, and SOME RUMINATIONS
For the reasons discussed, the Court DENIES Wells Fargo's motion to dismiss, ECF No. 5. The facts as alleged in the complaint are sufficient to invoke the doctrine of promissory estoppel, and this common-law claim, as applied, is not preempted by federal law.
"Courts across the country are being saddled with a rapid escalation of foreclosure filings due to the fallout from the subprime mortgage crisis. Millions of homeowners stand to lose their homes in the United States . . ., and hundreds of billions of dollars in home equity will be lost as a result by all homeowners, not just those in default on their mortgages." Raymond H. Brescia, Beyond Balls and Strikes: Towards a Problem-Solving Ethic in Foreclosure Proceedings, 59 Case W. Res. L.Rev. 305, 305 (2009).
Instead of abating, the foreclosure crisis has turned into an economic crisis. Today, job loss now pushes many homeowners with prime mortgages into foreclosure, while continuing market decline leaves others owing more on their mortgages than their homes are worth. Current estimates have twenty-five percent of houses `underwater,' and some analysts predict as much as forty-eight percent of all residential properties nationwide will have a negative equity between their mortgage balances and their property *361 values before the housing market recovers.
Robin S. Golden, Building Policy Through Collaborative Deliberation: A Reflection on Using Lessons from Practice to Inform Responses to the Mortgage Foreclosure Crisis, 38 Fordham Urb. L.J. 733, 734 (2011) (footnotes omitted).
It is said that talk is cheap. The Dixons' allegations are easy to make, yet until their veracity is put to the test, foreclosure is inappropriate. But just as the homeowner ought not suffer a wrongful foreclosure, so too the bank has an equal and proper interest in realizing on its mortgage security by putting the home on the market at a foreclosure sale, selling it to a viable buyer, and lending the funds derived to other potential home buyers. This case is but a microcosm of much larger economic issues; to a significant extent, our national economy may depend upon promptly sorting out the issues raised here. Clogging the operation of the mortgage foreclosure system with court delay simply will not work. Either individual rights will be submerged, and people will lose their homes unlawfully, or home mortgage liquidity will atrophy, the larger economy will suffer, and potential home buyers will be denied homeownership, although financially able to support mortgage payments.
A prompt trial of this case is thus absolutely crucial. Here in Massachusetts, this federal district courtone of the most productive in the country, United States v. Massachusetts, Civil Action No. 09-11623-WGY, 2011 WL 1740080, slip op. at chart, ECF. No. 134-1 (D.Mass. May 4, 2011) (Massachusetts is one of "America's Most Productive federal district courts")can provide such a trial.[11]
Accordingly, this case is ordered placed *362 on the September running trial list,[12] and the parties shall be ready for trial on Tuesday, September 6, 2011.
SO ORDERED.
NOTES
[1] While the law does not recognize a duty to negotiate in good faith, at least one scholar has argued that, where the parties to an agreement take it upon themselves to negotiate a modification of that agreement, "they are bound by a duty of fair dealing imposed by their existing agreement and do not enjoy the freedom of the regime of negotiation." Farnsworth, supra at 244; see also Restatement (Second) of Contracts § 205, comment (c). But see Burton & Andersen, supra § 8.5.4, at 384 (stating that most courts have "decline[d] to impose obligations concerning revision or renewal merely because the parties already have a contract between them"). Furthermore, Massachusetts law imposes on mortgage holders seeking to foreclose an obligation to "act in good faith and . . . use reasonable diligence to protect the interests of the mortgagor." U.S. Bank Nat'l Ass'n v. Ibanez, 458 Mass. 637, 647 n. 16, 941 N.E.2d 40 (2011) (quoting Williams v. Resolution GGF OY, 417 Mass. 377, 382-83, 630 N.E.2d 581 (1994)).
The Dixons have not alleged that a duty of good faith governed their negotiations with Wells Fargo over a loan modification, and thus this Court need not address the issue. The fact that the parties already were bound to the special contractual relationship of mortgagor-mortgagee, however, lends support to today's conclusion that Wells Fargo's conduct, at a minimum, was "shabby and doubtless would not be followed by conscientious mortgagees." Williams, 417 Mass. at 385, 630 N.E.2d 581.
[2] The Court need not decide at this early juncture what the measurement of the Dixons' reliance damages would be were they to prevail at trial. A balancing of the equities, however, would seem to weigh in favor of limiting recovery to the detriment sustained. As the Texas Supreme Court said in Wheeler v. White, 398 S.W.2d 93 (Tex. 1966):
Where the promisee has failed to bind the promisor to a legally sufficient contract, but where the promisee has acted in reliance upon a promise to his detriment, the promisee is to be allowed to recover no more than reliance damages measured by the detriment sustained. Since the promisee in such cases is partially responsible for his failure to bind the promisor to a legally sufficient contract, it is reasonable to conclude that all that is required to achieve justice is to put the promisee in the position he would have been in had he not acted in reliance upon the promise.
Id. at 97. The Dixons allege that, before Wells Fargo's promise induced them to stop making their payments, they were not in default. Returning their loan to non-default status would put them back in their previous position. By the same reasoning, they would be required to resume their mortgage payments in their original amount, with the missed payments being added into the loan balance amortized over the life of the loan. If the Dixons were unable to resume their payments, Wells Fargo could then proceed in foreclosure. But all of this remains speculative; assuming liability, the evidence presented at trial will no doubt illuminate the proper measure of reliance damages that the Court ought fashion. See Fuller & Perdue, supra at 53 (commenting that, "when courts work on the periphery of existing doctrine," it becomes "obvious" that the "the process of `measuring' and `determining' [damages] is really a part of the process of creating them").
[3] In In re Bank of Am. Home Affordable Modification Program (HAMP) Contract Litig., No. 10-md-02193-RWZ, 2011 WL 2637222 (D.Mass. July 6, 2011) (Zobel, J.), several individual mortgagors brought putative class actions against Bank of America, N.A. ("BOA"), and its subsidiary, BAC Home Loans Servicing, LP ("BAC"), alleging that the defendants improperly administered the federal Home Affordable Loan Modification Program ("HAMP"). Id. at *1. The plaintiffs all obtained home mortgage loans from BAC, on which they later defaulted. Id. To avoid foreclosure, they sought to participate in HAMP. Id.
Pursuant to HAMP, BAC entered into a standard agreement with some of the plaintiffs for a temporary trial modification of their loan. Id. at *1-2. Under this Temporary Period Plan ("TPP"), each homeowner made reduced mortgage payments based on his or her financial eligibility. Id. at *1. The TPP promised that, by complying with its terms for three months, the homeowner would receive a permanent HAMP modification on those same terms. Id. Despite the plaintiffs' compliance with all of the TPP's terms, they never received a permanent loan modification or a written notice that their request for a permanent modification had been denied. Id. at *2.
As to these plaintiffs, the court upheld their claims for breach of contract or, in the alternative, promissory estoppel as sufficiently alleged. Id. at *3-4. With respect to the promissory estoppel claim in particular, the court rejected the defendant's argument that "no plaintiff could reasonably have relied on a promise in the TPP to modify his or her loan because the TPP contained numerous conditions precedent which plaintiffs failed to perform." Id. at *4. Not only had the plaintiffs "meticulously" alleged their compliance with all of the conditions precedent, but also the existence of conditions had no effect on the reasonableness of the plaintiffs' reliance. Id.
Similarly, in Bosque v. Wells Fargo Bank, N.A., 762 F. Supp. 2d 342, 351 (D.Mass.2011) (Saylor, J.), the plaintiffs signed a TPP with Wells Fargo, but alleged that the bank never offered them a permanent loan modification. Id. at 345. The plaintiffs argued that their compliance with the terms of the TPP "entitled [them] to either (1) a new contract with a permanent loan modification or (2) a decision on whether plaintiffs are entitled to the permanent modification by the modification effective date stated in the TPP." Id. at 352. The court acknowledged the internal inconsistency of the TPP as to whether loan servicers retained discretion to deny homeowners who comply with its terms a permanent modification. Id. at 352 & n. 12. The court held, however, that this issue was "better resolved at a later stage of the proceedings," Id. at 352 n. 12, and that the complaint sufficiently alleged a claim for breach of contract or, alternatively, promissory estoppel, Id. at 352-53.
Finally, in Durmic v. J.P. Morgan Chase Bank, NA, No. 10-CV-10380-RGS, 2010 WL 4825632 (D.Mass. Nov. 24, 2010) (Stearns, J.), the plaintiffs entered into a TPP with their loan servicer, J.P. Morgan Chase Bank, NA ("Chase"), and made the required payments, but never received a permanent loan modification. Id. at *2. Among other remedies, the plaintiffs sought specific performance of Chase's alleged contractual obligations. Id. at *2. Chase moved to dismiss the complaint for failure to state a claim. Id. at *1. The court denied the motion, ruling that even if the TPP were but a mere promise to provide a loan modification in the future conditioned on the plaintiff's compliance with certain terms, the allegations were sufficient to state a claim for breach of contract or promissory estoppel as an alternative theory of recovery. Id. at *2-5. The court noted that the real question was whether the parties intended to be bound by the TPP, an issue that "[could not] be resolved in the context of a motion to dismiss." Id. at *4.
These three cases are distinct from the present one, in that they each concerned the TPP under HAMP, which at least looks like a contract. But, as Bosque indicated, the TPP is not necessarily clear as to a loan servicer's obligations under it. Must the servicer give the homeowner a permanent modification, or has it simply promised to review the homeowner's eligibility for a permanent modification if certain conditions are met? The latter scenario is analogous to the Dixons' alleged situation, even though their complaint makes no mention of the TPP or HAMP.
In addition, my colleagues in these three cases refused to dismiss the plaintiffs' alternative claims for promissory estoppel. This suggests that even if the TPP is proved not to be an enforceable contract, relief might still be available under the theory of detrimental reliance on the promise contained in the TPP. That the exact contours of the promise were not clearly defined by the TPP was not a bar to letting these claims for promissory estoppel go forward. The Court applies this same reasoning to allow the Dixons' complaint to survive Wells Fargo's motion to dismiss.
[4] See In re Harris, No. 10-39586, 2011 WL 2708691, at *4 (Bankr.S.D.Tex. July 11, 2011) (holding that "[a] mere promise to prepare a written contract [for a loan forbearance] is not sufficient" to state a claim for promissory estoppel); Sherman v. Litton Loan Servicing, L.P., No. 2:10cv567, 796 F. Supp. 2d 753, 766, 2011 WL 2634097, at *12 (E.D.Va. 2011) (concluding that the plaintiff could not assert a cause of action based on promissory estoppel because the loan servicer never made a promise to modify the plaintiff's loan); Argueta v. J.P. Morgan Chase, No. CIV. 2:11-441 WBS GGH, 2011 WL 2619060, at *3 (E.D.Cal. June 30, 2011) (holding that, "even if the court construes plaintiff's [First Amended Complaint] as alleging an `agreement to negotiate' a loan modification and concludes that such agreements are enforceable," the plaintiff failed to allege a clear and unambiguous promise); Brennan v. Wells Fargo & Co., No. 5:11-cv-00921 JF (PSG), 2011 WL 2550839, at *2 (N.D.Cal. June 27, 2011) ("Here, there is no allegation that Wells Fargo promised to modify the terms of Brennan's loan or to postpone foreclosure indefinitely. At most, Wells Fargo may have promised to defer foreclosure until its review of Brennan's application for a modification was complete. From the face of the complaint, it appears that Wells Fargo fulfilled this alleged promise."); Adams v. JPMorgan Chase Bank, No. 1:10-CV-04226-RWS, 2011 WL 2532925, at *3 (N.D.Ga. June 24, 2011) (concluding that the lender's promise to review the plaintiff's loan modification application "without binding itself to a result" was "too vague and indefinite to justify reasonable reliance" and that the plaintiff's decision to make reduced payments, "foregoing other means to save [his] home," was not detrimental reliance); Gill v. Wells Fargo Bank, N.A., No. 1:11-cv-00218 OWW GSA, 2011 WL 2470678, at *5 (E.D.Cal. June 20, 2011) ("Wells Fargo's alleged promise that the repayment plan would be in effect for three months and was still in effect is not a promise that Plaintiffs' loan modification would be approved."); Cade v. BAC Home Loans Servicing, LP, No. H-10-4224, 2011 WL 2470733, at *5 (S.D.Tex. June 20, 2011) ("[C]ontinuation of payment is a pre-existing obligation and does not amount to detrimental reliance; the Cades were bound to make mortgage payments long before applying for HAMP consideration."); Krouse v. BAC Home Loans Servicing, LP, No. 2:10-cv-03309-MCE-EFB, 2011 WL 2367093, at *4 (E.D.Cal. June 9, 2011) (holding that the lender's promise of a permanent loan modification if the plaintiffs agreed to the terms of a temporary payment plan was not sufficiently clear and unambiguous to be enforceable); Strupat v. Aurora Loan Servs. LLC, No. 2:11CV00279-DS, 2011 WL 2359842, at *4 (D.Utah June 9, 2011) ("The allegations do not support a meeting of the minds, no final terms agreed to and no promise that Plaintiff would receive a loan modification. . . . The well pleaded facts alleged reflect simply that Aurora considered and, for various reasons denied, Plaintiff's application for a loan modification."); Melegrito v. Citi-Mortgage Inc., No. C 11-01765 LB, 2011 WL 2197534, at *13 (N.D.Cal. June 6, 2011) ("[C]onclusory allegations about an unspecified individual agreeing to a loan modification with unspecified terms at some point in the unspecified future are insufficient to permit the court to reasonably infer that Citi-Mortgage or CR Title made a clear promise to modify Mr. Melegrito's loan."); Osmond v. Litton Loan Servicing, LLC, No. 1:10-CV-11, 2011 WL 1988403, at *3 (D.Utah May 20, 2011) (concluding that, even if the lender promised a loan modification, the plaintiff did not undertake any action that she otherwise would not have undertaken if there had been no promise); James v. Wells Fargo Bank, NA Corp., No. 2:10-CV-1205 TS, 2011 WL 1874707, at *4 (D.Utah May 17, 2011) (where the HAMP Loan Trial Agreement stated that any modification was contingent on further approval, the plaintiffs could not meet the reasonable reliance requirement of their promissory estoppel claim); Lund v. CitiMortgage, Inc., No. 2:10-CV-1167 TS, 2011 WL 1873690, at *3 (D.Utah May 17, 2011) (same); In Re Salvador, No. 10-53570 JPS, 456 B.R. 610, 621, 2011 WL 1833188, at *9 (Bankr. M.D.Ga. 2011) ("[T]he alleged promise to provide a loan modification was too vague to support a promissory estoppel claim."); Morales v. Chase Home Finance LLC, No. C 10-02068 JSW, 2011 WL 1670045, at *8 (N.D.Cal. Apr. 11, 2011) ("[T]here was no promise that Plaintiffs would be found eligible for permanent loan modification on which Plaintiffs could reasonably rely."); Dooms v. Federal Home Loan Mortg. Corp., No. CV F 11-0352 LJO DLB, 2011 WL 1232989, at *10 (E.D.Cal. Mar. 31, 2011) (dismissing the plaintiff's promissory estoppel claim where "[t]he complaint merely alludes to a three-month default requirement to qualify for a loan modification. . . . and indeed reflects that she purposely stopped making legally required mortgage payments to render her unsympathetic in a court of equity"); Myrlie v. Countrywide Bank, 775 F. Supp. 2d 1100, 1107 (D.Minn.2011) (granting summary judgment to the lender where the plaintiff could not recall any specific terms of the loan modification agreement, did not change his position in response to the promise of a modification, and could not meet the obligations of any loan agreement); Phipps v. Wells Fargo Bank, N.A., No. CV F 10-2025 LJO SKO, 2011 WL 302803, at *12-13 (E.D.Cal. Jan. 27, 2011) (concluding that the bank's representations that it would approve the plaintiff for a loan modification "do not amount to promises not to foreclose" and that "[a]ssurances to work with [him] do not equate to a promise to support promissory estoppel"); Wankowski v. Taylor Bean & Whitaker Mortg. Corp., No. 2:10-CV-538 JCM (PAL), 2010 WL 5141745, at *3 (D.Nev. Dec. 13, 2010) (dismissing a claim for promissory estoppel where the promise not to foreclose on which the plaintiff allegedly relied occurred after the foreclosure sale took place); Prasad v. BAC Home Loans Servicing LP, CIV No. 2:10-CV-2343-FCD/ KJN, 2010 WL 5090331, at *5 (E.D.Cal. Dec. 7, 2010) (finding no clear promise to modify the plaintiff's loan where the modification was conditioned on the bank's determination that the plaintiff was financially eligible); Wells v. Chase Home Finance, LLC, No. C10-5001RJB, 2010 WL 4858252, at *8 (W.D.Wash. Nov. 19, 2010) (determining that "Chase's action in informing the plaintiffs that they must be behind in their mortgage payments in order to qualify for a loan modification does not constitute a promise" under promissory estoppel and "could at most be construed as an agreement to negotiate a contract in the future should the pre-requisite condition exist"); Mehta v. Wells Fargo Bank, N.A., 737 F. Supp. 2d 1185, 1198 (S.D.Cal. 2010) (finding no meaningful forebearance in reliance on the alleged promise by the bank to postpone the foreclosure sale if the plaintiff completed and submitted the loan modification application); Hasan v. Ocwen Loan Servicing, LLC, No. 2:10-CV-00476-RLH, 2010 WL 2757971, at *2 (D.Nev. July 12, 2010) (refusing to infer that the lender was liable for the alleged misconduct where the plaintiff's assertions of a promised loan modification were vague and unspecific); Mekani v. Homecomings Fin., LLC, 752 F. Supp. 2d 785, 792 (E.D.Mich.2010) (holding that the correspondence between the parties "are at most an overture to perhaps begin a dialog, but in no way constitute a clear and definite promise to `work with Plaintiff'" on a loan modification); Newgent v. Wells Fargo Bank, N.A., No. 09cv1525 WQH (WMC), 2010 WL 761236, at *7 (S.D.Cal. Mar. 2, 2010) (where the plaintiff did not allege that she "would have been successful in delaying the foreclosure sale, renegotiating her loan, and retaining possession of her home," she failed to "establish a connection between her reliance on the alleged promise [to delay the foreclosure sale if she remitted a $2,500.77 payment, which she did,] and losing her home to sustain her claim for estoppel"); Hepler v. Washington Mut. Bank, F.A., No. CV 07-4804 CAS (Ex), 2009 WL 1045470, at *3 (C.D.Cal. Apr. 17, 2009) (finding no evidence to support a promissory estoppel claim where the loan modification documents made execution of a subordination agreement by the bank an express condition precedent that had not been satisfied); Ellen v. F.H. Partners, LLC, No. 09-09-00310-CV, 2010 WL 4909973, at *6 (Tex.App. Dec. 1, 2010) (holding that a loan officer's statement that the homeowners' request that the loan not be declared in default or foreclosure until the next note payment was due was "doable" was too vague and indefinite to be enforceable under the theory of promissory estoppel). But see Sato v. Wachovia Mortg., FSB, No. 5:11-cv-00810 EJD (PSG), 2011 WL 2784567, at *10 (N.D.Cal. July 13, 2011) (noting that, if the plaintiff were to allege that Wachovia represented it would not hold foreclosure proceedings while her loan was under review for a modification, her promissory estoppel claim would survive); Ramirez v. Wells Fargo Bank, N.A., No. C 10-05874 WHA, 2011 WL 1585075, at *5 (N.D.Cal. Apr. 27, 2011) (holding that Wells Fargo's promise to postpone a foreclosure sale due to ongoing loan modification processing was enforceable under the theory of promissory estoppel where the plaintiff, in reliance on the promise, did not file a bankruptcy petition or civil action seeking a temporary restraining order); Aceves, 120 Cal.Rptr.3d at 514-18 (concluding that the complaint stated a claim for promissory estoppel where the bank promised to work with the plaintiff to reinstate and modify her loan, giving her "a compelling reason to opt for negotiations with the bank instead of seeking bankruptcy relief," which offered the chance only to reinstate, not modify, the loan); Garcia v. World Sav., FSB, 183 Cal. App. 4th 1031, 107 Cal. Rptr. 3d 683, 691-97 (2010) (upholding a promissory estoppel claim where the lender allowed the foreclosure sale to go forward despite promising to postpone it to give the plaintiffs additional time to cure the default by refinancing another property they owned).
[5] A federal district court may certify a question for decision by the Supreme Judicial Court "if there are involved in any proceeding before it questions of law of [the Commonwealth of Massachusetts] which may be determinative of the cause then pending in the certifying court and as to which it appears to the certifying court there is no controlling precedent in the decisions of [the Supreme Judicial Court]." Mass. S.J.C. Rule 1:03, § 1 (2010). This Court has elected not to certify the question whether the Dixons' allegations are sufficient to state a claim for promissory estoppel, but acknowledges that, with the exception of McLearn, 276 Mass. 519, 177 N.E. 617, the cases relied on herein are primarily those of the Massachusetts Appeals and Superior Courts, not the Supreme Judicial Court. See Pappas Indus. Parks, 24 Mass.App.Ct. 596, 511 N.E.2d 621; Greenstein, 19 Mass.App.Ct. 351, 474 N.E.2d 1130; Loranger Constr. Corp., 6 Mass.App.Ct. 152, 374 N.E.2d 306; Cellucci, 2 Mass.App.Ct. 722, 320 N.E.2d 919; Cohoon, 2000 WL 33170737. Should either Wells Fargo or the Dixons wish to bring a motion for certification, this Court will entertain it. Mass. S.J.C. Rule 1:03, § 2 (a question may certified "upon the motion of any party to the cause").
[6] HOLA initially established the Federal Home Loan Bank Board to regulate the conduct of federal savings associations. Congress replaced the Board with the OTS when it amended HOLA in 1989. See 12 U.S.C. § 1462a.
[7] Federal savings banks are federal savings associations and, as such, are subject to HOLA. 12 U.S.C. § 1464(a)(1). National banks, on the other hand, are subject to the National Bank Act ("NBA"). 12 U.S.C. § 1 et seq. The preemption analysis under both statutes is similar, although not identical. Compare 12 C.F.R. § 560.2, with 12 C.F.R. § 34.4. Here, any differences are irrelevant because, while Wells Fargo is a national bank, the conduct at issue in this lawsuit was undertaken by Wachovia Mortgage, which was a federal savings bank, before it merged into Wells Fargo. See Aff. Steven Chandler, Ex. F, ECF No. 1-6; Aff. Lisa Szargowicz, Ex. G, ECF No. 1-7.
[8] In reaching similar conclusions with respect to the preemptive effect of HOLA on state law, the Seventh, Eighth, and Ninth Circuits all relied on an OTS opinion letter, in which the agency's chief counsel concluded that an Indiana statute prohibiting deceptive acts and practices in the course of commerce was exempt from preemption under section 560.2(c). Casey, 583 F.3d at 594 (citing Preemption of State Laws Applicable to Credit Card Transactions, OTS Legal Op., 1996 WL 767462, ¶ IIC (Dec. 24, 1996) ("1996 OTS Op."), available at http://www.ots.treas.gov/_files/56615. pdf); Silvas, 514 F.3d at 1005 n. 1 (same); In re Ocwen Loan Servicing, 491 F.3d at 644 (same). The OTS determined that the law's purpose was to regulate the ethical practices of all commercial business within the state, not to impose best practices on federal savings associations in particular. 1996 OTS Op. ¶ IIC. "[B]ecause federal thrifts are presumed to interact with their borrowers in a truthful manner, Indiana's general prohibition on deception should have no measurable impact on their lending operations." Id. As an agency interpretation of its governing statute and regulations, this OTS opinion and the guidance it provides with respect to HOLA preemption are entitled to deference. See Reardon, 539 F.3d at 341 n. 2; see also State Farm Bank, F.S.B. v. Burke, 445 F. Supp. 2d 207, 215-16 (D.Conn.2006) (citing Auer v. Robbins, 519 U.S. 452, 461, 117 S. Ct. 905, 137 L. Ed. 2d 79 (1997)).
[9] For other cases finding no preemption of common-law claims, see, for example, Sato, 2011 WL 2784567, at *10 (stating that simple allegations of "promises that were not kept" would not be preempted by HOLA); Fletcher v. OneWest Bank, FSB, No. 10 C 4682, 798 F. Supp. 2d 925, 930, 2011 WL 2648606, at *4 (N.D.Ill. 2011) ("[W]ithout some explicit direction from Congress that it intended programs such as HAMP to have such preemptive force, the Court will not preclude Fletcher from pursuing her basic state common law remedies."); Taguinod v. World Sav. Bank, FSB, 755 F. Supp. 2d 1064, 1071-72 (C.D.Cal.2010) (holding that the plaintiffs' claim that their lender failed to perform under the loan contract was not preempted by HOLA); Coffman, 2010 WL 3069905, at *9 ("Unlike plaintiff's unconscionable conduct claim, plaintiff's allegations of fraud do not translate into burdensome requirements to be employed by federal savings banks during lending. His claim simply seeks to prevent lenders from intentionally misrepresenting information to borrowers in a fraudulent manner."); McAnaney, 665 F.Supp.2d at 164 ("It cannot be fairly said that the common law claim for breach of contract, which merely seeks to make defendants live up to the word of their agreements they sign with their customers, `more than incidentally affects' lending operations."); Biggins v. Wells Fargo & Co., 266 F.R.D. 399, 417 (N.D.Cal.2009) (distinguishing between allegations of inadequate disclosures of loan terms, which are preempted, and affirmative, material misrepresentations, which might not be preempted); Alcaraz v. Wachovia Mortg., FSB, No. CV F 08-1640 LJO SMS, 2009 WL 160308, at *6 (E.D.Cal. Jan. 21, 2009) (holding that the plaintiff's causes of action sounding in contract and real property "arise from common law, not a statute or other regulation subject to preemption"); Mincey v. World Sav. Bank, FSB, 614 F. Supp. 2d 610, 646 (D.S.C.2008) (holding that a "straightforward breach of contract action" was not preempted); Cuevas, 2008 WL 268981, at *3 (concluding that the lender had not met its burden regarding preemption because the plaintiff's "claims appear to be directed to legal requirements that are applicable to all businesses, such as truthfully memorializing in writing what is agreed to orally by contracting parties"); Heist v. Eastern Sav. Bank, FSB, 165 Md.App. 144, 884 A.2d 1224, 1234-35 (Md.Ct.Spec.App.2005) ("[N]otwithstanding that the parties present the instant case as a question of federal preemption, it is properly resolved as a matter of contract law."); Gibson, 128 Cal.Rptr.2d at 28-29 ("The duties to comply with contracts and the laws governing them and to refrain from misrepresentation . . . are principles of general application. They are not designed to regulate lending and do not have a disproportionate or otherwise substantial effect on lending."); cf. Ramirez, 2011 WL 1585075, at *7 (holding that a claim for promissory estoppel based on Wells Fargo's promise to postpone a foreclosure sale was not preempted by the NBA, subject to reevaluation on a motion for summary judgment or at trial).
[10] For other cases finding preemption of common-law claims, see, for example, Copeland-Turner v. Wells Fargo Bank, N.A., No. CV-11-37-HZ, ___ F.Supp.2d ___, ___, 2011 WL 2650853, at *8 (D.Or. July 6, 2011) ("If plaintiff's claim alleges that Wells Fargo breached a subsequent oral modification to the Deed of Trust, . . . the claim is preempted because it is based on an allegation that Wells Fargo made a particular representation in the course of servicing the loan and regarding its secured property."); Parmer v. Wachovia, No. C 11-0672 PJH, 2011 WL 1807218, at *1 (N.D.Cal. Apr. 22, 2011) (dismissing as preempted the plaintiff's promissory estoppel claim based, in part, on an allegation that the lender made misleading representations concerning a loan modification); Down v. Flagstar Bank, F.S.B., No. 3:10-cv-847, 2011 WL 1326961, at *6 (E.D.Va. Apr. 4, 2011) (finding the plaintiffs' fraud claim did not fit within the preemption exemption because the lender's representations and the loan transaction were "inextricably linked"); Ahmad v. Wells Fargo Bank, N.A., No. CIV S-09-1200 JAM DAD PS, 2011 WL 1260054, at *7 n. 7 (E.D.Cal. Mar. 30, 2011) (noting that "common law breach of contract remedies are likely unavailable to plaintiff in [the] mortgage loan/non-judicial foreclosure sale context"); Dvornekovic v. Wachovia Mortg., No. CV 10-5028RBL, 2010 WL 4286215, at *3 (W.D.Wash. Oct. 26, 2010) (holding that it "would be a fundamental change in the way lending associations operate" if the court were to enforce the claim that a failure to disburse actual monetary funds in exchange for a promissory note constitutes a breach of contract); Jones-Boyle v. Washington Mut. Bank, FA, No. CV 08-02142 JF (PVT), 2010 WL 2724287, at *6-7 (N.D.Cal. July 8, 2010) (holding that breach of contract and implied covenant of good faith and fair dealing claims are preempted by HOLA); Jones, 718 F.Supp.2d at 737 (deeming the plaintiff's negligence claim "impermissibly regulatory" where she alleged that the bank improperly qualified her for a loan that she could not afford to pay); Amaral v. Wachovia Mortg. Corp., 692 F. Supp. 2d 1226, 1237-38 (E.D.Cal. 2010) (finding that HOLA preempted a fraud claim alleging that the lender made material false representations that their refinance loan had been approved, that all documents had been processed, and that they were obligated to repay their loan); Lopez v. Wachovia Mortg., No. 09-CV-01510-JAM-DAD, 2009 WL 4505919, at *4-5 (E.D.Cal. Nov. 20, 2009) (dismissing with prejudice breach of contract and implied covenant of good faith and fair dealing claims because they were preempted by HOLA); Bassett v. Ruggles, No. CV-F-09-528, 2009 WL 2982895, at *22 (E.D.Cal. Sept. 14, 2009) (listing cases that "universally indicate" that, even if amended, the plaintiffs' fraud claim based on the allegation that the lender induced them to enter into a loan with a higher interest rate than they qualified for would be preempted by HOLA); Munoz v. Financial Freedom Senior Funding Corp., 573 F. Supp. 2d 1275, 1281 (C.D.Cal.2008) (finding preemption because ratification of the plaintiff's legal theory "would dramatically affect the lending operations of federal savings associations by imposing an obligation upon them to monitor its borrower's use of loan proceeds"); Haehl v. Washington Mut. Bank, F.A., 277 F. Supp. 2d 933, 942 (S.D.Ind.2003) ("[P]laintiffs' tort law claims seek to regulate the fees that Washington Mutual Bank, a federally-chartered savings association, can charge its customers. A decision in plaintiffs' favor would have the same effect as a direct regulation of the fees."). But see Thomas v. OneWest Bank, FSB, Civ. No. 10-6234, 2011 WL 867880, at *4-5 (D.Or. Mar. 10, 2011) (holding that the plaintiff's equitable estoppel and fraud claims were preempted because they "require[d] the court to look into the manner in which a federal bank marketed and processed a refinancing, which directly relates to the lending practices of federal banks," but suggesting that a breach of contract claim would not be preempted because it "would only require the court to look into the terms of the contract, and whether the bank violated those terms").
[11] In light of the national mortgage crisis (and the implosion of state judiciaries due to budgetary constraints, see, e.g., Michael Levenson & Noah Bierman, Judges Vow to Shut 11 Courts, Boston Globe, July 13, 2011, at A1), it is simply inconceivable that the United States Judicial Conference, an unelected body that meets in private without any public input, has chosen this moment to attempt to impair the access of the citizens of Massachusetts to their federal district court, see Judicial Conference of the United States, Preliminary Report: Judicial Conference Actions 4 (March 15, 2011), in the face of a direct congressional mandate to the contrary, see 28 U.S.C. § 133 (setting number of Massachusetts federal district court judges at thirteen).
I am not the only one to point out the wrongheadedness of this policy. See Lee Hammel, Panel Recommends Cutting Judge, Worcester Telegram & Gazette, July 10, 2011, at B1; see also United States v. Jones, 762 F. Supp. 2d 270, 282 n. 10 (D.Mass.2010) (discussing effect of policy on criminal sentencing) (appeal pending); Saturn Mgmt. LLC v. GEM-Atreus Advisors, LLC, 754 F. Supp. 2d 272, 286 app. A (D.Mass.2010) (Massachusetts was fourth among the nation's district courts in number of civil trials (9.1) per active district judge during the twelve-month period ending September 30, 2009. The national average is 4.8 such trials.); United States ex rel. Hutcheson v. Blackstone Med., Inc., 694 F. Supp. 2d 48, 54-56 (D.Mass.2010) (discussing effect of policy on interdistrict case transfer), rev'd on other grounds, 647 F.3d 377 (1st Cir.2011). See generally Marc Galanter & Angela Frozena, The Continuing Decline of Civil Trials in American Courts (July 9, 2011) (paper delivered at Pound Civil Justice Institute's 2011 Forum for State Appellate Court Judges); Robert P. Burns, What Will We Lose If the Trial Vanishes? (Northwestern Univ. Sch. Law Public Law & Legal Theory Research Paper Series No. 11-48, 2011), available at http://ssrn.com/abstract=1851776; Andrew Cohen, "Hot Coffee" and the Scalding of the American Jury, The Atlantic, July 13, 2011, http://www.theatlantic.com/ entertainment/archive/2011/07/hot-coffee-and-the-scalding-of-the-american-jury/241787/.
Can anyone explain to me how impairing the access to justice of Massachusetts citizens improves the quality of justice nationwide? There is not a scintilla of evidence to support such a preposterous suggestion.
[12] This Court's use of a "running" trial list is analyzed fully in William G. Young, Vanishing Trials, Vanishing Juries, Vanishing Constitution, 40 Suffolk U.L. Rev. 67, 90 (2006). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/1106221/ | 584 So. 2d 1129 (1991)
George Richard HANOR, Petitioner,
v.
The Honorable Harry G. HINCKLEY, Jr., Circuit Judge of the Seventeenth Judicial Circuit in and for Broward County, Florida, Respondent.
No. 91-1762.
District Court of Appeal of Florida, Fourth District.
August 28, 1991.
Hugh T. Maloney, Patterson, Maloney & Gardiner, Fort Lauderdale, for petitioner.
No appearance for respondent.
Dale R. Sanders, Lyons and Sanders, Chartered, Fort Lauderdale, for wife.
*1130 DOWNEY, Judge.
By petition for writ of mandamus George Richard Hanor seeks to require The Honorable Harry G. Hinckley, Jr., Circuit Judge, to hear all matters in this case without referral to a master unless consented to by all of the parties.
It appears that the trial judge referred several aspects of the case, i.e., temporary alimony and attorney's fees, to a master over the objection of Hanor. Reference under those circumstances is prohibited by Florida Rule of Civil Procedure 1.490(c). Taylor v. Taylor, 569 So. 2d 1389 (Fla. 4th DCA 1990); Murphy v. Murphy, 558 So. 2d 532 (Fla. 4th DCA 1990).
Accordingly, the writ shall issue. Pursuant thereto, the trial court shall vacate the order of reference and proceed in conformity with this opinion.
DELL and GUNTHER, JJ., concur. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2249951/ | 907 F. Supp. 683 (1995)
UNITED STATES of America
v.
Ephraim LEWIS, Defendant.
No. 95 CR 300 (SAS).
United States District Court, S.D. New York.
October 16, 1995.
*684 Mary Jo White, United States Attorney, Southern District of New York by Lewis J. Liman, Peter K. Vigeland, Assistant United States Attorneys, New York City, for United States of America.
Robert G. Morvillo, Morvillo, Abramowitz, Grand, Iason & Silberberg, P.C., New York City, for defendant Ephraim Lewis.
OPINION
SCHEINDLIN, District Judge.
Defendant Ephraim Lewis has pled guilty to tax evasion and to conspiracy to defraud the IRS and to evade taxes. In its Presentence Report, the Probation Department has recommended that the Court increase the defendant's offense level by two points for the use of sophisticated means pursuant to U.S.S.G. § 2T1.1(b)(2).[1] The defendant opposes this recommendation. The Government has the burden of establishing, by a preponderance of the evidence, that the recommended sentencing enhancement applies.
I. Factual Background
From 1984 through 1992, the defendant participated in a tax evasion scheme created by his accounting firm. During those years, Mr. Lewis inflated his itemized deductions, thereby evading the full amount of taxes he owed. In order to achieve this goal, the accounting firm sent Mr. Lewis schedules listing amounts and fictitious payees for checks that he was to prepare. Mr. Lewis then drew checks payable to fictitious payees as indicated on the accountants' schedules. The accounting firm then deposited these checks in the twenty-six accounts it had created in the names of these fictitious payees. The accounting firm then transferred the funds to other bank accounts, taking 10% for itself and using the remainder to pay expenses, such as credit card bills, as directed by the defendant.
By the time the scheme was uncovered, Mr. Lewis had written approximately 178 checks totalling $154,839.07. He then used the majority of these checks to claim fraudulent deductions.[2] For example, Mr. Lewis *685 took a deduction of $2,895 on a schedule attached to his 1988 return for "commissions"; these commissions correlate to the checks that he prepared in 1988 payable to two fictitious payees. The scheme resulted in a total tax loss of approximately $40,000.
II. The Sophisticated Means Enhancement
Part T of the Sentencing Guidelines is the section addressing offenses involving taxation. The first subpart, § 2T1.1, addresses the crime of tax evasion. The base offense level is determined by the amount of the tax loss. Next, two specific offense characteristics are defined. The second, § 2T1.1(b)(2), states that "[i]f sophisticated means were used to impede discovery of the nature or extent of the offense, increase by 2 levels." Application Note 6 states that:
`Sophisticated means,' as used in § 2T1.1(b)(2), includes conduct that is more complex or demonstrates greater intricacy or planning than a routine tax-evasion case. An enhancement would be applied for example, where the defendant used offshore bank accounts, or transactions through corporate shells.
The "Background" section of the Commentary explains that "[a]lthough tax evasion always involves some planning, unusually sophisticated efforts to conceal the evasion decrease the likelihood of detection and therefore warrant an additional sanction for deterrence purposes." If the Court determines that "sophisticated means" were used, the base offense level must be increased.
In determining specific offense characteristics, a court must consider relevant conduct, as determined on the basis of certain factors set forth at U.S.S.G. § 1B1.3. The Guidelines require a court to consider
all reasonably foreseeable acts and omissions of others in furtherance of ... jointly undertaken criminal activity, that occurred during the commission of the offense of conviction, in preparation for that offense, or in the course of attempting to avoid detection or responsibility for that offense.
U.S.S.G. § 1B1.3(a)(1)(B). Application Note 2 defines a "jointly undertaken criminal activity" as "a criminal plan, scheme, endeavor, or enterprise undertaken by the defendant in concert with others, whether or not charged as a conspiracy." There is no question here that defendant's acts were taken in concert with the acts of the accounting firm. Thus, the defendant is responsible for all of the acts taken by the accounting firm in furtherance of their jointly undertaken criminal activity and all of the acts that were reasonably foreseeable in connection with that criminal activity.[3]
III. Discussion
It is not easy to define the term "sophisticated means." Indeed, what one court views as sophisticated means may not be so viewed by another court. To some degree, then, the determination is subjective. As succinctly stated by one court, "whether the scheme was "sophisticated" or not is essentially a question of fact." United States v. Hunt, 25 F.3d 1092, 1097 (D.C.Cir.1994).
The offense of tax evasion falls along a continuum of increasing sophistication as follows: failing to report cash income; creating and utilizing double books; inflating deductions; using numbered or offshore accounts that protect the identity of the account's owners; creating fraudulent tax shelters; establishing, *686 maintaining and using shell corporations to make it difficult or impossible to trace the flow of money; engaging in complex commercial schemes including "land flips;" and creating phony foreign tax credits. Many other types of fraudulent schemes to evade taxes could surely be added to this list; the types of fraudulent conduct are as unlimited as the creativity of the criminal mind.
In any event, the question facing this Court is where to draw the line between a scheme that uses "sophisticated means" and one that does not. The analysis begins with the language of the Guidelines, continues with a review of cases interpreting that language and concludes with the application of the statute and caselaw to the facts of this case.
The examples of "sophisticated means" provided in the Application Notes are only examples, yet they are instructive in discerning the intent of the Commission. The use of offshore bank accounts implies that the perpetrator has used a means that will protect his or her identity. Similarly, "transactions through corporate shells" implies conducting business through corporate entities designed to shield the identity of the ultimate controlling person(s) or decision maker(s). In both instances, the examples describe "means" that are "sophisticated" at protecting against the discovery of the scheme or the identification of the person responsible for or benefitting from the fraudulent scheme.
A. Finding of No Sophisticated Means
A review of the cases interpreting this section reveals a similar distinction. In United States v. Rice, 52 F.3d 843 (10th Cir.1995), the defendant, a certified public accountant, falsely claimed that more money had been withheld by his company than he owed in taxes, thereby causing him to receive a tax refund to which he was not entitled. The court held that
In substance, Mr. Rice's fraud is the functional equivalent of claiming more in itemized deductions than actually paid. If that scheme is sophisticated within the meaning of the guideline, then every fraudulent tax return will fall within that enhancement's rubric.
Id. at 849. Because there was nothing about this scheme that prevented the identification of the criminal or the discovery of the fraud, the court found that sophisticated means had not been used.
In United States v. Kaufman, 800 F. Supp. 648 (N.D.Ind.1992), the court refused to apply the two-point enhancement. Kaufman, an accountant, failed to report income from clients that were diverted from Kaufman's accounting firm to him. Kaufman either (i) instructed the client to pay him personally and directed the bookkeeper to show the debt as a write-off or (ii) created a phony deposit slips showing that the payment was deposited in the firm account when it was not. The deposit was then recorded in the accounts receivable journal which indicated payment of the claim without specifying the amount paid. While the scheme may have been somewhat complicated, the court found that defendant did not use sophisticated means to protect him from being identified as the perpetrator or from permitting a reasonably competent auditor to discover the fraud by reviewing the company's books. The court held that
[t]here were no off-shore banks [and] no dummy corporations. Although Mr. Kaufman employed methods to evade detection by clients, the court cannot say his scheme was more complex or demonstrated greater intricacy or planning than a routine tax evasion case.
Id. at 655. The court made two further observations, both relevant to the case at hand. In addressing the issue of difficulty of detection, the court noted that under either of the two methods of hiding the failure to credit the payments to the firm, "the paper trial remained: no true deposit record would exist for payments Mr. Kaufman pocketed." Id. Finally, the Government argued that the scheme was sophisticated because the defendant embezzled the money repeatedly over a four year period and repeatedly failed to report the income. In rejecting the argument, the court stated that it "does not believe *687 repetitive conduct demonstrates `sophisticated means'." Id.[4]
B. Finding of Sophisticated Means
In other cases, however, courts have applied or approved of the two-point enhancement for sophisticated means. See, e.g., United States v. Veksler, 62 F.3d 544 (3d Cir.1995) (defendant used a "daisy chain" a series of paper transactions through numerous companies, some of which were largely fictitious to conceal taxable sale of diesel fuel oil); United States v. Hunt, 25 F.3d 1092, 1097 (D.C.Cir.1994) (defendant devised "tax-favored" investments that were so sophisticated that "to this day neither the probation officer nor the government ... can figure out exactly what he did"); United States v. Pierce, 17 F.3d 146 (6th Cir.1994) (taxpayer exempted himself from withholding by providing false information to employer; failed to file tax returns; used several mailing addresses to impede discovery by the IRS; and directed his wife to file misleading returns); United States v. Hammes, 3 F.3d 1081, 1083 (7th Cir.1993) (bookie concealed gambling income from computerized clearinghouse by using aliases and bettor code numbers, repeatedly moving his wire room, destroying records, and establishing offshore accounts); United States v. Charroux, 3 F.3d 827, 836-37 (5th Cir.1993) (defendants structured elaborate transactions to hide their revenues from complicated land flips); United States v. Ford, 989 F.2d 347, 348 (9th Cir.1993) (defendant set up Canadian corporations to generate fraudulent foreign tax payments which he then claimed on his domestic income tax return); United States v. Jagim, 978 F.2d 1032, 1041-42 (8th Cir.1992), cert. denied, ___ U.S. ___, 113 S. Ct. 2447, 124 L. Ed. 2d 664 (1993) (defendants "extensively planned and executed" cattle breeding tax shelter scheme and lured potential participants); United States v. Becker, 965 F.2d 383, 390 (7th Cir.1992) (doctor eliminated all bank accounts in his name and deposited income in a numbered account at a warehouse bank), cert. denied, ___ U.S. ___, 113 S. Ct. 1411, 122 L. Ed. 2d 783 (1993).[5] In all of these cases, the hallmark of the "sophisticated means" was the protection of the identity of the perpetrator and/or the existence of the fraudulent scheme.
Two of these cases are particularly relevant to the issue before this Court. In Veksler, the daisy-chain case, the court found that defendants' use of corporate shells was similar to that described in the Commentary to § 2T1.1(b)(2). A brief quotation provides the flavor:
In each `daisy chain,' the change in characterization of number two oil from tax-free home heating oil to taxable diesel fuel was effected through the use of a `burn company,' which would purchase number two oil as tax-free home heating oil and then sell it to another company as diesel fuel. The burn company, which typically held an IRS Form 637, would produce invoices to its purchaser reflecting that the diesel fuel taxes had been paid and that the taxes were included in the price. Although the burn company was liable for the payment of taxes on the oil, it paid no taxes and typically existed for a brief time and then disappeared.
Id., 62 F.3d at 547 (emphasis added). In Jagim, the case involving the cattle breeding tax shelter scheme, the two-point enhancement was applied to Ziebarth, the defendant who conceived and initiated the scheme, and who brought the other participants, including Jagim, into the deal.
*688 The initial idea for E-Z Breeders was Ziebarth's and he willingly participated with Depew in the recruitment of participants ... several of whom were Ziebarth's relatives. There is evidence that Ziebarth received the bulk of the ill-gotten gains from the scam, and that he was slated to receive a share of the profits that was larger than the amount that was to go to others....
Id. at 1042. Nothing in this opinion indicates that the enhancement was applied to Jagim, although he was convicted of conspiring with Ziebarth to file false and fraudulent tax returns and of assisting in the filing of such a return.
C. Application to Lewis
I find that the Government has failed to prove by a preponderance of the evidence that the two-point enhancement should be applied to Lewis. This is a case "where an individual taxpayer completed his individual 1040 form with false information to avoid paying some of his federal taxes." Id.; Charroux, 3 F.3d at 837 (citing Jagim). Here, nothing Lewis did was meant to conceal his identity. To the contrary, the checks he wrote were intended to be used as proof of his expenses. Furthermore, the scheme itself was relatively unsophisticated. While the accounting firm created bank accounts in fictitious names, it was not difficult to determine who opened the accounts, who controlled the accounts, and whose checks were deposited in the accounts. Similarly, the Government has failed to prove that either Lewis or the accounting firm actually created any shell corporations, utilized by Lewis, in order to build a paper trail that would shield the nature of the transactions and the identity of those in control of the transactions. While fictitious names were used to open the accounts utilized by Lewis, the absence of a shell corporation used to do business in furtherance of the scheme weighs against application of the two-point enhancement for sophisticated means.
The Government argues that the scheme is sophisticated because of its length and size. For example, the Government refers to the "vast and complex evasion scheme in which the defendant participated" (Gov't Mem. at 5) and to the eight years in which "Mr. Lewis wrote scores of Escrow Checks, which were negotiated through dozens of Satellite Accounts, in order to fabricate deductions" (Gov't Mem. at 6). While it is true that Lewis wrote 178 checks totalling $154,839.07 to 26 different payees over eight years, repetitive conduct alone does not mean that he used "sophisticated means" to impede discovery of the nature or extent of the offense.
Although Lewis is responsible for the reasonably foreseeable acts of others in furtherance of the jointly undertaken criminal activity, Lewis and the accounting firm are not in the same position. The jointly undertaken criminal activity is that undertaken between Lewis and the accounting firm, not the accounting firm and its other clients. While the accounting firm may have used "sophisticated means" to impede discovery of its overall scheme, Lewis was not involved in that overall scheme.[6] The scheme in which he participated did not involve the "unreported skimming of income from corporations," the "diversion of income to bogus entities," or "conducting `transactions through corporate shells.'"[7] Gov't Mem. at 5-6.
Lewis' conviction for tax evasion and conspiracy to defraud the IRS is based on a single continuing scheme to evade the full payment of taxes by fraudulently inflating his deductions. In the hierarchy of tax evasion schemes, this one was relatively simple. Lewis wrote checks to fictitious persons and entities to support business expenses or charitable contributions claimed on his tax returns. There is no proof that any of these entities had a bona fide existence. Furthermore, *689 there is no proof that invoices were ever created to support the alleged expenses. The scheme included no mechanism for protecting the identity of the taxpayer or, indeed, the nature of the scheme. For these reasons, I find that the two-point enhancement for use of "sophisticated means" should not apply.
NOTES
[1] Citations to the Sentencing Guidelines are to those in effect as of November 1, 1992 as the parties have stipulated that the 1992 Sentencing Guidelines apply.
[2] The Government contends that Lewis used 88% of the total amount of checks written to the fictitious accounts to inflate his deductions. See Government Memorandum ("Gov't Mem.") at 4. Defendant contends, however, that there is little or no "matching" between the fictitious checks and the false deductions. See generally Defendant's Reply Memorandum ("Reply Mem.") at 5. Defendant points out that since the checks did not match the deductions, producing the checks would not have misled an auditor seeking support for the claimed deductions.
[3] This Section does not require that Lewis be held accountable for the overall tax evasion scheme perpetrated by the accounting firm. At oral argument, the Government described the scope of the full scheme to defraud. The accounting firm utilized over 150 fictitious accounts on behalf of many clients. See Transcript ("Tr") October 3, 1995 at 24. The Government further noted that this scheme has been in existence for more than thirty years. Id. at 30. Finally, when tax audits were conducted, the accounting firm produced both the escrow checks and phony invoices to support these checks. Id. Similarly, in the Presentence Report ("PSR"), the Probation Department describes conduct which does not relate to Lewis. (See, e.g., Unreported Skimming of Corporate Funds on Personal Returns (PSR at 7) and Payments Off the Books (PSR at 8)). Nonetheless, as is patently clear from the amount of loss attributed to Lewis ($40,000) by the Probation Department ($40,000 PSR at 13), he cannot be held accountable, nor judged, on the basis of the full breadth of misconduct perpetrated by the accounting firm.
[4] The court further noted that repetitive, extended conduct may support a finding of more than minimal planning under guidelines provisions applicable to other crimes and that an earlier version of § 2T1.1(b)(2) referred to such provisions. By 1992, this was no longer the case.
[5] The Government asserts that this case "most closely resembles" the instant case. Gov't Mem. at 9. I find little or no resemblance. In Becker, the taxpayer, a physician, attempted to conceal his very existence by failing to file any tax returns whatsoever and by eliminating all bank accounts in his own name. He used a named entity to bill and collect his fees and opened a numbered account in a warehouse bank in which he deposited those checks. He wrote no checks in his own name; all checks were written on the warehouse bank account or by his son, in their own names. These elaborate efforts at hiding the identity of the taxpayer are quite different than those utilized by defendant Lewis.
[6] See note 3, supra.
[7] Similarly, the Government argues that "[h]ad Mr. Lewis ever been audited, the accounting firm was prepared to use his Escrow Checks as well as invoices that the firm would fabricate in the names of the fictitious payees on the Escrow Checks to `justify' deductions, as they had done for many other clients." Gov't Mem. at 4. It is not appropriate to hold Lewis responsible for what the accounting firm might be prepared to do. This is mere speculation, not proof. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2148119/ | 473 F. Supp. 187 (1979)
Thomas F. McINERNEY, Petitioner,
v.
Louis BERMAN et al., Respondents.
Civ. A. No. 78-1159-S.
United States District Court, D. Massachusetts.
June 27, 1979.
Norman S. Zalkind, Zalkind & Zalkind, Boston, Mass., Stephen L. Saltonstall, Mass. *188 Correctional Legal Services, Boston, Mass., for petitioner.
Robert S. Potters, Asst. Atty. Gen., Boston, Mass., for respondents.
MEMORANDUM AND ORDER
SKINNER, District Judge.
In this petition for a writ of habeas corpus the petitioner alleges that his constitutional right to due process has been violated in his conviction of murder in the second degree in the Massachusetts Superior Court. Specifically, he claims that the trial judge's charge to the jury impermissibly shifted to him the burden of disproving malice aforethought, an essential element of the crime of murder in the second degree as defined by Massachusetts courts. This claim requires once again the careful differentiation between presumptions and inferences and an analysis of the effect of each on the prosecution's burden of proof of every element of the crime charged. In Re Winship, 397 U.S. 358, 90 S. Ct. 1068, 25 L. Ed. 2d 368 (1970).
Since there has been inconsistent use of terms by various courts, I will start by defining the terms that I will use.
1. Conclusive presumption. An ultimate fact is presumed to be true upon proof of another fact, and no evidence, no matter how persuasive, can rebut it. An example is the presumption that a child of less than a specified age is unable to consent to sexual intercourse.
2. Mandatory presumption. A jury is required to find an ultimate fact to be true upon proof of another fact unless they are otherwise persuaded by a preponderance of evidence offered in rebuttal.
3. Inference (sometimes called permissive presumption). A jury may find an ultimate fact to be true upon proof of another fact if upon consideration of all the circumstances revealed by the evidence they are satisfied that in logic and common experience the ultimate fact is more likely than not to follow from the fact proved.[1a]
A mandatory presumption that a necessary element of a crime has been proved by proof of another fact impermissibly shifts the burden of proof to the defendant by requiring him to rebut the presumption by at least a preponderance of the evidence. Such a presumption violates the rule announced in In Re Winship, 397 U.S. 358, 90 S. Ct. 1068, 25 L. Ed. 2d 368 (1970). Mullaney v. Wilbur, 421 U.S. 684, 95 S. Ct. 1881, 44 L. Ed. 2d 508 (1975).
An inference of a necessary element of a crime from proof of another fact does not violate a defendant's constitutional rights if (1) the underlying fact is proved beyond a reasonable doubt, (2) the ultimate element of the crime is rationally related to the underlying fact, and (3) the burden remains on the prosecution to satisfy the finder of fact on the whole record as to every element of the crime charged beyond a reasonable doubt. County Court of Ulster County, New York v. Allen, ___ U.S. ___, 99 S. Ct. 2213, 60 L. Ed. 2d 777 (1979); Barnes v. United States, 412 U.S. 837, 93 S. Ct. 2357, 37 L. Ed. 2d 380 (1973). Whatever the state's general rule may be, moreover, it is to be tested on federal habeas corpus as applied in the particular case. County Court of Ulster County, New York v. Allen, supra, ___ U.S. at ___, 99 S. Ct. 2213.
The conviction in this case was appealed to the Supreme Judicial Court, which affirmed the conviction. The facts are set out in the opinion, 373 Mass. 136, 365 N.E.2d 815, 817 (1977). In affirming the conviction, the Supreme Judicial Court articulated a rule governing the inference of malice from the fact of an intentional killing which may not completely avoid the proscription established by Mullaney v. Wilbur, supra. While the inference is said to *189 be permissive, the Court reiterated its holding in Commonwealth v. Gagne, 367 Mass. 519, 326 N.E.2d 907, 909 (1975):
It does not necessarily follow, however, that where there is any evidence of mitigating circumstances, the inference of malice is rebutted. [Emphasis in original.]
The meaning of this language is not entirely clear to me, but if it implies a burden on the defendant of overcoming the inference by a preponderance of the evidence it runs afoul of Mullaney v. Wilbur. I need not decide that question, because what is critical here is the rule articulated by the trial judge. The trial judge's instructions are consistent with due process if they meet the standard approved in County Court of Ulster County, New York v. Allen, supra, ___ U.S. at ___, 99 S.Ct. at 2227:
In short, the instructions plainly directed the jury to consider all the circumstances tending to support or contradict the inference that all four occupants of the car had possession of the two loaded handguns and to decide the matter for itself without regard to how much evidence the defendants introduced.
The relevant parts of the instructions are attached as Appendix A. The problem which brings this case here is that while the trial judge in general used language fairly describing a permissive inference and left the question of acceptance or rejection to the jury upon consideration of all the circumstances, he also used some phrases usually associated with mandatory presumptions.
Our Circuit has been very sensitive to any suggestion that the burden of proof has been in any way shifted to a defendant, e. g., United States v. Harrigan, 586 F.2d 860 (1st Cir. 1978). In that case, my instruction to the jury was as follows:
The burden in this trial, as in every criminal trial, is upon the Government to establish the guilt of the defendant by proof beyond a reasonable doubt. That is the reason why I made the comment during the argument that the defendant's evidence has no greater function than simply to raise a reasonable doubt in your minds, if it does. The defendant is not required to go any further.
The Court of Appeals stated that "There is no question" that the second quoted sentence was error. The point was apparently conceded by the government, and the reason for the holding was not explained by the Court. If "function" is taken in the sense of "use" or "purpose," it is still my opinion that the instruction was correct, and did not shift any burden to the defendant.[1b] I surmise therefore that the Court of Appeals was concerned lest the jury interpret the word "function" as implying "duty" or "obligation," a connotation which it might indeed carry in some contexts. Webster's Third New International Dictionary, G. & C. Merriam Company, 1971.
The position of the offending language at the beginning of the instructions and the attention directed to it by previous colloquy between court and counsel in the presence of the jury caused the Court of Appeals to consider the error not harmless and not cured by the other concededly correct instructions on the same subject.
It is with the meticulous concern exemplified by Harrigan, that I must measure the instructions in this case against the standards of Mullaney v. Wilbur, supra, and County Court of Ulster County, New York v. Allen, supra.
The instruction must be read from the point of view of a juror.[2] Words such as "presumption," which for the lawyer may conjure up the dour shade of Commonwealth v. York, 9 Metc. (50 Mass.) 93 (1845), will not have the same effect on a jury. "Presumption" was never defined by the trial judge and never distinguished from *190 "inference." "Inference" was specifically defined in permissive terms.
Near the beginning of the instructions, the trial judge, after describing the Commonwealth's burden of proof, asked himself, "What is the burden that rests upon the defendant in this case, Mr. McInerney?" And he answered, "The answer is simple absolutely none." (Tr. 9-85). This point is repeated at Tr. 9-86, and in the supplemental instructions at Tr. 9-130. At many points throughout the instructions the trial judge emphasized the burden on the Commonwealth of proving every element of the crime, including malice, beyond a reasonable doubt.
Every reference to the inference of malice was in permissive terms. The jury was repeatedly directed to look at all the circumstances which precede or attend a killing in determining whether malice existed. The defendant presented no evidence. 365 N.E.2d at 824. The circumstances referred to were necessarily those revealed by the Commonwealth's evidence.
The language which requires the most careful scrutiny occurs in the passages of the instructions in which the trial judge refers to "circumstances which will rebut the presumption of malice and reduce the character of that unlawful killing from murder to manslaughter . . ." (Tr. 9-92, 9-95, 96). Again, on two occasions, the trial judge said that malice may be inferred, "unless by the circumstances the jury considers that it has been disproved." These phrases, standing alone, would in my opinion be very likely to leave a jury with the impression that if an unlawful and intentional killing (or the use of a dangerous weapon) were proved, the inference of malice would stand unless overcome by proof at some quantifiable level. In these instructions, however, this language is buried in repeated, careful and exemplary descriptions of a permissive inference. In the context of this case, moreover, wherein the defendant offered no evidence at all, the fair reading of the instructions is that the "disproof" is to be found in the government's evidence. No burden is thus placed on the defendant.[3]
I am satisfied that the charge read as a whole,[4] fairly presented the jury with a choice to either accept or reject an inference of malice upon proof of an unlawful, intentional killing after considering all of the circumstances revealed by the Commonwealth's evidence. It expressly relieved the defendant of any burden of proof, in marked contrast to the instructions denounced in Mullaney v. Wilbur, supra, as set out in Wilbur v. Robbins, 349 F. Supp. 149, 151 (D.Maine 1972), and the instructions in Sandstrom v. State of Montana, ___ U.S. ___, 99 S. Ct. 2450, 61 L. Ed. 2d 39 (1979).[5] It consistently emphasized the Commonwealth's burden of proof beyond a reasonable doubt.
It remains for me to consider whether there is a rational connection between the proof of an unlawful, intentional homicide and the inference of malice; i. e. is it more likely than not that an unlawful, intentional homicide would be accompanied by malice? County Court of Ulster County, New York v. Allen, supra. Judge Gignoux apparently thought not, Wilbur v. Robbins, supra, at 153-4, but it is not clear whether he was dealing with inferences or mandatory presumptions, with intentional homicides in general or with unlawful intentional homicides.
The trial judge had limited his discussion at the outset to unlawful intentional homicides. An inference of malice in such cases seems to me to be perfectly rational, and, *191 while I have no statistical analysis at hand, perfectly consistent with common experience. We are, moreover, dealing "with a traditional common-law inference deeply rooted in our law." Barnes v. United States, 412 U.S. 837, 843, 93 S. Ct. 2357, 2362, 37 L. Ed. 2d 380 (1973); Mullaney v. Wilbur, supra, 421 U.S. at 692-6, also p. 702, n.31, 95 S. Ct. 1881.
I conclude therefore that the challenged instructions did not violate the petitioner's constitutional right to due process. Accordingly, the petition for writ of habeas corpus is DENIED. Judgment of dismissal to enter.
APPENDIX A
PORTIONS OF JURY INSTRUCTIONS
There are inferences which you may draw. You may, from having found one or more facts, decide that, "Since this fact or these facts exist, then logically I am also compelled to find another fact." So long as your inference is logical and reasonable, you may make an inference and you may use that inference as the basis for a finding of fact.
(Tr. 9-77)
What is the burden that rests upon the defendant in this case, Mr. McInerney? The answer is simpleabsolutely none. Mr. McInerney may stand mute, if he wishes. He has no obligation to produce any testimony in the case at all. He has no obligation to take the witness stand. He had no obligation to make a statement to you after the arguments had concluded. The Constitution of the United States and the Constitution of this commonwealth states that no one shall take the witness stand in a criminal trial unless he chooses to do so and states that he chooses to do so. The fact that one does not take the witness stand in a criminal trial in which he is the defendant shall not give rise to any inference of guilt so far as the defendant is concerned because the defendant is entitled to rely upon the prosecutor or the commonwealth carrying its own burden. So please remember that so far as the defendant is concerned, there is no burden which rests upon him.
(Tr. 9-85, 86)
In an unlawful homicide a killing can be either intentional or unintentional. As a matter of fact, in a criminal homicide the killing may be either with malice aforethought or without malice. Now, if a killing is accompanied by malice aforethought, then that criminal or unlawful killing is murder. But if there is no malice involved, if there is no malice, then the unlawful killing is manslaughter. So the prime distinction to make between murder and manslaughter is the presence or absence of malice aforethought. I will repeat that. The unlawful killing of one human being by another with malice aforethought is murder. The unlawful killing of one human being by another without malice aforethought is manslaughter.
To make a determination as to whether an unlawful killing is murder or manslaughter, then we must look at all of the circumstances which precede or attend a killing. The person doing the killing may intend that death result from his act but the actual intention to kill is not the distinction that I am emphasizing for you now. An intentional killing may be either murder or manslaughter. So I reiterate, in order to determine whether an unlawful killing is murder or manslaughter, you have to consider the circumstances which precede the killing, you have to consider the circumstances that attend the killing, you must look at the act of the killer to determine the presence or the absence of malice. So let us consider, then, the instance in which an unlawful killing is done intentionally.
Now, malice aforethought may be implied from such an intent unless the circumstances are such as to reduce the crime to manslaughter. So once more I say, because the distinction is an important one, the difference between murder and manslaughter is the presence or the absence of malice.
Where an unlawful killing is intentional or purposeful, there may be circumstances which will rebut the presumption of malice and reduce the character of that unlawful *192 killing from murder to manslaughter, and I will speak of those circumstances again which rebut the presumption of malice but first I think we should consider the expression "malice aforethought," since malice is an essential ingredient of the crime of murder.
Malice here is not used in a technical sense. Malice includes not only those motives which may spring from anger, hatred or revenge in a killer, but from any other unlawful or unjustifiable motive that such a person may harbor. When a killing is shown to have been committed without justification and as a result of a deliberate act on the part of a defendant, then it is proved sufficiently to have been done with malice aforethought. But whether a killing is actually committed with malice aforethought is determined from the nature and the quality of the act which attends the killing, because that is the only way to decide what reveals the state of the heart and the mind of the person who does the killing.
If the circumstances attending a killing disclose that the death flows from a purposeful, selfish, wrongful motive as distinguished from the frailty of human nature, then there is malice aforethought. When a killing is caused by the intentional use of a deadly weapon, malice may be inferred, unless by the circumstances the jury considers that it has been disproved.
The evidence must tie the weapon to the defendant. It must place him at the scene of the crime and it must establish that the use of that weapon was intentional and that the intent was formed before the act. So remember, malice aforethought is an essential ingredient of the crime of murder. It is not an ingredient of the crime of manslaughter.
(Tr. 9-90 through 9-94)
Now, the fact that a killing is accomplished intentionally does not necessarily make it murder. An intentional killing does carry with it the presumption of malice aforethought but the circumstances which precede and accompany the intentional killing may be such as to rebut the presumption of malice and reduce the crime, therefore, to manslaughter.
(Tr. 9-95, 96)
If you should find that there was no deliberate premeditation but that Cynthia Hartford was killed by Thomas McInerney who caused her death with malice aforethought, if you should find that beyond a reasonable doubt but should find no deliberate premeditation, then you would be warranted in finding Mr. McInerney guilty of murder in the second degree.
(Tr. 9-98)
There may be an intentional killing of another human being where the circumstances which precede the killing and attend it are such that the law takes the element of human frailty into consideration and reduces the crime from murder to manslaughter. If, for example, a person should kill in the heat of passion which is sudden and which is occasioned by a reasonable and great provocation, then even though that person has a design and a purpose to kill, human frailty comes into the picture and the killing is designated as manslaughter, not as murder.
(Tr. X-XXX-XXX)
If a man is assaulted with great violence and he is taken with a sudden impulse of anger and there is no time for him to reflect coolly and during that time he attacks and kills his assailant, then the killing is regarded as done in the heat of blood. There is no malice with respect to a killing of that nature and he is guilty, at most, of the crime of manslaughter.
(Tr. 9-102)
I stated additionally that you may make reasonable, logical inferences which flow from the facts that you find from the evidence.
(Tr. 9-127)
SUPPLEMENTAL INSTRUCTIONS
I stated to you that there is no burden resting upon the defendant in a case of this nature; that the defendant has a constitutional right to remain silent. He need not say one word. He need not take the witness *193 stand and testify under oath. And if he does not choose to take the witness stand, no inference of guilt may be drawn from that choice that he has made.
(Tr. 9-130)
I then stated that you had to look at all of the circumstances which precede or attend the killing to determine whether there was malice aforethought accompanying a particular killing. I said that the person who does the killing may intend that death result from his act but the actual intention to kill is not necessarily the difference between the two because an intended killing could be either murder or manslaughter, and I reiterated that you would have to consider the circumstances preceding and attending the killing, look at the act itself and the circumstances preceding it and surrounding it to determine first whether or not there was malice. If there was malice aforethought, you are dealing with murder, either murder in the first or murder in the second degree. If there is no malice, then you are dealing in the case of an unlawful killing with manslaughter.
(Tr. 134)
I stated that when a killing is shown to have been committed without justification and as a result of a deliberate act, it is proved sufficiently to have been done with malice aforethought.
I quote directly from my charge: Whether a killing is committed with malice aforethought is determined from the nature and the quality of the act which attends the killing as it tends to reveal the state of the mind and the heart of the killer. If the circumstances disclose that the death flowed from a purposeful, selfish, wrongful motive as distinguished from frailty of humanity, then there is malice aforethought and you are dealing with murder, you are not dealing with manslaughter.
So I ask you to remember the primary principle with respect to this case. Malice aforethought is an essential ingredient of the crime of murder but it is not an ingredient of the crime of manslaughter.
I stated to you that if a killing is caused by the intentional use of a deadly weapon, malice could be inferred unless by the circumstances surrounding the case malice is disproved.
(Tr. 9-135, 136)
To warrant a finding of guilty of murder in the second degree, the Commonwealth must have established beyond a reasonable doubt that Cynthia Hartford was killed, that Cynthia Hartford was killed by the defendant Thomas McInerney, that Mr. McInerney caused her death with malice aforethought but that there was no deliberate premeditation.
(Tr. 9-140, 141)
NOTES
[1a] See County Court of Ulster County, New York v. Allen, ___ U.S. ___, 99 S. Ct. 2213, 60 L. Ed. 2d 777 (1979).
[1b] The Court of Appeals also itself characterized the evidence introduced by the defendant as "calculated to raise a question of reasonable doubt in the minds of the jury." 586 F.2d at 864.
[2] Sandstrom v. State of Montana, ___ U.S. ___, ___, 99 S. Ct. 2450, 61 L. Ed. 2d 39 (1979).
[3] Judge Friendly's off-hand comment to the contrary in United States v. Barash, 365 F.2d 395 (2d Cir. 1966), was made in a case in which the defendant offered considerable testimony which would tend to rebut an inference of criminal intent.
[4] Cupp v. Naughten, 414 U.S. 141, 147, 94 S. Ct. 396, 38 L. Ed. 2d 368 (1973).
[5] I have reread the instructions in view of the reference in Sandstrom to the possibility that a "reasonable juror" could have understood the language to have a constitutionally impermissible meaning. Given a "reasonable" definition of "reasonable juror," I believe these instructions still pass the constitutional test. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2148322/ | 473 F. Supp. 345 (1978)
Richard Lee OWEN, Plaintiff,
v.
Robert HEYNE, Cloid Shuler, Leo Jenkins, Jack Duckworth, Charles Adkins, Capt. O. C. Parks, Capt. E. R. Kozietak, Capt. O. N. Conrad, John Carter, Clark Mattotte.
No. S 75-166.
United States District Court, N. D. Indiana, South Bend Division.
February 27, 1978.
*346 Richard Lee Owen, pro se.
Theodore L. Sendak, Atty. Gen., Kermit Hilles and David A. Arthur, Deputy Attys. Gen., Indianapolis, Ind., for defendants.
MEMORANDUM OPINION
ALLEN SHARP, District Judge.
Plaintiff, Richard Lee Owen, brought this civil rights action alleging violation of his civil rights by prison officials. This complaint is based on a series of events that occurred at the Indiana State Prison in the summer of 1975. Prison officials were aware of a growing unrest and tension at the prison both from observations by officers and reports by inmates. This unrest was believed to be fueled or incited by a group of inmates. In late July the prison was placed on deadlock by the Warden who then requested that his senior corrections officers make lists of those inmates they believed were instigating disorder. These lists were compiled and inmates whose names appeared on several lists were placed in I Cellhouse Detention Unit (IDU) for investigation of disruption of prison routine. Plaintiff was among these prisoners. He was placed in a cell in the IDU in which the commode had to be turned on by a guard outside the cell and which at first for a short period did not have a mattress or bedding. Subsequently the classification committee held hearings and reviewed the records of some of these inmates, including plaintiff, with possibility of reclassifying them to Administrative Segregation. Plaintiff attended a hearing before the committee and was allowed to discuss the matter with the committee. The Committee offered plaintiff a choice of returning to general population and participating in an eight week introduction to Transactional Analysis or remaining in IDU and participating in a rehabilitative program incorporating fundamentals of Transactional Analysis.
Plaintiff complained of the process by which he was selected to be placed in IDU under investigation. Where prison officials *347 believe, in good faith, that they are confronted with an emergency situation they have greater discretion in determining measures to be taken and postponing procedural protection until after the event. Hayes v. Walker, 555 F.2d 625 (7th Cir. 1977); United States ex rel. Miller v. Twomey, 479 F.2d 701 (7th Cir. 1973).
In situations such as the present, where prison authorities are allegedly reacting to emergency situations in an effort to preserve the safety and integrity of the institution, the state's interest in decisive action clearly outweighs the inmate's interest in a prior procedural safeguard. "[T]he possibility of widespread violence is a continuous condition of prison life. A good faith determination that immediate action is necessary to forestall a riot outweighs the interest in accurate determination of individual culpability before taking precautionary steps." United States ex rel. Miller v. Twomey, supra, 479 F.2d at 717. See also Gomes v. Travisono, 490 F.2d 1209, 1215 (1st Cir. 1973). LaBatt v. Twomey, 513 F.2d 641, 645 (7th Cir. 1975). Thus, good faith response to apprehended emergency conditions within a prison justifies postponing procedural protection unit after the event. LaBatt, 513 F.2d at 646. We also indicated that review of the exercise of discretion by prison authorities should be limited to situations where "bad faith or mere pretext on the part of prison authorities in the imposition of emergency procedures" is alleged. LaBatt, 513 F.2d 647. Absent an allegation of bad faith, "the underlying basis of decision must be deemed to be fully within [the] expertise and discretion [of prison officials] and, accordingly, is insulated from subsequent judicial review." LaBatt v. Twomey, 513 F.2d at 647. Hayes v. Walker, supra, at p. 633.
Before taking action Warden Jenkins sought the opinion of several of his advisors based on their observations, information, experience and knowledge of present and past behavior of prisoners. In a case involving an emergency where prison officials followed a similar procedure this approach was approved.
Under these (emergency) circumstances, the administration was fully justified in relying in part on the personal assessments of corrections officers and administrators who had personal knowledge of each inmate, where as here, each step in the procedure required a group decision. The impact of individual prejudices was thus minimized.
Similarly, the inmate's reputation in the institution was properly taken into account. I see no reason why prison inmates should escape their reputations any more than other people do. Carlo v. Gunter, 392 F. Supp. 871 (D.Mass.1975) at p. 878, aff. 520 F.2d 1293 (1st Cir. 1975).
Thus defendants followed an acceptable practice by taking emergency measures and following up with investigations or hearings.
Plaintiff also criticizes the procedure used in the classification hearing held August 13, 1975. It is well established that prison disciplinary hearings are required to meet some due process standards. Wolff v. McDonnell, 418 U.S. 539, 94 S. Ct. 2963, 41 L. Ed. 2d 935 (1974). However, the due process standards required in non-disciplinary classification proceedings or proceedings resulting in confinement in another institution of greater security or a more restricted area within the same institution is not so well settled. In the late 1960's and early 1970's as courts abandoned the traditional hands off policy, uncertainty developed as to several aspects of prison administration including this area. The United States Court of Appeals (First Circuit) took the initiative in extending due process rights to prisoners in inter-prison and intra-prison transfers.
The First Circuit attempted to establish transfer to another institution of higher security status, Meachum v. Fano, 387 F. Supp. 664 (D.Mass.1975), affirmed 520 F.2d 374 (1st Cir. 1975), reversed 427 U.S. 215, 96 S. Ct. 2532, 49 L. Ed. 2d 451 (1976), and classification to a more secure portion of the same facility, Carlo v. Gunter, supra, as a grievous loss and requiring due process. *348 However, since that time the authority of prison officials in this area has been clarified and strengthened. The United States Supreme Court reversed the First Circuit holding in Meachum v. Fano, and while the First Circuit holding in Carlo v. Gunter has not been specifically reversed, the Supreme Court ruling in Meachum undercut their findings:
In a case significant in its factual similarity to the instant matter, Carlo v. Gunter, 392 F. Supp. 871 (D.Mass.1975), vacated 520 F.2d 1293 (1st Cir. 1975), the circuit court attached little significance to the fact that the "transfers" occurred within a single institution, Id., at 1296, and, relying upon its earlier holding in Fano v. Meachum, 520 F.2d 374 (1st Cir. 1975), concluded that due process required a hearing where a transfer resulted in more stringent conditions of confinement. The subsequent reversal of Meachum suggests that Carlo and the instant plaintiffs have no right to a hearing at all. Hodge v. Klein, 421 F. Supp. 1224 at p. 1232 (D.N.J.1976).
Other courts have ruled that the classification process should not be equated with disciplinary proceedings for purposes of due process. Craig v. Hocker, 405 F. Supp. 656 (D.Nev.1975).
In Carlo unlike this case there was apparently a total lack of a hearing or any sort of due process. While the court approved the method by which the inmates were selected for potential classification, it questioned the method of reclassification:
The deficiency in the procedure was that adverse aspects of the inmate's record and unfavorable comments by prison staff were considered out of the inmate's presence. He had no opportunity to refute, rebut or explain them. This must be counted a serious deficiency.
The question then is this:
Was the detriment to the plaintiff in being reassigned to the "B" wing so severe as to require a hearing in which they had an opportunity to rebut, refute and explain adverse aspects of the record and unfavorable comments by officers?
In this case plaintiff did appear in person before the Classification Committee and was able to discuss his record with them before they made their decision. No witnesses were called but had there been any, defendants testified that cross-examination would have been allowed. No lay advocate was allowed but while lay advocates are permitted in disciplinary hearings in some circumstances this Court has been unable to find any case where counsel or lay advocates are required in classification proceedings. Classification hearings are not the same as disciplinary hearings, Craig v. Hocker, supra, and though the parameters of due process requirements in such cases are not settled yet it is highly probable that the classification committee's action is afforded plaintiff sufficient due process. Plaintiff appeared personally before the committee and was able to discuss his record with them which meets the major objections voiced by the Court in Carlo v. Gunter. Since the Committee called him on its own motion, this also met any requirement for confrontation of his accusers. The hearing dealt with his past record as reflected in his prison packet and no witnesses were called but had witnesses been called he would have had the opportunity to cross-examine them. Plaintiff was not allowed to call witnesses, however, since the hearing dealt specifically with plaintiff's record there was no necessity for witnesses.
Thus the prison's actions substantially comport with due process standards for classification. Even if these actions are found deficient based on development of the law, defendants should not be held liable for any deprivation of plaintiff's civil rights because of good faith belief that their acts and procedures were constitutional. Wood v. Strickland, 420 U.S. 308, 95 S. Ct. 992, 43 L. Ed. 2d 214 (1975); Knell v. Bensinger, 522 F.2d 720 (7th Cir. 1975). The factual basis for such good faith in this record is very strong.
Plaintiff asserts a right to "refuse so called rehabilitation programs." Even assuming arguendo that an introductory *349 course to transactional analysis could be considered a rehabilitation program the cases cited do not establish that plaintiff has suffered infringement of any right. The primary case plaintiff relies on is McNeil v. Director, Patuxent Institution, 407 U.S. 245, 92 S. Ct. 2083, 32 L. Ed. 2d 719 (1972) established only that a prisoner's sentence could not be extended merely for refusal to cooperate with officials by remaining silent. These are not the circumstances here and indeed there apparently was no requirement that plaintiff participate verbally in a transactional analysis program merely that he attend an introductory lecture course.
Plaintiff suffered no harm as a result of the commode having to be operated from outside the cell, though there may have been some inconvenience. The lack of a mattress and bedding in the cell does not appear to have been intentional on the part of corrections officers and was a function of the confusion caused by the unusual measures required to combat the emergency situation and the time that the lockup occurred. These problems do not constitute cruel and unusual punishment or shock the general conscience of society. La Reau v. MacDougall, 473 F.2d 974 (2d Cir. 1972), cert. den. 414 U.S. 878, 94 S. Ct. 49, 38 L. Ed. 2d 123 (1973). None of these problems rise to a constitutional level for this Court's consideration. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2147405/ | 297 F. Supp. 252 (1969)
James CAREY
v.
LOCAL BOARD NO. 2, HARTFORD, CONNECTICUT.
Civ. No. 12966.
United States District Court D. Connecticut.
February 13, 1969.
*253 Karl Fleischmann, Satter & Fleischmann, Hartford, Conn., for plaintiff.
Jon O. Newman, Hartford, Conn., for defendant.
MEMORANDUM OF DECISION FINDINGS OF FACT CONCLUSIONS OF LAW
BLUMENFELD, District Judge.
This case presents a question under the Military Selective Service Act of 1967, 50 App.U.S.C. § 451 et seq., which is of importance to the present class of second year graduate students. The plaintiff, James Carey, in his second year of study at Yale Law School, brings this suit in the nature of mandamus, under 28 U.S.C. § 1361,[1] to compel the defendant, his local draft board, to classify him I-S and thereby defer his induction into the Armed Forces until the end of the academic year. The plaintiff's claim is that the Act affords to him, as a graduate student not otherwise deferred and who has not been deferred as an undergraduate student since June 30, 1967, an absolute right to a I-S deferment to complete the academic year notwithstanding he has been called for induction.
Carey graduated from college in June 1965. He then spent two years doing graduate study in England. In September 1967 he entered the Yale Law School. From the beginning of his junior year in undergraduate school until *254 the end of his first year in law school (June 1968), Carey received II-S deferments from his local board.
In June 1968, the defendant reclassified Carey from II-S to I-A, and on October 14, 1968, after he had commenced his second year in law school, Carey was ordered to report for induction on November 6, 1968. When he received this order, Carey wrote to the draft board requesting a deferment until the end of the academic year. The draft board's response to this letter was to postpone his induction until February 3, 1969. Carey again requested a deferment until the end of the academic year. The defendant refused this request.[2]
Jurisdiction
The defendant moves to dismiss on the grounds that: (1) this is not a proper suit in the nature of mandamus, and, therefore, there is no jurisdiction under 28 U.S.C. § 1361; and (2) even if this is a proper suit in the nature of mandamus, the jurisdiction of this court to entertain it is barred by § 10(b) (3) of the Selective Service Act of 1967, 50 App.U.S.C. § 460(b) (3).
1. Mandamus: On the first ground the defendant makes three contentions. The first is that mandamus is appropriate only where the relief sought is affirmative in nature. The defendant concedes that the specific relief that the plaintiff requestsan order compelling the defendant to classify plaintiff I-S is affirmative; however, it argues that what the plaintiff seeks in reality is negative reliefan order barring his induction. Assuming that what the plaintiff ultimately desires is a postponement of his induction until the end of the academic year, this will not require a negative injunction, but will flow automatically from the order requested of the court. By its very terms, a classification of the plaintiff into I-S will defer him until the end of the academic year. There is no need to look beyond the relief requested in the complaint. The form of relief sought in this case does not bar relief by way of mandamus.
Secondly, the defendant contends that mandamus is appropriate only where there is a clear statutory duty on the part of the defendant, free from doubt and devoid of any discretion. Cf. Prairie Band of Pottawatomie Tribe of Indians v. Udall, 355 F.2d 364 (10th Cir.), cert. denied, 385 U.S. 831, 87 S. Ct. 70, 17 L. Ed. 2d 67 (1966). The defendant contends that there is an apparent conflict between the statute and the regulations. This would necessarily involve a construction of the statute by the administrative official (or a court). Consequently, any duty imposed by that statute is not clear and, therefore, mandamus is not appropriate. However, the fact that a statute may require administrative or judicial construction in order to determine what duties it creates does not mean that mandamus is not proper to compel the officer to perform that duty, once it is determined. In an opinion which affirmed the award of a writ of mandamus, the Supreme Court rejected the same argument tendered by the defendant here:
"Unless the writ of mandamus is to become practically valueless, and is to be refused even where a public officer is commanded to do a particular act by virtue of a particular statute, this writ should be granted. Every statute to some extent requires construction by the public officer whose duties may be defined therein. Such officer must read the law, and he must therefore, in a certain sense, construe it, in order to form a judgment from its language what duty he is directed by the statute to perform. * * * If the law direct him to perform an act in regard to which no discretion is *255 committed to him, and which, upon the facts existing, he is bound to perform, then that act is ministerial, although depending upon a statute which requires, in some degree, a construction of its language by the officer." Roberts v. United States, 176 U.S. 221, 231, 20 S. Ct. 376, 379, 44 L. Ed. 443 (1900) (emphasis added).[3]
See Udall v. Wisconsin, 113 U.S.App.D. C. 183, 306 F.2d 790, 793 (1962), cert. denied, 371 U.S. 969, 83 S. Ct. 552, 9 L. Ed. 2d 539 (1963). The fact that the duty involved becomes clear only after a construction of the statute does not preclude relief under 28 U.S.C. § 1361.
Thirdly, the defendant contends that § 1361 relief is inappropriate because the order sought by the plaintiff would have the effect of requiring the local board to disregard a Presidential regulation which it is required by law to follow. But this argument begs the question. The plaintiff not only challenges the validity of the regulation, but also asserts that if properly interpreted the local board will not be faced with the necessity to disregard it. Since these claims of the plaintiff go to the heart of the merits, determination of this point will be deferred until the merits are resolved.
2. Section 10(b) (3): The defendant further contends that even if the plaintiff's claim is suitable for relief by mandamus, the court has been deprived of jurisdiction by § 10(b) (3) of the Selective Service Act of 1967, 50 App.U.S.C. § 460(b) (3). Section 10(b) (3) reads in part: "No judicial review shall be made of the classification or processing of any registrant by local boards, appeal boards, or the President, except as a defense to a criminal prosecution * * *." While this language appears to be a rather clear command barring preinduction judicial review, the statute must be read in light of its most recent interpretation by the Supreme Court.
In Oestereich v. Selective Service System Local Board No. 11, 393 U.S. 233, 89 S. Ct. 414, 21 L. Ed. 2d 402 (1968), the Supreme Court held that § 10(b) (3) will not bar preinduction judicial review of the classification or processing of a registrant where the registrant can show (1) a clear statutory grant of a deferment; (2) involving no discretion on the part of the local board; and (3) that the board's action in denying the deferment contravened the express statutory command.
Whether these elements are present in this case can be more readily determined after a fuller examination of the merits of the plaintiff's claim.
The Merits
I begin with a brief outline of the provisions of the law affecting liability of university students for induction into the armed services. Section 6(h) (1) of the Act, 50 App.U.S.C. § 456(h) (1), directs that the President shall provide for the granting of deferments to students who are satisfactorily pursuing a full time course of instruction in a college at the undergraduate level. This statutory undergraduate deferment continues until the student receives a baccalaureate degree or reaches age twenty-four, whichever occurs earliest. This subsection has no predecessor in the earlier selective service acts. It was enacted in 1967 and became effective on June 30, 1967. Pursuant to 32 C.F.R. § 1622.25, students in this category are classified as II-S (undergraduate II-S deferment).
Another category of deferments is provided for in § 6(h) (2) of the Act. *256 This section includes an authorization for the President to provide by regulation for the deferment of graduate students whose deferment he considers essential to the national interest. This section was also enacted with the 1967 amendments, but an almost identical provision was present in the 1948 and 1951 Acts. Section 6(h) of those earlier Acts authorized the President to provide for the deferment of both graduate and undergraduate students, there having been no equivalent in those Acts to the mandatory deferment of undergraduates now found in the current § 6(h) (1). Graduate students deferred under the President's rule-making power are also classified as II-S under 32 C.F.R. § 1622.26 (graduate II-S deferments).
There is a third category of student deferment which applies to all university students, whether graduates or undergraduates. Under 32 C.F.R. § 1622.15(b) this type of deferment is designated as I-S. Its source is § 6(i) (2) of the Act, which has remained unchanged since 1951. Because this case is mainly concerned with the application of its provisions, it is set out in full:
"Any person who while satisfactorily pursuing a full-time course of instruction at a college, university, or similar institution is ordered to report for induction under this title, shall, upon the facts being presented to the local board, be deferred (A) until the end of such academic year, or (B) until he ceases satisfactorily to pursue such course of instruction, whichever is the earlier: Provided, That any person who has heretofore had his induction postponed under the provisions of section 6(i) (2) of the Selective Service Act of 1948 [former subsection (i) (2) of this section]; or any person who has heretofore been deferred as a student under section 6(h) of such Act [former subsection (h) of this section]; or any person who hereafter is deferred under the provision of this subsection, shall not be further deferred by reason of pursuit of a course of instruction at a college, university, or similar institution of learning except as may be provided by regulations prescribed by the President pursuant to the provisions of subsection (h) of this section. Nothing in this paragraph shall be deemed to preclude the President from providing, by regulations prescribed under subsection (h) of this section, for the deferment from training and service in the Armed Forces or training in the National Security Training Corps of any category or categories of students for such periods of time as he may deem appropriate." (Emphasis added).
Although both concern student deferments, the II-S and the I-S deal with quite different problems. Broadly viewed, the provisions from which the II-S classifications are derived relate to the problem of selecting those educational pursuits in the field of higher learning which will warrant deferment of students until they obtain the degree they are seeking. As a separate matter, the I-S deferment is concerned with preventing interruption of studies during the course of a school year by deferring induction until the end of the academic year. With these two purposes in mind, § 6(i) (2) may be summarized as follows: It provides for an absolute right to a I-S deferment for students called for induction during an academic year with four specific exceptions: (1) those who have had undergraduate II-S deferments since July 1, 1967 (§ 6(h) (1));[4] (2) and (3) those who had a II-S or a I-S deferment between 1948-1951 (§ 6(i) (2));[5] and (4) those who have *257 had a I-S under the 1951 Act (§ 6(i) (2)).
Whether the plaintiff in this action, who is presently satisfactorily pursuing a full time course of instruction at a university and has now been called for induction, falls within any of the exceptions so as to preclude him from the right to a I-S deferment requires that the deferments he has had since he first became a registrant be measured against the four exceptions.
The defendant, with commendable candor, concedes that when the plaintiff's record is tested against a literal reading of the Act his statutory right to a I-S does not fall within any of the statutory exceptions.[6] However, it calls attention to a regulation and an interpretative memorandum of the Selective Service Director, the effect of which is to create an exception to the plaintiff's right to a I-S deferment. The regulation referred to is 32 C.F.R. § 1622.15(b), which provides:
"In Class I-S shall be placed any registrant who while satisfactorily pursuing a full-time course of instruction at a college, university or similar institution of learning and during his academic year at such institution is ordered to report for induction, except that no registrant shall be placed in Class I-S under the provisions of this paragraph
(1) who has previously been placed in Class I-S thereunder or
(2) who has been deferred as a student in Class II-S and has received his baccalaureate degree."[7]
Subsection (2) has been amplified by the Director's Local Board Memorandum No. 87, which reads:
"Section 1622.15(b) (2) of the Selective Service Regulations refers to a registrant who has been placed in Class II-S after June 30, 1967, and has a baccalaureate degree."
The exception in 32 C.F.R. § 1622.15(b) (2) on its face is much broader than the statutory exceptions; it is open to an interpretation that would deny the I-S to any graduate student who had ever received a II-S deferment. Apparently Local Board Memorandum No. 87 was intended to restrict this broad reading. Under plaintiff's argument the memorandum did not do a complete job, since plaintiff argues that the regulation must be read consistently with the statute to preclude only those who had received a II-S deferment after June 30, 1967, and thereafter received a baccalaureate degree. Under defendant's argument, Local Board Memorandum No. 87 properly interprets the regulation to deny a I-S deferment to any graduate student who received a II-S after June 30, 1967.
To support the validity of the regulation as so interpreted, the defendant argues that a literal application of the Act frustrates the intention of Congress. It points out that the evident purpose of expressly denying I-S deferments to all students who received a baccalaureate degree after June 30, 1967, was to put an end to the pyramiding of deferments. Since Congress had authorized the President to defer certain categories of graduate *258 students, the argument continues, the President had the power to fashion regulations which would put all graduate students, no matter when they received baccalaureate degrees, on an equal footing after June 30, 1967, with respect to the risk of being called for induction during an academic year.
Although the new scheme Congress enacted was not directly related to the situation of those who had already received their baccalaureate degree and were in or about to enter graduate school, it was expected that the President would curtail the categories of graduate study. As to those students in categories likely to be terminated, the President offered interim relief by a regulation, 32 C.F.R. § 1622.26(b), which provided for II-S deferments until the completion of study for a graduate degree to those in their second or later year of graduate school on October 1, 1967. Those in their first year would be classified II-S for one year only. The plaintiff is in this latter group. The defendant argues that this ameliorative regulation ought not be used by the plaintiff to boot-strap himself into a right to receive a I-S by a literal application of the 1967 Act.
Even if the plaintiff was relying upon 32 C.F.R. § 1622.26(b) affording him a graduate II-S deferment for one year, which he is not, the question would not thereby be whether the construction of 32 C.F.R. § 1622.15(b) urged by the plaintiff is a plausible one. Rather, the question is whether a literal interpretation of the Act is "at the expense of the reason of the law and produc[es] absurd consequences or flagrant injustice * * *." Sorrells v. United States, 287 U.S. 435, 446, 53 S. Ct. 210, 214, 77 L. Ed. 413, 86 A.L.R. 249 (1932).
As to the consequences, they are no different than they were before the amendments of 1967. The statutory language authorizing graduate II-S deferments and mandating I-S deferments is exactly the same as it was before. The only relevant part of the statute which Congress altered related to undergraduate deferments. Although Congress expected that graduate II-S deferments would be reduced in proportion to the reduction of categories of graduate study, it did not intend that the rights of students in graduate schools to a I-S deferment be disturbed. This point emerges most obviously from both the House Report, see H.R.Rep. No. 267, 90th Cong., 1st Sess., in 1967 U.S.Code Cong. & Admin. News, pp. 1308, 1330, and the Conference Report, see Conf. Rep. No. 346, 90th Cong., 1st Sess., in id. at pp. 1352, 1359, which specifically noted the "strong conviction" of the House conferees that "those students presently accepted for or actively participating in graduate studies, be permitted to continue these studies with a deferred status until they achieve or fail to achieve the degree which would normally mark the completion of their present level of training." Without an elaborate discussion of the mass of relevant considerations underlying this "conviction" there was the concern of Congress with the expectations, careers, plans, and commitments up to that time of those currently in or about to enter graduate school. Although a I-S would not allow in every case for the completion of study over several years to a graduate degree, it would avoid the waste and hardships of an interrupted academic year.
In view of the number and character of the criticisms of the Selective Service Act current when the legislation was being considered by Congress, no one could say that Congress was not aware of all aspects of the tensions between the nation's need for an adequately manned armed service as well as for an educated citizenry. The amendments under consideration here were designed to effect an accommodation between those tensions. Cf. Louisville Country Club, Inc. v. Gray, 178 F. Supp. 915, 918 (W.D.Ky.1959), aff'd, 285 F.2d 532 (6th Cir.1960). The broad national policy which prompted the 1967 Act cannot be ignored. Cf. Argosy Ltd. v. Hennigan, 404 F.2d 14, 20 (5th Cir.1968); Miller *259 v. Amusement Enterprises, Inc., 394 F.2d 342, 353 (5th Cir.1968). Consequently, I do not find useful the defendant's generalization that since those who were to graduate after June 30, 1967, were to be precluded from a I-S, it would be manifestly unjust not to apply that same preclusion after that date to all earlier graduates.
A related argument of defendant is that in one sense plaintiff has already had more deferments than he is entitled to. The argument is that since Congress left graduate student deferments up to Presidential regulation, and the President gave students who were to enter graduate school in the fall of 1967 a II-S deferment for only their first year of graduate school, Congress could not have intended that these students receive a second year of deferment by means of the I-S. The difficulty with this argument is that it assumes that Congress wanted to place some absolute time limit on the length of graduate student deferments; there is no evidence that this is the case. It left the statutory provision for graduate II-S deferments unchanged, leaving to the President the determination of which fields of graduate study were essential to the national interest. It did not intimate that it was thereby giving the President the power to deprive any students of the statutory right to a I-S deferment.
Defendant's final argument is that § 6(i) (2) itself authorizes the President to undermine its provision for the I-S deferment. The defendant relies upon the last sentence of § 6(i) (2), which states: "Nothing in this paragraph shall be deemed to preclude the President from providing, by regulations prescribed under subsection (h) of this section, for the deferment * * * of any category or categories of students for such periods of time as he may deem appropriate." This, defendant argues, contemplates such regulations as 32 C. F.R. § 1622.15(b). This provision has been part of § 6(i) (2) since the 1948 Act. Even though the intended application is tolerably clear and specific, the Senate Report, S.Rep. No. 1268, 80th Cong., 2d Sess., in 1948 U.S.Code Cong. Serv., pp. 1989, 2002, makes it more so, it explains the meaning of the sentence: "This paragraph [§ 6(i) (2)] in no way interferes with the President's authority to provide longer deferments to students whose activity with regard to science, medicine, research, or other endeavor renders such longer deferment essential * * *."
As already noted, § 6(h) (1) provided for undergraduate deferments only until graduation, at which point those students were exposed to the same hazards of induction in the prime age group as their contemporaries who had not secured student deferments. Since virtually all persons entering graduate schools in the fall of 1968 or later would have had undergraduate II-S deferments under § 6(h) (1), by its express terms they would be ineligible for I-S deferments. In the face of that, to eliminate I-S for those students then in or about to enter graduate school would virtually emasculate § 6(i) (2).[8] The government's contention runs counter to the rule which requires the courts "`to give effect, if possible, to every clause and word of a statute,' Montclair v. Ramsdell, 107 U.S. 147, 152 [2 S. Ct. 391, 395, 27 L. Ed. 431], rather than to emasculate an entire section, as the Government's interpretation requires." United States v. Menasche, 348 U.S. 528, 538-539, 75 S. Ct. 513, 520, 99 L. Ed. 615 (1955).
Instead of further enlarging the wide authority given the President with respect to graduate II-S deferments, by adding the power to cut-off I-S deferments under § 6(i) (2), there was good *260 reason to keep that authority within the expressed limits. As noted above, at p. 258, Congress did give consideration to the transitional years.
That Congress did not yield to the President the power to carve exceptions to the right of a student to a I-S in addition to those it had provided is illustrated by applying the maxim of statutory construction, expressio unius est exclusio alterius. Perhaps the exceptions are not expressed in gifted prose, but they certainly are not obscure. Three of them are in § 6(i) (2) in a proviso interrupted only by a colon from the clause granting the I-S deferment. The fourth exception, which is in § 6(h) (1), in addition to its serviceability for the expressio unius rule, directly supports a reasonable inference from within the statute that Congress intended to provide I-S deferments during the transitional years. It worded the proviso of § 6(h) (1) so as to apply only to persons who receive II-S deferments "under the provisions of this paragraph." (Emphasis added). "This paragraph" did not become operative until after June 30, 1967. I am unable to find anything in the statute which suggests that Congress left it to the President to judge for himself who should be deprived of the right to a I-S.
It follows from what has been said that the regulation in issue, 32 C. F.R. § 1622.15(b), as interpreted by defendant would be an addition to the statute of another exception to the right to a I-S classification, which is not there. Cf. United States v. Calamaro, 354 U.S. 351, 359, 77 S. Ct. 1138, 1 L. Ed. 2d 1394 (1957). Interpretation of regulations so as to make law are not favored. To uphold this additional exception "would be to hold that it may be imposed by regulation, which, of course, the law does not permit." Commissioner of Internal Revenue v. Acker, 361 U.S. 87, 92, 80 S. Ct. 144, 147, 4 L. Ed. 2d 127 (1959).
Fortunately, the regulation, 32 C.F.R. § 1622.15(b), and Local Board Memorandum No. 87 may be read to conform with the statute. The relevant portion of the regulation is written:
"[N]o registrant shall be placed in Class I-S under the provisions of this paragraph
* * * *
"(2) who has been deferred as a student in Class II-S and has received a baccalaureate degree."
Subsection (2) must be read to exclude from the I-S classification only those persons who have been deferred in II-S after June 30, 1967,[9] and thereafter have received a baccalaureate degree. Such a reading would conform to §§ 6(h) (1) and 6(i) (2) of the Selective Service Act of 1967.
Since I hold that the regulation and memorandum must be read as described above, an order by this court to compel the defendant local board to grant the plaintiff a I-S deferment will not require the defendant to disregard the Presidential regulation. See p. 255. Therefore, relief under 28 U.S.C. § 1361 is not inappropriate. Similarly, since the plaintiff has a clear statutory right to a I-S deferment, not subject to local board discretion, I hold that § 10(b) (3) of the Act is not a bar to this court's jurisdiction. Oestereich v. Selective Service System Local Board No. 11, 393 U.S. 233, 89 S. Ct. 414, 21 L. Ed. 2d 402 (1968).[10]
The local board's file on the plaintiff, James Carey, reflects nothing which in *261 any way modifies the facts as set forth herein. Furthermore, the parties have stipulated to them. On that record, there is no basis for a denial of a I-S classification to the plaintiff. It is, therefore,
Ordered that the defendant Selective Service Local Board No. 2 classify the plaintiff James Carey I-S as of February 13, 1969.
NOTES
[1] Title 28 U.S.C. § 1361 provides:
"The district courts shall have original jurisdiction of any action in the nature of mandamus to compel an officer or employee of the United States or any agency thereof to perform a duty owed to the plaintiff."
[2] Plaintiff's administrative remedies have been exhausted. A I-S can be requested only after an induction order has been received, which is after all right to appeal from the I-A classification has run. See 32 C.F.R. § 1626.41. The denial of a I-S is not a "classification decision," but a refusal to reopen the I-A classification, from which no appeal lies. See 32 C.F.R. §§ 1625.4, 1625.13.
[3] While the Supreme Court in Roberts was ruling upon the scope of the common-law writ of mandamus, not a suit "in the nature of mandamus" under 28 U.S.C. § 1361, the relief contemplated under the statute is at least as broad as under the pre-existing law of mandamus. Compare Massachusetts v. Connor, 248 F. Supp. 656 (D.Mass.1966), aff'd, 366 F.2d 778 (1st Cir. 1967), with C. Byse and J. Fiocca, Section 1361 of the Mandamus and Venue Act of 1962 and "Nonstatutory" Judicial Review of Federal Administrative Action, 81 Harv.L.Rev. 308 (1967).
[4] Section 6(h) (1) of the Act contains this proviso:
"No person who has received a student deferment under the provisions of this paragraph shall thereafter be granted a deferment under this subsection, nor shall any such person be granted a deferment under subsection (i) of this section if he has been awarded a baccalaureate degree * * *."
[5] The student deferment provisions of the 1948 Act, referred to in § 6(i) (2), were superseded in 1951. The reason students deferred from 1948 to 1951 were precluded from the I-S is that until 1951, those receiving student deferments could not be drafted after the age of twenty-six. Precluding this group of students from the I-S deferment prevented them from using that deferment to remain in school until they reached twenty-six. Since 1951, however, those who receive student deferments are liable for induction until age thirty-five; therefore, they cannot escape the draft by use of the I-S.
[6] Carey received his undergraduate II-S under § 6(h) of the 1951 Act, and his graduate II-S deferments under § 6(h) of the 1951 Act and § 6(h) (2) of the 1967 Act. He did not receive an undergraduate II-S under § 6(h) (1) of the 1967 Act, nor has he ever received a I-S deferment.
[7] The reference to a baccalaureate degree appears to have been taken from § 6(h) (1) of the Act, quoted in footnote 4, supra.
[8] Since the most recent graduates after that date were precluded from receiving a § 6(i) I-S, by the express terms of § 6(h) (1), the only possible remaining students who could qualify for I-S would be those who had successfully escaped a call for induction during four years at college without having ever asked for a II-S deferment.
[9] Under Local Board Memorandum No. 87, the regulation has been interpreted to apply only to those persons who received their II-S deferments since July 1, 1967.
[10] Breen v. Selective Service Local Board No. 16, 406 F.2d 636 (2d Cir. 1969), is not to the contrary. In Breen, the Court of Appeals held that there was a sufficient foundation in § 6(h) (1) to indicate that Congress may have intended that undergraduate II-S deferments be limited by the delinquency regulations, and therefore, it could not be said that Breen had a clear statutory right to his deferment. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2147430/ | 297 F. Supp. 804 (1969)
CITIZENS COMMITTEE FOR the HUDSON VALLEY and Sierra Club, Plaintiffs,
v.
John VOLPE, individually and as Secretary of Transportation of the United States, Stanley S. Resor, individually and as Secretary of the Army of the United States, and William F. Cassidy, individually and as Chief of Engineers, Corps of Engineers of the U. S. Army, Defendants.
VILLAGE OF TARRYTOWN, NEW YORK, Plaintiff,
v.
John VOLPE, individually and as Secretary of Transportation of the United States, Walter F. Hickel, individually and as Secretary of the Interior of the United States, Stanley S. Resor, individually and as Secretary of the Army of the United States, and William F. Cassidy, individually and as Chief of Engineers, Corps of Engineers of the U. S. Army, Defendants.
CITIZENS COMMITTEE FOR the HUDSON VALLEY and Sierra Club, Plaintiffs,
v.
J. Burch McMORRAN, individually and as Commissioner of the Department of Transportation of the State of New York, Defendants.
VILLAGE OF TARRYTOWN, NEW YORK, Plaintiff,
v.
J. Burch McMORRAN, individually and as Commissioner of the Department of Transportation of the State of New York, Defendants.
Nos. 69 Civ. 295, 354, 305 and 448.
United States District Court S. D. New York.
February 27, 1969.
*805 Winer, Neuburger & Sive, New York City, for plaintiffs.
Louis J. Lefkowitz, Atty. Gen., for defendant state of New York; by Joel H. Sachs and Mark T. Walsh, New York City, of counsel.
EDELSTEIN, District Judge.
OPINION
Four separate actions challenging on various grounds the construction of the proposed Hudson River Expressway were commenced in this court. The plaintiffs include the Citizens Committee for the Hudson Valley and the Sierra Club, conservation organizations having members who reside in the area in which the Expressway is to be located. The Citizens Committee is a local, unincorporated association, whereas the Sierra Club is a non-profit corporation organized in California with various local branches located throughout the United States. The third plaintiff is the Village of Tarrytown, a municipal corporation created by and existing under the laws of the State *806 of New York, and situated in the proposed path of the Expressway. The defendants Volpe, Resor, Cassidy, and McMorran are respectively the Secretary of Transportation of the United States, the Secretary of the Army of the United States, the Chief of Engineers, Corps of Engineers of the United States Army, and the Commissioner of the Department of Transportation of the State of New York. Together the defendants are among the various federal and state officials who have or are alleged to have the duty to pass on applications to perform work in connection with the Expressway. The State of New York has intervened in two actions.
Generally the plaintiffs in each action are seeking an order barring the construction of the Expressway on the grounds that it has not been validly authorized pursuant to the applicable statutory provisions, that administrative decisions rendered in favor of its construction are arbitrary and capricious, and that the statute under which it was authorized, Section 340-c of the New York Highway Law, McKinney's Consol. Laws, c. 25, is unconstitutional. Insofar as all of these actions involve common questions of law and of fact they have been ordered consolidated pursuant to Rule 42, Federal Rules of Civil Procedure.
The Expressway itself is planned to extend for approximately nine miles along the east shore of the Hudson River from a point near the Tappan Zee Bridge at Tarrytown, New York, north to Crotonville, New York. Approximately 22,000 feet of the road will rest on fill extending at the widest point 1300 feet into the river. The river at this point is 10,000 feet wide. The project as planned will include the construction of recreational and park facilities along the river together with necessary access facilities.
These matters are now before this court on an application, brought on by an order to show cause, for a preliminary injunction enjoining the Army Corps of Engineers from delivering to the Department of Transportation of the State of New York, pursuant to 33 U.S.C. § 403 the permit which it has issued and which would authorize the fill operations to begin. There are also jurisdictional motions before the court. These need not be reached now.
This court conducted a full hearing on this matter on February 19, 1969. It is this court's conclusion that a preliminary injunction should not issue in this case.
It is hornbook law that a motion for a preliminary injunction is addressed to the discretion of the court and that the remedy itself is an extraordinary one that is not granted absent a strong showing of need by the plaintiff. See, e. g., American Metropolitan Enterprises of New York, Inc., v. Warner Bros. Records, Inc., 389 F.2d 903 (2d Cir. 1968); Hershey Creamery Co. v. Hershey Chocolate Corp., 269 F. Supp. 45 (S.D.N.Y.1967); Hudson Pulp & Paper Corp. v. Swanee Paper Corp., 223 F. Supp. 617 (S.D.N.Y.1963). There are, in this regard, four concepts which the court should take into consideration and balance before granting this relief: the probability that plaintiff will eventually succeed on the merits; the presence of some irreparable injury to the plaintiff; the injury to defendant; and the public interest in the granting of the preliminary injunction. Garland v. Ruskin, 249 F. Supp. 977 (S.D.N.Y.1965); 7 Moore, Federal Practice ¶ 65.04.
In the instant case it is far from clear that plaintiff will succeed on the merits. All parties agree that approval of the federal government is required before New York can begin filling in the river. However, the plaintiffs initially contend that the Expressway project was incorrectly treated by the Departments of the Army and Interior as a matter that is governed by 33 U.S.C. § 403. Rather, plaintiffs argue that the Expressway should have been treated as requiring the consent of Congress under *807 33 U.S.C. § 401, insofar as the road includes dikes and causeways, and the approval, under 49 U.S.C. § 1655, of the Department of Transportation, insofar as the road includes bridges. But inasmuch as this project apparently will not substantially interfere with navigation along the river, and inasmuch as the Department of Transportation has already had an opportunity to examine this project and has interposed no objections, it is doubtful that these arguments will prevail. It is equally doubtful that plaintiffs' unelaborated arguments relating to the asserted unconstitutionality of § 340-c of the New York Highway Law will prevail.[1]
Additionally, the plaintiffs are seeking review of the approvals given to the Expressway project by defendants Resor and Cassidy and by former Secretary of the Interior Udall. But plaintiffs chances here too are limited considering the admittedly narrow scope of review that is available to a court in matters such as these. Consolo v. Federal Maritime Commission, 383 U.S. 607, 86 S. Ct. 1018, 16 L. Ed. 2d 131 (1966); Wong Wing Hang v. Immigration and Naturalization Service, 360 F.2d 715 (2d Cir. 1966).
These doubts as to whether or not the plaintiffs will ultimately be able to succeed undermine their motion for preliminary relief. I. T. S. Industria Tessuti Speciali v. Aerfab Corp., 280 F. Supp. 581 (S.D.N.Y.1967).
In addition to the plaintiffs' failure to demonstrate a reasonable probability of success at trial, they have also failed to make a strong showing of what immediate and irreparable harm will be suffered by them should their motion be denied. Foundry Services v. Beneflux Corp., 206 F.2d 214 (2d Cir. 1953); Hudson Pulp & Paper Corp. v. Swanee Paper Corp., supra.
Various items of damage are asserted by plaintiffs: loss of residential streets, loss of homes, loss of industrial and commercial establishments, including an employer of five hundred persons, loss of a fire house, loss of a commuter parking lot, loss of a portion of the grounds of a parochial school, and loss of land from the tax rolls. But all of these items are highly conjectural; the final path of the overland portion of the Expressway has not yet been determined. Further, and more important, there are adequate legal remedies which can provide compensation for these losses and in these circumstances an injunction should not issue.
Plaintiffs argue that homes not destroyed by the Expressway but which are located nearby will suffer a decrease in value. They also argue that the road will increase the surrounding levels of air pollution and noise. But these too are speculative assertions unsupported by probative evidence.[2]
The effects of the filling operation itself have not been shown to give rise to claims that are any more substantial. No land will have to be condemned as a result of the fill since the State already owns the bed of the river. It has not been shown that particular historical, scenic, or recreational resources will be destroyed; and no proof was presented that marine life will be unduly disturbed.
On the other hand, it is reasonably clear that the Expressway has received *808 careful review and that appropriate measures designed to safeguard the natural state of the river, as well as make its benefits more widely available to the public, have been incorporated into the plans for the project. The New York State Conservation Department, the Water Resources Commission of the State of New York, the Hudson River Valley Commission, and the Secretary of the Interior, all of whom are charged with responsibilities in support of conservation, have all passed on the project. Public hearings have been held on it. And the permit authorizing the fill operation includes the requirements that all possible steps be taken to prevent undue situation and turbidity in the river, that a type of fill that will not cause water pollution will be used, that the integrity of a natural cove situated along the road's path will be maintained, and that park, recreation and access facilities will remain as an integral part of the project and be constructed along with the transportation facility.
Upon final analysis, then, the only undeniable result of the issuance of the permit in question which the plaintiffs have demonstrated is the fact that an expressway will be constructed. If this alone, when balanced against the other factors under consideration, would suffice to justify the granting of a preliminary injunction then it is doubtful whether the construction of any road would ever be commenced on schedule. Cf. Garland v. Ruskin, supra, a case involving an unsuccessful attempt to restrain further construction on an urban renewal project.
In determining whether or not to issue a preliminary injunction it is helpful to consider the relative conveniences of the parties as they will be affected by the decision. See, e. g., Ames v. Associated Musicians of Greater New York, Local 802, A.F.M., 251 F. Supp. 80, 85 (S.D. N.Y.) aff'd. 359 F.2d 777 (2d Cir. 1966). The harm to the plaintiffs has already been discussed. On the other side, while the federal government will suffer no harm if an injunction should issue since this project is entirely state financed, it is undisputed that each month's delay in construction will substantially increase the cost of the project to New York.
Finally, when an application is made for a preliminary injunction the court will weigh, together with all of the other factors discussed, the injury or inconvenience which may result to the public if the application is granted. Indeed, if an injunction will adversely affect the public interest in a manner that cannot be compensated by a security bond, then on this ground alone the application for an injunction can be denied. Yakus v. United States, 321 U.S. 414, 440-441, 64 S. Ct. 660, 88 L. Ed. 834 (1944); Tennessee Valley Authority v. Tennessee Elec. Power Co., 90 F.2d 885 (6th Cir.) cert. denied 301 U.S. 710, 57 S. Ct. 945, 81 L. Ed. 1363 (1937).
In the case at bar it is apparent that a new road is needed in the area in question to relieve traffic congestion, and as already noted, the Expressway project includes the construction of new park and recreational facilities combined with improved access to the river shore. In this connection this court finds that existing access to the river is limited by the presence of Penn Central railroad tracks on the water's edge.
This court is not unmindful of the necessity of protecting this country's precious natural resources. Nor is the court unfeeling towards these plaintiffs' concerns. The court, however, has no choice but to apply the law to the facts as it finds them to be. The plaintiffs, by applying for drastic injunctive relief assumed a heavy burden of persuasion that they are entitled to that relief. They have failed to carry that burden. Accordingly, the motions for preliminary injunction are denied. So ordered.
NOTES
[1] 33 U.S.C. § 401 in part makes it unlawful to construct bridges, dams, dikes or causeways over or in navigable rivers without the consent of Congress. 33 U.S.C. § 403 provides that it is unlawful to fill in any navigable water without the recommendation of the Chief of Engineers and the authorization of the Secretary of the Army. 49 U.S.C. § 1655 transfers to the Secretary of Transportation the powers formerly held by the Chief of Engineers and the Secretary of the Army under 33 U.S.C. § 525 to approve bridges built across navigable rivers. Section 340-c of the New York Highway Law generally describes the route of the Expressway.
[2] This court expressly assumes for the purpose of these preliminary injunction motions only, that the plaintiffs have standing to protest all of the above mentioned items of damage. Quaere. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2147714/ | 119 F. Supp. 538 (1954)
UNITED STATES
v.
WOLRICH.
United States District Court, S. D. New York.
February 26, 1954.
*539 J. Edward Lumbard, U. S. Atty. for the Southern Dist. of New York, New York City (Richard Owen, Asst. U. S. Atty., New York City, of counsel), for plaintiff.
Corcoran & Kostelanetz, Louis Bender, Arthur Block, New York City (Arthur Block, Boris Kostelanetz, Louis Bender and Jules Ritholz, New York City, of counsel), for defendant.
DIMOCK, District Judge.
This is a motion pursuant to Rule 41 (e) of the Federal Rules of Criminal Procedure, 18 U.S.C. for the return of certain papers and their suppression as evidence on the ground that the property was illegally seized without warrant.
Defendant is under indictment for wilfully attempting to evade payment of income taxes for the calendar year 1945 in violation of section 145(b) of the Internal Revenue Code, 26 U.S.C. § 145(b).
Defendant contends that the examination of his books by internal revenue agents was an unlawful search and that the notations and extracts which were taken from the examination were illegally seized. The Government contends that by his consent to the examinations complained of defendant waived his right not to have his private books searched and seized. Defendant seems to concede that he consented to the examination but argues that his consent was induced by misrepresentation and that the alleged fraud vitiated his consent.
The following is defendant's version of the facts. In July, 1947, Walter H. McGinn introduced himself as an Internal Revenue Agent to defendant's accountant and said that he wished to make the "usual routine audit" of defendant's income tax return for the calendar year of 1945. Defendant's accountant arranged to meet Agent McGinn at defendant's place of business where he made defendant's books, records and papers available for Agent McGinn's examination. Agent McGinn spent several days examining these records and making notations on his examination. The examination was suspended for several months and, in the middle of November, Agent McGinn returned to defendant's office where defendant's accountant again made defendant's records available for his inspection. The following week, Agent McGinn informed defendant's accountant that he had completed his examination. They then discussed "the propriety of certain items, discussed proposed adjustments thereof and came to an agreement as to these adjustments which said Internal Revenue Agent McGinn stated he would embody in his final report to be sent to the defendant taxpayer together with the usual form agreement thereon." The next day, Agent McGinn telephoned defendant's accountant and said that he had overlooked one transaction which he wanted to check. He said that he had to verify this item in order to complete his report. On this visit to defendant's office, Agent McGinn was accompanied by another man whom he introduced to defendant's accountant as a "fellow Revenue Agent". The two agents examined defendant's records and made extracts and notations. The "fellow Agent" was a Special Agent of the Intelligence *540 Unit of the Treasury Department.
Defendant alleges that he authorized his accountant to make his books available on the express understanding that a routine audit was involved, that civil liability alone was the subject of inquiry. He alleges that in fact a criminal investigation was being conducted and argues that the consent thus given was induced by fraud and coercion and therefore was not voluntary consent which amounted to a waiver of his right not to have his private papers searched and seized.
First, defendant contends that the agent's representation that the examination was a "routine audit" when in fact there was a possibility of criminal liability was fraud which vitiated his consent. Secondly, defendant argues that his fear of the statutory penalty for failure to disclose the information sought for the determination of his civil liability compelled him to make his books available.
On defendant's own version of the facts, I find that defendant voluntarily consented to the examination of his books and thus waived his right to complain of its illegality.
On the issue of fraud, defendant relies heavily on cases in which law enforcement officials gained entry by masquerading as private citizens. See Gouled v. United States, 255 U.S. 298, 41 S. Ct. 261, 65 L. Ed. 647; Fraternal Order of Eagles v. United States, 3 Cir., 57 F.2d 93; United States v. Mitchneck, D.C.M.D.Pa., 2 F. Supp. 225. Here, the revenue agent made no attempt to hide his official identity or the official purpose of his business. Surely defendant was aware that, if a "routine audit" revealed evidence of criminal liability, the agent would not ignore it merely because he was primarily concerned with civil liability. Defendant was apprised of the fact that his books were sought for investigation by an official of the Internal Revenue Bureau. On that understanding, he authorized his accountant to make his books available. I cannot accept defendant's reasoning or that of the court in United States v. Guerrina, D.C. E.D.Pa., 112 F. Supp. 126. A statement that the purpose of an investigation is a "routine audit" is not the equivalent of a promise that only civil liability will be considered regardless of what the examination reveals. Nor would any accountant or businessman so understand it.
Defendant's argument with respect to coercion seems to proceed as follows. The "routine audit" statement led defendant to believe that no criminal charges would be made against him. If no criminal charges could be made against him he was subject to the penalties prescribed in sections 145 and 3614 of the Internal Revenue Code, if he failed to permit examination of his papers. If criminal charges could be made against him he could, under United States v. Murdock, 284 U.S. 141, 52 S. Ct. 63, 76 L. Ed. 210; Id., 290 U.S. 389, 54 S. Ct. 223, 78 L. Ed. 381, escape the imposition of those penalties for such failure. Since he was assured that the only claims against him were civil, he believed that he was subject to the compulsion of Internal Revenue Code sections 145 and 3614, and, in that belief, permitted the examination. In truth and in fact he was not subject to that compulsion so the permission was obtained by fraud.
This argument is not really an alternative but rests upon the proposition which I have already rejected i. e. that the characterization of the investigation as routine amounted to a representation that nothing discovered would be used in a criminal prosecution.
Defendant has also moved for examination of certain Government witnesses and the production of certain documents for use at a hearing on the factual issues raised by his motion to suppress evidence. Since I have disposed of the main motion on defendant's own story, no hearing is necessary and the subsidiary motion to examine is dismissed.
Motion denied. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2147250/ | 290 F. Supp. 186 (1968)
MAPES CASINO, INC., a Nevada corporation, Plaintiff,
v.
MARYLAND CASUALTY COMPANY, a Maryland corporation, Defendant and Third-Party Plaintiff,
v.
Buster COLLINS et al., Third-Party Defendants.
Civ. No. 1907-N.
United States District Court D. Nevada.
September 6, 1968.
*187 John C. Bartlett, of Vargas, Bartlett & Dixon, Reno, Nev., for plaintiff.
Richard W. Blakey, of Woodburn, Forman, Wedge, Blakey, Folsom & Hug, Reno, Nev., for defendant Maryland Casualty Co.
OPINION
THOMPSON, District Judge.
This is a suit on two fidelity bonds brought by Mapes Casino, Inc., a Nevada corporation, against Maryland Casualty Company, a Maryland corporation. Jurisdiction is based on diversity of citizenship and the jurisdictional amount. 28 U.S.C. § 1332.
The first policy, effective January 1, 1960 and in effect until July 1, 1965, was a comprehensive Dishonesty, Disappearance and Destruction Policy insuring against "Loss of Money, Securities and other property which the insured shall sustain, to an amount not exceeding in the aggregate the amount stated in the Table of Limits of Liability applicable to this insuring Agreement 1, through any fraudulent or dishonest act or acts committed by any of the employees, acting alone or in collusion with others." Under the Table of Limits of Liability is the item: "Insuring Agreement I, Employee Dishonesty CoverageForm A, $10,000." Other provisions of the policy pertinent to this controversy are quoted in the footnote.[1]
*188 Effective July 1, 1965, a Blanket Crime Policy was substituted for the 3-D policy. It insured against "Loss of Money, Securities and other property which the Insured shall sustain through any fraudulent or dishonest act or acts committed by any of the Employees, acting alone or in collusion with others." It provided: "Total Limit of Liability, $100,000." The Blanket Crime Policy contains the same provisions as the 3-D policy regarding the use of inventory or profit computations to prove loss; the coverage of loss by unidentifiable employees; and the requirements of notice and proof of loss. The Blanket Crime Policy, apparently through inadvertence of the insurer, has no endorsement excluding from coverage corporate officers, dealers and shills. It does, however, include the following standard clause which affects the limits of liability under the preceding 3-D policy:
"12. Limit of Liability Under This Policy and Prior Insurance. With respect to loss caused by any person (whether one of the Employees or not) or in which such person is concerned or implicated or which is chargeable to any Employee as provided in Section 4 and which occurs partly during the Policy Period and partly during the period of other bonds or policies issued by the Company to the Insured or to any predecessor in interest of the Insured and terminated or canceled or allowed *189 to expire and in which the period for discovery has not expired at the time any such loss thereunder is discovered, the total liability of the Company under this Policy and under such other bonds or policies shall not exceed, in the aggregate, the amount carried under this Policy on such loss or the amount available to the Insured under such other bonds or policies, as limited by the terms and conditions thereof, for any such loss, if the latter amount be the larger."
Mapes Casino, Inc. is engaged in the licensed gaming and casino business in Reno, Nevada. Its principal table games are craps (dice), twenty-one and roulette. Chips are sold for cash or credit to players for their use at the games. Other casinos, such as Harrah's Club, Harolds Club, Primadonna, Horseshoe and Palace Club, operate in the same way and the chips sold by each club in one dollar, five dollar and twenty-five dollar denominations circulate freely as money in the other clubs and will be exchanged for money in the other clubs.
The skeleton crew of a gaming casino consists of the manager, the cashier, pit bosses who supervise the games, and the dealers. Each twenty-one game has a dealer and a roulette wheel is operated by a dealer or croupier, sometimes with an assistant check racker, but a large crap table, in addition to two dealers or stickmen, is usually regulated by a boxman who sits between the stickmen and supervises the bets, collections and payoffs. The boxman, when relieved for rest periods, is replaced by a pit boss, not a dealer, and his duties are more nearly aligned with supervision and management than with dealing.
In August, 1965, the management of the Mapes Casino received a report from a cashier of another casino that unusually large amounts of Mapes chips were being cashed in. The assistant manager requested other casinos to watch for similar occurrences and received like reports. Toward the end of August, one Buster Collins was identified by the Cashier of the Primadonna Club as the person who had cashed in an unusual quantity of Mapes chips. Collins was interrogated by the police and officials of Mapes Casino and admitted cashing in chips at other casinos for unnamed Mapes employees for a period of from eighteen to twenty months. A few days later, Collins conferred with Mr. Glen Thorne and Mr. Charles Mapes and named certain employees who were involved in filching chips, all connected with the crap game and including five who had been employed at times as boxmen. Thereafter certain of Mapes Casino employees were fired.
Collins' story, reaffirmed in his testimony in Court, was that over a period of eighteen to twenty months preceding August, 1965, he received telephone calls (sometimes relayed through his wife) that a quantity of Mapes Casino chips would be found in a certain automobile parked at a certain place. He would go to the automobile, obtain the chips, cash them at another casino and place the money received in the automobile, receiving varying amounts for his services. About June 1, 1965, he received $1,650 in casino chips (approximately two-thirds Mapes chips) from one Matt Mathenia at a local motel and cashed them. About three weeks later, he got $650 in chips from the same man at the same place. Mathenia was a crap dealer employed from June 9, 1964 to May 21, 1965, and from July 8, 1965 to September 1, 1965. Twice in August, 1965, Collins received a telephone call from a voice that sounded like "Rich" telling him to go to a blue Corvair. On one occasion, there were $1,300 in chips and on the other occasion there were $1,200 in chips. Other testimony justifies an inference that "Rich" was one Richard Jonaitis employed as a dealer and boxman at the Mapes. Collins also testified that with the exception of the four large "cashouts" just mentioned, the amounts of chips he picked up from automobiles ranged from $150 to $350 during a period of eighteen to twenty months as often as twice a week with sometimes a three-month interval between transactions. He *190 estimated he had handled a total of about $15,000 in stolen chips. Collins' activities in cashing unusual amounts of Mapes chips during May, June, July and August of 1965 were corroborated by the testimony of cashiers of other casinos.
Collins was not the only pick-up man involved. William M. Nash, now employed by Mapes, was a lookout detective in Harolds Club between November, 1963 and August, 1965. During a six-months period while he was on the graveyard shift, he observed a man, not Buster Collins, cash in $200 to $400 in Mapes casino chips at Harolds Club cashier's cage three or four times a week. Further, Jerelin Smith, a cashier for Harrah's Club, testified that she had not only cashed in unusual quantities of Mapes chips for Buster Collins, but also that on two occasions, she remembered she had cashed in Mapes chips for a very nervous woman in amounts in excess of $600.
At the time of Collins' confession, one Frank A. Almquist was an adjuster for Maryland Casualty Company stationed at Reno. In September, 1965, he was orally notified by Mapes about the Collins situation and the possibility of a large claim against the bonds, and this information was relayed to the San Francisco office of the company. Some months passed while the Mapes officials were attempting to compute the loss and fix the responsibility. Finally, on February 8, 1966, Almquist wrote a letter to one Frank Hassett, an adjuster Mapes had hired, as follows: "Pursuant to our conversation, in regard to the possible large money loss at the Mapes Hotel, we are attaching a proof of loss form for completion." On February 10, 1966, the insured executed and delivered a "Proof of Loss" which read, in part: "[P]resent claim for loss resulting from default of various employees in the Mapes Casino. Said employees have been in the employ of said Employer for varying periods from November 1963 to August 1965, the employment having been discontinued by reason of our discovering the shortages of money in the total amount of $431,024.00." On February 28, 1966, Almquist acknowledged receipt and stated: "Would you please forward the names of the employees in question." On the same date, Almquist wrote a report to the home office which shows that he was familiar with the basis for the claim and includes the statement: "This insured, via Mr. Hassett, stated to me that he had ten names, but he did not wish to disclose them at this time. I do not know what positions they held." On March 14, 1966, the manager of the San Francisco Claim Division of defendant wrote to Almquist regarding the claim.[2] Defendant company obtained a copy of the police report and hired an investigator who made a report on April 15, 1966 which included a summary of an interview with Buster Collins.
On March 17, 1966, officials of defendant company from San Francisco met with Mr. Mapes and Mr. Hassett. Defendant was interested in obtaining approval *191 of an endorsement to the Blanket Crime Policy to exclude coverage of officers, dealers and shills, an endorsement claimed to have been omitted by mistake. Mapes refused. The proof of loss was discussed, defendant seeking the names of the defalcating employees asserted to be responsible for the loss. Mapes refused to charge specific employees with the loss unless he could be assured of indemnification against possible liability for defamation.
On May 10, 1966, Almquist wrote Mapes: "Your proof of loss dated February 10, 1966 in the amount of $431,024.00 has been reviewed and it fails to prove a loss. There is no evidence of a loss. For these reasons and other valid reasons, we must respectfully deny your claim."
This action was commenced on December 30, 1966.
REJECTION OF HEARSAY
The record in this case is full of hearsay testimony, some received over the objection of defendant. At the outset of the examination of Buster Collins, plaintiff asked him to testify to what he had told others, i. e., the police officials and Mapes officials, apparently believing that these statements qualified as declarations against interest, an exception to the hearsay rule. The Court entered the lists and announced that it would reject the orthodox rule that prior inconsistent statements of a witness are admissible only as affecting his credibility but not for the truth of the matter then stated and would go along with Professor Edmund M. Morgan's exposition of the absurdity of such a rule. (See, for example, the American Law Institute, Model Code of Evidence.) This statement served only to confuse counsel and to further complicate the record. The difficulty has been resolved, however, by the subsequent express disavowal by counsel for plaintiff of an intention to rely upon any hearsay testimony to prove his case. Accordingly, the Court has disregarded and has treated as stricken from the record testimony of that character, including, for example, the testimony of Officer Andrini, Officer Poole, Mr. Mapes and Mr. Thorne regarding what Collins had told them and their identification of employees allegedly involved in stealing chips. This leaves us with only four employees identified by competent evidenceMatt Mathenia, a crap dealer; Richard Jonaitis, a crap dealer and boxman, identified by Collins; Eddie Moss, a pit boss; and Bob Pratt, a crap dealer, identified by Bud Van Hatton. Moss was employed as a pit boss from July 3, 1962 until March 31, 1964, and Pratt was employed as a dealer from November 23, 1963 until September 13, 1965.
PROOF OF LOSS WAS TIMELY AND ADEQUATE UNDER THE CIRCUMSTANCES
Defendant argues that the proof of loss was not filed within four months after discovery of the loss; that is, that the formal claim filed in February, 1966 was not within four months of the apprehension of Collins in August, 1965. It is true that in August, plaintiff discovered evidence of a loss indemnified by the bonds, but not the full extent thereof. Defendant was promptly advised of the circumstances. The proof of loss form was supplied by defendant's Agent in February, 1966, a proof of loss was submitted, an investigation was conducted, and in May, 1966, the claim was rejected, not on the ground that it was untimely but on the grounds that "it fails to prove a loss. There is no evidence of a loss." The claims manager of Maryland testified that it was common practice under fidelity bonds to report losses "subject to audit". The bizarre circumstances of this case and the obvious difficulty of pinpointing the loss and the employees responsible therefor (who may have been either covered or excluded employees under the 3-D policy) justify a finding, from the facts we have related, of a waiver of strict compliance with the time limitations of section 8 of the policy (Fn. 1, supra). If an insurer denies liability to an insured on grounds other than those relating to defects in the notice *192 or timeliness of proof of loss, compliance with the requirements as to notice and proof of loss will be deemed waived. Travelers Insurance Co. v. Peerless Insurance Co., 9th Cir. 1961, 287 F.2d 742; Couch on Insurance, 2nd Ed., § 26.305; Gerhauser v. North B. & M. Ins. Co., 7 Nev. 174, 187.
Defendant also asserts that the proof of loss submitted in February, 1966 is too general and undetailed to satisfy the requirements of the policy. We cannot say much for the draftsmanship of the so-called "proof" which, in substance, claimed $431,024 for default of "various employees" from November, 1963 to August, 1965. Most of the period mentioned was under the 3-D policy which excluded dealers, shills and officers from coverage and which provided excess indemnity (Endorsement 66, Fn. 1, supra) for certain employees. Plaintiff's evidence at trial sought to involve certain managerial employees such as the casino manager and head cashier to raise the umbrella of the excess coverage endorsement.
We think it reasonable to require under a fidelity bond such as the 3-D policy first issued by Maryland to the insured a bond which not only excludes certain classes of employees from coverage but provides excess indemnity in varying amounts with respect to other employeesthat the proof of loss submitted should identify the employee or employees charged with the responsibility for the loss, that at the very least the proof of loss should put the insurer on notice of a claim within the coverage of the bond. 50 Am.Jur. 1142, Suretyship, § 361. Counsel have cited no authority and we have found none which poses the fear of a suit for defamation as a justification for non-compliance with the proof of loss requirements of a fidelity bond.
Nevertheless, we cannot ignore the "Loss caused by Unidentifiable Employees" (Fn. 1, supra) coverage of the bonds. The proof of loss submitted was an adequate statement of loss due to unidentifiable employees. Defendant's adjuster was conversant with the facts and circumstances supporting the claim, and the company made no demand for additional information other than the names of the defaulting employees. The statement in the rejection letter, "There is no evidence of a loss", was patently incorrect and was known by the responsible officials of defendant company to be incorrect. There was then clear and acceptable proof that a substantial loss had been suffered due to employee dishonesty. The difficulty which both the insured and insurer faced was in establishing how the loss occurred and the extent thereof. Treating this as a proof of loss due to defalcations by unidentifiable employees under the coverage of the bonds, the insured furnished all information it could reasonably be expected to supply under these unusual circumstances, and the proof of loss, as so supplemented, is adequate to invoke the protection of the bonds. This is the kind of claim which would have to be settled by arbitration or litigation unless the parties should buy their peace by picking a settlement figure out of the air. Under the circumstances, the rejection of the claim by defendant company was automatic.
COMPUTATION OF THE LOSS
After disclosure of Collins' activities, Mapes Casino reexamined its records and determined that the percentage of win for the crap tables between November, 1963 and August, 1965 was much lower than it should have been by mathematical calculation. In casino parlance, the percentage of win to drop is the "per." A shift of a crap table, or other game, starts with a certain money value of chips in the bank. As the game progresses money received from the players is dropped in the box, as are chips of other casinos. As the game progresses, the bank may become depleted and a fill of chips is brought from the cashier's cage; the amount is recorded on a fill slip which is also dropped in the box; and credit slips are dropped representing excess chips taken from the table. At the conclusion of the shift, the percentage which the game won or lost may be calculated *193 by comparing the starting bank with the ending bank and the drop. The figure of $431,024 claimed by Mapes in its proof of loss was arrived at by calculation. The total drop for the crap games from November, 1963 through August, 1965 (twenty-two months) was $3,162,797. Assuming a normal win percentage of twenty per cent, Mapes believes its crap games won $632,559 during this period. The books show a total win of $201,535, or 6.37% of the drop. The difference of $431,024 is the amount claimed due to filching of chips by employees. As defendant points out, this represents 86,200 five dollar chips.
Mapes' records show that the twenty-one and roulette games held the normal percentage during this twenty-two month period and that the only bad experience was with the crap game.
Defendant objected to this evidence as falling within exclusion 2(b) of the bonds (Fn. 1, supra) "a loss the proof of which either as to its factual existence or as to its amount is dependent upon a * * * profit and loss computation." In our view of the evidence, we need not discuss the ramifications of this exclusionary clause and the varying applications of it in the cases. See: "Claims for Inventory Shortage Resulting from Employee Dishonesty Under Fidelity Insurance Bondsa Present Appraisal", Vol. XXXIII, Insurance Counsel Journal, No. 3, July, 1966, p. 397; Meyer Jewelry Company v. General Insurance Company of America, 1968 Mo., 422 S.W.2d 617; Gillette Company v. Travelers Indemnity Company, 7th Cir. 1966, 365 F.2d 7. The preponderance of the evidence shows that while computation of the percentage of win from a game and calculation of an unusually low percentage of win are reliable indicia for the guidance of management and a probable indication that something may be wrong, they are not reliable proof of loss due to employee dishonesty. There are too many variables. A bad "per" on the books may be due to skimming (taking off the top before counting the drop), scamming (cheating by collusion between dealer and player), crossroading (professional cheaters among the players), bad fills, false fills, spotty play, the odds given by the house, and just plain bad luck. Reliable testimony indicates that each casino tends to establish its own normal percentages, and that they vary from house to house.
While the statistical evidence of the gaming experience at the Mapes Casino is unpersuasive in proving the amount of employee defalcation, it is probative and pertinent evidence in other respects. Over a period of several years, the house percentage for craps at the Mapes has averaged approximately 18%. During the twenty-two month period in question, the percentage of win was 6.37%. This is evidence that something was wrong, and employee dishonesty is one possibility. We consider the evidence to be probative in the following particulars:
1. It identifies the crap table as the locus of the problem.
2. It corroborates Collins' testimony of the period of time involved in the filching of chips by employees.
3. It is corroborative of other evidence that the losses due to employees were substantial and that Collins was probably not the only outside man, or woman, who was used to exchange the Mapes chips for money at other casinos.
LIMITS OF LIABILITY
Under the 3-D policy, with its unidentified employee coverage, the first problem we face is the endorsement excluding coverage for officers of the company, dealers and shills (shills are persons hired to play at the games to keep them going when patrons are few). These employees were not excepted from coverage under the Blanket Crime Policy effective after July 1, 1965.
The 3-D policy covers losses sustained through fraudulent or dishonest act or acts committed by employees "acting alone or in collusion with others." If the evidence has shown that the crap dealers could have stolen the chips acting alone, there would be no coverage. But *194 the evidence is to the contrary. The preponderance of the evidence warrants the finding that no crap dealer could have filched any substantial quantity of chips without the connivance of the boxman, and, in all probability, the pit bosses. Some witnesses suggested that the entire personnel of the casino would have to be involved. In any event, it is clear that unidentified employees who were within the coverage of the policy colluded in the defalcations.
Because the defaulting employees cannot be identified, the excess coverage (Endorsement 66) of the 3-D policy does not come into play. We are saved the difficulty of determining whether the aggregate limit of liability in these circumstances under the 3-D policy is $10,000 by paragraph 12 of the superseding Blanket Crime Policy (see p. 4 supra) which increases the limits of liability under the 3-D policy to $100,000. This is not only the plain import of paragraph 12, but defendant Maryland Casualty Company concedes the effect as stated. Accordingly, unless the evidence proves an aggregate loss in excess of $100,000, there is no need, and certainly no desire, further to investigate the intricacies of the coverage limitations of these policies.
DAMAGES
The extent of the damages suffered by Mapes Casino as a result of employee dishonesty covered by the fidelity bonds is not a matter of exact mathematical calculation. The law does not require that it be so exactly proved. In this diversity action, Nevada law applies, and the Nevada Supreme Court acknowledges the general rule that the preclusion of recovery of uncertain damages is directed against uncertainty as to the existence or cause of damage rather than as to measure or extent. Brown v. Lindsay, 68 Nev. 196, 228 P.2d 262; Casey v. Musgrave, 72 Nev. 31, 292 P.2d 1066. In the Brown case, the Court said:
"There were periodic shortages; loss in production and efficiency was very definite; there was a definite delay and loss of time due to insufficient logs. This was not the result of speculation or conjecture; this was not guesswork.
"The uncertainty in the testimony applies not to the existence or cause of damage but rather to its extent or measure. Even here the uncertainty is not speculative or conjectural in character. The testimony as to the extent of damage is not based upon inference or assumption as to what may have occurred but upon recollection as to what actually did occur. In the view of this court, the extent to which that recollection was uncertain in detail will not serve to render it wholly insufficient. Accordingly there was evidence to support the finding and judgment of the lower court in this respect, and upon that item of damages the judgment is sustained."
The computation of damages is based upon the testimony of witnesses and not upon the records of the Mapes Casino. Collins testified to four large "cash-outs" in June, July and August, 1965, of $1,650, $650, $1,300, and $1,200, a total of $4,800. The testimony that part of the chips were from other casinos is not corroborated by any casino cashier and is discredited.
Collins testified that he operated from eighteen to twenty months in this activity and cashed in from $150 to $350, irregularly, sometimes twice a week, in chips. The cashiers of other casinos recalled occasions when Collins cashed in $250$300 (Harrah's Cashier); $200 (Palace Club); $200$300 (Palace Club); $150$200 (Primadonna Club); $300 (Palace Club). We conclude from all the evidence that during a period of eighteen months before July, 1965, and excepting the four big "cash-outs", and taking into consideration some irregularity in the action, Collins cashed an average of $400 a week of Mapes Casino chips stolen by Mapes employees with the collusion of covered employees, totaling approximately $28,800.
The lookout detective of Harolds Club testified that for a period of six months, *195 he observed a man, not Buster Collins, cash in $200 to $400 of Mapes Casino chips three or four times a week. Inferring an average of $900 per week, the total is approximately $21,600. And the Harrah's Club cashier remembered approximately $1,200 worth cashed in by a very nervous woman during this period.
Accordingly, we conclude from the evidence that the total recoverable loss under the fidelity bonds was $56,400.
This Opinion will suffice as the Court's Findings of Fact and Conclusions of Law, and judgment shall be entered accordingly.
NOTES
[1] "2. Exclusions. This Policy does not apply: * * *
"(b) under Insuring Agreement 1, to loss, or to that part of any loss, as the case may be, the proof of which, either as to its factual existence or as to its amount, is dependent upon an inventory computation or a profit and loss computation; provided, however, that this paragraph shall not apply to loss of money, securities or other property which the Insured can prove, through evidence wholly apart from such computation, is sustained by the Insured through any fraudulent or dishonest act or acts committed by any one or more of the Employees;"
"4. Loss Caused by Unidentifiable Employees. If a loss is alleged to have been caused by the fraud or dishonesty of any one or more of the Employees and the Insured shall be unable to designate the specific Employee or Employees causing such loss, the insured shall nevertheless have the benefit of Insuring Agreement 1, subject to the provisions of Section 2(b) of this Policy, provided that the evidence submitted reasonably proves that the loss was in fact due to the fraud or dishonesty of one or more of the said Employees, and provided, further, that the aggregate liability of the Company for any such loss shall not exceed the Limit of Liability applicable to Insuring Agreement 1."
"8. Loss-Notice-Proof-Action Against Company. Upon knowledge or discovery of loss or of an occurrence which may give rise to a claim for loss, the Insured shall: (a) give notice thereof as soon as practicable to the Company or any of its authorized agents and, except under Insuring Agreements I and V, also to the police if the loss is due to a violation of law; (b) file detailed proof of loss, duly sworn to, with the Company within four months after the discovery of loss."
Endorsement 28:
"It is agreed that:
"1. With respect to Insuring Agreement 1, "Employee", as defined in Section 3 does not mean any of the following:
CORPORATE OFFICERS
DEALERS
SHILLS"
Endorsement 66:
"It is agreed that:
"1. Excess indemnity, in accordance with the terms of Insuring Agreement 1, is granted by this endorsement on the Employees performing the duties of the following positions, to the amount set opposite the names of such positions, respectively. The amount of such excess indemnity shall apply only to so much of any loss sustained through acts or defaults committed after such excess indemnity becomes effective as is in excess of the amount recoverable or recovered on account of such loss under insuring Agreement 1.
"2. The liability of the Company under this endorsement on account of any one Employee in any one or more of such positions (in the original or an increased or decreased amount) shall not exceed the largest single amount of indemnity on any one position occupied by such Employee.
"3. No excess loss shall be recoverable under Insuring Agreement 1 as amended by this endorsement unless caused by an Employee who has been identified as having caused such loss, anything to the contrary in Insuring Agreement 1, or this endorsement notwithstanding.
---------------------------------------------------------------------------
Positions Location Total Number Amount of Excess
of Employees Indemnity
in Each Position on Each Employee
---------------------------------------------------------------------------
Head Cashier Reno, Nevada 1 $40,000.00
Auditor Reno, Nevada 1 90,000.00
Ass't Auditor Reno, Nevada 1 40,000.00
Payroll Clerk Reno, Nevada 1 40,000.00
Mgr. Reno, Nevada 1 40,000.00
Night Auditor Reno, Nevada 1 15,000.00
Manager (Casino) Reno, Nevada 1 90,000.00
Cashiers (Casino) Reno, Nevada 8 30,000.00
Head Floorman (Casino) Reno, Nevada 4 40,000.00
Manager (Airport) Reno, Nevada 1 40,000.00
[2] "We should make as complete an investigation as possible before we decide whether or not to deny liability in this case.
"You only have one opportunity to do this and that is before a denial of liability. You should insist on insured giving us all of the information they have, which would include the names and addresses of all of those known to have taken money or property, as well as to have them give us something more than we have at the present time, which appears to be merely an estimate of what they think they have lost.
"Do not overlook the possibility of reviewing the police records.
"One of the problems here is caused by the fact that the first policy is in the penalty of $10,000.00 and the second one at a penalty of $100,000.00. Unless the entire loss is confined to the second policy, effective July 1, 1965, there could not be any more than $10,000.00 under the previous policy without going into proof that those mentioned under the excess coverage were responsible for the loss.
"This may be the only opportunity you will have to find out if they have any information before the door is closed on this subject." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2148935/ | 868 F. Supp. 1085 (1994)
VALMET PAPER MACHINERY, INC. and Valmet-Charlotte, Inc., Plaintiffs,
v.
BELOIT CORPORATION, Defendant.
No. 93-C-587-C.
United States District Court, W.D. Wisconsin.
October 7, 1994.
*1086 Brian E. Butler, Stafford, Rosenbaum, Rieser & Hansen, Madison, WI, for Valmet Paper Machinery, Inc., Valmet-Charlotte, Inc.
George P. McAndrews, McAndrews, Held & Malloy, Ltd., Chicago, IL, for Beloit Corp.
ORDER
CRABB, Chief Judge.
This is an action for patent infringement, presently before the court on defendant's motion to dismiss the complaint, pursuant to Fed.R.Civ.P. 12(b)(1), for lack of subject matter jurisdiction. The basis of defendant's motion is a claim that plaintiffs lacked standing to institute or maintain this action. For the reasons expressed below, defendant's motion will be denied.[1]
FACTS
The facts relevant to defendant's motion are not in dispute. United States Patent No. 3,868,780 ("'780 patent") issued on March 4, 1975 to Valmet Oy, a Finnish corporation that had been assigned the rights to the patent by its inventors. The claims in the '780 patent relate to the technology used in the drying section of a paper making machine. Valmet Oy held the rights to the '780 patent until May 3, 1984, when it assigned the patent to Valmet-Dominion, Inc., its wholly-owned Canadian subsidiary corporation.
In October 1991, Valmet-Dominion, Inc., which had changed its name to Valmet-Montréal, Inc., attempted to orally assign to Valmet Paper Machinery, Inc., one of the plaintiffs in this action, all of its rights in the '780 patent, including the right to sue for past infringement. Approximately five months later, on March 4, 1992, the patent expired.
The present infringement action was commenced on January 26, 1993 by Valmet Paper Machinery, Inc., and Valmet Charlotte, Inc., a related corporation. Thirteen days later, on February 8, 1993, Valmet-Montréal, Inc., and Valmet Paper Machinery, Inc., reduced their prior oral agreement to writing. By the terms of that written assignment, which was merely "confirmatory of [the] oral assignment made in October of 1991," the parties agreed to sell, assign, and transfer all rights, title and interest in and to the '780 patent, together with all claims and causes of action for past infringement.
OPINION
It is a well established principle of patent law that patent rights can be assigned, 35 U.S.C. § 261, and that a valid assignment vests independent standing in the assignee to enforce the rights under the patent. Waterman v. Mackenzie, 138 U.S. 252, 255, 11 S. Ct. 334, 335, 34 L. Ed. 923 (1891); Gilson v. Republic of Ireland, 606 F. Supp. 38, 41 (D.D.C.1984), aff'd, 787 F.2d 655 (D.C.Cir.1986). Concerning the most important of these rights, the right to sue for past infringement, Calgon Corp. v. Nalco Chemical Co., 726 F. Supp. 983, 986 (D.Del.1989) (citing Crown Die & Tool Co. v. Nye Tool & Machine Works, 261 U.S. 24, 35-39, 43 S. Ct. 254, 256-58, 67 L. Ed. 516 (1923)), this means that a true assignee can sue for infringements that occurred while the patent was held by the assignor without having the assignor join the lawsuit as an independent party.
Defendant argues that plaintiffs lack standing to institute or maintain the present suit and that the only party with such standing is Valmet-Montréal, the owner of the patent at the time of the alleged infringement. To support this position, defendant first contends that the October 1991 agreement did not confer standing upon plaintiffs because oral assignments are invalid. Next, defendant contends that the February 8, 1993 written agreement did not confer standing *1087 upon plaintiffs because the right to sue for past infringements cannot be assigned after a patent has expired. Finally, defendant contends that even if the written assignment did confer standing upon plaintiffs, since it was executed thirteen days after this suit was filed, it came too late. I will consider each of defendant's arguments in turn.
A. Validity of the Oral Agreement
The first question raised by defendant's motion is whether the October 1991 oral agreement was sufficient to confer upon plaintiffs standing to sue for past infringements of the '780 patent. Defendant correctly contends that it did not because the agreement was oral. Under 35 U.S.C. § 261, only written patent assignments are valid. Section 261 unambiguously establishes the writing requirement: "Applications for patents, patents, and any interest therein shall be assignable in law by an instrument in writing." See also United States v. Solomon, 825 F.2d 1292, 1296 (9th Cir.1987), cert. denied, 484 U.S. 1046, 108 S. Ct. 782, 98 L. Ed. 2d 868 (1988) ("In the context of an assignment of a patent, [the parties] can agree verbally until the cows come home, and that patent isn't assigned until there's a writing."). Consequently, the earliest plaintiffs could have acquired the right to sue under the '780 patent was on February 8, 1993, the date Valmet-Montréal and Valmet Paper Machinery reduced their prior oral agreement to writing.
B. Validity of the Written Agreement
Defendant also challenges the effect of the written assignment, claiming that it did not transfer the right to sue to plaintiffs because the '780 patent expired on March 4, 1992, and the right to sue for past infringement cannot be assigned after a patent has expired. According to defendant, only assignees who have acquired all the rights under a patent, including the exclusive right to make, use and vend the invention, have standing to sue, and in this case, because the '780 patent rights passed into the public domain when the patent expired, plaintiffs acquired only a "naked right to claim damages," which, under Crown Die & Tool Co. v. Nye Tool & Machine Works, 261 U.S. 24, 43 S. Ct. 254, 67 L. Ed. 516 (1923), does not confer standing.
Referring first only to its language, the written agreement satisfies two essential prerequisites of an assignment. Even though it purports merely to confirm the ineffective prior oral agreement, it (1) unmistakably demonstrates the parties' intention to transfer to plaintiffs all rights to the '780 patent; and (2) expressly includes the right to sue for past infringement. See McClaskey v. Harbison-Walker Refractories Co., 138 F.2d 493, 499 (3d Cir.1943) (assignment language must indicate the parties' unmistakable intention to transfer a legal interest in the patent, though no particular form of words are required) and Hockerson-Halberstadt, Inc. v. Nike, Inc., 779 F. Supp. 49, 52 (E.D.La.1991) (rights of action for past infringement are conveyed only expressly and not by a mere assignment of the patent) (citations omitted).
Second, the defendant's basic premise that the right to sue for past infringement cannot be assigned after a patent has expired contradicts over a century of established patent law. After thoroughly examining the case law and the writings of patent authorities, I conclude that the right to sue for past infringement may indeed be assigned after a patent has expired and that the assignee of such a right can maintain an infringement suit in its own name. This was the court's conclusion in Tompkins v. St. Regis Paper Co., 226 F. 744 (D.C.N.Y.1915), aff'd, 236 F. 221 (2d Cir.1916), despite the defendant's identical argument that once a patent expires, the right to sue for past infringement cannot be assigned because "there [is] nothing to assign, except a mere cause of action at law to recover the damages." Id. at 747; see also Ross v. Ft. Wayne, 63 F. 466 (7th Cir.1894); May v. Saginaw County, 32 F. 629 (C.C.Mich.1887). Patent authorities concur. See, e.g., Lipscomb's Walker on Patents § 19:19 (3d ed. 1987) ("An assignment of a patent after it expires is a nullity with respect to the transfer of a grant but will operate to transfer to the assignee the right to sue for past infringements.").
Defendant relies on Crown Die & Tool Co. v. Nye Tool & Machine Works, 261 U.S. 24, 43 S. Ct. 254, 67 L. Ed. 516 as a case that *1088 upsets this principle, but nothing in Crown Die restricts the right of an assignee of an expired patent to maintain an infringement action in its own name. In Crown Die, the patent holder transferred to the plaintiff, during the life of the patent, only the right to sue for past and future infringements, and not the right to make, use or vend the patented article. In other words, the patent owner "divide[d] up the monopoly of patent property" by assigning the right to sue for infringements while retaining substantial rights under the patent. Id. at 38-39, 43 S. Ct. at 257-58. The Supreme Court concluded that this arrangement was not an assignment and did not confer upon the plaintiff standing to sue for past infringements in its own name. Id.
To support the position that the right to sue for past infringements cannot be transferred after the patent has expired, defendant analogizes the assignment of an expired patent to the situation in Crown Die. Essentially, defendant contends that with the '780 patent having expired, plaintiffs in the present case are like the plaintiff in Crown Die: they received no more than the right to sue for past infringements. However logically appealing that argument may be, it is not supported by the policy considerations that motivated the decision in Crown Die, namely, a desire to prevent a patent owner from stirring up litigation by third parties by dividing up the monopoly of patent property and assigning rights to different individuals. Id.
Because in Crown Die the patent assignment occurred during the life of the patent, the plaintiffs in the present case and the plaintiff in Crown Die do not stand in the same position. In Crown Die the patent owner retained substantial rights in the patent. In the present case, by contrast, the patent owner retained no interest in the '780 patent. The significance of this distinction has not been lost on the patent authorities.
While an assignment of a patent after its expiration may be looked on as merely an assignment of the right to sue for infringements committed prior to the expiration of the patent, such an assignment is free of the objections raised by the Supreme Court in the Crown case. In that case, the court emphasized the fact that the assignee had no right to use the invention.... Where an assignment is made after expiration of the patent, the assignee has such common-law right. True, all the rest of the world has the same right, but at the same time the assignee has all of the rights of his assignor.
Risdale Ellis, Patent Assignments § 61 (3d ed. 1955).
Hence, only in Crown Die and not in the present case was the monopoly of patent property divided up in such a way that "it would give the patentee an opportunity ... to stir up litigation by third persons that is certainly contrary to the purpose and spirit of the statutory provisions for the assigning of patents." Id. at 39, 43 S. Ct. at 257.
For these reasons, I conclude that the February 8, 1993 written confirmation between Valmet-Montréal and Valmet Paper Machinery, under which plaintiffs received all rights in the patent, including the right to sue for past infringement, transferred to plaintiffs the right to maintain an action for past infringement in their own names.
C. Timing
The conclusion on standing does not dispose of the current dispute. The conclusion that plaintiff Valmet Paper Machinery was validly assigned the right to sue for past infringement leaves the remaining issue whether the grant came too late for plaintiffs to maintain the present action. Defendant asserts that even if the February 8, 1993 assignment was valid, plaintiffs lacked standing on January 26, 1993, the day they instituted this lawsuit, and that this defect was irremediable.
Courts have disagreed on the ability of a post-filing assignment to confer standing upon a party that lacked standing on the day it filed its patent infringement action. For instance, in Afros S.p.A. v. Krauss-Maffei Corp., 671 F. Supp. 1402, 1443-46 (D.Del. 1987), aff'd without opinion, 848 F.2d 1244 (Fed.Cir.1988), the primary case upon which defendant relies, the court held that an assignment effectuated at least seven months after suit was instituted did not confer standing *1089 upon the assignee to maintain an infringement action. The defendant in Afros was a subsidiary of a West German corporation that counterclaimed for infringement of a patent it had been assigned. As of the date of the counterclaim, however, the defendant lacked standing to sue for infringement because under West German law the assignment was not currently valid. Id. at 1445. Even though under West German law the assignment subsequently became valid and related back to the date of the transaction, the court held that the assignee's lack of standing on the day it instituted suit could not be cured. Id. at 1445-46. According to the court, "[p]ermitting a presently invalid assignment to serve as a basis of [a patent infringement claim] on the ground that it later `became' valid, which ratification transposes itself back in time, will impermissibly expand the class of persons able to sue for infringement." Id. at 1446.
A contrary conclusion was reached, however, in two other cases. In Procter & Gamble Co. v. Kimberly-Clark Corp., 684 F. Supp. 1403 (N.D.Tex.1987), the court held that an assignee who had not been assigned complete interest in the patent until a few weeks after it commenced an infringement suit nevertheless had standing to maintain the action. The defendant in Procter & Gamble had counterclaimed against the assignor, contending that it was a necessary party because the plaintiff lacked standing to sue on the day it filed suit. The court disagreed and granted the assignor's motion to dismiss, reasoning that:
A party which assigns all of its rights and interests under a patent should not be compelled to litigate an infringement action merely because it was the patent owner on the day suit was filed and for a few days thereafter. A party which divests itself of all of its interest in a patent does not have a sufficient stake in the outcome of the controversy to require that it remain a party. Any other result would exalt form over substance.
Id. at 1407. Thus, the assignee had standing to maintain the infringement suit solely in its own name, despite its lack of standing on the day it instituted the action.
In Ciba-Geigy Corp. v. Alza Corp., 804 F. Supp. 614 (D.N.J.1992), a more recent case, the plaintiff did not acquire standing to sue past infringers until six and one-half months after it filed suit. Id. at 635. Defendant moved to dismiss the complaint on the ground that plaintiff lacked standing to institute the action. The court denied the motion. Relying on Procter & Gamble and declining to follow Afros, the court applied the post-filing assignment retroactively to the day that plaintiff instituted the lawsuit, thereby conferring standing upon plaintiff. This resolution, the court reasoned, was wiser than dismissing the lawsuit or requiring the assignor to join as a necessary party when it no longer had any real interest in the patent, for either of those alternatives would "only exalt form over substance." Id. at 637. The court was additionally persuaded by the practical realities of the situation. Specifically, because the post-filing assignment transferred to plaintiff all rights to the patent, "continuing the lawsuit without joinder of the [assignor] allow[ed] the court to litigate all the rights to the patent without fear of the [assignor] bringing a subsequent lawsuit." Id. Moreover, had the court dismissed the action, plaintiff could have simply reinstated the lawsuit. Id.
I am persuaded by the logic of the district courts' positions in Procter & Gamble and Ciba-Geigy to allow plaintiffs to maintain this action in their own names. As in those cases, the assignor in this case possesses no interest in this lawsuit. By virtue of the written assignment it relinquished to plaintiff all rights in the '780 patent. As a result, the parties to the present action will be able to gain complete relief and defendant Beloit need not fear multiple and possibly inconsistent lawsuits with regard to the '780 patent. Furthermore, a decision that the written assignment did not cure the standing defect would simply lead plaintiffs to amend the complaint to add the assignor and then dismiss it as an unnecessary party, or simply to reinstate the lawsuit. Either alternative would result in needless delay and needless expenditure of the parties' and the court's resources. Thus, holding that the written assignment executed only thirteen days after *1090 suit was commenced did not cure plaintiffs' standing defect would only "exalt form over substance."
ORDER
IT IS ORDERED that defendant's motion to dismiss plaintiffs' complaint for lack of standing is denied.
NOTES
[1] On September 30, 1994, claiming that defendant had "resorted to briefing by ambush," plaintiffs filed a motion to strike an argument raised by defendant for the first time in its reply brief. In view of the conclusions I reach here, it is unnecessary to rule on plaintiffs' motion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2148422/ | 473 F.Supp. 13 (1979)
Ronald L. JORDAN, Individually and on behalf of all others similarly situated, Plaintiffs,
v.
John MILLS, Business Manager, State Prison of So. Michigan, Jackson, Michigan, and David Sanford, Supervisor of the Inmate Store, State Prison of Southern Michigan, jointly and severally, Defendants.
Civ. A. No. 77-71584.
United States District Court, E. D. Michigan, S. D.
March 8, 1979.
*14 Ronald L. Jordan, pro se.
John P. Mack, Asst. Atty. Gen., Frank J. Kelley, Atty. Gen., Lansing, Mich., for defendants.
MEMORANDUM OPINION AND ORDER REGARDING DEFENDANTS' MOTION TO DISMISS OR, IN THE ALTERNATIVE, FOR SUMMARY JUDGMENT
JULIAN ABELE COOK, Jr., District Judge.
This is a very unusual case. It involves a lawsuit instituted by an inmate at Jackson Prison who seeks to maintain a class action for declaratory and injunctive relief against two Defendants, one of whom is the Prison Business Manager, and the other being the Supervisor of the Prison's Inmate Store. The Complaint alleges violations of antitrust laws (The Sherman Act), regarding price fixing and other monopolistic activity by the Defendants in their operation of the prison's inmate store. 15 U.S.C. § 1 et seq. (1975).
Plaintiff was granted leave to proceed in forma pauperis under 28 U.S.C. § 1915 (1975). When offered appointed counsel to assist on the case, the Plaintiff cordially declined. The Government filed a Motion to Dismiss under Fed.R.Civ.P. 12(b)(6) or, in the alternative, for Summary Judgment under Fed.R.Civ.P. 56(b) & (c). The responsive pleadings of the Plaintiff indicate (as do other pleadings drafted by him in the file) that it was no tactical error for him to decline appointment of counsel. He is more than capable of carrying his own weight.
The Defendants argue in their motion for Dismissal/Summary Judgment that they are exempted from the reach of antitrust legislation because of the State action exemption first recognized in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943) and refined in a subsequent line of cases. In his Answer, the Plaintiff aptly focuses upon important language in the recent Supreme Court case City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 393-94, 98 S.Ct. 1123, 1125, 55 L.Ed.2d 364 (1978).
There the Court cited part of the holding of the Fifth Circuit below. The Circuit Court said that to utilize the exemption it was not required that the Defendants show express statutory authority to commit the acts alleged as violation of the antitrust laws. Notwithstanding this, the Appellate Court did say it was necessary to show "the challenged activity was clearly within the legislative intent." The Circuit Court put the onus on the trial court to determine if "from the authority given a governmental entity to operate in a particular area, that the legislature contemplated the kind of action complained of." Id., quoting, City of Lafayette v. Louisiana Power & Light Co., 532 F.2d 431, 434-35 (5th Cir. 1976).
Lafayette was a plurality opinion[1] as was Cantor v. Detroit Edison Co., 428 U.S. 579, *15 96 S.Ct. 3110, 49 L.Ed.2d 1141 (1976), another case where the Court tried to make a statement regarding the perimeters of the "State action exemption." The Court has been unable to come to a consensus about when the State action exemption comes into purview. See M. Handler, The Murky Parameters of the State Action Defense: Antitrust 1978, 78 Colum.L.Rev. 1374, 1374-88 (1978); M. Handler, Changing Trends in Antitrust Doctrines: An Unprecedented Supreme Court Term-1977, 77 Colum.L.Rev. 979, 1005-16 (1977). See also Note, Lafayette v. Louisiana Power & Light Co. The State Action Doctrine & Municipalities, 1979 Det.Coll.L.Rev. 299, 313-16 (1979).
Justice Stewart, with three other Justices, dissented from the position of the plurality and, in so doing, best characterized the position of the plurality.
According to the plurality, governmental action will henceforth be immune from the antitrust laws only when "authorized or directed" by the state "pursuant to state policy to displace competition with regulation or monopoly public service." Ante, at 414, 413, [98 S.Ct., at 1137.] Such a "direction" from the State apparently will exist only when it can be shown "from a particular area, that the legislature contemplated the kind of action complained of." Ante, at 415, [98 S.Ct., at 1138.] By this exclusive focus on a legislature mandate the plurality has effectively limited the governmental action immunity of the Parker case to the acts of a state legislature. This is a sharp and I think unjustifiable departure from our prior cases.
City of Lafayette v. Louisiana Power & Light Co., 435 U.S. at 427, 98 S.Ct. at 1144 (Stewart, J., dissenting).
Given the focus of the plurality upon legislative intent, we would be hard-pressed to say that the Michigan Legislature, when it granted the Department of Corrections and the Director of the Department broad powers to run the state prisons in Mich. Comp. Laws Ann. 791.202, .204, .206 & .211 (1970), contemplated the anticompetitive activity of its officials in running the inmate store. Nevertheless, it is incomprehensible that, if a "State action exemption" is to continue to exist, it would not apply to this case.
It may be that our case could get out from the reach of the plurality test of Lafayette because it deals with State officials or agents not State political subdivisions. The plurality went to extreme lengths to note such a distinction in their process of holding that the City was not immune under the exemption.
The problem with utilizing such a distinction comes from ambiguity within the opinion of the plurality. On the one hand, it is said "[t]hese decisions require rejection of the petitioners' proposition that their status as such automatically affords governmental entities the `state action' exemption." City of Lafayette v. Louisiana Power & Light Co., 435 U.S. at 389 & n. 41, 98 S.Ct. at 1136. This statement clearly establishes that the plurality rejects any per se application of the exemption because it can be shown that the Defendant is a State official or agency. On the other hand, there is language to this effect: "We therefore conclude that the Parker doctrine exempts only the State as sovereign, or, by its subdivisions, pursuant to State policy to displace competition with regulation or monopoly public service." Id. at 411, 98 S.Ct. at 1137.
Consequently, this ambiguity renders any distinction based upon status of little help. See also Id. at 420, 98 S.Ct. 1123 (Burger, C. J., concurring).
The most recent case where the Court spoke with the clear voice of a majority regarding the State action exemption was Bates v. State Bar of Arizona, 433 U.S. 350, 97 S.Ct. 2691, 53 L.Ed.2d 810 (1977). That case involved the applicability of the antitrust laws to an express prohibition of attorney advertising by Court and Disciplinary Rules of the Arizona Supreme Court. The Court found that the exemption was *16 properly invoked in that context. The Lafayette plurality indicated that an essential premise to the Bates holding was a finding that the anticompetitive activity was expressly sanctioned by the State.
We emphasized [in Bates], moreover, the significance to our conclusion of the fact that the state policy requiring the anticompetitive restraint as part of a comprehensive regulatory system, was one clearly articulated and affirmatively expressed as state policy, and that the State's policy was actively supervised by the State Supreme Court as the policy-maker.
City of Lafayette v. Louisiana Power & Light Co., 435 U.S. at 410, 98 S.Ct. at 1135.
Of course, the Stewart dissenters took a contrary position in Lafayette as to this aspect of Bates. "As noted in Bates . . 433 U.S. [at] 361, 97 S.Ct. 2691, 2697, 53 L.Ed.2d 810, actions of governmental bodies themselves present `an entirely different case' falling squarely within the rule of Parker v. Brown." Id. at 431, 98 S.Ct. at 1146.
There is language in Bates which indicates things other than legislative mandate (or a showing of an intention for the legislation to encompass the anticompetitive activity) can precipitate a proper invocation of the State action exemption.
[T]he Court emphasized in Cantor [v. Detroit Edison] that the State had no independent regulatory interest in the market for light bulbs. [Citations omitted] There was no suggestion that the bulb program was justified by flaws in the competitive market or was a response to health or safety concerns. And an exemption for the program was not essential to the State's regulation of electric utilities. In contrast, the regulation of the activities of the bar is at the core of the State's power to protect the public. Indeed, this Court in Goldfarb acknowledged that "[t]he interest of the States in regulating lawyers is especially great since lawyers are essential to the primary governmental function of administering justice, and have historically been `officers of the courts.'" . . . More specifically, controls over solicitation and advertising by attorneys have long been subject to the State's oversight. Federal interference with a State's traditional regulation of a profession is entirely unlike the intrusion the Court sanctioned in Carter.
Bates v. State Bar of Arizona, 433 U.S. at 361-62, 97 S.Ct. at 2697-2698 (emphasis supplied).
To the extent that we can read this portion of Bates as permitting the use of the exemption upon a strong and proper showing that the governmental agency is responding to health or safety concerns, or that its acting is essential to regulating the subject matter concerned (in our case, the prisons and prisoners), or that the regulation of the subject matter concerned (here prisons and prisoners, in Bates lawyers) is essential to a primary governmental function (or is within a State's traditional regulation of an area), then we would have to grant the Defendant's Motion and say the exemption is here applicable.
Clearly, the Department of Corrections by providing the services and performing the function it does, is responsive to the health and safety concerns of the public. This is beyond question. Nevertheless, it does not seem that providing an inmate store, and maintaining it, is something public health and safety mandates. Additionally, it does not seem necessary or essential to the State's maintenance of one of its prisons that it also maintain an inmate store. If such considerations as these were all we had before us, then I would agree with the Plaintiff. To wit, if the State wishes to engage in this non-essential business activity and attempts to make a profit, then it should either allow others to exploit the prison market (arguendo they constitute a market in the purview of the act) or give up its business activity.
However, as this Court reads Bates, such are not the only concerns relevant to determining if the exemption should operate. The Supreme Court has indicated that "[t]here is no doubt that discipline and administration *17 of state detention facilities are state functions. They are subject to federal authority only where paramount federal constitutional or statutory rights supervene." Johnson v. Avery, 393 U.S. 483, 486, 89 S.Ct. 747, 749, 21 L.Ed.2d 718 (1969). We think it clear that regulation of prisons and prisoners is a "primary governmental function" within the meaning of the phrase as it appears in Goldfarb and Bates and that the State's "traditional regulation of" prisons and prisoners is "entirely unlike the intrusion the Court has sanctioned in Carter" or Lafayette or any other case.
As the Report of the Magistrate noted "[a]lbeit the state involvement is not as direct as that appearing in Parker or Bates, there are other considerations unique to the instant case. For example, maintenance and operation of a prison system involves sophisticated judgments concerning security. The Department is in the best position to evaluate this factor. Ordering the inmate store to be more responsive to the demands of the inmates by requiring that it deal with other suppliers may result in an increased flow of contraband as well as risk the safety of other inmates."
We elude to such illustrative concerns, not for the purpose of arguing or showing that public health and safety mandate maintenance of an inmate store, or that such maintenance is essential to prison or prisoner regulation, but rather to exemplify the latitude the Prison authorities need to properly effectuate this primary or traditional State governmental function. Federal interference in the exercise of this function via antitrust regulation is the type of threat to our federalism that fomented the Court to imply the "State action exemption" in the first instance. See Parker v. Brown, 317 U.S. at 351, 63 S.Ct. 307. See also City of Lafayette v. Louisiana Power & Light Co., 435 U.S. at 438-40, 98 S.Ct. 1123 (Stewart, J., dissenting). Cf. New Orleans v. Dukes, 427 U.S. 297, 303, 96 S.Ct. 2513, 49 L.Ed.2d 511 (1976); National League of Cities v. Usery, 426 U.S. 833, 847, 96 S.Ct. 2465, 49 L.Ed.2d 245 (1976).
For the reasons outlined above, this Court concludes that this is a proper case for application of the State action exemption to the Federal Antitrust Laws recognized in Parker.
The recognition of certain undertones in the Bates case regarding primary or traditional State functions gives us an occasion to make some comments about the applicability of National League of Cities v. Usery, 426 U.S. 833, 96 S.Ct. 2465, 49 L.Ed.2d 245 to this case. Although neither party has brought that case to our attention, we think it would be a serious oversight not to say something about it.
Usery, as characterized by Mr. Justice Brennan, was a case wherein the majority "repudiated principles governing judicial interpretation of our Constitution settled since the time of Mr. Chief Justice John Marshall." Id. at 857, 96 S.Ct. at 2476 (Brennan, J., dissenting). The majority found that 1974 Amendments to the Fair Labor Standards Act, as applied to State governmental employers, violated principles of intergovernmental immunity embodied in the Tenth Amendment to the Constitution. The Court conceded that the plenary scope of Congress' Art. I, § 8, cl. 3 Commerce Power would reach the same activity regulated by the statute if private employers were involved. The critical distinction, however, was founded upon the proposition that "[i]t is quite another [thing] to uphold a similar exercise of congressional authority directed, not to private citizens, but to the States as States." Id. at 845, 96 S.Ct. at 2471.
However, not all regulation of State activity or functions triggers the Usery immunity; only governmental functions essential to the separate and independent existence of the State. Id. Or, put another way,
We hold that insofar as the challenged amendments operate to directly displace the States' freedom to structure integral operations in areas of traditional governmental functions, they are not within the *18 authority granted Congress by Art. I, § 8, cl. 3.
Id. at 852, 96 S.Ct. at 2474.
The ambiguity as to what are or are not traditional governmental functions, and what activities are integrally operative to such functions, as well as the application of Usery to other Acts of Congress promulgated under its Commerce Power, have been the subjects of considerable comment. See, e. g., Note, Federal Securities Fraud Liability and Municipal Issuers: Implications of National League of Cities v. Usery, 77 Colum.L.Rev. 1066, 1064-70 (1977).
In relation to our own case, we must begin from the very compelling premise, arising out of Johnson v. Avery, 393 U.S. at 486, 89 S.Ct. 747 and noted above, that prison discipline and administration are clearly State functions. Indeed, a function such as prison administration may well be one of the few unambiguous examples of a traditional governmental function essential to separate and independent existence that is not expressly enumerated in the Usery opinion. See National League of Cities v. Usery, 426 U.S. at 851 & n.16, 96 S.Ct. 2465. Cf. Bounds v. Smith, 430 U.S. 817, 835 (1977) (Burger, C. J., dissenting).
Unlike the Usery case, we do not have here a statute which violates the Tenth Amendment on its face. Congress, in its 1974 amendments, expressly made the Fair Labor Standards Act applicable to public agencies. With regard to the Antitrust laws here involved, Congress has not so expressly included the States or their agencies within its purview. However, as indicated in the Lafayette majority, the States and their subdivisions and agencies are persons within the meaning of the Antitrust laws, and moreover, "[t]he presumption against repeal by implication reflects the understanding that the antitrust laws establish overarching and fundamental policies, a principle which argues with equal force against implied exclusions." City of Lafayette v. Louisiana Power & Light Co., 435 U.S. at 394-97, 399, 98 S.Ct. at 1129. The State action exemption the Court announced in Parker is only one of two implied exclusions ever recognized under the antitrust laws. That exemption is a limited one, however, and there may be circumstances where the exemption is not operative but where Usery may be applicable.
There is nothing in Usery, or the Tenth Amendment, that would indicate that the infirm Federal interference must be explicit, or for that matter, that it must be Congressionally provoked. The proposition that a Constitutionally valid statute or other legislative mandate can have a Constitutionally infirm application has been established in our jurisprudence for a long time. Yick Wo v. Hopkins, 118 U.S. 356, 6 S.Ct. 1064, 30 L.Ed. 220 (1885). Similarly, Constitutionally infirm interpretations placed upon otherwise valid statutes by the Court cannot stand. See National League of Cities v. Usery, 426 U.S. at 854-55 & nn. 18-19, 96 S.Ct. 2465. Therefore, if it was determined that the State action implied exclusion should not apply, it is possible that application of the antitrust laws to State activity could be imperishable under Usery if that activity operated to displace the States' freedom to structure integral operations in areas of traditional government functions.
This Court determines that such is the case here. In making such a judgment we are aware of the strong Federal policy underlying our antitrust laws. However, even in balance, the concerns of the State in operating prisons and matter incidental thereto are of a paramount concern. At least as those concerns are represented by the fact-pattern of this case.
Although the specific activity of the Defendants here could be characterized as a business enterprise, we are all too aware of the primary motive and purpose of the State to administer prisons. If we were to read Usery as inapposite because running a prison store is not essential to running the prison, this Court believes we would render Usery a nullity. Application of the antitrust laws would substantially restructure, significantly alter or entirely displace traditional methods through which the State administers the prisons and allows the prisoners *19 to purchase incidentals. As noted earlier permitting the "market" of prisoners opportunity to purchase from other suppliers could create risks of harm to the prison's safe maintenance and of increased flow of contraband. I can think of few clearer examples of Federal interference with the State's freedom to structure integral operations in areas of traditional governmental functions than would be involved if we were to permit application of our antitrust laws here. The choice of having no prison store or providing the prisoners access to other suppliers permits the State no discretion, latitude or alternatives "regarding their manner in which they will structure delivery of those governmental services which their citizens require." Id. at 847-48, 96 S.Ct. at 2472.
The exact interface between the State action exemption and the intergovernmental immunity espoused in Usery is not clear. The various positions of the Justices at enmity in Lafayette evidences this. See City of Lafayette v. Louisiana Power & Light Co., 435 U.S. at 412 & n. 42, 423-24, 430-31 & 39, 98 S.Ct. 1123. Clearly, concerns regarding fundamental federalism bottom both doctrines. See Id. at 423, 98 S.Ct. 1123 (Burger, C. J., concurring). It is not necessary here to address distinguishing the two nor the policy concerns that predicate them. This Court simply determines (arguendo its conclusion is wrong that the State action exemption is properly applicable to this case) that the Defendants[2] are immune under Usery. Accordingly, the Defendants' Motion is granted.
Although the following statements are in no way related to the Court's opinion, we think something should be said about how this case comes to us. When lawyers think or speak of antitrust litigation, it seems inevitable that images come to mind of high paying corporate clients and keen lawyers, versed and immersed in one of society's few remaining jousting functions. Here, we have an indigent Plaintiff who is serving two life sentences in prison and who represents himself. Although he has not prevailed today, he has brought to this Court's attention, and perhaps he will bring to Higher Courts' attention, a complex issue of some great importance to our Federal scheme of government. The facts of his case are just peculiar enough to point out and highlight the various positions of members of our Supreme Court regarding the State action implied exclusion to our antitrust laws. I think this is some accomplishment for a layman who is to spend the rest of his days deprived of his liberty.
It is so ordered.
NOTES
[1] The Chief Justice joined in Part I of Justice Brennan's opinion, giving that portion of the opinion the impact of clear precedent. However, Part I, taken alone, is of no value to our resolving the problems found here. Our inquiry, therefore, leads us to the remainder of Justice Brennan's opinion and Justice Stewart's dissent.
[2] We note that Usery provided an immunity defense to State governmental subdivisions. Involved here are Defendants who are State officials. Clearly, there may be circumstances where an official may not be permitted to invoke the defense. We can think of many examples. However, although ¶¶ 3 & 4 of the Complaint name the Defendants in their official and individual capacities, these same paragraphs aver that the Defendants acted in their official capacities in their dealing with the inmate store. Nothing in the rest of the Complaint would indicate that the Defendants acted in any other than their official capacity in the committing and perpetuating the alleged wrongdoing. Therefore, there is an identity between the Defendants and State such that they have standing to ifvoke the Usery immunity. Moreover, the Complaint seeks preliminary and injunctive relief against the Defendants under 15 U.S.C. § 4 (1975). We take the Complaint, therefore, to be directed at the Defendants in their official capacities as Prison Business Manager and Inmate Store Supervisor because otherwise the State could avoid the impact of any injunction by simply replacing the named Defendants with some other persons a result clearly abhorrent to the tenor of the Complaint. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2147630/ | 790 F. Supp. 2d 1248 (2011)
BLACK DOG OUTFITTERS, INC., Plaintiff,
v.
State of IDAHO OUTFITTERS AND GUIDES LICENSING BOARD, United States Department of the Interior/Bureau of Land Management and United States Department of Agriculture/United States Forest Service, Defendants.
Civil No. 09-CV-00663-E-EJL.
United States District Court, D. Idaho.
May 13, 2011.
*1251 John M. Curney, Jr., Curney, Garcia, Farmer, Pickering & House, San Antonio, TX, for Plaintiff.
Bruce J. Castleton, Naylor and Hales, Deborah A. Ferguson, U.S. Attorney's Office, Boise, ID, for Defendants.
MEMORANDUM ORDER
EDWARD J. LODGE, District Judge.
INTRODUCTION
Pending before the Court in the above-entitled matter is Defendant United States Department of the Interior/Bureau of Land Management and United States Department of Agriculture/United States Forest Service's (the "Federal Defendants") Motion to Dismiss Third Amended Complaint. Defendant State of Idaho Outfitters and Guides Licensing Board ("IOGLB") has filed a non-opposition to the Motion. The Motion is made under Federal Rule of Civil Procedure 12(b)(6). The matter is ripe for the Court's consideration. Having fully reviewed the record herein, the Court finds that the facts and legal arguments are adequately represented in the briefs and record. Accordingly, and in the interest of avoiding further delay, and because the Court conclusively finds that the decisional process would not be significantly aided by oral argument, this Motion shall be decided on the record before this Court without oral argument.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff, Black Dog Outfitters, Inc. ("Black Dog"), is an Idaho corporation that provides outfitting services for hunting and fishing excursions on the Snake River in Idaho. The current regulatory scheme allows for only eight permits and eleven licenses for outfitters on the South Fork of the Snake River. Black Dog seeks to have additional permits and licenses issued for the South Fork, arguing the limitations imposed by the Defendants are arbitrary and capricious as there is no scientific basis or study for the limitations. In October of 2007, Black Dog undertook its own investigation into the availability of outfitting opportunities on the South Fork on the Snake River and concluded that the river was not being used to capacity. (Dkt. No. 56, pp. 5, 8-9.) Black Dog alleges that the various state and federal agencies responsible for regulation of the South Fork had never, prior to the summer of 2008, conducted a capacity study nor shown there is no basis for the current limitations on the numbers of permits and licenses. (Dkt. No. 56, pp. 7-8, 10.)
Though acknowledging the Federal Defendants indicated in 2008 they would undertake a capacity study in response to its complaints, Black Dog contends the study never materialized. (Dkt. No. 56, p. 11.) Black Dog further questions the viability of any such study's objectivity or scientific basis and, instead, argues it is only intended to confirm the status quo. (Dkt. No. 56, pp. 19-20.) As a result of the findings of its own study, Black Dog submitted applications to each of the Defendant agencies for outfitting opportunities on four different resources. (Dkt. No. 56, p. 9.) These applications were denied, Black *1252 Dog argues, without any basis other than "the fact that the government agencies noted that there were `no available licenses or permits' for the resources." (Dkt. No. 56, p. 9.)
Black Dog further alleges the Defendants took discriminatory action toward it by restricting it from utilizing its waterfowl hunting license because of its complaints. (Dkt. No. 56, pp. 11-12.) Black Dog contends there was no opportunity to comment on these actions that the Defendants took intending to intimidate and retaliate against it. (Dkt. No. 56, pp. 12-13.)
In addition, Black Dog argues the existing permits are held almost exclusively by two owners, creating a monopolistic situation that is enabled by the Federal Defendants and the IOGLB. (Dkt. No. 56, pp. 14-16.) The Defendants, Black Dog argues, implicitly exempts these two owners and their operations from regulations while applying them to exclude Black Dog. (Dkt. No. 56, p. 21.)
On December 18, 2009, Black Dog, filed its initial Complaint in this action alleging jurisdiction under 28 U.S.C. § 1331, § 1367 and § 1337. (Dkt. No. 1.) The Complaint brought the action pursuant to 28 U.S.C. § 2201, seeking declaratory relief against the Federal Defendants and the IOGLB in order to clarify the rights between the parties and to monitor the ongoing capacity study to ensure it is fair and neutral. (Dkt. No. 1.) Black Dog further sought to have the government restrictions on the South Fork declared unconstitutional with further allegations to that affect brought under the Commerce Clause. (Dkt. No. 1.) On May 10, 2010, the Defendants filed a Motion to Dismiss for lack of subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). The Court denied the Motion to Dismiss and granted Black Dog's request to amend its Complaint. (Dkt. No. 45.)
Thereafter, Black Dog filed several amended Complaints. (Dkt. Nos. 52, 53, 56.) The Court allowed some of the amendments but ultimately cut off the repeated filings and deemed the Third Amended Original Complaint ("Amended Complaint") to be the final submission in this case. (Dkt. Nos. 56, 58.) In the Amended Complaint, Black Dog again seeks declaratory relief pursuant to the First, Fifth, and Fourteenth Amendments as well as the Commerce Clause; it raises the following causes of action:
I. Violation of the First Amendment by Retaliation
II. Multiple Use and Sustained Yield Act Violations
III. Violation of Equal Protection
IV. Violation of the Right to Due Process and Property
V. Violation of the Commerce Clause through the Memorandum of Understanding among the Federal and State Entities
VI. The Regulations of the IOGLB have been pre-empted by Federal Statutes
(Dkt. No. 56.) The Federal Defendants have filed the instant Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b) (6). (Dkt. No. 65.)
STANDARD OF LAW
A motion to dismiss made pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of a party's claim for relief. When considering such a motion, the Court's inquiry is whether the allegations in a pleading are sufficient under applicable pleading standards. Federal Rule of Civil Procedure 8(a) sets forth minimum pleading rules, requiring only a "short and plain statement of the claim showing that the pleader is entitled to relief." Id.
*1253 A motion to dismiss will only be granted if the complaint fails to 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). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a `probability requirement,' but it asks for 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) (citations omitted). Although "we must take all of the factual allegations in the complaint as true, we are not bound to accept as true a legal conclusion couched as a factual allegation." Id. at 1949-50; see also Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir.2008). Therefore, "conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss for failure to state a claim." Caviness v. Horizon Comm. Learning Cent., Inc., 590 F.3d 806, 811-12 (9th Cir.2010) (citation omitted).
DISCUSSION
1. APA Claim: Final Agency Action
The claims raised in Black Dog's Amended Complaint can only be properly brought under the Administrative Procedure Act ("APA"), 5 U.S.C. § 701 et al. In this Motion, the Federal Defendants argue the claims should be dismissed mainly because there has been no "final agency action" as required by the APA. (Dkt. No. 65.) Because this argument generally applies to all of the claims, the Court will address it first.
"The APA expressly declares itself to be a comprehensive remedial scheme: it states that a `person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review' ... and then sets forth the procedures for such review" Western Radio Serv. Co. v. United States Forest Service, 578 F.3d 1116, 1122 (9th Cir.2009) (quoting 5 U.S.C. §§ 702, 704, 706). "The APA's comprehensive provisions... allow any person `adversely affected or aggrieved' by agency action to obtain judicial review thereof, so long as the decision challenged represents a `final agency action for which there is no other adequate remedy in a court.'" Id. (quoting Webster v. Doe, 486 U.S. 592, 599, 108 S. Ct. 2047, 100 L. Ed. 2d 632 (1988)). "Specifically, the APA authorizes a reviewing court to:
(1) compel agency action unlawfully withheld or unreasonably delayed; and
(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 law; [or] (B) contrary to constitutional right, power, privilege, or immunity....
5 U.S.C. § 706(1)-(2); see also Darby v. Cisneros, 509 U.S. 137, 143-47, 113 S. Ct. 2539, 125 L. Ed. 2d 113 (1993).
Section 704 of the APA provides that the cause of action contained in § 702 only applies to final agency actions. "The APA's comprehensive provisions ... allow any person `adversely affected or aggrieved' by agency action to obtain judicial review thereof, so long as the decision challenged represents a `final agency action' for which there is no other adequate remedy in a court." Western Radio, 578 F.3d at 1122 (quoting Webster, 486 U.S. at 599, 108 S. Ct. 2047 (quoting 5 U.S.C.A. §§ 701-706)).
*1254 The Ninth Circuit has recognized this requirement in Pacific Coast Federation of Fishermen's Ass'n, Inc. v. Nat. Marine Fisheries Serv., 265 F.3d 1028 (9th Cir.2001), where it held that "only final agency decisions are subject to review under the APA." Id. at 1033. In order "for an administrative agency action to be considered final, `(1) the action should mark the consummation of the agency's decisionmaking process; and (2) the action should be one by which rights or obligations have been determined to flow.'" Id. at 1033 (quoting Ecology Center, Inc. v. United States Forest Serv., 192 F.3d 922, 925-26 (9th Cir.1999)); see also Bennett v. Spear, 520 U.S. 154, 177-78, 117 S. Ct. 1154, 137 L. Ed. 2d 281 (1997). For agency action to be final it must "impose an obligation, deny a right or fix some legal relationship." City of San Diego v. Whitman, 242 F.3d 1097, 1102 (9th Cir.2001).
In this case, the Federal Defendants maintain "there has been no final agency action with respect to the permit request" because
No additional new permits or authorizations are currently available. The agencies have not completed the administrative process to determine whether or not there is capacity to accommodate additional commercial use. Because it has not been determined that there is available capacity to authorize additional commercial uses of these resources the agencies have not yet accepted or considered any permit applications.
(Dkt. No. 65, p. 4.) In its Amended Complaint, however, Black Dog alleges it submitted applications to each of the Defendant agencies for outfitting opportunities on four different resources:
1. SS1 Section of the Snake River South Fork;
2. TE3 Section of the Teton River
3. SH2 Section of the Snake River, Henry's Fork; and
4. Palisades Reservoir.
(Dkt. No. 56, p. 9.) These applications were denied, Black Dog argues, without any basis other than "the fact that the government agencies noted that there were `no available licenses or permits' for the resources." (Dkt. No. 56, p. 9.) Black Dog further alleges it renewed its request for issuance of licenses and permits for the same four resources after learning, in the late fall of 2008, that the promised capacity study had been cancelled by BLM. (Dkt. No. 56, p. 11.) As to these renewed requests, Black Dog states, the Defendants' response was that they were "not available, and therefore would not be issued" to Black Dog. (Dkt. No. 56, p. 11.)
Further, the parties do not agree on whether the capacity study is being undertaken and what, if any, impact the status of any such study has here. (Dkt. No. 45, p. 12.) The Federal Defendants maintain the administrative process is not completed because it is undetermined whether there is available capacity to authorize additional uses of the resources at issue. (Dkt. No. 65, p. 4.) Therefore, they argue, the agencies have not yet acted on or even considered any additional permit applications. Black Dog, on the other hand, presents varying positions on its position regarding whether the capacity study is on going.
In the Amended Complaint, Black Dog disputes the validity of the capacity study which gives some indication that Black Dog believes it was either conducted or is still ongoing. (Dkt. No. 56, pp. 19-22.)[1] However, the Amended Complaint also alleges *1255 the capacity study has been "clandestenly canceled" by the BLM without the public being told. (Dkt. No. 56, pp. 10-11.) In its Response, Black Dog states the "agency's decision to not issue the permit is separate from the alleged capacity study that is now taking place." (Dkt. No. 67, p. 4.) Black Dog's Response, however, goes on to disagree that there has been no final action. (Dkt. No. 67, p. 4.) Instead, Black Dog argues the final agency action here is the "refusal to issue [Black Dog] the requested permit, twice, without conducting the capacity study at that time, is enough to constitute the consummation of the agency's decision making process." (Dkt. No. 67, p. 4.) From this most recent statement, it seems Black Dog's position is that the status of the capacity study is irrelevant to the final agency action determination which, Black Dog argues, is the agencies' refusal to issue it the requested permits without conducting the study. The Federal Defendants couch the argument as the failure to "authorize Black Dog, Inc. to conduct additional commercial outfitting and guiding operations ... Black Dog was not given the permit it sought and attempts `to place limits on Black Dog's waterfowl permit' were made in retaliation...." (Dkt. No. 65, pp. 3-4.)
Based on the foregoing and construing the allegations in the light most favorable to Black Dog, the Court finds that, if true, the allegations in the Amended Complaint regarding the denial of Black Dog's applications may be a final agency action.[2] This is not a case where the plaintiff is challenging forest-wide management practices and monitoring efforts, or lack thereof, which are "generally not amenable to suit under the APA because they do not constitute final agency actions." Ecology Center v. Castaneda, 574 F.3d 652, 658 (9th Cir.2009) (citing Neighbors of Cuddy Mountain v. Alexander, 303 F.3d 1059, 1067 (9th Cir.2002); Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 891, 110 S. Ct. 3177, 111 L. Ed. 2d 695 (1990); Ecology Ctr., 192 F.3d at 925-26; 5 U.S.C. § 704).[3] Instead, in this case Black Dog's Amended Complaint challenges alleged denials of four permits applications. Regardless of the status of the capacity study, if the facts are as Black Dog has alleged and the agencies denied its applications for these permits and/or licenses that denial is a final agency action under the APA.
The Defendants maintain Black Dog has been neither granted nor denied any additional permits or license. The Ninth Circuit recently held that an agency's decision *1256 not to act is not an "action" under the APA's § 7(a)(2) because "`inaction' is not `action.'" Karuk Tribe of Cal. v. USFS, 640 F.3d 979, 982, 2011 WL 1312564, at *1 (April 7, 2011 9th Cir.). There, the Ninth Circuit concluded the Forest Service's decision not to require a Plan of Operations on a miner's Notice of Intent was not an "agency action" for purposes of the Endangered Species Act. Id. The case here, however, is different. As stated above, the allegations in the Amended Complaint are that Black Dog applied for and was denied four permits. (Dkt. No. 56.) The standard on this Motion requires the Court to take those allegations as true in determining whether the Amended Complaint states a plausible claim for relief. See Iqbal, 129 S.Ct. at 1950. The allegation that Black Dog had applied for these four particular permits and been denied is sufficient, when drawing all reasonable inferences in favor of Black Dog, to satisfy the pleading requirements. Mohamed, 579 F.3d at 949. These allegations go beyond the unacceptable "threadbare recitals of the elements of a cause of action" or "mere conclusory statements." Iqbal, 129 S.Ct. at 1949. Whether the claims survive a later more probing test on any motion for summary judgement is less clear.[4]
The BLM and Forest Service further argue they are vested with the discretion regarding the issuance, granting, and/or denying of permits and until the agencies act on that discretion there is no final agency action. (Dkt. No. 65, pp. 4-6.) The Supreme Court has held that when Congress commits to an agency discretionary authority to perform an act without prescribing meaningful governing standards, that exercise of discretion is placed beyond judicial review by section 701(a)(2) of the Administrative Procedures Act (APA). Heckler v. Chaney, 470 U.S. 821, 830, 105 S. Ct. 1649, 84 L. Ed. 2d 714 (1985); see also 5 U.S.C. § 701(a)(2) (authorizing judicial review of final agency action "except to the extent that ... agency action is committed to agency discretion by law"). That decision does not, however, apply to agency decisions made discretionary by regulation, that is, by the agency itself, effectively permitting the agency to insulate its own decisions from judicial review. In Kucana v. Holder, ___ U.S. ___, 130 S. Ct. 827, 840, 175 L. Ed. 2d 694 (2010) (quoting Gutierrez de Martinez v. Lamagno, 515 U.S. 417, 434, 115 S. Ct. 2227, 132 L. Ed. 2d 375 (1995)), the Supreme Court concluded that such a scheme contravenes the "presumption ... `that executive determinations are generally subject to judicial review,'" "the longstanding exercise of judicial review of administrative rulings [on procedural matters]," id. at 831, and the "congressional design" that "[Congress], and only [Congress], would limit the federal courts' jurisdiction," id. at 840.
Whether or not the Defendants were vested with such discretion does not, in and of itself, answer the question of whether a final agency action was taken so as to *1257 give rise to a claim under the APA. Here, Black Dog has alleged the Defendants denied his permit applications and, in doing so, acted arbitrarily and capriciously. The final action is the denial of its permit applications. On the standard applicable at this stage, the allegations that the Defendants denied Black Dog its permit applications are sufficient to state a plausible claim for relief. Though the Defendants' contend otherwise in their briefing, they have not provided anything beyond their bare arguments to show they are entitled to a dismissal as a matter of law. As such, the Court finds the Amended Complaint is sufficient to survive the Motion to Dismiss as to the Defendants' argument that no final agency action has been alleged. The Court will address the Defendants' other arguments on the particular claims below.
2. Violation of the First Amendment by Retaliation
The Amended Complaint raises a retaliation claim against the Defendants alleging they violated Black Dog's First Amendment right to free speech by regulating against it because of Black Dog's inquiries, expressions of concerns, and requests for information regarding the use of allocated resources. (Dkt. No. 56, p. 22.) In particular, Black Dog points to the quick dismissals of its information requests, limits and attempts to place limits on its use of its waterfowl permit, and denial of its application for an outfitter's license. (Dkt. No. 56, p. 23.) The Federal Defendants argue the Amended Complaint fails to allege sufficient facts to support a claim for First Amendment retaliation because no discrimination has been plead. (Dkt. No. 65, p. 3.)
The First Amendment provides that "Congress shall make no law ... abridging the freedom of speech." Citizens United v. Federal Election Com'n, ___ U.S. ___, 130 S. Ct. 876, 896, 175 L. Ed. 2d 753 (2010). "Premised on mistrust of governmental power, the First Amendment stands against attempts to disfavor certain subjects or viewpoints." Id. at 898 (citing United States v. Playboy Entertainment Group, Inc., 529 U.S. 803, 813, 120 S. Ct. 1878, 146 L. Ed. 2d 865 (2000) (striking down content-based restriction)). "Prohibited, too, are restrictions distinguishing among different speakers, allowing speech by some but not others." Id. at 899 (citation omitted). "As instruments to censor, these categories are interrelated: Speech restrictions based on the identity of the speaker are all too often simply a means to control content." Id. The Supreme Court has recognized "our longstanding recognition that the Government may not retaliate for exercising First Amendment speech rights...." Wilkie v. Robbins, 551 U.S. 537, 555, 127 S. Ct. 2588, 168 L. Ed. 2d 389 (2007) (citing Rankin v. McPherson, 483 U.S. 378, 107 S. Ct. 2891, 97 L. Ed. 2d 315 (1987) (landowner brought a Bivens case against the BLM)).
As to the retaliation claim, Black Dog argues the BLM has improperly retaliated by restricting its waterfowl hunting, for which it holds a license on the South Fork of the Snake River, to only USFS lands. (Dkt. No. 56, p. 12.) Likewise, Black Dog argues the IOGLB altered the terms and conditions of its waterfowl hunting license by "unilaterally" limiting it to only areas in which the USFS land was not adjacent to the South Fork; essentially eliminating its ability to conduct waterfowl hunting operations on a majority of the South Fork of the Snake River. (Dkt. No. 56, p. 12.) No hearing or due process was afforded to it, Black Dog claims, before this alteration by IOGLB was made. Its due process rights were also violated by the BLM, Black Dog alleges, when it took "selective action in an attempt to `regulate' [Black Dog] off the [South Fork] once and for all" by improperly regulating the state lands upon which *1258 Black Dog had a license to conduct waterfowl hunting. (Dkt. No. 56, p. 13.)
The Defendants state no discrimination has been plead and conclude, without citation to authority, that "the court can use its experience and common sense to infer that a permit to conduct outfitting on land managed by the Forest Service does not confer a right to use lands managed by the BLM." (Dkt. No. 65, p. 6.) Defendants further question the Bivens and § 1983 cases relied upon by Black Dog in its briefing to support the First Amendment Claim.
This claim appears to be premised on the alleged retaliatory actions of the BLM and IOGLB in limiting Black Dog's waterfowl hunting license. The Court agrees with the Defendants that Black Dog cannot raise Bivens or § 1983 claims here.[5] The First Amendment Claims must arise as provided for in the APA. To that end and construing the allegations as true and in the light most favorable to Black Dog, the Court finds the allegations that the BLM and/or IOGLB took retaliatory actions to limit Black Dog's waterfowl hunting license which were contrary to the regulatory requirements for doing so are sufficient to give rise to its claim. Though the Court questions whether such claim will survive a later more probing inquiry, at this stage the inferences are drawn in Black Dogs favor and, in doing so, the allegations in the Amended Complaint are plausible. The Motion is denied as to this claim.
3. Multiple Use and Sustained Yield Act Violations ("MUSYA")
Black Dog raises a claim under the MUSYA alleging the Defendants have violated the purpose of the statute in failing to complete a capacity study to determine the proper utilization of the South Fork and other resources and allowing for the creation of monopolies. (Dkt. No. 56, p. 24.) The Federal Defendants counter that this claim fails because the broad discretionary language of the MUSYA relied upon by Black Dog has been construed to place the discretion squarely with the agencies. (Dkt. No. 65, p. 8.) In addition, the Federal Defendants oppose the claim that they have violated the Sherman Antitrust Act by allowing for the creation of monopolies as such a claim is not actionable against an instrumentality of the federal government. (Dkt. No. 65, p. 9.)
The Amended Complaint alleges the USFS failed to comply with the general purpose provisions of the MUSYA, 16 U.S.C. §§ 528-31, by failing to complete a capacity study to determine the proper utilization of the resource in question. (Dkt. No. 56, pp. 23-24.) Such allegations fail to state a plausible claim for relief. The claim's allegations challenge the agencies' compliance with the general provisions of the MUSYA which, even drawing the inferences in favor of Black Dog, are insufficient. See Ecology Center, 574 F.3d at 658 ("[c]hallenges to forest-wide management practices or claims that the Forest Plan does not comply with NFMA must be made in the context of site-specific actions. The plaintiff must allege a `specific *1259 connection' between the challenged site-specific action and the general practice."); California Wilderness Coalition, 631 F.3d at 1099 ("where review is sought under the general review provision of the APA, the agency's decision must be a final agency action and the plaintiffs `must establish they have suffered a legal wrong, or will be adversely affected or aggrieved within the meaning of the relevant statute.'"). Accordingly, the Court will grant the Motion to Dismiss as to the MUSYA claim.
As to the claim raised under the Sherman Antitrust Act, because the Federal Defendants here are instrumentalities of the federal government they are immune from antitrust liability. See United States Postal Serv. v. Flamingo Indus. (USA) Ltd., 540 U.S. 736, 745, 124 S. Ct. 1321, 158 L. Ed. 2d 19 (2004) ("The Sherman Act imposes liability on any `person.' The word `person' ... shall be deemed to include corporations and associations existing under or authorized by the laws of either the United States, the laws of any of the Territories, the laws of any State, or the laws of any foreign country. However, `person' does not include the federal government."). Accordingly, the Court grants the Motion to Dismiss as to this claim.
4. Violation of Equal Protection
The Amended Complaint raises an Equal Protection Clause Claim under the Fifth and Fourteenth Amendments alleging disparate treatment between Black Dog and the outfitters that have been allowed permits on the South Fork. (Dkt. No. 56, p. 26.) In response, the Federal Defendants maintain there is no showing of similarly situated applicants for the additional permits Black Dog seeks; particularly since there are no additional permits or licenses available. (Dkt. No. 65, pp. 10-11.) In addition, the Federal Defendants contend that Black Dog does not allege discrimination as to the existing permits and points out that Black Dog holds a permit.
"Both the Equal Protection Clause and the APA prohibit agencies from treating similarly situated petitioners differently without providing a sufficiently reasoned justification for the disparate treatment." Muwekma Ohlone Tribe v. Kempthorne, 452 F. Supp. 2d 105, 115 (D.D.C.2006) (citing Settles v. U.S. Parole Comm'n, 429 F.3d 1098, 1102-03 (D.C.Cir. 2005) ("To prevail on [its] equal protection claim, [a plaintiff must] demonstrate that [it] was treated differently than similarly situated [parties] and that the [agency's] explanation does not satisfy the relevant level of scrutiny.") (citations omitted)).
The Court disagrees with the Federal Defendants' contention that Black Dog has not alleged it was discriminated against as to the existing permits but only as to additional permits. (Dkt. No. 65, pp. 10-11.) Black Dog has alleged it applied for and was denied four permits. In its Equal Protection Clause Claim Black Dog likens itself to "other permit holders" and, specifically, to the two outfitters who hold the majority of the existing allocated permits. (Dkt. No. 56, pp. 26-27.) In doing so, Black Dog is attempting to demonstrate disparate treatment between similarly situated applicants as to the existing allocated permits. Black Dog's claim is that it is similar to the current permit holders but that it has been treated differently from them, by being denied permits, without any reasoned justification. In addition, Black Dog's Amended Complaint raises the "class of one" argument. (Dkt. No. 56, p. 26.)[6] Construing *1260 these allegations in favor of Black Dog, the Court finds they state a plausible claim for relief by alleging similarly situated permit holders and/or applicants were treated differently without providing a sufficiently reasoned justification for the disparate treatment. As such, the Motion is denied as to this Claim.
5. Violation of the Right to Due Process and Property
Black Dog's Due Process Clause Claim alleges a violation of its Fifth and Fourteenth Amendment rights in depriving it of its liberty and property interests in its business without due process of law and/or an opportunity to be heard. (Dkt. No. 56, p. 27.) The Federal Defendants counter that such rights are afforded to persons, not corporations and, therefore, fails to state a claim as a matter of law. (Dkt. No. 65, p. 12.)
"The Fourteenth Amendment prohibits state deprivations of life, liberty, or property without due process of law." Thomas v. Independence Tp., 463 F.3d 285, 297 (3rd Cir.2006) (citation omitted). As alleged here, the liberty and property clauses of the Fourteenth Amendment, made applicable to the federal government through the Fifth Amendment, protects the "right to hold specific private employment and to follow a chosen profession free from unreasonable governmental interference...." Piecknick v. Commonwealth of Pa., 36 F.3d 1250, 1259 (9th Cir.1994) (citations omitted). "It is the liberty to pursue a particular calling or occupation and not the right to a specific job that is protected by the Fourteenth Amendment." Id. at 1261. "[T]he Constitution only protects this liberty from state actions that threaten to deprive persons of the right to pursue their chosen occupation. State actions that exclude a person from one particular job are not actionable in suits ... brought directly under the due process clause." Id. (citing Bernard v. United Township High Sch. Dist. No. 30, 5 F.3d 1090, 1092 (7th Cir.1993)). "`It is the liberty to pursue a calling or occupation, and not the right to a specific job, that is secured by the Fourteenth Amendment.'" Id. (citation omitted).
These cases discussing the liberty interest to pursue a particular "calling or occupation," however, have all applied to individuals and claims brought pursuant to § 1983. The Plaintiff here is a corporation. Black Dog maintains these rights secured by the Due Process Clauses are afforded to corporations; citing to SBC Comm., Inc. v. F.C.C., 981 F. Supp. 996, 1003 n. 4 (N.D.Tex.1997)[7] which in turn cites to Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408, 104 S. Ct. 1868, 80 L. Ed. 2d 404 (1984). (Dkt. No. 67, p. 8, n. 14.) The due process right applied to the corporation in Helicopteros, however, were the due process requirements necessary for a court to exercise personal jurisdiction over a nonresident corporate defendant. Helicopteros, 466 U.S. at 413-14, 104 S. Ct. 1868. The liberty interest asserted here is *1261 an individual right, not that of a corporation. See MFS, Inc. v. Dilazaro, 771 F. Supp. 2d 382, 440-41, NO. CIV.A. 08-2508, 2011 WL 605812, *47 (E.D.Pa. Feb. 16, 2011); Burns v. Alexander, 776 F. Supp. 2d 57, NO. CIV.A. 10-522, 2011 WL 836822 (W.D.Pa., March 4, 2011). Because the liberty to pursue a calling or occupation secured by the Due Process Clause is not applicable to a corporation, Black Dog has failed to state a viable Due Process Clause Claim and the Motion to Dismiss is granted on this claim.
6. Violation of the Commerce Clause
In the first Complaint, Black Dog's Commerce Clause Claim alleged that the United States is taking "arbitrary and capricious" action in restraint of trade. (Dkt. No. 27, p. 3.) This Court concluded that "Black Dog misstates the reach of the Commerce Clause. It does not provide a cause of action against the federal government for regulation of commerce, only the states. A contrary conclusion would strip the Commerce Clause of its meaning by preventing the federal government from exercising the regulatory power conferred onto it by the Commerce Clause. As such, the Commerce Clause cannot provide a basis for subject matter jurisdiction or a cause of action in this case with regards to the United States." (Dkt. No. 45, pp. 8-9.) The Federal Defendants argue the Court's prior ruling applies to the Amended Complaint's Commerce Clause Claim as well. (Dkt. No. 65, p. 13.) Black Dog counters that, unlike the claim in the first Complaint, the Amended Complaint's Commerce Clause Claim "has made more specific allegations." (Dkt. No. 67, p. 9.)
Similar to its first Complaint, the Amended Complaint's Commerce Clause Claim asks that "the Court determine whether, in this case, the [Defendants] have overstepped their role in regulating interstate commerce and/or alternatively that their actions have affirmatively discriminated against Black Dog ... and other individuals similarly situated by improperly and inappropriately attempting to regulate outfitter activity on the South Fork of the Snake River and other resources" where there is no legitimate government purpose in doing so and/or such actions are arbitrary and capricious. (Dkt. No. 56, p. 5), (Dkt. No. 67, p. 9.) The Court has reviewed the allegations in the Amended Complaint and, again, finds it to be lacking.
As stated in the prior Order, the Supreme Court has examined the reach of the Commerce Clause as a cause of action and held that "the Commerce Clause is a power-allocating provision, giving Congress pre-emptive authority over the regulation of interstate commerce. It is also clear, however, that the Commerce Clause does more than confer power on the Federal Government; it is also a substantive `restriction on permissible state regulation' of interstate commerce." Dennis v. Higgins, 498 U.S. 439, 447, 111 S. Ct. 865, 112 L. Ed. 2d 969 (1991) (quoting Hughes v. Oklahoma, 441 U.S. 322, 99 S. Ct. 1727, 60 L. Ed. 2d 250 (1979)). Thus, the Commerce Clause does not provide a cause of action against the federal government for regulation of commerce, only the states. The claim alleged in the Amended Complaint speaks in terms of being "treated evenly," the "free and open competition," and "unevenhanded distribution." (Dkt. No. 56, p. 28.) Such allegations, however, again do not make up a claim under the Commerce Clause against the Federal Defendants. For these reasons, the Motion to Dismiss is granted on this claim.
7. The Regulations of the IOGLB have been pre-empted by Federal Statutes
Finally, Black Dog argues the IOGLB regulations are preempted by federal statutes, namely: the Wild and Scenic River *1262 Act ("WSRA") and the MUSYA. (Dkt. No. 56, pp. 29-30.) The Federal Defendants note in their response that there is no conflict between the IOGLB and the federal statutes and, therefore, this claim fails. (Dkt. No. 65, p. 13.) Black Dog's response contends the Federal Defendants lack standing to argue a position on this claim as it is directed at the state agency. (Dkt. No. 67, p. 9.) Though the preemption claim is raised against the IOGLB, who has not filed a motion to dismiss, the Court finds the claim fails as a matter of law and cannot be cured by amendment. See White v. Indymac Bank, FSB, No. CV. 09-00571 DAE-KSC, 2011 WL 143928, at *2 (D.Hawai'i April 18, 2011) (citing cases); Ricotta v. California, 4 F. Supp. 2d 961, 968 n. 7 (S.D.Cal.1998) (Court can, sua sponte and without notice, dismiss a claim against a defendant who has not filed a motion to dismiss, where the claimant cannot possibly win relief.).
"The federal preemption doctrine stems from the Supremacy Clause, U.S. Const. art. VI, cl. 2, and the `fundamental principle of the Constitution [ ] that Congress has the power to preempt state law.'" United States v. Arizona, 641 F.3d 339, 344, 2011 WL 1346945, at *2 (9th Cir.2011) (quoting Crosby v. Nat'l Foreign Trade Council, 530 U.S. 363, 372, 120 S. Ct. 2288, 147 L. Ed. 2d 352 (2000)). The Ninth Circuit's analysis of a preemption claim
[M]ust be guided by two cornerstones of [the Supreme Court's] pre-emption jurisprudence. First, the purpose of Congress is the ultimate touchstone in every pre-emption case.... Second, [i]n all preemption cases, and particularly in those in which Congress has legislated... in a field which the States have traditionally occupied, ... [courts] start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.
Id. (quoting Wyeth v. Levine, 555 U.S. 555, 129 S. Ct. 1187, 173 L. Ed. 2d 51 (2009) (internal quotation marks and citations omitted)). "Even if Congress has not explicitly provided for preemption in a given statute, the Supreme Court `ha[s] found that state law must yield to a congressional Act in at least two circumstances.'" Id. (quoting Crosby, 530 U.S. at 372, 120 S. Ct. 2288). "First, [w]hen Congress intends federal law to occupy the field, state law in that area is preempted." Id. (quotations and citation omitted). "Second, even if Congress has not occupied the field, state law is naturally preempted to the extent of any conflict with a federal statute." Id.
Conflict preemption occurs "where it is impossible ... to comply with both state and federal requirements, or where state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Young v. Coloma-Agaran, 340 F.3d 1053, 1055-56 (9th Cir.2003) (internal quotation marks and citation omitted). Conflict preemption exists in two forms: 1) impossibility and 2) obstacle preemption. Arizona, 641 F.3d at 345, 2011 WL 1346945, *2. Impossibility preemption arises "where it is impossible for a private party to comply with both state and federal law." Id. Obstacle preemption arises "where `under the circumstances of [a] particular case, [the challenged state law] stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'" Id. (citations omitted).
Here, Black Dog alleges IOGLB's regulations have allowed for results that are "completely inconsistent" with and, therefore, preempted by the WSRA and MUSYA. (Dkt. No. 56, p. 29.) Pointing in particular to the objectives, purposes, and definitions in these federal statutes, Black Dog argues the IOGLB's regulations have violated the statutes by allowing for "gross *1263 underutilization of the natural resources along the Snake and Teton Rivers." (Dkt. No. 56, pp. 31-32.) As the Federal Defendants have pointed out, however, there is no conflict between the IOGLB's regulations and either the MUSYA or the WSRA. Neither statute prevents the State of Idaho from regulating the issuance of outfitter licenses. Moreover, the federal agencies' own regulations require compliance with state laws. See 16 U.S.C. § 480; 36 C.F.R. §§ 251.54(e)(1)(i); 43 C.F.R. §§ 8365.1-7. Because no conflict exists between the state and federal laws applicable here, the Court finds Black Dog has failed as a matter of law to state a claim of preemption. The Motion to Dismiss is granted as to this claim.
CONCLUSION
Black Dog has stated claims under the First Amendment and Equal Protection Clause which, under the standard of review applicable on this Motion, are plausible claims for relief. As to those claims, the Motion to Dismiss is denied. As to the remaining claims, the Court finds Black Dog has failed to state a cause of action that survives the Federal Defendants' Motion to Dismiss under Rule 12(b)(6). As the Court has indicated previously in this case, Black Dog will not be granted further leave to amend its Complaint again as doing so would be futile. Accordingly the Court will deny the Motion to Dismiss as to the First Amendment and Equal Protection Clause claims and grant the Motion as to all other claims.
ORDER
NOW THEREFORE IT IS HEREBY ORDERED that the Federal Defendants' Motion to Dismiss Under F.R.C.P. 12(b)(6) (Dkt. No. 65) is GRANTED IN PART AND DENIED IN PART as stated herein.
NOTES
[1] Black Dog's challenge the validity of the current capacity study raises different issues not addressed here. (Dkt. No. 56, pp. 19-20.)
[2] Black Dog argues its First Amendment Claim is not precluded because of its status as a corporation. (Dkt. No. 67, p. 3.) The Federal Defendants do not raise any argument that Black Dog's status as a corporation precludes its First Amendment Claim. The argument in regards to Black Dog's status as a corporation is raised by the Federal Defendants only as to the Due Process Clause Claim and will be discussed below accordingly. (Dkt. No. 65, p. 12.)
[3] In Ecology Center, the Ninth Circuit stated "[c]hallenges to forest-wide management practices or claims that the Forest Plan does not comply with NFMA must be made in the context of site-specific actions. The plaintiff must allege a `specific connection' between the challenged site-specific action and the general practice." 574 F.3d at 658 (citation omitted). Similarly, "where review is sought under the general review provision of the APA, the agency's decision must be a final agency action and the plaintiffs `must establish they have suffered a legal wrong, or will be adversely affected or aggrieved within the meaning of the relevant statute.'" California Wilderness Coalition v. United States Dept. of Energy, 631 F.3d 1072, 1099 (9th Cir.2011) (discussing Northcoast Environmental Center v. Glickman, 136 F.3d 660 (9th Cir.1998)). We proceeded to comment that the agency action "must (1) be federal, (2) `major', and (3) have a significant environmental impact." Id.
[4] There was no additional evidence offered by the parties upon which to convert this Motion into a motion for summary judgment which would have applied a different standard of review. Generally, the Court may not consider any material beyond the pleadings in ruling on a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir.1994). However, if a Rule 12(b)(6) motion raises "matters outside the pleading" and these matters are "presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56." Id. at 453. When reviewing a motion for summary judgment, the proper inquiry is whether "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, 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).
[5] For example, as to the First Amendment Claim, both cases cited by Black Dog to support its claim were raised as § 1983 and Bivens actions. (Dkt. No. 56, p. 23.) "[T]he Supreme Court has held that no Bivens remedy is available against a federal agency...." Western Radio Services Co. v. United States Forest Service, 578 F.3d 1116, 1119 (9th Cir. 2009) (citing FDIC v. Meyer, 510 U.S. 471, 484, 114 S. Ct. 996, 127 L. Ed. 2d 308 (1994) (affirming the district court's dismissal of the Bivens claims against the Forest Service itself)). Thus, Black Dog's First Amendment Claim as raised in the context here must be brought under the APA. See 5 U.S.C. § 702; see also Western Radio Services Co. v. United States Forest Service, Civ. No. 04-1346-AA, 2008 WL 427787, at *4 (D.Or. Feb. 12, 2008).
[6] Successful Equal Protection claims have been recognized when brought by a "class of one" where the plaintiff has alleged that he has been intentionally treated differently from others similarly situated and that there is no rational basis for the difference in treatment. Village of Willowbrook v. Olech, 528 U.S. 562, 564, 120 S. Ct. 1073, 145 L. Ed. 2d 1060 (2000) (Section 1983 action). The Ninth Circuit, however, has indicated that such actions are disfavored because they threaten to "provide a federal cause of action for review of almost every executive or administrative government decision." Engquist v. Or. Dept. of Agric., 478 F.3d 985, 993 (9th Cir.2007) (discussing a case alleging employment discrimination by the government).
[7] This decision was reversed by SBC Comm., Inc. v. F.C.C., 154 F.3d 226 (5th Cir.1998) (holding no constitutional violation existed based on the Bill of Attainder Clause). In this case, the Fifth Circuit recognized the same cases establishing the constitutional rights which apply in the corporate setting. Id., 154 F.3d at 234 n. 11. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2250225/ | 937 F. Supp. 1355 (1996)
The HEIL CO., Plaintiff,
v.
HARTFORD ACCIDENT AND INDEMNITY COMPANY, and The Home Indemnity Company, Defendants.
No. 95-C-154.
United States District Court, E.D. Wisconsin.
June 20, 1996.
*1356 *1357 Joshua L. Gimbel, Douglas P. Dehler, Michael, Best & Friedrich, Milwaukee, WI, William H. Nehrkorn, II, Walther Law Offices, Milwaukee, WI, for plaintiff.
Thomas R. Schrimpf, Hinshaw & Culbertson, Milwaukee, WI, for defendant Hartford Accident.
Ronald L. Piette, Piette & Jacobson, Milwaukee, WI, for defendant Home Indemnity Co.
DECISION AND ORDER
WARREN, District Judge.
Before the Court are cross motions for summary judgment. For the following reasons, the Court holds that the defendants did not have a duty to defend the plaintiff in an earlier patent infringement action brought by a third-party. Therefore, the plaintiff's Motion for Summary Judgment is DENIED, and the defendants' Motion for Summary Judgment is GRANTED.[1]
I. PROCEDURAL BACKGROUND AND FINDINGS OF FACT
In this diversity action, the plaintiff, The Heil Co. (Heil), seeks to recover attorney fees and other defense costs incurred between 1990 and 1994 to defend a patent infringement suit brought by Snyder Industries, Inc. (Snyder) in the Eastern District of Wisconsin, under the caption Snyder Industries, Inc. v. The Heil Co., et al., Case No. 90-C-1088. Heil claims its insurers, defendants Hartford Accident and Indemnity Company (Hartford) and The Home Indemnity Company (Home) had an obligation to defend Heil in the underlying litigation commenced by Snyder. Hartford and Home argue they had no obligation to defend Heil against the allegations of the Snyder suit. All parties have moved for summary judgment.
The lawsuit filed by Snyder against Heil alleged claims of patent infringement, a violation of Wisconsin's Organized Crime Control Act, abuse of process and tortious interference with respect to economic advantage. Hartford and Home contend that the liability policies issued to Heil did not provide coverage for the claims asserted against Heil in the Snyder litigation. The amended complaint filed by Snyder did not allege "bodily injury," "property damage," "personal injury" or "advertising injury," and therefore, defendants seek a judicial declaration that they had no duty to defend. Heil does not dispute that the Snyder amended complaint did not allege either a "bodily injury" or "property damage" as those terms are defined by the relevant policies. However, Heil argues the allegations of patent infringement triggered obligations to defend Heil for "advertising injury." Furthermore, Heil later argues that the defendant insurance companies were obligated to defend Heil because Snyder contended Heil had improperly and maliciously prosecuted a civil action in another forum for the purpose of causing injury to Snyder. Thus, Heil argues these allegations triggered the defendants' obligations to defend a claim for "malicious prosecution," one of the enumerated "personal injury" offenses covered by both defendants' insurance policies.
Therefore, the first issue before the Court is whether the Snyder allegation of "abuse of process" brought against Heil constitutes "malicious prosecution" triggering an obligation for defendants to defend under the defendants' personal injury liability policies. The second issue is whether the allegations of the Snyder litigation fall within the scope of an "advertising injury" as that term is defined by the policies issued by Hartford and Home. Or more succinctly stated, does a patent infringement lawsuit constitute an advertising injury in the instant case? Under Wisconsin law, this case presents an issue of first impression.
*1358 The Court adopts the following findings of fact which are not in dispute. Heil is a corporation organized and existing under the laws of the State of Delaware, with offices in Chattanooga, Tennessee. (Hartford's Proposed Findings of Fact (Hartford) ¶ 1; Home's Proposed Findings of Fact (Home) ¶ 1.) Hartford is an insurance company licensed to do and doing business in Wisconsin, with its principal place of business located in Hartford, Connecticut. (Hartford ¶ 2; Home ¶ 2.) Home is an insurance company licensed to do and doing business in Wisconsin, with its principal offices located in New York, New York. (Home ¶ 3.)
Hartford issued the following liability insurance policies to Heil, each of which was in effect for the following respective time periods:
Policy No. Policy Period
86 CLR P23003E 11/1/81 to 11/1/82
86 CLR P23008E 11/1/82 to 11/1/83
86 CLR P23013E 11/1/83 to 11/1/84
86 CLR P23020E 11/1/84 to 11/1/85
86 CLR P54303E 11/1/85 to 2/1/86
(Hartford ¶ 3.) Home insured Heil under a series of comprehensive general liability insurance policies between the dates of November 1, 1986 through November 1, 1992 (Home ¶ 30):
Policy No. Policy Period
GL 1481722 11/1/86 to 11/1/87
GL 1483261 11/1/87 to 11/1/88
GLR 9097126 11/1/88 to 11/1/89
GLR 9097147 11/1/89 to 11/1/90
GLR 9097158 11/1/90 to 11/1/91
GLR 9097170 11/1/91 to 11/1/92
(Heil's Proposed Findings of Fact (Heil) ¶ 5.)
On or about January 2, 1991, Heil was served with a summons and amended complaint for a lawsuit commenced by Snyder Industries, Inc., in the Eastern District of Wisconsin, Case No. 90-C-1008. (Heil ¶ 6; Hartford ¶ 4; Home ¶ 4.) On February 15, 1991, Heil sent Hartford a copy of the amended complaint and tendered the defense of the Snyder suit to Hartford. (Heil ¶ 7; Hartford ¶ 5; Home ¶ 28.) On January 25, 1991, Heil sent a copy of the amended complaint and tendered the defense of the Snyder suit to Home. (Heil ¶ 8.) Hartford, after reviewing the policies and the allegations of the amended complaint, disclaimed coverage and declined to defend. (Heil ¶ 9; Hartford ¶ 6.) Home did not accept Heil's tender of defense and declined coverage. (Heil ¶ 9; Home ¶ 45.) Heil successfully defended itself, and the Snyder suit was eventually dismissed with prejudice. (Heil ¶ 10; Hartford ¶ 7.)
Hartford's personal injury liability insurance coverage[2] provides:
The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury (herein called "personal injury") sustained by any person or organization and arising out of one or more of the following offenses committed in the conduct of the named insured's business:
Group A false arrest, detention or imprisonment, or malicious prosecution;
Group B the publication or utterance of a libel or slander or of other defamatory or disparaging material, or a publication or utterance in violation of an individual's right of privacy;
Group C wrongful entry or eviction, or other invasion of the right of private occupancy;
if such offense is committed during the policy period within the United States of America, its territories or possessions, or Canada, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such personal injury even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability *1359 has been exhausted by payment of judgments or settlements.
(Hartford ¶ 10.)
The advertising liability coverage included in the policy effective commencing on 11/1/85 until canceled on 2/1/86 provided:
I. ADVERTISING INJURY LIABILITY COVERAGE
The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of advertising injury to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such injury, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements:
Advertising injury is defined in the policy as follows:
"advertising injury" means injury arising out of one or more of the following offenses committed during the policy period in connection with the named insured's advertising activities:
(1) the publication or utterance of a libel or slander or of other defamatory or disparaging material or a publication or utterance in violation of an individual's right to privacy;
(2) infringement of copyright or of title or slogan; or
(3) piracy or unfair competition or idea misappropriation under an implied contract.
(Hartford ¶ 11; Heil ¶ 11.)
The Home policies define "advertising injury" similar to the Hartford policies at issue. Heil appears to concede that there is no coverage under the three policies issued by Home covering the period of November 1, 1988 through November 1, 1991. The relevant language of Home Policies GL-1 48 17 22 (11/1/86-11/1/87) and GL-1 48 32 61 (11/1/87-11/1/88) at issue defines advertising injury is as follows:
`Advertising injury' means injury arising out of an offense committed during the policy period occurring in the course of the named insured's advertising activities, if such injury arises out of libel, slander, defamation, violation of right of privacy, piracy, unfair competition, or infringement of copyright, title or slogan.
(Home ¶ 35; Heil ¶ 12.)
Similar to the Hartford policies, the Home policies define the term "personal injury" to include claims alleging "malicious prosecution." For example, in the 86/87 and 87/88 Home policies providing personal injury coverage to Heil, the term "personal injury" was defined as follows:
`Personal injury' means injury arising out of one or more of the following offenses committed during the policy period:
1. false arrest, detention, imprisonment, or malicious prosecution;
2. wrongful entry or eviction or other invasion of the right of private occupancy;
3. a publication or utterance
(a) of a libel or slander or other defamatory or disparaging material, or
(b) in violation of an individual's right of privacy;
except publications or utterances in the course of or related to advertising, broadcasting publishing or telecasting activities conduct by or on behalf of the named insured shall not be deemed personal injury.
(Home ¶ 40.)
The personal injury coverage provided by the 88/89 Home policy reads as follows:
This insurance applies to `personal injury' only if caused by an offense:
(1) Committed in the `coverage territory' during the policy period; and
(2) arising out of the conduct of your business, excluding advertising, publishing, *1360 broadcasting or telecasting done by or for you.
(Home ¶ 41.)
The Court opts not to provide in its Decision and Order the exact language of the other Home policies. The Court notes that all the Home policies at issue covering "personal injury" define "personal injury" to include "malicious prosecution," similar to the Hartford policies covering personal injury. (Home ¶¶ 42-44.)
II. LEGAL STANDARD
Summary judgment is no longer disfavored under the Federal Rules. See Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S. Ct. 2548, 2555, 91 L. Ed. 2d 265 (1986) ("Summary judgment procedure is properly regarded as an integral part of the Federal Rules as a whole which are designed `to secure the just, speedy and inexpensive determination of every action.'"). Indeed, Federal Rule of Civil Procedure 56 requires a district court to grant summary judgment "if 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 judgment as a matter of law." Fed.R.Civ.P. 56(c). The mere existence of some factual dispute does not defeat a summary judgment motion; "the requirement is that there is a genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). For a dispute to be genuine, the evidence must be such that a "reasonable jury could return a verdict for the nonmoving party." Id. For the fact to be material, it must relate to a disputed matter that "might affect the outcome of the suit." Id.
The party moving for summary judgment bears the initial burden of showing that there are no material facts in dispute and that judgment should be entered in its favor. Hannon v. Turnage, 892 F.2d 653, 656 (7th Cir.1990), cert. denied, 498 U.S. 821, 111 S. Ct. 69, 112 L. Ed. 2d 43 (1990). A defendant moving for summary judgment may satisfy this initial burden by pointing to a plaintiff's failure to introduce sufficient evidence to support each essential element of the cause of action alleged. Anderson, 477 U.S. at 256, 106 S. Ct. at 2514; Celotex, 477 U.S. at 323-24, 106 S. Ct. at 2552-53. A party opposing a properly supported summary judgment motion "may not rest upon mere allegations or denials," but rather must introduce affidavits or other evidence to "set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). See also Celotex, 477 U.S. at 322-23, 106 S. Ct. at 2552-53; Becker v. Tenenbaum-Hill Assoc., Inc., 914 F.2d 107, 110 (7th Cir.1990). "If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party." Fed.R.Civ.P. 56(e).
In evaluating a motion for summary judgment, the Court must draw all inferences in a light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986); Johnson v. Pelker, 891 F.2d 136, 138 (7th Cir.1989). "However, we are not required to draw every conceivable inference from the record only those inferences that are reasonable." Bank Leumi Le-Israel, B.M. v. Lee, 928 F.2d 232, 236 (7th Cir.1991) (citations omitted.)
III. ANALYSIS
This Court's subject matter jurisdiction is premised on the diversity of parties, and it is undisputed that the coverage issue is purely a matter of state law, governed by the applicable principles of Wisconsin law. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S. Ct. 817, 822, 82 L. Ed. 1188 (1938). Under Wisconsin law, the issue of insurance policy coverage is a question of law appropriate for summary judgment. United States Fire Ins. Co. v. Good Humor Corp., 173 Wis. 2d 804, 819, 496 N.W.2d 730, 735 (Ct.App.1993), review denied, ___ Wis.2d ___, 501 N.W.2d 458 (1993); Raby v. Moe, 153 Wis. 2d 101, 109, 450 N.W.2d 452, 454 (1990) (citations omitted). An insurer's obligation to defend the insured in a third-party suit is established by looking to the four corners of the complaint and determining whether the allegations in a complaint, if proven, would give rise to the possibility of recovery under the terms and conditions of the insurance policy. School Dist. of Shorewood *1361 v. Wausau Ins. Co., 170 Wis. 2d 347, 364, 488 N.W.2d 82, 87 (1992). The nature of the claim alleged against the insured is controlling. Generally, any doubts regarding the duty to defend, and any ambiguities contained in the insurance contract, must be resolved in favor of the insured. Id. However, "[t]he insurer is under an obligation to defend only if it could be held bound to indemnify the insured." Nichols v. American Employers Ins. Co., 140 Wis. 2d 743, 747, 412 N.W.2d 547, 549 (Ct.App.1987) (quoting Grieb v. Citizens Casualty Co., 33 Wis. 2d 552, 558, 148 N.W.2d 103, 106 (1967)). Thus, in the instant case, Hartford and Home had a duty to defend Heil if the Snyder suit alleged a claim seeking damages resulting from "bodily injury," "property damage," "personal injury" and/or "advertising injury" as those terms are defined in the insurance policies of the defendants. As previously noted, the issue before the Court is whether the Snyder complaint alleged a "personal injury" and/or "advertising injury."
The amended complaint filed by Snyder alleges that Snyder was the owner of United States Patent No. 4,450,976 (hereinafter "the '976 patent") entitled "Wheeled Molded Container with Hinged Lid." The amended complaint alleges that Heil, during the term of the patent, sold refuse containers which infringed the claims of the '976 patent, and that those refuse containers were manufactured by Heil Rotomold, Inc., Heil's whollyowned subsidiary. (Snyder Amended Complaint ¶¶ 8-11.) The complaint further alleges that Snyder advised Heil of the patent infringement and that Heil continued the alleged patent infringement after receipt of Snyder's notice. (Snyder Amended Complaint ¶¶ 12-13.) Additionally, the complaint alleges that Heil sold and continued to sell replacement parts for the infringing refuse containers knowing that such replacement parts were material parts of the invention of the '976 patent not suitable for noninfringing use, constituting contributory infringement. (Snyder Amended Complaint ¶¶ 14-15.) Heil filed an interference proceeding and later a civil interference action against Snyder which further supported Snyder's claims that Heil's infringement of the '976 patent was willful. (Snyder Amended Complaint at ¶¶ 20-32.) The amended complaint alleged causes of action for willful infringement of a patent based upon 35 U.S.C. § 271 and § 281, violation of the Wisconsin Organized Crime Control Act, Wis.Stats. § 946.83(2) and (3), abuse of process and tortious interference with prospective economic advantage. (Snyder Amended Complaint at ¶¶ 1-52.)[3]
A. Whether defendants' personal injury liability insurance policies cover the Snyder suit obligating defendants to defend Heil.
Under Wisconsin law, "[t]o determine whether an insurer is obligated to assume the defense of a third-party suit, it is necessary to determine whether the complaint alleges facts which, if proven, would give rise to liability covered under the terms and conditions of the policy." Sola Basic Indus., Inc. v. United States Fidelity & Guar. Co., 90 Wis. 2d 641, 646, 280 N.W.2d 211, 213 (1979); see also Nichols v. American Employers Ins., Co., 140 Wis. 2d 743, 412 N.W.2d 547 (Ct.App.1987). Moreover, "[w]here the parties have contracted to limit recovery to a specific quantifiable type of remedy, a court should not alter the insurance contract to include other types of remedies not contracted for by the parties and that may not be presently quantifiable." City of Edgerton v. General Casualty Co. of Wisconsin, 184 Wis. 2d 750, 780-81, 517 N.W.2d 463 (1994) (quoting Shorewood School Dist., 170 Wis.2d at 369, 488 N.W.2d 82).
In the absence of a Wisconsin Supreme Court case on point, a federal court sitting in diversity must predict how the Wisconsin Supreme Court would decide the case. See Adams v. Fred Weber, Inc., 849 F.2d 1018, 1026 (7th Cir.1988). In the absence *1362 of clear authority from Wisconsin's Supreme Court, this Court is bound to adhere to a state appellate court decision if it represents a sound or defensible prediction of how the Wisconsin Supreme Court would decide the issue. McCoy v. Richards, 771 F.2d 1108, 1110 (7th Cir.1985). The parties have not cited, and the Court has not found a Wisconsin Supreme Court case on point, however, recent Wisconsin Supreme Court authority on insurance law as well as Wisconsin appellate court decisions offer guidance to this Court.
In Nichols, a female employee filed a Title VII administrative complaint alleging sexual harassment against her employer. The administrative complaint did not reference any defamatory conduct as part of the underlying harassment, however, the investigator's initial report referenced evidence of defamatory statements by other employees and supervisors as part of the alleged harassment. The insured argued its insurer had a duty to defend because the insurance policy in question contemplated the defense of defamation actions. The court concluded that "because the nature of the claim was not a defamation action by a third party, the simple fact that a defamatory statement is part of a proceeding does not bring the case within the insurance coverage." 140 Wis. 2d at 751, 412 N.W.2d at 551. In a recent Wisconsin appellate court decision, the court held that an insurance policy's coverage for advertising injury, including misappropriation of advertising ideas or style of doing business, did not include coverage for breach of contract claims. Atlantic Mut. Ins. Co. v. Badger Medical Supply Co., 191 Wis. 2d 229, 243, 528 N.W.2d 486, 491-92 (Ct.App.1995). The Court discussed that case law defining the terms "misappropriation" and "style of doing business" was sufficiently clear so that there was "only one reasonable construction" that did not include inducing an individual to breach a covenant not to compete and misappropriating customer information and market strategies. Id. at 241, 528 N.W.2d at 491.
The legal label attached to the plaintiff's (insured's) conduct is not important. The issue is whether the "conduct as alleged in the complaint is at least arguably within one or more of the categories of wrongdoing that the policy covers." Curtis-Universal, Inc. v. Sheboygan Emergency Medical Services, 43 F.3d 1119, 1122 (7th Cir.1994). Thus, in the instant case, in order to determine whether the personal injury liability coverage applies and the defendants had a duty to defend Heil against the allegations of the Snyder suit, the Court must look to the amended complaint to determine whether one of the enumerated offenses covered by the insurance policy was alleged.
Hartford's and Home's personal injury liability insurance are relatively similar and provide coverage for the offenses of (1) false arrest, detention or imprisonment, or malicious prosecution; (2) the publication or utterance of a libel or slander or other defamatory or disparaging material, or a publication or utterance in violation of an individual's right to privacy; or (3) wrongful entry or eviction or other invasion of the right of private occupancy. The Snyder suit alleged claims for patent infringement, a violation of Wisconsin's Organized Crime Control Act, abuse of process and tortious interference with prospective economic advantage. Heil argues that Snyder's allegation of abuse of process is synonymous with malicious prosecution, and therefore, the abuse of process allegation triggered Hartford's and Home's duty to defend Heil. The Court disagrees.
The common law tort of "malicious prosecution" and "abuse of process" are separate and distinct torts. In order to maintain an action for malicious prosecution, the plaintiff must allege facts which, if proven, would satisfy each of the following six essential elements: (1) a judicial proceeding was initiated against the plaintiff; (2) the proceeding was commenced by, or at the instance of the defendant; (3) the former proceeding terminated in favor of the defendant therein, the plaintiff in the malicious prosecution action; (4) there was malice in the institution of the former proceeding; (5) there was want of probable cause for the institution of the former proceeding; and (6) the plaintiff suffered injury or damage as a result of the former proceeding. Brownsell v. Klawitter, 102 Wis. 2d 108, 112, 306 N.W.2d 41, 43 (1981) (quotations and citations omitted). *1363 The tort of abuse of process has two essential elements: "a willful act in the use of process not proper in the regular conduct of the proceedings and an ulterior motive." Id. at 114, 306 N.W.2d at 44. (quotations and citations omitted). The tort of abuse of process is more broadly defined than the tort of malicious prosecution and may provide a remedy where malicious prosecution will not. Strid v. Converse, 111 Wis. 2d 418, 423, 331 N.W.2d 350, 353 (1983). Quite simply, under Wisconsin law, there is a difference between malicious prosecution and abuse of process.[4]
It is clear to the Court that under Wisconsin law, malicious prosecution and abuse of process are separate and distinct torts. The Snyder amended complaint alleged a cause of action for abuse of process which is not enumerated as a covered offense in either of defendants' personal injury policies, and is defined differently by the Wisconsin Supreme Court than the covered offense of malicious prosecution. In light of recent Wisconsin Supreme Court authority as well as Wisconsin appellate court decisions, the Court concludes that none of the enumerated offenses covered by the insurance policies are alleged in the Snyder suit. Under Wisconsin law, the offense of "malicious prosecution" is not ambiguous and only a lawsuit against the insured for malicious prosecution would create an obligation to defend. The Snyder amended complaint does not set forth a claim for malicious prosecution, in particular, the Snyder lawsuit fails to allege that the complained of proceedings terminated in favor of defendant, who then became the plaintiff in the subsequent malicious prosecution action. Thus, at the very least, the third element of a claim for malicious prosecution is absent. Therefore, because the Snyder amended complaint did not allege a cause of action for malicious prosecution or any other covered personal injury, Hartford and Home did not have a duty to defend Heil under the insurance policies covering personal injury.
B. Whether defendants' advertising injury liability insurance policies cover the Snyder suit obligating defendants to defend Heil.
Heil argues the defendants had an obligation to defend Heil in the Snyder suit under the terms of the insurance policies covering an advertising injury. The defendants' policies covering advertising injury liability are similar. In order for coverage to apply, the underlying complaint must allege: (1) an offense committed in connection with the insured's advertising activities AND (2) one of the enumerated offenses within the definition of advertising injury. The issue before the Court is whether "piracy" or "unfair competition" constitute patent infringement and whether the alleged patent infringement is committed in connection with Heil's advertising activities.
The parties have not cited and the Court has not found a Wisconsin Supreme Court case discussing whether a policy providing coverage for piracy or unfair competition occurring in the course of the insured's advertising activities should be construed to cover patent infringement. Hartford and Home argue that the Snyder complaint does not allege an offense committed in connection *1364 with Heil's advertising activities and cite persuasive authority. The Court having reviewed the persuasive authority cited by both plaintiff and defendants notes that the majority of cases outside of Wisconsin consistently hold that patent infringement does not constitute "piracy" within the meaning of a liability policy's advertising injury coverage.[5]See Iolab Corp. v. Seaboard Surety Co., 15 F.3d 1500 (9th Cir.1994); Intex Plastics Sales Co. v. United Nat'l Ins. Co., 23 F.3d 254 (9th Cir.1994); Everest and Jennings, Inc. v. American Motorists Ins. Co., 23 F.3d 226 (9th Cir.1994); Owens-Brockway Glass Container, Inc. v. International Ins. Co., 884 F. Supp. 363 (E.D.Cal.1995); Gencor Indus., Inc. v. Wausau Underwriters Ins. Co., 857 F. Supp. 1560 (M.D.Fla.1994); Davila v. Arlasky, 857 F. Supp. 1258 (N.D.Ill.1994); I.C.D. Indus., Inc. v. Federal Ins. Co., 879 F. Supp. 480 (E.D.Pa.1995); Atlantic Mut. Ins. Co. v. Brotech Corp., 857 F. Supp. 423 (E.D.Pa.1994); Gitano Group, Inc. v. The Kemper Group, et al., 26 Cal. App. 4th 49, 31 Cal. Rptr. 2d 271 (1994); Aetna Casualty & Surety Co. v. Superior Court, 19 Cal. App. 4th 320, 23 Cal. Rptr. 2d 442 (1993); A. Meyers & Sons Corp. v. Zurich American Ins. Group, 74 N.Y.2d 298, 545 N.E.2d 1206, 546 N.Y.S.2d 818 (1989).
In National Union Fire Ins. Co. of Pittsburgh v. Siliconix, Inc., 729 F. Supp. 77 (N.D.Cal.1989), the insured was charged with patent infringement and sought coverage from its insurance company under its policy offering coverage for "advertising injury." The coverage grant and definition of advertising injury were similar to the language and definition found in Hartford's and Home's policies. First, the court concluded that the term "piracy," one of the enumerated offenses in the policy, encompassed patent infringement. The court discussed that because "piracy," read in its ordinary sense, can include patent infringement, the court was obligated to construe the term in favor of coverage for the insured. 729 F. Supp. at 79. The Court next resolved the question of whether injury arising out of patent infringement "occurs in the course of" advertising activities. The insured argued that advertising is "part and parcel of selling, and therefore the selling of an infringing product is an infringement occurring in the course of advertising." Id. Although the court found the argument "facially appealing," the court rejected the argument as too broad by "read[ing] the requirement that the infringement occur in the course of advertising out of the policy." Id. at 80. The court noted that this argument, if taken to the extreme, would allow any harmful act, if it were advertised, to fall under the grant of coverage. In particular, the court opined, "[u]nder this rationale, ... injury due to a defective product which is sold as a result of advertising activity and which later harms a consumer, may fall within with the coverage grant." Id. In order to give meaning to each clause of the policy, the Northern District of California concluded that even if piracy is construed to encompass patent infringement, patent infringement does not occur in the course of advertising, and is not covered as a type of advertising injury. Id. at 80. Since Siliconix,[6]*1365 the United States Court of Appeals for the Ninth Circuit has held that, as a matter of law, patent infringement cannot occur in the course of an insured's advertising activities. See, e.g., Iolab, 15 F.3d at 1505 (holding that an infringement claim based on the manufacture and sale of patented lens did not arise out of the insured's advertising activities); Everest and Jennings, 23 F.3d at 229 (holding that patent infringement is not caused by conduct committed in the course of advertising).
While a Wisconsin court has not addressed this issue, the virtually unanimous trend of courts outside Wisconsin is to rule against coverage. Although this Court must attempt to predict how the Wisconsin Supreme Court would decide the case, in doing so, the Court may consider the well-reasoned decisions of other jurisdictions as persuasive. The Court agrees with the much of the reasoning of Siliconix and Iolab. Under the clear language of the policies issued to Heil by Hartford and Home, coverage is provided for "advertising injury" only if the alleged injury was committed by Heil in the course of advertising their goods, products or services. In order to interpret the language of the insurance policy in context with the policy's intended function, any of the policy's enumerated advertising injuries must be caused by Heil's advertising.
First, the word "patent" or "patent infringement" is not listed in the policies' language defining advertising injury. The language defining "advertising injury" includes specific terms connected to well known legal categories, for example, "libel," "slander," and "infringement of copyright." It is significant that "patent" is not mentioned anywhere, and in fact, is entirely absent from the policy language. The Court opines that if coverage for patent infringement was anticipated, patent infringement would be explicitly listed similar to "infringement of copyright." As the court discussed in Gencor:
it is nonsense to suppose that if the parties had intended the insurance policy in question to cover patent infringement claims, the policy would explicitly cover infringements of "copyright, title or slogan," but then include patent infringement, sub silentio, in a different provision.... Basic common sense dictates that if these policies covered any form of patent infringement, the word "patent" would appear in the quoted "infringement" clauses.
857 F.Supp. at 1564. Nonetheless, Heil consults a number of dictionaries to find that the word "piracy" can refer to patent infringement, and cites to Wisconsin insurance law that any ambiguity must be resolved in favor of the insured. However, this argument fails to read the term "piracy" within the context of the insurance *1366 policies at issue. The insurance policies at issue use the term "piracy" within the definition of "advertising injury," thus the issue is not what the term "piracy" means in isolation but what "piracy" occurring in the course of advertising activities could reasonably mean. See Brotech, 857 F.Supp. at 428. The Court agrees with the reasoning in Brotech and Iolab, and concludes that "piracy," when read in the context of "advertising injury," and in light of common sense, does not refer to direct patent infringement, contributory patent infringement or inducement of patent infringement. "In the context of policies written to protect against claims of advertising injury, `piracy' means misappropriation or plagiarism found in the elements of the advertisement itself in its text form, logo, or pictures rather than in the product being advertised." Iolab, 15 F.3d at 1506. Heil's claim of piracy arising out of advertising has no basis because the Snyder complaint was based on Heil's alleged infringement of Snyder's patent for the hinged lid itself rather than on Heil's advertising of the lid. There is nothing about the term "advertising injury" which remotely suggests coverage of patent infringement. A reasonable insured would read the insurance policy as defining "advertising injury" in a conventional sense. In the instant case, Heil attempts to expand the scope of coverage to patent infringement not normally related to advertising. Moreover, Heil's reliance on an advertisement for the Heil refuse container attached to the Snyder amended complaint is misplaced. The advertisement, referred to in the pleadings as Exhibit D, does not provide notice to Heil that it was stating a claim for induced infringement arising from Heil's advertising, but rather serves solely to provide a picture of the alleged infringing product being sold by Heil.
Under 35 U.S.C. § 271(a), the statutory definition of direct patent infringement refers only to the making, using or selling a patented invention. Thus the gravamen of direct infringement of a patent is making, using or selling a patented invention not advertising it. In a patent infringement case, the owner of a patent (the patentee) is injured when an infringer, without consent of the patentee, uses or sells a product utilizing the patentee's patented invention, the injury is not incurred when the product incorporating the patented invention is advertised. Nonetheless, Heil argues that because Snyder brought its allegations of patent infringement under 35 U.S.C. § 271 and did not designate which section of the statute it invoked, the amended complaint involves claims of contributory and inducing infringement under 35 U.S.C. § 271(b) and (c). As previously stated, the duty of a liability insurer to defend an action brought against an insured is determined by the allegations in the complaint. Accordingly, the Court's duty is to compare the allegations of the complaint to the terms of the policy to determine whether a duty to defend exists. Although it is correct that Snyder did not specify by statutory section the basis of its patent infringement lawsuit, the allegations of the amended complaint allege direct infringement pursuant to 35 U.S.C. § 271(a) for selling and manufacturing an alleging infringing product and contributory infringement pursuant to 35 U.S.C. § 271(c) for selling replacement parts not suitable for substantial noninfringing use. (Snyder Amended Complaint ¶¶ 11-15.) The Snyder amended complaint did not allege a claim for induced infringement. The advertisement, attached to the Snyder amended complaint, appears to have been submitted solely as evidence that Heil was selling the infringing product. In conclusion, the Snyder amended complaint arose out of the illegal selling of a alleged infringing product in violation of patent '976, not out of Heil's advertising activities.
Therefore, Heil has failed to demonstrate how the patent infringement in this case could have been caused by advertising activity, or that it arose out of advertising activity. Instead, the Snyder amended complaint alleges that the infringement was caused by the and sale and manufacture of an allegedly infringing product. In fact, advertising activity is not mentioned in the Snyder amended complaint. Thus, Heil has failed to establish any causal connection between the patent infringement alleged in the Snyder litigation and any advertising activity, *1367 despite the fact that the infringing product was advertised and may have been sold, in part, through advertising.
Heil further claims that the charge of "unfair competition" in the Snyder complaint requires Hartford and Home to provide a defense under the "advertising injury" provisions of the policies. Coverage for "unfair competition" is included within the insurance policies' definition of "advertising injury." However the Snyder amended complaint contains no allegation of "unfair competition" on its face. Heil contends that this is not fatal to its position because the claim for unfair competition can be discerned by reviewing the allegations of the complaint. Like the claim for coverage based on piracy, the allegation of unfair competition must also emanate from Heil's advertising activities. See Davila, 857 F.Supp. at 1261-63 (rejecting argument that "unfair competition" included an action for patent infringement due to the lack of causal relationship between the patent infringement suit and the insured's advertising activities).
Common law unfair competition is generally thought to be synonymous with the act of "passing off" one's goods as those of another, such as the sale of confusingly similar products, by which a person exploits a competitor's reputation in the market. Bank of the West, 2 Cal.4th at 1263, 10 Cal. Rptr. 2d at 544, 833 P.2d at 551. An examination of the twenty-one page amended complaint indicates that it alleges injury arising out of the manufacture and sale of a Heil refuse container which is alleged to infringe Snyder's patent. It is clear to the Court that the Hartford and Home policies, when read in context, do not cover the act of "unfair competition" arising out of the alleged illegal manufacturing and sale of goods in violation of another's patent rights and the activity Snyder complains of is not one covered under the Hartford and Home policies. See Gencor, 857 F.Supp. at 1566; Brotech, 857 F.Supp. at 428-29; I.C.D. Industries, 879 F.Supp. at 487.
Under the "advertising injury" language of the policies at issue, a claim due to injury from libel, slander, defamation, violation of an individual's right to privacy, infringement of copyright or of title or slogan, piracy, unfair competition, or idea misappropriation must also arise out of an offense occurring in the course of Heil's advertising activities. These are the types of injury an insured can expect to occur in the course of its advertising activity, and therefore, can reasonably expect to be covered by a policy insuring against advertising injury. Thus, to have triggered Hartford and Home's duty to defend, the claimed injury must have both arisen out of an offense occurring in the course of the insured's "advertising activities" and constitute one of the enumerated offenses. In conclusion, the Court agrees with the majority of courts which have considered the issue that patent infringement is not an advertising injury and does not give rise to advertising liability under the policies here involved. The Court will not adopt a strained interpretation of the insurance policies in order to create an ambiguity where none exists. Finally, because the Court concludes that the insurance policies at issue did not cover the allegations of the Snyder amended complaint, the Court opts not to address the defendants' arguments invoking the "known loss" doctrine.
IV. CONCLUSION
Based on the foregoing discussion, the Court holds that defendants, Hartford Accident and Indemnity Company and The Home Indemnity Company, had no duty to defend plaintiff, The Heil Company, in the patent infringement suit brought by Snyder Industries, Inc.
IT IS THEREFORE ORDERED that the plaintiff's Motion for Summary Judgment is DENIED, the defendants' Motion for Summary Judgment is GRANTED, and this case is DISMISSED in its entirety.
SO ORDERED.
NOTES
[1] The plaintiff filed a Motion to file Surreply Brief and simultaneously filed the surreply brief with the Court. The defendant Hartford objected to plaintiff's motion to file a surreply brief. The Court hereby grants plaintiff's Motion to File Surreply Brief and incorporates plaintiff's surreply brief into the record.
[2] Although the defendants have provided the Court with the relevant portions of the comprehensive general liability coverage regarding "bodily injury" liability and "property damage" liability, the plaintiff admits and argues that only the "personal injury" and "advertising injury" portions of the insurance policies triggered the duty to defend Heil against Snyder. Therefore, the Court will focus solely on the "personal injury" and "advertising injury" portions of the insurance policies at issue.
[3] The plaintiff argues that the Snyder amended complaint alleges that Heil had "advertised and sold" certain refuse containers and replacement parts in violation of the '976 patent issued to Snyder. The Court, having carefully reviewed the Snyder amended complaint, does not find any reference to Heil's advertising activities in the amended complaint. The Snyder amended complaint focuses entirely on the sale and manufacture of the allegedly infringing refuse container.
[4] In support of its argument that malicious prosecution and abuse of process are the same, Heil relies on Koehring Co. v. American Mutual Liability Ins. Co., 564 F. Supp. 303 (E.D.Wis.1983). The Court agrees with defendant Hartford that recent Wisconsin Supreme Court and appellate court decisions have implicitly rejected the rationale utilized in Koehring; and the facts are distinguishable, for example, the underlying lawsuit in Koehring alleged an explicit claim for malicious prosecution, which was a covered offense. In the instant case, the Snyder amended complaint did not plead facts alleging a cause of action for malicious prosecution or claim malicious prosecution as a cause of action against Heil. Instead, Snyder alleged a cause of action for abuse of process which Wisconsin courts have recognized is a broader cause of action than malicious prosecution, as well as a separate and distinct tort. See Strid v. Converse, 111 Wis. 2d 418, 426, 331 N.W.2d 350, 355 (1983); see also R.A. Hanson Co., Inc. v. Aetna Ins. Co., 26 Wash. App. 290, 612 P.2d 456 (1980) (noting a clear distinction in Washington law between abuse of process and malicious prosecution, and consequently, insurance coverage for malicious prosecution does not cover abuse of process); Parker Supply Co., Inc. v. Travelers Indemnity Co., 588 F.2d 180 (5th Cir.1979) (recognizing the difference between actions for malicious prosecution and abuse of process in Alabama, and consequently, only a suit against the insured for the covered offense of malicious prosecution would create an obligation to defend).
[5] The plaintiff cites to three cases concluding that allegations of patent infringement were covered as "piracy" within the meaning of "advertising injury." Union Ins. Co. v. Land and Sky, Inc., 247 Neb. 696, 529 N.W.2d 773 (1995); Rymal v. Woodcock, 896 F. Supp. 637 (W.D.La. 1995); John Deere Ins. Co. v. Shamrock Ind., Inc., 696 F. Supp. 434 (D.Minn.1988), aff'd, 929 F.2d 413 (8th Cir.1991). In Union Ins., the underlying complaint alleged potential liability for inducing or contributing to patent infringement due to the advertising activities of the insured. Thus the advertising activities of the insured were implicated by the underlying complaint. Moreover, the insured had entered into two insurance contracts with the insurer, one of the contracts explicitly excluded patent infringement and the other policy created an ambiguity which must be construed in favor of coverage, in addition to the allegation of injury resulting from the insured's advertising activity. 247 Neb. at 704, 529 N.W.2d at 778. In John Deere, the court held that the alleged claims of misappropriation of trade secrets fell within the coverage, and therefore, the insurer had an obligation to defend the entire lawsuit including the patent infringement claims. As the defendant Hartford correctly notes there was no finding by the court held that patent infringement claims specifically were covered. 696 F. Supp. at 440. Thus, the Court finds that the cases cited by plaintiff are clearly in the minority, and moreover, the Court finds two of the cases distinguishable.
[6] In Bank of the West v. Superior Court, 2 Cal. 4th 1254, 10 Cal. Rptr. 2d 538, 833 P.2d 545 (1992), the California Supreme Court discussed at length the requirement that advertising have proximately caused the damages in order to be covered under the advertising injury provisions of an insurance policy. The court noted that other courts which had examined the question had "rejected coverage claims based on injuries that did not have a causal connection with the insured's advertising activities." 2 Cal. 4th at 1274, 10 Cal.Rptr.2d at 551, 833 P.2d at 558. The California Supreme Court quoting the Siliconix decision explained that a causal connection was necessary to invoke coverage. The court explained:
as a matter of common sense, an objectively reasonable insured would not expect "advertising injury" coverage to extend as far as the Bank argues it should extend. Virtually every business that sells a product or service advertises, if only in the sense of making representations to potential customers. If no causal relationship were required between "advertising activities" and "advertising injuries," then "advertising injury" coverage, alone, would encompass most claims related to the insured's business. However, insureds generally expect to obtain such broad coverage, if at all, only by purchasing several forms of insurance, including coverage for "error and omissions liability," "directors and officers liability," "completed operations and products liability," and/or other coverages available as part of CGL policy.... For these reasons, we hold that "advertising injury" must have a causal connection with the insured's "advertising activities" before there can be coverage.
2 Cal.4th at 1276-77, 10 Cal. Rptr. 2d at 553, 833 P.2d at 560 (footnote omitted). However, in Bank of the West, the California Supreme Court appears to leave open the possibility that in some cases, a patent infringement claim may be "based on ... the advertisement." 2 Cal. 4th at 1275, 10 Cal.Rptr.2d at 551, 833 P.2d at 558. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2250275/ | 937 F. Supp. 679 (1996)
Mark SCHENCK, et al., Plaintiffs,
v.
CITY OF HUDSON VILLAGE, et al., Defendants.
No. 5:96-CV-1481.
United States District Court, N.D. Ohio, Eastern Division.
August 1, 1996.
*680 *681 Mark A. Ferguson, Taft, Stettinius & Hollister, Columbus, OH, Nicholas T. George, Law Offices of Nicholas T. George & Associates, Akron, OH, John W. Solomon, Jay P. Porter, Brouse & McDowell, Akron, OH, Timothy J. Grendell, Taft, Stettinius & Hollister, Cleveland, OH, for Mark Schenck, Hudson Land Co., Ltd., L & V Equipment Rental, Inc., Hudson Builders, Inc., James Dagley, Elizabeth Dagley, Kevin Custer, Sharon Custer, Virginia Dinovi, Home Builders Association of Greater Akron.
Amie L. Bruggeman, Charles E. Zumkehr, Breaden M. Douthett, Roetzel & Andress, Akron, OH, for City of Hudson, James Smith, Timothy J. Murphy, David D. Bashore, Jane Waterson, Barbara Berlin, John Krum, Dave McNiff, Rebecca Reagan, Harold Bayless, Betty Montgomery.
MEMORANDUM OPINION
DOWD, District Judge.
I. INTRODUCTION
Plaintiffs challenge the constitutionality of a zoning ordinance enacted by the City of Hudson Village ("the City"), arguing primarily that the ordinance violates the substantive due process rights of certain developers and real property owners. The ordinance, which became effective May 1, 1996, places a limit on the amount of zoning certificates the City will issue annually. Plaintiffs have filed a motion for a preliminary injunction, asking the Court to order the City not to enforce the ordinance against developers of lots which have already received preliminary or final plat approval. The Court conducted a two-day hearing July 23 and 24, 1996, and has considered the voluminous record submitted by the parties. Upon careful consideration, the Court grants the motion for a preliminary injunction to the extent outlined below.
II. FACTUAL BACKGROUND
The current City of Hudson Village is a product of a 1994 merger between the former City of Hudson Village and Hudson Township. The merger increased both the physical size and the population of the City. According to the City's Comprehensive Plan published in August 1995, the 1990 population of the pre-merger City was 5,159 and the population of the township was 11,969 for a combined total of 17,128. Thus the City more than tripled in population as a consequence of the merger. The current estimated population of the City is approximately 21,000. The City covered six square miles prior to 1994. As a result of the merger, it now covers 25 square miles.[1]
The City lies in the northernmost part of Summit County, adjacent to Cuyahoga County, and can best be described as a upscale bedroom community for residents who work in the Akron and Cleveland metropolitan areas. The average cost of a newly constructed home is $320,000, according to the deposition testimony of the City's assistant director of community development. The post-merger City has a distinct rural flavor with rolling topography and little evidence of dependence on an agricultural base.
The City retains a village-like character because the population is spread throughout the 25 square miles. There is no commercial center of any size that would characterize a city of more than 20,000 people if the city were far removed from other urban areas.[2]
Prior to the merger both the City and the township were growing at a rapid rate. The population of the two then-distinct entities grew more than 50 percent in the 1970s and more than 35 percent in the 1980s. With the merger, the new City commissioned a consulting firm to prepare a comprehensive plan to provide an infrastructure to accommodate the needs of the existing population and to prepare for anticipated growth given the continuing movement away from the urban centers *682 of Akron and Cleveland to the more attractive residential areas.[3]
The comprehensive plan ("the plan"), completed in August 1995 and subsequently approved by the city council, engaged in an analysis of Hudson's resources, ability to accommodate the rapid growth and desire to maintain its historic qualities. Central to the plan was the premise that "the current pace of development is straining the community's ability to provide adequate public services and the amenities that are representative of the quality of Hudson life." (Plan at 1). The plan further noted:
The intent of the Comprehensive Plan is to set predictable target levels that allow Hudson services, infrastructure and schools to be planned. Often decisions are made out of necessity and response to unpredictable growth spurts, resulting in the need for unplanned financial outlays. Through planning and appropriate regulatory mechanisms, much of this unpredictability can be removed.
(Id.). The plan noted that, given the existing zoning structure and growth rate of the City, the population could increase to 38,000 to 39,000 in the next two decades. (Id. at 10, 12).
The plan noted significant shortcomings in the City's basic infrastructure such as water, sanitary sewers, storm sewers and transportation. It also addressed the City's desire to maintain its "unique quality," particularly in its historic downtown, and noted the threats growth posed to that area:
[T]he recent years of economic growth and the inevitable revolution of technology and modernization have brought many problems to the downtown historic core. The pressure for expansion and growth is threatening the unique qualities, so zealously guarded by its residents. The problems of traffic congestion, parking, new development, pedestrian conflicts, and diminishing retailing activity are noticeable.
(Id. at 47).
The most controversial aspect of the plan is its "Growth Management Strategy." The plan notes that Hudson's sustained growth rate of 3.5 percent per year over a 15-year period is "a pace rarely seen anywhere in the United States on a sustained basis" and is "a rate more typical of cities in developing countries of South America, Asia, or Africa." (Id. at 58).[4] This rapid growth contributes to the declining infrastructure and places pressure on schools and public services such as police and fire, according to the plan. "[A] growth management system that addresses the amount, timing, quality, and fiscal impact of development will be an essential tool" in addressing the City's problems, according to the plan. (Id. at 59).
The plan recommended that the City adopt an overall maximum population target of under 30,000. (Id.). It suggested that the City moderate the pace of population growth to a level of 1 to 1.5 percent annually by limiting its issuance of zoning certificates, which are required before a property owner can receive a building permit. A zoning certificate is needed to apply for a building permit. It recommended awarding permits "on the basis of a point system which includes, but is not limited to[,] infrastructure availability, adequate public facilities, protection of wetlands and stream banks, storm water management capacity, tree conservation, provision of public amenities, finalization of build out of existing subdivisions [and] improvement of [ratio of] jobs to housing balance." (Id. at 61).
Pursuant to the plan, the city council adopted an interim development control ordinance in June 1995. That ordinance is the subject of other pending litigation and is not a part of this lawsuit. See Virginia DiNovi et al. v. The City of Hudson Village et al., *683 Case No. 5:95-CV-2042 (N.D.Ohio). On May 1, 1996, Hudson replaced the interim order with Ordinance 96-31, which added Chapter 1207 to the City's Planning and Building Code.
Because Chapter 1207 is the core of this lawsuit, a detailed description is helpful. Key elements of its "Purpose and Intent" section follow:
§ 1207.01 PURPOSE AND INTENT
The purpose and intent of this ordinance is to:
. . . . .
(b) Implement the policies and goals of the 1995 City of Hudson Comprehensive Plan ... relating to growth management strategy, transportation, community facilities and infrastructure, economic development, and community character.
(c) To establish a residential development management and allocation system to control the rate of residential development to ensure that:
(1) Growth is orderly and that municipal infrastructure and public services are available concurrently with such development and to prevent further deterioration of public facility and infrastructure service levels;
(2) The fiscal impact of such development does not exceed revenue available from such development and other sources to pay the cost of infrastructure and services which it necessitates;
(3) The community character of the city as a desirable place to live and conduct business is not eroded and that property values are protected throughout the city;
(4) The density of population in the city is managed carefully to prevent overcrowding and congestion; and
(5) Existing developments are completed and land adjacent to existing subdivisions is developed on a preferential basis to reduce infrastructure extension costs.
Among the "findings" in Section 1207.02 was the following:
(f) That the city needs to moderate the rate of residential development to afford it additional time to prepare plans to provide necessary infrastructure and services to accommodate new residential development, to attract new non-residential development that will provide revenues to the city to assist in the financing of such services and infrastructure, and to maintain reasonable property tax rates, fees, and other charges for its citizens.
The 16-page chapter proceeds to set up a complex system whereby the City prohibits the issuance of a zoning certificate for residential housing unless the applicant possesses an "allotment" granted by the City. The City issues a limited number of allotments each year, determined annually by the council upon the recommendation of the city manager and the municipal planning commission. The number of allotments between now and June 30, 1997, is 100. The ordinance calls for the City to issue the allotments on semiannual allocation dates in equal amounts.
Eighty percent of the allotments in any year are placed in a "priority" pool and are to be distributed only to the following applicants: 1) those seeking to build "affordable" housing, defined as available to families earning not more than 50 percent of the median family income of Hudson; 2) those seeking to build residences for the elderly or disabled; 3) those seeking to build on lots already having direct access to public streets, or in subdivisions with preliminary or final plat approval prior to the date of enactment of the ordinance; and 4) those seeking to build on lots of at least five acres with access to public streets and water.
The ordinance stated that no single development could receive more than 30 allotments in a single year unless there were no competing applicants. However, applicants could apply for multi-year allotment "reservations" which would count against the total amount of allotments to be distributed in upcoming years.[5]
*684 Although the ordinance provides that "an individual, ownership entity, or organization may submit only one allotment application per lot in each allocation period," Sec. 1207.05(c) (emphasis added), the City in its first allocation period allowed developers to submit only one application per subdivision.[6] Allotments are awarded on a so-called "pro rata" basis under which each applicant would be guaranteed a minimum of one allotment unless the number of applicants exceeded the number of allotments to be issued, in which case a drawing would be held to award allotments.
The ordinance provided two mechanisms outside the normal allotment process in cases of hardship or special merit. Section 1207.04(i) allows the city council, upon the advice of the city manager and planning commission, to award up to 30 extra allotments to projects meeting one of the following criteria:
(1) At least 25 percent of the units to be built are deed restricted or dedicated to housing for elderly over sixty-two years of age or disabled persons or are classified as affordable housing units as defined in this ordinance;
(2) The project is a mixed-use commercial/residential development that will contribute substantially to the preservation, enhancement and revitalization of the downtown area of the City;
(3) Already approved subdivision plans that are proposed to be redesigned in such a manner that substantially advances the goals of the comprehensive plan and accomplishes one or more of the following purposes: substantially lessens the impact on public services and facilities, reduces overall densities, improves protection of sensitive natural areas such as wetlands, riparian areas, wildlife habitat, and woodlands, or provides additional public amenities such as parks, green ways, and open space; or
(4) Where exceptional or other unusual conditions exist that are not common to other similarly situated developments and where practical difficulty, as defined in this ordinance, may result from strict compliance with this ordinance, provided that such allotment will not have the effect of nullifying or impairing the intent and purpose of this ordinance.
Second, a person who is shut out of allotments due to losing in the lottery in two consecutive semiannual allotment drawings and maintains that no reasonable use of his property remains due to the failure to receive an allotment may apply for a hardship relief under Section 1207.08(b) of the ordinance. The city council may 1) grant one or more allotments, to be deducted from the total outlay of allotments in the next allocation period or periods; 2) offer to purchase the property or an interest therein; 3) offer other such relief as may be appropriate; or 4) grant no relief.
The ordinance called for the first set of 50 allotments to be distributed on August 15, 1996, upon approval of the municipal planning commission. A total of 84 applications deemed valid by the City competed in the first drawing. Because none of the applicants had a "non-priority" status, the 10 non-priority allotments were added to the 40 priority allotments to create a pool of 50 allotments for the 84 applicants. A random drawing was conducted on July 15, 1996, and the first 50 applications drawn are scheduled to receive allotments upon approval of the *685 municipal planning commission on August 15. See Section 1207.05(g).
As a result of the random drawing, no applicant received more than one allotment. This includes developers seeking allotments for multiple lots in a subdivision. Documents and testimony indicated that some developers discovered a way to manipulate the system by quit-claiming deeds for lots to others who submitted applications as "owners" of the lots or entering into purchase agreements contingent upon the proposed purchaser's winning of an allotment in the drawing. Other developers were shut out despite submitting applications seeking dozens of allotments.
This action was filed July 10, 1996, by several plaintiffs asserting differing interests. Following are the plaintiffs and their claims:
Mark Schenck is the owner of real property in Hudson known as the Westbridge Subdivision, Phases II and IV. The complaint alleges Schenck borrowed money from a bank to construct streets, put in sewer and water lines, and otherwise develop his subdivision. The loans were to be repaid with proceeds from sale of lots and homes in the developments. Schenck alleges that the growth management ordinance prevents him from recovering his investment and repaying his loan, in violation of his substantive due process rights under the Constitution.
Hudson Land Co., Ltd. ("HLC"), is a limited liability company which owns real property in Hudson known as the Woods of Westbrook. The Woods of Westbrook development has final plat approval and is fully improved with infrastructure. HLC alleges its ability to recoup on its investment is stymied by alleged arbitrary and irrational application of the growth management ordinance and as a result it is about to default on a $950,000 development loan.
Hudson Builders, Inc., is a residential building company conducting business in the City. L & V Equipment Rental, Inc., is a residential development company doing business in the city. Both Hudson Builders and L & V[7] allege that their efforts in developing lots in three Hudson developments are hindered by the ordinance.
Virginia DiNovi is listed in the complaint as a taxpayer, resident and landowner in Hudson. She brings a taxpayer's action, stating that she demanded that the City solicitor halt the enforcement of the growth management ordinance. She alleges that the ordinance subjects her as a taxpayer to potential loss because of future damages in litigation due to the alleged unconstitutional ordinance.
The Home Builders Association of Greater Akron is a trade association consisting of members who are builders, suppliers and tradesmen involved in the building industry in Summit County. Some of its members construct homes and otherwise do business in Hudson.[8]
*686 James and Elizabeth Dagley and Kevin and Sharon Custer are homeowners in Hudson who live in the Nottingham Gates Estates subdivision. They allege that prior to the enactment of the ordinance, they entered into agreements with their homebuilders who agreed to construct certain recreational facilities in the subdivision upon completion of a designated number of homes. They allege that they had a further understanding that their neighborhood would be complete within a reasonable period of time. They allege their contractual rights are impaired unconstitutionally because the ordinance deprives them of the recreational and neighborhood amenities which were a part of their bargain.
The Court conducted a two-day hearing July 22 and 23, 1996, on the plaintiffs' motion for a preliminary injunction. Representations from counsel and testimony of witnesses indicated that there are approximately 260 to 285 lots in Hudson in which final platting has been approved and improvements are complete. There are an undetermined amount of other lots, estimated to be in the neighborhood of 80 to 100, which have received preliminary or final plat approval but which have not been fully improved.[9]
Among those testifying was Pat Caticchio, a principal in Hudson Land Co., Ltd. ("HLC"), which owns a development called the Woods of Westbrook ("Westbrook"), located in the northwest corner of the City. Caticchio testified that HLC received preliminary plat approval from the City on February 14, 1994. Caticchio testified that in reliance upon such approval, HLC's five members committed $500,000 to purchasing the land and improving the site and also executed a $950,000 development loan with a local bank. He testified that after receiving preliminary approval HLC put in storm sewers, sanitary sewers, water hookups and a bike path easement at HLC's expense. On February 6, 1995, HLC entered into a final plat agreement with the City (Plaintiffs' Exh. 6). The agreement called for HLC to pay more than $23,000 in City inspection costs. It also called for HLC to dedicate to the City all streets and public improvements set forth in the final plat. In return for HLC's improvements, the City promised to "issue building and/or zoning permits provided that the applicants ... have met the necessary requirements for the issuance of said permits." Id.
Caticchio testified that the improvements in Westbrook are complete. However, he said the growth management ordinance has prevented HLC from being able to sell the lots, as no one will buy the lots without the assurance that they can build. He received no allotments in the July 15 lottery. In the meantime, HLC has a $7,600 monthly interest payment and only $4,000 in the bank. Caticchio testified that HLC is bankrupt as a consequence of its inability to meet its next interest payment.
Also testifying was Laura DiNovi Edinger, vice president of Hudson Builders and L & V Equipment Rentals. The two companies own property in three developments in Hudson: the Woods of Williamsburg, DiNovi Acres and Nottingham Gates Estates. Edinger testified that she submitted applications for each of the three subdivisions, seeking allotments for a total of 64 lots. She received no allotments at the July 15 drawing. She testified that prior to the City's imposition of growth control, L & V sold approximately 30 lots per year. In 1995, when the interim development control was in effect, L & V sold 12 lots. In 1996, L & V has sold two lots. She said a buyer who tentatively agreed to purchase half of the 36 remaining lots in Phase II of Nottingham *687 Gates Estates backed out after becoming aware of the City's growth control plans.
Testifying for the City was James Smith, the city manager. He detailed the City's infrastructure problems and the costs associated with maintenance and upgrade. He testified that improving the water system, which will involve the construction of a connection to the city of Cleveland's water system, is expected to cost $7 million in the next five years and up to $28 million in the next 15 to 25 years. Financing will come from a gradual tripling of sewer rates in the next 15 to 25 years, significant tap-in fees, and attempts to obtain state funding and pass a bond issue.
Smith testified that a $9.2 million sewer improvement is being financed by $750,000 per year dedicated from the city's income tax and an increase in assessments. He testified that the City has spent $5 million to improve its transportation system and needs to spend millions more. A new $3.5 million police facility is needed, as well as additional funding for the hiring of additional police personnel, according to Smith.
Smith testified that the City lacks the funding to accommodate these infrastructure needs and that every new home contributes to the City's deficit. According to the City's calculations, basic non-utility services cost roughly $1,024 per household per year, while the average intake from property taxes is $287 per year. He said the growth management ordinance helps the City meet a schedule for implementing its many necessary improvements. The ordinance also encourages business and industry to come to Hudson Village which otherwise might shy away because of growth problems, according to Smith.
Also testifying for the City was Chris Duerkson, a real estate and growth management consultant for Clarion Associates, the consulting firm which helped draft the growth management ordinance. He testified that when a city experiences growth exceeding 2 to 3 percent annually, it encounters problems in schools, traffic, storm drainage and other areas. He testified that the ordinance enables the City to catch up on its infrastructure problems and is not prejudicial to owners of platted lots because it places them in the priority pool for available allotments.
Scott Breen, assistant director of community development for the City, explained the lottery system. He testified that under the system, when there are more applicants than allotments (as there were during the first distribution of allotments), no applicant can receive more than one allotment. Thus, for example, HLC, with 29 fully improved lots ready for construction could receive at most an allotment for one lot. He further testified that there are approximately 350 to 375 lots in the City with preliminary or final plat approval but lacking allotments or zoning certificates.
The plaintiffs called as a rebuttal witness George Smerigan, president of Northstar Planning and Design, a planning and consulting firm located in Painesville, Ohio. He testified that Hudson's growth rate, while higher than average, was similar to a number of other communities in northeast Ohio such as Strongsville, Solon, North Royalton, Twinsburg and Jackson Township.
Smerigan testified that in his professional opinion the ordinance was not rationally related to the health, safety or welfare of the residents of the City. He pointed out that the ordinance does not tie growth control limits to specific improvements in infrastructure. Nor are the allotments granted based upon the location of adequate infrastructure:
It seems to me that if this ordinance truly were tied to the adequacy of the infrastructure, that it would be location sensitive. And it is not. That is to say, the permits that are to be issued would be tied to portions or locations in the community where infrastructure was determined to be adequate to service those permits. And no permits would be issued in areas of the community where the infrastructure was inadequate.
Instead what we have is sort of a zoning permit bingo where it's totally random. It doesn't relate to location or adequacy of facilities at all. Everything is thrown into the hopper, and you locate permits anywhere within the community. That seems *688 to me to beg the whole issue of adequacy of infrastructure.
(Smerigan testimony, Docket No. 39, at 1011). Smerigan said there is no rationality in an ordinance which allows an owner of a single undeveloped lot to have the same chance at receiving an allotment as the owner of 29 lots in an improved development.
Smerigan also testified that the City structured its financial resources to be unable to afford expansion and improvement. He cited as examples the fact that certain levies were permitted to expire as a result of the merger and that the income tax system permitted reciprocity which depleted potential revenue.
III. FACTORS TO CONSIDER IN PRELIMINARY INJUNCTION ANALYSIS
There are four factors that must be considered and "carefully balanced" in deciding whether to issue a preliminary injunction:
1) Whether the plaintiff has shown a strong or substantial likelihood or probability of success on the merits;
2) Whether the plaintiff has shown irreparable injury;
3) Whether the issuance of a preliminary injunction would cause substantial harm to others;
4) Whether the public interest would be served by a preliminary injunction.
Mason County Medical Ass'n v. Knebel, 563 F.2d 256, 261 (6th Cir.1977). These are factors to "simply guide the discretion of the Court," to be balanced and weighed against one another in order to ensure a just result. See In re Eagle-Picher Indus., Inc., 963 F.2d 855, 859 (6th Cir.1992). They "do not establish a rigid and comprehensive test for determining the appropriateness of preliminary injunctive relief." Friendship Materials, Inc. v. Michigan Brick, Inc., 679 F.2d 100, 102 (6th Cir.1982).
Plaintiffs' memorandum in support of a preliminary injunction sought relief on three constitutional grounds: substantive due process, equal protection and contracts clause for some of the plaintiffs. Their supplemental memorandum omitted the equal protection analysis and the hearing focussed solely on the substantive due process issue. The Court is of the belief that preliminary relief, if any, is grounded in an alleged violation of substantive due process and will proceed with an analysis accordingly.
IV. FEDERAL STANDARD OF REVIEW FOR ZONING LEGISLATION
The substantive component of the Due Process Clause "bars certain arbitrary, wrongful government actions `regardless of the fairness of the procedures used to implement them.'" Pearson v. City of Grand Blanc, 961 F.2d 1211, 1220 (6th Cir.1992) (quoting Zinermon v. Burch, 494 U.S. 113, 125, 110 S. Ct. 975, 983, 108 L. Ed. 2d 100 (1990)). In the context of land use regulation, citizens have a substantive due process right not to be subjected to arbitrary or irrational zoning actions. Village of Arlington Heights v. Metropolitan Housing Development Corp., 429 U.S. 252, 263, 97 S. Ct. 555, 562, 50 L. Ed. 2d 450 (1977). While safeguarding this substantive due process right, federal courts must be cognizant of the deference paid to local land use decisions. The Sixth Circuit in Pearson, supra, emphasized the narrow scope of the federal inquiry. Pearson noted the distinction between federal review of zoning administrative decisions and zoning legislative ordinances:
Where a substantive due process attack is made on state administrative action, the scope of review by the federal courts is extremely narrow. To prevail, the plaintiff must show that the state administrative agency has been guilty of arbitrary and capricious in the strict sense, meaning that there is no rational basis for the administrative decision.
... The administrative action will withstand substantive due process attack unless it is not supportable on any rational basis or is willful and unreasoning action, without consideration and in disregard of the facts or circumstances of the case.
. . . . .
Where zoning legislation is subjected to substantive due process attack, the scope of review by the federal court is the same *689 as for any other legislation even more deferential than for state administrative action.
. . . . .
[F]ederal court review of a zoning ordinance may only determine whether it is clearly arbitrary and unreasonable, in the very restricted sense that it has no substantial relation to the public health, safety, morals or general welfare.
Pearson, 961 F.2d at 1220, 1223 (emphasis in original) (citations omitted).
Thus a federal court must tread lightly upon the decisions of local governments regarding land use. This is all the more true when a zoning ordinance, i.e., zoning legislation, is under attack, as in the instant case. A court does not operate as a super-zoning board. However, after giving all due deference, a court cannot ignore its vital role of ensuring that those with a constitutionally protected interest are not subject to arbitrary or irrational zoning actions. It is with this standard in mind that the Court proceeds with its analysis.
V. APPLICATION OF PRELIMINARY INJUNCTION FACTORS
1. Likelihood of Success on the Merits
Upon review of the testimony and evidence of record, the Court finds that the plaintiffs have established a strong likelihood of success at trial on the issue of whether the ordinance is arbitrary and irrational as applied to owners and developers of property which has received preliminary or final plat approval.
The City supports the ordinance on two broad premises: 1) the current rate of development is outstripping the City's infrastructure capabilities; and 2) the City has a legitimate interest in preserving its "community character." See § 1207.01(b). These goals are not per se unreasonable. However, plaintiffs have established a strong likelihood of proving at trial that there is no rational relationship between the goals and the outcome of the ordinance's application to owners of already platted lots.
The City expends a great deal of effort outlining its infrastructure needs, its lack of sufficient finances to handle its problems, and the purported increase in infrastructure problems with the construction of each new home.
Based upon testimony and documentary evidence, the Court does not doubt that the City faces significant expenses in improvements of its water, sanitation, transportation and public safety systems. However, there is also little doubt that the City will incur such expenses even if another house is never built. It does not appear rational to deny zoning certificates to owners of approximately 300 to 350 platted lots on the basis that the village will have to expend significant resources to enhance and maintain services for its entire village, including 7,000 or so existing homes. Such a position has the effect of penalizing developers of new homes for the financial problems of the entire city.
This is particularly true with respect to developments in which the needed infrastructure is in place. The City offers no explanation why its infrastructure costs would increase upon the construction on the 29 lots in Westbrook. HLC has already put the infrastructure in place at its own cost. Plaintiffs have established a strong likelihood of proving that denial of zoning certificates to owners of lots in Westbrook which already has roads, curbs, storm sewers, access to water and the like on the basis of infrastructure costs is not rational.
Moreover, the Court is not persuaded by the City's assertions of inability to pay for infrastructure improvements. The City taxes its residents at relatively low rate of 1 percent and engages in income tax reciprocity with other local governments, effectively waiving income tax for residents who pay income tax where they work. Testimony indicated that the City is not sure how many dollars are lost through the practice of reciprocity. The City should not be allowed to potentially undertax its residents and then assert its weak financial status as a justification for controlling growth, at least at the expense of those who have invested in the community by improving platted land.
*690 The City argues that each new home creates a net financial debt for the City. It states that the City pays approximately $1,024 per household per year in non-utility operating costs while taking in an average of $287 per household in real estate costs, leaving a per household deficit of approximately $737. This argument suffers in several respects. First, the $1,024 per household is derived from the simplified process of dividing overall non-utility operating costs by number of households in the City. It fails to attribute any of its costs to commercial, industrial, or any other types of structures other than homes. Second, the purported deficit fails to take into account income taxes or any other fees paid by residents of the homes. Third, the $287 per household real estate tax is derived from calculations based upon a $200,000 home, while testimony indicates that the average cost of a newly constructed home is $320,000. (Depo. of assistant community development director Scott Breen at 25).
In sum, plaintiffs have established a likelihood of proving at trial that the City's infrastructure-related justification of the growth management ordinance, which results in denial of zoning certificates to owners of already platted lots for reasons of the City's overall purported poor financial status, results in an arbitrary deprivation of those owners' property interest. There is insufficient evidence that these lots' proportional contribution to the City's overall financial problems merits the City's denial of zoning certificates.[10]
Plaintiffs also have established a likelihood of proving that in addition to being arbitrary as applied to owners of platted lots, the ordinance is irrational in its allocation distribution process. In proposing adoption of a growth management ordinance, the City's comprehensive plan suggested awarding zoning certificates on a merit basis, based upon factors such as infrastructure availability, adequate public facilities, protection of wetlands and stream banks, storm water management capacity, tree conservation, provision of public amenities, finalization of build out of existing subdivisions and improvement of the City's jobs-to-housing ratio. (Plan at 61). The City incorporated no such basis in its ordinance. Instead it distributes lots on a pro rata basis, with each applicant receiving at least one allotment unless the number of applicants exceeds available allotments. In the latter case, the City conducts a lottery to determine who receives allotments. Upon questioning by the Court, the City's assistant director of community development acknowledged that under the ordinance, a person owning an undeveloped lot with no improvements, in a plat which has received final approval,[11] has the same chance of receiving one allotment as HLC, which has invested some $1.4 million to establish 29 ready-to-build lots in its subdivision.
Thus while Hudson argues that infrastructure problems are the root of its growth management plan, the ordinance fails to make any rational connection between those perceived problems and its purported solution, i.e., a limit on new construction unrelated to the specific infrastructure problems. Plaintiffs have established a likelihood of proving at trial that the indiscriminate nature of the ordinance, failing to consider the specific impact of the proposed developments on the City's legitimate needs, renders it irrational as applied to owners of already platted lots.[12]
*691 In sum, the Court finds that the plaintiffs have established a likelihood of proving that the ordinance is arbitrarily and irrationally applied to owners of platted lots and therefore is not rationally related to the health, safety or welfare of the local community.[13]
This conclusion is buttressed by the limited case law regarding growth control ordinances. Although neither side could provide a case directly on point, the cases generally support the proposition that growth control ordinances are permissible only if they are 1) limited in duration and 2) tied to a specific and prompt plan for whatever corrective action is needed to lift the control on growth. See, e.g., Almquist v. Town of Marshan, 308 Minn. 52, 245 N.W.2d 819 (1976) (six-month moratorium on building permissible in part because of limited duration and town's prompt action to adopt comprehensive zoning plan); Golden v. Planning Bd. of Ramapo, 30 N.Y.2d 359, 334 N.Y.S.2d 138, 285 N.E.2d 291, app. dism., 409 U.S. 1003, 93 S. Ct. 436, 34 L. Ed. 2d 294 (1972) (ordinance tying issuance of permits to capital improvements held valid); Conway v. Town of Stratham, 120 N.H. 257, 414 A.2d 539 (1980) ("slow growth" ordinance permissible but could not extend beyond one year without master plan).
In this case, there is no "sunset" provision to the ordinance. Although the number of allotments to be issued is subject to annual review, such a review is hardly a guarantee of relaxation of growth controls. To the contrary, the review would allow the City to decrease the number of available allotments, even to zero. Further, unlike growth management ordinances accepted by other courts, the ordinance does not provide a sufficient, specific link to infrastructure improvements. Finally, the facts of this case do not resemble the handful of cases which permit comprehensive and long-term growth control. Those cases tend to involve highly populated suburban areas threatened by rapid and uncontrolled growth. See, e.g., Construction Ind. Ass'n of Sonoma County v. City of Petaluma, 522 F.2d 897 (9th Cir. 1975), cert. denied, 424 U.S. 934, 96 S. Ct. 1148, 47 L. Ed. 2d 342 (1976) (San Francisco suburb which grew 25 percent in two years). While growing at a relatively high rate compared to the state as a whole, Hudson Village's population increase or density does not reach the magnitude of such cases.[14]
2. Whether the Plaintiffs Have Shown Irreparable Injury
Chapter 1207 is designed to slow residential development in the City. Most residential development takes place on lots in approved platted subdivisions. A building permit is required before construction can begin on a residential lot. A building permit does not issue unless the owner of the lot has a valid zoning certificate. Chapter 1207 restricts the number of zoning permits that can be issue in any given year. Plaintiffs Schenck, HLC, Hudson Builders Inc. and L & V Equipment Rental Inc. own lots in platted subdivisions within the City of Hudson. Caticchio's testimony made a strong case for the proposition that as a member of HLC he is in immediate danger of irreparable injury in connection with his ownership interests in the platted and improved subdivision known as Woods of Westbrook. He offered compelling testimony during the evidentiary hearing that he and his partners invested more than *692 $1.4 million based upon the City's assurances. HLC is on the verge of defaulting on a $950,000 development loan because the City's ordinance impairs its ability to sell the 29 lots, as potential buyers are not likely to purchase a lot with no idea when they can build on it.
The recent drawing for allotment of zoning certificates further demonstrates the continuing nature of the irreparable injury to HLC in its ownership of the Woods of Westbrook. There were 84 applicants for allotments in the July 1996 drawing and the Woods of Westbrook owners were totally shut out as to receipt of even one zoning certificate. Absent injunctive relief it is certain that the company will suffer irreparable injury.
Plaintiff Mark Schenck also established irreparable injury. He stated in an affidavit that in May 1995 he executed a $620,000 development loan to be repaid in three years, the anticipated time frame expected to sell the 27 lots in the two phases of the Westbridge Development which he owns. He stated that the ordinance impairs his ability to sell lots to builders in the subdivision, thus effectively denying him the value of his investment.
Similarly, Hudson Builders Inc. and L & V Equipment Rental Inc. provide evidence of irreparable injury. The testimony and affidavit of Edinger detail the loss of business due to the growth control ordinance as well as L & V's potential default on a $1.3 million development loan.
Plaintiff Home Builders Association of Greater Akron has not established irreparable harm. However, on balance, plaintiffs have established that enforcement of the ordinance would cause irreparable harm.
3. Whether Issuance of a Preliminary Injunction Will Cause Substantial Injury to Others
The merger of the former City of Hudson Village and Hudson Township into a city of 25 square miles has resulted in the growth problems of the area falling upon the City of Hudson governing body, i.e. the city manager and the city council. The comprehensive plan addressed the problems involved in managing the infrastructure of the new City and provided a rationale for the proposition that growth within the expanded newly created city needed to be managed in some fashion because the infrastructure for the City was in jeopardy. The City has advanced the proposition that it loses money in the context of added tax revenue for each new house built because the additional residence adds to the fixed costs of the city in a magnitude that outstrips additional income to be realized by the additional property taxes. The plaintiffs have contested the city's analysis by a study by the accounting firm, Coopers & Lybrand, L.L.P. Giving the City the benefit of the doubt, the Court finds that the injunctive relief proposed will cause some incremental infrastructure cost increases, but the Court finds that the harm would not be substantial in the context of the City's overall projected infrastructure costs.
4. Whether the Public Interest Would be Served by a Preliminary Injunction
The public has an abiding interest in the maintenance of land use controls that are not either arbitrary or irrational in their implementation. In the court's view, that interest outweighs the interest of the public, i.e., the present citizens of the City, in receiving the customary services of a municipality such as police and fire protection, comprehensive traffic control, good roads, water, and storm and sanitary sewer services at the lowest possible cost.
Consequently, the court finds that the public interest will be served by a preliminary injunction.
VI. DECISION AND SCOPE OF REMEDY
In the Court's view, the likelihood of success factor is the dominant factor in this preliminary injunction analysis. Given the Court's preliminary view of the plaintiffs' likelihood of success and its additional view that the other preliminary injunction factors tend to favor the plaintiffs, and keeping in mind the Court's narrow scope of review as articulated in Pearson, supra, the Court finds that the granting of a preliminary injunction is the proper result of this case.
*693 The next step is in fixing the proper scope of injunctive relief. Given the prior analysis, the Court finds the proper injunctive relief is as follows:
The City shall be preliminary enjoined from enforcing Chapter 1207 of its Zoning Code as to:
a. Any lots in the City which have obtained preliminary or final plat approval and are currently improved with 1) water service or well water available; 2) sewer or septic service, and 3) roads; and
b. Any other lots in the City which, as of the date of this order, have obtained preliminary or final plat approval and are not currently improved with the infrastructure outlined in (a) above; but only when those other lots are fully improved with such infrastructure.
The record includes varying figures as to exactly how many lots fit the description of (a) and (b), although the parties agree that the total number of platted lots without zoning certificates is in the neighborhood of 300 to 350. Given its specific definition of categories, the Court sees no need to affix a specific number.
Although it is not clear in the record, the Court understands that under the City's zoning ordinance, a zoning certificate lapses if construction does not begin within six months of issuance.[15] In granting this preliminary injunctive relief, the Court in no way intends to modify or adjust this or any other requirement other than what is specifically set forth in the Court's judgment entry granting injunctive relief.
Pursuant to Fed.R.Civ.P. 65(c), the Court orders the plaintiffs to deposit with the clerk of courts in Akron a cash or surety bond in the sum of $25,000 as security for the payment of such costs and damages as may be incurred or suffered by the City should it be found to have been wrongfully enjoined. The order shall become effective upon the plaintiffs' deposit of such bond.[16]
VII. CONCLUSION
For the reasons set forth above, the plaintiffs' motion for a preliminary injunction is granted. The Court will publish a judgment entry contemporaneously with the issuance of this opinion stating the scope of the preliminary relief.
IT IS SO ORDERED.
JUDGMENT ENTRY GRANTING PRELIMINARY INJUNCTION
For the reasons set forth in the Memorandum Opinion filed contemporaneously with this Judgment Entry, IT IS HEREBY ORDERED, ADJUDGED and DECREED that the plaintiffs' motion for a preliminary injunction is granted to the following extent:
The City of Hudson Village shall be preliminarily enjoined from enforcing Chapter 1207 of its Zoning Code as to:
a. Any lots in the City which have obtained preliminary or final plat approval and are currently improved with 1) water service or well water available; 2) sewer or septic service, and 3) roads; and
b. Any other lots in the City which, as of the date of this order, have obtained preliminary or final plat approval and are not currently improved with the infrastructure outlined in (a) above; but only when those other lots are fully improved with such infrastructure.
The order shall become effective upon the plaintiffs' deposit with the clerk of courts in Akron a cash or surety bond in the amount of $25,000 as security for the payment of such costs and damages as may be incurred or *694 suffered by the City should it be found to have been wrongfully enjoined.
IT IS SO ORDERED.
NOTES
[1] The former Hudson Township covered 25 square miles rather than the 36 which is customary of Ohio townships.
[2] Indeed, a person visiting the downtown portion of Hudson would likely estimate the City's population to be only a small fraction of its actual population.
[3] The plan was developed by the consulting firm of Pflum, Klaumeier & Gerhum Consultants, Inc., which in turn consulted three other consulting firms with specialties in environmental planning, downtown issues and growth management mechanisms. A steering committee consisting of local community leaders directed the consultants, and numerous public hearings were conducted, according to the plan. (Plan at 2).
[4] Hudson's rapid growth is in the face of an overall decline of population of 1.8 percent in Summit County in the 1980s and an increase of only .5 percent in Ohio in the same period. (Id.).
[5] Eligibility for a multi-year allotment hinged on a number of factors, including a showing that extended phased construction is infeasible, the impact on surrounding area would be minimized by relatively quick building, or that innovative design characteristics would minimize the structure's impact on water, sewer and other municipal services. See Sec. 1207.04(g).
[6] The distinction is significant when the amount of applications exceeds the amount of available allotments, necessitating a random drawing for allotments, as happened in the first allocation period. For example, if a hypothetical developer with 20 lots in a subdivision could submit 20 different applications, he would have 20 chances in the lottery. Instead, by being permitted to submit only a single application per subdivision, the developer has only one chance in the lottery. Although the hypothetical developer's single application can request allotments for all 20 of his lots, if the total number of applications requires a random drawing the developer could receive only one allotment at most.
[7] The record indicates that Hudson Builders and L & V are related corporations. See affidavit of Laura DiNovi Edinger, vice president of both companies, at ¶¶ 3-4. L & V owns property in three Hudson developments. Hudson Builders purchases the lots from L & V upon Hudson Builders' execution of a purchase agreement for construction of a custom home on the lots.
[8] Counsel for plaintiffs have informed the Court that the Home Builders Association was named as a plaintiff to represent the interests of builders and developers who are not named plaintiffs in this action but who allegedly suffer damage as a result of the growth management ordinance. The Court sees no need to delve into an extended analysis of the issue of associational standing other than to state it has examined the relevant case law and concluded that the Home Builders Association has standing to represent the interests of the owners and developers of platted lots in the City who are not named plaintiffs. See N.A.A.C.P. v. Alabama, 357 U.S. 449, 458-60, 78 S. Ct. 1163, 1169-71, 2 L. Ed. 2d 1488 (1958). The Court finds Warth v. Seldin, 422 U.S. 490, 95 S. Ct. 2197, 45 L. Ed. 2d 343 (1975), which held that a homebuilders' organization lacked standing to attack a zoning ordinance, distinguishable. In Warth, the homebuilders' organization 1) sought monetary as well as declaratory relief for alleged injuries to its residents, and 2) failed to allege facts sufficient to make out a case or controversy had its members themselves brought suit. The Supreme Court held that the association "failed to show the existence of any injury to its members of sufficient immediacy and ripeness to warrant judicial intervention." Id. at 516, 95 S. Ct. at 2214. In this case, the ordinance at issue affects every owner or developer of platted land in Hudson which has not yet been built upon. Rather than name every single owner or developer, the plaintiffs selected several named plaintiffs and also included the Home Builders Association. The Court finds there are sufficient facts pleaded and evidence presented for the Home Builders Association to have standing to represent unnamed owners of platted land.
[9] Platting is a two-step process. Preliminary plat approval determines important design features of a subdivision and is intended to fix the broad outlines of the proposed development. Upon receiving preliminary approval, the developer engages in improvements on the land such as provision of water, sewer and storm drainage systems and roads, as well as preparation of detailed final plans. A planning commission will not issue final approval unless improvements are complete or the developer posts a bond to cover the cost of improvements. Lots cannot be sold until the plat receives final approval and is recorded.
[10] The City argues that it is not denying zoning certificates to owners of those lots; it is merely allotting them at an orderly pace. However, HLC's Caticchio testified he received no allotments for his 29 lots at the July 15 drawing. L & V's Edinger testified that she submitted applications for a total of 64 lots in three subdivisions and received no allotments. Under the ordinance, when enough applications have been submitted to necessitate a lottery, a developer can obtain a maximum of one lot per development. Thus as a practical matter, the zoning certificates are meted out so parsimoniously that they are in effect a denial of the ability to go forward with a development at anything other than a snail's pace.
[11] Because the City will issue final approval to unimproved plats so long as the developer issues a bond guaranteeing future improvements, a person owning an unimproved lot can be in the position to seek a zoning certificate.
[12] Further evidence of the irrationality of the City's proposed solution to its infrastructure problem is the fact that the ordinance was apparently manipulated by certain developers. To avoid the negative impact of receiving only one allotment per development, certain developers executed quit-claim deeds of certain lots to individuals who then applied for an allotment of their own. In addition, developers entered purchase agreements with buyers contingent on the buyers' receiving an allotment in the lottery. In this way certain subdivisions received several allocations. Developers who did not employ such tactics received a maximum of one allotment per subdivision.
[13] The City's second asserted premise justifying the ordinance, the preservation of "community character," was not advanced during the two-day hearing and merits little discussion here. It is enough to note that there is no evidence supporting a theory that construction on lots in subdivisions already platted for residential development is somehow harming the community's character.
[14] In Petaluma, the number of building permits increased nearly fourfold in a four-year period, rising from 234 in 1967 to 891 in 1971. Petaluma, 522 F.2d at 900. Without any increases due to merger (such as is the case with Hudson Village), the population grew from a little over 10,000 in 1950 to more than 30,000 in 1972. Id.
[15] In the Court's view, the fact that a zoning certificate lapses after six months should alleviate the City's concerns that there will be a rush to the courthouse for zoning certificates and a concomitant surge in pressure on the City's infrastructure.
[16] Counsel for the City has informally indicated to the Court that no difficulty is expected in administering this order. However, in the event difficulties do arise, the parties are directed to notify the Court, which will consider the appointment of a master to adjudicate any disputes. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2249725/ | 907 F. Supp. 397 (1995)
GARAN INC., individually and for the use and benefit of the Insurance Company of North America, Plaintiff,
v.
M/V AIVIK, her engines, tackle and furnishing, In Rem; and The North West Company, Inc., her owner, Defendant.
No. 93-2406-Civ.
United States District Court, S.D. Florida.
July 28, 1995.
*398 Gerard Joseph Sullivan, Jr., Sullivan & Boyd, Jacksonville, FL, for plaintiff.
Patrick Edward Novak and Vincent O'Brien, Keller, Houck & Shinkle, P.A., Miami, FL, for defendant North West Company, Inc.
Scott Dozier Sheftall, Floyd Pearson Richman Greer Weil Brumbaugh & Russomanno, P.A., Miami, and Andrew Charles Rose, Rose, Rose & Rose, P.A., Fort Lauderdale, FL, for defendant International Transfer of Florida, Inc.
ORDER AFFIRMING MAGISTRATE'S REPORT AND RECOMMENDATION
UNGARO-BENAGES, District Judge.
THIS CAUSE is before the Court upon Plaintiff's Motion to Strike Offer of Judgment.
THE MATTER was referred to the Honorable Barry L. Garber, United States Magistrate. A Report and Recommendation dated June 23, 1995 has been filed, recommending that Plaintiff's Motion to Strike Defendant's Offer of Judgment be GRANTED.
THE COURT has made a de novo review of the motion, and the pertinent portions of the record, and being otherwise fully advised in the premises, it is
ORDERED AND ADJUDGED that United States Magistrate Barry L. Garber's June 23, 1995 Report and Recommendation be, and the same is, hereby RATIFIED, AFFIRMED and APPROVED in its entirety.
DONE AND ORDERED.
REPORT AND RECOMMENDATION
GARBER, United States Magistrate Judge.
This CAUSE comes before the Court pursuant to an Order of Reference entered on February 9, 1995 by the Honorable Ursula Ungaro-Benages, United States District Judge. (D.E. 86). The following Report and Recommendation is hereby submitted on Plaintiff Insurance Company of North America's ("INA") Motion to Strike Offer of Judgment. This action is within the Court's maritime and admiralty jurisdiction pursuant to 28 U.S.C. § 1333 and Fed.R.Civ.P. 9(h).
BACKGROUND
Defendant, The North West Company ("North West"), owns the vessel AIVIK, the master of which issued a bill of lading for carriage of Plaintiff's cargo to the United States from Costa Rica. During the course of transportation, a portion of the cargo was lost without explanation. On December 19, 1994, Defendant North West filed an offer of judgment pursuant to Florida Statutes § 768.79[1] in the amount of $500 to Plaintiff *399 INA, the insurer of the cargo. Thereafter, INA moved to Strike Defendant's Offer of Judgment under which INA could be required to pay Defendant's attorneys' fees. INA argues that because the Florida Offer of Judgment statute is substantive in nature and conflicts with substantive admiralty law, it is prohibited in cases within the admiralty and maritime jurisdiction. (Pl.'s Mot. to Strike at 2-5.) Defendant, on the other hand, contends that the Florida statute does not conflict with federal admiralty law but only operates as a permissible supplement to the general maritime common law. (Def.'s Mot. in Supp. at 2-3.)
Thus, the issue before the Court is whether Florida's statutory Offer of Judgment is applicable in an admiralty jurisdiction case when federal maritime common law does not provide for fee shifting under such circumstances and requires each side to pay its own attorneys' fees.
DISCUSSION
This is a case of first impression in the context of admiralty and maritime jurisdiction. The Eleventh Circuit, however, has addressed the application of Florida Statutes § 768.79 in diversity actions. See Tanker Management Inc. v. Brunson, 918 F.2d 1524 (11th Cir.1990), in which the argument that Rule 68 of the Federal Rules preempts the Florida Offer of Judgment statute was rejected under a reverse-Erie analysis.[2] There, the Court found that because no such conflict existed, the substantive policy of the state should be followed.[3]Id. at 1528.
Here, the determination of whether the Florida Offer of Judgment statute impermissibly conflicts with federal maritime law similarly requires a reverse-Erie analysis. Offshore Logistics, Inc. v. Tallentire, 477 U.S. 207, 222-223, 106 S. Ct. 2485, 2494-95, 91 L. Ed. 2d 174 (1986). A two-part test determines whether a state law may be used in conjunction with federal maritime law: (1) Does the state law conflict with substantive maritime law? and (2) Does the state law affect remedies peculiar to the maritime jurisdiction? Id. If the answer to either of these questions is in the affirmative, the state law must be struck down as conflicting with federal maritime law. Id.
The Florida Supreme Court has recognized that "a statutory requirement for the nonprevailing party to pay attorneys fees constitutes a new obligation or duty and is therefore substantive in nature." Young v. Altenhaus, 472 So. 2d 1152, 1154 (Fla.1985). Pursuant to the first prong of the Offshore Logistics analysis, a determination of whether this substantive Florida law conflicts with federal maritime law must be made.
Here, federal maritime law[4] provides that absent specific federal statutory authorization for an award of attorneys' fees, the prevailing party is generally not entitled to those fees. Noritake Co. v. M/V Hellenic Champion, 627 F.2d 724 (5th Cir.1980).[5] In Noritake, the Fifth Circuit noted that:
*400 Although Congress undoubtedly could have explicitly provided for the award of attorneys' fees to a party prevailing in a suit based upon COGSA [Carriage of Goods on Sea Act], no such statutory authorization appears in the Act. Nor is there any other federal statutory authorization for the award of attorneys' fees in this type of admiralty proceeding. Absent some statutory authorization, the prevailing party in an admiralty case is generally not entitled to an award for attorneys' fees. (citations omitted).
Id. at 730.[6]
The Third Circuit similarly denied the award of attorneys' fees within the maritime context in Sosebee v. Rath, 893 F.2d 54 (3d Cir.1990). There, plaintiff sought attorneys' fees pursuant to a Virgin Islands statute which awarded costs to the prevailing party. Sosebee at 56. In applying a reverse-Erie analysis, the Court determined that "a general award of attorneys' fees pursuant to a state statute which does not require a finding of bad faith directly conflicts with federal admiralty law." Id.
Here, Defendant attempts to distinguish Sosebee by arguing that Florida Statutes § 768.79 contains a bad faith provision[7] providing for the disallowance of an award of costs and attorneys' fees upon such a finding. However, section 768.79, while providing that a Court may deny attorneys' fees when an offer of judgment is made in bad faith, does not require a finding of bad faith in order for the Court to award attorneys' fees. Rather, the offering party must merely meet the requirements of the statutenamely, there must be a finding of no liability or the judgment must be at least 25 percent less than the offer.[8] The Florida statute conflicts with the American rule[9] set forth in federal common law, as the Florida substantive rule impermissibly imposes an additional obligation on the parties in direct conflict with long-standing federal maritime common law.
While Defendant argues that courts have increasingly applied state law as a supplement to the federal maritime law, such applications are only valid when federal statutory or common law is silent on the issue. See, e.g., Wilburn Boat Co. v. Fireman's Fund Insur. Co., 348 U.S. 310, 75 S. Ct. 368, 99 L. Ed. 337 (1955). The federal law regarding the award of attorneys' fees in the maritime context is clear and directs each side to pay its own fees.
Defendant's reliance on Royal Caribbean Corp. v. Modesto, 614 So. 2d 517 (Fla. 3d DCA 1992) is unavailing because that case misconstrues the holding in Vaughan v. Atkinson, 369 U.S. 527, 82 S. Ct. 997, 8 L. Ed. 2d 88 (1962). Vaughan discusses an exception for a discretionary award of attorneys' fees in the maritime context but only when the nonprevailing party has acted in bad faith during the course of the litigation. See Vaughan v. Atkinson, 369 U.S. at 530, 82 S. Ct. at 999.
Further, Defendants' reliance on Steelmet, Inc. v. Caribe Towing Corp., 842 F.2d 1237 (11th Cir.1988) (Steelmet II) and Blasser Brothers, Inc. v. Northern Pan American Line, 628 F.2d 376 (5th Cir.1980) is misplaced. In both of those cases, attorneys' fees were awarded only in third party actions on insurance contracts between insured shippers and their insurers. There, the Courts had previously recognized the ability of *401 states to regulate rights under insurance policies issued within their domain.
Moreover, a strong interest exists in maintaining uniformity in maritime law. In Sosebee, supra, the Third Circuit noted that this interest "would be undermined if the availability of attorneys' fees depended upon where the plaintiff filed suit." Sosebee at 56-57. Consequently, this Court believes that Florida Statutes § 768.79 would frustrate the need for uniformity in the admiralty jurisdiction and is preempted by federal maritime common law.
CONCLUSION AND RECOMMENDATION
After careful consideration and for the foregoing reasons, the undersigned hereby
RECOMMENDS that Plaintiff INA's Motion to Strike Defendant's Offer of Judgment be GRANTED.
The parties have ten (10) days to file written objections, if any, with the Honorable Ursula Ungaro-Benages, United States District Judge. See 28 U.S.C. § 636 (1991). Failure to file objections timely shall bar the parties from challenging on appeal the findings contained herein. LoConte v. Dugger, 847 F.2d 745 (11th Cir.1988), cert. denied, 488 U.S. 958, 109 S. Ct. 397, 102 L. Ed. 2d 386.
RESPECTFULLY SUBMITTED at the United States Courthouse, Miami, Florida, this 23rd day of June, 1995.
NOTES
[1] Statutes § 768.79 reads, in pertinent part: In any civil action for damages filed in the courts of this state, if a defendant files an offer of judgment which is not accepted by the plaintiff within 30 days, the defendant shall be entitled to recover reasonable costs and attorney's fees incurred by him or on his behalf ... from the date of filing of the offer if the judgment is one of no liability or the judgment obtained by the plaintiff is at least 25 percent less than such offer.
[2] A reverse-Erie analysis necessitates the determination of whether a state substantive law conflicts impermissibly with federal law pursuant to Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938) and its progeny. Accordingly, the extent to which a state law may be used is constrained by the reverse-Erie doctrine which requires that the substantive remedies afforded by the states conform to governing federal standards. See Offshore Logistics, infra, 477 U.S. at 223, 106 S. Ct. at 2494.
[3] Ultimately, however, attorneys fees were denied because the statute, at that time, did not apply to offers of judgments by defendants. The statute has subsequently been modified to include such offers.
[4] The federal maritime common law is "an amalgam of traditional common-law rules, modifications of those rules, and newly created rules" drawn from both state and federal sources. Brockington v. Certified Elec., 903 F.2d 1523, 1529 n. 2 (11th Cir.1990) (citing East River S.S. v. Transamerica Delaval, 476 U.S. 858, 865, 106 S. Ct. 2295, 2299, 90 L. Ed. 2d 865).
[5] The decisions of the Fifth Circuit, as that court existed on September 30, 1981, handed down by that court prior to the close of business on that day, shall be binding as precedent on all federal courts within the Eleventh Circuit, for this court, the district courts, and the bankruptcy courts in the circuit. (emphasis added). Bonner v. City of Prichard, Alabama, 661 F.2d 1206, 1209 (11th Cir.1981).
[6] However, because plaintiff could not challenge on appeal the trial court's refusal to award attorneys' fees based on Texas law relating to cargo damage where such argument was not advanced at trial, the Fifth Circuit also affirmed the lower court's refusal to award such fees on that basis. Noritake, 627 F.2d at 730-732.
[7] Florida Statutes § 768.79's bad faith provision reads: (7)(a) If a party is entitled to costs and fees pursuant to the provisions of this section, the court may, in its discretion, determine that an offer was not made is good faith. In such case, the court may disallow an award of costs and attorney's fees.
[8] See note 1, supra.
[9] The American Rule provides that each side pays its own fees. Platoro Ltd., Inc. v. Unidentified Remains of a Vessel, 695 F.2d 893, 905 (5th Cir.1983); see also Noritake, supra. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2330135/ | 504 F. Supp. 2d 903 (2007)
David MCALISTER et al., Plaintiffs,
v.
ESSEX PROPERTY TRUST et al., Defendants.
No. CV070240SJOSHX.
United States District Court, C.D. California.
August 24, 2007.
*904 *905 Connie Y. Chung, Liam J. Garland, Nisha N. Vyas, Southern California Housing Rights Center, Los Angeles, CA, for Plaintiffs.
Thomas B. Cummings, Thomas B. Cummings Law Offices, Anaheim, CA, for Defendants.
*906 ORDER GRANTING IN PART AND DENYING IN PART PARTIAL SUMMARY ADJUDICATION ON THE ISSUE OF REASONABLE ACCOMMODATION
OTERO, District Judge.
This matter is before the Court on Plaintiffs' Motion for Summary Adjudication, filed May 14, 2007. Defendants filed an Opposition, to which Plaintiffs replied. Pursuant to Federal Rule of Civil Procedure 78 and Local Rule 7-15, the Court found this matter suitable for disposition without oral argument and vacated the hearing set for June 4, 2007. For the following reasons, Plaintiffs' Motion for Summary Adjudication is GRANTED IN PART and DENIED IN PART.
I. BACKGROUND
Since September of 2002, Plaintiff David McAlister, his minor son, and sometimes his minor daughter have lived at 741 Paseo Camarillo, Unit # 89, Camarillo, California, part of a community referred to as "Camarillo Oaks." ESSEX MGMT. CORP. v. McALISTER, No. 245572, at 2007 WL 811093, *1 (Cal.Sup.Ct. Feb. 14, 2007) [hereinafter McALISTER Ruling]. During the summer and early autumn of 2006, neighbors complained that the McAlister family sloud and disruptive behavior made them feel threatened. Id. at *2. Mr. McAlister has since sent his daughter to live at a residential treatment facility, but not before a disturbance in late September of 2006. Id. at *2-3. This disturbance prompted Essex Management Corporation ("Management") to serve Mr. McAlister with notice to terminate his tenancy. Id. at *2.
Mr. McAlister requested withdrawal of the notice of eviction as a reasonable accommodation of both his son's and his own disabilities under the Federal Fair Housing Amendments Act of 1988 ("FHAA"). Id. In, a letter to the property manager, a case analyst at the Housing Rights Center identified Mr. McAlister as a person with a disability and requested withdrawal as a reasonable accommodation. (Arriola Decl. Ex. H.) In a letter to Management's attorney, Mr. McAlister's attorney asked for withdrawal as a reasonable accommodation of the son's disability, explaining that unless the son continues to live within a qualifying area, he cannot receive necessary mental health services provided by the city. (Duringer Decl. Ex. N.)
On December 28, 2006, Management, acting as authorized agent, sued Mr. McAlister in the Superior Court of California for unlawful detainer (the "UD Action") relating to the apartment. Mr. McAlister raised as an affirmative defense reasonable accommodation of both his and his son's disabilities. Commissioner Mark S. Borrell issued a ten-page ruling in favor of Mr. McAlister. See McALISTER Ruling. In the ruling, the Commissioner found that rescission of the termination notice would not be a reasonable accommodation of Mr. McAlister's personal disability. Id. at *6 n. 4. However, the Commissioner found that rescission was a reasonable accommodation of the son's disability and therefore allowed the McAlister family to retain tenancy of their apartment: "The resolution of this unlawful detainer case turns on whether [Management] lawfully refused to provide the accommodation requested by McAlister[;]. . . . the court determines that it did not." Id. at *4. At the Commissioner's request, Mr. McAlister's attorney drafted a judgment. Id. at *10; See Essex Mgmt. Corp. v. McAlister, No. 245572, at 1 (Cal.Sup.Ct. Mar. 12, 2007) [hereinafter McAlister Judgment]. The Commissioner filed the proposed judgment, but not before he struck out the only sentence referencing reasonable accommodation: "Finding this case turned on whether [Management] lawfully refused to provide *907 Mr. McAllister's [sic] request for accommodation pursuant to federal and state fair housing laws, this Court held that Essex unlawfully refused Mr. McAlister's request for accommodation." McAlister Judgment, at 1.
On January 9, 2007, Mr. McAlister and the Housing Rights Center (collectively, "Plaintiffs") initiated this action against Essex Property Trust ("Property Trust"), Essex Portfolio ("Portfolio"), Essex Camarillo Oaks 789 ("Camarillo 789"), and Management (collectively, "Defendants") for failure to provide reasonable accommodation of his and his children's disabilities under federal and state fair housing laws.
II. DISCUSSION
A. Plaintiffs Seek Summary Adjudication Based on Collateral Estoppel Regarding the Issue of Reasonable Accommodation
Plaintiffs seek summary adjudication on the issue of Defendants' liability under federal and state fair housing law. Plaintiffs assert that the issue of reasonable accommodation was decided in favor of the McAlister family during the UD Action and that Defendants should be collaterally estopped from relitigating it. Where an issue has been actually litigated and was necessary to the judgment in a prior litigation between the same parties or their privies, collateral estoppel prevents that issue from being relitigated. Parklane Hosiery Co. v. Shore, 439 U.S. 322, 327 n. 5, 99 S. Ct. 645, 58 L. Ed. 2d 552 (1979). The objective of collateral estoppel, and of res judicata in general, is to cut down on expense to and effort by litigants and courts by eliminating redundant litigation. Wood v. Herson, 39 Cal. App. 3d 737, 114 Cal. Rptr. 365, 369 (Ct.App.1974); 7 Witkin, California Procedure, Judgment §§ 280, 354 (4th ed.1997).
1. An Unlawful Detainer Judgment May Have Collateral Estoppel Effects on Issues That Were Properly Raised.
Defendants assert that "an unlawful detainer proceeding is not a basis for [collateral estoppel] as it is summary in nature." (Opp'n 16.) It is true that an unlawful detainer action is summary in the sense that "only claims bearing directly upon the right of immediate possession are cognizable." Vella v. Hudgins, 20 Cal. 3d 251, 142 Cal. Rptr. 414, 572 P.2d 28, 30 (1977). Claims extrinsic to the right of immediate possession cannot be raised in an unlawful detainer action. Id. But issues necessary to resolve the right of immediate possession, such as the affirmative defense of reasonable accommodation, may be raised and conclusively resolved in an unlawful detainer action. See Wood, 114 Cal.Rptr. at 369 ("[A] party can have a full adversary hearing in an unlawful detainer action where all issues involved in a subsequent proceeding are determined.") (emphasis in original). The potential of an unlawful detainer judgment to collaterally estop subsequent litigation has been recognized by the California Supreme Court: "Applying the traditional rule that a judgment rendered by a court of competent jurisdiction is conclusive to any issues necessarily determined in that action, the courts have held that subsequent [suits] are barred by the prior unlawful detainer judgment." Vella, 142 Cal. Rptr. 414, 572 P.2d at 31.
Here, the summary nature of unlawful detainer actions does not bar Plaintiffs' assertion of collateral estoppel because Mr. McAlister's claim of reasonable accommodation was heard. In fact, because the parties had narrowed the issues through the use of stipulations regarding facts and exhibits, reasonable accommodation was the sole issue before the Commissioner. *908 (Statement of Genuine Issues in Opp'n ¶ 15.)
2. The Issue of Reasonable Accommodation Was Fully and Fairly Litigated.
Only full and fair litigation of an issue can bring about collateral estoppel. Vella, 142 Cal. Rptr. 414, 572 P.2d at 31 ("`[F]ull and fair' litigation of an affirmative defense . . . will result in a judgment conclusive upon issues material to that defense."). If the issue of reasonable accommodation was fully and fairly litigated in the UD Action, the resulting judgment can have collateral estoppel force.
Defendants argue that the UD Action was too brief to produce collateral estoppel, but the short length of the action does not preclude the conclusion that the issue of reasonable accommodation was fully and fairly litigated. Although testimony at trial lasted only four hours, Defendants do not specify any evidence that they lacked opportunity to introduce. At trial, Management called five of the eight witnesses who testified. (Statement of Genuine Issues in Opp'n ¶ 17.) The motion for summary judgment that Management filed, id. ¶ 12, was another opportunity to be heard by the Commissioner. Management had an opportunity to present its case on the . issue of reasonable accommodation, the sole issue to be tried. As Plaintiffs relate, the Commissioner offered his opinion during trial that the parties were "very effectively represented by their respective counsel," that counsel was "competent [and] well-prepared," and that the case was "very well tried." (Garland Reply Decl. ¶ 3.)
a. The UD Action Provided Management with an Opportunity to Litigate All Issues Regarding Reasonable Accommodation.
The most persuasive evidence of the fullness and fairness of the litigation are the attacks Defendants wage on the validity of Mr. McAlister's request for a reasonable accommodation. Defendants argue that, given the opportunity, they would show that Mr. McAlister's son did not qualify as disabled and that his son did not require a reasonable accommodation because he was posing a "direct threat" to the health and safety of others, an exception to the duty to provide reasonable accommodations. (Opp'n 8-9.) Yet, Commissioner Borrell addressed both of these issues McAlister. Ruling, at 6 ("The evidence establishes that McAlister is a person qualifying for protection under the FHAA, either as a person with a disability or as someone associated with a person with a disability."), 10 ("Essex has not met its burden to show that McAlister [or] his son are, at this time, a `direct threat' to other residents. . . ."). Essentially, Defendants are asking for another chance to litigate because they feel Commissioner Borrell's ruling was incorrect, an argument they waived by failing to file an appeal. Whether the Commissioner correctly adjudicated the merits has no bearing on whether Management had a full and fair opportunity to litigate the merits.
b. Parties to an Unlawful Detainer Action Do Not Need to Waive Speedy Resolution for the Action to Have Collateral Estoppel Effect.
Defendants also argue that no unlawful detainer action has preclusive effect unless the parties waive speed in favor of thoroughness. "(Opp'n 15 (citing Vella, 142 Cal. Rptr. 414, 572 P.2d at 31 ("[T]he parties apparently chose to waive speedy resolution of the issue of possession in favor of an extensive adjudication of their conflicting claims by a superior court invested with jurisdiction to deal with any issues the disputants agreed to try")).) According to Defendants, because they did not waive speedy resolution of the issues in the *909 UD Action, they did not have a full and fair opportunity for trial.
This argument is unsuccessful for two reasons. First, Vella's waiver language concerned a claim that is "not ordinarily cognizable in unlawful detainer" actions. 142 Cal. Rptr. 414, 572 P.2d at 31. Zimmerman v. Stotter, like this case, addressed a claim that can properly be raised in an unlawful detainer action. 160 Cal. App. 3d 1067, 207 Cal. Rptr. 108 (1984). In Zimmerman, the sole issue in the unlawful detainer action was whether the landlord had acted in good faith. Id. at 1074, 207 Cal. Rptr. 108. The landlord prevailed. Id. at 1071, 207 Cal. Rptr. 108. In subsequent proceedings, the tenant was barred from questioning the landlord's good faith during the time period that was at issue in the unlawful detainer action. Id. ("Appellant may not now relitigate this same primary right (the right to possession) which was necessarily determined in the unlawful detainer judgment.")
Second, even if waiver is necessary, Defendants have displayed their intent to waive speedy resolution. Apparently anticipating success in the UD Action, Defendants sought collateral estoppel based upon its pending result (Defs.' Answer 16.) By displaying their intent to be bound by the result of the UD Action, Defendants are estopped from later changing their position and challenging the preclusive effect of the UD Action. See Poweragent Inc. v. Data Sys. Corp., 358 F.3d 1187, 1192 (9th Cir.2004).
B. The UD Action Has Collateral Estoppel Effect as to Reasonable Accommodation.
California law governs as to the collateral estoppel effect of the Commissioner's judgment because the UD Action was litigated in state court. See 28 U.S.C. § 1738 ("[Authenticated records and judicial proceedings of any court of any State] 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."); Kremer v. Chem. Constr. Corp., 456 U.S. 461, 481-82, 102 S. Ct. 1883, 72 L. Ed. 2d 262 (1982) ("It has long been established that § 1738 does not allow federal courts to employ their own rules of res judicata in determining the effect of state judgments. Rather, [§ 1738] commands a federal court to accept the rules chosen by the State from which the judgment is taken."). Under California law, relitigation is collaterally estopped when "(1) the issue decided in a prior adjudication is identical with that presented in the action in question; and (2) there was a final judgment on the merits; and (3) the party against whom the plea is asserted was a party or in privity with a party to the prior adjudication." Clemmer v. Hartford Ins. Co., 22 Cal. 3d 865, 151 Cal. Rptr. 285, 587 P.2d 1098, 1101-02 (1978).
1. Identical Issue of Reasonable Accommodation Was Litigated in UD Action.
Collateral estoppel applies only when the issue in the current action is identical to the issue in the prior action and is necessary to the determination of that action. Parklane, 439 U.S. at 327 n. 5, 99 S. Ct. 645. Here the issue of reasonable accommodation was necessary to the judgment in favor of Mr. McAlister in the UD Action because Management had adequate grounds to evict Mr. McAlister in the absence of a meritorious affirmative defense, McAlister Ruling, at 4, and reasonable accommodation was the only affirmative defense raised (Reply 1).
*910 a. Commissioner Borrell's Ten-Page Ruling is Proof that Reasonable Accommodation Issue Was Litigated in the UD Action.
To demonstrate that the issue decided in the UD Action is identical to the issue for which Plaintiffs seek summary adjudication in this action, Plaintiffs present Commissioner Borrell's ten-page ruling. In this ruling, the Commissioner applies the same burden-shifting standard of review that is applied to FHAA claims of housing discrimination and finds that Management [un]lawfully refused to provide the accommodation requested by McAlister." McAlister Ruling, at 4, 6-10. Although the ruling is extrinsic to the final judgment, it may be used to ascertain what issues were determined in the prior action. Southwell v. Mallery, Stern & Warford, 194 Cal. App. 3d 140, 239 Cal. Rptr. 371, 374 (Ct. App.1987); Sartor v. Superior Court, 136 Cal. App. 3d 322, 187 Cal. Rptr. 247, 249 (Ct. App.1982); 7 Witkin, California. Procedure, Judgment § 358 (4th ed.1997).
b. Striking Out the Reasonable Accommodation Sentence of the Proposed Order Did Not Negate the Ten-Page Ruling.
Based on the Commissioner's edit to the proposed judgment, Defendants assert that the ten-page ruling does not reveal the Commissioner's final judgment as to the issue of reasonable accommodation. It is true that a court retains the power to change its conclusion up until the judgment is filed. Gideon v. Superior Court, 141 Cal. App. 2d 640, 297 P.2d 84 (1956). However, the Commissioner's edit to the proposed judgment does not demonstrate that he changed his conclusion as to the issue of reasonable accommodation. Because reasonable accommodation was the only affirmative defense that Mr. McAlister and his family raised during the UD Action (Reply 1), the Commissioner could not have awarded them possession if he had changed his conclusion as to that issue.
Furthermore, the sentence that the Commissioner struck out from the proposed judgment was vague as to which denial of accommodation violated the federal and state fair housing laws, Mr. McAlister's or his son's. In his ruling, the Commissioner found that rescission of the eviction notice was not necessary to accommodate Mr. McAlister's disability, but that it was necessary to accommodate his son's. Yet, the proposed sentence appeared to endorse Mr. McAlister's request for accommodation relating to his own back problems: "Finding this case turned on whether [Management] lawfully refused to provide Mr. McAllister's [sic] request for accommodation pursuant to federal and state fair housing laws, this Court held that [Management] unlawfully refused Mr. McAlister's request for accommodation." Striking out the proposed sentence is not inconsistent with the Commissioner's findings on reasonable accommodation contained within his ten-page ruling.
c. Reasonable Accommodation Under FEHA, the Unruh Act. Section 17200, and Negligence Law Is Identical to Previously Litigated Issue.
Plaintiffs assert that Defendants are collaterally estopped from relitigating the issue of reasonable accommodation in defense of the state and common law claims as well as the FHAA claim. Defendants do not dispute Plaintiffs' assertion that a determination on the issue of reasonable accommodation under the FHAA is also dispositive of Plaintiffs' second claim under California's Fair Employment and Housing Act (FEHA) and third claim under the Unruh Civil Rights Act. These two acts contain statutory language equivalent to FHAA's reasonable accommodation provision. Compare Fair Housing *911 Amendment Acts of 1988, 42 U.S.C. § 3604(f)(3)(B) ("[Discrimination includes] a refusal to make reasonable accommodations in rules, policies, practices, or services, when such accommodations may be necessary to afford such person equal opportunity to use and enjoy a dwelling. . . ."), with Fair Employment and Housing Act, Cal. Govt.Code § 12927(c)(1) ("Discrimination' . . . includes refusal to make reasonable accommodations in rules, policies, practices, or services when these accommodations may be necessary to afford a disabled person equal opportunity to use and enjoy a dwelling."), and Unruh Civil Rights Act, Cal. Civ.Code § 54.1(b)(3)(B) ("Any person renting, leasing, or otherwise providing real property for compensation shall not refuse to make reasonable accommodations in rules, policies, practices, or services, when those accommodations may be necessary to afford individuals with a disability equal opportunity to use and enjoy the premises.").
Neither do Defendants dispute Plaintiffs' contention that failure to provide reasonable accommodation of a tenant's disability constitutes an act of "unfair competition" under California Business and Professions Code Section 17200. Plaintiffs draw a persuasive analogy between this action and People v. McKale, in which the California Supreme Court found that housing discrimination on the basis of religion and ancestry also constitutes unfair competition under Section 17200. 25 Cal. 3d 626, 159 Cal. Rptr. 811, 602 P.2d 731, 737 (1979)
Finally, Plaintiffs contend that breach of the duty to reasonably accommodate a tenant's disability, as imposed by the FHAA, renders Defendants liable for negligence. See So. Cal. Hous. Rights Ctr. v. Los Feliz Towers Homeowners Ass'n, 426 F. Supp. 2d 1061, 1069 (2005) (finding that "[w]hether Defendants breached their duty depends on whether a reasonable accommodation may have been necessary"). Defendants do not contest that failing to reasonably accommodate imposes derivative liability for negligence.
2. Final Judgment on the Merits Was Issued.
Collateral estoppel applies only to issues which have been determined by a judgment that is both final and on the merits. Grable v. Citizens Nat. Trust & Say. Bank of Riverside, 164 Cal. App. 2d 710, 331 P.2d 103, 106 (1958). A judgment is not final while there is time to appeal or while an appeal is pending, People v. Mitchell Bros. Santa Ana Theater, 101 Cal. App. 3d 296, 161 Cal. Rptr. 562, 568 (Ct. App.1980), and is not on the merits if based on a technical or formal defect, Goddard v. Sec. Title Ins. & Guar. Co., 14 Cal. 2d 47, 92 P.2d 804, 806-07 (1939). Defendants do not contest that a final judgment was entered in the UD Action and that the time for appeal has expired.
Defendants assert not that the unlawful detainer judgment did not reach the merits because of a technical or formal defect, but that evaluation of the merits was inaccurate. This Court is not in a position to second-guess the Commissioner's evaluation of the merits, only to note that he did reach them. Although Defendants argue that the merits of the reasonable accommodation issue should have been decided differently, the UD Action was decided on the merits.
3. Management is Party to and Camarillo 789 Is in Privity with a Party to the Unlawful Detainer Action, But Plaintiffs Have Not Proven that Portfolio and Property Trust Were in Privity.
Collateral estoppel extends only to parties to the prior lawsuit and those in privity with them in relation to *912 that lawsuit. Clemmer, 151 Cal. Rptr. 285, 587 P.2d at 1101-02. Management is collaterally estopped from relitigating the issue of reasonable accommodation because Management was the plaintiff in the UD Action. The remaining question is which of the co-defendants were in privity with Management in relation to the prior action. Under California law, the court may find privity as a matter of law. People v. Dawkins, 241 Cal. Rptr. 456, 458 (Ct.App.1987) ("The existence of the relationship of privity is a question of law.").
Privity exists where the nonparty was closely related to the party in the prior action. See Lynch v. Glass, 44 Cal. App. 3d 943, 119 Cal. Rptr. 139, 142 (Ct. App.1975). In addition, a nonparty's due process rights protect it from being bound by litigation in which its interest was not adequately represented or by which the nonparty could not reasonably have expected to be bound. See id. Plaintiffs assert that privity can be found and due process rights respected where (1) a nonparty had a proprietary or financial interest in and control of the prior action or (2) the unsuccessful party in the first action acted in a representative capacity for a nonparty. See id. at 143; see also Southwest Airlines Co. v. Texas Intern. Airlines, Inc., 546 F.2d 84, 95 (5th Cir.1977) ("Federal courts have deemed [a non-party who controlled the original suit to be] `sufficiently close' to justify preclusion.").
Camarillo 789 was in privity with Management in the prior action because Defendants admit that Camarillo 789 is an owner and operator of the subject property. (Statement of Genuine Issues in Opp'n ¶ 5). They also admit that Management acted as authorized agent during the prior action (Garland Decl. Ex. J) and that Management provides management services for Camarillo 789 at Camarillo Oaks (Statement of Genuine Issues in Opp'n ¶ 8).
However, summary judgment on the basis of collateral estoppel does not extend to Co-Defendants Property Trust and Portfolio because Plaintiffs have not marshaled enough evidence to determine as a matter of law that Property Trust and Portfolio were in privity with Management in relation to the UD Action. Although Property Trust has identified itself as an owner of Camanilo Oaks (Mot.13), and the parties agree that Property Trust owns all of its interests in real properties directly or indirectly through Portfolio (Statement of Genuine Issues in Opp'n ¶ 23), the ownership interest is not necessarily direct enough to establish privity. Defendants maintain that Portfolio was only a limited partner in the ownership of Camarillo 789 during the eviction process and the unlawful detainer action. (Ritter Decl. ¶ 4.) A limited partner contributes capital and shares profits but cannot manage the business. Black's Law Dictionary 1142-43 (7th ed.1999).
To establish that Portfolio was in privity because it controlled the UD Action, Plaintiffs would have to show that Portfolio was able to make decisions in the UD Action, such as "what legal theories and evidence should be advanced, . . . and whether an appeal should be taken from an adverse decision." Algie v. RCA Global. Commc'ns, Inc., 891 F. Supp. 839, 852 (S.D.N.Y.1994). Summary adjudication cannot be awarded against Portfolio because collateral estoppel would not apply against a limited partner where the party asserting res judicata has not demonstrated that the partner controlled the litigation. See Dillard v. McKnight, 34 Cal. 2d 209, 209 P.2d 387, 391-91 (1949); Doshi v. Hollingshead, No. B 152972, 2003 WL 42545, at *5 (Cal.Ct.App. Jan. 7, 2003).
As the sole general partner of Portfolio during the eviction process and unlawful detainer action (Ritter Decl. ¶ 5), Property *913 Trust controlled Portfolio. See Black's Law Dictionary 1142. But because Plaintiffs have not demonstrated that, as a matter of law, Portfolio controlled the UD Action and was therefore in privity with Management, summary judgment on the basis of collateral estoppel cannot be awarded against Property Trust either.
III. RULING
Plaintiffs' Motion for Summary Adjudication is GRANTED IN PART and DENIED IN PART. Collateral estoppel establishes that Defendants Management and Camarillo 789 failed to reasonably accommodate Plaintiff David McAlister's son. Damages have yet to be determined.
Because the available evidence does not conclude as a matter of law that Defendants Property Trust and Portfolio were in privity with a party in the prior proceeding, Plaintiffs' Motion with respect to these defendants is DENIED without prejudice. Should discovery yield evidence that Property Trust and Portfolio were in position to control litigation in the UD Action, Plaintiffs may renew their motion.
IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2330137/ | 504 F. Supp. 2d 621 (2007)
Robert CHESTER, Regional Director of the Eighteenth Region of the National Labor Relations Board, for and on behalf of the NATIONAL LABOR RELATIONS BOARD
v.
EICHORN MOTORS, INC.
No. 07-CV-2384(JMR/FLN).
United States District Court, D. Minnesota.
August 14, 2007.
*622 *623 Kristyn A. Myers, National Labor Relations Board, Minneapolis, MN, for Robert Chester.
R. Thomas Torgerson, Hanft Fride PA, Duluth, MN, for Eichorn Motors, Inc.
ORDER
JAMES M. ROSENBAUM, Chief Judge.
This matter is before the Court on petitioner's motion for a temporary injunction under Section 10(j) of the National Labor Relations Act, 29 U.S.C. § 160(j) ("Section 10(j)"). Petitioner seeks an injunction barring respondent from violating employees' rights under the National Labor Relations Act, 29 U.S.C. § 151 et seq. ("the NLRA"). Petitioner's motion is granted in part and denied in part.
I. Background
Respondent, Eichorn Motors, Inc. ("Eichorn"), is a General Motors ("GM") dealership located in Grand Rapids, Minnesota, which succeeded to the ownership of Swanson Motors on May 1, 2006. Swanson Motors had been a union shop operating under a collective bargaining agreement with the United Auto Workers International Union (the "Union"). Petitioner, Robert Chester, on behalf of the National Labor Relations Board ("the Board"), accuses Eichorn of engaging in a series of unfair labor practices since taking over the business.
*624 The Board first brought charges against Eichorn in a November 14, 2006, hearing conducted before Administrative Law Judge ("ALJ") Paul Bogas. Judge Bogas found Eichorn engaged in multiple activities which unlawfully undermined the Union's role as its collective bargaining representative. (GC Ex. 4 at 18-19.) Subsequent to this hearing, the Board brought a second complaint against Eichorn. The Board's second complaint underlies the petition before this Court.
A. Unilateral Policy Changes
The Board's petition charges Eichorn with making several unilateral changes to its employees' wages and working conditions without notifying the Union. As a successor dealership to Swanson Motors,[1] the Board agrees Eichorn could have unilaterally set its own employment terms and conditions when it commenced operations on May 1, 2006.[2] But subsequent to commencing operations, Eichorn was required to bargain with the Union before changing any terms of the collective bargaining agreement.[3] Thus, the Board claims unilateral changes made after May 1, 2006, violate NLRA Section 8(a)(5).
The Board cites four specific unilateral acts:
1. On August 1, 2006, Eichorn changed its wage policy, and began paying technicians a single hourly wage rate instead of applying the former three-tier wage rate system.
2. On November 28, 2006, Eichorn changed its holiday pay policy. Eichorn required employees to work the day before and the day after a holiday to receive holiday pay, with no exceptions for excused absences, as had been allowed previously.
3. Eichorn implemented a Customer Satisfaction Index ("CSI") Policy[4] on November 29, 2006. Under this policy, employees who did not reach zone average CSI scores were subject to discharge.
4. On November 30, 2006, Eichorn changed its training pay policy, eliminating the prior practice of paying technicians double-time for hours spent training.
Eichorn denies these are policy changes, claiming these policies were in place when it commenced operations. And in each cited instance, Eichorn states it simply clarified or notified the employees of differences between its policies and those of Swanson Motors.
It further claims, even considering these to be changes, the dealership's employees were not harmed by the new policies. For example, its practice of paying all mechanics *625 at the higher incentive rate had little impact, because mechanics had historically qualified for-and had been paid-that rate. Thus, Eichorn claims "no harm, no foul."
B. Direct Dealing and Restraining Union Involvement
The Board's second group of charges accuse Eichorn of dealing directly with employees, thus bypassing the Union. The Board claims this interfered with or restrained employees' involvement with the Union, violating NLRA Section 8(a)(1).
The Board states this first occurred when Eichorn's General Manager, Michael Coombe ("Coombe"), and its Parts and Services Director, David Brown ("Brown"), asked mechanic-employees James Ossefoort, David Cogger, and Robert Anderson how they wanted to get paid for the Thanksgiving holiday in November, 2006. Coombe told them they would get holiday pay the "Eichorn way." Eichorn responds by saying this discussion was the dealership's attempt to avoid additional unfair labor practices by clarifying how payment would be made. Eichorn further claims the Union actually participated in the conversation because Cogger, the shop steward, was present.
The Board's second alleged instance of direct dealing occurred on December 9, 2006, when Eichorn's Vice President, Mitch Eichorn, offered mechanic Anderson a four-year contract he claimed would be better than the Union contract, including better benefits and wages. Anderson states Mitch Eichorn backed his offer with the following threats: (1) that he wanted to have Anderson work for him but not the Union, and he wanted Anderson to choose between the Eichorn way and the Union way; (2) that if Anderson decided to go the Union way, he would not be working for Eichorn Motors; (3) that he would be offering Anderson a four year contract with more wages than the Union contract; and (4) that Anderson's bannering[5] showed Anderson was for the Union way. (Tr. 399-400).
Eichorn responds by claiming Mitch Eichorn was not its agent on this occasion, since he did not have a role in the dealership's day-to-day operations. According to Eichorn, Mitch Eichorn explicitly advised Anderson he was not acting on behalf of Eichorn Motors during the conversation.
The Board's third allegation of directdealing occurred during conversations between Parts and Services Director Brown and mechanic Ossefoort on January. 3 and 4, 2007. On January 3, Brown told Ossefoort, "you may win the battle but you are not going to win the war." (Tr. 169-71.) Ossefoort claims this statement implied his union support was futile. Ossefoort's employment was terminated that day. The next day, when he returned to Eichorn to pick up his tools, he said to Brown, "I guess you got what you wanted, you got rid of me." Brown responded, "It's not what I wanted. It's what we want. Team players." (Tr. 177.)
Eichorn replies Brown's "you may win the battle" comment responded to a derogatory comment Ossefoort made about Coombe. Eichorn further claims the "team player" comment referred to Ossefoort's unwillingness to assist co-workers, showing he was not a team player. Eichorn offered examples of numerous occasions where Ossefoort refused or failed to *626 assist co-workers or refused to follow supervisors' directions.
C. Wrongful Discharges
The Board's third group of charges claim Eichorn fired all of its active union members, effectively ousting the Union from the company, in violation of NLRA Section 8(a)(3) and (4). As noted above, Ossefoort's employment was terminated on January 3, 2007; that same week, Eichorn also fired Cogger and Anderson. All three were known union supporters; each had participated in the November, 2006, hearing before Judge Bogas.
Eichorn states there were legitimate business reasons for terminating each mechanic, and that it would have taken those actions regardless of union activities. Concerning Ossefoort, Eichorn claims he was terminated for a number of reasons: negative attitude, unwillingness to help co-workers, unacceptable work quality, and walking off the job. Brown recommended firing, Ossefoort on January 3, 2007, because Ossefoort left the dealership early contrary to General Manager Coombe's instruction telling him to stay and complete required training. Ossefoort refused, and walked off the job site.
Eichorn says Anderson's termination was based on poor work quality, his attitude, lack of teamwork, and his work performance, including low CSI scores. Eichorn claims Cogger was fired for his poor work history, for failing to show up for work on time, for refusing to train, for falsifying his records, and for the decline in his CSI scores.
Eichorn also offers the fact that it has disciplined and terminated the employment of non-union employees of the dealership since its acquisition. It further points to mechanic Wade Eckert, who participated in union bannering around the time of the terminations, yet retained his employment.
Eichorn hired replacement mechanics subsequent to these terminations. The Court takes note of the fact that Grand Rapids, Minnesota, is not a large metropolitan area. From this fact, the Court considers, first, there are not a large number of open mechanic's jobs at automobile dealerships at any given time in Grand Rapids, and second, once released from such a position, reemployment in the same community, in a comparable position, may be difficult.
A hearing concerning the Board's second set of charges, those made after Judge Bogas's hearing, was held before ALJ John Clark on April 24, 25, and 26, 2007. Judge Clark's decision is pending, and whenever it is issued, it will be recommended to the Board for consideration and adoption. The Board's counsel advised the Court these steps may take anywhere between six months and two years.
As the Board pursues its glacial processes, it apparently feels compelled to turn to the Court seeking "emergency" relief, and asks the Court to opine, on a limited record-as compared to its already-conducted days' long hearings-and enjoin Eichorn from engaging in the very same practices heard before Judge Clark. The Board also asks the Court to rescind any unilateral policy changes Eichorn Motors has instituted, and reinstate the three employees allegedly terminated in violation of the Act.
II. Discussion
Section 10(j) allows the Board to petition a district court for temporary injunctive relief pending resolution of an underlying case. The Act provides, in pertinent part:
The Board shall have power, upon issuance of a complaint as provided in subsection (b) of this section charging that any person has engaged in or is engaging in an unfair labor practice, to petition *627 any United States district court . . . for appropriate temporary relief or restraining order. Upon the filing of any such petition the court shall cause notice thereof to be served upon such person, and thereupon shall have jurisdiction to grant to the Board such temporary relief or restraining order as it deems just and proper.
29 U.S.C. § 160(j).
In considering a request for a preliminary injunction under Section 10(j), the Court must consider the well known factors for preliminary relief set forth in Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109 (8th Cir.1981). Sharp v. Parents in Community Action, Inc., 172 F.3d 1034, 1037-38 (8th Cir.1999). These are:
(1) the threat of irreparable harm to the movant; (2) the state of balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest.
Dataphase, 640 F.2d at 114.
A. Threat of Irreparable Harm to the Movant
To obtain Section 10(j) injunctive relief, the Board must first show "the case presents one of those rare situations in which the delay inherent in completing the adjudicatory process will frustrate the Board's ability to remedy the alleged unfair labor practices." Sharp, 172 F.3d at 1039. The irreparable harm to be demonstrated is not harm to individual employees; the Board must show "harm to the collective bargaining process or to other protected employee activities if a remedy must await the Board's full adjudicatory process." Id. at 1038. Should the Board fail to make this showing, the Court need not consider the remaining three Dataphase - factors. Id. at 1039. The Court finds the Board has sustained its burden, in part.
Judge Bogas's findings demonstrate Eichorn's history of thwarting the Union. Evidence adduced before this Court gives further evidence of the company's attempts to coerce its Union employees to renounce the Union, and ally themselves with the "Eichorn way." When Eichorn's efforts failed, it fired a number of its active Union employees. These firings certainly undermined the company's Union support, impairing the negotiation process.
The evidence before this Court shows negotiations between the company and the Union have diminished, and are now intermittent at best. This is the type of irreparable harm contemplated by Section 10(j). NLRB v. Electro-Voice, Inc., 83 F.3d 1559, 1573 (7th Cir.1996) (harm to employees from delay in bargaining and the diminution of union support is immeasurable).
In fine, the company has eviscerated the bargaining unit, having terminated its entire team of active Union supporters. Eichorn pushes mechanic Wade Eckert to the fore, arguing he is a Union supporter and remains employed. Eichorn's position is undermined, however, by evidence showing Eichorn was unaware of Eckert's Union support when it fired the other three Union mechanics. As opposed to the others, Eckert did not testify in the November NLRB hearings, nor was he on the collective bargaining negotiation team. Apparently, his Union activity was limited to one or two bannering sessions, (Tr. 196.), whereas the other three discharged employees were well-known Union supporters, all of whom testified at the November hearing before Judge Bogas.
For the purposes of this motion, the Board has demonstrated that Eichorn's dealings with active Union supporters, and its apparent attempt to stifle the Union, render current employees unlikely to advance their Union support out of fear of *628 retaliation. See Pye ex rel. NLRB v. Excel Case Ready, 238 F.3d 69, 74-75 (1st Cir.2001).
Absent interim action, the Court finds remedial measures may be impaired, because the discharged employees may not be available for reinstatement after the painfully extended, time which may elapse before the Board issues a final order. Bloedorn v. Francisco Foods, Inc., 276 F.3d 270, 299 (7th Cir.2001). The Court finds that, absent interim reinstatement of at least some Union supporters, the Union will experience irreparable harm to its ability to bargain collectively.
The Board has failed to clear that same high hurdle of proving irreparable harm, however, concerning the policy changes it seeks to rescind. Even if Judge Clark finds, and the Board finally adopts a conclusion finding, Eichorn's wage, holiday pay, training pay, and CSI score concerns are policy changes in violation of the NLRA, these can be easily and fully compensated by monetary damages to any affected employees. See Sharp, 172 F.3d at 1040 (no irreparable harm where there is an adequate monetary remedy). Further, the Board has failed to produce any evidence showing these issues could not be dealt with as a part of the revitalized collective bargaining process.
B. Probable Success on the Merits
Section 8(a) of the NLRA declares it an unfair labor practice for an employer:
(3) by discrimination in regard to the hire or tenure of employment or any term or condition of employment to encourage or discourage membership in any labor organization;. . . .
(4) to discharge or otherwise discriminate against an employee because he has filed charges or given testimony under this subchapter.
29 U.S.C. 158(a)(3) and (4).
In attempting to determine whether Ossefoort's, Anderson's, or Cogger's terminations violate Sections 8(a)(3) or (4), the Court applies the test set forth in Wright Line, 251 N.L.R.B. 1083 (1980), enfd. 662 F.2d 899 (1st Cir.1981). See Pace Indus., Inc. v. NLRB, 118 F.3d 585, 590 (8th Cir.1997). The Board must first make a prima facie showing that Union activity was a "motivating factor" in the discharge. Id.
To do so, the Board must establish: (1) the employee was engaged in a protected activity; (2) the employer knew the employee was engaged in a protected activity; and (3) the protected activity was a substantial or motivating factor in the discharge. Wright Line, 251 NLRB at 1089. If the Board makes this prima facie showing, the burden shifts to the employer to demonstrate it would have reached the same decision absent the Union activity. Id. Even though an employer may have legitimate justifications for its action, such action may still constitute an unfair labor practice if anti-Union animus was also a motivating factor. Pace, 118 F.3d at 591.
The Board easily meets its burden with regard to the first two Wright Line factors. Each discharged employee was an active Union supporter, and all testified before Judge Bogas. Coombe and Brown, the Eichorn supervisors who fired the three, were present at the hearing, showing they were aware of the employees' Union activity. Having made this finding, the Court must determine whether their protected activity was a substantial or motivating factor in each employee's discharge. While a full discussion will likely issue from the ALJ after his three-day trial, the Court finds from the totality of the circumstances that the Board will succeed *629 on the merits regarding Anderson and Cogger, but not in the case of Ossefoort.
Prior unfair labor practices by the respondent can be considered as evidence of unlawful motive in this case. Control Services, Inc. 315 N.L.R.B. 431, 432 (1994) (and cases cited therein). Judge Bogas found Eichorn's General Manager Coombe threatened both Anderson and Ossefoort with discharge because of their Union activity. (GC Ex. 4 at 10). Judge Bogas also found Coombe unlawfully interrogated Cogger about his Union support. (GC Ex. 4 at 12.)
Eichorn insists all three employees were discharged for various performance problems, including low CSI scores, rather than for Union involvement. But the Board has put forth evidence of disparate treatment: Employee Wade Eckert's CSI scores were the lowest of all the technicians in November and December, (GC Ex. 6 & 14), and he was not terminated. Eckert was not an open Union supporter, and did not testify before Judge Bogas.
Each mechanic who testified at the hearing was discharged. Eckert was not. Based on this evidence, the Court finds Eichorn's proffered justification pretextual. See Yesterday's Children, Inc. v. N.L.R.B., 115 F.3d 36, 49 (1st Cir.1997). The Court considers it highly unlikely that none of the three discharges were motivated by the employees' Union activity. Thus, the Court finds the Board is likely to succeed on the merits of its claims regarding the discharges of Anderson and Cogger.
Ossefoort's discharge is distinguished from his colleagues. Evidence at the hearing before this Court was explicit: on the day Ossefoort was terminated, Eichorn's General Manager Coombe directly instructed Ossefoort that he was to remain at work and complete required training. This was a legitimate instruction, and was part of Ossefoort's duties. Ossefoort refused the order and left work. This evidence was uncontradicted. From this evidence, the Court finds Ossefoort deliberately disregarded a supervisor's valid order, and walked off the job without authorization. These facts constitute valid reasons for an employee's termination, whether or not the person is employed subject to a collective bargaining agreement. Eichorn has met its burden regarding Ossefoort; he will not be reinstated.
C. Balance Between Harms
The Court must next balance the potential for harm to the moving party against any potential harm to the nonmoving party in the event the injunction issues. Dataphase, 640 F.2d at 114. Eichorn claims it would be irreparably harmed if it must reinstate Anderson and Cogger, because it will have to release those employees it hired to fill their places. This claimed inconvenience does not outweigh the irreparable harm to the collective bargaining process. Eichorn's proffered argument, if accepted, would turn the injunction's remedial aspect on its head. This Court has preliminarily found the newly-employed mechanics were wrongfully retained after the company's wrongful terminations of those whose jobs they filled. Of course, undoing the company's wrong will displace the new-hired mechanics. But it was the company's improper acts which put them there in the first place.
Under these conditions, Eichorn's proffered harm is seen as the piffle it is. The Court rejects it, and finds this factor, too, favors the Board.
D. Public Interest
Finally, the Court must consider the public interest. Here, the Board offers *630 newspaper articles it claims prove the public is interested in this matter. The Court rejects such hearsay. See Fed. R.Evid. 802.
But the Court finds the public interest is clear. Indeed, it has been set forth by Congress. It was Congress, the people's voice, which elucidated a strong public interest when it enacted the NLRA in an effort to protect employees' rights to organize and bargain collectively. "The [public] interest at stake in a section 10(j) proceeding is the . . . interest in the integrity of the collective bargaining process." Bloedorn, 276 F.3d at 300 (quotation omitted). Thus, the public interest favors granting the temporary relief.
III. Conclusion
Having balanced the factors relating to the issuance of temporary injunctive relief, the Court grants the Board's petition for a temporary injunction under Section 10(j) of the NLRA. Accordingly, IT IS ORDERED that:
1. Within five days of the date of this Order, Eichorn Motors shall offer Bob Anderson and David Cogger, in writing, immediate and full reinstatement to their former jobs, and with the same terms and conditions of employment as existed at the time of their discharges.
2. Eichorn Motors shall post copies of this Order at its Grand Rapids, Minnesota, facility in all locations where notices to employees are customarily posted. Said postings shall be maintained during the Board's administrative proceeding free from all obstructions and defacements, and agents of the Board shall be granted reasonable access to the dealership to monitor compliance with this posting requirement.
3. Upon request, Eichorn Motors shall grant to agents of the Board reasonable access to all appropriate records for examination and reproduction, to permit monitoring of its compliance with this Order.
NOTES
[1] An employer is considered a "successor," obligated to bargain with the union, if: (1) a majority of the successor employees in the bargaining unit were employees of the predecessor; and (2) the successor employer is performing essentially the same work as the predecessor employer. NLRB v. Burns Int'l Sec. Serv., Inc., 406 U.S. 272, 280-81, 92 S. Ct. 1571, 32 L. Ed. 2d 61 (1972). All parties agree Eichorn meets these criteria.
[2] See Burns, 406 U.S. at 294-95, 92 S. Ct. 1571.
[3] See Id.; In re Cora Realty Co., LLC, 340 N.L.R.B. 366, 367-368 (2003).
[4] The CSI is a measure General Motors uses to assess the quality of a dealership's customer service. When a GM dealer services a vehicle under a GM warranty, GM sends a service satisfaction survey to the customer. The survey asks the customer to rate the service technician's performance. Customers surveys are sent to GM, which sends Eichorn a detailed monthly CSI report. This report compares Eichorn's scores to the average CSI scores of the zone, region, and nation. The report also includes the scores of each individual Eichorn service technician. (Tr. 21-30, GC Ex. 6).
[5] Starting November 14, 2006, the day Judge Bogas's hearing began, Anderson, Cogger, and Ossefoort engaged in bannering over their lunch breaks. The three employees walked up and down the sidewalk holding signs that read: "Honk for union support. UAW 349." This occurred three or four times a week prior to their terminations. (Tr. at 125-26.) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2329573/ | 666 F. Supp. 2d 534 (2009)
UNITED STATES of America
v.
William Carl SOUDER, Jr., Marvin Dean Chambers, Sr., Alvin Lewis Elliott, Sr.
United States of America
v.
William Carl Souder, Jr., Marvin Dean Chambers, Sr., Alvin Lewis Elliott, Sr., John Henry Wilcher.
Nos. 1:08CR136-1, 1:08CR136-2, 1:08CR136-3, 1:08CR275-1, 1:08CR275-2, 1:08CR275-3, 1:08CR275-4.
United States District Court, M.D. North Carolina.
October 16, 2009.
*538 Frank Joseph Chut, Jr., U.S. Attorney's Office, Greensboro, NC, for United States of America.
MEMORANDUM OPINION
BEATY, Chief Judge.
This matter is before the Court on Defendants William Carl Souder ("Souder"), Marvin Dean Chambers ("Chambers"), and Alvin Lewis Elliott's ("Elliott") (collectively "Defendants") Joint Motion for Judgment of Acquittal or Motion for a New Trial [1:08CR136: Doc. #88; 1:08CR275: Doc. # 112]. The Defendants filed their Motion pursuant to Rule 29 and Rule 33 of the Federal Rules of Criminal Procedure. A hearing was held on the Motion on July 31, 2009. For the reasons stated below, Defendants' Motion for Acquittal pursuant to Rule 29 is granted, and Defendants' Motion for a New Trial pursuant to Rule 33 is conditionally granted.
I. FACTUAL BACKGROUND
The evidence presented at trial relevant to the Defendants' Motion is as follows. During the relevant time period in this case, that is, the years 2001 through 2003, Defendants Chambers and Elliott were leaders of the Most Worshipful Prince Hall Grand Lodge of Free and Accepted Masons of North Carolina and Jurisdiction, Inc. (the "Grand Lodge"), which is a fraternal organization of men whose members are called Masons. Defendants Chambers and Elliott served as the Grand Master and the Grand Secretary, respectively. The membership, which fluctuates annually between 13,000 and 18,000 members, is organized throughout the state of North Carolina into approximately 304 subordinate local lodges housed within thirty-seven districts. With respect to its operation, the Grand Lodge has a long-standing tradition of offering a Benevolence Program to its members who are under the *539 age of 55 when they become Masons. In addition to age limits, a member may also be excluded from the Benevolence Program if upon physical examination a doctor considered him to be "a risk." The member would pay $12.00 in annual dues that would go towards the Benevolence Program, and upon his death, his named beneficiary would receive a $500.00 death benefit.
Earlier, when Defendant Chambers was elected Grand Master of the Grand Lodge, in 1998, he began to seek out ideas and methods to provide a death benefit for members that were excluded from the Benevolence Program, and to enhance the death benefit for those that were already part of the program. Upon meeting Defendant John Henry Wilcher, who was an insurance agent and owner of the Wilcher Group, the two discussed the possibility of an insurance program that could provide the benefits that Defendant Chambers was seeking for the members of the Grand Lodge. Defendants Chambers and Wilcher initially met at a Masonic event held outside of North Carolina in May or June of 2001. After further discussion about a potential insurance program for the Grand Lodge members, Defendant Wilcher made a presentation to the executive committee of the Grand Lodge in late 2001. Apparently, there was no immediate acceptance of Wilcher's proposal. As a result, Defendant Wilcher sought out Defendant Souder, who was then the president of Atlanta Life General Agency ("Atlanta Life"), as a potential partner with the Wilcher Group and the Grand Lodge in the development of an insurance program for the Grand Lodge members. Thereafter, Defendants Chambers and Souder met at the Atlanta Life headquarters in Atlanta to discuss the development of an insurance program. Over the course of several meetings in Atlanta, which included Defendants Elliott, Wilcher and Souder, and others from Atlanta Life, Defendant Chambers conveyed to them that his requirements for the potential insurance program were that the Grand Lodge would provide a whole life insurance policy for all of its members, that the policies would be owned by the Grand Lodge, that the Grand Lodge would pay a portion of the insured member's premium, that the member's named beneficiary would receive a $10,000 death benefit, that members would be able to participate in the program without having to take a physical, and that each member would pay the same amount to participate. Defendant Chambers wanted a whole life policy with the Grand Lodge as owner so that the Grand Lodge could eventually receive a return on its "investment" because it was paying a substantial portion of the quarterly premium payments. With this information, Defendant Souder researched insurance companies that would be willing to underwrite the type of policy that Defendant Chambers envisioned for the Grand Lodge members. Thereafter, but prior to May 25, 2002, Presidential Life Insurance Company committed to underwriting $10,000 graded death benefit life insurance policies for members between the ages of 65 and 75. Under these $10,000 policies, the insured member would pay $22.00 of dues per month towards the premium for the policy. The Grand Lodge would then supplement the dues payment in order to equal the full premium payment, and then forward the premium payment to Presidential Life. The Grand Lodge would be the owner of the policy, however, the insured would have the right to name the beneficiary for the $10,000 in death benefits. The Presidential Life whole life policies did not require the member to take a physical exam. This policy then became the North Carolina Mason Supplemental Insurance Program (the "Program").
Thereafter, Defendant Chambers called a Special Session meeting on May 25, 2002, to present the Program, as it existed at *540 the time, to the Grand Lodge's regional directors, deputy wardens, and others in the general membership. Many of the 200 to 300 members present were there in a representative capacity, sent to bring information about the Program back to their respective regions and local lodges. At the meeting, Defendants Chambers and Souder made presentations and answered questions regarding the aforementioned details of the Program. In addition, the members were told that the Grand Lodge would be paying the total first quarter of premiums for all members that applied, using those members' then existing benevolence program funds. It was anticipated that thereafter, the Grand Lodge's contribution towards the premium payments would be $3.00 per week. The members were instructed that they would be able to sign up for the Program at a later date by agents of Atlanta Life.
However, another component of the Program was added after the initial May 25, 2002 meeting. Prior to May 25, 2002, Defendant Souder was contacted by Jayne Silven of American Heritage Life Insurance Company ("American Heritage"), a subsidiary of Allstate, who was informed by her superiors that Souder was partnering with a large group of potential insureds, and was in need of an underwriter for a proposed insurance program. Defendant Souder and Ms. Silven first communicated on numerous occasions via telephone and email, and then on May 29, 2002, they had an initial meeting with other executives from American Heritage. On June 4, 2002, American Heritage committed to underwriting an insurance program for the Grand Lodge with the following components: the insured member would pay $22.00 per month in dues, with the Grand Lodge paying the balance of any premium due each billing period; the Grand Lodge would be the owner of each individual policy issued; $25,000 face amount policies would be available for those aged 65 and under, for which the primary beneficiary would be the Grand Lodge at 50 percent and an irrevocable beneficiary named by the insured would also receive a 50 percent share of the total death benefits; and a $10,000 face amount policy would be available for those aged 65 through 75, but they would have been required to undergo a paramedical exam. With respect to the American Heritage $10,000 policies, the primary beneficiary would be an irrevocable beneficiary named by the insured who would be entitled to 100 percent ownership of any death proceeds. With the addition of the two American Heritage policies, as of June 4, 2002, the Program had three policy options for its members: the $10,000 Presidential Life policy, available to members aged 65 to 75, for which the primary beneficiary would be named by the insured at 100 percent; the $10,000 American Heritage policy, available to members aged 65 to 75, who would be subject to a para-medical exam, for which the primary beneficiary would be named by the insured at 100 percent; and, the $25,000 American Heritage policy, available to members aged 65 and under, for which the primary beneficiaries would be the Grand Lodge at 50 percent and an irrevocable beneficiary to be named by the insured with a 50 percent interest in the death benefits.
On June 10, 2002, Atlanta Life General Agency held an initial teleconference training in which the insurance agents for Atlanta Life were given details about the Program and instructions regarding the completion of applications for the three policy options in the Program. At some point prior to December 6, 2002, the benefit structure of the $25,000 American Heritage policies was changed from a 50/50 split between the Grand Lodge and the insured member's named beneficiary, to a benefit structure with the Grand Lodge as primary beneficiary at 60 percent ($15,000), *541 and the beneficiary named by the insured with a 40 percent share ($10,000), in order to properly reflect the $10,000 benevolence death benefit that the Grand Lodge wanted the members to have. Thereafter, the agents from Atlanta Life General Agency continued to sell life insurance policies as designed under the Program to the members until November 3, 2003 when the incoming Grand Master, Milton Fitch, who succeeded Defendant Chambers as Grand Master, cancelled the entire Program as envisioned by Defendant Chambers.
On April 29, 2008, the Grand Jury returned an indictment in case number 1:08CR136 charging Defendants Souder, Chambers, and Elliott with nine counts each of mail fraud or aiding and abetting mail fraud in violation of 18 U.S.C. § 1341 and § 2, in relation to the development and implementation of the Program. Thereafter, on July 29, 2008, the Grand Jury returned an indictment in case number 1:08CR275 charging Defendants Souder, Chambers, Elliott, and Wilcher with four counts each of mail fraud and "honest services" mail fraud or aiding and abetting the same, in violation of 18 U.S.C. §§ 1341 and 1346 and § 2, in relation to the development and implementation of the Program. The two cases were joined for trial on September 4, 2008. A joint trial commenced on June 29, 2009 and concluded on July 23, 2009 when the Jury returned verdicts of guilty on all counts as to Defendants Souder, Chambers and Elliott in case number 1:08CR136 and case number 1:08CR275. With respect to the convictions in case number 1:08CR275, the Jury found by special verdict that the Defendants were guilty only of "honest services" mail fraud. The Jury acquitted Defendant Wilcher in case number 1:08CR275 on all counts. After the Jury returned the verdicts, the Court instructed the parties to submit briefs addressing the parties' contentions and issues with respect to any Rule 29 motions for acquittal, and scheduled a hearing.
After a review of the parties' briefs and the hearing on this matter, the Court notes that Defendants now contend that, pursuant to Rule 29, the evidence as presented at trial was insufficient to permit a jury to convict them of mail fraud in both case number 1:08CR136 and case number 1:08CR275, and further that, pursuant to Rule 33, a new trial should be granted in the interest of justice and because the evidence weighs heavily against the verdicts. With regard to Defendants' Rule 29 Motion, Defendants primarily contend that the Government has failed to produce sufficient evidence of a scheme or artifice to defraud, or that any of the Defendants acted with the specific intent to defraud. Moreover, with respect to Defendants' Rule 33 Motion, in addition to the issues raised in their Rule 29 Motion with regard to the sufficiency of the evidence, Defendants also contend that the Court should have given the jury Defendants' proposed instruction as to certain aspects of "honest services" mail fraud. The Government, in response, contends that it has presented substantial evidence to support the verdicts of the Jury. In light of the differing legal standards which govern the Court's determination of Rule 29 and Rule 33 motions, the Court will discuss in turn Defendants' Motions.
II. RULE 29 MOTION
A. Legal Standard
Rule 29 of the Federal Rules of Criminal Procedure provides that a court may enter a judgment of acquittal "of any offense for which the evidence is insufficient to sustain a conviction." Fed. R.Crim.P. 29(a). In evaluating the sufficiency of the evidence, "[t]he verdict of a jury must be sustained if there is substantial evidence, taking the view most favorable *542 to the Government, to support [the convictions]." United States v. Cameron, 573 F.3d 179, 183 (4th Cir.2009) (internal quotation and citation omitted). "[S]ubstantial evidence is evidence that a reasonable finder of fact could accept as adequate and sufficient to support a conclusion of a defendant's guilt beyond a reasonable doubt." Id. Moreover, "if the record reflects that the Government presented substantial evidence from which a reasonable jury could convict, [the court] must uphold the verdict." United States v. Curry, 461 F.3d 452, 457 (4th Cir.2006) (quotation and citation omitted). Thus, the Court must sustain the jury's verdict if "any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt." United States v. Myers, 280 F.3d 407, 415 (4th Cir.2002). In making its determination, the Court considers both direct and circumstantial evidence, allowing "the government the benefit of all reasonable inferences from the facts proven to those sought to be established." United States v. Tresvant, 677 F.2d 1018, 1021 (4th Cir.1982). In assessing whether there is substantial evidence in the record to support each of the essential elements of the offenses for which the Defendants have been convicted, the Court turns first to the elements of mail fraud.
B. Analysis
i. Case Number 1:08CR136
With respect to case number 1:08CR136, the Indictment charges the Defendants with mail fraud in violation of 18 U.S.C. § 1341. The offense of mail fraud has "two essential elements: (1) the existence of a scheme to defraud and (2) the use of the mails . . . in furtherance of the scheme."[1]Curry, 461 F.3d at 457. In addition, the scheme or artifice to defraud must employ some material misrepresentation or concealment of fact. See, e.g., United States v. Harvey, 532 F.3d 326, 333 (4th Cir.2008). With regard to the fraud, "[e]ven in the absence of a fiduciary, statutory, or other independent legal duty to disclose material information, common-law fraud includes acts taken to conceal, create a false impression, mislead, or otherwise deceive in order to prevent the other party from acquiring material information." United States v. Gray, 405 F.3d 227, 235 (4th Cir.2005) (internal quotation and citation omitted). "Although simple nondisclosure generally is not sufficient to constitute fraud, the Supreme Court has noted that `mere silence is quite different from concealment,' and in some cases `a suppression of the truth may amount to a suggestion of falsehood.'" Id. at 235-36 (quoting Stewart v. Wyoming Cattle Ranche Co., 128 U.S. 383, 388, 9 S. Ct. 101, 32 L. Ed. 439 (1888)). Thus, the Fourth Circuit has stated that "deceptive acts or contrivances intended to hide information, mislead, avoid suspicion, or prevent further inquiry into a material matter may constitute fraud." Id. at 236. Moreover, with respect to the scheme or artifice to defraud, "the jury must find that a defendant acted with [the] specific intent to defraud." United States v. Ham, 998 F.2d 1247, 1254 (4th Cir.1993). "Fraudulent intent may be inferred from the totality of the circumstances and need not be proven by direct evidence." Id. In addition, "the words `to defraud' commonly refer `to wronging one in his property rights by dishonest methods or schemes,' and `usually signify the deprivation of something of value by trick, deceit, chicane or over-reaching.'" *543 United States v. Coyle, 943 F.2d 424, 427 (4th Cir.1991) (internal quotation and citation omitted).
In support of their Rule 29 Motion, Defendants contend that the Government has failed to produce substantial evidence of the existence of a scheme or artifice to defraud, or that any of the Defendants acted with the specific intent to defraud with regard to any purported scheme. Specifically, with respect to the existence of a scheme or artifice to defraud, Defendants contend that the Government has failed to present substantial evidence that Defendants made any material misrepresentations or omissions with regard to the Program in order to support a jury finding as to this essential element of mail fraud. In this regard, the Government has alleged in the indictment and argued at trial that Defendants devised a scheme and artifice to defraud the Prince Hall Lodge and its members by creating a life insurance program for the members, whereby the Grand Lodge would receive a $15,000 death benefit from any $25,000 policy insuring the life of the member, all without the knowledge or consent of the member who purchased the insurance. The Government further alleged that in executing this scheme or artifice to defraud, Defendants made material false statements and omitted material information, namely: 1) that the Program would provide members with up to $10,000 of life insurance while omitting to inform the members that some would be eligible and insured for $25,000 with the Grand Lodge receiving a $15,000 death benefit from the policy; 2) that the Grand Lodge would not benefit from the Program; 3) that Defendant Souder instructed the insurance agents selling the insurance to the members to leave the `amount of insurance' and `primary beneficiary' sections blank on the insurance applications, and later directed the agents to complete these sections with `$25,000' and "Prince Hall Lodge"; and, 4) that Defendants created `false and fraudulent' certificates of insurance to be mailed to the insured members to further conceal the actual policy amount, the policy number, and the beneficiary. The Government has alleged that all of these acts together were orchestrated to deceive the members with respect to the Grand Lodge receiving a $15,000 benefit from a member's $25,000 life insurance policy. However, Defendants contend that based on the evidence presented, any purported misrepresentations were in fact true statements at the time that they were made due to the date that the $25,000 insurance policies became part of the Program, and that Defendants did not seek to hide from the members the fact that the $25,000 policies were split benefit policies wherein the Grand Lodge would receive a $15,000 death benefit.
In this case, the evidence presented at trial established that during the May 25, 2002 Special Session meeting at the Grand Lodge which was called specifically to address the Program, Defendants Souder and Chambers provided information to the members both via presentation and direct question-and-answer. Defendant Elliott was present at the meeting but did not address the members. The evidence of material misrepresentations or omissions that the Government points to include Defendant Chambers' statement at the meeting that "the Grand Lodge is not getting anything," and that in reviewing the Program, Defendants did not discuss the $25,000 insurance policies from which the Grand Lodge would receive a $15,000 death benefit. However, the evidence presented at trial also established that the agreement with American Heritage, by which the members would be able to purchase the $25,000 life insurance policies, had not yet been entered into on May 25, 2002, when the Special Session was held. The negotiations between Atlanta Life and American Heritage regarding the $25,000 life insurance policy were not complete *544 until June 4, 2002. Moreover, the tape recording of the meeting reveals that Defendant Chambers' statement, "the Grand Lodge is not getting anything," was made in the context of a discussion regarding the responsibility of premium payments to the insurance company as between the Grand Lodge and the insured member.[2] In this regard, the Court finds that while on May 25, 2002, Defendants had knowledge of the possibility of implementing a $25,000 insurance program whereby the Grand Lodge would receive a $15,000 death benefit, the only plan that the Grand Lodge had in place was the $10,000 life insurance program with Presidential Life, and therefore, the fact that Defendants did not discuss the details of the $25,000 policy was not an omission of a material fact. Moreover, because the $25,000 insurance plan was not yet in place, the statement that "the Grand Lodge is not getting anything" was accurate at the time that it was made, in that the Grand Lodge would not be receiving any death benefit from the $10,000 policies that were the subject of the May 25, 2002 meeting. In this regard, the Court finds that Defendant Chambers' statement was not a material misrepresentation nor was it made in order to induce members to purchase $25,000 life insurance policies because those policies were not available for purchase at the time. Having found that there was no evidence of any misrepresentation or omission made at the May 25, 2002 meeting with respect to the scheme to defraud as alleged by the Government, the Court turns to the evidence regarding the events the occurred after the May 25, 2002 meeting.
The evidence, as presented at trial, established that after June 4, 2002, when the $25,000 insurance policy became effective, numerous regional and local lodge meetings were held around the state to introduce the members to the Program, which then included the $10,000 policies, as well as the $25,000 policy. The evidence shows that there was not another meeting held by Defendant Chambers or the Grand Lodge to discuss the Program.[3] The Government did not present evidence of any misrepresentation that was made by, or could be attributed to, any of the Defendants at these regional and local meetings with regard to the $15,000 death benefit that the Grand Lodge would receive from the $25,000 life insurance policies. Rather, the Government presented the testimony of witnesses that attended the various meeting at which the Program was presented or discussed to demonstrate omissions of material fact. The Government's contention is that at these meetings, the members were not informed that $25,000 policies with a split benefit provision were offered as part of the Program. In this regard, the Court notes that the evidence is that of the thirteen Masons that the Government called to testify about their knowledge of the Program, seven attended only the Grand Lodge meeting, five attended only a local lodge meeting, two attended both a local lodge meeting and the Grand Lodge meeting, and one was unsure of where he attended meetings. Three of the witnesses that the Government called testified that they had knowledge that the Program offered $25,000 policies and/or that those policies had a split *545 benefit provision or that some portion of the death benefit was to go to the Grand Lodge. All three of these witnesses attended only local lodge meetings. Moreover, the Defendants presented evidence of four additional Masons that participated in the Program and testified that they were aware of the $25,000 split benefit policies or that the Grand Lodge would be receiving some death benefit from the policies. These witnesses also attended local lodge meetings. In addition, the evidence presented established that the members received information regarding the details of the Program at the regional and local lodge meetings from a combination of sources including the insurance agents, district deputies, and local lodge leaders. Finally, the evidence established that the agents were instructed to have the applicants complete a "Required Disclosure Statement for Accelerated Benefit Rider" with each application that the member may qualify for a $25,000 policy. The Rider states that the minimum face amount of the policy that it may be attached to is $25,000. In addition, it was shown that a Rider was signed as part of the application by all but two of the Government's Mason witnesses that participated in the program and completed applications.[4] Defendants contend that this is evidence of the fact that there was widespread knowledge among the members of the Grand Lodge's offering of $25,000 policies under the Program for those who were eligible.
In this case, the Court finds that in viewing all of the evidence above in the light most favorable to the Government, the evidence shows that some members were indeed aware, either prior to or at the time they signed up for the Program, of the $25,000 policies with the split benefit provision, and that the Grand Lodge was to receive a $15,000 death benefit or some other portion of death benefit from the policies. In addition, since only 200 to 300 of the members attended the Grand Lodge meeting on May 25, 2002, the majority of the approximately 13,000 members would have attended or learned of the Program either at a regional or local lodge meeting. Moreover, the evidence shows that witnesses who testified that they had knowledge of the $25,000 or the split benefit were those that attended the local or regional meetings. Also, the fact that the $25,000 applications included a Rider, signed by the applicants, which stated that the document could not be attached to a policy that was less than $25,000, contradicts the notion that Defendants sought to conceal information with regard to the face amount of the policies. In this regard, the evidence does not support the Government's contention that omissions of material fact, namely the existence of the $25,000 policies and the split benefit provision, were made in order to induce members to participate in the Program, even after the $25,000 program became effective on June 4, 2002.[5]
*546 The Government, however, also alleged that Defendants made omissions of material fact in that Defendant Souder instructed the insurance agents selling the insurance to the members to leave blank the `amount of insurance' and `primary beneficiary' sections on the insurance applications, and that he later directed the agents to complete these sections with `$25,000' and "Prince Hall Lodge." However, there was no evidence presented by the Government that Defendant Souder instructed the insurance agents as alleged. The evidence presented at trial demonstrated that Defendant Souder neither trained nor instructed the insurance agents, but rather, Atlanta Life's director of training, Gloria Giles and Dave Geerish, an executive from Allstate, conducted the training for completing the $25,000 insurance policy applications. Moreover, the evidence established that the agents were instructed by Ms. Giles to leave the `amount of insurance' section blank, because even though the insured member's beneficiary would receive a $10,000 death benefit in any event, the actual amount of coverage could only be determined by the appropriate insurance company upon review of the complete application. In addition, the evidence is that at the first agent training meeting on June 10, 2002, the agents were instructed that the `first beneficiary' section was to be completed as determined by the insured member, and the `second beneficiary' section was to be completed with "the name of the state lodge." In light of the above evidence presented at trial, the evidence does not support a finding that Defendant Souder directed the agents selling the $25,000 insurance policies to the members to make omissions of material fact with respect to completing the insurance applications as alleged by the Government.
The Government, in addition, alleged that Defendants made material misrepresentations and omissions in creating and mailing to insured members "false and fraudulent" certificates of insurance to further conceal the actual policy amount, the policy number, and that the Grand Lodge was a beneficiary. The evidence presented at trial established that the Grand Lodge issued a purported certificate of insurance to members "summarizing certain provisions of the Policy," specifically listing the insured member's name, and indicating that a $10,000 death benefit would be paid out to the member's designated beneficiary. These documents further indicated that they were being issued subject to the terms of the life insurance policy issued by the named insurance carrier, and lists as the payment required from the members as "dues payable: $22.00 per month." The policy number listed on the certificate referred to the case number issued by the insurance company which, in turn, references the Grand Lodge as the policyholder. The certificates were signed by Defendant Chambers in his capacity as Grand Master, and by Defendant Elliott in his capacity as Grand Secretary. There was no evidence presented that either of them represented in any manner that they were signing the documents as agents or representatives of any insurance agency or company. However, the Government contends that the certificates do not refer to the instances where the Grand Lodge would receive a $15,000 death benefit.
Defendants' evidence is that there was never an intent by any of the Defendants to create a certificate of insurance as if it *547 were being formally issued to the members by an insurance company. Rather, the evidence is that Defendant Chambers made a request that some kind of "certificate" be created to send to the members with $10,000 and $25,000 policies in order to provide them with proof that they were indeed insured and that their named beneficiary would indeed receive a $10,000 death benefit. When instructed by Defendant Souder to try to help Defendant Chambers with his request, Ms. Giles was the person who created the "certificates of insurance" for the Program by using as a model an actual "certificate of insurance" that had previously been issued to her by an insurance company. In addition, Defendant Chambers testified that he wanted the "certificate" to serve as proof to the members of their death's benefit because the Grand Lodge would in fact be the owner and custodian of the insurance policy. Finally, while the evidence established that it was otherwise illegal for insurance companies to issue certificates of insurance to insureds without prior approval of the state Insurance Commission, the certificates in this instance were issued by the Grand Lodge and signed by the Grand Lodge leadership solely to reflect the relationship between the Grand Lodge and its members and not for the purpose of creating an insurance document that would have required the approval of the state Insurance Commission.
In light of the above evidence, the Court finds that the information contained in the certificates is correct and accurately represents the information that had been conveyed to the members, that is, that the Grand Lodge would be the owner of the policies, that the member was insured, that the member's designated beneficiary would receive a $10,000 death benefit, and that the member was required to pay dues of $22.00 per month. Moreover, in any event, the certificates were created after the insured members had applied for the insurance policy, therefore the certificate could not have been issued to induce the member to purchase the insurance. See Neder v. United States, 527 U.S. 1, 25, 119 S. Ct. 1827, 144 L. Ed. 2d 35 (1999) (noting that a misrepresentation or omission is material if it has "a natural tendency to influence, or is capable of influencing, the decision of the [person or] decisionmaking body to which it was addressed"). The Government, however, contends that an inference can be drawn that since the Defendants previously made misrepresentations or concealed information regarding the Grand Lodge's $15,000 death benefit in order to induce the members to purchase insurance, the Defendants then used the certificates to further prevent the discovery of the $15,000 death benefit. However, as noted above, the evidence established at trial is that no misrepresentations or omissions were made or directed to be made by Defendants with regard to the death benefit to the Grand Lodge upon which to base such an inference. Thus, the Court finds that making such an inference is unreasonable in light of the facts presented. See United States v. Grow, 394 F.2d 182, 199 (4th Cir.1968) (noting that "[a]n inference is a logical deduction or conclusion from established fact. . . . When the first or basic inference is impermissibly drawn it cannot thereafter serve to support other inferences upon which a subsequent finding is based" in finding that a purported inference was wholly unsupported by the evidence); see also, Tresvant, 677 F.2d at 1021 (noting that the government is only allowed "the benefit of all reasonable inferences from the facts proven to those sought to be established"). In this regard, the Court finds that the certificates contain neither material misrepresentations nor omissions of material fact.
Having found that the Government has not presented substantial evidence *548 of any material misrepresentation or omission of material fact made by Defendants with regard to or in furtherance of a scheme to defraud the Grand Lodge and its members by concealing the existence of the $25,000 policies and the Grand Lodge as a primary beneficiary at $15,000, the Court further finds that while the Defendants' actions with regard to the dissemination of information to the members about the Program were perhaps poorly executed, they were not evidence of calculated acts to create a false impression or to deceive the members with regard to the $15,000 death benefit to the Grand Lodge.[6]See Gray 405 F.3d at 235 (noting that "common-law fraud includes acts taken to conceal, create a false impression, mislead, or otherwise deceive in order to prevent the other party from acquiring material information"). Since the Government has failed to present substantial evidence of the Defendants having engaged in any misrepresentation or omission calculated to deceive the members, the Court concludes that considering the evidence presented in this case, even viewed in the light most favorable to the Government, the record does not contain substantial evidence to support the essential element of the existence of a scheme or artifice to defraud, as alleged by the Government. See Harvey, 532 F.3d 326 (noting that the Government must prove the existence of a scheme or artifice to defraud, and that the scheme or artifice involved a material misrepresentation or concealment of fact).
Nevertheless, having concluded that the Government has not presented substantial evidence of the existence of a scheme to defraud as alleged, the Court notes that Defendants also contend that the Government failed to present sufficient evidence of the specific intent to defraud as to any of the Defendants. In order to convict Defendants under the mail fraud statute, the Government is required to prove beyond a reasonable doubt that in devising or participating in the scheme as alleged, Defendants acted with the specific intent to defraud. See Ham, 998 F.2d at 1254 (noting that "the jury must find that a defendant acted with specific intent to defraud"). In this regard, the Government is required to prove that Defendants acted with the specific intent to deprive the Grand Lodge and its members of something of value by deceit or dishonest methods. See Coyle, 943 F.2d at 427 (noting *549 that "the words `to defraud' commonly refer `to wronging one in his property rights by dishonest methods or schemes,' and `usually signify the deprivation of something of value by trick, deceit, chicane or overreaching'") (internal quotation and citation omitted).
In this case, the Government's theory appeared to be that Defendants devised a scheme to defraud the Grand Lodge and its members, by crafting an insurance program that would benefit the Grand Lodge financially. As repeatedly argued by the Government, the ultimate object of the scheme was to inure funds to the Grand Lodge in the form of a $15,000 death benefit. In this regard, the Government contends that Defendants sought to deprive the Grand Lodge of the money that was used to supplement the insured members' premium payments, thereby ensuring the maintenance of the policy, so that in the event of the death of a member with a $25,000 policy, the Grand Lodge would gain a $15,000 death benefit. However, Defendants contend that the only evidence with regard to intent, is that of the Defendants' intent to create an insurance program that would inure to the benefit, and not the deprivation, of the Grand Lodge and its members. In this regard, the evidence presented established that Defendant Chambers initiated the Program with the aid of Defendant Souder and the support of Defendant Elliott, for the purpose of supplementing the Grand Lodge's benevolence program to provide a greater death benefit to each eligible member and to ultimately provide a death benefit for those members who otherwise were ineligible to participate in the benevolence program. The evidence is that Defendant Chambers intended that any residuals, cash values, or death benefits flowing from the insurance policies would be paid to the Grand Lodge to support the insurance program (i.e. the premiums paid out by the Grand Lodge), and for other Grand Lodge expenditures in support of the Grand Lodge. The Government presented no evidence that any one of the Defendants used or intended to use the funds coming back to the Grand Lodge in any manner other than for the benefit of the Grand Lodge or its members. The only evidence upon which the Government could rely to show an intent to defraud would be inferences that a jury could draw based upon purported misrepresentations or omissions that might suggest that Defendants were acting with the intent to deceive or cheat the Grand Lodge and the members out of their money or property. However, as noted above, the Government failed to present substantial evidence, or any evidence in that regard, of any material misrepresentation or omission with regard to the Program upon which to base such an inference. See Grow, 394 F.2d at 199. The Court finds that since the evidence presented established that Defendants created the Program for the benefit of the Grand Lodge and its members in an effort to increase the value of the benevolence program for the sake of the Grand Lodge and its members, and not to deprive the Grand Lodge and its members of anything of value, there was no evidence presented that the Defendants acted with the specific intent to defraud. See Coyle, 943 F.2d at 427 (noting that to defraud means to wrong one in his property rights and usually signifies the deprivation of something of value). Therefore, in viewing the evidence presented in the case, even taken in the light most favorable to the Government, the record does not contain substantial evidence to support a jury finding that any of the Defendants acted with the specific intent to defraud the Grand Lodge and its members of something of value by deceit or dishonest methods. Having found that the Government has not presented substantial evidence as to the existence of a scheme or artifice to defraud, *550 nor of the specific intent to defraud as to any of the Defendants, the Court concludes that there is insufficient evidence in the record to sustain or support a conviction against the Defendants in case number 1:08CR136.
ii. Case 1:08CR275
With respect to case number 1:08CR275, the indictment alleges that in addition to the scheme or artifice to defraud the Grand Lodge and its members of money or property, as set out in 1:08CR136, the Defendants were also charged with "honest services" mail fraud in violation of 18 U.S.C. §§ 1341 and 1346.[7] The indictment charges that the scheme or artifice to defraud also sought to deprive the Grand Lodge and its members of the honest services of Defendant Chambers and Defendant Elliott, in the performance of acts related to their service as elected and salaried employees of the Grand Lodge, and the right of the Grand Lodge and its members to have the business of the Grand Lodge conducted honestly. In assessing whether there was substantial evidence in the record to support each of the essential elements of the offense of "honest services" mail fraud for which the Defendants have been convicted, the Court notes that in addition to the essential elements of mail fraud as discussed above, "honest services" mail fraud also requires the Government to prove elements that specifically relate to the deprivation of honest services.
In addition to proving the essential elements of mail fraud, that is, the existence of a scheme or artifice to defraud, the specific intent to defraud, and the use of the mails in execution thereof, in order to convict Defendants of "honest services" mail fraud, the Government "must prove that the employee intended to breach a fiduciary duty, and that the employee foresaw or reasonably should have foreseen that his employer might suffer an economic harm as a result of the breach." United States v. Vinyard, 266 F.3d 320, 327 (4th Cir.2001) (quoting United States v. Frost, 125 F.3d 346, 368 (6th Cir.1997)). "Federal law governs the existence of fiduciary duty under the mail fraud statute. It is axiomatic that an employee has a fiduciary duty to protect the property of his employer." Frost, 125 F.3d at 366. Moreover, every employee has the fiduciary duty to provide honest and faithful services to his employer. See Vinyard, 266 F.3d at 326; United States v. Bereano, 1998 WL 553445, at *5 (4th Cir. Aug. 28, 1998). With respect to economic harm, the "test neither requires an actual economic loss nor an intent to economically harm the employer." Vinyard, 266 F.3d at 329. Rather, "[u]nder this test, the employee need only intend to breach his fiduciary duty and reasonably foresee that the breach would create `an identifiable economic risk' for the employer." Id. (citing United States v. Lemire, 720 F.2d 1327, 1337 (D.C.Cir.1983) ("There must be a failure to disclose something which in the knowledge or contemplation of the employee poses an independent business risk to the employer.")). Finally, "[w]hether the risk materializes or not is irrelevant; the point is that the employee has no right to endanger the employer's financial health or jeopardize the employer's long-term prospects through self-dealing." Id. In this regard, the Court must, in addition to the other essential elements of mail fraud, assess whether there is sufficient evidence for the jury to find that either Defendant Chambers or Defendant Elliott breached his fiduciary duty to the Grand Lodge, and that either could reasonably foresee that the breach would create an identifiable *551 economic risk to the Grand Lodge. Moreover, with regard to Defendant Souder, the Court must assess whether there is sufficient evidence for the jury to find that Defendant Souder knowingly and willingly aided and participated in any breach of fiduciary duty by Defendant Chambers or Defendant Elliott, and that Defendant Souder could reasonably foresee that the breach would create an economic risk to the Grand Lodge.
With respect to their Rule 29 Motion as to case number 1:08CR275, Defendants renew their contention that the Government has failed to produce substantial evidence of the existence of a scheme or artifice to defraud, or of the specific intent to defraud as to any of the Defendants. The Government, however, contends that there is substantial evidence in the record that Defendants devised and participated in a scheme or artifice to defraud the Grand Lodge and its members by concealing information about the Program, and that by their deceit, Defendants deprived the Lodge and its members of the honest services of Defendants Chambers and Elliott.
At the outset, the Court notes that the Government was required to present substantial evidence as to the existence of a scheme or artifice to defraud and the specific intent to defraud regardless of whether the object of the scheme or artifice to defraud is money or property, or honest services. The Court further notes that the Government has alleged the same scheme or artifice to defraud in case number 1:08CR275 as it has in case number 1:08CR136, that is, a scheme or artifice to defraud the Grand Lodge and its members by creating a life insurance program that would provide members with a $10,000 death benefit, while concealing from the members that some would be eligible and insured for $25,000 split benefit policies with the Grand Lodge set to receive a $15,000 death benefit from the policy. In this regard, the Court has already determined that with respect to case number 1:08CR136, the Government has not presented substantial evidence as to the existence of a scheme or artifice to defraud, nor of the specific intent to defraud as to any of the Defendants. Because the schemes as alleged in both indictments are the same, and since the Court has determined that the Government has failed to present substantial evidence as to the existence of a scheme or artifice to defraud, or of the specific intent to defraud as to any of the Defendants, the Court concludes that there is insufficient evidence to sustain a conviction against Defendants in case number 1:08CR275 as to the "honest services" mail fraud charges. Having concluded that there is insufficient evidence to support a conviction against the Defendants for "honest services" mail fraud because the Government has failed to present substantial evidence as to the underlying scheme or artifice to defraud, the Court will nevertheless address the parties contentions as they specifically relate to the "honest services" mail fraud charge.
Defendants contend that there is insufficient evidence to support a jury finding that Defendants Chambers or Elliott breached any fiduciary duty to the Grand Lodge and its members in its use of Grand Lodge funds for the Program, or that Defendant Souder aided and abetted the same. The Government, however, contends that there is substantial evidence in the record that Defendants Chambers and Elliott breached their fiduciary duty to the Grand Lodge and its members when they used general operating funds, over and above the $3.00 per week originally pledged by the Grand Lodge, and benevolence funds to pay premiums for insured members in the Program. With respect to the purported misuse of Grand Lodge *552 funds, the Government has generally alleged that Defendants Chambers and Elliott were acting without the consent of the membership. The evidence presented at trial by both the current leadership of the Masons, that is, Grand Master Milton Fitch, and that of Defendant Chambers, who was Grand Master during the relevant time period, was that the Grand Master is the Grand Lodge when the Grand Lodge is not in session. The evidence established that this designation meant that when the membership is not meeting in its annual Grand Lodge session, the Grand Master has all the decision-making capacity and authority as would the entire membership while in the Grand Lodge session, including the decision to expend Grand Lodge finances. In addition, during Defendant Chambers' tenure, the Grand Master was permitted to expend any amount of money without the approval of the Grand Lodge or other member of the leadership. Although Grand Master Fitch offered his opinion that benevolent funds should be held in trust and used only for the purpose of payment to a member's named beneficiary upon his death, the testimony of Defendant Chambers as well as that of other witnesses for the Government, was that benevolent funds had routinely been used in the past by the Grand Lodge for purposes other than to pay death benefits. The Court further notes from the evidence that no formal action was taken to separate benevolence funds or to place them in a separate trust-type account until 2004, during Grand Master Fitch's term of office. As to the status of Grand Lodge funds during the time period when the Program was in place, Postal Inspector Christopher Davis testified that after review of the Grand Lodge bank records, there was only one general operating account, and that there was no separate benevolence account. The Government's theory of a scheme to defraud is based in large measure on its reliance on the fact disclosed by Grand Master Fitch that when he assumed the office as Grand Master in October 2003, the "account" for benevolent funds was empty. The Government would attribute this to the fact that checks signed by Defendants Chambers and Elliott were drawn on the Grand Lodge's general operating account to pay for premiums that were sent to American Heritage for policies issued under the Program.
In viewing the evidence in the light most favorable to the Government, the Court finds that it is reasonable to infer from the evidence that general operating funds and benevolent funds were placed in a common account and used to pay premiums for insured members participating in the Program from the Grand Lodge's general operating account. The Court further finds that based on the evidence, Defendant Chambers, as Grand Master, had the authority, acting as the Grand Lodge when it was not in session, to direct funds from the general operating account to make payments for the premiums of the insured members participating in the Program, even without the consent of the entire membership. While the Government suggests that to do so renders participation in the Program non-voluntary, in that non-insured member's benevolence funds were used to pay premiums for insured members, the Court finds that there was no such evidence presented as to any formal restriction placed on the use of benevolence funds, and that the formal designation of benevolence funds as "trust" funds did not occur until 2004. Thus, the Court finds that the record does not contain substantial evidence that in authorizing or making payment of premiums for insured members in the Program to American Heritage, Defendants Chambers and Elliott misused Grand Lodge funds, breached nor intended to breach, their fiduciary duty to the Grand Lodge. The Court further *553 finds that since the record does not contain substantial evidence of a breach of fiduciary duty on the part of Defendants Chambers or Elliott, Defendant Souder could not have aided and abetted any purported breach, and therefore the Government has failed to present substantial evidence that Defendant Souder aided and abetted any breach of fiduciary duty. Therefore, the Court concludes that considering the evidence in the light most favorable to the Government, there is insufficient evidence in the record to support a jury finding to sustain Defendants' convictions of "honest services" mail fraud.
Having so concluded, the Court nevertheless notes that with respect to Defendant Chambers, the Government presented evidence of nine payments in the form of personal checks and wire transfers from Defendant Wilcher to Defendant Chambers that were transferred during the period when the Program was in effect, presumably as evidence of kickbacks received in breach of Defendant Chambers' fiduciary duty to the Grand Lodge. With regard to one check for $3,500, the evidence established from Defendant Chambers' testimony is that the check was a repayment of a loan made to Defendant Wilcher for expenses related to the Program. With regard to the remaining eight payments, Defendant Chambers testified that the payments were for consulting services that he provided to Defendant Wilcher and the Wilcher Group for business activities related to the United Holiness Church, and unrelated to the Grand Lodge insurance Program. The Government, in turn, presented no further evidence to establish that the payments to Defendant Chambers were kickbacks. Specifically, there is no evidence that payments from Defendant Wilcher influenced Defendant Chambers' decisions with regard to the selection of Atlanta Life General Agency to administer the Program, nor with his decisions regarding the development or implementation of the Program. See, e.g., United States v. Mauney, 129 Fed.Appx. 770, 775-776 (4th Cir.2005) (employee's receipt of kickbacks affected price employer paid to vendors); see also Federal Jury Practice and Instructions, 5th Ed., § 47.03 ("A kickback includes any kind of undisclosed payment or reward to an employee for dealing in the course of employment with the person making the payment so that the employee's personal financial interest interferes with the employee's duty to secure the most favorable bargain for the employer."). In this regard, the Court finds that the record does not contain substantial evidence to support a jury finding that Defendant Chambers breached, or intended to breach, his fiduciary duty to the Grand Lodge by accepting purported kickbacks from Defendant Wilcher.[8]
Notwithstanding the Government's failure to present sufficient evidence of a breach of fiduciary duty on the *554 part of the Defendants, even if the Government had presented sufficient evidence thereof, the Government was still required to also present substantial evidence that Defendants foresaw or reasonably should have foreseen that some economic harm would befall the Grand Lodge due to the alleged breach. In this case, the evidence shows that the premium amounts for the policies could only be determined after the potential insured member filled out the application and, if applicable, their health condition was assessed for the appropriate coverage. The evidence also established that the premium amounts for the older members (over 55 years) and those with health impairments were much more than the premiums for the younger, healthier members. Based on an average age of the membership of 55 years, Atlanta Life initially calculated that premiums would average $420.00 to $430.00 per year. With the insured member contributing $22.00 per month, or $264.00 per year, and the Grand Lodge contributing $3.00 per week, or $156.00 per year, the Grand Lodge expected that the Program would be cost-efficient. Moreover, the Program was set up to operate with the Grand Lodge paying varying proportions of the premiums for the three types of policies offered, with the expectation that the Grand Lodge would receive returns in the form of residuals, accumulated cash values, and death benefits of $15,000 from the $25,000 policies, to reinvest into the Program in order to make it financially self-sufficient. While it was communicated to Defendant Chambers that there was a risk that the $10,000 graded death benefit policies issued by Presidential Life might be more costly than $420.00 per year, the testimony from Jayne Silven was that if the Program went forward as expected in terms of the numbers of age-diverse applicants, the Program would have been very profitable for American Heritage and successful for the Grand Lodge with respect to their anticipated return on investment. However, in fact, what occurred was that more of the older members with health issues, who would be covered by higher premium policies, applied for policies, than the younger or healthier members who would be covered by policies with lower premium payments and $25,000 policies with a potential $15,000 in death benefits going to the Grand Lodge. As such, the resulting costs caused the Program to be increasingly non-profitable for American Heritage, and expensive for the Grand Lodge, which is what neither American Heritage nor the Grand Lodge expected to occur.
In this regard, the Court finds that based on the evidence, Defendants Chambers and Souder believed from the outset that the Program was going to be financially successful for the Grand Lodge, and that their belief was reasonable in light of the facts presented. Thus, the Court finds that they did not foresee an economic harm to the Grand Lodge. The Court further finds that based on the evidence, no reasonable inference can be drawn from the evidence presented that Defendants reasonably should have foreseen that as a result of using Grand Lodge funds to pay premiums, the Grand Lodge would suffer an identifiable economic harm. See Vinyard, 266 F.3d at 329 (noting that the employee must "reasonably foresee that the breach would create `an identifiable economic risk' for the employer"). The Government, however, contends that the premium payments required for the insurance Program depleted the Grand Lodge's general operating account, which thereby caused the Grand Lodge to have to borrow money in October 2002 and April 2003. However, the evidence established that it was a necessary and regular occurrence for the Grand Lodge to take out loans during the "lean period" between October and May to support the general operation of the Grand Lodge due to members and *555 local lodges not sufficiently or timely paying their annual dues and assessments. Nevertheless, although an actual loss is not required, the Government still failed to present substantial evidence of an intent by the Defendants to breach a fiduciary duty and that they could reasonably foresee that such a breach, if any existed, would result in economic harm to the Grand Lodge. See Id. at 329 (noting that "[w]hether the risk materializes or not is irrelevant; the point is that the employee has no right to endanger the employer's financial health or jeopardize the employer's long-term prospects through self-dealing"). Having found that the Government has failed to present substantial evidence of the existence of a scheme or artifice to defraud, or that any of the Defendants acted with the specific intent to defraud, or that Defendants Chambers or Elliott breached their fiduciary duty to the Grand Lodge, and that either Defendant Chambers or Elliott foresaw or reasonably should have foreseen that the Grand Lodge would suffer some economic harm as a result of any purported breach, or that Defendant Souder aided and abetted the same, the Court concludes that there is insufficient evidence to sustain the convictions against the Defendants for "honest services" mail fraud in case number 1:08CR275. Therefore, having concluded that there is insufficient evidence to support the verdicts in case number 1:08CR136 or in case number 1:08CR275, the Court will grant each Defendants' Rule 29 Motion for acquittal.
III. RULE 33 MOTION
Having determined that Defendants' Rule 29 Motion for acquittal will be granted, the Court notes that pursuant to Rule 29, "[i]f the court enters a judgement of acquittal after a guilty verdict, the court must also conditionally determine whether any motion for a new trial should be granted if the judgment of acquittal is later vacated or reversed." Fed.R.Crim.P. 29(d)(1). In making such a determination, "[t]he court must specify the reasons for that determination." Id. Therefore the Court turns to the Rule 33 standard for a new trial.
A. Legal Standard
Rule 33 provides that "[u]pon the defendant's motion, the court may vacate any judgment and grant a new trial if the interest of justice so requires." Fed. R.Crim.P. 33(a). When the motion attacks the weight of the evidence, the court's authority under Rule 33 is broader than that under Rule 29 such that "[i]n deciding a motion for a new trial, the district court is not constrained by the requirement that it view the evidence in the light most favorable to the government. Thus, it may evaluate the credibility of the witnesses." United States v. Arrington, 757 F.2d 1484, 1485 (4th Cir.1985). However, under this standard, a district court "should exercise its discretion to grant a new trial sparingly, and ... should do so only when the evidence weighs heavily against the verdict." United States v. Perry, 335 F.3d 316, 320 (4th Cir.2003).
B. Analysis
In this case, Defendants contend that a new trial is warranted 1) in the interest of justice, due to the Court's error in failing to give Defendants Chambers and Elliott's jury instructions as to certain aspects of "honest services" mail fraud; and 2) because the verdicts are against the weight of the evidence, particularly as to any proof of criminal intent or criminal conduct. The Court will address each of Defendants' contentions in turn.
Defendants Chambers and Elliott argue that their proposed jury instruction number three titled "Fiduciary and Breach of Fiduciary Duty Defined" *556 should have been accepted and read to the jury because it was fundamental to Defendant Chambers' right to a fair trial and his right to present a defense. The standard of review for jury instructions in this Circuit is whether the jury instructions, in their entirety and as part of the whole trial, "adequately instructed the jury on the elements of the offense and the accused's defenses." United States v. Bostian, 59 F.3d 474, 480 (4th Cir.1995). Moreover, "a defendant is entitled to an instruction as to any recognized defense for which there exists evidence sufficient for a reasonable jury to find in his favor." Mathews v. United States, 485 U.S. 58, 63, 108 S. Ct. 883, 99 L. Ed. 2d 54 (1988).
At the outset, the Court notes that the substance of the instructions given by the Court relating to "fiduciary duty" are substantially similar to those as proposed by Defendants. In this regard, Defendants requested that the Court include the following additional language that was omitted from the Court's instructions: "The issue of whether Marvin D. Chambers, Sr., and Alvin Lewis Elliott had fiduciary duties with the Prince Hall Lodge, and if so, the scope of each individual's fiduciary duty, are facts for you to decide based upon all of the evidence before you regarding the relationship between Marvin D. Chambers, Sr., and Alvin Lewis Elliott and the Prince Hall Lodge." The Court notes, however, that this instruction is not a correct statement of the law. The correct statement of law, which was given by the Court in its instructions with regard to a defendant's fiduciary duty is as follows: "Federal law governs the existence of fiduciary duty under the mail fraud statute. It is axiomatic that an employee has a fiduciary duty to protect the property of his employer." Frost, 125 F.3d at 366. Moreover, every employee has the fiduciary duty to provide honest and faithful services to his employer. See Vinyard, 266 F.3d at 326. In this regard, the Court finds that it did not err in declining to give the requested portion of Defendants' proposed instructions, which was not a correct statement of law. In addition, Defendants' proposed instructions state: "While formal job descriptions assist in determining the nature and scope of fiduciary duties, the day-to-day course of conduct, understanding and agreements between the Prince Hall Lodge and Marvin D. Chambers, Sr. and Alvin Lewis Elliott are also relevant and are before you for consideration. Under Masonic law, a Grand Master and Grand Secretary must both carry out their duties "faithfully."" The Court notes that Defendants' proposed instruction regarding Masonic law and what specific facts the jury may consider in determining whether Defendants breached their fiduciary duty to the Grand Lodge, is not a recognized defense to mail fraud, as suggested by Defendants. See Mathews, 485 U.S. at 63, 108 S. Ct. at 883 (noting that "a defendant is entitled to an instruction as to any recognized defense for which there exists evidence sufficient for a reasonable jury to find in his favor")(emphasis added); see also, United States v. Holland, 2009 WL 1507146, at *11 (W.D.Va. May 29, 2009) (declining to give defendant's proposed instruction because it was not a recognized defense for the offense charged). The Court finds that any concerns with regard to what the jury may consider were adequately addressed by the Court's instructions defining "evidence" and "fiduciary duty." The Court further finds that the jury was given careful and adequate instruction as to each element of the offense of mail fraud, as well as to the distinct elements of "honest services" mail fraud, and instructed to make its decision based on the evidence presented at trial, and as such, the jury was adequately instructed. See Bostian, 59 F.3d at 480 (denying defendant's objection to the lower court's instructions where the court "adequately *557 instructed the jury on the elements of the offense" in view of the jury instructions "in their entirety and as part of the whole trial"). Therefore, having concluded that the jury instructions were adequate in this case, the Court declines to grant Defendants a new trial in the interest of justice on the ground that the Court erred in instructing the jury as to "honest services" mail fraud.
However, Defendants further contend that a new trial is warranted because the verdicts returned in this case are against the weight of the evidence, particularly as to the Government's proof of criminal intent or criminal conduct. As demonstrated in the preceding discussions in which the Court granted Defendants' Motion for acquittal, the Court found that, even viewing the evidence in the light most favorable to the Government, the Government did not present substantial evidence as to the existence of a scheme or artifice to defraud, nor of the specific intent to defraud as to any of the Defendants, and therefore, there was insufficient evidence to sustain convictions against the Defendants in either case number 1:08CR136 or 1:08CR275. In considering the Court's previous findings, and in light of the Rule 33 standard, wherein the Court must determine whether the evidence weighs heavily against the verdicts, the Court finds that the failure of the Government to present evidence to carry its burden of proof beyond a reasonable doubt is even more apparent.
In this case, as noted above, the Government failed to present substantial evidence, or any evidence for that matter, of any material misrepresentation or omission made by Defendants with regard to or in furtherance of a scheme to defraud the Grand Lodge and its members by concealing the fact that the Grand Lodge would receive a $15,000 death benefit from any insured member's $25,000 policy. Specifically, the Government did not present evidence of any material misrepresentation, and its evidence with regard to material omissions was based on the recollections of Masons who attended meetings regarding the North Carolina Mason Supplemental Insurance Program, some of whom testified to having knowledge of the very facts that the Government contends the Defendants materially omitted or concealed. Moreover, the Defendants offered the testimony of four other Masons that also testified to having knowledge of the facts that the Government contends the Defendants concealed from the membership. In addition, the evidence established that the existence of the $25,000 policies and the split benefit provision was communicated to the agents in a distribution of the Letter of Intent sent by American Heritage to Atlanta Life, and in the training session held on June 10, 2002. Most importantly, the Court finds that there was no evidence that any of the Defendants directed any of the agents or the district deputies or other Masons charged with disseminating information about the Program to conceal information about the insurance Program. It is also significant that the Riders that were attached to the $25,000 policies and signed by the applicants were further acknowledgment that insurance coverage in the amount of $25,000 was the minimum policy amount that such a Rider could be attached to. Such a disclosure provided further evidence that Defendants did not devise a scheme to conceal the $25,000 policies with the split death benefit provision.
Furthermore, with respect to the required specific intent element, the Court finds that the Government presented no evidence to support a jury finding that any of the Defendants acted with the specific intent to defraud the Grand Lodge and its members of something of value. The evidence presented demonstrated that the intent *558 of the Defendants was to provide a benevolent death benefit of $10,000 to all of the Grand Lodge members at a minimal cost through an insurance program that would ultimately provide financial returns to the Grand Lodge. As envisioned, this would have allowed the Grand Lodge to support the increased benefit to the members at a minimal cost. From the inception of the Program, the intent of the Defendants was that the Grand Lodge would receive a "return" on its investment, that is, its portion of the premiums it paid for each insured member, in the form of residuals and accumulated cash value. This very fact was communicated at the first meeting on May 25, 2002, where the Program was introduced to the members. Merely because the Program evolved with the addition of the American Heritage $25,000 policies to include another form of "return" to the Grand Lodge, that is, the $15,000 death benefit, was not evidence that the Grand Lodge or Defendants Chambers or Elliot intended to deceive or cheat the Grand Lodge members in order to gain something of value for the Grand Lodge. Specifically, the Court finds that there was no evidence of a specific intent to defraud with respect to the Defendants in this case. Therefore, in addition to the reasons stated for granting Defendants' Motion for acquittal, the Court finds that the lack of evidence in this case against Defendants as to the existence of a scheme or artifice to defraud and the lack of evidence of a specific intent to defraud by Defendants, weighs heavily against the jury's return of guilty verdicts against the Defendants. See Perry, 335 F.3d at 320 (finding that a court should only grant a new trial when "the evidence weighs heavily against the verdict"). Having concluded that the evidence as presented or the lack thereof weights heavily against the guilty verdicts in this case, the Court will conditionally grant Defendants' Rule 33 Motion for a New Trial.
IV. CONCLUSION
For the reasons set forth herein, accordingly IT IS THEREFORE ORDERED that Defendants' Joint Motion for Judgment of Acquittal [1:08CR136: Doc. #88; 1:08CR275: Doc. #112] is hereby GRANTED. IT IS FURTHER ORDERED that Defendants are hereby ACQUITTED of all counts in the Indictments in case number 1:08CR136 and 1:08CR275.
IT IS FURTHER ORDERED that, conditionally, Defendants' Motion for a New Trial [1:08CR136: Doc. #88; 1:08CR275: Doc. #112] is hereby GRANTED.
An Order and Judgment consistent with this Memorandum Opinion will be filed contemporaneously herewith.
NOTES
[1] The mail fraud statute, 18 U.S.C. § 1341, provides in part that: "[w]hoever, having devised or intending to devise any scheme or artifice to defraud . . . and for the purpose of executing such scheme or artifice or attempting to do so . . . places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service" shall be guilty of an offense against the United States.
[2] The evidence established that the insured member would pay monthly "dues" to the Grand Lodge, and the Grand Lodge would then supplement the dues in an amount equal to the total premium payment for the insured member, and then the Grand Lodge would forward the premium payment to the insurance company.
[3] The Court notes that the Government did not argue nor present any evidence with respect to any of the Defendants having any fiduciary, statutory, or other independent legal duty to hold another Grand Lodge meeting to discuss the new addition to the Program.
[4] The Court notes that one such witness, Jackie Robinson, testified that although the Rider was dated on the same day he completed his application, the signature on the Rider was not his own. It is also noteworthy for the Court that although the Riders were a part of the complete application package, it was the Defendants and not the Government that disclosed their existence.
[5] The Government argued at trial that Defendant Chambers made omissions of material fact when he met with the Eastern Stars organization on June 15, 2002 to address them about participation in the Program, in that he failed to disclose to them the $25,000 split benefit policy wherein the Grand Lodge would receive a $15,000 death benefit. However, the Government has presented no evidence with regard to the date that Defendant Chambers became aware of the approval of the $25,000 program such that his failure to mention it to the Eastern Stars at their meeting was a knowing omission of material fact. In this regard, the evidence does not support a finding that Defendant Chambers made an omission of material fact at the Eastern Stars meeting as alleged by the Government.
[6] In addition, the evidence shows that in January 2002, 280 of the $25,000 American Heritage policies had to be amended to reflect the Grand Lodge as the primary beneficiary receiving 60 percent of the death benefit, and the insured's designee as the irrevocable primary beneficiary receiving 40 percent. This change was prompted by an email from Gloria Giles, director of training at Atlanta Life, who testified that these policies contained errors because they did not correctly indicate the split benefit. Jayne Silven of American Heritage testified that any such errors would have been on the applications when they arrived at the insurance company, indicating that either the insurance agents or Atlanta Life were "erroneously" completing the applications. However, according to Postal Inspector Chris Davis' testimony regarding the spreadsheet he created of the insurance policies recovered from the Grand Lodge, as well as the spreadsheet itself (Government's Exhibit No. 74), there were approximately sixty $25,000 American Heritage policies that did not require an amendment even though they had the same or similar application dates as those policies that required the amendment. This would indicate that because some of the applications arrived at American Heritage with the "correct" 60/40 split benefit information and were not amended, there was no attempt to conceal the existence of $25,000 policies in which it was apparently known that the Grand Lodge would receive some benefit. The amendments that were made were more appropriately attributed to errors, as testified to by Jane Silven, to poor execution of the application by insurance agents or Atlanta Life.
[7] Title 18 U.S.C. § 1346 provides that "a scheme or artifice to defraud includes a scheme or artifice to deprive another of the intangible right of honest services."
[8] The Court notes that Defendants contend that the jury verdict as to Defendant Chambers is inconsistent with that returned against Defendant Wilcher because Defendant Wilcher was acquitted on all charges under this indictment, and that the only evidence tying him to any scheme to deprive the Grand Lodge of the honest services of Defendants Chambers or Elliott are the checks made payable to Defendant Chambers. While Defendants concede that a purported inconsistent verdict cannot form the sole basis for a judgment of acquittal under Rule 23, Defendant contends that inconsistent verdicts suggest insufficient evidence to support a conviction of honest services mail fraud based on a kickback theory. Nevertheless, since the Court has concluded that there is insufficient evidence to support the jury verdict as to Defendant Chambers based upon his purported receipt of kickbacks, the Court need not address the purported inconsistency of verdicts identified by Defendants in ruling on Defendants' Rule 29 Motion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2252252/ | 702 F. Supp. 355 (1988)
COLES EXPRESS, Plaintiff,
v.
NEW ENGLAND TEAMSTERS AND TRUCKING INDUSTRY PENSION FUND, et al., Defendants.
Civ. No. 86-0313-B.
United States District Court, D. Maine.
December 19, 1988.
*356 Lewis V. Vafiades, Bangor, Me., Jeffrey H. Lerer, Les Schneider, Atlanta, Ga., for plaintiff.
William R. Laney, Skowhegan, Me., Gabriel O. Dumont, Jr., Grady, Dumont & Dwyer, Boston, Mass., for defendants.
MEMORANDUM OPINION AND ORDER ACCEPTING MAGISTRATE'S RECOMMENDED DISPOSITION
CYR, Chief Judge.
Coles Express requests a judicial declaration as to the date as of which it will be deemed to have withdrawn from the New England Teamsters and Trucking Industry Pension Fund [the Fund] established pursuant to the Employee Retirement Income Security Act of 1974 [ERISA], as amended by the Multiemployer Pension Plan Amendments Act of 1980 [the MPPAA]. The United States Magistrate recommends that summary judgment be granted in favor of the Fund on the ground that the MPPAA prescribes arbitration as a prerequisite to judicial proceedings in these circumstances. Coles Express objects to the recommended disposition, and the Fund moves to dismiss the objections as untimely.[1]
I. Timeliness of Objections
On March 14, 1988, the Magistrate's recommended disposition was mailed to Coles Express. Ltr. to Counsel of Record from Clerk of Court (3/14/88 Civ. 86-0313-B). See Fed.R.Civ.P. 5(b). Coles Express filed its objections on March 30, 1988.
"Within ten days after being served with a copy, any party may serve and file written objections to such proposed findings and recommendations as provided by rules of court." 28 U.S.C. § 636(b)(1) (Supp. *357 1988). See also Fed.R.Civ.P. 72(b); Thomas v. Arn, 474 U.S. 140, 106 S. Ct. 466, 88 L. Ed. 2d 435 (1985); United States v. Vega, 678 F.2d 376 (1st Cir.1982); Park Motor Mart, Inc. v. Ford Motor Co., 616 F.2d 603 (1st Cir.1980). Local Rule 28 states that "[f]ailure to file a timely objection shall constitute a waiver of the right to de novo review by the district court ..." Local Rule 28 (D.Me. Dec. 14, 1987).
Federal Rule of Civil Procedure 6(a) excludes intervening Saturdays, Sundays and legal holidays from the computation of a filing period of less than 11 days. Fed.R. Civ.P. 6(a). The Fund contends, without citation to authority,[2] that the allowed filing period in this case expired 13 days after the date of mailing, see Fed.R.Civ.P. 5(b), the recommended disposition; ten days are allowed under rule 72(b), see Fed.R.Civ.P. 72(b), and three additional days are permitted by rule 6(e) following mail service.
The interpretation proposed by the Fund contravenes the intent of the Federal Rules. Rule 6(e) plainly provides for the enlargement of a ten-day filing period so as to accommodate the increased delay almost certain to occur when service is made by mail. See, e.g., Tushner, 829 F.2d at 855; Grandison v. Moore, 786 F.2d 146, 149 (3d Cir.1986) (Even the "3-day period allowed for mail delivery reflects an optimism about postal service that regrettably no longer accords with our experience," id.) Whereas the application of the rule urged by the Fund would have the perverse effect of allowing the same,[3] or not as much,[4] time to file objections to a recommended disposition served by mail as in the case of service made in hand.
The basic time period for filing objections to a magistrate's recommended disposition is ten days, Fed.R.Civ.P. 72(b), excluding the date of mailing and all intervening Saturdays, Sundays and legal holidays, Fed.R. Civ.P. 6(a). Three additional days are provided to a party who is served by mail. Fed.R.Civ.P. 6(e). Coles Express was allowed 17 calendar days after March 14 within which to file its objections to the recommended disposition, and it did so in timely fashion on March 30, 1988.
II. ERISA Arbitration
The central issue in the case concerns the correct amount of the "withdrawal liability" to be assessed against Coles Express under the MPPAA, on account of the termination of its participation in a multiemployer pension plan sponsored by the Fund. Crucial to the issue is a determination of the date as of which Coles Express effectively withdrew from plan participation. The Fund asserts that withdrawal occurred in September 1982. Coles Express maintains that it was engaged in a labor dispute until March 14, 1984 and that no withdrawal liability attached until that date.
A. Facts and Procedural History
Pursuant to a collective bargaining agreement with Locals 25, 340, 437 and 464 of the International Brotherhood of Teamsters, *358 Chauffeurs, Warehousemen and Helpers of America [the Union], Coles Express made contributions to the Fund for the benefit of Coles Express employees. The collective bargaining agreement expired on March 31, 1982, but Coles Express continued to make contributions to the Fund. During September of 1982, the Union struck Coles Express. On January 10, 1983, the Fund advised that it would no longer accept further contributions from Coles Express. On March 14, 1984, the National Labor Relations Board certified that the employees of Coles Express had voted to decertify the Union as their collective bargaining representative.
On March 16, 1984, the Fund served Coles Express with a "Demand for Payment of Withdrawal Liability." Coles Express requested that the Fund review its computations, for the reason that the Fund had applied an incorrect withdrawal date. Dissatisfied with the Fund's review, Coles Express requested arbitration of the dispute, and an arbitration hearing was scheduled for October 20-22, 1986. Before the arbitration hearing commenced, Coles Express requested, without objection by the Fund, that arbitration be stayed pending judicial determination as to whether the entire dispute had to be submitted to arbitration in the first instance.
On October 27, 1986, Coles Express commenced the present action for declaratory relief. Coles Express argues that the effective date of its plan participation withdrawal is purely a matter of statutory construction, which does not require arbitration, and that the court should resolve the issue before arbitration proceeds on other issues.[5] The Fund moved for summary judgment on the ground that Coles Express was required to submit the plan withdrawal issue to arbitration in the first instance. At the same time, the Fund counterclaimed for recovery of interim monthly payments of $42,753.
The United States Magistrate recommended that summary judgment be granted in favor of the Fund on the issue of arbitration, but that summary judgment be denied on its counterclaim. No objection having been filed to the recommended disposition of the motion for summary judgment on the Fund's counterclaim, the court undertakes de novo review of the recommendation that summary judgment be granted in favor of the Fund on the arbitration issue.
B. Statutory Framework
Plan withdrawal liability is governed by ERISA, as amended by the MPPAA. ERISA represents a "comprehensive attempt to regulate the funding, management, operation, benefit provisions, and insurance of private employer pension plans." Debreceni v. The Outlet Co., 784 F.2d 13, 15 (1st Cir.1986). See generally Laborers Health and Welfare Trust Fund v. Advanced Lightweight Concrete Co., 484 U.S. 539, 108 S. Ct. 830, 98 L. Ed. 2d 936 (1988); Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717, 720-25, 104 S. Ct. 2709, 2713-16, 81 L. Ed. 2d 601 (1984) (R.A. Gray & Co.). ERISA represents a congressional response to "the `great personal tragedy' suffered by employees whose vested benefits are not paid when pension plans are terminated." Nachman Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359, 374, 100 S. Ct. 1723, 1733, 64 L. Ed. 2d 354 (1980) (quoting Senator Bentsen, 3 Leg.Hist. 4793).
The MPPAA was enacted in 1980 to strengthen the protection of employers who remain in multiemployer plans. Debreceni, 784 F.2d at 16. Under the MPPAA, employers who withdraw from a multiemployer plan are liable for their proportionate shares of the unfunded vested benefits.[6] The MPPAA sets up a complex system for determining when withdrawal liability attaches. Complete withdrawal occurs *359 when an employer "permanently ceases to have an obligation to contribute under the plan" or "permanently ceases all covered operations under the plan." 29 U.S.C. § 1383(a)(1)-(2) (1982). The obligation to contribute may arise under one or more collective bargaining agreements or "as a result of a duty under applicable labor-management relations law." 29 U.S.C. § 1392(a)(1)-(2) (1982). Under the MPPAA, certain transactions exempt an employer from withdrawal liability. See, e.g., 29 U.S. C. §§ 1384, 1385(b)(2)(B), 1390, 1398 (1982). An employer is not considered "to have withdrawn from a plan solely because ... [it] suspends contributions under the plan during a labor dispute involving its employees." 29 U.S.C. § 1398(2) (1982) (emphasis added).
The MPPAA prescribes elaborate dispute resolution procedures in the "recognition `that the employer and the Plan may not always be in agreement as to the computation of withdrawal liability.'" Mason and Dixon Tank Lines v. Central States, Southeast and Southwest Areas Pension Fund, 852 F.2d 156, 159 (6th Cir.1988) (quoting Marvin Hayes Lines v. Central States, Southeast and Southwest Areas Pension Fund, 814 F.2d 297, 299 (6th Cir. 1987)). Upon withdrawal by an employer, the plan sponsor must calculate the amount of the withdrawal liability, establish a schedule for payment, notify the employer and demand payment according to the schedule. 29 U.S.C. §§ 1382, 1391, 1399(b)(1) (1982). If the employer disputes the determinations made by the plan sponsor, the first recourse is to ask the plan sponsor, within 90 days of service of the payment demand, to review its determinations. 29 U.S.C. § 1399(b)(2)(A) (1982). If the employer continues to dispute a determination after review, either the employer or the sponsor may initiate arbitration proceedings.[7] 29 U.S.C. § 1401 (1982).
Section 1401 provides in pertinent parts: "Any dispute between an employer and the plan sponsor of a multiemployer plan concerning a determination made under sections 1381 through 1399 of this title shall be resolved through arbitration," 29 U.S.C. § 1401(a)(1) (1982) (emphasis added); "[u]pon completion of the arbitration proceedings. ... any party thereto may bring an action, no later than 30 days after issuance of the arbitrator's award, in an appropriate United States district court," 29 U.S.C. § 1401(b)(2) (1982); and the party contesting the sponsor's determination under section 1381 through 1399 bears the burden of proving by a preponderance of the evidence that the determination was unreasonable or clearly erroneous, 29 U.S. C. § 1401(a)(3)(A) (1982).
C. Discussion
Coles Express advances two theories in support of its contention that the present dispute need not be submitted to arbitration in the first instance.[8]
First, Coles Express contends that judicial interpretation of the "labor dispute" exception in section 1398 falls outside the arbitration provision of section 1401. Section 1398 provides:
Notwithstanding any other provision of this part, [§§ 1381-1405] an employer shall not be considered to have withdrawn from a plan solely because
....
(2) an employer suspends contributions under the plan during a labor dispute involving its employees.
29 U.S.C. § 1398(2) (1982). Section 1401(a)(1) states:
*360 (1) Any dispute between an employer and the plan sponsor of a multiemployer plan concerning a determination made under sections 1381 through 1399 of this title shall be resolved through arbitration. Either party may initiate the arbitration proceeding within a 60-day period after the earlier of
(A) the date of notification to the employer under section 1399(b)(2)(B) of this title, or
(b) 120 days after the date of the employer's request under section 1399(b)(2)(A) of this title.
The parties may jointly initiate arbitration within the 180-day period after the date of the plan sponsor's demand under section 1399(b)(1) of this title.
29 U.S.C. § 1401(a)(1) (1982).
Coles Express argues that the initial phrase of section 1395 "Notwithstanding any other provision of this part" demonstrates that "matters under Section 1398 are to be treated differently than matters governed by other sections in that part [§§ 1381-1405] including Section 1401." Plaintiff's Memorandum in Support of the Objections to Magistrate Hornby's Recommended Decision, at 6. No authority is cited, and the court has discovered no support for this view.
As Coles Express concedes, no part of a statute should be read in isolation. Section 1398(2) must be harmonized with the foregoing sections governing the calculation of withdrawal liability and identifying certain employer actions which constitute withdrawal from a multiemployer plan, as well as the consequences of withdrawal. See, e.g., 29 U.S.C. §§ 1381, 1383-1385, 1388, 1390, 1391. Section 1398(2) merely states an exception to those earlier sections as concerns when plan withdrawal liability attaches. In other words, "notwithstanding any other provision of ... part [1,]" section 1398 identifies circumstances in which an employer's failure to make contributions to a plan shall not be deemed a withdrawal from the plan; subsection 1398(2), the so-called "labor dispute" exception, being one example.
Section 1401 does not prescribe, or otherwise directly address, the criteria for ascertaining withdrawal liability. Rather, section 1401 prescribes a forum for resolving certain disputes: "[a]ny dispute between an employer and the plan sponsor of a multiemployer plan concerning a determination made under sections 1381 through 1399 of this title shall [first] be resolved through arbitration," 29 U.S.C. § 1401(a)(1) (1982) (emphasis added). The language of section 1401 could not be more straightforward. After a review by the plan sponsor, any continuing dispute concerning the interaction of section 1383 (governing complete withdrawal) and section 1398 (the "labor dispute" exception) must be resolved through arbitration. Teamsters Pension Trust Fund v. Allyn Transportation Co., 832 F.2d 502, 505-06 (9th Cir.1987) (Allyn Transportation) ("Congress clearly intended exactly what [its] words import."); Sheet Metal Workers' Pension Fund, Local Union No. 85 v. Advanced Metal and Welding Corp., 643 F. Supp. 1201, 1205 n. 5 (N.D.Ga.1986) ("Understandably, defendant does not argue that the present dispute [concerning the interpretation of section 1398] does not fall within the arbitration provisions of the MPPAA.... [t]here is no question that it is a dispute within the ambit of 29 U.S.C. § 1401.")
Next, Coles Express contends that even though disputes concerning withdrawal liability during a labor dispute generally are subject to arbitration under the MPPAA, the present issue is purely a matter of statutory construction; therefore, arbitration is not required.
It is well settled under the MPPAA that "arbitration is not a jurisdictional prerequisite for district court review." Mason and Dixon Tank Lines, 852 F.2d at 163; I.L.G. W. National Retirement Fund v. Levy Bros. Frocks, 846 F.2d 879, 886 (2d Cir. 1988) (Levy Bros. Frocks); Robbins v. Admiral Merchants Motor Freight, 846 F.2d 1054, 1056 (7th Cir.1988); Central States, Southeast and Southwest Areas Pension Fund v. T.I.M.E.-D.C., Inc., 826 F.2d 320, 325-28 (5th Cir.1987) (Central States); I.A.M. National Pension Fund Plan A. v. Clinton Engines Corp., 825 F.2d 415, 417 *361 (D.C.Cir.1987) (Clinton Engines). Nonetheless, Congress has mandated that recourse he had first to arbitration, and not to the courts, for resolution of withdrawal liability disputes under sections 1381 through 1399. See, e.g., Mason and Dixon Tank Lines, 852 F.2d at 163; Republic Industries v. Central Pennsylvania Teamsters Pension Fund, 693 F.2d 290, 295 (3d Cir.1982). Arbitration serves as an important component of the MPPAA scheme for safeguarding the viability of multiemployer plans:
Arbitration of withdrawal liability disputes substantially reduces the expenses incurred by multiemployer plans while it bears a burden that would otherwise fall on the federal courts. "[A]rbitration promotes judicial economy and judicial restraint, both because the arbitrator's decision may dispose of the suit, and even if one party appeals the arbitrator's decision, the court will have the benefit of the arbitrator's analysis." Robbins v. Chipman Trucking, Inc., [693 F. Supp. 628] 8 Employee Benefits Cas. (BNA) 1251, 1258 (N.D.Ill.1986) ("Chipman Trucking") [Available on WESTLAW, DCT database].
Flying Tiger Line v. Teamsters Pension Trust Fund, 830 F.2d 1241, 1248 (3d Cir. 1982) (footnote omitted). See also Mason and Dixon Tank Lines, 852 F.2d at 164; Allyn Transportation, 832 F.2d at 505-06; Clinton Engines, 825 F.2d at 427.
As Coles Express points out, the judicial doctrine of exhaustion is not without exceptions. Exhaustion of administrative remedies is not compelled where the policies it was intended to further are not implicated, as where there is no need for the superior expertise of an administrative body, where judicial economy would not be promoted and where the statutory scheme created by Congress would not be ignored. T.I.M.E.-D.C. v. Management-Labor Welfare & Pension Funds, 756 F.2d 939, 944-945 (2d Cir.1985) (Management-Labor Fund) (considering recourse to arbitration under section 1401 of the MPPAA). Cf. Ezratty v. Commonwealth of Puerto Rico, 648 F.2d 770, 774 (1st Cir.1981) (considering exhaustion under the Education for All Handicapped Children Act [the EAHCA]).[9] Thus, exhaustion may not be required where the pursuit of administrative remedies would be futile, Ezratty, 648 F.2d at 774, where a nonjudicial remedy would be inadequate to prevent irreparable injury, T.I.M.E.-D.C., Inc. v. Trucking Employees of North Jersey Welfare Fund, Inc., 560 F. Supp. 294, 302 (E.D.N.Y.1983) (North Jersey Welfare Fund) where the administrative remedy would be void, id., where constitutional issues are involved, id., or where the issue to be resolved constitutes a "pure matter of law as to which specialized administrative understanding plays little role," Ezratty, 648 F.2d at 774. See also North Jersey Welfare Fund, 560 F.Supp. at 302.
The application of the "statutory interpretation" exception under the MPPAA has divided the circuits. See generally Rootberg v. Central States, Southeast and Southwest Areas Pension Fund, 856 F.2d *362 796, 801 (7th Cir.1988) (identifying circuit split but declining to "take sides in the dispute"). A "growing number" of circuits holds that "questions of statutory construction, standing alone, are not exempt from arbitration under the MPPAA." Mason and Dixon Tank Lines, 852 F.2d at 164. See Allyn Transportation, 832 F.2d at 504 ("questions of statutory interpretation are not excepted from arbitration under the MPPAA"); Clinton Engines, 825 F.2d at 418[10] ("it should be beyond cavil that the existence of an issue of statutory interpretation, standing alone, does not justify by-passing arbitration"); Flying Tiger Line, 830 F.2d at 1253-55 (quoting Clinton Engines).[11]
The Second Circuit takes a somewhat different view. See, e.g., Rootberg, 856 F.2d at 801; Management-Labor Fund, 756 F.2d 939. In Management-Labor Fund, it held that section 1401 does not preclude judicial interpretation of the statute in advance of arbitration. The Second Circuit opined that the policies underlying the exhaustion doctrine were not implicated in Management-Labor Fund because (1) there were no issues of fact or of contract interpretation; (2) it was likely that the parties would seek judicial review of the arbitration award; and, most significantly, (3) the particular provision involved, section 1415, was "outside the scope of those issues that Congress directed to the arbitrator," id. at 945.
Two recent decisions narrowly restrict Management-Labor Fund. In Levy Bros. Frocks, noting that Management-Labor Fund was a "rare case," the Second Circuit distinguished it on the ground that "the issues of statutory interpretation raised [in the present case] largely involve interpretations under sections 1381 through 1399, interpretations which we believe Congress envisioned would be made by the arbitrator in the first instance." 846 F.2d at 886.
Later, in Park South Hotel v. New York Hotel Trades Council and Hotel Association of New York City, Inc., Pension Fund, 851 F.2d 578 (2d Cir.) cert. denied, ___ U.S. ___, 109 S. Ct. 493, 102 L. Ed. 2d 530 (1988), the Second Circuit ["lest our decision be read as adopting the district court's rationale on this point," id. at 582] specifically addressed the district court ruling that no arbitration was required where an issue of pure statutory interpretation was presented, see Park South Hotel v. *363 New York Hotel Trades Council, et al., 671 F. Supp. 1000, 1005 n. 8 (S.D.N.Y.1987).
In the present case, we conclude that exhaustion of the arbitration remedy is not required because (1) this case presents no factual issues but only legal questions of statutory interpretation, (2) the parties agreed that arbitration was not required, (3) the suit was filed before the time for invoking arbitration had expired, and (4) judicial economy would not be served by remanding the case at this late stage for arbitration, which almost certainly would be followed by further judicial proceedings. We intimate no view on whether arbitration would be required in a case in which all of these factors were not present, or which involved some of these, and also other factors. Cf. ILGWU Fund (arbitration required) [Levy Bros. Frocks].
851 F.2d at 582.
Although the First Circuit has yet to rule on whether arbitration is mandatory in these circumstances under the MPPAA, Ezratty does indicate, at least in the absence of a legislative mandate of exhaustion of administrative remedies, that a balancing test is to be employed.[12] The District of Columbia, Third, Sixth and Ninth Circuits, on the other hand, have decided that "questions of statutory construction, standing alone, are not exempt from arbitration under the MPPAA," Mason and Dixon Tank Lines, 852 F.2d at 164 (citations omitted). Even applying the case-by-case approach of the Second Circuit, however, this court concludes that the plan withdrawal issue presented here must be resolved, in the first instance, through arbitration.
Congress could not have made itself more clear than it did in its section 1401 mandate that "any dispute" involving sections 1381-1399 "shall" first be resolved by arbitration. There is a "strong presumption that Congress expresses its intent through the language it chooses." INS v. Candoza-Fonseca, 480 U.S. 421, 107 S. Ct. 1207, 1213 n. 12, 94 L. Ed. 2d 434 (1987) (citations omitted); In re Application for Warrant to Seize One 1988 Chevrolet Monte Carlo and One 1987 Chevrolet Camaro, 861 F.2d 307, 309 (1st Cir.1988). Disregarding so clear a congressional mandate also would entail abandonment of the statutory scheme specifically selected by Congress. Accord Dorn's Transportation, 787 F.2d 897; Management Labor Fund, 756 F.2d 939.
Second, pure issues of statutory interpretation are rare in ERISA cases. See Flying Tiger Line, 830 F.2d at 1255; Trustees of the Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) Pension Fund v. Chicago Kansas City Freight Line, 694 F. Supp. 469, 474 (N.D.Ill.1988). It is uncertain whether a factual dispute exists in the present case. Even though Coles Express maintains that there is no dispute about the factual predicate upon which an interpretation of the "labor dispute" exception would be made, *364 there is no stipulation of facts.[13] The facts may prove important in any application of the "labor dispute" exception. For instance, in Bangor-Punta Corp. v. Trustee of New England Teamsters and Trucking Industry Pension Plan, No. 81-1688-2 (D.Mass. Nov. 12, 1986) [1986 WL 13080] (LEXIS, Genfed library, Dist. file), the district court considered the circumstances leading up to the bargaining impasse, and the date on which it occurred, to be important in applying the "labor dispute" exception. See also I.A.M. National Pension Fund C. v. Schulze Tool and Die Co., 564 F. Supp. 1285 (N.D.Cal.1983). Even courts which discount the significance of the date of impasse have considered the particular facts relevant to the bargaining relationship between the parties, facts which this court does not have before it. See, e.g., T.I.M.E.-D.C., Inc. v. New York State Teamsters Conference Pension and Retirement Fund, 580 F. Supp. 621, 623 (N.D. N.Y.), aff'd, 735 F.2d 60 (2d Cir.1984). The statutory language itself indicates that the surrounding facts may be important to the proper application of the "labor dispute" exception. Section 1398 provides that withdrawal shall not occur "solely" because a labor dispute causes a halt in contributions. 29 U.S.C. § 1398 (1982) (emphasis added). It therefore clearly appears that in some unspecified circumstances withdrawal may be found to have occurred even though the parties are engaged in a labor dispute.
Finally, arbitration in these circumstances promotes judicial economy and judicial restraint, two important policies implicated by the arbitration requirement. The risk of duplicative action, which was considered significant in Park South Hotel and Management-Labor Fund, is not implicated in the present case where a full hearing on the merits has not been had at any level. Accord Stockton, 727 F.2d 1204. Instead, judicial intervention prior to arbitration would invite piecemeal litigation, "a burden district courts can ill afford," Chicago Truck Drivers, 694 F.Supp. at 474. As Coles Express concedes, portions of the present litigation would proceed to arbitration even if this court were to determine the withdrawal issue at this juncture. Whereas the entire dispute conceivably could be resolved by arbitration in the first instance. Even if, as Coles Express foresees, the nonprevailing party were to seek judicial review of the arbitrator's decision, the court would have the benefit of the analysis of an arbitrator versed in labor and pension law, a full development of the factual issues, and hence a clearer focus on the remaining legal issues.
Accordingly, the Magistrate's Report and Recommended Decision is ACCEPTED.
It is hereby ORDERED that
1. the motion to dismiss plaintiff's objections to the Magistrate's Report and Recommended Decision is DENIED;
2. the motion to strike plaintiff's reply memorandum is DENIED;
3. Defendants' motion for summary judgment on its counterclaim for interim payments is DENIED;
4. Defendants' motions for summary judgment on the complaint for declaratory relief are GRANTED; and the present action is DISMISSED, without prejudice, for failure to proceed with arbitration in the first instance.
NOTES
[1] The Fund moved to strike the Coles Express reply memorandum on the ground that neither the statute nor the Civil Rules provide for such a pleading. There is no question that a reply memorandum is not a pleading. Nor is there any question that the court may direct, or local rules may prescribe, the filing of reply memoranda in certain circumstances. The reply memorandum comports with Local Rule 19(d) (D.Me. Dec. 14, 1987) in that it is confined strictly to new matters raised in the opposing memorandum. The motion to strike is denied.
[2] Although the issue appears to be one of first impression in the First Circuit, the Ninth Circuit soundly rejected a similar argument in Tushner v. United States District Court, 829 F.2d 853, 855 (9th Cir.1987) (jury demand served by mail) (Kennedy, J.) (citing Nalty v. Nalty Tree Farm, 654 F. Supp. 1315 (S.D.Ala.1987) (objections to magistrate's recommended disposition)). See also Washington Int'l Ins. Co. v. United States, 681 F. Supp. 883, 884 (Ct. Int'l Trade 1988) (construing similar provisions of Rules of U.S. Court of International Trade).
[3] Had Coles Express been served in hand on March 14, 1988, its objections would have been due no later than March 28, 14 calendar days after service of the recommended disposition. Under the Fund's interpretation, although three additional days are to be allowed after service by mail, see Fed.R.Civ.P. 6(e), intervening Saturdays and Sundays would be counted, which would mean that objections would have been due 13 calendar days after mailing the recommended disposition (on March 14), but for the fact that the last day for filing would have fallen on a Sunday, and rule 6(a) would extend the filing period through the next business day, see Fed.R.Civ.P. 6(a). Therefore, filing would have been required by March 28, just as would have been the case had service been effected in hand.
[4] For example, if the recommended disposition had been mailed on Thursday, March 10, objections would have been due by March 23 (i.e. 13 calendar days after mailing), under the Fund's interpretation; whereas objections to a recommended disposition served in hand on March 10 would have been due not later than March 24 (i.e. 14 calendar days after the date of service in hand).
[5] The Coles Express letter requesting that the Fund review its liability computations identifies seven other issues in contention, including the valuation of Fund assets and the actuarial assumptions used by the Fund in computing liability. Affidavit of Gabriel O. Dumont.
[6] Prior to 1980, an employer was subject to withdrawal liability only if the pension plan failed within five years of withdrawal. See R.A. Gray & Co., 467 U.S. at 721, 104 S. Ct. at 2713.
[7] If neither party seeks arbitration, the amounts determined by the plan sponsor "shall be due and owing on the schedule set forth" in the demand for payment, and the plan sponsor may bring an action in state or federal court to recover payment. 29 U.S.C. § 1401(b)(1) (1982).
[8] Coles Express further argues, without citation to authority, that the Fund waived its right to object to judicial resolution of the arbitration issue by failing to object to a stay of the arbitration proceedings and by failing to file a motion to compel arbitration. But the Fund consistently has challenged the appropriateness of judicial action in the absence of arbitration, thus preserving its claimed right to arbitration in the first instance.
[9] The EAHCA is part of a "comprehensive system of procedural safeguards designed to ensure parental participation in decisions concerning education of their disabled children and to provide administrative and judicial review of any decision with which the parents disagree." Honig v. Doe, 484 U.S. 305, 108 S. Ct. 592, 596, 98 L. Ed. 2d 686 (1988). Section 615 prescribes a "carefully tailored" mechanism for dispute resolution. Smith v. Robertson, 468 U.S. 992, 1009, 104 S. Ct. 3457, 3467, 82 L. Ed. 2d 746 (1984). First, the parents are entitled to a due process hearing at the administrative level. The hearing may be at a local or intermediate level, with a right of appeal to the state educational agency, or at the state level, depending on how the federal aid is paid to the state. 20 U.S.C. § 1415(a)-(c). "Any party aggrieved by the findings [at the final administrative review] shall have the right to bring a civil action ... in any state court of competent jurisdiction or in a district court of the United States without regard to the amount in controversy." 20 U.S.C. § 1415(e)(1)-(2) (1982). The Supreme Court interprets this section to mean that "judicial review is normally not available until all administrative proceedings are completed, but ... parents may by-pass the administrative process where exhaustion would be futile or inadequate." Honig, 108 S.Ct. at 606; Ezratty, 648 F.2d at 774. See also note 12 infra (further discussion of exhaustion doctrine as developed in Ezratty). Unlike the MPPAA, however, the EAHCA contains no explicit mandate that nonjudicial remedies be exhausted prior to judicial review.
[10] In I.A.M. National Pension Fund Benefit Plan C. v. Stockton TRI Industries, 727 F.2d 1204 (D.C.Cir.1984), the District of Columbia Circuit held that the district court properly had entertained a prearbitration dispute involving pure issues of law. Id. at 1207. More recently, Stockton has been limited essentially to its facts. See Clinton Engines, 825 F.2d at 417-19; Grand Union Co. v. Food Employers Labor Relations Ass'n, 808 F.2d 66, 69-70 (D.C.Cir.1987). Stockton was an "exceptional case," limited to the "particular circumstances" at issue, Clinton Engines, 825 F.2d at 417-418; namely, that the employer originally had sought arbitration but was "rebuffed by the plan sponsor," id., and the issue of arbitration was raised by the sponsor for the first time on appeal, after the sponsor had lost in the district court. Id. In those unique circumstances, where all issues had already received a full hearing before the district court, the District of Columbia Circuit held that judicial economy would not be served by beginning the whole process over again with arbitration.
[11] But see Dorn's Transportation Inc. v. Teamsters Pension Trust Fund, 787 F.2d 897 (3d Cir. 1986), in which pure issues of law were presented and the Third Circuit did not compel prior recourse to arbitration. Dorn's Transportation "did not purport to set forth a black letter rule; [the court] merely found no abuse of discretion in the district court's decision to reach the merits." Carl Colteryahn Dairy Inc. v. Western Pennsylvania Teamsters and Employers Pension Fund, 847 F.2d 113, 123 n. 17 (3d Cir.), petition for cert. filed, 57 U.S.L.W. 3349 (1988) (No. 88-731); Dorn's Transportation was limited to its specific facts in Flying Tiger Line. Colteryahn Dairy, 847 F.2d at 123 n. 17; Flying Tiger Line, 830 F.2d at 1254. In Dorn's Transportation, the court had considered the "change in corporate structure" exception, which applies where the "employer ceases to exist by reason of a change in corporate structure described in section 1362(d)," 29 U.S.C. § 1398(1)(A) (1982). In limiting Dorn's Transportation, the Third Circuit pointed out that permitting the case to proceed prior to arbitration "did not contravene the clear mandate of MPPAA section 1401 to arbitrate disputes that arise under section 1381-1399," Flying Tiger Line, 830 F.2d at 1254, because the central issue to be resolved concerned the interpretation of section 1362(d), a section not included within the arbitration mandate of section 1401.
[12] Although Ezratty ruled that exhaustion of administrative remedies was appropriate in the first instance, the First Circuit "believe[d]" that the judicially-developed exhaustion doctrine most aptly governed the case. Ezratty, 648 F.2d at 774 n. 4. (Three years later the Supreme Court noted that in certain circumstances the exhaustion of administrative remedies would not be required. Smith, 468 U.S. at 1014 n. 17, 104 S. Ct. at 3469 n. 17 (under the EAHCA)). Ezratty did not state hard and fast rules for determining when exhaustion is required. Rather, the First Circuit identified certain circumstances "in which application of the exhaustion doctrine will not serve [the] interests [it was intended to protect]." Ezratty, 648 F.2d at 774. The court held that "[w]hen the various interests served pull in the direction of exhaustion, it is required, but where they pull in different directions, analysis of the particular case at hand is necessary." Id. at 775 (citing K. Davis, Administrative Law of the Seventies 446 (1976)). The present case in some measure implicates countervailing interests. On the one hand, the requested declaratory relief necessitates a statutory interpretation as to which the specialized expertise of an arbitrator is neither essential nor likely to be particularly helpful. On the other hand, the factual record upon which the judicial exercise in statutory interpretation would be undertaken has not been established, and it may well be that an arbitrator's experience and expertise in such matters would be important in the fact-finding process. Most importantly, of course, the EAHCA contains no such explicit congressional mandate of exhaustion as is found in the MPPAA. Compare 20 U.S.C. § 1415(e)(2) with 29 U.S.C. § 1401(a).
[13] The Fund's statement of undisputed facts fails to cite to the record as required by Local Rule 19(b)(1).
(1) In addition to the material required to be filed by this rule, upon any motion for summary judgment there shall be annexed to the motion a separate, short and concise statement of the material facts, supported by appropriate record citations, as to which the moving party contends there is no genuine issue to be tried.
Local Rule 19(b)(1) (D.Me. Feb. 12, 1985). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2252797/ | 732 F. Supp. 20 (1990)
UNITED STATES of America, Plaintiff,
v.
Bernard BOOZER, "John Doe" and "Mary Roe" and others, such names being fictitious, it being the intention of the plaintiff to designate any occupants of the mortgaged premises who may have any interest in same, Defendants.
No. 88-CV-830.
United States District Court, N.D. New York.
March 7, 1990.
*21 Frederick J. Scullin, U.S. Atty., N.D. N.Y., Syracuse, N.Y. (William H. Pease, Asst. U.S. Atty., of counsel), for U.S.
Bernard Boozer, Mexico, N.Y., pro se.
MEMORANDUM-DECISION & ORDER
MUNSON, District Judge.
Before the court at this time are defendant's motion to dismiss and the United States' motion for a protective order and for summary judgment. The court heard argument on February 16, 1990 in Syracuse, New York. For the reasons stated in this opinion the court denies defendant's motion to dismiss and grants the United States' motion for summary judgment.[1]
The basic facts in this case are not in dispute. The United States seeks to recover for defendant's default on two promissory notes which the defendant signed with the Department of Housing and Urban Development (HUD). The first note was executed on November 7, 1980 in the amount of $28,100. The second note was executed on March 3, 1981 in the amount of $45,300. Both loans were to be paid in regular monthly installments and contained acceleration clauses which permitted the government, at its option, to demand payment of the note's total unpaid principal if any installment was unpaid at the time the next installment became due. Plaintiff's Memorandum of Law, Exhibit A & B, Doc. 20. The first loan payment on the November 7, 1980 loan was due December 1, 1980. The first loan payment on the second loan was due April 1, 1981. Defendant admits that he never made any of the required payments under either loan.[2]
On March 20, 1984, HUD sent defendant a letter informing him that it was accelerating on the first loan for non-payment. On August 1, 1985, HUD sent defendant a similar letter with regard to the second loan. Defendant contends that he never received either letter since both were sent to the mortgaged property rather than to his legal residence.
The government initiated the present action on August 4, 1988. Subsequently, the court permitted the government to amend its complaint in an Order filed May 12, 1989. See Doc. 8. The amended complaint only seeks personal judgment against defendant. The original complaint also sought foreclosure on the mortgaged properties but this claim was dropped when subsequent to the initiation of this action the City of Syracuse foreclosed on the *22 property for failure to pay taxes. See Affidavit of William H. Pease ¶ 6, Doc. 6.
The central issue raised by the motions before the court is whether this action was timely commenced under the applicable statute of limitations. Both parties agree that a six year statute of limitations applies to the present action. This limitation period is found in 28 U.S.C. § 2415(a) which provides in relevant part that "every action for money damages brought by the United States or an officer or agency thereof which is founded upon any contract express or implied in law or fact, shall be barred unless the complaint is filed within six years after the right of action accrues. ..." The legal dispute in this case involves the question of when the government's right of action accrued. The government contends that the statute of limitations began to run on the unpaid future installments when HUD notified defendant by letter that it was accelerating the loans, which as noted above was March 20, 1984 and August 1, 1985 respectively. However, the government asserts that since each installment payment constitutes a separate contract, with regard to all installments which were unpaid as of March 20, 1984 and August 1, 1985, it can recover only those installments which came due six years prior to the commencement of this action on August 4, 1988. Accordingly, the government concedes that it may not seek recovery on any unpaid installments that became due prior to August 4, 1982. By contrast, defendant contends that the government's right of action accrued upon defendant's initial default on each loan. Since defendant failed to make any payments on either loan, he argues that the statute of limitations began running on December 1, 1980 with regard to the first loan and April 1, 1981 with regard to the second loan. Consequently, defendant argues that the government's entire action is time barred under 28 U.S.C. § 2415(a).
This court's review of the case law reveals that the government's right of action accrues in a case such as this when the government first makes a demand for payment in full. In United States v. Alessi, 599 F.2d 513 (2d Cir.1979) (per curiam), the Second Circuit held that if the terms of the agreement provide that the principal does not become due until the government chooses to accelerate, then under 28 U.S.C. § 2415(a) the government's right of action accrues not at the time of default but when the government exercises its right to accelerate. The court further noted that, "Such acceleration must consist of either notice of election to the mortgagor or of some unequivocal overt act (such as initiating a foreclosure suit) manifesting an election in such a way as to entitle the mortgagor, if he desires, to discharge the principal of the mortgage." (emphasis in original); see also United States v. Lowy, 703 F. Supp. 1040, 1043 (E.D.N.Y.1989) (holding that the government's "demand letters triggered the running of the statute").
In the present case, as noted, the government sent defendant letters informing him that it was accelerating the total unpaid amount of each loan. Although defendant claims that he never received any notice of the government's acceleration because the letters were sent to the mortgaged property rather than his legal residence, it is clear that at least with respect to the 1984 letter the notice was sent to the address which was listed as defendant's residence in the mortgage document, namely, Paradice Road, Central Square, New York 13036.[3]See Complaint, Exhibit 2, Doc. 1. Even if this was no longer defendant's residence, defendant can not insulate himself from liability simply by changing residences without notifying the government. Moreover, even assuming that the government did not sufficiently notify defendant of its election to accelerate prior to commencing this action, this does not help defendant. In Alessi the court held that the initiation of suit constituted a notice of election to accelerate which acted to trigger *23 the statute of limitations. Accordingly, whether the government manifested its election to accelerate in 1984 and 1985 or at the time it initiated this suit, under the reasoning of the court's decision in Alessi the government commenced this suit within six years of the accrual of its right of action.
Defendant also argues that it would be unfair to allow the government to recover in this action when it did not act promptly upon defendant's default in accelerating on the loans and then commencing this action. The court notes that recent decisions from other jurisdictions add the requirement that for the cause of action to accrue on the first demand for full payment, the demand for payment must be made within a reasonable time. See United States v. Rollinson, 866 F.2d 1463, 1466 (D.C.Cir.), cert. denied, ___ U.S. ___, 110 S. Ct. 71, 107 L. Ed. 2d 37 (1989): Curry v. United States, 679 F. Supp. 966, 970 (N.D. Cal.1987); but see United States v. Lowy, 703 F. Supp. 1040, 1043 (E.D.N.Y.1989) (refusing to follow the rule that the first demand come within a reasonable time). This requirement appears to have been added so that the lender would not be in a position to inordinately postpone operation of the statute of limitations.[4]
Even if this court were to inject a reasonableness requirement into the Alessi rule, this court is unwilling to find that the government's delay either in providing notice of acceleration or in commencing this action was unreasonable under the circumstances. Although the stated facts in Alessi are not entirely clear, it appears that the government in that case gave notice of its acceleration at least five and a half years after the initial default. See United States v. Alessi, 599 F.2d at 515 n. 4. In the present case, the government gave notice of its acceleration approximately three years and four months after defendant's default on the first loan and four years and four months after defendant's default on the second loan. Furthermore, because both notes provided in express terms that the "[f]ailure of the Government to exercise [the acceleration] option shall not constitute a waiver of such default," defendant's subjective belief, or hope, that the government no longer intended to seek repayment on the loans as a result of its delay, and that he might thereby avoid his debt was unjustified. Finally, since defendant has not articulated any tangible prejudice which he has suffered as a result of the government's delay,[5] to permit defendant to shirk his financial obligation would be to provide him with a windfall at the expense of the public fisc. The court refuses to sanction such a result.
Accordingly, the court grants the government's motion for summary judgment and denies defendant's motion to dismiss. The government is directed to submit a proposed order setting forth the total amount claimed in light of the foregoing decision. Such order should include a statement indicating how the amount claimed was calculated and a direction to the clerk of the court to enter judgment in accordance with the terms of the order.
It is So Ordered.
NOTES
[1] Given this disposition the court need not address the government's motion for a protective order.
[2] The government in paragraph 10 of its complaint asserts that defendant failed to pay "the installment due September 1, 1982 on Loan No. 1 and the installment due September 1, 1984 on Loan No. 2." See also Government's Memorandum of Law, at 2. Since the initial installments on both loans as noted in the above text were due prior to these dates, paragraph 10 seems to suggest that defendant made payments on the prior owing installments. The government at oral argument on November 17, 1989, however, clarified that it is in fact claiming that defendant never made any payment under either loan.
[3] The second letter was sent to 200-04 Kirk Avenue Syracuse, New York 13205 which was the address of the mortgaged property contained in the second mortgage document. It is unclear why this was done since the second mortgage document listed defendant's residence as Paradice Road, Central Square, New York 13036. See Complaint, Exhibit 4, Doc. 1.
[4] The requirement that the government exercise its option to accelerate within a reasonable time or otherwise relinquish its claim seems to indirectly subject the government to defenses that the Second Circuit has held are generally not applicable against the United States. For example, the defense of laches is not available against the United States, United States v. Summerlin, 310 U.S. 414, 416, 60 S. Ct. 1019, 1020, 84 L. Ed. 1283 (1940); United States v. RePass, 688 F.2d 154, 158 (2d Cir.1982), and the doctrine of equitable estoppel is not applicable against the United States "except in the most serious of circumstances." United States v. RePass, 688 F.2d at 158.
[5] At oral argument, defendant reluctantly admitted that even if the government had provided earlier notice of its intent to accelerate on the loans, his financial position would not have permitted him to make full, or any, payment. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2252818/ | 732 F. Supp. 1024 (1990)
VALU ENGINEERING, INC., a California corporation, Plaintiff,
v.
NOLU PLASTICS, INC., a Pennsylvania corporation, Defendant.
No. C-89-2715 EFL.
United States District Court, N.D. California.
February 2, 1990.[*]
*1025 Edward M. Prince, Richard L. Kirkpatrick, Cushman, Darby & Cushman, Washington, D.C., for movant defendant.
Poms Smith Lande & Rose, Orange, Cal., for non-moving party plaintiff.
LYNCH, District Judge.
This is an action for trademark infringement and unfair competition by plaintiff Valu Engineering (hereinafter "Valu") against defendant Nolu Plastics (hereinafter "Nolu") based on Nolu's alleged copying of Valu's "unique" plastic guide rails for conveyor belts. Nolu has filed a motion with the Court seeking a preliminary injunction against Valu. This motion revolves around allegedly false statements of fact made by Valu and its sales representatives in their marketing efforts about Nolu's guide rails. In support of this motion, Nolu relies on Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), which prohibits false or misleading representations of fact regarding the product of the person making the statement or another person's product in promotion or advertising.
Nolu complains that Valu's sales representatives, at the direction of the highest levels of Valu's management, have been informing Nolu's potential customers that Nolu's guide rails are not manufactured from Ultra High Molecular Weight Polyethylene (UHMW plastic), but rather a cheaper and inferior substance. In addition, Nolu objects to the practice of Valu's sales representatives of displaying misshapen samples of Nolu's guide rails after subjecting the samples to high temperatures. Nolu asserts that these are material misrepresentations of fact and accordingly seeks to enjoin Valu from continuing these practices.
In contrast, Valu contends that the distortion which takes place in the Nolu product is a result of its allegedly inferior chemical composition. Valu relies on several scientific tests of the chemical composition of Nolu's guide rails in support of this contention and its marketing practices.
In order to prevail upon a motion for a preliminary injunction, Nolu must show either: 1) a likelihood of success on the merits and the possibility of irreparable injury, or 2) the existence of serious questions going to the merits and the balance of hardships tipping in its favor. Apple Computer, Inc. v. Formula International Inc., 725 F.2d 521, 523 (9th Cir.1984). Nolu correctly points out that in cases of false comparative advertising, irreparable harm is presumed. See McNeilab, Inc. v. American Home Products Corp., 848 F.2d 34, 38 *1026 (2d Cir.1988); U-Haul International, Inc. v. Jartran, Inc., 522 F. Supp. 1238 (D.Ariz. 1981), aff'd, 681 F.2d 1159 (9th Cir.1982). Therefore, if Nolu can demonstrate likelihood of success, it will have met its burden under the requirements of Apple Computer.
To succeed on the merits of a false advertising claim under Section 43(a) of the Lanham Act, Nolu must show that 1) Valu has made false representations about its own or Nolu's product,[1] 2) these representations deceive or are likely to deceive a substantial segment of the intended audience (potential customers of Valu and Nolu), and 3) the representations are material in that they have caused injury, or are likely to do so. U-Haul, 522 F.Supp. at 1243.
With regard to the false representations, it seems clear from a letter from Valu's management to its sales force and deposition testimony of Stuart Ledingham, the owner of Valu, that the sales force is making misstatements to Nolu's potential customers either about Nolu's or Valu's products. On the one hand, the letter instructs the salespeople to tell customers that Nolu's guide rails are not UHMW plastic, while Valu's are "100% pure UHMW." Ledingham admits, however, that even Valu's guide rails include some amount of rust inhibitor, and are thus not "100% pure." It is impossible for Valu to claim that its guide rails are pure UHMW and Nolu's are not when both contain some amount of additives.
Also, Ledingham himself sent a package containing the misshapen samples of Nolu's guide rails which had been distorted after being subject to extremely high temperatures. He instructed his sales force to show these to customers in order to demonstrate that Nolu's guide rails were not UHMW plastic. Regardless of whether this statement is scientifically justified,[2] the practice of using the distorted samples to prove the point that Nolu's products are not what Nolu claims them to be constitutes a misrepresentation, as Nolu does not contend that its products can withstand such temperatures, nor that they should ever be used under such high temperature conditions. Indeed, Nolu's advertisements explicitly state that the maximum temperature range of its products is 210 degrees Fahrenheit.
Both of these practices recommended by the management of Valu to its sales force are also deceptive or likely to be so. Especially when viewed in conjunction, the statement that Nolu's product is not UHMW plastic and the distorted sample would tend to indicate that Nolu's guide rails are not effective for the job which they are intended. This representation would tend to deceive a consumer in that the distortion of Nolu's product occurred under conditions in which it is not intended for use and that such distortion does not necessarily indicate that Nolu's product is not composed of UHMW plastic.
Nolu has also satisfied the Court that these practices by Valu have caused Nolu and will continue to cause Nolu injury. Nolu has submitted documentary evidence which demonstrates the damaging effect of Valu's sales practices on the willingness of Nolu's potential customers to purchase Nolu's products.
Therefore, the Court finds that Nolu has met its burden of showing reasonable likelihood of success on the merits under Section 43(a). Since irreparability of harm is presumed in false comparative advertising cases, the requested preliminary injunction will issue. The injunction shall take the following form:
1) Valu's management shall inform its sales force by letter, a copy of which shall be lodged with the Court within fourteen (14) days of the filing of this order, that no salesperson shall refer to *1027 the chemical composition of Nolu's guide rails in sales presentations. Such letter shall also instruct Valu's sales force to refrain from use of the distorted Nolu sample in sales presentations. Any reference to the chemical composition of Nolu's guide rails or the distorted samples by Valu's sales force in sales presentations shall constitute a violation of this injunction.
2) Valu shall not refer to the chemical composition of Nolu's guide rails in any advertising or promotional literature or materials. Neither shall Valu utilize the Nolu samples distorted by exposure to extreme temperatures for advertising or promotional purposes.
This injunction shall remain in force during the pendency of this litigation or until a further order by this Court.
IT IS SO ORDERED.
NOTES
[*] Editor's note: Sections II and III were deleted from publication at the request of the court.
[1] Section 43(a) was amended in 1988 to prohibit not only false statements about the products of the person making the statement, but also about others' products.
[2] Nolu has submitted several persuasive affidavits from neutral parties suggesting that Valu's "Hot Plate Test" of subjecting Nolu's products to temperatures exceeding 400 degrees Fahrenheit does not conclusively show that they are not composed of UHMW plastic. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2252857/ | 732 F. Supp. 766 (1990)
Stuart M. BERGER, M.D., Plaintiff,
v.
KING WORLD PRODUCTIONS, INC., Charles Lachman, Jane or John Doe, and Inside Edition, Inc., a/k/a Inside Edition, Defendants.
No. 90-CV-70109-DT.
United States District Court, E.D. Michigan, S.D.
March 21, 1990.
*767 Anthony Mucciante and Russell Ethridge, Moll, Desenberg & Bayer, Detroit, Mich., for plaintiff.
Edward Rosenthal and Russell Smith, Frankfurt, Garbus, Klein & Selz, New York City, and Steven Cochell, Detroit, Mich., for defendants.
AMENDED ORDER OF TRANSFER TO THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
HACKETT, District Judge.
Plaintiff Stuart M. Berger, M.D., a New York resident, is a physician with a nationally-known diet program and medical practice. He has substantial business and corporate interests in Michigan and his diet product is manufactured here. Defendant Inside Edition, Inc., a/k/a Inside Edition, is a profit-making New York corporation which produces and broadcasts a nationally-syndicated television program entitled "Inside Edition." It is televised regularly in Michigan and has Michigan sponsors. Defendant King World Productions, Inc., also a profit-making New York corporation, owns Inside Edition. Defendant Charles Lachman, a New York resident, is a producer of Inside Edition and defendant Amy Wasserstrom (designated as "Jane Doe" in the amended complaint) is an Inside Edition journalist and producer.
This suit arises from defendants' investigation into plaintiff's medical practice. In the course of this investigation defendants sent Wasserstrom on at least three occasions to plaintiff's New York office, where she gained entry claiming to be a patient. During these office visits, Wasserstrom caused videotapes of the office visit to be made surreptitiously. Defendants then informed plaintiff that they intended to broadcast the videotapes as part of their report on plaintiff's medical practice. Plaintiff objected and initiated this suit in the United States District Court for the Eastern District of Michigan.
Pursuant to 28 U.S.C. § 1404(a) defendants have filed a motion for transfer of venue to the United States District Court for the Southern District of New York.
Procedural Background
A.
Plaintiff initiated this suit on January 12, 1990, by filing his complaint and a motion for a temporary restraining order (TRO). The complaint and the motion for a temporary restraining order named only King Features Services, Inc. as defendant and alleged that defendant's acts constituted (1) violations of 18 U.S.C. § 2511(d), which prohibits the interception of a communication even when a party consents, if the interception is for the purpose of committing a crime or a tort; (2) invasion of privacy; and, (3) fraud. Plaintiff requested (1) that the court restrain defendant from broadcasting or otherwise using the information *768 contained in the tapes; (2) that the court restrain defendant from conducting further illegal activities; and, (3) an award of $10,000,000.00 in damages. In his motion for a temporary restraining order plaintiff sought to restrain use of the video and/or audio tapes that defendant had produced.
Plaintiff amended his complaint on January 18, 1990. The amended complaint dropped King Features Services, Inc. as defendant and instead named the following parties: King World Productions, Inc., Charles Lachman, Jane or John Doe,[1] and Inside Edition, Inc., a/k/a Inside Edition. It also contained a fourth count against defendantstrespass.
On January 18, 1990, a New York law firm filed a brief in opposition to the temporary restraining order purportedly on behalf of its client Inside Edition. New York counsel did not state in those pleadings whether or not it represented the other named defendants, nor has it to date filed any notice of appearance with this court. Nevertheless, on January 23, 1990, New York counsel filed a motion for transfer of venue (which is the subject of this order) on behalf of King World Productions, Inc., Charles Lachman, and Inside Edition, Inc. but not on behalf of Jane or John Doe. In defendants' brief filed with the court in reply to its motion to transfer venue, however, the New York firm referred to itself as attorney for "defendants," and those pleadings were captioned with the same names as all defendants in the amended complaint. Again, in defendants' answer to the amended complaint filed on February 26, 1990, New York counsel referred to itself as attorney for all defendants named in the amended complaint, and spelled out the names of all defendantsKing World Productions, Inc., Charles Lachman, Jane or John Doe, and Inside Edition, Inc., a/k/a Inside Edition.[2]
B.
The amended complaint alleges that this court has jurisdiction pursuant to 28 U.S.C. § 1331 (federal question). In their answer, defendants merely use boiler-plate language to challenge jurisdiction. Their pleadings never specify why this court lacks jurisdiction nor did counsel seriously challenge jurisdiction in any appearances before this court. Relying on plaintiff's allegation that defendants violated a federal wiretap statute, 18 U.S.C. § 2511, the court concludes that jurisdiction is proper in a federal district court.
There is no dispute that the two corporate defendants are properly before this court. See 28 U.S.C.A. § 1391(c) and its commentary.[3] However, the court surmises from the pleadings and documents before it that plaintiff did not effect proper service on the individually named defendants. Plaintiff attempted service on the individual defendants pursuant to Fed.R. Civ.P. 4(c)(2)(C)(ii), which permits a plaintiff to mail a copy of the summons and the complaint to each defendant with an acknowledgment for service that substantially conforms to form 18-A noted in Fed.R. Civ.Proc. The rule specifically mandates that the defendant return the acknowledgment for service to the sender in order for service to be complete. The record indicates this was not done in this case. While plaintiff apparently mailed copies of the summons and complaint to the individually-named defendants, no return of the acknowledgments for service are a part of *769 the court record. Green post office receipts acknowledging delivery of certified mail to defendants will not satisfy the requirements of acknowledgment for service under Rule 4(c)(2)(C)(ii). Monk v. Sturm, No. 89-2283, 1990 WL 5123 (E.D.Pa., January 24, 1990) (available on LEXIS 1990 U.S. Dist. 767). Even if plaintiff's mailings were an attempt to effect service pursuant to Rule 4(c)(2)(C)(i), which permits a plaintiff to serve a defendant pursuant to the law of the state in which the district court sits, plaintiff's attempt to serve the individual defendants was ineffective.[4]
The Federal Law of Venue
The court must address plaintiff's service of process on all four defendants and New York counsel's ambiguous representation of them because the availability of service of process on all defendants must be considered in determining appropriate venue.
The court draws two conclusions from the actions of the parties: (1) by amending his complaint to add the individually-named defendants, plaintiff clearly has indicated that he intends that those persons be parties to this litigation; and, (2) New York counsel's filing of pleadings in the court, including its answer filed in response to plaintiff's amended complaint seeking injunctive relief, in which they represent themselves also as attorneys for the individually-named defendants, and in which they challenge jurisdiction and venue, constitutes an appearance by them on behalf of those defendants.[5] The court thus proceeds to its examination of defendants' motion for transfer of venue, recognizing that the parties anticipate all four defendants will be parties to this action.
Both the complaint and the amended complaint state that venue is proper in this court pursuant to 28 U.S.C. § 1391. This provides little guidance to the court. Section 1391 is entitled "[v]enue generally" and, except as otherwise provided by law, this section is the basis for venue in any federal case. Plaintiff has not specified which of the six subsections of § 1391 he is relying upon to place venue in this court. Rather than responding to plaintiff's pleadings, defendants seek a transfer of venue pursuant to 28 U.S.C. § 1404(a). The court accordingly proceeds with its own analysis to address proper venue in this case.
The record evidences the fact that all parties in this case reside in New York. Venue is thus determined under 28 U.S.C. § 1391(b), which states in pertinent part that "[a] civil action wherein jurisdiction is not founded solely on diversity of citizenship may be brought only in the judicial district where all defendants reside, or in which the claim arose, except as otherwise provided by law." The court is unaware of any statutory provision that makes an exception for venue in a suit that arises pursuant to 18 U.S.C. § 2511.
Based on the record at this time, the court must find that venue in this matter is proper only in New York, which is where all defendants reside and where the claim arose.
Further, based upon the above determination, the court need not consider the reasons raised by the parties in the motion to transfer venue. Accordingly,
IT IS ORDERED that the above-captioned matter hereby is transferred to the United States District Court for the Southern District of New York.
NOTES
[1] The parties agree that Jane Doe is in fact Amy Wasserstrom.
[2] On January 30, 1990, a Detroit law firm filed an appearance simply on behalf of "defendants." The caption on that notice of appearance included all defendants named in the amended complaint.
[3] Subdivision (c) now provides that the corporation is to be deemed a resident of any judicial district in which "it is subject to personal jurisdiction at the time the action is commenced". This means that anything that would make the corporation amenable to jurisdiction in that district, or permit extraterritorial service of the court's summons under any of several well known tests, would ipso facto make that district a proper venue as well.
The corporation's "doing business" is one such test. A showing that the corporation is regularly doing business in the district subjects it to the personal jurisdiction of the courts there and hence makes that district a proper venue in an action against the corporation.
[4] M.C.L.A. § 600.1912 states that "[s]ervice of process may be made upon an individual by leaving a summons and a copy of the complaint with the defendant personally." Rule 2.105(A)(2) of the Michigan Rules of Court, like Fed.R.Civ.P. 4, permits service by mail, but only if "the defendant acknowledges receipt of the mail. A copy of the return receipt signed by the defendant must be attached to proof showing services under subrule (A)(2)" (emphasis added). No such proof was attached in the matter at hand.
[5] Defendants' answer employs general and conclusory language to challenge proper venue. An objection to venue, however, must be raised with specificity. Wright, Miller & Cooper, 15 Federal Practice and Procedure: Jurisdiction 2d § 3826. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2325543/ | 532 F. Supp. 2d 144 (2008)
Stephen J. LINDSEY and Patricia L. Lindsey, Plaintiffs,
v.
UNITED STATES of America, Defendant.
Civil Action No. 05-1761 (RBW).
United States District Court, District of Columbia.
February 1, 2008.
*145 Stephen J. Lindsey, Garden Grive, CA, pro se.
Patricia L. Lindsey, Garden Grove, CA, pro Se.
Pat S. Genis U.S. Department of Justice, Washington, DC, for Defendant,
MEMORANDUM OPINION
REGGIE B. WALTON, District Judge.
Steven J. Lindsey and Patricia L. Lindsey, the plaintiffs in this civil suit, allege that the United States government, through the Internal Revenue, Service (the "IRS"), "recklessly, intentionally[,] or by reason of negligence disregarded and continue to disregard provisions of Title 26 of the United States Code [(the "Internal Revenue Code" or the "IRC")] and the regulations promulgated thereunder." Complaint ¶ 1. On August 22, 2006, the Court issued a memorandum opinion and accompanying order addressing both the motion to dismiss for lack of proper service and the supplemental motion to dismiss for lack of subject-matter jurisdiction filed by the defendant. See generally Lindsey v. United States, 448 F. Supp. 2d 37 (D.D.C.2006) (Walton, J.). In that memorandum, opinion, the Court held, that it had to deny the defendant's motion to dismiss for lack of proper service "because the pro se plaintiffs were not provided advance notice of the necessity of complying with the precise terms of [Federal *146 Rule of Civil Procedure] 4," had to grant the defendant's supplemental motion "because [the Court] lack[ed] jurisdiction over three forms of relief sought by the plaintiffs and because the plaintiffs ha[d] failed to exhaust their administrative remedies with respect to the only other type of relief requested," and would "grant the plaintiffs limited leave to amend their complaint" to include "a facial challenge to 26 C.F.R. § 301.7433-1" if the plaintiffs so desired. Id. at 63.
When the plaintiffs failed to timely file an amended complaint raising such a challenge, the Court entered an order dismissing the plaintiffs complaint with prejudice and closing this case (the "Dismissal Order"). Dismissal Order at 1. Thereafter, on March 12, 2007, the plaintiffs filed a motion for reconsideration of that order pursuant to Federal Rule of Civil Procedure 60, which is the subject of this opinion. Motion for Relief from Order of Dismissal under [Federal Rules of Civil Procedure] 60(b)(3), [60(b)](6) (the "Pls.' Mot.") at 1. After carefully reviewing the Court's prior memorandum opinion, the plaintiffs' motion for reconsideration, and all memoranda relevant thereto,[1] the Court concludes for the reasons that follow that it must grant the plaintiffs' motion for reconsideration in part, but that the plaintiffs must either file proof of properly executed service of process or otherwise show cause why the Court should not dismiss the plaintiffs' complaint for lack of proper service before this case can proceed any further.
"Rule 60(b) provides that `[o]n motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding'" for one or more of six discrete reasons set out in separate subparts of the rule. Murray v. District of Columbia, 52 F.3d 353, 355 (D.C.Cir.1995) (quoting Fed.R.Civ.P. 60(b)). The plaintiffs invoke two of these sub-provisions as support for the relief that they are seeking: Rule 60(b)(3), which "permits a court to relieve a party from a final judgment because of fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party," Summers v. Howard Univ., 374 F.3d 1188, 1192 (D.C.Cir.2004) (quoting Fed.R.Civ.P. 60(b)(3)), and Rule 60(b)(6), under which a court "may grant relief from a judgment for `any . . . reason justifying [such] relief.'" Sieverding v. Am. Bar Ass'n, 466 F. Supp. 2d 224, 227 (D.D.C.2006) (quoting Fed.R.Civ.P. 60(b)(6)). Specifically, the plaintiffs assert that relief is warranted under Rule 60(b)(6) because the Court (1) erred in concluding that it lacked jurisdiction over their claims for, declaratory and injunctive relief, Pls.' Mot. at 4-5, 10-11; Pls.' Mem. at 4-7, 20-22, (2) erred in concluding that they had failed to state a claim under the Taxpayer Bill of Rights, 26 U.S.C. § 7433 (2000), Pls.' Mot. at 5-11; Pls.' Mem. at 5-19, 22, and (3) erred in dismissing their complaint with prejudice, Pls.' Mot. at 3-4; *147 Pls.' Mem. at 3-4.[2] They further assert that relief is warranted under Rule 60(b)(3) because the defendant "perpetrated a fraud upon the Court[] through [its] misrepresentation of fact, law, and legal precedent to obtain" a favorable ruling from the Court. Pls." Mem. at 2.
The plaintiffs' Rule 60(b)(3) challenge is easily rejected. By their own admission, the plaintiffs' assertions of "fraud" are based solely on the allegedly erroneous legal arguments for dismissal articulated by the defendant in its motions to dismiss. See Pls.' Reply at 1 (dismissing as "a semantic torus" any attempt to distinguish the plaintiffs' assertions of fraud under Rule 60(b)(3) from their legal arguments in favor of relief under Rule 60(b)(6)). But "the assertion[s] of . . . legal. position[s] . . . are not what Rule 60(b)(3) means by fraud . . . or misstatement." Roger Edwards, LLC v. Fiddes & Son Ltd., 427 F.3d 129, 137 (1st Cir. 2005) (quoting Fed.R.Civ.P. 60(b)(3)). Moreover, because the plaintiffs were always "free to consult the law books' and . . . assert the contrary" proposition to the defendant's allegedly fraudulent legal arguments, id., they cannot show that the defendant's alleged misrepresentations of precedent "prevented [them] from fully and fairly presenting [their] case," one of the usual requirements for relief under Rule 60(b)(3). Sieverding, 466 F.Supp.2d at 227 (internal quotation and citation omitted); see also Brown v. Simper, Civil Action No. 05-1086(RMU), slip op. at 4, 2008 WL 116403, at *2 (D.D.C. Jan. 14, 2008) (same), Richardson v. Nat'l R.R. Passenger Corp, 150 F.R.D. 1, 7 (D.D.C. 1993) (same).
The plaintiffs' assertions of error in the Court's memorandum opinion with regard to the availability, of declaratory or injunctive relief against the defendant are also baseless. As the Court explained in its prior memorandum opinion, "[w]hile [the Declaratory Judgment Act] empowers a federal court `[i]n a case of actual controversy within its jurisdiction . . . [to] declare the rights and other relations of any interested party seeking such a declaration,' . . . that section expressly excludes from its scope [f]ederal taxes other than actions brought under section 7428 of the [IRC]." Lindsey, 448 F.Supp.2d at 57-58. Further, "the Court lacks the power to grant the injunctive relief [that] the plaintiffs seek" because "[n]one of the statutory exceptions delineated in [the Anti-Injunction Act] is applicable here," id. at 58, and the plaintiffs have not "me[t] their burden of showing that [the equitable exception to the Anti-Injunction Act set forth in Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 82 S. Ct. 1125, 8 L. Ed. 2d 292 (1962),] applies," id. at 59. The plaintiffs do not address, let alone refute, these conclusions in their motion for reconsideration.[3]
*148 However, the Court does find the plaintiffs' arguments for reconsideration persuasive in one respect. As the plaintiffs correctly note, the Supreme Court recently held in Jones v. Bock, ___ U.S. ___, 127 S. Ct. 910, 166 L. Ed. 2d 798 (2007), that the "failure to exhaust [administrative] remedies is no basis for dismissal [under Federal Rule of Civil Procedure 12(b)(6)], but is, rather, an affirmative defense." Pls.' Reply at 3; see also Jones, ___ U.S. at ___, "127 S.Ct. at 920-21 (holding that an exhaustion defense cannot be "subsumed" within the larger rubric of the defense of "failure to state a claim" under Rule 12(b)(6) because "[w]hether a particular ground for opposing a claim may be the basis for dismissal for failure to state a claim depends on whether the allegations in the complaint suffice to establish that ground, not on the nature of the ground in the abstract"). Indeed, this Court reached this precise conclusion in a recent memorandum opinion involving the defendant's motion to dismiss a taxpayer's suit for damages under § 7433. See Shane v. United States, Civil Action No. 07-577(RBW), slip op. at 12-14, 2008 WL 101739, at **6-7 (D.D.C. Jan. 9, 2008) (Walton, J.) (holding that under Jones, "exhaustion of administrative remedies is not an element of the plaintiffs claim under § 7433," but rather is an affirmative defense that the plaintiff need not plead around in his complaint).
In reaching its conclusion in Shane that a plaintiffs complaint could not be dismissed under Rule 12(b)(6) for failure to plead exhaustion of administrative remedies, the Court explicitly rejected its earlier holding in this case that the plaintiffs' claims under § 7433 had to be dismissed for failure to state a claim because the plaintiffs "`d[id] not contest that they did not exhaust the administrative remedies promulgated in 26 C.F.R. § 301.7433-1?'" Shane, slip op. at 13-14, 2008 WL 101739, at *7 (quoting Lindsey, 448 F.Supp.2d at 61). Instead, the Court held that "a plaintiffs complaint [could not] be dismissed under Rule 12(b)(6) merely because that plaintiff failed to allege that he exhausted his administrative remedies in his opposition to a motion to dismiss any more than *149 it could be dismissed because tie plaintiff failed to make those allegations in the complaint itself." Id. at *14, 2008 WL 101739, at *7, The Court therefore denied the defendant's request for dismissal of the, plaintiffs, amended complaint, for failure to plead exhaustion of administrative remedies. Id., 2008 WL 101739, at *7.
In light of the Supreme Court's ruling in Jones, which brought about this Court's rejection of its ruling in this case in Shane, the plaintiffs' motion for reconsideration must be granted with respect to the Court's dismissal of the plaintiffs' claim for damages under § 7483. As the Court noted in Shane, the defendant may renew its exhaustion defense by filing a motion for summary judgment under Federal Rule of Civil Procedure 56. Id., 2008 WL 101739, at *7. Alternatively, the defendant may wish to file a motion to dismiss for failure to state a claim based on the absence of sufficient factual specificity in the plaintiffs' complaint. See Lindsey, 448 F.Supp.2d at 41-42 (noting that the plaintiffs' complaint "provides no particularized facts pertaining specifically to the plaintiffs in this case," but instead "consists predominately of argument and restatement of putatively pertinent legal standards"). As for this member of the Court, at least, dismissal of a plaintiffs complaint for damages under 7433 for failure to plead around applicable statutory exhaustion requirements, whether requested under Rule 12(b)(1) or Rule 12(b)(6), is simply not a viable option in light of the Supreme Court's ruling in Jones.
Before setting an initial scheduling conference in this case, however, the Court must revisit the issue of service of process on the defendant. In its prior memorandum opinion, the Court held that "the plaintiffs did not comply with the requirement of [Federal Rule of Civil Procedure] 4(c)(2) that service be effected by a person not a party, to the action," id. at 46, but nevertheless "conclude[d] that dismissing the plaintiffs' suit for insufficient service of process would be improper," id. at 47, based on the general principle that "`[P]ro se litigants are allowed more latitude than litigants represented by counsel to correct defects in service of process and pleadings,'" id. at 46 (quoting' Moore v. Agency for Int'l Dev., 994 F.2d 874, 876 (D.C.Cir. 1993)). The Court further reasoned that "it need not grant the plaintiffs leave to perfect service of the original complaint" because dismissal of the plaintiffs' complaint was appropriate on other grounds and the Court would "grant[ ] the plaintiffs limited leave to file an amended complaint, which the plaintiffs [would have to] serve on the defendant in compliance, with [Rule 4]." Id. at 48 n. 7.
That reasoning is no longer operative in light of the conclusion reached in this memorandum opinion concerning exhaustion. Instead, consistent with Rule 4's command that "[i]f a defendant is not served within 120 days after the complaint is filed, the court on motion or on its own" after notice to the plaintiff must dismiss the action without prejudice against that defendant or order that service be made within a specified time," the Court will issue a separate order directing the plaintiffs to show cause why the Court should not dismiss their complaint without prejudice unless the plaintiffs file proof of proper service on the defendant within sixty days of the entry of this order.[4] Assuming that the plaintiffs file proof of proper service in a timely manner or otherwise demonstrate that the Court's show cause order *150 should be vacated, the Court will permit the defendant an opportunity to file a motion to dismiss for failure to state a claim under Rule 12(b)(6) or for summary judgment under Rule 56 before directing the Clerk of the Court to schedule an initial scheduling conference in this case.
SO ORDERED this 1st day of February, 2008.[5]
NOTES
[1] In addition to the Court's prior memorandum opinion (and the underlying documents considered by the Court in rendering that opinion, see Lindsey, 448 F.Supp.2d at 41 n. 1 (listing those documents)), and the plaintiffs' motion, the Court considered the following documents in reaching its decision: (1) the plaintiffs' Memorandum in Support of Motion for Relief from Order of Dismissal under [Federal Rules of Civil Procedure] 60(b)(3), [60(b)](6) (the "Pls.' Mem."), (2) the defendant's Memorandum in Opposition to Plaintiffs' Motion for Relief from. Order of Dismissal under [Federal Rules of Civil Procedure] 60(b)(3) [60(b)](6), and (3) the plaintiffs' Reply to Opposition to Motion for Relief from Order of Dismissal under [Federal Rules of Civil Procedure] 60(b)(3), [60(b)](6) (the "Pls.' Reply").
[2] This latter request is moot in light of the Court's conclusion that partial relief from the Court's Dismissal Order is appropriate, and therefore is not addressed in this memorandum opinion.
[3] Instead, the plaintiffs argue that "[i]f the [Declaratory Judgment Act] prohibits the Court from hearing a case under [26 U.S.C.] § 7433 because it would be declaring rights in respect of federal taxes, such prohibition is absolute, and [§] 7433 is . . . null and void." Pls.' Mem. at 5. The defendant has never suggested, and the Court certainly did not hold, that the Declaratory Judgment Act in any way barred the plaintiffs' suit for damages under § 7433,', Rather, the Court concluded that (1) it lacked subject-matter jurisdiction over the plaintiffs' request for declaratory relief under the Declaratory Judgment Act, and that (2) the plaintiffs' separate claim for, damages under § 7433 had to be dismissed for failure to state a claim because the plaintiffs did not allege or argue that they had satisfied the administrative remedies exhaustion requirement applicable to § 7433. Compare Lindsey, 448 F.Supp.2d at 57-58 (holding that the Court lacks the subject-matter jurisdiction necessary to enter "a ruling declaring that the "defendant has violated the Internal Revenue Code in one or more respects"), with id. at 61 (dismissing the plaintiffs' claim for damages under § 7433 under Federal Rule of Civil Procedure 12(b)(6) because the plaintiffs "d[id] not contest that they did not exhaust the administrative remedies promulgated in 26 C.F.R. § 301.7433-1"). The Court's conclusion with respect to the plaintiffs' request for declaratory relief under the Declaratory Judgment Act had no bearing on its separate conclusion regarding the plaintiffs' request for damages under § 7433, and the statutes themselves do not interrelate in any way. Compare 28 U.S.C. § 2201(a) (setting forth the conditions under which a court "may declare the rights and other legal relations of any interested party seeking such declaration"), with 26 U.S.C. § 7433(a) (setting forth the conditions under which a taxpayer "may bring a civil action for damages against the United States"),
The plaintiffs also appear to misunderstand the Court's ruling with respect to their request for injunctive relief, as their sole argument in favor of reconsideration is that "[a]t least three of the Anti-Injunction Act's exceptions apply to allegations contained [within their c]omplaint." Pls.' Mem. at 22. The Court recognized in its prior memorandum opinion that "the plaintiffs' complaint does make reference to three of the statutes" excepted from the Anti-Injunction Act's reach, but dismissed the request anyway because "the plaintiffs ha[d] not offered, in either their complaint or in their responses to the defendant's motions to dismiss, any factual basis whatsoever to support these conclusory statements." Lindsey, 448 F.Supp.2d at 58 n. 13. The plaintiffs do nothing to remedy this defect in their motion for reconsideration.
[4] The Court will grant the plaintiffs sixty days in which to file their proof of properly executed service so that the plaintiffs, who reside in California, have sufficient time to request and procure new summonses from the Clerk of the Court.
[5] An order granting in part and denying in part the plaintiffs' motion for reconsideration, vacating in part the Court's Dismissal Order in part, and reinstating the plaintiffs' claims for damages under § 7433 follows. The Court will also enter a separate order directing the plaintiffs to show cause why their complaint ought not be dismissed without prejudice for lack of proper service, of process unless the plaintiffs have properly served the defendant within sixty days of the entry of this memorandum opinion. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2325583/ | 25 F. Supp. 2d 404 (1998)
Theresa SMITH, Plaintiff,
v.
ALEXANDER & ALEXANDER, INC., and Aon Corporation, Defendant.
No. 97 CIV. 6319(JSR).
United States District Court, S.D. New York.
November 3, 1998.
*405 Anne L. Clark, Vladeck, Waldman, Elias & Engelhard, P.C. New York, NY, for plaintiff.
Darrell S. Gay, Patricia L. Hardaway, Gay & Hardaway, New York, NY, for defendant.
MEMORANDUM ORDER
RAKOFF, District Judge.
Plaintiff Theresa Smith sues her former employer Alexander & Alexander, Inc. ("A & A")[1] for alleged violations of the Americans with Disabilities Act of 1990, 42 U.S.C. § 12101 et seq. ("ADA"), the New York State Human Rights Law, Executive Law § 290 et seq., the Administrative Code of the City of New York § 8-101 et seq., the Family and Medical Leave Act, 29 U.S.C. § 2601 et seq. ("FMLA"), and the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. § 1001 et seq. ("ERISA"). Upon completion of discovery, defendants moved for summary judgment. On July 10, 1998, the Court informed the parties telephonically that defendants' motion would be denied. This Memorandum Order will serve to formally confirm that order and briefly describe the reasons therefor.
The pertinent facts, either as undisputed or taken most favorably to plaintiff, show that plaintiff was initially hired by A & A in 1973 as a clerk/typist and rose by 1989 to the level of Vice President of Administration, in which capacity she served as corporate secretary to A & A's Executive Committee and as an assistant to the President/CEO and other members of the Committee. In particular, from October, 1995 to November, 1996 (the period principally implicated in this case), plaintiff chiefly reported to Lawrence Burk, A & A's President and CEO until May 1996, and to Elliot Cooperstone, A & A's Chief Operating Officer in 1995 and then its President and CEO beginning in May, 1996.
In 1990, plaintiff became the foster parent of a child, Ricky, who suffered from severe disabilities, including cerebral palsy, blindness, mental retardation, seizure disorder, and scoliosis. In 1993 plaintiff formally adopted Ricky. In September-October, 1995, when Ricky had to be hospitalized because of a severe respiratory condition, plaintiff took a six-week leave, pursuant to the FMLA, to help care for him. Complaining about her absences to Burk and others, Cooperstone made statements such as: "It is bad enough when something like this happens to somebody, but to choose this, it is not going to be done on my watch." Young Dep. at 66; see also id. at 65; Burk Dep. at 72, 94, 96. When plaintiff returned to work, Cooperstone again expressed irritation that she had taken leave. Smith Dep. at 110, 147-48; Smith Aff. at ¶ 14. Shortly thereafter, her job responsibilities, especially those assigned *406 by Cooperstone, began to steadily and materially diminish.
Around the same time, plaintiff submitted a request to Aetna, the administrator of A & A's health insurance plan, for coverage of home nursing care required by Ricky following his release from the hospital. When her application was denied, plaintiff asked for an explanation from Henry Kramer, A & A's Employee Benefits Manager. Kramer falsely told her that A & A's insurance plan had no provision for home nursing care. When, with the help of an advocacy group for disabled children, plaintiff eventually discovered that A & A's insurance plan did, in fact, provide for no less than seventy shifts of such home nursing care per year, Kramer offered another false explanation for Aetna's action. Only after still further confrontations and an appeal to A & A's own Benefits Administration Committee was the applied-for coverage finally obtained.
After Cooperstone became CEO in May, 1996, the diminishment in plaintiff's duties accelerated. In November, 1996, after 23 years at A & A, plaintiff was terminated, chiefly at the behest of Cooperstone.
Against these allegations, defendants move for summary judgment, contending, with respect to all but the ERISA claim, that (1) plaintiff's job responsibilities did not in fact significantly diminish between the time of her return to work and the time of her termination, (2) even if such diminishment arguably occurred, plaintiff has failed to make a prima facie showing it was related either to her association with her disabled son or to the fact that she took an FMLA leave, and (3) plaintiff's termination was simply the result of a general downsizing at A & A.
As to defendants' first contention, plaintiff has adduced substantial admissible evidence that her job responsibilities, after remaining essentially unchanged for the preceding six years, were materially reduced following her return from leave including reduced involvement with, inter alia, upper management meetings, managing teleconferences, preparing the agenda for Executive Committee meetings, and preparing monthly reports on A & A's field offices and that this reduction continued, and, indeed, accelerated thereafter. See e.g., record citations in Pl. Rule 56.1 Statement at pp. 17-23, and in Pl. "Counter-Chart," passim. See also Blanchard v. Stone Safety Corp., 935 F.2d 18, 19 (2d Cir.1991); Noyer v. Viacom, Inc., 1998 WL 226172, at *2-3 (S.D.N.Y. May 5, 1998). Moreover, Cooperstone's own explanation as to why he fired plaintiff that she was not doing enough work to justify her being kept on, see Cooperstone Dep. at 61 inferentially supports her claim that her duties were materially diminished during the relevant period.
As to defendants' second and third contentions, Cooperstone's clear threat to retaliate against plaintiff for "choosing" to adopt a disabled child and thus being obliged to take a six-week leave while "on [his] watch," when coupled with his direct involvement in both the immediate diminishment of her duties and her subsequent termination, is more than sufficient to raise a genuine jury question as to whether these actions were motivated, at least in meaningful part, by the discrimination forbidden by the laws here pertinent. See, e.g., Sumner v. United States Postal Service, 899 F.2d 203, 209-211 (2d Cir.1990).
The ERISA claim is a somewhat closer call. Section 510 of ERISA, 29 U.S.C. § 1140, makes it unlawful for an employer to
discharge...or discriminate against a participant or beneficiary [of an employee welfare plan] for exercising any right to which he is entitled under the provisions of an employee benefit plan..., or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan.
While there is ample evidence from which a jury could infer that A & A's employee Kramer purposefully attempted to prevent plaintiff from obtaining her rightful entitlements under the plan, the fact is that she ultimately obtained them (albeit only with the help of an advocacy group) approximately one year later. Plaintiff's claim, however, is that this evidence shows that part of A & A's motivation in firing her was to retaliate against her for demanding her ERISA entitlements, *407 as well as to obviate having to pay further such entitlements in the future. On balance, it cannot be said that a reasonable juror after taking account, inter alia, of the evidence of defendants' obstructions to plaintiff's prior ERISA request, the more general evidence of discrimination relating to her termination as discussed above, and the fact that plaintiff's termination occurred shortly before Ricky would again become eligible under A & A's insurance plan for another 70 shifts of home nursing care could not conclude that ERISA-based bias played a role in plaintiff's termination.
Accordingly, defendants' motion for summary judgment is denied in its entirety. The parties are reminded that the trial of this case is firmly set for November 30, 1998 at 9:00 a.m.
SO ORDERED.
NOTES
[1] Co-Defendant Aon Corporation purchased A & A around the time of, or shortly after, plaintiff's termination. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2329331/ | 666 F. Supp. 2d 754 (2009)
Kathleen DOLAN, Plaintiff,
v.
CITY OF ANN ARBOR and Fifteenth District Court, Defendants.
Case No. 08-14199.
United States District Court, E.D. Michigan, Southern Division.
October 30, 2009.
*755 James W. Fraser, Faupel & Associates, Ann Arbor, MI, for Plaintiff.
Brett J. Miller, Kitch, Karen B. Berkery, Kitch, Drutchas, Detroit, MI, Stephen K. Postema, Ann Arbor City Attorney's Office, Ann Arbor, MI, for Defendants.
OPINION AND ORDER REGARDING DEFENDANTS' MOTIONS FOR JUDGMENT ON THE PLEADINGS AND FOR SUMMARY JUDGMENT
GERALD E. ROSEN, Chief Judge.
I. INTRODUCTION
Plaintiff Kathleen Dolan commenced this case in this Court on September 30, 2008, alleging that her former employer, the Defendant Fifteenth District Court, terminated her employment in violation of the Family and Medical Leave Act ("FMLA"), 29 U.S.C. § 2601 et seq. Plaintiff also has named the City of Ann Arbor as a Defendant, on the ground that her employment with the Fifteenth District Court "was administered by Defendant City of Ann Arbor." (Amended Complaint at ¶ 11.) This Court's subject matter jurisdiction rests upon Plaintiff's assertion of a claim arising under federal law. See 28 U.S.C. § 1331.
Presently before the Court are (i) a motion for judgment on the pleadings filed by Defendant Fifteenth District Court, and (ii) a motion for summary judgment filed by Defendant City of Ann Arbor. In these two motions, Defendants argue principally that the Michigan district courts have sovereign immunity from suit in federal district court, and that Congress has not abrogated this sovereign immunity as to the sort of FMLA claim asserted by Plaintiff in this case.[1] In response, Plaintiff contends that the multi-factor test applied by the courts to determine whether a defendant entity is an "arm of the State," and hence entitled to sovereign immunity, establishes that the Defendant Fifteenth District Court is not immune from the present suit.
*756 Each of these two motions has been fully briefed by the parties. Having reviewed the parties' written submissions in support of and opposition to Defendants' motions, as well as the remainder of the record, the Court finds that the pertinent facts, allegations, and legal issues are sufficiently presented in these materials, and that oral argument would not assist in the resolution of these motions. Accordingly, the Court will decide Defendants' motions "on the briefs." See Local Rule 7.1(e)(2), U.S. District Court, Eastern District of Michigan. As explained below, the Court finds that the Fifteenth District Court enjoys sovereign immunity from this suit, and that Plaintiff's FMLA claim therefore cannot go forward in federal district court.
II. FACTUAL AND PROCEDURAL BACKGROUND
Beginning in December of 1997, Plaintiff Kathleen Dolan was employed by the Defendant Fifteenth District Court as a deputy court clerk. On November 26, 2006, Plaintiff experienced chest pains while at work, and she advised a supervisor that she needed to leave work to have her condition examined. After being seen by a doctor, Plaintiff requested time off from work, and she was granted leave from November 29, 2006 until December 10, 2006.
Plaintiff's time off from work was characterized as a medical leave, and the Fifteenth District Court requested that she provide medical certification of the need for this leave. On December 4, 2006, Plaintiff was advised that she needed to provide this medical certification as soon as possible. As she traveled to her doctor's office that day to obtain the requisite certification, however, she experienced severe chest pains and drove herself directly to the hospital, where she was admitted and remained overnight. That same day, the Defendant court terminated her employment. Plaintiff then commenced this suit on September 30, 2008, alleging that the Fifteenth District Court violated the FMLA by terminating her employment, and naming both the court and the City of Ann Arbor as Defendants.
III. ANALYSIS
A. The Standards Governing Defendants' Motions
Through its present motion, Defendant Fifteenth District Court seeks the dismissal of Plaintiff's FMLA claim under Fed.R.Civ.P. 12(c). A motion for judgment on the pleadings should be granted "when no material issue of fact exists and the party making the motion is entitled to judgment as a matter of law." JPMorgan Chase Bank, N.A. v. Winget, 510 F.3d 577, 582 (6th Cir.2007) (internal quotation marks and citation omitted). When considering a motion under this Rule, the Court must "construe the complaint in the light most favorable to the plaintiff [and] accept all of the complaint's factual allegations as true." Grindstaff v. Green, 133 F.3d 416, 421 (6th Cir.1998). However, the Court "need not accept as true legal conclusions or unwarranted factual inferences." Mixon v. Ohio, 193 F.3d 389, 400 (6th Cir.1999). To survive dismissal, the factual allegations of Plaintiff's complaint "must be enough to raise a right to relief above the speculative level," and to "state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 570, 127 S. Ct. 1955, 1965, 1974, 167 L. Ed. 2d 929 (2007).
Apart from the motion brought by the Fifteenth District Court, the Defendant City of Ann Arbor has moved for summary judgment in its favor or for dismissal of Plaintiff's complaint. To the extent that this motion, like the one filed by the Fifteenth District Court, seeks dismissal of the complaint on grounds of sovereign immunity, it rests solely upon issues of law *757 that may be decided on the pleadings alone. Accordingly, the two Defendants' motions will be decided under the same standards.
B. The Doctrine of Sovereign Immunity Precludes Plaintiff from Proceeding with Her FMLA Claim Against the Defendant Fifteenth District Court.
In seeking the dismissal of Plaintiff's complaint, Defendants contend that Plaintiff's employer, the Fifteenth District Court, is entitled to Eleventh Amendment immunity from suit in federal court. As all parties recognize, the success of this appeal to sovereign immunity turns upon whether the Fifteenth District Court is properly considered an "arm of the State." Mt. Healthy City School District Board of Education v. Doyle, 429 U.S. 274, 280, 97 S. Ct. 568, 572, 50 L. Ed. 2d 471 (1977). Although this is a close question that is complicated, rather than illuminated, by the pertinent case law, the Court concludes that Plaintiff's complaint is subject to dismissal on grounds of sovereign immunity.
In a recent en banc ruling, the Sixth Circuit cited four factors that a court should consider in determining whether an entity is an "arm of the State," and hence entitled to sovereign immunity: "(1) whether the state would be responsible for a judgment against the entity in question; (2) how state law defines the entity; (3) what degree of control the state maintains over the entity; and (4) the source of the entity's funding." Ernst v. Rising, 427 F.3d 351, 359 (6th Cir.2005) (internal quotation marks and citations omitted).[2] While all of these factors are entitled to some weight in determining whether an entity qualifies as an "arm of the State," the courts have recognized that the first factor"whether any judgment must be satisfied out of the state treasury"is "the most important consideration in resolving an Eleventh Amendment immunity issue." Hess, 513 U.S. at 51, 115 S. Ct. at 406; see also Ernst, 427 F.3d at 359 (characterizing this as "the foremost factor").
Before addressing each of these factors in turn, it is worthwhile to survey the several prior decisions in which courts have considered whether Michigan trial courts are "arms of the State" that may claim the protection of Eleventh Amendment immunity. As will become clear, there is no shortage of rulings on this subject. Unfortunately, the guidance provided by these rulings is modest at best.
First, Judge Borman of this District has held on three occasions that Michigan trial courts were entitled to Eleventh Amendment immunity. See Smith v. Oakland County Circuit Court, 344 F. Supp. 2d 1030, 1053-55 (E.D.Mich.2004); Englar v. 41B District Court, No. 04-73977, 2006 WL 2726986, at *4-*5 (E.D.Mich. Sept. 22, 2006); Geller v. Washtenaw County, No. 04-72947, 2005 WL 3556247, at *6-*8 (E.D.Mich. Dec. 29, 2005). In two of these decisions, the court found that the evidence was lacking or mixed as to whether the State of Michigan would be responsible for paying a judgment against the defendant *758 court. See Smith, 344 F.Supp.2d at 1055; Geller, 2005 WL 3556247, at *7. Under these circumstances, the court deemed it appropriate to give greater weight to the other factors in the "arm of the State" inquiry, and to consider, in particular, whether a federal court suit against a Michigan trial court would pose a threat to the "dignity" of the State of Michigan. See Smith, 344 F.Supp.2d at 1055; Geller, 2005 WL 3556247, at *7-*8. The court found that these other factors tilted the balance in favor of sovereign immunity, reasoning that the state trial courts were "the `adjudicative voice' of the State of Michigan, created pursuant to the Michigan Constitution and subject to the supervision of the Michigan Supreme Court." Smith, 344 F.Supp.2d at 1055; see also Geller, 2005 WL 3556247, at *8 (observing that the defendant trial court was "subject to the Michigan Supreme Court's authority," and that "the authority to hire and fire [court] personnel is designated by state statute to the courts rather than county administrators").[3]
More recently, however, Judge Lawson of this District held that a Michigan district court was not entitled to Eleventh Amendment immunity. See Pucci v. Nineteenth District Court, 565 F. Supp. 2d 792, 803-05 (E.D.Mich.2008). In so ruling, Judge Lawson opined that Judge Borman's decisions were not persuasive because they did not focus on the factor identified by the Sixth Circuit as the "most important" to an "arm of the State" analysisnamely, "the state treasury's exposure to a judgment in the event of liability." Pucci, 565 F.Supp.2d at 805. Upon considering this factor in light of various Michigan statutes and state court rulings, the court found it "apparent" that any judgment against the defendant district court would be paid by the relevant local unit of government, the City of Dearborn, and not from the state treasury. 565 F. Supp. 2d at 805. Because "[t]he Supreme Court and Sixth Circuit have suggested that this fiscal money judgment issue, if not dispositive, is the most important factor," the court concluded that the plaintiff's claims against the defendant district court were not barred by Eleventh Amendment immunity. 565 F. Supp. 2d at 805.[4]
Yet, in an unpublished decision issued just before Defendants filed their motions in this case, the Sixth Circuit cast considerable doubt upon the "arm of the State" analysis employed in each of these district court rulings. In Barachkov v. 41B District Court, 311 Fed.Appx. 863 (6th Cir. 2009), the court reversed Judge Borman's decision in Englar and remanded the case for further analysis and findings as to each of the four factors in the "arm of the State" inquiry. In so ruling, the Sixth Circuit explained that "neither party has produced persuasive evidence regarding whothe State of Michigan or [the relevant local government unit,] Clinton Townshipwill ultimately be responsible for paying any judgment rendered against the [defendant] 41B District Court." Barachkov, 311 Fed.Appx. at 869. The court further observed that "the district court made no findings as to the four factors" that the Sixth Circuit had previously identified as relevant to an "arm of the State" inquiry, and it found that a remand was necessary *759 to examine each of these factors. 311 Fed.Appx. at 869.[5]
In reaching this result, the Sixth Circuit not only reversed Judge Borman's ruling in Englar, but also appeared to raise questions about Judge Lawson's ruling in Pucci. First, the court found it "important to note ... that the Pucci court did not undertake an analysis of all four factors" in the "arm of the State" inquiry, but instead based its ruling "solely on the first factor" of this analysis. Barachkov, 311 Fed.Appx. at 869 n. 1. Earlier in its decision, the Sixth Circuit suggested that such exclusive reliance on the first factor would "understate[] the importance of the remaining factors in the arm-of-the-state analysis." 311 Fed.Appx. at 867. Next, in addressing the plaintiffs' claim that the local government unit, Clinton Township, and not the State of Michigan, would be liable for any judgment against the defendant district court, the Sixth Circuit discounted the plaintiffs' reliance on two sourcesa Michigan statute, Mich. Comp. Laws § 600.8103(3), and a Michigan Supreme Court decision, Cameron v. Monroe County Probate Court, 457 Mich. 423, 579 N.W.2d 859 (1998)upon which Judge Lawson had also relied in Pucci. See Barachkov, 311 Fed.Appx. at 867-68; see also Pucci, 565 F.Supp.2d at 805 (citing this Michigan statute and state supreme court ruling as among the grounds for concluding that the State of Michigan would not be called upon to pay any money judgment awarded to the plaintiff).[6]
Against this backdrop of extensive case law but very little affirmative guidance, this Court and the parties evidently have been left largely to their own devices in determining how a Michigan district court should fare under the four factors of the "arm of the State" inquiry. Beginning with the first and most important factor namely, the State's potential liability for a judgment against the Defendant Fifteenth District Court, see Ernst, 427 F.3d at 359Plaintiff maintains that Pucci got it right, and that any judgment against the Fifteenth District Court in this case would be paid by the City of Ann Arbor, and not the State of Michigan. In support of this proposition, Plaintiff points to a Michigan statutory provision dictating that the City of Ann Arbor is "responsible for maintaining, financing, and operating" the Fifteenth District Court. Mich. Comp. Laws § 600.8104(2). Plaintiff further cites a number of Michigan court decisions which, in her view, confirm that the Defendant City, and not the State of Michigan, will be responsible for paying any judgment she might obtain against the Fifteenth District Court. See Cameron, supra, 457 Mich. 423, 579 N.W.2d 859; Anspach v. City of *760 Livonia, 140 Mich.App. 403, 364 N.W.2d 336 (1985); Kain v. State, 109 Mich.App. 290, 311 N.W.2d 351 (1981).
Unfortunately, much of the authority relied upon by Plaintiff here (and by the court in Pucci) was discounted by the Sixth Circuit in Barachkov. The plaintiffs in that case, like Plaintiff here, cited the Michigan statutory funding scheme for the state district courts as establishing that the local governmental unit, and not the State of Michigan, would be responsible for paying a judgment against the defendant district court. The Sixth Circuit viewed this statutory scheme differently, explaining that it established only that the local governmental unit "provides operational financing" for the defendant district court, but that it did not "conclusively state who will ultimately pay for any judgment against this state district court." Barachkov, 311 Fed.Appx. at 867. Under Barachkov, then, a distinction must be drawn between the source of a Michigan district court's operational budget and fundinghere, the Defendant City of Ann Arborand the source from which a judgment against the district court will be paid, and the statutory scheme cited by Plaintiff simply does not address this latter question.
The court in Barachkov also questioned whether the Michigan Supreme Court's decision in Cameron truly sheds any light on the first prong of the "arm of the State" inquiry. As the Sixth Circuit explained:
Equally unavailing is [the plaintiffs'] reliance on the holding in Cameron. In that case, former employees of a probate court brought suit against the court and its judge alleging civil rights violations. Pursuant to a mediation agreement, a $25,000 judgment was entered against the probate court, and paid to plaintiffs by the State of Michigan. The probate court filed a third[-]party[] complaint seeking indemnification from its local funding unit[,] Monroe County. The Michigan Supreme Court held that "the probate court is not entitled to indemnification from the county here because the underlying claim was resolved at no cost to the probate court." [Cameron, 579 N.W.2d] at 862. In reaching this conclusion, however, the court also stated that "[i]f the probate court had been found liable to plaintiff, the county would be liable for any resulting judgment as a matter of law." Id. It is presumably upon this statement that [the plaintiffs] rely for the proposition that the State of Michigan is not potentially liable for any judgment in this case. However, this statement does not establish that the State of Michigan is not potentially liable for any judgments against a district court; on the contrary, as this statement was made in the context of a proceeding for indemnification, it only establishes that when a judgment rendered against a district court has been paid by the State, the county will be responsible for reimbursing the State. The fact that a county may be called upon to indemnify the State does not resolve the question of whether the State bears any potential legal liability with respect to judgments against district courts.... Cf. Regents of the Univ. of Cal. v. Doe, 519 U.S. 425, 431, 117 S. Ct. 900, 137 L. Ed. 2d 55 (1997) ("[I]t is the entity's potential legal liability, rather than its ability or inability to require a third party to reimburse it, or to discharge the liability in the first instance, that is relevant.").
Barachkov, 311 Fed.Appx. at 868. Accordingly, Cameron seemingly provides little or no basis for predicting that the State of Michigan will be free from potential liability for any judgment Plaintiff might obtain against the Fifteenth District Court.[7]
*761 The other cases cited by Plaintiff, Kain and Anspach, provide similarly limited guidance on this question. In each of these cases, the court followed Michigan Supreme Court precedent in concluding that district court workers are properly viewed as employed by the judicial district, and not by the local governmental unit that pays the operating costs of the district court. See Kain, 311 N.W.2d at 354-55 (citing Judges of 74th Judicial District v. County of Bay, 385 Mich. 710, 190 N.W.2d 219, 224 (1971));[8]see also Anspach, 364 N.W.2d at 339. In so ruling, however, the courts acknowledged that the local governmental units were responsible for paying the relevant costs associated with the plaintiff district court employees. See Kain, 311 N.W.2d at 356; Anspach, 364 N.W.2d at 339. Specifically, Kain held that the local governmental unit was obligated to pay workers' compensation benefits arising from the on-the-job death of a district court bailiff, see Kain, 311 N.W.2d at 356, while Anspach observed that the local governmental unit "has a statutory duty to pay the cost of financing the [defendant district court], which would include any judgment plaintiff might recover against" the district court, Anspach, 364 N.W.2d at 339. In Plaintiff's view, the "common thread that runs through the Kain, Cameron, and Anspach cases" is that the local funding units for the district courts, and not the State of Michigan, were deemed responsible for paying judgments or financial obligations owed by the district courts. (Plaintiff's 5/22/2009 Response Br. at 9.)
The decisions in Kain and Anspach, like the Michigan Supreme Court's ruling in Cameron, stop short of addressing the crucial question here. These cases stand for the proposition that local governmental units are responsible for financing the operations of their respective district courts, including the obligations they incur under Michigan's workers' compensation scheme (Kain) and as a result of judgments entered against them (Anspach). Yet, the Michigan Supreme Court expressly recognized as much in Cameron, 579 N.W.2d at 861, observing that Michigan's statutory scheme "dictates that [the relevant local governmental unit] is responsible for all expenses of maintaining, financing, and operating the district court, unless otherwise specified," and explaining that "[b]ecause there is no statutory authority specifying who will pay a judgment entered against [a Michigan trial] court ..., it must be paid by the local funding unit." Despite this ruling, the Sixth Circuit held in Barachkov, *762 311 Fed.Appx. at 868, that Cameron "does not establish that the State of Michigan is not potentially liable for any judgments against a district court." If Cameron fails to resolve this question of potential liability, this Court cannot see how the Michigan Court of Appeals decisions in Kain and Anspach could be viewed as doing so.
In short, despite the apparent abundance of statutory provisions and state and federal court rulings that have some arguable bearing upon the first "arm of the State" factor, it is no easy feat to determine whether the State of Michigan faces potential liability for any judgment Plaintiff might obtain against the Fifteenth District Court in this case. On the one hand, the City of Ann Arbor plainly is obligated to cover the day-to-day costs of maintaining and operating the Fifteenth District Court, and, as a practical matter at least, any judgment obtained by Plaintiff against the court is likely to be paid out of the Fifteenth District Court budget (funded by the City) or other funds furnished by the City. Yet, on the other hand, the City is quite correct in observing that it is the Fifteenth District Court, and not the City, that would be "legally obligated to pay any judgment against it," (Defendant City's Reply Br. at 4), with the City bearing only the more indirect responsibility to provide the funds to satisfy such a judgment.
The Supreme Court has cautioned against "detach[ing] the importance of a State's legal liability for judgments against a state agency from its moorings as an indicator of the relationship between the State and its creation," and thereby "convert[ing] the inquiry into a formalistic question of ultimate financial liability." Regents of University of California, 519 U.S. at 430-31, 117 S. Ct. at 904. Rather, the Court has emphasized that "it is the entity's potential legal liability, rather than its ability or inability to require a third party to reimburse it, or to discharge the liability in the first instance, that is relevant" to the Eleventh Amendment inquiry. 519 U.S. at 431, 117 S.Ct. at 904. The Sixth Circuit made a similar point in Barachkov, 311 Fed.Appx. at 868, explaining that the Michigan statutory scheme for funding of state district courts by local governmental units and the Michigan court decisions construing this statutory scheme did not "resolve the question of whether the State bears any potential legal liability with respect to judgments against district courts." Under these circumstances, while it can perhaps be said that the first factor in the "arm of the State" inquiry tends to favor Plaintiff and weaken the Fifteenth District Court's appeal to Eleventh Amendment immunity, this factor can hardly be viewed as decisive, because it cannot be said with any degree of confidence that the State of Michigan bears no potential legal liability for any judgment Plaintiff might obtain against the Fifteenth District Court.
Fortunately, the remaining "arm of the State" factors are far less difficult to analyze in this case. The second factor asks "how state law defines the entity." Ernst, 427 F.3d at 359. A Michigan statute establishes a single "district court ... in the state," "divided into judicial districts" but "subject to the superintending control of the supreme court." Mich. Comp. Laws § 600.8101(1). In accordance with this statutory scheme, the Michigan Supreme Court has emphasized on more than one occasion that the district courts are part of the State's "one court of justice," and that "[t]he judiciary is an independent department of the State." Judicial Attorneys Association, 586 N.W.2d at 897 (internal quotation marks and citations omitted); see also Judges of 74th Judicial District, 190 N.W.2d at 224 (explaining that "Michigan has but one district court," which "in turn *763 is a subdivision of Michigan's one court of justice"). Accordingly, as the federal courts have recognized, and as Plaintiff essentially concedes, this factor strongly supports the conclusion that the Fifteenth District Court is entitled to Eleventh Amendment immunity. See Smith, 344 F.Supp.2d at 1055; Geller, 2005 WL 3556247, at *7-*8; see also Mumford, 105 F.3d at 268-69 (relying heavily on this consideration to hold that an Ohio common pleas court was an arm of the State despite its local governmental source of funding); Benn v. First Judicial District of Pennsylvania, 426 F.3d 233, 240 (3d Cir.2005) (reaching the same conclusion as to Pennsylvania's locally funded court system).
Next, the Court must consider "what degree of control the state maintains over" the Fifteenth District Court. Ernst, 427 F.3d at 359. Again, this factor favors a grant of Eleventh Amendment immunity to the Fifteenth District Court, and Plaintiff recognizes as much. In Judicial Attorneys Association, 586 N.W.2d at 897, the Michigan Supreme Court acknowledged that the state's trial courts "are dependent on over 150 separate local governmental units for the bulk of the operational funding for their courts," but nonetheless "strongly affirm[ed] that the fundamental and ultimate responsibility for all aspects of court administration, including operations and personnel matters within the trial courts, resides within the inherent authority of the judicial branch." Indeed, in declaring unconstitutional various statutory provisions that would have designated trial court workers as employees of the local funding units, the court in Judicial Attorneys Association reasoned that these provisions "impermissibly interfere[] with the judiciary's inherent authority to manage its internal operations." 586 N.W.2d at 898. Because Michigan law dictates that "[t]he judicial branch is constitutionally accountable for the operation of the courts and for those who provide court services," 586 N.W.2d at 899, and because Michigan's "one court of justice" plainly qualifies as an "arm of the State," it follows that the State of Michigan maintains a substantial degree of control over its district courts.
The fourth and final factor in the Sixth Circuit's "arm of the State" analysis is "the source of the entity's funding." Ernst, 427 F.3d at 359. Just as the second and third factors plainly support the Fifteenth District Court's claim of Eleventh Amendment immunity, this factor indisputably cuts the other way. As explained earlier, Michigan law dictates that the City of Ann Arbor is "responsible for maintaining, financing, and operating" the Fifteenth District Court, Mich. Comp. Laws § 600.8104(2), and the City acknowledges that it is "the source of operational funds for" the Defendant district court, (Defendant City's 6/22/2009 Reply Br. at 5). Thus, as the City recognizes, this factor "indicates against immunity." (Id.)
Beyond these four factors identified in the Sixth Circuit's "arm of the State" decisions, the Supreme Court has considered "whether the entity's functions fall within the traditional purview of state or local government." Ernst, 427 F.3d at 359 (citing Hess, 513 U.S. at 45, 115 S. Ct. at 403). As discussed above, Michigan law establishes a single district court divided into judicial districts that span the entire state, and these courts, in turn, are deemed part of a single court of justice that is recognized as an "independent department of the State." Judicial Attorneys Association, 586 N.W.2d at 897 (internal quotation marks and citations omitted). Consequently, the Fifteenth District Court is properly viewed as an integral part of "the `adjudicative voice' of the state itself," where the Michigan court system "is mandated by the state constitution to be uniform *764 and to be supervised by one supreme court." S.J. v. Hamilton County, Ohio, 374 F.3d 416, 421-22 (6th Cir.2004) (addressing the similarly organized Ohio court system). This factor, then, favors a grant of immunity.
Having reviewed all of the relevant considerations, it remains only to determine how much weight to give each of these factors in the overall "arm of the State" analysis. As noted, the first of these factors"whether any judgment must be satisfied out of the state treasury"has been deemed "the most important consideration in resolving an Eleventh Amendment immunity issue." Hess, 513 U.S. at 51, 115 S. Ct. at 406. Yet, "[i]mportant as the monetary liability factor may be, it is not the only factor." Ernst, 427 F.3d at 365. Where, as here, this factor is inconclusive and a State's potential legal liability for a judgment is uncertain, the courts have suggested that it is appropriate to give greater weight to the so-called "dignity" factorsi.e., those that rest upon a recognition of the importance of respecting each State's separate sovereignty. See, e.g., Hess, 513 U.S. at 39, 47, 115 S. Ct. at 400, 404 (observing that "current Eleventh Amendment jurisprudence emphasizes the integrity retained by each State in our federal system," and explaining that "[w]hen indicators of immunity point in different directions, the Eleventh Amendment's twin reasons for being remain our prime guide"); S.J., 374 F.3d at 421 (emphasizing that "values beyond guarding the public fisc play a role in the arm-of-the-state inquiry"); Smith, 344 F.Supp.2d at 1055.
In suits against state courts, even those that are locally funded, this balance has almost invariably been struck in favor of Eleventh Amendment immunity. In S.J., 374 F.3d at 421, for example, the Sixth Circuit stated that "[t]o the extent that considerations of dignity are relevant in determining whether an entity is protected by state sovereign immunity, one would expect this factor to weigh heavily in a suit against a state court." Similarly, in reversing Judge Borman's decision in Englar and remanding for further proceedings, the Sixth Circuit explained that "[c]onsiderations of dignity are particularly relevant in a suit against a state court, which is the `adjudicative voice' of the State itself." Barachkov, 311 Fed.Appx. at 868. Beyond these statements by the Sixth Circuit, there is the brute fact that, with the exception of Judge Lawson's decision in Pucci, the courts in every case identified by the parties have held that state trial courts were entitled to Eleventh Amendment immunity. See, e.g., Mumford, 105 F.3d at 268-69; Benn, 426 F.3d at 240; Kelly v. Municipal Courts of Marion County, Indiana, 97 F.3d 902, 907-08 (7th Cir.1996); Franceschi v. Schwartz, 57 F.3d 828, 831 (9th Cir.1995); Smith, 344 F.Supp.2d at 1054-55; Geller, 2005 WL 3556247, at *7-*8.
Upon considering and weighing the various "arm of the State" factors against the backdrop of this nearly uniform case law, the Court concludes that the Fifteenth District Court is protected by Eleventh Amendment immunity against the present federal court suit. The "dignity" factors weigh heavily in favor of immunity, where Michigan law expressly defines the State's district courts as part of a state-wide, unified judiciary, the State exercises extensive control over these courts, and the functions performed by the district courts are part and parcel of the role assigned to the State's independent judicial branch under the Michigan Constitution. Under these circumstances, a federal court suit against a Michigan district court can truly be said to impinge upon the independent sovereignty enjoyed by the State of Michigan. While the local funding of the Michigan district courts somewhat weakens their appeal *765 to Eleventh Amendment immunity and diminishes the prospect that a judgment against a state district court will be collected from the State treasury, the Court concludes that this alone "does not transform [the state district courts] into local entities for Eleventh Amendment purposes." Benn, 426 F.3d at 240. Rather, despite this local funding, the Court finds that the Defendant Fifteenth District Court remains an "arm of the State," and that Eleventh Amendment immunity therefore bars Plaintiff from pursuing her FMLA claim against Defendants in federal district court.[9]
IV. CONCLUSION
For the reasons set forth above,
NOW, THEREFORE, IT IS HEREBY ORDERED that the Defendant Fifteenth District Court's May 1, 2009 motion for judgment on the pleadings (docket # 17) is GRANTED. IT IS FURTHER ORDERED that the Defendant City of Ann Arbor's May 20, 2009 motion for summary judgment (docket #23) is GRANTED to the extent that it argues that the Fifteenth District Court is entitled to sovereign immunity, and is otherwise DENIED AS MOOT.
NOTES
[1] In its motion, the Defendant City of Ann Arbor also argues that it has been improperly joined in this action because the Fifteenth District Court, and not the City, was Plaintiff's employer.
[2] Somewhat confusingly, Ernst recounts not only the above-quoted four-factor test derived from earlier Sixth Circuit decisions, but also a somewhat different four-factor test culled from the Supreme Court's ruling in Hess v. Port Authority Trans-Hudson Corp., 513 U.S. 30, 44-45, 51, 115 S. Ct. 394, 402-03, 406, 130 L. Ed. 2d 245 (1994). These two tests are essentially the same as to their first three factors, but differ as to their fourth factors. In particular, Ernst reads the fourth factor in Hess as "whether the entity's functions fall within the traditional purview of state or local government." Ernst, 427 F.3d at 359 (citing Hess, 513 U.S. at 45, 115 S. Ct. at 403). Accordingly, the Court will incorporate this additional consideration into its sovereign immunity analysis.
[3] In the third case in which Judge Borman determined that a Michigan trial court was entitled to Eleventh Amendment immunity, the court relied almost exclusively on its prior decisions in Smith and Geller, and did not engage in an extended analysis or discussion of the four-factor test for "arm of the State" status. See Englar, 2006 WL 2726986, at *5.
[4] The defendants in Pucci have taken an appeal from Judge Lawson's ruling. The Sixth Circuit recently heard oral argument, but has not yet ruled on this appeal.
[5] In a separate opinion concurring in part and dissenting in part, Judge Batchelder opined that a remand was unnecessary despite the defendant district court's failure to "definitively demonstrate[] that the state would be liable to pay any money judgment that the plaintiffs might recover," where the remaining factors in the "arm of the State" inquiry pointed decisively toward a grant of sovereign immunity. 311 Fed.Appx. at 873-74 (Batchelder, J., concurring in part and dissenting in part).
[6] Not only has Barachkov seemingly undermined any reliance on Judge Borman's and Judge Lawson's decisions, but the Sixth Circuit also has questioned the continuing vitality of one of its own prior decisions in which it found that an Ohio domestic relations court qualified as an "arm of the State." See Alkire v. Irving, 330 F.3d 802, 811-12 (6th Cir.2003) (questioning "the reasoning ..., if not the result," of the court's earlier decision in Mumford v. Basinski, 105 F.3d 264, 268-70 (6th Cir.1997)). In Smith and Geller, Judge Borman recognized that the ruling in Mumford had been called into question but nonetheless gave it at least some weight, reasoning that the Michigan and Ohio state courts were similar in many of the respects deemed relevant in Mumford. See Smith, 344 F.Supp.2d at 1054-55; Geller, 2005 WL 3556247, at *7*8.
[7] Indeed, while the court in Barachkov noted it only in passing, this Court finds it significant that the plaintiffs in Cameron "received $25,000 from the state of Michigan" to satisfy the judgment they had obtained against the defendant probate court. Cameron, 579 N.W.2d at 861 (emphasis added). This surely suggests that the State of Michigan is at least potentially liable for judgments entered against state trial courts, regardless of the availability of legal avenues for the State to seek reimbursement of such payments.
[8] The Defendant Fifteenth District Court suggests that Kain was overruled by Judicial Attorneys Association v. State, 459 Mich. 291, 586 N.W.2d 894 (1998), but this Court cannot agree. In Judicial Attorneys Association, 586 N.W.2d at 899, the Michigan Supreme Court declared unconstitutional a number of Michigan statutory provisions that designated the local funding unit, and not the State, as the employer of Michigan circuit, district, and probate court employees. Nothing in this ruling is incompatible with the holding in Kain, which recognizedconsistently with both Judicial Attorneys Association and the Michigan Supreme Court's earlier decision in Judges of 74th Judicial Districtthat court workers are employed by the relevant judicial district and not the local funding unit. Notably, however, the decision in Judicial Attorneys Association does tend to undermine the ruling in Pucci, 565 F.Supp.2d at 805, which relies in part upon one of the statutory provisions, Mich. Comp. Laws § 600.591(12), that was declared unconstitutional in Judicial Attorneys Association.
[9] It is true, of course, that even though an entity might be entitled to Eleventh Amendment immunity as an "arm of the State," Congress nonetheless may "abrogate such immunity in federal court if it makes its intention to abrogate unmistakably clear in the language of the statute and acts pursuant to a valid exercise of its power under § 5 of the Fourteenth Amendment." Nevada Department of Human Resources v. Hibbs, 538 U.S. 721, 726, 123 S. Ct. 1972, 1976, 155 L. Ed. 2d 953 (2003). Yet, the Sixth Circuit has held that the congressional abrogation of sovereign immunity as to other sorts of claims brought under the FMLA does not extend to claims brought under the Act's "self-care" provision, 29 U.S.C. § 2612(a)(1)(D). See Touvell v. Ohio Department of Mental Retardation & Developmental Disabilities, 422 F.3d 392, 405 (6th Cir.2005). Since Plaintiff is pursuing only a "self-care" claim in this case, she concedes that Eleventh Amendment immunity, if available to the Fifteenth District Court, would extend to the FMLA claim asserted in her complaint. (See Plaintiff's 5/22/2009 Response Br. at 11-12.) | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2327933/ | 473 F. Supp. 2d 597 (2007)
UNITED STATES of America,
v.
Jeffrey STEIN, et al., Defendants.
No. S1 05 Crim. 0888(LAK).
United States District Court, S.D. New York.
February 9, 2007.
*598 John M. Hillebrecht, New York City, Kevin M. Downing, Garden City, NY, Stanley J. Okula, Jr., Rita M. Glavin, Margaret Garnett, Assistant United States Attorneys, Michael J. Garcia, United States Attorney, New York City, for Plaintiff.
David Spears, Spears & Imes LLP, New York City, Craig D. Margolis, Vinson & Elkins LLP, Washington, DC, for Defendant Jeffrey Stein.
Steven M. Bauer, Karli E. Sager, Latham & Watkins, LLP, San Francisco, CA, for Defendant John Larson.
David C. Scheper, Overland Borenstein Scheper & Kim LLP, Los Angeles, CA, for Defendant Robert Pfaff.
MEMORANDUM OPINION
KAPLAN, District Judge.
This matter is before the Court on a motion by defendants[1] for disclosure of documents. I assume familiarity with the prior opinions in this case.
I
A. The Indictment
The superseding indictment contains forty-six counts. Count One (the "Conspiracy Count") charges all defendants with conspiracy to defraud the IRS by designing, marketing, and implementing fraudulent tax shelters for wealthy individual *599 clients and deliberately concealing those shelters from the IRS. Defendants' scheme allegedly involved at least four separate tax shelter vehicles, one of which was called BLIPS, designed to generate phony tax kisses through a series of sham transactions. Defendants allegedly sought to protect their clients from potential IRS penalties by paying co-defendant Raymond Ruble, a New York tax attorney, to issue opinion letters falsely representing that the tax shelters were likely to survive IRS review. Count One charges also that the defendants conspired to conceal the fraudulent tax shelters from the IRS by, among other things, preparing tax returns that concealed the phony tax losses, obstructing IRS and Senate investigations into the shelters, and failing to register the shelters with the IRS.[2]
Counts Two through Forty (the "Tax Evasion Counts") charge all defendants with tax evasion based on the tax returns of approximately twenty-five different tax shelter clients and defendants.[3]
Counts Forty-one through Forty-four charge defendant Ruble with evading taxes on income related to the alleged scheme, including payments he received from nominee entities controlled by John Larson and Robert Pfaff in exchange for fraudulent opinion letters included in Count One. Two of these counts name defendants Larson and Pfaff as well.[4]
Finally, Counts Forty-five and Forty-six charge certain defendants with obstructing the IRS investigation of the tax shelters.[5]
B. The Genesis of the Present Controversythe May 17, 2004 E-mail
As the record reflects, the defense has made several applications for disclosure of materials in the hands of the IRS, all or substantially all of which have been denied. At some point, however, the government produced to defendants, inadvertently it says, a database that contained an e-mail dated May 17, 2004 that underlies the present request for discovery.
The e-mail, written by an IRS attorney, summarized for his superiors a meeting among the prosecution team in this case and their supervisor, Assistant United States Attorney Shirah Neiman, and a host of IRS officials.[6] It stated that the purposes of the meeting included "discuss[ing] any hazards that the prosecution team may face in addressing the tax shelter registration requirements." It related also that the IRS representatives had given "Shirah [Neiman] a general power point presentation on the tax shelter registration requirements" and supplemented that presentation with a "draft TAM [Technical Advice Memorandum] on registration of BLIPS." According to the e-mail, the IRS representatives explained to the prosecutors "that the registration requirements are still unclear and that we [the IRS representatives] had been advised by Pass-throughs that any formal advice on the registration of BLIPS might be favorable to KPMG." It reported also that the IRS representatives "inquired about whether there could be a relaxation of the Halt on certain types of communications" and that Ms. Neiman "stated that she would like to address any concerns that [they] have in a small meeting format, but that any relaxations was [sic] unlikely with any entity involved as a co-promoter of KPMG [and other entities]."
*600 C. The Motion
The crux of defendants' position is their contention that the e-mail shows, and that further discovery will confirm, that the IRS itself believed that it was unclear whether registration of BLIPS was required by law. They further argue that the e-mail suggests that the prosecution team stopped the IRS from preparing the TAM because it feared that a TAM would conclude that registration was not required and thus undermine the prosecution's case. Accordingly, they argue, the draft TAM and related documents are Brady material that will demonstrate the lack of clarity of the legal duty to register and the reasonableness of defendants' position that registration was not required. They seek an order requiring disclosure of (1) the draft TAM and the PowerPoint presentation presented by the IRS at the meeting, (2) all documents relating to the IRS Office of Chief Counsel's decision to begin drafting a TAM relating to BLIPS and the decision to stop that process prior to completion, which defendants argue must have been at the request of the United States Attorney's Office, (3) all documents relating, to the May 17, 2004 meeting itself, and (4) documents in possession of the prosecution team that were received from or distributed to IRS personnel other than Criminal Investigation Division ("CID") agents on the prosecution team.
While the government disputes defendants' position, it has produced the so-called draft TAM, which actually is a misnomer,[7] as well as the PowerPoint presentation made at the meeting. What remains, therefore, is defendants' requests for documents relating to (1) the decision to begin and to stop drafting a TAM, (2) the May 17, 2004 meeting itself, and (3) all documents that the prosecutors have received from or distributed to the IRS (apart from IRS members of the prosecution team).
II
I begin with defendants' Brady argument. As I made clear in an earlier decision in this case, in this. Circuit, there can be no violation of the government's Brady obligation unless the defendant has been prejudiced by the government's failure to disclose. Claims under Brady therefore may be assessed only after a conviction.[8] Hence, Brady lends no support to the motion. Rather, the question is whether I should exercise my discretion to order the requested disclosure "as a matter of sound case management."[9]
The parties have devoted a great deal of attention to the relevance and importance at trial of evidence, if indeed evidence exists, that some persons within the IRS believed that BLIPS did not have to be registered as a tax shelter. Defendants imply that the BLIPS registration issue is at the heart of this prosecution. Moreover, they contend that evidence that some IRS personnel believed that registration was unnecessary would confirm that the matter was unclear and, in consequence, that they could not willfully have failed to register.
To begin with, movants exaggerate the importance of this issue. While the indictment does allege that the defendants tried *601 to conceal the true facts from the IRS and a Senate investigating committee by a number of means, failure to register shelters was only one of them and BLIPS was only one of several shelters that allegedly were not registered. Thus, defendants have blown the question of whether they were obliged to register BLIPS out of proportion to its true significance in this case.
Defendants' legal position also is questionable, even assuming that there were informed persons in the IRS who held the belief that defendants suspect.[10] I assume for purposes of discussion, but do not decide, that the government will have to prove that the failure to register BLIPS and other shelters was willful in other words, that, as defendants put it, "the law objectively imposed a `legal duty' to register" and defendants knew that registration was required.[11] The question whether there was a legal duty to register, given particular facts, would seem to be a question of law for the Court and thus a matter on which it would be inappropriate to take evidence before a jury. The question of what the defendants subjectively believed presumably would be one of fact on which the views of others are pertinent principally and perhaps only to the extent that those views were known to and relied upon by the defendants.[12]
Undaunted, defendants argue that any views of IRS personnel favorable to them would be relevant and admissible on the basis of, inter alia, James v. United States,[13]United States v. Critzer,[14] and United States v. Garber.[15]
James was an unusual case. The Supreme Court had held in 1946 in Commissioner v. Wilcox[16] that embezzled funds did not constitute taxable income. In 1952, however, the Court held in Rutkin v. United States[17] that extorted money does constitute taxable income and, in so doing, limited Wilcox to its facts. James was convicted of tax evasion by failing to report embezzled funds as income on his 1951 through 1954 returns. A plurality of the Supreme Court overturned the conviction on the ground that, although the rationale of Rutkin vitiated Wilcox, "the element of willfulness could not be proven . . . so long as the statute contained the gloss *602 placed upon it by Wilcox at the time the alleged crime was committed."[18]
This case is quite different. There were not conflicting Supreme Court decisions on whether registration of BLIPS or any like shelter was necessary. Nor, given the Supreme Court's cursory discussion of willfulness, must James be read as going nearly as far as defendants would take it.
Critzer and Garber are of somewhat more aid to the defendants. In Critzer, the Fourth Circuit reversed a tax evasion conviction where the taxpayer, a Native American, concededly had been told by the Department of Interior that the income in question was not taxable. In language unnecessary to the result, it added that, where two co-ordinate branches of the government reach opposite conclusions on the tax issue, "[a]s a matter of law, the requisite intent to evade and defeat income taxes is missing. The obligation to pay is so problematical that the defendant's actual intent is irrelevant."[19]Garber, in contrast, involved a tax question of first impression. There, a divided en banc court, relying in part on Critzer, reversed a criminal conviction on the ground that the trial court had erred in (1) excluding expert testimony to the effect that "a recognized theory of tax law support[ed]" the taxpayer's subjective belief that the income was not taxable, and M refusing to charge the jury that a reasonable misconception of the tax law would negate the necessary intent.[20]Critzer and Garber therefore suggest that sufficient uncertainty concerning a tax question forecloses a finding of willfulness as a matter of law. In the view of the Garber majority, it also renders expert testimony admissible to support a taxpayer's claim of innocent intent. Nevertheless, Critzer and Garber do not get defendants where they want to go.
As an initial matter, these cases are not controlling in this Circuit nor particularly persuasive. The Second Circuit has rejected Garber. Indeed, it has affirmed the exclusion of expert testimony as to the uncertainty of the tax law, relying instead on "prior cases on willfulness [that] consistently require factual evidence of the defendants' state of mind to negate willfulness under any theory."[21] Indeed, the Fifth Circuit also has stepped back from Garber, limiting it to its "bizarre facts" and holding "that, where the uncertainty of the law does not approach legal vagueness, the admissibility of an expert's testimony is governed by relevancy under Fed.R.Evid. 403" and "can be easily outweighed by considerations of potential prejudice and of confusing the jury."[22] Moreover, Critzer and Garber seem to me, at least at present, to conflate two entirely different questions whether the criminal statute was unenforceable under the void-for-vagueness doctrine and the factual question whether the defendant acted with the requisite intent.[23] The former is a question of *603 law for the court while the latter is a factual question to be decided by the trier of fact on the basis of evidence as to what the defendant knew and believed. But it is unnecessary to make a definitive ruling on this point in order to decide the present motion, as the issue here is only whether I should order disclosure of the documents as a matter of sound case management.
Sound case management involves consideration of many factors. Certainly one is whether pretrial disclosure is likely materially to reduce the risk of either a mid-trial delay occasioned by the need to pursue important evidence that could have been disclosed earlier or, in the event of a conviction, the need for a new trial to remedy an otherwise avoidable Brady violation. Another is the extent to which pretrial disclosure of otherwise undiscoverable materials would delay and complicate the trial without materially serving the cause of a just outcome.
I am unpersuaded that ordering disclosure of the remaining categories of material sought by the defendants is necessary or appropriate in the interests of sound case management.
To begin with, defendants have made no showing that the request for disclosure of all documents in the possession of the prosecution team that went to or emanated from the IRS (exclusive of CID agents on the prosecution team) is anything more than a proverbial fishing expedition. The request is not tailored to the issue that ostensibly forms the basis for the motion the allegation that IRS personnel believed that there was no legal obligation to register BLIPS. I cannot see how granting that request is likely to do more than satisfy defendants' curiosity.
Nor do I see why defendants should be given access to documents relating to the IRS Office of Chief Counsel's decision, if there was one, to begin drafting a TAM relating to BLIPS and any decision to stop that process prior to completion. The former aspect of the request is directed to proving that some in the IRS regarded the registration issue as uncertain, while the latter goes to whether the USAO told the IRS to stop the process. It is far from clear that proof of either would be relevant, material, and not excludable under Federal Rule of Evidence 403. In any case, the information now in defendants' hands is more than adequate to enable them to pursue both questions, to the extent they are so advised, without running an unacceptable risk of the adverse consequences that disclosure as a matter of case management is intended to avoid.
Finally, I see no need for discovery of additional documents relating to the May 17, 2004 meeting. The defense now has the e-mail summarizing the meeting, the PowerPoint presentation that was made there, and a list of the persons who attended. To whatever extent anything that occurred at the meeting might be relevant and no persuasive theory that it is relevant has been offered defendants are well able to pursue the matter without additional disclosure.
III
For the foregoing reasons, the motion of documents [docket item 838] is denied in all respects.
SO ORDERED.
NOTES
[1] The moving papers are signed only by counsel for defendants Stein, Larson, and Pfaff, although throughout the motion they assume it to be made on behalf of all defendants. For ease of exposition, the Court will treat the motion as if made by all defendants.
[2] Id. ¶¶ 1-78.
[3] Id. ¶¶ 79-80.
[4] Id. ¶¶ 81-83.
[5] Id. ¶¶ 84-85.
[6] Sager Decl. Ex. A.
[7] See Barral Decl. ¶ 3 ("There was never, to my knowledge, a document correctly described as a `draft TAM.' [In the May 17, 2004 email] I was referring instead to a draft analysis of the BLIPS transaction prepared by [an IRS employee]. That analysis was prepared with the idea of submitting a final version as part of the TAM process.").
[8] United States v. Stein, 424 F. Supp. 2d 720, 726 (S.D.N.Y.2006).
[9] Id. (quoting United States v. Coppa, 267 F.3d 132, 146 (2d Cir.2001)).
[10] The evidence before me suggests that this is unlikely although I do not now resolve that issue.
[11] Defs. Mem. 19.
[12] I recognize that "relevant evidence" is defined as "evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or, less probable than it would be without the evidence." FED.R.Evin. 401 (emphasis added). Hence, if a defendant claimed at trial that he or she believed that registration of BLIPS was not required, proof that some IRS employee who had the same information also thought that registration was unnecessary might be relevant in the sense that the existence of such a belief on the part of the IRS employee would bear on the reasonableness of the defendant's belief and thus make it more probable that the defendant's profession of good faith was credible. But this seems a very remote possibility and one that, at present, is entirely theoretical. Moreover, even if such a person could be found, and even if the predicate of identity of information could be established, the likelihood of exclusion of the evidence under Rule 403 would be great because such evidence would entail a substantial risk of confusing the issues, misleading the jury, and wasting a good deal of time.
[13] 366 U.S. 213, 81 S. Ct. 1052, 6 L. Ed. 2d 246 (1961).
[14] 498 F.2d 1160 (4th Cir.1974).
[15] 607 F.2d 92 (5th Cir.1979) (en banc).
[16] 327 U.S. 404, 66 S. Ct. 546, 90 L. Ed. 752 (1946).
[17] 343 U.S. 130, 72 S. Ct. 571, 96 L.Ed. &33 (1952).
[18] 366 U.S. at 221-22, 81 S. Ct. 1052.
[19] 498 F.2d at 1162.
[20] 607 F.2d at'99.
[21] United States v. Ingredient Tech. Corp., 698 F.2d 88, 97 (2d Cir.1983); see also United States v. Harris, 942 F.2d 1125, 1132 n. 6 (7th Cir.1991); United States v. Curtis, 782 F.2d 593, 599-600 (6th Cir.1986).
[22] United States v. Daly, 756 F.2d 1076, 1083 (5th Cir.1985) (discussing with approval United States v. Burton, 737 F.2d 439 (5th Cir. 1984)).
[23] See Garber, 607 F.2d at 110-12 (Tjoflat, J., dissenting); see also Note, Criminal Liability for Willful Evasion of an Uncertain Tax, 81 CoLum L.REV. 1348, 1359-64 (1981); United States v. Mallas, 762 F.2d 361, 364 n. 4 (4th Cir.1985) (declining to follow Garber to the extent it deviates from the principle that "[t]he uncertainty of a tax law, like all questions of vagueness, is decided by the court as an issue of law"). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2325939/ | 25 F. Supp. 2d 754 (1998)
James L. HARRISON and David Houston d/b/a Clear Lake Rescue, Plaintiffs/Counter-Defendants,
v.
S/V WANDERER, In Rem; and Jesse Duncan and Captron Entertainment, Inc., In Personam, Defendants/Counter-Plaintiffs.
No. Civ.A. H-97-1732.
United States District Court, S.D. Texas, Houston Division.
April 3, 1998.
*755 *756 James T. Brown, Legge Farrow Kimmitt and McGrath, Houston, TX, for Clear Lake Rescue Inc.
Charles F. Herd, Jr., Rice Fowler, Houston, TX, for Jesse Duncan, Captron Entertainment, Inc.
MEMORANDUM AND ORDER
ATLAS, District Judge.
Plaintiffs James L. Harrison and David Houston d/b/a Clear Lake Rescue ("CLR") filed this admiralty action to recover for services rendered to the S/V Wanderer (the "Vessel") when it became grounded on a reef in Galveston Bay. The case is now before the Court on CLR's Motion for Summary Judgment on the Counterclaim filed by Jesse Duncan ("Duncan") and Captron Entertainment, Inc. ("Captron") [Doc. # 25] ("Motion").
CLR argues that Duncan signed a valid release of all claims against CLR, and that the release equally binds Captron. Duncan and Captron argue that the release is not sufficiently clear and conspicuous, that it is void pursuant to Bisso v. Inland Waterways Corp., 349 U.S. 85, 75 S. Ct. 629, 99 L. Ed. 911 (1955), and that it was obtained under duress. Captron argues that Duncan signed the release only in his individual capacity and, as a result, the release is not binding as to Captron's claims against CLR. The Court, having considered the pleadings and the applicable case law, concludes that the material facts are undisputed and that CLR is entitled to summary judgment on the Counterclaim.
I. FACTUAL AND PROCEDURAL BACKGROUND
Background Facts. On the evening of March 28, 1997, the Vessel became grounded on the Red Fish Reef in Galveston Bay. At the time of the grounding, Captron was owner and Duncan was captain of the Vessel. Additionally, Duncan was President, chief executive, director, and authorized representative of Captron.
Duncan attempted to employ Sackett Rescue to pull the Vessel off the grounded position, but Sackett responded that it did not have a proper towboat available. Sackett suggested that Duncan contact CLR. That same night, CLR attempted unsuccessfully to remove the Vessel from the reef. CLR offered to take any passengers back to shore, but none accepted CLR's offer.
The next morning, Duncan telephoned CLR to determine when CLR would return to remove the Vessel from its grounded position. CLR returned to the Vessel and presented Duncan with a salvage contract form, a release of liability, and an invoice form. Duncan read the documents and initially refused to sign them. CLR's representative advised Duncan that CLR would not begin work unless the documents were signed. Duncan signed the documents, including the release, and CLR began attempts to pull the Vessel off ground.
The Release. The Release is isolated on a single sheet of paper and contains only two sentences. It reads, in its entirety, "I hereby release [CLR] of any and all liabilities resulting from rescue work and or towing of my Vessel. This includes but is not limited to damages to my Vessel, Piers, Wharfs, other Vessels, Myself and Passengers aboard my vessel."
Complaint and Counterclaim. CLR filed suit against the Vessel in rem and against Duncan and Captron in personam for the services provided to the Vessel in Galveston Bay. CLR alleged a contract claim and, alternatively, a pure salvage claim.
Duncan and Captron filed a Counterclaim asserting several tort claims for damages to *757 the Vessel allegedly caused by CLR's conduct during its attempts to remove the Vessel from its grounded position. CLR has raised the release as a defense to the Counterclaim.
II. SUMMARY JUDGMENT STANDARD
The United States Supreme Court has held that a motion for summary judgment is properly granted unless there is evidence "on which the jury could reasonably find for the plaintiff. The judge's inquiry, therefore, unavoidably asks whether reasonable jurors could find by a preponderance of the evidence that the plaintiff is entitled to a verdict. ..." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). Rule 56 is an integral part of the Federal Rules of Civil Procedure, recognizing a party's right to demonstrate that certain claims have no legal or factual basis and to have those unsupported claims disposed of prior to trial. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986).
Once the movant shows that there are no genuine issues of material fact, the burden is on the nonmovant to demonstrate with "significant probative evidence" that there is an issue of material fact warranting a trial. Texas Manufactured Housing Ass'n v. Nederland, 101 F.3d 1095, 1099 (5th Cir.1996), cert. denied, ___ U.S. ____, 117 S. Ct. 2497, 138 L. Ed. 2d 1003 (1997). The nonmovant's burden cannot be satisfied by conclusory allegations, unsubstantiated assertions, metaphysical doubt as to the facts, or a scintilla of evidence. Douglass v. United Services Automobile Ass'n, 65 F.3d 452, 459 (5th Cir.1995), revised on other grounds, 79 F.3d 1415 (5th Cir.1996) (en banc); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (en banc).
III. LEGAL ANALYSIS
A. Validity of the Release
Clarity Requirement. CLR in its Motion argued that the validity of the release was governed by the express negligence doctrine adopted by the Texas Supreme Court in Ethyl Corp. v. Daniel Construction Co., 725 S.W.2d 705, 708 (Tex.1987). Duncan and Captron agreed that the Ethyl standard applied. In its reply, however, CLR argued that the validity of a release provision contained in a maritime contract is determined in accordance with maritime law. See Davis & Sons, Inc. v. Gulf Oil Corp., 919 F.2d 313, 317 (5th Cir.1990). The Court agrees that Maritime law governs this issue. As a general rule, the "body of law that governs a claim for indemnity or contribution usually is the same body of law that establishes the indemnitee's primary liability to the plaintiff." Hardy v. Gulf Oil Corp., 949 F.2d 826, 830 n. 7 (5th Cir.1992).[1]
General principles for interpreting releases and indemnity clauses under Maritime law provide that indemnification for or release of one's own negligence must be clearly and unequivocally expressed. Seal Offshore, Inc. v. American Standard, Inc., 736 F.2d 1078, 1081 (5th Cir.1984), citing United States v. Seckinger, 397 U.S. 203, 90 S. Ct. 880, 25 L. Ed. 2d 224 (1970). A release in a maritime contract will not be effective unless its terms are expressed unequivocally. Hardy, 949 F.2d at 834.
The release in this case is conspicuous by its segregation from all other provisions of the contract. The language in the release also is clear and unequivocal, providing that CLR is released from "all liabilities resulting from rescue work and or towing of [the] Vessel." Duncan testified that he read the release and understood its terms. Deposition of Jesse Duncan "Duncan Depo." (Exh. A to Motion), at 204. Specifically, when asked if there were "terms or statements in [the release] that [he didn't] understand what they mean," Duncan responded "No." Id. Although Duncan now maintains that he did not want to release CLR from liability in any *758 respect, the conspicuousness of the release and the clear and unequivocal language of the document establish that Duncan signed a release that he understood was intended to operate as a full release of all claims including those asserted in the Counterclaim. The release satisfies the maritime standard for a valid release.[2]
Bisso Doctrine. Duncan and Captron argue that the contract was one for towage, and exculpatory clauses in towage contracts are void as a matter of public policy under Bisso v. Inland Waterways Corp., 349 U.S. 85, 75 S. Ct. 629, 99 L. Ed. 911 (1955). In The Kennebec, 231 F. 423 (5th Cir.1916), the Fifth Circuit clearly described the difference between salvage and towage:
[a] salvage service is a service voluntarily rendered to a vessel needing assistance, and is designed to relieve her from some distress or danger either present or to be reasonably apprehended. A towage service is one which is rendered for the mere purpose of expediting her voyage, without reference to any circumstances of danger.
Id. at 425. To constitute a salvage service, "[i]t is not necessary that there be danger immediately impending, but if the vessel is stranded so that it is subject to the potential danger of damage or destruction she may well be a subject of salvage services." Fort Myers Shell & Dredging Co. v. Barge NBC 512, 404 F.2d 137, 139 (5th Cir.1968). The undisputed facts establish that, under longstanding Fifth Circuit authority, the service provided by CLR was salvage and not towage.
The unambiguous language of the documents together with the undisputed evidence also establish that the contract was not one for towage. The contract is entitled "Standard Form Yacht Salvage Contract" and provides that CLR agrees "to salvage the vessel" under the terms of the agreement. CLR's invoice provides that the service provided and the basis for the charges is "salvage." The release covers "all liabilities resulting from rescue work and or towing...."
It further is undisputed that the Vessel was grounded and needed assistance to get off the reef. Duncan testified in his deposition that the Vessel was grounded on a bed of oyster shells which were "not good for the bottom paint" and could damage the Vessel. Duncan Depo., at 145. Duncan also testified that he reported to the Coast Guard that the service provided by CLR was salvage. Id. at 163. This is confirmed by the Coast Guard log, attached as Exhibit F to CLR's Reply [Doc. # 30]. Additionally, "a contract for a service known by both parties to be of a kind which the law denominates a salvage service is not vitiated by the fact that the party procuring the rendition of it stated to the other party that it was a towage service." Kennebec, 231 F. at 425-26.
The documents and the undisputed evidence establish that the service provided by CLR was intended to remove the Vessel from its grounded position, not simply to expedite the Vessel's voyage. The service, therefore, was one of salvage and not of towage.
Duress Affirmative Defense. Duncan and Captron allege that the release is unenforceable because it was obtained by duress, specifically by the CLR representative's statement that work would not commence unless the contract, including the release, was executed. The Court concludes that Duncan and Captron have failed to raise a genuine issue of material fact regarding their duress defense.
Maritime contracts may be avoided where they are the result of duress. See Magnolia Petroleum Co. v. National Oil Transport Co., 286 F. 40, 42 (5th Cir.1923). In that case, the vessel was in a "helpless condition" and was not equipped with a radio or a telephone. The Supreme Court has rejected a duress defense to a maritime contract where the vessel, though "hardly without serious danger," was not in immediate danger, and the Master had the ability to consult with the vessel owner prior to entering into the agreement. THE ELFRIDA, *759 172 U.S. 186, 203, 19 S. Ct. 146, 43 L. Ed. 413 (1898).
In this case, it is undisputed that the Vessel, though grounded, was not in immediate danger. Duncan Depo., at 212. It had been resting on the reef for many hours without incident. It is also undisputed that Duncan had access to a functioning telephone and radio. Id. at 147-48. Duncan had the ability to contact the United States Coast Guard. Id. at 146. There is no evidence that Duncan was unable to contact the Vessel owner (Captron) to discuss the situation prior to signing the release. It is also undisputed that Duncan knew of at least one other salvage operator in the area, Sackett, and Duncan failed to recontact that company the second day the vessel was grounded until after he signed CLR's documents. Id. at 166.
Duncan and Captron rely on evidence that CLR would not begin work on March 29, 1997, unless Duncan signed the contract and the release, and that Duncan did not know of anyone to call other than CLR, Sackett, and the Coast Guard. Finally, Duncan and Captron have submitted no legal authority for their argument that CLR had any obligation to advise a potential client of all area competitors before entering into a contract for services. The evidence relied upon by Duncan and Captron therefore fails to raise a genuine issue of material fact regarding duress.
Conclusion as to Effectiveness of Release. The release in this case is conspicuous and clearly and unequivocally releases the claims asserted in the Counterclaim. Duncan and Captron have failed to present sufficient evidence to support their duress defense. As a result, the release is valid and operates to release all claims raised by Duncan and Captron in their Counterclaim.
B. Applicability of Ruling to Captron
Captron argues that, even should the Court conclude as it has that the release is valid and binding, it should not be binding on Captron because it was signed by Duncan only in his individual capacity. Captron relies on Duncan's statement in his affidavit, attached as Exhibit A to its Response to the Motion [Doc. # 29], that he "did not sign the documents on behalf of Captron, rather in [his] own individual capacity, because [he] was the charterer of the Sailboat." Duncan Aff., at 3.
Initially, it is undisputed that Captron was the owner of the Vessel. Duncan was the President, chief executive, and a director of Captron. Duncan Depo., at 24. Moreover, he was Captron's representative on the Vessel, even when the Vessel was under charter.[3]Id. at 279-80. It is also undisputed that Duncan was the captain of the Vessel at all times in question. Id. at 144. As a matter of law, the "master" of a vessel has the authority to bind its owners by acts performed within the scope of the master's normal duties and responsibilities. Jackson Marine Corp. v. Blue Fox, 845 F.2d 1307, 1309-10 (5th Cir.1988).
Additionally, Duncan's affidavit is inconsistent with his prior sworn deposition testimony. Although Duncan states in his affidavit that he had chartered the Vessel and was acting only in his individual capacity, he testified in his deposition that, only hours after signing the CLR documents, he acted for Captron to hire Sackett Rescue. Duncan Depo., at 215. A non-movant cannot defeat a motion for summary judgment by submitting affidavits which are in conflict with prior sworn deposition testimony. S.W.S. Erectors, Inc. v. Infax, Inc., 72 F.3d 489, 495 (5th Cir.1996).
Duncan, acting as master of the Vessel and as Captron's representative on the Vessel, had the capacity to bind Captron when he executed the contract and release. Captron has failed to present evidence which is sufficient to raise a genuine issue of material fact regarding its argument that Duncan was acting only in his individual capacity and not as a representative of Captron. Captron, as *760 principal, therefore is bound by its agent Duncan's actions.
IV. CONCLUSION
The claims asserted in the Counterclaim are barred by the release, which is valid and binding on both Duncan and Captron. Accordingly, it is hereby
ORDERED that CLR's Motion for Summary Judgment on the Counterclaim [Doc. # 25] is GRANTED.
NOTES
[1] In Hardy, a choice of law issue arose because the contract provided that Texas law would apply. Hardy, 949 F.2d at 826 n. 7. In this case, however, the contract is consistent with the general rule, providing in paragraph 7 that the services performed are governed by the "Admiralty and Maritime Jurisdiction of the Federal Courts...."
[2] The result might well be different under the stricter Ethyl standard, which effectively requires explicit reference to claims for ones own negligence in the release before the release will be held binding.
[3] Duncan's testimony was as follows:
Q. And on those occasions when the charterer, the customers who wanted to use the boat, when they wanted to be the master, steer, adjust the sails, do whatever, would you still normally want to be available as the owner aboard the owner's representative abroad?
A. Yes.
Duncan Depo., at 279-80. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2330037/ | 504 F. Supp. 2d 1154 (2007)
ACE PROPERTY & CASUALTY INSURANCE COMPANY, as successor to Cigna Property & Casualty Insurance Company, as successor to Aetna Insurance Company; and Century Indemnity Company, as successor to CCI Insurance Company, as successor to Insurance Company of North America, Plaintiffs,
v.
SUPERIOR BOILER WORKS, INC., Defendant.
No. 05-1301-JTM.
United States District Court, D. Kansas.
August 27, 2007.
*1155 Erin O'Brien, James F. Martin, Kathleen A. McQueeny, Cohn Baughman & Martin, Chicago, IL, Geron J. Bird, Scott R. Schillings, Hinkle Elkouri Law Firm, LLC, Wichita, KS, for Plaintiffs.
Douglas Y. Curran, Richard L. Green, Stinson Morrison Hecker LLP, Kansas City, MO, for Defendant.
MEMORANDUM AND ORDER
MARTEN, District Judge.
The present matter arises from plaintiffs' and defendant's motions for summary judgment. For the following reasons, the court denies plaintiffs' motion for summary judgment and grants in part and denies in part defendant's motion for summary judgment.
Plaintiffs seek a declaratory judgment pursuant to 28 U.S.C. §§ 2201-2202, in which the plaintiffs request the determination of whether (1) they are obligated to pay only their pro rata share of Superior Boiler's defense and indemnity costs for the underlying asbestos claims based on a pro rata, time-on-the-risk allocation method (Count I), and whether (2) Superior Boiler is responsible for its pro rata share of defense and indemnity costs for the underlying asbestos claims based on a pro rata, time-on-the-risk allocation method for periods during which it was uninsured and periods during which it placed insurance with a company that later became insolvent (Count II). Plaintiffs also seek an order directing defendant to reimburse plaintiffs for defense and indemnity costs for the underlying asbestos claims that they have paid in excess of their properly allocated pro rata share. Defendant argues that despite the fact that the underlying claims were asserted since 1987, plaintiffs made defense and indemnity payments since 1987 pursuant to their insurance contracts, and that plaintiffs made demands on Superior to pay a share of those costs, which Superior refused in 1996. Plaintiffs now seek a declaration of coverage and equitable contribution for reimbursement of paid amounts. Furthermore, in its motion for summary judgment, defendant argues that the claims for paid amounts are barred by the applicable Kansas statute of limitations for written contracts (K.S.A. § 50-511) of five years *1156 and for equitable contribution (K.S.A. § 60-512) of three years. Therefore, defendant argues, plaintiffs' claims should be dismissed.
I. Factual Background:
A. Defendant's Insurance Coverage:
Defendant, Superior Boiler, is a manufacturer of industrial boilers and was named as a defendant in thousands of lawsuits by individuals for alleged bodily injury due to asbestos exposure while repairing or working on or near boilers manufactured by defendant. In certain claims, asbestos exposure began as early as 1938 and as late as 2006. From September 26, 1965 to September 26, 1966, the Hartford Accident and Indemnity Company (hereinafter "Hartford") provided liability insurance to defendant. From the period of September 27, 1966 to March 9, 1967 (hereinafter "1966-1967 Uninsured Gap"), after the Hartford policy's expiration and prior to the next coverage date, defendant was either uninsured, self-insured, or maintains no evidence of insurance. Thereafter, from March 10, 1967 to April 15, 1972, The Home Insurance Company (hereinafter "Home") provided liability insurance to defendant. Plaintiff, ACE Property & Casualty (hereinafter "ACE P & C"), and defendant entered into insurance contracts effective from April 15, 1972 to April 15, 1983. Thereafter, plaintiff, Century Indemnity, and defendant entered into insurance contracts effective April 15, 1983 to April 15, 1986.
Prior to the Hartford coverage which began on September 26, 1965, defendant was either uninsured, self-insured, or maintains no evidence of insurance. (hereinafter "Pre-1965 Period"). Additionally, from March 11, 1970 to April 14, 1970 (hereinafter "1970 Uninsured Gap"), defendant was either uninsured, self-insured, or maintains no evidence of insurance.
Plaintiff Century Indemnity and defendant entered into "claims made" insurance contracts, effective April 15, 1986 to April 15, 1988. These contracts cover claims tendered by Superior Boiler to Century Indemnity during the policy period, but Superior did not make any asbestos claims during this period. For the insurance policy effective April 15, 1988 to April 15, 1989, the policy was a "claims made" insurance policy; however, the policy contained an asbestos exclusion precluding coverage for defendant's asbestos liabilities. Defendant does not allege that it is entitled to coverage under this policy in its counterclaim. Therefore, the insurance policy for that period does not provide coverage for the underlying claims. Plaintiffs call this period from April 15, 1986 to April 15, 1989 the "No Coverage Period."
Both of the policies provided by ACE P & C and Century Indemnity provided similar versions of the following language:
The [insurer] will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of [bodily injury or property damage] to which this insurance applies, caused by an occurrence, and the [insurer] shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements.
Plaintiffs' Exhibit L, ACE P & C Policy No. CBP155738, at SB 00285. The policies define an "occurrence" as "an accident, *1157 including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured." Id. at SB 00287 (emphasis added).
From April 15, 1989 to the present, defendant was uninsured, self-insured, or maintains no evidence of insurance for the underlying claims (hereinafter "Post-1989 Period").
B. Defendant's Underlying Claims:
According to plaintiffs, defendant notified plaintiffs of the underlying claims and requested payment of defense and indemnity costs for the underlying claims in or around 1989. From 1989 to 2003, plaintiffs provided a defense and paid defense and indemnity costs for defendant for the underlying claims, subject to a full reservation of rights and in accordance with an informal cost sharing agreement with Hartford and Home. In 2003, however, Home was declared insolvent and was placed in liquidation. Plaintiffs began to pay an increased share of defense and indemnity costs following the insolvency.
Plaintiffs have demanded that defendant assume responsibility for its own pro rata share of defense and indemnity costs incurred in the underlying claims for periods during which it was uninsured, self-insured, or maintains no evidence of insurance, and periods during which it was insured by the now insolvent Home.
II. Standard of Review:
Summary judgment is proper where the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show 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). In considering a motion for summary judgment, the court must examine all of the evidence in a light most favorable to the opposing party. Jurasek v. Utah State Hosp., 158 F.3d 506, 510 (10th Cir. 1998). The party moving for summary judgment must demonstrate its entitlement to summary judgment beyond a reasonable doubt. Baker v. Board of Regents, 991 F.2d 628, 630 (10th Cir.1993). The moving party need not disprove the nonmoving party's claim or defense; it need only establish that the factual allegations have no legal significance. Dayton Hudson Corp. v. Macerich Real Estate Co., 812 F.2d 1319, 1323 (10th Cir.1987).
The party opposing summary judgment must do more than simply show there is some metaphysical doubt as to the material facts. "In the language of the Rule, the nonmoving party must come forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986) (quoting Fed.R.Civ.P. 56(e)) (emphasis in Matsushita). The opposing party may not rely upon mere allegations or denials contained in its pleadings or briefs. Rather, the opposing party must present significant admissible probative evidence supporting that party's allegations. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986).
III. Conclusions of Law:
Plaintiffs argue that there are three questions to be considered by this court: (1) whether defendant is responsible for the pro rata, time-on-the-risk share of defense and indemnity costs for the underlying claims for the following time periods: (a) Pre-1965 period; (b) 1966-67 Uninsured Gap; (c) 1970 Uninsured Gap; (d) No Coverage Period; and (e) Post-1989 Period (collectively "uninsured periods"); (2) whether defendant is responsible for *1158 the pro rata, time-on-the-risk share of defense and indemnity costs for insolvent periods; and (3) whether defendant should reimburse plaintiffs for the amounts paid for defense and indemnity costs in excess of their pro rata share?
As plaintiff suggests, the court has jurisdiction under 28 U.S.C. § 1332; the amount in controversy exceeds $50,000 and the parties are citizens of different states. Plaintiffs request a declaration concerning respective duties, rights, and obligations of the parties regarding insurance coverage issues, which fall within the reach of 28 U.S.C. § 2201.
"In making choice of law determinations, a federal court sitting in diversity must apply the choice of law provisions of the forum state in which it is sitting." Great Plains Mut. Ins. Co., Inc. v. Northwestern Nat. Cas. Co., 914 F. Supp. 459 (D.Kan.1996) (quoting Shearson Lehman Bros., Inc. v. M & L Invs., 10 F.3d 1510, 1514 (10th Cir.1993)). Where a court interprets a contract, Kansas courts apply the law of the place where the contract was made. Id. (citing Simms v. Metropolitan Life Ins. Co., 9 Kan. App. 2d 640, 642, 685 P.2d 321, 324 (1984)). The present case involves contracts made in Kansas. Therefore, the court will apply Kansas law.
A. Plaintiffs' Motion for Summary Judgment:
1. Declaration of Coverage:
Plaintiffs argue that the appropriate allocation method for defense and indemnity costs under Kansas law is' pro rata, time-on-the-risk. Primarily, plaintiffs note that the Kansas Supreme Court interpreted similar contract language in Atchison Topeka & Santa Fe Ry. Co. v. Stonewall Ins. Co., 275 Kan. 698, 750, 71 P.3d 1097, 1132 (2003), where Santa Fe sought declarations for indemnification for settlements of several thousand claims and lawsuits by employees who alleged hearing losses caused by excessive noise in the workplace. The district court determined that "[noise-induced hearing loss] (NIHL) injuries continue progressively throughout the course of unprotected exposure until the exposure to excessive noise is interrupted." Atchison, 275 Kan. at 701, 71 P.3d at 1100. The contractual provision at issue in Atchison included the provision where insurers agreed to indemnify Santa Fe for "any and all sums" of damages arising out of an "accident or accidents" in excess of a certain amount. Atchison, 275 Kan. at 702-03, 71 P.3d at 1101-02. "Occurrence" was defined as "one or more accidents or series of accidents arising out of or resulting from one event." Id. In determining which allocation rule applied to the "all sums" language, the Atchison court agreed with the Illinois Court of Appeals in Missouri Pacific R.R. Co. v. Ina Ins. Co., 288 Ill.App.3d 69, 223 Ill. Dec. 350, 679 N.E.2d 801 (1997) (hereinafter "MoPac") in holding that joint and several liability is not consistent with the term "all sums" in the insurance policies. Atchison, 275 Kan. at 754, 71 P.3d at 1153. The court further held that joint and several liability contradicts the fundamental insurance agreement to indemnify the insured for injuries during a specified policy period. Id. The court agreed with the MoPac court in holding that "the sums the insurer is obligated to pay must be on account of property damage arising out of an occurrence during the policy period." Atchison, 275 Kan. at 751, 71 P.3d at 1132. The court explained that the pro-rata, time-on-the-risk allocation was appropriate where "a single continuous occurrence results in an unallocable loss implicating successive policy periods." Atchison, 275 Kan. at 753, 71 P.3d at 1134.
Defendant objects to plaintiffs' motion for summary judgment arguing that the fact that there was a single occurrence in Atchison was central to the Kansas Supreme *1159 Court's holding in that case. By adopting the holding of the Illinois appellate court in MoPac, which held that pro rata time-on-the-risk allocation of damages should be used if other methods of allocation were not possible, the Kansas Supreme Court noted that in reaching this conclusion, the Illinois appellate court distinguished its previous holding from Zurich Ins. Co. v. Raymark Indus., Inc., 118 Ill. 2d 23, 112 Ill. Dec. 684, 514 N.E.2d 150 (1987), which declined to order a pro rata allocation of defense and indemnity obligations. Atchison, 275 Kan. at 753, 71 P.3d at 1134. The MoPac court distinguished Zurich on the basis that in MoPac, "a single continuous occurrence result[ed] in an unallocable loss implicating successive policy periods." Id. The court agrees with defendant. In this case, it is unclear whether a single continuous event occurred or whether the claims should constitute multiple occurrences. In their reply brief, plaintiffs simply say that there is no present controversy or need to decide the number of occurrences here. In the case where the court decides to address this issue, plaintiffs argue the fact that the underlying claims were brought against multiple defendants other than Superior Boiler is irrelevant. The court disagrees and believes that due to this unresolved question of whether a single continuous occurrence resulted in an unallocable loss covering successive policy periods, there is a genuine issue as to material fact which precludes summary judgment on this issue. Therefore, the court denies plaintiffs' motion for summary judgment on this issue.
2. Equitable Contribution:
Plaintiffs also argue that reimbursement of defense and indemnity costs are appropriate because plaintiffs have paid over and above their properly allocated pro rata share. Plaintiffs note that reimbursement is appropriate because the parties' pro rata, time-on-the-risk share of defense and indemnity costs can easily be determined. However, the court denies plaintiffs' motion for summary judgment on this issue for the same reason the court denied plaintiffs' motion for summary judgment on the declaration of coverage. Plaintiffs have not proven that a material issue of fact does not exist with respect to the application of the pro rata, time-on-the-risk allocation. The court is not persuaded that plaintiffs have demonstrated that the pro rata, time-on-the-risk allocation is appropriate because it is unclear whether a single occurrence exists with the underlying claims. Under the authority plaintiffs advance, it must be shown that a single continuous occurrence resulted in an unallocable loss covering successive policy periods. The court denies plaintiffs' motion for summary judgment on Count II, equitable contribution because a genuine issue as to a material fact exists which precludes summary judgment.
B. Defendant's Motion for Summary Judgment:
Alternatively, defendant argues that plaintiffs' claims are barred by the applicable Kansas statutes of limitations. Under Kansas law, a determination of the limitations period is governed by the law of the forum. Graphic Technology, Inc. v. Pitney Bowes Inc., 968 F. Supp. 602, 605 n. 3 (D.Kan.1997). Both parties agree that Kansas law applies here.
The Federal Declaratory Judgment act contains no statute of limitations of its own. "When the declaratory judgment sought by a plaintiff would declare his entitlement to some affirmative relief, his suit is time-barred if the applicable limitations period has run on a direct claim to obtain such relief. What determines the applicable limitations period is `the basic nature of the suit in which the issues involved *1160 would have been litigated if the Declaratory Judgment Act had not been adopted.'" 118 East 60th Owners, Inc. v. Bonner Properties, Inc., 677 F.2d 200, 202 (2nd Cir.1982); cf. Columbian Financial Corp. v. Businessmen's Assurance Company of America, 743 F. Supp. 772, 775 (D.Kan.1990); reversed on other grounds, 956 F.2d 277 (10th Cir.1992) (where federal ERISA statute does not contain a statute of limitations, court is to apply the "most appropriate state statute of limitations").
1. Statute of Limitations: Written Contracts:
Plaintiffs' first count requests the court to interpret the language of insurance contracts entered by Ace and Century to declare the rights and obligations which concern the duty to defend and duty to indemnify. The applicable statute of limitations for the first count is K.S.A. § 60-511(1) which provides: "The following actions shall be brought within five [5] years: (1) an action upon any agreement, contract or promise in writing." See also Columbian Financial Corp., 743 F.Supp. at 772 (where the court found that K.S.A. § 60-511(1) was the appropriate statute of limitations applicable in a declaratory judgment action which sought interpretation of stop-loss medical insurance policies. The court concluded that interpretation of insurance policies fell within the ambit of "an action upon an agreement, contract or promise in writing" and applied K.S.A. § 60-511(1)).
Since the five year statute of limitations is applicable to the present case, the court must consider when the cause of action accrued between plaintiffs and defendant. "A cause of action for breach of contract accrues when a contract is breached by the failure to do the thing agreed to, irrespective of any knowledge on the part of the plaintiff or of any actual injury it causes." Cline v. Southern Star Cent. Gas Pipeline, Inc., 356 F. Supp. 2d 1203, 1211-12 (D.Kan.2005) (quoting Pizel v. Zuspann, 247 Kan. 54, 795 P.2d 42, 54 (1990)); see also Johnson v. Kan. Pub. Employees Ret. Sys., 262 Kan. 185, 935 P.2d 1049, 1054 (1997) (stating that "once a plaintiff realizes that a defendant has no intention of honoring an agreement, the cause of action accrues").
Defendant argues that plaintiffs' cause of action for a declaration of their rights under the insurance policies accrued in 1996, over nine years prior to their filing the present action on September 30, 2005, and is therefore time-barred by K.S.A. § 60-511(1).
In a letter dated December 29, 1995, defendant notes that Superior rejected plaintiffs' demands that Superior owed a percentage of costs and advised plaintiffs regarding asbestos claims:
Therefore, it is Superior Boiler's position, consistent with the prior conduct of the parties, that it has completely satisfied the requirement that it prove insurance coverage and, therefore, you and the other insurance carriers are required to completely take care of all indemnity payments and defense costs. This is in line with your contractual duties under the insurance policies.
Defendant's Exhibit B, Attachment 1, at pg. 3. In a March 8, 1996 letter, defendant Superior again rejected plaintiffs' assertion that Superior owed a percentage of defense and indemnity costs in the underlying claims and stated: "Superior has not in the past and will not in the future agree to assuming a percentage cost of defense and indemnity payments under the theory that Superior is a `self-insurer.'" Id. at Attachment 2, pg. 2. Finally, in a May 23, 1996 letter, Superior once again stated that it would not pay any defense or indemnity costs: "The position of Superior has been *1161 clear that it will not contribute to defense costs or indemnity payments, until the policy limits of its coverage with CIGNA and the other insurance carriers are exhausted." Id. at Attachment 3, pg. 1.
Plaintiffs argue that there is no contract which plaintiffs claim was breached by Superior Boiler when it refused to contribute toward its defense and indemnity costs. Plaintiffs further argue that Superior Boiler's prior refusal to contribute simply cannot transform plaintiffs' claim for declaratory relief into a time-barred breach of contract claim. However, the court disagrees. Plaintiffs state in their complaint that they request declaratory relief for insurance contract coverage issues that arose as long ago as 1989. Plaintiffs' Complaint (Dkt. No. 1), at ¶ 11.
Although plaintiffs argue that they now seek a declaratory judgment regarding how defense and indemnity costs incurred in connection with pending and future underlying claims should be allocated, the underlying claims are based on contractual obligations between plaintiffs and defendant. Plaintiffs' Response to Defendant's Motion for Summary Judgment, at pg. 3. In fact, Count I of the Complaint seeks a declaration concerning defense and indemnification costs in "Underlying Claims." Plaintiffs' Complaint (Dkt. No. 1), at Count I Prayer for Relief. Plaintiffs define "Underlying Claims" as the asbestos exposure lawsuits filed against Superior "beginning in approximately 1989." Id. at para. 11. The court finds that these underlying claims are predicated upon the contractual agreement between plaintiffs and defendant. It is clear that the defendant refused to pay a share of defense and indemnity costs because the defendant believed the insurance contracts obligated the plaintiffs to pay those costs. Defendant's refusals occurred on December 29, 1995, March 8, 1996 and May 23, 1996. In 1996, plaintiffs asserted an "obligation" to be owed by Superior to plaintiffs, but Superior refused to perform that alleged obligation. By May 1996, plaintiffs were aware that defendant did not intend to pay the asserted obligation. However, plaintiffs did not file the present action until September 30, 2005, nearly nine years later, in violation of the five year statute-of-limitations period under K.S.A. § 60-511(1). Therefore, the court grants defendant's motion for summary judgment on this issue.
2. Statute of Limitations: Equitable Contribution:
Defendant also argues that it is entitled to summary judgment because plaintiffs' second claim is barred by the Kansas statute-of-limitations for equitable contribution.
Under Kansas law, an action for contribution is governed by the three-year limitations period provided in K.S.A. § 60-512 which provides: "The following action shall be brought within three (3) years: (1) all actions upon contracts, obligations, or liabilities express or implied but not in writing." In Raytheon Aircraft Credit Corp. v. Pal Air Int'l, Inc., 923 F. Supp. 1408, 1418 (D.Kan.1996), the court considered agreements among an airplane company, an airplane buyer, a guarantor of a note, and other parties. The court, citing Cipra v. Seeger, 215 Kan. 951, 953, 529 P.2d 130, 133 (1974) noted that Cipra held that since plaintiff had not "paid the judgment, his cause of action had not accrued when the petition was filed." Finding that the defendants alleged that they incurred losses in excess of what they would otherwise owe under the agreements between the parties, the court held that the allegation satisfied the requirement in Cipra that contribution requires a mature claim and allowed the defendants to proceed with their contribution claim under K.S.A. § 60-2413(a).
*1162 Defendant notes that by applying the holding of Cipra and Raytheon Aircraft to the present case, two possibilities result: (1) if the court agrees with plaintiffs that the thousands of underlying claims arise out of a single occurrence, plaintiffs' claim for equitable contribution is barred in its entirety by the three-year limitations period in K.S.A. § 60-512 because plaintiffs' claims for contribution was mature more than three years before they filed their complaint on September 30, 2005 or (2) if each underlying claim arises out of a separate occurrence, plaintiffs' equitable contribution claims for reimbursement of indemnity costs and defense costs paid toward any underlying claim filed before September 30, 2002 and for which plaintiffs paid any costs before September 30, 2002 were mature more than three years before they filed their complaint on September 30, 2005 and are therefore barred by the three-year limitations period and accordingly, should be dismissed.
However, the court previously ruled on plaintiffs' motion for summary judgment that it is unclear as to whether the underlying claims constitute a single occurrence. Therefore, the court determined that summary judgment was inappropriate on plaintiffs' motion. Accordingly, the court finds that summary judgment is not appropriate on the present issue because a material issue of fact exists as to whether the underlying claim constitute a single occurrence under the authorities plaintiffs cite in their motion for summary judgment. Therefore, the court dismisses defendant's motion for summary judgment on Count II, equitable contribution.
IT IS ACCORDINGLY ORDERED this 27th day of August, 2007, that plaintiffs' motion for summary judgment (Dkt. No. 24) is denied and that defendant's motion for summary judgment (Dkt. No. 61) is granted with respect to Count I and denied with respect to Count II. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2327427/ | 119 F. Supp. 2d 81 (2000)
UNITED STATES of America
v.
John M. DEAN.
No. 3:00CR41 JBA.
United States District Court, D. Connecticut.
June 8, 2000.
*82 Paul F. Thomas, Federal Public Defender's Office, New Haven, CT, for John M. Dean, defendants.
Peter D. Markle, Stephen C. Robinson, Deborah R. Douglas, U.S. Attorney's Office, New Haven, CT, for U.S.
RULING ON DEFENDANT'S MOTION TO DISMISS (Doc. # 12)
ARTERTON, District Judge.
In his Motion to Dismiss (Doc. # 12), Defendant John M. Dean ("Johnny Dean") seeks dismissal of this indictment on the grounds that the institution of a federal case constitutes vindictive prosecution and requests that the Court hold an evidentiary hearing on the pending motion. See Def.'s Mem. in Support at 4 (Doc. # 13).
Legal Standard
Even though the decision whether to prosecute generally rests within the broad discretion of the prosecutor, United States v. White, 972 F.2d 16, 19 (2d Cir. 1992), and a prosecutor's pretrial decision is presumed legitimate, a prosecution brought with a vindictive motive, such as exercise of authority motivated to penalize or retaliate against a defendant for the valid exercise of a constitutional or statutory right to an appeal or habeas proceeding is prohibited by the Due Process Clause of the Fourteenth Amendment. See Blackledge v. Perry, 417 U.S. 21, 24, 94 S. Ct. 2098, 40 L. Ed. 2d 628 (1974) In United States v. Johnson, 171 F.3d 139 (1999), the Second Circuit held that a finding of actual vindictiveness, or a presumption of vindictiveness unrebutted by objective evidence justifying the prosecutor's action, requires dismissal of the indictment.
To establish actual vindictive motive, "the defendant must show that (1) the prosecutor harbored genuine animus toward the defendant, or was prevailed upon to bring the charges by another with animus such that the prosecutor could be considered a `stalking horse,' and (2) the Defendant would not have been prosecuted but for the animus." United States v. Koh, 199 F.3d 632, 640 (2d Cir.1999). "[A] finding of actual vindictiveness requires direct evidence such as the statement by the prosecutor which is available only in the rare case." United States v. Johnson, 171 F.3d at 140. To demonstrate a presumption of vindictiveness, "the circumstances of the case [must] create a `realistic likelihood' of prosecutorial vindictiveness." A presumption of vindictiveness does not arise merely from a shift of a prosecution from state to federal jurisdiction. See, e.g., United States v. Johnson, 171 F.3d at 141 n. 1 (noting that "[w]e previously have held that the question of prosecutorial vindictiveness generally does not arise when the two prosecutions at issue are conducted by separate sovereigns").
United States v. Sanders, 211 F.3d 711 (2nd Cir.2000), sets out the appropriate standard a defendant must meet in order to obtain discovery on a claim of vindictive prosecution: "the defendant must show "some evidence" of "genuine animus," not the mere possibility that animus might exist under the circumstances." Id. at 717. In adopting what it recognized was a "rigorous" standard, the Second Circuit observed that such standard would serve as "a significant barrier to the litigation of insubstantial claims," recognizing that "examining the basis of a prosecution delays the criminal proceeding, threatens to chill law enforcement by subjecting the prosecutor's motives and decisionmaking to outside inquiry, and may undermine the prosecutorial effectiveness by revealing the Government's enforcement policy." Id. at 717.
Chronology of Events Leading up to Federal Indictment
The following facts are contained in Defendant's Motion to Dismiss. On August 9, 1999, Dean was arrested by New Haven police officers for possession of narcotics with intent to sell, possession of narcotics *83 with intent to sell within 1500 meters of a school and interfering with a search incident to arrest. Following his arrest, Dean retained counsel, who represented him at various state court appearances. At a September 9, 1999 hearing, Dean entered a not guilty plea to all state charges then pending and the state prosecutor offered a disposition of seven years imprisonment, suspended after three years and three years probation with the right to argue for a lower sentence. Dean was never informed of any possible or pending federal criminal investigation by the United States Attorney's Office. The state case was continued to September 30, 1999 and October 13, 1999 with the understanding that Dean could either accept the state's offer or the case would proceed to the trial docket. At the October 13, 1999 hearing, Dean declined the state's plea offer, choosing to proceed to trial, and the case was continued until November 10, 1999. On October 19, 1999, the state prosecutor turned over the narcotics seized when the Dean was arrested to federal law enforcement officers for further investigation. At the November 10, 1999 state court hearing, Dean was informed that his state case had been continued because it was now being reviewed for federal prosecution. Dean remained released on bond from his state arrest on August 9, 1999 until he was arrested on the federal charge on April 3, 2000.
On February 24, 2000, Defendant was indicted for violation of 21 U.S.C. § 841(a)(1) and § 841(b)(1)(B)(iii) based on the activity at issue in the state court prosecution. He was arrested on this federal charge on April 3, 2000. At the time Dean was arrested and presented, the United States Attorney's Office moved to detain Dean without bond as a risk of flight and danger to the community, invoking the temporary detention provision of 18 U.S.C. § 3142(f)(2) pending a hearing that was scheduled for April 5, 2000. At that hearing, Dean was released from custody on various conditions pending disposition of this case. Detective Andrew Muro from the New Haven Police Department, who was involved in the state investigation and is also a deputized federal agent on the New Haven Drug Task Force, was present at both Dean's initial presentment and detention hearing in federal court.
Legal Analysis
Although denominated as a Motion to Dismiss the indictment, Dean does not seem to claim the evidence known and presented at this juncture would sustain a claim of vindictive prosecution, but instead seeks "further proceedings, i.e. an evidentiary hearing and/or discovery." See Def.'s Reply Mem. at 4 (Doc. # 16). In essence, Dean contends he is entitled to an evidentiary hearing based on the following three facts: 1) the close temporal proximity between the referral of his case by state prosecutors to the United States Attorney's Office and his insistence on a trial in state court; 2) the presence of New Haven Detective Andrew Muro, involved in the state prosecution, at defendant's presentment and detention hearing in federal court; and 3) the United States Attorney's efforts to detain Dean following his federal arrest notwithstanding his prior release on bail on the state charges.
Dean agrees that he "cannot and does not rely upon a presumption of vindictiveness premised upon the shift of this case from state court to federal court and the corresponding increase of potential punishment," See Def.'s Mem. in Support at 3, and that "precedent requires a demonstration of actual vindictiveness, which requires direct evidence, such as a statement by the prosecutor evidencing the vindictive motive." Def.'s Reply Mem. at 2.
Dean fails to present any evidence of genuine animus on the part of United States Attorney's Office, and he seemingly concedes that the mere referral of the state charges to the United States Attorney's Office and its motion to detain him does not reflect such animus. See United States v. Johnson, 171 F.3d at 141 n. 1. Nor does Dean present any evidence that *84 the state prosecutor harbored actual animus against him based on his refusal to plead guilty in lieu of trial, other than the inference urged from the sequence of events. Similarly, the fact that the shift of prosecution sovereigns now exposes Dean to enhanced punishment under the Federal Sentencing Guidelines for the federal charges does not create a presumption of vindictiveness. See United States v. Goodwin, 457 U.S. 368, 102 S. Ct. 2485, 73 L. Ed. 2d 74 (1982) (no presumption of vindictiveness found where the same prosecutor sought an indictment and conviction of a felony charge after the accused, in a related pending misdemeanor offense refused to plea guilty and demanded a trial); Bordenkircher v. Hayes, 434 U.S. 357, 365, 98 S. Ct. 663, 54 L. Ed. 2d 604 (1978) (no presumption of vindictiveness where prosecutor carries out threat made during plea negotiations to reindict the accused on more serious charges when he did not plead guilty to the offense originally charged). The presence of Detective Andrew Muro at Dean's initial federal proceedings also does not constitute evidence from which could be inferred state prosecutor or United States Attorney animus.
Further, even if Dean had proffered sufficient evidence that the state prosecutor harbored genuine animus against him, there is no suggestion that the state prosecutor prevailed upon the United States Attorney by turning over the narcotics evidence so as to influence United States Attorney's independent decision to seek a federal indictment against Dean or move for Dean's detention. See United States v. Monsoor, 77 F.3d 1031, 1035 (7th Cir.1996) ("the animus of a referring agency is not, without more, imputed to federal prosecutors."). Therefore, even if Dean's allegations are credited and the Court draws all reasonable inferences from the circumstances leading to the federal arrest, it still remains a matter of pure speculation or surmise that the United States Attorney's Office was influenced in any way by some vindictive motive attributable to the state prosecutor. Finally, Dean fails to offer any evidence that the United States Attorney's "prosecution [of him] would not have been brought even in the absence of vindictiveness." See United States v. Aviv, 923 F. Supp. 35, 38 (S.D.N.Y.1996).
In summary, Defendant's "showing" of vindictive prosecution does not rise above the level of mere allegations and conjecture drawn from the sequence of events leading to this indictment. Absent "some evidence" that this federal prosecution was brought with "genuine animus" to punish the defendant or retaliate against him based on his decision to decline the state prosecutor's plea offer, Dean is not entitled to discovery or an evidentiary hearing on his claim of vindictive prosecution.
CONCLUSION
Defendant's Motion to Dismiss [Doc. # 12] based on vindictive prosecution is DENIED. As previously scheduled, Jury Selection will take place on June 28, 2000 at 9:00 a.m. and Trial will commence on July 17, 2000 at 8:30 a.m.
IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2329234/ | 494 F. Supp. 2d 51 (2007)
David W. ROSADO, Petitioner,
v.
Peter ALLEN, Respondent.
Civil Action No. 02-10359-DPW.
United States District Court, D. Massachusetts.
June 29, 2007.
*52 David W. Rosado, South Walpole, MA, Pro se.
Emanuel Howard, Brookline, MA, for Petitioner.
Emanuel Howard, Brookline, MA, for David W. Rosado.
Cathryn A. Neaves, Dean A. Mazzone, Attorney General's Office, David M. Lieber, Assistant Attorney General, Criminal Bureau, Boston, MA, for Respondent.
Peter Allen, MCI Cedar Junction, South Walpole, MA, Pro se.
MEMORANDUM AND ORDER
WOODLOCK, District Judge.
The petitioner in this state habeas corpus proceeding under 28 U.S.C. § 2254 seeks a Certificate of Appealability pursuant to 28 U.S.C. § 2253 as to one of the several grounds for relief that I rejected in dismissing his petition. See generally Rosado v. Allen, 482 F. Supp. 2d 94 (D.Mass. 2007). At issue in his Application for a Certificate of Appealability is the petitioner's assertion that his trial counsel did not engage a psychological expert to explore a mental capacity defense and was therefore ineffective. I rejected that ground on two alternative bases: first, I concluded, after an evidentiary hearing, that the petitioner's trial counsel did not perform ineffectively in failing to consult a mental health professional when determining what defenses to pursue; and second, I concluded that even if trial counsel's performance could be said to be ineffective, there was no prejudice to the petitioner. Id. at 100-113.
In addressing an Application for a Certificate of Appealability, I must evaluate whether my conclusions can be said to be fairly debatable in the sense that reasonable jurists might dispute them, even if every jurist of reason would ultimately agree after consideration that the petitioner should not prevail. See Miller-El v. Cockrell, 537 U.S. 322, 336-38, 123 S. Ct. 1029, 154 L. Ed. 2d 931 (2003). I must also consider whether the grounds presented "deserve encouragement to proceed further." Slack v. McDaniel, 529 U.S. 473, 484, 120 S. Ct. 1595, 146 L. Ed. 2d 542 (2000) (internal quotes omitted).
*53 With respect to whether counsel in this case performed effectively, I find my conclusion to be debatable within the meaning of Miller-El. There is a tension in the case law between what might be called a categorical approach and what might be called a contextual approach. The categorical approach suggests that in every case where a mental capacity defense might be raised, defense counsel who fails to obtain a mental health expert is ineffective. The contextual approach, on the other hand, seeks to evaluate ineffectiveness in the broader setting of the facts and circumstances of the particular case. This debate is well illustrated by successive opinions of the United States Court of Appeals for the First Circuit in the same state habeas corpus proceeding. Compare Genius v. Pepe, 50 F.3d 60, 60-61 (1st Cir.1995) (Aldrich, J.) (declaring categorically "[w]here insanity would have been a complete defense, it was inexcusable not to pursue it" because, as the petitioner observed, "he had nothing to lose by having an insanity examination.") with Genius v. Pepe, 147 F.3d 64, 67-68 (1st Cir.1998) (Boudin, J.) (upholding rejection of the ineffectiveness claim after evidentiary hearing by the District Court on remand). Given this tension between the categorical and the contextual approaches to the issue of ineffective assistance raised by this case, I conclude that my determination that counsel was not ineffective in this case is debatable.
With respect to the issue of prejudice, however, I find that a Supreme Court decision handed down last week effectively forecloses debate on the record developed in this case.
In Fry v. Pliler, ___ U.S. ___, 127 S. Ct. 2321, 168 L. Ed. 2d 16 (2007), the Supreme Court held that:
in § 2254 proceedings a court must assess the prejudicial impact of constitutional error in a state-court criminal trial under the "substantial and injurious effect" standard set forth in Brecht [v. Abrahamson], 507 U.S. 619, 113 S. Ct. 1710, 123 L. Ed. 2d 353 [(1993)], whether or not the state appellate court recognized the error . . .
Id. at 2328. In this case, as in Fry, the state court failed to recognize the potential constitutional error. As I noted in my Memorandum and Order dismissing the petition here, the Supreme Judicial Court of Massachusetts seems to have mistakenly concluded that trial counsel engaged a psychological expert. Rosado, 482 F.Supp.2d at 102. Consequently, I conducted an evidentiary hearing to evaluate both the performance and the prejudice prongs of the petitioner's ineffectiveness claim. In Fry, the debate between the Justices in the majority and those who concurred in part and dissented in part was a debate not over the legal issue whether the Brecht standard for evaluating prejudice in state habeas corpus proceedings was too demanding (all agreed it was appropriate) but rather over how the standard should be applied. As is apparent from the Memorandum and Order I issued dismissing this petition, Rosado, 482 F.Supp.2d at 109-13, following a full evidentiary hearing, my application of federal court review of a state habeas corpus petition employed the approach of the Justices who concurred and dissented. I reached "fair assurance, after pondering all that happened without stripping the [debatably] erroneous action from the whole, that the judgment was not substantially swayed by the [debatable] error." Fry, 127 S.Ct. at 2330 (Stevens, J., concurring in part and dissenting in part) (quoting Kotteakos v. United States, 328 U.S. 750, 765, 66 S. Ct. 1239, 90 L. Ed. 1557 (1946)). Specifically, "having fully explored in the broadest context what the expert testimony would be[,] I f[ound] that it would not have created a *54 different result for Rosado." Rosado, 482 F.Supp.2d at 113. That finding "involved a weighing of the probative value of proffered evidence" in light of the other aspects of the trial proceeding. Fry, 127 S.Ct. at 2330-31 (Breyer, J., concurring in part and dissenting in part), and affords no debatable basis for concluding that the "substantial and injurious" Brecht standard for assessing prejudice in § 2254 proceedings can be met. This is a basis for rejecting the petition which does not deserve encouragement to proceed further. Consequently, I find that the lack of prejudice basis upon which I rejected the ineffectiveness ground for relief cannot serve as a basis for issuing a Certificate of Appealability.
Accordingly, having concluded that one of two adequate and independent grounds for denying the petitioner relief will not support a Certificate of Appealability, I hereby deny the petitioner's Application. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2326247/ | 290 F.Supp.2d 5 (2003)
Frederick FOSTER, Petitioner,
v.
UNITED STATES of America, Respondent.
No. CIV.A.00-2227(RMU). No. CRIM.A.96-0028(RMU).
United States District Court, District of Columbia.
September 30, 2003.
*6 *7 MEMORANDUM OPINION
URBINA, District Judge.
DENYING THE PETITIONER'S MOTIONS
I. INTRODUCTION
More than seven years ago, this court sentenced the pro se petitioner to serve terms of imprisonment and supervised release, and directed him to pay restitution to the victims of his fraudulent activities. At the sentencing hearing, the court instructed the petitioner that his restitution payments were to "begin as soon as possible" and reiterated that such payments were "to begin immediately" in the judgment-and-commitment order. Once in the custody of the Bureau of Prisons ("BOP"), the petitioner entered the BOP's Inmate Financial Responsibility Program ("IFRP") so that he could make payments toward his restitution throughout his period of incarceration. This case now comes before the court on the petitioner's motions challenging the judgment-and-commitment order. Specifically, the petitioner asks the court to amend the judgment-and-commitment order by staying his restitution obligations until his release from prison. Because the petitioner advances no basis warranting the requested relief, the court denies the petitioner's motions.
II. BACKGROUND
On February 28, 1996, the petitioner pled guilty to one count of access device fraud, in violation of 18 U.S.C. § 1029. J. at 1; Pet'r's R. 36 Mot. ("Pet'r's 1st Mot.") at 1. On June 10, 1996, the court sentenced the petitioner to 12 months in prison and three years of supervised release, and directed him to make restitution payments to his defrauded victims totaling approximately $33,000. Tr. 06/10/96 Hr'g ("Tr.") at 33-34. At the sentencing hearing, the court ordered the petitioner to begin making restitution payments "as soon as possible." Id. Similarly, the judgment-and-commitment order that followed expressly stated that payments were to begin "immediately." J. at 4. Making no mention of repayment specifics, the court committed the petitioner to the BOP's custody. Tr. at 34-35. Once the petitioner was in its custody, the BOP enrolled the petitioner in the IFRP to allow him to make restitution payments during the course of his incarceration. Pet'r's 1st Mot. at 1-2.
On July 24, 2000, the petitioner initiated the instant action by filing a motion to alter the language of the judgment-and-commitment order pursuant to Federal Rule of Criminal Procedure 36. Id. at 3. Believing that a discrepancy of language exists between the court's oral pronouncement of the sentence and the judgment-and-commitment order, the petitioner asks the court to reconcile this alleged discrepancy. Id. Specifically, the petitioner requests that the court amend his sentence to require that restitution payments begin upon commencement of his supervised-release term. Id. On November 2, 2000, the respondent filed a response stating that it does not oppose the petitioner's Rule 36 motion. Gov't's Resp. at 3.
On August 2, 2001, the petitioner filed a motion for reconsideration[1] pursuant to Federal Rule of Civil Procedure 60(b), that essentially mirrors his Rule 36 request. See generally Pet'r's R. 60(b) Mot. ("Pet'r's 2d Mot."). In this second motion, the petitioner asks the court to preclude the BOP from compelling his participation *8 in the IFRP, claiming that the program is unconstitutional. Id. at 2-3. On May 14, 2002, the respondent filed its opposition to the petitioner's second motion on the grounds that the motion is both meritless and time-barred. Gov't's Opp'n. at 4-11. The court now addresses both of the petitioner's motions.
III. ANALYSIS
A. Legal Standards
1. Relief Under Federal Rule of Criminal Procedure 36
Pursuant to Rule 36, the court may correct a criminal judgment, order, or other document entered in a criminal action at any time, either upon its own initiative or upon motion by a party. FED. R. CRIM. P. 36; United States v. Lewis, 626 F.2d 940, 953 n. 21 (D.C.Cir.1980). Courts have limited the application of this rule to only authorize corrections of "clerical errors in the transcription of judgments, [so as] not to effectuate [the court's] unexpressed intentions at the time of sentencing." United States v. Werber, 51 F.3d 342, 343 (2d Cir.1995); see also, e.g., United States v. Ferguson, 918 F.2d 627, 630 (6th Cir.1990). Clerical errors are "minor, uncontroversial errors," such as mechanical errors that a clerk might commit. Id. at 347. Courts have consistently rejected expansive uses of Rule 36 such as those that would substantially change the internal structure of a sentence or judgment. E.g., id.; United States v. Burd, 86 F.3d 285, 288 (2d Cir. 1996). Courts also have authorized the application of Rule 36, however, in cases where a written judgment does not correspond to an unambiguous oral pronouncement at sentencing. E.g., Lewis, 626 F.2d at 953 & n. 21; United States v. Corey, 999 F.2d 493, 496-97 (10th Cir.1993).
2. Relief Under Federal Rule of Civil Procedure 60(b)
In its discretion, the court may relieve a party from an otherwise final judgment pursuant to any one of six reasons set forth in Rule 60(b). FED. R. CIV. P. 60(b); Lepkowski v. Dep't of Treasury, 804 F.2d 1310, 1311-12 (D.C.Cir.1986). First, the court may grant relief from a judgment involving "mistake, inadvertence, surprise, or excusable neglect." FED. R. CIV. P. 60(b). Such relief under Rule 60(b) turns on equitable factors, notably whether any neglect was excusable. Pioneer Inv. Servs. Co. v. Brunswick Ass'n Ltd. P'ship, 507 U.S. 380, 392, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993). Second, the court may grant relief where there is "newly discovered evidence" that the moving party could not have discovered through its exercise of due diligence. FED. R. CIV. P. 60(b). Third, the court may set aside a final judgment for fraud, misrepresentation, or other misconduct by an adverse party. Id.; Mayfair Extension, Inc. v. Magee, 241 F.2d 453, 454 (D.C.Cir.1957). Specifically, the movant must show that "such `fraud' prevented him from fully and fairly presenting his case," and that "the fraud is attributable to the party or, at least, to counsel." Richardson v. Nat'l R.R. Passenger Corp., 150 F.R.D. 1, 7 (D.D.C.1993) (Sporkin, J.) (citations omitted). Fourth, the court may grant relief where the judgment is "void." FED. R. CIV. P. 60(b). A judgment may be void if the court lacked personal or subject-matter jurisdiction in the case, acted in a manner inconsistent with due process, or proceeded beyond the powers granted to it by law. Eberhardt v. Integrated Design & Constr., Inc., 167 F.3d 861, 871 (4th Cir.1999). Fifth, the court may grant relief if the "judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed ... or it is no longer equitable that the judgment should have *9 prospective application." FED. R. CIV. P. 60(b); Twelve John Does v. District of Columbia, 841 F.2d 1133, 1138 (D.C.Cir. 1988) (noting that not all judgments having continuing consequences are "prospective" for the purposes of Rule 60(b)). Sixth, the court may grant relief from a judgment for "any ... reason justifying [such] relief." FED. R. CIV. P. 60(b). Using this final catch-all reason sparingly, courts apply it only in "extraordinary circumstances." Pioneer Inv. Servs., 507 U.S. at 393, 113 S.Ct. 1489.
A party proceeding under one of the first three reasons must file his Rule 60(b) motion within one year after the judgment at issue. FED. R. CIV. P. 60(b). A party relying on one of the remaining three reasons may file his Rule 60(b) motion within a reasonable time. Id. The party seeking relief from a judgment bears the burden of demonstrating that he satisfies the prerequisites for such relief. McCurry ex rel. Turner v. Adventist Health Sys./Sunbelt, Inc., 298 F.3d 586, 592 (6th Cir.2002).
B. The Court Denies the Petitioner's Rule 36 Motion[2]
As noted, the court can apply Rule 36 to amend a sentence in the case of clerical errors. FED. R. CRIM. P. 36; Werber, 51 F.3d at 343; Ferguson, 918 F.2d at 630. The court also may apply this Rule when the written judgment differs from an unambiguous oral pronouncement. Lewis, 626 F.2d at 953 & n. 21; Corey, 999 F.2d at 496-97. The petitioner claims that the difference in wording between the court's oral pronouncement of the sentence and the judgment-and-commitment order amounts to a clerical error that deserves correction. Pet'r's 1st Mot. at 3. To the contrary, not only is the change in wording from "as soon as possible" to "immediately" unlikely to be a clerical error, this difference in wording does not constitute an inconsistency in meaning. Indeed, as other courts have noted, "[t]he immediate payment directive is generally interpreted to require `payment to the extent that the defendant can make it in good faith, beginning immediately.'" Matheny v. Morrison, 307 F.3d 709, 712 (8th Cir.2002) (quoting McGhee v. Clark, 166 F.3d 884, 886 (7th Cir.1999)). This accepted interpretation of "immediately" is consistent with the court's oral pronouncement directing the petitioner to make restitution payments as soon as possible. Compare id. with Tr. at 33-34 & J. at 3. Accordingly, no error, clerical or otherwise, exists to warrant correction under Rule 36. The court therefore denies the petitioner's motion.
C. The Court Denies the Petitioner's Rule 60(b) Motion[3]
Similarly unavailing is the petitioner's Rule 60(b) motion. The petitioner *10 asks the court to stay the execution of the judgment-and-commitment order's restitution component. Pet'r's 2d Mot. at 1-3.
The court must first clear away some legal underbrush before reaching the main issues. The court first notes, as a general principle, that Rule 60(b) is applicable to habeas actions. Browder v. Dir., Dep't of Corr. of Ill., 434 U.S. 257, 262, 98 S.Ct. 556, 54 L.Ed.2d 521 (1978); see also Woodford v. Garceau, 538 U.S. 202, 123 S.Ct. 1398, 155 L.Ed.2d 363 (2003) (noting that the Federal Rules of Civil Procedure are applicable to habeas cases to the extent they do not contradict the Habeas Corpus Rules); Jackson v. United States, 353 F.2d 862 (D.C.Cir.1965) (stating that the Federal Rules of Civil Procedure apply to habeas cases). The court also notes that because a petitioner may file only one habeas petition, a Rule 60(b) motion violates this rule because courts have considered such a motion to be a second or successive habeas petition. 28 U.S.C. § 2244(a); Mobley v. Head, 306 F.3d 1096, 1096-97 (11th Cir.2002); Lopez v. Douglas, 141 F.3d 974, 975 (10th Cir.1998); McQueen v. Scroggy, 99 F.3d 1302, 1335 (6th Cir.1996). A petitioner may file such a successive habeas petition, however, only after securing leave to do so from the court of appeals. 28 U.S.C. § 2244(b)(3)(A); Abdur'Rahman v. Bell, 537 U.S. 88, 92, 123 S.Ct. 594, 154 L.Ed.2d 501 (2002).
In the case sub judice, the petitioner improperly filed his Rule 60(b) motion for relief because the court had not yet provided a ruling on his Rule 36 motion. See FED. R. CIV. P. 60(b). In other words, it belies good sense for the court to grant relief from a final ruling that it has yet to issue. Id. Even if the petitioner had brought his Rule 60(b) motion after a final ruling on his Rule 36 motion, an application of the guiding precedent in this area would instruct the court to deny the petitioner's motion as a successive habeas petition. 28 U.S.C. § 2244(b)(3)(A); Abdur'Rahman, 537 U.S. at 92, 123 S.Ct. 594. Most significantly, the petitioner fails to carry his burden of demonstrating that he satisfies the prerequisites for Rule 60(b) relief. McCurry, 298 F.3d at 592. Accordingly, the court denies the petitioner's Rule 60(b) motion.
Assuming arguendo that the petitioner's motion constituted a proper challenge to the judgment-and-commitment order, the court would still have to deny Rule 60(b) relief because the motion is time-barred. FED. R. CIV. P. 60(b). As stated earlier, a movant must file his Rule 60(b) motion either within one year from the date of the final judgment or within a reasonable time depending on the basis advanced for the motion. Id. As the government suggests, because the petitioner filed his motion after more than five years from the date of the contested judgment and offered no reason for the delay, the court could deny the petitioner's motion on this added basis. Id.
IV. CONCLUSION
For the foregoing reasons, the court denies the petitioner's motions. An order directing the parties in a manner consistent *11 with this Memorandum Opinion is separately and contemporaneously issued this ____ day of September 2003.
NOTES
[1] Although the petitioner styles his motion as a "motion for reconsideration," the court refers to it as a motion for relief from judgment to parallel the language of Rule 60(b). FED. R. CIV. P. 60(b); Adair v. England, 209 F.R.D. 1, 2 n. 2 (D.D.C.2002).
[2] The D.C. Circuit has construed Rule 36 motions by pro se petitioners as challenges under 28 U.S.C. § 2255. Abrams v. United States, 268 F.2d 582 (D.C.Cir.1959). But the court cannot construe the petitioner's Rule 36 motion as a section 2255 challenge without first giving notice to the petitioner. United States v. Palmer, 296 F.3d 1135, 1146 (D.C.Cir. 2002). Even if the court were to provide such notice to the petitioner and construe his Rule 36 motion as a section 2255 challenge to the validity or lawfulness of his sentence, such a cause would prove futile in light of the applicable limitations period which bars a section 2255 challenge if not brought within one year of the date of the court's judgment. 28 U.S.C. § 2255.
[3] The substance of the petitioner's Rule 60(b) motion is a request for the court to preclude the BOP from compelling his participation in the IFRP. Pet'r's 2d Mot. at 2-3. Thus, the petitioner's motion is essentially an attack on the manner in which prison officials are executing his sentence, a motion that would be more properly made under 28 U.S.C. § 2241. Gomori v. Arnold, 533 F.2d 871, 875 (3d Cir. 1976) (stating that a challenge to a sentence executed by federal prison and parole authorities is properly made under section 2241). Although the court does not reach the merits of the petitioner's request, the court takes this opportunity to note that the petitioner is not housed in this district and, therefore, the petitioner could assert such a challenge only in the district that has personal jurisdiction over the petitioner's prison custodian. 28 U.S.C. § 2241; Smith v. United States, 277 F.Supp.2d 100, 105 (D.D.C.2003). Today's ruling should not be interpreted as precluding any future section 2241 claim that the petitioner may assert in the proper district. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2326329/ | 290 F.Supp.2d 427 (2003)
Ray GREEN, Plaintiff,
v.
Eric TORRES, et.al., Defendants.
No. 98 Civ. 8700(JSR).
United States District Court, S.D. New York.
November 13, 2003.
*428 Robert L. Herbst, Herbst & Greenwald, LLP, New York, NY, for plaintiff.
MEMORANDUM ORDER
RAKOFF, District Judge.
This case was remanded by the Court of Appeals, see Green v. Torres, 59 Fed. Appx. 400 (2d Cir.2003), for reconsideration of this Court's prior ruling awarding plaintiff's counsel only 50% of his "lodestar" counsel fees. In particular, the Court of Appeals requested further findings and clarification as to the specific bases for the reduction. Id. at 403.
The problem presented by the instant fee application is whether and how to take account, in determining fee awards under the civil rights laws, of inflated claims pursued by plaintiff to the eve of trial and then summarily dropped. The problem is a recurrent one, yet perhaps one not definitively addressed by prior precedents.[1]
Plaintiff has been represented throughout this case by very able and experienced counsel, more than justifying the otherwise expensive billing rate of $400/hour that the Court approved for calculating his lodestar hours. See Green v. Torres, 2000 WL 922174, *1 (S.D.N.Y.2003). Even discounting for the benefit of hindsight, it seems not unlikely that counsel of such acumen and experience early realized that (as the jury ultimately found) the core of this case concerned whether defendant Torres acted precipitously and pretextually in arresting plaintiff, in the lobby of the building in which plaintiff resided, on charges of trespass, possession of marijuana, and possession of an open container of beer. Yet plaintiff's pleadings, far from focusing on the incidents genuinely at issue, sought to enlarge the case beyond reasonable bounds by alleging no fewer than nine causes of action against five police officers and wholesale claims against the entirety of the police force. Thus, both the Complaint (filed December 8, 1998) and the Amended Complaint (filed, following substantial discovery, on April 9, 1999),[2] alleged not only the four claims that plaintiff eventually submitted for trial (only two of which prevailed, and then only as to one police officer and, vicariously, the City), but also five other, major claims that plaintiff ultimately abandoned. These included claims that the defendants conspired in violation of 42 U.S.C. §§ 1983 and 1985 to violate various constitutional rights such as free speech and free association, used excessive force, inflicted emotional distress, committed prima facie tort under New York law, and, most expansively, executed
a de facto policy or custom of the defendant CITY OF NEW YORK, implemented by police officers of the defendant, 1) to punish summarily persons who appear not to be responsive to police directions or who appear to challenge *429 police authority ...; 2) to file false charges, fabricate the basis for an arrest, approve false charges and falsify official records in order to cover up police misconduct knowing or having reason to know that the charges are false and unsupportable; 3) to use unnecessary force and brutality in order to show who is boss; and 4) to cover up any illegal or other improper conduct committed by another police officer in accordance with the custom not to "blow the whistle" on a fellow officer....
Complaint, ¶ 18 (the "Monell" claim).[3]
Whether these five claims, which occupy at least a third of the Complaint, were the product of over-zealous fervor or simply an effort to maximize recovery, no material evidence warranting such claims was ever presented to the Court.[4] But the seeming absence of any basis for bringing such claims did not deter plaintiff from maintaining them until approximately one week before trial, when all five of these claims as well as all claims whatever against two of the five police officers were "voluntarily" dismissed by plaintiff.
The fact that such over-pleading is endemic in certain civil rights cases does not mean that Congress intended to reward it in the form of recovery of attorneys fees. On the contrary, this Court is of the view that the abandonment or dismissal of inflated claims is an appropriate factor to be taken into account in determining "degree of success" (the touchstone of awarding fees in civil rights cases, see Hensley v. Eckerhart, 461 U.S. 424, 436, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983)).
This is not to say, however, that taking such account easily fits within the methods for determining degree of success set forth in prior judicial precedents. Under those precedents, while degree of success is relevant both to calculating lodestar and to assessing overall level of success, see Green v. Torres, 59 Fed. Appx. at 402, hours spent on unsuccessful claims may be subtracted from the lodestar calculation only if they relate to "severable claims" that involve neither a "common core of facts" nor "related legal theories." Id. Since Monell claims and such typically involve, in part, extrapolations from the narrower claims at issue, it is difficult to view them as wholly severable. Moreover, whatever severability might exist in theory, it is almost impossible in practice for a district court to determine from time sheets what portion of, say, a large document request related solely to the Monell claims, or what portion of, say, a lengthy deposition was devoted to questions bearing only on the Monell issues. To ask district courts to make a meaningful evaluation of severability in such circumstances is to ask them to conduct elaborate evidentiary hearings on fee awards, which hardly seems a prudent use of judicial resources.
In the instant case, plaintiff now admits in his latest submission to the Court, see Plaintiff's Memorandum of Law On Remand In Support Of Restoring The 50% Reduction of the Lodestar, that he "expended no time pursuing [the First Amendment] claims," id. at 5, and that "no time was spent on [the § 1985 conspiracy claim]", id. These admissions, quite damning in their own way ( why were the claims pleaded at all if plaintiff did not intend to pursue them? ), may mean that these claims formed no part of the lodestar; but does that mean that their failure *430 is to be disregarded in evaluating degree of success?
As for the other claims that plaintiff voluntarily dismissed, plaintiff concedes that they were actively, if unsuccessfully, pursued in discovery, id. at 5-7, but argues that they either involved the same core of facts as the successful claims or were sufficiently related in legal theory to the successful claims to be irrelevant to evaluating degree of success, id. Thus, as to the Monell claim, plaintiff argues that "[a]ll of the discovery requests that defendants cite [as related to the Monell claim] would have been made even if plaintiff had never alleged a Monell claim," id. at 6, because they also relate to other issues in the case, such as "the propriety of the individual defendants' treatment of the plaintiff," id. This may be true; or, at least, the possibility that it may be true renders it difficult, if not impossible, for the Court to exclude as "unrelated" to the two successful claims virtually any of the hours spent by plaintiff's counsel in pre-trial discovery. But this only serves to demonstrate the inadequacy of looking solely to the lodestar calculation to reflect degree of success.
Yet once this calculation is made, "there is a strong presumption that the resulting lodestar figure represents a reasonable fee," Green v. Torres, 59 Fed. Appx. at 402, and reductions therefrom on the basis of degree of success have largely been limited to situations involving recovery of only nominal damages and the like. See, e.g., Farrar v. Hobby, 506 U.S. 103, 117, 113 S.Ct. 566, 121 L.Ed.2d 494 (1992); Adams v. Rivera, 13 F.Supp.2d 550, 553 (S.D.N.Y.1998); see also Orchano v. Advanced Recovery, 107 F.3d 94, 98 (2d Cir. 1997). In the present case, however, while it may be true that the only claims that were ever likely to prevail were those against Detective Torres for false arrest and abuse of process, those claims were real and the recovery of $50,000 in compensatory damages and $8,508 in punitive damages,[5] while far less than plaintiff sought, could hardly be called nominal.
But all that this really shows, in the Court's view, is that the prevailing precedents do not fully address the situation that here confronts the Court: the situation where the plaintiff, having pleaded an overbroad case that he has no realistic expectation of ultimately proving (but the assertion of which may give him some tactical benefit), seeks to measure his degree of success only in terms of the much narrower claims on which he ultimately prevailed. Here, plaintiff's counsel, by his pleadings, made the proverbial mountain out of a molehill and maintained that posture until, with trial imminent, it no longer served its tactical purposes. Does the fact that the molehill for which he ultimately obtained relief for his client is "inextricably intertwined" with the mountain of claims that he pleaded mean that he is entitled to a mountain's worth of legal fees? Should not this Court, in assessing what fees plaintiff's counsel is fairly entitled to, measure his degree of success, at least in part, by how little he proved of what he alleged he would prove? Cf. Hensley v. Eckerhart, 461 U.S. at 440, 103 S.Ct. 1933 ("A reduced fee award is appropriate if the relief, however significant, is limited in comparison to the scope of the litigation as a whole").
Having said all this, the Court recognizes that there is a public interest in monitoring even modest police transgressions; that plaintiff's counsel's assiduous efforts in carrying this case to a successful *431 conclusion for his client therefore serves a public purpose; and that Congress clearly intended the fee-shifting provisions of the civil rights acts to encourage zealous representation even in cases that might not yield large recoveries for the originating party. See generally Quaratino v. Tiffany & Co., 166 F.3d 422 (2d Cir.1999). Moreover, at oral argument on remand, plaintiff's counsel forcefully and eloquently reminded the Court of the difficulties any plaintiff's counsel faces in proving police misconduct. Accordingly, on "reconsideration," see Green v. Torres, 59 Fed. Appx. at 401, the Court, for these latter reasons, will reduce the lodestar by only 20% instead of the prior 50%. Thus, the lodestar, calculated at $261,685.00, see Green v. Torres, 59 Fed.Appx. at 403, is hereby reduced to $209,348.00, to which is added $16,334.16 in expenses, id., for a total of $225,682.16, plus 9% per annum simple interest thereon to run from April 27, 2000.
In accordance with the direction of the Court of Appeals, any party seeking appellate review of this Memorandum Order shall so inform the Clerk of the Court of Appeals within 30 days hereof, upon which the matter will automatically be restored to the jurisdiction of the Court of Appeals and referred to the original panel. See Green v. Torres, 59 Fed. Appx. at 403. In the absence of any such notice, this Memorandum Order shall, at the expiration of 30 days herefrom, become final and unappealable.
SO ORDERED.
NOTES
[1] The only case of which this Court is aware that directly alludes to the issue is Reed v. A.W. Lawrence & Co., Inc., 889 F.Supp. 594 (N.D.N.Y.1995), aff'd, 95 F.3d 1170 (2d Cir. 1996), but the discussion there is cursory and the facts distinguishable.
[2] The Complaint and the Amended Complaint are essentially identical except for the specification in the latter of the names of the individual police officer defendants.
[3] See Monell v. Department of Social Services, 436 U.S. 658, 690-91, 98 S.Ct. 2018, 56 L.Ed.2d 611 (1978).
[4] All discovery and other preliminary proceedings in this case were handled by the District Court, rather than being referred to a Magistrate Judge.
[5] As the defendants note, the figure of $8,508 corresponds exactly to the amount of special damages alleged by plaintiff: $7,308 in lost wages; $450 in psychiatric treatment; and $750 in attorney's fees for defending plaintiff against the criminal charges. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2252017/ | 702 F.Supp. 1045 (1989)
Leonard WOLFE, Richard Dee, Gilbert Kisch, and Robert Dougherty, Plaintiffs,
v.
TIME, INC., Defendant.
No. 87 Civ. 1012 (WCC).
United States District Court, S.D. New York.
January 3, 1989.
*1046 *1047 Vladeck, Waldman, Elias & Engelhard, P.C., New York City, for plaintiffs; Judith P. Vladeck, Laura S. Schnell, Ruth E. Harlow, of counsel.
Proskauer Rose Goetz & Mendelsohn, New York City, for defendant; Howard L. Ganz, Joseph Baumgarten, of counsel.
OPINION AND ORDER
WILLIAM C. CONNER, District Judge.
This suit was brought by four former employees of defendant Time, Inc. ("Time"), each of whom was discharged as part of a reduction-in-force ("RIF") undertaken at the company in early 1986. Plaintiffs contend that they were terminated on account of their age, in violation of the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. § 621 et seq. The action is currently before the Court on Time's motion for summary judgment dismissing the claims of two of the plaintiffs, Robert Dougherty ("Dougherty") and Gilbert Kisch ("Kisch").
BACKGROUND
The parties do not dispute that in 1986, Time dismissed a large number of employees as part of a RIF instituted to cut costs at the company. At the time of his dismissal, the 54-year-old Dougherty was manager of customer services for Time's Image Processing and Color Transmission ("IMPACT") Center. At the time Kisch's employment ended, he was 51 years old and the creative manager of Money Magazine.
DISCUSSION
I. The Standard for Summary Judgment
A party seeking summary judgment must demonstrate that "there is no genuine issue as to any material fact." Fed.R. Civ.P. 56(c); Knight v. U.S. Fire Insurance Company, 804 F.2d 9, 11 (2d Cir. 1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987); see Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Electrical Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). It must establish that there is a "genuine issue for trial." Id. at 587, 106 S.Ct. at 1356. "In considering the motion, the court's responsibility is not to resolve disputed issues of fact but to assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party." Knight 804 F.2d at 11. The inquiry under a motion for summary judgment is thus the same as that under a motion for a directed verdict: "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2512, 91 L.Ed. 2d 202 (1986).
II. The Standard Established by the ADEA
The ADEA prohibits employers from discharging or otherwise discriminating against employees on the basis of age. 29 U.S.C. § 623.
The plaintiff has the burden of proving that "age was the `determining factor' in his discharge in the sense that, `but for' his employer's motive to discriminate against him because of age, he would not have been discharged." Loeb v. Textron, Inc., 600 F.2d 1003, 1019 (1st Cir. 1979).
Pena v. Brattleboro Retreat, 702 F.2d 322, 323 (2d Cir.1983). The order and allocation of proof in ADEA cases is the same as in an action brought under Title VII of the Civil Rights Act of 1964. Id. It was articulated by the Supreme Court in Texas Department of Community Affairs v. Burdine, 450 U.S. 248, 101 S.Ct. 1089, 67 L.Ed.2d 207 (1981):
First, the plaintiff has the burden of proving by the preponderance of the evidence a prima facie case of discrimination. Second, if the plaintiff succeeds in *1048 proving the prima facie case, the burden shifts to the defendant "to articulate some legitimate, nondiscriminatory reason for the employee's rejection." Third, should the defendant carry this burden, the plaintiff must then have an opportunity to prove by a preponderance of the evidence that the legitimate reasons offered by the defendant were not its true reasons, but were a pretext for discrimination.
Id. at 252-53, 101 S.Ct. at 1093 (quoting McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802-05, 93 S.Ct. 1817, 1824-25, 36 L.Ed.2d 668 (1973)). In considering a summary judgment motion, the Court must determine whether there are facts in dispute which, if proven, would establish a prima facie case for the plaintiff. If the defendant can rebut the plaintiff's prima facie case with legitimate, non-discriminatory reasons for discharging the plaintiff, the plaintiff must then proffer evidence from which the trier of fact could conclude that the defendant's excuses are a mere pretext for discrimination.
In order for Dougherty and Kisch to establish a prima facie case of age discrimination, each must present sufficient evidence to show that (1) he was in the protected age group, (2) he was qualified for his job, (3) he was discharged, and (4) the discharge occurred in circumstances which give rise to an inference of age discrimination. Pena v. Brattelboro Retreat, 702 F.2d at 324. Time does not dispute, for the purposes of this motion, that plaintiff will be able to furnish evidence satisfying the first three requirements. However, with respect to the fourth requirement that Dougherty and Kisch were discharged under circumstances which give rise to an inference of age discrimination Time maintains that neither plaintiff can provide sufficient evidence to warrant a trial. The Court agrees with Time as to plaintiff Kisch, but disagrees about plaintiff Dougherty.
III. Dougherty
The Court denies Time's motion for summary judgement against plaintiff Dougherty. In opposition to Time's motion for summary judgment, Dougherty contends, inter alia, that there is a material issue of fact concerning whether Time hired Oliver Knowlton, age 28, to perform Dougherty's job. Time argues vigorously that the job given to Knowlton after Dougherty's termination was different from the one held by Dougherty. Time concedes, however, that at least some of the responsibilities taken on by Knowlton were identical to those previously held by Dougherty. A plaintiff may show circumstances giving rise to an inference of age discrimination if, in addition to showing that "he was sufficiently qualified to continue holding the position," he shows that "his position thereafter was filled by someone younger or held open for such a person." Haskell v. Kaman Corp., 743 F.2d 113, 119 n. 1 (2d Cir.1984).
The ten months which passed between the firing of Dougherty and the hiring of Knowlton, along with Time's description of Knowlton's duties, suggest to me that Knowlton's hiring does not reflect discrimination against Dougherty on the basis of age. It is the Court's job, however, to review the facts in the light most favorable to the non-moving party. In considering a summary judgment motion, moreover, the Court must only identify issues of material fact, not resolve them. There is certainly an issue of fact as to whether the younger Knowlton's job was sufficiently similar to Dougherty's, and whether he received that job so soon after Dougherty was terminated as to create an inference of age discrimination. Furthermore, it has been held that the hiring of a younger employee to replace an older employee establishes a prima facie case of age discrimination and is sufficient evidence of pretext to preclude summary judgment. Connolly v. Cluett, Peabody & Co., Inc., 46 FEP Cases 86 (S.D.N.Y.1988) [1988 WL 18843] (Conner, J.). Consequently, Time's motion for summary judgment against plaintiff Dougherty is denied.
IV. Kisch
Plaintiff Kisch offers a much weaker case than Dougherty. He advances four principal arguments in support of his age *1049 discrimination claim: (1) that two younger employees were retained while he was dismissed; (2) that statistical evidence concerning the numbers and ages of employees allegedly discharged from Money gives rise to the inference that age discrimination caused him to lose his job; (3) that prior to his discharge he had a long and successful career at Time; and (4) that alleged inconsistencies in the reasons given by individuals at Time for Kisch's discharge are evidence that the proffered reasons are a pretext for age discrimination.
At the time Kisch was discharged, he held the position of creative manager in the Promotion Department of Money Magazine. The other members of the Promotion Department were Kisch's supervisor, Michael Rich, and two employees below Kisch in the hierarchy, Brook Zern, a 43 year old copywriter, and Daniel Osheyack, a 33 year old who held the title of promotion manager. Kisch maintains that he and Zern and Osheyack performed the same duties, and that the decision to dismiss him and retain the younger employees is therefore indicative of age discrimination. The record indicates otherwise. First of all, Kisch did not hold the same position as the others. Although all three employees may have shared some similar copywriting responsibilities, it is clear that, as creative director, Kisch held a superior, managerial position with duties distinct from the others.[1] Indeed, it was Kisch who promoted Osheyack to promotion manager.
In order for Time to retain Kisch and at the same time eliminate the position of creative manager, which Time argues was an unnecessary, "unique" position, Time would have had to demote Kisch to copywriter or find another place for him at the magazine. And since the objective of Time's RIF was to cut positions, retaining Kisch would in all likelihood have necessitated dismissing Zern or Osheyack, both of whom Kisch admits were talented individuals. "The ADEA mandates that an employer reach employment decisions without regard to age, but it does not place an affirmative duty upon an employer to accord special treatment to members of the protected age group." Williams v. General Motors Corporation, 656 F.2d 120, 129 (5th Cir.1981), cert. denied, 455 U.S. 943, 102 S.Ct. 1439, 71 L.Ed.2d 655 (1982); Pirone v. Home Insurance Company, 559 F.Supp. 306, 311 (S.D.N.Y.1983), aff'd, 742 F.2d 1430 (2d Cir.1983) ("The Act does not require that employees 40 years of age or older be given a preference.").
Kisch's argument is further weakened by the fact that one of the retained employees, Zern, was 43 years old at the time Kisch was terminated, and therefore a protected employee under the ADEA. Although an inference of age discrimination can exist even when a "replacement employee" and the discharged employee are members of the protected group, "the smaller the difference in age between the two employees, the weaker the inference of discrimination." Equal Employment Opportunity Comm'n v. Trans World Airlines, Inc., 544 F.Supp. 1187, 1219 (S.D.N.Y.1982); see also Loeb v. Textron, Inc., 600 F.2d 1003, 1013 n. 9 (1st Cir.1979). In the instant case, only eight years separate Kisch and Zern, too small a difference to create any inference in the absence of other evidence of discrimination. Moreover, Zern and Osheyack were not "replacement employees." Although they may have absorbed some of the responsibilities formerly carried out by Kisch, their jobs remained essentially the same, and no one was hired to replace Kisch. The fact that the position held by Kisch, creative manager, was altogether eliminated, supports the contention that the decision to discharge Kisch was based on legitimate business criteria.
The second ground Kisch offers in support of his claim is that there is statistical evidence creating an inference of age discrimination by Time. Kisch argues that a disproportionate number of employees discharged at Money were in the age group *1050 protected under the ADEA. Specifically, Kisch contends that four out of six terminated employees were 40 years of age or older, whereas only 36 of 88 Money employees were in that age group. "For such statistical evidence to be probative, however, the sample must be large enough to permit an inference that age was a determinative factor in the employer's decision." Haskell v. Kaman Corp., 743 F.2d at 121 (ten terminations over an 11-year period not statistically significant). A sample of six employees "lacks sufficient breadth to be trustworthy," because "[a] small change in the underlying raw data would result in dramatic statistical fluctuations." Parker v. Federal National Mortgage Ass'n, 741 F.2d 975, 980 (7th Cir.1984) (statistical sample inadequate where three out of four terminated employees were in the protected age group); see also Pirone v. Home Insurance Company, 559 F.Supp. at 312 (sample of 16 or 18 people "too small for anything meaningful to be decided").
Kisch maintains, as his third supporting reason, that the length of his employment at Time, combined with his record, are probative on the issue of discrimination. Kisch's career at time spanned twenty years, during which he served, in turn, as promotion manager at Fortune magazine, promotion director at Money, and creative manager at Money. According to Kisch, his "record was characterized by favorable performance evaluations, raises, and bonuses." Plaintiffs' Opposition Brief at 13. At his deposition, however, Kisch admitted that in 1983, when he became creative manager at Money: (1) he was replaced as promotion director by Michael Rich, (2) Rich was thereafter in charge of the promotion department, (3) he reported to Rich, (4) after he became creative manager, he stopped receiving the annual bonuses that had been paid to him as promotion director, (5) he resented being replaced as promotion director, calling it "a callous political move." Ganz Aff., Exh. C, Kisch Tr. 127-134, 192-195.
Thus, the facts reveal that in 1983, Kisch was effectively demoted, and that in 1986, Rich, his superior, concluded that Kisch was "the least productive member of the promotion department" and that Kisch's "ideas and writing [were] consistently less creative and original than the ideas and writing of Mr. Osheyack and Mr. Zern...." Rich Aff. at ¶ 7. Thus, whatever the facts demonstrate about Kisch's performance during his first 17 years at Time, they reveal that in 1983, Kisch's stock began to fall. The length of Kisch's tenure at Time, and his performance during that period do not raise an inference of age discrimination sufficient to make out a prima facie case.
Finally, Kisch asserts that alleged inconsistencies in the reasons provided for his termination by Rich and George Vollmuth, Money's business manager, suggest that those explanations are a pretext for discrimination. Although I disagree that the testimony of Rich and Vollmuth provide evidence of pretext, the Court need not rule on the issue of pretext, because Kisch has not made out a prima facie case of age discrimination. Time's motion for summary judgment is granted against plaintiff Kisch.
CONCLUSION
For the reasons set forth in the opinion above, Time's motion for summary judgment against plaintiff Dougherty is denied. Time's motion for summary judgment against plaintiff Kisch is granted.
SO ORDERED.
NOTES
[1] The case now before the Court is therefore unlike Duffy v. Wheeling Pittsburgh Steel Corp., 738 F.2d 1393, 1395 n. 2 (3rd Cir.1984), cert. denied, 469 U.S. 1087, 105 S.Ct. 592, 83 L.Ed.2d 702 (1984), where the plaintiff and the retained employees all held the identical job of salesman, and the four oldest salesmen were dismissed. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2253098/ | 732 F.Supp. 447 (1990)
UNITED STATES of America, Plaintiff,
v.
ONE 1982 PORSCHE 928, THREE-DOOR, LICENSE PLATE 1986/NJ TEMP./534807 (AUTOMOBILE), Defendant-in-rem.
No. 87 Civ. 4671 (WCC).
United States District Court, S.D. New York.
March 14, 1990.
As Amended March 15, 1990.
*448 Otto G. Obermaier, U.S. Atty., S.D.N.Y., New York City, for plaintiff; Nancy G. Milburn, Asst. U.S. Atty., of counsel.
Jorge Guttlein, Aranda & Guttlein, New York City, for defendant-in-rem; Mitchell Stein, of counsel.
OPINION AND ORDER
WILLIAM C. CONNER, District Judge:
This in rem civil action, tried without a jury on March 8, 1990, concerns forfeiture of a 1982 Porsche 928, Three Door, License Plate 1986/NJ Temp/534807 (the "Porsche") pursuant to 21 U.S.C. Section 881 (1988). Federal jurisdiction is predicated upon 28 U.S.C. §§ 1345 and 1355.
After hearing the government's case in chief, the Court orally ruled that, as a matter of law, the government had established a prima facie case of probable cause. After hearing claimants' testimony and the government's rebuttal witness, this Court concludes that claimants lack standing to contest the forfeiture. This opinion incorporates the Court's findings of fact and conclusions of law pursuant to Rule 52(a), Fed.R.Civ.P.
FINDINGS OF FACT
This civil forfeiture action arises out of an investigation of the narcotics trafficking operation of Domingo Taveras, Jr. ("Domingo Jr.") and Luis and Ramon Gomez (the "Gomez brothers"). The government's affirmative case was offered through Drug Enforcement Administration ("DEA") Special Agent James Hunt who testified in substance as follows:
On September 2, 1986, DEA special agents lawfully arrested Domingo Jr. and Ramon Gomez as they were leaving an apartment building at 302 West 76th Street, New York City. Domingo Jr. was charged with two counts of criminal possession of cocaine in the first degree. It is not disputed that there was probable cause for the arrest.
At the time of his arrest, Domingo Jr. had in his possession keys to apartment 5B at 302 West 76th Street, which was leased in his name, and keys to safes located within the apartment. Immediately subsequent to the arrest, DEA special agents lawfully searched apartment 5B pursuant to a special narcotics search warrant and, inter alia, lawfully seized from the apartment safes $5,550 in U.S. currency and approximately five pounds of cocaine. Also seized from the apartment were firearms, loaded magazines, and equipment for processing cocaine.
Prior to the seizure, the DEA special agents had learned from a confidential informant that Domingo Jr. owned and drove a blue Porsche. Following Domingo Jr.'s arrest and the reading of his rights, Special Agent Hunt asked Domingo Jr. the location of this car and those the Gomez brothers had been seen driving. Domingo Jr. told Special Agent Hunt that the cars were at E & B Operating, Inc., a parking garage located *449 at 137-43 West 108th Street, New York City.
Domingo Jr. also told Special Agent Hunt that the Porsche was his and that he had purchased it from M & P Foreign Cars in Lodi, New Jersey for approximately $20,000 cash with money he made through the narcotics trafficking operation that he and the Gomez brothers ran. Domingo Jr. then offered to cooperate with the DEA special agents in developing cases against other drug dealers, but his assistance was refused.
That same day, DEA special agents seized the Porsche from the garage. In addition to the Porsche, DEA special agents also seized from the garage a 1983 white Porsche, a 1981 Mercedes-Benz, and a 1982 Toyota Celica, all registered to Marino Gomez, the Gomez brothers' father.
Following his arrest, Domingo Jr. pled guilty in New York State Criminal Court to a charge of possessing cocaine with intent to sell, a Class B felony. Special Agent Hunt stated that Domingo Jr. telephoned him many months later to repeat his offer of assistance and to request the return of his car to avoid suspicion and preserve his image as a drug dealer. The special agent later discovered that Domingo Jr. was calling from prison.
Special Agent Hunt testified that in his experience with the DEA, he has seized approximately one hundred cars. He testified that registering cars in the name of another person is a common tactic used by drug traffickers to mask their actual ownership and avoid forfeiture in the event of an arrest.
The claimants in this case, Flora ("Flora") and Domingo Taveras, Sr. ("Domingo Sr."), the parents of Domingo Jr., testified through an interpreter that they were the owners of the Porsche, which they purchased for export to and resale in the Dominican Republic upon Domingo Sr.'s impending retirement. Domingo Sr. further testified that he purchased the Porsche in August 1986 from M & P Foreign Cars in Lodi, New Jersey for an amount in excess of $20,000 cash. Domingo Jr., who is fluent in English, negotiated the purchase and arranged for the issuance of a temporary registration. Domingo Jr. drove the vehicle from the car dealer to the E & B Operating, Inc. garage in Manhattan.
The certificate of title for the Porsche was issued in claimants' names. Neither Flora nor Domingo Sr. has ever had a driver's license or owned an automobile, other than the instant Porsche. Neither Flora nor Domingo Sr. ever drove the Porsche. Domingo Jr. was the only family member who ever drove the vehicle. Domingo Jr. paid for repainting the vehicle, although Domingo Sr. claimed to have contributed part of the money, the amount of which he could not recall. Neither Flora nor Domingo Sr. presented at trial any of the receipts, bills of sale, registration forms or insurance papers relating to the vehicle. Flora never rode in the Porsche, was not present at its purchase, did not know where it was kept or whether it was insured, and only saw it once when Domingo Jr. had parked it outside her apartment window. Domingo Sr. had been a passenger in the vehicle only on the trip back from the car dealer.
Claimants' joint income tax returns from 1982 to 1986 reveal that claimants could not have afforded to purchase the vehicle from earnings. The $20,000 plus purchase price of the 1982 Porsche exceeds the total combined annual income of Flora and Domingo Sr. for each of the four years preceding their alleged purchase of the vehicle. Since 1982, Domingo Sr. has had an active savings account at the American Savings Bank with a January 1986 balance of $4,896.55. Between January and September 1986, he made fourteen deposits totalling $6,376.44 and three withdrawals, totalling $4,500.00. As of 1983, Domingo Sr. also had bank accounts at the American Savings Bank and the Manufacturer's Hanover Trust Company. As of 1986, Flora had savings accounts at Citibank and at the American Savings Bank.
Claimants contend that the approximately $20,000 purchase price for the Porsche was comprised of 1) approximately $9,000 derived from the sale of property in the Dominican Republic which Flora inherited *450 from her father; 2) approximately $8,000 borrowed from Carlos Medina, claimants' nephew; and 3) approximately $5,000 borrowed from or given by Domingo Jr. None of these funds apparently passed through any of claimants' bank accounts. The circumstances of these transactions, as related by claimants and by Domingo Jr., who was called as the government's rebuttal witness, are as follows:
The Inheritance
Flora sold the inherited real property in the Dominican Republic to Diomedes Medina, her nephew and Carlos' brother, for 18,000 Dominican pesos. Flora offered no documentation of the transaction or the inheritance. The currency was converted in the Dominican Republic to U.S. dollars equalling approximately $9,000 which was brought in cash to the United States. Flora offered no evidence of the currency conversion. Flora hid the cash in her sewing box at home rather than placing the funds in her existing bank accounts, for ready access upon her husband's retirement. Domingo Sr. did not know where the money was kept.
The Medina Loan
Carlos Medina, claimants' nephew, loaned claimants $8,000 in gratitude for claimants' allowing him to reside in their home while he attended college prior to 1984. Claimants offered no documentation of the loan or evidence concerning repayment, interest rates or maturity dates. Medina did not testify at trial, nor did counsel offer his deposition testimony, although his deposition had been taken in this action.
The Domingo Jr. Transfer
Domingo Jr. gave $5,000 to his parents for the purchase and resale of the Porsche. The evidence did not make clear whether the transfer was a gift or a loan but the funds were not reported on claimants' income tax return, no documentation was offered, and there was no testimony respecting the terms of repayment. Domingo Jr. testified that the money constituted insurance proceeds and savings. In 1983 and 1984 he worked seasonally as a lifeguard. According to his tax returns, he earned gross income of $4,714.70 in 1983 and $3,714.12 in 1984. In 1985, Domingo Jr. attended the Police Academy, reporting a total income of $17,789 on his federal income tax return, consisting of $14,810 in wages, $459 in interest and pension payments and $2,520 in unemployment compensation.
In February 1985, Domingo Jr. purchased a 1984 Dodge Conquest for which he made a substantial down payment, the amount of which he does not recall, and monthly payments of around $200 until July 1985 when the car was stolen. He then received from an unnamed insurance company approximately $5,000 or $6,000, for which he offered no documentation. On August 9, 1985, Domingo Jr. obtained a $5,000 loan from the American Savings Bank. Domingo Jr. thereafter purchased a Mercedes-Benz 190 E from Coach Auto Leasing, again making a substantial down payment. When the Mercedes was stolen in November 1985, he again received insurance proceeds of $5,498.75 which he deposited in his account at Citibank. Bank statements presented by the government demonstrate that the bulk of this $5,000 deposit was not withdrawn although $2,200 was withdrawn on January 3, 1986, $2,000 of which was transferred to his checking account. Domingo Jr. also withdrew $5,600 from his American Savings Bank on August 19, 1986 and repaid his loan on August 20, 1986.
From September 1985 until his arrest on September 2, 1986, Domingo Jr. was not employed in any capacity. His sole source of legitimate income was unemployment benefits. He did not file a 1986 income tax return.
Flora supported her claim that she intended to resell the car by testifying that her sister had told her that this would be a good investment because someone in the Dominican Republic had offered her a lot of money for an Audi that she had brought with her from the United States. Domingo Sr. similarly testified that his brothers had told him that buying a luxury car and exporting it to the Dominican Republic would be a good investment. Although these latter *451 communications were claimed to be in writing, the letters were not produced. Flora and Domingo Sr. had never advertised or offered the car for sale in the Dominican Republic and had made no inquiries about or arrangements for transporting the car from the United States. Although they assertedly purchased the car for export upon Domingo Sr.'s retirement, there was no evidence of preparations to move; Domingo Sr. has still not quit his job and no airline reservations were made nor tickets purchased. Flora, Domingo Sr. and Domingo Jr. knew no person who had ever purchased a car in the United States for resale in the Dominican Republic.
CONCLUSIONS OF LAW AND ULTIMATE FINDINGS OF FACT
Standing
A forfeiture proceeding is an in rem action brought against seized property pursuant to the legal fiction that the property itself is guilty of facilitating the crime. See Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663, 680-84, 94 S.Ct. 2080, 2090-92, 40 L.Ed.2d 452 (1974). To contest a forfeiture action, an individual must first demonstrate an interest in the seized property sufficient to satisfy the court of his standing as a claimant. See United States v. Three Hundred Sixty Four Thousand Nine Hundred Sixty Dollars in U.S. Currency, 661 F.2d 319, 326 (5th Cir.1981). Such standing is a threshold issue and, if the claimant lacks standing, the court lacks jurisdiction to consider his challenge of the forfeiture. See Mercado v. United States Customs Service, et al., 873 F.2d 641, 644 (2d Cir.1989); United States v. Five Hundred Thousand Dollars, 730 F.2d 1437, 1439 (11th Cir.1984). The burden of proof to establish sufficient standing in forfeiture actions rests with the claimant. See Mercado, 873 F.2d at 644.
To establish standing in a civil forfeiture action, the claimant must demonstrate a possessory or ownership interest in the subject property. See United States v. Five Hundred Thousand Dollars, 730 F.2d at 1439; United States v. One 1945 Douglas C-54 (DC-4) Aircraft, (Appeal 1), 604 F.2d 27, 28 (8th Cir.1979). While ownership may be proven by actual possession, dominion, control, title and financial stake, "[t]he possession of bare legal title to the res may be insufficient," absent other evidence of control or dominion over the property. United States v. One 1945 Douglas, (Appeal 1), 604 F.2d at 28-29; United States v. One 1945 Douglas, (Appeal 2), 647 F.2d 864, 866 (8th Cir.1981); United States v. One 1977 36 Foot Cigarette Ocean Racer, 624 F.Supp. 290, 294-95 (S.D.Fla.1985); United States v. One 1980 Chevrolet Blazer Automobile, 572 F.Supp. 994, 996-97 (E.D.N.Y.1983); United States v. One 1981 Datsun 280 ZX, 563 F.Supp. 470, 474 (E.D.Pa.1983).
The rationale for the rule that bare legal title may be insufficient is that appearances may be manipulated and deceptive, especially in the world of drug trafficking and other illegal operations. It has been recognized that people engaged in illegal activities, especially when needing to conceal illegitimate funds and being aware of forfeiture statutes, often attempt to disguise their interests in property by not placing title in their own names. See United States v. One 1977 36 Foot Cigarette Ocean Racer, 624 F.Supp. at 294-95. A search for standing in civil forfeiture cases looks beyond the formal title to determine whether the record owner is the "real" owner or merely a "strawman" set up either to conceal illegal dealings or to avoid forfeiture.
In United States v. $280,505 Dollars, 655 F.Supp. 1487, 1495 (S.D.Fla.1986), it was held that the claimant, named on the certificate of title with her son, lacked standing to challenge the forfeiture of a vehicle because she had no possession or control of the car and could not sufficiently document the source of the money used to purchase the car. The district court found implausible claimant's testimony that she kept the money in a home safe even though she had a bank account. The court, further noting that it was the son who had paid the money to the car dealer and used the car, found claimant to be a "straw" or *452 "nominal" owner of the vehicle who thus had no standing to contest its forfeiture.
In United States v. One 1981 Datsun, 563 F.Supp. 470 (E.D.Pa.1983), it was held that claimant lacked standing because despite the fact that he had title to the vehicle, he neither paid for nor exercised dominion and control over the vehicle. And in United States v. One 1980 Chevrolet Blazer, 572 F.Supp. 994 (E.D.N.Y.1983), the court denied standing to claimant who introduced no evidence of ownership other than her name typed on the back of the certificate of title but claimed she had obtained a $10,000 loan from her late grand-father-in-law. The court found important the "utter absence of any documentation supporting [claimant's] story about the loan." Id. at 997.
These decisions are closely apposite to the case at bar. Claimants here have likewise failed to demonstrate, by a preponderance of the evidence, an interest in the seized property sufficient to satisfy the Court that they have standing. On the evidence presented at trial, the Court finds that claimants were merely "nominal" owners of the Porsche and held neither a possessory nor controlling interest in the vehicle. The Court further finds that their testimony concerning how they obtained the money for the purchase price is unworthy of belief. Claimants exercised no dominion or control over the car whatsoever, and showed little or no interest in what would have been for them an investment of considerable magnitude. Flora testified that she had seen the car only once and never rode in it. Domingo Sr. testified that he had ridden in the vehicle only once. Domingo Sr.'s testimony that he gave money to Domingo Jr. to cover part of the cost of painting the car was not convincing, particularly in view of the fact that there was no documentary record, and Domingo Sr. could not remember the amount advanced.
As to the Dominican Republic inheritance and property sale, there is a complete absence of documentation. There is no evidence of the property's existence, of its bequest to Flora or of its sale to her nephew. Claimants' assertion that the funds were hidden in their home despite their existing active bank accounts is not credible. As for the Medina loan and the Domingo Jr. transfer, there is similarly not a shred of documentary corroboration. The Court finds that Domingo Jr.'s testimony that he obtained the money from insurance proceeds and savings is not believable in view of all the other evidence, including his earnings history and bank statements. The Court concludes that claimants have no financial stake in the Porsche sufficient to confer standing to challenge its forfeiture.
Probable Cause
If a claimant establishes standing, then it is the government's burden to show probable cause that the subject property was involved in unlawful activity of the type defined by the statute under which the suit is brought. The Court finds now, as it did after hearing the government's case in chief, that probable cause had been established because DEA special agents acted upon Domingo Jr.'s post-arrest statements that the Porsche belonged to him and that he had bought it with drug proceeds, as well as information from a confidential informant that Domingo Jr. owned and drove a blue Porsche, hearsay admissible in a forfeiture proceeding, see United States v. One 56 Foot Yacht Named the Tahuna, 702 F.2d 1276, 1283-84 (9th Cir. 1983).
Once the government shows probable cause, the burden of proof shifts to the claimant to establish, by a preponderance of the evidence, that the seized property does not constitute proceeds traceable to exchanges of controlled substances. See United States v. Banco Cafetero, 797 F.2d 1154, 1160-61 (2nd Cir.1986); United States v. $131,602 in U.S. Currency, 563 F.Supp. 921, 923 (S.D.N.Y.1982). Even if claimants had established standing, they have not met this burden. Claimants' testimony, as discussed above, is not believable. In the words of the Sixth Circuit Court, "[A] remote possibility does not vitiate a strong probability, and neither will it create a preponderance of evidence against a far *453 more reasonable conclusion." United States v. $83,320 in United States Currency, 682 F.2d 573, 577-78 (6th Cir.1982).
CONCLUSION
For the reasons stated above, judgment will be entered for plaintiff and the Porsche will be declared forfeit pursuant to 21 U.S.C. § 881 (1988).
SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2249491/ | 907 F.Supp. 838 (1995)
Jacob S. WILLIAMS, Plaintiff,
v.
William F. PERRY, Secretary of Defense, Defendant.
Civ. A. No. 1:CV-94-452.
United States District Court, M.D. Pennsylvania.
February 17, 1995.
*839 *840 *841 Keith E. Kendall, Harrisburg, PA, for Jacob S. Williams.
Robert R. Long, Jr., Assistant U.S. Attorney, Lewisburg, PA, for Les Aspin.
Robert R. Long, Jr., Assistant U.S. Attorney, Lewisburg, PA, David M. Barasch, U.S. Attorney's Office, Harrisburg, PA, John D. Fritz, Defense Logistics Agency, New Cumberland, PA, for William F. Perry.
MEMORANDUM
CALDWELL, District Judge.
We are considering the Defendant's motion to dismiss, or in the alternative, motion for summary judgment. Because the parties have submitted affidavits, depositions, and exhibits outside the pleadings, we will treat the motion as one for summary judgment.
I. Background
This case arises from Plaintiff's employment at the Defense Distribution Region East ("DDRE") as a GS-4 Security Officer. Plaintiff, who is black, alleges that he was discriminated against during the course of his employment because of his race. The Defendant, William F. Perry, is the Secretary of the United States Department of Defense.[1]
Plaintiff contacted the DDRE Equal Employment Opportunity ("EEO") Office on March 18, 1992 concerning an incident involving *842 an employee of the commissary, Richard Nornhold. He claimed that he had been assigned as an armed escort for Nornhold on March 16, 1992, but that upon his arrival, Nornhold called Plaintiff's supervisor and stated that he did not "want this one" and that Plaintiff was "incompetent". Plaintiff filed a formal complaint with the EEO Office on May 6, 1992. After repeated requests by Plaintiff to resolve the complaint went unanswered, he retained counsel and requested a hearing on his complaint on October 11, 1993.
In the interim, Plaintiff contacted an EEO counselor with a pre-complaint containing additional allegations of discrimination. In his second complaint, he alleged that he was passed over for training for the position of Desk Sergeant, denied the opportunity to go to the health clinic during work hours, accused of leaving open a gate at the DDRE, and that someone put superglue in his personal lock, all because of his race. [Exh. 27 to Pl.'s Br. in Opp'n to S.J]. Plaintiff's complaints were consolidated and an investigator was assigned to explore all issues involved in both complaints. On January 18, 1994, he issued a report on his investigation. After no action was taken, this suit was initiated on March 28, 1994.
Plaintiff contends that during the course of his employment, he "has been the victim of a continuous pattern of racial discrimination and harassment ..." through: 1) the incident with Richard Nornhold; 2) the denial of training and promotion to the position of Desk Sergeant; 3) the refusal to allow him to have his blood pressure screened during duty hours; 4) the superglue in Plaintiff's personal lock and the alleged failure of his supervisor to adequately investigate the incident; 5) the failure of the EEO Office to investigate Plaintiff's complaints; and 6) a staged a confrontation with Plaintiff by the EEO manager in retaliation for filing the EEO complaint, which resulted in a one day disciplinary suspension. [Pl.'s Amended Compl. at ¶ 8(a)(f)]. Plaintiff advances three distinct claims of discrimination under Title VII: racial discrimination for non-promotion; retaliatory discrimination; and hostile work environment racial discrimination.
II. Law and Discussion
A. Standard for Summary Judgment
Summary judgment is appropriate "if 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." F.R.Civ.P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In reviewing the evidence, facts and inferences must be viewed in the light most favorable to the nonmoving party. Matsushita Electric Industrial Co., Ltd., et al v. Zenith Radio Corp., et al, 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538, 553 (1986).
When a moving party has carried his or her burden under Rule 56, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts.... Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no `genuine issue for trial'", and summary judgment must be entered in favor of the moving party. Matsushita, 475 U.S. at 586-87, 106 S.Ct. at 1356, 89 L.Ed.2d at 552 (citations omitted).
B. Racial Discrimination: Non-Promotion
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 basic framework and burdens of proof in Title VII pretext actions. First, the plaintiff must establish a prima facie case of discrimination by a preponderance of the evidence. Id. at 802, 93 S.Ct. at 1824, 36 L.Ed.2d at 677. A prima facie case for failure to hire or promote is accomplished "by showing that [the plaintiff] is a member of a protected class; that [the plaintiff] was qualified for and rejected for the position; and that non-members of the protected class were treated more favorably." Ezold v. Wolf, Block, Schorr and Solis-Cohen, 983 F.2d 509, 522 (3d Cir.1992) (citation omitted), cert. denied, ___ U.S. ___, 114 S.Ct. 88, 126 L.Ed.2d 56 (1993). If the plaintiff succeeds in proving a prima facie case, the employer must "articulate some legitimate, nondiscriminatory *843 reason" for its action. Fuentes v. Perskie, 32 F.3d 759, 763 (3d Cir.1994). If the employer carries its "relatively light burden by articulating a legitimate reason for the unfavorable employment decision, the burden of production rebounds to the plaintiff, who must now show by a preponderance of the evidence that the employer's explanation is pretextual (thus meeting the plaintiff's burden of persuasion)." Id. (parenthetical in original). To defeat a motion for summary judgment when the defendant has offered legitimate, non-discriminatory reasons for its actions, the plaintiff
must submit evidence which: 1) casts sufficient doubt upon each of the legitimate reasons proffered by the defendant so that a factfinder could reasonably conclude that each reason was a fabrication; or 2) allows the factfinder to infer that discrimination was more likely than not a motivating or determinative cause of the adverse employment action.
Id. at 764.
In this case, Plaintiff contends that he "was not selected for training and/or permanent promotion to the Desk Sergeant position, despite his seniority status and despite qualifications equal to, or greater than those trained and/or selected for promotion to Desk Sergeant." [Pl.'s Amended Compl. at ¶ 8(b)]. In February, 1993, Chief Richard H. Snyder, who was in charge of hiring the new Desk Sergeant, announced that five officers, including Plaintiff, would be temporarily promoted to the position of Acting Desk Sergeant. Each officer, all of whom had previously applied for the promotion, was to assume the position on a forty-five day rotating basis, with Plaintiff's rotation being fifth. The Defendant contends that Plaintiff declined to accept his rotation because Chief Snyder would not assign someone to train him.[2] In opposition, Plaintiff asserts that he was never included in the rotation, and therefore was never afforded the opportunity to act as Desk Sergeant.
After the other four officers had completed their rotations, Chief Snyder posted a notice soliciting volunteers to serve as Acting Desk Sergeant. When no one, including the Plaintiff, volunteered, Snyder assigned the same four officers to serve another rotation. [Affidavit of Richard H. Snyder, Exh. 2 to Def.'s Br. in Supp. of S.J.].
On July 12, 1993, the Plaintiff filed his second EEO pre-complaint, wherein he alleged, inter alia, that he was denied training for the Desk Sergeant's position. Thereafter, on October 5, 1993, Chief Snyder made a verbal offer to the Plaintiff to serve as Acting Desk Sergeant while applications were being solicited for the permanent position. After Plaintiff declined the opportunity, Snyder made a written offer to Plaintiff to serve as temporary Desk Sergeant, which he also rejected. On October 21, 1993, Ronald Varner, who is white, was selected for the position.
Defendant concedes that the Plaintiff has proved a prima facie case of discrimination, but offers numerous non-discriminatory reasons for the denial of promotion. First, Defendant claims that Varner was selected because he had previously volunteered to serve two 45 day shifts as Acting Desk Sergeant, whereas Plaintiff had declined the opportunity. Next, Defendant asserts that Chief Snyder, who made the decision to promote Varner, observed the work of both Varner and the Plaintiff and found Varner's work superior. Specifically, Snyder testified that Plaintiff had a record of discipline (five-day suspension) and had prepared inaccurate or incomplete reports, while Varner had no record of discipline and prepared accurate and complete reports. [Affidavit of Richard H. Snyder, Exh. 2 to Def.'s Br. in Supp. of S.J.]. In addition, Varner had higher evaluation ratings than the Plaintiff in the two periods immediately preceding the promotion. [Affidavit of Lisa K. Watkins, Exh. 6 to Def.'s Reply Br.]. Finally, Snyder relied on the recommendations of all three shift captains, each of whom recommended Varner for the position. [Affidavit of Richard H. Snyder, Exh. 2 to Def.'s Br. in Supp. of S.J.]. These are legitimate, non-discriminatory reasons for the denial of promotion, and return *844 the burden to Plaintiff to show that the reasons were pretextual or that discrimination was more likely than not the reason for discrimination. See Fuentes, 32 F.3d at 763.
1. Were the reasons advanced by the Defendant for not promoting the Plaintiff pretextual?
Plaintiff argues that he was never given the opportunity to train for the position, and thus, the Defendant's purported reliance on his lack of experience was a pretext for discrimination. He contends that the rotation ended after the other four officers completed their turn and before he had a chance to serve as Acting Desk Sergeant. [Affidavit of Jacob Williams, Exh. 3 to Pl.'s Br. in Opp'n to S.J.]. In response, the Defendant asserts that Plaintiff declined his opportunity to serve as Desk Sergeant in the first rotation. [Affidavit of Richard H. Snyder, Exh. 2 to Def.'s Br. in Supp. of S.J.]. We agree that there is a factual dispute as to whether Plaintiff voluntarily chose not to participate in the first rotation. However, Plaintiff was subsequently provided an opportunity to serve a shift as Acting Desk Sergeant when Snyder requested volunteers and when Snyder offered him the position on October 5, 1993 and October 12, 1993. [J. Williams Dep. at 55].
Plaintiff admitted the offers were made, but testified that he declined to accept them because "the milk was already spilt". [J. Williams Dep. at 55]. It is unclear what Plaintiff means by this statement, since it is undisputed that the decision to promote Varner had not been made when Plaintiff declined Chief Snyder's invitation. [J. Williams Dep. at 55]. If Plaintiff had volunteered, or accepted Snyder's offer, Snyder could not have used Plaintiff's lack of experience at the position in deciding to promote Varner. It is irrelevant whether Plaintiff was voluntarily or involuntarily removed from the original rotation.[3] Even if he was skipped on the first rotation, Plaintiff was given a chance to serve as Acting Desk Sergeant, just as the other officers had done. Because Plaintiff chose not to take advantage of the opportunity, he cannot now complain that Snyder improperly relied on Plaintiff's lack of experience in not promoting him.
Plaintiff also claims that his work record proves that he was qualified for the job. This fact is not in dispute since the Defendant admits that Plaintiff was one of seven applicants for the promotion who was rated as "highly qualified". [Aff. of Lisa K. Watkins, Exh. 6 to Def.'s Reply Br.]. However, the mere fact that Plaintiff was qualified does not mean that Snyder did not honestly believe Varner was better suited for the promotion, since six other candidates, including Varner, were also considered highly qualified. [Id.]
Additionally, Plaintiff asserts that his employment record was exceptional. He identifies various awards and certificates he has received for superior performance at his position, as well as numerous favorable evaluations. However, Varner had received higher evaluations than Plaintiff, [Aff. of Lisa K. Watkins, Exh. 6 to Def.'s Reply Br.], and had also received numerous awards and commendations. [Suppl. Aff. of Richard A. Snyder [sic], Exh. 4 to Def.'s Reply Br.].
Plaintiff does not dispute Varner's credentials or work history, nor does he claim that Snyder did not actually rely on those qualifications. Rather, his arguments attack the circumstances underlying Snyder's decision, and "[e]vidence contesting the factual underpinnings of the reason for the [employment decision] proffered by the employer is insufficient, without more, to present a jury question." Hoeppner v. Crotched Mountain Rehabilitation Center, Inc., 31 F.3d 9, 17 (1st Cir.1994) (citation omitted) (alterations in original). "We do not judge whether the employer's decision was prudent, fair, or rational; rather, the issue is whether the Plaintiff has produced evidence indicating that the employer's proffered reason for its action was fabricated." Verney v. Dodaro, 872 F.Supp. 188, 196 (M.D.Pa.1995) (Caldwell, *845 J.). Plaintiff has failed to produce any evidence that could lead a jury to believe that Snyder's proffered reasons for denying Plaintiff the promotion were fabricated.[4]
2. Was discrimination "more likely than not" the reason for the denial of the promotion?
Plaintiff also argues that there was other "evidence of pretext." We construe this argument to mean that this evidence makes it more likely than not that discrimination was the real reason Plaintiff was not promoted. First, Plaintiff asserts that black males were underrepresented in the position for which he applied, and in general at high ranking positions at the DDRE.[5] Apparently, Plaintiff believes that the lack of minority employees at higher level positions could lead a jury to conclude that the reason he was denied a promotion was because he was a minority. However, the mere fact that minorities are underrepresented is not evidence of discrimination, and does not make it "more likely than not" that Plaintiff was denied the promotion. Next, Plaintiff claims that two co-workers testified that they did not believe the Plaintiff was given equal consideration for the promotion. However, there is no evidence that these employees had any independent knowledge of the rationale behind the DDRE's promotion decisions.
Defendant has offered legitimate, non-discriminatory reasons why Plaintiff was not promoted. Plaintiff has failed to show that these reasons were a mere pretext for discrimination, or that it is more likely than not that the real reason for the employer's decision was because of Plaintiff's race. Therefore, Plaintiff has not carried his burden, and his claim must be dismissed.
C. Retaliatory Discrimination
"An employer violates Title VII of the Civil Rights Act when he discriminates against any employee who has `made a charge ... in an investigation, proceeding, or hearing under this subchapter.'" Ruggles v. California Polytechnic State University, 797 F.2d 782, 784 (9th Cir.1986) (citing 42 U.S.C. § 2000e-3). To establish a prima facie case of reprisal discrimination, the Plaintiff must show that: 1) he engaged in a protected activity; 2) some adverse action was subsequently taken against him; and 3) there was a causal link between the adverse employment decision and protected activity. Jalil v. Avdel Corp., 873 F.2d 701, 708 (3d Cir.1989), cert. denied, 493 U.S. 1023, 110 S.Ct. 725, 107 L.Ed.2d 745 (1990).
In the present action, it is unclear what conduct by the Defendant allegedly amounts to retaliation. In his amended complaint, Plaintiff's sole allegation with respect to retaliation is that "[u]pon Plaintiff's request for a final resolution of his [EEO] complaints, the Equal Employment Officer staged a confrontation with Plaintiff in retaliation for the complaint filing which has resulted in a one-day disciplinary suspension." [Pl.'s Amended Compl. ¶ 8(f)]. However, in his brief in opposition to summary judgment, the list of retaliatory acts also included suspending Plaintiff without an investigation on October 23 and 24, 1993 and subjecting him to a fitness-for-duty medical examination, as well as suspending him for one day for the alleged confrontation with Mr. Peterson. [Pl.'s Br. in Opp'n to S.J. at 7]. All of these claims of retaliation arise from the same incident: the alleged confrontation with the EEO Officer.
Defendant argues that the court lacks subject matter jurisdiction over this claim because Plaintiff failed to exhaust his administrative remedies. See 29 C.F.R. § 1614.105(a)(1). Specifically, Defendant contends that the alleged confrontation with the EEO manager, and the subsequent action taken against the Plaintiff, was never the subject of a formal EEO complaint. Plaintiff does not contest the fact that this incident was not investigated[6], but instead *846 argues that it would be a waste of judicial resources if we were to dismiss the claim now. While we agree that dismissal of this claim for investigation by the EEO office may result in a waste of resources, we have no choice but to dismiss claims over which we lack subject matter jurisdiction. See Joyce v. United States, 474 F.2d 215, 219 (3d Cir. 1973); Rode v. United States, 812 F.Supp. 45, 47 (M.D.Pa.1992) (Nealon, J.). Until Plaintiff files a formal EEO complaint and his claims are investigated, they are not ripe for determination by this court. See Waiters v. Parsons, 729 F.2d 233, 237 (3d Cir.1984); 29 C.F.R. § 1614.105(a)(1).
D. Hostile Work Environment Discrimination
Plaintiff's final claim under Title VII is that the harassment he endured at the DDRE was so severe that it affected a term, condition, or privilege of his employment. In Harris v. Forklift Sys., Inc., ___ U.S. ___, 114 S.Ct. 367, 126 L.Ed.2d 295 (1993), the Supreme Court addressed the hostile work environment theory of harassment, stating that Title VII is violated where "the workplace is 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....'" Id. at ___, 114 S.Ct. at 370, 126 L.Ed.2d at 301 (internal citations omitted). Although the claim in Harris involved sexual harassment, the hostile work environment theory applies equally to racial harassment. See, e.g., West v. Philadelphia Electric Company, 45 F.3d 744, (3d Cir.1995); Rogers v. EEOC, 454 F.2d 234 (5th Cir.1971), cert. denied, 406 U.S. 957, 92 S.Ct. 2058, 32 L.Ed.2d 343 (1972).
"[A]n employer violates Title VII simply by creating or condoning an environment at the workplace which significantly and adversely affects [the psychological well-being] of an employee because of his race or ethnicity, regardless of any other tangible job detriment to the employee." Dickerson v. State of N.J., Dept. of Human Services, 767 F.Supp. 605, 613 (D.N.J.1994) (alteration in original) (citing Walker v. Ford Motor Co., 684 F.2d 1355, 1358 (11th Cir.1982)). To establish a claim for hostile work environment, the Plaintiff must demonstrate that: (1) employees suffered intentional discrimination because of their race; (2) the discrimination was pervasive and regular; (3) the discrimination detrimentally affected the plaintiff; (4) the discrimination would detrimentally affect a reasonable person of the same race in that position; and (5) respondeat superior liability existed. Andrews v. City of Philadelphia, 895 F.2d 1469, 1482 (3d Cir. 1990) (claim for sexually hostile work environment claim under Title VII).[7] "In determining if a work environment is `hostile' or `abusive', courts look to the totality of the circumstances, including: the frequency and severity of the conduct; whether the conduct is physically threatening or humiliating, or merely an offensive utterance; and whether the conduct unreasonably interferes with the victim's work performance." Pittman v. Correctional Healthcare Solutions, Inc., 868 F.Supp. 105, 108 (E.D.Pa.1994) (citing Harris, ___ U.S. at ___, 114 S.Ct. at 371, 126 L.Ed.2d at 302).
Plaintiff has not proved that he, or any other DDRE employee, was subjected to intentional discrimination because of his race. He argues that the testimony of two co-workers, Stanley Eddy and James Dick, supports his claim that there existed a racially hostile work environment. However, even granting all inferences in Plaintiff's favor, Eddy's belief that Plaintiff did not get the same treatment as non-minority patrolmen and Dick's statement that Plaintiff was not liked by management are insufficient to establish harassment that was "sufficiently pervasive so as to alter the conditions of employment and create an abusive working environment." Walker, 684 F.2d at 1359 (citation omitted). Neither individual testified that they witnessed, or knew of, any specific instances *847 of racial harassment by management or other employees. Plaintiff himself failed to allege that he was subjected to overt acts of harassment, such as racial slurs or derogatory comments in the workplace.
The examples that Plaintiff cites as evidence of a racially hostile work environment are the incident with Richard Nornhold at the commissary; the denial of permission to go to the health clinic at 9:00 a.m.; the superglue in Plaintiff's lock and the apparent inadequate investigation of the incident; the accusation that he failed to close a gate at the DDRE; and the alleged staged confrontation with the EEO manager. However, not one of these incidents contains a shred of evidence that could lead a reasonable jury to conclude that the action was based on racial animus. Only Plaintiff's conclusory allegations link these incidents to his race. To withstand summary judgment, the Plaintiff must do more than "simply reassert factually unsupported allegations contained in [his] pleadings." Williams v. Borough of West Chester, 891 F.2d 458, 460 (3d Cir.1989) (citation omitted). He "must present affirmative evidence in order to defeat a properly supported motion for summary judgment." Id. (emphasis in original) (citation omitted). Plaintiff has failed to identify any evidence, other than his own subjective conclusions, that he was harassed because of his race, and therefore has not satisfied the first element in a hostile work environment claim.
In addition, he has identified only five occurrences over a seven year period in which he claims he was harassed. These incidents, if true, do not show harassment that was "pervasive and regular". Andrews, 895 F.2d at 1482. Additionally, Plaintiff does not claim that racial slurs or any derogatory comments were made either to him or other employees. Rather, he has only his subjective belief that the alleged incidents of harassment directed at him were as a result of his race. A successful claim for hostile work environment includes both a subjective and objective standard. Id. We do not believe that a reasonable person of Plaintiff's race, placed in Plaintiff's position, would have found the incidents hostile or abusive.[8]
III. Conclusion
We recognize that summary judgment is not appropriate in many discrimination and harassment cases since the state of mind of the employer is often at issue. However, in the present case, the Plaintiff has failed to produce any evidence that the employer's professed reasons for not promoting him were pretextual. In addition, he has not identified any competent evidence that he suffered pervasive racial harassment during the course of his employment. We conclude that no reasonable jury could conclude that the Plaintiff was discriminated against because of his race, or that he was subjected to a hostile work environment.
An appropriate order will be entered.
ORDER
AND NOW, this 17th day of February, 1995, upon consideration of Defendant's motion to dismiss, or in the alternative summary judgment, filed December 15, 1994, it is ordered that:
1. Plaintiff's claim of retaliatory discrimination is dismissed for lack of subject matter jurisdiction (Plaintiff failed to exhaust his administrative remedies).
2. Defendant's motion for summary judgment is granted as to all other claims.
3. The Clerk of Court shall enter judgment in favor of the Defendant and against the Plaintiff, and shall close this file.
NOTES
[1] Plaintiff was hired at the former New Cumberland Army Depot ("NCAD") in 1987. In 1991, the NCAD was merged with another depot to form the DDRE, at which point Plaintiff became an employee of the Defense Logistics Agency ("DLA"), which is an agency of the United States Department of Defense.
[2] None of the other candidates for the position were assigned a trainer. [Affidavit of Richard H. Snyder, Exh. 2 to Def.'s Br. in Supp. of S.J.].
[3] Such a fact would be relevant if, for instance, Plaintiff was never given another chance to serve as Desk Sergeant, and Chief Snyder decided not to promote him based on his lack of experience as Desk Sergeant. However, that is not what occurred. Plaintiff was given an opportunity to gain experience as Desk Sergeant, but voluntarily chose not to accept it.
[4] Plaintiff does not dispute Defendant's claim that Snyder relied upon the recommendations of the shift captains in deciding to promote Varner, and does not attack the truthfulness of that purported reliance.
[5] While this fact might be relevant to a claim of disparate impact under Title VII, Plaintiff has not advanced such a claim.
[6] Plaintiff did advance one retaliation claim, the one-day suspension, in a formal EEO complaint. However, the claim was dismissed from his EEO claim because it was pending in this case. [Exh. 16 to Pl.'s Br. in Opp'n to S.J.]; see also 29 C.F.R. § 1614.105(a)(1).
[7] The standards for a claim of hostile environment based upon racial harassment are identical to those of a hostile environment claim based on sexual harassment. West, 45 F.3d at 753, n. 7.
[8] It is not clear whether Plaintiff is also claiming that the incident with Richard Nornhold, his preclusion from going to the health clinic to have his blood pressure checked at 9:00 a.m., and his confrontation with the EEO manager, each amounted to a violation of Title VII. If so, that argument is frivolous. Plaintiff has not established a prima facie case of discrimination on any of these claims since he has failed to establish, inter alia, that non-members of the protected class were treated more favorably. See Ezold, 983 F.2d at 522. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2250827/ | 507 F.Supp. 599 (1981)
EQUAL EMPLOYMENT OPPORTUNITY COMMISSION and Margaret Hasselman, Plaintiffs,
v.
SAGE REALTY CORPORATION, Monahan Commercial Cleaners, Inc., and Monahan Building Maintenance, Inc., Defendants.
No. 78 Civ. 4607.
United States District Court, S. D. New York.
January 29, 1981.
*600 *601 Leroy T. Jenkins, Jr., Lanier E. Williams, EEOC, Regional Office of Gen. Counsel, Philadelphia, Pa., of counsel, for plaintiff EEOC.
Merrick T. Rossein, Deborah Bachrach, National Employment Law Project, Inc., New York City, of counsel, for plaintiff Margaret Hasselman.
Dublirer, Haydon, Straci & Victor, New York City, for defendant Sage Realty Corp.; Harold Dublirer, Beatrice H. Salten-Smith, New York City, of counsel.
Theodore M. Wolkof, New York City, for defendant Monahan Building Maintenance, Inc.
ROBERT J. WARD, District Judge.
In this action plaintiffs Equal Employment Opportunity Commission ("EEOC") and Margaret Hasselman allege that defendants Sage Realty Corporation ("Sage"), Monahan Commercial Cleaners, Inc. ("Monahan Cleaners"), and Monahan Building Maintenance, Inc. ("Monahan Building"), unlawfully discriminated against Hasselman on the basis of sex in violation of Title VII of the Civil Rights Act of 1964 ("the Act"), as amended, 42 U.S.C. §§ 2000e-2000e-17.[1]
After considering the evidence adduced at trial, the Court finds that plaintiffs have established unlawful discrimination by a preponderance of the credible evidence.
Plaintiff Hasselman left the employment of Monahan Cleaners on June 4, 1976. On August 11, 1976, she filed a charge with the EEOC alleging sex discrimination by defendants Sage and Monahan Cleaners, among others.[2] Notice of the charge issued on August 17, 1976. The EEOC investigated the charge and on August 22, 1977, issued a decision finding reasonable cause to believe that Sage and Monahan Cleaners had discriminated against Hasselman with respect to the terms and conditions of her employment and had discharged her because of her sex.
Pursuant to section 706(b) of the Act, 42 U.S.C. § 2000e-5(b), the EEOC, by notice dated August 22, 1977, invited Sage and Monahan Cleaners to participate in settlement discussions in an effort to resolve informally the dispute brought about by Hasselman's sex discrimination charge. Although Sage and Monahan Cleaners both accepted the EEOC's invitation, the settlement negotiations between them and Hasselman did not come to fruition, and by letters dated September 26, 1977, the EEOC notified Sage and Monahan Cleaners that it had determined its effort to conciliate the case had been unsuccessful.
*602 On October 16, 1978, the EEOC issued to plaintiff Hasselman notices affording her the right to sue Sage and Monahan Cleaners. Shortly thereafter, on October 30, 1978, Hasselman exercised her statutory right under section 706(f)(1) and moved to intervene as a plaintiff in this action, which had already been commenced by the EEOC on September 29, 1978. The Court finds that all of the conditions precedent to the institution of this action required by section 706 have been fulfilled.
Plaintiff Hasselman was employed as a lobby attendant in an office building located at 711 Third Avenue in New York City's Borough of Manhattan from February 1973 until June 4, 1976.[3] At all times relevant to this action Sage managed the building at 711 Third Avenue. Monahan Building, under contract to Sage, currently provides cleaning services at 711 Third Avenue and at other Sage-managed buildings. As part of these services, Monahan Building retains on its payroll the attendants designated by Sage to serve in the lobby of 711 Third Avenue. Hasselman was on the payroll of Monahan Cleaners in 1976 when the acts of sex discrimination at issue here occurred. At that time Monahan Cleaners performed essentially the same services for Sage as Monahan Building performs now. In August 1977 Monahan Building replaced Monahan Cleaners as cleaning contractor for 711 Third Avenue.[4]
Although it continues to exist on paper as a New York corporation, apparently Monahan Cleaners no longer has any assets and is not actively engaged in business. Because Monahan Cleaners did not appear at trial to answer the allegations made against it, at the commencement of trial the Court noted the default of Monahan Cleaners and with respect to this defendant conducted the trial as an inquest.[5] Accordingly, the Court's decision with respect to defendants Sage and Monahan Building also applies to Monahan Cleaners.
In February 1973 Hasselman answered an advertisement in The New York Times. She met with Sage's building manager for 711 Third Avenue, Thomas Baxter, who described the duties of the lobby attendant position. Later, on the same day she met *603 Baxter, Hasselman was interviewed by Melvyn Kaufman, the president of Sage, at his office at 437 Madison Avenue. After discussing with Hasselman her prospective duties as a lobby attendant, Kaufman approved her employment. She was requested to report the following week to 711 Third Avenue to begin work.
When she reported to 711 Third Avenue the next week, Hasselman was directed by Baxter to proceed to the offices of National Cleaning Contractors ("National"), on whose payroll she was placed,[6] where she completed certain personnel forms. She then returned to 711 Third Avenue and at that time received instructions on her duties from Baxter and her two new coworkers (one male, one female). Though Hasselman was carried on the payroll of National (and later Monahan Cleaners), Sage, acting in most cases through Baxter, trained Hasselman, established her job duties, and supervised her day-to-day work from the time she commenced her employment in February 1973 until her discharge on June 4, 1976. On at least two occasions during Hasselman's employment, in January 1974 and in March 1975, Sage distributed a document entitled "Instructions for Ground Floor Personnel."[7]
Plaintiff Hasselman's job as a lobby attendant included security, safety, maintenance and information functions. For instance, as a lobby attendant Hasselman kept an eye on the elevators to make sure they were in working order and reported any elevator problems to maintenance personnel. She offered assistance and information to people entering the building and kept those who did not belong in the building from loitering. Hasselman's duties required her to replace defective light bulbs and to report any conditions in the lobby requiring the attention of cleaning personnel.
Sage furnished uniforms to all lobby attendants working in the buildings it managed. The uniforms were selected and paid for by Sage and after use remained Sage's property. During the period of Hasselman's employment, new uniforms were issued approximately every six months, each spring and fall.[8] The "Instructions for *604 Ground Floor Personnel" (Mar. 31, 1975), referenced above, provided in no uncertain terms that the lobby attendants were to wear the Sage-issued uniforms at all times and that "NO EXCUSES FOR BEING OUT OF UNIFORM [WOULD] BE ACCEPTED." (Plaintiffs' exhibit 14, at seventh of 15 unnumbered pages; emphasis in original)
Effective October 31, 1975, the contract between Sage and National, under which National performed cleaning services for Sage, was terminated. On October 15, 1975, Sage entered into a contract with Monahan Cleaners, effective November 1, 1975, by which Monahan Cleaners was to perform cleaning services similar to those previously provided by National. The agreement preserved Sage's right to approve the employment of all lobby attendants, denominated in the October 15th contract as "lobby receptionists."
In February or March 1976 Sage commissioned a graphic design firm, Pamela Waters Studio Inc., to develop a design concept for the uniforms to be worn by Sage's lobby attendants during the following spring and summer seasons. The Waters Studio presented Kaufman, Sage's president, with several designs. Kaufman approved a uniform known as the Bicentennial uniform, apparently developed to celebrate the nation's bicentennial year. The outfit resembled an American flag. It consisted of broad stripes of red, white and blue material sewn together. Each stripe was approximately 13 inches wide, and the uniform bore three stars across the front.
The Bicentennial uniform was constructed in the shape of a red-white-and-blue octagon with an opening in the center for the lobby attendant's head. This spring 1976 outfit was to be worn as a poncho, or cape, draped over the shoulders, with snaps at each wrist and stitching in the form of tacks, one tack at each side. The uniform was otherwise open at the sides. Underneath the poncho the lobby attendants wore blue dancer pants and sheer stockings. The Bicentennial uniform was to be worn with white, low-heeled shoes. The lobby attendants were not permitted to wear a shirt or blouse, a Danskin, pants or a skirt under the outfit.
The Pamela Waters Studio retained a seamstress to manufacture the uniforms. Although Sage's female lobby attendants were of different sizes, the uniforms were supposed to be made in one size only.[9] Moreover, the outfits were poorly made, had uneven hems, and contained little additional fabric that could be used to enlarge the garments to fit different individuals.
The first Bicentennial uniforms were delivered to the lobby attendants on or about May 12, 1976. When Hasselman tried on her uniform, she found it short and revealing on both sides. Her thighs and portions of her buttocks were exposed, and understandably she was concerned about wearing the outfit in the 711 Third Avenue lobby.
Hasselman had been told by Sage that if she had any problems with her uniform she was to call the Pamela Waters Studio. She *605 did so, complaining that her uniform did not fit properly. Shortly thereafter, Joan Petruska, an employee of the Waters Studio, came to 711 Third Avenue to inspect the fit of Hasselman's garment.[10] Petruska observed that the uniform was open above the thighs and that the blue dancer pants, worn underneath the outfit, were revealed when Hasselman assumed certain positions (positions she would likely be required to assume on the job). In addition, Petruska discovered, when Hasselman raised either of her arms the side of her body above the waist was visible. After inspecting the uniform and listening to Hasselman's complaints about it, Petruska promised to report the problem to the Waters Studio to see what could be done.
A few days after Petruska's visit, another Pamela Waters employee, Meta Shaw, visited Hasselman at 711 Third Avenue. Shaw observed the uniform on Hasselman, and she also found it to be too short. Hasselman had not as yet worn the Bicentennial uniform on the lobby floor.
Following the inspections by Petruska and Shaw, some alterations were made on Hasselman's uniform and it was lengthened slightly. The altered uniform, however, was uneven and remained as revealing as it had been in its unaltered form. Hasselman returned the outfit once again to the Pamela Waters Studio and requested that further alterations be made. The Bicentennial uniform was returned to Hasselman on May 26, 1976. Hasselman tried it on, found that it was still too revealing, and again complained to the Pamela Waters Studio. She was told, however, that at this point no further alterations would be made.
Following this conversation with the Waters Studio, and knowing Sage's uniform policy, Hasselman wore the uniform in the lobby of 711 Third Avenue on May 27 and May 28, 1976. While wearing the Bicentennial uniform and as a result of wearing it, Hasselman was subjected to repeated harassment. She received a number of sexual propositions and endured lewd comments and gestures. Humiliated by what occurred, Hasselman was unable to perform her duties properly.[11]
Although Hasselman complained to Baxter, Sage's building manager for 711 Third Avenue, about the fit of her uniform and the harassment to which she was being subjected, Baxter took no steps to remedy the situation. As a result Hasselman determined not to wear the Bicentennial uniform and, presumably beginning on June 1, 1976 *606 (the Tuesday following the 1976 Memorial Day holiday), wore the previously issued uniform, the fall 1975 beige jumper outfit.
By letter dated June 2, 1976, addressed to Sage's president Kaufman with copies to Monahan Cleaners' president Angelo Palumbo and Baxter, Hasselman again notified defendants Sage and Monahan Cleaners of the revealing nature of the uniform and the harassment to which she had been subjected when she wore it.[12] The letter was received at the Sage offices on June 3, 1976, and, in a letter dated June 4, 1976, Kaufman responded. In his reply letter Kaufman stated, among other things, that "all ground floor personnel are required to wear the uniforms supplied. There are no exceptions to this requirement." (Plaintiffs' exhibit 25)
On June 4, 1976, Baxter observed Hasselman in the lobby out of uniform and reported the matter to Kaufman. Kaufman ordered Hasselman removed from the floor. Baxter then told either Palumbo or someone else at Monahan Cleaners that plaintiff Hasselman was not wearing her uniform and that Kaufman wanted her off the floor.
Up to the time of this incident on June 4, 1976, Baxter testified, Hasselman had performed her job satisfactorily. Indeed, according to the testimony of all witnesses other than Palumbo (whose credibility on this point the Court found subject to considerable question), Hasselman was an excellent employee.
The Court finds that at the time he told Baxter he wanted Hasselman removed from the lobby of 711 Third Avenue Kaufman was aware of the nature of her complaints. Yet he did not act to remedy the situation. Instead, Kaufman gave Hasselman the choice of either wearing the uniform or leaving the floor. Since Hasselman's job required her to be on the lobby floor, this meant that if she would not wear the uniform she was discharged.
On June 4, 1976, after she was observed out of uniform by Baxter, Hasselman received a visit from an employee of Monahan Cleaners, a Mr. Constantino, who tried to persuade her to wear the Bicentennial outfit. When she refused, Constantino left. Later that day, Palumbo's secretary, a woman named Maria, called Hasselman and inquired if Hasselman was still not in uniform. When Hasselman confirmed that she was not wearing the required garment, Maria, acting on Palumbo's authority, told her to leave the floor. Hasselman promptly left 711 Third Avenue and did not return.
On Monday, June 7, 1976, Hasselman visited the office of Monahan Cleaners and met with Palumbo. At that time she asked Palumbo why he had not spoken to her directly in connection with her discharge the preceding Friday. Palumbo responded that he had not done so because there was *607 nothing he could do. He then asked her to reconsider wearing the uniform. When Hasselman told Palumbo that she would not do so, he offered to sign a "lay-off letter" stating that Hasselman had lost her job because of lack of work. Hasselman accepted the letter, dated June 7, 1976 (plaintiffs' exhibit 26), and left.
The Court has viewed photographs of Hasselman in the Bicentennial uniform and finds that on Hasselman the uniform was short, revealing and sexually provocative. It could reasonably be expected that were such an outfit to be worn by plaintiff Hasselman in the lobby at 711 Third Avenue, as it was for two days, she would be subjected to sexual harassment.
Apparently conceding, at least arguendo, that the uniform was short on Hasselman, defendant Sage contends that a new and larger uniform was made for her. The Court has been unable to determine whether any new or larger uniform was in fact sewn for Hasselman. In any event, however, the Court finds that no such new or larger uniform was ever delivered to Hasselman and that she was never told a new uniform was being made and would be delivered to her at some future time.
There is no question that defendants Sage and Monahan Cleaners required Hasselman to wear the Bicentennial uniform because she is a woman. Due to its revealing nature, the uniform caused Hasselman to endure harassment in the performance of her job. The wearing of the uniform was made a condition of Hasselman's employment, and her employment was terminated when she refused to continue wearing the garment.
Plaintiffs assert that, in issuing and requiring Hasselman to wear the Bicentennial uniform as a term and condition of her employment, and in firing her for refusing to wear the outfit, defendants violated section 703(a) of the Civil Rights Act of 1964. 42 U.S.C. § 2000e-2(a). The section provides:
It shall be an unlawful employment practice for an employer
(1) to fail or refuse to hire or to discharge any individual, or otherwise 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; or
(2) to limit, segregate, or classify his employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his status as an employee, because of such individual's race, color, religion, sex, or national origin.
To prevail on their claim that defendants committed an unlawful employment practice pursuant to section 703(a), plaintiffs must prove that a term or condition of employment was imposed on Hasselman and that this term or condition was imposed on the basis of sex. Plaintiffs have the burden of establishing a prima facie case of sex discrimination. See Dothard v. Rawlinson, 433 U.S. 321, 328-331, 97 S.Ct. 2720, 2726-28, 53 L.Ed.2d 786 (1977), and McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802, 93 S.Ct. 1817, 1824, 36 L.Ed.2d 668 (1973) (racial discrimination). Although the ultimate burden of persuasion remains with plaintiffs, once plaintiffs present evidence sufficient to make their prima facie showing, the burden of production shifts to defendants to rebut the prima facie case by articulating a legitimate, nondiscriminatory reason for their actions. Board of Trustees of Keene State College v. Sweeney, 439 U.S. 24, 99 S.Ct. 295, 58 L.Ed.2d 216 (1978) (per curiam); Furnco Construction Corp. v. Waters, 438 U.S. 567, 578, 98 S.Ct. 2943, 2950, 57 L.Ed.2d 957 (1978); Lieberman v. Gant, 630 F.2d 60, 65 (2d Cir. 1980); Jackson v. U.S. Steel Corp., 624 F.2d 436, 442 (3d Cir. 1980).
The Court finds that plaintiffs established their prima facie case by demonstrating, first, that as a condition of her employment Hasselman was required to wear the Bicentennial uniform; second, that Sage and Monahan Cleaners imposed this condition; and, third, that but for her *608 womanhood Hasselman would not have been required to appear on her job in the lobby of 711 Third Avenue in a uniform that subjected her to sexual harassment. Sage and Monahan Cleaners required Hasselman to wear, as a condition of her employment, a uniform that was revealing and sexually provocative and could reasonably be expected to subject her to sexual harassment when worn on the job and a uniform that Sage and Monahan Cleaners knew did subject her to such harassment. Defendants, on the other hand, have not offered any legitimate, nondiscriminatory explanation for imposing this condition, and thus have failed to rebut plaintiffs' prima facie showing.[13]
Hasselman's refusal to wear the sexually revealing Bicentennial uniform resulted in her discharge. Although in this case the Court finds that Hasselman was discharged for refusing to comply with the sex-based terms and conditions of employment imposed by defendants, to succeed on their Title VII claims here it is not necessary that plaintiffs prove Hasselman was fired. Plaintiffs need only establish that defendants imposed on her a term or condition of employment which section 703(a) makes unlawful.[14] A victim of sexual discrimination who quits, rather than comply with an unlawful job requirement, does not forfeit the right to bring an action under section 703(a).
There is no dispute that as a condition of her employment as a lobby attendant Hasselman was required to wear a uniform selected and issued by Sage and, in the summer of 1976, to wear the Bicentennial uniform. Defendants, however, maintain that Hasselman was never required to wear a sexually revealing and sexually provocative garment. They claim that Hasselman was only required to wear the properly fitted, nonrevealing second uniform that they say was made for her after she complained about how poorly her original uniform fit her. The evidence reveals otherwise. The Court finds that even if a new uniform was made for heras defendants contendHasselman was never told that she would only be required to wear this new, allegedly nonrevealing outfit.
Sage maintains that requiring Hasselman to wear the Bicentennial uniform was a proper exercise of its right to require an employee to work in company-prescribed attire. The Court does not question an employer's prerogative to impose reasonable grooming and dress requirements on its employees, even where different requirements are set for male and female employees, when those requirements have a negligible effect on employment opportunities and present no distinct employment disadvantages. The prerogative to impose reasonable grooming and dress requirements, however, as this Court ruled in denying *609 defendants' motion for summary judgment, does not mean that "an employer has the unfettered discretion... to require its employees to wear any uniform the employer chooses, including uniforms which may be characterized as revealing and sexually provocative." EEOC v. Sage Realty Corp., 87 F.R.D. 365, 371 (S.D.N.Y.1980).[15]
Sage's and Monahan Cleaners' requirement that Hasselman wear the Bicentennial uniform, when they knew that the wearing of this uniform on the job subjected her to sexual harassment, constituted sex discrimination of the same nature as that found by the Third and District of Columbia Circuits in Tomkins v. Public Service Electric & Gas Co., 568 F.2d 1044 (3d Cir. 1977), and Barnes v. Costles, 561 F.2d 983 (D.C.Cir.1977).
Although in Tomkins and Barnes the victims of sex discrimination were subjected to the direct sexual advances of their supervisors, the reasoning of those courts is entirely apposite here, where Sage and Monahan Cleaners knowingly allowed Hasselman, a female employee, to remain, as a condition of her employment, in a position where she would be subjected to sexual harassment on the job. Indeed, the Tomkins court, in holding the corporate employer responsible for the conduct of the supervisor of its complaining female employee, grounded its ruling on the allegation that the corporate defendant knowingly or constructively made Tomkins' acquiescence in her supervisor's advances a job prerequisite. 568 F.2d at 1047. The situation here is directly analogous. In requiring Hasselman to wear the revealing Bicentennial uniform in the lobby of 711 Third Avenue, defendants made her acquiescence in sexual harassment by the public, and perhaps by building tenants, a *610 prerequisite of her employment as a lobby attendant.[16]
Contending that its uniform requirement constitutes artistic expression, Sage argues that to the extent Title VII as applied in the instant case prohibits this employer from dressing its lobby attendants in an outfit such as the Bicentennial uniform, Title VII is an unconstitutional affront to freedom of expression in violation of the first amendment. Whatever merit this argument may have in other instances, it has no merit here. The issue before the Court in this case is not whether defendant Sage could permissibly outfit its lobby attendants in a Bicentennial costume, or in any other employer-designed uniform, but whether Sage could require plaintiff Hasselman, a female lobby attendant, to wear a uniform which subjected her to sexual harassment on the job. Sage has disclaimed any intention to express itself artistically by dressing its lobby personnel in sexually revealing outfits.[17]
*611 Similarly without merit is any contention that the wearing of a sexually revealing Bicentennial uniform is a bona fide occupational qualification ("bfoq") pursuant to section 703(d). While it may well be a bfoq for Sage to require female lobby attendants in its buildings to wear certain uniforms designed to present a unique image, in accordance with its philosophy of urban design, it is beyond dispute that the wearing of sexually revealing garments does not constitute a bfoq. Indeed, the evidence establishes that wearing the uniform interfered with Hasselman's ability to perform her job.
Accordingly, the Court finds that Sage and Monahan Cleaners, in discriminating against plaintiff Hasselman on the basis of sex, committed an unlawful employment practice in violation of section 703(a).[18]
Defendant Sage did not carry plaintiff Hasselman on its payroll as a direct employee. During the spring of 1976, Hasselman was paid by Sage's cleaning contractor, Monahan Cleaners. Sage therefore argues that inasmuch as it was not an employer of Hasselman it cannot be held liable under Title VII. The Court, however, ruled in its decision denying summary judgment that Sage could be liable if it were found to have been a joint employer of plaintiff Hasselman along with Monahan Cleaners. EEOC v. Sage Realty Corp., supra, 87 F.R.D. at 370-71. The factual question whether Sage was joint employer was left to trial. Id.
Sage, of course, contends that it was not a joint employer with Monahan Cleaners within the meaning of Title VII. Although section 703(a) makes unlawful only discriminatory employment practices of an "employer," this term has been construed in a functional sense to encompass persons who are not employers in conventional terms, but who nevertheless control some aspect of an employee's compensation or terms, conditions, or privileges of employment. Spirt v. Teachers Insurance and Annuity Ass'n, 475 F.Supp. 1298, 1307-08 (S.D.N.Y.1979). Although Hasselman was on the payroll of National from January 1973 through October 31, 1975, and on Monahan Cleaners' payroll from November 1, 1975, until her discharge on June 4, 1976, Sage exercised considerable control over the terms and conditions of her employment. Sage hired, trained and supervised Hasselman, and ultimately ordered her discharge. Sage controlled the uniform policy challenged here. The Court finds that Sage was a joint employer of Hasselman within the meaning of Title VII and is liable, along with Monahan Cleaners and Monahan Building, for the violation of section 703(a).[19]
Since Monahan Building was not in existence in the spring of 1976, it can be *612 found liable to plaintiffs only if it is the successor corporation to Monahan Cleaners. Applying the factors set forth in the Sixth Circuit's decision in EEOC v. MacMillan Bloedel Containers, Inc., 503 F.2d 1086, 1094 (1974) (a case relied on both by plaintiffs and by defendant Monahan Building); accord, NLRB v. Hudson River Aggregates, Inc., 639 F.2d 865 (2d Cir. 1981), the Court finds that Monahan Building is the successor corporation to Monahan Cleaners and is liable for the discriminatory acts of its predecessor.[20]
Monahan Building is a New York corporation engaged in the business of providing cleaning services. In August 1977, Sage entered into a contract with Monahan Building which required Monahan Building to furnish cleaning services at 711 Third Avenue. In the contract Sage gave its permission to Monahan Cleaners to sell to Monahan Building all the rights, title and interest of Monahan Cleaners in and to the contracts between Sage and Monahan Cleaners dated October 15, 1975, and August 19, 1976. According to the August 1977 contract Sage recognized Monahan Building as the successor of Monahan Cleaners' rights and obligations in and to the contracts between Sage and Monahan Cleaners dated October 17, 1975, and August 19, 1976.
In addition, Monahan Building acquired all of Monahan Cleaners' cleaning equipment and hired over ninety percent of Monahan Cleaners' employees. The persons hired by Monahan Building who had formerly worked at Monahan Cleaners performed essentially the same duties for Monahan Building as they had performed for Monahan Cleaners. Monahan Building assumed all of the obligations under the collective bargaining agreement that covered the employees, including lobby attendants, who formerly worked for Monahan Cleaners and who subsequently were hired by Monahan Building.
Under Monahan Building's contract with Sage, Sage continues to prescribe the job standards for the job of lobby attendant. Both Sage and Monahan recruit applicants for the lobby attendant position. The approval of Sage is required before any applicant for the lobby attendant job is placed on the payroll of Monahan Building. In addition, Sage continues to prescribe, provide and own the uniforms worn by the lobby attendants. Palumbo, who was president of Monahan Cleaners, is now a full-time consultant to Monahan Building, overseeing the operation of Monahan Building's business and supervising Monahan Building's employees. Monahan Building had constructive notice of Hasselman's charge of sex discrimination through Palumbo.
Turning to defendant Monahan Building's cross-claim against defendant Sage, the Court finds insufficient evidence to support Monahan Building's contention that Sage is solely to blame for the acts of discrimination against plaintiff Hasselman. Although Sage controlled the uniform policy for the lobby attendants in its buildings and took the principal role in supervising the attendants' activities, Monahan Building remained their employer. More importantly, *613 there was no evidence adduced at trial (other than Palumbo's self-serving statement to Hasselman on June 7, 1976) that Monahan Building was powerless to remedy the situation created by Hasselman's ill-fitting uniform. At the very latest Monahan Building knew of Hasselman's complaint about her outfit when Palumbo received a copy of the June 2, 1976, letter she sent to Kaufman. Accordingly, Monahan Building's cross-claim is dismissed. The Court finds defendants jointly and severally liable for the unlawful employment practice committed against Hasselman.
Plaintiff Hasselman is entitled to recover fully for the losses she sustained as a result of her wrongful discharge. She is entitled to back pay, pension contributions and other benefits she would have received had she continued in her employment, reduced by the amount she earned after her discharge, including unemployment insurance benefits. EEOC v. Kallir, Philips, Ross, Inc., 420 F.Supp. 919 (S.D.N.Y.1976), aff'd mem., 559 F.2d 1203 (2d Cir.), cert. denied, 434 U.S. 920, 98 S.Ct. 395, 54 L.Ed.2d 277 (1977). The award of back pay shall not be reduced by the amount of any funds not actually received by Hasselman, however, inasmuch as defendants have failed to demonstrate that pursuant to section 706(g) there were any "amounts earnable with reasonable diligence" after Hasselman's discharge other than what she actually earned. Hasselman does not seek reinstatement.
Using the earnings figures stipulated to by the parties, the Court finds that Hasselman's income had she not been discharged would have been $56,702.72 from June 4, 1976, through the date on which trial was completed, September 22, 1980. Over that same period she would have received $1904.00 in pension contributions, for a total of $58,606.72. Plaintiff Hasselman received a total of $30,930.04 in earnings and unemployment insurance benefits over this period. Her net back-pay award thus is $27,676.68.
Hasselman is also entitled to recover interest on her back pay. Chapman v. Pacific Telephone & Telegraph Co., 456 F.Supp. 77, 80 (N.D.Cal.1978). The Court will allow eight percent annual interest compounded quarterly. Therefore, Hasselman shall receive a total award of $33,141.75.
Section 706(k) enables the Court to award plaintiff Hasselman reasonable attorneys' fees. Although section 706(k) on its face provides for awards of counsel fees at the district court's discretion, the policy developed by the Supreme Court favors awards of fees to successful plaintiffs unless there are special circumstances which would render such an award unjust. New York Gaslight Club, Inc. v. Carey, 447 U.S. 54, 100 S.Ct. 2024, 2033, 64 L.Ed.2d 723 (1980). Moreover, prevailing plaintiffs represented by public interest law firms are entitled to attorneys' fees on the same basis as if they had been represented by private attorneys. EEOC v. Enterprise Association Steamfitters Local 638, 542 F.2d 579, 592-93 (2d Cir. 1976), cert. denied, 430 U.S. 911, 97 S.Ct. 1186, 51 L.Ed.2d 588 (1977). Accordingly, plaintiff Hasselman is directed to serve and file her application for attorneys' fees within thirty days of the date of this decision. Both plaintiffs are awarded costs.
Inasmuch as judgment is not final until the amount of any award of attorneys' fees is determined, Johnson v. University of Bridgeport, 629 F.2d 828 (2d Cir. 1980) (per curiam), the Court will direct that judgment not be settled until it rules on Hasselman's application.
The foregoing constitutes the Court's findings of fact and conclusions of law in accordance with Rule 52(a), Fed.R.Civ.P.
NOTES
[1] Section 706(f)(3) of the Act, 42 U.S.C. § 2000e-5(f)(3), gives federal district courts subject matter jurisdiction over actions brought pursuant to Title VII. Jurisdiction may also be based on 28 U.S.C. § 1345. Plaintiff EEOC is an agency of the United States authorized by § 706(f)(1), 42 U.S.C. § 2000e-5(f)(1), to bring this action.
[2] In her charge Hasselman also named the principals of Sage and Monahan Cleaners, a supervisory employee of Sage, and her union, Local 308, International Brotherhood of Teamsters. Neither Local 308 nor these three individuals are currently named as defendants in this action. Although Local 308 was a named defendant in plaintiff EEOC's initial complaint, EEOC voluntarily dismissed its action against the union on November 27, 1978, pursuant to Fed.R.Civ.P. 41(a)(1). Plaintiff Hasselman did not name Local 308 in either her initial or her first amended complaint.
[3] The position of lobby attendant has also been referred to by defendants as "lobby hostess." The traditional name for Hasselman's former position at 711 Third Avenue is "elevator starter," and it is the Court's understanding that this is the term used for the position in the collective bargaining agreement by which many of Hasselman's terms of employment were governed.
[4] When plaintiff Hasselman was hired by Sage in February 1973, she was placed on the payroll of National Cleaning Contractors (a subsidiary of National Kinney Corporation), where she remained until November 1, 1975, when Monahan Cleaners replaced National as cleaning contractor for certain Sage-managed buildings, including 711 Third Avenue.
[5] By decision dated June 6, 1980, EEOC v. Sage Realty Corp., 87 F.R.D. 365, the Court granted plaintiffs' motions to amend their complaints to delete defendant Angelo Palumbo d/b/a Monahan Commercial Cleaners, Inc., and add defendants Monahan Cleaners and Monahan Building. Although counsel for Sage appeared for defendant Palumbo, after plaintiffs' motions to amend were granted and defendant Monahan Cleaners was added, counsel did not enter an appearance for the latter defendant. Counsel for Monahan Building appeared only for this one defendant, and at trial both counsel for Sage and counsel for Monahan Building stated that they did not represent Monahan Cleaners. Accordingly, the Court finds that Monahan Cleaners did not appear in this action and thus was not entitled to written notice pursuant to Fed.R.Civ.P. 55(b)(2) prior to any hearing on an application for default judgment.
Moreover, although no motion for default judgment was filed with the Court, at the commencement of trial Monahan Building's counsel reported that he had just then received written notice from plaintiff Hasselman's counsel that she would move for default judgment. Hasselman's counsel explained to the Court that Hasselman had not moved earlier for a default judgment against Monahan Cleaners because counsel only discovered a few days before trial that Sage's counsel was not also representing Monahan Cleaners. The Court has some difficulty accepting this explanation, however, for the record reveals that Sage's counsel never answered plaintiff Hasselman's amended complaint on behalf of Monahan Cleaners. In any event, the Court notes that, to the extent it exists at all as a viable corporate entity, Monahan Cleaners had constructive notice of the proceedings against it, inasmuch as Palumbo, its principal, who now is associated with Monahan Building, appeared as a witness at trial.
[6] See n.4, supra.
[7] The document described the purpose of the lobby attendant job as follows:
To be responsible for the SAFETY of the building, tenants and general public.
To be responsible for the comfort of the tenants and the general public.
To be hosts and hostesses for the building. Remember that you are standing in as the representatives for the owners of the building.
You should be warm, friendly, courteous, yet firm should there be a disruption of [sic] disturbance with tenants and visitors.
You have complete respnsibility [sic] for the lobby, elevators, and entire ground floor from curb to curb. This includes the responsibility of following up a noticed and/or reported condition.
You should bear in mind at all times that the general public is your personal guests [sic]. The physical areas should be SUPER-CLEAN at all times, as if company is expected!
(Emphasis in original)
[8] Over the course of her 28 months of employment at 711 Third Avenue, plaintiff Hasselman wore seven separate outfits, including the ill-fated Bicentennial uniform. From February 1973 until the spring 1973 uniforms were issued, Hasselman wore the fall 1972 uniform left by her predecessor, a riding outfit that consisted of riding jodhpurs, boots, a jacket, a white ascot, and a riding cap. The spring 1973 uniform, a light-blue jeans outfit, came with two pairs of slacks and two plaid skirts and was to be worn alternately with espadrilles and cowboy boots. In the fall of 1973 the lobby attendants were issued a skirt-and-blouse combination to be worn with an overdress that came with a cape, a brimmed hat and patent leather pumps.
The next uniform, distributed by Sage in the spring of 1974, was a tennis outfit, consisting of a blouse, a pair of white pants, a white tennis dress, and a pleated skirt to be worn with lace panties. White espadrilles also were issued. Although the pants, tennis dress and pleated skirt were to be worn on alternating days, Hasselman, claiming it was too revealing, refused to wear the tennis dress without also wearing the pants underneath.
In the fall of 1974 the female lobby attendants were directed to wear a kilt outfit. This uniform was distributed with two overlapping, wraparound skirts (one knee length and the other ankle length), two blouses and a sweater. According to Hasselman, Sage directed that the skirts be worn with an additional slit up the side, open to mid-thigh, and without stockings. Hasselman, however, pinned the side slits of her kilts and wore her uniform with stockings, apparently without objection by Sage.
The spring 1975 uniform was a second jeans outfit, this one navy blue and issued with a light blue work shirt bearing "Sage" written across the back, to be worn with sneakers and with the pant cuffs rolled up. In the fall of 1975, Sage distributed a knee-length beige jumper outfit that came with a rust-colored turtleneck, leather wedged shoes and a beret. This was followed by the spring 1976 Bicentennial uniform, discussed in text infra, that is the focal point of this controversy.
Through the spring 1975 uniforms, the male and female lobby attendants were given different outfits where appropriate (the same jeans outfits, for example, could be worn by both male and female attendants). In the fall of 1975, when Monahan Cleaners replaced National as the cleaning contractor at 711 Third Avenue and other Sage buildings, Sage no longer employed male lobby attendants.
[9] For example, plaintiff Hasselman, at about 5-foot, 8-inches tall, was perhaps the tallest woman employed as a Sage lobby attendant in the spring of 1976. At trial Sage introduced a photograph of another lobby attendant, Angie Caratolla, dressed in the Bicentennial uniform. (Defendant Sage's exhibit A) On Caratolla, who looked to the Court from the photograph to be some 4 to 6 inches shorter than Hasselman, the outfit appeared much less revealing.
[10] Before she visted 711 Third Avenue, however, Petruska spoke with another lobby attendant, later identified as Christina Falda, in the presence of Sage's Kaufman. After observing that this young woman's uniform was crooked, Petruska overheard Falda tell Kaufman that she did not want to wear the uniform and that, if she had wanted to wear a uniform like the Bicentennial outfit she had just been issued, she would have sought work as a cocktail waitress. In response, Kaufman said he saw nothing wrong with the uniform. Falda's employment as a lobby attendant was terminated on May 26, 1976.
[11] Barbara Morrow, an employee of one of the tenants at 711 Third Avenue, had occasion to observe Hasselman in the Bicentennial uniform. In her testimony, Morrow described the uniform as follows:
It looked as though a piece of flag had been enlarged and cut to fit like a poncho with a slit down the front and slits up the sides and very open sleeves. It was cut sort of on a diagonal so it was a bit like a V in the middle....
When she raised her arms you could often see her underwear ....
After viewing photographs of Hasselman in the Bicentennial uniform (plaintiffs' exhibits 23-A through 23-G), Morrow testified:
When she moved, of course, it fluttered and since it was very open and since there were slits everywhere, it was more provocative than a still picture because you never knew what you were going to see next. Sometimes you would see something, sometimes you wouldn't. Sometimes you would see her underwear and sometimes you would see her leg and it has quite a different impact when you look at it in motion.
On those days when Hasselman was in her Bicentennial outfit, Morrow observed her to be upset and angry. Morrow saw some of the cause of Hasselman's discomfort: "The[re] were both comments and noises. People [would] whistle Yankee Doodle or Stars and Stripes and [make] comments that we would consider puns on the flag like `I'll run it up the flag pole any time you want to.'"
[12] Hasselman raised two points in her letter:
First, the uniform is apparently designed in such a way that it is sexually revealing. This is a fact because the uniform consists only of a poncho and nothing else. I always see my post in the lobby as one which is charged with definite duties and responsibilities. None of these duties and responsibilities either as those stipulated in the "Building-rules for ground-floor personnel" [sic] or those verbally given by you and other supervisors, requires me to be a sex symbol in skimpy costume. In the two days I tried to accommodate the uniform rule with the new uniform, I was subjected to all kinds of harassments, abuses, propositionings [sic] and ridicules. My co-workers and many of the tenants can stand witness to these. To put it simply, the uniform that I am required to wear is degradative [sic] to my character and offensive to me as a woman.
The second reason for my objection to the new uniform is that it is entirely inapproprite [sic], extremely incompatible and in fact is an outright interference with my duties in the lobby. Under constant harassments and abuses, one cannot function and perform with one's full capacity. To me there is no exception. Moreover, the uniform misrepresents my duties in the lobby by making me appear to be a sex object, making it more difficult for me to carry out my normal duties. In addition, the uniform poses a physical hazard. With its cape-like design, it flares as one walks, and it is easy to imagine it being caught between elevator doors and the like. It is ironic that one of my duties is to insure the safty [sic] of the elevators, especially in case of emergency.
(Plaintiffs' exhibit 24)
[13] If a defendant's rebuttal is successful, to prevail the sex-discrimination plaintiff must then show that the allegedly nondiscriminatory reason stated by the defendant is a mere pretext for discrimination. McDonnell Douglas Corp. v. Green, supra, 411 U.S. at 804, 93 S.Ct. at 1825. "If the plaintiff shows that the employer's stated reason ... was a pretext, ..., the employer's reason will not stand." Grant v. Bethlehem Steel Corp., 622 F.2d 43 (2d Cir. 1980). But when a plaintiff is unable to overcome the legitimate, nondiscriminatory reasons articulated by the defendants, her action must fail. Lieberman v. Gant, supra; Lamphere v. Brown University, 491 F.Supp. 232 (D.R.I. 1980). Defendants here, however, have articulated no such legitimate reason. Indeed, at trial Sage expressly denied it had any intention to dress its lobby attendants in sexually revealing attire. Sage litigated this case on the simple factual averment that it had not required plaintiff Hasselman to wear a revealing uniform. Even though the Court need not determine whether defendants' uniform requirement was a pretext for sex discrimination, were it required to do so the Court would have no difficulty finding the requirement that as a condition of employment Hasselman wear a sexually revealing uniform in the lobby of 711 Third Avenue was indeed a pretext for sex discrimination.
[14] The proper question is not whether the victimized employee resigned or was discharged, but whether she acted reasonably in quitting rather then suffering the effects of discrimination. Cf. DeGrace v. Rumsfeld, 614 F.2d 796, 806 (1st Cir. 1980). The Court finds that here plaintiff Hasselman acted reasonably in refusing to wear the Bicentennial uniform she was issued.
[15] Although the reasoning supporting their decisions differs, at least seven circuits have ruled that Title VII does not prohibit an employer from making reasonable employment decisions based on factors such as grooming and dress. The Seventh Circuit, however, in Carroll v. Talman Federal Savings and Loan Ass'n, 604 F.2d 1028 (1979), cert. denied, 445 U.S. 929, 100 S.Ct. 1316, 63 L.Ed.2d 762 (1980), found that a requirement that female employees wear a specified "career ensemble," while at the same time male employees were allowed to wear customary business attire, was a violation of Title VII. Three circuits held that grooming and dress requirements do not violate Title VII unless the requirements were based on immutable sex characteristics or affected constitutionally protected activities (such as marriage, see Phillips v. Martin Marietta Corp., 400 U.S. 542, 91 S.Ct. 496, 27 L.Ed.2d 613 (1971), and child rearing, Sprogis v. United Air Lines, Inc., 444 F.2d 1194 (7th Cir.), cert. denied, 404 U.S. 991, 92 S.Ct. 536, 30 L.Ed.2d 543 (1971)). Earwood v. Continental Southeastern Lines, Inc., 539 F.2d 1349 (4th Cir. 1976); Willingham v. Macon Telegraph Publishing Co., 507 F.2d 1084 (5th Cir. 1975) (en banc); Dodge v. Giant Foods, Inc., 488 F.2d 1333 (D.C.Cir.1973) (per curiam); Fagan v. National Cash Register Co., 481 F.2d 1115 (D.C. Cir.1973). Two other circuits reasoned that employer grooming requirements do not amount to Title VII violations where there is only a negligible effect on employment opportunities. Barker v. Taft Broadcasting Co., 549 F.2d 400, 401 (6th Cir. 1977) ("Employer grooming codes requiring different hair lengths for men and women bear such a negligible relation to the purposes of Title VII that we cannot conclude they were a target of the Act."); Knott v. Missouri Pacific Railroad Co., 527 F.2d 1249 (8th Cir. 1975). Apparently without adopting any particular reasoning, two circuits simply held that a short-hair requirement applied only to men does not amount to an unlawful employment practice under Title VII. Fountain v. Safeway Stores, Inc., 555 F.2d 753 (9th Cir. 1977); Longo v. Carlisle De Coppet & Co., 537 F.2d 685 (2d Cir. 1976) (per curiam). None of these court of appeals cases or their district court progeny, see, e. g., Lanigan v. Bartlett & Co. Grain, 466 F.Supp. 1388 (W.D.Mo.1979) (office ban on women wearing pants not Title VII violation), address a situation such as presented here. Unlike the employer grooming policies before the courts in Earwood, Willingham and Dodge, Sage's requirement that Hasselman wear a sexually revealing outfit in a public lobby unquestionably had an effect on her right of privacy. Moreover, in contrast to the findings in Barker and Knott, defendants' uniform requirement here had much more than a negligible effect on Hasselman's employment opportunities.
The Court is of course well aware that in this case there was no discrimination per se in dress requirements between male and female lobby attendants. In the spring of 1976 defendants did not employ male lobby attendants. Defendants adopted an all-female "lobby hostess" practice in the fall of 1975. The Court is persuaded, however, that had they employed male attendants in May 1976 defendants surely would not have required these men to wear the Bicentennial costume.
[16] Employers may once have been able to engage with impunity in the type of conduct that unquestioningly allowed women to be treated as sex objects. But this is no longer the case. Title VII's prohibition of sex discrimination was "intended to strike at the entire spectrum of disparate treatment of men and women resulting from sex stereotypes." Sprogis v. United Air Lines, Inc., supra, 444 F.2d at 1198. See also Rodriguez v. Board of Education of E. Chester Union Free School Dist., 620 F.2d 362, 366 (2d Cir. 1980), and Carroll v. Talman Federal Savings and Loan Ass'n, supra, 604 F.2d at 1030, 1033.
[17] The following exchange took place during closing arguments:
MS. SALTEN-SMITH [counsel for Sage]: Your Honor, it is the position that [sic] the defendant Sage that it has proven that there was a reasonable basis for this issuance of the Bicentennial uniform as well as every other uniform, but in this case we are focusing on the Bicentennial. It was not intended to be discriminatory in its purpose or effect and was not designed to be provocative and was not designed for a sexual reason. There is no doubt that the purpose of the uniform is an expression of the creativity and the artistic expression of Melvyn Kaufman and his philosophy in relation to his designs of his buildings, the designs of his lobbies and the functions of the lobby attendants in the buildings.
THE COURT: If Melvyn Kaufman had been putting on a 4th of July pageant back in 1976, and he garbed his actresses or his performers in this costume and asked them to perform in a pageant on a stage, I could have no quarrel with his doing that. But he took people who were employed not in a theatre where you expect to show yourself, but much more mundane people who were employed in lobbies, in close physical contact with the people who come and go.
MS. SALTEN-SMITH: Your Honor, if I might, the Bicentennial uniform was done in the spirit of the celebration of '76. There is evidence to that, it cannot be refuted. The activities of the lobby attendants are not as what your Honor described as lobby starters. Their purposes and activities were to relate, as Mr. Kaufman has said, add fun to the City and add a humanistic value.
THE COURT: They didn't put on five shows a day, though, did they?
MS. SALTEN-SMITH: No, but this was in a very real sense, your Honor, and this is not something that I am making up or that I feel, it was testified to, that this was created in the same sense as the Walt Disney creation of his Disneyland.
Mr. Kaufman said that he followed Walt Disney's ideas in relation to uniforms and in relation to their expression toward the public and in relation to their expression toward the premises they are in.
I have the testimony and I would read it to you, your Honor. This is exactly what your Honor has said that it isn't. It was in a sense a pageant, a point of four months in 1976 when this was Bicentennial fever, it was throughout this whole City and throughout this whole country as a matter of fact.
It was in celebration, it was a dynamism, it was a change, it went together with this change in the flags, the Betsy Ross flag and the other flag and the demonstrations.
This is not the situation. There is just a staid type of occupation, where the lobby hostesses that came into this occupation and into this job, knew that this was not a staid type of place where they would be doing a staid type of work.
They knew they would be dealing with the public, they knew they would be changing their uniforms. It was all explained to them and it was a creation of what this whole lobby and the functions of the lobby hostesses together represented.
THE COURT: Let me ask this question: does Sage contend that it was exercising its First Amendment right to dress lobby attendants in sexually provocative and revealing costumes or just uniforms?
MS. SALTEN-SMITH: Your Honor, for the purpose of the record, I think that without conceding anything, I think there would be instances where a person could carry out his First Amendment right and have sexually provocative uniforms such as in the Playboy Club.
I think that your Honor would say that those uniforms, the shortness of them, the tip of them, might be considered sexually provocative. In that instance, however, that is a reasonable manner in which to assign uniforms because it is the type of place and the surroundings in which it is conducted.
However, in the issue [sic] of Sage, Sage denies that these uniforms were sexually provocative.
[18] During closing argument defendant Sage also raised an argument to the effect that the EEOC's investigation and litigation of Hasselman's claim pursuant to § 706(f)(1), 42 U.S.C. § 2000e-5(f)(1), was an unconstitutional violation of the fifth amendment's due process clause. This argument took the Court somewhat by surprise, inasmuch as there had been no indication Sage would pursue such a contention. Moreover, Sage adduced no evidence at trial to support a claim that the EEOC's actions violated the defendants' due process rights. In any event, the Court finds no due process problems here. The Commission complied with its statutory mandate, and all preconditions of this lawsuit have been satisfied. Defendants received notice of all charges and were invited to participate in the administrative investigation. The trial before this Court constituted a hearing de novo, at which defendants enjoyed all the procedural guarantees the fifth amendment affords. Sage's due process claim therefore is without merit.
[19] Sage and Monahan Builders are employers within the meaning of § 701(b), 42 U.S.C. § 2000e(b). Monahan Cleaners was an employer within § 701(b) at the time of the occurrence of the acts of sex discrimination at issue here.
[20] Drawing on cases addressing the question of successor corporate liability in the labor context, the court in EEOC v. MacMillan Bloedel Containers, Inc., supra, 503 F.2d at 1094, suggested that the following factors be considered in Title VII actions:
1) whether the successor company had notice of the charge, 2) the ability of the predecessor to provide relief, 3) whether there has been a substantial continuity of business operations, 4) whether the new employer uses the same plant, 5) whether he uses the same or substantially the same work force, 6) whether he uses the same or substantially the same supervisory personnel, 7) whether the same jobs exist under substantially the same working conditions, 8) whether he uses the same machinery, equipment and methods of production and 9) whether he produces the same product.
The court in NLRB v. Hudson River Aggregates, Inc., supra, 869 held that:
Relevant factors in determining whether a new employer is a successor, for purposes of [collective] bargaining obligations, include whether the new employer is using the same supervisory personnel, equipment, and facilities as its predecessor, whether it is producing the same goods, and whether there is a substantial identity in the work force before and after the change in ownership. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2252885/ | 732 F.Supp. 1112 (1990)
ALLSTATE INSURANCE COMPANY, Plaintiff,
v.
Jennifer LEWIS, et al., Defendants.
Civ. A. No. 89-C-419.
United States District Court, D. Colorado.
March 14, 1990.
Joel N. Varnell, Denver, Colo., for plaintiff.
Jack LeProwse, Westminster, Colo., for Lewis defendants.
Jon L. Holm, Denver, Colo., for Bills defendants.
MEMORANDUM OPINION AND ORDER
CARRIGAN, District Judge.
Plaintiff, Allstate Insurance Company, filed this diversity action seeking a declaratory judgment that it is not obligated to provide coverage under a homeowner's policy.[1] Defendants are William and Viola Bills, the policy holders, their grandson, Brian Bills, their son, Bobby Bills, Jennifer Lewis, and her mother Jeanette E. Lewis. Plaintiff has moved for summary judgment pursuant to Rule 56, Fed.R.Civ.P. Defendants have responded by opposing the motion.
The parties have fully briefed the issues and oral argument would not materially *1113 assist my decision. Jurisdiction is based on 28 U.S.C. § 1332.
I. BACKGROUND.
On September 24, 1987, seventeen-year-old Brian Bills, then living with his grandparents, wanted to stop thirteen-year-old Jennifer Lewis from "bugging" him and his friends on the telephone at odd hours of the night. Jennifer appears to have had a "crush" on Brian and continued to pester him despite his professed lack of interest. Brian concluded that brandishing his uncle's empty handgun at Jennifer would persuade her to desist in her demonstrations of affection for him. Unfortunately, Jennifer was not impressed when Brian confronted her with the empty handgun. To emphasize his resolve, Brian placed a bullet in the revolver and clicked the cylinder once to the right. Thinking that the chamber was empty, he pointed the gun at Jennifer's midsection and pulled the trigger, shooting her.[2] Jennifer suffered physical and mental injuries from the wound, requiring medical and psychiatric treatment that cost $28,885.97.
On September 25, 1987, a petition in delinquency was filed in the District Court for Adams County, Colorado, alleging first degree assault and two counts of menacing. On April 27, 1988, Brian pled guilty to first degree assault. The other charges were then dismissed.
The Bills and Lewis families contend that the shooting was accidental, and therefore the provision excluding coverage for intentional bodily injury should not apply. They also argue that the criminal acts exclusion, found in the same provision of the policy, should not apply because the Colorado Children's Code distinguishes between criminal acts committed by minors and those committed by adults. The Children's Code characterizes some criminal acts committed by minors as "delinquent acts" rather than as criminal acts. Brian was adjudicated a juvenile delinquent. Therefore, the reasoning goes, Brian's act was not a criminal act.
Plaintiff maintains that the plain meaning of the policy exclusion's words must be literally enforced, and it thus asserts that it has no duty to indemnify the Bills for damages for which they may be held liable. Plaintiff seeks summary judgment, contending that Brian's conduct precludes any obligation on its part as insurer to indemnify or defend any of the defendants.[3]
Thus, I must determine whether the plaintiff insurer is required to provide coverage under the Bills' homeowner's policy for Jennifer Lewis' injuries. As indicated, the issue hinges on interpretation of the policy language excluding coverage for intentional or criminal conduct.
II. DISCUSSION.
A. Application of Rule 56, Fed.R.Civ.P.
Under Rule 56(c), Fed.R.Civ.P., summary judgment is proper "if 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 the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In Celotex the Court held that 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. Id. at 322, 106 S.Ct. at 2552.
Rule 56 expressly assigns to the nonmoving party the burden of countering a summary *1114 judgment motion by affidavits or other proper evidence. When a motion for summary judgment is made and properly supported the non-moving party:
"may not rest upon the mere allegations or denials of the adverse party's pleadings, but the ... [non-moving] party's response ... must set forth specific facts showing that there is a genuine issue for trial. If the ... [non-moving] party does not so respond, summary judgment, if appropriate, shall be entered against the ... [non-moving] party." Rule 56(e), Fed.R.Civ.P.
When the party moving for summary judgment has successfully carried the burden of establishing the absence of a genuine issue of material fact, the burden shifts to the nonmoving party to establish "specific facts showing that there is a genuine issue for trial." Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).
B. The Criminal Act Exclusion.
A juvenile delinquency proceeding is not a criminal prosecution. S.G.W. v. People in the Interest of S.G.W., 752 P.2d 86, 88 (Colo.1988); People ex rel. Terrell v. District Court, 164 Colo. 437, 444, 435 P.2d 763, 766 (1967). Indeed, it is precisely "to protect the young from the stigma frequently associated with criminal proceedings" that a petition in delinquency is classified as civil in character. S.G.W. at 88 (quoting S.A.S. v. District Court, 623 P.2d 58, 60 (Colo.1981)). An adjudication of delinquency is a status determination, as opposed to a criminal conviction; its purposes and consequences are, by specific legislative design, different from those of a criminal proceeding. People in Interest of J.J., 768 P.2d 754 (1988).
The policies underlying the distinction between a criminal prosecution and a delinquency adjudication are enumerated in Colo.Rev.Stat. § 19-1-102(1) (1978 & 1985 Supp.),[4] as follows:
"Legislative Declaration. (1) The general assembly declares that the purposes of this title are:
(a) To secure for each child subject to these provisions such care and guidance, preferably in his own home, as will best serve his welfare and the interests of society;
(b) To preserve and strengthen family ties whenever possible, including improvement of the home environment;
(c) To remove a child from the custody of his parents only when his welfare and safety or the protection of the public would otherwise be endangered and, in either instance, for the courts to proceed with all possible speed to a legal determination that will serve the best interests of the child; and
(d) To secure for any child removed from the custody of his parents the necessary care, guidance, and discipline to assist him in becoming a responsible and productive member of society."
In recognition of the Act's benevolent purposes, courts have consistently regarded the proceedings under it as civil rather than criminal in nature. People in the Interest of M.C., 774 P.2d 857, 861 (Colo. 1989); S.G.W. v. People, 752 P.2d 86, 88 (Colo.1988); S.A.S. v. People, 623 P.2d 58, 60 (Colo.1981). Although many of the procedural safeguards guaranteed to criminal defendants are also afforded juveniles, that fact should not blur the significant distinctions between the two types of legislation. People in Interest of M.C., 774 P.2d 857, 861 (Colo.1989).
Since Brian Bills was seventeen years old at the time of the shooting, he was adjudicated a delinquent. It is undisputed that he was charged with first degree assault under the Children's Code in a petition for delinquency and not by a criminal information as an adult would have been charged.
For these reasons, to characterize Brian's offense as criminal would thwart the clear intent of the Colorado General Assembly. Colorado courts, whose precedents *1115 are binding in this diversity case, have unequivocally supported the clear legislative mandate that young people are to be protected from the stigma attached to criminal proceedings. Therefore, I find and conclude that Brian's juvenile offense was a civil and not criminal wrong and his adjudication as a delinquent was a civil proceeding.
C. The Intentional Act Exclusion.
Coverage is excluded when the policy holder's act is intentional and causes harm that reasonably could have been expected to flow from the intentional act. Brian admits that he intended to frighten Jennifer by his ill-conceived scheme, and as stated he pleaded guilty to First Degree Assault. He is civilly liable for any harm that flowed from that assault. Plaintiff argues that the accidental shooting falls within the policy exclusion because there was a reasonable expectation of harm created when Brian assaulted Jennifer with a loaded gun. Thus, the issue is whether Brian's acknowledged intent to assault Jennifer may be transferred to an unintentional actthe accidental shooting.
1. Intent.
To be liable for assault it is not necessary to intend to inflict physical injury; all that is required is an intent to arouse apprehension of immediate harmful or offensive bodily contact. Restatement (Second) of Torts, § 32. Brian intended to pull the trigger in order to arouse apprehension in Jennifer, but he did not intend to fire a bullet from the gun near her or to strike her, inflicting physical injury upon her. He thought that the chamber was empty. Thus, Brian's judicial admission that he intended to assault Jennifer does not permit the conclusion that he intended to shoot her. Consequently, his intent to assault Jennifer cannot be transferred to the ensuing physical harm caused by the accidental shooting.[5]
Plaintiff insurer asserts that the result of one's intentional acts cannot be unexpected if the result is the ordinary consequence of those acts. The numerous cases cited by the plaintiff in support of this thesis, however, are inapposite. Defendants contend that the shooting was the result of Brian's reckless conduct and unfamiliarity with guns, yet the plaintiff relies on cases involving the intentional firing of guns, the illegal discharge of hazardous substances, sexual molestation and battery. Plaintiff company's tautologous reasoning imprecisely combines two events, the assault and the shooting, into one intentional act. Clearly the assault was an intentional act, but as the investigating officer concluded, the shooting was accidental and not the ordinary consequence of the assault.
Plaintiff insurer implies that Brian intentionally shot Jennifer. Alternatively, the plaintiff suggests that its policy excludes coverage for injuries which may reasonably be expected to result from the intentional acts of an insured person. Plaintiff contends that even if the shooting was the result of Brian's reckless behavior and unfamiliarity with guns, it flowed from Brian's intentional act, the assault on Jennifer.
If Brian had intentionally fired the bullet at Jennifer, undoubtedly coverage would have to be denied. However, the plaintiff has offered no proof that Brian intended to shoot Jennifer. Defendants, including the victim of the shooting herself, apparently believe that the shooting was accidental. The investigating officer has concluded that the shooting was accidental.
For the reasons presented above, the plaintiff has not made a showing sufficient to establish absence of a genuine issue of material fact and thus cannot be relieved of *1116 its obligation to the insured at this point in the litigation. Therefore, I find and conclude that genuine issues of material fact preclude granting the plaintiff's motion for summary judgment.
Accordingly, IT IS ORDERED that the plaintiff's motion for summary judgment is denied.
Each party shall bear her, his or its own costs.
NOTES
[1] The policy in question contains the following exclusion: "We do not cover any bodily injury or property damages which may reasonably be expected to result from the intentional or criminal acts of an insured person or which are in fact intended by an insured person."
[2] Defendants have supplied an affidavit from the investigating officer who believes that the shooting was the unintentional result of Brian's reckless conduct and unfamiliarity with weapons.
[3] Jennifer Lewis and her mother Jeanette filed an action in the District Court for Adams County, Colorado against Brian Bills, William Bills and a number of other defendants. On March 13, 1989, the plaintiff Allstate Insurance Company filed a complaint for declaratory relief in this Court, naming both Lewises and the Bills as defendants.
[4] This statute was repealed and reenacted in 1987. It is now codified as Colo.Rev.Stat. § 19-1-102 (1988 Supp.).
[5] If Brian had intended to fire the gun in order to frighten Jennifer further, he could have been held liable for battery if the bullet had unexpectedly hit her, because his intent to assault her then could have been transferred to the shooting. W. Prosser, Law of Torts, 4th Ed. 1971, § 8. See also Allstate Insurance Co. v. Steinemer, 723 F.2d 873 (11th Cir.1984) (holding an intentional act exclusion inapplicable when the insured intentionally does an act but has no intent to commit harm, even if the act involves foreseeable consequences of great harm or even amounts to gross or culpable negligence); Butler v. Behaeghe, 37 Colo.App. 282, 548 P.2d 934 (1976) (holding an exclusion for "intended or expected" bodily injuries inapplicable if the insured acts without any intent or any expectation of causing any injury, however slight). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2253065/ | 732 F.Supp. 75 (1990)
John RASCO, Petitioner,
v.
A.F. BEELER, Warden, Metropolitan Correctional Center, Chicago; The Federal Bureau of Prisons, Respondents.
No. 89 C 3280.
United States District Court, N.D. Illinois, E.D.
March 14, 1990.
*76 Sharon G. Kramer, Chicago, Ill., for petitioner.
Anton R. Valukas, U.S. Atty. by Charles E. Ex, Asst. U.S. Atty., Civ. Div., U.S. Dept. of Justice, Chicago, Ill., for respondents.
ORDER
BUA, District Judge.
Petitioner John Rasco is currently in federal custody. Claiming that the Federal Bureau of Prisons ("FBP") has miscalculated the date he is to be released from prison, Rasco petitions this court for a writ of habeas corpus.[1] For the reasons stated herein, the court denies Rasco's petition.
I. FACTS
Rasco has an extensive criminal history; he has been in and out of jail for the past twenty years. On April 10, 1970, Rasco was initially sentenced to thirty days of imprisonment, an eight-year suspended sentence, and three years of probation for interstate transportation of forged securities. Rasco subsequently violated the terms of probation and, on January 19, 1971, he was ordered to serve the eight-year suspended sentence. On December 13, 1972, Rasco received a three-year term of imprisonment for concealment of assets in bankruptcy. The three-year sentence was to be served concurrently with the previously imposed eight-year sentence. Rasco's eight-year sentence, however, was vacated on appeal. He was resentenced in 1973 and given a six-year term of confinement.
Rasco was paroled on September 25, 1973. Since that time, he has consistently returned to prison on parole violations and convictions for various other crimes. Rasco's most recent sentence is a five-year term of imprisonment imposed on September 9, 1987, for violating 18 U.S.C. § 215. He is currently serving that sentence at the Metropolitan Correctional Center in Chicago, Illinois.
*77 II. DISCUSSION
In support of his request for immediate release, Rasco contends that the FBP erroneously computed his statutory good time on the basis of eight days per month rather than ten days per month. In addition, Rasco claims that he should not have been denied meritorious good time while he was released on a writ of habeas corpus ad prosequendum.[2]
A. Statutory Good Time
The FBP has been crediting Rasco with statutory good time at a rate of eight days per month. But Rasco claims that he is entitled to ten days per month of statutory good time, and that he would already have completed his sentence were it not for the alleged miscalculation.
For crimes committed before November 1, 1987, a prisoner can earn eight days of statutory good time per month if his sentence is between five and ten years. 18 U.S.C. § 4161. If the sentence is ten years or more, then a prisoner may accumulate ten days of statutory good time per month. Id. Rasco currently is serving a five-year sentence concurrent to his 1973 sentence, which had since become a parole violator term. For purposes of determining Rasco's aggregate sentence, both parties agree that the following FBP policy statement is applicable:
A new concurrent sentence imposed after a violator term has begun and having a full term date greater than the violator term will be aggregated into one sentence. The rate of [statutory good time] will be determined by adding the time served originally on what has since become a violator term to this aggregate for a total. The rate applicable to that total will be authorized.
Federal Bureau of Prisons, Policy Statement No. 5880.17(5)A(2). By adding Rasco's five-year concurrent sentence to the time he had already served under the parole violator termi.e., four years, ten months, and twenty-four daysthe FBP concluded that Rasco's total sentence is nine years, ten months, and twenty-four days. See Affidavit of Larry F. Dupont, at 3-4. Since that total is under ten years, the FBP credited Rasco with eight days per month of statutory good time. See 18 U.S.C. § 4161.
Rasco now claims that the FBP's calculations are erroneous. According to Rasco, the calculations should have included the period from October 24, 1980, to April 6, 1981, when he was on parole.[3] If this six-month period were included in the FBP's computation, Rasco contends, then his aggregate sentence would exceed ten years and he would be entitled to ten days of statutory good time per month. In deciding that Rasco should not be credited for the time he spent on parole, the FBP relied on policy statement No. 5880.17(5)A(2). That statement explicitly states that statutory good time is to be determined based on the "time served" under the parole violator term. Federal Bureau of Prisons, Policy Statement No. 5880.17(5)A(2). Although "time served" is not expressly defined, the FBP has equated time served with physical confinement. In the absence of any evidence indicating that this interpretation is unreasonable, the FBP's construction of its own policy statement is entitled to deference. See United States v. *78 Clark, 454 U.S. 555, 565, 102 S.Ct. 805, 811-12, 70 L.Ed.2d 768 (1982); Ray v. Brewer, 808 F.2d 19, 21-22 (7th Cir.1986) (per curiam); Conley v. Brewer, 652 F.Supp. 106, 109-10 (W.D.Wis.1986).
Rasco has failed to cite any authority, even remotely analogous to this case, which supports his position. The statutory provision governing good time allowance only refers to prisoners who are "confined in a penal or correctional institution for a definite term." 18 U.S.C. § 4161 (emphasis added). Moreover, a prisoner who has been returned to custody after violating parole is not automatically entitled to credit for good time which he accrued prior to the parole. United States ex rel. Del Genio v. United States Bureau of Prisons, 644 F.2d 585, 589 (7th Cir.1980), cert. denied, 449 U.S. 1084, 101 S.Ct. 870, 66 L.Ed.2d 808 (1981); Wilkerson v. United States Bd. of Parole, 606 F.2d 750, 751 (7th Cir.1979); Culp v. Keohane, 822 F.2d 641, 642 (6th Cir.1987) (per curiam).
This court, therefore, sees no reason why Rasco should be entitled to ten days per month of statutory good time. Giving Rasco full credit for time served, he is only entitled to eight days of statutory good time per month.
B. Meritorious Good Time
Rasco also claims that he should have been credited with meritorious good time from December 24, 1986, to October 15, 1987. During that time period, Rasco was released from a community treatment center in Chicago, Illinois, on a writ of habeas corpus ad prosequendum. He was taken to Springfield, Illinois, to stand trial on bribery charges. Rasco was subsequently convicted and sentenced to five years of imprisonment.
The FBP awards meritorious good time based upon exceptional work performance or meritorious service. 28 C.F.R. § 523.10 (1989). "Work performance or the importance of the work performed is the only criteria for awarding meritorious good time." 28 C.F.R. § 523.11(a) (1989). As Rasco points out, meritorious good time is not automatically terminated when an inmate is released on a writ of habeas corpus. See 28 C.F.R. § 523.17(g) (1989). But an inmate is not entitled to meritorious good time solely because he may have received it in the past. Indeed, the FBP has the authority to discontinue an inmate's meritorious good time allowance if the "inmate's behavior warrants such action." Id.; see also 28 C.F.R. § 523.17(e) (1989). Rather than performing meritorious service at the community treatment center, Rasco engaged in criminal activity. In light of Rasco's behavior, the FBP's decision to discontinue his meritorious good time was entirely reasonable.
III. CONCLUSION
For the foregoing reasons, Rasco's petition for a writ of habeas corpus is denied.
IT IS SO ORDERED.
NOTES
[1] On June 15, 1989, this court dismissed Rasco's petition for failure to exhaust administrative remedies. Rasco then filed a motion for reconsideration, which was referred to Magistrate Weisberg for a report and recommendation. While the parties were briefing the motion, Rasco exhausted his appeals within the federal prison system. Consequently, Magistrate Weisberg recommended that this court grant Rasco's motion for reconsideration. The court hereby adopts the magistrate's report and recommendation, and now reaches the merits of Rasco's habeas petition.
[2] In his original brief, Rasco also raised an argument concerning the six-year sentence he received on May 25, 1973. That sentence was imposed after his prior eight-year sentence was vacated on appeal. Rasco argued that the sixyear sentence was meant to apply nunc pro tunc, meaning that it commenced running on the date he began serving the earlier eight-year sentence. The FBP refused to apply the sentence nunc pro tunc, arguing that it did not relate back to the date on which the eight-year sentence was imposed. In any event, the issue is moot. As indicated in Petitioner's Brief, Apr. 25, 1989, at 9 (Chart # 1), Rasco completed the sentence at issue by August 1988, and he is now serving time under his 1987 conviction for bribing a bank official. Even if Rasco's 1973 sentence were applied nunc pro tunc, his presently scheduled release date would not be affected.
[3] Rasco initially argued that the FBP failed to credit him with the time that he served between August 6, 1986, and September 9, 1987. Rasco later abandoned the argument, conceding that the FBP had in fact included that time period in its calculations. See Petitioner's Brief, Nov. 28, 1989, at 1-2. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2253070/ | 732 F.Supp. 1503 (1990)
CHICAGO RIDGE THEATRE LIMITED PARTNERSHIP, et al., Plaintiffs,
v.
M & R AMUSEMENT CORPORATION, et al., Defendants.
No. 82 C 3141.
United States District Court, N.D. Illinois, E.D.
March 16, 1990.
*1504 Sheldon O. Collen, Epton, Mullin & Druth, Ltd., and Therese M. Obringer and Paul E. Slater, Sperling, Slater & Spitz, Chicago, Ill., for plaintiffs.
Robert W. Bergstrom, Ronald W. Teeple and John L. Leonard, Bergstrom, Davis & Teeple, Chicago, Ill., Philip R. Toomin, Winnetka, Ill., James G. Hunter, Jr., Latham & Watkins, Hedlund, Hunter & Lynch, Chicago, Ill., and Altheimer & Gray, Chicago, Ill., for defendants.
MEMORANDUM OPINION/FINDINGS OF FACT AND CONCLUSIONS OF LAW
BRIAN BARNETT DUFF, District Judge.
This case comes to this court following a remand from the Court of Appeals in Chicago Ridge Theater Ltd. v. M & R Amusement, 855 F.2d 465 (7th Cir.1988). In the wake of that decision, the defendants have renewed their motions for judgment under Rule 41(b), Fed.R.Civ.Pro.[1] In opposing these motions, Chicago Ridge Theater Limited Partnership and F & F Management Company have asked for a new trial on the claims presented in their amended complaint.
The Court of Appeals reviewed much of the procedural history of this case in Chicago Ridge. This court will assume that the reader is familiar with that decision. Further, the court understands that decision as allowing the court to decide the present motions. See Chicago Ridge, 855 F.2d at 471 (reversing and remanding "for a new trial or other proceedings not inconsistent with this opinion").
The court will address the defendants' motions first. In considering these motions, the court
need not view the evidence [presented at a trial of this matter] in the light most favorable to the plaintiffs but instead may weigh the evidence and assess the credibility of the witnesses. The burden of persuasion is on the plaintiffs; if at the close of the plaintiffs' case the court is not persuaded by the plaintiffs' submissions, the court should find for the defendants.
Id. at 467-68. The plaintiffs argue that the Seventh Circuit wants this court to consider only the testimony of their expert, Dr. Norman Bradburn, in deciding this motion. The plaintiffs rest their argument on the Seventh Circuit's reliance on the plaintiffs' representation to the appellate court that they would not object to this court's review *1505 of Bradburn's "cold" testimony. Before relying on this representation, however, the Seventh Circuit stated that "[t]he district court may ... on remand reweigh the properly admitted evidence, ignoring the evidence improperly considered in its prior review." Id. at 469 n. 4. Further, the issue before the court in Chicago Ridge was whether the previous trial judge considered unadmitted testimony in deciding the defendants' earlier Rule 41(b) motion. The Seventh Circuit decided that he had. A simple solution to the problem, one chosen by the Seventh Circuit, was to remand for consideration of only properly admitted evidence. This suggests to this court that it may consider all of the properly admitted evidence in deciding the defendants' motions.
Pursuant to Rule 41(b), the court finds these facts:[2]
1. The plaintiffs allege violations of § 1 of the Sherman Act, 15 U.S.C. § 1 (1982). They invoke the jurisdiction of the court pursuant to §§ 4 and 16 of the Clayton Act, codified at id., §§ 15 and 26, and 28 U.S.C. § 1337 (1982). See CR at 466.
2. The plaintiffs are:
a. Chicago Ridge Theater Limited Partnership, the lessee and operator of a movie theater known as the Chicago Ridge Theater.[3] The theater is located at 95th Street and Ridgeland Avenue, Chicago Ridge, Illinois. See id.
b. F & F, an affiliate of the Partnership. F & F performed certain management functions for the Partnership, including obtaining licenses for exhibition of films at the Chicago Ridge Theater. See id.; Stip. ¶ 2.
3. Morton and Robert Fink were partners in the Partnership and president and vice-president, respectively, of F & F. They were managing agents of both plaintiffs. See id. at ¶ 3.
4. The defendants are:
a. Evergreen Theater Corporation, which owned and operated the Evergreen Theater, located at 95th Street and Western Avenue in Evergreen Park, Illinois. See CR at 466.
b. M & R Amusement Corporation, which has its principal place of business in Skokie, Illinois. See Stip. at ¶ 8.
c. Columbia Pictures Industries, Inc. Columbia was in the business of producing copyrighted feature motion pictures and distributing feature motion pictures (its own and those of other producers) to theaters in the United States. See id. at ¶ 9.
d. Embassy Pictures, formerly Avco Embassy Pictures Corporation. Embassy was in the same business as Columbia.[4] See id. at ¶ 10.
e. Orion Pictures Distribution Corporation, formerly Filmways Pictures, Inc. Orion was in the business of distributing independently produced feature motion pictures to theaters in the United States. See id. at ¶ 11.
f. Paramount Pictures Corporation. Paramount was in the same business as Columbia. See id. at ¶ 12.
g. United Artists Corporation. United Artists was in the same business as Orion, although United Artists financed some of the features which it distributed. See id. at ¶ 13.
h. Universal Film Exchanges, Inc. Universal was in the same business as Columbia. See id. at ¶ 14.
5. The Distributor Defendants each maintained a branch office in the Chicago metropolitan area. The purpose of these offices was to license and distribute films to local theaters for exhibition. See id.
6. Persons in the movie business refer to operators of motion picture theaters as *1506 "exhibitors." The persons, firms, or corporations who create the negative film which contains the completed feature motion picture in a form available for the making of positive prints suitable for exhibition are called "producers." The production cost, called "negative cost," encompasses the cost of writers, actors, directors, producers, photographers, costumes, stages, and scenery, and often runs over $1 million. From the resulting negative, companies make several hundred to a thousand or more positive prints. These prints cost $2000-12,000 each. See id. at ¶ 16; T. 907; D.App. 832.
7. Most films earn the bulk of their revenues during their "first run," their exhibition immediately after release. Distributors license a first run on a percentage of the exhibitor's gross receipts. License fees are known as "film rentals." The terms of a film license agreement between an exhibitor and a distributor for a first run frequently provide for a priority of run, called a "clearance," over one or more theaters in the area. The Evergreen Theater obtained clearances over the Chicago Ridge Theater for many films from each of the Distributor Defendants. See CR at 466 & n. 2; Stip. at ¶¶ 17-19.
8. Motion pictures vary considerably in their ability to attract an audience. Exhibitors and distributors cannot determine how successful a picture will be in advance of exhibition. The number of theaters licensed simultaneously on the same run (known as showing "day and date") was in part a function of the distributor's marketing plan. Additionally, each distributor competed with all other distributors for screens on which to play films. In some instances, because a plethora of different products were on the market, an individual distributor often could not license as many first runs as it hoped. While there were more than 225 screens in the Chicago area, exhibitors controlling 150-175 screens dedicated these screens largely to a myriad first-run films. These theaters comprised the first-run market in the Chicago area for film distributors, including the Distributor Defendants. See Stip. at ¶¶ 20-21; D.App. at 142, 768; T. 563-4, 1040, 1150.
9. For many years, some of the Distributor Defendants licensed first runs of selected films in limited, key areas of the country, then gradually increased the number of theaters showing the film on successive runs. Their aim was to attract the most film-goers, and maximize film rentals. Their practice allowed economies in the use of positive prints of films, permitted favorable word-of-mouth publicity to build, attracted additional exhibitors to the film on the basis of its early showings, and gave film-goers more time to determine whether they wished to see a given picture. It often increased the total business for popular films. For this reason, some distributors did not attempt to maximize the number of simultaneous first runs for a film. For example, one distributor licensed "Sophie's Choice" for an exclusive run at Chicago's Carnegie Theater. Other films subject to this practice were "Amadeus," "A Passage to India," and "A Soldier's Story." Distributors in the Chicago area usually limited first runs to 10-15 theaters. These distributors considered geographical coverage in determining which theaters received licenses. See D.App. at 567-68, 768-70, 832-34, 880-81.
10. At and prior to the time the Chicago Ridge Theater opened for business, each of the Distributor Defendants licensed first runs in the Chicago area by negotiation and competitive bidding. In anticipation of the release of a particular film, the Chicago branch office of the film's distributor would send a written invitation to bid to all area exhibitors. Bid invitations set forth the date on which the picture would be available, and suggested a minimum film rental, opening date, minimum playing time, holdover terms, sharing of advertising expenses, and advances. Sometimes the invitation indicated whether the distributor offered the film for exclusive exhibition, multiple exhibition, or both. The invitation specified the date and time within which the distributor's branch office had to receive bids in order to consider them, and reserved to the distributor the right to reject all bids. See id. at 207-8, 352-54, 586-87, 754, 770, 834-35, 860, 864-69, 874.
*1507 11. Exhibitors responded to bid invitations by submitting written offers of terms, or by writing that they were willing to negotiate for exhibition if the distributor did not accept a bid. The branch managers of the distributors opened bids on the bid date and forwarded them to the regional or home office of the distributor for evaluation. Frequently the branch manager would forward his or her recommendation as well. The regional or home office made the final decision on the bids, and it instructed branch managers to notify exhibitors either that the distributor had accepted a bid or that it had rejected all bids. See pages cited in Finding 10 above.
12. If the distributor rejected all bids, it instructed the branch manager either to solicit new bids or to negotiate to secure the best agreement possible. When the distributor chose the latter course, the branch manager notified exhibitors. Some managers notified only those exhibitors who responded to the bid invitation with a bid or a stated willingness to negotiate; other managers notified all exhibitors. If in the former situation the manager had received only one bid or "willing to negotiate" letter, the negotiation would be non-competitive. See pages cited in Finding 10 above.
13. Exhibitors and distributors generally negotiated over the telephone, and frequently confirmed their terms in writing. All negotiations were picture-by-picture and theater-by-theater. Offers received through negotiation were subject to approval by the distributor's regional or home office. See pages cited in Finding 10 above and D.App. at 566.
14. When responding to invitations for bids, in most instances exhibitors preferred to negotiate for film licenses instead of bidding. The record contains only a few examples of competitive bidding among Chicago-area exhibitors. The bids received in response to an invitation to bid often differed from the minimum terms suggested by the distributors. See id. at 192, 237, 550, 570, 615.
15. Final acceptance of an offerwhether by bid or negotiationwas followed by a written license agreement. This agreement specified the theater and screen at which the film would be shown, the opening date, length of engagement, the terms (if any) on which the exhibitor would hold the picture after the initial term, whether the exhibitor had a right to exclusive showing, and the film rental. See pages cited in Finding 14 above.
16. The Chicago Ridge Theater opened for business on August 1, 1981, upon completion of two screens and auditoriums. The theater later added a third screen, giving it auditoriums seating 1,180, 700, and 600 persons respectively. The owners subsequently divided the 700-seat auditorium into two 330-seat theaters. See Stip. at ¶¶ 5-6; T. 200.
17. At the time the Chicago Ridge opened, the Evergreen Theater had three screens and auditoriums seating 1,232, 952, and 650 persons respectively. Prior to the time of trial, the owners of the Evergreen split its 952-seat theater into two auditoriums of 500 and 475 seats respectively. The Evergreen is 6.1 miles from the Chicago Ridge. See id. at 207; Stip. at ¶ 7; CR at 466.
18. At the time the Chicago Ridge was under construction, the Ford City Theater, at 76th Street and Cicero Avenue in Chicago, Illinois, was operating with three screens and auditoriums seating 1,200, 900, and 850 persons, respectively. This theater was about 4.5 miles from the Chicago Ridge. During construction of the Chicago Ridge, the owners of the Ford City Theater constructed a separate building 0.9 miles east of the Ford City Theater, at 76th Street and Pulaski Road in Chicago. This new theater housed three auditoriums, each seating approximately 375 persons. The owners dubbed this new theater "Ford City East." They called their original theater "Ford City West." See T. 201, 205-06.
19. For two and one-half years after the Chicago Ridge opened, the Ford City West requested and obtained film licenses providing for clearance over the Chicago Ridge. In December 1983, the owners of Ford City West remodeled the theater, splitting its largest auditorium into two 250-seat theaters and one 500-seat theater. *1508 Ford City West then had five auditoriums. It soon ceased to request clearance over the Chicago Ridge, except when both the Evergreen and the Chicago Ridge intended to play the same picture. Plaintiff's officers have testified that the Ford City West competes with the Chicago Ridge, and that both theaters lose revenue when playing a film day and date. See T. 201, 203, 450-51, 475, 499-500, 563; D.App. 231-35, 313, 337, 706.
20. At the time the Chicago Ridge opened, and for some time thereafter, there was a theater named the Coral at 95th Street and Cicero Avenue in Chicago, Illinois. From time to time the plaintiffs licensed first-run films pursuant to licenses giving the Chicago Ridge a clearance over the Coral. The Coral went out of business before trial in this case. See D.App. at 770-73, 778, 803, 837; T. 313-14, 360-61, 535.
21. Shown in Appendix A is a diagram indicating the distances separating the theaters which the court has discussed previously in this opinion. See also D.App. at 768-70, 776-78.
22. Before the plaintiffs built the Chicago Ridge, the landlord of the shopping center where the theater now sits, Ken Tucker, showed Morton Fink a market study by Property Consultants, Inc. Fink read the study. It stated that the trade area for the shopping center "includes all or most of Chicago Ridge, Oaklawn, Evergreen Park, Hometown, Burbank, Hickory Hills, Palos Hills, Palos Park, Palos Heights, Marionette Park, Worth, Alsip, Bridgeview, Bedford Park, Summit, Justice, and Willow Springs [Illinois]." Fink noted from the study a map showing the Chicago Ridge trade area, which included the Evergreen Plaza. See id. at 356-57.
23. Tucker also showed Fink a market study by George Freirich and Associates. Fink read this study too. The study said in part: "Given consumer reactions to Chicago Ridge's attributes and the declining interest in existing retail mall facilities, Chicago Ridge should be able to meet its market share requirements by pulling a major portion of consumer shopping trips away from Orland Square, Ford City and especially Evergreen Plaza." Id. at 359.
24. At the time Fink began to plan construction of the Chicago Ridge, there was at the proposed site a theater called the Studio. General Cinema Corporation had operated the Studio up to 1978. The Evergreen often obtained clearances over the Studio. Fink knew this, but did not regard it as important since he did not consider the Studio to be a first-run theater. He also believed that his bigger theater would attract patrons from a wider geographic area than the Studio ever had. See id. at 263-69, 315-24; T. 337, 457.
25. Plaintiffs put in evidence a statistical survey conducted by Dr. Bradburn, a professor in the Department of Behavioral Sciences and the Graduate School of Business at the University of Chicago. They also called Dr. Bradburn as an expert. Dr. Bradburn is not an economist, and he did not give an opinion in his direct testimony whether the Chicago Ridge and the Evergreen were in substantial competition. Dr. Bradburn is a leading expert in survey research. In his report, Dr. Bradburn wrote that his "best estimate of the net loss of patronage to the Evergreen theater, if it played a picture day and date with the Chicago Ridge Theater, would be 7-8% for the picture." See S.App. 89, 121; T. 584, 602.
26. Dr. Bradburn conducted a telephone survey of a sample of persons living within an area bounded by four streets, each located approximately five miles from the Evergreen. The western boundary was Ridgeland Avenue, the street on which the Chicago Ridge is located. Dr. Bradburn thus excluded any Evergreen patron who lived west of the Chicago Ridge from his survey. Dr. Bradburn also excluded persons who had not gone to a movie within the previous three months. This excluded 1,814 of the 3,108 persons whom Dr. Bradburn interviewed. See T. 585-90, 669-70.
27. Dr. Bradburn asked those whom he fully interviewed (1,294 persons) about their attendance at various theaters, including the Evergreen and the Chicago Ridge, over the preceding twelve months. He *1509 then asked each person to identify the next movie he or she wanted to see. After identifying that movie, the person was asked which theater he or she would go to if that movie were showing only at the Chicago Ridge and the Evergreen. See Bradburn 14-15.
28. Dr. Bradburn's survey showed that 62.2% of the people who had been to the Chicago Ridge three or more times in the past year had been to the Evergreen. Forty percent of those responding to his survey who described themselves as regulars at the Chicago Ridge had attended the Evergreen in the last twelve months. Nearly 34% of the respondents who had visited the Evergreen three or more times in the past year also had visited the Chicago Ridge. Just over 27% of the respondents who described themselves as regular customers of the Evergreen had visited the Chicago Ridge during the past year. A little over 59% of the theater patrons who responded to Dr. Bradburn's survey had attended the Chicago Ridge three or more times in the past year, and had attended the Evergreen at least once in the past year. Of those persons who lived within five miles of the Evergreen and who responded to Bradburn's survey, 38.3% had attended the Chicago Ridge in the last year. See D.App. at 367, 370, 378, 376.
29. Of all of the respondents in Dr. Bradburn's survey who had attended the Evergreen in the past year, 26% would choose the Chicago Ridge if the theaters played day and date. Among those respondents who had attended the Evergreen one or two times in the past year, 32.8%35.1% when weighted for household size and number of telephoneswould go to the Chicago Ridge instead of the Evergreen if the two theaters were playing the same picture day and date. Among those who had attended the Evergreen three or four times in the past year, 19%16.7% when weightedwould have attended the Chicago Ridge instead if the two theaters had been playing day and date; of those who attended the Evergreen five or more times, 19.1%20.2% when weightedwould prefer the Chicago Ridge if it were playing a picture day and date. See T. 620, 626, 629-30, 650-51; Plaintiffs' Exhibit MX-3-J.
30. Dr. Bradburn estimated that overall the "gross" loss to the Evergreen if the Chicago Ridge played a movie day and date with it would be 19.2% of total paid admissions received by the Evergreen in the last twelve months. In his written report and his testimony in court, Dr. Bradburn also described "net" losses which the Evergreen would suffer if it and the Chicago Ridge were to play day and datethat is, the Evergreen's gross loss to the Chicago Ridge, less those customers wrested from the Chicago Ridge. Dr. Bradburn based his "net" estimate on what would happen if the Chicago Ridge played each and every film featured at the Evergreen. He explained the logic behind his estimate:
[I]f clearance[s] are removed, which is the hypothetical we are trying to investigate here, ... everybody's behavior would change. That is, the exhibitors' behavior would change, the distributors' behavior would change, and the customers' behavior would change. And this is the notionthe notion ... is that there are people who are now not going to Evergreen, who would like to go to Evergreen, ... that would be their preference, if they were showing pictures that they would want to see, and it would be in Evergreen's interest to try to capture that market. There are some that would move away and a netmore would move away than would come in. That is, the distributors would change their behavior, and the customers would also then have a freer choice to go to the theater they want to for the pictures they want to. That is, it's sort of removing an imperfection from the market, which is what clearance does, and lets the adjustments then occur.
Dr. Bradburn testified, however, that the "gross" figure would be the loss to the Evergreen were the Chicago Ridge to (1) add a film playing at the Evergreen to an existing repertoire of films which did not duplicate those films featured at the Evergreen, and (2) retain its repertoire despite the addition. Dr. Bradburn was unable to say which figure, "gross" or "net," would *1510 describe the situation where the Chicago Ridge forfeited one film in a non-duplicative repertoire to exhibit a film shown simultaneously at the Evergreen. Dr. Bradburn also did not calculate "net" figures when a particular film ran day and date at both the Chicago Ridge and the Evergreen. See T. 651-59, 737-40.
31. Dr. Bradburn's field researchers had conducted two "pretests" before Dr. Bradburn took the survey discussed in Findings 25-30. The researchers made these pretests at Dr. Bradburn's suggestion. These tests showed that 83.9% of the respondents who lived in an area between the Evergreen and the Chicago Ridge had been to the Evergreen. Nearly 79% of these persons said that they would go to the Chicago Ridge if the same film were showing at both theaters. See T. 634-642, 695-700, 718.
32. Morton Fink testified that most of the patrons of the Chicago Ridge live in the City of Chicago. Most of the areas of the City of Chicago from which the Chicago Ridge draws its patrons are closer to the Evergreen than they are to the Chicago Ridge. Robert Fink testified that if the Evergreen had a clearance over the Chicago Ridge, it would have higher gross admissions. He could not quantify the increase. Morton Fink testified that the Chicago Ridge drew patrons from Evergreen Park. He opined that if either the Chicago Ridge or the Evergreen had a clearance on a particular film reaching as far as Chicago's downtown Loop, either theater could draw patrons from as far as the Loop. Fink also believed that although the River Oaks Theater was 10-12 miles from the Evergreen, the Evergreen competed with the River Oaks, and it was possible that the Evergreen drew patrons from the area surrounding River Oaks. Fink thought that the Evergreen could draw patrons from the Bolingbrook Theater in Lemont, 12 miles west of Chicago Ridge.
When the Chicago Ridge opened, it was Fink's belief that the Chicago Ridge would draw patrons from the Orland Square Theater, 10 miles to the southwest. In the opinion of Robert Fink, the Chicago Ridge would pick up more customers if it had clearance over the Orland Square. Morton Fink thought that the Ford City West loses patrons and profits when it plays a film day and date with the Chicago Ridge. See D.App. at 297, 300-01, 303, 335, 343, 684, 709; T. 403-08, 426, 497.
33. In the opinion of Richard Rosenfield, vice-president of Evergreen Theaters Corporation and the person primarily responsible for booking films at the Evergreen, the Evergreen would lose substantial revenues on any film playing at the Evergreen if it were playing simultaneously at the Chicago Ridge. He estimated that if the two theaters played day and date, the Evergreen would lose over 15% of its total admissions and over 16% of its total profits. This is why he requested clearance over the Chicago Ridge. See D.App. at 536-79; T. 835.
34. Michael Share is the Chicago branch manager for Paramount. Share considered the type of picture, whether he wished to license the picture in a limited fashion, the location of the theater, the theater's personality, its past performance, its potential revenues, and the terms of the proposed contract in considering whether to license a film to a theater. Paramount negotiated each license with the Evergreen picture by picture. Share gave clearances to the Evergreen because he had decided, based on his study of the two theaters, that they were in substantial competition. See D.App. at 582-95.
35. James Goldschlager was the branch manager for Columbia in Detroit, Chicago, and San Francisco. He had visited the Chicago Ridge/Ford City/Evergreen area on numerous occasions. He found that the Chicago Ridge and the Evergreen shared 95th Street. He drove more than once at about 9 p.m. in order to attend a 9:30 p.m. show. It took him 10-15 minutes to travel between the two theaters. Goldschlager also has looked at the historical gross theater revenues from the area. Based on this information and his experience, Goldschlager believed that the Chicago Ridge and the Evergreen competed in the same market. See id. at 176-203.
36. There are other sworn statements in the record supporting the facts found in *1511 Findings 34-35 from William Gehring, branch manager of Universal; E. Jeffrey Williams, branch manager of United Artists; Paul Silk, Chicago District Manager of Orion; Edward Schuerman, branch manager of Embassy; and Messrs. Osborne, Siegel, Mitchusson, and Gillis, of Columbia, Orion, Embassy, and Paramount, respectively. In the opinion of Victor Bernstein, branch manager of Filmways, only one theater in the Chicago Ridge/Ford City/Evergreen area should exhibit a particular film. See id. at 753-891; 220-24.
CONCLUSIONS OF LAW
This court has jurisdiction over this matter pursuant to 28 U.S.C. 1337, and venue is proper in this district. As the Seventh Circuit noted in its opinion, historically the courts have held that clearances such as those obtained by the Exhibitor Defendants, see Finding 7, are unlawful between theaters which are not in substantial competition. See Chicago Ridge, 855 F.2d at 470-71. This is the theory under which the parties tried this case. The first issue is thus whether the plaintiffs have proven that the Evergreen and the Chicago Ridge are not in substantial competition.
The decision which produced the "substantial competition" test for theater clearances, United States v. Paramount Pictures, 334 U.S. 131, 68 S.Ct. 915, 92 L.Ed. 1260 (1948), does not define substantial competition. Competition generally "depends on how different from one another are the offered commodities in character or use, how far buyers will go to substitute one commodity for another." United States v. du Pont & Co., 351 U.S. 377, 393, 76 S.Ct. 994, 1006, 100 L.Ed. 1264 (1956). The commodities at issue in this case are theater viewing screens, as the primary parties are exhibitors of films. See Findings 2, 4(a)-(b), 6, 16-17.
Courts presented with the question of the presence or absence of competition should examine as much information as is presented to them. While in some cases the court may find substantial competition from one piece of informationfor example, knowing that the theaters are within blocks of one another, see A.L.B. Theatre Corporation v. Loew's Incorporated, 355 F.2d 495, 501 (7th Cir.1966) (theaters fourteen blocks apart in substantial competition)the absence of the same critical factor will not necessarily result in a contrary result. See, for example, Theatre Enterprises v. Paramount Film Distrib. Corp., 201 F.2d 306 (4th Cir.1953), aff'd 346 U.S. 537, 74 S.Ct. 257, 98 L.Ed. 273 (1954) (substantial competition between theaters six miles apart); Ayers v. Pastime Amusement Company, 283 F.Supp. 773 (D.S.C. 1968) (substantial competition between theaters twenty-six miles apart).
The Chicago Ridge and the Evergreen are 6.1 miles apart. They have the same number of auditoriums, with similar capacities. See Findings 16-17. A larger facility which is 1.6 miles closer to the Chicago Ridge, the Ford City West, competes with the Chicago Ridge, by the plaintiffs' own admission. See Findings 19, 32.[5] The plaintiffs also sought and received clearances over the Coral, a theater 2.3 miles away, see Findings 20-21, which indicates that the plaintiffs believed a theater at least that close to the Chicago Ridge substantially competed with them.
Many materials which the plaintiffs studied prior to building the Chicago Ridge indicated to them that their market could sweep wider than a radius of 4.5 miles. These materials suggested that the Chicago Ridge's market covers part of the area which Dr. Bradburn canvassed in his survey. See Findings 22-24. The plaintiffs' subsequent experience showed that the Chicago Ridge's market overlapped with the Evergreen's. Moreover, they believed that the Chicago Ridge could draw patrons from as far as twelve miles. See Finding 32. Employees of the defendants likewise testified that the Chicago Ridge and the Evergreen competed with one another. See Findings 33-36.
All of this failed to impress the plaintiffs, who perhaps were looking for something *1512 more precise than their own hunches, the puffery of marketing surveys, and the opinions of the defendants. This was understandable, as Paramount requires the plaintiffs to show the absence only of substantial competition, not the absence of all competition. They thus commissioned Dr. Bradburn to conduct a survey. Dr. Bradburn is an expert in surveys. See Finding 25. He and his associates took two preliminary samples in an area between the Chicago Ridge and the Evergreen. These tests showed that nearly 84% of the persons had been to the Evergreen; nearly 79% said they would go to the Chicago Ridge if that theater were showing the same film day and date as the Evergreen. See Finding 31.
Still, this was a pretest. For his final survey, Dr. Bradburn shifted his boundaries. He moved his western boundary to the east, so it ran along Ridgeland Avenue, the street shared by the Chicago Ridge. He moved his eastern boundary substantially east of the Evergreen to Jeffrey Boulevard, and extended his northern and southern boundaries as well. Understandably, his surveys began to show a higher percentage of Evergreen loyalistspersons who would go to the Evergreen regardless of whether the Chicago Ridge were showing the same film day and dateas his survey covered an area which for the most part is closer to the Evergreen than to the Chicago Ridge. Still, his figures showed that persons living in the area attended both theaters, and significant numbers would shift allegiances were the theaters to show the same film day and date. See Findings 25-29.
Bradburn was not finished with his work for the plaintiffs, however. He delivered his final opinion that were the Evergreen and the Chicago Ridge to play day and date, the Evergreen would lose 7-8% of its patrons on a "net" basis. See Finding 25. Dr. Bradburn's explanation for the "netting" effect lacked foundation in the evidence and reflected an opinion which he was not qualified to give. The court refers to Finding 30, where Dr. Bradburn explains his "net" figure. Dr. Bradburn opined that were clearances removed, "everybody's behavior would change"that of consumers, exhibitors, and distributors. Dr. Bradburn's survey and his expertise qualified him to report only that consumer behavior would change. The plaintiffs did not qualify Dr. Bradburn as an expert on exhibitor or distributor behavior. In fact, the only evidence in the record is that even without negotiated clearances, distributors would limit the number of first run licenses when marketing certain films. See Findings 6-15. Dr. Bradburn admitted that he calculated his "net" figure assuming that exhibitors and distributors would respond to the absence of clearances in only one way. He admitted that the "net" figure would rise if distributors limited their licenses of first runs. See Finding 30.
The first-hand observations and opinion evidence in the record, market estimates, the results of Dr. Bradburn's surveys and the geographic proximity of the Chicago Ridge and the Evergreen lead the court to conclude that the theaters substantially compete. The court rejects the "net" estimate proffered by Dr. Bradburn as lacking foundation in the record and being outside the scope of Dr. Bradburn's expertise. Accordingly, the plaintiffs have not met their burden in showing that the clearances which the Distributor Defendants granted to the Exhibitor Defendants were illegal under Paramount, and thus the court must enter judgment in favor of the defendants.[6]
Anticipating this possibility, the plaintiffs have moved to reopen their case to present a different theory of liability than the one which they originally tried. They call it their "modern rule of reason case." Ironically, it appears that the defendants essayed this theory to defeat the plaintiffs before the Seventh Circuit; now the plaintiffs try to put the modern-rule-of-reason *1513 "shoe" on their foot. They have good grounds to try to do so, as Chicago Ridge noted that "a lot of water has passed under the bridge" since the Supreme Court's decision in Paramount. The Seventh Circuit left it to this court to explore the matter further. See Chicago Ridge, 855 F.2d at 470-71.
The decision whether to reopen the plaintiffs' case turns on the history of this lawsuit. The plaintiffs filed this case in 1982. They stated two counts in their complaint. Count 1 alleged that the defendants illegally boycotted the plaintiffs. Count 2 alleged that each of the Evergreen's clearances over the Chicago Ridge was illegal, as the Evergreen and Chicago Ridge were not in substantial competition. See id. at 466-67; Complaint (May 20, 1982).
On February 22, 1983, the court denied the defendants' motion for summary judgment and narrowed the issues in this case. See Chicago Ridge, 855 F.2d at 467. This ruling came before judgment in this case, and despite all that has happened sincethe court's original judgment pursuant to Rule 41(b) and the Seventh Circuit's reversal of that judgmentthat ruling stands. It has not become the Seventh Circuit's law of the case. That doctrine applies following an appeal only to those matters presented to and actually decided by the appellate court. See Parts and Elec. Motors, Inc. v. Sterling Elec., 866 F.2d 228, 231-32 (7th Cir.1988). This court thus has the discretion to make a different determination of any matter not yet taken to judgment or determined on appeal, including its February 22, 1983 order. See Cameo Convalescent Center, Inc. v. Percy, 800 F.2d 108, 110 (7th Cir.1986).
While this court has the power to modify its earlier order, the court believes it would prejudice the defendants to do so in this case. The record of this case demonstrates that the "modern rule of reason" case occurred to the plaintiffs very late in trial. As noted before, the court narrowed the issues for trial on February 22, 1983. The plaintiffs moved for reconsideration of this order on March 3, 1983. They raised four arguments, but did not present the modern rule of reason theory in this motion.[7] As the court rightly noted at the time, the motion to reconsider raised no new issues or theories about the defendants' potential liability.
On June 22, 1983, the plaintiffs amended their complaint. The defendants moved for summary judgment once again, contending that since the theaters were in substantial competition, the Evergreen's clearances over the Chicago Ridge were lawful. In their written brief in opposition to this motion, the plaintiffs did not argue that they could demonstrate the defendants' liability under the modern rule of reason. Indeed, the plaintiffs continued to believe that Paramount controlled, and that the "key issue" was "whether the theatres are in substantial competition...." See Brief of Chicago Ridge ... In Opposition to Renewed Motions of Defendants for Summary Judgment 2, 7-18 (Aug. 13, 1984). The court agreed with the plaintiffs in denying the defendants' motiona decision which no one asked the court to reconsider prior to trial. Substantial competition quite firmly remained the central issue in this case.
The court held trial in this matter in January 1985. Sheldon Collen, one of the plaintiffs' attorneys, argued in his opening statement that "the issue of liability revolves about the question of whether the theaters are in substantial competition." T. 12. While he briefly suggested that the presence or absence of competition bore a relation to whether a clearance was pro- or anti-competitive, the focus of his argument clearly was substantial competition. Collen acknowledged that the plaintiffs bore the burden of proof in showing the absence of competition. T. 17-18.
The defendants too focused on substantial competition in their opening statements. After hearing the opening arguments, the court observed yet again that *1514 substantial competition was the key issue. No one demurred. T. 114-18. The court then heard evidence over several days, much of it centering on the extent of competition between the theaters, and listened to arguments at the close of the plaintiffs' case. The plaintiffs presented their closing argument through two attorneys, Collen and Paul Slater. Collen spoke again of the importance of the question of substantial competition. He admitted that the plaintiffs' burden was peculiar, as they had to prove a negative: the absence of competition. Still, the issue in the case was the degree of substantial competition. T. 1459-60. With only a few lapsesthere are points in his argument where Collen describes the central issue as "the substantiality of the effect of competition of the clearance"Collen argued that the competition between the theaters was not substantial enough to justify the defendants' practices. T. 1477-89.
Attorney Slater tried to sing a different tune. From the start of his portion of the plaintiffs' closing argument, Slater argued that "we are proceeding under the rule of reason, which is what your Honor ordered in your February 22, 1983 opinion. As in any other rule of reason case, what we are going to try and establish here is that, on balance, the challenged conduct is anti-competitive as opposed to pro-competitive." T. 1491. As the Seventh Circuit noted in Chicago Ridge, this is the central inquiry in a modern rule of reason case, and Slater was correct in suggesting that a court could apply this analysis to clearances. But the court was quick to note that the plaintiffs had never previously asked the court to proceed under this theory:
THE COURT: If that is the case [that a court should weigh clearances for their pro- and anti-competitive effect], why didn't you file a motion for reconsideration when I wrote the summary judgment opinion and told you how we were going to try this case? Because you are telling me that I am supposed to now look at thein a holistic way at the totality of the facts and decide whether the restraint is reasonable, and I conclude that it isn't, then there is no procompetitive reason for it, and if I conclude that it is, there is.
You are putting the cart before the horse, I suggest to you, Mr. Slater. And you are not trying the case in accordance with the guidance I gave you in the opinion.
T. 1492-93. Slater replied that he did not feel that he had said anything inconsistent with the court's prior opinions, and returned to the topic of substantial competition. T. 1494. The defendants did not refer to the modern rule of reason theory in their closing argument.
The court agrees with the plaintiffs that the proper way to have evaluated the Evergreen's clearances was, or is, under the modern rule of reason. See Three Movies of Tarzana v. Pacific Theatres, Inc., 828 F.2d 1395, 1398 (9th Cir.1987) If nothing else, it would have freed the plaintiffs from having to prove a negative proposition, and put this case in line with antitrust cases more recent than Paramount. Indeed, had the plaintiffs raised the theory in a timely motion for reconsideration of this court's February 23, 1983 opinion, the court would have given the motion great consideration, and probably would have jettisoned (or at least substantially augmented) Paramount's analysis.
But the plaintiffs had chosen their field of battle, and never asked for reconsideration. They were content with their theory until now, and now is too late to do anything about it. The events in this case are over five years old. Discovery is over, and the court has held a trial. The plaintiffs had at least three opportunities prior to trial to present this case under a modern rule of reason theory. They chose not to, and the court's procedural misstep in its prior Rule 41(b) judgment should not change the effect of the plaintiffs' choice. It is regrettable, but it is the plaintiffs themselves who have deprived the court of the chance to apply the more appropriate theory of law to this dispute. The Seventh Circuit merely has noted, but not corrected, the plaintiffs' tactical choice. Having considered the directions of that court and all of the elections of the plaintiffs up to now, *1515 this court finds no reason to release the plaintiffs from their first strategy at this late date.
The court enters judgment in favor of the defendants. The plaintiffs' motion to reopen their case is denied.
APPENDIX A
NOTES
[1] There are two motions. One is from M & R Amusement Corporation and Evergreen Theatre Corporation (hereafter the "Exhibitor Defendants"); the other is from Columbia Pictures Industries, Inc., Paramount Pictures Corporation, United Artists Corporation, Universal Film Exchanges, Inc., Embassy Pictures, and Orion Pictures Distribution Corporation (hereafter the "Distributor Defendants").
[2] The court will use these abbreviations:
Chicago Ridge: CR
Pretrial Stipulations: Stip.
Defendants' Seventh Circuit Supplemental Appendix:
D.App.
Trial Transcript: T.
Plaintiffs' Seventh Circuit Rule 30(b) Appendix:
S.App.
Bradburn Direct Testimony: Bradburn
[3] While not bearing on the present motion, the Partnership has sold the Chicago Ridge Theatre since the date of trial and no longer operates it.
[4] While not bearing on the present motion, Embassy no longer exists.
[5] Since the owners of the Ford City West did not testify at trial, the court cannot determine why they sought clearances over the Chicago Ridge less frequently once they had remodeled their theater.
[6] This court shares the view expressed in Chicago Ridge Theatre Ltd. Partnership v. M & R Amusement Corp., No. 82 C 3141, mem.op. 12 (N.D.Ill. Feb. 22, 1983), and arguably approved by the Seventh Circuit in Chicago Ridge, 855 F.2d at 470, that the plaintiffs cannot prevail on one of their alternative theories of liability, called the "conspiracy theory," if they fail to prove that the Chicago Ridge and the Evergreen were not in substantial competition.
[7] Before the Seventh Circuit and this court the plaintiffs have represented that they did present the modern rule of reason theory in their March 1983 motion. At best, the plaintiffs strain the meaning of "presentation"; at worst, the plaintiffs misrepresent the content of that motion. One must read a great deal between the lines of the March 1983 motion to learn of the theory which the plaintiffs present to the court now. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2249783/ | 907 F.Supp. 1448 (1995)
Christopher T. BELLAIRS, Plaintiff,
v.
COORS BREWING COMPANY, Defendant.
Civ. A. No. 94-B-1405.
United States District Court, D. Colorado.
November 8, 1995.
*1449 *1450 *1451 *1452 John Mosby, Denver, CO, Elisa J. Moran, Denver, CO, for Plaintiff.
K. Preston Oade, Jr., Ed Aro, Holme Roberts & Owen, L.L.C., Denver, CO, for Defendant.
MEMORANDUM OPINION AND ORDER
BABCOCK, District Judge.
In this employment action, defendant, Coors Brewing Company (CBC), moves for summary judgment on the claims of plaintiff, Christopher T. Bellairs (Bellairs) for breach of contract, reverse sex and race discrimination in violation of Title VII, 42 U.S.C. § 2000e, et seq., and 42 U.S.C. § 1981, and outrageous conduct. Also pending is plaintiff's motion to strike portions of defendant's summary judgment brief and his motion to file second amended complaint. The motions are adequately briefed and oral argument will not materially aid their resolution. After consideration of the motions and briefs, I conclude that summary judgment should be granted in favor of CBC against Bellairs on all of his claims. I will deny as moot plaintiff's motion to strike. I will also deny his motion to file second amended complaint.
I.
Plaintiff Bellairs, a 19 year CBC employee, was terminated on April 9, 1993 for sexual harassment of female employee, Kris Kosirog (Kosirog). Bellairs and Kosirog worked in CBC's can manufacturing warehouse. In March, 1993, Kosirog complained to Pat Phillips (Phillips), acting warehouse team leader, that Bellairs was harassing her. Although Kosirog never used the term "sexual harassment," she told Phillips that she "need[ed] him to leave [her] alone." (Pltf.Exh. 4 p. 107). A meeting was held with Kosirog, Bellairs, Phillips, and Gene Cole, the warehouse team leader. At the meeting, which lasted over 2 hours, Bellairs disrupted the meeting several times by coughing and saying "bullshit" under his breath. (Def.Att. 5 p. 1). Bellairs disputes being disruptive in the meeting.
After the meeting, Kosirog met with Rich Jakubiak (Jakubiak) in Employee Relations. She informed him that within a month after beginning work in the warehouse she could tell there was tension. (Def.Exh. 6 p. 1). According to Kosirog, Bellairs asked Kosirog if she got the job fairly. When she replied that she did, Bellairs responded, "No you didn't. You're a woman and you don't belong here." Id. Kosirog also reported that she was told that Bellairs said she was "fucking everybody in the [w]arehouse." Id. at 2. Another warehouse employee told [Kosirog] that "Bellairs called her `sperm-breath' or `cum-breath' or something like that behind her back." Id.
Jakubiak then interviewed several employees identified by Kosirog and Bellairs and determined that there was corroboration of Kosirog's harassment claim. (Def.Att. 5). For example, co-worker Rich Krupicka stated that after hearing Kosirog on the communications radio in the warehouse, Bellairs said, "get a clue, "___ breath." Krupicka could not recall the exact word but that it definitely was a derogatory comment. He further stated that Bellairs was always making snide remarks about Kosirog. Warehouse worker Dale Reinoehl informed Jakubiak that Bellairs commented that "Kris was sleeping with everyone." (Def.Att. 8). Reinoehl also stated that he later heard two other employees talking about Bellairs' comments. Id. Another warehouse worker, Rick Pickett, informed Jakubiak that Bellairs was upset about how Kosirog was selected for the warehouse job. He also said that "from day one, he has been prodding her and calling her a stupid bitch behind her back." (Def.Att. 9). Pickett also informed Jakubiak that on two or three occasions Bellairs said *1453 Kosirog "doesn't belong in the warehouse because she is a woman." Id. Also, Pickett heard Bellairs say that Kosirog must have gotten the job because she is sleeping with Norm Engle." Id.
Phillips terminated Bellairs on April 9, 1993 for violations of company policies D-1: Discrimination & Sexual Harassment and Gross Misconduct and W-3: Work Rules & Corrective Discipline. Phillips' decision was also based on Jakubiak's investigation of Bellairs' past disciplinary record. When terminated, Bellairs was on a final written warning for sleeping on the job (Def.Aff. 5). Phillips noted that Bellairs did not make the derogatory statements directly to Kosirog. However, Phillips concluded that Bellairs' remarks to other employees in the warehouse created a hostile environment for Kosirog. (Def.Att. 5). Bellairs has consistently denied making the statements attributed to him by other CBC employees.
Pursuant to CBC's employment action appeal process, Bellairs submitted his termination to CBC's Appeal Board. See Def.Att. 2. The Board made the following findings:
After careful deliberation of the facts presented, the Board voted to uphold the termination. The Board reviewed the meaning of gross misconduct and what necessitated sexual harassment in this case. The members acknowledged that this was a complex case and believe that there was strong evidence to substantiate that Mr. Bellairs said that women don't belong in the Warehouse, made the breath statement and said that she got her job through questionable acts. The Board felt that the evidence was not as strong supporting the statements that Kris Kosirog was having sexual relationships with everyone in the warehouse, or with Norm Engle, her previous supervisor. The Appeal Board decided that Chris Bellairs did create a hostile work environment in the Warehouse and voted to uphold the termination.
Def.Att. 5 p. 3.
The Board unanimously upheld plaintiff's discharge. Bellairs then filed a charge with the Equal Employment Opportunity Commission (EEOC) which resulted in a finding of no probable cause. (Pltf.Reply Brf. to Motion to Strike Exhibits Exh. 4). Bellairs then filed this action on June 14, 1994.
II.
Fed.R.Civ.P. 56 provides that summary judgment shall be granted if the pleadings, depositions, answers to interrogatories, admissions, or affidavits show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The nonmoving party has the burden of showing that there are issues of material fact to be determined. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). A party seeking summary judgment bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, interrogatories, and admissions on file together with affidavits, if any, which it believes demonstrate the absence of genuine issues for trial. Celotex, 477 U.S. at 323, 106 S.Ct. at 2552; Mares v. ConAgra Poultry Co., Inc., 971 F.2d 492, 494 (10th Cir.1992). Once a properly supported summary judgment motion is made, the opposing party may not rest on the allegations contained in his complaint, but must respond with specific facts showing the existence of a genuine factual issue to be tried. Otteson v. U.S., 622 F.2d 516, 519 (10th Cir.1980); Fed. R.Civ.P. 56(e). These specific facts may be shown "by any of the kinds of evidentiary materials listed in Rule 56(c), except the pleadings themselves." Celotex, 477 U.S. at 324, 106 S.Ct. at 2553.
Summary judgment is also appropriate when the court concludes that no reasonable juror could find for the non-moving party based on the evidence present in the motion and response. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). The operative inquiry is whether, based on all documents submitted, reasonable jurors could find by a preponderance of the evidence that the plaintiff is entitled to a verdict. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). However, summary *1454 judgment should not enter if, viewing the evidence in a light most favorable to the nonmoving party and drawing all reasonable inferences in that party's favor, a reasonable jury could return a verdict for that party. Anderson Liberty Lobby, Inc., 477 U.S. at 252, 106 S.Ct. at 2512; Mares, 971 F.2d at 494.
III.
CBC moves for summary judgment on Bellairs' claim for breach of contract/wrongful discharge/promissory estoppel arguing that the CBC Appeal Board's rejection of Bellairs' appeal precludes him, as a matter of law, from relitigating in this court his breach of contract claim. (Def.Summ.J.Brf. p. 2). This argument misses the mark. Rather, in this case I must decide if there is a genuine issue of material fact about whether CBC breached its contract with Bellairs to follow the disciplinary and termination policies and procedures when it terminated him for sexual harassment. In deciding the motion for summary judgment on the breach of contract claim, I focus on whether there is a sufficient showing of disputed material fact through pleadings, depositions, answers to interrogatories, admissions, or affidavits that the terms of the employment contract were breached. See Continental Air Lines, Inc. v. Keenan, 731 P.2d 708, 712 (Colo.1987).
In Keenan, 731 P.2d 708 and Churchey v. Adolph Coors Co., 759 P.2d 1336, 1348 (Colo. 1988), employees with no express employment contract sought to enforce termination procedures contained in employer personnel handbooks. The Court adopted two theories, implied contract and promissory estoppel, by which a terminated employee may be entitled to enforce termination procedures contained in an employee manual. It is now settled law in Colorado that employer personnel policies or practices can form the basis of an enforceable contract between the employer and employee and give rise to an estoppel against the employer. See e.g. Keenan and Churchey.
CBC and Bellairs agree that CBC's employment policies are contractually enforceable. (First Amended Complaint ¶¶ 25-28; Answer ¶¶ 25-27). The issue is whether a reasonable trier of fact could conclude CBC failed to follow its disciplinary and termination procedures.
CBC personnel policy "W-3: Work Rules & Corrective Discipline" outlines progressive disciplinary steps to be followed by CBC for various offenses. It also provides, in pertinent part:
Some violations are so serious that the first offense warrants termination....
Violations subject to immediate termination include, but are not limited to ...
Gross misconduct/negligence ... jokes or derogatory remarks or discrimination on the basis of ... sex; sexually harassing or abusing another individual ...
The appeal procedure may be used by employees who feel they have received unjust disciplinary action.
(Def.Att. 10 pp. 1, 3, 4, 5.)
CBC's personnel policy "C-10: CONFLICT-RESOLUTION PROCESS" provides, in pertinent part:
Appeals involving charges of unjust treatment in which written disciplinary action has been taken, are reviewed by an Appeal Board. The employee may appeal the justification for the disciplinary action or the severity of the action.
. . . . .
The Appeal Board will review the actions of management to determine if just cause existed for the disciplinary action and whether all applicable company policies were followed. Decisions of the C[onflict]-R[esolution] P[rocess] are final and binding on the Company, as well as the employee. ...
(Def.Att. 1.)
The structure and function of the CBC Appeal Board process is described in "Coors Peer Review Complaint Program" (Def.Att. 4) and in CBC Att. 2 titled "Appeal Board Process." It is a systematic process by which any CBC employee may have a disciplinary action reviewed by a six-member board made up of three peers, two members of management, and a representative from Employee Relations. The members of the *1455 board are randomly selected from a list of names generated by the employee records system. The employee has the right to strike names from the list. (Def.Att. 2; Def. Att. 4 p. 3).
Bellairs does not dispute that he was aware of the provisions of CBC's employment policies and procedures or that he availed himself of the appeal board process to its fullest extent. Indeed, I find no genuine dispute whatsoever that CBC followed their policies and procedures to the letter. Thus, as a matter of law, no reasonable juror could find that CBC breached its employment contract with Bellairs based on the evidence presented in the motion and response. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). Accordingly, I will grant CBC's motion for summary judgment on Bellairs' breach of contract claim.
Promissory estoppel is available as a remedy only in the absence of an otherwise enforceable contract. Scott Co. of California v. MK-Ferguson Co., 832 P.2d 1000 (Colo. App.1991). If, as in this case, there is an enforceable contract, the alternative remedy of promissory estoppel is not applicable. See Vigoda v. Denver Urban Renewal Authority, 646 P.2d 900 (Colo.1982).
Bellairs does not seek to review the decision of the appeal board. (Pltf.Resp.Brf. p. 18). Bellairs does, however, complain that the CBC appeal process is a "deprivation of due process...." Id. I do not address this allegation because there is no due process claim before me. In any event, the records shows indisputably that the process afforded Bellairs was full and fair.
Further, I did not rely on any Jefferson County District Court pleadings, instructions, or rulings in my analysis or application of Churchey v. Adolph Coors Co., 759 P.2d 1336 (Colo.1988). Consequently, I will deny as moot, plaintiff's "motion to strike portions of defendant's brief in support of its motion for summary judgment."
IV.
CBC also seeks summary judgment on Bellairs' claims that CBC violated Title VII of Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. and 42 U.S.C. § 1981 by terminating his employment on the basis of his sex and race. I will grant CBC's motion for summary judgment.
Bellairs, a caucasian male, alleges that "[Kosirog] had previously accused a minority employee of sexual misconduct. Plaintiff asserts that no action was taken against the minority. Plaintiff, however, was terminated after being accused of similar conduct by the same female." (First Amended Complaint ¶ 9). Bellairs did not name the minority employee in his complaint. However, in Bellairs' response to CBC's motion for summary judgment, he names Steve DeHerrera (DeHerrera), Kris Kosirog, and Odis Redwine (Redwine) as being similarly situated but treated differently than he; i.e., accused of sexual misconduct but not terminated.
Title VII prohibits discrimination by an employer "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. § 2000e2(a)(1) (1982). Title VII prohibits racial discrimination against whites as well as nonwhites. McDonald v. Santa Fe Trail Transp. Co., 427 U.S. 273, 280, 96 S.Ct. 2574, 2578, 49 L.Ed.2d 493 (1976). 42 U.S.C. § 1981 also prohibits contractual discrimination in private employment against white persons as well as persons of color. Id. at 286-87, 96 S.Ct. at 2581-82. In all instances, the allegations of discrimination must be supported by facts indicating purposeful discrimination on the basis of color. General Bldg. Contractors Ass'n, Inc. v. Pennsylvania, 458 U.S. 375, 389-91, 102 S.Ct. 3141, 3149-50, 73 L.Ed.2d 835 (1982); Durham v. Xerox Corp., 18 F.3d 836, 839 (10th Cir.), cert. den., ___ U.S. ___, 115 S.Ct. 80, 130 L.Ed.2d 33 (1994).
In disparate treatment claims, a plaintiff may rely on the burden shifting format set out in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802, 93 S.Ct. 1817, 1824, 36 L.Ed.2d 668 (1973). EEOC v. Flasher Co., *1456 Inc., 986 F.2d 1312 (10th Cir.1992); Notari v. Denver Water Dept., 971 F.2d 585, 589 (10th Cir.1992). However, the McDonnell Douglas format is modified in an action for reverse, disparate treatment discrimination.
Generally, to establish a prima facie showing of disparate treatment for violation of a work rule, plaintiff must show that: 1) he belongs to a protected group; 2) he was discharged for violating a work rule; and 3) similarly situated non-members of the protected group were treated differently. See McAlester v. United Air Lines, Inc., 851 F.2d 1249, 1260 (10th Cir.1988). The burden of production then shifts to the employer to show a facially legitimate, nondiscriminatory reason for its employment decision. Ofelia Randle v. City of Aurora, 69 F.3d 441, 451 (10th Cir.1995). If the employer meets this burden, plaintiff must rebut the employer's showing by demonstrating that the proffered justification is a pretexti.e. "unworthy of belief." Id.; Ingels v. Thiokol Corp, 42 F.3d 616, 622 (10th Cir.1994). If the plaintiff is able to show a prima facie case and presents evidence the employer's proffered reason is unworthy of belief, the plaintiff can withstand a summary judgment motion. Ofelia Randle, 69 F.3d at 451.
In this case, there is no dispute that Bellairs was discharged for violating a work rule. Whether CBC is entitled to summary judgment turns on analysis of the first and third prongs of the requisite prima facie showing. Bellairs fails on both counts.
As to the first prong, under the modified McDonnell Douglas analysis, a reverse discrimination claimant may substitute the requirement that he be a member of a protected group with evidence that "the defendant is one of those unusual employers who discriminates against the majority." Notari v. Denver Water Dept., 971 F.2d 585, 589 (10th Cir.1992); see Livingston v. Roadway Exp., Inc., 802 F.2d 1250 (10th Cir. 1986). As to the third prong, a reverse discrimination plaintiff may present "direct evidence of discrimination, or indirect evidence sufficient to support a reasonable probability that but for the plaintiff's status, the challenged employment decision would have favored the plaintiff." Notari, 971 F.2d at 590.
There is no genuine dispute that in 1992, CBC discharged for gross misconduct an hispanic male and a black male. (Pltf. Exh. 19 pp. 5-6). Moreover, it is not genuinely disputed that numerous caucasian male CBC employees committed gross misconduct but were not discharged. Id. at 5. Bellairs has failed to produce evidence that "the defendant is one of those unusual employers who discriminates against the majority." Notari v. Denver Water Dep't., 971 F.2d 585, 589 (10th Cir.1992); see Livingston v. Roadway Exp., Inc., 802 F.2d 1250 (10th Cir. 1986). Bellairs has not met his burden upon the first prong of his prima facie case.
As to the third prong of the requisite prima facie case, Bellairs presents no direct evidence of discrimination based on his status as a caucasian male. Rather, he offers as indirect evidence two examples of alleged disparate treatment of non-caucasian males and one such example of a female. Based on the alleged disparate treatment, Bellairs concludes that, but for the fact he is a caucasian male, he would not have been terminated.
Bellairs contends that Redwine, a black male, DeHerrera, an hispanic male, and Kosirog, a female, were similarly situated employees who were treated differently, and, thus, he has met the third requirement of the prima facie case. I conclude no genuine dispute of fact has been shown that these employees were similarly situated.
In 1988, Kosirog approached her supervisor with a complaint about a fellow employee, Odis Redwine:
Kristina approached me on 5-14-88 and informed me that Odis Redwine had been harrasing (sic) her. I contacted Odis' supervisor (Karl Gonzales) and then met with Kristina, Karl [and] Ed Patterson to discuss what had actually happened. I informed Kristina of what her rights were and what options were available to her. She stated at this time that all she wanted was for Odis to stay away from her.
(Pltf.Exh. 7).
Kosirog followed this up with a written complaint dated 5-16-88:
*1457 For over a week now, Odis Redwine has approached me and tried to get me to go out. I told him no. On Saturday, ... he kept coming down on the floor and bothering me. I told him I was busy. When I went out on the transfer table ... he followed me out and told me `now I got you right where I want you' and started coming down the stairs. I was scared and grabbed for a bar. He told me that I didn't need that and I told him not to lay a hand on me. He left and when I came back up the stair he had a chain hooked on the door so I couldn't get back in. He finally let me back in. I told him to leave me alone and to let me do my job even if he didn't want to do his job.
I feel that the remedy for this would be to have him stay away from me and not to bother me.
(Pltf.Exh. 7)
Redwine's supervisor, Karl Gonzales, met with Redwine on 5/15/88:
Conducted an investigative meeting with Odis to allow him to answer the allegations of harassment by a female employee in the warehouse. Explained policy S-8; and the gross misconduct sec. of W-3 for which he could be disciplined for if this did not stop. At Odis' suggestion we came to an understanding that we could resolve the matter at this level by satisfying the female employee's wishes that he would stay completely away from her. I also asked Odis to stay close to his UPL and stop meandering off into other areas. This will help eliminate potential problems.
Id.
On 5-17-88 Redwine submitted the following written, signed statement:
I agree to stay way (sic) from Kristine Kosirog at all times in the future. Id. Thereafter, on a personnel form titled "complaint resolution" Kosirog responded:
I have seen Odis Redwine's agreement and feel that it would be satisfactory for me.
Id.
Bellairs provides no other evidence about Redwine's CBC discipline history or that Redwine persisted in the unwanted behavior. In stark contrast with Redwine's situation, Bellairs has an extensive history of discipline problems. For example, during his 19 years with CBC, Bellairs received 10 separate "first written warnings" for various items such as attendance, poor work performance, and traffic violations. Bellairs also had three other complaints from co-workers about harassment. Indeed, on August 2, 1987, Bellairs received a "first written warning" for "harassment and gross misconduct." At the time of his firing, Bellairs was under a "final written warning" for "sleeping on the job."
Unlike Bellairs, Redwine did not dispute Kosirog's complaint. There is no showing that Redwine's behavior was other than an isolated incident. Kosirog proposed a solution to the problem and Redwine agreed to it. There is no evidence that there were further problems with Redwine or that Redwine had a disciplinary history comparable to Bellairs. Under these circumstances, no reasonable trier of fact could conclude that Redwine and Bellairs were similarly situated. Thus, CBC's failure to terminate Redwine cannot form the basis of Bellairs' prima facie case.
In March, 1993, Steve DeHerrera, a CBC hispanic male employee, filed a complaint with Employee Relations about Kosirog's communications with him:
On March 23, 1993, 6:30 a.m., I was getting ready for my training on computer and radio dispatch job. I was sitting in front of the computer with Rick Ritter. Kris Kosirog was sitting next to the senior specialist desk when Rick Kelim walked into the dispatch office complaining about the condition graveyard had left the warehouse in. At that time Kris Kosirog replied "yea, because of this asshole"! At the same time she was makeing (sic) this statement she got the folded newspaper from the desk and threw it at me, striking me on the leg and falling to the floor.
On another ocasion (sic) I reported to work at 10:30 p.m., I was in the dispatch office makeing (sic) a copy of the coil running schedual (sic) when Kris Kosirog came storming into the office yelling at me and warning me to quit fucking with her and to stay off her back. I kept asking her "what *1458 did I do." She gave me no reply she just turned around and walked out of the office. Within a half hour she came to me and apologized to me saying she thought it was me who changed the work schedual (sic) she had made out. Someone else had changed it and she had blamed me for it.
She later approached me in coil staging area and told me that she was going to take Chris Bellairs out and if I didn't watch out she was going to include me as well. I took this as a personal threat on my job from Kris Kosirog.
Since Kris Kosirog came into this department she has talked openly in very sexually explicit terms. She always tells dirty jokes and has always used filthy language. I have always found that disgusting, being that she is the only female on our crew.
I have also seen her place her arms on several employees here. On one ocasion (sic) I saw her place her arms on Lewis Brooms, senior specialist on graveyard and rest her head on his chest telling him how tired she was.
I feel that something must be done about her physical touching fellow employees as well as her talking about herself in very sexually explicit manners, this has been an ongoing problem with her.
(Pltf.Exh. 3)
Pat Phillips, acting supervisor, decided that DeHerrera and Kosirog, who were in training together, should be separated until Employee Relations could make a determination concerning DeHerrera's formal complaint. (Pltf.Exh. 8 p. 2). On April 19, 1993, Phillips told Kosirog about DeHerrera's complaint. At that time, Kosirog told Phillips that there had been an incident where DeHerrera had reached into her shirt and grabbed her breast and then grabbed her hand and placed it on his groin area. Kosirog said she had not reported it because she didn't want DeHerrera to lose his job. Kosirog was advised to file a complaint with Employee Relations but there is no evidence that she did.
Neither party has submitted evidence of the outcome of these incidents but it appears neither DeHerrera nor Kosirog was terminated. Thus, Bellairs argues that he was treated disparately.
Like Bellairs, DeHerrera denied Kosirog's accusation against him. However, unlike Bellairs, there was no third party corroboration of the accusation. Moreover, Bellairs has not shown that DeHerrera's disciplinary history is similar to his own. Also, under CBC Policy W-3, supervisors are required to consider "an employee's entire work history" before issuing discipline. (Def.Att. 10 p. 1). Under these circumstances, I conclude that no reasonable trier of fact could find that DeHerrera and Bellairs were similarly situated. Thus, CBC's failure to terminate DeHerrera cannot form the basis of Bellairs' prima facie case.
The harassment complaint DeHerrera filed against Kosirog is outlined above. In addition, Kosirog had a checkered disciplinary history with CBC. Before her assignment to the warehouse, Kosirog had been terminated from two positions within CBConce for drug and alcohol use and later for accidents. She was on a final warning when DeHerrera filed his complaint against her. However, unlike Bellairs, her disciplinary history did not include previous allegations or incidents of harassment. Moreover, there was no third party corroboration of the harassment complaint against her. Also, unlike Kosirog, there is evidence that Bellairs dealt with the harassment complaint by being disruptive and using vulgar language during a meeting about Kosirog's complaint against him. Further, there is a qualitative difference in the nature of the investigation against Bellairs. Kosirog complained about Bellairs' treatment of her. However, the details of Bellairs' comments about Kosirog were not provided by Kosirog. Rather, they were supplied by three caucasian, male employee witnessesDale Reinoehl, Rick Krupicka, and Rick Pickett. Again, under these circumstances, I conclude no reasonable trier of fact could find that Kosirog and Bellairs were similarly situated. As with Redwine and DeHerrera, CBC's failure to terminate Kosirog cannot form the basis of Bellairs' prima facie case. Accordingly, I will grant summary judgment on *1459 Bellairs' claims for gender and race discrimination.
V.
CBC also moves for summary judgment on Bellairs' claim that the CBC's actions constitute outrageous conduct. Bellairs alleges that CBC "knowingly and intentional[ly] manufactured false allegations of sexual harassment." (Resp.Brief, p. 20). Bellairs describes CBC's course of conduct toward him as "so extreme in degree as to go beyond the bounds of decency and is regarded as atrocious and intolerable in a civilized community." (Complaint ¶ 33).
The tort of intentional infliction of emotional distressoutrageous conduct was adopted by the Colorado Supreme Court in Rugg v. McCarty, 173 Colo. 170, 476 P.2d 753, 756 (1970). The Colorado Supreme Court adopted the Restatement (Second) of Torts § 46 (1965) in defining this claim. Liability may be found only "where the conduct has been so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community." Rugg, 476 P.2d at 756 (quoting Restatement 2d of Torts § 46, comment d). In order to be liable, CBC's conduct must be more than "unreasonable, unkind or unfair; it must truly offend community notions of acceptable conduct." Grandchamp v. United Air Lines, Inc., 854 F.2d 381, 383 (10th Cir.1988), cert. denied, 489 U.S. 1080, 109 S.Ct. 1534, 103 L.Ed.2d 838 (1989). The trial court makes the threshold determination whether reasonable persons could differ on the conduct being outrageous. Id.
Discharge from employment, without more, is not outrageous. Id. at 384. At the same time, an employer is not shielded from employee claims of outrageous conduct. "Thus, the manner of discharge, and the employer's conduct is critical to a finding of outrageous conduct." Id. at 385. A mere allegation by an employee that he was dismissed or demoted wrongfully, summarily, or in violation of the employers policies and procedures fails to state a claim for outrageous conduct. See Therrien v. United Air Lines, Inc., 670 F.Supp. 1517, 1524 (D.Colo. 1987), and cases cited therein.
Bellairs relies on his characterizations of CBC's conduct as "bogus charges of sexual harassment and saddling him with these heinous allegations on his records which stigmatize him." (Pltf.Resp.Brf. p. 21). Several CBC employees corroborate CBC's determination that Bellairs created the hostile environment in which Kosirog worked. (Def.Att. 7) (Krupicka memorandum); (Def.Att. 8) (Reinoehl memorandum); (Def.Att. 9) (Pickett memorandum). Moreover, when fired, Bellairs had an extensive disciplinary record (Def.Att. 11), and he was on a "final written warning" for an unrelated incident. (Def.Att. 5). I conclude, as a matter of law, that the manner of Bellairs' discharge was not outrageous. Compare Wing v. JMB Property Management Corp., 714 P.2d 916, 918 (Colo.App.1985) (plaintiff was assaulted, thrown to the ground, sexually harassed, ridiculed, threatened, humiliated and ultimately fired). Accordingly, I will grant summary judgment in favor of CBC on Bellairs' outrageous conduct claim.
VI.
Also pending is plaintiff's Federal Rule of Civil Procedure 15(a) motion to file an amended complaint. I will deny Bellairs' motion.
Bellairs filed his original complaint in this action on June 14, 1994. On June 27, 1994, Bellairs filed a first amended complaint. Pursuant to the scheduling order entered in this case, deadline for submission of amended pleadings expired on November 1, 1994. Notwithstanding this deadline, on May 12, 1995, Bellairs filed a motion for leave to file a second amended complaint seeking to add as defendants, Patrick Phillips and Richard Jakubiak. In this motion, Bellairs seeks, for the first time to introduce new claims of interference with contractual relations and civil conspiracy against Phillips and Jakubiak.
Motions to amend a complaint under Rule 15 should be freely granted when justice requires. Las Vegas Ice and Cold *1460 Storage Co. v. Far West Bank, 893 F.2d 1182, 1185 (10th Cir.1990). The decision whether to grant a motion to amend is left to the sound discretion of the district court. Id. However, untimeliness alone is a sufficient reason to deny leave to amend. Frank v. U.S. West, Inc., 3 F.3d 1357, 1365 (10th Cir.1993); Woolsey v. Marion Laboratories, Inc., 934 F.2d 1452, 1462 (10th Cir.1991). Furthermore, "[w]here the party seeking amendment knows or should have known of the facts upon which the proposed amendment is based but fails to include them in the original complaint, the motion to amend is subject to denial." Las Vegas Ice, 893 F.2d at 1185.
Bellairs has known since 1993 the roles played by Phillips and Jakubiak in CBC's decision to terminate him. Thus, Bellairs' second motion to amend is inexcusably untimely.
Accordingly, it is ORDERED that:
1. summary judgment is GRANTED in favor of defendant on all claims in plaintiff's complaint;
2. plaintiff's motion to strike portions of defendant's brief in support of its motion for summary judgment is DENIED as moot;
3. plaintiff's motion to file second amended complaint is DENIED;
4. this action is DISMISSED;
5. defendant is awarded costs. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2327084/ | 297 F.Supp.2d 349 (2003)
UNITED STATES of America,
v.
Larry SILVEIRA, Defendant.
No. CRIM. 01-10385-NG.
United States District Court, D. Massachusetts.
November 19, 2003.
*350 John Andrews, Robert M. Strasnick, Andrews & Koufman, LLC, Salem, MA, for Gail Costello (2), Defendant.
Allison D. Burroughs, United States Attorney's Office, Boston, MA, for USA, Plaintiff.
John H. LaChance, John H. LaChance, Attorney at Law, Framingham, MA, for Larry Silveira (3), Defendant.
Tracy Minor, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, PC, Boston, MA, for George Campbell (1), Defendant.
SENTENCING MEMORANDUM
GERTNER, District Judge.
I. INTRODUCTION
The focus of the government's case against Larry Silveira ("Silveira") was the allegation that he was a conspirator in a wide-ranging and fraudulent telemarketing scheme organized and managed by George Campbell ("Campbell").[1] Silveira was acquitted of these charges.
Silveira, however, was convicted of perjury for one statement before the grand jury in an otherwise entirely true and lengthy presentation. Testifying without counsel, Silveira stated that certain monies given him by Campbell (which he recounted in detail) were loans which were to be repaid, rather than salary. The government had documents suggesting the opposite.
The major issues in Silveira's sentencing concerned, a) the significance of Silveira's trial testimonywhether repeating a statement at trial which the jury found to be false qualifies him for an enhancement for obstructing or impeding the administration of justice under United States Sentencing Guidelines § 3C1.1, and b) the significance of Silveira's grand jury testimony whether a conviction for false testimony *351 with respect to one issue, in an otherwise truthful grand jury recitation, is within the "heartland"[2] of perjury convictions, and if not, whether it warrants a departure from the sentencing guidelines for perjury.
I agreed with the government concerning an enhancement for obstruction of justice, and that enhancement added two points to Silveira's offense score for a total of 14.[3] But while I enhanced Silveira's sentence because his trial conduct represented an obstruction of justice under the language of the Guidelines and the relevant case law, I also found that his offense conducthis testimony before the grand jurywarranted a departure under the general departure authority of U.S.S.G. § 5K2.0. I evaluated Silveira's testimony before the grand jury, and the evidence which I had heard at his trial. I reviewed not only the case law of perjury convictions in this and other circuits, but also, as is my wont, the presentence reports of other perjury cases within this jurisdiction.[4] I concluded that all perjury convictions are not alike, that there were factors present in the Silveira case which were unique and properly outside the "heartland" for perjury offenseswhere the overwhelming majority of his testimony was accurate, helpful to the government, and arguably incriminating to him (all without the benefit of counsel), where the single untruthful statement was at the margins of materiality, since it did not undermine the government's case against Campbell, and simply served to link Silveira somewhat more directly to the Campbell conspiracy (a conspiracy for which he was acquitted); where the facts and jury instructions supported a finding, not of wilful misrepresentation, but rather, of a reckless disregard for the facts.
I would have departed downward to a level 12, from a level 14 (in Zone C) to reflect this analysis, but for one additional development, the announcement by the Bureau of Prisons ("BOP") on December 13, 2002, that it would not accept judicial recommendations for community confinement for Zone C offenders. See Monahan v. Winn, 276 F.Supp.2d 196 (D.Mass.2003). Accordingly, I departed downward to a level 10, in Zone B, and imposed three years' probation, with ten months in community confinement, and four months in home detention.
II. FACTS
A. The Indictment
1. The Campbell Conspiracy
George Campbell, Gail Costello and Larry Silveira were charged in a twenty count indictment with Conspiracy, in violation of 18 U.S.C. § 371 (Count 1); Money Laundering, in violation of 18 U.S.C. § 1956(a)(1) and (a)(2) (Counts 2-14); Mail Fraud, in violation of 18 U.S.C. § 1341 (Counts 15-17); Destruction and Removal of Property to Prevent Seizure, in violation of 18 U.S.C. § 2232 (Counts 18 and 19); and False Declaration, in violation of 18 U.S.C. § 1623 (Count 20). Costello was named in eighteen counts, Counts 1 through 17 and Count 19, but after obviously productive plea negotiations, she was charged with structuring under 31 U.S.C. § 5324, in a single count information. See *352 United States v. Costello, No. 01-10385-NG (October 28, 2003).
Far more peripheral to the Campbell operation than was Costello, Silveira was charged only in Count 1 (the conspiracy) and Count 20 (false statement), went to trial on both counts, and was convicted only on the latter.
The initial indictment charged that between October 1995 and December 1997, George Campbell owned and operated a telemarketing operation which solicited funds ostensibly on behalf of various charities. One of these charities was the American Veterans Wish Foundation ("AVWF") which purported to grant the wishes of dying veterans. Although a substantial amount of money was collected, little if any made it to reputable legitimate charitable organizations.
Campbell was in total charge of the operation. Witness after witness described him as controlling, even abusive, screaming when things were not done his way. He intimidated nearly everyone around him, both verbally and even physically.
Campbell's operation involved various "boiler rooms," offices and maildrops in the Northeast, Massachusetts, New Hampshire, Rhode Island and Florida. The boiler rooms used numerous telephone solicitors to give deceptive pitches to solicit donations from prospective donors. Campbell collected the donations through the mail or had couriers retrieve them.
To the extent that anyone had a more substantial role in the operation, it was William Twohig ("Twohig") and Gail Costello ("Costello"). Twohig, at Campbell's direction, had day-to-day responsibility for staffing and running the boiler rooms. Costello was George Campbell's sister and the bookkeeper for the operation. She received the solicited funds, deposited the funds into bank accounts, arranged to have checks cashed, and moved, or wire-transferred funds from one bank account to another, using nominee names or straws. All of the accounts were in fact controlled entirely by Campbell.
The nominees, or straws, were paid for allowing Campbell to use their names, either a flat rate per week or a percentage of the particular boiler room. The government claimed that Larry Silveira, Costello's codefendant, was in this category.[5]
Once Campbell received the money from the couriers or through the mail, he (and at his direction, Costello) controlled the movement of the funds through an elaborate maze of transfers meant to conceal and disguise his receipt and personal use of a substantial portion of the funds.
During the investigation of the scheme, Costello also participated in deleting files from an office computer, and in destroying documents at a storage facility.
Significantly, Twohig cooperated with the government, and pled guilty in exchange for a government motion for a U.S.S.G. § 5K1.1 departure and a reduced sentence. Costello, despite her relationship to the alleged mastermind, and despite being bookkeeper and involved in many of the scheme's activities, signed a plea agreement which essentially accomplished the same thinga plea to a one-count superseding information charging her only with structuring.
B. Silveira's Role
At trial, the government tried unsuccessfully to link Silveira directly to the *353 Campbell conspiracy. The testimony which the jury believed, and which I find to be proved based on a preponderance of the evidence, is as follows:
Silveira had been involved in charity work for years before his first communication with Campbell. A veteran himself (a tour of duty in the United States Air Force), based in California, he became Executive Director of California for Veterans, which was an existing bona fide charity (later called American Veterans Assistance Corporation). California for Veterans had a shelter for veterans, provided homeless veterans with food, food kits that they could take with them, bus passes and blankets. When he took over, Silveira sought to expand the existing offerings, to provide shelter for veterans with families. In time, he had more national aspirations, to help veterans in hospitals, particularly dying veterans. He set up the Veterans Wish Foundation to grant wishes to dying veterans. Silveira asked television star Ed McMahon to be a spokesman for these efforts, (ultimately naming the shelter, the McMahon House) and creating an advisory board.
His efforts foundered when one of the fundraisers Silveira had used was investigated by the California authorities.[6] Over thirty wishes were granted in the early 1990's before the charity became defunct.
During the time that the shelter was failing, Silveira used some of his own funds to keep it going, including mortgaging his own house. But even this infusion of funds was unavailing; Silveira and his wife were forced to declare bankruptcy. It was clear that in short order the remaining veterans living there would have to leave.
In 1994, Silveira had the bad judgment to associate himself with Campbell. From Silveira's vantage point in California (Campbell was based in Boston), Campbell seemed like a legitimate fundraiser, capable of revitalizing Silveira's charities.
Twohig testified that he and Campbell took over the California shelter, moved out the few remaining veterans,[7] and set up telemarketing phone rooms. He further reported that he never witnessed any charitable activities while he was there. Silveira agreed; no charitable activities were taking place at that time because his operation had failed. Rather, Silveira hoped to use the space to raise funds to restart the shelter.
Later in 1994, Twohig returned to Massachusetts and Silveira came along to set up other charities. Silveira authorized Campbell to open bank accounts in Silveira's name into which money from the fund-raising activities could be deposited. Silveira also allowed Campbell to use a rubber stamp of his signature. In essence, these accounts were controlled by Campbell. He was the only individual who could remove or deposit funds. The accounts belonged to Silveira in name only; he never saw the statements or had any dealings with the banks. Significantly, Silveira denied giving Campbell permission to use his signature to register enterprises used as solicitors on behalf of charitable organizations and denied knowledge of the day-to-day activities of the fund-raising efforts. Moreover while American Veterans Wish Foundation (AVWF) the successor to Silveira's California for Veterans, did not grant any "significant" wishes, Silveira testified that he believed it wouldas its *354 predecessor had donewhen it was on its feet.
No government witness contradicted Silveira's account of his charitable work before the Campbell contacts. While the government presented evidence seeking to prove that Silveira knew of, and agreed to, the goals of the Campbell scheme, the jury rejected those inferences. I agree with the jury's verdict whether tested by beyond a reasonable doubt or a fair preponderance standard.
C. Grand Jury Testimony
On May 13, 1998, Silveira appeared before a grand jury without a lawyer. Silveira was informed that he was not a target of the grand jury investigation.
Nevertheless, he was given Miranda warnings, told that he could refuse to answer any questions he felt would incriminate him and could request counsel at any time during the proceeding before answering a question. Silveira had not consulted an attorney before or during his testimony. He answered every question posed to himeven at times giving testimony that reflected negatively on his involvement in the activities under inquiry.
He gave a good deal of evidence against Campbell and others described above. He was, in fact, an important witness in the prosecution of the central figures of the scheme. He described his role in setting up certain corporations for Campbell, opening bank accounts for those corporations and giving a signature stamp to Campbell so he could control those accounts either by himself or through Costello.
The statements he made were potentially incriminating to him. Indeed, in addition to his testimony before the grand jury, Silveira volunteered thenand takes the same position todaythat he would testify against his codefendants, without a bargain.
The government relied on Silveira's evidence in indicting Campbell and Costelloand Silveira.
Silveira was indicted and convicted of perjury for claiming that the monies he had received from Campbell (he was shown a series of $400 and $500 checks) were loans and not salary for services. Silveira also admitted that he was given payments from Campbell, and that the payments would be used for funding the charitable organization that Silveira was director of, AVWF, as well as for Silveira's personal expenses. Silveira agreed that if the charity had been successful, he would have expected it to provide him with a substantial stream of income as its salaried director. He further admitted that once the failure of the charity was apparent, he used all of the payments for personal expenses. And he agreed that the total was $77,000 for his work over the course of two years.
D. Trial Testimony
Silveira repeated his grand jury testimony on the stand, that the monies he had received over a period of time from Campbell were loans to help support his family and keep the shelter operating. His testimony was supported by that of his wife.
The government had information that according to the Campbell records, Silveira's payments were treated as salary. He first received a regular $500 weekly, and then a percentage of the funds collected. Some of the cancelled checks said "salary" on them.
Significantly, this testimonyabout the regular receipt of funds from Campbell was incriminating to Silveira, whether or not the money he had been given constituted a loan. The most that the government *355 would have gotten from the characterization that they comprised salary or "payment for services" was an inference that Silveira was more integrated in the Campbell conspiracy, rather than simply a temporary player.
The jury, confronted with the same evidence as the grand jurythe evidence of Silveira's minor role in the Campbell conspiracy together with the evidence of Silveira's salaryrejected that inference. They had to have concluded that even if these checks were for "salary" they were not sufficient to link Silveira to the conspiracy, since the other links were weak. If anything, it appeared that unbeknownst to him, the other coconspirators were using Silveira as a front for their illegal activities.
III. GUIDELINE COMPUTATIONS
A. Obstruction Enhancement
The government seeks a two-level enhancement under U.S.S.G. § 3C1.1 which is triggered if "the defendant willfully obstructed or impeded, or attempted to obstruct or impede, the administration of justice" during the course of the proceedings. Application note 4 includes "committing ... perjury" as an example of conduct that warrants the enhancement. See United States v. Dunnigan, 507 U.S. 87, 93, 113 S.Ct. 1111, 122 L.Ed.2d 445 (1993).[8]
However, the perjury for which the defendant has been convicted and is being sentenced alone does not trigger the application of the enhancement of U.S.S.G. § 3C1.1. Rather, the defendant must do something else during the course of the prosecution, investigation or trial. As one court noted, application of U.S.S.G. § 3C1.1 does not amount to double counting where "a defendant interferes with one investigation and then also interferes with a resulting investigation of the interference." United States v. Lueddeke, 908 F.2d 230, 234 n. 2 (7th Cir.1990).
Application Note 7 specifically cautions that where the underlying conviction is for perjury, "this adjustment is not to be applied ... except if a significant further obstruction occurred .... (e.g., if the defendant threatened a witness during the course of the prosecution for the obstruction offense) (emphases added)."
The question is whether repeating the perjurious statement during the trial qualifies as a "significant further obstruction." While the Supreme Court acknowledged that "some of our precedents [e.g., the law of contempt] do not interpret perjury to constitute an obstruction of justice unless the perjury is part of some greater design to interfere with judicial proceedings," United States v. Dunnigan, 507 U.S. 87, 93, 113 S.Ct. 1111, 122 L.Ed.2d 445 (1993), it suggests that nothing in the Guidelines or the precedent would bar an obstruction enhancement even when the defendant recited the same allegedly perjurious testimony at trial:
The enhancement provision is part of a sentencing scheme designed to determine the appropriate type and extent of punishment after the issue of guilt has been resolved. The commission of perjury is of obvious relevance in this regard, because it reflects on a defendant's criminal history, on her willingness to accept the commands of the law and the authority of the court, and on her character *356 in general.... [T]he fact that the meaning ascribed to the phrase `obstruction of justice' differs in the contempt and sentencing contexts would not be a reason for rejecting the Sentencing Commission's interpretation of that phrase.
Id. at 94, 113 S.Ct. 1111.
And that was precisely what happened in United States v. McCoy, 316 F.3d 287 (D.C.Cir.2003), where the underlying offense of conviction was perjury:
[Defendant] proposes that `[s]imply repeating precisely the same statements that were the subject of the perjury charges is not the sort of `significant further obstruction' that can justify Application Note 7's general rule against applying obstruction enhancements to perjury convictions.' We are reluctant to hold that Note 7 gives a defendant license to perjure herself in a criminal proceeding in order to avoid enhanced punishment for, of all things, perjury. Lying under oath to protect oneself from punishment for lying under oath seems to usand to the Supreme Courtto be precisely the sort of `significant further obstruction' to which Note 7 refers.
Id. at 289 (citing Dunnigan, 507 U.S. at 97, 113 S.Ct. 1111 ("It is rational for a sentencing authority to conclude that [under U.S.S.G. § 3C1.1] a defendant who commits a crime and then perjures herself in an unlawful attempt to avoid responsibility is more threatening to society and less deserving of leniency than a defendant who does not so defy the trial process")).
Under this case law, it is difficult to imagine any situation in which the repetition of a supposedly perjurious statement at trial would not then qualify for this enhancement. If the jury verdictthat when the defendant said certain words under oath he was committing perjuryis to stand, as I concluded it should, then when the defendant says the very same words during trial he will be "lying under oath to protect [himself] from punishment for lying under oath." Id. at 289.
B. Heartland Departure (§ 5K2.0)
As described in U.S.S.G. § 5K2.0, and explained in U.S.S.G. Ch.1, Pt. A, intro. comment. 4(b), each category of offense under the Guidelines defines a "heartland" of cases:
The Commission intends the sentencing courts to treat each guideline as carving a "heartland," a set of typical cases embodying the conduct that each guideline describes. When a court finds an atypical case, one to which a particular guideline linguistically applies but where conduct significantly differs from the norm, the court may consider whether a departure is warranted.
A word at the outset: How can I conclude that Silveira's perjury is outside the heartland of perjury convictions after having concluded that it was sufficient to trigger an obstruction charge? The analyses of "obstruction" and "heartland" differ. When I evaluated Silveira's offense conduct his statements before the grand juryI concluded that it was outside the heartland of perjury convictionsbecause it was only marginally material to the government's investigation and because Silveira's state of mind was at best, a reckless disregard for the truth, rather than intentional lying. On the other hand, when I evaluated his trial conductwhich involved the same wordsthe analysis had a different outcome. By the time of trial Silveira well knew what the government records showed, even if he had been reckless with respect to these facts before trial. He knew where his words fit in the government's *357 case, the importance they had given them.[9]
The heartland analysis focuses attention on the crimehow the defendant's acts compare to others convicted of the same crime. In that regard I will consider the nature of the offense, the case law, and the sentences of other defendants within this jurisdiction.[10]
1. Offense
The jury was instructed that the perjury charge required a finding of a "knowing" and "material" falsehood under oath. The "knowing" standard was defined as a situation in which "the speaker knew that [the statement] was false or demonstrated a reckless disregard for the truth with a conscious purpose to avoid learning the proof." Furthermore, the "materiality" standard was adequately satisfied if it was found that the statement was capable of or "had the natural tendency of influencing the federal grand jury," even if it had not actually done so.
With respect to the state of mind: Both Silveira and his wife testified. Each noted that however regular the payments from Campbell were and however Campbell characterized them, they saw the arrangement as an interim one until the charities were established. The most likely inference from the evidence at trialand the most likely jury conclusionis that Silveira recklessly disregarded the facts that suggested he was receiving a salary, rather than that he made the statement knowing that it was false.
With respect to materiality: Silveira gave considerable evidence against Campbell, and in so doing he clearly incriminated himself. His testimony was incriminating whether the money he received from Campbell constituted a loan to be repaid, or a salary for services rendered. At most, the government could have used the characterization of the monies as "payments for services" to infer that Silveira was integrated in the Campbell conspiracy, and not simply a temporary participant. Significantly, the jury rejected that inference, after they were confronted with the same evidence as the grand jurythe evidence of Silveira's minor role in the Campbell conspiracy together with the evidence of Silveira's salary.
*358 Moreover, whether Silveira was paid by loans or salary was not especially critical to the government's major goal. The government was clearly after Campbell. Silveira's perjurious statement did not advance that prosecution one way or the other. In fact, with respect to the anti-Campbell facts that really mattered, Silveira was entirely truthful and complete. He even volunteered to testify for the government, without counsel or a plea agreement.
2. Case Law
In U.S. v. Renteria, 161 F.Supp.2d 1294 (D.N.M.2001), the court granted a downward departure in a perjury case on heartland grounds. In Renteria, the defendant committed perjury when he falsely stated that he did not sign a "consent to search" form during a suppression hearing in an underlying drug conspiracy case. Id. at 1295-96. Because this motion ultimately was withdrawn, the court found that the perjury had "no impact." Id. at 1295. "Apparently no reported cases have defined the boundary between the heartland of perjury cases and those perjury cases that are atypically less severe in comparison. However, it is difficult, if not impossible, to imagine perjurious testimony milder in its effect and with less of an impact than that given by Mr. Renteria." Id. at 1304
The First Circuit has already touched upon the "heartland of perjury" and concluded that the extent of materiality could be a factor removing an individual from the "heartland." See United States v. Anderson, 260 F.Supp.2d 310 (D.Mass. 2003) (an upward departure on "heartland" grounds was warranted because the defendant withheld information that was crucial to the integrity of a case). As the court noted:
While the court cannot predict how the jury will decide any issue in the Sampson case, Anderson's false denials of receiving Sampson's call had the potential to deprive the jury of information that could prove material to whether Sampson will be sentenced to death. The death penalty is the ultimate sanction.
See id. at 316. Silveira's case is at the opposite pole. Silveira's testimony was not important in the case against Campbell, and was on the borders of materiality in the case against Silveira.
3. Other Sentences Within this Jurisdiction
When this situation is compared with the specifics of other perjury and obstruction of justice convictions in the District of Massachusetts, it is clear that there are two categories. In one category are cases in which there was an indictment for an underlying offense along with a perjury indictment, and the defendant either pled guilty or was found guilty of both offenses. In such cases the defendant made false statements in which he denied any involvement in the underlying offense in order to escape conviction or indictment for that crime. In essence, the perjury was to cover up the initial crime in its entirety.
Not so with Silveira. While he was indicted on the underlying offense of conspiracy together with perjury charge, he was acquitted on the conspiracy charge. Rather than testifying falsely to cover up his complicity in the conspiracy, Silveira gave testimony that linked him to it. Indeed, the testimony he provided incriminated him more effectively than the supposed false statements ever could. The loan/salary question was one of degreehow central he was to the Campbell operation, not whether he was involved at all.
Silveira had no reason to try to cover up his actions because he was told *359 that he was not a target of the investigation. He came without counsel, and offered to cooperate without a plea agreement.[11]
In the second category are cases in which the defendant is charged only with perjury, in a single count. In each, the false statements were far more central to the government's investigation than the statements at issue here, i.e., the false statements resulted in the grand jury being unable to bring indictments, the false statements wholly denied defendant's involvement in the case being investigated, the false statements covered up communications with those harboring a wanted fugitive, etc.
(1) Category One: Cases Where the Defendant Was Found Guilty or Pled Guilty to Perjury and the Underlying Offense
In United States v. Bova, No. 01-10096, the defendant's denials and accusations were a direct attempt to mislead the court on the main issues in the case and escape responsibility for the crimes with which he was charged. The defendant, as a defense witness in his own case, claimed he had not committed the assaults at issue and that one of those assaults was committed by an individual who was with him at the time. There were numerous witnesses who provided contrary testimony.
In United States v. Flemmi, No. 99-10371, the defendant was found guilty of aiding and abetting, transfer and possession of machine guns, and other offenses. He was also found guilty of giving false statements to a grand jury when he claimed to have no knowledge of and to have never possessed a large stash of guns. In fact, the defendant had been a police officer, knew all about the illegal activities of those under investigation, and had helped conceal a large stash of guns.
In United States v. Mejia-Pimental, No. 97-10280, the defendant pled guilty to multiple counts involving the distribution of cocaine and obstruction of justice. He was found to have obstructed justice by giving the court a false name.
In United States v. DeVito, No. 96-10339, and United States v. Sullivan, 99-10421, defendants pled guilty to the underlying substantive offense of conspiracy to commit mail fraud (Sullivan), conspiracy to distribute cocaine (DeVito), as well as a false statements offense. DeVito claimed he had paid off his mortgage arrearage *360 with family loans when he had really used drug money. He also claimed that he had not been involved in the distribution of cocaine for which he later pled guilty. Sullivan was involved in an insurance billing fraud scheme and claimed that she had never forged signatures on charge slips or asked anyone to sign false charge slips when in fact she had.
(2) Category Two: Cases Where There Was No Indictment on an Underlying Offense
In United States v. Fichera, No. 01-10183, the defendant was told that he was the target of the grand jury investigation. He signed affidavits for the FDIC falsely stating that he was not buying the assets on behalf of a prohibited party. Even after the defendant was shown irrefutable evidence that the down payment on the assets had come from a prohibited party and not from his own funds as he had claimed, the defendant took the same position before the grand jury.
In United States v. Conley, No. 97-10213 and United States v. Rakes, No. 96-10131, because of the defendants' perjury, the government was unable to bring charges against those it was investigating. Conley was a police officer who was subpoenaed to testify to a grand jury about a police chase that resulted in the assault of a plain-clothed African-American police officer by his fellow officers. Conley denied seeing anyone chase the victim and denied seeing the assault at all. His testimony was critical because no other officer had come forward with specific testimony.
In Rakes' case, the defendant had been forced to sell his liquor store by the grand jury targets and received $67,000 cash in exchange. To the grand jury, Rakes falsely testified that he had sold the store strictly for profit and had received $25,000 in checks for the store. Since there was no evidence of extortion, the investigation ended.
In United States v. McDonough, No. 98-10148 and in United States v. McCusker, No. 98-10148, both defendants gave false testimony to the grand jury regarding their communications with an individual who was harboring a wanted fugitive and was a fugitive herself. These false statements hindered the grand jury in getting a complete picture of the whereabouts and activities of the fugitive whom they were investigating.
In contrast, Silveira's statements were peripheral. The government was able to secure indictments against its targets, and it assembled much of its case from Silveira's information.
C. Community Confinement Issues
Under U.S.S.G. § 2J1.3, Silveira's base offense level was 12 with a 2 level enhancement for obstructing or impeding the administration of justice under U.S.S.G. § 3C1.1 as directed by application note 2 of U.S.S.G. § 2J1.3. However, on U.S.S.G. § 5K2.0 grounds, I would have granted a downward departure of 2 points resulting in an offense level of 12 in Zone C of the sentencing table. I departed further, to a level 10 and Zone B, because of the Bureau of Prison's unlawful policy with respect to the placement of individuals in Zone C in community confinement. See United States v. Costello, supra, and Monahan v. Winn, 276 F.Supp.2d 196 (D.Mass. 2003). The goal of my sentence was to put Silveira in the position that he would have been in had the Bureau of Prison's policy not been enacted.[12]
*361 IV. CONCLUSION
Since Silveira's criminal history category was I, a departure to a level 10 meant a guideline range in the 6-12 months range. In order to replicate a Zone C Sentence, I sentenced Silveira to 3 years' probation with special conditions; a $100 special assessment fee; a $2,000 fine; 10 months' community confinement and 4 months' home detention with electronic monitoring.
SO ORDERED.
NOTES
[1] See United States v. Costello, Sentencing Memorandum dated October 28, 2003.
[2] "Heartland" is defined infra.
[3] I declined to depart on extraordinary family circumstances under U.S.S.G. § 5H1.6, or aberrant conduct under U.S.S.G. Ch. 1 Pt. A intro. comment 4(b), or U.S.S.G. § 5K20.
[4] Redacted versions of these reports were made available to counsel for both sides.
[5] Straws, like Silveira, had little or no idea how their names, even their signature stamps, were being used. One witness testified that Campbell referred to such people disparagingly as "beards."
[6] There was no evidence linking Silveira to that investigation.
[7] Campbell ordered Silveira to ask the last individuals in the shelter to leave. Indeed, the shelter was only transitional in any event. The evidence suggested that they had stayed long past the target date.
[8] Perjury, in this context, is defined as "false testimony concerning a material matter with the willful intent to provide false testimony, rather than as a result of confusion, mistake, or faulty memory." Id. at 94. While, as I describe below, I believe that the jury found, and the evidence supports, a "reckless disregard" standardnot willful intent, that difference is not relevant to this analysis.
[9] Commentary to U.S.S.G. § 3C1.1 prior to 1995 suggested that the court is to evaluate "testimony or statements... in a light most favorable to the defendant." U.S.S.G. § 3C1.1, comment (n.1) (1995). The approach suggested that the Court could review the testimony independent of the jury's findings. But that commentary has been narrowly construed, see United States v. McKeeve, 131 F.3d 1, 16 (1st Cir.1997) ("In its heyday the now-discarded language never required sentencing courts to resolve all evidentiary conflicts to the defendant's benefit ... a sentencing court ... need only construe allegedly perjurious statements in a defendant-favorable way if such statements are genuinely ambiguous or if the record, after credibility determinations have been made, plausibly supports an innocent interpretation"). In any event, by 1995, the language had been excised altogether.
[10] The Commission never defined what exact factors brought a case within the heartland. Judges were obliged to carve out what "heartland" meant in the decisional law. Marc L. Miller and Ronald F. Wright, "Your Cheatin' Heart(land): The Long Search for Administrative Sentencing Justice," 2 Buff.Crim. L.Rev. 723 (1999). As two commentators suggested, the appropriate question should be: "Is the harm caused by this offense greater or lesser than the harm caused by the offenses these Guidelines were written for? Is this offender's culpability greater or lesser than the offenders these Guidelines were intended for?" Paul J. Hofer and Mark H. Allenbaugh, "The Rules: Finding and Using the Philosophy of the Federal Sentencing Guidelines," 40 Am.Crim. L.Rev. 19, 25 (Winter 2003).
[11] Under United States v. Washington, 431 U.S. 181, 97 S.Ct. 1814, 52 L.Ed.2d 238 (1977) a grand jury witness is not constitutionally entitled to receive notification of his or her status as a "target" or "potential defendant" in the investigation. In United States v. Pacheco-Ortiz, 889 F.2d 301, 306-310 (1st Cir.1989), the Court decided not to suppress testimony because the defendant was not told on the record about his right against self-incrimination nor given warning of his "target" status in violation of Department of Justice guidelines, but the Court voiced their concern and warned about future conduct involving violation of policy. See id. at 310-311. The U.S. Attorney's Manual indicates that notwithstanding the lack of a clear constitutional imperative, it is the internal policy of the Department of Justice that targets of an investigation be given certain warnings before they testify before the grand jury. United States Attorney's Manual 9-11.151. These warnings include notice of the right against self-incrimination and the right to consult with counsel outside the grand jury room. Moreover, the U.S. Attorney's Manual instructs that "Although the [Supreme] Court in Washington, supra, held that `targets' of the grand jury's investigation are entitled to no special warnings relative to their status as `potential defendant[s],' the Department of Justice continues its longstanding policy to advise witnesses who are known `targets' of the investigation that their conduct is being investigated for possible violation of Federal criminal law." United States Attorney's Manual 9-11.151.
[12] On aberrant conduct: I denied the defendant's motion for a downward departure for aberrant conduct and family circumstance. The language of U.S. v. Bradstreet, 135 F.3d 46 (1st Cir.1998), substantially limited this departure category. A "departure based on a finding that the relevant criminal conduct was a single act of aberrant behavior is appropriate only where the conduct was isolated and is unlikely to recur. Yet one who testifies dishonestly after engaging in felonious dishonesty cannot credibly make either claim. One convicted of criminal dishonesty is therefore not entitled to an aberrant conduct departure if he has testified dishonestly about his criminal conduct." Id. at 57. Even though Bradstreet articulated the standards prior to the 2000 change in the Guidelines, creating a specific guideline on "aberrant conduct," U.S.S.G. § 5K2.20, its reasoning remains persuasive.
On family circumstances: The First Circuit has dramatically and I would suggest, unfairly, narrowed departures under U.S.S.G. § 5H1.6. See United States v. Lacarubba, 184 F.Supp.2d 89 (D.Mass.2002). Given those standards, while I found Silveira's family circumstances to be compelling, I could not conclude they fit within the now applicable standards. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2330337/ | 357 F. Supp. 2d 1086 (2005)
CONRAD'S SENTRY, INC., Conrad's, Inc. and T & J Foods, Inc., Plaintiffs,
v.
SUPERVALU, INC., Defendant.
No. 04-C-0350-C.
United States District Court, W.D. Wisconsin.
February 14, 2005.
*1087 Joseph r. Wright, tor rlamtins.
Valerie L. Bailey-Rihn, Quarles & Brady, Madison, WI, for Defendant.
OPINION AND ORDER
CRABB, District Judge.
This is a civil action in which three Sentry stores are suing under the Wisconsin Fair Dealership Law, Wis. Stat. ch. 135, contending that the conduct of defendant Supervalu, Inc. since taking over the Sentry grocery store franchise has changed the competitive circumstances of their dealership agreements, substantially, discriminatorily and with the effect of constructively terminating those agreements. Plaintiffs seek money damages and a declaratory judgment that defendant's constructive termination of the agreements does not trigger various rights that defendant would otherwise have under the agreements. Defendant has moved for summary judgment and both sides have moved to strike portions of affidavits filed by the other. Diversity jurisdiction is present. 28 U.S.C. § 1332.
I find that defendant stepped into the shoes of its predecessor when it purchased the Sentry franchise from the bankrupt Fleming Companies, Inc. Thus, in determining whether plaintiffs shared a "community of interest" with defendant, I will treat plaintiffs' relationship with defendant and its predecessors as one agreement. As a consequence of this conclusion that the parties' rights and obligations derive from the original dealership agreements, I must dismiss plaintiff Conrad's, Inc. from this suit. Conrad's, Inc. entered into an agreement with defendant's predecessor that predates the enactment of the law and for that reason, cannot claim the law's protections. I conclude that the remaining plaintiffs cannot establish that the kinds of changes that defendant has made in its *1088 operation 01 the sentry stores amount to a violation of the fair dealership law in the absence of a showing either that defendant made the changes with the intent to cause the stores to go out of business or that the changes discriminate against plaintiffs in relation to other operators of Sentry stores. Plaintiffs cannot show intent to terminate them but on the present record, the issue of discriminatory effect is disputed.
Before taking up the motion for summary judgment, I will address the parties' motions to strike certain evidence.
I. MOTIONS TO STRIKE
Plaintiffs have filed a motion to strike portions of an affidavit filed by William Chew on the ground that Chew's answers to questions put to him during his deposition show that he had no personal knowledge to support the statements he made in his declaration concerning the computer systems that defendant found in place when it became plaintiffs' grantor. Had Chew not been intimately involved in the decisions concerning the systems, his testimony might constitute hearsay, as plaintiffs contend. However, he was testifying to information he had gained while heading up the acquisition of the Sentry distributorship and the transition to defendant's systems and procedures. In that capacity, he would have had first-hand knowledge of defendant's reasons for not purchasing the Fleming Company's computer systems. Plaintiffs' motion to strike will be denied.
Defendant's motion to strike focuses on the affidavits of Gaarder R. Paynter and Molly Cross and certain deposition testimony of Glenn Palmquist. As to Paynter, the objection is untimeliness. Paynter was named as an expert and filed his expert report on September 17, 2004. Defendant contends that the opinions he gave in his later-filed affidavit about defendant's general systems and procedures are not based on his personal knowledge as a manager of a Sentry store and a former Fleming employee but are in the nature of expert opinion and should have been disclosed in his original expert report. I agree and will limit Paynter to the opinions he gave in his September report, because plaintiffs never asked for or obtained permission for Paynter to submit additional opinions. Therefore, I will grant the motion to strike paragraphs 8, 11-16, 19 and 21-23 of the Paynter affidavit.
As to Cross's affidavit, defendant objects on the ground of lack of foundation to Cross's summary of visits to Sentry stores from defendant's retail business consultants. Defendant argues that the record Cross relied upon in her summary did not contain all the information regarding the visits and the summary does not meet Fed.R.Evid. 803(6)'s standards for a business record exception from the hearsay rule. Defendant's objection goes to the weight of the evidence on which Cross relied. I will leave it to the jury to determine what weight, if any, it will give the summary.
Plaintiffs do not oppose defendant's motion to strike the portions of Palmquist's deposition in which he testified as to conversations Mr. Stinebaugh had with defendant's personnel. That motion will be granted.
II. MOTION FOR SUMMARY JUDGMENT
From the parties' proposed findings of fact, I find that the following facts are undisputed and material.
A. Undisputed Facts
1. Background
Plaintiffs Conrad's Sentry, Inc., Conrad's, Inc. and T & J Foods, Inc. are independent owners of Sentry stores. All three are incorporated in the state of Wisconsin *1089 and have their principal places of business here. Defendant Supervalu, Inc. is a Delaware corporation with its principal place of business in Minnesota.
For a number of years, Fleming Companies, Inc. and its predecessor, Godfrey Company, were the suppliers for plaintiffs and a number of other independent Sentry stores. In turn, each owned the trademarks and other intellectual property rights to the Sentry label. As suppliers, each handled the technology for each store's business, buying, pricing, advertising, Sentry card (the E-Z Save card that customers use to obtain discounts on featured items), freight and fees.
To become a Sentry affiliate, an independent grocery store owner had to sign certain agreements with Fleming (or Godfrey) covering the operation of the store. In the majority of cases, Fleming would negotiate a prime lease with the owner of the land upon which the store was built. Fleming would then execute a sublease with the independent Sentry owner. In return, the Sentry operator agreed to purchase product from Fleming. The agreement gives defendant the option to purchase any store owner's equipment and inventory should the owner desire to transfer them or sell the retail food business or dissolve or terminate the business at a certain location and specifies how the purchase price for these items is to be calculated.
On April 1, 2003, Fleming filed for bankruptcy protection. The filing triggered supply problems for the Sentry stores because vendors were reluctant to supply to Fleming.
After some maneuvering in the bankruptcy court that does not bear directly on the issues in this case, Fleming was allowed to sell its wholesale distribution business to C & S Wholesale Grocers, Inc., free and clear of any liens, assume its contracts with the independent Sentry store owners and assign them to defendant. (At the time, there were approximately 54 Sentry stores owned by 43 business entities.) When the store owners objected to Fleming's proposed course of action, defendant worked out the following agreement with them: if the prime lease or sub-lease was not assigned to the Sentry store owner or assumed by defendant, the parties would terminate the Sentry "Standby Agreement or Franchise Agreement" and if the prime lease or sub-lease was rejected, the Sentry store owner would be free to pursue other business arrangements for the property. With this agreement in place, the Sentry owners withdrew their objections.
When defendant added the Sentry stores to its existing customer base, it was supplying 5,377 retail customers in 48 states out of 25 distribution facilities. It faced certain difficulties in assimilating the Sentry stores, particularly because it was unable to support all of the information systems Fleming had in place. It did not have access to all of the systems; its own systems were not compatible with all of Fleming's systems, some of which were antiquated; it did not have the technology to support Sentry's E-Z Save card items in full; and C & S Wholesale had purchased some of Fleming's computer systems for its exclusive use. Defendant decided that assimilation required a transition to its own systems.
To prepare for the transition, defendant met twice with the Sentry store owners before it acquired the Sentry contracts, in August and in September 2003. At the second meeting, defendant discussed specific system changes that it identified as the number one challenge. Defendant told the owners that some manual processes would be necessary in the interim, that there would be new contacts at the Pleasant Prairie warehouse and that there *1090 would be bumps in the road. Defendant emphasized that changes would be made, including the institution of an "activity based sell" (ABS) system of pricing that all of its customers used, and that the Sentry store owners must understand and use if they were to buy at the best price points. The ABS system is more complex than a flat system that charges the same price for every owner. It took defendant six months to implement its "ABS scorecard," a form that tells a store owner such things as what its fees are.
The assimilation problems were exacerbated when several key Fleming employees left defendant for opportunities with a competitor. The parties experienced retagging problems and difficulties in finding an advertising program for the stores that would maintain their gross profit margins. Defendant met regularly with the Sentry Owners' Advisory Committee, whose members are elected by the Sentry owners. It communicated weekly with the store owners, who complained repeatedly about defendant's advertising program, markdowns and choice of sale items.
The ad committee changed the way it operated, when Robert Jaskolski became its chair In April 2004. He helped establish defendant's delivery program for direct store purchases (items that the stores buy directly from suppliers other than defendant). Almost all of the store owners have taken over direct store delivery themselves because of problems resulting from Fleming's bankruptcy and the transition to defendant's system.
Defendant has developed a computerized system, known as Enterprise Advantage, that is being tested by a pilot store but has not yet been made available to store owners. Also, it has developed a Center Store Strategy, designed "to recover grocery, particularly grocery and general merchandise, health and beauty care sales that the mass merchandisers have" been taking away from Sentry stores, which was to be implemented in January 2005. Defendant allows store owners the choice of implementing these new systems; it does not require that they do so.
Defendant did not create a Sentry strategic plan until more than a year after it acquired the franchise. Fleming had never created one.
Plaintiffs are dissatisfied with the model defendant uses for creating its five pricing zones for Sentry stores. The model is intended to balance competitiveness with profitability. To measure profitability, a store owner would have to know what a retailer pays for the goods that it sells (the retailer's "landed costs"). The model estimates landed costs on the basis of averages although landed costs for the same grocery item may vary from one store to another. When defendant finally completed the five-zone strategy in June 2004, the competitive information that it fed into the model consisted of prices from two Pick'N Save stores in the Milwaukee area and a Copps store in Madison. It did not include competitive information from Cub or Woodman's grocery stores.
Defendant does not use its strategic pricing model to tell the owner of a particular store what retail prices to set for the market environment of that store. The advisory board directed it not to make this service available to individual stores.
In June 2004, plaintiffs filed this action, alleging that defendant had constructively terminated their dealerships or substantially changed their competitive circumstances by implementing changes after its purchase of the Sentry assets.
2. Parties
a. Conrad's Sentry, Inc.
Conrad's Sentry, Inc. entered into an original Sentry Foods Affiliation Agreement *1091 with Godfrey dated November 11, 1986, which provided that it would remain in force from the date of the agreement "and for so long as the Retailer operates a retail food supermarket business at the store location unless sooner terminated as herein provided." It provided also that Godfrey would develop a marketing and administrative program and other program services to meet the reasonable needs of the Retailer, Godfrey and other retailers in the same trading area and that, in doing so, Godfrey would consult with the Retailers from time to time. Godfrey promised to make available such other services as it made generally available to other affiliated retailers from time to time, with the prices for the services subject to change from time to time.
On July 11, 2002, Conrad's Sentry executed a facility standby agreement with Fleming, which provided that
Except as hereinafter provided, the Products sold to Retailer pursuant to this agreement shall be priced, and other terms of sale shall be established, at levels which are generally consistent with the current Sales Service Plan pursuant to which Retailer is purchasing products for the store ... as amended from time to time by Fleming (the "Selling Plan"), provided that such amendments shall be applicable to all similarly situated customers of Fleming purchasing inventory pursuant to such a Selling Plan.
Under this agreement, Conrad's Sentry was required to purchase products from Fleming or incur a 3% fee each year. The maximum term of the facility standby agreement is 20 years.
Conrad's Sentry is still purchasing product from defendant and no one at defendant has told the store that it wants to terminate it as a Sentry store. Conrad's Sentry's year-end financial statement for the twelve months ending February 2004 shows net earnings before interest, taxes, depreciation and amortization of a negative $27,640.71. Net earnings were down from a positive $68,390.97 from the previous fiscal year. However, total expenses outside defendant's influence increased $71,263. These included rent, salaries, benefits and miscellaneous expenses. Fleming was supplying Conrad's Sentry from February 23, 2003 until September 2003. For the four months ending June 28, 2004, Conrad's Sentry had net earnings of a positive $30,932.
b. Conrad's, Inc.
Plaintiff Conrad's, Inc. is a Wisconsin corporation operating a Sentry grocery store in Sun Prairie, Wisconsin. It executed a Sentry operating agreement with Godfrey in June 1967 that remains the only agreement in place between Conrad's and defendant. It has not been modified or changed since it was executed, although it has been assigned to Fleming and then to defendant. The agreement has no specific termination date, but provides in Section 4 that the Retailer (Conrad's) must give Godfrey (now defendant) the option to purchase the assets of Conrad's upon termination of the relationship. It provides also that "the Retailer shall fully accept the distributor's policies established from time to time in regards to facilities and methods of operation in order that the Sentry Stores develop and maintain a strong united group that has effective meaning to the consumers and continuing value to all participating Retailers and Distributors."
At present, plaintiff Conrad's is purchasing products from defendant. It does not contend that defendant is trying to terminate it as a Sentry dealer. Conrad's yearend financial statement for the twelve months ending June 26, 2004 shows net earnings before interest, taxes, depreciation *1092 and amortization of $359,462.68. Net earnings for June 29, 2003 through June 26, 2004 were down from the previous fiscal year but part of that decline may be attributable to Fleming's problems, because it was Conrad's supplier from June 26, 2003 until September 2003, when defendant took over. Total expenses outside defendant's influence went up $60,403. These included rent, salaries, benefits, depreciation and miscellaneous expenses.
c. T&J Foods
Plaintiff T&J Foods operates a Sentry store on Cottage Grove Road in Madison, Wisconsin. On August 10, 1996, it executed a franchise agreement with Fleming, which provided that
We [Fleming] reserve the right to change or modify the concept of Sentry Stores and the system presently identified by the Marks. We may adopt and use new or modified trade names, trademarks or service marks, new products, new equipment or new techniques. You must accept and use those changes as if they were part of the Agreement.
According to the agreement, Fleming had developed and would administer an advertising and marketing program for Sentry stores and would bill the stores weekly for their proportionate share of the advertising and marketing costs and on request, Fleming would "make available other services and programs that [it offers] to other Sentry franchises, upon reasonable costs for these services and programs." Further, it provided that T & J Foods could assign the agreement, with Fleming's approval, that Fleming had a right of first refusal if a third party offer was made for the store or the property, equipment or inventory and that upon termination of the agreement or a sale of the store, T&J Foods would not compete in the grocery business for two years within a ten-mile radius of the old store.
No one has told T&J Foods that it can no longer operate as a Sentry Store. Defendant has not attempted to terminate its relationship with T&J Foods, which continues to purchase product from defendant. Defendant has told T&J Foods that if it wishes to sell its business, defendant would help it do so.
T & J's earnings before interest, taxes, depreciation and amortization were a negative $19,000 for the eleven-month period ending August 28, 2004. However, total expenses outside defendant's influence increased $142,231 for such items as rent, salaries, benefits and miscellaneous expenses.
3. Defendant's operations
Defendant's prices and systems apply uniformly to all Sentry store owners. However, the price for a particular item may vary from store to store, depending on the store's product mix and its eligibility for the rebates that are available for large purchases.
Plaintiffs and other stores did not receive a budget from defendant from September 2003 to April 2004.
When Fleming was the distributor, it maintained a database of all prices and retail prices that should be billed by the vendors for direct store deliveries. Also, it negotiated payment terms for these direct store deliveries and reconciled the statements. For these services, Fleming charged 1% of the weekly direct store delivery billings. At the time defendant took over the distributorship, it did not have an identical direct store delivery program. In developing such a system, it charged the Sentry store owners only .5% of weekly billings of direct store delivery until it had determined that the system was accurate.
*1093 When Fleming was the distributor, it charged the same cost for product and the same fees for all customers with a variable cost for transportation or freight charges. Defendant's ABS system sets a cost for each product plus additional fees.
Fleming had employee drivers who delivered product to coolers within the stores, sometimes in the middle of the night. Defendant contracts with third party drivers who do not place product in store coolers or freezers.
Fleming used a four zone pricing model for all Sentry stores. Until April 2004, defendant either did not use the system or did not properly maintain it. (The exact deficiency is in dispute.)
Fleming had an advertising program with a four-week budget for each period. Until April 2004, defendant did not have such a budget for each period.
Fleming had an electronic bank system that took deductions from each store owner's account on Tuesday mornings for product ordered the preceding week. Defendant's electronic bank draws occur on early Monday morning and are for proper bills owed by the stores for product purchased previously. These Monday morning draws are the same for all customers. Defendant's billing is based on product billed before Thursday morning at 4:00 a.m.; Fleming's billing included product billed by the close of business on Thursday. Defendant has refused to change its schedule to conform to the one that Fleming followed.
At the beginning of the conversion to defendant's system, the stores had to be retagged. After the Sentry Advisory Board expressed its concern about the competitiveness of the Sentry store prices, the stores were retagged again in May 2004.
Unlike Fleming's rebate program, defendant's is based on volume.
4. Community of interest factors
All three of the plaintiffs devotes 100% of their personnel and all of their time to their Sentry store operations. Each holds itself out as a Sentry store and uses only the Sentry name. Each has at least one large Sentry sign outside and many smaller Sentry signs inside. Each uses grocery bags that say Sentry.
If plaintiffs were to change from defendant to a new supplier, the only physical changes they would have to make would be to take down their old signs and change their aisle signs (other than making the conversions in tagging and ordering systems that any new supply agreement might require).
Plaintiffs pay no fee to defendant for their franchise or for any other purpose. They cannot break down the total gross profits arising from the sale of private label products. The majority of the products they sell are national brands that they buy from defendant. Their stores are suitable for conversion to another kind of store.
Under the terms of their agreements, plaintiffs must follow certain rules of cleanliness and quality, participate in the advertising program and adhere to defendant's standards in the advertising and buying programs. Defendant administers the advertising and buying programs and agrees to make available to the store owners such services as it makes available to any other owner and to charge for those services.
Plaintiffs do not own the land upon which their stores are located or the buildings in which the stores operate, which are at least twenty years old. The grocery business does not require operators to do warranty or servicing work. Plaintiffs purchase Sentry specific department supplies from defendant and participate in *1094 advertising with other Sentry store owners and defendant to increase traffic in their stores. Conrad's, Inc.'s advertising costs were approximately 5.59% of total sales for the year ending June 26, 2004 and its department supplies were approximately.78% of total sales. For the year ending February 28, 2004, Conrad's Sentry had advertising costs of 7.2% of total sales and its department supplies were .68%. For T & J Foods, the advertising costs for the eleven months ending August 28, 2004 were 7.33% of total sales and department supplies were .73%.
Plaintiffs continue to buy product from defendant. Defendant has never told plaintiffs that it does not want them to be Sentry store owners. To the contrary, it would like them to continue in that capacity.
OPINION
The Wisconsin Fair Dealership Law, Wis. Stat. § 135.03, prohibits grantors of franchises from terminating, cancelling, failing to renew or substantially changing the competitive circumstances of their dealership agreement without good cause. This case raises questions that focus on the last of the prohibitions: changes in competitive circumstances. Plaintiffs contend that the changes that defendant made in its working relationship with its "dealer" stores are significant changes in plaintiffs' competitive circumstances, so significant in fact that they amount to a constructive termination of at least one of the plaintiff dealerships and significant enough to be actionable as to the other two.
Moreover, plaintiffs contend, the changes are discriminatory in effect. To defendant's argument that all of the changes it has made have been applied uniformly to all of the Sentry stores, plaintiffs respond that the facts underlying this argument are in dispute. In plaintiffs' view, the facts show that defendant has favored larger stores through its ABS (Activity Based Sell) ordering system, its rebate system and the frequency of its visits to its affiliate store owners. Further, plaintiffs argue, defendant's statements to T&J Foods (offering to help it find a buyer) demonstrate that the manner in which defendant has implemented its changes is intended to capitalize on the difficulties of store owners and force the elimination of smaller Sentry stores.
A. Applicability of Fair Dealership Law to Agreements
At the outset, it is necessary to decide whether plaintiffs' agreements with defendant are even covered by the fair dealership law. Under Wis. Stat. § 135.02(3)(a), a dealership requires (1) an agreement (2) between two or more persons (3) by which a person is granted the right to sell or distribute goods or use a trade name, trademark or similar symbol and (4) in which there is "a community of interest in the business of offering, selling or distributing goods or services at wholesale, retail, by lease agreement or otherwise." "Community of interest" is defined in § 135.02(1) as "a continuing financial interest between the grantor and grantee in either the operation of the dealership business or the marketing of such goods or services."
1. Effective date of dealership agreements
The initial question is to determine when the parties' agreements should be considered to have been in effect only since September 2003, when defendant took them over from Fleming in the bankruptcy proceedings or whether they are considered to be the same agreements plaintiffs entered in initially with Godfrey. If they are considered new ones it is questionable that plaintiffs could show that in the less than 18 months of the agreements' existence, *1095 the parties have the community of interest necessary to show the existence of a dealership subject to the law.
The bankruptcy court's August 15, 2003 order approving the sale of Fleming's assets provided that the transfer to the purchaser would not subject the purchaser or any third party purchaser to any liability based on any theory of antitrust, environmental, successor or transferee liability, labor law, de facto merger, substantial continuity or any employment contract. Defendant views this order as marking a clear distinction between the relationship plaintiffs had with Fleming and the relationship they have with defendant. Plaintiffs argue that bankruptcy court orders cannot override Wisconsin law, which governs the relationships that defendant assumed with plaintiffs and which is part of any contract subject to the statute. Goossen v. Estate ofStandaert, 189 Wis. 2d 237, 248, 525 N.W.2d 314, 319 (Ct.App.1994) ("Where the state's public policy is expressed in legislative acts, `the statutory provisions "step in and control and regulate the mutual rights and obligations" of the parties to a contract relating to the subject matter of the statute.'") (quoting Gordie Boucher Lincoln-Mercury Madison v. J&H Landfill, 172 Wis. 2d 333, 340, 493 N.W.2d 375, 378 (Ct.App.1992) (quoting Von Uhl v. Trempealeau County Mut. Ins. Co., 33 Wis. 2d 32, 38, 146 N.W.2d 516, 520 (1966))).
It is not necessary to decide whether the bankruptcy court's authority would extend to overriding the state's fair dealership law, because the bankruptcy court made no effort to exercise any such authority. The bankruptcy court specified that the purchaser of Fleming's assets took those assets free and clear of all claims of creditors, equity security holders and general partners of the debtor. It made no reference to any obligations under the fair dealership law. I conclude that when defendant assumed the contracts out of bankruptcy, it assumed the relationship with those dealers that Fleming had, but without any obligation to pay the claims of creditors, equity security holders and general partners. Therefore, with respect to the dealership agreements, defendant stepped into the shoes of Fleming and assumed Fleming's obligations under the fair dealership law.
To reach any other conclusion, I would have to ignore the binding nature of the contracts. Under those agreements, plaintiffs had no option but to continue their relationship with defendant as Fleming's successor, short of going out of business and allowing defendant to purchase their assets. They were not free to shed their obligations to defendant and continue their businesses under another name with a new distributor.
From this conclusion that the dealership agreements were ongoing, dating back to the dates on which they were first signed, it follows that Conrad's, Inc.'s agreement is not subject to the fair dealership law. Conrad's Inc. entered into that agreement with Godfrey in 1967; the fair dealership law took effect in 1974. The state supreme court held in Wipperfurth v. U-Haul Co., 101 Wis. 2d 586, 304 N.W.2d 767 (1981), that the law could not have retroactive effect without impairing obligations of contract in violation of article I, section 10 of the United States Constitution. Therefore, I will grant defendant's motion for summary judgment as it relates to plaintiff Conrad's, Inc.
2. Community of interest
Before deciding that the fair dealership law applies to the parties' agreements, it is necessary to determine whether the parties had the necessary community of interest, a subject to which courts have devoted many pages. In *1096 1987, the Supreme Court of Wisconsin developed a multi-factor approach to guide lower courts in determining the existence of a community of interest. Ziegler Co. v. Rexnord, Inc., 139 Wis. 2d 593, 407 N.W.2d 873 (1987). Among the ten factors the court set out were the length of time the parties had dealt with each other, the dealer's financial investment in inventory, facilities and good will and the amount the dealer spends on advertising or promotions for the grantor's products. Id. at 606, 407 N.W.2d at 879. In the same decision, the court Characterized a community of interest as incorporating both a continuing financial interest and interdependence, that is, one demonstrated by the "degree to which the dealer and grantor cooperate, coordinate their activities and share common goals in their business relationship." Id. at 605, 407 N.W.2d at 879.
In some subsequent decisions, both state and federal courts have suggested that the community of interest inquiry can be narrowed to two factors: the degree to which putative dealers have made substantial, unrecoverable investments to promote the products of the alleged grantors and the significance of the revenues gained from the relationship. E.g., Kenosha Liquor Co. v. Heublein Inc., 895 F.2d 418, 419 (7th Cir.1990) ("We have deduced from the structure and history of the [fair dealership law] a central function: preventing suppliers from behaving opportunistically once franchisees or other dealers have sunk substantial resources into tailoring their business around, and promoting, a brand."); Guderjohn v. Loewen-America, Inc., 179 Wis. 2d 201, 507 N.W.2d 115 (Ct. App.1993) (discussing Ziegler factors but emphasizing lack of substantial resources invested in relationship, along with minimal use of alleged grantor's marks and low levels of advertising for alleged grantor's products); and Baldeivein Co. v. Tri-Clover Inc., 2000 WI 20, 127, 233 Wis. 2d 57, 72, 606 N.W.2d 145 (noting in dicta importance of investment of resources in relationship and derivation of substantial revenues from relationship). In Central Corp. v. Research Products Corp., 2004 WI 76, 272 Wis. 2d 561, 681 N.W.2d 178, however, the state supreme court returned to the Ziegler factors in holding that courts should be reluctant to find an absence of community of interest without giving a jury a chance to decide the issue. The court reached this conclusion despite the lack of any showing that in the case before it the alleged dealer had sunk any substantial, non-liquid resources into the relationship and despite evidence that the dealer derived only a small percentage of its total gross revenue from sales of the alleged grantor's products. The court noted the 20-year business relationship between the parties, the alleged dealer's significant financial investment in the construction of a warehouse that housed Research's products, its practice of keeping a substantial amount of Research's product in inventory, its practice of keeping spare parts for Research's products on hand and Research's desire to limit the alleged dealer's sales to a specific territory. In conformance with the state supreme court's holding that the Ziegler factors are determinative in examining community of interest, I will consider each of the factors as they relate to the parties' agreements.
a. Ziegler factors
The first of the Ziegler factors is the length of time the parties have been dealing with each other. Plaintiffs Conrad's Sentry and T&J Foods have been Sentry stores for 18 and 8 years, respectively. The second factor includes the extent and nature of the obligations imposed on the parties in their agreement. Under the terms of plaintiffs' agreements with defendant, plaintiffs must follow certain cleanliness and quality rules, participate in *1097 the advertising program and adhere to defendant's standards for the advertising and buying programs. Defendant administers the advertising and buying programs and agrees to make available to the store owners such services as it makes available to any other owner and to charge for those services. The agreement gives defendant the option to purchase any store owner's equipment and inventory should the owner desire to transfer them or sell, dissolve or terminate the retail food business at a certain location. It specifies how the purchase price for these items is to be calculated.
Ziegler's third factor is the percentage of time or revenue that the alleged dealer devotes to the alleged grantor's products. Plaintiffs devote 100% of their own time and 100% of their personnel to their Sentry business, but the majority of the products they sell are national brands. The fourth factor is the percentage of the gross proceeds or profits the alleged dealer derives from the alleged grantor's products. Plaintiffs cannot break down their total gross profits from the sale of defendant's private-label products. The fifth factor is the extent and nature of the grant of territory. The store owners have no particular territories and no guarantee that defendant will not open another store near them.
The sixth factor is the extent and nature of uses of proprietary marks. Plaintiffs hold themselves out as Sentry stores. Their advertisements use only the Sentry name; each has at least one large Sentry sign outside and many smaller Sentry signs inside; and each uses grocery bags that say Sentry. The seventh factor is the extent and nature of their financial investment in inventory, facilities and good will. Plaintiffs have no investment in the land or buildings; they are on a leasing arrangement and defendant negotiates the leases for both. Plaintiffs pay no franchise fee to defendant. Their stores are suitable for use as non-Sentry grocery stores, but plaintiffs are not free to change distributors without offering defendant the option of purchasing their inventory and equipment. The record does not disclose the extent of plaintiffs' investment that represents good will, if any.
The eighth Ziegler factor relates to the personnel devoted to the alleged dealership. As set out above, plaintiffs devote all of their personnel to the operation of their stores. As to the ninth factor, the amount the dealer spends on advertising, the undisputed facts are that plaintiffs spend at least 7.2% of their total sales on advertising. The tenth factor includes the extent and nature of any supplementary services provided to customers of the alleged dealer's products. As grocery store operators, plaintiffs do not provide warranty or service functions on the products they sell.
Although few of the factors weigh heavily in plaintiffs' favor, I am persuaded that a fair balancing of the factors establishes a community of interest among the parties. Technically, plaintiffs could convert quickly and relatively inexpensively to another distributor; in reality, their agreements prevent them from doing so. Plaintiffs have been holding themselves out for years as Sentry stores, tying their success to the Sentry name, logo and reputation, building up considerable goodwill for defendant and representing Sentry in their respective locations. It is evident that they share with defendant a common financial interest in the operation of the dealership and marketing of grocery products.
Therefore, I conclude that the agreements between defendant and Conrad's Sentry and T & J Foods are governed by the fair dealership law.
*1098 C. Substantial Change in Competitive Circumstances
Section 135.03 of the Wisconsin Fair Dealership Law prohibits any grantor from terminating, cancelling, failing "to renew or substantially change the competitive circumstances of a dealership agreement without good cause." Plaintiffs have alleged that defendant has made a number of changes in the way it operates the distributorship, but, with one possible exception, they have not shown that any of these are changes in the competitive circumstances of the dealership agreement. Their agreements with defendant say little about defendant's obligations to support its affiliate stores. This makes it difficult for plaintiffs to argue that defendant has made changes in the dealership agreement that are substantial enough to violate the dealership law. Super Valu Stores v. D-Mart, 146 Wis. 2d 568, 574-577, 431 N.W.2d 721 (Ct.App.1988) (grantor's plan to franchise second store in dealer's market area did not violate fair dealership act when parties' agreement was non-exclusive, leaving grantor free to enter into agreements with other retailers). The possible exception rests on plaintiffs' allegations of discrimination: that the ABS system is biased toward larger dealers, as are rebates, and that defendant's business consultants visit plaintiffs less often than they visit larger stores.
Under the terms of the dealership agreements, defendant is obligated to provide each plaintiff "such other services as it makes generally available to other affiliated retailers from time to time" (upon that plaintiffs request). Armed with this provision and the fair dealership law's purpose of protecting dealers from unfair treatment by grantors, plaintiffs would have a viable claim if they can prove that the ABS system or any other aspect of defendant's operation of the dealership discriminates impermissibly among dealers.
Other than this exception, however, plaintiffs can extract little of use from the agreements with defendant. Nothing in the agreements requires defendant to maintain existing computer systems, avoid the need to retag stores more than once, retain former officers and employees of Fleming, create strategic plans and zone strategies promptly, base its zone strategy on competitive information from Cub and Woodman's grocery stores or run its ad program in any particular way. Obviously, plaintiffs would prefer that defendant manage the transition from Fleming as smoothly as possible, but nothing in their agreements obligates defendant to do so. (It seems equally obvious that defendant has its own interest in making as seamless a transition as possible.) Defendant's only obligation in this respect is to treat all of its dealers similarly. Plaintiffs have not adduced any evidence to suggest that the bumps in the road that defendant encountered were any less frustrating or disruptive to other Sentry store owners than they were to plaintiffs. Therefore, their claim of discriminatory treatment boils down to the ABS system, the rebates and the frequency of store visits.
However, plaintiffs have another claim. They contend that substantial changes in a dealership relation can be actionable in several circumstances, not just when the changes are discriminatory as to one or more dealers. They argue that changes are actionable if they result in losses to dealers that drive the dealers out of business or when they have effects that are "substantially adverse although not lethal." Remus v. Amoco Oil Co., 794 F.2d 1238, 1241 (7th Cir.1986). In the category of "substantial but not lethal," they would put losses that are material to the dealership's continued existence and that significantly diminish the dealer's viability, its ability to stay in business or its ability to maintain a *1099 reasonable profit but fall short of causing the dealership to go out of business.
In Remus, the court of appeals recognized the possibility that a dealer could sue under the law if the grantor took discriminatory steps to drive that dealer out of business "say by doubling the wholesale price to him only, so that he may not complete against other dealers in the same product," id. at 1240. The court seemed to suggest that non-discriminatory adverse changes can never be actionable and added that its "interpretation is further suggested by the reference to discrimination in the statutory definition of good cause; if the franchisor treats two competing dealers unequally, the disfavored one may be driven out of business." Id. at 1240-41. In other words, if a grantor treats all dealers adversely but uniformly, it has not violated the fair dealership act. However, it is not clear that the court meant to suggest that the only dealers that can challenge actions that amount to constructive termination are those that can show that the changes are discriminatory. Two paragraphs after it made the cited statement, it noted that the fair dealership law does not exempt state-wide terminations in all situations. If across-the-board terminations are covered by the law, one would expect across-the-board treatment that amounts to constructive termination to be covered as well. One cannot make a reasoned case for applying the fair dealership law to one kind of termination and not the other. Construing the law to reach that result might open the door to system-wide constructive terminations by grantors who have reasons to abandon their dealerships and do not want to incur the law's penalties for terminations without good cause.
The court's statements in Remus suggest a framework for analyzing plaintiffs' claim. Plaintiffs may proceed if they can adduce evidence either that defendant made a change in the competitive circumestances of their dealership agreements that had a discriminatory effect on them or if they have evidence that defendant's actions were intended to eliminate them or all of its dealers from the state. It is critical that plaintiff-dealers can show an intent to terminate on the part of the grantor. It would not be enough to show that the grantor made bad management decisions; it might be enough if the plaintiff-dealers can show that the bad decisions were a cover for an intent to slough off the dealers and take over the markets they had developed.
I am not persuaded, however, by plaintiffs' contention that the fair dealership law applies to significantly adverse changes short of constructive termination that are not discriminatory in their application or effect. Plaintiffs have cited no case involving a Wisconsin dealership that supports this contention. The cases that address this point hold to the contrary. In East Bay Running Store, Inc. v. NIKE, 890 F.2d 996, 999 (7th Cir.1989), for example, the court of appeals rejected a dealer's contention that Nike had effected a substantial change in the competitive circumstances of the dealership agreement when it implemented a prohibition on sales by mail, catalog or electronic means. Before the change, East Bay was deriving approximately 90-95% of its sales from its mail order sales operation. Despite the impact of the ban on plaintiff, the court held that because it was a system-wide ban, it was non-discriminatory and therefore, not a change in competitive circumstances. Id. at 1000. The court was persuaded that the fair dealership law's "prohibition of substantial changes in competitive circumstances was not meant to prohibit nondiscriminatory system-wide changes." Id. (citing Remus, 794 F.2d at 1240). This holding is consistent with the statement in Remus, 794 F.2d at 1241, that it is doubtful the Wisconsin legislature would have *1100 meant to prevent grantors from instituting non-discriminatory system-wide changes without the unanimous consent of the dealers. Were the decision otherwise, one holdout like East Bay who could show significant adverse effect could put an end to any system-wide changes Nike might want to institute.
I conclude that Wisconsin law would allow plaintiffs to proceed with claims that they were subjected to changes in their competitive circumstances that were discriminatory or that were intended as constructive termination. They may not go forward with their claim that they suffered adverse consequences that were neither discriminatory nor the equivalent of constructive termination.
Plaintiffs have some evidence that defendant's ABS system, its rebates and the frequency of its store visits were discriminatory in operation. Defendant denies that these programs were discriminatory in any respect, pointing out that the fair dealership law requires only similar and not identical treatment and that it is not enough to show that different store owners have different results under particular programs if the programs themselves are fair and non-discriminatory in application. It remains questionable whether plaintiffs can establish the discriminatory nature of these programs, but at this stage of the litigation I cannot say with certainty that no reasonable jury could find the programs non-discriminatory. However, plaintiffs cannot pursue their claim of intentional constructive termination because they have admitted that defendant wants them to continue as Sentry dealers. Having made this admission, they have no basis for arguing that defendant instituted its programs and made the decisions it did as a covert means of forcing plaintiffs to go out of business.
ORDER
IT IS ORDERED that defendant Supervalu, Inc.'s motion for summary judgment is GRANTED in all respects with the exception of plaintiffs Conrad's Sentry, Inc.'s and T & J Foods' claim that defendant has discriminated against them and other small Sentry stores in the institution of the ABS system, the rebate program and the frequency of store visits. FUTHER, IT IS ORDERED that plaintiffs' motion to strike portions of an affidavit filed by William Chew is DENIED; defendant's motion to strike paragraphs 8, 11-16, 19 and 21-23 of the Gaardner R. Paynter affidavit is GRANTED; and defendant's motion to strike those portions of Molly Cross's deposition that rely upon her summary of visits to Sentry stores by defendant's business consultants is DNIED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2328233/ | 473 F. Supp. 2d 1140 (2007)
DIVERSIFIED EDUCATIONAL TRAINING AND MANUFACTURING COMPANY, INC., a/k/a "DETAMC", Plaintiff,
v.
The CITY OF WICHITA and its Representatives, Defendant.
No. 05-02408-JWL.
United States District Court, D. Kansas.
February 9, 2007.
*1141 Lawrence W. Williamson, Jr., Uzo L. Ohaebosim, Shores, Williamson & Ohaebosim, LLC, Wichita, KS, for Plaintiff.
Jay C. Hinkel, City of Wichita, Kansas Law Department, Wichita, KS, for Defendant.
*1142 MEMORANDUM AND ORDER
LUNGSTRUM, District Judge.
Plaintiff Diversified Educational Training and Manufacturing Company, Inc. ("DETAMC"), a privately owned Kansas corporation which provides manufacturing and educational training services, is owned and operated by Pam and George Johnson, who are both African-American. DETAMC brings this action alleging that defendant City of Wichita ("the City") racially discriminated against it in violation of 42 U.S.C. § 1981, through 42 U.S.C. § 1983. DETAMC also asserts a state breach of contract claim against the City. This matter is currently before the court on the City's motion for summary judgment (doe. 23) and DETAMC's cross motion for partial summary judgment (doe. 31). For the reasons explained below, those motions are denied, except as to plaintiffs claim for damages for humiliation and mental and physical pain and suffering, as to which judgment as a matter of law is granted.[1]
I. Statement of Material Facts[2]
During all times relevant to this case, Sarah Gilbert[3] served as the head of the City's Career Development Office (CDO). Cathy Holdeman served as the Assistant City Manager and Chris Cherches served as the City Manager. According to Ms. Gilbert, she reported directly to Ms. Holdeman, who in turn reported to Mr. Cherches, who in turn reported to the Wichita City Council.
The Workforce Investment Act[4] (WIA) became effective in Kansas on July 1, 2000.[5] In the summer of 2000, the City entered into a five year local plan pursuant to the WIA for a six county area in south central Kansas, called Service Delivery Area IV (SDA IV).[6] The operator of that plan was a consortium of the City, the SDA IV office of Kansas Department of Human Resources, (SDA IV), Butler County Community College, and Cowley County Community College. The City was responsible for the disbursement of grant funds for SDA IV.
The City's Career Development Office (CDO) provided guidance and support for. *1143 educational and training program opportunities for qualifying citizens who sought to enhance their skills. The CDO also managed the state and federal funds allocated to the City pursuant to the local and state plans under the WIA. The City entered into various contracts, called training agreements, with "intensive service providers"[7] in the greater Wichita area, which were: Butler County Community College (BCCC), Cowley County Community College (CCCC), DETAMC, Kansas School for Effective Learning, Inc. (KANSEL), and Wichita Area Technical College (WATC).[8] Pursuant to these contracts, the service provider agreed to provide certain educational services to individual students. The City would pay the students' tuition for those services, utilizing funds received pursuant to the local and state WIA plans.
According to Ms. Gilbert, the relationship between the City and the service providers functioned as follows. The City maintained a list of "intensive service providers." An individual would apply to the CDO for career services. After the individual's WIA eligibility was determined, the city employment specialist (a member of the CDO staff) would assess the individual's skills, interests, abilities, occupational goals, family needs, and any barriers to employment. At that point, the specialist and the individual would consult the list of providers and agree on the best plan and provider for the individual's specific needs. Once a provider was chosen, a training agreement was executed between the City and the service provider. Those agreements contained no specific performance standards and only required that the providers "provide the trainee with the job specific skills and competencies necessary to meet local employers' entry-level qualifications . . . or to meet the requirements for a GED, or to meet other training goals as specified. . . ." Ms. Gilbert had authority to execute the training agreements on behalf of the City.
In February of 2002, Ms. Gilbert, Ms. Holdeman, Mr. Johnson, and Mrs. Johnson had a meeting in which DETAMC decided to begin offering a program which would provide GED preparation and training in the basic skills necessary to enter an occupational training program.[9] After that meeting, DETAMC submitted an outline to the City, describing the curriculum, program, how the program would be operated and the tuition rates. By providing GED and basic skill services, DETAMC became qualified as an intensive service provider under the WIA and thus was placed on the City's list of those providers.
Ms. Gilbert testified in her deposition that at the February 2002 meeting, she informed DETAMC that the individuals provided through the City pursuant to the WIA plan could not be DETAMC's only source of students because the City could not guarantee a specific number of students at any given time. Ms. Gilbert stated that she encouraged DETAMC to investigate *1144 other sources of students and marketing methods. Ms. Gilbert explained that she gave this advice to DETAMC out of concern for DETAMC's viability if they only relied on the City for students.
In April of 2002, the first session of training began at DETAMC and seven students were enrolled. Six of those students dropped out shortly after the session began. At this time,, according to Ms. Gilbert, Ms. Johnson expressed her concern over the number and type of students that were coming to DETAMC. In order to remedy this situation, an exception was made for DETAMC to attempt to increase its number of enrollees.[10] DETAMC was permitted to conduct its own recruitment and orientation. Any interested students would be sent to the City to determine whether they met the eligibility requirements of the WIA plan. Once that was determined, the student would be sent back to DETAMC for training. This change was not made regarding the City's relationship with any of the other intensive service providers.
Beginning in late May of 2002, the City requested that DETAMC submit weekly attendance reports. The training agreements provided for monthly attendance reports, not weekly attendance reports. No other service providers were required to provide weekly attendance reports.
In August of 2002, the City decided to honor the training agreements it had with DETAMC regarding existing students recruited by DETAMC, but determined it would not participate in any more DETAMC orientations or take on any new lists of students from DETAMC. According to Ms. Gilbert, this decision was made due to concerns regarding the attendance and drop-out rate of the DETAMC program.[11] Ms. Gilbert testified that the drop rate of DETAMC was tracked, but that the drop rates of no other intensive service providers were tracked.[12] Ms. Gilbert was concerned about attendance because if students were not going to class, they were not improving their basic skills or their GED preparation.
Ms. Gilbert testified that her office is accountable for the entire WIA local program and had to ensure that certain performance standards were met. Therefore, Ms. Gilbert stated, she was concerned that the deficiencies of the DETAMC program would affect the overall performance of the local plan as a whole. Ms. Gilbert also testified that the City was not experiencing these problems with any of the other providers. There is no evidence in the record indicating the exact specifications of these performance standards.[13] Furthermore, there is no evidence indicating how these performance standards apply, if at all, to WIA. There is also no evidence *1145 indicating the performance rates of the other intensive service providers.
Ms. Gilbert expressed her concerns to Ms. Holdeman. Ms. Holdeman then advised Ms. Gilbert to seek a review of DETAMC's performance by the City's internal auditor, Karen Walker.[14] Ms. Walker then proceeded to conduct an audit of DETAMC. Ms. Gilbert testified that no other intensive training programs were audited.
In November of 2002, Mr. Cherches sent an email to the Wichita City Council informing him of the City's concerns with the DETAMC program and advising them that he had authorized an audit of DETAMC. Also in November of 2002, Ms. Gilbert sent an email to Ms. Holdeman indicating that she would inform Ms. Johnson that, based on advice from the internal auditor, enrollment in DETAMC programs by the City would be stopped pending a year end review of expenditures.
In mid-December, 2002, Mr. Cherches sent an email to the mayor, Bob Knight, and others indicating that the audit of DETAMC was completed and that DETAMC had not complied with the terms and conditions of the funding provided by the City. The email did not state what those terms and conditions were. On January 17, 2003, Mr. Cherches sent a fax to Kansas State Senator Rip Gooch regarding the status of the City's relationship with DETAMC. He indicated to Senator Gooch that the WIA has an overall performance requirement of 71%.[15] He went on to state that DETAMC's performance was 5% and thus violated the terms and conditions of the contract; however, the training agreements did not include a required performance percentage. Ms. Johnson testified at her deposition that the City stopped paying DETAMC pursuant to existing training agreements in January or February of 2003.
In May of 2003, DETAMC was provided with the final results of the City's audit of DETAMC's contractual performance, which was conducted by Ms. Walker. The audit states that DETAMC failed to meet the training agreement requirements of providing the students with "job readiness, specific skills, or competencies to complete the courses necessary for job readiness and GED training." The audit further stated that the City was seeking a recovery of $64,688 for tuition reimbursement and refund regarding GED books. The audit stated that "the overall Workforce Investment Act performance requirement goals are a 71% successful completion rate." The auditor further opined that only 14.1% of the students successfully complete the DETAMC program. This opinion was based on each student "completing at least 72% full-day attendance with a minimum overall attendance of 87% attendance."
According to Ms. Gilbert, Mr. Cherches was the party responsible for terminating the training agreements. The exact date of cancellation is not clear from the, record; however, according to Ms. Gilbert, in April of 2003, the City's decision of whether to cancel the agreements was still pending completion of the audit.
DETAMC brought this action in September of 2005, under 42 U.S.C. § 1981, alleging that the City had racially discriminated against it, thus violating its right to make and enforce contracts under § 1981 *1146 and in the Final Pretrial Order in this case clarified that it is seeking the remedies provided in 42 U.S.C. § 1983. DETAMC also alleges a state breach of contract claim against the City. DETAMC seeks damages for (1) breach of contract; (2) humiliation and mental and physical pain and suffering; (3) economic damages due to discrimination; and (4) attorney's fees. Ms. Johnson testified at her deposition that the mental and physical pain was suffered by her and her husband.
II. Summary Judgment Standard
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. Spaulding v. United Transp. Union, 279 F.3d 901, 904 (10th Cir.2002). A fact is "material" if, under the applicable substantive law, it is "essential to the proper disposition of the claim." Wright ex rel. Trust Co. v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001) (citing Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir.1998)). An issue of fact is "genuine" if "there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way." Adler, 144 F.3d at 670 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986)).
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. Spaulding, 279 F.3d at 904 (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. Adams v. Am. Guar. & Liab. Ins. Co., 233 F.3d 1242, 1246 (10th Cir.2000) (citing Adler, 144 F.3d at 671).
Once the movant has met this initial burden, the burden shifts to the nonmoving party to "set forth specific facts showing that there is a genuine issue for trial." Spaulding, 279 F.3d at 904 (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986)); see also Anderson, 477 U.S. at 256, 106 S. Ct. 2505; Celotex, 477 U.S. at 324, 106 S. Ct. 2548. The nonmoving party may not simply rest upon its pleadings to satisfy its burden. Anderson, 477 U.S. at 256, 106 S. Ct. 2505; Eck v. Parke, Davis & Co., 256 F.3d 1013, 1017 (10th Cir.2001). Rather, the nonmoving party must "set forth specific facts that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant." Mitchell v. City of Moore, 218 F.3d 1190, 1197-98 (10th Cir.2000) (quoting Adler, 144 F.3d at 671). To accomplish this, the facts "must be identified by reference to an affidavit, a deposition transcript, or a specific exhibit incorporated therein." Adams, 233 F.3d at 1246.
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. Analysis
A. Final Policy Maker
DETAMC brings its § 1981 claim through § 1983 directly against the City. A municipality is liable under § 1983 only if it takes "action pursuant to *1147 official municipal policy of some nature [that] caused a constitutional tort." Monell v. Dep't of Soc. Servs., 436 U.S. 658, 691, 98 S. Ct. 2018, 56 L. Ed. 2d 611 (1978).[16] The Supreme Court has found, however, that "municipal liability may be imposed for a single decision by municipal policy makers under appropriate circumstances." Pembaur v. City of Cincinnati, 475 U.S. 469, 480, 106 S. Ct. 1292, 89 L. Ed. 2d 452 (1986).[17] But "[m]unicipal liability attaches only where the decision-maker possesses final authority to establish municipal policy with respect to the action ordered." Id. at 481, 106 S. Ct. 1292. If, however, the particular official has only discretion in the exercise of the particular function in question, the exercise of that discretion alone is not enough to impose municipal liability. Id. at 482, 106 S. Ct. 1292 (citing Oklahoma City v. Tuttle, 471 U.S. 808, 822-24, 105 S. Ct. 2427, 85 L. Ed. 2d 791 (1985)). "The official must also be responsible for establishing final government policy respecting such activity before the municipality can be held liable." Id. at 482-83, 105 S. Ct. 2427.
In this case, DETAMC's allegations pertain to actions taken by the City through its employees, Ms. Gilbert and Mr. Cherches. To determine whether Ms. Gilbert or Mr. Cherches is a final policy maker for the City, the court must look to state law and local ordinances. See Pembaur, 475 U.S. at 483, 106 S. Ct. 1292; Ledbetter v. City of Topeka, 318 F.3d 1183, 1189 (10th Cir.2003). The Tenth Circuit has enumerated three elements to consider when determining if an official is a final policy maker: (1) whether the official is meaningfully constrained by policies formulated by others; (2) whether the official's decisions are final or whether they are subject to meaningful review; and (3) whether the policy decision allegedly made by the official is within his or her grant of authority. Randle v. City of Aurora, 69 F.3d 441, 448 (10th Cir.1995). In Randle, the Circuit emphasized that any review constraints must be "meaningful as opposed to merely hypothetical in order to strip an official of `final policymaking' authority." Id. at 449 (emphasis in original)
The defendant argues that municipal liability may not be imposed based on Ms. Gilbert's actions because she was not vested with final policy making authority regarding the authorization of the audit and termination of the City's training agreements with DETAMC. DETAMC contends that Ms. Gilbert was a final policy maker with respect to those activities. The court agrees with the City.
Ms. Gilbert served as the Career Development Director for the City. Ms. Gilbert testified at her deposition that she had the discretion to execute training agreements such as the ones entered into with DETAMC. However, Ms. Gilbert further testified that all of her actions were reviewable by the assistant city manager and the city manager. She reported directly to Ms. Holdeman, the assistant city manager, who in turn reported directly to Mr. Cherches, the city manager. Ms. Gilbert recommended the audit of DETAMC but she testified that the audit had to be authorized by Mr. Cherches to be executed. Furthermore, an email from Mr. Cherches to the city council indicates that he authorized *1148 the audit. Ms. Gilbert also testified that Mr. Cherches would have been the one ultimately authorized to terminate the City's contracts with DETAMC and DETAMC has presented no evidence to the contrary.
Rased on these facts, it is clear to the court that Ms. Gilbert's did not make the final decision to administer the audit or to terminate the contracts with DETAMC. Her actions were reviewable by others with policy-making authority and were constrained by the policies of others. See City of St. Louis v. Praprotnik, 485 U.S. 112, 127, 108 S. Ct. 915, 99 L. Ed. 2d 107 (1988). Therefore, the court concludes that there is no genuine issue of material fact as to whether Ms. Gilbert was a final policy maker. Accordingly, the court finds that her actions are not enough to impose municipal liability on the City. See Pembaur, 475 U.S. at 482 ("Municipal liability only attaches where the decisionmaker possesses final authority to establish municipal policy with respect to the action ordered.").
The City relies on provisions of the Code of the City of Wichita, Kansas which explicitly prohibit the city manager from setting city policy in arguing that Mr. Cherches did not possess final policy making authority.[18] However, an application of the three elements from Randle to the facts of this case support the conclusion that there is a genuine dispute as to whether Mr. Cherches, as City manager, was a final policy maker with respect to the authorization of the audit and the termination of the DETAMC contracts.
The first two considerations are whether Mr. Cherches actions were meaningfully constrained by policies formulated by others and whether Mr. Cherches' decisions were final or whether they were subject to meaningful review. Randle, 69 F.3d at 448. Although the city ordinance explicitly prohibits the city manager from establishing policy, the City has presented no evidence indicating any policy of the city council or statutory requirements which would "meaningfully constrain" Mr. Cherches in authorizing the audit or terminating the contract, such as evidence that those actions were reviewable by the city council. Furthermore, there is no evidence before the court to suggest that Mr. Cherches' decisions actually were reviewed by the city council or any other decision-maker in this case. For these reasons, the court finds that the City has failed to show that it is entitled to judgment as a matter of law on this issue because a genuine dispute exists as to whether Mr. Cherches was a final official policymaker with respect to the authorizing of the audit and the termination of DETAMC's contracts. See Randle, 69 F.3d at 449-50 (finding genuine dispute of material fact based on absence in record of meaningful constraint or review of city manager's personnel decisions).
B. Constitutional Violation
Even if the court assumes that Mr. Cherches was a final policy maker with respect to the actions in this case, its analysis does not end there. DETAMC originally brought this claim pursuant to 42 U.S.C. § 1981; however, this court has held that § 1983 provides the exclusive remedy for pursuing damages against a state official for claims arising under *1149 § 1981. Sims v. Unified Gov't of Wyandotte County, 120 F. Supp. 2d 938, 953 (D.Kan.2000). Thus, DETAMC was permitted to clarify in the pretrial order that it pursues its § 1981 claim via the remedies provided under § 1983. To establish § 1983 municipal liability, DETAMC must also prove that the City's actions constituted a violation of DETAMC's federal rights. See Collins v. City of Harker Heights, 503 U.S. 115, 120, 112 S. Ct. 1061, 117 L. Ed. 2d 261 (1992)("proper analysis requires us to separate two different issues when a § 1983 claim is asserted against a municipality: (1) whether plaintiff's harm was caused by a constitutional violation, and (2) if so, whether the City is responsible for that violation."). Therefore, the court must determine whether the plaintiff has come forth with sufficient evidence for a reasonable trier of fact to conclude that the City discriminated against DETAMC in violation of its federal rights under § 1981.
DETAMC has not presented direct evidence that the City intentionally discriminated against it in ordering the audit and eventually terminating the contracts with DETAMC.[19] Therefore, for purposes of summary judgment, the court concludes that DETAMC's § 1981 discrimination claim should be analyzed under the burden-shifting framework developed under Title VII in McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S. Ct. 1817, 36 L. Ed. 2d 668 (1973). See Kendrick v. Penske Transp. Servs., Inc., 220 F.3d 1220, 1225-26 (10th Cir.2000) (McDonnell Douglas applied to section 1981 employment discrimination claim); Pamintuan v. Nanticoke Mem. Hosp., 192 F.3d 378, 385 (3d Cir.1999) (McDonnell Douglas applied to section 1981 discrimination in contracting claim); Jackson v. Montgomery, 999 F.2d 547, 1993 WL 261876, at *2 (10th Cir. 1993); Brown v. American Honda Motor Co., 939 F.2d 946, 949 (11th Cir.1991) (same); see also Asbury v. Brougham, 866 F.2d 1276, 1279 (10th Cir.1989) (McDonnell Douglas applied to section 1982 claim for alleged discrimination in housing).
Pursuant to this framework, DETAMC initially must make a prima facie case of discrimination. See Randle v. City of Aurora, 69 F.3d 441, 451 (10th Cir.1995). Once DETAMC has established its prima facie case, the burden shifts to the City to offer a legitimate, nondiscriminatory reason for its actions. Id. (citing McDonnell Douglas, 411 U.S. at 802-03, 93 S. Ct. 1817; EEOC v. Flasher Co., 986 F.2d 1312, 1317-19 (10th Cir.1992)). If the City comes forward with a nondiscriminatory reason for its actions, the burden then reverts to DETAMC to show that the proffered reasons are pretextual, or unworthy of belief. Id. (citing Ingels v. Thiokol Corp., 42 F.3d 616, 622 (10th Cir.1994)). This framework provides the governing law for determining what facts are material for summary judgment purposes.
1. DETAMC's Prima Facie Case of Discrimination[20]
The Tenth Circuit has held that, in order to establish a prima facie case, an *1150 employee alleging wrongful termination on the basis of race must show that: "(1) he was a member of a protected class; (2) he was qualified and satisfactorily performing his job; and (3) he was terminated under circumstances giving rise to an inference of discrimination." Salguero v. City of Clovis, 366 F.3d 1168, 1175 (10th Cir. 2004).[21] It is undisputed that DETAMC was owned by Mr. and Mr. Johnson, who are African-American and therefore members of a protected class. The fact that DETAMC alleges that it was performing satisfactorily under the contracts is sufficient to satisfy the second element of its prima facie case. See Mattera v. Gambro, Inc., 94 Fed.Appx. 725, 2004 WL 723239, at *3 (10th Cir.2004)(citing Beaird v. Seagate Tech., Inc., 145 F.3d 1159, 1166 n. 3 (10th Cir.1998)).
As for the final element of its prima facie case, DETAMC's burden is slight. Plotke v. White, 405 F.3d 1092, 1101 (10th Cir.2005)("To satisfy her de minimus prima facie burden, [the plaintiff] only needed to demonstrate that her termination occurred `under circumstances which give rise to an inference of discrimination.'")(quoting Kendrick v. Penske Transp. Servs., Inc., 220 F.3d 1220, 1227 (10th Cir.2000)). The Tenth Circuit has enumerated a variety of circumstances which can give rise to an inference of discriminatory motive, including "actions or remarks by decisionmakers that could be viewed as reflecting a discriminatory animus . . ., preferential treatment given to employees outside the protected class . . ., or, more generally, upon the timing or sequence of events leading to plaintiffs termination." Plotke, 405 F.3d at 1101 (quoting Chertkova v. Connecticut Gen. Life Ins., 92 F.3d 81, 91 (2d Cir.1996)).
There is no indication in the record of any actions or remarks by either Mr. Cherches, Ms. Gilbert, or any other city employee that could be viewed as reflecting a discriminatory animus. However, DETAMC has argued that it was treated differently and subjected to different standards than the other intensive service providers. This is similar to the circumstance of preferential treatment being given to employees outside the protected class in the wrongful employment termination context described in Plotke. As will be discussed more thoroughly in the court's analysis of pretext, it is uncontroverted that DETAMC was required to submit weekly attendance reports and was audited and that no other intensive service provider was subjected to these requirements. It has also come forward with evidence that it was held to standards to which no other intensive service provider was held. Taking all inferences from these facts in the light most favorable to plaintiff, the court concludes DETAMC has made the de minimus showing required for a prima facie case of race discrimination.
2. The City's Reasons for Terminating the Contracts
Because DETAMC has established a prima facie case for purposes of the City's motion for summary judgment, the burden shifts to the City to articulate a legitimate, nondiscriminatory reason for terminating the contracts with DETAMC. According to the City, it recommended the audit of DETAMC and eventually terminated the contracts with DETAMC because the participants in DETAMC's training programs failed to meet the performance obligations established under the WIA local program. The City contends that DETAMC's failure *1151 to meet the performance requirements of the WIA program jeopardized the program funding for all participants in the local program. The court finds this proffered reason is sufficient to meet the City's burden. Thus, the burden shifts back to DETAMC to demonstrate that the City's proffered reason is pretext. See Antonio v. The Sygma Network, Inc., 458 F.3d 1177, 1181 (10th Cir.2006).
3. DETAMC's Showing of Pretext
To show that the City's proffered nondiscriminatory reason for terminating the contracts with DETAMC is pretextual, "[DETAMC] must produce evidence of such weaknesses, implausibilities, inconsistencies, incoherencies, or contradictions in [the City's] proffered legitimate reasons for its action that a reasonable factfinder could rationally find them unworthy of credence and hence infer that [the City] did not act for the asserted non-discriminatory reasons." See id. at 1183 (quoting EEOC v. BCI Coca-Cola Bottling Co., 450 F.3d 476, 490 (10th Cir.2006)). The Tenth Circuit has held that pretext may be shown through evidence that a plaintiff was treated differently from other similarly-situated employees. Metzler v. Federal Home Loan Bank of Topeka, 464 F.3d 1164, 1175 (10th Cir.2006)(citing Kendrick v. Penske Transp. Servs., Inc., 220 F.3d 1220, 1230 (10th Cir.2000)).
DETAMC's pretext argument asserts that the City treated it less favorably than the other intensive service providers, specifically that it was required to submit weekly attendance reports, was held to higher standards, and was audited. It is uncontroverted that the City took these actions with respect to DETAMC but not the other intensive service providers. DETAMC argues it was similarly situated to these providers because all providers were subject to the same contract terms in the training agreements. Moreover, the city has not provided evidence that DETAMC was not "similarly situated" to the other intensive service providers.
The City's justification for its treatment of DETAMC is that the City was required to meet overall performance standards pursuant to the WIA local plan which DETAMC failed to fulfill. However, although the City has alleged these standards, it has not presented uncontroverted evidence demonstrating what exactly these standards were or that the alleged standards were specifically applicable to DETAMC. Furthermore, the City has not provided evidence indicating that the other providers were meeting the alleged standards but that DETAMC was not as justification for treating DETAMC differently from other intensive service providers. Accordingly, the court finds that the City has failed to meet its burden of establishing that there is no genuine issue of material fact as to what the performance standards were, that DETAMC was subject to the standards, and that DETAMC failed to meet the standards. Therefore, the court concludes a genuine dispute remains as to whether the City's reasons for the actions it took respecting DETAMC were pretextual.
C. DETAMC's Cross Motion for Partial Summary Judgment
DETAMC's cross motion for partial summary judgment alleges that no reasonable jury could determine that the City did not discriminate against DETAMC. Although the court has determined there is a genuine dispute respecting the performance standards in this case and whether they applied to DETAMC, DETAMC has not shown the absence of a genuine issue of material fact that the City discriminated against DETAMC. The City has alleged that six of the initial seven enrollees in DETAMC's program dropped out; DETAMC has not disputed *1152 this fact. Moreover, a reasonable trier of fact could find that plaintiff was subject to and failed to meet certain performance standards, which led to the actions being taken against DETAMC which it challenges here. `Accordingly, there is clearly no basis for concluding that no reasonable trier of fact could find the City did not discriminate against DETAMC. Accordingly, DETAMC's cross motion is denied.
D. Limitation of Damages
The City argues that, even if it is not entitled to summary judgment, DETAMC is not entitled to damages for humiliation or mental and physical pain and suffering because it is a corporation, rather than an individual. DETAMC argues that it is entitled to damages for the pain and suffering of Mr. and Mrs. Johnson. DETAMC further alleges that had the City raised this argument earlier, DETAMC would have sought to amend its complaint or the pretrial order to add Mr. and Mrs. Johnson as plaintiffs. Regardless of the timeliness of the City's argument, the court concludes that DETAMC's discrimination claim entitles neither DETAMC nor Mr. and Mrs. Johnson to damages for pain and suffering.
Having found no authority directly on point regarding a corporation's ability to recover damages for pain and suffering, the court finds the Tenth Circuit's opinion in Guides, Ltd. v. Yarmouth Group, 295 F.3d 1065 (10th Cir.2002) persuasive. In Guides, Africa House, a retail mall tenant, and Tseghe Foote, Africa House's sole shareholder, alleged that the landlord and mall management company discriminated against them, thus unlawfully interfering with their right to make and enforce a contract under § 1981. Id. at 1071. A jury found in favor of and awarded damages to both Ms. Foote and Africa House. Id. The Tenth Circuit affirmed the district court's decision to dismiss Ms. Foote as a plaintiff for lack of standing and to set aside the verdict and damages in her favor. Id. at 1073.
The Circuit first noted the general rule that a stockholder cannot maintain a personal action against a third party for harm caused to the corporation, unless the third party's actions caused injury unique to the shareholder. Id. at 1072. (citing Stat-Tech Intern. Corp. v. Delutes, 47 F.3d 1054, 1060 (10th Cir.1995)). The Circuit went on to find that because Ms. Foote's alleged emotional distress arose from the failure of the defendants to contract with Africa House, that distress was derivative of Africa House's claim and thus Ms. Foote lacked standing to sue on her own behalf. Id. at 1072-73.
The Circuit also examined the jury award of damages in Guides. The district court had instructed the jury that in determining compensatory damages, it could consider (1) financial losses, including lost profits and expenses, and (2) loss of good name, reputation, honor, or integrity. Id. at 1076. The Circuit found that expert testimony was sufficient to support damages for lost profits. However, the Circuit found that damages awarded beyond lost profits was not supported by the evidence because no evidence of loss of good name, reputation, honor or integrity was presented. Id.
In this case, similar to Guides, DETAMC was the party to the contracts with the City, not Mr. and Mrs. Johnson. Thus, "the direct victim of the alleged discrimination" was DETAMC rather than Mr. and Mrs. Johnson themselves. See id. at 1072. The pain and suffering complained of by Mr. and Mrs. Johnson refers to their personal humiliation and physical and mental pain, not humiliation and pain suffered by DETAMC. As in Guides, however, the court concludes that this distress arose from the City's alleged termination of its contracts with DETAMC, and *1153 thus is derivative of DETAMC's claim. See id. at 1072-73. Accordingly, the court finds that even if the City had raised this argument earlier, Mr. and Mrs. Johnson would have lacked standing to sue on their own behalf. See id.
Although the Circuit did not specifically mention whether Africa House could recover damages for emotional distress, it concluded that any damages for emotional distress were personal to Ms. Foote and were derivative of the economic damages suffered by Africa House. See id. at 1072. Based on this finding, combined with the Circuit's discussion of what damages Africa House was entitled to, the court concludes that Guide s supports the conclusion that DETAMC cannot recover damages for Mr. and Mrs. Johnson's alleged humiliation and pain and suffering because those damages are personal to Mr. and Mrs. Johnson, who have no standing to assert claims under § 1981 in this case. DETAMC may, however, be able to recover economic damages for its financial losses, lost profits, or loss of reputation, good, will, honor, or integrity. IT IS ORDERED BY THE COURT THAT defendants' motion for summary judgment (doc. 23) is granted in part and denied in part as set forth above. Plaintiffs cross motion for partial summary judgment (doc. 31) and motion for oral argument (doc. 36) are denied as well.
IT IS SO ORDERED.
NOTES
[1] DETAMC has also made a motion for oral argument in this case. Because the court, in its discretion under District of Kansas Local Rule 7.2, concludes that oral argument is unnecessary, that motion is denied. Moreover, the City's request for the court to decline supplemental jurisdiction over plaintiff's state law claims is moot in light of the court's denial of summary judgment on the § 1981 claim.
[2] Consistent with the well established standard for evaluating a motion for summary judgment, the, following facts are either uncontroverted or stated in the light most favorable to DETAMC, the nonmoving party.
[3] DETAMC has objected to Ms. Gilbert's affidavit (doc. 23-1) in this case as being a sham affidavit. The court did not refer to Ms. Gilbert's affidavit in developing its statement of material facts and therefore finds DETAMC's objection moot.
[4] 29 U.S.C. §§ 2801-2945 (2006).
[5] The purpose of the WIA is to:
provide workforce investment activities, through statewide and local workforce investment systems, that increase the employment, retention, and earnings of participants, and increase occupational skill attainment by participants, and, as a result, improve the quality of the workforce, reduce welfare dependency, and enhance the productivity and competitiveness of the Nation.
29 U.S.C. § 2811.
[6] In its briefing in this case, DETAMC has objected to the admission of a document outlining the policies and procedures of the SDA IV; the court finds DETAMC's objection moot for the purpose of ruling on this motion because that document is not in the summary judgment record.
[7] According to Ms. Gilbert, "intensive service provider" is a term of art under the WIA and refers to a provider who offers basic remedial skills regarding GED preparation, high school diploma completion, and other basic skills necessary to prepare individuals for more advanced vocational training. See 29 U.S.C. 2864(d)(3) (describing intensive services under the WIA).
[8] CCCC, BCCC, and WATC are all public institutions of higher education, governed by the Kansas Board of Regents. KANSEL is a non-profit member organization of the United Way. DETAMC is a privately owned corporation.
[9] DETAMC had previously been providing occupational training services to the City pursuant to the WIA plans, but was unable to meet the minimum requirements applicable for occupational training providers.
[10] Ms. Gilbert testified at her deposition that because Mr. Johnson was on the Local Workforce Investment Board, which governed the WIA, the City felt some pressure from other board members to make sure that the situation with DETAMC was successful by finding a way to fill the classes at DETAMC.
[11] Ms. Gilbert testified that the City became aware of attendance problems with the DETAMC program through the weekly attendance reports sent by DETAMC and through contact with the individual students enrolled in the DETAMC program.
[12] Ms. Gilbert stated that she did not track those drop rates because the numbers were so small in the other intensive provider programs.
[13] Ms. Gilbert provides some conclusory testimony on this subject, but, taken in the light most favorable to the plaintiff as the nonmoving party, that testimony is insufficient to establish the existence or applicability of these standards as a matter of law.
[14] Ms. Gilbert testified at her deposition that the audit process began in late August of 2002. However, an email exchange between Ms. Gilbert and Ms. Holdeman indicates that the audit was recommended in late October of 2002. Although the exact date is unclear, the court concludes the auditing process began sometime in the fall of 2002.
[15] The court notes that this memo contained no evidence regarding how this 71% completion rate applied to DETAMC.
[16] The City asserts and DETAMC concedes that municipalities may not be subjected to respondeat superior liability under § 1983; the court agrees. See Monell, 436 U.S. at 694, 98 S. Ct. 2018.
[17] Municipal liability may also be imposed if an official custom or practice that may be said to represent official policy caused a violation of DETAMC's constitutional rights. Monell, 436 U.S. at 694, 98 S. Ct. 2018. This issue is not currently before the court, however, and it will not be considered.
[18] Section 2.04.110 of the Code of the City of Wichita, Kansas reads as follows:
The city manager shall act as the administrative head of the city and in such capacity shall direct the affairs of the city within the limits of the budget, the policies established by the city council and the requirements of the statutes . . . He shall have no vote in the public meetings of the governing body and shall refrain from attempting to establish policy except as he shall make recommendations to the city council as a whole.
[19] A "plaintiff proves discrimination by direct evidence when she presents proof of `an existing policy which itself constitutes discrimination.'" See Stone v. Autoliv ASP, Inc., 210 F.3d 1132, 1136 (10th Cir.2000) (citations omitted). DETAMC has not come forward with any such policy.
[20] The Tenth Circuit has found that, in the employment context, the same standards apply to determine the prima facie case, regardless of whether the claim is brought pursuant to Title VII, § 1981, or § 1983. See Kendrick v. Penske Transp. Svcs. Inc., 220 F.3d 1220, 1225 n. 4 (10th Cir.2000). Accordingly, the court has considered all relevant Title VII, § 1983, and § 1981 cases decided by the Tenth Circuit in evaluating DETAMC's prima facie case.
[21] The court finds that cases involving employee's alleging wrongful termination on the basis of race are analogous to DETAMC's situation here. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2329677/ | (2008)
Eddie ALVARADO, Plaintiff,
v.
Deirdre BATTAGLIA, Martin Peto, and CO Williams, Defendants.
No. 06 C 4663.
United States District Court, N.D. Illinois, Eastern Division.
February 13, 2008.
MEMORANDUM OPINION AND ORDER
WAYNE R. ANDERSEN, District Judge.
In August of 2006, Plaintiff, Eddie Alvarado, currently in custody at Danville Correctional Center, filed this 42 U.S.C. § 1983 action against 21 Stateville Correctional Center officials. By order dated November 30, 2006, this Court dismissed Plaintiffs claims against 18 defendants, and allowed Plaintiff to proceed with his claims against Stateville Warden Deirdre Battaglia and Stateville Officers Martin Peto and Gail Williams. Plaintiffs claims against these defendants allege: (1) Correctional Officer Williams discharged a firearm in the direction of Plaintiff and other inmates from a guard tower that overlooked the inmates playing basketball; (2) Plaintiff fell while running for cover, and he cut his lip, chipped a tooth, scraped his knee, and pulled a groin muscle; (3) Martin Peto refused to obtain medical care for Plaintiff shortly after the incident; and (4) Stateville officials knew that Officer Williams was mentally unstable, but allowed her to continue working and have a weapon. Defendants Battaglia and Peto filed a motion to dismiss, and Defendant Williams filed a separate motion to dismiss. Plaintiff filed a response to both motions, and Defendants replied. For the following reasons, Defendants Battaglia and Peto's motion to dismiss is granted, and Defendant Williams' motion to dismiss is denied. Plaintiff may proceed with his claim against Williams, but not his claims against Battaglia and Peto, and these two defendants are dismissed as parties to this action.
I. STANDARD OF REVIEW
When considering a motion to dismiss, this Court assumes true all well-pleaded allegations and views the alleged facts, as well as any inferences reasonably drawn therefrom, in a light most favorable to the plaintiff. Erickson v. Pardus, ___ U.S. ___, ___. 127 S. Ct. 2197, 2200, 167 L. Ed. 2d 1081 (2007); Marshall-Mosby v. Corporate Receivables, Inc., 205 F.3d 323, 326 (7th Cir.2000). Addressing a motion to dismiss involves two considerations. First, under the notice pleading requirement of Fed.R.Civ.P. 8(a), this Court must determine whether the complaint sufficiently provides the defendants with "fair notice of what the ... claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, 550 U.S. ___, 127 S. Ct. 1955, 1964, 167 L. Ed. 2d 929 (2007). The complaint need not provide extensive specific facts, but need only state a legal claim and provide "some indication ... of time and place." Thomson v. Washington, 362 F.3d 969, 970-71 (7th Cir.2004); see also Bell Atlantic Corp. v. Twombly, 127 S.Ct. at 1964-65.
If the complaint sufficiently provides notice of a claim, the Court must then determine if the allegations therein "plausibly suggest that the plaintiff has a right to relief, raising that possibility above a `speculative level.'" E.E.O. C. v. Concentra Health Services, Inc., 496 F.3d 773, 776-77 (7th Cir.2007) (citing Bell Atlantic, 127 S.Ct. at 1965, 1973). This Court liberally construes a pro se complaint. Haines v. Kerner, 404 U.S. 519, 520, 92 S. Ct. 594, 30 L. Ed. 2d 652 (1972); McCormick v. City of Chicago, 230 F.3d 319, 325 (7th Cir.2000). The purpose of a motion to dismiss is to test the sufficiency of the complaint, not to decide the merits. Weiler v. Household Finance Corp., 101 F.3d 519, 524 n. 1 (7th Cir.1996). So long as a well-pleaded complaint sufficiently states a valid claim, even if the likelihood of recovery is very remote, a motion to dismiss the complaint must be denied. Bell Atlantic Corp., 127 S.Ct. at 1965. However, the factual allegations must be sufficient to raise a right to relief above the speculation level. This Court is not bound to accept as true legal conclusions couched as factual allegations and presume facts not alleged. Id. at 1964-65. Also, if the plaintiff pleads facts that demonstrate that he has no claim, he may plead himself out of court. McCready v. eBay, Inc., 453 F.3d 882, 888 (7th Cir. 2006).
II. FACTS
Plaintiff alleges the following in his complaint. On April 25, 2005, Plaintiff and seven other inmates were playing basketball in the recreation yard at Stateville Correctional Center. At around noon, the inmates attempted to get the attention of Officer Gail Williams, who was in a guard tower overlooking the area where Plaintiff and the other inmates were playing. The inmates complained that they had been outside for more than four hours and wanted Williams to tell Lieutenant Peto to get the inmates some water or ice. Williams refused, and "rudely responded that she was not calling anybody for us and that she wished we could all die." The inmates asked Williams why She was so hostile and again asked that she radio Lt. Peto. Plaintiff alleges that Williams "hysterically began to yell, `she wished we all were dead ... Started pointing her weapon at us, stating Just give me a reason to kill all of you.'" Plaintiff contends that Williams then pointed her weapon at the inmates and fired one round. As Plaintiff and the other inmates ran for cover, Plaintiff slipped, fell, and sustained the following injuries: a busted lip, a chipped tooth, a pulled groin muscle, and a scraped knee. Lt. Pete then arrived at the scene, stated that he did not believe Plaintiff and the other inmates about the shooting, and refused to get medical attention for Plaintiff.
As Plaintiff was returning to his cell, he told another officer. At around 7 p.m. that same day, Plaintiff was interviewed by an internal affairs officer of the prison, who called the health care unit. Plaintiff was examined by a prison medical staff person at 7:15 p.m., about seven hours after his slip and fall. On the Inmate Injury Report, Plaintiff described his injuries: "my lip got cut and is swollen, chipped my tooth, my groin got pulled, and my [right] knee got messed up." The evaluation indicates that Plaintiff complained of pain in his groin and knee and had a cut on the inside of his lip, and that a cold compress was applied. Plaintiff alleges that Williams suffered from schizophrenia, that Stateville officials knew Officer Williams had a mental disorder and took medication, and that Stateville officials should not have placed Williams in the guard tower with a firearm.
III. ANALYSIS
Defendants Deirdre Battaglia and Lieutenant Peto have filed a motion to dismiss. Defendant Gail Williams has filed a separate motion to dismiss. All three defendants argue that the claims against them should be construed as official capacity claims and dismissed as barred by the Eleventh Amendment The defendants also argue that Plaintiff's claims do not sufficiently state claims for relief. Williams argues that she is entitled to qualified immunity because she reasonably believed her actions were justified in response to inmates yelling at her from the recreation yard. Battaglia argues that Plaintiffs injuries were not sufficiently serious and that Plaintiff does not allege that Battaglia personally had knowledge of Williams' mental instability such that Battaglia deliberately disregarded a known risk. Peto argues that Plaintiffs injuries, as indicated by the written report of the medical examination seven hours after Plaintiffs slip and fall, were not sufficiently serious to support a claim of deliberate indifference. For the following reasons, Peto and Battaglia's motion to dismiss is granted, and Williams' motion to dismiss is denied.
With respect to Defendants' argument that the Court should construe Plaintiffs claims as only official capacity claims, the argument is without merit. Unless otherwise specified, it is assumed that state officials are sued in their official capacities. However, a court may view such claims to be alleged against the defendants in their individual capacities if the allegations and pleadings indicate that the parties consider the claims to be individual capacity claims. Brokaw v. Mercer County, 235 F.3d 1000, 1009 (7th Cir.2000) (citing Stevens v. Umsted, 131 F.3d 697, 707 (7th Cir.1997)). Plaintiffs allegations, liberally construed, and Defendants' pleading of qualified immunity and defenses applicable to individual capacity claims indicate that the parties acknowledge that Plaintiff intended to allege liability against Defendants in their individual capacities. The Court will so construe the claims. To the extent Plaintiffs claims are against the Defendants in their official capacities, the claims are dismissed. Brokaw, 235 F.3d at 1009; Gossmeyer v. McDonald, 128 F.3d 481, 487 (7th Cir.1997).
Williams
Williams argues that, if she discharged a firearm toward Plaintiff and other inmates in the recreation yard, such actions were reasonable, and Williams is protected by qualified immunity. Williams reasons that the persistent" banter by Plaintiff and other inmates from the recreation yard was an attempt to divert her attention from her duties and that a reasonable officer would have believed discharging a firearm was reasonable.
The Supreme Court has stated a two-part standard to determine whether a defendant is protected by qualified immunity. Saucier v. Katz, 533 U.S. 194, 121 S. Ct. 2151, 150 L. Ed. 2d 272 (2001). First, the plaintiff must demonstrate that he has been deprived of a constitutional right. If the plaintiff meets this burden, the Court must determine whether the particular constitutional right was clearly established at the time of the alleged violation. If the right was clearly established, the government actor is not entitled to qualified immunity. Id. at 201, 121 S. Ct. 2151. It was well established that the intentional use of excessive force by prison guards against an inmate without penological justification violates the Eighth Amendment. Hudson v. McMillian, 503 U.S. 1, 6-10, 112 S. Ct. 995, 117 L. Ed. 2d 156 (1992). Force may be considered excessive if it was applied "maliciously and sadistically to cause harm." Id. at 7, 112 S. Ct. 995; see also Fillmore v. Page, 358 F.3d 496, 503 (7th Cir.2004).
Plaintiffs allegations that Defendant Williams discharged a firearm in the direction of Plaintiff and other inmates from a guard tower in response to the inmates' banter sufficiently assert an excessive force claim and do not indicate that Williams is entitled to qualified immunity. Based solely on the allegations in Plaintiffs complaint, Williams cannot establish that her actions were reasonable, and Plaintiff may be able to show that Williams acted maliciously to cause Plaintiff harm. Additionally, the Court notes that, while Plaintiffs pleadings indicate that his injuries were not great, he need not establish serious bodily injury with an excessive force claim. Hudson v. McMillian, 503 U.S. 1, 8-10, 112 S. Ct. 995, 117 L. Ed. 2d 156 (1992); Outlaw v. Newkirk, 259 F.3d 833, 837-38 (7th Cir.2001). Williams' motion to dismiss the claims against her is denied.
Battaglia:
Plaintiff alleges that supervisory officials knew that Williams was mentally unstable, yet continued to allow her to work, thus allowing her to be in the guard tower with a firearm. Plaintiffs complaint does not specifically allege that Battaglia knew of Williams' instability; but, Plaintiffs response to the motion to dismiss states that Battaglia knew or should have known of Williams' mental instability. However, even liberally construing Plaintiff's complaint to include allegations specifically against Battaglia, Plaintiff has not alleged a viable claim.
A supervisory official may not be held liable for the actions of a subordinate under a theory of respondent superior. A supervisory official may be held liable for failing to train or supervise subordinate officers only when such a failure constitutes deliberate indifference. See City of Canton v. Harris, 489 U.S. 378, 388, 109 S. Ct. 1197, 103 L. Ed. 2d 412 (1989); Ross v. Town of Austin, Ind., 343 F.3d 915, 918 (7th Cir.2003). Deliberate indifference may be found if a supervisory official fails to act in the face of actual or constructive notice that such failure to act will likely result in a constitutional deprivation. Ross v. Town of Austin, Ind. 343 F.3d at 918; Robles v. City of Fort Wayne, 113 F.3d 732, 735 (7th Cir.1997). The supervisory official must know about the unconstitutional conduct and facilitate it, or deliberately turn a blind's eye to such conduct. Sanville v. McCaughtry, 266 F.3d 724, 740 (7th Cir.2001); Chavez v. Illinois State Police, 251 F.3d 612, 651 (7th Cir.2001).
Plaintiffs allegations that prison officials knew that Williams was mentally unstable yet allowed her to continue working cannot establish that Warden Battaglia acted with deliberate indifference, Plaintiff does not allege that Williams' actions were so predictable that prison officials knew that allowing Williams to continue working would likely result in unconstitutional conduct against Plaintiff. Even assuming Plaintiffs allegations true, he does not allege a valid claim against Battaglia. See Sanville, 266 F.3d at 740; Chavez, 251 F.3d at 651; see also Bell Atlantic Corp., 127 S.Ct. at 1965. Battaglia's motion to dismiss is granted; the claims against her are dismissed; and she is dismissed and terminated as a defendant in this case.
Peto:
Officer Peto argues that Plaintiff's complaint does not sufficiently allege that Peto acted with deliberate indifference to a serious medical need. Peto contends that medical evaluation attached to Plaintiff's complaint demonstrates that Plaintiff suffered only minor injuries or that only minor injuries could have been known by Peto.
This Court may consider the medical evaluation attached to Plaintiff's complaint when considering the motion to dismiss. See Witzke v. Femal, 376 F.3d 744, 749 (7th Cir.2004). That evaluation shows that a medical examination of Plaintiff, several hours after Peto allegedly refused to obtain medical attention for Plaintiff, revealed that he had a "small cut on his lip" and subjective complaints of pain in his groin and right knee. See Complaint, Exhibit 6.
Deliberate indifference to a serious medical need requires a showing that the officer was actually aware of a serious risk but failed to take any action. See Whiting v: Marathon County Sheriffs Dept, 382 F.3d 700, 703 (7th Cir.2004); Jackson v. Ill. Medi-Car, Inc., 300 F.3d 760, 765 (7th Cir.2002). The officer must have actually known of a problem that was either diagnosed by a, or obvious enough that a reasonable lay person would realize medical attention Was necessary. Wynn, 251 F.3d at 593. Failing to call a doctor when a prisoner suffers minor scrapes and bruises does not constitute deliberate indifference. See Zentmyer v. Kendall County, 220 F.3d 805, 810 (7th Cir.2000); Gutierrez v. Peters, 111 F.3d 1364, 1372 (7th Cir.1997). Furthermore, if the official is aware only of minor symptoms, such as swelling or a cut lip, the plaintiff is not entitled to relief. See Boyce v. Moore, 314 F.3d 884, 890 (7th Cir.2002).
In this case, Plaintiff alleges that he fell and suffered a "busted lip, a chipped tooth, pulled groin, [and a] scraped and swollen knee." Complaint, at ¶ 35. The medical exam of Plaintiff seven hours after the fall showed that he had a small cut on his lip and subjective complaints of pain in his groin and knee. Even Plaintiffs response to Peto's motion to dismiss, wherein Plaintiff states that his injuries were obvious "Plaintiff pleaded with Defendant Peto to get him medical attention, [and] Plaintiff was bleeding from both his mouth and his scraped, swollen knee," [DE 55, p. 5] demonstrates that Peto was at most presented with minor injuries following Plaintiffs slip and fall in the recreation yard. Even assuming true the allegations in his complaint, Plaintiff cannot establish that his injuries were so obviously serious that Peto's refusal to obtain immediate medical attention constituted deliberate indifference. Peto's motion to dismiss is granted, the claims against him are dismissed, and Peto is dismissed as a defendant to this action.
CONCLUSION
For the reasons stated above, Plaintiff may proceed with his claim against Correctional Officer Williams. However, his complaint fails to state valid claims against Battaglia and Peto. Battaglia and Peto's motion to dismiss is granted; the claims against them are dismissed. Battaglia and Peto are dismissed as defendants and they are terminated as parties to this action. Defendant Williams shall answer the complaint or otherwise plead in response to the complaint. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2330207/ | 357 F. Supp. 2d 854 (2005)
UNITED STATES of America,
v.
James Lester PENNIEGRAFT, Dante Rashad Penniegraft, Sandra Banks Thompson, Tommy Penniegraft, Joann Penniegraft Cheek, Earl Dwayne Boss, Orlando.Burton, Stevie Louis Graves Deborah Penniegraft Mapp, Herman Gene McBride, and Valerie Kaye Penniegraft, Defendants.
No. 1:03CR454-2, 1:03CR454-3, 1:03CR454-4, 1:03CR454-5, 1:03CR454-6, 1:03CR454-7, 1:03CR454-8, 1:03CR454-9, 1:03CR454-10.
United States District Court, M.D. North Carolina.
February 7, 2005.
Lawrence Patrick Auld, Sandra J. Hairston, Office of U.S. Attorney, Greensboro, NC, for Plaintiff.
Bruce Alan Lee, Theophilus O. Stokes, III, A. Wayne Harrison, Anne R. Littlejohn, John B. Hatfield, Jr., Hatfield & Hatfield, Ames Colby Chamberlin, Causey Law Offices, Jan Elliott Pritchett, Schlosser *855 Neill & Brackett, Michael K. Troutman, Thomas Hilton Johnson, Jr., Gray Newell Johnson & Blackmon, L.L.P., Gary Goodman, Greensboro, NC, John Carlyle Sherrill, III, Sherrill & Sherrill, Salisbury, NC, Lisa S. Costner, Jerry Jordan, Fred Robinson Harwell, Jr., Davis & Harwell, P.A., Charles D. Luckey, Blanco Tackabery Combs & Matamoros, P.A., Winston-Salem, NC, David Thomas Lambeth, Jr., Burlington, NC, for Defendants.
ORDER
BEATY, District Judge.
This matter is before the Court on various motions by the Defendants in this case requesting resentencing based on the recent decision of the United States Supreme Court in United States v. Booker, ___ U.S. ___, 125 S. Ct. 738, 160 L. Ed. 2d 621 (2005). Defendants James Lester Penniegraft, Tommy Penniegraft, Sandra Banks Thompson, Orlando Burton, Joann Penniegraft Cheek, Dante Rashad Penniegraft, and Herman Gene McBride have all filed Motions to Correct Sentence pursuant to Rule 35(a) of the Federal Rules of Criminal Procedure [Document Nos. 252, 259, 255, 234, 245, 249, 269, respectively]. In addition, Defendants Earl Dwayne Boss, Deborah Penniegraft Mapp, and Sandra Banks Thompson have filed Motions for Release Pending Appeal pursuant to 18 U.S.C. § 3143(b) [Document Nos. 246, 236, 227, respectively]. The Court held a status conference in this matter on February 4, 2005 to address the various outstanding motions, and during that time the Defendants raised additional motions. The Court is issuing this Order to indicate for the record the rulings made by the Court during and after that hearing. The Court will first address the Motions filed by the various Defendants to correct or reduce their sentences pursuant to Rule 35. The Court will then address the motions raised during the February 4, 2005 hearing, as well as the scope of any future proceedings before this Court, first as to those Defendants who have already appealed their sentence, and then as to those Defendants who have not appealed their sentence.
I. REQUESTS FOR RESENTENCING PURSUANT TO RULE 35(a)
Several of the Defendants, including those who have appealed and those who have not appealed, have filed motions for resentencing pursuant to Rule 35(a). Rule 35(a) provides that, "[w]ithin 7 days after sentencing, the court may correct a sentence that resulted from arithmetical, technical, or other clear error." However, the Court of Appeals for the Fourth Circuit has ruled that Rule 35(a) is available in only limited circumstances. See United States v. Shank, 395 F.3d 466 (4th Cir. 2005). In Shank, the Fourth Circuit held that under Rule 35, "the court must act within seven days of sentencing, and ... a timely motion by the defendant does not extend this period." Id. The Fourth Circuit held that Rule 35 "clearly imposes a seven-day jurisdictional limit." Id. Finally, the Court noted that the "seven-day time period for correcting a sentence begins on the day the district court orally pronounces sentence." Id. at 470 n. 5.
In this case, the Court orally pronounced sentence as to all of the Defendants on December 9, 2004. The Court had jurisdiction to correct the sentence under Rule 35(a) for seven days from that date. However, under Shank, the Court no longer has jurisdiction at this time to act pursuant to Rule 35(a), regardless of when the Defendants filed their various motions. The Court need not reach the question of whether a pre-Booker sentence would qualify as "clear error" under Rule 35, since the Court lacks jurisdiction to act under Rule 35. Therefore, all of the motions *856 pursuant to Rule 35 [Document Nos. 252, 259, 255, 234, 245, 249, 269] must be denied. In addition, the related motions by Defendants James Lester Penniegraft, Tommy Penniegraft, Joann Penniegraft Cheek, and Herman Gene McBride to extend the time for filing a Rule 35 Motion [Document Nos. 251, 260, 242, 268, respectively] are likewise denied.
II. ADDITIONAL PROCEEDINGS RELATED TO DEFENDANTS WHO HAVE ALREADY APPEALED THEIR SENTENCES
Defendants James Lester Penniegraft, Tommy Penniegraft, Sandra Banks Thompson, Earl Dwayne Boss, and Deborah Penniegraft Mapp ("the Appeal Defendants") each entered a notice of appeal within 10 days of the Court's entry of Judgment and Commitment in their case. See Federal Rule of Appellate Procedure 4(b). The Court notes first that, absent extraordinary circumstances that do not appear here, it would be inappropriate for this Court to take any further action as to these Defendants while their cases are pending on appeal. Cf. Walker v. Connor, 72 Fed.Appx. 3, 2003 WL 21660483 (4th Cir.2003) (unpublished) (holding that while a defendant's direct criminal appeal was pending in the Fourth Circuit, collateral review "would have been premature."); United States v. Barger, 178 F.3d 844, 848 (7th Cir.1999); United States v. Cook, 997 F.2d 1312, 1319 (10th Cir.1993); Womack v. United States, 395 F.2d 630, 631 (D.C.Cir.1968) ("[T]here is no jurisdictional bar to the District Court's entertaining a Section 2255 motion during the pendency of a direct appeal but ... the orderly administration of criminal law precludes considering such a motion absent extraordinary circumstances.").[1]
However, the Supreme Court clearly held in Booker that the decision in Booker is applicable to cases pending on direct appeal. Booker, ___ U.S. at ___, 125 S.Ct. at 769. In addition, the Court of Appeals for the Fourth Circuit recently held that where a defendant was given a sentence that included enhancements that were not found by a jury or admitted by the defendant, the sentence was "plain error" in light of Booker and the case should be remanded for resentencing. See United States v. Hughes, 396 F.3d 374, 2005 WL 147059 (4th Cir.2005). Given the Fourth Circuit's reasoning in Hughes, it appears that each of the Appeal Defendants' Guideline sentences in the present case would be considered "plain error" and would be remanded to this Court for resentencing in light of Booker.
If the cases are remanded for resentencing, the Court notes, however, that the alternative sentences previously announced by this Court will not be used as the basis for resentencing. As recommended by the Court of Appeals for the Fourth Circuit in United States v. Hammond, 381 F.3d 316, 354 (4th Cir.2004)(en banc), after imposing sentences based upon the Federal Sentencing Guidelines, this Court also announced alternative sentences should the Supreme Court determine that Blakely applied to the Guidelines. However, this Court announced alternative sentences that were based on the appropriate Guideline range looking solely at those facts that were found by the jury or admitted by the defendant, as indicated by Blakely. The Supreme Court in Booker, in a majority decision by Justice Stevens, determined that the Sentencing Guidelines were in fact unconstitutional in light of Blakely. *857 However, a different majority of the Court ("the remedial majority"), in an opinion by Justice Breyer, found that the Sixth Amendment concerns could be remedied by making the Sentencing Guidelines advisory rather than mandatory. Justice Stevens dissented from this remedy, and contended that the Sixth Amendment violations should be remedied by requiring that "any fact that is required to increase a defendant's sentence under the Guidelines" be found by the jury or admitted by the defendant.
The alternative sentences previously announced by this Court are consistent with the remedy proposed by Justice Stevens in dissent in Booker, but are not in line with the remedial majority's ultimate decision. Therefore, those alternative sentences will not be imposed or converted into actual sentences. Instead, if the cases are remanded for resentencing, the Court will impose sentences in light of the majority's decision in Booker and in light of the subsequent decision of the Court of Appeals for the Fourth Circuit in United States v. Hughes, 396 F.3d 374 (4th Cir.2005).
This Court has adopted the following procedure for imposing a discretionary sentence as directed by the Supreme Court in Booker and by the Fourth Circuit in Hughes. First, the Court will calculate the applicable Guidelines range, including any appropriate sentencing enhancements, even if those enhancements were not found by the jury or admitted by the defendant. United States attorneys and defense attorneys will be given an opportunity to make objections to the proposed calculation contained in the pre-sentence report, as has previously been done. The Court will resolve any disputes at the sentencing hearing and will make any necessary findings based on a preponderance of the evidence submitted. Thus, the Court will continue to make any necessary findings of fact and resolve any disputed issues so that a possible sentence based on the proper Sentencing Guidelines range can be determined and factored into the Court's determination of an appropriate discretionary sentence for each individual Defendant.
Second, in imposing a sentence in light of Booker and Hughes, the Court will consider other relevant factors as set forth in 18 U.S.C. § 3553(a). For example, the Court's ultimate discretionary sentence will also take into account and consider the nature and circumstances of the offense, the history and characteristics of the defendant, the types of sentence available, any pertinent policy statements issued by the Sentencing Commission, the need to provide restitution to victims of the offense, Congress' objective of avoiding unwarranted sentence disparities, and whether the sentence is sufficient, but not greater than necessary, to reflect the seriousness of the offense, promote respect for the law, provide just punishment, afford adequate deterrence, protect the public, and provide the Defendant with needed training and medical care.
The Court will then impose a discretionary sentence based on a consideration of the Guidelines range, as well as these other relevant factors set forth in 18 U.S.C. § 3553(a). To the extent that the Court may impose a sentence that may be different from that which might otherwise have been available based solely on the Guidelines, the Court will announce its reasons for the sentence. It is important to note that a sentence under this format will not represent a "departure" under the Guidelines, and will not be considered as a "departure" for purposes of reporting or recording the Court's post-Booker sentence. Rather, the sentence to be imposed in light of Booker will be a discretionary sentence that is imposed after considering the advisory Guidelines range along with the other sentencing factors set out in 18 U.S.C. *858 § 3553(a). That sentence, and the reasons for the Court's imposition of that sentence, will be stated in open court and will be included with specificity in the Court's written order of Judgment and Commitment as required by 18 U.S.C. § 3553(c).
In addition, although there is no basis for the Court to resentence any of the Defendants whose cases are presently on appeal, the Court may nevertheless consider the motions of the Defendants pursuant to 18 U.S.C. § 3143(b) for release pending appeal. Pursuant to 18 U.S.C. § 3143(b), a defendant who has been sentenced is to be detained unless the Court finds (1) that the person is not likely to flee or pose a danger to any other person or to the community; and (2) that the appeal is not for the purpose of delay and raises a substantial question of law or fact likely to result in ... a sentence that does not include a term of imprisonment, or a reduced sentence to a term of imprisonment less than the expected duration of the appeal process. 18 U.S.C. § 3143(b). In this case, Defendants Earl Dwayne Boss, Deborah Penniegraft Mapp, and Sandra Banks Thompson have each requested release pursuant to § 3143(b) [Document Nos. 246, 236, 227], contending their appeals raise a substantial question of law or fact based on the decision of the United States Supreme Court in Booker. Those motions are set for hearing on Friday, February 11, 2005 at 10:00 a.m.
In addition, during the hearing on February 4, 2005, Defendants Tommy Penniegraft and James Lester Penniegraft also requested leave to file motions for release pending appeal pursuant to § 3143(b). The Government did not object to that request, although the Government requested an opportunity to respond to any § 3143(b) motions that might be filed. Therefore, the Court grants leave to Defendants Tommy Penniegraft and James Lester Penniegraft to file motions pursuant to § 3143(b), and directs that any such motions be filed by Tuesday, February 8, 2005. The motions will be set for hearing on Friday, February 11, 2005 at 10:00 a.m. The Government may respond orally at the hearing, or may file a written response by Thursday, February 10, 2005. At the hearing, the Court will address specifically as to each of the Appeal Defendants whether the appeal raises a question of law that would result in a "reduced sentence to a term of imprisonment less than the expected duration of the appeal process." However, the Court will make no final determination regarding what the appropriate sentence would be should the Court of Appeals remand these cases for resentencing in light of Booker. If the cases are remanded, an appropriate determination will be made at that time following the procedure outlined above as well as any other direction provided by the Court of Appeals.
III. ADDITIONAL MOTIONS BY DEFENDANTS WHO DID NOT FILE NOTICE OF APPEAL
Defendants Orlando Burton, Joann Penniegraft Cheek, Dante Rashad Penniegraft, Stevie Louis Graves, Herman Gene McBride, and Valerie Kaye Penniegraft did not appeal their sentences within 10 days of the entry of the Judgment and Commitment in their cases. As noted above, the Court does not have jurisdiction to correct their sentences pursuant to Rule 35. However, under Federal Rule of Appellate Procedure 4(b)(4);
Upon a finding of excusable neglect or good cause, the district court maybefore or after the time has expired, with or without motion and noticeextend the time to file a notice of appeal for a period not to exceed 30 days from the expiration of the time otherwise prescribed by this Rule 4(b).
During the hearing on February 4, 2005, Defendants Orlando Burton, Dante *859 Rashad Penniegraft, Stevie Louis Graves, and Valerie Kaye Penniegraft each made a motion pursuant to Rule 4(b)(4) for an extension of time to file notice of appeal. During the hearing, the Court granted those motions and gave each of those Defendants until February 7, 2005 to file notice of appeal. The Court notes that the Judgments as to Stevie Louis Graves and Dante Rashad Penniegraft were entered on December 28, 2004. Thus, those Defendants would have been required to file a notice of appeal by Wednesday, January 12, 2005. See Fed. R.App. P. 26(a)(2) (excluding intermediate Saturdays, Sundays, and legal holidays from the 10-day period). Under Rule 4(b)(4), the Court may extend the time to appeal for a period of not more than 30 days from that date upon a showing of good cause. The Court finds that good cause exists for extending the time for filing a notice of appeal, given the timing of the Supreme Court's decision in Booker. Therefore, by oral order entered on February 4, 2005, Defendants Stevie Louis Graves and Dante Rashad Penniegraft are granted until Monday, February 7, 2005 to file notice of appeal. Similarly, the Judgment as to Defendant Orlando Burton was entered on January 7, 2005, and he would have been required to file a notice of appeal by Monday, January 24, 2005. The Court finds that good cause exists for extending the time for filing a notice of appeal pursuant to Rule 4(b)(4), given the timing of the Supreme Court's decision in Booker. Therefore, by oral order entered on February 4, 2005, Defendant Orlando Burton is given until Monday, February 7, 2005 to file notice of appeal.
In addition, the Court notes that the Judgment and Commitment Orders as to Defendants Joann Penniegraft Cheek and Valerie Kaye Penniegraft were entered on December 21, 2004. During the hearing on February 4, 2005, the Court indicated that the time for extending the appeal period may have expired, and indicated that the only recourse may be pursuant to 28 U.S.C. § 2255.[2] However, by the *860 Court's calculation, after excluding intermediate Saturdays, Sundays, and legal holidays, the notice of appeal would have been required to have been filed by January 6, 2005.[3] Thus, pursuant to Rule 4(b)(4), the Court could extend the appeal period through February 5, 2005. Therefore, pursuant to Rule 4(b)(4) and based on the Court's finding of good cause, the Court by oral order entered on February 4, 2005, granted Defendants Joann Penniegraft Cheek and Valerie Kaye Penniegraft until February 5, 2005 to file notice of appeal.[4]
Finally, the Court notes that Defendant Herman Gene McBride's Judgment was entered on January 4, 2005, and notice of appeal would have been required to have been filed on January 19, 2005. Mr. McBride was not present at the February 4, 2005 hearing because his case was rescheduled for February 11, 2005 due to scheduling conflicts, and as a result Mr. McBride has not requested an extension pursuant to Rule 4(b)(4). However, if Mr. McBride chooses to make such a request, the Court in its discretion will grant Mr. McBride until February 11, 2005 to file notice of appeal.
As to all of these Defendants who have been given an extended period for filing notice of appealthat is, Defendants Orlando Burton, Joann Penniegraft Cheek, Dante Rashad Penniegraft, Stevie Louis Graves, Herman Gene McBride, and Valerie Kaye Penniegraftthe Court notes that should any of the Defendants choose not to file a notice of appeal, then the prior sentence imposed by this Court pursuant to the Sentencing Guidelines will be of full force and effect. If any of these Defendants file a notice of appeal and wish to file a request for release pending appeal pursuant to 18 U.S.C. § 3143(b), that motion must be filed by Tuesday, February 8, 2005. The motions will be set for hearing on Friday, February 11, 2005 at 10:00 a.m. The Government may respond orally at the hearing, or may file a written response by Thursday, February 10, 2005. If any of the Defendants choose not to file a notice of appeal or do not make a motion for release pending appeal, then those Defendants are hereby given a reporting date of March 18, 2005.
IV. CONCLUSION
In sum, this Court lacks jurisdiction to resentence Defendants pursuant to Rule 35, and all of the pending Motions pursuant to Rule 35 [Document Nos. 252, 259, 255, 234, 245, 249, 269] are DENIED. In addition, the related motions to extend the time for filing a Rule 35 Motion [Document Nos. 251, 260, 242, 268] are likewise DENIED, since the Court lacks jurisdiction to act under Rule 35 more than seven days after sentencing, regardless of when the motions are filed.
As to the Defendants who have appealed their sentence, this Court will not entertain any motion for resentencing those Defendant *861 while their cases are on direct appeal. However, those Defendants have clearly preserved their constitutional objections and, in light of Hughes, the Court expects that the Fourth Circuit will remand those cases for resentencing in accord with Booker. Defendants Orlando Burton, Joann Penniegraft Cheek, Dante Rashad Penniegraft, Stevie Louis Graves, Herman Gene McBride, and Valerie Kaye Penniegraft have not previously appealed their sentence, and the Court finds good cause pursuant to Federal Rule of Appellate Procedure 4(b)(4) to grant Defendant Joann Penniegraft Cheek until February 5, 2005 to file notice of appeal, and to grant the remaining Defendants until February 7, 2005 to file notice of appeal. Should any of the Defendants choose not to file a notice of appeal, then the prior sentence imposed by this Court pursuant to the Sentencing Guidelines will be of full force and effect.
Defendants who choose to file a notice of appeal and who wish to file a request for release pending appeal pursuant to 18 U.S.C. § 3143(b) must file such a motion by Tuesday, February 8, 2005. The motions will be set for hearing on Friday, February 11, 2005 at 10:00 a.m. The Government may respond orally at the hearing, or may file a written response by Thursday, February 10, 2005. If any of the Defendants do not file a notice of appeal or do not make a motion for release pending appeal, then those Defendants are hereby given a reporting date of March 18, 2005.
NOTES
[1] This rule similarly applies to any other defendants who were sentenced by this Court and who have appealed that sentence in light of Blakely. The Court notes that any potential Booker issues in such a case will be resolved as appropriate by the Fourth Circuit.
[2] Under 28 U.S.C. § 2255, a defendant may challenge his or her sentence on the ground that "the sentence was imposed in violation of the Constitution or laws of the United States." 28 U.S.C. § 2255. However, the Court notes that new rules of criminal procedure are not generally applicable to cases on collateral review pursuant to 28 U.S.C. § 2255. See Schriro v. Summerlin, ___ U.S. ___, ___, 124 S. Ct. 2519, 2526, 159 L. Ed. 2d 442 (2004) (holding that new rules of criminal procedure do not apply retroactively to cases already final on direct review); Teague v. Lane, 489 U.S. 288, 310, 109 S. Ct. 1060, 1075, 103 L. Ed. 2d 334 (1989) ("[N]ew constitutional rules of criminal procedure will not be applicable to those cases which have become final before the new rules are announced"); see also McReynolds v. United States, 397 F.3d 479 (7th Cir.2005) (holding that Booker is a procedural decision that "does not apply retroactively to criminal cases that became final before its release on January 12, 2005"); Gerrish v. United States, 353 F. Supp. 2d 95 (D.Me.2005) (holding that Booker is "not applicable to cases that were not on direct appeal when they were decided"). In addition, the Court also notes that failure to appeal a sentence will ordinarily result in a waiver of issues that could have been raised on direct appeal. See, e.g., United States v. Metzger, 3 F.3d 756 (4th Cir.1993) (holding that "the government's `interest in the finality of its criminal judgments' warrants a stringent cause-and-prejudice standard of review for § 2255 movants who waive their right of direct appeal." (quoting United States v. Frady, 456 U.S. 152, 166-68, 102 S. Ct. 1584, 1593-94, 71 L. Ed. 2d 816 (1982))); United States v. Sanders, 247 F.3d 139, 144 (4th Cir.2001) (holding that the defendant must ordinarily establish `cause' for failing to raise the issue on direct appeal, as well as actual prejudice). The Court need not reach the question of whether the alternative sentences that were included in the respective Judgments of each of the named Defendants provide some basis for deviating from these general rules, since each of the Defendants in the present case may choose to seek review of their sentence through direct appeal rather than through 28 U.S.C. § 2255.
[3] Under Federal Rule of Appellate Procedure 26(a)(4), a "legal holiday" includes New Year's Day, Christmas Day, and "any other day declared a holiday by the President, Congress, or the state in which is located either the district court that rendered the challenged judgment or order, or the circuit clerk's principal office." The Court notes that the Commonwealth of Virginia, in which the Fourth Circuit clerk's principal office is located, designates New Year's Day and Christmas Day as legal holidays, and "[w]henever any of such days falls on Saturday, the Friday next preceding such day ... shall be a legal holiday." Va.Code Ann. § 2.2-3300. Based on this rule, the Court considers Friday, December 24, 2004 and Friday December 31, 2004 as legal holidays.
[4] Since February 5, 2005 is a Saturday, Defendants Joann Penniegraft Cheek and Valerie Kaye Penniegraft would have until Monday, February 7, 2005 to file notice of appeal. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2327770/ | 473 F. Supp. 2d 607 (2007)
RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK, Petitioner,
v.
EMC NATIONAL LIFE INSURANCE COMPANY, Respondent.
No. 06 Civ. 10186(LAK).
United States District Court, S.D. New York.
February 13, 2007.
Brett Eric Wiggins, John M. O'Bryan, Lovells, Pieter Van Tol, New York, NY, for Petitioner.
John M. Nonna, Leboeuf, Lamb, Greene & MacRae LLP, New York, NY, Denny M. Dennis, Todd A. Strother, Bradshaw, Fowler, Proctor & Fairgrave, P.C., Des Moines, IA, for Respondent.
MEMORANDUM AND ORDER
KAPLAN, District Judge.
Petitioner ("RLNY") and respondent ("NTL") were parties to a coinsurance arrangement that contained a broad arbitration clause. A dispute arose as to NTL's obligations under the arrangement. The parties resorted to arbitration, which produced awards. For the most part, the propriety of those awards is uncontroversial and, indeed, the matter has been, resolved in all respects save one: the arbitrators' award to RLNY of $3,169,146 in attorney and arbitrator fees and *608 $691,903.75 in costs, the fees and costs having been awarded based on a finding that "the conduct of [NTL wa]s lacking good faith."[1] RLNY seeks confirmation of the awards while NTL moves to vacate so much of the award as granted attorneys fees and costs to RLNY.
The Agreements
The agreements in question contain identical arbitration clauses:
"In the event of any disputes or differences arising hereafter between the parties with reference to any transaction under or relating in any way to this Agreement as to which agreement between the parties hereto cannot be reached, the same shall be decided by arbitration. Three arbitrators shall decide any dispute or difference."[2]
The agreements provide further that "the laws of, the State of New York and to the extent applicable, the Federal Arbitration Act, shall govern the interpretation and application of this Agreement"[3] and that "[t]he arbitrators shall consider the customary and standard practices in the life or health reinsurance business, as applicable to the dispute."[4] Finally, the agreements provide also that "[e]ach party shall bear the expense of its own arbitrator . . . and related outside attorneys' fees, and shall jointly and equally bear with the other party the expenses of the third arbitrator."[5]
Discussion
Section 10(a)(4) of the Federal Arbitration Act ("FAA")[6] provides that an arbitration award may be vacated "where the arbitrators exceeded their powers." The question whether arbitrators have done so "focuses on whether the arbitrators had the power, based on the parties' submissions or the arbitration agreement, to reach a certain issue, not whether the arbitrators correctly decided that issue."[7] In other words, the question is whether "the arbitrator resolved an issue that the parties' agreement did not authorize him to resolve."[8]
In this case, both agreements contained identical arbitration articles. Each contained very broad agreements to arbitrate.[9] Each expressly provided that "[e]ach party shall bear the expense of its own arbitrator . . . and related outside attorneys' fees."[10] Thus, each made' clear that the arbitrators had no authority to award outside attorneys' fees, notwithstanding the breadth of the agreements to arbitrate.
RLNY nevertheless argues that the award of attorneys' fees and costs should be sustained, notwithstanding Section 10.3 of the agreements, on the theory that (1) Section 10.3 merely states the general rule adopted by the parties, (2) the governing law clause adopts New York law as to the availability of fee awards in exceptional cases, and (3) New York would permit an award of attorneys' fees in this case under Mighty Midgets v. Centennial Insurance Co.[11] But the argument would be unpersuasive, *609 even assuming arguendo that RLNY correctly reads New York law, which is doubtful but which I need not decide.
The arbitration article of the agreements is clear as a bell. Although it contains a broad arbitration clause, it unmistakably provides that the parties are to bear the fees of their respective arbitrators (i.e., the party-appointed arbitrators) and outside counsel. Moreover, NTL objected to the arbitrators' authority to enter any award of fees and costs.[12]
Nor is RLNY helped by its contention that the arbitrability of the availability of an award of attorneys' and arbitrator fees was a matter for the arbitrators. To be sure, it is correct in saying that questions of arbitrability presumptively are for the arbitrators where the parties agree to a broad arbitration clause.[13] In other words, where there is a broad arbitration clause, any ambiguities as to the scope of the parties' submission to arbitration are for resolution by arbitrators, not courts. But this principle is not boundless. Arbitration of a particular grievance will not be ordered where "it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute."[14] That is the case here.
Conclusion
For the foregoing reasons, the cross.petition to vacate so much of the final award, dated October 20, 2006 (Pet. Ex. 21), as awarded RLNY $3,169,496 in attorney and arbitrator fees and $691,903.75 in costs, plus interest, is granted to the extent that the award of attorney and arbitrator fees and interest thereon is vacated. It is otherwise denied. The petition to confirm the award is granted to the extent that the award, as Modified above, is hereby confirmed. Thus, petitioner is entitled to judgment for $691,903.75 together with interest thereon as set forth in the award. The Clerk shall enter judgment accordingly and close the case.
SO ORDERED.
NOTES
[1] Pet. Ex. 21 ¶ 4.
[2] Pet. Exs. § 10.1,
[3] Id. § 10.4.
[4] Id. § 10:2.
[5] Id. § 10.3.
[6] 9 U.S.C. § 10.
[7] Banco de Seguros del Estado v. Mutual Marine Office, Inc., 344 F.3d 255, 262 (2d Cir. 2003); DiRussa v. Dean Witter Reynolds Inc., 121 F.3d 818, 824 (2d Cir.1997).
[8] Hoeft v. MVL Group, Inc., 343 F.3d 57, 71 (2d Cir.2003).
[9] Pet. Ex. 1, 2, § 10.1.
[10] Id. § 10.3 (emphasis added).
[11] 47 N.Y.2d 12, 21, 416 N.Y.S.2d 559, 564, 389 N.E.2d 1080 (1979).
[12] See Dennis Decl. Ex. 2, ¶ 4.
Although NTL cross-moves to vacate also so much of the award as granted costs, Section 10.3 does not speak to the issue of costs as distinguished from attorneys' and arbitrator fees. Nor has NTL addressed that issue in any but conclusory terms. In consequence, I regard that aspect of the cross-motion to vacate as having been abandoned.
[13] E.g., PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1199 (2d Cir.1996).
[14] AT & T Tech., Inc. v. Commc'n Workers of Am., 475 U.S. 643, 650, 106 S. Ct. 1415; 89 L. Ed. 2d 648 (1986) (quoting United Steelworkers of Am. v. Warrior & Gulf Nay. Co., 363 U.S. 574, 582-83, 80 S. Ct. 1347, 4 L. Ed. 2d 1409 (1960)); Paramedics Electromedicina Comercial Ltda. v. GE Med. Sys. Info. Techs., Inc., 369 F.3d 645, 653 (2d Cir.2004) (quoting Smith/Enron Cogeneration Ltd. P'ship v. Smith Cogeneration Int'l Inc., 198 F.3d 88, 99 (2d Cir.1999) (quoting WorldCrisa Corp. v. Armstrong, 129 F.3d 71, 74 (2d Cir.1997))). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2387372/ | 9 F.Supp.2d 331 (1998)
BRENNTAG INTERNATIONAL CHEMICALS, INC., Plaintiff,
v.
NORDDEUTSCHE LANDESBANK GZ and Bank of India, Defendants.
No. 97 Civ. 2688(RWS).
United States District Court, S.D. New York.
June 18, 1998.
*332 Katten, Muchin & Zavis, Chicago, IL (James C. Murray, Jr., Deane B. Brown, of counsel), Howard, Darby & Levin, New York City (Linda C. Goldstein, of counsel), for Plaintiff.
McDermott, Will & Emery, New York City (Julie Y. Chen, Michael C. Nissim, of counsel), for Defendant Norddeutsche Landesbank GZ.
Sidley & Austin, New York City (James D. Arden, Rajiv Khanna, John J. Lavelle, of counsel), for Defendant Bank of India.
OPINION
SWEET, District Judge.
Plaintiff Brenntag International Chemicals, Inc. ("Brenntag") has moved for a preliminary injunction, pursuant to Rule 65 of the Federal Rules of Civil Procedure, to enjoin payment under Irrevocable Stand-By Letter of Credit No. 190397 in the amount of $2,452,167.43 (the "LOC"). The LOC, which was issued by Norddeutsche Landesbank, GZ ("Nord/LB") at Brenntag's request, was used to secure payment for a shipment of naphtha purchased by Brenntag from Petro Pharma PTE, Ltd. ("Petro Pharma"), a Singapore *333 entity now in receivership. Co-defendant the Bank of India ("BOI") has cross-moved for judgment on the pleadings, pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, on the grounds that BOI is immune from the relief requested pursuant to the Foreign Sovereign Immunities Act of 1976 ("FSIA"), 28 U.S.C. §§ 1602-1621. Finally, Brenntag has moved to strike or disregard as inadmissible certain supplemental affidavit testimony submitted by BOI. For the reasons set forth below, Brenntag's motion to strike or disregard the supplemental affidavit testimony is denied, Brenntag's motion for a preliminary injunction is granted, and BOI's motion for judgment on the pleadings is denied.
Parties
Plaintiff Brenntag is a Texas corporation with its principal place of business in Houston, Texas.
Nord/LB is a foreign banking organization formed under the laws of German, its principal place of business is in Germany, and it has offices in New York, New York.
BOI is a foreign banking organization formed under the laws of India, with its principal place of business in India. BOI has banking offices in Singapore and New York, New York, among other places. BOI is an "agency or instrumentality" of India which carries on commercial business at its place of business in New York, as set forth in the FSIA.[1]
Prior Proceedings
Brenntag filed the complaint in this action on April 16, 1997, and on that day moved by Order to Show Cause for a temporary restraint and a preliminary injunction. The Court granted the temporary restraint and required Brenntag to post a bond as security.
On May 22, 1997, this Court held a hearing on the preliminary injunction. At the end of the preliminary injunction hearing, the Court observed that the "issue of holder in due course and the knowledge and the relationship between Bank of India and Petro Pharma ... has not been completely explored." The Court further stated that "[w]hat we are interested in is the relationships." Accordingly, the Court instructed the parties to engage in expedited discovery on these limited issues and to file submissions which clarify the outstanding issues articulated by the Court.
The parties filed additional submissions and the preliminary injunction hearing was continued on March 25, 1998.
Facts
The parties here agree that the underlying business transaction giving rise to the instant dispute was a fraud. There is no dispute here that Petro Pharma, a Singapore corporation now in receivership, never shipped the chemicals to its customer, Brenntag, and yet represented to the BOI that it had. There is also no dispute that the BOI advanced to Petro Pharma approximately $2.4 million with the expectation that it would be repaid out of the proceeds from the purported sale.
The dispute here is whether, notwithstanding the underlying fraud perpetrated by Petro Pharma, the BOI is entitled to payment from Nord/LB pursuant to a stand-by letter of credit established by Brenntag to pay for the chemicals because, as the BOI contends, it validly negotiated for all of the documents required to be presented to Nord/LB for payment. The pertinent facts are set forth below in chronological order.
I. May 1995: BOI Began Its Banking Relationship With Petro Pharma
BOI began its banking relationship with Petro Pharma in May 1995, when Petro Pharma was introduced to BOI through one of BOI's customers in the trading business, Parsram Brothers. Petro Pharma opened a current account with BOI and "did some trade finance transactions" through BOI as well. BOI's primary contacts at Petro Pharma were its directors, Mr. Narasimhan Ashok and Mrs. Rema Ashok ("Ashoks"), as well as Mr. B. Aranaprasad, also known as Prasad ("Prasad"), and Mr. Venkat Iyer ("Iyer").
*334 Prasad had previously been employed at BOI's Singapore Branch for four years as the Manager of Trade Finance (Export), where he dealt with letters of credit. Prasad's position as Manager of Trade Finance (Export) was subsequently combined with the position of Manager of Trade Finance (Import) to create the post of Manager of Trade Finance, a position assumed by Some Nath Banerjee ("Banerjee") on September 4, 1995. In this position, Banerjee managed all aspects of letters of credit, as well as other import and export trade finance matters. The parties dispute whether the term of employment for Prashad and Banerjee overlapped.
At the time Petro Pharma opened its account with BOI, the Ashoks signed a personal guarantee for the sum of Singapore $5 million, although BOI did not take any tangible securities to collateralize this guarantee. In addition, the Ashoks also signed a corporate guarantee, for indemnity against losses, as well as an indemnity against monies advanced on any bills or checks.
In order for BOI to determine which employees were authorized to act on behalf of Petro Pharma with respect to its BOI transactions, Petro Pharma provided BOI in May 1995, when the account was opened, with its Board Resolution naming the Ashoks and Prasad as authorized signatories for Petro Pharma. Petro Pharma also supplied BOI with an "authorized signatory" card, also known as a "face card," which contained sample signatures of the Ashoks and Prasad. BOI recognized that the "authorized signatories" were the only people that can sign on behalf of Petro Pharma. For verification purposes, BOI took copies of the passports of the authorized signatories at the time the account was opened. When the Petro Pharma account was opened, BOI kept all of these opening documents in its deposit section department.
On January 25, 1996, BOI received from Petro Pharma a copy of its new Board Resolution, passed on December 19, 1995, which changed the authorized signatories on Petro Pharma's account with BOI. The Board Resolution authorized either of the Ashoks to sign singly on behalf of Petro Pharma and authorized any two of the following individuals to sign jointly on behalf of Petro Pharma: Prasad, Iyer or Carter J. Ward. The Board Resolution provided sample signatures for all five signatories. BOI's notes on the new Board Resolution indicated that BOI was to "[t]ake out the old," "[n]ote these instructions," "obtain a face card for all," and "[f]or Carter J. Ward, obtain passport/IC."
On two occasions prior to the transaction at issue here, Brenntag purchased goods from Petro Pharma and opened stand-by letters of credit to pay for the goods. For each transaction, Petro Pharma requested that BOI "negotiate/discount" the letters of credit. BOI has not, however, established that Brenntag or Nord/LB knew that BOI had "negotiated" the documents for the stand-by letters of credit. In neither case did Nord/LB pay to BOI under the letters of credit. In fact, Brenntag paid the invoices under the two stand-by letters of credit directly. BOI's contention that Nord/LB should have been aware because it made a request to draw upon a letter of credit which it later withdrew is not credible.
II. March 1996: Brenntag Purchased Naphtha From Petro Pharma, Payment Of Which Was Secured By The LOCO
On or about March 14, 1996, Brenntag entered into a contract with Reliance Industries Limited ("Reliance"), located in Bombay, India, in which Brenntag agreed to sell to Reliance 15,000 metric tons +/- 5 percent of naphtha. To procure the naphtha for Reliance, Brenntag entered into a contract with Petro Pharma on or about March 19, 1996, for 15,000 metric tons of naphtha, delivery to be made in Bombay, India to arrive April/May 1996. Under the contract, payment was to be secured by an irrevocable stand-by letter of credit.
On or about March 21, 1996, at Brenntag's request, Nord/LB issued the LOC in favor of Petro Pharma as beneficiary and BOI as the advising bank, in the amount of U.S. $2,340,000 +/- 5%. The LOC was:
Payable at sight, but not earlier than 361 days after the loading date, at our counters, against presentation of the following documents:
*335 1. Copy of commercial invoice covering 15,000 metric tons plus/minus five percent of naphtha at a price of U.S. DLRS 158.00 per metric ton, CFR Bombay, India.
2. Copy of negotiable bill of lading.
3. Statement purportedly signed by an authorized representative of Petro Pharma Pte Ltd. Stating that: "payment, which was due 360 days after completion of loading, has not been received and is due from Brenntag International Chemicals, Inc."
4. Copy of beneficiary's covering letter addressed to Norddeutsche Landesbank GZ, 1270 Avenue of the Americas, New York, New York, 10020 under cover of all original negotiable documents sent, via courier service, directly upon shipment.
Presentation of copies of Petro Pharma's covering letter along with the original negotiable documents were acceptable under the terms of the LOC, presumably because Nord/LB was already supposed to be in possession of the originals, directly upon shipment, as set forth in of the LOC.
The LOC also provided the following Special Conditions:
1. Partial shipments/drawings are not acceptable.
2. All charges other than those of the issuing bank are for the account of the beneficiary.
3. Negotiation is restricted to the bank of India, Singapore.
Additionally, the LOC was made subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision) Publication No. 500 of the International Chamber of Commerce, Paris, France (the "UCP").
The LOC was originally to expire on March 17, 1997. On March 22, 1996, the expiration date was amended to June 30, 1997. Additionally, on March 26, 1996, the unit price per metric ton of naphtha was amended to U.S. $156.00.
III. March 1996: BOI Advanced U.S. $2.4 Million To Petro Pharma Under The LOC
On March 22, 1996, immediately after becoming the beneficiary under the LOC, Petro Pharma wrote to BOI Chief Executive Nayak ("Nayak"), requesting that BOI approve "discounting of its invoices under the LOC," as BOI had apparently done on two of its prior transactions with Brenntag in May 1995. Banerjee defined "discounting" of letters of credit to mean "giv[ing] finance against letter of credit." Banerjee used the term "negotiation" synonymously with discounting.
Nayak passed along Petro Pharma's request to Banerjee, who handled the discounting transaction at issue. Banerjee admitted that Petro Pharma was requesting that BOI discount a stand-by letter of credit, as opposed to a documentary letter of credit. According to Banerjee, a stand-by letter of credit is "theoretically" different from a documentary letter of credit because an "applicant's non-performance" is required to give rise to a claim under a stand-by letter of credit, whereas a beneficiary need only "perform certain things, like submission of documents," under a documentary letter of credit.
Petro Pharma's March 22 letter states that it is tendering to BOI "documents as called for under the LOC ... along with an undated claim letter form for the purposes of completing your records." The "undated claim letter," also known as the "Default Letter," was signed jointly by Prasad and Iyer, on behalf of Petro Pharma. At his deposition, Banerjee conceded a number of points with respect to the Default Letter:
1. At the time BOI received the Default Letter in March 1996, the stamp that now appears on the document March 14, 1997 was not there.
2. The Default Letter could not have been dated until after the due date (360 days after completion of loading).
3. Brenntag had not defaulted on any obligations it allegedly owed to Petro Pharma in March 1996.
4. On March 14, 1997, Banerjee instructed BOI's billing clerk to stamp the March *336 14, 1997 date on the Default Letter, even though nothing in the documents BOI received from Petro Pharma authorized BOI to date stamp the Default Letter.
5. BOI never asked or even attempted to ask anyone at Petro Pharma whether BOI was authorized to affix the March 14, 1997 date on the Default Letter.
6. At the time Banerjee examined the Default Letter in March 1996, and authorized payment by BOI to Petro Pharma of $2.4 million, the statement contained in the Default Letter that "payment which was due 360 days after completion of loading has not been received and is due and owing from Brenntag International Chemicals, Inc." as not true and could not have been true.
In addition to the undated Default Letter provided by Petro Pharma along with its March 22 letter to BOI, Petro Pharma provided BOI with the following documents which BOI reviewed in order to determine whether to discount the LOC:
1. The LOC;
2. A copy of Petro Pharma's covering letter dated March 22, 1996, the original of which was supposedly sent by DHL courier to Nord/LB. Brenntag contends that Nord/LB never received the original of this document or the original negotiable documents;
3. The purported bill of lading; and
4. Petro Pharma's invoice for naphtha bearing the incorrect unit price of $158 per metric ton.
In addition, when deciding whether to discount the LOC, BOI had in its possession a March 25, 1996 telex from Nord/LB to BOI stating that: (1) no payment has been made as of that date by Nord/LB directly to Petro Pharma outside the LOC; and (2) all payments under the LOC will be made only to BOI by Nord/LB.
Banerjee admitted that at the time BOI was determining whether to advance the funds under the LOC, BOI may not yet have received the March 26, 1996 telex from Nord/LB amending the LOC to reflect the unit price per metric ton of naphtha of $156, although BOI ultimately received this telex. BOI had requested that Petro Pharma ask Nord/LB to issue this amendment addressing the unit price after BOI realized that the "unit price when multiplied by this tonnage was more than the LC value," which was an "inconsistency." BOI further conceded that when it decided to advance funds under the LOC, it had not yet received a copy of the letter dated March 28, 1996 from Petro Pharma to Nord/LB enclosing the revised Petro Pharma invoice bearing the correct unit price per metric ton of naphtha of $156. Thus, the documents against which BOI "advanced" $2.4 million to Petro Pharma were facially non-compliant with the terms of the LOC.
BOI also obtained a letter of indemnity from Petro Pharma so that it "may have recourse against [its] customer or beneficiary." Further, on March 26, 1996, Petro Pharma completed BOI's "standard application" for the negotiation of documents. The Application was jointly signed by Prasad and Iyer on behalf of Petro Pharma, both of whose signatures were verified by Banerjee.
Upon receipt of all of the aforementioned documents, BOI officials checked the documents, all of which were then given to Banerjee to review one more time. During the course of his review, however, Banerjes admitted that BOI did not make any inquiries to determine whether Nord/LB had received Petro Pharma's original covering letter with all original negotiable documents, supposedly sent to Nord/LB by DHL courier upon shipment. Nor did BOI make any inquiries to see whether the original negotiable documents had been accepted by Nord/LB, or whether Nord/LB or Petro Pharma had the DHL courier receipt.
Banerjee recommended to Nayak that "everything was in order," and that BOI should discount the LOC.
Once BOI approved Petro Pharma's request to advance approximately $2.4 million under the LOC, Petro Pharma furnished it with instructions to make payment of U.S. $1,810,000 to its account at Standard Chartered Bank, with the balance to be credited to its account with BOI. On March 26, 1996, BOI disbursed the funds according to Petro Pharma's request. BOI took up front its *337 interest and charges for discounting the LOC.
After BOI advanced the $2.4 million to Petro Pharma, it did not take an assignment of proceeds from the naphtha contract from Petro Pharma, nor did it take any collateral from Petro Pharma before disbursing the funds under the LOC. Likewise, Petro Pharma did not sign any promissory notes in connection with the $2.4 million financing under the LOC, and BOI has no lien on any of Petro Pharma's assets to secure the funds advanced under the LOC.
IV. June 1996: Brenntag's Contract With Petro Pharma Was Cancelled Due To Non-Delivery Of Naphtha
On June 22, 1996, Reliance advised Brenntag that it was cancelling the naphtha contract because Brenntag had failed to deliver the naphtha as per the terms and conditions of the contract. Likewise, on June 22, 1996, Brenntag advised Petro Pharma that the naphtha contract had been cancelled by Reliance due to non-delivery of the naphtha, and accordingly, Brenntag was cancelling its naphtha contract with Petro Pharma. It is undisputed that the naphtha was never shipped, and Banerjee testified that BOI did not investigate this issue. Banerjee testified that BOI first learned about the contract cancellation when it heard from lawyers for Brenntag and Nord/LB during this litigation.
Although Brenntag advised Petro Pharma that their naphtha contract was cancelled, Brenntag contends that by oversight they did not take steps to cancel the LOC until March 13, 1997. BOI, on the other hand, cites Banerjee's testimony to support a contention that the claimed "oversight" was in fact intentional.
On March 13, 1997, Brenntag sent Nord/LB a facsimile requesting cancellation of the LOC, due to non-shipment and cancellation of the purchase contract.
V. July 1996: Prasad Resigned From Petro Pharma And Was Replaced By Gandarvakottai Raghavan As Petro Pharma's Authorized Co-Signatory On The BOI Account
According to the sworn Declaration of Gandarvakottai Raghavan, dated June 26, 1997, Petro Pharma's former Business Manager, Prasad resigned from Petro Pharma to join another Singapore trading company known as Vinmar International Ltd. Because Prasad had been an authorized co-signatory on Petro Pharma's BOI account, as well as on Petro Pharma's other bank accounts, Ashok sent out a letter dated July 1, 1996, advising that Prasad no longer worked for Petro Pharma and was no longer authorized to represent Petro Pharma as of June 30, 1996. Although Banerjee denied that BOI received this letter and further denied knowing that Prasad had left Petro Pharma, he conceded that he "did not recall" having any dealings with Prasad after July 1, 1996. Banerjee further testified that he did not remember seeing any documents that were signed by Prasad on behalf of Petro Pharma after July 1, 1996, and if any such documents existed, BOI would have produced them. BOI did not produce any such documents.
According to Raghavan, when Prasad resigned from Petro Pharma, Raghavan was appointed to replace him as authorized cosignatory by virtue of a Board Resolution passed by Petro Pharma management. In order to replace Prasad as authorized cosignatory, Raghavan met personally with two BOI officials Banerjee and Mr. Sethuraman and provided them with the new Board Resolution appointing him as authorized cosignatory, along with Iyer. The Board Resolution clearly stated that it superseded the authorized signatories appointed in the earlier Board Resolutions.
BOI disputes that Raghavan provided Banerjee and Sethuraman with the Board Resolution, citing Banerjee's testimony, who disclaimed ever receiving the resolution, and stated that he was never authorized to accept board resolutions or signature cards, which he claimed is a manager function.
Raghavan also provided Banerjee with a copy of his passport for identification and then signed a specimen or "face" card so that his signature would be on file with BOI. Banerjee confirmed that it was BOI's practice to obtain sample signatures and copies of passports for new authorized signatories.
*338 Banerjee denied that he ever met with Raghavan in July 1996 and further denied that Raghavan provided him with the new Petro Pharma Board Resolution changing its authorized signatories. BOI did not produce the Petro Pharma Board Resolution changing its authorized signatories, the face card with Raghavan's signature, or a copy of Raghavan's passport.
BOI accepted Raghavan as an authorized co-signatory on behalf of Petro Pharma on several documents produced by BOI, dated July 8, 1996 and August 15, 1996. Indeed, Banerjee readily identified Raghavan's signature on these documents, along with Iyer's, and admitted that he had previously seen Raghavan's signature. He further conceded that BOI had in fact accepted Raghavan as authorized co-signatory on the documents at issue.
VI. August-October 1996: BOI First Experienced Difficulties With Petro Pharma's Account And Began To make Inquiries of Nord/LB Regarding The LOC
In August 1996, BOI first experienced problems with Petro Pharma's account. BOI had advanced U.S. $728,000 to Petro Pharma on a bill with a due date in July or August 1996. When the bill was not paid by the drawee a customer in Dubai BOI sought payment from the drawer, Petro Pharma. After informing Nayak of the overdue bill, Banerjee contacted Ashok to tell him "forcibly that [Petro Pharma] must return the funds immediately." Because $728,000 was considered a "large amount of money," Banerjee had multiple conversations with Ashok in pursuit of repayment. In fact, Banerjee admitted that "every day I used to chase him." Ashok ultimately repaid BOI the entire outstanding sum by October 1996.
Also during the September-October 1996 time period, Petro Pharma was attempting to raise money by selling an equity interest in the company to a Singapore entity known as Kewalram. Because BOI was to receive the money from this sale, Raghavan and Ashok wrote letters to Banerjee and Nayak regarding this transaction. Raghavan also stated that BOI knew of Petro Pharma's deteriorating financial condition from participation by Banerjee or Nayak in informal monthly meetings with the other Indian banks operating in Singapore, at which the finances and business dealings of their customers, including Petro Pharma, were discussed. Banerjee admitted that there is a forum for Indian banks in Singapore that meets monthly, but that he personally does not participate in that forum.
Once BOI began to experience problems with Petro Pharma in August 1996, it checked other accounts Petro Pharma maintained with BOI, including the balance owed to BOI under the previously discounted Stand-By Letter of Credit. Consequently, on August 28, 1996, BOI sent Nord/LB a facsimile requesting that Nord/LB "acknowledge receipt of documents submitted by the beneficiary directly to you as per terms of LC."
On September 3, 1996, Nord/LB responded to BOI's facsimile, with a telex stating that "[d]ocuments have not yet been received. For good order sake we would like to point out that negotiation is restricted to the Bank of India Singapore." Banerjee testified that BOI found this message "somewhat confusing" and claimed that Nord/LB had not "replied clearly" to what BOI had asked. Banerjee admitted that Nord/LB had advised BOI in its telex that the original documents had not been received by Nord/LB, as required by the LOC. BOI asserts that the telexes were deliberately confusing and that Brenntag alone had knowledge of the alleged contract cancellation but did not reveal that evidence, and in fact, went to great lengths to make sure that BOI did not discover it.
After receiving Nord/LB's September 3rd telex, Banerjee called Ashok at Petro Pharma and requested "receipts or other proof" that Petro Pharma had actually sent the original documents to Nord/LB. Although Banerjee requested from Ashok such documentation three or four times over a 20 or 25-day period, Ashok never supplied BOI with the proof it requested. Ashok ultimately told Banerjee that "DHL receipts were not traceable," and that "DHL courier receipts are not available at [Petro Pharma's] *339 end." Banerjee did not contact Brenntag directly to determine whether it had received the documents that were forwarded to Nord/LB under Petro Pharma's cover letter to Nord/LB dated March 22, 1996.
BOI sent a facsimile to Nord/LB on September 24, 1996, in which it advised that "[d]ue date of bill is on 12/3/97 and we will present documents as per LC terms. Pls note to make payment to us on due date."
In response to BOI's September 24th facsimile, Nord/LB sent a telex to BOI on October 4, 1996, in which BOI stated that "the L/C expires on June 30, 1997 and can only be utilized against presentation of documents as outlined in our opening telex of March 21, 1996 plus amendments dated March 22, 1996 and March 26, 1996." At no time throughout the August-October communications between Nord/LB and BOI did Nord/LB ever receive Petro Pharma's original covering letter along with the original negotiable documents. After the October 4th telex, there was no further communication between BOI and Nord/LB regarding the LOC until March 17, 1997, when BOI presented documents to Nord/LB attempting to draw on the LOC.
VII. February-March 1997: BOI Was Aware Of Petro Pharma's Imminent Receivership
On February 24, 1997, an advertisement was published in the Straits Times, a local paper read by BOI, announcing that a winding-up petition had been filed by Habib Bank against Petro Pharma and that a hearing on this petition was to take place on March 14, 1997. Banerjee admitted that he saw the notice of the winding-up petition shortly after it was published. Banerjee understood from this petition that a receiver could be appointed for Petro Pharma at a court hearing on March 14, 1997. Shortly after he saw the advertisement, in February 1997, Banerjee telephoned Habib Bank to find out why it had filed the petition. A Habib Bank official advised Banerjee that Petro Pharma owed it approximately $300,000. Banerjee advised Nayak of this information and was told by Nayak to contact Ashok about the petition.
According to Raghavan, on or about March 1, 1997, BOI became very concerned about Petro Pharma's ability to pay back moneys advanced by BOI under the LOC. As a result, from March 1-13, 1997, either Raghavan or Iyer engaged in daily conversations with Banerjee regarding Petro Pharma's financial condition and ability to repay BOI. Although most of these conversations occurred on the telephone, two of the discussions took place at Petro Pharma's office. Because Ashok was in Europe at this time, looking for prospective investors to help Petro Pharma, Raghavan reported these conversations to him on a daily basis. Also during these conversations in early March, Raghavan advised Banerjee that Petro Pharma was attempting to reach an out-of-court settlement with Habib Bank concerning its winding-up petition.
Banerjee admitted that he was extremely concerned about Petro Pharma's winding-up petition, but claims that he never spoke to anyone at Petro Pharma about it. Banerjee stated that he tried every day to reach a Petro Pharma officer, but none was available. Banerjee also claimed to have gone to Petro Pharma's offices at least three or four times, but was told that no officers were available. Banerjee even went to Ashok's house, which was locked, and learned from a neighbor that Ashok had not resided there for over a month. Banerjee did not, however, write any letters to Petro Pharma asking its officers to contact him.
Raghavan stated that Banerjee wanted to know how and when BOI would receive the money owed to it under the LOC. Raghavan advised Banerjee that Petro Pharma acknowledged its liability to BOI for the advanced funds and that it was a matter to be resolved between Ashok and Nayak, since Ashok had personally guaranteed repayment of moneys owed to BOI by Petro Pharma. Raghavan further explained to Banerjee that it would be improper for BOI to demand payment from Nord/LB under the LOC because Brenntag did not owe any money to Petro Pharma, and accordingly, it did not default. Raghavan further advised Banerjee that because the money was advanced under a stand-by letter of credit, as opposed to a documentary letter of credit, a default necessarily had to occur before a valid demand for payment could be made under the LOC.
*340 Raghavan refused Banerjee's repeated requests for a fresh Default Letter. According to Raghavan, Banerjee acknowledged that he made these requests because he knew that the undated Default Letter which Petro Pharma provided to BOI in March 1996 was invalid because, among other things, it was co-signed by Prasad, who was no longer an authorized signatory. Raghavan further stated that Banerjee also acknowledged that he knew that Iyer, the other co-signatory on the Default Letter, had no independent authority to execute documents on behalf of Petro Pharma. According to Raghavan, because Petro Pharma refused to provide BOI with a new Default Letter, BOI date-stamped the Default Letter itself and presented it to Nord/LB with the knowledge that it was invalid.
Raghavan opined that BOI became anxious that Petro Pharma would not be able to repay the funds advanced under the LOC, and consequently, demanded payment by Nord/LB under the LOC even though it had unequivocally been told that it would be improper to do so. Banerjee denied the statements made in Raghavan's sworn Declaration.
Further, although BOI was aware that a receiver could be appointed for Petro Pharma at the March 14 hearing, BOI did not retain Singapore counsel to represent it at the hearing or in the winding-up affairs of Petro Pharma. Nor did anyone from BOI attend the March 14 hearing or follow-up with Habib Bank on March 14 to learn the results of the winding-up petition. According to Banerjee, it was not until March 21, 1997, when BOI received a letter from Petro Pharma's receiver, Mr. Medora, that BOI learned that a receiver had been appointed for Petro Pharma as of March 12, 1997.
VIII. March 17, 1997: BOI Presented Documents To Nord/LB In An Attempt To Draw Under The LOC
On March 17, 1997, Nord/LB received, by DHL courier, BOI's demand for payment under the LOC in the amount of U.S. $2,452,167.43, dated March 14, 1997. Accompanying BOI's demand were copies of the following documents: Petro Pharma's invoices, the bill of lading, the Default Letter and Petro Pharma's covering letters. After examining the documents, Nord/LB found that the documents did not comply with the terms set forth in the LOC in a number of ways, and sent BOI a telex on March 18, 1997 informing BOI of these discrepancies and inconsistencies. On March 21, 1997, BOI sent Nord/LB a telex disputing these discrepancies. Many of these discrepancies are further discussed in the affidavit of Alan Blood-good, filed on May 21, 1997, and can be summarized as follows:
1. The undated Default Letter is impermissible under the USCIB publication "STANDARD BANKING PRACTICE FOR THE EXAMINATION OF LETTER OF CREDIT DOCUMENTS."
2. The Default Letter was inconsistent with the bill of lading at the time of the "negotiation" on March 26, 1996 because the Bank of India could have determined from the face of the documents that 360 days had not lapsed as against the copy of the bill of lading presented and payment was clearly not due at the time of the Bank of India's "negotiation."
3. The Default Letter was inconsistent with the copy of the commercial invoice as stipulated in the Stand-By Letter because the Default Letter reflected an invoice of $2,483,605.48 which was inconsistent with the revised invoice amount of $2,452,167.12 presented to Bank of India on March 26, 1996. This discrepancy constitutes "data content" which is inconsistent with a stipulated document, and is not "purely incidental" under UCP 500 Article 21.
4. The Bank of India's cover letter dated March 14, 1997 requested remittance of $2,452,167.43, which exceeded the revised invoice amount of $2,452,167.12. Further, the cover letter amount was also inconsistent with the amount stated in the Default Letter of $2,483,605.48.
On March 27, 1997, Nord/LB sent BOI a telex which restated its belief that the documents presented by BOI were not in conformity with the LOC. In this telex, Nord/LB reminded BOI that Nord/LB had never received the original negotiable documents from Petro Pharma, as called for in the LOC. *341 To that end, Nord/LB requested from BOI a copy of the DHL receipt showing delivery to Nord/LB. BOI has never provided this DHL courier receipt to Nord/LB.
After BOI presented documents to Nord/LB in an attempt to draw under the LOC, attorneys for the Ashoks, Advani & Company, sent BOI a letter, dated March 26, 1997, instructing BOI to withdraw its claim, as it was "unauthorized and wrongfully lodged, as both the signatories were not in employment of Petro Pharma Pte. Ltd. on the material date, nor was the letter of default in accordance with the terms of the Letter of Credit." The Advani letter further states that Petro Pharma "did not issue you a claim/default letter as requested by you during the week of March 10-14, 1997 and that during meetings with the Senior Officials of Petro Pharma Pte. Ltd. you had specifically been asked not to negotiate the abovementioned Letter of Credit." The Advani letter also stated that the Ashoks may be personally liable for moneys owed to BOI, and accordingly, asked BOI for "a statement of your claim with copies of all supporting documents so that our clients could consider the same." BOI never submitted any such statement or supporting documents to Advani.
Banerjee denied that any discussions took place with Petro Pharma before March 14, 1997. He admitted, however, that Ashok had "detailed discussions" with officers in BOI's head office during the last week of April 1997, in which Ashok promised to pay BOI the amount due "as soon as possible as his personal dues." Further, Banerjee spoke with Ashok over the telephone two or three times after March 14, 1997, at which time Ashok asked Banerjee to withdraw the claim that was made by BOI under the LOC. Ashok told Banerjee that he would personally pay the money owed to BOI, but Nayak said that BOI "cannot withdraw that claim unless full amount is paid right away."
Meanwhile, BOI has taken no legal action against Petro Pharma or the Ashoks to enforce the Ashoks' personal guarantee. Banerjee claimed that the Ashoks are in India and that their guarantee, which was executed in Singapore, is not enforceable in India, despite the fact that the Ashoks are Indian citizens and that the Indian government is a shareholder of BOI, which is headquartered in India.
Discussion
I. Standard For Issuing A Preliminary Injunction
Injunctive relief requires "a showing of (a) irreparable harm and (b) either (1) likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and the balance of hardships tipping decidedly toward the party requesting the preliminary relief." Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2d Cir.1979). BOI contends that Brenntag has neither shown likelihood of success nor irreparable injury.
II. Brenntag Has Shown Likelihood of Success On The Merits Because BOI Is Not A Holder In Due Course Because The Documents Negotiated Were False On Their Face
The issue presented is whether BOI, as a nominated negotiating bank under the LOC, validly negotiated the Default Letter from the beneficiary Petro Pharma that is required for presentment of the LOC to the issuing bank Nord/LB, where, among other things, the Default Letter was issued by the beneficiary approximately one year before the required statement in the Default Letter that payment had not been received and is due from Brenntag, the LOC applicant, could have been true.[2]
A. The LOC Is Governed By The UCP, Which Requires Negotiated Documents To Be Valid On Their Face
The LOC nominated BOI as negotiating bank. Article 10(d) of the UCP provides *342 that: "By nominating another bank, or by allowing negotiation by any bank, or by authorizing or requesting another bank to add its confirmation, the Issuing Bank authorizes such bank to ... negotiate ... against documents which appear on their face to be in compliance with the terms and conditions of the Credit and undertakes to reimburse such bank in accordance with the provisions of these Articles." Accordingly, Nord/LB, as the issuer, authorized BOI to negotiate documents, and undertook to reimburse the BOI if it purchased documents under the LOC, but only if the documents are facially compliant with the LOC terms.
The standard for examination of documents is set forth in UCP Article 13(a), which provides that:
Banks must examine all documents stipulated in the Credit with reasonable care, to ascertain whether or not they appear, on their face, to be in compliance with the terms and conditions of the Credit. Compliance of the stipulated documents on their face with the terms and conditions of the Credit, shall be determined by international standard banking practice as reflected in these Articles.
BOI's experts agree that at the time of the negotiation, BOI was bound to protect its right to reimbursement by the issuing bank to negotiate only against documents which appeared on their face to be in compliance with the terms and conditions of the credit. Professor E. Peter Ellinger ("Ellinger"), for example, opines that "[a]nother important principle, currently stated in article 14(a) of the UCP-500, is that the negotiating bank is entitled to enforce payment of the letter of credit only if the documents appear on their face to be in compliance with the credit (as stipulated in article 13(a) of the UCP-500)."[3]
Similarly, James E. Byrne, a consultant in the area of international banking operations, including letters of credit, opined that "[c]orrespondent banks [including nominated negotiating banks] are immune even from nonpayment due to the fraudulent actions of the beneficiary unless they themselves engaged in fraud or had actual knowledge of it at the time they paid or purchased the documents. They act on the basis of documents as they appear on their face."
B. The Negotiated Default Letter Was Not Valid On Its Face, and Therefore BOI Did Not Validly Negotiate The LOC
The LOC issued by Nord/LB was a stand-by letter, which is distinguishable from a documentary letter of credit. A stand-by letter of credit is meant only to "stand by" in the event that the applicant fails to make a direct payment to the beneficiary. Accordingly, the beneficiary must present to the issuing bank a "default letter" stating that no payment, or only partial payment, has been received as of a specified date. As Professor Ellinger stated, "[t]he object of [the LOC] was to provide a source of payment if Brenntag failed to perform its undertaking."
A documentary credit available by acceptance, on the other hand, would permit, for example, the beneficiary to present all the original shipping documents and a 360 days date draft drawn on a nominated bank or the issuing bank. That drawee bank, after examination of the documents for compliance with the terms and conditions of the credit, would accept that draft for payment on the due date. The beneficiary would then have the ability to discount that bankers acceptance either at the accepting bank or the acceptance could be discounted by the negotiating bank. With a documentary credit available by deferred payment, the beneficiary would normally present all the original shipping documents to either a nominated bank or the issuing bank. After examination of the documents for compliance with the terms and conditions of the credit, the obligated bank would incur a deferred payment obligation to pay on the due date. The beneficiary would normally then have the ability to discount that deferred payment obligation on the negotiating bank.
*343 Here, the LOC required submission of a default letter, purportedly signed by an authorized representative of Petro Pharma Pte Ltd., stating that payment, which was due 360 days after completion of loading, has not been received and is due from Brenntag International Chemicals, Inc. When BOI negotiated the LOC documents with Petro Pharma, and received the undated Default Letter, the statement contained therein that payment had not been received 360 days after completion of loading was not true, nor could it have been true. The Default Letter was therefore not valid on its face when it was negotiated by BOI, and therefore the negotiation is not valid under the UCP.
Brenntag cites two cases which, although governed by the Uniform Commercial Code (the "UCC") rather than the UCP, are analogous to the circumstances here.[4] Under the UCC, although the general rule is that the obligation of the issuer to pay the beneficiary is independent of any obligation involved in the underlying sales contract, there are certain exceptions that excuse the issuing bank from honoring drafts. Credit. Subdivision (2) of Section 5-114 of the U.C.C. provides in relevant part that:
[u]nless otherwise agreed when documents appear on their face to comply with the terms of a credit but a required document does not in fact conform to the warranties made on negotiation ... or is forged or fraudulent or there is fraud in the transaction
(a) the issuer must honor the draft or demand for payment if honor is demanded by a negotiating bank or other holder of the draft or demand which has taken the draft or demand under the credit and under circumstances which would make it a holder in due course (Section 3-302) ...; and
(b) in all other cases as against its customer, an issuer acting in good faith may honor the draft or demand for payment despite notification from the customer of fraud, forgery or other defect not apparent on the face of the documents but a court of appropriate jurisdiction may enjoin such honor.
Accordingly, under the UCC, step one is to determine whether there is fraud in the transaction, and then step two is to determine whether the negotiating bank has taken the draft under circumstances which would make it a holder in due course.
In Scarsdale Nat'l Bank and Trust Co. v. Toronto-Dominion Bank, 533 F.Supp. 378, 385 (S.D.N.Y.1982), the court held that when a bank gives value for documents it knows to be false under a stand-by letter of credit, it negotiates in bad faith and loses its status as a holder in due course. The Scarsdale case involved a stand-by letter of credit which required certificates from the purchaser stating that the seller had performed certain duties required by the underlying contract. Id. at 379-80. The seller procured these certificates from the buyer prior to the seller's actual performance, promising that he would hold the certificates "in trust" until he had performed. Id. at 382-83. Instead of holding the certificates in trust, the seller negotiated under the letter of credit immediately, presenting the certificates to fulfill the documentary requirements. Id. at 383. The court found that the negotiating bank knew the certificates were fraudulent in that they did not reflect the actual conditions they purported to certify. Id. at 386-87. Because of this knowledge, the court held that the bank could not have received the documents in good faith, and appropriately declined to treat the bank as a holder in due course.
In Andina Coffee, Inc. v. National Westminster Bank, USA, 160 A.D.2d 104, 560 *344 N.Y.S.2d 1, 2 (1st Dep't 1990), the court considered a transaction where letters of credit payable upon presentation of "interior truck bills of lading" financed a transaction for coffee which was never shipped. The negotiating bank took documents from the beneficiary including bills of lading which were dated six weeks into the future. Id. When the negotiating bank claimed that it was a holder in due course and was entitled to payment regardless of any fraud in the underlying transaction, the issuing bank countered that the negotiating bank was aware of the fraud. Id. Holding that the post-dated documents were "not only a departure from the requirements of the letters of credit but also ... a form of fraudulent practice," the court concluded that unless the post-dating was expressly allowed under the letters of credit, the documents did not comply with the terms thereof, and the bank was not entitled to payment. Id. at 4-5.
As in Scarsdale and Andina Coffee, BOI paid value for a documentthe Default Letter knowing that the it could not have reflected the actual condition it purported to certify, and was therefore fraudulent. Indeed, Banerjee admitted that when BOI accepted the undated Default Letter from Petro Pharma on March 22, 1996, the statement contained in the Default Letter that "payment which was due 360 days after completion of loading has not been received and is due and owing from Brenntag" was not true and could not have been true. Furthermore Banerjee conceded that: (1) in March 1996 Brenntag had not defaulted on any obligations it allegedly owed to Petro Pharma; (2) the Default Letter could not have been dated until after the due date (360 days after completion of loading); and (3) Petro Pharma never authorized BOI to date stamp the Default Letter when the due date arrived. Accordingly, the Default Letter negotiated by BOI were false on their face and therefore are not valid for presentment to Nord/LB for collection on the LOC.
BOI contends that Brenntag and Nord/LB knew or should have known that BOI was extending financing to Petro Pharma, although they are unclear on what the consequences of such knowledge would be on the instant issue. If the theory is that Brenntag or Nord/LB waived the requirement for the default letter, no waiver has been established. Under New York law, waiver is established if the party charged with waiver relinquished a right with both knowledge of the existence of the right and an intention to relinquish it. See City of New York v. State, 40 N.Y.2d 659, 669, 389 N.Y.S.2d 332, 357 N.E.2d 988 (1976); Werking v. Amity Estates, Inc., 2 N.Y.2d 43, 52, 155 N.Y.S.2d 633, 137 N.E.2d 321 (1956).[5] Nord/LB sent BOI a telex on March 25, 1996 confirming, at BOI's request, that no payment had been made as of that date by Nord/LB directly to Petro Pharma outside the LOC and that any/all payments made in respect of the transaction would be made only to BOI. The statements by Nord/LB in the March 25th telex simply confirmed that no draws were made on the LOC. Certainly that had to be true as no draws could have been made under the LOC at that time. Nor did the March 25th telex constitute "assurances" from Nord/LB or Brenntag that any payment outside the LOC would come directly through Nord/LB to BOI. In fact, Banerjee conceded in his deposition that it had no assurances from Brenntag that any payments it made to Petro Pharma would be made only through Nord/LB.
Moreover, since Brenntag made no such assurances, BOI's contention that there could be no direct payment by Brenntag as "a matter of commercial reality" since Brenntag would risk having to pay the same amount twice once to Petro Pharma outside the LOC and again to BOI under the LOC is mistaken. No such risk of dual payment would exist as long as negotiation under the LOC is properly tied to an actual default by Brenntag, as contemplated by the LOC.
Nor has BOI established that Brenntag knew that BOI was advancing funds to Petro Pharma, although such knowledge alone would not constitute a waiver. Petro Pharma *345 sent a memo to Brenntag requesting that certain telexes be sent to BOI so that Petro Pharma can obtain "approval for the packing loan." This memorandum makes no reference to discounting/negotiation under the LOC, a fact conceded by BOI. Further, Pichola testified that he was unfamiliar with the term "packing loan" and Sander from Nord/LB testified that he had no understanding of what a "packing loan" is and that it is not a term typically heard in the banking industry. BOI did not send a telex either advising them that they were contemplating negotiating the LOC on March 26, 1996, or asking them if they had received the original documents from Petro Pharma.
Finally, BOI's experts assert that negotiation of documents under a stand-by letter of credit prior to the date of maturity regularly occurs in Singapore letter of credit market, as well as other Asian markets. They contend that Singapore banking practice is relevant to interpretation of the LOC because the LOC nominates BOI Singapore office as the negotiating bank. They do not, however, cite any case either in the United States or elsewhere where they demonstrate precedent for their position. Nor do they reconcile their position with the LOC's plain meaning that the Default Letter must state that no payment has been made by Brenntag, and which must be true not at the date it was negotiated but at a time almost one year later. Finally, Brenntag's expert, Alan L. Bloodgood, flatly contradicts Ellinger's and Byrne's opinion and asserts that a stand-by letter of credit such as the one at issue here cannot be so negotiated, and that it is not standard practice in New York to do so. Accordingly, in the face of ambiguity regarding the industry custom, the plain language of the agreement and the incorporated UCP provisions must prevail.
The Court has carefully considered BOI's remaining contentions that Brenntag has failed to show likelihood of success, and finds them to be without merit.
III. Brenntag Has Established Irreparable Harm
To succeed on a motion for a preliminary injunction, Brenntag must show irreparable harm. Jackson Dairy, 596 F.2d at 72. "[I]rreparable injury means injury for which a monetary award cannot be adequate compensation." Id. Courts have rejected requests to preliminarily enjoin payment on letters of credit when a monetary award would be sufficient. Sperry Int'l Trade, Inc. v. Government of Israel, 670 F.2d 8, 12 (2d Cir.1982) (vacating a district court order enjoining beneficiary from drawing on a letter of credit and stating that "it has always been true that irreparable injury means injury for which a monetary award cannot be adequate compensation and that where money damages [are] adequate compensation a preliminary injunction will not issue").
Courts have recognized, however, that irreparable injury may be found where insolvency threatens to frustrate a damage award. In Drobbin v. Nicolet Instrument Corp., 631 F.Supp. 860, 912 (S.D.N.Y.1986) (Haight, D.J.), the court enjoined the holders of certain shares and warrants from disposing of them because monetary damages would be an inadequate remedy. The court reasoned that the share and warrant holders do not have "sufficient assets to pay any damages to which [movant] would be entitled in lieu of the shares." Id. at 912. The court concluded that "[w]here a plaintiff's injury is theoretically compensable in money damages but, as a practical matter, the defendant would not or could not respond fully for those damages, preliminary injunctive relief has been deemed necessary to protect the plaintiff from irreparable injury." Id. (citing Teamsters Freight Local Union No. 480 v. Southern Forwarding Co., 424 F.Supp. 11, 13 & n. 13 (M.D.Tenn.1976)).
Here, Brenntag's ability to collect damages if the LOC is erroneously paid may be frustrated by the beneficiary Petro Pharma's insolvency and receivership. BOI contends, however, that if Nord/LB pays the LOC Brenntag may retain prospective monetary relief against BOI or Nord/LB. They contend that the existence of these alternative monetary claims against these solvent parties precludes a need for injunctive relief in this case.
*346 BOI cites Sturm, Ruger & Co., Inc. v. Chase Manhatten Bank, N.A., No. 93 Civ. 73165, 1994 WL 191512 (S.D.N.Y. May 17, 1994) in support of its position. In Sturm, the court denied plaintiff's motion for a preliminary injunction enjoining chase Manhattan Bank ("Chase") from paying Turkiye Is Bankasi, A.S. ("Isbank") under letters of credit Chase had issued on behalf of the plaintiff. Id. at *3. The court rejected plaintiff's contention that it would suffer irreparable injury if Chase paid Isbank under the credit. Id. Plaintiff's assertion of "irreparable harm" was founded upon allegations that it would not be able to recover the funds from Isbank, that it would have no claim against the party with whom it contracted, and that a wrongful honor claim against Chase was an insufficient remedy. Id. The court noted that "[l]osing on the merits is not tantamount to irreparable injury" and that the plaintiff "does not suffer irreparable injury simply because it may not be able to prevail in a wrongful honor claim against Chase or in a fraud claim against Isbank, or because it might lose in the underlying dispute with [the contracting party]." Id. Accordingly, movant failed to demonstrate irreparable injury.
Sturm, however, did not involve a beneficiary in receivership. Nor did Sturm involve a request for payment by a negotiating bank the letters of credit were drawn upon by the beneficiary. Although none of the parties have adequately briefed the legal issues of which entity BOI, Nord/LB, or Petro Pharma would bear the ultimate liability for payment of the LOC on invalidly negotiated documentation, it remains possible that Petro Pharma's insolvency will frustrate a full recovery by Brenntag. Accordingly, Brenntag has established a sufficiently likelihood of irreparable harm to warrant a preliminary injunction.
IV. Preliminary Injunction Here Is Not Prohibited By Foreign Sovereign Immunity Act
BOI cross-moved for judgement on the pleadings, pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. On a motion for judgment on the pleadings "[a]ll allegations in the complaint must be accepted as true; all inferences must be drawn in favor of the plaintiff." Sheppard v. Beerman, 94 F.3d 823, 827 (2d Cir.1996).
BOI contends that since the FSIA bars prejudgment attachment, the injunction Brenntag seeks would provide an equivalent remedy and therefore must also be denied. BOI relies on the FSIA section providing that "[s]ubject to existing international agreements to which the United States is a party at the time of enactment of this Act the property in the United States of a foreign state shall be immune from attachment arrest and execution except as provided in sections 1610 and 1611 of this chapter."[6] 28 U.S.C. § 1609.
BOI relies on S & S Machinery Co. v. Masinexportimport, 706 F.2d 411 (2d Cir. 1983). In S & S Machinery, the plaintiff financed its purchase of machinery and parts "by certain irrevocable letters of credit" issued to the defendant Romanian bank as collection agent for the co-defendant Romanian seller, and subsequently sued for damages and obtained an order of attachment levying the defendants' assets after the delivered goods proved unsatisfactory. 706 F.2d at 412. Following removal of the case from state court, the district court continued the state-court orders of attachment and "also enjoined `any and all negotiation of drafts or other negotiable paper pursuant to the ... letters of credit.'" Id. at 413. Upon defendant's motion to vacate, the district court vacated the order of attachment and "dissolv[ed] the injunction against negotiation of the letters of credit" pursuant to the FSIA. Id. The Second Circuit affirmed, holding that a continued injunction "could only have resulted in the disingenuous flouting of the FSIA ban on prejudgment attachment." Id. Once the court properly held that the defendants had not "explicitly waived" their immunity and were protected from prejudgment attachment, see id. at 417-18, "the court *347 properly refused to sanction any other means to effect the same result," id. at 418. The Second Circuit concluded "that courts in this context may not grant, by injunction, relief which they may not provide by attachment." Id.
S & S Machinery, however, does not address the issue presented here, which is whether a stand-by letter of credit is the property of a negotiating bank where the documents were rejected by the issuing bank for, among other reasons, facial invalidity. In S & S Machinery, the parties did not dispute that the letters of credit were defendants' property at the time the attachment was granted. S & S Machinery Co. v. Masinexportimport, 82 Civ. 4890 (S.D.N.Y. Dec. 8, 1982), aff'd, 706 F.2d 411 (2d Cir.1983); see also S & S Machinery, 706 F.2d at 413. Here, however, Brenntag contends that Nord/LB's obligation to pay under the LOC is not BOI's "property" for purposes of the FSIA immunity.
Neither party here cites cases directly on point. The cases cited by Brenntag all involve the question of whether an executory letter of credit is the property of the beneficiary for attachment purposes. See Supreme Merchandise Co., Inc. v. Chemical Bank, 70 N.Y.2d 344, 346, 520 N.Y.S.2d 734, 734, 514 N.E.2d 1358 (1987) ("A beneficiary's interest in an executory negotiable letter of credit supporting an international sale of goods is not property of the beneficiary for purposes of attachment."); Diakan Love, S.A. v. Al-Haddad Bros. Enterprises, Inc., 584 F.Supp. 782, 784 (S.D.N.Y.1984) ("[T]he beneficiary's interest in an executory letter of credit is not attachable property."); Ferrostaal Metals Corp. v. S.S. Lash Pacifico, 652 F.Supp. 420, 424 (S.D.N.Y.1987) ("[T]he interest of a beneficiary in an open letter of credit" could not be effectively attached because the open letter was neither the "property" of, nor a "debt" owed to, the foreign defendant). Here, BOI is the negotiating bank, and not a beneficiary. Moreover, BOI has presented documents to Nord/LB, who has refused to honor them. Therefore the LOC is not executory. Cf. Supreme Merchandise, 70 N.Y.2d at 346, 520 N.Y.S.2d at 734, 514 N.E.2d 1358 (recognizing that letter of credit was "executory" when order of attachment was served on issuing bank only because it was "served before [the negotiating banks] negotiated the drafts for value and presented them to [the issuing bank] for payment").
As discussed above, BOI did not validly negotiate for the letter of credit documents because the Default Letter was invalid on its face. Assuming that a negotiating bank could acquire a property interest in the LOC, such property interest must depend on valid negotiation for the LOC documents. Accordingly, BOI did not acquire a property interest in Nord/LB's obligation to pay under the LOC.
Conclusion
For the reasons set forth above, Brenntag's motion for a preliminary injunction to enjoin payment under Irrevocable Stand-By Letter of Credit No. 190397 is granted, and BOI's motion is denied. In view of the complete factual submission by the parties in connection with the preliminary injunction hearing, the parties may wish to stipulate to the finality of the preliminary injunction. If not, the parties shall complete any additional discovery by August 17, 1998, and submit a pretrial order on August 31, 1998. The trial will be held on September 30, 1998.
It is so ordered.
NOTES
[1] It is undisputed here that under the FSIA, the definition of "foreign state" is broad enough to encompass purely commercial banks, such as BOI, "a majority of whose shares ... is owned by a foreign state." 28 U.S.C. § 1603(b)(2).
[2] Brenntag also contends that the injunction should issue because, among other things, BOI knowingly and intentionally submitted fraudulent documents to Nord/LB, including the default letter date stamped by BOI rather than Brenntag. This issue need not be reached, however, because the Court holds that the negotiation was invalid.
[3] The Court has carefully considered Brenntag's motion to strike or disregard BOI's supplemental affidavit testimony, including the expert affidavits. The motion is without merit and therefore is denied.
[4] The Uniform Commercial Code provides that it "does not apply to a letter of credit or a credit if by its terms or by agreement, course of dealing or usage of trade such letter of credit or credit is subject in whole or in part to the [UCP]." N.Y.U.C.C. § 5-102(4) (McKinney 1991); Alaska Textile Co., Inc. v. Chase Manhattan Bank, N.A., 982 F.2d 813, 816-817 (2d Cir.1992). The UCP expressly applies to the Letter of Credit at issue in this case, and therefore only where the UCP is "silent or ambiguous" may analogous UCC provisions be utilized, and then only if those provisions are "consistent with the UCP." Id. at 822 (citing Bank of Cochin Ltd. v. Manufacturers Hanover Trust Co., 612 F.Supp. 1533, at 1542-1543 (S.D.N.Y.1985), aff'd, 808 F.2d 209 (2d Cir.1986)). As discussed above, the UCP is neither silent nor ambiguous concerning the requirement that negotiated documents be facially valid. See UCP art. 10, 13.
[5] Neither party has briefed the issue of what law would apply to waiver analysis. Because both parties rely on New York law on all issues but for the dispute regarding industry practices for negotiation of stand-by letters of credit, the Court will apply New York law to the waiver theory.
[6] There is no dispute that none of the exceptions to immunity provided under sections 1610 or 1611 apply in this case. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2374196/ | 41 F. Supp. 294 (1941)
SWARTZ
v.
FORWARD ASS'N et al.
Civil Action No. 247.
District Court, D. Massachusetts.
October 8, 1941.
*295 Elbridge R. Anderson and Roberts B. Owen, both of Boston, Mass., for plaintiff.
George E. Roewer (Roewer & Reel), of Boston, Mass., for defendants Butkovitz and Anthony.
Jacob J. Kaplan (Nutter, McClennen & Fish), of Boston, Mass., for defendants Forward Ass'n and American Jewish Pub. Co.
SWEENEY, District Judge.
This action was filed under authority of 15 U.S.C.A. § 15 for treble damages. Two of the defendants have filed a motion to dismiss for want of jurisdiction. The defendants' position is that the bill of complaint fails to disclose any violation of the antitrust laws within the meaning of the statute employed. The effect of this decision will be to dispose of the case as to all of the defendants since the question raised is a jurisdictional one. In passing upon the question raised, I am bound by the allegations of the bill of complaint, and cannot take into consideration such facts as might develop at a trial on the merits. See Levering & Garrigues Co. v. Morrin, 289 U.S. 103, 53 S. Ct. 549, 77 L. Ed. 1062.
In the light that is most favorable to the plaintiff, his bill alleges that he had an extensive and profitable interstate business in furs, and that the defendants conspired and combined amongst themselves to destroy his business by causing to be published false and malicious statements concerning labor conditions in the plaintiff's business, and that a boycott of his business was urged by the defendants. He then alleges that, as a result of this conspiracy and combination, he has lost a great deal of his trade, and that his interstate business has been seriously affected. He further alleges that his injuries result "by reason of said acts which are declared to be unlawful" by the Sherman Act, 15 U.S. C.A. §§ 1-7, 15 note and asks for treble damages.
The difficulty with the plaintiff's bill of complaint is that the specific acts that he relies upon to constitute a violation of the Sherman Act are not prohibited by that Act. In a recent case, decided by the Supreme Court of the United States, Apex Hosiery Company v. Leader, 310 U.S. 469, 60 S. Ct. 982, 992, 84 L. Ed. 1311, 128 A.L.R. 1044, the court reviewed many of its former decisions, and pointed out that the combinations and contracts in restraint of trade which were intended to be prohibited by the Sherman Act were combinations which were "directed to control of the market by suppression of competition in the marketing of goods and services, the monopolistic tendency of which had become a matter of public concern." The court particularly pointed out throughout that decision that the practices which were prohibited by the Sherman and Clayton Acts were practices that had their evil effect upon the public generally either by reason of the formation of monopolies or by the enhancement of prices to be paid by the consumer. At page 500 of 310 *296 U.S., at page 996 of 60 S.Ct., 84 L. Ed. 1311, 128 A.L.R. 1044, the court said: "Restraints on competition or on the course of trade in the merchandising of articles moving in interstate commerce is not enough, unless the restraint is shown to have or is intended to have an effect upon prices in the market or otherwise to deprive purchasers or consumers of the advantages which they derive from free competition."
Reading the bill as a whole, there are no facts alleged which would bring the activities of the defendants within the prohibitions of the antitrust laws. The injury complained of is a private wrong which we assume is remedial in some other court.
Since the only basis alleged for the jurisdiction of this court is a violation of the antitrust laws, and in view of the foregoing, the defendants' motion must be allowed, and the action dismissed for want of jurisdiction. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2330713/ | 613 F. Supp. 2d 262 (2009)
Anne CIACCIARELLA, Plaintiff,
v.
Michael BRONKO and Donald J. Zehnder, Jr., Defendants.
No. 3:07cv1241 (MRK).
United States District Court, D. Connecticut.
May 13, 2009.
*264 Kelly Anne Rommel, Norman A. Pattis, Law Offices of Norman A. Pattis, LLC, Bethany, CT, for Plaintiff.
James Newhall Tallberg, Kerry L. Keeney-Curtin, Karsten, Dorman & Tallberg LLC, West Hartford, CT, Christine Anne Robinson, Richard A. O'Connor, Sachner & O'Connor, Middlebury, CT, for Defendants.
MEMORANDUM OF DECISION
MARK R. KRAVITZ, District Judge.
Pending before the Court are Defendant Donald J. Zehnder, Jr.'s Motion for Summary Judgment [doc. # 63] and Defendant Michael Bronko's Motion for Summary Judgment [doc. # 64]. During oral argument on the motions for summary judgment, it became apparent that the Plaintiff, Anne Ciacciarella, had mistakenly made several admissions in her Local Rule 56(a)(2) statement that would be fatal to her claim if she were not allowed to amend it. With the Court's permission, Ms. Ciacciarella filed a Motion to Amend [doc. # 74], arguing that she should be allowed to amend her Local Rule 56(a)(2) statement because it would be a miscarriage of justice to deny her an opportunity to litigate her claims because of a mistake of counsel and because Defendants would suffer no prejudice as a result. The Court agrees and grants Ms. Ciacciarella's Motion to Amend [doc. #74]. As a result, the Court concludes that there are disputed issues of fact that must be decided by a jury and denies Defendant Zehnder's Motion for Summary Judgment [doc. #63] and Defendant Bronko's Motion for Summary Judgment [doc. # 64].
I.
Ms. Ciacciarella brings her claim under the First Amendment of the U.S. Constitution, alleging that she was fired from her position as a paralegal in Defendant Donald Zehnder's law office at the direction of Defendant Michael Bronko, then-Mayor of the Borough of Naugatuck, because of her political affiliation.[1] Ms. Ciacciarella was hired by Mr. Zehnder in May 2007, shortly after Mayor Bronko was elected as the Republican mayor of Naugatuck.[2] Ms. Ciacciarella had previously worked as the campaign coordinator for Curt Bosco, the Democratic candidate for mayor who lost to Mayor Bronko in the mayoral election several weeks before her hire. Ms. Ciacciarella began her employment in Mr. Zehnder's office the same day Mayor Bronko was inaugurated.
Mr. Zehnder had acted as town counsel for the Borough of Naugatuck since 2002. Three days after hiring Ms. Ciacciarella, Mr. Zehnder had a meeting with the newly-elected mayor, Mayor Bronko, to discuss Mr. Zehnder's continued appointment as town counsel. The result of the meeting was that Mr. Zehnder would remain *265 town counsel. The day after the meeting with Mayor Bronko, Mr. Zehnder terminated Ms. Ciacciarella's employment.
Ms. Ciacciarella alleges that Mayor Bronko made Mr. Zehnder's continued appointment as town counsel contingent upon him firing her and that he did so in retaliation for her work on Curt Bosco's campaign and because of her involvement in the Naugatuck Democratic party. Mr. Zehnder argues that he had already decided to fire Ms. Ciacciarella before his meeting with Mayor Bronko because of negative comments others had made about her and that Mayor Bronko did not make firing her a condition of his continued appointment as town counsel. Likewise, Mayor Bronko denies placing a condition on Mr. Zehnder's appointment as town counsel and claims that he did not care whether Ms. Ciacciarella worked for Mr. Zehnder or not. This factual dispute notwithstanding, Defendants still insist that they are entitled to summary judgment, both because of the admissions in Ms. Ciacciarella's Local Rule 56(a)(2) statement and because they believe Ms. Ciacciarella's claim fails as a matter of law.
II.
The Court must first decide whether to allow Ms. Ciacciarella to withdraw several admissions in her Local Rule 56(a)(2) statement that seem to concede that Mayor Bronko played no role in Mr. Zehnder's decision to fire Ms. Ciacciarella. As Ms. Ciacciarella concedes, if she is not allowed to withdraw these admissions, then her First Amendment claim must fail because state action is an essential element of any § 1983 claim.
In her Local Rule 56(a)(2) statement, Ms. Ciacciarella admitted the following statements:
17. Based on the information he heard from his secretary and the negative comments he heard from the townspeople at Mayor Bronko's inauguration regarding the Ms. Ciacciarella, Attorney Zehnder decided that he would terminate the Ms. Ciacciarella's employment.
24. Attorney Zehnder informed Mayor Bronko that he had hired the Ms. Ciacciarella, but he told the Mayor that he had some issues with her and would be letting her go.
26. Attorney Zehnder had already decided to terminate the Ms. Ciacciarella before the meeting with the mayor.
Def.'s 56(a)(1) Statement [doc. # 64-2], as admitted in Pl.'s 56(a)(2) Statement [doc. # 65-2] (citations omitted). Ms. Ciacciarella wishes to amend her responses as follows:
17. Deny. Attorney Zehnder terminated the Ms. Ciacciarella's employment because this was a stipulation by the mayor for him to remain borough attorney. He had to fire her after the meeting with the mayor in which he was informed that he would be the new borough attorney.
24. Deny in part. The mayor was the first person to raise the Ms. Ciacciarella's name. The mayor had an issue with the Ms. Ciacciarella as he said "something to the effect that the thought Anne..had been behind a lot of negativism of the campaign."
26. Deny. Attorney Zehnder terminated the Ms. Ciacciarella's employment because this was a stipulation by the mayor for him to remain as borough attorney. He had to fire her after the meeting with the mayor in which he was informed that he would be the new borough attorney.
Pl.'s Motion to Amend [doc. #74] at 2-3 (citations omitted).
In general, "[a] party's assertion of fact in a pleading is a judicial admission *266 by which [the party] normally is bound throughout the course of the proceeding." Pacheco v. Serendensky, 393 F.3d 348, 354 (2d Cir.2004) (quotation marks omitted). However, courts have "broad discretion to relieve the parties from the consequences of judicial admissions in the appropriate circumstances." In re Methyl Tertiary Butyl Ether Prod. Liab. Litig., 379 F. Supp. 2d 348, 371 (S.D.N.Y.2005); see also Campoli v. Chubb Group of Ins. Cos., No. 3:04CV1004 (MRK), 2006 WL 57391, at *3-4, 2006 U.S. Dist. LEXIS 1564, at *10 (D.Conn. Jan. 9, 2006). In particular, "where a party claims that its admission is the result of fraud or mistake, the admission may not necessarily be binding." Dortz v. City of New York, 904 F. Supp. 127, 146 n. 6 (S.D.N.Y.1995) (citing Western World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 122 (2d Cir.1990)).
Ms. Ciacciarella's counsel has averred that he misunderstood the statements and believed that he was admitting to what Mr. Zehnder testified to, not to the truth of the matter asserted. See Motion to Amend [doc. # 74] Ex. 1, ¶¶ 8-9 (Affidavit of Norman Pattis). Defendants argue that Ms. Ciacciarella has not shown that the admissions were a mistake, instead implying that she made the admissions in an unguarded moment of candor which she now regrets. However, the Court is persuaded that the admissions were most likely the result of a mistake by Ms. Ciacciarella's counsel and there is no reason to punish Ms. Ciacciarella for her counsel's errors, especially when there is no prejudice to Defendants.
The Court is persuaded that the admissions were made by mistake for several reasons. For one thing, the admissions are diametrically opposed to every other pleading filed by Ms. Ciacciarella and they are inconsistent with Ms. Ciacciarella's fundamental theory of the case. In her Complaint, for instance, Ms. Ciacciarella alleges that "defendant Bronko told defendant Zehnder that the town would not offer him the town counsel's position unless he immediately fired the Ms. Ciacciarella." Compl. [doc. # 1] ¶ 17. Likewise, in her Memorandum in Opposition to Summary Judgment [doc. #65]which was filed at the same time as the Local Rule 56(a)(2) statementMs. Ciacciarella states that her "theory is that the mayor told Mr. Zehnder that a condition precedent to appointment as town counsel was the firing of Ms. Ciacciarella. This pressure translates easily into private action that can constitute state action." Id. at 9. These statements directly contradict the admissions in Ms. Ciacciarella's Local Rule 56(a)(2) statement. The most reasonable explanation for these contradictions is that Ms. Ciacciarella's counsel erred in making the admissions.
Furthermore, the Court finds Ms. Ciacciarella's counsel's explanation of the mistake to be plausible. The statements cite Mr. Zehnder's deposition for support and could be construed as describing Mr. Zehnder's testimony rather than seeking admissions of the underlying facts. This kind of ambiguity is common in Local Rule 56 statements and often leads to complicated responses in which parties "admit in part" or "admit that is what the testimony states." Although this type of response is less helpful for the Court, it does have the benefit of preventing precisely the type of confusion that occurred here. Thus, the Court credits Ms. Ciacciarella's assertion that the admissions were mistakenly made by her counsel and do not accurately represent her position. Moreover, it is clear that the mistake was made by Ms. Ciacciarella's counsel and not Ms. Ciacciarella herself. Ms. Ciacciarella's deposition testimony is consistent with her Complaint and the Memorandum in Opposition to Summary *267 Judgment and is inconsistent with the Local Rule 56(a)(2) statement. See Def.'s Motion for Summary Judgment [doc. # 64] Ex. B (Ciacciarella Deposition).
Defendants argue that they would be prejudiced by allowing Ms. Ciacciarella to withdraw the admissions at this point. The Court is unpersuaded. Defendants were on notice of Ms. Ciacciarella's claims and her theory of the case long before the filing of the Local Rule 56(a)(2) statement. As the Court has indicated, Ms. Ciacciarella's deposition testimony was consistent with her theory of the case and inconsistent with her Local Rule 56(a)(2) statements. Mr. Zehnder did not file a reply brief and Mayor Bronko devoted only two paragraphs to the admission in his reply brief, focusing instead on the other legal issues in the case. Indeed, Defendants admitted at oral argument that they were surprised by Ms. Ciacciarella's admissions. Thus, this is not a case in which Defendants were denied the opportunity to conduct relevant discovery or were required to extensively brief an issue that became moot.
It is true that Ms. Ciacciarella waited until oral argument to request permission to amend her Local Rule 56(a)(2) statement, more than two and a half months after Ms. Ciacciarella was alerted to the error in Mayor Bronko's reply brief. Although certainly not an exemplar of good lawyering, nothing occurred in the intervening time period that prejudiced Defendants. Ms. Ciacciarella did not file any additional papers that confirmed the admissions, nor were Defendants required to devote any additional attention to the issue beyond the two paragraphs in Mayor Bronko's reply brief. The Court also notes that Ms. Rommel, the attorney who argued on behalf of Ms. Ciacciarella at oral argument, filed her notice of appearance in the case less than a week before oral argument. Although the Court does not know why Ms. Ciacciarella did not seek to withdraw the admissions earlier, it may be that a switch-over in lead counsel contributed to the delay.
Given the fact that Defendants will suffer no prejudice, the Court is loathe to dismiss Ms. Ciacciarella's claim because of a mistake made by her counsel. The Court's first priority at all times is to ensure that justice is served, see Fed. R. Civ. Pro. 1, and the Court believes that justice will be best served in this case by allowing Ms. Ciacciarella to withdraw the admissions. Therefore, the Court grants Ms. Ciacciarella's Motion to Amend [doc. # 74].
III.
Mayor Bronko argues that even if Ms. Ciacciarella is allowed to amend her Local Rule 56(a)(2) statement, she has not presented any admissible evidence that he made Mr. Zehnder's continued appointment as town counsel contingent on firing Ms. Ciacciarella. Without such evidence, he argues, she cannot show state action and her claim must fail as a matter of law. Mr. Zehnder does not make this argument, and for good reason. Ms. Ciacciarella has submitted the depositions of two probate clerks who overheard Mr. Zehnder tell a friend that the mayor had ordered him to fire Ms. Ciacciarella if he wanted to continue as town counsel and that Mr. Zehnder had agreed to do so. Mr. Zehnder's statements are admissible against him because they constitute party admissions under Rule 801(d)(2)(A) of the Federal Rules of Evidence. See Schering Corp. v. Pfizer Inc., 189 F.3d 218, 239 (2d Cir.1999).
Mayor Bronko argues, however, that the probate clerks' testimony is not admissible against him because it does not fall within any of the exceptions to the hearsay rule. Ms. Ciacciarella responds that the testimony *268 is admissible against Mayor Bronko under the co-conspirator exception, the excited utterance exception, the agent exception, and the residual hearsay exception. Mayor Bronko does not seem to dispute that if Ms. Ciacciarella's version of events is true, a reasonable jury could decide that she has satisfied the state action requirement. See Tancredi v. Metro. Life Ins. Co., 316 F.3d 308, 312 (2d Cir.2003) (holding that state action is present when "the state exercises `coercive power' over, is `entwined in the management or control' of, or provides `significant encouragement, either overt or covert' to, a private actor") (quoting Brentwood Academy v. Tenn. Secondary Sch. Athletic Ass'n, 531 U.S. 288, 296, 121 S. Ct. 924, 148 L. Ed. 2d 807 (2001)).
The Court need not decide whether the probate clerks' testimony is admissible against Mayor Bronko at this point because, even if the Court does not consider the probate clerks' testimony against Mayor Bronko, there is evidence that there may have been an understanding between the Mayor and Mr. Zehnder that he was required to fire Ms. Ciacciarella in order to continue as town counsel.[3] For example, Mr. Zehnder admitted that he was worried that Mayor Bronko would not continue his appointment as town counsel because he had hired Ms. Ciacciarella. Mr. Zehnder also testified that Mayor Bronko was the one to raise Ms. Ciacciarella's name in the meeting. Mr. Zehnder's response to Mayor Bronko's inquiry was to state that he planned to fire her so "it shouldn't be an issue." Pl.'s Mem. in Opp'n to Summ. J [doc. # 65] Ex. C at 86. One might wonder why Mayor Bronko brought up Ms. Ciacciarella's name at all if he did not care whether she worked for Mr. Zehnder or not. And Mr. Zehnder's statement that "it shouldn't be an issue" implies that it might have been an issue if he had not been planning to fire her. At the very least, a jury could conclude that Mr. Zehnder perceived Ms. Ciacciarella's employment to be an issue for Mayor Bronko.
Mayor Bronko's testimony could also be read in several different ways. When asked in his deposition when he found out that Mr. Zehnder had fired Mr. Ciacciarella, Mayor Bronko stated he did not remember because "I just was going by his word that he was going to dismiss her, so I wasn't concerned with when he was going to do it." Def.'s Mot. for Summ. J. [doc. # 64] Ex. A at 22-23. Being concerned about when Mr. Zehnder was going to fire Ms. Ciacciarella is different than not caring whether he fired her at all. And giving one's "word" generally implies a promise to do something, although Mayor Bronko denies that such a promise was made. State action does not require that a quid pro quo arrangement be spelled out in so many words. As Tancredi makes clear, even covert encouragement by a state official may qualify as state action. See Tancredi, 316 F.3d at 312. A jury could conclude that an implicit quid pro quo existed between Defendants. Therefore, the Court denies summary judgment on the state action element of Ms. Ciacciarella's First Amendment claim.
If at the time of trial, Ms. Ciacciarella plans to call the probate clerks as witnesses or use Mr. Zehnder's deposition *269 testimony against Mayor Bronko, the Court will decide whether the evidence is admissible to show Mr. Zehnder's state of mind at the time he fired Ms. Ciacciarella or whether any of the hearsay exceptions applies to Mr. Zehnder's statements, and, if none applies, the Court will entertain requests for an appropriate limiting instruction to the jury.
IV.
Defendants make several other arguments for why summary judgment should be granted on Ms. Ciacciarella's First Amendment claim. First, Defendants argue that Ms. Ciacciarella is not a public employee protected by the First Amendment. Second, Defendants argue that even if she is considered a public employee, she is a confidential employee who can be fired because of her political affiliation. The Court will consider each of these arguments.
A.
The Supreme Court has held that public employees cannot be fired for their political affiliation unless they hold a policymaking or confidential position. See Elrod v. Burns, 427 U.S. 347, 96 S. Ct. 2673, 49 L. Ed. 2d 547 (1976); Branti v. Finkel, 445 U.S. 507, 100 S. Ct. 1287, 63 L. Ed. 2d 574 (1980). The Court has extended this protection to independent contractors. See O'Hare v. City of Northlake, 518 U.S. 712, 116 S. Ct. 2353, 135 L. Ed. 2d 874 (1996); Bd. of Cty. Comm'rs v. Umbehr, 518 U.S. 668, 116 S. Ct. 2361, 135 L. Ed. 2d 843 (1996). Defendants argue that Ms. Ciacciarella should not be considered a public employee because she did not have a long-standing employment relationship with Mr. Zehnder, only working for him for three days before she was fired. They point out that in O'Hare and Umbehr, the independent contractors had well-established contractual relationships with the municipalities in question. They also point out that while the Supreme Court declined to decide whether bidders or applicants for government contracts are protected, see Umbehr, 518 U.S. at 685, 116 S. Ct. 2342, at least one court of appeals has concluded that they are not, see McClintock v. Eichelberger, 169 F.3d 812, 816 (3d Cir.1999). The Second Circuit has not decided the issue. See African Trade & Information Center v. Abromaitis, 294 F.3d 355, 361 (2d Cir.2002) (declining to decide whether applicants or bidders for government contracts had First Amendment right).
If Ms. Ciacciarella had been an applicant for a position in Mr. Zehnder's office, then Mayor Bronko probably would have enjoyed qualified immunity on this issue. See id. at 362 (granting qualified immunity on claim by independent contractor applicant because right was not clearly, established). However, Ms. Ciacciarella was not an applicant; she was a current employee of Mr. Zehnder's. Nor was Mr. Zehnder an applicant or bidder for a government contract; he had served as town counsel since 2002 and his meeting with Mayor Bronko concerned only whether he would be permitted to continue on as town counsel. Defendants try to make a distinction between longstanding and recently-hired employees of independent contractors, but that is not the distinction drawn by the Supreme Court in Umbehr and O'Hare, nor does the Court believe that such a distinction makes any sense in this context. How long would be sufficient to establish a "longstanding" employment relationship? Two months? A year? Ten years? Luckily, the Court need not intuit a point at which the interest in one's employment becomes substantial enough to merit First Amendment protection because a bright-line rule already existsthe line between employee and applicant. Ms. *270 Ciacciarella falls on the employee side of that line.
Defendants also argue that because Ms. Ciacciarella was not a party to the contractual agreement between Mr. Zehnder and the Borough of Naugatuck, she cannot claim the protection of the First Amendment. But if this were the case, an official could order an independent contractor to fire every single one of his employees so long as the official did not fire the independent contractor himself. The Court cannot conceive ofnor could Defendants supplya rational legal principle that would allow it to arrive at such a bizarre result. Nor does such a result comport with the Supreme Court's reasoning in O'Hare and Umbehr for extending First Amendment protections to independent contractors. It was the coercive potential, not the formal relationship, that lay at the heart of the Supreme Court's decisions in O'Hare and Umbehr and the coercive potential is just as great when an official orders an employee of an independent contract to be fired as when the official fires the independent contractor directly. Thus, the Court concludes that Ms. Ciacciarella should receive the same First Amendment protection as a public employee.
B.
Defendants' other argument is that Ms. Ciacciarella was a confidential employee and, therefore, does not enjoy the protection of the First Amendment regardless of her status as a public employee. See Elrod, 427 U.S. at 372, 96 S. Ct. 2673; Branti, 445 U.S. at 517, 100 S. Ct. 1287 (1980). In determining whether an individual is protected under the Elrod/Branti doctrine, "the ultimate inquiry is not whether the label `policymaker' or `confidential' fits a particular position; rather, the question is whether the hiring authority can demonstrate that party affiliation is an appropriate requirement for the effective performance of the public office involved." Id. at 517, 100 S. Ct. 1287; see also Savage v. Gorski, 850 F.2d 64, 68 (2d Cir.1988) ("[P]olitical affiliation is an appropriate requirement when there is a rational connection between shared ideology and job performance."). In Savage, the Second Circuit held that the personal secretary of the mayor was a confidential employee because her position involved "confidentiality, discretion in disseminating information to the public, and independent judgment regarding department policies and procedures." Id. at 69. Thus, the relevant question is whether Ms. Ciacciarella's position can be described similarly.
Two of the three factors are clearly not relevant to this case. Ms. Ciacciarella was not charged with disseminating information to the public or making independent judgments regarding municipal policies. On the other hand, "confidentiality" is relevant here. It is quite possible that Ms. Ciacciarella had access to confidential information in Mr. Zehnder's municipal files, and the Court is sympathetic to Mayor Bronko's concern that he did not want such confidential information to fall into the hands of his political opponents, including Ms. Ciacciarella's former boss. If Ms. Ciacciarella's position required her to have access to municipal files or if she was given access to them regardless of whether her position required it, then Ms. Ciacciarella would be a confidential employee and would not be protected from patronage firings.
However, there appears to be a disputed issue of fact as to whether Ms. Ciacciarella had access to confidential information. Ms. Ciacciarella alleges that she was hired to work on Mr. Zehnder's personal injury cases and had nothing to do with his work as town counsel. Mr. Zehnder argues that his law office was so small that she could *271 not help but become privy to confidential information. Unfortunately, neither Defendant has put any evidence into the record establishing that Ms. Ciacciarella did or would have access to confidential information. Mr. Zehnder did testify that his secretary told him that she caught Ms. Ciacciarella looking at municipal files, but this is hearsay unless the secretary herself testifies to that fact, and she has not done so at this stage. And in any event, Ms. Ciacciarella denies the allegation, creating an issue of material fact.
Therefore, in addition to the question of whether Ms. Ciacciarella was fired because of her political affiliation and whether there was state action, the jury will also need to decide whether Ms. Ciacciarella had access to confidential information in Mr. Zehnder's law office. The Court therefore denies summary judgment on this claim.[4]
V.
Ms. Ciacciarella also asserts claims for tortious interference with contractual obligations against Mayor Bronko and for breach of contract, detrimental reliance, and defamation, as well as a claim pursuant to Conn. Gen.Stat. § 31-51q against Mr. Zehnder. Defendants' only argument with respect to Ms. Ciacciarella's state law claims is that the Court should decline to exercise supplemental jurisdiction, an argument that is contingent on the Court granting summary judgment on Ms. Ciacciarella's federal claim. Having concluded that Ms. Ciacciarella's First Amendment claim must proceed to trial, it is appropriate for the Court to continue to exercise supplemental jurisdiction over Ms. Ciacciarella's state law claims, which arise out of the same events as her federal claim. Therefore, summary judgment is denied with respect to Ms. Ciacciarella's state law claims.
VI.
For the foregoing reasons, Defendant Zehnder's Motion for Summary Judgment [doc. # 63] and Defendant Bronko's Motion for Summary Judgment [doc. # 64] are DENIED. Ms. Ciacciarella's Motion to Amend [doc. # 74] is GRANTED and Ms. Ciacciarella is directed to file her amended Local Rule 56(a)(2) statement on the record. The Court will issue a separate trial scheduling order.
IT IS SO ORDERED.
NOTES
[1] Ms. Ciacciarella also brings a number of state law claims, which the Court will address after addressing the federal claim.
[2] Recently, Mayor Bronko lost his bid for reelection, but since he was Mayor at all relevant times in this case, the Court continues to refer to him as Mayor Bronko.
[3] The Court also notes that Mr. Zehnder confirmed the probate clerks' testimony in his deposition, although he claimed that he misspoke and gave a different version of what occurred at the meeting. See Def.'s Mot. for Summ. J. [doc. # 64] Ex. C at 90-92 (Zehnder Deposition). The Court reserves decision on whether Mr. Zehnder's deposition testimony about what he said in the Probate Office is admissible against Mayor Bronko or, at a minimum, admissible to prove Mr. Zehnder's state of mind at the time.
[4] Mayor Bronko also argues that he should prevail under the Pickering balancing test because the governmental interest in having loyal employees outweighs Ms. Ciacciarella's interest in her job. See Pickering v. Bd. of Educ., 391 U.S. 563, 88 S. Ct. 1731, 20 L. Ed. 2d 811 (1968). However, Pickering does not apply when it is "the raw test of political affiliation," rather "specific instances of the employee's speech or expression" that is at issue. See O'Hare, 518 U.S. at 719, 116 S. Ct. 2353. Ms. Ciacciarella does not argue that she was fired because of something specific she said, nor do Defendants claim that to be the case. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2375550/ | 568 F. Supp. 1538 (1983)
DATA PROBE ACQUISITION CORP., and Data Probe, Inc., Plaintiffs,
v.
DATATAB, INC., Sanford C. Adams, Lee D. Gallaher, John L. Lobel, CRC Information Systems, Inc., and CRC Acquisition Corp., Defendants.
No. 83-Civ. 5272.
United States District Court, S.D. New York.
August 16, 1983.
*1539 *1540 Kass, Goodkind, Wechsler & Labaton, New York City, for plaintiffs; Stuart D. Wechsler, Joel Feffer, Lawrence A. Sucharow, John Riley, New York City, of counsel.
Putney, Twombly, Hall & Hirson, New York City, for defendants; Allen E. Burgoyne, Francis E. Lake, Jr., New York City, of counsel.
SOFAER, District Judge:
Plaintiffs Data Probe Acquisition Corp., and its parent Data Probe, Inc., (collectively "Data Probe"), brought this action under the Williams Act, 15 U.S.C. §§ 78m(d), (e) and 78n(d)-(f) (1976), to enjoin a corporate merger between defendant corporations, Datatab, Inc. and CRC Acquisition Corp., a wholly-owned subsidiary of CRC Information Systems, Inc. ("CRC"), because defendants allegedly entered into unlawful option and indemnity agreements. Plaintiffs also *1541 claim that a letter written by Datatab to its shareholders on July 1, 1983 failed to satisfy the disclosure requirements of Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a) and Section 14(e) of the Williams Act, 15 U.S.C. § 78n(e), which amended the 1934 Act, and violated Rules 14e-2, 17 C.F.R. § 240.14e-2, and 14a-9, 17 C.F.R. § 240.14a-9. All three parties, Data Probe, Datatab and CRC, are engaged in the market research business. The complaint raises no state law claims, although it alleges at various points breaches of "fiduciary" duties by Datatab's officers and directors. See Complaint ¶¶ 22, 23, 26. For the reasons that follow, plaintiffs' request for injunctive relief is granted, both because the July 1 letter omits material facts and because the option agreement is a manipulative device that interferes unlawfully with plaintiff's tender offers, in violation of Section 14(e).
I.
This matter was brought on by Order to Show Cause before the undersigned in the emergency part for the Southern District of New York. The parties agreed that no discovery was necessary, and established an expedited schedule for briefing and argument. At oral argument on July 27 the parties conceded that the only disputed issues of fact in the litigation concerned statements allegedly made at a dinner meeting between the principal officers of Datatab and Data Probe. The parties agreed to proceed with a trial of those disputed issues, and thereafter to submit this case for judgment on the papers presented, conceding on the record that no further oral testimony or written exhibits would be necessary for a final disposition. These stipulations moot the pending motions for a preliminary injunction and for summary judgment and permit the court to enter final judgment. A tentative, expedited opinion was filed on August 4 to permit prompt appeal; this revised opinion represents the court's final findings and conclusions.
II.
Datatab, a company with a recent history of losses, approached CRC in December 1982 to inquire whether CRC would be interested in acquiring the financially troubled corporation. Datatab is traded over the counter, and at the time had a book value of $2 per share and a net operating loss tax carry forward on December 31, 1982 in excess of $1,250,000. CRC is a privately held corporation having four director-shareholders, three of whom were formerly employed by Datatab. Negotiations followed, and on April 29, 1983 the companies entered into a proposed "merger" agreement under which CRC would create a subsidiary corporation, CRC Acquisition Corp., which would purchase all outstanding Datatab common stock for $1.00 per share and then merge into Datatab making Datatab a wholly-owned subsidiary of CRC. Pursuant to federal and state laws, on May 26, 1983 Datatab sent proxy materials to its shareholders providing information explaining the proposed sale of Datatab stock by "merger" and announcing a June 23 special meeting of shareholders to vote on the proposed sale. In these materials, Datatab's board of directors described CRC and stated that in its opinion, supported by the views of various purported experts, $1.00 was a fair price for each share of Datatab stock. In addition, these materials disclosed that, if the sale-by-merger plan were adopted, Datatab's principal officers, currently on month to month contracts, would receive three-year employment contracts with CRC which altered their salaries with Datatab as follows: Mr. Sanford Adams, President and board member at Datatab, would receive an increase in annual salary from $94,500 to $100,000, with a guaranteed bonus of at least $5,000 per year; Mr. Lee D. Gallaher, a member of Datatab's board of directors, would receive a reduction in salary from $80,000 to $70,000; and Mr. John L. Lobel, Vice-President, Treasurer and board member at Datatab, would receive an increase from $69,800 to $70,000.
On June 21, Data Probe, a relatively small but profitable company in a related *1542 line of market research activity, made a cash tender offer of $1.25 for all outstanding common stock of Datatab, conditioned on the rejection by Datatab shareholders of the proposed sale-by-merger agreement at $1.00 per share. Data Probe published all the information required by the Williams Act in connection with its tender offer, explaining its purposes, the source of its financing, and its intentions for the company. Datatab's management thereupon adjourned the scheduled June 23 meeting to July 12 and subsequently to August 8, and informed CRC management of Data Probe's tender offer. Datatab claims that, after considerable negotiation, CRC agreed to raise its offer to purchase through a merger all outstanding shares of Datatab stock from $1.00 to $1.40 per share, but only if Datatab management first granted CRC an irrevocable option, not subject to shareholder review and exercisable on demand for one year, whereby CRC could purchase 1,407,674 voting shares of Datatab authorized but unissued stock an amount equal to 200% of all presently outstanding voting shares at the same price of $1.40 per share.
Meanwhile, negotiations also occurred between the principals of Datatab and Data Probe. At the mini-trial held to resolve the only disputed issues of fact in this case, the evidence established that Yitzhak Bachana, President of Data Probe, called Sanford Adams of Datatab and arranged to meet and discuss Data Probe's interest in the company. They met on June 21, at a restaurant in New York City, and discussed a variety of issues, including Data Probe's intentions with respect to the continuation of the services and salaries of Datatab's officers. The versions of the dinner conversation offered by the parties were similar in most respects. Both Bachana and Adams agreed that the salary of the Datatab officers was discussed, and Adams conceded that he asked Bachana what salary arrangements Bachana was willing to offer. He testified that Bachana indicated a probable willingness to go along with the annual salary amounts to which CRC had agreed, and Adams suggested in his testimony that Bachana did not view a three-year commitment as unacceptable. In this latter respect, however, Adams' own notes undermine his testimony and support Bachana's claim that Bachana was unwilling to commit himself. The notes read at the relevant point: "will discuss premature." (D.Ex. 1). This effort by Adams to indicate that length of contract was not a problem, as well as his demeanor and that of Bachana, make it clear that the length-of-contract issue was in fact of major concern to Adams, and that, while Bachana might have been willing to go along with the salary amount agreed to by CRC, he was unwilling to commit Data Probe to either the amount or duration of the proposed employment contracts until he had examined the situation and satisfied himself that the salary arrangements (totalling $250,000 annually) were justified by the company's earnings. This explains why Adams stated to Bachana, as alleged in Bachana's affidavit: "This baby will never work for a dollar less." Affidavit, July 21, 1983, ¶ 4. Adams denies having made the quoted statement, but his subsequent arrangement with CRC which seeks to vest CRC with the power to override the Datatab shareholders indicates that he did respond in substance to Bachana when reminded of the need for shareholder approval: "I don't care about shareholders; we have to take care of ourselves and this baby is not going to work for a dollar less."
By July 1, Datatab management had agreed to accept CRC's commitment to offer to purchase Datatab's shares by merger at $1.40, and had granted in exchange for that commitment an irrevocable option that in effect guaranteed CRC the power to accomplish the proposed merger even if disapproved by Datatab's present shareholders. On that day, Datatab sent its shareholders a letter informing them of a new proposed "merger" agreement with CRC by which, if approved, CRC would pay $1.40 per share for all outstanding shares of Datatab stock. It also stated that Datatab had granted CRC an option to purchase 1,407,674 authorized but unissued shares at the $1.40 price. Finally, the letter notified shareholders that a meeting was scheduled in August to permit shareholders to vote on *1543 the amended "merger agreement," and that the shareholders would receive timely supplemental proxy materials relating to that meeting. The shareholders were not expressly informed, however, that if the option agreement was valid a vote rejecting the "merger" would have been inconsequential, since the option would give CRC the power to buy the number of shares necessary to approve an identical merger proposal at a subsequent meeting; nor were they advised that the option agreement, if valid, effectively capped any further bidding for their shares.
On July 14, Data Probe made a second tender offer for all outstanding Datatab shares, increasing its bid to $1.55; the offer was conditioned of course upon the invalidation by corporate or judicial action of the option agreement between Datatab and CRC. Simultaneously, Data Probe commenced this action, claiming that defendants, as principals or aiders and abettors, violated Section 14(e) of the Exchange Act by entering into the lockup agreement, which constitutes a manipulative act or practice in connection with the tender offer for shares of Datatab, Complaint ¶ 28. Data Probe further claimed that defendants violated Section 14(e)'s disclosure requirements by failing to disclose in its July 1, 1983 letter to Datatab shareholders that:
(a) the purposes of the Lockup Agreement are to preclude Data Probe from successfully bidding for Datatab shares, deter a competitive offer from any third-party, insure the success of the CRC merger proposal, and perpetuate Datatab's management in office at the expense of Datatab's shareholders;
(b) the Lockup Agreement set an artificial ceiling of $1.40 per share on the price any bidder would offer, and consequently on what shareholders could expect to receive, for Datatab's shares;
(c) no inquiry was made by Datatab to determine whether CRC had the funds to purchase Datatab's shares pursuant to the Lockup Agreement;
(d) by exercising the option CRC would control two-thirds of the voting shares of Datatab which would disenfranchise the shareholders of Datatab by making their vote on the Amended Merger Agreement meaningless;
(e) [an] Indemnification Agreement [existed between Datatab and CRC holding the former harmless for its acceptance of the option proposal;] and
(f) the Securities and Exchange Commission ("SEC") considers similar indemnification agreements to violate public policy.
Id. ¶ 29.
III.
This case presents the important question whether the Williams Act permits the management of a target company unilaterally to thwart an ongoing tender offer by granting to one contestant an option that effectively precludes further bids. Counsel for target companies in tender offer cases like to put the question differently. In some of the commentary recently produced in response to the Sixth Circuit's decision in Mobil Corp. v. Marathon Oil Co., 669 F.2d 366 (6th Cir.1981), the issue has been described as whether the Williams Act is anything more than a disclosure statute. All concede that those provisions of the Act that require disclosure of information by the participants in the tender offer process confer jurisdiction on the federal courts to enforce their compliance. But many contend that the enforcement jurisdiction conferred upon the federal courts by Section 14(e), which proscribes "fraudulent, deceptive and manipulative acts and practices ... in connection with a tender offer," does not extend to tactics which fall short of fraud or classic market manipulation. The language of Section 14(e), it is argued, is virtually identical to that of Section 10(b) of the Securities Exchange Act of 1934, which the Supreme Court in Santa Fe Industries v. Green, 430 U.S. 462, 97 S. Ct. 1292, 51 L. Ed. 2d 480 (1977), construed as conferring jurisdiction to review whether the defendant had engaged in blatantly fraudulent *1544 practices or market manipulations, but did not provide a federal law basis for claims stemming from management's abuse of fiduciary duties. Santa Fe held that stockholders who complained of the unfairness of a short form merger must pursue their remedies in state not federal court and that if, in fact, management's action deprived stockholders of any part of the full and fair market value of their shares, those values could only be obtained in state court appraisal proceedings. Defendants here, and others who criticize Marathon, claim that construing the words used in the Williams Act proscribing "manipulative" practices literally would involve federal courts in reviewing whether defendants had violated fiduciary duties, and for the same reasons relied on by the Court in Santa Fe contend that such claims must be resolved in state court proceedings. They find further support for this position in the holding in Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 97 S. Ct. 926, 51 L. Ed. 2d 124 (1977), which describes the Williams Act as concerned with assuring disclosures of information for the protection of shareholders and holds that no cause of action for damages exists in federal court for competitors in tender-offer battles.[1] They argue that decisions such as Applied Digital Systems, Inc. v. Milgo, 425 F. Supp. 1145 (S.D.N.Y.1977) assuming jurisdiction in Williams Act cases challenging defensive tactics, preceded the Supreme Court's decision in Santa Fe and are no longer good law.
The notion that Santa Fe is dispositive rests on the mistaken assumption that analysis of Section 10(b) of the 1934 Act applies with equal force to the Williams Act. Section 10(b) is directed at insuring informed investment decision through "regulating trading markets, requiring disclosure, and prohibiting deception and classic kinds of market manipulations." Weiss, Defensive Responses to Tender Offers and the Williams Act's Prohibition Against Manipulation, 35 Vand.L.Rev. 1087, 1092 (1982). The Williams Act focuses on the narrower and more specific problem of "protection of investors who are confronted by a cash tender offer. Chris-Craft, 430 U.S. at 35, 97 S. Ct. at 946. A different form of protection is necessary under the Williams Act than under the 1934 Act, because tender offer battles, even in a context of full disclosure, create extreme pressures and may involve tactics which distort or even abort the investment decision. Furthermore, whereas available state-court remedies might be sufficient to warrant refusing to recognize a federal claim for "unfairness" under Section 10(b), a federal, injunctive remedy is a necessary adjunct to the Williams Act goal of preventing abuses of the tender offer procedure before they damage shareholders by undermining or aborting the tender offer process. As Senator Williams said in describing the purposes of the Act:
If the stockholder sells and can establish at a later time that he fell victim to fraud or misstatements, he would obviously have recourse to the courts. But many *1545 stockholders are unwilling to go to court even though they believe they have a sound case. Litigation is expensive, time consuming, and lacks the advantages that result from advance filing of the facts for the public record.
113 Cong.Rec. 854 (daily Jan. 18, 1967) (Statement of Senator Williams). Finally, the Supreme Court has shown in Edgar v. Mite Corp., 457 U.S. 624, 102 S. Ct. 2629, 73 L. Ed. 2d 269 (1982), that standards do exist for determining when the Williams Act's protection of the tender offer process preempts state corporation law; by contrast, one of the considerations that led the Court in Santa Fe to refuse federal jurisdiction was the lack of federal standards by which to evaluate whether state fiduciary laws should be preempted. 430 U.S. at 478, 97 S.Ct. at 1303.
The view of the Williams Act as purely a disclosure law, conferring little other protection on shareholders or contestants in the market for corporate control, is in addition inconsistent with the Act's history and purposes, and with authoritative judicial constructions. State law principles, including those of fiduciary duty and appraisal value, are not directly related to the purposes of the Williams Act. The Williams Act was not written to insure that corporate managers perform their general duties faithfully, or that shareholders succeed in obtaining the full and fair value of their stocks in tender-offer sales. Rather, the Act was written to assure stockholders access to the information necessary to make informed judgments, which they would then in fact be allowed to exercise, however positive or detrimental the economic consequences. Congress therefore imposed in the Act not one, but two duties on tender-offer participants, including target corporations: first, to provide shareholders the required information; and second, to refrain from any conduct that unduly impedes the shareholders' exercise of the decision-making prerogative guaranteed to them by Congress.
A. Dual Purposes of the Williams Act
In Piper v. Chris-Craft Industries Inc., 430 U.S. 1, 97 S. Ct. 926, 51 L. Ed. 2d 124 (1977), the Supreme Court reviewed much of the legislative history of the Williams Act, and demonstrated that its primary purpose was to provide for disclosure of information to shareholders. Chris-Craft dealt comprehensively, however, only with those portions of the Act's history necessary to explain its holding that the Williams Act provides no remedy to contestants for damages caused by its violation. While the Supreme Court has never passed upon the extent to which the Williams Act was intended to prevent defensive tactics by target companies, its recent decision in Edgar v. Mite Corp., 457 U.S. 624, 102 S. Ct. 2629, 73 L. Ed. 2d 269 (1982), reveals that important aspects of the legislative history of the Williams Act had not been fully examined in Chris-Craft, including, for example, Congress' recognition of the importance of preventing target companies from delaying the tender offer process. See discussion infra.
A review of the Act's legislative history with the legitimacy of defensive tactics in mind reveals that Congress indeed meant for the federal courts to prevent tender offer participants from interfering with the informed investor choice that the Act sought to assure. One can safely say that the Act underwent from its original introduction in 1965 to its ultimate passage in 1968 a steady transformation from legislation designed to prevent corporate takeovers by cash tenders, to a bill that studiously maintained neutrality between offerors and targets, but consciously protected the rights of shareholders to transfer managerial power by tendering their shares, with proper information and without undue interference.
Senator Williams' original bill was avowedly designed to protect "proud old companies" from "white collar pirates" who seized assets with funds from unknown sources and "split the loot." See 111 Cong. Rec. 5273 (Oct. 22, 1965) (statement of Sen. Williams). Broad disclosures by would-be offerors would have been required, and ample time for defensive measures would have been provided by a 20-day precommencement filing requirement, with SEC regulation *1546 of corporate defenses limited to purchases of substantial blocks of a company's own stock. See S. 2731, 89th Cong., 1st Sess. 28257-60 (1965). This bill was not considered when initially introduced, and as revised on reintroduction it increased the mechanisms for shareholder participation in the tender offer process and reduced the delay from filing to purchase from 20 to 5 days. See Cohen, A Note on Takeover Bids and Corporate Purchases of Stock, 2 Bus.Law 149 (1966). Continued hearings and discussion led to balanced disclosure provisions that comported with SEC Chairman Manuel Cohen's clear espousal of the bill's neutrality of purpose: "It is not intended to encourage or discourage such activity [acquisitions of control] or provide management or any other group with special privileges over any other." See Full Disclosure of Corporate Equity Ownership and in Corporate Takeover Bids, Hearings on S. 510 Before Subcomm. on Securities of Banking and Currency Committee, 90th Cong. 1st Sess. 16 (1967) (hereinafter "Senate Hearings"). Rather, the bill which by then expressly applied to a corporation's repurchases of its stock was repeatedly touted as a vehicle for permitting informed investment decisions. And in this connection, Chairman Cohen made explicit the obvious proposition that an effort to enable a stockholder to exercise an informed judgment necessarily implies the exercise of a judgment that is not unreasonably restricted by offers with unfair conditions on acceptance, or by management's misleading or manipulative efforts to prevent acceptance:
It would be naive to assume that tender offers are not, at times, opposed by management motivated by their own interests in staving off a change in control. It would, however, be as much an overstatement to suggest that management, in opposing bids is motivated solely by self interest as it would be to suggest that takeover bids are always improper or dangerous to the interests of investors.
It may be of interest to note that attempts to discourage shareholders from accepting tender offers take a variety of forms. Recently, in order to block a takeover bid, the management of one company hurriedly called a stockholder's meeting to obtain authorization to make a competing offer to buy its own shares at a higher price. In another situation, after a tender offer was announced, management proposed a stock split and shareholders were led to believe, contrary to fact, that the approval of the stock split was an alternate to accepting the tender offer.
Senate Hearings at 19. Indeed, Commissioner Cohen specifically anticipated that new devices for manipulation would be developed, and requested that the Commission be given authority to regulate them:
[T]here is involved a form of industrial warfare in which stakes are high, and two or more groups are attempting to manipulate the public security holders to their own advantage... As in most other areas entrusted to it, the Commission's responsibility should be limited to requiring appropriate disclosure, to guarding against deceptive and unfair devices designed to coerce or prevent action, and it should be provided with adequate tools to deal effectively with the various techniques that have been developed, and are continuing to be devised to seek or prevent takeover bids and other matters dealt with in the bill. Finally adequate authority must be accorded to deal with the violations of these precepts all designed to give the investor the fairest possible opportunity to make his own investment decisions.
Takeover Bids: Bills Providing for Full Disclosure of Corporate Equity, Hearings on H.R. 14475, S.510 Before the Committee on Interstate and Foreign Commerce, 90th Cong.2d Sess. 11 (1968) (hereinafter "House Hearings").
The themes of stockholder protection and increased opportunity for successful bids were made even stronger when the bill reached the Senate. Preliminary filing of offers with the SEC was eliminated, for example, despite lobbying for predisclosure. See House Hearings at 17; Senate Hearings at 20. When Senator Williams spoke in favor of the legislation, he stressed its *1547 neutrality, and its intent to protect the interests of all participants "without impeding cash takeover bids." 113 Cong.Rec. 854 (Jan. 18, 1967). And Senator Javits, another supporter, stressed that the bill would enable stockholders to benefit from "the opportunities which result from the competitive bidding for a block of stock of a given company." 113 Cong.Rec. 24666 (Aug. 30, 1967). The legislation as adopted concerned not only the provision of information, but the guaranty of a fair opportunity to use it.[2]
Chairman Cohen and various participants at several points in the legislative process no doubt recognized that the tender offer is the only form of corporate acquisition that is solely within the power of shareholders to approve. While a proxy battle may also be a meaningful weapon for changing a company's management or control, shareholders have no means other than the tender offer by which to exercise their rights of ownership to displace incumbent management entirely independently of a company's board of directors. The threat of displacement is an important constraint on management self-dealing, and is felt to enhance efficiency and productivity. See, e.g., Easterbrook & Fischel, The Proper Role of a Target's Management in Responding to a Tender Offer, 94 Harv.L.Rev. 1161, 1168-74 (1981); Fischel, Efficient Capital Market Theory, the Market for Corporate Control, and the Regulation of Cash Tender Offers, 57 Tex. L.Rev. 1, 5-7 (1978); Gilson, A Structural Approach to Corporations: The Case Against Defensive Tactics in Tender Offers, 33 Stan.L.Rev. 819, 819, 841-45 (1981); Note, Golden Parachute Agreements: Cushioning Executive Bailouts in the Wake of a Tender Offer, 57 St. John's L.Rev. 516, 541-42 (1983); Manne, Mergers and the Market for Corporate Control, 78 J.Pol. Econ. 110, 117-18 (1965). Congress' decision therefore to preserve and strengthen the tender offer as a viable means for shareholders to circumvent management and opt for a change of control is a matter of great social and economic significance. It should not turn upon a mechanical construction of words such as "manipulation" that ignores their specific and special context.[3] Merely requiring disclosure of material facts does not assure shareholders a fair opportunity actually to tender their shares. To achieve the Act's objectives most effectively, it should be construed to require that shareholders also be protected from those devices that unduly interfere with informed tenders.
The nature of the regulations promulgated or proposed by the SEC for enactment under Section 14(e) is another indication that "fraudulent, deceptive and manipulative *1548 acts and practices" are not limited to the narrow confines suggested by the view that those words refer only to devices designed to defraud or misleadingly to manipulate prices. These regulations show that fraudulent, deceptive, or manipulative acts may include strategies that unduly pressure the stockholder or impede the tender offer process. Under its regulatory power to interpret Section 14(e)'s prohibitions the SEC has, for example, deemed the use of inside information to be a "fraudulent, deceptive or manipulative practice" in 17 C.F.R. § 240.14e-3; it has imposed timing restrictions on when an offer may be withdrawn and on the legality of unannounced increases in the offering prices or extensions of the offering period in 17 C.F.R. § 240.14e-1; and it has required target companies to take public positions on the tender offer in 17 C.F.R. § 14e-2a. Particularly instructive is the 240 C.F.R. § 14e-1(a) provision on timing. It insures that the shareholder be given a predictable, adequate time period to make an intelligent investment decision, without being stampeded by the fear that the offer will be suddenly withdrawn. In addition, the SEC has proposed that failure by the subject company to provide a shareholder list on demand "would constitute a fraudulent, deceptive and manipulative act or practice under Section 14(e)." Fed.Sec.L. Rep. (CCH) ¶ 80,659 (1976). Like the rule on timing, this rule would tend to assure that the proper functioning of the tender offer process will not be unduly obstructed.
The SEC therefore has used its power to define and prevent manipulative acts expressly conferred by Section 14(e), to include among them undue pressures or obstructions on shareholder autonomy. This construction must be given proper weight. As the Supreme Court has repeatedly emphasized, "[w]hen faced with a problem of statutory construction, [the] Court shows great deference to the interpretation given the statute by the officers or agency charged with its administration." Udall v. Tallman, 380 U.S. 1, 16, 85 S. Ct. 792, 801, 13 L. Ed. 2d 616 (1964). See also SEC v. Talley Industries, Inc., 399 F.2d 396, 403 (2d Cir. 1968), cert. denied, 393 U.S. 1015, 89 S. Ct. 615, 21 L. Ed. 2d 560 (1969). The SEC has gone beyond assuring proper disclosure and beyond preventing outright fraud and price manipulation; it has assumed that under Section 14(e) of the Williams Act target companies may be required to refrain from actively and unduly obstructing shareholders, and also may sometimes be required to act affirmatively to promote the opponent's cause.
B. Judicial Regulation of Tender Offers
The federal courts have enforced aspects of the Williams Act from its inception. Access to the federal courts has never been denied to enforce all the Act's express informational requirements, or the regulations passed pursuant to congressional authority. But federal decisions both before and after the Marathon case make clear that federal authority to enforce the Act goes beyond its disclosure objectives. Federal jurisdiction and responsibility for enforcing the Williams Act matches precisely, as it should, the legislation's dual objectives of assuring both an informed decision and a meaningful opportunity to decide.
The proper starting point for analysis here, as in so many other difficult areas of federal jurisdiction, is a decision by Judge Edward Weinfeld, Applied Digital Data Systems, Inc. v. Milgo Electronics Corp., 425 F. Supp. 1145 (S.D.N.Y.1977). That Williams Act case no doubt turns primarily upon Milgo's failure to comply with the Act's disclosure requirements in connection with its sale of 15.5% of its unissued common stock to Racal Electronics, Ltd. to avoid a threatened tender offer by plaintiff. But Judge Weinfeld was also troubled by the fact that Milgo's defensive "lock-out," while within the range of sales permitted by the New York Stock Exchange without shareholder approval, had an especially damaging effect on plaintiff's tender offer plans. The sale effectively deprived plaintiff of tax advantages that may have made its tender offer particularly attractive to Milgo shareholders. See id. at 1158. Judge Weinfeld issued an injunction against the "lock-out," and he described with characteristic *1549 clarity the manner in which Section 14(e) must be construed:
A proper evaluation of whether a claim is stated under a provision of the securities laws cannot, however, be based solely upon the bare language of the statute at issue, but must take into consideration both the meaning of that language within the particular context in which it occurs and the propensity of a given construction of the provision to effectuate the remedial purposes of the securities acts.
Id. at 1153 (footnotes omitted).
These principles of statutory construction explain the Sixth Circuit's decision in Marathon. While Section 14(e) uses the same word "manipulation" as does Section 10(b), it does so in a wholly different context. Judge Engel described this at length, and with a force of logic that remains untarnished by recent criticisms:
The term "manipulative" is not defined in either the Securities Exchange Act or the Williams Act. See, e.g., 15 U.S.C. § 78c. "Manipulation" in securities markets can take many forms, see, e.g., 15 U.S.C. §§ 78i, 78j (proscribing certain forms of manipulation), but the Supreme Court has recently indicated that manipulation is an affecting of the market for, or price of, securities by artificial means, i.e., means unrelated to the natural forces of supply and demand.
"Use of the word `manipulative' is especially significant. It is and was virtually a term of art when used in connection with securities markets. It connotes intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities." Ernst & Ernst v. Hochfelder, 425 U.S. 185, 199, 96 S. Ct. 1375, 1383, 47 L. Ed. 2d 668 (1976) (footnote omitted).
"`Manipulation' is `virtually a term of art when used in connection with securities markets.' Ernst & Ernst, 425 U.S., at 199 [96 S.Ct. at 1384]. The term refers generally to practices, such as wash sales, matched orders, or rigged prices, that are intended to mislead investors by artificially affecting market activity."
Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 476, 97 S. Ct. 1292, 1302, 51 L. Ed. 2d 480 (1977). In our view, it is difficult to conceive of a more effective and manipulative device than the "lock-up" options employed here, options which not only artificially affect, but for all practical purposes completely block, normal healthy market activity and, in fact, could be construed as expressly designed solely for that purpose.
The types of options demanded and received by USS in this case are relatively new to the world of tender offer takeover contests, and we are unaware of any Supreme Court or Court of Appeals case confronting the question of whether these particular techniques are "manipulative" within the meaning of section 14(e) of the Williams Act. However, courts have recognized that the term "manipulative" must remain flexible in the face of new techniques which artificially affect securities markets. "No doubt Congress meant to prohibit the full range of ingenious devices that might be used to manipulate securities prices." Santa Fe Industries, Inc. v. Green, supra, 430 U.S. at 477, 97 S.Ct. at 1302 (Section 10(b)). A similar observation was made regarding the Commodity Exchange Act, 7 U.S.C. §§ 9, 13, which prohibits manipulation of commodities market prices:
"The methods and techniques of manipulation are limited only by the ingenuity of man. The aim must be therefore to discover whether conduct has been intentionally engaged in which has resulted in a price which does not reflect basic forces of supply and demand." Cargill, Inc. v. Hardin, 452 F.2d 1154, 1163 (8th Cir. 1971), cert. denied, 406 U.S. 932, 92 S. Ct. 1770, 32 L. Ed. 2d 135 (1972).
669 F.2d at 374. Just as Chairman Cohen of the SEC predicted when the Williams Act was under consideration, participants in the tender offer process have developed new techniques for preventing or limiting the fair exercise of stockholder decision-making power. The law should be construed with a flexibility sufficient to interdict those new devices that are inconsistent with the Act's ultimate objectives.
*1550 Judge Engel recognized, however, the need for flexibility, apparently in order to avoid prohibiting defensive measures that are consistent with the Act's objectives, even though they might technically fit the definition he adopted in Marathon of "manipulation":
In conclusion, it is apparent to us that the particular options granted to USS by Marathon under the circumstances of this tender offer contest constitute "manipulative acts" in connection with the tender offer, violative of section 14(e) of the Williams Act. In so ruling, we do not purport to define a rule of decision for all claims of manipulation under the Williams Act, or indeed for all forms of options which might be claimed to "lock-up" takeover battles or otherwise discourage competing tender offers. We leave these issues to developing law in this new and difficult area of securities regulation.
669 F.2d at 377.
The securities bar, and some federal judges, have nevertheless responded to Marathon as though it suggests an end to virtually any possibly lawful use of an option or other defensive technique in a tender offer contest. Perhaps these reactions could have been muted if the ruling had not been based on the suggestion that the statute automatically makes "manipulative," and therefore presumably unlawful, any action that affects the market in connection with tender offers by artificial means. The consternation of the bar is readily understood when one considers that, unlike fraudulent, deceptive, or manipulative devices in other areas of securities law, virtually every defensive action by an offeror or a target company, or their lawyers, in connection with a tender offer, could conceivably satisfy the broad test of "manipulative" conduct suggested in Marathon. Given the widespread assumption that these devices may be lawfully used so long as they do not unduly interfere with the tender offer process, one can appreciate the suggestion, for example, that an attack on the option tactic "should not be forced into the Procrustean mold of `manipulation' under the antifraud provisions of the Williams Act." Bialkin, Court Casts Cloud over Option Tactic in Takeovers, Legal Times of Washington, Jan. 11, 1982.
An approach does exist, however, that can accommodate both the need to invalidate "manipulative" acts that interfere with or undermine the tender offer process, as well as the need to leave undisturbed forms of conduct that fall within Marathon's broad definition of "manipulation" but in fact do not interfere unduly with the tender offer process. While Congress in Section 14(e), 15 U.S.C. § 78n(e), unqualifiedly prohibited untrue disclosures and nondisclosures, in 1970, it added a sentence that imposed upon the SEC the duty of defining the meaning of "fraudulent, deceptive and manipulative acts and practices." The last sentence of the statute reads:
The Commission shall, for the purposes of this subsection [i.e. § 14(e)], by rules and regulations define, and prescribe means reasonably designed to prevent, such acts and practices as are fraudulent, deceptive, or manipulative.
15 U.S.C. § 78n(e) (1981). Not only does this sentence make clear that the Commission has a duty to help the courts and the bar in this area, it strongly suggests that the definitions of these statutory words, in this context, are expected to vary from those given the same words in other contexts. It also strongly suggests that regulated parties need, not only the guidance provided by definitions, but also the practical protection of devices designed to prevent proscribed conduct. Congress realized that great uncertainty as to the meaning of "manipulative" under this Act will persist even after definitions are evolved.
Despite the Williams Act's many years on the books, the Commission has yet to adopt many regulations defining the words "deceptive," or "manipulative" in the context of tender offers. The Commission has designated certain acts relating to the mechanics and fairness of the process as manipulative acts or practices; but none of these provisions gives any hint of the Commission's position on most forms of "lock-out" or on any other defensive tactic. 17 CFR §§ 240.14e-1, 2, 3. True, the Commission *1551 has begun to develop, through its Advisory Committee on Tender Offers, what could in time become useful guidelines for everyday tender-offer practices. See 1028 CCH Fed. Sec.Law Rep. (July 15, 1983). But at this point those suggestions have no authority.
The Commission's failure as yet to have acted authoritatively does not, meanwhile, relieve the courts from their duty to construe and apply the law, as the Sixth Circuit did in Marathon, and as this court must in this case. But Congress' demand for, and the Commission's failure yet to provide, adequate guidance should be weighed in construing these words of the Act. First, the words should be clearly understood as having no relationship to their meaning in other, inapposite contexts, even other securities laws. The proposition that Section 14(e) and Section 10(b) are "construed in pari materia by the courts," Gulf & Western Industries Inc. v. Great A. & P. Tea Co., 476 F.2d 687, 696 (2d Cir. 1973), is limited to the fact that both provisions are in part manifestations of the "philosophy of full disclosure" embodied in the Act of 1934. Santa Fe Industries Inc. v. Green, 430 U.S. 462, 477, 97 S. Ct. 1292, 1303, 51 L. Ed. 2d 480 (1977). But the courts have also recognized that Section 14(e) contains the special, qualifying language "in connection with any tender offer," which makes it a provision that extends to concerns very different from those of Section 10(b). See Panter v. Marshall Field & Co., 646 F.2d 271, 282-83 (7th Cir.1981), cert. denied, 454 U.S. 1092, 102 S. Ct. 658, 70 L. Ed. 2d 631 (1981). For these reasons, therefore, and in light of Congress' explicit recognition of the need for separate treatment of these words in Section 14(e), the three proscribed acts or practices fraudulent, deceptive, and manipulative should be regarded only as indicating that some forms of conduct that would normally fit the meanings of those expressions will violate that statute. And in light of the qualifying words of the statute, and its legislative history and aims, good sense would lead one to rule that only those forms of "manipulative" conduct that unduly interfere with the tender offer process violate the Act. Finally, the Commission's failure to define these terms through regulations should, at least until a sufficient body of judicial or administrative standards is developed, lead courts to give those accused of such proscribed forms of conduct under Section 14(e) the benefit of reasonable doubts in the statute's enforcement. In this way the result in Marathon which is justified by law and policy can be accommodated with the practical difficulties that the decision's rationale has apparently caused.
The cases referred to by defendants can readily be seen to support or to be consistent with the principles derived here from Marathon. Thus, for example, Panter, 646 F.2d at 283, rejected Section 14(e) claims for the fundamental reason that no tender offer was ever made in the case. See also Lewis v. McGraw, 619 F.2d 192, 195-96 (2d Cir.), cert. denied, 449 U.S. 951, 101 S. Ct. 354, 66 L. Ed. 2d 214 (1980). The defensive tactics suggested as proper in Panter are consistent with Marathon; a tactic upheld there was the company's policy (suggested by Joseph Flom, Esq.) of acquiring properties with its surplus cash and borrowing power, so as to avoid becoming the attractive target that companies which do not exploit their resources quite naturally become. See Panter v. Marshall Field & Co., 486 F. Supp. 1168, 1183 (N.D.Ill.1980), cert. denied, 454 U.S. 1092, 102 S. Ct. 658, 70 L. Ed. 2d 631 (1981). The Williams Act does not require management to allow the companies they run to become or to remain attractive as takeover candidates. Defendants' reference to Crouse-Hinds Co. v. Internorth, Inc., 634 F.2d 690 (2d Cir.1980), is even less explicable, since that case involved no claim under the Williams Act; the target company's directors seem to have acted consistently with their responsibilities under the business-purpose rule. Even if their conduct was properly comparable to the acts in this case, the decision would fail to aid defendants; there, the exchange of stock devised by the friendly companies seeking to merge made a takeover more difficult but not impossible, and the deal expressly reserved to the original shareholders of the target company the ultimate power to approve or reject the merger. See id. at 695 & n. 9. The decision in Buffalo *1552 Forge Co. v. Ogden Corp., 555 F. Supp. 892 (W.D.N.Y.1983), also arises from a situation vaguely similar to this action, in that an option was given to a "white knight" to avoid an unwanted tender. But the decision is entirely consistent with the result reached here, because it involved an option arrangement designed to enhance the amounts offered for the target company, and did not preclude the unwanted bidder from the victory it in fact secured. It held only and properly that such an option is lawful and can be exercised by the "white knight" even if it loses the contest.
Nothing in Judge Leval's carefully crafted decision in Marshall Field & Co., v. Icahn, 537 F. Supp. 413 (S.D.N.Y.1982), is inconsistent with either the rationale or the conclusions reached in this case. Judge Leval flatly disagreed there with "the reasoning" of Mobil Corp. v. Marathon Oil Corp., 669 F.2d 366 (6th Cir.1981), and said that Marathon's reasoning "could unduly interfere with the right of company management to combat a takeover attempt that it believes in good faith to be harmful to its shareholders." 537 F. Supp. at 422. He continued: "In my view the securities laws do not bar management from taking action in the best interests of its shareholders even if this will make more difficult the success of a disfavored offeror." Id. That is consistent with the position taken here, since the Williams Act permits management to oppose a takeover attempt in any way that does not improperly deprive its shareholders of their investment decision. Concededly, under the approach proposed here, whether or not management's actions were in good faith would be beside the point in deciding a Williams Act claim, though such conduct might be a defense to state law claims, such as the breach of fiduciary duties. But a close look at Judge Leval's actions and analysis at the various stages of the Marshall Field battle demonstrates that his concern was precisely to preserve the vigor of the tender offer process involved. Thus, he began by rejecting various Marshall Field efforts to prevent the Icahn group from accumulating Field stock. Id. at 416-20. Subsequently, when the Icahn group sought relief from the effects of various options and preferences Field was granting to Icahn's only viable opponent BATUS Judge Leval upheld the options because the prices and amounts of shares were fair and designed to encourage competition with Icahn and thereby potentially benefit Field's shareholders. Id. at 420-22. When Icahn complained about a right of first refusal on a valuable Field property granted to BATUS, Judge Leval expressed concern that this right "might operate in such fashion as to prevent competitive bidding for the Chicago properties." Id. at 421. Field then clarified the agreement to insure that the property could not be sold below fair market value. The same result was achieved when Judge Leval suggested that an agreement by which Field gave confidential information to prospective "white knights" might prevent them in fact from bidding against BATUS and thereby from providing a higher price for Icahn's stock; the Judge's informal suggestions led Field to waive its right to approve offers that could prove material. Id. In short, however correctly critical Judge Leval may have been of the rationale of Marathon, his adroit handling of the Field Icahn controversy was designed to allow the parties to wage the most effective tender-offer war possible, within the bounds of the statute's requirements of informed action.
The single case which defendants properly characterize as inconsistent with Marathon is Martin Marietta Corp. v. Bendix Corp., 549 F. Supp. 623 (D.Md.1982). Bendix there challenged two particularly common but complex defensive tactics. The first characterized by Bendix as a "scorched earth" policy was Marietta's offer to buy control of Bendix; such a policy, Bendix claimed, would nullify Bendix' successfully completed offer for Marietta and thereby deprive Bendix of the financial benefits of its offer. Id. at 627. The second tactic turned on the complex form in which Marietta's offer was made loosely called an offer with "front end" enticements and less attractive "back end" consequences. In this instance, Marietta offered $75 per share for 50.3% of Bendix common stock (Bendix at the time having already acquired 58% of Marietta's common), but Marietta announced *1553 that if it succeeded in its offer it would later acquire all of the Bendix shares not tendered through a "back-end," squeeze-out merger, with Bendix shareholders receiving 1 2/3 of Marietta common for each Bendix share, and no cash at all. Id. at 625. While the District Court refused to address these complicated devices, they are merely two of the many, everyday shenanigans engaged in by take-over specialists. If the Marathon rationale were rigidly enforced, these devices could all be deemed "manipulative" in that they were undoubtedly intended to affect by artificial means the prices of the securities over which the sides were battling. But conduct to be manipulative in connection with a tender proposal must undermine, rather than enhance, the tender offer process that Congress put in place for the benefit of shareholders. The court specifically found that the tactics used there did not thwart the tender offer, id. at 628, and no property was being destroyed by any alleged "scorched earth" policy. To the contrary, the activities seem to have generated a furious and healthy battle, in which shareholders were destined to be presented with several increasingly lucrative opportunities, among which they would be reasonably free to exercise an informed choice.[4]
The Supreme Court's recent decision in Edgar v. Mite Corp., 457 U.S. 624, 102 S. Ct. 2629, 73 L. Ed. 2d 269 (1982), strongly supports these conclusions, and indicates the Court's recognition of the Williams Act's dual purposes. Justice White, writing for a plurality, found sufficiently clear federal policies in the Williams Act to justify declaring invalid under the supremacy clause certain aspects of the Illinois Business Takeover Act. Although the Court rested its holding of unconstitutionality on a commerce clause rationale, Justice White's treatment of the supremacy clause in that case is significant.[5] Section 28(a) of *1554 the 1934 Act, the opinion noted, provides that "[n]othing in this chapter shall affect the jurisdiction of the securities commission (or any agency or officer performing like functions) of any state over any security or any person insofar as it does not conflict with the provisions of this chapter or the rules and regulations thereunder." Id. 102 S.Ct. at 2635 (quoting 15 U.S.C. § 78b(a)). Therefore, the decision was made in the context of a statute that explicitly permits states to regulate takeovers, so long as state legislation does not conflict with provisions of federal law. Furthermore, the case was not one in which it would have been impossible for the plaintiff to comply with both the provisions of the Williams Act and the more burdensome requirements of the Illinois law. The question was whether the Illinois Act frustrated objectives of the Williams Act in some substantial way, a test that required examination of the Williams Act's objectives.
Justice White's opinion reviewed the many disclosure requirements imposed upon tender offerors by the Williams Act, and explained how the law originated as a measure to protect the investor and in the process was originally pro-management in that it helped target companies to defeat takeover bids. Id. 102 S.Ct. at 2635-37. Adding significantly to the reading in Chris-Craft, however, the opinion quoted legislative history to the effect "that takeover bids should not be discouraged because they serve a useful purpose in providing a check on entrenched but inefficient management." Id. 102 S.Ct. at 2636 (quoting S.Rep. No. 550, 90th Cong., 1st Sess. 3 (1967)). The opinion therefore read the legislative history as reflecting a policy of "even handedness," id. (quoting Chris-Craft, 430 U.S. at 31, 97 S. Ct. at 944), in which "neither side in the contest should be extended additional advantages vis-a-vis the investor, who if furnished with adequate information would be in a position to make his own informed choice." 102 S. Ct. at 2636. The opinion then went on to say in language highly significant to the evaluation of the propriety of defensive tactics by takeover candidates:
We, therefore, agree with the Court of Appeals that Congress sought to protect the investor not only by furnishing him with the necessary information but also by withholding from management or the bidder any undue advantage that could frustrate the exercise of an informed choice.
Id. 102 S.Ct. at 2636-37. The Congress had no intention, "`to do ... more than give incumbent management an opportunity to express and explain its position,'" id. 102 S.Ct. at 2637, (quoting Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 58, 95 S. Ct. 2069, 2076, 45 L. Ed. 2d 12 (1975)). "Once that opportunity was extended, Congress anticipated that the investor, if he so chose, and the takeover bidder should be free to move forward within the time-frame provided by Congress." 102 S. Ct. at 2637.
Based on this view of the purposes of the Williams Act, Justice White agreed with the Court of Appeals for the Seventh Circuit that three provisions of the Illinois Act violated the supremacy clause. First, the provision that required a tender-offeror to notify the Secretary of State and the target company of its intent to make a tender offer and its material terms twenty business days before the offer became effective was declared invalid, because it gave incumbent management "a powerful tool to combat tender offers, perhaps to the detriment of the stockholders who will not have an offer before them during this period," and these consequences are "precisely what Congress determined should be avoided...." Id. (footnote omitted). The hearing provisions of the Illinois Act were found to frustrate the congressional purpose of the Williams Act, because they too delayed the effectiveness of tender offers. Id. 102 S.Ct. at 2637-39. Finally, the Supreme Court invalidated the provision in the Illinois Law that would have permitted the Secretary of State of Illinois to pass upon the substantive fairness of tender offers. 102 S. Ct. at 2639. The opinion makes clear *1555 its view that the Williams Act is not designed to guarantee fairness, but only to guarantee that shareholders be permitted a fair opportunity to exercise their choice:
The Court of Appeals understood the Williams Act and its legislative history to indicate that Congress intended for investors to be free to make their own decisions. We agree. Both the House and Senate Reports observed that the Act was "designed to make the relevant facts known so that shareholders have a fair opportunity to make their decision." H.R.Rep. No. 1711, 90th Cong., 2d Sess. 3 (1968); U.S.Code Cong. & Admin.News, pp. 2811, 2813; Senate Report at 3. Thus, as the Court of Appeals said, "[t]he State thus offers investor protection at the expense of investor autonomy an approach quite in conflict with that adopted by Congress." [Mite Corp. v. Dixon] 633 F.2d, [486] at 494 [(7th Cir. 1980)].
Id. 102 S.Ct. at 2640.
The notion that the reasoning in Edgar v. Mite Corp., can be distinguished as inapplicable to private suits seems unsound. In our federal system, and in connection with a statute that expressly condones state regulation, it would appear to follow that any restriction that the Supreme Court imposes through the supremacy clause upon a State in regulating tender offers should apply to similar interference by private persons. The courts invalidate state laws only when Congress is found to have expressed an inconsistent purpose, and if that purpose cannot be undermined by States, it should, absent strong evidence of a contrary intent, be protected against similar private conduct. The actions of Datatab and CRC interfere more egregiously with Congress' purposes than those invalidated in Edgar v. Mite Corp. Thus, if state law provisions are invalid because the extra time they impose upon a tender offeror reduces the tender offeror's possibility of succeeding, even less acceptable is the option agreement between Datatab and CRC which makes success by the tender offeror impossible by aborting the tender offer process. Most tellingly, if Illinois may not call upon its Secretary of State to judge whether an offer is equitable because investor autonomy is thereby denied, how much less justifiable is the sacrifice of stockholder autonomy here, not by the act of a public official seeking to do justice for shareholders, but by the actions of executives of two private companies seeking to advance their own professional and personal interests. Assuming, however, that the decision in Edgar v. Mite Corp., applies only in the context of preemption allegations, under Justice White's analysis, those provisions of New York Corporation Law, N.Y. Business Corporation Law §§ 501, 505 (McKinney's, 1983), which permit boards of directors to grant options to purchase authorized but unissued shares without shareholder approval, would be preempted by the Williams Act to the extent they allow an option to be used to abort an ongoing tender offer process. See Burks v. Lasker, 441 U.S. 471, 99 S. Ct. 1831, 60 L. Ed. 2d 404 (1979); Marino v. Town of Ramapo, 68 Misc. 2d 44, 326 N.Y. S.2d 162 (1971) (State competitive bidding provisions, viable for all other purposes, are preempted to the extent they undermine goals of HUD turnkey program). Finally, irrespective of the decision's authority as a basis for invalidating the devices adopted in this case, it remains strong evidence (written by the Justice who authored Santa Fe) that the Court will recognize that the Williams Act has federally enforceable objectives, beyond mere disclosure.
The principles governing Williams Act suits, concededly applicable even by defendants to this complaint's disclosure claims, and as developed above with respect to the allegedly illegal use of a lock-out option, demonstrate that defendants have violated both the Act's disclosure requirements and its prohibition against manipulative acts.[6]
*1556 A. Datatab's Failure to Disclose Material Information.
Plaintiffs have charged Datatab with violating both the proxy statement disclosure provisions of Section 14(a) of the 1934 Exchange Act, and the proscription in Section 14(e) of the Williams Act against omissions of material fact from statements made in connection with tender offers. These charges stem from a letter of July 1, 1983 addressed by Datatab to its stockholders, described above. Plaintiffs assert that this letter constitutes a proxy solicitation and is governed by the rules promulgated under Section 14(a), specifically Rules 14a-9, 17 C.F.R. § 240.14a-9, and 14a-12, 17 C.F.R. § 240.14a-12.[7] Defendants counter that the letter was intended solely to comply with the requirements in Rule 14e-2, 17 C.F.R. § 240.14e-2, promulgated under Williams Act Section 14(e), that subjects of tender offers notify their shareholders within ten business days after the offer of management's position concerning the tender offer.
The letter itself is ambiguous; it is couched as an announcement of the amended CRC merger agreement, and says little about Data Probe's tender offer. The first three paragraphs discuss the merger agreement, and the new price of $1.40, the CRC loan of $210,000 operating capital, and the stock option granted to CRC. The fourth paragraph informs stockholders of the new date of the stockholders' meeting at which the merger proposal will be considered, and states that supplemental proxy material and proxy cards will be forthcoming. It informs stockholders that the Board has approved and will recommend the CRC merger. Only the fifth and last paragraph deals with the Data Probe tender offer. The paragraph reads in its entirety:
In view of the new $1.40 per share merger offer from CRC, the Board recommends that you not tender your shares for the $1.25 price which is offered by Data Probe Acquisition Corp. If you have already tendered your shares, you may withdraw them at any time prior to midnight, New York City time, on July 12, 1983.
Defendants seem to believe that this letter cannot be construed as a Rule 14a proxy solicitation, because it was intended as a Rule 14e-2 statement of position. But the two categories are not mutually exclusive. Datatab's letter has a dual purpose; it serves as a proxy solicitation vis-a-vis the merger agreement, at the same time as it *1557 states management's position regarding the tender offer. Nevertheless, while the letter's failure to explain to shareholders that, among other things, CRC's exercise of its irrevocable 200% stock option would disenfranchise the shareholders in an eventual merger vote, constitutes a serious omission of a material fact, Datatab correctly argues that these omissions can easily be cured before the actual merger decision by full disclosure of all material facts in amended proxy statements, which should also inform stockholders of the outcome of this litigation. In view of the lack of probable reliance, the opportunity to cure, and Datatab's expressed intention to do so, the 14(a) claim is not a proper subject for injunctive relief. Cf. Treadway Companies, Inc. v. Care Corp., 638 F.2d 357, 380 (2d Cir.1980) (deficiencies in 13D filing cured by subsequent filings).
More serious is the charge that the July 1 letter violates the disclosure provisions and the duty to refrain from misleading statements which the Williams Act imposes on participants in tender-offer battles. The timing of the letter, less than two weeks before the date for withdrawal of tendered shares, meant that shareholders could be expected and, in fact, were expressly encouraged to refrain from tendering or to withdraw tendered shares on the strength of management's representations. In Lewis v. McGraw, 619 F.2d 192, (2d Cir.), cert. denied, 449 U.S. 951, 101 S. Ct. 354, 66 L. Ed. 2d 214 (1980), the Second Circuit noted that reliance may be presumed in a 14(e) claim where circumstances make such a presumption logical; "[i]njunctive relief ... may be available to restrain or correct misleading statements made during the period preceding a tender offer where ... reliance upon the statements at issue is probable under the circumstances." Id. at 195; see Chris-Craft Industries, Inc. v. Piper Aircraft Corp., 480 F.2d 341, 362-63 (2d Cir.), cert. denied, 414 U.S. 910, 94 S. Ct. 231, 38 L. Ed. 2d 148 (1973). Section 14(e) was designed "to insure that [investors] will not be required to respond [to a tender offer] without adequate information...." Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 58, 95 S. Ct. 2069, 2075-76, 45 L. Ed. 2d 12 (1975). In line with this goal, Section 14(e) of the Williams Act, in language virtually identical to that of Rule 14a-9, proscribes any person from making misleading statements in connection with a tender offer or omitting to state material facts necessary to make the statements made not misleading.
Defendants maintain that their duty of disclosure concerning their opposition to the tender offer was defined by Rule 14e-2 and was entirely satisfied by compliance with that rule in that they sent a letter which identified a reason for their opposition. This position is at odds with the instructions in Rule 14e-2, and defeats the express remedial purpose of Section 14(e). If Datatab's approach to Rule 14e-2 were the law, management's position statement could become an empty formality.
Rule 14e-2 states in relevant part that "[a]s a means reasonably designed to prevent fraudulent, deceptive or manipulative acts or practices within the meaning of Section 14(e) of the Act, the subject company, no later than 10 business days from the date the tender offer is first published or sent or given, shall publish, send or give to security holders a statement disclosing that the subject company: (1) Recommends acceptance or rejection of the bidder's tender offer .... (3) ... Such statement shall also include the reason(s) for the position ... disclosed therein." 17 C.F.R. § 240.14e-2.
The July 1 letter is inadequate as a statement of reasons for Datatab's position, and fails to provide the stockholders with the information most relevant to an informed decision. The intent of the Williams Act was to protect security holders by giving management an opportunity "to furnish any information at its disposal pertinent to the merits of the offer before the security holder responds to it." Senate Hearings at 19. At the same time, as SEC Chairman Cohen testified, "protection [was] needed against any management efforts designed to resist bids when the information furnished may be given in the context in which the desire to obtain and retain existing emoluments may make difficult impartial and complete disclosure of relevant facts." *1558 Id. It is no accident that the rule requiring management to state its position is promulgated under the section of the Act prohibiting material omissions or misstatements, fraud, deception, and manipulation.
At the fact finding hearing of July 24, 1983, Datatab's management suggested a number of possible reasons for opposing the Data Probe offer, including Data Probe's less sophisticated technology, and the apparent inexperience of Data Probe's principal officer in the field of market research. The July 1 letter is silent as to these matters. Its sole explicit reference is to price per share. The letter also fails to mention the guarantee of three-year employment contracts negotiated by Mr. Adams and other officers of Datatab as part of the CRC merger agreement, and Data Probe's refusal to agree to such contracts. Datatab contends that this did not figure in its position, and that its officers' interests mirrored those of the Datatab shareholders, since they too stood to gain from a higher price per share for the 70,000 shares owned by them. The officers stood to gain far more, however, from a three-year contractual commitment by CRC to pay them, in addition to $1.40 per share, the agreed-upon salaries and bonuses, than from Data Probe's subsequent $1.55 per share tender offer, with no employment commitments. The differences in salary and tenure arrangements were in fact significant to the officers, and to the shareholders as well, and their omission from the disclosures to the Datatab shareholders violated Section 14(e). "[O]nce a company undertakes partial disclosure ... there is a duty to make the full disclosure of known facts necessary to avoid making such statements misleading." Panter v. Marshall Field & Co., 646 F.2d 271, 292 (7th Cir.1981).
Defendants further contend that statements concerning the stock option are not governed by Section 14(e) because the option was not entered into in connection with the Data Probe tender offer but rather in connection with the CRC merger. As Judge Weinfeld has indicated, where a separate transaction such as a stock purchase agreement is entered into with the sole purpose of defeating a tender offer, any public statements concerning that transaction must be considered to have been made "in connection with" the tender offer and are thus subject to the Section 14(e) requirement that they not be misleadingly incomplete. Applied Digital Data Systems, Inc. v. Milgo Electronic Corp., 425 F. Supp. 1145, 1160 (S.D.N.Y.1977); see also Lewis v. McGraw, 619 F.2d 192, 195 (2d Cir.1980), cert. denied, 449 U.S. 951, 101 S. Ct. 354, 66 L. Ed. 2d 214 (1980) (applying the reasoning of Milgo, supra, to a statement which preceded a tender offer and finding that it may be held to have occurred "in connection with" such offer).
The July 1 letter is deceptive in its treatment of the stock option. Nowhere does it state that the option represents a potential 200% increase over the number of shares outstanding, nor that its exercise would end further bidding by Data Probe or any other potential offeror, nor that Datatab management had information suggesting that Data Probe would increase its offer in response to CRC's $1.40 proposal. The Second Circuit's analysis of a similar failure to disclose in SEC v. Parklane Hosiery Co., 558 F.2d 1083 (2d Cir.1977) seems particularly apposite. In Parklane a proxy statement was held to violate Section 14, because it failed to disclose that the overriding purpose for a "going-private" merger was to enable the principal shareholder of the defendant company to repay his personal indebtedness. The defendant asserted, without success, that it had adequately disclosed the pertinent facts by noting that "[t]he merger will make possible a combination of the resources of the Company with those of Mr. Somekh ... for the conduct of real estate activities of the type that Mr. Somekh has to date conducted individually ...." Id. at 1086 n. 2. Datatab's disclosure of the existence of the option agreement in connection with the merger plan, without any hint of its impact on the tender offer battle, was equally deceptive.
The information not disclosed was material to a shareholder's evaluation of the opportunities presented in the tender-offer dispute, and Datatab's failure to supply it is a type of deception the Williams Act was *1559 designed to prevent. The Senate Report on the Act states that Section 14(e) "would affirm the fact that persons engaged in making of opposing tender offers or otherwise seeking to influence the decision of investors or the outcome of the tender offer are under an obligation to make full disclosure of material information to those with whom they deal." S.Rep. No. 550, 90th Cong., 1st Sess. 11 (1967). The materiality of the information withheld must be judged by whether the fact would have assumed "actual significance" in a shareholder's deliberations. TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 444-49, 96 S. Ct. 2126, 2130-32, 48 L. Ed. 2d 757 (1976). In this case, as in Parklane Hosiery, the materiality of the non-disclosed information is established by the fact that it could have been used by shareholders to mount an action for injunctive relief under the Williams Act or, even if no federal remedy exists, a state court action to enjoin the merger, strike down the option agreement, or petition for a ruling requiring shareholder approval. See Parklane Hosiery, 558 F.2d at 1088; cf. Goldberg v. Meridor, 567 F.2d 209 (2d Cir.1977). Datatab's July 1 letter therefore constitutes a misleadingly incomplete statement of reasons in violation of Rule 14e-2.
B. Invalidity of The Lock-Up Option.
The legislative history and decisions discussed above support the proposition that Congress in the Williams Act intended, not only to insure that investors were properly informed, but that they would be able to exercise their choices in tender offer disputes without undue interference. Neither management nor the bidder is permitted to engage in "manipulative" or other acts in violation of Section 14(e), but manipulation here is restricted to those acts that unduly obstruct the exercise of informed shareholder choice. This standard contemplates that the parties to tender offer battles will have considerable latitude to engage in acts that may fit the definition of "manipulative" enunciated in Marathon, but which will be lawful because they fairly can be said to have had the design or effect of enhancing informed and effective shareholder choice. Thus, the Act's aim of neutrality between offeror and offeree in the tender-offer process does not mean that management need be neutral in all aspects of its conduct. To the contrary, fiduciary law requires management's allegiance to be with the interests of the target company and its owners. Furthermore, the Williams Act does not envision passivity on management's part. It expressly requires management to inform the shareholders of all required facts, and it must be construed to permit and encourage management to explain and to evaluate the complex arrangements that have become a routine part of today's tender-offer process. Cf. SEC v. Parklane Hosiery, supra. Finally, while the Act protects the integrity of the bidding process as a device for the sale of corporate ownership, it should be construed to permit management to resort to tactics even those characterized as "defensive" or "lock-out" when their purpose and effect is to enhance the shareholders' prospects, such as to attract rather than to repel competitive bidding.
As difficult as these principles are to apply in the real world, the task of determining the propriety of management (and offeror) conduct in takeover proceedings must in all respects significant to the fundamental objectives of the Williams Act fall to the federal courts as a matter of federal law. Suggestions that management tactics in tender offer battles should be measured against the "business judgment rule;" that management disloyalty to shareholder interests should be tested by fiduciary standards; and that the only protection against alleged losses in the recovery of value in the sale of shares is an after-the-fact appraisal proceeding; would leave the Williams Act ineffective as a mechanism for assuring shareholder choice. Furthermore, such suggestions would relegate stockholders with federal rights to the state courts or to state law principles, where those rights would be variably enforced, and possibly rendered meaningless because of lax state standards or procedures. As Edgar v. Mite Corp. reminds us, Congress explicitly recognized *1560 the importance of speedy determinations of tender-offer controversies.
Developing federal standards to govern Williams Act claims is well within the judiciary's competence. The federal courts are blessed with a bar in this complex and interesting area of law, so able and so practically astute, that through reasoned controversy among themselves they are certain to narrow considerably the range of possible judicial error. We have also available to aid us on most if not all the specific areas of difficulty that are likely soon to be presented, the guidelines and judgments of public institutions and private practitioners in this field. The SEC in particular has a legislative mandate that it is moving slowly but carefully to satisfy, and it should eventually address the complex, new problems posed for shareholders by the obscure and sometimes coercive nature of the financial terms that tender offers are increasingly assuming. Finally, while we await further expressions of informed wisdom, the classic, common-law technique of case-by-case adjudication will serve to avoid error, and at the same time provide useful indications of the directions in which the law seems destined to move, absent legislative alteration.
The present case illustrates these advantages and the tenability of federal-court supervision. The attorneys in this case, and attorneys who practice law in this area, have argued and written on the specific subject of the use by target corporations of option agreements in tender-offer disputes.[8] Experienced and respected practitioners who represent offerors as well as target corporations, have suggested how options sometimes inappropriately called "lock ups" can be and occasionally are used in ways that are consistent with Williams Act objectives. Kenneth Bialkin has suggested, for example, how an option may be necessary to attract a competing bid against a well-heeled offeror, or to obtain an advantageous merger agreement. Bialkin, Court Casts Cloud over Option Tactics in Takeovers, Legal Times of Washington, Jan. 11, 1982, at 19. Involvement in tender-offer disputes has become a costly venture. Bids must be analyzed, financing arranged, counsel consulted, and filings and challenges to others' filings prepared, all of which require time, effort, and money. An option in the range of 15%-20% has been found, in recent experience, to provide a sufficient incentive to attract interested bidders, not solely or even primarily because the option serves as a "leg-up," but because the option enables the tender offeror to acquire a sizable block of stock at an early price, full and fair at the time it is given but low enough to permit a decent profit if active management succeeds in helping to engineer bidding. The profit *1561 made by the favored bidder (or bidders) in such situations is relatively modest, but experience has indicated it is sufficient to cover all or much of the bidder's costs. See Fraidin and Franco, Lock-Up Arrangements, 14 Rev.Sec.Reg. 821, 823 (1981).
The principal markets in which tender contests occur have recognized, as have professionals who function in them regulators, investors, arbitrageurs, attorneys and others that within a range of up to about 20% options to tender offer contestants may in particular cases help begin an auction, or attract higher prices for stockholders. A New York Stock Exchange rule prevents companies from listing newly issued stock that would increase the company's outstanding shares by more than approximately 18.5% without shareholder approval. The American Stock Exchange has a similar rule permitting issues of up to about 19.5%. See N.Y.S.E. Company Manual A-283; AMEX, Company Guides §§ 713, 714. Though not expressly applicable to tender offer situations, these rules have, in real disputes, functioned to set limits on options to sell stock in the tender offer process to a preferred bidder without shareholder approval. Recently, when the SEC called together a distinguished group of interested and experienced participants, observers, and scholars of the tender offer process, the group recommended with virtual unanimity that companies be permitted to offer options in tender battles of up to 15% without shareholder approval; any amount above the level, they suggested, would be consistent with the Williams Act only if approved by the shareholders, presumably on proper notice. SEC Advisory Committee On Tender Offers, 1028 Fed.Sec.Law Rep. (CCH) 44 (July 15, 1983).
The option granted by Datatab management in this case differs dramatically from those that experience and logic have shown to be potentially consistent with the aims of the Williams Act. In the midst of a battle for control, and after a tender offer had been made by Data Probe, Datatab management claims that it was forced to capitulate to CRC's demand for what was in fact a "lock-out" option in order to convince CRC to offer $1.40 for its shares. Datatab was by then in no position to claim that the $1.25 it had been offered by Data Probe was so inadequate that extreme measures were justified; indeed, management had only recently presented Datatab's stockholders with expert appraisals justifying the reasonableness of the merger originally proposed at $1.00 per share. Furthermore, the record is uncontroverted that an active bidder was still on the scene, and had expressed tangible interest in offering an even higher price without the need for any option advantage.[9] Moreover, CRC did not seek in the option a vehicle for recouping some or all of the costs incurred in the friendly merger originally contemplated, or that might be incurred in a further battle. Most likely, Datatab's officers, determined to sign with CRC rather than with Data Probe, either proposed or readily acceded to the preclusive option. In any event, they concede that they agreed to the option without inviting a further response from Data Probe, which as subsequent events have shown would have been forthcoming. And they at no time sought to explain why Data Probe's offer of $1.25 should be rejected without any further inquiry or bidding. If the company's officers had doubts about the truth or adequacy of Data Probe's interest, disclosure, capabilities, or explanations, this conceivably might have justified so drastic an option after shareholder approval, but in no event would have justified its unilateral adoption once a tender offer had been made.
The security and working conditions of a management team is of paramount importance to a venture's success. But no motive, however related it might be to shareholder interests could justify the option granted here. The shareholders were entitled by the Williams Act to have placed *1562 before them any further, competing offer by Data Probe, and to decide without management's overriding control whether to accept that offer or perhaps even some other, competing proposal. But the stockholders were deprived of any real choice. Their vote on the revised merger was sought only after an arrangement was made that aborted the tender offer process, and enabled CRC to mandate the acquisition through the exercise of its option. The arrangement therefore lacks any semblance of justification consistent with the Williams Act's objectives.
IV. Conclusion
Congress recognized in the Williams Act that the consternation sometimes expressed in response to the principle that shareholders be permitted to sell their shares to the highest bidder, even in an informed auction, may represent the reaction of an entrenched, managerial class intent on retaining and exercising, without legally possessing, the prerogatives of corporate ownership. The separation in American industry of ownership and control, long recognized, has led inevitably to contests among wouldbe managers for the economic, social, and political fruits of managerial authority. See generally W. Cary & M. Eisenberg, Cases and Materials on Corporations 208-212 (5th ed. 1980), discussing among other sources the classic Berle & Means, The Modern Corporation and Private Property (1932). These contests are, ultimately, the principal device by which efficiency is attained in a free society that continues to prize its relatively unregulated economy.
Having been presented with the full range of options for regulating these contests, Congress chose the option of an informed but free market for corporate control. See Werner, Management, Stock Market and Corporate Reform: Berle and Means Reconsidered, 77 Colum.L.Rev. 388, 402-04 (1977). In the Williams Act Congress requires the contestants for control to reveal the information necessary to permit informed choice; and it entrusts that choice, not to managers, would-be managers, state legislatures, government regulators, or courts, but ultimately to the stockholders themselves, the owners by right of the properties at issue, thereby encouraging the continued attractiveness of capital investment in American industry. The Williams Act confers upon the federal courts the duty to insure that this market function intelligently and vigorously, without the use of measures that grant "undue" advantages and thereby "frustrate the exercise of an informed choice." Edgar v. Mite Corp., supra, 102 S.Ct. at 2637.
The option agreement entered into between Datatab and CRC is declared void, and Datatab is found also to have violated its disclosure obligations under Section 14(e). This judgment will be entered in plaintiffs' favor with costs.
SO ORDERED.
NOTES
[1] Defendants assert that Data Probe lacks standing under Section 14(e) to challenge the defensive tactics employed by Datatab and CRC, after the Supreme Court holding in Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 97 S. Ct. 926, 51 L. Ed. 2d 124 (1977). Allowing a tender offeror to maintain a suit for injunctive relief, however, is consistent with Chris-Craft and with subsequent federal case law and, in fact, provides an essential tool for achieving the objectives of the Williams Act. The Court in Chris-Craft declined to determine whether a suit for injunctive relief would lie under Section 14(e), confining itself to the narrow question of an implied cause of action for damages. 430 U.S. at 47 n. 33, 97 S. Ct. at 952 n. 33. In addition, the Court expressly stated that "in corporate control contests the stage of preliminary injunctive relief, rather than post contest lawsuits, `is the time when relief can best be given.'" Id. at 42, 97 S. Ct. at 949. The tender offeror may be the only party with enough knowledge and awareness to identify nondisclosure or manipulative practices in time to obtain a preliminary injunction, which may be the only means of preserving the unimpeded choice of shareholders the Williams Act was designed to protect. Mobil Corp. v. Marathon Oil Co., 669 F.2d 366, 371 (6th Cir.1981); Humana, Inc. v. American Medicorp, Inc., 445 F. Supp. 613, 615-616 (S.D.N.Y.1977); Crane Co. v. Harsco Corp., 511 F. Supp. 294, 300 (D.Del.1981). See also Applied Digital Data System's Inc. v. Milgo Electronic Corp., 425 F. Supp. 1145, 1152 (S.D.N.Y.1977).
[2] Senator Williams, presenting the final version of his bill to the Senate, explained the House amendment empowering the SEC to define and regulate fraudulent, deceptive, and manipulative acts and practices in terms of the legislative assumption that the phrase, even though virtually identical to language employed elsewhere in the Securities Exchange Act of 1934, would take on new significance in this context:
The revised standard is based on comparable language in section 15(c)(2) of the act, and should give the Commission adequate power to prescribe comprehensive rules and regulations to deal with the abuses arising in this area, just as its powers under section 15(c)(2) have enabled it to do with respect to the activities specified in that section.
113 Cong.Rec. 21954, July 17, 1968.
[3] The Senate Report states that "S. 510 would amend the Securities Exchange Act of 1934 by requiring disclosure of pertinent information and would afford other protections to stockholders" in tender offers or when corporations repurchase their own securities. S.Rep. No. 550, 90th Cong., 1st Sess. 1 (1967). These "other protections" ensure substantive fairness and a climate conducive to reasoned investment decisions by shareholders of a target company. Thus, the pro rata provisions of Section 14(d)(6) were designed to allow "shareholders a fair opportunity to participate in the offer." Id. at 10 (1967). The best price provision of 14(d)(7) assures "equality of treatment among all shareholders who tender their shares." Id. The timing provisions of the rules promulgated under Section 14(e) were enacted to prevent shareholders from being either surprised or stampeded into premature decisions. Disclosure is far from the only technique by which the Williams Act sought to protect shareholders' freedom of choice. But see Schneiderman New Tender Techniques Key Legislative Concern, 189 N.Y.L.J. 25 (1983) (Reviewing the legislative history from the same perspective as this opinion but reaching a different conclusion.)
[4] The District Court in Martin Marietta might not have been so prepared to dismiss if it were presented with a case in which the directors were truly destroying a company's value to avoid a successful tender offer and the loss of their jobs. That is the possibility with which Judge Milton Pollack was presented in Joseph E. Seagram & Sons, Inc. v. Abrams, 510 F. Supp. 860 (S.D.N.Y.1981). While his opinion contains no definitive expressions on the meaning or breadth of section 14(e) of the Williams Act, his instinctive reaction to the "scorched earth" policy that the target company allegedly planned in response to a tender offer reflects the soundness of the proposition that, while the Act may permit efforts against a tender offer designed to enhance the interests of shareholders, management may not sacrifice the shareholders' best interests through devices that undermine shareholder autonomy in tender offer disputes, "merely to thwart a change in the existing stock ownership which may end the tenure of the present directors and key officers of the company." Id. at 861.
[5] Justice White's plurality opinion, joined by Chief Justice Burger and Justice Blackmun, and partially concurred in by Justices O'Connor, Powell and Stevens, invalidated the Illinois Takeover Statute on supremacy clause and commerce clause grounds. Parts III and IV of Justice White's opinion, invalidating the Illinois Statute under a preemption theory, were not joined by Justice O'Connor, who felt the issue need not be reached since the commerce clause violation was sufficient to find the statute unconstitutional. Justices Powell and Stevens did not join in parts III and IV, partially because they concluded that state law might justifiably tilt in favor of management given the disparity of power between vulnerable targets and wealthy tender offerors. Justices Rehnquist, Brennan and Marshall, dissenting on mootness grounds, expressed no opinion on the merits.
Although Justice White's supremacy clause analysis is not a majority holding, it affords persuasive authority for a view of the Williams Act that had already attained significant following. In addition to the Seventh Circuit decision affirmed in Mite Corp. notable Fifth and Third Circuit opinions have also held that the Williams Act preempts conflicting state laws. See Great Western United Corp. v. Kidwell, 577 F.2d 1256, 1277 (5th Cir.1978) reversed on venue grounds sub nom. Leroy v. Great Western United Corp., 443 U.S. 173, 99 S. Ct. 2710, 61 L. Ed. 2d 464 (1979); Kennecott Corp. v. Smith, 637 F.2d 181, 184-85 (3rd Cir.1980). Justice White's preemption analysis, confirming the approach of the Seventh, Third, and Fifth Circuits, represents the most authoritative statement of the balance to be struck between state and federal law where the Williams Act and state corporation laws conflict. Moreover, none of the five separate opinions in Mite Corp., intimated that the scope of the Williams Act was limited by Chris-Craft or Santa Fe, or countered Justice White's theory that the Williams Act embraces substantive guarantees of neutrality and access to the tender offer process. Even the partial concurrence of Justice Powell, which suggests that a conflicting state takeover statute would be defensible to the extent it corrects imbalances of power between Williams Act contestants, is based on a theory essentially compatible with Justice White's opinion.
[6] In contrast, plaintiff's demand that the indemnification agreement between CRC and Datatab's officers be found void as against public policy is not a suitable issue for determination by this court. The Datatab defendants have made no claim for attorney's fees, and any liability for such a claim would initially be shouldered by CRC shareholders. It may be that "to tolerate indemnity under these circumstances would encourage flouting the policy of the common law and the Securities Act," Globus v. Law Research Service, Inc., 418 F.2d 1276, 1288 (2d Cir.1969), cert. denied, 397 U.S. 913, 90 S. Ct. 913, 25 L. Ed. 2d 93 (1970), but "the decision as to whether review [of the indemnification agreement's propriety] will be sought [should be] in the hands of those who have a direct stake in the outcome," Sierra Club v. Morton, 405 U.S. 727, 740, 92 S. Ct. 1361, 1369, 31 L. Ed. 2d 636 (1972). See also Flast v. Cohen, 392 U.S. 83, 102-03, 88 S. Ct. 1942, 1953-54, 20 L. Ed. 2d 947 (1968). In this case, the CRC shareholders, not Data Probe, are the parties who may be adversely affected by the indemnification agreement and they may well choose to bring a claim in state court when and if officers of Datatab seek to enforce the agreement. The relief sought is, further, more akin to a suit for damages by a tender offer contestant, proscribed by Chris-Craft, than a request for injunctive relief; its resolution has little if any bearing on the tender-offer process in this case.
[7] A letter which does not request the giving of a proxy authorization is still subject to the Proxy Rules if it is "part of `a continuous plan' intended to end in solicitation and to prepare the way for success." Studebaker Corp. v. Gittlin, 360 F.2d 692, 696 (2d Cir.1966). The fact that the letter is couched as an announcement of the new merger plan and that the greater part of the letter describes the amended merger agreement confirms that its purpose and foreseeable result was to influence stockholders to vote in favor of the plan. Furthermore, while the SEC allows a solicitation to be made prior to the furnishing of a written proxy statement meeting the requirements of Rule 14a-3(a), if such solicitation "is made in opposition to ... an invitation for tenders ..., which if successful, could reasonably have the effect of defeating the action proposed to be taken at the meeting," 17 C.F.R. § 240.14a-12(a)(1), such communications must nevertheless conform to the requirement in Rule 14a-9 that "[n]o solicitation subject to this regulation shall be made ... containing any statement which, at the time and in the 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 necessary in order to make the statements therein not false or misleading ...," 17 C.F.R. § 240.14a-9.
[8] A burgeoning literature has developed on the propriety of defensive tactics in takeover bids. Notable among the available sources are Bebchuk, The Case for Facilitating Competing Tender Offers, 95 Harv.L.Rev. 1028 (1982); Bialkin, Court Casts Cloud over Option Tactics in Takeovers, Legal Times of Washington, Jan. 11, 1982; Easterbrook & Fischel, Takeover Bids, Defensive Tactics, and Shareholders' Welfare, 36 Bus.Law 1733 (1981); Easterbrook & Fischel, The Proper Role of a Target's Management in Responding to a Tender Offer, 94 Harv. L.Rev. 1161 (1981); Fischel, Efficient Capital Market Theory, the Market for Corporate Control, and the Regulation of Cash Tender Offers, 57 Tex.L.Rev. 1 (1978); Fraidin & Franco, Lock-Up Arrangements, Rev. of Sec.Reg. 821 (Nov. 4, 1981); Gelfond & Sebastian, Reevaluating the Duties of Target Management in a Hostile Tender Offers, 60 B.U.L.Rev. 403 (1980); Gilson, A Structural Approach to Corporations: The Case Against Defensive Tactics in Tender Offers, 33 Stan.L.Rev. (1981); Herzel & Colling, Limits on Takeover Defenses, Nat'l L.J., Mar. 29, 1982; Lipton, Takeover Bids in the Target's Boardroom, 35 Bus.Law 101 (1979); Lipton, Takeover Bids in the Target's Boardroom: An Update after One Year, 36 Bus.Law 1017 (1981); 1 Lipton and Steinberger, Takeovers & Freezeouts § 69,290 (1978); Lynch & Steinberg, The Legitimacy of Defensive Tactics in Tender Offers, 64 Cornell L.Rev. 901 (1979); Nathan, Lock-Ups and Leg-Ups: The Search for Security in the Acquisitions Market Place, P.L.I., Thirteenth Annual Institute on Securities Regulation 13 (1981); Steinbrink, Management's Response to the Takeover Attempt, 28 Case W.L.Rev. 882 (1978); Wachtel, Special Tender Offer Litigation Tactics, 32 Bus.Law 1433 (1977); Note, Lock-Up Options: Toward a State Law Standard, 96 Harv.L.Rev. 1066 (1983). Many of the suggested defensive techniques in the sources referred to above would clearly be unlawful under the test applied in this opinion.
[9] In fact, defendant Adams' notes (D.X. 1) taken during the restaurant meeting with Bachana, prove that the defendants knew Data Probe was likely to counter CRC's offer. The notes show that one of the questions Adams asked of Data Probe was: "what if? (3) CRC counter offer," and they indicate Bachana answered: "We will take what steps we have to." | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2376472/ | 55 F. Supp. 2d 91 (1999)
Pura C. TORRES VELAZQUEZ, et al., Plaintiffs,
v.
FOUR STAR INDUSTRIES, INC., Defendant.
Civil No. 99-1315 (JP).
United States District Court, D. Puerto Rico.
May 5, 1999.
*92 Mauricio Hernández Arroyo, Ciales, PR, for plaintiffs.
Vicente J. Antonetti, Goldman Antonetti & Córdova, San Juan, PR, for defendant.
OPINION & ORDER
PIERAS, Senior District Judge.
I. INTRODUCTION
Before the Court is Defendant's Four Star Industries, Inc.'s ("Four Star") Notice of Removal (docket No. 1) and Plaintiffs' Opposition to Notice of Removal (docket No. 3)[1]; and Defendant's Opposition to Plaintiffs' Motion for Remand and Memorandum in Support of Such Opposition (docket No. 7). Defendant filed the notice of removal arguing that Plaintiffs' complaint originally filed in the Puerto Rico Court of First Instance, Superior Division, Ponce Part ("State Court") arises under the laws of the United States, particularly the Workers' Adjustment and Retraining Notification Act ("WARN Act"), 29 U.S.C. § 2101 et seq. Plaintiffs counter Defendant's removal arguing that their wrongful discharge action under Puerto Rico law is their "primary and substantial cause of action." (Opp'n Notice Removal at 2).
II. BACKGROUND AND ARGUMENTS
One hundred and ninety nine Plaintiffs filed a Complaint in State Court alleging that, on December 11, 1998, Four Star wrongfully terminated them in violation of Law 80 of May 30, 1976, P.R.Laws Ann. tit. 29 § 185 ("Law 80"). Plaintiffs add that Defendant should be ordered to pay a sum for attorneys fees of "no less than 33 1/3 % of all items adjudicated in [their] favor ... in the present case, and ... any penalty, meaning violations to the laws applicable in cases of wrongful discharges, local *93 and/or federal, alleging that in the present case the provisions of the federal W.A.R.M. [sic] Act were violated." (Pls' Compl. ¶ 10).
Four Star answered the Complaint in State Court and filed a Notice of Removal arguing that the Court has jurisdiction over this case because the Complaint arose, at least in part, under the WARN Act, a federal statute which requires employers to provide advance notice of termination to soon-to-be-terminated employees to allow them time to seek other jobs. See Siniscalchi v. Shop-Rite Supermarkets, Inc., 903 F. Supp. 182 (D.Mass.1995).
Plaintiffs counter Four Star's Notice of Removal with three arguments. First, Plaintiffs state that their Law 80 wrongful discharge claim, a state claim, constitutes their "primary and substantive cause of action." (Pls' Opp'n Notice Removal at 2) Plaintiffs argue that the reference made to the WARN Act in the Complaint results from Defendant alleging in its discharge letter that its actions complied with said act. Plaintiff characterizes the reference to the WARN Act as a "rebuttal presumption." Second, Plaintiffs argue that they brought their Complaint under the special summary proceedings established in P.R.Laws Ann. tit. 2 § 3118 et seq. ("Law 2") and that by removing the instant case to federal court, Law 2's intention to expedite labor claims would be frustrated. Finally, Plaintiffs argue that the Notice of Removal is moot because they have filed a Motion Requesting Remedy with State Court asking for the removal of any and all allegations of the WARN Act in their Complaint.
III. DISCUSSION
The right to remove a case to federal court is created by statute. See Rivera González v. Commonwealth of Puerto Rico, 726 F. Supp. 10 (D.Puerto Rico 1989). The relevant removal statute guiding the Court's analysis is 28 U.S.C. § 1446. This statute states that removal is initiated by filing a notice of removal in federal court for the district in which the State Court proceeding is pending. The Court notes that the document filed with the Court is entitled a "notice," not a motion for removal, indicating that once the petition is filed in federal court and notice has been given to the state court and the parties, the case has been removed, leaving the state court divested of jurisdiction over the case. See Commonwealth of Massachusetts v. V & M Management, Inc., 929 F.2d 830, 834 (1st Cir. 1991); see also Anthony v. Runyon 76 F.3d 210 (8th Cir.1996); Jacks v. Torrington Company, 256 F. Supp. 282, 284 (D.S.C.1966); ERWIN CHEMERINSKY, FEDERAL JURISDICTION § 5.5 (2nd ed 1994). Because the State Court is divested of its jurisdiction from the moment Defendant notifies the removal until and unless the case is remanded, Plaintiff's filing of a Motion Seeking Remedy seeking the amendment of her State Court complaint cannot be entertained. According to 28 U.S.C. § 1446, after removal is effected, "the State court shall proceed no further unless and until the case is remanded." Therefore, the Court will not consider the WARN act allegations moot, and it will determine whether it has jurisdiction based on the pleadings as they stood at the moment of removal. See 14B CHARLES ALAN WRIGHT, ARTHUR R. MILLER, & EDWARD H. COOPER, FEDERAL PRACTICE AND PROCEDURE § 3722 at 471 (3d ed.1998).
In the notice of removal, the defendant bears the burden of establishing that removal is proper. See Sopena v. Colejon Corp., 920 F. Supp. 259 (D.Puerto Rico 1996); Transport Auditing, Inc. v. Sea-Land Service, Inc., 897 F. Supp. 34 (D.Puerto Rico 1995). An action is removable from state to federal court if it could have originally been brought to federal court. See 28 U.S.C. § 1441(a); Peltier v. Peltier, 548 F.2d 1083 (1st Cir.1977). Because there is no indication that federal jurisdiction could be invoked for diversity of citizenship, the Court shall determine *94 whether Plaintiff's Complaint "arises under" federal law under 28 U.S.C. § 1331.
Section 1331 of Title 28 states that, "the district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." This principle can best be summarized by stating that
a case arises under federal law if it is apparent from the face of the plaintiff's complaint either that the plaintiff's cause of action was created by federal law; or, if the plaintiff's cause of action is based on state law, a federal law that creates a cause of action is an essential component of the plaintiff's claim.
See ERWIN CHEMERINSKY, FEDERAL JURISDICTION § 5.5 (2nd ed 1994).
In the instant case, Plaintiffs allege in very superficial terms that on December 11, 1998 they were wrongfully and illegally dismissed by Defendant and seek relief under Puerto Rico law. Further, and more importantly for purposes of this discussion, Plaintiffs state that Defendant should be ordered to pay a sum for attorneys fees of "no less than 33 1/3 % of all items adjudicated in [their] favor ... in the present case, and ... any penalty, meaning violations to the laws applicable in cases of wrongful discharges, local and/or federal, alleging that in the present case the provisions of the federal W.A.R.M. [sic] Act were violated." (Pls' Compl. ¶ 10). It is clear from the face of the Complaint that Plaintiffs aver that because Defendant has allegedly violated several local and/or federal statutes, including the WARN Act, it should be ordered to pay a sum of 33 1/3 % for attorneys' fees and any penalty applicable under state or federal law.
As to Plaintiffs argument that removal in the instant case would frustrate the expeditiousness and quickness tied to the summary proceedings for labor claims under Law 2, such argument cannot defeat federal jurisdiction. See Romero v. ITE Imperial Corp., 332 F. Supp. 523, 526 (D.Puerto Rico 1971). Therefore, the Court shall not stop short of exercising jurisdiction because state courts have a lighter docket than federal courts or can potentially adjudicate Plaintiffs' claims more quickly.
In view of the above discussion, the Court finds that Plaintiffs have brought claims which arise under the laws of the United States and therefore subject the instant claim under the WARN Act to the jurisdiction of this Court. Further, because 28 U.S.C. § 1441(c) is the removal equivalent of supplemental jurisdiction, the Court finds that all of the claims brought in state court are within the jurisdiction of this Court. See ERWIN CHEMERINSKY, FEDERAL JURISDICTION § 5.5 (2nd ed 1994).
IT IS SO ORDERED.
NOTES
[1] Although the proper way to oppose a removal is through a motion to remand, Plaintiffs' Opposition to Notice of Removal will be treated as a motion requesting the remand of the case. See 28 U.S.C. § 1447(c). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2375090/ | (2008)
Makomi BAMBA, Plaintiff,
v.
RESOURCE BANK, Cosmopolitan Real Estate Settlements, Inc., Aurora Loan Services LLC, and Wells Fargo Bank, N.A., Defendants,
Civil Action No. 08-1163 (ESH).
United States District Court, District of Columbia.
August 1, 2008.
MEMORANDUM OPINION AND ORDER
ELLEN SEGAL HUVELLE, District Judge.
Plaintiff purchased a home in the District by obtaining a 100% loan in the amount of $515,000. (Compl. at 1, 4.) According to plaintiff, she was not qualified for this loan, and she was not properly advised of the "outrageous" interests rates and fees associated with the loan. (Id. at 2, 4-5.) Plaintiff claims that she "was set up for a default from day one," and that she "has suffered substantial economic harm and mental stress" as a result of the loan. (Id. at 4-5.)
Defendant Cosmopolitan Real Estate Settlements, Inc. ("Cosmopolitan") served as the settlement company at the closing for plaintiff's property. (Cosmopolitan's Mot. at 3.) Plaintiff alleges that Cosmopolitan and the other defendants "arrange[d] for mortgages for substantially more than the value of the property." (Compl. at 4.) Plaintiff suggests (but does not specifically allege) that Cosmopolitan "overlook[ed] the standard closing formalities" and charged excessive fees. (Id. at 5.) Plaintiff also claims that Cosmopolitan "lack[ed] prudence" and failed to make proper disclosures. (Id. at 6.) According to plaintiff, "[Cosmopolitan] closed so many other similar loan[s] that [it] had to know what was going on [but it] failed to stop it."[1] (Id.)
Defendant Aurora Loan Services LLC ("Aurora") served as mortgagee in this transaction. (Aurora's Mot. at 5.)[2] The only specific allegation against Aurora is that "Mortgagee knowingly and intentionally made fraudulent representations and misrepresentations and omission[s] of material fact in order to induce B[a]mba to enter the transaction. Plaintiff reasonably relied on the representation in executing the subject loan transaction." (Compl. at 4.)
Plaintiff alleges that Cosmopolitan and Aurora committed fraud[3] (Count I) and violated the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq. ("RESPA") (Count II).[4] (Id. at 3-6.) Cosmopolitan and Aurora have separately moved to dismiss plaintiffs complaint for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). For the reasons stated below, the Court will grant defendants' motions.
ANALYSIS
I. FRAUD
There are five elements of common law fraud: "(1) a false representation (2) in reference to material fact, (3) made with knowledge of its falsity, (4) with the intent to deceive, and (5) action is taken in reliance upon the representation." Bennett v. Kiggins, 377 A.2d 57, 59 (D.C. 1977).[5] "Fraud is never presumed and must be particularly pleaded . . . . One pleading fraud must allege such facts as will reveal the existence of all the requisite elements of fraud. Facts which will enable the court to draw an inference of fraud must be alleged, and allegations in the form of conclusions on the part of the pleader as to the existence of fraud are insufficient." Id. at 59-60.
Plaintiff has failed to allege facts enabling this Court to draw an inference of fraud. Nowhere in the complaint does plaintiff identify a "false representation" made by either Cosmopolitan or Aurora. None of plaintiff's allegations against Cosmopolitani.e., that it did not properly disclose information, charged excessive fees, failed to return phone calls, and recorded documents lateconstitute false representations. While plaintiff claims that Aurora "knowingly and intentionally made fraudulent representations and misrepresentations and omission[s] of material fact" (Compl. at 4), she has failed to specify what these alleged misrepresentations were. Her conclusory statements do not satisfy the heightened pleading requirements for fraud claims. See Bennett, 377 A.2d at 59-60. Accordingly, plaintiff has not asserted sufficient facts to sustain her fraud claim.
II. RESPA
Plaintiff also alleges that "There was never any proper disclosures made to Plaintiff in direct violation of the code. The specific violation [is] of RESPA § 8(a), 12 U.S.C § 2607(a)." (Compl. at 6.) However, the provision cited in plaintiff's complaint prohibits kickbacks, and has nothing to do with disclosures:
No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.
12 U.S.C. § 2607(a). Presumably, plaintiff meant to cite § 2604(c), which requires that lenders disclose "a good faith estimate of the amount or range of charges for specific settlement services the borrower is likely to incur." However, because this provision does not provide for a private right of action, see, e.g., Collins v. FMHA-USDA, 105 F.3d 1366, 1367-68 (11th Cir. 1997), her RESPA claim cannot survive.
CONCLUSION
Therefore, for the foregoing reasons, defendants Cosmopolitan [Dkt. # 9] and Aurora's [Dkt. # 4] motions to dismiss are GRANTED and all of plaintiff's claims against defendants Cosmopolitan and Aurora are DISMISSED with prejudice.
NOTES
[1] Plaintiff has made additional factual allegations in her opposition to Cosmopolitan's motion to dismiss, which she erroneously treats as a summary judgment motion under Fed. R.Civ.P. 56. (Pl.'s Opp'n at 2.) She claims that Cosmopolitan did not record the closing documents in a timely manner, failed to return phone calls to plaintiff's attorney, filled out the HUD-1 improperly, and "was involved in a flipping scheme or just plain [n]egligent." (Pl.'s Opp'n ¶¶ 1-3.) However, "the Court generally may not look outside the facts contained within the four corners of the complaint." Tabb v. District of Columbia, 477 F. Supp. 2d 185, 189 (D.D.C.2007) (internal citation omitted). In any event, these additional facts do not solve the glaring defects in plaintiff's complaint.
[2] Plaintiff has failed to respond to Aurora's motion to dismiss in a timely manner, so she is deemed to have conceded the arguments made by Aurora. See Fox v. American Airlines, 389 F.3d 1291, 1293 (D.C.Cir.2004) ("because the plaintiffs failed to respond to the defendant's . . . motion [to dismiss], the court treats the motion as conceded"). Nonetheless, the Court has addressed the merits of Aurora's motion since it raises many of the same arguments as are raised by Cosmopolitan.
[3] Within her discussion of the fraud count, plaintiff mentions the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO"). (Compl. at 5.) The Court does not address this statute because plaintiff has failed to specifically articulate RICO violations against either Cosmopolitan or Aurora. (Id.) Moreover, as held in Prunte v. Universal Music Group, 484 F. Supp. 2d 32, 42 (D.D.C.2007), Fed.R.Civ.P. 9(b) sets a heightened pleading standard for civil RICO claims, and as decided herein, plaintiff has not satisfied this standard.
[4] Count III of the complaint, which alleges gross negligence, is against defendant Resource Bank only and is therefore not relevant here. (Compl. at 6.)
[5] "If a fraud claim is based on diversity or supplemental jurisdiction as it is in this case, then state substantive law usually defines the elements of fraud." Zirintusa v. Whitaker, No. 05-cv-1738 (EGS), 2007 WL 30603, at *7 (D.D.C. Jan. 3, 2007). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2375284/ | 67 F. Supp. 2d 10 (1999)
HOLMES PRODUCTS CORPORATION, Plaintiff,
v.
CATALINA LIGHTING, INC., Defendant.
Civil Action No. 98-40208-NMG.
United States District Court, D. Massachusetts.
September 22, 1999.
Dustin F. Hecker, Posternak, Blankstein & Lund, Boston, MA, Anthony E. Bennett, Justin F. Hecker, A. Thomas Kammer, Charles R. Hoffmann, Hoffmann & Baron, L.L.P., Jericho, NY, for plaintiff.
Robert W. Curry, Steven M. Cowley, Edwards & Angell, Boston, MA, Joseph J. Zito, Damascus, MD, for defendant.
MEMORANDUM AND ORDER
GORTON, District Judge.
On October 14, 1998, Plaintiff Holmes Products Corporation ("Holmes") filed this action against Defendant Catalina Lighting, Inc. ("Catalina") seeking a declaration of non-infringement, invalidity, and unenforceability of Catalina's U.S.Patent No. 5,801,490 ("the '490 patent"), pursuant to 28 U.S.C. §§ 2201, 2202. Catalina brought counterclaims alleging patent infringement of claim 1 of its '490 patent. On December 18, 1998, Catalina moved for a preliminary injunction but withdrew that motion after the issues were fully briefed.
*11 On January 26, 1999, Holmes, as assignee, was granted U.S.Patent No. 5,863,111 issued to Thomas M. Turner et al. ("the Turner patent" or "the '111 patent"). On May 7, 1999, this Court allowed a motion by Holmes to amend its complaint to include a claim of infringement of the Turner patent by Catalina. Now pending before this Court is Holmes's motion for a preliminary injunction against Catalina (Docket No. 38).
I. Background
Catalina and Holmes are both manufacturers of halogen torchiere lamps. The case at bar relates to halogen torchiere lamps which include safety features for reducing or terminating power to the lamps when the temperatures exceed certain predetermined levels. Halogen torchiere lamps are characterized by four main elements: a base, an elongated stem extending vertically upward from the base, a concave lamp shade having an open top, and a halogen bulb positioned within the lamp shade. In the improved lamp, if the temperature in the shade exceeds a certain elevated temperature, such as may occur when a foreign object falls over the shade, a thermally sensitive switch cuts power to the bulb, thus protecting against risk of fire.
A. Development of Invention Defined in Turner Patent
In the spring of 1996, Thomas M. Turner, the Compliance Department Supervisor for Holmes, became aware of efforts to revise the Underwriters Laboratories ("U.L.") standards regarding halogen floor lamps. During the spring and summer of 1996, Holmes devoted its efforts to devising solutions to make the lamps safer and in compliance with U.L. standards. At some point during that time, Holmes developed a solution to the overheating problem which included using a thermally sensitive switch in the shade of the lamp. The switch would shut off power to the bulb in the event the temperature in the shade exceeded an unsafe level such as when a foreign object fell over the shade.
Turner and his lab were instructed to develop a prototype lamp, and during the spring and summer of 1996, the project was in progress. A prototype which met the new U.L. standard was produced sometime in August and was tested by U.L. on or about August 26, 1996. U.L. approval of the product was received on September 11, 1996.
A patent application was filed by Holmes on September 9, 1996 and the patent was issued on January 26, 1999.
B. Procedural Background
On September 1, 1998, the '490 patent for Catalina's halogen torchiere lamp was issued. Catalina is presently marketing and selling a halogen torchiere floor lamp which includes a thermally sensitive switch in the lamp shade.
On October 2, 1998, Catalina sent a letter informing Holmes that one of its products was infringing the '490 patent. The letter instructed Holmes to cease the sale and manufacture of such infringing products. As a result of that letter, on October 14, 1998, Holmes filed an action in this Court seeking a declaratory judgment of noninfringement.
On December 18, 1998, Catalina moved for a preliminary injunction but withdrew that motion after the issues were fully briefed. After the Turner patent was issued in January, 1999, this Court, on May 7, 1999, allowed a motion by Holmes to amend its complaint to include a claim of infringement of that patent by Catalina.
IV. Analysis
Injunctive relief in patent cases is authorized by 35 U.S.C. § 283. Whether a preliminary injunction should issue turns upon four factors: 1) movant's reasonable likelihood of success on the merits, 2) the extent of irreparable harm suffered by movant without preliminary relief, 3) the balance of *12 hardships tipping in its favor, and 4) the adverse impact of injunctive relief on the public interest. Hybritech Inc. v. Abbott Labs., 849 F.2d 1446, 1451 (Fed. Cir.1988).
The burden is always on the movant to show entitlement to a preliminary injunction. H.H. Robertson, Co. v. United Steel Deck, Inc., 820 F.2d 384, 388 (Fed.Cir.1987). As the Federal Circuit has noted, "a preliminary injunction is a drastic and extraordinary remedy that is not to be routinely granted." Intel Corp. v. ULSI Sys. Tech., Inc., 995 F.2d 1566, 1568 (Fed.Cir.1993), cert. denied, 510 U.S. 1092, 114 S. Ct. 923, 127 L. Ed. 2d 216 (1994).
A. Likelihood of Success on the Merits: Validity
At the preliminary injunction stage, Holmes, as the movant, carries the burden of showing likelihood of success on the merits with respect to the validity and infringement of its patent. Hybritech, 849 F.2d at 1451; see Genentech, Inc. v. Novo Nordisk, A/S, 108 F.3d 1361, 1364 n. 2 (Fed.Cir.1997).
Therefore, if Catalina raises a "substantial question" concerning validity, enforceability, or infringement, Holmes, in order to succeed on its preliminary injunction motion, must demonstrate that Catalina's defense lacks "substantial merit." See New England Braiding Co. v. A.W. Chesterton Co., 970 F.2d 878, 882-83 (Fed.Cir. 1992). Absent such a showing by Holmes, its motion for a preliminary injunction must be denied. See Novo Nordisk, 108 F.3d at 1364.
Pursuant to 35 U.S.C. § 282, patents are presumed valid. However, the statutory presumption of a patent's validity does not relieve a patentee of its burden of showing likelihood of success on the merits of all liability issues which will be disputed at trial, even when the issue concerns the patent's validity.[1]New England Braiding Co., 970 F.2d at 882. The presumption of validity is not evidence to be weighed in determining the likelihood of success. Id. at 882-83. Rather, the presumption acts as a procedural device used at trial to place the burden of going forward with evidence and the ultimate burden of persuasion of invalidity at trial on the alleged infringer. Id.
Holmes maintains that the Turner patent is valid because the claims in the Turner patent define substantial improvements over prior art structures. However, Catalina challenges the validity of the Turner patent on the grounds that it was anticipated by Catalina's prior invention, as well as by the prior public disclosure of Underwriters Laboratories itself.
35 U.S.C. § 102 provides:
A person shall be entitled to a patent unless:
(a) the invention was known or used by others in this country, or patented or described in a printed publication in this or a foreign country, before the invention thereof by the applicant for patent, or ...
...
(g) before the applicant's invention thereof the invention was made in this country by another who had not abandoned, suppressed, or concealed it. In determining priority of invention there shall be considered not only the respective dates of conception and reduction to practice of the invention, but also the reasonable diligence of one who was first to conceive and last to reduce to practice, from a time prior to conception by the other.
*13 (emphasis added). The Federal Circuit has stated that conception is the "formation in the mind of the inventor, of a definite and permanent idea of the complete and operative invention, as it is hereafter to be applied in practice." Hybritech, Inc. v. Monoclonal Antibodies, Inc., 802 F.2d 1367, 1376 (Fed.Cir.1986). "Conception requires both the idea of the invention's structure and possession of an operative method of making it." Amgen, Inc. v. Chugai Pharmaceutical Co., Ltd., 927 F.2d 1200, 1206 (Fed.Cir.1991), cert. denied, 502 U.S. 856, 112 S. Ct. 169, 116 L. Ed. 2d 132 (1991).
Holmes argues that its invention predated the Catalina invention. With respect to the date of its invention, Holmes argues that the conception of the Turner invention occurred before May 23, 1996. Catalina takes issue with Holmes on this point and maintains instead that the correct date of invention of the Turner invention was August 15, 1996, relying on a document dated on that day which purports to establish that Holmes had first completed the entire invention, including placement of the thermal switch on that date.
As evidence of a May 23, 1996 date of conception, Holmes refers the Court to notes created by the President ("Livergood"), and Vice-President ("Stromberg") of its Lighting Division in preparation for a trip Livergood took on or about May 23, 1996. Holmes apparently relies on an undated, one-word notation, "sensor", as confirmation of conception in May, 1996. At this preliminary stage, it is, however, unclear whether the notation of "sensor" upon which Holmes heavily relies sufficiently establishes the "idea of the invention's structure and possession of an operative method of making it." Amgen, 927 F.2d at 1206.
To bolster its validity argument, Holmes also relies on a July 19, 1996 letter of Mr. Livergood in which he states: "Let's go ahead with putting the PTC Ceramic heat detector that we have used in our heaters for the past 4-5 years in our new 300 Watt halogen torchieres." However, relying on a statement by Holmes' own employee, Catalina takes the position that, even as of August 8, 1996, Holmes did not know whether Livergood's suggestion had become operative. Specifically, on that date, Stromberg stated in a fax cover note to a colleague David Lo of Holmes Lighting in Taiwan (Exhibit B in Stromberg's Declaration):
This is what the "stopper" used in some heater looks like. As I understand it, this particular one may not work on a torchiere lamp. The engineering dept. has to figure this out.
With respect to the date of invention of its own lamp, Catalina argues that:
1) it had a fully operative, tested, working lamp with a thermal switch as early as August 10, 1996 thus antedating the Holmes invention, and
2) Mr. Fai, the inventor of the '490 patent, conceived of the thermal switch in February, 1996 and reduced it to practice in July, 1996.
Furthermore, Catalina argues that U.L. also publicly disclosed "an automatic temperature-regulating or -limiting control" used on a halogen torchiere as early as August 2, 1996 and that the U.L. Request for Comments dated June 14, 1996, demonstrates public knowledge of the claimed subject matter of the Turner patent as early as June 14, 1996. Thus, the argument goes, that disclosure antedates the date of the Turner invention.
At this preliminary injunction stage, the Court need not resolve the validity question but rather must "make an assessment of the persuasiveness of the challenger's evidence, recognizing that it is doing so without all evidence that may come out at trial." New England Braiding, 970 F.2d at 882-83. The Court may deny a motion for preliminary injunction "where the evidence presented in support of invalidity raises a substantial question, although the defense may not be entirely fleshed out." Id. at 883.
*14 Here, Catalina has raised a substantial question about the validity of the Turner patent. Failing to demonstrate that Catalina's defenses lack substantial merit, Holmes is unable to carry its burden of demonstrating a likelihood of success on the merits with respect to the validity of the Turner patent.
B. Remaining Factors
Because Holmes has not established a likelihood of success with respect to validity, this Court need not consider the remaining prerequisites for injunctive relief, namely, irreparable harm, balance of hardships and the impact on the public interest. Reebok Int'l Ltd. v. J. Baker, Inc., 32 F.3d 1552, 1556 (Fed.Cir.1994) (noting that a district court may deny a preliminary injunction based on the movant's failure to establish a likelihood of success without making additional findings with respect to the other factors); see, e.g., Cambridge Accusense Inc. v. Cambridge Aeroflo, Inc., 46 U.S.P.Q.2d 1250, 1251, 1253 (D.Mass. 1998). For the sake of completeness, however, this opinion includes a brief discussion of the remaining factors.
1. Irreparable Harm
Because this Court has determined that Holmes has failed to show reasonable likelihood of success on the merits, the presumption of irreparable harm does not attach. See PPG Industries, Inc., v. Guardian Industries Corp., 75 F.3d 1558, 1566 (Fed.Cir.1996).
Holmes argues that injunctive relief is necessary to prevent irreparable harm to it resulting from Catalina's infringement of the Turner patent. Holmes specifically alleges loss of market share and erosion of its pricing structure.
In support of its irreparable harm showing, Holmes points to, inter alia, a letter from Home Depot canceling orders for Master Glow Torchieres. However, as Catalina responds, the canceled orders were not for the Turner lamps, but for other torchiere lamps which lack thermal sensors. Furthermore, Holmes has not shown that any harm it may suffer as a result of Catalina's alleged infringement is not compensable by money damages. Accordingly, this Court concludes that Holmes has not met its burden of proving irreparable harm.
2. Balance of Hardships
With respect to the third factor, this Court must weigh "[t]he magnitude of the threatened injury to the patent owner ... in light of the strength of the showing of likelihood of success on the merits" against the injury to the accused infringer if the injunction is granted. H.H. Robertson, Co., 820 F.2d at 390. In arguing its own hardship, Holmes reiterates the arguments made in its showing of irreparable harm, namely, loss of market share. Holmes asserts that an injunction will have no substantial impact on Catalina because it sells a number of products in addition to the accused lamp. This Court notes, however, that, to the extent Catalina's diversity of sales reduces the impact of the loss of any one of its products, the broad spectrum of products offered by Holmes will similarly reduce the hardship it will face upon denial of the requested injunction.
This Court finds that the relative hardships are roughly equivalent and therefore cannot overcome the fact that Holmes has not met its burden of proving likelihood of success and irreparable harm.
3. Public Interest Considerations
As Holmes points out, protecting rights secured by valid patents is an important public interest. Smith Int'l, Inc. v. Hughes Tool Co., 718 F.2d 1573, 1581 (Fed.Cir.1983). The focus of this Court's inquiry is, however, whether "there exists some critical public interest that would be injured by the grant of preliminary relief." Hybritech, 849 F.2d at 1458.
Here, the patent in suit is designed to improve the safety of torchiere lamps. According to Catalina, current safety specifications *15 do not require a thermal switch in halogen lamps. An injunction could pose public safety risks because Catalina and other competitors may remove thermal switches from their lamps for fear of willful infringement damages.
If an injunction were granted, thermal sensors might disappear from those halogen torchieres manufactured and sold by Catalina. In light of those potential safety issues, this Court concludes that public interest consideration weighs against granting the preliminary injunction.
ORDER
For the foregoing reasons, the motion by Holmes for a preliminary injunction (Docket No. 38) is DENIED.
So ordered.
NOTES
[1] If the alleged infringer does not challenge the patent's validity with evidence, the patent owner need do nothing to establish its rights under the patent. Nutrition 21 v. United States, 930 F.2d 867, 869-70 (Fed.Cir.1991); see, e.g., Roper Corp. v. Litton Systems, Inc., 757 F.2d 1266 (Fed.Cir.1985). Here, however, Catalina does challenge the validity of the Turner patent so Holmes cannot stand on the presumption of validity alone. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2330775/ | 606 F. Supp. 2d 253 (2009)
Frank VANDEVER, Plaintiff,
v.
J. EMMANUEL, M. Strange, J. Lawrie, and S. Salius, Defendants.
Civil No. 3:06cv184 (JBA).
United States District Court, D. Connecticut.
February 20, 2009.
*254 Frank Vandever, Uncasville, CT, pro se.
Richard T. Biggar, Attorney General's Office, Hartford, CT, for Defendants.
ORDER OF DISMISSAL
JANET BOND ARTERTON, District Judge.
In this action brought pursuant to 42 U.S.C. § 1983, pro se Plaintiff Frank Vandever seeks relief arising out of a disciplinary incident which occurred more than a decade ago while he was incarcerated at MacDougall-Walker Correctional Institution in Suffield, Connecticut. On December 16, 2008, the Court ordered Mr. Vandever to show cause why this case should not be dismissed on res judicata grounds based on an earlier case he tried to verdict before Judge Dorsey, captioned Vandever v. Strange, No. 3:04cv760. The parties' briefs in response to this order are now before the Court.
Res judicata, or claim preclusion, means that a party may not split causes of action that "could be brought and resolved together." Nestor v. Pratt & Whitney, 466 F.3d 65, 70 (2d Cir.2006). This doctrine means that once a case reaches a final judgment on the merits, the parties cannot later relitigate the issues that were raised or could have been raised in that earlier case. Monahan v. New York City Dep't of Corr., 214 F.3d 275, 284-85 (2d Cir.2000). "Whether or not the first judgment will have preclusive effect depends in part on whether the same transaction or connected series of transactions is at issue, whether the same evidence is needed to support both claims, and whether the facts essential to the second were present in the first." N.L.R.B. v. United Techs. Corp., 706 F.2d 1254, 1259-60 (2d Cir.1983).
According to his complaint in this case; Mr. Vandever seeks damages and declaratory relief for the Defendants' "failures to administer, adhere to and implement their own policies and procedures mandated by their own administrative directives (A/D) [which] caused the Pl[aintiff] to be unjustifiabl[y] found guilty of a "contraband, class A" disciplinary report (D.R.)." (Compl. at 2.) Plaintiff also claims that these "errors and failures caused [him] to be wrongfully placed in punitive segregation (P/S) and wrongfully placed in administrative segregation (A/S)." (Id.) Mr. Vandever further alleges that these "deliberate acts . . . in [his] disciplinary hearing procedures and the imposing of excessive sanctions onto [him] violated his rights of the 5th, 8th, [and] 14th Amendments . . . [and also] violated [his] 1st and 4th Amendment rights. . . by seizing and never returning [his] approved reading material and property." (Id. at 2-3.) Mr. Vandever has named as Defendants J. Emmanuel, a disciplinary hearing officer, M. Strange, the warden at the facility, J. Lawrie, the investigative hearing officer, and S. Salius, the officer who searched Vandever's cell. (Id. at 5-7.) The sequence of events underlying his claims began in July 1997. (Id. at 7.)
*255 The problem for Mr. Vandever is that the events described in his complaint also formed the basis for his earlier action before Judge Dorsey. In that case, Vandever named the same four defendants (plus a prison administrator, Fred Levesque), and described a similar set of allegations arising out of the 1997 disciplinary incident. (Compl., No. 3:04cv760 [Doc. # 1], at 1-6.) In his trial memorandum submitted in that case, Mr. Vandever described the nature of his claim as follows:
The crux of Pl's claim is the wrongful placement of Pl. on administrative segregation (A/S) for nearly 2 years; and that the defendants (Defs.) knowingly and deliberately denied Pl. proper due process by finding Pl. erroneously guilty of a disciplinary report for `class A contraband.' After a state habeas hearing, Defs. had the disciplinary report expunged from Pl.'s records. As a result of the wrongful placement on A/S, Pl. lost statutory good-time (SGT), day-a-week credit, wages, and had to participate in an anger-management program designed for gang members and other inmates that are prone to violence.
(Pl.'s Trial Mem., No. 3:04cv760 [Doc. # 33] at 2-3.) Later in this memorandum, Vandever emphasized that his claims arose under the First and Fourth Amendments (for seizing his personal property), the Fifth Amendment (for depriving him of due process of law), the Eighth Amendment (for imposing harsh and atypical prison conditions), the Fourteenth Amendment (for placing him on administrative segregation without following proper procedures, and also under the Connecticut Constitution and state statutes.) (Id. at 11-14.)
The Defendants contend that the close similarity between these two cases renders Mr. Vandever's current action barred by res judicata. Mr. Vandever raises several arguments in response. First, he attempts to distinguish the prior action on the ground that he is challenging only his punitive segregation in this case, not the administrative segregation at issue in the earlier case. This argument is unavailing because, even accepting this premise, the punitive and administrative segregation impose arose out of the same course of events, and were part of the same disciplinary process that was challenged in Mr. Vandever's first case. Second, he describes an ex parte conversation with Judge Dorsey in the first case and claims that this rendered the ultimate judgment in favor of the defendants "clearly illegal and out-of-bounds." That does not justify permitting this case to proceed, however, because the proper way to challenge flaws in this first proceeding would have been to take an appeal, which Mr. Vandever apparently did not do. Finally, Mr. Vandever references Heck v. Humphrey, 512 U.S. 477, 114 S. Ct. 2364, 129 L. Ed. 2d 383 (1994), and Edwards v. Balisok, 520 U.S. 641, 117 S. Ct. 1584, 137 L. Ed. 2d 906 (1997), but this does not alter the preclusive effect of the earlier judgment.
Thus, although this Court is mindful of the considerable latitude which must be afforded to pro se litigants such as Mr. Vandever, it remains inescapable that he already tried a case based on the same series of events to verdict and final judgment. Even if he now brings certain allegations that he did not press in that first case, res judicata means that Mr. Vandever cannot get a second bite at the apple.
Accordingly, because Mr. Vandever's claims in this case are barred by res judicata, this case must be dismissed. The Clerk is directed to close this case.
IT IS SO ORDERED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2377200/ | 68 F. Supp. 2d 1055 (1999)
C. BEAN LUMBER TRANSPORT, INC., Plaintiff,
v.
UNITED STATES OF AMERICA, Defendant.
No. 98-6052.
United States District Court, W.D. Arkansas, Hot Springs Division.
March 1, 1999.
*1056 Mr. James Allen Brown, Little Rock, AR, for plaintiff.
Mr. Andrew Pribe, United States Department of Justice, Washington, DC, for defendant.
MEMORANDUM OPINION
DAWSON, District Judge.
This taxpayer refund action is before the court on the defendant's motion for partial summary judgment. Specifically, the United States has moved for summary judgment on the issue of whether plaintiff's purchase of new trucks, and sales of used trucks, constitute purchase and sale transactions on which a gain or loss should be recognized rather than non-taxable exchanges of like-kind property under 26 U.S.C. § 1031.
Background.
The facts in this case are undisputed. C. Bean Lumber Transport, Inc. (Bean), is an Arkansas corporation with its principal place of business in Amity, Arkansas. Bean is a trucking company that hauls freight throughout the United States.
During the period from August 1, 1992, through July 31, 1994, Bean purchased approximately 175 new Freightliners from Texarkana Truck Center (TTC), a Freightliner dealership, located in Texarkana, Texas. Government's Exhibit 3. The negotiations for the purchase of the new Freightliners and the trade-in or sale of the used Freightliners were handled by Borden Bell, Jr. (Bell), owner and operator of TTC, and Curt Bean (C. Bean), vice-president and principal stockholder of Bean.
Generally, the purchase price of these trucks was financed 100% through third-party finance companies. Bell Deposition at 16. The financing documents do not contain any trade-in credit. See e.g., Government's Exhibit 5. During the same period, Bean sold or "traded-in" approximately 107 trucks to TTC. Government's Exhibit 3.
When Bean decided to purchase new trucks, it would order the trucks meeting its specifications. Bell Deposition at 13-14. When a properly configured truck was selected, the truck would be priced. Id. Because Bean was one of TTC's better customers and purchased in quantity, Bean got a better price on the new trucks because the factory would give a discount based on the number of vehicles being purchased. Id. at 33. TTC passed this discount onto Bean. Id. Additionally, on trade-ins, Bean was given the high-end value. Id. at 32-33.
At the time Bean ordered new trucks, Bell and C. Bean would also talk about the value of the trucks being traded-in and approximately when TTC could expect to receive the trucks being traded-in. Id. at 14. According to Bell, in
the vocabulary of the industry [this] is known as a roll out, a roll out would mean if you traded me your trucks in May, 99, I am going to give you this much money, if you give them to me in *1057 June I am going to give you a lesser amount of money. In July a lesser amount of money, August a lesser amount of money, etc., through the end of the transaction.
Id.
When asked to focus on the trading in, Bell, described the process as follows:
During the pricing of the transaction, we haven't received the order yet, we haven't built the new truck yet, during the pricing of the transaction, when we are coming to an agreement on what we are going to sell the new truck for, we are also discussing how much he will be allowed for those trade-ins and how many there will be and about when we will receive them. Then we do what we referred to earlier as a roll out provision, and let's use an example, and I think it is a good one because Mr. Bean generally likes to take new trucks starting in May, not always, but generally. We would tell him how much trade-in value he had, we would need to know what he is going to trade and sometimes it is exactly the same truck and the same year model, sometime like this year he has got a few 95's left and he has also got 96's so we have to have them both broken out, which division they are coming out of, how many miles are going to be on the vehicles and what we are willing to give him on trade-in on those trucks, by month, depending on when he gives them to us. And that is put in writing and he knows and we know that if he turns it in in May he, let's use an example, he may get forty-eight thousand for it, he turns it in in June or July he may get forty-seven thousand for it. And he has the option to, depending on how strong his freight is, how many drivers availability he has, he may elect, he pick up ten new trucks in May, but we may not get those ten trades in May. He may elect to wait to give them to us at a different date and maybe at a lower price. So all of that is worked out on the front end before the new trucks are ever ordered. We are generally talking a lot of new trucks. And he prefers to know how much he is going to get for those trade-ins, based on which month he turns them in, versus some customers with a lesser amount, we may not can tell him what we will give him for his trucks next May.
Id. at 18-20.
Typically, there was a short time difference between the time TTC sells the new Freightliners and the time TTC receives the old trucks for trade-in. Bell Affidavit. Because of this, the company records might show the trade-ins as separate transactions but Bell regarded the transactions as package deals. Id. In his words, "[t]he transactions were inter-related the agreements were reached only after an acceptable amount had been determined for both the selling price and the trade-in price. These transaction were reciprocal and mutually dependent transactions even though the transactions were recorded separately on our books." Id. See also Affidavit of Curt Bean (Transactions were shown as separate transactions of sales and purchases).
Once the agreement was reached, in Bell's opinion TTC was committed to taking those trucks and Bean was committed to giving them to TTC. Bell Deposition at 26. For the last seven or eight years, Bean has purchased more new trucks each year than it has traded in. Id. at 27.
After an agreement was reached, Bell would prepare a memorandum which set forth the terms of the agreement. Bell Deposition at 28-29. A copy of the memorandum was always furnished to Bean. C. Bean Affidavit. "The used trucks to be traded in were identified by make, year and model to an extent sufficient for Mr. Bell to calculate a trade in value for the used trucks in his memorandum." Bean Affidavit.
According to Bell, Bean does not ever sell trucks to TTC instead he trades the trucks. Id. at 22. The purchase price of the used trucks was based upon market considerations. In most cases, TTC purchased *1058 the trucks from Bean by preparing two checks. Bell Deposition at 24-25. One check would be made payable to a financing company to retire any debt on the vehicle traded in. Government's Exhibit 3 & Bell Deposition at 24. The second check was made payable to Bean and represented Bean's equity in the truck. Id. No restrictions were imposed by TTC or the financing companies on Bean's use of the funds it obtained from the sale of the used trucks. Bell Deposition at 25-26.
Bean contends these transactions constituted a like-kind exchange within the meaning of § 1031. The United States contends these transactions were separate transactions not within the scope of § 1031.
For the tax years in question, the years ending July 31, 1993, and July 31, 1994, Bean on September 25, 1995, filed a refund claim on Form 1120X. The claims were based on Bean's treating the purchase and sale of the Freightliners as like-kind exchanges. The IRS disallowed the claims.
Bean filed this action on May 8, 1998, seeking a refund of federal income tax for the tax years ending July 31, 1993, in the amount of $189,530 and July 31, 1994, in the amount of $125,739. Bean contends the sale and purchase of trucks from TTC qualify for application of the like-kind exchange rules under 26 U.S.C. § 1031. A portion of the refund sought for the tax year ending July 31, 1994, is premised on a claim to a greater deduction than that allowed by the Internal Revenue Service (IRS) for certain per diem payments made to drivers during that year. This latter claim is not addressed in this summary judgment motion.
Summary Judgment Standard.
Summary judgment is appropriate if, after viewing the facts and all reasonable inferences in the light most favorable to the nonmoving party, Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986), the record "show[s] 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). "Once a party moving for summary judgment has made a sufficient showing, the burden rests with the nonmoving party to set forth specific facts, by affidavit or other evidence, showing that a genuine issue of material fact exists." National Bank of Commerce v. Dow Chemical Co., 165 F.3d 602, 609-10 (8th Cir. 1999).
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. 1348. "They must show there is sufficient evidence to support a jury verdict in their favor." National Bank, 165 F.3d at 610 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986)). "A case founded on speculation or suspicion is insufficient to survive a motion for summary judgment." Id. (citing, Metge v. Baehler, 762 F.2d 621, 625 (8th Cir.1985)).
Discussion.
The United States has now moved for summary judgment contending Bean is not entitled to claim a deduction for the purported exchange of trucks under § 1031. In general, the gain or loss on the sale or exchange of property is taxable. See 26 U.S.C. § 1001. One exception to this rule is § 1031 which provides for the nonrecognition of gain or loss in the case of like-kind exchanges of property held for productive use in a trade or business or for investment. See 26 U.S.C. § 1031. "The legislative intent underlying § 1031 was that taxpayers should be permitted to avoid present tax liability when exchanging one property for another of like-kind since taxes should not be imposed on a realized gain where the taxpayer maintained a continuity of investment in like-kind property." Ravenswood Group v. Fairmont Associates, 736 F. Supp. 1285, 1287 (S.D.N.Y. 1990).
For a property transfer to qualify as a like-kind exchange within the meaning of *1059 § 1031, three requirements must be met: (1) there must be an exchange; (2) the properties exchanged must be of a like-kind; and (3) the property transferred and the property received must be held by the taxpayer for productive use in a trade or business, or for investment. 26 U.S.C. § 1031(a).
The United States contends the transactions at issue are not covered by § 1031 for two reasons. First, the United States argues the transactions were not reciprocal and mutually dependent. Conceding that a transaction may not be separated into its component parts for tax purposes, the United States nevertheless argues the purchases of new trucks and sales of used trucks were not reciprocal and certainly not mutually dependent.
It contends Bean was bound to purchase the new trucks but was not bound to sell its used trucks to TTC. It points out that no formal contract existed between Bean and TTC obligating Bean to sell its used trucks to TTC and the "roll out" documents did not require Bean to deliver the used trucks at a specific time, were not signed by an agent of Bean, and did not specify any particular used trucks. Further, the United States points out TTC was not obligated to pay the price listed on the roll out document but instead might deduct amounts depending on the quality of the truck received.
Second, the United States contends the receipt of money precludes the application of the like-kind exchange rules. Here, the United States points out Bean financed 100% of the purchase price of the new property and received cash for the old property.
In opposition, Bean argues that the transactions were reciprocal and mutually dependent. It points out that both TTC and it regarded the transactions as package deals and that the purchase and trade-ins were merely steps in the overall deal. Further, Bean argues the mere fact it received some cash as a result of the deal does not mean these were not like-kind exchanges. In Bean's view, the only issues to be resolved in this case are whether or not the time lapse between the purchase and trade-in and the separate treatment on the books and records disqualifies these transactions as tax free exchanges.
"In general, the `incidence of taxation depends upon the substance of a transaction' rather than its mere form." Cal-Maine Foods, Inc. v. Commissioner of Internal Revenue, 93 T.C. 181, 197, 1989 WL 87697 (1989). While a "taxpayer has the right to minimize taxes as far as the law allows, ... a taxpayer ordinarily may not through form alone achieve tax advantages which substantively are without the intent of the statute." Id. (citations omitted).
Revenue Ruling 61-119, on which Bean relies heavily, addressed the question of whether a § 1031 like-kind exchange occurred:
Where a taxpayer sells old equipment used in his trade or business to a dealer and purchases new equipment of like kind from the dealer under circumstances which indicate that the sale and the purchase are reciprocal and mutually dependent transactions, the sale and purchase is in exchange of property within the meaning of section 1031 of the Internal Revenue Code of 1954, even though the sale and purchase are accomplished by separately executed contracts and are treated as unrelated transactions by the taxpayer and the dealer for record keeping purposes.
Rev.Rul. 61-119, 1961-1 C.B. 395, 1961 WL 12653.
It was noted that:
[t]he recognition to be accorded a particular transaction for Federal income tax purposes depends upon the substance of the transaction rather than the form in which it is cast.... The courts have held that a sale is to be disregarded where it is a step in a transaction the purpose of which is to make the exchange, and which results in an exchange.
*1060 The conclusion was that:
the sale of the used equipment and the purchase of the new equipment are reciprocal and mutually dependent transactions. The taxpayer's acquisition of the new equipment from the dealer is contingent upon the dealer taking his used equipment and granting a trade-in allowance equal to or in excess of its fair market value. Moreover, the dealer's accepta[nce] of the old equipment is dependent upon the taxpayer's purchase of the new equipment. Under these circumstances, the transfer of the old equipment to the dealer, irrespective of the form or the technique through which the transfer is accomplished, represents but a step in a single integrated transaction.
Accordingly, it is held that the transfer of old equipment to the dealer and purchase of the new equipment from him is a nontaxable expense under section 1031 of the Code, even though the purchaser and the seller execute separate contracts and treat the purchase and sale as unrelated transactions for record keeping purposes.
Id. See Redwing Carriers, Inc. v. Tomlinson, 399 F.2d 652, 657 (5th Cir.1968) (Although Revenue Ruling 61-119 does not have the force and effect of law, it is a persuasive interpretation of the Code and Regulations).
"If a transaction is considered a sale and purchase rather than an exchange, the taxpayer's future basis for depreciation is the actual cost of the new trucks." Bell Lines, Inc. v. United States, 480 F.2d 710, 711 (4th Cir.1973). If an exchange occurs, the taxpayer uses for depreciation purposes a transferred basis. Id. at 712.
In Redwing, the taxpayer, Redwing Carriers, was engaged in the business of hauling bulk commodities as a common carrier. Trucksales, Inc., was a wholly owned subsidiary of Redwing which engaged in the business of selling trucks and was a franchised dealer for G.M.C. trucks. In 1958 Trucksales purchased twenty-eight new G.M.C. diesel tractor trucks from G.M.C. for cash. At about the same time, Redwing transferred title to twenty-seven used trucks to G.M.C. for cash. Id. at 655. In 1959 and 1961 similar transactions occurred.
Mendez, who handled all the negotiations for the transactions, insisted on the purchases of new equipment and trade-ins being cast in the form of separate purchases of the new and sales of the old trucks. Id. at 655. The price G.M.C. paid for the used trucks was in excess of their fair market value and it made a profit only by viewing the purchases of used trucks and sales of new trucks as one transaction. Id. at 655.
Redwing for tax purposes considered the transactions separate "in order to recognize an immediate gain at capital gains rates and concomitantly to take a larger depreciation deduction from ordinary income." Id. at 654. The court held that the "buying and selling were synchronous parts meshed into the same transaction and not independent transactions." Id. at 656. It concluded Redwing's transactions were "brought directly within the ambit of Section 1031" which "requires the nonrecognition of gain or loss in transactions when in theory the taxpayer may have realized gain or loss, but in substance his economic interest in the property has remained virtually unchanged by the transaction." Id. at 656.
After careful consideration, we conclude the transactions at issue in this case do not, as a matter of law, qualify as like-kind exchanges. This conclusion is based on a number of factors. The intent of § 1031 "was that taxpayers should be permitted to avoid present tax liability when exchanging one property for another of like-kind since taxes should not be imposed on a realized gain where the taxpayer maintained a continuity of investment in like-kind property." Ravenswood Group, 736 F.Supp. at 1287. In this case, there has been no evidence that the cash received by Bean for the used trucks was *1061 applied in any way to the financed debt on the new vehicles.
Although the receipt of cash does not automatically disqualify a transaction from being considered a like-kind exchange, we believe the unrestricted receipt of cash in this case does disqualify the transactions. The proceeds from the "traded-in" vehicles was not reinvested. Nor was this the typical case in which cash was given to equalize the value of the assets exchanged, i.e., in a typical trade-in the buyer would pay the difference between the value of the new vehicle and the value of the vehicle traded-in.
What Bean did here was convert the old trucks to cash. A like-kind exchange is basically the equivalent of a sale of property for cash combined with a reinvestment of such cash in other property of like-kind. In the transactions at issue here, Bean purchased new trucks, financed their purchase 100%, sold old trucks, received cash for its equity, and spent the cash on whatever it wanted. Thus in substance, the old trucks were converted to cash rather than exchanged. Any gain realized by Bean by these sales was not deferred and should be taxed.
Next, we believe Bean's reliance on Revenue Ruling 61-119 and Redwing is misplaced. We believe an important distinguishing factor is that in this case Bean is converting its investment in the used trucks into cash. Further in Redwing, G.M.C. made a profit only if the transactions were viewed as one transaction. G.M.C. paid Redwing in excess of the fair market value for the used vehicles. In contrast, TTC made a profit on both sides of the transaction. Bean received a discount on the purchasing end only because the discount was passed on from the factory. On the used vehicle end, Bean received only fair market value, albeit the high end of range.
Conclusion.
For the reasons stated, defendant's motion for partial summary judgment will be granted by a separate order entered concurrently herewith. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2376257/ | 943 F. Supp. 626 (1996)
GUY F. ATKINSON CONSTRUCTION, A DIVISION OF GUY F. ATKINSON COMPANY, Plaintiff,
v.
OHIO MUNICIPAL ELECTRIC GENERATION AGENCY JOINT VENTURE 5, Defendant.
Civil Action No. 6:96-0623.
United States District Court, S.D. West Virginia, Parkersburg Division.
October 31, 1996.
*627 Robert M. Fitzgerald, Carter B. Reid, Watt, Tieder & Hoffar, McLean, VA, Roger A. Wolfe, Gregory S. Metzger, Jackson & Kelly, Charleston, WV, Val S. McWhorter, Mark E. Hanson, Eun K. (Julie) Chung, Smith, Pachter, McWhorter & D'Ambrosio, Vienna, VA, for Guy F. Atkinson Construction Company.
Stephen P. Goodwin, Goodwin & Goodwin, Charleston, WV, John H. Tracy, Diane S. Mann, Thompson & Waldron, Alexandria, VA, for Ohio Municipal Electric Generation Agency Joint Venture 5.
MEMORANDUM OPINION AND ORDER
HADEN, Chief Judge.
Pending is (1) a motion for leave to file a second amended complaint submitted by Plaintiff Guy F. Atkinson Construction Company (hereinafter "Atkinson"); (2) a motion to dismiss the first amended complaint pursuant to Rule 12(b)(6), Federal Rules of Civil Procedure, filed by Defendant Ohio Municipal Electric Generation Agency Joint Venture 5 (hereinafter "OMEGA"); and (3) OMEGA's motion to dismiss the first amended complaint pursuant to 28 U.S.C. § 1406(a) or, in the alternative, to transfer venue to Ohio. The Court DENIES OMEGA's motions and GRANTS Atkinson's motion.
I. FACTUAL BACKGROUND
Atkinson submitted a bid to OMEGA for the construction of the Belleville Hydroelectric Project, which was advertised for bid in accordance with Ohio law.[1] The bid was accepted and the parties entered a construction contract. Paragraph 9.5 of the agreement provides, in pertinent part, as follows: "The Owner and the Contractor jointly and severally submit to the personal jurisdiction of the State and Federal courts of Franklin County, Ohio."
*628 After a dispute arose between the parties, Atkinson filed a complaint in this Court. OMEGA asserts Paragraph 9.5 of the contract is "a choice of forum clause in which the parties agreed that the exclusive venue for any disputes arising out of the contract would be in Franklin County, Ohio." Mem. in supp. at 2.
II. DISCUSSION
A. Dismissal for Improper Venue Pursuant to § 1406(a)
It is beyond cavil that parties may enter into and enforce forum selection clauses. See, e.g., Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 589, 111 S. Ct. 1522, 1525, 113 L. Ed. 2d 622 (1991); Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 33, 108 S. Ct. 2239, 2245-46, 101 L. Ed. 2d 22 (1988) (Kennedy, J., concurring); The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 9-10, 92 S. Ct. 1907, 1912-13, 32 L. Ed. 2d 513 (1972); Sterling Forest Assocs., Ltd. v. Barnett-Range Corp., 840 F.2d 249, 251 (4th Cir.1988).
A cursory reading of Paragraph 9.5 readily discloses it is merely a consent-to-jurisdiction clause. A comparison with contractual provisions our Court of Appeals has construed as mandatory forum selection clauses buttresses the conclusion. See Allen v. Lloyd's of London, 94 F.3d 923, 928 (4th Cir.1996) ("[A]ny dispute ... of whatsoever nature ... be submitted to the exclusive jurisdiction of the British Courts....") (emphasis added); Brock v. Entre Computer Centers, Inc., 933 F.2d 1253, 1255 (4th Cir. 1991) ("The parties agree that any action ... shall be brought within the Commonwealth of Virginia....") (emphasis added); Sterling Forest, 840 F.2d at 251 ("the parties agree that in any dispute jurisdiction and venue shall be in California.") (emphasis added); Bryant Elec. Co., Inc. v. City of Fredericksburg, 762 F.2d 1192, 1196 (4th Cir.1985) ("All claims, disputes and other matters ... shall be decided by the Circuit Court of the City of Fredericksburg....") (emphasis added); Mercury Coal & Coke, Inc. v. Mannesmann Pipe & Steel Corp., 696 F.2d 315, 316 (4th Cir.1982) ("Any controversy or claim arising out of ... this Purchase Order ... shall be submitted to the Supreme Court of the State of New York....") (emphasis added).
Several courts of appeal have found clauses similar to Paragraph 9.5 insufficient for purposes of mandatory forum selection. See, e.g., John Boutari & Son, Wines & Spirits, S.A. v. Attiki Importers & Distribs. Inc., 22 F.3d 51, 52 (2nd Cir.1994) (clause providing "[a]ny dispute arising between the parties ... shall come within the jurisdiction of the competent Greek Courts, specifically of the Thessaloniki Courts" held permissive); Hunt Wesson Foods, Inc. v. Supreme Oil Co., 817 F.2d 75, 76 (9th Cir.1987) (clause providing "[t]he courts of California ... shall have jurisdiction over the parties in any action at law relating to the subject matter or the interpretation of this contract" held to be permissive).
Observations by the Second Circuit in Attiki, supported by ample authority, are instructive:
The general rule in cases containing forum selection clauses is that `[w]hen only jurisdiction is specified the clause will generally not be enforced without some further language indicating the parties' intent to make jurisdiction exclusive.' .... Of course if mandatory venue language is employed, the clause will be enforced.
Attiki, 22 F.3d at 52-53 (citations and quoted cases omitted); see also Paper Express, Ltd. v. Pfankuch Maschinen GmbH, 972 F.2d 753, 757 (7th Cir.1992); Utah Pizza Serv., Inc. v. Heigel, 784 F. Supp. 835, 838 (D.Utah 1992).[2]
*629 Paragraph 9.5 is very narrow and loosely drawn. It deals only with personal jurisdiction, and there are no mandatory terms employed. Further, permissible, much less mandatory, venue language is absent. Accordingly, the provision is not a mandatory forum selection clause and will not be enforced. The Court next analyzes whether transfer of venue is warranted pursuant to 28 U.S.C. § 1404(a).[3]
B. Transfer of Venue Pursuant to § 1404(a)
As this Court has noted, a district court may transfer, for the convenience of the parties and witnesses, any civil action to any other district or division where it might have been brought. AFA Enterprises, Inc. v. American States Ins. Co., 842 F. Supp. 902, 908 (S.D.W.Va.1994) (citing 28 U.S.C. § 1404(a)); Alpha Welding & Fabricating, Inc. v. Todd Heller, Inc., 837 F. Supp. 172, 175 (S.D.W.Va.1993). Decisions to transfer an action to another district court are committed to the transferring court's sound discretion. AFA Enterprises, 842 F.Supp. at 908 (citing Stewart, 487 U.S. at 29, 108 S. Ct. at 2243-44; Brock, 933 F.2d at 1257; Alpha Welding, 837 F.Supp. at 175). This Court has further stated:
Motions for transfer of venue are to be adjudicated according to an "individualized, case-by-case consideration of convenience and fairness." To resolve a motion to transfer venue, a district court must "weigh in the balance a number of case-specific factors." Factors commonly considered in ruling on a transfer motion include: (1) ease of access to sources of proof; (2) the convenience of parties and witnesses; (3) the cost of obtaining the attendance of witnesses; (4) the availability of compulsory process; (5) the possibility *630 of a view; (6) the interest in having local controversies decided at home; and (7) the interests of justice.
AFA Enterprises, 842 F.Supp. at 909 (citations omitted).
Applying these factors, the Court finds OMEGA has failed to carry its burden of showing the propriety of transfer. AFA Enterprises, 842 F.Supp. at 909 (stating the defendant bears the burden) (citing Verosol B.V. v. Hunter Douglas, Inc., 806 F. Supp. 582, 592 (E.D.Va.1992); Uniprop Mfd. Housing Commun. Income Fund v. Home Owners Funding Corp. of Am., 753 F. Supp. 1315, 1322 (W.D.N.C.1990)).
OMEGA asserts that certain witnesses reside in Ohio. It claims these witnesses and their employers will be inconvenienced by traversing the roughly 100 miles from Columbus, Ohio to Parkersburg, West Virginia. It also asserts "a large number of necessary documents and records are located in Ohio." Mot. to dis. at 2. The construction site, and apparent locus of the parties' dispute, however, is in West Virginia. Further, Atkinson has demonstrated there are numerous key witnesses and project records at the construction site. After considering this evidence, as well as the remaining § 1404(a) factors, the Court concludes transfer is inappropriate.[4] Accordingly, the alternative request to transfer venue is DENIED.
C. Dismissal Pursuant to Rule 12(b)(6)
OMEGA also seeks to dismiss the complaint under Rule 12(b)(6). This Court has recognized "[t]he movant faces a difficult and exacting burden under Rule 12(b)(6)." McClenathan v. Rhone-Poulenc, Inc., 926 F. Supp. 1272, 1274 (S.D.W.Va.1996). Indeed, dismissal is "inappropriate unless, accepting as true the well-pleaded facts in the complaint and viewing them in the light most favorable to the plaintiff, `it appears to a certainty that the plaintiff would be entitled to no relief under any state of facts which could be proved in support of his claim.'" Brooks v. City of Winston-Salem, 85 F.3d 178, 181 (4th Cir.1996); see also McNair v. Lend Lease Trucks, Inc., 95 F.3d 325, 328 (4th Cir.1996). Further, it is rarely appropriate to analyze affirmative defenses via a Rule 12(b)(6) motion unless "the face of the complaint clearly reveals the existence of a meritorious affirmative defense." Brooks, 85 F.3d at 181.
OMEGA, in essence, seeks to halt this litigation based on Atkinson's failure to satisfy conditions precedent to suit. This strongly resembles an affirmative defense. Even absent this defect, however, the Court's reading of the pleadings filed to date discloses the case is not ripe for dismissal. OMEGA has failed to satisfy its heavy burden under Rule 12(b)(6). Accordingly, the motion to dismiss is DENIED.
D. Motion for Leave to File a Second Amended Complaint
The Court has reviewed the briefing on the motion to amend. Atkinson has demonstrated the propriety of the proffered amendment. Accordingly, the Court GRANTS Atkinson's motion for leave to file a second amended complaint.
III. CONCLUSION
Atkinson's motion to file a second amended complaint is GRANTED, and OMEGA's motions to dismiss or transfer are DENIED. The second amended complaint is ORDERED filed.
NOTES
[1] OMEGA is a joint venture comprised of 42 municipal utilities formed pursuant to Ohio law.
[2] There are, of course, anomalous decisions contrary to the general rule. In Central Coal Co. v. Phibro Energy, Inc., 685 F. Supp. 595, 596 (W.D.Va.1988), the court interpreted the following language to be a mandatory forum selection clause:
"Each party expressly submits to the jurisdiction of the state of New York, U.S.A. and the federal courts situated in New York City...."
The court was uncomfortable with its holding. It noted the language was "not as strong as it could" have been, id. at 598, and further admitted as follows:
A whole line of decisions have interpreted forum selection clauses as mere permissive consents to jurisdiction or venue.... Some of these cases involved clauses almost identical to the one at issue in this proceeding. Many other federal courts have interpreted similar clauses to be permissive, not exclusive choices of forum.
Id. at 597 (citations omitted). The court in Phibro, however, believed itself bound by language in Sterling. The relevant language from Sterling follows:
[The district court's] interpretation ... makes the forum selection clause meaningless and redundant. Because Barnett is a California corporation, federal jurisdiction and venue statutes provide as a matter of law that California is a proper state for suit. See 28 U.S.C. §§ 1332(a), (c) and 1391(c). It is a well established principle of contract construction that clauses which, as here, are knowingly incorporated into a contract should not be treated as meaningless.... The only meaningful reason for including the forum selection clause in the instant case was to make California jurisdiction and venue exclusive.
Sterling, 840 F.2d at 251 (emphasis added). Sterling cannot control here for at least two compelling reasons. First, the Court's reading of Paragraph 9.5 does not render it meaningless. The clause means the Ohio courts have personal jurisdiction over Atkinson, a Nevada corporation. A technical minimum-contacts analysis by an Ohio court would likely have reached the same result if faced with the question, given the execution of the contract in Ohio and other factors. That begs the question, however. Paragraph 9.5 was inserted to extinguish the possibility Atkinson might attempt to contest jurisdiction, thus putting OMEGA to the expense and burden of defending the meritless motion.
Second, the clause at issue in Sterling was an unambiguous textbook example of a mandatory forum selection clause, explicitly mentioning venue with mandatory language. Id. at 250 ("venue shall be in California."). Such is not the case here. Were the Court to read Paragraph 9.5 as urged by OMEGA, an equally weighty principle of contract construction would be infringed. See, e.g., L & E Corp. v. Days Inns of America, Inc., 992 F.2d 55, 58 (4th Cir.1993) (stating "It is the function of the court to construe the contract made by the parties, not to make a contract for them, or to alter the contract they have made so as to conform it to the court's notion of the contract they should have made in view of the subject matter and the surrounding facts and circumstances[.]"); Aultman Hosp. Assn. v. Community Mut. Ins. Co., 46 Ohio St. 3d 51, 54-55, 544 N.E.2d 920, 924 (1989) (same); Fraternal Order of Police v. City of Fairmont, 196 W.Va. 97, 101, 468 S.E.2d 712, 716 (1996).
[3] While § 1406(a) permits transfer as well, it applies only where plaintiff has laid venue in the wrong district. See Charles A. Wright et al., Federal Practice and Procedure § 3827 (2d ed. 1986) (stating "A prerequisite to invoking § 1406(a) is that the venue must be improper. The statute speaks of `a case laying venue in the wrong division or district.' If the original forum was a proper venue, § 1406(a) cannot apply and 28 U.S.C.A. § 1404(a) is the relevant statute.") Given the lack of a valid forum selection clause, venue is appropriate in the Southern District of West Virginia pursuant to § 1391(a)(2). Accordingly, § 1404(a) is the controlling statute.
[4] The consent-to-jurisdiction clause, given its irrelevance for purposes of forum selection, does not enter into the factoring mix in any substantial way. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2376315/ | 55 F. Supp. 2d 860 (1999)
Josephine CHUFFO and Diane Simon, Administrators of the Estate of Ethel A. Hare, Plaintiffs,
v.
Kenneth RAMSEY as Sheriff of Kane County; The County of Kane, a municipal corporation; Lisa Zegar; Correctional Medical Services of Illinois, Inc., Defendants.
No. 98 C 1720.
United States District Court, N.D. Illinois.
May 28, 1999.
*861 Michael W. Clancy, Clancy & Krippner, St Charles, IL, Herbert Hill, Attorney at Law, Aurora, IL, for plaintiff.
Patricia Johnson Lord, Donald B. Leist, Ronald D. O'Neal, Jr., Kane County State's Attorney's Office, Geneva, IL, for Kenneth Ramsey, defendant.
Robert P. Vogt, Barbara J. Anderson, Weldon Linne & Vogt, Chicago, IL, for Lisa Zegar, Correctional Medical Services, Inc., defendants.
MEMORANDUM OPINION AND ORDER
CASTILLO, District Judge.
Plaintiffs sue defendants for damages arising from Ethel Hare's unfortunate death. Plaintiffs contend that Correctional Medical Services of Illinois ("CMS") and Lisa Zegar, as a supervisory prison nurse, breached their duty of care to Ms. Hare while she was imprisoned in the Kane County Adult Correctional Center ("the Jail"). In addition, Plaintiffs charge that Kenneth Ramsey, as Sheriff of Kane County, violated Ms. Hare's rights under 42 U.S.C. § 1983. Currently before the Court are Defendants'[1] motions for summary judgment.
FACTS
Plaintiffs Josephine Chuffo and Diane Simon are the duly appointed Administrators of the Estate of Ethel A. Hare, deceased. On September 27, 1996, Ms. Hare was arrested and held at the Kane County Jail. Prior to and during her incarceration, Ms. Hare suffered from chronic liver disease, cirrhosis of the liver, hepatitis B and C, and she was HIV positive. The Jail contracted with CMS to provide basic medical attention to inmates such as Ms. Hare.
When Ms. Hare complained of stomach ailments on February 28, 1997, CMS nurses arranged for her to see the jail physician the following day. Dr. Laurain Hendricks examined Ms. Hare and ordered *862 her transferred to Mercy Medical Center ("Mercy") for an abdominal ultrasound and other medical testing.
At Mercy, Dr. Kenneth Lindahl determined that Ms. Hare suffered from abnormal coagulation, and admitted her to Mercy from March 3 through 5, 1997. Dr. Lindahl subsequently diagnosed Ms. Hare with portal hypertension with ascites, jaundice, coagulopathy, and found that she was HIV positive with Hepatitis B and C. Upon discharge, Dr. Lindahl noted that although Ms. Hare's condition had improved, she should be closely monitored. Dr. Lindahl directed that Ms. Hare should continue her medication, receive a post-medical follow up, and have her chemistries monitored.
Initially, Ms. Hare's condition was relatively stable. Dr. Hendricks examined Ms. Hare on March 17, 1997, and noted that Ms. Hare had lost weight, and was aware and orientated. However, Ms. Hare was still slightly jaundice and had been scratching her abdomen; Dr. Hendricks ordered treatment of continued medications. Two days later, Ms. Hare took a turn for the worse and began vomiting. On the evening of March 20, 1997, a CMS nurse examined Ms. Hare and noted that her persistent vomiting prevented Ms. Hare from keeping down any food or medication. Later that evening, Ms. Hare complained of pain, dehydration, and nausea. CMS nurses provided Ms. Hare with ice chips and water
CMS nurses examined Ms. Hare again on the afternoon of March 21, 1997. Ms. Hare "felt bad" and remained in bed for the rest of the day. The CMS staff prescribed only increased fluids and rest. Later that evening, inmates complained to guards that Ms. Hare was out of control, that she "got up from bed and acted as though she had lost her mind." CMS nurses found Ms. Hare to be flushed and disoriented, and noted that Ms. Hare had been vomiting a gritty brown substance for days. Despite Ms. Hare's well-documented medical history, CMS neither arranged for Ms. Hare to see a physician nor go to the hospital.
At 2:30 a.m. on March 22, 1997, CMS Nurse Dethrow responded to Ms. Hare's complaints that she was extremely hot and that she experienced pain and burning with urination. Nurse Dethrow took Ms. Hare's vitals, provided Ms. Hare with Tylenol, and promised Ms. Hare that she could see the doctor in the morning. Before she could do so, however, inmates began complaining to correctional officers that Ms. Hare was gagging and required immediate medical attention. Those complaints were ignored until approximately 7:00 a.m., when a correctional officer found Ms. Hare in her cell unresponsive. The officer immediately contacted CMS.
Nurse Dethrow called an ambulance, which transported Ms. Hare to the Delnor Community Hospital. After Ms. Hare was transported to Delnor Hospital, Sherif Ramsey sought and obtained her release from custody. In doing so, Ramsey avoided having to post a deputy in Ms. Hare's hospital room. Despite treatment, Ms. Hare died during the early morning hours of March 24, 1997. The coroner listed "acute hepatic failure due to cirrhosis secondary to viral hepatitis" as the cause of death.
ANALYSIS
Plaintiffs allege that Zegar's negligence directly and indirectly contributed to Ms. Hare's death, and seek both wrongful death and survival damages. These claims are distinctly state law claims: Plaintiffs' complaint and response brief make clear that they are pursuing their failure to supervise and train theories under Illinois law. See, e.g., Pls.' Resp.Br. at p. 5 ("To prevail in a medical negligence action in Illinois ..." and "Medical negligence theories based on a failure to supervise, train, or hire has been recognized in Illinois"). Therefore, even though Plaintiffs could have labeled their claims against Zegar as § 1983 violations, any attempt to now argue *863 liability under § 1983 is waived. See James v. Sheahan, 137 F.3d 1003, 1008 (7th Cir.1998).
Plaintiffs contend that these claims are properly before us under "the doctrine of pendant jurisdiction". Pointing to their § 1983 claim against Sheriff Ramsey, Plaintiffs correctly note that we may exercise jurisdiction over their supplemental state law claims. Before addressing the merits of Defendants' summary judgment motions, we will set forth the standards that guide our inquiry.
1. SUMMARY JUDGMENT STANDARDS
Summary judgment is appropriate only if the record shows 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); Cincinnati Ins. Co. v. Flanders Elec. Motor Serv., 40 F.3d 146, 150 (7th Cir.1994). A genuine issue for trial exists only when 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, 91 L. Ed. 2d 202 (1986). The Court must view the evidence in a light most favorable to the non-moving party, see Cincinnati Ins., 40 F.3d at 150, and draw all reasonable inferences in the non-movant's favor. Kirk v. Federal Property Mgmt. Corp., 22 F.3d 135, 138 (7th Cir.1994). However, if the evidence is merely colorable, is not significantly probative, or merely raises "some metaphysical doubt as to the material facts," summary judgment may be granted. Liberty Lobby, 477 U.S. at 261, 106 S. Ct. 2505; see also First Commodity Traders, Inc. v. Heinold Commodities, Inc., 766 F.2d 1007, 1011 (7th Cir.1985) ("Conclusory statements in affidavits opposing a motion for summary judgment are not sufficient to raise a genuine issue of material fact"). Credibility determinations and weighing evidence are jury functions, not those of a judge when ruling upon a motion for summary judgment. See Lujan v. National Wildlife Fed'n, 497 U.S. 871, 888, 110 S. Ct. 3177, 111 L. Ed. 2d 695 (1990).
2. THE RAMSEY CLAIM
The Plaintiffs sue Ramsey for his role in Ms. Hare's death. Deliberate indifference to a prisoner's serious medical needs, whether by a prison guard or physician, is prohibited by the Eighth Amendment. Estelle v. Gamble, 429 U.S. 97, 97 S. Ct. 285, 50 L. Ed. 2d 251 (1976). However, it is undisputed that Ramsey had no direct contact with Ms. Hare during the critical days before her death or with the correctional officers or CMS staff interacting with Ms. Hare during this time.
Undeterred, Plaintiffs contend that Ramsey should be held liable for the negligence of those under his control. Plaintiffs' respondent superior claim against Ramsey must fail. Steidl v. Gramley, 151 F.3d 739, 741 (7th Cir.1998). "To be held liable for the conduct of their subordinates, supervisors must have been personally involved in that conduct." Jones v. City of Chicago, 856 F.2d 985, 992 (7th Cir.1988). Plaintiffs have not introduced any evidence that Ramsey was made aware or should have known of Ms. Hare's condition until just shortly before she was transferred to the hospital. Because Plaintiffs have not demonstrated that Ramsey may have acted knowingly or with deliberate, reckless indifference, Plaintiffs' claim is without merit.
In light of Ramsey's lack of personal involvement, Plaintiffs must introduce evidence that a government policy, practice, or custom proximately caused the constitutional injury. Polk County v. Dodson, 454 U.S. 312, 326, 102 S. Ct. 445, 70 L. Ed. 2d 509 (1981); Steidl v. Gramley, 151 F.3d 739 (7th Cir.1998). Plaintiffs argue that they have introduced sufficient evidence of such a policy and that Ramsey's motion for summary judgment should, therefore, be denied. Plaintiffs point to evidence showing that Ramsey had a policy of releasing on a recognizance bond critically ill prisoners *864 requiring expensive in-patient care. By releasing these prisoners, Ramsey saves taxpayers the cost of stationing a deputy at the hospital, as well as funeral and burial expenses.
Even accepting Plaintiffs' I-bond claim as true, there is simply no evidence tying this policy to Ms. Hare's death. Plaintiffs fail to demonstrate how Ramsey's decision to release Ms. Hare impacted her health. Although Plaintiffs insinuate that Ramsey actually had a policy of withholding any medical care until the prisoner's condition became acute, and therefore was subject to the releasing policy, there is no evidence supporting Plaintiffs' vague contention. To the contrary, the evidence clearly shows that Plaintiff received immediate medical attention less than one month before her death when she complained of stomach pains; she was visited by the Jail physician who transferred her immediately to the hospital. Similarly, Plaintiffs have not produced any evidence that Ramsey customarily withheld medical treatment to other prisoners until their condition became acute. Simply put, Plaintiffs' undeveloped speculation that Ramsey instituted such a policy is insufficient to stave off summary judgment. Accordingly, we grant Ramsey's motion for summary judgment. Because this was Plaintiffs' only federal claim, however, we decide whether to retain jurisdiction over Plaintiffs' remaining claims.
A district court may decline to exercise supplemental jurisdiction over a pendent state-law claim when it has dismissed all claims over which it has original jurisdiction. 28 U.S.C. § 1367(c)(3). Although federal courts generally relinquish jurisdiction over state law claims when the federal claims are dismissed prior to trial, the decision to do so lies within the district court's broad discretion. Kennedy v. Schoenberg, Fisher & Newman, Ltd., 140 F.3d 716, 727-28 (7th Cir.1998). Comity favors the dismissal of state claims involving novel or difficult state law issues. Centres, Inc. v. Town of Brookfield, 148 F.3d 699, 701-02 (7th Cir.1998). However, when a plaintiff's state-law claim is without merit, the district court should retain supplemental jurisdiction to dismiss the claim. Coe v. County of Cook, 162 F.3d 491, 496 (7th Cir.1998) (noting that principles of comity are not implicated by retaining jurisdiction over unmeritorious claims since doing so does not offend state interests and spares the state courts additional and unnecessary work).
Having disposed of Plaintiffs' federal claim, we will retain jurisdiction over Plaintiffs' claims against Zegar for a limited purpose: to resolve her motion for summary judgment. We conclude that several of Plaintiffs' claims survive Zegar's motion for summary judgment. However, since all of Plaintiffs' surviving claims are state law claims, they are hereby dismissed for lack of jurisdiction. Similarly, we decline to retain jurisdiction over Plaintiffs' remaining state-law claims against CMS.[2]
3. THE ZEGAR CLAIMS
In Count V of their fourth amended complaint, Plaintiffs charge Zegar with the following negligent conduct:
a. [Zegar] failed to adequately and timely evaluate Ms. Hare's condition;
b. she failed to treat Ms. Hare;
c. she failed to timely refer Ms. Hare to other health care professionals or obtain timely consultations from other health care professionals despite Ms. Hare's obvious need for such referrals or consultations;
d. she failed to properly monitor or manage Ms. Hare's ongoing medical problems, thereby allowing those problems to accelerate and/or become exacerbate;
*865 e. she failed to put in place at the Kane county Jail a system for periodically monitoring or assessing patients with chronic care and treatment needs to be certain those needs were met;
f. she failed to timely review or review with adequate care Ms. Hare's medical records from outside institutions, despite having access to those records, and then treat or care for or follow up with Ms. Hare as those records were necessary or appropriate; and
g. she failed to monitor, or monitor with adequate care, the medical care CMS was delivering to Ms. Hare during March 20 through 22, 1997 at the Kane County Jail.
Pl.'s Fourth Am.Comp. ¶ 43.
Plaintiffs concede that Zegar did not actually treat Ms. Hare at any time during the relevant period and that their claims attacking the sufficiency of that care must necessarily fail. We agree with the parties, and grant Zegar's motion for summary judgment on Plaintiffs' claims in paragraph 43 a, b, and c of the forth amended complaint.
Unfortunately, the consensus ends there, as the litigants part company over how to categorize the remaining allegations. Plaintiffs contend that the Court can fairly interpret their allegations as claims for negligent training and supervision. Zegar retorts that the complaint mentions neither claim, and that the allegations do not provide even minimal notice of Plaintiffs' intent to seek recovery for negligent training or supervision.
The liberal system of notice pleading envisioned by Federal Rule of Civil Procedure 8(a)(2), support Plaintiffs' call for a broad reading of the complaint. Wudtke v. Davel, 128 F.3d 1057, 1061 (7th Cir. 1997) (Plaintiffs need not "specify the particular legal theories in a complaint, so long as the facts alleged give adequate notice to the defendant of the basis of the suit."). The Seventh Circuit has held that
complaints need not contain elaborate factual recitations. They are supposed to be succinct.... [A]ny need to plead facts that, if true, establish each element of a `cause of action' was abolished by the Rules of Civil Procedure in 1938, which to signify the radical change from code pleading also replaced `cause of action' with `claim for relief.' One pleads a `claim for relief' by briefly describing the events. At this stage, the plaintiff receives the benefit of imagination, so long as the hypotheses are consistent with the complaint.
Sanjuan v. American Bd. of Psychiatry & Neurology, Inc., 40 F.3d 247, 251 (7th Cir.1994); see also Jackson v. Marion County, 66 F.3d 151, 153 (7th Cir.1995) (finding that plaintiffs need only "provide the defendants with at least minimal notice of the claim.")
Applying this standard, we find that Plaintiffs' complaint provided Zegar with at least minimal notice of their claim that Zegar failed to properly train and supervise the CMS nurses treating Ms. Hare. Paragraph 42 of Plaintiffs' fourth amended complain alleges that "Zegar had a duty to treat, care and supervise the care provided by the health care professions working for her ... to insure they provided [adequate] treatment to Ms. Hare." The complaint further charges that Zegar failed to properly monitor Ms. Hare's care and failed to "put in place ... a system for periodically monitoring and assessing patients with chronic care and treatment needs to be certain those needs were met." Pls.' Am. Compl. ¶¶ 43 d, e, g. While counsel's drafting is hardly artful, drawing all reasonable inferences in Plaintiffs' favor, we find that Plaintiffs' complaint properly incorporates her failure to train and supervise claims.
Zegar insists that, in asserting these claims, Plaintiffs are attempting to avoid the rule that prevents this Court from holding Zegar vicariously liable for the CMS nurses' conduct.[3] Zegar cannot be *866 held liable under the doctrine of respondeat superior for the CMS nurses' negligence; rather, Zegar must be personally at fault. McKinnon v. City of Berwyn, 750 F.2d 1383, 1390 (7th Cir.1984) ("The common law does not hold a superior strictly liable for the torts of the employees she supervises."); Northrop v. Lopatka, 242 Ill.App.3d 1, 182 Ill. Dec. 937, 610 N.E.2d 806, 810 (1993) ("The common law does not impose strict liability on an employee who is merely the supervisor, but not the employer, of the employee who commits the tort."). However, Zegar's alleged failure to train and supervise the CMS nurses is fault directly attributable to Zegar. McKinnon, 750 F.2d at 1391. Illinois law recognizes that an agent may be held liable for failing to supervise another agent. Northrop, 182 Ill. Dec. 937, 610 N.E.2d at 810 (quoting § 358(1) of the Restatement (Second) of Agency, which provides that "[t]he agent of a disclosed or partially disclosed principal is not subject to liability for the conduct of other agents unless he is at fault in appointing, supervising, or cooperating with them.").
Further, Plaintiffs' evidence raises a genuine issue of material fact as to whether Zegar had a duty to train and supervise the CMS nurses. Zegar makes much of the fact that none of the Plaintiffs' experts definitively placed the responsibility for training or supervising the CMS nurses upon her. However, the expert witnesses' lack of familiarity with the Jail's medical hierarchy is not fatal to Plaintiffs' claim. Particularly here, where CMS's Kane County Jail Health Services Policy and Procedure Manual (the "Manual") defines Zegar's Health Services Administrator position as the "chief on-site administrative manager responsible for the delivery of contract services, supervision of personnel and liaison services within the institution." The Manual charges that Zegar is "accountable for site healthcare staff" and expects that Zegar will "[d]irect and supervise the day-to-day activities of [sic] Health Service Unit and assigned staff." We find that this evidence is sufficient to raise a question as to whether Zegar had a duty to train and supervise the CMS nurses.
Moreover, Plaintiffs have introduced sufficient evidence of breach and causation to withstand Zegar's challenge. Nurse Ann Hendrick testified that she did not believe the attending nurses were properly trained as to the significance of certain symptoms and when a physician should be contacted. Hendrick explained that competently trained and supervised nurses would not have delayed medical treatment for a patient with Ms. Hare's symptoms and well-documented medical history.
Similarly, Dr. John Raba testified that the nurses were unfamiliar with the signs of severe illness, liver disease in particular, and that "[i]f that responsibility [to train the nurses] falls to the supervisor of the nurses, so be it." These witnesses make clear that had the attending CMS nurses been properly supervised and trained, they would have immediately contacted Zegar or the Jail physician for emergency services. This quick action, in turn, could have prevented the fatal progression of Ms. Hare's liver failure.
Therefore, we deny Zegar motion for summary judgment as to Plaintiffs' remaining claims. Although the complaint is ambiguous, a liberal reading supports Plaintiffs' contention that their allegations put Zegar on notice of their failure to train and supervise claims. The Court suggests, however, that Plaintiffs' counsel redraft *867 the complaint to more fully incorporate these claims upon reinstatement in state court.
CONCLUSION
Accepting all of Plaintiffs' allegations as true, we agree that Ms. Hare received woefully inadequate medical attention prior to her tragic death. Plaintiffs' specific attempts to hold these defendants liable, however, simply do not warrant relief in this forum. Plaintiffs cannot recover against Sheriff Ramsey under § 1983 for his deputies' conduct. In addition, although Plaintiffs' evidence fails to support liability for Nurse Zegar's direct treatment of Ms. Hare, Plaintiffs have raised a genuine issue as to whether Zegar breached her duty to properly train and supervise the attending CMS staff. Having dismissed the § 1983 claimthe only claim over which we have original jurisdiction we decline to retain jurisdiction over Plaintiffs' surviving claims. Therefore, we grant Ramsey's motions for summary judgment in its entirety; Zegar's motion for summary judgment is granted in part and denied in part; and we dismiss all surviving state law claims without prejudice to their reinstatement in state court.
NOTES
[1] At the Court's direction, only defendants Zegar and Ramsey filed motions for summary judgment.
[2] We further find that Plaintiffs' request to file a fifth amended complaint to assert liability under 55 ILCS5/3-6016 is moot.
[3] Although Zegar cites no direct authority in support of this proposition, such arguments have succeeded. See, e.g., Rogers v. State of Ala. Dep't of Mental Health and Mental Retardation, 825 F. Supp. 986 (N.D.Ala.1993). In Rogers, however, the court determined that the failure to train, hire, and supervise claims were thinly veiled attempts to circumvent the rule barring respondeat superior liability primarily because the defendants did not have a duty to train, hire, or supervise those directly responsible. As discussed below, Plaintiffs have introduced evidence that Zegar had a duty to train and supervise the CMS nurses, distinguishing the instant case from Rogers. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2410982/ | 186 F. Supp. 2d 695 (2002)
D. Hull YOUNGBLOOD, Jr, and Gwendolyn Youngblood
v.
GC SERVICES LIMITED PARTNERSHIP
No. CIV.A-01-CA-646-JN.
United States District Court, W.D. Texas, Austin Division.
February 6, 2002.
*696 Barbara M. Barron, Barron & Newburger, P.C., Manuel H. Newburger, Barron & Newburger, P.C., Austin, for D. Hull Youngblood, Jr., Gwendolyn Youngblood, plaintiffs.
C. Ed Harrell, Jr., Hughes, Watters & Askanase, L.L.P., Houston, for GC Services Limited Partnership, defendants.
ORDER
NOWLIN, Chief Judge.
Before the Court is Plaintiffs' Motion for Partial Summary Judgment and Brief in Support Thereof (Doc. No. 4); GC Services' Response to Motion for Partial Summary Judgment (Doc. No. 10); and Plaintiffs' Reply to Defendant's Response to Plaintiffs' Motion for Partial Summary Judgment (Doc. No. 14). Based on these documents, the applicable legal authority and the entire case file, the Court enters the following Order.
INTRODUCTION AND FACTUAL BACKGROUND
Plaintiffs' D. Hull Youngblood and Gwendolyn Youngblood did not pay the full amount of a bill charged to them by AT & T. Plaintiffs' claim that the charges were unauthorized and/or in error, but that issue is not currently before the Court. AT & T referred the debt to Defendant GC Services for collection. Defendant sent two letters to Plaintiffs, seeking to collect on the debt. Plaintiffs claim that the letters sent by Defendant violate certain provisions of the Fair Debt Collection Practices Act (FDCPA), codified at 15 U.S.C. § 1692, et seq.
The Court discerns three types of alleged violations of the FDCPA. First, Plaintiffs claim that the letters failed to satisfy the requirements of 15 U.S.C. § 1692g, often and hereinafter referred to as the validation notice, which requires that certain information be disclosed to the consumer either in the first communication or within five days thereafter. Second, Plaintiffs claim that they were not properly warned that Defendant was trying to collect a debt and that any information obtained would be used for that purpose as required by 15 U.S.C. § 1692e(11). Finally, Plaintiffs claim that Defendants' use of the professional names J. Moran and J. Mason, instead of the employees' given names, violated 15 U.S.C. 1692e(9) and (10).
In a separate motion, Plaintiffs seek class certification of this lawsuit pursuant to Rule 23 of the Federal Rules of Civil Procedure. Plaintiffs' Motion for Partial Summary Judgment states that Plaintiffs' request that the Court first certify the class and then grant partial summary judgment. It is not clear to the Court whether Plaintiffs intend to withdraw the motion in the event that class certification is denied, or if they would still seek partial summary judgment. Defendant objected to the indeterminate nature of the request, but Plaintiffs declined to respond to that objection, instead directing the Court to the "essence" of their arguments. The Court will not view the motion for partial summary judgment as contingent upon certification of the class, and will withhold judgment on the motion for class certification until a later date.
ANALYSIS
A party moving for summary judgment has the burden of showing that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56. A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." *697 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). The court must view all evidence in the light most favorable to the party opposing the motion and draw all reasonable inferences in that party's favor. Id., 477 U.S. at 255, 106 S. Ct. at 2513. As the party moving for summary judgment, Defendant bears the initial burden of showing the basis for the motion, and of identifying the pleadings and evidence which they believe demonstrates the absence of a genuine issue of material fact. Washington v. Armstrong World Indus., Inc., 839 F.2d 1121 (5th Cir.1988). Once a summary judgment motion is made and properly supported, the non-movant must go beyond the pleadings and designate specific facts in the record showing that there is a genuine issue for trial. Fed. R.Civ.P. 56(e); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (en banc). Although the non-movant may satisfy this burden by tendering depositions, affidavits and other competent evidence, "[m]ere conclusory allegations are not competent summary judgment evidence, and they are therefore insufficient to defeat or support a motion for summary judgment." Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir.1992). Pleadings are not summary judgment evidence. Wallace v. Texas Tech Univ., 80 F.3d 1042, 1047 (5th Cir. 1996).
The Fifth Circuit has not ruled on which standard is to be applied to FDCPA cases. Plaintiffs make much of the "least sophisticated consumer" standard, citing opinions from several other circuits that have adopted that standard. Defendant counters that the standard should be that of a "reasonable consumer with intelligence and experience typical of or average for those consumers to whom the communication was directed." See GC Services Response to Motion for Partial Summary Judgment, pp. 3-4, fn. 2, quoting Taylor v. Perrin, Landry, deLaunay & Durand, 103 F.3d 1232, 1240 (5th Cir.1997) (Garwood, J. concurring). The third alternative, adopted by the Seventh Circuit, is the "unsophisticated consumer" standard. Most courts comparing the standards seem to think there is little difference between the least sophisticated consumer and the unsophisticated consumer standards. The latter protects consumers of "below average sophistication or intelligence," while the former protects those in addition to the "very last rung on the sophistication ladder." Taylor, 103 F.3d at 1236, citing Gammon v. GC Services Limited Partnership, 27 F.3d 1254, 1257 (7th Cir.1994). The Taylor court refrained from choosing between the least sophisticated consumer standard and the unsophisticated consumer standard because both rendered the same result for that case. Taylor, 103 F.3d at 1236.
As in Taylor, the Court does not have to choose one of the three standards, as all render the same result. However, since the question has been raised, the Court is compelled to comment. The least sophisticated consumer standard cannot really mean to protect the least sophisticated consumer. Indeed, even the Second Circuit, which purports to apply the least sophisticated consumer standard, stated, "It should be emphasized that in crafting a norm that protects the naive and the credulous the courts have carefully preserved the concept of reasonableness." Clomon v. Jackson, 988 F.2d 1314, 1319 (2nd Cir. 1993). But the unreasonability of the least sophisticated consumer should never be underestimated.
The Clomon court, although purporting to adopt and apply the least sophisticated consumer standard, certainly did not do so in a literal sense, as the language of the opinion makes abundantly clear. The court noted certain things that satisfy its version of the least sophisticated consumer standard, *698 according to the rulings of other courts applying it. Essential information that is conveyed implicitly rather than explicitly is not deceptive under this standard. Clomon, 988 F.2d at 1319, citing Smith v. Transworld Systems, 953 F.2d 1025, 1028-29 (6th Cir.1992). Another court hold that "even the least sophisticated consumer could be presumed to possess a rudimentary amount of information about the world and a willingness to read a collection notice with some care." Clomon, 988 F.2d at 1319, citing Johnson v. NCB Collection Services, 799 F. Supp. 1298, 1306-07 (D.Conn.1992). Yet another court ruled that a collection notice met the standard even though the notices were printed only on the back of the letter, with a note on the front directing the consumer to read them. 988 F.2d at 1319. Gaetano v. Payco of Wisconsin, Inc., 774 F. Supp. 1404, 1411 (D.Conn.1990).
These rulings may have been correct under the standard applied, but that test could not properly purport to protect the least sophisticated consumer, for the least sophisticated consumer is a dull bulb indeed. If the law truly seeks to protect the least sophisticated consumer, courts would have to evaluate the good faith of any plaintiff or witness claiming to have been misled, no matter how unreasonable, no matter how dull, no matter how stupid the failure to understand. If the court found the claim to be made in good faith, then the collection letter would fail to satisfy the least sophisticated consumer standard. Even if never before that time had anyone been so ignorant as to be misled by the letter in question, we would have a new leader in the never-ending race to the bottom, a new least sophisticated consumer, and a new and unforeseeable burden on the legitimate and important, if unpopular, business of debt collection.
Perhaps this argument against the least sophisticated consumer standard is merely semantic, but in law semantics are rarely properly characterized as mere. If words mean things, and if we should mean the words that we use, we must not adopt a standard called the least sophisticated consumer standard. At the very least, it should be renamed, if not discarded altogether. The unsophisticated consumer standard is more practical, if only because its name more accurately describes those whom it protects. It protects those who are not exceptionally bright or blessed with intellect, those who are particularly gullible and credulous, and those who are quite naive and trusting. The Court finds Judge Kanne's formulation in Gammon compelling.
In maintaining the principles behind the enactment of the FDCPA, we believe a simpler and less confusing formulation of a standard designed to protect those consumers of below-average sophistication or intelligence should be adopted. Thus, we will use the term `unsophisticated,' instead of the phrase `least sophisticated,' to describe the hypothetical consumer whose reasonable perceptions will be used to determine if collection messages are deceptive or misleading. We reiterate that an unsophisticated consumer standard protects the consumer who is uninformed, naive, or trusting, yet it admits an objective element of reasonableness. The reasonableness element in turn shields complying debt collectors from liability for unrealistic or peculiar interpretations of collection letters.
Gammon, 27 F.3d at 1257. Any consumer falling below that level is, in this context, simply beyond the law's ability to protect.
a. Validation Notice
The validation notice requires debt collectors to include the following notices, either in the initial written communication, or within five days thereafter:
*699 (1) the amount of the debt;
(2) the name of the creditor to whom the debt is owed;
(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;
(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and
(5) a statement that, upon the consumer's written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.
15 U.S.C. § 1692g(a).
Plaintiffs' complaint about the validation notice in Defendant's debt collection letter boils down to three issues. First, the notice was printed on the back. Second, the notice was printed in gray letters on a gray background. There is no assertion that the required notices were absent from the letter, only that they were not sufficiently prominent. See Plaintiffs' Motion for Partial Summary Judgment and Brief in Support Thereof, p. 8, para. 4.9. Third, a second letter was sent, which Plaintiffs claim causes confusion as to the actual deadline by which the debtor must request validation of the debt.
Plaintiffs have submitted two exhibits containing copies of both letters received from Defendant. The parties dispute whether the copies are more or less legible than the original. Plaintiffs say that the copy is more legible, while Defendant says the original is more legible. The original is not in the Court's possession. It seems highly unlikely to the Court that a copier actually produces something clearer and more legible than the original. In any event, the copies submitted as Exhibits A and B to the motion for partial summary judgment are very legible. The type is not exceptionally dark, but there is no requirement in the law that it be darker than, or even as dark as, normal printing. It must simply be large enough and dark enough to be easily read and prominent enough to be noticed. It is.
Plaintiffs cite several cases that gray type on a gray back ground is a violation of the FDCPA. The decisions in the cited cases may be correct on those facts, but there are innumerable shades of gray. It is entirely conceivable that a dark gray print on a light gray background is easy to read and thus not a violation of the FDCPA. The evidence before the Court is certainly not so illegible as to be illegible as a matter of law.
Plaintiffs also complain about the validation notice being on the back of the letter. They conveniently omit any mention of the prominently displayed instruction on the front of the letter. It reads: NOTICE: SEE REVERSE SIDE FOR IMPORTANT CONSUMER INFORMATION. This instruction to see the back side of the letter is not merely prominent, it is in very bold green letters, setting it off from the rest of the letter and almost unavoidably attracting the eye.
An additional source of Plaintiffs irritation is that Defendant sent them a second letter, dated nearly four weeks later than the first. Plaintiffs claim that sending a second letter is a validation notice violation because it creates confusion as to the end of the thirty day period that a debtor has to request verification of the debt. The letters bear similar, but not *700 identical account numbers, and the amounts owed are different. The Court will assume for purposes of this motion that the two letters seek to collect the same debt. In that case, the validation notice states that the debtor has thirty days from the date of receipt of the initial written notice. This is not too confusing as a matter of law, and thus cannot be resolved on this summary judgment motion.
b. § 1692e(11)
Plaintiffs also complain that Defendant failed to comply with 15 U.S.C. § 1692e(11), which requires that debt collectors notify debtors that they are attempting to collect a debt and that all information they obtain will be used for that purpose. Their arguments are identical to those made regarding the validation notice, except that the second letter is not alleged to cause confusion. Since the arguments are the same, the outcome is the same. The warning is on the back of the letter, with the same direction in bold green type, pointing the debtor to the location of the warning and making clear that the debtor should consider it "important." The Court is hard pressed to find that this is a violation at all, and it certainly is not so clearly violative that it can be deemed so on summary judgment.
c. Professional Names
Citing 15 U.S.C. § 1692e(9) and (10), Plaintiffs complain that Defendant's use of the professional names J. Moran and J. Mason are misleading because they are not the given names of the persons using them. According to the Defendant's response to the motion for partial summary judgment, each of these names is assigned to a particular employee of GC Services, and have been registered, licensed and in use by Defendant since at least 1978. See Declaration of Michael T. Sullivan, attached to GC Services' Response to Motion for Partial Summary Judgment.
Names are arbitrary labels used to identify one person from another. They can be changed for any number of reasons. The use of a professional name or desk name is not uncommon. Neither is it misleading so long as it refers to a particular person. The Court understands why one in the debt collection business would be hesitant to sign letters with his real name, for fear that a disgruntled debtor would decide to seek out and punish the debt collector.
Furthermore, the intent of § 1692e is not to require that debt collectors use the real names of employees, but to ensure that debtors are made aware that they are being contacted by a particular debt collection agency, which must be identified clearly in the letter, and not someone or something with higher authority or more draconian debt collection tactics. The given name of the employee from whose desk the letter was sent is immaterial, and the use of a professional name or desk name, when used properly, is no violation of § 1692e. Indeed, the true source of the letter is not any particular individual, but the company, corporation, partnership, etc., that is collecting the debt. The letter is unambiguous as to its source when the source is so defined.
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that Plaintiffs' Motion for Partial Summary Judgment and Brief in Support Thereof (Doc. No. 4) is DENIED. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2377001/ | 68 F. Supp. 2d 556 (1999)
Robert KURILLA, Individually and as parent and natural guardian Robert J. Kurilla, Plaintiff,
v.
Kevin CALLAHAN, et al., Defendants.
No. Civ.A. 97-0187.
United States District Court, M.D. Pennsylvania.
September 30, 1999.
Barry H. Dyller, Wilkes Barre, PA, for plaintiff.
William J. Schmidt, Philadelphia, PA, Richard A. Polachek, Wilkes Barre, PA, for defendants.
MEMORANDUM
VANASKIE, Chief Judge.
This is a civil rights action under 42 U.S.C. § 1983 set in the factual context of use of force by a school teacher, Kevin Callahan, against a student, Robert Kurilla. The procedural context in which this matter is now before the Court is provided by Kurilla's objections to the Report and *557 Recommendation of Magistrate Judge Thomas M. Blewitt. Magistrate Judge Blewitt proposed that the Court grant the summary judgment motions of Callahan and Mid-Valley School District, his employer.
Kurilla contends that Magistrate Judge Blewitt erred in applying the substantive due process "shocks the conscience" test to Callahan's conduct, asserting that the applicable test is provided by the Fourth Amendment "reasonableness" standard. Kurilla argues that the fact that Callahan was convicted of the summary offense of harassment in connection with the incident giving rise to this lawsuit entitles Kurilla to summary judgment on liability. Alternatively, Kurilla contends that there is a triable issue as to whether Callahan's conduct "shocks the conscience."
Having carefully considered the issues de novo, I find that the momentary use of force by a school teacher is to be judged by the shocks the conscience standard. I also find that Callahan's conduct, which consisted of striking a blow to Kurilla's chest that resulted in bruising but otherwise did not require medical care, was not so "`brutal' and `offensive to human dignity'" as to shock the judicial conscience. Johnson v. Glick, 481 F.2d 1028, 1033 n. 6 (2d Cir.), cert. denied, 414 U.S. 1033, 94 S. Ct. 462, 38 L. Ed. 2d 324 (1973). Accordingly, I will adopt Magistrate Judge Blewitt's recommendation that Callahan's summary judgment motion be granted.
While Callahan's conduct did not violate substantive due standards, Mid-Valley School District may nonetheless be held accountable for having established a policy or custom that caused the injury allegedly sustained by Kurilla. Because I find that Kurilla has presented sufficient evidence to warrant a trial on the question of the existence of a policy or custom to tolerate use of excessive force by a teacher, the School District's summary judgment motion will be denied.
I. Background
On October 3, 1995, Kurilla was an eighth grade student at Mid Valley Secondary Center. (Kurilla's Aff., Dkt. Entry 39 at ¶ 2.) According to Kurilla, on that date, he was attending a study hall supervised by Defendant Kevin Callahan ("Callahan"), where Kurilla got into a fight with another student. Id. at ¶ 3. Callahan called both Kurilla and the other student to his desk, and asked the other student what happened. Id. at ¶ 4. Kurilla interrupted and began explaining his side of the story, to which Callahan responded by telling Kurilla to "Shut up or I will lay you out on the floor." Id. at ¶ 4. Kurilla attempted again to tell his side of the story when Callahan grabbed him by the shirt with clenched hands and proceeded to pull Kurilla very hard, causing Kurilla's chest to strike Callahan's closed fists. Id. at ¶ 5. Kurilla claims that Callahan's action, which allegedly had the identical effect as if Callahan punched him, resulted in bruising on Kurilla's chest. Id. at ¶ 5.
The bruise was on Kurilla's right side, above the nipple. (Kurilla Dep. at 60.) In addition to the bruise on his chest, Kurilla alleges that he had a red mark on the back of his neck and on the left side of his chest. Id. at 61. The only photographs taken were of the bruise on Kurilla's right side, above the nipple. Id. According to Kurilla's father, the photographs were taken two or three hours after the incident with Callahan. (Kurilla Sr. Dep. at 26, 28.)
Following the incident with Callahan, Kurilla saw the family doctor, Dr. Gazmen. (Id. at 29.) Dr. Gazmen performed a complete examination, but no x-rays were taken. (Id. at 37.) Dr. Gazmen concluded that there was no internal damage and that there was no need to prescribe any medication or to impose any restrictions on Kurilla. (Id. at 69-70.) Kurilla's father was told to call Dr. Gazmen if there were any problems, but Kurilla's father never called. Id.
At the time of the altercation, Kurilla was five (5) feet, eight (8) to nine (9) inches *558 tall and weighed between 175 to 180 pounds. (Id. at 40.) Kurilla's father claims that his son now suffers from anxiety, but he has not taken him to any doctors, aside from the one visit to the family doctor discussed above. (Id. at 43-45, 49.) Moreover, Kurilla has no plans to seek further treatment in the future, and the total medical bills incurred as a result of the incident was $35. (Id. at 44-45, 71.)
Callahan was subsequently tried and convicted of the summary offense of harassment of Kurilla.[1] Callahan was also convicted of harassment of two other students in separate incidents, one occurring before the matter involving Kurilla and one occurring two days after the Kurilla incident. Callahan appealed his guilty verdict to the Pennsylvania Superior Court, which dismissed his appeal. Kurilla filed this action on February 6, 1997, asserting claims under 42 U.S.C. § 1983 and state law.
A motion for summary judgment was filed by Defendant Mid Valley School District ("School District") on February 2, 1998. (Def.'s Mot.Summ.J., Dkt. Entry 26 at 1.) The School District argued that Kurilla failed to adduce evidence demonstrating the School District had a policy or custom of tolerating its teachers' violent behavior towards students, or that the School District created a danger to students. Id. at 2. On January 15, 1999, a motion for partial summary judgment was filed by Callahan. (Def.'s Mot. Partial Summ.J., Dkt. Entry 42.) Callahan sought dismissal of Kurilla's § 1983 claim, asserting that Callahan's conduct was not sufficient to impose liability under § 1983. (Def.'s Supp.Br., Dkt. Entry 44 at 4.) On January 25, 1999, Kurilla filed a motion for partial summary judgment with respect to liability on his civil rights claim, alleging that Callahan's unreasonable conduct violated Kurilla's Fourth and Fourteenth Amendment rights. (Pl.'s Mot. Partial Summ.J., Dkt Entry 45 at 1.)
Magistrate Judge Blewitt, to whom this matter had been assigned for pretrial management, concluded that the School District and Callahan were entitled to summary judgment. With respect to the School District, Magistrate Judge Blewitt reasoned that the plaintiffs failed to present competent evidence sufficient to warrant a trial on the questions of whether the School District had a policy or custom of tolerating violent behavior by its teachers towards students, or whether it acted in willful disregard for the safety of Kurilla. As to Callahan, Magistrate Judge Blewitt rejected Kurilla's assertion that Fourth Amendment principles were applicable. Instead, Magistrate Judge Blewitt found that Kurilla's claims were properly evaluated under the substantive due process component of the Fourteenth Amendment and its "shock the conscience" standard. Concluding that Kurilla's claim failed to "shock the conscience," Magistrate Judge Blewitt recommended that Callahan's motion for partial summary judgment be granted. Magistrate Judge Blewitt also recommended that Kurilla's motion for partial *559 summary judgment be denied and that supplemental jurisdiction over the pendent state law claims be declined. The matter is now before the Court on Kurilla's objections.
II. Discussion
A. Summary Judgment Standard
Summary judgment is appropriate if 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 judgment as a matter of law." Fed. R.Civ.P. 56(c); see Jones v. Witinski, 931 F. Supp. 364, 365. (M.D.Pa.1996). In Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986), the Supreme Court opined:
[T]he 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 make a showing sufficient to establish the existence of an element essential to that party's case, and on which the party will bear the burden of proof at trial. In such a situation, there can be `no genuine issue as to any material fact,' since complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial. The moving party is `entitled to judgment as a matter of law' because the nonmoving party has failed to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof.
An issue of fact is "`genuine' only if a reasonable jury, considering the evidence presented, could find for the non-moving party." Childers v. Joseph, 842 F.2d 689, 693-94 (3d Cir.1988) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986)). "Material facts are those which will affect the outcome of the trial under governing law." Jones v. Witinski, 931 F.Supp. at 365. To determine whether an issue of material fact exists, the court must consider the evidence in the light most favorable to the nonmovant. White v. Westinghouse Electric Co., 862 F.2d 56, 59 (3d Cir.1988).
B. The Excessive Force Claim Under § 1983
1. The Constitutional Standard to be Applied in School Excessive Force Cases.
The threshold inquiry in addressing Kurilla's § 1983 excessive force claim involves "identifying the specific constitutional right allegedly infringed...." Graham v. Connor, 490 U.S. 386, 394, 109 S. Ct. 1865, 104 L. Ed. 2d 443 (1989). Identification of the specific constitutional right allegedly infringed is essential because the standard against which the defendant's conduct is to be assessed depends upon the right that is purportedly violated. See Metcalf v. Long, 615 F. Supp. 1108, 1118 (D.Del.1985). For example, an excessive force claim in the context of an arrest is analyzed under the Fourth Amendment reasonableness standard. Graham, 490 U.S. at 395-97, 109 S. Ct. 1865. But once a person has been convicted and sentenced, an excessive force claim is analyzed under the Cruel and Unusual Punishments Clause of the Eighth Amendment. Metcalf, 615 F.Supp. at 1119. In Eighth Amendment excessive force cases, "the core judicial inquiry is ... whether force was applied in a good faith effort to maintain or restore discipline, or maliciously and sadistically to cause harm." Hudson v. McMillan, 503 U.S. 1, 6, 112 S. Ct. 995, 999, 117 L. Ed. 2d 156, 166 (1992). Claims of abusive treatment of pretrial detainees are analyzed under substantive due process principles. Graham, 490 U.S. at 395 n. 10, 109 S. Ct. 1865; Bell v. Wolfish, 441 U.S. 520, 535-39, 99 S. Ct. 1861, 60 L. Ed. 2d 447 (1979); Williams v. Mussomelli, 722 F.2d 1130, 1133 (3d Cir.1983); Patzig v. O'Neil, 577 F.2d 841, 847 (3d Cir.1978). The applicable test under the Due Process Clause is whether the defendant's conduct *560 "shocks the conscience." County of Sacramento v. Lewis, 523 U.S. 833, 118 S. Ct. 1708, 1717, 140 L. Ed. 2d 1043 (1998); Fagan v. City of Vineland, 22 F.3d 1296, 1303 (3d Cir.1994) (en banc).
Kurilla argues that the Fourth Amendment "reasonableness" standard should be applied in this case. The premise of this argument is that he was subjected to a "seizure" when Callahan grabbed his shirt and punched him in the chest. Pointing out that the Court in Graham said that a "seizure" occurs when a government actor "`by means of physical force or show of authority, ... in some way restrains the liberty of a citizen,'" 490 U.S. at 395 n. 10, 109 S. Ct. 1865, Kurilla asserts that Callahan's conduct must be regarded as a Fourth Amendment seizure. Based upon the Pennsylvania state court's finding in connection with the harassment charge that Callahan's use of force was not justifiable under the circumstances, Kurilla maintains that he is entitled to a finding in his favor on Callahan's § 1983 liability.
Graham involved a § 1983 claim against several police officers accused of using excessive force during an investigatory stop. 490 U.S. at 389, 109 S. Ct. 1865. Graham discouraged use of substantive due process analysis, and required that courts first consider whether there is a specific constitutional right infringed by the challenged action. 490 U.S. at 394, 109 S. Ct. 1865. The Court observed that in most instances, the Fourth or the Eighth Amendment would supply the constitutional peg on which to hang the civil rights claim.[2] As noted above, in the context of a law enforcement officer's investigatory stop, the Court in Graham found that Fourth Amendment standards were applicable.
Prior to Graham, our court of appeals had held that in the school physical discipline context, a government actor's conduct is to be assessed under substantive due process principles. See Metzger By and Through Metzger v. Osbeck, 841 F.2d 518 (3d Cir.1988). Specifically, in Metzger, a teacher, after hearing Metzger use foul language, placed his arms around Metzger's neck and shoulder area, and lifted him to the point where Metzger felt pressure underneath his chin and had to stand on his toes. When the teacher released him, Metzger, who had lost consciousness, fell face down, lacerated his lip, broke his nose, fractured his teeth, and sustained other injuries that required hospitalization. In reversing the grant of summary judgment in favor of the teacher, the majority in Metzger held that "[a] decision to discipline a student, if accomplished through excessive force and appreciable physical pain, may constitute an invasion of the child's Fifth Amendment liberty interest in his personal security and a violation of substantive due process prohibited by the Fourteenth Amendment." Id. at 520.[3]
Kurilla contends that Metzger is not controlling here because it was decided prior to Graham. According to Kurilla, Graham changed the legal landscape, so that "the use of excessive force by government actors is a seizure governed by the Fourth Amendment." (Br. in Supp. of Objections to the Report and Recommendation, Dkt. Entry 57 at 29.)
Contrary to Kurilla's assertion, Graham does not mandate application of Fourth Amendment principles to all claims of excessive force by all government actors. Factually, Graham is limited to claims against law enforcement officers engaged *561 in law enforcement activities. 490 U.S. at 394, 109 S. Ct. 1865 ("Where ... the excessive force claim arises in the context of an arrest or investigatory stop of a free citizen, it is most properly characterized as one invoking the protections of the Fourth Amendment....") Graham recognized that some excessive force claims, such as those made by pretrial detainees, would properly be analyzed under substantive due process standards. Id. at 395 n. 10, 109 S. Ct. 1865.
In County of Sacramento v. Lewis, 523 U.S. 833, 118 S. Ct. 1708, 140 L. Ed. 2d 1043 (1998), the Court specifically disclaimed any intent to have all constitutional claims relating to physically abusive government conduct analyzed under the Fourth or Eighth Amendments. Id. at 1715. As the Court explained, " `Graham simply requires that if a constitutional claim is covered by a specific constitutional provision, ... the claim must be analyzed under the standard appropriate to that specific provision, not under the rubric of substantive due process.'" Id., quoting United States v. Lanier, 520 U.S. 259, 117 S. Ct. 1219, 1228 n. 7, 137 L. Ed. 2d 432 (1997). Thus, substantive due process analysis remains appropriate if the plaintiff's claim is not "covered by" the Fourth Amendment. Id.
In this case, the question is whether the momentary use of force by a teacher against a student who refuses to be quiet despite having been admonished not to interrupt another student's account of an in-classroom altercation is "covered by" the Fourth Amendment prohibition against unreasonable seizures. In making this determination, it is important to bear in mind the "unique constitutional position" of public school students. Wallace by Wallace v. Batavia School District 101, 68 F.3d 1010, 1013 (7th Cir.1995). "Once under the control of the school, students' movement and location are subject to the ordering and direction of teachers and administrators." Id. at 1013. Public school children are subject to the state's authority in a way that has been described as "custodial and tutelary, permitting a degree of supervision and control that could not be exercised over free adults." Vernonia School District 47 Johns. v. Acton, 515 U.S. 646, 655, 115 S. Ct. 2386, 132 L. Ed. 2d 564 (1995).
Fourth Amendment jurisprudence dealing with "seizures" generally focuses on "the initial deprivation of liberty." Riley v. Dorton, 115 F.3d 1159, 1162 (4th Cir. 1997) (en banc). As recognized in Ingraham, the Fourth Amendment's "principal concern ... is with intrusions on privacy...." 430 U.S. at 674 n. 42, 97 S. Ct. 1401. Where the constitutional concern is not "`with the initial decision to detain an accused and the curtailment of liberty that such a decision necessarily entails,' but rather with the conditions of ongoing custody following such curtailment of liberty," substantive due process principles inform the judicial analysis. Id. at 1162, quoting Bell v. Wolfish, 441 U.S. at 533-34, 99 S. Ct. 1861. A teacher's use of physical force is more properly regarded as a condition of the school environment in which liberty is necessarily already curtailed. Thus, the factual context presented in this case is not "covered by" the Fourth Amendment.[4]
As pointed out by Kurilla, the Third Circuit has not explicitly considered the *562 impact of Graham on its holding in Metzger that substantive due process principles inform the analysis of an excessive force claim against a school teacher.[5] In Jones v. Witinski, 931 F. Supp. 364, 366-67 (M.D.Pa.1996), the Hon. James F. McClure of this Court did consider the impact of Graham and held that the "shocks the conscience" test should continue to be applied to school excessive force cases. In Lillard v. Shelby County Board of Education, 76 F.3d 716, 724-25 (6th Cir.1996), the court held that a claim of physical abuse by a school teacher was properly analyzed under substantive due process principles, explaining that such claims "are premised on the alleged violation of a constitutionally protected liberty interest, within the meaning of the Fourteenth Amendment, in their personal bodily integrity." This conclusion is rooted in Ingraham v. Wright, supra, which held that deliberate application of force by school officials, "restraining the child and inflicting appreciable physical pain, implicates liberty interests protected by the Fourteenth Amendment." Ingraham v. Wright, 430 U.S. at 674, 97 S. Ct. 1401. Metzger relied on Ingraham to hold that use of force by a school teacher is governed by substantive due process standards.
Kurilla notes that some other courts have applied the Fourth Amendment in the school discipline context. (Br. in Supp. of Objections to Report and Recommendation, Dkt. Entry 57 at 27-28.) With one exception, however, the cases cited by Kurilla involved factual scenarios more closely aligned with Fourth Amendment protection. For example, in Hassan v. Lubbock Independent School District, 55 F.3d 1075 (5th Cir.1995), the plaintiff complained of being placed in a holding cell for approximately 50 minutes while fellow students toured a juvenile detention center. In Edwards v. Rees, 883 F.2d 882 (10th Cir. 1989), the challenged action involved a 20-minute interrogation. In Rasmus v. Arizona, 939 F. Supp. 709 (D.Ariz.1996), the student had been locked in a "time out room" for approximately 10 minutes. In Bills by Bills v. Homer Consolidated School District No. 33-C, 959 F. Supp. 507 (N.D.Ill.1997), a claim that a principal repeatedly removed a student from class and interrogated him on a daily basis for at least five days was analyzed under Fourth Amendment principles on the ground that the student had been "seized." None of the cases involved the application of physical force. Moreover, these precedents are less persuasive because the courts did not discuss the fact that students in public school are subject to the control of school authorities and may be ordered to appear before a principal or go to a particular classroom.
The only case cited by Kurilla that applied Fourth Amendment principles to a claim of excessive force by a teacher was Wallace, 68 F.3d 1010. In Wallace, a teacher, in an effort to break up a fight between two students, grabbed one of the students by her wrist and elbow to move her out of the classroom. Id. at 1011. While finding that the Fourth Amendment "covered" this scenario, the Seventh Circuit also noted that there is "little parallel ... between the school and law enforcement situations when there is a seizure of the person." Id. at 1014. Explaining that "[t]he basic purpose for the deprivation of a student's personal liberty by a teacher is education, while the basic purpose for the deprivation of liberty of a criminal suspect by a police officer is investigation or apprehension," the court held that "application of the Fourth Amendment is necessarily different" in the school context. Id. (emphasis added). The court elaborated:
The reasonableness of a Fourth Amendment seizure of a public school student by a teacher must be evaluated in the *563 context of the school environment, where restricting the liberty of students is a sine qua non of the educational process. Deprivations of liberty in schools serve the end of compulsory education and do not inherently pose constitutional problems.
The premise of a general constitutionally permissible liberty restriction is, of course, not the case in the law enforcement context. Seizures of individuals by police are premised on society's need to apprehend and punish violators of the law. As such, they inherently threaten the individual's liberty to live free of the criminal justice process. There is no analogous liberty for students to live free of the educational process.
Id. at 1013-14. The court went on to apply an objective reasonableness standard that purports to take into account the "special needs" of the school environment. Under the test applied by the Seventh Circuit, the court does not concern itself with the teacher's intentions, but instead with whether the alleged seizure "was objectively unreasonable."[6]
Wallace recognized that the school environment is qualitatively different than the law enforcement environment. Public school students' liberty interests are necessarily restrained in a manner that is not present outside the school setting. Some official conduct that would not be tolerated outside school must be allowed in the school. "[A] proper educational environment requires close supervision of school children, as well as the enforcement of rules against conduct that would be perfectly permissible if undertaken by an adult." T.L.O., 469 U.S. at 339, 105 S. Ct. 733. Wallace accommodates this distinctive environment by qualifying the "objective reasonableness" inquiry. But Wallace suggests no meaningful standard by which this accommodation is to be effected. While the "shocks the conscience" test has been justly criticized as "amorphous and imprecise," Fagan, 22 F.3d at 1308, standards have been established for its application. More importantly, substantive due process has been the basis for considering claims of governmental abuse of power where the conduct in question does not implicate a specific constitutional protection. See County of Sacramento v. Lewis, supra (refusing to apply Fourth Amendment to police chase, but instead applying the "shocks the conscience" test). The momentary application of force by a teacher in reaction to a disruptive student is a scenario to which the Fourth Amendment does not textually or historically apply. I thus decline to follow Wallace.
In short, the momentary use of physical force by a teacher in reaction to a disruptive or unruly student does not effect a "seizure" of the student under the Fourth Amendment. Because Kurilla's claim is not governed by the Fourth Amendment, substantive due process principles will be applied to determine whether there is a triable excessive force claim here.
2. Application of the Shocks-the-Conscience Test
Substantive due process has been described as "the right to be free from state intrusions into realms of personal privacy and bodily security through means so brutal, demeaning and harmful as literally to `shock the conscience' of the court." Lillard v. Shelby County Board of Education, 76 F.3d 716, 725 (6th Cir.1996). The threshold for establishing a constitutional tort for excessive use of force is set so high in light of Supreme Court admonitions "against an overly generous interpretation of the substantive component of the Due Process Clause." Fagan v. City of Vineland, 22 F.3d at 1306 n. 6. The conduct in question "must do more than `offend some fastidious squeamishness or private sentimentalism....'" Johnson v. *564 Glick, 481 F.2d at 1028 n. 6. "[T]he constitutional concept of conscience-shocking duplicates no traditional category of commonlaw fault...." County of Sacramento v. Lewis, 118 S.Ct. at 1717. The pertinent inquiry is "`whether the force applied caused injuries so severe, was so disproportionate to the need presented, and was so inspired by malice or sadism rather than a merely careless or unwise excess of zeal that it amounted to a brutal and inhumane abuse of official power literally shocking to the conscience.'" Jones v. Witinski, 931 F.Supp. at 369, quoting Webb v. McCullough, 828 F.2d 1151, 1158 (6th Cir.1987).
In this case, Callahan's punching of Kurilla in the chest caused a bruise and some red marks. While Kurilla sought medical care, there is no evidence that medical attention was reasonably necessary. Kurilla's injuries did not even warrant x-ray examination or prescription of any medication. Thus, Kurilla's injuries could hardly be described as "severe".[7]
Callahan's striking of a blow to Kurilla's chest is akin to the slap across the student's face considered in Lillard v. Shelby County Board of Education, supra. In that case, the court held:
[I]t is simply inconceivable that a single slap could shock the conscience. We do not quarrel with the suggestion that [the teacher's] actions were careless and unwise; but they fall short of `brutal,' or `inhumane,' or any of the other adjectives employed to describe an act so vicious as to constitute a violation of substantive due process. In contrast to Webb the blow inflicted here was neither severe in force nor administered repeatedly. Moreover, the slap did not result in any physical injury to Lillard. While we do not mean to suggest that school systems should tolerate a teacher who slaps a student in anger, neither do we conclude that one slap, even if made for no legitimate purpose, rises to the level of a constitutional violation. While [the teacher] should reasonably expect to face serious consequences for his treatment of Lillard, those consequences should not be found in a federal court through the mechanism of a section 1983 action.
76 F.3d at 726 (emphasis added).
This rationale applies with equal force here. Callahan was reacting to a disruptive student. While Callahan's reaction could be categorized as overzealous, and may be actionable under state tort law, it does not amount "`to a brutal and inhumane abuse of official power literally shocking to the conscience.'" Jones v. Witinski, 931 F.Supp. at 369.[8]
*565 "To say that due process is not offended by [Callahan's] conduct described here is not, of course, to imply anything about its appropriate treatment under state law." County of Sacramento v. Lewis, 118 S.Ct. at 1721 n. 14. But "[d]ecisions about civil liability standards that `involve a host of policy choices ... must be made by locally elected representatives [or by courts enforcing the common law of torts], rather than federal judges interpreting the basic charter of Government for the entire country." Id., quoting Collins v. Harker Heights, 503 U.S. 115, 129, 112 S. Ct. 1061, 117 L. Ed. 2d 261 (1992). Kurilla has asserted common law tort claims of assault, battery, and intentional infliction of emotional distress. The viability of those claims is unaffected by the decision here. Moreover, the state criminal process was employed here and Kurilla could petition the school board for redress. That Kurilla is without a civil rights claim for Callahan's conduct thus does not leave him without effective means to redress the alleged wrong.
In summary, while Callahan's conduct violated state laws that balance the justification for use of force against a teacher's right to use force to maintain discipline, and may be actionable under tort law, it was not so brutal or inhumane as to shock the conscience. Accordingly, Callahan's summary judgment motion will be granted and Kurilla's summary judgment motion will be denied.
C. Kurilla's Claims Against Mid-Valley School District.
That Callahan's conduct does not shock the conscience does not necessarily relieve Mid-Valley School District of liability under 42 U.S.C. § 1983. "A finding of municipal liability does not depend automatically or necessarily on the liability of any [municipal] officer." Fagan, 22 F.3d at 1292. Third Circuit precedent plainly requires that district courts review the plaintiff's municipal liability claim independently of the § 1983 claim asserted against an individual local government actor. Kneipp v. Tedder, 95 F.3d 1199, 1213 (3d Cir.1996); Simmons v. City of Philadelphia, 947 F.2d 1042, 1058-65 (3d Cir.1991). As explained in Fagan:
Even if an officer's actions caused death or injury, he can only be liable under § 1983 and the Fourteenth Amendment if his conduct "shocks the conscience." The fact that the officer's conduct may not meet the standard does not negate the injury suffered by the plaintiff as a result. If it can be shown that the plaintiff suffered an injury, which amounts to deprivation of life or liberty, because the officer was following a city policy reflecting the city policymakers' deliberate indifference to constitution rights, then the City is directly liable under Section 1983 for causing violation of the plaintiff's Fourteenth Amendment rights.
22 F.3d at 1292.
As noted above, application of force by a teacher implicates liberty interests protected by the Fourteenth Amendment. Consistent with the reasoning of Fagan, Kneipp, and Simmons, Mid-Valley School District may be held liable if it had a custom or policy condoning use of excessive force by teachers that evidenced a deliberate indifference to the student's constitutional rights in bodily integrity protected by the Due Process Clause of the Fourteenth Amendment.
In determining what constitutes an official policy or custom, the Third Circuit has held that "[a] government policy or custom can be established in two ways. Policy is made when a `decisionmaker possess[ing] final authority to establish municipal policy with respect to the action' issues an official proclamation, policy, or edict." Beck v. City of Pittsburgh, 89 F.3d 966, 971 (3d Cir.1996) (quoting Andrews v. City of Philadelphia, 895 F.2d 1469, 1480 (3d Cir. 1990)). "Locating a `policy' ensures that a municipality is held liable only for those deprivations resulting from the decisions of its duly constituted legislative body or *566 those officials whose acts may fairly said to be those of the municipality." Monell v. Department of Soc. Serv., 436 U.S. 658, 690-91, 98 S. Ct. 2018, 56 L. Ed. 2d 611 (1978). Custom, on the other hand, may be proven by evidence of knowledge and acquiescence. Fletcher v. O'Donnell, 867 F.2d 791, 793 (3d Cir.1989). Custom also can be established by "showing that a course of conduct, though not authorized by law, is so permanent and well-settled as to virtually constitute law." Bielevicz v. Dubinon, 915 F.2d 845, 850 (3d Cir.1990).
With respect to both policies and customs, a "plaintiff must show that an official who has the power to make policy is responsible for either the affirmative proclamation of a policy or acquiescence in a well-settled custom." Id. at 850; see Kneipp, 95 F.3d at 1212, ("a prerequisite to establishing liability in either situation is a showing that a policymaker was responsible either for the policy, or through acquiescence, for the custom"). A "policymaker" is one who has the final, unreviewable discretion to make a decision. Kneipp, 95 F.3d at 1213 (citing Andrews, 895 F.2d at 1481).
In addition to proving that a policy or custom exists, the plaintiff must prove that the alleged policy or custom was the proximate cause of the plaintiff's harm. Losch v. Borough of Parkesburg, Pa., 736 F.2d 903, 910 (3d Cir.1984). "To establish the necessary causation, a plaintiff must demonstrate a `plausible nexus' or `affirmative link' between the municipality's custom and the specific deprivation of constitutional rights at issue." Bielevicz, 915 F.2d at 850; see also City of Oklahoma City v. Tuttle, 471 U.S. 808, 823, 105 S. Ct. 2427, 85 L. Ed. 2d 791 (1985) (requiring that the municipal policy or custom be the "moving force" behind the claimed constitutional violation and that there be an "affirmative link" between the policy or custom and the constitutional violation). This connection can be established by proving "that policymakers were aware of similar conduct in the past, but failed to take precautions against future violations, and that this failure, at least in part, led to their injury." Losch, 736 F.2d at 910.
Thus, to establish liability on the part of the School District under § 1983, Kurilla must establish that officials at a policymaking or supervisory level 1) had actual or constructive knowledge that Callahan had violent propensities and was a threat to students; 2) followed a policy or custom of tolerating or ignoring the risk Callahan or other violent teachers posed; and 3) exhibited indifference to the safety of students who were likely to be harmed by violent teachers. Pearson v. Miller, 988 F. Supp. 848, 858 (M.D.Pa.1997) (citing Doe v. Claiborne County, 103 F.3d 495, 507 (6th Cir.1996)).
Kurilla claims that "[t]he School District had a policy or custom of permitting Callahan to assault students without fear of action being taken against him. This policy or custom also extended to attempting to appease the parents of assaulted students in order to assure that Callahan's assaults would not be made public. The policy or custom also included creating a paper record of willingness to supervise or train Callahan, but in reality refusing to do so." (Pl.'s Supp.Br., Dkt. Entry 57 at 34.)
The School District argues that Kurilla is able to identify only one prior incident involving Callahan, and that this single isolated incident is insufficient to establish that the School District had a policy or custom of tolerating abusive behavior towards students. (Def.'s Supp.Br., Dkt. Entry 27 at 10.) The prior incident occurred when Callahan was teaching a woodworking class on November 8, 1994. (Tr. of Harassment Trial at 47.) During the class period, a student knocked a large stack of textbooks onto the floor from the workbench. Id. After students ignored repeated requests by Callahan to pick up the books, a student, who will be referred to as "JJ," began picking up the textbooks, even though she was not the one who originally knocked them over. Id. at 37-38. Callahan ostensibly became upset, went to the *567 table, and knocked the books back onto the floor. Id. at 48. In response, JJ told Callahan "don't be such a snot," to which Callahan responded by ordering her out of the classroom. Id. at 38. After JJ refused to leave the room, Callahan grabbed JJ by the back of the neck and tried to try to push her out of the classroom. Id. As Callahan attempted to push JJ out of the room, JJ's shirt became positioned above her head. Id. at 39. Callahan eventually removed JJ to the hallway by grabbing her arm, and proceeded to "bounce" her off the wall in the hallway. Id. JJ eventually escaped from Callahan's grip, ran to the office, and asked to call her mother. Id. at 44. After being sent to the school nurse, she was told that she was not allowed to call her mother. Id. Following the time spent at the nurse's office, JJ was ordered back to class and then suspended. Id. The incident resulted in bruises around JJ's neck, fingerprints on her neck, and contusions on her arm. Id. at 38-39.
Subsequently, a meeting was held between Callahan, JJ's parents and the school principal, Jerry Preschutti. (Preschutti Dep. at 38-39.) Preschutti recalls that JJ's parents were upset because their daughter was touched and marked by Callahan, and warned the School District that if there was another similar incident, JJ's father would take the matter further. Id. at 39. At this point, Preschutti attempted to settle the incident in his office. Id. at 41.[9] The purpose of Preschutti's effort was to allow the parents the chance to hear both sides of the story and "to try to keep the situation in a civil, decent matter without the screaming or yelling, bring some common ground where they can both exist and the student can go back to the classroom, the teacher can continue teaching, and the day moves on." Id. at 41-42. Preschutti considered the meeting to be a success and that his role as mediator between the parents and Callahan was the appropriate position to be taken. Id. at 40-41. In response to a question concerning the resolution of the incident, Preschutti stated:
The resolution was, they didn't want their daughter touched, if I remember. They were very angry. They weren't sure if I think I think he told the father told Mr. Callahan that if there was another incident in the school, he would bring this to light or something or shed this to light; he would make you know, go further with it if there was another incident with him grabbing kids or harassing kids or whatever, that he would shed light on this. And that was part of in other words, my major function at the time was to protect our employee, in this case it was Mr. Callahan, that it wouldn't go beyond my office. I felt my obligation as a high school principal there was to keep things under control and try to settle them at that level.
Id. at 40 (emphasis added).
The School District contends that this single, isolated incident is insufficient to support the allegation that it had a policy or custom of tolerating violent behavior of teachers toward their students. (Def.'s Supp.Br., Dkt. Entry 27 at 10.) Kurilla disagrees and argues that there is sufficient evidence to evince the School District's policy or custom of tolerating the violent propensities of its teachers. For support, Kurilla relies upon Stoneking v. Bradford Area School Dist., 882 F.2d 720 (3d Cir.1989). In Stoneking, the Third Circuit concluded that whether there was a policy to tolerate teachers' sexual assaults was a jury question. In explaining its decision, the court stated:
In sum, there is evidence in the record that between 1978 and 1982 Smith (Principal) *568 and Miller (Assistant Principal) received at least five complaints about sexual assaults of female students by teachers and staff members; that Shuey (Superintendent) was told about some of these complaints; that Smith recorded these and other allegations in a secret file at home rather than in the teachers' personnel files, which a jury could view as active concealment; that the defendants gave such teachers excellent performance evaluations, which a jury could view as communication by the defendants to the teachers that the conduct of which they are accused would not be considered to reflect negatively on them; and that Smith and Miller discouraged and/or intimidated students and parents from pursuing complaints, on one occasion by forcing a student to publicly recant her allegation.
Id. at 728-29.
Kurilla notes that Preschutti's handling of the JJ incident evidences an intent to avoid disclosure of teachers with violent propensities while not taking any action to curtail those propensities. He buttresses this assertion with the evidence that Callahan was convicted of three violent episodes with students, i.e., the JJ incident, the altercation with Kurilla, and an incident that occurred two days subsequent to the altercation with Kurilla. (Pl.'s Supp.Br., Dkt. Entry 57 at 34.)
The third incident of physical abuse occurred two days after Callahan's alleged physical abuse of Kurilla. (Pl.'s Supp.Br., Dkt. Entry 57 at 34.) In this incident, Callahan pushed his finger into the chest of a student, who will be referred to as "JM." (Pl.'s Atty's Aff., Dkt. Entry 40, Ex. A at 72.) The facts of this altercation are unclear, but it appears that JM was asking for help with his "board" when Callahan grabbed JM's board and jettisoned it across the classroom. Id. at 72-73.[10]
In Beck v. City of Pittsburgh, 89 F.3d 966 (3d Cir.1996), the Third Circuit reversed a directed verdict entered in favor of a municipality where the plaintiff presented evidence that the municipality's investigative process was designed such that most complaints against police officers would be determined to be unfounded or not sustained. Id. The Third Circuit held that, even though the municipality had a system in place to investigate complaints against police officers, there was sufficient evidence for a jury to infer that the municipality had a policy or custom, based upon a pattern of violent and inappropriate behavior by a police officer consisting of five complaints of excessive force in less than five years by the offending police officer. Id. Of the five incidents that occurred, one transpired after the incident involving the plaintiff. Id. at 969-70. The Third Circuit stated that a subsequent incident "may have evidentiary value for a jury's consideration whether the City and policymakers had a pattern of tacitly approving the use of excessive force." Id. at 972; see also Foley v. City of Lowell, 948 F.2d 10, 14 (1st Cir.1991) (actions subsequent to an event are admissible if they provide valuable insight into the policy or custom at the time of the incident).
In this case, there were three (3) incidents involving Callahan in less than one year. There is no evidence of any independent investigation by the School District of any of these incidents. No disciplinary action was taken against Callahan. Even following Callahan's convictions of the summary offense of harassment in connection with his physical abuse of students, no disciplinary action was taken against Callahan. While Callahan's assault on Kurilla was preceded by only one incident, the failure to take any disciplinary action against Callahan following the three incidents in the span of less than one year is probative of the question of whether the School District had a policy or custom to *569 tolerate or be deliberately indifferent to excessive use of force by teachers.
While the evidence in this case might not be as compelling as that found in Beck, our court of appeals' holding in Beck counsels that the existence of a custom or policy that condoned or was deliberately indifferent to excessive use of force by teachers in the Mid-Valley School District is a triable issue. Accordingly, Mid-Valley School District's motion for summary judgment will be denied.[11]
III. CONCLUSION
For the foregoing reasons, Callahan's motion for partial summary judgment will be granted, Kurilla's motion for partial summary judgment will be denied, and the School District's motion will be denied. In light of this disposition, the court will retain pendent jurisdiction over Kurilla's state law claims against Callahan.
NOTES
[1] Under Pennsylvania law, a summary offense is one punishable by up to 90 days imprisonment. A person commits the offense of harassment when, "with intent to harass, annoy or alarm another person: (1) he strikes, shoves, kicks or otherwise subjects [another] to physical contact, or attempts or threatens to do the same." 18 Pa.C.S.A. § 2209(a)(1). Because Callahan contended that he was justified in striking Kurilla, Pennsylvania law on the defense of justification was considered by the Pennsylvania court. Pennsylvania law provides that use of force is justifiable if a teacher believes that the force used is necessary to maintain discipline in the classroom, the use of such force is consistent with the student's welfare, and the degree of force, if it had been used by a parent, would not be "designed to cause death, serious bodily injury, disfigurement, extreme pain or mental distress or gross degradation." 18 Pa.C.S.A. § 509(2). The Pennsylvania court, while giving Callahan "the benefit of the doubt" in finding that he was "quelling a disturbance," found that he had not "acted with the minimum force required and in a manner consistent with the welfare of the minor." Commonwealth v. Callahan, No. 96-S-90, Op. at 8 (Pa. Common Pleas, Lackawanna County).
[2] The Eighth Amendment supplies the appropriate constitutional peg where a convicted inmate alleges excessive force. The Court has held that the Eighth Amendment does not apply to disciplinary corporal punishment imposed by public school teachers or administrators. See Ingraham v. Wright, 430 U.S. 651, 671, 97 S. Ct. 1401, 51 L. Ed. 2d 711 (1977).
[3] Judge Weis, in a concurring and dissenting opinion, observed that the majority's analysis recognizes that "the teacher constitutionally was permitted to utilize physical contact in disciplining the student." Id. at 522.
[4] The Supreme Court has held that Fourth Amendment principles must accommodate the "special needs" of the public school setting. See Vernonia School District 47J. v. Acton, 515 U.S. at 653-657, 115 S. Ct. 2386 (1995); New Jersey v. T.L.O., 469 U.S. at 336-40, 105 S. Ct. 733 (1985). Thus, a "reasonableness" inquiry in a public school setting where the Fourth Amendment textually applies, for example, a search of a student's locker, "cannot disregard the school's custodial and tutelary responsibility for children." Vernonia School District, 515 U.S. at 656, 115 S. Ct. 2386. A decision not to apply Fourth Amendment jurisprudence to the momentary use of force by a teacher, a factual context not literally covered by the Fourth Amendment, but instead to apply substantive due process strictures, is consistent with the deference accorded school administrators and teachers even in the setting where the Fourth Amendment textually applies.
[5] In Searles v. SEPTA, 990 F.2d 789, 794 (3d Cir.1993), the court cited Metzger as having firmly established that a child's liberty interest in personal security was afforded protection under substantive due process principles.
[6] The Wallace court concluded that the teacher and the School District were entitled to summary judgment, finding, as a matter of law, that the teacher's conduct was not objectively unreasonable. Id. at 1015.
[7] The slight injury in this case contrasts sharply with the injuries sustained in school excessive force cases where summary judgment was denied. For example, in Metzger, the student sustained a broken nose, fractured teeth, lacerations and other injuries requiring hospitalization. In Hall v. Tawney, 621 F.2d 607 (4th Cir.1980), a student had been beaten with a paddle to such a degree that hospitalization for a period of ten days was required. In Garcia by Garcia v. Miera, 817 F.2d 650, 658 (10th Cir.1987), cert. denied, 485 U.S. 959, 108 S. Ct. 1220, 99 L. Ed. 2d 421 (1988), a student had been hit multiple times with a split board causing bleeding and a permanent scar. In Webb v. McCullough, supra, a student was slapped, hit with a door and thrown against a wall by the school principal.
[8] Kurilla asserts that summary judgment is inappropriate because the question of whether Callahan intended to harm him is a quintessential jury issue. Kurilla claims that there is sufficient evidence of an intent to harm from the fact that Callahan responded to Kurilla's first interruption by warning him to "shut up or I will lay you out on the floor." Intent to harm is not, as Kurilla suggests, the dispositive issue under the shocks the conscience standard. It is only one of several factors, and the circumstances must show that the conduct was "so inspired by malice ... that it amounted to a brutal and inhumane abuse of official power literally shocking to the conscience." Webb, 828 F.2d at 1158. No reasonable jury could find that Callahan's statement made to an unruly student evidenced such a malevolent state of mind. Even if the statement would support such an inference, the nature of the injury and the manner in which it was inflicted do not support an inference of brutal or inhumane conduct.
[9] Preschutti stated in his deposition that he "[f]elt an obligation to resolve the matter at this level because of the fact that [he] didn't want to see it escalate to hurt anybody, the student or the teacher. We try to settle them at that level. Any type of incident, as a principal, you would try to settle things in your office where it doesn't go beyond that." Id. at 41.
[10] Callahan was collectively tried and convicted of criminal charges for the three incidents involving JJ, Kurilla, and JM. (Pl.'s Supp.Br., Dkt. Entry 57, Ex. A at 10.) Callahan appealed his conviction, but the appeal was dismissed by the Pennsylvania Superior Court. Id. at 50.
[11] In light of this decision, there is no need to address at this time Kurilla's claim that the School District may be liable under a "state-created danger" theory. It should be noted, however, that there appears to be in this case substantial overlap in the elements necessary to establish liability under Monell and the "state-created danger" theory. In this regard, under both theories, plaintiff must establish deliberate indifference to the consequences of teacher violence. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2373247/ | 492 F. Supp. 2d 1230 (2007)
Billie ASHLEY, Plaintiff,
v.
Steven SUTTON, et al., Defendants.
Civil. No. 06-063-HU.
United States District Court, D. Oregon.
June 26, 2007.
*1231 *1232 *1233 Michelle R. Burrows, Portland, OR, for Plaintiff.
Gerald L. Warren, Kenneth S. Montoya, Salem, OR, for Defendant.
ORDER
HAGGERTY, Chief Judge.
Magistrate Judge Hubel has issued a Findings and Recommendation [46] in this action. It recommends that plaintiffs Motion for Partial Summary Judgment [17] be denied, and defendants' Motion for Summary Judgment [21] be granted in part and denied in part.
*1234 Both parties filed objections to the Findings and Recommendation and the case was referred to this court. When a party objects to any portion of a Magistrate's Findings and Recommendation, the district court must make a de novo determination of that portion of the Magistrate's report. 28 U.S.C. § 636(b)(1)(B); McDonnell Douglas Corp. v. Commodore Bus. Mach., Inc., 656 F.2d 1309, 1313 (9th Cir. 1981).
The parties' objections were filed in a timely manner. The court has given the file of this case a de novo review, and has also carefully evaluated the Magistrate's Findings and Recommendations, the objections, and the entire record. Magistrate Judge Hubel provided a thorough analysis of the facts and circumstances regarding this litigation, and this analysis need not be repeated here. This court concludes that the Findings and Recommendation is sound, correct, and entitled to adoption.
ANALYSIS
Plaintiff's objections are addressed first. Plaintiff accepts the Findings and Recommendation except in one regard: the conclusion that the decision in Heck v. Humphrey, 512 U.S. 477, 114 S. Ct. 2364, 129 L. Ed. 2d 383 (1994), bars plaintiff's wrongful seizure claim.
The Findings and Recommendation reasoned:
under Heck, the plaintiff must show that her conviction has been reversed on direct appeal, expunged by executive order, declared invalid by a state tribunal, or called into question by the issuance of a writ of habeas corpus.
* * *
But absent any evidence that her convictions have, as of now, been reversed or expunged, she cannot assert a § 1983 claim based on wrongful seizure because it would necessarily call into question her conviction for resisting arrest. I conclude that [plaintiff's] wrongful seizure claim is barred by Heck.
Findings and Recommendation at 37-38.
Plaintiff argues that the Findings and Recommendation erred because the unavailability of habeas relief permits a civil rights action under 42 U.S.C. § 1983 to proceed despite the reasoning of Heck. It is true that there is some authority endorsing the idea that the unavailability of habeas relief permits a § 1983 action, "regardless of whether the success of the action would necessarily imply the invalidity of the conviction or sentence." Huftile v. Miccio-Fonseca, 410 F.3d 1136, 1141 (9th Cir.2005) (citing Spencer v. Kemna, 523 U.S. 1, 118 S. Ct. 978, 140 L. Ed. 2d 43 (1998)); see also Muhammad v. Close, 540 U.S. 749, 752 n. 2, 124 S. Ct. 1303, 158 L. Ed. 2d 32 (2004); Nonnette v. Small, 316 F.3d 872, 875-77 (9th Cir.2002) (in certain limited cases, Heck does not bar a § 1983 claim if habeas relief is unavailable).
It is also true that much of Heck's analysis and the analysis of some of its progeny pertains to "the intersection of the two most fertile sources of federal-court prisoner litigation the basic federal civil rights statute, 42 U.S.C. § 1983, and the federal habeas corpus statute for state prisoners." Huftile, 410 F.3d at 1139 (internal quotation and citations omitted).
However, the Findings and Recommendation relied upon another aspect of Heck's scope. The Findings and Recommendation quoted the Supreme Court's reasoning that a § 1983 action "would not lie" in a situation in which a "state defendant is convicted of and sentenced for the crime of resisting arrest, defined as intentionally preventing a peace officer from effecting a lawful arrest" because "to prevail in this § 1983 action, [the state defendant] would have to negate an element of the offense of *1235 which [the defendant] has been convicted." Findings and Recommendation at 36 (quoting Heck, 512 U.S. at 487 n. 6, 114 S. Ct. 2364).
The Supreme Court addressed this hypothetical situation in its explicit holding that:
in order to recover damages for . . . harm caused by actions whose unlawfulness would render a conviction or sentence invalid, a § 1983 plaintiff must prove that the conviction or sentence has been reversed on direct appeal, expunged by executive order, declared invalid by a state tribunal authorized to make such determination, or called into question by a federal court's issuance of a writ of habeas corpus, 28 U.S.C. § 2254. A claim for damages bearing that relationship to a conviction or sentence that has not been so invalidated is not cognizable under § 1983. Thus, when a state prisoner seeks damages in a § 1983 suit, the district court must consider whether a judgment in favor of the plaintiff would necessarily imply the invalidity of [the plaintiffs] conviction or sentence; if it would, the complaint must be dismissed unless the plaintiff can demonstrate that the conviction or sentence has already been invalidated.
Heck, 512 U.S. at 486-87, 114 S. Ct. 2364 (footnote omitted).
That hypothetical situation has arisen in the facts of this case. The existence of a line of decisions examining Heck's applicability in certain cases in which habeas relief was unavailable fails to negate the Findings and Recommendation's correct reasoning that Heck also addressed the precise, and independent, situation presented here: a state defendant who has been convicted of and sentenced for a crime similar to intentionally preventing a peace officer from effecting a lawful arrest. The explicit indication from the Heck court is that the state defendant cannot prevail in a § 1983 action because the state defendant would have to negate an element of the offense of which the defendant has been convicted. Heck, 512 U.S. at 487 n. 6, 114 S. Ct. 2364. The Supreme Court made no exception in these circumstances for instances in which that state defendant was not incarcerated or otherwise had no involvement with habeas relief. Plaintiffs objections are overruled.
Defendants also object to the Findings and Recommendation. Defendants challenge the conclusions that their motion for summary judgment on plaintiffs claims for excessive force and battery claims, and on the qualified immunity defense, should be denied. Specifically, defendants contend that the Findings and Recommendation erred in (1) ignoring authorities that suggest that determining the reasonableness of police detentions requires a balancing of interests; (2) ignoring that plaintiffs arresting officer had a right to question plaintiff and to give her a lawful order to stop so he could conduct his investigation; (3) denying summary judgment on the question of excessive force; (4) denying summary judgment to defendant Gallaher under a "ratification theory;" and (5) denying summary judgment to Officer Sutton on plaintiffs battery claim.
These objections reiterate argument and analysis already presented to the Magistrate Judge. The reasoning in the Findings and Recommendation addresses these issues fully, and this court's adoption of the Findings and Recommendation need only summarize that reasoning.
1. Determining reasonableness of witness detentions requires a balancing of interests
Defendants assert that the Findings and Recommendation ignored certain judicial decisions and their teachings that balancing *1236 factors should be considered in determining the reasonableness of a police detention. Defts,' Objections at 1. To the contrary, the Findings and Recommendation provided a careful analysis of the applicable law regarding police detentions. Findings and Recommendation at 17-26. Defendants complain, essentially, that the balancing factors that they rely upon should have compelled a favorable summary judgment ruling. Instead, the Findings and Recommendation concluded correctly that summary judgment was inappropriate in light of the circumstances presented. Defendants' objections underscore the existence of material issues of fact and are more properly viewed as factual argument going to the weight of the evidence presented.
2. Oregon law regarding plaintiff's detention and seizure
Defendants also contend that the Findings and Recommendation erred because the plaintiffs actions should be construed as "taking flight" "turning and fleeing into the crowded gymnasium area and ignoring [an officer's] command to stop." Defts.' Objections at 7. Defendants' interpretation of the facts regarding plaintiffs arrest fail to establish that defendants are entitled to judgment as a matter of law on the questions defendants raise. The Findings and Recommendation analyzed the arguments presented correctly.
3. There is a jury question on the question of excessive force
Next, defendants assert that the Findings and Recommendation erred in concluding that a jury question exists regarding allegations of excessive force. The Findings and Recommendation reasoned correctly that "[d]etermining whether the force used to effect a particular seizure is reasonable under the Fourth Amendment requires a careful balancing of the nature and quality of the intrusion on the individual's Fourth Amendment interests against the countervailing governmental interests at stake." Findings and Recommendation at 26-27 (citation omitted). The Findings and Recommendation concluded that "[f]actual issues preclude summary judgment in Sutton's favor on the excessive force claim." Findings and Recommendation at 28.
Defendants' objections address the law and fact-intensive nature regarding excessive force claims at some length. Defts.' Objections at 12-16. The discussion presented by defendants underscores the necessity of determining the reasonableness of a police officer's actions when evaluating such claims. Id. The Findings and Recommendation's analysis in this regard is sound.
At best, defendants' objections appear to renew their qualified immunity challenge. The Findings and Recommendation correctly noted that "the inquiry as to whether officers are entitled to qualified immunity for the use of excessive force is distinct from the inquiry on the merits of the excessive force claim." Findings and Recommendation at 31. Although the Findings and Recommendation reviewed the law regarding qualified immunity thoroughly, a brief summary is appropriate.
"Under the Fourth Amendment, officers may only use such force as is `objectively reasonable' under the circumstances." Jackson v. City of Bremerton, 268 F.3d 646, 651 (9th Cir.2001) (quoting Graham v. Connor, 490 U.S. 386, 397, 109 S. Ct. 1865, 104 L. Ed. 2d 443 (1989)).
The Supreme Court has established a two-part analysis for determining whether qualified immunity is appropriate in a suit against an officer for an alleged violation of a constitutional right. Saucier v. Katz, 533 U.S. 194, 201, 121 S. Ct. 2151, 150 *1237 L.Ed.2d 272 (2001). Under Saucier, there is a two-pronged test: courts "must examine first whether the [officers] violated [the plaintiffs] constitutional rights on the facts alleged and, second, if there was a violation, whether the constitutional rights were clearly established." Desyllas v. Bernstine, 351 F.3d 934, 939 (9th Cir.2003) (citing Saucier, 533 U.S. at 201, 121 S. Ct. 2151).
Determining the reasonableness of a use of force requires a factfinder to balance the nature and quality of the intrusion upon an individual's Fourth Amendment interests against the countervailing governmental interests at stake. Boyd v. Benton County, 374 F.3d 773, 778-79 (9th Cir.2004) (citations and internal quotations omitted). The balancing that is required is judged from the perspective of a reasonable officer on the scene, rather than with hindsight, and such balancing means that summary judgment in excessive force cases should be granted sparingly. Id. at 779 (citations and internal quotations omitted).
Defendants' objection that the first prong of the Saucier test should be resolved in favor of defendants that no constitutional right enjoyed by plaintiff was violated is overruled. The Findings and Recommendation concluded correctly that "[i]f the facts are viewed in the light most favorable to plaintiff, Sutton's conduct violated a clearly established constitutional right." Findings and Recommendation at 31-32.
Defendants also contend that Saucier's second prong should be construed as favoring defendants:
Even if the court found that plaintiff had alleged a violation of a clearly established right, Officer Sutton would still be entitled to qualified immunity [regarding the excessive force claim] if he could . . . have reasonably but mistakenly believed that his . . . conduct did not violate a clearly established constitutional right. Plaintiff has not shown how any reasonable officer could not believe Officer Sutton's use of force was constitutional.
Defts.' Objections at 15-16 (citation and internal quotation omitted).
As to this second inquiry, the Supreme Court has held that "[i]f the law did not put the officer on notice that his [or her] conduct would be clearly unlawful, summary judgment based on qualified immunity is appropriate." Saucier, 533 U.S. at 202, 121 S. Ct. 2151. The Findings and Recommendation acknowledged correctly that, after accepting plaintiffs factual assertions, issues of material fact exist as to whether "a reasonable officer could have believed, in light of the settled law, that his use of force on plaintiff did not violate her constitutional right to be free from excessive force." Findings and Recommendation at 32.[1]
*1238 4. Gallaher's liability under a ratification theory
Next, defendants object to the Findings and Recommendation's conclusion that the defendant City "is not entitled to summary judgment on plaintiffs fifth claim for relief, which is grounded on [Police Chief] Gallaher's ratification of Sutton's conduct with respect to both the detention and the use of force." Findings and Recommendation at 35. The Findings and Recommendation concluded that Gallaher is a policymaker for the City on police matters, and his ratification of Sutton's conduct "is sufficient to make the City liable on the basis of a municipal policy." Id.
Defendants object, arguing that plaintiff failed to establish "any genuine issue of material fact with regard to Chief Gallaher's `deliberate indifference' merely because his review of Officer Sutton's report and his knowledge that plaintiff was subsequently convicted by a jury of resisting her arrest and in his experience as an officer, the amount of force used was reasonable to overcome a resisting arrestee in his opinion." Defts.' Objections at 17.
However, this is an inaccurate portrayal of the evidence plaintiff presented. Plaintiff has alleged that Sutton's actions were endorsed and approved by the Chief of Police, an official policymaker. Complaint, ¶¶ 42, 43. The Findings and Recommendation reviewed the relevant evidence and the applicable law:
The Declaration submitted by Gallaher states, "The amount of force used by Officer Sutton was at all times directed at overcoming Mrs. Ashley's resistance to her arrest." Gallaher Declaration ¶ 6.
A police chief may be liable in his official capacity for the unconstitutional conduct of another if he acquiesces in that conduct. Larez v. City of Los Angeles, 946 F.2d 630, 646 (9th Cir.1991). Gallaher's ratification and approval of Sutton's use of force against Ashley is fatal to his motion for summary judgment. Id. If a jury finds that Sutton used excessive force, then it could also find Gallaher liable because he condoned or ratified that use of force. Watkins v. City of Oakland, 145 F.3d 1087, 1093 (9th Cir.1998).
Findings and Recommendation at 29.
This analysis is correct. A municipality also can be liable for an isolated constitutional violation if the final policymaker "ratified" a subordinate's actions and, ordinarily, ratification is a question for the jury. Christie v. Iopa, 176 F.3d 1231, 1238-39 (9th Cir.1999) (citing Fuller v. City of Oakland, 47 F.3d 1522, 1534 (9th Cir.1995)). The Findings and Recommendation concluded correctly that plaintiff established that there is a genuine issue of material fact regarding whether a ratification occurred.
5. Battery claim
Defendants' final objection is that the Findings and Recommendation erred in refusing to recommend granting Officer Sutton's Motion for Summary Judgment on plaintiffs battery claim because the "undisputed facts in this case show a minimum amount of force used to effect the plaintiffs arrest and overcome her resistance of [sic] which she was convicted of a crime." Defts.' Objections at 18.
Defendants' assertion that it is "undisputed" that Officer Sutton used a "minimum amount of force" is inaccurate, and insufficient to support their motion for summary judgment on the battery claim. The Findings and Recommendation concluded correctly that there was a jury question as to that claim.
CONCLUSION
The Magistrate Judge's Findings and Recommendation [46] is adopted. Plaintiff's *1239 Motion for Partial Summary Judgment [17] is denied, and defendant's Motion for Summary Judgment [21] is granted in part and denied in part, as follows: plaintiff's wrongful arrest claim (claim two) is dismissed; claims three and four against the City are dismissed; and all other motions for summary judgment on plaintiff's excessive force and battery claims, and on the qualified immunity defense, are denied.
IT IS SO ORDERED.
FINDINGS AND RECOMMENDATION
HUBEL, United States Magistrate Judge:
This is an action under 42 U.S.C. § 1983, brought by Billie Ashley against the City of Milton-Freewater (the City), its police chief, Michael Gallaher, and a police officer, Stephen Sutton.[1] Ms. Ashley asserts five claims for relief. The first two are § 1983 claims asserted against defendants Gallaher and Sutton, grounded on violation of the Fourth Amendment, and based on allegations of unconstitutional seizure and use of excessive force. Claims three, four and five are § 1983 claims against the City based on unconstitutional municipal policy; failure to train; and unconstitutional policy through ratification by a policymaker. The last claim is for battery, asserted against Gallagher and Sutton. Ashley seeks economic, noneconomic and punitive damages.
Ashley has filed a motion for summary judgment in her favor on all claims except the battery claim. Defendants move for summary judgment in their favor on all claims; Sutton and Gallaher also seek summary judgment based on their qualified immunity defense.
Factual Background
On December 14, 2004, Billie Dean Ashley was attending a basketball game at Central Middle School in Milton-Freewater with her husband, Tim Ashley. Their 13-year-old son, Luke, was playing in the game. Shortly after the game started, Tim Ashley moved to a different section of the bleachers because Billie Ashley and a friend were talking. Warren Declaration, Exhibit 1 (deposition of Billie Ashley, hereinafter "Ashley dep.") 25:20-26:4, 27:5-10.
The referee of the basketball game was George Gillette. During the game, Tim Ashley was yelling at the referee from the bleachers. Gillette ejected Tim Ashley from the game. Gillette went to the principal of the school, Steve Carnes, and told Carnes that a parent had yelled profanity at him and he wanted Carnes to remove him from the game. Gillette pointed to an individual who was "kind of by himself on the end." Warren Declaration, Exhibit 4 (deposition of Steve Carnes) 20:3-10, 21:12-15. Carnes recognized the person Gillette was pointing to as Tim Ashley. Carnes dep. 20:9-12, 22:20-22. Carries did not see Billie Ashley in the stands. Carries dep. 22:18-19.
Carnes saw Tim Ashley leave the bleachers and walk toward Carnes, at which time Carnes overheard Tim Ashley make a comment to the referee to the effect that, "I'll see you out back after the game," or "I'll be waiting for you out back." Carnes dep. 22:25-23:3, 26:22-27:1. Carnes and Tim Ashley walked out of the gym together, where they were met by Jay Rodighiero, who explained to Ashley that he needed to leave. Carnes dep. 23:4-6, 27:2-4. Tim Ashley argued to Carnes and Rodighiero that he had not *1240 used profanity and should not have to leave, but the latter two insisted that under OSAA rules, because the referee had ejected him, he had to go. Carnes dep. 27:14-28:2. Ashley and Carnes walked out of the gym together, and Ashley got into his truck. Carnes dep. 28:14-16, 29:19-22. But about 15 seconds later, Ashley returned to the gym. Carnes dep. 29:23-30:3. Carries and Rodighiero had another conversation with Ashley and Carnes escorted Ashley out again allies clap. 30:9-31:2. Carnes watched Ashley drive away. Carnes dep. 31:3-5. Carnes then decided to call the police because he felt that Tim Ashley's threat to the referee "made the place unsafe," and because he wasn't sure Ashley was gone for good. Carnes dep. 31:11-17.
Billie Ashley, the plaintiff, approached Carnes in the hallway outside the gym. Ashley dep. 41:15-17; Carnes dep. 36:14-17. She introduced herself to Carries, told him she understood that her husband had been ejected for swearing at the referee, and said her husband had a head injury which caused him to be "more temperamental and more outspoken than somebody who doesn't have that issue to deal with." Ashley dep. 41:20-42:2; Carnes dep. 36:22-25, 37:17-18. Ashley told Carnes she would be "happy to discuss it with the referee so they had some understanding." Ashley testified that she was "trying to make the peace." Ashley dep. 42:2-4. Carnes has testified that Ashley's demeanor was polite, rational and appropriate. Carnes dep. 38:3-12.
Carnes responded that the police had been called, and that they would probably want information from her, Carnes dep. 37:11-13, 40:13-15, even though Carnes knew Billie Ashley had not been sitting near Tim Ashley at the time of the incident. Carnes dep. 38:14-25. Ashley responded, "I'm not giving them anything." Carnes dep. 41:18-24.
Meanwhile, defendant Sutton had received information from his dispatcher that there had been disorderly conduct and a threat by a fan at the basketball game. Warren Declaration, Exhibit 2 (Sutton deposition) 34:11-13. Sutton was told that the fan was a male who had been watching the game. Sutton dep. 57:4-15. Sutton testified that he did not go to the school to make an arrest, but only to "investigate a report of a crime," that crime being "disorderly conduct and/or menacing." Sutton dep. 60:16-23.
When Sutton arrived at the school, he knew the suspect had made a threat, and believed the suspect might be a threat to others, but did not know where he was. Sutton dep. 67:15-22, 67:23-25. Before going into the school, Sutton had no information suggesting that Billie Ashley was involved in the incident he was investigating, or that she was even at the school. Sutton dep. 57:19-25.
Sutton arrived at the school and approached Carnes and Billie Ashley. Carnes identified Ashley to Sutton as the wife of the man who had been ejected and again said something about her giving the police information, or "he'll need to talk to you," see Sutton dep. 63:2-9, even though Carries thought Sutton had heard Ashley's comment about "I'm not giving them anything" as Sutton walked up. Carnes dep. 42:2-12, 46:22-25, 47:5-9. Carnes testified that had Ms. Ashley not been present, he would have given Sutton whatever information was needed about Mr. Ashley. Carries dep. 42:13-19. Sutton has testified that as he walked up to Carnes and Billie Ashley, Carnes introduced Billie Ashley to Sutton and told Billie Ashley that Sutton was "going to have some questions." Sutton dep. 63:2-9.
*1241 According to Carnes, Sutton's first words as he walked up to Carnes and Ashley were "stop right there," and a comment that if Ashley did not give him the information he wanted, he could arrest her. Carnes dep. 47:6-12, 14-16. However, Sutton has testified that he first introduced himself to Ashley and advised her that he wanted to "talk to her husband" and get their address. Sutton dep. 63:10-20. Ashley has testified that Sutton "asked in a very demanding tone" for Tim Ashley's name, date of birth, and address. Ashley dep. 45:13-23.
Sutton had no information indicating that Billie Ashley had been involved in the incident with the referee. Sutton dep. 63:25-64:5. However, Sutton testified that he "had reason to believe" that she "was a party to it." Sutton dep. 64:7-9.
Sutton is under the impression that a "party" to a crime is the same as a witness to a crime:
Q: Did you tell her she was a party to the incident?
A: I apparently did.
* * *
Q: So, if she's a party to the incident, is she a suspect in a crime?
A: No ma`am.
Q: So what is she?
A: A witness.
Q: And witnesses are obligated to provide police officer information when they're asked?
A: Yes. Not police officer information. Their basic information: name, date of birth and address.
Sutton dep. 72:7-24. However, the evidence is that Sutton did not ask Ms. Ashley for her name (which he already knew) or for her date of birth, but rather for her husband's date of birth and their address. Sutton dep. 73:6-25. Sutton has testified that he did not regard Billie Ashley as a suspect. Sutton dep. 82:14.
Sutton was then asked:
Q: What information did you have?
A: She was there.
Q: How do you know?
A: How do I know she was there?
Q: Yes.
A: She was standing with Mr. Carnes when I walked in.
Q: Was she there in the gym when the incident occurred with Mr. Ashley?
A: I was reasonably believing she was.
Q: How do you know that?
A: It's been my experience that spouses often go to games together.
Q: Well, do you have any specific factual basis that she was there during the game?
A: No factual basis.
Sutton dep. 64:10-25.
Sutton was then asked,
Q: Could you tell me what facts you were basing your reasonable belief upon?
A: The fact I received a call to respond, I responded relatively quickly there, and she was on scene when I arrived.
Sutton dep. 65:5-9.
Sutton has testified that he asked Ashley for the name of her husband and their address, and that she told him she wasn't going to give him the information, and he could look it up. Sutton dep. 67:8-14, 68:1-6. Ashley has testified that Sutton told her he wanted her husband's date of birth as well. Ashley dep. 48:21-23.
Sutton then told Ashley "there were easy ways to take care of this and there were hard ways to take care of this," Sutton *1242 dep. 68:22-25, and if she did not provide the information he wanted, she could be arrested. Sutton dep. 69:5-11. Sutton believed that because he had a "reasonable suspicion" that Ashley was a witness to the incident, he had the right to arrest her for interfering with an investigation if she did not answer his questions. Sutton dep. 69:11-22. Sutton has testified that if a witness "willfully" refuses to provide information, "I have a right to detain them further to gather that information." Sutton dep. 74:6-8. Sutton explained,
Q: So you have the right to detain a witness until they give you the information you want?
A: Until I receive the information I need.
Q: So they're not free to leave?
A: This is correct.
Q: They're under arrest?
A: No.
Q: What's the difference between not being able to leave and not and being under arrest?
* * *
A: She was potentially going to be free to leave after she after I received my basic information.
Q: So, until you got what you want from her, she was detained.
A: For a reasonable time period, yes.
Q: What would be a reasonable time period?
A: I can't speculate on that.
Q: What if she never gave you the information?
A: Then I would detain her to the police department and attempt to locate it there.
Q: Detain her to the police department. Would you arrest her?
A: No, I would not arrest her.
Q: So you'd make her go in your police car to the police station?
A: I have that ability.
Q: Without arresting someone.
A: Under detainment, yes.
* * *
Q: So you can detain a witness until you get pertinent personal information.
A: I can determine who that witness is. They are a party to the crime.
Q: They're a party to the crime when they're a witness?
A: Yes.
* * *
A: My decision was based on the fact that this was a sporting event. She was advised to me to be the wife of a suspect and I had a reasonable belief that wives and husbands would attend sporting events together.
Sutton dep. 74:13-22, 76:2-19, 77:12-18, 85:2-6.
Ashley has testified that she told Sutton she was not going to help him prosecute her husband, and that he could look the information up. Ashley dep. 50:5-7. Ashley states that Sutton told her, "If you don't give me that information right now, you're going to be under arrest," Ashley dep. 50:8-11, and that she responded, "For what?" Ashley dep. 50:17-19. Sutton told her, "For interfering." Ashley dep. 50:21; Sutton dep. 70:7-16. Ashley testified that she responded, "Then arrest me. I'm going in the gym to get my purse." Ashley dep. 50:22, 51:17-22.
Ashley turned away from Sutton and began walking toward the gym. Ashley dep. 52:6-25. Sutton has testified that he *1243 then advised Ashley that she was under arrest and put his hand out in order to place her hands behind her back and take her into custody. Sutton dep. 91:9-19.
The record is unclear as to when Sutton told Ashley she was under arrest. Sutton has testified that he told Ms. Ashley she was under arrest after she said she would not answer his questions, Sutton 91:9-16, 113:1-2; when she walked away from him in the hallway, Sutton 92:2-5; when he grabbed her coat, Sutton 95:1-7; and when he told her to get up from the bleachers, 99:3-4. Carnes and Ashley have both testified that Sutton said nothing as Ashley began to walk away, but followed her and told her to stop. Carnes dep. 47:18-23, 50:17-20; Ashley dep. 52:123.
Ashley entered the open doors of the gymnasium. Sutton dep. 91:22-24. Carnes has testified that she was moving in the direction of her purse. Carnes dep. 50:24-51:1. Sutton testified that he followed her, telling her to stop. Sutton dep. 91:25, 92:14-15. Sutton caught up to Ashley as she was approaching the stands, Sutton dep. 92:18-20, grabbed her coat, Sutton dep. 94:22-25, and caused her to "separate from" her coat and fall into the bleachers on her back. Sutton dep. 98:9-25. According to Ashley, she was unaware that Sutton was behind her until Sutton grabbed her coat from behind and pulled it so hard that she was knocked into the bleachers. Ashley dep. 53:1-12, 53:23-25; 54:6-18,55:15-18.
Sutton testified that he told Ashley to get up and repeated that she was under arrest. Sutton dep. 99:1-4. Sutton pulled out his taser and told Ashley that he was going to count to five and if she "continued to resist," he would use the taser on her. Sutton dep. 99:1-25, 100:1-5; see also Ashley dep. 57:2-3 (Sutton said to her, "You have to the count of five to get up or I'm going to taser you.") Ashley was asking him, "Why are you doing this?" and stating, "I've done nothing wrong." Sutton dep. 100:6-11; Ashley dep. 57:9-10. Sutton was asked at his deposition,
Q: And what was she doing towards you that you believed justified the use of a taser?
A: She was resisting arrest and resisting my attempts to take her into custody.
Q: Did she strike you at all?
A: No.
Q: Did she touch you at all?
A: No.
Q: Did she threaten you verbally with harm?
A: No.
Q: Was she harming or trying to harm anyone else?
A: No.
Sutton 101:8-19.
Sutton subsequently testified that he arrested Ms. Ashley, handcuffed her, and took her into custody because when she entered the gym, she had "started to resist," and was creating a threat to herself and to Officer Sutton. Sutton 120:3-18. In Sutton's opinion, the threat was created because "[w]e were moving. We could create injuries to both of us and/or anyone else in that area." Sutton 120:19-21.
It was Sutton's intention, if Ashley did not stand up, to put the taser on her body and pull the trigger. Sutton dep. 105:9-12. When Sutton got to three, Ashley stood up and began walking out of the gym toward the hallway. Ashley dep. 58:22-24; Sutton dep. 105:13-20. Ashley has testified that she walked out of the gym "so we could finish whatever he was going to continue to do." Ashley dep. 59:9-11. Ashley testified that she was trying to get out of the gym because "everybody was staring," and *1244 "[i]t was a very humiliating, very embarrassing situation." Ashley dep. 59:2-5, 8-11, 14-18. Sutton followed her, placed the taser against the back of her shoulder and pulled the trigger as she walked out of the gym. Sutton dep. 105:20-24; Ashley dep. 60:1-7, 60:22-25; 61:13-18.
Once into the hallway, Ashley turned around to face Sutton, and Sutton used the taser on her stomach because, in Sutton's opinion, Ms. Ashley was "still resisting." Sutton dep. 107:20-108:1; 108:14-16; Ashley dep. 62:15-19. Ashley grabbed the taser and pulled it away from her stomach, saying to Sutton, "Are you enjoying this?" or something to that effect. Ashley dep. 62:20-23. Sutton then pushed Ashley to the wall, using his weight to hold her there, and handcuffed her. Sutton dep. 110:18-111:5. Ashley has testified that Sutton grabbed her left arm behind her back, with her face plastered against the wall, and held her there while the boys came out of the locker room for half-time. Ashley dep. 64:6-9. Ashley's son Luke saw her there. Ashley dep. 64:10-11. Once the boys had returned to the gym, Sutton finished handcuffing Ashley. Ashley dep. 67:23-25.
After Ashley had been handcuffed, defendant Gallaher arrived on the scene, in response to a request for backup from Sutton. Declaration of Michael Gallaher ¶ 3; Ashley dep. 67:15-18; Warren Declaration, Exhibit 2, p. 61. Ashley told Gallaher the handcuffs were hurting her wrists because she had been cuffed over her watch. Gallaher Declaration ¶ 4; Ashley dep. 71:5-7. Gallaher took Ashley outside, removed the handcuffs, handcuffed her hands in front, and put her in a squad car. Gallaher Declaration ¶ 4; Ashley dep. 71:9-12.
From the time Sutton arrived at the school to the time he placed Ashley in handcuffs was approximately four minutes. Sutton dep. 41:23-42:1. Sutton has acknowledged that he "actually didn't interview anyone" at the school in connection with the incident involving the referee and Tim Ashley. Sutton dep. 51:21-25.
Tim Ashley approached Sutton after Billie Ashley had been placed in the patrol car. Warren Declaration Exhibit 2, p. 61. Tim Ashley suffered a violent seizure after being handcuffed by Sutton, and an ambulance was called. Id. at 62. Billie Ashley was taken to the police station by Sutton, where she was cited for interference with a peace officer, disorderly conduct, and resisting arrest, then released. Ashley dep. 72:10-14; Warren Declaration, Exhibit 2, p. 60, 62. Tim Ashley was ultimately mailed a citation for disorderly conduct. Warren Declaration, Exhibit 2, p. 62.
Sutton has testified that he charged Billie Ashley with interference with a peace officer because of "[t]he fact that she failed to give the basic information that I asked for, her address, specifically. And then she also disobeyed direct orders to stop when she tried to move away." Sutton dep. 87:11-14.
Q: What orders did you give her?
A: I advised her she was under arrest; she needed to put her hands behind her back.
Q: So you believe that your order for her to stop so that you could arrest her was a lawful order?
A: I do.
Sutton dep. 87:9-20. Sutton now acknowledges that after arresting Billie Ashley, he learned that refusing to answer questions is not a violation of the Oregon statute that prohibits interfering with a peace officer. Sutton dep. 88:23-89:9. The interference with a peace officer charge was dismissed by the city prosecutor. Ashley dep. 72:16-22.
*1245 Billie Ashley was convicted by a municipal jury of disorderly conduct and resisting arrest. Warren Declaration, Exhibit 1, p. 62. Ashley received a suspended sentence on condition that she have no matters before the court for one year and was ordered to pay a fine. Id.; Ashley dep. 73:20-22. Ashley appealed the conviction, but her appeal was dismissed on procedural grounds, because Ashley, acting pro se, filed the original notice of appeal in the wrong court. Warren Declaration, Exhibit 3. She has appealed the dismissal of the appeal, and that appeal is pending. Warren Declaration Exhibit 3, p. 1-3.
Defendant Gallaher, Chief of Police for the Milton-Freewater Police Department, has submitted a Declaration stating that he reviewed the facts of the incident involving Billie Ashley, based upon the police report completed by Sutton and interviews of any personnel involved, and concluded that there were
no City of Milton-Freewater Police Department policies or procedures that were not properly followed in this case. Officer Sutton was at all times attempting to investigate a disorderly conduct and menacing offense and Mrs. Ashley refused to cooperate with his investigation to provide him with the minimal information he was requesting. The amount of force used by Officer Sutton was at all times directed at overcoming Mrs. Ashley's resistance to her arrest.
Gallaher Declaration ¶ 6.
Standards
Summary judgment is appropriate "if 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). Summary judgment is not proper if material factual issues exist for trial. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir.1995), cert. denied, 516 U.S. 1171, 116 S. Ct. 1261, 134 L. Ed. 2d 209 (1996). On a motion for summary judgment, the court must view the evidence in the light most favorable to the non-movant and must draw all reasonable inferences in the non-movant's favor. Clicks Billiards Inc. v. Sixshooters Inc., 251 F.3d 1252, 1257 (9th Cir.2001).
The moving party has the burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). If the moving party shows the absence of a genuine issue of material fact, the nonmoving party must go beyond the pleadings and identify facts which show a genuine issue for trial. Id. at 324, 106 S. Ct. 2548. Assuming that there has been sufficient time for discovery, summary judgment should be entered 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." Id. at 322, 106 S. Ct. 2548.
Discussion
1. Constitutionality of Sutton's seizure of Ashley
a. Was there a seizure?
A person is "seized" when by means of physical force or a show of authority, his freedom of movement is restrained. United States v. Mendenhall, 446 U.S. 544, 100 S. Ct. 1870, 64 L. Ed. 2d 497 (1980); see also Doe ex rel. Doe v. State of Hawaii Dept. of Education, 334 F.3d 906, 909 (9th Cir.2003)(seizure, in constitutional sense, occurs "when there is a restraint on liberty to the degree that a reasonable person would not feel free to leave.").
*1246 A seizure violates the Fourth Amendment if it is objectively unreasonable under the circumstances. Doe, 334 F.3d at 909. Determination of whether a seizure was reasonable requires a two-step inquiry: first, whether a seizure has occurred, and, if so, whether that seizure was objectively unreasonable under the circumstances. Id.
Law enforcement officers do not violate the Fourth Amendment by merely approaching an individual on the street or in another public place, asking if the individual is willing to answer some questions, putting questions to the individual if the individual is willing to listen, or by offering into evidence in a criminal prosecution his voluntary answers to such questions. Florida v. Royer; 460 U.S. 491, 497, 103 S. Ct. 1319, 75 L. Ed. 2d 229 (1983). The person approached, however, need not answer any question put to him or her; indeed, she may decline to listen to the questions at all and may go on her way. Id. at 497-98, 103 S. Ct. 1319. See also California v. Hodari D., 499 U.S. 621, 628, 111 S. Ct. 1547, 113 L. Ed. 2d 690 (1991); Florida v. Bostick, 501 U.S. 429, 434-35, 111 S. Ct. 2382, 115 L. Ed. 2d 389 (1991)(even in absence of a basis for suspecting a particular individual, police may generally ask questions, "so long as the police do not convey a message that compliance with their requests is required.") (emphasis added).
When a police officer detains a person for the purpose of requiring that person to identify herself, the officer has performed a seizure of her person subject to the Fourth Amendment. Brown v. Texas, 443 U.S. 47, 99 S. Ct. 2637, 61 L. Ed. 2d 357, (1979)(emphasis added).
The parties do not dispute that there was a seizure. Defendants characterize Sutton's conduct in asking Ashley for her husband's name and their address as a "detention," and acknowledge that the detention escalated into an arrest after Ashley refused to answer Sutton's questions.
b. Was the initial detention an information-seeking stop?
In general, a person may not be detained even momentarily without "reasonable, objective grounds for doing so; and his refusal to listen or answer [questions] does not, without more, furnish those grounds." Royer, 460 U.S. at 498, 103 S. Ct. 1319; Mendenhall, 446 U.S. at 556, 100 S. Ct. 1870.
Defendants nevertheless contend that Sutton's initial detention of Ashley as a "potential witness to a crime" satisfies the Fourth Amendment's reasonableness requirement. The defendants rely on Illinois v. Lidster, 540 U.S. 419, 124 S. Ct. 885, 157 L. Ed. 2d 843 (2004).
Lidster involved brief stops of motorists at a highway checkpoint to ask for information about a recent fatal hit-and-run accident on that highway. As each vehicle drew up to the checkpoint, an officer would stop it for 10 to 15 seconds, ask the occupants whether they had seen anything, and hand each driver a flyer requesting assistance in identifying the vehicle and driver.
As Lidster drove up to the checkpoint, his van swerved, nearly hitting one of the officers. The officer smelled alcohol on Lidster's breath, and directed Lidster to a side street where another officer administered a sobriety test and then arrested Lidster. The Supreme Court upheld the constitutionality of the stop and the arrest.
The Lidster Court said:
[T]he law ordinarily permits police to seek the voluntary cooperation of members of the public in the investigation of a crime. "Law enforcement officers do not violate the fourth amendment by *1247 merely approaching an individual on the street or in another public place, by asking him if he is willing to answer some questions, [or] by putting questions to him if the person is willing to listen." Florida v. Royer, 460 U.S. 491, 497, 103 S. Ct. 1319, 75 L. Ed. 2d 229 (1982)[other citations omitted]. That, in part, is because voluntary requests play a vital role in police investigatory work.
Id.
Sutton acknowledged at his deposition that the Milton-Freewater police manual provides that although an officer "may always speak to a citizen provided the citizen wishes to continue to talk with the officer," the manual also states, "Officers should accept that the citizen may refuse to talk to the officer and refuse to identify himself." Sutton dep. 81:6-12. However, Sutton testified that he did not consider his questioning of Ashley to be a "consensual interview" because "[s]he made no effort to want to answer my questions. It wouldn't be what I would qualify as consensual." Sutton dep. 81:15-20.
Regardless of whether Sutton's initial detention of Ashley in the hallway was analogous to an information-seeking highway checkpoint stop, not involving individualized suspicion, there is no dispute that the encounter between Sutton and Ashley did not end there. The question, then, is not whether Sutton had the right to ask Ashley questions, but rather whether he could compel her to answer those questions and arrest her if she refused. I therefore turn to the question of whether Sutton's subsequent curtailment of Ashley's liberty was constitutionally justified.
c. Did Sutton have grounds for a Terry stop?
The defendants argue, on the basis of Hiibel v. Sixth Judicial District Court of Nevada, 542 U.S. 177, 124 S. Ct. 2451, 159 L. Ed. 2d 292 (2004) that Sutton was free to ask Ashley for the information without implicating the Fourth Amendment, because asking for information is not, by itself, a Fourth Amendment seizure. However, as Hiibel makes clear, this is only in the context of a Terry stop supported by a reasonable suspicion that the person stopped is engaged in criminal activity.
Our decisions make clear that questions concerning a suspect's identity are a routine and accepted part of many Terry stops. See United States v. Hensley, 469 U.S. 221, 229, 105 S. Ct. 675, 83 L. Ed. 2d 604 (1985) ("[T]he ability to briefly stop [a suspect], ask questions, or check identification in the absence of probable cause promotes the strong government interest in solving crimes and bringing offenders to justice"); Hayes v. Florida, 470 U.S. 811, 816, 105 S. Ct. 1643, 84 L. Ed. 2d 705 (1985)("[I]f there are articulable facts supporting a reasonable suspicion that a person has committed a criminal offense, that person may be stopped in order to identify him, to question him briefly, or to detain him briefly while attempting to obtain additional information"); Adams v. Williams, 407 U.S. 143, 146, 92 S. Ct. 1921, 32 L. Ed. 2d 612 (1972)("A brief stop of a suspicious individual, in order to determine his identity or to maintain the status quo momentarily while obtaining more information, may be most reasonable in light of the facts known to the officer at the time").
(Emphasis added)
A Terry stop[2] requires the existence of "articulable facts supporting a reasonable suspicion that a person has *1248 committed a criminal offense;" if such facts exist, that person "may be stopped in order to identify him, to question him briefly, or to detain him briefly while attempting to obtain additional information." Hayes v. Florida, 470 U.S. 811, 816, 105 S. Ct. 1643, 84 L. Ed. 2d 705 (1985). A reasonable suspicion is more than an "inchoate and unparticularized suspicion or hunch." Illinois v. Wardlow, 528 U.S. 119, 124, 120 S. Ct. 673, 145 L. Ed. 2d 570 (2000).
Defendants argue that Sutton had a reasonable suspicion that Ashley was "connected to illegal activity as the spouse of a person who had made a threat and was concealing his whereabouts which permitted him to detain her for a limited amount of time to conduct his investigation," and that she was a "party to the disturbance that had taken place at the school." Defendants' Memorandum, p. 9. There is no evidentiary support in the record for either of these contentions.
Ashley's mere status as the spouse of the person who allegedly made the threat does not establish that she was connected to her husband's swearing at the referee or to his threat. Moreover, Sutton has admitted that he had no information indicating that Billie Ashley had been involved in the incident with the referee; that he knew the suspect he sought was male; and that Ashley herself was not the suspect. Sutton dep. 72:16-20; 82:14.
Sutton has said he thought Ashley might have been a witness, or, in his words, a "party," to Tim Ashley's conduct. But he had no factual basis for his belief that Billie Ashley had witnessed anything aside from his assumption that spouses usually attend sporting events together. Sutton never asked Ashley whether she had witnessed the interaction between her husband and the referee.
Because Sutton had no articulable facts supporting a reasonable suspicion that Billie Ashley was involved in criminal activity, this was not a valid Terry stop.
d. Did Sutton have probable cause to arrest?
The defendants assert that Sutton had probable cause to arrest Ashley when she walked away from him toward the gym, because he had "probable cause to believe she was committing a crime and interfering with his investigation." Defendants' Memorandum p. 12. Sutton's testimony shows that he arrested Ashley for interfering with his investigation by refusing to answer questions.
Officers have probable cause for an arrest if at the time of the arrest, the facts and circumstances within their knowledge, and of which they have reasonably trustworthy information, are sufficient to warrant a prudent person's believing that the defendant committed an offense. Beck v. Ohio, 379 U.S. 89, 91, 85 S. Ct. 223, 13 L. Ed. 2d 142 (1964); United States v. Henderson, 241 F.3d 638, 648 (9th Cir.2000). The court looks to the totality of the circumstances known to the officer at the time to determine whether probable cause existed. United States v. Butler; 74 F.3d 916, 920 (9th Cir.1996).
Mere presence in a place where criminal activity is suspected, or mere association with suspects, is not sufficient to provide probable cause for an arrest. See, e.g., Sibron v. New York, 392 U.S. 40, 62-63, 88 S. Ct. 1889, 20 L. Ed. 2d 917 (1968)(police lacked probable cause to arrest defendant found talking to narcotics addicts and traffickers); Ybarra v. Illinois, 444 U.S. 85, 94-96, 100 S. Ct. 338, 62 L. Ed. 2d 238 (1979)(police lacked probable cause to search bar patron when police had warrant to search bar and bartender; no criminal activity could be inferred from patron's mere presence in bar); United *1249 States v. Soyland, 3 F.3d 1312, 1314 (9th Cir.1993)(automobile passenger merely present in car; driver admitted possession of drugs for personal use). Consequently, the mere fact that Billie Ashley was married to the suspect in the case, Tim Ashley, or the fact that she was present in the gym where the incident took place is not sufficient to create probable cause to arrest her.
Nor, at the moment when Ashley turned away from Sutton and started walking from the hallway to the gym, was there probable cause to arrest Ashley for interfering with a police officer, because it was not a criminal offense under Oregon law for Billie Ashley to refuse to answer Sutton's questions. The crime of Interfering with a Police Officer is as follows:
A person commits the crime of interfering with a peace officer . . . if the person, knowing that another person is a peace officer . . .
a) Intentionally acts in a manner that prevents, or attempts to prevent, a peace officer . . . from performing the lawful duties of the officer with regards to another person; or
b) refuses to obey a lawful order by the peace officer . . .
Or.Rev.Stat. 162247(1). The evidence does not support a finding that Billie Ashley acted in a manner that prevented or attempted to prevent Sutton from performing his duties, and it has been held that mere speech does not constitute such an act. State v. Lam, 176 Or.App. 149, 157, 29 P.3d 1206 (2001)(reviewing legislative history and holding that Or.Rev.Stat. § 162.247 excludes acts that are entirely verbal).
Defendants have also argued that Sutton had probable cause to arrest Billie Ashley because she refused Sutton's "lawful order to stop so as to allow him to conduct his investigation." Defendants' Memorandum p. 14.[3] Defendants do not specify which order to stop they refer to: Sutton ordered Billie Ashley to "stop right there" when he first walked up to her in the hallway, before she refused to answer his questions, and he ordered her to stop as she walked away from him in the hallway toward the gym.
Regardless, Sutton's order to stop was not a lawful order, because her refusal to answer questions did not justify Sutton's order to stop. In State v. Illig-Renn, 341 Or. 228, 142 P.3d 62 (2006) the court held that the use of the word "lawful" with "order" in the interfering statute removes from the applicability of the statute an order that is inconsistent with substantive law, including constitutional provisions. Sutton did not have grounds for a Terry stop or an arrest. Therefore, he is not entitled to summary judgment on the wrongful arrest claim, based on these arguments. But plaintiff's claim must nonetheless be dismissed on the basis of Heck v. Humphrey, 512 U.S. 477, 114 S. Ct. 2364, 129 L. Ed. 2d 383 (1994), as discussed below.
2. Excessive force claim
Under the Fourth Amendment, the police may use only such force as is objectively reasonable under the circumstances. Graham v. Connor, 490 U.S. 386, *1250 397, 109 S. Ct. 1865, 104 L. Ed. 2d 443 (1989); LaLonde v. County of Riverside, 204 F.3d 947, 959 (9th Cir.2000).
Generally, excessive force cases are rarely decided as a matter of law, because the Fourth Amendment test for reasonableness is inherently fact-specific. Headwaters Forest Defense v. County of Humboldt, 240 F.3d 1185, 1198 (9th Cir.2000), vacated and remanded for further consideration on other grounds, 534 U.S. 801, 122 S. Ct. 24, 151 L. Ed. 2d 1 (2001), on remand, 276 F.3d 1125 (9th Cir.2002). Determining whether the force used to effect a particular seizure is reasonable under the Fourth Amendment requires a careful balancing of the nature and quality of the intrusion on the individual's Fourth Amendment interests against the countervailing governmental interests at stake. Id. Weighing the governmental interests involved requires the factfinder to evaluate such factors as the severity of the crime at issue, whether the suspect posed an immediate threat to the safety of the officers or others, whether the suspect was actively resisting arrest or attempting to evade arrest by flight, and any other exigent circumstances. Id. The essence of the analysis is that the force which was applied must be balanced against the need for that force. Id. Thus, where there is no need for force, any force used is constitutionally unreasonable. Id., citing P.B. v. Koch, 96 F.3d 1298, 1303-04 & n. 4 (9th Cir.1996).
Defendants have argued that they are entitled to summary judgment because Sutton's use of the taser on Ashley was justified. They assert it was "used to enforce compliance with an order that had a reasonable security purpose." Defendants' Memorandum p. 14. Sutton has testified that he used the taser to enforce his order to Ashley to stand up after she fell into the stands.
There is no evidence suggesting that Ms. Ashley refused to stand up after she fell into the bleachers. In fact, the evidence is that she did stand up within a few seconds after Sutton began counting. Ashley dep. 58:22-24; Sutton dep. 105:13-20. It is difficult to understand how Sutton's use of the taser would have made Ms. Ashley comply with his order to stand up, since if he had used the taser on her before she stood up, and if the taser had been working properly, Ms. Ashley would have been incapacitated and unable to stand up.
In any event, there is no evidence that the order to stand up had a reasonable security purpose. Sutton has testified that he could have given Ashley a citation for interfering with a peace officer rather than taking her custody. Sutton dep. 118:1-3. Sutton has admitted that Ashley did not present a threat to officer safety or a threat of harm to anyone else. Sutton dep. 118:7-12.
On the other hand, Ashley was convicted of resisting arrest and disorderly conduct. Some coercion or force is allowed when effectuating an arrest. Graham v. Connor, 490 U.S. 386, 396, 109 S. Ct. 1865, 104 L. Ed. 2d 443 (1989). When a reasonable jury could return a verdict for either side, summary judgment is inappropriate. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). Factual issues preclude summary judgment in Sutton's favor on the excessive force claim.
The excessive force claim is not precluded by Heck v. Humphrey, as discussed below.
a. Excessive force claim against Gallaher
Gallaher asserts that this claim should be dismissed as to him because he arrived *1251 on the scene after Ashley had been handcuffed and was not in a position to see the arrest. Further, he argues that the actions he allegedly endorsed did not occur in his presence. He asks that he be dismissed because there is no evidence that he played any role in Ashley's arrest or the manner in which it was conducted.
The Declaration submitted by Gallaher states, "The amount of force used by Officer Sutton was at all times directed at overcoming Mrs. Ashley's resistance to her arrest." Gallaher Declaration ¶ 6.
A police chief may be liable in his official capacity for the unconstitutional conduct of another if he acquiesces in that conduct. Larez v. City of Los Angeles, 946 F.2d 630, 646 (9th Cir.1991). Gallaher's ratification and approval of Sutton's use of force against Ashley is fatal to his motion for summary judgment. Id. If a jury finds that Sutton used excessive force, then it could also find Gallaher liable because he condoned or ratified that use of force. Watkins v. City of Oakland, 145 F.3d 1087, 1093 (9th Cir.1998).
I recommend that all the motions for summary judgment on the excessive force claim be denied:
3. Are Sutton and Gallaher entitled to qualified immunity?
Sutton and Gallaher assert that they are entitled to qualified immunity.
The test for qualified immunity is set out in Saucier v. Katz, 533 U.S. 194, 121 S. Ct. 2151, 150 L. Ed. 2d 272 (2001). The first inquiry is whether, based upon the facts taken in the light most favorable to the party asserting the injury, the officer's conduct violated a clearly established constitutional right. Id. at 201, 121 S. Ct. 2151. If so, the court must then inquire whether the officer could nevertheless have reasonably but mistakenly believed that his or her conduct did not violate a clearly established constitutional right. Id. at 205, 121 S. Ct. 2151.
Plaintiff has the burden of proving the existence of a clearly established constitutional right. Doe v. Petaluma City School District, 54 F.3d 1447, 1450 (9th Cir.1995). It is the defendant's burden to show that a "reasonable . . . officer could have believed, in light of the settled law, that he was not violating a constitutional or statutory right." V-1 Oil Co. v. Smith, 114 F.3d 854 (9th Cir.1997). Whether a right was clearly established and whether an official's conduct was reasonable are both questions of law for the court. Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S. Ct. 2727, 73 L. Ed. 2d 396 (1982); ActUp!/Portland v. Bagley, 988 F.2d 868, 873 (9th Cir.1993).
Because, as discussed below, plaintiffs wrongful arrest claim is precluded by Heck v. Humphrey, 512 U.S. 477, 114 S. Ct. 2364, 129 L. Ed. 2d 383 (1994), it is unnecessary for the court to consider whether defendants are entitled to qualified immunity on this claim.
For the excessive force claim, even though a fact issue exists, the court must still go through the analysis set out by the Supreme Court in Saucier. In Saucier, the Supreme Court reversed the Ninth Circuit's decision in Katz v. United States, 194 F.3d 962 (9th Cir.1999) and held that the inquiry as to whether officers are entitled to qualified immunity for the use of excessive force is distinct from the inquiry on the merits of the excessive force claim. Saucier implicitly overruled such Ninth Circuit cases as Liston v. County of Riverside, 120 F.3d 965, 976 n. 10 (9th Cir. 1997)(where court held that the inquiry is the same on both qualified immunity and the merits of an excessive force claim, because the same reasonableness requirement that applies on the merits applies to *1252 qualified immunity), Hervey v. Estes, 65 F.2d '784, '791 (9th Cir.1995)(where court held that unreasonable force claims are gene ally questions of fact for a jury) and Alexander v. County of Los Angeles, 64 F.3d 1315, 1322 (9th Cir.1995)("The question of whether the officers are entitled to qualified immunity for any use of excessive force in effecting the arrest is separate and distinct from whether they are entitled to qualified immunity for the alleged arrest without probable cause. This Court has observed that the inquiry as to whether officers are entitled to qualified immunity for the use of excessive force is the same as the inquiry on the merits of the excessive force claim."). But see Hammer v. Gross, 932 F.2d 842, 850 (9th Cir. 1991)(en banc), (in a holding closer to the later Supreme Court decision in Saucier; court rejected plaintiffs argument that an officer who has used unreasonable force cannot, by definition, have acted reasonably.)
The first prong of the Saucier test is met here. If the facts are viewed in the light most favorable to Ms. Ashley, Sutton's conduct violated a clearly established constitutional right. I turn, therefore, to the issue of whether Sutton and Gallaher have demonstrated that a reasonable officer could have believed, in light of the settled law, that his use of force on Ms. Ashley did not violate her constitutional right to be free from excessive force. On the facts of this case, if Ms. Ashley's version of the facts is believed, defendants have not carried their burden. I recommend that defendants' motion for summary judgment on the qualified immunity defense to Ms. Ashley's excessive force claim be denied.
4. Is the City liable?
The City moves against the three claims asserted against it, arguing that Ashley has established no policy or failure to train that would give rise to liability on the part of the City for Sutton's conduct.
As her third claim for relief, Ashley alleges that the City had an unofficial policy or practice which "promoted, allowed or facilitated officers to use coercion, threats and assault against detainees," based on their failure to answer questions, provide protected and privileged information, and failure to cooperate with police when not required to do so. Complaint ¶¶ 33, 34.
As her fourth claim for relief, Ashley alleges that the City had an inadequate policy for training officers with respect to detention, the rights of detainees and witnesses, and the use of force, including proper methods of arrest, handcuffing, and use of tasers. Complaint, ¶ 38.
As her fifth claim for relief, Ashley alleges that Sutton's actions were endorsed and approved by the Chief of Police, an official policymaker. Complaint ¶¶ 42, 43.
Congress intended the term "person" in § 1983 to include municipalities. Christie v. Iopa, 176 F.3d 1231, 1234 (9th Cir.1999). However, Congress did not intend to create respondeat superior liability, see Board of County Comm'rs of Bryan County v. Brown, 520 U.S. 397, 403, 117 S. Ct. 1382, 137 L. Ed. 2d 626 (1997), and isolated instances of official misconduct are insufficient to establish municipal liability under Monell v. Dept. of Social Services, 436 U.S. 658, 690-91, 98 S. Ct. 2018, 56 L. Ed. 2d 611 (1978).
There are three situations in which isolated constitutional violations are sufficient to establish a municipal "policy:" 1) the unconstitutional act was committed by a city employee pursuant to a formal governmental policy or longstanding practice or custom which constitutes standard operating procedure; 2) the unconstitutional act was committed by an official *1253 with final policy-making authority, so that the challenged action constituted an act of official governmental policy; and 3) an official with final policy-making authority ratified a subordinate's unconstitutional action or decision and the basis for it. Hopper v. City of Pasco, 241 F.3d 1067, 1083 (9th Cir.2001).
Ashley has come forward with no evidence demonstrating that Sutton's conduct was pursuant to a formal governmental policy or longstanding practice constituting standard operating procedure. In fact, the evidence shows that Sutton's conduct in detaining Ashley and arresting her for refusing to answer questions was contrary to the requirements of the Milton-Freewater police manual. The City is entitled to summary judgment on Ashley's third claim for relief.
Nor has Ashley come forward with any evidence demonstrating that the City failed to train its police officers adequately with respect to detentions and the use of force. The City is entitled to summary judgment on Ashley's fourth claim for relief.
The City is not entitled to summary judgment on Ashley's fifth claim for relief, which is grounded on Gallaher's ratification of Sutton's conduct with respect to both the detention and the use of force. As Chief of Police, Gallaher is a policymaker for the City on police matters; his ratification of Sutton's conduct is sufficient to make the City liable on the basis of a municipal policy. Larez, 946 F.2d at 646-47 (evidence that Chief of Police, an authorized policymaker on police matters, ratified a decision that deprived plaintiff of a constitutional right, suffices for official liability under Pembaur v. City of Cincinnati, 475 U.S. 469, 481, 106 S. Ct. 1292, 89 L. Ed. 2d 452 (1986) and "fate of the City hinges on" Police chief's official capacity liability). See also City of St. Louis v. Praprotnik, 485 U.S. 112, 127, 108 S. Ct. 915, 99 L. Ed. 2d 107 (1988) (plurality) and Christie, 176 F.3d 1231 (9th Cir.1999)(to show ratification, plaintiff must prove authorized policymaker approves subordinate's decision and the basis for it). Accordingly, the City can be liable for actions taken by Sutton that lead to a finding of liability on the excessive force claim that were ratified by Gallaher as a policymaker. The City's motion for summary judgment on Ashley's fifth claim for relief should be denied.
5. Are plaintiff's claims barred by Heck v. Humphrey?
Under Heck v. Humphrey, 512 U.S. 477, 114 S. Ct. 2364, 129 L. Ed. 2d 383 (1994), the Supreme Court announced a new "favorable termination rule" for § 1983 claims by prisoners:
[I]n order to recover damages for allegedly unconstitutional conviction or imprisonment, or for other harm caused by action whose unlawfulness would render a conviction or sentence invalid, a § 1983 plaintiff must prove that the conviction or sentence has been reversed on direct appeal, expunged by executive order, declared invalid by a state tribunal . . . or called into question by a federal court's issuance of a writ of habeas corpus.
Id. at 486-87, 114 S. Ct. 2364. Thus, if a criminal conviction arising out of the same facts still stands and is fundamentally inconsistent with the conduct for which § 1983 damages are sought, the § 1983 action must be dismissed. Smithart v. Towery, 79 F.3d 951, 952 (9th Cir.1996).
The defendants argue that this case falls squarely within the following discussion in Heck:
[A] § 1983 action that does not seek damages directly attributable to conviction *1254 or confinement but whose successful prosecution would necessarily imply that the plaintiff's criminal conviction was wrongful would be the following: A state defendant is convicted of and sentenced for the crime of resisting arrest, defined as intentionally preventing a peace officer from effecting a lawful arrest. [Citations omitted] He then brings a § 1983 action against the arresting officer, seeking damages for violation of his Fourth Amendment right to be free from unreasonable searches. In order to prevail in this § 1983 action, he would have to negate an element of the offense of which he has been convicted. Regardless of the state law concerning res judicata, see n. 2, supra, the § 1983 action will not lie.
Heck, 512 U.S. at 487 n. 6, 114 S. Ct. 2364. Defendants argue that because Ashley was convicted of resisting arrest and disorderly conduct, her § 1983 claim based on wrongful arrest would necessarily imply the invalidity of her convictions.
Under Oregon law, a person commits the crime of resisting arrest if the person "intentionally resists a person known by the person to be a peace officer . . . in making an arrest." Or.Rev.Stat. § 162.315(1). Further, a person commits the crime of disorderly conduct in the second degree if, with intent to cause public inconvenience, annoyance or alarm, or recklessly creating a risk thereof, the person: (a) engages in fighting or in violent, tumultuous or threatening behavior. . . . Or.Rev.Stat. § 166.025(a).
Ashley counters that her conviction for resisting arrest does not establish that Sutton's actions in arresting her were lawful, because Or.Rev.Stat. § 162.315(3) provides:
(3) It is no defense to prosecution under this section that the peace officer . . . lacked legal authority to make the arrest or book the person.
I do not find this argument persuasive, because under Heck, the plaintiff must show that her conviction or sentence has been reversed on direct appeal, expunged by executive order, declared invalid by a state tribunal, or called into question by the issuance of a writ of habeas corpus. It is not sufficient for her to show only that she was precluded from asserting a defense of unconstitutional seizure to the charge of resisting arrest.
The fact that Ashley's appeal of her convictions was ineffectual because of procedural flaws does not remove the Heck bar to her § 1983 claim. In Guerrero v. Gates, 442 F.3d 697, 704 (9th Cir.2006), and in Cunningham v. Gates, 312 F.3d 1148 (9th Cir.2002), the court held that the bar applies in situations where, as here, the plaintiff has failed to timely pursue her available remedies for obtaining reversal of her conviction.
The record before the court indicates that Ashley has appealed the dismissal of her direct appeal as untimely. But absent any evidence that her convictions have, as of now, been reversed or expunged, she cannot assert a § 1983 claim based on wrongful seizure because it would necessarily call into question her conviction for resisting arrest. I conclude that Ashley's wrongful seizure claim is barred by Heck.
But Heck does not necessarily preclude Ashley from pursuing her excessive force claim. The applicability of the Heck doctrine to this claim depends on whether, if Ashley proved that Sutton used excessive force against her, this would necessarily render one or both of her convictions for resisting arrest and disorderly conduct invalid. See Sjogren v. City of Seaside, 2007 WL 221869 at *6 (D.Or., Jan. 19, 2007).
*1255 The test for deciding this question is whether the criminal convictions arise out of the same facts and are fundamentally inconsistent with the excessive force claim. Id., citing Smithart, 79 F.3d at 952. In particular, Heck does not bar alleged excessive force which is used before or after the conduct for which the plaintiff was convicted. Id., citing Smith v. City of Hemet, 394 F.3d 689, 695-97 (9th Cir. 2005)(en banc).
As the court pointed out in Sjogren, there is no Oregon case or statute which would allow excessive force by the officer at the time of the arrest to negate an element of the crime of resisting arrest. Or.Rev.Stat. § 161.235 allows a police officer to use force only to the extent the officer reasonably believes it to be necessary in effectuating the arrest. The Oregon Supreme Court has observed that § 161.235 does not "state what the remedy for a violation of that statute by an officer might be." State v. Wright, 310 Or. 430, 434 n. 7, 799 P.2d 642 (1990). While the statute precludes a defense to wrongful arrest based on wrongful conduct by the arresting officer, see Or.Rev.Stat. § 162.315(3); see also Wright, 310 Or. at 434 n. 7, 799 P.2d 642. On the other hand, as the court said in Sjogren, a criminal defendant may use physical force reasonably necessary under the circumstances to defend herself against any excessive force used by the arresting officer. Wright, 310 Or. at 435-36, 799 P.2d 642.
As was the case in Sjogren, there are several events in this case which, together or separately, could have constituted the basis for Ashley's conviction for resisting arrest. These include walking away from Sutton in the hallway and heading toward the gym, ignoring a command to stop, continuing to walk away after Sutton grabbed her coat, falling into the bleachers, rising from the bleachers and walking away from Sutton and toward the hallway, grabbing the taser, and removing it from her stomach. On this record, it is impossible to determine whether Ashley's conviction for resisting arrest arose from the same facts as the alleged excessive force. If all reasonable inferences from the evidence are drawn in Ashley's favor, I cannot conclude as a matter of law that her success on the excessive force claim would necessarily invalidate her conviction for resisting arrest.
With respect to the disorderly conduct conviction, as Ashley points out, because the jury made no special findings and the trial was not recorded, there is no evidence of the factual basis for the conviction, and therefore no evidence in the record which demonstrates that success on the excessive force claim would necessarily imply or demonstrate that the conviction for disorderly conduct was invalid. See Smith, 394 F.3d at 695
I conclude that defendants are entitled to summary judgment under Heck as to the § 1983 claim based on wrongful seizure, but not as to the claim based on excessive force.
6. Can the battery claim be maintained?
Defendants move for summary judgment in their favor on the battery claim. Ashley has not moved for summary judgment in her favor on this claim.
Defendants assert that Billie Ashley was not the victim of battery because she was "actively resisting Officer Sutton and he used reasonable force to overcome her resistance." Defendants' Memorandum p. 23. Defendants quote Oregon law:
A peace officer is justified in using physical force upon another person only when and to the extent that the peace *1256 officer reasonably believes it is necessary . . . [t]o make an arrest.
Or.Rev.Stat. § 161.235(1).
A peace officer making a stop may use the degree of force reasonably necessary to make the stop and ensure the safety of the peace officer, the person stopped or other persons who are present.
Or.Rev.Stat. § 131.605(5).
Defendants argue that physical violence by an arresting officer that is no more than necessary to accomplish a legitimate arrest is "justified, as a matter of law, and there [is] no question to submit to the jury as to the cause alleging assault and battery," quoting Gigler v. City of Klamath Falls, 21 Or.App. 753, 763, 537 P.2d 121 (1975).
The evidence is such that a reasonable jury could return a verdict for either party on this claim. I conclude, therefore, that a genuine issue of material fact exists and that summary judgment for defendants is unwarranted.
Conclusion
I recommend that plaintiffs motion for partial summary judgment (doe. # 17) and defendants' motion for summary judgment (doc. # 21) be granted and denied as follows:
1) that plaintiffs wrongful arrest claim (claim two) be dismissed, as precluded by Heck v. Humphrey;
2) that claims three and four against the City be dismissed because Ms. Ashley has offered no evidence of policy or custom; and
3) that all other motions for summary judgment, on the excessive force and battery claims, and on the qualified immunity defense, be denied.
Scheduling Order
The above Findings and Recommendation will be referred to a United States District Judge for review. Objections, if any, are due April 13, 2007. If no objections are filed, review of the Findings and Recommendation will go under advisement on that date. If objections are filed, a response to the objections is due April 27, 2007, and the review of the Findings and Recommendation will go under advisement on that date.
NOTES
[1] The Findings and Recommendation further concluded that "[o]n the facts of this case, if Ms. Ashley's version of the facts is believed, defendants have not carried their burden." Id. Defendants object to this. It is true that the plaintiff, not the defendant, "bears the burden of showing that the right at issue was clearly established under [Saucier's] second prong." Sorrels v. McKee, 290 F.3d 965, 969 (9th Cir.2002) (citing Camarillo v. McCarthy, 998 F.2d 638, 639 (9th Cir.1993)). This court construes the burden to which the Findings and Recommendation referred as defendants' burden to establish the absence of material fact in support of its summary judgment argument. If the Findings and Recommendation misinterpreted where the burdens for Saucier's prongs fall (see, e.g., Findings and Recommendation at 30), such an error fails to alter the Findings and Recommendation's otherwise correct conclusions.
[1] Previously named defendants, Milton-Freewater Unified School District and Steve Carnes, the principal of Central Middle School in Milton-Freewater, have been voluntarily dismissed from the case, thereby mooting a claim against the school district.
[2] See Terry v. Ohio, 392 U.S. 1, 88 S. Ct. 1868, 20 L. Ed. 2d 889 (1968).
[3] There is no evidence in the record before me that Sutton's decision to arrest Ashley was based on disorderly conduct. His testimony is consistent that his decision to arrest her was based on his conclusion that she had committed the crime of interfering with him by refusing to answer his questions and on her refusal to stop when ordered to. Sutton dep. 69:5-11; 69:11-22; 74:6-8; 74:13-22; 76:2-19; 77:12-18; 85:2-6; 91:9-16; 91:9-19; 92:2-5; 95:1-7; 99:3-4; 113:1-2. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2373266/ | 492 F. Supp. 2d 822 (2006)
UNITED STATES of America, Plaintiff,
v.
Andre E. MAHAN and Deric E. Marshall, Defendants.
Nos. 3:04cr189(1), 3:04cr189(2).
United States District Court, S.D. Ohio, Western Division.
February 2, 2006.
*823 Vincent Paul Popp, Aaron G. Durden, Dayton, OH, for Defendants.
Mona Guerrier, United States Attorney's Office, Dayton, OH, for Plaintiff.
*824 DECISION AND ENTRY OVERRULING MOTION TO DISMISS UNDER THE SPEEDY TRIAL ACT FILED BY DEFENDANT DERIC MARSHALL (DOC. # 55); DECISION AND ENTRY OVERRULING MOTION TO DISMISS WITH PREJUDICE FILED BY DEFENDANT ANDRE MAHAN (DOC. # 56)
RICE, District Judge.
Defendant Andre Mahan ("Mahan") and Deric Marshall ("Marshall") are each jointly charged in the Superseding Indictment (Doc. # 45) with three counts of armed bank robbery, in violation of 18 U.S.C. § 2113, and three counts of using and carrying a firearm during a crime of violence, in violation of 18 U.S.C. § 924(c). In addition, Mahan is charged separately with one count of armed bank robbery and one count of possessing a firearm after having been convicted of a felony, in violation of 18 U.S.C. § 922(g). Finally, Marshall is charged separately with two counts of possessing a firearm after having been convicted of a felony. Marshall is also charged with one count of bank robbery in United States v. Deric Marshall, Case No. 04cr186, a charge which stems from a bank robbery that occurred in Zanesville, Ohio, on September 30, 2004.
This case is now before the Court on Marshall's Motion to Dismiss Under the Speedy Trial Act (Doc. # 55) and Mahan's Motion to Dismiss with Prejudice (Doc. # 56).[1] As a means of analysis, the Court will rule upon those two motions in the above order.
I. Marshall's Motion to Dismiss Under the Speedy Trial Act (Doc. # 55)
With his motion, Marshall argues that his prosecution must be dismissed, because he was not indicted within 30 days of his arrest as required by the Speedy Trial Act ("STA"), 18 U.S.C. § 3161, et seq. The STA provides that an "indictment charging an individual with the commission of an offense shall be filed within thirty days from the date on which such individual was arrested or served with a summons in connection with such charges." 18 U.S.C. § 3161(b). Marshall asserts that the Government did not meet its obligation under § 3161(b), given that a criminal complaint charging him with the offenses for which he has been indicted was filed on October 28, 2004, and the Indictment in this matter was not returned until December 15, 2004, more than 30 days later. For reasons which follow, this Court concludes that Marshall has failed to meet his burden of demonstrating that the Government violated the STA in that manner. See United States v. Cope, 312 F.3d 757, 777 (6th Cir.2002) (noting that the defendant has the burden of demonstrating that the Government violated the STA), cert. denied, 540 U.S. 871, 124 S. Ct. 198, 157 L. Ed. 2d 130 (2003); 18 U.S.C. § 3162(a)(2) ("The defendant shall have the burden of proof of supporting such motion [to dismiss the indictment based on a violation of the STA].")
As an initial matter, a criminal complaint and arrest warrant were issued against Marshall on October 18, 2004, rather than October 28th, as Marshall asserts. See Does. ## 1 and 2 in Case No. 3:04mj260. After the return of the Indictment in this prosecution, however, that warrant was returned unexecuted. See Doc. # 3 in Case No. 3:04mj260. The Government explains that Marshall was arrested on October 10, 2004, by local authorities in Columbus, Ohio, for the bank robbery that had occurved *825 in Zanesville on September 30, 2004. Marshall remained in the custody of local authorities in Columbus until after he had been indicted on December 15, 2004, when he was released to custody of the United States Marshal. On December 16, 2004, Marshall made his initial appearance before United States Magistrate Judge Sharon Ovington. See Doc. # 16.
Since the 30-day period in which an indictment must be returned, set forth in § 3161(b), does not begin to run until an individual has been arrested or served with a summons, the mere filing of the criminal complaint charging Marshall with offenses did not cause that period to begin to run. Nevertheless, Marshall argues that being arrested by local authorities for one bank robbery is equivalent to having been arrested by the federal authorities for that offense and that, therefore, his arrest by local authorities started the clock to run.[2] This Court does not agree. In United States v. Blackmon, 874 F.2d 378 (6th Cir.), cert. denied, 493 U.S. 859, 110 S. Ct. 168, 107 L. Ed. 2d 125 (1989), the Sixth Circuit held that an arrest by state officers, even if accompanied by federal law enforcement officers, did not constitute an arrest for purposes of § 3161(b). Id. at 381. Rather, "[r]egardless of the degree of federal involvement in a state investigation and arrest, only a federal arrest initiates the running of the time limitation established by [§ 3161(b)]." Id.
In sum, since Marshall was not arrested or served with a summons on October 18, 2004, the return of the Indictment on December 15, 2004, more than 30 days later, did not render it untimely under § 3161(b). Accordingly, the Court overrules Marshall's Motion to Dismiss Under the Speedy Trial Act (Doc. # 55).
II. Mahan's Motion to Dismiss with Prejudice (Doc. # 56)
In his motion, Mahan argues that the Court must dismiss the charges against him with prejudice, because the STA and his right to a speedy trial under the Sixth Amendment have been violated. As a means of analysis, the Court will initially discuss his assertion that the charges against him must be dismissed as a result of a violation of the STA, following which it will turn to his assertion that his rights under the Sixth Amendment have been violated.
Like Marshall, Mahan argues that § 3161(b) was violated, because, although he was arrested on November 9, 2004, the Indictment was not returned until December 15, 2004, more than 30 days later. Although Mahan was indicted 37 days after being arrested, that does not mean that there was a violation the 30-day limit set forth in § 3161(b) in which he could be indicted, since certain periods of delay are excludable from that 30-day period. See 18 U.S.C. § 3161(h). Among the periods which must be excluded are any delay resulting from court proceedings concerning the defendant and the delay stemming from the filing of a pretrial motion, from the filing of the motion to its prompt disposition. 18 U.S.C. § 3161(h)(1) and (h)(1)(F). Herein, the Government filed a motion to detain Mahan on the day that he was arrested. Magistrate Judge Sharon Ovington sustained that motion on November 15, 2004, after having conducted a detention hearing that day. Therefore, the period from November 9th through November 15th must be excluded, and the clock did not begin to run until November *826 16, 2004. Since December 15, 2004 was the thirtieth day thereafter, the Indictment was returned in timely fashion under § 3161(b).
Additionally, Mahan argues that the Court must dismiss this prosecution, because of a violation of the STA, given that he was not brought to trial in the time permitted by § 3161(c)(1), which provides in relevant part:
(c)(1) In any case in which a plea of not guilty is entered, the trial of a defendant charged in an information or indictment with the commission of an offense shall commence within seventy days from the filing date (and making public) of the information or indictment, or from the date the defendant has appeared before a judicial officer of the court in which such charge is pending, whichever date last occurs.
Of course, as with the temporal limitation set forth in § 3161(b), that 70 day period is subject to the periods of excludable delay contained in § 3161(h). For reasons which follow, this Court concludes that more than 70 days of non-excludable delay had not passed, before Mahan filed his Motion to Dismiss with Prejudice (Doc. # 56) on October 31, 2005.
As an initial matter, it bears emphasis that since the two Defendants, Mahan and Marshall, were indicted jointly, one speedy trial clock governs this prosecution. See 18 U.S.C. § 3161(h)(7). The Sixth Circuit explained in Cope, supra:
Where, as is the case at bar, multiple defendants are charged together and no severance has been granted, one speedy trial clock governs. 18 U.S.C. § 3161(h)(7). As such, the excludable delay of one defendant is ascribed to that of all of his codefendants. United States v. Culpepper, 898 F.2d 65, 66-67 (6th Cir.1990).
312 F.3d at 776-77. See also, Blackmon, supra, 874 F.2d at 381.
Although the Indictment was returned on December 15, 2004, Marshall did not appear before a judicial officer of the court in which that Indictment was pending until December 16, 2005, at which time the Government requested that he be detained. See Doc. # 16. The hearing on the Government's motion was not conducted until December 21, 2004, after which Judge Ovington granted that request. See Doc. # 19. Therefore, in accordance with § 3161(h)(1)(F), the speedy trial clock did not begin to run until December 22, 2004. Since the Defendants were arraigned on December 29 and 30, 2004 (see Docs. ## 23 and 24), those two days are excludable. See 18 U.S.C. § 3161(h)(1). As a consequence, eight non-excludable days expired during 2004, leaving at the beginning of 2005, 62 such days in which Mahan could be brought to trial.
On January 5, 2005, a pretrial conference was conducted in this prosecution (see Does. # 23-25); therefore, that day must be excluded from the speedy trial clock. See 18 U.S.C. § 3161(h)(1). On January 11, 2005, Marshall filed a number of motions (see Does ## 26 and 27), which tolled the running of the speedy trial clock. See 18 U.S.C. § 3161(h)(1)(F) and (J). Moreover, Mahan filed motions on January 19 and 24, 2005. See Does. ## 28-32. On January 11th, a total of 17 non-excludable days had expired from the speedy trial clock (eight days in 2004 and nine the following year, through January 11th), leaving 53 non-excludable days before Mahan had to be brought to trial. Among other motions, Mahan has filed a Motion for Relief from Prejudicial Joinder (Doc. # 32). Included with that motion is a request for an oral and evidentiary hearing on it. Since that hearing has not yet taken place, the running of the speedy trial *827 clock has been tolled since Mahan filed it. See 18 U.S.C. § 3161(h)(1)(F) and (J). However, assuming for sake of argument that the speedy clock had not been so tolled, the Court would nevertheless conclude that 70 non-excludable days had not expired when Mahan filed his Motion to Dismiss with Prejudice (Doc. # 56).
On February 14, 2005, before the speedy trial clock had begun running again, Mahan waived his right to a speedy trial through May 2, 2005. See Doc. # 36. Thus, on May 3, 2005, when the speedy trial clock began to run again, 53 nonexcludable days remained.
On May 10, 2005, the Court, on its own motion, conducted a proceeding in accordance with 18 U.S.C. § 4241(a), concerning Marshall's mental capacity. After that hearing, it ordered that Marshall be transferred to a federal medical center for mental competency and physical evaluations. See Does. ## 52 and 53. On that date, 46 days remained on the speedy trial clock, since an additional seven days had elapsed. Proceedings on the question of Marshall's mental competency were not resolved until October 26, 2005, when the Court conducted an in-court proceeding on same. See Doc. # 59. It is axiomatic that the time during which the mental competency of a defendant is being determined is excluded from the speedy trial calculation. 18 U.S.C. § 3161(h)(1)(A). Moreover, as is indicated above, when two or more defendants have been jointly indicted, there is only one speedy trial clock, so that a period of delay that it excludable for one must also be excluded for the others. 18 U.S.C. § 3161(h)(7). Two days later, October 28, 2005, Marshall filed his motion seeking dismissal for violation of the STA, once again tolling the running of the clock.
As a consequence, it appears that, as of the date Mahan filed his motion to dismiss, October 31, 2005, the speedy trial clock had not expired. On the contrary 45 days in which to bring Mahan to trial remained. According to Mahan, however, the time that it took to conduct the mental competency evaluation of Marshall was unreasonable and that, therefore, that period of time is not excludable. This Court does not agree. The Sixth Circuit has explicitly stated that "[w]here multiple defendants are charged in an indictment and no motion for severance has been granted, only one speedy trial clock governs the action." United States v. Culpepper, 898 F.2d 65, 66 (6th Cir.), cert. denied, 498 U.S. 856, 111 S. Ct. 155, 112 L. Ed. 2d 120 (1990). See also United States v. Holyfield, 802 F.2d 846, 848 (6th Cir.1986) (noting that "under [§] 3161(h)(7) an exclusion as to one defendant applies to all codefendants"), cert. denied, 479 U.S. 1090, 107 S. Ct. 1298, 94 L. Ed. 2d 154 (1987).[3] Accordingly, the Court rejects Mahan's argument that the period of delay, during which the mental capacity of his Co-Defendant Marshall was being determined, cannot be excluded from his speedy trial clock.
Alternatively, Mahan argues that the Court should dismiss this prosecution, because his constitutional right to a speedy trial, guaranteed by the Sixth Amendment to the United States Constitution, has been violated. This Court cannot agree that the Mahan's Sixth Amendment rights have been violated. The Supreme Court has held that the question of whether a criminal defendant's Sixth Amendment right to a speedy trial has been violated involves "four separate [i]nquiries: whether delay before trial was uncommonly long, whether the government or the criminal defendant is more to blame for that delay, *828 whether, in due course, the defendant asserted his right to a speedy trial, and whether he suffered prejudice as the delay's result." Doggett v. United States, 505 U.S. 647, 651, 112 S. Ct. 2686, 120 L. Ed. 2d 520 (1992) (citing Barker v. Wingo, 407 U.S. 514, 530, 92 S. Ct. 2182, 33 L. Ed. 2d 101 (1972)). Therein, the Supreme Court also noted that a delay must be presumptively prejudicial in order to trigger the speedy trial inquiry and that lower courts had held with uniformity that delay approaching one year was presumptively prejudicial. Id. at 651-52 and n. 2, 112 S. Ct. 2686. Herein, the Indictment was returned against Mahan on December 15, 2004. Mahan filed his motion seeking dismissal for violation of his right to a speedy trial about ten and one-half months later. Such a period approaches one year and, therefore, is presumptively prejudicial. Accordingly, the Court turns to the question of whether an application of the four factors initially established in Barker mandate dismissal of this prosecution.
Since the ten and one-half month period of delay was presumptively prejudicial, the first factor, whether the delay was uncommonly long, has been met. United States v. Schreane, 331 F.3d 548, 553 (6th Cir. 2003). Of course, this factor is only one of several to consider in the speedy trial analysis. Id. Nevertheless, since the delay was only ten and one-half months, the length of the delay, although sufficient to be presumptively prejudicial and to permit this Court to continue the analysis, does not support Mahan's assertion that his rights under the Sixth Amendment have been violated. More to the point, although a delay of ten and one-half months is presumptively prejudicial, there is no evidence that Mahan has suffered prejudice as a result on that delay.
The second factor focuses upon the reason for the delay. Id. Herein, both Mahan and the Government share the blame for the delay in bringing him to trial. The period of delay through May 2, 2005, is attributable exclusively to Mahan and his Co-Defendant Marshall. Thereafter, the delay is attributable to the Court's decision to have Marshall's mental capacity evaluated. Part of the approximately five months between the date upon which the Court ordered the evaluation and that upon which it was completed is attributable to the Government, given that Marshall was not promptly transported to a Federal Medical facility, despite the Court's order[4] However, the Sixth Circuit has indicated that not all delays are the same; rather "[g]overnmental delays motivated by bad faith, harassment or attempts to seek a tactical advantage weigh heavily against the government." Id. A more neutral reason, however, such as negligence, will weigh less heavily against the Government. Id. at 653-54. Herein, the portion of the delay which was attributable to the Government flowed from its negligence, rather than bad faith, harassment or the desire to gain a tactical advantage. Given that the delay is virtually as equally attributable to Mahan as it is to the Government and, further, since the Government was only negligent, this factor does not favor either party. Id. at 654 (concluding under similar circumstances that the second Barker factor favored neither the defendant nor the Government).
The third factor, whether the defendant has asserted his right to a speedy trial, favors the Government. Mahan agreed to the delay of his trial until May 2, 2005. *829 Shortly after that date, the Court conducted its first proceeding on the issue of Marshall's mental competency. The delay in resolving that matter is the genesis of Mahan's request to dismiss for violating his constitutional right to a speedy trial. However, he did not assert his right to a speedy trial until after the matter had been resolved. Wilson v. Mitchell, 250 F.3d 388, 396 (6th Cir.2001) (explaining that the third factor in a speedy-trial analysis calls on courts "to determine whether the defendant timely asserted his Sixth Amendment rights"); United States v. Thomas, 167 F.3d 299, 305 (6th Cir.1999) ("A defendant's failure to assert his rights in a timely fashion weighs heavily against his Sixth Amendment claim.").
With respect to the fourth factor, prejudice, the Sixth Circuit has indicated that a defendant must show "substantial prejudice." United States v. DeClue, 899 F.2d 1465, 1470 (6th Cir.1990). See also, Schreane, 331 F.3d at 557. Herein, Mahan has not identified any prejudice that he suffered as a result of the delay in bringing him to trial. Accordingly, this factor favors the Government.
Balancing the four factors, this Court reaches the inescapable conclusion that Mahan's Sixth Amendment right to a speedy trial has not been violated. As to the first factor, the length of the delay, ten and one-half months, is minimally above that which would be necessary to be presumptively prejudicial. Although such a period of delay is sufficiently long to be presumptively prejudicial and, thus, to permit this Court to continue the analysis, it does not support Mahan's assertion that his rights under the Sixth Amendment have been violated, given that it is only minimally above that which is necessary to be presumptively prejudicial and, more to the point, that there is no evidence that Mahan has suffered prejudice as a result on that delay. Therefore, this factor does not support Mahan's assertion that his right to a speedy trial has been violated. Although the second factor is neutral, the third and fourth factors favor the Government. Simply stated, a criminal defendant fails to demonstrate that his right to a speedy trial has been violated, when one of the four pertinent factors is neutral and the other three do not favor his assertion that this right has been violated. Accordingly, the Court rejects Mahan's assertion that his Sixth Amendment right to a speedy trial has been violated.
Based upon the foregoing, the Court overrules Mahan's Motion to Dismiss with Prejudice (Doc. # 56).
NOTES
[1] Other motions are pending, including Mahan's request for severance (see Doc. # 32). The Court rules upon those motions by separate entry.
[2] It bears noting that local authorities had arrested Marshall for a bank robbery which occurred in Zanesville, Ohio, on September 30, 2004, which is the same robbery that underlies the charge against him in Case No. 04cr186.
[3] In Holyfield, the Sixth Circuit held seven-month delay during the interlocutory appeal of the appellants' co-defendant was excludable under § 3161(h)(7).
[4] As a result of that failure, the Court ordered Doc. # 54. that the evaluation take place locally. See Doc. # 54. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2388215/ | 457 F. Supp. 2d 343 (2006)
Michael HUGHES, Petitioner,
v.
William PHILLIPS Superintendent of Green Haven Correctional Facility Respondent.
No. 04 CV 2975 CM.
United States District Court, S.D. New York.
June 12, 2006.
*346 Michael Hughes, 99-A-4172, Green Haven Correctional Facility, Stormville.
A.D.A. Joseph Sergi, A.D.A. Joseph M. Latino, Office of the District Attorney, Westchester County, White Plains.
DECISION AND ORDER DENYING PETITION FOR A WRIT OF HABEAS CORPUS
MCMAHON, District Judge.
This petition, filed pursuant to 28 U.S.C. § 2254, collaterally challenges a judgment rendered on November 18, 1998 in the County Court of Westchester County (Lange, J, sitting with a jury) convicting petitioner of the burglary in the first degree, robbery in the first degree, robbery in the second degree, unlawful imprisonment in the second degree, and grand larceny in the third degree. On March 3, 1999, petitioner was adjudicated a persistent violent felony offender and was accordingly sentenced to concurrent prison terms of 25 years to life each for the crimes of burglary in the first degree, robbery in the first degree and robbery in the second degree. He was sentenced to concurrent terms of one year for unlawful imprisonment in the second degree and 3½ to 7 years for grand larceny in the third degree.
On October 8, 2002 the Appellate Division unanimously affirmed the judgment of conviction. People v. Hughes, 298 A.D.2d 403, 751 N.Y.S.2d 379 (Exhibit F, R: 224).
On October 30, 2002, petitioner sought leave to appeal therefrom to the Court of Appeals. On June 18, 2002, petitioner moved in the trial court to vacate the judgment pursuant to NYCPL 440.10 claiming that his trial counsel was ineffective. (Exhibit G; R: 113-168). Judge Lange denied the motion in a decision and order entered October 25, 2002. (Exhibit G, R: 280-83). On December 26, 2002, the New York Court of Appeals (Ciparik, J.) issued its certificate denying leave to appeal. People v. Hughes, 99 N.Y.2d 559, 754 N.Y.S.2d 211, 784 N.E.2d 84 (Exhibit F, R: 225).
The instant petition seeks habeas relief on five separate grounds:
(1) THE STATE SUPPRESSED EXCULPATORY AND IMPEACHMENT EVIDENCE IN VIOLATION OF BRADY AND GIGLIO;
(2) THE INTRODUCTION OF EVIDENCE BY THE PROSECUTION THRU CROSS-EXAMINATION OF A DEFENSE WITNESS REGARDING THE EXISTENCE OF AN ILLEGAL WEAPON AT [PETITIONER'S] RESIDENCE WAS IMPROPER, PREJUDICIAL *347 AND CONSTITUTED REVERSIBLE ERROR;
(3) PETITIONER WAS DENIED HIS CONSTITUTIONAL RIGHT TO A JURY OF HIS PEERS;
(4) PETITIONER'S GUILT WAS NOT PROVEN BEYOND A REASONABLE DOUBT; and
(5) PETITIONER WAS DENIED EFFECTIVE ASSISTANCE OF TRIAL COUNSEL.
(Petition Attachment Sheet).
I. Background
A. Evidence at the Trial
In early January of 1998, Ian Tai purchased a 2 ½ by 2 foot safe from Tremont Locksmith for his home at 127 N. High Street in Mount Vernon, a multifamily house with three separate living areas. (T: 472-73; 476-77PE: 34A-F).[1] Tai and his family occupied the second and third floors, accessible by entering the front door and traveling up a flight of stairs, at the top of which the entrance of his apartment opened into its dining room. (T: 472-73; PE: 32, 34A-F). At this time, the first floor was vacant and Tai's mother-in-law occupied the basement apartment. (T: 472-73).
Two employees of Tremont Locksmith, Eddie Diaz and Jose Ortero, installed the 200 pound safe in the closet of Tai's bedroom, located on the third floor of the house. (T: 477-78). The bolts normally used to secure the safe to the floor were too short, so Tai told the installers that he would obtain longer bolts at a later date. (T: 478, 853-54). Soon afterwards, Tai went on a previously scheduled trip to Mexico and as a result, did not bolt the safe down. (T: 522).
After installing the safe and returning to Tremont Locksmith, Diaz and Ortero talked to the other employees about the large amount of cash that Ian Tai had in his house, which they had seen when he transferred it to the safe. (T: 856-57). This discussion occurred in front of another employee, Orlando Mendoza. (T: 859, 866). Mendoza contacted an acquaintance of his, Gabriel Falcones, who had a history of committing robberies and burglaries, about breaking into the Tai house (T: 1095). Mendoza told Falcones and Vincente Urbina, whom Falcones knew through his work at a jewelry store, about the large amounts of money in the house. (T: 1096). Later, Falcones contacted petitioner about breaking into the house. (T: 1096).
Mendoza gave his fellow conspirators Tai's address, telling them that Tai was on vacation and that nobody would be in the house. (T: 1097). Four days later, using a car belonging to Falcones' boss, Mendoza, Falcones and Urbina drove to Mount Vernon, where they located and observed Tai's house. (T: 1097). On January 26, 1998 and the early morning of January 27, 1998, Falcones spoke to petitioner and Urbina to firm up the plans for the robbery. (T: 1100; PE: 48A-I).
Telephone records reflected the following calls on January 26, 1998: Falcones called Urbina at 10:00 p.m. and again at 11:49 p.m. (PE: 48A-I); Falcones called petitioner's beeper at 10:02 p.m. (PE: 48A-I); Urbina called Falcones at 8:35 p.m. and 11:07 p.m. (PE: 48A-I). The records of petitioner's mother, Daisy Hughes, and his fiancee, Lavonne Dunlop, also reflected calls to Falcones at 10:05 *348 p.m. and 11:46 p.m. on that day. (PE: 48A-I).
On the next morning, January 27, 2000, those records reflected the following: Falcones called petitioner or his beeper four times between 7:06 a.m. and 8:23 a.m.; Falcones called Urbina at 7:09 a.m.; Urbina called Falcones twice between 7:00 a.m. and 8:00 a.m. (PE: 48A-I).
On that morning, January 27, 1998, petitioner and Urbina picked up Falcones in petitioner's white car and drove to Tai's house at 127 N. High Street in Mount Vernon. (T: 1101). Upon arriving, they saw a car parked in front of the house, indicating that someone was home, whereupon they went around the block to a gas station, where they unsuccessfully tried to contact Orlando Mendoza. (T: 1101, 1129-31,1133).
In the meantime, around 11:00 a.m., Tai was home getting ready to go to work at several buildings that he owned, when his fifteen year-old daughter, Sherrica, returned home from school. (T: 479-80). In her sophomore year of high school at St. Catherine's Academy, she had taken a midterm exam that day and so was released early. (T: 480, 610). Ian Tai left for work at 12:00 p.m., leaving Sherrica in the house watching television and eating lunch. (T: 611).
Seeing Tai's car leave, petitioner and his accomplices made their move. (T: 1101). Moments after Tai left, petitioner rang the doorbell and Sherrica ran from the second floor living room down the stairs to the front door and looked through the peephole, but was unable to see who was standing there. (T: 611). Thinking that her father had returned for something, Sherrica opened the door to find petitioner, dressed in black baggy jeans, a short dark coat and black gloves, standing on the doorstep. (T: 611, 635, 660, 661-62, 674, 696).
Surprised that someone had answered the door, petitioner recovered enough to improvise, pretending to be a salesman and asking Sherrica if she wanted to buy any beauty supplies. (T: 612,672). When Sherrica declined, petitioner pushed his way into the house while struggling to remove a silver gun from his pocket. (T: 612, 697). As he forced his way inside the house, Sherrica saw Vincente Urbina, also wearing black baggy jeans and gloves, coming across the porch from a side door leading to the first floor apartment. (T: 612-13, 635, 746, 757).
Petitioner commanded Sherrica to walk up to the apartment and followed her as she complied. (T: 613, 673). As they entered, he told her to sit at the dining room table, then told her to sit on the couch in the adjacent living room. (T: 614, 1102; PE: 32). Urbina then entered the apartment, followed soon after by Falcones, and petitioner directed his cohorts upstairs to the bedroom where the safe was located. (T: 614, 698, 747, 1102; PE: 32). Petitioner then told Sherrica to stand and turn around and he taped her hands together behind her back with duct tape he had brought, then had her sit on the sofa and similarly bound her ankles. (T: 615, 698).
As this occurred, Sherrica heard loud banging from upstairs and, assuming the safe was being removed, repeatedly asked petitioner why they were doing this (T: 615). While petitioner remained watching over her, Sherrica observed Urbina and Falcones pushing the safe down the hallway toward her and proceed down the front staircase. (T: 615-616, 632-634, 747, 1102).
After Urbina and Falcones had removed the safe, petitioner also left the house, leaving a bound Sherrica sitting on the sofa.(T: 616). She heard a car door *349 slam, waited a few seconds and hopped over to the living room window, which overlooked the street in front of the house, in time to see a white car, with petitioner driving, pulling away. (T: 616, 676, 677, 678, 701-02). Sherrica worked on her bonds, finally freeing her wrists, and called her mother at work. (T: 617, 634-35, 702). When that call was inadvertently disconnected, Sherrica called her father, who told her to call the police. (T: 617). Sherrica immediately called the police, who arrived while she was still on the phone with the authorities. (T: 618,703).
Detective Robert Waters of the Mount Vernon Police Department responded with his partner, Detective Louisa, at around 12:42 p.m. (T: 930, 1026). He was advised by uniformed officers already on the scene that a burglary had occurred and that a young girl had been tied up. (T: 931). Entering the house, Waters met with Sherrica in the dining room and she gave him a description of the three perpetrators, adding that they had driven off in a small white car and that the driver was wearing a heavy black jacket. (T: 931, 936, 996, 1027, 1047). The duct tape used to bind Sherrica was recovered from the dining room table. (T: 992-93, 994). Ian Tai returned home and verified that the safe installed several weeks earlier was gone. (T: 932).
Proceeding upstairs, Detective Waters observed the closet door standing open and marks on the floor illustrating where the safe had been dragged out of the room in a path from the second floor apartment, down the stairs, and out the front door of the house. (T: 932,999).
Police officers canvassed the neighborhood around the Tai home for witnesses, without success. (T: 1001). After speaking to Sherrica at her home, Detective Waters transported her to Mount Vernon Police Department to view mug shots. (T: 934). No identification was made from the over one hundred photographs that Sherrica viewed at that time. (T: 935).
The following day, January 28, 1998, Detective Waters went to Tremont Locksmith to speak to its owner, Zvi Zohar, about his employees. (T: 936-37). Zohar advised that Orlando Mendoza had not reported to work that day. (T: 937). Waters spoke to the employees who had installed the safe and did not consider them suspects for committing the robbery. (T: 968-69).
On February 3, 1998, Detective Waters reported to the Mount Vernon Police Department for his 5 p.m. to 1 a.m. shift and was instructed by his Lieutenant to pick up Sherrica and Ian Tai and bring them down to the area of 7 West Burnside Avenue in the Bronx, as the police had received a tip from a confidential informant that the burglars would be in that general area. (T: 938-39, 1004-1005, 1008, 1045).[2] He and Police Officer Clark picked up the Tais and returned to headquarters to switch to an unmarked car, which Clark drove to Burnside Avenue; Waters sat in the front passenger seat, Sherrica in the back seat behind Clark, with Mr. Tai next to her. (T: 940).
Arriving at Burnside Avenue, a busy commercial area, around 5:25 p.m., Clark found a parking spot directly across that street from 7 West Burnside Avenue and parked the car (T: 940, 942). Remaining in the car, the officers asked Sherrica to look around to see if she recognized anyone. (T: 941). Some fifteen minutes later, petitioner walked out of the doorway at 7 West Burnside Avenue, with Urbina *350 and Falcones a few steps behind him. (T: 943-44,1037, 1102).
Immediately upon seeing petitioner, Sherrica stated, "Oh my gosh, that's him, that's him." Repeatedly asked if she was sure, Sherrica stated that she was positive she identified petitioner and Urbina as men who were inside her home on January 27,1998. (T: 645-6, 649).
The three men started across the street. They approached a maroon car parked behind the unmarked police vehicle. (T: 944, 947).
Detective Waters radioed for backup units. Because no units had arrived when the men neared the maroon car, he and Clark got out, guns drawn, identified themselves and approached the suspects. (T: 885-86, 901-902, 945, 1034-35). Petitioner was by then standing on the passenger side of the maroon car with the door open. Waters placed him against the car. (T: 945), as Clark did with Urbina and Falcones, holding them until the backup units arrived soon thereafter. (T: 886-887, 899, 923, 946-47,1037).
Upon petitioner's arrest, $2,061 was recovered from his jacket pocket. (T: 889, 890, 914, 950). A Casio pocket organizer recovered from Falcones contained numbers for "Orlando" [Mendoza] and "Tiger" aka Michael Hughes. (T: 956, 1044, 1116-17, 1118; PE: 45, 46).
That evening, Falcones gave a videotaped confession, admitting his participation in the crime and detailing the participation of petitioner and Urbina. (T: 1128, 1146-48).[3] Later, officers went to Urbina's house, where his wife gave consent to a search that did not recover money or weapons (T: 917, 953). A search of Falcones' apartment was also negative for money, but two crowbars used to pry open the safe were found there. (T: 954, 1044, 1126; PE: 47).
The following day, on February 4, 1998, the police discovered petitioner's car parked in front of 20 West Burnside. (T: 958, 1010, 1011; PE: 40). At trial, Sherrica identified the car as the small white car she saw leaving the crime scene. (T: 642-643). It was searched pursuant to a warrant, and the police recovered petitioner's wallet and a pair of black gloves. (T: 959; PE: 41). Sherrica testified that the gloves match those worn by petitioner on January 27, 1998. (T: 641).
Petitioner put forth the defense that he had been working as a day porter in an office building in lower Manhattan, when the crime was committed. He also claimed that the money recovered from his coat pocket had been given to him by his future father-in-law to pay an IRS bill. (See T: 1267-1273, 1493-1494). He called several witnesses and testified on his own behalf. However, the only two witnesses who claimed to have actually seen petitioner downtown at the time of the crime (T: 1383-1385, 1388-1389, 1393, 1436-1440) were impeached by their earlier statements to the police, in which they had placed Hughes downtown at a time that allowed for petitioner's participation in the crime. (See T: 1418-1419, 1465-1467, 1470-1472). One of those witnesses was also contradicted by a rebuttal witness, a New York city fire inspector. (T: 1624-1627; PE: 54).
Urbina did not testify on his own behalf, but presented Cesar Tobar, who asserted that Urbina was doing laundry at a laundromat from 8:30a.m. to 2:30p.m., on the *351 day of the crime. (T: 1590). Tobar claimed that he knew that Urbina was there on that date because he had marked his calendar with a note stating that he had loaned Urbina $20. (T: 1591). On cross-examination the prosecutor elicited that Tobar had known Urbina for almost twenty years. (T: 1596). He also admitted that he had never shown anyone the calendar in question prior to the day before testifying (T: 1604), and that he had altered the calendar that morning when he crossed out a nickname written above Urbina's name (T: 1606-1607, 1611-1612). He also admitted, in the face of his assertions that he used the calendar to keep track of to whom he loaned money, that there were no other notations on it regarding such loans. (T: 1604-1605).
B. The Pre-Trial Hearings
On April 21, 1998, petitioner made an omnibus motion seeking, inter alia, suppression of testimony concerning identification testimony, claiming suggestiveness of both an in-person identification of him and a confirmatory photographic identification procedure; By decision and order of May 14, 1998, the Westchester County Court ordered a Wade hearing.
Just prior to the Wade hearing, it was agreed that the hearing with respect to petitioner would be bifurcated, with Sherrica Tai not to testify unless and until the court determined that the identification was unduly suggestive and that an independent source hearing was needed. With respect to pretrial identification of codefendant Urbina, the People stated, "The witnesses who will testify at the trial for the People are not necessarily consistent with Detective Waters' testimony," and so agreed to an independent source hearing from the outset. (H: 2-3).[4]
Detective Waters gave the following testimony in regard to petitioner's identification.
On January 27, 1998, Mount Vernon Police Detective Robert Waters responded to a burglary/robbery at 127 North High Street in Mount Vernon. The victim, Sherrica Tai, lived there with her family. (H: 7-9).
On February 3, 1998, the police learned that the suspects might be in the area of 7 West Burnside Avenue in the Bronx (H: 9-11, 64, 130). Detective Waters picked up Sherrica and her father and took them to the location, on the chance that Sherrica might spot one or more of the suspects. After stopping at the Mount Vernon Police Department, Waters and Police Officer Joseph Clark drove the Tais to the stake-out area, arriving there about 5:30 p.m. (H: 10-13, 63-66). Waters parked their unmarked car across the street from 7 Burnside, at the corner of Jerome and Burnside Avenues, a main thoroughfare in a mostly commercial area. (H: 13-14, 67). The police did not know the names of the suspects and, other than the descriptions given by Sherrica, knew nothing about them (H: 12,34,38-39).
Within 15 minutes, Sherrica blurted out, "Oh my gosh, that is him, the black fellow," *352 "That's the one that robbed me," and then, "And there's the two Spanish fellows right behind him" (H: 14-15). The three men she identifiedpetitioner, Urbina, and Falconeswalked across the lit street, toward the unmarked police car, getting within two or three feet of it. Waters radioed for back-up units and waited a few seconds. None responded immediately. Since the three suspects were about to get inside a car parked behind the police car, Waters and Clark decided not to wait for back-up, jumped out of their car, and apprehended the three men. (H: 15-16, 54, 70-72, 75). Waters, who was holding petitioner, apprised him of his Miranda rights. (H: 16, 19-20). Other officers, who had been delayed by the heavy traffic in this busy area, arrived and took petitioner and the other two men to police headquarters. (H: 17,19).
Petitioner was taken to an interview room. With two other detectives present, Waters again advised petitioner of his Miranda rights (H: 19-20). Waters asked petitioner to empty his pockets, which he did, revealing that he was carrying $2,061 in cash. (H: 20-22, 53; PEH: 8).
Within ninety minutes of petitioner's arrest, Waters took Polaroid photographs of petitioner and the two other men and showed them to Sherrica Tai, so she could make reference to them while giving a statement. (H: 23, 51, 77-78; PEH: 9). Sherrica confirmed that the men depicted were the same three men she had just identified on Burnside Avenue. (H: 25).
Following Waters' testimony, and before the anticipated ruling as to whether there was threshold suggestiveness in the identification of petitioner, petitioner's counsel argued that he should be allowed to question not only Sherrica, but also several other police officers, to attempt to substantiate his claim of suggestiveness. (H: 87-91). The court denied that request, observing that counsel was merely "fishing" in the hope that he might "stumble on to something." (H: 90).
The court credited Waters' testimony, noting that the police did not even know the identity of the suspects when they took the victim to the "busy neighborhood" of Burnside Avenue, and that the victim "spontaneously" pointed out petitioner. (H: 92-93). The court further found that, although the subsequent procedure of showing the victim the individual photographs of the suspects whom she had just identified was "arguably suggestive in nature," that procedure was merely confirmatory and did not vitiate the non-suggestive nature of the original identification procedure in the street. (H: 93). Accordingly, the court ruled that the People had satisfied their burden of going forward, and that the victim did not have to be produced for hearing testimony. (H: 93).
The hearing continued with respect to the identification of codefendant Urbina, at which Sherrica Tai testified on the issue of independent source for that identification.[5]
Sherrica testified that she was at home in her family's apartment on January 27, 1997, when petitioner, Urbina, and Falcones broke in. (H: 100-101). She had come home for lunch after taking an exam at her high school. Her father left the house around noon. When, several moments later, the doorbell rang, Sherrica thought it was her father returning. She opened the front door and saw petitioner, who looked surprised that someone would answer the door. (H: 109-110). When petitioner asked if she wanted to buy beauty *353 supplies, Sherrica said "No," and tried to close the door. Petitioner pushed his way inside and pulled out a small silver gun (H: 110). He ordered her to turn around. Before she did, she saw a second manUrbinacome inside (H: 110-111). Her conversation with petitioner had lasted about one minute. (H: 111-112).
As ordered by petitioner, Sherrica walked upstairs and sat down in the living room. Petitioner pointed down the hallway and upstairs, in explanation to Urbina and Falcones as to where they should go. Before Urbina and Falcones went upstairs to Sherrica's parents' bedroom, Falcones handed petitioner a roll of silver duct tape. (H: 113-117). Petitioner taped Sherrica's arms and legs and never left her alone. (H: 117-118).
Sherrica heard a lot of banging upstairs and surmised that the burglars were removing the safe that had recently been installed in her parents' bedroom. (H: 117-118). She then saw Urbina and Falcones drag the safe downstairs. (H: 119). She heard the three men leave. After several seconds, she looked outside and saw a small white car driving away, with petitioner behind the wheel. (H: 121, 152). After calling her mother and father, Sherrica called the police. (H: 123).
Later that night, Sherrica looked though a book of mug shots at the Mount Vernon Police Department. (H: 147-148).
About one week after the crime, on February 3, 1997, Detective Waters picked up Sherrica and her father. After stopping at the Mount Vernon Police Department, Waters and Officer Clark drove the Tais to Burnside Avenue in the Bronx. They asked Sherrica to look and see if she recognized anyone from the break-in. (H: 101-103, 129-130, 155-156). Although it was just getting dark, the street was lit. (H: 135). After about five minutes, Sherrica spotted petitioner, blurting out, "Oh my gosh, that is him," and identifying the two men who were walking behind him as his accomplices. (H: 103-105, 136). When the detectives asked if she was positive, she said that she was. (H: 105). When Waters was unable to contact a back-up team, he and Clark got out and apprehended the three suspects. (H: 105-106, 137-138). Later, at the Mount Vernon Police Department, Sherrica was shown photographs of her assailants and confirmed her identification of them. (H: 107-108; PEH: 9).
Sherrica also testified that, some time during the next week after the crime, she went to a Bronx precinct and looked at more photographs of possible suspects. (H: 152-155).
Petitioner's counsel renewed his request to call further witnesses, arguing that Sherrica's testimony indicated that she had gone to a Bronx station house to look at photographs sometime prior to Burnside Avenue. Counsel argued that this impugned Detective Waters' testimony that he did not even know who he was looking for when the police took Sherrica to Burnside Avenue. (H: 163). The trial Assistant responded that he had never been told that Sherrica had viewed photographs at a Bronx police precinct, and he was "attempting to find out whether or not any detective in fact took her to the Bronx." However, he argued that even if it occurred, it did not impugn Waters' credible and dispositive testimony that he did not know the identity of the suspects before Sherrica spontaneously identified petitioner. (H: 165-168).
The court did not alter its earlier findings that Waters' testimony was credible and that the People had satisfied their burden of going forward. (H: 181).
The court found that petitioner did not satisfy his burden of showing by a preponderance *354 of the evidence that the procedures used were "constitutionally impermissible." (H: 181). Consequently, the court denied petitioner's motion to suppress identification testimony. (H: 182).
C. Trial Proceedings Regarding the Viewing of "Photographs" in the Bronx
During the trial, prior to the testimony of Police Officer Joseph Clark on November 2, 1998, the prosecutor reported the following to the court and defense counsel. Sherrica and her father had confirmed that Sherrica had viewed photographs at the 48th precinct in the Bronx. They also told the prosecutor that Sherrica told the police that one of the many photographs she then viewed "looks like" one of the persons who robbed her home and had not made an identification of any of the perpetrators. (T: 541-542).
The prosecutor added that he had inquired of the Mount Vernon Police Department and found out "for the first time today" that two Mount Vernon Police DetectivesDaniel Fischer and Ronald Fatigate, but not Watershad, indeed, taken the Sherrica to the 48th precinct to view photographs. (T: 542). Although Detective Waters was unaware of any reports generated by Detectives Fischer or Fatigate in regard to the trip to the Bronx, he was calling headquarters to ascertain whether any reports were made about that event. (T: 542-543).
Defense counsel argued that it was possible that Sherrica "was shown a photo and some measures were taken to make sure that she didn't blow the ID." He asked that the Wade hearing as to petitioner be re-opened so that he could, "See the book, see the photo, speak to the detective who supplied the book and the photo, speak to Detective Fischer." (T: 544-45).
The court suggested that defense counsel speak to Sherrica Tai before she took the stand, so as to gather concrete information to support his request to re-open petitioner's Wade hearing. (T: 547). However, counsel declined that invitation, stating that "To speak to a witness now out in the hallway kind of defeats the purpose of surprise of cross-examination." (T: 547-548).
The prosecutor then requested a brief recess, explaining that both Detective Fischer and Detective Fatigate were not due into work until 5:00 p.m. and the prosecutor intended to contact the Mount Vernon Police Department to arrange for the detectives to call him from their homes to give him an expedited, oral report on the event. (T: 550).
Following that brief recess, the prosecutor indicated that he was awaiting contact from Detectives Fisher and Fatigate and further reported that, as Detective Waters had not been able to locate any written report about Sherrica's visit to Headquarters, the prosecutor had contacted Mount Vernon Police Lieutenant Kelly to request any files or reports concerning the event. (T: 551).
Following the testimony of Police Officer Clark, the People produced the just received facsimile of a Mount Vernon Police Department report authored by Detective Fischer, which indicated that, on January 30, 1998, Detectives Fischer and Fatigate had taken Sherrica and her father to the 48th precinct in the Bronx, that Sherrica viewed photographs on that precinct's photo image computer, and that she "was unable to make a positive ID at this time." (T: 597-598).
The court suggested that the defense counsel should have the opportunity to question Detective Fischer prior to the testimony of Sherrica Tai. (T: 600). The prosecutor made Detective Fischer available *355 for that purpose. (T: 600-601). Again, petitioner's counsel declined the court's offer, stating that "At this stage I prefer to speak to my witness under oath, since nobody wanted to speak to me before, that is the way they play it, I'll talk to them under oath." (T: 601). The prosecutor responded, "That is not the way I'm playing it," and again offered to make Fischer available during the lunch recess. (T: 601-602). Only counsel for the codefendant Urbina accepted that opportunity. (T: 602-603).
Following the luncheon recess, counsel for codefendant Urbina reported that he had spoken to Detective Fischer and Fischer said he had not been present during the entire time that Sherrica was viewing the computer photo images. (T: 604). Counsel for the co-defendant speculated that a New York City police detective would also have been present when Sherrica viewed the photo images and argued that Fischer was "obliged" to know that detective's name. (T: 605-606). Counsel for Urbina also observed that of all the discovery material turned over during the case to the defense, Fischer's report was the only one that was unsigned; petitioner's counsel joined in that observation. (T: 606-607). The prosecutor responded that Lieutenant Kelly had not been able to locate Fischer's original, signed report, but that the police department's computer records did indicate that the subject report was generated on January 31, 1998. (T: 607).
At the conclusion of the Sherrica's direct testimony, petitioner's counsel asked to see the computer image that Sherrica viewed at the 48th precinct, "To see if that photo is on traditional type of displays as in like a photo book where you would have three or four pictures on the same page" and sought a continuance for that purpose. He said he would "Like to hear what if any information was discussed, when she made that statement" and "Would like the chance to find out who this detective is who is with her, and if there wasn't a follow-up, why wasn't there a follow-up." (T: 650-651).
The prosecutor opposed that application, reminding the court that petitioner's counsel had been given the opportunity to ask those questions of Sherrica prior to her testimony and that Sherrica never made a positive identification from the photo images at the 48th precinct. The ADA pointed out that it was not necessarily true that a detective was present throughout the time Sherrica viewed the photo images at the Bronx precinct. (T: 651-652). When the People assured the Court that Sherrica would be recalled for further testimony if necessary, the court denied counsel's request for a continuance. (T: 652-653).
Petitioner's attorney began his cross-examination of Sherrica. (T:655). He did not ask her about her viewing of photo images at the 48th precinct, or whether she had ever seen any photo image of petitioner prior to identifying him on the street or whether anything influenced that identification. (See T: 655-691).
Following cross-examination of Sherrica by petitioner's attorney, the prosecutor reported that he had asked to locate a signed copy of Fischer's report, but none had been found. (T: 693-694). The sole response was by counsel for Urbina, who reiterated his observation that Fischer's report was the only unsigned document turned over to the defense. However, he stated that he was ready to begin his cross-examination of Sherrica. (T: 694). Asked if he was also ready to proceed, counsel for petitioner simply said, "Same argument." (T: 694).
During his cross-examination of Sherrica, counsel for the codefendant did elicit that Sherrica had looked at photographs at *356 the Bronx precinct, that she pointed out someone who looked like one of the robbers and that she "wanted to get a better look at" the image. (T: 711-712). Sherrica did not remember to whom she said this. (T: 713, 822).
On re-direct examination by the People, Sherrica testified that when she was at the Bronx precinct, she never saw any photographs depicting any of the people involved in this crime and that she had said only that she "wanted to get a better picture" one of the persons she viewed. (T: 750, 822). Sherrica further testified that no one "ever" did or said anything to suggest that she identify a particular individual. (T: 822).
Immediately following Sherrica's testimony, the court received a note from the jury asking if the person Sherrica had "wished to see more of when looking at the photo images in the Bronx was, in fact, the petitioner. (T: 833). All agreed that they and Sherrica did not know the answer to that question, so that Sherrica would not be recalled to have that question put to her. (T: 833-834).
During continued colloquy in that regard (T: 834-35), petitioner's attorney commented that the photograph in question "clearly wasn't" that of petitioner, but said nothing more and did not request any relief. The court suggested, "Can we stipulate?" (ostensibly that the photograph she wanted to view more clearly was not petitioner). The prosecutor proposed that, as it had been agreed that it was "not going to come up with this witness," that possibility could be discussed later. (T: 834-835). In continued colloquy on the matter on the following day, petitioner's attorney stated, "I think based on everything that has been stated, there has been no indication that the photo she [Sherrica] saw was Michael Hughes." (T: 839).
Petitioner's attorney said nothing more, either at that time or thereafter during the trial.
Petitioner did not ask to recall the victim, despite that the opportunity to do so had expressly been left open for him (supra).
II. Standard of Review
Under the Antiterrorism and Effective Death Penalty Act of 1996 ("AEDPA"), a federal Court may grant a writ of habeas corpus to a state prisoner on a claim that was "adjudicated on the merits" in state court only if it concludes that the adjudication of the claim "(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." 28 U.S.C. § 2254(d). An "adjudication on the merits" is a "substantive, rather than a procedural, resolution of a federal claim." Sellan v. Kuhlman, 261 F.3d 303, 313 (2d Cir.2001) (quoting Aycox v. Lytle, 196 F.3d 1174, 1178 (10th Cir.1999)).
A state court decision can involve an unreasonable application of Supreme Court precedent in two ways. See Williams v. Taylor, 529 U.S. 362, 407, 120 S. Ct. 1495, 146 L. Ed. 2d 389 (2000). First, a state court decision is unreasonable if the court identifies the correct governing legal rule but unreasonably applies it to the facts of the case. Second, it is unreasonable if a state court either unreasonably extends a legal principle from Supreme Court jurisprudence to a new context where it should not apply, or unreasonably refuses to extend the principle where it should apply. Id.
*357 It is not enough that the state court reach an "incorrect or erroneous" decision. Id. at 410, 120 S. Ct. 1495. Rather, the state court's determination must be "objectively unreasonable." Id. at 409, 120 S. Ct. 1495. In Williams, the Court stated that "the most important point is that an unreasonable application of federal law is different than an incorrect application of federal law," Williams, 529 U.S. at 410, 120 S. Ct. 1495, and since Williams, the Supreme Court has repeatedly recognized that there is a difference between "incorrect" and "unreasonable" applications of federal law. See, e.g., Lockyer v. Andrade, 538 U.S. 63, 123 S. Ct. 1166, 1174-75, 155 L. Ed. 2d 144 (2003) ("In order for a federal court to find a state court's application of our precedent 'unreasonable,' the state court's decision must have been more than incorrect or erroneous."); Price v. Vincent, 538 U.S. 634, 123 S. Ct. 1848, 1853, 155 L. Ed. 2d 877 (2003) ("[A] federal habeas court may not issue the writ simply because that court concludes in its independent judgment that the state-court decision applied a [Supreme Court case] incorrectly...."); Woodford v. Visciotti, 537 U.S. 19, 25-26, 123 S. Ct. 357, 154 L. Ed. 2d 279 (2002) (reversing Ninth Circuit judgment granting habeas relief on the ground that the Ninth Circuit "ultimately substituted its own judgment for that of the state court, in contravention of 28 U.S.C. § 2254(d)"); see also Eze v. Senkowski, 321 F.3d 110, 124 (2d Cir.2003) (noting that habeas petitioner "must do more than show that he would have [prevailed] if his claim were being analyzed in the first instance....").
In Andrade, the Supreme Court rejected the Ninth Circuit's interpretation of "objectively unreasonable" as requiring no more than "clear error." Andrade, 123 S.Ct. at 1175. The Court stated that, "The gloss of clear error fails to give proper deference to state courts by conflating error (even clear error) with unreasonableness. It is not enough that a federal habeas court, in its independent review of the legal question, is left with a firm conviction that the state court was erroneous." Id. (citations omitted). The standard to be applied "falls somewhere between merely erroneous and unreasonable to all reasonable jurists." Wade v. Mantello, 333 F.3d 51, 57 (2d Cir.2003) (quoting Jones v. Stinson, 229 F.3d 112, 119 (2d Cir.2000)). However, the "increment [of incorrectness beyond error] need not be great; otherwise, habeas relief would be limited to state court decisions so far off the mark as to suggest judicial incompetence." Eze v. Senkowski, 321 F.3d 110, 125 (2d Cir.2003) (quoting Francis S. v. Stone, 221 F.3d 100, 111 (2d Cir.2000)).
The exhaustion requirement of the AEDPA requires the petitioner to have presented to the state court "both the factual and legal premises of the claim he asserts in federal court." Daye v. Attorney General, 696 F.2d 186, 191 (2d Cir. 1982) (en banc); See 28 U.S.C. § 2254(b)(1)(A). For instance, if a petitioner specifies only certain issues that he deems worthy of review in a letter seeking leave to appeal a conviction to the New York Court of Appeals, he will be deemed to have waived any remaining claims in the original appellate brief. Grey v. Hoke, 933 F.2d 117, 120 (2d Cir.1991). However, a claim may be presented for habeas review even if the federal grounds were not explicitly asserted before the state courts if petitioner, in asserting his claim before the state court, (1) relied on pertinent federal cases employing constitutional analysis; (2) relied on state cases employing constitutional analysis in like fact situations; (3) asserted his claims in terms so particular as to call to mind specific rights protected by the constitution; or (4) alleged a pattern of facts well within the mainstream of *358 constitutional litigation. See Daye v. Attorney General, 696 F.2d at 194.
If a state prisoner has not exhausted his state remedies with respect to a claim and he no longer has a state forum in which to raise the claim, the claim may be deemed exhausted but procedurally barred. Bossett v. Walker, 41 F.3d 825, 828-29 (2D Cir.1994). In such a case, the federal habeas court may not review the state prisoner's federal claim, "unless the prisoner can demonstrate cause for the default and actual prejudice as a result of the alleged violation of federal law, or demonstrate that failure to consider the claims will result in a fundamental miscarriage of justice." Coleman v. Thompson, 501 U.S. 722, 750, 111 S. Ct. 2546, 115 L. Ed. 2d 640 (1991)
With that in mind, I turn to Hughes' claims.
Petitioner's Claims
Petitioner seeks habeas relief on five separate grounds: (1) the state suppressed evidence in violation of Brady and Giglio; (2) the introduction of certain evidence was reversible error, (3) petitioner was denied his constitutional right to a jury trial; (4) his guilt was not proven beyond a reasonable doubt; and (5) he was denied effective assistance of counsel. (Petition Attachment Sheet).
I. Brady Claim
The first ground in Hughes petition states: "THE STATE SUPPRESSED EXCULPATORY AND IMPEACHMENT EVIDENCE IN VIOLATION OF BRADY AND GIGLIO." (Petition Attachment Sheet). Petitioner contends that the prosecution suppressed Brady material by failing to disclose in time for effective use at trial(l) the facts surrounding Sherrica Tai's viewing of photographs at the 48th precinct in the Bronx, on January 30, 1998, and (2) the photograph that she identified as "one that could be the perpetrator." Petitioner further contends that he is entitled to discovery and an evidentiary hearing in support of his claim. (Pet. Traverse at 2).
A. Exhaustion
The specter of Brady permeated the discussion, in the trial court, about how to proceed in light of the revelation that Sherrica had looked at photos at the 48th precinct. The trial judge even stated that the circumstances surrounding the 48th precinct viewing were "probably Brady material." (T. 548). Petitioner pursued his Brady claim in the first point in his brief on appeal to the Appellate Division, Second Department:
"THE TRIAL COURT'S REFUSAL TO RE-OPEN A WADE HEARING, COMPEL PRODUCTION OF THE PHOTOGRAPH OR GIVE AN ADVERSE INFERENCE CHARGE ON LEARNING THAT THE PEOPLE HAD POSSIBLY IDENTIFIED AN INDIVIDUAL OTHER THAN APPELLANT DEPRIVED APPELLANT OF A FAIR TRIAL, U.S. CONSTITUTION, AMENDMENTS VI, XIV"
(R: 154). Under this heading, petitioner argued that the Government suppressed exculpatory material and that the trial court failed to fashion an appropriate remedy or sanction for the violation of Brady. The Appellate Division rejected this and petitioner's other arguments in a concise decision, typical of that court:
Contrary to the defendant's contention, the County Court providently exercised its discretion in declining to reopen the Wade hearing (see United States v. Wade, 388 U.S. 218, 87 S. Ct. 1926, 18 L. Ed. 2d 1149; People v. Robinson, 280 A.D.2d 687, 721 N.Y.S.2d 252). Further, the defendant's challenge to the legal *359 sufficiency of the evidence adduced at trial is unpreserved for appellate review (see People v. Gray, 86 N.Y.2d 10, 19, 629 N.Y.S.2d 173, 652 N.E.2d 919; People v. Udzinski 146 A.D.2d 245, 250, 541 N.Y.S.2d 9). In any event, viewing the evidence in the light most favorable to the prosecution (see People v. Contes, 60 N.Y.2d 620, 467 N.Y.S.2d 349, 454 N.E.2d 932), we find that it was legally sufficient to establish the defendant's guilt beyond a reasonable doubt. Moreover, upon the exercise of our factual review power, we are satisfied that the verdict was not against the weight of the evidence (see CPL 4.70.15[5]). The defendant's remaining contentions are without merit.
People v. Hughes, 298 A.D.2d 403, 751 N.Y.S.2d 379 (2nd Dept 2002). The New York Court of Appeals denied petitioner's leave to appeal on December 26, 2002. People v. Hughes, 99 N.Y.2d 559, 754 N.Y.S.2d 211, 784 N.E.2d 84 (2002).
Because the first ground in the instant petition is essentially drawn from the arguments in petitioner's first point on appeal, the claims stated in the first ground were satisfactorily presented to the state court in federal constitutional terms. Any confusion about whether the Appellate Division rejected the Brady claim in the first sentence of its opinion discussing the "Wade issue" "Contrary to the defendant's contention, the County Court providently exercised its discretion in declining to reopen the Wade hearing" is resolved unequivocally by the inclusion of that court's customary coda: "The defendant's remaining contentions are without merit." Thus, petitioner's Brady claim is fully exhausted and ripe for habeas review.
B. Applicable Legal Standards: Brady Violations
Under the AEDPA standard set forth above, petitioner is entitled to habeas relief only if the Westchester County Court's resolution of his BradylGiglio claim "(1) 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." 28 U.S.C. § 2254(d).
The settled law for this claim is, of course, Brady v. Maryland and its progeny; this line of cases established that the Due Process Clause requires the prosecution to disclose evidence under its control that is favorable to the accused. See 373 U.S. 83, 87, 83 S. Ct. 1194 (1963). "To the extent that [a] prosecutor knows of material evidence favorable to the defendant in a criminal prosecution, the government has a due process obligation to disclose that evidence to the defendant." United States v. Avellino, 136 F.3d 249, 255 (2d Cir.1998) (Emphasis added). Violation of that constitutional duty warrants a new trial under Brady v. Maryland, 373 U.S. 83, 83 S. Ct. 1194, 10 L. Ed. 2d 215 (1963) where the Government has (1) failed to disclose (2) material evidence that was (3) favorable to the accused. The defendant must establish all three prongs of the testfavorable evidence, suppression and materialitybefore there is any Brady violation. Leka v. Portuondo, 257 F.3d 89 (2d Cir.2001).
Evidence is "favorable" if it exculpates the defendant or if it could have been used to impeach other evidence relied on by the Government. United States, v. Coppa, 267 F.3d 132, 135 (2d Cir.2001). Evidence is "material" if it could reasonably be taken to put the whole case in such a different light as to undermine confidence in the verdict, Coppa, supra., see also, United States v. Wong, 78 F.3d 73, 79 (2d Cir.1996), or where its admission *360 "would probably lead to an acquittal." United States v. Siddiqi, 959 F.2d 1167, 1173 (2d Cir.1992). Materiality is assessed in light of the totality of the trial evidence. Where the evidence against the defendant is ample or overwhelming, withheld Brady material is less likely to be material than if the evidence of guilt is thin. United States v. Gil, 297 F.3d 93, 103 (2d Cir. 2002). The court must consider the net effect of suppressed evidence, not simply its item by item effect; cumulative materiality is the touchstone of Brady analysis. Kyles v. Whitley, 514 U.S. 419, 421, 436, 115 S. Ct. 1555, 131 L. Ed. 2d 490 (1995).
Brady requires disclosure of the material exculpatory evidence early enough so that the defense can make use of the information. Leka v. Portuondo, 257 F.3d 89 (2d Cir.2001). Suppression of exculpatory material violates due process irrespective of the good faith or bad faith of the prosecution. Strickler v. Greene, 527 U.S. 263, 119 S. Ct. 1936, 1948, 144 L. Ed. 2d 286 (1999). However, if the defendant could have discovered the evidence on its own, exercising due diligence, then it will not be considered "suppressed" for Brady purposes.
To find a Brady violation, a court need not conclude that the undisclosed evidence would have been admissible at trial. Rather, a court need only conclude any of the following: (1) all or part of the document was admissible; (2) it could have led to the discovery of admissible evidence, or (3) it would have been an effective tool in disciplining a witness during cross-examination, by refreshment of recollection or otherwise. United States v. Gil, 297 F.3d at 104.
The standard for granting a new trial for Brady violations is whether there is a reasonable probability that there would have been a different result at trial if the evidence had been timely disclosed. United States v. Bagley, 473 U.S. 667, 682, 105 S. Ct. 3375, 87 L. Ed. 2d 481 (1985). As the Supreme Court stated, there is never a "real" Brady violation unless the non-disclosure was so serious that there is a reasonable probability that the suppressed evidence would have produced a different verdict. Strickler v. Greene, 527 U.S. 263, 281, 119 S. Ct. 1936, 144 L. Ed. 2d 286 (1999). The non-disclosure (or belated disclosure) of Brady material deprives a defendant of a fair trial only where there is a reasonable probability that the Government's suppression affected the outcome of the case, United States v. Bagley, 473 U.S. 667, 682, 105 S. Ct. 3375, 87 L. Ed. 2d 481 (1985), or where the suppressed evidence "put[s] the whole case in such a different light as to undermine confidence in the verdict." Kyles v. Whitley, 514 U.S. 419, 435, 115 S. Ct. 1555, 131 L. Ed. 2d 490 (1995).
C. Petitioner is not Entitled to Habeas Relief on his Brady Claim
The State Court's resolution of petitioner's Brady claim was not contrary to, and did not involve an unreasonable application of, clearly established Federal Law, as determined by the Supreme Court of the United States. Nor did it result in a decision that was based on an unreasonable determination of the facts in light of the evidence presented in the state court proceeding. See 28 U.S.C. § 2254(d).
1. Evidence Favorable to the Defense
Any evidence regarding Sherrica Tai's viewing of photographs at the 48th precinct in the Bronx, on January 30,1998, is, arguably, favorable evidence for Brady purposes. The evidence is not exculpatoryeven where, as here, all counsel agree that the photograph Sherica wanted to get a clearer look at was not petitioner. *361 There were, after all, three men involved in the crime. However, evidence that the victim identified a photograph as depicting someone that "could be" one of the three men, or that she "wanted to get a better look" at one of the men depicted in a photograph, is at the least fodder for impeaching the victim and the police witnesses on cross examination concerning, inter alia, the suggestiveness of the showup. See Strickler v. Greene, 527 U.S. 263, 281-82, 119 S. Ct. 1936, 144 L. Ed. 2d 286, (1999). Thus, the prosecution had an affirmative duty to disclose all relevant information within its possession regarding the 48th Precinct viewing.
The first question is whether the prosecution suppressed any such evidence. The answer is no.
2. No Suppression
Information regarding Sherrica's viewing of photographs at the 48th Precinct was made available to the defense in sufficient time for the defense to make sufficient use of that information at trial. During Sherrica's testimony at the pretrial hearing, the prosecutor and the case detective learned for the first time that she may have been brought to the 48th Precinct to view photographs. The prosecutor said that he would inquire whether such a viewing ever took place.
Several days later (after the conclusion of the Wade and Sandoval hearings, jury selection and opening statements), the prosecution called its first witness, Mr. Tai, who testified about matters unrelated to any aspect of petitioner's identification. After Mr. Tai's testimony, the prosecutor reported that he had spoken with Sherrica and confirmed that she had in fact been brought to the 48th Precinct by Mount Vernon Detectives Fischer and Fatigate.
... I have learned that in speaking to [Sherrica] a combination of herself and her father, that there was a photograph there which she looked at among the many that she reviewed and said it looked like one of the people who robbed her. I assume based upon what she said that the photograph was an African American male. She said this to me this morning that she didn't make an identification. She simply said this photograph looks like the person. I'm providing that information to Mr. Tendy [defendant's attorney].... I also found out for the first time today that because I was trying, continuing to try to find out who the police officers were who took her down. That those police officers are Detective Daniel Fischer and Detective Fatigate whose first name I believe is Ronald. I didn't actually find that out until this morning, that they were the officers who took her down. I made a number of calls on Friday. They were not in, and all the people who I was able to get who were connected with the case said they didn't know who it was who brought them down. As we speak Detective Waters who told me he's not aware of any, he has no knowledge himself of any report that they filled in connection with that, is looking through his file and additionally calling people, Mount Vernon, to see whether or not there is any record of that.
(T:542-3). At that point, all the relevant facts about the "48th Precinct exculpatory/ impeachment information" was disclosed to the petitioner, before any identification witness took the stand. See United States v. Coppa, 267 F.3d 132, 142 (2d Cir.2001). Petitioner knew that Sherrica was taken to the Bronx to view photographs and, although she did not make a positive identification, she did see a photograph that "looked like" the African American male robber.
*362 Upon receipt of this information, petitioner's attorney asked that the Wade hearing be re-opened "so that I can see the book, see the photo, speak to the detective who supplied the book and the photo, speak to Detective Fischer." (T: 544). The Court responded to that request by asking the rhetorical question: "Are you entitled to a hearing when there is no identification?" Id. Counsel responded by asking the court to look "beyond the four confining walls of the issues of the hearing." Id. Defense counsel persisted in his request to open the hearing, suggesting that the police were intentionally covering up the 48th Precinct viewing: "I believe she was taken to there to make sure she didn't blow the ID." (T: 545). The prosecution offered to make Sherrica available to be interviewed and the Court asked petitioner's attorney whether he wanted to speak with her before she took the stand. (T: 547). Counsel declined the offer, stating that, "To speak to a witness out in the hallway kind of defeats the purpose of surprise of cross-examination." (T: 548-49).
After the next witness (Officer Clarke) finished testifying, the prosecutor produced the just-received fax transmission of Detective Fischer's report, which stated that Fischer brought Sherrica to view a "photo imaging computer" at the 48th Precinct and that she did not make a positive identification. The prosecutor offered the defense an opportunity to interview Detective Fischer. While petitioner's codefendant accepted the offer and interviewed Detective Fisher over the lunch break, counsel for petitioner declined that offer as well: "At this stage I prefer to speak to my witness under oath...."
That petitioner's counsel did not avail himself of the prosecution's offer to make Sherrica and Fischer available to be intervieweda tactical decision to avoid educating the witnesses as to the focus of his cross-examinationdoes not diminish the fact that petitioner had the exculpatory/impeachment information in his possession and was offered the ability to develop it in time to be utilized during the trial. See Coppa, 267 F.3d at 142.
After the direct examination of Sherrica by the prosecution, petitioner's counsel asked for a continuance and renewed his application for the "photo" and the "New York City detective" who showed her the photos. The prosecution argued that there was no such photo but a computer that displayed photographic images, and that there was not necessarily a New York City detective present while she reviewed the display. The court denied the application for a continuance, stating: "In light of the circumstances, there is a lot of cross examination that can be done. If we develop anything worth recalling the witness, I'll direct that she be recalled for additional cross-examination." (T: 653).
Despite the court's invitation to crossexamine Sherrica about the 48th Precinct viewing, petitioner's attorney asked no questions about the 48th Precinct or whether she had ever seen any photo image of petitioner prior to identifying him on the street or whether anything influenced that identification. (See T: 655-691). And while Urbina's counsel did explore this area on cross, Sherrica simply reiterated that which the parties already knew: that she pointed out someone who looked like one of the robbers, that she "wanted to get a better look at" the image (T: 711-712), and that she did not remember to whom she told this (T: 713, 822). Indeed, on re-direct examination, Sherrica testified that she never saw any photographs at the 48th Precinct depicting any of the people involved in this crime (T: 750, 822) and that no one "ever" did or said anything to suggest that she identify a *363 particular individual (T: 822). (Emphasis added).
In light of trial counsel's tactical decision not to explore the circumstance of the 48th precinct viewing with Sherrica or Detective Fischer, petitioner's argument that the trial court should have granted a continuance until he received a copy of the "photograph" is disingenuous. The "photograph"by all accounts, an image contained in a computer data base maintained at the 48th Precinctwas the property of either the New York City Police Department or the Bronx District Attorney. Neither the Westchester County District Attorney nor the Mount Vernon police was in possession of the computer image petitioner sought, and so could not have suppressed it. Indeed, there was no reason for law enforcement to save a photographic image that Sherrica failed to identify as one of the robbers, merely because she said it looked like one of the robbers. Having eschewed the opportunity to interview and/or cross examine Sherrica and Detective Fisher on the issue, petitioner never demonstrated what this "photo imaging computer" was or that the viewing of it was capable of reproduction. The trial court's denial of the continuance request on the condition that Sherrica would be recalled if anything should come to light was sensible and reasonable.
Hence, the record belies petitioner's allegation that "the facts hint that Ms. Tai may have identified another individual as the African American male, who participated in the crime, and the prosecution knowingly suppressed this identification ..." (Petitioners Memorandum, at 36). The evidence, developed under questioning at trial, was to the effect that Sherrica never identified anyone at the 48th Precinct. Upon learning about the 48th Precinct viewing, the prosecution made prompt inquiry, produced the single report generated as a result of the viewing and made all the relevant witnesses available for interview. Petitioner's failure to avail himself of the court's offer to allow counsel time to interview Sherrica and the detectives about the circumstances surrounding the 48th Precinct, does not render the court's offer an inappropriate remedy for the late disclosure. This is not Leka, where the prosecution provided late disclosure of the fact that a witness identified a man other than the accused as having committed the crime, so that pretrial disclosure was necessary for full exploration and exploitation by the defense. See Leka v. Portuondo, 257 F.3d 89, 101 (2d Cir.2001) There is no evidence that Sherrica identified anyone at the 48th Precinct. Both Sherrica's testimony and Fischer's report make clear that Sherrica made "no positive identification" at the 48th Precinct. Petitioner's suggestion to the contrary is sheer speculation.
To the extent that petitioner maintains his alternative argument that the police brought Sherrica to the 48th Precinct to view a photograph of petitioner, so that she did not later "blow the ID," that argument is also belied by the record. In colloquy with the trial court about how to respond to an unusual mid-trial note from the jury, asking whether Hughes was the man depicted in the 48th Precinct photograph, trial counsel stated that the photograph "clearly wasn't" that of petitioner (T: 833-34) and that, "I think based on everything that has been stated that there has been no indication that the photo she saw was Michael Hughes." (T: 839).
Given the minimal impeachment value of the 48th Precinct evidence and the trial court's willingness to allow defense counsel time to interview the relevant witnesses, disclosure of this information just prior to Sherrica's testimony was early enough so that the defense could make use of the information. See Coppa, 267 F.3d at 142.
*364 3. Materiality
Even if there had been some impropriety in the viewing of photographic images at the 48th Precinct (which there was not) and even if the prosecution withheld that information (which it did not), the totality of the identification evidence and other evidence of petitioner's guilt was so compelling that introduction of the "suppressed" evidence would not have put the whole case in such a different light as to undermine confidence in the verdict or have "probably lead to an acquittal."
There was an ample independent basis for Sherrica's identification of petitioner as the robber who greeted her at the door, forced his way in, bound her and then remained in her immediate presence over a substantial time to watch over her while cohorts removed the safe and manhandled it down the stairs and into petitioner's waiting vehicle. This is not to say that petitioner's trial counsel and his codefendant's counsel did not conduct effective cross examinations, exposing inconsistencies between Sherrica's trial testimony and her prior testimony and statements. But even during cross examination Sherrica testified that she was sure Hughes was the man, "Because I was concentrating on Hughes the whole time." (T: 714). Although, Sherrica was grilled by both defense counsel about her identification at the time of arrest, she never equivocated as to the identity of the black male who held her captive at gunpoint: "You saw a male black who was later identified as Michael Hughes, correct? I know that was him." (T: 716).[6]
Additionally, there was considerable, compelling independent evidence of petitioner's guilt, including the fully inculpatory testimony of petitioner's accomplice, Falcones about the planning and execution of the robbery, detailing the role played by each of the robbers, including that of petitioner. Falcones provided details about, among other things: the various cell phone calls between the coconspirators in planning the robbery; how he was picked up in Hughes' white car on the morning of the robbery and that they used that car as the getaway car; how all three men went into the house, the girl on the first floor; that he and Urbina went upstairs to remove the safe; and how all three men went bact to his (Falcones) house to break open the safe and divide up the money. While Falcones was effectively impeached by the fact that he testified pursuant to an arrangement with the prosecution (though that arrangement left him with a felony plea and eight years in prison), his testimony was corroborated when telephone records were introduced establishing the calls between the three men that Falcones testified were made in the days leading up to the robbery.
The evidence further demonstrated petitioner's opportunity and plan flowing from his access to knowledge from the installers of the safe as to its location in he home of an affluent client. Petitioner's white Hyundai was located and found to contain black gloves, consistent with Sherrica's description that he had worn such gloves and drove from the scene in such car. Upon arrest, petitioner was also found to have thousands of dollars of cash on his person, *365 consistent with the proceeds of the robbery or a recent windfall. Of course, petitioner did not claim a windfall but said that the cash was a loan from a relative to cover outstanding taxes. But cross examination by the prosecution developed that the money tendered by a relative remained intact at another location. Indeed, petitioner's defense case (chiefly an alibi defense) was, generally, decimated by effective cross examination.
Hence, petitioner has not established a viable basis for his Brady claim.
4. Request for a Hearing and Discovery
In Stone v. Powell, 428 U.S. 465, 482, 96 S. Ct. 3037, 49 L. Ed. 2d 1067 (1976), held that "[w]here the State has provided an opportunity for full and fair litigation of a Fourth Amendment claim," that claim may not be litigated in a Federal habeas proceeding. The only exceptions are when "(a) the State has provided no corrective procedures at all to redress the alleged Fourth Amendment violations; or (b) the State has provided a corrective mechanism, but the defendant was precluded from using that mechanism because of an unconscionable breakdown in the underlying process" (Capellan v. Riley, 975 F.2d 67, 70 (2nd Cir.1992)). As to former, it is beyond cavil that New York provides sufficient corrective procedures NYCPL 710.20 to 710.70 (Capellan, supra, 975 F.2d at 70 n. 1). As to the latter, to establish an "unconscionable breakdown," a petitioner must show that State courts "failed to conduct a reasoned method of inquiry into relevant questions of fact and law" and this regards the corrective process and not the outcome even if erroneous or one with which the Federal habeas Court disagrees (Capellan, supra, at 71). But, all the State must do is provide an "opportunity for full and fair litigation." If a defendant fails to avail himself of that "opportunity," he cannot claim that he did not receive a full and fair hearing in State court (McPhail v. Warden, Attica Correctional Facility, 707 F.2d 67, 69 (2d Cir.1983)). Here, petitioner was offered the opportunity to elicit any concrete basis for suppression of identification by reason of the viewing of the photo images in the Bronx by questioning every involved witness before they took the stand. While petitioner's counsel declined, he reserved the option to question in such regard in crossexamination at trial. He did not do so. When the codefendant did ask questions about the 48th Precinct on cross-examination, the Brady issue was fully developed and, in the end, totally eviscerated.
Moreover, petitioner's request for discovery is controlled by 28 USC. 2254(e)(2), which states as follows (emphases supplied):
"If the applicant has failed to develop the factual basis of a claim in State court proceedings, the court shall not hold an evidentiary hearing on the claim unless the applicant shows that
(A) the claim relies on
(i) a new rule of constitutional law, made retroactive to cases on collateral review by the Supreme Court, that was previously unavailable; or
(ii) a factual predicate that could not have been previously discovered through the exercise of due diligence; and
(B) the facts underlying the claim would be sufficient to establish by clear and convincing evidence that but for constitutional error, no reasonable factfinder would have found the applicant guilty of the underlying offense."
As the Supreme Court has recognized (Williams v. Taylor, supra, 529 U.S. at 433, 120 S. Ct. 1479), § 2254(e)(2) "raised the Bar" erected by the case upon which petitioner relies, Keeney v. Tamayo-Reyes, *366 504 U.S. 1, 112 S. Ct. 1715, 118 L. Ed. 2d 318 (1992). In support of his request for a hearing, petitioner incorrectly relies on cases stating pre-AEDPA standards.
As to "failed to develop" opening clause of the statute, a petitioner must make reasonable attempts to investigate and pursue claims in State court. (See, e.g., Wilcox v. Hopkins, 249 F.3d 720 (8th Cir. 2001); Bragg v. Galaza, 242 F.3d 1082 (9th Cir.), as amended, 253 F.3d 1150 (2001)). Petitioner cannot show cause for not taking the opportunities to preliminarily question Sherrica and Detective Fischer, other than the wholly insubstantial nature of his argumentative assertions of possible suggestive impact, or for not cross-examining on those issues, other than acceptance that pursuit of any such claim would be to no avail.
Petitioner also claims that the requirement of a "prima facie" case for relief before being afforded discovery under Harris v. Nelson, 394 U.S. 286, 89 S. Ct. 1082, 22 L. Ed. 2d 281 (1969) was "clearly rejectted]" in Bracy v. Gramley, 520 U.S. 899, 909, 117 S. Ct. 1793, 138 L. Ed. 2d 97 (1997). Rather, what Bracy held was that the "broad discovery provisions of the Federal Rules of Civil Procedure [do] not apply in habeas corpus proceedings." Bracy, supra, at 904, 117 S. Ct. 1793. A habeas petitioner is entitled to discovery only upon a showing of "good cause" (Rule 6(a) of Rules Governing § 2254 Cases) which requires "specific allegations" of facts that demonstrate reason to believe that he is entitled to relief if the processes of discovery are used. Bracy, supra, at 908-09, 117 S. Ct. 1793; Harris v. Nelson, 394 U.S. 286, 300, 89 S. Ct. 1082, 22 L. Ed. 2d 281 (1969); Zettlemoyer v. Fulcomer, 923 F.2d 284 (3rd Cir.), cert. denied, 502 U.S. 902, 112 S. Ct. 280, 116 L. Ed. 2d 232 (1991); Linares v. Senkowski, 964 F.2d 1295, 1296 n. 1 (2nd Cir.), cert. denied 506 U.S. 986, 113 S. Ct. 494, 121 L. Ed. 2d 432 (1992); Lynott v. Story, 929 F.2d 228, 232 (6th Cir.1991); Munoz v. Keane, 111 F.Supp. 282, 287 (S.D.N.Y. 1991), aff'd 964 F.2d 1295.
"Good cause" certainly cannot lie when the predicate facts were already developed in State proceedings and petitioner making a Federal collateral attack merely seeks a second bite of the apple that he eschewed further developing despite repeated opportunities in the course of State proceedings.
II. Improper and Prejudicial Admission of Evidence Claim
In Ground 2 of the petition, petitioner asserts that during the cross-examination of his "fiancee, Lavonne Dunlap, the prosecutor questioned her, over objections, about a `sawed-off shotgun taken from her residence". The weapon was owned by her father who also testified at trial but was never questioned about it. This line of questioning was never initiated during direct examination and also no one was ever charged with having possession of this weapon. (Petition Attachment Sheet).
Petitioner's Point II on direct appeal claimed that the introduction of the sawed-off shotgun testimony was "improper, prejudicial and constituted reversible error." The claim was asserted solely in terms of State law and State evidentiary rules, with no suggestion of any Federal Constitutional claim. (R: 159-161). Hence, this claim is not exhausted. (28 USC § 2254(b)(1); O'Sullivan v. Boerckel, 526 U.S. 838,119 S.Ct. 1728, 144 L. Ed. 2d 1 (1999)).
Even had it been presented in Federal constitutional terms to the State courts and in the current petition, this claim would remain one of error of State law and not a basis for Federal habeas *367 relief. Supra, Point I. A State court's evidentiary rulings, even if erroneous under State law, generally do not present constitutional issues cognizable in a habeas corpus petition. See Crane v. Kentucky, 476 U.S. 683, 689, 106 S. Ct. 2142, 90 L. Ed. 2d 636 (1986) ("We...acknowledge our traditional reluctance to impose constitutional constraints on ordinary evidentiary rulings by State trial courts"); Ohio v. Roberts, 448 U.S. 56, 66, 100 S. Ct. 2531, 65 L. Ed. 2d 597 (1980); Jenkins v. Bara, 663 F. Supp. 891, 899 (E.D.N.Y.1987). Minimally, "[i]n order to prevail on a claim that an evidentiary error deprived [a] defendant of due process... he must show that the error was so pervasive as to have denied him a fundamentally fair trial." Collins v. Scully, 755 F.2d 16, 18 (2nd Cir.1985); to like effect, Estelle v. McGuire, supra, 502 U.S. at 72, 112 S. Ct. 475; Aponte v. Scully, 740 F. Supp. 153, 158 (E.D.N.Y.1990).
Petitioner was not prejudiced by the evidence that his girlfriend's father owned a sawed-off shotgun. Despite the fact that petitioner was living in the father's home at the time, i.e., the place where the gun was kept, the jury was also clearly apprised of the fact that the gun did not belong to petitioner. Indeed, there was not even a suggestion that petitioner even knew about the gun or that he shared any responsibility for it. Consequently, the jury could not have construed the gun's presence in the apartment as bearing negatively on petitioner. The People elicited this evidence in order to discredit Conrad Dunlap, and the jury understood it as such. Indeed, the trial court unambiguously instructed the jury, at the time of the testimony, that "[t]here has been no charge against Mr. Hughes alleging, nor is it contended at all by the prosecution in this case, that this weapon, if you will, a sawed off shotgun was possessed by Mr. Hughes." (T: 1305). The court further instructed the jury that this evidence was to be considered "only" for the purpose of judging the credibility of Lavonne and Conrad Dunlap, and that "it shall not be considered as any evidence against petitioner Michael Hughes" (T: 1305).
In light of the overwhelming evidence of petitioner's guilt, the collateral nature of the shot-gun evidence and the trial court's instruction regarding that evidence, even if it were error to admit such testimony (and I specifically find that it was not), the error was not of such magnitude as to have denied him a fundamentally fair trial.
III. Improper Discharge of Juror Claim
In Ground 3 petitioner alleges that the trial court improperly discharged a juror when a sick juror was replaced by an alternate without granting a continuance and "without any indication that the juror was gravely ill." (Petition at).
Petitioner pressed the juror issue in Point III on direct appeal, claiming that "the dismissal of the sworn juror was error and violated [petitioner's] Sixth Amendment Rights to a fair trial by a jury of his peers." This claim was among those rejected by the Appellate Division after its review of the actual record as "without merit." Supra.
Indeed, New York State law permits the discharge of a sick juror and replacement by an alternate, in the very circumstances presented here. See NYCPL 270.35[2][a]. The trial had commenced on October 29, 1998. On Thursday, November 12, 1998, the court noted that a juror who was over 75 years of age, Gloria Smalls, was not feeling well and sat "a good deal of the time" with her head on her hand and her eyes closed while in the courtroom in the presence of the defendants and their counsel. (T: 1221-22).
*368 Before the beginning of proceedings on the following morning, November 13, 1998, the court informed all counsel that it had, through its clerk, received a phone call from Ms. Smalls, who had indicated that she had been on prescription medication for a diagnosed flu since November 9, 1998 but her condition continued to worsen to the point that she was so disabled by fever and chills that she could not even leave her bed that morning to see a doctor and, while she hoped to be able to see her doctor that afternoon, was too ill to appear in court. (T: 1222).
In light of Ms. Smalls' inability to appear in court that day, the court afforded the parties the opportunity to be heard on whether Ms. Smalls should be dismissed. (T: 1224). Mr. Tendy submitted that Ms. Smalls was an important juror because she seemed very alert, though he agreed that he had also noticed her illness and that she had been "dragging" on the prior day, and requested a continuation until Monday, November 16, 1998 at 10:30 a.m. (T: 1224-25).
The court indicated that "because of her age and seriousness of her symptom and progress, or lack thereof, I have no indication that she would be available to us either this afternoon or Monday." (T: 1228). The court's clerk then added that he had asked Ms. Smalls "what the situation would be for Monday" and she stated "no reason to believe" that she would well enough to attend court even at that time. (T: 1228-29).
The trial court exercised the discretion vested in it under (CPL 270.35(2)), which governs the dismissal of a sworn juror and authorized a trial court to dismiss a sworn juror if it determines, inter alia, that the juror will be unable to serve due to illness. (CPL 270.35). Such dismissal is authorized as soon as the trial court determines through a reasonable inquiry that the juror will not appear within two hours of the scheduled time trial was to resume (CPL 270.35[2][a]; People v. Jeanty, 94 N.Y.2d 507, 706 N.Y.S.2d 683, 727 N.E.2d 1237). The court fully satisfied its statutory obligation to make that reasonable inquiry, afford the parties an opportunity to be heard and set upon the record the reasons for its decision. And since CPL 270.35(2) is not unconstitutional, there can be no claim of federal constitutional dimension that might warrant habeas relief.
Petitioner clearly does not show that the determinations of the State trial court and of the State appellate court in rejecting his claim of error in such regard were contrary to, or an unreasonable application of, clearly established Supreme Court precedent. Even prior to the statutory protection of State court findings in the AEDPA (supra), the established Supreme Court precedent in this regard has long been that a trial court's finding that a sworn juror was not fit for further service is a factual determination that is entitled to a presumption of correctness unless unsupported by the record. Marshall v. Lonberger, 459 U.S. 422, 103 S. Ct. 843, 74 L. Ed. 2d 646 (1983); Sanders v. Sullivan, 701 F. Supp. 1000, 1002 (S.D.N.Y.1988); see also Arizona v. Washington, 434 U.S. 497, 513, 98 S. Ct. 824, 54 L. Ed. 2d 717 (1978).
Furthermore, to succeed on such a ground, a defendant must also show actual prejudice from the replacement, (see, Irvin v. Dowd 366 U.S. 717, 723, 81 S. Ct. 1639, 6 L. Ed. 2d 751 (1961); Hakeem v. Goord, 2000 U.S. LEXIS 14927, *66-67 (S.D.N.Y. 2000)), which is by no means demonstrated.
To the extent that petitioner claims that the trial court should have interrupted the trial for a "continuance," the clearly established Supreme Court precedent is that the power to grant or deny a continuance is within the discretion of the trial judge, *369 and the decision will only be reviewed for an abuse of that discretion (Avery v. Alabama, 308 U.S. 444, 446, 60 S. Ct. 321, 84 L. Ed. 377 (1940); Grotto v. Herbert, 316 F.3d 198 (2nd Cir.2003). A habeas petitioner asserting this claim must demonstrate that State courts engaged in an objectively unreasonable application of such precedent and "[o]nly an unreasoning and arbitrary `insistence upon expeditiousness in the face of a justifiable request for delay' violates the [Constitution]" (Drake v. Portuondo, 321 F.3d 338 (2nd Cir.2003), quoting Morris v. Slappy, 461 U.S. 1, 12, 103 S. Ct. 1610 [1983] (emphasis supplied). Again, petitioner must also show that he was actually prejudiced by that result (Hill v. Ozmint, 339 F.3d 187, 197 (4th Cir.2003)). He has not done so.
IV. Insufficiency of the Evidence Claim
As his fourth ground, petitioner asserts that the evidence of his guilt was insufficient. Petitioner's Point IV on his direct appeal was that "The evidence presented did not establish defendant's guilt beyond a reasonable doubt." (R: 165-67). The Appellate Division found that:
"Further, the defendant's challenge to the legal sufficiency of the evidence adduced at trial is unpreserved for appellate review (see People v. Gray, 86 N.Y.2d 10, 19, 629 N.Y.S.2d 173, 652 N.E.2d 919; People v. Udzinski, 146 A.D.2d 245, 250, 541 N.Y.S.2d 9). In any event, viewing the evidence in the light most favorable to the prosecution (see People v. Contes, 60 N.Y.2d 620, 467 N.Y.S.2d 349, 454 N.E.2d 932), we find that it was legally sufficient to establish the defendant's guilt beyond a reasonable doubt. Moreover, upon the exercise of our factual review power, we are satisfied that the verdict was not against the weight of the evidence (see CPL 470.15[5])"
People v. Hughes, 298 A.D.2d 403, 751 N.Y.S.2d 379 (R: 224).
While alternatively reaching the lack of merit of the claims made "[i]n any event," the Appellate Division's invocation of the procedural bar was an independent and adequate State ground for denial of relief that prevents habeas relief in the absence of demonstration of sufficient cause for that default and actual prejudice therefrom. Coleman v. Thompson, 501 U.S. 722, 750, 111 S. Ct. 2546, 115 L. Ed. 2d 640 (1991); Wainwright v. Sykes, 433 U.S. 72, 97 S. Ct. 2497, 53 L. Ed. 2d 594 (1977); Velasquez v. Leonardo, 898 F.2d 7, 9 (2nd Cir.1990); McGann v. Kelly, 891 F. Supp. 128, 135 (S.D.N.Y.1995). Petitioner makes no such showing. Neither does his contest to legally sufficient evidence demonstrate "a miscarriage of justice" (Kuhlmann v. Wilson, 477 U.S. 436, 106 S. Ct. 2616, 91 L. Ed. 2d 364 (1986)), the further but "very narrow exception" to this barrier (Sawyer v. Whitley, 505 U.S. 333, 112 S. Ct. 2514, 120 L. Ed. 2d 269, 277 (1992); McCoy v. Lockhart, 969 F.2d 649, 651 (8th Cir. 1992)).
If there were no independent and adequate state procedural ground for the denial of habeas relief, petitioner would still not prevail.
Any defendant challenging constitutional sufficiency of evidence has a "very heavy burden" (United States v. Rosenthal, 9 F.3d 1016, 1024 (2nd Cir.1993)) of demonstrating that, upon "viewing the evidence in the light most favorable to the government," no rational trier of fact could have found petitioner guilty (Jackson v. Virginia, 443 U.S. 307, 318-19, 99 S. Ct. 2781, 61 L. Ed. 2d 560 (emphasis original); Young v. Abrams, 698 F.2d 131, 135 (2nd Cir.1983); US v. Canady, 126 F.3d 352, 356 (2nd Cir.1997); Green v. Abrams, 798 F. Supp. 149 (S.D.N.Y.1992), aff'd 984 F.2d 41 (2nd *370 Cir.1993)). He must demonstrate that "the record is `so totally devoid of evidentiary support that a due process issue is raised' (citations omitted)." Bossett v. Walker, 41 F.3d 825, 830 (2nd Cir.1994), cert, denied 514 U.S. 1054, 115 S. Ct. 1436, 131 L. Ed. 2d 316 to like effect, Marshall v. Lonberger, 459 U.S. 422, 434, 103 S. Ct. 843, 74 L. Ed. 2d 646 (1983); United States v. Canady, 126 F.3d 352, 356 (2nd Cir. 1997); Fax v. Scully, 90 Civ 7041(KJD) (SDNY, 4/3/91) at 9-10; Reid v. Lacy, 91 Civ 5779(PKL) (SDNY, 6/23/ 92). Even "testimony of a single, uncorroborated witness is generally sufficient to support a conviction." Edwards v. Jones, 720 F.2d 751, 755 (2nd Cir.1983); McNish v. Miller 99 Civ 2539(CM)(MDF) (SDNY September 13, 2000) at p. 2; Brooks v. McGinnis, 98 Civ 2467(CM)(GAY) (SDNY August 29, 2001), at pp. 10-11.
A "federal habeas court faced with a record of historical facts that supports conflicting inferences must presume... that the trier of fact resolved any such conflicts in favor of the prosecution, and must defer to that resolution." Jackson, supra, 443 U.S. at 326, 99 S. Ct. 2781. "In a habeas proceeding, additionally, there is a presumption that the jury resolved credibility issues in favor of the prosecution." Brooks v. McGinnis, 98 Civ 2467(CM)(GAY) (SDNY August 29, 2001) at p. 11, citing Vera v. Hanslmaier, 928 F. Supp. 278, 284 (E.D.N.Y.1996), quoting Anderson v. Senkowski 1992 WL 225576 (E.D.N.Y.1992), affd. 992 F.2d 320 (2nd Cir.1993). "Federal habeas courts are not free to reassess fact-specific credibility judgments by juries or to weigh conflicting testimony." Dure v. Kelly, 1992 WL 394173, 1992 United States Dist. LEXIS 19576, CV-90-4303 (EDNY opn. filed 12/10/92, at 8).
To the extent of the appellate argument made to and rejected by the Appellate Division that the verdict was against "the weight of the evidence"which comprises the currently asserted but procedurally barred (supra) claim there was "no credible evidence to disprove petitioner's alibi" and that "petitioner did not go to work in Manhattan on the day this crime took place"such a ground is not available for assertion in a habeas petition. A challenge to "weight of the evidence" is clearly not of constitutional dimension and may not be furthered on appeal, even an appeal of a Federal conviction. Maldonado v. Scidly, 86 F.3d 32, 35 (2nd Cir.1996); Freckleton v. Senkoivski, 97 Civ 5958(RMB)(THK), Report & Recommendation, December 28, 1999, at p. 9, n. 1 (collecting cases).
To the extent petitioner is arguing that there is no evidence of his guilt, he is just plain wrong. The victim identified petitioner as one of the men who robbed her. One of petitioner's accomplices provided comprehensive details about how petitioner and his cohorts planned and carried out this crime, which is itself sufficient for Jackson purposes. The arguments made by petitioner about the credibility of Tai and Falcones were made at trial and rejected by the jury.
It was the jury's province to determine whether and to what extent to accredit the overwhelming evidence presented by the prosecution and whether and to what extent to accredit the version of petitioner's location at the time of the crime presented by the defense. It was the jury's prerogative to fully discredit the defense version of this issue, as engineered by the defendant.
V. Ineffective Assistance Claim
Ground Five of the petition asserts ineffective assistance of counsel on the usual and customary basis that "Petitioner was never informed of any plea discussions," *371 and "Trial counsel also mistakenly informed petitioner that his maximum sentence exposure would be 12½ to 25 years when in fact petitioner would be sentenced as a violent persistent felony offender and face 25 years to life." Counsel "also gave this misinformation to several of petitioner's family members."
The prima facie showing that must be made for relief on ineffective assistance grounds has been clearly explicated by the United States Supreme Court. A defendant must demonstrate a cognizable basis for relief, "acts or omissions" that reach constitutional dimension, "errors so serious that counsel was not functioning as the 'counsel' guaranteed the defendant by the Sixth Amendment" and so egregious as to overcome a "strong presumption" that attorneys act within broad parameters of "reasonably effective representation." Strickland v. Washington, 466 U.S. 668, 689-90, 104 S. Ct. 2052, 80 L. Ed. 2d 674; United States, v. Cronic, 466 U.S. 648, 658, 104 S. Ct. 2039, 80 L. Ed. 2d 657 (1984); Trapnell v. United States, 725 F.2d 149, 153 (2d Cir.1983). The defendant must demonstrate the absence of strategic explanation for such failures. Strickland, supra, at 689, 104 S. Ct. 2052; United States v. DiTommaso, 817 F.2d 201, 215 (2nd Cir.1987). It is counsel's overall performance that controls, as assessed in a "highly deferential review" without retrospective criticism. Strickland, supra, at 687, 104 S. Ct. 2052; Kimmelman v. Morrison, All U.S. 365, 774, 381, 106 S. Ct. 2574, 91 L. Ed. 2d 305 (1986). The defendant must then demonstrate that any cognizable Strickland omission "actually had an adverse effect," a "reasonable probability" that verdict would have been different "but for" it and cannot be seen as a "just result." Strickland, at 682, 694, 104 S. Ct. 2052; Kimmelman, at 374, 106 S. Ct. 2574.
That considerable burden is all the more heightened when such a claim is repeated in a collateral attack under 28 USC § 2254. A Strickland analysis must be "doubly deferential when it is conducted through the lens of federal habeas." Yarborough v. Gentry, 540 U.S. 1, 124 S. Ct. 1, 157 L. Ed. 2d 1 (2003) (per curiam). Moreover, petitioner must do more than show that he would have satisfied Strickland's test if his claim were being analyzed in the first instance, as "it is the habeas applicant's burden to show that the state court applied Strickland to the facts of his case in an objectively unreasonable manner." Woodford v. Visciotti, 537 U.S. 19, 123 S. Ct. 357, 154 L. Ed. 2d 279 (2002); see also Sacco v. Cooksey, 214 F.3d 270, 274-275 (2d Cir.), cert. denied, 531 U.S. 1156, 121 S. Ct. 1107, 148 L. Ed. 2d 977 (2001); Aeid v. Bennett, 296 F.3d 58 (2d Cir.2002).
A Strickland analysis frequently begins with whether a defendant has satisfied the prejudice prong to the prima facie showing required for relief, which is often capable of simpler analysis and resolution. In that regard, the only submission is the conclusory assertion in petitioner's Memorandum (at 54-55) that "A defendant's knowledge of the sentencing exposure he faced by going to trial, and his knowledge of a beneficial plea offer enables him to make a crucial and well informed decision whether to plead guilty or to got [sic] to trial." While petitioner alleges he was misinformed in such regard, he does not hazard the assertion that he would have taken a plea had he been correctly advised in such regards. That he does not do so is understandable. As indicated by Mr. Tendy's letters, and never controverted by petitioner at any point, petitioner had been steadfast in his desire to go to trial through the point that the aforesaid telephone records were located and secured.
*372 While the Court's analysis here need not proceed beyond the absence of Strickland prejudice, the record establishes that the prosecution never offered petitioner a plea; therefore there was no Strickland omission in the first instance.
The People never made petitioner a plea offer. Petitioner was a persistent violent felony offender. He was the ringleader who engineered the safe job, forced his way into the house, threatened the teenaged victim with a gun, bound her and kept her imprisoned at gunpoint while his cohorts removed the safe. The only plea offer the prosecution pursued was the one made to Falcones, who played a lesser role in the robbery than did petitioner and was the only one of the three robbers who did not have a prior felony conviction. Falcones had also given a videotaped statement in which he confessed and fully implicated petitioner and Urbina. Based on Falcones' relative culpability, his lesser criminal record, the prosecutions desire to avoid the looming severance motion that would have to be dealt with as a result of Falcones' statement (the possibility of two separate trials), the People offered Falcones a not so lenient plea of eight years, conditioned on his inculpating his codefendants and testifying truthfully at trial.
The only support for that contention that the prosecution offered petitioner a plea comes from Judge Lange, the trial judge, who made a comment at petitioner's sentence about there having been "extensive discussions about a possible plea ...." (R: 242-4). This statement would form the basis for petitioner's present claim that his trial counsel, Robert Tendy, Esq., was ineffective for failing to advise him of a "plea offer."
Petitioner first raised this ineffective assistance claim in state court, three years after his sentence, in a motion to vacate the judgment of conviction under New York Criminal Procedure Law § 440.10. In Exhibit C to that motion was Tendy's response to petitioner's inquiry to counsel about Judge Lange's remark about there having been plea negotiations. (R: 248-49). Tendy made clear that there were "never any extensive discussions regarding plea bargains" and "[n]o formal plea offer was ever made" as to petitioner himself. (R: 248). Tendy reported that at the early stage of the case before any motions were filed, the Assistant District Attorney "mentioned to me, again informally and not in front of Judge Lange, that he would consider 15 years in return for your plea and implication of the codefendant." Id., (emphasis in original). "Despite the possibility of an offer, you and I, after discussing the strengths of your case, decided to go forward" Id. The next mention of a plea offer occurred during the trial in the office Assistant District Attorney, while Tendy was speaking to the prosecutor about the People's "ongoing effort to retrieve phone records"the telephone records the prosecutor hoped would corroborate Gabriel's Falcones' inculpatory testimony. Id. In expectation that such records could be secured, the prosecutor then "mentioned that he would consider offering you 18 or twenty years in return for your plea and implication of the codefendant ... this was not a formal offer." Id. Tendy had also reported and discussed this with petitioner"you and I did discuss the fact that the D.A. was considering 18 or twenty years. This was in the context of a discussion we had about the phone records and whether or not they would be revealing and/or damaging. The final decision was to go forward and attempt to put the records in the proper light." Id. As Tendy also noted in that letter, once the phone records were secured and introduced and did fully corroborate the inculpatory testimony of Falcones, the prosecutor did not even suggest that possibility of *373 a plea. Id. Finally, as to the cited comment by Judge Lange at sentencing, Tendy's letter reminded petitioner that, "when the judge made his statement at sentencing you looked at me and asked" in words or substance if "there were any plea negotiations?" and "I told you `no,' because there was nothing even close ... I don't know why the Judge made his statement... perhaps he was confusing you with another case. I did not correct him ... I saw nothing to be gained by arguing with him about plea negotiations that never took place." (R: 249). In his response to Tendy dated December 5, 2001, Exhibit F to the motion, petitioner acknowledged and thanked Tendy for this clarification of Judge Lange's comment about plea negotiations, stating "I was really concerned with the courts comment during sentencing and your letter clarified my curiosity on the matter." (R: 255).
In papers in opposition to the CPL § 440.10 motion, ADA Alexander Levine affirmed that his review of the file indicated that there was no plea offer to petitioner. He additionally affirmed that "[t]he Pink Sheet in the files of this matter maintained by the Office of the District Attorney indicate a possible plea offer to burglary in the first degree with a sentence as a persistent violent felony offender of 20 years to life. However, there is nothing in the files that indicate [sic] that this plea was ever conveyed to defense counsel." (R: 264).
Petitioner's also claims that "counsel, during pretrial stages, misl[e]d petitioner and his family that petitioner faced twelve and a half to twenty-five years if convicted. Upon this misinformation, petitioner elected to go to trial." (Memorandum at 51).
Petitioner's § 440 motion asserted that Mr. Tendy had estimated sentencing exposure that was less than that to which he was ultimately sentenced. Petitioner supported this claim by his Exhibit D to his motion, an affidavit by his wife, LaVonne Dunlap, who stated that, while being interviewed by Mr. Tendy to determine whether she had knowledge warranting her possible testimony, Tendy stated to her "that if Michael were to be found guilty at trial, he would be facing 12)6 to 25 years in prison. I relayed this same information to Michael." (R: 251). Petitioner's motion also included as his Exhibit E an affidavit by his sister, Linda Hughes, stating that Tendy relayed to her from time to time during the pendency of he brother's case that he faced 12½ to 25 years in prison. Ms. Hughes says that it was not until the trial was nearing its conclusion that "Tendy realized my brother was facing 25 years to life." (R: 253). Exhibit F to the motion was petitioner letter to Tendy dated December 5, 2001 relaying the aforesaid information from his wife and his sister and asking "do you recall when it actually was during trial that you realized I was facing 25 to life? According to my recollection, it was when the People introduced the telephone records into evidence ..." (R: 255-56).
Tendy's response to that inquiry was exhibit G to petitioner's motion. (R: 258-59). Tendy admitted that there was an early point when he was "not certain as to the maximum sentence. I not only remember this, I remember telling you in the jail that I was unsure as to that maximum sentence and that I would check it out." However, Tendy observed, this was prior to the filing of the pre-trial omnibus motion and before the ADA said he might consider a plea involving 15 years, which offer would have been an "absurdity" if petitioner was only subject to a 12½ year sentence, so that Tendy was aware "many months before trial" that the sentencing exposure on the case was 25 to life.
*374 Tendy reiterated that the ADA merely made a "passing" comment as to possibly considering such a sentence and "no formal offer was ever made." Tendy noted that the plan of the defense was not to pursue a possible plea or to consider sentencing ramifications but to attack and defeat the charges, as it was his belief, shared by petitioner and "several attorneys I consulted regarding your case" that there was an excellent likelihood of acquittal and that view continued until it came to pass that the telephone records were located and introduced with devastating effect.
The Court is satisfied that Mr. Tendy did not withhold any plea offer from petitioner, that counsel was aware well before trial that petitioner was a persistent violent felon facing 25 years to life, and that petitioner's decision to go to trial had nothing to do with potential sentence exposure.
VI. Conclusion
Based on the foregoing, the petition for a wit of habeas corpus is denied.
As Petitioner has made no substantial showing of the denial of a constitutional right, there is no question of substance for appellate review. Therefore, no certificate of appealability shall issue. 28 U.S.C. § 2253; see United States v. Perez, 129 F.3d 255, 259-60 (2d Cir.1997); Lozada v. United States, 107 F.3d 1011 (2d Cir.1997); Rodriquez v. Scully, 905 F.2d 24 (2d Cir. 1990). I certify, pursuant to 28 U.S.C. § 1915(a), that an appeal from this order would not be taken in good faith. Coppedge v. United States, 369 U.S. 438, 82 S. Ct. 917, 8 L. Ed. 2d 21 (1962).
NOTES
[1] Transcript references are as follows: "H" for pre-trial hearings (pp. 1-216) and "T" for the trial. "PE" and "PEH" respectively designate People's exhibits in evidence at the trial and at the hearing.
[2] The jewelry store in which Falcones worked, and which petitioner and Urbina frequented, was located within the barber shop located at that address (T: 1123).
[3] Falcones testified at trial as a prosecution witness pursuant to a negotiated plea agreement (T: 1120-1121). In exchange for his cooperation and plea of guilty, Falcones received a sentence of imprisonment of eight years (T: 1121). The terms and conditions of the plea agreement were explored before the jury(T: 1120-1121).
[4] The only difference that prompted the People to consent to the independent source hearing with respect to Urbina was Sherrica's recollection that petitioner was in the company of three or four other people when she saw him at Burnside Avenue. (See H: 138-140). Waters' testimony was that petitioner was with just two others, Urbina and Falcones (H: 15-16), when Sherica saw him. This "discrepancy" had nothing to do with her identification of petitioner, whom she pointed out to police first and foremost. (H: 104-105). On appeal, petitioner claimed that Sherrica had testified that "the police had arrested 4 or 5 men at the West Burnside location." (R: 124-25). However, that claim is not consistent with the record.
[5] Although Waters' testimony is the only evidence relevant to the hearing court's decision on petitioner's motion, the testimony of Sherrica Tai is also recounted, as petitioner's claim is based upon information that came to light during Sherrica's testimony.
[6] It should be noted that petitioner's argument in the state court proceedings that the Wade hearing should have been reopened to explore the 48th Precinct identification procedures was obviated by the trial testimony of Sherrica, establishing an independent basis for her identification of petitioner. Indeed, even when a petitioner establishes that procedures were unduly suggestive, a pre-trial Wade hearing is not even constitutionally required when the existence of an independent basis for the identification testimony is adequately explored at trial. Dunnigan v. Keane, 137F.3d 117 (2d Cir.1998). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2388236/ | (2008)
The PENSION COMMITTEE OF the UNIVERSITY OF MONTREAL PENSION PLAN, et al., Plaintiffs,
v.
BANC OF AMERICA SECURITIES, LLC, Citco Fund Services (Curacao) N.V., the Citco Group Limited, International Fund Services (Ireland) Limited, PricewaterhouseCoopers (Netherland Antilles), John W. Bendall, Jr., Richard Geist, Anthony Stocks, Kieran Conroy, and Declan Quilligan, Defendants.
No. 05 Civ. 9016(SAS).
United States District Court, S.D. New York.
October 29, 2008.
OPINION AND ORDER
SHIRA A. SCHEINDLIN, District Judge:
I. INTRODUCTION
A group of investors brings this action to recover losses stemming from the liquidation of two British Virgin Islands ("BVI") based hedge funds in which they held shares: Lancer Offshore, Inc. ("Lancer Offshore" or the "Fund") and Omni-Fund Ltd. ("OmniFund" and together with Lancer Offshore, the "Funds").[1] The Funds were managed by Michael Lauer ("Lauer") through Lancer Management Group, LLC ("Lancer Management").[2] Plaintiffs bring various claims under federal securities laws and common law claims under New York law against former directors, administrators, the auditor, and the prime broker and custodian of the Funds.[3] International Fund Services (Ireland) Ltd. ("IFSI") was the administrator of Lancer Offshore from September 2002 until the Fund's liquidation.[4] Following the close of discovery, IFSI now moves for summary judgment on all claims against it.[5] For the reasons that follow, IFSI's motion for summary judgment is granted.
II. BACKGROUND
A. Facts[6]
Plaintiffs are twenty investors who purchased their shares in Lancer Offshore from 1997 to 2002.[7] The majority of Lancer Offshore's portfolio was comprised of large, controlling positions in a number of shell companies that had been acquired for little or no money at all.[8] The shares of these companies were thinly traded and were mostly traded "over the counter."[9] In a scheme known as "marking the close," at the end of each month Lauer would cause Lancer Offshore to purchase additional shares of these shell companies on the open market at inflated prices.[10] Because these securities were thinly traded and because Lauer owned controlling stakes in these companies, the price at which the Fund purchased the securities would appear on Bloomberg and other pricing sources as the closing market price for that day.[11] In this way, Lauer was able to artificially inflate the net asset values ("NAVs") of these securities, making it appear as the portfolio possessed a higher value than it actually did.[12] Because the management fees paid to Lancer Management were based on the NAV of the Fund, a higher NAV also meant increased fees for Lauer.[13]
In September 2002, IFSI replaced co-defendant Citco Fund Services (Curacao) N.V. ("Citco NV") as the administrator of Lancer Offshore.[14] At that time, plaintiffs had already invested in the Fund.[15] Among other tasks, IFSI was responsible for calculating Lancer Offshore's NAV and disseminating this information on a monthly basis to investors.[16] In addition to sending out these reports and other investor letters, IFSI would, on occasion, reply to investor inquiries.[17]
On May 2, 2003, the BVI Financial Services Commission ("FSC"), the BVI's securities regulator, commenced an action against Lancer Offshore in the BVI.[18] On July 8, 2003, the U.S. Securities and Exchange Commission sued Lauer and others in the United States District Court for the Southern District of Florida.[19] At the request of the SEC, the court appointed a receiver to administer and manage the Fund.[20] Virtually all of plaintiffs' investments, totaling over $550 million, have been lost.[21]
B. Procedural History
Plaintiffs filed their Second Amended Complaint on August 25, 2006, alleging claims for violations of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, against the former auditor of the Funds, PricewaterhouseCoopers (Netherlands Antilles) ("PWC NA"), Citco NV, and three former directors of Lancer Offshore, Anthony J. Stocks, Kieran .Conroy, and Declan Quilligan (collectively, "Citco Directors," and together with Citco NV, "Citco Defendants").[22] Plaintiffs also bring a claim under section 20(a) of the Securities Exchange Act of 1934 against The Citco Group Limited ("Citco Group"), based on Citco Group's alleged status as a control person of Citco NV.[23]
Plaintiffs also assert various common law claims under New York law against the Citco Defendants, PWC NA, and Banc of America Securities, LLC ("BAS"), the former prime broker and custodian of the Funds.[24] As to IFSI, plaintiffs bring claims of negligence and professional malpractice and of breach of fiduciary duty.[25]
On September 25, 2006, BAS made a motion to dismiss the claims against it. On October 4, 2006, the Citco Defendants and Citco Group similarly moved to dismiss the claims with respect to them. By opinion and order dated February 20, 2007, BAS's and certain of the Citco Directors' motions to dismiss were granted.[26] Following a year and a half of discovery, the remaining defendants now move for summary judgment. This opinion considers only the motion of IFSI.
III. LEGAL STANDARD
Summary judgment is appropriate "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."[27] An issue of fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party."[28] A fact is material when it "might affect the outcome of the suit under the governing law."[29] "It is the movant's burden to show that no genuine factual dispute exists."[30]
In turn, to defeat a motion for summary judgment, the non-moving party must raise a genuine issue of material fact. To do so, it must do more than show that there is "some metaphysical doubt as to the material facts,"[31] and it "may not rely on conclusory allegations or unsubstantiated speculation."[32] However, "all that is required [from a non-moving party] is that sufficient evidence supporting the claimed factual dispute be shown to require a jury or judge to resolve the parties' differing versions of the truth at trial."[33]
In determining whether a genuine issue of material fact exists, the court must construe the evidence in the light most favorable to the non-moving party and draw all justifiable inferences in that party's favor.[34] However, "[i]t is a settled rule that' [c]redibility assessments, choices between conflicting versions of the events, and the weighing of evidence are matters for the jury, not for the court on a motion for summary judgment.'"[35] Summary judgment is therefore inappropriate "`if there is any evidence in the record that could reasonably support a jury's verdict for the non-moving party.'"[36]
IV. APPLICABLE LAW
A. Breach of Fiduciary Duty
The elements of a claim for breach of fiduciary duty under New York law are "breach by a fiduciary of a duty owed to plaintiff; defendant's knowing participation in the breach; and damages."[37] Where damages are sought in a breach of fiduciary duty claim, "the plaintiff must demonstrate that the defendant's conduct proximately caused injury in order to establish liability."[38]
B. Negligence and Professional Malpractice
To prevail on a negligence claim, a plaintiff must demonstrate "(1) that the defendant owed him or her a cognizable duty of care; (2) that the defendant breached that duty; and (3) that the plaintiff suffered damage as a proximate result of that breach."[39] "Under New York law, professional malpractice is a species of negligence."[40] To prevail on a professional malpractice claim, a plaintiff must demonstrate the elements of negligence, and the breach of duty must be by a professional in a "departure from accepted standards of practice."[41]
V. DISCUSSION
A. Breach of Fiduciary Duty
IFSI argues that its alleged misconduct was not the proximate cause of plaintiffs' losses.[42] Because loss causation is an element of a claim for breach of fiduciary duty, IFSI argues that its motion for summary judgment on this claim should be granted.[43] Specifically, IFSI asserts that when it replaced Citco NV as the administrator of Lancer Offshore in September 2002, plaintiffs' losses had already been "locked in."[44] IFSI also contends that "[t]here was no material change in the portfolio between September 1 and December 31, 2002, and none of the plaintiffs purchased [F]und shares during that period."[45] Finally, it argues that even if IFSI had uncovered the scheme and made it known, the "illiquid nature of the portfolio, coupled with its relatively meager value, meant that it would have taken years to realize even pennies on the dollar had the [F]und started selling its securities ... in response to redemption requests."[46] As a result, IFSI claims its conduct could not have been the proximate cause of plaintiffs' losses.
Plaintiffs concede that they purchased shares of Lancer Offshore prior to IFSI's appointment as administrator but argue that they were lulled into retaining their investments by IFSI's calculation of inflated NAVs.[47] Plaintiffs further argue that they were damaged because during the four months that IFSI was calculating and reporting inflated NAVs to investors, Lancer Offshore incurred a cash outflow of more than twelve million dollars.[48] They assert that this outflow would not have occurred had IFSI uncovered the scheme and reported it to investors.[49]
Because plaintiffs have not adduced any evidence to show that the cash outflow negatively impacted the realizable value of plaintiffs' investments in Lancer Offshore, their argument must fail. As explained by plaintiffs, Lancer Offshore was an
open-ended investment fund[ ], whose defining feature is the ability of investors to purchase and redeem shares at a price based on NAV per share. Unlike an ordinary company, the price of shares in such a fund does not fluctuate as a function of the supply of and demand for those shares. Rather, the share price in an open-ended investment fund is solely a function of the calculated NAV per share for the fund, which is determined by dividing the total net value of the fund's portfolio by the number of shares the fund has issued.[50]
The NAV for Lancer Offshore was equivalent to the Fund's "gross assets less its gross liabilities. . . ."[51] Thus, in ascertaining whether IFSI contributed to plaintiffs' losses, the relevant query is whether the actual NAV of Lancer Offshore decreased during the time that IFSI was allegedly calculating and disseminating artificial NAVs (from September 1, 2002 to December 31, 2002).
Both IFSI and plaintiffs have submitted expert reports on this issue. IFSI's expert is Jeffrey Baliban, Senior Vice President of National Economic Research Associates and previously a senior partner in the Disputes Advisory Services practice at KPMG, LLP.[52] Plaintiffs' expert is Israel Shaked, Professor of Finance and Economics at Boston University's School of Management.[53]
Baliban's report, which is based on a review of Lancer Offshore's holdings in ten companies that comprised ninety-one percent of the Fund's portfolio, concludes that the Fund was already illiquid, and therefore worthless, at the time that IFSI became administrator.[54] Indeed, Baliban finds that, even at September 1, 2002, the portfolio's securities were so illiquid that it would have taken years to unwind the positions.[55] He also finds that Lancer Offshore's cash assets were insufficient to cover even its margin accounts as of September 1, 2002 and that they continued to be insufficient as of December 31, 2002.[56] Based on these findings, he concludes that "no real value could be realized" by plaintiffs (or in other words, that the NAV of the Fund was already zero) at the time that IFSI became administrator of the Fund.[57] As a result, any losses that plaintiffs suffered were not the product of IFSI's alleged misconduct.
In his report, Professor Shaked attempts to rebut Baliban's conclusion that the Lancer Offshore portfolio was "highly illiquid" during the time that IFSI was the administrator of the Fund, claiming that Baliban's report "pertains almost exclusively to [investments in shell companies]."[58] He explains that Baliban's conclusion ignores the "marketable positions" that Lancer Offshore held that were subsequently liquidated to "generate the cash that it would spend on [ ] improper [cash] outflows."[59] These outflows totaled twelve million dollars and included fees to Lancer Management and IFSI (which were based on inflated NAVs), redemptions paid to exiting investors, and "money transfers and bridge loans where there was no apparent legitimate purpose for the cash outflows to these entities."[60]
I find Shaked's analysis to be flawed and unpersuasive. As an initial matter, he does not dispute Baliban's conclusion that at least ninety-one percent of Lancer Offshore's portfolio was illiquid and had a NAV of zero.[61] Furthermore, even assuming that Lancer Offshore had liquidated the remaining nine percent of its marketable positions to generate the twelve million dollars in cash expenditures, this sum would not have been enough to cover the fifty-seven million dollars of net liabilities.[62] The liabilities of the Fund would still have exceeded the assets, and the NAV of the Fund would necessarily still have been zero.[63]
Shaked's report thus fails to show that the cash that was improperly spent would have made a difference to the value of plaintiffs' investments.[64] Because plaintiffs have not raised a "genuine issue" with respect to the lack of proximate cause, IFSI's motion for summary judgment with regard to plaintiffs' breach of fiduciary duty claim is granted.
B. Negligence and Professional Malpractice
As noted above, "no genuine factual dispute" exists with respect to the lack of loss causation. Plaintiffs have failed to raise a "genuine issue" regarding IFSI's claim that its alleged misconduct was not the proximate cause of plaintiffs' losses. Because a showing of proximate cause is also required for claims of negligence and professional malpractice, IFSI's motion for summary judgment with respect to those claims is also granted.[65]
V. CONCLUSION
For the reasons stated above, IFSI's motion for summary judgment is granted. The Clerk of the Court is directed to close this motion (document no. 180).
SO ORDERED.
NOTES
[1] See Second Amended Complaint ("2d Am. Compl.") ¶ 1.
[2] See id.
[3] See Id. ¶¶ 318-460.
[4] See id. ¶ 13.
[5] See Memorandum of Law of Defendant International Fund Services (Ireland) Ltd. in Support of its Motion for Summary Judgment ("Def. Mem.") at 1.
[6] The facts in this section are not in dispute and are drawn from Defendant's Rule 56.1 Statement ("Def. 56.1") and Plaintiffs' Counterstatement Pursuant to Rule 56.1 ("Pl. Counter. 56.1"). Some background facts, if not material to this motion, have been taken from the Second Amended Complaint.
[7] See 2d Am. Compl. ¶¶ 1, 15; Def. 56.1 ¶ 1; Pl. Counter. 56.1 ¶ 1.
[8] See Def. 56.1 ¶ 8; Pl. Counter. 56.1 ¶ 8.
[9] See Def. 56.1 ¶ 8; Pl. Counter. 56.1 ¶ 8.
[10] See Def. 56.1 ¶ 9; Pl. Counter. 56.1 ¶ 8.
[11] See PI. Counter 56.1 ¶ 8.
[12] See id.; Def. 56. ¶ 9.
[13] See 2d Am. Compl. ¶¶ 109, 117.
[14] See Def. 56.1 ¶¶ 4, 5; Pl. Counter. 56.1 ¶¶ 4, 5. Citco NV had been the administrator of the Funds from their inception in 1995 until August 31, 2002. Def. 56.1 ¶ 3; Pl. Counter. 56.1 ¶ 3.
[15] See Def. 56.1 ¶ 1; Pl. Counter. 56.1 ¶ 1.
[16] See Def. 56.1 ¶¶ 17, 18; Pl. Counter. 56.1 ¶ 15.
[17] See Def. 56.1 ¶¶ 23, 33, 34; Pl. Counter. 56.1 ¶ 23.
[18] See Def. 56.1 ¶ 25; Pl. Counter. 56.1 ¶ 25.
[19] See Def. 56.1 ¶ 27; Pl. Counter. 56.1 ¶ 27.
[20] See Def. 56.1 ¶ 28; Pl. Counter. 56.1 ¶ 28.
[21] See 2d Am. Compl. ¶ 1.
[22] See id. ¶¶ 318-326.
[23] See id. ¶¶ 327-341.
[24] See id. ¶¶ 342-375, 384-460.
[25] See id. ¶¶ 376-391.
[26] See Pension Comm. of the Univ. of Montreal Pension Plan, et al. v. Banc of America Sec., et al., No. 05 Civ. 9016, 2007 WL 528703 (S.D.N.Y. Feb. 20, 2007).
[27] Fed.R.Civ.P. 56(c).
[28] Higazy v. Templeton, 505 F.3d 161, 169 (2d Cir.2007) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986)).
[29] McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 202 (2d Cir.2007) (citing Jeffreys v. City of New York, 426 F.3d 549, 553 (2d Cir.2005)).
[30] Vermont Teddy Bear Co. v. 1-800 Beargram Co., 373 F.3d 241, 244 (2d Cir.2004) (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S. Ct. 1598, 26 L. Ed. 2d 142 (1970)).
[31] Higazy, 505 F.3d at 169 (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986)).
[32] Jeffreys, 426 F.3d at 554 (quoting Fujitsu Ltd. v. Federal Express Corp., 247 F.3d 423, 428 (2d Cir.2001)).
[33] McClellan v. Smith, 439 F.3d 137, 144 (2d Cir.2006) (quoting First Nat'l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 288-89, 88 S. Ct. 1575, 20 L. Ed. 2d 569 (1968)).
[34] See Allstate Ins. Co. v. Hamilton Beach/Proctor Silex, Inc., 473 F.3d 450, 456 (2d Cir.2007) (citing Stern v. Trustees of Columbia Univ., 131 F.3d 305, 312 (2d Cir. 1997)).
[35] McClellan, 439 F.3d at 144 (quoting Fischl v. Armitage, 128 F.3d 50, 55 (2d Cir.1997)). Accord Anderson, 477 U.S. at 249, 106 S. Ct. 2505.
[36] American Home Assurance Co. v. Hapag Lloyd Container Linie, GmbH, 446 F.3d 313, 315 (2d Cir.2006) (quoting Marvel Characters, Inc. v. Simon, 310 F.3d 280, 286 (2d Cir. 2002)).
[37] SCS Commc'ns., Inc. v. Herrick Co., 360 F.3d 329, 342 (2d Cir.2004) (citing Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 281-82 (2d Cir.1992)).
[38] LNC Invs., Inc. and Charter Nat'l Life Ins. Co. v. First Fidelity Bank, N.A. New Jersey, 173 F.3d 454, 465 (2d Cir.1999) (citing R.M. Newell Co. v. Rice, 236 A.D.2d 843, 653 N.Y.S.2d 1004, 1005 (4th Dep't 1997)).
[39] DiBenedetto v. Pan Am World Serv., Inc., 359 F.3d 627, 630 (2d Cir.2004).
[40] Hydro Investors, Inc. v. Trafalgar Power Inc., 227 F.3d 8, 15 (2d Cir.2000).
[41] VTech Holdings, Ltd. v. Pricewaterhouse Coopers, LLP, 348 F. Supp. 2d 255, 262 (S.D.N.Y.2004) (citing Herbert H. Post & Co. v. Sidney Bitterman, Inc., 219 A.D.2d 214, 639 N.Y.S.2d 329, 335 (1st Dep't 1996)).
[42] See Def. Mem. at 11.
[43] See id.
[44] Id. at 12.
[45] Id. at 11-12.
[46] Id. at 12.
[47] See Plaintiffs' Memorandum of Law in Opposition to Motion for Summary Judgment of Defendant International Fund Services (Ireland) Limited ("Pl. Mem.") at 20.
[48] See id.
[49] See id. at 22.
[50] 2d Am. Compl. ¶ 106.
[51] Placement Memorandum Relating to Shares of Capital Stock of Par Value U.S. $1.00 Per Share of Lancer Offshore ("Placement Mem."), Ex. 4 to Declaration of Seth M. Schwartz, Counsel for IFSI ("Schwartz Decl."), at 24.
[52] See Curriculum Vitae of Jeffrey L. Baliban, IFSI's expert, Ex. 2 to Schwartz Decl., at 1.
[53] See 9/15/08 Report of Israel Shaked, plaintiffs' expert ("Shaked Rep."), Ex. 15 to Declaration of Scott M. Berman, plaintiffs' counsel, at 1.
[54] See Report of Jeffrey L. Baliban ("Baliban Rep."), Ex. 1 to Schwartz Decl., at 9, 12. Plaintiffs argue that Baliban's report "is based almost entirely on a 2003 Deloitte Touche report, which is inadmissible hearsay." Pl. Mem. at 23 n. 12. Deloitte Touche had been retained by the BVI FSC to review the Funds and had issued a report on May 21, 2003 detailing its findings. See Baliban Rep. at 2. It is true that Baliban relies on the Deloitte & Touche report in his analysis. See id. at 7. However, an expert may rely on facts or data "perceived by or made known to the expert ...." Fed.R.Evid. 703. And although Baliban refers in his report to Deloitte & Touche's findings, he makes clear that he conducted an independent analysis to confirm Deloitte Touche's conclusions regarding Lancer Offshore's liquidity problems at December 31, 2002 and furthermore engaged in a review of the Fund's financials to ascertain whether the Fund faced the same problems in August 31, 2002. See Baliban Rep. at 9-13; see also 9/26/08 Supplemental Declaration of Jeffrey L. Baliban at 1-2. Thus, Baliban's report is admissible for the purposes of this motion.
[55] See id at 8, 12 (noting the conclusion of Deloitte & Touche that at December 31, 2002 "two positions would [have taken] over 150 years to unwind" and concluding that the holdings were "essentially the same" at September 1, 2002 as they were at December 31, 2002).
[56] See Baliban Rep. at 13. In fact, Baliban concludes that Lancer Offshore was in an "even less liquid position as of September 1, 2002" than at the end of the year. Id. at 12.
[57] See id. Baliban notes that this lack of liquidity would have created problems for investors hoping to redeem their investments from September 1, 2002 to December 31, 2002. As of June 30, 2002, the Fund was already unable to meet redemption requests of other investors, who sought $106 million based on the allegedly inflated NAV. See id. at 9.
[58] Shaked Rep. at 13.
[59] Id. at 13.
[60] Id. at 5.
[61] Indeed, plaintiffs do not contest defendant's suggestion that the securities in the portfolio as of September 1, 2002 were highly illiquid. See Pl. Counter. ¶ 11.
[62] See Baliban Rep. at 13 (finding that cash assets equaled two million dollars while margin accounts equaled fifty-nine dollars at September 1, 2002).
[63] This does not mean that the cash outflow was innocuousit affected the amount Lancer Offshore could pay creditors. For plaintiff investors, however, their investments were already sunk.
[64] Plaintiffs cite to several cases that allow the imposition of liability on a defendant whose acts succeed in deepening insolvency. See Pl. Mem. at 20. However, as plaintiffs acknowledge, all of these cases discuss the possibility of a "deepening insolvency" theory of liability if plaintiffs can prove that defendants' actions led to increased indebtedness or a net loss. See id. (noting that liability was based on "increased indebtedness") (citing In re Gouiran Holdings, Inc., 165 B.R. 104, 106 (E.D.N.Y.1994)). See also Allard v. Arthur Andersen & Co. (USA), 924 F. Supp. 488, 494 (S.D.N.Y.1996) (allowing a "deepening insolvency" theory for "further indebtedness."); Thabault v. Chait, 541 F.3d 512, 532-33 (3d Cir.2008) (allowing recovery for net losses from a corporation's continuing operations). I make no ruling regarding the validity of this theory of liability, however, because plaintiffs have failed to show that Lancer Offshore's indebtedness increased during the period that IFSI was the administrator. On the contrary, IFSI shows that Lancer Offshore's cash position improved while debt decreased in the four months it was allegedly disseminating artificial NAVs. See Reply Memorandum of Law of Defendant International Fund Services (Ireland) Ltd. in Further Support of its Motion for Summary Judgment at 3; Baliban Rep. at 13.
[65] Because summary judgment is granted to IFSI based on lack of proximate cause, I make no findings with respect to IFSI's other argumentsthat plaintiffs' claims are preempted by New York's Martin Act and that IFSI owed no duty to plaintiffs and therefore was not liable under either a breach of fiduciary duty or negligence claim. See Def. Mem. at 13-24. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2388246/ | 457 F. Supp. 2d 1201 (2006)
J.C., Plaintiff,
v.
SOCIETY OF JESUS, Oregon Province, Defendant.
No. C05-1662JLR.
United States District Court, W.D. Washington, at Seattle.
October 20, 2006.
Michael T. Pfau, F. Michael Shaffer, Gordon Thomas Honeywell Malanca Peterson & Daheim, Tacoma, WA, for Plaintiff.
Michelle A. Menely, Gordon Thomas Honeywell Malanca Peterson & Daheim, Thomas Vincent Dulcich, Mario James Madden, Renea I. Saade, Schwabe Williamson & Wyatt, Seattle, WA, for Defendant.
ORDER
ROBART, District Judge.
I. INTRODUCTION
This matter comes before the court on a motion for summary judgment (Dkt.# 91) from the Defendant, the Oregon Province of the Society of Jesus ("the Province"). The court has considered the parties' *1202 briefs and supporting declarations, and finds oral argument unnecessary. For the reasons stated below, the court GRANTS the motion in part and DENIES it in part.
II. BACKGROUND & ANALYSIS
Plaintiff alleges that the Province is liable to him for damages arising from a 1968 incident in which Father Michael Toulouse, a priest within the Province, sexually abused him. The Plaintiff was a minor at the time of the abuse. Father Toulouse died in 1976.
The Province concedes that there is sufficient evidence to create a triable issue over the Province's alleged negligence in failing to prevent Father Toulouse from abusing Plaintiff. It targets this motion at Plaintiffs remaining theories of relief: negligent infliction of emotional distress, equitable estoppel and fraudulent conveyance, and Washington's Sexual Exploitation of Children Act, RCW §§ 9.68A.001-9.68A.911.
In reviewing the pending summary judgment motions, the court must draw all inferences from the evidence in the light most favorable to the non-moving party. Addisu v. Fred Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir.2000). Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c). The moving party bears the initial burden to demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, All U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). If the moving party meets its burden, the opposing party must show that there is a genuine issue of fact for trial. Matsushita Elect. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). The opposing party must present probative evidence to support its claim or defense. Intel Corp. v. Hartford Accident & Indent. Co., 952 F.2d 1551, 1558 (9th Cir.1991). For purely legal questions, summary judgment is appropriate without deference to either party.
A. Negligent Infliction of Emotional Distress
The Province seeks to dismiss Plaintiffs claim for negligent infliction of emotional distress ("NIED") because it is "redundant" and "superfluous." Mot. at 5. The Province correctly observes that Plaintiff seeks emotional damages for his negligence claim. It therefore concludes that Plaintiffs claim for negligent infliction of emotional distress is no more than an attempt to obtain a double recovery.
The court finds no basis for dismissing Plaintiffs NIED claim. There is no suggestion that Plaintiff lacks the evidence to support such a claim. The Province concedes for purposes of this motion that Plaintiff has a triable negligence claim. A triable NIED claim requires that the Plaintiff point to "objective symptomatology" of his emotional distress. Haubry v. Snow, 106 Wash.App. 666, 31 P.3d 1186, 1193 (2001) (citing Hunsley v. Giard, 87 Wash.2d 424, 553 P.2d 1096, 1103 (1976)). If this case proceeds to trial, the court will ensure (likely at the insistence of the Province) that the jury does not award duplicative damages. The possibility of duplicative damages, however, is no basis for granting summary judgment.
B. Equitable Estoppel and Fraudulent Concealment
Because Father Toulouse abused the Plaintiff more than 30 years ago, Plaintiff appropriately anticipated that the Province would rely on a statute of limitations defense. Plaintiff asserts the doctrines of equitable estoppel and fraudulent concealment as reasons that the statute of limitations does not bar his claim.[1] Although *1203 Plaintiffs manner of pleading these doctrines is not artful, the court finds no basis for preventing him from relying on the doctrines.
First, Plaintiff asserted a cause of action for "equitable estoppel." Properly invoked, equitable estoppel prevents a statute of limitations defense where the "defendant has fraudulently or inequitably invited a plaintiff to forebear from commencing suit until the applicable statute of limitation has run." Robinson v. City of Seattle, 119 Wash.2d 34, 830 P.2d 318, 345 (1992). A plaintiff asserting equitable estoppel bears the burden of proof by "clear, cogent, and convincing evidence." Id.
The Province correctly notes that there is no basis for asserting equitable estoppel as an independent cause of action. To the extent that the Province requests an order declaring that Plaintiff has mislabeled his equitable estoppel argument, the court grants the request.
To the extent that the Province seeks to bar Plaintiff from relying on an equitable estoppel argument, however, the court must deny the Province's motion. The Province's challenge to the merits of Plaintiffs equitable estoppel argument consists of a single paragraph of briefing in which it cites neither law nor evidence. Defs.' Mot. at 7. This provides the court with no basis for deciding whether Plaintiff can prove equitable estoppel at trial. In the Province's reply brief, it raises for the first time the alleged lack of evidence supporting equitable estoppel in this case. The court declines to consider this argument, as Plaintiff had no opportunity to respond to it. The court therefore will not grant summary judgment on Plaintiffs equitable estoppel argument.[2]
Second, Plaintiff asserted a cause of action for "fraudulent concealment." Like equitable estoppel, fraudulent concealment is a plaintiffs defense to a defendant's statute of limitations defense. Giraud v. Quincy Fami & Chem., 102 Wash. App. 443, 6 P.3d 104, 110 (2000). A plaintiff must prove, inter alia, that the defendant has an affirmative duty to disclose information material to a cause of action, and that the defendant intentionally withheld that information. Id.
The court grants the Province's motion to the extent that Plaintiff has improperly designated fraudulent concealment as an independent cause of action.
The court finds no basis, however, to rule that Plaintiff cannot rely on a fraudulent concealment theory as a matter of law. The Province asserts that Plaintiff knew that Father Toulouse had abused him, and thus Plaintiff cannot argue that the Province concealed anything. This misses the point. The crux of this lawsuit is not whether Father Toulouse abused Plaintiff (indeed, the Province has all but conceded as much), but whether the Province knew or should have known of Father Toulouse's proclivities, and whether the Province had a duty to protect minors who came into contact with Father Toulouse. At a minimum, Plaintiff has presented sufficient evidence *1204 that the Province was on notice of Father Toulouse's criminal conduct and failed to disclose what it knew. Whether Plaintiff marshals that evidence to support a straightforward argument that the statute of limitations does not bar this action, or whether he uses it to invoke equitable estoppel, fraudulent concealment, or another doctrine is a matter for Plaintiff to decide. There is no basis, on the record before the court, to say that Plaintiff cannot support such arguments as a matter of law.[3]
C. RCW § 9.68A.130
Plaintiffs claim under the Sexual Exploitation of Children Act ("SECA") presents questions of statutory construction. SECA includes the following provision:
A minor prevailing in a civil action arising from a violation of this chapter is entitled to recover the costs of the suit, including an award of reasonable attorneys' fees.
RCW § 9.68A.130. Plaintiff asserts a cause of action under this statute[4], alleging that this case arises, at least in part, from Father Toulouse's "communicat[ion] with a minor for immoral purposes" in violation of SECA. See RCW § 9.68A.090. Washington courts have interpreted communications with a minor incident to sexual abuse as criminal communications for an immoral purpose. C.J.C. v. Corporation of the Catholic Bishop, 138 Wash.2d 699, 985 P.2d 262, 270-71 (1999).
Several of the Province's attempts to avoid the applicability of the attorneys' fees provision are unconvincing. First, the Province interprets the availability of attorneys' fees in any "civil action arising from a violation," RCW § 9.68A.130, to permit a fees award only where the person who violated SECA is the defendant in the action. This construction conflicts with the text of the statute, and the Province presents no authority to support it. Similarly, the court finds no merit in the Province's assertion that its liability for attorneys' fees turns on whether it is vicariously guilty of Father Toulouse's crimes under RCW § 9A.08.030. The statute on which the Province relies defines circumstances under which a corporate body is criminally liable for the acts of one of its agents. See RCW § 9A.08.030. The statute is silent as to civil liability, which is the subject of SECA's attorneys' fees provision. Third, the Province's position that civil liability can arise only after a conviction under SECA is inconsistent with the statute's conditioning of liability on a "violation " of SECA. RCW § 9.68A.130 (emphasis added).
Whereas the above questions appear to have obvious answers, the parties pay little attention to a more difficult question of statutory interpretation: whether SECA's fees provision applies to Father Toulouse's conduct in 1968. Typically, application of an attorneys' fees statute raises no question of retroactivity, because a litigant's entitlement to attorneys' fees does not arise until he has prevailed at trial. State v. Blank, 131 Wash.2d 230, 930 P.2d 1213, 1223 (1997). In this case, however, the retroactivity concern arises from conditioning the entitlement to attorneys' fees on a "violation of this chapter." RCW § 9.68A.130. Although communication with a minor for immoral purposes has been unlawful since at least 1961[5], it has been a *1205 violation of SECA only since 1984. Does this raise concerns of retroactive application? The parties barely address this question, and do so without citing relevant precedent.
Under these circumstances, the court declines to decide at this time whether SECA's attorneys' fees provision applies in this action. Although 22 years have passed since the legislature enacted SECA, no court has construed the act's attorneys' fees provision. The question before the court is a state law question of first impression, and the court declines to decide it on the sparse briefing the parties have presented. There is no question that Plaintiff must prevail in this action before he can claim attorneys' fees. Should he prevail, the court will require the parties to submit more detailed briefing on the applicability of RCW § 9.68A.130.
III. CONCLUSION
For the foregoing reasons, the court GRANTS the Province's motion (Dkt.# 91) to the extent it correctly identifies arguments that Plaintiff should not have pleaded as causes of action. The court DNIES the motion in all other respects, and reserves ruling on the applicability of RCW § 9.68A.130 to this action.
NOTES
[1] It is likely that Plaintiff's best response to the Province's statute of limitations defense will be the statute of limitations itself. The applicable statute, RCW § 4.16.340, sets forth three potentially independent events that commence the limitations period, and thus requires a defendant to establish that none of those events occurred within the limitations period. See C.J.C. v. Corporation of the Catholic Bishop, 138 Wash.2d 699, 985 P.2d 262, 266 (1999).
[2] Plaintiff should not misconstrue the court's decision to deny summary judgment as encouragement to pursue an equitable estoppel argument. Plaintiff should review the Robinson court's discussion of the doctrine and its elements, 830 P.2d at 345, and consider his reliance on the doctrine accordingly. Although the court does not prejudge the issue, the court is not aware of any circumstances in this action that would support a finding of equitable estoppel.
[3] Again, Plaintiff should not misconstrue the court's refusal to grant summary judgment as encouragement to rely on a marginal argument. See supra n. 2.
[4] Although there seems no reason to assert this attorneys' fees provision as a separate cause of action, neither party explains why this technical defect is of any consequence.
[5] The Province suggests that Washington did not begin criminalizing communicating with a minor for immoral purposes until 1975. Reply at 13. The Province is wrong. See State v. Rahn, 1 Wash.App. 159, 459 P.2d 824, 825 (1969) (citing RCW § 9.79.130, which criminalized "communicat[ion] with a child under the age of eighteen years for immoral purposes"); State v. Carter, 89 Wash.2d 236, 570 P.2d 1218, 1222 n. 6 (1977) (noting repeal of RCW § 9.79.130 in 1975); State v. Schimmelpfennig, 92 Wash.2d 95, 594 P.2d 442, 446 (Wash. 1979) (noting enaction of RCW § 9A.88.020 in 1975); C.J.C., 985 P.2d at 270 n. 7 (noting recodification of RCW § 9A.88.020 and eventual incorporation in SECA in 1984). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2386463/ | 279 F. Supp. 2d 201 (2003)
Eduardo B. BARLAS, Plaintiff,
v.
UNITED STATES OF AMERICA, Defendant.
No. 01 Civ. 6420(DC).
United States District Court, S.D. New York.
August 18, 2003.
*202 Tabak & Mellusi by Sheldon Tabak, Stephen B. Roberts, New York City, for Plaintiff.
United States Department of Justice, Civil Division Aviation/Admiralty Section by Michelle T. Delemarre, Admiralty Trial Attorney, Washington, DC, for Defendant.
OPINION
CHIN, District Judge.
On March 17, 2000, seaman Eduardo Barlas tripped on a plastic packing strap on the deck of the S.S. Cape Avinof. Barlas's feet became entangled in the strap while he was carrying two heavy boxes of canned goods, and the fall injured his ankle, knee, and lower back. In this case, Barlas contends that dual defects rendered the Cape Avinof "unseaworthy": the plastic strap was inadequate because it must have slipped off a carton, uncut, and the deck was unsafe because it contained a nearly invisible entanglement hazard.
In the peculiar world of the general maritime law and the "unusual liability" that is unseaworthiness, Shenker v. United States, 322 F.2d 622, 630 (2d Cir.1963) (Friendly, J., dissenting), I conclude that the fallen packing strap rendered the Cape Avinof "unseaworthy" and the United States is liable in tort to Barlas for his injuries. Pursuant to Fed.R.Civ.P. 52(a), my findings of fact and conclusions of law follow.
FINDINGS OF FACT
A. Plaintiff
Barlas was born on April 2, 1957 in the Philippines, where he worked as a merchant seaman from 1977 until 1984. (Tr. at 11).[1] Barlas came to the United States in December 1985, and after receiving his green card in 1990, he became a nursing assistant. (Tr. at 12). Barlas thereafter became a United States citizen, and in 1995 he obtained his seaman's papers and returned to work as a merchant seaman. (Tr. at 13-14). Since then, he has not worked on shore. (Tr. at 14).
Barlas began work as an "able bodied seaman" or "AB" on the Cape Avinof, a vessel owned by the United States, on March 16, 2000. (Tr. at 14-16, 20-21, 90). As an AB, Barlas worked primarily on the deck, doing "bull work": general deck maintenance such as painting, chipping, and securing gears, work that involved lifting, crawling, and squatting. (Tr. at 16).
B. The Accident
On March 17, 2000, the Cape Avinof was docked at Baltimore, Maryland. (Tr. at 68). At about 3:30 in the afternoon, Barlas followed an order to help two or three others unload pallets containing boxes of the ship's stores (provisions or other items for the ship's own use), located on the starboard side, main deck, next to the number 5 hatch. (Tr. at 20, 30-31, 35; PX 3).
*203 The unloading of stores is a relatively simple, weekly operation. (Tr. at 72). Pallets containing boxes are lifted by a ship's winch from the back of a truck on the pier onto the deck of the ship. (Id.). The pallets' shrink-wrapping is cut away, and individual boxes are picked up and carried into the galley, inventoried, then stored or refrigerated. (Id.).
On the day of the accident, Barlas helped to cart the pallets across the deck to the nearest doorway. (Tr. at 30). From there, he was to carry boxes from the pallets and pass them to a man inside the doorway. (Tr. at 31). On his first trip from the back of a pallet to the door of the ship, while carrying two boxes of canned goods, Barlas's feet became tangled in a plastic packing strap. He fell to the deck, twisting his legs, and landed on his knees, still holding the boxes. (Tr. at 32, 34, 50).
Although Barlas was not carrying anything when he first went to the rear of the pallet, he did not see the strap on the deck until after he fell. Neither he nor Chief Mate Bolster, who was involved in the unloading operation, knew where the strap came from. (Tr. at 56-57). The boxes Barlas was carrying did not have packing straps, and the pallets themselves were shrink-wrapped. (Tr. at 54, 74). Some other boxes on the pallets were strapped and some were not. (Tr. at 34, 57). Boxes of frozen seafood had one packing strap around each package. (Tr. at 74).
Extrapolating from Bolster's testimony that the strap likely came from a small box of frozen fish, the Court finds that the plastic strap was somewhere between 14 and 18 inches in length, and approximately 3/8 of an inch wide. (Tr. at 74; PX 16). Although the plastic strap that tripped Barlas was not retained, the Government does not dispute that Barlas tripped on such a strap. (Tr. at 21). A packing strap similar to the one in question, perhaps a little longer (a total of 18 inches), was received in evidence. (Tr. at 74; PX 16).
The Court further finds that the strap fell to the deck from one of the boxes of stores. Indeed, Bolster testified that there was no other possibility. (Tr. at 84; see Tr. at 89 (wind theoretically capable of moving the strap)). Similarly, it was unlikely that Barlas was responsible for the strap's presence (although he is partly responsible for failing to see it), as the first and only boxes he lifted did not have any such straps. (Tr. at 52-53). As there was no testimony that any of the crew were engaged in cutting or removing strapping, the Court finds that the strap slipped off one of the other boxes of stores without being cut.
Further, the strap was not on the deck for very long before Barlas tripped on it. There were at least three people, in addition to Bolster, involved in the operation and walking around the area, alert to potential tripping hazards; both Bolster and Barlas agreed they would have picked up the strap if they had seen it. (Tr. at 49, 53-55, 75, 83).
The strap was white; the deck of the Cape Avinof was gray-black, with a nonskid surface. (Tr. at 76; DX 1 (photo); PX 16 (strap)). The strap would have been visible laying on the deck, although by no means as visible as other obstructions. The deck's fixtures included a number of raised, metal D-rings spray-painted yellow. A metal trash can, also painted yellow, was usually placed in the area. (Tr. at 77-78). Any crew member who saw the strap would have been able to dispose of it easily.
C. Plaintiff's Injuries and Treatment
Barlas initially complained of pain in his right ankle and, after being taken to rest inside the ship, pain in his right hip continuing *204 down into his legs. (Tr. at 18, 20, 33; PX 4). Bolster visited Barlas in his room soon after the accident, and could see a scrape on his knee and swelling at his ankle. (Tr. at 80-81). Barlas was treated at Johns Hopkins Bayview Medical Center, where he was declared unfit for duty, his ankle was splinted, and he was given a crutch. (Tr. at 36, 58; PX 6; Stip. Facts ¶ 12). Barlas complained of back pain and was given medication, but he was not initially treated for a back injury. (Tr. at 58-59).[2]
An MRI of the plaintiff's lumbar spine was taken at Columbia Presbyterian Hospital in New York on March 31, 2000. The MRI showed an L4-5 right-sided herniated disc (herniated nucleus pulposus or HNP), leading to right foraminal stenosis and disc desiccation with small disc bulges at L2-3 and L3-4, but without significant central canal or foraminal stenosis. (Tr. at 95-97; PX 7).[3]
Referred by his lawyer, Barlas consulted Dr. Harold Goldberg, an osteopathic physician, in April 2000. From the radiologist's report and a physical examination, Dr. Goldberg concluded that Barlas suffered from a right L4-5 radiculopathy, or pain radiating from a nerve, and "traumatic derangement of the lumbosacral spine." (Tr. at 97-98, 59, 122; Stip. Facts ¶ 14). Goldberg also found a contusion and sprain of the right hip and a right ankle sprain, and he prescribed physical therapy. (Tr. 98, 122). Barlas received physical therapy, including electric stimulation of the muscles in the lumbar region, hot packs, massage, strength exercises for the lower back, as well as a prescription for indomethacin. (Tr. at 99).
Barlas continued a regimen of physical therapy for a number of months, until, according to Dr. Goldberg, Barlas insisted that he return to work. Dr. Goldberg reluctantly authorized a qualified "fit for duty" in November 2000, and, when this was rejected by the plaintiff's union, an unrestricted order in December 2000. (Tr. at 101).
Dr. Goldberg re-examined Barlas in May 2002, and found that Barlas was "still injured." (Tr. at 105). Barlas was still experiencing lower back and leg pain and was unable to satisfactorily perform standard tests, such as leg raising and trunk flexation. Dr. Goldberg diagnosed him with chronic lower back derangement. (Tr. at 106-07). Barlas will continue to feel pain as a result of his injury, and his condition is expected to worsen as he ages, including the likely onset of traumatic arthritis in the area. (Tr. at 110-11). Additional physical therapy would not have helped Barlas, as, in general, one year after such an injury occurs, the maximum benefit from treatment will have been reached and maximum healing will have occurred. (Tr. at 109-10). Although there may have been some degenerative changes unrelated to the accident, Goldberg was confident that the trauma caused the herniated disc and a great deal *205 of continuing pain. (Tr. at 117, 125).[4]
Before Barlas was injured by his fall on the deck of the Cape Avinof, he complained of no back problems; now he reports lasting effects from the fall, including shooting pains down his right leg, extreme pain at times in his lower right back and leg, difficulty performing sexually, pain caused by sneezing and coughing, and a general discomfort. (Tr. at 30, 41-43, 158).
Before the accident, Barlas was a fit man who enjoyed playing basketball, bowling, jogging, fishing, and actively participating in the lives of his two children. Since the accident he is unable to play basketball, bowl, jog or even watch his daughter play volleyball, as standing in the gym for extended periods causes him pain. (Tr. at 37-41). Putting on his socks can at times be a struggle, and he must take additional time in the morning and after work to stretch in an effort to alleviate his discomfort. (Tr. at 43). Barlas is still able to fish; likewise, he returned to work as an AB in the merchant marine in March 2001, one year after the accident, although he now works with increased pain. (Tr. at 39, 42). Barlas has since obtained a permanent position as a seaman aboard the M/V Enterprise. (Stip. Facts ¶ 19).
D. Lost Wages and Compensation
Barlas was paid in full for the remainder of the coastwise "voyage" of the docked Cape Avinof, and dismissed on March 20, 2000. (Tr. at 59; Stip. Facts ¶ 9-10). He received $8 per day for maintenance through November 19, 2000, an amount set by the Government's collective bargaining agreement with the National Maritime Union. (Id.). On November 20, 2000, Dr. Goldberg found Barlas "fit for a trial of work." The union refused to accept this qualified order, and thus Barlas was not cleared to work until Dr. Goldberg signed an unrestricted order on December 27, 2000. (Tr. at 119-120; PX 12, 14; Stip. Facts ¶¶ 15-17). This leaves an intervening 37 days (November 20, 2000 through December 27, 2000) for which he received no compensation, and thus he should have been paid an additional $296 in maintenance. (Stip. Facts ¶ 17). In addition, Barlas was unable to work for 9 months of the year 2000. His average salary from 1996-2001, excluding 2000, was $36,214; in 2000 Barlas earned only $3,638, or $32,576 less than average. (Stip. Facts ¶ 8).
DISCUSSION and CONCLUSIONS OF LAW
I. Applicable Law
A. Jurisdiction and Prior Proceedings
Barlas filed suit on July 17, 2001. Jurisdiction is proper under 28 U.S.C. § 1333. The Cape Avinof is owned by the United States and operated by its ship manager, Mormac Marine. The United States concedes to jurisdiction under the Suits in Admiralty Act, 46 U.S.C. §§ 741-52. This case was tried to the Court on December 2-3, 2002. At trial, plaintiff withdrew his claim based upon negligence under the Jones Act, and proceeded solely with a *206 claim of unseaworthiness under the general maritime law.
B. Liability for Unseaworthiness
1. The Nature of the Warranty
The law of unseaworthiness has been described as a species of "strict liability" or even a "no fault doctrine." Gravatt v. City of New York, 226 F.3d 108, 116 (2d Cir.2000). Although some courts hesitate to equate unseaworthiness with strict liabilityand here, the Government objects to the term (Tr. at 263)it is well-settled that unseaworthiness is a strict liability rule. See, e.g., Yamaha Motor Corp., U.S.A. v. Calhoun, 516 U.S. 199, 207-08, 116 S. Ct. 619, 133 L. Ed. 2d 578 (1996) ("State wrongful-death statutes proved an adequate supplement to federal maritime law, until a series of this Court's decisions transformed the maritime doctrine of unseaworthiness into a strict-liability rule.").
Technically, unseaworthiness stops short of absolute liability because it depends upon "reasonable fitness." Under the principles of seaworthiness, an owner has an absolute duty to furnish a ship, crew, and appurtenances reasonably fit for their intended service. Mitchell v. Trawler Racer, Inc., 362 U.S. 539, 549, 80 S. Ct. 926, 4 L. Ed. 2d 941 (1960); Oxley v. City of New York, 923 F.2d 22, 24 (2d Cir.1991). "[T]he concept of the unseaworthiness of a ship is a relative one, dependent for definition in each instance upon the circumstances in which her fitness is drawn into question." Mosley v. Cia. Mar. Adra, S.A., 314 F.2d 223, 227 (2d Cir.1963). An owner's failure to provide a ship, crew, and appurtenances reasonably fit for their intended service results in "a species of liability without fault," Seas Shipping Co. v. Sieracki, 328 U.S. 85, 94, 66 S. Ct. 872, 90 L. Ed. 1099 (1946), and such liability "does not depend either on negligence ... or on notice." Oxley, 923 F.2d at 25 (citations omitted).
A ship is considered unseaworthy when it is "insufficiently or defectively equipped." Waldron v. Moore-McCormack Lines, Inc., 386 U.S. 724, 726, 87 S. Ct. 1410, 18 L. Ed. 2d 482 (1967) (footnote omitted); see Poignant v. United States, 225 F.2d 595, 598 (2d Cir.1955). There is liability without fault, because "unseaworthiness is a condition, and how that condition came into beingwhether by negligence or otherwiseis quite irrelevant to the owner's liability for personal injuries resulting from it." Usner v. Luckenbach Overseas Corp., 400 U.S. 494, 498, 91 S. Ct. 514, 27 L. Ed. 2d 562 (1971).
2. The History of the Doctrine
The rationale of the seaworthiness remedy is based upon "the hazards of marine service which unseaworthiness places on the men who perform it" coupled with "their helplessness to ward off such perils." Sieracki, 328 U.S. at 93, 66 S. Ct. 872. In apportioning the risks of maritime injuries, "the harshness of forcing [seamen] to shoulder alone the resulting personal disability and loss [has] been thought to justify and to require putting their burden, in so far as it is measurable in money, upon the owner regardless of his fault." Id. at 93-94, 66 S. Ct. 872.
Some of those risks are "avoidable," in that they result from negligence; those unavoidable risks of loss "beyond" negligence can be distributed "in the shipping community which receives the service and should bear its cost." Id. at 94, 66 S. Ct. 872; see DeGioia v. U.S. Lines Co., 304 F.2d 421, 426 (2d Cir.1962) ("The function of the doctrine of unseaworthiness ... is allocation of the losses caused by shipboard injuries to the ... institutions most able to minimize the particular risk involved."); The H.A. Scandrett, 87 F.2d *207 708, 711 (2d Cir.1937) (A.Hand, J.) ("A ship is an instrumentality full of internal hazards aggravated, if not created, by the uses to which she is put. It seems to us that everything is to be said for holding her absolutely liable to her crew for injuries arising from defects in her hull and equipment. The liability can be covered by insurance and is better treated as an expense of the business than one left to an uncertain determination of courts in actions to recover for negligence.").
In addition, "admiralty courts have always shown a special solicitude for the welfare of seamen and their families," believing that "it better becomes the humane and liberal character of proceedings in admiralty to give than to withhold the remedy." Miles v. Apex Marine Corp., 498 U.S. 19, 36, 111 S. Ct. 317, 112 L. Ed. 2d 275 (1990) (internal quotations omitted); see Cortes v. Balt. Insular Line, 287 U.S. 367, 377, 53 S. Ct. 173, 77 L. Ed. 368 (1932) ("Out of this relation of dependence and submission there emerges for the stronger party a corresponding standard or obligation of fostering protection.") (Cardozo, J.). Indeed, "no other worker in our society can invoke such powerful relief in the event of an industrial accident." Thomas J. Schoenbaum, Admiralty and Maritime Law § 6-8 (3d ed.2001).
Thus, the unseaworthiness remedy is "a form of absolute duty owing to all within the range of its humanitarian policy." Sieracki, 328 U.S. at 94, 66 S. Ct. 872. The remedy is not, however, a system of workers' compensation, and not every injury will result in liability for unseaworthiness. See Hughes v. ContiCarriers & Terminals, Inc., 6 F.3d 1195, 1197 (7th Cir.1993) (Easterbrook, J.) ("Yet admiralty does not include a workers' compensation program parallel to the [LHWCA], which covers dock workers. Seamen did not give up the tort measure of damages and receive broader coverage in return."); cf. O'Hara v. Weeks Marine, Inc., 294 F.3d 55, 61-62 (2d Cir.2002) ("While land-based employees including land-based maritime workers typically can recover from their employers for work-related injuries only through scheduled no-fault compensation schemes, the Jones Act gives seamen an express right of action in tort because of their status as `wards of the admiralty' who `are by the peculiarity of their lives liable to sudden sickness from change of climate, exposure to perils, and exhausting labour.'") (citation omitted) (quoting Harden v. Gordon, 11 F. Cas. 480, 485, 483 (C.C.D.Me.1823) (No. 6,047) (Story, J.)); see also Reyes v. Delta Dallas Alpha Corp., 199 F.3d 626, 628-29 (2d Cir.1999) (noting that maintenance and cure is analogous to workers' compensation).
3. The Requirement of a Defect
The doctrine may thus be compared to the law of products liability: although unseaworthiness imposes liability without fault, "there must still be a defect in the vessel." Hughes, 6 F.3d at 1197; see also Brister v. A.W.I., Inc., 946 F.2d 350, 355 (5th Cir.1991) ("Accordingly, the seaworthiness issue is treated like a breach of warranty, rather than the narrower duty-breach inquiry for negligence claims."); see also George v. Celotex Corp., 914 F.2d 26, 28-29 (2d Cir.1990) (citing The T.J. Hooper, 60 F.2d 737, 740 (2d Cir.1932) (L.Hand, J.), a landmark unseaworthiness case, in the products liability context); Grant Gilmore & Charles L. Black, Jr., The Law of Admiralty 274 (2d ed.1975) (expanding liability for unseaworthiness produced "results strikingly similar to those being achieved at the same time with respect to manufacturer's liability for defective goods").
Despite the fact that courts occasionally use the word "absolute" to describe the *208 duty, as in the products liability context, "strict liability has never been, and is not now, absolute liability" in the sense that "under strict liability the manufacturer does not thereby become the insurer of the safety of the product's user." Daly v. General Motors Corp., 20 Cal. 3d 725, 144 Cal. Rptr. 380, 575 P.2d 1162, 1166 (1978). "On the contrary, the plaintiff's injury must have been caused by a `defect' in the product." Id. Thus, liability is "beyond negligence but short of absolute liability." Id.; see Puddu v. Royal Netherlands S.S. Co., 303 F.2d 752, 757 (Hays, J., concurring) ("The difficulty with the concept of unseaworthiness arises from the fact that while the authorities hold that there is liability without fault, there is no case which holds that there is absolute liability. The situation demands, then, that without regard to fault, we fix a point short of absolute liability.").
As in products liability, where liability is only imposed for an unreasonably dangerous or defective product, here the "standard is not perfection, but reasonable fitness; not a ship that will weather every conceivable storm or withstand every imaginable peril of the sea, but a vessel reasonably suitable for her intended service." Trawler Racer, 362 U.S. at 550, 80 S. Ct. 926. An owner is not "obligated to furnish an accident-free ship. The duty is absolute, but it is a duty only to furnish a vessel and appurtenances reasonably fit for their intended use." Id.
One such imperfection that does not create liability is that of a personal, negligent act of another seaman. An important distinction exists between "transitory unseaworthiness," for which liability exists, and "instant unseaworthiness," defined as a single act of "operational negligence" that does not result in liability. Usner, 400 U.S. at 496, 91 S. Ct. 514.
Nor is a seamen relieved of his burden of showing causation: "A seaman must show that an unsafe condition on the vessel caused his injury; dispensing with the need to prove that some `fault' led to this condition does not dispense with the need to establish that there was one." Hughes, 6 F.3d at 1197. "[A]s we have many times said, the mere fact that an accident occurs and a seaman is injured while using an appurtenance in the performance of his duties cannot, without more, establish that a vessel is unseaworthy." Mosley, 314 F.2d at 228-29. The lower standard of causation familiar in Jones Act cases does not apply, and thus the plaintiff must show that the defective condition was a "substantial factor" in causing his injury. Brown v. OMI Corp., 863 F. Supp. 169, 170 (S.D.N.Y.1994).
Further, "the rule of comparative negligence applies," Jones v. Spentonbush-Red Star Co., 155 F.3d 587, 596 (2d Cir.1998); 2 Martin J. Norris, The Law of Seamen § 27:19 (4th ed.1985), and is measured by "`the traditional negligence standard of whether [the seaman] exercised the care which a reasonably prudent man would have exercised under the circumstances.'" Brown, 863 F.Supp. at 170-71 (quoting Ktistakis v. United Cross Navigation Corp., 324 F.2d 728, 729 (2d Cir.1963)).
C. Maintenance and Cure
"A claim for maintenance and cure concerns the vessel owner's obligation to provide food, lodging, and medical services to a seaman injured while serving the ship." Lewis v. Lewis & Clark Marine, Inc., 531 U.S. 438, 441, 121 S. Ct. 993, 148 L. Ed. 2d 931 (2001). Maintenance and cure "extends during the period when he is incapacitated to do a seaman's work and continues until he reaches maximum medical recovery" or when a doctor diagnoses the particular injury as a permanent one. *209 Vaughan v. Atkinson, 369 U.S. 527, 531, 82 S. Ct. 997, 8 L. Ed. 2d 88 (1962); see Calo v. Ocean Ships, Inc., 57 F.3d 159, 162 (2d Cir.1995); Nasser v. CSX Lines, LLC., 191 F. Supp. 2d 307, 316 (E.D.N.Y.2002). An admiralty court must be liberal in interpreting this duty "for the benefit and protection of seamen who are its wards." Calmar S.S. Corp. v. Taylor, 303 U.S. 525, 529, 58 S. Ct. 651, 82 L. Ed. 993 (1938).
II. Application
I discuss the application of the seaworthiness doctrine as follows. I begin by discussing whether the duty applies to the packaging of ship's stores. Next, I decide whether the warranty was breached by the presence of the strap on the deck of the Cape Avinof, either as defect in the strap or the deck, or both.
A. The Warranty Extends to Ships' Stores and Packaging
As a preliminary matter, the Government suggests that there is an "initial question" of whether the warranty of seaworthiness applies to a "package, whether cargo or food stores." (Gov't Post-Trial Br. at 10). From ample authority, I conclude that the warranty extends both to ships' stores and to their defective packaging.
1. Provisions Are Covered by the Warranty
From its earliest expressions, adequate "provisions" have been a part of the implied warranty of seaworthiness. See 2 Norris, supra, § 27:7. In Dixon v. The Cyrus, 7 F. Cas. 755, 757 (D.Pa.1789) (No. 3930), the court held:
But notwithstanding this silence of the articles, law and reason will imply sundry engagements of the captain to the mariners. Two of which are: First, that at the commencement of a voyage, the ship shall be furnished with all the necessary and customary requisites for navigation, or, as the term is, shall be found seaworthy; and, secondly, that the captain shall supply the mariners with good and sufficient provisions whilst they are in his service.
More recently, the Supreme Court described the scope of the duty in the broadest terms:
Trawler Racer involved the defective condition of a physical part of the ship itself. But our cases have held that the scope of unseaworthiness is by no means so limited. A vessel's condition of unseaworthiness might arise from any number of circumstances. Her gear might be defective, her appurtenances in disrepair, her crew unfit. The number of men assigned to perform a shipboard task might be insufficient. The method of loading her cargo, or the manner of its stowage, might be improper. For any of these reasons, or others, a vessel might not be reasonably fit for her intended service.
Usner, 400 U.S. at 499, 91 S. Ct. 514 (emphasis added; footnotes omitted). In one example of "any number of circumstances," the Court has held the duty applies to hand tools used aboard a ship. See Michalic v. Cleveland Tankers, Inc., 364 U.S. 325, 331, 81 S. Ct. 6, 5 L. Ed. 2d 20 (1960) (finding evidence to create a jury question whether a wrench with a worn grip that slipped from a crewman's hand and injured his foot was unfit for its intended use). Accordingly, I conclude that defective provisions can render a ship unseaworthy.
2. There Is No Reason to Exclude Packaging
As for the packaging of ships' stores, I likewise find no reason to decline to extend the duty. For example, as for cargo, the *210 doctrine applies to conditions created by improper loading or stowage, but not to defective cargo itself. The Supreme Court directly addressed defective cargo containers in Gutierrez v. Waterman S.S. Corp. 373 U.S. 206, 83 S. Ct. 1185, 10 L. Ed. 2d 297 (1963), finding unseaworthiness could arise from defectively bagged beans:
A ship that leaks is unseaworthy; so is a cargo container that leaks. When the shipowner accepts cargo in a faulty container or allows the container to become faulty, he assumes the responsibility for injury that this may cause to seamen or their substitutes on or about the ship. Beans belong inside their containers, and anyone should know, as the trial court found, that serious injury may result if they get out of their containers and get underfoot. These bean bags were unfit and thus unseaworthy.
373 U.S. at 213-14, 83 S. Ct. 1185. The Court noted the issue was not one of first impression. See Gutierrez, 373 U.S. at 212, 83 S. Ct. 1185 (citing cases including Atl. & Gulf Stevedores, Inc. v. Ellerman Lines, Ltd., 369 U.S. 355, 82 S. Ct. 780, 7 L. Ed. 2d 798 (1962), where "a longshoreman was injured when a bale of burlap cloth fell on him because the metal bands wrapped about the bales broke while the bales were being hoisted").
There is also Second Circuit authority concerning defective cargo containers. In Reddick v. McAllister Lighterage Line Inc., the court held a longshoreman could recover for a fall caused by stepping onto a weak board on a wooden crate, noting that "unseaworthiness may also be predicated on the latent defect in the cargo-crate." 258 F.2d 297, 299 (2d Cir.1958); see Avena v. Clauss & Co., 504 F.2d 469, 471 (2d Cir.1974) (finding unseaworthiness could result from defect in steel strap securing carton).
Judge Friendly addressed the issue in Noble v. Lehigh Val. R. Co., 388 F.2d 532 (2d Cir.1968). Noble was struck by a piece of wood that fell while a crate was suspended above the deck of the Hellenic Sailor. The trial judge instructed the jury to determine "whether the wood which struck the plaintiff came from `the lifting part of the container,' the skids and pallet, or rather from some other part of the container, i.e., the crating material or the chocks; the warranty would attach upon the first finding but not upon the second." Id. at 533. The Second Circuit rejected this distinction between the ship's appliances where the warranty was breached if the wood came from a "lifting device" and cargo containers, finding Gutierrez to be broadly controlling on "the law with respect to containers," and not just cargo stowage or unloading. Id. at 533-34; see also Castorina v. Lykes Bros. S.S. Co., 578 F. Supp. 1153, 1162 (S.D.Tex.1984) (examining the "fine distinction [that] is drawn between cargo and packaging," noting only cargo itself (such as asbestos packed in burlap bags) is exempt from the warranty).
Further, in Martinez v. Sea Land Servs. Inc., 763 F.2d 26 (1st Cir.1985), then-Circuit Judge Breyer held that a vessel could be made unseaworthy when a plastic sleeve securing a box of soft drinks came loose, causing the crewmember carrying it on his shoulder to twist his back. The First Circuit ruled that "the seaworthiness warranty of `fitness for duty' extends to material in which ships' stores are wrapped." Martinez, 763 F.2d at 27. Judge Breyer noted that although "`ships' stores' cases have not arisen often, at least one district court has explicitly held the seaworthiness warranty applicable to their wrapping material." Id. (citing Wilson v. Twin Rivers Towing Co., 413 F. Supp. 154, 158-59 (W.D.Pa.1976) (finding box of meat "too heavy and improperly packaged")).
*211 This conclusion is supported by the "rough sort of justice" of risk-apportionment that underlies unseaworthiness liability. In Martinez, 763 F.2d at 27, Judge Breyer cites a cargo-loading case from the Fourth Circuit on this point:
Fault is not an essential element of the doctrine of "unseaworthiness" but conceptually and theoretically it may rest upon an irrebuttable presumption of opportunity to prevent harm. Once goods are put aboard, the condition of containers and packaging are within the control of the master of the vessel, and in most instances, although not all, defective packaging is discernible by inspection. If most defects are ascertainable it is a rough sort of justice and not intolerable to assume that all are. Thus it is possible to say that the no-fault concept of unseaworthiness rests in part, at least theoretically, upon the ship's "fault" in failing to discern and correct conditions that may cause injury.
Pryor v. Am. President Lines, 520 F.2d 974, 981 (4th Cir.1975) (footnote omitted). Martinez also cites several First Circuit cases, that, like The Cyrus, list ships' stores as subject to the warranty, as well as 46 U.S.C. § 10902, the statutory remedy for unseaworthiness that applies to the ship's "crew, hull, equipment, tackle, machinery, apparel, furniture, provisions of food or water, or stores."
The only recognized exception to the reach of the seaworthiness doctrine is wherelike the gathering of insecticide fumes in the ship's hold in Morales v. City of Galveston, 370 U.S. 165, 171, 82 S. Ct. 1226, 8 L. Ed. 2d 412 (1962)"[W]hat caused injury ... was not the ship, its appurtenances, or its crew, but the isolated and completely unforeseeable introduction of a noxious agent from without." This exception for inherently defective or dangerous cargo does not apply here. Defectively packaged stores are not foreign agentsthey are essential items taken on board as part of the "adventure" to sustain the ship's crew. See Peterson v. Great Hawaiian Cruise Line, Inc., 33 F. Supp. 2d 879, 885 (D.Haw.1998) (finding unseaworthiness when seaman injured as he stepped down on wooden pallets that flipped under his weight, as "the wooden pallets ... became part of the ship when they were placed on the bow"); cf. Elmadari v. Bell S.S. Co., No. 5-96-183 JRT/RLE, 1998 WL 1285336, at *2 (D.Minn. 1998) (holding exercise equipment that tripped plaintiff, brought on board for a crew member's personal use, was an outside agent, not an appurtenance despite being attached to a ship's door with a wing-nut). I find the reasoning in Martinez persuasive, and I conclude that the warranty of seaworthiness extends to the packaging of a ship's stores.
B. The Warranty Was Breached
I conclude that the presence of the uncut packing strap on the deck of the Cape Avinof amounted to a breach of the warranty of seaworthiness. I discuss this conclusion as follows. First, as a preliminary matter, I consider the doctrine's application to temporary conditionsoil, grease, and other obstructions on deck. Second, I discuss the element of time. I conclude that, notwithstanding the short time that the strap lay on the deck, its presence was both the result and the cause of a defect that caused Barlas's injuries.
1. Applying the Warranty to Temporary Conditions
In the realm of temporary, transitory, or momentary unseaworthiness"soap, oil, grease, jello or what not on floor, deck, or steps," Gilmore & Black, supra, at 400 the difference between the general maritime and the shoregoing law is striking. *212 Here, the law of the sea exerts a different pull, and we must readjust.
The first reorientation is simple. When we say "seaworthy" here, contrary to what the word means to the rest of the world, we do not mean "fit to traverse the seas." American Heritage Dictionary of the English Language (4th ed.2000). Unseaworthiness is a "condition," and there is no restriction on its magnitude so long as it disrupts something about the ship's fitness for service. See Note, The Doctrine of Unseaworthiness in the Lower Federal Courts, 76 Harv. L.Rev. 819, 820 (1963) ("An unseaworthy condition can be found in almost anything, no matter how trivial, that causes injury.") (citing Krey v. United States, 123 F.2d 1008, 1010 (2d Cir.1941) ("Viewed as a shower to be used at sea, the absence of any sort of handle or rail for support is alone almost enough to condemn it.") (Clark, J. on a panel with A. & L. Hand, JJ.)); Manigault v. United States, 316 F. Supp. 688, 689, 691 (E.D.Pa. 1970) (finding broken glass in sink rendered ship unseaworthy, when steward was aware of the glasses' fragility and negligently failed to replace them).
The second reorientation is the "complete divorcement of unseaworthiness liability from concepts of negligence." Trawler Racer, 362 U.S. at 550, 80 S. Ct. 926. This correction is easier said than done, for liability is not quite absolute perfection is not requiredand yet it does not depend upon fault or foreseeability, notice or constructive notice, control or reasonable care. See, e.g., Oxley, 923 F.2d at 25; Ezekiel v. Volusia S.S. Co., 297 F.2d 215, 218 (Clark, J., dissenting) ("It seems very difficult for courts to accustom themselves to the strict liability of unseaworthiness, perhaps because it is cut on such a different pattern than the familiar negligence action.... Blameless he may be; nevertheless he is liable."). Grounding concepts central to a slip and fall on land do not apply. The blackened banana peel showing constructive notice, familiar from generations of torts casebooks excerpting Moore v. Winn-Dixie Stores, Inc., 252 Miss. 693, 173 So. 2d 603, 604 (1965), is of no use. (See Pl. Post-Trial Br. at 5; Tr. at 2). In "[p]erhaps the clearest expression" of the warranty, Trawler Racer, 362, U.S. at 548, 80 S. Ct. 926, Judge Augustus Hand held liability will lie "even though there was no means of anticipating trouble" and thus a "ship is not freed from liability by mere due diligence to render her seaworthy." The H.A. Scandrett, 87 F.2d at 711.
In fact, as has been suggested, the "divorcement" from concepts of negligence is not as complete as Trawler Racer implies. Negligence may creep in via "reasonable fitness," such that the initial determination of what is and is not a "defect" making the ship unfit for service becomes a question of whether those responsible acted with "reasonable care" under the circumstances. See Earles v. Union Barge Line Corp., 486 F.2d 1097, 1105 (3d Cir.1973) (noting "there is a great hazard" that a jury will conflate "reasonably suitable" with negligence and "get the impression that all is to be tested by one gauge") (quoting Cox v. Esso Shipping Co., 247 F.2d 629, 637 (5th Cir.1957)); Ballwanz v. Isthmian Lines, Inc., 319 F.2d 457, 461 (4th Cir.1963) (finding error in a jury charge that repeated the words "reasonably," "reasonable," and "unreasonable," as the "repetitive insistence that the equipment need be only reasonably fit" was "tantamount to suggesting a requirement that the jury must find negligence").
Some language and reasoning from the negligence context still must be used, although the "usein a field of liability without faultof words commonly applied to negligence actions, has vexed the courts." *213 Marshall v. Ove Skou Rederi A/S, 378 F.2d 193, 198 n. 6 (5th Cir.1967). As the Fifth Circuit observed, even the Supreme Court's "own standards ... necessarily embrace phraseology and analyses that concurrently exist in negligence law." Id. (citing as an example the "forseeability" inquiry in Morales, 370 U.S. at 171, 82 S. Ct. 1226, where the injury was caused by "the isolated and completely unforeseeable introduction of a noxious agent from without"). In Marshall, the court suggested an approach where, once a defective condition is found, "the carrier's care, or lack of it, has no play in insulating him from liability, or mitigating his fault." Courts may nonetheless use "methods of analysis, and language, concurrently used in negligence cases" for "the initial determination answering the threshold question whether the condition is unseaworthy as not reasonably fit." Id. In other words, "[d]istinctions which in common sense are relevant to a determination of seaworthiness do not become irrelevant because they are relevant also to negligence." Id.
Here, the essential questionwhether the hazard presented by the fallen packing strap was significant enough to disrupt the fitness of the deck of the Cape Avinofis one of magnitude, and the question has two related aspects. One aspect is duration, but in light of the law of seaworthiness, it is unclear whether the length of time the strap lay on the deck is material. A second aspect is whether, without regard to time, the dropped packing strap rendered the deck unsafe, or whether Barlas should have been able to cope with the strap or similar hazards as an ordinary part of any unloading operation.
2. The Element of Time: May the Duration of the Condition Be Considered?
In the transitory seaworthiness context, one notion that strains against the moorings of the doctrine's requirement of liability without fault is the concept of notice. The Government insists that the "duration of the condition" must be considered as part of the "reasonable fitness" test. (See Gov't Post-Trial Br. at 16). But consideration of time would seem to reintroduce a requirement of notice. See Puddu, 303 F.2d at 757 (Hays, J., concurring) ("But logical coordinates for fixing a point [short of absolute liability], such as the time during which a particular condition continues to exist, are entirely lacking. Time is obviously irrelevant since notice to the shipowner is of consequence only if his liability is limited by fault."). In contrast, Barlas insists that duration is irrelevant, and argues that if the strap would be deemed a hazard if it lay on the deck for days, then it was a hazard as soon as it was dropped. (Pl.'s Supp. Post-Trial Br. at 10).
In light of Supreme Court and Second Circuit precedent, I conclude that although duration may be considered, the absence of notice does not preclude a finding of unseaworthiness.
Any discussion of transitory unseaworthiness must begin with the seminal Supreme Court case of Mitchell v. Trawler Racer, 362 U.S. 539, 80 S. Ct. 926, 4 L. Ed. 2d 941 (1960). Mitchell had slipped when he climbed onto the rail to reach a ladder attached to the pier in Boston. Id. at 540, 80 S. Ct. 926. The Court held that the Racer could have been rendered unseaworthy by the presence of fish slime on the rail from an earlier unloading operation regardless of whether the shipowner had notice of the condition. The majority did not hold explicitly that the length of time the slime had been present was immaterial, saying only that "liability for a temporary unseaworthy condition is [no] different from the liability that attaches *214 when the condition is permanent." Id. at 550, 80 S. Ct. 926.[5] In reversing a judgment in favor of the shipowner, however, the Court necessarily rejected the lower courts' reasoning that liability turned on whether the shipowner had a reasonable opportunity to discover the defect and remove it. See Mitchell v. Trawler Racer, 167 F. Supp. 434, 435 (D.Mass.1958) ("A reasonable period of time must elapse to allow the defendant shipowner to discover the deposit."); Mitchell v. Trawler Racer, 265 F.2d 426, 432 (1st Cir.1959) ("[I]t seems a hard doctrine to say that the shipowner, however great his duty of care, should be liable for injuries occasioned thereby even before ... a reasonable opportunity to discover the defect and remove it.") (adopting the reasoning of the majority in Cookingham v. United States, 184 F.2d 213 (3d Cir.1950)).[6]
Second Circuit case law confirms that unseaworthiness does not depend on notice of a defect. In Poignant v. United States, 225 F.2d 595 (2d Cir.1955), a stewardess slipped on what was probably an apple peel in a passageway of the S.S. Marine Flasher, then docked in Germany. 225 F.2d at 596. The source of the apple peel was not known. The corridor was "not littered" with garbage, but the vessel did not have garbage chutesthe crew simply pulled cans of garbage from the galley to the ship's rail and dumped them overboard. Id. The trial court found that the failure to show notice of the hazard was fatal to the plaintiff's negligence claim, dismissing the unseaworthiness claim without further discussion. Id.
The Second Circuit reversed, holding squarely that unseaworthiness did not depend upon notice. The court considered "the main problem in the case" to be one of the magnitude of the conditionwhether an apple peel in a passageway could ever amount to unseaworthiness, as the "standard is not perfection but reasonable fitness." Id. at 598. Rather than find, as a matter of law, that debris in a passageway was a usual and customary risk aboard a shipa peril of seathe Poignant court concluded that a ship "does not become unseaworthy by reason of a temporary condition caused by a transient substance if even so the vessel was as fit for service as similar vessels in similar service." Id. The court remanded for consideration of (1) whether "the absence of garbage chutes on the vessel was the proximate cause of the accident" and (2) whether "comparable vessels generally are provided with such chutes." Id.
Soon after Trawler Racer, the Second Circuit considered a jury charge in another instructive slip and fall case that went to trial just before that decision issued. Pinto v. States Marine Corp. of Del., 296 F.2d 1, 3 (2d Cir.1961).
In Pinto, Judge Weinfeld had charged the jury that "[u]nseaworthiness is a relative concept" and the jury should "bear in mind that the accident occurred on the ladder leading to and from the engine room, where the use of oil and grease is *215 required for normal engine room functioning." In this context, he charged, "the mere momentary presence of oil in the area does not in and of itself render the vessel unseaworthy." Id. Judge Weinfeld instructed that "it is not required that the vessel have a crew member handy with a rag to wipe off oil the very minute it is placed in an area" if the ship was as reasonably fit as similar vessels. Id. at 4.
In approving the charge, Judge Friendly noted that in Trawler Racer, "the Court was at pains to make clear that it was not going to the extreme of requiring any such absolute freedom of all parts of a vessel from all foreign substances at all times." Pinto, 296 F.2d at 5. Judge Friendly viewed the Trawler Racer holding narrowly, in the context of settling the once-raging debate about the difference between initial seaworthinessthe condition of the ship when it left portand "transitory seaworthiness"technically describing conditions that arose during the voyage, when presumably the shipowner would have less opportunity to correct the defect, and thus should be held to a lower standard of (reasonable) care:
The Court's decision that it was inconsequential, as a matter of law, that the dangerous condition did not arise until a moment after the sailing did not logically carry with it a conclusion that it was similarly inconsequential, as a matter of fact, that the condition arose only a moment before the accident; whether such a momentary condition would or would not render the vessel unseaworthy would be for the trier of the facts to say.... A conclusion that liability for a temporary condition is not different in legal nature from liability for a permanent one does not mean that the duration of the condition, the measures prescribed for dealing with it, and the feasibility of achieving perfect safety at all times, are irrelevant to deciding whether the owner had met his obligation to furnish "a vessel reasonably suitable for her intended service."
Id. Judge Friendly concluded that "[m]ost jurors would see a difference in the sea-worthy condition of a vessel whose rails had been left coated with slime and gurry for hours, and of another, generally spick-and-span, on which a mishap had suddenly created a slippery condition. Must they be told that this distinction, relevant in common sense, is irrelevant in law?" Pinto, 296 F.2d at 5-6. The court read Trawler Racer to hold that a jury "may nevertheless hold the owner liable in the latter case, not that they must." Id. at 6.[7]
Thus, duration is a factor that may be considered. Under Pinto, if a condition arises immediately before an accident, a finding of unseaworthiness is not required, but it is certainly permitted if the condition nonetheless amounts to unfitness. Indeed, that some element of time is incorporated into unseaworthiness can be seen in the contrast between transitory and so-called instant unseaworthiness due to "operational negligence," which the Second Circuit has described "as a `single act of negligence which [does] not of itself create a condition longlasting enough to constitute unseaworthiness.'" Calo, 57 F.3d at 161; see Puddu, 303 F.2d at 757 (Hays, J., concurring) ("A ship is not unseaworthy *216 because it has glass in a window which might be broken. The injuries of a seaman who negligently breaks such a glass are not the result of unseaworthiness, nor are the injuries of a seaman who is cut by the falling glass. But injury incurred in stepping on the broken glass does result from unseaworthiness."). Duration must be considered to determine if the condition is "long-lasting" enough to be distinct from some source of operational negligence.
Here, the evidence shows that the strap was not laying on the deck for very long, and this fact weighs against a finding of unseaworthiness. Indeed, if the strap had been cut, or if Barlas tripped on some other piece of packaging debris that was part of the normal process of unloading stores, the momentary presence of such debris would not compel a finding of unseaworthiness.
In this case, however, the strap was not cut, and as can be seen by handling the exhibit and by the testimony of Barlas and Bolster, the strap posed an unusual and significant tripping hazardeven though it was present for only a short period of time.
3. The Element of Magnitude: Was the Deck of the Cape Avinof Unsafe?
As for this aspect, magnitude, the question is also a close one. On one hand, perfection is not required. On the other, transient substances and other apparently slight conditions routinely support findings of seaworthiness. See Norris, supra, § 27.21 ("It is now settled by the Supreme Court's holding in Mitchell v. Trawler Racer, Inc. that a so-called `transitory' condition (as the temporary presence of oil, water or other foreign substance) of a vessel will make the ship unseaworthy as does a permanent defect.") (footnote omitted); The H.A. Scandrett, 87 F.2d at 708 (affirming jury finding that doorknob that gave way, causing plaintiff to fall, was unseaworthy). The warranty doubtless applies here in the case of a packing strap entangling a seaman's feet: "It has often been held that dangerous and uncertain conditions underfoot may constitute transitory unseaworthiness." Shenker v. United States, 322 F.2d 622, 625-26 (2d Cir.1963) (citing cases and discussing plaintiff who tripped over a "random object" after "unexpectedly stubb[ing] his toe against a piece of dunnagea plank of lumber").
To begin, it is clear that reasoning backward from the fact of Barlas's injury is not enough. The shipowner is not an insurer absolutely liable for all injuries. In Blier, 286 F.2d at 923, the appeals court noted that "[a]ppellant seems to think that all the seaman must establish to warrant a recovery in this case is that there was grease on the gangway and that he slipped on that grease and was injured." The court continued: "In effect he says: grease is slippery, and, if grease was on the gangway and appellant slipped on it, he is ipso facto entitled to recover, as the vessel must have been unseaworthy." Id. The court cautioned that this was not "the teaching of Mitchell," which did not demand "an accident-free ship," but merely one "reasonably fit for [its] intended use." Id.
In Colon v. Trinidad Corp., the plaintiff "fell on a slippery portion of a deck passageway." 188 F. Supp. 97, 99 (S.D.N.Y. 1960). The courtnot persuaded by the plaintiff's "confused and conjectural" account concluded that reasonable fitness means that "a seaman is not absolutely entitled to a deck that is not slippery. He is absolutely entitled to a deck that is not unreasonably slippery." Id. at 100. The court went on that "[i]t seems only fair that men who make their livelihood on the water can be expected to cope with some *217 of the hazardous conditions that must prevail even on a seaworthy vessel. Any stricter rule would require the intervention of traveling companions to guide and protect sailors in going about the vessel to perform their duties." Id.
In Rice v. Atlantic Gulf & Pac. Co., 484 F.2d 1318 (2d Cir.1973), the plaintiff slipped on an oily metal stairway leading to the main deck. The trial judge found no proof of unseaworthiness. The Second Circuit reversed, but cautioned that it was not holding that "every case where a seaman claims injuries as the result of slipping on oil or grease must as a matter of law be submitted to the jury," as there are circumstances where oil accumulation is normal, and a "seaman is not entitled to a deck or ladder that is free of all oil or grease." Id. at 1321.
In other words, only "unreasonable oil" or "unreasonable slipperiness" will render a deck defective. Presumably, in some circumstances, some amount of oilor water or other like substancesis an ordinary "peril of the sea" that seamen must cope with, unless reasonable safety is disturbed. See Rodriguez v. Coastal Ship Corp., 210 F. Supp. 38, 44 (S.D.N.Y.1962) (finding oil that had accumulated from morning until afternoon rendered vessel unseaworthy, as it was the "duty of officers to cause its removal either by placing sawdust or a chemical absorbent material thereon" and "the vessel was also unseaworthy because it lacked adequate devices or appurtenances to minimize or arrest the drippings"); Calo, 57 F.3d at 161; Gilmore & Black, supra, at 400 (discussing when "[c]ases of `transitory unseaworthiness' soap, oil, grease, jello or what not on floor, deck, or stepsmight be regarded as normal `perils of the sea'").
An uncut packing strap, however, is different from grease, oil, soap, or water. Cf. Gapay v. Q & S Enterprises, Inc., 133 F. Supp. 2d 1139, 1143 (D.Alaska 2000) ("The crew ... had spent much of the night prior to the day of the accident chopping ice off the deck using crow bars, metal baseball bats, and teflon mallets.... The accumulation of ice on the boom of the crane on the vessel ... is not a peril of the sea."); Lind v. American Trading & Production Corp., 294 F.2d 342, 345 (9th Cir. 1961) ("[T]he performance of soogeeing by crew members in and of itself cannot render a vessel unseaworthy. It is a necessary, normal and recurring seaman's duty, and work that must be done on board and which is customarily done while the vessel is at sea, causing the deck within the working area to become necessarily slippery, with footing thereon unsteady, and requiring the seaman to be alert as to his footing."); Rogers v. Gracey-Hellums Corp., 331 F. Supp. 1287, 1289 (E.D.La.1970) (noting there are "certain hazards which are ordinary, and not unreasonable" including "when even reasonably fit metal tools strike one another or some other metal object, slivers are apt to fly").
Here, the packing strap itself was defective as can be seen by the fact that it slipped from its carton and landed on the deck. Although a cut packing strap may be an expected piece of debris, an uncut strap with its greatly increased potential as a tripping hazardis per se defective. A circular, uncut packing strap is unlike a routine accumulation of oil or grease or other substances whose presence is to be expected. Indeed, both Barlas and Bolster testified that the strap was a hazard, one that should have been reported or removed. That the deck should be kept clear of tripping hazards and that the strap was defective are beyond dispute.[8]
*218 Although "[w]e no longer live in an era when seamen and their loved ones must look primarily to the courts as a source of substantive legal protection from injury and death," Miles, 498 U.S. at 27, 111 S. Ct. 317, those deferential principles still animate the law of liability for unseaworthiness. Rice, 484 F.2d at 1321 (evaluating testimony and noting that "[w]e must keep in mind the liberal attitude displayed toward unseaworthiness claims such as the present one"). I conclude that the presence of the uncut strap on the deck of the Cape Avinof was both the result of a defect coming loose from its cartonand rendered the deck defective, or temporarily unsafe, and unfit for the operation of unloading stores.
III. Damages
In setting damages, I have taken into account Barlas's physical injuries, associated discomfort, inconvenience, pain and suffering, and the economic losses he has sustained to date and will suffer in the future.
As for comparative negligence, I find that Barlas bears twenty percent of the responsibility for the accident, as he failed to observe and avoid the strap. Cf. Passantino v. States Marine Lines, Inc., 299 F. Supp. 1252, 1255 (S.D.N.Y.1969) (finding, where a safe walkway existed, accident was caused "solely by [plaintiff's] own negligence" because he did not "make reasonable use of his senses and intelligence to discover dangers to which he was or might be exposed").
I have also taken into account that the Government has paid Barlas maintenance and cure. I find that Barlas reached maximum cure on December 27, 2000, when he was declared fit for work without restrictions. Any further treatment that Barlas might require would be palliative, not curative in nature. See Calo, 57 F.3d at 162. Although the Government may be responsible for some additional expenses theoretically owing to cure, no evidence of additional expenses after December 27, 2000 is in the record.
I will award Barlas damages for (a) economic losses, consisting of (i) past lost earnings and (ii) future lost earnings, and (b) noneconomic losses, consisting of (i) past injuries, conscious pain and suffering, and loss of the enjoyment of life, and (ii) future injuries, conscious pain and suffering, and loss of enjoyment of life, as follows.
*219 For past lost earnings, I award $32,576. This is based upon the amount that Barlas earned in 2000 below his average earnings as a seaman. Not including the year 2000, he earned an average of $36,214 during the period 1996-2001, and in 2000 he earned only $3,638. I do not award lost earnings for any other period through the date of trial. Although Barlas is entitled to some additional maintenance, as I am awarding lost wages, maintenancetraditionally, payment for food and lodging during convalescence would amount to a double recovery here. When the award of $32,576 is reduced by the $1,728 of maintenance paid, it amounts to $30,848.
For future lost earnings, I award $100,000. This amount is based upon the fact that, although Barlas is able to work, he will not be able to do so for the full extent of his work-life expectancy. Barlas has approximately 14 years remaining of labor force participation, and according to Barlas and expert testimony, he will be unable to work that long and not to the same extent. I have factored in discounting to present value. See McCrann v. U.S. Lines, Inc., 803 F.2d 771, 773 n. 1 (2d Cir.1986).
As for noneconomic losses, for past pain and suffering, I award $90,000, and for pain and suffering in the future, I award $70,000.
As noted, the total of $290,848 must be reduced by twenty percent to account for Barlas's comparative fault, leaving a final award of $232,678.40. Viewed as a whole, the total award is within a reasonable range for similar injuries under similar facts. See Bachir v. Transoceanic Cable Ship Co., No. 98 Civ. 4625(JFK), 2002 WL 413918, at *11 (S.D.N.Y. Mar. 15, 2002) (citing cases and deriving range of pain and suffering awards of approximately $225,000 to $2,000,000).
CONCLUSION
The Clerk of the Court shall enter judgment in favor of plaintiff Eduardo Barlas against the United States in the amount of $232,678.40, with costs.
NOTES
[1] References to "Tr." are to the trial transcript; references to "PX" and "GX" are to plaintiff's exhibits and the Government's exhibits, respectively. References to "Stip. Facts" are to a stipulation of facts entered into by the parties on December 2, 2002. (Tr. at 8-9).
[2] This was likely because, at the time of the accident, the most severe pain, from Barlas's ankle, overshadowed pain from his back, a phenomenon known as "extinction." (Tr. at 146-47).
[3] Reviewing the same MRI, radiologist Dr. Mark Novick found no evidence of any acute, traumatic injury, and that Barlas "came as [he was]" with degenerative back problems at the time of the accident. (Tr. at 178, 196). In light of the other evidence, I give this testimony little weight. Even Dr. Novick agreed that it was possible that the accident aggravated Barlas's condition, making it, for the first time, symptomaticthat is, causing pain, if not "radicular pain." (Tr. at 197-98, 203).
[4] Neurologist Dr. Gerald Klingon found that any degenerative changes were in fact caused by the accident. (Tr. at 144-46; 167). In all other respects, Dr. Klingon confirmed Goldberg's diagnosis, as well as his prognosis for continuedand increasingpain associated with Barlas's work. (Tr. 157, 161). Likewise, neurologist Dr. Gary Korenman, called by the Government, substantially concurred with Drs. Goldberg and Klingon, and radiologist Dr. Charles Pfaff. (Tr. at 234-35, 241, 245). Dr. Korenman concluded that Barlas was "mildly disabled" and should not be doing strenuous work. (Tr. at 246). I accept the testimony of Drs. Goldberg and Klingon.
[5] The dissent drew out some of what was implicit, noting that it "appears that the spawn was deposited on the rail shortly before the injury" and characterizing Mitchell's position as holding the ship liable if "the presence of spawn on the rail" rendered the ship unfit "without moreand particularly without regard to the length of time the spawn had remained on the rail." Id. at 553 (Frankfurter, J., dissenting).
[6] In Cookingham, a cook on the Rufus W. Peckham "slipped on a substance, apparently Jello, while going down a stairway." 184 F.2d at 214. "There was no evidence as to when or how the substance got on the step" and the court refused to extend liability to the shipowner without proof of his knowledge, control, or opportunity to correct the condition. Id. at 215.
[7] Pinto expressly disagreed with "some language" in Grzybowski v. Arrow Barge Co., 283 F.2d 481, 485 (4th Cir.1960), presumably because that case interpreted Mitchell as holding that it was "immaterial ... how long [the slime] had been there." The dissent in Pinto objected that this analysis "import[ed] a time element into the concept of seaworthiness which time element was rejected by the Supreme Court in [Mitchell]," and reasoned that that if grease made the step "unfit for use ... [i]t makes no difference whether the grease was there seconds or hours." Pinto, 296 F.2d at 8 (Smith, J., dissenting).
[8] See Petterson v. Alaska S.S., 205 F.2d 478, 479 (9th Cir.1953) (applying a doctrine "similar" to res ipsa loquitur: "If the block was being put to a proper use in a proper manner, as found by the district judge, it is a logical inference that it would not have broken unless it was defectivethat is, unless it was unseaworthy."), aff'd, 347 U.S. 396, 74 S. Ct. 601, 98 L. Ed. 798 (1954) (per curiam); Avena, 504 F.2d at 471 (noting defect in steel strap securing 300-1b. cardboard carton could be found without showing why the strap snapped, cutting plaintiff's hand and causing him to fall, when crucial issue was whether pulling the carton with hook was intended use); Oliveras v. Am. Exp. Isbrandtsen Lines, Inc., 431 F.2d 814, 816 (2d Cir.1970) ("Nothing more need be shown except that the device in question failed under conditions when it should have functioned properly. On the issue of the ship's unseaworthiness it is of no moment to speculate as to why the hook and wedge, fittings intended to keep the sliding door open, failed to function."); see also Havens v. F/T Polar Mist, 996 F.2d 215, 218 (9th Cir.1993) ("Where a ship's equipment malfunctions under normal use"an unsecured hatch cover fell on the plaintiff as he went up a ladder"the trier of fact may infer that the equipment is defective. This is especially so where, as here, no evidence supports an alternative explanation for the malfunction.") (citations omitted); cf. Tanzi v. Deutsche Dampfschiffahrts-Gesellschaft Hansa, 355 F. Supp. 432, 434 (S.D.N.Y.1973) (finding plaintiff failed to meet burden of proof that metal strap was defective merely because it snapped while he was moving the box). | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2386485/ | 279 F. Supp. 2d 931 (2003)
Victor M. JAVITCH, Receiver, Plaintiff,
v.
FIRST MONTAUK FINANCIAL CORP., et al., Defendant.
No. 3:01 CV 941.
United States District Court, N.D. Ohio, Western Division.
September 5, 2003.
*932 *933 *934 Robert E. Cahill, Roger A. Hipp, Brzytwa, Quick & McCrystal, Matthew P. Moriarty, Tucker Ellis & West, Michael D. Slodov, Javitch, Block & Rathbone, Cleveland, OH, for Plaintiff.
Phillip C. Kosla, Janik & Dorman, William J. Muniak, Mansour, Gavin, Gerlack & Manos, Andrew J. Dorman, Brian T. McElroy, Jonathan W. Philipp, Janik & Dorman, Cleveland, OH, for Defendants.
MEMORANDUM OPINION
KATZ, District Judge.
INITIAL BACKGROUND
This case is an outgrowth of the Liberte v. Capwill[1] litigation which has spawned related litigation both in the state and federal courts. Victor M. Javitch is presently the Receiver[2] in the Liberte litigation. In that litigation, Liberte Capital Group, Inc. ("Liberte") and Alpha Capital Group ("Alpha") contend that James A. Capwill ("Capwill"), through the entities Viatical Escrow Services, LLC ("VES") and Capital Fund Leasing ("CFL"), unlawfully diverted investor funds escrowed for insurance premiums or awaiting placement in viatical contracts.
In his capacity as Receiver, Javitch is charged with protection of the property of VES and CFL, including but not limited to instituting such legal proceedings as "necessary or proper to preserve or protect the Receivership property ... as Receiver of VES and/or CFL, against VES, or against CFL in state or federal courts or administrative agencies of forums." Id., Doc. No. 132. Most recently, the Court noted the Receiver's "efforts are necessary not only to vindicate interests within the strict confines of the entities in receivership, but in the direct and larger interest of the investor as well." Id., Doc. No.1982. To this end, the Receiver has been "empowered to represent and pursue the interests of the investors directly." Id.
It is the Receiver's contention that "Capwill and CFL opened or caused to be opened brokerage accounts in their own names, and in the names of others, with First Montauk", funded with the monies not belonging to Capwill or CGL but those of the above mentioned investors. Compl., ¶ 20. Based upon his authority as Receiver, Javitch instituted the instant proceeding against the Defendants alleging, inter alia, that First Montauk and Paul Giarmoleo were negligent, breached their fiduciary duties, and committed violations of securities laws with regard to the accounts opened by Capwill.
Pending before the Court is the Defendants' motion for summary judgment, with attendant replies thereto. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331 and 1332. As the issues have been fully briefed and are ripe for disposition, the Court now turns to the parties' contentions.
SUMMARY JUDGMENT STANDARD
As an initial matter, the Court sets forth the relative burdens of the parties once a *935 motion for summary judgment is made. Summary judgment must be entered "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." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986). Of course, the moving party 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 the affidavits, if any," which it believes demonstrate the absence of a genuine issue of material fact. Id. at 323, 106 S. Ct. at 2553. The burden then shifts to the nonmoving party who "must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S. Ct. 2505, 2511, 91 L. Ed. 2d 202 (1986) (quoting Fed.R.Civ.P. 56(e)).
Once the burden of production has so shifted, the party opposing summary judgment cannot rest on its pleadings or merely reassert its previous allegations. It is not sufficient "simply [to] 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). Rather, Rule 56(e) "requires the nonmoving party to go beyond the [unverified] pleadings" and present some type of evidentiary material in support of its position. Celotex, 477 U.S. at 324, 106 S. Ct. at 2553.
On a motion for summary judgment, the Court will consider "[o]nly disputes over facts that might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, 477 U.S. at 248, 106 S. Ct. at 2510. Nonmaterial facts will not be considered. Neither will the judge attempt to weigh the material evidence or determine its truth. Anderson v. Liberty Lobby, 477 U.S. at 249, 106 S. Ct. at 2510. The judge's sole function will be to determine whether there is a genuine issue for trial such that "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Id. (citations omitted).
In sum, "[t]he inquiry performed is the threshold inquiry of determining whether there is the need for a trialwhether, 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 v. Liberty Lobby, 477 U.S. at 250, 106 S. Ct. at 2511. Summary judgment shall be rendered if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show 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).
CAPWILL'S INVOLVEMENT WITH MONTAUK
Capwill met Vince Norman ("Norman") in approximately 1998 through a cousin. After some conversations, Capwill offered to finance Norman's newly formed auto title business. Norman understood that Capwill would put up money to get the business going "and to open up [a] brokerage account, buy stock and the money we would make from the stock, we would invest in [the business]." (Norman Depo., p. 37.) Near the end of August, Capwill took Norman to his friend, Tony Sandelier at Sandelier's office in Orlando, Florida. In his deposition, Norman related discussions revolving around the opening of brokerage accounts with First Montauk through Sandelier's friend, Paul Giarmoleo. Also at that time, Norman signed documents at Sandelier's office in order to open the accounts which he believed were for the purpose *936 of funding his business. Norman related that documents were placed before him for his signature which he understood were to open the First Montauk account. In addition, Norman testified that Capwill and Sandelier prepared the applications to open the account in name of Lalanya Jelens, a former girlfriend of Capwill. These documents were signed and sent by fax to Giarmoleo from Sandelier's office. It is undisputed that Norman's application to First Montauk listed his net worth at 5.1 million dollars, with a yearly income of $800,000 dollars. Norman testified that neither his yearly income or net worth were accurate on this application. Id. at 67-68. He also recalled signing a number of papers that day in Sandelier's office. According to Norman, the transaction was handled by Sandelier, Capwill and Giarmoleo and Norman did not recall speaking with Giarmoleo. Id. at 41-56.
Norman also testified that Giarmoleo advised him that Capwill and Sandelier "controlled" his account. Id. at 85. According to the record before the Court, the Norman account engaged in option trading. Such trades occurred in September 1998 but Norman testified that he signed the options agreement in October 1998, after the fact. Norman also testified that he never gave written authorization for Sandelier or Capwill to trade on his account. At one point in time, Norman received a call from First Montauk's compliance department and attempted to contact Capwill for further direction. When he was unable to reach Capwill, Norman contacted Giarmoleo, who assisted him in fielding questions related to this inquiry from the compliance department. Giarmoleo was aware, according to Norman, that directions regarding his account were to be taken from Capwill and Sandelier. Id. at 183. At one point, after Norman had retained counsel, he called Giarmoleo's supervisor in an attempt to cease trading on the account. Id.
Giarmoleo became acquainted with Capwill through Sandelier and was under the impression that Norman and Capwill were business partners. According to Giarmoleo, Norman opened the account in August 1998. In his deposition testimony, Giarmoleo stated that he spoke to Norman about the contents of his application and recalled, "They told me that he had four or five businesses. You know, the net worth was high. He said he had an account for two million bucks at Morgan Stanley." (Giarmoleo Dep., p. 87.)
Giarmoleo testified he spoke directly to Norman about his level of sophistication related to stock investments. For example, he stated that Norman told him about a two million dollar account at Morgan Stanley, the businesses Norman was involved in and stocks favored by Norman. Id. at 127-128. Giarmoleo did not seek independent verification regarding either Norman or Jelen's financial status but relied upon Sandelier's referral. Id. at 83-84. In fact, Giarmoleo never spoke with Jelen and stated the paperwork regarding her account was faxed from Florida, presumably from Sandelier's office. Id. at 80-81. With regard to both the accounts, Giarmoleo admitted he acted as both the broker and supervisor who approved the opening of the account. Id. at 84.
While Norman characterized himself as a novice in terms of stock buying or trading, Norman's status in terms of investing stands in stark contrast to Giarmoleo's characterization:
Q: Did you make any efforts with Vince Norman to determine his level of sophistication with respect to stock investments?
A: Yes.
Q: How did you do that?
A: I asked him.
Q: What did you ask him?
*937 A: I asked him what his level of investment ability was. He said he had a $2 million account at Morgan Stanley.
Q: It could have started as a $10 million account and strayed down to two through stupidity?
A: He didn't tell me that.
Q: You don't know much by the level of the account?
Mr. Philipp: Objection to the form.
Q: Did you do anything other than what you just told me?
A: I asked him before what businesses he was in. He told me what businesses he was in. He told me that he made lots of money at Morgan Stanley as well as trading stocks, and one of his stocks he liked was Lernout & Hauspie....
Q: Was there anything about Mr. Norman's trading activities in the September, October period of time that led you to conclude that he was sophisticated or led you to conclude that he was really unsophisticated?
A: Mr. Norman told me that he picks his own stocks. He also told me that I know what I'm doing ...
Id. at 127-129.
A few months after opening the Norman and Jelen accounts, Giarmoleo succeeded in getting Capwill to open an account. The funds for Capwill's account were transferred from Norman's account for repayment of a debt which Giarmoleo did not question. Id. at 90. Giarmoleo did not question the transfer of funds between accounts based upon the sole proprietorship letter from Capwill, Id. at 160, and Giarmoleo did not verify that Capwill owned CFL.
Contemporaneously, Giarmoleo was working on a side deal regarding Bentley Media and Capwill, Id. at 192, unbeknownst to First Montauk.
DISCUSSION
A. Negligence, Negligent Supervision and Breach of Fiduciary Duty
The Defendants submit there is no duty owed to the Plaintiff herein to investigate Capwill's source of funds. Characterizing Plaintiff's status as a third-party, any duty imposed by law, according to Defendants, is owed to Capwill, Norman or Jelen. The Defendants contend they had no knowledge Capwill was investing escrowed funds nor is there evidence to demonstrate the same. Moreover, due to the nature of the account, a non-discretionary account, the duties owed by the Defendants are slight, if any.
The duty of a broker to his customer is dictated by the discretion afforded the broker under the agreement. The Sixth Circuit agrees "it is generally accepted that `no fiduciary duty arises between a broker and his client in relation to a non-discretionary [ ] account.'" J.C. Bradford Futures, Inc. v. Dahlonega Mint, Inc., 907 F.2d 150, 1990 WL 95625 (6th Cir.1990) (unpublished). For example, in a discretionary account, the broker has a fiduciary duty since it is the broker who picks and authorizes selection of trades. Id., citing Commodity Futures Trading Comm'n v. Heritage Capital Advisory Serv., Ltd., 823 F.2d 171, 173 (7th Cir.1987) In this case, it is undisputed the accounts at issue were non-discretionary accounts, meaning they required the customer's authorization prior to implementation by the broker.
The existence of a fiduciary relationship, however, is called into question when there are factors leading to the broker-customer relationship which question whether it is the garden variety, armslength relationship. See e.g., Lehman Brothers Commercial Corp., v. Minmetals Int'l Non-Ferrous Metals Trading Co., 179 F. Supp. 2d 118, 151 (S.D.N.Y.2000). *938 Such a factual determination is for the finder of fact. Id., J.C. Bradford Futures, Inc., 907 F.2d 150, 1990 WL 95625, at *6.
Here, circumstances surrounding commencement of that relationship and its scope call into question the true nature of the relationship. The factors leading to this conclusion are multiple.
First, the standard in the industry is reflected in the rules of both NASD and NYSE. While this Circuit has yet to opine whether a private cause of action exists relative to infringement of those rules, they have been deemed to be the standards of practice relative to this industry. See e.g., Miley v. Oppenheimer & Co., Inc., 637 F.2d 318, 333 (5th Cir.1981) (approving reference to violations of NYSE and NASD rules in an excessive trading case as one of several factors); United States v. Bloom, 450 F. Supp. 323 (E.D.Pa.1978); Lange v. H. Hentz & Co., 418 F. Supp. 1376 (N.D.Tex.1976) (NASD rules can be used as evidence as to standard of care in the industry); Stevenson v. Rochdale Investment Management, Inc., 2000 WL 1278479 (N.D.Tex.2000) (unpublished) (violation of the rules may be evidence of standard of care).
Under Rule 405(1) of NYSE:
Every member organization is required ... to (1) Use due diligence to learn the essential facts relative to every customer, every order, every cash or margin account accepted or carried by such organization and every person holding power of attorney over any account accepted or carried by such organization.
Moreover, NASD rule 2310 requires suitability of the conduct relative to the customer's status as follows:
(b) Prior to the execution of a transaction recommended to a non-institutional customer, other than transactions with customers where investments are limited to money market mutual funds, a member shall make reasonable efforts to obtain information concerning:
(1) the customer's financial status;
(2) the customer's tax status;
(3) the customer's investment objectives; and
(4) such other information used or considered to be reasonable by such member or registered representative in making recommendations to the customer.
These provisions are referred to as the "know your customer" regulations and Giarmoleo indicated his familiarity with these regulations.
Second, First Montauk's own manual addresses the attributes of these regulations, including the following:
A. Responsibilities Toward Customers
The Registered Representative is charged with knowing his customers. He must know his client's financial resources and investment objectives. He must know as much about his client as the client will disclose ...
C. Suitability
The SEC, NASD and various other regulatory bodies require that a registered representative must have reasonable grounds to believe that a purchase or sale recommendation is suitable for a particular customer in view of that customer's investment objectives, financial situation and needs. This obligation mandates that before a recommendation is made, we must obtain adequate information that the customer [sic]. The regulators have taken the position that if a broker cannot obtain this information about the customer, he/she should not open the account....
E. Know Your Customer
The regulatory bodies require that due diligence is required to learn the essential facts about each customer. This is an ongoing obligation.
*939 (Def's Ex. 11.) With regard to the opening of new accounts, First Montauk's compliance manual acknowledges the NASD Rules which require:
[I]ts registered representative use diligence to learn the essential facts relative to every customer who opens a cash or margin account with the firm and every person holding a power of attorney over any account. It is the responsibility of the registered representative to obtain and present this required information to an appropriate supervisor (usually the Branch Office Manager or his designee prior to the opening of a new account ...)
New Account Form
... As with all entries, care should be taken to ensure the accuracy of the facts noted on the form, since this document is frequently produced in regulatory inquiries and in civil lawsuits and arbitrations. Firm policy mandates thoroughness and truthfulness in preparing all new account documentation.
(Id.)
Third, the expert report of Jack Christiansen details the non-compliance by not only Giarmoleo in the opening and operation of the account but the lack of supervision due to the absence of any procedures for supervising branch managers. Christiansen's report raises serious allegations regarding a supervisory presence and the records before the Court corroborate that in many instances Giarmoleo both signed as the registered representative and approved his own agreements as the branch office manager. Moreover, the deposition testimony of Jeffrey Baber, who was in charge of compliance during the relevant time period, corroborates a loosely organized supervisory structure regarding branch managers. In addition, Giarmoleo's conduct in allowing third-party transfers or transfers between accounts, without conducting due diligence, could also be viewed as evidence of the lackadaisical atmosphere which First Montauk allowed its brokers to operate.
Fourth, First Montauk prohibited its brokers from engaging in outside placements, otherwise known as "selling away." The record reflects that as early as September 11, 1998, Giarmoleo was engaged in outside activities with Capwill with no notice to First Montauk. This is a clear prohibition of the First Montauk's internal regulations.
Fifth, the Capwill account, funded by transfers from the Norman account, was Giarmoleo's most lucrative account for which he received commissions of over $20,000 a month. A financial incentive was in place for Giarmoleo to accommodate Capwill and disregard industry standards and the brokerage firm's own regulations.
Although the Defendants dispute the duty owed was to anyone other than Capwill, Norman and Jelen, if at trial it is determined Giarmoleo was on notice the funds placed with First Montauk were escrowed, implicit in that knowledge is that the duty owed is not merely to the account holder but to the parties whose funds are at issue[3]. The characterization of Plaintiff *940 being a stranger to the account is dependent upon that factual determination. Thus, while Defendants' arguments are premised upon an absence of duty to investigate source of funds, no private right of action for violations of NASD/NYSE rules or a lack of fiduciary duty, such arguments disregard the record and disparities in testimony.
Viewing the testimony of Giarmoleo, Norman, Capwill and Sandelier, as well as the documents presently in the record, in the light most favorable to the Plaintiff, there exists more than a scintilla of evidence and there is a genuine issue of material fact with regard to what Giarmoleo knew about Capwill's business prior to opening his account. Additionally, Giarmoleo's conduct in opening and conducting all three accounts raises questions of fact as to whether the broker breached duties to the customer in light of the industry and brokerage firm standards. There are also genuine issues of material fact regarding First Montauk's supervision of its registered broker, who was also the branch office manager. As resolution of these factual questions goes to the heart of the fiduciary relationship, the Court cannot find as a matter of law that Defendants are entitled to summary judgment on the issues of negligence, negligent supervision and breach of fiduciary duty.
B. Fraud, Conspiracy to Defraud, Aiding and Abetting Fraud
The elements essential to a claim of fraud include:
(a) a representation or, where there is a duty to disclose, concealment of a fact, (b) which is material to the transaction at hand, (c) made falsely, with knowledge of its falsity, or with such utter disregard and recklessness as to whether it is true or false that knowledge may be inferred, (d) with the intent of misleading another into relying upon it, (e) justifiable reliance upon the representation or concealment, and (f) a resulting injury proximately caused by the reliance.
Gaines v. Preterm-Cleveland, 33 Ohio St. 3d 54, 55, 514 N.E.2d 709, 712 (1987) citing Burr v. Stark Cty. Bd. of Commrs., 23 Ohio St. 3d 69, 491 N.E.2d 1101 (1986) paragraph two of the syllabus. A failure to prevail upon any of the necessary elements is fatal to a claim of fraud. See Miller v. Knight, 115 Ohio App. 485, 487, 185 N.E.2d 770 (1961).
An allegation of fraud "is maintainable not only as a result of affirmative misrepresentations, but also for negative ones, such as the failure of a party ... to fully disclose facts of a material nature where there exists a duty to speak." Textron Financial Corp. v. Nationwide Mutual Ins. Co., 115 Ohio App. 3d 137, 153, 684 N.E.2d 1261 (1996). Thus, the nondisclosure of a relevant fact is tantamount to fraudulent concealment where a duty arises on the part of the person with knowledge of a material fact which impinges upon the relationship. A fact is deemed material where it "affect[s] the conduct of a reasonable person with reference to the transaction in question." Leal v. Holtvogt, 123 Ohio App. 3d 51, 76, 702 N.E.2d 1246 (1998). In this case, assuming the jury finds Giarmoleo was aware Capwill was using escrowed monies to fund the First Montauk accounts, the jury could further find his failure to disclose these facts in light of a fiduciary duty rises to fraudulent conduct as it pertained to the investors. In light of the conflicting testimony among the principal players, summary judgment on the issue of fraud at this juncture of the proceedings is not warranted.
*941 Conspiracy to defraud is established by:
the parties in any manner com[ing] to a mutual understanding that they will accomplish the unlawful design; that the essential element of the charge of conspiracy (to defraud) is the common design, and that an affirmative fraudulent representation need not be shown, but that a concealment of the true nature of the transaction is sufficient to show fraud.'
Pumphrey v. Quillen, 102 Ohio App. 173, 141 N.E.2d 675 (1955), aff'd 165 Ohio St. 343, 135 N.E.2d 328 (1956). Moreover, "[e]xpress agreement is not necessary, and all that is required is that there should be a common design or understanding, even though it be a tacit one." Id. The evidence presently establishes a genuine issue of material fact regarding Giarmoleo's knowledge regarding Capwill's use of escrowed funds. Considering this together with the fact that Capwill's account was Giarmoleo's most lucrative account, the Court finds it is sufficient to withstand dismissal at this juncture of the proceedings.
Moreover, because the claims of aiding and abetting fraud, breach of fiduciary duty and breach of trust necessarily involve questions of fact on the underlying claim, those causes of action are not subject to summary judgment at this point in time.
C. RICO
In order to demonstrate a violation under RICO, a plaintiff must establish the following elements:
1) that there were two or more predicate offenses; 2) that an "enterprise" existed; 3) that there was a nexus between the pattern of racketeering activity and the enterprise; and 4) that an injury to business or property occurred as a result of the above three factors.
VanDenBroeck v. CommonPoint Mortgage Co., 210 F.3d 696, 699 (6th Cir.2000). The Defendants seek summary judgment under Count Six on the basis that the elements of causation and actual knowledge are insufficient to withstand judgment as a matter of law.
In this instance, the predicate offenses stated in the complaint include mail fraud, wire fraud and money laundering, see Compl. at ¶ 63, and charge defendants with engaging in prohibited activities listed in 18 U.S.C.1962 §§ (a) and (c)[4]. The civil remedies under RICO are contained at 18 U.S.C. § 1964 and Plaintiff's complaint seeks recovery under subsection (c) of the statute. While both parties argue their positions based upon the record, the language in the statute itself as it impacts the viability as to this cause of action requires preliminary examination before the Court can consider the merits of the claim.
The Racketeer Influenced and Corrupt Organizations Act ("RICO") was enacted *942 in the 1970s as a response to the war against syndicated crime and established both criminal as well as civil remedies. See Andrew P. Bridges, Private RICO Litigation Based Upon `Fraud in the Sale of Securities,' 18 Ga. L.Rev. 43, 44 (1983). However, in response to a resulting flood of civil litigation, the Private Securities Litigation Reform Act ("PSLRA") of 1995 was passed to "deter[ ] the filing of some frivolous suits in federal court, but it also ma[d]e[ ] litigation on behalf of defrauded investors more difficult." See, Richard W. Painter, Responding to a False Alarm: Federal Preemption of State Securities Fraud Causes of Action, 84 Cornell L.Rev. 1, 34-35 (1998). These amendments addressed, for example, class action procedures, pleading standards, as well as discovery limitations. See, e.g., American Law Institute-American Bar Association Continuing Legal Education July 24-26, 2003, Current Developments in Federal Securities Law, Securities Law Disclosures After Sarbanes-Oxley, Herbert S. Wander, SJ014 ALI-ABA 547. However, for purposes of the present discussion, it is the language contained in section (c) of the civil remedies section which gives the Court pause with regard to Count Six.
18 U.S.C. § 1964(c) states in pertinent part:
Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefore in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including reasonable attorney's fee, except that no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962. The exception contained in the preceding sentence does not apply to an action against any person that is criminally convicted in connection with the fraud, in which case the statute of limitations shall start to run on the date on which the conviction becomes final.
(Emphasis added.)
The Plaintiff's RICO allegation is contained in Count Six as follows:
59. The wrongful conduct of Defendants constitutes a violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962 and 18 U.S.C. § 1964.
60. Specifically, Defendants, by engaging in the acts described above, have received income derived, directly or indirectly, from a pattern of racketeering activity, and have used or invested such income, directly or indirectly, to operate the enterprises described in this Complaint, all in violation of 18 U.S.C. § 1962(a).
61. Additionally, at all times relevant herein, Defendants were associated with the enterprises described in this Complaint, and conducted and participated in the affairs of said enterprises through a pattern of racketeering activity, all in violation of 18 U.S.C. § 1962(c).
62. The wrongful activities of Defendants affected interstate commerce, as Defendants have used interstate mail, wire transfers, DTC securities transfers, and overnight delivery services to accomplish their wrongful activities.
63. Specifically, Defendants' pattern of wrongful conduct included, among other things, acts of mail fraud in violation of 18 U.S.C. § 1341, wire fraud in violation of 18 U.S.C. § 1343, and fraud by the conduct of financial transactions affecting interstate commerce in violation of 18 U.S.C. § 1956 and § 1957.
64. Defendants are under statutory and common law duties to prevent, or actively assist in preventing, money laundering, as that term is defined in 31 U.S.C. § 5340.
*943 65. Mr. Capwill laundered money within the meaning of 31 U.S.C. § 5340, by removing funds from the accounts of the entities referred to in paragraphs 12 through 14 of this Complaint and others, placing them in accounts of the Defendants, and misusing, abusing, diverting, wasting and absconding with those funds for his own personal use or that of his friends, relative and business associates.
66. Defendants knowingly participated in the activities described in paragraph 65.
67. In the alternative, Defendants negligently, recklessly or wantonly ignored or permitted Mr. Capwill to engage in the activities described in paragraph 65.
68. Plaintiff is a person injured in its business or property by reason of Defendants' violations of 18 U.S.C. § 1962(a) and (c), and therefore has standing to sue pursuant to 18 U.S.C. § 1964.
69. As a direct and proximate result of Defendants' wrongful conduct and violations of 18 U.S.C. § 1962(c), Plaintiff, the entities referred to in paragraphs 12 through 14 of this Complaint and others (investors, funding companies, etc.) have been damaged in the amount not less than $2,075,096.00.
70. As a direct and proximate result of Defendants' wrongful conduct and violations of 18 U.S.C. § 1962(a), Plaintiff, the entities referred to in paragraphs 12 through 14 of this Complaint and others (investors, funding companies, etc.) have been damaged in an amount not less than $2,075,096.00.
71. As a direct and proximate result of Defendants violations of 18 U.S.C. § 1962(a) and 1962(c) and 18 U.S.C. § 1964, Plaintiff, the entities referred to in paragraphs 12 through 14 of this Complaint and others (investors, funding companies, etc) are entitled to compensatory and consequential damages and to treble damages and the costs of this suit, including reasonably attorneys' fees.
Having read the entire complaint, it is clear that the wrongful conduct or activities complained of in count six pertain to the sale and purchase of securities with the use of investor monies. Moreover, it is the Defendants' conduct in the perpetration of these RICO violations of which Defendants are alleged to have knowingly participated or permitted to occur which form the basis of the predicate acts. It is in this context that the Court must consider whether they are viable in light of the 1995 Amendments.
The historical notes to these amendments characterize them as an "exception providing that no person may rely upon fraudulent conduct which would have been criminally actionable under section 1962 of this title as the basis for a civil suit under this section, unless the person who committed such fraudulent conduct has been criminally convicted, in which case the statute of limitations runs from the date the conviction becomes final." 1995 Amendments, Pub.L. 104-67, Title 1 § 107, effect. Dec. 22, 1995.
Federal courts applying this provision of the statute have been careful to consider the predicate acts as they relate to the sale or purchase of securities noting:
[A] plaintiff cannot avoid the RICO Amendment's bar by pleading mail fraud, wire fraud and bank fraud as predicate offenses in a civil RICO action if the conduct giving rise to those predicate offenses amounts to securities fraud. Allowing such surgical presentation of the cause of action here would undermine the congressional intent behind the RICO Amendment.
Bald Eagle Area School Dist. v. Keystone Financial Inc., 189 F.3d 321, 330 (3d Cir. *944 1999). In Bald Eagle the plaintiffs were school districts who sued under RICO to recover funds lost in an alleged Ponzi scheme as against the bank acting as custodian for the districts' assets. The assets were misappropriated by plaintiff's financial advisor who was subjected to an action by the SEC. The plaintiffs attempted to argue that some, but not all, of the conduct at issue constituted securities fraud. However, the Third Circuit rejected such an approach noting that despite the fact that "[s]uch conduct may well constitute wire, mail or bank fraud, [ ] it was also undertaken in connection with the purchase of a security." Id.
Similarly, the Sixth Circuit, albeit in an unreported decision, made a similar determination in Aries Aluminum Corp. v. King, 194 F.3d 1311, 1999 WL 801523 (6th Cir.1999) (unpublished). There the plaintiff brought RICO claims against the defendants alleging fraud in the purchase and sale of counterfeit securities, which claims the district court dismissed pursuant to the 1995 Securities Litigation Reform Act. While the plaintiff argued it was not a purchaser or seller of securities because the securities were forged, the Circuit rejected that assertion since it did "not effectively circumvent the plain language of the statute nor the case law on the issue of fraud in connection with the purchase or sale of securities." Id. 194 F.3d 1311, 1999 WL 801523 at *3. Other federal courts are also in agreement. See also, Howard v. America Online, Inc., 208 F.3d 741 (9th Cir.), cert. denied, 531 U.S. 828, 121 S. Ct. 77, 148 L. Ed. 2d 40 (2000) (precluding RICO action where claims implicate conduct which could have been actionable securities fraud despite claimants' lack of standing to assert those claims); Jordan (Bermuda) Inv. Co., Ltd. v. Hunter Green Investments Ltd., 205 F. Supp. 2d 243 (S.D.N.Y.2002) (investor sued under RICO alleging misrepresentations to induce investment in non-existent special class of shares in fund and claims were barred under PSLRA); Burton v. KenCrest Services, Inc., 127 F. Supp. 2d 673 (E.D.Pa.2001)(PSLRA precludes RICO suit which constitutes actionable securities fraud claims undertaken in connection with purchase and sale of securities); In re Ikon Office Solutions, Inc. Securities Litigation, 86 F. Supp. 2d 481 (E.D.Pa.2000) (former employee's claims of fraudulent conduct actionable as securities fraud were barred under PSLRA); Metz v. United Counties Bancorp., 61 F. Supp. 2d 364 (D.N.J.1999) (former employee's RICO claim which arose out of securities fraud, mail and wire fraud was precluded by PSLRA); Krear v. Malek, 961 F. Supp. 1065 (E.D.Mich.1997) (noting conduct constituting predicate acts which are actionable securities fraud claims are excluded under PSLRA unless conviction exception applied and noting legislative history surrounding this amendment); ABF Capital Management v. Askin Capital Management, L.P., 957 F. Supp. 1308 (S.D.N.Y. 1997) (PSLRA amendment removing securities fraud claims as RICO predicate acts barred investors' claim that hedge fund manager and broker-dealers participated in fraudulent RICO scheme to induce them to purchase securities issued by hedge funds).
In making a determination, the Court also considers the claims contained in Count Seven, which charge Defendants with Aiding and Abetting Fraud and Violations of the Securities Laws, stating:
72. Plaintiff incorporates by reference each and every allegations contained in paragraphs 1 through 71 of this Complaint as fully rewritten herein.
73. Mr. Capwill engaged in a fraudulent scheme to coax the investors whom Plaintiff represents to escrow and invest their funds with Mr. Capwill and/or other entities referred to in paragraphs 12 through 14 of this Complaint.
*945 74. Defendants knew of or recklessly disregarded the possibility of fraudulent scheme enacted by Mr. Capwill.
75. Defendants gave substantial assistance to Mr. Capwill by enabling him to divert the investors' funds, which Plaintiff is attempting to recover on their behalf, by conducting the securities transactions which Mr. Capwill directed Defendants to make.
76. In so acting, Defendants have aided and abetted Mr. Capwill's fraud and his violations of the securities laws, including 17 C.F.R. § 240.10b-5, 15 U.S.C. § 78j, and 15 U.S.C. § 78o.
77. As a direct and proximate result of aiding and abetting Mr. Capwill's fraud and his violations of the federal securities laws, Plaintiff, the entities referred to in paragraphs 12 through 14 of this Complaint and others (investors, funding companies, etc.) have been harmed by suffering serious financial losses.
(Emphasis added.) Two of the provisions named in paragraph 76 detail the prohibited use of manipulative and deceptive devices in the sale or purchase of securities. Specifically, 17 C.F.R. § 240.10b-5 makes it unlawful:
(a) to employ any device, scheme, or artifice to defraud,
. . . . .
(c) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.
(Emphasis added.) As the alleged securities violations involve prohibitions against fraudulent conduct, this serves to confirm that the allegations fall within the precluded claims listed within 18 U.S.C. § 1964(c). "The amendment to the RICO statute excludes those fraudulent acts that would be actionable under securities laws." Aries Aluminum Corp. v. King, 194 F.3d 1311, 1999 WL 801523 at * 3. Having duly considered the predicate acts as well as the securities violations alleged, this Court finds this conduct constitutes "conduct that would have been actionable as fraud in the purchase of sale of securities to establish a violation of section 1962." 18 U.S.C. § 1964(c). In light of this determination, the Court further finds the claims in Count Six cannot be litigated under RICO. Accordingly, Count Six of the Complaint is dismissed.
D. Aiding and Abetting Fraud and Violations of Securities Laws
1. Securities Laws
As to the claim of aiding and abetting violations of securities laws, the Supreme Court in Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 114 S. Ct. 1439, 128 L. Ed. 2d 119 (1994), held there is no private right of action for an aiding and abetting suit under Securities Exchange Act § 10(b). In paragraph 76, the Plaintiff alleges violations under § 10(b) in the nature of 17 C.F.R. § 240.10b-5 (Manipulative and Deceptive Devices and Contrivances) and 15 U.S.C. § 78j (Manipulative and Deceptive Devices). Under the dictates of Central Bank, the claims based upon violations of § 10(b) are also subject to judgment as a matter of law.
In addition, the violations alleged under 15 U.S.C. § 78o addressing registration and regulation of brokers and dealers, are pled without any specificity so it is unclear which provision of this statute Defendants are charged with aiding and abetting. See Lewis v. Hermann, 775 F. Supp. 1137, 1153 (N.D.Ill.1991) (aiding and abetting securities fraud requires (1) a primary violation; (2) that positive law obliges the abettor to disclose the truth; and (3) the abettor fails to do so with the requisite degree of scienter necessary for a primary *946 violation). As the Defendants' motion on this issue remains unchallenged in Plaintiffs response, the claim of aiding and abetting this securities violation also is subject to judgment as a matter of law.
2. Aiding and Abetting Fraud
The claims for aiding and abetting fraud must, according to Defendants, be dismissed because Ohio does not recognize a cause of action for aiding or abetting common law fraud. See, Federated Management Company v. Coopers & Lybrand, 137 Ohio App. 3d 366, 382, 738 N.E.2d 842, 853 (2000) (distinguishing cases offered by appellants as unpersuasive in supporting a claim of aiding and abetting fraud). However, just a few months following the appellate court's decision declining to acknowledge such a claim, the Sixth Circuit in Aetna Casualty and Surety Co. v. Leahey Construction Co., Inc., 219 F.3d 519, 532-534 (6th Cir. July 13, 2000), tackled the issue of aiding and abetting fraud under Ohio law finding "no conflict between the position that an aider and abettor must have actual knowledge of the primary party's wrongdoing and the statement that it is enough for the aider and abettor to have a general awareness of its role in the other's tortious conduct for liability to attach."
In this instance, since a genuine issue of material fact revolves around Giarmoleo's knowledge regarding the source of funds, it impacts upon the claim of aiding and abetting fraud pursuant to the reasoning of Aetna Casualty and Defendant's motion for summary judgment on this aspect of Count Seven is denied.
E. Conversion (Count Eight) and Money Had and Received (Count Nine)
1. Conversion
Ohio courts have defined conversion as "the wrongful control or exercise of dominion over property belonging to another inconsistent with or in denial of the rights of the owner." Kraft Constr. Co. v. Cuyahoga Cty. Bd. of Commrs., 128 Ohio App. 3d 33, 41, 713 N.E.2d 1075, 1080 (1998) citing Bench Billboard Co. v. Columbus, 63 Ohio App. 3d 421, 579 N.E.2d 240 (1989); Ohio Tel. Equip. & Sales, Inc. v. Hadler Realty Co., 24 Ohio App. 3d 91, 493 N.E.2d 289 (1985). In order to demonstrate a claim of conversion, the claimant must show that:
(1) he or she demanded the return of the property from the possessor after the possessor exerted dominion or control over the property, and (2) that the possessor refused to deliver the property to its rightful owner.
Id. "Money may be converted when it is identifiable and there is an obligation to return the specific money in question." Kiss v. Dick Baker Dodge, 1998 WL 904920 at * 3 (1998), citing Schutt v. Bates, 33 Ohio App. 303, 304, 169 N.E. 314 (1929).
In this instance, although it is uncontested Capwill used investor funds relative to the First Montauk accounts, the funds were placed in non-discretionary accounts effectively controlled by Capwill. There has been no showing there was a demand by Plaintiff upon the Defendants for return of the property. Moreover, the Defendants state at page 19 of their brief in support that such funds were eventually returned to the Receiver. Absent any evidence to the contrary, the Defendant's are entitled to summary judgment as a matter of law on Count Eight.
2. Money Had and Received
Where a party to "a contract has fully performed and another party has been unjustly enriched," it may culminate in an action for money had and received. National City Bank, Norwalk v. Stang, 84 Ohio App. 3d 764, 766-767, 618 N.E.2d 241, 242 (1992), citing Hummel v. Hummel, 133 Ohio St. 520, 14 N.E.2d 923 (1938). The *947 rationale underlying this claim is rooted in equity allowing recoupment from the party benefitting from the use of funds. Id. The court in National City Bank also held there were "occasions where an innocent party may be liable for restitution to a defrauded party." Id. 84 Ohio App.3d at 767, 618 N.E.2d at 243. An innocent party is liable to the extent he has been enriched and "only if there has been no change of circumstances making inequitable to require restitution." Id. citing Oakley Bldg. & Loan Co. v. Murphy, 84 Ohio App. 539, 84 N.E.2d 749 (1948).
Unlike the defendant husband in National City Bank, the commissions earned by Defendants may constitute enrichment and there is also a genuine issue of material fact as to whether Defendants were in fact innocent parties or whether they had knowledge that Capwill was improperly utilizing escrow funds. See Penalosa Coop. Exchange v. A.S. Polonyi Co., 745 F. Supp. 580, 589 (W.D.Mo.1990) (court denied dismissing money had and received claim where alleged broker was aware the embezzler used another's funds to pay for commodities trades). Therefore, to the extent that factual issues preclude a determination on this issue, Defendants' motion for summary judgment is denied as to Count Nine.
CONCLUSION
For the aforementioned reasons, the Court grants Defendants' motion for summary judgment (Doc. No. 26) as it pertains to Counts Six, Count Seven (aiding and abetting securities violations) and Count Eight of the complaint and denies summary judgment on the remaining causes of action.
IT IS SO ORDERED.
NOTES
[1] Liberte v. Capwill, 229 F. Supp. 2d 799 (N.D.Ohio 2002) revolves around the viatical settlement industry. Plaintiff Liberte Capital LLC ("Liberte") and Intervening Plaintiffs Alpha Capital Group LLC and Integrity Management Partners, LLC (collectively "Alpha") were engaged in the business of purchasing life insurance policies from terminally ill policyholders willing to sell their rights to the policies. Liberte also solicited investors for policies on the lives of seniors without terminal illness. Investors were solicited by Liberte and Alpha to purchase viatical life insurance investment programs whereby investors were matched in many cases with the policy on the terminally ill person or "viator".
[2] Initially Frederick M. Luper was appointed Receiver on July 15, 1999; however, effective June 26, 2000, Javitch replaced Mr. Luper in that capacity.
[3] For example, during his testimony Giarmoleo was asked the following:
Q: Assume you knew or had strong reasons to suspect that the money going into the Jelen, Norman and Capwill accounts was escrowed money and that's all you know, that it was escrowed money, would you have permitted the type of trading that went on in those three accounts?
MR. PHILLIP: Note my objection to the form.
A: No.
Q: Why?
A: Because if its is escrowed, it's for a purpose. It's used for a certain purpose. Just like a lawyer like you and the IOLA account. Somebody gives you money. You can't use it for whatever you want to use it for. You have to use it for whatever the purpose is.
[4] Prohibited activities
(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce ....
(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 or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2386664/ | 279 F. Supp. 2d 1250 (2003)
NORFOLK SOUTHERN CORPORATION, et al., Plaintiffs,
v.
CHEVRON U.S.A., INC., et al., Defendants.
No. 3:00-cv-366-J-32MMH.
United States District Court, M.D. Florida, Jacksonville Division.
August 7, 2003.
*1251 *1252 *1253 *1254 James C. Rinaman, Jr., Marks, Gray, P.A., Jacksonville, FL, Michael C. Davis, Gary A. Bryant, Stephen Royce Jackson, Willcox & Savage, P.C., Norfolk, VA, for plaintiffs/counter-defendant.
John Finlay MacLennan, Tim Elsworth Sleeth, Smith, Hulsey & Busey, Richard L. Maguire, Rogers, Towers, Bailey, Jones & Gay, Jacksonville, FL, Reynold N. Hoover, Federal Emergency Management Agency, Washington, DC, Stephen J. Darmody, Shook, Hardy & Bacon, L.L.P., Miami, FL, for defendants/counter-claimant/cross-claimant/cross-defendant.
*1255 ORDER
CORRIGAN, District Judge.
I. Status
This case is before the Court on defendant Shell Oil Company's Motion in Limine to Exclude the Opinion Testimony of Mr. Wayne Grip, Dr. Paul Chrostowski and Dr. Marwan Sadat (Doc. 114) and supporting memorandum (Doc. 115) and plaintiffs' response thereto (Doc. 136); defendant Shell Oil Company's Motion for Summary Judgment (Doc. 116) and plaintiffs' response thereto (Doc. 135); defendant Chevron U.S.A., Inc.'s Motion for Summary Judgment (Doc. 118) and plaintiffs' response thereto (Doc. 137); defendant Chevron U.S.A., Inc.'s Motion for Summary Judgment on Crossclaim of Defendant Shell (Doc. 125) and supporting memorandum (Doc. 126) and Shell's response thereto (Doc. 134). The parties filed supporting materials (Docs. 119-24, 138).[1] On January 24, 2003, the Court conducted a hearing on all pending motions, the transcript of which has now been filed (Doc. 142).[2] The Court permitted the parties to file post-hearing supplemental memoranda which they have now done (Docs. 143-45). Plaintiffs attached expert verifications to their post-hearing memorandum (Doc. 144, Exhibits 2, 4-5). Defendant Shell Oil Company then filed a Motion to Strike the Plaintiffs' Late-Filed Expert Verification (Doc. 146) to which plaintiffs filed a response (Doc. 147).
II. Standard of Review
Summary judgment is appropriate only 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 the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The movant bears the burden of demonstrating the absence of all genuine issues of material fact. See id. This burden "may be discharged by `showing' ... that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). Once the moving party discharges that burden, the burden shifts to the nonmoving party to set forth specific facts showing a genuine triable issue. See Fed. R.Civ.P. 56(e). To create a genuine issue of material fact, the nonmovant must do more than present some evidence on a disputed issue. "[T]here is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S.Ct. *1256 2505, 91 L. Ed. 2d 202 (1986) (citations omitted).
III. Background
Plaintiff Norfolk Southern Corporation ("NSC") is the parent corporation of Norfolk Southern Railway Company ("NSRC") which, in turn, is the parent corporation of plaintiff Georgia Southern and Florida Railway Company ("GS & F") (collectively referred to as "the plaintiffs"). Plaintiff GS & F is successor in interest to St. Johns River Terminal Company ("SJRTC").[3] Defendants Chevron U.S.A., Inc., ("Chevron") and Shell Oil Company ("Shell") are petroleum corporations. Chevron is successor in interest to Gulf Oil Corporation and Gulf Refining Company (collectively, "Gulf"), which were also petroleum corporations.[4]
Plaintiffs have filed a multi-count complaint against defendants Chevron and Shell (Doc. 57). Plaintiffs' claims are based on alleged contamination of property described as the "Site" and an adjacent salt marsh described as the "Adjacent Property" (hereinafter referred to as the "salt marsh").[5]See Doc. 57. The Site is located on the south bank of Long Branch Creek, a tributary of the St. Johns River, in Jacksonville, Florida. SJRTC (GS & F's predecessor) leased the Site to Gulf from 1906 until 1961.[6] Gulf operated a bulk oil storage and distribution facility on the Site. See Plaintiffs' Joint Exhibit 29 (hereinafter "Pretrial Stipulation"). Since Gulf vacated the property at the end of its lease in 1961, the Site has not been used as an oil distribution terminal. See id.[7] On the opposite bank of Long Branch Creek, Shell operated a similar type of oil distribution terminal from the 1930s until 1991. See Doc. 116 at 3. The Court has attached to the Order as Appendix A an aerial photograph depicting both properties.[8] As the photograph shows, the mouth of the Creek separating the Gulf and Shell properties is rather wide and there is also an isthmus of land which separates the Creek into two branches.[9]
*1257 During World War II, the United States government took possession of Shell's terminal and in 1943 constructed two pipelines (6" and 8" inch in diameter) under the Creek surface connecting the Gulf terminal to the Shell terminal. See Exhibit 3 to Plaintiffs' Joint Exhibit 7 (Shell Oil Company's Supplementary Answer to Plaintiff's First Set of Interrogatories) & Plaintiffs' Joint Exhibit 33 (Lease Agreement between Shell and Defense Plant Corporation, December 3, 1942). Collectively, these two pipelines are referred to as the Florida Emergency Pipeline (hereinafter the "pipeline"). See Exhibit 3 to Plaintiffs' Joint Exhibit 7. After the war, the government sold its interest in the pipeline to Samson Tool and Machinery Company, which then sold the pipeline to Gulf and Shell. See Plaintiffs' Joint Exhibit 35 (Letter from Reconstruction Finance Corporation to Shell, May 1, 1946); Plaintiffs' Joint Exhibit 36 (Conveyance from Sampson Machinery & Supply Company to Gulf and Shell, February 10, 1948); Exhibit 3 to Plaintiffs' Joint Exhibit 7 (Shell Oil Company's Answer to Plaintiffs' First Set of Interrogatories). Gulf agreed to fifty percent ownership of the pipeline. See Joint Exhibit 37 (Letter from Shell to Gulf, January 27, 1948).[10] For about a year and a half, from 1946 through 1947 or 1948, while Shell constructed a dock on its own property, Gulf allowed Shell to operate two additional pipelines (10" and 12" in diameter) on the Site connecting Gulf's loading dock to the pipeline crossing Long Branch Creek. See Plaintiffs' Joint Exhibit 38 (License Agreement between Gulf and Shell, July 1946).[11] This enabled Shell to receive oil products by ship or barge at the Gulf dock and then have them transferred to Shell via the pipelines on the Site and the pipeline running under Long Branch Creek. The pipeline running under Long Branch Creek was abandoned by the parties and reported to be "rusted out" by 1957. Doc. 143, Exhibit A.[12]
In August 1977, the United States Coast Guard notified SJRTC that oil was seeping from the Site into Long Branch Creek. See Pretrial Stipulation at 6. SJRTC was cited for a violation of the Clean Water Act and fined $100. See id. SJRTC took various corrective measures to prevent further oil seepage into Long Branch Creek. In November 1978, SJRTC filed a lawsuit against Gulf alleging that during the term of its lease, Gulf had spilled petroleum products on the Site and had permitted them to seep into the subsurface of the Site damaging the property and causing the ultimate release of oil into Long Branch Creek (hereinafter the "first action"). See Doc. 123, Exhibit 1 at ¶¶ 5- *1258 8.[13] SJRTC alleged that Gulf had breached the terms of the lease by refusing to indemnify SJRTC and for failing to return the Site in is as good condition as it had been in prior to Gulf's use. See id. at 4-10, 11-13. In April 1984, after almost five years of litigation, the parties settled the first action. See Chevron's Exhibit # R01456-57.[14]
Plaintiffs have continued to undertake efforts to prevent further releases of oil from the Site into Long Branch Creek. See Plaintiffs' Joint Exhibit 17 (Bryan Salley Deposition) at 23-24.[15] In December 1998, while installing a water wall to stop seepage into the Creek, plaintiffs discovered six (6) buried 55-gallon drums on the Site. See id. at 144-45 and Exhibits 13, 14, 15, 19. Further investigations have uncovered inter alia thirty (30) more drums buried at the site; buried metal ring foundations and substantial petroleum contamination in the salt marsh. See id. Plaintiffs recently rediscovered the pipeline running under Long Branch Creek which is broken on the Gulf side. See Plaintiffs' Joint Exhibit 18 (Tiffany Shaw Depo.) at 76-77 & Exhibits 29-32. Plaintiffs also excavated a large concrete structure beneath the ground surface on the Site identified as OW-8.[16]
On April 3, 2000, plaintiffs filed this action based on the newly discovered contamination on the Site and in the salt marsh.[17] The original complaint (Doc. 1) and the first amended complaint (Doc. 20) were brought solely against defendant Chevron. Plaintiffs subsequently filed a second amended complaint (Doc. 57) adding Shell as a defendant after rediscovering the pipeline in the salt marsh. Count One (Breach of Contract) is brought solely against Chevron. Count Two (Trespass), Count Three (Nuisance), Count Four (Negligence), Count Five (Common Law Contribution), Count Six (Statutory Contribution), Count Seven (Indemnification), Count Eight (CERCLA § 107), Count Nine (CERCLA § 113), Count Ten (Violation of the Florida Pollutant Discharge *1259 Prevention and Removal Statutes, Florida Statute § 376 et seq.), and Count Eleven (Violation of Florida Statute § 403.727) are brought against both Chevron and Shell. Chevron and Shell cross-claimed against each other (Docs. 63 & 69) and Shell counterclaimed against plaintiffs (Doc. 63).
Shell has now filed a Motion for Summary Judgment (Doc. 116) and a related Motion in Limine to Strike expert opinion testimony of Mr. Wayne Grip, Dr. Paul Chrostowski and Dr. Marwan Sadat (Doc. 114) and a Motion to Strike Late-Filed Expert Verifications (Doc. 146). Chevron has filed a Motion for Summary Judgment (Doc. 118) and a Motion for Summary Judgment on Shell's Cross-Claim (Doc. 125). The Court is now prepared to issue its ruling on these motions.
IV. Chevron's Motion for Summary Judgment
There appears to be little dispute that plaintiffs have discovered contamination on the Site and adjacent salt marsh. Both logic and the record evidence strongly suggest triable issues concerning Chevron's liability for the contamination because of the activity of its predecessor, Gulf, on the premises between 1906 and 1961. Indeed, Chevron does not argue that it is entitled to summary judgment because there are no material issues of fact regarding the contamination and Chevron's responsibility for it. Rather, Chevron raises several legal arguments, focusing primarily on its contention that the current litigation is barred by res judicata based on the previously filed first action. Tr. 12. Whether plaintiffs' action is barred by res judicata is a legal determination properly decided by the Court on a motion for summary judgment. See Israel Discount Bank, Ltd. v. Entin, 951 F.2d 311, 314 (11th Cir.1992).
As discussed supra, in November 1978, SJRTC filed the first action, a two-count complaint against Gulf in state court, based on the 1977 citation by the Coast Guard and SJRTC's subsequent clean up efforts. Gulf removed to this Court. In its complaint, SJRTC alleged that Gulf had spilled petroleum products on the Site and permitted them to seep into the subsurface of the leased property damaging the property and ultimately causing the release of oil into Long Branch Creek. See C. at ¶¶ 5-8. SJRTC alleged that Gulf had breached its obligations under the lease agreements by (1) refusing to indemnify and hold SJRTC wholly harmless from the consequences of Gulf's actions (see id. at ¶ 10); and (2) failing to surrender possession of the premises to SJRTC in as good a condition as the premises were prior to Gulf's use. See id. at ¶¶ 11-14. SJRTC sought damages against Gulf for costs and expenses already incurred, or to be incurred, in the restoration of the property or judgment requiring Gulf to restore the property to pre-lease condition. See id. at 3-4.
After almost five years of litigation, the parties settled the first action. On January 13, 1984, Gulf submitted a proposed release to SJRTC. This proposed release, entitled "RELEASE IN FULL OF ALL CLAIMS," released Gulf from any claims for "damage, loss or injury" sustained by SJRTC "in consequences of the occupation and use by" Gulf of the Site and "all those matters alleged" in the first action. See Plaintiffs' Joint Exhibit 15 (Affidavit of A. Gayle Jordan) & Exhibit 1 thereto. The proposed release also required SJRTC to indemnify Gulf for any claims brought based on Gulf's use of the Site. See id. SJRTC rejected the proposed release and the parties ultimately executed a release tailored more toward the specific allegations of the complaint in the first action (hereinafter the "Release"). See Plaintiffs' Joint Exhibit 15 (Affidavit of Gayle Jordan) at ¶¶ 15-16 & Exhibit 3. The Release provides:
*1260 In consideration of the payment of ONE HUNDRED SIXTY-THREE THOUSAND TWENTY-EIGHT and 26/100 DOLLARS ($163,028.26) to St. Johns River Terminal Company, in hand paid by Gulf Oil Corporation, St. Johns River Terminal [sic] Company does hereby release and forever discharge said Gulf Oil Company, its successors and assigns, from any and all actions, causes of action, claims and demands for, upon or by reason of any damage, loss or injury, which heretofore has been or which hereafter may be sustained by St. Johns River Terminal Company arising out of any contamination by oil of the Talleyrand Terminal property in Jacksonville, Florida, which is alleged to have occurred during Gulf Oil Corporation's use and occupancy of said property and all those matters alleged in St. Johns River Terminal Company, a Florida corporation vs. Gulf Oil Corporation, a Pennsylvania corporation, in the United States District Court, Middle District of Florida, Jacksonville Division, Case No. 79-10-Civ-J-16.
This release extends and applies to, and also covers and includes, all unknown, unforeseen, unanticipated and unsuspected injuries, damages, loss and liability, and the consequences thereof, arising out of said alleged oil contamination, as well as those now disclosed and known to exist. The provisions of any state, federal, local or territorial law or statute providing in substance that releases shall not extend to claims, demands, injuries or damages which are unknown or unsuspected to exist at the time, to the person executing such release, are hereby expressly waived.
It is further agreed and understood that said payment is not to be construed as an admission of any liability.
Doc. 57, Exhibit 3.
SJRTC and Gulf then filed a stipulation of dismissal. See Chevron Exhibit # R01456-57. On May 4, 1984, this Court approved the stipulation and entered an Order dismissing the first action with prejudice pursuant to Rule 41, Fed.R.Civ.P. See id. The Court's Order did not expressly incorporate the release executed by the parties.
Under res judicata, which is also known as "claim preclusion," a final judgment on the merits bars the parties to a prior action from re-litigating a cause of action that was or could have been raised in that action. See Davila v. Delta Air Lines Inc., 326 F.3d 1183, 1187 (11th Cir. 2003); In re Piper Aircraft Corp., 244 F.3d 1289, 1296 (11th Cir.2001) (citation omitted). Claim preclusion acts as a bar "not only to the precise legal theory presented in the previous litigation, but to all legal theories and claims arising out of the same operative nucleus of fact." Pleming v. Universal-Rundle Corp., 142 F.3d 1354, 1356-57 (11th Cir.1998) (citation omitted).
In the Eleventh Circuit, a party seeking to invoke res judicata must satisfy four elements: (1) the prior decision must have been rendered by a court of competent jurisdiction; (2) there must have been a final judgment on the merits; (3) both cases must involve the same parties or their privies; and (4) both cases must involve the same causes of action. See Davila, 326 F.3d at 1187; Piper, 244 F.3d at 1296.[18] The burden is on the party asserting res judicata to show that the later-filed *1261 suit is barred. See Piper, 244 F.3d at 1296.
As an initial matter, the parties dispute the res judicata effect of the judgment entered in the first action. Plaintiffs contend that because a consent judgment[19] resolved the first action, the Court cannot automatically apply claim preclusion; rather, the Court must consider the parties' intent in settling the first action. See Doc. 137 at 4-7. Chevron argues that a consent judgment is like any other final judgment and the parties' intent is irrelevant to the claim preclusion analysis. See Doc. 145 at 1-2.
Plaintiffs rely on Kaspar Wire Works, Inc. v. Leco Engineering & Machine, Inc., 575 F.2d 530 (5th Cir.1978)[20] to support their contention that "when construing the res judicata effect of a consent decree entered into as a result of the voluntary resolution of claims, the court should look to the intent of the parties to determine which claims were resolved as a result of the settlement and consent order." Doc. 144 at 5. However, Kaspar was decided in the unique context of considering the preclusive effect of a previous declaratory judgment action in a later patent infringement suit and is therefore distinguishable. Moreover, the Court does not completely agree with plaintiffs' reading of Kaspar. In Kaspar, the Fifth Circuit discussed claim preclusion and issue preclusion in the context of consent decrees. Kaspar, 575 F.2d at 537-40. The Fifth Circuit noted that consent decrees are normally "given the finality accorded under the rules of claim preclusion." Id. at 538. However, the Fifth Circuit explained that different rules apply to issue preclusion (sometimes called collateral estoppel) because the purpose of a consent decree is typically to avoid the litigation of any issue. See id. at 539. The Fifth Circuit concluded, in the context of issue preclusion, that "when determining the effect to be given a decree entered by consent of the parties, consideration is to be given to their intention with respect to the finality to be accorded the decree as reflected by the record and the words of their agreement." Id. at 540. Contrary to plaintiffs' contention, the Fifth Circuit did not hold that the Court must consider the parties' intent for purposes of claim preclusion (res judicata). See Citibank v. Data Lease Fin. Corp., 904 F.2d 1498, 1504 (11th Cir.1990)(citing Kaspar, distinguishing between the preclusive effect of a consent judgment "depending upon whether res judicata (claim preclusion) or collateral estoppel (issue preclusion) is involved").
However, the Court does not agree with Chevron that intent is never relevant. Courts have recognized that, because consent judgments are contractual, the parties may alter the preclusive effects of a judgment by the terms of the consent decree. See 18 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 4443 at 262 (1981); Young-Henderson v. Spartanburg Area Mental Health Center, 945 F.2d 770, 774-75 (4th Cir.1991); May v. Parker-Abbott Transfer and Storage, Inc., 899 F.2d 1007, 1010 (10th Cir.1990). Plaintiffs cite several cases in which courts have limited the claim preclusion effect of a *1262 judgment based on an express manifestation of such an intent in the consent judgment. See e.g., Young-Henderson, 945 F.2d at 775 (finding that language of Consent Order which provided "[i]t is further agreed that this Order of Dismissal only terminates the claims raised in the complaint in the above-entitled action and does not in any way affect any other charges or claims filed by the Plaintiff subsequent to the commencement of this within [sic] action," limited claim preclusion to those claims actually raised in the complaint in the first action); Cf., May, 899 F.2d at 1010-11 (refusing to alter preclusive effects of consent judgment where parties did not expressly reserve the right for subsequent litigation).
Here, SJRTC did not expressly reserve the right to bring a later lawsuit arising out of Gulf's lease of the Site. Indeed, the Release, stipulation of dismissal and Order dismissing the case with prejudice in the first action are silent as to the settlement's intended claim preclusion effects. Nevertheless, plaintiffs argue that the language of the Release and the facts surrounding its execution demonstrate that the parties only intended to release claims related to "oil" contamination on the Site and not non-oil contamination on the Site and in the salt marsh. See Doc. 137 at 7. Plaintiffs have cited no case (and the Court has found none) in which a court inferred such a reservation of right absent a clear expression of this intention by the parties.[21] If SJRTC negotiated a right to bring a later lawsuit arising out of Gulf's lease of the property, it should have made sure that the Release clearly stated it. The Court is "not willing to supply by inference what the parties have failed to expressly provide," especially in light of the strong policy in favor of claim preclusion. May, 899 F.2d at 1011. Accordingly, the Court will apply the traditional four-part claim preclusion analysis outlined above.
There is no dispute as to the first three elements. The Court in the first action had proper jurisdiction based on diversity of citizenship. See Pretrial Stipulation at ¶ 1. Second, there was a final judgment on the merits in the first action. The parties reached a settlement agreement, executed a stipulation of dismissal with prejudice and this Court entered an Order dismissing the case with prejudice. See Ragsdale v. Rubbermaid, Inc., 193 F.3d 1235, 1238 (11th Cir.1999); Citibank, 904 F.2d at 1501-02.[22] Third, NSC and GS & F (plaintiffs in this action) are in privity with SJRTC (plaintiff in the first action) and Chevron (defendant in this action) is in privity with Gulf (defendant in the first action).
However, the parties do dispute the final elementi.e., whether the claims in the first action and the claims in the present litigation are the same "cause of action." In the Eleventh Circuit, "the principal test for determining whether the causes of action are the same is whether the primary right and duty are the same in each case. In determining whether the *1263 causes of action are the same, a court must compare the substance of the actions, not their form." Ragsdale, 193 F.3d at 1239 (quoting Citibank, 904 F.2d at 1503). It is generally said, "that if a case arises out of the same nucleus of operative fact, or is based upon the same factual predicate, as a former action, that the two cases are really the same `claim' or `cause of action' for purposes of res judicata." Id. "Among the factors relevant to a determination whether the facts are so woven together as to constitute a single claim are their relatedness in time, space, origin, or motivation, and whether, taken together, they form a convenient unit for trial purposes." Id. (quoting RESTATEMENT (SECOND) OF JUDGMENTS § 24(2) cmt. b (1980)). Thus, the Court must "look to the factual issues to be resolved [in the first action] and compare them with the issues explored in" this current litigation. Id. In so doing, the Court asks whether "the plaintiff could, or rather should, have brought the second claim with the first lawsuit." Trustmark Insur. Co. v. ESLU, Inc., 299 F.3d 1265, 1270 (11th Cir.2002). For claim preclusion purposes, "claims that `could have been brought' are claims in existence at the time the original complaint is filed." Pleming, 142 F.3d at 1357 (quoting Manning v. City of Auburn, 953 F.2d 1355 (11th Cir.1992)).
The similarities between the two law-suits are clear. Both cases rely on the same historical nucleus of operative factsi.e. Gulf's activities on the Site from 1906 until 1961 while operating a petroleum storage and distribution facility. In the first action, SJRTC alleged that Gulf spilled "oil and other petroleum products" on the Site which damaged the Site and ultimately seeped into Long Branch Creek. See C. at ¶¶ 5-8. SJRTC sought damages for Gulf's refusal to hold harmless SJRTC from the consequences of Gulf's actions on the Site. See id. at ¶ 10. SJRTC also sought damages for Gulf's failure to return the leased premises in the same condition as they were prior to Gulf's lease of the Site. See id. at ¶¶ 11-14.
In this action, plaintiffs allege that while Gulf was operating the same petroleum storage and distribution facility on the Site from 1906-1961, Gulf contaminated the Site and adjacent salt marsh with "pollutants and contaminants, including but not limited to, petroleum products; black sludge-like materials; black solids; black liquids; tank bottoms;[23] drums; paint and painting related substances; yellow, grease-like substances; abrasive blast material; metal; hazardous substances; wastes; contaminants; and debris; as well as with oil." Doc. 57 at ¶ 1. Plaintiffs inter alia seek recovery of all costs associated with the cleanup of contamination on the Site and salt marsh and costs incurred in restoring the Site and salt marsh, including the subsurface, to as good a condition as it was prior to the contamination by Gulf. See id. at 26-29.
Plaintiffs contend that the first action and the current action are different in two primary ways. Plaintiffs argue that the first action was about contamination by "oil" and this action is about contamination by things "other than oil." However, in the first action, SJRTC alleged that Gulf spilled "oil and other petroleum products" on the Site. Moreover, SJRTC sought recovery for Gulf's failure to return the leased premises in as good a condition as it was prior to Gulf's lease of the Site. This is certainly broad enough to encompass other types of contamination.
*1264 Plaintiffs also argue that the current action is different because it focuses primarily (though not exclusively) on the salt marsh rather than the Site. Plaintiffs argue that the salt marsh (which is contiguous to the Site, between the Site and Long Branch Creek) is geographically distinct from the Site and is actually owned by the State of Florida. See Doc. 144 at 3-4. Plaintiffs point to the original lease agreements which plaintiffs contend show that the salt marsh was excluded from the leased premises. See id. Plaintiffs also contend that aerial photography shows a fence line between the salt marsh and the rest of the Site. See id. While there is strong contrary evidence that the salt marsh indeed was part of the leased premises and that the parties in the first action assumed that any contamination of the salt marsh at the low water mark (as well as in Long Branch Creek) was part of the first action, the Court need not resolve this issue directly, for plaintiffs' argument is belied by their primary theory as to how Gulf contaminated the salt marsh. Plaintiffs contend that Gulf (Chevron's predecessor) disposed of petroleum wastes in the disposal pit at OW-8 (located on the Site) and that some of these waste products were then pumped into the salt marsh. See Plaintiffs' Joint Exhibit 13 (Chrostowski Expert Report) at 4; Plaintiffs' Joint Exhibit 12 (Sadat Expert Report) at 12. Thus, while the petroleum waste products may have ended up in the salt marsh, plaintiffs' suit is clearly focused on the source of that contamination Gulf's contamination activities from 1906 to 1961 on the Site, the same contamination activities which were or should have been part of the first action.[24] Indeed, at the hearing, plaintiffs' counsel explained that Gulf is responsible for the contamination in the salt marsh because, "[i]t's not the property where the contamination is. It's the property where the contamination originated." Tr. 56. This is consistent with SJRTC's theory in the first action: that Gulf's activities on the Site led to contamination of Long Branch Creek.
Thus, the first action and this action share common elements of "time, space, origin, [and] motivation" and would unquestionably "form a convenient unit for trial purposes," with "substantial overlap" in witnesses and other evidence between the two actions. Ragsdale, 193 F.3d at 1239 (quoting RESTATEMENT (SECOND) OF JUDGMENTS § 24(2), cmt. b (1980)). Plaintiffs' attempts to say that this suit is not about the Site, but about the salt marsh, and not about oil contamination, but about other types of waste, are artificial distinctions which cannot be utilized to avoid the preclusive effect of the first action.
Plaintiffs argue that they could not have raised these new claims in the first action because they are based on recently discovered contamination on the Site and in the salt marsh. While traditional principles of preclusion allow additional litigation if some new wrong occurs after the first action is filed, see Supporters to Oppose Pollution, Inc. v. Heritage Group, 973 F.2d 1320, 1326 (7th Cir.1992); Pleming, 142 F.3d at 1357, plaintiffs have not alleged any such new wrongful conduct. Gulf vacated the Site in 1961 or 1962; thus, any wrongful conduct by Gulf on the Site occurred well before the first action was filed in 1978.[25] That plaintiffs now better understand the extent of the contamination *1265 arising from Gulf's actions on the Site does not allow plaintiffs to avoid the res judicata effect of the first action. See United States v. Gurley, 43 F.3d 1188, 1196 (8th Cir.1995) (noting that a "`claim' should be determined not by the actions of a plaintiff vindicating its rights but by the conduct or alleged conduct of a defendant breaching those rights"); Supporters to Oppose Pollution, 973 F.2d at 1326 (noting that "new evidence of injury differs from a new wrong"). Thus, for claim preclusion purposes, plaintiffs' current claims "could have been brought" in the first action because they were in existence at the time the original complaint was filed.[26]
Moreover, this is not a case in which SJRTC had no means of knowing the extent of the contamination. There was evidence in the first action that Gulf disposed of its petroleum waste products in pits on the Site. See Chevron Exhibit # RO2415-RO2486 (Claudius Jefferson Hansard Deposition, December 18, 1979); Chevron Exhibit # RO1263-RO1331 (Charlie Edward Arnold Deposition, April 28, 1980) at 21-24, 40-43, 45-56; Chevron Exhibit # RO2014-RP2130 (Henry Blanchard Wyche, Jr. Deposition) at 44-46. There was also evidence that underground pipelines from the former Gulf Oil terminal were present at the Site and extended into Long Branch Creek. See Chevron Exhibit # RO1140-RO1214 (Lake Ray, Jr. Deposition, July 25, 1980) at 25-28; Chevron Exhibit # RO2014-RP2130 (Henry Blanchard Wyche, Jr. Deposition) at 47-48. There was also testimony about the existence of the Florida Emergency Pipeline running underneath Long Branch Creek. See Chevron Exhibit # R00159-R00204 (Claude Belcher Deposition) at 26. In this action, plaintiffs' own expert, Wayne Grip, has identified burial pits located near the salt marsh in aerial photographs dating from 1942. See Plaintiffs' Joint Exhibit 10 (Grip Expert Report) at 4. Grip has also identified a ditch or buried pipe trench located directly to the south of the salt marsh and lined up with the pipeline to the salt marsh in a photograph dating from 1949. See id. at 13. Accordingly, this is more akin to a "situation in which the plaintiff failed to investigate its claims in a timely manner in order to present them in the first litigation." Trustmark Insur. Co., 299 F.3d at 1272.
Plaintiffs argue that their claims under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") cannot be barred on claim preclusion grounds because CERCLA was not in existence at the time the first action was filed.[27] While this argument has some initial appeal, the "[m]ere adoption of new statutory provisions does not defeat claim preclusion ... if a single closed transaction is involved". See 18 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure, § 4411 at 265-66 (1981). This is consistent with Eleventh Circuit cases *1266 holding that the claim preclusion analysis turns on the facts of the case, rather than the remedy sought. See e.g., Piper, 244 F.3d at 1295 (claim preclusion "turns primarily on the commonality of the facts of the prior and subsequent actions, not on the nature of the remedies sought"); Pleming, 142 F.3d at 1356-57 (claim preclusion acts as a bar, "`not only to the precise legal theory presented in the previous litigation, but to all legal theories and claims arising out of the same operative nucleus of fact'") (quoting NAACP v. Hunt, 891 F.2d 1555, 1561 (11th Cir. 1990)).[28]
Neither is CERCLA a "new right" as contemplated by Pleming v. Universal-Rundle Corp., 142 F.3d 1354 (11th Cir. 1998).[29] In Pleming, the plaintiff filed an employment discrimination action against her employer. See Pleming, 142 F.3d at 1357. During the course of the litigation, other instances of alleged discrimination occurred. See id. Rather than amending her complaint to include these new claims, plaintiff filed a second lawsuit. See id. The Eleventh Circuit noted that claim preclusion did not bar the second lawsuit because plaintiff had exercised her option, pursuant to Rule 15(d), Fed.R.Civ.P., not to supplement the pleadings with an after-acquired claim. See id. The Court explained that "the parties frame the scope of litigation at the time the complaint is filed and that a judgment is only conclusive regarding the matters that the parties might have litigated at that time but not regarding `new rights acquired, pending the action which might have been, but which were not required to be litigated.'" Id. (quoting Manning v. City of Auburn, 953 F.2d 1355, 1360 (11th Cir.1992)). The Pleming Court was referring to new factual claims based on new post-suit wrongful conductnot claims based on the same factual bases but new or different legal theories.
*1267 Plaintiffs finally argue that claim preclusion should not apply because Gulf fraudulently concealed the scope of the contamination in the first action. In support of this argument, plaintiffs rely solely on SJRTC's first set of interrogatories in the first action in which SJRTC requested Gulf to state "whether any occurrence of oil product spillage, discharge or loss or outright dumping was recorded or is known to have happened at the facility from 1907 through 1961; and describe the dates and circumstances and results in terms of amounts of products lost and repairs and restorations made, if any, for each such occurrence." Plaintiffs' Joint Exhibit 30. In response to the interrogatory, Gulf wrote, "[n]o such information is available." Id. Plaintiffs contend that SJRTC relied on this "false" statement when it decided to settle the case.
The Restatement (Second) of Judgments recognizes several limited exceptions to claim preclusion, one of which is a party's failure to pursue a claim in a former action as a result of the other party's "fraud, concealment, or misrepresentation." See RESTATEMENT (SECOND) OF JUDGMENTS § 26, comment j (1982). However, as a matter of law, plaintiffs have adduced insufficient evidence that the interrogatory response, made by Gulf many years after it had ceased operations on the Site, was false at the time it was made. If anything, the inconclusive nature of the interrogatory response should have prompted plaintiffs' predecessor in the first action to follow up to determine if further investigation of other possible contamination was warranted. Moreover, even assuming that Gulf's response to the interrogatory was false or misleading, it cannot be said that it prevented SJRTC from including these new claims in the first action. As discussed supra, SJRTC had sufficient information in the first action (or could have obtained it with reasonable investigation) to pursue the claims now raised in this action.[30]
Accordingly, plaintiffs' current action against Chevron is barred by res judicata. Based on this conclusion, the Court need not address the other issues raised by Chevron's Motion for Summary Judgment.
V. Shell's Motion for Summary Judgment and Motion in Limine
Shell has filed a Motion for Summary Judgment (Doc. 116) and a related Motion in Limine to Exclude the Opinion Testimony of Mr. Wayne Grip, Dr. Paul Chrostowski and Dr. Marwan Sadat (Doc. 114).
As acknowledged by all, Shell's situation is markedly different than Chevron's. While the salt marsh (which is the primary concern in this suit) is directly contiguous to the premises leased by Gulf (Chevron's predecessor) from 1906 to 1961, Shell's petroleum operations were on a different site separated from the salt marsh by Long Branch Creek. Thus, it is much less obvious how Shell could be responsible for contamination of the salt marsh and Site. Moreover, plaintiffs concede a lack of direct evidence of Shell's role in the contamination and, owing in part to the passage of time, there is a dearth of even circumstantial documentary or testimonial evidence of Shell's involvement. Understandably, plaintiffs seek to fill this evidentiary gap with expert testimony to provide the necessary *1268 causal link between Shell's activities and the contamination which is the subject of this suit.
Shell argues that summary judgment should be granted on each count of the Second Amended Complaint brought against Shell because plaintiffs cannot establish causation between Shell's actions and the contamination of the Site and salt marsh. Plaintiffs acknowledge that without the proposed expert testimony of Mr. Wayne Grip, Dr. Paul Chrostowski and Dr. Marwan Sadat, there is insufficient evidence establishing causation. See Doc. 135. However, Shell argues in its motion in limine that the expert testimony is inadmissible. Accordingly, because of the acknowledged importance of the expert testimony to plaintiffs' case against Shell, the Court will now consider Shell's motion in limine to exclude plaintiffs' experts. See Hudgens v. Bell Helicopters/Textron, 328 F.3d 1329 (11th Cir.2003)(affirming trial court that first considered motion in limine to exclude expert testimony and then motion for summary judgment).
In its motion in limine (Doc. 114) and supporting memorandum (Doc. 115), Shell argues that the testimony of plaintiffs' experts should be excluded under Rules 702 and 403 of the Federal Rules of Evidence. Under the Supreme Court's decision in Daubert v. Merrell Dow Pharm., 509 U.S. 579, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993), trial courts are required to act as "gatekeepers" to prevent speculative, unreliable expert testimony from reaching a jury. See McCorvey v. Baxter Healthcare Corp., 298 F.3d 1253, 1256 (11th Cir.2002). This responsibility is identical when the court is presented with a proffer of expert technical evidence. See Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 147, 119 S. Ct. 1167, 143 L. Ed. 2d 238 (1999). However, "`[t]he gatekeeper role ... is not intended to supplant the adversary system or the role of the jury.'" United States v. Frazier, 322 F.3d 1262, 1268 (11th Cir. 2003) (quoting Allison v. McGhan Med. Corp., 184 F.3d 1300, 1311 (11th Cir.1999)).
The party tendering the expert has the burden of proving admissibility of the testimony by a preponderance of the evidence. See Allison 184 F.3d at 1306. The party offering the expert must show that: "(1) the expert is qualified to testify competently regarding the matters he intends to address; (2) the methodology by which the expert reaches his conclusions is sufficiently reliable as determined by the sort of inquiry mandated in Daubert; and (3) the testimony assists the trier of fact, through the application of scientific, technical, or specialized expertise, to understand the evidence or to determine a fact in issue." Hudgens, 328 F.3d at 1338 (quoting City of Tuscaloosa v. Harcros Chem., Inc., 158 F.3d 548, 562 (11th Cir. 1998)).
The Daubert Court listed four non-exhaustive factors a court may consider in determining whether expert testimony is reliable: "(1) whether the theory or technique can be tested; (2) whether it has been subjected to peer review; (3) whether the technique has a high known or potential rate of error; and (4) whether the theory has attained general acceptance within the scientific community." Allison, 184 F.3d at 1312 (citing Daubert, 509 U.S. at 593-94, 113 S. Ct. at 2796-97). In Kumho Tire, the Supreme Court stressed that "Daubert's list of specific factors neither necessarily nor exclusively applies to all experts or in every case." Kumho Tire, 526 U.S. at 141, 119 S. Ct. 1167. In some cases, the factors may be pertinent, while in other cases "the relevant reliability concerns may focus upon personal knowledge or experience." Id. at 150, 119 S. Ct. 1167.
"[N]othing in either Daubert or the Federal Rules of Evidence requires a district court to admit opinion evidence *1269 that is connected to existing data only by the ipse dixit of the expert. The court may conclude that there is simply too great an analytical gap between the data and the opinion proffered." General Elec. Co. v. Joiner, 522 U.S. 136, 118 S. Ct. 512, 519, 139 L. Ed. 2d 508 (1997). Expert testimony should generally be excluded if it is purely speculative or conjectural. See e.g., McLean v. 988011 Ontario Ltd., 224 F.3d 797, 800-01 (6th Cir.2000) ("an expert's opinion must be supported by `more than subjective belief and unsupported speculation' and should be supported by `good grounds,' based on what is known.... An expert's opinion, where based on assumed facts, must find some support for those assumptions in the record.") (quotations omitted); Kalamazoo River Study Group v. Rockwell Int'l Corp., 171 F.3d 1065, 1072-73 (6th Cir.1999)(affirming trial court's decision in a CERCLA case to strike proposed expert's affidavit as based on "speculation, conjecture, and possibility" and affirming trial court's holding that the "inadequate factual basis" made the proposed expert's affidavit "scientifically unreliable"); Cf. Boucher v. U.S. Suzuki Motor Corp., 73 F.3d 18, 21 (2d Cir.1996) ("Although expert testimony should be excluded if it is speculative or conjectural, or if it is based on assumptions that are `so unrealistic and contradictory as to suggest bad faith' or to be in essence an `apples and oranges comparison,' other contentions that the assumptions are unfounded `go to the weight, not the admissibility, of the testimony'") (internal citations and quotations omitted). "A district judge asked to admit scientific evidence must determine whether the evidence is genuinely scientific, as distinct from being unscientific speculation offered by a genuine scientist." Rosen v. Ciba-Geigy Corp., 78 F.3d 316, 318 (7th Cir.1996). The Court will now apply these principles to the proffered testimony of plaintiffs' experts.
As an initial matter, at the hearing on Shell's motion for summary judgment and motion in limine, plaintiffs' counsel suggested that the Court could convene an evidentiary hearing under Daubert if it had concerns about plaintiffs' experts. Tr. 129-30. However, the Court held a non-evidentiary Daubert hearing and has reviewed the experts' reports, depositions and verifications and finds that an additional Daubert hearing would not further assist the Court. See United States v. Hansen, 262 F.3d 1217, 1234 (11th Cir.2001)(Daubert hearings are discretionary).
(1) Mr. Wayne Grip
Grip and his company Aero-Data were retained by plaintiffs to perform an "historical aerial photography study" of the Site. See Plaintiffs' Joint Exhibit 12 at 1. Grip is an expert in photo interpretation and photogrammetry.[31]See id. Grip's expert report has been filed as Plaintiffs' Joint Exhibit 10 (hereinafter "Grip Report") and the transcript of his deposition testimony has been filed as Plaintiffs' Joint Exhibit 11 (hereinafter "Grip Depo.").
Grip reviewed twenty-six historical photographs of the Site dated from December 14, 1942 until January 7, 1999. See Grip Report. Based on these photographs, Grip opines that a pipeline was installed in the marsh between the Shell and Chevron facilities at some time between June 23, 1943 and September 14, 1943 and there was no visual evidence that it had been removed. See id. at 13. Grip further opines that it was probable that rusting or breaks in the pipeline occurred at some *1270 time in the past, which would have released contaminants from the pipeline into the marsh. See id.[32]
Shell does not challenge Grip's qualifications to explain and interpret aerial photography. Rather, Shell argues that Grip is not qualified to testify as to the "probable" corrosion of the pipeline. See Doc. 115 at 10. Shell further argues that even if Grip is qualified to offer an opinion on the condition of the pipeline, his opinion on the pipeline releasing a contaminant should be excluded because it is not reliable. See id. at 11-12. In response, plaintiffs argue that Grip's opinion is based on his experience as an expert having done many studies of pipelines in a marsh. See Doc. 136 at 10. Plaintiffs also contend that Grip's opinion is reliable because it is "borne out by the facts." Id.
Plaintiffs have failed to show that Grip's experience provided a reliable basis for his opinion regarding the corrosion of the pipeline and release of contaminants. Grip's only stated expertise is photo interpretation and photogrammetry. While it is conceivable that photographs could reveal the condition of a pipeline and release of contaminants, Grip testified that he could not see the pipeline, any corrosion of the pipeline or any evidence of a release from the pipeline in the photographs. See Grip Depo. at 79-80. That the pipeline is in fact broken does not make Grip more qualified (by simply looking at the historical photographs) to render an opinion on the condition of the pipeline or its release of contaminants. Moreover, at the hearing, counsel for plaintiffs represented that Grip's testimony with respect to Shell would be limited to what Grip could actually see in the photographsi.e., the location of the pipeline, when the pipeline first appeared and the presence of oil sheens in Long Branch Creek. Tr. 123. For these reasons, Grip's testimony about the condition of the pipeline and its release of contaminants will be excluded.
(2) Doctor Marwan M. Sadat
Doctor Marwan M. Sadat ("Sadat") was retained by plaintiffs to provide an expert opinion regarding the waste disposal practices at petroleum bulk storage facilities during the time period 1900-1960 and to evaluate the waste disposal practices at the Site. See Plaintiffs' Joint Exhibit 12 at 1. Sadat is founder and president of SAI, a civil and environmental engineering consulting firm. See id. Sadat has a doctoral degree in civil and environmental engineering and a masters degree in engineering science. See id. Sadat's expert report has been filed as Plaintiffs' Joint Exhibit 12 (hereinafter "Sadat Report"), his deposition testimony has been filed as Plaintiffs' Joint Exhibit 4 (Sadat Depo.) and his subsequent expert verification (hereinafter "Sadat Verification") has been filed as Exhibit 5 to Doc. 144.
Sadat opines that there are four pathways by which Shell contributed to the contamination in the Salt Marsh. See Sadat Verification.[33] With respect to all four *1271 pathways, Shell argues that Sadat's opinions should be stricken as scientifically unreliable because they are not based upon sufficient facts or data and they are not the product of reliable principles or methods. See Doc. 115 at 12-15. Shell does not challenge Sadat's qualifications to render these opinions. In response, plaintiffs argue that Sadat's opinions are admissible because they are "well-grounded" in Sadat's experience and on the facts in the record. Doc. 136 at 10-14.
First, Sadat opines that from 1946-48, while Shell was transporting petroleum products from the Gulf facility to its facility via the pipelines (both on the Site and running under Long Branch Creek),[34] waste products were cleaned from the pipelines and placed in the disposal pit at OW-8 (hereinafter "Pathway One"). See Sadat Verification at ¶¶ 20-22. In reaching this conclusion, Sadat opines that based on his experiences pipelines used at petroleum terminals require "periodic cleaning" and that the cleaning usually involves the passing of a fabric plug (known as a "pig") through the pipelines to collect the petroleum residue. Id. at ¶ 21. Based on testimony that the pipelines were kept full, Sadat opines that these pipelines would have accumulated significant wastes in the course of six months or a year. See id. at ¶ 17. Sadat further opines that the pipelines would have been cleaned from the Gulf side because it was not possible to clean the pipelines from the Shell end. See id. at ¶¶ 18, 21. He based this opinion on testimony that it was almost impossible to blow the pipelines clean from the Shell side because the pipelines were laid so low in the creek. See id. at ¶ 18. Sadat opines that cleaning a six to eight inch pipeline of about 2000 feet in length would remove approximately thirteen to fifteen 55-gallon drums of waste material. See id. at ¶ 22. Sadat then opines that during the 1940's the most logical location for the disposal of these wastes would have been in the disposal pit (OW-8) on Gulf's property. See id. at ¶ 21.
In efforts to causally link Shell to the disposal pit at OW-8, Sadat has constructed a theory that relies on several premises all of which must be reliable for Sadat's opinion as to Pathway One to be admissible. See Dodge v. Cotter Corp., 328 F.3d 1212, 1222 (10th Cir.2003)(noting that under Daubert, "`any step that renders the analysis unreliable ... renders the expert's testimony inadmissible'"); Amorgianos v. Nat'l R.R. Passenger Corp., 303 F.3d 256, 267 (2d Cir.2002)("To warrant admissibility, however, it is critical that an expert's analysis be reliable at every step.") The first premise is that the pipelines would have been cleaned during the time Shell used them. The second premise is that the pipelines would have been cleaned from the Gulf side. The final premise is that the waste products cleaned from the pipelines would have been placed in Gulf's disposal pit at OW-8. Because Sadat's second and third premises are unreliable, Sadat's opinion about Pathway One is due to be stricken.
In concluding that the pipelines would have been cleaned from the Gulf side, Sadat relies solely on testimony that it was a "practical impossibility" to blow the pipelines free of product or pump any appreciable quantity of products from the Shell side of the pipelines because of the way they were laid in the creek bed (see Knapper depo. at 144-45, 152; Plaintiffs' Joint Exhibit 7). Sadat did not conduct any *1272 independent verification of this testimony. He did not visit the Site or Shell's property. See Sadat Depo. at 43-44, 50. Sadat did not conduct any tests to determine whether the pipelines could have been cleaned from the Shell side. See id. While explaining that pipelines are generally cleaned with a fabric plug (known as a "pig"), Sadat did not discuss Shell's cleaning practices in the 1940's nor did he discuss whether an alternative cleaning method could have been employed from the Shell side.[35] It is hard to conceive that Sadat applied any "scientific, technical, or specialized expertise" in reaching his conclusion that the pipelines would have been cleaned from the Gulf side.
In concluding that any waste products removed from the pipelines would have been placed in the disposal pit at OW-8,[36] Sadat implicitly concludes that waste products from the pipelines would have been disposed of on the Gulf side. However, Sadat's conclusion is not based on any facts in the record. Moreover, Sadat has not based this conclusion on his experience. This is underscored by Sadat's own testimony that the disposal pit on the Gulf side "would be the logical place to take [the waste products]. To recover product, and because [Gulf] had a pit that was operating as a waste disposal facility, why would you take it anywhere else?" Sadat Depo. at 86.
Sadat's theory as to Pathway One is based upon the assumptions that the pipelines would have been cleaned from the Gulf side and that any waste products from the pipelines would have been disposed of on the Gulf side. These assumptions, however, are based solely on speculation and possibility. As such, Sadat's opinion as to Pathway One is inadmissible.
Second, Sadat opines that it was "highly likely" that product was released into the salt marsh during the 1940's when Shell used the pipelines (hereinafter "Pathway Two"). Sadat Report at ¶ 23. Though there is no actual evidence of a leak, Sadat opines that corrosion of steel is a progressive activity, "so the corrosion of the pipeline [running under Long Branch Creek] undoubtedly began well earlier than 1957." Id. However, Sadat testified that he "would need a lot more data to be able to give you ... a good assessment" as to when the pipeline corroded. Sadat Depo. at 102. Indeed, Sadat has never inspected the pipeline, has no evidence about the pipeline's thickness or about whether maintenance was performed on the pipeline. See Sadat Depo. at 108-10.[37] As such, Sadat's opinion as to Pathway Two is based on speculation.
Likewise, Sadat's related theory that waste products were released from the pipeline running under Long Branch *1273 Creek after Shell ceased using it (hereinafter "Pathway Three") is due to be stricken because it is speculative. See Sadat Verification at ¶ 24. Sadat opines that cleaning can never remove all waste products from a pipeline so petroleum products were "undoubtedly" still present in the pipeline when its use ceased. Id. Sadat then opines that the deterioration of the pipeline would have led to the discharge of petroleum waste products into Long Branch Creek and the salt marsh. See id. Sadat has not identified any objective source supporting his "experience" that cleaning can never remove all wastes from a pipeline. Indeed, at deposition, Sadat testified that while there is a "pretty good likelihood" that petroleum products remained in the pipeline, he conceded that if Shell had evacuated the pipeline this would have cleaned out all of the petroleum products. See Sadat Depo. at 105. Moreover, even assuming Sadat has identified a viable theory (i.e. cleaning can never remove all wastes from a pipeline) he has failed to reliably apply the theory to the facts of this case.[38] As noted supra, Sadat has never even inspected the pipeline.
Finally, Sadat opines that the seepage of waste petroleum products, combined with discharges from the rusted pipeline, created a floating layer of waste petroleum products on the surface of the Creek (hereinafter "Pathway Four"). See Sadat Verification at ¶¶ 25-28. Sadat further opines that while a portion of the floating waste would be transported out to the St. John's River and an additional portion would disappear through natural aeration and biodegradation, a portion would move to the shoreline, where it would remain as a deposit on the shoreline or attached to plants. See id. at ¶ 26. Sadat opines that at low tide, water in the Creek would move out of the salt marsh, leaving behind a layer of waste petroleum product on the exposed ground. See id. Sadat opines that waste products from the disposal pit would accelerate the buildup, resulting in layer upon layer of waste products and that over time, the "lighter ends" of the petroleum would volatilize, leaving behind a heavier, tar-like material currently found in the salt marsh. Id. He bases this opinion on the historical evidence of petroleum contamination at the Shell facility and his experiences with this phenomenon at other similar sites. See id. at ¶ 25. Sadat contends that this theory is supported by recent field work conducted by Environmental Services, Inc., (ESI) and aerial photographs showing the water levels in the salt marsh at low and high tides. See id. at ¶¶ 27-8.
*1274 Sadat did not include "Pathway Four" in his expert report but did include it in his expert verification which was filed after the Court's hearing on Shell's motion in limine and motion for summary judgment. Shell has moved to strike the portions of Sadat's verification which discuss Sadat's opinion about "Pathway Four" arguing that plaintiffs' failed to disclose Sadat's opinion as required by Rule 26, Fed. R.Civ.P. See Doc. 146. Plaintiffs argue that although Sadat's opinion about "Pathway Four" was not included in his expert report, his opinion had been adequately disclosed because it was the subject of prior briefing and was addressed at Sadat's deposition. See Doc. 147.
Rule 26(a), Fed.R.Civ.P., requires a party to disclose the identity of its experts, a complete statement of all opinions to be expressed by its experts and the basis for those opinions. A party must supplement its expert disclosures under Rule 26(a) if the party learns "that in some material respect the information disclosed is incomplete or incorrect and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing." Rule 26(e)(1), Fed.R.Civ.P. Pursuant to Rule 37(c)(1), "a party that without substantial justification fails to disclose information as required by Rule 26(a) or 26(e)(1) ... is not, unless such failure is harmless, permitted to use as evidence at a trial, at a hearing, or on a motion any witness or information not so disclosed."
The Court is not persuaded by plaintiffs' argument that Sadat's Pathway Four opinion was the subject of prior briefing and was addressed at his deposition. At deposition, Sadat testified that:
There is one thing I should mention that's not in the report, and that's because we got these, this material after we got the report out. That's Shell's expert report by Mr. Hall and the report by Stout. We also got some photographs, recently photographs [sic], four photographs of the Shell and the Gulf facility, and just looking at these photographs I think we are going to want to supplement our report with some additional written material, because there appear to have been a lot of spills that were emanating from both facilities, a lot of sheen coming out from the shoreline. And I think we are going to want to deal with that issue.
Sadat Depo. at 40-41. Based on this statement, counsel for Shell asked Sadat how he anticipated the recent photographs would affect his previously stated opinions. See id. at 69. Sadat then testified:
Well, first of all I don't know what conclusions we're going to reach, because we haven't really looked into it. But I've asked, I've asked Ken Goldstein, who is assisting me, to start looking at navigation charts to determine currents and elevations and tides to see where you would expect to see areas of heavy depositions from releases from the facilities themselves.
In fact, if you look at these photographs, you would see that there is a sheen which hugs the shore that seems to be releases coming from the facilities themselves. So I think we have to look at all of that and try to figure out what happened.
Id. Sadat later testified that free product on the surface of the Creek would be deposited on the banks of the Creek. Id. at 113-115. Sadat explained:
Well, if [the salt marsh] was tidaland this is something that I just started looking at, and as I said, we're going to look at it a little carefullyif it was subject to tides so that it was inundated during high tide, as the tide recedes it leaves behind one of the free product *1275 that was carried during the high tide action.
Id. at 114.
Thus, Sadat's deposition testimony did nothing more than put Shell on notice that Sadat might supplement his report based on the sheens and tidal action. It did not provide Shell with any information as to the conclusions (if any) Sadat would ultimately reach. When Sadat did not file a supplemental report, Shell had every reason to believe that Sadat had determined that the sheens were not related to the contamination of the Site and salt marsh.[39]
Plaintiffs contend that Sadat's opinions as to Pathway Four were "brought to Shell's attention" by plaintiffs' response to Shell's motion in limine. Doc. 147 at 2. However, plaintiffs' response (which was filed the same day as plaintiffs' response to Shell's motion for summary judgment), provided Shell with no more information than Shell could have gleaned from Sadat's deposition testimony.[40]
Accordingly, Shell was unable to challenge Sadat's conclusions and the methodology used to reach these conclusions in its motion in limine and its motion for summary judgment. As such, plaintiffs' failure to disclose Sadat's opinion as to "Pathway Four" was not harmless. Because plaintiffs failed to comply with the requirements of Rule 26(e), the Court will not permit them to now rely on Sadat's opinion about "Pathway Four" to oppose Shell's motion for summary judgment. Thus, Shell's Motion to Strike Late-Filed Expert Disclosures is due to be granted.[41]
(3) Doctor Paul Chrostowski
Doctor Paul Chrostowski ("Chrostowski") is an expert on the fate and effects of toxic chemicals in the environmenti.e., how chemicals are transported in the environment and why they migrate from one environmental location to another. See Doc. 144, Exhibit 4. Chrostowski and his firm CPF have been involved with the Site since 1999.
In his initial report, Chrostowski focused entirely on Gulf's contamination of the Site and salt marsh. See Doc. 115, Exhibit E. However, once Shell was added as a party defendant, Chrostowski filed a supplementary report explaining why Shell was also now a "primary" source of the contamination. See Plaintiffs' Joint Exhibit 13 (hereinafter "Chrostowski Report"). Plaintiffs *1276 subsequently filed a "Verification of Paul Chrostowski" (Doc. 144, Exhibit 4)(hereinafter "Chrostowski Verification").[42] Chrostowski's deposition is filed as Plaintiffs' Joint Exhibit 14.
Chrostowski says that the contamination in the salt marsh came from two sources the pipeline running under Long Branch Creek and landfarming operations by Gulf and Shell.[43] Chrostowski further opines that "facilitated transport" played a significant role in the migration of these wastes to the salt marsh.[44]
Chrostowski opines that the pipeline played two different roles in contaminating the salt marsh. See Chrostowski Depo. at 57. First, he opines that the pipeline directly leaked into the salt marsh. Chrostowski bases this conclusion on the Shell memorandum, dated February 11, 1957, which states that the pipelines under the Creek "are now abandoned and completely rusted out", that the pipeline is in fact broken today, and that there was evidence of hydrocarbons around the broken pipeline when it was rediscovered. Chrostowski Verification at 8; Chrostowski Depo. at 13-14. Second, Chrostowski opines that the broken pipeline and its bed provided a conduit for preferential transport of contaminants from the Shell facility across Long Branch Creek to the salt marsh. Chrostowski Verification at ¶¶ 24-25. Chrostowski contends there is a "substantial amount of scientific literature" supporting his opinion on preferential transport. Id. at ¶ 25.
With respect to landfarming, Chrostowski says that contaminants on the Shell side would have been transported through the groundwater to Long Branch Creek (on the Shell side) and then would have migrated across Long Branch Creek to the salt marsh via the pipeline or the pipeline's bed. Chrostowski opines that gasoline spills would have further facilitated the migration of the contaminants across the creek to the salt marsh. See Chrostowski Verification at ¶ 22. Chrostowski bases his opinions on testimony that Shell landfarmed non-hazardous tank bottoms on its property north of the tank area. See Plaintiffs' Joint Exhibit 3 (Daniel Boz Deposition) at 48-9 & Exhibit 2 thereto (Contamination Assessment Report and Conceptual Remedial Action Plan prepared by Handex of Florida, Inc., October 31, 1989) at 2-3.[45] He also relies on an environmental report identifying a "heavy black substance" in a recovery well adjacent to the bank of the salt marsh on the Shell side. See Plaintiffs' Joint Exhibit 3 (Daniel Boz Deposition) at 68-9 & Exhibit 2 thereto (Contamination Assessment Report and Conceptual Remedial Action Plan prepared by Handex of Florida, Inc., October 31, 1989) at 24. Chrostowski also relies on testimony that, since 1974, Shell spilled approximately 250,000 gallons of gasoline and diesel fuel on its property in Jacksonville *1277 and that it had only recovered about 100,000 gallons. See Plaintiffs' Joint Exhibit 3 (Daniel Boz Deposition) at 52-53. Finally, Chrostowski relies on testimony by Mr. William Shepherd, a former Shell hydrogeologist, that the gasoline spill occurred "at the water table level" and the groundwater at that location moves to the south. Plaintiffs' Joint Exhibit 8 (William Shepard Depo.) at 51, 55-57.
Shell does not challenge Chrostowski's qualifications to render an expert opinion in this case. Rather, Shell argues that Chrostowski's opinion that the pipeline was the primary cause of contamination is not reliable because it is not based upon sufficient facts or data and it is not the product of reliable principles or methods. See Doc. 115 at 18-19. Shell also argues that Chrostowski impermissibly reaches legal conclusions in his expert report. See id. at 19-20.[46] In response, plaintiffs argue that Chrostowski's opinions are supported by sufficient facts and are based on his experience.
Chrostowski's opinion that contamination was caused by a direct release from the pipeline is nothing more than speculation. Chrostowski concedes that there is no evidence of a direct leak and there is no evidence showing that the materials in the salt marsh are the same as the product carried in the pipeline. See Chrostowski Depo. at 55, 57. Chrostowski merely reasons that because the pipeline is now broken it "would have leaked whatever it contained at the time it was broken and thereafter." Chrostowski Verification at ¶ 27. Because Chrostowski's conclusion that contamination was caused by a direct release from the pipeline is devoid of any factual basis or scientific methodology, it is scientifically unreliable.
Likewise, Chrostowski's opinion that contaminants (i.e., tank bottoms and the "heavy black substance") migrated from Shell's property across Long Branch Creek to the salt marsh on Gulf's side is scientifically unreliable. First, Chrostowski speculates that the contaminants got into the groundwater on Shell's property. He reaches this conclusion without conducting any independent testing at the Shell facility and Chrostowski admits that he does not "have all the information [he] would like to have about the environment at the Shell facility." See Chrostowski depo. at 24-25.[47] Chrostowski has failed to identify any methodology that he used to reach this conclusion. As such, the Court is unable to determine whether the theory or technique can be tested, whether it has been subjected to peer review, whether it has a high known or potential rate of error and whether the theory has attained general acceptance within the scientific community. See Allison, 184 F.3d at 1312 (citing Daubert, 509 U.S. at 593-94, 113 S. Ct. at 2796-97).
Second, Chrostowski speculates that these contaminants (which may have gotten into the groundwater) traveled across Long Branch Creek via facilitated transport. While contending his theory of facilitated transport is supported by a "substantial amount of scientific literature," he fails to cite or offer any such materials. However, even if this is a recognized theory of migration, Chrostowski *1278 has failed to apply this theory to the facts of the case. He has not examined the pipeline or the pipeline bed to support his theory. Nor has he conducted any tests to forecast the flow of contaminants from the Shell side to the Gulf side. See id. at 39-40.[48] Moreover, Chrostowski testified that he is unable to identify any contamination that actually made it from Shell's landfarming operation to the water. See id. at 18-19. Chrostowski further testified that he could not hypothesize about how much of the "heavy black substance" made it across the creek because "this occurred a long time ago" and he does not "have a lot of knowledge about Long Branch Creek in the early 1970's." Chrostowski Depo. at 18,39-40, 216. Accordingly, "there is no information available to say to any degree of certainty that contaminants actually went from point `A' to point `B.'"[49]Thomas v. FAG Bearings Corp., 846 F. Supp. 1382, 1394 (W.D.Mo.1994)(finding expert opinion on migration of contaminants via the groundwater was speculative because opinion was rendered without any factual data "about the nature or depth of the alleged contamination, the composition of the earth below the site, its proximity to the `conceptual' underwater pathway or the amount of contaminants allegedly released"); see also Kalamazoo River Study Group, 171 F.3d at 1072-73 (affirming trial court's holding that the "inadequate factual basis" made the proposed expert's testimony that contaminants migrated from defendant's property to Lake Morrow "scientifically unreliable"). As such, the inadequate factual basis and lack of scientific methodology render Chrostowski's opinion that contaminants migrated from the Shell facility across Long Branch Creek to the salt marsh scientifically unreliable.[50]
In sum, the Court has found the proffered testimony of Mr. Grip, Dr. Sadat and Dr. Chrostowski inadmissible under Rule 702, Fed.R.Evid. and Daubert.[51] In doing so, the Court recognizes that these experts are all well-qualified in their respective fields. However, due to the passage of time and lack of evidence, these experts were forced to fill in too many blanks with speculation and conjecture for their opinions to be scientifically reliable. Nor did the experts conduct any of their own testing or subject their theories to the rigors of scientific analysis.[52] When asked to admit scientific evidence, the Court "must determine whether the evidence is genuinely scientific, as distinct from being unscientific speculation offered by a genuine scientist," *1279 Rosen, 78 F.3d at 318. The Court is not required to "admit opinion evidence that is connected to existing data only by the ipse dixit of the expert." Joiner, 522 U.S. at 146, 118 S. Ct. 512. Because these opinions would not be admissible at trial, they cannot be used by plaintiff to create a genuine issue of material fact in opposing Shell's motion for summary judgment. See Thomas, 846 F.Supp. at 1394. While the Court does not lightly reach a decision to disallow plaintiffs' experts from testifying at trial and allowing the jury to weigh their opinions, the result reached here is required by the Court's "gatekeeping" role under Daubert.
Based on the Court's ruling that plaintiffs' expert opinions are inadmissible and given that these expert opinions are necessary to establish a causal link between Shell's activities and the contamination, plaintiffs have failed to create a material issue of fact as to whether Shell caused or contributed to the contamination of the Site or salt marsh. Because this is a necessary element of each Count of the Second Amended Complaint brought against Shell, Shell's Motion for Summary Judgment is due to be granted.
VI. Shell's Counterclaim Against Plaintiffs
Shell brought a counterclaim against plaintiffs seeking contribution under CERCLA § 107 if Shell was ultimately found liable in this action. See Doc. 63 at 25-26. Because the Court has determined that Shell's Motion for Summary Judgment (Doc. 116) is due to be granted, Shell's counterclaim against plaintiffs is moot.
VII. Shell and Chevron Crossclaims
Shell crossclaimed against Chevron seeking contribution from Chevron on various grounds if Shell was ultimately found liable in this lawsuit. See Doc. 63 at 20-25. Chevron also crossclaimed against Shell seeking contribution from Shell if Chevron was found liable in this action. See Doc. 69 at 12-13. Based on the Court's determination that Shell's Motion for Summary Judgment (Doc. 116) and Chevron's Motion for Summary Judgment (Doc. 118) are due to be granted, Shell's and Chevron's crossclaims are moot.
VIII. Conclusion
I acknowledge the result I have reached here may seem anomalous. Chevron, the most likely source of the contamination in the salt marsh, is held, by operation of res judicata, to escape any responsibility for it. Shell, which possibly contributed in a much smaller way to the contamination, is also off the hook due to insufficiency of evidence. Plaintiffs NSC and GS & F, which almost certainly had nothing to do with the contamination, are left without apparent recourse. Nevertheless, the result I have reached here is my best effort to apply the law in a very difficult case. Accordingly, it is hereby
ORDERED:
1. Shell Oil Company's Counterclaim Against Plaintiffs Norfolk Southern Corporation and Georgia Southern and Florida Railway Company (Doc. 63) is MOOT.
2. Shell Oil Company's Crossclaim Against Co-Defendant Chevron U.S.A., Inc. (Doc. 63) is MOOT.
3. Chevron U.S.A., Inc.'s Crossclaim Against Co-Defendant Shell Oil Company (Doc. 69) is MOOT.
4. Shell Oil Company's Motion in Limine to Exclude the Opinion Testimony of Mr. Wayne Grip, Dr. Paul Chrostowski and Dr. Marwan Sadat (Doc. 114) is GRANTED.
5. Shell Oil Company's Motion for Summary Judgment (Doc. 116) is GRANTED.
*1280 6. Chevron U.S.A., Inc.'s Motion for Summary Judgment (Doc. 118) is GRANTED.
7. Chevron U.S.A., Inc.'s Motion for Summary Judgment on Crossclaim of Defendant Shell (Doc. 125) is MOOT.
8. Shell Oil Company's Motion to Strike the Plaintiffs' Late-Filed Expert Verification (Doc. 146) is GRANTED.
9. The Clerk shall enter Judgment in favor of defendants, Shell Oil Company and Chevron U.S.A., Inc., and against plaintiffs, Norfolk Southern Corporation and Georgia Southern and Florida Railway Company.
10. The Clerk shall close the file.
APPENDIX A
APPENDIX A
NOTES
[1] Doc. 119 is Defendant Chevron U.S.A., Inc.'s Notice of Filing in Support of Motion for Summary Judgment. These documents are contained in two boxes. Future reference to these documents will be to "Chevron Exhibit" followed by the applicable Bates Stamp number and any other pertinent information.
Doc. 120 is deposition testimony of Wayne Grip; Docs. 121 and 122 are deposition testimony of A. Gayle Jordan; Doc. 123 is deposition testimony of Floyd L. Mathews, Jr.; and Doc. 124 is deposition testimony of Richard Henrichsen Sollner.
Doc. 138 is an Appendix of Joint Exhibits to Plaintiffs' Memorandum of Law in Opposition to Chevron's Motion for Summary Judgment, Plaintiffs' Memorandum of Law in Opposition to Shell Oil Company's Motion for Summary Judgment and Plaintiffs' Memorandum of Law in Opposition to Shell Oil Company's Motion in Limine. These documents fill two boxes. Future references to these documents will be to "Plaintiffs' Joint Exhibit" followed by the applicable exhibit number and any other pertinent information.
[2] References herein to specific transcript pages are denoted as "Tr." followed by the page number.
[3] On December 31, 1993, SJRTC merged into GS & F.
[4] On August 12, 1985, Gulf changed its name to Chevron U.S.A., Inc.
[5] The property has been referred to by different names in various documentsi.e. "Tallyrand Terminal Property," "Occidental/Gulf Oil Site" or "PCS Phosphate Site." The parties have submitted numerous aerial photographs and diagrams of the site, see e.g., Plaintiffs' Joint Exhibit 10 (Wayne Grip's Expert Report); Doc. 116, Exhibit A (Shell's Motion for Summary Judgment), and the Court has attached to this Order as Appendix A an aerial photograph of the subject location.
The Court recognizes that the parties dispute who owns the salt marsh and whether it was part of the leased premises. The Court's discussion of this issue is at pages 1263-64, infra.
[6] SJRTC and Gulf entered into their first lease agreement on December 1, 1906 and subsequently renewed or entered into numerous other lease agreements until the parties finally terminated the lease on December 31, 1961. The lease renewals and lease agreements are attached as Exhibits 2(a)(h) to the Second Amended Complaint (Doc. 57).
[7] PCS Phosphate Whitesprings has operated at this site since 1972. See Exhibit 27 (Metroplex Letter to RESD and FDEP dated January 14, 2000) to Plaintiff's Joint Exhibit 18 (Tiffany Shaw Deposition).
[8] The Court has labeled the map with relevant informationi.e. the Gulf facility, Shell facility, salt marsh and the general location where the pipeline crosses Long Branch Creek.
[9] The record is unclear as to the width of Long Branch Creek. Clarence Knapper, former superintendent of the Shell facility, testified that Shell used about 4,500 feet of pipeline to pump petroleum products across the Creek from the Gulf facility to the Shell facility. See Clarence Knapper deposition (Plaintiffs' Joint Exhibit 7) at 135. However, it is unknown how much of the pipeline ran under the Creek and how much ran on the two properties.
[10] Shell contends that it subsequently sold its rights to the pipeline to Gulf in November 1953. See Exhibit 5 to Plaintiffs' Joint Exhibit 3 (Shell Oil Company's Answer to Plaintiff's First Set of Interrogatories). In response to Interrogatory Question 5(c), Shell stated that there is a May 26, 1954 Base Lease or Fee Data Notice that provides:
This digest issued to cancel old Notice No. B-768 dated 6-11-48 which covered one 6" and one 8" pipeline at Jacksonville Marine Terminal, owned jointly by Shell and Gulf Oil Corp. In February 1953, these items were written off and Shell sold its interest to Gulf in November, 1953.
The Court has not seen this document.
[11] The record is unclear as to the precise date Shell stopped using the Gulf facility. In a letter dated September 2, 1947, Shell advised Gulf that it was canceling the license agreement effective March 2, 1948. See Exhibit 39 to Plaintiffs' Joint Exhibit 7. However, Shell noted that if construction of its dock was completed before March 2, 1948, it would cease using Gulf's facility at an earlier date. See id.
[12] In an internal Shell memorandum dated February 11, 1957, J.C. Morris (a member of Shell's Real Estate and Development Department) described the pipeline as "abandoned and completely rusted out." Doc. 143, Exhibit A.
[13] The Complaint from the first action is located in several places in the record. It is attached as Exhibit 1 to Floyd Matthews, Jr.'s Deposition (Doc. 123). Future references to this complaint will be to "C." followed by the applicable page and/or paragraph number.
[14] The Court will discuss the first action in greater detail in Part IV"Chevron's Motion for Summary Judgment."
[15] Bryan Salley is an engineer in environmental operations for Norfolk Southern. See Plaintiffs' Joint Exhibit 17 (Bryan Salley Deposition) at 7. During 1998 and 1999, Mr. Salley worked at the Site and was responsible for installing a water wall to prevent further oil seepage into Long Branch Creek. See id. at 9-10.
[16] In June 2001, plaintiffs' contractor Metroplex Industries, Inc., supervised the excavation and removal of a large concrete structure located beneath the ground surface on the Site. The structure was previously identified as anomaly OW-8 during an electromagnetic survey in 1999. Metroplex described OW-8 as follows:
The reinforced concrete floor was 40 feet in diameter and six inches thick, with a reinforced concrete wall three feet high and six inches thick. A four foot by four foot precast concrete sump was present in the center of the floor. In the northwest corner of the structure, two pipes were imbedded into the wall. Both pipes extended towards the marsh. The lowermost pipe passed through a bulkhead at the border of the salt marsh. On the salt marsh side of the bulkhead, the pipe had a valve and was broken beyond the valve. The uppermost pipe extended two feet from the wall towards the marsh and was broken off at that point. Water and petroleum sludge were observed by the field team to be flowing from the pipes.
Plaintiffs' Joint Exhibit 12 at 11.
[17] To date, no governmental agency has actually ordered remediation of the salt marsh. Tr. 45-46.
[18] The Eleventh Circuit recently made clear that "federal preclusion principles apply to prior federal decisions, whether previously decided in diversity or federal question jurisdiction." CSX Transp., Inc., v. Brotherhood of Maintenance of Way Employees, 327 F.3d 1309, 1316 (11th Cir.2003).
[19] Consent judgments are entered upon settlement by the parties and assume forms that range from simple orders of dismissal with or without prejudice to detailed decrees. See 18 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 4443 at 255-56 (1981). Regardless of form, consent judgments share the common characteristic that the court has not actually resolved the substance of the issues presented. See id.
[20] Kaspar is binding on this court pursuant to Bonner v. City of Prichard, 661 F.2d 1206, 1207 (11th Cir.1981)(en banc), in which the Eleventh Circuit adopted as precedent decisions of the former Fifth Circuit rendered prior to October 1, 1981.
[21] Likewise, the Court is unpersuaded by plaintiffs' related argument that, by agreeing to a narrower Release than originally proposed, Gulf essentially agreed to split the claims, thereby waiving any preclusive effect beyond the express terms of the Release. This case is distinguishable from those cited by plaintiffs in support of this contention because Gulf did not expressly consent to split the claim into two suits. See Simmons v. New. Pub. Sch. Dist. No. 8, 251 F.3d 1210, 1214 (8th Cir.2001); Young-Henderson, 945 F.2d at 775 (4th Cir.1991); 6000 S. Corp. v. Kelly Energy Sys., Inc., 1996 WL 590606 at *3 (N.D.Cal. Sept.24, 1996).
[22] At the hearing, plaintiffs agreed that there was a final judgment on the merits in the first action. Tr. 40-41.
[23] Tank bottoms are the waste products cleaned from the bottom of petroleum storage tanks.
[24] Likewise, plaintiffs' other theory that the pipeline which connected the Shell and Gulf facilities across Long Branch Creek leaked in the salt marsh is based on Gulf's (and Shell's) alleged activities on the Site.
[25] As such, this case is distinguishable from Pleming and related cases, in which the courts permitted a second action to go forward where new wrongs occurred during the pendency of the first action.
[26] Plaintiffs argue that they could not have brought this action until 1999 because they had not incurred any recoverable costs associated with the salt marsh. See Doc. 137 at 15. Plaintiffs cite cases for the proposition that a cost recovery action cannot be brought under CERCLA until recoverable costs are incurred. See e.g., United States v. Union Scrap Iron & Metal, 123 B.R. 831 (D.Minn.1990); United States v. Outboard Marine Corp., 104 F.R.D. 405 (N.D.Ill.1984). However, as plaintiffs have pointed out, CERCLA did not exist when the first action was filed.
[27] Counts Eight and Nine of the Second Amended Complaint are brought under CERCLA. In Count Eight, plaintiffs seek all past, present, and future "response costs" and "removal costs" incurred by the plaintiffs at the Site and in the salt marsh pursuant to CERCLA § 107(a). In Count Nine, plaintiffs seek contribution for response costs incurred by plaintiffs at the site and salt marsh pursuant to CERCLA § 113(f).
[28] In Morningside-Lenox Park Ass'n v. Volpe, 334 F. Supp. 132 (N.D.Ga.1971), the court held that plaintiff was not barred by res judicata from litigating its claim with regard to the National Environmental Policy Act of 1969 because the law did not exist at the time of the first action. See Morningside-Lenox, 334 F.Supp. at 138. The court engaged in no analysis and cited no authority for its position. Moreover, the case has never been cited by another court for this proposition. Accordingly, this Court will not rely on the holding in Morningside-Lenox.
[29] Plaintiffs cite several other cases to support their contention that CERCLA created "new rights." See e.g., In re Duplan Corp., 212 F.3d 144, 153 (2d Cir.2000); Matter of Penn Central Transp. Co., 944 F.2d 164, 168 (3d Cir.1991); Kelley ex rel State of Michigan v. John A. Biewer Co. Of Schoolcraft, Inc., 1993 WL 186557 (W.D.Mich. May 21, 1993); Morningside-Lenox Park Ass'n v. Volpe, 334 F. Supp. 132 (N.D.Ga.1971). However, none of these cases supports plaintiffs' position that claim preclusion does not bar plaintiffs' CERCLA claims. The courts in Duplan and Penn Central considered CERCLA claims in the bankruptcy context. In Duplan, the Court held that the CERCLA claims were post-petition claims for purposes of bankruptcy because CERCLA was enacted after the bankruptcy petitions were filed. See In re Duplan Corp., 212 F.3d at 153. In Penn Central, the Court held that because CERCLA had not yet been enacted, the petitioners lacked a CERCLA cause of action against the debtor prior to the Consummation date. See Matter of Penn Central Transp. Co., 944 F.2d at 168. In Kelley, the court applied a Michigan state court rule which limits res judicata to claims actually raised in the litigation unless there is an objection to the failure to join the claims. See Kelley, 1993 WL 186557 at *4. Since no CERCLA claim was included in the first action and there was no objection by defendants, the Court held that plaintiffs' CERCLA claims were not barred by res judicata. See id. The Court also noted that "CERCLA was not even enacted when the suit was first filed; thus, it cannot be said that the claim `could have been filed' in any court at the time the lawsuit was initiated." Id. For a discussion of Morningside-Lenox see note 28 supra.
[30] To the extent plaintiffs are challenging the validity of the judgment in the first action, that challenge should have been brought in the first action (or at least directly as a challenge to the first action) and not indirectly in the second filed action. See Russell v. Sun-America Securities, Inc., 962 F.2d 1169, 1176 (5th Cir.1992)(citing 18 C. Wright, A. Miller & E. Cooper § 4415 at 129; Restatement (Second) of Judgments § 78-82 (1981)). However, plaintiffs have never, in the 19 plus years since the first action was concluded, sought to invalidate the judgment in the first action based upon fraud.
[31] Photogrammetry is the science of mapping using aerial photography. Plaintiffs' Joint Exhibit 11 (Grip Depo.) at 14.
[32] Grip proffered several other opinions which are not at issue in this motion because they pertain to Gulf's operations on the Site. Grip opines that based on the April 4, 1949 photograph, there appeared to be a pipe trench located directly to the south and lined up with the pipeline to the marsh and that it appeared to be associated with one or more of the large vertical storage tanks at the site. See id. Grip also opines that there had been previous spills and leaks from the petroleum storage tanks because there was dark staining on the surface within the storage tank levee systems. See id. Grip further opines that based on his experience and training and the topography of the Site, it was "more likely than not" that there had been releases from the Gulf tanks (including tank bottoms) into the lower marsh. See id.
[33] In an expert report dominated by Sadat's analysis of Gulf's responsibility for the contamination, Sadat devotes only one conclusory page of text to Shell's responsibility. Sadat's subsequent Verification explains Shell's role in greater detail.
[34] The Court will collectively refer to the pipeline running under Long Branch Creek and the pipelines on the Site as the "pipelines."
[35] At his deposition, Sadat conceded that Shell introduced a chemical cleaning agent in the 1930's that eliminated the need for "pigging." Sadat Depo. at 93.
[36] Sadat opines that based on his review of available testimony, the report by Grip and the description of the excavation of OW-8 by Metroplex, the disposal pit at OW-8 "was designed and utilized by Gulf to dispose of waste petroleum products such as tank bottoms and pipeline cleanings." Sadat Report at 12. Sadat opines that, "[b]ased on the circular concrete construction of the pit, with the accompanying sump and pipes for drawing off liquid, that Gulf most probably used the pit as a crude oil-water separator in order to recover petroleum for re-refining; however the investigation data indicates the presence of large quantities of waste petroleum products that were either discharged directly from the pit into the marsh or seeped from the disposal pit into the marsh." Id.
[37] In deposition, Sadat testified that the only evidence supporting a pipeline leak was that when the pipeline was excavated there was a strong smell of hydrocarbons. See Sadat Depo. at 95.
[38] Sadat's explanation of "Pathway Three" is limited to two sentences in his expert report:
While periodic cleaning of the pipelines presumably occurred, petroleum products were undoubtably still present within the two pipelines passing under the creek when their use ceased. The deterioration of these pipelines would have led to the discharge of petroleum waste products to the creek and marsh.
Sadat Report at 13.
Sadat slightly expanded upon this theory in his Verification:
The third pathway is that waste products were released into the Salt Marsh when the pipe's integrity was breached, even assuming it was not breached until after Shell ceased using it (as Shell claims). The reason for this is that there would have been material amounts of waste products in the pipeline at this time, even assuming it had been cleaned. Cleaning can never remove all of the waste products. Thus, while, as noted above, periodic cleaning of the pipelines most likely occurred, petroleum products were undoubtedly still present within the two pipelines passing under the creek when their use ceased. The deterioration of these pipelines would have led to the discharge of petroleum waste products to the creek and Salt Marsh which, over time, would have washed or migrated out of the pipelines.
Sadat Verification at ¶ 24.
[39] Sadat's deposition was taken September 13, 2002. Thus, Sadat had ample time to file a supplemental report before the December 6, 2002 dispositive motion deadline. See Doc. 112. Plaintiffs did not file the subject expert verification containing the information about "Pathway Four" (Doc. 144) until February 4, 2003, after the Court's hearing on Shell's motion for summary judgment and motion in limine.
[40] In their response to Shell's motion in limine, plaintiffs noted that Sadat had found "three pathways available for the Shell contamination to have reached the Salt Marsh." Doc. 136 at 12. Plaintiffs also wrote:
Finally, Dr. Sadat concluded that leaks would have occurred on a regular basis at both the Shell and Gulf facilities. Sadat Dep. at 61. This conclusion was confirmed by Dr. Sadat who noted a sheen coming from the Shell and Gulf facilities in historical aerial photographs. Sadat Dep. at 40-41, 63-64. According to Dr. Sadat, such spills into Long Branch creek would have led to deposits into the Salt Marsh. Sadat Dep. at 115.
Dr. Sadat explained that some of the spill is "carried by tidal action and eventually deposited on the banks." Sadat Dep. at 114. He testified that in a tidal water, like Long Branch Creek, it would end up in the marsh. Sadat Dep. at 114.
Doc. 136 at 14.
[41] Based on its resolution of the Motion to Strike Late-Filed Expert Disclosures, the Court will not address the merits of the Shell's Motion in Limine with respect to "Pathway Four."
[42] While objecting to portions of Verification of Dr. Sadat, Shell filed no such objection with respect to the Chrostwoski Verification.
[43] Chrostowski defines landfarming as the "direct contamination by Shell or Gulf through disposal of tank residuals, contaminated water and other wastes on land." Chrostowski Verification at ¶ 16.
[44] "Facilitated transport occurs when a heavy material such as a tank bottom is dissolved or rendered more mobile in the environment by a lighter, more-mobile, more water-soluble material, such as gasoline, coming into contact with it. The gasoline will transport the heavier tank bottom material through the sub-surface and, in fact, can transport it fairly long distances." Chrostowski Verification at ¶ 22.
[45] Daniel Boz testified that his current title with Shell is "Manager of Real Estate Assets." Plaintiffs' Joint Exhibit 3 (Daniel Boz Deposition) at 12.
[46] The Court declines to strike Chrostowski's opinion on this basis. If necessary, the Court will separate and disregard any legal conclusions reached by Chrostowski from his statements of fact and expert opinion.
[47] Chrostowski relied on Shepard's testimony that the groundwater flows to the south. Handex prepared a map showing that the direction of ground water flow varies throughout the property. See Bates Stamp # 1305-06, attached as part of Exhibit 2 to Plaintiffs' Joint Exhibit 3 (Daniel Boz Deposition). Chrostowski does not state that he relied on this map.
[48] Chrostowski testified that he did not create a formal hydological model but that his work on the creek over the years has given him an "understanding of the behavior of the creek." Id. at 39.
[49] Chrostowski would likely be permitted to testify that these pathways are generally recognized in the scientific community. However, as discussed above, Chrostowski has no factual support for his opinion that in this case contaminants actually migrated via these pathways.
[50] If considered on the motion for summary judgment, Chrostowski's opinion would create, at most, a question of fact as to whether or not there was a possibility that contaminants migrated from the Shell facility across Long Branch Creek to the Gulf facility. Expert opinions based on speculation and conjecture are insufficient to create a genuine issue of material fact to survive summary judgment. See Thomas, 846 F.Supp. at 1393.
[51] Plaintiffs cite William Hall's (Shell's expert) report and deposition testimony as supporting their experts' opinions. See Doc. 136. While the Court agrees that Hall is supportive of some of plaintiffs' theories, he provides no basis for bolstering the opinions of Mr. Grip, Dr. Sadat and Dr. Chrostowski concerning Shell's responsibility for the contamination.
[52] Plaintiffs do not argue that the Court should consider other factors in determining whether these expert opinions are sufficiently reliable. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2386821/ | 517 F. Supp. 218 (1981)
BOROUGH OF LANSDALE
v.
PHILADELPHIA ELECTRIC COMPANY.
Civ. A. No. 78-2533.
United States District Court, E. D. Pennsylvania.
June 4, 1981.
*219 Stephen W. Miller, Clark, Ladner, Fortenbaugh & Young, Philadelphia, Pa., for plaintiff.
Raymond T. Cullen, Morgan, Lewis & Bockius, Philadelphia, Pa., for defendant.
MEMORANDUM
HUYETT, District Judge.
This complex antitrust litigation was initiated by the Borough of Lansdale (Lansdale) against the Philadelphia Electric Company (PE) for alleged violations by PE of section 2 of the Sherman Act. Lansdale is a municipality which owns and operates a municipal electric system which distributes and sells electricity to retail customers within Lansdale. PE is a regulated electrical utility which serves two general classes of customers: wholesale and retail. The rates charged by PE to wholesale customers are governed by tariffs regulated by the Federal Energy Regulatory Commission (FERC), while rates charged retail customers are governed by tariffs regulated by the Pennsylvania Public Utility Commission (PUC). Lansdale is a wholesale customer of PE.
The plaintiff alleges that (1) by refusing to wheel electric power to Lansdale, PE has violated section 2 of the Sherman Act in monopolizing or attempting to monopolize the sale and distribution of electric power at wholesale and at retail levels, Complaint, count I; (2) by PE's application to FERC for an auxiliary service provision, PE has violated section 2, Complaint, count II; and (3) by filing for rate increases with FERC of the rate charged Lansdale and filing with the PUC for an increase in retail rates, PE has effected a "price squeeze" on Lansdale in violation of section 2, Complaint, count III. PE denies Lansdale's allegations and contends that the conduct alleged in counts II and III of Lansdale's complaint is protected activity which cannot be considered a violation of section 2 of the Sherman Act. Accordingly, PE has filed a motion for partial summary judgment on counts II and III and to preclude the introduction of evidence under count I. PE's principal argument is that its activities before FERC and the PUC were exercises of *220 its first amendment rights to petition the government and therefore, no antitrust liability can result. In addition, PE seeks summary judgment based on the doctrine of res judicata. PE has not sought summary judgment on count I which alleges antitrust violations by PE based upon an alleged refusal to wheel, either standing alone or when considered in connection with other alleged practices. Final Pretrial Order § IV, 1, C. However, PE requests that I prohibit the plaintiff from using evidence of PE's conduct before FERC to prove intent under count I because the introduction of this evidence would be "prejudicial" and would chill the exercise of PE's right to petition.
Lansdale opposes the motion on several grounds. It contends: (1) the defendant's activities are not immune from antitrust liability; (2) even if the defendant's activities would ordinarily be immune, the so-called "sham" exception to that immunity applies; (3) whether or not the sham exception applies is a question of fact for the jury; (4) even if the defendant's activities are immune, that immunity will be overcome if the jury accepts the plaintiff's allegation of abuses of the administrative process and illegal activity violating the antitrust laws external to the administrative process; (5) res judicata is not applicable; and (6) even if no liability can be imposed upon the defendant based on its conduct before FERC, evidence of that conduct is still admissible under count I.
On June 2, 1981, following oral hearing and upon consideration of the briefs submitted by both sides, the affidavit of Alvin J. Rowe, Jr., and exhibits attached to the affidavit, I denied the defendant's motion stating that I would give the parties my reasons in writing shortly thereafter. This is the statement of my reasons for denying the motion.
The immunity upon which PE relies is frequently referred to as the "Noerr-Pennington" doctrine or immunity. See United Mine Workers of America v. Pennington, 381 U.S. 657, 85 S. Ct. 1585, 14 L. Ed. 2d 626 (1965); Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S. Ct. 523, 5 L. Ed. 2d 464 (1961). Broadly stated, the Noerr and Pennington cases hold that a defendant cannot be held liable under the antitrust laws for activities that are encompassed within the first amendment's guarantee of the right to petition the government for redress of grievances. The Noerr Court concluded that "political" activity by railroads attempting to influence the decision of legislators was protected. In Pennington, the Court held protected similar activity directed at influencing the decision of an executive official. The cases held that these activities were protected "even though intended to eliminate competition." 381 U.S. at 670, 85 S.Ct. at 1593.
In California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 92 S. Ct. 609, 30 L. Ed. 2d 642 (1972), the Supreme Court held that the Noerr-Pennington immunity extended to actions before courts and administrative agencies. The Court observed "[c]ertainly the right to petition extends to all departments of the Government." 404 U.S. at 510, 92 S.Ct. at 612. Although subsequent Supreme Court cases have referred to the immunity in dicta, this trilogy, Noerr, Pennington and California Motor Transport, contains all the Supreme Court law in this area.
The scope of the branch of the immunity relating to activity before adjudicative bodies (first recognized in California Motor Transport) has been the subject of some disagreement. For discussion of the unresolved issues in this area, see Balmer, Sham Litigation and the Antitrust Laws, 29 Buffalo L.Rev. 39 (1980); Kaler, The Sham Exception to the Noerr-Pennington Antitrust Immunity: Its Potential For Minimizing Anticompetitive Abuse of the Administrative Regulatory Process, 12 Tol.L.Rev. 63 (1980). Some generalization is possible. In all the modes of government to which it applies, legislative, executive, and adjudicatory, the immunity is subject to defeat. It is most frequently defeated by the application of the sham exception. The Court recognized from the outset that the immunity *221 was not absolute. In Noerr, the Court stated: "[t]here may be situations in which a publicity campaign, ostensibly directed toward influencing governmental action, is a mere sham to cover what is actually nothing more than an attempt to interfere directly with the business relationships of a competitor and the application of the Sherman Act would be justified." 365 U.S. at 144, 81 S.Ct. at 533. When the defendant claims that it is immune from liability based upon activities before an adjudicative body, the immunity can be overcome if the sham exception applies, although the elements of the exception are not entirely certain. Compare Franchise Realty Interstate Corp. v. San Francisco Local Joint Executive Board, 542 F.2d 1076 (9th Cir. 1976), cert. denied, 430 U.S. 940, 97 S. Ct. 1571, 51 L. Ed. 2d 787 (1977), noted in 30 Vand.L.Rev. 75 (1977) (holding that repeated, baseless opposition before an adjudicative body does not result in loss of Noerr-Pennington immunity absent conduct external to or abusive of the adjudicatory process) with Associated Radio Service Company v. Page Airways, Inc., 414 F. Supp. 1088, 1096 (N.D.Tex.1976) (plaintiff need only be able to show that the defendant initiated proceedings for the specific purpose of achieving an unlawful, anticompetitive objective collateral to that appearing on the face of the action, and that the defendant committed specific actsother than those acts incidental to the normal use of the proceedingsdirected at obtaining that objective). In considering whether the immunity has been overcome, it is significant that the Supreme Court and others have suggested that in the adjudicative process, the immunity itself may be more circumscribed. In other words, at least in this area, the sham exception may not be the only exception to the immunity. See California Motor Transport v. Trucking Unlimited, 404 U.S. at 513, 92 S. Ct. at 613 ("[t]here are many other forms of illegal and reprehensible practice which may corrupt the administrative or judicial processes and which may result in antitrust violations"). The apparent conflict in some of the cases applying the sham exception might be resolved by considering whether the courts are applying a single exception or, rather, a fact-specific analysis under the rubric, "sham."
In any event, a number of courts have recognized that the question of whether the immunity applies or has been overcome is one for the fact finder to decide. Otter Tail Power Co. v. United States, 410 U.S. 366, 379, 93 S. Ct. 1022, 1030, 35 L. Ed. 2d 359 (1972) (remanding to the district court to determine as a matter of fact whether litigation undertaken for the purpose of delay was a sham); California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 513, 92 S. Ct. 609, 613, 30 L. Ed. 2d 642 (1972) ("a pattern ... may emerge which leads the factfinder to conclude that the administrative and judicial processes have been abused"); City of Mishawaka v. American Electric Power Company, Inc., 616 F.2d 976 (7th Cir. 1980) (concluding after a full trial that the immunity did not apply); Kurek v. Pleasure Driveway & Park District, 557 F.2d 580 (7th Cir. 1977), vacated on other grounds, 435 U.S. 922, 992, 98 S. Ct. 1642, 56 L. Ed. 2d 81 (1978) ("facts provable under the complaint could well establish that ... proposal was a mere sham").
In this case, the plaintiffs have argued that the Noerr-Pennington immunity does not protect the defendants from antitrust liability. Based upon the allegations in counts II and III, it appears that the plaintiff in fact relies upon acts by the defendant before an adjudicative body of the type to which Noerr-Pennington immunity generally attaches. Based on the current record, it appears to me that the better view is that activities in the course of regulatory proceedings like those involved in this case are protected by the immunity unless and until an exception to the immunity is demonstrated. See City of Mishawaka v. American Electric Power Company, 616 F.2d 976 (7th Cir. 1980); but cf. United States v. Southern Motor Carriers Rate Conference, Inc., 467 F. Supp. 471 (N.D.Ga. 1979).
*222 If Noerr-Pennington applies, the plaintiff argues that it can present evidence from which the jury could conclude that the filings in counts II and III were within the sham exception. The plaintiff has offered by way of affidavit the evidence it intends to offer at trial to show that there was no economic justification for the filings referred to in count II and that the filings in count III considered alone or in connection with the other allegations in the case amounted to sham. Based upon this showing and the cases cited above, I conclude that the issue of whether an exception to the Noerr-Pennington immunity applies is a question of fact.
The defendant has also sought summary judgment on the basis of the doctrine of res judicata. The defendant contends that the issues raised by counts II and III have already been litigated before the administrative agency and resolved against the plaintiff. For this reason, the defendant argues, I should preclude the plaintiff from proceeding on a Sherman Act theory.
Before the doctrine of res judicata can apply there must be (1) a final judgment on the merits of a cause of action; (2) in a suit between the same parties; and (3) a second suit involving the same cause of action. 1B Moore's Federal Practice ¶ 405[1]. In the absence of identity of the causes of action in the first and second lawsuits, the doctrine of res judicata is inapplicable. Fiumara v. Sinclair Refining Co., 385 F.2d 395 (3d Cir. 1967). It is not sufficient that the causes of action are related; they must be so closely related that matters essential to recovery in the second action have been determined in the first action or the doctrine of res judicata does not apply. Identity of causes of action does not exist where the subject matter and the ultimate issues are not the same.
In the present suit, the ultimate issue is whether the defendant's actions violate the proscriptions of Sherman Act section 2 relating to monopolization. In the FERC proceedings, the ultimate issue was whether the rates were just and reasonable. FERC acted pursuant to sections 205(b) and 206(a) of the Federal Power Act, 16 U.S.C. § 824 et seq. as the Supreme Court has interpreted FERC's duty under that statute. See Federal Power Commission v. Conway Corp., 426 U.S. 271, 96 S. Ct. 1999, 48 L. Ed. 2d 626 (1976). FERC's duty under that statute requires it to consider the anti-competitive impact of proposed rates. However, the Commission itself has acknowledged that it does not undertake an analysis that is entirely coextensive with the Sherman Act:
The policies underlying the antitrust laws represent this country's fundamental economic view that competition is to be maintained and enhanced wherever feasible. The electric utility industry is an industry in which competition exists and is, therefore, subject to scrutiny both in the courts for possible antitrust violations and in this Commission for actions which may have anticompetitive effects. The Commission, in exercising its authority under the Federal Power Act, is required to "consider matters relating to both the broad purposes of the [Federal Power] Act and the fundamental national policy expressed in the antitrust laws." Gulf States Utilities Co. v. F.P.C., 411 U.S. 747, 759-760, 93 S. Ct. 1870, 1878, 36 L. Ed. 2d 635 (1973).
The implementation of the policies underlying the antitrust laws cannot become the paramount goal of this Commission, however. The Commission does not enforce the antitrust laws. In carrying out its responsibility to set just and reasonable rates for public utilities, the Commission must determine what is in the public interest. Such a determination may involve considerations which outweigh the anticompetitive effect of a particular filing. Missouri Power & Light Co., Docket No. ER 76-539, Opinion No. 31, 10-11 (October 27, 1978).
Accordingly, I conclude that the ultimate issues before FERC were not identical to the ultimate issues here and therefore, res judicata is not grounds for partial summary judgment.
*223 Finally, the defendant argues that I should bar the introduction of evidence of its activities before FERC on the issue of intent in count I. In the Pennington case, the Supreme Court commented that even where the activity is immunized "[i]t would still of course be within the province of the trial judge to admit this evidence, if he deemed it probative and not unduly prejudicial, under the `established judicial rule of evidence that testimony of prior or subsequent transactions, which for some reason are barred from forming the basis for a suit, may nevertheless be introduced if it tends reasonably to show the purpose and character of the particular transaction under scrutiny." 381 U.S. at 670 n.3, 85 S. Ct. at 1593 n.3 (citations omitted). Since I have concluded that partial summary judgment is not appropriate on counts II and III, the evidence which defendant sought to bar will be admitted under those counts. Therefore, I do not think that this argument has the same importance to defendant as it would have if summary judgment could have been granted on counts II and III. Based upon the discussion of Noerr-Pennington above and the quoted language in footnote 3, I conclude that Noerr-Pennington would not bar the admission of FERC activities if relevant under count I. See also Mishawaka v. American Electric Power Company, Inc., 616 F.2d 976 (7th Cir. 1980).
For all these reasons, defendant's motion was denied in open court and by order of June 2, 1981. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2388393/ | 591 F. Supp. 52 (1984)
MIAMI PAPER CORPORATION, Plaintiff,
v.
MAGNETICS, INC., Defendant.
No. C-3-83-1158.
United States District Court, S.D. Ohio, W.D..
March 2, 1984.
*53 John O. Henry, Walter Reynolds, Dayton, Ohio, for plaintiff.
John R. Gall, Columbus, Ohio, for defendant.
DECISION AND ENTRY OVERRULING DEFENDANT'S MOTION TO DISMISS FOR LACK OF IN PERSONAM JURISDICTION; FURTHER PROCEDURES SET
RICE, District Judge.
Plaintiff, a corporation doing business in Ohio, filed this breach of contract action against Defendant, a Maryland corporation, in the Montgomery County (Ohio) Court of Common Pleas. Defendant removed the action, pursuant to 28 U.S.C. *54 § 1446(a), to this Court as a diversity suit under 28 U.S.C. § 1332. Shortly thereafter, Defendant moved (doc. # 4) to dismiss the Complaint for lack of in personam jurisdiction, pursuant to Fed.R.Civ.P. 12(b)(2). For the following reasons, the Court overrules the motion.
I. FRAMEWORK
An initial review of the legal standards applicable to the pending motion will aid in understanding the legal and factual issues involved therein.
Defendant claims, under Rule 12(b)(2), that this Court has no personal jurisdiction over it. In this diversity action, the Court must apply the "long arm" statute of the forum state, Ohio Rev.Code § 2307.382 (Page 1981), to determine if personal jurisdiction over Defendant is proper. National Can Corp. v. K. Beverage Co., 674 F.2d 1134, 1136 (6th Cir.1982); Poyner v. Erma Werke GMBH, 618 F.2d 1186, 1187 (6th Cir.), cert. denied, 449 U.S. 841, 101 S. Ct. 121, 66 L. Ed. 2d 49 (1980).
Plaintiff argues that in personam jurisdiction may be had over Defendant, based on provisions of the Ohio long arm statute. Ohio Rev.Code § 2307.382 provides, in pertinent part, that:
(A) A court may exercise personal jurisdiction over a person who acts directly or by an agent, as to a cause of action arising from the person's:
(1) Transacting any business in this state....
The Sixth Circuit has held that this statute is intended to extend the personal jurisdiction of courts to the constitutional limits of due process. Welsh v. Gibbs, 631 F.2d 436, 439 (6th Cir.1980), cert. denied, 450 U.S. 981, 101 S. Ct. 1517, 67 L. Ed. 2d 816 (1981); In-Flight Devices Corp. v. Van Dusen Air, Inc., 466 F.2d 220, 225 (6th Cir.1972) (In-Flight Devices).[1]
In defining these constitutional limits, the Supreme Court has held that the Defendant must have certain "minimum contacts" with the forum state, so that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 298, 100 S. Ct. 559, 567, 62 L. Ed. 2d 490 (1980) (citing, International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S. Ct. 154, 158, 90 L. Ed. 95 (1945)). The Sixth Circuit has developed a three-part test to determine whether the application of the Ohio long arm statute provides sufficient contact between a non-resident defendant and the forum state so as to support personal jurisdiction.
First, the defendant must purposefully avail himself of the privilege of acting in the forum state or causing a consequence in the forum state. Second, the cause of action must arise from the defendant's activities there. Finally, the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable.
Welsh v. Gibbs, 631 F.2d at 440; In-Flight Devices, 466 F.2d at 226.
*55 Once challenged, a plaintiff has the burden of demonstrating the propriety of in personam jurisdiction over a defendant. First National Bank v. J.W. Brewer Tire Co., 680 F.2d 1123, 1125 (6th Cir.1982) (per curiam); Weller v. Cromwell Oil Co., 504 F.2d 927, 929 (6th Cir.1974). If a court decides to determine the issue solely on the basis of the pleadings and materials attached thereto, the plaintiff need only make a prima facie case of jurisdiction. Welsh v. Gibbs, 631 F.2d at 438. If the moving party submits affidavits, the non-moving party may not rest upon allegations or denials in his pleadings, but must respond, by affidavit or otherwise, to set forth specific facts showing that the court has jurisdiction. Weller v. Cromwell Oil Co., 504 F.2d at 930. Finally, if the Court concludes that the written submissions raise issues of credibility or disputed issues of fact which require resolution, the Court may conduct a preliminary evidentiary hearing, where the Plaintiff must show, by a preponderance of the evidence, that jurisdiction exists. Welsh v. Gibbs, 631 F.2d at 439.
In this case, Defendant has supported its motion by affidavits, and Plaintiff has relied, in response, upon affidavits and other verified materials. The Court will now turn to the facts gleaned from these materials.
II. FACTUAL BACKGROUND
A review of the record reveals the following facts. Plaintiff is a Minnesota corporation doing business in Ohio, a manufacturer of paper, with its principal place of business in West Carrollton, Ohio. Defendant, a Maryland corporation with its principal place of business in Baltimore, Maryland, processes, finishes, and sells paper and paper products. Defendant has never maintained an office or facility in Ohio and keeps no records and owns no property in Ohio. Since January of 1980, Defendant's sales to persons in Ohio have averaged about 2% of its total sales, and Defendant's purchases from Ohio during that period have been about 5.3% of total purchases, with virtually all such purchases being made from Plaintiff. Nevertheless, Defendant acknowledges that it has carried on business with Plaintiff for (apparently) several years. During May and June of 1982, for example, Defendant bought paper (directly) from Plaintiff, and sent its own trucks to West Carrollton on at least seven occasions to pick up the paper during that period.
The arrangements during 1983, however, were somewhat different. Defendant dealt with Plaintiff through Schmidt Paper Company, a broker of paper supplies based in Burnsville, Minnesota. Schmidt quoted a price for Plaintiff's paper to Defendant, and Defendant arranged with Schmidt for shipments of paper to Defendant's Maryland plant, reaching over 16,000 tons in 1983. While the product was shipped in Schmidt packages, Defendant understood that Plaintiff was the source of the paper. Defendant paid Plaintiff by periodically sending a check to a lock-box established by Plaintiff in Chicago, Illinois. Each of the invoices for the 23 shipments during this period indicate that the shipments were made "F.O.B. West Carrollton, Ohio."[2] Later in 1983, the parties terminated their relationship, and Plaintiff sued for breach of contract, alleging that Defendant owed it some $216,885.67 in unpaid monies for about 433 tons of paper sold and delivered to Defendant.
With this much, the parties agree. However, the parties disagree on the significance of the F.O.B. designation on the 32 invoices for 1983. By way of affidavit, Defendant's president, George Katz, avers that the shipments were, in effect, F.O.B. Maryland, since the president of Schmidt *56 told him that the price of the paper included the delivery charge, and that Schmidt or Plaintiff would bear any risk of loss. Schmidt further told him, he states, that the F.O.B. West Carrollton "notations were made for Miami Paper's recordkeeping purposes only, and that they should be disregarded." George Katz affidavit, ¶ 4, attached to doc. # 11. At this Court's suggestion (doc. # 13), Plaintiff has responded with affidavits from a Miami Paper vice-president and Schmidt's president. The former affiant states (with exhibits) that all shipments from Plaintiff to Defendant have always been F.O.B. West Carrollton, that Defendant did indeed assume the risk of loss upon delivery to the carrier, and that Schmidt's president is only an "independent broker," never having been designated as an agent of Plaintiff with authority to waive or modify F.O.B. terms. Schmidt never asked for or received such authority. The latter affiant denies making the statements attributed to him by Defendant's president, and also states that it "is customary and standard in the paper industry that all shipments are sold `F.O.B. mill' and risk of loss passes to the buyer at that point." Stanley Schmidt affidavit, doc. # 14, ex. B, ¶ 4.
Plaintiff argues that, for two reasons, this Court should ignore the statements in the Katz affidavit: (1) Katz improperly relates hearsay in his affidavit (i.e. the statements of Schmidt), and (2) even assuming those hearsay statements are admitted and taken as true, nothing in Katz' affidavit (or anywhere else in the record) suggests that Schmidt had any authority to change F.O.B. terms. The Court agrees with Plaintiff that the Katz statements may be disregarded, though for different reasons. It is not entirely clear if Defendant is relying on the Schmidt statements for their hearsay value (i.e., for the truth of the matters asserted therein), or simply on the statements having been made, without regard to their truth or falsity. Cf. Fed.R. Evid. 801(c).
In any event, the Court finds it unnecessary to definitively characterize the statements in the Katz affidavit, or to undertake a procedure to resolve the inconsistencies between the Katz and Schmidt affidavits. Defendant nowhere disputes Plaintiff's position that Schmidt was not an agent of Plaintiff, and had no authority to waive the F.O.B. terms or any other contract term. Whether or not Schmidt made the statements is irrelevant, since it is undisputed that he had no authority to waive F.O.B. terms or other contract terms. Thus, even assuming, without deciding, that Stanley Schmidt made the statements attributed to him by George Katz, Defendant was not warranted in attributing them to Plaintiff. Given Schmidt's acknowledged status as an independent broker, whether or not Schmidt misrepresented certain facts to Defendant has little, if any, bearing on Defendant's relationship to Plaintiff. This is particularly true, since Defendant concedes that it knew that the paper shipments were coming directly from Plaintiff. Accordingly, the Court finds it unnecessary to resolve the factual conflicts between the Schmidt and Katz affidavits. See In-Flight Devices, 466 F.2d at 223 n. 1 (factual conflicts irrelevant to jurisdictional question need not be resolved).
III. ANALYSIS
The Court now applies the above undisputed facts to the three-part test for determining the propriety of asserting in personam jurisdiction over Defendant.
A. PURPOSEFUL ACTIVITY/CAUSING A CONSEQUENCE
The first part of this circuit's test requires that the defendant "purposefully avail himself of the privilege of acting in the forum state or causing a consequence in the forum state." (emphasis added). Defendant argues that it meets neither part of this disjunctive test, alleging that it only acted in Ohio through Schmidt, and only conducted a minimal amount of business in Ohio. Defendant is incorrect on both positions.
First, it is true that, at least for the disputed transactions, Defendant only acted in Ohio through Schmidt, the middleman. *57 But that does not detract from Defendant acting, albeit indirectly, in Ohio. Indeed, this concept is embodied in the Ohio long-arm statute, which states that a defendant can act "directly or by an agent...." Thus, courts have been willing to predicate jurisdiction on a defendant having "acted" in or upon the forum state through an agent or middleman. See, e.g., Chattanooga Corp. v. Klingler, 704 F.2d 903, 907-08 (6th Cir.1983); Priess v. Fisherfolk, 535 F. Supp. 1271, 1279 (S.D.Ohio 1982) (Spiegel, J.). See also, Comment, Constitutional Limitations on State Long Arm Jurisdiction, 49 U.Chi.L.Rev. 156, 165-68 (1982) [hereinafter cited as Chicago Comment].[3]
Second, Plaintiff does not dispute Defendant's assertions that it has conducted only a small portion of its nationwide business in Ohio. That argument, however, incorrectly focuses on the non-resident's overall contacts with the forum state, rather than the nature of the transaction giving rise to the cause of action. Thus, in a case factually similar to the instant one, the Sixth Circuit held that a non-resident defendant, which had contracted with an Ohio plaintiff for the latter to manufacture $200,000 worth of equipment, met the "causing a consequence" test:
[Defendant entered into a contract] involving a substantial order for the manufacture of goods with a firm which it necessarily knew was based in Ohio and had its production facilities located within that State. That the making (and breaking) of a contract with the Plaintiff would have substantial consequences with the State of Ohio is a reality of which Defendant could not have been ignorant.
In-Flight Devices, 466 F.2d at 227. Similar consequences obtain herein. Defendant admits that it knew that Plaintiff was the source of the paper, despite the presence of a broker. The particular dispute in question covered some 433 tons of paper and over $216,000, which is surely a "substantial consequence" within the state of Ohio, in light of In-Flight Devices.[4]
Finally, Defendant relies (Reply Memorandum, doc. # 11, pp. 4-5) on a line of cases, notably Lakeside Bridge & Steel Co. v. Mountain St. Construction Co., 597 F.2d 596 (7th Cir.1979), cert. denied, 445 U.S. 907, 100 S. Ct. 1087, 63 L. Ed. 2d 325 (1980) (Lakeside Bridge), which have been unwilling to assert jurisdiction over a nonresident buyer, based merely on the buyer having contracted with the resident seller. This approach, however, clearly conflicts with the Sixth Circuit's three-part test in general, and with In-Flight Devices in particular.[5]In-Flight Devices held that the "intentional entering of a contract to be *58 performed in Ohio," 466 F.2d at 228, met the first part of the three-part test. See also, First National Bank, supra, 680 F.2d at 1126. Thus, the narrow view found in Lakeside Bridge and related cases has no application in this Circuit.
For these reasons, the Court concludes that the initial prong of the three-part test is met.
B. CAUSE OF ACTION ARISING FROM ACTIVITIES
The second part of the analysis requires that Plaintiff's cause of action arise from Defendant's activities in Ohio. That Plaintiff meets this test is self-evident. "Defendant's transaction of business in Ohio its entering of a contractual relationship with an Ohio corporation is necessarily the very soil from which the action for breach grew." In-Flight Devices, 466 F.2d at 229. See also, Chicago Comment at 172-73. In this case, the alleged breach of contract (failure to pay for delivered paper) arises from the contract with the Ohio corporation. Thus, the cause of action does arise from Defendant's activities in Ohio. See generally, Berning v. BBC, Inc., 575 F. Supp. 1354 (S.D.Ohio 1983).
C. REASONABLENESS INQUIRY
The final part of the three-part test requires the Court to determine if the acts or consequences caused by the defendant "have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable." While the "very flexibility" of this inquiry precludes the application of "definitive standards," In-Flight Devices, 466 F.2d at 232, among the factors to consider are Ohio's interest in the controversy, and whether the defendant buyer was (1) "active" or "passive", (2) could foresee a foreign suit, and (3) had physical contacts with the forum state. Id. at 232-35; First National Bank, 680 F.2d at 1126. The Court will consider these factors seriatim.
It is settled, of course, that a state "has an interest in resolving a suit brought by one of its residents." In-Flight Devices, 466 F.2d at 232.
That interest necessarily becomes more significant when, as here, a contract calling for substantial production of goods is entered into, with the production of goods and other performance under the contract to take place entirely within the forum state.
Id. In the instant case, it is likewise undisputed that the contract(s) in question called for a "substantial production of goods" within the state of Ohio.[6]
It is also evident that Defendant should be characterized as an "active" rather than a "passive" buyer. Defendant itself acknowledges that it initiated dealings with Plaintiff (through Schmidt, the broker), and was not merely a "passive" buyer receiving goods from a virtually unknown seller. Under these facts, any reluctance to assert jurisdiction over passive, non-resident buyers falls away. See In-Flight Devices, 466 F.2d at 232-33.
The facts also indicate that Defendant should not have been greatly surprised at the contingency of being brought into an Ohio court to defend its actions. A principal basis for this conclusion is the F.O.B. notations on the invoices covering the transactions in question. Under the relevant provisions of the Uniform Commercial Code (UCC), see Ohio Rev.Code §§ 1302.32, 1302.42, 1302.53 (Page 1979) [UCC §§ 2-319, 2-401, 2-509], the "F.O.B. West Carrollton" notations on the invoices indicate that title and risk of loss to the paper passed to Defendant, in Ohio, once they were given to the carrier to be taken to *59 Maryland. See footnote two, supra. In effect, Defendant owned the goods while they were still in Ohio. As several courts have held, an appropriate F.O.B. term places a non-resident buyer on notice that its goods are in another state and that it might be haled into court in that state to resolve a dispute over those goods. See Agrashell, Inc. v. Bernard Sirotta Co., 344 F.2d 583, 588-89 (2d Cir.1965); Comment, Risk of Loss and State Long Arm Jurisdiction: Obligations Fashioned by the Delivery Term in an Article 2 Sales Contract, 17 Hous.L.Rev. 573, 597-613 (1980) [hereinafter cited as Houston Comment].
Defendant vigorously argues that the F.O.B. designation should not be the sole, controlling jurisdictional factor. This Court agrees. Indeed, most courts consider the F.O.B. term to be only one factor, among several, to be relevant for jurisdictional purposes. See, e.g., Lakeside Bridge, 597 F.2d at 604 n. 14; NRM Corp. v. Pacific Plastic Pipe Co., 36 Ohio App. 2d 179, 304 N.E.2d 248 (Summit Cty.1973); Houston Comment at 605-09. See also, In-Flight Devices, passim (by implication).[7] Nevertheless, the "F.O.B. Seller" terms weigh in favor of asserting jurisdiction over Defendant, particularly where, as here, relatively large purchases were involved. Unlike the individual, "passive" consumer of one product, a commercial buyer during several transactions at F.O.B. seller's terms is in a position, at least in theory, to negotiate to alter those terms, or take steps to lessen its potential liability (e.g., procure insurance).[8]Chicago Comment, at 178-79. Moreover, the record indicates that Defendant is engaged in multistate activities (i.e., it has facilities in both Maryland and Pennsylvania, Katz affidavit, ¶ 6), which should further place it on notice of the possibility of conducting out-of-state litigation. In-Flight Devices, 466 F.2d at 234.
Plaintiff acknowledges that the final factor, physical contacts with the forum state, weighs in Defendant's favor, since Defendant had no such contacts with Ohio for the specific transactions at issue in this lawsuit. Defendant, however, did have physical contacts in Ohio in the prior year, when it sent trucks to pick up Plaintiff's paper. Those prior contacts have some relevance to the present dispute, since they also place Defendant on notice that it may be sued out-of-state. Id.; Chicago Comment at 178. In any event, physical contact is not a prerequisite to the assertion of jurisdiction by the forum state:
in an appropriate case the entering of a contract to be performed within the forum state may provide sufficient basis for the assertion of jurisdiction over a non-resident defendant without the physical presence of such defendant or his agents within the state.
In-Flight Devices, 466 F.2d at 235.
Considering all of the relevant factors, the Court concludes that the exercise of jurisdiction over the Defendant would be reasonable.
*60 IV. CONCLUSION
For the reasons outlined above, the Court overrules Defendant's motion to dismiss. As the Court noted in its earlier entry (doc. # 10), appropriate discovery can now go forward after receipt of this entry. In addition, Defendant is directed to answer or otherwise motion the Plaintiff's Complaint within 20 days after receipt of this entry.
NOTES
[1] Defendant has filed a supplemental memorandum (doc. # 15) without leave of the Court, cf. S.D.Ohio 4.0.2, but the Court will consider same in the interests of completing the record. In that memorandum, Defendant, citing Ohio State Tie & Timber, Inc. v. Paris Lumber Co., 8 Ohio App. 3d 236, 456 N.E.2d 1309 (Franklin Cty. 1982); Culp v. Polytechnic Institute, 7 Ohio App. 3d 352, 455 N.E.2d 698 (Franklin Cty.1982); Gold Circle Stores v. Chemical Bank-Dommerich Division, 4 Ohio App. 3d 10, 446 N.E.2d 194 (Franklin Cty.1982), suggests that Ohio courts are adopting the view that the Ohio long-arm statute is not meant to extend to the limits of due process. The cited cases do indeed appear to adopt that view, and concentrate on whether or not the non-resident defendant was "transacting any business" in Ohio. However, that view is by no means unanimous. See Barile v. University of Virginia, 2 Ohio App. 3d 233, 441 N.E.2d 608 (Cuyahoga Cty.1981) (following Sixth Circuit view). More importantly, this Court need not follow the views of lower Ohio court decisions, until and unless the Ohio Supreme Court adopts their position or the Sixth Circuit repudiates its interpretation of the Ohio Long-Arm statute. See Winston Corp. v. Continental Cas. Co., 508 F.2d 1298, 1304 (6th Cir.), cert. denied, 423 U.S. 914, 96 S. Ct. 218, 46 L. Ed. 2d 142 (1975).
[2] The "F.O.B. Seller's Place of Business" term means that title passes to the buyer upon delivery to a carrier of the goods, and the risk of loss also passes to the buyer at that time. F.O.B. Buyer's Place of Business means that title and risk of loss remains with the seller until the goods actually reach the buyer. See J. White & R. Summers, Uniform Commercial Code 179-180 (2d ed. 1980). The significance of these designations in the instant case is discussed at greater length in the text, infra.
[3] The instant case is distinguishable from a case relied upon by Defendant, Wessel Co., Inc. v. Yoffee & Beitman Management Corp., 457 F. Supp. 939, 941 (N.D.Ill.1978), wherein the court was unwilling to predicate jurisdiction over a non-resident buyer who acted through an agent. In that case, unlike the instant matter, the defendant was merely a customer for a single sale from plaintiff negotiated by the agent, and which only involved telephone and letter contacts with the forum state.
[4] Defendant also argues that the small amount of total sales or revenue which it derives from Ohio is a factor to consider in determining whether or not it was "transacting any business" in Ohio. That argument, however, is best directed at those portions of the Ohio long-arm statute which predicate jurisdiction on a nonresident defendant "deriving substantial revenue" from Ohio. See Ohio Rev.Code § 2307.382(A)(4)-(5) (Page 1981). Plaintiff, as noted above, does not rely upon those sections. At best, Defendant's argument should be considered under the third prong of the three-part test, that is, the overall reasonableness of asserting in personam jurisdiction. See In-Flight Devices, 466 F.2d at 227 n. 13.
[5] Lakeside Bridge neither cited nor distinguished In-Flight Devices. However, other commentators have observed the conflict between the decisions. See, 445 U.S. 907, 910, 100 S. Ct. 1087, 1089, 63 L. Ed. 2d 325 (1980) (White, J., dissenting from denial of certiorari in Lakeside Bridge); Note, Long-Arm Jurisdiction in Commercial Litigation: When Is a Contract a Contact?, 61 B.U.L.Rev. 375, 386 (1981); Note, Lakeside Bridge & Steel Co. v. Mountain State Construction Co: Inflexible Application of Long-Arm Jurisdiction Standards to the Non-Resident Purchaser, 75 Nw.U.L.Rev. 345, 354, 357-58 (1980). This Court, of course, must follow In-Flight Devices.
[6] As Defendant points out in its supplemental memorandum, Plaintiff is, in fact, a Minnesota corporation, only doing business in Ohio. However, given the presence of Plaintiff's manufacturing facility in Ohio, this forum state surely retains an interest in those persons (corporate or natural) working in the state. See Allstate Ins. Co. v. Hague, 449 U.S. 302, 314, 101 S. Ct. 633, 640, 66 L. Ed. 2d 521 (1981). Cf. Chicago Comment at 172-73. This is not a case of a non-resident plaintiff using the state only as a forum for tactical advantage. E.g., Keeton v. Hustler Magazine, Inc., 682 F.2d 33 (1st Cir. 1982), cert. granted, 459 U.S. 1169, 103 S. Ct. 813, 74 L. Ed. 2d 1012 (1983).
[7] Plaintiff relies, in part, upon Colony Press, Inc. v. Fleeman, 17 Ill.App.3d 14, 308 N.E.2d 78 (1974), a case which was apparently willing to place virtually controlling importance on the F.O.B. terms. As Defendant correctly points out, Colony Press has been considered of little precedential value, since the Illinois Supreme Court in 1981 narrowed its interpretation of the Illinois long-arm statute. See U.S. Reduction Co. v. Amalgamet, Inc., 545 F. Supp. 401, 403 (N.D.Ill.1982). That revelation, however, is of little aid to Defendant, since this Court follows the majority rule in considering the F.O.B. terms to be only one of several relevant factors.
[8] As the In-Flight Devices court pointed out, 466 F.2d at 234 n. 24, a non-resident buyer can entirely eliminate the prospect of out-of-state litigation by insisting on a contractual choice-of-forum clause. See M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S. Ct. 1907, 32 L. Ed. 2d 513 (1972); Schulke Radio Productions, Ltd. v. Midwestern Broadcasting Co., 6 Ohio St. 3d 436, 453 N.E.2d 683 (1983).
In its supplemental memorandum, Defendant also argues that Ohio is not a convenient forum for the resolution of this action. However, such an argument, pertinent to a change-of-venue motion under 28 U.S.C. § 1404(a), is not relevant to the question of in personam jurisdiction. Neff Athletic Lettering Co. v. Walters, 524 F. Supp. 268, 270-71 (S.D.Ohio 1981); Chicago Comment at 162. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2387641/ | 517 F. Supp. 1132 (1981)
The TRAVELERS INSURANCE COMPANY, Plaintiff,
v.
FELD CAR & TRUCK LEASING CORP., and Insurance Company of North America, Defendants.
Civ. A. No. 76-179-C6.
United States District Court, D. Kansas.
July 7, 1981.
John T. Conlee, Fleeson, Gooing, Coulson & Kitch, Wichita, Kan., for plaintiff.
Paul H. Hulsey, Fisher, Ochs & Heck, P.A., Topeka, Kan., for defendants.
MEMORANDUM AND ORDER
KELLY, District Judge.
This matter is now before the Court on the summary judgment motion of defendant Insurance Company of North America (I.N.A.). The plaintiff in this action is The Travelers Insurance Company (Travelers). The case involves a dispute between these two insurance companies regarding the possible coexistence of coverage arising out of a vehicular accident. Travelers' claim against I.N.A. is for contribution in satisfying a judgment against its insured. The key issues presented by the defendant's motion are whether the notice to I.N.A. of the accident "was as soon as practicable," and if not, whether there must be evidence of prejudice to the insurance company before it can avoid liability due to late notice. Counsel for both parties have filed briefs *1133 and the Court had the benefit of their oral argument. After careful consideration of both sides' contentions, the Court finds that although I.N.A. was not given notice "as soon as practicable," I.N.A. must show it was consequentially prejudiced before it can avoid liability under its policy. Therefore, the defendant's summary judgment motion shall be denied.
The vehicular accident mentioned above occurred on July 31, 1969, near Hoxie, Kansas. Travelers' insured was Midwest Research Institute (M.R.I.) of Kansas City, Missouri. At the time of the accident one of its agents was driving a van leased from Feld Car & Truck Leasing Corporation (Feld). Travelers contends Feld provided M.R.I., its lessee, with public liability insurance through I.N.A. As a result of the accident, M.R.I. was sued by Bernard Ostmeyer, the driver of the second vehicle, and he eventually prevailed in a jury trial in Federal District Court in Wichita and was awarded a $165,000 judgment on January 23, 1975.
Travelers commenced the present action on March 9, 1975, against both I.N.A. and Feld. Only M.R.I. was named as a defendant in the Ostmeyer action. By order of this Court dated March 4, 1981, Feld was eliminated as a defendant in the instant action.
The facts regarding the notice of the 1969 accident received by I.N.A. are not entirely without dispute. However, although M.R.I. immediately notified Travelers of the accident, no evidence has been produced that I.N.A. received notice of the accident before May 8, 1974, when Travelers sent I.N.A. a letter making a formal demand for contribution. This letter came over four and a half years after the accident and approximately eight months before the Ostmeyer trial commenced. Formal notice of the accident never came to I.N.A. from Feld, the holder of the I.N.A. policy, although M.R.I. gave immediate notice of the accident to Feld. The most important undisputed fact for the purpose of I.N.A.'s summary judgment motion is that at least by November 30, 1972, Travelers was aware Feld's insurance coverage was through I.N.A. This knowledge is reflected in a Travelers inter-office memorandum in which Travelers' principals discussed the strategy of impleading I.N.A. into the Ostmeyer litigation (Travelers' response to I.N.A. Req. for Adm. Nos. 30, 32). This is the earliest documented evidence revealing that Travelers knew Feld had some type of coverage through I.N.A. Consequently, over one year and five months passed before Travelers sent notification to I.N.A. on May 8, 1974, that it sought contribution from I.N.A. regarding the Ostmeyer lawsuit.
As stated earlier, the two primary issues posed by this summary judgment motion are whether the notice required by I.N.A.'s policy was given as soon as practicable, and whether insurance coverage will exist despite late notice if the carrier has not been thereby prejudiced. The defendant has raised other issues which shall be taken up at the end of this memorandum.
The notice provision of the I.N.A. policy contains the following requirement at Section D, Paragraph 3:
When an occurrence or accident takes place written notice shall be given by or on behalf of the Insured to the Company or any of its authorized agents as soon as practicable. Such notice shall contain particulars sufficient to identify the Insured and also reasonably obtainable information respecting the time, place and circumstances of the occurrence or accident, the names and addresses of the Insured and of available witnesses. (Emphasis added).
The proceeding condition precedent found at Section D, Paragraph 7, is also a part of the I.N.A. policy:
No action shall lie against the Company unless, as a condition precedent thereto, the Insured shall have fully complied with all the terms of this policy, nor until the amount of the Insured's obligation to pay shall have been finally determined either by judgment against the Insured after actual trial or by written agreement of the Insured, the claimant and the Company. (Emphasis added).
*1134 I.N.A. contends that as a matter of law the notice given it of the Ostmeyer accident on July 31, 1969, was not "as soon as practicable and that consequently I.N.A. owed no coverage whatsoever.
As a general rule, the issue of late notice involves a question of fact. See Goff v. Aetna Life & Casualty Co., 1 Kan. App. 2d 171, 178, 563 P.2d 1073, 1079 (1977). Although the Kansas appellate courts have not had occasion to define "as soon as practicable," it generally means an insured is required to notify his insurance company of a possible claim within a reasonable time in light of all the relevant facts and circumstances. See generally, 18 A.L.R. 2d 443 and the cases cited therein.
As mentioned earlier, the Ostmeyer accident occurred July 31, 1969, and I.N.A. first received formal notice of it on May 8, 1974, over four and a half years later. It is also pertinent to again repeat that at least as early as November 30, 1972, Travelers was aware Feld had insurance coverage through I.N.A. Moreover, Travelers is an insurance company and not the typical unsophisticated insured who is usually unaware and not knowledgeable concerning the contents of his or her insurance policies. Yet Travelers allowed over one year and five months to pass after acquiring knowledge of the identity of Feld's carrier, I.N.A., before it gave I.N.A. formal notice of a claim. Since all of these facts regarding when notice was given are undisputed, this Court has little hesitancy in finding as a matter of law that notice of a claim four and a half years after the accident was not "as soon as practicable" under all the facts and circumstances.
I.N.A. argues notice within a reasonable time should be considered a condition precedent to coverage under traditional contract law and that if notice is unreasonably late, no coverage exists regardless of the absence of prejudice to the insurance carrier. Travelers, on the other hand, contends that an insurance company should only be able to deny coverage when it has been prejudiced somehow by receiving late notice. Counsel for both sides have not cited any decisions by the Kansas courts on this question nor has this Court's research produced any. Consequently, we are required to seek guidance from Kansas' sister states.
A majority of the state courts follow the rule that prejudice is immaterial and that notice as soon as practicable of an occurrence giving rise to a possible claim is a condition precedent to an insurer's liability. See generally, 13 G. Couch, Insurance § 49:88 (2d ed. 1965). These jurisdictions apply traditional rules of contract interpretation. However, a strong trend exists among the courts to shun technical interpretation of these notice provisions in order to avoid forfeiture of insurance coverage unless the insurer has been materially prejudiced because of late notice. Travelers has cited the case of Brakeman v. Potomac Ins. Co., 472 Pa. 66, 371 A.2d 193 (1977), which is not the seminal case of this trend although it has often been relied on by state courts adopting the requirement of prejudice. In Brakeman, the Pennsylvania Supreme Court abandoned traditional rules of interpreting these notice provisions and gave the following rationale:
The rationale underlying the strict contractual approach reflected in our past decisions is that courts should not presume to interfere with the freedom of private contracts and redraft insurance policy provisions where the intent of the parties is expressed by clear and unambiguous language. We are of the opinion, however, that this argument, based on the view that insurance policies are private contracts in the traditional sense, is no longer persuasive. Such a position fails to recognize the true nature of the relationship between insurance companies and their insureds. An insurance contract is not a negotiated agreement; rather its conditions are by and large dictated by the insurance company to the insured. The only aspect of the contract over which the insured can "bargain" is the monetary amount of coverage.
Id. 371 A.2d at 196. Although Travelers is obviously not the named insured under the *1135 I.N.A. policy issued to Feld, the same reasoning applies here when a third party seeks the benefits of insurance coverage.
A second basis given by the Pennsylvania Supreme Court for requiring proof of prejudice was a concern for avoiding a forfeiture whenever reasonably possible. The Pennsylvania Court reasoned that when a carrier sought to deny coverage already paid for by premiums, the insurance carrier ought to be required to show a sound reason for doing so because of late notice. Id., 371 A.2d at 197, citing Cooper v. Government Employees Insurance Co., 51 N.J. 86, 93-94, 237 A.2d 870, 873-74 (1968). Although the Kansas Supreme Court has not explicitly stated a policy of avoiding forfeitures whenever reasonably possible, we feel such a policy underlies the numerous Kansas decisions holding that insurance policies are to be strictly construed against the carrier and in favor of the insured when a policy provision is ambiguous. See, e. g., Brown v. Combined Insurance Company of America, 226 Kan. 223, 232, 597 P.2d 1080 (1979); Fancher v. Carson-Campbell, Inc., 216 Kan. 141, 146, 530 P.2d 1225 (1975); Gowing v. Great Plains Mutual Ins. Co., 207 Kan. 78, 80, 483 P.2d 1072 (1971).
The fundamental purpose for requiring an insurance company to receive early notice of an occurrence which may possibly give rise to a claim is that prompt notice will afford the carrier an opportunity to investigate the occurrence and thereafter properly dispose of any claim through settlement or defense of the claim. Consequently, the notice requirement helps to protect the carrier against fraudulent and otherwise invalid claims. 13 G. Couch, Insurance § 49:2 (2d ed. 1965). In other words, the purpose for the notice requirement is to protect the insurance carrier from having its interests prejudiced. Brakeman v. Potomac Insurance Co., 472 Pa. 66, 371 A.2d 193, 197 (1977).
However, when an insurance carrier's interests have not been materially prejudiced because of late notice, the purpose for the notice requirement is nonexistent. It would thus be neither fair nor logical for an insurance carrier to avoid responsibility when its interests have not been prejudiced by late notice. As a general rule, the determination of whether material prejudice exists would be a fact question. 13 G. Couch, Insurance § 49:50 (2d ed. 1965); see also, Beeler v. Continental Casualty Co., 125 Kan. 441, 265 P. 57 (1928).
Both I.N.A. and Travelers have cited numerous cases from various states on both sides of this issue. For example, I.N.A. has noted that prejudice is immaterial in Alabama and South Carolina. American Liberty Insurance Co. v. Soules, 288 Ala. 163, 258 So. 2d 872 (1972); Bruce v. United States Fidelity & Guarantee Co., 277 F. Supp. 439 (D.S.C.1967). Nevertheless, we are assured that our decision requiring a showing of material prejudice before a carrier can deny coverage, although possibly the minority rule, represents the better-reasoned line of cases and the trend among the states today. See, e. g., Foundation Reserve Insurance Co. v. Esquibel, 94 N.M. 132, 607 P.2d 1150 (1980); Johnson Controls, Inc. v. Bowes, 409 N.E.2d 185 (Mass.1980); Great American Insurance Co. v. C. G. Tate Construction Co., 46 N.C.App. 427, 265 S.E.2d 467 (1980); American Record Pressing Co. v. United States Fidelity & Guaranty Co., 466 F. Supp. 1373 (S.D.N.Y.1979) (citing Michigan law); Colonial Gas Energy System v. Unigard Mutual Insurance Co., 441 F. Supp. 765 (N.D.Cal.1977); State Farm Mutual Automobile Insurance Co. v. Milam, 438 F. Supp. 227 (S.D.W.Va.1977); Brandywine One Hundred Corp. v. Hartford Fire Insurance Co., 405 F. Supp. 147 (D.Del.1975); Lusch v. Aetna Casualty & Surety Co., 272 Or. 593, 538 P.2d 902 (1975); Oregon Automobile Insurance Co. v. Salzberg, 85 Wash.2d 372, 535 P.2d 816 (1975); Leuckel v. Federal Insurance Co., 303 F. Supp. 407 (D.Vir.Islands 1969); Miller v. Lindgate Developers, Inc., 274 F. Supp. 980 (E.D.Mo.1967).
A decision requiring a showing of material prejudice requires a further determination regarding which party has the burden of showing the presence or absence of prejudice, for there is some difference regarding this issue among those jurisdictions requiring *1136 prejudice. Once it has been determined notice to the insurance carrier has been unreasonably late, some states place the burden of showing the absence of prejudice upon the insured. See, e. g., Tiedtke v. Fidelity & Casualty Co., 222 So. 2d 206 (Fla. 1969). Again, however, we are persuaded by the reasoning of the Pennsylvania Supreme Court in placing the burden on the insurance company to prove it has been materially prejudiced by late notice. Brakeman v. Potomac Insurance Co., 472 Pa. 66, 371 A.2d 193, 198 (1977). In this case the Pennsylvania Court placed the burden on the carrier because the carrier sought to work a forfeiture by disclaiming its liability under the policy, and because an insurance policy is "not a truly consensual agreement" in that most of its terms are adhesionary. Id. For these reasons, the Pennsylvania Court reasoned it was more equitable to place this burden on the insurance company rather than the insured.
Although in the instant litigation we have an insurance company seeking the benefit of an insured's policy against another carrier instead of the insured himself in court, it is still appropriate to set a general rule for this issue. Accordingly, this Court finds that at the trial of this case the defendant insurance company should have the burden of proving it was materially prejudiced by receiving notice of the July 31, 1969 accident over four years later. Although this Court recognizes such a delay would normally prejudice a carrier's position, in that witnesses might be unavailable, memories would have faded and the accident scene may have changed, for example, in this unusual case Travelers began its own investigation of the case immediately and thereby, according to Travelers' argument, protected the interests of I.N.A. Whether this is true is for the jury to decide.
Two final issues are raised by I.N.A. in its motion for a summary judgment. The first of these two issues is whether the Travelers suit against I.N.A. is barred by the statute of limitations. I.N.A. contends Travelers failed to file their lawsuit within the applicable three year limitation period provided in K.S.A. 60-512 for implied obligations on contracts. All of Travelers' legal theories, contribution, indemnity and subrogation, are based on the idea of an implied contract. I.N.A. argues that the limitations statute was triggered by Travelers' advance payments to Ostmeyer between September, 1969, and July, 1970, or at least by the date when Travelers knew Feld had coverage through I.N.A., as evidenced by Travelers' in-house memo dated November 30, 1972.
The rule in Kansas on when a cause of action for contribution accrues is that the right of contribution arises and becomes enforceable when the party seeking contribution pays more than its fair share of an obligation. Cipra v. Seeger, 215 Kan. 951, 953, 529 P.2d 130 (1974). In this case, the Kansas Supreme Court held no right to contribution arose where a judgment, although entered, had not yet been satisfied. Id. It follows that for the purposes of determining the beginning of a statute of limitations for an action based on contribution, the Court must look to the date a judgment has been satisfied. In the instant case, Travelers paid Ostmeyer's $165,500.00 jury verdict after it was awarded him on January 23, 1975. Although the exact date of payment of this judgment is not evident from the Court's file, it obviously occurred within three years of the date on which Travelers filed its suit against I.N.A., March 9, 1976. The fact that Travelers made advance payments to Ostmeyer in 1969 and 1970 is inconsequential for the purpose of determining whether the limitations period has run since the triggering date is when Travelers satisfied the Ostmeyer judgment.
The final issue raised by I.N.A.'s brief concerns whether the notice received by I.N.A. was inadequate because it was conveyed to it by Travelers rather than by I.N.A.'s insured, Feld. The I.N.A. policy required notice to be conveyed by the "insured" or by some agent "on behalf of the insured." Although Travelers does not address this issue in its legal memorandum in opposition to the summary judgment motion, Travelers does point out in its suggested findings of fact (Dkt. No. 68) that M.R.I. was an omnibus insured under the I.N.A. *1137 policy issued to Feld. The I.N.A. policy, AGP 08 91 15, contains a Comprehensive Automobile Liability Endorsement which defines "Insured" as the "Named Insured and ... any person while using an owned automobile or a hired automobile and any person or organization responsible for the use thereof, provided the actual use of the automobile is by the Named Insured or with his permission...." Since M.R.I. was the lessee of Feld, the named insured, it had Feld's permission to use the vehicle involved in the accident with Ostmeyer, and thus M.R.I. was also an insured under the I.N.A. policy. Moreover, since Travelers represented M.R.I. throughout the Ostmeyer litigation, it had authority to make a claim for M.R.I. against Feld and I.N.A. Consequently, I.N.A.'s contention that the notice conveyed was inadequate because it was given by Travelers also fails.
For all of the foregoing reasons, the motion by I.N.A. for a summary judgment is overruled. However, this Court does find as a matter of law that the notice given I.N.A. of the accident occurring July 31, 1961, was unreasonably late. In order to avoid liability under its liability insurance policy with Feld Car & Truck Leasing Corporation, I.N.A. has the burden of showing its interests were materially prejudiced by virtue of this fact. | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2388447/ | 591 F. Supp. 112 (1984)
Karl ZUCKERMAN, Plaintiff,
v.
HARNISCHFEGER CORPORATION, Henry Harnischfeger, James A. Mezera, Robert D. Teece, John P. Gallagher, Herbert V. Kohler, Jr., Ralph J. Kraut, Edward P. Lebens, and Donald Taylor, Defendants.
No. 81 Civ. 2000-CSH.
United States District Court, S.D. New York.
April 26, 1984.
*113 *114 Rabin & Silverman, New York City, for plaintiff; I. Stephen Rabin, New York City, of counsel.
Cleary, Gottlieb, Steen & Hamilton, New York City, for defendants Harnischfeger Corp., Henry Harnischfeger, James A. Mezera, and Robert D. Teece; Kirkland & Ellis, Chicago, Ill., of counsel.
Kimmelman, Sexter & Sobel, New York City, for defendants John P. Gallagher, Herbert V. Kohler, Jr., Ralph J. Kraut, Edward P. Lebens, and Donald Taylor; Coffield, Ungaretti, Harris & Slavin, Chicago, Ill., of counsel.
MEMORANDUM OPINION AND ORDER
HAIGHT, District Judge:
Plaintiff Karl Zuckerman brings this action on behalf of himself and other similarly situated purchasers of the common stock of defendant Harnischfeger Corporation ("the Company") to redress alleged violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j, and Rule 10b-5 promulgated thereunder, 17 C.F.R. 240.10b-5. The plaintiff class contemplated is comprised of those persons who purchased Harnischfeger stock during the period January 14, 1981 through March 31, 1981. Also named as defendants are the individual directors and officers of the Company during the period of the violations alleged. The case is presently before the Court on defendants' motion to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6) and 9(b). For the reasons stated, defendants' motion is granted.
I.
Factual Background
Harnischfeger Corporation is a publicly owned Delaware corporation engaged in the design, manufacture, and sale of heavy industrial machinery, including electric and hydraulic mining shovels, lifting and digging equipment, overhead traveling cranes, and automated material handling systems. Its principal place of business is Milwaukee, Wisconsin. During the period at issue in this litigation, trading activity in the Company's stock increased significantly on two occasions. On January 14, 1981, the closing price of Harnischfeger stock rose to 15¾ from the previous day's close at 13 7/8 . The number of shares traded increased from 251,000 on January 13 to 1,178,000 shares on January 14, 1981. On the afternoon of January 14, a Harnischfeger spokesman stated publicly that the Company knew of no corporate developments that would account for the surge in trading.[1] The high volume of trading continued for another day and thereafter declined sharply. From January 28, 1981 through March 24, 1981, the closing price for the Company's stock fluctuated from a low of 14 up to a high of 17 7/8 . (Def.Ex. A).
The second surge in trading at issue here occurred on March 25, 1981, when 3,487,000 shares of Harnischfeger were traded, a significant increase from the previous day's total of 273,000 shares. The closing price went from 17 7/8 on March 24 to 21 1/8 on March 25, 1981. Again, in response to the surge in trading, a spokesman for the Company stated that it was unable to attribute the increase in volume and price to any corporate developments.[2] Trading remained *115 heavy for several days, with the closing price peaking at 22 on March 27 and thereafter declining to 18¾ on March 31, 1981. (Def.Ex. A).
On April 1, 1981, the Company announced that it had reached an agreement in principle with Kobe Steel, Ltd. of Japan ("Kobe"), whereby Harnischfeger would sell to Kobe certain of its Japanese patents and certain know-how relating to construction equipment and Kobe would purchase one million shares of Harnischfeger common stock. This tentative agreement was subject to the approval of the companies' respective boards of directors. At the time of the announcement, trading in the Company's stock was temporarily suspended. The closing price that day, according to the complaint, was 16¼. (Comp. ¶ 15).
With these facts in mind, I turn to defendants' motion to dismiss.
II.
Motion to Dismiss
Defendants move to dismiss the complaint on various asserted grounds, including failure to plead fraud with particularity as required by Fed.R.Civ.P. 9(b) and failure to allege the various elements requisite to a § 10(b) cause of action. Section 10(b) of the Securities and Exchange Act of 1934 forbids manipulative or deceptive conduct "in connection with the purchase or sale of any security...." Rule 10b-5, promulgated thereunder, makes it unlawful for any person, directly or indirectly,
"(a) To employ any device, scheme, or artifice to defraud,
"(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
"(c) To engage in any act, practice, or course of business which operates or would operate was a fraud or deceit upon any person, in connection with the purchase or sale of any security."
Plaintiff alleges in the complaint that the Company's public statements on January 14, 1981, and March 25, 1981, disavowing any corporate developments that could account for the surge in trading on those dates, were "false and misleading announcements" which "caused the price of the Company's stock to rise to or remain at higher levels than if the true facts had been stated...." (Comp. ¶ 16). The misstatements alleged, which plaintiff now characterizes as "mixed misrepresentations and non-disclosures" (Pl.Br. at 15), involve defendants' failure to divulge publicly that the Company "was engaged or had determined to engage in negotiations with Kobe Steel ... to sell 1,000,000 shares of its stock to that company." (Comp. ¶ 14). Plaintiff concludes therefrom that purchasers of Harnischfeger stock during the period January 14, 1981 through March 31, 1981 have been damaged in that they "paid inflated prices for the stock." (Comp. ¶ 16).
Certain of the allegations set forth in plaintiff's complaint do not, in my view, satisfy Rule 9(b)'s specificity requirement, while the complaint as a whole is more fundamentally defective in that it fails to assert the elements necessary to an actionable claim under the securities laws. Rule 9(b) requires that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." This refinement of the Federal Rules' otherwise simplified pleading approach is intended to protect defendants from the substantial harm that could result from vaguely pleaded or speculatively based claims of serious wrongdoing. It further ensures that a defendant accused of fraudulent conduct will be fully apprised of the grounds upon which that claim rests. Ross v. A.H. Robins Co., Inc., 607 F.2d 545, 557 (2d Cir.1979), cert. denied, 446 U.S. 946, 100 S. Ct. 2175, 64 L. Ed. 2d 802 (1980), *116 rehearing denied, 448 U.S. 911, 100 S. Ct. 3057, 65 L. Ed. 2d 1140 (1980); Denny v. Barber, 576 F.2d 465, 469 (2d Cir.1978); Segal v. Gordon, 467 F.2d 602, 607 (2d Cir.1972). As stated by the Second Circuit: "[T]o pass muster in this Circuit a complaint `must allege with some specificity the acts constituting the fraud' [citation omitted]; conclusory allegations that defendant's conduct was fraudulent or deceptive are not enough." Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 114 (2d Cir. 1982). In the context of § 10(b) litigation, "plaintiff must allege acts indicating an intent to deceive, manipulate or defraud ..., and Rule 9(b) requires that the circumstances constituting such fraud be stated with particularity." Id. at 115. See Herman & MacLean v. Huddleston, 459 U.S. 375, 103 S. Ct. 683, 692, 74 L. Ed. 2d 548 (1983) ("[A] Section 10(b) plaintiff carries a heavier burden than a Section 11 plaintiff. Most significantly, he must prove that the defendant acted with scienter, i.e., with intent to deceive, manipulate, or defraud.").
Plaintiff's only allegation of the requisite "scienter" or "intent to deceive" is as follows:
"17. All of the defendants herein knew or were reckless in not knowing, or were negligent in knowing, that the statements complained of were false and misleading, and in authorizing, permitting or failing to take action to correct said statements." (Comp. ¶ 17).
Defendants correctly argue that negligence alone is insufficient to ground a § 10(b) claim, Chemical Bank v. Arthur Andersen & Co., 552 F. Supp. 439, 455 (S.D. N.Y.1982); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193, 96 S. Ct. 1375, 1381, 47 L. Ed. 2d 668 (1976), but incorrectly contend that, absent some fiduciary relationship, liability under § 10(b) cannot be premised on recklessness, regardless of whether the defendant is an "aider and abetter" or "primary wrongdoer." (Def. Reply Br. at 17). As stated by the Court of Appeals for this Circuit:
"This court has held that proof of reckless conduct meets the requirement of scienter in a section 10(b) claim, IIT v. Cornfeld, 619 F.2d [909] at 923. For the imposition of aider and abettor liability under section 10(b), however, we have held that recklessness satisfies the scienter requirement where `the alleged aider and abettor owes a fiduciary duty to the defrauded party,' Rolf v. Blyth, Eastman Dillon & Co., 570 F.2d [38] at 44." Sirota v. Solitron Devices, Inc., 673 F.2d 566, 575 (2d Cir.), cert. denied [459 U.S. 908] 103 S. Ct. 213 [74 L. Ed. 2d 170] (1982). See also Armstrong v. McAlpin, 699 F.2d 79, 91 (2d Cir.1983).
In ITT v. Cornfeld, 619 F.2d 909 (2d Cir. 1980), the case to which Sirota cites, the Second Circuit observed:
"Scienter. Recognizing that there can be no certainty on the subject until the Supreme Court fleshes out footnote 12 of Ernst & Ernst v. Hochfelder, 425 U.S. 185 [96 S. Ct. 1375, 47 L. Ed. 2d 668] (1976), we shall continue to follow our own decisions, see, e.g., Lanza v. Drexel & Co., 479 F.2d 1277, 1300-02 (1973) (en banc), as well as those of other courts of appeals with which we agree, that reckless conduct will generally satisfy the scienter requirement. However, there are special considerations in applying this general principle to aiders and abettors." Cornfeld, supra, 619 F.2d at 923.
In short, contrary to defendants' assertion, liability for recklessness under § 10(b) requires a fiduciary relationship only in the aiding and abetting context, where the defendant's participation is arguably more attenuated. This distinction is reiterated in Edwards & Hanly v. Wells Fargo Securities Corp., 602 F.2d 478 (2d Cir.1979), cert. denied, 444 U.S. 1045, 100 S. Ct. 734, 62 L. Ed. 2d 731 (1980):
"Finding a person liable for aiding and abetting a violation of 10b-5, as distinct from committing the violation as a principal, requires something closer to an actual intent to aid in a fraud, at least in the absence of some special relationship with the plaintiff that is fiduciary in nature."
Id. at 485 (emphasis added).
*117 Where, as here, plaintiff contends that "Harnischfeger and its directors were primary wrongdoers" (Pl.Br. at 21), recklessness may constitute sufficient scienter to sustain a § 10(b) violation. See Chemical Bank, supra, 552 F.Supp. at 457.
The theoretical availability of a § 10(b) cause of action predicated on reckless conduct does not, however, cure the serious deficiencies in ¶ 17 of the complaint. Certainly this species of grab-bag pleading cannot apprise the individual defendants of the fraud alleged against them. "Failing to take action" is significantly different from "authorizing" fraud, as is "knowledge" from "recklessness" or "negligence." As stated by one court: "At the very least, [Rule 9(b)] requires plaintiff to allege: (1) the nature of each individual defendant's participation in the fraud, including the facts constituting scienter...." Natowitz v. Mehlman, 542 F. Supp. 674, 676 (S.D.N.Y.1981). See also Goldberg v. Meridor, 81 F.R.D. 105, 111 (S.D.N.Y. 1979). A party charged with fraudulent conduct "is entitled to notice of the particular allegations on which the claim is based and is entitled to notice of the particular wrongs which he or she as an individual, as opposed to a member of a broad group ... is charged." O'Connor & Associates v. Dean Witter Reynolds, Inc., 529 F. Supp. 1179, 1197 (S.D.N.Y.1981). The "mere assertion that wrongful statements were made, without more, is wholly insufficient to support a claim of fraud." Juster v. Rothschild, Unterberg, Towbin, 554 F. Supp. 331, 334 (S.D.N.Y.1983).
A generous reading of the complaint suggests, at best, that defendants knew about the Kobe negotiations. However, given that the statements of January 14 and March 25 were not, contrary to plaintiff's characterization, "denials" of those negotiations, defendants' knowledge cannot be transmuted into an intentional effort to defraud investors for § 10(b) purposes. "To prove scienter, more than a conscious failure to disclose must be shown. Rather, there must be proof that the non-disclosure was intended to mislead." Reiss v. Pan American Airways, 711 F.2d 11, 14 (2d Cir.1983). See also State Teachers Retirement Board v. Fluor Corporation, 654 F.2d 843, 851 (2d Cir.1981).
Finally, plaintiff's statement that he believes the eight individual defendants "knew of the negotiations and adopted a policy of denial" but that "it is simply impossible for the plaintiff to know at this time whether he is correct" (Pl.Br. at 22) underscores the inadequacy of his pleading and the futility of granting leave to replead. Simply put, a plaintiff "must know what his claim is when he files it"; he "cannot rely on later discovery to rectify this defect...." Natowitz, supra, 542 F.Supp. at 676. Indeed, in the context of securities litigation, Rule 9(b) operates to diminish the possibility that a plaintiff with a largely groundless claim will be permitted to conduct extensive, costly, and time-consuming discovery, "with the right to do so representing an in terrorem increment of the settlement value, rather than a reasonably founded hope that the process will reveal relevant evidence...." Denny, supra, 576 F.2d at 470. See Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 115 (2d Cir.1982) ("Because the `in terrorem' effect of such unfettered discovery would, to say the least, be substantial, it is important that the wheat in plaintiff's pleading be separated from the chaff."). I conclude that the complaint fails to meet Rule 9(b)'s specificity requirement, an infirmity attributable more to the speculative nature of plaintiff's claim than to inartful pleading. Because I perceive additional deficiencies in the complaint sufficient to mandate dismissal, I need not address the question of whether leave to replead should be granted in this instance.
III.
Obviously central to the validity of a claim under Rule 10b-5(b) is an "untrue" or "misleading" statement. Defendants vigorously dispute the contention that the Company's January 14 and March 25, 1981 statements can fairly be characterized as *118 such. Noting that the first public announcement regarding the Kobe deal was not made until April 1, 1981, defendants argue that the two surges in trading which prompted their January and March statements cannot plausibly be regarded as a result of those as yet undisclosed discussions. In short, plaintiff cannot argue that "an undisclosed event affected stock market activity." (Def.Br. at 8). Thus, statements to the effect that the Company knew of no corporate developments "to account for" the increase in trading volume are, according to defendants, patently true. By the same token, since non-public negotiations could not account for the increase in trading, non-disclosure of those negotiations "could not constitute an omission to state a fact necessary to make statements actually made not misleading." (Def.Br. at 8-9).[3]
Apparently recognizing the surface appeal of defendants' argument, plaintiff now attempts to recharacterize the nature of the allegations made in the complaint by asserting, for the first time and in conclusory fashion, that the Kobe negotiations "triggered rumors of an impending corporate deal" (Pl.Br. at 2) which increased activity in the Company's stock. Once secrecy was breached, plaintiff argues, "even if those rumors were erroneous with respect to the specifics of the deal ... Harnischfeger's denial of any deal at all was false and misleading...." (Pl.Br. at 8-9).
First, I find rather perplexing plaintiff's contention that defendants denied the existence "of any deal at all." Certainly such an affirmative representation cannot be gleaned from the Company's circumscribed remarks. Further, plaintiff's shift in theory generates, in my view, certain inescapable inconsistencies. On the one hand, plaintiff alleges in the complaint that defendants' "false and misleading announcements caused the price of the Company's stock to rise or to remain at higher levels...." (Comp. ¶ 16). As already noted, however, the January 14 statement was proffered in response to the increased trading activity in Harnischfeger stock and the concomitant rise in price. In substance, the Company represented that it could not specifically account for the surge in volume. Such an after-the-fact statement elicited to explain a market phenomenon cannot logically be said to account for that phenomenon. Nor did the price of Harnischfeger common stock remain at a high level following the announcement; it began to decline within a day or two thereafter. (See Def.Ex. A).
Plaintiff's revised theory suggests that rumors of an impending deal with Kobe prompted the surge of trading and drove up the price of Harnischfeger stock. Yet the actual announcement of the Kobe deal, according to plaintiff, drove the price down. (Comp. ¶ 15). Aside from plaintiff's contradictory views on the market impact of the Kobe negotiations, which arguably make sense if the rumors were imprecise as to the actual nature of the deal contemplated, the belated intimation of marketplace rumors as the source of increased trading again belies the notion that defendants' statements caused the stock to reach "inflated" prices. In a supplementary letter to the Court, plaintiff's counsel states that, in response to these alleged rumors:
"Harnischfeger could have remained silent, or it could have explained the nature of the negotiations with Kobe, thereby preventing the rise and subsequent decline of the stock."
Plaintiff's position is again baffling. While acknowledging that the Company could permissibly remain silent in the face of rising prices, plaintiff goes on to argue that, once a statement was issued, defendants were obligated to disclose the negotiations to "prevent" the rise in price. Yet the Company did, in effect, remain silent *119 while the price of its stock increased, and the announcement offered in response to this price rise could not logically prevent it.
In rejecting the argument that a company was obligated to disclose the signing of a significant contract when "rumors became rampant and the price and volume of its stock shot upward," State Teachers Retirement Board v. Fluor Corp., 654 F.2d 843, 850 (2d Cir.1981), the Second Circuit stated that "[a] company has no duty to correct or verify rumors in the marketplace unless those rumors can be attributed to the company." Id. See also Weintraub v. Texasgulf Inc., 564 F. Supp. 1466, 1470 (S.D.N.Y.1983) (corporation has no duty to investigate the reasons for unusually heavy trading in its stock). Certainly no such attribution has been alleged here. Nor can it be said, as plaintiff now appears to suggest, that defendants' statements were intended to be comments on a specific rumor indeed, the complaint is devoid of any mention of rumors or defendants' knowledge of them much less a "denial that any negotiations were taking place...." (Pl. letter). Compare Schlanger v. Four-Phase Systems, Inc., 555 F. Supp. 535, 537 (S.D.N.Y.1977) (false and misleading statement sufficiently alleged where complaint asserted that rise in market price was the result of "a leakage into the marketplace of information relating to merger negotiations," that defendant knew the leak had in fact affected market price, and yet defendant stated that it was "not aware of any corporate developments which would affect the market for its stock."). Quoting the lower court's opinion in Fluor, 500 F. Supp. 278 (S.D.N.Y.1980), the Court of Appeals observed in its affirmance that "it is simply not realistic to say that a corporation may determine when it will release information and then hold it liable when its representatives make commentsas they inevitably will in the normal course of business that do not mention this information." Id. at 299.
The Second Circuit's recent decision in Reiss v. Pan American World Airways, 711 F.2d 11 (2d Cir.1983), is instructive in this regard. Plaintiffs in Reiss, holders of Pan Am convertible debentures that had been called, alleged violations of § 10(b) and Rule 10b-5 based on defendant's failure to disclose the existence of ongoing merger negotiations at the time of the call. They contended that if they had known of these negotiations, they would have converted their debentures into stock rather than selling them. The Court first noted that liability for non-disclosure "must rest on a showing that additional information should have been released so as to avoid `assertions ... so incomplete as to mislead' the debentureholders. Securities and Exchange Commission v. Texas Gulf Sulphur Co., 401 F.2d 833, 862 (2d Cir.1968) (en banc), cert. denied, 394 U.S. 976, 89 S. Ct. 1454, 22 L. Ed. 2d 756 (1969)." Reiss, supra, 711 F.2d at 13. The statements made must be viewed in light of the facts known to defendants at the time, and, significantly, "the fact that ultimate disclosure of the negotiations affected stock price is not compelling." Id. The Court went on to observe as follows:
"It does not serve the underlying purposes of the securities acts to compel disclosure of merger negotiations in the not unusual circumstances before us.... Such negotiations are inherently fluid and the eventual outcome is shrouded in uncertainty. Disclosure may in fact be more misleading than secrecy so far as investment decisions are concerned. We are not confronted here with a failure to disclose hard facts which definitely affect a company's financial prospects. Rather, we deal with complex bargaining between two (and often more) parties which may fail as well as succeed, or may succeed on terms which vary greatly from those under consideration at the suggested time of disclosure." Id. at 14 (citations omitted).
Here, the complaint alleges only that defendants were asked to comment on increased trading in the Company's stock. It does not suggest that they knew of rumors regarding a deal with Kobe, or that they were asked to confirm or deny such rumors. Given that disclosure of inchoate *120 corporate dealings is normally a matter of corporate discretion, defendants were not, under these circumstances, obligated to volunteer information about negotiations which they presumed to be non-public.
It is also difficult to ascertain from the complaint the requisite causal nexus between the Company's statements and plaintiff's purported injury. As the Supreme Court has made clear, § 10(b) and Rule 10b-5 are intended to afford redress only for injuries suffered as a result of deceptive practices "touching" or "in connection with" the purchase or sale of securities. Superintendent of Insurance of New York v. Bankers Life & Casualty Co., 404 U.S. 6, 12-13, 92 S. Ct. 165, 168-169, 30 L. Ed. 2d 128 (1971). In order to "restrict the potentially limitless thrust of Rule 10b-5 to those situations in which there exists causation in fact between the defendant's act and the plaintiff's injury," Wilson v. Comtech Telecommunications Corp., 648 F.2d 88, 92 (2d Cir.1981); see Titan Group, Inc. v. Faggen, 513 F.2d 234, 238-39 (2d Cir.1975), courts have generally looked to plaintiff's reliance on the alleged misrepresentations as a prerequisite to recovery. See Wilson, supra; Madison Consultants v. Federal Deposit Insurance Corp., 710 F.2d 57, 62 (2d Cir.1983); List v. Fashion Park, Inc., 340 F.2d 457, 462-63 (2d Cir.), cert. denied sub nom. List v. Lerner, 382 U.S. 811, 86 S. Ct. 23, 15 L. Ed. 2d 60 (1965). In the case of an affirmative misrepresentation, the inquiry is a bifurcated one: (1) Did plaintiff believe what defendant said?; and (2) Did that belief cause plaintiff to act? Simply stated, whatever semantic distinctions one might draw between the concepts of reliance and causation, a plaintiff must ultimately demonstrate that he purchased or sold stock because he was misinformed or uninformed, and that, properly informed, "he would have succeeded in preventing the loss he in fact suffered." Madison Consultants, supra, 710 F.2d at 65.
From the sparse allegations of the complaint, it is difficult to derive either of these essential elements. First, as defendants properly observe, the complaint does not indicate when plaintiff purchased stock in Harnischfeger, other than to state that his purchase took place sometime during the period January 14, 1981 to March 31, 1981. In his opposition brief, plaintiff states that he purchased shares on five separate occasions commencing on January 14, 1981 and concluding on March 25, 1981, and still retains these securities.[4] Yet given the critical importance of establishing that defendants' alleged misrepresentations were the cause of his loss, Madison Consultants, supra, 710 F.2d at 64, I find it troubling that plaintiff is so imprecise as to the timing of his purchases. Notably, both the January 14 and the March 25 Harnischfeger statements were issued in response to a period of intensified trading in the Company's stock. It is at least possible, even probable, that plaintiff participated in this trading surge and therefore cannot argue that statements issued late on those days caused his loss, or that he relied thereon. See Issen v. GSC Enterprises, 508 F. Supp. 1278, 1286 (N.D.Ill. 1981) (satisfaction of the "in connection with" requirement depends upon whether an investment decision remains to be made by the party from whom disclosure is withheld). Further, in my view, plaintiff has compounded rather than cured the deficiency in his pleadings by stating that he "at least arguably" purchased Harnischfeger shares after the March 25 announcement. (Pl.Br. at 14). The only inference I can reasonably draw from this vague assertion is that plaintiff is unsure of the timing of his purchase with respect to the alleged misstatement, a finding that inexorably leads me to conclude that his purchase of Harnischfeger stock on March 25 was in no *121 way prompted by the Company's announcement that day.
While plaintiff's purchases on February 6 and 9, and on March 10, unquestionably took place after the January 14 statement, the lapse of time between the statement and the purchases was considerable. As reflected in the trading records, the flurry of activity in Harnischfeger trading fell off precipitately after January 15 and returned to rather unremarkable levels. While the "in connection with" requirement of section 10(b) is to be construed flexibly rather than technically or restrictively, Superintendent of Insurance, supra, 404 U.S. at 12, 92 S. Ct. at 169, United States v. Newman, 664 F.2d 12, 18 (2d Cir.1981), some discernible nexus between the allegedly fraudulent conduct and the purchase of securities is required. Plaintiff here seeks to impose liability on defendant for an alleged misrepresentation made many weeks prior to his purchase of Harnischfeger stock and long after the surge in trading roughly contemporaneous with that statement had abated, without alleging his reliance on that statement.
Plaintiff seeks to skirt the necessity of demonstrating reliance by arguing that, in the instance of a non-disclosure versus an affirmative misrepresentation, it is not necessary to plead or prove reliance. While it is true that causation in fact may be established in instances of nondisclosure if "the facts withheld [are] material....," Affiliated Ute Citizens v. United States, 406 U.S. 128, 92 S. Ct. 1456, 31 L. Ed. 2d 741 (1971), the Supreme Court's reason for so holding is essential to an understanding of § 10(b) pleading requirements. As the Second Circuit has explained:
"[T]he Court [in Affiliated Ute] rather than abolishing reliance as a prerequisite to recovery, was recognizing the frequent difficulty in proving, as a practical matter, that the alleged misrepresentation, allegedly relied upon, caused the injury.... Unlike instances of affirmative misrepresentation where it can be demonstrated that the injured party relied upon affirmative statements, in instances of total non-disclosure, as in Affiliated Ute, it is of course impossible to demonstrate reliance...." Titan Group, Inc. v. Faggen, 513 F.2d 234, 238-39 (2d Cir.1975).
In Wilson v. Comtech, supra, the Court of Appeals dismissed the "omission" versus "misrepresentation" debate as question begging for purposes of establishing reliance: "The labels by themselves are of little help. What is important is to understand the rationale for a presumption of causation in fact in cases like Affiliated Ute, in which no positive statements exist: reliance as a practical matter is impossible to prove." Wilson v. Comtech, supra, 648 F.2d at 93. No such impossibility exists here. Positive statements do exist and plaintiff cannot escape the obligation of pleading reliance on those assertions he alleges were fraudulent. The complaint is completely deficient in this regard.
Nor am I persuaded by plaintiff's suggestion that the complaint adequately sets forth a "fraud on the market" or "market impact" theory, thereby obviating the need to plead reliance. While, as noted above, reliance has traditionally provided the causal nexus between the fraud alleged and the plaintiff's injury, certain recent cases have reformulated the reliance element to permit a plaintiff to rely on the integrity of the market rather than on a particular misrepresentation or omission. As stated by the Court of Appeals for the Tenth Circuit:
"The theory is grounded on the assumption that the market price reflects all known material information. Material misinformation will theoretically cause the artificial inflation or deflation of the stock price. At its simplest the theory requires only that a plaintiff prove purchase of a security and that a material misrepresentation was made concerning the security by the defendant which resulted in an artificial change in price." T.J. Raney & Sons v. Fort Cobb, Oklahoma Irrigation Fuel Authority, 717 F.2d 1330, 1332 (10th Cir.1983).
The Second Circuit's decision in Panzirer v. Wolf, 663 F.2d 365 (2d Cir.1981), vacated *122 on suggestion of mootness sub nom. Price Waterhouse v. Panzirer, 459 U.S. 1027, 103 S. Ct. 434, 74 L. Ed. 2d 594 (1982), delineates the parameters of the theory in this Circuit. The alleged fraud in Panzirer involved a false annual report which plaintiff concededly never read before purchasing stock in defendants' company. Plaintiff did, however, read and rely on an article in The Wall Street Journal which she claimed "would have presented the company in a less favorable light had the annual report been accurate." Id. at 366. The Second Circuit, rejecting the district court's distinction between "primary and secondary reliance" in a 10b-5 action, observed as follows:
"The function of requiring the plaintiff to show reliance in a 10b-5 action is to permit only those injured by fraud to sue. If plaintiff can link her injury to defendant's fraud by showing the fraud was a `substantial' or `significant contributing cause,' plaintiff has shown sufficient reliance to support her 10b-5 claim. Wilson v. Comtech Telecommunications Corp., 648 F.2d 88, 92 (2d Cir. 1981). Plaintiff has on this record stated a sufficient connection between her loss and the allegedly fraudulent annual report to withstand a motion for summary judgment." Id. at 367.
The Court went on to note that plaintiff had alleged a "chain of causation" sufficient to state a "claim of reliance on the misrepresentation or omission." Id. at 368. The fact that plaintiff "must trace her reliance on defendant's alleged fraud through the reactions of third parties does not vitiate her claim under 10b-5." Id.
Simply put, the market impact theory relied on by plaintiff does not eliminate the element of reliance but rather permits a more flexible construction of it. The notion is one of derivative reliance, which at a minimum requires that plaintiff allege that some market traders relied on the material deception asserted, thereby effecting a change in price, and that plaintiff justifiably relied on the integrity of the market in making his purchase decision. Pivotal to the fraud on the market theory is the assumption that market prices respond to disseminated information concerning the companies whose securities are being traded. As stated by one court:
"[E]conomists have now amassed sufficient empirical data to justify a present belief that widely-followed securities of larger corporations are `efficiently' priced: the market price of stocks reflects all available public information and hence necessarily, any material misrepresentations as well."
In re LTV Securities Litigation, 88 F.R.D. 134, 144 (N.D.Tex.1980).
The obvious difficulty with plaintiff's efforts to invoke the fraud-on-the-market theory is, again, that defendants' alleged misstatement was issued after the price rise in Harnischfeger had occurred, an increase that plaintiff himself now attributes to rumors in the marketplace which prompted speculative trading. Where the purportedly fraudulent representations concerning a company are not made prior to the market impact alleged, the fraud-on-the-market theory is not a viable one. In short, this is not an instance where "a material misrepresentation ... was made ... by the defendant which resulted in an artificial change in price." T.J. Raney, supra, 717 F.2d at 1332. At best, plaintiff's contention is that he purchased stock at already inflated prices because defendants failed to correct or clarify a misperception as to the nature of the negotiations underway with Kobe. But, as discussed above, plaintiff has not alleged that these rumors emanated from the Company or that defendants were even aware of them. Accordingly, defendants were under no obligation to disclose their discussions with Kobe or to launch an independent investigation into the possible reasons for the exceptionally heavy trading in Harnischfeger shares. Weintraub v. Texas-Gulf, Inc., 564 F. Supp. 1466, 1468 (S.D.N. Y.1983). Plaintiff's disappointment in the outcome of a speculative series of trades is not a sufficient basis for the serious securities violations alleged.
*123 CONCLUSION
For the reasons stated, defendants' motion to dismiss the complaint pursuant to Fed.R.Civ.P. 9(b) and 12(b)(6) for failure to plead fraud with particularity and for failure to state a claim upon which relief can be granted is granted.
The Clerk of the Court is directed to dismiss the complaint with prejudice and with costs.
It is SO ORDERED.
NOTES
[1] Defendants speculate that the January 14 trading surge might have been the result of takeover rumors, a hypothesis based on the fact that Harnischfeger has been the subject of two unsuccessful takeover bids in the past. On each of those occasions, the price of Harnischfeger stock fluctuated substantially. (Def.Br. at 5-6).
[2] Defendants now attribute the March 25 trading surge to a rumor of an impending takeover attempt by Fluor Corporation. On March 31, 1981, Fluor announced a bid for another company, thereby scotching these rumors. Defendants hypothesize that the decline in price of Harnischfeger stock beginning March 30 is attributable to speculators unloading their Harnischfeger shares in response to a change in marketplace information. (Def.Br. at 7, n. *).
[3] Notably, this is not a "disclose-or-abstain" case under Rule 10b-5. See Chiarella v. United States, 445 U.S. 222, 100 S. Ct. 1108, 63 L. Ed. 2d 348 (1979); United States v. Newman, 664 F.2d 12 (2d Cir.1981), cert. denied, ___ U.S. ___, 104 S. Ct. 193, 78 L. Ed. 2d 170 (1983). Plaintiff does not allege that defendants improperly traded on inside information which, by virtue of a fiduciary relationship, they had an obligation to disclose.
[4] The purchases alleged are as follows:
Date Amount Price
1/14 500 16 3/8
1/14 500 16½
2/6 500 16
2/9 1,000 16¾
3/10 1,000 16 1/8
3/25 1,000 18½ | 01-03-2023 | 10-30-2013 |
https://www.courtlistener.com/api/rest/v3/opinions/2373607/ | 139 F.Supp. 532 (1956)
Melvin M. MAURY and Mary Jane Maury, Plaintiffs,
v.
UNITED STATES of America et al., Defendants.
Civ. No. 33528.
United States District Court N. D. California, S. D.
April 4, 1956.
*533 Benjamin F. Marlowe, Oakland, Cal., for plaintiffs.
Lloyd H. Burke, U. S. Atty., Frederick J. Woelflen, Asst. U. S. Atty., San Francisco, Cal., for defendant United States.
OLIVER J. CARTER, District Judge.
Plaintiffs have moved to amend their first amended complaint by adding an alleged "Second Cause of Action." The material portion of the amendment is set forth in proposed paragraph II as follows:
"That as a direct and proximate result of the said carelessness and negligence of the said defendants and each of them as aforesaid, Michael Maury, minor son of plaintiffs, lost his life; that during the fire which destroyed the home of plaintiffs, plaintiffs were present; that plaintiffs with full knowledge that their child was in the said burning house, suffered extreme fright, shock and mental anguish; that as a direct and proximate result of said shock and mental anguish, plaintiff Mary Jane Maury suffered a nervous breakdown and has been confined in the hospital; that plaintiff suffered general damages as a result of said shock and mental anguish, in the sum of $100,000.00."
The first cause of action is for the wrongful death of the child and its propriety as a matter of pleading is not challenged.
This action is brought under the provisions of the Tort Claims Act, 28 U.S.C. § 1346(b), where an action may be brought against the United States, "* * * under circumstances where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurred." This occurrence is alleged to have taken place in California. Therefore the validity of the amendment must be determined according to the law of California.
The Government opposes the amendment asserting that it fails to state a cause of action under California law, and, therefore, fails to state a claim for relief under the Federal Rules of Civil Procedure, 28 U.S.C.A. The gist of the alleged claim is that plaintiffs were damaged in that they became physically ill from shock and mental anguish caused by the knowledge that their small child was being burned to death in a house which was burning because of the negligent conduct of agents of the defendant. In essence this is a claim for damages produced by shock from fear of danger or harm to another, where the danger or harm was caused by ordinary negligence, and where the claimant was not himself endangered or harmed.
That this field of tort law is not without conflict is illustrated by the following quotation from the Restatement of the Law of Torts, Vol. 2, p. 851, caveat to Section 313:
"The Institute expresses no opinion as to whether an actor whose conduct is negligent as involving an unreasonable risk of causing bodily harm to a child or spouse is liable for an illness or other bodily harm caused to the parent or spouse who witnesses the peril or harm of the child or spouse and thereby suffers anxiety or shock which is the legal cause of the parent's or spouse's illness or other bodily harm."
The general rule as stated in the legal encyclopedias seems to be contrary to plaintiffs' theory.
"No recovery may be had for mental anguish or wounded feelings of the parent by reason of injury to the child". 67 C.J.S., Parent and Child, § 55, p. 761.
"As a general rule, no recovery is permitted for a mental or emotional disturbance, or for a bodily *534 injury or illness resulting therefrom, in the absence of a contemporaneous bodily contact or independent cause of action, or an element of wilfulness, wantonness, or maliciousness, in cases in which there is no injury other than one to a third person, even though recovery would have been permitted had the wrong been directed against the plaintiff. The rule is frequently applied to mental or emotional disturbances caused by another's danger, or sympathy for another's suffering. It has been regarded as applicable to a mental or emotional disturbance resulting from an injury not only to a stranger, but also to a relative of the plaintiff, such as a child, sister, father, or spouse." 52 Am.Jur. 417.
"* * * such suffering [mental suffering] is not compensable if it is experienced by the plaintiff as the result of seeing or learning of an actual infliction of serious physical injury on a third party." 14 Cal.Jur.2d 679.
Plaintiffs, recognizing the general rule, assert that California does not follow the general rule, citing Deevy v. Tassi, 21 Cal.2d 109, 130 P.2d 389, and Lindley v. Knowlton, 179 Cal. 298, 176 P. 440. It is apparent that plaintiffs have misconceived the thrust of these cases, and have ignored the other California cases on the subject. Thus far the California courts have not permitted damages in any case where there was not some element of physical injury to, or reasonable fear of injury to the claimant, except in cases of intentional torts, outrageous conduct, or interference with some interest in real property. Where the mental distress, or physical illness resulting from mental distress, occurs as the result of intentional or outrageous conduct recovery is permitted.[1] Deevy v. Tassi, supra, upon which plaintiffs rely, falls within this class of cases, and is, therefore, clearly distinguishable from the case at bar. There the conduct which was held to be actionable was a violent physical assault on the members of a family in which all of the plaintiffs were physically injured by the intentional conduct of the defendants. Also, this case does not fall into the class where recovery has been allowed for mental distress caused by an invasion of a real property interest in which the plaintiff has reasonable fears for the health and safety of himself and members of his family.[2]
It is the opinion of the Court that this case is controlled by the California cases dealing with claims for mental distress caused by ordinary negligence where there is no fear of physical impact by the claimant, but where there is physical impact or fear of physical impact to a third person. This Court had previous occasion to review this subject in Minkus v. Coca Cola Bottling Co. of California, D.C.1942, 44 F.Supp. 10, where the Court dismissed a claim for nervous shock by parents suffered as the result of finding a partialy decomposed mouse in a bottle of Coca Cola, which had been partially consumed by their minor child. The Court said at page 11:
"Where peril to children or spouse causes fright, nervous shock or mental suffering, but where there is no physical impact. Under the general rule, no recovery is allowed."
The California cases support this conclusion. In Clough v. Steen, 1934, 3 Cal.App.2d 392, 39 P.2d 889, the court reversed a judgment allowing damages for grief and shock to a mother caused by the death of a minor child who was killed in an automobile accident in which she was also injured. The court said *535 at page 394 of 3 Cal.App.2d, at page 890 of 39 P.2d:
"It is well settled that, in an action for wrongful death, the recovery is limited to the pecuniary loss, and the grief of the survivor may not form the basis of an award (Munro v. [Pacific Coast] Dredging & Reclamation Co., 84 Cal. 515, 24 P. 303, 18 Am.St.Rep. 248); and no case nor rule of law has been brought to our attention which would support a recovery by plaintiff for the shock and grief, or injury consequent thereto, growing out of the knowledge of the death of her child. In the absence of such a right at common law or by statute, the plaintiff's recovery cannot be upheld. The detriment to plaintiff must naturally ensue from the act complained of, but here we find the injury to plaintiff ensuing from the sight of the dead child. The condition of the latter was the result of defendant's act, which impinged upon the child and not upon the plaintiff."
That case also distinguishes the case of Lindley v. Knowlton, supra, which is relied upon by plaintiffs here. The Court said at page 393 of 3 Cal.App.2d, at page 890 of 39 P.2d:
"Respondent relies on Lindley v. Knowlton, 179 Cal. 298, 176 P. 440, where plaintiff suffered physical injury due to fright while repelling an attack by a chimpanzee on plaintiff and her children, and on Cohn v. Ansonia Realty Co., 162 App.Div. 791, 148 N.Y.S. 39, where plaintiff was frightened when she saw her children accidentally ascending in an unattended elevator, fainted and was injured by falling into the elevator shaft. These and other cases sustain the rule that physical injury due to fright or shock is compensable. They are not authority, however, for an award of damages for injury due to learning of the death of another, even though that death has been due to negligence of the defendant."
This holding has been followed in Kelly v. Fretz, 1937, 19 Cal.App.2d 356, 65 P.2d 914, and Zeller v. Reid, 1940, 38 Cal.App.2d 622, 101 P.2d 730, and is in accord with Kalleg v. Fassio, 1932, 125 Cal.App. 96, 13 P.2d 763.
Therefore, plaintiffs' motion to amend must be denied.
It is ordered that plaintiffs' motion for permission to file a second amended complaint be, and the same is hereby denied.
NOTES
[1] State Rubbish, etc., Ass'n v. Siliznoff, 38 Cal.2d 330, 240 P.2d 282; Deevy v. Tassi, supra; Guillory v. Godfrey, 134 Cal.App.2d 628, 286 P.2d 474.
[2] Kornoff v. Kingsburg Cotton Oil Co., 1955, 45 Cal.2d 265, 288 P.2d 507; Herzog v. Grosso, 1953, 41 Cal.2d 219, 259 P.2d 429; Alonso v. Hills, 1950, 95 Cal. App.2d 778, 214 P.2d 50. | 01-03-2023 | 10-30-2013 |
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